A.M. Best Upgrades Ratings of Federated Rural Electric Insurance Exchange

Fri Mar 29, 2013 10:48am EDT

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OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from
A- (Excellent) and issuer credit rating to "a" from "a-" of Federated Rural
Electric Insurance Exchange (FREIE or the Exchange) (Lenexa, KS). The outlook
for both ratings has been revised to stable from positive. 

This rating action reflects FREIE`s strong capitalization, consistently
favorable operating performance and firmly established market position as a
specialty writer for rural electric cooperative utilities and rural telephone
systems. These positive rating factors are derived from the Exchange`s prudent
underwriting standards, firm pricing within its major books of business, strict
loss control processes and strong relationships with its insureds. 

Partially offsetting these positive rating factors are FREIE`s limited business
scope and modest adverse loss reserve development on its core lines of business
for certain prior accident years. However, loss reserve development has been
favorable in more recent years. Although FREIE is susceptible to claims
severity, this exposure is somewhat mitigated by an active management that is
combined with a comprehensive reinsurance program. The Exchange continues to be
supported by the National Rural Utilities Cooperative Finance Corporation (CFC).
CFC holds the Exchange`s surplus note and has demonstrated its commitment
through its willingness to be flexible with the terms of the note. In addition,
the business concentration is partially offset by FREIE`s geographic spread of
risk. A.M. Best believes that both earnings and surplus will continue to grow
modestly but without the volatility typically seen in most insurers` results. 

The ratings could be downgraded or the outlook lowered if operating performance
falls markedly short of A.M. Best's expectations, including if a significant
spike in losses jeopardizes FREIE's risk-adjusted capital position. 

The methodology used in determining these ratings is Best`s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best`s rating
process and contains the different rating criteria employed in the rating
process. Key criteria utilized include: "Catastrophe Analysis in A.M. Best
Ratings"; "Equity Credit for Hybrid Securities"; "Risk Management and the Rating
Process for Insurance Companies"; "Understanding BCAR for Property/Casualty
Insurers"; and "The Treatment of Terrorism Risk in the Rating Evaluation."
Best`s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology. 

A.M. Best Company is the world's oldest and most authoritative insurance rating
and information source. For more information, visit www.ambest.com. 

Copyright © 2013 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Scott Dodd
Financial Analyst
(908) 439-2200, ext. 5582
scott.dodd@ambest.com
or
Gerard Altonji
Assistant Vice President
(908) 439-2200, ext. 5626
gerard.altonj@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com



Copyright Business Wire 2013

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