AM Best Assigns Credit Ratings to Arkansas’ WoodStar Reciprocal Exchange
AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to WoodStar Reciprocal Exchange (WoodStar), based in Little Rock, Arkansas.
In addition, AM Best has assigned a Long-Term Issue Credit Rating of “bbb” (Good) to the $220 million, 9.5% fixed surplus notes, due 2041, issued by WoodStar. The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect WoodStar’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The surplus notes provided by third-party investors are intended to capitalize the de-novo organization and represent WoodStar’s policyholder surplus. In addition, the surplus notes are intended to support WoodStar’s initial premium growth and provide an additional layer of protection against volatility, as well as enhance the company’s financial flexibility.
The very strong balance sheet strength assessment is based on the company’s initial financing structure, which provides supportive risk-adjusted capital through the initial start-up period, as measured by Best’s Capital Adequacy Ratio (BCAR).
WoodStar’s balance sheet is further complemented by its conservative investment portfolio and the quality of its reinsurance. Limiting factors include some concerns with quality of capital as initial capitalization will come solely in the form of surplus notes, and its heavy reliance on reinsurance.
The company’s operating performance assessment anticipates results will fall within a range of reasonable and expected outcomes for a reciprocal exchange that will have a diverse population of managing general agents and credible reinsurance partners.
Partnering with Accelerant Holdings, WoodStar will write business by participating in the Accelerant Risk Exchange. WoodStar will provide insurance capacity to a select group of managing general agents sourcing specialty insurance coverage that has been vetted by and is actively monitored by Accelerant.
The company has an experienced management team and recognizes an available pipeline of opportunities. However, it is entering a competitive market and must develop differentiating traits while managing execution risk that is included in its profile.
AM Best recognizes the company’s planned implementation of ERM structures as a startup, including risk management and mitigation efforts and clearly defined reinsurance program provisions. WoodStar’s ERM assessment is based on the proposed risk management framework and culture, depth of understanding risk exposures and dedication to properly assessing risks on an ongoing basis.
Negative rating actions could occur if WoodStar’s risk-adjusted capital falls short of needs, actual operating results fall adversely outside the initial projections or risk appetite and tolerance levels prove to be inadequate for the company’s business profile.
Source: AM Best