trending Market Intelligence /marketintelligence/en/news-insights/trending/aZHrePeIIMhk6kWVYCz6vA2 content esgSubNav
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us
In This List

Federated Mutual to launch new subsidiary to target E&S-type risks

Infrastructure Issues: Tools to Dig Deep on Potential Risks

Part Two IFRS 9 Blog Series: The Need to Upgrade Analytical Tools

2018 US Property Casualty Insurance Market Report

Fintech

Fintech Funding Flows To Insurtech In February


Federated Mutual to launch new subsidiary to target E&S-type risks

plansto launch a third property and casualty company within its domestic group to targethigher-risk business that might otherwise go to the excess-and-surplus lines market.

The companyreported in the management's discussion and analysis section of its 2015 , as obtained April1 by S&P Global Market Intelligence, that it plans to establish Federated ReserveInsurance Co. with $3 million of base capital to be supplemented by between $50million and $60 million in additional paid-in capital.

FederatedMutual applied for the Federated Reserve Insurance service mark in October 2015,and the U.S. Patent and Trademark Office published it for opposition March 29, accordingto the agency's database. The MD&A indicates that Federated Mutual planned tohave completed and submitted licensing paperwork to the state of Minnesota in Februaryand it expects the approval process to take up to six months.

Throughsummer 2016, Federated Mutual said, it expects to begin preparing to file forms,rates and rules. It has targeted year-end 2016 for the submission of initial applicationsto all states.

FederatedMutual and wholly owned subsidiary FederatedService Insurance Co. have been party to a pooling arrangement sinceJanuary 2000 in a 90%/10% split between the former company and the latter. The poolingagreement will be revised to incorporate the launch of Federated Reserve Insurance,whereby Federated Service Insurance and Federated Reserve Insurance will share inratios of 7.5% and 2.5%, respectively, in all underwriting premiums, losses andexpenses of the group.

It isnot the first effort by Federated Mutual to pursue what might be considered nontraditionalmeans of expansion. The Federated Mutual filing said that a Cayman Islands-domiciledcaptive, Federated Ltd., had gone live in April 2014 and ended 2015 with 11 accountsand more than $6 million of associated premium. Several years earlier, FederatedMutual made its first-ever acquisition by buying renewal rights to the P&C business of AmericanHardware Mutual Insurance Co. in select states.

FederatedMutual said in the MD&A that the renewal-rights deal had been profitable, andit is "actively open to another acquisition opportunity."

The groupas consolidated by S&P Global Market Intelligence generated a net underwritinggain of $101.3 million in 2015, down from $118.5 million in 2014 but well abovethe results it produced on an annual basis from 2007 through 2013. Federated Mutualsaid in the MD&A that a loss in the group health business partially offset thesecond-highest underwriting profit for the P&C business in the company's history.

The companyfurther reported 10% growth in commercial P&C premiums in 2015, highlightedby an 85% premium retention rate, a 17% increase in premium audit results, a 12%rise in new business and a 3% improvement in renewal pricing.

"Pleasenote it will be essential for Federated to maintain its renewal pricing momentuminto 2016," the company said in the filing. It projects that underwriting resultswill decline slightly in 2016, but added that the combined ratio should remain "veryprofitable compared to historical trends." In 2015, the group's statutory combinedratio of 92.6%, as calculated by S&P Global Market Intelligence, marked an increasefrom 90.1% in 2014, and Federated Mutual said that results benefited from "negligiblecatastrophe losses and much better than expected favorable loss development patterns.

The companyprojects that premium growth will remain positive in 2016, albeit at a slower pacethan that achieved in 2015. Group-level direct and net premiums written, as calculatedby S&P Global Market Intelligence, increased by 11.4% and 9.9%, respectively,on a year-over-year basis. It was the second time in the past three years that thegroup achieved double-digit growth in direct premiums written.