WoodStar secures AM Best ratings as startup insurer issues $220 million surplus notes

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WoodStar secures AM Best ratings

Highlights

AM Best assigns WoodStar Reciprocal Exchange a Financial Strength Rating of A-, a credit rating of a-, and rates its $220 million, 9.5% fixed surplus notes due 2041 at bbb, all with stable outlooks.
WoodStar's 32.4% adjusted financial leverage and initial capitalization rely solely on surplus notes provided by third-party investors, with AM Best granting 90% equity credit to these notes.
AM Best notes WoodStar's strong balance sheet and experienced management but highlights risks from heavy reinsurance dependence, sole surplus note capitalization, and operational execution challenges in a competitive market.

Ratings support launch capital and underwriting plan

As reported by AM Best, WoodStar Reciprocal Exchange receives a Financial Strength Rating of A- and a Long-Term Issuer Credit Rating of a-, while its $220 million, 9.5% fixed surplus notes due 2041 receive a Long-Term Issue Credit Rating of bbb. The outlook on all of the ratings is stable.

AM Best says the ratings reflect WoodStar's very strong balance sheet strength, along with adequate operating performance, a neutral business profile and appropriate enterprise risk management. The insurer's surplus notes, provided by third-party investors, are intended to capitalize the de-novo organization and represent policyholder surplus.

The notes are also meant to support initial premium growth, provide an added layer of protection against volatility and improve financial flexibility. Following the issuance, WoodStar's adjusted financial leverage stands at 32.4% by AM Best's calculation, which includes 90% equity credit for the surplus notes, and interest coverage by year five would be considered adequate.

Reinsurance dependence and execution risks remain in focus

AM Best bases its very strong balance sheet assessment on WoodStar's initial financing structure, which it says provides supportive risk-adjusted capital through the startup period as measured by Best's Capital Adequacy Ratio. The rating agency adds that the balance sheet is supported by a conservative investment portfolio and the quality of the company's reinsurance, although it flags capital quality concerns because initial capitalization comes solely from surplus notes and because the company relies heavily on reinsurance.

For operations, AM Best expects results to fall within a reasonable range for a reciprocal exchange working with a diverse group of managing general agents and established reinsurance partners. Through its partnership with Accelerant Holdings, WoodStar plans to write business by participating in the Accelerant Risk Exchange and to provide insurance capacity to selected managing general agents sourcing specialty coverage monitored by Accelerant.

AM Best says WoodStar has an experienced management team and sees a pipeline of opportunities, but it is entering a competitive market and still must build differentiating traits while managing execution risk. The agency adds that negative rating actions could follow if risk-adjusted capital falls short of needs, operating results materially miss initial projections, or risk appetite and tolerance levels prove inadequate for the insurer's business profile.

In our earlier article on Cook County’s bond rating upgrade, we covered how an improved credit assessment reflected stronger fiscal stability, budget discipline, and management practices. We also noted that a higher rating can bolster market confidence, support borrowing capacity, and lower perceived credit risk for investors.

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