What is a certificate of authority in the context of insurance companies?

A certificate of authority is a formal document issued by a state regulatory agency that grants an insurance company the legal permission to operate within that state. This document signifies that the insurer has met all regulatory requirements set forth by the state's insurance department, including financial solvency, compliance with state laws, and the establishment of consumer protections.

Having a certificate of authority is essential for any insurance company that wishes to conduct business in a specific state, as it helps ensure that companies adhere to local regulations and standards designed to protect policyholders. The issuance of this certificate emphasizes the regulatory oversight that insurance companies are subject to, which is crucial for maintaining trust and stability in the insurance market.

The other options do not appropriately define the certificate of authority. It is not a federal license, an informal agreement, or a document related to a company's financial strength, thus highlighting the specificity and importance of the state-level licensure that the certificate represents.