AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “bbb” (Good) from “a-” (Excellent) of Oregon Mutual Insurance Company and Western Protectors Insurance Company, which are domiciled in McMinnville, OR and collectively referred to as Oregon Mutual Group. The outlooks assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Oregon Mutual Group’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating downgrades reflect the weakening in Oregon Mutual Group’s balance sheet metrics primarily driven by surplus erosion, which has occurred for three consecutive years, leading to deterioration in overall risk-adjusted capitalization and leverage metrics. Surplus deterioration in 2024 was primarily the result of significant adverse loss reserve development in both commercial and personal lines, the latter of which the group exited in 2022. Since year-end 2021, the last year the group reported surplus growth, capital declined by 38.5%, from a 10-year high of $82.7 million to a 10-year low of $50.9 million. To mitigate the impact and for surplus relief, Oregon Mutual Group implemented a net quota share in 2024, which lowers net premium and reserve balances. Nonetheless, net underwriting metrics remain above composite averages and reinsurance dependency as measured by ceded reinsurance leverage dramatically increased year over year.
Oregon Mutual Group strategically narrowed its portfolio to focus on commercial multi-peril and commercial auto coverages, with over half the book now in California on a direct written premium basis. California has historically had a challenging regulatory environment. The group has a very small market share within the state, as much of the segment is captured by larger, national writers. Furthermore, while management has attempted to upgrade its policy administration system, hurdles have delayed the project, which started back in 2013, causing the group to pivot between multiple vendors over a number of years. The most recent plan involves developing an in-house, cloud-based model. Delays have prevented the group from leveraging more sophisticated tools and processes as it relates to pricing and claims.
Oregon Mutual Group’s operating performance is assessed as marginal due to volatile underwriting results in recent years that have been driven by weather and economic and social inflations. While the group has undertaken initiatives to improve profitability, recent results have trailed its peer composite. Oregon Mutual Group’s underwriting and operating ratios, as well as the return-on-revenue and return-on-equity measures, compare unfavorably to the composite averages. The group’s ERM is assessed as appropriate relative to its risk profile with the structure formalized within the organization and led by a risk management committee. In light of capital erosion, management has been active in pursuing solutions to right-size positions, which has led to the aforementioned quota share implementation.
Discover the latest trends and insights—explore the Business Insights Journal for up-to-date strategies and industry breakthroughs!
