AM Best Revises Outlooks to Negative for Members of Oregon Mutual Group

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Oregon Mutual Insurance Company and Western Protectors Insurance Company, which are domiciled in McMinnville, OR and members of Oregon Mutual Group.

The Credit Ratings (ratings) reflect Oregon Mutual Group’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The revised outlooks to negative reflect pressure generated from material surplus erosion and increasing modeled net probable maximum losses from catastrophes, both negatively influencing the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Furthermore, underwriting leverage metrics shifted unfavorably and remain elevated compared with the private passenger standard auto and homeowners composite. Loss reserve development remains hindered by macroeconomic conditions that are increasing the expected severity of claims. Overall, these pressures challenge the current overall balance sheet strength assessment; however, management has implemented robust corrective actions that are expected to improve the health of the balance sheet in near term. Specifically, these plans include exiting the bulk of personal lines business, which has driven underwriting losses in recent periods. In connection with the exit, underwriting leverage is expected to improve and net probable maximum losses to reduce given the non-renewal of property exposures over the coming year. The refined portfolio is expected to improve management’s ability to govern overall exposures and its impact on modeled losses and performance.

Oregon Mutual Group’s operating performance remains marginal, driven by volatility in underwriting results due to weather events and above-average expenses, in part related to ongoing system conversion costs. AM Best views the group’s business profile as neutral given its long-standing market presence in the Pacific Northwest. However, the analytical team will continue to monitor the impact the personal lines exit has on the book of business, with the group shifting focus to more profitable commercial lines. AM Best considers the ERM program to be appropriate for the group’s risk profile.

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