Press Release|Insurance

KBRA Affirms Ratings for Oregon Mutual Insurance Company and Revises Outlook to Negative

20 Nov 2023   |   New York


KBRA affirms the insurance financial strength ratings (IFSR) of A- for Oregon Mutual Insurance Company (OM), and its wholly-owned subsidiary, Western Protectors Insurance Company (WesPro). The Outlook for both ratings has been revised to Negative from Stable.

The change in Outlook from Stable to Negative reflects the deterioration in overall and risk-adjusted capitalization from ongoing underwriting losses in recent years with a significant loss in 2022. Although KBRA recognizes the potential benefits and expected improvement in operating performance from the decision to exit personal lines, the benefits of these actions need to materialize in improved financial metrics over the next 12 to 24 months. Positively impacting the ratings are OM's strong local market knowledge with many long-standing agency relationships, strong reinsurance program, adequate risk-adjusted capitalization, conservative investment portfolio and moderate premium leverage. Additionally, OM’s decision in 2022 to exit its personal lines business is expected to result in increased profitability through improved underwriting, as well as an expedited IT conversion process due to the simplified company structure. Factors negatively impacting the ratings are persistent underwriting losses reported in the last five years driven by poor personal lines results and an elevated expense structure, OM's exposure to event risk, heavy reliance on reinsurance and geographic concentration. Ongoing legacy systems conversion issues have elevated the company’s expense ratio and resulted in cost overruns. However, KBRA notes that OM continues to make progress on its new policy administration system which, once completed, is expected to realize material cost savings. OM’s exposures are concentrated in the Pacific Northwest and California, which is somewhat offset by the vast and diverse geography of the region. Factors that could positively impact the rating include: favorable capital trends over an extended period, sustained growth in earnings, including underwriting and expense improvements, or a favorable change in risk profile. Factors that could negatively impact the ratings include: significant further deterioration in capitalization, failure to meet projections provided to KBRA, material catastrophe losses, departure of key members of the management team, failure to maintain an effective reinsurance program, or an unfavorable change in risk profile.

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