AM Best Removes From Under Review With Developing Implications and Affirms Credit Ratings of Oxford Insurance Companies’ Members

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) for the members of Oxford Insurance Companies (Oxford). The outlook assigned to these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies and ratings).

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

The stable outlooks reflect AM Best’s expectations that organizationally integrating Oxford with a revised underwriting process should enhance its offerings and reinforce Oxford’s niche position in the market, providing customized, hard-to-place coverages for small to medium enterprises (SMEs) in unincorporated cell structures. Further synergies and operational benefits in underwriting and governance could be a net positive as well. AM Best also expects any new growth from its revised underwriting process will be selective and measured. Oxford will continue to generate strong operating results and maintain very strong balance sheet strength across its platform and respective cells. The active cells remain very strongly capitalized individually and collectively with strong operations. AM Best will continue to monitor future developments in Oxford’s discontinued legacy book and any unexpected deviations in risk appetite and tolerance.

The removal from the under review status reflects AM Best’s cognizance that Oxford’s Unified Risk Pool is satisfactorily indemnified from large exposure to complex financial guarantee policies. In conjunction with Brown & Brown, Inc.’s recent assumption of control of Oxford, an escrow fund was established with $750 million to cover losses and expenses related to the financial guarantee policies. The establishment of the escrow fund also provides a modest annual, non-cumulative, discretionary retention to the Unified Risk Pool through 2030.

As Oxford reverts to its very successful, historical cell insurance template offering approximately 70 coverages to SMEs for unique, difficult to place insurance to nearly 500 active cells with relatively low limit profiles, AM Best expects profitability of the combined cell platform to remain strong. Underwriting is based on actuarially derived pricing and responsible loss prevention and claims management, as cell owners have “skin in the game” in repaying a portion of their own respective claims before accessing the Unified Risk Pool for the balance of their claims. Capitalization of all cells is monitored continuously to ensure each cell can appropriately support its participation in the Unified Risk Pool.

ERM is assessed as marginal and largely stems from Oxford's recent missteps with respect to its financial guarantee business, which reflected a weakness in internal controls, governance and general transparency. The marginal assessment also reflects the uncertainty regarding the ultimate orderly run-off of these multi-year policies, as well as the introduction of new products expected from Arrowhead Specialty, which Oxford has been aligned with under the Brown & Brown, Inc. integration. The potential benefits and synergies to be gained by Oxford through Brown & Brown should, over time, provide some added risk management and oversight enhancements that are not currently considered in this assessment.

Negative rating action could occur if AM Best’s perception of Oxford's business profile and strategy weakens as reflected in significantly lower cell formations, higher exits/dormancies, or significant changes in limits profiles. Negative rating action could also occur if Oxford fails to maintain appropriate risk-adjusted capitalization across its active cells and unified pool in accordance with AM Best's rating methodology. Conversely, positive rating action could occur if Oxford’s aggregate exposure to financial guarantee policies were meaningfully reduced or further mitigated and management's risk appetite and limits profile reverts to those of the group’s original business.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been removed under review with developing implications, affirmed and assigned stable outlooks for the members of Oxford Insurance Companies:

Oxford Insurance Company LLC
Oxford Insurance Company TN LLC
Oxford Insurance Company NC LLC
Oxford Insurance Company MT LLC
First Community Bankers Insurance Company, LLC

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.