AM Best has recently updated its assessment of Oxford Insurance Companies (Oxford), lifting the negative review designation and affirming a Financial Strength Rating (FSR) of A (Excellent) and Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) for its member entities.
The outlook for these ratings is now deemed stable.
Favorable Rating and Outlook
This favorable rating reflects the very strong balance sheet strength that AM Best attributes to Oxford, alongside its commendable operating performance and an effective enterprise risk management (ERM) strategy.
The company’s business profile is considered neutral, which further supports its ratings.
With a stable outlook, AM Best expresses confidence that Oxford will continue to deliver solid operational results while maintaining its impressive balance sheet strength across its various business segments.
Each of these segments is sufficiently capitalized and performs effectively.
Additionally, AM Best intends to monitor Oxford’s integrated pool for any unexpected shifts in risk appetite and tolerance levels.
Management Initiatives and Strategic Moves
The decision to lift the negative review status stems from proactive steps taken by Oxford’s management in recent months.
These initiatives have substantially mitigated the firm’s exposure to risks tied to key areas like judgment preservation and financial guarantee policies.
As of the end of 2024, Oxford anticipates a significant reduction in associated capital risk.
Despite one minor error, Oxford’s ERM framework remains robust, bolstered by its track record of outstanding underwriting performance and profitability since its establishment.
Back in 2024, AM Best had placed Oxford’s ratings under a negative review due to a shift in the company’s business model that began in late 2022.
During this period, Oxford ventured into writing large-limit, multi-year financial guarantee policies, which marked a departure from its traditional focus on smaller limits tailored for specialized coverages aimed at small and medium enterprises (SMEs).
This expansion into financial guarantees raised concerns about an increased risk profile, particularly in assessing tail risk and ensuring risk-based capitalization.
The multi-year loan guarantees offered to law firms involved in litigation finance led to a potential for considerable losses, which AM Best viewed as disproportionate to Oxford’s risk management framework.
Future Considerations
In response to these challenges, Oxford’s management acted decisively by winding down its judgment preservation and financial guarantee business over the past year.
In 2024, they launched a new Class 2 insurer in Bermuda to streamline the transfer of existing financial guarantee operations from the unified pool to the newly established entity.
This transfer occurred in November 2024, allowing Oxford to offload around 20 policies with close to $1.3 billion in limits while retaining only $170 million to adhere to Bermuda Monetary Authority requirements.
So far, this strategic maneuver has not resulted in any losses, as the collateral has consistently been valued at four to eight times the policy limits.
AM Best cautions that any changes in Oxford’s ERM could negatively impact its ratings.
Such changes might arise from delays or inaccuracies in quarterly reporting or from any unforeseen shifts in risk appetite that disconnect from corporate governance.
Additionally, failing to sustain adequate risk-adjusted capitalization across its operational segments in line with AM Best’s rating standards could also trigger negative rating actions.
The reaffirmed FSR of A (Excellent) and Long-Term ICRs of “a” (Excellent) apply to the following members of Oxford Insurance Companies, which are now removed from negative review status and carry a stable outlook:
- 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 reassessment reflects a significant turnaround, highlighting Oxford’s commitment to maintaining strong financial health and effective risk management practices.
Source: News.ambest
