I'm having a hard time understanding where the ends of wires (and how many wires) are connected but it sounds like you are now saying there are 2 wires. The end of one wire is at the AC panel on the ground buss? The end of the other wire is the lug on the engine frame? The 2 wires are joined with a crimp for a ring connector and hanging loose? So they didn't even use a butt connector?!?!
If this is the case, it is a simple AC panel ground to the engine block, which would also be taking the ground from the DC system. I suppose this functions as a normal AC ground connection to the engine block, as you should have. I have a single green, stranded grounding wire (maybe 8 AWG but I'm not certain) terminating on one end at the AC panel ground buss and the other end terminating at the negative DC ground buss, which in turn is grounded to the engine block with a single cable.
I suppose there is no urgent need to replace it, but, yes, yank out the old and properly install a new ground for your own satisfaction.