Employers Direct Recommits to California, This Time With Independent Producers

Weeks after announcing plans to leave the California market, workers' compensation writer Employers Direct Insurance Co. made a deal to continue operating in the state through agents and brokers.

The insurer signed an agreement to sell the renewal rights of its direct placed workers' compensation insurance policies to GNW-Evergreen Insurance Services, LLC. GNW-Evergreen will act as EDIC's producers in California, Arizona and Nevada following the close of the sale.

In June, Agoura Hills, Calif.-based EDIC announced a decision to stop soliciting business in California until market conditions improve and to discontinue its direct operations in the third quarter of 2009.

In response, A.M. Best Co. downgraded EDIC's financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit rating (ICR) to ?bbb+? from ?a-.? The outlook for the ICR was negative, and the outlook for the FSR has been revised to stable from negative (BestWire, June 30, 2009). However, A.M. Best also said that EDIC?s ratings reflect its adequate capitalization and the benefits derived from being part of Alleghany Corp. (NYSE: Y). The ratings also recognize the $50 million capital contribution made by Alleghany in 2007, the allocation of resources to support and enhance Employers Direct Insurance Company operations in light of EDIC?s recent operating challenges and Alleghany?s financial flexibility and historical track record of profitably operating well capitalized insurance subsidiaries.

Predicting a smooth transition, EDIC President and CEO James E. Little noted that several of EDIC's former producers and customer service staff recently joined Encino, Calif.-based GNW-Evergreen. "Our partnership with GNW-Evergreen is a critical first step in implementing our distribution plans throughout the Western United States through independent agents and brokers," Little said in a statement.

This month, California's Workers' Compensation Insurance Rating Bureau approved a rate filing with a 22.8% increase in the claims cost benchmark, to be effective Jan. 1, 2010. An evaluation of March 31, 2009, loss experience determined an increase in the claims cost benchmark of 16%, primarily due to increased medical costs. The WCIRB projects the impact of three Workers' Compensation Appeals Board decisions ? Ogilvie vs. City and County of San Francisco, Almaraz vs. Environmental Recovery Services and Guzman vs. Milpitas Unified School District ? to merit an additional 5.8% increase (BestWire, Aug. 14, 2009).

Attempts to reach an EDIC spokesperson for comment were not immediately successful.

Employers Direct Insurance Co. currently has a Best's Financial Strength Rating of B++ (Good) with a stable outlook.

Shares of Alleghany Corp. were trading at $271.60 in mid-day trading on Aug. 27, down 0.42% from the previous close.

The top five writers of workers' compensation in California in 2008, according to A.M. Best state/line data, were: State Compensation Insurance Fund of California, with 22.6% market share; American International Group Inc., with 7.6%; Liberty Mutual Insurance Cos., with 6.7%; Travelers Group, with 6.3%; and Berkshire Hathaway Insurance Group, with 5.7%.