OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit rating (ICR) to "bbb+" from "a-" of Employers Direct Insurance Company (EDIC) (Agoura Hills, CA). The outlook for the ICR is negative, and the outlook for the FSR has been revised to stable from negative.

These rating actions follow EDIC's announcement today that it has decided to stop soliciting business in California until market conditions improve and to discontinue its direct operations in the third quarter of 2009. The rating actions also reflect the continued adverse reserve development on workers' compensation liabilities from prior accident years and the challenges associated with the competitive market conditions in the California workers' compensation marketplace, which are magnified by the shortcomings in the company's direct distribution business model.

Notwithstanding, EDIC's ratings reflect its adequate capitalization and the benefits derived from being part of Alleghany Corporation (Alleghany) (headquartered in New York, NY) (NYSE:Y). The ratings also recognize the $50 million capital contribution made by Alleghany in 2007, the allocation of resources to support and enhance 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.


A.M. Best will closely monitor EDIC's results to ensure that its risk-adjusted capitalization remains supportive of its ratings.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.



A.M. Best Co.

Analysts

Duncan McColl, 908-439-2200, ext. 5826

duncan.mccoll@ambest.com

or

Joseph Roethel, 908-439-2200, ext. 5630

joseph.roethel@ambest.com

or

Public Relations

Jim Peavy, 908-439-2200, ext. 5644

james.peavy@ambest.com

or

Rachelle Morrow, 908-439-2200, ext. 5378

rachelle.morrow@ambest.com

Source: A.M. Best Co.