In a move that likely portends the beginning of the smart money exodus from California workers comp, Employers Direct Insurance Company (EDIC) minutes ago announced its exit from the California market. The carrier will continue writing business in Arizona and Nevada and some of the other states in which it is licensed.  As a result of and following the announcement of its strategy, AM Best downgraded the carrier from A- excellent to B++ Good. 

Jim Little president of the carrier, explained to Workers' Comp Executive, that EDIC's rates are up there with Zenith's, State Fund's, and Berkshire Hathaway's "so we're substantially higher than our less sophisticated competitors. Our strategy is to lay low for a while and not to attempt to renew with rates that are 50% higher than some of those 'non-household' names."

"We can’t get our price so it doesn’t make sense to keep doing this. We intend to be here when the market conditions return to normalcy. So we’re not going away we’re just not going to participate in this total insanity."  But looking to a brighter future, Employers’ is investing a lot of capital – in the millions - retooling its systems and procedures so it is ready to return when market conditions are right.  It has the full support of its parent Allegany Corporation (NYSE: Y), Little says.

Little cited several factors for its California market withdrawal prime among them is how "astoundingly low some out of state writers who are using TPAs and MGAs are willing to go," Little says. "This looks like 1999-2000 all over again." 

Other factors for its temporary withdrawal include skyrocketing medical costs, the potential for adverse and expensive decisions from the WCAB in Almaraz/Guzman & Oligivie, and an ever increasing need for rate increases.

AM Best for its part says that its rating actions "follow EDIC’s announcement today that it has decided to stop soliciting business in California until market conditions improve ... 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..."

Industry reaction ranges from startled to not surprised.

Rachel Cameron of the Governor’s office was unaware of the situation.

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