Best Rates EDIC Comp Firm 'A-Minus'

A.M. Best Co. said Employers Direct Insurance Company (EDIC), a California-based specialty workers' compensation carrier recently acquired by Alleghany Corp., has been given a financial strength rating of "A-minus" (excellent).

The Oldwick, N.J., rating firm also announced it has assigned EDIC of Agoura Hills, Calif., an issuer credit rating of "a-minus."

Best said the outlook is stable for both ratings on the firm, which became a subsidiary in July of Delaware-domiciled Alleghany Corp. holding company.

Best said the ratings reflect "the implicit and explicit support provided by Alleghany to EDIC and EDIC's recent success, albeit abbreviated, as a specialty direct workers' compensation insurer in California."

EDIC's new ratings also recognize the benefits gained from EDIC's "effective low cost, customer-centric business model and the timeliness of EDIC's entry into California's workers' compensation market at a time of capacity shortages, favorable legislative reforms and price firming," Best said.

The rating firm noted that EDIC has produced net profits in each of the past three calendar years and currently ranks among the top 25 workers' comp insurers in California.

Best said that long-range execution and cycle management are critical for EDIC as competitive pressures within the workers' comp sector begin to mount, particularly in California. EDIC, it was noted, is a relatively new insurer, having started writing in 2003 with a narrow business profile.

Although Alleghany generally allows its subsidiaries to run in a quasi-autonomous manner, the ratings assigned to EDIC take into consideration the myriad of qualitative factors related to Alleghany's culture and proven track record of building shareholder value through the ownership and management of businesses anchored by property-casualty insurance companies, Best said.

Shortly after acquiring EDIC for a purchase price of $192 million, Alleghany made an additional $50 million capital contribution to EDIC in third-quarter 2007 in order to fund management's future business prospects.

Best said this capital infusion was already contemplated in its analysis and initial ratings of EDIC and further demonstrates Alleghany's reputation of providing additional financial support when necessary. The rating firm said it is expected that EDIC will continue to be funded with a level of capital that supports the assigned ratings under various stress test scenarios.

California's workers' comp market over the years has proven to be extremely volatile and highly susceptible to changes in legislative, judicial and regulatory decision-making, Best said, adding it will closely monitor EDIC's operating performance, exposure growth and loss reserve development to ensure profitability targets are met and capitalization remains supportive of the ratings.

EDIC, a specialty workers' comp carrier, offers guaranteed cost, retrospectively rated and large deductible policies, which are marketed through its direct sales force.