Public Service Mutual Insurance Co.’s exit from California’s workers compensation market isn’t a reflection of the health of the state’s workers’ compensation system, according to the California Department of Insurance.
Bryant Henley, assistant chief council for CDI, said the department has been aware of the exit.
“We certainly were aware the Public Service Insurance Co. was planning to exit the market,” Henley said.
A call to Magna Carta wasn’t immediately returned, and spokespersons for Magna Carta or Public Service couldn’t be located.
A.M. Best this week downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit ratings to “bbb-” from “bbb” of Public Service Insurance Co. and its affiliates, Paramount Insurance Co. and Western Select Insurance Co. The companies are collectively referred to as Magna Carta Cos., which operate through an intercompany pooling reinsurance agreement, according to A.M. Best.
A.M. Best said the ratings have been placed under review with negative implications pending receipt of an executed adverse development cover (ADC) reinsurance contract, which will substantially improve the group’s risk-adjusted capital level.
The rating downgrades reflect the significant deterioration in Magna Carta Cos.’ operating performance during the fourth quarter of 2013 due to a $57 million charge to strengthen reserves, according to A.M. Best. Approximately $31.9 million of the group’s reserve strengthening actions were related to its workers compensation business.
The ratings agency said that the insurer’s management plans to implement an ADC, which will cover 100 percent of net losses within the ADC coverage limit, which will provide protection against further unexpected adverse reserve development.
Inclusive of the benefit of the additional reinsurance protection, Magna Carta Cos.’ overall risk-adjusted capitalization adequately supports its current obligations and those anticipated by its near-term business plans, A.M. Best said.
But A.M. Best said it is concerned about the lack of clarity regarding Magna Carta Cos.’ risk appetite and business strategy, which has contributed to below-average underwriting and operating results in recent years. A.M. Best expects management will focus on these critical issues to return the group to profitability in the near term.
CDI’s Henley said the insurer’s departure would have a negligible impact on the state.
“The short answer there is that Public Service Insurance Co. was a very small part of the market share of California,” he said.
According to CDI, the company wrote less than “one-half of 1 percent” of California’s workers comp business.
It’s estimated the company wrote less than $29 million in direct premiums amid the state’s $9 billion market.
Henley said the exit doesn’t portend any developing problems for California’s workers comp carriers.
“No, we would not consider this a trend,” he said. “We don’t have a lot of workers comp business leaving California. We don’t anticipate it to be a larger trend of things to come.”
He added: “In terms of the California market, it’s very vibrant and thriving.”
A spokesman for the state’s Workers Compensation Insurance Rating Bureau said the bureau wouldn’t offer a comment on the announced exit of the company, and a spokesman for the California Workers Compensation Institute also declined comment.