Public Service Insurance Co.’s newly announced exit from California’s workers’ compensation market is not a reflection of the health of the state’s workers’ comp system, according to the California Department of Insurance. The workers’ comp carrier is part of the Magna Carta Cos.

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. (New York, NY) and Western Select Insurance Co.(Los Angeles, CA) The companies are collectively referred to as Magna Carta Cos., which operate through an intercompany pooling reinsurance agreement, according to A.M. Best.

The rating downgrades reflect the significant deterioration in Magna Carta Companies’ operating performance during the fourth quarter of 2013, due to a $57 million charge to strengthen reserves. Approximately $31.9 million of the group’s reserve strengthening actions were related to its workers’ compensation line of business. To provide protection against further unexpected adverse reserve development, management plans to implement an ADC, which will cover 100 percent of net losses within the ADC coverage limit. Inclusive of the benefit of the additional reinsurance protection, Magna Carta Companies’ overall risk-adjusted capitalization adequately supports its current obligations and those anticipated by its near-term business plans. While risk-adjusted capitalization is expected to remain at a level that supports the current ratings in the near to midterm, A.M. Best is concerned about the lack of clarity regarding Magna Carta Companies’ risk appetite and business strategy, which has contributed to the 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.

According to the story in the Insurance Journal, a call to Magna Carta wasn’t immediately returned, and spokespersons for Magna Carta or Public Service couldn’t be located.

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. Aside from that Henley declined to comment specifically on Public Service’s exit, but he said that it 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. 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: “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.

It’s estimated the company wrote less than $29 million in direct premiums amid the state’s $9 billion market.