AGOURA HILLS, Calif.—Employers Direct Insurance Co. will stop writing new and renewal workers compensation business in California on Aug. 1, the company said Tuesday.

The Agoura Hills, Calif.-based insurer, which launched in 2003 with a focus on California employers, also said it is cutting its staff by 18%.

It cited a number of market conditions—such as escalating medical costs, intense price competition, and uncertainty over the sustainability of reforms introduced in 2003 and 2004—for its decision.

As a result of Employers Direct’s announcement, Oldwick, N.J.-based A.M. Best Co. Inc. downgraded the financial strength rating of the company to B++ from A- and its issuer credit rating to bbb+ from a-.

In a statement, Employers Direct Chief Executive Officer James Little said the insurer prides itself on being a marketplace leader.

“We showed that when we entered the market in 2003 amid a scarcity of industry capacity,” Mr. Little said in the statement. “Today, we must be equally as bold in acknowledging that premium-writing capacity at today’s unprofitable levels no longer serves the best interests of workers compensation stakeholders—neither businesses nor insurers.”

Apart from California, Employers Direct also is licensed in Arizona, Colorado, Idaho, Illinois, Nevada, Oregon and Utah.