Message From the President
In recent years we have taken a hard look at our operations in light of the current business and economic landscape, and made changes essential to delivering on our pledge to California businesses and injured workers. We began an ambitious plan to redesign our operations, improve our efficiency, and reduce costs for California’s employers. The path we charted was transformative, challenging, and unfamiliar – but appropriate given our dedication to a strong and vital California.
We implemented significant changes to our operations and business processes in order to fulfill our role as the fair-priced leader. I am proud to report that at the end of 2012, we began to realize our vision of a more effective State Fund, and that we are on a sustainable path to become the competitive, agile carrier envisioned by our core mission. State Fund is emerging from its restructuring stronger, more efficient, and better able to deliver value to our policyholders, and injured workers – the greatest thing we can do for Californians.
In October 2012, State Fund announced a $100 million dividend to qualifying policyholders for the 2012 policy year. This represents approximately 10 percent of 2012 estimated annual premium and is a direct result of State Fund’s operating efficiencies, solid investment returns, and disciplined underwriting. This commitment to becoming more efficient has helped to provide some relief to policyholders in a struggling economy, and re-affirms our position as the strong, stable, and fairly priced workers’ compensation provider for California’s businesses.
I am also pleased to report that income before dividends for 2012 was $458 million, which was $279 million more than the prior year. We have reduced our annual fixed expenses by $150 million dollars compared to 2009, and we expect to achieve annual savings of more than $300 million by the end of 2014. These savings will help State Fund maintain fair pricing and bring value to a larger swath of the available market.
Additionally, State Fund is introducing two significant rating actions in 2013: a new tiered rating system—a first for State Fund—and a 7 percent rate reduction. The revised rate structure allows State Fund to improve pricing accuracy for each risk and will result in rates that more fairly reflect the risk characteristics and experience of each policyholder; the rate reduction reflects State Fund’s commitment to and belief in the substance of reform delivered by SB 863.
In the end, State Fund’s endurance is due to the commitment of our employees. These results are not the achievement of a single person, team, project, or program. Rather, they are the collective accomplishment of 4,600 employees across the state. Our financial strength, and their dedication to conquering the tall challenges set before them, secures State Fund’s ability to support California’s businesses and economy long into the future. I applaud them and thank them for their hard work – work that literally keeps California working.
While State Fund has undergone many changes over the years, what has remained unchanged is our appreciation for and commitment to the nearly 130,000 policyholders who choose State Fund for their workers’ compensation needs, and to the State Fund employees who serve them every day. We are extraordinarily proud to support the businesses and employees of this great state and are committed to maintaining our sustainability and endurance to serve them into the next century.
Tom Rowe
President and CEO
Under California law it is unlawful for an insurer to promise the future payment of dividends under an unexpired workers' compensation insurance policy or to misrepresent the conditions for dividend payment. Dividends are payable only pursuant to conditions determined by the Board of Directors or other governing board of the Company following policy expiration. It is a misdemeanor for any insurer or officer or agent thereof, or any insurance broker or solicitor, to promise the payment of future workers' compensation dividends. Past dividend performance is no guarantee of an insurer's future dividend performance.