California’s State Compensation Insurance Fund released its annual report on Thursday showing just over $1 billion dollars in net premiums earned, a drop from 2010’s figures.
State Fund reported adjusted actual net premiums earned of $1.002 billion for the year. That’s down from 2010’s reported $1.136 billion. Losses incurred fell from $850 million in 2010 to $752 million in 2011, and loss adjustment expenses incurred fell from $521 million in 2010 to $393 million last year.
Despite the drop in premiums earned, State Fund President and CEO Tom Rowe said California’s government-controlled workers’ comp insurer of last resort was showing improved results and was starting to reap the benefits of cost-cutting measures implemented late last year.
“Our financial summary reveals well-executed pricing disciplines, and improving results from the most experienced claims team in the marketplace,” Rowe said in a statement. “We are starting to see benefits from expense management protocols, and the consistent performance of a well-balanced and highly secure investment strategy.”
In October of last year the entity announced a restructuring at State Fund to be implemented this year, resulting in a reduction in workforce of from 1,500 and 1,800 positions. The restructuring is expected to save the State Fund $200 million a year.
Many of those workers already took buyouts and voluntarily quit.
“In December 2011, approximately 1,000 employees volunteered for transition payments and exited State Fund,” the annual report states. “Less than 750 employees will be laid off in 2012. State Fund accrued $50 million of expenses related to the reduction in force (RIF) plan.”
The restructuring decision followed a detailed review of San Francisco-based State Fund’s business, including comparing State Fund to other state funds and specialty companies that write workers’ compensation in California.
State Fund spends more operating the company than it does paying benefits to injured workers, according to the organization.
Replying to questions from Insurance Journal via email, State Fund CFO Dan Sevilla explained the year-over-year drop in premiums.
“The competitive market continues to underprice business,” Sevilla said. “We are maintaining our pricing discipline, and as a result we tend to lose business when other underprice it.”
Sevilla, who noted rising loss costs are driving the cost of workers’ compensation up, expressed hope that workers’ comp reform plans in California now being discussed will lead to alleviating some of the cost pressures.
“Significant reform of workers’ compensation is being proposed by numerous parties to address some of the key factors driving increased loss costs,” he said. “When other carriers keep prices flat or reduce them, rather than increasing them for rising loss costs, they underprice the business and we write less.”
State Fund is in the second year of a three-year plan to consolidate operations, shrink its real estate footprint, and reduce operating expenses, a plan that’s expected to provide annual savings of $350 million.
“Management fully expects the transformation set in motion in 2011 will begin to drive substantial improvements in operating performance, while maintaining the levels of service and responsiveness the market has come to expect from State Fund,” the annual report states.