State Fund Files 2004 Financial Statement with CDI

March 2, 2005

In an annual statement filed Wednesday with the California Department of Insurance, State Compensation Insurance Fund documented that its policyholder surplus — assets minus claims reserves and other liabilities — increased by $776 million during the 31, 2004. Policyholder surplus increased to $2.862 billion from
$2.086 billion at year-end 2003.

“I am extremely proud of State Fund’s financial performance in 2004,” said retiring State Fund President Dianne Oki. “Our annual statement underscores the fact that State Fund has the financial strength to meet all obligations to our policyholders and their injured workers. I’m pleased to bring my career to a close assured that State Fund is financially sound with solid reserves and a much-improved policyholder surplus position.”

Jeanne Cain, chair of State Fund’s Board of Directors, commented, “In the coming months, State Fund will continue to focus on further increasing policyholder surplus in order to provide prudent financial protection for our policyholders. We’re well-positioned to continue our financial improvement and continue to pass on workers’ compensation cost reductions to California employers. We’ve reduced our average rate to policyholders by a cumulative 14.9 percent since January 2004 and reform legislation will generate additional savings.”

Acting President James Tudor added, “State Fund has met many challenges over the past several years due to unprecedented premium growth resulting from carriers withdrawing from the California market and numerous carrier insolvencies. California’s employers and their injured employees can be assured that State Fund will continue to fulfill its mission as the bedrock of the workers’ compensation insurance system.”

Like all insurers, State Fund is required to maintain a policyholder
surplus fund that provides an appropriate level of protection for policyholders against unforeseen developments such as a natural disaster.

State Fund has focused on increasing policyholder surplus since 2000, as thousands of employers turned to State Fund to obtain coverage, which was unavailable through other carriers. Unlike private carriers, State Fund can’t increase policyholder surplus via the capital marketplace or decrease surplus requirements by refusing to underwrite certain businesses.

The 2004 financial highlights include:

* Net income was $909 million compared to $712 million for fiscal year 2003.
* Earned premium grew to $7.9 billion from $7.6 billion.
* Reserves increased by 22.5 percent.
* Total disbursements were nearly $7.6 billion.
* Total assets increased 24.1 percent to $18.9 billion of which $16.4 billion were in long term investments. Long-term bonds continue to be investment grade and rated A- or better.

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