President’s Letter

Throughout 2024, we delivered on our commitments to our policyholders and injured workers and effectively served our unique role in the state’s economy. I’m proud of the progress we made toward becoming more customer- and employee-centric, more technologically advanced, and ultimately more competitive in the marketplace, and I’ll talk more about these changes in a moment.

But none of that progress would be possible if we had not maintained our financial strength. We continue to be in the strongest financial position we have ever been in during my tenure. And while there are multiple factors that contribute to that strength, nothing is more critical than our claims performance over time.

I’ve talked about our claims performance in my last couple of letters, and with good reason—we continue to see substantial loss improvements. While these improvements simply cannot continue indefinitely—there are a finite number of opportunities—last year continued this trend. In 2024, our Claims team reduced our open claims count even further and we released loss and loss adjustment expense (LAE) reserves amounting to more than $540 million. That money flowed through our income statement and helped us further bolster our surplus and pay dividends for the sixth year in a row.

Our underwriting team continues to make positive steps forward as well. In 2024, we introduced a new pricing structure and have, as of the writing of this letter, just completed one full year with it in place. Our new pricing is focused more on the individual risk characteristics of an employer then simply on its workers’ classifications. We believe that provides more accurate and fair pricing that will lead to a stronger, better performing book.

Over the course of the last year, we saw higher new business growth along with lower premium retention rates, and our overall estimated annual premium (EAP) declined somewhat. This is what we expected—we are proving to be more competitive in some areas than we were in the past and we’re winning some new business. And at the same time, we can price more accurately in areas where we were likely charging too little previously and some of those businesses are choosing to insure elsewhere.

Key Actions and Results in 2024

• With our sixth consecutive dividend—this time at 15%—we will return approximately $149 million to policyholders with a policy inception date in 2024. Over the last six years, State Fund has declared approximately $635 million in dividends.
• We again exceeded all our Claims and Legal quality and timeliness measures and released more than $540 million in claims reserves. Over the last six years, we have released nearly $2.5 billion in loss reserves.
• We continued to move our technology roadmap forward by retiring old, legacy systems and embracing new types of automation and artificial intelligence (AI). After retiring our legacy systems, we will save millions of dollars each year in operating costs. By continuing to implement new automation and AI initiatives, we want to make our employees’ jobs easier and more engaging by reducing the amount of time they spend on repetitive, monotonous tasks. We have made great progress in that area and have released internal AI tools that help us process claims letters, summarize customer interactions, search internal knowledge bases, test new interface designs and customer experiences, and much more.
• We exceeded the Finance and Insurance Industry benchmark for overall employee engagement score for the seventh year in a row. Our 2024 overall engagement score of 85% was significantly higher than the Finance and Insurance benchmark, and even higher relative to the benchmark for large employers. We were even recognized by both the San Francisco Business Times and The Sacramento Business Journal as “Best Places to Work” in those respective regions. While the method used to determine engagement score is complex and touches on all kinds of factors, at its most basic it really just reflects how our employees feel about the work they do and who they do it with. So why does our employees’ engagement matter to us? Employees who feel good about their work will do good work. They will go the extra mile to provide excellent service to our policyholders and brokers. They will consistently demonstrate care for injured workers. Our employees’ engagement—the way they feel—helps drive our success.
• We continued to maintain our excellent policyholder customer satisfaction and customer effort scores. While we are happy with these results, we are laser-focused on becoming easier to do business with and seeing improvements in these areas. Most of our efforts are technology related and we expect to see significant steps forward in the ways our customers can interact with us via self-service options and AI tools over the coming years.
• We successfully launched our Safety Equipment Grants Program in late 2023, so 2024 was our first full year with the program in place. To date—so about 20 months in—we’ve awarded nearly 900 policyholders with grants totaling more than $5 million to purchase safety equipment to help protect their employees from falls. We also expanded our program recently to make grants eligible to more policyholders. In addition to industries such as roofing and tree trimming, we are now offering fall-protection equipment grants to employers in areas such as painting, electrical, plumbing, and more.
• More than 2,000 employers signed up for our Online Safety University by the end of 2024. That includes more than 7,000 California workers and—since most employees sign up for multiple classes—more than 24,500 courses completed overall.
• More than 14,000 employers in California used our online Injury and Illness Prevention Program (IIPP) Builder. Cal/OSHA continues to link to our tool from their website and more than 400 employers have completed an IIPP using our builder as part of their application for our Safety Equipment Grants Program.

Financial Highlights

Here are our 2024 financial highlights, which are described in more detail in this report:

• Net premiums earned were $1,086 million in 2024, which was 4.8% lower than the prior year.
• Our combined ratio of 89.5% was 5.8 points higher than the prior year.
• Our net investment income was $575 million, which was $18 million higher than the prior year.
• Our income before dividends was $735 million, which was $112 million higher than the prior year.

When I consider 2025, I continue to feel optimistic about our progress toward our long-term goals. I know we will need to continue to work hard and to work smart to get there, and the road won’t always be easy. But we have the people and the vision to continue to move State Fund forward.

Sincerely,

Vern Steiner

President & CEO