President's Letter

Throughout 2025, we remained focused on our mission to provide fairly priced workers’ compensation insurance to any California business that needs it. We excelled in nearly every area of our operation and had, upon reflection, perhaps our most successful year to date in the more than 11 years I have been President and CEO of State Fund. I’m extremely proud of our successes, and even more proud of the leaders and frontline employees who made those successes possible.

I’ve talked about our claims performance in my last several letters, and while it may be getting repetitive, the repetition is entirely appropriate—our Claims team has continued to excel. In 2025, we reduced our open claims count even further and we released loss and loss adjustment expense (LAE) reserves amounting to more than $617 million—all while continuing to meet or exceed our quality and timeliness scores. Over the last eight years, we have released more than $3 billion in loss reserves.

Those reserves have helped us attain the strongest financial position we have held during my tenure and are a significant factor behind our declaration of a dividend for the seventh year in a row—this time at 20%—the largest we have declared since I joined State Fund.  

While claims has been the largest driver of our financial performance over the last several years, our Underwriting team continues to make positive steps forward as well. We exceeded all quality and service measures in Policy Operations while continuing to be competitive in the marketplace. Even with a 7.9% rate reduction, our estimated annual premium (EAP) was down only 1.2% year over year. Our Underwriting team made great strides last year identifying higher-risk, underperforming policies and improving the premium adequacy for those businesses. That has led to a small decrease in policy count but an increase in average EAP per policy–an indicator that our efforts are delivering results.

Key Actions and Results in 2025

• With our seventh consecutive dividend—this time at 20%—we will return approximately $200 million to policyholders with a policy inception date in 2025. Over the last seven years, State Fund has declared approximately $830 million in dividends.
• We again exceeded all of our Claims and Legal quality and timeliness measures and released more than $617 million in claims reserves. Over the last eight years, we have released more than $3 billion in loss reserves.
• We continued to make progress on our technology roadmap. We released a new version of our enterprise AI tool and are piloting several other AI initiatives. Our AI initiatives must either lead to a reduced expense ratio or an improved customer and employee experience to receive funding. We also made significant progress toward retiring legacy systems, including shutting down one of our oldest legacy applications related to managing broker commissions. We also launched several improvements to our customer service tools that are helping us deliver a better customer experience while at the same time improving our efficiency.
• We exceeded the Finance and Insurance Industry benchmark for overall employee engagement score for the eighth year in a row. Our 2025 overall engagement score was 84.9%, 7.5 points higher than the Finance and Insurance benchmark and even higher relative to the benchmark for large employers. This is as high as our score has ever been.
• We continued to be recognized by leading publications and industry groups for our operational successes. Here are a few of the awards we received in 2025:
  • The Sacramento Business Journal named us #2 in Sacramento for “Best Places to Work” in the “Very Large Company” category.
  • Inc. Magazine named us one of their “Best Places to Work.”
  • We earned #82 on Forbes’ “America’s Most Trusted Companies” list and #175 on their “Best Companies in America” list.
  • We were inducted into Training Magazine’s Apex Awards “Hall of Fame.”
  • The Chief Learning Officer organization ranked us #3 in their Learning Elite Awards and awarded us an “Editor’s Choice” award for “Best Mid-sized Company.”
    
    
• Our policyholder customer experience scores continue to be outstanding and surpassed our 2025 targets.               
• Between the time we launched our Safety Equipment Grant Program in late 2023 and today, we’ve awarded more than 1,600 policyholders with grants totaling more than $10 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 solar, painting, electrical, plumbing, and more.
• More than 2,300 employers signed up for our Online Safety University by the end of 2025. That includes more than 8,000 California workers and—because most employees sign up for multiple classes—more than 26,500 courses completed overall.
• More than 17,000 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 1,000 employers completed an IIPP using our builder as part of their application for our Safety Equipment Grants Program by the end of 2025.

Financial Highlights

Here are our 2025 financial highlights, which are described in more detail in this report:

• Net premiums earned were $956 million in 2025, which was 12% lower than the prior year.
• Our combined ratio of 87.4% was 2.2 points lower than the prior year.
• Our net investment income was $644 million, which was $69 million higher than the prior year.
• Our income before dividends was $702 million, which was $33 million lower than the prior year.

I am confident we will continue to make progress on our strategic initiatives in 2026 and I look forward to another exciting year.

Sincerely,

Vern Steiner

President & CEO