State Fund’s Annual Report for 2012 was just released. The report shows a significant increase in net income for California’s largest workers’ comp insurer. For 2012, State Fund’s income before dividends totaled $458 million, which was $279 million more than the prior year.

The report also indicates that State Fund reduced annual fixed expenses by $150 million dollars compared to 2009, and expects 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. State Fund announced a rate reduction of 7% effective March 1, 2013.

State Fund maintained a balanced investment portfolio that was focused on both credit quality and investment yield (99.3% of the $18.2 billion bond portfolio was rated NAIC 1, the NAIC’s highest quality credit class). The weighted average credit quality of the overall bond portfolio was Aa1/AA by Moody’s and Standard and Poor’s, respectively. Book yield at December 31, 2012 was 4.10%, down from 4.43% at December 31, 2011.

“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 workers’ compensation carrier envisioned by our core mission,” remarked Tom Rowe, State Fund President and CEO in the report.

Rowe added that, “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.”

The report comes as State Fund approaches the three-year mark of implementing a comprehensive restructuring plan aimed at consolidating operations, shrinking its real estate footprint, and reducing operating expenses.