It's nearly a year late, but State Compensation Insurance Fund finally released its 2006 annual financial report. California's largest workers' comp insurer reports that its earned premiums dropped by nearly 42% in 2006 due both to plummeting rates and a significant decrease in market share. But the news wasn't all bad for the insurer's bottom line because reforms cut its costs for compensation and medical benefits nearly in half—from $4.2 billion in 2005 to $2.2 billion in the 2006 reporting period.

Though significant, the reduction in medical costs and compensation benefits was not enough to prevent SCIF from showing a loss on its underwriting operations. Overall, SCIF reported earned premiums of $3.5 billion and net income of $679 million during the course of 2006. But that net income is propped up by investment earnings of $924 million, which when removed from the equation leave SCIF with a 7% or $245 million loss on underwriting.

An underwriting loss is not reflective of the rest of the industry, which is generating an underwriting profit. But SCIF admits to an overabundance of personnel.

The results came as the company slipped into a period of executive and operational turmoil that called into question its internal controls and resulted in widespread changes in its top leadership, including the ousting of its president and other officers and resignations of board members. Subsequent review of its operations by state auditors led to the lengthy delay in filing of 2006 results.

"When we knew it was going to be delayed, we did put up a notice letting people know that due to the ongoing review, our 2006 financials would be delayed," says Jennifer Vargen, SCIF spokeswoman. "But we're moving forward and we were able to get the '06 financials published and are now working on '07. KPMG is doing the audit, so that's in process right now."

Vargen says the drop in earned premiums was to be expected in light of SCIF's efforts to streamline its presence in the market. "We're definitely returning to premium levels that are more traditional for State Fund and are winding our way down from the very high years of having had over 50% of the market share. But that's an ongoing process for us," she says, noting that SCIF's estimated market share for 2007 is 23%. "We don't have a target market share in mind, that's not how we operate, but certainly 23% is a much more traditional number for State Fund."