Schwarzenegger had said that rates would drop by 30 percent after a major revamping of a system blamed for driving businesses out of California.

But the State Compensation Insurance Fund, which writes more than half of the workers' comp policies statewide, has cut its rate by only 9.9 percent since the second half of 2003, according to a filing Friday with the state Department of Insurance. The state fund is something of a pacesetter for the industry when it comes to rates.

Schwarzenegger said the reduction is a good sign, and he vowed that rates would drop further when the full force of his overhaul kicks in.

Reductions will be "gradual" but significant over the next year, he said.