Quarterly report pursuant to Section 13 or 15(d)

Workers' Compensation Claims

v3.10.0.1
Workers' Compensation Claims
9 Months Ended
Sep. 30, 2018
Text Block [Abstract]  
Workers' Compensation Claims

Note 3 – Workers’ Compensation Claims

The following table summarizes the aggregate workers’ compensation reserve activity (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Beginning balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workers' compensation claims liabilities

 

$

390,814

 

 

$

330,079

 

 

$

363,517

 

 

$

312,537

 

Add: claims expense accrual

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

37,784

 

 

 

39,316

 

 

 

116,803

 

 

 

112,469

 

Prior periods

 

 

(2,327

)

 

 

(280

)

 

 

(2,333

)

 

 

4,984

 

 

 

 

35,457

 

 

 

39,036

 

 

 

114,470

 

 

 

117,453

 

Less: claim payments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

7,502

 

 

 

6,082

 

 

 

13,783

 

 

 

11,362

 

Prior periods

 

 

19,905

 

 

 

18,466

 

 

 

65,296

 

 

 

67,928

 

 

 

 

27,407

 

 

 

24,548

 

 

 

79,079

 

 

 

79,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Change in claims incurred in excess of retention limits

 

 

(26

)

 

 

118

 

 

 

(70

)

 

 

(6,015

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workers' compensation claims liabilities

 

$

398,838

 

 

$

344,685

 

 

$

398,838

 

 

$

344,685

 

Incurred but not reported (IBNR)

 

$

246,174

 

 

$

177,166

 

 

$

246,174

 

 

$

177,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of IBNR to workers' compensation claims liabilities

 

 

62

%

 

 

51

%

 

 

62

%

 

 

51

%

The Company is a self-insured employer with respect to workers' compensation coverage for all of its employees (including employees co-employed through our client service agreements) working in Colorado, Maryland and Oregon, except as described below. In the state of Washington, state law allows only the Company's staffing services and internal management employees to be covered under the Company's self-insured workers' compensation program. The Company also operates a wholly owned, fully licensed insurance company, Ecole, which provides workers’ compensation coverage to the Company’s employees working in Arizona, Utah and Nevada. The Company maintains additional reinsurance coverage for Ecole with Chubb Limited (“Chubb”), for losses above $5.0 million per occurrence.

The Company obtains policies from Chubb for all California-based clients along with clients in Delaware, Virginia, Pennsylvania, North Carolina, New Jersey, West Virginia, Idaho and the District of Columbia. The arrangement with Chubb, known as a fronted program, provides BBSI a licensed, admitted insurance carrier to issue policies on behalf of BBSI. The risk of loss up to the first $5.0 million per occurrence is retained by BBSI through various agreements. Chubb assumes credit risk should BBSI be unable to satisfy its indemnification obligations.

As part of its fronted workers’ compensation insurance program with Chubb, the Company makes monthly payments into trust accounts (the “Chubb trust accounts”) to be used for the payment of future claims. The balance in the Chubb trust accounts was $430.0 million and $380.6 million at September 30, 2018 and December 31, 2017, respectively. The Chubb trust accounts’ balances are included as a component of the current and long-term restricted cash and investments on the Company’s condensed consolidated balance sheets.

The Company restructured its fronted program with Chubb effective July 1, 2018. The new agreement maintains retention levels of $5.0 million per occurrence but now requires that collateral be advanced at the inception of the policy term. To partially satisfy these additional collateral requirements, the Company provided a surety bond of $30.0 million and a letter of credit of $63.7 million from its principal bank, Wells Fargo Bank, National Association (the “Bank”).

The states of California, Maryland, Oregon, Washington, Colorado and Delaware required us to maintain specified investment balances or other financial instruments totaling $85.2 million and $96.8 million at September 30, 2018 and December 31, 2017, respectively, to cover potential workers’ compensation claims losses related to the Company’s current and former status as a self-insured employer. At September 30, 2018, the Company provided surety bonds and standby letters of credit totaling $85.2 million, including a California requirement of $70.6 million.

The Company provided a total of $398.8 million and $363.5 million at September 30, 2018 and December 31, 2017, respectively, as an estimated future liability for unsettled workers' compensation claims liabilities. Of this amount, $2.9 million and $3.0 million at September 30, 2018 and December 31, 2017, respectively, represent case reserves incurred in excess of the Company’s retention. The accrual for costs incurred in excess of retention limits is offset by a receivable from excess insurance carriers of $2.9 million and $3.0 million at September 30, 2018 and December 31, 2017, respectively, included in other assets on the condensed consolidated balance sheets.