BBSI Announces a New Insurance Program that Materially Reduces its Workers’ Compensation Exposure Resulting in Better Financial Predictability
Barrett Business Services, Inc (BBSI) ., a leading provider of business management solutions and one of the largest professional employer organizations (PEO) in the U.S., announced that effective, it has entered into a new workers’ compensation program where it will no longer retain any risk of loss from workers’ compensation claims.
The new program allows for premium adjustments depending on overall portfolio performance. If claims develop favorably, BBSI can participate in the savings up to $20 million for a twelve-month policy period. If claims develop adversely, additional premium is capped at $7.5 million for a twelve-month policy period. This structure limits potential downside while continuing to allow BBSI to benefit from its best-in-class underwriting, risk mitigation and claims management practices.
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Approximately 82% of BBSI’s workers’ compensation exposure is covered through this new program.
There is no expected impact to workers’ compensation expense from eliminating the claims retention because the premium for the new program is in line with the existing loss accrual rate that it replaces. The agreement includes a multiyear commitment through June 2023.
BBSI also announced that it has entered into a loss portfolio transfer (LPT) agreement to effectively remove another $53 million of outstanding workers’ compensation claims obligations from its balance sheet. This transaction primarily includes claims incurred in 2018 and reduces BBSI’s outstanding workers’ compensation liabilities by approximately 15%. The LPT results in a corresponding reduction in restricted cash and investments of $52 million and a gain on the transaction of $1 million.
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BBSI has no exposure to unfavorable development on these claims, but the agreement allows for participation in future favorable development. As a reminder, in June of 2020, the Company entered a similar LPT to remove outstanding workers’ compensation claims obligations for claims incurred between February 1, 2014 and December 31, 2017.
These transactions will result in a one-time increase in unrestricted cash and investments of approximately $13 million in July 2021, with additional cash flow benefits to be realized throughout the program term.
“This milestone is a culmination of many years of hard work as we executed on our long-term strategy of de-risking our business model,” said Gary Kramer, BBSI’s President and CEO. “The ability to enter into these transactions, including another significant LPT, speaks once again to the quality and consistency of our workers’ compensation program. We are proud to now bring even more predictability to our financial results while continuing to provide the same outstanding service to our small-business customers.”
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