BBSI Announces a New Insurance Program that Materially Reduces its Workers’ Compensation Exposure Resulting in Better Finan...
July 06 2021 - 8:00AM
Barrett Business Services, Inc. (“BBSI” or the “Company”)
(NASDAQ: BBSI), a leading provider of business management solutions
and one of the largest professional employer organizations (PEO) in
the U.S., announced that effective July 1, 2021, 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.
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.
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.”
Forward-Looking Statements Statements in this
release about future events or performance, including expectations
regarding the effects of the reductions in workers’ compensation
claims liabilities and loss retention levels, are forward-looking
statements. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results
of the Company to be materially different from any future results
expressed or implied by such forward-looking statements. Such
factors with respect to the Company include our ability to retain
current clients and attract new clients, difficulties associated
with integrating clients into our operations, economic trends in
our service areas, the potential for material deviations from
expected future workers’ compensation claims experience, changes in
the workers’ compensation regulatory environment in our primary
markets, security breaches or failures in the Company’s information
technology systems, collectability of accounts receivable, changes
in effective payroll tax rates and federal and state income tax
rates, the carrying values of deferred income tax assets and
goodwill (which may be affected by our future operating results),
the impact of and potential changes to the Patient Protection and
Affordable Care Act, escalating medical costs, and other health
care legislative initiatives on our business, the effect of
conditions in the global capital markets on our investment
portfolio, and the availability of capital, borrowing capacity on
our revolving credit facility, or letters of credit necessary to
meet state-mandated surety deposit requirements for maintaining our
status as a qualified self-insured employer for workers’
compensation coverage or our fronted insurance program. Additional
risk factors affecting our business are discussed in Item 1A of
Part I of our 2020 Annual Report on Form 10-K and in subsequent
reports filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Although forward-looking
statements help to provide complete information about the Company,
readers should keep in mind that forward-looking statements are
less reliable than historical information. The Company undertakes
no obligation to update or revise forward-looking statements in
this release to reflect events or changes in circumstances that
occur after the date of this release.
About BBSIBBSI (NASDAQ: BBSI) is a leading
provider of business management solutions, combining human resource
outsourcing and professional management consulting to create a
unique operational platform that differentiates it from
competitors. The Company’s integrated platform is built upon
expertise in payroll processing, employee benefits, workers’
compensation coverage, risk management and workplace safety
programs, and human resource administration. BBSI’s partnerships
help businesses of all sizes improve the efficiency of their
operations. The Company works with more than 7,500 clients across
all lines of business in 40 states. For more information, please
visit www.bbsi.com.
Media Relations:Lorin GelfandTel
1-360-869-4052Lorin.Gelfand@bbsi.com
Investor Relations:Cody SlachTel
1-949-574-3860BBSI@gatewayir.com
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