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Workers' Compensation Claims | 12 Months Ended
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Dec. 31, 2012
Workers Compensation Claims [Abstract] |
Workers' Compensation Claims |
6. | Workers’ Compensation Claims
We are a self-insured employer with respect to workers’ compensation coverage for all our employees (including employees subject to PEO contracts) working in California, Oregon, Maryland, Delaware and Colorado. In the state of Washington, state law allows only our staffing services and management employees to be covered under the Company’s self-insured workers’ compensation program. Effective January 5, 2010, we formed Ecole, a wholly owned fully licensed insurance company in Arizona. The insurance company provides workers’ compensation coverage to BBSI’s employees working in Arizona for claims occurring on or after March 1, 2010. The Company has provided a total of $70.6 million and $51.2 million at December 31, 2012 and 2011, respectively, as an estimated future liability for unsettled workers’ compensation claims liabilities. Included in the foregoing liabilities are insured claims that will be paid by the Company’s former excess workers’ compensation insurer and for which the Company has reported a receivable from the insurer for the insured claims liability. Insured claims totaled $757,000 and $1.9 million at December 31, 2012 and 2011, respectively. The estimated liability for unsettled workers’ compensation claims represents management’s best estimate based upon an actuarial valuation provided by an independent actuary. Included in the claims liabilities are case reserve estimates for reported losses, plus additional amounts based on projections for incurred but not reported claims and anticipated increases in case reserve estimates. These estimates also include amounts for unallocated loss adjustment expenses, including legal costs. These estimates are continually reviewed and adjustments to liabilities are reflected in current operating results as they become known. Liabilities incurred for work-related employee fatalities and for severely injured workers, as determined by the state in which the accident occurred, are recorded either at an agreed lump-sum settlement amount or the net present value of future fixed and determinable payments over the actuarially determined remaining life expectancy of the beneficiary, discounted at a rate that approximates a long-term, high-quality corporate bond rate. Our excess workers’ compensation insurance retention is $5.0 million per occurrence in all our self-insured states, except for Maryland and Colorado where our retention is at $1.0 million and $500,000 per occurrence, respectively. We present our accrued liabilities for workers’ compensation claims on a gross basis along with a corresponding receivable from our insurers, as we are the primary obligor for payment of the related insured claims. We maintain excess workers’ compensation insurance coverage with ACE American Insurance Company (“ACE”), between $5.0 million and $15.0 million per occurrence, except in Maryland, where coverage with ACE is between $1.0 million and $25.0 million per occurrence and in Colorado where the coverage with ACE is from $500,000 to statutory limits per occurrence. Prior to December 1, 2012, similar excess workers’ compensation coverage was through American International Group. We continue to evaluate the financial capacity of our insurers to assess the recoverability of the related insurer receivables. At December 31, 2012, our long-term workers’ compensation claims liabilities in the accompanying balance sheet included $390,000 for work-related fatalities. The aggregate undiscounted pay-out amount related to the catastrophic injuries and fatalities is $523,000. The discount rates applied to the discounted liabilities range from 4.25% to 9.00%. These rates represented the then-current rates for high quality long-term debt securities available at the date of loss with maturities equal to the length of the pay-out period to the beneficiaries. The actuarially determined pay-out periods to the beneficiaries range from 7 to 32 years. The states of California, Oregon, Maryland, Washington, Delaware and Colorado require us to maintain specified investment balances or other financial instruments, totaling $26.1 million at December 31, 2012 and $9.0 million at December 31, 2011, to cover potential claims losses. In partial satisfaction of these requirements, at December 31, 2012, we have provided standby letters of credit and a surety bond totaling $23.8 million. The investments are included in restricted marketable securities and workers’ compensation deposits in the accompanying balance sheets. Prior to July 1, 2012, we participated in California’s alternative security program requiring us to pay the State an annual fee, which is determined by several factors, including the amount of a calculated future security deposit and our overall credit rating. The annual fee paid to the State of California for 2011 and 2010 was $292,000 and $209,000, respectively. Effective July 1, 2012, the State of California increased the Company’s surety deposit requirement by $17.2 million which the Company satisfied through an increase to its standby letters of credit. The following table summarizes the aggregate workers’ compensation reserve activity (in thousands):
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Balance at January 1, |  |  |  |  |  |  |  |  |  |  |  |
Workers’ compensation claims liabilities |  | $ | 51,193 |  |  | $ | 39,302 |  |  | $ | 35,958 |
Claims expense accrual: |  |  |  |  |  |  |  |  |  |  |  |
Current year |  |  | 38,386 |  |  |  | 26,161 |  |  |  | 16,850 |
Prior years |  |  | 12,352 |  |  |  | 9,978 |  |  |  | 880 |
|  |  | 50,738 |  |  |  | 36,139 |  |  |  | 17,730 |
Claims payments related to: |  |  |  |  |  |  |  |  |  |  |  |
Current year |  |  | 6,746 |  |  |  | 5,565 |  |  |  | 3,814 |
Prior years |  |  | 24,613 |  |  |  | 18,683 |  |  |  | 10,572 |
|  |  | 31,359 |  |  |  | 24,248 |  |  |  | 14,386 |
Balance at December 31, |  |  |  |  |  |  |  |  |  |  |  |
Workers’ compensation claims liabilities |  | $ | 70,564 |  |  | $ | 51,193 |  |  | $ | 39,302 |
Incurred but not reported (IBNR) |  | $ | 47,992 |  |  | $ | 37,335 |  |  | $ | 27,163 |

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