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Workers' Compensation Claims | 9 Months Ended
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Sep. 30, 2022
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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, |
| 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Beginning balance |  |  |  |  |  |  |  |  |  |  |
Workers' compensation claims liabilities | $ | 241,510 |  |  | $ | 315,733 |  |  | $ | 279,407 |  |  | $ | 357,746 |
Add: claims expense accrual |  |  |  |  |  |  |  |  |  |  |
Current period |  | 4,854 |  |  |  | 2,394 |  |  |  | 13,678 |  |  |  | 71,407 |
Prior periods |  | (1,360 | ) |  |  | (823 | ) |  |  | (10,737 | ) |  |  | (7,486 | )
|  | 3,494 |  |  |  | 1,571 |  |  |  | 2,941 |  |  |  | 63,921 |
Less: claim payments related to |  |  |  |  |  |  |  |  |  |  |
Current period |  | 1,714 |  |  |  | 6,149 |  |  |  | 2,742 |  |  |  | 11,129 |
Prior periods |  | 16,846 |  |  |  | 14,018 |  |  |  | 53,136 |  |  |  | 113,022 |
|  | 18,560 |  |  |  | 20,167 |  |  |  | 55,878 |  |  |  | 124,151 |
Change in claims incurred in excess of retention limits |  | 899 |  |  |  | (138 | ) |  |  | 873 |  |  |  | (517 | )
Ending balance |  |  |  |  |  |  |  |  |  |  |
Workers' compensation claims liabilities | $ | 227,343 |  |  | $ | 296,999 |  |  | $ | 227,343 |  |  | $ | 296,999 |
Incurred but not reported (IBNR) | $ | 117,587 |  |  | $ | 162,382 |  |  | $ | 117,587 |  |  | $ | 162,382 |
Ratio of IBNR to workers' compensation claims liabilities |  | 52 | % |  |  | 55 | % |  |  | 52 | % |  |  | 55 | %
Insured program The Company provides workers’ compensation coverage for client employees primarily through arrangements with fully licensed, third-party insurers (the “insured program”). Under this program, carriers issue policies or afford coverage to the Company’s clients under a program maintained by the Company. Approximately 82% of the Company’s workers’ compensation exposure is covered through the insured program. The Company entered into a new arrangement for its insured program effective July 1, 2021 whereby third-party insurers assumed all risk of loss for claims incurred from July 1, 2021 to June 30, 2022 (the “2021-2022 Policy”). The 2021-2022 Policy allows for premium adjustments depending on overall policy performance. If claims develop favorably, BBSI can participate in the savings up to $20.0 million for the twelve-month policy period. If claims develop adversely, additional premium may be charged up to $7.5 million for a twelve-month policy period. Effective July 1, 2022, the Company renewed the arrangement for its insured program, which now continues to June 30, 2023 (the “2022-2023 Policy”). Under the renewed arrangement, the Company can participate in savings up to $22.5 million for the twelve-month policy period. For the 2022-2023 Policy, no additional premium may be charged if claims develop adversely. The 2022-2023 Policy includes a renewal commitment through June 30, 2024. For claims incurred under the insured program prior to July 1, 2021, the Company retains risk of loss up to the first $3.0 million per occurrence on policies issued after June 30, 2020 and $5.0 million per occurrence on policies issued before that date. On June 29, 2020, the Company entered into a loss portfolio transfer agreement (“LPT 1”) to remove all outstanding workers’ compensation claims obligations for claims incurred under its insured program between February 1, 2014 and December 31, 2017. This transaction reduced the Company’s outstanding workers’ compensation liabilities and trust account balances by $115.7 million. On June 30, 2021, the Company entered into a loss portfolio transfer agreement (“LPT 2”) to remove all remaining outstanding workers’ compensation claims obligations for client policies issued under its insured program up to June 30, 2018. This transaction reduced the Company’s outstanding workers’ compensation liabilities by $53.1 million. The following is a summary of the risk retained by the Company under its insured program after considering the effects of the loss portfolio transfers and current insurance arrangements:
Year | Claims risk retained
2014 | No
2015 | No
2016 | No
2017 | No
2018 (1) | No
2019 (1) | Yes
2020 | Yes
2021 - Through June 30 | Yes
2021 - July 1 and after | No
2022 | No
(1) LPT 2 excluded approximately 10% of claims from 2018 and included an approximately offsetting amount of claims from 2019. The Company is required to maintain minimum collateral levels for certain policies issued under the insured program, which is held in a trust account (the “trust account”). The balance in the trust account was $198.6 million and $273.6 million at September 30, 2022 and December 31, 2021, respectively. The trust account balance is included as a component of the current and long-term restricted cash and investments in the Company’s condensed consolidated balance sheets. Self-insured programs The Company is a self-insured employer with respect to workers' compensation coverage for all employees, including employees of PEO clients that elect to participate in our workers’ compensation program, working in Colorado, Maryland and Oregon. 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 client employees working in Arizona and Utah. Approximately 18% of the Company’s workers’ compensation exposure is covered through self-insurance or Ecole (the “self-insured programs”). For all claims incurred under the Company’s self-insured programs, the Company retains risk of loss up to the first $3.0 million per occurrence, except in Maryland and Colorado, where the Company’s retention per occurrence is $1.0 million and $2.0 million, respectively. For claims incurred under the Company’s self-insured programs prior to July 1, 2020, the Company retains risk of loss up to the first $5.0 million per occurrence, except in Maryland and Colorado, where the retention per occurrence is $1.0 million and $2.0 million, respectively. The states of California, Maryland, Oregon, Washington, Colorado and Delaware required the Company to maintain collateral totaling $54.5 million and $58.4 million at September 30, 2022 and December 31, 2021, 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, 2022, the Company provided surety bonds totaling $54.5 million, including a California requirement of $22.3 million. Claims liabilities The Company provided a total of $227.3 million and $279.4 million at September 30, 2022 and December 31, 2021, respectively, as an estimated future liability for unsettled workers' compensation claims liabilities. Of this amount, $3.0 million and $2.2 million at September 30, 2022 and December 31, 2021, 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 insurance carriers of $3.0 million and $2.2 million at September 30, 2022 and December 31, 2021, respectively, included in other assets in the condensed consolidated balance sheets.

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