It is important that they continue to grow ahead of their WC losses. It is keeping them afloat.
They price their business super low so, of course, they retain their business.
They market WC like crazy. Clients do like prices well below the market on WC so they tell others. So do insurance brokers who make a pretty penny on it.
Not sure strong comments from non insurance folks who regurgitate management's comments are strong. They do say they are improving reserves. They are not saying they are adequate to ultimate.
Exposure to CA WC market at well below market rates is not that positive in my opinion.
I would say long term, this is risky to say the least.
They should buy back 25 mil dollars worth? Thats about their tangible net worth. But they have lots of cash.
My opinion continues that this is largely a WC insurance company built as a house of cards and sometime will come falling down. They only way to keep it going is to grow as fast as possible, which will, of course, make their demise more spectacular. I think the management, except for the freebees they get every year, have pulled their ownership out of the company and while they are optimists, they are not that optimistic.
Since they hide how much of their revenue is related to WC, I decided to look at their latest financials and try to extrapolate and get a wild estimate as to how far off their WC reserves are.
As of 6-30-2014, on their balance sheet is a total of 122.5 mil in claims liabilities for WC. They also have 31 mil in WC expense for the 2nd quarter (times 4 = 124 mil). It is impossible to tell if they pay the claims under this expense item or if this is just the insurance cost (ACE and reinsurers), but for conservative sake, let’s assume they put it all in there and 30% of that is for insurance company cost and 70% is claims spending. 87 mil. For a rapidly growing insurance company, claims outlay of 87 mil per year would approximate total claims of a bit more than double that or 175-200 mil in expected claims to ultimate. Commensurate premium would be somewhere in the 300-350 mil range per year. Claims tend to pay out a bit over 1/3 the first year and ½ over two years and average life of a claim is 5-6 years. So, I believe the very best case scenario, the 122.5 mil is close to the realm of reason. However, that is using everything to the most optimistic degree. I think the WC portion is much greater than that and perhaps the expense for claims are under “benefits” and I think the quality of the business and pricing is much, much worse than this optimistic scenario, it could be as much as 100-200 mil low. Having said that, their net tangible assets are somewhere around 25 mil. A workers compensation insurance company, in order to keep a decent rating, must maintain statutory capital (the closest here is net tangible) of at least 50% of premium and preferably about 100% of premium (or premium to surplus ratio of 1:1. If the assumed premium is 300 mil, then the premium to surplus ratio is about 12:1 which would cause the insurance department to shut them down as an insurance company. ACE is now backstopping this so they don’t care.
If the res
Good luck to you. I stand by my opinion. The formerly self insured business is not ACe's problem, only going forward. They are coming up on their first renewal and will want to make sure their going forward LOC's are adequate for their plan. They may see or opine on the past self insurance but so long as they remain whole, they will not care about the past. We shall see.
Now BBSI has written a ton of troubled business that insurance companies either do not want or they would be charged a lot more than most companies doing what those companies do. Usually it is companies that have had consistently poor losses. BBSI has been writing that business for extremely cheap rates. They say they just are good at safety and claims--and perhaps they are, but to beat the market by 50 or mor percent? Not likely. So, therefore, the losses they post are 99% likely, in my opinion, to come to bite them just like many insurance companies who were clueless.
the good thing is, now under the insured plan, injured workers are completely taken care of by ACE.
I have not looked at their claims but am an outside observer with some knowledge with workers compensation, so I have to go by what I do know. BBSI has, in the last 2-3 years grown phenomenally by "providing" workers compensation through their PEO programs (and now on a large deductible). Insurance companies have independent actuaries who look at their books and make an opinion to management as to where their ultimate reserves should be. They usually give a range that is pretty wide. Insurance companies (mgmt) can, within certain parameters, be aggressive or conservative. It is very hard for a rapidly growing company to set proper reserves and the latest years use a method that essentially allows management to "pick" their expected losses based on the premium. It is a little more complicated than that, but in the end it is pretty silly that. The older years, are a bit more predictable because half of the loss dollars have already gone into it. An independent will try to figure out based on the past and what management tells them about the business, whether management's guess is correct but then generally leave it to management to pick their losses to ultimate--the reserves. If they are growing rapidly, they can hide past mistakes and keep it going in the future. See Fremont, Cal Comp and others. More recently Tower and Ulico.
Having said that, Insurance companies have more Department of insurance people berthing on them so they try harder--though fail.
Someone who is self insured has a ton less oversight. They do not have to reserve adequately like an insurance company. They simply are not required to do that, though if it is material they must try. Their CPA is not required to be an expert in insurance as a PEO is not an insurance company, so they may believe the company hype--as I am sure the company people do.
I agree. The earnings will again really look good. And hopefully they can continue rapid growth before the tail hits the fan. I think this as an entity can survive, but sometime they will need to rightsize and pop a ton of reserves to the bottom line.
Certainly a lot of this is true. BBSI is largely a workers compensation insurance company without the regulatory retrains from the Dept of insurance. Some of SA is saying is actually quite inflammatory and should not have been mentioned without real facts. However, it is very probable that BBSI is severely under reserved and we also know that if this were an insurance company, they would have been taken over by the Insurance dept. Having said that, I thought they would be able to outrun their losses another year or so.
BBSI was self insured for their WC program and I think they are rolling on to an ACE large deductible plan business annually expiring since 1-1-2014. They have to have all insured by 1-1-15. ACE has very little insurance risk, but has a HUGE financial risk and the question will be how much do they have secured by a letter of credit or cash. Deductible plans for workers compensation are actually (from a legal perspective) loss reimbursement plans. ACE is primarily responsible for all claims and must pay and ask for reimbursement from BBSI. (I think BBSI actually does the claims and who knows how they are co-mingling their funds. ) and if BBSI goes bankrupt, then ACE is on the hook for all claims dollars. So ACE, I am sure is doing their own independent actuarial analysis so they can adjust their collateral. They really do not care a ton about the insurance side. There might be losses over thjie deductible, the they collect plenty of insurance for that. If they did not get enough collateral and they have a default the underwriter will be in deepest doodoo.
I have been saying all along, that I believe BBSI is severely under reserved, since they take troubled business and write it much cheaper than the insurance companies can possibly write it. It happens to insurance companies, too (Tower is the latest casualty and AmTrust may be next). You cannot make that up on volume or on even superb claims adjusting.
You ar so funny. I do not want any company to fail and I don't think AmTrust will fail, but I do think that the tail will hit eventually as you cannot write business so cheap for so long without the consequences. I just think there should be an objective voice who knows insurance since that is a different breed of cat.
It looks like ACP Re is going through with the Tower purchase. They will take the hit and AmTrust will not take a hit from the cut through business. Whew. They can move on to Meadowbrook--hopefully with more caution.
If ACP Re wants this to move fast, then it is a strong indication they are bailing out their sister company and closing the deal. I see no reason that NY would deny the deal. Perhaps next week they can close?
Then you need to buy, buy, buy. Good luck with that. Obviously, I have a west coast perspective. I hear AmTrust repeating over and over, and I think the management believes it, that they only write adequately priced workers compensation business with low severity in California and surrounding states. However, we see constantly, truckers, roofers, framing contractors and the like being written at the cheapest private carrier rates in CA. This is like Tower in that they hadn't a clue of what they were writing. If they do not even know what kind of business they insured and how underpriced it is, they have a future that is uncomfortable, to say the least. If they know they are doing this and are lying, then that is a different story. They then need to grow as rapidly as possible to keep ahead of the tail and then sell out to an unsuspecting buyer. That has been done before and is unethical, but is "genius" on the part of the sellers. This is my opinion only from my perspective out west relating to WC.
Favorable to who? We know the regulators will allow the sale unless all of a sudden ACPRe wants to strip the cash out--which wont happen. So hearings should be routine and answers in a few weeks. Since we have not heard addl screaming from the buyers then why would this deal not close?
or not. My opinion is if they don't get their long tail underwriting in line they won't be around in 3 years. I hear they are looking to by Meadowbrook after they finish the Tower fiasco. Hmm.