I just re-read some of the disclosers they made. First, which is king of odd, (I think I am reading this right) They found some expenses in the past that were overstated, offset almost exactly by workers comp liabilities that were understated. When insurance companies announce that they need to bolster reserves, the number they pick to bolster is at the "low end or reasonableness." from an actuarial standpoint. That means almost always that they are still underfunded for past reserves by 10-20%. That is because they have negotiated with the accounting firm as to the minimum to make them satisfied. A self insured employer has more latitude than an insurance company, so they can manage their accounting more easily from a pure accounting standpoint.
I also find the wording interesting and this may give us insight as to why the big four acctg firm was not identified:
"Based upon its review of the final report by the "Big Four" accounting firm performing the forensic investigation, BBSI's audit committee concluded that while certain expenses shifted between periods, there was no effect on pretax income, net income or earnings per share on a cumulative basis for the periods under investigation"
That is not saying the forensic accounting firm concluded this, it is saying that they made their own decision based on the review. That could mean that they hired the firm subject to secrecy on both sides and the company can use it as a cover without telling an outright lie and imply the accounting firm concluded what the company actually concluded. Does that make any sense?
Since I am not an insider, I would have to agree this is an opinion of mine, but an educated opinion. I don't know Elich or others running the company, but I do know how to read a balance sheet and generally know what is dangerous that is not on the balance sheet (such as LOC's). And I know and follow workers compensation, including California and have followed the companies that have come and gone over the past 20 years. I also know a bit about PEO's that use the workers compensation system to run themselves, eventually into the ground. My belief of investing is that I invest and not speculate. But where I think I can add some thoughtful outside input, I will sometimes add my 2 cents. You can take it or leave it. I don't care.
In the case of BBSI, my opinion is not if the company will go down, but when. I know they can play with WC reserves for a long time, even more than insurance companies can. I do feel bad for the clients who will lose some, but at least since 2015, ACE will get the first monies from their restricted cash and LOC's, in order to pay the claims.
I cannot opine on the integrity of the management. I do know most PEO management pushes the limits and some are down right fraudulent. I do not know which category this management is in.
I am sure they are arguing right now with the audit companies as to what will be stated. We will see who wins. Regardless, it is unlikely the financials will get better. Right now their future workers comp reserves are very likely light and they can still monkey with them legally so it is likely they will still be light. The tangible net worth right now is about zero. Is the tangible worth anything? Almost all their cash is tied up with either the state of CA or ACE regarding their reserves. They also have millions in LOC's guaranteed by a bank that they must be paying a pretty penny for and those will increase to cover their deductibles. those do not show up on their balance sheet. They have, in the past 10 years, net, made virtually no money.
Otherwise, this is a great, profitable and viable company.
A question came up quite recently. I was talking with a workers compensation "insured with BBSI" business who had heard that there were "difficulties" financially at BBSI. Since they had been with BBSI when they were self insured and also are with them under the ACE deductible plan, they were trying to get answers. The sales person at BBSI assured the client that BBSI was not in any difficulty and that was only a smoke screen from detractors in the insurance industry. The insured has a "few hundred thousand dollars of residuals" with BBSI (I don't know what that is) and asked BBSI what if BBSI had to declare bankruptcy, would they get their residuals back? The answer was astounding, in that they said it would be returned to them immediately in that scenario and that money was safer than if it were in a bank. I find that interesting. So, what are the residuals that BBSI keeps? How much is it in total that they potentially owe back to their clients. Is that on their balance sheet? And I am not convinced any of that is protected in case of BK?
This is someone who has been buying their workers compensation from BBSI for 5-6 years and paying them about 300K per year for the WC portion. Not too many claims. I wonder if this is a systemic message or one off from a sales person trying to retain an account.
Likely a scapegoat, but doing what he was told, most likely. Reminds me of another insurance entity of yesteryear. Fremont Indemnity, et al. The head actuary got fired or inadequate reserves. She must have valued he job because she believed what she was told and perhaps bent the rules herself as preservation, but they threw her under the bus first, right after her eyes were opened and she raise the flag.
So...they are doing all this auditing and will likely have to restate past results, especially balance sheet. Do you think it will be a non material restatement, or to increase net worth? Oh... I thought not...
So, stated as of 9-30-15: Net worth is 50m, tangible is 48 mil. This is miraculously up 11 mil from 12-31-14. Hmm. I think the president makes more salary than their true net worth?
I also recommend they make sure they audit thoroughly especially WC reserves, for the most recent years, also.
We all know that the no tangible is actually worthless. So...does a restatement mean they must go to chapter 11 to survive? Just a question.
Stonewood Insurance-Falls Lake is one of the worst insurance companies I have ever dealt with. I hope they do not bring down their parent company. Claims service, when done by their own staff or their selected TPA is terrible. On the underwriting side, they ask so many nonsense questions, that it drives a broker over a cliff. The only business I will ever place with them is business I cannot place anywhere else.
Are you an insider or a liar? Or are you just guessing and making it to sound as fact? Can you give some details?
The way they are growing an "making money" is what scares folks. It reminds them of certain California based companies in the late 90's that grew rapidly and blew up in a mushroom cloud as g funds took over.