INSURANCE

We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. For the majority of these insurance programs, we retain the initial $1.0 million of exposure on a per-occurrence basis, either through deductibles or self-insured retentions. Beyond the retained exposures, we have varying primary policy limits ranging between $1.0 million and $5.0 million per occurrence. To cover general liability and automobile liability losses above these primary limits, we maintain commercial umbrella insurance policies that provide aggregate limits of $200.0 million. Our insurance policies generally cover workers’ compensation losses to the full extent of statutory requirements. Additionally, to cover property damage risks above our retained limits, we maintain policies that provide per occurrence limits of $75.0 million. We are also self-insured for certain employee medical and dental plans. We retain up to $0.4 million of exposure on a per participant per-year basis with respect to claims under our medical plan.

The adequacy of our reserves for workers’ compensation, general liability, automobile liability, and property damage insurance claims is based upon known trends and events and the actuarial estimates of required reserves considering the most recently completed actuarial reports. We use all available information to develop our best estimate of insurance claims reserves as information is obtained. The results of actuarial studies are used to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years. During 2016, we performed both our annual actuarial evaluation and an actuarial review. As a result of these studies, we increased our reserves for claims related to prior periods by $31.8 million during the nine months ended July 31, 2016, as described below.

Annual Actuarial Evaluations Performed During the Third Quarter of 2016

During the three months ended July 31, 2016, annual actuarial evaluations were performed for the majority of our casualty insurance programs. These evaluations excluded claims relating to certain previously acquired businesses. We expect to complete the evaluation of those claims in the fourth quarter of 2016. These evaluations considered all changes made to claims reserves and claim payment activity for the period commencing May 1, 2015 and ending April 30, 2016 (the “Evaluation Period”). We performed these evaluations for all policy years in which open claims existed.

The annual actuarial evaluations completed to date show unfavorable developments in our estimate of ultimate losses related to general liability, workers’ compensation, and automobile liability claims, as explained below. While we have made significant improvements in our risk management programs, the actuarial evaluation demonstrates these improvements have had a modest impact on prior years and that the impact is not occurring at the pace originally forecasted by the actuaries.

The actuarial evaluations related to our general liability program showed that the total number of claims has remained relatively stable for prior years. However, we experienced adverse developments in prior year claims, which are largely attributable to adjustments on certain property damage claims, in addition to losses for alleged bodily injuries. These fact patterns developed subsequent to the actuarial review performed in the first quarter of 2016 and resulted in increases to our estimate of ultimate losses. Also contributing to the increase in projected cost estimates was a higher than expected average incurred cost for our less severe claims observed during the Evaluation Period.

Our workers’ compensation estimate of ultimate losses was negatively impacted by increases in projected costs for a significant number of prior year claims in California and New York. These claims have been impacted by statutory, regulatory, and legal implications. In California, we also experienced increases in severity of claims and in frequency of claims beyond that previously projected in the actuarial review performed in the first quarter of 2016.

Our automobile liability program covers our fleet of passenger vehicles, service vans, and shuttle buses, which are associated with our various transportation service contracts. Claim frequency and severity associated with our fleet operations developed unfavorably versus actuarial expectations. The adverse development was primarily attributable to claims in 2013 through 2015.

After analyzing the recent loss development patterns, comparing the loss development against benchmarks, and applying actuarial projection methods to determine the estimate of ultimate losses, we increased our total reserves by $19.8 million during the third quarter of 2016.

Actuarial Review Performed During the First Quarter of 2016

During the three months ended January 31, 2016, an actuarial review was performed for the majority of our casualty insurance programs that indicated unfavorable developments in our estimates of ultimate losses related to certain general liability, workers’ compensation, and automobile liability claims, as described below. This review considered all changes made to claims reserves and claim payment activity for the period commencing May 1, 2015 and ending October 31, 2015 (the “Review Period”). We performed this review for all policy years in which open claims existed.

For our general liability program, claim frequency was generally consistent with our expectations. However, the actuarial review identified adverse developments in prior year claims. The adverse developments can be largely attributed to increases in the projected costs to resolve several high exposure claims within our retained limits. Also contributing to the increase in projected cost estimates was a higher than expected average incurred cost for our less severe claims observed during the Review Period.

Our workers’ compensation estimate of ultimate losses was negatively impacted by increases in projected costs for a significant number of prior year claims in New York. These claims have been impacted by increases in statutory benefits and a slowing of claims closures observed during the Review Period. In California, we experienced increases in severity of claims and in frequency of claims beyond that previously projected.

For our automobile liability program, the increase in the projected cost estimates was primarily associated with significant claim reserve adjustments for a small population of high exposure claims within the 2013 policy year. Also contributing to the increase in projected estimates was an increase in claims frequency in the 2015 policy year observed during the Review Period.

As a result of these developments in our casualty insurance programs, we increased our reserves for known claims as well as our estimate of the loss amounts associated with incurred but not reported claims. As a result of this actuarial review, we increased our reserves for claims related to prior periods by $6.0 million at January 31, 2016. As we continued to see a similar trend in adverse developments, we increased our reserves by an additional $6.0 million, resulting in a total increase to our reserves for claims related to prior periods of $12.0 million at April 30, 2016.

At July 31, 2016 and October 31, 2015, we had insurance claim reserves totaling $422.6 million and $387.4 million, respectively, which included $6.7 million and $8.1 million in reserves, respectively, related to our medical and dental self-insured plans. At July 31, 2016 and October 31, 2015, we also had insurance recoverables, which we include in “Other current assets” and “Other noncurrent assets” on the accompanying unaudited consolidated balance sheets, totaling $69.9 million and $65.9 million, respectively.

Instruments Used to Collateralize Our Insurance Obligations



(in millions)	July 31, 2016		October 31, 2015
Standby letters of credit	$	120.1	$	105.4
Surety bonds	57.2		55.9
Restricted insurance deposits	11.2		11.4
Total	$	188.5	$	172.7