Note 3 – Workers’ Compensation Claims

The following table summarizes the aggregate workers’ compensation reserve activity (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Beginning balance
Workers' compensation claims liabilities	$	378,874		$	326,233		$	363,517		$	312,537
Add: claims expense accrual
Current period		39,967			37,878			79,019			73,153
Prior periods		—			2,350			(6	)		5,264
		39,967			40,228			79,013			78,417
Less: claim payments related to
Current period		5,148			4,148			6,281			5,280
Prior periods		22,856			25,998			45,391			49,462
		28,004			30,146			51,672			54,742

Add: Change in claims incurred in excess of retention limits		(23	)		(6,236	)		(44	)		(6,133	)

Ending balance
Workers' compensation claims liabilities	$	390,814		$	330,079		$	390,814		$	330,079
Incurred but not reported (IBNR)	$	231,702		$	167,693		$	231,702		$	167,693

Ratio of IBNR to workers' compensation claims liabilities		59	%		51	%		59	%		51	%

The Company is a self-insured employer with respect to workers' compensation coverage for all of its employees (including employees co-employed through our client service agreements) working in Colorado, Maryland and Oregon, except as described below. 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 obtains policies from Chubb Limited (“Chubb”) for all California-based clients along with clients in Delaware, Virginia, Pennsylvania, North Carolina, New Jersey, West Virginia, Idaho and the District of Columbia. The arrangement with Chubb, known as a fronted program, provides BBSI a licensed, admitted insurance carrier to issue policies on behalf of BBSI. The risk of loss up to the first $5.0 million per occurrence is retained by BBSI through various agreements. Chubb assumes credit risk should BBSI be unable to satisfy its indemnification obligations.

As part of its fronted workers’ compensation insurance program with Chubb, the Company makes monthly payments into trust accounts (the “Chubb trust accounts”) to be used for the payment of future claims. The balance in the Chubb trust accounts was $408.1 million and $380.6 million at June 30, 2018 and December 31, 2017, respectively. The Chubb trust accounts’ balances are included as a component of the current and long-term restricted cash and investments on the Company’s condensed consolidated balance sheets.

The Company restructured its fronted program with Chubb effective July 1, 2018. The new agreement maintains retention levels of $5.0 million per occurrence but now requires that collateral be advanced at the inception of the policy term. To partially satisfy these additional collateral requirements, the Company provided a surety bond of $30.0 million and a letter of credit of $63.7 million from its principal bank, Wells Fargo Bank, National Association (the “Bank”).

The states of California, Maryland, Oregon, Washington, Colorado and Delaware required us to maintain specified investment balances or other financial instruments totaling $85.1 million and $96.8 million at June 30, 2018 and December 31, 2017, respectively, to cover potential workers’ compensation claims losses related to the Company’s current and former status as a self-insured employer. At June 30, 2018, the Company provided surety bonds and standby letters of credit totaling $85.1 million, including a California requirement of $70.6 million.

The Company provided a total of $390.8 million and $363.5 million at June 30, 2018 and December 31, 2017, respectively, as an estimated future liability for unsettled workers' compensation claims liabilities. Of this amount, $2.9 million and $3.0 million at June 30, 2018 and December 31, 2017, 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 excess insurance carriers of $2.9 million and $3.0 million at June 30, 2018 and December 31, 2017, respectively, included in other assets on the condensed consolidated balance sheets.