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Semi retired VP with large Insurance Broker. Love Fly Fishing, Backpacking, good food, and trading.
  • Insiders Are Buying BBSI For A Reason 0 comments
    Nov 28, 2012 3:28 PM | about stocks: BBSI

    New Clients are calling Barrett Business Services and revenues are set to grow steadily in the next few years due to the Property and Casualty Insurance Industry pricing cycle for workers compensation. Carriers are raising rates 15% to 30% in CA and other states are following. Rising rates make BBSI an irresistible choice for many blue collar small business owners.

    The rising WC rates signal a "Hard Market" and that will last for a number of years. Normally hard markets happen during periods of low interest rates but the "Soft Market" (Lower and lower rates) has lasted into the summer of 2012 with signs of a bottom the last year. This is probably because the economy has not supported higher rates and insurance companies had plenty of "Surplus" which is required by states to insure their being financially sound.

    With workers compensation insurance companies are paying out $115.00 for every $100 of WC premium they take in. "Surplus" has eroded because they cannot make up the difference with sound investments. The States, Departments of Insurance get after the companies to raise rates

    The "Hard Market" suddenly hit CA with a vengeance. Insurance companies that had raised their rates a little in January 2012 began raising them substantially in July and August. More rate increases are expected Jan 1 2013. The trend is up. Contractors and similar blue collar business owner's rates are up and coverage is sometimes not available in the standard insurance market.

    BBSI does payroll based workers compensation at very competitive rates. They deliver a level of risk management and claims management substantially higher than the rest of the industry.

    They fight false claims with such vigor that attorneys think twice about going against them. On the other hand legitimate claims are fast tracked to get employees back to work. That separates them from the pack. Need an MRI? You're scheduled the next day, not the next week or two.

    The double edged sword is the incentive bonus. Sixty days after a policy expires they pay their clients a 30% safety incentive bonus based on the total premium less any claims for the year. Clients are assigned a professional accredited claims and risk management safety person who does their loss control meetings, safety manual, OSHA requirements, and much more.

    The compensation for their designated risk manager is performance based and predicated on the amount of the bonus paid to the customer. Everyone at BBSI receives incentive compensation.

    With the payroll structure the employer does not have to come up with the usual deposit and does not have to fear an audit premium at the end of the year. They rarely raise their rates banking on their risk management skills to keep them profitable. The largest rate increase we have seen is 2% in the last 5 years.

    When the hard market hit in August we bought at $17 and they just hit $32. They have new aggressive management and earnings are up. They often lose money the first quarter due to tax payments and are profitable the rest of the year. Insiders are buying. Their sales force has presented to numerous potential clients in the last 5-6 years who are now calling BBSI for help.


    Disclosure: I am long BBSI.

    Additional disclosure: An inside view of trend from a VP with a large Insurance brokerage.

    Stocks: BBSI
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