Company: ADP
Filing Date: 2025-10-31
Form Type: 10-Q
Source: 0000008670-25-000047
Chunk: 7

Company: AUTOMATIC DATA PROCESSING INC
Filing Date: 2025-10-31
Form: 10-Q
Item: Part I, Item 2
Chunk 7
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 as compared to the three months ended September 30, 2024.

Earnings before Income Taxes

PEO Services' earnings before income taxes decreased for the three months ended September 30, 2025 due to increased operating costs related to state unemployment insurance and selling and marketing expenses, partially offset by increased revenues discussed above.

Margin 

PEO Services' margin decreased for the three months ended September 30, 2025, due to increased operating costs related to state unemployment insurance, selling and marketing expenses and zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.

ADP Indemnity provides workers’ compensation and employer's liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation and employer’s liability insurance policy that caps the exposure for each claim at $1 million per occurrence and has also secured  aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment. 

Additionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company up to the $1 million per occurrence related to the workers’ compensation and employer's liability deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity recorded a pre-tax benefit of approximately $4.7 million for the three months ended September 30, 2025, as compared to approximately $4.8 million for the three months ended September 30, 2024, which were primarily the results of more favorable actuarial loss development in workers’ compensation reserves. ADP Indemnity paid a premium of $278 million in July 2025, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2026 policy year on terms substantially similar to the fiscal 2025 reinsurance policy.

31

Other

The primary components of “Other” are