INSPERITY, INC. (Form: 10-Q, Received: 04/29/2013 15:08:38)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington , D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013.

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 1-13998

Insperity , Inc.

(Exact name of registrant as specified in its charter)

Delaware		76-0479645
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

19001 Crescent Springs Drive
Kingwood, Texas		77339
(Address of principal executive offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code): (281) 358-8986

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 22, 2013, 25,536,653 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

Part I

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

Part II

Item 1.	Legal Proceedings	27

Item 1a.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6.	Exhibits	29

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

ASSETS

	March 31, 2013			December 31, 2012
	(Unaudited)

Current assets:
Cash and cash equivalents	$	227,432		$	264,544
Restricted cash		47,374			47,149
Marketable securities		51,397			16,904
Accounts receivable, net:
Trade		2,465			6,931
Unbilled		196,141			181,040
Other		2,594			2,415
Prepaid insurance		16,887			15,620
Other current assets		13,759			9,651
Deferred income taxes		3,110			7,211
Total current assets		561,159			551,465

Property and equipment:
Land		4,115			4,115
Buildings and improvements		69,012			68,583
Computer hardware and software		82,801			81,140
Software development costs		36,284			35,866
Furniture and fixtures		36,712			36,717
Aircraft		35,879			35,879
		264,803			262,300
Accumulated depreciation and amortization		(172,653	)		(168,358	)
Total property and equipment, net		92,150			93,942

Other assets:
Prepaid health insurance		9,000			9,000
Deposits – health insurance		3,000			3,000
Deposits – workers’ compensation		67,528			64,201
Goodwill and other intangible assets, net		23,274			23,775
Other assets		4,600			4,817
Total other assets		107,402			104,793
Total assets	$	760,711		$	750,200

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INSPERITY, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	March 31, 2013			December 31, 2012
	(Unaudited)

Current liabilities:
Accounts payable	$	2,202		$	3,660
Payroll taxes and other payroll deductions payable		183,511			178,534
Accrued worksite employee payroll cost		168,715			150,070
Accrued health insurance costs		7,484			13,942
Accrued workers’ compensation costs		49,902			49,484
Accrued corporate payroll and commissions		15,523			23,537
Other accrued liabilities		15,348			12,478
Income taxes payable		4,774			4,054
Total current liabilities		447,459			435,759

Noncurrent liabilities:
Accrued workers’ compensation costs		65,702			64,536
Deferred income taxes		8,162			9,000
Total noncurrent liabilities		73,864			73,536

Commitments and contingencies

Stockholders’ equity:
Common stock		308			308
Additional paid-in capital		133,898			133,207
Treasury stock, at cost		(144,998	)		(133,950	)
Accumulated other comprehensive income, net of tax		32			16
Retained earnings		250,148			241,324
Total stockholders’ equity		239,388			240,905
Total liabilities and stockholders’ equity	$	760,711		$	750,200

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Revenues (gross billings of $3.332 billion and $3.231 billion, less worksite employee payroll cost of $2.720 billion and $2.636 billion, respectively)	$	611,836		$	595,177

Direct costs:
Payroll taxes, benefits and workers’ compensation costs		503,718			492,173

Gross profit		108,118			103,004

Operating expenses:
Salaries, wages and payroll taxes		48,211			43,323
Stock-based compensation		2,310			2,155
Commissions		3,207			3,435
Advertising		5,250			4,755
General and administrative expenses		21,986			22,078
Depreciation and amortization		5,145			4,212
		86,109			79,958
Operating income		22,009			23,046

Other income (expense):
Interest, net		69			164
Other, net		9			124
Income before income tax expense		22,087			23,334
Income tax expense		8,914			9,450
Net income	$	13,173		$	13,884

Less distributed and undistributed earnings allocated to participating securities		(383	)		(402	)

Net income allocated to common shares	$	12,790		$	13,482

Basic net income per share of common stock	$	0.51		$	0.54

Diluted net income per share of common stock	$	0.51		$	0.54

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013		2012

Net income	$	13,173	$	13,884

Other comprehensive income:

Unrealized gains on available-for-sale securities, net of tax		16		35

Comprehensive income	$	13,189	$	13,919

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

(Unaudited)

	Common Stock Issued				Additional Paid-In			Treasury			Accumulated Other Comprehensive		Retained
	Shares		Amount		Capital			Stock			Income		Earnings			Total

Balance at December 31, 2012		30,758	$	308	$	133,207		$	(133,950	)	$	16	$	241,324		$	240,905
Purchase of treasury stock, at cost		―		―		―			(13,498	)		—		―			(13,498	)
Exercise of stock options		―		―		(127	)		245			—		―			118
Income tax benefit from stock-based compensation, net		―		―		483			—			—		―			483
Stock-based compensation expense		—		—		318			1,992			—		—			2,310
Other		―		―		17			213			—		―			230
Dividends paid		—		—		—			—			—		(4,349	)		(4,349	)
Unrealized gain on marketable securities, net of tax		—		—		—			—			16		—			16
Net income		—		—		—			—			—		13,173			13,173
Balance at March 31, 2013		30,758	$	308	$	133,898		$	(144,998	)	$	32	$	250,148		$	239,388

See accompanying notes.

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012

Cash flows from operating activities:
Net income	$	13,173		$	13,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,135			4,212
Amortization of marketable securities		441			657
Stock-based compensation		2,310			2,155
Deferred income taxes		3,252			5,341
Changes in operating assets and liabilities:
Restricted cash		(225	)		(331	)
Accounts receivable		(10,814	)		(5,028	)
Prepaid insurance		(1,267	)		(3,362	)
Other current assets		(4,108	)		(41	)
Other assets		(3,109	)		(3,570	)
Accounts payable		(1,458	)		(1,648	)
Payroll taxes and other payroll deductions payable		4,977			9,339
Accrued worksite employee payroll expense		18,645			14,523
Accrued health insurance costs		(6,458	)		(227	)
Accrued workers’ compensation costs		418			547
Accrued corporate payroll, commissions and other accrued liabilities		(3,978	)		(5,362	)
Income taxes payable/receivable		538			2,167
Total adjustments		4,299			19,372
Net cash provided by operating activities		17,472			33,256

Cash flows from investing activities:
Marketable securities:
Purchases		(40,046	)		(1,443	)
Proceeds from dispositions		4,138			—
Proceeds from maturities		1,001			850
Investments and acquisitions		—			(1,200	)
Property and equipment		(2,843	)		(3,435	)
Net cash used in investing activities		(37,750	)		(5,228	)

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INSPERITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012

Cash flows from financing activities:
Purchase of treasury stock	$	(13,498	)	$	(3,253	)
Dividends paid		(4,349	)		(3,899	)
Proceeds from the exercise of stock options		118			803
Income tax benefit from stock-based compensation		665			1,401
Other		230			260
Net cash used in financing activities		(16,834	)		(4,688	)

Net increase (decrease) in cash and cash equivalents		(37,112	)		23,340
Cash and cash equivalents at beginning of period		264,544			211,208
Cash and cash equivalents at end of period	$	227,432		$	234,548

See accompanying notes.

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INSPERITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

(Unaudited)

1.	Basis of Presentation

Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR business offering is provided through our professional employer organization (“PEO”) services, known as Workforce Optimization TM , which encompasses a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services.

In addition to Workforce Optimization, we offer Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Financial Services, Expense Management, Retirement Services and Insurance Services (collectively “Adjacent Businesses”), many of which are offered via desktop applications and software as a service (“SaaS”) delivery models. These other products or services are offered separately, as a bundle, or along with Workforce Optimization.

We provide our Workforce Optimization solution to small and medium-sized businesses in strategically selected markets throughout the United States. For the three months ended March 31, 2013 and 2012, Workforce Optimization revenues from our Texas markets represented 25% and 26%, while Workforce Optimization revenues from our California markets represented 17% of our total Workforce Optimization revenues in both the 2013 and the 2012 periods.

The Consolidated Financial Statements include the accounts of Insperity and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements as of and for the year ended December 31, 2012. Our Consolidated Balance Sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements. Our Consolidated Balance Sheet at March 31, 2013 and the Consolidated Statements of Operations, Comprehensive Income and Cash Flows for the periods ended March 31, 2013 and 2012, and Consolidated Statement of Stockholders’ Equity for the three month period ended March 31, 2013, have been prepared by us without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows, have been made.

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The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.

2.	Accounting Policies

Health Insurance Costs

We provide group health insurance coverage to our worksite employees through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield, Unity Health Plan and Tufts, all of which provide fully insured policies or service contracts.

The policy with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”) as benefits expense in the Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs.

Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $2.8 million as of March 31, 2013, and is reported as a long-term asset. As of March 31, 2013, Plan Costs were less than the net premiums paid and owed to United by $16.8 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $7.8 million balance is included in prepaid insurance, a current asset, in our Consolidated Balance Sheets. The premiums owed to United at March 31, 2013 were $4.0 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.

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Workers’ Compensation Costs

Our workers’ compensation coverage has been provided through an arrangement with the ACE Group of Companies (“the ACE Program”) since 2007. The ACE Program is fully insured in that ACE has the responsibility to pay all claims incurred regardless of whether we satisfy our responsibilities. Through September 30, 2010, we bore the economic burden for the first $1 million layer of claims per occurrence and the insurance carrier was and remains responsible for the economic burden for all claims in excess of such first $1 million layer.

Effective October 1, 2010, in addition to our bearing the economic burden for the first $1 million layer of claims per occurrence, we also bear the economic burden for those claims exceeding $1 million, up to a maximum aggregate amount of $5 million per policy year.

Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.

We employ a third party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees’ job responsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the three months ended March 31, 2013 and March 31, 2012, we reduced our workers’ compensation costs by $3.6 million and $3.5 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rates utilized in 2013 and 2012 were 0.5% and 1.0%, respectively) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.

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The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:

	Three Months Ended March 31,
	2013			2012
	(in thousands)

Beginning balance, January 1,	$	111,685		$	104,791
Accrued claims		9,134			9,495
Present value discount		(160	)		(347	)
Paid claims		(7,583	)		(6,976	)
Ending balance	$	113,076		$	106,963

Current portion of accrued claims	$	47,374		$	45,068
Long-term portion of accrued claims		65,702			61,895
	$	113,076		$	106,963

The current portion of accrued workers’ compensation costs on the Consolidated Balance Sheets at March 31, 2013 includes $2.5 million of workers’ compensation administrative fees.

As of March 31, 2013 and 2012, the undiscounted accrued workers’ compensation costs were $124.3 million and $120.1 million, respectively.

At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in our Consolidated Balance Sheets. As of March 31, 2013, we had restricted cash of $47.4 million and deposits of $67.5 million.

Our estimate of incurred claim costs expected to be paid within one year are recorded as accrued workers’ compensation costs and included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year are included in long-term liabilities on our Consolidated Balance Sheets.

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3.	Cash, Cash Equivalents and Marketable Securities

The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments:

	March 31,			December 31,
	2013			2012
	(in thousands)
Overnight Holdings
Money market funds (cash equivalents)	$	178,040		$	255,000
Investment Holdings
Money market funds (cash equivalents)		38,722			26,087
Marketable securities		51,397			16,904
		268,159			297,991
Cash held in demand accounts		22,345			21,732
Outstanding checks		(11,675	)		(38,275	)
Total cash, cash equivalents and marketable securities	$	278,829		$	281,448

Cash and cash equivalents	$	227,432		$	264,544
Marketable securities		51,397			16,904
	$	278,829		$	281,448

Our cash and overnight holdings fluctuate based on the timing of the client’s payroll processing cycle. Included in the cash balance as of March 31, 2013 and December 31, 2012, are $169.6 million and $158.2 million, respectively, in funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $11.9 million and $13.5 million in client prepayments, respectively.

We account for our financial assets in accordance with Accounting Standard Codification (“ASC”) 820, Fair Value Measurement . This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors:

Level 1 - quoted prices in active markets using identical assets

Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs

Level 3 - significant unobservable inputs

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The following table summarizes the levels of fair value measurements of our financial assets:

	Fair Value Measurements
	(in thousands)
	March 31,
	2013		Level 1		Level 2		Level 3

Money market funds	$	216,762	$	216,762	$	—	$	—
Municipal bonds		51,397		—		51,397		—
Total	$	268,159	$	216,762	$	51,397	$	—

	Fair Value Measurements
	(in thousands)
	December 31,
	2012		Level 1		Level 2		Level 3

Money market funds	$	281,087	$	281,087	$	—	$	—
Municipal bonds		16,904		—		16,904		—
Total	$	297,991	$	281,087	$	16,904	$	—

The municipal bond securities valued as Level 2 investments are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. Government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs.

The following is a summary of our available-for-sale marketable securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
			(in thousands)
March 31, 2013:
Municipal bonds	$	51,342	$	56	$	(1	)	$	51,397

December 31, 2012:
Municipal bonds	$	16,878	$	29	$	(3	)	$	16,904

During the periods ended March 31, 2013 and 2012, we had no realized gains or losses recognized on sales of marketable securities.

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As of March 31, 2013, the contractual maturities of our marketable securities were as follows:

	Amortized Cost		Estimated Fair Value
	(in thousands)

Less than one year	$	23,231	$	23,255
One to five years		28,111		28,142
Total	$	51,342	$	51,397

4.	Revolving Credit Facility

We have a $100 million revolving credit facility (the “Facility”), which may be increased to $150 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (the “Credit Agreement”). The Facility matures on September 15, 2015. The Facility contains both affirmative and negative covenants, which we believe are customary for arrangements of this nature. At March 31, 2013, we were in compliance with all financial covenants under the Credit Agreement and had not drawn on the Facility.

5.	Stockholders’ Equity

Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases are to be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors. During the three months ended March 31, 2013, 356,653 shares were repurchased under the Repurchase Program and 115,558 shares not subject to the Repurchase Program were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of March 31, 2013, we were authorized to repurchase an additional 472,819 shares under the program.

The Board declared quarterly dividends of $0.17 per share of common stock in the first quarter of 2013, and $0.15 per share of common stock in the first quarter of 2012, resulting in a total of $4.3 million and $3.9 million, respectively, in dividends paid during the first three months of each year.

6.	Net Income per Share

We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which include unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options.

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The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations:

	Three Months Ended March 31,
	2013			2012
	(in thousands)

Net income	$	13,173		$	13,884
Less distributed and undistributed earnings allocated to participating securities		(383	)		(402	)
Net income allocated to common shares	$	12,790		$	13,482

Weighted average common shares outstanding		24,897			25,087
Incremental shares from assumed conversions of common stock options		30			71
Adjusted weighted average common shares outstanding		24,927			25,158

Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect		16			16

7.	Commitments and Contingencies

We are a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.

Lumbermens Mutual Casualty Company

In 2003, facing continued capital constraints and a series of downgrades from various rating agencies, our former workers’ compensation insurance carrier for the two-year period ended September 2003, Lumbermens Mutual Casualty Company, formerly known as Kemper, (“Lumbermens Mutual”) made the decision to substantially cease underwriting operations and voluntarily entered into “run-off.” In July 2012, Lumbermens Mutual announced that an agreed order of rehabilitation had been entered against it in Cook County, Illinois. Under the order, the Director of the Illinois Department of Insurance was vested with control over Lumbermens Mutual property and decision-making. The Director publicly announced that claims will continue to be paid during the rehabilitation process, and he intends to use the period before an order of liquidation is entered to work with state guaranty associations to prepare for the orderly transition of claim handling responsibilities to such funds once such an order is entered. On March 18, 2013, the Director filed a verified complaint seeking an order of liquidation against Lumbermens Mutual that also seeks a declaration of insolvency. The court has not yet ruled on the March 18, 2013 complaint.

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Guaranty associations are non-profit organizations created by statute for the purpose of protecting policyholders from severe financial losses and preventing delays in claim payment due to the insolvency of an insurer. They do this by assuming responsibility for the payment of claims that would otherwise have been paid by the insurer had it not become insolvent. Each state has one or more guaranty association(s), with each association handling certain types of insurance. Insurance companies are required to be members of the state guaranty association as a condition of being licensed to do business in the state.

The guaranty associations in some states, including Texas, may assert that state law allows them to recover the amount of benefits paid by the guaranty association along with associated administration and defense costs from an insured with a net worth exceeding certain specified levels. If an Order of Liquidation is entered and if one or more guaranty associations were to seek recovery from us for open claims with Lumbermens Mutual, we may be required to repay those amounts. While we are not certain when or if Lumbermens Mutual will be placed into liquidation or whether any state guaranty association will ultimately assert a claim against us, we intend to vigorously assert any and all available defenses to any such claim. We estimate the outstanding claims that may be subject to such contentions from state guaranty associations to range from $2.9 million to $5.0 million as of March 31, 2013. In the event state guaranty associations attempt to seek recovery from us and are successful, we would be required to pay such claims, which would reduce net income and could have a material adverse effect on net income in the reported period.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012, as well as our Consolidated Financial Statements and notes thereto included in this quarterly report on Form 10-Q.

New Accounting Pronouncements

We believe we have implemented the accounting pronouncements with a material impact on our financial statements .

Results of Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012.

The following table presents certain information related to our results of operations:

	Three Months Ended March 31,
	2013		2012		% Change
	(in thousands, except per share and statistical data)
Revenues (gross billings of $3.332 billion and $3.231 billion, less worksite employee payroll cost of $2.720 billion and $2.636 billion, respectively)	$	611,836	$	595,177		2.8	%
Gross profit		108,118		103,004		5.0	%
Operating expenses		86,109		79,958		7.7	%
Operating income		22,009		23,046		(4.5	)%
Other income (expense)		78		288		(72.9	)%
Net income		13,173		13,884		(5.1	)%
Diluted net income per share of common stock		0.51		0.54		(5.6	)%

Statistical Data:
Average number of worksite employees paid per month		123,391		121,938		1.2	%
Revenues per worksite employee per month (1)	$	1,653	$	1,627		1.6	%
Gross profit per worksite employee per month		292		282		3.5	%
Operating expenses per worksite employee per month		233		219		6.4	%
Operating income per worksite employee per month		59		63		(6.3	)%
Net income per worksite employee per month		36		38		(5.3	)%

(1)	Gross billings of $9,002 and $8,833 per worksite employee per month, less payroll cost of $7,349 and $7,206 per worksite employee per month, respectively.

Revenues

Our revenues for the first quarter of 2013 increased 2.8% over the 2012 period, primarily due to a 1.2% increase in the average number of worksite employees paid per month and a 1.6%, or $26 increase in revenues per worksite employee per month.

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By region, our Workforce Optimization revenue change from the first quarter of 2012 and distribution for the quarters ended March 31, 2013 and 2012 were as follows:

	Three Months Ended March 31,							Three Months Ended March 31,
	2013		2012		% Change			2013			2012
	(in thousands)							(% of total revenues)

Northeast	$	162,289	$	158,965		2.1	%		26.9	%		27.0	%
Southeast		55,685		53,348		4.4	%		9.2	%		9.1	%
Central		89,749		87,294		2.8	%		14.9	%		14.8	%
Southwest		164,061		163,806		0.2	%		27.2	%		27.9	%
West		131,689		124,606		5.7	%		21.8	%		21.2	%
		603,473		588,019		2.6	%		100.0	%		100.0	%
Other revenue		8,363		7,158		16.8	%
Total revenue	$	611,836	$	595,177		2.8	%

Other revenue is comprised primarily of revenues generated by our Adjacent Businesses.

Our Workforce Optimization growth rate is affected by three primary sources – worksite employees paid from new client sales, client retention and the net change in existing clients through worksite employee new hires and layoffs. During the first quarter of 2013, the net change in existing clients and client retention declined, while worksite employees paid from new client sales increased over the first quarter of 2012.

Gross Profit

Gross profit for the first quarter of 2013 increased 5.0% over the first quarter of 2012 to $108.1 million. The average gross profit per worksite employee increased 3.5% to $292 per month in the 2013 period from $282 per month in the 2012 period. Included in gross profit in 2013 is a $13 per worksite employee per month contribution from our Adjacent Businesses compared to $10 per worksite employee per month in the 2012 period.

Our pricing objectives attempt to maintain or improve the gross profit per worksite employee by increasing revenue per worksite employee to match or exceed changes in primary direct costs and operating expenses. Our revenues increased 1.6% per worksite employee per month and our direct costs, which primarily include payroll taxes, benefits and workers’ compensation expenses, increased 1.2% per worksite employee per month compared to the first quarter of 2012. The primary direct cost components changed as follows:

Benefits costs – The cost of group health insurance and related employee benefits increased $19 per worksite employee per month, or 3.6% on a cost per covered employee basis compared to the first quarter of 2012. The percentage of worksite employees covered under our health insurance plans was 72.4% in the 2013 period compared to 72.8% in the 2012 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.

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Workers’ compensation costs – Workers’ compensation costs decreased 1.1%, or $1 per worksite employee per month compared to the first quarter of 2012. As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.53% in the 2013 period compared to 0.56% in the 2012 period. During the 2013 period, we recorded reductions in workers’ compensation costs of $3.6 million, or 0.15% of non-bonus payroll costs, for changes in estimated losses related to prior reporting periods, compared to $3.5 million, or 0.15% of non-bonus payroll costs in the 2012 period. Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.

Payroll tax costs – Payroll taxes increased 0.7%, but decreased $3 per worksite employee per month compared to the first quarter of 2012. Payroll taxes as a percentage of payroll cost were 9.4% in the 2013 period compared to 9.6% in the 2012 period. Payroll taxes increased due to a 3.2% increase in total payroll cost, partially offset by lower state unemployment tax rates in 2013.

Operating Expenses

The following table presents certain information related to our operating expenses:

	Three Months Ended March 31,							Three Months Ended March 31,
	2013		2012		% Change			2013		2012		% Change
	(in thousands)							(per worksite employee per month)

Salaries, wages and payroll taxes	$	48,211	$	43,323		11.3	%	$	130	$	119		9.2	%
Stock–based compensation		2,310		2,155		7.2	%		6		6		—
Commissions		3,207		3,435		(6.6	)%		9		9		—
Advertising		5,250		4,755		10.4	%		14		13		7.7	%
General and administrative expenses		21,986		22,078		(0.4	)%		60		60		—
Depreciation and amortization		5,145		4,212		22.2	%		14		12		16.7	%
Total operating expenses	$	86,109	$	79,958		7.7	%	$	233	$	219		6.4	%

Operating expenses increased 7.7% to $86.1 million compared to $80.0 million in the first quarter of 2012. Operating expenses per worksite employee per month increased to $233 in the 2013 period from $219 in the 2012 period. The components of operating expenses changed as follows:

Salaries, wages and payroll taxes of corporate and sales staff increased 11.3%, or $11 per worksite employee per month compared to the 2012 period. This increase was due to a 4.9% rise in headcount primarily related to an increase in the number of Business Performance Advisors, and higher incentive compensation accruals resulting from improved operating results.

Stock-based compensation increased 7.2%, but remained flat on a per worksite employee per month basis compared to the 2012 period, due primarily to an increase in the weighted average market value on the date of grant associated with restricted stock awards. The stock-based compensation expense represents amortization of restricted stock awards granted to employees.

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·	Commissions expense decreased 6.6%, but remained flat on a per worksite employee per month basis compared to the 2012 period.

·	Advertising costs increased 10.4%, or $1 per worksite employee per month compared to the 2012 period, primarily due to increased spending on business promotions.

·	General and administrative expenses decreased 0.4%, but remained flat on a per worksite employee per month basis compared to the 2012 period.

·	Depreciation and amortization expense increased 22.2%, or $2 per worksite employee per month compared to the 2012 period, primarily due to investments in our technology infrastructure and amortization associated with our acquisitions.

Income Tax Expense

Our effective income tax rate was 40.4% in the 2013 period compared to 40.5% in the 2012 period. Our provision for income taxes differed from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses.

Operating and Net Income

Operating and net income per worksite employee per month was $59 and $36 in the 2013 period, versus $63 and $38 in the 2012 period.

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Non-GAAP Financial Measures

Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our worksite employees. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program. As a result, our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the table below.

	Three Months Ended March 31,
	2013		2012		% Change
GAAP to non-GAAP reconciliation:	(in thousands, except per worksite employee per month data)

Payroll cost (GAAP)	$	2,720,512	$	2,636,129		3.2	%
Less: Bonus payroll cost		342,565		367,823		(6.9	)%
Non-bonus payroll cost	$	2,377,947	$	2,268,306		4.8	%

Payroll cost per worksite employee per month (GAAP)	$	7,349	$	7,206		2.0	%
Less: Bonus payroll cost per worksite employee per month		925		1,005		(8.0	)%
Non-bonus payroll cost per worksite employee per month	$	6,424	$	6,201		3.6	%

Liquidity and Capital Resources

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, potential acquisitions and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct and operating expenses, we rely primarily on cash from operations. Longer-term projects or significant acquisitions may be financed with debt or equity. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources. We had $278.8 million in cash, cash equivalents and marketable securities at March 31, 2013, of which approximately $169.6 million was payable in early April 2013 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $11.9 million were customer prepayments that were payable in April 2013. At March 31, 2013, we had working capital of $113.7 million compared to $115.7 million at December 31, 2012. We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under our credit facility will be adequate to meet our liquidity requirements for the remainder of 2013. We will rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

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We have a $100 million revolving credit facility (“Facility”) with a syndicate of financial institutions. The Facility is available for working capital and general corporate purposes, including acquisitions, and was undrawn at March 31, 2013. Please read Note 4 to the Consolidated Financial Statements, “Revolving Credit Facility,” for additional information.

Cash Flows from Operating Activities

Net cash provided by operating activities in 2013 was $17.5 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:

Timing of client payments / payroll levels – We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients at least one day prior to the payment of worksite employee payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many worksite employees are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday. In the period ended March 31, 2013, the last business day of the reporting period was a Friday and client prepayments were $11.9 million and accrued worksite employee payroll was $168.7 million. In the period ended March 31, 2012, the last business day of the reporting period was also a Friday and client prepayments were $10.7 million and accrued worksite employee payroll was $144.8 million.

Workers’ compensation plan funding – Under our workers’ compensation insurance arrangements, we make monthly payments to the carriers comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). These pre-determined amounts are stipulated in our agreements with the carriers, and are based primarily on anticipated worksite employee payroll levels and workers’ compensation loss rates during the policy year. Changes in payroll levels from those that were anticipated in the arrangements can result in changes in the amount of cash payments, which will impact our reporting of operating cash flows. Our claim funds paid, based upon anticipated worksite employee payroll levels and workers’ compensation loss rates, were $11.1 million in the first three months of 2013 and $10.6 million in the first three months of 2012. However, our estimate of workers’ compensation loss costs was $9.0 million in 2013 and $9.1 million in 2012, respectively.

Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. At March 31, 2013, premiums owed and cash funded to United have exceeded Plan Costs, resulting in a $16.8 million surplus, $7.8 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Consolidated Balance Sheets. The premiums owed to United at March 31, 2013, were $4.0 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

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Operating results – Our net income has a significant impact on our operating cash flows. Our net income decreased 5.1% to $13.2 million in the three months ended March 31, 2013, compared to $13.9 million in the three months ended March 31, 2012. Please read “Results of Operations – Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012 .”

Cash Flows Used in Investing Activities

Net cash flows used in investing activities were $37.8 million for the three months ended March 31, 2013, primarily due to marketable securities purchases, net of maturities and dispositions, of $34.9 million.

Cash Flows Used in Financing Activities

Net cash flows used in financing activities were $16.8 million for the three months ended March 31, 2013, including $13.5 million in stock repurchases and $4.3 million in dividends paid.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash equivalent short-term investments and our available-for-sale marketable securities. In addition, borrowings under our Facility bear interest at a variable market rate. As of March 31, 2013, we had not drawn on the Facility. Please read Note 4 to the Consolidated Financial Statements, “Revolving Credit Facility,” for additional information. The cash equivalent short-term investments consist primarily of overnight investments, which are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned on these investments. The available-for-sale marketable securities are subject to interest rate risk because these securities generally include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates.

We attempt to limit our exposure to interest rate risk primarily through diversification and low investment turnover. Our investment policy is designed to maximize after-tax interest income while preserving our principal investment. As a result, our marketable securities consist of tax-exempt short and intermediate-term debt securities, which are primarily prefunded municipal bonds that are secured by escrow funds containing U.S. Government Securities.

ITEM 4. CONTROLS AND PROCEDURES.

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2013.

There has been no change in our internal controls over financial reporting that occurred during the three months ended March 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS.

Please read Note 7 to the Consolidated Financial Statements, “Commitments and Contingencies,” which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings, unit growth, profit per worksite employee, pricing, operating expenses or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: (i) continued effects of the economic recession and general economic conditions; (ii) regulatory and tax developments and possible adverse application of various federal, state and local regulations; (iii) the ability to secure competitive replacement contracts for health insurance and workers’ compensation contracts at expiration of current contracts; (iv) increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers and other insurers, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims; (v) failure to manage growth of our operations and the effectiveness of our sales and marketing efforts; (vi) changes in the competitive environment in the PEO industry, including the entrance of new competitors and our ability to renew or replace client companies; (vii) our liability for worksite employee payroll, payroll taxes and benefits costs; (viii) our liability for disclosure of sensitive or private information; (ix) our ability to integrate or realize expected return on our acquisitions; and (x) an adverse final judgment or settlement of claims against Insperity. These factors are discussed in further detail in our 2012 Annual Report on Form 10-K under “Factors That May Affect Future Results and the Market Price of Common Stock” on page 19, and elsewhere in this report. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

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There have been no material changes in the risk factors disclosed pursuant to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by Insperity during the three months ended March 31, 2013, of equity securities that are registered by Insperity pursuant to Section 12 of the Exchange Act:

Period	Total Number of Shares Purchased (1)(2)			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)		Maximum Number of Shares that may yet be Purchased under the Program (1)
01/01/2013 – 01/31/2013		—		$	—		—		829,472
02/01/2013 – 02/28/2013		452,211	(2)		28.60		336,653		492,819
03/01/2013 – 03/31/2013		20,000			28.35		20,000		472,819
Total		472,211		$	28.58		356,653		472,819

(1)

Our Board has approved a program to repurchase up to 14,500,000 shares of our outstanding common stock. During the three months ended March 31, 2013, 356,653 shares were repurchased under the program and 115,558 shares were withheld to satisfy tax withholding obligations for the vesting of restricted stock awards. As of March 31, 2013, we were authorized to repurchase an additional 472,819 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.

(2)

These shares include shares of restricted stock that were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date. These shares are not subject to the repurchase program described above.

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ITEM 6. EXHIBITS

(a)

List of exhibits.

10.1	(+)*	Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2009, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company.
10.2	(+)*	Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2008, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company.
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	XBRL Instance Document. (1)
101.SCH	*	XBRL Taxonomy Extension Schema Document.
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	*	XBRL Extension Definition Linkbase Document.
101.LAB	*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document.

(+)

Confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and Exchange Commission.

* Filed with this report.

** Furnished with this report.

(1)

Attached as exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the three month periods ended March 31, 2013 and 2012; (ii) the Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 2013 and 2012; (iii) the Consolidated Balance Sheets at March 31, 2013 and December 31, 2012; (iv) the Consolidated Statement of Stockholders’ Equity for the three month period ended March 31, 2013; (v) the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2013 and 2012; and (vi) Notes to the Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Insperity, Inc.

Date: April 29, 2013	By:	/s/ Douglas S. Sharp
		Douglas S. Sharp
		Senior Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial and Duly Authorized Officer)

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*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.

Exhibit 10.1

AMENDMENT TO THE MINIMUM PREMIUM

FINANCIAL AGREEMENT,

AS AMENDED EFFECTIVE JANUARY 1, 2009,

BY AND BETWEEN

INSPERITY HOLDINGS, INC. (fka ADMINISTAFF OF TEXAS, INC.)

AND

UNITED HEALTHCARE INSURANCE COMPANY

THIS AMENDMENT TO THE MINIMUM PREMIUM FINANCIAL AGREEMENT, as amended effective January 1, 2009, (the “MP Financial Agreement”) is entered into as of January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.), a Texas corporation, and United Healthcare Insurance Company, a Connecticut corporation (this “Amendment”).

RECITALS

WHEREAS, on or about June 25, 2002, the Employer and the Company executed the Minimum Premium Financial Agreement effective January 1, 2002 (“Original Agreement”), and on or about December 3, 2004, the Employer and the Company executed an amendment to the Original Agreement; and

WHEREAS, effective January 1, 2005, the Employer and the Company executed the MP Financial Agreement to amend and restate the Original Agreement (terms capitalized in this Amendment not for grammatical reasons and not otherwise defined in this Amendment shall have the meanings ascribed to them in the MP Financial Agreement); and

WHEREAS, effective January 1, 2008, the Employer and the Company amended the MP Financial Agreement; and

WHEREAS, effective January 1, 2009, the Employer and the Company amended the MP Financial Agreement; and

WHEREAS, the Employer and the Company now wish to further amend the MP Financial Agreement pursuant to the terms of this Amendment effective January 1, 2011, unless otherwise stated herein.

NOW, THEREFORE, in consideration of the following mutual covenants and promises, the parties agree as follows:

ARTICLE I

Section 1.1 The Non-MP Policies . The following revisions to the MP Financial Agreement are effective January 1, 2011:

Section 1(p) is amended and restated in its entirety to read as follows: "Non-MP Policy" means a policy or group contract issued by the Company (or another member of the Company’s controlled group) *** to the *** providing medical benefits under a *** which is not covered by the Minimum Premium Arrangement. "Non-MP Policies" refer collectively to two or more such policies, group contracts or both.

Section 3(c) of the MP Financial Agreement is revised to remove the phrase “or Non-MP Policy.”

Section 4(b)(v) of the MP Financial Agreement is revised to remove the phrase “or under any Non-MP Policy.”

Section 4(c) of the MP Financial Agreement is revised to remove the phrases “and Non-MP Policy” and “and Non-MP Policies.”

Section 5(b)(iii) of the MP Financial Agreement is revised to remove the phrase “or (iv) the monthly premium rate under a Non-MP Policy,” and both instances of the phrase “and Non-MP Policies.”

Section 7 of the MP Financial Agreement is revised to remove the phrases “the Non-MP Policies.” In addition, the following sentence shall be added at the end of the section, “*** shall collect and remit premiums due with respect to Non-MP Policies on *** of ***.”

Section 10(d) of the MP Financial Agreement is revised to remove both instances of the phrase “or Non-MP Policies.”

Section 1 of Exhibit A of the MP Financial Agreement is amended and restated as follows:

The Policies . The Employer has entered into a Minimum Premium Arrangement covering certain of the Company’s insurance policies or HMOs. The Arrangement covers those policies identified in section 1(s) of the Agreement. The Company has also issued Non-MP Policies (identified in section 1(p)) to *** which policies are not subject to the Minimum Premium Arrangement.

Section 2 of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and Non-MP Policy” and both instances of the phrase “and the Non-MP Policies.”

Section 3 of Exhibit A of the MP Financial Agreement is reviewed to remove the phrase “Reviews of Experience under Policies and Non-MP Policies” and replace it with “Review of Experience under Policies.”

Section 3(a) of Exhibit A of the MP Financial Agreement is revised to remove both instances of the phrase “and the Non-MP Policies.”

Section 3(b) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and Non-MP Policies” and “and the Non-MP Policies.”

Section 3(c) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and Non-MP Policies.”

Section 4(b) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “or Non-MP Policy” and “and Non-MP Policies.”

Section 5(a)(ii) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and Non-MP Policies (except those issued to a Client as well as, or instead of, to the Employer).”

Section 6(d) of Exhibit A of the MP Financial Agreement is revised to remove the phrases “or the Non-MP Policies,” “or Non-MP Policy,” and “and Non-MP Policies.”

Section 8(b.1) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “premiums under the Non-MP Policies.”

Section 8(h) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and the Non-MP Policies set forth in Exhibit D.”

Section 8(i) of Exhibit A of the MP Financial Agreement is revised to remove the phrases “and incurred health benefits that are paid after termination of the Non-MP Policies,” “and Non-MP Policies,” “or Non-MP Policy health benefits,” and “and paid health benefits under the Non-MP Policies.”

Section 8(j) of Exhibit A of the MP Financial Agreement is revised to remove the phrases “and paid health benefits under the Non-MP Policies,” “and health benefits paid under the Non-MP Policies,” and “and Non-MP Policies.”

Section 8(k) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “or Non-MP Policy.”

Section 8(l) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “the monthly premiums paid under the Non-MP Policies, (iii).”

Section 8(n) of Exhibit A of the MP Financial Agreement is revised to remove the phrase “and the Non-MP Policies.”

Section 1 of Exhibit A, Appendix II, of the MP Financial Agreement is revised to remove the phrase “and Non-MP Policies” and the phrase “and the Non-MP Policies.”

The content of Exhibit B of the MP Financial Agreement is removed in its entirety from the MP Financial Agreement and replaced with “This Exhibit is left intentionally blank.”

Section V of Exhibit D of the MP Financial Agreement is revised to remove the phrase “or Non-MP Policy.”

Section 1.2. Notices . Section 8 is hereby amended and restated as follows:

Notices

(a)

Any notice required to be given under the Agreement shall be given in writing by sending or delivering such notice to the receiving party (i) by prepaid registered or certified first class U.S. mail, return receipt requested, (ii) by overnight express courier with recipient's signature required, (iii) by hand delivery with recipient's signature required, (iv) by facsimile, provided that the other party has specifically requested that a specifically designated notice be made by facsimile, or (v) by any other method by which the date of receipt by the party entitled to such notice may be determined. Notice shall be effective when sent.

(b)

Notices to a party shall be sent or delivered:

To the Company at:

United Healthcare

3100 SW 145 th Avenue

Miramar, FL 33027

Fax: (954) 378-0771

Attention: National Vice President, PEO & Trust Division

With a Copy to:

United Healthcare

Legal Department

5901 Lincoln Drive

Edina, MN 55436

Fax: (952) 992-5180

Attention: General Counsel

And:

United Healthcare

5901 Lincoln Drive

Edina, MN 55436

Fax: (952) 992-7155

Attention: Regional Vice President, Underwriting

And to the Employer at:

Insperity Holdings, Inc.

19001 Crescent Springs Drive

Kingwood, Texas 77339-3802

Fax: (281) 348-3718

Attention: President

With a Copy to:

Insperity Holdings, Inc.

19001 Crescent Springs Drive

Kingwood, Texas 77339-3802

Fax: (281) 348-2859

Attention: General Counsel

Section 1.3 . Entire Agreement, Amendment and Waiver . Section 10(f) of the MP Financial Agreement is hereby amended and restated in its entirety to read, effective January 1, 2011:

Absent extraordinary and unforeseen circumstances, neither party shall seek, with respect to the 2011, 2012 and 2013 Arrangement Years, an amendment or modification to the Agreement, the MP Administrative Services Agreement relating to (i) the *** and the *** (subject to modification consistent with a change in actual premium tax expense and ***), (ii) the *** or *** calculation, (iii) the management of the *** as described in section *** of Exhibit A of the Agreement (including but not limited to the amount of any ***) or (iv) any other material *** of such then current agreements between the Company and Employer; and provided, further, that the Company’s rights under section *** of the Agreement shall be *** with respect to changes for the 2011, 2012 and 2013 Arrangement Years (except with regard to a modification consistent with a change in actual premium tax expense).

Section 1.4 . Policies, Rates and Factors . Exhibit D to the MP Financial Agreement is hereby amended and restated in its entirety to read, effective January 1, 2011:

Exhibit D – Policies, Rates and Factors

The definition of “Policy” for purposes of Section 1(s) of the Agreement shall be as follows:

Effective January 1, 2011: No. *** (Medical ***) (“Policy”)

II.

Effective January 1, 2011, the “Maximum Monthly Employer Benefit Obligation” (“MMEBO”) is the percentage of the Quoted Premium for each Policy as set forth at the table in Exhibit D(V).

III.

Effective January 1, 2011, the “MP Premium” is the percentage of Quoted Premium for each Policy as set forth at the table in Exhibit D(V).

IV.

Effective January 1, 2011, the “Expense Percentage” is the percentage of Quoted Premium for each Policy as set forth at the table in Exhibit D(V).

Table

***	***	***	***	***	***	***	***

Expense (%)	***	***	***	***	***	***	***

MP Premium	***	***	***	***	***	***	***

MMEBO	***	***	***	***	***	***	***

For purposes of the aforementioned table, *** shall be determined *** based upon the following parameters:

*** is defined to include *** for coverage in the Policy and *** for coverage under *** numbers, effective January 1, 2011, *** which *** are amended from time to time in the normal course of business, including all *** and/or *** COBRA or state continuation coverage.

*** shall be measured each January 1st, April 1st, July 1st and October 1st, based upon the *** in effect on the 15th day of the preceding month. The *** as of the 15th of month preceding each of January 1st, April 1st, July 1st and October 1st, shall be the *** that is used to determine the expense percentage, MP Premium and MMEBO for the quarter beginning that immediately following January 1st, April 1st, July 1st, and October 1 st . For example, to determine the expense percentage, MP Premium and MMEBO for the quarter beginning January 1, 2012 and ending March 31, 2012, the *** as of December 15, 2011 shall be used to determine the ***.

VI.

The percentages contained in this Exhibit D assume an estimated premium tax expense and assessments of ***. In order to maintain the profit/risk charge and administrative fees as described in the table at Exhibit D(V) if the actual incurred premium tax expense and assessments total more or less than ***, such percentages may require future modification consistent with the changes to the actual incurred premium tax expense.

Section 1.5

Name Change . Effective March 3, 2011, the MP Financial Agreement is revised to remove all references to the name “Administaff of Texas, Inc.” and replace it with “Insperity Holdings, Inc.”

ARTICLE II

COOPERATION

Section 2.1 Cooperation . The Parties agree to execute such further documents and to take such further actions as may be necessary to implement and carry out the terms and conditions of this Amendment.

ARTICLE III

EFFECTIVE DATE OF AMENDMENT

Section 3.1 Effective Date . This Amendment shall be effective as of January 1, 2011, unless otherwise stated herein.

[The balance of this page intentionally is left blank. The signature page follows.]

IN WITNESS WHEREOF, the parties have caused this Amendment to the MP Financial Agreement to be executed as of the date set forth in the preamble.

INSPERITY HOLDINGS, INC.		UNITED HEALTHCARE INSURANCE COMPANY

By:	/s/ Richard G. Rawson	By:	/s/ Thomas Choate
Authorized Signature		Authorized Signature

Name	Richard G. Rawson	Name	Thomas Choate

Title	President	Title	Chief Growth Officer

Date	10/26/2012	Date	2/25/13

Exhibit 10.2

AMENDMENT TO THE MINIMUM PREMIUM ADMINISTRATIVE SERVICES AGREEMENT,

AS AMENDED EFFECTIVE JANUARY 1, 2008,

BY AND BETWEEN

INSPERITY HOLDINGS, INC (fka ADMINISTAFF OF TEXAS, INC.)

AND

UNITED HEALTHCARE INSURANCE COMPANY

THIS AMENDMENT TO THE MINIMUM PREMIUM ADMINISTRATIVE SERVICES AGREEMENT, as amended effective January 1, 2008, (the “Administrative Services Agreement”) is entered into as of January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.), a Texas corporation, and United Healthcare Insurance Company, a Connecticut corporation (this “Amendment”).

RECITALS

WHEREAS, on or about June 25, 2002, the Employer and the Company executed the Minimum Premium Administrative Services Agreement effective January 1, 2002 (“Original Agreement”), and on or about December 3, 2004, the Employer and the Company executed an amendment to the Original Agreement; and

WHEREAS, effective January 1, 2005, the Employer and the Company executed the Administrative Services Agreement to amend and restate the Original Agreement (Terms capitalized in this Amendment not for grammatical reasons and not otherwise defined in this Amendment shall have the meanings ascribed to them in the Administrative Services Agreement.); and

WHEREAS, effective January 1, 2008, the Employer and the Company amended the Administrative Services Agreement; and

WHEREAS, the Employer and the Company now wish to further amend the Administrative Services Agreement pursuant to the terms of this Amendment effective January 1, 2011, unless otherwise stated herein.

NOW, THEREFORE, in consideration of the following mutual covenants and promises, the parties agree as follows:

ARTICLE I

Section 1.1 . The Non-MP Policies . The following revisions to the Administrative Services Agreement are effective January 1, 2011:

Section 2(c) of the Administrative Services Agreement is revised to remove the phrases “and each Non-MP Policy” and “and Non-MP Policies.”

Section 2(d)(i) of the Administrative Services Agreement is revised to remove the phrase “and Non-MP Policies.”

Sections 4(a)(i) and 4(a)(ii) of the Administrative Services Agreement are revised to remove the phrases “and Non-MP Policy” and “or Non-MP Policy.”

Section 4(e) of the Administrative Services Agreement is revised to remove the phrase “and Non-MP Policies.”

Section 6(b) of the Administrative Services Agreement is revised to remove the phrase “both the Policies and the Non-MP Policies” and replace it with “the Policies.”

Section 6(f)(i) of the Administrative Services Agreement is revised to remove the phrase “or to the Non-MP Policies.”

Section 6(f)(iii) of the Administrative Services Agreement is revised to remove the phrase “and to the Non-MP Policies.”

Section 6(g) is added to the Administrative Services Agreement as follows:

During a transition period from January 1, 2011, through *** may collect and remit in full all premiums due with respect to the Non-MP Policies on *** of the *** that are Non-MP Policy ***, as permitted by law, and shall on each Non-MP Policy *** behalf:

(i)

Collect the premium *** the non-MP Policy ***, reconcile such deductions against a *** from Company, and remit in full the billed premium (“Billed Premium”) to Company on or before the due date of the non-MP Policies.

(ii)

Maintain a surety bond covering the Billed Premium, as required by applicable state law.

(iii)

Obtain an executed document from each and every Non-MP Policy ***that *** payment of premium obligations and maintenance of enrollment data to Employer on ***of the Non-MP Policy ***, and forward a copy of the executed document to the Company upon request.

Section 7(a) of the Administrative Services Agreement is amended and restated in its entirety to read as follows:

The Employer agrees to indemnify and hold harmless the Company from any and all liability, loss, damages, fines, penalties and costs, including but not limited to, expenses and reasonable attorneys' fees, which the Company shall sustain arising out of or in connection with (1) any gross negligence or material breach of the Agreement on the part of the Employer, (2) any determination by the Employer regarding the eligibility for coverage under a Policy or a Non-MP Policy of an Employee or Employee's dependent, (3) any direction of the Employer to the Company, (4) the offering or termination of the Policies or Non-MP Policies, or the manner of the offering or termination of the Policies or Non-MP Policies, to Clients, (5) the failure of the Employer to *** and ***as the *** the billed premium collected on *** of the *** of the Non-MP Policies, and remit such billed premium to the Company, or (6) the release or use by Employer of any information obtained from the Company pursuant to Section 5(a), unless the parties agree or it is determined in a final non-appealable decision by a court or regulatory agency having jurisdiction of the matter that the liability therefore was the direct consequence of criminal conduct or fraud on the part of the Company or negligence or a material breach of the Agreement on the part of the Company.

Section 8(a) of the Administrative Services Agreement is revised to remove the phrase “the Non-MP Policies.”

Section 8(a)(iii) of the Administrative Services Agreement is revised to remove the phrase “or the premium under a Non-MP Policy.”

Section 8(b) of the Administrative Services Agreement is revised to remove the phrase “, a Non-MP Policy.”

Section 15 (d) of the Administrative Services Agreement is revised to remove the phrases “or Non-MP Policies” and “or the Non-MP Policies, as applicable.”

Sections 1(a) and 3(a) of Exhibit A of the Administrative Services Agreement is revised to remove the phrase “and Non-MP Policies.”

Section 3(b) of Exhibit A of the Administrative Services Agreement is revised to remove the Section 3(b) in its entirety.

Section 1 of Exhibit C of the Administrative Services Agreement is revised to remove the sentence “However, the reports that are listed below may not be available for all Policies or Non-MP Policies or for all system platforms (UNET or PRIME) on which the Employer’s Plan is administered” and replace it with “The reports will not be available for Non-MP Policies.”

Section 1 of Exhibit C of the Administrative Services Agreement is revised to remove the sentence “The Company will review with the Employer those reports that are available on an other than monthly basis or on a limited Policy or Non-MP Policy basis or on a limited system platform basis” and replace it with “The Company will review with the Employer those reports that are available on an other than monthly basis or on a limited Policy basis or on a limited system platform basis.”

Section 3 of Exhibit C of the Administrative Services Agreement is revised to remove the phrase “and Non-MP Policies.”

Exhibit E, and Sections 3 and 4 of Exhibit E, of the Administrative Services Agreement are revised to remove the phrases “or Non-MP Policies” and “and the monthly premiums under the Non-MP Policies.”

Section 5 of Exhibit E of the Administrative Services agreement is amended and restated in its entirety to read as follows:

Monthly premiums for the Non-MP Policies administered on the Company's PRIME system are calculated by the system on an individual Non-MP Policy basis using a roster billing process which reflects the amount due for individual Participants. The calculation of monthly premiums on PRIME uses a *** rule to determine the premium due for partial month's coverage as opposed to the *** of the month rule described in paragraph 4 above. Any *** changes under the Non-MP Policies shall be made according to the terms and conditions of the Non-MP Policies.

Section 1.2 . Audits by the Employer . Section 5(b) of the Administrative Services Agreement is hereby amended and restated in its entirety to read, effective January 1, 2011:

Audits by the Employer . During the term of the Agreement, the Employer may request that an independent mutually agreeable entity may audit the Company once every three calendar years to determine whether it is fulfilling its obligations under the Agreement.

(i)

The Employer or the independent entity on its behalf shall advise the Company at least sixty (60) calendar days in advance of its intent to audit. The place, time, type, duration, and frequency of all audits must be reasonable and agreed to by the Company, which consent shall not be unreasonably withheld, but in no event shall an audit be conducted under this provision more than once every *** years. All audits shall be limited to information relating to the calendar year in which the audit is conducted and/or the immediately preceding 2 calendar years. With respect to the Company's transaction processing services, the audit scope and methodology shall be consistent with generally acceptable auditing standards, including a statistically valid random sample or other acceptable audit technique as reasonably approved by the Company (for purposes of this subsection (b), "Scope").

(ii)

The Employer will pay any expenses that the Employer incurs, and will be charged a reasonable additional fee, determined by the Company, for any on-site audit visit that is not completed within five (5) business days, for sample sizes exceeding the Scope set forth above, or for any non-standard audit. The Employer will incur a reasonable per claim charge for samples in excess of the Scope, and a $1000 charge for each day an audit exceeds the five (5) day on-site review limit per audit. The additional fees cover the additional resources, facility fees, and other incremental costs associated with an audit that exceeds the Scope. The Employer will also pay any unanticipated reasonable expenses the Company incurs and all expenses incurred by the Company on any audit initiated after a termination notice is provided but before the effective date of the termination of the Agreement.

(iii)

The Employer will provide the Company with a copy of any final audit report.

Section 1.3. Notices . Section 16(b) is hereby amended and restated as follows:

16.

Notices

(b)

Notices to a party shall be sent or delivered:

To the Company at:

United Healthcare

3100 SW 145 th Avenue

Miramar, FL 33027

Fax: (954) 378-0771

Attention: National Vice President, PEO & Trust Division

With a Copy to:

United Healthcare

Legal Department

5901 Lincoln Drive

Edina, MN 55436

Fax: (952) 992-5180

Attention: General Counsel

And:

United Healthcare

5901 Lincoln Drive

Edina, MN 55436

Fax: (952) 992-7155

Attention: Vice President, Underwriting

And to the Employer at:

Insperity Holdings, Inc.

19001 Crescent Springs Drive

Kingwood, Texas 77339-3802

Fax: (281) 348-3718

Attention: President

With a Copy to:

Insperity Holdings, Inc.

19001 Crescent Springs Drive

Kingwood, Texas 77339-3802

Fax: (281) 348-2859

Attention: General Counsel

Section 1.4 . Performance Standards. Sections 4, 5 and 6 of Exhibit A of the Administrative Services Agreement are hereby amended and restated in their entirety, and Section 7 is hereby added to Exhibit A of the Administrative Services Agreement, as follows:

Claim Operations Performance Standards

For purposes of this section 4, the term "claim" shall mean a written or electronic request for payment of a Plan Benefit made by a member or provider.

Time to Pay

During a Guarantee Period, the Company will process *** of all claims received by the Company within *** business days of receipt, as evidenced by the Company's date stamp. Timeliness will be measured using the "Time to Pay" report produced by the Company on a monthly basis. The overall Guarantee Period result is recalculated using the raw data for such period. The "Time to Pay" results are always rounded to the nearest whole percent.

For the Agreement, the criteria will be based upon the results of the Service Center team servicing the Employer.

A claim will be considered processed when the claim has been completely reviewed and a payment determination has been made.

Time to pay is measured the same way regardless of the timing of the Company's responses to a claimant.

Failure to process *** of all claims received within *** business days during the Guarantee Period will result in a Premium Credit in the maximum amount of ***, not including any Premium Credit available pursuant to section 4(e). Credits against this Performance Standard will be applied on a gradient as follows:

*** within *** business days - ***

*** in more than *** business days - ***

Financial Accuracy

The Company will maintain a Financial Accuracy rate of not less than *** for the Guarantee Period. Financial Accuracy is measured by collecting a statistically significant random sample of claims processed. The sample is reviewed to determine the percentage of claim dollars processed correctly out of the total claim dollars submitted for payment. The measurement will be done by the Company's standard internal quality assurance program based on a periodic audit of all claims processed by the Service Center team servicing the Employer. The overall Guarantee Period result is recalculated using the raw data for such period.

Failure to maintain a Financial Accuracy rate of at least *** for the Guarantee Period will result in a Premium Credit in the maximum amount of ***, not including any Premium Credit available pursuant to section 4(e). Credits against this Performance Standard will be applied on a gradient as follows:

*** paid correctly - ***

Less than *** paid correctly - ***

Procedural Accuracy

The Company will maintain a Procedural Accuracy rate of not less than *** for the Guarantee Period. Procedural Accuracy is measured by collecting a statistically significant random sample of claims processed by the Service Center team servicing the Employer. The sample is reviewed to determine the percentage of claims processed without non-financial errors.

The measurement will be done by the Company's standard internal quality assurance program based on a periodic audit of all claims processed by the Service Center team servicing the Employer. The overall performance period result is recalculated using the raw data for such period.

Failure to maintain a Procedural Accuracy rate of at least *** for the Guarantee Period will result in a Premium Credit in the maximum amount of ***, not including any Premium Credit available pursuant to section 4(e). Credits against this Performance Standard will be applied on a gradient as follows:

*** paid correctly - ***

Less than *** paid correctly - ***

Items Excluded From Claim Operations Performance Measurements

With some products (e.g., HMO), financial reimbursement arrangements are contractually negotiated with providers (physicians, labs, etc.), that budget the payment they receive for certain services. Periodic payments are made to the providers in return for their agreement to provide the negotiated services to network members. Services provided under these arrangements are not processed as a typical "claim" and, as a result, results from the networks featuring these arrangements are not included in the performance statistics outlined above.

The claims that are included in Claim Operations performance categories are limited to medical claims processed through the UNET claims system(s). Claims processed through any other system, including claims for other products such as vision, dental, or pharmacy coverage, are not included in the calculation of the performance measurements stated above.

Independent Claims Audit

1. If an audit conducted by the Employer under Section 5 of this Agreement finds that the Company has not met the Time to Pay Guarantee of processing *** of all Employer claims received by the Company within *** days of receipt, as evidenced by the Company’s date stamp, a Premium Credit in the amount of *** shall apply. The result is calculated using the sample of claims selected for the audit. The "Time to Pay" results are always rounded to the nearest whole percent. A claim will be considered processed when the claim has been completely reviewed and a payment determination has been made. Time to pay is measured the same way regardless of the timing of the Company's responses to a claimant.

2. If an audit conducted by the Employer under Section 5 of this Agreement finds that the Company has not maintained a Financial Accuracy rate of ***, a Premium Credit in the amount of *** shall apply. Financial Accuracy is measured by collecting a statistically significant random sample of Employer claims processed. The sample is reviewed to determine the percentage of claim dollars processed correctly out of the total claim dollars submitted for payment. The overall Guarantee Period result is recalculated using the sample data.

3. If an audit conducted by the Employer under Section 5 of this Agreement finds that the Company has not maintained a Procedural Accuracy rate of not less than *** for the Guarantee Period, a Premium Credit in the amount of *** shall apply. Procedural Accuracy is measured by collecting a statistically significant random sample of Employer claims. The sample is reviewed to determine the percentage of claims processed without non-financial errors. The overall performance period result is recalculated using the sample data.

Member Phone Service Performance Standards

Average Speed to Answer

This standard applies to the claim team and/or the member service team that provide service for the Employer's Employees. The Company will guarantee that calls will sequence through the Company's automated telephone call distribution system and be answered by a customer service representative in *** seconds or less, on average. The Average Speed to Answer will be measured by the standard tracking reports produced by the Company's automated phone system for all the calls handled by the Service Center team servicing the Employer.

If the Average Speed to Answer for the Guarantee Period is greater than *** seconds, a Premium Credit will be due. The maximum amount of the Premium Credit will be ***. Credits against this performance measure will be applied on a gradient as follows:

*** seconds or less - ***

More than *** seconds to answer - ***

Abandonment Rate

This standard applies to the claim team(s) and/or the member services team(s) which provide service for the Employer's Employees. The Company will guarantee that calls will sequence through the Company's automated telephone call distribution system such that the average abandonment rate will be no greater than *** . The Abandonment Rate results will be measured by the standard tracking reports produced by the Company's automated phone system for all calls handled by the Service Center team servicing the Employer.

If the Abandonment Rate for the Guarantee Period is greater than *** on average, for all locations providing member phone service to the Employer's Employees, a Premium Credit will be due. The maximum amount of the credit will be ***. Credits against this performance measure will be applied on a gradient as follows:

*** of calls abandoned - ***

more than *** of calls abandoned - ***

Overall Member Satisfaction Performance Standard

This standard applies to the member service teams that provide ***, ***, *** and *** services for the Employer's Employees. The Company will conduct, on an *** basis, a Customer Satisfaction Survey. The Overall Satisfaction question used reads:

"Overall, how satisfied are you with the way the Company administers your medical health insurance plan, such as processing your claim or helping answer any questions or resolving any problems you may have?"

If less than *** of the respondents for the Service Center team providing services for the Employer's Employees are satisfied overall (i.e., if *** of respondents do not respond with either completely satisfied, very satisfied or somewhat satisfied), a Premium Credit of *** will be due.

Policies and Certificates of Coverage Standard

This standard applies to the production of Group Policies and Certificates of Coverage issued ***. *** in potential Premium Credits will be at risk for the timely and accurate production of contracts, policies and certificates of coverage ***. Such performance standard shall not be provided if the timely delivery of those documents is prevented by federal law or a state insurance department causes delays in availability of approved final documents. Notwithstanding the above, the *** Premium Credit shall be available only if such delays result in the imposition of penalties or fines to Employer under the Patient Protection and Affordable Care Act, except where such lack of timeliness or inaccuracy is due to Employer’s actions.

Employer will be provided with direct access to a UnitedHealthcare contracts representative to assist in developing and producing new documents based on the reasonable needs of Employer.

Section 1.5. Name Change . Effective March 3, 2011, the Administrative Services Agreement is revised to remove all references to the name “Administaff of Texas, Inc.” and replace it with “Insperity Holdings, Inc.”

Section 1.6 . Exhibit F . Exhibit F of the Administrative Services Agreement is hereby amended and restated in its entirety to read as follows:

Exhibit F – Alternate Vendors

Except as otherwise set forth in this Exhibit F , the Company shall have the right to be the exclusive provider of medical and dental coverage for Employees; provided, however, that execution of an agreement between the Company and the Employer with respect to the Company’s right to be the exclusive provider of dental coverage for Employees with respect to certain geographical coverage areas (“Dental Agreement”) shall cause this Agreement and the MP Financial Agreement (including any exhibits or appendices to either) to be modified effective as of the effective date of the Dental Agreement to delete any effect on or reference to dental benefits, coverage, policies, or exclusivity rights as to the provision of dental coverage to employees of the Employer, and shall be interpreted in a manner consistent therewith. For purposes of this Exhibit F , "Employees" shall include employees of the Employer covered under Non-MP Policies as well as the Policies.

B.	Exceptions to the Company's Right to be Exclusive Provider

Effective January 1, 2011, if there is a *** to the Company *** network in a Market or if no group health insurance or similar product offered by the Company is Competitive in that Market, the Employer may offer, subject to this section B of this Exhibit F , the health insurance or similar products of a Competing Vendor in such market.

The health insurance or similar products of a Competing Vendor may not be offered to Existing Company membership until after December 31, 2012.

If Employer introduces a Competing Vendor, the following provisions shall apply as long as the Company continues to write new group policies in that market:

(i)

Employer agrees to *** to the Competing Vendor;

(ii)

Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and

(iii)

The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***.

Only *** Competing Vendor will be introduced into a limited number of Markets, not to exceed *** Markets, through December 31, 2013;

Company will be notified at least 90 days prior to the introduction of a Competing Vendor into a Market;

In no event will a Competing Vendor be introduced in the *** which market includes *** and *** markets. These markets will remain exclusive markets to the Company.

A Competing Vendor for *** coverage will not be offered in the *** market.

Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to *** due to the absence of a ***, or any other county where *** following a *** where there is no ***.

Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to any *** business policies (*** business policies are those issued to *** with *** eligible employees).

Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering *** or another Competing Vendor in ***.

Notwithstanding any provision of Exhibit F to the contrary, the exclusivity provisions shall not apply to prevent Employer from offering alternative *** coverage (but not *** coverage) through *** or *** in ***.

Removal or Addition of the Company’s HMOs and Other Products

If at any time the HMO Substitute offered by the Employer through the Company ceases to be Competitive, the Employer may in its sole discretion cease offering such product. In any such case, the Employer shall notify the Company of its opinion concerning the Competitive status of such product at least *** before it ceases offering the product and shall have the burden of undertaking the steps required to confirm the same in accordance with section B of this Exhibit F. If the Company’s HMO Substitute becomes Competitive within *** after its receipt of the Employer’s notice, the Employer may not replace it unless and until it is again not Competitive, in which case a new notice shall be required and a new *** corrective period will begin. Such offering is subject to the following provisions if Company continues to write new group policies in that certain Market:

(i)

Employer agrees to *** to the Competing Vendor;

(ii)

Existing Clients will be offered a choice at the time of the Client’s contract renewal between the Company and Competing Vendor coverage options; and

(iii)

The choice between the Company and the Competing Vendor’s coverage options shall only be *** at the *** and in no event *** to the ***.

If, at the time the Company begins to offer an HMO Substitute which is Competitive in a certain market, the Employer is offering an HMO through a Competing Vendor consistent with the provisions of this Exhibit F in that market, the Employer shall offer each Client in such market coverage options for Employees in such market not later than the renewal date of such Client’s service agreement consisting of either (i) subject to Section C of this Exhibit F, the *** and *** options or (ii) such Competing Vendor’s *** and, at the Competing Vendor’s ***, its ***.

Acquisition by Employer of another Professional Employer Organization

The Employer's use of Competing Vendors to provide coverage to New PEO Clients will not violate the provisions of section 6(b)(iv) of the Agreement or this Exhibit F if such coverage complies with the provisions of section 6(f) of the Agreement.

C.	Conversion to Alternative Products

No Company *** product shall be offered to any new Employee and no existing Employee shall have coverage under a Company ***. For purposes of this Section C, “Company ***” shall not include *** products in ***, except as otherwise agreed pursuant to Section E. The parties agree to renewing existing *** coverage to the end of calendar year 2011 in the *** market.

D.	Definitions

As used in this Exhibit F , capitalized terms shall have the meanings assigned to them in the Minimum Premium Administrative Services Agreement to which this Exhibit F is attached or, if no meaning is so assigned, the meaning set forth in this section D of Exhibit F .

"Competing Vendor" means a vendor of medical coverage products in a particular geographic market other than the Company.

"Competitive" means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that such product ranks either *** as compared to competing products of other vendors in the designated market. In making any determination of the rank of a product in a market, such consultant shall apply such criteria relating to *** as it shall determine appropriate. All fees and expenses of any such consultant shall be paid by the Employer.

“Existing Client” means a Client which is covered under a Company *** or *** as of the date that is determined under Section B of this Exhibit F.

"HMO" means a product issued by a licensed "health maintenance organization" and offered as a network only or lock in product. Any references in this Exhibit F to the Company's "HMOs" shall include any HMO issued by the Company (or another member of the Company’s controlled group).

Each of the following geographic areas are defined as a “Market” under this Agreement:

***

ii.

***

iii.

***

iv.

***

*** (this includes membership in *** metros)

vi.

*** includes ***)

vii.

***

viii.

***

ix.

***

xi.

***

xii.

***

xiii.

***

xiv.

***

xv.

***

xvi.

***

xvii.

***

xviii.

***

xix.

***

xx.

***

xxi.

***

xxii.

***

xxiii.

***

xxiv.

***

xxv.

***

xxvi.

***

xxvii.

***

xxviii.

***

xxix.

***

xxx.

***

xxxi.

***

xxxii.

***

xxxiii.

***

xxxiv.

***

xxxv.

***

xxxvi.

***

xxxvii.

***

xxxviii.

***

xxxix.

***

xl.

***

xli.

***

xlii.

***

xliii.

***

xliv.

***

xlv.

***

xlvi.

***

xlvii.

***

xlviii.

***

xlix.

***

li.

***

lii.

***

"PPO" means any product for network coverage that is not an HMO, the HMO Substitute or an EPO.

"EPO" means a product issued by a licensed "insurance company" and offered as a network only or lock in product.

"HMO Substitute" means the Choice Plus benefit plan (which includes both in-network and out-of- network benefits) developed and offered to the Employer by the Company as a substitute for Company's HMO products in connection with Section B of this Exhibit F.

“***” means that either (i) the Company and the Employer agree or (ii) an independent consultant chosen by mutual agreement of the parties has determined, that Company’s network in a Market has been ***. In order to determine if there is a ***, the consultant shall apply reasonable criteria to determine that both (a) the *** imposes a *** to the Employer's ability to add new clients in the market; and (b) the addition of a new vendor *** the Employer's *** in adding new clients in the market. All fees and expenses of any such consultant shall be paid by the Employer.

ARTICLE II

COOPERATION

Section 2.2 Publicity. The parties acknowledge and agree that the terms and conditions of this Amendment, and the Letter of Agreement dated October 1, 2010, including the existence thereof, are subject to the provisions of section 5(e) of the Agreement.

ARTICLE III

EFFECTIVE DATE OF AMENDMENT

Section 3.1 Effective Date . This Amendment shall be effective as of January 1, 2011, unless otherwise stated herein.

[The balance of this page intentionally is left blank. The signature page follows.]

IN WITNESS WHEREOF, the parties have caused this Amendment to the Administrative Services Agreement to be executed as of the date set forth in the preamble.

INSPERITY HOLDINGS, INC.			UNITED HEALTHCARE INSURANCE COMPANY

By:	/s/ Richard G. Rawson	By:	/s/ Thomas Choate
	Authorized Signature		Authorized Signature

Name	Richard G. Rawson	Name	Thomas Choate

Title	President	Title	Chief Growth Officer

Date	10/26/2012	Date	2/25/13

Exhibit 31.1

CERTIFICATION

I, Paul J. Sarvadi, certify that:

I have reviewed this quarterly report on Form 10-Q of Insperity, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2013

	/s/ Paul J. Sarvadi
	Paul J. Sarvadi
	Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Douglas S. Sharp, certify that:

I have reviewed this quarterly report on Form 10-Q of Insperity, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2013

	/s/ Douglas S. Sharp
	Douglas S. Sharp
	Senior Vice President of Finance, Chief Financial Officer and Treasurer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Insperity, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2013, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Paul J. Sarvadi, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Paul J. Sarvadi
Paul J. Sarvadi
Chairman of the Board and Chief Executive Officer
April 29, 2013

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Insperity, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2013, (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Douglas S. Sharp, Senior Vice President of Finance, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Douglas S. Sharp
Douglas S. Sharp
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
April 29, 2013