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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 JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM_________ TO______________
COMMISSION FILE NUMBER: 0-49762
-----------------------------------------------
TRIPLE-S MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
PUERTO RICO 66-0555678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1441 F.D. ROOSEVELT AVENUE
SAN JUAN, PUERTO RICO 00920
(Address of principal executive offices) (Zip code)
(787) 749-4949
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
1
------------------------------------
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE OF EACH CLASS OUTSTANDING AT JUNE 30, 2002
------------------- ----------------------------
Common Stock, $40.00 par value 9,611
================================================================================
TRIPLE-S MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 and December 31 2001 3
Consolidated Statements of Operations for the three months and six months
ended June 30, 2002 and 2001 4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
the three months and six months ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 6
and 2001
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 44
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 43
Item 4. Submissions of Matters to a Vote of Security Holders 43
Item 5. Other Information 45
Item 6. Exhibits and Reports on Form 8-K 46
SIGNATURES 47
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Fixed maturities $ 36,329 38,107
Equity securities 45,814 50,743
Securities available for sale, at fair value:
Fixed maturities 311,154 286,505
Equity securities 40,301 37,829
Securities held to maturity, at amortized cost:
Fixed maturities 2,388 3,779
Cash and cash equivalents 80,026 80,970
- -------------------------------------------------------------------------------------------------------------------------
Total investments and cash 516,012 497,933
- -------------------------------------------------------------------------------------------------------------------------
Premiums and other receivables, net 93,230 74,872
Deferred policy acquisition costs 11,480 9,550
Property and equipment, net 37,744 39,090
Other assets 31,602 34,613
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 690,068 656,058
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Claim liabilities:
Claims processed and incomplete, and future policy benefits $ 123,076 114,599
Unreported losses 107,584 103,240
Unpaid loss-adjustment expenses 12,825 11,601
- -------------------------------------------------------------------------------------------------------------------------
Total claim liabilities 243,485 229,440
- -------------------------------------------------------------------------------------------------------------------------
Unearned premiums 61,241 58,306
Individual retirement annuities 14,186 17,426
Liability to Federal Employees Health Benefits Program 7,781 12,130
Accounts payable and accrued liabilities 102,667 97,078
Loans payable to bank 53,717 55,650
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 483,077 470,030
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 9,611 and 9,714 at June 30, 2002 and
December 31, 2001, respectively 384 389
Additional paid-in capital 150,406 150,405
Operating reserve 29,968 14,250
Accumulated other comprehensive income - net unrealized
gain on securities available for sale 26,233 20,984
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 206,991 186,028
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 690,068 656,058
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
3
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For the three months and six months ended June 30, 2002 and 2001
(Dollar amounts in thousands)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES:
Premiums earned, net $ 308,478 275,902 618,320 554,366
Amounts attributable to self-funded
arrangements 37,427 33,034 72,265 66,337
Less amounts attributable to claims under
self-funded arrangements (36,379) (30,821) (68,837) (63,008)
--------- --------- --------- ---------
309,526 278,115 621,748 557,695
Net investment income 6,359 6,362 12,349 12,560
Net realized investment gains (losses) 6 1,571 (150) 2,380
Net unrealized investment gain (loss) on
trading securities (5,662) (838) (5,377) (3,124)
Other income, net 211 4,484 424 4,532
--------- --------- --------- ---------
Total revenue 310,440 289,694 628,994 574,043
--------- --------- --------- ---------
BENEFITS AND EXPENSES:
Claims incurred 260,878 249,420 532,651 493,555
Operating expenses, net of reimbursement
for services 38,642 32,967 77,353 66,943
Interest expense 872 1,435 1,991 3,047
--------- --------- --------- ---------
Total benefits and expenses 300,392 283,822 611,995 563,545
--------- --------- --------- ---------
Income before taxes 10,048 5,872 16,999 10,498
--------- --------- --------- ---------
INCOME TAX EXPENSE:
Current 318 203 517 491
Deferred 463 114 764 286
--------- --------- --------- ---------
Total income taxes 781 317 1,281 777
--------- --------- --------- ---------
Net income $ 9,267 5,555 15,718 9,721
--------- --------- --------- ---------
Basic net income per share as if the
Company operated as a for-profit
organization $ 0.79 0.40 1.37 0.73
--------- --------- --------- ---------
Basic net income per share as if Triple-S, Inc.
operated as a not-for-profit
organization $ 0.30 0.27 0.59 0.54
--------- --------- --------- ---------
See accompanying notes to unaudited consolidated financial statements.
4
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Unaudited)
For the three months
and six months ended June 30, 2002 and 2001
(Dollar amounts in thousands)
2002 2001
- -----------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 1 $ 189,547 170,679
Stock redemption (1) --
Comprehensive income:
Net income 9,267 5,555
Net unrealized change in investment securities 8,178 902
- -----------------------------------------------------------------------------------------------------------
Total comprehensive income 17,445 6,457
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30 $ 206,991 177,136
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1 $ 186,028 159,693
Stock redemption (4) 1
Comprehensive income:
Net income 15,718 9,721
Net unrealized change in investment securities 5,249 7,721
- -----------------------------------------------------------------------------------------------------------
Total comprehensive income 20,967 17,442
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30 $ 206,991 177,136
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
5
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2002 and 2001
(Dollar amounts in thousands)
SIX MONTHS ENDED JUNE 30,
2002 2001
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected $ 600,770 538,515
Cash paid to suppliers and employees (72,893) (63,821)
Claims losses and benefits paid (518,601) (495,396)
Interest received 11,331 13,396
Proceeds from trading securities sold or matured:
Fixed securities sold 76,122 12,609
Equity securities 9,609 11,148
Acquisitions of investments in trading portfolio:
Fixed maturities (74,557) (14,979)
Equity securities (10,137) (13,187)
Interest paid (1,320) (2,285)
Expense reimbursement from Medicare 5,982 6,017
Contingency reserve funds from FEHBP -- 4,226
--------- --------
Net cash provided by (used in) operating activities 26,306 (3,757)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold 15,597 626
Fixed maturities matured 57,392 54,877
Equity securities 2,642 3,104
Securities held to maturity:
Fixed maturities matured 1,433 --
Acquisitions of investments:
Securities available for sale:
Fixed maturities (96,264) (70,733)
Capital expenditures (3,250) (2,851)
Proceeds from sale of property and equipment 922 339
--------- --------
Net cash used in investing activities (21,528) (14,638)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances (151) 7,491
Payments of long term debt (1,933) (1,183)
Redemption of common stocks (4) 1
Proceeds from individual retirement annuities 791 1,254
Surrenders of individual retirement annuities (4,425) (2,153)
--------- --------
Net cash provided by (used in) financing activities (5,722) 5,410
--------- --------
Net decrease in cash and cash equivalents (944) (12,985)
Cash and cash equivalents at beginning of the period 80,970 33,566
--------- --------
Cash and cash equivalents at end of the period $ 80,026 20,581
--------- --------
See accompanying notes to unaudited consolidated financial statements.
6
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated interim financial statements prepared by Triple-S
Management Corporation and its subsidiaries (the "Corporation") are unaudited,
except for the balance sheet information as of December 31, 2001, which is
derived from the Corporation's audited consolidated financial statements,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Accordingly, the consolidated interim financial statements
do not include all of the information and the footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. These consolidated interim financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Corporation's Form 10-A for the year ended December 31, 2001.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such consolidated interim
financial statements have been included. The results of operations for the six
months ended June 30, 2002 are not necessarily indicative of the results for the
full year. Certain prior period amounts have been reclassified to conform to the
current period presentation.
(2) SEGMENT INFORMATION
The following tables summarize the operations by major operating segment for the
three months and six months ended June 30, 2002 and 2001:
7
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
OPERATING SEGMENT
--------------------------------------------------------------------------
HEALTH HEALTH PROPERTY
INSURANCE INSURANCE AND LIFE AND
COMMERCIAL REFORM CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
---------- ---------- ---------- ---------- ---------- ----------
THREE MONTHS ENDED JUNE 30, 2002
Premiums earned, net $ 167,296 123,079 14,364 3,845 -- 308,584
Amounts attributable to self-funded arrangements 37,321 -- -- -- -- 37,321
Less: Amounts attributable to claims under self-funded
arrangements (36,379) -- -- -- -- (36,379)
Intersegment premiums earned/service revenues 684 -- -- -- 12,691 13,375
---------- ---------- ---------- ---------- ---------- ----------
168,922 123,079 14,364 3,845 12,691 322,901
Net investment income 2,759 1,297 1,656 571 -- 6,283
Realized gain (loss) on sale of securities 113 (170) 71 (8) -- 6
Unrealized loss on trading securities (4,442) (387) (833) -- -- (5,662)
Other 62 (8) 30 29 -- 113
---------- ---------- ---------- ---------- ---------- ----------
Total revenues $ 167,414 123,811 15,288 4,437 12,691 323,641
---------- ---------- ---------- ---------- ---------- ----------
Underwriting income (loss) $ 8,612 (1,097) 936 1,249 354 10,054
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 6,898 (555) 1,411 1,523 207 9,484
---------- ---------- ---------- ---------- ---------- ----------
Claims incurred $ 137,558 113,711 8,287 1,322 -- 260,878
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses $ 22,752 10,465 5,141 1,274 12,337 51,969
---------- ---------- ---------- ---------- ---------- ----------
Depreciation expense, included in operating expenses $ 1,739 -- 117 14 -- 1,870
---------- ---------- ---------- ---------- ---------- ----------
Interest expense $ 206 190 -- 173 -- 569
---------- ---------- ---------- ---------- ---------- ----------
Income taxes $ -- -- 449 145 147 741
---------- ---------- ---------- ---------- ---------- ----------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
8
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
OPERATING SEGMENT
--------------------------------------------------------------------------
HEALTH HEALTH PROPERTY
INSURANCE INSURANCE AND LIFE AND
COMMERCIAL REFORM CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
---------- ---------- ---------- ---------- ---------- ----------
THREE MONTHS ENDED JUNE 30, 2001
Premiums earned, net $ 151,403 109,026 12,050 3,266 -- 275,745
Amounts attributable to self-funded arrangements 33,191 -- -- -- -- 33,191
Less: Amounts attributable to claims under self-funded
arrangements (30,821) -- -- -- -- (30,821)
Intersegment premiums earned/service revenues 212 -- -- -- 2,261 2,473
---------- ---------- ---------- ---------- ---------- ----------
153,985 109,026 12,050 3,266 2,261 280,588
Net investment income 2,650 1,156 1,842 620 -- 6,268
Realized gain (loss) on sale of securities 1,654 (50) (33) -- -- 1,571
Unrealized gain (loss)on trading securities (1,200) (23) 385 -- -- (838)
Other 4,327 (13) 46 9 -- 4,369
---------- ---------- ---------- ---------- ---------- ----------
Total revenues $ 161,416 110,096 14,290 3,895 2,261 291,958
---------- ---------- ---------- ---------- ---------- ----------
Underwriting income (loss) $ (4,875) (25) (328) 752 103 (4,373)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2,155 692 1,687 1,052 79 5,665
---------- ---------- ---------- ---------- ---------- ----------
Claims incurred $ 138,393 101,501 8,052 1,474 -- 249,420
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses $ 20,467 7,550 4,326 1,040 2,158 35,541
---------- ---------- ---------- ---------- ---------- ----------
Depreciation expense, included in operating expenses $ 985 -- 109 15 -- 1,109
---------- ---------- ---------- ---------- ---------- ----------
Interest expense $ 400 354 -- 239 -- 993
---------- ---------- ---------- ---------- ---------- ----------
Income taxes $ -- -- 225 90 24 339
---------- ---------- ---------- ---------- ---------- ----------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
9
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
OPERATING SEGMENT
--------------------------------------------------------------------------
HEALTH HEALTH PROPERTY
INSURANCE INSURANCE AND LIFE AND
COMMERCIAL REFORM CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
---------- ---------- ---------- ---------- ---------- ----------
SIX MONTHS ENDED JUNE 30, 2002
Premiums earned, net $ 332,294 247,526 30,452 7,658 -- 617,930
Amounts attributable to self-funded arrangements 72,655 -- -- -- -- 72,655
Less: Amounts attributable to claims under self-funded
arrangements (68,837) -- -- -- -- (68,837)
Intersegment premiums earned/service revenues 1,352 -- -- -- 24,165 25,517
---------- ---------- ---------- ---------- ---------- ----------
337,464 247,526 30,452 7,658 24,165 647,265
Net investment income 5,317 2,485 3,234 1,161 -- 12,197
Realized gain (loss) on sale of securities (61) (167) 16 62 -- (150)
Unrealized loss on trading securities (4,056) (653) (668) -- -- (5,377)
Other 97 (22) 100 53 -- 228
---------- ---------- ---------- ---------- ---------- ----------
Total revenues $ 338,761 249,169 33,134 8,934 24,165 654,163
---------- ---------- ---------- ---------- ---------- ----------
Underwriting income (loss) $ 9,547 (1,633) 1,097 1,602 770 11,383
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 10,425 (407) 3,143 2,287 475 15,923
---------- ---------- ---------- ---------- ---------- ----------
Claims incurred $ 283,362 229,695 16,088 3,506 -- 532,651
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses $ 44,555 19,464 13,267 2,550 23,395 103,231
---------- ---------- ---------- ---------- ---------- ----------
Depreciation expense, included in operating expenses $ 2,830 -- 240 27 -- 3,097
---------- ---------- ---------- ---------- ---------- ----------
Interest expense $ 419 417 -- 395 -- 1,231
---------- ---------- ---------- ---------- ---------- ----------
Income taxes $ -- -- 636 196 295 1,127
---------- ---------- ---------- ---------- ---------- ----------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
10
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
OPERATING SEGMENT
---------------------------------------------------------------------------
HEALTH HEALTH PROPERTY
INSURANCE INSURANCE and LIFE AND
COMMERCIAL REFORM CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
---------- ---------- ---------- ---------- ---------- ----------
SIX MONTHS ENDED JUNE 30, 2001
Premiums earned, net $ 303,449 217,604 27,058 5,941 -- 554,052
Amounts attributable to self-funded arrangements 66,651 -- -- -- -- 66,651
Less: Amounts attributable to claims under self-funded
arrangements (63,008) -- -- -- -- (63,008)
Intersegment premiums earned/service revenues 423 -- -- -- 4,560 4,983
---------- ---------- ---------- ---------- ---------- ----------
307,515 217,604 27,058 5,941 4,560 562,678
Net investment income 5,197 2,281 3,648 1,242 -- 12,368
Realized gain on sale of securities 2,217 90 38 30 -- 2,375
Unrealized loss on trading securities (2,372) (307) (445) -- -- (3,124)
Other 4,245 (41) 115 17 -- 4,336
---------- ---------- ---------- ---------- ---------- ----------
Total revenues $ 316,802 219,627 30,414 7,230 4,560 578,633
---------- ---------- ---------- ---------- ---------- ----------
Underwriting income (loss) $ (6,389) 1,011 396 1,064 357 (3,561)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2,036 2,330 3,302 1,733 252 9,653
---------- ---------- ---------- ---------- ---------- ----------
Claims incurred $ 273,157 201,695 15,880 2,823 -- 493,555
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses $ 40,747 14,898 10,782 2,054 4,203 72,684
---------- ---------- ---------- ---------- ---------- ----------
Depreciation expense, included in operating expenses $ 2,016 -- 217 29 -- 2,262
---------- ---------- ---------- ---------- ---------- ----------
Interest expense $ 863 703 -- 482 -- 2,048
---------- ---------- ---------- ---------- ---------- ----------
Income taxes $ -- -- 450 138 105 693
---------- ---------- ---------- ---------- ---------- ----------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
11
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
Balance Sheet Items
OPERATING SEGMENT
--------------------------------------------------------------------------
HEALTH HEALTH PROPERTY
INSURANCE INSURANCE AND LIFE AND
COMMERCIAL REFORM CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
---------- ---------- ---------- ---------- ---------- ----------
AS OF JUNE 30, 2002
Segment assets $ 318,087 102,555 187,817 51,081 941 660,481
---------- ---------- ---------- ---------- ---------- ----------
Significant noncash item - net change in unrealized gain
on securities available for sale $ 3,721 376 447 422 -- 4,966
---------- ---------- ---------- ---------- ---------- ----------
AS OF DECEMBER 31, 2001
Segment assets $ 287,893 105,319 179,184 50,410 515 623,321
---------- ---------- ---------- ---------- ---------- ----------
Significant noncash item - net change in unrealized gain
on securities available for sale $ 1,036 1,368 1,091 990 -- 4,485
---------- ---------- ---------- ---------- ---------- ----------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
12
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
-------- -------- -------- --------
TOTAL REVENUES
Total revenues for reportable segments $310,950 289,697 629,998 574,073
Total revenues for other segments 12,691 2,261 24,165 4,560
-------- -------- -------- --------
323,641 291,958 654,163 578,633
Elimination of intersegment earned premiums (684) (212) (1,352) (423)
Elimination of intersegment service revenues (12,691) (2,261) (24,165) (4,560)
Unallocated amount - revenues from external sources 174 209 348 393
-------- -------- -------- --------
(13,201) (2,264) (25,169) (4,590)
-------- -------- -------- --------
Consolidated total revenues $310,440 289,694 628,994 574,043
-------- -------- -------- --------
PROFIT AND LOSS
UNDERWRITING INCOME
Underwriting income (loss) for reportable segments $ 9,700 (4,476) 10,613 (3,918)
Underwriting income for other segments 354 103 770 357
-------- -------- -------- --------
10,054 (4,373) 11,383 (3,561)
Elimination of TSM charge - rent expense 1,546 1,546 3,092 3,092
TSM general and administrative expenses (1,594) (1,445) (2,731) (2,334)
-------- -------- -------- --------
(48) 101 361 758
-------- -------- -------- --------
Consolidated underwriting income (loss) $ 10,006 (4,272) 11,744 (2,803)
-------- -------- -------- --------
NET INCOME (LOSS)
Net income for reportable segments $ 9,277 5,586 15,448 9,401
Net income for other segments 207 79 475 252
-------- -------- -------- --------
9,484 5,665 15,923 9,653
-------- -------- -------- --------
Elimination of TSM charges:
Rent expense 1,546 1,546 3,092 3,092
Interest expense 206 400 419 863
-------- -------- -------- --------
1,752 1,946 3,511 3,955
-------- -------- -------- --------
Unallocated amounts related to TSM:
General and administrative expenses (1,594) (1,445) (2,731) (2,334)
Interest expense (509) (842) (1,179) (1,862)
Other revenues (expenses) from external sources 134 231 194 309
-------- -------- -------- --------
(1,969) (2,056) (3,716) (3,887)
-------- -------- -------- --------
Consolidated net income (loss) $ 9,267 5,555 15,718 9,721
-------- -------- -------- --------
13
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
OTHER SIGNIFICANT ITEMS
THREE MONTHS ENDED JUNE 30, 2002
- -------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
- -------------------------------------------------------------------------------------------------------------
Claims incurred $ 260,878 - 260,878
Operating expenses 51,969 (13,327) 38,642
Depreciation expense 1,870 291 2,161
Interest expense 569 303 872
Income taxes 741 40 781
THREE MONTHS ENDED JUNE 30, 2001
- -------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS* TOTALS
- -------------------------------------------------------------------------------------------------------------
Claims incurred $ 249,420 - 249,420
Operating expenses 35,541 (2,574) 32,967
Depreciation expense 1,109 336 1,445
Interest expense 993 442 1,435
Income taxes 339 (22) 317
* Adjustments represent TSM operations and the elimination of
intersegment charges.
14
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002
- -----------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
- ------------------------------------------------------------------------------------------------------------
Claims incurred $ 532,651 - 532,651
Operating expenses 103,231 (25,878) 77,353
Depreciation expense 3,097 576 3,673
Interest expense 1,231 760 1,991
Income taxes 1,127 154 1,281
SIX MONTHS ENDED JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
- ------------------------------------------------------------------------------------------------------------
Claims incurred $ 493,555 - 493,555
Operating expenses 72,684 (5,741) 66,943
Depreciation expense 2,262 672 2,934
Interest expense 2,048 999 3,047
Income taxes 693 84 777
* Adjustments represent TSM operations and the elimination of intersegment
charges.
15
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
2002 2001
- ----------------------------------------------------------------------------------------------------
ASSETS
Total assets for reportable segments $ 659,540 622,806
Total assets for other segments 941 515
- ---------------------------------------------------------------------------------------------------
660,481 623,321
- ---------------------------------------------------------------------------------------------------
Elimination entries - intersegment receivables (8,835) (5,677)
- ---------------------------------------------------------------------------------------------------
Unallocated amounts:
Parent cash, cash equivalents and investments 8,681 7,909
Parent net property and equipment 29,498 30,018
Parent other assets 243 487
- ---------------------------------------------------------------------------------------------------
38,422 38,414
- ---------------------------------------------------------------------------------------------------
Consolidated assets $ 690,068 656,058
- ---------------------------------------------------------------------------------------------------
OTHER SIGNIFICANT ITEMS
AS OF JUNE 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
- ----------------------------------------------------------------------------------------------------------------------------
Significant noncash item - net change in unrealized
gain on securities available for sale $ 4,966 253 5,249
AS OF DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
- ---------------------------------------------------------------------------------------------------------------------------------
Significant noncash item - net change in unrealized
gain on securities available for sale $ 4,485 139 4,624
* Adjustments represent TSM operations and the elimination of intersegment
charges.
16
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
(3) PREMIUMS AND OTHER RECEIVABLES
Premiums and other receivables as of June 30, 2002 and December 31, 2001 were as
follows:
(UNAUDITED)
JUNE 30 DECEMBER 31,
(dollar amounts in thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
Premiums $ 50,825 40,373
Self-funded group receivables 13,385 11,241
FEHBP 10,983 5,379
Accrued interest 4,912 4,833
Reinsurance recoverable on paid losses 14,735 13,371
Other 10,978 11,353
- ---------------------------------------------------------------------------------------------
105,818 86,550
Less allowance for doubtful receivables 12,588 11,678
- ---------------------------------------------------------------------------------------------
Total premiums and other receivables $ 93,230 74,872
- ---------------------------------------------------------------------------------------------
(4) CLAIM LIABILITIES
The activity in the total claim liabilities for the three months ended June 30,
2002 and 2001 is as follows:
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------
Claim liabilities at beginning of the period $ 251,700 184,895
Reinsurance recoverable on claim liabilities (11,749) (10,087)
- ----------------------------------------------------------------------------------------------------
Net claim liabilities at beginning of the period 239,951 174,808
- ----------------------------------------------------------------------------------------------------
Incurred claims and loss adjustment expenses:
Current period insured events 258,309 248,597
Prior period insured events 2,569 823
- ----------------------------------------------------------------------------------------------------
Total 260,878 249,420
- ----------------------------------------------------------------------------------------------------
Payments of losses and loss adjustment expenses:
Current period insured events 248,766 230,619
Prior period insured events 19,928 20,434
- ----------------------------------------------------------------------------------------------------
Total 268,694 251,053
- ----------------------------------------------------------------------------------------------------
Net claim liabilities at end of the period 232,135 173,175
Reinsurance recoverable on claim liabilities 11,350 10,256
- ----------------------------------------------------------------------------------------------------
Claim liabilities at end of the period $ 243,485 183,431
- ----------------------------------------------------------------------------------------------------
17
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
The activity in the total claim liabilities for the six months ended June 30,
2002 and 2001 is as follows:
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001
- --------------------------------------------------------------------------------------------------
Claim liabilities at beginning of the period $ 229,440 183,231
Reinsurance recoverable on claim liabilities (10,062) (7,636)
- -----------------------------------------------------------------------------------------------
Net claim liabilities at beginning of the period 219,378 175,595
- -----------------------------------------------------------------------------------------------
Incurred claims and loss adjustment expenses:
Current period insured events 536,325 496,364
Prior period insured events (3,674) (2,809)
- -----------------------------------------------------------------------------------------------
Total 532,651 493,555
- -----------------------------------------------------------------------------------------------
Payments of losses and loss adjustment expenses:
Current period insured events 403,151 367,855
Prior period insured events 116,743 128,120
- -----------------------------------------------------------------------------------------------
Total 519,894 495,975
- -----------------------------------------------------------------------------------------------
Net claim liabilities at end of the period 232,135 173,175
Reinsurance recoverable on claim liabilities 11,350 10,256
- -----------------------------------------------------------------------------------------------
Claim liabilities at end of the period $ 243,485 183,431
- -----------------------------------------------------------------------------------------------
(5) NET INCOME (LOSS) AVAILABLE TO STOCKHOLDERS AND NET INCOME (LOSS) PER SHARE
The Corporation presents only basic earnings per share, which amount consists of
the net income (loss) that could be available to common stockholders divided by
the weighted-average number of common shares outstanding for the period.
The Corporation is a for-profit organization that operates as a not-for-profit
organization by virtue of a resolution approved by a majority of the
stockholders of the Corporation. As a result, the Corporation does not declare
or distribute dividends. This resolution could be amended anytime by the
affirmative vote of a majority of the stockholders and thus, dividends could be
available for distribution subject to the applicable obligations and
responsibilities under the General Corporation Law of Puerto Rico or any
contract to which the Corporation is a party.
18
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
In the event that the stockholders of the Corporation decide to operate the
Corporation as a for-profit organization and the Board of Directors of the
Corporation decides to declare and distribute dividends, the amount of net
income (loss) that could be available for distribution would exclude Triple-S,
Inc.'s ("TSI") net income, due to TSI's tax-exempt status. TSI's tax-exempt
status was obtained through an income tax ruling issued by the Treasury
Department of Puerto Rico and reaffirmed through a letter dated July 3, 2001.
For purposes of computing the basic earnings per share presented in the
consolidated statement of operations, the Corporation considers the operations
of TSI as if TSI operated without the income tax exemption. Under this scenario,
in order to determine the net income (loss) that could be available to
stockholders, the Corporation estimates the Puerto Rico income taxes that would
have otherwise resulted from TSI's operations and deducts such amount from the
results of operations of each period. TSI's estimate of Puerto Rico income
taxes, computed for such purposes, was determined as for an other than life
insurance entity, as such term is defined in the Puerto Rico Internal Revenue
Code of 1994, as amended. The effective tax rate used was 39% for the three
months and six months ended June 30, 2002 and 2001.
The following tables set forth the net income that could be available to
stockholders if TSI operated without the tax exemption for the three months and
six months ended June 30, 2002 and 2001 (dollar amounts in thousands).
THREE MONTHS ENDED MARCH 30,
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
- ------------------------------------------------------------------------------
Net income for the period $ 9,267 5,555
Less tax effect on TSI operations 1,617 1,620
- ------------------------------------------------------------------------------
Net income available to stockholders $ 7,650 3,935
- ------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
- ----------------------------------------------------------------------------
Net income for the period $ 15,718 9,721
Less tax effect on TSI operations 2,493 2,488
- ----------------------------------------------------------------------------
Net income available to stockholders $ 13,225 7,233
- ----------------------------------------------------------------------------
19
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
The following tables set forth the computation of basic earnings per share for
the three months and six months ended June 30, 2002 and 2001 (dollar amounts in
thousands, except for outstanding shares).
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
- -----------------------------------------------------------------------------
Numerator for basic earnings per share:
Net income available to stockholders $ 7,650 3,935
- ----------------------------------------------------------------------------
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,626 9,886
- ----------------------------------------------------------------------------
Basic net income per share $ 0.79 0.40
- ----------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
- -------------------------------------------------------------------------------
Numerator for basic earnings per share:
Net income available to stockholders $ 13,225 7,233
- -------------------------------------------------------------------------------
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,650 9,886
- -------------------------------------------------------------------------------
Basic net income per share $ 1.37 0.73
- -------------------------------------------------------------------------------
Should the Corporation decide to preserve the tax exemption granted to TSI, then
dividends cannot be declared or distributed from the earnings and profits
generated from TSI's operations. The following tables set forth the resulting
net income that would otherwise be available for distribution after excluding
the net result of operations of TSI for the three months and six months ended
June 30, 2002 and 2001 (dollar amounts in thousands).
20
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollar amounts in thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
- -------------------------------------------------------------------------------
Net income for the period $ 9,267 5,555
Less TSI operations 6,343 2,842
- -------------------------------------------------------------------------------
Net income available to stockholders $ 2,924 2,713
- -------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
- ----------------------------------------------------------------------------
Net income for the period $ 15,718 9,721
Less TSI operations 10,018 4,365
- ----------------------------------------------------------------------------
Net income available to stockholders $ 5,700 5,356
- ----------------------------------------------------------------------------
The following tables set forth the computation of basic net income per share for
the three months and six months June 30, 2002 and 2001 if the Corporation
excludes TSI's results of operations (dollar amounts in thousands, except for
outstanding shares):
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
- ----------------------------------------------------------------------------------
Numerator for basic earnings per share:
Net income available to stockholders $ 2,924 2,713
- ----------------------------------------------------------------------------------
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,626 9,886
- ----------------------------------------------------------------------------------
Basic net income per share $ 0.30 0.27
- ----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
- ---------------------------------------------------------------------------------
Numerator for basic earnings per share:
Net income available to stockholders $ 5,700 5,356
- ---------------------------------------------------------------------------------
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,650 9,886
- ---------------------------------------------------------------------------------
Basic net income per share $ 0.59 0.54
- ---------------------------------------------------------------------------------
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q is intended to update the reader on
matters affecting the financial condition and results of operations of Triple-S
Management Corporation ("TSM") and its subsidiaries (the "Corporation") for the
period from January 1, 2002 to June 30, 2002. Therefore, the following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-A filed with the United
States Securities and Exchange Commission as of and for the year ended December
31, 2001.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This form and other publicly available documents may include statements that may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including, among other things:
statements concerning the financial condition, results of operations and
business of the Corporation. These statements are not historical, but instead
represent the Corporation's belief regarding future events, any of which, by
their nature, are inherently uncertain and outside of the Corporation's control.
These statements may address, among other things, financial results, strategy
for growth, and market position. It is possible that the Corporation's actual
results and financial condition may differ, possibly materially, from the
anticipated results and financial conditions indicated in these forward-looking
statements. The factors that could cause actual results to differ from those in
the forward-looking statements are discussed throughout this form. The
Corporation is not under any obligation to update or alter any forward-looking
statement (and expressly disclaims any such obligations), whether as a result of
new information, future events or otherwise. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, but are not limited to, rising healthcare costs, business
conditions and competition in the different insurance segments, government
action and other regulatory issues.
STRUCTURE OF THE ORGANIZATION
TSM is incorporated under the laws of the Commonwealth of Puerto Rico. It is the
holding company of several entities, through which it offers a wide range of
insurance products and services. These products and services are offered through
the following TSM's subsidiaries:
o TSI, a health insurance company serving two major segments:
the Commercial Program and the Commonwealth of Puerto Rico
Healthcare Reform Program (the "Healthcare Reform") of the
Commonwealth of Puerto Rico.
22
o Seguros Triple-S, Inc. ("STS"), a property and casualty
insurance company.
o Seguros de Vida Triple-S, Inc. ("SVTS"), a life and disability
insurance and annuity products company.
In addition to the insurance subsidiaries mentioned above, TSM has the following
subsidiaries: Interactive Systems, Inc. ("ISI") and Triple-C, Inc. ("TCI"). ISI
provides data processing services to Triple-S Management Corporation and its
subsidiaries. Effective October 1, 2001, TCI was activated and commenced
operations as part of a strategic positioning in the health industry to take
advantage of new market opportunities. It is currently engaged as the
third-party administrator in the administration of the Healthcare Reform
business. The Healthcare Reform business was administered through a division of
TSI until September 30, 2001. It also provides healthcare advisory services and
other health-related services to TSI.
TSM is organized as a for-profit organization that operates as a not-for-profit
organization by virtue of a resolution approved by a majority of the
stockholders of the Corporation. As a result, TSM does not declare or distribute
dividends. This resolution could be amended anytime by the affirmative vote of a
majority of the stockholders and thus, dividends could be available for
distribution, subject to the applicable obligations and responsibilities under
the General Corporations Law of Puerto Rico or any contract to which the
Corporation is a party.
In the event the stockholders of the Corporation decide to operate the
Corporation as a for-profit organization and the Board of Directors of the
Corporation decides to declare and distribute dividends, the amount of net
income (loss) that could be available for distribution would exclude TSI's net
income due, to TSI's tax exempt status. TSI's tax-exempt status was obtained
through an income tax ruling issued by the Treasury Department of Puerto Rico
and reaffirmed through a letter dated July 3, 2001. As a result of the above
conditions, the portion of the consolidated net income (loss) disclosed in the
consolidated financial statements and in this Management's Discussion and
Analysis of Financial Condition and Results of Operations included in this Form,
corresponding to the Health Insurance - Commercial and the Health Insurance -
Healthcare Reform segments, is not available for distribution to shareholders.
RECENT DEVELOPMENTS
In 1994, the Commonwealth of Puerto Rico (the "Commonwealth") privatized the
delivery of services to the medically indigent population in Puerto Rico, by
contracting with private health insurance companies instead of providing health
services directly to such population. The Commonwealth originally divided the
Island into ten geographical areas. Each geographical area was awarded to a
health insurer doing business in Puerto Rico through a competitive process
requesting proposals from the industry. Prior to June 30, 2002, TSI's Healthcare
Reform segment provided coverage to beneficiaries in the following geographical
areas: North, Northwest, Metro-North and Southwest (awarded to TSI effective
October 1, 2001). These four areas had a total enrollment of
23
approximately 753,000 beneficiaries, which represented approximately 40.4% of
the total eligible beneficiaries of the population.
All Healthcare Reform contracts expired on June 30, 2002. After the expiration
of these contracts, the Commonwealth redistributed the geographical areas,
merging two of the existing areas with the remaining ones, thus reducing
geographical areas to eight. As a result of the reorganization of the
geographical areas, the Northwest area (previously administered by TSI) was
merged into the West area. In addition, and as a result of the same
reorganization, six new municipalities were merged into areas administered by
TSI. TSI participated in the bidding process and submitted proposals to renew
each of the existing contracts and also to serve additional geographical areas.
Commencing on July 1, 2002, TSI was awarded three of the eight geographical
areas: North, Metro-North and Southwest. The three areas granted to TSI are
expected to have a total enrollment of 688,000 qualified members, which
represent approximately 39.2% of the total eligible beneficiaries. The expected
enrollment is approximately 5.7% less than the average enrollment as of June 30,
2002. The decrease in enrollment was not significant and premium rates were
increased by approximately 6.3%. All Healthcare Reform contracts were negotiated
for a term of three years; premium rates, however, are negotiated annually. As
of July 1, 2002, three local insurance companies are participating in the
Healthcare Reform: TSI, Humana and Medical Card Systems.
Effective January 2002, the Office of the Commissioner of Insurance of Puerto
Rico suspended filing requirements of premium rates for certain classes,
subdivisions or combinations of insurance in order to promote the economic
activity in the insurance industry in Puerto Rico. The classes, subdivisions or
combinations of insurance covered by this deregulation are related to commercial
property and liability risks.
Smart Solutions Insurance Agency, a wholly-owned subsidiary of SVTS, began
operations effective July 2002. This insurance agency was created to distribute
the individual insurance products that are to be offered by the life and
disability insurance segment.
ADOPTION OF ACCOUNTING STANDARD
Effective January 1, 2002, the Corporation adopted the Statement of Financial
Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. The adoption of this standard did not have a material impact on the
Corporation's financial position or results of operations.
GENERAL INFORMATION
Substantially all of the revenues of the Corporation are generated from premiums
earned and investment income. Claims incurred include the payment of benefits
and losses, mostly to physicians, hospitals and other service providers, and to
policyholders. A
24
portion of the claims incurred for each period consists of a management and
actuarial estimate of claims incurred but not reported to the segment during the
period. Each segment's results of operations depend largely on their ability to
accurately predict and effectively manage these claims. Administrative expenses
comprise general, selling, commissions, depreciation and payroll and payroll
related expenses.
The Corporation (on a consolidated basis and for each reportable segment), along
with most insurance entities, uses the loss ratio, the expense ratio and the
combined ratio as measures of performance. The loss ratio is the claims incurred
divided by the premiums earned, net and fee revenue. The expense ratio is the
operating expenses divided by the premiums earned, net and fee revenue. The
combined ratio is the sum of the loss ratio and the expense ratio. These ratios
are relative measurements that describe, for every $100 of premiums earned, net
and fee revenue, the costs of claims and operating expenses. The combined ratio
represents the total cost per $100 of premium production. A combined ratio below
100 demonstrates underwriting profit; a combined ratio above 100 demonstrates
underwriting loss.
25
CONSOLIDATED OPERATING RESULTS
The analysis in this section provides an overall view of the consolidated
statements of operations and key financial information. Further details of the
results of operations of each reportable segment are included in the analysis of
operating results for the respective segments.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED EARNED PREMIUMS, NET AND FEE REVENUE:
Health Insurance - Commercial Program $ 168,238 153,773 336,112 307,092
Health Insurance - Healthcare Reform 123,079 109,026 247,526 217,604
Property and casualty 14,364 12,050 30,452 27,058
Life and disability 3,845 3,266 7,658 5,941
- ---------------------------------------------------------------------------------------------------------------------
309,526 278,115 621,748 557,695
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED CLAIMS INCURRED $ 260,878 249,420 532,651 493,555
CONSOLIDATED OPERATING EXPENSES 38,642 32,967 77,353 66,943
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATING COSTS $ 299,520 282,387 610,004 560,498
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED LOSS RATIO 84.3% 89.7% 85.7% 88.5%
CONSOLIDATED EXPENSE RATIO 12.5% 11.9% 12.4% 12.0%
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED COMBINED RATIO 96.8% 101.5% 98.1% 100.5%
- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 6,359 6,362 12,349 12,560
REALIZED GAIN (LOSS) ON SALE OF SECURITIES 6 1,571 (150) 2,380
UNREALIZED GAIN (LOSS) ON TRADING SECURITIES (5,662) (838) (5,377) (3,124)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED NET INVESTMENT INCOME $ 703 7,095 6,822 11,816
- ---------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE:
Current $ 318 203 517 491
Deferred 463 114 764 286
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED INCOME TAX EXPENSE $ 781 317 1,281 777
- ---------------------------------------------------------------------------------------------------------------------
Consolidated net income (loss) per segment:
Health Insurance - Commercial Program $ 6,898 2,155 10,425 2,036
Health Insurance - Healthcare Reform (555) 692 (407) 2,330
Property and casualty 1,411 1,687 3,143 3,302
Life and disability 1,523 1,052 2,287 1,733
Other (10) (31) 270 320
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED NET INCOME $ 9,267 5,555 15,718 9,721
- ---------------------------------------------------------------------------------------------------------------------
26
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Consolidated earned premiums, net and fee revenue for the three months ended
June 30, 2002 increased by $31.4 million or 11.3% when compared to the
consolidated earned premiums, net and fee revenue for the same period of last
year. This increase is mostly due to a combined increase of $28.5 million in the
earned premiums, net and fee revenue of the Health Insurance - Commercial
Program and Health Insurance - Healthcare Reform segments.
o The earned premiums, net and fee revenue corresponding to the
Health Insurance - Commercial segment increased by $14.5
million or 9.4% during this period. This increase in premiums
for this segment is attributed to the combined effect of
increased premium rates and a net increase in total
enrollment.
o The earned premiums corresponding to the Health Insurance -
Healthcare Reform segment increased by $14.0 million or 12.9%
during this period. This increase is the result of increases
in membership during the period and a decrease in premium
rates due to the exclusion of mental health and substance
abuse benefits from the coverage of the Healthcare Reform
insurance policy effective October 1, 2001.
o The earned premiums of the remaining segments increased by
$2.9 million or 18.9% during this period.
Consolidated claims incurred for the three months ended June 30, 2002 reflect an
increase of $11.5 million, or 4.6%, when compared to the claims incurred for the
three months ended June 30, 2001. The increase in the consolidated claims
incurred is directly related to the Corporation's increased volume of business.
The consolidated loss ratio reflects a decrease of 5.4 percentage points during
this period. The decrease in the loss ratio is the result of management's
ability to adjust its pricing strategy to cope with the increase in claims costs
and the implementation of several measures for cost containment. The
consolidated expense ratio for the three months ended June 30, 2002 has remained
similar to the consolidated expense ratio for the same period of the prior year,
reflecting an increase of 0.6 percentage points.
The consolidated realized gain on sale of securities of $6 thousand for the
three months ended June 30, 2002 is the result of the sound and timely
management of the investment portfolio in accordance with corporate investment
policies, and from the normal portfolio turnover of the trading and
available-for-sale securities. During the three months ended June 30, 2001, the
Corporation had a consolidated realized gain of $1.6 million, which was mainly
due to the sale of common stocks of Popular Inc. that generated a realized gain
of approximately $1.3 million.
The consolidated unrealized loss on trading securities of $5.7 million and $838
thousand for the three months ended June 30, 2002 and 2001, respectively, was
the result of investments held by the Health Insurance - Commercial Program,
Health Insurance - Healthcare Reform and the Property and Casualty Insurance
segments. This unrealized
27
loss is mostly attributed to unrealized losses in the portfolios held by such
segments in equity holdings that replicate the performance of the Standard &
Poors 500 Index (S&P 500 Index). The Corporation experienced higher consolidated
unrealized loss during the three months ended June 30, 2002 than during the
three months ended June 30, 2001. This is due to the fact that the S&P 500 Index
had a better performance during the second quarter of 2001 than during the
second quarter of 2002. The S&P 500 Index experienced a decrease of 13.7% at the
end of the second quarter of 2002, while it experienced an increase of 5.5%
during at the end of the second quarter of 2001.
Total consolidated income tax expense for the three months ended June 30, 2002
increased by $464 thousand when compared to consolidated income tax expense for
the same period of last year. This increase is mostly due to the following:
o Increase in the deferred income tax expense of $349 thousand
during this period. This increase is mostly due to the
increase in the deferred income tax expense of the Property
and Casualty Insurance segment of $330 thousand during this
period. The increase in the deferred income tax expense in the
Property and Casualty Insurance segment is due to the increase
in the segment's deferred policy acquisition costs and the
contributions to the catastrophe loss reserve trust fund.
o Increase in the current income tax expense of $115 thousand
during this period. This increase is mostly due to better
results of operations of the Corporation's taxable entities
and to the fact that in the year 2002, the Corporation has a
new subsidiary, TCI, which is a taxable entity. Total income
tax expense for TCI for the three months ended June 30, 2002
amounts to $70 thousand.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Consolidated earned premiums, net and fee revenue for the six months ended June
30, 2002 increased by $64.1 million, or 11.5%, when compared to the consolidated
earned premiums, net and fee revenue for the same period of last year. This
increase is mostly due to a combined increase of $59.0 million in the earned
premiums, net and fee revenue of the Health Insurance - Commercial Program and
Health Insurance - Healthcare Reform segments.
o The earned premiums, net and fee revenue corresponding to the
Health Insurance - Commercial segment increased by $29.0
million or 9.5% during this period. This increase in premiums
for this segment is attributed to the combined effect of
increased premium rates and a net increase in total
enrollment.
o The earned premiums corresponding to the Health Insurance -
Healthcare Reform segment increased by $30.0 million or 13.8%
during this period. This increase is the net result of
increases in membership during the period and a decrease in
premium rates due to the exclusion of mental health and
substance
28
abuse benefits from the coverage of the Healthcare Reform
insurance policy effective October 1, 2001.
o The earned premiums of the remaining segments increased by
$5.1 million or 24.2% during this period.
Consolidated claims incurred for the six months ended June 30, 2002 reflect an
increase of $39.1 million, or 7.9%, when compared to the claims incurred for the
six months ended June 30, 2001. The increase in the consolidated claims incurred
is directly related to the Corporation's increased volume of business. The
consolidated loss ratio reflects a decrease of 2.8 percentage points during this
period. The decrease in the loss ratio is the result of management's ability to
adjust its pricing strategy to cope with the increase in claims costs and the
implementation of several measures for cost containment. The consolidated
expense ratio for the six months ended June 30, 2002 has remained similar to the
consolidated expense ratio for the same period of the prior year, reflecting an
increase of only 0.4 percentage points.
The consolidated realized loss on sale of securities of $150 thousand for the
six months ended June 30, 2002 is the result of the sound and timely management
of the investment portfolio in accordance with corporate investment policies,
and from the normal portfolio turnover of the trading and available-for-sale
securities. During the six months ended June 30, 2001, the Corporation had a
consolidated realized gain of $2.3 million, which was mainly due to the sale of
common stocks of Popular Inc. that generated a realized gain of approximately
$1.3 million and also to the normal portfolio turnover of the trading and
available-for-sale securities.
The consolidated unrealized loss on trading securities of $5.4 million and $3.1
million for the six months ended June 30, 2002 and 2001, respectively, was the
result of investments held by the Health Insurance - Commercial Program, Health
Insurance - Healthcare Reform and the Property and Casualty Insurance segments.
This unrealized loss is mostly attributed to losses in the portfolios held by
such segments in equity holdings that replicate the performance of the Standard
& Poors 500 Index (S&P 500 Index). The Corporation experienced higher
consolidated unrealized loss during the six months ended June 30, 2002 than
during the six months ended June 30, 2001. This is due to the fact that the S&P
500 Index had a better performance during the first six months of 2001 than
during the first six months of 2002. The S&P 500 Index experienced a decrease of
13.8% during the first six months of 2002, while it experienced a decrease of
7.3% during the first six months of 2001.
Total consolidated income tax expense for the six months ended June 30, 2002
increased by $504 thousand when compared to consolidated tax expense for the
same period of last year. This increase is mostly due to an increase in the
deferred income tax expense of $478 thousand during this period. The increase in
the deferred income tax expense is mostly due to the increase in the deferred
income tax expense of the Property and Casualty Insurance segment of $336
thousand during this period. The increase in the deferred income tax expense of
the Property and Casualty Insurance segment is due to the
29
increase in the segment's deferred policy acquisition costs and the
contributions to the catastrophe loss reserve trust fund.
HEALTH INSURANCE - COMMERCIAL PROGRAM OPERATING RESULTS
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------
ENROLLMENT:
Corporate accounts 313,037 320,647 313,037 320,647
Self-funded employers 125,098 121,144 125,098 121,144
Individual accounts 84,058 76,786 84,058 76,786
Federal employees 55,677 55,847 55,677 55,847
Local government employees 43,445 41,141 43,445 41,141
- ----------------------------------------------------------------------------------------------------------
TOTAL ENROLLMENT 621,315 615,565 621,315 615,565
- ----------------------------------------------------------------------------------------------------------
Earned premiums $ 167,980 151,615 333,646 303,872
Amounts attributable to self-funded arrangements 37,321 33,190 72,655 66,650
Less: Amounts attributable to claims under
self-funded arrangements (36,379) (30,821) (68,837) (63,008)
- ----------------------------------------------------------------------------------------------------------
EARNED PREMIUMS AND FEE REVENUE $ 168,922 153,984 337,464 307,514
- ----------------------------------------------------------------------------------------------------------
CLAIMS INCURRED $ 137,558 138,393 283,362 273,158
OPERATING EXPENSES 22,752 20,467 44,555 40,747
- ----------------------------------------------------------------------------------------------------------
TOTAL UNDERWRITING COSTS $ 160,310 158,860 327,917 313,905
- ----------------------------------------------------------------------------------------------------------
UNDERWRITING INCOME (LOSS) $ 8,612 (4,876) 9,547 (6,391)
- ----------------------------------------------------------------------------------------------------------
LOSS RATIO 81.4% 89.9% 84.0% 88.8%
EXPENSE RATIO 13.5% 13.3% 13.2% 13.3%
- ----------------------------------------------------------------------------------------------------------
COMBINED RATIO 94.9% 103.2% 97.2% 102.1%
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 2,759 2,650 5,317 5,197
REALIZED GAIN (LOSS) ON SALE OF SECURITIES 113 1,635 (61) 2,217
UNREALIZED GAIN (LOSS) ON TRADING SECURITIES (4,442) (1,200) (4,056) (2,372)
- ----------------------------------------------------------------------------------------------------------
TOTAL NET INVESTMENT INCOME $ (1,570) 3,085 1,200 5,042
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 6,898 2,155 10,425 2,036
- ----------------------------------------------------------------------------------------------------------
30
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Earned premiums and fee revenue for the three months ended June 30, 2002 reflect
an increase of $14.9 million, or 9.7%, when compared to the three months ended
June 30, 2001. This increase is the result of the following:
o Since the last semester of 1999, this segment monitors premium
rates, particularly in the rated Corporate Accounts business.
Increases in premium rates account for approximately 84.0% of
the increase experienced in earned premiums and fee revenue
for the period.
o Total enrollment as of June 30, 2002 increased by 5,750
members, or 0.9%, when compared to the enrollment as of the
same date of last year. The increase in enrollment is mostly
reflected in the Individual Accounts, Self-funded Employers
and Local Government Employees membership, which membership
increased by 7,272, or 9.5%, 3,954, or 3.3% and 2,304, or
5.6%, during this period, respectively. The enrollment of the
Corporate Accounts groups decreased by 7,610 members, or 2.4%,
during this period. The net increase in enrollment as of June
30, 2002 compared to the enrollment as of June 30, 2001
represents approximately 16.0% of the increase experienced in
the earned premiums and fee revenue for the period.
Claims incurred during the three months ended June 30, 2002 decreased by $835
thousand or 0.6% when compared to the same period in 2001. This decrease is due
to a decrease in the loss ratio of 8.5 percentage points during this period. The
improvement in the loss ratio is the result of better premium pricing and claims
costs containment measures established by the segment throughout the years. As a
result of these cost containment initiatives, cost and utilization trends have
remained at levels consistent with pricing and margin objectives. During the
three months ended June 30, 2002, the utilization trends of the segment were
lower than expected, fact that has a direct impact in the loss ratio.
The operating expenses for the three months ended June 30, 2002 reflect an
increase of $2.3 million, or 11.2%, when compared to the three months ended June
30, 2001. This increase is due to the increase in the costs incurred in the
acquisition of new business, such as marketing and commission expenses, and in
payroll and payroll related expenses. The expense ratio for the three months
ended June 30, 2002 increased only 0.2 percentage points compared to the three
months ended June 30, 2001.
31
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Earned premiums and fee revenues for the six months ended June 30, 2002 reflect
an increase of $29.9 million, or 9.7%, when compared to the six months ended
June 30, 2001. This increase is the result of the following:
o Since the last semester of 1999, this segment monitors premium
rates, particularly in the rated Corporate Accounts business.
Increases in premium rates account for approximately 75.0% of
the increase experienced in earned premiums and fee revenue
for the period.
o Total enrollment as of June 30, 2002 increased by 5,750
members, or 0.9%, when compared to the enrollment as of the
same date of last year. The increase in enrollment is mostly
reflected in the Individual Accounts, Self-funded Employers
and Local Government Employees membership, which membership
increased by 7,272, or 9.5%, 3,954, or 3.3% and 2,304, or
5.6%, during this period, respectively. The enrollment of the
Corporate Accounts groups decreased by 7,610 members, or 2.4%,
during this period. The net increase in enrollment as of June
30, 2002 when compared to the enrollment as of June 30, 2001
represents approximately 25.0% of the increase experienced in
the earned premiums and fee revenue for the period.
Claims incurred during the six months ended June 30, 2002 increased by $10.2
million, or 3.7%, when compared to the same period in 2001. This increase is due
to the increase in membership, together with a decrease in the loss ratio of 4.8
percentage points during this period. The improvement in the loss ratio is the
result of better premium pricing and claims costs containment measures
established by the segment throughout the years. As a result of these cost
containment initiatives, cost and utilization trends have remained at levels
consistent with pricing and margin objectives. In addition, the implementation
of pharmacy costs containment programs have maintained pharmacy costs trends at
single digit numbers during the six months ended June 30, 2002.
The operating expenses for the six months ended June 30, 2002 reflect an
increase of $3.8 million, or 9.3%, when compared to the six months ended June
30, 2001. This increase is due to the increase in the costs incurred in the
acquisition of new business, such as marketing and commission expenses, and in
payroll and payroll related expenses. The expense ratio for the six months ended
June 30, 2002 decreased only 0.1 percentage points compared to the six months
ended June 30, 2001.
32
HEALTH INSURANCE - HEALTHCARE REFORM PROGRAM OPERATING RESULTS
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
AVERAGE ENROLLMENT:
North area 251,251 274,681 254,069 269,153
Northwest area 156,046 166,597 156,335 164,265
Metro-north area 167,529 177,851 168,458 177,381
Southwest area 150,355 - 150,836 -
- -------------------------------------------------------------------------------------------------------
725,181 619,129 729,698 610,799
- -------------------------------------------------------------------------------------------------------
EARNED PREMIUMS $ 123,079 109,026 247,526 217,604
- -------------------------------------------------------------------------------------------------------
CLAIMS INCURRED $ 113,711 101,501 229,695 201,695
OPERATING EXPENSES 10,465 7,550 19,464 14,898
- -------------------------------------------------------------------------------------------------------
TOTAL UNDERWRITING COSTS $ 124,176 109,051 249,159 216,593
- -------------------------------------------------------------------------------------------------------
UNDERWRITING INCOME (LOSS) $ (1,097) (25) (1,633) 1,011
- -------------------------------------------------------------------------------------------------------
LOSS RATIO 92.4% 93.1% 92.8% 92.7%
EXPENSE RATIO 8.5% 6.9% 7.9% 6.8%
- -------------------------------------------------------------------------------------------------------
COMBINED RATIO 100.9% 100.0% 100.7% 99.5%
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,297 1,156 2,485 2,281
REALIZED GAIN (LOSS) ON SALE OF SECURITIES (170) (32) (167) 90
UNREALIZED GAIN (LOSS) ON TRADING SECURITIES (387) (23) (653) (307)
- -------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED NET INVESTMENT INCOME $ 740 1,101 1,665 2,064
- -------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (555) 692 (407) 2,330
- -------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Earned premiums of the Healthcare Reform segment for the three months ended June
30, 2002 increased by $14.0 million, or 12.9%, when compared to the same period
of last year. This increase is the result of the following
o The average enrollment for this segment increased by 106,052
insureds when comparing the average enrollment for the three
months ended June 30, 2002 to the three months ended June 30,
2001. This increase is due to the fact that this segment
acquired a new area, the Southwest area, effective October 1,
2001, and therefore also acquired the earned premiums for this
area.
o Effective October 1, 2001, the Commonwealth excluded mental
health and substance abuse benefits from the coverage offered
in the policy. Behavioral healthcare and mental healthcare
companies now offer these benefits to the Healthcare Reform's
qualified membership. The exclusion of these benefits
decreased earned premiums by approximately $9.0 million during
the three months ended June 30, 2002.
Claims incurred during the three months ended June 30, 2002 reflect an increase
of $12.2 million, or 12.0%, when compared to the three months ended June 30,
2001. This
33
increase is due to the increase in membership, together with the effect of the
exclusion of mental health and substance abuse benefits from the coverage of the
policy. During the three months ended June 30, 2002, the loss ratio experienced
a decrease of 0.7 percentage points.
Operating expenses for the three months ended June 30, 2002, increased by $2.9
million, or 38.6%, when compared to the three months ended June 30, 2001. This
increase is due to the segment's increased volume of business from the
acquisition of the Southwest area effective October 1, 2001. The expense ratio
increased by 1.6 percentage points when compared to the three months ended June
30, 2001. The increase in the expense ratio is due to the fact that during this
period the segment began the enrollment process of the new municipalities
acquired effective July 1, 2002 (refer to the Recent Developments section).
Therefore, the segment has incurred in expenses related to the enrollment
process while earned premiums will not be received until July 2002.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Earned premiums of the Healthcare Reform segment for the six months ended June
30, 2002 increased by $29.9 million, or 13.8%, when compared to the same period
of last year. This increase is the result of the following:
o The average enrollment for this segment increased by 118,899
insureds when comparing the average enrollment for the six
months ended June 30, 2002 to the six months ended June 30,
2001. This increase is due to the fact that this segment
acquired a new area, the Southwest area, effective October 1,
2001, and therefore also acquired the earned premiums for this
area.
o Effective October 1, 2001, the Commonwealth excluded mental
health and substance abuse benefits from the coverage offered
in the policy. Behavioral healthcare and mental healthcare
companies now offer these benefits to the Healthcare Reform's
qualified membership. The exclusion of these benefits
decreased earned premiums by approximately $18.0 million
during the six months ended June 30, 2002.
Claims incurred during the six months ended June 30, 2002 reflect an increase of
$28.0 million, or 13.9%, when compared to the six months ended June 30, 2001.
This increase is due to the increase in membership, together with the effect of
the exclusion of mental health and substance abuse benefits from the coverage of
the policy. During the six months ended June 30, 2002, the loss ratio
experienced an increase of 0.1 percentage points. The increase in the loss ratio
is the result of higher utilization trends during the period.
Operating expenses for the six months ended June 30, 2002, increased by $4.6
million, or 30.6%, when compared to the six months ended June 30, 2001. This
increase is due to the segment's increased volume of business from the
acquisition of the Southwest area effective October 1, 2001. The expense ratio
increased by 1.1 percentage points when compared to the six months ended June
30, 2001. The increase in the expense ratio is
34
due to the fact that during this period the segment began the enrollment process
of the new municipalities acquired effective July 1, 2002 (refer to the Recent
Developments section). Therefore, the segment has incurred in expenses related
to the enrollment process while earned premiums will not be received until July
2002.
PROPERTY AND CASUALTY INSURANCE OPERATING RESULTS
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------
PREMIUMS WRITTEN:
Commercial multiperil $ 11,075 9,993 23,484 19,361
Dwelling 4,409 4,386 8,365 8,756
Auto physical damage 3,778 2,884 8,019 6,307
Commercial auto liability 2,253 2,058 4,961 4,226
Medical malpractice 1,123 970 2,087 1,726
All other 3,235 2,672 5,581 5,633
- --------------------------------------------------------------------------------------------------
Total premiums written 25,873 22,963 52,497 46,009
- --------------------------------------------------------------------------------------------------
Premiums ceded (11,560) (13,502) (16,519) (19,528)
Change in unearned premiums 51 2,589 (5,526) 577
- --------------------------------------------------------------------------------------------------
NET PREMIUMS EARNED $ 14,364 12,050 30,452 27,058
- --------------------------------------------------------------------------------------------------
CLAIMS INCURRED $ 8,287 8,052 16,088 15,880
OPERATING EXPENSES 5,141 4,326 13,267 10,782
- --------------------------------------------------------------------------------------------------
TOTAL UNDERWRITING COSTS $ 13,428 12,378 29,355 26,662
- --------------------------------------------------------------------------------------------------
UNDERWRITING INCOME (LOSS) $ 936 (328) 1,097 396
- --------------------------------------------------------------------------------------------------
LOSS RATIO 57.7% 66.8% 52.8% 58.7%
EXPENSE RATIO 35.8% 35.9% 43.6% 39.8%
- --------------------------------------------------------------------------------------------------
COMBINED RATIO 93.5% 102.7% 96.4% 98.5%
- --------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,656 1,842 3,234 3,648
REALIZED GAIN (LOSS) ON SALE OF SECURITIES 71 (33) 16 38
UNREALIZED GAIN (LOSS) ON TRADING SECURITIES (833) 385 (668) (445)
- --------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED NET INVESTMENT INCOME $ 894 2,194 2,582 3,241
- --------------------------------------------------------------------------------------------------
NET INCOME $ 1,411 1,687 3,143 3,302
- --------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Total premiums written for the three months ended June 30, 2002 increased by
$2.9 million, or 12.7%, when compared to the three months ended June 30, 2001.
This increase is reflected in the premiums written for the following lines of
business:
o The premiums written for the commercial multiperil line
experienced an increase in premiums of $1.1 million, or 10.8%,
during this period. This
35
increase is due to increases in premium rates as a result of
the deregulation of the commercial lines. In addition, premium
rates for this line were also increased in order to take into
consideration the sharp increases in reinsurance costs,
particularly in catastrophe related perils.
o The premiums written for the auto physical damage line
increased by $894 thousand, or 31.0%, during this period. This
increase is concentrated in the commercial business and is
also attributed to the deregulation of premium rates, mostly
as a result of the elimination of credits or discounts in the
commercial accounts.
Approximately 60.0% of the increase in total premiums written is due to an
increase in premium rates. The remaining 40.0% is attributed to an increase in
the volume of business.
Premiums ceded to reinsurers during the three months ended June 30, 2002
decreased by $1.9 million, or 14.4%, when compared to the same period for the
prior year. This reduction is the result of the following:
o The property and casualty segment has increased its risk
retention of the commercial property portfolio. The increased
retention, which decreases the amounts of premiums ceded to
reinsurers, retains more premiums of this profitable line.
o Catastrophe reinsurance increased by over 40% during this
period. This increase is due to recent worldwide catastrophes.
The property and casualty loss ratio experienced a decrease of 9.1 percentage
points during the three months ended June 30, 2002 as compared to the same
period of the prior year. This decrease is mostly the result of favorable
underwriting results of the multiperil line of business (resulting from
increases in premium rates as a consequence of deregulation) and increased
retention of the segment's profitable lines of business. In addition, the
segment's medical malpractice line of business experienced an improvement in its
loss ratio as a result of premium rate increases of approximately 60% (which
were effective during April 2001) and strict adherence to underwriting practices
and reinsurance constraints.
The operating expenses for the three months ended June 30, 2002 increased by
$815 thousand, or 18.8%, when compared to the operating expenses for the three
months ended June 30, 2001. The expense ratio, however, decreased by 0.1
percentage points during this period. The increase in operating expenses is the
result of the decrease in reinsurance commission income from the proportional
reinsurance treaties and the effect of the reinsurance portfolio transfer,
together with an increase in the deferred acquisition costs, which reduce
commission expense.
36
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Total premiums written for the six months ended June 30, 2002 increased by $6.5
million, or 14.1%, when compared to the six months ended June 30, 2001. This
increase is reflected in the premiums written for the following lines of
business:
o The premiums written for the commercial multiperil line
experienced an increase in premiums of $4.1 million, or 21.3%,
during this period. This increase is due to increases in
premium rates as a result of the deregulation of the
commercial lines. In addition, premium rates for this line
were also increased in order to take into consideration the
sharp increases in reinsurance costs, particularly in
catastrophe related perils.
o The premiums written for the auto physical damage line
increased by $1.7 thousand, or 27.1%, during this period. This
increase is concentrated in the commercial business and is
also attributed to the deregulation of premium rates, mostly
as a result of the elimination of credits or discounts in the
commercial accounts.
Approximately 70.0% of the increase in total premiums written is due to an
increase in premium rates. The remaining 30.0% is attributed to an increase in
the volume of business.
Premiums ceded to reinsurers during the six months ended June 30, 2002 decreased
by $3.0 million, or 15.4%, when compared to the same period for the prior year.
This reduction is the result of the following situations:
o During the reinsurance contracts renewal process, STS
cancelled a commercial quota share treaty. This cancellation
propitiated a reinsurance portfolio transfer that resulted in
the re-acquisition of the business previously ceded, and
accordingly, a reduction in premiums ceded.
o The property and casualty segment has increased its risk
retention of the commercial property portfolio. The increased
retention, which decreases the amounts of premiums ceded to
reinsurers, retains more premiums of this profitable line.
o Catastrophe reinsurance increased by over 40% during this
period. This increase is due to recent worldwide catastrophes.
The property and casualty loss ratio experienced a decrease of 5.9 percentage
points during the six months ended June 30, 2002 as compared to the same period
of the prior year. This decrease is mostly the result of favorable underwriting
results of the multiperil (resulting from increases in premium rates as a
consequence of deregulation) and auto physical damage lines of business. In
addition, the segment's medical malpractice line of business experienced an
improvement in its loss ratio as a result of premium rate increases of
approximately 60% (which were effective during April 2001) and strict adherence
to underwriting practices and reinsurance constraints.
37
The operating expenses for the six months ended June 30, 2002 increased by $2.5
million, or 23.0%, when compared to the operating expenses for the six months
ended June 30, 2001. The expense ratio increased by 3.8 percentage points during
this period. The increase in operating expenses and the expense ratio is the
result of decreasing reinsurance commission income from the proportional
reinsurance treaties and the effect of the reinsurance portfolio transfer during
the beginning of 2002.
LIFE AND DISABILITY INSURANCE OPERATING RESULTS
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(dollar amounts in thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------
NET EARNED PREMIUMS AND COMMISSION INCOME:
Earned premiums $ 5,366 4,245 10,243 8,105
Earned premiums ceded (1,660) (1,199) (2,895) (2,465)
- ------------------------------------------------------------------------------------------------
Net earned premiums 3,706 3,046 7,348 5,640
- ------------------------------------------------------------------------------------------------
Commission income on reinsurance 139 220 310 301
- ------------------------------------------------------------------------------------------------
TOTAL $ 3,845 3,266 7,658 5,941
- ------------------------------------------------------------------------------------------------
CLAIMS INCURRED $ 1,322 1,474 3,506 2,823
OPERATING EXPENSES 1,274 1,040 2,550 2,054
- ------------------------------------------------------------------------------------------------
TOTAL UNDERWRITING COSTS $ 2,596 2,514 6,056 4,877
- ------------------------------------------------------------------------------------------------
UNDERWRITING INCOME $ 1,249 752 1,602 1,064
- ------------------------------------------------------------------------------------------------
LOSS RATIO 34.4% 45.1% 45.8% 47.5%
EXPENSE RATIO 33.1% 31.8% 33.3% 34.6%
- ------------------------------------------------------------------------------------------------
COMBINED RATIO 67.5% 77.0% 79.1% 82.1%
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 571 620 1,161 1,242
REALIZED GAIN (LOSS) ON SALE OF SECURITIES (8) - 62 30
- ------------------------------------------------------------------------------------------------
TOTAL NET INVESTMENT INCOME $ 563 620 1,223 1,272
- ------------------------------------------------------------------------------------------------
NET INCOME $ 1,523 1,052 2,287 1,733
- ------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Earned premiums for the three months ended June 30, 2002 increased by $1.1
million, or 26.4%, when compared to the three months ended June 30, 2001. This
increase is mostly due to the segment's increased volume of business during this
period. Total certificates in force in the group life and group disability
business as of June 30, 2002 increased by 37,632 certificates, or 13.0%, when
compared to the same period for last year.
Premiums ceded to reinsurers during the three months ended June 30, 2002 reflect
an increase of $461 thousand, or 38.4%, when compared to the same period of the
prior year. The ratio of earned premiums ceded to earned premiums was 30.9% and
28.2% for the three months period ended June 30, 2002 and 2001, respectively.
The increase of 2.7 percentage points in the earned premiums ceded to earned
premiums ratio from one period to another is due to a change in the mix of
business subscribed by the segment and
38
each business reinsurance policy. During this period in 2002, the segment
subscribed more disability policies than in 2001. The disability insurance
business has a higher cession percentage than the life insurance business.
Claims incurred for the three months ended June 30, 2002 decreased by $152
thousand, or 10.3%, when compared to the three months ended June 30, 2001. The
segment's loss ratio reflects a decrease of 10.7 percentage points during the
same period. This decrease is due to the following:
o During the three months ended June 30, 2002 and 2001, the
segment recorded a release of incurred but not reported claims
reserve of approximately $880 thousand and $225 thousand,
respectively. This adjustment is the result of a better than
expected development of this reserve.
o In addition, during the year 2002, the segment has subscribed
more disability policies than during 2001. The disability
insurance business has a higher loss ratio than the life
insurance business thus, contributing to the segment's
increased loss ratio.
The segment's expense ratio for the three months ended June 30, 2002 reflects an
increase of 1.3 percentage points when compared to the same period of 2001. The
increase of the expense ratio is mostly the result of an increase in the
commission expense, payroll and payroll related expenses. The increase of these
expenses is due to the increase in the volume of business noted during this
period.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Earned premiums for the six months ended June 30, 2002 increased by $2.1
million, or 26.4%, when compared to the six months ended June 30, 2001. This
increase is mostly due to the segment's increased volume of business during this
period. Total certificates in force in the group life and group disability
business as of June 30, 2002 increased by 42,094 certificates, or 15.0%, when
compared to the same period for last year.
Premiums ceded to reinsurers during the six months ended June 30, 2002 reflect
an increase of $430 thousand, or 17.4%, when compared to the same period of the
prior year. The ratio of earned premiums ceded to earned premiums was 28.3% and
30.4% for the six-month period ended June 30, 2002 and 2001, respectively. The
decrease of 2.1 percentage points in the earned premiums ceded to earned
premiums ratio from one period to another is due to the following:
o During this period, there was a change in the estimated amount
of disability premiums ceded to reinsurers. Effective January
2002, the segment estimated that approximately 61% of the
premiums earned on the disability business qualified for
reinsurance. In previous periods, the disability business
reinsurance amount was estimated to be 75% of the disability
premiums earned. The effect of this change in ceding
percentage represents a decrease of approximately $101
thousand during this period.
39
o During the six months ended June 30, 2002, the segment
subscribed more disability policies than during the same
period of 2001. The disability insurance business has a higher
cession percentage than the life insurance business.
Claims incurred for the six months ended June 30, 2002 increased by $683
thousand, or 24.2%, when compared to the six months ended June 30, 2001. The
segment's loss ratio reflects a decrease of 1.7 percentage points during the
same period. This decrease is mostly attributed to the effect of the following:
o During the six months ended June 30, 2002 and 2001 the segment
recorded a release of the incurred but not reported claims
reserve of approximately $880 thousand and $350 thousand,
respectively. This adjustment is the result of a better than
expected development of this reserve.
o In addition, during the year 2002, the segment has subscribed
more disability policies than during 2001. The disability
insurance business has a higher loss ratio than the life
insurance business, which contributes to the segment's
increased loss ratio.
The segment's expense ratio for the six months ended June 30, 2002 reflects a
decrease of 1.3 percentage points when compared to the same period of 2001. This
decrease in the expense ratio is mostly the result of cost containment measures
in place, mitigated by an increase in the commission expense, payroll and
payroll related expenses. The increase of these expenses is due to the increase
in the volume of business noted during this period.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Corporation maintains good liquidity measures due to the quality of its
assets, the predictability of its liabilities, and the duration of its
contracts. The liquidity of the Corporation is primarily derived from the
operating cash flows of its insurance subsidiaries.
As of June 30, 2002 and December 31, 2001, the Corporation's cash and cash
equivalents amounted to $80.0 million and $81.0 million, respectively. The
sources of funds considered in meeting the objectives of the Corporation's
operations include: cash provided from operations, maturities and sales of
securities classified within the trading and available-for-sale portfolios,
securities sold under repurchase agreements, and issuance of long and short-term
debt.
Management believes that the Corporation's net cash flows from operations are
expected to sustain the operations for the next year and thereafter, as long as
the operations continue showing positive results. The Corporation is continually
monitoring premium rates and claims incurred to ascertain the sustainability of
its net cash flows from
40
operations. In addition the Corporation has the ability to increase premium
rates throughout the year in the policies' renewal process that is performed on
a monthly basis.
Cash Flows from Operations
Most of the cash flows from operating activities are generated from the
insurance subsidiaries. The basic components of the cash flows from operations
are premium collections, claims payments less reinsurance premiums, and payment
of operating expenses.
Net cash flows provided by (used in) operating activities amounted to $26.3
million and $(3.7) million for the six months ended June 30, 2002 and 2001,
respectively, an increase of $30.0 million. This increase in cash flows provided
by operating activities is mainly attributed to the net effect of the following:
increase in collections of premiums of $62.3 million, increase of $23.2 million
in the amount of claims losses and benefits paid, and an increase of $9.1
million in the amount of cash paid to suppliers and employees. The increase in
premium collections and in the amount of claims losses and benefits paid is
mostly the result of the increased volume of business and increased premium
rates of the operating segments. The amount of cash paid to suppliers and
employees increased as a result of additional expenses generated from the
acquisition of new business.
This excess liquidity is available, among other things, to invest in high
quality and diversified fixed income securities and, to a lesser degree, to
invest in marketable equity securities.
Cash Flows from Investing Activities
The basic components of the cash flows from investing activities are derived
from acquisitions and proceeds from investments in the available-for-sale and
held-to-maturity portfolios and capital expenditures. The Corporation monitors
the duration of its investment portfolio and executes the purchases and sales of
these investments with the objective of having adequate funds available to
satisfy its maturing liabilities.
Net cash flows used in investing activities amounted to $21.5 million and $14.6
million for the six months ended June 30, 2002 and 2001, respectively. The cash
flows used in investing activities during these periods are attributed to the
investment of the excess cash generated from the operations. Total acquisition
of investments exceeded the proceeds from investments sold or matured by $19.2
million and $12.1 million during the six months ended June 30, 2002 and 2001,
respectively.
41
Cash Flows from Financing Activities
Net cash flows (used in) provided by financing activities amounted to $(5.7)
million and $5.4 million for the six months ended June 30, 2002 and 2001,
respectively. The decrease of $11.1 million during this period is mainly due to
the combined effect of the following:
o The change in outstanding checks in excess of bank balances
reflects a decrease $7.6 million during the six months ended
June 30, 2002 compared to the six months ended June 30, 2001.
The amount of checks in excess of bank balances represents a
timing difference between the issuance of checks and the cash
balance in the bank account at one point in time.
o An increase in the amount of surrenders of individual
retirement annuities of $2.3 million from the six months ended
June 30, 2001 to the six months ended June 30, 2002. In
addition, the amount of proceeds from deposits of individual
retirement annuities decreased by $463 thousand during the
same period. This fluctuation in the individual retirement
accounts is attributed to the aggressive competition in the
market for this product in Puerto Rico.
o The payments of long-term debt increased from $1.2 million for
the six months ended June 30, 2001 to $1.9 million for the six
months ended June 30, 2002, an increase of $700 thousand. This
increase is due to the scheduled principal payments of one of
the credit agreements, whose repayment schedule was
restructured effective August 31, 2001.
Financing and Financing Capacity
The Corporation has significant short-term liquidity supporting its businesses.
It also has available short-term borrowings from time to time to address timing
differences between cash receipts and disbursements. These short-term borrowings
are mostly in the form of securities sold under repurchase agreements. As of
June 30, 2002, the Corporation had $49 million in available credit under these
agreements, although there is no balance due as of that date.
In addition, the Corporation has two credit agreements with a commercial bank,
FirstBank Puerto Rico. These credit agreements bear interest rates determined by
the London Interbank Offered Rate (LIBOR) plus a margin specified by the
commercial bank at the time of the agreement. As of June 30, 2002, the two
credit agreements have an outstanding balance of $35.5 million and $18.2 million
and an average annual interest rate of 4.8% and 3.3%, respectively. These credit
agreements contain several restrictive covenants, including, but not limited to,
restrictions to incur in additional indebtedness and the granting of certain
liens, limitations on acquisitions and limitations on changes in control. As of
June 30, 2002, management believes the Corporation is in compliance with these
covenants. Further details regarding these credit agreements are incorporated by
reference in Item 2. Financial Information of the Corporation's Form 10-A filed
as of December 31, 2001.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation is exposed to certain market risks that are inherent in the
Corporation's financial instruments, which arise from transactions entered into
in the normal course of business. The Corporation does not enter into derivative
financial instrument transactions to manage or reduce market risk or for
speculative purposes, but is subject to market risk on certain of its financial
instruments. The Corporation has exposure to market risk mostly in its
investment activities. For purposes of this disclosure, "market risk" is defined
as the risk of loss resulting from changes in interest rates and equity prices.
No material changes have occurred in the Corporation's exposure to financial
market risks since December 31, 2001. A discussion of the Corporation's market
risk as of December 31, 2001 is incorporated by reference in Item 2 of the
Corporation's Form 10/A.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 24, 2002, Octavio Jordan, Agripino Lugo, Ramon Vidal and others filed a
suit against TSM, TSI, STS, TCI and others in the Court of First Instance, San
Juan Part, alleging, among other things, violations of some provisions of the
Insurance Code, anti-monopolistic practices, unfair business practices, and
damages in the amount of $12 million dollars. TSM, TSI, STS and TCI have
answered the complaint and TSM and TSI filed counterclaims against the
plaintiffs in the case. The plaintiffs have filed a motion to dismiss the
counterclaims filed by TSM and TSI. This motion is still pending. This case is
still in the preliminary stages of litigation. After a review of the complaint,
it appears that many of the allegations brought by the plaintiffs have been
resolved in favor of TSM and TSI in previous cases brought by the same
plaintiffs in the U.S. District Court for the District of Puerto Rico and by
most of the plaintiffs in the local courts.
As of June 30, 2002, the Corporation was defendant in various lawsuits arising
in the ordinary course of business. In the opinion of management and legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the consolidated financial condition and results of operations
of the Corporation.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
TSM held its 2002 annual meeting of shareholders on April 28, 2002 (the
"Meeting") where new members to TSM's Board of Directors were elected. The
candidates for election at the meeting were Dr. Wilmer Rodriguez-Silva, Dr.
Arturo Cordova-Lopez, Dr. Wilfredo Lopez-Hernandez, Dr. Manuel A. Marcial-Seoane
and Ms. Adamina Soto-Martinez, CPA. Dr. Wilmer Rodriguez-Silva received 4,268
votes in favor, Dr. Arturo Cordova-Lopez received 4,316 votes in favor, Dr.
Wilfredo Lopez-Hernandez received
43
4,292 votes in favor, Dr. Manuel A. Marcial-Seoane received 4,306 votes in favor
and Ms. Adamina Soto-Martinez, CPA, received 4,403 votes in favor. All
candidates were elected.
In addition the members of the Board of Directors, appointed as of May 1, 2002,
Mr. Ramon Ruiz-Comas, CPA, President and Chief Executive Officer (CEO) of the
Corporation, to fill the vacancy left by Mr. Miguel Vazquez-Deynes, the former
President and CEO of the Corporation, who retired on April 30, 2002.
As a result of these events, as of May 1, 2002 the members of the Board of
Directors were as follows:
Dr. Fernando J. Ysern-Borras, Chairman of the Board
Dr. Wilmer Rodriguez-Silva, Vice-Chairman of the Board
Dr. Jesus Sanchez-Colon, Secretary of the Board
Dr. Arturo Cordova-Lopez, Assistant Secretary of the Board
Mr. Vicente J. Leon-Irizarry, CPA, Treasurer of the Board
Ms. Sonia Gomez de Torres, CPA, Assistant Treasurer of the Board
Mr. Ramon Ruiz-Comas, CPA, President and Chief Executive Officer
Dr. Fernando L. Longo
Dr. Wilfredo Lopez-Hernandez
Dr. Valeriano Alicea-Cruz
Dr. Porfirio E. Diaz-Torres
Mr. Jose Arturo Alvarez-Gallardo
Mr. Jose Davison-Lampon, Esq.
Mr. Juan Jose Leon-Soto, Esq.
Mr. Mario S. Belaval
Mr. Hector Ledesma
Mr. Manuel Suarez-Mendez, P.E.
Dr. Manuel A. Marcial-Seoane
Ms. Adamina Soto-Martinez, CPA
In addition to the election of directors, five resolutions were presented to the
shareholders for their approval. Summaries of said resolutions and the voting
results are as follows:
Resolution 1 - Resolution to ratify the shareholders interest in continuing
TSI's tax treatment as a not-for-profit entity, pursuant to the tax ruling
issued by the Secretary of the Treasury of Puerto Rico. The adoption of this
resolution required the affirmative vote of the majority of the common stock
issued and outstanding present at the Meeting. This Resolution received 3,844
votes in favor, 345 votes against and 75 abstentions. This Resolution received
the required votes and it was approved.
Resolution 2 - Resolution to amend Article 8 of the Articles of Incorporation of
the Corporation and Article 4-2 of Chapter 4 of the By-Laws of the Corporation
in order to allow shareholders to transfer their shares to their spouses or
heirs when they are physicians or dentists, without exceeding the established
limit of twenty-one (21) shares
44
per shareholder. The adoption of this resolution required the affirmative vote
of a two third majority of the common stock issued and outstanding. This
Resolution received 3,863 votes in favor, 402 votes against and 90 abstentions.
This Resolution did not receive the required votes and it was not approved.
Resolution 3 - Resolution to amend Section C of Article 8-11 of Chapter 8 of the
By-Laws of the Corporation in order to allow the Chairman of the Finance
Committee to be a member of the Audit Committee and to expand the powers of the
Audit Committee. The adoption of this resolution required the affirmative vote
of the majority of the common stock issued and outstanding present at the
Meeting. This Resolution received 4,118 votes in favor, 143 votes against and 64
abstentions. The Resolution received the required votes and it was approved.
Resolution 4 - Resolution to amend Section F of Article 8-11 of Chapter 8 of the
By-Laws of the Corporation in order to clarify that the President of the
Corporation cannot be a member of the Audit Committee. The adoption of this
resolution required the affirmative vote of the majority of the common stock
issued and outstanding present at the Meeting. This Resolution received 4,161
votes in favor, 107 votes against and 65 abstentions. The Resolution received
the required votes and it was approved.
Resolution 5 - Resolution to analyze the medical malpractice insurance situation
in Puerto Rico and inform the results of this analysis to the shareholders and
TSI's participants at least every six months and to present a report of this
situation in the next annual meeting of shareholders. The adoption of this
resolution required the affirmative vote of the majority of the common stock
issued and outstanding present at the Meeting. This Resolution received 4,211
votes in favor, 66 votes against and 63 abstentions. The Resolution received the
required votes and it was approved.
ITEM 5. OTHER INFORMATION
Shareholders' proposals intended to be presented at the 2003 Annual Meeting of
Shareholders must be received by the Corporation's Secretary, at its principal
executive offices, located at the sixth floor of 1441 F.D. Roosevelt Avenue, San
Juan, Puerto Rico, 00920, or by mail at the PO Box 363628, San Juan, Puerto
Rico, 00936-3628, not later than November 27, 2002 for inclusion in the
Corporation's Proxy Statement and Form of Proxy relating to the 2003 Annual
Meeting of Shareholders.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3(i) Articles of incorporation of TSM
Exhibit 3 (ii) By-laws of TSM
Exhibit 10.1 Puerto Rico Health Insurance Contract for the Metro-North Region
Exhibit 10.2 Puerto Rico Health Insurance Contract for the North Region
Exhibit 10.3 Puerto Rico Health Insurance Contract for the South-West Region
Exhibit 10.4 Employment Contract with Mr. Ramon Ruiz Comas, CPA
Exhibit 10.5 Employment Contract with Ms. Socorro Rivas, CPA
Exhibit 11 Statement re computation of per share earnings; an exhibit describing the
computation of the earnings per share for the three
months and six months ended June 30, 2002 has been
omitted as the detail necessary to determine the
computation of earnings per share can be clearly
determined from the material contained in Part I of
this Form 10-Q.
Exhibit 12 Statements re computation of ratios; an exhibit
describing the computation of the loss ratio, expense
ratio and combined ratio for the three months and six
months ended June 30, 2002 has been omitted as the
detail necessary to determine the computation of
earnings per share can be clearly determined from the
material contained in Part I of this Form 10-Q.
All other exhibits for which provision is made in the applicable
accounting regulation of the United States Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Management represents that Exhibits 3(i), 3(ii), 10.4 and 10.5 are fair
and accurate translations of the original documents that are in
Spanish.
(b) Reports on Form 8-K:
On May 3, 2002, the Corporation filed a Current Report on Form 8-K,
which indicated the new members elected to the Board of Directors
during the Annual Stockholders' Meeting held on April 28, 2002. This
Current Report also indicated the standing members of the Board of
Directors and the designation, effective May 1, 2002, of Mr. Ramon Ruiz
Comas, CPA as the new president and Chief Executive Officer of the
Corporation.
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SIGNATURES
Pursuant to the requirements of the United States Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TRIPLE-S MANAGEMENT CORPORATION
Registrant
Date: August 14, 2002 By: /s/ Ramon M. Ruiz-Comas
--------------------------
Ramon M. Ruiz-Comas
President and
Chief Executive Officer
Date: August 14, 2002 By: /s/ Juan J. Roman
-----------------------------------
Juan J. Roman
Vice President of Finance
and Chief Financial Officer
47