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EX-31.2 - EXHIBIT 31.2 - TRIPLE-S MANAGEMENT CORPex31_2.htm
EX-32.2 - EXHIBIT 32.2 - TRIPLE-S MANAGEMENT CORPex32_2.htm
EX-31.1 - EXHIBIT 31.1 - TRIPLE-S MANAGEMENT CORPex31_1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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: 001-33865

Triple-S Management Corporation
Puerto Rico
 
66-0555678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer 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)

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.
þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No

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

Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes þ 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 September 30, 2014
Common Stock Class A, $1.00 par value
 
2,377,689
Common Stock Class B, $1.00 par value
 
24,885,646

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended September 30, 2014

Table of Contents

3
   
3
   
36
   
36
36
38
42
42
43
46
49
50
52
   
53
   
54
   
54
   
54
   
54
   
54
   
54
   
54
 
54
   
55
   
56
 
Part I – Financial Information

Item 1. Financial Statements

Triple-S Management Corporation
Consolidated Balance Sheets (Unaudited)
(Dollar amounts in thousands, except per share data)
 
   
  
 
         
   
September 30, 2014
   
December 31, 2013
 
Assets
       
Investments and cash:
       
Securities available for sale, at fair value:
       
Fixed maturities
 
$
1,120,275
   
$
1,055,874
 
Equity securities
   
204,882
     
239,933
 
Securities held to maturity, at amortized cost:
               
Fixed maturities
   
4,072
     
6,139
 
Policy loans
   
7,057
     
6,705
 
Cash and cash equivalents
   
141,040
     
74,356
 
Total investments and cash
   
1,477,326
     
1,383,007
 
Premiums and other receivables, net
   
273,371
     
274,939
 
Deferred policy acquisition costs and value of business acquired
   
180,561
     
177,289
 
Property and equipment, net
   
81,934
     
89,086
 
Deferred tax asset
   
31,792
     
33,519
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
45,883
     
64,387
 
Total assets
 
$
2,116,264
   
$
2,047,624
 
Liabilities and Stockholders' Equity
               
Claim liabilities
 
$
399,807
   
$
420,421
 
Liability for future policy benefits
   
322,256
     
304,363
 
Unearned premiums
   
81,744
     
87,362
 
Policyholder deposits
   
118,521
     
115,923
 
Liability to Federal Employees' Health Benefits Program (FEHBP)
   
13,868
     
8,148
 
Accounts payable and accrued liabilities
   
158,998
     
161,422
 
Deferred tax liability
   
26,677
     
20,783
 
Long-term borrowings
   
87,816
     
89,302
 
Liability for pension benefits
   
50,522
     
54,697
 
Total liabilities
   
1,260,209
     
1,262,421
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders' equity
               
Common stock Class A, $1 par value. Authorized 100,000,000 shares;  issued and outstanding 2,377,689 at September 30, 2014 and December 31, 2013, respectively
   
2,378
     
2,378
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding  24,885,646 and 25,091,277 shares at September 30, 2014 and December 31, 2013, respectively
   
24,886
     
25,091
 
Additional paid-in capital
   
125,761
     
130,098
 
Retained earnings
   
634,839
     
595,685
 
Accumulated other comprehensive income
   
68,486
     
32,129
 
Total Triple-S Management Corporation stockholders' equity
   
856,350
     
785,381
 
Non-controlling interest in consolidated subsididary
   
(295
)
   
(178
)
Total stockholders' equity
   
856,055
     
785,203
 
Total liabilities and stockholders’ equity
 
$
2,116,264
   
$
2,047,624
 

See accompanying notes to unaudited consolidated financial statements.
 
Triple-S Management Corporation
Consolidated Statements of Earnings (Unaudited)
(Dollar amounts in thousands, except per share data)
             
         
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Revenues:
               
Premiums earned, net
 
$
520,766
   
$
547,874
   
$
1,606,353
   
$
1,653,870
 
Administrative service fees
   
30,253
     
22,450
     
89,509
     
78,103
 
Net investment income
   
11,816
     
11,363
     
35,314
     
34,749
 
Other operating revenues
   
939
     
1,239
     
3,283
     
3,638
 
Total operating revenues
   
563,774
     
582,926
     
1,734,459
     
1,770,360
 
Net realized investment gains (losses):
                               
Total other-than-temporary impairment losses on securities
   
-
     
-
     
(462
)
   
-
 
Net realized gains (losses), excluding other-than-temporary impairment losses on securities
   
3,108
     
(144
)
   
7,624
     
3,405
 
Total net realized investment gains (losses)
   
3,108
     
(144
)
   
7,162
     
3,405
 
Other income, net
   
367
     
13,931
     
1,188
     
14,778
 
Total revenues
   
567,249
     
596,713
     
1,742,809
     
1,788,543
 
Benefits and expenses:
                               
Claims incurred
   
433,853
     
456,432
     
1,311,601
     
1,369,250
 
Operating expenses
   
121,036
     
116,156
     
369,992
     
351,246
 
Total operating costs
   
554,889
     
572,588
     
1,681,593
     
1,720,496
 
Interest expense
   
2,273
     
2,379
     
6,974
     
7,189
 
Total benefits and expenses
   
557,162
     
574,967
     
1,688,567
     
1,727,685
 
Income before taxes
   
10,087
     
21,746
     
54,242
     
60,858
 
Income tax expense (benefit):
                               
Current
   
2,637
     
5,636
     
14,529
     
14,867
 
Deferred
   
2,795
     
(2,494
)
   
676
     
(9,874
)
Total income taxes
   
5,432
     
3,142
     
15,205
     
4,993
 
Net income
   
4,655
     
18,604
     
39,037
     
55,865
 
Less: Net loss attributable to non-controlling interest
   
68
     
37
     
117
     
156
 
Net income attributable to Triple-S Management Corporation
 
$
4,723
   
$
18,641
   
$
39,154
   
$
56,021
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net income per share
 
$
0.17
   
$
0.68
   
$
1.44
   
$
2.01
 
Diluted net income per share
 
$
0.17
   
$
0.68
   
$
1.44
   
$
2.01
 

See accompanying notes to unaudited consolidated financial statements.
 
Triple-S Management Corporation
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 (Dollar amounts in thousands, except per share data)
 
  
   
  
   
   
 
         
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Net income
 
$
4,655
   
$
18,604
   
$
39,037
   
$
55,865
 
Other comprehensive income (loss), net of tax:
                               
Net unrealized change in fair value of available for sale securities, net of taxes
   
(6,789
)
   
(5,386
)
   
34,593
     
(39,908
)
Defined benefit pension plan:
                               
Actuarial loss, net
   
622
     
1,097
     
1,976
     
3,273
 
Prior service credit, net
   
(68
)
   
(68
)
   
(212
)
   
(205
)
Total other comprehensive income (loss), net of tax
   
(6,235
)
   
(4,357
)
   
36,357
     
(36,840
)
Comprehensive income (loss)
   
(1,580
)
   
14,247
     
75,394
     
19,025
 
Comprehensive loss attributable to non-controlling interest
   
68
     
37
     
117
     
156
 
Comprehensive income (loss) attributable to Triple-S Management Corporation
 
$
(1,512
)
 
$
14,284
   
$
75,511
   
$
19,181
 

See accompanying notes to unaudited consolidated financial statements.
 
Triple-S Management Corporation
Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollar amounts in thousands, except per share data)
 
   
  
 
         
   
2014
   
2013
 
Balance at January 1
 
$
785,381
   
$
761,907
 
Share-based compensation
   
1,617
     
2,351
 
Stock issued upon the exercise of stock options
   
2,885
     
315
 
Repurchase and retirement of common stock
   
(9,044
)
   
(18,571
)
Net current period change in comprehensive income
   
75,511
     
19,181
 
Total Triple-S Management Corporation stockholders' equity
   
856,350
     
765,183
 
Non-controlling interest in consolidated subsididary
   
(295
)
   
84
 
Balance at September 30
 
$
856,055
   
$
765,267
 

See accompanying notes to unaudited consolidated financial statements.
 
Triple-S Management Corporation
Consolidated Statements of Cash Flows (Unaudited)
 (Dollar amounts in thousands, except per share data)
 
   
  
 
         
   
Nine months ended
September 30,
 
   
2014
   
2013
 
Cash flows from operating activities:
       
Net income
 
$
39,037
   
$
55,865
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
15,974
     
17,804
 
Net amortization of investments
   
4,597
     
4,558
 
Provision for doubtful receivables, net
   
5,968
     
4,283
 
Deferred tax expense (benefit)
   
676
     
(9,874
)
Net realized investment gain on sale of securities
   
(7,162
)
   
(3,405
)
Share-based compensation
   
1,617
     
2,351
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
(4,400
)
   
2,862
 
Deferred policy acquisition costs and value of business acquired
   
(3,272
)
   
(3,103
)
Other deferred taxes
   
390
     
9
 
Other assets
   
5,830
     
(934
)
Increase (decrease) in liabilities:
               
Claim liabilities
   
(20,614
)
   
(69
)
Liability for future policy benefits
   
17,893
     
16,740
 
Unearned premiums
   
(5,618
)
   
(5,604
)
Policyholder deposits
   
2,621
     
2,412
 
Liability to FEHBP
   
5,720
     
(11,016
)
Accounts payable and accrued liabilities
   
1,548
     
29,196
 
Net cash provided by operating activities
   
60,805
     
102,075
 

(Continued)
 
Triple-S Management Corporation
Consolidated Statements of Cash Flows (Unaudited)
 (Dollar amounts in thousands, except per share data)
 
   
 
         
   
Nine months ended
September 30,
 
   
2014
   
2013
 
Cash flows from investing activities:
       
Proceeds from investments sold or matured:
       
Securities available for sale:
       
Fixed maturities sold
 
$
150,049
   
$
81,330
 
Fixed maturities matured/called
   
27,892
     
85,496
 
Equity securities sold
   
70,803
     
93,504
 
Securities held to maturity:
               
Fixed maturities matured/called
   
2,929
     
1,127
 
Other investments
   
8,925
     
-
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(211,129
)
   
(205,373
)
Equity securities
   
(23,731
)
   
(132,109
)
Securities held to maturity:
               
Fixed maturities
   
(865
)
   
(1,011
)
Other investments
   
(583
)
   
(823
)
Net outflows from policy loans
   
(352
)
   
(209
)
Net capital expenditures
   
(3,801
)
   
(8,934
)
Net cash provided by (used in) investing activities
   
20,137
     
(87,002
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
(6,754
)
   
22,809
 
Net change in short-term borrowings
   
-
     
(16,590
)
Repayments of long-term borrowings
   
(1,486
)
   
(11,475
)
Repurchase and retirement of common stock
   
(5,995
)
   
(18,250
)
Proceeds from policyholder deposits
   
6,413
     
8,112
 
Surrenders of policyholder deposits
   
(6,436
)
   
(7,479
)
Net cash used in financing activities
   
(14,258
)
   
(22,873
)
Net increase (decrease) in cash and cash equivalents
   
66,684
     
(7,800
)
Cash and cash equivalents:
               
Beginning of period
   
74,356
     
89,564
 
End of period
 
$
141,040
   
$
81,764
 

See accompanying notes to unaudited consolidated financial statements.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


(1) Basis of Presentation

The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited. In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries. The consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the U.S. (GAAP) 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 Annual Report on Form 10-K for the year ended December 31, 2013.

On September 1, 2014, the name of American Health, Inc. (“AH” or “AHM”) was changed to Triple-S Advantage, Inc. (“TSA”) to consolidate the Company’s Medicare Advantage products offer and maximize investment in a single line of products.

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 three months and nine months ended September 30, 2014 are not necessarily indicative of the results for the full year ending December 31, 2014.

(2) Recent Accounting Standards

In July 2011, the FASB issued guidance to address questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act. A health insurer’s portion of the annual fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk for each applicable calendar year. We adopted the provisions of this guidance on January 1, 2014 and upon implementation recorded a liability in the consolidated accounts payable and accrued liabilities of approximately $28,500 representing an estimate of the fee for 2014. A corresponding deferred cost was recorded in the consolidated other assets. The Corporation updated this estimate for adjustment in subsequent quarters to reflect the final annual fee assessment of $27,700 paid during this quarter. During the three months and nine months ended September 30, 2014, approximately $7,400 and $21,300, respectively, of the deferred cost was recognized within the consolidated operating expenses; the remainder will be recognized on a straight-line basis over the balance of 2014.

On July 18, 2013, the FASB issued guidance regarding the presentation in the statement of financial position of an unrecognized tax benefit when a net operating loss carry-forward or a tax credit carry-forward exists. In particular, the guidance provides that an entity's unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward, with one exception. That exception states that, to the extent a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for public companies for fiscal years and interim periods within such years beginning after December 15, 2013. The Company adopted this guidance on January 1, 2014; there was no significant impact on our financial position or results of operations as a result of the adoption.

On March 14, 2014, the FASB issued guidance that amended the Master Glossary of the Accounting Standards Codification (“ASC”), including technical corrections related to glossary links, glossary term deletions, and glossary term name changes. In addition, this guidance included more substantive, limited-scope improvements to reduce instances of the same term appearing multiple times in the Master Glossary with similar, but not entirely identical, definitions. These are items that represent narrow and incremental improvements to U.S. GAAP and are not purely technical corrections and affect a wide variety of Topics in the ASC. The amendments in this guidance apply to all reporting entities within the scope of the affected accounting guidance and are effective upon issuance for both public entities and nonpublic entities. The Company adopted this guidance upon issuance with no impact on our financial position and results of operations.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
On June 12, 2014, the FASB issued guidance that amends current accounting and disclosures for repurchase agreements and similar transactions. This guidance is effective for public companies for the first interim or annual period beginning after December 15, 2014. We are currently evaluating the impact, if any, the adoption of this guidance will have on the financial position or results of operations.

On June 19, 2014, the FASB issued updated guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This guidance seeks to resolve the diversity in practice that exists when accounting for share-based payments. In particular, this guidance requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance conditions. For all entities, this guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with earlier adoption permitted. We are currently evaluating the impact, if any, the adoption of this guidance will have on our financial position or results of operations.

Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the three months and nine months ended September 30, 2014 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

(3) Segment Information

The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees, net investment income, and revenues derived from other segments. Operating costs include claims incurred and operating expenses. The Corporation calculates operating income or loss as operating revenues less operating costs.

The following tables summarize the operations by reportable segment for the three months and nine months ended September 30, 2014 and 2013:
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Operating revenues:
               
Managed Care:
               
Premiums earned, net
 
$
462,765
   
$
491,046
   
$
1,431,762
   
$
1,483,456
 
Administrative service fees
   
30,253
     
22,450
     
89,509
     
78,103
 
Intersegment premiums /service fees
   
1,267
     
1,369
     
4,108
     
4,142
 
Net investment income
   
3,625
     
3,975
     
11,235
     
12,009
 
Total managed care
   
497,910
     
518,840
     
1,536,614
     
1,577,710
 
Life Insurance:
                               
Premiums earned, net
   
35,817
     
32,279
     
105,507
     
95,991
 
Intersegment premiums
   
13
     
88
     
195
     
304
 
Net investment income
   
5,907
     
5,303
     
17,558
     
16,317
 
Total life insurance
   
41,737
     
37,670
     
123,260
     
112,612
 
Property and Casualty Insurance:
                               
Premiums earned, net
   
22,184
     
24,549
     
69,084
     
74,423
 
Intersegment premiums
   
153
     
153
     
460
     
460
 
Net investment income
   
2,237
     
2,041
     
6,345
     
6,077
 
Total property and casualty insurance
   
24,574
     
26,743
     
75,889
     
80,960
 
Other segments: *
                               
Intersegment service revenues
   
2,392
     
1,981
     
6,923
     
7,211
 
Operating revenues from external sources
   
940
     
1,240
     
3,285
     
3,640
 
Total other segments
   
3,332
     
3,221
     
10,208
     
10,851
 
Total business segments
   
567,553
     
586,474
     
1,745,971
     
1,782,133
 
TSM operating revenues from external sources
   
14
     
43
     
81
     
300
 
Elimination of intersegment premiums
   
(1,433
)
   
(1,610
)
   
(4,763
)
   
(4,906
)
Elimination of intersegment service fees
   
(2,392
)
   
(1,981
)
   
(6,923
)
   
(7,211
)
Other intersegment eliminations
   
32
     
-
     
93
     
44
 
Consolidated operating revenues
 
$
563,774
   
$
582,926
   
$
1,734,459
   
$
1,770,360
 

*
Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Operating income:
               
Managed care
 
$
903
   
$
7,274
   
$
32,928
   
$
41,165
 
Life insurance
   
5,642
     
3,795
     
16,051
     
11,512
 
Property and casualty insurance
   
2,295
     
402
     
7,516
     
974
 
Other segments *
   
(751
)
   
(939
)
   
(1,002
)
   
(1,452
)
Total business segments
   
8,089
     
10,532
     
55,493
     
52,199
 
TSM operating revenues from external sources
   
14
     
43
     
81
     
300
 
TSM unallocated operating expenses
   
(1,655
)
   
(2,673
)
   
(10,002
)
   
(9,440
)
Elimination of TSM intersegment charges
   
2,437
     
2,436
     
7,294
     
6,805
 
Consolidated operating income
   
8,885
     
10,338
     
52,866
     
49,864
 
Consolidated net realized investment gains
   
3,108
     
(144
)
   
7,162
     
3,405
 
Consolidated interest expense
   
(2,273
)
   
(2,379
)
   
(6,974
)
   
(7,189
)
Consolidated other income, net
   
367
     
13,931
     
1,188
     
14,778
 
Consolidated income before taxes
 
$
10,087
   
$
21,746
   
$
54,242
   
$
60,858
 
                                 
Depreciation and amortization expense:
                               
Managed care
 
$
4,634
   
$
4,744
   
$
13,617
   
$
15,322
 
Life insurance
   
181
     
257
     
598
     
672
 
Property and casualty insurance
   
122
     
133
     
369
     
399
 
Other segments*
   
260
     
240
     
776
     
764
 
Total business segments
   
5,197
     
5,374
     
15,360
     
17,157
 
TSM depreciation expense
   
199
     
216
     
614
     
647
 
Consolidated depreciation and amortization expense
 
$
5,396
   
$
5,590
   
$
15,974
   
$
17,804
 

*
Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


         
   
September 30,
2014
   
December 31,
2013
 
Assets:
       
Managed care
 
$
952,625
   
$
934,467
 
Life insurance
   
746,228
     
698,650
 
Property and casualty insurance
   
359,265
     
346,212
 
Other segments *
   
27,467
     
28,407
 
Total business segments
   
2,085,585
     
2,007,736
 
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
   
33,848
     
28,316
 
Property and equipment, net
   
20,631
     
21,278
 
Other assets
   
25,195
     
26,406
 
     
79,674
     
76,000
 
Elimination entries-intersegment receivables and others
   
(48,995
)
   
(36,112
)
Consolidated total assets
 
$
2,116,264
   
$
2,047,624
 

*
Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
 (4) Investment in Securities

The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for available-for-sale and held-to-maturity securities by major security type and class of security at September 30, 2014 and December 31, 2013, were as follows:

   
September 30, 2014
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized losses
   
Estimated
fair value
 
Securities available for sale:
               
Fixed maturities:
               
Obligations of government-sponsored enterprises
 
$
126,898
   
$
1,122
   
$
(171
)
 
$
127,849
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
59,960
     
727
     
(70
)
   
60,617
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
45,990
     
394
     
(1,534
)
   
44,850
 
Municipal securities
   
583,329
     
42,662
     
(384
)
   
625,607
 
Corporate bonds
   
178,934
     
16,489
     
(380
)
   
195,043
 
Residential mortgage-backed securities
   
8,101
     
431
     
-
     
8,532
 
Collateralized mortgage obligations
   
55,625
     
2,159
     
(7
)
   
57,777
 
Total fixed maturities
   
1,058,837
     
63,984
     
(2,546
)
   
1,120,275
 
Equity securities - Mutual funds
   
149,141
     
55,754
     
(13
)
   
204,882
 
Total
 
$
1,207,978
   
$
119,738
   
$
(2,559
)
 
$
1,325,157
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
December 31, 2013
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized losses
   
Estimated
fair value
 
Securities available for sale:
               
Fixed maturities:
               
Obligations of government-sponsored enterprises
 
$
104,317
   
$
1,854
   
$
(380
)
 
$
105,791
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
38,131
     
1,068
     
-
     
39,199
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
49,557
     
262
     
(4,814
)
   
45,005
 
Municipal securities
   
597,297
     
19,328
     
(5,182
)
   
611,443
 
Corporate bonds
   
146,936
     
9,883
     
(879
)
   
155,940
 
Residential mortgage-backed securities
   
7,388
     
324
     
(9
)
   
7,703
 
Collateralized mortgage obligations
   
87,854
     
3,072
     
(133
)
   
90,793
 
Total fixed maturities
   
1,031,480
     
35,791
     
(11,397
)
   
1,055,874
 
Equity securities-Mutual funds
   
187,356
     
53,013
     
(436
)
   
239,933
 
Total
 
$
1,218,836
   
$
88,804
   
$
(11,833
)
 
$
1,295,807
 

   
September 30, 2014
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized losses
   
Estimated
fair value
 
Securities held to maturity:
               
U.S. Treasury securities and obligations of U.S. government instrumentalities
 
$
622
   
$
166
   
$
-
   
$
788
 
Residential mortgage-backed securities
   
217
     
20
     
-
     
237
 
Certificates of deposit
   
3,233
     
-
     
-
     
3,233
 
Total
 
$
4,072
   
$
186
   
$
-
   
$
4,258
 

 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
December 31, 2013
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized losses
   
Estimated
fair value
 
Securities held to maturity:
               
Obligations of government-sponsored enterprises
 
$
1,793
   
$
26
   
$
-
   
$
1,819
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
622
     
117
     
-
     
739
 
Residential mortgage-backed securities
   
346
     
27
     
-
     
373
 
Certificates of deposit
   
3,378
     
-
     
-
     
3,378
 
Total
 
$
6,139
   
$
170
   
$
-
   
$
6,309
 

Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2014 and December 31, 2013 were as follows:


   
September 30, 2014
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
 
Securites available for sale:
                                   
Fixed maturities:
                                   
Obligations of government-sponsored enterprises
 
$
56,824
   
$
(171
)
   
5
   
$
-
   
$
-
     
-
   
$
56,824
   
$
(171
)
   
5
 
US Treasury securities and obligations of US governmental instrumentalities
   
22,443
     
(70
)
   
2
     
-
     
-
     
-
     
22,443
     
(70
)
   
2
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
10,840
     
(614
)
   
6
     
5,215
     
(920
)
   
1
     
16,055
     
(1,534
)
   
7
 
Municipal securities
   
26,205
     
(128
)
   
7
     
35,433
     
(256
)
   
9
     
61,638
     
(384
)
   
16
 
Corporate bonds
   
25,614
     
(109
)
   
5
     
31,302
     
(271
)
   
8
     
56,916
     
(380
)
   
13
 
Collateralized mortgage obligations
   
-
     
-
     
-
     
2,917
     
(7
)
   
1
     
2,917
     
(7
)
   
1
 
Total fixed maturities
   
141,926
     
(1,092
)
   
25
     
74,867
     
(1,454
)
   
19
     
216,793
     
(2,546
)
   
44
 
Equity securities:
                                                                       
Mutual funds
   
1,672
     
(13
)
   
1
     
-
     
-
     
-
     
1,672
     
(13
)
   
1
 
Total for securities available for sale
 
$
143,598
   
$
(1,105
)
   
26
   
$
74,867
   
$
(1,454
)
   
19
   
$
218,465
   
$
(2,559
)
   
45
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
December 31, 2013
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
   
Estimated Fair Value
   
Gross Unrealized Loss
   
Number of Securities
 
Securites available for sale:
                                   
Fixed maturities:
                                   
Obligations of government-sponsored enterprises
 
$
46,797
   
$
(380
)
   
4
   
$
-
   
$
-
     
-
   
$
46,797
   
$
(380
)
   
4
 
Obligations of government-Commonwealth of Puerto Rico and its instrumentalities
   
22,285
     
(4,814
)
   
13
     
-
     
-
     
-
     
22,285
     
(4,814
)
   
13
 
Municipal securities
   
234,594
     
(5,145
)
   
51
     
4,646
     
(37
)
   
1
     
239,240
     
(5,182
)
   
52
 
Corporate bonds
   
45,203
     
(879
)
   
19
     
-
     
-
     
-
     
45,203
     
(879
)
   
19
 
Residential mortgage-backed securities
   
24
     
(9
)
   
6
     
-
     
-
     
-
     
24
     
(9
)
   
6
 
Collateralized mortgage obligations
   
1,106
     
(6
)
   
3
     
9,469
     
(127
)
   
3
     
10,575
     
(133
)
   
6
 
Total fixed maturities
   
350,009
     
(11,233
)
   
96
     
14,115
     
(164
)
   
4
     
364,124
     
(11,397
)
   
100
 
Equity securities - Mutual funds
   
25,231
     
(436
)
   
7
     
-
     
-
     
-
     
25,231
     
(436
)
   
7
 
Total for securities available for sale
 
$
375,240
   
$
(11,669
)
   
103
   
$
14,115
   
$
(164
)
   
4
   
$
389,355
   
$
(11,833
)
   
107
 

The Corporation regularly monitors and evaluates the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating: (1) the length of time and the extent to which the estimated fair value has been less than amortized cost for fixed maturity securities, or cost for equity securities, (2) the financial condition, near-term and long-term prospects for the issuer, including relevant industry conditions and trends, and implications of rating agency actions, (3) the Company’s intent to sell or the likelihood of a required sale prior to recovery, (4) the recoverability of principal and interest for fixed maturity securities, or cost for equity securities, and (5) other factors, as applicable. This process is not exact and requires further consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its estimated fair value solely due to changes in interest rates, other-than temporary impairment may not be appropriate.

Due to the subjective nature of the Corporation’s analysis, along with the judgment that must be applied in the analysis, it is possible that the Corporation could reach a different conclusion whether or not to impair a security if it had access to additional information about the investee. Additionally, it is possible that the investee’s ability to meet future contractual obligations may be different than what the Corporation determined during its analysis, which may lead to a different impairment conclusion in future periods.

If after monitoring and analyzing impaired securities, the Corporation determines that a decline in the estimated fair value of any available-for-sale or held-to-maturity security below cost is other-than-temporary, the carrying amount of the security is reduced to its fair value in accordance with current accounting guidance. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. In periods subsequent to the recognition of an other-than-temporary impairment, the impaired security is accounted for as if it had been purchased on the measurement date of the impairment. For debt securities, the discount (or reduced premium) based on the new cost basis may be accreted into net investment income in future periods based on prospective changes in cash flow estimates, to reflect adjustments to the effective yield.

The Corporation’s process for identifying and reviewing invested assets for other-than temporary impairments during any quarter includes the following:

Identification and evaluation of securities that have possible indications of other-than-temporary impairment, which includes an analysis of all investments with gross unrealized investment losses that represent 20% or more of their cost and all investments with an unrealized loss greater than $100.

Review and evaluation of any other security based on the investee’s current financial condition, liquidity, near-term recovery prospects, implications of rating agency actions, the outlook for the business sectors in which the investee operates and other factors. This evaluation is in addition to the evaluation of those securities with a gross unrealized investment loss representing 20% or more of their cost.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
Consideration of evidential matter, including an evaluation of factors or triggers that may or may not cause individual investments to qualify as having other-than-temporary impairments.

Determination of the status of each analyzed security as other-than-temporary or not, with documentation of the rationale for the decision; and

Equity securities are considered to be impaired when a position is in an unrealized loss for a period longer than 6 months.

The Corporation continues to review the investment portfolios under the Corporation’s impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be recorded in future periods. The Corporation from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

Obligations of Government-Sponsored Enterprises, and Obligations of U.S. Government Instrumentalities: The unrealized losses on the Corporation’s investments in obligations of states of the United States and political subdivisions of the states were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, these investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

Obligations of the Commonwealth of Puerto Rico and its Instrumentalities: Our holdings in Puerto Rico municipals can be divided in (1) escrowed bonds with a fair value of $22,385 and a gross unrealized gain of $185, (2) bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $20,785; a gross unrealized loss of $1,534 offset in part by a gross unrealized gain of $128, and (3) bonds of various other Puerto Rico issuers with a fair value of $1,680 and a gross unrealized gain of $81.

Besides holdings in escrowed bonds, which are backed by US Government securities and therefore have an implicit AA+/Aaa rating, our largest positions are in bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina). These sales tax bonds are secured by a 7% sales tax levied on the island, of which 1.5% is allocated to municipalities. Of the remaining 5.5%, the largest of 3.50% or a base amount is pledged to these sales tax bonds. The percentage pledged to the sales tax bonds was increased in October 2013 from 2.75% to 3.50%. In terms of flow of funds, the 5.5% remaining revenue is first used for debt service on the senior lien bonds, then for debt service on the subordinated bonds and the excess flows into the General Fund.

On June 28, 2014, Act 71-2014, known as the Puerto Rico Public Corporations Debt Enforcement and Recovery Act (“the Recovery Act”) was signed into law to provide a legal framework for restructuring public corporation debt. The Central Government, municipalities and related agencies (including Cofina and GDB) are explicitly not eligible, i.e. these cannot be restructured under this new act. In other words, the Act makes a clear distinction between the central Government and its related entities versus the agencies/public corporations. Both Moody’s and Standard & Poor’s  (S&P) have taken various ratings actions on the back of this new legislation, including on those credits which were explicitly excluded under the new Act. The rating agencies have positioned their ratings of bonds issued by Cofina closer to that of General Obligation debt.

S&P notes that the proposal is indicative of the growing economic and fiscal challenges for the Commonwealth as a whole, which could lead to additional liquidity pressures. S&P also mentions that this legislation may also signal a potential shift in the Commonwealth’s historically strong willingness to continue to meet its obligations to bondholders. On July 11, 2014, S&P lowered its Cofina ratings from AA- to BBB for senior lien bonds and from A+ to BBB- for subordinate bonds.

According to Moody’s, the new law marks the end of the Commonwealth’s long history of taking actions needed to support its debt. The rating agency notes that it signals a depleted capacity for revenue increases and austerity measures, and a new preference for shifting fiscal pressures to creditors. In Moody’s view this has implications for all of Puerto Rico’s debt, i.e. not only of the public corporations but also of the central Government. On July 1, 2014, Moody’s lowered its Cofina ratings from Baa1 to Ba3 for senior lien bonds and from Baa2 to Ba3 for subordinate bonds.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
The bonds of various other Puerto Rico issuers, which are mentioned above, consist of General Obligation bonds insured by National Public Finance Guarantee (AA- stable outlook, A3 negative outlook) and Government Development Bank (“GDB”) notes (BB-, B3 negative outlook).

The Corporation did not consider the Cofina positions other-than-temporarily impaired as of September 30, 2014 because: (a) we do not have the intent to sell these investments, (b) it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases (which may be maturity), (c) the Recovery Act explicitly excludes Cofina debt from any restructuring, (d) the debt has a separate revenue stream, and (e) we expect to collect all contractual cash flows.

As of June 30, 2014, the Corporation considered GDB and PREPA positions other-than-temporary impaired and recorded and impairment loss of $462 because: (a) the dollar price of these positions was far below par for a considerable amount of time, (b) the weak financial & liquidity condition of both issuers combined with the Recovery Act (directly for PREPA and indirectly for GDB) could mean that not all contractual cash flows will be collected. During the three months ended September 30, 2014, the Corporation sold PREPA positions at a realized gain of $26, taking into account the new cost base after impairment.

Municipal Securities: The unrealized losses on the Corporation’s investments in U.S. municipal securities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, these investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

Corporate Bonds: The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions. All corporate bonds with an unrealized loss have investment grade ratings. Because the decline in estimated fair value is principally attributable to changes in interest rates; the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

Collateralized Mortgage Obligations: The unrealized losses on investments in collateralized mortgage obligations (“CMOs”) were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored enterprise. Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss. The investment grade credit rating of our securities reflects the seniority of the securities that the Corporation owns. The Corporation does not consider these investments other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality; the Corporation does not intend to sell the investments and it is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows.

Mutual Funds: As of September 30, 2014, investments in mutual funds with unrealized losses are not considered other-than-temporarily impaired because the funds have been in an unrealized loss position for less than six months or the unrealized loss is small (less than $100 and/or 20%).
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
Maturities of investment securities classified as available for sale and held to maturity at September 30, 2014 were as follows:

   
September 30, 2014
 
   
Amortized
cost
   
Estimated
fair value
 
Securities available for sale:
       
Due in one year or less
 
$
25,047
   
$
25,255
 
Due after one year through five years
   
372,874
     
378,998
 
Due after five years through ten years
   
134,061
     
141,211
 
Due after ten years
   
463,129
     
508,502
 
Residential mortgage-backed securities
   
8,101
     
8,532
 
Collateralized mortgage obligations
   
55,625
     
57,777
 
   
$
1,058,837
   
$
1,120,275
 
Securities held to maturity:
               
Due in one year or less
 
$
3,233
   
$
3,233
 
Due after ten years
   
622
     
788
 
Residential mortgage-backed securities
   
217
     
237
 
   
$
4,072
   
$
4,258
 

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

Information regarding realized and unrealized gains and losses from investments for the three months and nine months ended September 30, 2014 and 2013 is as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Realized gains (losses):
               
Fixed maturity securities:
               
Securities available for sale:
               
Gross gains from sales
 
$
1,600
   
$
620
   
$
3,303
   
$
2,900
 
Gross losses from sales
   
(1,934
)
   
(1,086
)
   
(3,891
)
   
(1,613
)
Gross losses from other-than-temporary impairments
   
-
     
-
     
(462
)
   
-
 
Total fixed maturity securities
   
(334
)
   
(466
)
   
(1,050
)
   
1,287
 
Equity securities:
                               
Securities available for sale:
                               
Gross gains from sales
   
3,488
     
814
     
8,104
     
3,445
 
Gross losses from sales
   
(46
)
   
(492
)
   
(1,317
)
   
(1,327
)
Total equity securities
   
3,442
     
322
     
6,787
     
2,118
 
Net realized gains (losses) on securities available for sale
   
3,108
     
(144
)
   
5,737
     
3,405
 
Gross gain from other investment
   
-
     
-
     
1,425
     
-
 
Net realized investment gains (losses)
 
$
3,108
   
$
(144
)
 
$
7,162
   
$
3,405
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Changes in net unrealized gains (losses):
               
Recognized in accumulated other comprehensive income:
               
Fixed maturities – available for sale
 
$
(2,873
)
 
$
(14,052
)
 
$
37,044
   
$
(62,094
)
Equity securities – available for sale
   
(5,783
)
   
7,719
     
3,164
     
15,249
 
   
$
(8,656
)
 
$
(6,333
)
 
$
40,208
   
$
(46,845
)
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
3
   
$
(41
)
 
$
16
   
$
(159
)

The deferred tax asset (liability) on unrealized gains (losses) change recognized in accumulated other comprehensive income during the nine months ended September 30, 2014 and 2013 was $(5,615) and $6,937, respectively.

As of September 30, 2014 and December 31, 2013, no individual investment in securities exceeded 10% of stockholders’ equity.

The components of net investment income were as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Fixed maturities
 
$
9,587
   
$
9,307
   
$
28,826
   
$
27,533
 
Equity securities
   
1,850
     
1,717
     
5,466
     
6,236
 
Policy loans
   
150
     
119
     
408
     
351
 
Cash equivalents and interest-bearing deposits
   
39
     
16
     
65
     
61
 
Other
   
190
     
204
     
549
     
568
 
Total
 
$
11,816
   
$
11,363
   
$
35,314
   
$
34,749
 

 (5) Premiums and Other Receivables, Net

Premiums and other receivables, net as of September 30, 2014 and December 31, 2013 were as follows:

   
September 30,
2014
   
December 31,
2013
 
Premiums
 
$
104,691
   
$
108,963
 
Self-insured group receivables
   
56,074
     
55,598
 
FEHBP
   
11,948
     
11,804
 
Agent balances
   
24,146
     
27,655
 
Accrued interest
   
10,429
     
11,879
 
Reinsurance recoverable
   
51,137
     
46,116
 
Other
   
42,463
     
34,473
 
     
300,888
     
296,488
 
Less allowance for doubtful receivables:
               
Premiums
   
21,090
     
14,403
 
Other
   
6,427
     
7,146
 
     
27,517
     
21,549
 
Total premiums and other receivables, net
 
$
273,371
   
$
274,939
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
(6) Claim Liabilities

The activity in the total claim liabilities for the three months and nine months ended September 30, 2014 and 2013 is as follows:


   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Claim liabilities at beginning of period
 
$
414,708
   
$
414,124
   
$
420,421
   
$
416,918
 
Reinsurance recoverable on claim liabilities
   
(39,832
)
   
(37,756
)
   
(37,557
)
   
(39,051
)
Net claim liabilities at beginning of period
   
374,876
     
376,368
     
382,864
     
377,867
 
Incurred claims and loss-adjustment expenses:
                               
Current period insured events
   
432,509
     
456,981
     
1,334,208
     
929,037
 
Prior period insured events
   
(5,002
)
   
(2,493
)
   
(40,285
)
   
(27,554
)
Total
   
427,507
     
454,488
     
1,293,923
     
901,483
 
Payments of losses and loss-adjustment expenses:
                               
Current period insured events
   
421,395
     
418,433
     
1,079,312
     
636,251
 
Prior period insured events
   
21,347
     
35,673
     
237,834
     
266,349
 
Total
   
442,742
     
454,106
     
1,317,146
     
902,600
 
Net claim liabilities at end of period
   
359,641
     
376,750
     
359,641
     
376,750
 
Reinsurance recoverable on claim liabilities
   
40,166
     
36,521
     
40,166
     
36,521
 
Claim liabilities at end of period
 
$
399,807
   
$
413,271
   
$
399,807
   
$
413,271
 

As a result of differences between actual amounts and estimates of insured events in prior years, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.

The credit in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 2014 and 2013 is due primarily to better than expected cost and utilization trends. Reinsurance recoverable on unpaid claims is reported within the premium and other receivables, net in the accompanying consolidated financial statements.

The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to $6,346 and $17,678 during the three months and nine months ended September 30, 2014, respectively. The change in the liability for future policy benefits during the three and nine months ended September 30, 2013 amounted to $6,330 and $11,335.

(7) Fair Value Measurements

Assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by current accounting guidance for fair value measurements and disclosures, are as follows:

Level Input:
 
Input Definition:
Level 1
 
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2
 
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3
 
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
The Corporation uses observable inputs when available. Fair value is based upon quoted market prices when available. The Corporation limits valuation adjustments to those deemed necessary to ensure that the security’s fair value adequately represents the price that would be received or paid in the marketplace. Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria. The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in estimating fair value could affect the results.

The fair value of investment securities is estimated based on quoted market prices for those or similar investments. Additional information pertinent to the estimated fair value of investment in securities is included in note 4.

The following tables summarize fair value measurements by level at September 30, 2014 and December 31, 2013 for assets measured at fair value on a recurring basis:

   
September 30, 2014
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
               
Fixed maturity securities
               
Obligations of government-sponsored enterprises
 
$
-
   
$
127,849
   
$
-
   
$
127,849
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
60,617
     
-
     
-
     
60,617
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
44,850
     
-
     
44,850
 
Municipal securities
   
-
     
625,607
     
-
     
625,607
 
Corporate bonds
   
-
     
195,043
     
-
     
195,043
 
Residential agency mortgage-backed securities
   
-
     
8,532
     
-
     
8,532
 
Collateralized mortgage obligations
   
-
     
57,777
     
-
     
57,777
 
Total fixed maturities
   
60,617
     
1,059,658
     
-
     
1,120,275
 
Equity securities - Mutual funds
   
165,868
     
25,560
     
13,454
     
204,882
 
Total
 
$
226,485
   
$
1,085,218
   
$
13,454
   
$
1,325,157
 

   
December 31, 2013
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
               
Fixed maturity securities
               
Obligations of government-sponsored enterprises
 
$
-
   
$
105,791
   
$
-
   
$
105,791
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
39,199
     
-
     
-
     
39,199
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
45,005
     
-
     
45,005
 
Municipal securities
   
-
     
611,443
     
-
     
611,443
 
Corporate bonds
   
-
     
155,940
     
-
     
155,940
 
Residential agency mortgage-backed securities
   
-
     
7,703
     
-
     
7,703
 
Collateralized mortgage obligations
   
-
     
90,793
     
-
     
90,793
 
Total fixed maturities
   
39,199
     
1,016,675
     
-
     
1,055,874
 
Equity securities - Mutual funds
   
158,281
     
63,742
     
17,910