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EX-32.2 - EXHIBIT 32.2 - TRIPLE-S MANAGEMENT CORPex32_2.htm
EX-10.1 - EXHIBIT 10.1 - TRIPLE-S MANAGEMENT CORPex10_1.htm
EX-32.1 - EXHIBIT 32.1 - TRIPLE-S MANAGEMENT CORPex32_1.htm
EX-31.2 - EXHIBIT 31.2 - TRIPLE-S MANAGEMENT CORPex31_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)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
 
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.
☑Yes  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).
Yes    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 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   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 September 30, 2015
Common Stock Class A, $1.00 par value
 
2,377,689
Common Stock Class B, $1.00 par value
 
22,970,356
 

 
Triple-S Management Corporation
 
FORM 10-Q
 
For the Quarter Ended September 30, 2015
 
Table of Contents
 
3
     
 
Item 1.
3
       
 
Item 2.
35
       
 
35
 
35
  Recent Developments 37
  Recent Accounting Standards 38
 
38
  Consolidated Operating Results 39
 
42
  Life Insurance Operating Results 45
  Property and Casualty Operating Results  47
 
49
     
 
Item 3.
51
       
 
Item 4.
51
       
51
   
 
Item 1.
51
       
 
Item 1A.
51
       
 
Item 2.
52
       
 
Item 3.
52
       
 
Item 4.
52
       
 
Item 5.
52
       
 
Item 6.
Exhibits
52
       
 
53
 
Part I – Financial Information
 
Item 1. Financial Statements
 
Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(Dollar amounts in thousands, except per share data)

   
September 30,
2015
   
December 31,
2014
 
Assets
       
Investments and cash:
       
Securities available for sale, at fair value:
       
Fixed maturities
 
$
1,114,962
   
$
1,115,899
 
Equity securities
   
201,959
     
197,756
 
Securities held to maturity, at amortized cost:
               
Fixed maturities
   
2,927
     
2,944
 
Policy loans
   
7,758
     
7,260
 
Cash and cash equivalents
   
194,457
     
110,037
 
Total investments and cash
   
1,522,063
     
1,433,896
 
Premiums and other receivables, net
   
282,758
     
315,622
 
Deferred policy acquisition costs and value of business acquired
   
187,028
     
184,100
 
Property and equipment, net
   
73,849
     
78,343
 
Deferred tax asset
   
70,520
     
68,695
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
53,200
     
39,683
 
Total assets
 
$
2,214,815
   
$
2,145,736
 
Liabilities and Stockholders' Equity
               
Claim liabilities
 
$
472,981
   
$
390,086
 
Liability for future policy benefits
   
345,703
     
328,293
 
Unearned premiums
   
78,440
     
82,656
 
Policyholder deposits
   
116,588
     
118,912
 
Liability to Federal Employees' Health Benefits Program (FEHBP)
   
23,698
     
15,666
 
Accounts payable and accrued liabilities
   
180,036
     
162,458
 
Deferred tax liability
   
21,561
     
28,456
 
Long-term borrowings
   
62,237
     
74,467
 
Liability for pension benefits
   
82,507
     
86,716
 
Total liabilities
   
1,383,751
     
1,287,710
 
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, 2015 and December 31, 2014, respectively
   
2,378
     
2,378
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding  22,970,356 and 24,654,497 shares at September 30, 2015 and December 31, 2014, respectively
   
22,970
     
24,654
 
Additional paid-in capital
   
87,623
     
121,405
 
Retained earnings
   
699,301
     
661,345
 
Accumulated other comprehensive income
   
19,409
     
48,776
 
Total Triple-S Management Corporation stockholders' equity
   
831,681
     
858,558
 
Non-controlling interest in consolidated subsididary
   
(617
)
   
(532
)
Total stockholders' equity
   
831,064
     
858,026
 
Total liabilities and stockholders’ equity
 
$
2,214,815
   
$
2,145,736
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollar amounts in thousands, except per share data)
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Revenues:
               
Premiums earned, net
 
$
746,718
   
$
520,766
   
$
2,033,383
   
$
1,606,353
 
Administrative service fees
   
6,163
     
30,253
     
39,835
     
89,509
 
Net investment income
   
10,618
     
11,816
     
32,534
     
35,314
 
Other operating revenues
   
862
     
939
     
2,656
     
3,283
 
Total operating revenues
   
764,361
     
563,774
     
2,108,408
     
1,734,459
 
Net realized investment gains (losses):
                               
Total other-than-temporary impairment losses on securities
   
(1,627
)
   
-
     
(4,489
)
   
(462
)
Net realized gains, excluding other-than-temporary impairment losses on securities
   
66
     
3,108
     
19,748
     
7,624
 
Total net realized investment gains (losses) on sale of securities
   
(1,561
)
   
3,108
     
15,259
     
7,162
 
Other income, net
   
2,289
     
367
     
5,131
     
1,188
 
Total revenues
   
765,089
     
567,249
     
2,128,798
     
1,742,809
 
Benefits and expenses:
                               
Claims incurred
   
634,909
     
433,853
     
1,705,237
     
1,311,601
 
Operating expenses
   
125,887
     
121,036
     
380,086
     
369,992
 
Total operating costs
   
760,796
     
554,889
     
2,085,323
     
1,681,593
 
Interest expense
   
1,979
     
2,273
     
6,235
     
6,974
 
Total benefits and expenses
   
762,775
     
557,162
     
2,091,558
     
1,688,567
 
Income before taxes
   
2,314
     
10,087
     
37,240
     
54,242
 
Income tax expense (benefit)
   
(1,850
)
   
5,432
     
(631
)
   
15,205
 
Net income
   
4,164
     
4,655
     
37,871
     
39,037
 
Less: Net loss attributable to non-controlling interest
   
30
     
68
     
85
     
117
 
Net income attributable to Triple-S Management Corporation
 
$
4,194
   
$
4,723
   
$
37,956
   
$
39,154
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net income per share
 
$
0.17
   
$
0.17
   
$
1.46
   
$
1.44
 
Diluted net income per share
 
$
0.16
   
$
0.17
   
$
1.46
   
$
1.44
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollar amounts in thousands)

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Net income
 
$
4,164
   
$
4,655
   
$
37,871
   
$
39,037
 
Other comprehensive income (loss), net of tax:
                               
Net unrealized change in fair value of available for sale securities, net of taxes
   
(4,821
)
   
(6,789
)
   
(32,071
)
   
34,593
 
Defined benefit pension plan:
                               
Actuarial loss, net
   
1,016
     
622
     
2,919
     
1,976
 
Prior service credit, net
   
(77
)
   
(68
)
   
(215
)
   
(212
)
Total other comprehensive income (loss), net of tax
   
(3,882
)
   
(6,235
)
   
(29,367
)
   
36,357
 
Comprehensive income (loss)
   
282
     
(1,580
)
   
8,504
     
75,394
 
Comprehensive loss attributable to non-controlling interest
   
30
     
68
     
85
     
117
 
Comprehensive income (loss) attributable to Triple-S Management Corporation
 
$
312
   
$
(1,512
)
 
$
8,589
   
$
75,511
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(Dollar amounts in thousands)

   
2015
   
2014
 
Balance at January 1
 
$
858,558
   
$
785,381
 
Share-based compensation
   
5,520
     
1,617
 
Stock issued upon the exercise of stock options
   
179
     
2,885
 
Repurchase and retirement of common stock
   
(41,165
)
   
(9,044
)
Comprehensive income
   
8,589
     
75,511
 
Total Triple-S Management Corporation stockholders' equity
   
831,681
     
856,350
 
Non-controlling interest in consolidated subsididary
   
(617
)
   
(295
)
Balance at September 30
 
$
831,064
   
$
856,055
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)
 
   
Nine months ended
September 30,
 
   
2015
   
2014
 
Cash flows from operating activities:
       
Net income
 
$
37,871
   
$
39,037
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
12,031
     
15,974
 
Net amortization of investments
   
4,956
     
4,597
 
Additions to the allowance for doubtful receivables
   
11,425
     
5,968
 
Deferred tax benefit
   
(5,140
)
   
676
 
Net realized investment gain on sale of securities
   
(15,259
)
   
(7,162
)
Share-based compensation
   
5,520
     
1,617
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
10,983
     
(4,400
)
Deferred policy acquisition costs and value of business acquired
   
(2,928
)
   
(3,272
)
Deferred taxes
   
869
     
390
 
Other assets
   
(13,602
)
   
5,830
 
Increase (decrease) in liabilities:
               
Claim liabilities
   
82,895
     
(20,614
)
Liability for future policy benefits
   
17,410
     
17,893
 
Unearned premiums
   
(4,216
)
   
(5,618
)
Policyholder deposits
   
2,557
     
2,621
 
Liability to FEHBP
   
8,032
     
5,720
 
Accounts payable and accrued liabilities
   
18,066
     
1,548
 
Net cash provided by operating activities
   
171,470
     
60,805
 
 
(Continued)
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)
 
   
Nine months ended
September 30,
 
   
2015
   
2014
 
Cash flows from investing activities:
       
Proceeds from investments sold or matured:
       
Securities available for sale:
       
Fixed maturities sold
 
$
307,545
   
$
150,049
 
Fixed maturities matured/called
   
38,323
     
27,892
 
Equity securities sold
   
81,176
     
70,803
 
Securities held to maturity - fixed maturities matured/called
   
639
     
2,929
 
Other investments
   
-
     
8,925
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(360,588
)
   
(211,129
)
Equity securities
   
(81,901
)
   
(23,731
)
Securities held to maturity - fixed maturities
   
(623
)
   
(865
)
Other investments
   
(2,139
)
   
(583
)
Net outflows from policy loans
   
(498
)
   
(352
)
Net capital expenditures
   
(5,628
)
   
(3,801
)
Net cash used in (provided by) investing activities
   
(23,694
)
   
20,137
 
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
(5,262
)
   
(6,754
)
Repayments of long-term borrowings
   
(12,230
)
   
(1,486
)
Repurchase and retirement of common stock
   
(40,983
)
   
(5,995
)
Proceeds from policyholder deposits
   
5,587
     
6,413
 
Surrenders of policyholder deposits
   
(10,468
)
   
(6,436
)
Net cash used in financing activities
   
(63,356
)
   
(14,258
)
Net increase in cash and cash equivalents
   
84,420
     
66,684
 
Cash and cash equivalents:
               
Beginning of period
   
110,037
     
74,356
 
End of period
 
$
194,457
   
$
141,040
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
(1) Basis of Presentation
 
The accompanying condensed 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 condensed 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 condensed 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, 2014.
 
In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included.  The results of operations for the three months and nine months ended September 30, 2015 are not necessarily indicative of the results for the full year ending December 31, 2015.
 
(2) Recent Accounting Standards
 
On April 7, 2015, the Financial Accounting Standards Board (FASB) issued guidance addressing the different balance sheet presentation requirements for debt issuance costs and debt discount and premiums.  This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs is not significantly affected.  This guidance is effective for public companies for fiscal years and interim periods within such years beginning after December 15, 2015.  We are currently evaluating the impact, if any, the adoption of this guidance may have on our financial position or results of operations.
 
On May 1, 2015, the FASB issued guidance addressing the current diversity in practice regarding the manner in which certain investments measured at net asset value with redemption dates in the future, including periodic redemption dates, are categorized within the fair value hierarchy.  This guidance eliminates the requirement to categorize within the fair value hierarchy investments for which fair values are measured at net asset value using the practical expedient.  Additionally, it eliminates the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value practical expedient.  This guidance is effective for public companies for fiscal years and interim periods within such years beginning after December 15, 2015.  We are currently evaluating the impact, if any, the adoption of this guidance may have on our financial position or results of operations.
 
On May 21, 2015, the FASB issued guidance to make targeted improvements to short-duration insurance contracts requiring insurance entities to disclose for annual reporting periods, among other information about the liability for unpaid claims and claim adjustment expenses, (1) incurred and paid claims development information by accident year, on a net basis after risk mitigation through reinsurance, for the number of years for which claims incurred typically remain outstanding (that need not exceed 10 years, including the most recent reporting period presented in the statement of financial position). Each period presented in the disclosure about claims development that precedes the current reporting period is considered to be supplementary information; and (2) for each accident year presented of incurred claims development information, quantitative information about claim frequency (unless it is impracticable to do so) accompanied by a qualitative description of methodologies used for determining claim frequency information (as well as any changes to these methodologies).  On August 12, 2015, the FASB issued guidance deferring the effective date of the above described amendments. This guidance is now effective for public companies for fiscal years and interim periods within such years beginning after December 15, 2017. We are currently evaluating the impact, if any, the adoption of this guidance may have on our financial position or results of operations.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
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, 2015 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.
 
(3) 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, 2015 and December 31, 2014, were as follows:
 
   
September 30, 2015
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities available for sale:
               
Fixed maturities:
               
Obligations of government-sponsored enterprises
 
$
115,932
   
$
1,123
   
$
-
   
$
117,055
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
171,488
     
1,616
     
-
     
173,104
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
25,235
     
270
     
-
     
25,505
 
Municipal securities
   
598,659
     
40,984
     
(94
)
   
639,549
 
Corporate bonds
   
119,541
     
12,549
     
-
     
132,090
 
Residential mortgage-backed securities
   
948
     
61
     
-
     
1,009
 
Collateralized mortgage obligations
   
25,923
     
729
     
(2
)
   
26,650
 
Total fixed maturities
   
1,057,726
     
57,332
     
(96
)
   
1,114,962
 
Equity securities - mutual funds
   
179,893
     
23,081
     
(1,015
)
   
201,959
 
Total
 
$
1,237,619
   
$
80,413
   
$
(1,111
)
 
$
1,316,921
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
   
December 31, 2014
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities available for sale:
               
Fixed maturities:
               
Obligations of government-sponsored enterprises
 
$
129,649
   
$
1,014
   
$
(19
)
 
$
130,644
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
94,480
     
648
     
(28
)
   
95,100
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
35,115
     
138
     
-
     
35,253
 
Municipal securities
   
585,088
     
49,181
     
(50
)
   
634,219
 
Corporate bonds
   
147,224
     
17,744
     
(134
)
   
164,834
 
Residential mortgage-backed securities
   
6,808
     
311
     
-
     
7,119
 
Collateralized mortgage obligations
   
46,921
     
1,809
     
-
     
48,730
 
Total fixed maturities
   
1,045,285
     
70,845
     
(231
)
   
1,115,899
 
Equity securities - mutual funds
   
150,799
     
47,049
     
(92
)
   
197,756
 
Total
 
$
1,196,084
   
$
117,894
   
$
(323
)
 
$
1,313,655
 
 
   
September 30, 2015
 
   
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
 
$
621
   
$
197
   
$
-
   
$
818
 
Residential mortgage-backed securities
   
191
     
17
     
-
     
208
 
Certificates of deposit
   
2,115
     
-
     
-
     
2,115
 
Total
 
$
2,927
   
$
214
   
$
-
   
$
3,141
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
   
December 31, 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
   
$
198
   
$
-
   
$
820
 
Residential mortgage-backed securities
   
217
     
21
     
-
     
238
 
Certificates of deposit
   
2,105
     
-
     
-
     
2,105
 
Total
 
$
2,944
   
$
219
   
$
-
   
$
3,163
 

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, 2015 and December 31, 2014 were as follows:
 
   
September 30, 2015
 
   
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:
                                   
Municipal securities
 
$
23,340
   
$
(94
)
   
4
   
$
-
   
$
-
     
-
   
$
23,340
   
$
(94
)
   
4
 
Collateralized mortgage obligations
   
1,621
     
(2
)
   
1
     
-
     
-
     
-
     
1,621
     
(2
)
   
1
 
Total fixed maturities
   
24,961
     
(96
)
   
5
     
-
     
-
     
-
     
24,961
     
(96
)
   
5
 
Equity securities - mutual funds
   
40,286
     
(1,015
)
   
8
     
-
     
-
     
-
     
40,286
     
(1,015
)
   
8
 
Total for securities available for sale
 
$
65,247
   
$
(1,111
)
   
13
   
$
-
   
$
-
     
-
   
$
65,247
   
$
(1,111
)
   
13
 
 
   
December 31, 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
 
$
43,105
   
$
(19
)
   
2
   
$
-
   
$
-
     
-
   
$
43,105
   
$
(19
)
   
2
 
U.S. Treasury securities  and obligations of U.S. governmental instrumentalities
   
39,966
     
(28
)
   
2
     
-
     
-
     
-
     
39,966
     
(28
)
   
2
 
Municipal securities
   
6,749
     
(24
)
   
3
     
6,693
     
(26
)
   
3
     
13,442
     
(50
)
   
6
 
Corporate bonds
   
17,053
     
(50
)
   
4
     
20,405
     
(84
)
   
4
     
37,458
     
(134
)
   
8
 
Total fixed maturities
   
106,873
     
(121
)
   
11
     
27,098
     
(110
)
   
7
     
133,971
     
(231
)
   
18
 
Equity securities - mutual funds
   
7,773
     
(92
)
   
2
     
-
     
-
     
-
     
7,773
     
(92
)
   
2
 
Total for securities available for sale
 
$
114,646
   
$
(213
)
   
13
   
$
27,098
   
$
(110
)
   
7
   
$
141,744
   
$
(323
)
   
20
 
 
The Corporation regularly monitors and evaluates the difference between the amortized cost and estimated fair value of investments.  For investments with a fair value below amortized 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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
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.
 
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 at an unrealized loss for a period longer than 6 months.
 
The Corporation reviews the investment portfolios under the Corporation’s impairment review policy.  Given market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and 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.
 
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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
Collateralized mortgage obligations: The unrealized losses on investments 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.
 
Equity securities - mutual funds: Investments in mutual funds with an unrealized loss as of September 30, 2015 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%).  During the three months and nine months ended September 30, 2015, we recorded an other-than-temporary impairment for a total amount of $479 on positions which were at an unrealized loss for a period longer than six months.
 
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 $16,088 and a gross unrealized gain of $45, and (2) bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $9,417 and a gross unrealized gain of $225 after the other-than-temporary impairment on some of the Cofina holdings.
 
Besides holdings in escrowed bonds, which are backed by US Government securities and therefore have an implicit AA+/Aaa rating, our exposure is in senior lien bonds issued by Cofina.  Below we will discuss the Cofina structure and security, recent events and our impairment conclusion.
 
Cofina bonds are backed by a sales tax levied on the island, which effective July 1, 2015 was increased to 11.5% from an original rate of 7%.  The revenue of the incremental rate of 450 basis points flows directly into the General Fund of the Commonwealth.  The revenue of the original rate of 7% follows the flow of funds as described below.  Effective October 1, 2015, a 4% sales tax on services provided between businesses and on professional services was introduced.
 
Of the original 7% tax rate, 1.5% is a separated revenue stream for municipalities. Of the remaining 5.5%, the larger of 2.75% or a base amount is pledged to the sales tax bonds. In terms of flow of funds, the 5.5% remaining revenue is first used for debt service on senior lien bonds, then for debt service on subordinate bonds and the excess flows into the General Fund.  Effective for government fiscal year 2015-16, the flow of funds has been somewhat revised to benefit Cofina. The municipality portion of 0.5% is first directed to Cofina in order to satisfy the above mentioned base amount.  Once this base amount is reached, the municipality portion catches up by receiving the amounts which were previously diverted towards Cofina.
 
Sales tax revenues are dependent on the Puerto Rico economic situation and the sales tax base amount mentioned above would need to grow over time to cover debt service, especially to cover the longer maturities. However, the Company mostly owns shorter duration Cofina senior bonds, for which debt service coverage based on current revenues is ample.
 
According to the Government Development Bank, legal opinions from the Puerto Rico’s Secretary of Justice, Bond Counsel and Underwriters’ Counsel, pledged sales tax revenues do not constitute available resources of the Commonwealth.  In other words, these revenues are not subject to the so called Puerto Rico general obligations (GO) debt “clawback” under the Commonwealth’s constitution, which provides that certain revenues used to support various bond issues are available to be applied first to the payment of GO debt if needed. This suggests that Cofina bonds could be somewhat isolated from the other Puerto Rico credits.

General Obligation bonds and Cofina are generally considered to have the strongest legal protections.  However, it seems that the Puerto Rico government is moving towards a consolidated debt restructuring across all issuers (see below).  Cofina could either be directly included in this restructuring or the GO bond holders could challenge the separation of the sales tax revenue stream.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
Despite various initiatives to improve its fiscal situation, more recently the Puerto Rico Government has changed its historical position and indicated that it is unable to support its debt burden. A study of the financial situation by former officials at the International Monetary Fund and the World Bank, published in June 2015, concluded that the debt load is unsustainable and that a debt restructuring can no longer be avoided. Subsequently, Puerto Rico’s Governor said that the debt was “not payable” and that the Puerto Rico Government would probably seek significant concessions from all of the island’s creditors, which could include deferring some debt payments for a number of years. The Governor also appointed a working group, which is asked to devise fiscal reforms and work on a debt restructuring.
 
As a first step towards debt restructuring, the Government held a meeting with creditors on July 14, 2015, but offered no specifics with regards to which obligations might be restructured. Officials acknowledged the need for capital market access, indicated that liquidity would be very tight in the beginning of the new fiscal year and mentioned that certain measures had been taken, including the issuance of $400,000 TRANs to certain Government entities and advances from Puerto Rico’s retirement system.  Despite these measures, on August 1, 2015, the Puerto Rico Public Finance Corporation failed to remit enough cash to its paying agent to satisfy its entire debt service obligation.  This is the first time that Puerto Rico has defaulted on any of its bonded debt obligations, showing its constrained liquidity position.
 
On September 9, 2015, the working group published its Fiscal and Economic Growth plan, which detailed a $27,800,000 cumulative financing gap over the next 5 fiscal years. The report contains recommendations to reduce this gap to $14,000,000 through revenue increases, expenditure reductions and measures to stimulate economic growth. However, the working group notes that these recommendations are subject to significant political and execution risks. Moreover, the report states that even if projected results are achieved, the Commonwealth cannot meet all of its debt service requirements as currently scheduled due to a lack of liquidity. According to the working group plan, the Commonwealth projects that it will exhaust its liquidity in November 2015.
 
The report further outlines the need for a broad debt restructuring, which includes General Obligation and Cofina debt. Since this is likely to be difficult, particularly in the absence of a legal framework, the working group recommends the Commonwealth to make a voluntary exchange offer to its creditors.  As a reaction to the report, S&P downgraded General Obligation bonds and Cofina to CC, combined with a negative outlook.
 
The working group report also mentions that even if certain revenues are clawed back from tax-supported debt (i.e. Cofina), available resources may be insufficient to service all principal and interest on debt that has Constitutional priority (i.e. General Obligation bonds). This statement implies that Cofina debt and revenues are treated as that of the Commonwealth. In other words, Cofina revenues would be subject to “clawback”, contrary to prior stated opinions.
 
On September 24, 2015, a document was released by the working group, detailing an overview of the proposed restructuring process and the restructuring principles. In line with previous recommendations, it proposes a voluntary exchange offer and a single comprehensive transaction, including creditors of many entities. Constitutional priority of General Obligation debt is again mentioned.
 
On October 15, 2015, the Governor and the working group introduced legislation to create the Puerto Rico Fiscal Oversight and Economic Recovery Board (the Oversight Board).  It is expected that along with the working group, the Oversight Board will facilitate a return to long-term fiscal sustainability and economic growth and provide Puerto Rico’s creditors with assurance that conditions agreed to as part of any comprehensive debt restructuring agreement, as well as compliance with the working group’s Fiscal and Economic Growth Plan (FEGP), will be monitored by an independent, non-political body.  This Act will require the working group to submit a proposed Commonwealth-wide, consolidated five-year fiscal and economic growth plan to the Oversight Board for approval at the later of the end of the second quarter of 2016 or after all of the members of the Oversight Board have taken office.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
We considered our investments in Cofina bonds other-than-temporarily impaired as of September 30, 2015, because: (a) the financial position of the Commonwealth has deteriorated further, evidenced by a lack of liquidity and market access, and (b) the Puerto Rico government is moving towards a consolidated debt restructuring, which could include Cofina or could jeopardize the separation of the sales tax revenue stream.  As a result, during the three months and nine months ended September 30, 2015, we recorded an other-than-temporary impairment related to these positions amounting to $1,148 and $4,010, respectively.
 
Maturities of investment securities classified as available for sale and held to maturity at September 30, 2015 were as follows:
 
   
September 30, 2015
 
   
Amortized
cost
   
Estimated
fair value
 
Securities available for sale:
       
Due in one year or less
 
$
39,481
   
$
39,936
 
Due after one year through five years
   
342,844
     
349,685
 
Due after five years through ten years
   
131,785
     
140,820
 
Due after ten years
   
516,745
     
556,862
 
Residential mortgage-backed securities
   
948
     
1,009
 
Collateralized mortgage obligations
   
25,923
     
26,650
 
   
$
1,057,726
   
$
1,114,962
 
Securities held to maturity:
               
Due in one year or less
 
$
2,115
   
$
2,115
 
Due after ten years
   
621
     
818
 
Residential mortgage-backed securities
   
191
     
208
 
   
$
2,927
   
$
3,141
 
 
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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
Information regarding realized and unrealized gains and losses from investments for the three months and nine months ended September 30, 2015 and 2014 is as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Realized gains (losses):
 
   
   
   
 
Fixed maturity securities:
 
   
   
   
 
Securities available for sale:
 
   
   
   
 
Gross gains from sales
 
$
868
   
$
1,600
   
$
7,205
   
$
3,303
 
Gross losses from sales
   
(136
)
   
(1,934
)
   
(540
)
   
(3,891
)
Gross losses from other-than-temporary impairments
   
(1,148
)
   
-
     
(4,010
)
   
(462
)
Total debt securities
   
(416
)
   
(334
)
   
2,655
     
(1,050
)
Equity securities:
                               
Securities available for sale:
                               
Gross gains from sales
   
126
     
3,488
     
14,000
     
8,104
 
Gross losses from sales
   
(792
)
   
(46
)
   
(917
)
   
(1,317
)
Gross losses from other-than-temporary impairments
   
(479
)
   
-
     
(479
)
   
-
 
Total equity securities
   
(1,145
)
   
3,442
     
12,604
     
6,787
 
Net realized gains (losses) on securities available for sale
   
(1,561
)
   
3,108
     
15,259
     
5,737
 
Gross gain from other investment
   
-
     
-
     
-
     
1,425
 
Net realized investment gains (losses)
 
$
(1,561
)
 
$
3,108
   
$
15,259
   
$
7,162
 
 
The other-than-temporary impairments on fixed maturity securities are attributable to credit losses.  The other-than-temporary impairments on equity securities are attributable to broad equity market movement.
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Changes in net unrealized gains (losses):
 
   
   
   
 
Recognized in accumulated other comprehensive income:
 
   
   
   
 
Fixed maturities – available for sale
 
$
6,379
   
$
(2,873
)
 
$
(13,378
)
 
$
37,044
 
Equity securities – available for sale
   
(12,018
)
   
(5,783
)
   
(24,891
)
   
3,164
 
$
(5,639
)
$
(8,656
)
$
(38,269
)
$
40,208
 
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
15
   
$
3
   
$
(5
)
 
$
16
 
 
The deferred tax asset (liability) on unrealized gains (losses) change recognized in accumulated other comprehensive income during the nine months ended September 30, 2015 and 2014 was $6,198 and ($5,615), respectively.
 
As of September 30, and December 31, 2014, no individual investment in securities exceeded 10% of stockholders’ equity.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
The components of net investment income were as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Fixed maturities
 
$
9,012
   
$
9,587
   
$
26,953
   
$
28,826
 
Equity securities
   
1,169
     
1,850
     
4,293
     
5,466
 
Policy loans
   
146
     
150
     
412
     
408
 
Cash equivalents and interest-bearing deposits
   
26
     
39
     
89
     
65
 
Other
   
265
     
190
     
787
     
549
 
Total
 
$
10,618
   
$
11,816
   
$
32,534
   
$
35,314
 
 
(4) Premiums and Other Receivables, Net
 
Premiums and other receivables, net as of September 30, 2015, and December 31, 2014 were as follows:
 
   
September 30,
2015
   
December 31,
2014
 
Premiums
 
$
107,097
   
$
131,496
 
Self-insured group receivables
   
64,365
     
62,189
 
FEHBP
   
12,303
     
12,384
 
Agent balances
   
22,720
     
25,300
 
Accrued interest
   
10,841
     
11,737
 
Reinsurance recoverable
   
47,360
     
50,686
 
Unsettled sales
   
-
     
10,456
 
Other
   
52,051
     
47,742
 
     
316,737
     
351,990
 
Less allowance for doubtful receivables:
               
Premiums
   
25,364
     
28,983
 
Other
   
8,615
     
7,385
 
     
33,979
     
36,368
 
Total premiums and other receivables, net
 
$
282,758
   
$
315,622
 
 
As of September 30, 2015 and December 31, 2014, the Company had premiums and other receivables of $82,412 and $89,904, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of September 30, 2015 and December 31, 2014 were $18,955 and $11,614, respectively.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
(5) Fair Value Measurements
 
Assets recorded at fair value in the condensed 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.
 
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 measurement levels are not indicative of risk of investment.
 
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 3.
 
The following tables summarize fair value measurements by level at September 30, 2015 and December 31, 2014 for assets measured at fair value on a recurring basis:
 
   
September 30, 2015
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
               
Fixed maturity securities
               
Obligations of government-sponsored enterprises
 
$
-
   
$
117,055
   
$
-
   
$
117,055
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
173,104
     
-
     
-
     
173,104
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
25,505
     
-
     
25,505
 
Municipal securities
   
-
     
639,549
     
-
     
639,549
 
Corporate bonds
   
-
     
132,090
     
-
     
132,090
 
Residential agency mortgage-backed securities
   
-
     
1,009
     
-
     
1,009
 
Collateralized mortgage obligations
   
-
     
26,650
     
-
     
26,650
 
Total fixed maturities
   
173,104
     
941,858
     
-
     
1,114,962
 
Equity securities - mutual funds
   
173,778
     
19,005
     
9,176
     
201,959
 
                                 
Total
 
$
346,882
   
$
960,863
   
$
9,176
   
$
1,316,921
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
   
December 31, 2014
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
               
Fixed maturity securities
               
Obligations of government-sponsored enterprises
 
$
-
   
$
130,644
   
$
-
   
$
130,644
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
95,100
     
-
     
-
     
95,100
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
35,253
     
-
     
35,253
 
Municipal securities
   
-
     
634,219
     
-
     
634,219
 
Corporate bonds
   
-
     
164,834
     
-
     
164,834
 
Residential agency mortgage-backed securities
   
-
     
7,119
     
-
     
7,119
 
Collateralized mortgage obligations
   
-
     
48,730
     
-
     
48,730
 
Total fixed maturities
   
95,100
     
1,020,799
     
-
     
1,115,899
 
Equity securities - mutual funds
   
160,461
     
23,946
     
13,349
     
197,756
 
                                 
Total
 
$
255,561
   
$
1,044,745
   
$
13,349
   
$
1,313,655
 
 
The fair value of fixed maturity and equity securities included in the Level 2 category were based on market values obtained from independent pricing services, which utilize evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and when available loan performance data.  Because many fixed income securities do not trade on a daily basis, the models used by independent pricing service providers to prepare evaluations apply available information, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.  For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available.  The independent pricing service providers monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants. The fair value of the investments in partnerships included in the Level 3 category was based on the net asset value (NAV) which is affected by the changes in the fair market value of the investments held in these partnerships.
 
Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company’s best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement.  Transfers between levels, if any, are recorded as of the actual date of the event or change in circumstance that caused the transfer.  There were no transfers in and/or out of Level 3 and between Levels 1 and 2 during the three months and nine months ended September 30, 2015 and 2014.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2015 and 2014 is as follows:
 
   
Three months ended
 
   
September 30, 2015
   
September 30, 2014
 
   
Fixed
Maturity
Securities
   
Equity
Securities
   
Total
   
Fixed
Maturity
Securities
   
Equity
Securities
   
Total
 
Beginning balance
 
$
-
   
$
9,083
   
$
9,083
   
$
-
   
$
16,859
   
$
16,859
 
Realized gains
   
-
     
125
     
125
     
-
                 
Unrealized gain (loss) in other accumulated comprehensive income
   
-
     
18
     
18
     
-
     
(962
)
   
(962
)
Capital distributions
   
-
     
(175
)
   
(175
)
   
-
     
(2,676
)
   
(2,676
)
Purchases
   
-
     
125
     
125
     
-
     
233
     
233
 
Ending balance
 
$
-
   
$
9,176
   
$
9,176
   
$
-
   
$
13,454
   
$
13,454
 
 
   
Nine months ended
 
   
September 30, 2015
   
September 30, 2014
 
   
Fixed
Maturity
Securities
   
Equity
Securities
   
Total
   
Fixed
Maturity
Securities
   
Equity
Securities
   
Total
 
Beginning balance
 
$
-
   
$
13,349
   
$
13,349
   
$
-
   
$
17,910
   
$
17,910
 
Realized gains
   
-
     
1,537
     
1,537
     
-
     
-
     
-
 
Unrealized loss in other accumulated comprehensive income
   
-
     
(3,284
)
   
(3,284
)
   
-
     
(356
)
   
(356
)
Capital distributions
   
-
     
(2,740
)
   
(2,740
)
   
-
     
(4,677
)
   
(4,677
)
Purchases
   
-
     
314
     
314
     
-
     
577
     
577
 
Ending balance
 
$
-
   
$
9,176
   
$
9,176
   
$
-
   
$
13,454
   
$
13,454
 
 
In addition to the preceding disclosures on assets recorded at fair value in the condensed consolidated balance sheets, accounting guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the condensed consolidated balance sheets.
 
Non-financial instruments such as property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as claim liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.
 
The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, receivables, accounts payable and accrued liabilities, and short-term borrowings approximate fair value because of the short term nature of these items.  These assets and liabilities are not listed in the table below.
 
The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:
 
(i)
Policy Loans
 
Policy loans have no stated maturity dates and are part of the related insurance contract. The carrying amount of policy loans approximates fair value because their interest rate is reset periodically in accordance with current market rates.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
(ii)
Policyholder Deposits
 
The fair value of policyholder deposits is the amount payable on demand at the reporting date, and accordingly, the carrying value amount approximates fair value.
 
(iii)
Long-term Borrowings
 
The carrying amount of the loans payable to bank – variable approximates fair value due to its floating interest-rate structure.  The fair value of the senior unsecured notes payable was determined using broker quotations.
 
(iv)
Repurchase Agreement
 
The value of the repurchase agreement with a long term maturity is based on the discounted value of the contractual cash flows using current estimated market discount rates for instruments with similar terms.
 
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets at September 30, 2015 and December 31, 2014 are as follows:
 
   
September 30, 2015
 
   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
 
   
   
   
   
 
Policy loans
 
$
7,758
   
$
-
   
$
7,758
   
$
-
   
$
7,758
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
116,588
   
$
-
   
$
116,588
   
$
-
   
$
116,588
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
13,237
     
-
     
13,237
     
-
     
13,237
 
6.6% senior unsecured notes payable
   
24,000
     
-
     
21,420
     
-
     
21,420
 
Repurchase agreement
   
25,000
     
-
     
25,086
     
-
     
25,086
 
Total long-term borrowings
   
62,237
     
-
     
59,743
     
-
     
59,743
 
Total liabilities
 
$
178,825
   
$
-
   
$
176,331
   
$
-
   
$
176,331
 
 
 
   
December 31, 2014
 
   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
 
   
   
   
   
 
Policy loans
 
$
7,260
   
$
-
   
$
7,260
   
$
-
   
$
7,260
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
118,912
   
$
-
   
$
118,912
   
$
-
   
$
118,912
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
14,467
     
-
     
14,467
     
-
     
14,467
 
6.6% senior unsecured notes payable
   
35,000
     
-
     
33,513
     
-
     
33,513
 
Repurchase agreement
   
25,000
     
-
     
25,337
     
-
     
25,337
 
Total long-term borrowings
   
74,467
     
-
     
73,317
     
-
     
73,317
 
Total liabilities
 
$
193,379
   
$
-
   
$
192,229
   
$
-
   
$
192,229
 
 
Triple-S Management Corporation
Notes to Condensed 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, 2015 and 2014 is as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Claim liabilities at beginning of period
 
$
462,186
   
$
414,708
   
$
390,086
   
$
420,421
 
Reinsurance recoverable on claim liabilities
   
(39,156
)
   
(39,832
)
   
(40,635
)
   
(37,557
)
Net claim liabilities at beginning of period
   
423,030
     
374,876
     
349,451
     
382,864
 
Incurred claims and loss-adjustment expenses:
                               
Current period insured events
   
631,135
     
432,509
     
1,700,653
     
1,334,208
 
Prior period insured events
   
(2,315
   
(5,002
)
   
(13,597
)
   
(40,285
)
Total
   
628,820
     
427,507
     
1,687,056
     
1,293,923
 
Payments of losses and loss-adjustment expenses:
                               
Current period insured events
   
561,269
     
421,395
     
1,345,082
     
1,079,312
 
Prior period insured events
   
56,699
     
21,347
     
257,543
     
237,834
 
Total
   
617,968
     
442,742
     
1,602,625
     
1,317,146
 
Net claim liabilities at end of period
   
433,882
     
359,641
     
433,882
     
359,641
 
Reinsurance recoverable on claim liabilities
   
39,099
     
40,166
     
39,099
     
40,166
 
Claim liabilities at end of period
 
$
472,981
   
$
399,807
   
$
472,981
   
$
399,807
 
 
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 and nine months ended September 30, 2015 and 2014 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 $6,089 and $18,181 during the three months and nine months ended September 30, 2015, respectively.  The change in the liability for future policy benefits during the three months and nine months ended September 30, 2014 amounted to $6,346 and $17,678.
 
(7) Income Taxes
 
Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries.  The Corporation and its subsidiaries are subject to Puerto Rico income taxes.  The Corporation’s insurance subsidiaries are also subject to U.S. federal income taxes for foreign source dividend income.
 
Managed Care and Property and Casualty corporations are taxed essentially the same as other corporations, with taxable income primarily determined on the basis of the statutory annual statements filed with the insurance regulatory authorities. The corporations are also subject to an alternative minimum income tax, which is calculated based on the formula established by existing tax laws. Any alternative minimum income tax paid may be used as a credit against the excess, if any, of regular income tax over the alternative minimum income tax in future years.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
The Corporation, through one of its Managed Care corporations, has a branch in the U.S. Virgin Islands that is subject to a 5% premium tax on policies underwritten therein. As a qualified foreign insurance company, the Company is subject to income taxes in the U.S. Virgin Islands, which has implemented a mirror tax law based on the U.S. Internal Revenue Code.  The branch operations in the U.S. Virgin Islands had certain net operating losses for U.S. Virgin Islands tax purposes for which a valuation allowance has been recorded.
 
Companies within our Life Insurance segment operate as qualified domestic life insurance companies and are subject to the alternative minimum tax and taxes on its capital gains.
 
All other corporations within the group are subject to Puerto Rico income taxes as regular corporations, as defined in the P.R. Internal Revenue Code, as amended.  The holding company within the Triple-S Advantage, Inc. (TSA) group of companies is a U.S.-based corporation and is subject to U.S. federal income taxes.  This U.S.-based corporation within our group has not provided U.S. deferred taxes on an outside basis difference created as a result of the business combination of TSA and cumulative earnings of its Puerto Rico-based subsidiaries that are considered to be indefinitely reinvested.  The total outside basis difference at December 31, 2014 is estimated at $54,000.  We do not intend to repatriate earnings to fund U.S. and Puerto Rico operations nor do any transaction that would cause a reversal of that outside basis difference.  Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability if such outside basis difference was reversed.
 
On July 1, 2014, the Governor of Puerto Rico signed into law Act No. 77 including multiple amendments to the Puerto Rico tax code that had a direct impact on the tax liabilities of individual and corporate taxpayers.  The amendments to the Puerto Rico tax code include, among others, changes to the corporate tax rate on long-term capital gains, which was increased from 15% to 20% for all transactions occurring after June 30, 2014.
 
Act No. 77 of 2014 also included changes to the gross receipts tax, (1) eliminating the additional gross receipts tax as a component of the corporate alternative minimum tax commencing on January 1, 2014 and thereafter, and (2) adding a new gross receipts tax.  Although the new gross receipts tax will be an additional tax on the Corporation’s gross income, it will be deductible for purposes of computing taxable income, but only to the extent that the new gross receipts tax is paid on or before the filing date of the income tax return.  On December 22, 2014, the Governor of Puerto Rico signed into law Act No. 238, which amended the Puerto Rico tax code to include, among others that this gross receipt tax is not applicable for fiscal years beginning after December 31, 2014.  The impact of the amendments to the gross receipts tax was not significant to the results of operations.
 
Act No. 77 also allowed corporations to elect, during the period running from July 1, 2014 to October 31, 2014, to prepay at a reduced income tax rate of 12% on the increase in value of long-term capital assets.  On December 22, 2014 and March 30, 2015, the Governor of Puerto Rico signed into law Act No. 238 and Act No. 44, respectively, providing further amendments to the provisions set forth by Act No. 77, extending the period to prepay at the reduced tax rate of 12% on the increase in value of long-term capital assets until April 30, 2015.  In connection with this law, on April 15, 2015, the group of corporations that comprise TSM entered into a Closing Agreement with the Puerto Rico Department of Treasury.  The Closing Agreement, among other matters, was related with the payment of the preferential tax rate on the increase in value of some of its long-term capital assets, as permitted by Act No. 238 of 2014 and Act No. 44 of 2015.  The agreement also covered certain tax attributes of the Corporation.  During the nine months ended September 30, 2015, as a result of the aforementioned tax laws and the Closing Agreement, the Company: (1) obtained a benefit from the lower tax rate provided under these statutes, (2) reassessed the realizability of some of its deferred taxes and (3) recorded a tax benefit of $3,129.
 
Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date.  Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
(8) Pension Plan
 
The components of net periodic benefit cost for the three months and nine months ended September 30, 2015 and 2014 were as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Components of net periodic benefit cost:
               
Service cost
 
$
1,160
   
$
885
   
$
3,217
   
$
2,835
 
Interest cost
   
2,322
     
2,042
     
6,544
     
6,435
 
Expected return on assets
   
(2,350
)
   
(1,847
)
   
(6,564
)
   
(5,848
)
Amortization of prior service benefit
   
(126
)
   
(111
)
   
(352
)
   
(348
)
Amortization of actuarial loss
   
1,665
     
1,019
     
4,784
     
3,239
 
Net periodic benefit cost
 
$
2,671
   
$
1,988
   
$
7,629
   
$
6,313
 
 
Employer Contributions:  As of September 30, 2015, the Corporation has contributed $8,000 to the pension program in 2015.
 
(9) Stock Repurchase Program
 
In October 2014 the Company’s Board of Directors authorized a $50,000 repurchase program of its Class B common stock.  Repurchases are conducted through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.  During the three months ended September 30, 2015, the Company repurchased and retired under this program 683,133 shares at an average per share price of $22.19, for an aggregate cost of $14,996.  During the nine months ended September 30, 2015, the Company repurchased and retired under this program 1,894,794 shares at an average per share price of $21.85, for an aggregate cost of $40,983.
 
(10) Comprehensive Income
 
The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
 
   
Net unrealized
gain on
securities
   
Liability for
pension
benefits
   
Accumulated
other
comprehensive
income
 
Balance at January 1, 2015
 
$
101,467
   
$
(52,691
)
 
$
48,776
 
Other comprehensive income before reclassifications
   
(17,269
)
   
-
     
(17,269
)
Amounts reclassified from accumulated other comprehensive income
   
(14,802
)
   
2,704
     
(12,098
)
Net current period change
   
(32,071
)
   
2,704
     
(29,367
)
Balance at September 30, 2015
 
$
69,396
   
$
(49,987
)
 
$
19,409
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
(11) Share-Based Compensation
 
Share-based compensation expense recorded during the three months and nine months ended September 30, 2015 was $2,321 and $5,520, respectively.  Share-based compensation expense recorded during the three months and nine months ended September 30, 2014 was $396 and $1,617, respectively.  There was no cash received from stock option exercises during the nine months ended September 30, 2015 and 2014.  During the nine months ended September 30, 2015 and September 30, 2014, 7,235 and 174,090 shares, respectively were repurchased and retired as a result of non-cash exercises of stock options.
 
(12) Net Income Available to Stockholders and Net Income per Share
 
The following table sets forth the computation of basic and diluted earnings per share for the three months and nine months ended September 30, 2015 and 2014:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Numerator for earnings per share:
               
Net income attributable to TSM available to stockholders
 
$
4,194
   
$
4,723
   
$
37,956
   
$
39,154
 
Denominator for basic earnings per share:
                               
Weighted average of common shares
   
25,388,077
     
27,081,142
     
25,932,049
     
27,142,910
 
Effect of dilutive securities
   
72,983
     
59,961
     
88,688
     
109,896
 
Denominator for diluted earnings per share
   
25,461,060
     
27,141,103
     
26,020,737
     
27,252,806
 
Basic net income per share attributable to TSM
 
$
0.17
   
$
0.17
   
$
1.46
   
$
1.44
 
Diluted net income per share attributable to TSM
 
$
0.16
   
$
0.17
   
$
1.46
   
$
1.44
 
 
(13) Contingencies
 
Our business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla governmental authorities. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. The Commissioner of Insurance of Puerto Rico, as well as other Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla government authorities, regularly make inquiries and conduct audits concerning the Company's compliance with such laws and regulations. Penalties associated with violations of these laws and regulations may include significant fines and exclusion from participating in certain publicly funded programs and may require the Company to comply with corrective action plans or changes in our practices.
 
As of September 30, 2015, we are involved in various legal actions arising in the ordinary course of business. We are also defendants in various other litigations and proceedings, some of which are described below.  Where the Company believes that a loss is both probable and estimable, such amounts have been recorded. During the three months period ended September 30, 2015, the Company increased its contingencies estimate by $4,400 to have an accrual of $5,000 in connection with expected fines and/or other sanctions related to certain legal and regulatory matters, which is presented within the consolidated operating expenses. Although we believe our estimates of such losses are reasonable, these estimates could change as a result of further developments in these matters. In other cases, it is at least reasonably possible that the Company may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Company is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.  The outcome of legal proceedings is inherently uncertain and pending matters for which accruals have not been established have not progressed sufficiently to enable us to estimate a range of possible loss, if any.  Given the inherent unpredictability of these matters, it is possible that an adverse outcome in one or more of these matters could have a material adverse effect on the consolidated financial condition, operating results and/or cash flows of the Company.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
Additionally, we may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have rights to acquire shares of the Company on favorable terms pursuant to agreements previously entered by our predecessor managed care subsidiary, Seguros de Servicios de Salud de Puerto Rico, Inc. (SSS), with physicians or dentists who joined our provider network to sell such new provider shares of SSS at a future date (Share Acquisition Agreements) or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.
 
Claims by Heirs of Former Shareholders
 
The Company and Triple-S Salud, Inc. (TSS) are defending eight individual lawsuits, all filed in state court, from persons who claim to have inherited a total of 112 shares of the Company or one of its predecessors or affiliates (before giving effect to the 3,000-for-one stock split). While each case presents unique facts and allegations, the lawsuits generally allege that the redemption of the shares by the Company pursuant to transfer and ownership restrictions contained in the Company's (or its predecessors' or affiliates') articles of incorporation and bylaws was improper.
 
In one of these cases, entitled Vera Sánchez, et al, v. Triple-S, the plaintiffs argued that the redemption of shares was fraudulent and was not subject to the two-year statute of limitations contained in the local securities law. The Puerto Rico’s Court of First Instance dismissed the claim and determined it was time barred under the local securities law. On January 27, 2012, the Puerto Rico Court of Appeals upheld the dismissal. On October 1, 2013, the Puerto Rico Supreme Court reversed the dismissal, holding that the two-year statute of limitations contained in the local securities law did not apply and returning it to the Court of First Instance.  Discovery is ongoing.
 
In the second case, entitled Olivella Zalduondo, et al, v. Seguros de Servicios de Salud, et al, Puerto Rico’s Court of First Instance granted the Company’s motion to dismiss on grounds that the complaint was time-barred under the two-year statute of limitations of the local securities laws. On appeal, the Court of Appeals affirmed the decision of the lower court. On January 8, 2013, the Puerto Rico Supreme Court ruled that the applicable statute of limitations is the fifteen-year period of the Puerto Rico’s Civil Code for collection of monies.  On January 28, 2013, the Company filed a motion for reconsideration which was subsequently denied. On March 26, 2013, plaintiffs amended their complaint, which was answered by the Company on April 16, 2013.  Subsequently, the Company has filed motions to compel discovery and is awaiting court’s decision on the matter.
 
In the third case, entitled Heirs of Dr. Juan Acevedo, et al, v. Triple-S Management Corporation, et al, the Puerto Rico Court of First Instance denied our motion for summary judgment based on its determination that there are material issues of fact in controversy. In response to our appeal, the Puerto Rico Court of Appeals confirmed the decision of the Puerto Rico’s Court of First Instance and denied a subsequent plea for reconsideration.  Both parties have filed motions for summary judgment and, consequently, their respective oppositions. The parties are awaiting the court’s decision on their respective motions for summary judgment.
 
The fourth case, entitled Montilla López, et al, v. Seguros de Servicios de Salud, et al, was filed on November 29, 2011. The Company filed a motion to dismiss on the grounds that the claim is time barred under the local securities laws, which was denied by the court on January 24, 2013.  After two amendments to plaintiff’s complaint, the Company filed its response on June 13, 2013.  A hearing is scheduled for December 8, 2015. Discovery is ongoing.
 
The fifth case, entitled Cebollero Santamaría v. Triple-S Salud, Inc., et al, was filed on March 26, 2013, and the Company filed its response on May 16, 2013. On October 29, 2013, the Company filed a motion for summary judgment on the grounds that the claim is time-barred under the fifteen-year statute of limitations of the Puerto Rico Civil Code for collection of monies and, in the alternative, that plaintiff failed to state a claim for which relief can be granted which was denied by the court.  On November 2, 2015, the Company filed a motion of Certiorari to the Puerto Rico Court of Appeals.  Discovery is ongoing.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
The sixth case, entitled Irizarry Antonmattei, et al, v. Seguros de Servicios de Salud, et al, was filed on April 16, 2013 and the Company filed its response on June 21, 2013. After several pleas, including a motion to dismiss filed by the Company, plaintiff amended their complaint. On November 5, 2013, the Company moved to dismiss the first amended complaint. On May 16, 2014, plaintiffs filed a motion for summary judgment, which the Company opposed on May 28, 2014. On June 16, 2014, the court ordered plaintiffs to file a memoranda of law and struck plaintiff’s motion for summary judgment. On September 18, 2014, the court denied our motion to dismiss the amended complaint. On September 29, 2014, the Company filed a motion for reconsideration, which was denied by the court on November 4, 2014.  On December 4, 2014, the Company filed a petition of Certiorari to the Puerto Rico Court of Appeals of Puerto Rico, which was denied on April 1, 2015.  A pretrial hearing is scheduled for June 16, 2016. Discovery is ongoing.
 
The seventh case, entitled Allende Santos, et al, v. Triple-S Salud, et al, was filed on March 28, 2014. On July 2, 2014, the Company filed its response. A hearing is scheduled for January 20, 2016. Discovery is ongoing.
 
The eighth case, entitled Gallardo Mendez, et al, v. Triple-S Management Corporation, was filed on December 30, 2014.  On March 13, 2015, the Company filed a motion to dismiss.  After an extension of time granted by the court, plaintiff did not file an opposition.  Therefore, on June 16, 2015, the court deemed our motion to dismiss unopposed. We are awaiting further court proceedings.
 
Management believes the aforesaid claims are time barred under one or more statutes of limitations and will vigorously defend them on these grounds; however, as a result of the Puerto Rico Supreme Court’s decision to deny the applicability of the statute of limitations contained in the local securities law, some of these claims will likely be litigated on their merits.
 
Joint Underwriting Association Litigations
 
On August 19, 2011, plaintiffs, purportedly a class of motor vehicle owners, filed an action in the United States District Court for the District of Puerto Rico against the Puerto Rico Joint Underwriting Association (JUA) and 18 other defendants, including TSP, alleging violations under the Puerto Rico Insurance Code, the Puerto Rico Civil Code, the Racketeer Influenced and Corrupt Organizations Act (RICO) and the local statute against organized crime and money laundering. JUA is a private association created by law to administer a compulsory public liability insurance program for motor vehicles in Puerto Rico (CLI). As required by its enabling act, JUA is composed of all the insurers that underwrite private motor vehicle insurance in Puerto Rico and exceed the minimum underwriting percentage established in such act. TSP is a member of JUA.
 
In this lawsuit, entitled Noemí Torres Ronda, et al v. Joint Underwriting Association, et al., plaintiffs allege that the defendants illegally charged and misappropriated a portion of the CLI premiums paid by motor vehicle owners in violation of the Puerto Rico Insurance Code. Specifically, they claim that because the defendants did not incur acquisition or administration costs allegedly totaling 12% of the premiu