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EX-32.2 - EXHIBIT 32.2 - TRIPLE-S MANAGEMENT CORPex32_2.htm
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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, 2016

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, 2016
Common Stock Class A, $1.00 par value
950,968
Common Stock Class B, $1.00 par value
23,321,748
 


Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended September 30, 2016
 
Table of Contents
 
3
   
 
Item 1.
3
       
 
Item 2.
30
       
 
30
 
30
 
31
 
32
 
33
 
33
 
36
 
39
 
40
 
41
     
 
Item 3.
42
       
 
Item 4.
43
     
43
   
 
Item 1.
43
       
 
Item 1A.
43
       
 
Item 2.
44
       
 
Item 3.
44
       
 
Item 4.
44
       
 
Item 5.
44
       
 
Item 6.
44
       
45
 
Part I – Financial Information

Item 1.
Financial Statements

Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)
 
   
September 30,
2016
   
December 31,
2015
 
Assets
           
Investments and cash:
           
Securities available for sale, at fair value:
           
Fixed maturities
 
$
1,162,209
   
$
1,133,645
 
Equity securities
   
302,077
     
197,071
 
Securities held to maturity, at amortized cost:
               
Fixed maturities
   
2,833
     
2,929
 
Policy loans
   
8,372
     
7,901
 
Cash and cash equivalents
   
165,523
     
197,818
 
Total investments and cash
   
1,641,014
     
1,539,364
 
Premiums and other receivables, net
   
333,964
     
282,646
 
Deferred policy acquisition costs and value of business acquired
   
190,443
     
190,648
 
Property and equipment, net
   
68,184
     
73,953
 
Deferred tax asset
   
57,950
     
52,361
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
57,966
     
41,776
 
Total assets
 
$
2,374,918
   
$
2,206,145
 
Liabilities and Equity
               
Claim liabilities
 
$
511,377
   
$
491,765
 
Liability for future policy benefits
   
315,404
     
289,530
 
Unearned premiums
   
160,066
     
80,260
 
Policyholder deposits
   
181,323
     
179,287
 
Liability to Federal Employees' Health Benefits Program (FEHBP)
   
34,474
     
26,695
 
Accounts payable and accrued liabilities
   
188,517
     
176,910
 
Deferred tax liability
   
23,938
     
15,070
 
Long-term borrowings
   
35,597
     
36,827
 
Liability for pension benefits
   
56,015
     
62,945
 
Total liabilities
   
1,506,711
     
1,359,289
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders' equity
               
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at September 30, 2016 and December 31, 2015, respectively
   
951
     
951
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares;  issued and outstanding 23,321,748 and 24,047,755 shares at September 30, 2016 and December 31, 2015, respectively
   
23,322
     
24,048
 
Additional paid-in capital
   
65,058
     
83,438
 
Retained earnings
   
718,861
     
713,466
 
Accumulated other comprehensive income
   
60,691
     
25,623
 
Total Triple-S Management Corporation stockholders' equity
   
868,883
     
847,526
 
Non-controlling interest in consolidated subsidiary
   
(676
)
   
(670
)
Total stockholders' equity
   
868,207
     
846,856
 
Total liabilities and equity
 
$
2,374,918
   
$
2,206,145
 
 
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,
 
   
2016
   
2015
   
2016
   
2015
 
Revenues:
                       
Premiums earned, net
 
$
721,187
   
$
746,718
   
$
2,188,770
   
$
2,033,383
 
Administrative service fees
   
4,146
     
6,163
     
13,749
     
39,835
 
Net investment income
   
12,337
     
10,618
     
36,570
     
32,534
 
Other operating revenues
   
871
     
862
     
2,598
     
2,656
 
Total operating revenues
   
738,541
     
764,361
     
2,241,687
     
2,108,408
 
Net realized investment gains (losses):
                               
Total other-than-temporary impairment losses on securities
   
-
     
(1,627
)
   
(1,434
)
   
(4,489
)
Net realized gains, excluding other-than-temporary impairment losses on securities
   
5,376
     
66
     
8,388
     
19,748
 
Total net realized investment gains (losses) on sale of securities
   
5,376
     
(1,561
)
   
6,954
     
15,259
 
Other income, net
   
734
     
2,289
     
5,468
     
5,131
 
Total revenues
   
744,651
     
765,089
     
2,254,109
     
2,128,798
 
Benefits and expenses:
                               
Claims incurred
   
629,169
     
634,909
     
1,877,950
     
1,705,237
 
Operating expenses
   
123,406
     
125,887
     
367,498
     
380,086
 
Total operating costs
   
752,575
     
760,796
     
2,245,448
     
2,085,323
 
Interest expense
   
1,893
     
1,979
     
5,729
     
6,235
 
Total benefits and expenses
   
754,468
     
762,775
     
2,251,177
     
2,091,558
 
(Loss) income before taxes
   
(9,817
)
   
2,314
     
2,932
     
37,240
 
Income tax benefit
   
(7,873
)
   
(1,850
)
   
(2,457
)
   
(631
)
Net (loss) income
   
(1,944
)
   
4,164
     
5,389
     
37,871
 
Less: Net loss attributable to non-controlling interest
   
3
     
30
     
6
     
85
 
Net (loss) income attributable to Triple-S Management Corporation
 
$
(1,941
)
 
$
4,194
   
$
5,395
   
$
37,956
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net (loss) income per share
 
$
(0.08
)
 
$
0.17
   
$
0.22
   
$
1.46
 
Diluted net (loss) income per share
 
$
(0.08
)
 
$
0.16
   
$
0.22
   
$
1.46
 
 
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,
 
   
2016
   
2015
   
2016
   
2015
 
Net (loss) income
 
$
(1,944
)
 
$
4,164
   
$
5,389
   
$
37,871
 
Other comprehensive income (loss), net of tax:
                               
Net unrealized change in fair value of available for sale securities, net of taxes
   
(1,884
)
   
(4,821
)
   
33,523
     
(32,071
)
Defined benefit pension plan:
                               
Actuarial loss, net
   
525
     
1,016
     
1,754
     
2,919
 
Prior service credit, net
   
(59
)
   
(77
)
   
(209
)
   
(215
)
Total other comprehensive (loss) income, net of tax
   
(1,418
)
   
(3,882
)
   
35,068
     
(29,367
)
Comprehensive (loss) income
   
(3,362
)
   
282
     
40,457
     
8,504
 
Comprehensive loss attributable to non-controlling interest
   
3
     
30
     
6
     
85
 
Comprehensive (loss) income attributable to Triple-S Management Corporation
 
$
(3,359
)
 
$
312
   
$
40,463
   
$
8,589
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(dollar amounts in thousands)
 
   
2016
   
2015
 
Balance at January 1
 
$
847,526
   
$
858,558
 
Share-based compensation
   
2,266
     
5,520
 
Stock issued upon the exercise of stock options
   
55
     
179
 
Repurchase and retirement of common stock
   
(21,427
)
   
(41,165
)
Comprehensive income
   
40,463
     
8,589
 
Total Triple-S Management Corporation stockholders' equity
   
868,883
     
831,681
 
Non-controlling interest in consolidated subsidiary
   
(676
)
   
(617
)
Balance at September 30
 
$
868,207
   
$
831,064
 

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,
 
   
2016
   
2015
 
Cash flows from operating activities:
           
Net income
 
$
5,389
   
$
37,871
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
10,617
     
12,031
 
Net amortization of investments
   
6,181
     
4,956
 
Additions to the allowance for doubtful receivables
   
2,498
     
11,425
 
Deferred tax benefit
   
(4,026
)
   
(5,140
)
Net realized investment gain on sale of securities
   
(6,954
)
   
(15,259
)
Interest credited to policyholder deposits
   
3,091
     
2,557
 
Share-based compensation
   
1,931
     
5,520
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
(53,816
)
   
10,983
 
Deferred policy acquisition costs and value of business acquired
   
(5,250
)
   
(2,928
)
Deferred taxes
   
(2,384
)
   
869
 
Other assets
   
(15,598
)
   
(13,602
)
Increase (decrease) in liabilities:
               
Claim liabilities
   
19,612
     
82,895
 
Liability for future policy benefits
   
25,874
     
17,410
 
Unearned premiums
   
79,806
     
(4,216
)
Liability to FEHBP
   
7,779
     
8,032
 
Accounts payable and accrued liabilities
   
8,261
     
18,066
 
Net cash provided by operating activities
   
83,011
     
171,470
 
 
 (Continued)
 
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
 
   
Nine months ended
September 30,
 
   
2016
   
2015
 
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available for sale:
           
Fixed maturities sold
 
$
227,631
   
$
307,545
 
Fixed maturities matured/called
   
32,308
     
38,323
 
Equity securities sold
   
67,054
     
81,176
 
Securities held to maturity - fixed maturities matured/called
   
1,220
     
639
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(258,378
)
   
(360,588
)
Equity securities
   
(153,399
)
   
(81,901
)
Securities held to maturity - fixed maturities
   
(1,124
)
   
(623
)
Increase in other investments
   
(1,939
)
   
(2,139
)
Net disbursements for policy loans
   
(471
)
   
(498
)
Net capital expenditures
   
(3,517
)
   
(5,628
)
Net cash used in investing activities
   
(90,615
)
   
(23,694
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
(1,035
)
   
(5,262
)
Repayments of long-term borrowings
   
(1,230
)
   
(12,230
)
Repurchase and retirement of common stock
   
(21,371
)
   
(40,983
)
Proceeds from policyholder deposits
   
12,488
     
5,587
 
Surrenders of policyholder deposits
   
(13,543
)
   
(10,468
)
Net cash used in financing activities
   
(24,691
)
   
(63,356
)
Net (decrease) increase in cash and cash equivalents
   
(32,295
)
   
84,420
 
Cash and cash equivalents:
               
Beginning of period
   
197,818
     
110,037
 
End of period
 
$
165,523
   
$
194,457
 

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, 2015.

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, 2016 are not necessarily indicative of the results for the full year ending December 31, 2016.

(2)
Recent Accounting Standards

On January 5, 2016, the Financial Accounting Standards Board (FASB) issued guidance to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information.  Among the many targeted improvements to U.S. GAAP are (1) requiring equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income; (2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; and (4) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  This guidance applies to all entities that hold financial assets or owe financial liabilities. For public companies, these amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are currently evaluating the impact that the adoption of this guidance may have on the Company's consolidated financial statements.

On February 25, 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements.  This guidance sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees. It requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are currently evaluating the impact that the adoption of this guidance may have on the Company's consolidated financial statements.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
On March 30, 2016, the FASB issued guidance to reduce complexity in accounting standards.  The areas for simplification involve several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures; (4) minimum statutory tax withholding requirements, (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes:, (6) the practical expedient for estimating the expected term, and (7) intrinsic value.  For public companies, these amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.

On May 9, 2016, the FASB issued guidance which affects only the narrow aspects of guidance related to revenue from contracts with customers that include: (1) clarification of the collectibility criterion and the addition of a new criterion to clarify when revenue would be recognized for a contract that fails to meet the criteria in step 1 of the core principle of the guidance (i.e., identifying the contracts with a customer); (2) presentation of sales taxes and similar taxes collected from customers; (3) non-cash consideration; (4) contract modifications at transition; (5) completed contracts at transition; and (6) clarification that an entity that retrospectively applies in the guidance to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption, but is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. For public companies, these amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.

On June 16, 2016, the FASB issued guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  For public companies, these amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.

On August 26, 2016, the FASB issued guidance to addresses stakeholders’ concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under, Statement of Cash Flows, and other Topics.  In particular, the guidance addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.  For public companies, these amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.

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, 2016 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
(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, 2016 and December 31, 2015, were as follows:
 
   
September 30, 2016
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities available for sale:
                       
Fixed maturities:
                       
Obligations of government- sponsored enterprises
 
$
59,423
   
$
512
   
$
-
   
$
59,935
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
77,790
     
948
     
(2
)
   
78,736
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
17,624
     
3,248
     
-
     
20,872
 
Municipal securities
   
687,107
     
55,639
     
(37
)
   
742,709
 
Corporate bonds
   
226,761
     
20,642
     
(93
)
   
247,310
 
Residential mortgage-backed securities
   
728
     
43
     
-
     
771
 
Collateralized mortgage obligations
   
11,823
     
61
     
(8
)
   
11,876
 
Total fixed maturities
   
1,081,256
     
81,093
     
(140
)
   
1,162,209
 
Equity securities - Mutual funds
   
262,314
     
39,968
     
(205
)
   
302,077
 
Total
 
$
1,343,570
   
$
121,061
   
$
(345
)
 
$
1,464,286
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
   
December 31, 2015
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities available for sale:
                       
Fixed maturities:
                       
Obligations of government- sponsored enterprises
 
$
115,965
   
$
301
   
$
(26
)
 
$
116,240
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
163,322
     
234
     
(286
)
   
163,270
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
25,302
     
317
     
-
     
25,619
 
Municipal securities
   
612,225
     
35,418
     
(197
)
   
647,446
 
Corporate bonds
   
148,198
     
9,782
     
(572
)
   
157,408
 
Residential mortgage-backed securities
   
883
     
54
     
-
     
937
 
Collateralized mortgage obligations
   
22,363
     
368
     
(6
)
   
22,725
 
Total fixed maturities
   
1,088,258
     
46,474
     
(1,087
)
   
1,133,645
 
Equity securities - Mutual funds
   
169,593
     
27,851
     
(373
)
   
197,071
 
Total
 
$
1,257,851
   
$
74,325
   
$
(1,460
)
 
$
1,330,716
 

   
September 30, 2016
 
   
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
 
$
619
   
$
224
   
$
-
   
$
843
 
Residential mortgage-backed securities
   
191
     
20
     
-
     
211
 
Certificates of deposit
   
2,023
     
-
     
-
     
2,023
 
Total
 
$
2,833
   
$
244
   
$
-
   
$
3,077
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

   
December 31, 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
 
$
620
   
$
178
   
$
-
   
$
798
 
Residential mortgage-backed securities
   
191
     
17
     
-
     
208
 
Certificates of deposit
   
2,118
     
-
     
-
     
2,118
 
Total
 
$
2,929
   
$
195
   
$
-
   
$
3,124
 
 
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, 2016 and December 31, 2015 were as follows:
 
   
September 30, 2016
 
   
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
                                                     
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
 
$
2,497
   
$
(2
)
   
1
   
$
-
   
$
-
     
-
   
$
2,497
   
$
(2
)
   
1
 
Municipal securities
   
13,251
     
(37
)
   
2
     
-
     
-
     
-
     
13,251
     
(37
)
   
2
 
Corporate bonds
   
26,644
     
(93
)
   
7
     
-
     
-
     
-
     
26,644
     
(93
)
   
7
 
Collateralized mortgage obligations
   
5,561
     
(4
)
   
4
     
940
     
(4
)
   
1
     
6,501
     
(8
)
   
5
 
Total fixed maturities
   
47,953
     
(136
)
   
14
     
940
     
(4
)
   
1
     
48,893
     
(140
)
   
15
 
Equity securities-Mutual funds
   
7,958
     
(205
)
   
5
     
-
     
-
     
-
     
7,958
     
(205
)
   
5
 
Total for securities available for sale
 
$
55,911
   
$
(341
)
   
19
   
$
940
   
$
(4
)
   
1
   
$
56,851
   
$
(345
)
   
20
 

   
December 31, 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
                                                     
Obligations of government- sponsored enterprises
 
$
18,989
   
$
(26
)
   
1
   
$
-
   
$
-
     
-
   
$
18,989
   
$
(26
)
   
1
 
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
   
130,996
     
(286
)
   
5
     
-
     
-
     
-
     
130,996
     
(286
)
   
5
 
Municipal securities
   
43,937
     
(197
)
   
11
     
-
     
-
     
-
     
43,937
     
(197
)
   
11
 
Corporate bonds
   
35,718
     
(572
)
   
9
     
-
     
-
     
-
     
35,718
     
(572
)
   
9
 
Collateralized mortgage obligations
   
1,448
     
(6
)
   
1
     
-
     
-
     
-
     
1,448
     
(6
)
   
1
 
Total fixed maturities
   
231,088
     
(1,087
)
   
27
     
-
     
-
     
-
     
231,088
     
(1,087
)
   
27
 
Equity securities-Mutual funds
   
9,319
     
(373
)
   
2
     
-
     
-
     
-
     
9,319
     
(373
)
   
2
 
Total for securities available for sale
 
$
240,407
   
$
(1,460
)
   
29
   
$
-
   
$
-
     
-
   
$
240,407
   
$
(1,460
)
   
29
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
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.

Obligations of U.S. Government Instrumentalities, Municipal Securities and Corporate bonds:  The unrealized losses on the Corporation’s investments in obligations of U.S. Government Instrumentalities, Municipal Securities and Corporate bonds 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.

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.

Mutual Funds:  As of September 30, 2016, investments in mutual funds with unrealized losses are not considered other-than-temporarily impaired based on market conditions and the length of time the funds have been in a loss position.  During the nine months ended September 30, 2016, positions with a total fair market value of $11,582 were impaired by $1,434.  There were no impairment on mutual funds during the three months ended September 30, 2016.  During the three months and nine months ended September 30, 2015, we recorded an other-than-temporary impairment related to mutual funds amounting to $479.

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 $7,787 and a gross unrealized gain of $15, and (2) bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $13,085 and a gross unrealized gain of $3,233.

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. 

There was no impairment on Cofina during the three months and nine months ended September 30, 2016.  During the three 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.
Triple-S Management Corporation
Notes to Condensed 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 were as follows:
 
   
September 30, 2016
 
   
Amortized
cost
   
Estimated
fair value
 
Securities available for sale:
           
Due in one year or less
 
$
18,504
   
$
18,666
 
Due after one year through five years
   
337,657
     
344,781
 
Due after five years through ten years
   
120,438
     
133,079
 
Due after ten years
   
592,106
     
653,036
 
Residential mortgage-backed securities
   
728
     
771
 
Collateralized mortgage obligations
   
11,823
     
11,876
 
   
$
1,081,256
   
$
1,162,209
 
Securities held to maturity:
               
Due in one year or less
 
$
2,023
   
$
2,023
 
Due after ten years
   
619
     
843
 
Residential mortgage-backed securities
   
191
     
211
 
   
$
2,833
   
$
3,077
 
 
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 is as follows:
 
 
 
Three months ended
September 30,
   
Nine months ended
September 30,
 
Securities available for sale:
 
2016
   
2015
   
2016
   
2015
 
Realized gains (losses):
                       
Securities available for sale:
                       
Fixed maturity securities:
                       
Gross gains from sales
 
$
187
   
$
868
   
$
2,060
   
$
7,205
 
Gross losses from sales
   
(20
)
   
(136
)
   
(1,482
)
   
(540
)
Gross losses from other-than-temporary impairments
   
-
     
(1,148
)
   
-
     
(4,010
)
Total fixed maturity securities
   
167
     
(416
)
   
578
     
2,655
 
Equity securities:
                               
Gross gains from sales
   
5,873
     
126
     
8,985
     
14,000
 
Gross losses from sales
   
(664
)
   
(792
)
   
(1,175
)
   
(917
)
Gross losses from other-than-temporary impairments
   
-
     
(479
)
   
(1,434
)
   
(479
)
Total equity securities
   
5,209
     
(1,145
)
   
6,376
     
12,604
 
Net realized gains (losses) on securities available for sale
 
$
5,376
   
$
(1,561
)
 
$
6,954
   
$
15,259
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
 
Three months ended
September 30,
   
Nine months ended
September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Changes in net unrealized gains (losses):
                       
Recognized in accumulated other comprehensive income:
                   
Fixed maturities – available for sale
 
$
(5,762
)
 
$
6,379
   
$
35,566
   
$
(13,378
)
Equity securities – available for sale
   
2,608
     
(12,018
)
   
12,285
     
(24,891
)
 
 
$
(3,154
)
 
$
(5,639
)
 
$
47,851
   
$
(38,269
)
 Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
(14
)
 
$
15
   
$
49
   
$
(5
)

The deferred tax asset (liability) on unrealized gains (losses) change recognized in accumulated other comprehensive income during the nine months ended September 30, 2016 and 2015 was ($14,328) and $6,198, respectively.

As of September 30, 2016 and December 31, 2015, no individual investment in securities exceeded 10% of stockholders’ equity.

(4)
Premiums and Other Receivables, Net

Premiums and other receivables, net as of September 30, 2016, and December 31, 2015 were as follows:
 
   
September 30,
2016
   
December 31,
2015
 
Premium
 
$
137,064
   
$
92,600
 
Self-funded group receivables
   
60,094
     
73,552
 
FEHBP
   
12,421
     
13,859
 
Agent balances
   
26,463
     
25,424
 
Accrued interest
   
11,325
     
12,624
 
Reinsurance recoverable
   
58,076
     
48,506
 
Other
   
67,153
     
53,325
 
     
372,596
     
319,890
 
Less allowance for doubtful receivables:
               
Premium
   
29,950
     
28,944
 
Other
   
8,682
     
8,300
 
     
38,632
     
37,244
 
Total premium and other receivables, net
 
$
333,964
   
$
282,646
 

As of September 30, 2016 and December 31, 2015, the Company had premiums and other receivables of $112,020 and $78,230, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of September 30, 2016 and December 31, 2015 were $20,558 and $19,133, 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, 2016 and December 31, 2015 for assets measured at fair value on a recurring basis:
 
   
September 30, 2016
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
                       
Fixed maturity securities
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
59,935
   
$
-
   
$
59,935
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
78,736
     
-
     
-
     
78,736
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
20,872
     
-
     
20,872
 
Municipal securities
   
-
     
742,709
     
-
     
742,709
 
Corporate bonds
   
-
     
247,310
     
-
     
247,310
 
Residential agency mortgage-backed securities
   
-
     
771
     
-
     
771
 
Collateralized mortgage obligations
   
-
     
11,876
     
-
     
11,876
 
Total fixed maturities
   
78,736
     
1,083,473
     
-
     
1,162,209
 
Equity securities - Mutual funds
   
205,924
     
69,700
     
26,453
     
302,077
 
Total
 
$
284,660
   
$
1,153,173
   
$
26,453
   
$
1,464,286
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
   
December 31, 2015
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
                       
Fixed maturity securities
                       
Obligations of government-sponsored enterprises
   
-
     
116,240
     
-
     
116,240
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
163,270
     
-
     
-
     
163,270
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
25,619
     
-
     
25,619
 
Municipal securities
   
-
     
647,446
     
-
     
647,446
 
Corporate bonds
   
-
     
157,408
     
-
     
157,408
 
Residential agency mortgage-backed securities
   
-
     
937
     
-
     
937
 
Collateralized mortgage obligations
   
-
     
22,725
     
-
     
22,725
 
Total fixed maturities
   
163,270
     
970,375
     
-
     
1,133,645
 
Equity securities - Mutual funds
   
167,082
     
22,031
     
7,958
     
197,071
 
Total
 
$
330,352
   
$
992,406
   
$
7,958
   
$
1,330,716
 
 
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, 2016 and 2015.
 
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 and nine months ended September 30 is as follows:
 
   
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Beginning balance
 
$
14,869
   
$
9,083
   
$
7,958
   
$
13,349
 
Realized gains
   
21
     
125
     
234
     
1,537
 
Unrealized in other accumulated  comprehensive income
   
(485
)
   
18
     
(1,454
)
   
(3,284
)
Purchases
   
12,587
     
125
     
21,220
     
314
 
Capital distributions
   
(539
)
   
(175
)
   
(1,505
)
   
(2,740
)
Ending balance
 
$
26,453
   
$
9,176
   
$
26,453
   
$
9,176
 

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.

(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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

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, 2016 and December 31, 2015 are as follows:
 
   
September 30, 2016
 
   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
8,372
   
$
-
   
$
8,372
   
$
-
   
$
8,372
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
181,323
   
$
-
   
$
181,323
   
$
-
   
$
181,323
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
11,597
     
-
     
11,597
     
-
     
11,597
 
6.6% senior unsecured notes payable
   
24,000
     
-
     
19,200
     
-
     
19,200
 
Total long-term borrowings
   
35,597
     
-
     
30,797
     
-
     
30,797
 
Total liabilities
 
$
216,920
   
$
-
   
$
212,120
   
$
-
   
$
212,120
 

   
December 31, 2015
 
   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
7,901
   
$
-
   
$
7,901
   
$
-
   
$
7,901
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
179,287
   
$
-
   
$
179,287
   
$
-
   
$
179,287
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
12,827
     
-
     
12,827
     
-
     
12,827
 
6.6% senior unsecured notes payable
   
24,000
     
-
     
19,920
     
-
     
19,920
 
Total long-term borrowings
   
36,827
     
-
     
32,747
     
-
     
32,747
 
Total liabilities
 
$
216,114
   
$
-
   
$
212,034
   
$
-
   
$
212,034
 
 
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 claim liabilities is as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Claim liabilities at beginning of period
 
$
481,864
   
$
462,186
   
$
491,765
   
$
390,086
 
Reinsurance recoverable on claim liabilities
   
(38,109
)
   
(39,156
)
   
(40,714
)
   
(40,635
)
Net claim liabilities at beginning of period
   
443,755
     
423,030
     
451,051
     
349,451
 
Incurred claims and loss-adjustment expenses:
                               
Current period insured events
   
615,125
     
631,135
     
1,878,029
     
1,700,653
 
Prior period insured events
   
6,908
     
(2,315
)
   
(20,619
)
   
(13,597
)
Total
   
622,033
     
628,820
     
1,857,410
     
1,687,056
 
Payments of losses and loss-adjustment expenses:
                               
Current period insured events
   
570,110
     
561,269
     
1,540,182
     
1,345,082
 
Prior period insured events
   
23,728
     
56,699
     
296,329
     
257,543
 
Total
   
593,838
     
617,968
     
1,836,511
     
1,602,625
 
Net claim liabilities at end of period
   
471,950
     
433,882
     
471,950
     
433,882
 
Reinsurance recoverable on claim liabilities
   
39,427
     
39,099
     
39,427
     
39,099
 
Claim liabilities at end of period
 
$
511,377
   
$
472,981
   
$
511,377
   
$
472,981
 

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 amount in the incurred claims and loss-adjustment expenses for the prior period insured events for the three months ended September 30, 2016 is due primarily to higher than anticipated utilization trends.  The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the nine months ended September 30, 2016 and for the three months and nine months ended September 30, 2015 are due primarily to better than expected utilization trends.  Reinsurance recoverable on unpaid claims is reported as 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 $7,136 and $20,540 during the three months and nine months ended September 30, 2016, respectively.  The change in the liability for future policy benefits during the three months and nine months ended September 30, 2015 amounted to $6,089 and $18,181, respectively.

(7)
Long-Term Borrowings

On March 11, 2016, Triple-S Salud, Inc. (TSS) entered into a $30,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit, unused as of September 30, 2016, has an interest rate of LIBOR plus 220 basis points, matures on March 11, 2017, and contains certain financial and non-financial covenants that are customary for this type of facility.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

(8)
Income Taxes

In connection with the Puerto Rico tax code, as amended, 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, 2016, 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.

During the nine months ended September 30, 2016, our Property and Casualty subsidiary, Triple-S Propiedad, Inc. (TSP), reassessed the tax rate used to measure several temporary differences, from 20% to 39%, which resulted in an increase in the deferred tax expense of approximately $2,633.

(9)
Pension Plan

The components of net periodic benefit cost for the three months and nine months ended September 30 were as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Components of net periodic benefit cost:
                       
Service cost
 
$
779
   
$
1,160
   
$
2,907
   
$
3,217
 
Interest cost
   
1,874
     
2,322
     
6,575
     
6,544
 
Expected return on assets
   
(1,928
)
   
(2,350
)
   
(6,908
)
   
(6,564
)
Amortization of prior service benefit
   
(96
)
   
(126
)
   
(342
)
   
(352
)
Amortization of actuarial loss
   
863
     
1,665
     
2,877
     
4,784
 
Net periodic benefit cost
 
$
1,492
   
$
2,671
   
$
5,109
   
$
7,629
 

Employer Contributions:  The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2015 that it expected to contribute $8,000 to the pension program in 2016.  As of September 30, 2016, the Corporation has contributed $10,000 to the pension program.

(10)
Stock Repurchase Program

The Company repurchases shares through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, under repurchase programs authorized by the Board of Directors.

In November 2015 the Company’s Board of Directors authorized a $25,000 repurchase program of its Class B common stock.  During the three months ended September 30, 2016, the Company repurchased and retired under this program 299,884 shares at an average per share price of $22.60, for an aggregate cost of $6,825. During the nine months ended September 30, 2016, the Company repurchased and retired under this program 951,831 shares at an average per share price of $22.54, for an aggregate cost of $21,418.  This program was completed on September 14, 2016.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

(11)
Comprehensive Income

The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
 
   
Net Unrealized Gain on Securities
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Beginning Balance
 
$
97,885
   
$
74,217
   
$
62,478
   
$
101,467
 
Other comprehensive income before reclassifications
   
2,417
     
(5,764
)
   
40,233
     
(17,269
)
Amounts reclassified from accumulated other comprehensive income
   
(4,301
)
   
943
 
   
(6,710
)
   
(14,802
)
Net current period change
   
(1,884
)
   
(4,821
)
   
33,523
     
(32,071
)
Ending Balance
 
$
96,001
   
$
69,396
   
$
96,001
   
$
69,396
 

   
Liability for Pension Benefits
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Beginning Balance
 
$
(35,776
)
 
$
(50,926
)
 
$
(36,855
)
 
$
(52,691
)
Other comprehensive income before reclassifications
   
-
     
-
     
-
     
-
 
Amounts reclassified from accumulated other comprehensive income
   
466
     
939
     
1,545
     
2,704
 
Net current period change
   
466
     
939
     
1,545
     
2,704
 
Ending Balance
 
$
(35,310
)
 
$
(49,987
)
 
$
(35,310
)
 
$
(49,987
)

   
Accumulated Other Comprehensive Income
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Beginning Balance
 
$
62,109
   
$
23,291
   
$
25,623
   
$
48,776
 
Other comprehensive income before reclassifications
   
2,417
     
(5,764
)
   
40,233
     
(17,269
)
Amounts reclassified from accumulated other comprehensive income
   
(3,835
)
   
1,882
     
(5,165
)
   
(12,098
)
Net current period change
   
(1,418
)
   
(3,882
)
   
35,068
     
(29,367
)
Ending Balance
 
$
60,691
   
$
19,409
   
$
60,691
   
$
19,409
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

(12)
Share-Based Compensation

Share-based compensation expense (benefit) recorded during the three months and nine months ended September 30, 2016 was ($383) and $1,931, respectively.  Share-based compensation expense recorded during the three months and nine months ended September 30, 2015 was $2,321 and $5,520, respectively.  There was no cash received from stock option exercises during the nine months ended September 30, 2016 and 2015.  During the nine months ended September 30, 2016 and 2015, 2,290 and 7,235 shares, respectively, were repurchased and retired as a result of non-cash exercises of stock options.

(13)
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 and nine months ended September 30:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Numerator for earnings per share:
                       
Net (loss) income attributable to TSM available to stockholders
 
$
(1,941
)
 
$
4,194
   
$
5,395
   
$
37,956
 
Denominator for basic earnings per share:
                               
Weighted average of common shares
   
24,386,076
     
25,388,077
     
24,534,647
     
25,932,049
 
Effect of dilutive securities
   
-
     
72,983
     
70,632
     
88,688
 
Denominator for diluted earnings per share
   
24,386,076
     
25,461,060
     
24,605,279
     
26,020,737
 
Basic net (loss) income per share attributable to TSM
 
$
(0.08
)
 
$
0.17
   
$
0.22
   
$
1.46
 
Diluted net (loss) income per share attributable to TSM
 
$
(0.08
)
 
$
0.16
   
$
0.22
   
$
1.46
 

No dilutive securities have been included in the diluted earnings per share calculation for the three months ended September 30, 2016 due to our reporting of a net loss for the quarter.

(14)
Contingencies

The following information supplements and amends, as applicable, the disclosures in Note 24 to the Consolidated Financial Statements of the Company’s 2015 Annual Report on Form 10-K.  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.

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.  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

In the 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 petition of Writ of Certiorari with the Puerto Rico Court of Appeals, which was denied on March 8, 2016.  On March 23, 2016, the Company filed a request for reconsideration to its petition of Writ of Certiorari with the Puerto Rico Court of Appeals, which the plaintiff opposed. The Court of Appeals denied reconsideration on April 28, 2016. The Company filed a Writ of Certiorari before the Supreme Court on May 31, 2016, which was denied on September 23, 2016. Defendants requested reconsideration on October 11, 2016 and are still waiting for the Court’s determination.. The same has been opposed by the plaintiff.

In the case entitled Gallardo Mendez, et al, v. Triple-S Management Corporation, which was filed on December 30, 2014, the Company filed a motion to dismiss on March 13, 2015.  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. On March 18, 2016, the court dismissed the complaint with prejudice. Since plaintiff did not file within 30 days an appeal brief opposing the trial court’s determination, the dismissal of the case is final.

Claims Relating to the Provision of Health Care Services

On June 5, 2014, ASES initiated an administrative hearing against TSS moved by a primary medical group for alleged outstanding claims related to services provided to Medicaid beneficiaries from 2005 to 2010, totaling approximately $3,000. On June 19, 2014, TSS filed its response.  On June 25, 2014, the hearing officer ordered the parties to file a joint working plan and schedule.  In the process of executing said plan and after discovery was completed, this matter was settled for $316 on June 6, 2016.

(15)
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 Managed Care segment participates in the Commonwealth of Puerto Rico Health Insurance Plan (similar to Medicaid) (Medicaid) program to provide health coverage to medically indigent citizens in Puerto Rico, as defined by the laws of the government of Puerto Rico, by administering the provision of the physical health component in designated service regions in Puerto Rico.  We served all eight service regions on an administrative service only basis (ASO) until March 31, 2015.  During the nine months ended September administrative service fees related to this agreement amounted to $24,367.  Effective April 1, 2015, we started to provide healthcare services to only two regions of the Medicaid program on a risk based model.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
The following tables summarize the operations by reportable segment for the three and nine months ended September 30, 2016 and 2015:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Operating revenues:
                       
Managed Care:
                       
Premiums earned, net
 
$
660,660
   
$
689,532
   
$
2,007,972
   
$
1,857,216
 
Administrative service fees
   
4,146
     
6,163
     
13,749
     
39,835
 
Intersegment premiums/service fees
   
1,384
     
(248
)
   
4,521
     
4,257
 
Net investment income
   
3,628
     
2,727
     
11,215
     
8,444
 
Total managed care
   
669,818
     
698,174
     
2,037,457
     
1,909,752
 
Life Insurance:
                               
Premiums earned, net
   
38,729