TRIPLE-S MANAGEMENT CORP - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - TRIPLE-S MANAGEMENT CORP	ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - TRIPLE-S MANAGEMENT CORP	ex32_1.htm
EX-31.2 - EXHIBIT 31.2 - TRIPLE-S MANAGEMENT CORP	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - TRIPLE-S MANAGEMENT CORP	ex31_1.htm
EX-3.(I)(E) - EXHIBIT 3(I)(E) - TRIPLE-S MANAGEMENT CORP	ex3_ie.htm
EX-3.(I)(D) - EXHIBIT 3(I)(D) - TRIPLE-S MANAGEMENT CORP	ex3_id.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 March 31, 2017

☐	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 March 31, 2017
Common Stock Class A, $1.00 par value	950,968
Common Stock Class B, $1.00 par value	23,491,670

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2017

Table of Contents

Part I – Financial Information			3

	Item 1.	Financial Statements	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

		Cautionary Statement Regarding Forward-Looking Information	30
		Overview	30
		Recent Developments	31
		Recent Accounting Standards	32
		Managed Care Membership	32
		Consolidated Operating Results	33
		Managed Care Operating Results	35
		Life Insurance Operating Results	37
		Property and Casualty Operating Results	38
		Liquidity and Capital Resources	39

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

	Item 4.	Controls and Procedures	41

Part II – Other Information			41

	Item 1.	Legal Proceedings	41

	Item 1A.	Risk Factors	41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

	Item 3.	Defaults Upon Senior Securities	42

	Item 4.	Mine Safety Disclosures	42

	Item 5.	Other Information	42

	Item 6.	Exhibits	42

SIGNATURES			43

Table of Contents

Part I – Financial Information

Item 1.

Financial Statements

Triple-S Management Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(dollar amounts in thousands, except share data)

	March 31, 2017			December 31, 2016
Assets
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities	$	1,153,545		$	1,151,643
Equity securities		277,149			270,349
Securities held to maturity, at amortized cost:
Fixed maturities		2,514			2,836
Policy loans		8,546			8,564
Cash and cash equivalents		218,884			103,428
Total investments and cash		1,660,638			1,536,820
Premiums and other receivables, net		292,837			286,365
Deferred policy acquisition costs and value of business acquired		195,513			194,787
Property and equipment, net		66,756			66,369
Deferred tax asset		64,128			57,768
Goodwill		25,397			25,397
Other assets		53,186			51,493
Total assets	$	2,358,455		$	2,218,999
Liabilities and Stockholders’ Equity
Claim liabilities	$	530,304		$	487,943
Liability for future policy benefits		326,162			321,232
Unearned premiums		163,780			79,310
Policyholder deposits		179,599			179,382
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs		37,206			34,370
Accounts payable and accrued liabilities		171,643			169,449
Deferred tax liability		19,599			18,850
Long-term borrowings		34,465			35,085
Liability for pension benefits		30,472			30,892
Total liabilities		1,493,230			1,356,513
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 March 31, 2017 and December 31, 2016, respectively		951			951
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,491,670 and 23,321,163 shares at March 31, 2017 and December 31, 2016, respectively		23,492			23,321
Additional paid-in capital		63,978			65,592
Retained earnings		726,562			730,904
Accumulated other comprehensive income		50,920			42,395
Total Triple-S Management Corporation stockholders’ equity		865,903			863,163
Non-controlling interest in consolidated subsidiary		(678	)		(677	)
Total stockholders’ equity		865,225			862,486
Total liabilities and stockholders’ equity	$	2,358,455		$	2,218,999

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Earnings (Unaudited)

(dollar amounts in thousands, except per share data)

	Three months ended March 31,
	2017			2016
Revenues:
Premiums earned, net	$	702,273		$	738,534
Administrative service fees		4,379			5,083
Net investment income		12,016			11,358
Other operating revenues		965			812
Total operating revenues		719,633			755,787
Net realized investment gains on sale of securities		336			58
Other income, net		2,525			875
Total revenues		722,494			756,720
Benefits and expenses:
Claims incurred		620,863			626,694
Operating expenses		110,946			122,980
Total operating costs		731,809			749,674
Interest expense		1,686			1,882
Total benefits and expenses		733,495			751,556
(Loss) income before taxes		(11,001	)		5,164
Income taxes		(6,658	)		1,709
Net (loss) income		(4,343	)		3,455
Less: Net loss attributable to non-controlling interest		1			1
Net (loss) income attributable to Triple-S Management Corporation	$	(4,342	)	$	3,456
Earnings per share attributable to Triple-S Management Corporation
Basic net (loss) income per share	$	(0.18	)	$	0.14
Diluted net (loss) income per share	$	(0.18	)	$	0.14

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

	Three months ended March 31,
	2017			2016
Net (loss) income	$	(4,343	)	$	3,455
Other comprehensive (loss) income, net of tax:
Net unrealized change in fair value of available for sale securities, net of taxes		8,472			19,577
Defined benefit pension plan:
Actuarial loss, net		53			722
Prior service credit, net		-			(88	)
Total other comprehensive income, net of tax		8,525			20,211
Comprehensive income		4,182			23,666
Comprehensive income attributable to non-controlling interest		1			1
Comprehensive income attributable to Triple-S Management Corporation	$	4,183		$	23,667

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(dollar amounts in thousands)

	2017			2016
Balance at January 1	$	863,163		$	847,526
Share-based compensation		(1,443	)		1,421
Repurchase and retirement of common stock		-			(8,027	)
Comprehensive income		4,183			23,667
Total Triple-S Management Corporation stockholders’ equity		865,903			864,587
Non-controlling interest in consolidated subsidiary		(678	)		(671	)
Balance at March 31	$	865,225		$	863,916

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)

	Three months ended March 31,
	2017			2016
Cash flows from operating activities:
Net (loss) income	$	(4,343	)	$	3,455
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,990			3,700
Net amortization of investments		2,356			1,936
(Reductions) additions to the allowance for doubtful receivables		(3,209	)		1,531
Deferred tax benefit		(7,525	)		(2,435	)
Net realized investment gain on sale of securities		(336	)		(58	)
Interest credited to policyholder deposits		991			1,195
Share-based compensation		(1,443	)		1,085
(Increase) decrease in assets:
Premium and other receivables, net		(3,263	)		(35,687	)
Deferred policy acquisition costs and value of business acquired		(822	)		(685	)
Deferred taxes		(265	)		162
Other assets		(37	)		(26,485	)
Increase (decrease) in liabilities:
Claim liabilities		42,361			33,301
Liability for future policy benefits		4,930			17,395
Unearned premiums		84,470			(4,387	)
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs		2,836			1,663
Accounts payable and accrued liabilities		11,274			35,574
Net cash provided by operating activities		130,965			31,260
(Continued)

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Triple-S Management Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)

	Three months ended March 31,
	2017			2016
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold	$	26,023		$	90,328
Fixed maturities matured/called		5,001			699
Equity securities sold		10,272			11,257
Securities held to maturity:
Fixed maturities matured/called		703			-
Acquisition of investments:
Securities available for sale:
Fixed maturities		(33,738	)		(118,039	)
Equity securities		(5,482	)		(92,956	)
Securities held to maturity:
Fixed maturities		(382	)		-
Increase in other investments		(2,044	)		(182	)
Net change in policy loans		18			(231	)
Net capital expenditures		(3,295	)		(1,465	)
Net cash used in investing activities		(2,924	)		(110,589	)
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances		(11,401	)		1,916
Repayments of long-term borrowings		(24,676	)		(410	)
Proceeds from long-term borrowings		24,266			-
Repurchase and retirement of common stock		-			(8,027	)
Proceeds from policyholder deposits		4,116			3,403
Surrenders of policyholder deposits		(4,890	)		(2,905	)
Net cash used in financing activities		(12,585	)		(6,023	)
Net increase (decrease) in cash and cash equivalents		115,456			(85,352	)
Cash and cash equivalents:
Beginning of period		103,428			197,818
End of period	$	218,884		$	112,466

See accompanying notes to unaudited condensed consolidated financial statements.

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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, 2016.

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 ended March 31, 2017 are not necessarily indicative of the results for the full year ending December 31, 2017.

(2)	Recent Accounting Standards

On March 10, 2017, the FASB issued guidance to improve the presentation of defined benefit costs in the income statement. In particular, the guidance requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, this guidance allows only the service cost component to be eligible for capitalization, when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Since, we do not present a subtotal of income from operations, the adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

On January 26, 2017, the FASB issued guidance to simplify the manner in which an entity is required to evaluate goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this guidance, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, this guidance removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, these amendments, which should be applied on a prospective basis, 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.

Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the three months ended March 31, 2017 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

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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 March 31, 2017 and December 31, 2016, were as follows:

	March 31, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Securities available for sale:
Fixed maturities:
Obligations of government-sponsored enterprises	$	41,485	$	61	$	-		$	41,546
U.S. Treasury securities and obligations of U.S. government instrumentalities		72,723		169		(14	)		72,878
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		18,248		857		(37	)		19,068
Municipal securities		651,091		34,191		(304	)		684,978
Corporate bonds		279,540		12,457		(367	)		291,630
Residential mortgage-backed securities		638		29		-			667
Collateralized mortgage obligations		42,919		83		(224	)		42,778
Total fixed maturities		1,106,644		47,847		(946	)		1,153,545
Equity securities - Mutual funds		236,356		40,910		(117	)		277,149
Total	$	1,343,000	$	88,757	$	(1,063	)	$	1,430,694

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	December 31, 2016
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Securities available for sale:
Fixed maturities:
Obligations of government-sponsored enterprises	$	41,442	$	87	$	(15	)	$	41,514
U.S. Treasury securities and obligations of U.S. government instrumentalities		85,652		157		(9	)		85,800
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		17,930		2,189		(68	)		20,051
Municipal securities		650,175		34,187		(559	)		683,803
Corporate bonds		263,351		12,182		(661	)		274,872
Residential mortgage-backed securities		684		34		-			718
Collateralized mortgage obligations		45,069		58		(242	)		44,885
Total fixed maturities		1,104,303		48,894		(1,554	)		1,151,643
Equity securities - Mutual funds		240,699		30,101		(451	)		270,349
Total	$	1,345,002	$	78,995	$	(2,005	)	$	1,421,992

	March 31, 2017
	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	$	160	$	-	$	779
Residential mortgage-backed securities		191		18		-		209
Certificates of deposit		1,704		-		-		1,704
Total	$	2,514	$	178	$	-	$	2,692

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	December 31, 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	$	158	$	-	$	777
Residential mortgage-backed securities		191		18		-		209
Certificates of deposit		2,026		-		-		2,026
Total	$	2,836	$	176	$	-	$	3,012

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 March 31, 2017 and December 31, 2016 were as follows:

	March 31, 2017
	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

Securities available for sale
Fixed maturities
U.S. Treasury securities and obligations of U.S. governmental instrumentalities	$	12,940	$	(14	)		1	$	-	$	-			-	$	12,940	$	(14	)		1
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		12,704		(37	)		6		-		-			-		12,704		(37	)		6
Municipal securities		64,518		(304	)		9		-		-			-		64,518		(304	)		9
Corporate bonds		84,093		(367	)		18		-		-			-		84,093		(367	)		18
Collateralized mortgage obligations		26,043		(222	)		6		665		(2	)		1		26,708		(224	)		7
Total fixed maturities		200,298		(944	)		40		665		(2	)		1		200,963		(946	)		41
Equity securities-Mutual funds		2,831		(49	)		4		2,006		(68	)		1		4,837		(117	)		5
Total for securities available for sale	$	203,129	$	(993	)		44	$	2,671	$	(70	)		2	$	205,800	$	(1,063	)		46

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	December 31, 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
Obligations of government-sponsored enterprises	$	9,483	$	(15	)		1	$	-	$	-			-	$	9,483	$	(15	)		1
U.S. Treasury securities and obligations of U.S. governmental instrumentalities		12,937		(9	)		1		-		-			-		12,937		(9	)		1
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		7,758		(68	)		5		-		-			-		7,758		(68	)		5
Municipal securities		84,252		(559	)		13		-		-			-		84,252		(559	)		13
Corporate bonds		105,054		(661	)		22		-		-			-		105,054		(661	)		22
Collateralized mortgage obligations		32,120		(239	)		8		784		(3	)		1		32,904		(242	)		9
Total fixed maturities		251,604		(1,551	)		50		784		(3	)		1		252,388		(1,554	)		51
Equity securities-Mutual funds		22,615		(451	)		4		-		-			-		22,615		(451	)		4
Total for securities available for sale	$	274,219	$	(2,002	)		54	$	784	$	(3	)		1	$	275,003	$	(2,005	)		55

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 and Municipal Securities: The unrealized losses on the Corporation’s investments in U.S. Government Instrumentalities and 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.

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 $7,848 and a gross unrealized loss of $37, and (2) senior lien bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $11,220 and a gross unrealized gain of $857. As of March 31, 2017, investments in escrow bonds are not considered other-than-temporarily impaired based on the length of time the funds have been in a loss position, the decline in estimated fair value is principally attributable to changes in interest rates, and the fact that these bonds are backed by US Government securities, and therefore have an implicit AA+/Aaa rating.

There was no impairment on Cofina during the three months ended March 31, 2017 and 2016.

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

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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.

Mutual Funds: As of March 31, 2017, 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. There were no impairment on mutual funds during the three months ended March 31, 2017 and 2016.

Maturities of investment securities classified as available for sale and held to maturity were as follows:

	March 31, 2017
	Amortized cost		Estimated fair value
Securities available for sale:
Due in one year or less	$	48,742	$	48,946
Due after one year through five years		322,122		325,519
Due after five years through ten years		131,128		137,138
Due after ten years		561,095		598,497
Residential mortgage-backed securities		638		667
Collateralized mortgage obligations		42,919		42,778
	$	1,106,644	$	1,153,545
Securities held to maturity:
Due in one year or less	$	1,704	$	1,704
Due after ten years		619		779
Residential mortgage-backed securities		191		209
	$	2,514	$	2,692

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.

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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 is as follows:

	Three months ended March 31,
	2017			2016
Realized gains (losses):
Fixed maturity securities:
Securities available for sale:
Gross gains from sales	$	17		$	961
Gross losses from sales		(119	)		(1,359	)
Total fixed maturity securities		(102	)		(398	)
Equity securities:
Securities available for sale:
Gross gains from sales		438			587
Gross losses from sales		-			(131	)
Total equity securities		438			456
Net realized gains on securities available for sale	$	336		$	58

	Three months ended March 31,
	2017			2016
Changes in net unrealized gains (losses):
Recognized in accumulated other comprehensive income:
Fixed maturities – available for sale	$	(439	)	$	22,589
Equity securities – available for sale		11,143			6,769
	$	10,704		$	29,358
Not recognized in the consolidated financial statements:
Fixed maturities – held to maturity	$	2		$	36

The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the three months ended March 31, 2017 and 2016 was $2,136 and $9,781, respectively.

As of March 31, 2017 and December 31, 2016, no individual investment in securities exceeded 10% of stockholders’ equity.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(4)	Premiums and Other Receivables, Net

Premiums and other receivables, net were as follows:

	March 31, 2017		December 31, 2016
Premium	$	100,691	$	91,528
Self-funded group receivables		50,643		57,728
FEHBP		14,274		14,321
Agent balances		27,468		25,495
Accrued interest		11,338		13,668
Reinsurance recoverable		54,854		58,295
Other		65,152		62,637
		324,420		323,672
Less allowance for doubtful receivables:
Premium		23,584		27,320
Other		7,999		9,987
		31,583		37,307
Total premium and other receivables, net	$	292,837	$	286,365

As of March 31, 2017 and December 31, 2016, the Company had premiums and other receivables of $51,533 and $57,750, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations. The related allowance for doubtful receivables as of March 31, 2017 and December 31, 2016 were $14,050 and $18,812, respectively.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(5)	Fair Value Measurements

Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, policy loans, policyholder deposits, and long-term borrowings. We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value due to the short period of time between the origination of these instruments and the expected realization or payment. Certain assets are measured at fair value on a recurring basis and are disclosed below. These assets are classified into one of three levels of a hierarchy defined by GAAP. For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see the consolidated financial statements and notes thereto included in our 2016 Form 10-K.

The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

	March 31, 2017
	Level 1		Level 2		Level 3		Total
Securities available for sale:
Fixed maturity securities
Obligations of government-sponsored enterprises	$	-	$	41,546	$	-	$	41,546
U.S. Treasury securities and obligations of U.S government instrumentalities		72,878		-		-		72,878
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		19,068		-		19,068
Municipal securities		-		684,978		-		684,978
Corporate bonds		-		291,630		-		291,630
Residential agency mortgage-backed securities		-		667		-		667
Collateralized mortgage obligations		-		42,778		-		42,778
Total fixed maturities		72,878		1,080,667		-		1,153,545
Equity securities - Mutual funds		174,593		78,803		23,753		277,149
Total	$	247,471	$	1,159,470	$	23,753	$	1,430,694

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Securities available for sale:
Fixed maturity securities
Obligations of government-sponsored enterprises	$	-	$	41,514	$	-	$	41,514
U.S. Treasury securities and obligations of U.S government instrumentalities		85,800		-		-		85,800
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		20,051		-		20,051
Municipal securities		-		683,803		-		683,803
Corporate bonds		-		274,872		-		274,872
Residential agency mortgage-backed securities		-		718		-		718
Collateralized mortgage obligations		-		44,885		-		44,885
Total fixed maturities		85,800		1,065,843		-		1,151,643
Equity securities - Mutual funds		166,595		76,222		27,532		270,349
Total	$	252,395	$	1,142,065	$	27,532	$	1,421,992

There were no transfers in and/or out of Level 3 and between Levels 1 and 2 during the three months ended March 31, 2017 and 2016.

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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 March 31 is as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	2017			2016
Beginning balance	$	27,532		$	7,958
Realized gains		119			151
Unrealized in other accumulated comprehensive income		(64	)		(649	)
Purchases		5,260			8
Capital distributions		(9,094	)		(471	)
Ending balance	$	23,753		$	6,997

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 March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Assets:
Policy loans	$	8,546	$	-	$	8,546	$	-	$	8,546

Liabilities:
Policyholder deposits	$	179,599	$	-	$	179,599	$	-	$	179,599
Long-term borrowings:
Loans payable to bank - variable		34,465		-		34,465		-		34,465
Total long-term borrowings		34,465		-		34,465		-		34,465
Total liabilities	$	214,064	$	-	$	214,064	$	-	$	214,064

	December 31, 2016
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Assets:
Policy loans	$	8,564	$	-	$	8,564	$	-	$	8,564

Liabilities:
Policyholder deposits	$	179,382	$	-	$	179,382	$	-	$	179,382
Long-term borrowings:
Loans payable to bank - variable		11,187		-		11,187		-		11,187
6.6% senior unsecured notes payable		24,000		-		24,000		-		24,000
Total long-term borrowings		35,187		-		35,187		-		35,187
Total liabilities	$	214,569	$	-	$	214,569	$	-	$	214,569

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(6)	Claim Liabilities

A reconciliation of the beginning and ending balances of claim liabilities is as follows:

	Three months ended March 31, 2017
	Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of year	$	349,047		$	138,896		$	487,943
Reinsurance recoverable on claim liabilities		-			(38,998	)		(38,998	)
Net claim liabilities at beginning of year		349,047			99,898			448,945
Claims incurred
Current period insured events		602,620			28,226			630,846
Prior period insured events		(15,340	)		(1,333	)		(16,673	)
Total		587,280			26,893			614,173
Payments of losses and loss-adjustment expenses
Current period insured events		350,450			7,965			358,415
Prior period insured events		192,352			17,945			210,297
Total		542,802			25,910			568,712
Net claim liabilities at end of year		393,525			100,881			494,406
Reinsurance recoverable on claim liabilities		-			35,898			35,898
Claim liabilities at end of year	$	393,525		$	136,779		$	530,304

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	Three months ended March 31, 2016
	Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of year	$	348,297		$	143,468		$	491,765
Reinsurance recoverable on claim liabilities		-			(40,714	)		(40,714	)
Net claim liabilities at beginning of year		348,297			102,754			451,051
Claims incurred
Current period insured events		614,754			25,890			640,644
Prior period insured events		(18,464	)		(2,248	)		(20,712	)
Total		596,290			23,642			619,932
Payments of losses and loss-adjustment expenses
Current period insured events		365,039			5,096			370,135
Prior period insured events		198,100			17,553			215,653
Total		563,139			22,649			585,788
Net claim liabilities at end of year		381,448			103,747			485,195
Reinsurance recoverable on claim liabilities		-			39,871			39,871
Claim liabilities at end of year	$	381,448		$	143,618		$	525,066

*	Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.

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 favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months ended March 31, 2017 and 2016 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 $6,690 and $6,762 during the three months ended March 31, 2017 and 2016, respectively.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

The following is information about total incurred but not reported (IBNR) liabilities plus expected development on reported claims included in the liability for unpaid claims adjustment expenses for the Managed Care segment as of March 31, 2017.

Incurred Year	Total of IBNR Liabilities Plus Expected Development on Reported Claims
2015		60,717
2016		80,062
2017		252,163

(7)	Long-Term Borrowings

A summary of the borrowings entered by the Company is as follows:

	March 31, 2017		December 31, 2016

Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%.	$	-	$	24,000
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 1.79% at March 31, 2017.)		10,777		11,187
Secured loan payable of $20,150, payable in monthly installments of $84 through January 1, 2024, plus interest at a rate reset periodically of 275 basis points over selected LIBOR maturity (which was 3.77% at March 31, 2017.)		19,982		-
Secured loan payable of $4,116, payable in monthly installments of $49 through January 1, 2024, plus interest at a rate reset periodically of 325 basis points over selected LIBOR maturity (which was 4.27% at March 31, 2017.)		4,018		-
Total borrowings		34,777		35,187

Less unamortized debt issuance costs		312		102
	$	34,465	$	35,085

On December 28, 2016, TSM entered into a $35,500 credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11,187, (ii) Term Loan B in the principal amount of $20,150 and (iii) Term Loan C in the principal amount of $4,116. Term Loan A was used to refinance the previous $41,000 secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% Senior Unsecured Notes due January 2021 ($24,000), and fund a portion of a debt service reserve for the Loan (approximately $200). Interest payable commenced on January 1, 2017, in the case of Term Loan A, and on February 1, 2017, in the case of Term Loan B and Term Loan C. The Credit Agreement includes certain financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

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 unused line of credit had an interest rate of LIBOR plus 220 basis points and contained certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017, and was not renewed.

On April 18, 2017, Triple-S Advantage, Inc. (TSA) entered into a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit has an interest rate of 30-day LIBOR plus 25 basis points, matures on April 17, 2018, and includes certain financial and non-financial covenants that are customary for this type of facility.

(8)	Pension Plan

The components of net periodic benefit cost for the three months ended March 31 were as follows:

	Three months ended March 31,
	2017			2016
Components of net periodic benefit cost:
Service cost	$	-		$	1,250
Interest cost		1,798			2,762
Expected return on assets		(2,199	)		(2,926	)
Amortization of prior service benefit		-			(144	)
Amortization of actuarial loss		86			1,183
Net periodic benefit cost	$	(315	)	$	2,125

Effective January 31, 2017, the Company froze the pay and service amounts used to calculate pension benefits for active employees who participated in the pension plan. Therefore, as of the Effective Date, active employees in the pension plan will not accrue additional benefits for future service and eligible compensation received.

Employer Contributions: The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2016 that it expected to contribute $4,000 to the pension program in 2017. As of March 31, 2017, the Corporation has not made contributions to the pension program.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(9)	Comprehensive Income

The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:

	Three months ended March 31,
	2017			2016

Net Unrealized Gain on Securities Beginning Balance	$	62,371		$	62,478
Other comprehensive income before reclassifications		8,741			19,623
Amounts reclassified from accumulated other comprehensive income		(269	)		(46	)
Net current period change		8,472			19,577
Ending Balance		70,843			82,055
Liability for Pension Benefits Beginning Balance		(19,976	)		(36,855	)
Amounts reclassified from accumulated other comprehensive income		53			634
Ending Balance		(19,923	)		(36,221	)
Accumulated Other Comprehensive Income Beginning Balance		42,395			25,623
Other comprehensive income before reclassifications		8,741			19,623
Amounts reclassified from accumulated other comprehensive income		(216	)		588
Net current period change		8,525			20,211
Ending Balance	$	50,920		$	45,834

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(10)	Share-Based Compensation

Share-based compensation (benefit) expense recorded during the three months ended March 31, 2017 and 2016 was ($1,443) and $1,085, respectively. The benefit recorded in the 2017 period results from a decrease in the 2014 and 2015 grants expected performance shares payouts. There were no stock option exercises during the three months ended March 31, 2017 and 2016.

(11)	Net Income Available to Stockholders and Net Income per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended March 31,
	2017			2016
Numerator for earnings per share:
Net (loss) income attributable to TSM available to stockholders	$	(4,342	)	$	3,456
Denominator for basic earnings per share:
Weighted average of common shares		24,143,261			24,587,681
Effect of dilutive securities		-			72,353
Denominator for diluted earnings per share		24,143,261			24,660,034
Basic net (loss) income per share attributable to TSM	$	(0.18	)	$	0.14
Diluted net (loss) income per share attributable to TSM	$	(0.18	)	$	0.14

The Company generated a loss from continuing operations attributable to the Company’s common stockholders for the three months ended March 31, 2017, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated income from continuing operations during the three months ended March 31, 2017, the effect of restricted stock awards on the diluted shares calculation would have been an increase in shares of 59,284 shares.

(12)	Contingencies

The following information supplements and amends, as applicable, the disclosures in Note 24 to the Consolidated Financial Statements of the Company’s 2016 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.

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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.

ASES Audits

The Company is subject to numerous audits in connection with the provision of services to private and governmental entities. These audits may include numerous aspects of our business, including claim payment practices, contractual obligations, service delivery, third-party obligations, and business practices, among others. Deficiencies in audits could have a material adverse effect on our reputation and business, including termination of contracts, significant increases in the cost of managing and remediating deficiencies, payment of contractual penal clauses, and others, any of which could have a material and adverse effect on our results of operations, financial position and cash flows.

On July 2, 2014, ASES notified TSS that the results of an audit conducted in connection with the government health plan contract for several periods between October 2005 to September 2013, reflected an overpayment of premiums made to TSS pursuant to prior contracts with ASES in the amount of $7,900. The alleged overpayments were related to duplicated payments or payments made for deceased members, and ASES requested the reimbursement of the alleged overpayment. On January 16, 2015, TSS filed an injunction against ASES under the case Triple-S Salud, Inc. v. Administracion de Seguros de Salud de Puerto Rico. TSS contends that ASES’ request for reimbursement has no merits on several grounds, including a 2011 settlement between both parties covering the majority of the amount claimed by ASES, and that ASES, under the terms of the contracts, was responsible for certifying the membership. TSS also amended its claim to include the Puerto Rico Health Department (PRHD), as it asserts the PRHD is an indispensable party for the resolution of this matter and to seek the payment of approximately $5,000, since the premiums paid to TSS should have been higher than what ASES actually paid given the additional risk assumed by TSS. The case was assigned to a Special Commissioner, who has received a joint expert report concerning the case. On March 17, 2017, the Special Commissioner issued a report recommending the court to dismiss the complaint in favor of TSS. TSS is awaiting the court’s decision in connection to the report issued by the Special Commissioner. TSS will continue to conduct a vigorous defense of this matter.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(13)	Segment Information

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

The following tables summarize the operations by reportable segment for the three months ended March 31, 2017 and 2016:

	Three months ended March 31,
	2017			2016
Operating revenues:
Managed Care:
Premiums earned, net	$	640,147		$	678,380
Administrative service fees		4,379			5,083
Intersegment premiums/service fees		1,534			1,485
Net investment income		3,892			3,480
Total managed care		649,952			688,428
Life Insurance:
Premiums earned, net		40,298			38,966
Intersegment premiums		191			137
Net investment income		6,087			5,914
Total life insurance		46,576			45,017
Property and Casualty Insurance:
Premiums earned, net		21,548			21,188
Intersegment premiums		153			153
Net investment income		1,924			1,929
Total property and casualty insurance		23,625			23,270
Other segments: *
Intersegment service revenues		1,586			2,545
Operating revenues from external sources		1,000			856
Total other segments		2,586			3,401
Total business segments		722,739			760,116
TSM operating revenues from external sources		78			4
Elimination of intersegment premiums/service fees		(1,598	)		(1,775	)
Elimination of intersegment service revenues		(1,586	)		(2,545	)
Other intersegment eliminations		-			(13	)
Consolidated operating revenues	$	719,633		$	755,787

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	Three months ended March 31,
	2017			2016
Operating income (loss):
Managed care	$	(18,582	)	$	(641	)
Life insurance		3,935			5,598
Property and casualty insurance		2,067			2,111
Other segments *		143			(179	)
Total business segments		(12,437	)		6,889
TSM operating revenues from external sources		78			4
TSM unallocated operating expenses		(2,217	)		(3,167	)
Elimination of TSM intersegment charges		2,400			2,387
Consolidated operating (loss) income		(12,176	)		6,113
Consolidated net realized investment gains		336			58
Consolidated interest expense		(1,686	)		(1,882	)
Consolidated other income, net		2,525			875
Consolidated (loss) income before taxes	$	(11,001	)	$	5,164

Depreciation and amortization expense:
Managed care	$	2,239		$	2,934
Life insurance		280			255
Property and casualty insurance		114			161
Other segments*		160			153
Total business segments		2,793			3,503
TSM depreciation expense		197			197
Consolidated depreciation and amortization expense	$	2,990		$	3,700

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	March 31, 2017			December 31, 2016
Assets:
Managed care	$	1,144,927		$	1,013,872
Life insurance		820,481			816,920
Property and casualty insurance		347,282			349,159
Other segments *		26,274			26,034
Total business segments		2,338,964			2,205,985
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments		22,531			17,033
Property and equipment, net		22,228			22,380
Other assets		21,337			21,646
		66,096			61,059
Elimination entries-intersegment receivables and others		(46,605	)		(48,045	)
Consolidated total assets	$	2,358,455		$	2,218,999

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(14)	Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued. No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standards Codification.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refers to Triple-S Management Corporation and its subsidiaries. The MD&A included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months ended March 31, 2017. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2016 and the MD&A included therein, and our unaudited consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2017 included in this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.

Overview

We are one of the most significant players in the managed care industry in Puerto Rico and have over 55 years of experience in this industry. We offer a broad portfolio of managed care and related products in the Commercial, Medicaid and Medicare Advantage markets. In the Commercial market we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. We also participate in the Government of Puerto Rico Health Insurance Plan (a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.) (Medicaid), by administering the provision of health benefits in designated service regions in Puerto Rico. See details of the Medicaid contract in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 under the sub-caption “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.”

We have the exclusive right to use the Blue Cross Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands, Costa Rica, the British Virgin Islands and Anguilla. As of March 31, 2017, we served approximately 1,016,000 members across all regions of Puerto Rico. For the three months ended March 31, 2017 and 2016 respectively, our managed care segment represented approximately 91% and 92% of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets.

We participate in the managed care market through our subsidiaries, Triple-S Salud, Inc. (TSS) and Triple-S Advantage, Inc. (TSA), and Triple-S Blue, Inc. I.I. (TSB). TSS, TSA and TSB are Blue Cross Blue Shield Association (BCBSA) licensees, which provides us with exclusive use of the Blue Cross and Blue Shield name and mark throughout Puerto Rico, the U.S. Virgin Islands, Costa Rica, the British Virgin Islands, and Anguilla.

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We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc., and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (TSP).

Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income. See note 13 of the Condensed Consolidated Financial Statements included in Quarterly Report on Form 10-Q.

Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and the Government of Puerto Rico Health Insurance Plan. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income and revenues derived from other segments. Substantially all of our earnings are generated in Puerto Rico.

Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment’s results of operations depend to a significant extent on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation, commission payments to brokers and other overhead business expenses.

We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.

Recent Developments

Puerto Rico Economy

During the past decade, Puerto Rico has been facing economic and fiscal challenges and its economy has been contracting. In response to the Commonwealth of Puerto Rico (the Commonwealth) fiscal and economic crisis, on June 30, 2016, the U.S. Congress enacted the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), which, among other things, established a Federally-appointed oversight board (the “Oversight Board”) comprised of seven members with ample powers over the finances of the Commonwealth and its instrumentalities. PROMESA also established a temporary stay on litigation to enforce rights or remedies related to financial liabilities of the Commonwealth, its instrumentalities and municipalities, which expired on May 1, 2017. Finally, PROMESA established two separate mechanisms to restructure the debts of the Commonwealth, its public corporations and municipalities. The first mechanism permits modifications of financial indebtedness with the consent of a supermajority of affected financial creditors. The second mechanism, known as Title III, is a court-supervised debt-adjustment process, which is modeled after Chapter 9 of the U.S. Bankruptcy Code.

Pursuant to PROMESA, the Oversight Board required the Commonwealth to deliver a fiscal plan by January 15, 2017, which deadline was later extended until February 28, 2017. In a letter dated January 18, 2017, the Oversight Board recommended to the Governor a series of measures for inclusion in the fiscal plan, including: (i) a $1.0 billion reduction in health care spending by fiscal year 2019, (ii) the elimination of budgetary subsidies to municipalities and (iii) significant reductions in payroll expenditures and pension and/or pension-related benefits. On February 28, 2017, the Governor of Puerto Rico submitted a 10-year fiscal plan to the Oversight Board, for its review and approval. After certain revisions, a final plan was approved by the Oversight Board on March 13, 2017, which includes spending reductions of $25.7 billion. The plan implies larger concessions from bondholders since there would be approximately $8 billion available for debt service payments over the next 10 years, compared to around $35 billion that is owed over that period. The plan also proposes (i) certain significant changes to the Commonwealth’s healthcare delivery model in order to reduce expenses and (ii) the elimination of subsidies to the municipalities, many of which have contracts for the provision of healthcare or other insurance products with our subsidiaries. The plan, however, does not provide details about the proposed changes or the timeline for their implementation. Also, it is uncertain if and how the elimination of municipal subsidies will affect municipal finances and their ability to continue to meet their contractual obligations.

The Oversight Board also required that certain Commonwealth instrumentalities, such as Government Development Bank for Puerto Rico, the Puerto Rico Aqueduct and Sewer Authority, the Puerto Rico Electric Power Authority and the University of Puerto Rico, prepare and submit fiscal plans. All such fiscal plans have been submitted and approved, other than the plan for the University of Puerto Rico, and include significant expenditure reductions across all types of expenses. In the future, the Oversight Board may require other instrumentalities and municipalities to prepare and submit fiscal plans.

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On May 1, 2017, the temporary stay on litigation established by PROMESA expired. After the expiration of the temporary stay, several investors holding general obligation and sales and use tax-backed bonds filed lawsuits to enforce their rights and remedies related to the financial liabilities of the Commonwealth, its instrumentalities and municipalities. On May 3, 2017, after not reaching an agreement with its creditors, the Oversight Board filed an order seeking the protection of the provisions of Title III of PROMESA for the Commonwealth. On May 5, 2017, the Oversight Board also sought the protection of Title III of PROMESA for the Puerto Rico Sales Tax Financing Corporation (“COFINA” by its Spanish acronym), which issued the sales and use tax-backed bonds. While the proceedings under Title III of PROMESA are ongoing, all enforcement and collection actions against the Commonwealth and COFINA by its creditors are stayed. As a result of this court-supervised debt-adjustment process, the principal and interest payments due on general obligation and sales and use tax-backed bonds will likely be restructured and such restructuring could lead to significant additional losses on such holdings.

Although the Oversight Board has not sought the protection of Title III of PROMESA for the Puerto Rico Health Insurance Administration (“ASES” by its Spanish acronym), the instrumentality responsible for the administration of the Government’s health plan, ASES may be affected by the Commonwealth’s fiscal plan and the proceedings commenced for the Commonwealth under Title III of PROMESA because its state-based funding is solely dependent on appropriations from the Government’s general fund. Notwithstanding the Government’s statement in recent legislation that its public policy includes guaranteeing the continuity of public services in essential areas such as health, security, education, social work and development, among others, it is uncertain how the Commonwealth’s Title III proceeding will affect ASES and the contracts administered by it.

If the liquidity of the Government of Puerto Rico, its agencies, municipalities and public corporations becomes significantly affected as a result of their inability to raise funding in the market or generate enough revenues, we may face credit losses in our premium and fees receivables from these and other government related entities. As of March 31, 2017, the Company had premiums and other receivables of $51.5 million from the Government of Puerto Rico, including its agencies, municipalities and public corporations with a related allowance for doubtful receivables of $14.1 million. We also hold several positions categorized as Obligations of the Commonwealth of Puerto Rico, including Cofina bonds, which are susceptible to aforementioned recent developments in the economy, see note 3 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Puerto Rico Government Health Reform Program

Current Medicaid premiums rates are effective until June 30, 2017; the negotiation for new rates, until the end of the three year agreement, is ongoing. See Item 1A. Risk Factors—Risks Related to Our Business – “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.’’ included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Political and Regulatory Developments

CMS announced final benchmark rates for the 2018 Medicare Advantage plans. The call letter included revenue adjustments reflecting the physician payment increases, maintaining the zero claims adjustment, and allowing certain Puerto Rico counties to qualify for double bonus status. The impact of these updates result in a benchmark increase of about 4%. See Item 1A. Risk Factors—Risks Related to the Regulation of our Industry – “The revised rate calculation system for Medicare Advantage, the payment system for the Medicare Part D and changes in the methodology and payment policies used by CMS to establish rates could reduce our profitability and the benefits we offer our beneficiaries’’ included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Standards

For a description of recent accounting standards, see note 2 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Managed Care Membership

	As of March 31,
	2017		2016
Managed care enrollment:
Commercial ¹		505,848		544,846
Medicare		121,352		119,224
Medicaid		389,130		402,933
Total		1,016,330		1,067,003
Managed care enrollment by funding arrangement:
Fully-insured		847,327		886,547
Self-insured		169,003		180,456
Total		1,016,330		1,067,003

(1)	Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.

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Consolidated Operating Results

The following table sets forth the Corporation’s consolidated operating results. Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.

	Three months ended March 31,
(dollar amounts in millions)	2017			2016
Revenues:
Premiums earned, net	$	702.3		$	738.5
Administrative service fees		4.4			5.1
Net investment income		12.0			11.4
Other operating revenues		0.9			0.8
Total operating revenues		719.6			755.8
Net realized investment gains		0.3			-
Other income, net		2.6			0.9
Total revenues		722.5			756.7
Benefits and expenses:
Claims incurred		620.9			626.7
Operating expenses		110.9			123.0
Total operating expenses		731.8			749.7
Interest expense		1.7			1.9
Total benefits and expenses		733.5			751.6
(Loss) income before taxes		(11.0	)		5.1
Income taxes (benefit) / expense		(6.7	)		1.7
Net (loss) income attributable to TSM	$	(4.3	)	$	3.4

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Operating Revenues

Consolidated premiums earned, net for the three months ended March 31, 2017 decreased by $36.2 million, or 4.9%, to $702.3 million when compared to the three months ended March 31, 2016. This decrease primarily reflects lower premiums in the Managed Care segment by $38.2 million mainly due to lower membership in the segment’s Medicaid and Commercial businesses.

Other Income, Net

The $1.7 million increase in consolidated other income reflects the collection of interest charged for late payment related to the current Medicaid contract.

Claims Incurred

Consolidated claims incurred decreased by $5.8 million, or 0.9%, to $620.9 million during the three months ended March 31, 2017 when compared to the claims incurred during the three months ended March 31, 2016, mostly due to lower claims in the Managed Care segment. The decrease in Managed Care claims primarily reflects lower claims incurred in the segment’s Medicaid and Commercial businesses primarily driven by lower enrollment, offset in part by higher pharmacy claims trends in the Medicare and Medicaid businesses, higher Part B drugs in the Medicare business, and enhanced benefits in the Medicare 2017 offerings. This decrease was also offset by higher claims incurred in the Life Insurance segment. The consolidated loss ratio increased by 350 basis points to 88.4%.

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Operating Expenses

Consolidated operating expenses during the three months ended March 31, 2017 decreased by $12.1 million, or 9.8%, to $110.9 million as compared to the operating expenses during the three months ended March 31, 2016. The lower operating expenses are mostly the result of the decrease in the Health Insurance Providers Fee (HIP fee) of $10.8 million due to the 2017 tax holiday, and lower personnel costs. For the three months ended March 31, 2017, the consolidated operating expense ratio decreased 80 basis points to 15.7%.

Income Taxes

Consolidated income taxes decreased by $8.4 million, to a benefit of $6.7 million for the three months ended March 31, 2017. The year over year change in income taxes primarily results from a loss before taxes incurred in the 2017 period incurred in the Managed Care segment.

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Managed Care Operating Results

	Three months ended March 31,
(dollar amounts in millions)	2017			2016
Operating revenues:
Medical premiums earned, net:
Commercial	$	205.1		$	215.5
Medicare		257.7			261.0
Medicaid		177.7			202.2
Medical premiums earned, net		640.5			678.7
Administrative service fees		5.6			6.3
Net investment income		3.9			3.5
Total operating revenues		650.0			688.5
Medical operating costs:
Medical claims incurred		587.3			596.3
Medical operating expenses		81.3			92.8
Total medical operating costs		668.6			689.1
Medical operating loss	$	(18.6	)	$	(0.6	)
Additional data:
Member months enrollment:
Commercial:
Fully-insured		1,013,205			1,096,282
Self-funded		507,167			543,026
Total Commercial		1,520,372			1,639,308
Medicare		363,727			364,427
Medicaid		1,173,273			1,221,892
Total member months		3,057,372			3,225,627
Medical loss ratio		91.7	%		87.9	%
Operating expense ratio		12.6	%		13.5	%

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Medical Operating Revenues

Medical premiums earned for the three months ended March 31, 2017 decreased by $38.2 million, or 5.6%, to $640.5 million when compared to the medical premiums earned during the three months ended March 31, 2016. This decrease is principally the result of the following:

•

Medical premiums generated by the Medicaid business amounted to $177.7 million, $24.5 million, or 12.1% lower when compared to the medical premiums earned during the three months ended March 31, 2016. Decrease primarily reflects lower fully-insured member months enrollment by approximately 48,600 lives and the 4% decrease in average premium rates that went into effect July 1, 2016. Also contributing to the lower premiums during this period are last year’s partial reversal of the accrued 2.5% excess profit of $3.6 million and to $2.6 million related to the suspension of the HIP fee pass-through as a result of the 2017 moratorium.

•

Medical premiums generated by the Commercial business decreased by $10.4 million, or 4.8%, to $205.1 million. This fluctuation primarily reflects lower fully-insured member enrollment during the quarter of approximately 83,000 member months and $3.5 million related to the suspension of the HIP fee pass-through; offset by an increase in average premium rates of approximately 5%.

•

Medical premiums generated by the Medicare business decreased by $3.3 million, or 1.3%, to $257.7 million, primarily reflecting lower average premium rates due to a change in membership mix, with the current period presenting a higher concentration of non-dual individuals and groups and a reduction in the 2017 Medicare reimbursement rates.

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Medical Claims Incurred

Medical claims incurred during the three months ended March 31, 2017 decreased by $9.0 million, or 1.5%, to $587.3 million when compared to the three months ended March 31, 2016. The medical loss ratio (MLR) of the segment increased 380 basis points during the 2017 period, to 91.7%. This fluctuation is primarily attributed to the net effect of the following:

•

The medical claims incurred in the Medicaid business decreased by $8.4 million, or 4.6%, during the 2017 period, mostly driven by lower enrollment offset by higher utilization. The MLR, at 97.8%, was 770 basis point higher than the same period last year. The higher MLR primarily reflects increased pharmacy and outpatient claim trends and the lower premium rates that went into effect July 1, 2016.

•

The medical claims incurred of the Commercial business decreased by $7.6 million, or 4.3%, during the 2017 period mostly driven by lower enrollment. The MLR, at 83.5%, was 70 basis point higher than the same month last year. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 83.3%, 240 basis points lower than the adjusted MLR for last year primarily reflecting claim trends that are lower than our premium trends following the continuity of our underwriting discipline.

•

The medical claims incurred of the Medicare business increased by $7.0 million, or 3.0%, during the 2017 period and its MLR increased by 390 basis points, to 94.0%. Adjusting for the effect of prior period reserve developments in 2017 and 2016 and moving the risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 95.6% this quarter, about 280 basis points higher than last year, primarily reflecting higher trends in Part B drugs, pharmacy benefits and the improvement of benefits in 2017 products taking advantage of the HIP fee moratorium.

Medical Operating Expenses

Medical operating expenses for the three months ended March 31, 2017 decreased by $11.5 million, or 12.4 %, to $81.3 million when compared to the three months ended March 31, 2016. The operating expense ratio decreased by 90 basis points to 12.6% in 2017. The lower operating expenses and expense ratio are mostly the result of the decrease in the HIP Fee of $10.7 million due to the 2017 moratorium as well as lower personnel costs.

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Life Insurance Operating Results

	Three months ended March 31,
(dollar amounts in millions)	2017			2016
Operating revenues:
Premiums earned, net:
Premiums earned	$	41.8		$	39.8
Assumed earned premiums		0.9			1.5
Ceded premiums earned		(2.2	)		(2.2	)
Premiums earned, net		40.5			39.1
Net investment income		6.1			5.9
Total operating revenues		46.6			45.0
Operating costs:
Policy benefits and claims incurred		23.7			21.4
Underwriting and other expenses		19.0			18.0
Total operating costs		42.7			39.4
Operating income	$	3.9		$	5.6
Additional data:
Loss ratio		58.5	%		54.7	%
Operating expense ratio		46.9	%		46.0	%

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Operating Revenues

Premiums earned, net increased by $1.4 million, or 3.6% to $40.5 million as the result of premium growth in the segment’s Individual Life and Cancer lines of business, as well as growth in the Costa Rica operations.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $2.3 million, or 10.7%, to $23.7 million, mostly as the result of the higher volume of business during the year, particularly in the Individual Life and Cancer lines of business and higher number of claims paid. The loss ratio for the period increased to 58.5% in 2017, or 380 basis points, reflecting the higher volume in the Cancer line of business, which has a higher loss ratio, as well as to a higher claims experience in this particular line of business.

Underwriting and Other Expenses

Increase in underwriting and other expenses of $1.0 million, or 5.6%, to $19.0 million mostly reflects higher commissions following the segment’s premium growth mentioned above. In addition, the segment has incurred in higher development and marketing expenses related to the expansion of the Costa Rica operations. As a result, the segment’s operating expense ratio increased to 46.9%, 90 basis points.

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Property and Casualty Insurance Operating Results

	Three months ended March 31,
(dollar amounts in millions)	2017			2016
Operating revenues:
Premiums earned, net:
Premiums written	$	27.4		$	27.6
Premiums ceded		(10.1	)		(10.4	)
Change in unearned premiums		4.4			4.1
Premiums earned, net		21.7			21.3
Net investment income		1.9			1.9
Total operating revenues		23.6			23.2
Operating costs:
Claims incurred		10.6			9.7
Underwriting and other expenses		10.9			11.4
Total operating costs		21.5			21.1
Operating income	$	2.1		$	2.1
Additional data:
Loss ratio		48.8	%		45.5	%
Operating expense ratio		50.2	%		53.5	%

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Operating Revenues

Total premiums written decreased by $0.2 million, or 0.7%, to $27.4 million, driven by lower sales of Commercial package products.

The premiums ceded to reinsurers decreased by $0.3 million, or 2.9%, mostly reflecting lower premiums written in Commercial insurance products.

The change in unearned premiums presents an increase of $0.3 million mostly reflecting the segments lower premiums written in 2017 and lower cost.

Claims Incurred

Claims incurred increased by $0.9 million, or 9.3%, to $10.6 million. The loss ratio increased by 330 basis points, to 48.8% during this period, primarily as a result of an unfavorable loss experience in the Commercial and Personal Auto lines of business.

Underwriting and Other Expenses

Underwriting and other operating expenses decreased by $0.5 million, or 4.4%, to $10.9 million mostly due to lower personnel costs. The operating expense ratio was 50.2%, 330 basis points lower than last year.

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Liquidity and Capital Resources

Cash Flows

A summary of our major sources and uses of cash for the periods indicated is presented in the following table:

	Three months ended March 31,
(dollar amounts in millions)	2017			2016
Sources (uses) of cash:
Cash provided by operating activities	$	131.0		$	31.3
Net proceeds (purchases) of investment securities		0.4			(108.9	)
Net capital expenditures		(3.3	)		(1.5	)
Proceeds from long-term borrowings		24.3			-
Payments of long-term borrowings		(24.7	)		(0.4	)
Proceeds from policyholder deposits		4.1			3.4
Surrenders of policyholder deposits		(4.9	)		(2.9	)
Repurchase and retirement of common stock		-			(8.0	)
Other		(11.4	)		1.6
Net increase (decrease) in cash and cash equivalents	$	115.5		$	(85.4	)

Cash flow from operating activities increased by $99.7 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, principally due to an increase in premium collections of $67.1 million, lower claims paid by $16.5 million and a decrease in cash paid to suppliers and employees of $14.4 million. The higher premium collections follow the collection in advance of the April 2017 Medicare premiums from CMS.

Net proceeds from sales of investments securities primarily results from net cash flows received from the sales, maturities, and purchases of investment securities during the period following our asset/liability management strategy.

During the three months ended March 31, 2017, we received $24.3 million from a commercial bank in Puerto Rico related with a credit agreement entered into in December 2016. These proceeds were used during the 2017 period to prepay the outstanding principal amount of $24.0 million of the 6.6% senior unsecured notes.

There were no repurchase and retirement of common stock during the three months ended March 31, 2017.

The fluctuation in the Other uses/sources of cash is attributed to changes in the amount of outstanding checks over bank balances.

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Financing and Financing Capacity

We have several short-term facilities available to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of March 31, 2017, we had $60.0 million of available credit under these facilities. There are no outstanding short-term borrowings under these facilities as of March 31, 2017.

On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes originally due December 2020 (the 6.6% notes). These unsecured notes were paid in full on January 11, 2017.

On December 28, 2016, TSM entered into a $35.5 million credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11.2 million, (ii) Term Loan B in the principal amount of $20.2 million and (iii) Term Loan C in the principal amount of $4.1 million. Term Loan A matures in October 2023 while the Term Loans B and C mature in January 2024. Term Loan A was used to refinance the previous $41.0 million secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% senior unsecured notes due January 2021 ($24.0 million). Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 1% over LIBOR for Term Loan A, (ii) 2.75% over LIBOR for Term Loan B, and (iii) 3.25% over LIBOR for Term Loan C. The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control and dividends. Failure to meet these covenants may trigger the accelerated payment of the outstanding balance. As of March 31, 2017 we are in compliance with these covenants.

On March 11, 2016 TSS entered into a $30.0 million revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit had an interest rate of LIBOR plus 220 basis points and includes certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017, and was not renewed.

On April 18, 2017, TSA entered into a $10.0 million revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit has an interest rate of 30-day LIBOR plus 25 basis points, and contains certain financial and non-financial covenants that are customary for this type of facility.

We anticipate that we will have sufficient liquidity to support our currently expected needs.

Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in our exposure to financial market risks since December 31, 2016. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, management, under the supervision and with the participation of the chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the “disclosure controls and procedures” (as such term is defined under Exchange Act Rule 13a-15(e)) of the Corporation and its subsidiaries. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on this evaluation, our chief executive officer and chief financial officer have concluded that as of March 31, 2017, which is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance.

There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the chief executive officer and chief financial officer completed the evaluation referred to above.

Changes in Internal Controls Over Financial Reporting

No changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended March 31, 2017 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1.

Legal Proceedings

For a description of legal proceedings that have experienced significant developments during this quarter, see note 13 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q.

Item 1A.

Risk Factors

For a description of our risk factors see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016.

The following text updates the disclosure included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016, under the sub-caption “The health care reform law and the implementation of that law could have a material adverse effect on our business, financial condition, cash flows, or results of operations.”

On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, in January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. Following the passage of the Budget Resolution, on March 6, 2017, the U.S. House of Representatives introduced legislation known as the American Health Care Act, which, if enacted, would amend or repeal significant portions of the ACA. Among other changes, the American Health Care Act would sunset the annual insurance industry assessment as of December 31, 2017, essentially eliminate the individual and employer mandates by eliminating penalties and providing retroactive relief for failing to maintain or provide minimum essential coverage, and permit insurers to charge individuals a 30% surcharge on premiums for failing to demonstrate continuous coverage. The American Health Care Act would also make significant changes to Medicaid by, among other things, making the ACA Medicaid expansion optional for states, repealing the ACA requirement that state Medicaid plans provide the same essential health benefits that are required by plans available through the exchanges, implementing a per capita cap on federal payments to states beginning in fiscal year 2020, and changing certain eligibility requirements. On May 4, 2017, the U.S. House of Representatives approved the American Health Care Act to repeal portions of the ACA. The American Health Care Act will now be considered by the U.S. Senate. While it is uncertain when or if the provisions in the American Health Care Act will become law, or the extent to which any such changes may impact our business, it is clear that Congress is taking concrete steps to repeal and replace certain aspects of the ACA.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

Exhibits	Description

3(i)(c)	Articles of Incorporation of Triple-S Management Corporation, incorporated by reference to Exhibit 3(i)(c) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865).

3(i)(d)*	Amendments to Article Tenth and Thirteenth of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation.

3(i)(e)*	Composite Amended and Restated Articles of Incorporation of Triple-S Management Corporation.

11	Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months ended March 31, 2017 and 2016 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

31.1*	Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

31.2*	Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).

32.1*	Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.

32.2*	Certification of the Executive Vice President and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.

All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

*	Filed herein.

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SIGNATURES

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

			Triple-S Management Corporation
			Registrant

Date:	May 9, 2017	By:	/s/ Roberto García-Rodríguez
			Roberto García-Rodríguez
			President and Chief Executive Officer

Date:	May 9, 2017	By:	/s/ Juan J. Román-Jiménez
			Juan J. Román-Jiménez
			Executive Vice President and Chief Financial Officer

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