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EX-32.2 - EXHIBIT 32.2 - TRIPLE-S MANAGEMENT CORPex32_2.htm
EX-32.1 - EXHIBIT 32.1 - TRIPLE-S MANAGEMENT CORPex32_1.htm
EX-31.2 - EXHIBIT 31.2 - TRIPLE-S MANAGEMENT CORPex31_2.htm
EX-31.1 - EXHIBIT 31.1 - TRIPLE-S MANAGEMENT CORPex31_1.htm
EX-10.1 - EXHIBIT 10.1 - TRIPLE-S MANAGEMENT CORPex10_1.htm

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

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017
 
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from           to

COMMISSION FILE NUMBER:  001-33865
 
Triple-S Management Corporation
 
Puerto Rico
 
66-0555678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1441 F.D. Roosevelt Avenue
   
San Juan, Puerto Rico
 
00920
(Address of principal executive offices)
 
(Zip code)
 
(787) 749-4949
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
   Yes   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes    No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer  
Accelerated filer  
Non-accelerated filer  
Smaller reporting company  
  Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
  
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 June 30, 2017
Common Stock Class A, $1.00 par value
 
950,968
Common Stock Class B, $1.00 par value
 
23,494,170
 


Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended June 30, 2017
 
Table of Contents

3
   
Item 1.
3
     
Item 2.
31
     
 
31
 
31
 
32
 
34
 
34
 
35
 
38
 
41
 
42
 
44
     
Item 3.
46
     
Item 4.
46
     
48
   
Item 1.
48
     
Item 1A.
48
     
Item 2.
49
     
Item 3.
49
     
Item 4.
49
     
Item 5.
49
     
Item 6.
49
     
50
 
Part I – Financial Information
 
Item 1.
Financial Statements

Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)

   
June 30,
2017
   
December 31,
2016
 
Assets
           
Investments and cash:
           
Securities available for sale, at fair value:
           
Fixed maturities
 
$
1,196,161
   
$
1,151,643
 
Equity securities
   
287,820
     
270,349
 
Securities held to maturity, at amortized cost:
               
Fixed maturities
   
2,835
     
2,836
 
Policy loans
   
8,716
     
8,564
 
Cash and cash equivalents
   
172,526
     
103,428
 
Total investments and cash
   
1,668,058
     
1,536,820
 
Premiums and other receivables, net
   
320,548
     
286,365
 
Deferred policy acquisition costs and value of business acquired
   
200,034
     
194,787
 
Property and equipment, net
   
69,083
     
66,369
 
Deferred tax asset
   
69,576
     
57,768
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
52,672
     
51,493
 
Total assets
 
$
2,405,368
   
$
2,218,999
 
Liabilities and Stockholders' Equity
               
Claim liabilities
 
$
504,240
   
$
487,943
 
Liability for future policy benefits
   
331,427
     
321,232
 
Unearned premiums
   
175,561
     
79,310
 
Policyholder deposits
   
179,225
     
179,382
 
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
   
40,363
     
34,370
 
Accounts payable and accrued liabilities
   
204,194
     
169,449
 
Deferred tax liability
   
22,203
     
18,850
 
Long-term borrowings
   
33,667
     
35,085
 
Liability for pension benefits
   
30,496
     
30,892
 
Total liabilities
   
1,521,376
     
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 June 30, 2017and December 31, 2016, respectively
   
951
     
951
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,494,170 and 23,321,163 shares at June 30, 2017 and December 31, 2016, respectively
   
23,494
     
23,321
 
Additional paid-in capital
   
65,589
     
65,592
 
Retained earnings
   
739,267
     
730,904
 
Accumulated other comprehensive income
   
55,369
     
42,395
 
Total Triple-S Management Corporation stockholders' equity
   
884,670
     
863,163
 
Non-controlling interest in consolidated subsidiary
   
(678
)
   
(677
)
Total stockholders' equity
   
883,992
     
862,486
 
Total liabilities and stockholders' equity
 
$
2,405,368
   
$
2,218,999
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Earnings (Unaudited)
(dollar amounts in thousands, except per share data)


   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Revenues:
                       
Premiums earned, net
 
$
722,891
   
$
729,049
   
$
1,425,164
   
$
1,467,583
 
Administrative service fees
   
4,548
     
4,520
     
8,927
     
9,603
 
Net investment income
   
12,698
     
12,875
     
24,714
     
24,233
 
Other operating revenues
   
1,121
     
915
     
2,086
     
1,727
 
Total operating revenues
   
741,258
     
747,359
     
1,460,891
     
1,503,146
 
Net realized investment gains (losses):
                               
Total other-than-temporary impairment losses on securities
   
-
     
(1,434
)
   
-
     
(1,434
)
Net realized gains, excluding other-than-temporary impairment losses on securities
   
4,054
     
2,954
     
4,390
     
3,012
 
Net realized investment gains on sale of securities
   
4,054
     
1,520
     
4,390
     
1,578
 
Other income, net
   
587
     
3,859
     
3,112
     
4,734
 
Total revenues
   
745,899
     
752,738
     
1,468,393
     
1,509,458
 
Benefits and expenses:
                               
Claims incurred
   
611,297
     
622,087
     
1,232,160
     
1,248,781
 
Operating expenses
   
118,720
     
121,112
     
229,666
     
244,092
 
Total operating costs
   
730,017
     
743,199
     
1,461,826
     
1,492,873
 
Interest expense
   
1,721
     
1,954
     
3,407
     
3,836
 
Total benefits and expenses
   
731,738
     
745,153
     
1,465,233
     
1,496,709
 
Income before taxes
   
14,161
     
7,585
     
3,160
     
12,749
 
Income tax expense (benefit)
   
1,456
     
3,707
     
(5,202
)
   
5,416
 
Net income
   
12,705
     
3,878
     
8,362
     
7,333
 
Less: Net loss attributable to non-controlling interest
   
-
     
2
     
1
     
3
 
Net income attributable to Triple-S Management Corporation
 
$
12,705
   
$
3,880
   
$
8,363
   
$
7,336
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net income per share
 
$
0.52
   
$
0.16
   
$
0.35
   
$
0.30
 
Diluted net income per share
 
$
0.52
   
$
0.16
   
$
0.34
   
$
0.30
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(dollar amounts in thousands)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net income
 
$
12,705
   
$
3,878
   
$
8,362
   
$
7,333
 
Other comprehensive (loss) income, net of tax:
                               
Net unrealized change in fair value of available for sale securities, net of taxes
   
4,396
     
15,830
     
12,868
     
35,407
 
Defined benefit pension plan:
                               
Actuarial loss, net
   
53
     
507
     
106
     
1,229
 
Prior service credit, net
   
-
     
(62
)
   
-
     
(150
)
Total other comprehensive income, net of tax
   
4,449
     
16,275
     
12,974
     
36,486
 
Comprehensive income
   
17,154
     
20,153
     
21,336
     
43,819
 
Comprehensive income attributable to non-controlling interest
   
-
     
2
     
1
     
3
 
Comprehensive income attributable to Triple-S Management Corporation
 
$
17,154
   
$
20,155
   
$
21,337
   
$
43,822
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
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
   
170
     
2,649
 
Stock issued upon the exercise of stock options
   
-
     
55
 
Repurchase and retirement of common stock
   
-
     
(14,616
)
Comprehensive income
   
21,337
     
43,822
 
Total Triple-S Management Corporation stockholders' equity
   
884,670
     
879,436
 
Non-controlling interest in consolidated subsidiary
   
(678
)
   
(673
)
Balance at June 30
 
$
883,992
   
$
878,763
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)

   
Six months ended
June 30,
 
   
2017
   
2016
 
Cash flows from operating activities:
           
Net income
 
$
8,362
     
7,333
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
6,454
     
7,300
 
Net amortization of investments
   
4,787
     
3,981
 
Reductions to the allowance for doubtful receivables
   
(2,390
)
   
(313
)
Deferred tax (benefit) expense
   
(11,734
)
   
4,301
 
Net realized investment gain on sale of securities
   
(4,390
)
   
(1,578
)
Interest credited to policyholder deposits
   
2,144
     
2,436
 
Share-based compensation
   
170
     
2,313
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
(25,078
)
   
(63,589
)
Deferred policy acquisition costs and value of business acquired
   
(5,621
)
   
(3,562
)
Deferred taxes
   
(280
)
   
178
 
Other assets
   
(1,229
)
   
(31,425
)
Increase (decrease) in liabilities:
               
Claim liabilities
   
16,297
     
(9,901
)
Liability for future policy benefits
   
10,195
     
19,961
 
Unearned premiums
   
96,251
     
1,791
 
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
   
5,993
     
(2,141
)
Accounts payable and accrued liabilities
   
33,774
     
52,350
 
Net cash provided by (used in) operating activities
   
133,705
     
(10,565
)
(Continued)
 
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)

   
Six months ended
June 30,
 
   
2017
   
2016
 
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available for sale:
           
Fixed maturities sold
 
$
88,141
   
$
163,150
 
Fixed maturities matured/called
   
8,938
     
14,301
 
Equity securities sold
   
21,499
     
32,252
 
Securities held to maturity:
               
Fixed maturities matured/called
   
703
     
700
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(141,116
)
   
(150,005
)
Equity securities
   
(20,424
)
   
(136,104
)
Securities held to maturity:
               
Fixed maturities
   
(703
)
   
(609
)
Increase in other investments
   
(731
)
   
(1,383
)
Net change in policy loans
   
(152
)
   
(400
)
Net capital expenditures
   
(8,704
)
   
(2,716
)
Net cash used in investing activities
   
(52,549
)
   
(80,814
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
(8,545
)
   
4,074
 
Repayments of long-term borrowings
   
(1,212
)
   
(820
)
Repurchase and retirement of common stock
   
-
     
(14,560
)
Proceeds from policyholder deposits
   
8,166
     
7,942
 
Surrenders of policyholder deposits
   
(10,467
)
   
(6,935
)
Net cash used in financing activities
   
(12,058
)
   
(10,299
)
Net increase (decrease) in cash and cash equivalents
   
69,098
     
(101,678
)
Cash and cash equivalents:
               
Beginning of period
   
103,428
     
197,818
 
End of period
 
$
172,526
   
$
96,140
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
(1)
Basis of Presentation

The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited.  In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries.  The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the U.S. (GAAP) for complete financial statements.  These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 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 and six months ended June 30, 2017 are not necessarily indicative of the results for the full year ending December 31, 2017.

(2)
Recent Accounting Standards

On May 10, 2017, the Financial Accounting Standard Board (FASB) issued guidance to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change in the terms and conditions of a share-based payment award.  The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award.  This guidance indicates an entity should account for the effects of a modification unless the following criteria are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity or liability instrument is the same as the classification of the original award immediately before the original award is modified. For all 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.  We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.

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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
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 and six months ended June 30, 2017 that could have a material impact on the Corporation’s financial position, operating results or financial statements disclosures.

(3)
Investment in Securities

The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for available-for-sale and held-to-maturity securities by major security type and class of security at June 30, 2017 and December 31, 2016, were as follows:

   
June 30, 2017
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities available for sale:
                       
Fixed maturities:
                       
Obligations of government-sponsored enterprises
 
$
40,358
   
$
29
   
$
(4
)
 
$
40,383
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
79,932
     
180
     
(115
)
   
79,997
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
11,719
     
445
     
(3
)
   
12,161
 
Municipal securities
   
682,576
     
34,459
     
(393
)
   
716,642
 
Corporate bonds
   
278,417
     
15,626
     
(89
)
   
293,954
 
Residential mortgage-backed securities
   
11,877
     
35
     
(3
)
   
11,909
 
Collateralized mortgage obligations
   
41,129
     
97
     
(111
)
   
41,115
 
Total fixed maturities
   
1,146,008
     
50,871
     
(718
)
   
1,196,161
 
Equity securities:
                               
Mutual funds
   
214,923
     
43,446
     
(6
)
   
258,363
 
Alternative investments
   
29,336
     
368
     
(247
)
   
29,457
 
Total equity maturites
   
244,259
     
43,814
     
(253
)
   
287,820
 
Total
 
$
1,390,267
   
$
94,685
   
$
(971
)
 
$
1,483,981
 
 
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
 

   
June 30, 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
 
$
618
   
$
166
   
$
-
   
$
784
 
Residential mortgage-backed securities
   
191
     
2
     
-
     
193
 
Certificates of deposit
   
2,026
     
-
     
-
     
2,026
 
Total
 
$
2,835
   
$
168
   
$
-
   
$
3,003
 
 
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 June 30, 2017 and December 31, 2016 were as follows:

   
June 30, 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
                                                     
Obligations of government-sponsored enterprises
 
$
6,495
   
$
(4
)
   
2
   
$
-
   
$
-
     
-
   
$
6,495
   
$
(4
)
   
2
 
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
   
41,408
     
(115
)
   
5
     
-
     
-
     
-
     
41,408
     
(115
)
   
5
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
7,939
     
(3
)
   
5
     
-
     
-
     
-
     
7,939
     
(3
)
   
5
 
Municipal securities
   
90,575
     
(393
)
   
12
     
-
     
-
     
-
     
90,575
     
(393
)
   
12
 
Corporate bonds
   
32,355
     
(89
)
   
10
     
-
     
-
     
-
     
32,355
     
(89
)
   
10
 
Residential mortgage-backed securities
   
2,017
     
(3
)
   
1
     
-
     
-
     
-
     
2,017
     
(3
)
   
1
 
Collateralized mortgage obligations
   
25,454
     
(108
)
   
6
     
564
     
(3
)
   
1
     
26,018
     
(111
)
   
7
 
Total fixed maturities
   
206,243
     
(715
)
   
41
     
564
     
(3
)
   
1
     
206,807
     
(718
)
   
42
 
Equity securities
                                                                       
Mutual funds
   
1,994
     
(6
)
   
1
     
-
     
-
     
-
     
1,994
     
(6
)
   
1
 
Alternative investments
   
4,983
     
(129
)
   
7
     
2,431
     
(118
)
   
1
     
7,414
     
(247
)
   
8
 
Total equity securities
   
6,977
     
(135
)
   
8
     
2,431
     
(118
)
   
1
     
9,408
     
(253
)
   
9
 
Total for securities available for sale
 
$
213,220
   
$
(850
)
   
49
   
$
2,995
   
$
(121
)
   
2
   
$
216,215
   
$
(971
)
   
51
 
 
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
 
                                                       
Securities 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 Government-Sponsored Enterprises, Obligations of U.S. Government Instrumentalities and Municipal Securities:  The unrealized losses on the Corporation’s investments in obligations of Government-Sponsored Enterprises, 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 positions 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 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, 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 $7,939 and a gross unrealized loss of $3, and (2) senior lien bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $4,222 and a gross unrealized gain of $445.  As of June 30, 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 positions during the three months and six months ended June 30, 2017 and 2016.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

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 more likely than not that the Company will not 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.

Residential Mortgage-Backed Securities and Collateralized Mortgage Obligations: The unrealized losses on investments in residential mortgage-backed securities 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 and Alternative Investments:  As of June 30, 2017, investments in mutual funds and alternative investments 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 impairments on mutual funds and alternative investments during the three months and six months ended June 30, 2017.  During the three and six months ended June 30, 2016, we recorded an other-than-temporary impairment related to these mutual funds amounting to $1,434.

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

   
June 30, 2017
 
   
Amortized
cost
   
Estimated
fair value
 
Securities available for sale:
           
Due in one year or less
 
$
71,618
   
$
71,772
 
Due after one year through five years
   
324,426
     
327,707
 
Due after five years through ten years
   
131,235
     
137,195
 
Due after ten years
   
565,723
     
606,463
 
Residential mortgage-backed securities
   
11,877
     
11,909
 
Collateralized mortgage obligations
   
41,129
     
41,115
 
   
$
1,146,008
   
$
1,196,161
 
Securities held to maturity:
               
Due in one year or less
 
$
2,026
   
$
2,026
 
Due after ten years
   
618
     
784
 
Residential mortgage-backed securities
   
191
     
193
 
   
$
2,835
   
$
3,003
 

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
Information regarding realized and unrealized gains and losses from investments is as follows:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Realized gains (losses):
                       
Fixed maturity securities:
                       
Securities available for sale:
                       
Gross gains from sales
 
$
384
   
$
912
   
$
401
   
$
1,873
 
Gross losses from sales
   
(517
)
   
(103
)
   
(636
)
   
(1,462
)
Total fixed maturity securities
   
(133
)
   
809
     
(235
)
   
411
 
Equity securities:
                               
Securities available for sale:
                               
Gross gains from sales
   
4,189
     
2,525
     
4,627
     
3,112
 
Gross losses from sales
   
(2
)
   
(380
)
   
(2
)
   
(511
)
Gross losses from other-than-temporary impairments
   
-
     
(1,434
)
   
-
     
(1,434
)
Total equity securities
   
4,187
     
711
     
4,625
     
1,167
 
Net realized gains on securities available for sale
 
$
4,054
   
$
1,520
   
$
4,390
   
$
1,578
 
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Changes in net unrealized gains (losses):
                       
Recognized in accumulated other comprehensive income:
                       
Fixed maturities – available for sale
 
$
3,252
   
$
18,739
   
$
2,813
   
$
41,328
 
Equity securities – available for sale
   
2,768
     
2,908
     
13,911
     
9,677
 
   
$
6,020
   
$
21,647
   
$
16,724
   
$
51,005
 
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
(10
)
 
$
27
   
$
(8
)
 
$
63
 

The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the six months ended June 30, 2017 and 2016 was $3,931 and $15,598, respectively.
 
As of June 30, 2017 and December 31, 2016, no individual investment in securities exceeded 10% of stockholders’ equity.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
(4)
Premiums and Other Receivables, Net
 
Premiums and other receivables, net were as follows:

   
June 30,
2017
   
December 31,
2016
 
Premium
 
$
107,058
   
$
91,528
 
Self-funded group receivables
   
51,646
     
57,728
 
FEHBP
   
15,582
     
14,321
 
Agent balances
   
40,340
     
25,495
 
Accrued interest
   
13,839
     
13,668
 
Reinsurance recoverable
   
55,772
     
58,295
 
Unsettled sales
   
6,715
     
-
 
Other
   
62,859
     
62,637
 
     
353,811
     
323,672
 
Less allowance for doubtful receivables:
               
Premium
   
23,949
     
27,320
 
Other
   
9,314
     
9,987
 
     
33,263
     
37,307
 
Total premium and other receivables, net
 
$
320,548
   
$
286,365
 

As of June 30, 2017 and December 31, 2016, the Company had premiums and other receivables of $63,565 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 June 30, 2017 and December 31, 2016 were $14,853 and $18,812, respectively.
 
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:
 
   
June 30, 2017
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
                       
Fixed maturity securities
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
40,383
   
$
-
   
$
40,383
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
79,997
     
-
     
-
     
79,997
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
12,161
     
-
     
12,161
 
Municipal securities
   
-
     
716,642
     
-
     
716,642
 
Corporate bonds
   
-
     
293,954
     
-
     
293,954
 
Residential agency mortgage-backed securities
   
-
     
11,909
     
-
     
11,909
 
Collateralized mortgage obligations
   
-
     
41,115
     
-
     
41,115
 
Total fixed maturities
   
79,997
     
1,116,164
     
-
     
1,196,161
 
Equity securities - Mutual funds
   
173,957
     
84,406
     
-
     
258,363
 
Alternative investments - measured at net asset value
   
-
     
-
     
-
     
29,457
 
Total
 
$
253,954
   
$
1,200,570
   
$
-
   
$
1,483,981
 

Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy.  The fair value amount presented in this table is intended to facilitate the reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
 
   
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
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
There were no transfers in and/or out of Level 3 and between Levels 1 and 2 during the three months and six months ended June 30, 2017 and 2016.  Level 3 securities are partnerships measured at fair value using the net asset value affected by changes in the fair market value of the investments held in these partnerships.
 
The alternative investments represent investments in partnerships which invest in several equity and private equity funds.  Portfolios are diversified by vintage year, stage, geography, business sectors and number of investments. These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair values of the investments in this class have been estimated using the net asset value of the Company’s ownership interest in the partnerships. Total unfunded capital commitments for these positions as of June 30, 2017 amounted to $118,668.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets are as follows:
 
   
June 30, 2017
 
   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
8,716
   
$
-
   
$
8,716
   
$
-
   
$
8,716
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
179,225
   
$
-
   
$
179,225
   
$
-
   
$
179,225
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
33,968
     
-
     
33,968
     
-
     
33,968
 
Total long-term borrowings
   
33,968
     
-
     
33,968
     
-
     
33,968
 
Total liabilities
 
$
213,193
   
$
-
   
$
213,193
   
$
-
   
$
213,193
 
 
   
December 31, 2016
 
   
Carrying
   
Fair Value
 
   
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
 
 
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
June 30, 2017
   
Six months ended
June 30, 2017
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                                     
Claim liabilities at beginning of year
 
$
393,525
   
$
136,779
   
$
530,304
   
$
349,047
   
$
138,896
   
$
487,943
 
Reinsurance recoverable on claim liabilities
   
-
     
(35,898
)
   
(35,898
)
   
-
     
(38,998
)
   
(38,998
)
Net claim liabilities at beginning of year
   
393,525
     
100,881
     
494,406
     
349,047
     
99,898
     
448,945
 
Claims incurred
                                               
Current period insured events
   
580,608
     
26,282
     
606,890
     
1,183,241
     
54,508
     
1,237,749
 
Prior period insured events
   
(1,355
)
   
(1,196
)
   
(2,551
)
   
(16,695
)
   
(2,529
)
   
(19,224
)
Total
   
579,253
     
25,086
     
604,339
     
1,166,546
     
51,979
     
1,218,525
 
Payments of losses and loss-adjustment expenses
                                               
Current period insured events
   
576,135
     
14,944
     
591,079
     
926,585
     
22,917
     
949,502
 
Prior period insured events
   
25,208
     
11,586
     
36,794
     
217,573
     
29,523
     
247,096
 
Total
   
601,343
     
26,530
     
627,873
     
1,144,158
     
52,440
     
1,196,598
 
Net claim liabilities at end of year
   
371,435
     
99,437
     
470,872
     
371,435
     
99,437
     
470,872
 
Reinsurance recoverable on claim liabilities
   
-
     
33,368
     
33,368
     
-
     
33,368
     
33,368
 
Claim liabilities at end of year
 
$
371,435
   
$
132,805
   
$
504,240
   
$
371,435
   
$
132,805
   
$
504,240
 

   
Three months ended
June 30, 2016
   
Six months ended
June 30, 2016
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                                     
Claim liabilities at beginning of year
 
$
381,448
   
$
143,618
   
$
525,066
   
$
348,297
   
$
143,468
   
$
491,765
 
Reinsurance recoverable on claim liabilities
   
-
     
(39,871
)
   
(39,871
)
   
-
     
(40,714
)
   
(40,714
)
Net claim liabilities at beginning of year
   
381,448
     
103,747
     
485,195
     
348,297
     
102,754
     
451,051
 
Claims incurred
                                               
Current period insured events
   
596,909
     
25,950
     
622,859
     
1,192,499
     
51,840
     
1,244,339
 
Prior period insured events
   
(6,728
)
   
(686
)
   
(7,414
)
   
(6,028
)
   
(2,934
)
   
(8,962
)
Total
   
590,181
     
25,264
     
615,445
     
1,186,471
     
48,906
     
1,235,377
 
Payments of losses and loss-adjustment expenses
                                               
Current period insured events
   
583,381
     
16,557
     
599,938
     
948,420
     
21,653
     
970,073
 
Prior period insured events
   
46,743
     
10,204
     
56,947
     
244,843
     
27,757
     
272,600
 
Total
   
630,124
     
26,761
     
656,885
     
1,193,263
     
49,410
     
1,242,673
 
Net claim liabilities at end of year
   
341,505
     
102,250
     
443,755
     
341,505
     
102,250
     
443,755
 
Reinsurance recoverable on claim liabilities
   
-
     
38,109
     
38,109
     
-
     
38,109
     
38,109
 
Claim liabilities at end of year
 
$
341,505
   
$
140,359
   
$
481,864
   
$
341,505
   
$
140,359
   
$
481,864
 
 
*
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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 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 $6,945 and $13,635 during the three months and six months ended June 30, 2017, respectively.  The change in the liability for future policy benefits during the three months and six months ended June 30, 2016 amounted to $6,642 and $13,404, respectively.
 
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 June 30, 2017.

Incurred
Year
 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2015
   
68,022
 
2016
   
46,181
 
2017
   
256,656
 
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
(7)
Long-Term Borrowings
 
A summary of the borrowings entered by the Company is as follows:

   
June 30,
   
December 31,
 
   
2017
   
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 2.00% at June 30, 2017.)
   
10,367
     
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 3.90% at June 30, 2017.)
   
19,730
     
-
 
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 4.40% at June 30, 2017.)
   
3,871
     
-
 
                 
Total borrowings
   
33,968
     
35,187
 
                 
Less: unamortized debt issuance costs
   
301
     
102
 
   
$
33,667
   
$
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 outstanding balance of 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.
 
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 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.  As of June 30, 2017, there is no outstanding balance in this line of credit.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
(8)
Pension Plan
 
The components of net periodic benefit cost for the three months and six months ended June 30 were as follows:

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Components of net periodic benefit cost:
                       
Service cost
 
$
-
   
$
878
   
$
-
   
$
2,128
 
Interest cost
   
1,798
     
1,939
     
3,596
     
4,701
 
Expected return on assets
   
(2,199
)
   
(2,054
)
   
(4,398
)
   
(4,980
)
Amortization of prior service benefit
   
-
     
(102
)
   
-
     
(246
)
Amortization of actuarial loss
   
86
     
831
     
172
     
2,014
 
Settlement loss
   
631
     
-
     
631
     
-
 
Net periodic benefit cost
 
$
316
   
$
1,492
   
$
1
   
$
3,617
 

Effective January 31, 2017, the Company froze the pay and service components of 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 June 30, 2017, the Corporation has not made contributions to the pension program.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
(9)