Triple-S Management Corporation Reports Third Quarter 2017 Results

SAN JUAN, Puerto Rico, November 9, 2017 – Triple-S Management Corporation (NYSE:GTS), a leading managed care company in Puerto Rico, today announced its third quarter 2017 results.

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Net income of $21.9 million, or $0.91 per diluted share, versus net loss of $1.9 million, or $0.08 per diluted share, in the prior-year period;

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Adjusted net income of $18.7 million, or $0.77 per diluted share, versus adjusted net loss of

$6.3 million, or $0.26 per diluted share, a year ago, reflecting ongoing improvements in our Managed Care operations and the negative impact on the Company’s 2016 third quarter results from unfavorable prior-period reserve developments. The results also reflect, to a lesser extent, the net impact of the recent hurricanes, which represented approximately $0.09 of the improvement in the third quarter diluted earnings per share;

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Total revenues of $738.2 million, a 0.9% decrease, compared with $744.7 million in the prior-year period;

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Operating revenues of $731.1 million, a 1.0% decrease from the prior-year period, reflecting lower premiums in the Managed Care segment;

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Consolidated operating income of $28.3 million;

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Consolidated loss ratio of 81.7%;

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Medical loss ratio (MLR) of 82.4% and

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The establishment of a $30.0 million Class B share repurchase program, under which 539,034 shares were repurchased during the quarter at an aggregate cost of $12.6 million and 322,000 shares were subsequently repurchased at an aggregate cost of $7.7 million.

“The impact of two major hurricanes on Puerto Rico within a two-week period during the quarter was a historic event with significant economic and social impact,” said Roberto Garcia-Rodriguez, President and Chief Executive Officer. “Seven weeks after María, basic infrastructure is not yet fully functional, with power generation at 42% of average, potable water at 83% of its capacity and telecommunications bandwidth still limited in many parts of the island. Despite the hardship, however, the residents of Puerto Rico have demonstrated tremendous resolve, working tirelessly to help their neighbors and communities recover. We are particularly grateful to our employees and business partners who made it possible for Triple-S to resume operations within days after María landed, our medical groups—many of whom are providing services despite challenging conditions—and the many volunteers who have crisscrossed the island by our side to reconnect patients with doctors.

 

Triple-S Management Corporation

 

“We have focused our efforts on ensuring the well-being of our employees, helping our providers resume operations, enabling access to healthcare services, and promptly processing property insurance claims to accelerate the rebuilding of our economy,” continued Mr. Garcia-Rodriguez. “Healthcare services are steadily returning to normal, although still somewhat tied to the recovery of Puerto Rico’s infrastructure. Over 87% of our primary medical groups are now operational, but utilization of healthcare services overall is below average, reflecting the general population’s continued focus on relief and recovery. It is still too early to tell how utilization patterns, the acceleration of outward migration, and reconstruction efforts will impact future results.

“Our third quarter was also characterized by ongoing improvement in our Managed Care operations, reflecting continued strides with our clinical and contracting initiatives. Capitation agreements in home health care, vision care, and durable medical equipment, as well as the re-contracting of our ESRD network, are yielding meaningful savings, and additional initiatives will be implemented as we enter 2018.

“Hurricanes Irma and María have, of course, caused an unusual quarter for our P&C segment as well, with a spike in claims in the quarter for property damage. Given the composition of our catastrophic coverage portfolio, current modeling estimates and our robust reinsurance program, however, we believe the financial impact of these storms has been fully recognized in the third quarter.

“As Puerto Rico concentrates on its recovery, our goal is to enhance its health and well-being through the development of value-based, integrated healthcare delivery models. Our multi-year transformation is on track, and we have both the management team and capital resources necessary to support this strategic agenda,” concluded Garcia-Rodriguez.

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Consolidated premiums earned were $714.3 million, down 1.0% from the prior-year period. The decrease reflects lower premiums in the Managed Care business, primarily due to the impact of the Medicaid profit sharing accrual recorded in 2016, the suspension of the HIP fee pass-through and lower additional Medicare risk score revenue, partially offset by higher average premium rates in the segment’s Commercial and Medicaid businesses. With the Medicaid contract extension that became effective

July 1, 2017, the average premium rates for this business increased by approximately 9%. In addition, premiums earned were impacted by approximately $3.0 million of estimated reinsurance related costs, including estimates for catastrophe reinsurance reinstatement costs for the rest of the year.

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Consolidated claims incurred were $583.6 million, down 7.2% year over year, mostly due to lower claims in the Managed Care segment and partially offset by an increase in claims in the Property and Casualty business. The decrease in Managed Care claims primarily reflects lower claims incurred across all businesses in the segment, mostly driven by favorable fluctuations in prior-period reserve developments in the Commercial and Medicare businesses, as well as by the estimated utilization decrease stemming from Hurricanes Irma and Maria. Estimated gross Property and Casualty losses related to Hurricanes Irma and Maria were $5.0 million and $613.0 million, respectively; however, after the application of reinsurance, the segment’s estimated net retained losses related to Hurricanes Irma and Maria were approximately $3.5 million and $10.5 million, respectively. At 81.7%, the consolidated loss ratio improved 550 basis points from the prior-year period.

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Consolidated operating expenses decreased $4.2 million, while the operating expense ratio improved 40 basis points year over year, to 16.6%. The reduction in operating expenses reflects the $11.6 million decrease in the HIP fee due to the 2017 moratorium, partially offset by an increase in personnel costs, hurricane-related expenses, provision for doubtful accounts, and other general administrative expenses totaling approximately $7.3 million.

 

●	Consolidated other income increased $2.7 million in 2017, mostly due to a special distribution of $2.4 million, net of tax, received from the Puerto Rico Joint Underwriting Association.

●	Consolidated income tax expense was $11.8 million, an increase of $19.7 million from the prior-year period, primarily reflecting a significant increase in the Managed Care segment’s taxable income, which has a higher effective tax rate than other businesses.

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As of September 30, 2017, the consolidated balance sheet reflects approximately $614 million within claim liabilities of unpaid estimated gross losses related to the aforementioned hurricanes, as well as $604 million within premiums and other receivables of catastrophe-related losses recoverable from the Property and Casualty reinsurance program.

●	Managed Care premiums earned were $654.1 million, down 1.0% year over year.

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Commercial premiums were down 3.6% when compared with the third quarter last year, to $198.9 million, resulting from lower fully-insured member month enrollment offset by higher average premium rates. Also contributing to the premium decline was the suspension of $3.6 million in HIP fee pass-throughs in 2017.

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Medicare premiums of $264.3 million rose 3.5% year over year, largely reflecting an increase in member month enrollment of 24,000 lives, offset, in part, by a $6.1 million decline in additional risk score revenue adjustments and a reduction in Medicare reimbursement rates.

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Medicaid premiums fell 4.3% from the prior-year period to $190.9 million. The decrease primarily reflects the 2.5% excess profit sharing accrual that increased last year’s premiums by $15.6 million, a membership decline, and $2.8 million associated with the 2017 HIP fee suspension; partially offset by the impact of the new rates that became effective July  2017, which increased average premiums by approximately 9%.

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Managed Care MLR of 82.4% improved 810 basis points from the prior year, mostly reflecting the estimated decrease in utilization caused by Hurricanes Irma and Maria in September 2017 and favorable prior-period reserve developments. Excluding the impact of prior-period reserve developments, and moving the Medicare risk score revenue adjustments and other premium adjustments to the corresponding period, the Managed Care MLR would have been 83.8%, 260 basis points lower than the comparable metric a year ago. The estimated decrease in utilization related to the aforementioned hurricanes lowered the segment’s claims incurred and adjusted MLR by approximately $28 million and 430 basis points, respectively.

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Managed Care operating expenses were $89.0 million, down $4.8 million, or 5.1%, year over year, primarily reflecting the HIP fee decrease, partially offset by an increase in personnel costs, hurricane-related expenses, provision for doubtful accounts and other general administrative expenses, as discussed above.

 

For the nine months ended September 30, 2017, consolidated operating revenues decreased 2.2% year over year, to $2.2 billion, primarily reflecting a $52.8 million decline in Managed Care segment premiums. The premium decrease is mainly due to lower membership in the segment’s Medicaid and Commercial businesses, the impact of the suspension of the HIP fee pass through, and lower Medicare risk score adjustments. Consolidated claims for the nine-month period were $1.8 billion, down 3.3% over last year, mostly due to lower claims in the Managed Care segment offset by increased claims in the Property and Casualty segment. The decrease in Managed Care claims primarily reflects lower claims incurred in all of the segment’s businesses, driven by an enrollment decline in the segment’s Commercial and Medicaid businesses and the estimated decrease in utilization caused by the two hurricanes, as well as favorable fluctuations in the prior-period reserve developments in the Commercial and Medicare businesses.

The Property and Casualty segment’s estimated net retained losses related to Hurricanes Irma and Maria were approximately $3.5 million and $10.5 million, respectively, after the application of reinsurance. The consolidated loss ratio and MLR were down 90 basis points and 160 basis points, to 84.9% and 87.2%, respectively. Consolidated operating expenses for the nine months ended September 30, 2017 were

$348.8 million and the operating expense ratio was 16.2%. Adjusted net income for the nine-month period was $23.4 million, or $0.97 per diluted share, based on weighted average shares outstanding of 24.2 million, compared with a $0.2 million adjusted net loss, or $0.01 per diluted share, based on weighted average shares outstanding of 24.6 million, at the same time last year.

Triple-S has previously provided directional guidance for its Commercial and Medicare businesses and last quarter also provided directional guidance for its Government Health Plan (GHP), since the contract extension gives the Company more visibility into the outlook of that business. The directional guidance provided below was prepared considering the economic situation in Puerto Rico in the aftermath of Hurricanes Irma and Maria, as well as the expected impact in the Company’s Managed Care and Property and Casualty segments:

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Commercial—expect full-year at-risk member month enrollment to be approximately 4.0 million, plus or minus 5%, reflecting some attrition as well as the addition of new groups. Full-year MLR is revised from a range of 83% to 85% to between 79% and 81%.

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Medicare Advantage—anticipate full-year member month enrollment of about 1.5 million, plus or minus 5%. Full-year MLR is unchanged remaining between 90% and 92%.

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GHP—expect member month enrollment of 4.6 million, plus or minus 5%.  Full-year MLR is expected to be between 91% and 93%.

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Full-year Life insurance and Property and Casualty premiums have been revised and are now expected to reach $160 million and $81 million, respectively, plus or minus 5%.

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Full-year investment income is expected to be approximately $50 million and full-year administrative expenses are revised to a range of $468 million to $472 million.

Management will host a conference call and webcast on November 9, 2017 at 9:00 a.m. Eastern Time to discuss its financial results for the three months and the nine months ended September 30, 2017. To participate, callers within the U.S. and Canada should dial 1-855-327-6837 and international callers should dial 1-631-891-4304 about five minutes before the call.

 

This earnings release presents information about the Company’s adjusted net income, which is a non-GAAP financial metric provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America (GAAP). A reconciliation of adjusted net income to net income, the most comparable GAAP financial measure, is provided in the accompanying tables found at the end of this release.

This document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances. Sentences that include “believe”, “expect”, “plan”, “intend”, “estimate”, “anticipate”, “project”, “may”, “will”, “shall”, “should” and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.

All forward-looking statements in this news release reflect management’s current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the U.S. Securities and Exchange Commission (SEC).

In addition, the Company operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight. The following factors, if markedly different from the Company’s planning assumptions (either individually or in combination), could cause Triple-S Management’s results to differ materially from those expressed in any forward-looking statements shared here:

●	Trends in health care costs and utilization rates

●	Ability to secure sufficient premium rate increases

●	Competitor pricing below market trends of increasing costs

●	Re-estimates of policy and contract liabilities

●	Changes in government laws and regulations of managed care, life insurance or property and casualty insurance

●	Significant acquisitions or divestitures by major competitors

●	Introduction and use of new prescription drugs and technologies

●	A downgrade in the Company’s financial strength ratings

●	A downgrade in the Government of Puerto Rico’s debt

●	Litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies

 

●	Ability to contract with providers consistent with past practice

●	Ability to successfully implement the Company’s disease management, utilization management and Star ratings programs

●	Ability to maintain Federal Employees, Medicare and Medicaid contracts

●	Volatility in the securities markets and investment losses and defaults

●	General economic downturns, major disasters, and epidemics

This list is not exhaustive. Management believes the forward-looking statements in this release are reasonable. However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on the Company’s results of operations or financial condition. In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations. In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of the United States) the Company does not intend to update or revise any of them in light of new information or future events.

Readers are advised to carefully review and consider the various disclosures in the Company’s SEC reports.

 

Triple-S Management Corporation

 

 

Exhibit I

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

Unaudited

 

Exhibit II

Condensed Consolidated Statements of Earnings

(dollar amounts in thousands, except per share data)

Unaudited

 

Exhibit III

Condensed Consolidated Statements of Cash Flows

(dollar amounts in thousands)

Unaudited

Triple-S Management Corporation

 

Exhibit IV

³ Operating margin is defined as operating income or loss divided by operating revenues.

 

Triple-S Management Corporation

 

*Information provided as of December 31, 2016.

¹ The adjusted medical loss ratio accounts for subsequent adjustments to estimates, such as prior-period reserve developments and Medicare premium adjustments, and presents them in the corresponding period.

 

Triple-S Management Corporation

 

 

Exhibit V

Adjusted net income is a non-GAAP financial metric and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management believes that the use of this adjusted net income and adjusted net income per share provides investors and management useful information about the earnings impact of realized investment gains and other non-recurring items impacting the Company’s results of operations. This non-GAAP metric does not consider all of the items associated with the Company’s operations as determined in accordance with GAAP. As a result, one should not consider these measures in isolation.

 

 

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