Attached files
file | filename |
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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 |
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, 2018
Or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to _____
COMMISSION FILE NUMBER: 001-33865
Triple-S Management Corporation
Puerto Rico
|
66-0555678
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
1441 F.D. Roosevelt Avenue
San Juan, Puerto Rico |
00920
|
|
(Address of principal executive offices)
|
(Zip code)
|
(787) 749-4949
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☑
|
Non-accelerated filer ☐
|
Smaller reporting company ☐
|
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 March 31, 2018
|
|
Common Stock Class A, $1.00 par value
|
950,968
|
|
Common Stock Class B, $1.00 par value
|
22,331,922
|
Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended March 31, 2018
Part I – Financial Information |
3
|
||
Item 1. |
3
|
||
Item 2. |
33
|
||
33
|
|||
33
|
|||
34
|
|||
36
|
|||
36
|
|||
37
|
|||
39
|
|||
41
|
|||
42
|
|||
43
|
|||
Item 3. |
45
|
||
Item 4. |
45
|
||
Part II – Other Information |
45
|
||
Item 1. |
45
|
||
Item 1A. |
45
|
||
Item 2. |
46
|
||
Item 3. |
46
|
||
Item 4. |
46
|
||
Item 5. |
46
|
||
Item 6. |
46
|
||
SIGNATURES |
47
|
Part I – Financial Information
Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)
March 31,
2018
|
December 31,
2017
|
|||||||
Assets
|
||||||||
Investments and cash:
|
||||||||
Fixed maturities available for sale, at fair value
|
$
|
1,323,777
|
$
|
1,216,788
|
||||
Fixed maturities held to maturity, at amortized cost
|
2,483
|
2,319
|
||||||
Equity investments, at fair value
|
272,189
|
342,309
|
||||||
Other invested assets, at net asset value
|
44,149
|
34,984
|
||||||
Policy loans
|
9,262
|
9,077
|
||||||
Cash and cash equivalents
|
212,610
|
198,941
|
||||||
Total investments and cash
|
1,864,470
|
1,804,418
|
||||||
Premiums and other receivables, net
|
775,258
|
899,327
|
||||||
Deferred policy acquisition costs and value of business acquired
|
202,581
|
200,788
|
||||||
Property and equipment, net
|
76,825
|
74,716
|
||||||
Deferred tax asset
|
65,065
|
65,123
|
||||||
Goodwill
|
25,397
|
25,397
|
||||||
Other assets
|
91,395
|
46,996
|
||||||
Total assets
|
$
|
3,100,991
|
$
|
3,116,765
|
||||
Liabilities and Stockholders' Equity
|
||||||||
Claim liabilities
|
$
|
1,034,761
|
$
|
1,106,876
|
||||
Liability for future policy benefits
|
344,536
|
339,507
|
||||||
Unearned premiums
|
174,056
|
86,349
|
||||||
Policyholder deposits
|
176,704
|
176,534
|
||||||
Liability to Federal Employees' Health Benefits and
|
||||||||
Federal Employees' Programs
|
56,656
|
52,287
|
||||||
Accounts payable and accrued liabilities
|
334,945
|
354,894
|
||||||
Deferred tax liability
|
19,127
|
21,891
|
||||||
Long-term borrowings
|
31,275
|
32,073
|
||||||
Liability for pension benefits
|
33,382
|
33,672
|
||||||
Total liabilities
|
2,205,442
|
2,204,083
|
||||||
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, 2018 and December 31, 2017, respectively
|
951
|
951
|
||||||
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,331,922 and 22,627,077 shares at March 31, 2018 and December 31, 2017, respectively
|
22,332
|
22,627
|
||||||
Additional paid-in capital
|
39,153
|
53,142
|
||||||
Retained earnings
|
829,186
|
785,390
|
||||||
Accumulated other comprehensive income
|
4,609
|
51,254
|
||||||
Total Triple-S Management Corporation stockholders' equity
|
896,231
|
913,364
|
||||||
Non-controlling interest in consolidated subsidiary
|
(682
|
)
|
(682
|
)
|
||||
Total stockholders' equity
|
895,549
|
912,682
|
||||||
Total liabilities and stockholders' equity
|
$
|
3,100,991
|
$
|
3,116,765
|
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
March 31,
|
||||||||
2018
|
2017
|
|||||||
Revenues:
|
||||||||
Premiums earned, net
|
$
|
752,034
|
$
|
702,273
|
||||
Administrative service fees
|
3,348
|
4,379
|
||||||
Net investment income
|
13,755
|
12,016
|
||||||
Other operating revenues
|
1,071
|
965
|
||||||
Total operating revenues
|
770,208
|
719,633
|
||||||
Net realized investment gains
|
2,942
|
336
|
||||||
Net unrealized investment losses on equity investments
|
(16,199
|
)
|
-
|
|||||
Other income, net
|
1,163
|
2,525
|
||||||
Total revenues
|
758,114
|
722,494
|
||||||
Benefits and expenses:
|
||||||||
Claims incurred
|
618,989
|
620,863
|
||||||
Operating expenses
|
133,134
|
110,946
|
||||||
Total operating costs
|
752,123
|
731,809
|
||||||
Interest expense
|
1,690
|
1,686
|
||||||
Total benefits and expenses
|
753,813
|
733,495
|
||||||
Income (loss) before taxes
|
4,301
|
(11,001
|
)
|
|||||
Income taxes
|
387
|
(6,658
|
)
|
|||||
Net income (loss)
|
3,914
|
(4,343
|
)
|
|||||
Less: Net loss attributable to non-controlling interest
|
-
|
1
|
||||||
Net income (loss) attributable to Triple-S Management Corporation
|
$
|
3,914
|
$
|
(4,342
|
)
|
|||
Earnings per share attributable to Triple-S Management Corporation
|
||||||||
Basic net income (loss) per share
|
$
|
0.17
|
$
|
(0.18
|
)
|
|||
Diluted net income (loss) per share
|
$
|
0.17
|
$
|
(0.18
|
)
|
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
March 31,
|
||||||||
2018
|
2017
|
|||||||
Net income (loss)
|
$
|
3,914
|
$
|
(4,343
|
)
|
|||
Other comprehensive (loss) income, net of tax:
|
||||||||
Net unrealized change in fair value of available for sale securities, net of taxes
|
(6,894
|
)
|
8,472
|
|||||
Defined benefit pension plan:
|
||||||||
Actuarial loss, net
|
131
|
53
|
||||||
Total other comprehensive (loss) income, net of tax
|
(6,763
|
)
|
8,525
|
|||||
Comprehensive (loss) income
|
(2,849
|
)
|
4,182
|
|||||
Comprehensive income attributable to non-controlling interest
|
-
|
1
|
||||||
Comprehensive (loss) income attributable to Triple-S Management Corporation
|
$
|
(2,849
|
)
|
$
|
4,183
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(dollar amounts in thousands)
2018
|
2017
|
|||||||
Balance at January 1
|
$
|
913,364
|
$
|
863,163
|
||||
Share-based compensation
|
391
|
(1,443
|
)
|
|||||
Repurchase and retirement of common stock
|
(14,675
|
)
|
-
|
|||||
Comprehensive (loss) income
|
(2,849
|
)
|
4,183
|
|||||
Total Triple-S Management Corporation stockholders' equity
|
896,231
|
865,903
|
||||||
Non-controlling interest in consolidated subsidiary
|
(682
|
)
|
(678
|
)
|
||||
Balance at March 31
|
$
|
895,549
|
$
|
865,225
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)
Three months ended
March 31,
|
||||||||
2018
|
2017
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$
|
3,914
|
$
|
(4,343
|
)
|
|||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
3,410
|
2,990
|
||||||
Net amortization of investments
|
1,939
|
2,356
|
||||||
Additions (reductions) to the allowance for doubtful receivables
|
709
|
(3,209
|
)
|
|||||
Deferred tax benefit
|
(1,503
|
)
|
(7,525
|
)
|
||||
Net realized investment gain on sale of securities
|
(2,942
|
)
|
(336
|
)
|
||||
Net unrealized loss on equity investments
|
16,199
|
-
|
||||||
Interest credited to policyholder deposits
|
1,094
|
991
|
||||||
Share-based compensation
|
391
|
(1,443
|
)
|
|||||
Decrease (increase) in assets:
|
||||||||
Premium and other receivables, net
|
123,360
|
(3,263
|
)
|
|||||
Deferred policy acquisition costs and value of business acquired
|
(161
|
)
|
(822
|
)
|
||||
Deferred taxes
|
431
|
(265
|
)
|
|||||
Other assets
|
(40,489
|
)
|
(37
|
)
|
||||
(Decrease) increase in liabilities:
|
||||||||
Claim liabilities
|
(72,115
|
)
|
42,361
|
|||||
Liability for future policy benefits
|
5,029
|
4,930
|
||||||
Unearned premiums
|
87,707
|
84,470
|
||||||
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
|
4,369
|
2,836
|
||||||
Accounts payable and accrued liabilities
|
(869
|
)
|
11,274
|
|||||
Net cash provided by operating activities
|
130,473
|
130,965
|
||||||
(Continued)
|
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)
Three months ended
March 31,
|
||||||||
2018
|
2017
|
|||||||
Cash flows from investing activities:
|
||||||||
Proceeds from investments sold or matured:
|
||||||||
Securities available for sale:
|
||||||||
Fixed maturities sold
|
$
|
443,419
|
$
|
26,023
|
||||
Fixed maturities matured/called
|
5,368
|
5,001
|
||||||
Securities held to maturity:
|
||||||||
Fixed maturities matured/called
|
1,048
|
703
|
||||||
Equity investments sold
|
113,863
|
10,272
|
||||||
Other invested assets sold
|
845
|
-
|
||||||
Acquisition of investments:
|
||||||||
Securities available for sale:
|
||||||||
Fixed maturities
|
(575,694
|
)
|
(33,738
|
)
|
||||
Securities held to maturity:
|
||||||||
Fixed maturities
|
(1,212
|
)
|
(382
|
)
|
||||
Equity investments
|
(49,591
|
)
|
(5,482
|
)
|
||||
Other invested assets
|
(9,683
|
)
|
-
|
|||||
Increase in other investments
|
(4,136
|
)
|
(2,044
|
)
|
||||
Net change in policy loans
|
(185
|
)
|
18
|
|||||
Net capital expenditures
|
(4,861
|
)
|
(3,295
|
)
|
||||
Net cash used in investing activities
|
(80,819
|
)
|
(2,924
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Change in outstanding checks in excess of bank balances
|
(19,992
|
)
|
(11,401
|
)
|
||||
Repayments of long-term borrowings
|
(810
|
)
|
(24,676
|
)
|
||||
Proceeds from long-term borrowings
|
-
|
24,266
|
||||||
Repurchase and retirement of common stock
|
(14,259
|
)
|
-
|
|||||
Proceeds from policyholder deposits
|
6,237
|
4,116
|
||||||
Surrenders of policyholder deposits
|
(7,161
|
)
|
(4,890
|
)
|
||||
Net cash used in financing activities
|
(35,985
|
)
|
(12,585
|
)
|
||||
Net increase in cash and cash equivalents
|
13,669
|
115,456
|
||||||
Cash and cash equivalents:
|
||||||||
Beginning of period
|
198,941
|
103,428
|
||||||
End of period
|
$
|
212,610
|
$
|
218,884
|
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 United States of America (GAAP or U.S. GAAP) for complete financial statement presentation. 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, 2017.
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, 2018 are not necessarily indicative of the results for the full year ending December 31, 2018.
(2) |
Significant Accounting Policies
|
Investments
Fixed maturities and other invested assets
Investment in debt securities at March 31, 2018 and December 31, 2017 consists mainly of obligations of government‑sponsored enterprises, U.S. Treasury securities and obligations of U.S. government instrumentalities, obligations of the Commonwealth of Puerto Rico and its instrumentalities, municipal securities, corporate bonds, residential mortgage-backed securities, collateralized mortgage obligations. The Company classifies its debt securities in one of two categories: available-for-sale or held-to-maturity. Securities classified as held-to-maturity are those securities in which the Company has the ability and intent to hold until maturity. All other securities not included in held-to-maturity are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. The fair values of debt securities (both available-for-sale and held-to-maturity investments) are based on quoted market prices for those or similar investments at the reporting date. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts, respectively. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are included in earnings and are determined on a specific‑identification basis.
Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from held-to-maturity to available-for-sale are recorded as a separate component of other comprehensive income. The unrealized holding gains or losses included in the separate component of other comprehensive income for securities transferred from available-for-sale to held-to-maturity, are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
If a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings. For impaired fixed maturity securities that the Company does not intend to sell or it is more likely than not that such securities will not have to be sold, but the Company expects not to fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income. Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.
The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of acquisition.
A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, market conditions, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.
The Company regularly invests in mortgaged-backed securities and other securities subject to prepayment and call risk. Significant changes in prevailing interest rates may adversely affect the timing and amount of cash flows on such securities. In addition, the amortization of market premium and accretion of market discount for mortgaged-backed securities is based on historical experience and estimates of future payment speeds on the underlying mortgage loans. Actual prepayment speeds may differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods.
Other invested assets at March 31, 2018 and December 31, 2017 consist mainly of alternative investments in partnerships which invest in several private debt 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 (NAV) of the Company’s ownership interest in the partnerships. Total unfunded capital commitments for these positions as of March 31, 2018 amounted to $107,035. The remaining average commitments period is approximately three years.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Equity investments
Investment in equity securities at March 31, 2018 and December 31, 2017 consists of mutual funds whose underlying assets are comprised of domestic equity securities, international equity securities and higher risk fixed income instruments. Equity investments are recorded at fair value. The fair values of equity investments are based on quoted market prices. Unrealized holding gains and losses, on equity investments are included in earnings. Realized gains and losses from the sale of equity investments are included in earnings and are determined on a specific‑identification basis.
Recent Accounting Standards
On February 28, 2018, the Financial Accounting Standard Board (FASB) issued guidance for Technical Corrections and Improvement to Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. Areas for correction or improvement include (1) equity securities without a readily determinable fair value—discontinuation, (2) equity securities without a readily determinable fair value—adjustments, (3) forward contracts and purchased options, (4) presentation requirements for certain fair value option liabilities, (5) fair value option liabilities denominated in a foreign currency, and (6) transition guidance for equity securities without a readily determinable fair value. For public companies, these amendments, will be applied on a prospective basis, for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Public entities with fiscal years beginning between December 15, 2017 and June 15, 2018 are not required to adopt these amendments until the interim period beginning after June 15, 2018. The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.
Recently Adopted Accounting Standards
On January 5, 2016, the FASB issued guidance to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. Among the many targeted improvements to U.S. GAAP are (1) requiring equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income; (2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; and (4) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This guidance applies to all entities that hold financial assets or owe financial liabilities. The Company also adopted guidance issued by FASB on March 9, 2018 that removes the previous guidance for Other Than Temporary Impairment of Certain Investments in Equity Securities as required by SEC Staff Accounting Bulletin (SAB) No. 117 and SEC Release No. 33-9273, since it is no longer applicable. For public companies, these amendments became effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this guidance for equity securities effective January 1, 2018. A cumulative-effect adjustment of $39,882 was made from accumulated other comprehensive income to the beginning retained earnings at the implementation date.
Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months ended March 31, 2018 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(3)
|
Investment in Securities
|
The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for the Company’s investments in securities by major security type and class of security at March 31, 2018 and December 31, 2017, were as follows:
March 31, 2018
|
||||||||||||||||
Amortized
cost |
Gross
unrealized |
Gross
unrealized |
Estimated
fair value |
|||||||||||||
Fixed maturities available for sale
|
||||||||||||||||
Obligations of government- sponsored enterprises
|
$
|
1,441
|
$
|
6
|
$
|
-
|
$
|
1,447
|
||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities
|
268,264
|
570
|
(335
|
)
|
268,499
|
|||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
8,117
|
9
|
-
|
8,126
|
||||||||||||
Municipal securities
|
758,689
|
24,033
|
(1,587
|
)
|
781,135
|
|||||||||||
Corporate bonds
|
187,392
|
14,349
|
(1,168
|
)
|
200,573
|
|||||||||||
Residential mortgage-backed securities
|
52,624
|
149
|
(764
|
)
|
52,009
|
|||||||||||
Collateralized mortgage obligations
|
12,335
|
6
|
(353
|
)
|
11,988
|
|||||||||||
Total fixed maturities available for sale
|
$
|
1,288,862
|
$
|
39,122
|
$
|
(4,207
|
)
|
$
|
1,323,777
|
March 31, 2018
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Fixed maturities held to maturity
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities
|
$
|
617
|
$
|
131
|
$
|
-
|
$
|
748
|
||||||||
Residential mortgage-backed securities
|
191
|
2
|
-
|
193
|
||||||||||||
Certificates of deposit
|
1,675
|
-
|
-
|
1,675
|
||||||||||||
Total
|
$
|
2,483
|
$
|
133
|
$
|
-
|
$
|
2,616
|
March 31, 2018
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Equity investments - Mutual Funds
|
$
|
238,539
|
$
|
35,111
|
$
|
(1,461
|
)
|
$
|
272,189
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
March 31, 2018
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Other invested assets - Alternative investments
|
$
|
43,859
|
$
|
927
|
$
|
(637
|
)
|
$
|
44,149
|
December 31, 2017
|
||||||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
|||||||||||||
Securities available for sale
|
||||||||||||||||
Fixed maturities
|
||||||||||||||||
Obligations of government- sponsored enterprises
|
$
|
1,431
|
$
|
13
|
$
|
-
|
$
|
1,444
|
||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities
|
118,858
|
41
|
(550
|
)
|
118,349
|
|||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
8,059
|
34
|
-
|
8,093
|
||||||||||||
Municipal securities
|
771,789
|
30,468
|
(1,467
|
)
|
800,790
|
|||||||||||
Corporate bonds
|
217,046
|
17,767
|
(489
|
)
|
234,324
|
|||||||||||
Residential mortgage-backed securities
|
32,465
|
2
|
(355
|
)
|
32,112
|
|||||||||||
Collateralized mortgage obligations
|
22,003
|
10
|
(337
|
)
|
21,676
|
|||||||||||
Total fixed maturities
|
1,171,651
|
48,335
|
(3,198
|
)
|
1,216,788
|
|||||||||||
Equity securities
|
||||||||||||||||
Mutual Funds
|
292,460
|
50,072
|
(223
|
)
|
342,309
|
|||||||||||
Alternative investments
|
34,669
|
559
|
(244
|
)
|
34,984
|
|||||||||||
Total equity securities
|
327,129
|
50,631
|
(467
|
)
|
377,293
|
|||||||||||
Total
|
$
|
1,498,780
|
$
|
98,966
|
$
|
(3,665
|
)
|
$
|
1,594,081
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
December 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
|
$
|
617
|
$
|
154
|
$
|
-
|
$
|
771
|
||||||||
Residential mortgage-backed securities
|
191
|
2
|
-
|
193
|
||||||||||||
Certificates of deposit
|
1,511
|
-
|
-
|
1,511
|
||||||||||||
Total
|
$
|
2,319
|
$
|
156
|
$
|
-
|
$
|
2,475
|
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, 2018 and December 31, 2017 were as follows:
March 31, 2018
|
||||||||||||||||||||||||||||||||||||
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
|
||||||||||||||||||||||||||||
Fixed maturities available for sale
|
||||||||||||||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
|
$
|
70,224
|
$
|
(335
|
)
|
6
|
$
|
-
|
$
|
-
|
-
|
$
|
70,224
|
$
|
(335
|
)
|
6
|
|||||||||||||||||||
Municipal securities
|
173,011
|
(1,581
|
)
|
26
|
712
|
(6
|
)
|
1
|
173,723
|
(1,587
|
)
|
27
|
||||||||||||||||||||||||
Corporate bonds
|
94,616
|
(1,168
|
)
|
21
|
-
|
-
|
-
|
94,616
|
(1,168
|
)
|
21
|
|||||||||||||||||||||||||
Residential mortgage-backed securities
|
30,529
|
(764
|
)
|
19
|
-
|
-
|
-
|
30,529
|
(764
|
)
|
19
|
|||||||||||||||||||||||||
Collateralized mortgage obligations
|
3,464
|
(94
|
)
|
1
|
7,898
|
(259
|
)
|
2
|
11,362
|
(353
|
)
|
3
|
||||||||||||||||||||||||
Total fixed maturities
|
$
|
371,844
|
$
|
(3,942
|
)
|
73
|
$
|
8,610
|
$
|
(265
|
)
|
3
|
$
|
380,454
|
$
|
(4,207
|
)
|
76
|
||||||||||||||||||
Other invested assets - Alternative investments
|
$
|
16,031
|
$
|
(185
|
)
|
5
|
$
|
5,694
|
$
|
(452
|
)
|
2
|
$
|
21,725
|
$
|
(637
|
)
|
7
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
December 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
|
||||||||||||||||||||||||||||
Securites available for sale
|
||||||||||||||||||||||||||||||||||||
Fixed maturities
|
||||||||||||||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
|
$
|
96,617
|
$
|
(550
|
)
|
7
|
$
|
-
|
$
|
-
|
-
|
$
|
96,617
|
$
|
(550
|
)
|
7
|
|||||||||||||||||||
Municipal securities
|
162,731
|
(1,467
|
)
|
27
|
-
|
-
|
-
|
162,731
|
(1,467
|
)
|
27
|
|||||||||||||||||||||||||
Corporate bonds
|
80,374
|
(489
|
)
|
16
|
-
|
-
|
-
|
80,374
|
(489
|
)
|
16
|
|||||||||||||||||||||||||
Residential mortgage-backed securities
|
31,736
|
(355
|
)
|
19
|
-
|
-
|
-
|
31,736
|
(355
|
)
|
19
|
|||||||||||||||||||||||||
Collateralized mortgage obligations
|
13,630
|
(239
|
)
|
3
|
7,294
|
(98
|
)
|
2
|
20,924
|
(337
|
)
|
5
|
||||||||||||||||||||||||
Total fixed maturities
|
385,088
|
(3,100
|
)
|
72
|
7,294
|
(98
|
)
|
2
|
392,382
|
(3,198
|
)
|
74
|
||||||||||||||||||||||||
Equity securities
|
||||||||||||||||||||||||||||||||||||
Mutual funds
|
42,983
|
(223
|
)
|
6
|
-
|
-
|
-
|
42,983
|
(223
|
)
|
6
|
|||||||||||||||||||||||||
Alternative investments
|
9,986
|
(212
|
)
|
5
|
3,162
|
(32
|
)
|
1
|
13,148
|
(244
|
)
|
6
|
||||||||||||||||||||||||
Total equity securities
|
52,969
|
(435
|
)
|
11
|
3,162
|
(32
|
)
|
1
|
56,131
|
(467
|
)
|
12
|
||||||||||||||||||||||||
Total for securities available for sale
|
$
|
438,057
|
$
|
(3,535
|
)
|
83
|
$
|
10,456
|
$
|
(130
|
)
|
3
|
$
|
448,513
|
$
|
(3,665
|
)
|
86
|
The Company reviews the available for sale and other invested assets portfolios under the Company’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 Company’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 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.
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.
Residential mortgage-backed securities and Collateralized mortgage obligations: The unrealized losses on investments in residential mortgage-backed securities and 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 Company owns. The Company 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 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.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Maturities of investment securities classified as available for sale and held to maturity were as follows:
March 31, 2018
|
||||||||
Amortized
cost
|
Estimated
fair value
|
|||||||
Fixed maturities available for sale
|
||||||||
Due in one year or less
|
29,553
|
29,684
|
||||||
Due after one year through five years
|
382,708
|
383,269
|
||||||
Due after five years through ten years
|
350,676
|
353,952
|
||||||
Due after ten years
|
460,966
|
492,875
|
||||||
Residential mortgage-backed securities
|
52,624
|
52,009
|
||||||
Collateralized mortgage obligations
|
12,335
|
11,988
|
||||||
$
|
1,288,862
|
$
|
1,323,777
|
|||||
Fixed maturities held to maturity
|
||||||||
Due in one year or less
|
1,675
|
1,675
|
||||||
Due after ten years
|
617
|
748
|
||||||
Residential mortgage-backed securities
|
191
|
193
|
||||||
$
|
2,483
|
$
|
2,616
|
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
March 31,
|
|||||||
2018
|
2017
|
|||||||
Realized gains (losses)
|
||||||||
Fixed maturity securities:
|
||||||||
Securities available for sale:
|
||||||||
Gross gains
|
$
|
172
|
$
|
17
|
||||
Gross losses
|
(7,930
|
)
|
(119
|
)
|
||||
Total debt securities
|
(7,758
|
)
|
(102
|
)
|
||||
Equity investments:
|
||||||||
Gross gains
|
8,203
|
438
|
||||||
Gross losses
|
(499
|
)
|
-
|
|||||
Total equity securities
|
7,704
|
438
|
||||||
Other invested assets:
|
||||||||
Gross gains
|
3,207
|
-
|
||||||
Gross losses
|
(211
|
)
|
-
|
|||||
Total other invested assets
|
2,996
|
-
|
||||||
Net realized investment gains
|
$
|
2,942
|
$
|
336
|
|
Three months ended
March 31,
|
|||||||
2018
|
2017
|
|||||||
Changes in net unrealized gains (losses):
|
||||||||
Recognized in accumulated other comprehensive income:
|
||||||||
Fixed maturities – available for sale
|
$
|
(10,222
|
)
|
$
|
(439
|
)
|
||
Other invested assets
|
(25
|
)
|
11,143
|
|||||
$
|
(10,247
|
)
|
$
|
10,704
|
||||
Not recognized in the consolidated financial statements:
|
||||||||
Fixed maturities – held to maturity
|
$
|
(23
|
)
|
$
|
2
|
The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the three months ended March 31, 2018 and 2017 was $3,679 and $2,136, respectively.
As of March 31, 2018 and December 31, 2017, 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:
March 31,
2018
|
December 31,
2017
|
|||||||
Premium
|
$
|
84,731
|
$
|
103,027
|
||||
Self-funded group receivables
|
40,236
|
39,859
|
||||||
FEHBP
|
14,084
|
13,346
|
||||||
Agent balances
|
29,346
|
32,818
|
||||||
Accrued interest
|
12,417
|
14,331
|
||||||
Reinsurance recoverable
|
552,615
|
661,679
|
||||||
Other
|
78,053
|
70,150
|
||||||
811,482
|
935,210
|
|||||||
Less allowance for doubtful receivables:
|
||||||||
Premium
|
27,002
|
26,490
|
||||||
Other
|
9,222
|
9,393
|
||||||
36,224
|
35,883
|
|||||||
Total premium and other receivables, net
|
$
|
775,258
|
$
|
899,327
|
As of March 31, 2018 and December 31, 2017, the Company had premiums and other receivables of $51,976 and $81,838, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations. The related allowance for doubtful receivables as of March 31, 2018 and December 31, 2017 were $17,009 and $16,436, 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, equity investments, 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 2017 Annual Report on Form 10-K.
The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:
March 31, 2018
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Fixed maturity securities available for sale
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
-
|
$
|
1,447
|
$
|
-
|
$
|
1,447
|
||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities
|
268,499
|
-
|
-
|
268,499
|
||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
-
|
8,126
|
-
|
8,126
|
||||||||||||
Municipal securities
|
-
|
781,135
|
-
|
781,135
|
||||||||||||
Corporate bonds
|
-
|
200,573
|
-
|
200,573
|
||||||||||||
Residential agency mortgage-backed securities
|
-
|
52,009
|
-
|
52,009
|
||||||||||||
Collateralized mortgage obligations
|
-
|
11,988
|
-
|
11,988
|
||||||||||||
Total fixed maturities
|
$
|
268,499
|
$
|
1,055,278
|
$
|
-
|
$
|
1,323,777
|
||||||||
Equity investments
|
$
|
138,685
|
$
|
133,504
|
$
|
-
|
$
|
272,189
|
||||||||
Alternative investments - measured at net asset value
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
44,149
|
December 31, 2017
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Securities available for sale:
|
||||||||||||||||
Fixed maturity securities
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
-
|
$
|
1,444
|
$
|
-
|
$
|
1,444
|
||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities
|
118,349
|
-
|
-
|
118,349
|
||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
-
|
8,093
|
-
|
8,093
|
||||||||||||
Municipal securities
|
-
|
800,790
|
-
|
800,790
|
||||||||||||
Corporate bonds
|
-
|
234,324
|
-
|
234,324
|
||||||||||||
Residential agency mortgage-backed securities
|
-
|
32,112
|
-
|
32,112
|
||||||||||||
Collateralized mortgage obligations
|
-
|
21,676
|
-
|
21,676
|
||||||||||||
Total fixed maturities
|
118,349
|
1,098,439
|
-
|
1,216,788
|
||||||||||||
Equity securities - Mutual funds
|
193,160
|
149,149
|
-
|
342,309
|
||||||||||||
Alternative investments - measured at net asset value
|
-
|
-
|
-
|
34,984
|
||||||||||||
Total equity securities
|
193,160
|
149,149
|
-
|
377,293
|
||||||||||||
Total
|
$
|
311,509
|
$
|
1,247,588
|
$
|
-
|
$
|
1,594,081
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
There were no transfers between Levels 1 and 2 during the three months ended March 31, 2018 and 2017.
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, 2018 and December 31, 2017 are as follows:
March 31, 2018
|
||||||||||||||||||||
Carrying
|
Fair Value
|
|||||||||||||||||||
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Assets:
|
||||||||||||||||||||
Policy loans
|
$
|
9,262
|
$
|
-
|
$
|
9,262
|
$
|
-
|
$
|
9,262
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Policyholder deposits
|
$
|
176,704
|
$
|
-
|
$
|
176,704
|
$
|
-
|
$
|
176,704
|
||||||||||
Long-term borrowings:
|
||||||||||||||||||||
Loans payable to bank - variable
|
31,541
|
-
|
31,541
|
-
|
31,541
|
|||||||||||||||
Total liabilities
|
$
|
208,245
|
$
|
-
|
$
|
208,245
|
$
|
-
|
$
|
208,245
|
December 31, 2017
|
||||||||||||||||||||
Carrying
|
Fair Value
|
|||||||||||||||||||
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Assets:
|
||||||||||||||||||||
Policy loans
|
$
|
9,077
|
$
|
-
|
$
|
9,077
|
$
|
-
|
$
|
9,077
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Policyholder deposits
|
$
|
176,534
|
$
|
-
|
$
|
176,534
|
$
|
-
|
$
|
176,534
|
||||||||||
Long-term borrowings:
|
||||||||||||||||||||
Loans payable to bank - variable
|
32,350
|
-
|
32,350
|
-
|
32,350
|
|||||||||||||||
Total liabilities
|
$
|
208,884
|
$
|
-
|
$
|
208,884
|
$
|
-
|
$
|
208,884
|
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, 2018
|
||||||||||||
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
||||||||||
Claim liabilities at beginning of period
|
$
|
367,357
|
$
|
739,519
|
$
|
1,106,876
|
||||||
Reinsurance recoverable on claim liabilities
|
-
|
(633,099
|
)
|
(633,099
|
)
|
|||||||
Net claim liabilities at beginning of period
|
367,357
|
106,420
|
473,777
|
|||||||||
Claims incurred
|
||||||||||||
Current period insured events
|
603,947
|
30,907
|
634,854
|
|||||||||
Prior period insured events
|
(20,226
|
)
|
(1,818
|
)
|
(22,044
|
)
|
||||||
Total
|
583,721
|
29,089
|
612,810
|
|||||||||
Payments of losses and loss-adjustment expenses
|
||||||||||||
Current period insured events
|
322,388
|
7,021
|
329,409
|
|||||||||
Prior period insured events
|
226,246
|
22,746
|
248,992
|
|||||||||
Total
|
548,634
|
29,767
|
578,401
|
|||||||||
Net claim liabilities at end of period
|
402,444
|
105,742
|
508,186
|
|||||||||
Reinsurance recoverable on claim liabilities
|
-
|
526,575
|
526,575
|
|||||||||
Claim liabilities at end of period
|
$
|
402,444
|
$
|
632,317
|
$
|
1,034,761
|
*
|
Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.
|
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 |
||||||||||||
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
||||||||||
Claim liabilities at beginning of period
|
$
|
349,047
|
$
|
138,896
|
$
|
487,943
|
||||||
Reinsurance recoverable on claim liabilities
|
-
|
(38,998
|
)
|
(38,998
|
)
|
|||||||
Net claim liabilities at beginning of period
|
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 period
|
393,525
|
100,881
|
494,406
|
|||||||||
Reinsurance recoverable on claim liabilities
|
-
|
35,898
|
35,898
|
|||||||||
Claim liabilities at end of period
|
$
|
393,525
|
$
|
136,779
|
$
|
530,304
|
*
|
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, 2018 and 2017 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 $6,179 and $6,690 during the three months ended March 31, 2018 and 2017, respectively.
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, 2018.
Incurred
Year
|
|
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
|
|||
2017
|
|
44,970
|
|||
2018
|
|
281,559
|
(7) |
Pension Plan
|
The components of net periodic benefit cost were as follows:
Three months ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Components of net periodic benefit cost:
|
||||||||
Interest cost
|
$
|
1,693
|
$
|
1,798
|
||||
Expected return on assets
|
(2,281
|
)
|
(2,199
|
)
|
||||
Amortization of actuarial loss
|
215
|
86
|
||||||
Settlement loss
|
325
|
-
|
||||||
Net periodic benefit cost
|
$
|
(48
|
)
|
$
|
(315
|
)
|
Employer Contributions: The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2017 that it expected to contribute $2,000 to the pension program in 2018. As of March 31, 2018, the Company 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)
(8) |
Comprehensive Income
|
The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
Three months ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Net Unrealized Gain on Securities Beginning Balance
|
$
|
76,238
|
$
|
62,371
|
||||
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
|
(39,882
|
)
|
-
|
|||||
Other comprehensive income before reclassifications
|
(4,540
|
)
|
8,741
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
(2,354
|
)
|
(269
|
)
|
||||
Net current period change
|
(6,894
|
)
|
8,472
|
|||||
Ending Balance
|
29,462
|
70,843
|
||||||
Liability for Pension Benefits Beginning Balance
|
(24,984
|
)
|
(19,976
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
131
|
53
|
||||||
Ending Balance
|
(24,853
|
)
|
(19,923
|
)
|
||||
Accumulated Other Comprehensive Income Beginning Balance
|
51,254
|
42,395
|
||||||
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
|
(39,882
|
)
|
$
|
-
|
||||
Other comprehensive income before reclassifications
|
(4,540
|
)
|
8,741
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
(2,223
|
)
|
(216
|
)
|
||||
Net current period change
|
(6,763
|
)
|
8,525
|
|||||
Ending Balance
|
$
|
4,609
|
$
|
50,920
|
(9) |
Stock Repurchase Program
|
The Company repurchases shares through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, under repurchase programs authorized by the Board of Directors.
In August 2017 the Company’s Board of Directors authorized a $30,000 repurchase program of its Class B common stock, and in February 2018 the Company’s Board of Directors authorized a $25,000 expansion of this program. During the three months ended March 31, 2018, the Company repurchased and retired under this program 563,559 shares at an average per share price of $25.10, for an aggregate cost of $14,259.
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 expense (benefit) recorded during the three months ended March 31, 2018 and 2017 was $391 and ($1,443), respectively. The benefit recorded in the 2017 period results from a decrease in the 2014 and 2015 grants expected performance shares payouts. During the three months ended March 31, 2018, 16,271 shares repurchased and retired as a result of non-cash tax withholdings upon vesting of shares. There were no non-cash tax withholdings during the three months ended March 31, 2017.
(11) |
Net Income (Loss) Available to Stockholders and Net Income (Loss) per Share
|
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Numerator for earnings per share:
|
||||||||
Net income (loss) attributable to TSM available to stockholders
|
$
|
3,914
|
$
|
(4,342
|
)
|
|||
Denominator for basic earnings per share:
|
||||||||
Weighted average of common shares
|
23,277,633
|
24,143,261
|
||||||
Effect of dilutive securities
|
117,364
|
-
|
||||||
Denominator for diluted earnings per share
|
23,394,997
|
24,143,261
|
||||||
Basic net income (loss) per share attributable to TSM
|
$
|
0.17
|
$
|
(0.18
|
)
|
|||
Diluted net income (loss) per share attributable to TSM
|
$
|
0.17
|
$
|
(0.18
|
)
|
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 23 to the Consolidated Financial Statements of the Company’s 2017 Annual Report on Form 10-K. Our business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, U.S. Virgin Islands (USVI), Costa Rica, British Virgin Islands (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.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
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.
Additionally, we may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have rights to acquire shares of the Company on favorable terms pursuant to agreements previously entered by our predecessor managed care subsidiary, Seguros de Servicios de Salud de Puerto Rico, Inc. (SSS), with physicians or dentists who joined our provider network to sell such new provider shares of SSS at a future date (Share Acquisition Agreements) or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.
Claims by Heirs of Former Shareholders
On August 28, 2017, local Court of First Instance entered summary judgement in Heirs of Dr. Juan Acevedo, et al., v. Triple-S Management Corporation, et al. ordering the Company to issue 63,000 stock shares in favor of Plaintiffs, plus costs and legal fees. The Company appealed said judgement and on March 15, 2018, Puerto Rico Court of Appeals revoked said judgement and ruled in favor of the Company dismissing the complaint with prejudice. The Court ’s opinion held that issuance of Dr. Blanco’s shares of stock occurred under the Puerto Rico Corporations Statute of 1956, therefore the Corporations Statute of 1995 was inapplicable to the controversy; applicable law was Puerto Rico Insurance Code and Puerto Rico Corporations Statute of 1956; the amendment approved by the stockholders on April 29, 1990 was a relaxation of the restrictions to transfer the shares of stock by inheritance, not a restriction by itself; Dr. Blanco had actual notice of the original restrictions and as such it was not necessary for the restrictions to appear clear and conspicuously on the certificates of the shares of stock he owned; Dr. Blanco’s actual notice of the restrictions was attributable to Plaintiffs as heirs; and Dr. Blanco’s shares were correctly redeemed by the Company.
In re Blue Cross Blue Shield Antitrust Litigation
TSS is a co-defendant with multiple Blue Plans and the Blue Cross Blue Shield Association (BCBSA) in a multi-district class action litigation filed by a group of providers and subscribers on July 24, 2012 and October 1, 2012, respectively, that has since been consolidated by the United States District Court for the Northern District of Alabama, Southern Division, in the case captioned In re Blue Cross Blue Shield Association Antitrust Litigation. Essentially, provider plaintiffs allege that the exclusive service area requirements of the Primary License Agreements with the Blue Plans constitute an illegal horizontal market allocation under federal antitrust laws. As per provider plaintiffs, the quid pro quo for said “market allocation” is a horizontal price fixing and boycott conspiracy” implemented through the Inter-Plans Program Committee (“IPPC”) and whose benefits are allegedly derived through the BCBSA’s Blue Card/National Accounts Program. Among the remedies sought, provider plaintiffs seek increased compensation rates and operational changes. In turn, subscriber plaintiffs allege that the alleged conspiracy to allocate markets have prevented subscribers from being offered competitive prices and resulted in higher premiums for Blue Plan subscribers. Subscribers seek damages in the form of supra-competitive premiums allegedly charged by the Blue Plans and/or the difference between what subscribers have paid the Blues and the lower competitive premiums that non-competing Blues would have charged. Both actions seek injunctive relief.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Prior to consolidation, motions to dismiss were filed by several plans, including TSS - whose request was ultimately denied by the court without prejudice. On April 6, 2015, plaintiffs filed suit in the United States District Court of Puerto Rico against TSS. Said complaint, nonetheless, is believed not to preclude TSS’ jurisdictional arguments. Since inception, the Company has joined BCBSA and other Blue Plans in vigorously contesting these claims. On April 5, 2018, the United States District Court for the Northern District of Alabama, Southern Division, issued it’s ruling on the parties’ respective motions for partial summary judgment on the standard of review applicable to plaintiffs’ claims under Section 1 of the Sherman Act and subscriber plaintiffs’ motion for partial summary judgment on the Blue Plan’s single entity defense. After considering the “undisputed” facts (for summary judgment purposes only) and evidence currently on record in the light most favorable to defendants, the court essentially found that: (a) the Exclusive Service Areas constitute horizontal market allocations that are subject to the Per Se standard of review; (b) the National Best Efforts Rule constitutes an “output restriction” subject to the Per Se standard of review; (c) there remain genuine issues of material fact as to whether defendants’ conduct can be shielded by the “single entity” defense; and (d) claims concerning the BlueCard Program and uncoupling rules are due to be analyzed under the Rule of Reason standard.
Presently, the court’s ruling is being reviewed and evaluated for purposes of determining the course to follow. Meanwhile, the settlement negotiations between the parties through mediation have been suspended for the time being.
Claims Relating to the Provision of Health Care Services
TSS was a defendant in several claims for collection of monies in connection with the provision of health care services. Among them are individual complaints filed before ASES by six community health centers alleging TSS breached their contracts with respect to certain capitation payments and other monetary claims. The Company has reached a settlement agreement with all six community health centers totaling $1,200, which has been accrued as of March 31, 2018.
ASES Audits
The Company is subject to 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 and 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. Administración 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. On May 26, 2017, the court issued a partial judgement dismissing the complaint in favor of TSS with respect to the alleged overpayments for the period between October 2005 and September 2010, which represented approximately $7,400 of the total alleged claim. On July 27, 2017, ASES appealed the court’s partial judgement and on January 31, 2018, the Puerto Rico Court of Appeals entered judgement in favor of the Company, thus validating the 2011 settlement agreement. No plea for reconsideration nor a writ of certiorari was filed by ASES before the Court of Appeals or the Puerto Rico Supreme Court. The parties reached a settlement agreement for the remaining amount in controversy subject to the final approval of ASES Board of Directors.
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.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
The following tables summarize the operations by reportable segment for the three months ended March 31, 2018 and 2017:
Three months ended
March 31,
|
||||||||
2018
|
2017
|
|||||||
Operating revenues:
|
||||||||
Managed Care:
|
||||||||
Premiums earned, net
|
$
|
686,602
|
$
|
640,147
|
||||
Administrative service fees
|
3,348
|
4,379
|
||||||
Intersegment premiums/service fees
|
1,348
|
1,534
|
||||||
Net investment income
|
4,857
|
3,892
|
||||||
Total managed care
|
696,155
|
649,952
|
||||||
Life Insurance:
|
||||||||
Premiums earned, net
|
41,089
|
40,298
|
||||||
Intersegment premiums
|
381
|
191
|
||||||
Net investment income
|
6,058
|
6,087
|
||||||
Total life insurance
|
47,528
|
46,576
|
||||||
Property and Casualty Insurance:
|
||||||||
Premiums earned, net
|
24,063
|
21,548
|
||||||
Intersegment premiums
|
153
|
153
|
||||||
Net investment income
|
2,442
|
1,924
|
||||||
Total property and casualty insurance
|
26,658
|
23,625
|
||||||
Other segments: *
|
||||||||
Intersegment service revenues
|
239
|
1,586
|
||||||
Operating revenues from external sources
|
1,071
|
1,000
|
||||||
Total other segments
|
1,310
|
2,586
|
||||||
Total business segments
|
771,651
|
722,739
|
||||||
TSM operating revenues from external sources
|
398
|
78
|
||||||
Elimination of intersegment premiums/service fees
|
(1,602
|
)
|
(1,598
|
)
|
||||
Elimination of intersegment service revenues
|
(239
|
)
|
(1,586
|
)
|
||||
Consolidated operating revenues
|
$
|
770,208
|
$
|
719,633
|
* |
Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Three months ended
March 31,
|
||||||||
2018
|
2017
|
|||||||
Operating income (loss):
|
||||||||
Managed care
|
$
|
10,618
|
$
|
(18,582
|
)
|
|||
Life insurance
|
3,625
|
3,935
|
||||||
Property and casualty insurance
|
3,079
|
2,067
|
||||||
Other segments *
|
175
|
143
|
||||||
Total business segments
|
17,497
|
(12,437
|
)
|
|||||
TSM operating revenues from external sources
|
398
|
78
|
||||||
TSM unallocated operating expenses
|
(2,210
|
)
|
(2,217
|
)
|
||||
Elimination of TSM intersegment charges
|
2,400
|
2,400
|
||||||
Consolidated operating income (loss)
|
18,085
|
(12,176
|
)
|
|||||
Consolidated net realized investment gains
|
2,942
|
336
|
||||||
Consolidated net unrealized investment losses on equity investments
|
(16,199
|
)
|
-
|
|||||
Consolidated interest expense
|
(1,690
|
)
|
(1,686
|
)
|
||||
Consolidated other income, net
|
1,163
|
2,525
|
||||||
Consolidated income (loss) before taxes
|
$
|
4,301
|
$
|
(11,001
|
)
|
|||
Depreciation and amortization expense:
|
||||||||
Managed care
|
$
|
2,641
|
$
|
2,239
|
||||
Life insurance
|
300
|
280
|
||||||
Property and casualty insurance
|
104
|
114
|
||||||
Other segments*
|
168
|
160
|
||||||
Total business segments
|
3,213
|
2,793
|
||||||
TSM depreciation expense
|
197
|
197
|
||||||
Consolidated depreciation and amortization expense
|
$
|
3,410
|
$
|
2,990
|
* |
Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
March 31,
2018
|
December 31,
2017
|
|||||||
Assets:
|
||||||||
Managed care
|
$
|
1,253,980
|
$
|
1,092,715
|
||||
Life insurance
|
860,674
|
853,289
|
||||||