TRIPLE-S MANAGEMENT CORP - FORM 10-Q - August 2, 2018

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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, 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 June 30, 2018
Common Stock Class A, $1.00 par value
950,968
Common Stock Class B, $1.00 par value
22,242,836
 
Triple-S Management Corporation
 
FORM 10-Q
 
For the Quarter Ended June 30, 2018
 
Table of Contents
 
3
   
 
Item 1.
3
       
 
Item 2.
34
       
   
34
   
34
   
35
   
36
   
36
   
37
   
39
   
42
   
43
   
44
       
 
Item 3.
45
       
 
Item 4.
46
       
46
   
 
Item 1.
46
       
 
Item 1A.
46
       
 
Item 2.
47
       
 
Item 3.
47
       
 
Item 4.
47
       
 
Item 5.
47
       
 
Item 6.
47
       
48
 
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,
2018
    
December 31,
2017
  
Assets
            
Investments and cash:
            
Fixed maturities available for sale, at fair value
  
$
1,232,689
    
$
1,216,788
  
Fixed maturities held to maturity, at amortized cost
    
2,484
      
2,319
  
Equity investments, at fair value
    
313,042
      
342,309
  
Other invested assets, at net asset value
    
52,633
      
34,984
  
Policy loans
    
9,449
      
9,077
  
Cash and cash equivalents
    
255,979
      
198,941
  
Total investments and cash
    
1,866,276
      
1,804,418
  
Premiums and other receivables, net
    
742,056
      
899,327
  
Deferred policy acquisition costs and value of business acquired
    
205,268
      
200,788
  
Property and equipment, net
    
78,153
      
74,716
  
Deferred tax asset
    
79,404
      
65,123
  
Goodwill
    
25,397
      
25,397
  
Other assets
    
77,700
      
46,996
  
Total assets
  
$
3,074,254
    
$
3,116,765
  
Liabilities and Stockholders’ Equity
                
Claim liabilities
  
$
1,111,444
    
$
1,106,876
  
Liability for future policy benefits
    
349,176
      
339,507
  
Unearned premiums
    
169,538
      
86,349
  
Policyholder deposits
    
175,592
      
176,534
  
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
    
61,128
      
52,287
  
Accounts payable and accrued liabilities
    
291,294
      
354,894
  
Deferred tax liability
    
3,971
      
21,891
  
Long-term borrowings
    
30,478
      
32,073
  
Liability for pension benefits
    
33,093
      
33,672
  
Total liabilities
    
2,225,714
      
2,204,083
  
Stockholders’ equity:
                
Triple-S Management Corporation stockholders’ equity
   
951
      
951
  
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at June 30, 2018 and December 31, 2017, respectively
                
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,242,836 and 22,627,077 shares at June 30, 2018 and December 31, 2017, respectively
    
22,243
      
22,627
  
Additional paid-in capital
    
39,050
      
53,142
  
Retained earnings
    
790,439
      
785,390
  
Accumulated other comprehensive (loss) income
    
(3,462
)
    
51,254
  
Total Triple-S Management Corporation stockholders’ equity
    
849,221
      
913,364
  
Non-controlling interest in consolidated subsidiary
    
(681
)
    
(682
)
Total stockholders’ equity
    
848,540
      
912,682
  
Total liabilities and stockholders’ equity
  
$
3,074,254
    
$
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
June 30,
    
Six months ended
June 30,
  
   
2018
    
2017
    
2018
    
2017
  
Revenues:
                        
Premiums earned, net
  
$
741,770
    
$
722,891
    
$
1,493,804
    
$
1,425,164
  
Administrative service fees
    
4,066
      
4,548
      
7,414
      
8,927
  
Net investment income
    
15,707
      
12,698
      
29,462
      
24,714
  
Other operating revenues
    
1,588
      
1,121
      
2,659
      
2,086
  
Total operating revenues
    
763,131
      
741,258
      
1,533,339
      
1,460,891
  
Net realized investment (losses) gains
    
(921
)
    
4,054
      
2,021
      
4,390
  
Net unrealized investment losses on equity investments
    
(776
)
    
-
      
(16,975
)
    
-
  
Other income, net
    
494
      
587
      
1,657
      
3,112
  
Total revenues
    
761,928
      
745,899
      
1,520,042
      
1,468,393
  
Benefits and expenses:
                                
Claims incurred
    
692,138
      
611,297
      
1,311,127
      
1,232,160
  
Operating expenses
    
134,612
      
118,720
      
267,746
      
229,666
  
Total operating costs
    
826,750
      
730,017
      
1,578,873
      
1,461,826
  
Interest expense
    
1,825
      
1,721
      
3,515
      
3,407
  
Total benefits and expenses
    
828,575
      
731,738
      
1,582,388
      
1,465,233
  
(Loss) income before taxes
    
(66,647
)
    
14,161
      
(62,346
)
    
3,160
  
Income tax (benefit) expense
    
(27,901
)
    
1,456
      
(27,514
)
    
(5,202
)
Net (loss) income
    
(38,746
)
    
12,705
      
(34,832
)
    
8,362
  
Net income (loss) attributable to non-controlling interest
    
1
      
-
      
1
      
(1
)
Net (loss) income attributable to Triple-S Management Corporation
  
$
(38,747
)
  
$
12,705
    
$
(34,833
)
  
$
8,363
  
Earnings per share attributable to Triple-S Management Corporation
                                
Basic net (loss) income per share
  
$
(1.68
)
  
$
0.52
    
$
(1.50
)
  
$
0.35
  
Diluted net (loss) income per share
  
$
(1.68
)
  
$
0.52
    
$
(1.50
)
  
$
0.34
  

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

   
Three months ended
June 30,
    
Six months ended
June 30,
  
   
2018
    
2017
    
2018
    
2017
  
Net (loss) income
  
$
(38,746
)
  
$
12,705
    
$
(34,832
)
  
$
8,362
  
Other comprehensive (loss) income, net of tax:
                                
Net unrealized change in fair value of available for sale securities, net of taxes
    
(8,202
)
    
4,396
      
(15,096
)
    
12,868
  
Defined benefit pension plan:
                                
Actuarial loss, net
    
131
      
53
      
262
      
106
  
Total other comprehensive (loss) income, net of tax
    
(8,071
)
    
4,449
      
(14,834
)
    
12,974
  
Comprehensive (loss) income
    
(46,817
)
    
17,154
      
(49,666
)
    
21,336
  
Comprehensive income (loss) attributable to non-controlling interest
    
1
      
-
      
1
      
(1
)
Comprehensive (loss) income attributable to Triple-S Management Corporation
  
$
(46,818
)
  
$
17,154
    
$
(49,667
)
  
$
21,337
  

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
    
2,543
      
170
  
Repurchase and retirement of common stock
    
(17,019
)
    
-
  
Comprehensive (loss) income
    
(49,667
)
    
21,337
  
Total Triple-S Management Corporation stockholders’ equity
    
849,221
      
884,670
  
Non-controlling interest in consolidated subsidiary
    
(681
)
    
(678
)
Balance at June 30
  
$
848,540
    
$
883,992
  

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,
  
   
2018
    
2017
  
Cash flows from operating activities:
            
Net (loss) income
  
$
(34,832
)
  
$
8,362
  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
                
Depreciation and amortization
    
6,986
      
6,454
  
Net amortization of investments
    
3,116
      
4,787
  
Additions (reductions) to the allowance for doubtful receivables
    
1,729
      
(2,390
)
Deferred tax benefit
    
(29,292
)
    
(11,734
)
Net realized investment gain on sale of securities
    
(2,021
)
    
(4,390
)
Net unrealized loss on equity investments
    
16,975
      
-
  
Interest credited to policyholder deposits
    
2,157
      
2,144
  
Share-based compensation
    
2,543
      
170
  
Decrease (increase) in assets:
                
Premium and other receivables, net
    
155,542
      
(25,078
)
Deferred policy acquisition costs and value of business acquired
    
(2,355
)
    
(5,621
)
Deferred taxes
    
522
      
(280
)
Other assets
    
(32,997
)
    
(1,229
)
(Decrease) increase in liabilities:
                
Claim liabilities
    
4,568
      
16,297
  
Liability for future policy benefits
    
9,669
      
10,195
  
Unearned premiums
    
83,189
      
96,251
  
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
    
8,841
      
5,993
  
Accounts payable and accrued liabilities
    
(63,617
)
    
33,774
  
Net cash provided by operating activities
    
130,723
      
133,705
  
 
(Continued)
 
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)

   
Six months ended
June 30,
  
   
2018
    
2017
  
Cash flows from investing activities:
            
Proceeds from investments sold or matured:
            
Securities available for sale:
            
Fixed maturities sold
  
$
768,789
    
$
88,141
  
Fixed maturities matured/called
    
10,656
      
8,938
  
Securities held to maturity:
                
Fixed maturities matured/called
    
728
      
703
  
Equity investments sold
    
123,197
      
21,499
  
Other invested assets sold
    
1,788
      
-
  
Acquisition of investments:
                
Securities available for sale:
                
Fixed maturities
    
(829,010
)
    
(141,116
)
Securities held to maturity:
                
Fixed maturities
    
(893
)
    
(703
)
Equity investments
    
(99,944
)
    
(20,424
)
Other invested assets
    
(18,649
)
    
-
  
Decrease (increase) in other investments
    
1,817
      
(731
)
Net change in policy loans
    
(372
)
    
(152
)
Net capital expenditures
    
(9,116
)
    
(8,704
)
Net cash used in investing activities
    
(51,009
)
    
(52,549
)
Cash flows from financing activities:
                
Change in outstanding checks in excess of bank balances
    
(1,564
)
    
(8,545
)
Repayments of long-term borrowings
    
(1,618
)
    
(1,212
)
Repurchase and retirement of common stock
    
(16,395
)
    
-
  
Proceeds from policyholder deposits
    
11,606
      
8,166
  
Surrenders of policyholder deposits
    
(14,705
)
    
(10,467
)
Net cash used in financing activities
    
(22,676
)
    
(12,058
)
Net increase in cash and cash equivalents
    
57,038
      
69,098
  
Cash and cash equivalents:
                
Beginning of period
    
198,941
      
103,428
  
End of period
  
$
255,979
    
$
172,526
  

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 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 and six months ended June 30, 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 June 30, 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, and 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 June 30, 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 June 30, 2018 amounted to $108,312.  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 June 30, 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.
 
Recently Adopted 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 did not have a material impact on the presentation of the Company’s consolidated result of operations.
 
Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the three months ended June 30, 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 June 30, 2018 and December 31, 2017, were as follows:

   
June 30, 2018
  
   
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Estimated
fair value
  
                       
Fixed maturities available for sale
                        
Obligations of government- sponsored enterprises
  
$
11,450
    
$
2
    
$
(45
)
  
$
11,407
  
U.S. Treasury securities and obligations of U.S. government instrumentalities
    
211,872
      
156
      
(565
)
    
211,463
  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    
8,175
      
-
      
(6
)
    
8,169
  
Municipal securities
    
713,271
      
18,520
      
(2,804
)
    
728,987
  
Corporate bonds
    
191,745
      
11,428
      
(1,327
)
    
201,846
  
Residential mortgage-backed securities
    
60,492
      
33
      
(1,094
)
    
59,431
  
Collateralized mortgage obligations
    
11,804
      
2
      
(420
)
    
11,386
  
Total fixed maturities available for sale
  
$
1,208,809
    
$
30,141
    
$
(6,261
)
  
$
1,232,689
  
 
 
June 30, 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
    
$
121
    
$
-
    
$
738
  
Residential mortgage-backed securities
    
191
      
2
      
-
      
193
  
Certificates of deposit
    
1,676
      
-
      
-
      
1,676
  
Total
  
$
2,484
    
$
123
    
$
-
    
$
2,607
  
 
   
June 30, 2018
  
   
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Estimated
fair value
  
Equity investments - Mutual funds
  
$
280,168
    
$
34,105
    
$
(1,231
)
  
$
313,042
  
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
   
June 30, 2018
  
   
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Estimated
fair value
  
Other invested assets - Alternative investments
  
$
51,879
    
$
1,107
    
$
(353
)
  
$
52,633
  

   
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 June 30, 2018 and December 31, 2017 were as follows:

   
June 30, 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
                                                      
Obligations of government- sponsored enterprises
  
$
9,955
    
$
(45
)
    
1
    
$
-
    
$
-
      
-
    
$
9,955
    
$
(45
)
    
1
  
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
    
150,885
      
(565
)
    
12
      
-
      
-
      
-
      
150,885
      
(565
)
    
12
  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    
6,691
      
(6
)
    
3
      
-
      
-
      
-
      
6,691
      
(6
)
    
3
  
Municipal securities
    
278,677
      
(2,796
)
    
41
      
701
      
(8
)
    
1
      
279,378
      
(2,804
)
    
42
  
Corporate bonds
    
96,306
      
(1,327
)
    
25
      
-
      
-
      
-
      
96,306
      
(1,327
)
    
25
  
Residential mortgage-backed securities
    
41,498
      
(1,094
)
    
22
      
-
      
-
      
-
      
41,498
      
(1,094
)
    
22
  
Collateralized mortgage obligations
    
3,289
      
(115
)
    
1
      
5,628
      
(305
)
    
2
      
8,917
      
(420
)
    
3
  
Total fixed maturities
  
$
587,301
    
$
(5,948
)
    
105
    
$
6,329
    
$
(313
)
    
3
    
$
593,630
    
$
(6,261
)
    
108
  
Other invested assets - Alternative investments
  
$
13,991
    
$
(121
)
    
3
    
$
7,327
    
$
(232
)
    
2
    
$
21,318
    
$
(353
)
    
5
  
 
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 Government-Sponsored Enterprises, U.S. Treasury Securities and Obligations of U.S. Government Instrumentalities, and Municipal Securities:  The unrealized losses of these 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.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
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.
 
Obligations of the Commonwealth of Puerto Rico and its Instrumentalities: As of June 30, 2018, our holdings in Puerto Rico municipals consist of escrowed bonds. 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.
 
Alternative Investments:  As of June 30, 2018, 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 impaired positions for the six-month period ending June 30, 2018.

Maturities of investment securities classified as available for sale and held to maturity were as follows:
 
   
June 30, 2018
  
   
Amortized
cost
    
Estimated
fair value
  
Fixed maturities available for sale
            
Due in one year or less
  
$
19,212
    
$
19,308
  
Due after one year through five years
    
382,216
      
381,081
  
Due after five years through ten years
    
375,375
      
376,911
  
Due after ten years
    
359,710
      
384,572
  
Residential mortgage-backed securities
    
60,492
      
59,431
  
Collateralized mortgage obligations
    
11,804
      
11,386
  
   
$
1,208,809
    
$
1,232,689
  
Fixed maturities held to maturity
                
Due in one year or less
  
$
1,676
    
$
1,676
  
Due after ten years
    
617
      
738
  
Residential mortgage-backed securities
    
191
      
193
  
   
$
2,484
    
$
2,607
  

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,
  
   
2018
    
2017
    
2018
    
2017
  
Realized gains (losses)
                        
Fixed maturity securities:
                        
Securities available for sale:
                        
Gross gains
  
$
1,340
    
$
384
      
1,512
    
$
401
  
Gross losses
    
(2,873
)
    
(517
)
    
(10,803
)
    
(636
)
Total fixed securities
    
(1,533
)
    
(133
)
    
(9,291
)
    
(235
)
Equity investments:
                                
Gross gains
    
551
      
4,189
      
8,754
      
4,627
  
Gross losses
    
(525
)
    
(2
)
    
(1,024
)
    
(2
)
Total equity investments
    
26
      
4,187
      
7,730
      
4,625
  
Other invested assets:
                                
Gross gains
    
586
      
-
      
3,793
      
-
  
Gross losses
    
-
      
-
      
(211
)
    
-
  
Total other invested assets
    
586
      
-
      
3,582
      
-
  
Net realized investment (losses) gains
  
$
(921
)
  
$
4,054
    
$
2,021
    
$
4,390
  
 
   
Three months ended
June 30,
    
Six months ended
June 30,
  
   
2018
    
2017
    
2018
    
2017
  
Changes in net unrealized (losses) gains:
                        
Recognized in accumulated other comprehensive (loss) income:
                        
Fixed maturities – available for sale
  
$
(11,035
)
  
$
3,252
    
$
(21,257
)
  
$
2,813
  
Other invested assets
    
464
      
2,768
      
439
      
13,911
  
   
$
(10,571
)
  
$
6,020
    
$
(20,818
)
  
$
16,724
  
Not recognized in the consolidated financial statements:
                                
Fixed maturities – held to maturity
  
$
(10
)
  
$
(10
)
  
$
(33
)
  
$
(8
)
 
The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive (loss) income during the six months ended June 30, 2018 and 2017 was $6,147 and $3,391, respectively.
 
As of June 30, 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:

   
June 30,
    
December 31,
  
   
2018
    
2017
  
Premium
  
$
71,762
    
$
103,027
  
Self-funded group receivables
    
39,483
      
39,859
  
FEHBP
    
13,470
      
13,346
  
Agent balances
    
33,468
      
32,818
  
Accrued interest
    
13,585
      
14,331
  
Reinsurance recoverable
    
525,896
      
661,679
  
Other
    
80,712
      
70,150
  
     
778,376
      
935,210
  
Less allowance for doubtful receivables:
                
Premium
    
27,518
      
26,490
  
Other
    
8,802
      
9,393
  
     
36,320
      
35,883
  
Total premium and other receivables, net
  
$
742,056
    
$
899,327
  

As of June 30, 2018 and December 31, 2017, the Company had premiums and other receivables of $48,626 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 June 30, 2018 and December 31, 2017 were $18,185 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:

   
June 30, 2018
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
                         
Fixed maturity securities available for sale
                        
Obligations of government-sponsored enterprises
  
$
-
    
$
11,407
    
$
-
    
$
11,407
  
U.S. Treasury securities and obligations of U.S government instrumentalities
    
211,463
      
-
      
-
      
211,463
  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    
-
      
8,169
      
-
      
8,169
  
Municipal securities
    
-
      
728,987
      
-
      
728,987
  
Corporate bonds
    
-
      
201,846
      
-
      
201,846
  
Residential agency mortgage-backed securities
    
-
      
59,431
      
-
      
59,431
  
Collateralized mortgage obligations
    
-
      
11,386
      
-
      
11,386
  
Total fixed maturities
  
$
211,463
    
$
1,021,226
    
$
-
    
$
1,232,689
  
                                 
Equity investments
  
$
141,123
    
$
171,919
    
$
-
    
$
313,042
  
 
   
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 and six months ended June 30, 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 June 30, 2018 and December 31, 2017 are as follows:

 
  
June 30, 2018
  
 
  
Carrying
    
Fair Value
  
 
  
Value
    
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets:
                              
Policy loans
    
9,449
    
$
-
    
$
9,449
    
$
-
    
$
9,449
  
 
                                        
Liabilities:
                                        
Policyholder deposits
    
175,592
    
$
-
    
$
175,592
    
$
-
    
$
175,592
  
Long-term borrowings:
                                        
Loans payable to bank - variable
    
30,733
      
-
      
30,733
      
-
      
30,733
  
Total liabilities
  
$
206,325
    
$
-
    
$
206,325
    
$
-
    
$
206,325
  

 
  
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
June 30, 2018
    
Six months ended
June 30, 2018
  
   
Managed
Care
    
Other
Business
Segments *
    
Consolidated
    
Managed
Care
    
Other
Business
Segments *
    
Consolidated
  
                                     
Claim liabilities at beginning of period
  
$
402,444
    
$
632,317
    
$
1,034,761
    
$
367,357
    
$
739,519
    
$
1,106,876
  
Reinsurance recoverable on claim liabilities
    
-
      
(526,575
)
    
(526,575
)
    
-
      
(633,099
)
    
(633,099
)
Net claim liabilities at beginning of period
    
402,444
      
105,742
      
508,186
      
367,357
      
106,420
      
473,777
  
Claims incurred
                                                
Current period insured events
    
594,742
      
26,527
      
621,269
      
1,198,689
      
57,434
      
1,256,123
  
Prior period insured events
    
(10,900
)
    
74,355
      
63,455
      
(31,126
)
    
72,537
      
41,411
  
Total
    
583,842
      
100,882
      
684,724
      
1,167,563
      
129,971
      
1,297,534
  
Payments of losses and loss-adjustment expenses
                                                
Current period insured events
    
512,768
      
15,670
      
528,438
      
873,736
      
22,690
      
896,426
  
Prior period insured events
    
36,060
      
11,324
      
47,384
      
223,726
      
34,071
      
257,797
  
Total
    
548,828
      
26,994
      
575,822
      
1,097,462
      
56,761
      
1,154,223
  
Net claim liabilities at end of period
    
437,458
      
179,630
      
617,088
      
437,458
      
179,630
      
617,088
  
Reinsurance recoverable on claim liabilities
    
-
      
494,356
      
494,356
      
-
      
494,356
      
494,356
  
Claim liabilities at end of period
  
$
437,458
    
$
673,986
    
$
1,111,444
    
$
437,458
    
$
673,986
    
$
1,111,444
  
 
*
Other Business Segments include the Life Insurance and Property and Casualty segments,as well as intersegment eliminations.
 
             
   
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 period
  
$
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 period
    
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 period
    
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 period
  
$
371,435
    
$
132,805
    
$
504,240
    
$
371,435
    
$
132,805
    
$
504,240
  
 
*
Other Business Segments include the Life Insurance and Property and Casualty segments,as well as intersegment eliminations.
 
The actual amounts of claims incurred in connection with insured events occuring in a prior period typically differ from estimates of such claims made in the prior period. Amounts included as incurred claims for prior period insured events reflect the aggregate net amount of these differences.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
 
The unfavorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 2018 is driven by an adverse development of approximately $76,389 in losses related to Hurricane Maria, offset by better than expected utilization trends in the managed care segment.  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 are due primarily to better than expected utilization trends in the Managed Care segment.  Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying consolidated financial statements.  Claim liabilities as of June 30, 2018 include approximately $538,200 related to the impact of Hurricane María, which made landfall in Puerto Rico in September 2017.
 
The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to $7,414 and $13,593 during the three months and six months ended June 30, 2018, respectively.  The change in the liability for future policy benefits during the three months and six months ended June 30, 2017 amounted to $6,945 and $13,635, 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, 2018.

Incurred
Year
    
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
  
2017
    
$
36,590
  
2018
      
324,953
  

(7)
Pension Plan
 
The components of net periodic benefit cost were as follows:

   
Three months ended
June 30,
    
Six months ended
June 30,
  
   
2018
    
2017
    
2018
    
2017
  
Components of net periodic benefit cost:
                        
Interest cost
  
$
1,693
    
$
1,798
    
$
3,386
    
$
3,596
  
Expected return on assets
    
(2,281
)
    
(2,199
)
    
(4,562
)
    
(4,398
)
Amortization of actuarial loss
    
215
      
86
      
430
      
172
  
Settlement loss
    
325
      
631
      
650
      
631
  
Net periodic benefit cost
  
$
(48
)
  
$
316
    
$
(96
)
  
$
1
  

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 June 30, 2018, the Company has not made contributions to the pension program.
 
(8)
Reinsurance
 
TSP uses facultative reinsurance, pro rata, and excess of loss reinsurance treaties to manage its exposure to losses, including those from catastrophe events.  TSP has geographic exposure to catastrophe losses from hurricanes and earthquakes.  The incidence and severity of catastrophes are inherently unpredictable.   Under these treaties, TSP ceded premiums written were $12,688 and $16,580 for the three months ended June 30, 2018 and 2017, respectively, and $27,466 and $26,721 for the six months ended June 30, 2018, and 2017, respectively.  During the six months ended June 30, 2018, TSP ceded claims incurred amounting to $69,594 related to losses caused by Hurricanes Irma and Maria.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

Principal reinsurance agreements are as follows:
 
·          Casualty excess of loss treaty provides reinsurance for losses up to $12,000, subject to a retention of $225.
 
·          Medical malpractice excess of loss treaty provides reinsurance for losses up to $3,000, subject to a retention of $150.
 
·          Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to $350 in $30,000 risks.
 
·          Catastrophe protection is purchased limiting losses to $10,000 per event with losses up to approximately $915,000.
 
All principal reinsurance contracts are for a period of one year and are subject to modifications and negotiations in each renewal. TSP’s current property and catastrophe reinsurance program was renewed effective April 1, 2018 for a twelve months period ending March 31, 2019. Other contracts were renewed as expiring on January 1, 2018.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

(9)
Comprehensive Income (Loss)
 
The accumulated balances for each classification of other comprehensive income (loss), net of tax, are as follows:

   
Three months ended
June 30,
    
Six months ended
June 30,
  
   
2018
    
2017
    
2018
    
2017
  
                         
Net Unrealized Gain on Securities Beginning Balance
  
$
29,462
    
$
70,843
    
$
76,238
    
$
62,371
  
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
    
-
      
-
      
(39,882
)
    
-
  
Other comprehensive (loss) income before reclassifications
    
(8,939
)
    
7,639
      
(13,479
)
    
16,380
  
Amounts reclassified from accumulated other comprehensive income (loss)
    
737
      
(3,243
)
    
(1,617
)
    
(3,512
)
Net current period change
    
(8,202
)
    
4,396
      
(15,096
)
    
12,868
  
Ending Balance
    
21,260
      
75,239
      
21,260
      
75,239
  
Liability for Pension Benefits Beginning Balance
    
(24,853
)
    
(19,923
)
    
(24,984
)
    
(19,976
)
Amounts reclassified from accumulated other comprehensive income
    
131
      
53