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 |
EX-10.1 - EXHIBIT 10.1 - TRIPLE-S MANAGEMENT CORP | ex10_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2017
or
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
COMMISSION FILE NUMBER: 001-33865
Triple-S Management Corporation
Puerto Rico
|
66-0555678
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
1441 F.D. Roosevelt Avenue
|
||
San Juan, Puerto Rico
|
00920
|
|
(Address of principal executive offices)
|
(Zip code)
|
(787) 749-4949
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
|
Accelerated filer ☑
|
Non-accelerated filer ☐
|
Smaller reporting company ☐
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☑ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Title of each class
|
Outstanding at June 30, 2017
|
|
Common Stock Class A, $1.00 par value
|
950,968
|
|
Common Stock Class B, $1.00 par value
|
23,494,170
|
Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended June 30, 2017
3
|
||
Item 1.
|
3
|
|
Item 2.
|
31
|
|
31
|
||
31
|
||
32
|
||
34
|
||
34
|
||
35
|
||
38
|
||
41
|
||
42
|
||
44
|
||
Item 3.
|
46
|
|
Item 4.
|
46
|
|
48
|
||
Item 1.
|
48
|
|
Item 1A.
|
48
|
|
Item 2.
|
49
|
|
Item 3.
|
49
|
|
Item 4.
|
49
|
|
Item 5.
|
49
|
|
Item 6.
|
49
|
|
50
|
Part I – Financial Information
Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)
June 30,
2017
|
December 31,
2016
|
|||||||
Assets
|
||||||||
Investments and cash:
|
||||||||
Securities available for sale, at fair value:
|
||||||||
Fixed maturities
|
$
|
1,196,161
|
$
|
1,151,643
|
||||
Equity securities
|
287,820
|
270,349
|
||||||
Securities held to maturity, at amortized cost:
|
||||||||
Fixed maturities
|
2,835
|
2,836
|
||||||
Policy loans
|
8,716
|
8,564
|
||||||
Cash and cash equivalents
|
172,526
|
103,428
|
||||||
Total investments and cash
|
1,668,058
|
1,536,820
|
||||||
Premiums and other receivables, net
|
320,548
|
286,365
|
||||||
Deferred policy acquisition costs and value of business acquired
|
200,034
|
194,787
|
||||||
Property and equipment, net
|
69,083
|
66,369
|
||||||
Deferred tax asset
|
69,576
|
57,768
|
||||||
Goodwill
|
25,397
|
25,397
|
||||||
Other assets
|
52,672
|
51,493
|
||||||
Total assets
|
$
|
2,405,368
|
$
|
2,218,999
|
||||
Liabilities and Stockholders' Equity
|
||||||||
Claim liabilities
|
$
|
504,240
|
$
|
487,943
|
||||
Liability for future policy benefits
|
331,427
|
321,232
|
||||||
Unearned premiums
|
175,561
|
79,310
|
||||||
Policyholder deposits
|
179,225
|
179,382
|
||||||
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
|
40,363
|
34,370
|
||||||
Accounts payable and accrued liabilities
|
204,194
|
169,449
|
||||||
Deferred tax liability
|
22,203
|
18,850
|
||||||
Long-term borrowings
|
33,667
|
35,085
|
||||||
Liability for pension benefits
|
30,496
|
30,892
|
||||||
Total liabilities
|
1,521,376
|
1,356,513
|
||||||
Stockholders’ equity:
|
||||||||
Triple-S Management Corporation stockholders' equity
|
||||||||
Common stock Class A, $1 par value. Authorized 100,000,000 shares;issued and outstanding 950,968 at June 30, 2017and December 31, 2016, respectively
|
951
|
951
|
||||||
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,494,170 and 23,321,163 shares at June 30, 2017 and December 31, 2016, respectively
|
23,494
|
23,321
|
||||||
Additional paid-in capital
|
65,589
|
65,592
|
||||||
Retained earnings
|
739,267
|
730,904
|
||||||
Accumulated other comprehensive income
|
55,369
|
42,395
|
||||||
Total Triple-S Management Corporation stockholders' equity
|
884,670
|
863,163
|
||||||
Non-controlling interest in consolidated subsidiary
|
(678
|
)
|
(677
|
)
|
||||
Total stockholders' equity
|
883,992
|
862,486
|
||||||
Total liabilities and stockholders' equity
|
$
|
2,405,368
|
$
|
2,218,999
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Earnings (Unaudited)
(dollar amounts in thousands, except per share data)
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Revenues:
|
||||||||||||||||
Premiums earned, net
|
$
|
722,891
|
$
|
729,049
|
$
|
1,425,164
|
$
|
1,467,583
|
||||||||
Administrative service fees
|
4,548
|
4,520
|
8,927
|
9,603
|
||||||||||||
Net investment income
|
12,698
|
12,875
|
24,714
|
24,233
|
||||||||||||
Other operating revenues
|
1,121
|
915
|
2,086
|
1,727
|
||||||||||||
Total operating revenues
|
741,258
|
747,359
|
1,460,891
|
1,503,146
|
||||||||||||
Net realized investment gains (losses):
|
||||||||||||||||
Total other-than-temporary impairment losses on securities
|
-
|
(1,434
|
)
|
-
|
(1,434
|
)
|
||||||||||
Net realized gains, excluding other-than-temporary impairment losses on securities
|
4,054
|
2,954
|
4,390
|
3,012
|
||||||||||||
Net realized investment gains on sale of securities
|
4,054
|
1,520
|
4,390
|
1,578
|
||||||||||||
Other income, net
|
587
|
3,859
|
3,112
|
4,734
|
||||||||||||
Total revenues
|
745,899
|
752,738
|
1,468,393
|
1,509,458
|
||||||||||||
Benefits and expenses:
|
||||||||||||||||
Claims incurred
|
611,297
|
622,087
|
1,232,160
|
1,248,781
|
||||||||||||
Operating expenses
|
118,720
|
121,112
|
229,666
|
244,092
|
||||||||||||
Total operating costs
|
730,017
|
743,199
|
1,461,826
|
1,492,873
|
||||||||||||
Interest expense
|
1,721
|
1,954
|
3,407
|
3,836
|
||||||||||||
Total benefits and expenses
|
731,738
|
745,153
|
1,465,233
|
1,496,709
|
||||||||||||
Income before taxes
|
14,161
|
7,585
|
3,160
|
12,749
|
||||||||||||
Income tax expense (benefit)
|
1,456
|
3,707
|
(5,202
|
)
|
5,416
|
|||||||||||
Net income
|
12,705
|
3,878
|
8,362
|
7,333
|
||||||||||||
Less: Net loss attributable to non-controlling interest
|
-
|
2
|
1
|
3
|
||||||||||||
Net income attributable to Triple-S Management Corporation
|
$
|
12,705
|
$
|
3,880
|
$
|
8,363
|
$
|
7,336
|
||||||||
Earnings per share attributable to Triple-S Management Corporation
|
||||||||||||||||
Basic net income per share
|
$
|
0.52
|
$
|
0.16
|
$
|
0.35
|
$
|
0.30
|
||||||||
Diluted net income per share
|
$
|
0.52
|
$
|
0.16
|
$
|
0.34
|
$
|
0.30
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(dollar amounts in thousands)
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Net income
|
$
|
12,705
|
$
|
3,878
|
$
|
8,362
|
$
|
7,333
|
||||||||
Other comprehensive (loss) income, net of tax:
|
||||||||||||||||
Net unrealized change in fair value of available for sale securities, net of taxes
|
4,396
|
15,830
|
12,868
|
35,407
|
||||||||||||
Defined benefit pension plan:
|
||||||||||||||||
Actuarial loss, net
|
53
|
507
|
106
|
1,229
|
||||||||||||
Prior service credit, net
|
-
|
(62
|
)
|
-
|
(150
|
)
|
||||||||||
Total other comprehensive income, net of tax
|
4,449
|
16,275
|
12,974
|
36,486
|
||||||||||||
Comprehensive income
|
17,154
|
20,153
|
21,336
|
43,819
|
||||||||||||
Comprehensive income attributable to non-controlling interest
|
-
|
2
|
1
|
3
|
||||||||||||
Comprehensive income attributable to Triple-S Management Corporation
|
$
|
17,154
|
$
|
20,155
|
$
|
21,337
|
$
|
43,822
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(dollar amounts in thousands)
2017
|
2016
|
|||||||
Balance at January 1
|
$
|
863,163
|
$
|
847,526
|
||||
Share-based compensation
|
170
|
2,649
|
||||||
Stock issued upon the exercise of stock options
|
-
|
55
|
||||||
Repurchase and retirement of common stock
|
-
|
(14,616
|
)
|
|||||
Comprehensive income
|
21,337
|
43,822
|
||||||
Total Triple-S Management Corporation stockholders' equity
|
884,670
|
879,436
|
||||||
Non-controlling interest in consolidated subsidiary
|
(678
|
)
|
(673
|
)
|
||||
Balance at June 30
|
$
|
883,992
|
$
|
878,763
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
Six months ended
June 30,
|
||||||||
2017
|
2016
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
8,362
|
7,333
|
|||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
6,454
|
7,300
|
||||||
Net amortization of investments
|
4,787
|
3,981
|
||||||
Reductions to the allowance for doubtful receivables
|
(2,390
|
)
|
(313
|
)
|
||||
Deferred tax (benefit) expense
|
(11,734
|
)
|
4,301
|
|||||
Net realized investment gain on sale of securities
|
(4,390
|
)
|
(1,578
|
)
|
||||
Interest credited to policyholder deposits
|
2,144
|
2,436
|
||||||
Share-based compensation
|
170
|
2,313
|
||||||
(Increase) decrease in assets:
|
||||||||
Premium and other receivables, net
|
(25,078
|
)
|
(63,589
|
)
|
||||
Deferred policy acquisition costs and value of business acquired
|
(5,621
|
)
|
(3,562
|
)
|
||||
Deferred taxes
|
(280
|
)
|
178
|
|||||
Other assets
|
(1,229
|
)
|
(31,425
|
)
|
||||
Increase (decrease) in liabilities:
|
||||||||
Claim liabilities
|
16,297
|
(9,901
|
)
|
|||||
Liability for future policy benefits
|
10,195
|
19,961
|
||||||
Unearned premiums
|
96,251
|
1,791
|
||||||
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
|
5,993
|
(2,141
|
)
|
|||||
Accounts payable and accrued liabilities
|
33,774
|
52,350
|
||||||
Net cash provided by (used in) operating activities
|
133,705
|
(10,565
|
)
|
(Continued)
Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
Six months ended
June 30,
|
||||||||
2017
|
2016
|
|||||||
Cash flows from investing activities:
|
||||||||
Proceeds from investments sold or matured:
|
||||||||
Securities available for sale:
|
||||||||
Fixed maturities sold
|
$
|
88,141
|
$
|
163,150
|
||||
Fixed maturities matured/called
|
8,938
|
14,301
|
||||||
Equity securities sold
|
21,499
|
32,252
|
||||||
Securities held to maturity:
|
||||||||
Fixed maturities matured/called
|
703
|
700
|
||||||
Acquisition of investments:
|
||||||||
Securities available for sale:
|
||||||||
Fixed maturities
|
(141,116
|
)
|
(150,005
|
)
|
||||
Equity securities
|
(20,424
|
)
|
(136,104
|
)
|
||||
Securities held to maturity:
|
||||||||
Fixed maturities
|
(703
|
)
|
(609
|
)
|
||||
Increase in other investments
|
(731
|
)
|
(1,383
|
)
|
||||
Net change in policy loans
|
(152
|
)
|
(400
|
)
|
||||
Net capital expenditures
|
(8,704
|
)
|
(2,716
|
)
|
||||
Net cash used in investing activities
|
(52,549
|
)
|
(80,814
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Change in outstanding checks in excess of bank balances
|
(8,545
|
)
|
4,074
|
|||||
Repayments of long-term borrowings
|
(1,212
|
)
|
(820
|
)
|
||||
Repurchase and retirement of common stock
|
-
|
(14,560
|
)
|
|||||
Proceeds from policyholder deposits
|
8,166
|
7,942
|
||||||
Surrenders of policyholder deposits
|
(10,467
|
)
|
(6,935
|
)
|
||||
Net cash used in financing activities
|
(12,058
|
)
|
(10,299
|
)
|
||||
Net increase (decrease) in cash and cash equivalents
|
69,098
|
(101,678
|
)
|
|||||
Cash and cash equivalents:
|
||||||||
Beginning of period
|
103,428
|
197,818
|
||||||
End of period
|
$
|
172,526
|
$
|
96,140
|
See accompanying notes to unaudited condensed consolidated financial statements.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(1) |
Basis of Presentation
|
The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited. In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries. The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the U.S. (GAAP) for complete financial statements. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016.
In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included. The results of operations for the three months and six months ended June 30, 2017 are not necessarily indicative of the results for the full year ending December 31, 2017.
(2) |
Recent Accounting Standards
|
On May 10, 2017, the Financial Accounting Standard Board (FASB) issued guidance to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change in the terms and conditions of a share-based payment award. The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award. This guidance indicates an entity should account for the effects of a modification unless the following criteria are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity or liability instrument is the same as the classification of the original award immediately before the original award is modified. For all companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.
On March 10, 2017, the FASB issued guidance to improve the presentation of defined benefit costs in the income statement. In particular, the guidance requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, this guidance allows only the service cost component to be eligible for capitalization, when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Since we do not present a subtotal of income from operations, the adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
On January 26, 2017, the FASB issued guidance to simplify the manner in which an entity is required to evaluate goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this guidance, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, this guidance removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.
Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the three months and six months ended June 30, 2017 that could have a material impact on the Corporation’s financial position, operating results or financial statements disclosures.
(3) |
Investment in Securities
|
The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for available-for-sale and held-to-maturity securities by major security type and class of security at June 30, 2017 and December 31, 2016, were as follows:
June 30, 2017
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Securities available for sale:
|
||||||||||||||||
Fixed maturities:
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
40,358
|
$
|
29
|
$
|
(4
|
)
|
$
|
40,383
|
|||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities
|
79,932
|
180
|
(115
|
)
|
79,997
|
|||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
11,719
|
445
|
(3
|
)
|
12,161
|
|||||||||||
Municipal securities
|
682,576
|
34,459
|
(393
|
)
|
716,642
|
|||||||||||
Corporate bonds
|
278,417
|
15,626
|
(89
|
)
|
293,954
|
|||||||||||
Residential mortgage-backed securities
|
11,877
|
35
|
(3
|
)
|
11,909
|
|||||||||||
Collateralized mortgage obligations
|
41,129
|
97
|
(111
|
)
|
41,115
|
|||||||||||
Total fixed maturities
|
1,146,008
|
50,871
|
(718
|
)
|
1,196,161
|
|||||||||||
Equity securities:
|
||||||||||||||||
Mutual funds
|
214,923
|
43,446
|
(6
|
)
|
258,363
|
|||||||||||
Alternative investments
|
29,336
|
368
|
(247
|
)
|
29,457
|
|||||||||||
Total equity maturites
|
244,259
|
43,814
|
(253
|
)
|
287,820
|
|||||||||||
Total
|
$
|
1,390,267
|
$
|
94,685
|
$
|
(971
|
)
|
$
|
1,483,981
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
December 31, 2016
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Securities available for sale:
|
||||||||||||||||
Fixed maturities:
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
41,442
|
$
|
87
|
$
|
(15
|
)
|
$
|
41,514
|
|||||||
U.S. Treasury securities and obligations of U.S.government instrumentalities
|
85,652
|
157
|
(9
|
)
|
85,800
|
|||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
17,930
|
2,189
|
(68
|
)
|
20,051
|
|||||||||||
Municipal securities
|
650,175
|
34,187
|
(559
|
)
|
683,803
|
|||||||||||
Corporate bonds
|
263,351
|
12,182
|
(661
|
)
|
274,872
|
|||||||||||
Residential mortgage-backed securities
|
684
|
34
|
-
|
718
|
||||||||||||
Collateralized mortgage obligations
|
45,069
|
58
|
(242
|
)
|
44,885
|
|||||||||||
Total fixed maturities
|
1,104,303
|
48,894
|
(1,554
|
)
|
1,151,643
|
|||||||||||
Equity securities - Mutual funds
|
240,699
|
30,101
|
(451
|
)
|
270,349
|
|||||||||||
Total
|
$
|
1,345,002
|
$
|
78,995
|
$
|
(2,005
|
)
|
$
|
1,421,992
|
June 30, 2017
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Securities held to maturity:
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S.government instrumentalities
|
$
|
618
|
$
|
166
|
$
|
-
|
$
|
784
|
||||||||
Residential mortgage-backed securities
|
191
|
2
|
-
|
193
|
||||||||||||
Certificates of deposit
|
2,026
|
-
|
-
|
2,026
|
||||||||||||
Total
|
$
|
2,835
|
$
|
168
|
$
|
-
|
$
|
3,003
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
December 31, 2016
|
||||||||||||||||
Amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Estimated
fair value
|
|||||||||||||
Securities held to maturity:
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S.government instrumentalities
|
$
|
619
|
$
|
158
|
$
|
-
|
$
|
777
|
||||||||
Residential mortgage-backed securities
|
191
|
18
|
-
|
209
|
||||||||||||
Certificates of deposit
|
2,026
|
-
|
-
|
2,026
|
||||||||||||
Total
|
$
|
2,836
|
$
|
176
|
$
|
-
|
$
|
3,012
|
Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2017 and December 31, 2016 were as follows:
June 30, 2017
|
||||||||||||||||||||||||||||||||||||
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||||||||||||||
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
||||||||||||||||||||||||||||
Securities available for sale:
|
||||||||||||||||||||||||||||||||||||
Fixed maturities
|
||||||||||||||||||||||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
6,495
|
$
|
(4
|
)
|
2
|
$
|
-
|
$
|
-
|
-
|
$
|
6,495
|
$
|
(4
|
)
|
2
|
|||||||||||||||||||
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
|
41,408
|
(115
|
)
|
5
|
-
|
-
|
-
|
41,408
|
(115
|
)
|
5
|
|||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
7,939
|
(3
|
)
|
5
|
-
|
-
|
-
|
7,939
|
(3
|
)
|
5
|
|||||||||||||||||||||||||
Municipal securities
|
90,575
|
(393
|
)
|
12
|
-
|
-
|
-
|
90,575
|
(393
|
)
|
12
|
|||||||||||||||||||||||||
Corporate bonds
|
32,355
|
(89
|
)
|
10
|
-
|
-
|
-
|
32,355
|
(89
|
)
|
10
|
|||||||||||||||||||||||||
Residential mortgage-backed securities
|
2,017
|
(3
|
)
|
1
|
-
|
-
|
-
|
2,017
|
(3
|
)
|
1
|
|||||||||||||||||||||||||
Collateralized mortgage obligations
|
25,454
|
(108
|
)
|
6
|
564
|
(3
|
)
|
1
|
26,018
|
(111
|
)
|
7
|
||||||||||||||||||||||||
Total fixed maturities
|
206,243
|
(715
|
)
|
41
|
564
|
(3
|
)
|
1
|
206,807
|
(718
|
)
|
42
|
||||||||||||||||||||||||
Equity securities
|
||||||||||||||||||||||||||||||||||||
Mutual funds
|
1,994
|
(6
|
)
|
1
|
-
|
-
|
-
|
1,994
|
(6
|
)
|
1
|
|||||||||||||||||||||||||
Alternative investments
|
4,983
|
(129
|
)
|
7
|
2,431
|
(118
|
)
|
1
|
7,414
|
(247
|
)
|
8
|
||||||||||||||||||||||||
Total equity securities
|
6,977
|
(135
|
)
|
8
|
2,431
|
(118
|
)
|
1
|
9,408
|
(253
|
)
|
9
|
||||||||||||||||||||||||
Total for securities available for sale
|
$
|
213,220
|
$
|
(850
|
)
|
49
|
$
|
2,995
|
$
|
(121
|
)
|
2
|
$
|
216,215
|
$
|
(971
|
)
|
51
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
December 31, 2016
|
||||||||||||||||||||||||||||||||||||
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||||||||||||||
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
Estimated
Fair Value
|
Gross
Unrealized
Loss
|
Number of
Securities
|
||||||||||||||||||||||||||||
Securities available for sale:
|
||||||||||||||||||||||||||||||||||||
Fixed maturities
|
||||||||||||||||||||||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
9,483
|
$
|
(15
|
)
|
1
|
$
|
-
|
$
|
-
|
-
|
$
|
9,483
|
$
|
(15
|
)
|
1
|
|||||||||||||||||||
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
|
12,937
|
(9
|
)
|
1
|
-
|
-
|
-
|
12,937
|
(9
|
)
|
1
|
|||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
7,758
|
(68
|
)
|
5
|
-
|
-
|
-
|
7,758
|
(68
|
)
|
5
|
|||||||||||||||||||||||||
Municipal securities
|
84,252
|
(559
|
)
|
13
|
-
|
-
|
-
|
84,252
|
(559
|
)
|
13
|
|||||||||||||||||||||||||
Corporate bonds
|
105,054
|
(661
|
)
|
22
|
-
|
-
|
-
|
105,054
|
(661
|
)
|
22
|
|||||||||||||||||||||||||
Collateralized mortgage obligations
|
32,120
|
(239
|
)
|
8
|
784
|
(3
|
)
|
1
|
32,904
|
(242
|
)
|
9
|
||||||||||||||||||||||||
Total fixed maturities
|
251,604
|
(1,551
|
)
|
50
|
784
|
(3
|
)
|
1
|
252,388
|
(1,554
|
)
|
51
|
||||||||||||||||||||||||
Equity securities-Mutual funds
|
22,615
|
(451
|
)
|
4
|
-
|
-
|
-
|
22,615
|
(451
|
)
|
4
|
|||||||||||||||||||||||||
Total for securities available for sale
|
$
|
274,219
|
$
|
(2,002
|
)
|
54
|
$
|
784
|
$
|
(3
|
)
|
1
|
$
|
275,003
|
$
|
(2,005
|
)
|
55
|
The Corporation reviews the investment portfolios under the Corporation’s impairment review policy. Given market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and material other-than-temporary impairments may be recorded in future periods. The Corporation from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.
Obligations of Government-Sponsored Enterprises, Obligations of U.S. Government Instrumentalities and Municipal Securities: The unrealized losses on the Corporation’s investments in obligations of Government-Sponsored Enterprises, U.S. Government Instrumentalities and Municipal Securities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, these positions have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Corporation does not intend to sell the investments and it is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.
Obligations of the Commonwealth of Puerto Rico and its Instrumentalities: Our holdings in Puerto Rico municipals can be divided in (1) escrowed bonds with a fair value of $7,939 and a gross unrealized loss of $3, and (2) senior lien bonds issued by the Puerto Rico Sales Tax Financing Corporation (Cofina) with a fair value of $4,222 and a gross unrealized gain of $445. As of June 30, 2017, investments in escrow bonds are not considered other-than-temporarily impaired based on the length of time the funds have been in a loss position, the decline in estimated fair value is principally attributable to changes in interest rates, and the fact that these bonds are backed by US Government securities, and therefore have an implicit AA+/Aaa rating.
There was no impairment on Cofina positions during the three months and six months ended June 30, 2017 and 2016.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Corporate Bonds: The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions. All corporate bonds with an unrealized loss have investment grade ratings. Because the decline in estimated fair value is principally attributable to changes in interest rates; because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.
Residential Mortgage-Backed Securities and Collateralized Mortgage Obligations: The unrealized losses on investments in residential mortgage-backed securities collateralized mortgage obligations (“CMOs”) were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored enterprise. Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss. The investment grade credit rating of our securities reflects the seniority of the securities that the Corporation owns. The Corporation does not consider these investments other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality; the Corporation does not intend to sell the investments and it is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows.
Mutual Funds and Alternative Investments: As of June 30, 2017, investments in mutual funds and alternative investments with unrealized losses are not considered other-than-temporarily impaired based on market conditions and the length of time the funds have been in a loss position. There were no impairments on mutual funds and alternative investments during the three months and six months ended June 30, 2017. During the three and six months ended June 30, 2016, we recorded an other-than-temporary impairment related to these mutual funds amounting to $1,434.
Maturities of investment securities classified as available for sale and held to maturity were as follows:
June 30, 2017
|
||||||||
Amortized
cost
|
Estimated
fair value
|
|||||||
Securities available for sale:
|
||||||||
Due in one year or less
|
$
|
71,618
|
$
|
71,772
|
||||
Due after one year through five years
|
324,426
|
327,707
|
||||||
Due after five years through ten years
|
131,235
|
137,195
|
||||||
Due after ten years
|
565,723
|
606,463
|
||||||
Residential mortgage-backed securities
|
11,877
|
11,909
|
||||||
Collateralized mortgage obligations
|
41,129
|
41,115
|
||||||
$
|
1,146,008
|
$
|
1,196,161
|
|||||
Securities held to maturity:
|
||||||||
Due in one year or less
|
$
|
2,026
|
$
|
2,026
|
||||
Due after ten years
|
618
|
784
|
||||||
Residential mortgage-backed securities
|
191
|
193
|
||||||
$
|
2,835
|
$
|
3,003
|
Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Information regarding realized and unrealized gains and losses from investments is as follows:
Three months ended
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Realized gains (losses):
|
||||||||||||||||
Fixed maturity securities:
|
||||||||||||||||
Securities available for sale:
|
||||||||||||||||
Gross gains from sales
|
$
|
384
|
$
|
912
|
$
|
401
|
$
|
1,873
|
||||||||
Gross losses from sales
|
(517
|
)
|
(103
|
)
|
(636
|
)
|
(1,462
|
)
|
||||||||
Total fixed maturity securities
|
(133
|
)
|
809
|
(235
|
)
|
411
|
||||||||||
Equity securities:
|
||||||||||||||||
Securities available for sale:
|
||||||||||||||||
Gross gains from sales
|
4,189
|
2,525
|
4,627
|
3,112
|
||||||||||||
Gross losses from sales
|
(2
|
)
|
(380
|
)
|
(2
|
)
|
(511
|
)
|
||||||||
Gross losses from other-than-temporary impairments
|
-
|
(1,434
|
)
|
-
|
(1,434
|
)
|
||||||||||
Total equity securities
|
4,187
|
711
|
4,625
|
1,167
|
||||||||||||
Net realized gains on securities available for sale
|
$
|
4,054
|
$
|
1,520
|
$
|
4,390
|
$
|
1,578
|
Three months ended
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Changes in net unrealized gains (losses):
|
||||||||||||||||
Recognized in accumulated other comprehensive income:
|
||||||||||||||||
Fixed maturities – available for sale
|
$
|
3,252
|
$
|
18,739
|
$
|
2,813
|
$
|
41,328
|
||||||||
Equity securities – available for sale
|
2,768
|
2,908
|
13,911
|
9,677
|
||||||||||||
$
|
6,020
|
$
|
21,647
|
$
|
16,724
|
$
|
51,005
|
|||||||||
Not recognized in the consolidated financial statements:
|
||||||||||||||||
Fixed maturities – held to maturity
|
$
|
(10
|
)
|
$
|
27
|
$
|
(8
|
)
|
$
|
63
|
The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the six months ended June 30, 2017 and 2016 was $3,931 and $15,598, respectively.
As of June 30, 2017 and December 31, 2016, no individual investment in securities exceeded 10% of stockholders’ equity.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(4) |
Premiums and Other Receivables, Net
|
Premiums and other receivables, net were as follows:
June 30,
2017 |
December 31,
2016 |
|||||||
Premium
|
$
|
107,058
|
$
|
91,528
|
||||
Self-funded group receivables
|
51,646
|
57,728
|
||||||
FEHBP
|
15,582
|
14,321
|
||||||
Agent balances
|
40,340
|
25,495
|
||||||
Accrued interest
|
13,839
|
13,668
|
||||||
Reinsurance recoverable
|
55,772
|
58,295
|
||||||
Unsettled sales
|
6,715
|
-
|
||||||
Other
|
62,859
|
62,637
|
||||||
353,811
|
323,672
|
|||||||
Less allowance for doubtful receivables:
|
||||||||
Premium
|
23,949
|
27,320
|
||||||
Other
|
9,314
|
9,987
|
||||||
33,263
|
37,307
|
|||||||
Total premium and other receivables, net
|
$
|
320,548
|
$
|
286,365
|
As of June 30, 2017 and December 31, 2016, the Company had premiums and other receivables of $63,565 and $57,750, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations. The related allowance for doubtful receivables as of June 30, 2017 and December 31, 2016 were $14,853 and $18,812, respectively.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(5) |
Fair Value Measurements
|
Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, policy loans, policyholder deposits, and long-term borrowings. We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value due to the short period of time between the origination of these instruments and the expected realization or payment. Certain assets are measured at fair value on a recurring basis and are disclosed below. These assets are classified into one of three levels of a hierarchy defined by GAAP. For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see the consolidated financial statements and notes thereto included in our 2016 Form 10-K.
The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:
June 30, 2017
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Securities available for sale:
|
||||||||||||||||
Fixed maturity securities
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
-
|
$
|
40,383
|
$
|
-
|
$
|
40,383
|
||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities
|
79,997
|
-
|
-
|
79,997
|
||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
-
|
12,161
|
-
|
12,161
|
||||||||||||
Municipal securities
|
-
|
716,642
|
-
|
716,642
|
||||||||||||
Corporate bonds
|
-
|
293,954
|
-
|
293,954
|
||||||||||||
Residential agency mortgage-backed securities
|
-
|
11,909
|
-
|
11,909
|
||||||||||||
Collateralized mortgage obligations
|
-
|
41,115
|
-
|
41,115
|
||||||||||||
Total fixed maturities
|
79,997
|
1,116,164
|
-
|
1,196,161
|
||||||||||||
Equity securities - Mutual funds
|
173,957
|
84,406
|
-
|
258,363
|
||||||||||||
Alternative investments - measured at net asset value
|
-
|
-
|
-
|
29,457
|
||||||||||||
Total
|
$
|
253,954
|
$
|
1,200,570
|
$
|
-
|
$
|
1,483,981
|
Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amount presented in this table is intended to facilitate the reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
December 31, 2016
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Securities available for sale:
|
||||||||||||||||
Fixed maturity securities
|
||||||||||||||||
Obligations of government-sponsored enterprises
|
$
|
-
|
$
|
41,514
|
$
|
-
|
$
|
41,514
|
||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities
|
85,800
|
-
|
-
|
85,800
|
||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
|
-
|
20,051
|
-
|
20,051
|
||||||||||||
Municipal securities
|
-
|
683,803
|
-
|
683,803
|
||||||||||||
Corporate bonds
|
-
|
274,872
|
-
|
274,872
|
||||||||||||
Residential agency mortgage-backed securities
|
-
|
718
|
-
|
718
|
||||||||||||
Collateralized mortgage obligations
|
-
|
44,885
|
-
|
44,885
|
||||||||||||
Total fixed maturities
|
85,800
|
1,065,843
|
-
|
1,151,643
|
||||||||||||
Equity securities - Mutual funds
|
166,595
|
76,222
|
27,532
|
270,349
|
||||||||||||
Total
|
$
|
252,395
|
$
|
1,142,065
|
$
|
27,532
|
$
|
1,421,992
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
There were no transfers in and/or out of Level 3 and between Levels 1 and 2 during the three months and six months ended June 30, 2017 and 2016. Level 3 securities are partnerships measured at fair value using the net asset value affected by changes in the fair market value of the investments held in these partnerships.
The alternative investments represent investments in partnerships which invest in several equity and private equity funds. Portfolios are diversified by vintage year, stage, geography, business sectors and number of investments. These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair values of the investments in this class have been estimated using the net asset value of the Company’s ownership interest in the partnerships. Total unfunded capital commitments for these positions as of June 30, 2017 amounted to $118,668.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets are as follows:
June 30, 2017
|
||||||||||||||||||||
Carrying
|
Fair Value
|
|||||||||||||||||||
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Assets:
|
||||||||||||||||||||
Policy loans
|
$
|
8,716
|
$
|
-
|
$
|
8,716
|
$
|
-
|
$
|
8,716
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Policyholder deposits
|
$
|
179,225
|
$
|
-
|
$
|
179,225
|
$
|
-
|
$
|
179,225
|
||||||||||
Long-term borrowings:
|
||||||||||||||||||||
Loans payable to bank - variable
|
33,968
|
-
|
33,968
|
-
|
33,968
|
|||||||||||||||
Total long-term borrowings
|
33,968
|
-
|
33,968
|
-
|
33,968
|
|||||||||||||||
Total liabilities
|
$
|
213,193
|
$
|
-
|
$
|
213,193
|
$
|
-
|
$
|
213,193
|
December 31, 2016
|
||||||||||||||||||||
Carrying
|
Fair Value
|
|||||||||||||||||||
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Assets:
|
||||||||||||||||||||
Policy loans
|
$
|
8,564
|
$
|
-
|
$
|
8,564
|
$
|
-
|
$
|
8,564
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Policyholder deposits
|
$
|
179,382
|
$
|
-
|
$
|
179,382
|
$
|
-
|
$
|
179,382
|
||||||||||
Long-term borrowings:
|
||||||||||||||||||||
Loans payable to bank - variable
|
11,187
|
-
|
11,187
|
-
|
11,187
|
|||||||||||||||
6.6% senior unsecured notes payable
|
24,000
|
-
|
24,000
|
-
|
24,000
|
|||||||||||||||
Total long-term borrowings
|
35,187
|
-
|
35,187
|
-
|
35,187
|
|||||||||||||||
Total liabilities
|
$
|
214,569
|
$
|
-
|
$
|
214,569
|
$
|
-
|
$
|
214,569
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(6) |
Claim Liabilities
|
A reconciliation of the beginning and ending balances of claim liabilities is as follows:
Three months ended
June 30, 2017 |
Six months ended
June 30, 2017 |
|||||||||||||||||||||||
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
|||||||||||||||||||
Claim liabilities at beginning of year
|
$
|
393,525
|
$
|
136,779
|
$
|
530,304
|
$
|
349,047
|
$
|
138,896
|
$
|
487,943
|
||||||||||||
Reinsurance recoverable on claim liabilities
|
-
|
(35,898
|
)
|
(35,898
|
)
|
-
|
(38,998
|
)
|
(38,998
|
)
|
||||||||||||||
Net claim liabilities at beginning of year
|
393,525
|
100,881
|
494,406
|
349,047
|
99,898
|
448,945
|
||||||||||||||||||
Claims incurred
|
||||||||||||||||||||||||
Current period insured events
|
580,608
|
26,282
|
606,890
|
1,183,241
|
54,508
|
1,237,749
|
||||||||||||||||||
Prior period insured events
|
(1,355
|
)
|
(1,196
|
)
|
(2,551
|
)
|
(16,695
|
)
|
(2,529
|
)
|
(19,224
|
)
|
||||||||||||
Total
|
579,253
|
25,086
|
604,339
|
1,166,546
|
51,979
|
1,218,525
|
||||||||||||||||||
Payments of losses and loss-adjustment expenses
|
||||||||||||||||||||||||
Current period insured events
|
576,135
|
14,944
|
591,079
|
926,585
|
22,917
|
949,502
|
||||||||||||||||||
Prior period insured events
|
25,208
|
11,586
|
36,794
|
217,573
|
29,523
|
247,096
|
||||||||||||||||||
Total
|
601,343
|
26,530
|
627,873
|
1,144,158
|
52,440
|
1,196,598
|
||||||||||||||||||
Net claim liabilities at end of year
|
371,435
|
99,437
|
470,872
|
371,435
|
99,437
|
470,872
|
||||||||||||||||||
Reinsurance recoverable on claim liabilities
|
-
|
33,368
|
33,368
|
-
|
33,368
|
33,368
|
||||||||||||||||||
Claim liabilities at end of year
|
$
|
371,435
|
$
|
132,805
|
$
|
504,240
|
$
|
371,435
|
$
|
132,805
|
$
|
504,240
|
Three months ended
June 30, 2016 |
Six months ended
June 30, 2016 |
|||||||||||||||||||||||
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
Managed
Care
|
Other
Business
Segments *
|
Consolidated
|
|||||||||||||||||||
Claim liabilities at beginning of year
|
$
|
381,448
|
$
|
143,618
|
$
|
525,066
|
$
|
348,297
|
$
|
143,468
|
$
|
491,765
|
||||||||||||
Reinsurance recoverable on claim liabilities
|
-
|
(39,871
|
)
|
(39,871
|
)
|
-
|
(40,714
|
)
|
(40,714
|
)
|
||||||||||||||
Net claim liabilities at beginning of year
|
381,448
|
103,747
|
485,195
|
348,297
|
102,754
|
451,051
|
||||||||||||||||||
Claims incurred
|
||||||||||||||||||||||||
Current period insured events
|
596,909
|
25,950
|
622,859
|
1,192,499
|
51,840
|
1,244,339
|
||||||||||||||||||
Prior period insured events
|
(6,728
|
)
|
(686
|
)
|
(7,414
|
)
|
(6,028
|
)
|
(2,934
|
)
|
(8,962
|
)
|
||||||||||||
Total
|
590,181
|
25,264
|
615,445
|
1,186,471
|
48,906
|
1,235,377
|
||||||||||||||||||
Payments of losses and loss-adjustment expenses
|
||||||||||||||||||||||||
Current period insured events
|
583,381
|
16,557
|
599,938
|
948,420
|
21,653
|
970,073
|
||||||||||||||||||
Prior period insured events
|
46,743
|
10,204
|
56,947
|
244,843
|
27,757
|
272,600
|
||||||||||||||||||
Total
|
630,124
|
26,761
|
656,885
|
1,193,263
|
49,410
|
1,242,673
|
||||||||||||||||||
Net claim liabilities at end of year
|
341,505
|
102,250
|
443,755
|
341,505
|
102,250
|
443,755
|
||||||||||||||||||
Reinsurance recoverable on claim liabilities
|
-
|
38,109
|
38,109
|
-
|
38,109
|
38,109
|
||||||||||||||||||
Claim liabilities at end of year
|
$
|
341,505
|
$
|
140,359
|
$
|
481,864
|
$
|
341,505
|
$
|
140,359
|
$
|
481,864
|
*
|
Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.
|
As a result of differences between actual amounts and estimates of insured events in prior years, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 2017 and 2016 are due primarily to better than expected utilization trends. Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying consolidated financial statements.
The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to $6,945 and $13,635 during the three months and six months ended June 30, 2017, respectively. The change in the liability for future policy benefits during the three months and six months ended June 30, 2016 amounted to $6,642 and $13,404, respectively.
The following is information about total incurred but not reported (IBNR) liabilities plus expected development on reported claims included in the liability for unpaid claims adjustment expenses for the Managed Care segment as of June 30, 2017.
Incurred
Year
|
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
|
|||
2015
|
68,022
|
|||
2016
|
46,181
|
|||
2017
|
256,656
|
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(7) |
Long-Term Borrowings
|
A summary of the borrowings entered by the Company is as follows:
June 30,
|
December 31,
|
|||||||
2017
|
2016
|
|||||||
|
||||||||
Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%.
|
$
|
-
|
$
|
24,000
|
||||
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.00% at June 30, 2017.)
|
10,367
|
11,187
|
||||||
Secured loan payable of $20,150, payable in monthly installments of $84 through January 1, 2024, plus interest at a rate reset periodically of 275 basis points over selected LIBOR maturity (which was 3.90% at June 30, 2017.)
|
19,730
|
-
|
||||||
Secured loan payable of $4,116, payable in monthly installments of $49 through January 1, 2024, plus interest at a rate reset periodically of 325 basis points over selected LIBOR maturity (which was 4.40% at June 30, 2017.)
|
3,871
|
-
|
||||||
Total borrowings
|
33,968
|
35,187
|
||||||
Less: unamortized debt issuance costs
|
301
|
102
|
||||||
$
|
33,667
|
$
|
35,085
|
On December 28, 2016, TSM entered into a $35,500 credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11,187, (ii) Term Loan B in the principal amount of $20,150 and (iii) Term Loan C in the principal amount of $4,116. Term Loan A was used to refinance the outstanding balance of the previous $41,000 secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% Senior Unsecured Notes due January 2021 ($24,000), and fund a portion of a debt service reserve for the Loan (approximately $200). Interest payable commenced on January 1, 2017, in the case of Term Loan A, and on February 1, 2017, in the case of Term Loan B and Term Loan C. The Credit Agreement includes certain financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business.
On March 11, 2016 Triple-S Salud, Inc. (TSS) entered into a $30,000 revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit had an interest rate of LIBOR plus 220 basis points and contained certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017, and was not renewed.
On April 18, 2017, Triple-S Advantage, Inc. (TSA) entered into a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 25 basis points, matures on April 17, 2018, and includes certain financial and non-financial covenants that are customary for this type of facility. As of June 30, 2017, there is no outstanding balance in this line of credit.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(8) |
Pension Plan
|
The components of net periodic benefit cost for the three months and six months ended June 30 were as follows:
Three months ended
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Components of net periodic benefit cost:
|
||||||||||||||||
Service cost
|
$
|
-
|
$
|
878
|
$
|
-
|
$
|
2,128
|
||||||||
Interest cost
|
1,798
|
1,939
|
3,596
|
4,701
|
||||||||||||
Expected return on assets
|
(2,199
|
)
|
(2,054
|
)
|
(4,398
|
)
|
(4,980
|
)
|
||||||||
Amortization of prior service benefit
|
-
|
(102
|
)
|
-
|
(246
|
)
|
||||||||||
Amortization of actuarial loss
|
86
|
831
|
172
|
2,014
|
||||||||||||
Settlement loss
|
631
|
-
|
631
|
-
|
||||||||||||
Net periodic benefit cost
|
$
|
316
|
$
|
1,492
|
$
|
1
|
$
|
3,617
|
Effective January 31, 2017, the Company froze the pay and service components of amounts used to calculate pension benefits for active employees who participated in the pension plan. Therefore, as of the Effective Date, active employees in the pension plan will not accrue additional benefits for future service and eligible compensation received.
Employer Contributions: The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2016 that it expected to contribute $4,000 to the pension program in 2017. As of June 30, 2017, the Corporation has not made contributions to the pension program.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(9) |
Comprehensive Income
|
The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
Three months ended
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Net Unrealized Gain on Securities Beginning Balance
|
$
|
70,843
|
$
|
82,055
|
$
|
62,371
|
$
|
62,478
|
||||||||
Other comprehensive income before reclassifications
|
7,639
|
18,193
|
16,380
|
37,817
|
||||||||||||
Amounts reclassified from accumulated other comprehensive income
|
(3,243
|
)
|
(2,363
|
)
|
(3,512
|
)
|
(2,410
|
)
|
||||||||
Net current period change
|
4,396
|
15,830
|
12,868
|
35,407
|
||||||||||||
Ending Balance
|
75,239
|
97,885
|
75,239
|
97,885
|
||||||||||||
Liability for Pension Benefits Beginning Balance
|
(19,923
|
)
|
(36,221
|
)
|
(19,976
|
)
|
(36,855
|
)
|
||||||||
Amounts reclassified from accumulated other comprehensive income
|
53
|
445
|
106
|
1,079
|
||||||||||||
Ending Balance
|
(19,870
|
)
|
(35,776
|
)
|
(19,870
|
)
|
(35,776
|
)
|
||||||||
Accumulated Other Comprehensive Income Beginning Balance
|
50,920
|
45,834
|
42,395
|
25,623
|
||||||||||||
Other comprehensive income before reclassifications
|
7,639
|
18,193
|
16,380
|
37,817
|
||||||||||||
Amounts reclassified from accumulated other comprehensive income
|
(3,190
|
)
|
(1,918
|
)
|
(3,406
|
)
|
(1,331
|
)
|
||||||||
Net current period change
|
4,449
|
16,275
|
12,974
|
36,486
|
||||||||||||
Ending Balance
|
$
|
55,369
|
$
|
62,109
|
$
|
55,369
|
$
|
62,109
|
(10) |
Share-Based Compensation
|
Share-based compensation expense recorded during the three months and six months ended June 30, 2017 was $1,613 and $170, respectively. Share-based compensation expense recorded during the three months and six months ended June 30, 2016 was $1,228 and $2,313, respectively. The lower expense during the six months ended June 30, 2017 results from a decrease in the 2014 and 2015 grants expected performance shares payouts. There was no cash received from stock option exercises during the six months ended June 30, 2017 and 2016.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(11) |
Net Income Available to Stockholders and Net Income per Share
|
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Numerator for earnings per share:
|
||||||||||||||||
Net income attributable to TSM available to stockholders
|
$
|
12,705
|
$
|
3,880
|
$
|
8,363
|
$
|
7,336
|
||||||||
Denominator for basic earnings per share:
|
||||||||||||||||
Weighted average of common shares
|
24,246,591
|
24,624,070
|
24,195,211
|
24,609,749
|
||||||||||||
Effect of dilutive securities
|
36,687
|
45,364
|
50,220
|
58,892
|
||||||||||||
Denominator for diluted earnings per share
|
24,283,278
|
24,669,434
|
24,245,431
|
24,668,641
|
||||||||||||
Basic net income per share attributable to TSM
|
$
|
0.52
|
$
|
0.16
|
$
|
0.35
|
$
|
0.30
|
||||||||
Diluted net income per share attributable to TSM
|
$
|
0.52
|
$
|
0.16
|
$
|
0.34
|
$
|
0.30
|
(12) |
Contingencies
|
The following information supplements and amends, as applicable, the disclosures in Note 24 to the Consolidated Financial Statements of the Company’s 2016 Annual Report on Form 10-K. Our business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla governmental authorities. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. The Commissioner of Insurance of Puerto Rico, as well as other Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla government authorities, regularly make inquiries and conduct audits concerning the Company's compliance with such laws and regulations. Penalties associated with violations of these laws and regulations may include significant fines and exclusion from participating in certain publicly funded programs and may require the Company to comply with corrective action plans or changes in our practices.
We are involved in various legal actions arising in the ordinary course of business. We are also defendants in various other litigations and proceedings, some of which are described below. Where the Company believes that a loss is both probable and estimable, such amounts have been recorded. Although we believe our estimates of such losses are reasonable, these estimates could change as a result of further developments in these matters. In other cases, it is at least reasonably possible that the Company may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Company is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution. The outcome of legal proceedings is inherently uncertain and pending matters for which accruals have not been established have not progressed sufficiently to enable us to estimate a range of possible loss, if any. Given the inherent unpredictability of these matters, it is possible that an adverse outcome in one or more of these matters could have a material 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.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
ASES Audits
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. TSS also amended its claim to include the Puerto Rico Health Department (PRHD), as it asserts the PRHD is an indispensable party for the resolution of this matter and to seek the payment of approximately $5,000, since the premiums paid to TSS should have been higher than what ASES actually paid given the additional risk assumed by TSS. The case was assigned to a Special Commissioner, who on March 17, 2017 issued a report recommending the court to dismiss the complaint in favor of TSS. 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. After this partial dismissal, the only remaining claim pending to be adjudicated is for the alleged overpayments for the 2011-2013 period, which amounts to approximately $500. On July 27, 2017, ASES appealed the court’s partial judgement. TSS will oppose ASES’ appeal and will continue to conduct a vigorous defense of this matter.
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
(13) |
Segment Information
|
The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees, net investment income, and revenues derived from other segments. Operating costs include claims incurred and operating expenses. The Corporation calculates operating income or loss as operating revenues less operating costs.
The following tables summarize the operations by reportable segment:
Three months ended
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Operating revenues:
|
||||||||||||||||
Managed Care:
|
||||||||||||||||
Premiums earned, net
|
$
|
661,365
|
$
|
668,932
|
$
|
1,301,512
|
$
|
1,347,312
|
||||||||
Administrative service fees
|
4,548
|
4,520
|
8,927
|
9,603
|
||||||||||||
Intersegment premiums/service fees
|
1,631
|
1,652
|
3,165
|
3,137
|
||||||||||||
Net investment income
|
4,146
|
4,107
|
8,038
|
7,587
|
||||||||||||
Total managed care
|
671,690
|
679,211
|
1,321,642
|
1,367,639
|
||||||||||||
Life Insurance:
|
||||||||||||||||
Premiums earned, net
|
39,858
|
38,591
|
80,156
|
77,557
|
||||||||||||
Intersegment premiums
|
111
|
202
|
302
|
339
|
||||||||||||
Net investment income
|
6,330
|
6,412
|
12,417
|
12,326
|
||||||||||||
Total life insurance
|
46,299
|
45,205
|
92,875
|
90,222
|
||||||||||||
Property and Casualty Insurance:
|
||||||||||||||||
Premiums earned, net
|
21,668
|
21,526
|
43,216
|
42,714
|
||||||||||||
Intersegment premiums
|
154
|
154
|
307
|
307
|
||||||||||||
Net investment income
|
2,134
|
2,325
|
4,058
|
4,254
|
||||||||||||
Total property and casualty insurance
|
23,956
|
24,005
|
47,581
|
47,275
|
||||||||||||
Other segments: *
|
||||||||||||||||
Intersegment service revenues
|
2,259
|
2,617
|
3,845
|
5,162
|
||||||||||||
Operating revenues from external sources
|
1,154
|
959
|
2,154
|
1,815
|
||||||||||||
Total other segments
|
3,413
|
3,576
|
5,999
|
6,977
|
||||||||||||
Total business segments
|
745,358
|
751,997
|
1,468,097
|
1,512,113
|
||||||||||||
TSM operating revenues from external sources
|
55
|
1
|
133
|
5
|
||||||||||||
Elimination of intersegment premiums/service fees
|
(1,896
|
)
|
(2,008
|
)
|
(3,494
|
)
|
(3,783
|
)
|
||||||||
Elimination of intersegment service revenues
|
(2,259
|
)
|
2,518
|
(3,845
|
)
|
(27
|
)
|
|||||||||
Other intersegment eliminations
|
-
|
(5,149
|
)
|
-
|
(5,162
|
)
|
||||||||||
Consolidated operating revenues
|
$
|
741,258
|
$
|
747,359
|
$
|
1,460,891
|
$
|
1,503,146
|
* |
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
June 30, |
Six months ended
June 30, |
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Operating income (loss):
|
||||||||||||||||
Managed care
|
$
|
2,920
|
$
|
(3,780
|
)
|
$
|
(15,662
|
)
|
$
|
(4,421
|
)
|
|||||
Life insurance
|
4,990
|
5,054
|
8,925
|
10,652
|
||||||||||||
Property and casualty insurance
|
3,775
|
3,388
|
5,842
|
5,499
|
||||||||||||
Other segments *
|
1
|
(182
|
)
|
144
|
(361
|
)
|
||||||||||
Total business segments
|
11,686
|
4,480
|
(751
|
)
|
11,369
|
|||||||||||
TSM operating revenues from external sources
|
55
|
1
|
133
|
5
|
||||||||||||
TSM unallocated operating expenses
|
(2,900
|
)
|
(2,707
|
)
|
(5,117
|
)
|
(5,874
|
)
|
||||||||
Elimination of TSM intersegment charges
|
2,400
|
2,386
|
4,800
|
4,773
|
||||||||||||
Consolidated operating income (loss)
|
11,241
|
4,160
|
(935
|
)
|
10,273
|
|||||||||||
Consolidated net realized investment gains
|
4,054
|
1,520
|
4,390
|
1,578
|
||||||||||||
Consolidated interest expense
|
(1,721
|
)
|
(1,954
|
)
|
(3,407
|
)
|
(3,836
|
)
|
||||||||
Consolidated other income, net
|
587
|
3,859
|
3,112
|
4,734
|
||||||||||||
Consolidated income before taxes
|
$
|
14,161
|
$
|
7,585
|
$
|
3,160
|
$
|
12,749
|
||||||||
Depreciation and amortization expense:
|
||||||||||||||||
Managed care
|
$
|
2,649
|
$
|
2,839
|
$
|
4,888
|
$
|
5,773
|
||||||||
Life insurance
|
318
|
249
|
598
|
504
|
||||||||||||
Property and casualty insurance
|
138
|
150
|
252
|
311
|
||||||||||||
Other segments*
|
163
|
166
|
323
|
319
|
||||||||||||
Total business segments
|
3,268
|
3,404
|
6,061
|
6,907
|
||||||||||||
TSM depreciation expense
|
196
|
196
|
393
|
393
|
||||||||||||
Consolidated depreciation and amortization expense
|
$
|
3,464
|
$
|
3,600
|
$
|
6,454
|
$
|
7,300
|
* |
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)
June 30,
2017 |
December 31,
2016 |
|||||||
Assets:
|
||||||||
Managed care
|
$
|
1,156,585
|
$
|
1,013,872
|
||||
Life insurance
|
841,401
|
816,920
|
||||||
Property and casualty insurance
|
377,020
|
349,159
|
||||||
Other segments *
|
27,031
|
26,034
|
||||||
Total business segments
|
2,402,037
|
2,205,985
|
||||||
Unallocated amounts related to TSM:
|
||||||||
Cash, cash equivalents, and investments
|
9,889
|
17,033
|
||||||
Property and equipment, net
|
22,130
|
22,380
|
||||||
Other assets
|
20,842
|
21,646
|
||||||
52,861
|
61,059
|
|||||||
Elimination entries-intersegment receivables and others
|
(49,530
|
)
|
(48,045
|
)
|
||||
Consolidated total assets
|
$
|
2,405,368
|
$
|
2,218,999
|
* |
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)
(14) |
Subsequent Events
|
The Company evaluated subsequent events through the date the financial statements were issued. No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standards Codification.
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refers to Triple-S Management Corporation and its subsidiaries. The MD&A included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months and six months ended June 30, 2017. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2016 and the MD&A included therein, and our unaudited consolidated financial statements and accompanying notes as of and for the three months and six months ended June 30, 2017 included in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.
We are one of the most significant players in the managed care industry in Puerto Rico and have over 55 years of experience in this industry. We offer a broad portfolio of managed care and related products in the Commercial, Medicaid and Medicare Advantage markets. In the Commercial market we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. We also participate in the Government of Puerto Rico Health Insurance Plan (a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.) (Medicaid), by administering the provision of health benefits in designated service regions in Puerto Rico. See details of the Medicaid contract in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 under the sub-caption “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.”
We have the exclusive right to use the Blue Cross Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands, Costa Rica, the British Virgin Islands and Anguilla. As of June 30, 2017, we served approximately 1,006,000 members across all regions of Puerto Rico. For the six months ended June 30, 2017 and 2016, our managed care segment represented approximately 92% of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets.
We participate in the managed care market through our subsidiaries, Triple-S Salud, Inc. (TSS), Triple-S Advantage, Inc. (TSA), and Triple-S Blue, Inc. I.I. (TSB). TSS, TSA and TSB are Blue Cross Blue Shield Association (BCBSA) licensees, which provides us with exclusive use of the Blue Cross and Blue Shield name and mark throughout Puerto Rico, the U.S. Virgin Islands, Costa Rica, the British Virgin Islands, and Anguilla.
We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc., and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (TSP).
Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income. See note 13 of the Condensed Consolidated Financial Statements included in Quarterly Report on Form 10-Q.
Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and the Government of Puerto Rico Health Insurance Plan. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income and revenues derived from other segments. Substantially all of our earnings are generated in Puerto Rico.
Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment’s results of operations depend to a significant extent on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation, commission payments to brokers and other overhead business expenses.
We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.
Puerto Rico Economy
During the past decade, Puerto Rico has been facing economic and fiscal challenges and its economy has been contracting. In response to the Commonwealth of Puerto Rico (the “Commonwealth”) fiscal and economic crisis, on June 30, 2016, the U.S. Congress enacted the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), which, among other things, established a Federally-appointed oversight board (the “Oversight Board”) comprised of seven members with ample powers over the finances of the Commonwealth and its instrumentalities. PROMESA also established a temporary stay on litigation to enforce rights or remedies related to financial liabilities of the Commonwealth, its instrumentalities and municipalities, which expired on May 1, 2017. Finally, PROMESA established two separate mechanisms to restructure the debts of the Commonwealth, its public corporations and municipalities. The first mechanism permits modifications of financial indebtedness with the consent of a supermajority of affected financial creditors. The second mechanism, known as Title III, is a court-supervised debt-adjustment process, which is modeled after Chapter 9 of the U.S. Bankruptcy Code.
On February 28, 2017, the Governor of Puerto Rico submitted a 10-year fiscal plan to the Oversight Board, for its review and approval. After certain revisions, a final plan was approved by the Oversight Board on March 13, 2017, which includes spending reductions of $25.7 billion. The plan implies larger concessions from bondholders since there would be approximately $8 billion available for debt service payments over the next 10 years, compared to around $35 billion that is owed over that period. The plan also proposes (i) certain significant changes to the Commonwealth’s healthcare delivery model in order to reduce expenses and (ii) the elimination of subsidies to the municipalities, many of which have contracts for the provision of healthcare or other insurance products with our subsidiaries. The Oversight Board also required and approved fiscal plans for several government instrumentalities, including the Puerto Rico Aqueduct and Sewer Authority, the Puerto Rico Electric Power Authority (“PREPA”), and the Puerto Rico Highways and Transportation Authority (“PRHTA”), among others.
On May 3, 2017, after not reaching an agreement with its creditors, the Oversight Board filed an order seeking the protection of the provisions of Title III of PROMESA for the Commonwealth. Subsequently, the Oversight Board filed Title III petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA” by its Spanish acronym), which issued the sales and use tax-backed bonds, the Employee Retirement System, PRHTA and PREPA. While the proceedings under Title III of PROMESA are ongoing, all enforcement and collection actions against the Commonwealth and these instrumentalities by its creditors are stayed. As a result of this court-supervised debt-adjustment process, the principal and interest payments due on general obligation, sales and use tax-backed bonds, and bonds from these government instrumentalities will likely be restructured and such restructuring could lead to significant additional losses on such holdings. Further, on May 30, 2017, pursuant to a court order under COFINA’s Title III proceeding, funds held by the trustee of the COFINA bonds have not been applied for the payment of such bonds pending the resolution of various legal disputes. On June 6, 2017, S&P downgraded COFINA to “D”. Although as of the date hereof, these entities are the only instrumentalities for which the Oversight Board has sought the restructuring authority provided by PROMESA, in the future, the Oversight Board may use the restructuring mechanisms of PROMESA for other instrumentalities of the Commonwealth, including it municipalities.
Although the Oversight Board has not sought the protection of Title III of PROMESA for the Puerto Rico Health Insurance Administration (“ASES” by its Spanish acronym), the instrumentality responsible for the administration of the Government’s health plan, ASES may be affected by the Commonwealth’s fiscal plan and the proceedings commenced for the Commonwealth under Title III of PROMESA because its state-based funding is solely dependent on appropriations from the Government’s general fund. Notwithstanding the Government’s statement in recent legislation that its public policy includes guaranteeing the continuity of public services in essential areas such as health, security, education, social work and development, among others, it is uncertain how the Commonwealth’s Title III proceeding will affect ASES and the contracts administered by it.
If the liquidity of the Government of Puerto Rico, its agencies, municipalities and public corporations becomes significantly affected as a result of their inability to raise funding in the market or generate enough revenues, we may face credit losses in our premium and fees receivables from these and other government related entities. As of June 30, 2017, the Company had premiums and other receivables of $63.6 million from the Government of Puerto Rico, including its agencies, municipalities and public corporations with a related allowance for doubtful receivables of $14.9 million. We also hold several positions categorized as Obligations of the Commonwealth of Puerto Rico, including one COFINA bond, which are susceptible to the aforementioned recent developments in the economy, see note 3 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Legislation
On July 23, 2017, the Commonwealth enacted Act 47-2017 (“Act 47”), which, among other things, imposes restrictions on utilization review (“UR”) processes related to hospitalizations and the ability of managed care organizations (“MCO”s), to conduct internal review processes at any level of appeal. Act 47 also creates a statutory cause of action against MCOs for intervening with the “diagnostic and medical treatment of a patient” making them joint and severally liable in those cases in which the patient suffers damages as a direct or indirect result of such intervention. Act 47 orders the Puerto Rico Patient's Advocate Office and the Puerto Rico Health Insurance Administration (“ASES”), to adopt the necessary regulations to ensure compliance with the provisions of Act 47 within 60 days of its enactment. Act 47 specifically orders ASES to regulate UR according to the United States’ national standards. We are closely monitoring how Act 47 and its regulations will impact the Company.
Puerto Rico Government Health Reform Program
On June 30, 2017, TSS agreed to extend its contract with ASES for the provision of health services in the Metro North and West regions of the Puerto Rico Government’s health insurance program, which expired on June 30, 2017, for a three-month period beginning July 1, 2017 and ending September 30, 2017. This extension is intended to ensure the continuity of services while the parties conclude negotiations for the renewal of the contract through the remainder of the Puerto Rico Government’s 2017-2018 fiscal year, which ends June 30, 2018. Under the contract extension, ASES will increase its payment to TSS from a rate of $165.93 to $183.38 per member per month (PMPM) for the Metro North region and from $138.37 to $148.99 PMPM for the West region. The new rates reflect cost and utilization trends for the 2016-2017 fiscal year and are subject to CMS approval, which is expected to occur during the 90 day extension period. ASES will continue to pay current PMPM rates until CMS approves new PMPM rates, at which time ASES will pay the cumulative difference between both rates. Upon reaching an agreement on outstanding terms of the contract renewal, the new rates will also apply for the remainder of the 2017-2018 fiscal year. See Item 1A. Risk Factors—Risks Related to Our Business – “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.’’ included in our Annual Report on Form 10-K for the year ended December 31, 2016.
For a description of recent accounting standards, see note 2 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of June 30,
|
||||||||
2017
|
2016
|
|||||||
Managed care enrollment:
|
||||||||
Commercial 1
|
498,393
|
528,902
|
||||||
Medicare
|
121,240
|
116,215
|
||||||
Medicaid
|
386,070
|
402,661
|
||||||
Total
|
1,005,703
|
1,047,778
|
||||||
Managed care enrollment by funding arrangement:
|
||||||||
Fully-insured
|
839,299
|
868,157
|
||||||
Self-insured
|
166,404
|
179,621
|
||||||
Total
|
1,005,703
|
1,047,778
|
(1) |
Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.
|
The following table sets forth the Corporation’s consolidated operating results. Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
(dollar amounts in millions)
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Revenues:
|
||||||||||||||||
Premiums earned, net
|
$
|
722.9
|
$
|
729.1
|
$
|
1,425.2
|
$
|
1,467.6
|
||||||||
Administrative service fees
|
4.5
|
4.5
|
8.9
|
9.6
|
||||||||||||
Net investment income
|
12.7
|
12.9
|
24.7
|
24.2
|
||||||||||||
Other operating revenues
|
1.1
|
0.9
|
2.1
|
1.7
|
||||||||||||
Total operating revenues
|
741.2
|
747.4
|
1,460.9
|
1,503.1
|
||||||||||||
Net realized investment gains
|
4.1
|
1.5
|
4.4
|
1.6
|
||||||||||||
Other income, net
|
0.6
|
3.8
|
3.1
|
4.7
|
||||||||||||
Total revenues
|
745.9
|
752.7
|
1,468.4
|
1,509.4
|
||||||||||||
Benefits and expenses:
|
||||||||||||||||
Claims incurred
|
611.3
|
622.1
|
1,232.2
|
1,248.8
|
||||||||||||
Operating expenses
|
118.7
|
121.1
|
229.6
|
244.1
|
||||||||||||
Total operating expenses
|
730.0
|
743.2
|
1,461.8
|
1,492.9
|
||||||||||||
Interest expense
|
1.7
|
1.9
|
3.4
|
3.8
|
||||||||||||
Total benefits and expenses
|
731.7
|
745.1
|
1,465.2
|
1,496.7
|
||||||||||||
Income before taxes
|
14.2
|
7.6
|
3.2
|
12.7
|
||||||||||||
Income tax expense (benefit)
|
1.5
|
3.7
|
(5.2
|
)
|
5.4
|
|||||||||||
Net income attributable to TSM
|
12.7
|
3.9
|
8.4
|
7.3
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Operating Revenues
Consolidated premiums earned, net for the three months ended June 30, 2017 decreased by $6.2 million, or 0.9%, to $722.9 million when compared to the three months ended June 30, 2016. This decrease primarily reflects lower premiums in the Managed Care segment by $7.6 million mainly due to lower Medicare risk score revenue adjustments and lower membership in the segment’s Medicaid and Commercial businesses. These decreases were partially offset by higher Life Insurance premiums, and by the Medicaid profit sharing accrual recorded during the three months ended June 30, 2016.
Net Realized Investment Gains
Consolidated net realized investment gains are the result of sales of debt and equity securities classified as available for sale, following our asset/liability management and tax planning strategies. The net realized gains for the period ending June 30, 2016 were partially offset by $1.4 million other-than-temporary impairments related to certain equity investments.
Other Income, Net
The $3.2 million decrease in consolidated other income reflects the collection of interest charged for late payment related to the current Medicaid contract during the three months ended June 30, 2016.
Claims Incurred
Consolidated claims incurred decreased by $10.8 million, or 1.7%, to $611.3 million during the three months ended June 30, 2017, mostly due to lower claims in the Managed Care segment. The decrease in Managed Care claims primarily reflects lower claims incurred in the segment’s Commercial and Medicaid businesses primarily driven by lower enrollment, better claim experience in the Commercial business, offset in part by higher pharmacy claims trends in the Medicare and Medicaid businesses, and enhanced benefits in the Medicare 2017 offerings. The consolidated loss ratio decreased by 70 basis points to 84.6%.
Operating Expenses
Consolidated operating expenses during the three months ended June 30, 2017 decreased by $2.4 million, or 2.0%, to $118.7 million. The lower operating expenses are mostly the result of the decrease in the Health Insurance Providers Fee (HIP fee) of $10.7 million due to the 2017 tax holiday, offset by increase in general operating expenses totaling approximately $8.1 million. For the three months ended June 30, 2017, the consolidated operating expense ratio decreased 20 basis points to 16.3%.
Income Taxes
Consolidated income tax expense decreased by $2.2 million, to an expense of $1.5 million for the three months ended June 30, 2017. The year over year change primarily results from the prior year reassessment done by the Property and Casualty segment of the tax rate used to measure several temporary differences, which increased the deferred tax rate from 20% to 39%, resulting in an increase to the 2016 deferred tax expense of $2.6 million.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Operating Revenues
Consolidated premiums earned, net for the six months ended June 30, 2017 decreased by $42.4 million, or 2.9%, to $1,425.2 million when compared to the six months ended June 30, 2016. This decrease primarily reflects lower premiums in the Managed Care segment by $45.7 million mainly due to lower membership in the segment’s Medicaid and Commercial businesses.
Net Realized Investment Gains
Consolidated net realized investment gains are the result of sales of debt and equity securities classified as available for sale, following our asset/liability management and tax planning strategies. The net realized gains for the period ended June 30, 2016 were partially offset by $1.4 million other-than-temporary impairments related to certain equity investments.
Other Income, Net
The $1.6 million decrease in consolidated other income reflects the collection of interest charged for late payment related to the current Medicaid contract during the six months ended June 30, 2016.
Claims Incurred
Consolidated claims incurred decreased by $16.6 million, or 1.3%, to $1,232.2 million during the six months ended June 30, 2017, mostly due to lower claims in the Managed Care segment. The decrease in Managed Care claims primarily reflects lower claims incurred in the segment’s Commercial and Medicaid businesses primarily driven by lower enrollment, better claim experience in the Commercial business, offset in part by higher pharmacy claims trends in the Medicare and Medicaid businesses, and enhanced benefits in the Medicare 2017 offerings. The consolidated loss ratio increased by 140 basis points to 86.5%.
Operating Expenses
Consolidated operating expenses during the six months ended June 30, 2017 decreased by $14.5 million, or 5.9%, to $229.6 million as compared to the operating expenses during the six months ended June 30, 2016. The lower operating expenses and expense ratio are mostly the result of the decrease in the HIP Fee of $21.6 million due to the 2017 moratorium offset by increase in general operating expenses totaling approximately $6.7 million. For the six months ended June 30, 2017, the consolidated operating expense ratio decreased 50 basis points to 16.0%.
Income Taxes
Consolidated income taxes decreased by $10.6 million, to a net benefit of $5.2 million for the six months ended June 30, 2017. The year over year change in income taxes primarily results from a loss before taxes incurred in the 2017 period in the Managed Care segment.
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
(dollar amounts in millions)
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Operating revenues:
|
||||||||||||||||
Medical premiums earned, net:
|
||||||||||||||||
Commercial
|
$
|
203.3
|
$
|
215.0
|
$
|
408.4
|
$
|
430.5
|
||||||||
Medicare
|
266.6
|
273.1
|
524.3
|
534.0
|
||||||||||||
Medicaid
|
191.8
|
181.2
|
369.5
|
383.4
|
||||||||||||
Medical premiums earned, net
|
661.7
|
669.3
|
1,302.2
|
1,347.9
|
||||||||||||
Administrative service fees
|
5.8
|
5.8
|
11.4
|
12.1
|
||||||||||||
Net investment income
|
4.1
|
4.1
|
8.0
|
7.6
|
||||||||||||
Total operating revenues
|
671.6
|
679.2
|
1,321.6
|
1,367.6
|
||||||||||||
Medical operating costs:
|
||||||||||||||||
Medical claims incurred
|
579.2
|
590.2
|
1,166.5
|
1,186.5
|
||||||||||||
Medical operating expenses
|
89.5
|
92.8
|
170.8
|
185.5
|
||||||||||||
Total medical operating costs
|
668.7
|
683.0
|
1,337.3
|
1,372.0
|
||||||||||||
Medical operating income (loss)
|
$
|
2.9
|
$
|
(3.8
|
)
|
$
|
(15.7
|
)
|
$
|
(4.4
|
)
|
|||||
Additional data:
|
||||||||||||||||
Member months enrollment:
|
||||||||||||||||
Commercial:
|
||||||||||||||||
Fully-insured
|
1,001,638
|
1,063,422
|
2,014,843
|
2,159,704
|
||||||||||||
Self-funded
|
501,500
|
540,221
|
1,008,667
|
1,083,247
|
||||||||||||
Total Commercial member months
|
1,503,138
|
1,603,643
|
3,023,510
|
3,242,951
|
||||||||||||
Medicare member months
|
363,257
|
351,108
|
726,984
|
715,535
|
||||||||||||
Medicaid member months
|
1,169,090
|
1,206,345
|
2,342,363
|
2,428,237
|
||||||||||||
Total member months
|
3,035,485
|
3,161,096
|
6,092,857
|
6,386,723
|
||||||||||||
Medical loss ratio
|
87.5
|
%
|
88.2
|
%
|
89.6
|
%
|
88.0
|
%
|
||||||||
Operating expense ratio
|
13.4
|
%
|
13.7
|
%
|
13.0
|
%
|
13.6
|
%
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Medical Operating Revenues
Medical premiums earned for the three months ended June 30, 2017 decreased by $7.6 million, or 1.1%, to $661.7 million when compared to the medical premiums earned during the three months ended June 30, 2016. This decrease is principally the result of the following:
• |
Premiums earned by the Commercial business decreased by $11.7 million, or 5.4%, to $203.3 million. This fluctuation primarily reflects lower fully-insured member enrollment during the quarter of approximately 61,800 member months and $3.6 million related to the suspension of the HIP fee pass-through; offset by an increase in average premium rates of approximately 5%.
|
• |
Premiums earned by the Medicare business decreased by $6.5 million, or 2.4%, to $266.6 million, primarily reflecting a lower risk score revenue adjustment in 2017 by $17.5 million, lower average premium rates due to a reduction in the 2017 Medicare reimbursement rates; offset in part by an increase in member month enrollment of approximately 12,000 lives.
|
• |
Premiums earned by the Medicaid business amounted to $191.8 million, $10.6 million, or 5.8% higher than the same period last year. Increase primarily reflects the $14.6 million profit sharing accrual that decreased premiums during the 2016 period and the $11.6 million premium collection related to our compliance with the contract’s incentive metrics. These increases were partially offset by lower fully-insured member months enrollment by approximately 37,000 lives, the 4% decrease in the average premium rates that went into effect July 1, 2016, and $2.6 million related to the suspension of the HIP fee pass-through as a result of the 2017 moratorium.
|
Medical Claims Incurred
Medical claims incurred during the three months ended June 30, 2017 decreased by $11.0 million, or 1.9%, to $579.2 million when compared to the three months ended June 30, 2016. The medical loss ratio (MLR) of the segment decreased 70 basis points during the 2017 period, to 87.5%. This fluctuation is primarily attributed to the net effect of the following:
• |
The medical claims incurred of the Commercial business decreased by $28.2 million, or 14.7%, during the 2017 period mostly driven by lower enrollment. The MLR, at 80.6%, was 860 basis point lower than the same quarter last year. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 83.1%, 450 basis points lower than the adjusted MLR for last year primarily reflecting claim trends that are lower than our premium trends following the continuity of our underwriting discipline.
|
• |
The medical claims incurred of the Medicare business increased by $5.9 million, or 2.5%, during the 2017 period and its MLR increased by 430 basis points, to 90.9%. Adjusting for the effect of prior period reserve developments in 2017 and 2016 and moving the risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 94.3% this quarter, about 300 basis points higher than last year, primarily reflecting higher trends in Part B drugs, pharmacy benefits and the improvement of benefits in 2017 products taking advantage of the HIP fee moratorium.
|
• |
The medical claims incurred in the Medicaid business increased by $11.3 million, or 7.0%, during the 2017 period and its MLR increased by 100 basis points, to 90.3%. Adjusting for the effect of prior period reserve developments in 2017 and 2016, as well as for the impact of the profit sharing accrual and this year’s quality incentive premiums, the Medicaid MLR would have been approximately 96.0% this quarter, about 580 basis points higher than last year. The higher MLR primarily reflects increased pharmacy and outpatient claim trends and the lower premium rates that went into effect July 1, 2016.
|
Medical Operating Expenses
Medical operating expenses for the three months ended June 30, 2017 decreased by $3.3 million, or 3.6%, to $89.5 million when compared to the three months ended June 30, 2016. The operating expense ratio decreased by 30 basis points to 13.4% in 2017. The lower operating expenses and expense ratio are mostly the result of the decrease in the HIP Fee of $10.7 million due to the 2017 moratorium offset by increase in personnel costs, general operating expenses of totaling approximately $6.9 million.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Medical Operating Revenues
Medical premiums earned for the six months ended June 30, 2017 decreased by $45.7 million, or 3.4%, to $1,302.2 million when compared to the medical premiums earned during the six months ended June 30, 2016. This decrease is principally the result of the following:
• |
Premiums earned by the Commercial business decreased by $22.1 million, or 5.1%, to $408.4 million. This fluctuation primarily reflects lower fully-insured enrollment during the year of approximately 144,900 member months and $7.2 million related to the suspension of the HIP fee pass-through; offset by an increase in average premium rates of approximately 5%.
|
• |
Premiums earned by the Medicaid business decreased by $13.9 million, or 3.6% to $369.5 million. Decrease primarily reflects lower fully-insured member months enrollment by approximately 85,900 lives, and the 4.0% decrease in average premium rates that went into effect July 1, 2016. Also contributing to the lower premiums during this period was a $5.3 million related to the suspension of the HIP fee pass-through as a result of the 2017 moratorium. Decreases are partially offset by the impact of the profit sharing accrual in the 2016 period that decreased premiums by $10.6 million and by the $11.6 million premium collection related to our compliance with the contract’s quality incentive metrics.
|
• |
Premiums earned by the Medicare business decreased by $9.7 million, or 1.8%, to $524.3 million. Decrease primarily reflects lower risk score revenue by $20.9 million as well as lower average premium rates due to a reduction in the 2017 Medicare reimbursement rates. These decreases were partially offset by an increase in member month enrollment of approximately 11,000 lives.
|
Medical Claims Incurred
Medical claims incurred during the six months ended June 30, 2017 decreased by $20.0 million, or 1.7%, to $1,166.5 million when compared to the six months ended June 30, 2016. The MLR of the segment increased 160 basis points during the 2017 period, to 89.6%. This fluctuation is primarily attributed to the net effect of the following:
• |
The medical claims incurred of the Commercial business decreased by $35.8 million, or 9.6%, during the 2017 period mostly driven by lower enrollment. The MLR, at 82.1%, was 390 basis point lower than the same period last year. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 82.8%, 390 basis points lower than the adjusted MLR for last year primarily reflecting claim trends that are lower than our premium trends following the continuity of our underwriting discipline.
|
• |
The medical claims incurred in the Medicaid business increased by $3.0 million, or 0.9%, during the 2017 period and its MLR increased by 420 basis points, to 93.9%. Adjusting for the effect of prior period reserve developments in 2017 and 2016, as well as for the impact of the profit sharing accrual and this year’s quality incentive premiums, the Medicaid MLR would have been approximately 95.4% this quarter, about 620 basis points higher than last year. The higher MLR primarily reflects increased pharmacy and outpatient claim trends and the lower premium rates that went into effect July 1, 2016.
|
• |
The medical claims incurred of the Medicare business increased by $12.9 million, or 2.7%, during the 2017 period and its MLR increased by 410 basis points, to 92.4%. Adjusting for the effect of prior period reserve developments in 2017 and 2016 and moving the risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 94.1% this quarter, about 210 basis points higher than last year, primarily reflecting higher trends in Part B drugs, pharmacy benefits and the improvement of benefits in 2017 products taking advantage of the HIP fee moratorium.
|
Medical Operating Expenses
Medical operating expenses for the six months ended June 30, 2017 decreased by $14.7 million, or 7.9%, to $170.8 million when compared to the six months ended June 30, 2016. The operating expense ratio decreased by 60 basis points to 13.0% in 2017. The lower operating expenses and expense ratio are mostly the result of the decrease in the HIP Fee of $21.6 million due to the 2017 moratorium offset by increase in general operating expenses of totaling approximately $6.7 million.
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
(dollar amounts in millions)
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Operating revenues:
|
||||||||||||||||
Premiums earned, net:
|
||||||||||||||||
Premiums earned
|
$
|
41.8
|
$
|
39.7
|
$
|
83.6
|
$
|
79.5
|
||||||||
Assumed earned premiums
|
0.5
|
1.2
|
1.4
|
2.7
|
||||||||||||
Ceded premiums earned
|
(2.3
|
)
|
(2.1
|
)
|
(4.5
|
)
|
(4.3
|
)
|
||||||||
Premiums earned, net
|
40.0
|
38.8
|
80.5
|
77.9
|
||||||||||||
Net investment income
|
6.3
|
6.4
|
12.4
|
12.3
|
||||||||||||
Total operating revenues
|
46.3
|
45.2
|
92.9
|
90.2
|
||||||||||||
Operating costs:
|
||||||||||||||||
Policy benefits and claims incurred
|
21.9
|
21.9
|
45.6
|
43.4
|
||||||||||||
Underwriting and other expenses
|
19.4
|
18.2
|
38.4
|
36.2
|
||||||||||||
Total operating costs
|
41.3
|
40.1
|
84.0
|
79.6
|
||||||||||||
Operating income
|
$
|
5.0
|
$
|
5.1
|
$
|
8.9
|
$
|
10.6
|
||||||||
Additional data:
|
||||||||||||||||
Loss ratio
|
54.8
|
%
|
56.4
|
%
|
56.6
|
%
|
55.7
|
%
|
||||||||
Operating expense ratio
|
48.5
|
%
|
46.9
|
%
|
47.7
|
%
|
46.5
|
%
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Operating Revenues
Premiums earned, net increased by $1.2 million, or 3.1% to $40.0 million as the result of premium growth in the segment’s Individual Life and Cancer lines of business, as well as growth in the Costa Rica operations.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred remained at $21.9 million, the same as the 2016 period, despite the higher volume of business during the year. The loss ratio for the period decreased to 54.8% in 2017, or 160 basis points, reflecting the higher volume of premiums during this quarter.
Underwriting and Other Expenses
Increase in underwriting and other expenses of $1.2 million, or 6.6%, to $19.4 million mostly reflects higher commissions following the segment’s premium growth. In addition, the segment has incurred in higher development and marketing expenses related to the expansion of the Costa Rica operations. As a result, the segment’s operating expense ratio increased to 48.5%, or 160 basis points.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Operating Revenues
Premiums earned, net increased by $2.6 million, or 3.3% to $80.5 million as the result of premium growth in the segment’s Individual Life and Cancer lines of business, as well as growth in the Costa Rica operations.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred increased by $2.2 million, or 5.1% to $45.6 million, mostly as the result of the higher volume of business during the year, particularly in the Cancer and Individual Life lines of business. The loss ratio for the period increased to 56.6% in 2017, or 90 basis points, reflecting the higher volume in the Cancer line of business, which has a higher loss ratio, as well as to a higher claims experience in this particular line of business.
Underwriting and Other Expenses
Increase in underwriting and other expenses of $2.2 million, or 6.1%, to $38.4 million mostly reflects higher commissions following the segment’s premium growth mentioned above. In addition, the segment has incurred in higher development and marketing expenses related to the expansion of the Costa Rica operations. As a result, the segment’s operating expense ratio increased to 47.7%, or 120 basis points.
Three months ended
June 30,
|
Six months ended
June 30,
|
|||||||||||||||
(Dollar amounts in millions)
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Operating revenues:
|
||||||||||||||||
Premiums earned, net:
|
||||||||||||||||
Premiums written
|
$
|
46.4
|
$
|
40.9
|
$
|
73.8
|
$
|
68.5
|
||||||||
Premiums ceded
|
(16.6
|
)
|
(13.1
|
)
|
(26.7
|
)
|
(23.5
|
)
|
||||||||
Change in unearned premiums
|
(8.0
|
)
|
(6.1
|
)
|
(3.6
|
)
|
(2.0
|
)
|
||||||||
Premiums earned, net
|
21.8
|
21.7
|
43.5
|
43.0
|
||||||||||||
Net investment income
|
2.1
|
2.3
|
4.1
|
4.3
|
||||||||||||
Total operating revenues
|
23.9
|
24.0
|
47.6
|
47.3
|
||||||||||||
Operating costs:
|
||||||||||||||||
Claims incurred
|
10.9
|
10.8
|
21.5
|
20.6
|
||||||||||||
Underwriting and other expenses
|
9.3
|
9.8
|
20.3
|
21.2
|
||||||||||||
Total operating costs
|
20.2
|
20.6
|
41.8
|
41.8
|
||||||||||||
Operating income
|
$
|
3.7
|
$
|
3.4
|
$
|
5.8
|
$
|
5.5
|
||||||||
Additional data:
|
||||||||||||||||
Loss ratio
|
50.0
|
%
|
49.8
|
%
|
49.4
|
%
|
47.9
|
%
|
||||||||
Operating expense ratio
|
42.7
|
%
|
45.2
|
%
|
46.7
|
%
|
49.3
|
%
|
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
Operating Revenues
Total premiums written increased by $5.5 million, or 13.4%, to $46.4 million driven by higher sales of Commercial products, particularly Commercial property products, mainly as a result of the acquisition of a large account during the 2017 period.
The premiums ceded to reinsurers increased by $3.5 million, or 26.7%, mostly reflecting higher premiums written in Commercial insurance products during the three months ended June 30, 2017.
The change in unearned premiums presents an increase of $1.9 million mostly reflecting the segments higher premiums written in 2017.
Claims Incurred
Claims incurred increased by $0.1 million, or 0.9%, to $10.9 million during the three months ended June 30, 2017. The loss ratio increased by 20 basis points, to 50.0% during this period.
Underwriting and Other Expenses
Underwriting and other operating expenses decreased by $0.5 million, or 5.1%, to $9.3 million mostly due to a lower net commission expense during the three months ended June 30, 2017. The operating expense ratio was 42.7%, 250 basis points lower than last year.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Operating Revenues
Total premiums written increased by $5.3 million, or 7.7%, to $73.8 million, driven by higher sales of Commercial property and Commercial liability products, mainly as a result of the acquisition of a large account, as well as to higher sales of Personal package products.
The premiums ceded to reinsurers increased by $3.2 million, or 13.6%, mostly reflecting higher premiums written in Commercial insurance products during the six months ended June 30, 2017.
The change in unearned premiums presents an increase of $1.6 million mostly reflecting the segments higher premiums written in 2017.
Claims Incurred
Claims incurred increased by $0.9 million, or 4.4%, to $21.5 million during the six months ended June 30, 2017. The loss ratio increased by 150 basis points, to 49.4% during this period, primarily as a result of an unfavorable loss experience in the Commercial and Personal Auto lines of business.
Underwriting and Other Expenses
Underwriting and other operating expenses decreased by $0.9 million, or 4.2%, to $20.3 million mostly due to lower personnel costs. The operating expense ratio was 46.7%, 260 basis points lower than last year.
Cash Flows
A summary of our major sources and uses of cash for the periods indicated is presented in the following table:
Six months ended
June 30,
|
||||||||
(dollar amounts in millions)
|
2017
|
2016
|
||||||
Sources (uses) of cash:
|
||||||||
Cash provided by (used in) operating activities
|
$
|
133.7
|
$
|
(10.6
|
)
|
|||
Net purchases of investment securities
|
(43.0
|
)
|
(76.3
|
)
|
||||
Net capital expenditures
|
(8.7
|
)
|
(2.7
|
)
|
||||
Proceeds from long-term borrowings
|
24.3
|
-
|
||||||
Payments of long-term borrowings
|
(25.5
|
)
|
(0.8
|
)
|
||||
Proceeds from policyholder deposits
|
8.2
|
7.9
|
||||||
Surrenders of policyholder deposits
|
(10.5
|
)
|
(6.9
|
)
|
||||
Repurchase and retirement of common stock
|
-
|
(14.6
|
)
|
|||||
Other
|
(9.4
|
)
|
2.3
|
|||||
Net increase (decrease) in cash and cash equivalents
|
$
|
69.1
|
$
|
(101.7
|
)
|
Cash flow from operating activities increased by $144.3 million for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, principally due to an increase in premium collections of $85.0 million, lower claims paid by $44.0 million, a decrease in cash paid to suppliers and employees of $9.2 million, and lower incomes tax paid by $5.7 million. The higher premium collections follow the collection in advance of the July 2017 Medicare premiums from CMS.
During the six months ended June 30, 2017, we received the remaining $24.3 million from a loan with a commercial bank related with a credit agreement entered into in December 2016. These proceeds were used to prepay the outstanding principal amount of $24.0 million of the 6.6% senior unsecured notes. See note 7 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q.
There were no repurchase and retirement of common stock during the six months ended June 30, 2017.
The fluctuation in the Other uses/sources of cash is attributed to changes in the amount of outstanding checks over bank balances.
Net capital expenditures increased by $6.0 million during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, principally due to initiatives related to information technology in the Managed Care segment.
Financing and Financing Capacity
We have several short-term facilities available to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of June 30, 2017, we had $60.0 million of available credit under these facilities. There are no outstanding short-term borrowings under these facilities as of June 30, 2017.
On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes originally due December 2020 (the 6.6% notes). These unsecured notes were paid in full on January 11, 2017.
On December 28, 2016, TSM entered into a $35.5 million credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11.2 million, (ii) Term Loan B in the principal amount of $20.2 million and (iii) Term Loan C in the principal amount of $4.1 million. Term Loan A matures in October 2023 while the Term Loans B and C mature in January 2024. Term Loan A was used to refinance the previous $41.0 million secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% senior unsecured notes due January 2021 ($24.0 million). Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 1% over LIBOR for Term Loan A, (ii) 2.75% over LIBOR for Term Loan B, and (iii) 3.25% over LIBOR for Term Loan C. The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control and dividends. Failure to meet these covenants may trigger the accelerated payment of the outstanding balance. As of June 30, 2017 we are in compliance with these covenants.
On March 11, 2016 TSS entered into a $30.0 million revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit had an interest rate of LIBOR plus 220 basis points and includes certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017, and was not renewed.
On April 18, 2017, TSA entered into a $10.0 million revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 25 basis points, and contains certain financial and non-financial covenants that are customary for this type of facility. As of June 30, 2017, there is no outstanding balance in this line of credit.
We anticipate that we will have sufficient liquidity to support our currently expected needs.
Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.
We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in our exposure to financial market risks since December 31, 2016. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2016.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, management, under the supervision and with the participation of the chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the “disclosure controls and procedures” as of the end of this period (as such term is defined under Exchange Act Rule 13a-15(e)) of the Corporation and its subsidiaries. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of June 30, 2017, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective because of the material weakness in our internal control over financial reporting described below. Notwithstanding the material weakness in our internal control over financial reporting as of June 30, 2017, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of “internal control over financial reporting,” as defined under Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s chief executive officer and chief financial officer, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”), and includes those policies and procedures that:
· |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
|
· |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
· |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
|
46
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of the chief executive officer and chief financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017 based on criteria described in the “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) on May 14, 2013. Based on that assessment and those criteria, management has concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2017 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with GAAP due to the material weakness described below.
As the result of an inspection from the Public Company Accounting Oversight Board, our independent registered public accounting firm requested that we re-evaluate certain internal controls related to the review process of the Managed Care claims paid data input in our incurred but not reported (“IBNR”) actuarial model. As the result of this re-evaluation, management agreed that controls were not appropriately designed to validate that the claims paid information in the lag triangles used in the IBNR actuarial models is reviewed with enough precision to ascertain data is accurately presented by incurred date. This deficiency was determined to be a material weakness as of June 30, 2017. Management has concluded that the Company’s consolidated financial statements as of and for the three months and six months ended June 30, 2017, included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Remediation Plan
The main factor contributing to the material weakness were changes in our actuarial department during 2016. As a consequence, the preventive control over the accuracy of the incurred date component of the Managed Care claims paid data within the claim lags ceased to be fully effective. Although we engage an external actuarial consulting firm to support our claims reserving process, we did not ask them to do detailed testing over the incurred date component in order to ascertain the preciseness of the lag triangles. Even though this control deficiency is considered a material weakness, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Management has designed a remediation plan to correct the material weakness described above and improve the design of internal controls. The remedial activities put in place include the following:
· |
After hiring additional personnel in the actuarial department, effective 2017 we reinforced the review process over the accuracy of the claims paid data within the claim lags.
|
· |
In addition we strengthened the claims paid reconciliation process to include the incurred date component within the claim lags on a monthly and historical basis.
|
We have completed the aforementioned activities as of the date of this amendment and believe that we have strengthened the Company’s internal control over financial reporting addressing the identified material weakness. However, control weaknesses are not be considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively. We will continue to monitor the effectiveness of these remediation measures and we will make any changes to the design of this plan and take such other actions that we deem appropriate given the circumstances.
Changes in Internal Controls Over Financial Reporting
Other than as described in the aforementioned remediation plan, no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended June 30, 2017 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
For a description of legal proceedings that have experienced significant developments during this quarter, see note 13 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q.
For a description of our risk factors see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016.
The following text updates the disclosure included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016, under the sub-caption “The health care reform law and the implementation of that law could have a material adverse effect on our business, financial condition, cash flows, or results of operations.”
On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010 (ACA) to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, in January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. Following the passage of the Budget Resolution, on March 6, 2017, the U.S. House of Representatives introduced legislation known as the American Health Care Act (AHCA), which, if enacted, would amend or repeal significant portions of the ACA. Among other changes, the AHCA would sunset the annual insurance industry assessment as of December 31, 2017, essentially eliminate the individual and employer mandates by eliminating penalties and providing retroactive relief for failing to maintain or provide minimum essential coverage, and permit insurers to charge individuals a 30% surcharge on premiums for failing to demonstrate continuous coverage. The AHCA would also make significant changes to Medicaid by, among other things, making the ACA Medicaid expansion optional for states, repealing the ACA requirement that state Medicaid plans provide the same essential health benefits that are required by plans available through the exchanges, implementing a per capita cap on federal payments to states beginning in fiscal year 2020, and changing certain eligibility requirements. On May 4, 2017, the U.S. House of Representatives approved the AHCA to repeal portions of the ACA.
The U.S. Senate spent several months developing its alternative to the AHCA, culminating in several votes on various substitute amendments during the last week of July 2017. None of the Senate substitutes, including a skinny package that would have repealed coverage mandates but maintained subsidies, were able to pass in the U.S. Senate. While it is uncertain when or if the provisions in the AHCA will become law, or the extent to which any such changes may impact our business, it is clear that Congress is taking concrete steps to repeal and replace certain aspects of the ACA.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Exhibits
|
Description
|
3(i)(c)
|
Articles of Incorporation of Triple-S Management Corporation, incorporated by reference to Exhibit 3(i)(c) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865).
|
Amendment to Extend Contract for the Provision of Physical & Behavioral Health Services under the Government Health Plan Program
|
|
Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
|
|
Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
|
|
Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
|
|
Certification of the Executive Vice President and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.
|
All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
* |
Filed herein.
|
Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Triple-S Management Corporation
|
|||||
Registrant
|
|||||
Date:
|
August 9, 2017
|
By:
|
/s/ Roberto García-Rodríguez
|
||
Roberto García-Rodríguez
|
|||||
President and Chief Executive Officer
|
|||||
Date:
|
August 9, 2017
|
By:
|
/s/ Juan J. Román-Jiménez
|
||
Juan J. Román-Jiménez
|
|||||
Executive Vice President and Chief Financial Officer
|
50