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) |
Large accelerated filer ☑ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
Title of each class | Outstanding at March 31, 2019 |
Common Stock Class A, $1.00 par value | 950,968 |
Common Stock Class B, $1.00 par value | 22,156,051 |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock Class B, $1.00 par value | GTS | New York Stock Exchange (NYSE) |
3 | |||
Item 1. | Financial Statements | 3 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 | |
27 | |||
27 | |||
28 | |||
28 | |||
29 | |||
30 | |||
31 | |||
33 | |||
34 | |||
35 | |||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 36 | |
Item 4. | Controls and Procedures | 36 | |
37 | |||
Item 1. | Legal Proceedings | 37 | |
Item 1A. | Risk Factors | 37 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 | |
Item 3. | Defaults Upon Senior Securities | 37 | |
Item 4. | Mine Safety Disclosures | 37 | |
Item 5. | Other Information | 37 | |
Item 6. | Exhibits | 37 | |
38 |
March 31, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Investments and cash: | ||||||||
Fixed maturities available for sale, at fair value | $ | 1,211,391 | $ | 1,199,402 | ||||
Fixed maturities held to maturity, at amortized cost | 1,877 | 2,492 | ||||||
Equity investments, at fair value | 285,514 | 279,164 | ||||||
Other invested assets, at net asset value | 82,859 | 74,015 | ||||||
Policy loans | 9,778 | 9,469 | ||||||
Cash and cash equivalents | 95,816 | 117,544 | ||||||
Total investments and cash | 1,687,235 | 1,682,086 | ||||||
Premiums and other receivables, net | 660,209 | 628,444 | ||||||
Deferred policy acquisition costs and value of business acquired | 218,839 | 215,159 | ||||||
Property and equipment, net | 81,514 | 81,923 | ||||||
Deferred tax asset | 63,951 | 79,010 | ||||||
Goodwill | 25,397 | 25,397 | ||||||
Other assets | 59,334 | 48,229 | ||||||
Total assets | $ | 2,796,479 | $ | 2,760,248 | ||||
Liabilities and Stockholders' Equity | ||||||||
Claim liabilities | $ | 877,964 | $ | 936,789 | ||||
Liability for future policy benefits | 367,726 | 361,495 | ||||||
Unearned premiums | 80,711 | 82,990 | ||||||
Policyholder deposits | 174,543 | 174,110 | ||||||
Liability to Federal Employees' Health Benefits and Federal Employees' Programs | 48,863 | 44,926 | ||||||
Accounts payable and accrued liabilities | 309,701 | 275,228 | ||||||
Deferred tax liability | 6,582 | 3,245 | ||||||
Long-term borrowings | 28,086 | 28,883 | ||||||
Liability for pension benefits | 31,145 | 31,274 | ||||||
Total liabilities | 1,925,321 | 1,938,940 | ||||||
Stockholders’ equity: | ||||||||
Triple-S Management Corporation stockholders' equity | ||||||||
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at March 31, 2019 and December 31, 2018, respectively | 951 | 951 | ||||||
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,156,051 and 21,980,492 shares at March 31, 2019 and December 31, 2018, respectively | 22,156 | 21,980 | ||||||
Additional paid-in capital | 35,415 | 34,021 | ||||||
Retained earnings | 796,756 | 761,970 | ||||||
Accumulated other comprehensive income | 16,559 | 3,062 | ||||||
Total Triple-S Management Corporation stockholders' equity | 871,837 | 821,984 | ||||||
Non-controlling interest in consolidated subsidiary | (679 | ) | (676 | ) | ||||
Total stockholders' equity | 871,158 | 821,308 | ||||||
Total liabilities and stockholders' equity | $ | 2,796,479 | $ | 2,760,248 |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Premiums earned, net | $ | 768,002 | $ | 752,034 | ||||
Administrative service fees | 2,632 | 3,348 | ||||||
Net investment income | 15,376 | 13,755 | ||||||
Other operating revenues | 1,577 | 1,071 | ||||||
Total operating revenues | 787,587 | 770,208 | ||||||
Net realized investment gains | 1,315 | 2,942 | ||||||
Net unrealized investment gains (losses) on equity investments | 19,669 | (16,199 | ) | |||||
Other income, net | 1,169 | 1,163 | ||||||
Total revenues | 809,740 | 758,114 | ||||||
Benefits and expenses: | ||||||||
Claims incurred | 623,190 | 618,989 | ||||||
Operating expenses | 132,663 | 133,134 | ||||||
Total operating costs | 755,853 | 752,123 | ||||||
Interest expense | 1,788 | 1,690 | ||||||
Total benefits and expenses | 757,641 | 753,813 | ||||||
Income before taxes | 52,099 | 4,301 | ||||||
Income taxes | 17,316 | 387 | ||||||
Net income | 34,783 | 3,914 | ||||||
Less: Net loss attributable to non-controlling interest | 3 | - | ||||||
Net income attributable to Triple-S Management Corporation | $ | 34,786 | $ | 3,914 | ||||
Earnings per share attributable to Triple-S Management Corporation | ||||||||
Basic net income per share | $ | 1.53 | $ | 0.17 | ||||
Diluted net income per share | $ | 1.52 | $ | 0.17 |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Net income | $ | 34,783 | $ | 3,914 | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Net unrealized change in fair value of available for sale securities, net of taxes | 13,441 | (6,894 | ) | |||||
Defined benefit pension plan: | ||||||||
Actuarial loss, net | 56 | 131 | ||||||
Total other comprehensive income (loss), net of tax | 13,497 | (6,763 | ) | |||||
Comprehensive income (loss) | 48,280 | (2,849 | ) | |||||
Comprehensive loss attributable to non-controlling interest | 3 | - | ||||||
Comprehensive income (loss) attributable to Triple-S Management Corporation | $ | 48,283 | $ | (2,849 | ) |
Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Triple-S Management Corporation Stockholders’ Equity | Non-controlling Interest in Consolidated Subsidiary | Total Stockholders’ Equity | |||||||||||||||||||||||||
Balance, December 31, 2018 | $ | 951 | $ | 21,980 | $ | 34,021 | $ | 761,970 | $ | 3,062 | $ | 821,984 | $ | (676 | ) | $ | 821,308 | |||||||||||||||
Share-based compensation | - | 177 | 1,409 | - | - | 1,586 | - | 1,586 | ||||||||||||||||||||||||
Repurchase and retirement of common stock | - | (1 | ) | (15 | ) | - | - | (16 | ) | - | (16 | ) | ||||||||||||||||||||
Comprehensive income (loss) | - | - | - | 34,786 | 13,497 | 48,283 | (3 | ) | 48,280 | |||||||||||||||||||||||
Balance, March 31, 2019 | $ | 951 | $ | 22,156 | $ | 35,415 | $ | 796,756 | $ | 16,559 | $ | 871,837 | $ | (679 | ) | $ | 871,158 | |||||||||||||||
Balance, December 31, 2017 | $ | 951 | $ | 22,627 | $ | 53,142 | $ | 785,390 | $ | 51,254 | $ | 913,364 | $ | (682 | ) | $ | 912,682 | |||||||||||||||
Share-based compensation | - | 285 | 106 | - | - | 391 | - | 391 | ||||||||||||||||||||||||
Repurchase and retirement of common stock | - | (580 | ) | (14,095 | ) | - | - | (14,675 | ) | - | (14,675 | ) | ||||||||||||||||||||
Comprehensive income (loss) | - | - | - | 3,914 | (6,763 | ) | (2,849 | ) | - | (2,849 | ) | |||||||||||||||||||||
Cumulative effect adjustment due to implementation of ASU 2016-01 | - | - | - | 39,882 | (39,882 | ) | - | - | - | |||||||||||||||||||||||
Balance, March 31, 2018 | $ | 951 | $ | 22,332 | $ | 39,153 | $ | 829,186 | $ | 4,609 | $ | 896,231 | $ | (682 | ) | $ | 895,549 |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 34,783 | $ | 3,914 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,505 | 3,410 | ||||||
Net amortization of investments | 316 | 1,939 | ||||||
Additions to the allowance for doubtful receivables | 9,236 | 709 | ||||||
Deferred tax expense (benefit) | 14,932 | (1,503 | ) | |||||
Net realized investment gain on sale of securities | (1,315 | ) | (2,942 | ) | ||||
Net unrealized (gain) loss on equity investments | (19,669 | ) | 16,199 | |||||
Interest credited to policyholder deposits | 1,386 | 1,094 | ||||||
Share-based compensation | 1,586 | 391 | ||||||
Decrease (increase) in assets: | ||||||||
Premium and other receivables, net | (41,002 | ) | 123,360 | |||||
Deferred policy acquisition costs and value of business acquired | (4,503 | ) | (161 | ) | ||||
Deferred taxes | 27 | 431 | ||||||
Other assets | (2,023 | ) | (40,489 | ) | ||||
(Decrease) increase in liabilities: | ||||||||
Claim liabilities | (58,825 | ) | (72,115 | ) | ||||
Liability for future policy benefits | 6,231 | 5,029 | ||||||
Unearned premiums | (2,279 | ) | 87,707 | |||||
Liability to Federal Employees' Health Benefits and Federal Employees' Programs | 3,937 | 4,369 | ||||||
Accounts payable and accrued liabilities | (16,223 | ) | (869 | ) | ||||
Net cash (used in) provided by operating activities | (69,900 | ) | 130,473 |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from investing activities: | ||||||||
Proceeds from investments sold or matured: | ||||||||
Securities available for sale: | ||||||||
Fixed maturities sold | $ | 164,997 | $ | 443,419 | ||||
Fixed maturities matured/called | 12,267 | 5,368 | ||||||
Securities held to maturity: | ||||||||
Fixed maturities matured/called | 1,154 | 1,048 | ||||||
Equity investments sold | 23,123 | 113,863 | ||||||
Other invested assets sold | 373 | 845 | ||||||
Acquisition of investments: | ||||||||
Securities available for sale: | ||||||||
Fixed maturities | (166,626 | ) | (575,694 | ) | ||||
Securities held to maturity: | ||||||||
Fixed maturities | (539 | ) | (1,212 | ) | ||||
Equity investments | (9,139 | ) | (49,591 | ) | ||||
Other invested assets | (8,546 | ) | (9,683 | ) | ||||
Increase in other investments | (535 | ) | (4,136 | ) | ||||
Net change in policy loans | (309 | ) | (185 | ) | ||||
Net capital expenditures | (2,968 | ) | (4,861 | ) | ||||
Net cash provided by (used in) investing activities | 13,252 | (80,819 | ) | |||||
Cash flows from financing activities: | ||||||||
Change in outstanding checks in excess of bank balances | 36,682 | (19,992 | ) | |||||
Repayments of long-term borrowings | (808 | ) | (810 | ) | ||||
Repurchase and retirement of common stock | (1 | ) | (14,259 | ) | ||||
Proceeds from policyholder deposits | 3,607 | 6,237 | ||||||
Surrenders of policyholder deposits | (4,560 | ) | (7,161 | ) | ||||
Net cash provided by (used in) financing activities | 34,920 | (35,985 | ) | |||||
Net (decrease) increase in cash and cash equivalents | (21,728 | ) | 13,669 | |||||
Cash and cash equivalents: | ||||||||
Beginning of period | 117,544 | 198,941 | ||||||
End of period | $ | 95,816 | $ | 212,610 |
(1) | Basis of Presentation |
(2) | Significant Accounting Policies |
(3) | Investment in Securities |
March 31, 2019 | ||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||
Fixed maturities available for sale | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 41,039 | $ | 545 | $ | - | $ | 41,584 | ||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 129,570 | 3,230 | - | 132,800 | ||||||||||||
Municipal securities | 719,895 | 27,471 | (14 | ) | 747,352 | |||||||||||
Corporate bonds | 184,257 | 14,777 | - | 199,034 | ||||||||||||
Residential mortgage-backed securities | 78,625 | 1,821 | (26 | ) | 80,420 | |||||||||||
Collateralized mortgage obligations | 9,882 | 319 | - | 10,201 | ||||||||||||
Total fixed maturities available for sale | $ | 1,163,268 | $ | 48,163 | $ | (40 | ) | $ | 1,211,391 |
March 31, 2019 | ||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||
Fixed maturities held to maturity | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | $ | 616 | $ | 139 | $ | - | $ | 755 | ||||||||
Residential mortgage-backed securities | 190 | 3 | - | 193 | ||||||||||||
Certificates of deposit | 1,071 | - | - | 1,071 | ||||||||||||
Total | $ | 1,877 | $ | 142 | $ | - | $ | 2,019 |
March 31, 2019 | ||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||
Other invested assets - Alternative investments | $ | 80,898 | $ | 2,024 | $ | (63 | ) | $ | 82,859 |
December 31, 2018 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Securities available for sale | ||||||||||||||||
Fixed maturities | ||||||||||||||||
Obligations of government- sponsored enterprises | $ | 21,470 | $ | 120 | $ | (1 | ) | $ | 21,589 | |||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 174,675 | 2,349 | - | 177,024 | ||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | 8,295 | - | - | 8,295 | ||||||||||||
Municipal securities | 692,205 | 18,112 | (538 | ) | 709,779 | |||||||||||
Corporate bonds | 186,085 | 9,724 | (239 | ) | 195,570 | |||||||||||
Residential mortgage-backed securities | 75,373 | 1,298 | - | 76,671 | ||||||||||||
Collateralized mortgage obligations | 10,266 | 208 | - | 10,474 | ||||||||||||
Total fixed maturities available for sale | $ | 1,168,369 | $ | 31,811 | $ | (778 | ) | $ | 1,199,402 |
December 31, 2018 | ||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||
Securities held to maturity: | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | $ | 617 | $ | 125 | $ | - | $ | 742 | ||||||||
Residential mortgage-backed securities | 190 | 2 | - | 192 | ||||||||||||
Certificates of deposit | 1,685 | - | - | 1,685 | ||||||||||||
Total | $ | 2,492 | $ | 127 | $ | - | $ | 2,619 |
December 31, 2018 | ||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||
Other invested assets - Alternative investments | $ | 72,627 | $ | 2,042 | $ | (654 | ) | $ | 74,015 |
March 31, 2019 | ||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
Estimated Fair Value | Gross Unrealized Loss | Number of Securities | Estimated Fair Value | Gross Unrealized Loss | Number of Securities | Estimated Fair Value | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||||||||
Fixed maturities available for sale | ||||||||||||||||||||||||||||||||||||
Municipal securities | $ | 1,101 | $ | (3 | ) | 2 | $ | 4,446 | $ | (11 | ) | 3 | $ | 5,547 | $ | (14 | ) | 5 | ||||||||||||||||||
Residential mortgage-backed securities | 4,256 | (26 | ) | 1 | - | - | - | 4,256 | (26 | ) | 1 | |||||||||||||||||||||||||
Total fixed maturities | $ | 5,357 | $ | (29 | ) | 3 | $ | 4,446 | $ | (11 | ) | 3 | $ | 9,803 | $ | (40 | ) | 6 | ||||||||||||||||||
Other invested assets - Alternative investments | $ | 19,963 | $ | (63 | ) | 5 | $ | - | $ | - | - | $ | 19,963 | $ | (63 | ) | 5 |
December 31, 2018 | ||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
Estimated Fair Value | Gross Unrealized Loss | Number of Securities | Estimated Fair Value | Gross Unrealized Loss | Number of Securities | Estimated Fair Value | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||||||||
Fixed maturities available for sale | ||||||||||||||||||||||||||||||||||||
Obligations of government- sponsored enterprises | $ | 1,469 | $ | (1 | ) | 1 | $ | - | $ | - | - | $ | 1,469 | $ | (1 | ) | 1 | |||||||||||||||||||
Municipal securities | 62,328 | (349 | ) | 10 | 17,648 | (189 | ) | 3 | 79,976 | (538 | ) | 13 | ||||||||||||||||||||||||
Corporate bonds | 52,539 | (239 | ) | 18 | - | - | - | 52,539 | (239 | ) | 18 | |||||||||||||||||||||||||
Total fixed maturities | $ | 116,336 | $ | (589 | ) | 29 | $ | 17,648 | $ | (189 | ) | 3 | $ | 133,984 | $ | (778 | ) | 32 | ||||||||||||||||||
Other invested assets - Alternative investments | $ | 7,399 | $ | (351 | ) | 3 | $ | 10,447 | $ | (303 | ) | 2 | $ | 17,846 | $ | (654 | ) | 5 |
March 31, 2019 | ||||||||
Amortized cost | Estimated fair value | |||||||
Fixed maturities available for sale | ||||||||
Due in one year or less | $ | 15,162 | $ | 15,339 | ||||
Due after one year through five years | 402,032 | 409,445 | ||||||
Due after five years through ten years | 373,778 | 387,506 | ||||||
Due after ten years | 283,789 | 308,480 | ||||||
Residential mortgage-backed securities | 78,625 | 80,420 | ||||||
Collateralized mortgage obligations | 9,882 | 10,201 | ||||||
$ | 1,163,268 | $ | 1,211,391 | |||||
Fixed maturities held to maturity | ||||||||
Due in one year or less | $ | 1,071 | $ | 1,071 | ||||
Due after ten years | 616 | 755 | ||||||
Residential mortgage-backed securities | 190 | 193 | ||||||
$ | 1,877 | $ | 2,019 |
(4) | Realized and Unrealized Gains |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Realized gains (losses) | ||||||||
Fixed maturity securities: | ||||||||
Securities available for sale: | ||||||||
Gross gains | $ | 872 | $ | 172 | ||||
Gross losses | (318 | ) | (7,930 | ) | ||||
Total debt securities | 554 | (7,758 | ) | |||||
Equity investments: | ||||||||
Gross gains | 1,302 | 8,203 | ||||||
Gross losses | (637 | ) | (499 | ) | ||||
Total equity securities | 665 | 7,704 | ||||||
Other invested assets: | ||||||||
Gross gains | 132 | 3,207 | ||||||
Gross losses | (36 | ) | (211 | ) | ||||
Total other invested assets | 96 | 2,996 | ||||||
Net realized investment gains | $ | 1,315 | $ | 2,942 |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Changes in net unrealized gains (losses): | ||||||||
Recognized in accumulated other comprehensive income: | ||||||||
Fixed maturities – available for sale | $ | 17,090 | $ | (10,222 | ) | |||
Other invested assets | 573 | (25 | ) | |||||
$ | 17,663 | $ | (10,247 | ) | ||||
Not recognized in the consolidated financial statements: | ||||||||
Fixed maturities – held to maturity | $ | 15 | $ | (23 | ) |
(5) | Premiums and Other Receivables, Net |
March 31, 2019 | December 31, 2018 | |||||||
Premium | $ | 170,179 | $ | 94,613 | ||||
Self-funded group receivables | 27,494 | 31,184 | ||||||
FEHBP | 15,479 | 14,030 | ||||||
Agent balances | 31,342 | 30,224 | ||||||
Accrued interest | 11,678 | 12,426 | ||||||
Reinsurance recoverable | 363,407 | 399,202 | ||||||
Other | 89,530 | 88,807 | ||||||
709,109 | 670,486 | |||||||
Less allowance for doubtful receivables: | ||||||||
Premium | 37,132 | 32,487 | ||||||
Other | 11,768 | 9,555 | ||||||
48,900 | 42,042 | |||||||
Total premium and other receivables, net | $ | 660,209 | $ | 628,444 |
(6) | Fair Value Measurements |
March 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fixed maturity securities available for sale | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | - | $ | 41,584 | $ | - | $ | 41,584 | ||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities | 132,800 | - | - | 132,800 | ||||||||||||
Municipal securities | - | 747,352 | - | 747,352 | ||||||||||||
Corporate bonds | - | 199,034 | - | 199,034 | ||||||||||||
Residential agency mortgage-backed securities | - | 80,420 | - | 80,420 | ||||||||||||
Collateralized mortgage obligations | - | 10,201 | - | 10,201 | ||||||||||||
Total fixed maturities | $ | 132,800 | $ | 1,078,591 | $ | - | $ | 1,211,391 | ||||||||
Equity investments | $ | 149,712 | $ | 130,753 | $ | 5,049 | $ | 285,514 |
December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fixed maturity securities available for sale | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | - | $ | 21,589 | $ | - | $ | 21,589 | ||||||||
U.S. Treasury securities and obligations of U.S government instrumentalities | 177,024 | - | - | 177,024 | ||||||||||||
Obligations of the Commonwealth of Puerto Ricoand its instrumentalities | - | 8,295 | - | 8,295 | ||||||||||||
Municipal securities | - | 709,779 | - | 709,779 | ||||||||||||
Corporate bonds | - | 195,570 | - | 195,570 | ||||||||||||
Residential agency mortgage-backed securities | - | 76,671 | - | 76,671 | ||||||||||||
Collateralized mortgage obligations | - | 10,474 | - | 10,474 | ||||||||||||
Total fixed maturities | $ | 177,024 | $ | 1,022,378 | $ | - | $ | 1,199,402 | ||||||||
Equity investments | $ | 147,348 | $ | 128,011 | $ | 3,805 | $ | 279,164 |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||
2019 | ||||
Balance as of January 1, | $ | 3,805 | ||
Realized gains | - | |||
Unrealized in other accumulated comprehensive income | (6 | ) | ||
Purchases | 1,250 | |||
Sales | - | |||
Capital Distributions | - | |||
Balance as of March 31, | $ | 5,049 |
March 31, 2019 | ||||||||||||||||||||
Carrying Value | Fair Value | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Policy loans | $ | 9,778 | $ | - | $ | 9,778 | $ | - | $ | 9,778 | ||||||||||
Liabilities: | ||||||||||||||||||||
Policyholder deposits | $ | 174,543 | $ | - | $ | 174,543 | $ | - | $ | 174,543 | ||||||||||
Long-term borrowings: | ||||||||||||||||||||
Loans payable to bank - variable | 28,306 | - | 28,306 | - | 28,306 | |||||||||||||||
Total liabilities | $ | 202,849 | $ | - | $ | 202,849 | $ | - | $ | 202,849 |
December 31, 2018 | ||||||||||||||||||||
Carrying Value | Fair Value | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Assets: | ||||||||||||||||||||
Policy loans | $ | 9,469 | $ | - | $ | 9,469 | $ | - | $ | 9,469 | ||||||||||
Liabilities: | ||||||||||||||||||||
Policyholder deposits | $ | 174,110 | $ | - | $ | 174,110 | $ | - | $ | 174,110 | ||||||||||
Long-term borrowings: | ||||||||||||||||||||
Loans payable to bank - variable | 29,114 | - | 29,114 | - | 29,114 | |||||||||||||||
Total liabilities | $ | 203,224 | $ | - | $ | 203,224 | $ | - | $ | 203,224 |
(7) | Claim Liabilities |
Three months ended March 31, 2019 | ||||||||||||
Managed Care | Other Business Segments * | Consolidated | ||||||||||
Claim liabilities at beginning of period | $ | 394,226 | $ | 542,563 | $ | 936,789 | ||||||
Reinsurance recoverable on claim liabilities | (315,543 | ) | (315,543 | ) | ||||||||
Net claim liabilities at beginning of period | 394,226 | 227,020 | 621,246 | |||||||||
Claims incurred | ||||||||||||
Current period insured events | 626,670 | 28,137 | 654,807 | |||||||||
Prior period insured events | (36,789 | ) | (3,525 | ) | (40,314 | ) | ||||||
Total | 589,881 | 24,612 | 614,493 | |||||||||
Payments of losses and loss-adjustment expenses | ||||||||||||
Current period insured events | 359,788 | 7,190 | 366,978 | |||||||||
Prior period insured events | 227,036 | 17,396 | 244,432 | |||||||||
Total | 586,824 | 24,586 | 611,410 | |||||||||
Net claim liabilities at end of period | 397,283 | 227,046 | 624,329 | |||||||||
Reinsurance recoverable on claim liabilities | - | 253,635 | 253,635 | |||||||||
Claim liabilities at end of period | $ | 397,283 | $ | 480,681 | $ | 877,964 |
* | Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations. |
Three months ended March 31, 2018 | ||||||||||||
Managed Care | Other Business Segments * | Consolidated | ||||||||||
Claim liabilities at beginning of period | $ | 367,357 | $ | 739,519 | $ | 1,106,876 | ||||||
Reinsurance recoverable on claim liabilities | - | (633,099 | ) | (633,099 | ) | |||||||
Net claim liabilities at beginning of period | 367,357 | 106,420 | 473,777 | |||||||||
Claims incurred | ||||||||||||
Current period insured events | 603,947 | 30,907 | 634,854 | |||||||||
Prior period insured events | (20,226 | ) | (1,818 | ) | (22,044 | ) | ||||||
Total | 583,721 | 29,089 | 612,810 | |||||||||
Payments of losses and loss-adjustment expenses | ||||||||||||
Current period insured events | 322,388 | 7,021 | 329,409 | |||||||||
Prior period insured events | 226,246 | 22,746 | 248,992 | |||||||||
Total | 548,634 | 29,767 | 578,401 | |||||||||
Net claim liabilities at end of period | 402,444 | 105,742 | 508,186 | |||||||||
Reinsurance recoverable on claim liabilities | - | 526,575 | 526,575 | |||||||||
Claim liabilities at end of period | $ | 402,444 | $ | 632,317 | $ | 1,034,761 |
* | Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations. |
Incurred Year | Total of IBNR Liabilities Plus Expected Development on Reported Claims | ||||
2018 | $ | 62,319 | |||
2019 | 266,882 |
(8) | Pension Plan |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Components of net periodic benefit cost: | ||||||||
Interest cost | $ | 1,741 | $ | 1,693 | ||||
Expected return on assets | (2,217 | ) | (2,281 | ) | ||||
Amortization of actuarial loss | 89 | 215 | ||||||
Settlement loss | 375 | 325 | ||||||
Net periodic benefit cost | $ | (12 | ) | $ | (48 | ) |
(9) | Comprehensive Income |
Three months ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Net Unrealized Gain on Securities Beginning Balance | $ | 27,308 | $ | 76,238 | ||||
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement | - | (39,882 | ) | |||||
Other comprehensive income before reclassifications | 14,493 | (4,540 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | (1,052 | ) | (2,354 | ) | ||||
Net current period change | 13,441 | (6,894 | ) | |||||
Ending Balance | 40,749 | 29,462 | ||||||
Liability for Pension Benefits Beginning Balance | (24,246 | ) | (24,984 | ) | ||||
Amounts reclassified from accumulated other comprehensive income | 56 | 131 | ||||||
Ending Balance | (24,190 | ) | (24,853 | ) | ||||
Accumulated Other Comprehensive Income Beginning Balance | 3,062 | 51,254 | ||||||
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement | - | (39,882 | ) | |||||
Other comprehensive income before reclassifications | 14,493 | (4,540 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | (996 | ) | (2,223 | ) | ||||
Net current period change | 13,497 | (6,763 | ) | |||||
Ending Balance | $ | 16,559 | $ | 4,609 |
(10) | Share-Based Compensation |
(11) | Net Income Available to Stockholders and Net Income per Share |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Numerator for earnings per share: | ||||||||
Net income attributable to TSM available to stockholders | $ | 34,786 | $ | 3,914 | ||||
Denominator for basic earnings per share: | ||||||||
Weighted average of common shares | 22,757,794 | 23,277,633 | ||||||
Effect of dilutive securities | 82,480 | 117,364 | ||||||
Denominator for diluted earnings per share | 22,840,274 | 23,394,997 | ||||||
Basic net income per share attributable to TSM | $ | 1.53 | $ | 0.17 | ||||
Diluted net income per share attributable to TSM | $ | 1.52 | $ | 0.17 |
(12) | Contingencies |
(13) | Segment Information |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating revenues: | ||||||||
Managed Care: | ||||||||
Premiums earned, net | $ | 705,050 | $ | 686,602 | ||||
Administrative service fees | 2,632 | 3,348 | ||||||
Intersegment premiums/service fees | 1,484 | 1,348 | ||||||
Net investment income | 5,878 | 4,857 | ||||||
Total managed care | 715,044 | 696,155 | ||||||
Life Insurance: | ||||||||
Premiums earned, net | 43,722 | 41,089 | ||||||
Intersegment premiums | 478 | 381 | ||||||
Net investment income | 6,560 | 6,058 | ||||||
Total life insurance | 50,760 | 47,528 | ||||||
Property and Casualty Insurance: | ||||||||
Premiums earned, net | 19,230 | 24,063 | ||||||
Intersegment premiums | 153 | 153 | ||||||
Net investment income | 2,487 | 2,442 | ||||||
Total property and casualty insurance | 21,870 | 26,658 | ||||||
Other segments: * | ||||||||
Intersegment service revenues | - | 239 | ||||||
Operating revenues from external sources | 1,577 | 1,071 | ||||||
Total other segments | 1,577 | 1,310 | ||||||
Total business segments | 789,251 | 771,651 | ||||||
TSM operating revenues from external sources | 451 | 398 | ||||||
Elimination of intersegment premiums/service fees | (2,115 | ) | (1,602 | ) | ||||
Elimination of intersegment service revenues | - | (239 | ) | |||||
Consolidated operating revenues | $ | 787,587 | $ | 770,208 |
* | Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization. |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating income (loss): | ||||||||
Managed care | $ | 22,110 | $ | 10,618 | ||||
Life insurance | 5,640 | 3,625 | ||||||
Property and casualty insurance | 3,554 | 3,079 | ||||||
Other segments * | (392 | ) | 175 | |||||
Total business segments | 30,912 | 17,497 | ||||||
TSM operating revenues from external sources | 451 | 398 | ||||||
TSM unallocated operating expenses | (2,032 | ) | (2,210 | ) | ||||
Elimination of TSM intersegment charges | 2,403 | 2,400 | ||||||
Consolidated operating income | 31,734 | 18,085 | ||||||
Consolidated net realized investment gains | 1,315 | 2,942 | ||||||
Consolidated net unrealized investment gains (losses) on equity investments | 19,669 | (16,199 | ) | |||||
Consolidated interest expense | (1,788 | ) | (1,690 | ) | ||||
Consolidated other income, net | 1,169 | 1,163 | ||||||
Consolidated income before taxes | $ | 52,099 | $ | 4,301 | ||||
Depreciation and amortization expense: | ||||||||
Managed care | $ | 2,757 | $ | 2,641 | ||||
Life insurance | 272 | 300 | ||||||
Property and casualty insurance | 94 | 104 | ||||||
Other segments* | 185 | 168 | ||||||
Total business segments | 3,308 | 3,213 | ||||||
TSM depreciation expense | 197 | 197 | ||||||
Consolidated depreciation and amortization expense | $ | 3,505 | $ | 3,410 |
* | Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization. |
March 31, 2019 | December 31, 2018 | |||||||
Assets: | ||||||||
Managed care | $ | 1,168,416 | $ | 1,078,262 | ||||
Life insurance | 902,679 | 863,470 | ||||||
Property and casualty insurance | 687,493 | 747,583 | ||||||
Other segments * | 21,418 | 20,705 | ||||||
Total business segments | 2,780,006 | 2,710,020 | ||||||
Unallocated amounts related to TSM: | ||||||||
Cash, cash equivalents, and investments | 46,562 | 57,818 | ||||||
Property and equipment, net | 22,158 | 21,733 | ||||||
Other assets | 25,104 | 22,521 | ||||||
93,824 | 102,072 | |||||||
Elimination entries-intersegment receivables and others | (77,351 | ) | (51,844 | ) | ||||
Consolidated total assets | $ | 2,796,479 | $ | 2,760,248 |
* | Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization. |
(14) | Subsequent Events |
In August 2016, President Obama appointed the seven voting members of the Oversight Board through the process established in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which authorized the President to select the members from several lists required to be submitted by congressional leaders. On February 15, 2019, the First Circuit of the U.S. Court of Appeals (the First Circuit) declared such appointments unconstitutional upon concluding the they did not comply with the Appointments Clause of the U.S. Constitution, which requires that principal federal officers be appointed by the President, with the advice and consent of the U.S. Senate. The Oversight Board is seeking review of the First Circuit’s decision by the U.S. Supreme Court. The First Circuit’s decision provided that its mandate would not issue for 90 days, so as to allow the President and the U.S. Senate to validate the defective appointments or reconstitute the Oversight Board in accordance with the Appointments Clause. The First Circuit extended such period for an additional 60 days, until July 15, 2019. On April 29, 2019, President Donald Trump nominated the current Oversight Board members to serve their terms through the end of August. Such appointments are pending confirmation by the U.S. Senate.
As of March 31, | ||||||||
2019 | 2018 | |||||||
Managed care enrollment: | ||||||||
Commercial 1 | 437,200 | 467,896 | ||||||
Medicare | 128,090 | 112,080 | ||||||
Medicaid | 355,694 | 394,454 | ||||||
Total | 920,984 | 974,430 | ||||||
Managed care enrollment by funding arrangement: | ||||||||
Fully-insured | 802,307 | 825,742 | ||||||
Self-insured | 118,677 | 148,688 | ||||||
Total | 920,984 | 974,430 |
(1) | Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees. |
Three months ended March 31, | ||||||||
(dollar amounts in millions) | 2019 | 2018 | ||||||
Revenues: | ||||||||
Premiums earned, net | $ | 768.0 | $ | 752.0 | ||||
Administrative service fees | 2.6 | 3.3 | ||||||
Net investment income | 15.4 | 13.8 | ||||||
Other operating revenues | 1.6 | 1.1 | ||||||
Total operating revenues | 787.6 | 770.2 | ||||||
Net realized investment gains | 1.3 | 2.9 | ||||||
Net unrealized investment gains (losses) on equity investments | 19.7 | (16.2 | ) | |||||
Other income, net | 1.2 | 1.2 | ||||||
Total revenues | 809.8 | 758.1 | ||||||
Benefits and expenses: | ||||||||
Claims incurred | 623.2 | 619.0 | ||||||
Operating expenses | 132.7 | 133.1 | ||||||
Total operating expenses | 755.9 | 752.1 | ||||||
Interest expense | 1.8 | 1.7 | ||||||
Total benefits and expenses | 757.7 | 753.8 | ||||||
Income before taxes | 52.1 | 4.3 | ||||||
Income tax expense | 17.3 | 0.4 | ||||||
Net income attributable to TSM | $ | 34.8 | $ | 3.9 |
Three months ended March 31, | ||||||||
(dollar amounts in millions) | 2019 | 2018 | ||||||
Operating revenues: | ||||||||
Medical premiums earned, net: | ||||||||
Medicare | $ | 332.7 | $ | 287.9 | ||||
Commercial | 198.5 | 198.7 | ||||||
Medicaid | 174.3 | 200.3 | ||||||
Medical premiums earned, net | 705.5 | 686.9 | ||||||
Administrative service fees | 3.7 | 4.4 | ||||||
Net investment income | 5.8 | 4.8 | ||||||
Total operating revenues | 715.0 | 696.1 | ||||||
Medical operating costs: | ||||||||
Medical claims incurred | 589.9 | 583.7 | ||||||
Medical operating expenses | 103.0 | 101.8 | ||||||
Total medical operating costs | 692.9 | 685.5 | ||||||
Medical operating income | $ | 22.1 | $ | 10.6 | ||||
Additional data: | ||||||||
Member months enrollment: | ||||||||
Medicare | 383,608 | 338,340 | ||||||
Commercial: | ||||||||
Fully-insured | 953,052 | 961,290 | ||||||
Self-funded | 362,490 | 449,778 | ||||||
Total Commercial | 1,315,542 | 1,411,068 | ||||||
Medicaid | 1,029,736 | 1,171,345 | ||||||
Total member months | 2,728,886 | 2,920,753 | ||||||
Medical loss ratio | 83.6 | % | 85.0 | % | ||||
Operating expense ratio | 14.5 | % | 14.7 | % |
• | Medical premiums generated by the Medicare business increased by $44.8 million, or 15.6%, to $332.7 million, primarily reflecting higher membership by approximately 45,000 member months as well as higher average premium rates. |
• | Medical premiums generated by the Commercial business decreased by $0.2 million, or 0.1%, to $198.5 million. This fluctuation primarily reflects lower enrollment during the quarter by approximately 8,000 member months and $3.0 million related to the suspension of the HIP fee pass-through in 2019, offset by higher average premium rates. |
• | Medical premiums generated by the Medicaid business amounted to $174.3 million, $26.0 million, or 13.0% lower when compared to the prior period. This decrease primarily reflects lower enrollment by approximately 142,000 member months, the $3.8 million collection in 2018 of premiums related to our achievement of the contract’s quality incentive metrics, the impact of the profit sharing accrual related to the previous contract, which lowered 2019 premiums by $3.7 million, and $3.7 million related to the suspension of the HIP fee pass-through in 2019. The decrease in membership follows the lower membership assigned to us by ASES when implementing the new Medicaid contract effective November 1, 2018. These decreases are partially offset by higher average premiums rates in 2019. |
• | The medical claims incurred of the Medicare business increased by $24.6 million, or 10.1%, during the 2019 period mostly driven by higher enrollment. The MLR, at 80.6% was 400 basis points lower than the same period last year. Adjusting for the effect of prior period reserve developments in 2019 and 2018 and moving the risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 82.0% this quarter, about 10 basis points lower than last year. |
• | The medical claims incurred of the Commercial business increased by $2.9 million, or 1.8%, during 2019 and its MLR increased 160 basis point, to 82.9%. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 83.6%, 90 basis points higher than the adjusted MLR for last year due to the 2019 suspension of the HIP fee pass-through and increase in utilization following a change in utilization patterns due to an early Easter holiday in 2018. The elimination of the HIP fee pass-through has an MLR impact of 130 basis points, which lowers the change in the adjusted MLR to a year-over-year decrease of 40 basis points. |
• | The medical claims incurred in the Medicaid business decreased by $21.3 million, or 11.9%, reflecting the lower member months enrollment during the 2019 period. The MLR, at 90.3%, was 110 basis point higher than the same period last year. Adjusting for the effect of prior period reserve developments, the Medicaid MLR would have been approximately 90.4% this quarter, 290 basis points higher than the adjusted MLR for last year reflecting the higher required target MLR of the current Medicaid contract and the impact of the elimination in 2019 of the HIP fee. The current Medicaid contract requires a minimum MLR of 92%, including allocation of healthcare quality improvement expenses. The suspension of the HIP fee pass-through accounts for 60 basis points of the increase. |
Three months ended March 31, | ||||||||
(dollar amounts in millions) | 2019 | 2018 | ||||||
Operating revenues: | ||||||||
Premiums earned, net: | ||||||||
Premiums earned | $ | 45.6 | $ | 43.0 | ||||
Assumed earned premiums | 0.7 | 0.8 | ||||||
Ceded premiums earned | (2.1 | ) | (2.3 | ) | ||||
Premiums earned, net | 44.2 | 41.5 | ||||||
Net investment income | 6.6 | 6.0 | ||||||
Total operating revenues | 50.8 | 47.5 | ||||||
Operating costs: | ||||||||
Policy benefits and claims incurred | 26.0 | 25.0 | ||||||
Underwriting and other expenses | 19.2 | 18.9 | ||||||
Total operating costs | 45.2 | 43.9 | ||||||
Operating income | $ | 5.6 | $ | 3.6 | ||||
Additional data: | ||||||||
Loss ratio | 58.8 | % | 60.2 | % | ||||
Operating expense ratio | 43.4 | % | 45.5 | % |
Three months ended March 31, | ||||||||
(dollar amounts in millions) | 2019 | 2018 | ||||||
Operating revenues: | ||||||||
Premiums earned, net: | ||||||||
Premiums written | $ | 31.0 | $ | 33.6 | ||||
Premiums ceded | (13.4 | ) | (14.7 | ) | ||||
Change in unearned premiums | 1.8 | 5.3 | ||||||
Premiums earned, net | 19.4 | 24.2 | ||||||
Net investment income | 2.5 | 2.4 | ||||||
Total operating revenues | 21.9 | 26.6 | ||||||
Operating costs: | ||||||||
Claims incurred | 8.6 | 11.1 | ||||||
Underwriting and other expenses | 9.7 | 12.4 | ||||||
Total operating costs | 18.3 | 23.5 | ||||||
Operating income | $ | 3.6 | $ | 3.1 | ||||
Additional data: | ||||||||
Loss ratio | 44.3 | % | 45.9 | % | ||||
Operating expense ratio | 50.0 | % | 51.2 | % |
Three months ended March 31, | ||||||||
(dollar amounts in millions) | 2019 | 2018 | ||||||
Sources (uses) of cash: | ||||||||
Cash (used in) provided by operating activities | $ | (69.9 | ) | $ | 130.5 | |||
Net proceeds (purchases) of investment securities | 16.5 | (75.9 | ) | |||||
Net capital expenditures | (3.0 | ) | (4.9 | ) | ||||
Payments of long-term borrowings | (0.8 | ) | (0.8 | ) | ||||
Proceeds from policyholder deposits | 3.6 | 6.2 | ||||||
Surrenders of policyholder deposits | (4.6 | ) | (7.2 | ) | ||||
Repurchase and retirement of common stock | - | (14.3 | ) | |||||
Other | 36.5 | (20.0 | ) | |||||
Net (decrease) increase in cash and cash equivalents | $ | (21.7 | ) | $ | 13.6 |
Exhibits | Description |
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months ended March 31, 2019 and 2018 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q. | |
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. |
Triple-S Management Corporation | |||||
Registrant | |||||
Date: | May 9, 2019 | By: | /s/ Roberto García-Rodríguez | ||
Roberto García-Rodríguez | |||||
President and Chief Executive Officer | |||||
Date: | May 9, 2019 | By: | /s/ Juan J. Román-Jiménez | ||
Juan J. Román-Jiménez | |||||
Executive Vice President and Chief Financial Officer |