UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

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)

Securities registered pursuant to Section 12(b) of the Act:

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)

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 every Interactive Data File required to be submitted 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 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 definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
 
Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of each class
Outstanding at March 31, 2021
   
Common Stock Class B, $1.00 par value
23,679,736







Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2021
 
Table of Contents
 

Part I – Financial Information
3
Item 1.  Financial Statements
3
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Cautionary Statement Regarding Forward-Looking Information
26
Overview
26
Recent Developments
27
Recent Accounting Standards
30
Managed Care Membership
31
Consolidated Operating Results
32
Managed Care Operating Results
33
Life Insurance Operating Results
35
Property and Casualty Insurance Operating Results
36
Liquidity and Capital Resources
37
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
39
Item 4.  Controls and Procedures
39
Part II – Other Information
39
Item 1.  Legal Proceedings
39
Item 1A.  Risk Factors
39
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
40
Item 3.  Defaults Upon Senior Securities
40
Item 4.  Mine Safety Disclosures
40
Item 5.  Other Information
40
Item 6.  Exhibits
40
SIGNATURES
41


2

Table of Contents


Part I -  Financial Information

Item 1.  Financial Statements
Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(dollar in thousands, except share information)

 
 
March 31,
2021
   
December 31,
2020
 
Assets
           
Investments and cash
           
Fixed-maturities available-for-sale, at fair value
 
$
1,320,507
   
$
1,342,465
 
Fixed-maturities held-to-maturity, at amortized cost
   
1,867
     
1,867
 
Equity investments, at fair value
   
510,416
     
404,328
 
Other invested assets, at net asset value
   
114,180
     
114,905
 
Policy loans
   
10,555
     
10,459
 
Cash and cash equivalents
   
118,725
     
110,989
 
Total investments and cash
   
2,076,250
     
1,985,013
 
Premiums and other receivables, net
   
506,223
     
488,840
 
Deferred policy acquisition costs and value of business acquired
   
250,018
     
248,325
 
Property and equipment, net
   
133,686
     
131,974
 
Deferred tax asset
   
110,870
     
119,534
 
Goodwill
   
28,614
     
28,614
 
Other assets
   
95,822
     
86,118
 
Total assets
 
$
3,201,483
   
$
3,088,418
 
Liabilities and Stockholders’ Equity
               
Claim liabilities
 
$
827,104
   
$
787,102
 
Liability for future policy benefits
   
423,020
     
414,997
 
Unearned premiums
   
95,991
     
97,481
 
Policyholder deposits
   
210,288
     
206,109
 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
46,448
     
45,109
 
Accounts payable and accrued liabilities
   
379,809
     
332,699
 
Deferred tax liability
   
13,255
     
15,046
 
Short-term borrowings
   
37,000
     
30,000
 
Long-term borrowings
   
51,667
     
52,751
 
Liability for pension benefits
   
140,843
     
139,611
 
Total liabilities
   
2,225,425
     
2,120,905
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders’ equity
               
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,679,736 and 23,430,292 shares at March 31, 2021 and December 31, 2020, respectively
   
23,680
     
23,430
 
Additional paid-in capital
   
58,331
     
57,399
 
Retained earnings
   
920,531
     
897,221
 
Accumulated other comprehensive loss, net
   
(25,764
)
   
(9,820
)
Total Triple-S Management Corporation stockholders’ equity
   
976,778
     
968,230
 
Non-controlling interest in consolidated subsidiary
   
(720
)
   
(717
)
Total stockholders’ equity
   
976,058
     
967,513
 
Total liabilities and stockholders’ equity
 
$
3,201,483
   
$
3,088,418
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

3

Table of Contents

Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
(dollar in thousands, except per share information)

 
Three months ended
March 31,
 
 
 
2021
   
2020
 
Revenues
           
Premiums earned, net
 
$
1,008,436
   
$
875,897
 
Administrative service fees
   
2,765
     
2,194
 
Net investment income
   
13,646
     
14,311
 
Other operating revenues
   
2,776
     
4,039
 
Total operating revenues
   
1,027,623
     
896,441
 
Net realized investment gains (losses)
   
217
     
(466
)
Net unrealized investment gains (losses) on equity investments
   
8,552
     
(56,806
)
Other income, net
   
3,111
     
3,605
 
Total revenues
   
1,039,503
     
842,774
 
Benefits and expenses
               
Claims incurred, net of reinsurance
   
850,558
     
714,522
 
Operating expenses
   
151,101
     
162,201
 
Total operating costs
   
1,001,659
     
876,723
 
Interest expense
   
1,992
     
1,853
 
Total benefits and expenses
   
1,003,651
     
878,576
 
Income (loss) before taxes
   
35,852
     
(35,802
)
Income tax expense (benefit)
   
12,545
     
(9,650
)
Net income (loss)
   
23,307
     
(26,152
)
Less: Net loss attributable to non-controlling interest
   
3
     
7
 
Net income (loss) attributable to Triple-S Management Corporation
 
$
23,310
   
$
(26,145
)
Earnings per share attributable to Triple-S Management Corporation
               
Basic net income (loss) per share
 
$
1.00
   
$
(1.12
)
Diluted net income (loss) per share
 
$
1.00
   
$
(1.12
)

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

4

Table of Contents

Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar in thousands)

   
Three months ended
March 31,
 
 
 
2021
   
2020
 
Net income (loss)
 
$
23,307
   
$
(26,152
)
Other comprehensive income, net of tax:
               
Net unrealized change in fair value of available for sale securities, net of taxes
   
(16,553
)
   
15,879
 
Defined benefit pension plan:
               
Actuarial gain, net
   
609
     
153
 
Total other comprehensive (loss) income, net of tax
   
(15,944
)
   
16,032
 
Comprehensive income (loss)
   
7,363
     
(10,120
)
Comprehensive loss attributable to non-controlling interest
   
3
     
7
 
Comprehensive income (loss) attributable to Triple-S Management Corporation
 
$
7,366
   
$
(10,113
)

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

5

Table of Contents

Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(dollar in thousands)

 
 
Class A
Common
Stock
   
Class B
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
   
Triple-S
Management
Corporation
Stockholders’
Equity
   
Non-controlling
Interest in
Consolidated
Subsidiary
   
Total
Stockholders’
Equity
 
                                                 
Balance, December 31, 2020
 
$
-
   
$
23,430
   
$
57,399
   
$
897,221
   
$
(9,820
)
 
$
968,230
   
$
(717
)
 
$
967,513
 
Share-based compensation
   
-
     
250
     
932
     
-
     
-
     
1,182
     
-
     
1,182
 
Comprehensive income (loss)
   
-
     
-
     
-
     
23,310
     
(15,944
)
   
7,366
     
(3
)
   
7,363
 
Balance, March 31, 2021
 
$
-
   
$
23,680
   
$
58,331
   
$
920,531
   
$
(25,764
)
 
$
976,778
   
$
(720
)
 
$
976,058
 

 
Class A
Common
Stock
   
Class B
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Triple-S
Management
Corporation
Stockholders’
Equity
   
Non-controlling
Interest in
Consolidated
Subsidiary
   
Total
Stockholders’
Equity
 
                                                 
Balance, December 31, 2019
 
$
-
   
$
23,800
   
$
60,504
   
$
830,198
   
$
29,363
   
$
943,865
   
$
(693
)
 
$
943,172
 
Share-based compensation
   
-
     
590
     
1,769
     
-
     
-
     
2,359
     
-
     
2,359
 
Repurchase and retirement of common stock
   
-
     
(584
)
   
(8,511
)
   
-
     
-
     
(9,095
)
   
-
     
(9,095
)
Comprehensive (loss) income
   
-
     
-
     
-
     
(26,145
)
   
16,032
     
(10,113
)
   
(7
)
   
(10,120
)
Cumulative effect adjustment due to implementation of ASU 2016-13
   
-
     
-
     
-
     
(166
)
   
-
     
(166
)
   
-
     
(166
)
Balance, March 31, 2020
 
$
-
   
$
23,806
   
$
53,762
   
$
803,887
   
$
45,395
   
$
926,850
   
$
(700
)
 
$
926,150
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

6

Table of Contents

Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar in thousands)

 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
Cash flows from operating activities:
           
Net income (loss)
 
$
23,307
   
$
(26,152
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
   
3,519
     
3,907
 
Net amortization of investments
   
750
     
676
 
Provision for doubtful receivables
   
5,403
     
949
 
Deferred tax expense (benefit)
   
10,604
     
(12,268
)
Net realized investment (gains) losses on sale of securities
   
(217
)
   
466
 
Net unrealized (gains) losses on equity investments
   
(8,552
)
   
56,806
 
Interest credited to policyholder deposits
   
1,559
     
1,561
 
Share-based compensation
   
1,182
     
2,359
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
(22,988
)
   
(58,059
)
Deferred policy acquisition costs and value of business acquired
   
(652
)
   
(2,737
)
Deferred taxes
   
37
     
(88
)
Other assets
   
(11,361
)
   
(62,034
)
Increase (decrease) in liabilities:
               
Claim liabilities
   
40,002
     
21,560
 
Liability for future policy benefits
   
8,023
     
6,906
 
Unearned premiums
   
(1,490
)
   
(3,042
)
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
1,339
     
7,479
 
Accounts payable and accrued liabilities
   
18,228
     
68,229
 
Net cash provided by operating activities
   
68,693
     
6,518
 

(Continued)

7

Table of Contents
Triple-S Management Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar in thousands)

 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available-for-sale:
           
Fixed-maturities sold
 
$
43,023
   
$
43,425
 
Fixed-maturities matured/called
   
6,987
     
11,099
 
Securities held-to-maturity:
               
Fixed-maturities matured/called
   
-
     
81
 
Equity investments sold
   
31,394
     
21,107
 
Other invested assets sold
   
7,629
     
8,524
 
Acquisition of investments:
               
Securities available-for-sale:
               
Fixed maturities
   
(51,865
)
   
(42,822
)
Securities held-to-maturity:
               
Fixed-maturities
   
-
     
(80
)
Equity investments
   
(128,739
)
   
(102,733
)
Other invested assets
   
(5,368
)
   
(10,438
)
Decrease (increase) in other investments
   
326
     
(4,086
)
Net change in policy loans
   
(96
)
   
(241
)
Net capital expenditures
   
(5,196
)
   
(4,587
)
Capital contribution on equity method investees
   
-
     
(4,933
)
Net cash used in investing activities
   
(101,905
)
   
(85,684
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
32,450
     
53,485
 
Net change in short-term borrowings
   
7,000
     
24,000
 
Repayments of long-term borrowings
   
(1,122
)
   
(810
)
Repurchase and retirement of common stock
   
-
     
(8,989
)
Proceeds from policyholder deposits
   
5,091
     
10,296
 
Surrenders of policyholder deposits
   
(2,471
)
   
(4,073
)
Net cash provided by financing activities
   
40,948
     
73,909
 
Net increase (decrease) in cash and cash equivalents
   
7,736
     
(5,257
)
Cash and cash equivalents:
               
Beginning of period
   
110,989
     
109,837
 
End of period
 
$
118,725
   
$
104,580
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

8

Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

1.
Basis of Presentation

The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation (Triple-S, TSM, the Company, the Corporation, we, us or our) and its subsidiaries are unaudited. The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial statement presentation pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included.  The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the full year ending December 31, 2021.

2.
Significant Accounting Policies

Recently Adopted Accounting Standards
 
On August 28, 2018, the Financial Accounting Standards Board (FASB) issued guidance for Compensation – Retirement Benefits – Defined Benefit Plans – General which addresses changes to the disclosure requirement for defined benefit plans. The amendments in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  Specifically, the guidance removes certain disclosure requirements, including the amounts of accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, related-party disclosures concerning the amount of future annual benefits covered by an insurance and annuity contracts and significant transactions between the employer and related-parties and the plan, and adds other disclosures including the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period.   The Company adopted the standard effective January 1, 2021.  The adoption of this guidance did not have a material impact on the presentation and disclosures of the Company’s consolidated financial statements.
 
On December 18, 2019, the FASB issued Accounting Standard Update (ASU) 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. Also, the amendments simplify the accounting for income taxes by requiring the following: (1) that an entity recognize a franchise tax that is partially based on income in accordance with Topic 740 and account for any incremental amount incurred as a non-income-based tax; (2) that an entity evaluate when a step-up in the tax basis of Goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should instead be considered a separate transaction; and (3) that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that included the enactment date. The Company adopted the standard effective January 1, 2021. The adoption of this guidance did not have a material impact on the results of the Company’s consolidated financial statements.
 
On January 16, 2020, the FASB issued guidance to clarify the interaction between the accounting standards on recognition and measurement of financial instruments in Topic 321: Investments – Equity Securities, the one on equity method investments in Topic 323: Investments – Equity Method and Joint Ventures, and forward contracts and purchased options in Topic 815: Derivatives and Hedging. The amendments clarify that upon an increase or decrease in level of ownership or degree of influence, a company should remeasure the interest held in the investee to take into account observable transactions immediately before applying or discontinuing the equity method of accounting under Topic 323. The guidance also clarifies that an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchase option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option. The Company adopted the standard effective January 1, 2021. The adoption of this guidance did not have a material impact on the results of the Company’s consolidated financial statements.

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Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

Future Adoptions of Accounting Standards
 
On January 7, 2021, the FASB issued ASU 2021-01: Reference Rate Reform (Topic 848): Scope Refinement – to clarify the scope of the recent reference reform guidance in Topic 848. This ASU refines the scope of Topic 848 and clarifies that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in the ASU are effective immediately for all entities. The Company is currently in the process of identifying its LIBOR-based contracts that will be affected by the phase-out of LIBOR and expects to use the optional expedients provided in this ASU.
 
Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months ended March 31, 2021 that could have a material impact on the Company’s financial position, operating results or financials statement disclosures.

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Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

3.
Investment in Securities

The amortized cost for debt securities and alternative investments, gross unrealized gains and losses, and estimated fair value for the Company’s investments in securities by major security type and class of security as of March 31, 2021 and December 31, 2020, were as follows:

 
 
March 31, 2021
 
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
                         
 Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
21,347
   
$
513
   
$
(82
)
 
$
21,778
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
113,538
     
6,692
     
(172
)
   
120,058
 
Municipal securities
   
632,130
     
43,811
     
(1,892
)
   
674,049
 
Corporate bonds
   
183,577
     
23,282
     
(194
)
   
206,665
 
Residential mortgage-backed securities
   
271,258
     
20,662
     
(873
)
   
291,047
 
Collateralized mortgage obligations
   
6,340
     
570
     
-
     
6,910
 
Total fixed-maturities available-for-sale
 
$
1,228,190
   
$
95,530
   
$
(3,213
)
 
$
1,320,507
 

 
December 31, 2020
 
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
                         
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
24,496
   
$
665
   
$
(9
)
 
$
25,152
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
103,694
     
7,993
     
-
     
111,687
 
Municipal securities
   
646,961
     
54,067
     
-
     
701,028
 
Corporate bonds
   
189,516
     
30,280
     
-
     
219,796
 
Residential mortgage-backed securities
   
249,801
     
21,487
     
(57
)
   
271,231
 
Collateralized mortgage obligations
   
12,954
     
638
     
(21
)
   
13,571
 
Total fixed-maturities available-for-sale
 
$
1,227,422
   
$
115,130
   
$
(87
)
 
$
1,342,465
 

11

Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

 
.
   
March 31, 2021
 
       
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
   
$
614
   
$
157
   
$
-
   
$
771
 
Residential mortgage-backed securities
     
164
     
9
     
-
     
173
 
Certificates of deposit
     
1,089
     
-
     
-
     
1,089
 
Total fixed-maturities held-to-maturity
   
$
1,867
   
$
166
   
$
-
   
$
2,033
 

 
 
December 31, 2020
 
 
 
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
 
$
614
   
$
201
   
$
-
   
$
815
 
Residential mortgage-backed securities
   
164
     
17
     
-
     
181
 
Certificates of deposit
   
1,089
     
-
     
-
     
1,089
 
Total fixed-maturities held-to-maturity
 
$
1,867
   
$
218
   
$
-
   
$
2,085
 

 
March 31, 2021
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
 
                       
Other invested assets - Alternative investments
 
$
110,475
   
$
8,302
   
$
(4,597
)
 
$
114,180
 

 
December 31, 2020
 
 
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
 
                       
Other invested assets - Alternative investments
 
$
112,171
   
$
6,119
   
$
(3,385
)
 
$
114,905
 

12

Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2021 and December 31, 2020 were as follows:

 
March 31, 2021
 
   
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
 
$
6,184
   
$
(82
)
   
4
   
$
-
   
$
-
     
-
   
$
6,184
   
$
(82
)
   
4
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
10,608
     
(172
)
   
3
     
-
     
-
     
-
     
10,608
     
(172
)
   
3
 
Municipal securities
   
95,584
     
(1,892
)
   
23
     
-
     
-
     
-
     
95,584
     
(1,892
)
   
23
 
Corporate bonds
   
5,805
     
(194
)
   
2
     
-
     
-
     
-
     
5,805
     
(194
)
   
2
 
Residential mortgage-backed securities
   
32,613
     
(873
)
   
6
     
-
     
-
     
-
     
32,613
     
(873
)
   
6
 
Total fixed-maturities available-for-sale
 
$
150,794
   
$
(3,213
)
   
38
   
$
-
   
$
-
     
-
   
$
150,794
   
$
(3,213
)
   
38
 
Other invested assets - Alternative investments
 
$
1,823
   
$
(445
)
   
1
   
$
21,218
   
$
(4,152
)
   
8
   
$
23,041
   
$
(4,597
)
   
9
 

 
December 31, 2020
 
   
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
 
$
1,539
   
$
(9
)
   
1
   
$
-
   
$
-
     
-
   
$
1,539
   
$
(9
)
   
1
 
Residential mortgage-backed securities
   
3,624
     
(57
)
   
1
     
-
     
-
     
-
     
3,624
     
(57
)
   
1
 
Collateralized mortgage obligations
   
6,060
     
(21
)
   
2
     
-
     
-
     
-
     
6,060
     
(21
)
   
2
 
Total fixed-maturities available-for-sale
 
$
11,223
   
$
(87
)
   
4
   
$
-
   
$
-
     
-
   
$
11,223
   
$
(87
)
   
4
 
Other invested assets - Alternative investments
 
$
12,584
   
$
(808
)
   
4
   
$
16,396
   
$
(2,577
)
   
6
   
$
28,980
   
$
(3,385
)
   
10
 

The Company reviews the available-for-sale and other invested assets portfolios under the Company’s impairment review policy.  Given market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and material allowances for credit losses may be recorded in future periods.  The Company from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

 
Obligations of government-sponsored enterprises, U.S. Treasury securities and obligations of U.S.-governmental instrumentalities and Municipal securities:  The unrealized losses of these securities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, they have investment-grade ratings. The Company does not consider these investments to be credit-impaired because of several factors: the decline in fair value is attributable to changes in interest rates and not credit quality; the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity; and because the Company expects to collect all contractual cash flows.

13

Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

Corporate bonds:  The unrealized losses of these bonds were mainly caused by fluctuations in interest rates and general market conditions.  All corporate bonds with an unrealized loss have investment grade ratings.  The Company does not consider these investments to be credit-impaired because of several factors: the decline in fair value is attributable to changes in interest rates and not credit quality; the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity; and because the Company expects to collect all contractual cash flows.

Residential mortgage-backed securities: The unrealized losses on these investments were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities 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, typically the unrated residual tranche, taking any initial loss. The investment grade credit rating of our securities reflects the seniority of the securities that the Company owns. The Company does not consider these investments to be credit-impaired because of several factors: the decline in fair value is attributable to changes in interest rates and not credit quality; the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be at maturity; and because the Company expects to collect all contractual cash flows.

Alternative Investments:  As of March 31, 2021, alternative investments with unrealized losses were not considered credit-impaired based on market conditions.

Maturities of investment securities classified as available-for-sale and held-to-maturity at March 31, 2021 were as follows:

 
March 31, 2021
 
 
 
Amortized
cost
   
Estimated
fair value
 
Fixed-maturities available-for-sale
           
Due in one year or less
 
$
39,037
   
$
39,684
 
Due after one year through five years
   
565,952
     
604,602
 
Due after five years through ten years
   
195,985
     
203,592
 
Due after ten years
   
149,618
     
174,672
 
Residential mortgage-backed securities
   
271,258
     
291,047
 
Collateralized mortgage obligations
   
6,340
     
6,910
 
 
 
$
1,228,190
   
$
1,320,507
 
Fixed-maturities held-to-maturity
               
Due in one year or less
 
$
1,089
   
$
1,089
 
Due after five years through ten years
   
614
     
771
 
Residential mortgage-backed securities
   
164
     
173
 
 
 
$
1,867
   
$
2,033
 

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.

Investments with an amortized cost of $224,407 and $227,890 (fair value of $245,027 and $250,088) at March 31, 2021 and December 31, 2020, respectively were pledged with the Federal Home Loan Bank of New York (FHLBNY) to secure short-term borrowings.

14

Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

4.
Realized and Unrealized Gains (Losses)

Information regarding realized and unrealized gains and losses from investments is as follows:

 
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Realized gains (losses)
           
Fixed-maturity securities
           
Fixed-maturities available-for-sale:
           
Gross gains
 
$
10
   
$
774
 
Gross losses
   
(345
)
   
(6
)
Total fixed-maturity securities
   
(335
)
   
768
 
Equity investments:
               
Gross gains
   
500
     
930
 
Gross losses
   
(403
)
   
(1,612
)
Gross losses from impaired securities
   
-
     
(678
)
Total equity investments
   
97
     
(1,360
)
Other invested assets:
               
Gross gains
   
455
     
126
 
Total other invested assets
   
455
     
126
 
Net realized gains (losses) on securities
 
$
217
   
$
(466
)

The gross losses from impaired securities during the three months ended March 31, 2020 are related to an equity method investment held by the Company.

 
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Changes in unrealized (losses) gains
           
Recognized in accumulated other comprehensive income:
           
Fixed-maturities – available-for-sale
 
$
(22,726
)
 
$
19,756
 
Other invested assets
   
971
     
568
 
 
 
$
(21,755
)
 
$
20,324
 
Not recognized in the consolidated financial statements:
               
Fixed-maturities – held-to-maturity
 
$
(52
)
 
$
72
 

The change in deferred tax liability on unrealized gains recognized in Accumulated Other Comprehensive (Loss) Income during the three months ended March 31, 2021 and 2020 was $4,345 and $4,065, respectively.

As of March 31, 2021 and December 31, 2020, no individual investment in securities exceeded 10% of stockholders’ equity.

15

Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

5.
Premiums and Other Receivables, Net

Premiums and Other Receivables, Net were as follows:

 
 
March 31,
2021
   
December 31,
2020
 
Premium
 
$
144,746
   
$
106,322
 
Self-funded group receivables
   
29,710
     
26,412
 
FEHBP
   
15,250
     
12,830
 
Agent balances
   
29,404
     
31,509
 
Accrued interest
   
9,759
     
10,418
 
Reinsurance recoverable
   
212,100
     
216,314
 
Other
   
121,044
     
135,774
 
 
   
562,013
     
539,579
 
Less allowance for doubtful receivables:
               
Premium
   
37,545
     
37,231
 
Other
   
18,245
     
13,508
 
 
   
55,790
     
50,739
 
Premium and other receivables, net
 
$
506,223
   
$
488,840
 

As of March 31, 2021 and December 31, 2020, the Company had premiums and other receivables of $88,703 and $53,397, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of March 31, 2021 and December 31, 2020 were $28,091 and $23,752, respectively.

Reinsurance recoverable as of March 31, 2021 and December 31, 2020 includes $169,053 and $172,021, respectively, related to catastrophe losses covered by the Property and Casualty segment’s reinsurance program.

16

Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

6.
 Fair Value Measurements

Our condensed Consolidated Balance Sheets include the following financial instruments: fixed-maturities available-for-sale, equity investments, policy loans, policyholder deposits, short-term borrowings and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, short-term borrowings and long-term borrowings to approximate their fair value and are considered Level 2 financial instruments.  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 2020 Annual Report on Form 10-K.

The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

 
 
March 31, 2021
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
                       
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
21,778
   
$
-
   
$
21,778
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
120,058
     
-
     
-
     
120,058
 
Municipal securities
   
-
     
674,049
     
-
     
674,049
 
Corporate bonds
   
-
     
206,665
     
-
     
206,665
 
Residential agency mortgage-backed securities
   
-
     
291,047
     
-
     
291,047
 
Collateralized mortgage obligations
   
-
     
6,910
     
-
     
6,910
 
Total fixed-maturities available-for-sale
 
$
120,058
   
$
1,200,449
   
$
-
   
$
1,320,507
 
Equity investments
 
$
268,556
   
$
236,718
   
$
5,142
   
$
510,416
 

 
 
December 31, 2020
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
                       
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
25,152
   
$
-
   
$
25,152
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
111,687
     
-
     
-
     
111,687
 
Municipal securities
   
-
     
701,028
     
-
     
701,028
 
Corporate bonds
   
-
     
219,796
     
-
     
219,796
 
Residential agency mortgage-backed securities
   
-
     
271,231
     
-
     
271,231
 
Collateralized mortgage obligations
   
-
     
13,571
     
-
     
13,571
 
Total fixed-maturities available-for-sale
 
$
111,687
   
$
1,230,778
   
$
-
   
$
1,342,465
 
Equity investments
 
$
220,118
   
$
179,108
   
$
5,102
   
$
404,328
 

The fair value of investment securities is estimated based on quoted market prices for those or similar investments.  Additional information pertinent to the estimated fair value of investment in securities is included in Note 3.

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2021 and year ended December 31, 2020.

17

Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31 is as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
     
 
 
Three months ended
 
   
March 31, 2021
 
Balance as of January 1,
 
$
5,102
 
Unrealized gain in other accumulated comprehensive income
   
40
 
Balance as of March 31,
 
$
5,142
 


7.
Claim Liabilities

The tables below present a reconciliation of the beginning and ending balances of Claim Liabilities during the three months ended March 31:

 
 
Three months ended
March 31, 2021
 
 
 
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
 
                 
Claim liabilities at beginning of period
 
$
445,655
   
$
341,447
   
$
787,102
 
Reinsurance recoverable on claim liabilities
   
-
     
(138,816
)
   
(138,816
)
Net claim liabilities at beginning of period
   
445,655
     
202,631
     
648,286
 
Claims incurred
                       
Current period insured events
   
837,170
     
31,249
     
868,419
 
Prior period insured events
   
(25,766
)
   
(2,741
)
   
(28,507
)
Total
   
811,404
     
28,508
     
839,912
 
Payments of losses and loss-adjustment expenses
                       
Current period insured events
   
564,089
     
8,322
     
572,411
 
Prior period insured events
   
198,273
     
24,652
     
222,925
 
Total
   
762,362
     
32,974
     
795,336
 
Net claim liabilities at end of period
   
494,697
     
198,165
     
692,862
 
Reinsurance recoverable on claim liabilities
   
-
     
134,242
     
134,242
 
Claim liabilities at end of period
 
$
494,697
   
$
332,407
   
$
827,104
 

*
Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.

18

Table of Contents
Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)
.



 
 
Three months ended
March 31, 2020
 
 
 
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
 
                 
Claim liabilities at beginning of period
 
$
341,277
   
$
367,981
   
$
709,258
 
Reinsurance recoverable on claim liabilities
   
-
     
(137,017
)
   
(137,017
)
Net claim liabilities at beginning of period
   
341,277
     
230,964
     
572,241
 
Claims incurred
                       
Current period insured events
   
685,245
     
33,218
     
718,463
 
Prior period insured events
   
(7,426
)
   
(5,838
)
   
(13,264
)
Total
   
677,819
     
27,380
     
705,199
 
Payments of losses and loss-adjustment expenses
                       
Current period insured events
   
480,705
     
9,243
     
489,948
 
Prior period insured events
   
198,410
     
19,026
     
217,436
 
Total
   
679,115
     
28,269
     
707,384
 
Net claim liabilities at end of period
   
339,981
     
230,075
     
570,056
 
Reinsurance recoverable on claim liabilities
   
-
     
160,762
     
160,762
 
Claim liabilities at end of period
 
$
339,981
   
$
390,837
   
$
730,818
 

*
Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.
 
The actual amounts of claims incurred in connection with insured events occurring in a prior period typically differ from estimates of such claims made in the prior period.  Amounts included as incurred claims for prior-period insured events reflect the aggregate net amount of these differences.
 
The favorable developments in the claims incurred and loss-adjustment expenses for prior-period insured events for the three months ended March 31, 2021 and March 31, 2020 were primarily due 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 amounting to $10,646 and $9,323 that is included withing the consolidated Claims Incurred during the three months ended March 31, 2021 and 2020, respectively.

The following is information about incurred and paid claims development, net of reinsurance, as of March 31, 2021, as well as cumulative claim frequency. Additional information presented includes total incurred-but-not-reported liabilities plus expected development on reported claims which is included within the net incurred claims amounts.
 
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)
.
Incurred Year
 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2020
 
$
162,941
 
2021
   
273,081
 


8.
Short-Term Borrowings

The Company has several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from FHLBNY, repurchase agreements and a revolving credit facility.

In August 2019, TSS and TSV became members of the FHLBNY, which provides access to collateralized advances.  The borrowing capacity of TSS and TSV is up to 30% of their admitted assets as disclosed in the most recent filing with the Commissioner of Insurance but is constrained by the amount of collateral held at the FHLBNY (see Note 3). As of March 31, 2021 and December 31, 2020, the borrowing capacity was approximately $201,320 and $200,338, respectively. The outstanding balance as of March 31, 2021 and December 31, 2020 was $37,000 and $30,000, respectively. The average interest rate of the outstanding balances was 0.31% and 0.33% as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, TSS has $35,000 of available credit under repurchase agreements with broker-dealers, which are short-term borrowing facilities using securities as collateral. There are no outstanding short-term borrowings under these facilities as of March 31, 2021.

TSA has 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 250 basis points and contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit matures on June 30, 2021 and had no outstanding balance as of March 31, 2021.

9.
Pension Plan
 
The components of net periodic benefit cost were as follows:
 
 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
Components of net periodic benefit cost:
           
Interest cost
 
$
1,375
   
$
1,540
 
Expected return on assets
   
(1,100
)
   
(2,209
)
Amortization of actuarial loss
   
975
     
244
 
Settlement loss
   
1,000
     
356
 
Net periodic benefit cost
 
$
2,250
   
$
(69
)
 
Employer Contributions:  The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2020 that it expected to contribute $10,000 to the pension program in 2021.  As of March 31, 2021, the Company has not made contributions to the pension program. 

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

10.
Comprehensive Income
 
The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
 
 
 
Three months ended
 
 
 
March 31,
 
 
 
2021
   
2020
 
 
           
Net Unrealized Gain on Securities
           
Beginning Balance
 
$
91,689
   
$
57,830
 
Other comprehensive income before reclassifications
   
(16,379
)
   
16,049
 
Amounts reclassified from accumulated other comprehensive income
   
(174
)
   
(170
)
Net current period change
   
(16,553
)
   
15,879
 
Ending Balance
   
75,136
     
73,709
 
Liability for Pension Benefits
               
Beginning Balance
   
(101,509
)
   
(28,467
)
Amounts reclassified from accumulated other comprehensive income
   
609
     
153
 
Ending Balance
   
(100,900
)
   
(28,314
)
Accumulated Other Comprehensive Income
               
Beginning Balance
   
(9,820
)
   
29,363
 
Other comprehensive income before reclassifications
   
(16,379
)
   
16,049
 
Amounts reclassified from accumulated other comprehensive income
   
435
     
(17
)
Net current period change
   
(15,944
)
   
16,032
 
Ending Balance
 
$
(25,764
)
 
$
45,395
 

11.
Share-Based Compensation

Share-based compensation expense recorded during the three months ended March 31, 2021 and 2020 was $1,182 and $2,359, respectively. During the three months ended March 31, 2020, 6,882 shares were repurchased and retired as a result of non-cash tax withholdings upon vesting of shares. There were no non-cash tax withholdings during the three months ended March 31, 2021.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

12.
Net Income (Loss) Available to Stockholders and Net Income (Loss) per Share
 
The table below sets forth the computation of basic and diluted earnings per share for the three months ended March 31:
 
 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Numerator for earnings per share:
           
Net income (loss) attributable to TSM available to stockholders
 
$
23,310
   
$
(26,145
)
Denominator for basic earnings per share:
               
Weighted average of common shares
   
23,231,698
     
23,381,949
 
Effect of dilutive securities
   
186,567
     
-
 
Denominator for diluted earnings per share
   
23,418,265
     
23,381,949
 
Basic net income (loss) per share attributable to TSM
 
$
1.00
   
$
(1.12
)
Diluted net income (loss) per share attributable to TSM
 
$
1.00
   
$
(1.12
)

The Company excluded the effect of dilutive securities during the three months ended March 31, 2020 because their effect would have been anti-dilutive given the net loss attributable to stockholders in the period.  If the Company had generated income from continuing operations during the three months ended March 31, 2020, the effect of restricted stock awards on the diluted shares calculation would have been an increase in shares of 84,224 shares.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

13.
Segment Information
 
The operations of the Company are conducted principally through three reportable business segments: Managed Care, Life Insurance, and Property and Casualty Insurance.  The Company evaluates performance based primarily on the operating revenues and operating income of each segment.  Operating revenues include Premiums Earned, Net, Administrative Service Fees and Net Investment Income.  Operating costs include Claims Incurred and Operating Expenses.  The Company calculates operating income or loss as operating revenues less operating costs.

The following tables summarize the operations by reportable segment for the three months ended March 31:

 
 
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Operating revenues
           
Managed Care
           
Premiums earned, net
 
$
931,430
   
$
809,286
 
Administrative service fees
   
2,765
     
2,194
 
Intersegment premiums/service fees
   
822
     
1,643
 
Net investment income
   
5,110
     
5,008
 
Total Managed Care
   
940,127
     
818,131
 
Life Insurance
               
Premiums earned, net
   
51,910
     
46,186
 
Intersegment premiums
   
589
     
491
 
Net investment income
   
6,408
     
6,930
 
Total Life Insurance
   
58,907
     
53,607
 
Property and Casualty Insurance
               
Premiums earned, net
   
25,096
     
20,425
 
Intersegment premiums
   
153
     
153
 
Net investment income
   
2,031
     
2,125
 
Total Property and Casualty Insurance
   
27,280
     
22,703
 
Other segments*
               
Intersegment service revenues
   
3,231
     
2,531
 
Operating revenues from external sources
   
2,776
     
4,039
 
Total other segments
   
6,007
     
6,570
 
Total business segments
   
1,032,321
     
901,011
 
TSM operating revenues from external sources
   
97
     
248
 
Elimination of intersegment premiums
   
(1,564
)
   
(2,287
)
Elimination of intersegment service revenues
   
(3,231
)
   
(2,531
)
Consolidated operating revenues
 
$
1,027,623
   
$
896,441
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

.
   
Three months ended
March 31,
 
 
 
2021
   
2020
 
 
           
Operating income (loss)
           
Managed Care
 
$
18,754
   
$
14,167
 
Life Insurance
   
5,803
     
5,049
 
Property and Casualty Insurance
   
3,841
     
(242
)
Other segments *
   
(2,098
)
   
(504
)
Total business segments
   
26,300
     
18,470
 
TSM operating revenues from external sources
   
97
     
248
 
TSM unallocated operating expenses
   
(2,836
)
   
(1,403
)
Elimination of TSM intersegment charges
   
2,403
     
2,403
 
Consolidated operating income
   
25,964
     
19,718
 
Consolidated net realized investment gains (losses)
   
217
     
(466
)
Consolidated net unrealized investment gains (losses) on equity investments
   
8,552
     
(56,806
)
Consolidated interest expense
   
(1,992
)
   
(1,853
)
Consolidated other income, net
   
3,111
     
3,605
 
Consolidated income (loss) before taxes
 
$
35,852
   
$
(35,802
)
 
               
Depreciation and amortization expense
               
Managed Care
 
$
2,352
   
$
3,046
 
Life Insurance
   
327
     
272
 
Property and Casualty Insurance
   
70
     
112
 
Other segments*
   
351
     
321
 
Total business segments
   
3,100
     
3,751
 
TSM depreciation expense
   
419
     
156
 
Consolidated depreciation and amortization expense
 
$
3,519
   
$
3,907
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share and share information)
(Unaudited)

 
 
March 31,
2021
   
December 31,
2020
 
 
           
Assets
           
Managed Care
 
$
1,442,161
   
$
1,319,389
 
Life Insurance
   
1,063,727
     
1,051,819
 
Property and Casualty Insurance
   
574,995
     
583,404
 
Other segments *
   
39,943
     
34,020
 
Total business segments
   
3,120,826
     
2,988,632
 
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
   
15,815
     
16,489
 
Property and equipment, net
   
70,553
     
68,678
 
Other assets
   
93,914
     
88,684
 
 
   
180,282
     
173,851
 
Elimination entries-intersegment receivables and others
   
(99,625
)
   
(74,065
)
Consolidated total assets
 
$
3,201,483
   
$
3,088,418
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

14.
Subsequent Events

The Company evaluated subsequent events through the date the unaudited condensed consolidated interim 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.


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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation,” the “Company,” “TSM,” “we,” “our,” and “us” 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 ended March 31, 2021.  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, 2020 and the MD&A included therein, and our unaudited condensed consolidated interim financial statements and accompanying notes as of and for the three months ended March 31, 2021 included in this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Information

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 under no 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, the development of the COVID-19 outbreak, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.

Overview

Triple-S is a health services company and one of the top players in the Puerto Rico health care industry. With more than 60 years of experience, we are the premier health care brand and serve more people through the most attractive provider networks on the island. We have the exclusive right to use the Blue Cross and Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands (USVI), Costa Rica, the British Virgin Islands (BVI) and Anguilla, and we offer a broad portfolio of managed care and related products in the Commercial, Medicare Advantage and Medicaid 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 and U.S. federal government funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S. (Medicaid or the Government health plan).

Our commitment to our valued customers and provider partners, backed by our heritage of excellent care, access and service have positioned Triple-S for continued growth in the healthcare arena. Our progressive use of technology and clinical data, value-based partnerships with care providers and initial investments in ambulatory and primary care assets are a strong foundation for differentiation and growth through the development of an integrated delivery system over the next several years. We believe continued investment and focus on delivering an excellent healthcare experience and great service, coupled with health management programs that improve outcomes and quality of life while reducing the total cost of care, will separate Triple-S from our competition and strengthen the financial performance of our business well into the future.

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As of March 31, 2021, we served approximately 989,000 managed care members in Puerto Rico.  For the three months ended March 31, 2021 and 2020, our Managed Care segment represented approximately 92% of our total consolidated premiums earned.

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.

Triple-S is also a well-known brand in the life insurance and property and casualty insurance markets, with a significant share in each. We participate in the life insurance market through our subsidiary Triple-S Vida (TSV), and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad (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 reported balances 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 unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

Our revenue primarily consists of premiums earned, net and investment income.  Premiums are derived from the sale of managed care products and property and casualty and life insurance contracts.  Substantially all 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 policyholders.  Each segment’s results of operations depend to a significant extent on management’s 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.

Recent Developments

COVID-19

COVID-19 Situation in Puerto Rico

As of May 3, 2021, the Puerto Rico Department of Health reported 117,225 and 15,822 confirmed (RT-PCR+) and probable (antigen) COVID-19 cases, respectively, and a total of 2,315 confirmed and probable COVID-19-related deaths in Puerto Rico.

Puerto Rico was under a stay-at-home order (as amended and extended, the “Order”) from March 15, 2020 until June 16, 2020.  The Order required the closure of non-essential businesses for the same period of time.  On May 1, 2020, the Governor issued a new order providing for the gradual re-opening of the economy beginning on May 4, 2020.  The Governor has issued several other executive orders establishing the rules to continue the gradual re-opening of the economy, the latest of which is effective until May 9, 2021.

Health care is considered an essential service under the Order; therefore, all functions of our Managed Care business, other than sales, were excluded from closure.  Our Life Insurance and Property & Casualty businesses, which had been closed since March 16, 2020, re-opened on May 5, 2020, subject to compliance with certain safety and risk management measures.

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Puerto Rico began its COVID-19 vaccination program in December 2020 and as of April 12, 2021, all citizens 16 years old and older are eligible to receive the vaccine. The Puerto Rico Department of Health reported on April 20, 2021 that over 2 million vaccine doses have been administered Island-wide. This statistic includes doses registered in the local and federal registration systems.

We have implemented our business continuity and risk mitigation plans and are closely monitoring outbreak developments in order to ensure the health and safety of our employees and visitors.

Economic Impact

As mentioned below, the 2021 Fiscal Plan (defined below) estimates that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus measures, some of which are summarized below, have more than offset the estimated income loss due to reduced economic activity and have caused a temporary increase in personal income on a net basis. However, it is still too early to fully assess the ultimate medium- and long-term impact of the pandemic and lockdown in the Puerto Rico economy.  See Item 1A.  Risk Factors – Risks Related to our Business – Our business is geographically concentrated in Puerto Rico and weakness in the economy and the fiscal health of the government has adversely affected and may continue to adversely affect us. included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Funding and Economic Relief for Puerto Rico

The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, makes approximately $182.9 million available for Puerto Rico’s Medicaid Program and increases the percentage of federal government funding for its Medicaid program expenditures from 76% to approximately 82% during the emergency period.  The Coronavirus Aid, Relief, and Economic Security or CARES Act, enacted on March 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, enacted on December 27, 2020, and the American Rescue Plan, enacted on March 11, 2021 include a series of direct relief and financial assistance measures for Puerto Rico residents and businesses.  The CARES Act also assigns $2.2 billion to the Government of Puerto Rico to cover necessary expenditures related to COVID-19 and not included in the territory’s budget, among other measures. The Puerto Rico government has earmarked approximately $1 billion for its COVID-19 response.

Measures Impacting our Business

The FFCRA and CARES Act also require health plans and insurers to cover testing for COVID-19 without imposing cost-sharing or prior authorization requirements.  On April 16, 2020, the Puerto Rico Government enacted Act number 43, which requires health plans and insurers to cover COVID-19-related diagnostic and treatment services, including hospitalization, without cost-sharing.  Our regulators have also issued regulations or circular letters requiring waivers of pre-authorizations for certain services and drugs, requiring temporary coverage of certain out-of-network providers and services, and limiting cost-sharing for certain services.  See Item 1A. Risk Factors – Risks Related to our Business – Pandemics, like the COVID-19 pandemics and local, state and federal governments’ response to the pandemics may have a material adverse effect on our business, financial condition and results of operations. included on our Annual Report on Form 10-K for the year ended December 31, 2020.

Puerto Rico Economy

The Puerto Rico economy entered a recession in the fourth quarter of fiscal year 2006. Puerto Rico’s gross national product (GNP) contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the Planning Board) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019, primarily due to federal disaster recovery spending related to Hurricanes Irma and María. The Planning Board estimates, however, that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19 pandemic and the measures taken by the government in response to the same, and that the negative effects of COVID-19 will continue through the current fiscal year, resulting in a contraction in real GNP of approximately -2%.

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Puerto Rico’s population has also been in decline over the past decade. Estimates by the U.S. Census Bureau indicate the population has decreased by 14.3%, or approximately 530,000 people, from April 1, 2010 to July 1, 2019. The 2021 Fiscal Plan (as defined below) projects that population will continue to steadily decline at an average rate of approximately 1.2% per year, due to a combination of outmigration and economic factors. The weakness of Puerto Rico’s economy has also adversely affected employment. Total average annual employment, as measured by the Puerto Rico Department of Labor and Human Resources (the DLHR) has decreased approximately 20% since 2007. The reduction in total employment began in the fourth quarter of fiscal year 2007, when total employment was 1,244,425, and continued consistently until the first half of fiscal year 2015, after which it mostly stabilized.  According to the most recent data from DLHR, Puerto Rico’s average total employment as of February 2021 was 952,000, a decrease of 13,000 from total employment of 965,000 as of February 2020.  The DLHR also reported an average unemployment rate of approximately 9.2% as of February 2021, up from a 9.0% unemployment rate reported by the DLHR as of February 2020.

PROMESA and the Oversight Board

The Commonwealth has been enduring a fiscal and economic crisis for over a decade. Such crisis prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in June 2016. PROMESA, among other things, created a federal fiscal oversight board (the Oversight Board) with broad powers over the Commonwealth’s fiscal affairs and established two mechanisms for the restructuring of the obligations of the Commonwealth, its instrumentalities and municipalities, contained in Titles III and VI of PROMESA. The Commonwealth and several of its instrumentalities have been in the process of restructuring their debts through the mechanisms provided by PROMESA for some time.

Commonwealth Fiscal Plan and Plan of Adjustment

The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated April 23, 2021 (the 2021 Fiscal Plan). The 2021 Fiscal Plan provides that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. As a result, the 2021 Fiscal Plan’s economic projections incorporate adjustments for the short-term income effects caused by such stimulus programs. For example, the 2021 Fiscal Plan estimates that real GNP contracted by 3% in fiscal year 2020 but estimates the GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the 2021 Fiscal Plan projects that real GNP will grow 1% and 0.6%, respectively, but projects that growth adjusted for income effects for such years will be approximately 3.8% and 1.5%, respectively.

The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented, the Commonwealth will have a pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the fiscal measures could drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 2026 and that the structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $30.7 billion). However, even after the fiscal measures and structural reforms, and before contractual debt service, the 2021 Fiscal Plan projects that there will be an annual deficit starting in fiscal year 2036.

In March 2021, the Oversight Board filed a plan of adjustment for the Commonwealth, the Employees Retirement System of the Government of the Commonwealth (ERS) and the Puerto Rico Public Buildings Authority (PBA) in the pending debt restructuring proceedings under Title III of PROMESA. The plan, which has substantial support from several creditor constituencies but is still subject to confirmation in the Title III proceeding, seeks to restructure approximately $35 billion of debt and other claims against the Commonwealth, PBA and ERS, and more than $50 billion of pension liabilities.

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Table of Contents
Property & Casualty Litigation

As of March 31, 2021, our Property and Casualty subsidiary had been served in a total of 480 cases relating to Hurricane Maria. Of those, 287 remained open as of March 31, 2021. See Item 1A. Risk Factors – Risks Related to our Business – Large-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations. and We face risks related to litigation. included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Property and Casualty Reinsurance Program

The Company’s Property and Casualty segment completed the renewal of its reinsurance property and catastrophe program with an effective date of April 1, 2021 with a term of twelve-months ending on March 31, 2022.  The reinsurance program provides the segment with a catastrophe loss protection of $811.5 million in excess of $5 million. The cost of entering into the new reinsurance program is estimated to remain similar to the expiring program.

Recent Accounting Standards

For a description of recent accounting standards, see Note 2 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

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Managed Care Membership

 
As of March 31,
 
   
2021
   
2020
 
Managed Care enrollment
           
Commercial 1
   
416,376
     
435,013
 
Medicare
   
135,977
     
135,710
 
Medicaid
   
436,772
     
355,512
 
Total
   
989,125
     
926,235
 
Managed Care enrollment by funding arrangement
               
Fully insured
   
890,696
     
816,475
 
Self-insured
   
98,429
     
109,760
 
Total
   
989,125
     
926,235
 

(1)
Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.

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Table of Contents
Consolidated Operating Results

The following table sets forth our 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
March 31,
 
(dollar in millions)
 
2021
   
2020
 
Revenues
           
Premiums earned, net
 
$
1,008.4
   
$
875.9
 
Administrative service fees
   
2.8
     
2.2
 
Net investment income
   
13.6
     
14.3
 
Other operating revenues
   
2.8
     
4.0
 
Total operating revenues
   
1,027.6
     
896.4
 
Net realized investment gains (losses)
   
0.2
     
(0.5
)
Net unrealized investment gains (losses) on equity investments
   
8.6
     
(56.8
)
Other income, net
   
3.1
     
3.6
 
Total revenues
   
1,039.5
     
842.7
 
Benefits and expenses
               
Claims incurred
   
850.6
     
714.5
 
Operating expenses
   
151.1
     
162.2
 
Total operating expenses
   
1,001.7
     
876.7
 
Interest expense
   
2.0
     
1.9
 
Total benefits and expenses
   
1,003.7
     
878.6
 
Income (loss) before taxes
   
35.8
     
(35.9
)
Income tax expense (benefit)
   
12.5
     
(9.7
)
Net income (loss) attributable to TSM
 
$
23.3
   
$
(26.2
)

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Operating Revenues

Consolidated premiums earned, net increased by $132.5 million, or 15.1%, to $1,008.4 million.  This increase primarily reflects higher premiums in the Managed Care segment by $122.2 million. The growth in Managed Care premiums reflects higher average premiums rates across all lines of business and an increase in Medicaid membership.

Net Unrealized Investment Gains (Losses) on Equity Investments

The $8.6 million in consolidated net unrealized investment gains on equity investments reflect the impact of changes in equity markets.

Claims Incurred

Consolidated claims incurred increased by $136.1 million, or 19.0%, to $850.6 million.  The consolidated loss ratio increased 280 basis points, to 84.4%, reflecting higher Managed Care claim trends and utilization of services because of COVID-19-related testing and treatments costs, the waiver of medical and payment policies (see Recent Developments - COVID-19 - Measures Impacting our Business included in this quarterly report on Form 10-Q), increased benefits in the 2021 Medicare product offerings, the effect of the elimination of the Health Insurance Providers Fee (HIP fee) pass-through in 2021 and the return of deferred utilization.  In addition, the loss ratio in 2020 was favorably impacted by lower utilization of Managed Care services during the last two weeks of the quarter as the result of the government-enforced lockdown because of the COVID-19 pandemic.

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Operating Expenses

Consolidated operating expenses decreased by $11.1 million, or 6.8%, to $151.1 million.  The decrease in operating expenses mostly results from the elimination in 2021 of the HIP fee of $16.3 million.  The consolidated operating expense ratio decreased 360 basis points to 14.9% mostly reflecting the increase in premiums earned, net.

Income Taxes

Consolidated income taxes increased by $22.2 million, to an expense of $12.5 million for the three months ended March 31, 2021.  The year over year change in income taxes reflects the loss before taxes in the 2020 period resulting from the net unrealized investment losses on equity investments.

Managed Care Segment Operating Results

 
Three months ended
March 31,
 
(dollar in millions)
 
2021
   
2020
 
Operating revenues
           
Medical premiums earned, net
           
Medicare
 
$
402.3
   
$
387.8
 
Medicaid
   
322.7
     
220.9
 
Commercial
   
207.0
     
201.1
 
Medical premiums earned, net
   
932.0
     
809.8
 
Administrative service fees
   
3.0
     
3.3
 
Net investment income
   
5.1
     
5.0
 
Total operating revenues
   
940.1
     
818.1
 
Medical operating costs
               
Medical claims incurred
   
811.4
     
677.8
 
Medical operating expenses
   
110.0
     
126.1
 
Total medical operating costs
   
921.4
     
803.9
 
Medical operating income
 
$
18.7
   
$
14.2
 
Additional data
               
Member months enrollment
               
Medicare
   
408,781
     
407,907
 
Medicaid
   
1,296,189
     
1,068,016
 
Commercial
               
Fully insured
   
956,947
     
978,342
 
Self-funded
   
295,837
     
330,232
 
Total Commercial
   
1,252,784
     
1,308,574
 
Total member months
   
2,957,754
     
2,784,497
 
Medical loss ratio
   
87.1
%
   
83.7
%
Operating expense ratio
   
11.8
%
   
15.5
%

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Table of Contents
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Medical Premiums Earned, Net

Medical premiums earned, net increased by $122.2 million, or 15.1%, to $932.0 million.  This increase is principally the result of the following:

Premiums generated by the Medicaid business increased by $101.8 million, or 46.1%, primarily reflecting higher average premium rates following two premium rates increases that were effective in May 2020 and July 2020 and an increase in enrollment of approximately 228,000 member months. In addition, following a reconciliation process with ASES this quarter we recognized premiums corresponding to prior periods.  These increases were partially offset by the elimination of the HIP fee pass-through in 2021.

Premiums generated by the Medicare business increased by $14.5 million, or 3.7%, mostly due to higher average premium rates reflecting an increase in the premium rate benchmark and membership risk score. Membership remained in line when compared with the prior-year period.

Premiums generated by the Commercial business increased by $5.9 million, or 2.9%, mainly reflecting higher average premium rates in the 2021 period.  This increase was partially offset by a reduction of approximately 21,000 fully insured member months and the elimination of the HIP fee pass-through in 2021.

Medical Claims Incurred

Managed Care claims incurred increased by $133.6 million, or 19.7%, to $811.4 million when compared to the three months ended March 31, 2020.  The medical loss ratio (MLR) of the segment increased 340 basis points during 2021 period, to 87.1%.  This fluctuation is primarily attributed to the net effect of the following:

Claims incurred in the Medicaid business increased by $82.3 million, or 41.3% and its MLR decreased 300 basis points, to 87.3%. The increase in claim cost is due to higher member months. The lower MLR, reflects the premium rates increases and prior period premiums recognized this quarter, partially offset by COVID-19-related testing and treatment costs, the waiver of medical and payment policies and the elimination of the HIP fee pass-through in 2021.

Claims incurred in the Medicare business increased by $30.7 million, or 9.6%, during the 2021 period and its MLR increased 460 basis points, to 87.3%.  The higher MLR reflects improved benefits in the 2021 product offerings, COVID-19-related testing and treatment costs and the waiver of medical and payment policies. In addition, the 2020 MLR was favorably impacted by the lower utilization of services during the last two weeks of the quarter as the result of the government-enforced lockdown because of the COVID-19 pandemic. These increases were partially offset by favorable prior period reserve development in the 2021 period.

Claims incurred in the Commercial business increased by $20.6 million, or 13.1%, during 2021 and its MLR increased 770 basis points, to 86.1%.  The higher MLR mostly reflects higher claim trends, the return of deferred utilization, COVID-19-related testing and treatment costs, the waiver of medical and payment policies and the elimination of the HIP fee pass-through in 2021. In addition, the 2020 MLR was favorably impacted by the lower utilization of services during the last two weeks of the quarter as the result of the government-enforced lockdown because of the COVID-19 pandemic.

Medical Operating Expenses

Managed Care operating expenses decreased by $16.1 million, or 12.8%, to $110.0 million. The decrease in operating expenses mostly results from the elimination in 2021 of the HIP fee of $16.3 million.  The operating expense ratio decreased by 370 basis points to 11.8% in 2021 reflecting the increase in premiums earned, net.

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Life Insurance Segment Operating Results

 
Three months ended
March 31,
 
(dollar in millions)
 
2021
   
2020
 
Operating revenues
           
Premiums earned, net
           
Premiums earned
 
$
55.2
   
$
49.0
 
Ceded premiums earned
   
(2.7
)
   
(2.3
)
Premiums earned, net
   
52.5
     
46.7
 
Net investment income
   
6.4
     
6.9
 
Total operating revenues
   
58.9
     
53.6
 
Operating costs
               
Policy benefits and claims incurred
   
29.4
     
27.4
 
Underwriting and other expenses
   
23.7
     
21.1
 
Total operating costs
   
53.1
     
48.5
 
Operating income
 
$
5.8
   
$
5.1
 
Additional data:
               
Loss ratio
   
56.0
%
   
58.7
%
Operating expense ratio
   
45.1
%
   
45.2
%

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Operating Revenues

Premiums earned, net increased by $5.8 million, or 12.4% to $52.5 million mostly as the result of higher sales across all lines of business, particularly in the Individual Life and Cancer lines of business.  In addition, during the second quarter of 2020, TSV acquired an insurance portfolio that contributed additional premiums in the Cancer and Group Life lines of business.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $2.0 million, or 7.3%, to $29.4 million, mostly as the result of higher actuarial reserves following improved portfolio persistency and growth during the current quarter. The segment’s loss ratio decreased 270 basis point to 56.0%.

Underwriting and Other Expenses

Underwriting and other expenses increased $2.6 million, or 12.3%, to $23.7 million mostly reflecting higher amortization of deferred acquisition costs.  The segment’s operating expense ratio decreased 10 basis points to 45.1%.

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Table of Contents
Property and Casualty Insurance Segment Operating Results

 
Three months ended
March 31,
 
(dollar in millions)
 
2021
   
2020
 
Operating revenues
           
Premiums earned, net
           
Premiums written
 
$
36.6
   
$
33.2
 
Premiums ceded
   
(15.0
)
   
(16.4
)
Change in unearned premiums
   
3.7
     
3.8
 
Premiums earned, net
   
25.3
     
20.6
 
Net investment income
   
2.0
     
2.1
 
Total operating revenues
   
27.3
     
22.7
 
Operating costs
               
Claims incurred
   
9.5
     
10.9
 
Underwriting and other expenses
   
14.0
     
12.0
 
Total operating costs
   
23.5
     
22.9
 
Operating income (loss)
 
$
3.8
   
$
(0.2
)
                 
Additional data:
               
Loss ratio
   
37.5
%
   
52.9
%
Operating expense ratio
   
55.3
%
   
58.3
%

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Operating Revenues

Total premiums written increased by $3.4 million, or 10.2%, to $36.6 million, mostly driven by higher premiums particularly in Commercial Liability and Commercial Property products.

The premiums ceded to reinsurers decreased by $1.4 million, or 8.5%, mostly due to $3.0 million of reinsurance reinstatement premiums following the January 2020 earthquakes experienced in Puerto Rico, offset in part by an increase in cost of catastrophe reinsurance protection.

Claims Incurred

Claims incurred decreased by $1.4 million, or 12.8%, to $9.5 million mostly due to a favorable loss experience in the 2021 period and the recognition in the 2020 quarter of earthquake losses after the January 2020 events.  As a result, the loss ratio decreased by 1,540 basis points, to 37.5% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $2.0 million, or 16.7%, to $14.0 million mostly due to higher net commissions following the segment’s increase in premiums earned.  The operating expense ratio was 55.3%, 300 basis points lower than prior year.

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Liquidity and Capital Resources

Cash Flows

A summary of our major sources and uses of cash for the periods indicated is presented in the following table:

 
Three months ended
March 31,
 
(dollar in millions)
 
2021
   
2020
 
Sources (uses) of cash:
           
Cash provided by operating activities
 
$
68.7
   
$
6.5
 
Net purchases of investment securities
   
(96.6
)
   
(75.9
)
Net capital expenditures
   
(5.2
)
   
(4.6
)
Capital contribution on equity method investees
   
-
     
(4.9
)
Payments of long-term borrowings
   
(1.1
)
   
(0.8
)
Proceeds from policyholder deposits
   
5.1
     
10.3
 
Surrenders of policyholder deposits
   
(2.5
)
   
(4.1
)
Repurchase and retirement of common stock
   
-
     
(9.0
)
Net change in short-term borrowings
   
7.0
     
24.0
 
Other
   
32.4
     
53.3
 
Net increase (decrease) in cash and cash equivalents
 
$
7.8
   
$
(5.2
)

The increase of approximately $62.2 million in net cash provided by operating activities is mostly due to higher premium collections, lower cash paid to suppliers and employees, offset in part by higher claims paid in the Managed Care segment.

The net purchases of investments in securities are part our asset/liability management strategy.

The decrease in capital contribution reflects capital contributions made in the 2020 period in exchange for a participation in equity method investees.

The net change in short-term borrowings represents the repayment of short-term facilities available to address timing differences between cash receipts and disbursements.

The fluctuation in other sources of cash reflects the $32.4 million change in outstanding checks in excess of bank balances.

Stock Repurchase Program

In August 2017 the Company’s Board of Directors authorized a $30.0 million repurchase program of its Class B common stock and in February 2018 the Company’s Board of Directors authorized a $25.0 million expansion of this program.  In October 2019 the Company’s Board of Directors authorized an additional expansion to this program increasing its remaining balance up to a total of $25.0 million, effective November 2019.  Repurchases were conducted through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the three months ended March 31, 2020, the Company repurchased and retired under this program 577,447 shares at an average per share price of $15.57, for an aggregate cost of $9.0 million. The program was completed in 2020.

Financing and Financing Capacity

Long-Term Borrowings

TSM has $35.5 million credit agreement (the Loan) 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 Term Loans B and C mature in January 2024.  Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 100 basis points over LIBOR for Term Loan A, (ii) 275 basis points over LIBOR for Term Loan B, and (iii) 325 basis points over LIBOR for Term Loan C.  The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including negative covenants imposing certain restrictions on the Company’s business.  Failure to meet these covenants may trigger the accelerated payment of the outstanding balance.  The Company was in compliance with these covenants as of March 31, 2021.

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As detailed above, the three term loans under our credit agreement with a commercial bank in Puerto Rico bear interest rates in relation to 1-month and 3-month LIBOR, a widely used interest rate benchmark.

In July 2017, the Financial Conduct Authority (FCA) in the United Kingdom, which regulates LIBOR, announced that it would phase out this benchmark by the end of 2021. In response, the U.S. Federal Reserve convened the Alternative Reference Rates Committee (ARRC), a working group comprised of private market participants, to ensure a transition to a new reference rate.

The ARRC has recommended the use of the Secured Overnight Financing Rate (SOFR), which is an index based on the cost of borrowing overnight cash collateralized by U.S. Treasury securities. Currently, there is no definitive information regarding the future use of SOFR as a widely accepted benchmark or any other replacement rate.

If LIBOR rates are no longer available and we have not agreed with the bank on a replacement rate, we are subject to an alternative benchmark rate, as defined in the credit agreement of our long-term bank loan.  At this time we cannot assess the impact, if any, on the interest paid on this loan. We are in regular contact with the lender about this subject, but at this point the bank has not yet determined a course of action. Alternatively, the loan could be refinanced by us without prepayment penalties.

We will closely follow any new developments regarding the LIBOR phase out.

On June 19, 2020, TSM entered into a $31.4 million Credit Agreement with a commercial bank in Puerto Rico. The proceeds were used by the Company to partially finance the acquisition of a building. The Credit Agreement is guaranteed by a mortgage over the building, a pledge of all collateral related to the building and an assignment of the rents collected for the lease of office space in the building. Approximately 64.25% of the acquired building is currently leased to third parties. The Company expects to move during this year some of its offices currently leased to third parties to the new building and together with the leased space to fully occupy the new facilities. Pursuant to the Credit Agreement, interest is payable on the outstanding principal balance of the Loan at an annual rate equal to the Prime Rate. Monthly interest payments commenced on July 1, 2020, and will continue to be paid each month until the principal of the Loan has been paid in full.

The Company may, at its option and at any time, upon notice as specified in the Credit Agreement, prepay prior to maturity, all or any part of the Loan upon the payment of a penalty fee of the outstanding principal amount at the time of the prepayment of 3% during the first year, 2% during the second year, 1% during the third year and thereafter at par.

The Credit Agreement includes certain customary financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business. The Company was in compliance with these covenants as of March 31, 2021.

For further details, see Note 13, Borrowings, of the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2020.

Short-Term Facilities

We have several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from the Federal Home Loan Bank of New York (FHLBNY), repurchase agreements and a revolving credit facility.  See Note 8 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for details of available short-term facilities.

We anticipate that we will have sufficient liquidity to support our currently expected needs.

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Table of Contents
Item 3.
Quantitative and Qualitative Disclosures about Market Risk

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, 2020.  A discussion of our market risk is incorporated by reference to Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4.
Controls and Procedures

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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, conducted an evaluation of the effectiveness of the “disclosure controls and procedures” (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 President and Chief Executive Officer and Executive Vice President 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 this evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have concluded that as of March 31, 2021, which is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance.

There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer completed the evaluation referred to above.

Changes in Internal Controls Over Financial Reporting

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 March 31, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1.
Legal Proceedings

None of the legal proceedings disclosed in Note 25 of the Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K had a material development during the three months ended March 31, 2021.

Item 1A.          Risk Factors

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, 2020.

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Table of Contents
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.
Defaults Upon Senior Securities

Not applicable.

Item 4.
Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

Not applicable.

Item 6.
Exhibits

Exhibits
Description
3(i)(f)*
Composite Amended and Restated Articles of Incorporation of Triple-S Management Corporation
11
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months ended March 31, 2021 and 2020 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.
31.1*
Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
31.2*
Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
32.1*
Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
32.2*
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.


40



SIGNATURES

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:
May 6, 2021
 
By:
/s/ Roberto García-Rodríguez
 
       
Roberto García-Rodríguez
 
       
President and Chief Executive Officer
 
           
Date:
May 6, 2021
 
By:
/s/ Juan J. Román-Jiménez
 
       
Juan J. Román-Jiménez
 
       
Executive Vice President and Chief Financial Officer
 





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