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, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                         

COMMISSION FILE NUMBER:  001-33865
Triple-S Management Corporation

Puerto Rico
 
66-0555678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1441 F.D. Roosevelt Avenue
   
San Juan, Puerto Rico
 
00920
(Address of principal executive offices)
 
(Zip code)

(787) 749-4949
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically 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, 2019
Common Stock Class A, $1.00 par value
950,968
Common Stock Class B, $1.00 par value
22,156,051
 

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)



Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2019

Table of Contents

3
   
 
Item 1.
Financial Statements
3
     
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
     
 
27
 
27
 
28
 
28
 
29
 
30
 
31
 
33
 
34
 
35
     
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
36
     
 
Item 4.
Controls and Procedures
36
     
37
   
 
Item 1.
Legal Proceedings
37
     
 
Item 1A.
Risk Factors
37
     
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
37
     
 
Item 3.
Defaults Upon Senior Securities
37
     
 
Item 4.
Mine Safety Disclosures
37
     
 
Item 5.
Other Information
37
     
 
Item 6.
Exhibits
37
     
38

Part I – Financial Information

Item 1.
Financial Statements

Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)


   
March 31,
2019
   
December 31,
2018
 
             
Assets
           
Investments and cash:
           
Fixed maturities available for sale, at fair value
 
$
1,211,391
   
$
1,199,402
 
Fixed maturities held to maturity, at amortized cost
   
1,877
     
2,492
 
Equity investments, at fair value
   
285,514
     
279,164
 
Other invested assets, at net asset value
   
82,859
     
74,015
 
Policy loans
   
9,778
     
9,469
 
Cash and cash equivalents
   
95,816
     
117,544
 
Total investments and cash
   
1,687,235
     
1,682,086
 
Premiums and other receivables, net
   
660,209
     
628,444
 
Deferred policy acquisition costs and value of business acquired
   
218,839
     
215,159
 
Property and equipment, net
   
81,514
     
81,923
 
Deferred tax asset
   
63,951
     
79,010
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
59,334
     
48,229
 
Total assets
 
$
2,796,479
   
$
2,760,248
 
Liabilities and Stockholders' Equity
               
Claim liabilities
 
$
877,964
   
$
936,789
 
Liability for future policy benefits
   
367,726
     
361,495
 
Unearned premiums
   
80,711
     
82,990
 
Policyholder deposits
   
174,543
     
174,110
 
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
   
48,863
     
44,926
 
Accounts payable and accrued liabilities
   
309,701
     
275,228
 
Deferred tax liability
   
6,582
     
3,245
 
Long-term borrowings
   
28,086
     
28,883
 
Liability for pension benefits
   
31,145
     
31,274
 
Total liabilities
   
1,925,321
     
1,938,940
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders' equity
               
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at March 31, 2019 and December 31, 2018, respectively
   
951
     
951
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,156,051 and 21,980,492 shares at March 31, 2019 and December 31, 2018, respectively
   
22,156
     
21,980
 
Additional paid-in capital
   
35,415
     
34,021
 
Retained earnings
   
796,756
     
761,970
 
Accumulated other comprehensive income
   
16,559
     
3,062
 
Total Triple-S Management Corporation stockholders' equity
   
871,837
     
821,984
 
Non-controlling interest in consolidated subsidiary
   
(679
)
   
(676
)
Total stockholders' equity
   
871,158
     
821,308
 
Total liabilities and stockholders' equity
 
$
2,796,479
   
$
2,760,248
 

See accompanying notes to unaudited condensed consolidated financial statements.

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


   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Revenues:
           
Premiums earned, net
 
$
768,002
   
$
752,034
 
Administrative service fees
   
2,632
     
3,348
 
Net investment income
   
15,376
     
13,755
 
Other operating revenues
   
1,577
     
1,071
 
Total operating revenues
   
787,587
     
770,208
 
Net realized investment gains
   
1,315
     
2,942
 
Net unrealized investment gains (losses) on equity investments
   
19,669
     
(16,199
)
Other income, net
   
1,169
     
1,163
 
Total revenues
   
809,740
     
758,114
 
Benefits and expenses:
               
Claims incurred
   
623,190
     
618,989
 
Operating expenses
   
132,663
     
133,134
 
Total operating costs
   
755,853
     
752,123
 
Interest expense
   
1,788
     
1,690
 
Total benefits and expenses
   
757,641
     
753,813
 
Income before taxes
   
52,099
     
4,301
 
Income taxes
   
17,316
     
387
 
Net income
   
34,783
     
3,914
 
Less: Net loss attributable to non-controlling interest
   
3
     
-
 
Net income attributable to Triple-S Management Corporation
 
$
34,786
   
$
3,914
 
Earnings per share attributable to Triple-S Management Corporation
               
Basic net income per share
 
$
1.53
   
$
0.17
 
Diluted net income per share
 
$
1.52
   
$
0.17
 

See accompanying notes to unaudited condensed consolidated financial statements.

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


   
Three months ended
March 31,
 
   
2019
   
2018
 
                 
Net income
 
$
34,783
   
$
3,914
 
Other comprehensive income (loss), net of tax:
               
Net unrealized change in fair value of available for sale securities, net of taxes
   
13,441
     
(6,894
)
Defined benefit pension plan:
               
Actuarial loss, net
   
56
     
131
 
Total other comprehensive income (loss), net of tax
   
13,497
     
(6,763
)
Comprehensive income (loss)
   
48,280
     
(2,849
)
Comprehensive loss attributable to non-controlling interest
   
3
     
-
 
Comprehensive income (loss) attributable to Triple-S Management Corporation
 
$
48,283
   
$
(2,849
)

See accompanying notes to unaudited condensed consolidated financial statements.

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


   
Class A
Common
Stock
   
Class B
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Triple-S
Management
Corporation
Stockholders’
Equity
   
Non-controlling
Interest in
Consolidated
Subsidiary
   
Total
Stockholders’
Equity
 
                                                                 
Balance, December 31, 2018
 
$
951
   
$
21,980
   
$
34,021
   
$
761,970
   
$
3,062
   
$
821,984
   
$
(676
)
 
$
821,308
 
Share-based compensation
   
-
     
177
     
1,409
     
-
     
-
     
1,586
     
-
     
1,586
 
Repurchase and retirement of common stock
   
-
     
(1
)
   
(15
)
   
-
     
-
     
(16
)
   
-
     
(16
)
Comprehensive income (loss)
   
-
     
-
     
-
     
34,786
     
13,497
     
48,283
     
(3
)
   
48,280
 
Balance, March 31, 2019
 
$
951
   
$
22,156
   
$
35,415
   
$
796,756
   
$
16,559
   
$
871,837
   
$
(679
)
 
$
871,158
 
                                                                 
Balance, December 31, 2017
 
$
951
   
$
22,627
   
$
53,142
   
$
785,390
   
$
51,254
   
$
913,364
   
$
(682
)
 
$
912,682
 
Share-based compensation
   
-
     
285
     
106
     
-
     
-
     
391
     
-
     
391
 
Repurchase and retirement of common stock
   
-
     
(580
)
   
(14,095
)
   
-
     
-
     
(14,675
)
   
-
     
(14,675
)
Comprehensive income (loss)
   
-
     
-
     
-
     
3,914
     
(6,763
)
   
(2,849
)
   
-
     
(2,849
)
Cumulative effect adjustment due to implementation of ASU 2016-01
   
-
     
-
     
-
     
39,882
     
(39,882
)
   
-
     
-
     
-
 
Balance, March 31, 2018
 
$
951
   
$
22,332
   
$
39,153
   
$
829,186
   
$
4,609
   
$
896,231
   
$
(682
)
 
$
895,549
 

The accompanying notes are an integral part of these financial statements.

Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)

   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Cash flows from operating activities:
           
Net income
 
$
34,783
   
$
3,914
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
3,505
     
3,410
 
Net amortization of investments
   
316
     
1,939
 
Additions to the allowance for doubtful receivables
   
9,236
     
709
 
Deferred tax expense (benefit)
   
14,932
     
(1,503
)
Net realized investment gain on sale of securities
   
(1,315
)
   
(2,942
)
Net unrealized (gain) loss on equity investments
   
(19,669
)
   
16,199
 
Interest credited to policyholder deposits
   
1,386
     
1,094
 
Share-based compensation
   
1,586
     
391
 
Decrease (increase) in assets:
               
Premium and other receivables, net
   
(41,002
)
   
123,360
 
Deferred policy acquisition costs and value of business acquired
   
(4,503
)
   
(161
)
Deferred taxes
   
27
     
431
 
Other assets
   
(2,023
)
   
(40,489
)
(Decrease) increase in liabilities:
               
Claim liabilities
   
(58,825
)
   
(72,115
)
Liability for future policy benefits
   
6,231
     
5,029
 
Unearned premiums
   
(2,279
)
   
87,707
 
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
   
3,937
     
4,369
 
Accounts payable and accrued liabilities
   
(16,223
)
   
(869
)
Net cash (used in) provided by operating activities
   
(69,900
)
   
130,473
 

(Continued)

Triple-S Management Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)


   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available for sale:
           
Fixed maturities sold
 
$
164,997
   
$
443,419
 
Fixed maturities matured/called
   
12,267
     
5,368
 
Securities held to maturity:
               
Fixed maturities matured/called
   
1,154
     
1,048
 
Equity investments sold
   
23,123
     
113,863
 
Other invested assets sold
   
373
     
845
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(166,626
)
   
(575,694
)
Securities held to maturity:
               
Fixed maturities
   
(539
)
   
(1,212
)
Equity investments
   
(9,139
)
   
(49,591
)
Other invested assets
   
(8,546
)
   
(9,683
)
Increase in other investments
   
(535
)
   
(4,136
)
Net change in policy loans
   
(309
)
   
(185
)
Net capital expenditures
   
(2,968
)
   
(4,861
)
Net cash provided by (used in) investing activities
   
13,252
     
(80,819
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
36,682
     
(19,992
)
Repayments of long-term borrowings
   
(808
)
   
(810
)
Repurchase and retirement of common stock
   
(1
)
   
(14,259
)
Proceeds from policyholder deposits
   
3,607
     
6,237
 
Surrenders of policyholder deposits
   
(4,560
)
   
(7,161
)
Net cash provided by (used in) financing activities
   
34,920
     
(35,985
)
Net (decrease) increase in cash and cash equivalents
   
(21,728
)
   
13,669
 
Cash and cash equivalents:
               
Beginning of period
   
117,544
     
198,941
 
End of period
 
$
95,816
   
$
212,610
 

See accompanying notes to unaudited condensed consolidated financial statements.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


(1)
Basis of Presentation

The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited.  In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries.  The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial statement presentation 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 Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

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, 2019 are not necessarily indicative of the results for the full year ending December 31, 2019.

(2)
Significant Accounting Policies

Recently Adopted Accounting Standards

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued guidance to increase transparency and comparability among organizations by requiring the recognition of a lease right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payment on the balance sheet, for both finance and operating leases with lease terms of more than 12 months.  The classification of finance or operating will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.  Lessors are required to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.  In July 2018, the FASB issued the following guidance “Leases – Targeted Improvements” and “Codification Improvement to Leases” to assist in the implementation of leases and address certain technical corrections and improvement to the recently issued lease standard.  Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors and other implementation considerations.  For public companies, the amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company adopted the standard effective January 1, 2019 recognizing approximately $8,800 in ROU assets and lease liabilities for its operating leases in its consolidated balance sheet.  ROU assets are included within the other assets and the lease liabilities are included within the accounts payable and accrued liabilities line items in the accompanying consolidated balance sheet. No cumulative effect adjustment to opening balance of retained earnings on the adoption date was required. Most of the operating leases are related to real estate. The Company adopted the following two accounting policies as a result of the adoption of the standard: (1) to not separate lease components from non-lease components and (2) to not apply the recognition requirements of ASC 842 to short-term leases. In addition, the Company implemented control processes and procedures, as necessary, based on changes resulting from the new standard.

Future Adoptions of Accounting Standards

On March 5, 2019, the FASB issued guidance for Leases (Topic 842): Codification Improvements.  The amendments in this update include issues brought to the FASB’s attention through interactions with stakeholders in order to clarify its intent when applying the guidance. The issues were: (1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (2) presentation on the statement of cash flows of sales type and direct financing leases; and (3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections.  The amendments in this update for Issue 1 affect all lessors that are not manufacturers or dealers.  Issue 2 affects all lessors that are depository and lending entities within the scope of Topic 942, and Issue 3 affect all entities that are lessees or lessors.  For public companies, the amendments for Issue 1 and Issue 2, will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The amendments for Issue 3 are effective to the original transition requirements on Topic 842 and were implemented in January 1, 2019.  The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months ended March 31, 2019 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

(3)
Investment in Securities

The amortized cost for debt securities and cost for alternative investments, gross unrealized gains, gross unrealized losses, and estimated fair value for the Company’s investments in securities by major security type and class of security at March 31, 2019 and December 31, 2018, were as follows:

   
March 31, 2019
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                         
Fixed maturities available for sale
                       
Obligations of government- sponsored enterprises
 
$
41,039
   
$
545
   
$
-
   
$
41,584
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
129,570
     
3,230
     
-
     
132,800
 
Municipal securities
   
719,895
     
27,471
     
(14
)
   
747,352
 
Corporate bonds
   
184,257
     
14,777
     
-
     
199,034
 
Residential mortgage-backed securities
   
78,625
     
1,821
     
(26
)
   
80,420
 
Collateralized mortgage obligations
   
9,882
     
319
     
-
     
10,201
 
Total fixed maturities available for sale
 
$
1,163,268
   
$
48,163
   
$
(40
)
 
$
1,211,391
 

   
March 31, 2019
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                         
Fixed maturities held to maturity
                       
U.S. Treasury securities and obligations of U.S. government instrumentalities
 
$
616
   
$
139
   
$
-
   
$
755
 
Residential mortgage-backed securities
   
190
     
3
     
-
     
193
 
Certificates of deposit
   
1,071
     
-
     
-
     
1,071
 
Total
 
$
1,877
   
$
142
   
$
-
   
$
2,019
 

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)



  
March 31, 2019
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                                 
Other invested assets - Alternative investments
 
$
80,898
   
$
2,024
   
$
(63
)
 
$
82,859
 


 
December 31, 2018
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
                         
Securities available for sale
                       
Fixed maturities
                       
Obligations of government- sponsored enterprises
 
$
21,470
   
$
120
   
$
(1
)
 
$
21,589
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
174,675
     
2,349
     
-
     
177,024
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
8,295
     
-
     
-
     
8,295
 
Municipal securities
   
692,205
     
18,112
     
(538
)
   
709,779
 
Corporate bonds
   
186,085
     
9,724
     
(239
)
   
195,570
 
Residential mortgage-backed securities
   
75,373
     
1,298
     
-
     
76,671
 
Collateralized mortgage obligations
   
10,266
     
208
     
-
     
10,474
 
Total fixed maturities available for sale
 
$
1,168,369
   
$
31,811
   
$
(778
)
 
$
1,199,402
 

   
December 31, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                         
Securities held to maturity:
                       
U.S. Treasury securities and obligations of U.S. government instrumentalities
 
$
617
   
$
125
   
$
-
   
$
742
 
Residential mortgage-backed securities
   
190
     
2
     
-
     
192
 
Certificates of deposit
   
1,685
     
-
     
-
     
1,685
 
Total
 
$
2,492
   
$
127
   
$
-
   
$
2,619
 


 
December 31, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                                 
Other invested assets - Alternative investments
 
$
72,627
   
$
2,042
   
$
(654
)
 
$
74,015
 

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(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, 2019 and December 31, 2018 were as follows:


 
March 31, 2019
 

 
Less than 12 months
   
12 months or longer
   
Total
 
                                                       
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
Fixed maturities available for sale
                                                     
Municipal securities
 
$
1,101
   
$
(3
)
   
2
   
$
4,446
   
$
(11
)
   
3
   
$
5,547
   
$
(14
)
   
5
 
Residential mortgage-backed securities
   
4,256
     
(26
)
   
1
     
-
     
-
     
-
     
4,256
     
(26
)
   
1
 
Total fixed maturities
 
$
5,357
   
$
(29
)
   
3
   
$
4,446
   
$
(11
)
   
3
   
$
9,803
   
$
(40
)
   
6
 
Other invested assets - Alternative investments
 
$
19,963
   
$
(63
)
   
5
   
$
-
   
$
-
     
-
   
$
19,963
   
$
(63
)
   
5
 


 
December 31, 2018
 

 
Less than 12 months
   
12 months or longer
   
Total
 
                                                       
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
Fixed maturities available for sale
                                                     
Obligations of government- sponsored enterprises
 
$
1,469
   
$
(1
)
   
1
   
$
-
   
$
-
     
-
   
$
1,469
   
$
(1
)
   
1
 
Municipal securities
   
62,328
     
(349
)
   
10
     
17,648
     
(189
)
   
3
     
79,976
     
(538
)
   
13
 
Corporate bonds
   
52,539
     
(239
)
   
18
     
-
     
-
     
-
     
52,539
     
(239
)
   
18
 
Total fixed maturities
 
$
116,336
   
$
(589
)
   
29
   
$
17,648
   
$
(189
)
   
3
   
$
133,984
   
$
(778
)
   
32
 
Other invested assets - Alternative investments
 
$
7,399
   
$
(351
)
   
3
   
$
10,447
   
$
(303
)
   
2
   
$
17,846
   
$
(654
)
   
5
 

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

Municipal Securities:   The unrealized losses on the Company’s investments in Municipal Securities were mainly caused by fluctuations in interest rates and general market conditions.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  In addition, these investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

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

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

Alternative investments :   As of March 31, 2019, alternative investments with unrealized losses are not considered other-than-temporary impaired based on market conditions and the length of time the funds have been in a loss position.

Maturities of investment securities classified as available for sale and held to maturity were as follows:


 
March 31, 2019
 
   
Amortized
cost
   
Estimated
fair value
 
             
Fixed maturities available for sale
           
Due in one year or less
 
$
15,162
   
$
15,339
 
Due after one year through five years
   
402,032
     
409,445
 
Due after five years through ten years
   
373,778
     
387,506
 
Due after ten years
   
283,789
     
308,480
 
Residential mortgage-backed securities
   
78,625
     
80,420
 
Collateralized mortgage obligations
   
9,882
     
10,201
 
   
$
1,163,268
   
$
1,211,391
 
Fixed maturities held to maturity
               
Due in one year or less
 
$
1,071
   
$
1,071
 
Due after ten years
   
616
     
755
 
Residential mortgage-backed securities
   
190
     
193
 
   
$
1,877
   
$
2,019
 

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(4)
Realized and Unrealized Gains

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


 
Three months ended
March 31,
 
   
2019
   
2018
 
             
Realized gains (losses)
           
Fixed maturity securities:
           
Securities available for sale:
           
Gross gains
 
$
872
   
$
172
 
Gross losses
   
(318
)
   
(7,930
)
Total debt securities
   
554
     
(7,758
)
Equity investments:
               
Gross gains
   
1,302
     
8,203
 
Gross losses
   
(637
)
   
(499
)
Total equity securities
   
665
     
7,704
 
Other invested assets:
               
Gross gains
   
132
     
3,207
 
Gross losses
   
(36
)
   
(211
)
Total other invested assets
   
96
     
2,996
 
Net realized investment gains
 
$
1,315
   
$
2,942
 


 
Three months ended
March 31,
 
   
2019
   
2018
 
             
Changes in net unrealized gains (losses):
           
Recognized in accumulated other comprehensive income:
           
Fixed maturities – available for sale
 
$
17,090
   
$
(10,222
)
Other invested assets
   
573
     
(25
)
   
$
17,663
   
$
(10,247
)
Not recognized in the consolidated financial statements:
               
Fixed maturities – held to maturity
 
$
15
   
$
(23
)

The change in deferred tax liability on unrealized gains (losses) recognized in accumulated other comprehensive income during the three months ended March 31, 2019 and 2018 was $3,534 and $ 3,679 , respectively.

As of March 31, 2019 and December 31, 2018, no individual investment in securities exceeded 10% of stockholders’ equity.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(5)
Premiums and Other Receivables, Net

Premiums and other receivables, net were as follows:

   
March 31,
2019
   
December 31,
2018
 
                 
Premium
 
$
170,179
   
$
94,613
 
Self-funded group receivables
   
27,494
     
31,184
 
FEHBP
   
15,479
     
14,030
 
Agent balances
   
31,342
     
30,224
 
Accrued interest
   
11,678
     
12,426
 
Reinsurance recoverable
   
363,407
     
399,202
 
Other
   
89,530
     
88,807
 
     
709,109
     
670,486
 
Less allowance for doubtful receivables:
               
Premium
   
37,132
     
32,487
 
Other
   
11,768
     
9,555
 
     
48,900
     
42,042
 
Total premium and other receivables, net
 
$
660,209
   
$
628,444
 

As of March 31, 2019 and December 31, 2018, the Company had premiums and other receivables of $104,617 and $54,329, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of March 31, 2019 and December 31, 2018 were $22,381 and $20,984, respectively.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(6)
Fair Value Measurements

Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, equity investments, policy loans, policyholder deposits, and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value.  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 2018 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, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Fixed maturity securities available for sale                                
Obligations of government-sponsored enterprises
 
$
-
   
$
41,584
   
$
-
   
$
41,584
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
132,800
     
-
     
-
     
132,800
 
Municipal securities
   
-
     
747,352
     
-
     
747,352
 
Corporate bonds
   
-
     
199,034
     
-
     
199,034
 
Residential agency mortgage-backed securities
   
-
     
80,420
     
-
     
80,420
 
Collateralized mortgage obligations
   
-
     
10,201
     
-
     
10,201
 
Total fixed maturities
 
$
132,800
   
$
1,078,591
   
$
-
   
$
1,211,391
 
Equity investments
 
$
149,712
   
$
130,753
   
$
5,049
   
$
285,514
 

   
December 31, 2018
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed maturity securities available for sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
21,589
   
$
-
   
$
21,589
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
177,024
     
-
     
-
     
177,024
 
Obligations of the Commonwealth of Puerto Ricoand its instrumentalities
   
-
     
8,295
     
-
     
8,295
 
Municipal securities
   
-
     
709,779
     
-
     
709,779
 
Corporate bonds
   
-
     
195,570
     
-
     
195,570
 
Residential agency mortgage-backed securities
   
-
     
76,671
     
-
     
76,671
 
Collateralized mortgage obligations
   
-
     
10,474
     
-
     
10,474
 
Total fixed maturities
 
$
177,024
   
$
1,022,378
   
$
-
   
$
1,199,402
 
Equity investments
 
$
147,348
   
$
128,011
   
$
3,805
   
$
279,164
 

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019 and 2018.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(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)
 
   
2019
 
         
Balance as of January 1,
 
$
3,805
 
Realized gains
   
-
 
Unrealized in other accumulated comprehensive income
   
(6
)
Purchases
   
1,250
 
Sales
   
-
 
Capital Distributions
   
-
 
Balance as of March 31,
 
$
5,049
 

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.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets at March 31, 2019 and December 31, 2018 are as follows:

       
March 31, 2019
 
Carrying
Value
     
Fair Value
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                               
Assets:
                             
Policy loans
 
$
9,778
   
$
-
   
$
9,778
   
$
-
   
$
9,778
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
174,543
   
$
-
   
$
174,543
   
$
-
   
$
174,543
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
28,306
     
-
     
28,306
     
-
     
28,306
 
Total liabilities
 
$
202,849
   
$
-
   
$
202,849
   
$
-
   
$
202,849
 

       
December 31, 2018
 
Carrying
Value
     
Fair Value
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                               
Assets:
                             
Policy loans
 
$
9,469
   
$
-
   
$
9,469
   
$
-
   
$
9,469
 
                                         
Liabilities:
                                       
Policyholder deposits
 
$
174,110
   
$
-
   
$
174,110
   
$
-
   
$
174,110
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
29,114
     
-
     
29,114
     
-
     
29,114
 
Total liabilities
 
$
203,224
   
$
-
   
$
203,224
   
$
-
   
$
203,224
 

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(7)
Claim Liabilities
 
A reconciliation of the beginning and ending balances of claim liabilities is as follows:
 
   
Three months ended
March 31, 2019
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                   
                   
Claim liabilities at beginning of period
 
$
394,226
   
$
542,563
   
$
936,789
 
Reinsurance recoverable on claim liabilities
           
(315,543
)
   
(315,543
)
Net claim liabilities at beginning of period
   
394,226
     
227,020
     
621,246
 
Claims incurred
                       
Current period insured events
   
626,670
     
28,137
     
654,807
 
Prior period insured events
   
(36,789
)
   
(3,525
)
   
(40,314
)
Total
   
589,881
     
24,612
     
614,493
 
Payments of losses and loss-adjustment expenses
                       
Current period insured events
   
359,788
     
7,190
     
366,978
 
Prior period insured events
   
227,036
     
17,396
     
244,432
 
Total
   
586,824
     
24,586
     
611,410
 
Net claim liabilities at end of period
   
397,283
     
227,046
     
624,329
 
Reinsurance recoverable on claim liabilities
   
-
     
253,635
     
253,635
 
Claim liabilities at end of period
 
$
397,283
   
$
480,681
   
$
877,964
 

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

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

   
Three months ended
March 31, 2018
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                         
Claim liabilities at beginning of period
 
$
367,357
   
$
739,519
   
$
1,106,876
 
Reinsurance recoverable on claim liabilities
   
-
     
(633,099
)
   
(633,099
)
Net claim liabilities at beginning of period
   
367,357
     
106,420
     
473,777
 
Claims incurred
                       
Current period insured events
   
603,947
     
30,907
     
634,854
 
Prior period insured events
   
(20,226
)
   
(1,818
)
   
(22,044
)
Total
   
583,721
     
29,089
     
612,810
 
Payments of losses and loss-adjustment  expenses
                       
Current period insured events
   
322,388
     
7,021
     
329,409
 
Prior period insured events
   
226,246
     
22,746
     
248,992
 
Total
   
548,634
     
29,767
     
578,401
 
Net claim liabilities at end of period
   
402,444
     
105,742
     
508,186
 
Reinsurance recoverable on claim liabilities
   
-
     
526,575
     
526,575
 
Claim liabilities at end of period
 
$
402,444
   
$
632,317
   
$
1,034,761
 

  *
Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.
 
As a result of differences between actual amounts and estimates of insured events in prior years, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.
 
The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months ended March 31, 2019 and 2018 are due primarily to better than expected utilization trends.  Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying consolidated financial statements.
 
The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to $8,697 and $6,179 during the three months ended March 31, 2019 and 2018, respectively.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

The following is information about total incurred but not reported (IBNR) liabilities plus expected development on reported claims included in the liability for unpaid claims adjustment expenses for the Managed Care segment as of March 31, 2019.
 
Incurred Year
   
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
           
2018
   
$
62,319
 
2019
     
266,882
 
 
(8)
Pension Plan
 
The components of net periodic benefit cost were as follows:
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Components of net periodic benefit cost:
           
Interest cost
 
$
1,741
   
$
1,693
 
Expected return on assets
   
(2,217
)
   
(2,281
)
Amortization of actuarial loss
   
89
     
215
 
Settlement loss
   
375
     
325
 
Net periodic benefit cost
 
$
(12
)
 
$
(48
)
 
Employer Contributions:   The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2018 that it expected to contribute $2,000 to the pension program in 2019.  As of March 31, 2019, the Company has not made contributions to the pension program.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(9)
Comprehensive Income
 
The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
 
   
Three months ended
 
   
March 31,
 
   
2019
   
2018
 
                 
Net Unrealized Gain on Securities Beginning Balance
 
$
27,308
   
$
76,238
 
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
   
-
     
(39,882
)
Other comprehensive income before reclassifications
   
14,493
     
(4,540
)
Amounts reclassified from accumulated other comprehensive income
   
(1,052
)    
(2,354
)
Net current period change
   
13,441
     
(6,894
)
Ending Balance
   
40,749
     
29,462
 
Liability for Pension Benefits Beginning Balance
   
(24,246
)
   
(24,984
)
Amounts reclassified from accumulated other comprehensive income
   
56
     
131
 
Ending Balance
   
(24,190
)
   
(24,853
)
Accumulated Other Comprehensive Income Beginning Balance
   
3,062
     
51,254
 
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
   
-
     
(39,882
)
Other comprehensive income before reclassifications
   
14,493
     
(4,540
)
Amounts reclassified from accumulated other comprehensive income
   
(996
)
   
(2,223
)
Net current period change
   
13,497
     
(6,763
)
Ending Balance
 
$
16,559
   
$
4,609
 
 
(10)
Share-Based Compensation
 
Share-based compensation expense recorded during the three months ended March 31, 2019 and 2018 was $1,586 and $391, respectively.  During the three months ended March 31, 2019 and 2018 602 and 16,271 shares, respectively, were repurchased and retired as a result of non-cash tax withholdings upon vesting of shares.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(11)
Net Income Available to Stockholders and Net Income per Share
 
The following table sets forth the computation of basic and diluted earnings per share:
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Numerator for earnings per share:
           
Net income attributable to TSM available to stockholders
 
$
34,786
   
$
3,914
 
Denominator for basic earnings per share:
               
Weighted average of common shares
   
22,757,794
     
23,277,633
 
Effect of dilutive securities
   
82,480
     
117,364
 
Denominator for diluted earnings per share
   
22,840,274
     
23,394,997
 
Basic net income per share attributable to TSM
 
$
1.53
   
$
0.17
 
Diluted net income per share attributable to TSM
 
$
1.52
   
$
0.17
 
 
(12)
Contingencies
 
The following information supplements and amends, as applicable, the disclosures in note 24 to the Consolidated Financial Statements of the Company’s 2018 Annual Report on Form 10-K.  The Company’s business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, U.S. Virgin Islands (USVI), Costa Rica, British Virgin Islands (BVI), and Anguilla governmental authorities. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. The Commissioner of Insurance of Puerto Rico, as well as other Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla government authorities, regularly make inquiries and conduct audits concerning the Company's compliance with such laws and regulations. Penalties associated with violations of these laws and regulations may include significant fines and exclusion from participating in certain publicly funded programs and may require the Company to comply with corrective action plans or changes in our practices.
 
The Company is involved in various legal actions arising in the ordinary course of business. We are also defendants in various other litigations and proceedings, some of which are described below.  Where the Company believes that a loss is both probable and estimable, such amounts have been recorded.  Although we believe our estimates of such losses are reasonable, these estimates could change as a result of further developments in these matters. In other cases, it is at least reasonably possible that the Company may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Company is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.  The outcome of legal proceedings is inherently uncertain and pending matters for which accruals have not been established have not progressed sufficiently to enable us to estimate a range of possible loss, if any.  Given the inherent unpredictability of these matters, it is possible that an adverse outcome in one or more of these matters could have a material adverse effect on the consolidated financial condition, operating results and/or cash flows of the Company.
 
Additionally, the Company may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have rights to acquire shares of the Company on favorable terms pursuant to agreements previously entered by our predecessor managed care subsidiary, Seguros de Servicios de Salud de Puerto Rico, Inc. (SSS), with physicians or dentists who joined our provider network to sell such new provider shares of SSS at a future date (Share Acquisition Agreements) or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

Claims by Heirs of Former Shareholders
 
The Company and TSS are defending six individual lawsuits: Vera Sanchez, et al, v. Triple-S; Olivella Zalduondo, et al, v. Seguros de Servicios de Salud, et al; Montilla Lopez, et al v. Seguros de Servicio de Salud, et al; Cebollero Santamaria v. Triple-S Salud, Inc., et al; Ruiz de Porras, et al, v. Triple-S Salud, Inc.; and Irizarry Antonmattei, et al, v. Seguros de Servicio de Salud, et al.  All claims were filed in the Puerto Rico Court of First Instance by persons who claim to have inherited a total of 83 shares of the Company of one of its predecessors or affiliates (before giving effect to the 3,000-for-one stock Split).  While each case presents unique facts and allegations, the lawsuits generally allege that the redemption of the shares by the Company pursuant to transfer and ownership restrictions contained in the Company’s (or its predecessors’ or affiliates’) articles of incorporation and bylaws was improper.  Consequently, the remedy requested by the plaintiffs to be recognized as shareholders of the Company in the corresponding proportion.
 
As a result of the Puerto Rico Supreme Court’s decision to deny the applicability of the statute of limitations contained in the local securities law, these claims are being litigated on their merits.
 
On January 11, 2019, local Court of Appeals confirmed Court of First Instance’s partial summary judgement in Wanda Irizarry Antonmattei, et al., v. Seguros de Servicios de Salud de Puerto Rico, Inc., et al. ordering the Company to issue 63,000 stock shares in favor of Plaintiffs. On April 23, 2019, the Supreme Court denied the Company’s petition for certiorari. The Company will continue to vigorously defend its position on remaining controversies in the Court of First Instance.
 
In Montilla López, et al. v. Seguros de Servicios de Salud, et al. local Court of First Instance entered summary judgment in favor of Company dismissing all claims on November 2, 2018. Plaintiffs filed an Appeal before Puerto Rico Court of Appeals which has been denied. Plaintiffs have until May 13, 2019 to appeal to the Supreme Court.
 
(13)
Segment Information
 
The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance.  The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment.  Operating revenues include premiums earned, net, administrative service fees, net investment income, and revenues derived from other segments.  Operating costs include claims incurred and operating expenses.  The Corporation calculates operating income or loss as operating revenues less operating costs.
 
Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

The following tables summarize the operations by reportable segment for the three months ended March 31, 2019 and 2018:
 
   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Operating revenues:
           
Managed Care:
           
Premiums earned, net
 
$
705,050
   
$
686,602
 
Administrative service fees
   
2,632
     
3,348
 
Intersegment premiums/service fees
   
1,484
     
1,348
 
Net investment income
   
5,878
     
4,857
 
Total managed care
   
715,044
     
696,155
 
Life Insurance:
               
Premiums earned, net
   
43,722
     
41,089
 
Intersegment premiums
   
478
     
381
 
Net investment income
   
6,560
     
6,058
 
Total life insurance
   
50,760
     
47,528
 
Property and Casualty Insurance:
               
Premiums earned, net
   
19,230
     
24,063
 
Intersegment premiums
   
153
     
153
 
Net investment income
   
2,487
     
2,442
 
Total property and casualty insurance
   
21,870
     
26,658
 
Other segments: *
               
Intersegment service revenues
   
-
     
239
 
Operating revenues from external sources
   
1,577
     
1,071
 
Total other segments
   
1,577
     
1,310
 
Total business segments
   
789,251
     
771,651
 
TSM operating revenues from external sources
   
451
     
398
 
Elimination of intersegment premiums/service fees
   
(2,115
)
   
(1,602
)
Elimination of intersegment service revenues
   
-
     
(239
)
Consolidated operating revenues
 
$
787,587
   
$
770,208
 

*
Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Operating income (loss):
           
Managed care
 
$
22,110
   
$
10,618
 
Life insurance
   
5,640
     
3,625
 
Property and casualty insurance
   
3,554
     
3,079
 
Other segments *
   
(392
)
   
175
 
Total business segments
   
30,912
     
17,497
 
TSM operating revenues from external sources
   
451
     
398
 
TSM unallocated operating expenses
   
(2,032
)
   
(2,210
)
Elimination of TSM intersegment charges
   
2,403
     
2,400
 
Consolidated operating income
   
31,734
     
18,085
 
Consolidated net realized investment gains
   
1,315
     
2,942
 
Consolidated net unrealized investment gains (losses) on equity investments
   
19,669
     
(16,199
)
Consolidated interest expense
   
(1,788
)
   
(1,690
)
Consolidated other income, net
   
1,169
     
1,163
 
Consolidated income before taxes
 
$
52,099
   
$
4,301
 
                 
Depreciation and amortization expense:
               
Managed care
 
$
2,757
   
$
2,641
 
Life insurance
   
272
     
300
 
Property and casualty insurance
   
94
     
104
 
Other segments*
   
185
     
168
 
Total business segments
   
3,308
     
3,213
 
TSM depreciation expense
   
197
     
197
 
Consolidated depreciation and amortization expense
 
$
3,505
   
$
3,410
 

*
Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization.

Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

   
March 31,
2019
   
December 31,
2018
 
             
Assets:
           
Managed care
 
$
1,168,416
   
$
1,078,262
 
Life insurance
   
902,679
     
863,470
 
Property and casualty insurance
   
687,493
     
747,583
 
Other segments *
   
21,418
     
20,705
 
Total business segments
   
2,780,006
     
2,710,020
 
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
   
46,562
     
57,818
 
Property and equipment, net
   
22,158
     
21,733
 
Other assets
   
25,104
     
22,521
 
     
93,824
     
102,072
 
Elimination entries-intersegment receivables and others
   
(77,351
)
   
(51,844
)
Consolidated total assets
 
$
2,796,479
   
$
2,760,248
 

  *
Includes segments that are not required to be reported separately, primarily the the health clinics and the data processing services organization.

(14)
Subsequent Events
 
The Company evaluated subsequent events through the date the financial statements were issued.  No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standards Codification.
 
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”, “us” and “our” refers to Triple-S Management Corporation and its subsidiaries.  The MD&A included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months ended March 31, 2019.  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, 2018 and the MD&A included therein, and our condensed consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2019 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 not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise.  Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.
 
Overview
 
We are one of the most significant players in the managed care industry in Puerto Rico and have 60 years of experience in this industry.  We offer a broad portfolio of managed care and related products in the Commercial, Medicaid and Medicare Advantage markets.  In the Commercial market, we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement.  We also participate in the Government of Puerto Rico Health Insurance Plan (a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.) (Medicaid), by administering the provision of health benefits.  See details of the Medicaid contract in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018 under the sub-caption “ We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.
 
We have the exclusive right to use the Blue Cross Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands (USVI), Costa Rica, the British Virgin Islands (BVI) and Anguilla.  As of March 31, 2019, we served approximately 921 ,000 managed care members across all regions of Puerto Rico.  For the three months ended March 31, 2019 and 2018, our Managed Care segment represented approximately 92% of our total consolidated premiums earned.  We also have significant positions in the life insurance and property and casualty insurance markets.
 
We participate in the managed care market through our subsidiaries, Triple-S Salud, Inc. (TSS); Triple-S Advantage, Inc. (TSA), and Triple-S Blue, Inc. I.I. (TSB).  TSS, TSA and TSB are Blue Cross Blue Shield Association (BCBSA) licensees, which provides us with exclusive use of the Blue Cross and Blue Shield name and mark throughout Puerto Rico, the USVI, Costa Rica, the BVI, and Anguilla.
 
We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc., and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (TSP).
 
Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results.  Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations.  These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment but are eliminated in consolidation and do not change net income.  See note 13 of the condensed consolidated financial statements included in Quarterly Report on Form 10-Q.
 
Our revenues primarily consist of premiums earned, net and administrative service fees.  These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals, and government-sponsored programs, principally Medicare and Medicaid.  Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others.  Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, investment income, and revenues derived from other non-reportable segments.  Substantially all of our earnings are generated in Puerto Rico.
 
Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and policyholders.  Each segment’s results of operations depend to a significant extent on their ability to accurately predict and effectively manage claims.  A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period.  Operating expenses consist primarily of compensation, commission payments to brokers and other overhead business expenses.
 
We use operating income as a measure of performance of the underwriting and investment functions of our segments.  We also use the loss ratio and the operating expense ratio as measures of performance.  The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100.  The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.
 
Recent Developments
 
Puerto Rico Economy

In August 2016, President Obama appointed the seven voting members of the Oversight Board through the process established in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which authorized the President to select the members from several lists required to be submitted by congressional leaders. On February 15, 2019, the First Circuit of the U.S. Court of Appeals (the First Circuit) declared such appointments unconstitutional upon concluding the they did not comply with the Appointments Clause of the U.S. Constitution, which requires that principal federal officers be appointed by the President, with the advice and consent of the U.S. Senate. The Oversight Board is seeking review of the First Circuit’s decision by the U.S. Supreme Court. The First Circuit’s decision provided that its mandate would not issue for 90 days, so as to allow the President and the U.S. Senate to validate the defective appointments or reconstitute the Oversight Board in accordance with the Appointments Clause. The First Circuit extended such period for an additional 60 days, until July 15, 2019. On April 29, 2019, President Donald Trump nominated the current Oversight Board members to serve their terms through the end of August. Such appointments are pending confirmation by the U.S. Senate.

The Government and the Oversight Board are in the process of developing a further revised fiscal plan. The Government has submitted several versions of such further revised fiscal plan to the Oversight Board, which the Oversight Board has indicated are not compliant with the requirements of PROMESA. The Oversight Board notified the Government that it expects to certify a new fiscal plan for the Commonwealth by May 9, 2019.
 
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 impacted and may continue to adversely impact us, particularly following Hurricanes Irma and Maria.” included in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
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, 2019 with a term of twelve-months ending on March 31, 2020.  The new reinsurance program considers a change in cessions in the Commercial Property quota share agreement from 35% to 25% and provides the segment with a catastrophe loss protection of $815 million in excess of $5 million, while cost increased by approximately $1.4 million when compared to the expiring program.
 
Recent Accounting Standards
 
For a description of recent accounting standards, see note 2 to the condensed consolidated financial statements included in this quarterly report on Form 10-Q.
 
Managed Care Membership
 
   
As of March 31,
 
   
2019
   
2018
 
             
Managed care enrollment:
           
Commercial 1
   
437,200
     
467,896
 
Medicare
   
128,090
     
112,080
 
Medicaid
   
355,694
     
394,454
 
Total
   
920,984
     
974,430
 
Managed care enrollment by funding arrangement:
               
Fully-insured
   
802,307
     
825,742
 
Self-insured
   
118,677
     
148,688
 
Total
   
920,984
     
974,430
 

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

Consolidated Operating Results
 
The following table sets forth the Corporation’s consolidated operating results.  Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.
 
   
Three months ended
March 31,
 
(dollar amounts in millions)
 
2019
   
2018
 
             
Revenues:
           
Premiums earned, net
 
$
768.0
   
$
752.0
 
Administrative service fees
   
2.6
     
3.3
 
Net investment income
   
15.4
     
13.8
 
Other operating revenues
   
1.6
     
1.1
 
Total operating revenues
   
787.6
     
770.2
 
Net realized investment gains
   
1.3
     
2.9
 
Net unrealized investment gains (losses) on equity investments
   
19.7
     
(16.2
)
Other income, net
   
1.2
     
1.2
 
Total revenues
   
809.8
     
758.1
 
Benefits and expenses:
               
Claims incurred
   
623.2
     
619.0
 
Operating expenses
   
132.7
     
133.1
 
Total operating expenses
   
755.9
     
752.1
 
Interest expense
   
1.8
     
1.7
 
Total benefits and expenses
   
757.7
     
753.8
 
Income before taxes
   
52.1
     
4.3
 
Income tax expense
   
17.3
     
0.4
 
Net income attributable to TSM
 
$
34.8
   
$
3.9
 
 
Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 
Operating Revenues
 
Consolidated premiums earned, net increased by $16.0 million, or 2.1%, to $768.0 million.  This increase primarily reflects higher premiums in the Managed Care segment by $18.6 million due to higher Medicare membership and average premiums rates.  The increase was partially offset by lower Medicaid membership.
 
Net unrealized investment losses on equity investments
 
The $19.7 million in consolidated net unrealized investment gains on equity investments reflects the impact of changes in equity markets.
 
Claims Incurred
 
Consolidated claims incurred increased by $4.2 million, or 0.7%, to $623.2 million mostly due to higher claims in the Managed Care segment.  The increase in Managed Care claims primarily reflects higher enrollment in the segment’s Medicare business, offset in part by favorable prior period reserve developments.  The consolidated loss ratio decreased by 120 basis points to 81.1%.  Adjusting for the effect of the Managed Care prior period reserve developments in 2019 and 2018 and moving the Medicare risk score revenue adjustments to their corresponding period, the consolidated loss ratio would have been approximately 82.0% this quarter, about 70 basis points higher than last year, mostly driven by the impact of the 2019 suspension of the Health Insurance Providers Fee (HIP fee) pass-through which accounted for approximately 50 basis points of the increase.
 
Operating Expenses
 
Consolidated operating expenses decreased by $0.4 million, or 0.3%, to $132.7 million.  The decrease in operating expenses mostly results from the suspension in 2019 of HIP fee of $11.7 million offset in part by higher personnel costs and professional services as well as to an increase in the provision for doubtful accounts.  For the three months ended March 31, 2019, the consolidated operating expense ratio decreased 40 basis points to 17.2%.
 
Income Taxes
 
Consolidated income taxes increased by $16.9 million, to $17.3 million for the three months ended March 31, 2019.  The year over year change in income taxes primarily reflects the increase in income before taxes in the Managed Care segment, which has a higher effective tax rate than our other segments.
 
Managed Care Operating Results
 
   
Three months ended
March 31,
 
(dollar amounts in millions)
 
2019
   
2018
 
             
Operating revenues:
           
Medical premiums earned, net:
           
Medicare
 
$
332.7
   
$
287.9
 
Commercial
   
198.5
     
198.7
 
Medicaid
   
174.3
     
200.3
 
Medical premiums earned, net
   
705.5
     
686.9
 
Administrative service fees
   
3.7
     
4.4
 
Net investment income
   
5.8
     
4.8
 
Total operating revenues
   
715.0
     
696.1
 
Medical operating costs:
               
Medical claims incurred
   
589.9
     
583.7
 
Medical operating expenses
   
103.0
     
101.8
 
Total medical operating costs
   
692.9
     
685.5
 
Medical operating income
 
$
22.1
   
$
10.6
 
Additional data:
               
Member months enrollment:
               
Medicare
   
383,608
     
338,340
 
Commercial:
               
Fully-insured
   
953,052
     
961,290
 
Self-funded
   
362,490
     
449,778
 
Total Commercial
   
1,315,542
     
1,411,068
 
Medicaid
   
1,029,736
     
1,171,345
 
Total member months
   
2,728,886
     
2,920,753
 
Medical loss ratio
   
83.6
%
   
85.0
%
Operating expense ratio
   
14.5
%
   
14.7
%

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 
Medical Operating Revenues
 
Medical premiums earned increased by $18.6 million, or 2.7%, to $705.5 million.  This increase is principally the result of the following:
 
Medical premiums generated by the Medicare business increased by $44.8 million, or 15.6%, to $332.7 million , primarily reflecting higher membership by approximately 45,000 member months as well as higher average premium rates.
 
Medical premiums generated by the Commercial business decreased by $0.2 million, or 0.1%, to $198.5 million.  This fluctuation primarily reflects lower enrollment during the quarter by approximately 8,000 member months and $3.0 million related to the suspension of the HIP fee pass-through in 2019, offset by higher average premium rates.
 
Medical premiums generated by the Medicaid business amounted to $174.3 million, $26.0 million, or 13.0% lower when compared to the prior period.  This decrease primarily reflects lower enrollment by approximately 142,000 member months, the $3.8 million collection in 2018 of premiums related to our achievement of the contract’s quality incentive metrics, the impact of the profit sharing accrual related to the previous contract, which lowered 2019 premiums by $3.7 million, and $3.7 million related to the suspension of the HIP fee pass-through in 2019.  The decrease in membership follows the lower membership assigned to us by ASES when implementing the new Medicaid contract effective November 1, 2018.  These decreases are partially offset by higher average premiums rates in 2019.
 
Medical Claims Incurred
 
Medical claims incurred during the three months ended March 31, 2019 increased by $6.2 million, or 1.1%, to $589.9 million when compared to the three months ended March 31, 2018.  The medical loss ratio (MLR) of the segment decreased 140 basis points during the 2019 period, to 83.6%.  This fluctuation is primarily attributed to the net effect of the following:
 
The medical claims incurred of the Medicare business increased by $24.6 million, or 10.1%, during the 2019 period mostly driven by higher enrollment.  The MLR, at 80.6% was 400 basis points lower than the same period last year.  Adjusting for the effect of prior period reserve developments in 2019 and 2018 and moving the risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 82.0% this quarter, about 10 basis points lower than last year.
 
The medical claims incurred of the Commercial business increased by $2.9 million, or 1.8%, during 2019 and its MLR increased 160 basis point, to 82.9%.  Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 83.6%, 90 basis points higher than the adjusted MLR for last year due to the 2019 suspension of the HIP fee pass-through and increase in utilization following a change in utilization patterns due to an early Easter holiday in 2018.   The elimination of the HIP fee pass-through has an MLR impact of 130 basis points, which lowers the change in the adjusted MLR to a year-over-year decrease of 40 basis points.
 
The medical claims incurred in the Medicaid business decreased by $21.3 million, or 11.9%, reflecting the lower member months enrollment during the 2019 period.  The MLR, at 90.3%, was 110 basis point higher than the same period last year.  Adjusting for the effect of prior period reserve developments, the Medicaid MLR would have been approximately 90.4% this quarter, 290 basis points higher than the adjusted MLR for last year reflecting the higher required target MLR of the current Medicaid contract and the impact of the elimination in 2019 of the HIP fee.   The current Medicaid contract requires a minimum MLR of 92%, including allocation of healthcare quality improvement expenses.  The suspension of the HIP fee pass-through accounts for 60 basis points of the increase.
 
Medical Operating Expenses
 
Medical operating expenses increased by $1.2 million, or 1.2%, to $103.0 million.  The operating expense ratio decreased by 20 basis points to 14.5% in 2019.  The higher operating expenses mostly result from higher personnel costs and commission expense, as well as to an increase in the provision for doubtful accounts.  These increases were partially offset by an $11.7 million decrease in the HIP Fee due to the moratorium of the fee in 2019.
 
Life Insurance Operating Results
 
   
Three months ended
March 31,
 
(dollar amounts in millions)
 
2019
   
2018
 
             
Operating revenues:
           
Premiums earned, net:
           
Premiums earned
 
$
45.6
   
$
43.0
 
Assumed earned premiums
   
0.7
     
0.8
 
Ceded premiums earned
   
(2.1
)
   
(2.3
)
Premiums earned, net
   
44.2
     
41.5
 
Net investment income
   
6.6
     
6.0
 
Total operating revenues
   
50.8
     
47.5
 
Operating costs:
               
Policy benefits and claims incurred
   
26.0
     
25.0
 
Underwriting and other expenses
   
19.2
     
18.9
 
Total operating costs
   
45.2
     
43.9
 
Operating income
 
$
5.6
   
$
3.6
 
Additional data:
               
Loss ratio
   
58.8
%
   
60.2
%
Operating expense ratio
   
43.4
%
   
45.5
%

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 
Operating Revenues
 
Premiums earned, net increased by $2.7 million, or 6.5% to $44.2 million as the result of higher sales in the Individual Life and Cancer lines of business.
 
Policy Benefits and Claims Incurred
 
Policy benefits and claims incurred increased by $1.0 million, or 4.0%, to $26.0 million, mostly as the result of higher actuarial reserves following improved portfolio persistency during the period.
 
Underwriting and Other Expenses
 
Underwriting and other expenses increased $0.3 million, or 1.6%, to $19.2 million mostly reflecting the segment’s higher volume of business.  The segment’s operating expense ratio improved 210 basis points to 43.4%.

Property and Casualty Insurance Operating Results
 
   
Three months ended
March 31,
 
(dollar amounts in millions)
 
2019
   
2018
 
             
Operating revenues:
           
Premiums earned, net:
           
Premiums written
 
$
31.0
   
$
33.6
 
Premiums ceded
   
(13.4
)
   
(14.7
)
Change in unearned premiums
   
1.8
     
5.3
 
Premiums earned, net
   
19.4
     
24.2
 
Net investment income
   
2.5
     
2.4
 
Total operating revenues
   
21.9
     
26.6
 
Operating costs:
               
Claims incurred
   
8.6
     
11.1
 
Underwriting and other expenses
   
9.7
     
12.4
 
Total operating costs
   
18.3
     
23.5
 
Operating income
 
$
3.6
   
$
3.1
 
Additional data:
               
Loss ratio
   
44.3
%
   
45.9
%
Operating expense ratio
   
50.0
%
   
51.2
%
 
Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
 
Operating Revenues
 
Total premiums written decreased by $2.6 million, or 7.7%, to $31.0 million, mostly driven by lower sales of Commercial Property products, mainly as a result of selective and disciplined underwriting of Commercial risks.  The decrease in sales are partially offset by increases in premium rates for commercial accounts.
 
The premiums ceded to reinsurers decreased by $1.3 million, or 8.8%, mostly due to a decrease in facultative reinsurance reflecting the lower premiums written in commercial accounts during 2019, partly offset by higher catastrophe non-proportional reinsurance costs.
 
The $3.5 million decrease in the change in unearned premiums reflects the segment’s lower premiums written in 2019.
 
Claims Incurred
 
Claims incurred decreased by $2.5 million, or 22.5%, to $8.6 million mostly due to an unfavorable reserve development in the 2018 period and to the segment’s lower premiums volume.  The loss ratio decreased by 160 basis points, to 44.3% during this period, primarily as the result of favorable loss experience in the Allied line of business.
 
Underwriting and Other Expenses
 
Underwriting and other operating expenses decreased by $2.7 million, or 21.8%, to $9.7 million mostly due to a lower net commission expense following the decrease in premiums earned .  The operating expense ratio was 50.0%, 120 basis points lower than prior year.
 
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 amounts in millions)
 
2019
   
2018
 
             
Sources (uses) of cash:
           
Cash (used in) provided by operating activities
 
$
(69.9
)
 
$
130.5
 
Net proceeds (purchases) of investment securities
   
16.5
     
(75.9
)
Net capital expenditures
   
(3.0
)
   
(4.9
)
Payments of long-term borrowings
   
(0.8
)
   
(0.8
)
Proceeds from policyholder deposits
   
3.6
     
6.2
 
Surrenders of policyholder deposits
   
(4.6
)
   
(7.2
)
Repurchase and retirement of common stock
   
-
     
(14.3
)
Other
   
36.5
     
(20.0
)
Net (decrease) increase in cash and cash equivalents
 
$
(21.7
)
 
$
13.6
 
 
Decrease in net cash provided by operating activities by approximately $200.4 million mostly reflects the collection in advance of April CMS premiums in the 2018 period, lower premium collections in the Managed Care segment, and Property and Casualty hurricane related claim payments, offset in part by lower payments to suppliers and employees.
 
Net proceeds from investments in securities are part our asset/liability management strategy.
 
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. 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, 2018, the Company repurchased and retired under this program 563,559 of our Class B Common Stock shares at an average per share price of $25.10, for an aggregate cost of $14.3 million.  No share repurchases were made during the three months ended March 31, 2019.
 
The fluctuation in the Other sources (uses) of cash is attributed to changes in the amount of outstanding checks over bank balances.
 
  Financing and Financing Capacity
 
We have several short-term facilities available to address timing differences between cash receipts and disbursements.  These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements.  As of March 31, 2019, we had $60.0 million of available credit under these facilities.  There are no outstanding short-term borrowings under these facilities as of March 31, 2019.
 
On December 28, 2016, TSM entered into a $35.5 million credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11.2 million, (ii) Term Loan B in the principal amount of $20.2 million and (iii) Term Loan C in the principal amount of $4.1 million. Term Loan A matures in October 2023 while the Term Loans B and C mature in January 2024.  Term Loan A was used to refinance a previous $41.0 million secured loan payable with the same commercial bank.  Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 1% over LIBOR for Term Loan A, (ii) 2.75% over LIBOR for Term Loan B, and (iii) 3.25% over LIBOR for Term Loan C.  The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control and dividends.  Failure to meet these covenants may trigger the accelerated payment of the outstanding balance.  As of March 31, 2019, we are in compliance with these covenants.
 
TSA has a $10.0 million revolving loan agreement with a commercial bank in Puerto Rico.  This line of credit has an interest rate of 30-day LIBOR plus 25 basis points contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit matured on April 30, 2019 and was renewed for an additional year .
 
We anticipate that we will have sufficient liquidity to support our currently expected needs.
 
Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
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, 2018.  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, 2018.
 
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 chief executive officer 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 chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Based on this evaluation, our chief executive officer and chief financial officer have concluded that as of March 31, 2019, 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 chief executive officer 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, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Part II – Other Information
 
Item 1.
Legal Proceedings
 
For a description of legal proceedings that have experienced significant developments during this quarter, see note 12 to the condensed consolidated financial statements included in this quarterly report on Form 10-Q.
 
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, 2018 .
 
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
   
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months ended March 31, 2019 and 2018 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
   
Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
   
Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
   
Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
   
Certification of the Executive Vice President and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.
 
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.
 
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 9, 2019
 
By:
/s/ Roberto García-Rodríguez
 
 

   
Roberto García-Rodríguez
 
 

   
President and Chief Executive Officer
 
           
Date:
May 9, 2019
 
By:
/s/ Juan J. Román-Jiménez
 
 

   
Juan J. Román-Jiménez
 
 

   
Executive Vice President and Chief Financial Officer
 
 

38

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