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Section 1: 10-Q (10-Q)


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

FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from           to                  

COMMISSION FILE NUMBER:  001-33865
 
Triple-S Management Corporation
 
Puerto Rico
 
66-0555678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

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

(787) 749-4949
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  Yes    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
 
 
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes  No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Title of each class
Outstanding at June 30, 2018
Common Stock Class A, $1.00 par value
950,968
Common Stock Class B, $1.00 par value
22,242,836
 


Table of Contents
Triple-S Management Corporation
 
FORM 10-Q
 
For the Quarter Ended June 30, 2018
 
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
34
       
   
Cautionary Statement Regarding Forward-Looking Information
34
   
Overview
34
   
Recent Developments
35
   
Recent Accounting Standards
36
   
Managed Care Membership
36
   
Consolidated Operating Results
37
   
Managed Care Operating Results
39
   
Life Insurance Operating Results
42
   
Property and Casualty Insurance Operating Results
43
   
Liquidity and Capital Resources
44
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
45
       
 
Item 4.
Controls and Procedures
46
       
Part II – Other Information
46
   
 
Item 1.
Legal Proceedings
46
       
 
Item 1A.
Risk Factors
46
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
47
       
 
Item 3.
Defaults Upon Senior Securities
47
       
 
Item 4.
Mine Safety Disclosures
47
       
 
Item 5.
Other Information
47
       
 
Item 6.
Exhibits
47
       
SIGNATURES
48
 
2

Table of Contents
Part I – Financial Information
 
Item 1.
Financial Statements
 
Triple-S Management Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)


   
June 30,
2018
   
December 31,
2017
 
Assets
           
Investments and cash:
           
Fixed maturities available for sale, at fair value
 
$
1,232,689
   
$
1,216,788
 
Fixed maturities held to maturity, at amortized cost
   
2,484
     
2,319
 
Equity investments, at fair value
   
313,042
     
342,309
 
Other invested assets, at net asset value
   
52,633
     
34,984
 
Policy loans
   
9,449
     
9,077
 
Cash and cash equivalents
   
255,979
     
198,941
 
Total investments and cash
   
1,866,276
     
1,804,418
 
Premiums and other receivables, net
   
742,056
     
899,327
 
Deferred policy acquisition costs and value of business acquired
   
205,268
     
200,788
 
Property and equipment, net
   
78,153
     
74,716
 
Deferred tax asset
   
79,404
     
65,123
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
77,700
     
46,996
 
Total assets
 
$
3,074,254
   
$
3,116,765
 
Liabilities and Stockholders’ Equity
               
Claim liabilities
 
$
1,111,444
   
$
1,106,876
 
Liability for future policy benefits
   
349,176
     
339,507
 
Unearned premiums
   
169,538
     
86,349
 
Policyholder deposits
   
175,592
     
176,534
 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
61,128
     
52,287
 
Accounts payable and accrued liabilities
   
291,294
     
354,894
 
Deferred tax liability
   
3,971
     
21,891
 
Long-term borrowings
   
30,478
     
32,073
 
Liability for pension benefits
   
33,093
     
33,672
 
Total liabilities
   
2,225,714
     
2,204,083
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders’ equity
   
951
     
951
 
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at June 30, 2018 and December 31, 2017, respectively
               
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,242,836 and 22,627,077 shares at June 30, 2018 and December 31, 2017, respectively
   
22,243
     
22,627
 
Additional paid-in capital
   
39,050
     
53,142
 
Retained earnings
   
790,439
     
785,390
 
Accumulated other comprehensive (loss) income
   
(3,462
)
   
51,254
 
Total Triple-S Management Corporation stockholders’ equity
   
849,221
     
913,364
 
Non-controlling interest in consolidated subsidiary
   
(681
)
   
(682
)
Total stockholders’ equity
   
848,540
     
912,682
 
Total liabilities and stockholders’ equity
 
$
3,074,254
   
$
3,116,765
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
3

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

 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenues:
                       
Premiums earned, net
 
$
741,770
   
$
722,891
   
$
1,493,804
   
$
1,425,164
 
Administrative service fees
   
4,066
     
4,548
     
7,414
     
8,927
 
Net investment income
   
15,707
     
12,698
     
29,462
     
24,714
 
Other operating revenues
   
1,588
     
1,121
     
2,659
     
2,086
 
Total operating revenues
   
763,131
     
741,258
     
1,533,339
     
1,460,891
 
Net realized investment (losses) gains
   
(921
)
   
4,054
     
2,021
     
4,390
 
Net unrealized investment losses on equity investments
   
(776
)
   
-
     
(16,975
)
   
-
 
Other income, net
   
494
     
587
     
1,657
     
3,112
 
Total revenues
   
761,928
     
745,899
     
1,520,042
     
1,468,393
 
Benefits and expenses:
                               
Claims incurred
   
692,138
     
611,297
     
1,311,127
     
1,232,160
 
Operating expenses
   
134,612
     
118,720
     
267,746
     
229,666
 
Total operating costs
   
826,750
     
730,017
     
1,578,873
     
1,461,826
 
Interest expense
   
1,825
     
1,721
     
3,515
     
3,407
 
Total benefits and expenses
   
828,575
     
731,738
     
1,582,388
     
1,465,233
 
(Loss) income before taxes
   
(66,647
)
   
14,161
     
(62,346
)
   
3,160
 
Income tax (benefit) expense
   
(27,901
)
   
1,456
     
(27,514
)
   
(5,202
)
Net (loss) income
   
(38,746
)
   
12,705
     
(34,832
)
   
8,362
 
Net income (loss) attributable to non-controlling interest
   
1
     
-
     
1
     
(1
)
Net (loss) income attributable to Triple-S Management Corporation
 
$
(38,747
)
 
$
12,705
   
$
(34,833
)
 
$
8,363
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net (loss) income per share
 
$
(1.68
)
 
$
0.52
   
$
(1.50
)
 
$
0.35
 
Diluted net (loss) income per share
 
$
(1.68
)
 
$
0.52
   
$
(1.50
)
 
$
0.34
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
4

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


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

See accompanying notes to unaudited condensed consolidated financial statements.
 
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Table of Contents
Triple-S Management Corporation
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(dollar amounts in thousands)


   
2018
   
2017
 
Balance at January 1
 
$
913,364
   
$
863,163
 
Share-based compensation
   
2,543
     
170
 
Repurchase and retirement of common stock
   
(17,019
)
   
-
 
Comprehensive (loss) income
   
(49,667
)
   
21,337
 
Total Triple-S Management Corporation stockholders’ equity
   
849,221
     
884,670
 
Non-controlling interest in consolidated subsidiary
   
(681
)
   
(678
)
Balance at June 30
 
$
848,540
   
$
883,992
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
6

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


   
Six months ended
June 30,
 
   
2018
   
2017
 
Cash flows from operating activities:
           
Net (loss) income
 
$
(34,832
)
 
$
8,362
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Depreciation and amortization
   
6,986
     
6,454
 
Net amortization of investments
   
3,116
     
4,787
 
Additions (reductions) to the allowance for doubtful receivables
   
1,729
     
(2,390
)
Deferred tax benefit
   
(29,292
)
   
(11,734
)
Net realized investment gain on sale of securities
   
(2,021
)
   
(4,390
)
Net unrealized loss on equity investments
   
16,975
     
-
 
Interest credited to policyholder deposits
   
2,157
     
2,144
 
Share-based compensation
   
2,543
     
170
 
Decrease (increase) in assets:
               
Premium and other receivables, net
   
155,542
     
(25,078
)
Deferred policy acquisition costs and value of business acquired
   
(2,355
)
   
(5,621
)
Deferred taxes
   
522
     
(280
)
Other assets
   
(32,997
)
   
(1,229
)
(Decrease) increase in liabilities:
               
Claim liabilities
   
4,568
     
16,297
 
Liability for future policy benefits
   
9,669
     
10,195
 
Unearned premiums
   
83,189
     
96,251
 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
8,841
     
5,993
 
Accounts payable and accrued liabilities
   
(63,617
)
   
33,774
 
Net cash provided by operating activities
   
130,723
     
133,705
 
 
(Continued)
 
7

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


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

See accompanying notes to unaudited condensed consolidated financial statements.
 
8

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

 
(1)
Basis of Presentation
 
The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited.  In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries.  The condensed consolidated interim financial statements do not include all the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial statement presentation.  These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017.
 
In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included.  The results of operations for the three months and six months ended June 30, 2018 are not necessarily indicative of the results for the full year ending December 31, 2018.
 
(2)
Significant Accounting Policies
 
Investments
 
Fixed maturities and other invested assets
 
Investment in debt securities at June 30, 2018 and December 31, 2017 consists mainly of obligations of government‑sponsored enterprises, U.S.  Treasury securities and obligations of U.S.  government instrumentalities, obligations of the Commonwealth of Puerto Rico and its instrumentalities, municipal securities, corporate bonds, residential mortgage-backed securities, and collateralized mortgage obligations.  The Company classifies its debt securities in one of two categories: available-for-sale or held-to-maturity.  Securities classified as held-to-maturity are those securities in which the Company has the ability and intent to hold until maturity.  All other securities not included in held-to-maturity are classified as available-for-sale.
 
Available-for-sale securities are recorded at fair value.  The fair values of debt securities (both available-for-sale and held-to-maturity investments) are based on quoted market prices for those or similar investments at the reporting date.  Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts, respectively.  Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized.  Realized gains and losses from the sale of available-for-sale securities are included in earnings and are determined on a specific‑identification basis.
 
Transfers of securities between categories are recorded at fair value at the date of transfer.  Unrealized holding gains or losses associated with transfers of securities from held-to-maturity to available-for-sale are recorded as a separate component of other comprehensive income.  The unrealized holding gains or losses included in the separate component of other comprehensive income for securities transferred from available-for-sale to held-to-maturity, are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security.
 
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Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
If a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings.  For impaired fixed maturity securities that the Company does not intend to sell or it is more likely than not that such securities will not have to be sold, but the Company expects not to fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income.  Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.
 
The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of acquisition.
 
A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value.  The impairment is charged to earnings and a new cost basis for the security is established.  To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.  Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, market conditions, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
 
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method.  Dividend and interest income are recognized when earned.
 
The Company regularly invests in mortgaged-backed securities and other securities subject to prepayment and call risk.  Significant changes in prevailing interest rates may adversely affect the timing and amount of cash flows on such securities.  In addition, the amortization of market premium and accretion of market discount for mortgaged-backed securities is based on historical experience and estimates of future payment speeds on the underlying mortgage loans.  Actual prepayment speeds may differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods.
 
Other invested assets at June 30, 2018 and December 31, 2017 consist mainly of alternative investments in partnerships which invest in several private debt and private equity funds.  Portfolios are diversified by vintage year, stage, geography, business sectors and number of investments. These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair values of the investments in this class have been estimated using the net asset value (NAV) of the Company’s ownership interest in the partnerships. Total unfunded capital commitments for these positions as of June 30, 2018 amounted to $108,312.  The remaining average commitments period is approximately three years.
 
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Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
Equity investments
 
Investment in equity securities at June 30, 2018 and December 31, 2017 consists of mutual funds whose underlying assets are comprised of domestic equity securities, international equity securities and higher risk fixed income instruments. Equity investments are recorded at fair value.  The fair values of equity investments are based on quoted market prices.  Unrealized holding gains and losses, on equity investments are included in earnings.  Realized gains and losses from the sale of equity investments are included in earnings and are determined on a specific‑identification basis.
 
Recently Adopted Accounting Standards
 
On February 28, 2018, the Financial Accounting Standard Board (FASB) issued guidance for Technical Corrections and Improvement to Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.  Areas for correction or improvement include (1) equity securities without a readily determinable fair value—discontinuation, (2) equity securities without a readily determinable fair value—adjustments, (3) forward contracts and purchased options, (4) presentation requirements for certain fair value option liabilities, (5) fair value option liabilities denominated in a foreign currency, and (6) transition guidance for equity securities without a readily determinable fair value. For public companies, these amendments, will be applied on a prospective basis, for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Public entities with fiscal years beginning between December 15, 2017 and June 15, 2018 are not required to adopt these amendments until the interim period beginning after June 15, 2018.  The adoption of this guidance did not have a material impact on the presentation of the Company’s consolidated result of operations.
 
Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the three months ended June 30, 2018 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.
 
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Triple-S Management Corporation
Notes to Condensed Consolidated Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

 
(3)
Investment in Securities

The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for the Company’s investments in securities by major security type and class of security at June 30, 2018 and December 31, 2017, were as follows:

   
June 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                       
Fixed maturities available for sale
                       
Obligations of government- sponsored enterprises
 
$
11,450
   
$
2
   
$
(45
)
 
$
11,407
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
211,872
     
156
     
(565
)
   
211,463
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
8,175
     
-
     
(6
)
   
8,169
 
Municipal securities
   
713,271
     
18,520
     
(2,804
)
   
728,987
 
Corporate bonds
   
191,745
     
11,428
     
(1,327
)
   
201,846
 
Residential mortgage-backed securities
   
60,492
     
33
     
(1,094
)
   
59,431
 
Collateralized mortgage obligations
   
11,804
     
2
     
(420
)
   
11,386
 
Total fixed maturities available for sale
 
$
1,208,809
   
$
30,141
   
$
(6,261
)
 
$
1,232,689
 
 
 
June 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Fixed maturities held to maturity
                       
U.S. Treasury securities and obligations of U.S. government instrumentalities
 
$
617
   
$
121
   
$
-
   
$
738
 
Residential mortgage-backed securities
   
191
     
2
     
-
     
193
 
Certificates of deposit
   
1,676
     
-
     
-
     
1,676
 
Total
 
$
2,484
   
$
123
   
$
-
   
$
2,607
 
 
   
June 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Equity investments - Mutual funds
 
$
280,168
   
$
34,105
   
$
(1,231
)
 
$
313,042
 
 
12

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

 
   
June 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Other invested assets - Alternative investments
 
$
51,879
   
$
1,107
   
$
(353
)
 
$
52,633
 

   
December 31, 2017
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
                         
Securities available for sale
                       
Fixed maturities
                       
Obligations of government- sponsored enterprises
 
$
1,431
   
$
13
   
$
-
   
$
1,444
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
118,858
     
41
     
(550
)
   
118,349
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
8,059
     
34
     
-
     
8,093
 
Municipal securities
   
771,789
     
30,468
     
(1,467
)
   
800,790
 
Corporate bonds
   
217,046
     
17,767
     
(489
)
   
234,324
 
Residential mortgage-backed securities
   
32,465
     
2
     
(355
)
   
32,112
 
Collateralized mortgage obligations
   
22,003
     
10
     
(337
)
   
21,676
 
Total fixed maturities
   
1,171,651
     
48,335
     
(3,198
)
   
1,216,788
 
Equity securities
                               
Mutual funds
   
292,460
     
50,072
     
(223
)
   
342,309
 
Alternative investments
   
34,669
     
559
     
(244
)
   
34,984
 
Total equity securities
   
327,129
     
50,631
     
(467
)
   
377,293
 
Total
 
$
1,498,780
   
$
98,966
   
$
(3,665
)
 
$
1,594,081
 
 
13

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


   
December 31, 2017
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Securities held to maturity:
                       
U.S. Treasury securities and obligations of U.S. government instrumentalities
 
$
617
   
$
154
   
$
-
   
$
771
 
Residential mortgage-backed securities
   
191
     
2
     
-
     
193
 
Certificates of deposit
   
1,511
     
-
     
-
     
1,511
 
Total
 
$
2,319
   
$
156
   
$
-
   
$
2,475
 
 
Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2018 and December 31, 2017 were as follows:

   
June 30, 2018
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
                                                       
Fixed maturities available for sale
                                                     
Obligations of government- sponsored enterprises
 
$
9,955
   
$
(45
)
   
1
   
$
-
   
$
-
     
-
   
$
9,955
   
$
(45
)
   
1
 
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
   
150,885
     
(565
)
   
12
     
-
     
-
     
-
     
150,885
     
(565
)
   
12
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
6,691
     
(6
)
   
3
     
-
     
-
     
-
     
6,691
     
(6
)
   
3
 
Municipal securities
   
278,677
     
(2,796
)
   
41
     
701
     
(8
)
   
1
     
279,378
     
(2,804
)
   
42
 
Corporate bonds
   
96,306
     
(1,327
)
   
25
     
-
     
-
     
-
     
96,306
     
(1,327
)
   
25
 
Residential mortgage-backed securities
   
41,498
     
(1,094
)
   
22
     
-
     
-
     
-
     
41,498
     
(1,094
)
   
22
 
Collateralized mortgage obligations
   
3,289
     
(115
)
   
1
     
5,628
     
(305
)
   
2
     
8,917
     
(420
)
   
3
 
Total fixed maturities
 
$
587,301
   
$
(5,948
)
   
105
   
$
6,329
   
$
(313
)
   
3
   
$
593,630
   
$
(6,261
)
   
108
 
Other invested assets - Alternative investments
 
$
13,991
   
$
(121
)
   
3
   
$
7,327
   
$
(232
)
   
2
   
$
21,318
   
$
(353
)
   
5
 
 
14

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


   
December 31, 2017
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
                                                       
Securites available for sale
                                                     
Fixed maturities
                                                     
U.S. Treasury securities and obligations of U.S. governmental  instrumentalities
 
$
96,617
   
$
(550
)
   
7
   
$
-
   
$
-
     
-
   
$
96,617
   
$
(550
)
   
7
 
Municipal securities
   
162,731
     
(1,467
)
   
27
     
-
     
-
     
-
     
162,731
     
(1,467
)
   
27
 
Corporate bonds
   
80,374
     
(489
)
   
16
     
-
     
-
     
-
     
80,374
     
(489
)
   
16
 
Residential mortgage backed securities
   
31,736
     
(355
)
   
19
     
-
     
-
     
-
     
31,736
     
(355
)
   
19
 
Collateralized mortgage obligations
   
13,630
     
(239
)
   
3
     
7,294
     
(98
)
   
2
     
20,924
     
(337
)
   
5
 
Total fixed maturities
   
385,088
     
(3,100
)
   
72
     
7,294
     
(98
)
   
2
     
392,382
     
(3,198
)
   
74
 
Equity securities
                                                                       
Mutual funds
   
42,983
     
(223
)
   
6
     
-
     
-
     
-
     
42,983
     
(223
)
   
6
 
Alternative investments
   
9,986
     
(212
)
   
5
     
3,162
     
(32
)
   
1
     
13,148
     
(244
)
   
6
 
Total equity securities
   
52,969
     
(435
)
   
11
     
3,162
     
(32
)
   
1
     
56,131
     
(467
)
   
12
 
Total for securities available for sale
 
$
438,057
   
$
(3,535
)
   
83
   
$
10,456
   
$
(130
)
   
3
   
$
448,513
   
$
(3,665
)
   
86
 

The Company reviews the available for sale and other invested assets portfolios under the Company’s impairment review policy.  Given market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and material other-than-temporary impairments may be recorded in future periods.  The Corporation from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.
 
Obligations of Government-Sponsored Enterprises, U.S. Treasury Securities and Obligations of U.S. Government Instrumentalities, and Municipal Securities:  The unrealized losses of these securities were mainly caused by fluctuations in interest rates and general market conditions.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  In addition, these investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.
 
Corporate Bonds:  The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions.  All corporate bonds with an unrealized loss have investment grade ratings.  Because the decline in estimated fair value is principally attributable to changes in interest rates; because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.
 
15

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

Residential mortgage-backed securities and Collateralized mortgage obligations: The unrealized losses on investments in residential mortgage-backed securities and collateralized mortgage obligations (“CMOs”) were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored enterprise. Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss. The investment grade credit rating of our securities reflects the seniority of the securities that the Company owns. The Company does not consider these investments other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality; the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows.
 
Obligations of the Commonwealth of Puerto Rico and its Instrumentalities: As of June 30, 2018, our holdings in Puerto Rico municipals consist of escrowed bonds. The Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows.
 
Alternative Investments:  As of June 30, 2018, alternative investments with unrealized losses are not considered other-than-temporarily impaired based on market conditions and the length of time the funds have been in a loss position.   There were no impaired positions for the six-month period ending June 30, 2018.

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

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.
 
16

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

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

             
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Realized gains (losses)
                       
Fixed maturity securities:
                       
Securities available for sale:
                       
Gross gains
 
$
1,340
   
$
384
     
1,512
   
$
401
 
Gross losses
   
(2,873
)
   
(517
)
   
(10,803
)
   
(636
)
Total fixed securities
   
(1,533
)
   
(133
)
   
(9,291
)
   
(235
)
Equity investments:
                               
Gross gains
   
551
     
4,189
     
8,754
     
4,627
 
Gross losses
   
(525
)
   
(2
)
   
(1,024
)
   
(2
)
Total equity investments
   
26
     
4,187
     
7,730
     
4,625
 
Other invested assets:
                               
Gross gains
   
586
     
-
     
3,793
     
-
 
Gross losses
   
-
     
-
     
(211
)
   
-
 
Total other invested assets
   
586
     
-
     
3,582
     
-
 
Net realized investment (losses) gains
 
$
(921
)
 
$
4,054
   
$
2,021
   
$
4,390
 
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Changes in net unrealized (losses) gains:
                       
Recognized in accumulated other comprehensive (loss) income:
                       
Fixed maturities – available for sale
 
$
(11,035
)
 
$
3,252
   
$
(21,257
)
 
$
2,813
 
Other invested assets
   
464
     
2,768
     
439
     
13,911
 
   
$
(10,571
)
 
$
6,020
   
$
(20,818
)
 
$
16,724
 
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
(10
)
 
$
(10
)
 
$
(33
)
 
$
(8
)
 
The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive (loss) income during the six months ended June 30, 2018 and 2017 was $6,147 and $3,391, respectively.
 
As of June 30, 2018 and December 31, 2017, no individual investment in securities exceeded 10% of stockholders’ equity.
 
17

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

 
(4)
Premiums and Other Receivables, Net
 
Premiums and other receivables, net were as follows:

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

As of June 30, 2018 and December 31, 2017, the Company had premiums and other receivables of $48,626 and $81,838, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of June 30, 2018 and December 31, 2017 were $18,185 and $16,436, respectively.
 
18

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

 
(5)
Fair Value Measurements
 
Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, equity investments, policy loans, policyholder deposits, and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value due to the short period of time between the origination of these instruments and the expected realization or payment. Certain assets are measured at fair value on a recurring basis and are disclosed below. These assets are classified into one of three levels of a hierarchy defined by GAAP. For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see the consolidated financial statements and notes thereto included in our 2017 Annual Report on Form 10-K.
 
The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

   
June 30, 2018
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed maturity securities available for sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
11,407
   
$
-
   
$
11,407
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
211,463
     
-
     
-
     
211,463
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
8,169
     
-
     
8,169
 
Municipal securities
   
-
     
728,987
     
-
     
728,987
 
Corporate bonds
   
-
     
201,846
     
-
     
201,846
 
Residential agency mortgage-backed securities
   
-
     
59,431
     
-
     
59,431
 
Collateralized mortgage obligations
   
-
     
11,386
     
-
     
11,386
 
Total fixed maturities
 
$
211,463
   
$
1,021,226
   
$
-
   
$
1,232,689
 
                                 
Equity investments
 
$
141,123
   
$
171,919
   
$
-
   
$
313,042
 
 
   
December 31, 2017
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Securities available for sale:
                       
Fixed maturity securities
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
1,444
   
$
-
   
$
1,444
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
118,349
     
-
     
-
     
118,349
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
8,093
     
-
     
8,093
 
Municipal securities
   
-
     
800,790
     
-
     
800,790
 
Corporate bonds
   
-
     
234,324
     
-
     
234,324
 
Residential agency mortgage-backed securities
   
-
     
32,112
     
-
     
32,112
 
Collateralized mortgage obligations
   
-
     
21,676
     
-
     
21,676
 
Total fixed maturities
   
118,349
     
1,098,439
     
-
     
1,216,788
 
Equity securities - Mutual funds
   
193,160
     
149,149
     
-
     
342,309
 
Alternative investments - measured at net asset value
   
-
     
-
     
-
     
34,984
 
Total equity securities
   
193,160
     
149,149
     
-
     
377,293
 
                                 
Total
 
$
311,509
   
$
1,247,588
   
$
-
   
$
1,594,081
 
 
19

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

 
There were no transfers between Levels 1 and 2 during the three months and six months ended June 30, 2018 and 2017.
 
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets at June 30, 2018 and December 31, 2017 are as follows:

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

 
 
December 31, 2017
 
 
 
Carrying
   
Fair Value
 
 
 
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
9,077
   
$
-
   
$
9,077
   
$
-
   
$
9,077
 
 
                                       
Liabilities:
                                       
Policyholder deposits
 
$
176,534
   
$
-
   
$
176,534
   
$
-
   
$
176,534
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
32,350
     
-
     
32,350
     
-
     
32,350
 
Total liabilities
 
$
208,884
   
$
-
   
$
208,884
   
$
-
   
$
208,884
 
 
20

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

 
(6)
Claim Liabilities
 
A reconciliation of the beginning and ending balances of claim liabilities is as follows:

   
Three months ended
June 30, 2018
   
Six months ended
June 30, 2018
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                                     
Claim liabilities at beginning of period
 
$
402,444
   
$
632,317
   
$
1,034,761
   
$
367,357
   
$
739,519
   
$
1,106,876
 
Reinsurance recoverable on claim liabilities
   
-
     
(526,575
)
   
(526,575
)
   
-
     
(633,099
)
   
(633,099
)
Net claim liabilities at beginning of period
   
402,444
     
105,742
     
508,186
     
367,357
     
106,420
     
473,777
 
Claims incurred
                                               
Current period insured events
   
594,742
     
26,527
     
621,269
     
1,198,689
     
57,434
     
1,256,123
 
Prior period insured events
   
(10,900
)
   
74,355
     
63,455
     
(31,126
)
   
72,537
     
41,411
 
Total
   
583,842
     
100,882
     
684,724
     
1,167,563
     
129,971
     
1,297,534
 
Payments of losses and loss-adjustment expenses
                                               
Current period insured events
   
512,768
     
15,670
     
528,438
     
873,736
     
22,690
     
896,426
 
Prior period insured events
   
36,060
     
11,324
     
47,384
     
223,726
     
34,071
     
257,797
 
Total
   
548,828
     
26,994
     
575,822
     
1,097,462
     
56,761
     
1,154,223
 
Net claim liabilities at end of period
   
437,458
     
179,630
     
617,088
     
437,458
     
179,630
     
617,088
 
Reinsurance recoverable on claim liabilities
   
-
     
494,356
     
494,356
     
-
     
494,356
     
494,356
 
Claim liabilities at end of period
 
$
437,458
   
$
673,986
   
$
1,111,444
   
$
437,458
   
$
673,986
   
$
1,111,444
 
 
*
Other Business Segments include the Life Insurance and Property and Casualty segments,as well as intersegment eliminations.
 
             
   
Three months ended
June 30, 2017
   
Six months ended
June 30, 2017
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                                     
Claim liabilities at beginning of period
 
$
393,525
   
$
136,779
   
$
530,304
   
$
349,047
   
$
138,896
   
$
487,943
 
Reinsurance recoverable on claim liabilities
   
-
     
(35,898
)
   
(35,898
)
   
-
     
(38,998
)
   
(38,998
)
Net claim liabilities at beginning of period
   
393,525
     
100,881
     
494,406
     
349,047
     
99,898
     
448,945
 
Claims incurred
                                               
Current period insured events
   
580,608
     
26,282
     
606,890
     
1,183,241
     
54,508
     
1,237,749
 
Prior period insured events
   
(1,355
)
   
(1,196
)
   
(2,551
)
   
(16,695
)
   
(2,529
)
   
(19,224
)
Total
   
579,253
     
25,086
     
604,339
     
1,166,546
     
51,979
     
1,218,525
 
Payments of losses and loss-adjustment expenses
                                               
Current period insured events
   
576,135
     
14,944
     
591,079
     
926,585
     
22,917
     
949,502
 
Prior period insured events
   
25,208
     
11,586
     
36,794
     
217,573
     
29,523
     
247,096
 
Total
   
601,343
     
26,530
     
627,873
     
1,144,158
     
52,440
     
1,196,598
 
Net claim liabilities at end of period
   
371,435
     
99,437
     
470,872
     
371,435
     
99,437
     
470,872
 
Reinsurance recoverable on claim liabilities
   
-
     
33,368
     
33,368
     
-
     
33,368
     
33,368
 
Claim liabilities at end of period
 
$
371,435
   
$
132,805
   
$
504,240
   
$
371,435
   
$
132,805
   
$
504,240
 
 
*
Other Business Segments include the Life Insurance and Property and Casualty segments,as well as intersegment eliminations.
 
The actual amounts of claims incurred in connection with insured events occuring in a prior period typically differ from estimates of such claims made in the prior period. Amounts included as incurred claims for prior period insured events reflect the aggregate net amount of these differences.
 
21

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

 
The unfavorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 2018 is driven by an adverse development of approximately $76,389 in losses related to Hurricane Maria, offset by better than expected utilization trends in the managed care segment.  The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 2017 are due primarily to better than expected utilization trends in the Managed Care segment.  Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying consolidated financial statements.  Claim liabilities as of June 30, 2018 include approximately $538,200 related to the impact of Hurricane María, which made landfall in Puerto Rico in September 2017.
 
The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to $7,414 and $13,593 during the three months and six months ended June 30, 2018, respectively.  The change in the liability for future policy benefits during the three months and six months ended June 30, 2017 amounted to $6,945 and $13,635, respectively.
 
The following is information about total incurred but not reported (IBNR) liabilities plus expected development on reported claims included in the liability for unpaid claims adjustment expenses for the Managed Care segment as of June 30, 2018.

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

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

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

Employer Contributions:   The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2017 that it expected to contribute $2,000 to the pension program in 2018.  As of June 30, 2018, the Company has not made contributions to the pension program.
 
(8)
Reinsurance
 
TSP uses facultative reinsurance, pro rata, and excess of loss reinsurance treaties to manage its exposure to losses, including those from catastrophe events.  TSP has geographic exposure to catastrophe losses from hurricanes and earthquakes.  The incidence and severity of catastrophes are inherently unpredictable.   Under these treaties, TSP ceded premiums written were $12,688 and $16,580 for the three months ended June 30, 2018 and 2017, respectively, and $27,466 and $26,721 for the six months ended June 30, 2018, and 2017, respectively.  During the six months ended June 30, 2018, TSP ceded claims incurred amounting to $69,594 related to losses caused by Hurricanes Irma and Maria.
 
22

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


Principal reinsurance agreements are as follows:
 
·          Casualty excess of loss treaty provides reinsurance for losses up to $12,000, subject to a retention of $225.
 
·          Medical malpractice excess of loss treaty provides reinsurance for losses up to $3,000, subject to a retention of $150.
 
·          Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to $350 in $30,000 risks.
 
·          Catastrophe protection is purchased limiting losses to $10,000 per event with losses up to approximately $915,000.
 
All principal reinsurance contracts are for a period of one year and are subject to modifications and negotiations in each renewal. TSP’s current property and catastrophe reinsurance program was renewed effective April 1, 2018 for a twelve months period ending March 31, 2019. Other contracts were renewed as expiring on January 1, 2018.
 
23

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


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

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Net Unrealized Gain on Securities Beginning Balance
 
$
29,462
   
$
70,843
   
$
76,238
   
$
62,371
 
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement
   
-
     
-
     
(39,882
)
   
-
 
Other comprehensive (loss) income before reclassifications
   
(8,939
)
   
7,639
     
(13,479
)
   
16,380
 
Amounts reclassified from accumulated other comprehensive income (loss)
   
737
     
(3,243
)
   
(1,617
)
   
(3,512
)
Net current period change
   
(8,202
)
   
4,396
     
(15,096
)
   
12,868
 
Ending Balance
   
21,260
     
75,239
     
21,260
     
75,239
 
Liability for Pension Benefits Beginning Balance
   
(24,853
)
   
(19,923
)
   
(24,984
)
   
(19,976
)
Amounts reclassified from accumulated other comprehensive income
   
131
     
53
     
262
     
106
 
Ending Balance
   
(24,722
)
   
(19,870
)
   
(24,722
)
   
(19,870
)
Accumulated Other Comprehensive (Loss) Income Beginning Balance
   
4,609
     
50,920
     
51,254
     
42,395
 
Unrealized loss reclassified to beginning retained earnings as the result of implementing new accounting pronouncement
   
-
     
-
     
(39,882
)
   
-
 
Other comprehensive (loss) income before reclassifications
   
(8,939
)
   
7,639
     
(13,479
)
   
16,380
 
Amounts reclassified from accumulated other comprehensive income (loss)
   
868
     
(3,190
)
   
(1,355
)
   
(3,406
)
Net current period change
   
(8,071
)
   
4,449
     
(14,834
)
   
12,974
 
Ending Balance
 
$
(3,462
)
 
$
55,369
   
$
(3,462
)
 
$
55,369
 

(10)
Stock Repurchase Program
 
The Company repurchases shares through open-market purchases of Class  B shares only, in accordance with Rule  10b-18 under the Securities Exchange Act of 1934, as amended, under repurchase programs authorized by the Board of Directors.
 
In August 2017, the Company’s Board of Directors authorized a $30,000 repurchase program of its Class B common stock, and in February 2018 the Company’s Board of Directors authorized a $25,000 expansion of this program.  During the three months ended June 30, 2018, the Company repurchased and retired under this program 80,404 shares at an average per share price of $26.82, for an aggregate cost of $2,136.  During the six months ended June 30, 2018, the Company repurchased and retired under this program 643,963 shares at an average per share price of $25.40, for an aggregate cost of $16,395.
 
(11)
Share-Based Compensation
 
Share-based compensation expense recorded during the three months ended June 30, 2018 and 2017 was $2,151 and $1,613, respectively.  Share-based compensation expense recorded during the six months ended June 30, 2018 and 2017 was $2,543 and $1,228, respectively.  During the three months and six months ended June 30, 2018, 8,525 and 24,796 shares, respectively, were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. There were no non-cash tax withholdings during the six months ended June 30, 2017.
 
24

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

 
(12)
Net (Loss) Income Available to Stockholders and Net (Loss) Income per Share
 
The following table sets forth the computation of basic and diluted earnings per share:

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Numerator for earnings per share: