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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 September 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 September 30, 2018
Common Stock Class A, $1.00 par value
 
950,968
Common Stock Class B, $1.00 par value
 
21,985,524



Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended September 30, 2018

Table of Contents

3
   
 
Item 1.
3
       
 
Item 2.
34
       
  
34
  
34
  
35
  
37
  
38
   39
  
41
  
44
  
45
  
46
       
 
Item 3.
47
       
 
Item 4.
48
       
48
   
 
Item 1.
48
       
 
Item 1A.
48
       
 
Item 2.
49
       
 
Item 3.
49
       
 
Item 4.
49
       
 
Item 5.
49
       
 
Item 6.
49
       
50

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)


   
September 30,
2018
   
December 31,
2017
 
Assets
           
Investments and cash:
           
Fixed maturities available for sale, at fair value
 
$
1,224,050
   
$
1,216,788
 
Fixed maturities held to maturity, at amortized cost
   
2,490
     
2,319
 
Equity investments, at fair value
   
306,360
     
342,309
 
Other invested assets, at net asset value
   
73,127
     
34,984
 
Policy loans
   
9,680
     
9,077
 
Cash and cash equivalents
   
107,091
     
198,941
 
Total investments and cash
   
1,722,798
     
1,804,418
 
Premiums and other receivables, net
   
632,897
     
899,327
 
Deferred policy acquisition costs and value of business acquired
   
209,205
     
200,788
 
Property and equipment, net
   
78,445
     
74,716
 
Deferred tax asset
   
83,593
     
65,123
 
Goodwill
   
25,397
     
25,397
 
Other assets
   
66,093
     
46,996
 
Total assets
 
$
2,818,428
   
$
3,116,765
 
Liabilities and Stockholders' Equity
               
Claim liabilities
 
$
1,038,114
   
$
1,106,876
 
Liability for future policy benefits
   
355,366
     
339,507
 
Unearned premiums
   
78,544
     
86,349
 
Policyholder deposits
   
174,126
     
176,534
 
Liability to Federal Employees' Health Benefits and
               
Federal Employees' Programs
   
41,880
     
52,287
 
Accounts payable and accrued liabilities
   
246,750
     
354,894
 
Deferred tax liability
   
3,210
     
21,891
 
Long-term borrowings
   
29,681
     
32,073
 
Liability for pension benefits
   
30,919
     
33,672
 
Total liabilities
   
1,998,590
     
2,204,083
 
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 September 30, 2018 and December 31, 2017, respectively
   
951
     
951
 
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 21,985,524 and 22,627,077 shares at September 30, 2018 and December 31, 2017, respectively
   
21,986
     
22,627
 
Additional paid-in capital
   
34,231
     
53,142
 
Retained earnings
   
772,872
     
785,390
 
Accumulated other comprehensive (loss) income
   
(9,531
)
   
51,254
 
Total Triple-S Management Corporation stockholders' equity
   
820,509
     
913,364
 
Non-controlling interest in consolidated subsidiary
   
(671
)
   
(682
)
Total stockholders' equity
   
819,838
     
912,682
 
Total liabilities and stockholders' equity
 
$
2,818,428
   
$
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
September 30,
   
Nine months ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenues:
                       
Premiums earned, net
 
$
742,445
   
$
714,325
   
$
2,236,249
   
$
2,139,489
 
Administrative service fees
   
3,802
     
3,391
     
11,216
     
12,318
 
Net investment income
   
16,168
     
12,395
     
45,630
     
37,109
 
Other operating revenues
   
1,575
     
941
     
4,234
     
3,027
 
Total operating revenues
   
763,990
     
731,052
     
2,297,329
     
2,191,943
 
Net realized investment (losses) gains
   
(956
)
   
3,753
     
1,065
     
8,143
 
Net unrealized investment gains (losses) on equity investments
   
5,632
     
-
     
(11,343
)
   
-
 
Other income, net
   
1,943
     
3,409
     
3,600
     
6,521
 
Total revenues
   
770,609
     
738,214
     
2,290,651
     
2,206,607
 
Benefits and expenses:
                               
Claims incurred
   
648,580
     
583,625
     
1,959,707
     
1,815,785
 
Operating expenses
   
141,026
     
119,145
     
408,772
     
348,811
 
Total operating costs
   
789,606
     
702,770
     
2,368,479
     
2,164,596
 
Interest expense
   
2,000
     
1,709
     
5,515
     
5,116
 
Total benefits and expenses
   
791,606
     
704,479
     
2,373,994
     
2,169,712
 
(Loss) income before taxes
   
(20,997
)
   
33,735
     
(83,343
)
   
36,895
 
Income tax (benefit) expense
   
(3,430
)
   
11,824
     
(30,944
)
   
6,622
 
Net (loss) income
   
(17,567
)
   
21,911
     
(52,399
)
   
30,273
 
Net (loss) income attributable to non-controlling interest
   
-
     
(1
)
   
1
     
(2
)
Net (loss) income attributable to Triple-S Management Corporation
 
$
(17,567
)
 
$
21,912
   
$
(52,400
)
 
$
30,275
 

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
September 30,
   
Nine months ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net (loss) income
 
$
(17,567
)
 
$
21,911
   
$
(52,399
)
 
$
30,273
 
Other comprehensive (loss) income, net of tax:
                               
Net unrealized change in fair value of available for sale securities, net of taxes
   
(6,216
)
   
1,851
     
(21,312
)
   
14,719
 
Defined benefit pension plan:
                               
Actuarial loss, net
   
147
     
48
     
409
     
154
 
Total other comprehensive (loss) income, net of tax
   
(6,069
)
   
1,899
     
(20,903
)
   
14,873
 
Comprehensive (loss) income
   
(23,636
)
   
23,810
     
(73,303
)
   
45,146
 
Comprehensive (loss) income attributable to non-controlling interest
   
-
     
(1
)
   
1
     
(2
)
Comprehensive (loss) income attributable to Triple-S Management Corporation
 
$
(23,636
)
 
$
23,811
   
$
(73,303
)
 
$
45,148
 

See accompanying notes to unaudited condensed consolidated financial statements.

5

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
   
3,462
     
1,651
 
Repurchase and retirement of common stock
   
(23,014
)
   
(12,553
)
Comprehensive (loss) income
   
(73,303
)
   
45,148
 
Total Triple-S Management Corporation stockholders' equity
   
820,509
     
897,409
 
Non-controlling interest in consolidated subsidiary
   
(671
)
   
(679
)
Balance at September 30
 
$
819,838
   
$
896,730
 

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)


   
Nine months ended
September 30,
 
   
2018
   
2017
 
Cash flows from operating activities:
           
Net (loss) income
 
$
(52,399
)
 
$
30,273
 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
               
Depreciation and amortization
   
9,933
     
9,835
 
Net amortization of investments
   
3,747
     
7,396
 
Additions to the allowance for doubtful receivables
   
7,085
     
2,043
 
Deferred tax benefit
   
(33,006
)
   
(9,993
)
Net realized investment gain on sale of securities
   
(1,065
)
   
(8,143
)
Net unrealized loss on equity investments
   
11,343
     
-
 
Interest credited to policyholder deposits
   
4,288
     
3,151
 
Share-based compensation
   
3,462
     
1,651
 
Decrease (increase) in assets:
               
Premium and other receivables, net
   
259,345
     
(646,650
)
Deferred policy acquisition costs and value of business acquired
   
(5,943
)
   
(7,139
)
Deferred taxes
   
606
     
(218
)
Other assets
   
(19,657
)
   
2,976
 
(Decrease) increase in liabilities:
               
Claim liabilities
   
(68,762
)
   
620,755
 
Liability for future policy benefits
   
15,859
     
15,286
 
Unearned premiums
   
(7,805
)
   
86,509
 
Liability to Federal Employees' Health Benefits and Federal Employees' Programs
   
(10,407
)
   
12,372
 
Accounts payable and accrued liabilities
   
(120,552
)
   
71,745
 
Net cash (used in) provided by operating activities
   
(3,928
)
   
191,849
 

(Continued)

7

Table of Contents
   
Nine months ended
September 30,
 
   
2018
   
2017
 
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available for sale:
           
Fixed maturities sold
 
$
1,042,720
   
$
287,223
 
Fixed maturities matured/called
   
18,133
     
15,503
 
Securities held to maturity:
               
Fixed maturities matured/called
   
2,066
     
1,546
 
Equity investments sold
   
150,024
     
38,318
 
Other invested assets sold
   
2,040
     
-
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
   
(1,113,587
)
   
(260,538
)
Securities held to maturity:
               
Fixed maturities
   
(2,238
)
   
(1,550
)
Equity investments
   
(113,108
)
   
(75,507
)
Other invested assets
   
(38,501
)
   
-
 
Decrease in other investments
   
(144
)
   
(2,207
)
Net change in policy loans
   
(603
)
   
(696
)
Net capital expenditures
   
(12,315
)
   
(15,949
)
Net cash used in investing activities
   
(65,513
)
   
(13,857
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
9,104
     
8,371
 
Repayments of long-term borrowings
   
(2,427
)
   
(2,028
)
Repurchase and retirement of common stock
   
(22,390
)
   
(12,553
)
Proceeds from policyholder deposits
   
14,726
     
12,130
 
Surrenders of policyholder deposits
   
(21,422
)
   
(17,398
)
Net cash used in financing activities
   
(22,409
)
   
(11,478
)
Net (decrease) increase in cash and cash equivalents
   
(91,850
)
   
166,514
 
Cash and cash equivalents:
               
Beginning of period
   
198,941
     
103,428
 
End of period
 
$
107,091
   
$
269,942
 

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 nine months ended September 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 September 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, 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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Table of Contents
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 September 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 September 30, 2018 amounted to $88,691.  The remaining average commitments period is approximately three years.

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Table of Contents
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 September 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.

Recent Accounting Standards

On August 29, 2018, the Financial Accounting Standard Board (FASB) issued guidance for Intangibles – Goodwill and Other – Internal-Use Software.  Guidance addresses customer’s accounting for implemented costs incurred in a cloud computing arrangement that is a service contract and aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement.   The amendments require a customer in a hosting arrangement that is a service contract to determine which implementation costs to capitalize as an asset related to service contract and which costs to expense.  Additionally, it requires the customer to expense the capitalized implementation costs over the term of the hosting arrangement.  For public companies, these amendments, will be applied on a prospective basis, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

On August 28, 2018, the FASB issued guidance for Compensation – Retirement Benefits – Defined Benefit Plans – General which addresses changes to the disclosure requirement for defined benefit plans. The amendments in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  Specifically certain disclosure requirements are removed (i.e. the amounts of accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, related party disclosures concerning the amount of future annual benefits covered by an insurance and annuity contracts and significant transactions between the employer and related parties and the plan) while certain other disclosures are added (i.e. the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period).   For public companies, these amendments, will be applied for fiscal years beginning after December 15, 2020.  The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

On August 27, 2018, the FASB issued guidance for Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement.  This update focuses on improving the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements.  Specifically certain disclosure requirements are removed (the amount of, and reasons for, transfer between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements) while it modifies and adds certain other disclosures (the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements).   The amendments regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent period in the initial fiscal year of adoption.  All other amendments should be applied retrospectively to all periods presented upon their effective date.  For public companies, these amendments will be applied for fiscal years beginning after December 15, 2019.  The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

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


On August 15, 2018, the FASB issued guidance for Financial Services – Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts which provides meaningful improvements to the existing revenue recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity.  The amendments improve the timeliness of recognizing changes in the liability for future policy benefits and modify rate used to discount future cash flows, simplify and improve the accounting for certain market-based options or guarantees associated with deposit contracts, simplify the amortization of deferred acquisition costs, and improves the effectiveness of the required disclosures.  Specifically, this guidance requires an insurance entity to review and update, if needed, the assumptions used to measure cash flows and discount rate at each reporting date, measure all market risk benefits associated with deposit and disclose liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in measurement, including changes thereto and the effect of those changes on measurement.  Additionally, the amendment simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, and requires that those balances be amortized on a constant level basis over the expected term of the related contracts.  For public companies, these amendments will be applied for fiscal years beginning after December 15, 2020.  We are currently evaluating the impact the adoption of this guidance may have on the Company’s consolidated financial statements.

On July 30, 2018 and July 18, 2018, the FASB issued the following guidance Leases – Targeted Improvement and Codification Improvement to Leases, respectively, to assist in the implementation of leases and address certain technical corrections and improvement to the recently issued lease standard. Leases – Targeted Improvement provides entities with an additional and optional transition method to adopt the new lease standard under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  It also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components for the associated lease component.  Codification: Improvement Leases addresses the following areas of correction or improvement (1) residual value guarantees, (2) rate implicit in the lease, (3) lessee reassessment of lease classification, (4) lessor reassessment of lease term and purchase option, (5) variable lease payments that depend on an index or a rate, (6) investment tax credits, (7) lease term and purchase option, (8) transition guidance for amounts previously recognized in business combinations, (9) certain transition adjustments, (10) transition guidance for leases previously classified as capital leases, (11) transition guidance for modification to leases previously classified as direct financing or sales-type leases, (12) transition guidance for sales and leaseback transactions; (13) impairment of net investment in the lease, (14) unguaranteed residual assets, (15) effect of initial direct costs on the rate implicit in the lease, and (16) failed sale and leaseback transactions.  For public companies, these amendments will be applied for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.   We expect the standard to have a significant impact on our consolidated balance sheet, but not in our consolidated statement of earnings.  The most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases. The Company will adopt the standard in the first quarter of 2019 and is currently compiling an inventory of arrangements containing a lease and accumulating the lease data necessary to apply the amended guidance. In addition, the Company will implement updates to its control processes and procedures, as necessary, based on changes resulting from the new standard.

12

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


On July 16, 2018, the FASB issued guidance Codification Improvements which represents changes to clarify, correct errors in, or make minor improvements to the Codification.  The change addresses conflicts or unclear intent in the following areas: (1) Comprehensive Income – Overall, (2) Debt – Modifications and Extinguishments, (3) Distinguishing Liabilities from Equity – Overall, (3) Compensation – Stock Compensation – Income Taxes, (4) Derivatives and Hedging – Overall – Other Presentation Matters, (5) Fair Value Measurement – Overall and (6) Financial Services – Brokers and Dealers – Liabilities and Financial Services – Depository and Lending.  Some of the amendments in this update do not require transition guidance and are effective immediately.  However, many of the amendments do have transition guidance, effective for public companies for annual periods beginning after December 15, 2018.  We are currently evaluating the impact the adoption of this guidance may have on the Company’s consolidated financial statements.

Recently Adopted Accounting Standards

On February 28, 2018, the 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, became effective 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 Company adopted this guidance effective June 30, 2018.  The adoption of this guidance did not have a material impact on the presentation of the Company’s consolidated result of operations.

On January 5, 2016, the FASB issued guidance to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information.  Among the many targeted improvements to U.S. GAAP are (1) requiring equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income; (2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; and (4) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  This guidance applies to all entities that hold financial assets or owe financial liabilities. The Company also adopted guidance issued by FASB on March 9, 2018 that removes the previous guidance for Other Than Temporary Impairment of Certain Investments in Equity Securities as required by SEC Staff Accounting Bulletin (SAB) No. 117 and SEC Release No. 33-9273, since it is no longer applicable.   For public companies, these amendments became effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Company adopted this guidance for equity securities effective January 1, 2018.  A cumulative-effect adjustment of $39,882 was made from accumulated other comprehensive income to the beginning retained earnings at the implementation date.

Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months and nine months ended September 30, 2018 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

13

Table of Contents
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 September 30, 2018 and December 31, 2017, were as follows:

   
September 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                       
Fixed maturities available for sale:
                       
Obligations of government-sponsored enterprises
 
$
11,460
   
$
-
   
$
(130
)
 
$
11,330
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
225,968
     
11
     
(1,488
)
   
224,491
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
8,234
     
-
     
(5
)
   
8,229
 
Municipal securities
   
679,796
     
13,967
     
(4,521
)
   
689,242
 
Corporate bonds
   
213,048
     
9,525
     
(1,007
)
   
221,566
 
Residential mortgage-backed securities
   
59,483
     
-
     
(987
)
   
58,496
 
Collateralized mortgage obligations
   
11,054
     
-
     
(358
)
   
10,696
 
Total fixed maturities available for sale
 
$
1,209,043
   
$
23,503
   
$
(8,496
)
 
$
1,224,050
 

 
 
September 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
   
$
107
   
$
-
   
$
724
 
Residential mortgage-backed securities
   
190
     
3
     
-
     
193
 
Certificates of deposit
   
1,683
     
-
     
-
     
1,683
 
Total
 
$
2,490
   
$
110
   
$
-
   
$
2,600
 

   
September 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Equity investments - Mutual funds
 
$
267,852
   
$
39,518
   
$
(1,010
)
 
$
306,360
 

14

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


   
September 30, 2018
 
   
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
Other invested assets - Alternative investments
 
$
71,479
   
$
1,950
   
$
(302
)
 
$
73,127
 

   
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
 

 
 
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
 

15

Table of Contents
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 September 30, 2018 and December 31, 2017 were as follows:

   
September 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
 
$
11,330
   
$
(130
)
   
2
   
$
-
   
$
-
     
-
   
$
11,330
   
$
(130
)
   
2
 
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
   
196,342
     
(1,488
)
   
21
     
-
     
-
     
-
     
196,342
     
(1,488
)
   
21
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
7,485
     
(5
)
   
4
     
-
     
-
     
-
     
7,485
     
(5
)
   
4
 
Municipal securities
   
306,834
     
(3,727
)
   
56
     
23,631
     
(794
)
   
2
     
330,465
     
(4,521
)
   
58
 
Corporate bonds
   
128,028
     
(1,007
)
   
44
     
-
     
-
     
-
     
128,028
     
(1,007
)
   
44
 
Residential mortgage-backed securities
   
53,395
     
(741
)
   
21
     
5,100
     
(246
)
   
4
     
58,495
     
(987
)
   
25
 
Collateralized mortgage obligations
   
6,333
     
(148
)
   
2
     
4,115
     
(210
)
   
1
     
10,448
     
(358
)
   
3
 
Total fixed maturities
 
$
709,747
   
$
(7,246
)
   
150
   
$
32,846
   
$
(1,250
)
   
7
   
$
742,593
   
$
(8,496
)
   
157
 
Other invested assets - Alternative investments
 
$
13,460
   
$
(224
)
   
5
   
$
8,817
   
$
(78
)
   
2
   
$
22,277
   
$
(302
)
   
7
 

   
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 Company from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

16

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


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.

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 InstrumentalitiesAs of September 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 September 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 nine-month period ending September 30, 2018.

17

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


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

   
September 30, 2018
 
   
Amortized
cost
   
Estimated
fair value
 
Fixed maturities available for sale
           
Due in one year or less
 
$
11,238
   
$
11,263
 
Due after one year through five years
   
400,523
     
398,067
 
Due after five years through ten years
   
419,705
     
418,411
 
Due after ten years
   
307,040
     
327,117
 
Residential mortgage-backed securities
   
59,483
     
58,496
 
Collateralized mortgage obligations
   
11,054
     
10,696
 
   
$
1,209,043
   
$
1,224,050
 
Fixed maturities held to maturity
               
Due in one year or less
   
1,683
     
1,683
 
Due after ten years
   
617
     
724
 
Residential mortgage-backed securities
   
190
     
193
 
   
$
2,490
   
$
2,600
 

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.

18

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
September 30,
   
Nine months ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Realized gains (losses)
                       
Fixed maturity securities:
                       
Securities available for sale:
                       
Gross gains
 
$
587
   
$
933
     
2,099
   
$
1,334
 
Gross losses
   
(2,892
)
   
(194
)
   
(13,695
)
   
(830
)
Total fixed securities
   
(2,305
)
   
739
     
(11,596
)
   
504
 
Equity investments:
                               
Gross gains
   
1,218
     
3,014
     
9,972
     
7,641
 
Gross losses
   
(67
)
   
-
     
(1,091
)
   
(2
)
Total equity investments
   
1,151
     
3,014
     
8,881
     
7,639
 
Other invested assets:
                               
Gross gains
   
311
     
-
     
4,104
     
-
 
Gross losses
   
(113
)
   
-
     
(324
)
   
-
 
Total other invested assets
   
198
     
-
     
3,780
     
-
 
Net realized investment (losses) gains
 
$
(956
)
 
$
3,753
   
$
1,065
   
$
8,143
 

 
 
Three months ended
September 30,
   
Nine months ended
September 30,
 
 
 
2018
   
2017
   
2018
   
2017
 
Changes in net unrealized (losses) gains:
                       
Recognized in accumulated other comprehensive (loss) income:
                       
Fixed maturities – available for sale
 
$
(8,873
)
 
$
(1,199
)
 
$
(30,130
)
 
$
1,614
 
Other invested assets
   
894
     
3,605
     
1,333
     
17,516
 
 
 
$
(7,979
)
 
$
2,406
   
$
(28,797
)
 
$
19,130
 
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
 
$
(13
)
 
$
(2
)
 
$
(46
)
 
$
(10
)

The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive (loss) income during the nine months ended September 30, 2018 and 2017 was $7,980 and $4,503, respectively.

As of September 30, 2018 and December 31, 2017, no individual investment in securities exceeded 10% of stockholders’ equity.

19

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:

   
September 30,
2018
   
December 31,
2017
 
Premium
 
$
73,624
   
$
103,027
 
Self-funded group receivables
   
34,851
     
39,859
 
FEHBP
   
13,670
     
13,346
 
Agent balances
   
26,076
     
32,818
 
Accrued interest
   
12,243
     
14,331
 
Reinsurance recoverable
   
428,298
     
661,679
 
Other
   
84,460
     
70,150
 
     
673,222
     
935,210
 
Less allowance for doubtful receivables:
               
Premium
   
31,379
     
26,490
 
Other
   
8,946
     
9,393
 
     
40,325
     
35,883
 
Total premium and other receivables, net
 
$
632,897
   
$
899,327
 

As of September 30, 2018 and December 31, 2017, the Company had premiums and other receivables of $52,170 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 September 30, 2018 and December 31, 2017 were $19,614 and $16,436, respectively.

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


(5)
Fair Value Measurements

Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, 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:

   
September 30, 2018
 
     
Level 1
   
Level 2
   
Level 3
   
Total
 
                     
Fixed maturity securities available for sale:
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
11,330
   
$
-
   
$
11,330
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
224,491
     
-
     
-
     
224,491
 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
   
-
     
8,229
     
-
     
8,229
 
Municipal securities
   
-
     
689,242
     
-
     
689,242
 
Corporate bonds
   
-
     
221,566
     
-
     
221,566
 
Residential agency mortgage-backed securities
   
-
     
58,496
     
-
     
58,496
 
Collateralized mortgage obligations
   
-
     
10,696
     
-
     
10,696
 
Total fixed maturities
   
224,491
     
999,559
     
-
     
1,224,050
 
                                 
Equity investments
 
$
143,638
   
$
162,722
   
$
-
   
$
306,360
 

   
December 31, 2017
 
 
Securities available for sale:
  
Level 1
   
Level 2
   
Level 3
   
Total
 
                     
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
 

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 nine months ended September 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 September 30, 2018 and December 31, 2017 are as follows:

 
 
September 30, 2018
 
 
 
  
Carrying
   
Fair Value
 
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
9,680
   
$
-
   
$
9,680
   
$
-
   
$
9,680
 
 
                                       
Liabilities:
                                       
Policyholder deposits
 
$
174,126
   
$
-
   
$
174,126
   
$
-
   
$
174,126
 
Long-term borrowings:
                                       
Loans payable to bank - variable
   
29,924
     
-
     
29,924
     
-
     
29,924
 
Total liabilities
 
$
204,050
   
$
-
   
$
204,050
   
$
-
   
$
204,050
 

 
 
December 31, 2017
 
 
 
  
Carrying
   
Fair Value
 
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                             
Policy loans
 
$
9,077
   
$
-
   
$
9,077
   
$
-
   
$
9,077
 
 
                                       
Liabilities:
                                      &