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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 March 31, 2019

or

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

For the transition period from                            to                        

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

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes  ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

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

Title of each class
Outstanding at March 31, 2019
Common Stock Class A, $1.00 par value
950,968
Common Stock Class B, $1.00 par value
22,156,051
 

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

Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock Class B, $1.00 par value
GTS
New York Stock Exchange (NYSE)



Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2019

Table of Contents

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

2

Part I – Financial Information

Item 1.
Financial Statements

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


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

See accompanying notes to unaudited condensed consolidated financial statements.

3

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


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

See accompanying notes to unaudited condensed consolidated financial statements.

4

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


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

See accompanying notes to unaudited condensed consolidated financial statements.

5

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


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

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

6

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

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

(Continued)

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


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

See accompanying notes to unaudited condensed consolidated financial statements.

8

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


(1)
Basis of Presentation

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

In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included.  The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the full year ending December 31, 2019.

(2)
Significant Accounting Policies

Recently Adopted Accounting Standards

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

Future Adoptions of Accounting Standards

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

9

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

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

(3)
Investment in Securities

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

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

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

10

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



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


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

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


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

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

Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2019 and December 31, 2018 were as follows:


 
March 31, 2019
 

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


 
December 31, 2018
 

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

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

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

Residential mortgage-backed securities:  The unrealized losses on investments in residential mortgage-backed securities were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities are guaranteed by a U.S. government-sponsored enterprise.  Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss.  The investment grade credit rating of our securities reflects the seniority of the securities that the Company owns.  The Company does not consider these investments other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality; the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows.

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

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

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


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

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

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

(4)
Realized and Unrealized Gains

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


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


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

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

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

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

(5)
Premiums and Other Receivables, Net

Premiums and other receivables, net were as follows:

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

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

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

(6)
Fair Value Measurements

Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, equity investments, policy loans, policyholder deposits, and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value.  Certain assets are measured at fair value on a recurring basis and are disclosed below.  These assets are classified into one of three levels of a hierarchy defined by GAAP.  For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see the consolidated financial statements and notes thereto included in our 2018 Annual Report on Form 10-K.

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

   
March 31, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Fixed maturity securities available for sale                                
Obligations of government-sponsored enterprises
 
$
-
   
$
41,584
   
$
-
   
$
41,584
 
U.S. Treasury securities and obligations of U.S government instrumentalities
   
132,800
     
-
     
-
     
132,800
 
Municipal securities
   
-
     
747,352
     
-
     
747,352
 
Corporate bonds
   
-
     
199,034
     
-
     
199,034
 
Residential agency mortgage-backed securities
   
-
     
80,420
     
-
     
80,420
 
Collateralized mortgage obligations
   
-
     
10,201
     
-
     
10,201
 
Total fixed maturities
 
$
132,800
   
$
1,078,591
   
$
-
   
$
1,211,391
 
Equity investments
 
$
149,712
   
$
130,753
   
$
5,049
   
$
285,514
 

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

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

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

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

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
2019
 
         
Balance as of January 1,
 
$
3,805
 
Realized gains
   
-
 
Unrealized in other accumulated comprehensive income
   
(6
)
Purchases
   
1,250
 
Sales
   
-
 
Capital Distributions
   
-
 
Balance as of March 31,
 
$
5,049
 

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

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

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

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

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

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

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

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

   
Three months ended
March 31, 2018
 
   
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
                         
Claim liabilities at beginning of period
 
$
367,357
   
$
739,519
   
$
1,106,876
 
Reinsurance recoverable on claim liabilities
   
-
     
(633,099
)
   
(633,099
)
Net claim liabilities at beginning of period
   
367,357
     
106,420
     
473,777
 
Claims incurred
                       
Current period insured events
   
603,947
     
30,907
     
634,854
 
Prior period insured events
   
(20,226
)
   
(1,818
)
   
(22,044
)
Total
   
583,721
     
29,089
     
612,810
 
Payments of losses and loss-adjustment  expenses
                       
Current period insured events
   
322,388