| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation,” the “Company,” “TSM,” “we,” “our,” and “us” refers
to Triple-S Management Corporation and its subsidiaries. The MD&A included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months and
nine months ended September 30, 2021. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States
Securities and Exchange Commission as of and for the year ended December 31, 2020 and the MD&A included therein, and our unaudited condensed consolidated interim financial statements and accompanying notes as of and for the three months and
nine months ended September 30, 2021 included in this Quarterly Report on Form 10-Q.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent
our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is
possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ
from those in the forward-looking statements are discussed throughout this form. We are under no obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information,
future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, the development of the COVID-19 outbreak, rising healthcare costs,
business conditions and competition in the different insurance segments, government action and other regulatory issues, the risk that a condition of closing of the Merger may not be satisfied or that the closing of the Merger might
otherwise not occur; the risk that a regulatory approval or a Blue Cross and Blue Shield Association approval that may be required for the Merger is not obtained or is obtained subject to conditions that are not anticipated; the diversion of
management time on Merger-related issues; risks related to disruption of management time from ongoing business operations due to the proposed Merger; and unexpected costs, charges or expenses resulting from the proposed Merger.
Overview
Triple-S is a health services company and one of the top players in the Puerto Rico health care industry. With more than 60 years of experience, we are the premier health care
brand and serve more people through the most attractive provider networks on the island. We have the exclusive right to use the Blue Cross and Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands (USVI), Costa Rica, the
British Virgin Islands (BVI) and Anguilla, and we offer a broad portfolio of managed care and related products in the Commercial, Medicare Advantage and Medicaid markets. In the Commercial market, we offer products to corporate accounts, U.S.
federal government employees, local government employees, individual accounts and Medicare Supplement. We also participate in the Government of Puerto Rico Health Insurance Plan, a government of Puerto Rico and U.S. federal government funded
managed care program for the medically indigent that is similar to the Medicaid program in the U.S. (Medicaid or the Government health plan).
Our commitment to our valued customers and provider partners, backed by our heritage of excellent care, access and service have positioned Triple-S for continued growth in the
healthcare arena. Our progressive use of technology and clinical data, value-based partnerships with care providers and initial investments in ambulatory and primary care assets are a strong foundation for differentiation and growth through the
development of an integrated delivery system over the next several years. We believe continued investment and focus on delivering an excellent healthcare experience and great service, coupled with health management programs that improve outcomes
and quality of life while reducing the total cost of care, will separate Triple-S from our competition and strengthen the financial performance of our business well into the future.
As of September 30, 2021, we served 1 million managed care members in Puerto Rico. For the nine months ended September 30, 2021 and 2020, our Managed Care segment represented
approximately 92% of our total consolidated premiums earned.
We participate in the managed care market through our subsidiaries, Triple-S Salud, Inc. (TSS), Triple-S Advantage, Inc. (TSA), and Triple-S Blue, Inc. I.I. (TSB). TSS, TSA
and TSB are Blue Cross Blue Shield Association (BCBSA) licensees.
Triple-S is also a well-known brand in the life insurance and property and casualty insurance markets, with a significant share in each. We participate in the life insurance
market through our subsidiary Triple-S Vida (TSV), and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad (TSP).
Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated,
the reported balances for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each
segment but are eliminated in consolidation and do not change net income. See Note 15 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.
Our revenue primarily consists of premiums earned, net and investment income. Premiums are derived from the sale of managed care products and property and casualty and life
insurance contracts. Substantially all our earnings are generated in Puerto Rico.
Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and policyholders. Each segment’s results of
operations depend to a significant extent on management’s ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a
management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation, commission payments to brokers and other overhead business expenses.
We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as
measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned, net, and administrative service fees, multiplied by 100.
Triple-S Management-GuideWell Merger Agreement
On August 24, 2021, Triple-S Management Corporation and GuideWell Mutual Holding Corporation, a Florida not-for-profit mutual insurance holding company (GuideWell) announced
that on August 23, 2021, Triple-S, GuideWell and GuideWell Merger, Inc., a Delaware corporation and a wholly owned subsidiary of GuideWell (Merger Sub), entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which, subject
to the satisfaction or waiver of certain conditions and on the terms set forth therein, Merger Sub will be merged with and into Triple-S, with Triple-S surviving the merger as a wholly-owned subsidiary of GuideWell (the Merger).
At the effective time of the Merger, except as otherwise provided under the Merger Agreement, each share of Triple-S common stock, par value $1.00 per share will be automatically canceled and
retired and converted into the right to receive $36.00 in cash, without interest and less any applicable withholding taxes.
COVID-19
COVID-19 Situation in Puerto Rico
As of November 1, 2021, the Puerto Rico Department of Health reported a cumulative total of 151,819 and 33,407 confirmed (RT-PCR+) and probable (antigen) COVID-19 cases, respectively, and a total
of 3,234 confirmed and probable COVID-19-related deaths in Puerto Rico. According to the Puerto Rico Department of Health, as of November 1, 2021, the positivity rate was 1.98%.
Puerto Rico was under a stay-at-home order from March 15, 2020 until June 16, 2020. The Governor of Puerto Rico also issued several consecutive executive orders establishing COVID-19 related
restrictions and the rules for the gradual re-opening of the economy, which were in effect from May 4, 2020 to July 4, 2021. As of July 5, 2021 the Governor delegated all authority to issue guidelines and protocols to address the COVID-19
emergency to the Puerto Rico Secretary of Health. However, the Governor continues to issue executive orders establishing COVID-19 related restrictions as deemed necessary.
Puerto Rico began its COVID-19 vaccination program in December 2020 and as of May 12, 2021, all citizens 12 years old and older are eligible to receive the vaccine. The Puerto Rico Department of
Health reported as of October 20, 2021 that over 80% of the eligible population had received the full dose of the COVID-19 vaccine and over 88% of the eligible population had received at least the first dose. According to data from the Centers for
Disease Control and Prevention, Puerto Rico has the highest COVID-19 vaccination rate in the United States, with 73.4% of its population fully vaccinated. A COVID-19 vaccine third dose or booster is available for eligible populations.
We have implemented our business continuity and risk mitigation plans and are closely monitoring outbreak developments in order to ensure the health and safety of our employees and visitors.
Economic Impact
As mentioned below, the 2021 Fiscal Plan (defined below) estimates that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an
unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus measures, some of which are summarized below, have more than offset the estimated income loss due to reduced economic activity and have caused a
temporary increase in personal income on a net basis. However, it is still too early to fully assess the ultimate medium- and long-term impact of the pandemic and lockdown in the Puerto Rico economy. See Item 1A. Risk Factors – Risks Related to our Business – Our business is geographically concentrated in Puerto Rico and weakness in the economy and the fiscal health of the government has adversely
affected and may continue to adversely affect us. included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Funding and Economic Relief for Puerto Rico
The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, makes approximately $182.9 million available for Puerto Rico’s Medicaid Program and increases the FMAP (as defined
below) from 76% to approximately 82% during the emergency period. The Coronavirus Aid, Relief, and Economic Security or CARES Act, enacted on March 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, enacted on
December 27, 2020, and the American Rescue Plan, enacted on March 11, 2021 include a series of direct relief and financial assistance measures for Puerto Rico residents and businesses. The CARES Act also assigns $2.2 billion to the Government of
Puerto Rico to cover necessary expenditures related to COVID-19 and not included in the territory’s budget, among other measures. The Puerto Rico government has earmarked approximately $1 billion for its COVID-19 response.
Measures Impacting our Business
The FFCRA and CARES Act also require health plans and insurers to cover testing for COVID-19 without imposing cost-sharing or prior authorization requirements.
On April 16, 2020, the Puerto Rico Government enacted Act number 43, which requires health plans and insurers to cover COVID-19-related diagnostic and treatment services, including hospitalization, without cost-sharing. Our regulators have also
issued regulations or circular letters requiring waivers of pre-authorizations for certain services and drugs, requiring temporary coverage of certain out-of-network providers and services, and limiting cost-sharing for certain services. See
Item 1A. Risk Factors – Risks Related to our Business – Pandemics, like the COVID-19 pandemics and local, state and federal governments’ response to the pandemics may have a material adverse effect on our business,
financial condition and results of operations. included on our Annual Report on Form 10-K for the year ended December 31, 2020.
Puerto Rico Economy
The Puerto Rico economy entered a recession in the fourth quarter of fiscal year 2006. Puerto Rico’s gross national product (GNP) contracted (in real terms) every fiscal year
between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the Planning Board) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019, primarily due to
federal disaster recovery spending related to Hurricanes Irma and María. The Planning Board estimates, however, that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19
pandemic and the measures taken by the government in response to the same. The Planning Board projected that the negative effects of COVID-19 would continue through fiscal year 2021, resulting in a contraction in real GNP of approximately -2%,
followed by 0.8% real GNP growth in fiscal year 2022.
Puerto Rico’s population has also been in decline over the past decade. Estimates by the U.S. Census Bureau indicate the population has decreased by 11.8%, or
approximately 440,000 people, from 2010 to 2020. The 2021 Fiscal Plan (as defined below) projects that population will continue to steadily decline at an average rate of approximately 1-2% per year, due to a combination of outmigration and
economic factors. The weakness of Puerto Rico’s economy has also adversely affected employment. Total average annual employment, as measured by the Puerto Rico Department of Labor and Human Resources (the DLHR) has decreased approximately 23%
since 2007. The reduction in total employment began in the fourth quarter of fiscal year 2007, when total employment was 1,244,425, and continued consistently until the first half of fiscal year 2015, after which it mostly stabilized. According
to the most recent data from DLHR, Puerto Rico’s average total employment as of August 2021 was 982,000, a 1% increase from total employment of 972,000 as of August 2020. The DLHR also reported an
average unemployment rate of approximately 8.4% as of August 2021, a 0.1% increase from 8.3% unemployment rate reported by the DLHR as of August 2020.
PROMESA and the Oversight Board
The Commonwealth has been enduring a fiscal and economic crisis for over a decade. Such crisis prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA) in June 2016. PROMESA, among other things, created a federal fiscal oversight board (the Oversight Board) with broad powers over the Commonwealth’s fiscal affairs and established two mechanisms for the restructuring
of the obligations of the Commonwealth, its instrumentalities and municipalities, contained in Titles III and VI of PROMESA. The Commonwealth and several of its instrumentalities have been in the process of restructuring their debts through the
mechanisms provided by PROMESA for some time.
Commonwealth Fiscal Plan and Plan of Adjustment
The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is
dated April 23, 2021 (the 2021 Fiscal Plan). The 2021 Fiscal Plan provides that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in
Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. As a result,
the 2021 Fiscal Plan’s economic projections incorporate adjustments for the short-term income effects caused by such stimulus programs. For example, the 2021 Fiscal Plan estimates that real GNP contracted by 3% in fiscal year 2020 but estimates the
GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the 2021 Fiscal Plan projects that real GNP will grow 1% and 0.6%, respectively, but projects that growth adjusted for income
effects for such years will be approximately 3.8% and 1.5%, respectively.
The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented, the Commonwealth will have a
pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the fiscal measures could drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 2026 and that the structural reforms could
drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $30.7 billion). However, even after the fiscal measures and structural reforms, and before contractual debt service, the 2021 Fiscal Plan projects that there
will be an annual deficit starting in fiscal year 2036.
On July 30, 2021, the Oversight Board filed the Seventh Amended Title III Joint Plan of Adjustment for the Commonwealth, et. al. (the Proposed Plan) in the pending debt
restructuring proceedings under Title III of PROMESA. The Proposed Plan, which has substantial support from several creditor constituencies but is still subject to confirmation in the Title III proceeding, seeks to restructure approximately $35
billion of debt and other claims against the Commonwealth, the Public Building Administration and the Employee Retirement System. In October of 2021, the Puerto Rico government approved legislation establishing the framework for the debt
restructuring under the Proposed Plan. The Proposed Plan is expected to be amended to reflect certain changes required by such legislation. The final hearings for the confirmation of a plan of adjustment are scheduled to begin on November 8, 2021
and continue as necessary until November 23, 2021.
Property & Casualty Litigation
As of September 30, 2021, our Property and Casualty subsidiary had been served in a total of 490 cases relating to Hurricane Maria. Of those, 255 remained open as of September
30, 2021. See Item 1A. Risk Factors – Risks Related to our Business – Large-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations. and We face risks related to litigation. included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Property and Casualty Reinsurance Program
The Company’s Property and Casualty segment completed the renewal of its reinsurance property and catastrophe program with an effective date of April 1, 2021 with a term of
twelve-months ending on March 31, 2022. The reinsurance program provides the segment with a catastrophe loss protection of $811.5 million in excess of $5 million. The cost of entering into the new reinsurance program is estimated to remain similar
to the expiring program.
ASES Contract Renewal
The Puerto Rico Health Insurance Administration (ASES by its Spanish acronym) has notified us of its exercise of its right to extend our agreement for the provision of health
coverage to the medically indigent in Puerto Rico under the Puerto Rico Health Reform Program (similar to Medicaid) for an additional year, from October 1, 2021 to September 30, 2022. The renewal is subject to premium negotiations for the extended
term, which are under way.
Medicaid Cliff
Medicaid is jointly funded by the federal government and state governments. States receive a percentage of their Medicaid program expenditures from the federal government,
through a formula known as the Federal Medical Assistance Percentage (FMAP). The FMAP varies by state based on factors such as per capita income. However, unlike states, the FMAP for Puerto Rico and other U.S. territories is fixed, and federal
funding is capped per funding period.
The Further Consolidated Appropriations Act of 2019, assigned to Puerto Rico an FMAP of 76% and up to approximately $5.342 billion in Medicaid funding. It was understood among
the federal government, Congress, the territories, and members of the healthcare system that the 2019 legislation allocated federal contributions and matching rates to run the Medicaid program until September 30, 2021. Efforts were being made in
Congress to address the expiration of funding. However, the Centers for Medicare and Medicaid Services (CMS) determined that the 2019 legislation granted the territories with a baseline amount to run the Medicaid program for perpetuity, including
an inflation adjustment.
Based on CMS’ determination, the allocation of $2.9B assigned to Puerto Rico for Fiscal Year 2020 will be used as a baseline to run the Medicaid program in perpetuity along
with the inflation adjustment. However, CMS’ interpretation is that the FMAP was not addressed in the same way. Therefore, without Congressional action, Puerto Rico’s FMAP will revert to 55 percent. In addition, Puerto Rico will continue to
qualify for the temporary 6.2 percentage point increase (to approximately 82%) under the FFCRA through the end of the quarter in which the public health emergency ends, if Puerto Rico continues to meet the applicable statutory requirements. As an
administrative interpretation of a statute, CMS’ determination is susceptible to legal challenges by anyone with standing, as well as to a change in interpretation with a new government administration.
On September 30, 2021, the current FMAP of 76% was extended until December 3, 2021 by the Continuing Resolution that was approved to fund the federal government
for 2022. In addition, as part of the negotiations relating to the reconciliation package, Congress is proposing to increase Puerto Rico’s FMAP to 76% for 2022 and to 83% for 2023 and going forward. See Item 1A. Risk Factors – Risks Related to our Business – We are dependent on a small number of government contracts to generate a significant amount of the revenues for our Managed
Care segment included in our Annual Report on Form 10-K for the year ended December 31, 2020. See also Item 1A. Risk Factors – Risks Related to our Business –Our business is geographically concentrated in Puerto Rico and weakness in the economy and the fiscal health of the government has adversely affected and may continue to adversely
affect us included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Standards
For a description of recent accounting standards, see Note 2 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form
10-Q.
Managed Care Membership
| |
|
As of September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
Managed Care enrollment:
|
|
|
|
|
|
|
|
Commercial 1
|
|
|
416,033
|
|
|
|
429,503
|
|
|
Medicare
|
|
|
136,459
|
|
|
|
136,135
|
|
|
Medicaid
|
|
|
449,474
|
|
|
|
385,344
|
|
|
Total
|
|
|
1,001,966
|
|
|
|
950,982
|
|
|
Managed Care enrollment by funding arrangement:
|
|
|
|
|
|
|
|
|
|
Fully insured
|
|
|
907,705
|
|
|
|
843,152
|
|
|
Self-insured
|
|
|
94,261
|
|
|
|
107,830
|
|
|
Total
|
|
|
1,001,966
|
|
|
|
950,982
|
|
| (1) |
Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.
|
Consolidated Operating Results
The following table sets forth our consolidated operating results. Further details of the results of operations of each reportable segment are included in the analysis of
operating results for the respective segments.
| |
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
(dollar in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned, net
|
|
$
|
1,019.7
|
|
|
$
|
923.0
|
|
|
$
|
3,016.0
|
|
|
$
|
2,657.4
|
|
|
Administrative service fees
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
9.3
|
|
|
|
8.7
|
|
|
Net investment income
|
|
|
17.6
|
|
|
|
14.2
|
|
|
|
46.2
|
|
|
|
42.3
|
|
|
Other operating revenues
|
|
|
3.8
|
|
|
|
2.0
|
|
|
|
8.5
|
|
|
|
6.4
|
|
|
Total operating revenues
|
|
|
1,045.0
|
|
|
|
942.9
|
|
|
|
3,080.0
|
|
|
|
2,714.8
|
|
|
Net realized investment gains (losses)
|
|
|
1.0
|
|
|
|
0.5
|
|
|
|
3.7
|
|
|
|
(0.2
|
)
|
|
Net unrealized investment (losses) gains on equity investments
|
|
|
(7.9
|
)
|
|
|
11.1
|
|
|
|
13.4
|
|
|
|
(17.4
|
)
|
|
Other income, net
|
|
|
11.1
|
|
|
|
1.8
|
|
|
|
19.1
|
|
|
|
6.2
|
|
|
Total revenues
|
|
|
1,049.2
|
|
|
|
956.3
|
|
|
|
3,116.2
|
|
|
|
2,703.4
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
879.0
|
|
|
|
761.8
|
|
|
|
2,573.6
|
|
|
|
2,129.4
|
|
|
Operating expenses
|
|
|
154.5
|
|
|
|
158.8
|
|
|
|
456.9
|
|
|
|
499.7
|
|
|
Total operating expenses
|
|
|
1,033.5
|
|
|
|
920.6
|
|
|
|
3,030.5
|
|
|
|
2,629.1
|
|
|
Interest expense
|
|
|
2.0
|
|
|
|
2.1
|
|
|
|
6.2
|
|
|
|
5.8
|
|
|
Total benefits and expenses
|
|
|
1,035.5
|
|
|
|
922.7
|
|
|
|
3,036.7
|
|
|
|
2,634.9
|
|
|
Income before taxes
|
|
|
13.7
|
|
|
|
33.6
|
|
|
|
79.5
|
|
|
|
68.5
|
|
|
Income tax expense
|
|
|
5.6
|
|
|
|
10.0
|
|
|
|
24.5
|
|
|
|
27.5
|
|
|
Net income attributable to TSM
|
|
$
|
8.1
|
|
|
$
|
23.6
|
|
|
$
|
55.0
|
|
|
$
|
41.0
|
|
Three Months Ended September 30,
2021 Compared to Three Months Ended September 30, 2020
Operating Revenues
Consolidated premiums earned, net increased by $96.7 million, or 10.5%, to $1,019.7 million. This increase primarily reflects higher premiums in the Managed Care segment by
$89.7 million. The growth in Managed Care premiums reflects higher average premium rates across all lines of business and an increase in Medicaid and Medicare membership.
Net Unrealized Investment (Losses) Gains on Equity Investments
The $7.9 million in consolidated net unrealized investment losses on equity investments reflect the impact of changes in equity markets.
Claims Incurred
Consolidated claims incurred increased by $117.2 million, or 15.4%, to $879.0 million, and the consolidated loss ratio increased 370 basis points, to 86.2%, when compared to
the prior-year period primarily reflecting a more normalized utilization of Managed Care services compared to the lower utilization in the prior-year quarter due to the pandemic, COVID-19-related testing and treatments costs, increased benefits in
the Medicare product offering in 2021 and the effect of the elimination of the Health Insurance Providers Fee (HIP fee) pass-through in 2021.
In the 2020 period, following the government-enforced lockdown related to the COVID-19 pandemic, we experienced a decrease in utilization of Managed Care services as members
and providers deferred non-emergent or elective health services.
Operating Expenses
Consolidated operating expenses decreased by $4.3 million, or 2.7%, to $154.5 million. The decrease in operating expenses primarily reflects the elimination in 2021 of the HIP
fee of $12.1 million and lower business promotion expenses related to COVID-19 relief efforts incurred in 2020, offset in part by higher personnel costs. The consolidated operating expense ratio decreased 200 basis points, to 15.1%.
Income Taxes
Consolidated income tax expense for the three months ended September 30, 2021 decreased by $4.4 million, to $5.6 million, primarily reflecting lower taxable income in 2021.
Nine Months Ended September 30, 2021
Compared to Nine Months Ended September 30, 2020
Operating Revenues
Consolidated premiums earned, net increased by $358.6 million, or 13.5%, to $3,016.0 million during the nine months ended September 30, 2021. This increase primarily reflects
higher premiums in the Managed Care segment by $332.4 million due to higher average premium rates in all lines of business and an increase in Medicaid and Medicare membership.
Net Unrealized Investment Gains (Losses) on Equity Investments
The $13.4 million in consolidated net unrealized investment gains on equity investments reflect the impact of changes in equity markets.
Claims Incurred
Consolidated claims incurred increased by $444.2 million, or 20.9%, to $2,573.6 million, during the nine months ended September 30, 2021. The consolidated loss ratio increased
520 basis points, to 85.3%, from the prior-year period, reflecting higher Managed Care claim trends and utilization of services because of COVID-19-related testing and treatments costs, the waiver of medical and payment policies (see Recent Developments – COVID-19 – Measures Impacting our Business included in this quarterly report on Form 10-Q), increased benefits in the 2021 Medicare product and a
more normalized utilization of services compared to the low utilization in the prior year due to the pandemic.
In the 2020 period, following the government-enforced lockdown related to the COVID-19 pandemic, we experienced a decrease in utilization of Managed Care services as members
and providers deferred non-emergent or elective health services.
Operating Expenses
Consolidated operating expenses decreased by $42.8 million, or 8.6%, to $456.9 million. The decrease in operating expenses primarily reflects the elimination of
the HIP fee in 2021 by $43.4 million and the accrual in the prior year of a contingency reserve related to a legal proceeding in the Managed Care segment amounting to $32.0 million. These decreases were partially offset by higher personnel costs
and professional fees. The consolidated operating expense ratio decreased 360 basis points, to 15.1%.
Income Taxes
Consolidated income taxes decreased by $3.0 million, or 10.9%, to $24.5 million, primarily reflecting the impact of the unrealized investment gains on equity investments in the 2021 income tax
expense compared with the impact of the unrealized investment loss in the 2020 income tax expense.
Managed Care Operating Results
| |
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
(dollar in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical premiums earned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare
|
|
$
|
423.1
|
|
|
$
|
400.7
|
|
|
$
|
1,233.8
|
|
|
$
|
1,160.9
|
|
|
Medicaid
|
|
|
302.2
|
|
|
|
240.9
|
|
|
|
916.7
|
|
|
|
682.9
|
|
|
Commercial
|
|
|
214.4
|
|
|
|
208.4
|
|
|
|
631.0
|
|
|
|
605.3
|
|
|
Medical premiums earned, net
|
|
|
939.7
|
|
|
|
850.0
|
|
|
|
2,781.5
|
|
|
|
2,449.1
|
|
|
Administrative service fees
|
|
|
3.9
|
|
|
|
3.1
|
|
|
|
10.0
|
|
|
|
9.8
|
|
|
Net investment income
|
|
|
8.1
|
|
|
|
5.1
|
|
|
|
19.1
|
|
|
|
14.8
|
|
|
Total operating revenues
|
|
|
951.7
|
|
|
|
858.2
|
|
|
|
2,810.6
|
|
|
|
2,473.7
|
|
|
Medical operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical claims incurred
|
|
|
833.8
|
|
|
|
720.3
|
|
|
|
2,449.1
|
|
|
|
2,025.1
|
|
|
Medical operating expenses
|
|
|
109.4
|
|
|
|
124.9
|
|
|
|
327.0
|
|
|
|
392.1
|
|
|
Total medical operating costs
|
|
|
943.2
|
|
|
|
845.2
|
|
|
|
2,776.1
|
|
|
|
2,417.2
|
|
|
Medical operating income
|
|
$
|
8.5
|
|
|
$
|
13.0
|
|
|
$
|
34.5
|
|
|
$
|
56.5
|
|
|
Additional data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member months enrollment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully insured
|
|
|
966,002
|
|
|
|
966,906
|
|
|
|
2,871,788
|
|
|
|
2,920,460
|
|
|
Self-funded
|
|
|
281,153
|
|
|
|
324,372
|
|
|
|
875,844
|
|
|
|
981,634
|
|
|
Total commercial
|
|
|
1,247,155
|
|
|
|
1,291,278
|
|
|
|
3,747,632
|
|
|
|
3,902,094
|
|
|
Medicare
|
|
|
410,939
|
|
|
|
407,170
|
|
|
|
1,228,732
|
|
|
|
1,220,280
|
|
|
Medicaid
|
|
|
1,342,953
|
|
|
|
1,132,626
|
|
|
|
3,972,136
|
|
|
|
3,278,098
|
|
|
Total member months
|
|
|
3,001,047
|
|
|
|
2,831,074
|
|
|
|
8,948,500
|
|
|
|
8,400,472
|
|
|
Medical loss ratio
|
|
|
88.7
|
%
|
|
|
84.7
|
%
|
|
|
88.0
|
%
|
|
|
82.7
|
%
|
|
Operating expense ratio
|
|
|
11.6
|
%
|
|
|
14.6
|
%
|
|
|
11.7
|
%
|
|
|
15.9
|
%
|
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
Medical Premiums Earned, Net
Medical premiums earned increased by $89.7 million, or 10.6%, to $939.7 million. This increase is principally the result of the following:
| • |
Premiums generated by the Medicaid business increased by $61.3 million, or 25.4%, to $302.2 million, primarily reflecting an increase in enrollment of
approximately 210,000 member months and higher average premium rates. In addition, following a reconciliation process with ASES this quarter we recognized premiums corresponding to prior periods.
These increases were partially offset by the elimination of the HIP fee pass-through in 2021.
|
| • |
Premiums generated by the Medicare business increased by $22.4 million, or 5.6%, to $423.1 million, primarily due to higher average premium rates resulting from an increase in the premium rate
benchmark, higher average membership risk score and higher enrollment of approximately 3,800 members months when compared with the prior-year period.
|
| • |
Premiums generated by the Commercial business increased by $6.0 million, or 2.9%, to $214.4 million, primarily reflecting higher average premium rates. This increase was partially offset by the
elimination of the HIP Fee pass-through in 2021.
|
Medical claims incurred increased by $113.5 million, or 15.8%, to $833.8 million when compared to the three months ended September 30, 2020. The medical loss ratio (MLR) of the
segment increased 400 basis points during the 2021 period, to 88.7%. This fluctuation is principally attributed to the net effect of the following:
| • |
Claims incurred in the Medicaid business increased by $61.2 million, or 27.1%, during the 2021 period. The MLR, at 95.2%, was 120 basis points higher than the same period last year. The increase in claims
cost is due to higher member months, a more normalized utilization of services compared to the lower utilization experienced in the prior-year quarter due to the pandemic, and COVID-19-related testing and treatment costs. In addition, the
2021 MLR was impacted by the elimination of the HIP fee pass-through in 2021.
|
| • |
Claims incurred in the Medicare business increased by $26.1 million, or 8.1%, during the 2021 period and its MLR increased 190 basis points to 82.5%. These increases reflect a more normalized utilization of
services compared to the lower utilization experienced in the prior-year quarter due to the pandemic, improved benefits in the 2021 product offerings, COVID-19-related testing and treatment costs and the waiver of medical and payment
policies, partially offset by favorable prior period reserve development in the 2021 period.
|
| • |
Claims incurred in the Commercial business increased by $26.2 million, or 15.3%, during 2021 and its MLR increased 1,000 basis points, to 91.9%. The higher MLR principally reflects higher claim trends, a
more normalized utilization of services compared to the low utilization experienced in the prior-year quarter due to the pandemic, COVID-19-related testing and treatment costs and the elimination of the HIP fee pass-through in 2021.
|
Medical Operating Expenses
Medical operating expenses decreased by $15.5 million, or 12.4%, to $109.4 million, primarily reflecting the elimination of the HIP fee in 2021 and lower business promotion expenses driven by the
COVID-19 relief efforts incurred in 2020, partially offset by higher personnel costs. The operating expense ratio decreased 300 basis points to 11.6% in 2021.
Nine Months Ended September 30, 2021 Compared to Nine Months
Ended September 30, 2020
Medical Premiums Earned, Net
Medical premiums earned increased by $332.4 million, or 13.6%, to $2,781.5 million. This increase is principally the result of the following:
| • |
Premiums generated by the Medicaid business increased by $233.8 million, or 34.2%, to $916.7 million, primarily reflecting higher average premium rates following
two premium rates increases that were effective in May 2020 and July 2020 and an increase in enrollment of approximately 694,000 member months. In addition, following a reconciliation process with ASES this year, we recognized premiums
corresponding to prior periods in the first and third quarter of 2021. These increases were partially offset by the elimination of the HIP fee pass-through in 2021.
|
| • |
Premiums generated by the Medicare business increased by $72.9 million, or 6.3%, to $1,233.8 million, primarily due to higher average premium rates reflecting an increase in the premium rate benchmark and membership risk score. Member months increased by approximately 8,500 when compared with the prior-year period.
|
| • |
Premiums generated by the Commercial business increased by $25.7 million, or 4.2%, to $631.0 million, mainly reflecting higher average premium rates in the 2021 period. This increase was
partially offset by the elimination of the HIP fee pass-through in 2021 and a decrease of approximately 49,000 fully insured member months.
|
Medical Claims Incurred
Medical claims incurred increased by $424.0 million, or 20.9%, to $2,449.1 million when compared to the nine months ended September 30, 2020. The MLR of the
segment increased 530 basis points during 2021, to 88.0%. This fluctuation is principally attributed to the net effect of the following:
| • |
Claims incurred in the Medicaid business increased by $211.7 million, or 33.4%, during 2021 and its MLR decreased 60 basis points, to 92.1%. The increase in claim cost is due to higher member months. The
lower MLR reflects the premium rates increases and prior period premiums recognized this year, partially offset by COVID-19-related testing and treatment costs, the waiver of medical and payment policies and the elimination of the HIP fee
pass-through in 2021.
|
| • |
Claims incurred in the Medicare business increased by $118.3 million, or 12.7%, during the 2021 period and its MLR increased 490 basis points, to 85.1%. The higher MLR reflects a more normalized utilization
of services compared to the low utilization experienced in the prior-year period due to the pandemic, improved benefits in the 2021 product offerings, COVID-19-related testing and treatment costs and the waiver of medical and payment
policies. These increases were partially offset by favorable prior period reserve development in the 2021 period.
|
| • |
Claims incurred in the Commercial business increased by $94.0 million, or 20.4%, during 2021 and its MLR increased 1,180 basis points, to 87.9%. These increases primarily result from higher claim trends, a
more normalized utilization of services compared to low utilization in the prior year due to the pandemic, COVID-19-related testing and treatment costs, the waiver of medical and payment policies and the elimination of the HIP fee
pass-through in 2021.
|
Medical Operating Expenses
Medical operating expenses decreased by $65.1 million, or 16.6%, to $327.0 million, primarily reflecting the elimination of the HIP fee in 2021, the accrual in prior year of a contingency reserve related to a legal proceeding and lower business promotion expenses driven by the COVID-19 relief efforts incurred in 2020, offset in part by an increase in personnel costs. The operating expense ratio
decreased 420 basis points to 11.7% in 2021.
Life Insurance Segment Operating Results
| |
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
(dollar in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
57.9
|
|
|
$
|
52.6
|
|
|
$
|
170.0
|
|
|
$
|
152.2
|
|
|
Assumed earned premiums
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
Ceded premiums earned
|
|
|
(2.8
|
)
|
|
|
(2.6
|
)
|
|
|
(8.4
|
)
|
|
|
(7.4
|
)
|
|
Premiums earned, net
|
|
|
55.1
|
|
|
|
50.1
|
|
|
|
161.6
|
|
|
|
144.9
|
|
|
Net investment income
|
|
|
6.8
|
|
|
|
6.9
|
|
|
|
19.9
|
|
|
|
20.6
|
|
|
Total operating revenues
|
|
|
61.9
|
|
|
|
57.0
|
|
|
|
181.5
|
|
|
|
165.5
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy benefits and claims incurred
|
|
|
30.8
|
|
|
|
30.6
|
|
|
|
89.8
|
|
|
|
78.6
|
|
|
Underwriting and other expenses
|
|
|
25.5
|
|
|
|
20.7
|
|
|
|
73.9
|
|
|
|
66.7
|
|
|
Total operating costs
|
|
|
56.3
|
|
|
|
51.3
|
|
|
|
163.7
|
|
|
|
145.3
|
|
|
Operating income
|
|
$
|
5.6
|
|
|
$
|
5.7
|
|
|
$
|
17.8
|
|
|
$
|
20.2
|
|
|
Additional data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
55.9
|
%
|
|
|
61.1
|
%
|
|
|
55.6
|
%
|
|
|
54.2
|
%
|
|
Operating expense ratio
|
|
|
46.3
|
%
|
|
|
41.3
|
%
|
|
|
45.7
|
%
|
|
|
46.0
|
%
|
Three Months Ended September 30, 2021 Compared to Three Months
Ended September 30, 2020
Operating Revenues
Premiums earned, net increased by $5.0 million, or 10.0%, to $55.1 million, primarily as the result of higher sales across all lines of business, particularly in the Individual
Life and Cancer lines of business. Last year premium growth slowed down due to the COVID-19 government-enforced lockdown and restrictions, which severely affected sales and increased policy cancellations.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred increased by $0.2 million, or 0.7%, to $30.8 million, while the segment’s loss ratio decreased 520 basis points, to 55.9% following the
segment’s increased premiums.
Underwriting and Other Expenses
Underwriting and other expenses increased $4.8 million, or 23.2%, to $25.5 million, primarily reflecting an increase in commissions expense resulting from higher sales during
the period, and higher amortization of deferred acquisition costs. The segment’s operating expense ratio increased 500 basis points, to 46.3%.
Nine Months Ended September 30, 2021 Compared to Nine Months
Ended September 30, 2020
Operating Revenues
Premiums earned, net increased by $16.7 million, or 11.5%, to $161.6 million, primarily as the result of increased persistency and new sales across all lines of business,
particularly in the Individual Life, Cancer and Group Life lines of business. In addition, during the second quarter of 2020, this segment acquired an insurance portfolio that contributed additional premiums in the Cancer and Group Life lines of
business.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred increased by $11.2 million, or 14.2%, to $89.8 million, primarily as the result of higher actuarial reserves, due to
improved persistency during the period, and higher benefits paid driven by the lower volume of claim submissions in the prior year following the government-enforced lockdown due to COVID-19 pandemic. As a result,
the segment’s loss ratio increased 140 basis points, to 55.6%.
Underwriting and Other Expenses
Underwriting and other expenses increased $7.2 million, or 10.8%, to $73.9 million, primarily reflecting an increase in commissions expense resulting from higher sales during
the period and higher amortization of deferred acquisition costs. The segment’s operating expense ratio decreased 30 basis points to 45.7%.
Property and Casualty Insurance Operating Results
| |
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
(dollar in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written
|
|
$
|
46.0
|
|
|
$
|
44.0
|
|
|
$
|
123.8
|
|
|
$
|
115.6
|
|
|
Premiums ceded
|
|
|
(14.8
|
)
|
|
|
(14.9
|
)
|
|
|
(44.2
|
)
|
|
|
(45.6
|
)
|
|
Change in unearned premiums
|
|
|
(4.9
|
)
|
|
|
(5.2
|
)
|
|
|
(2.7
|
)
|
|
|
(3.1
|
)
|
|
Premiums earned, net
|
|
|
26.3
|
|
|
|
23.9
|
|
|
|
76.9
|
|
|
|
66.9
|
|
|
Net investment income
|
|
|
2.5
|
|
|
|
2.2
|
|
|
|
6.8
|
|
|
|
6.6
|
|
|
Total operating revenues
|
|
|
28.8
|
|
|
|
26.1
|
|
|
|
83.7
|
|
|
|
73.5
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
13.5
|
|
|
|
10.4
|
|
|
|
34.6
|
|
|
|
27.8
|
|
|
Underwriting and other expenses
|
|
|
13.3
|
|
|
|
11.3
|
|
|
|
41.3
|
|
|
|
34.8
|
|
|
Total operating costs
|
|
|
26.8
|
|
|
|
21.7
|
|
|
|
75.9
|
|
|
|
62.6
|
|
|
Operating income
|
|
$
|
2.0
|
|
|
$
|
4.4
|
|
|
$
|
7.8
|
|
|
$
|
10.9
|
|
|
Additional data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
51.3
|
%
|
|
|
43.5
|
%
|
|
|
45.0
|
%
|
|
|
41.6
|
%
|
|
Operating expense ratio
|
|
|
50.6
|
%
|
|
|
47.3
|
%
|
|
|
53.7
|
%
|
|
|
52.0
|
%
|
Three Months Ended September 30,
2021 Compared to Three Months Ended September 30, 2020
Operating Revenues
Total premiums written increased by $2.0 million, or 4.5%, to $46.0 million, primarily driven by higher premiums in Personal Package, Commercial Liability, Commercial Auto and
Commercial Property products, partially offset by a decrease in Commercial Package products.
Claims Incurred
Claims incurred increased by $3.1 million, or 29.8%, to $13.5 million, primarily resulting from lower losses in the 2020 period in the segment’s on-going
business as a result of the two-month government-enforced lockdown because of the COVID-19 pandemic and an increase in loss adjustment expenses related to catastrophe claims. As a result, the loss ratio increased
780 basis points, to 51.3% during this period.
Underwriting and Other Expenses
Underwriting and other operating expenses increased by $2.0 million, or 17.7%, to $13.3 million primarily due to higher net commission expense following the
increase in net premiums earned. The net commission expense for the current period was also unfavorably impacted by a lower capitalization of deferred acquisition costs. The operating expense ratio was 50.6%, 330 basis points higher than
prior year.
Nine Months Ended September 30, 2021 Compared to Nine Months
Ended September 30, 2020
Operating Revenues
Total premiums written increased by $8.2 million, or 7.1%, to $123.8 million, primarily driven by higher premiums, particularly in Personal Package, Commercial Property,
Commercial Auto and Commercial Liability products, partially offset by a decrease in Commercial Package products.
The premiums ceded to reinsurers decreased by $1.4 million, or 3.1%, primarily due to $3.0 million of reinsurance reinstatement premiums in 2020 following the losses recorded
after the earthquakes in the southwest region of Puerto Rico in January 2020, offset in part by an increase in the cost of catastrophe reinsurance protection.
Claims Incurred
Claims incurred increased by $6.8 million, or 24.5%, to $34.6 million primarily resulting from lower losses in the 2020 period because of the COVID-19 pandemic and
an increase in loss adjustment expenses related to catastrophe claims, offset in part by the recognition of $5.0 million of earthquake losses after the January 2020 events. As a result, the loss ratio increased by
340 basis points, to 45.0% during this period.
Underwriting and Other Expenses
Underwriting and other operating expenses increased by $6.5 million, or 18.7%, to $41.3 million, mostly because of higher net commission expense following the
increase in net premiums earned. Current year net commission expense was also affected by a lower capitalization of deferred acquisition costs. The operating expense ratio was 53.7%, 170 basis points higher than prior year.
Liquidity and Capital Resources
Cash Flows
A summary of our major sources and uses of cash for the periods indicated is presented in the following table:
| |
|
Nine months ended
September 30,
|
|
|
(dollar in millions)
|
|
2021
|
|
|
2020
|
|
|
Sources (uses) of cash:
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
100.7
|
|
|
$
|
223.7
|
|
|
Net purchases of investment securities
|
|
|
(63.2
|
)
|
|
|
(211.7
|
)
|
|
Net capital expenditures
|
|
|
(16.9
|
)
|
|
|
(52.5
|
)
|
|
Capital contribution on equity method investees
|
|
|
-
|
|
|
|
(7.1
|
)
|
|
Proceeds from long-term borrowings
|
|
|
-
|
|
|
|
30.9
|
|
|
Net change in short-term borrowings
|
|
|
(30.0
|
)
|
|
|
28.5
|
|
|
Payments of long-term borrowings
|
|
|
(3.4
|
)
|
|
|
(2.8
|
)
|
|
Proceeds from policyholder deposits
|
|
|
12.6
|
|
|
|
21.6
|
|
|
Surrenders of policyholder deposits
|
|
|
(8.7
|
)
|
|
|
(12.8
|
)
|
|
Repurchase and retirement of common stock
|
|
|
-
|
|
|
|
(14.9
|
)
|
|
Other
|
|
|
20.6
|
|
|
|
16.9
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
11.7
|
|
|
$
|
19.8
|
|
The decrease of approximately $123 million in net cash provided by operating activities is mostly due to higher claims paid in the Managed Care segments, offset in part by
higher premiums collections, lower income taxes paid, and lower cash paid to suppliers and employees.
The net purchases of investments in securities are part of our asset/liability management strategy.
The decrease in capital contribution reflects capital contributions made in the 2020 period in exchange for a participation in equity method investees.
The net change in short-term borrowings represents repayments of short-term facilities available to address timing differences between cash receipts and disbursements.
The fluctuation in other sources of cash principally reflects the $3.8 million change in outstanding checks in excess of bank balances.
Stock Repurchase Program
In August 2017 the Company’s Board of Directors authorized a $30.0 million repurchase program of its Class B common stock and in February 2018 the Company’s Board of Directors
authorized a $25.0 million expansion of this program. In October 2019 the Company’s Board of Directors authorized an additional expansion to this program increasing its remaining balance up to a total of $25.0 million, effective November 2019.
Repurchases were conducted through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the three months ended March 31, 2020, the Company repurchased and retired
under this program 577,447 shares at an average per share price of $15.57, for an aggregate cost of $9.0 million. The program was completed in 2020.
Financing and Financing Capacity
Long-Term Borrowings
TSM has $35.5 million credit agreement (the Loan) with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of
$11.2 million, (ii) Term Loan B in the principal amount of $20.2 million, and (iii) Term Loan C in the principal amount of $4.1 million. Term Loan A matures in October 2023 while Term Loans B and C mature in January 2024. Pursuant to the credit
agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 100 basis points over LIBOR for Term Loan A, (ii) 275 basis points over LIBOR for Term Loan B, and (iii) 325 basis points over LIBOR for Term
Loan C. The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including negative covenants imposing certain restrictions on the Company’s business. Failure to meet these covenants may
trigger the accelerated payment of the outstanding balance. The Company was not in compliance with the Debt Service Coverage Ratio covenant of the credit agreement during the quarter ended September 30, 2021. As of September 30, 2021 and December
31, 2020, the outstanding balance of the debt was $20,217 and $22,644, respectively. On November 1, 2021, the financial banking institution waived the Company’s obligation to comply with this covenant for the quarter ended September 30, 2021 and
quarters ending on December 31, 2021 and March 31, 2022.
As detailed above, the three term loans under our credit agreement with a commercial bank in Puerto Rico bear interest rates in relation to 1-month and 3-month LIBOR, a widely
used interest rate benchmark.
In July 2017, the Financial Conduct Authority (FCA) in the United Kingdom, which regulates LIBOR, announced that it would phase out this benchmark by the end of 2021. In
response, the U.S. Federal Reserve convened the Alternative Reference Rates Committee (ARRC), a working group comprised of private market participants, to ensure a transition to a new reference rate.
The ARRC has recommended the use of the Secured Overnight Financing Rate (SOFR), which is an index based on the cost of borrowing overnight cash collateralized by U.S. Treasury
securities. Currently, there is no definitive information regarding the future use of SOFR as a widely accepted benchmark or any other replacement rate.
If LIBOR rates are no longer available and we have not agreed with the bank on a replacement rate, we are subject to an alternative benchmark rate, as defined in the credit
agreement of our long-term bank loan. At this time we cannot assess the impact, if any, on the interest paid on this loan. We are in regular contact with the lender about this subject, but at this point the bank has not yet determined a course of
action. Alternatively, the loan could be refinanced by us without prepayment penalties.
We will closely follow any new developments regarding the LIBOR phase out.
On June 19, 2020, TSM entered into a $31.4 million Credit Agreement with a commercial bank in Puerto Rico. The proceeds were used by the Company to partially finance the
acquisition of a building. The Credit Agreement is guaranteed by a mortgage over the building, a pledge of all collateral related to the building and an assignment of the rents collected for the lease of office space in the building. Approximately
64.25% of the acquired building is currently leased to third parties. The Company is in the process of moving some of its offices currently leased to third parties to the new building and expects to fully occupy the new facilities together with the
leased space. Pursuant to the Credit Agreement, interest is payable on the outstanding principal balance of the Loan at an annual rate equal to the Prime Rate. Monthly interest payments commenced on July 1, 2020 and will continue to be paid each
month until the principal of the Loan has been paid in full.
The Company may, at its option and at any time, upon notice as specified in the Credit Agreement, prepay prior to maturity, all, or any part of the Loan upon the payment of a
penalty fee of the outstanding principal amount at the time of the prepayment of 3% during the first year, 2% during the second year, 1% during the third year and thereafter at par.
The Credit Agreement includes certain customary financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business.
The Company was in compliance with these covenants as of September 30, 2021.
For further details, see Note 13, Borrowings, of the Notes to Consolidated Financial Statements in Item
8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2020.
Short-Term Facilities
We have several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from the Federal
Home Loan Bank of New York (FHLBNY) and a revolving credit facility. See Note 8 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for details of available short-term facilities.
We anticipate that we will have sufficient liquidity to support our currently expected needs.
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk
|
We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have
exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in our
exposure to financial market risks since December 31, 2020. A discussion of our market risk is incorporated by reference to Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in
our Annual Report on Form 10-K for the year ended December 31, 2020.
| Item 4. |
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, Management, under the supervision and with the participation of the President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer, conducted an evaluation of the effectiveness of the “disclosure controls and procedures” (as such term is defined under Exchange Act Rule 13a-15(e)) of the Corporation and its
subsidiaries. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to Management, including the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, to allow
timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on this evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have concluded that as of September 30, 2021, which
is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance.
There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the
President and Chief Executive Officer and Executive Vice President and Chief Financial Officer completed the evaluation referred to above.
Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended September 30, 2021
that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II – Other Information
| Item 1. |
Legal Proceedings
|
For a description of legal proceedings that have experienced significant developments during this quarter, see Note 14 to the unaudited condensed consolidated interim financial
statements included in this quarterly report on Form 10-Q.
For a description of our risk factors, see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
The following risk factor was added during the three months ended September 30, 2021.
The conditions to Merger may not be met, or the Merger Agreement may be terminated, which could result in the Merger not being completed and a decline in the share price of the
Company, as well as adversely affect our financial condition and results of operations.
If the Company fails to obtain shareholder approval of the Merger Agreement, or fails to obtain the required regulatory or Blue Cross and Blue Shield Association approvals, or other conditions to
the closing of the Merger are not met, the Merger may not be consummated or may be significantly delayed, which could result in a decline in the price of our shares and could have a material and adverse effect on our results of operations,
financial position and cash flows. The Merger Agreement provides for the payment of a termination fee of $17,985,000 by the Company should the Merger Agreement be terminated pursuant to certain provisions. Should the Merger Agreement be terminated
pursuant to an event triggering the payment of the termination fee by the Company, the termination of the Merger Agreement and the payment of such termination fee could result in a material and adverse effect on our results of operations, financial
position and cash flows.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Purchases of Equity Securities by the Issuer
The following table presents information related to our repurchases of common stock for the period indicated:
|
(Dollar amounts in millions, except per share data)
|
|
Total Number
of Shares
Purchased (1)
|
|
|
Average
Price
Paid per
Share
|
|
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs
|
|
|
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
Programs
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2021 to July 31, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
August 1, 2021 to August 31, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
September 1, 2021 to September 30, 2021
|
|
|
2,063
|
|
|
|
21.90
|
|
|
|
-
|
|
|
|
-
|
|
(1) Represents shares repurchased and retired as the result of non-cash tax witholdings upon vesting of shares of participants under the Company’s equity compensation plans. In September 2021, 2,063 shares were
repurchased and retired as the result of non-cash tax witholdings upon vesting of shares.
| Item 3. |
Defaults Upon Senior Securities
|
Not applicable.
| Item 4. |
Mine Safety Disclosures
|
Not applicable.
| Item 5. |
Other Information
|
Not applicable.
| |
Exhibits
|
Description
|
| |
|
|
| |
|
Amendment to the contract between Administración de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health
Services under the Provision of Physical and Behavioral Health Services Under the Government Health Plan dated as of September 9, 2021.
|
| |
|
|
| |
|
Amendment to the contract between Administración de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health
Services under the Provision of Physical and Behavioral Health Services Under the Government Health Plan dated as of September 29, 2021.
|
| |
|
|
| |
|
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three and nine months ended September 30, 2021 and 2020 has been
omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
|
| |
|
|
| |
|
Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
|
| |
|
|
| |
|
Certification of the Executive Vice President and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
|
| |
|
|
| |
|
Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
|
| |
|
|
| |
|
Certification of the Executive Vice President and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.
|
All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
* Filed herein.
Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
| |
|
|
Triple-S Management Corporation
|
| |
|
|
|
| |
|
|
Registrant
|
| |
|
|
|
|
Date:
|
November 4, 2021
|
|
By:
|
/s/ Roberto García-Rodríguez
|
|
| |
|
|
Roberto García-Rodríguez
|
| |
|
|
President and Chief Executive Officer
|
| |
|
|
|
|
Date:
|
November 4, 2021
|
|
By:
|
/s/ Victor J. Haddock-Morales
|
|
| |
|
|
Victor J. Haddock-Morales
|
| |
|
|
Executive Vice President and Chief Financial Officer
|
47
