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

FORM 10-Q
(Mark One)
☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

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)

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, $1.00 par value
GTS
New York Stock Exchange (NYSE)

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 the 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 June 30, 2021
   
Common Stock, $1.00 par value
23,796,037





Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended June 30, 2021

Table of Contents

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Part I -  Financial Information
Item 1.  Financial Statements
Triple-S Management Corporation
Condensed Consolidated Interim Balance Sheets (Unaudited)
(dollar in thousands, except share information)

 
 
June 30,
2021
   
December 31,
2020
 
Assets
           
Investments and cash:
           
Fixed-maturities available-for-sale, at fair value
 
$
1,288,691
   
$
1,342,465
 
Fixed-maturities held-to-maturity, at amortized cost
   
1,866
     
1,867
 
Equity investments, at fair value
   
523,430
     
404,328
 
Other invested assets, at net asset value
   
117,767
     
114,905
 
Policy loans
   
10,422
     
10,459
 
Cash and cash equivalents
   
174,390
     
110,989
 
Total investments and cash
   
2,116,566
     
1,985,013
 
Premiums and other receivables, net
   
484,617
     
488,840
 
Deferred policy acquisition costs and value of business acquired
   
252,064
     
248,325
 
Property and equipment, net
   
136,146
     
131,974
 
Deferred tax asset
   
107,942
     
119,534
 
Goodwill
   
28,614
     
28,614
 
Other assets
   
99,513
     
86,118
 
Total assets
 
$
3,225,462
   
$
3,088,418
 
Liabilities and Stockholders’ Equity
               
Claim liabilities
 
$
809,548
   
$
787,102
 
Liability for future policy benefits
   
430,950
     
414,997
 
Unearned premiums
   
97,221
     
97,481
 
Policyholder deposits
   
213,300
     
206,109
 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
45,665
     
45,109
 
Accounts payable and accrued liabilities
   
382,116
     
332,699
 
Deferred tax liability
   
14,249
     
15,046
 
Short-term borrowings
   
45,000
     
30,000
 
Long-term borrowings
   
50,583
     
52,751
 
Liability for pension benefits
   
132,077
     
139,611
 
Total liabilities
   
2,220,709
     
2,120,905
 
Stockholders’ equity:
               
Triple-S Management Corporation stockholders’ equity
               
Common stock, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,796,037 and 23,430,292 shares at June 30, 2021 and December 31, 2020, respectively
   
23,796
     
23,430
 
Additional paid-in capital
   
60,484
     
57,399
 
Retained earnings
   
944,091
     
897,221
 
Accumulated other comprehensive loss, net
   
(22,892
)
   
(9,820
)
Total Triple-S Management Corporation stockholders’ equity
   
1,005,479
     
968,230
 
Non-controlling interest in consolidated subsidiary
   
(726
)
   
(717
)
Total stockholders’ equity
   
1,004,753
     
967,513
 
Total liabilities and stockholders’ equity
 
$
3,225,462
   
$
3,088,418
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.


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

 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Revenues
                       
Premiums earned, net
 
$
987,880
   
$
858,535
   
$
1,996,316
   
$
1,734,432
 
Administrative service fees
   
2,676
     
2,809
     
5,441
     
5,003
 
Net investment income
   
14,960
     
13,815
     
28,606
     
28,126
 
Other operating revenues
   
1,817
     
303
     
4,593
     
4,342
 
Total operating revenues
   
1,007,333
     
875,462
     
2,034,956
     
1,771,903
 
Net realized investment gains (losses)
   
2,514
     
(221
)
   
2,731
     
(687
)
Net unrealized investment gains (losses) on equity investments
   
12,743
     
28,338
     
21,295
     
(28,468
)
Other income, net
   
4,851
     
801
     
7,962
     
4,406
 
Total revenues
   
1,027,441
     
904,380
     
2,066,944
     
1,747,154
 
Benefits and expenses
                               
Claims incurred, net of reinsurance
   
844,064
     
653,087
     
1,694,622
     
1,367,609
 
Operating expenses
   
151,253
     
178,659
     
302,354
     
340,860
 
Total operating costs
   
995,317
     
831,746
     
1,996,976
     
1,708,469
 
Interest expense
   
2,217
     
1,864
     
4,209
     
3,717
 
Total benefits and expenses
   
997,534
     
833,610
     
2,001,185
     
1,712,186
 
Income before taxes
   
29,907
     
70,770
     
65,759
     
34,968
 
Income tax expense
   
6,353
     
27,181
     
18,898
     
17,531
 
Net income
   
23,554
     
43,589
     
46,861
     
17,437
 
Net loss attributable to non-controlling interest
   
6
     
10
     
9
     
17
 
Net income attributable to Triple-S Management Corporation
 
$
23,560
   
$
43,599
   
$
46,870
   
$
17,454
 
Earnings per share attributable to Triple-S Management Corporation
                               
Basic net income per share
 
$
1.00
   
$
1.88
   
$
2.01
   
$
0.75
 
Diluted net income per share
 
$
1.00
   
$
1.87
   
$
1.99
   
$
0.75
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.


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

 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Net income
 
$
23,554
   
$
43,589
   
$
46,861
   
$
17,437
 
Other comprehensive income (loss), net of tax:
                               
Net unrealized change in fair value of available-for-sale securities, net of taxes
   
2,263
     
11,401
     
(14,290
)
   
27,280
 
Defined benefit pension plan:
                               
Actuarial loss, net
   
609
     
153
     
1,218
     
306
 
Total other comprehensive income (loss), net of tax
   
2,872
     
11,554
     
(13,072
)
   
27,586
 
Comprehensive income
   
26,426
     
55,143
     
33,789
     
45,023
 
Comprehensive loss attributable to non-controlling interest
   
6
     
10
     
9
     
17
 
Comprehensive income attributable to Triple-S Management Corporation
 
$
26,432
   
$
55,153
   
$
33,798
   
$
45,040
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.


Triple-S Management Corporation
Condensed Consolidated Interim Statements of Stockholders’ Equity (Unaudited)
(dollar 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, 2020
 
$
-
   
$
23,430
   
$
57,399
   
$
897,221
   
$
(9,820
)
 
$
968,230
   
$
(717
)
 
$
967,513
 
Share-based compensation
   
-
     
250
     
932
     
-
     
-
     
1,182
     
-
     
1,182
 
Comprehensive income (loss)
   
-
     
-
     
-
     
23,310
     
(15,944
)
   
7,366
     
(3
)
   
7,363
 
Balance, March 31, 2021
 
$
-
   
$
23,680
   
$
58,331
   
$
920,531
   
$
(25,764
)
 
$
976,778
   
$
(720
)
 
$
976,058
 
Share-based compensation
   
-
     
137
     
2,614
     
-
     
-
     
2,751
     
-
     
2,751
 
Repurchase and retirement of common stock
   
-
     
(21
)
   
(461
)
   
-
     
-
     
(482
)
   
-
     
(482
)
Comprehensive income (loss)
   
-
     
-
     
-
     
23,560
     
2,872
     
26,432
     
(6
)
   
26,426
 
Balance, June 30, 2021
 
$
-
   
$
23,796
   
$
60,484
   
$
944,091
   
$
(22,892
)
 
$
1,005,479
   
$
(726
)
 
$
1,004,753
 
                                                                 
Balance, December 31, 2019
 
$
-
   
$
23,800
   
$
60,504
   
$
830,198
   
$
29,363
   
$
943,865
   
$
(693
)
 
$
943,172
 
Share-based compensation
   
-
     
590
     
1,769
     
-
     
-
     
2,359
     
-
     
2,359
 
Repurchase and retirement of common stock
   
-
     
(584
)
   
(8,511
)
   
-
     
-
     
(9,095
)
   
-
     
(9,095
)
Comprehensive (loss) income
   
-
     
-
     
-
     
(26,145
)
   
16,032
     
(10,113
)
   
(7
)
   
(10,120
)
Cumulative effect adjustment due to implementation of ASU 2016-01
   
-
     
-
     
-
     
(166
)
   
-
     
(166
)
   
-
     
(166
)
Balance, March 31, 2020
 
$
-
   
$
23,806
   
$
53,762
   
$
803,887
   
$
45,395
   
$
926,850
   
$
(700
)
 
$
926,150
 
Share-based compensation
   
-
     
7
     
4,228
     
-
     
-
     
4,235
     
-
     
4,235
 
Repurchase and retirement of common stock
   
-
     
(375
)
   
(5,618
)
   
-
     
-
     
(5,993
)
   
-
     
(5,993
)
Comprehensive income (loss)
   
-
     
-
     
-
     
43,599
     
11,554
     
55,153
     
(10
)
   
55,143
 
Balance, June 30, 2020
 
$
-
   
$
23,438
   
$
52,372
   
$
847,486
   
$
56,949
   
$
980,245
   
$
(710
)
 
$
979,535
 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.


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

 
 
Six months ended
June 30,
 
 
 
2021
   
2020
 
Cash flows from operating activities:
           
Net income
 
$
46,861
   
$
17,437
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
7,113
     
7,744
 
Net amortization of investments
   
1,550
     
1,270
 
Provision for doubtful receivables
   
1,476
     
5,658
 
Deferred tax expense (benefit)
   
13,100
     
(4,976
)
Net realized investment (gains) losses on sale of securities
   
(2,731
)
   
687
 
Net unrealized (gains) losses on equity investments
   
(21,295
)
   
28,468
 
Interest credited to policyholder deposits
   
3,259
     
3,160
 
Share-based compensation
   
3,933
     
6,594
 
Loss on disposition of property and equipment
   
-
     
154
 
(Increase) decrease in assets:
               
Premium and other receivables, net
   
2,233
     
22,359
 
Deferred policy acquisition costs and value of business acquired
   
(2,677
)
   
(5,588
)
Deferred taxes
   
42
     
(91
)
Other assets
   
(14,705
)
   
(35,348
)
Increase (decrease) in liabilities:
               
Claim liabilities
   
22,446
     
15,956
 
Liability for future policy benefits
   
15,953
     
10,188
 
Unearned premiums
   
(260
)
   
(3,845
)
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs
   
556
     
11,403
 
Accounts payable and accrued liabilities
   
(1,897
)
   
89,052
 
Net cash provided by operating activities
   
74,957
     
170,282
 

(Continued)

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

 
 
Six months ended
June 30,
 
 
 
2021
   
2020
 
 
           
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available-for-sale:
           
Fixed-maturities sold
 
$
113,336
   
$
66,316
 
Fixed-maturities matured/called
   
14,554
     
18,752
 
Securities held-to-maturity:
               
Fixed-maturities matured/called
   
-
     
339
 
Equity investments sold
   
76,348
     
72,775
 
Other invested assets sold
   
14,855
     
11,814
 
Other invested assets matured
   
210
     
-
 
Acquisition of investments:
               
Securities available for sale:
               
Fixed-maturities
   
(102,356
)
   
(91,930
)
Securities held to maturity:
               
Fixed-maturities
   
-
     
(340
)
Equity investments
   
(172,177
)
   
(160,104
)
Other invested assets
   
(8,407
)
   
(20,799
)
Increase in other investments
   
(706
)
   
(2,400
)
Net change in policy loans
   
37
     
(97
)
Net capital expenditures
   
(11,200
)
   
(45,927
)
Capital contribution on equity method investees
   
-
     
(4,933
)
Net cash used in investing activities
   
(75,506
)
   
(156,534
)
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
   
47,264
     
34,024
 
Proceeds from (repayments of) short-term borrowings
   
15,000
     
(39,000
)
Proceeds from long-term borrowings
   
-
     
30,841
 
Repayments of long-term borrowings
   
(2,246
)
   
(1,618
)
Repurchase and retirement of common stock
   
-
     
(14,982
)
Proceeds from policyholder deposits
   
9,516
     
16,421
 
Surrenders of policyholder deposits
   
(5,584
)
   
(8,200
)
Net cash provided by financing activities
   
63,950
     
17,486
 
Net increase in cash and cash equivalents
   
63,401
     
31,234
 
Cash and cash equivalents:
               
Beginning of period
   
110,989
     
109,837
 
End of period
 
$
174,390
   
$
141,071
 

See accompanying notes to unaudited condensed consolidated interim financial statements.


8

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

1.
Basis of Presentation

The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation (Triple-S, TSM, the Company, the Corporation, we, us or our) and its subsidiaries are unaudited. The condensed consolidated interim financial statements do not include all the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial statement presentation 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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 and six months ended June 30, 2021 are not necessarily indicative of the results for the full year ending December 31, 2021.

2.
Significant Accounting Policies

Recently Adopted Accounting Standards
 
On August 28, 2018, the Financial Accounting Standards Board (FASB) issued guidance for Compensation – Retirement Benefits – Defined Benefit Plans – General which addresses changes to the disclosure requirement for defined benefit plans. The amendments in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  Specifically, the guidance removes certain disclosure requirements, including the amounts of accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, related-party disclosures concerning the amount of future annual benefits covered by an insurance and annuity contracts and significant transactions between the employer and related-parties and the plan, and adds other disclosures including the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period.   The Company adopted the standard effective January 1, 2021.  The adoption of this guidance did not have a material impact on the presentation and disclosures of the Company’s consolidated financial statements.
 
On December 18, 2019, the FASB issued Accounting Standard Update (ASU) 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. Also, the amendments simplify the accounting for income taxes by requiring the following: (1) that an entity recognize a franchise tax that is partially based on income in accordance with Topic 740 and account for any incremental amount incurred as a non-income-based tax; (2) that an entity evaluate when a step-up in the tax basis of Goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should instead be considered a separate transaction; and (3) that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that included the enactment date. The Company adopted the standard effective January 1, 2021. The adoption of this guidance did not have a material impact on the results of the Company’s consolidated financial statements.
 
On January 16, 2020, the FASB issued guidance to clarify the interaction between the accounting standards on recognition and measurement of financial instruments in Topic 321: Investments – Equity Securities, the one on equity method investments in Topic 323: Investments – Equity Method and Joint Ventures, and forward contracts and purchased options in Topic 815: Derivatives and Hedging. The amendments clarify that upon an increase or decrease in level of ownership or degree of influence, a company should remeasure the interest held in the investee to take into account observable transactions immediately before applying or discontinuing the equity method of accounting under Topic 323. The guidance also clarifies that an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchase option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option. The Company adopted the standard effective January 1, 2021. The adoption of this guidance did not have a material impact on the results of the Company’s consolidated financial statements.

9

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

Future Adoptions of Accounting Standards
 
On January 7, 2021, the FASB issued ASU 2021-01: Reference Rate Reform (Topic 848): Scope Refinement – to clarify the scope of the recent reference reform guidance in Topic 848. This ASU refines the scope of Topic 848 and clarifies that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in the ASU are effective immediately for all entities. The Company is currently in the process of identifying its LIBOR-based contracts that will be affected by the phase-out of LIBOR and expects to use the optional expedients provided in this ASU.
 
Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three and six months ended June 30, 2021 that could have a material impact on the Company’s financial position, operating results or financials statement disclosures.

10

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

3.
Investment in Securities

The amortized cost for debt securities and alternative investments, gross unrealized gains and losses, and estimated fair value for the Company’s investments in securities by major security type and class of security as of June 30, 2021 and December 31, 2020, were as follows:

 
 
June 30, 2021
 
 
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                         
 Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
21,320
   
$
417
   
$
(38
)
 
$
21,699
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
103,958
     
6,038
     
-
     
109,996
 
Municipal securities
   
615,133
     
44,147
     
(618
)
   
658,662
 
Corporate bonds
   
177,610
     
25,427
     
(55
)
   
202,982
 
Residential mortgage-backed securities
   
275,611
     
14,224
     
(817
)
   
289,018
 
Collateralized mortgage obligations
   
5,829
     
505
     
-
     
6,334
 
Total fixed-maturities available-for-sale
 
$
1,199,461
   
$
90,758
   
$
(1,528
)
 
$
1,288,691
 

 
December 31, 2020
 
 
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
                         
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
24,496
   
$
665
   
$
(9
)
 
$
25,152
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
103,694
     
7,993
     
-
     
111,687
 
Municipal securities
   
646,961
     
54,067
     
-
     
701,028
 
Corporate bonds
   
189,516
     
30,280
     
-
     
219,796
 
Residential mortgage-backed securities
   
249,801
     
21,487
     
(57
)
   
271,231
 
Collateralized mortgage obligations
   
12,954
     
638
     
(21
)
   
13,571
 
Total fixed-maturities available-for-sale
 
$
1,227,422
   
$
115,130
   
$
(87
)
 
$
1,342,465
 

11

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

 
June 30, 2021
 
 
 
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
 
$
613
   
$
164
   
$
-
   
$
777
 
Residential mortgage-backed securities
   
164
     
9
     
-
     
173
 
Certificates of deposit
   
1,089
     
-
     
-
     
1,089
 
Total fixed-maturities held-to-maturity
 
$
1,866
   
$
173
   
$
-
   
$
2,039
 

 
 
December 31, 2020
 
 
 
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
 
$
614
   
$
201
   
$
-
   
$
815
 
Residential mortgage-backed securities
   
164
     
17
     
-
     
181
 
Certificates of deposit
   
1,089
     
-
     
-
     
1,089
 
Total fixed-maturities held-to-maturity
 
$
1,867
   
$
218
   
$
-
   
$
2,085
 

 
June 30, 2021
 
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
 
                       
Other invested assets - Alternative investments
 
$
107,658
   
$
14,066
   
$
(3,957
)
 
$
117,767
 

 
December 31, 2020
 
 
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Estimated
fair value
 
 
                       
Other invested assets - Alternative investments
 
$
112,171
   
$
6,119
   
$
(3,385
)
 
$
114,905
 

12

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(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 June 30, 2021 and December 31, 2020 were as follows:

 
June 30, 2021
 
   
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
 
$
4,094
   
$
(38
)
   
4
   
$
-
   
$
-
     
-
   
$
4,094
   
$
(38
)
   
4
 
Municipal securities
   
63,123
     
(618
)
   
15
     
-
     
-
     
-
     
63,123
     
(618
)
   
15
 
Corporate bonds
   
3,945
     
(55
)
   
1
     
-
     
-
     
-
     
3,945
     
(55
)
   
1
 
Residential mortgage-backed securities
   
58,807
     
(817
)
   
19
     
-
     
-
     
-
     
58,807
     
(817
)
   
19
 
Total fixed-maturities available-for-sale
 
$
129,969
   
$
(1,528
)
   
39
   
$
-
   
$
-
     
-
   
$
129,969
   
$
(1,528
)
   
39
 
Other invested assets - Alternative investments
 
$
6,771
   
$
(388
)
   
4
   
$
18,284
   
$
(3,569
)
   
7
   
$
25,055
   
$
(3,957
)
   
11
 

 
December 31, 2020
 
   
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
 
$
1,539
   
$
(9
)
   
1
   
$
-
   
$
-
     
-
   
$
1,539
   
$
(9
)
   
1
 
Residential mortgage-backed securities
   
3,624
     
(57
)
   
1
     
-
     
-
     
-
     
3,624
     
(57
)
   
1
 
Collateralized mortgage obligations
   
6,060
     
(21
)
   
2
     
-
     
-
     
-
     
6,060
     
(21
)
   
2
 
Total fixed-maturities available-for-sale
 
$
11,223
   
$
(87
)
   
4
   
$
-
   
$
-
     
-
   
$
11,223
   
$
(87
)
   
4
 
Other invested assets - Alternative investments
 
$
12,584
   
$
(808
)
   
4
   
$
16,396
   
$
(2,577
)
   
6
   
$
28,980
   
$
(3,385
)
   
10
 

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 allowances for credit losses may be recorded in future periods.  The Company from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

 
•
Obligations of government-sponsored enterprises and Municipal securities:  The unrealized losses of these securities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, they have investment-grade ratings. The Company does not consider these investments to be credit-impaired because of several factors: 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 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 at maturity; and because the Company expects to collect all contractual cash flows.

13

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

•
Corporate bonds:  The unrealized losses of these bonds were mainly caused by fluctuations in interest rates and general market conditions.  All corporate bonds with an unrealized loss have investment grade ratings.  The Company does not consider these investments to be credit-impaired because of several factors: 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 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 at maturity; and because the Company expects to collect all contractual cash flows.

•
Residential mortgage-backed securities: The unrealized losses on these investments 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, 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 to be credit-impaired because of several factors: 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 at maturity; and because the Company expects to collect all contractual cash flows.

•
Alternative Investments:  As of June 30, 2021, alternative investments with unrealized losses were not considered credit-impaired based on market conditions.

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

 
June 30, 2021
 
 
 
Amortized
cost
   
Estimated
fair value
 
Fixed-maturities available-for-sale
           
Due in one year or less
 
$
52,773
   
$
53,720
 
Due after one year through five years
   
566,110
     
602,331
 
Due after five years through ten years
   
171,147
     
180,602
 
Due after ten years
   
127,991
     
156,686
 
Residential mortgage-backed securities
   
275,611
     
289,018
 
Collateralized mortgage obligations
   
5,829
     
6,334
 
 
 
$
1,199,461
   
$
1,288,691
 
Fixed-maturities held-to-maturity
               
Due in one year or less
 
$
1,089
   
$
1,089
 
Due after five years through ten years
   
613
     
777
 
Residential mortgage-backed securities
   
164
     
173
 
 
 
$
1,866
   
$
2,039
 

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.

Investments with an amortized cost of $220,696 and $227,890 (fair value of $236,233 and $250,088) at June 30, 2021 and December 31, 2020, respectively were pledged with the Federal Home Loan Bank of New York (FHLBNY) to secure short-term borrowings.

14

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

4.
Realized and Unrealized Gains (Losses)

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

 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Realized gains (losses)
                       
Fixed-maturity securities
                       
Fixed-maturities available-for-sale:
                       
Gross gains
 
$
80
   
$
777
   
$
90
   
$
1,551
 
Gross losses
   
(621
)
   
-
     
(966
)
   
(6
)
Total fixed-maturity securities
   
(541
)
   
777
     
(876
)
   
1,545
 
Equity investments
                               
Gross gains
   
1,383
     
60
     
1,883
     
990
 
Gross losses
   
(16
)
   
(1,158
)
   
(419
)
   
(2,770
)
Gross losses from impaired securities
   
-
     
-
     
-
     
(678
)
Total equity investments
   
1,367
     
(1,098
)
   
1,464
     
(2,458
)
Other invested assets
                               
Gross gains
   
1,688
     
100
     
2,143
     
226
 
Total other invested assets
   
1,688
     
100
     
2,143
     
226
 
Net realized gains (losses) on securities
 
$
2,514
   
$
(221
)
 
$
2,731
   
$
(687
)

15

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

The gross losses from impaired securities during the six months ended June 30, 2020 are related to an equity method investment held by the Company.
 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Changes in net unrealized (losses) gains:
                       
Recognized in accumulated other comprehensive income (loss):
                       
Fixed-maturities available-for-sale
 
$
(3,087
)
 
$
20,482
   
$
(25,813
)
 
$
40,238
 
Other invested assets
   
6,404
     
(4,766
)
   
7,375
     
(4,198
)
 
 
$
3,317
   
$
15,716
   
$
(18,438
)
 
$
36,040
 
Not recognized in the consolidated financial statements:
                               
Fixed-maturities held-to-maturity
 
$
7
   
$
(2
)
 
$
(45
)
 
$
70
 

The change in deferred tax asset (liability) on unrealized gains (losses) recognized in Accumulated Other Comprehensive Income during the six months ended June 30, 2021 and 2020 was $3,290 and ($7,205), respectively.

As of June 30, 2021 and December 31, 2020, no individual investment in securities exceeded 10% of stockholders’ equity.

16

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

5.
Premiums and Other Receivables, Net

Premiums and Other Receivables, Net were as follows:

 
 
June 30,
2021
   
December 31,
2020
 
Premium
 
$
157,606
   
$
106,322
 
Self-funded group receivables
   
26,395
     
26,412
 
FEHBP
   
13,120
     
12,830
 
Agent balances
   
34,996
     
31,509
 
Accrued interest
   
10,171
     
10,418
 
Reinsurance recoverable
   
165,236
     
216,314
 
Other
   
128,917
     
135,774
 
 
   
536,441
     
539,579
 
Less allowance for doubtful receivables:
               
Premium
   
37,293
     
37,231
 
Other
   
14,531
     
13,508
 
 
   
51,824
     
50,739
 
Total premium and other receivables, net
 
$
484,617
   
$
488,840
 

As of June 30, 2021 and December 31, 2020, the Company had premiums and other receivables of $79,211 and $53,397, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of June 30, 2021 and December 31, 2020 were $24,563 and $23,752, respectively.

Reinsurance recoverable as of June 30, 2021 and December 31, 2020 includes $124,877 and $172,021, respectively, related to catastrophe losses covered by the Property and Casualty segment’s reinsurance program.

6.
 Fair Value Measurements

Our condensed Consolidated Balance Sheets include the following financial instruments: fixed-maturities available-for-sale, equity investments, policy loans, policyholder deposits, short-term borrowings and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, short-term borrowings and long-term borrowings to approximate their fair value and are considered Level 2 financial instruments.  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 2020 Annual Report on Form 10-K.

17

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

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

 
 
June 30, 2021
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
                       
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
21,699
   
$
-
   
$
21,699
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
109,996
     
-
     
-
     
109,996
 
Municipal securities
   
-
     
658,662
     
-
     
658,662
 
Corporate bonds
   
-
     
202,982
     
-
     
202,982
 
Residential agency mortgage-backed securities
   
-
     
289,018
     
-
     
289,018
 
Collateralized mortgage obligations
   
-
     
6,334
     
-
     
6,334
 
Total fixed-maturities available-for-sale
 
$
109,996
   
$
1,178,695
   
$
-
   
$
1,288,691
 
Equity investments
 
$
275,539
   
$
242,692
   
$
5,199
   
$
523,430
 

 
 
December 31, 2020
 
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
                       
Fixed-maturities available-for-sale
                       
Obligations of government-sponsored enterprises
 
$
-
   
$
25,152
   
$
-
   
$
25,152
 
U.S. Treasury securities and obligations of U.S. government instrumentalities
   
111,687
     
-
     
-
     
111,687
 
Municipal securities
   
-
     
701,028
     
-
     
701,028
 
Corporate bonds
   
-
     
219,796
     
-
     
219,796
 
Residential agency mortgage-backed securities
   
-
     
271,231
     
-
     
271,231
 
Collateralized mortgage obligations
   
-
     
13,571
     
-
     
13,571
 
Total fixed-maturities available-for-sale
 
$
111,687
   
$
1,230,778
   
$
-
   
$
1,342,465
 
Equity investments
 
$
220,118
   
$
179,108
   
$
5,102
   
$
404,328
 

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.

There were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2021 and the year ended December 31, 2020.

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 and six months ended June 30 is as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

 
 
Three months ended
   
Six months ended
 
   
June 30, 2021
   
June 30, 2021
 
Beginning Balance
 
$
5,142
   
$
5,102
 
Unrealized gain in other accumulated comprehensive income
   
57
     
97
 
Balance as of June 30,
 
$
5,199
   
$
5,199
 

18

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

7.
Claim Liabilities

The tables below present a reconciliation of the beginning and ending balances of Claim Liabilities during the six months ended June 30:

 
 
Six months ended
June 30, 2021
 
 
 
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
 
                 
Claim liabilities at beginning of period
 
$
445,655
   
$
341,447
   
$
787,102
 
Reinsurance recoverable on claim liabilities
   
-
     
(138,816
)
   
(138,816
)
Net claim liabilities at beginning of period
   
445,655
     
202,631
     
648,286
 
Claims incurred
                       
Current period insured events
   
1,647,480
     
59,924
     
1,707,404
 
Prior period insured events
   
(32,204
)
   
(1,991
)
   
(34,195
)
Total
   
1,615,276
     
57,933
     
1,673,209
 
Payments of losses and loss-adjustment expenses
                       
Current period insured events
   
1,294,829
     
24,750
     
1,319,579
 
Prior period insured events
   
221,548
     
49,554
     
271,102
 
Total
   
1,516,377
     
74,304
     
1,590,681
 
Net claim liabilities at end of period
   
544,554
     
186,260
     
730,814
 
Reinsurance recoverable on claim liabilities
   
-
     
78,734
     
78,734
 
Claim liabilities at end of period
 
$
544,554
   
$
264,994
   
$
809,548
 

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

19

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

 
Six months ended
June 30, 2020
 
 
 
Managed
Care
   
Other
Business
Segments *
   
Consolidated
 
 
                 
 
                 
Claim liabilities at beginning of period
 
$
341,277
   
$
367,981
   
$
709,258
 
Reinsurance recoverable on claim liabilities
   
-
     
(137,017
)
   
(137,017
)
Net claim liabilities at beginning of period
   
341,277
     
230,964
     
572,241
 
Claims incurred
                       
Current period insured events
   
1,308,194
     
58,559
     
1,366,753
 
Prior period insured events
   
(3,392
)
   
(9,821
)
   
(13,213
)
Total
   
1,304,802
     
48,738
     
1,353,540
 
Payments of losses and loss-adjustment expenses
                       
Current period insured events
   
1,039,871
     
23,660
     
1,063,531
 
Prior period insured events
   
257,073
     
27,952
     
285,025
 
Total
   
1,296,944
     
51,612
     
1,348,556
 
Net claim liabilities at end of period
   
349,135
     
228,090
     
577,225
 
Reinsurance recoverable on claim liabilities
   
-
     
147,989
     
147,989
 
Claim liabilities at end of period
 
$
349,135
   
$
376,079
   
$
725,214
 

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


The actual amounts of claims incurred in connection with insured events occurring in a prior period typically differ from estimates of such claims made in the prior period.  Amounts included as incurred claims for prior period insured events reflect the aggregate net amount of these differences.


The favorable developments in the claims incurred and loss-adjustment expenses for prior-period insured events for the six months ended June 30, 2021 and 2020 were primarily due to better than expected utilization trends.  Reinsurance recoverable on unpaid claims is reported as Premium and Other Receivables, Net in the accompanying consolidated financial statements.


The claims incurred disclosed in the table above exclude the portion of the change in the liability for future policy benefits amounting to $10,767 and $21,413 during the three months and six months ended June 30, 2021, respectively, and $4,746 and $14,069 during the three months and six months ended June 30, 2020, respectively, which is included within the consolidated Claims Incurred.

20

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)


The following is information about incurred and paid claims development, net of reinsurance, as of June 30, 2021, as well as cumulative claim frequency. Additional information presented includes total incurred-but-not-reported liabilities plus expected development on reported claims which is included within the net incurred claims amounts. 

Incurred Year
 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2020
   
129,300
 
2021
   
352,651
 

8.
Short-Term Borrowings

The Company has several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from FHLBNY and a revolving credit facility.

•
In August 2019, TSS and TSV became members of the FHLBNY, which provides access to collateralized advances.  The borrowing capacity of TSS and TSV is up to 30% of their admitted assets as disclosed in the most recent filing with the Commissioner of Insurance but is constrained by the amount of collateral held at the FHLBNY (see Note 3). As of June 30, 2021 and December 31, 2020, the borrowing capacity was approximately $193,732 and $200,338, respectively. The outstanding balance as of June 30, 2021 and December 31, 2020 was $45,000 and $30,000, respectively. The average interest rate of the outstanding balances was 0.34% and 0.33% as of June 30, 2021 and December 31, 2020, respectively.

•
TSA has a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 250 basis points and contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit matured on June 30, 2021 and was renewed for an additional year.  There was no outstanding balance as of June 30, 2021.

9.
Pension Plan


The components of net periodic benefit cost were as follows:
 
 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Components of net periodic benefit cost:
                       
Interest cost
 
$
1,375
   
$
1,540
   
$
2,750
   
$
3,080
 
Expected return on assets
   
(1,100
)
   
(2,209
)
   
(2,200
)
   
(4,418
)
Amortization of actuarial loss
   
975
     
244
     
1,950
     
488
 
Settlement loss
   
1,000
     
356
     
2,000
     
712
 
Net periodic benefit cost (income)
 
$
2,250
   
$
(69
)
 
$
4,500
   
$
(138
)

 
Employer Contributions:  The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2020 that it expected to contribute $10,000 to the pension program in 2021.  As of June 30, 2021, the Company has contributed $10,000 to the pension program. 

21

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

10.
Reinsurance

Triple-S Propiedad, Inc. (TSP) uses facultative reinsurance, pro rata, and excess of loss reinsurance treaties to manage its exposure to losses, including those from catastrophe events. TSP has geographic exposure to catastrophe losses from hurricanes and earthquakes. The incidence and severity of catastrophes are inherently unpredictable.
 
Under these treaties, TSP ceded premiums written were $14,471 and $14,310 for the three months ended June 30, 2021 and 2020, respectively, and $29,454 and $30,717 for the six months ended June 30, 2021 and 2020, respectively. (Refunded) ceded incurred losses and loss adjustment expenses during the three months and six months ended June 30, 2021 and 2020 were $(323) and $1,565, respectively, and $(267) and $39,956, respectively. The ceded incurred losses and loss adjustment expenses for the six months ended June 30, 2020 include $40,000 related to earthquake losses ceded under catastrophe reinsurance.
 

Principal reinsurance agreements are as follows:
  
•
Casualty excess of loss treaty provides reinsurance for losses up to $20,000, subject to a retention of $225.
 
•
Medical malpractice excess of loss treaty provides reinsurance for losses up to $3,000, subject to a retention of $150.
 
•
Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to $400 in $30,000 risks.
 
•
Catastrophe protection is purchased limiting losses to $5,000 per event with losses up to approximately $811,450 in a $816,450 event.


All principal reinsurance contracts are for a period of one year and are subject to modifications and negotiations in each renewal. TSP’s current property and catastrophe reinsurance program was renewed effective April 1, 2021 for a twelve-month period ending March 31, 2022. Other contracts that expired on January 1, 2021 were renewed.

22

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)
11.          Comprehensive Income (Loss)

The accumulated balances for each classification of other comprehensive income (loss), net of tax, are as follows:
 
 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Net Unrealized Gain on Securities
                       
Beginning Balance
 
$
75,136
   
$
73,709
   
$
91,689
   
$
57,830
 
Other comprehensive income (loss) before reclassifications
   
4,274
     
10,681
     
(12,105
)
   
26,730
 
Amounts reclassified from accumulated other comprehensive (loss) income
   
(2,011
)
   
720
     
(2,185
)
   
550
 
Net current period change
   
2,263
     
11,401
     
(14,290
)
   
27,280
 
Ending Balance
   
77,399
     
85,110
     
77,399
     
85,110
 
Liability for Pension Benefits
                               
Beginning Balance
   
(100,900
)
   
(28,314
)
   
(101,509
)
   
(28,467
)
Amounts reclassified from accumulated other comprehensive income
   
609
     
153
     
1,218
     
306
 
Ending Balance
   
(100,291
)
   
(28,161
)
   
(100,291
)
   
(28,161
)
Accumulated Other Comprehensive Income
                               
Beginning Balance
   
(25,764
)
   
45,395
     
(9,820
)
   
29,363
 
Other comprehensive income (loss) before reclassifications
   
4,274
     
10,681
     
(12,105
)
   
26,730
 
Amounts reclassified from accumulated other comprehensive (loss) income
   
(1,402
)
   
873
     
(967
)
   
856
 
Net current period change
   
2,872
     
11,554
     
(13,072
)
   
27,586
 
Ending Balance
 
$
(22,892
)
 
$
56,949
   
$
(22,892
)
 
$
56,949
 

12.
Share-Based Compensation

Share-based compensation expense recorded during the three months ended June 30, 2021 and 2020 was $2,751 and $4,235, respectively. Share-based compensation expense recorded during the six months ended June 30, 2021 and 2020 was $3,933 and $6,594, respectively. During the three and six months ended June 30, 2021, 20,823 shares were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. During the six months ended June 30, 2020, 6,882 shares were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. There were no non-cash tax withholdings during the three months ended June 30, 2020.

23

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

13.
Net Income Available to Stockholders and Net Income per Share
 
The following table sets forth the computation of basic and diluted earnings per share:
 
 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Numerator for earnings per share:
                       
Net income attributable to TSM available to stockholders
 
$
23,560
   
$
43,599
   
$
46,870
   
$
17,454
 
Denominator for basic earnings per share:
                               
Weighted average of common shares
   
23,478,867
     
23,193,626
     
23,355,965
     
23,287,787
 
Effect of dilutive securities
   
120,111
     
77,677
     
160,331
     
85,198
 
Denominator for diluted earnings per share
   
23,598,978
     
23,271,303
     
23,516,296
     
23,372,985
 
Basic net income per share attributable to TSM
 
$
1.00
   
$
1.88
   
$
2.01
   
$
0.75
 
Diluted net income per share attributable to TSM
 
$
1.00
   
$
1.87
   
$
1.99
   
$
0.75
 

14.
Segment Information
 
The operations of the Company are conducted principally through three reportable business segments: Managed Care, Life Insurance, and Property and Casualty Insurance.  The Company evaluates performance based primarily on the operating revenues and operating income of each segment.  Operating revenues include Premiums Earned, Net, Administrative Service Fees and Net Investment Income. Operating costs include Claims Incurred and Operating Expenses.  The Company calculates operating income or loss as operating revenues less operating costs.

24

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

The following tables summarize the operations by reportable segment for the three months and six months ended June 30, 2021 and 2020:
 
 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Operating revenues:
                       
Managed Care:
                       
Premiums earned, net
 
$
909,229
   
$
788,773
   
$
1,840,659
   
$
1,598,059
 
Administrative service fees
   
2,676
     
2,809
     
5,441
     
5,003
 
Intersegment premiums/service fees
   
899
     
1,076
     
1,721
     
2,719
 
Net investment income
   
5,890
     
4,690
     
11,000
     
9,698
 
Total Managed Care
   
918,694
     
797,348
     
1,858,821
     
1,615,479
 
Life Insurance:
                               
Premiums earned, net
   
53,479
     
47,523
     
105,389
     
93,709
 
Intersegment premiums
   
586
     
545
     
1,175
     
1,036
 
Net investment income
   
6,658
     
6,795
     
13,066
     
13,725
 
Total Life Insurance
   
60,723
     
54,863
     
119,630
     
108,470
 
Property and Casualty Insurance:
                               
Premiums earned, net
   
25,172
     
22,239
     
50,268
     
42,664
 
Intersegment premiums
   
154
     
154
     
307
     
307
 
Net investment income
   
2,247
     
2,323
     
4,278
     
4,448
 
Total Property and Casualty Insurance
   
27,573
     
24,716
     
54,853
     
47,419
 
Other segments: *
                               
Intersegment service revenues
   
4,218
     
2,007
     
7,449
     
5,042
 
Operating revenues from external sources
   
1,817
     
303
     
4,593
     
4,342
 
Total other segments
   
6,035
     
2,310
     
12,042
     
9,384
 
Total business segments
   
1,013,025
     
879,237
     
2,045,346
     
1,780,752
 
TSM operating revenues from external sources
   
165
     
7
     
262
     
255
 
Elimination of intersegment premiums/service fees
   
(1,639
)
   
(1,775
)
   
(3,203
)
   
(4,062
)
Elimination of intersegment service revenues
   
(4,218
)
   
(2,007
)
   
(7,449
)
   
(5,042
)
Consolidated operating revenues
 
$
1,007,333
   
$
875,462
   
$
2,034,956
   
$
1,771,903
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

25

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

 
Three months ended
June 30,
   
Six months ended
June 30,
 
 
 
2021
   
2020
   
2021
   
2020
 
Operating income (loss):
                       
Managed Care
 
$
7,210
   
$
29,322
   
$
25,964
   
$
43,489
 
Life Insurance
   
6,378
     
9,457
     
12,181
     
14,506
 
Property and Casualty Insurance
   
1,947
     
6,777
     
5,788
     
6,535
 
Other segments *
   
(2,334
)
   
(2,409
)
   
(4,432
)
   
(2,913
)
Total business segments
   
13,201
     
43,147
     
39,501
     
61,617
 
TSM operating revenues from external sources
   
165
     
7
     
262
     
255
 
TSM unallocated operating expenses
   
(3,753
)
   
(1,841
)
   
(6,589
)
   
(3,244
)
Elimination of TSM intersegment charges
   
2,403
     
2,403
     
4,806
     
4,806
 
Consolidated operating income
   
12,016
     
43,716
     
37,980
     
63,434
 
Consolidated net realized investment gains (losses)
   
2,514
     
(221
)
   
2,731
     
(687
)
Consolidated net unrealized investment gains (losses) on equity investments
   
12,743
     
28,338
     
21,295
     
(28,468
)
Consolidated interest expense
   
(2,217
)
   
(1,864
)
   
(4,209
)
   
(3,717
)
Consolidated other income, net
   
4,851
     
801
     
7,962
     
4,406
 
Consolidated income before taxes
 
$
29,907
   
$
70,770
   
$
65,759
   
$
34,968
 
 
                               
Depreciation and amortization expense:
                               
Managed Care
 
$
2,440
   
$
2,930
   
$
4,792
   
$
5,976
 
Life Insurance
   
318
     
308
     
645
     
580
 
Property and Casualty Insurance
   
74
     
91
     
144
     
203
 
Other segments*
   
351
     
352
     
702
     
673
 
Total business segments
   
3,183
     
3,681
     
6,283
     
7,432
 
TSM depreciation expense
   
411
     
156
     
830
     
312
 
Consolidated depreciation and amortization expense
 
$
3,594
   
$
3,837
   
$
7,113
   
$
7,744
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

 
 
June 30,
2021
   
December 31,
2020
 
Assets:
           
Managed Care
 
$
1,478,811
   
$
1,319,389
 
Life Insurance
   
1,095,606
     
1,051,819
 
Property and Casualty Insurance
   
529,690
     
583,404
 
Other segments *
   
38,692
     
34,020
 
Total business segments
   
3,142,799
     
2,988,632
 
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
   
17,369
     
16,489
 
Property and equipment, net
   
73,088
     
68,678
 
Other assets
   
92,919
     
88,684
 
 
   
183,376
     
173,851
 
Elimination entries-intersegment receivables and others
   
(100,713
)
   
(74,065
)
Consolidated total assets
 
$
3,225,462
   
$
3,088,418
 

*
Includes segments that are not required to be reported separately, primarily the health clinics.

26

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

15.
Subsequent Events

The Company evaluated subsequent events through the date the unaudited condensed consolidated interim financial statements were issued.  No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standard Codification.



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation,” the “Company,” “TSM,” “we,” “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 six months ended June 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 six months ended June 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.

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 June 30, 2021, we served approximately 1 million managed care members in Puerto Rico.  For the six months ended June 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 14 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.

Recent Developments

COVID-19

COVID-19 Situation in Puerto Rico

As of July 30, 2021, the Puerto Rico Department of Health reported a cumulative total of 126,158 and 19,329 confirmed (RT-PCR+) and probable (antigen) COVID-19 cases, respectively, and a total of 2,578 confirmed and probable COVID-19-related deaths in Puerto Rico.

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, the Governor delegated all authority to issue guidelines and protocols to address the COVID-19 emergency to the Puerto Rico Secretary of Health.

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 July 1, 2021 that over 60% of the eligible population had received the full dose of the COVID-19 vaccine and over 70% of the eligible population had received at least the first dose.

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 percentage of federal government funding for its Medicaid program expenditures 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, and that the negative effects of COVID-19 will continue through the current fiscal year, resulting in a contraction in real GNP of approximately -2%.

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 14.3%, or approximately 530,000 people, from April 1, 2010 to July 1, 2019. 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 20% 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 February 2021 was 952,000, a decrease of 13,000 from total employment of 965,000 as of February 2020.  The DLHR also reported an average unemployment rate of approximately 9.2% as of February 2021, up from a 9.0% unemployment rate reported by the DLHR as of February 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 27, 2021, the Oversight Board filed the Sixth 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, PBA and ERS, and more than $50 billion of unfunded pension liabilities. On July 29, 2021, the Title III court approved the disclosure statement for the Proposed Plan. The Oversight Board has proposed that final hearings on confirmation of a plan of adjustment take place in November 2021.

Property & Casualty Litigation

As of June 30, 2021, our Property and Casualty subsidiary had been served in a total of 487 cases relating to Hurricane Maria. Of those, 274 remained open as of June 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.

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 June 30,
 
   
2021
   
2020
 
Managed Care enrollment:
           
Commercial 1
   
418,414
     
433,471
 
Medicare
   
136,490
     
134,601
 
Medicaid
   
445,881
     
364,157
 
Total
   
1,000,785
     
932,229
 
Managed Care enrollment by funding arrangement:
               
Fully insured
   
898,573
     
823,247
 
Self-insured
   
102,212
     
108,982
 
Total
   
1,000,785
     
932,229
 

(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
   
Six months ended
 
   
June 30,
   
June 30,
 
(dollar in millions)
 
2021
   
2020
   
2021
   
2020
 
Revenues
                       
Premiums earned, net
 
$
987.9
   
$
858.5
   
$
1,996.3
   
$
1,734.4
 
Administrative service fees
   
2.6
     
2.8
     
5.4
     
5.0
 
Net investment income
   
15.0
     
13.8
     
28.6
     
28.1
 
Other operating revenues
   
1.9
     
0.4
     
4.7
     
4.4
 
Total operating revenues
   
1,007.4
     
875.5
     
2,035.0
     
1,771.9
 
Net realized investment gains (losses)
   
2.5
     
(0.2
)
   
2.7
     
(0.7
)
Net unrealized investment gains (losses) on equity investments
   
12.7
     
28.3
     
21.3
     
(28.5
)
Other income, net
   
4.9
     
0.8
     
8.0
     
4.4
 
Total revenues
   
1,027.5
     
904.4
     
2,067.0
     
1,747.1
 
Benefits and expenses
                               
Claims incurred
   
844.0
     
653.1
     
1,694.6
     
1,367.6
 
Operating expenses
   
151.3
     
178.7
     
302.4
     
340.9
 
Total operating expenses
   
995.3
     
831.8
     
1,997.0
     
1,708.5
 
Interest expense
   
2.2
     
1.8
     
4.2
     
3.7
 
Total benefits and expenses
   
997.5
     
833.6
     
2,001.2
     
1,712.2
 
Income before taxes
   
30.0
     
70.8
     
65.8
     
34.9
 
Income tax expense
   
6.4
     
27.2
     
18.9
     
17.5
 
Net income attributable to TSM
 
$
23.6
   
$
43.6
   
$
46.9
   
$
17.4
 

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Operating Revenues

Consolidated premiums earned, net increased by $129.4 million, or 15.1%, to $987.9 million.  This increase primarily reflects higher premiums in the Managed Care segment by $120.5 million. The growth in Managed Care premiums reflects higher average premium rates across all lines of business and an increase in Medicaid membership.

Net Unrealized Investment Gains (Losses) on Equity Investments

The $12.7 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 $190.9 million, or 29.2%, to $844.0 million, and the consolidated loss ratio increased 930 basis points, to 85.4%, when compared to the prior-year period primarily reflecting a more normalized utilization of Managed Care services compared to the low utilization in the prior-year quarter due to the pandemic, 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.

Operating Expenses

Consolidated operating expenses decreased by $27.4 million, or 15.3%, to $151.3 million. The decrease in operating expenses primarily reflects the accrual in the prior year quarter of a contingency reserve related to a legal proceeding in the Managed Care segment amounting to $32.0 million and the elimination in 2021 of the HIP fee of $14.9 million offset in part by higher personnel costs.  The consolidated operating expense ratio decreased 540 basis points, to 15.3%.

Income Taxes

Consolidated income tax expense for the three months ended June 30, 2021 decreased by $20.8 million, to $6.4 million, primarily reflecting lower taxable income in 2021.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Operating Revenues

Consolidated premiums earned, net increased by $261.9 million, or 15.1%, to $1,996.3 million during the six months ended June 30, 2021.  This increase primarily reflects higher premiums in the Managed Care segment by $242.7 million due to higher average premium rates in all lines of business and an increase in Medicaid membership.

Net Unrealized Investment Gains (Losses) on Equity Investments

The $21.3 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 $327.0 million, or 23.9%, to $1,694.6 million, during the six months ended June 30, 2021.  The consolidated loss ratio increased 600 basis points, to 84.9%, 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.

Operating Expenses

Consolidated operating expenses decreased by $38.5 million, or 11.3%, to $302.4 million. The decrease in operating expenses primarily reflects the accrual in the prior year quarter of a contingency reserve related to a legal proceeding in the Managed Care segment amounting to $32.0 million and the elimination of the HIP fee in 2021 of $31.2 million. These decreases were partially offset by higher personnel costs and professional fees. The consolidated operating expense ratio decreased 450 basis points, to 15.1%.

Income Taxes

Consolidated income increased by $1.4 million, or 8.0%, to $18.9 million, primarily reflecting higher taxable income in 2021.

Managed Care Operating Results

 
Three months ended
June 30,
   
Six months ended
June 30,
 
(dollar in millions)
 
2021
   
2020
   
2021
   
2020
 
Operating revenues
                       
Medical premiums earned, net
                       
Medicare
 
$
408.4
   
$
372.4
   
$
810.7
   
$
760.2
 
Medicaid
   
291.8
     
221.1
     
614.5
     
442.0
 
Commercial
   
209.6
     
195.8
     
416.6
     
396.9
 
Medical premiums earned, net
   
909.8
     
789.3
     
1,841.8
     
1,599.1
 
Administrative service fees
   
3.0
     
3.4
     
6.1
     
6.7
 
Net investment income
   
5.9
     
4.7
     
11.0
     
9.7
 
Total operating revenues
   
918.7
     
797.4
     
1,858.9
     
1,615.5
 
Medical operating costs
                               
Medical claims incurred
   
803.9
     
627.0
     
1,615.3
     
1,304.8
 
Medical operating expenses
   
107.6
     
141.1
     
217.6
     
267.2
 
Total medical operating costs
   
911.5
     
768.1
     
1,832.9
     
1,572.0
 
Medical operating income
 
$
7.2
   
$
29.3
   
$
26.0
   
$
43.5
 
Additional data
                               
Member months enrollment
                               
Medicare
   
409,012
     
405,203
     
817,793
     
813,110
 
Medicaid
   
1,332,994
     
1,077,456
     
2,629,183
     
2,145,472
 
Commercial
                               
Fully insured
   
948,839
     
975,212
     
1,905,786
     
1,953,554
 
Self-funded
   
298,854
     
327,030
     
594,691
     
657,262
 
Total Commercial
   
1,247,693
     
1,302,242
     
2,500,477
     
2,610,816
 
Total member months
   
2,989,699
     
2,784,901
     
5,947,453
     
5,569,398
 
Medical loss ratio
   
88.4
%
   
79.4
%
   
87.7
%
   
81.6
%
Operating expense ratio
   
11.8
%
   
17.8
%
   
11.8
%
   
16.6
%

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Medical Premiums Earned, Net

Medical premiums earned increased by $120.5 million, or 15.3%, to $909.8 million. This increase is principally the result of the following:

•
Premiums generated by the Medicaid business increased by $70.7 million, or 32.0%, to $291.8 million, primarily reflecting an increase in enrollment of approximately 256,000 member months and higher average premium rates following the premium rate increase effective July 2020. These increases were partially offset by the elimination of the HIP fee pass-through in 2021.

•
Premiums generated by the Medicare business increased by $36.0 million, or 9.7%, to $408.4 million, primarily due to higher average premium rates resulting from an increase in the premium rate benchmark and average membership risk score. Member months increased slightly compared with the prior-year period.

•
Premiums generated by the Commercial business increased by $13.8 million, or 7.0%, to $209.6 million, primarily reflecting higher average premium rates. This increase was partially offset by a decrease of approximately 26,000 fully insured member months and the elimination of the HIP Fee pass-through in 2021.

Medical Claims Incurred

Medical claims incurred increased by $176.9 million, or 28.2%, to $803.9 million when compared to the three months ended June 30, 2020. The medical loss ratio (MLR) of the segment increased 900 basis points during the 2021 period, to 88.4%.  This fluctuation is principally attributed to the net effect of the following:

•
Claims incurred in the Medicaid business increased by $68.1 million, or 32.9%, during the 2021 period.  The MLR, at 94.3%, was 60 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 low utilization experienced in the prior-year quarter due to the pandemic, COVID-19-related testing and treatment costs, and the waiver of medical and payment policies. 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 $61.6 million, or 21.4%, during the 2021 period and its MLR increased 830 basis points to 85.5%. These increases reflect a more normalized utilization of services compared to the low 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 $47.2 million, or 35.7%, during 2021 and its MLR increased 1,810 basis points, to 85.6%.  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 $33.5 million, or 23.7%, to $107.6 million, primarily reflecting the accrual in the prior year quarter of a contingency reserve related to a legal proceeding and the elimination of the HIP fee in 2021, partially offset by higher personnel costs and professional services. The operating expense ratio decreased 600 basis points to 11.8% in 2021.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Medical Premiums Earned, Net

Medical premiums earned increased by $242.7 million, or 15.2%, to $1,841.8 million. This increase is principally the result of the following:

•
Premiums generated by the Medicaid business increased by $172.5 million, or 39.0%, to $614.5 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 484,000 member months. In addition, following a reconciliation process with ASES this year, we recognized premiums corresponding to prior periods in the first 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 $50.5 million, or 6.6%, to $810.7 million, primarily due to higher average premium rates reflecting an increase in the premium rate benchmark and membership risk score. Member months increased slightly when compared with the prior-year period.

•
Premiums generated by the Commercial business increased by $19.7 million, or 5.0%, to $416.6 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 48,000 fully insured member months.

Medical Claims Incurred

Medical claims incurred increased by $310.5 million, or 23.8%, to $1,615.3 million when compared to the six months ended June 30, 2020.  The MLR of the segment increased 610 basis points during 2021, to 87.7%. This fluctuation is principally attributed to the net effect of the following:

•
Claims incurred in the Medicaid business increased by $150.5 million, or 37.0%, during 2021 and its MLR decreased 130 basis points, to 90.7%. 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 $92.2 million, or 15.2%, during the 2021 period and its MLR increased 640 basis points, to 86.4%.  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 $67.8 million, or 23.4%, during 2021 and its MLR increased 1,290 basis points, to 85.9%. 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. These increases were partially offset by the lower fully insured membership enrollment.

Medical Operating Expenses

Medical operating expenses decreased by $49.6 million, or 18.6%, to $217.6 million, primarily reflecting the accrual in prior year of a contingency reserve related to a legal proceeding and the elimination of the HIP fee in 2021 offset in part by an increase in personnel costs and professional fees. The operating expense ratio decreased 480 basis points to 11.8% in 2021.

Life Insurance Segment Operating Results

 
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(dollar in millions)
 
2021
   
2020
   
2021
   
2020
 
Operating revenues:
                       
Premiums earned, net:
                       
Premiums earned
 
$
56.9
   
$
50.6
   
$
112.1
   
$
99.6
 
Ceded premiums earned
   
(2.9
)
   
(2.5
)
   
(5.6
)
   
(4.8
)
Premiums earned, net
   
54.0
     
48.1
     
106.5
     
94.8
 
Net investment income
   
6.7
     
6.8
     
13.1
     
13.7
 
Total operating revenues
   
60.7
     
54.9
     
119.6
     
108.5
 
Operating costs:
                               
Policy benefits and claims incurred
   
29.6
     
20.6
     
59.0
     
48.0
 
Underwriting and other expenses
   
24.7
     
24.8
     
48.4
     
46.0
 
Total operating costs
   
54.3
     
45.4
     
107.4
     
94.0
 
Operating income
 
$
6.4
   
$
9.5
   
$
12.2
   
$
14.5
 
Additional data:
                               
Loss ratio
   
54.8
%
   
42.8
%
   
55.4
%
   
50.6
%
Operating expense ratio
   
45.7
%
   
51.6
%
   
45.4
%
   
48.5
%

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Operating Revenues

Premiums earned, net increased by $5.9 million, or 12.3%, to $54.0 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 during the two-month COVID-19 government-enforced lockdown, which severely affected sales and increased policy cancellations.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $9.0 million, or 43.7%, to $29.6 million, primarily as the result of higher actuarial reserves, due to higher persistency during the period, and higher benefits paid driven by the lower volume of claim submissions in the prior year quarter following the government-enforced lockdown due to COVID-19 pandemic. As a result, the segment’s loss ratio increased 1,200 basis points, to 54.8%.

Underwriting and Other Expenses

Underwriting and other expenses decreased $0.1 million, or 0.4%, to $24.7 million, while the segment’s operating expense ratio decreased 590 basis points, to 45.7%.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Operating Revenues

Premiums earned, net increased by $11.7 million, or 12.3%, to $106.5 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 $11.0 million, or 22.9%, to $59.0 million, primarily as the result of higher actuarial reserves, due to higher persistency during the period, and higher benefits paid driven by the lower volume of claim submissions in the prior year quarter following the government-enforced lockdown due to COVID-19 pandemic. As a result, the segment’s loss ratio increased 480 basis points, to 55.4%.

Underwriting and Other Expenses

Underwriting and other expenses increased $2.4 million, or 5.2%, to $48.4 million, primarily reflecting an increase in commissions expense resulting from higher sales during the period, offset in part by lower amortization of deferred acquisition costs. The segment’s operating expense ratio decreased 310 basis points to 45.4%.

Property and Casualty Insurance Operating Results

 
Three months ended
June 30,
   
Six months ended
June 30,
 
(dollar in millions)
 
2021
   
2020
   
2021
   
2020
 
Operating revenues
                       
Premiums earned, net:
                       
Premiums written
 
$
41.2
   
$
38.4
   
$
77.8
   
$
71.6
 
Premiums ceded
   
(14.4
)
   
(14.3
)
   
(29.4
)
   
(30.7
)
Change in unearned premiums
   
(1.5
)
   
(1.7
)
   
2.2
     
2.1
 
Premiums earned, net
   
25.3
     
22.4
     
50.6
     
43.0
 
Net investment income
   
2.3
     
2.3
     
4.3
     
4.4
 
Total operating revenues
   
27.6
     
24.7
     
54.9
     
47.4
 
Operating costs
                               
Claims incurred
   
11.6
     
6.5
     
21.1
     
17.4
 
Underwriting and other expenses
   
14.0
     
11.5
     
28.0
     
23.5
 
Total operating costs
   
25.6
     
18.0
     
49.1
     
40.9
 
Operating income
 
$
2.0
   
$
6.7
   
$
5.8
   
$
6.5
 
Additional data:
                               
Loss ratio
   
45.8
%
   
29.0
%
   
41.7
%
   
40.5
%
Operating expense ratio
   
55.3
%
   
51.3
%
   
55.3
%
   
54.7
%

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Operating Revenues

Total premiums written increased by $2.8 million, or 7.3%, to $41.2 million, primarily driven by higher premiums in Personal Package, Commercial Auto and Commercial Property products, partially offset by a decrease in Commercial Package products.

Claims Incurred

Claims incurred increased by $5.1 million, or 78.5%, to $11.6 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. As a result, the loss ratio increased 1,680 basis points, to 45.8% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $2.5 million, or 21.7%, to $14.0 million primarily due to higher net commission expense following the increase in net premiums earned. The net commission expense for the current period is unfavorably impacted by a lower capitalization of deferred acquisition costs. The operating expense ratio was 55.3%, 400 basis points higher than prior year.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Operating Revenues

Total premiums written increased by $6.2 million, or 8.7%, to $77.8 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 $1.3 million, or 4.2%, 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 $3.7 million, or 21.3%, to $21.1 million primarily resulting from lower losses in the 2020 period because of the COVID-19 pandemic, 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 120 basis points, to 41.7% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $4.5 million, or 19.1%, to $28.0 million, mostly because of higher net commission expense following the increase in net premiums earned. Current year net commission expense is affected by a lower capitalization of deferred acquisition costs. The operating expense ratio was 55.3%, 60 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:

 
Six months ended
June 30,
 
(dollar in millions)
 
2021
   
2020
 
Sources (uses) of cash:
           
Cash provided by operating activities
 
$
75.0
   
$
170.3
 
Net purchases of investment securities
   
(64.3
)
   
(105.6
)
Net capital expenditures
   
(11.2
)
   
(45.9
)
Capital contribution on equity method investees
   
-
     
(4.9
)
Proceeds from long-term borrowings
   
-
     
30.8
 
Payments of long-term borrowings
   
(2.2
)
   
(1.6
)
Net change in short-term borrowings
   
15.0
     
(39.0
)
Proceeds from policyholder deposits
   
9.5
     
16.4
 
Surrenders of policyholder deposits
   
(5.6
)
   
(8.2
)
Repurchase and retirement of common stock
   
-
     
(14.9
)
Other
   
47.2
     
33.8
 
Net increase in cash and cash equivalents
 
$
63.4
   
$
31.2
 

The decrease of approximately $95.3 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, and 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 advances of short-term facilities available to address timing differences between cash receipts and disbursements.

The fluctuation in other sources of cash reflects the $13.2 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 in compliance with these covenants as of June 30, 2021.

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 June 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 June 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

The Company hired a new Chief Financial Officer, Victor J. Haddock-Morales, replacing Juan J. Román Jiménez, who retired. As the Company’s principal financial officer, Mr. Haddock-Morales, will oversee the Company’s internal controls and financial reporting moving forward.

Part II – Other Information

Item 1.
Legal Proceedings

None of the legal proceedings disclosed in Note 25 of the Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K had a material development during the six months ended June 30, 2021.

Item 1A.
Risk Factors

For a description of our risk factors, see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.

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
 
                         
April 1, 2021 to April 30, 2021
   
-
   
$
-
     
-
   
$
-
 
May 1, 2021 to May 31, 2021
   
-
     
-
     
-
     
-
 
June 1, 2021 to June 30, 2021
   
20,823
     
23.15
     
-
     
-
 

(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 June 2021, 20,823 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.
 
 

 
 
Item 6.
Exhibits
 

Exhibits
Description
 
 
11
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three and six months ended June 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.

SIGNATURES

Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
 
Triple-S Management Corporation
 
 
 
 
 
 
 
 
 
Registrant
 
 
 
 
 
Date:
August 5, 2021
 
By:
/s/ Roberto García-Rodríguez
 
 
 
 
 
Roberto García-Rodríguez
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
Date:
August 5, 2021
 
By:
/s/ Victor J. Haddock-Morales
 
 
 
 
 
Victor J. Haddock-Morales
 
 
 
 
Executive Vice President and Chief Financial Officer



46
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