Triple-S Management Corporation Reports Second Quarter 2017 Results
Quarterly Consolidated Highlights
- Consolidated operating revenues were
$741.2 million , a 0.8% decrease from last year, reflecting lower premiums in the Managed Care segment; - Consolidated operating income was
$11.2 million ; - Consolidated loss ratio was 84.6%;
- Medical loss ratio (MLR) was 87.5%.
Commenting on the company's financial performance,
He added, "A key recent development was the agreement between Triple-S and the
Selected Consolidated Quarterly Details
- Consolidated premiums earned were
$722.9 million , down 0.9% from last year. The decrease was principally due to lower premiums in the Managed Care business, mostly reflecting lower Medicare risk score adjustments and a decline in the Commercial and Medicaid fully-insured membership. These decreases were partially offset by higher life insurance premiums and last year's Medicaid 2.5% excess profit sharing accrual which reduced prior-year premiums. - At 84.6%, the consolidated loss ratio was down 70 basis points from a year ago, reflecting a lower loss ratio across all our segments. Excluding the impact of prior-period reserve developments and moving the Medicare risk score revenue adjustments and other premium adjustments to the corresponding period, the consolidated loss ratio would have been 87.9%, 130 basis points above last year.
- Consolidated operating expenses decreased
$2.4 million and the operating expense ratio fell 20 basis points year over year, to 16.3%. The reduction in operating expenses reflects the$10.7 million decrease in the HIP fee due to the 2017 moratorium, offset by an increase in general administrative expenses of approximately$8.1 million .
Selected Managed Care Segment Quarterly Details
- Managed Care premiums earned were
$661.7 million , down$7.6 million , or 1.1%, year over year, largely reflecting a decrease in fully-insured membership. - Commercial premiums were down 5.4% when compared with the second quarter last year, to
$203.3 million , resulting from lower fully-insured member month enrollment offset by higher average premium rates. The membership decrease was also impacted, in part, by the discontinuation of the US Virgin Islands business in September of the prior year. Also contributing to the premium decline was the suspension of$3.6 million in HIP fee pass throughs in 2017. - Medicare premiums of
$266.6 million fell 2.4% year over year, primarily reflecting lower risk score revenue adjustment and a reduction in the Medicare reimbursement rates. These decreases were partially offset by an enrollment increase of 12,000 member months. - Medicaid premiums rose 5.8%, to
$191.8 million . The increase primarily reflects last year's$14.6 million 2.5% excess profit sharing accrual, which reduced last year's premiums, and$11.6 million in additional premiums related to our compliance with the program's quality incentive metrics. Offsetting this increase was a membership decline, lower average premium rates that went into effectJuly 1, 2016 and$2.6 million associated with the 2017 HIP fee suspension. - Managed Care MLR of 87.5% was down 70 basis points from the prior year. Excluding the impact of prior-period reserve developments, and moving the Medicare risk score revenue adjustments and other premium adjustments to the corresponding period, the Managed Care MLR would have been 91.3%, 170 basis points higher than the comparable metric a year ago. The increase mainly reflects higher pharmacy claim trends in the Medicaid and Medicare businesses, lower premiums in the Medicare and Medicaid operations and the enhancement of benefits in our 2017 Medicare product offerings to take advantage of the HIP fee moratorium. Offsetting these increases is the improvement in the Commercial business MLR.
- Managed Care operating expenses were
$89.5 million , down$3.3 million , or 3.6%, year over year, primarily reflecting the changes discussed above.
Consolidated Six-Month Recap
For the six months ended
2017 Outlook
García-Rodríguez commented, "In our last earnings release, we provided directional guidance for our Commercial and Medicare businesses, given the proposed changes in the Government Health Plan (GHP) and the broader economic impact of the fiscal control measures required under PROMESA. Although the fiscal control measures have not been entirely implemented, our 90-day extension of the GHP contract gives us more visibility into the outlook of that business, so now we are also providing directional guidance for the GHP.
"In the Commercial business, we expect full-year at-risk member month enrollment to be approximately 4.0 million, plus or minus 5%, reflecting some attrition as well as the addition of new groups. Our MLR now should be in the 83% to 85% range.
"In the
"Assuming the GHP contract is renewed through the remainder of the year, we expect a member month enrollment of 2.3 million, plus or minus 5%, and an average MLR of 91% for the second half of the year in that business.
"Our ancillary segments are expected to continue showing stable results. In 2017 Life insurance and Property and Casualty premiums are expected to reach
"Investment income should be at the same level as in 2016 and administrative expenses now should be in a range of
"We will continue offering directional information—such as estimates, targets or trends―as appropriate to help guide market expectations. As time progresses and the environment stabilizes, we will consider when and if it makes sense to provide consolidated earnings estimates on a regular basis."
Internal Control Over Financial Reporting
Following our filings for the periods ending
Conference Call and Webcast
Management will host a conference call and webcast on
To listen to the webcast, participants should visit the "Investor Relations" section of the Company's website at www.triplesmanagement.com several minutes before the event is broadcast and follow the instructions provided to ensure they have the necessary audio application downloaded and installed. This program is provided at no charge to the user. An archived version of the call, also located on the "Investor Relations" section of
About
Non-GAAP Financial Measures
This earnings release presents information about the Company's adjusted net income, which is a non-GAAP financial metric provided as a complement to the results provided in accordance with accounting principles generally accepted in
Forward-Looking Statements
This document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances. Sentences that include "believe", "expect", "plan", "intend", "estimate", "anticipate", "project", "may", "will", "shall", "should" and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.
All forward-looking statements in this news release reflect management's current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the
In addition, the Company operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight. The following factors, if markedly different from the Company's planning assumptions (either individually or in combination), could cause
- Trends in health care costs and utilization rates
- Ability to secure sufficient premium rate increases
- Competitor pricing below market trends of increasing costs
- Re-estimates of policy and contract liabilities
- Changes in government laws and regulations of managed care, life insurance or property and casualty insurance
- Significant acquisitions or divestitures by major competitors
- Introduction and use of new prescription drugs and technologies
- A downgrade in the Company's financial strength ratings
- A downgrade in the Government of
Puerto Rico's debt - Litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies
- Ability to contract with providers consistent with past practice
- Ability to successfully implement the Company's disease management, utilization management and Star ratings programs
- Ability to maintain Federal Employees, Medicare and Medicaid contracts
- Volatility in the securities markets and investment losses and defaults
- General economic downturns, major disasters, and epidemics
This list is not exhaustive. Management believes the forward-looking statements in this release are reasonable. However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on the Company's results of operations or financial condition. In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations. In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of
Readers are advised to carefully review and consider the various disclosures in the Company's
Earnings Release Schedules and Supplementary Information |
|
Condensed Consolidated Balance Sheets |
Exhibit I |
Condensed Consolidated Statements of Earnings |
Exhibit II |
Condensed Consolidated Statements of Cash Flows |
Exhibit III |
Segment Performance Supplemental Information |
Exhibit IV |
Reconciliation of Non-GAAP Financial Measures |
Exhibit V |
Exhibit I
Condensed Consolidated Balance Sheets |
||||||||
(dollar amounts in thousands) |
||||||||
Unaudited |
||||||||
|
|
|||||||
Assets |
||||||||
Investments |
$ |
1,495,532 |
$ |
1,433,392 |
||||
Cash and cash equivalents |
172,526 |
103,428 |
||||||
Premium and other receivables, net |
320,548 |
286,365 |
||||||
Deferred policy acquisition costs and value of business acquired |
200,034 |
194,787 |
||||||
Property and equipment, net |
69,083 |
66,369 |
||||||
Other assets |
147,645 |
134,658 |
||||||
Total assets |
$ |
2,405,368 |
$ |
2,218,999 |
||||
Liabilities and Stockholders' Equity |
||||||||
Policy liabilities and accruals |
$ |
1,230,816 |
$ |
1,102,237 |
||||
Accounts payable and accrued liabilities |
256,893 |
219,191 |
||||||
Long-term borrowings |
33,667 |
35,085 |
||||||
Total liabilities |
1,521,376 |
1,356,513 |
||||||
Stockholders' equity: |
||||||||
Common stock |
24,445 |
24,272 |
||||||
Other stockholders' equity |
860,225 |
838,891 |
||||||
|
884,670 |
863,163 |
||||||
Non-controlling interest in consolidated subsidiary |
(678) |
(677) |
||||||
Total stockholders' equity |
883,992 |
862,486 |
||||||
Total liabilities and stockholders' equity |
$ |
2,405,368 |
$ |
2,218,999 |
||||
Exhibit II
Condensed Consolidated Statements of Earnings |
||||||||||||||
(dollar amounts in thousands, except per share data) |
||||||||||||||
Unaudited |
||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||
|
|
|||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||
Revenues: |
||||||||||||||
Premiums earned, net |
$ |
722,891 |
$ |
729,049 |
$ |
1,425,164 |
$ |
1,467,583 |
||||||
Administrative service fees |
4,548 |
4,520 |
8,927 |
9,603 |
||||||||||
Net investment income |
12,698 |
12,875 |
24,714 |
24,233 |
||||||||||
Other operating revenues |
1,121 |
915 |
2,086 |
1,727 |
||||||||||
Total operating revenues |
741,258 |
747,359 |
1,460,891 |
1,503,146 |
||||||||||
Net realized investment gains (losses): |
||||||||||||||
Total other-than-temporary impairment losses on securities |
- |
(1,434) |
- |
(1,434) |
||||||||||
Net realized gains, excluding other-than-temporary impairment losses on securities |
4,054
|
2,954
|
4,390
|
3,012
|
||||||||||
Net realized investment gains on sale of securities |
4,054 |
1,520 |
4,390 |
1,578 |
||||||||||
Other income, net |
587 |
3,859 |
3,112 |
4,734 |
||||||||||
Total revenues |
745,899 |
752,738 |
1,468,393 |
1,509,458 |
||||||||||
Benefits and expenses: |
||||||||||||||
Claims incurred |
611,297 |
622,087 |
1,232,160 |
1,248,781 |
||||||||||
Operating expenses |
118,720 |
121,112 |
229,666 |
244,092 |
||||||||||
Total operating costs |
730,017 |
743,199 |
1,461,826 |
1,492,873 |
||||||||||
Interest expense |
1,721 |
1,954 |
3,407 |
3,836 |
||||||||||
Total benefits and expenses |
731,738 |
745,153 |
1,465,233 |
1,496,709 |
||||||||||
Income before taxes |
14,161 |
7,585 |
3,160 |
12,749 |
||||||||||
Income taxes |
1,456 |
3,707 |
(5,202) |
5,416 |
||||||||||
Net income |
12,705 |
3,878 |
8,362 |
7,333 |
||||||||||
Less: Net loss attributable to the non-controlling interest |
- |
2 |
1 |
3 |
||||||||||
Net income attributable to |
$ |
12,705 |
$ |
3,880 |
$ |
8,363 |
$ |
7,336 |
||||||
Earnings per share attributable to |
||||||||||||||
Basic net income per share |
$ |
0.52 |
$ |
0.16 |
$ |
0.35 |
$ |
0.30 |
||||||
Diluted net income per share |
$ |
0.52 |
$ |
0.16 |
$ |
0.34 |
$ |
0.30 |
||||||
Exhibit III
Condensed Consolidated Statements of Cash Flows |
|||||||||||
(dollar amounts in thousands) |
|||||||||||
Unaudited |
|||||||||||
For the Six Months Ended |
|||||||||||
|
|||||||||||
2017 |
2016 |
||||||||||
Net cash provided by (used in) operating activities |
$ |
133,705 |
$ |
(10,565) |
|||||||
Cash flows from investing activities: |
|||||||||||
Proceeds from investments sold or matured: |
|||||||||||
Securities available for sale: |
|||||||||||
Fixed maturities sold |
88,141 |
163,150 |
|||||||||
Fixed maturities matured/called |
8,938 |
14,301 |
|||||||||
Equity securities sold |
21,499 |
32,252 |
|||||||||
Securities held to maturity - fixed maturities matured/called |
703 |
700 |
|||||||||
Acquisition of investments: |
|||||||||||
Securities available for sale: |
|||||||||||
Fixed maturities |
(141,116) |
(150,005) |
|||||||||
Equity securities |
(20,424) |
(136,104) |
|||||||||
Securities held to maturity - fixed maturities |
(703) |
(609) |
|||||||||
Increase in other investments |
(731) |
(1,383) |
|||||||||
Net change in policy loans |
(152) |
(400) |
|||||||||
Net capital expenditures |
(8,704) |
(2,716) |
|||||||||
Net cash used in by investing activities |
(52,549) |
(80,814) |
|||||||||
Cash flows from financing activities: |
|||||||||||
Change in outstanding checks in excess of bank balances |
(8,545) |
4,074 |
|||||||||
Repayments of long-term borrowings |
(1,212) |
(820) |
|||||||||
Repurchase and retirement of common stock |
- |
(14,560) |
|||||||||
Proceeds from policyholder deposits |
8,166 |
7,942 |
|||||||||
Surrenders of policyholder deposits |
(10,467) |
(6,935) |
|||||||||
Net cash used in financing activities |
(12,058) |
(10,299) |
|||||||||
Net increase (decrease) in cash and cash equivalents |
69,098 |
(101,678) |
|||||||||
Cash and cash equivalents, beginning of period |
103,428 |
197,818 |
|||||||||
Cash and cash equivalents, end of period |
$ |
172,526 |
$ |
96,140 |
|||||||
Exhibit IV
Segment Performance Supplemental Information
(Unaudited) |
Three months ended |
Six months ended |
||||||||||
(dollar amounts in millions) |
2017 |
2016 |
Percentage Change |
2017 |
2016 |
Percentage Change |
||||||
Premiums earned, net: |
||||||||||||
Managed Care: |
||||||||||||
Commercial |
$ 203.3 |
$ 215.0 |
(5.4%) |
$ 408.4 |
$ 430.5 |
(5.1%) |
||||||
Medicare |
266.6 |
273.1 |
(2.4%) |
524.3 |
534.0 |
(1.8%) |
||||||
Medicaid |
191.8 |
181.2 |
5.8% |
369.5 |
383.4 |
(3.6%) |
||||||
Total Managed Care |
661.7 |
669.3 |
(1.1%) |
1,302.2 |
1,347.9 |
(3.4%) |
||||||
Life Insurance |
40.0 |
38.8 |
3.1% |
80.5 |
77.9 |
3.3% |
||||||
Property and Casualty |
21.8 |
21.7 |
0.5% |
43.5 |
43.0 |
1.2% |
||||||
Other |
(0.6) |
(0.7) |
14.3% |
(1.0) |
(1.2) |
16.7% |
||||||
Consolidated premiums earned, net |
$ 722.9 |
$ 729.1 |
(0.9%) |
$ 1,425.2 |
$ 1,467.6 |
(2.9%) |
||||||
Operating revenues (loss): 1 |
||||||||||||
Managed Care |
$ 671.6 |
$ 679.2 |
(1.1%) |
$ 1,321.6 |
$ 1,367.6 |
(3.4%) |
||||||
Life Insurance |
46.3 |
45.2 |
2.4% |
92.9 |
90.2 |
3.0% |
||||||
Property and Casualty |
23.9 |
24.0 |
(0.4%) |
47.6 |
47.3 |
0.6% |
||||||
Other |
(0.6) |
(1.0) |
40.0% |
(1.2) |
(2.0) |
40.0% |
||||||
Consolidated operating revenues |
$ 741.2 |
$ 747.4 |
(0.8%) |
$ 1,460.9 |
$ 1,503.1 |
(2.8%) |
||||||
Operating income (loss): 2 |
||||||||||||
Managed Care |
$ 2.9 |
$ (3.8) |
176.3% |
$ (15.7) |
$ (4.4) |
(256.8%) |
||||||
Life Insurance |
5.0 |
5.1 |
(2.0%) |
8.9 |
10.6 |
(16.0%) |
||||||
Property and Casualty |
3.7 |
3.4 |
8.8% |
5.8 |
5.5 |
5.5% |
||||||
Other |
(0.4) |
(0.5) |
20.0% |
0.1 |
(1.5) |
106.7% |
||||||
Consolidated operating income (loss) |
$ 11.2 |
$ 4.2 |
166.7% |
$ (0.9) |
$ 10.2 |
(108.8%) |
||||||
Operating margin: 3 |
||||||||||||
Managed Care |
0.4% |
(0.6%) |
100 bp |
(1.2%) |
(0.3%) |
-90 bp |
||||||
Life Insurance |
10.8% |
11.3% |
-50 bp |
9.6% |
11.8% |
-220 bp |
||||||
Property and Casualty |
15.5% |
14.2% |
130 bp |
12.2% |
11.6% |
60 bp |
||||||
Consolidated |
1.5% |
0.6% |
90 bp |
(0.1%) |
0.7% |
-80 bp |
||||||
Depreciation and amortization expense |
$ 3.5 |
$ 3.6 |
(2.8%) |
$ 6.5 |
$ 7.3 |
(11.0%) |
||||||
1 Operating revenues include premiums earned, net, administrative service fees and net investment income. |
2 Operating income or loss include operating revenues minus operating costs. Operating costs include claims incurred and operating expenses. |
3 Operating margin is defined as operating income or loss divided by operating revenues. |
Managed Care Additional Data |
Three months ended |
Six months ended |
|||||||||
(Unaudited) |
2017 |
2016 |
2017 |
2016 |
|||||||
Member months enrollment: |
|||||||||||
Commercial: |
|||||||||||
Fully-insured |
1,001,638 |
1,063,422 |
2,014,843 |
2,159,704 |
|||||||
Self-insured |
501,500 |
540,221 |
1,008,667 |
1,083,247 |
|||||||
Total Commercial |
1,503,138 |
1,603,643 |
3,023,510 |
3,242,951 |
|||||||
|
363,257 |
351,108 |
726,984 |
715,535 |
|||||||
Medicaid |
1,169,089 |
1,206,345 |
2,342,363 |
2,428,237 |
|||||||
Total member months |
3,035,484 |
3,161,096 |
6,092,857 |
6,386,723 |
|||||||
Claim liabilities (in millions) |
$ 371.4 |
$ 349.1 |
* |
||||||||
Days claim payable |
57 |
54 |
* |
||||||||
Premium PMPM: |
|||||||||||
Managed Care |
$ 261.13 |
$ 255.37 |
$ 256.13 |
$ 254.15 |
|||||||
Commercial |
202.97 |
202.18 |
202.70 |
199.33 |
|||||||
|
733.92 |
777.82 |
721.20 |
746.29 |
|||||||
Medicaid |
164.06 |
150.21 |
157.75 |
157.89 |
|||||||
Medical loss ratio: |
87.5% |
88.2% |
89.6% |
88.0% |
|||||||
Commercial |
80.6% |
89.2% |
82.1% |
86.0% |
|||||||
|
90.9% |
86.6% |
92.4% |
88.3% |
|||||||
Medicaid |
90.3% |
89.3% |
93.9% |
89.7% |
|||||||
Adjusted medical loss ratio: 1 |
91.3% |
89.6% |
90.9% |
89.4% |
|||||||
Commercial |
83.1% |
87.6% |
82.8% |
86.7% |
|||||||
|
94.3% |
91.3% |
94.1% |
92.0% |
|||||||
Medicaid |
96.0% |
90.2% |
95.4% |
89.2% |
|||||||
Operating expense ratio: |
|||||||||||
Consolidated |
16.3% |
16.5% |
16.0% |
16.5% |
|||||||
Managed Care |
13.4% |
13.7% |
13.0% |
13.6% |
|||||||
*Information provided as of |
|||||||||||
1 The adjusted medical loss ratio accounts for subsequent adjustments to estimates, such as prior-period reserve developments and Medicare premium adjustments, and presents them in the corresponding period. |
Managed Care Membership by Segment |
As of |
||||||
2017 |
2016 |
||||||
Members: |
|||||||
Commercial: |
|||||||
Fully-insured |
331,989 |
349,281 |
|||||
Self-insured |
166,404 |
179,621 |
|||||
Total Commercial |
498,393 |
528,902 |
|||||
|
121,240 |
116,215 |
|||||
Medicaid |
386,070 |
402,661 |
|||||
Total members |
1,005,703 |
1,047,778 |
|||||
Exhibit V
Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income |
||||||||||
(Unaudited) |
Three months ended |
Six months ended |
||||||||
(dollar amounts in millions) |
2017 |
2016 |
2017 |
2016 |
||||||
Net income |
$ 12.7 |
$ 3.9 |
$ 8.3 |
$ 7.3 |
||||||
Less adjustments: |
||||||||||
Net realized investment gains, net of tax |
3.3 |
1.2 |
3.5 |
1.3 |
||||||
Private equity investment income, net of tax |
- |
(0.1) |
0.2 |
(0.1) |
||||||
Adjusted net income |
$ 9.4 |
$ 2.8 |
$ 4.6 |
$ 6.1 |
||||||
Diluted adjusted net income per share |
$ 0.39 |
$ 0.11 |
$ 0.19 |
$ 0.25 |
||||||
Adjusted net income is a non-GAAP financial metric and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management believes that the use of this adjusted net income and adjusted net income per share provides investors and management useful information about the earnings impact of realized investment gains and other non-recurring items impacting the Company's results of operations. This non-GAAP metric does not consider all of the items associated with the Company's operations as determined in accordance with GAAP. As a result, one should not consider these measures in isolation.
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