Triple-S Management Corporation Reports Third Quarter 2011 Results

SAN JUAN, Puerto Rico, Nov. 2, 2011 /PRNewswire/ -- Triple-S Management Corporation (NYSE: GTS), one of the leading managed care companies in Puerto Rico, today announced consolidated revenues of $542.0 million and operating income of $16.6 million for the three months ended September 30, 2011.  Net income of $11.6 million, or $0.40 per diluted share, includes an after tax net loss of $0.7 million, or $0.03 per diluted share, related to net realized and unrealized gains and losses on investments and derivatives.

Third-Quarter Consolidated Highlights

  • Total consolidated operating revenues were $542.6 million;
  • Operating income was $16.6 million;
  • Excluding the after tax net realized and unrealized gains and losses on investments and derivatives, net income was $12.3 million, or $0.43 per diluted share;
  • Consolidated loss ratio was 84.2% and the medical loss ratio (MLR) was 87.7%;
  • Medicare member month enrollment increased 64.5%.

Commenting on the period's results, Ramon M. Ruiz-Comas, President and Chief Executive Officer of Triple-S Management Corporation, said, "While revenue and operating expenses were in line with our forecast, earnings were adversely affected by higher-than-anticipated claims costs in our non-dual product offering for the Medicare business that impacted the quarter by approximately $5 million. In addition, the Property & Casualty business incurred $1.1 million in losses related to Tropical Storm Irene."

Mr. Ruiz-Comas continued, "On October 17, we announced that our Triple-S Salud subsidiary signed a definitive agreement with the Puerto Rico Health Insurance Administration (ASES) to administer healthcare services for approximately 840,000 members in five out of eight regions of Puerto Rico's health insurance program (Medicaid), known as miSalud. We are extremely proud that yesterday November 1st, we started to serve this population once again, doubling the number of lives we reach on the Island. The contract with the Puerto Rican government is an administrative services only (ASO) agreement, a model under which Triple-S bears no insurance risk and one with which we have had prior success. While we expect to incur start-up costs relating to this contract through year-end of approximately $3 million, we expect this program to be accretive to our financial performance in 2012 and beyond."

"Through the first nine months of the year, we experienced a further reduction in the Commercial MLR due to the ongoing success of our underwriting and utilization initiatives.  While the Medicare MLR did not decline sequentially as we had anticipated, we believe that the combination of the current quarter's historically favorable utilization trends and the steady increase in the number of Health Risk Assessments (HRAs) we are receiving should allow us to register improvement in this metric in future periods. Moreover, the addition of the five regions of the miSalud business should lead to even greater awareness of our product offerings throughout Puerto Rico, helping to bolster our member enrollment in the increasingly competitive Medicare Advantage segment," said Mr. Ruiz-Comas.

"We believe that it is prudent at this juncture to reduce our 2011 EPS guidance range to $1.77-$1.82, reflecting higher Medicare MLR," concluded Mr. Ruiz-Comas.

Selected Quarterly Details

  • Pro Forma Net Income was $12.3 million, or $0.43 Per Diluted Share.  Weighted average shares outstanding were 28.9 million.  This compares with pro forma net income of $16.9 million, or $0.58 per diluted share, in the corresponding quarter of 2010, based on weighted average shares outstanding of 29.3 million.
  • Consolidated Premiums Increased 5.8%, to $525.4 million.  The increase is principally due to the acquisition of American Health (AH) offset by the termination of the Medicaid contracts in the fourth quarter of 2010.
  • Consolidated Administrative Service Fees Declined 49.0%, to $5.2 million.  The significant decrease reflects the termination of the Medicaid contracts and lower Commercial ASO membership.
  • Managed Care Membership.  Our Managed Care membership, excluding the effect of the termination of the Medicaid contracts in 2010, grew by 1.3% year over year. Medicare membership increased 66.8%, to 107,053, mostly due to the AH acquisition.  Fully insured Commercial membership was 476,329, down 3.1% from the same period last year.  Medicaid fully insured membership was 344,763 at the end of the third quarter of 2010.
  • Consolidated Loss Ratio Declined by 70 Basis Points, to 84.2%.  The consolidated loss ratio declined as a result of the 140 basis point reduction in the Managed Care MLR partially offset by increases in the loss ratio of the Property and Casualty and Life Insurance segments.
  • Managed Care MLR Decreased by 140 Basis Points, to 87.7%.  Excluding the effect of the lost Medicaid contracts, the MLR was 20 basis points lower than last year, reflecting the improvement in the Commercial MLR.  This was partially offset by higher than expected utilization of medical services in the Medicare business, particularly in our non-dual offerings.
  • Consolidated Operating Expense Ratio Rose by 120 Basis Points, to 15.8%.  The higher consolidated operating expense ratio was mainly due to additional operating costs incurred to maintain the historically high level of quality service we offer our members and providers throughout the Managed Care IT transition period.  Also contributing to the increase in this metric is the fact that the AH operations run at a higher operating expense ratio than the Medicaid business.  Consolidated operating expenses increased by $9.5 million, or 12.8%, from a year ago, mostly due to the AH acquisition.  In the third quarter, $1.1 million was attributable to enhanced customer service to members and providers during the IT system conversion, and approximately $2.1 million was associated with the amortization of intangible assets related to the AH transaction.
  • Consolidated Operating Income Decreased 30.5%, to $16.6 Million.  The decrease mostly reflects the termination of the Medicaid contracts, which contributed $2.0 million to the consolidated operating income last year, and higher MLR in the Medicare business.
  • Consolidated Operating Income Margin Was 3.1%. The consolidated operating margin declined by 150 basis points year over year due to lower profitability across our Managed Care and Property and Casualty Insurance segments.
  • Consolidated Effective Tax Rate Was 14.1%.  The reduced effective income tax rate is the result of both a lower taxable income from our Managed Care segment, which has a higher effective tax rate, and the Puerto Rican tax reform, which became effective in January 2011.  This legislation decreased the maximum corporate tax rate to 30% from 39% and eliminated an additional tax rate imposed in 2009.
  • Parent Company Information.  As of September 30, 2011, Triple-S Management had $48.6 million in parent company cash, cash equivalents, and investments.
  • Share Repurchase Program.  Continuing with our share repurchase program, during this quarter we repurchased and retired 358,900 shares at an average price per share of $16.71, for an aggregate cost of $6 million.




Pro Forma Net Income

(Unaudited)

Three months
ended
September 30,


Nine months
ended
September 30,

(dollar amounts in millions)

2011

2010


2011

2010

Net income

$           11.6

$           20.5


$           39.1

$           46.7

Less pro forma adjustments:







Net realized investment gains, net of tax

4.7

(0.3)


15.7

(0.2)


Net unrealized trading investments losses, net of tax

(5.1)

3.9


(6.2)

0.5


Derivative loss, net of tax

(0.3)

-


(0.6)

(0.9)


Charge related to change in enacted tax rate

-

-


(6.4)

-



Pro forma net income

$           12.3

$           16.9


$           36.6

$           47.3



Diluted pro forma net income per share

$           0.43

$           0.58


$           1.26

$           1.61



Nine-Month Recap

For the nine months ended September 30, 2011, consolidated operating revenues rose 0.6% to $1.6 billion, primarily reflecting the an increase in member months in the Medicare business attributed to new members acquired from AH; offset in part by the termination of the Medicaid contracts effective September 30, 2010. Consolidated claims incurred for the nine-month period were $1.3 billion, up 0.1% year over year.  The nine-month consolidated loss ratio decreased 150 basis points to 83.7%, and the MLR fell 150 basis points to 87.7%.  This decline was mostly driven by lower utilization in the Commercial business and the loss of Medicaid business in 2010, offset by an increased Medicare MLR resulting from increased utilization trends in our non-dual Medicare offerings. Consolidated operating expenses for the nine months ended September 30, 2011 were $252.2 million and the operating expense ratio was 16.4%.  Pro forma net income for the nine-month period was $36.6 million, or $1.26 per diluted share, based on weighted average shares outstanding of 29.0 million, compared with $47.3 million, or $1.61 per diluted share, based on weighted average shares outstanding of 29.3 million at the same time last year.

Segment Performance

Triple-S Management operates in three segments: 1) Managed Care, 2) Life Insurance, and 3) Property and Casualty Insurance.  Management 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 minus operating expenses.  Operating margin is defined as operating income or loss divided by operating revenues.

(Unaudited)


Three months ended September 30,


Nine months ended September 30,

(dollar amounts in millions)

2011

2010

Percentage
Change


2011

2010

Percentage
Change

Premiums earned, net:









Managed Care:










Commercial

$             234.4

$             237.1

(1.1%)


$                703.2

$                715.0

(1.7%)



Medicare

238.0

116.4

104.5%


658.5

354.6

85.7%



Medicaid

-

92.9

(100.0%)


2.7

273.1

(99.0%)




Total Managed Care

472.4

446.4

5.8%


1,364.4

1,342.7

1.6%


Life Insurance

28.8

26.7

7.9%


83.7

78.7

6.4%


Property and Casualty

24.9

24.5

1.6%


74.5

75.2

(0.9%)


Other



(0.7)

(1.1)

(36.4%)


(2.1)

(3.2)

(34.4%)





Consolidated premiums earned, net

$             525.4

$             496.5

5.8%


$             1,520.5

$             1,493.4

1.8%

Operating revenues:









Managed Care

$             483.3

$             462.5

4.5%


$             1,399.9

$             1,395.0

0.4%


Life Insurance

33.4

31.2

7.1%


97.2

91.6

6.1%


Property and Casualty

27.4

27.1

1.1%


81.6

83.4

(2.2%)


Other



(1.5)

(1.3)

15.4%


(2.9)

(3.8)

(23.7%)





Consolidated operating revenues

$             542.6

$             519.5

4.4%


$             1,575.8

$             1,566.2

0.6%

Operating income:









Managed Care

$               11.2

$               16.4

(31.7%)


$                  32.6

$                  47.5

(31.4%)


Life Insurance

5.3

4.6

15.2%


13.2

13.1

0.8%


Property and Casualty

(1.1)

2.2

(150.0%)


2.0

3.3

(39.4%)


Other



1.2

0.7

71.4%


2.9

2.4

20.8%





Consolidated operating income

$               16.6

$               23.9

(30.5%)


$                  50.7

$                  66.3

(23.5%)

Operating margin:









Managed Care

2.3%

3.5%

-120 bp


2.3%

3.4%

-110 bp


Life Insurance

15.9%

14.7%

120 bp


13.6%

14.3%

-70 bp


Property and Casualty

(4.0%)

8.1%

-1,210 bp


2.5%

4.0%

-150 bp


Consolidated

3.1%

4.6%

-150 bp


3.2%

4.2%

-100 bp

Depreciation and amortization expense

$                 5.8

$                 3.6

61.1%


$                  16.4

$                  10.6

54.7%



Managed Care Additional Data

Three months ended
September 30,


Nine months ended
September 30,

(Unaudited)

2011

2010


2011

2010

Member months enrollment:







Commercial:








Fully-insured

1,440,393

1,484,056


4,362,829

4,521,088



Self-insured

670,150

735,154


2,058,365

2,239,544




Total Commercial

2,110,543

2,219,210


6,421,194

6,760,632


Medicare:








Medicare Advantage

291,628

165,327


823,264

506,622



Stand-alone PDP

26,444

28,014


79,648

84,395




Total Medicare

318,072

193,341


902,912

591,017


Medicaid:








Fully-insured

-

1,034,749


-

3,078,288



Self-insured

-

599,648


-

1,782,426




Total Medicaid

-

1,634,397


-

4,860,714




    Total member months

2,428,615

4,046,948


7,324,106

12,212,363

Claim liabilities (in millions)

$                   267.6

$                     277.1

*



Days claim payable (excluding American Health)

63.9

68.2

*



Premium PMPM:







Managed Care

$                 268.64

$                   164.59


$                 259.11

$                   163.94



Commercial

162.73

159.76


161.18

158.15



Medicare

748.26

602.05


729.31

599.98



Medicaid

-

89.78


-

88.72

Medical loss ratio

87.7%

89.1%


87.7%

89.2%


Commercial

87.3%

87.5%


87.6%

90.1%


Medicare Advantage

88.6%

89.8%


88.7%

83.9%


Stand-alone PDP

73.2%

72.2%


76.5%

75.7%


Medicaid

0.0%

92.8%


0.0%

94.1%

Adjusted medical loss ratio

87.5%

88.9%


87.9%

88.7%


Commercial

88.6%

90.0%


87.5%

90.3%


Medicare Advantage

86.5%

86.8%


88.2%

83.6%


Stand-alone PDP

73.6%

67.4%


77.1%

73.9%


Medicaid

0.0%

89.5%


0.0%

91.1%

Operating expense ratio:







Consolidated

15.8%

14.6%


16.4%

14.9%


Managed Care

12.1%

10.6%


12.3%

10.9%

* Information provided as of June 30, 2011.



Managed Care Membership by Segment

As of September 30,






2011

2010

Members:






Commercial:





Fully-insured

476,329

491,535



Self-insured

228,663

246,162




Total Commercial

704,992

737,697


Medicare:






Medicare Advantage

98,231

54,890



Stand-alone PDP

8,822

9,300




Total Medicare

107,053

64,190


Medicaid:






Fully-insured

-

344,763



Self-insured

-

199,685




Total Medicaid

-

544,448





Total members

812,045

1,346,335



2011 Guidance

Mr. Ruiz-Comas stated, "As we enter the fourth quarter of 2011, we are adjusting our guidance to reflect the impact of higher than expected Medicare MLR and the start-up costs of miSalud.  The consolidated loss ratio was increased to 83.5%-84.5% from 83.0%-84.0% and the MLR was increased to 87.5%-88.5% from 87.0%-88.0%. Consolidated operating income was lowered to $76.0-$80.0 million from $80.0-$86.0 million. Medical enrollment self-insured was increased to 2.7-2.8 million from 2.5-2.6 million to reflect the miSalud membership.  In addition the effective tax rate was increased to 27%-28% from 24%-26%."


2011 Range

Medical enrollment fully-insured


 (member months)

6.9-7.1 million



Medical enrollment self-insured


 (member months)

2.7-2.8 million



Consolidated operating revenues


 (in billions)

$2.0-$2.2



Consolidated loss ratio

83.5%-84.5%



Medical loss ratio

87.5%-88.5%



Consolidated operating expense ratio

16.4%-16.8%



Consolidated operating income (in millions)

$76.0-$80.0



Consolidated effective tax rate

27%-28%



Pro forma earnings per share

$1.77-$1.82



Weighted average of diluted shares


 outstanding (in millions)

28.9



Conference Call and Webcast

Management will host a conference call and webcast on November 2, 2011 at 9:00 a.m. Eastern Time to discuss its financial results for the three months and nine months ended September 30, 2011, as well as expectations for future earnings.  To participate, callers within the U.S. and Canada should dial 1-877-941-9205, and international callers should dial 1-480-629-9692 about five minutes before the presentation.  

To listen to the webcast, participants should visit the "Investor Relations" section of the Company's Web site 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 Triple-S Management's Web site, will be available about two hours after the call ends and for at least the following two weeks.  This news release, along with other information relating to the call, will be available on the "Investor Relations" section of the Web site.

About Triple-S Management Corporation

Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association.  It is the leading player in the managed care industry in Puerto Rico.  Triple-S Management also has the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico and the U.S. Virgin Islands.  With more than 50 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care and related products in the Commercial and Medicare Advantage markets under the Blue Cross Blue Shield brand through its subsidiary Triple-S Salud, Inc. and effective February 2011, also offers non-branded Medicare products through American Health Inc.  In addition to its managed care business, Triple-S Management provides non-Blue Cross Blue Shield branded life and property and casualty insurance in Puerto Rico.

For more information about Triple-S Management, visit www.triplesmanagement.com or contact kwaller@allwayscommunicate.com.

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 U.S. Securities and Exchange Commission (SEC).

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 Triple-S Management's results to differ materially from those expressed in any forward-looking statements shared here:

  • 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

  • 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

  • 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 the United States) the Company does not intend to update or revise any of them in light of new information or future events.

Readers are advised to carefully review and consider the various disclosures in the Company's SEC reports.

-FINANCIAL TABLES ATTACHED-

Condensed Consolidated Balance Sheets

(Dollar amounts in thousands, except per share data)












Unaudited
September 30,
2011


December 31,
2010

Assets














Investments

$

1,133,627


$

1,105,926

Cash and cash equivalents


135,917



45,021

Premium and other receivables, net


272,583



325,780

Deferred policy acquisition costs and value of business acquired


147,815



146,086

Property and equipment, net


80,616



76,745

Other assets


115,577



59,812









Total assets

$

1,886,135


$

1,759,370















Liabilities and Stockholders’ Equity














Policy liabilities and accruals

$

894,977


$

760,028

Accounts payable and accrued liabilities


201,704



216,043

Long-term borrowings


114,797



166,027









Total liabilities


1,211,478



1,142,098







Stockholders’ equity:







Common stock


28,573



28,816


Other stockholders equity


646,084



588,456









Total stockholders’ equity


674,657



617,272











Total liabilities and stockholders’ equity

$

1,886,135


$

1,759,370



Condensed Consolidated Statements of Earnings

(Dollar amounts in thousands, except per share data)




















For the Three Months Ended


For the Nine Months Ended





September 30,


September 30,





Unaudited
2011


Historical
2010


Unaudited
2011


Historical
2010

Revenues:













Premiums earned, net

$

525,371


$

496,511


$

1,520,485


$

1,493,449


Administrative service fees


5,210



10,195



18,767



34,859


Net investment income


12,061



12,794



36,513



37,888














Total operating revenues


542,642



519,500



1,575,765



1,566,196

















Net realized investment gains (losses):














Total other-than-temporary impairment losses on securities


-



(316)



-



(2,932)



Net realized gains, excluding other-than-temporary















impairment losses on securities


5,569



3



18,457



2,673



















Total net realized investment gains (losses)


5,569



(313)



18,457



(259)

















Net unrealized investment loss on trading securities


(6,007)



4,611



(7,267)



631


Other income (expense), net


(169)



576



311



404














Total revenues


542,035



524,374



1,587,266



1,566,972



























Benefits and expenses:













Claims incurred


442,399



421,514



1,272,913



1,272,180


Operating expenses


83,623



74,111



252,216



227,702














Total operating costs


526,022



495,625



1,525,129



1,499,882

















Interest expense


2,499



3,026



8,583



9,626














Total benefits and expenses


528,521



498,651



1,533,712



1,509,508














Income before taxes


13,514



25,723



53,554



57,464












Income tax expense


1,901



5,235



14,485



10,727














Net income

$

11,613


$

20,488


$

39,069


$

46,737












Basic net income per share

$

0.40


$

0.70


$

1.36


$

1.61
















Diluted earnings per share

$

0.40


$

0.70


$

1.35


$

1.60



Condensed Consolidated Statements of Cash Flows

(Dollar amounts in thousands, except per share data)
















For the Nine Months Ended






September 30,






Unaudited
2011


Historical
2010











Net cash provided by operating activities

$

216,909


$

87,020









Cash flows from investing activities:







Proceeds from investments sold or matured:








Securities available for sale:









Fixed maturities sold


225,060



48,193




Fixed maturities matured/called


76,786



97,067




Equity securities


31,253



16,791



Securities held to maturity:









Fixed maturities matured/called


1,941



1,852


Acquisition of investments:








Securities available for sale:









Fixed maturities


(212,358)



(199,809)




Equity securities


(111,770)



(22,436)



Securities held to maturity:









Fixed maturities


(755)



(1,050)


Net inflows / (outflows) for policy loans


(392)



(124)


Acquisition of business, net of $29,370 of cash acquired


(54,058)



-


Net capital expenditures


(12,000)



(13,678)













Net cash used in investing activities


(56,293)



(73,194)









Cash flows from financing activities:







Change in outstanding checks in excess of bank balances


(9,275)



(2,458)


Payments of short-term borrowings, net


(15,575)



-


Repayments of long-term borrowings


(51,230)



(1,230)


Repurchase and retirement of common stock


(7,554)



-


Proceeds from policyholder deposits


20,725



7,740


Cash settlements of stock options


(2,420)



-


Proceeds from exercise of stock options


189



-


Surrenders of policyholder deposits


(4,580)



(7,575)













Net cash used in financing activities


(69,720)



(3,523)













Net increase in cash and cash equivalents


90,896



10,303











Cash and cash equivalents, beginning of period


45,021



40,376









Cash and cash equivalents, end of period

$

135,917


$

50,679



SOURCE Triple-S Management Corporation



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