Triple-S Management Corporation Reports First Quarter 2011 Results

SAN JUAN, Puerto Rico, May 4, 2011 /PRNewswire/ -- Triple-S Management Corporation (NYSE:GTS), one of the leading managed care companies in Puerto Rico, today announced consolidated revenues of $503.7 million and operating income of $18.4 million for the three months ended March 31, 2011.  Net income of $10.4 million, or $0.36 per diluted share, includes a one-time charge of $6.4 million, or $0.22 per diluted share, to reduce the Company's net deferred tax assets to reflect a newly enacted income tax rate and an after tax net gain of $3.9 million, or $0.14 per diluted share, related to net realized and unrealized gains and losses on investments and derivatives.

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First-Quarter Consolidated Highlights

• Total consolidated operating revenues were $503.7 million;
• Operating income was $18.4 million;
• Excluding the one-time charge to deferred tax assets and an after tax net realized and unrealized gains and losses on investments and derivatives, net income was $12.9 million, or $0.44 per diluted share;
• Consolidated loss ratio was 83.0% and the medical loss ratio (MLR) was 87.3%;
• Medicare member month enrollment increased 35.3%;
• Effective tax rate was 48.0%, including a one-time charge of $6.4 million to reduce the net deferred tax assets to reflect the newly enacted tax rate.

"We begin the first quarter of 2011 as a materially different company, having undergone a significant change in business mix, said Ramon M. Ruiz-Comas, President and Chief Executive Officer.  "Our Managed Care business now operates exclusively in the Medicare Advantage (MA) and Commercial segments. The recently completed American Health acquisition solidifies even further our already strong position in the MA market, boosting our market share to about 23%.  With an expanded presence in this business and the ability to benefit from American Health's strong brand name recognition, quality product offering, and incremental expertise, we anticipate that the MA business will stabilize and provide ample opportunity for growth."  

Ruiz-Comas continued, "Overall, this quarter was consistent with our expectations.  Our Medicare MLR was higher compared to last year's first quarter, primarily due to the acquisition of American Health, which has historically operated at a higher medical expense ratio.  We also experienced the normal high utilization that typically occurs at the beginning of a new benefit year."

"In the Commercial business, our efforts to control costs are ongoing, focusing mainly on the implementation of pricing and underwriting initiatives, as well as utilization strategies, aimed at managing the MLR.  As a result, we expect to see a full-year improvement of approximately 100 basis points in this segment's MLR," concluded Ruiz-Comas.

Selected Quarterly Details

• Pro Forma Net Income was $12.9 million, or $0.44 Per Diluted Share.  Weighted average shares outstanding were 29.0 million.  This compares with pro forma net income of $10.8 million, or $0.37 per diluted share, in the corresponding quarter of 2010, based on weighted average shares outstanding of 29.2 million.
• Consolidated Premiums Fell 1.8%, to $485.3 million.  The decline is principally due to the termination of the Medicaid contracts in the fourth quarter of 2010 offset, in part, by the acquisition of American Health.
• Consolidated Administrative Service Fees Declined 47.2%, to $6.6 million.  The significant decrease reflects the termination of the Medicaid contracts and lower Commercial ASO membership.
• Managed Care Membership.  Fully insured Commercial membership was 498,900, down 2.1% from the same period last year.  Medicare membership increased 55.4%, to 103,800, mostly due to the acquisition of American Health.  Medicaid fully insured membership was 338,800 at the end of the first quarter of 2010.
• Consolidated Loss Ratio Fell By 320 Basis Points.  The lower consolidated loss ratio reflects the change in business mix, with the addition of more Medicare members and the elimination of the Medicaid business.  Consolidated claims incurred were $402.6 million, 5.4% below a year ago, principally due to the termination of the Medicaid contracts.
• Managed Care MLR Declined By 270 Basis Points, to 87.3%.  The decrease is due to the change in business mix.  Excluding the effect of the lost Medicaid contracts, the MLR was 140 basis points above last year, reflecting an increased Medicare Advantage MLR due to the addition of American Health, which has a higher MLR than our existing Medicare products, as well as to heightened utilization trends, the reset of the MA margins, and benefit changes in our non-dual Medicare offering.
• Consolidated Operating Expense Ratio Was 16.8%.  The consolidated operating expense ratio was 160 basis points higher than the prior year mainly due to a $2  million increase in depreciation and implementation costs related to the new Managed Care IT system and the impact of fixed costs from the loss of the Medicaid business that haven't yet been fully absorbed.  Consolidated operating expenses increased by $5.8 million, or 7.5%, from a year ago.  Approximately $3.4 million of the increase is associated with the amortization of intangible assets related to the American Health transaction, as well as increased depreciation expense and other implementation costs related to the new Managed Care IT system.
• Consolidated Operating Income Increased 12.2%, to $18.4 Million.  The increase reflects the American Health acquisition and improved operating income in our complementary businesses, partially offset by higher consolidated operating expenses.
• Consolidated Operating Income Margin Was 3.7%. The consolidated operating margin improved by 50 basis points year over year due to increased profitability across all of our segments.
• Consolidated Effective Tax Rate Was 48.0%.  The higher effective income tax rate is the result of a $6.4 million one-time charge to reduce the Company's net deferred tax assets to reflect a newly enacted income tax rate.  Puerto Rican tax reform, which became effective in 2011, decreased the maximum corporate tax rate to 30% from 39% and eliminated an additional tax rate imposed in 2009 on a temporary basis.
• Parent Company Information.  As of March 31, 2011, Triple-S Management had $61.8 million in parent company cash, cash equivalents, and investments.

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.

2011 Guidance

Ruiz-Comas said, "Having completed our first quarter of 2011, we remain focused on driving organic growth in the Commercial and MA businesses and reducing our MLR and operating expenses, in order to further boost margins.  We are revising expectations for the consolidated effective tax rate, which reflects the one-time charge to reduce our net deferred tax assets resulting from the newly enacted Puerto Rico tax reform.  The effect of this additional tax expense is excluded from our pro-forma earnings guidance per share.  We are reaffirming all other metrics in our guidance."

Conference Call and Webcast

Management will host a conference call and webcast on May 4, 2011 at 9:00 a.m. Eastern Time to discuss its financial results for the three months ended March 31, 2011, as well as expectations for future earnings.  To participate, callers within the U.S. and Canada should dial 1-877-941-8609, and international callers should dial 1-480-629-9819 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 one of the leading players 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 offer 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 [email protected].

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 and utilization management 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-

SOURCE Triple-S Management Corporation