On November 7, 2019 Triple-S Management Corporation (NYSE: GTS), a leading managed care company in Puerto Rico, reported its third quarter 2019 results (Press release, Triple-S Management, NOV 7, 2019, https://www.prnewswire.com/news-releases/triple-s-management-corporation-reports-third-quarter-2019-results-300953651.html [SID1234550706]).
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Quarterly Consolidated and Other Highlights
Net income of $13.9 million, or $0.58 per diluted share, versus net loss of $17.6 million, or $0.77 per share, in the prior-year period;
Adjusted net income of $12.1 million, or $0.51 per diluted share, versus adjusted net loss of $22.2 million, or $0.97 per share, in the prior-year period;
Operating revenues of $836.0 million, a 9.4% increase from the prior-year period, primarily reflecting higher Managed Care net premiums earned;
Consolidated loss ratio decreased 400 basis points to 83.4% versus the third quarter of 2018; this results from the unfavorable reserve development related to Hurricane Maria claims recognized by the Property and Casualty ("P&C") segment in the prior-year period;
Medical loss ratio ("MLR") increased 320 basis points to 86.4%;
Consolidated operating income was $19.0 million, compared to consolidated operating loss of $25.6 million in the prior-year period;
Expansion of share repurchase program to $25 million of availability, approved subsequent to quarter end.
"We had a solid third quarter, mainly driven by year-over-year growth in Medicare premiums and valuable bottom line contributions from our Life and P&C segments," said Roberto Garcia-Rodriguez, President and Chief Executive Officer. "We’ve continued strengthening our product offerings, improving the overall quality of service, and advancing our goal of creating a unique and optimal member experience."
"With respect to our P&C segment, our quarterly review of outstanding claims reaffirms our belief that our reserves remain adequate as of September 30, 2019," added Mr. Garcia-Rodriguez. "Given our confidence in the Company’s long-term strategy and our belief that its stock is undervalued, our Board has expanded our share repurchase program’s availability to $25 million. We anticipate commencing repurchases under the program during the week of November 11, 2019."
Selected Consolidated Quarterly Details
Consolidated net premiums earned were $815.0 million, up 9.8% from the prior-year period, primarily reflecting higher average premium rates within the Managed Care segment and an increase in membership in the Medicare and fully insured Commercial businesses. The increase was partially offset by lower Medicaid membership.
Consolidated claims incurred were $680.0 million, up 4.8% year-over-year. Consolidated loss ratio of 83.4% improved 400 basis points from the prior-year period, driven by the $52.3 million unfavorable prior period reserve development related to Hurricane Maria recognized by the P&C segment in the third quarter of 2018 that did not recur in the third quarter of 2019.
Consolidated operating expenses of $136.9 million decreased by $4.1 million, or 2.9%, from the prior-year period, primarily resulting from savings due to the suspension in 2019 of the HIP Fee, partially offset by higher personnel costs and commission expense. The Company’s operating expense ratio improved 220 basis points year-over-year to 16.7%, mostly driven by the increase in premiums during the third quarter of 2019.
Consolidated income tax expense was $5.9 million, compared to an income tax benefit of $3.4 million in the prior-year period. The income tax benefit in the third quarter of 2018 mainly reflects the loss before taxes in that period incurred by the P&C segment.
Selected Managed Care Segment Quarterly Details
Managed Care premiums earned were $746.5 million, up 9.7% year over year.
Medicare premiums earned of $367.1 million increased 29.4% from the prior-year period, largely due to an increase of approximately 52,000 member months and higher average premium rates, primarily reflecting a more competitive product offering and an increase in the average membership risk score.
Commercial premiums earned of $203.1 million increased 2.9% from the prior-year period, mainly reflecting higher fully insured enrollment during the quarter of approximately 25,000 member months and higher average premium rates, partially offset by the suspension of the HIP Fee pass-through in 2019.
Medicaid premiums earned decreased 11.8% from the prior-year period to $176.3 million, primarily reflecting a decrease in membership of approximately 126,000 member months, and the suspension of the HIP Fee pass-through in 2019. The decrease in membership follows the lower membership assigned to Triple-S by ASES when implementing the new Medicaid contract that became effective November 1, 2018.
Reported MLR of 86.4% increased 320 basis points from the prior-year period. This increase largely reflected the improved benefits offered in the Medicare Advantage 2019 product offering, the elimination of the HIP Fee pass-through, and the higher target MLR of the current Medicaid contract.
Update on P&C Segment Reserves related to Hurricane María
As of September 30, 2019:
Triple-S Propiedad, Inc. (TSP), the Company’s P&C subsidiary, has paid a cumulative amount of $692 million in claims related to Hurricane María. Estimated gross losses remain unchanged at $967 million.
TSP received 10 new claims during the third quarter, increasing the total number of claims to 17,746. It has closed approximately 96% of these claims. 709 claims remain open.
The Company evaluated any developments involving open claims, including new information that arose from lawsuits in which TSP has been served, as is customary when the Company conducts its quarterly review of TSP’s reserve levels. In addition, as described below, the Company conducted additional analysis of case reserves for claims in which lawsuits have been filed against TSP but not served.
TSP has been served with process in 218 lawsuits related to the 709 claims that remain open.
The Company conducted a search of the Puerto Rico court system’s electronic docket to identify lawsuits filed against TSP with respect to which TSP has not been served. This docket is a public record over which the Company has no control; furthermore, the Company is unable to verify its accuracy or completeness.
The docket search identified an additional 178 lawsuits filed against TSP that have not yet been served as required by law. All of them relate to claims previously registered with and evaluated by the Company.
The Company then performed additional analysis of case reserves for claims in which lawsuits have been filed against TSP but not served. Based on this analysis, as well as the customary review described above, the Company determined that there is no need to increase its estimate of gross losses nor adjust reserves related to Hurricane María.
As is the case for all claim liabilities, the gross losses related to Hurricane Maria are based on the Company’s best estimate of the ultimate expected cost of claims with the information currently on hand and are subject to change.
Results of Internal Investigation Related to Vital RFP
As previously disclosed in an 8-K filed with the Securities and Exchange Commission on July 30, 2019, the Company’s audit committee of independent directors engaged outside counsel to conduct a proactive investigation into the Company’s participation in the Vital RFP process. That investigation is substantially complete and has not uncovered any evidence of attempts by the Company to improperly influence the outcome of the Vital RFP process.
2019 Outlook
The Company is raising its full year 2019 guidance for adjusted net income per diluted share and reducing its guidance for operating expense ratio. It is maintaining its full year 2019 guidance for its consolidated operating income revenue, Managed Care premiums, consolidated claims incurred ratio and Managed Care MLR ratio. More specifically:
The Company continues to expect consolidated operating revenue for 2019 to be between $3.29 billion and $3.33 billion, which includes Managed Care premiums earned, net between $2.95 billion and $2.99 billion;
The Company continues to expect the consolidated claims incurred ratio for 2019 to be between 81.3% and 83.3%, and Managed Care MLR to be between 84.0% and 86.0%;
The Company is reducing consolidated operating ratio expectations for 2019 to be between 16.75% and 17.25%. The Company’s previous outlook was for consolidated operating expense ratio to be between 17.0% and 17.5%;
The Company continues to expect its effective tax rate to be between 29.0% and 33.0%; and
The Company raised adjusted net income per diluted share expectations for 2019 to be between $2.50 and $2.70, compared to its previous outlook for adjusted net income per diluted share between $2.40 and $2.60. Adjusted net income per diluted share guidance accounts for the August 2019 share dividend and does not account for any potential share repurchase activity during 2019. Estimated weighted average diluted share count for full year 2019 is expected to be 23.443 million shares.
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss its financial results for the three months ended September 30, 2019. To participate, callers within the U.S. and Canada should dial 1-877-451-6152 and international callers should dial 1-201-389-0879 at least five minutes before the call.
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 Triple-S Management’s website, 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 website.
In addition, a replay will be available through November 21, 2019 by calling 1-844-512-2921 or 1-412-317-6671 and entering passcode 13695866. A replay will also be available at www.triplesmanagement.com for 30 days.