þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Puerto Rico (STATE OF INCORPORATION) | 66-0555678 (I.R.S. ID) |
Title of each class | ||
Class B common stock, $1.00 par value | Name of each exchange on which registered New York Stock Exchange |
Large accelerated filero | Accelerated filerþ | Non-accelerated filero (Do not check if | Smaller reporting companyo |
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EX-32.2 | ||||||||
EX-99.1 |
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Enrollment at | Percentage of | Enrollment at | ||||||||||||||
Market Sector | December 31, 2008 | Total Enrollment | December 31, 2010 | Percentage of Total Enrollment | ||||||||||||
Commercial | 592,723 | 49.6 | % | 725,328 | 91.9 | % | ||||||||||
Reform | 527,447 | 44.1 | ||||||||||||||
Medicare Advantage | 75,280 | 6.3 | ||||||||||||||
Medicare | 63,553 | 8.1 | ||||||||||||||
Total | 1,195,450 | 100.0 | % | 788,881 | 100.0 | % | ||||||||||
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Events which could result in termination of our license agreements include, but are not limited to: | |||
• | failure to maintain our total adjusted capital at or above 200% of Health Risk-Based Capital Authorized Control Level, as defined by the National Association of Insurance Commissioners | ||
• | failure to maintain liquidity of greater than one month of underwritten claims and administrative expenses, as defined by the | ||
• | failure to satisfy state-mandated statutory net worth requirements; | ||
• | impending financial insolvency; and | ||
• | a change of control not otherwise approved by the BCBSA or a violation of the BCBSA voting and ownership limitations on our capital stock. |
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grant, suspend and revoke licenses to transact business; | |||
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initiatives to provide greater | |||
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• licensure; | • | transactions resulting in a change of control; | ||||
• | policy forms, including plan design and disclosures; | • | member rights and responsibilities; | |||
• | premium rates and rating methodologies; | |||||
• fraud and abuse; | ||||||
•underwriting rules and procedures; | • | sales and marketing activities; | ||||
• benefit mandates; | • | quality assurance procedures; | ||||
• eligibility requirements; | • | privacy of medical and other information and permitted disclosures; | ||||
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• security of electronically transmitted individually identifiable health information; | • rates of payment to providers of care; | |||||
• geographic service areas; | • surcharges on payments to providers; | |||||
• market conduct; | • provider contract forms; | |||||
• utilization review; | • delegation of financial risk and other financial arrangements in rates paid to providers of care; | |||||
• | payment of claims, including timeliness and accuracy of payment; | |||||
• agent licensing; | ||||||
•special rules in contracts to administer government programs; | • | financial condition (including reserves); | ||||
• | transactions with affiliated entities; | |||||
• reinsurance; | ||||||
•limitations on the ability to pay dividends; | • | issuance of new shares of capital stock; | ||||
• | rates of payment to providers of care; | • | corporate governance; and | |||
• | permissible investments. |
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• | |||
Medicare:We provide services through our Medicare Advantage | |||
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• | Commercial:Our managed care subsidiary is a qualified contractor to provide managed care coverage to federal government employees within Puerto Rico. Such coverage is provided pursuant to a contract with the OPM that is subject to termination in the event of noncompliance not corrected to the satisfaction of the OPM. During each of the years ended December 31, |
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• | rising levels of actual costs that are not known by companies at the time they price their products; | ||
• | volatile and unpredictable developments, including man-made and natural catastrophes; | ||
• | changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ liability develop; and | ||
• | fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested capital. |
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• | identify profitable new geographic markets to enter; | ||
• | operate in new geographic areas, as we have very limited experience operating outside Puerto Rico; | ||
• | obtain licenses in new geographic areas in which we wish to market and sell our products; | ||
• | successfully implement our underwriting, pricing, claims management and product strategies over a larger operating region; | ||
• | properly design and price new and existing products and programs and reinsurance facilities for markets in which we have no direct experience; | ||
• | identify, train and retain qualified employees; | ||
• | identify, recruit and integrate new independent agencies and brokers and expand the range of Triple-S products carried by our existing agents and brokers; | ||
• | develop a network of physicians, hospitals and other managed care providers that meets our requirements and those of applicable regulators; and | ||
• | augment our internal monitoring and control systems as we expand our business. |
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• | Significantly reducing the value of the debt securities we hold in our investment portfolio, and creating net realized capital losses that | ||
• | |||
• | Making it more difficult to value certain of our investment securities, for example if trading becomes less frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those securities and cause period-to-period volatility in our operating results and shareholders’ equity. | ||
• | Reducing our ability to issue other securities. |
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• | claims relating to the denial of managed care benefits; | ||
• | medical malpractice actions; | ||
• | allegations of anti-competitive and unfair business activities; | ||
• | provider disputes over compensation and termination of provider contracts; | ||
• | disputes related to self-funded business; | ||
• | disputes over co-payment calculations; | ||
• | claims related to the failure to disclose certain business practices; | ||
• | claims relating to customer audits and contract performance; and | ||
• | claims by regulatory agencies or whistleblowers for regulatory non-compliance, including but not limited to |
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• | disruption of on-going business operations, distraction of management, diversion of resources and difficulty in maintaining current business standards, controls and procedures; | ||
• | difficulty in integrating information technology of an acquired entity and unanticipated expenses related to such integration; | ||
• | difficulty in the integration of | ||
• | difficulty in the implementation of controls, procedures and policies appropriate for filers with the SEC at companies that prior to acquisition lacked such controls, policies and procedures; | ||
• | potential unknown liabilities associated with the acquired company; | ||
• | failure of acquired businesses to achieve anticipated revenues, earnings or cash flow; | ||
• | dilutive issuances of equity securities and incurrence of additional debt to finance acquisitions; | ||
• | other acquisition-related expenses, including amortization of intangible assets and write-offs; and | ||
• | competition with other firms, some of which may have greater financial and other resources, to acquire attractive companies. |
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• | initiatives to provide greater access to coverage for uninsured and under-insured | ||
• | |||
• | |||
• | local government | ||
• | increased government | ||
• |
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• | recoupment of amounts we have been paid pursuant to our government contracts; | ||
• | mandated changes in our business practices; | ||
• | imposition of significant civil or criminal penalties, fines or other sanctions on us and/or our key employees; | ||
• | loss of our right to participate in Medicare | ||
• | increased difficulty in marketing our products and services; |
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• | inability to obtain approval for future services or geographic expansions; and | ||
• | loss of one or more of our licenses to act as an insurance company, preferred provider or managed care organization or other licensed entity or to otherwise provide a service. |
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• | permit our board of directors to issue one or more series of preferred stock; | ||
• | divide our board of directors into three classes serving staggered three-year terms; | ||
• | limit the ability of shareholders to remove directors; | ||
• | impose restrictions on shareholders’ ability to fill vacancies on our board of directors; | ||
• | impose advance notice requirements for shareholder proposals and nominations of directors to be considered at meetings of shareholders; and | ||
• | impose restrictions on shareholders’ ability to amend our articles and bylaws. |
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High | Low | High | Low | |||||||||||||
2007 | ||||||||||||||||
Fourth quarter (beginning December 7, 2007) | $ | 21.20 | $ | 14.78 | ||||||||||||
2008 | ||||||||||||||||
2009 | ||||||||||||||||
First quarter | $ | 21.69 | $ | 16.83 | $ | 15.00 | $ | 10.67 | ||||||||
Second quarter | 19.94 | 16.34 | 16.23 | 12.06 | ||||||||||||
Third quarter | 18.05 | 15.19 | 17.84 | 14.50 | ||||||||||||
Fourth quarter | 16.43 | 6.55 | 18.88 | 15.52 | ||||||||||||
2010 | ||||||||||||||||
First quarter | $ | 18.67 | $ | 15.85 | ||||||||||||
Second quarter | 20.12 | 17.30 | ||||||||||||||
Third quarter | 21.34 | 14.65 | ||||||||||||||
Fourth quarter | 21.23 | 16.15 |
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Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | Value of Shares | |||||||||||||||
Part of Publicly | that May Yet Be | |||||||||||||||
Total Number of | Average Price Paid | Announced | Purchased Under the | |||||||||||||
(Dollar amounts in millions, except pershare data) | Shares Purchased | per Share | Programs1 | Programs | ||||||||||||
December 1, 2008 to December 31, 2008 | 1,181,500 | $ | 11.75 | 1,181,500 | $ | 26.1 |
Approximate | ||||||||||||||||
Total Number | Dollar Value of | |||||||||||||||
of Shares Purchased as | Shares that May Yet Be | |||||||||||||||
Part of | Purchased | |||||||||||||||
Total Number | Publicly | Under the | ||||||||||||||
of Shares | Average Price Paid | Announced | Programs | |||||||||||||
(Dollar amounts in millions, except per share data) | Purchased | per Share | Programs1 | (in millions) | ||||||||||||
October 1, 2010 to October 31, 2010 | 176,300 | $ | 17.02 | 176,300 | $ | 26.6 | ||||||||||
November 1, 2010 to November 30, 2010 | 60,419 | $ | 18.21 | 60,419 | $ | 25.5 | ||||||||||
December 1, 2010 to December 31, 2010 | 91,672 | 18.87 | 91,672 | 23.8 |
1 | In |
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Period Ending | ||||||||||||||||||||||||||||||||
Index | 12/07/07 | 12/31/07 | 06/30/08 | 12/31/08 | 06/30/09 | 12/31/09 | 06/30/10 | 12/31/10 | ||||||||||||||||||||||||
| | | | | | | | | ||||||||||||||||||||||||||||||||
Triple-S Management Corporation | 100.00 | 133.40 | 107.92 | 75.91 | 102.90 | 116.17 | 122.44 | 125.94 | ||||||||||||||||||||||||
S&P 500 | 100.00 | 97.59 | 85.07 | 60.03 | 61.10 | 74.11 | 68.50 | 83.58 | ||||||||||||||||||||||||
Morgan Stanley Healthcare Payor Index | 100.00 | 100.38 | 58.66 | 45.37 | 52.42 | 69.59 | 66.12 | 79.94 |
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2008 | 2007 | 2006 (1) | 2005 | 2004 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||
(Dollar amounts in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Years ended December 31, | �� | |||||||||||||||||||||||||||||||||||||||
Premiums earned, net | $ | 1,695.5 | 1,483.6 | 1,511.6 | 1,380.2 | 1,299.0 | $ | 1,901.1 | $ | 1,869.1 | $ | 1,692.4 | $ | 1,483.6 | $ | 1,511.6 | ||||||||||||||||||||||||
Administrative service fees | 19.2 | 14.0 | 14.1 | 14.4 | 9.2 | 39.6 | 48.6 | 19.2 | 14.0 | 14.1 | ||||||||||||||||||||||||||||||
Net investment income | 56.2 | 47.2 | 42.7 | 29.1 | 26.8 | 49.1 | 52.1 | 56.2 | 47.2 | 42.7 | ||||||||||||||||||||||||||||||
Total operating revenues | 1,770.9 | 1,544.8 | 1,568.4 | 1,423.7 | 1,335.0 | 1,989.8 | 1,969.8 | 1,767.8 | 1,544.8 | 1,568.4 | ||||||||||||||||||||||||||||||
Net realized investments gains (losses) | (13.9 | ) | 5.9 | 0.8 | 7.2 | 11.0 | 2.5 | 0.6 | (13.9 | ) | 5.9 | 0.8 | ||||||||||||||||||||||||||||
Net unrealized investment gain (loss) on trading securities | (21.1 | ) | (4.1 | ) | 7.7 | (4.7 | ) | 3.0 | 5.4 | 10.5 | (21.1 | ) | (4.1 | ) | 7.7 | |||||||||||||||||||||||||
Other income (loss), net | (2.5 | ) | 3.2 | 2.3 | 3.7 | 3.4 | ||||||||||||||||||||||||||||||||||
Other income (expense), net | 0.9 | 1.3 | (2.5 | ) | 3.2 | 2.3 | ||||||||||||||||||||||||||||||||||
Total revenues | 1,733.4 | 1,549.8 | 1,579.2 | 1,429.9 | 1,352.4 | 1,998.6 | 1,982.2 | 1,730.3 | 1,549.8 | 1,579.2 | ||||||||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||||||||||
Claims incurred | 1,434.9 | 1,223.8 | 1,259.0 | 1,208.3 | 1,115.8 | 1,596.8 | 1,605.8 | 1,431.8 | 1,223.8 | 1,259.0 | ||||||||||||||||||||||||||||||
Operating expenses | 251.9 | 237.5 | 236.1 | 181.7 | 171.9 | 305.0 | 279.4 | 251.9 | 237.5 | 236.1 | ||||||||||||||||||||||||||||||
Total operating costs | 1,686.8 | 1,461.3 | 1,495.1 | 1,390.0 | 1,287.7 | 1,901.8 | 1,885.2 | 1,683.7 | 1,461.3 | 1,495.1 | ||||||||||||||||||||||||||||||
Interest expense | 14.7 | 15.9 | 16.6 | 7.6 | 4.6 | 12.6 | 13.3 | 14.7 | 15.9 | 16.6 | ||||||||||||||||||||||||||||||
Total benefits and expenses | 1,701.5 | 1,477.2 | 1,511.7 | 1,397.6 | 1,292.3 | 1,914.4 | 1,898.5 | 1,698.4 | 1,477.2 | 1,511.7 | ||||||||||||||||||||||||||||||
Income before taxes | 31.9 | 72.6 | 67.5 | 32.3 | 60.1 | 84.2 | 83.7 | 31.9 | 72.6 | 67.5 | ||||||||||||||||||||||||||||||
Income tax expense | 7.1 | 14.1 | 13.0 | 3.9 | 14.3 | 17.4 | 14.9 | 7.1 | 14.1 | 13.0 | ||||||||||||||||||||||||||||||
Net income | 24.8 | 58.5 | 54.5 | 28.4 | 45.8 | $ | 66.8 | $ | 68.8 | $ | 24.8 | $ | 58.5 | $ | 54.5 | |||||||||||||||||||||||||
Basic net income per share (2): | $ | 0.77 | 2.15 | 2.04 | 1.06 | 1.71 | ||||||||||||||||||||||||||||||||||
Basic net income per share (1): | $ | 2.30 | $ | 2.33 | $ | 0.77 | $ | 2.15 | $ | 2.04 | ||||||||||||||||||||||||||||||
Diluted net income per share: | $ | 0.77 | 2.15 | 2.04 | 1.06 | 1.71 | $ | 2.28 | $ | 2.33 | $ | 0.77 | $ | 2.15 | $ | 2.04 | ||||||||||||||||||||||||
Dividend declared per common share (3): | $ | — | 0.82 | 0.23 | — | — | ||||||||||||||||||||||||||||||||||
Dividend declared per common share (2): | $ | — | $ | — | $ | — | $ | 0.82 | $ | 0.23 | ||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
December 31, | 2008 | 2007 | 2006 (1) | 2005 | 2004 | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 45.0 | $ | 40.4 | $ | 46.1 | $ | 240.2 | $ | 81.6 | ||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 46.1 | 240.2 | 81.6 | 49.0 | 35.1 | ||||||||||||||||||||||||||||||||||
Total assets | $ | 1,548.5 | 1,659.5 | 1,345.5 | 1,137.5 | 919.7 | $ | 1,759.7 | $ | 1,648.7 | $ | 1,559.2 | $ | 1,659.5 | $ | 1,345.5 | ||||||||||||||||||||||||
Long-term borrowings | $ | 169.3 | 170.9 | 183.1 | 150.6 | 95.7 | $ | 166.0 | $ | 167.7 | $ | 169.3 | $ | 170.9 | $ | 183.1 | ||||||||||||||||||||||||
Total stockholders’ equity | $ | 485.9 | 482.5 | 342.6 | 308.7 | 301.4 | $ | 617.3 | $ | 537.8 | $ | 485.9 | $ | 482.5 | $ | 342.6 |
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2008 | 2007 | 2006 (1) | 2005 | 2004 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||
Additional Managed Care Data (4) | ||||||||||||||||||||||||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Medical loss ratio | 88.9 | % | 87.1 | % | 87.6 | % | 90.3 | % | 88.3 | % | 88.1 | % | 89.9 | % | 88.9 | % | 87.0 | % | 87.6 | % | ||||||||||||||||||||
Operating expense ratio | 10.5 | % | 11.2 | % | 11.5 | % | 10.8 | % | 10.8 | % | 11.6 | % | 10.7 | % | 10.5 | % | 11.2 | % | 11.5 | % | ||||||||||||||||||||
Medical membership (period end) | 1,195,450 | 977,190 | 979,506 | 1,252,649 | 1,236,108 | 788,881 | 1,347,033 | 1,195,450 | 977,190 | 979,506 |
(1) | ||
Further details of the calculation of basic earnings per share are set forth in notes 2 and | ||
Shareowners holding qualifying shares were excluded from dividend payment. See note | ||
Does not reflect inter-segment eliminations. |
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Years ended December 31, | Years ended December 31, | |||||||||||||||||||||||
(Dollar amounts in millions) | 2008 | 2007 | 2006 | 2010 | 2009 | 2008 | ||||||||||||||||||
Premiums earned, net: | ||||||||||||||||||||||||
Managed care | $ | 1,513.0 | 1,301.8 | 1,339.8 | $ | 1,700.3 | $ | 1,677.1 | $ | 1,509.9 | ||||||||||||||
Life insurance | 92.8 | 88.9 | 86.9 | 105.8 | 100.1 | 92.8 | ||||||||||||||||||
Property and casualty insurance | 93.8 | 96.9 | 88.5 | 99.2 | 96.2 | 93.8 | ||||||||||||||||||
Intersegment premiums earned | (4.1 | ) | (4.0 | ) | (3.6 | ) | (4.2 | ) | (4.3 | ) | (4.1 | ) | ||||||||||||
Consolidated premiums earned, net | $ | 1,695.5 | 1,483.6 | 1,511.6 | $ | 1,901.1 | $ | 1,869.1 | $ | 1,692.4 | ||||||||||||||
Administrative service fees: | ||||||||||||||||||||||||
Managed care | $ | 22.5 | 17.2 | 16.9 | $ | 43.2 | $ | 51.3 | $ | 22.5 | ||||||||||||||
Intersegment premiums earned | (3.3 | ) | (3.2 | ) | (2.8 | ) | ||||||||||||||||||
Intersegment administrative service fees | (3.6 | ) | (2.7 | ) | (3.3 | ) | ||||||||||||||||||
Consolidated administrative service fees | $ | 19.2 | 14.0 | 14.1 | $ | 39.6 | $ | 48.6 | $ | 19.2 | ||||||||||||||
Operating income: | ||||||||||||||||||||||||
Managed care | $ | 52.6 | 57.4 | 45.5 | $ | 63.8 | $ | 57.2 | $ | 52.6 | ||||||||||||||
Life insurance | 12.5 | 10.7 | 11.2 | 17.3 | 14.6 | 12.5 | ||||||||||||||||||
Property and casualty insurance | 13.1 | 10.7 | 11.2 | 3.6 | 8.8 | 13.1 | ||||||||||||||||||
Intersegment premiums earned | 5.9 | 4.7 | 5.4 | |||||||||||||||||||||
Intersegment and other | 3.3 | 4.0 | 5.9 | |||||||||||||||||||||
Consolidated operating income | $ | 84.1 | 83.5 | 73.3 | $ | 88.0 | $ | 84.6 | $ | 84.1 |
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As of December 31, | As of December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2010 | 2009 | 2008 | |||||||||||||||||||
Commercial(1) | 592,723 | 574,251 | 580,850 | 725,328 | 737,286 | 592,723 | ||||||||||||||||||
Reform(2) | 527,447 | 353,694 | 357,515 | |||||||||||||||||||||
Medicare(3) | 75,280 | 49,245 | 41,141 | |||||||||||||||||||||
Medicare(2) | 63,553 | 69,605 | 75,280 | |||||||||||||||||||||
Medicaid(3) | — | 540,142 | 527,447 | |||||||||||||||||||||
Total | 1,195,450 | 977,190 | 979,506 | 788,881 | 1,347,033 | 1,195,450 |
(1) | Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees. | |
(2) | Includes | |
(3) | Medicaid membership includes rated and self-funded members. We participated in this sector up to September 30, 2010. |
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(Dollar amounts in millions) | 2008 | 2007 | 2006 | 2010 | 2009 | 2008 | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums earned, net | $ | 1,695.5 | 1,483.6 | 1,511.6 | $ | 1,901.1 | $ | 1,869.1 | $ | 1,692.4 | ||||||||||||||
Administrative service fees | 19.2 | 14.0 | 14.1 | 39.6 | 48.6 | 19.2 | ||||||||||||||||||
Net investment income | 56.2 | 47.2 | 42.7 | 49.1 | 52.1 | 56.2 | ||||||||||||||||||
Total operating revenues | 1,770.9 | 1,544.8 | 1,568.4 | 1,989.8 | 1,969.8 | 1,767.8 | ||||||||||||||||||
Net realized investment (losses) gains | (13.9 | ) | 5.9 | 0.8 | ||||||||||||||||||||
Net realized investment gains (losses) | 2.5 | 0.6 | (13.9 | ) | ||||||||||||||||||||
Net unrealized investment gain (loss) on trading securities | (21.1 | ) | (4.1 | ) | 7.7 | 5.4 | 10.5 | (21.1 | ) | |||||||||||||||
Other income (expense), net | (2.5 | ) | 3.2 | 2.3 | 0.9 | 1.3 | (2.5 | ) | ||||||||||||||||
Total revenues | 1,733.4 | 1,549.8 | 1,579.2 | 1,998.6 | 1,982.2 | 1,730.3 | ||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||
Claims incurred | 1,434.9 | 1,223.8 | 1,259.0 | 1,596.8 | 1,605.8 | 1,431.8 | ||||||||||||||||||
Operating expenses | 251.9 | 237.5 | 236.1 | 305.0 | 279.4 | 251.9 | ||||||||||||||||||
Total operating costs | 1,686.8 | 1,461.3 | 1,495.1 | 1,901.8 | 1,885.2 | 1,683.7 | ||||||||||||||||||
Interest expense | 14.7 | 15.9 | 16.6 | 12.6 | 13.3 | 14.7 | ||||||||||||||||||
Total benefits and expenses | 1,701.5 | 1,477.2 | 1,511.7 | 1,914.4 | 1,898.5 | 1,698.4 | ||||||||||||||||||
Income before taxes | 31.9 | 72.6 | 67.5 | 84.2 | 83.7 | 31.9 | ||||||||||||||||||
Income tax expense | 7.1 | 14.1 | 13.0 | 17.4 | 14.9 | 7.1 | ||||||||||||||||||
Net income | $ | 24.8 | 58.5 | 54.5 | $ | 66.8 | $ | 68.8 | $ | 24.8 |
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(Dollar amounts in millions) | 2010 | 2009 | 2008 | |||||||||
Operating revenues: | ||||||||||||
Medical premiums earned, net: | ||||||||||||
Commercial | $ | 947.1 | $ | 822.1 | $ | 734.2 | ||||||
Medicare | 468.4 | 506.9 | 435.6 | |||||||||
Medicaid | 284.8 | 348.1 | 340.1 | |||||||||
Medical premiums earned, net | 1,700.3 | 1,677.1 | 1,509.9 | |||||||||
Administrative service fees | 43.2 | 51.3 | 22.5 | |||||||||
Net investment income | 19.8 | 21.6 | 23.1 | |||||||||
Total operating revenues | 1,763.3 | 1,750.0 | 1,555.5 | |||||||||
Medical operating costs: | ||||||||||||
Medical claims incurred | 1,497.8 | 1,508.2 | 1,342.3 | |||||||||
Medical operating expenses | 201.7 | 184.6 | 160.6 | |||||||||
Total medical operating costs | 1,699.5 | 1,692.8 | 1,502.9 | |||||||||
Medical operating income | $ | 63.8 | $ | 57.2 | $ | 52.6 | ||||||
Additional data: | ||||||||||||
Member months enrollment: | ||||||||||||
Commercial: | ||||||||||||
Fully-insured | 5,982,094 | 5,421,586 | 4,947,854 | |||||||||
Self-funded | 2,966,291 | 2,726,036 | 2,049,140 | |||||||||
Total Commercial member months | 8,948,385 | 8,147,622 | 6,996,994 | |||||||||
Medicaid: | ||||||||||||
Fully-insured | 3,078,288 | 4,016,332 | 4,101,905 | |||||||||
Self-funded | 1,782,426 | 2,321,144 | 376,975 | |||||||||
Total Medicaid member months | 4,860,714 | 6,337,476 | 4,478,880 | |||||||||
Medicare: | ||||||||||||
Medicare Advantange | 670,250 | 742,666 | 727,274 | |||||||||
Stand-alone PDP | 112,297 | 117,700 | 127,658 | |||||||||
Total Medicare member months | 782,547 | 860,366 | 854,932 | |||||||||
Total member months | 14,591,646 | 15,345,464 | 12,330,806 | |||||||||
Medical loss ratio | 88.1 | % | 89.9 | % | 88.9 | % | ||||||
Operating expense ratio | 11.6 | % | 10.7 | % | 10.5 | % | ||||||
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(Dollar amounts in millions) | 2008 | 2007 | 2006 | |||||||||
Operating revenues: | ||||||||||||
Medical premiums earned, net: | ||||||||||||
Commercial | $ | 734.2 | 718.7 | 713.2 | ||||||||
Reform | 340.1 | 327.5 | 455.8 | |||||||||
Medicare | 438.7 | 255.6 | 170.8 | |||||||||
Medical premiums earned, net | 1,513.0 | 1,301.8 | 1,339.8 | |||||||||
Administrative service fees | 22.5 | 17.2 | 16.9 | |||||||||
Net investment income | 23.1 | 19.7 | 18.8 | |||||||||
Total operating revenues | 1,558.6 | 1,338.7 | 1,375.5 | |||||||||
Medical operating costs: | ||||||||||||
Medical claims incurred | 1,345.4 | 1,133.2 | 1,173.6 | |||||||||
Medical operating expenses | 160.6 | 148.1 | 156.4 | |||||||||
Total medical operating costs | 1,506.0 | 1,281.3 | 1,330.0 | |||||||||
Medical operating income | $ | 52.6 | 57.4 | 45.5 | ||||||||
Additional data: | ||||||||||||
Member months enrollment: | ||||||||||||
Commercial: | ||||||||||||
Fully-insured | 4,947,854 | 4,983,980 | 5,272,987 | |||||||||
Self-funded | 2,049,140 | 1,930,850 | 1,861,833 | |||||||||
Total Commercial member months | 6,996,994 | 6,914,830 | 7,134,820 | |||||||||
Reform: | ||||||||||||
Fully-insured | 4,101,905 | 4,262,248 | 6,484,270 | |||||||||
Self-funded | 376,975 | — | — | |||||||||
Total Reform member months | 4,478,880 | 4,262,248 | 6,484,270 | |||||||||
Medicare: | ||||||||||||
Medicare Advantange | 727,274 | 416,512 | 281,274 | |||||||||
Stand-alone PDP | 127,658 | 137,528 | 180,444 | |||||||||
Total Medicare member months | 854,932 | 554,040 | 461,718 | |||||||||
Total member months | 12,330,806 | 11,731,118 | 14,080,808 | |||||||||
Medical loss ratio | 88.9 | % | 87.0 | % | 87.6 | % | ||||||
Operating expense ratio | 10.5 | % | 11.2 | % | 11.5 | % | ||||||
• | Medical premiums generated by the | ||
• | Medicare premiums decreased by $38.5 million, or 7.6%, to $468.4 million, primarily due to a lower member months enrollment of approximately 77,800 or 9.0%, mostly in our dual eligible product, particularly during the first half of the year and resulting from changes in our product offering. In addition, the premiums for the year ended December 31, 2010 reflect a lower final risk score adjustment as compared to 2009. The 2010 and 2009 periods include the net | ||
• | Medical premiums | ||
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• | The medical claims incurred of the | ||
• | The medical claims incurred of the Medicare business decreased by $52.6 million during the 2010 period primarily due to the lower member months enrollment. The MLR for the year was 83.9%, 4.1 percentage points lower than 2009. Adjusting the MLR for changes in prior period reserve developments and risk score premium adjustments, the 2010 MLR would have decreased by 2.7 percentage points as compared to the adjusted MLR for 2009. The lower adjusted MLR is primarily the result of the new risk sharing agreement with our providers in the dual-eligible product, changes in benefits and higher average premium rates. | ||
• | The medical claims incurred of the Reform business decreased by $64.7 million and its MLR decreased by 2.3 percentage points during the year ended December 31, 2010. Excluding the effect of prior period reserve developments and premium adjustments, the MLR would have increased 1.3 percentage points, mostly resulting from a lower premium yield due to the extension of prior year’s Medicaid contracts without premium rate increases until September 2010. |
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• | Medical premiums generated by the Commercial business increased by $87.9 million, or 12.0%, to $822.1 million during the year ended December 31, 2009. This fluctuation is primarily the result of an increase in member months enrollment of 473,732, or 9.6%, and higher average premium rates per member of approximately 2.9%. Increase in member months was mainly attributed to new members acquired from LCA effective July 1, 2009, which represented 49.1% of the increase in member months enrollment during this period, and to new groups acquired during the period. | ||
• | Medical premiums generated by the Medicare business increased during the year ended December 31, 2009 by $71.3 million, or 16.4%, to $506.9 million, primarily due to higher average premium rates by approximately 11% and an increase in member months enrollment of 5,434 or 0.6%. The fluctuation in member months is the net result of an increase of 15,392, or 2.1%, in the membership of our Medicare Advantage products and a | ||
• | Medical premiums earned in the Medicaid business increased by $8.0 million, or 2.4%, to $348.1 million during the year ended December 31, 2009. This fluctuation is due to an increase in premium rates, effective July 1, 2008, of approximately 10%, offset in part by a lower member months enrollment in the Reform’s fully-insured membership by 85,573, or 2.1% and premium adjustments of approximately $8.3 million to provide for unresolved reconciling items with the government of Puerto Rico. |
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• | The medical claims incurred of the Commercial business increased by $99.3 million during the 2009 period and its MLR increased by | ||
• | The medical claims incurred of the Medicare business increased by $55.3 million during the 2009 period primarily due to the higher member months enrollment of this business. The MLR for the year ended December 31, 2009 was 88.1%, 1.6 percentage points lower than 2008. The reduction in MLR is attributed to the effect of risk score premium adjustments recorded during this period, as well as premium rate increases and lower utilization trends. Excluding the effect of prior period reserve developments in the | ||
• | The medical claims incurred of the Reform business increased by | ||
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(Dollar amounts in millions) | 2010 | 2009 | 2008 | |||||||||
Years ended December 31, | ||||||||||||
Operating revenues: | ||||||||||||
Premiums earned, net | ||||||||||||
Premiums earned, net | $ | 111.4 | $ | 106.2 | $ | 100.1 | ||||||
Premiums earned ceded | (5.6 | ) | (6.1 | ) | (7.6 | ) | ||||||
Net premiums earned | 105.8 | 100.1 | 92.5 | |||||||||
Commission income on reinsurance | — | — | 0.3 | |||||||||
Premiums earned, net | 105.8 | 100.1 | 92.8 | |||||||||
Net investment income | 17.1 | 16.8 | 16.5 | |||||||||
Total operating revenues | 122.9 | 116.9 | 109.3 | |||||||||
Operating costs: | ||||||||||||
Policy benefits and claims incurred | 49.8 | 50.3 | 47.4 | |||||||||
Underwriting and other expenses | 55.8 | 52.0 | 49.4 | |||||||||
Total operating costs | 105.6 | 102.3 | 96.8 | |||||||||
Operating income | $ | 17.3 | $ | 14.6 | $ | 12.5 | ||||||
Additional data: | ||||||||||||
Loss ratio | 47.1 | % | 50.2 | % | 51.1 | % | ||||||
Expense ratio | 52.7 | % | 51.9 | % | 53.2 | % | ||||||
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(Dollar amounts in millions) | 2008 | 2007 | 2006 | |||||||||
Years ended December 31, | ||||||||||||
Operating revenues: | ||||||||||||
Premiums earned, net | ||||||||||||
Premiums earned, net | $ | 100.1 | 97.4 | 91.9 | ||||||||
Premiums earned ceded | (7.6 | ) | (8.8 | ) | (9.7 | ) | ||||||
Assumed premiums earned | — | — | 4.4 | |||||||||
Net premiums earned | 92.5 | 88.6 | 86.6 | |||||||||
Commission income on reinsurance | 0.3 | 0.3 | 0.3 | |||||||||
Premiums earned, net | 92.8 | 88.9 | 86.9 | |||||||||
Net investment income | 16.5 | 15.0 | 13.7 | |||||||||
Total operating revenues | 109.3 | 103.9 | 100.6 | |||||||||
Operating costs: | ||||||||||||
Policy benefits and claims incurred | 47.4 | 45.7 | 43.6 | |||||||||
Underwriting and other expenses | 49.4 | 47.5 | 45.8 | |||||||||
Total operating costs | 96.8 | 93.2 | 89.4 | |||||||||
Operating income | $ | 12.5 | 10.7 | 11.2 | ||||||||
Additional data: | ||||||||||||
Loss ratio | 51.1 | % | 51.4 | % | 50.2 | % | ||||||
Expense ratio | 53.2 | % | 53.4 | % | 52.7 | % |
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(Dollar amounts in millions) | 2010 | 2009 | 2008 | |||||||||
Years ended December 31, | ||||||||||||
Operating revenues: | ||||||||||||
Premiums earned, net: | ||||||||||||
Premiums written | $ | 159.2 | $ | 163.3 | $ | 168.0 | ||||||
Premiums ceded | (63.7 | ) | (67.5 | ) | (72.1 | ) | ||||||
Change in unearned premiums | 3.7 | 0.4 | (2.1 | ) | ||||||||
Premiums earned, net | 99.2 | 96.2 | 93.8 | |||||||||
Net investment income | 10.1 | 11.7 | 12.5 | |||||||||
Total operating revenues | 109.3 | 107.9 | 106.3 | |||||||||
Operating costs: | ||||||||||||
Claims incurred | 49.2 | 47.3 | 42.1 | |||||||||
Underwriting and other operating expenses | 56.5 | 51.8 | 51.1 | |||||||||
Total operating costs | 105.7 | 99.1 | 93.2 | |||||||||
Operating income | $ | 3.6 | $ | 8.8 | $ | 13.1 | ||||||
Additional data: | ||||||||||||
Loss ratio | 49.6 | % | 49.2 | % | 44.9 | % | ||||||
Expense ratio | 57.0 | % | 53.8 | % | 54.5 | % | ||||||
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(Dollar amounts in millions) | 2008 | 2007 | 2006 | |||||||||
Years ended December 31, | ||||||||||||
Operating revenues: | ||||||||||||
Premiums earned, net: | ||||||||||||
Premiums written | $ | 168.0 | 170.9 | 158.9 | ||||||||
Premiums ceded | (72.1 | ) | (69.1 | ) | (65.7 | ) | ||||||
Change in unearned premiums | (2.1 | ) | (4.9 | ) | (4.7 | ) | ||||||
Premiums earned, net | 93.8 | 96.9 | 88.5 | |||||||||
Net investment income | 12.5 | 11.8 | 9.6 | |||||||||
Total operating revenues | 106.3 | 108.7 | 98.1 | |||||||||
Operating costs: | ||||||||||||
Claims incurred | 42.1 | 44.9 | 41.7 | |||||||||
Underwriting and other operating expenses | 51.1 | 53.1 | 45.2 | |||||||||
Total operating costs | 93.2 | 98.0 | 86.9 | |||||||||
Operating income | $ | 13.1 | 10.7 | 11.2 | ||||||||
Additional data: | ||||||||||||
Loss ratio | 44.9 | % | 46.3 | % | 47.1 | % | ||||||
Expense ratio | 54.5 | % | 54.8 | % | 51.1 | % | ||||||
Combined ratio | 99.4 | % | 101.1 | % | 98.2 | % |
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(dollar amounts in millions) | 2008 | 2007 | 2006 | 2010 | 2009 | 2008 | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||
Sources of cash: | ||||||||||||||||||||||||
Cash provided by operating activities | $ | — | 115.9 | 75.6 | ||||||||||||||||||||
Net proceeds from investments sold | — | 1.0 | — | |||||||||||||||||||||
Proceeds from long-term borrowings | — | — | 35.0 | |||||||||||||||||||||
Net cash provided by operating activities | $ | 37.7 | $ | 72.6 | $ | — | ||||||||||||||||||
Proceeds from annuity contracts | 8.0 | 6.1 | 6.0 | 10.7 | 4.3 | 8.0 | ||||||||||||||||||
Net proceeds from initial public offering | — | 70.3 | — | |||||||||||||||||||||
Net proceeds from borrowings | 40.6 | — | — | |||||||||||||||||||||
Other | 18.3 | — | — | 0.2 | — | 18.3 | ||||||||||||||||||
Total sources of cash | 26.3 | 193.3 | 116.6 | 89.2 | 76.9 | 26.3 | ||||||||||||||||||
Uses of cash: | ||||||||||||||||||||||||
Cash used in operating activities | (3.0 | ) | — | — | ||||||||||||||||||||
Net cash used in operating activities | — | — | (3.0 | ) | ||||||||||||||||||||
Net purchases of investment securities | (178.6 | ) | — | (9.3 | ) | (23.7 | ) | (17.3 | ) | (178.6 | ) | |||||||||||||
Acquisition of GA Life, net of cash acquired | — | — | (27.8 | ) | ||||||||||||||||||||
Capital expenditures | (22.4 | ) | (9.4 | ) | (11.9 | ) | (19.2 | ) | (18.7 | ) | (22.4 | ) | ||||||||||||
Dividends | — | (2.4 | ) | (6.2 | ) | |||||||||||||||||||
Payments of long-term borrowings | (1.6 | ) | (12.1 | ) | (2.5 | ) | (26.4 | ) | (1.6 | ) | (1.6 | ) | ||||||||||||
Payments of short-term borrowings | — | — | (1.7 | ) | ||||||||||||||||||||
Surrenders of annuity contracts | (7.1 | ) | (7.4 | ) | (16.0 | ) | (9.1 | ) | (7.1 | ) | (7.1 | ) | ||||||||||||
Repurchase and retirement of common stock | (7.6 | ) | — | — | (6.2 | ) | (32.3 | ) | (7.6 | ) | ||||||||||||||
Other | — | (3.4 | ) | (8.7 | ) | — | (5.6 | ) | — | |||||||||||||||
Total uses of cash | (220.3 | ) | (34.7 | ) | (84.1 | ) | (84.6 | ) | (82.6 | ) | (220.3 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (194.0 | ) | 158.6 | 32.5 | $ | 4.6 | $ | (5.7 | ) | $ | (194.0 | ) |
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• | On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes). The 6.7% notes were privately placed to various institutional accredited investors. The notes pay interest each month until the principal becomes due and payable. These notes can be redeemed after five years at par, in whole or in part, as determined by us. The proceeds obtained from this issuance were used to finance the acquisition of 100% of the common stock of GA Life effective January 31, 2006. | ||
• | On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes due December 2020 (the 6.6% notes). The 6.6% notes were privately placed to various institutional accredited investors. The notes pay interest each month until the principal becomes due and payable. These notes can be redeemed after five years at par, in whole or in part, as determined by us. The proceeds obtained from this issuance were used to pay the ceding commission to GA Life on the effective date of the coinsurance funds withheld reinsurance agreement. On October 1, 2010 we repaid $25.0 million of the principal of these senior unsecured notes. | ||
• | On September 30, 2004, |
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The notes pay interest semiannually until the principal becomes due and payable. These notes can be prepaid after five years at par, in whole or in part, as determined by | |||
• | On November 1, 2010, we entered into a $25.0 million arrangement to sell securities under repurchase agreements that matures on November 2015. The repurchase agreement pays interest quarterly at 1.96%. The investment securities underlying such agreements were delivered to the financial institution with whom the agreement was transacted. The dealers may have loaned, or used as collateral such securities in the normal course of business operations. We maintain effective control over the investment securities pledged as collateral and accordingly, such securities continue to be carried on our consolidated balance sheet. At December 31, 2010 investment securities available for sale with fair value of $27.2 million (face value of $19.7 million) were pledged as collateral under this agreement. The proceeds obtained from this agreement were used to repay $25.0 million of the 6.6% notes. |
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• | Unearned premiums — This amount accounts for the premiums collected prior to the end of coverage period and does not represent a future cash outflow. As of December 31, | ||
• | Policyholder deposits — The cash outflows related to these instruments are not included because they do not have defined maturities, such that the timing of payments and withdrawals is uncertain. There are currently no significant policyholder deposits in paying status. As of December 31, | ||
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Contractual obligations by year | ||||||||||||||||||||||||||||
(Dollar amounts in millions) | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||||
Short-term borrowings | $ | 15.6 | $ | 15.6 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Long-term borrowings (1) | 266.8 | 11.7 | 12.1 | 12.3 | 12.5 | 38.8 | 179.4 | |||||||||||||||||||||
Operating leases | 36.0 | 7.5 | 7.8 | 7.9 | 8.1 | 1.8 | 2.9 | |||||||||||||||||||||
Purchase obligations (2) | 151.2 | 147.5 | 1.8 | 1.0 | 0.3 | 0.3 | 0.3 | |||||||||||||||||||||
Claim liabilities (3) | 328.8 | 238.2 | 59.2 | 9.8 | 10.4 | 3.5 | 7.7 | |||||||||||||||||||||
Estimated obligation for future policy benefits (4) | 954.8 | 75.6 | 64.0 | 60.1 | 56.7 | 53.9 | 644.5 | |||||||||||||||||||||
$ | 1,753.2 | $ | 496.1 | $ | 144.9 | $ | 91.1 | $ | 88.0 | $ | 98.3 | $ | 834.8 | |||||||||||||||
Contractual obligations by year | ||||||||||||||||||||||||||||
(Dollar amounts in millions) | Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | |||||||||||||||||||||
Long-term borrowings (1) | $ | 283.4 | 11.7 | 11.6 | 11.6 | 11.5 | 11.5 | 225.5 | ||||||||||||||||||||
Operating leases | 16.9 | 6.0 | 4.4 | 2.7 | 1.2 | 0.5 | 2.1 | |||||||||||||||||||||
Purchase obligations (2) | 151.6 | 148.5 | 1.3 | 1.1 | 0.5 | 0.2 | — | |||||||||||||||||||||
Claim liabilities (3) | 293.3 | 206.2 | 52.3 | 11.3 | 10.5 | 5.5 | 7.5 | |||||||||||||||||||||
Estimated obligation for future policy benefits (4) | 994.9 | 70.2 | 61.3 | 57.8 | 55.0 | 52.6 | 698.0 | |||||||||||||||||||||
$ | 1,740.1 | 442.6 | 130.9 | 84.5 | 78.7 | 70.3 | 933.1 | |||||||||||||||||||||
(1) | As of December 31, | |
(2) | Purchase obligations represent payments required by us under material agreements to purchase goods or services that are enforceable and legally binding and where all significant terms are specified, including: quantities to be purchased, price provisions and the timing of the transaction. Other purchase orders made in the ordinary course of business for which we are not liable are excluded from the table above. Estimated pension plan contributions amounting to | |
(3) | Claim liabilities represent the amount of our claims processed and incomplete as well as an estimate of the amount of incurred but not reported claims and loss-adjustment expenses. This amount does not include an estimate of claims to be incurred subsequent to December 31, | |
(4) | Our life insurance segment establishes, and carries as liabilities, actuarially determined amounts that are calculated to meet its policy obligations when a policy matures or surrenders, an insured dies or becomes disabled or upon the occurrence of other covered events. A significant portion of the estimated obligation for future policy benefits to be paid included in this table considers contracts under which we are currently not making payments and will not make payments until the occurrence of an insurable event not under our control, such as death, illness, or the surrender of a policy. We have estimated the timing of the cash flows related to these contracts based on historical experience as well as expectations of future payment patterns. The amounts presented in the table above represent the estimated cash payments for benefits under such contracts based on assumptions related to the receipt of future premiums and assumptions related to mortality, morbidity, policy lapses, renewals, retirements, disability incidence and other contingent events as appropriate for the respective product type. All estimated cash payments included in this table are not discounted to present value nor do they take into account estimated future premiums on policies in-force as of December 31, 2010 and are gross of any |
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reinsurance recoverable. The $954.8 million total estimated cash flows for all years in the table is different from the liability of future policy benefits of $236.5 million included in our audited consolidated financial statements principally due to the time value of money. Actual cash payments to policyholders could differ significantly from the estimated cash payments as presented in this table due to differences between actual experience and the assumptions used in the estimation of these payments. |
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Property and | ||||||||||||||||
Managed | Life | Casualty | ||||||||||||||
(Dollar amounts in millions) | Care | Insurance | Insurance | Consolidated | ||||||||||||
Claims processed and incomplete(1) | $ | 78.2 | 31.3 | 46.6 | 156.1 | |||||||||||
Unreported losses(2) | 119.3 | 8.3 | 22.5 | 150.1 | ||||||||||||
Unpaid loss-adjustment expenses(3) | 4.4 | 0.3 | 12.8 | 17.5 | ||||||||||||
$ | 201.9 | 39.9 | 81.9 | 323.7 | ||||||||||||
(Dollar amounts in millions) | ||||
Managed care | $ | 236.2 | ||
Life insurance | 41.2 | |||
Property and casualty insurance | 82.8 | |||
Consolidated | $ | 360.2 | ||
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(Dollar amounts in millions) | ||||||||||||||||||
Completion Factor1 | Completion Factor1 | Claims Trend Factor2 | Completion Factor1 | Claims Trend Factor2 | ||||||||||||||
(Decrease) Increase | (Decrease) Increase | (Decrease) Increase | (Decrease) Increase | (Decrease) Increase | ||||||||||||||
In unpaid claim | In claims trend | In unpaid claim | In unpaid claim | In claims trend | In unpaid claim | |||||||||||||
In completion factor | liabilities | factor | liabilities | liabilities | factor | liabilities | ||||||||||||
(0.6)% | $11.2 | (0.6)% | $6.0 | $ | 8.7 | (0.75 | )% | $ | 9.4 | |||||||||
(0.4)% | 7.5 | (0.4)% | 4.0 | 5.8 | (0.50 | )% | 6.3 | |||||||||||
(0.2)% | 3.7 | (0.2)% | 2.0 | 2.9 | (0.25 | )% | 3.2 | |||||||||||
0.2% | (3.7) | 0.2% | (2.0) | (2.9 | ) | 0.25 | % | (3.2 | ) | |||||||||
0.4% | (7.4) | 0.4% | (4.0) | (5.7 | ) | 0.50 | % | (6.3 | ) | |||||||||
0.6% | (11.0) | 0.6% | (6.0) | (8.6 | ) | 0.75 | % | (9.4 | ) |
Assumes (decrease) increase in the completion factors for the most recent twelve months. | ||
Assumes (decrease) increase in the claims trend factors for the most recent twelve months. |
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(Dollar amounts in millions | 2007 | 2006 | 2005 | 2009 | 2008 | 2007 | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||
Total incurred claims: | ||||||||||||||||||||||||
As reported(1) | $ | 1,156.8 | 1,184.3 | 1,148.2 | $ | 1,512.1 | $ | 1,348.9 | $ | 1,156.8 | ||||||||||||||
On a retrospective basis | 1,149.2 | 1,160.7 | 1,137.5 | 1,506.5 | 1,352.0 | 1,149.2 | ||||||||||||||||||
Variance | $ | 7.6 | 23.6 | 10.7 | $ | 5.6 | $ | (3.1 | ) | $ | 7.6 | |||||||||||||
Variance to total incurred claims as reported | 0.7 | % | 2.0 | % | 0.9 | % | 0.4 | % | -0.2 | % | 0.7 | % |
(1) | Includes total claims incurred less adjustments for prior year reserve development. |
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• | Through the management of our cash flows and investment portfolio. | ||
• | We have the ability to increase the premium rates throughout the year in the monthly renewal process, when renegotiating the premiums for the following contract year of each group as they become due. We consider the actual claims trend of each group when determining the premium rates for the following contract year. | ||
• | We have available short-term borrowing facilities that from time to time address differences between cash receipts and disbursements. |
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• | Identification and evaluation of securities that have possible indications of other-than-temporary impairment, which includes an analysis of all investments with gross unrealized investments losses that represent 20% or more of cost. | ||
• | Review and evaluation of any other security based on the investee’s current financial condition, liquidity, near-term recovery prospects, implications of rating agency actions, the outlook for the business sectors in which the investee operates and other factors. This evaluation is in addition to the evaluation of those securities with a gross unrealized investment loss representing 20% or more of cost. | ||
• | Consideration of evidential matter, including an evaluation of factors or triggers that may or may not cause individual investments to qualify as having other-than-temporary impairments; and | ||
• | Determination of the status of each analyzed security as other-than-temporary or not, with documentation of the rationale for the decision. |
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Page 8277
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• | the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgages; and | ||
• | the model assumes that the composition of assets and liabilities remains unchanged throughout the year. |
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(Dollar amounts in millions) | ||||||||||||
Expected | Amount of | % | ||||||||||
Change in Interest Rates | Fair Value | Decrease | Change | |||||||||
December 31, 2008: | ||||||||||||
Base Scenario | $ | 910.7 | ||||||||||
+100 bp | 891.0 | (19.7 | ) | (2.2 | )% | |||||||
+200 bp | 844.9 | (65.8 | ) | (7.2 | )% | |||||||
+300 bp | 787.7 | (123.0 | ) | (13.5 | )% | |||||||
December 31, 2007: | ||||||||||||
Base Scenario | $ | 867.5 | ||||||||||
+100 bp | 819.3 | (48.2 | ) | (5.6 | )% | |||||||
+200 bp | 777.3 | (90.2 | ) | (10.4 | )% | |||||||
+300 bp | 732.6 | (134.9 | ) | (15.6 | )% |
Expected | Amount of | % | ||||||||||
Change in Interest Rates | Fair Value | Decrease | Change | |||||||||
December 31, 2010: | ||||||||||||
Base Scenario | $ | 991.6 | ||||||||||
+100 bp | 940.4 | (51.2 | ) | (5.2 | )% | |||||||
+200 bp | 886.1 | (105.5 | ) | (10.6 | )% | |||||||
+300 bp | 836.5 | (155.1 | ) | (15.6 | )% | |||||||
December 31, 2009: | ||||||||||||
Base Scenario | $ | 935.5 | ||||||||||
+100 bp | 885.4 | (50.1 | ) | (5.4 | )% | |||||||
+200 bp | 836.2 | (99.3 | ) | (10.6 | )% | |||||||
+300 bp | 786.7 | (148.8 | ) | (15.9 | )% | |||||||
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |||
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |||
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
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Financial Statements | Description | |
F-1 | ||
F-2 | Consolidated Balance Sheets as of December 31, | |
F-3 | Consolidated Statements of Earnings for the years ended December 31, | |
F-4 | Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, | |
F-5 | Consolidated Statements of Cash Flows for the years ended December 31, | |
F-7 | Notes to Consolidated Financial Statements — December 31, |
Page 83
Financial Statements | ||
Schedules | Description | |
S-1 | Schedule II — Condensed Financial Information of the Registrant | |
S-2 | Schedule III — Supplementary Insurance Information |
Page 90
S-3 | Schedule IV — Reinsurance | |
S-4 | Schedule V — Valuation and Qualifying Accounts |
Exhibits | Description | |
3(i)(a) | Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3(i)(d) to TSM’s Annual Report on Form 10-K for the Year Ended December 31, 2007 (File No. 001-33865). | |
3(i)(b) | Amendment to Article Tenth of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation, incorporated by reference to Exhibit 3(i)(b) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865). | |
3(i)(c) | Articles of Incorporation of Triple-S Management Corporation, as currently in effect, incorporated by reference to Exhibit 3(i)(c) to TSM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (File No. 001-33865). | |
3(ii) | Amended and Restated Bylaws of Triple-S Management Corporation (incorporated herein by reference to Exhibit 3.1 to TSM’s Current Report on Form 8-K filed on | |
10.1 | ||
10.2 | Extension to the agreement between the Puerto Rico Health Insurance Administration and | |
10.3 | Amendment to the Medicare Platino Contract (Medicare Wraparound) between the Puerto Rico Health Insurance Administration and TSS for the provision of wraparound coverage to health insurance dual-eligible population until December 31, 2011 (incorporated herein by reference to Exhibit 10.4 to TSM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-33865)). | |
10.4 | Federal Employees Health Benefits Contract (incorporated herein by reference to Exhibit 10.5 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)). | |
Credit Agreement with FirstBank Puerto Rico in the amount of $41,000,000 (incorporated herein by reference to Exhibit 10.6 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)). |
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Description | ||
10.6 | Credit Agreement with FirstBank Puerto Rico in the amount of $20,000,000 (incorporated herein by reference to Exhibit 10.7 to TSM’s General Form of Registration of Securities on Form 10 (File No. 001-33865)). | |
Non-Contributory Retirement Program (incorporated herein by reference to Exhibit 10.8 |
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Blue Shield License Agreement by and | ||
10.9 | ||
10.10 | ||
10.11 | Blue Cross Controlled Affiliate License Agreement | |
6.30% Senior Unsecured Notes Due September 2019 Note Purchase Agreement, dated September 30, 2004, between Triple-S Management Corporation, Triple-S, Inc. and various institutional accredited investors (incorporated herein by reference to Exhibit 10.15 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-33865)). | ||
6.60% Senior Unsecured Notes Due December 2020 Note Purchase Agreement, dated December 15, 2005, between Triple-S Management Corporation and various institutional accredited investors (incorporated herein by reference to Exhibit 10.16 to TSM’s Annual Report on Form 10-K for the year ended December 31, 2005 (File No. 001-33865)). | ||
6.70% Senior Unsecured Notes Due December 2021 Note Purchase Agreement, dated January 23, 2006, between Triple-S Management Corporation and various institutional accredited investors (incorporated herein by reference to Exhibit 10.1 to TSM’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2006 (File No. 001-33865)). | ||
Software License and Maintenance Agreement between Quality Care Solutions, Inc, and |
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Description | ||
10.17 | Addendum Number One to the Software License and Maintenance Agreement between Quality Care Solutions, Inc, and | |
Addendum Number Two to the Software License and Maintenance |
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Agreement between Quality Care Solutions, Inc, and | ||
Addendum Number Three to the Software License and Maintenance Agreement between Quality Care Solutions, Inc, and | ||
Work Order Agreement between Quality Care Solutions, Inc. and | ||
11.1 | Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share 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 II of this Annual Report on Form 10-K. | |
12.1 | Statement re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio has been omitted as the detail necessary to determine the computation of the loss ratio, operating expense ratio and combined ratio can be clearly determined from the material contained in Part II of this Annual Report on Form 10-K. | |
List of Subsidiaries of | ||
23.1* | Consent of | |
23.2* | Consent of | |
31.1* | Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a). | |
31.2* | Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a). | |
32.1* | Certification of the President and Chief Executive Officer required pursuant to 18 U.S. Section 1350. | |
32.2* | Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S. Section 1350. | |
99.1* | Incentive Compensation Recoupment Policy |
Page 9386
By: | /s/ Ramón M. Ruiz-Comas | Date: | March | |||||||||||||
Ramón M. Ruiz-Comas President and Chief Executive Officer | ||||||||||||||||
By: | /s/ Juan J. Román | Date: | March | |||||||||||||
Juan J. Román Vice President of Finance and Chief Financial Officer | Principal Accounting Officer |
By: | /s/ Luis A. Clavell-Rodríguez | Date: | March | |||||||||||
Luis A. Clavell-Rodríguez Director and Chairman of the Board | ||||||||||||||
By: | /s/ Vicente J. León-Irizarry | Date: | March | |||||||||||
Vicente J. León-Irizarry Director and Vice-Chairman of the Board | ||||||||||||||
By: | /s/ Jesús R. Sánchez-Colón | Date: | March | |||||||||||
Jesús R. Sánchez-Colón Director and Assistant Secretary of the Board | ||||||||||||||
By: | /s/ Adamina Soto-Martínez | Date: | March | |||||||||||
Adamina Soto-Martínez Director | ||||||||||||||
By: | /s/ | Date: | March | |||||||||||
Director |
Page 9487
By: | /s/ Jorge L. Fuentes-Benejam | Date: | March 9, 2011 | |||||||||||
Jorge L. Fuentes-Benejam Director | ||||||||||||||
By: | /s/ | Antonio F. Faría-Soto | Date: | March | ||||||||||
Director | ||||||||||||||
By: | /s/ | Manuel Figueroa-Collazo | Date: | March | ||||||||||
Director | ||||||||||||||
By: | /s/ | José Hawayek-Alemañy | Date: | March | ||||||||||
Director | ||||||||||||||
By: | /s/ | Jaime Morgan-Stubbe | Date: | March | ||||||||||
Director | ||||||||||||||
By: | /s/ Roberto Muñoz-Zayas | Date: | March | |||||||||||
Roberto Muñoz-Zayas Director | ||||||||||||||
By: | /s/ Juan E. Rodríguez-Díaz | Date: | March | |||||||||||
Juan E. Rodríguez-Díaz Director |
Page 9588
Page(s) | ||||
1 | ||||
Consolidated | ||||
Balance Sheets | 3 | |||
Earnings | 4 | |||
Stockholders’ Equity and Comprehensive Income | 5 | |||
6 | ||||
Notes to Consolidated Financial Statements |
1.1
1.2
2
2008 | 2007 | 2010 | 2009 | |||||||||||||
Assets | Assets | |||||||||||||||
Investments and cash: | ||||||||||||||||
Equity securities held for trading, at fair value (cost of $40,847 in 2008 and $54,757 in 2007) | $ | 32,184 | 67,158 | |||||||||||||
Investments and cash | ||||||||||||||||
Equity securities held for trading, at fair value (cost of $43,832 in 2010 and $42,075 in 2009) | $ | 51,099 | $ | 43,909 | ||||||||||||
Securities available for sale, at fair value: | ||||||||||||||||
Fixed maturities (amortized cost of $879,663 in 2008 and $816,536 in 2007) | 887,684 | 823,629 | ||||||||||||||
Equity securities (cost of $70,060 in 2008 and $66,747 in 2007) | 68,629 | 71,050 | ||||||||||||||
Fixed maturities (amortized cost of $947,957 in 2010 and $911,362 in 2009) | 977,586 | 918,977 | ||||||||||||||
Equity securities (cost of $47,750 in 2010 and $61,531 in 2009) | 56,739 | 64,689 | ||||||||||||||
Securities held to maturity, at amortized cost: | ||||||||||||||||
Fixed maturities (fair value of $23,063 in 2008 and $43,849 in 2007) | 21,753 | 43,691 | ||||||||||||||
Fixed maturities (fair value of $15,424 in 2010 and $16,490 in 2009) | 14,615 | 15,794 | ||||||||||||||
Policy loans | 5,451 | 5,481 | 5,887 | 5,940 | ||||||||||||
Cash and cash equivalents | 46,095 | 240,153 | 45,021 | 40,376 | ||||||||||||
Total investments and cash | 1,061,796 | 1,251,162 | 1,150,947 | 1,089,685 | ||||||||||||
Premium and other receivables, net | 237,158 | 202,268 | 325,780 | 272,932 | ||||||||||||
Deferred policy acquisition costs and value of business acquired | 126,347 | 117,239 | 146,086 | 139,917 | ||||||||||||
Property and equipment, net | 58,448 | 43,415 | 76,745 | 68,803 | ||||||||||||
Net deferred tax asset | 25,195 | 6,783 | ||||||||||||||
Deferred tax asset | 29,445 | 37,551 | ||||||||||||||
Other assets | 39,515 | 38,675 | 30,367 | 39,816 | ||||||||||||
Total assets | $ | 1,548,459 | 1,659,542 | $ | 1,759,370 | $ | 1,648,704 | |||||||||
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | |||||||||||||||
Claim liabilities: | ||||||||||||||||
Claims processed and incomplete | $ | 156,137 | 186,065 | |||||||||||||
Unreported losses | 150,079 | 149,996 | ||||||||||||||
Unpaid loss-adjustment expenses | 17,494 | 17,769 | ||||||||||||||
Total claim liabilities | 323,710 | 353,830 | ||||||||||||||
Claim liabilities | 360,210 | 360,446 | ||||||||||||||
Liability for future policy benefits | 207,545 | 194,131 | 236,523 | 222,619 | ||||||||||||
Unearned premiums | 110,141 | 132,599 | 98,341 | 108,342 | ||||||||||||
Policyholder deposits | 48,684 | 45,959 | 49,936 | 47,563 | ||||||||||||
Liability to Federal Employees’ Health Benefits Program | 11,157 | 21,338 | 15,018 | 13,002 | ||||||||||||
Accounts payable and accrued liabilities | 148,713 | 228,980 | 136,567 | 139,161 | ||||||||||||
Borrowings | 169,307 | 170,946 | ||||||||||||||
Deferred tax liability | 12,655 | 11,088 | ||||||||||||||
Short term borrowings | 15,575 | — | ||||||||||||||
Long term borrowings | 166,027 | 167,667 | ||||||||||||||
Liability for pension benefits | 44,103 | 29,221 | 51,246 | 41,044 | ||||||||||||
Total liabilities | 1,063,360 | 1,177,004 | 1,142,098 | 1,110,932 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 9,042,809 and 16,042,809 at December 31, 2008 and 2007, respectively | 9,043 | 16,043 | ||||||||||||||
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,104,989 and 16,266,554 shares at December 31, 2008 and 2007, respectively | 22,105 | 16,266 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity | ||||||||||||||||
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 9,042,809 at December 31, 2010 and 2009 | 9,043 | 9,043 | ||||||||||||||
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 19,772,614 and 20,110,391 shares at December 31, 2010 and 2009, respectively | 19,773 | 20,110 | ||||||||||||||
Additional paid-in capital | 179,504 | 188,935 | 155,299 | 159,303 | ||||||||||||
Retained earnings | 292,112 | 267,336 | 427,693 | 360,892 | ||||||||||||
Accumulated other comprehensive loss, net | (17,665 | ) | (6,042 | ) | ||||||||||||
Accumulated other comprehensive income (loss), net | 5,464 | (11,576 | ) | |||||||||||||
485,099 | 482,538 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||
Total stockholders’ equity | 617,272 | 537,772 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,548,459 | 1,659,542 | $ | 1,759,370 | $ | 1,648,704 | |||||||||
2
2008 | 2007 | 2006 | ||||||||||
Revenues: | ||||||||||||
Premiums earned, net | $ | 1,695,457 | 1,483,548 | 1,511,626 | ||||||||
Administrative service fees | 19,187 | 14,018 | 14,089 | |||||||||
Net investment income | 56,253 | 47,194 | 42,657 | |||||||||
Total operating revenues | 1,770,897 | 1,544,760 | 1,568,372 | |||||||||
Net realized investment (losses) gains | (13,940 | ) | 5,931 | 837 | ||||||||
Net unrealized investment (loss) gain on trading securities | (21,064 | ) | (4,116 | ) | 7,699 | |||||||
Other income (loss), net | (2,467 | ) | 3,217 | 2,323 | ||||||||
Total revenues | 1,733,426 | 1,549,792 | 1,579,231 | |||||||||
Benefits and expenses: | ||||||||||||
Claims incurred | 1,434,914 | 1,223,775 | 1,258,981 | |||||||||
Operating expenses | 251,887 | 237,533 | 236,065 | |||||||||
Total operating costs | 1,686,801 | 1,461,308 | 1,495,046 | |||||||||
Interest expense | 14,681 | 15,839 | 16,626 | |||||||||
Total benefits and expenses | 1,701,482 | 1,477,147 | 1,511,672 | |||||||||
Income before taxes | 31,944 | 72,645 | 67,559 | |||||||||
Income tax expense (benefit): | ||||||||||||
Current | 11,542 | 15,906 | 15,407 | |||||||||
Deferred | (4,388 | ) | (1,779 | ) | (2,381 | ) | ||||||
Total income taxes | 7,154 | 14,127 | 13,026 | |||||||||
Net income | $ | 24,790 | 58,518 | 54,533 | ||||||||
Basic net income per share | $ | 0.77 | 2.15 | 2.04 | ||||||||
Diluted net income per share | 0.77 | 2.15 | 2.04 |
3
Accumulated | ||||||||||||||||||||||||
Class A | Class B | Additional | other | Total | ||||||||||||||||||||
common | common | paid-in | Retained | comprehensive | stockholders’ | |||||||||||||||||||
stock | stock | capital | earnings | income (loss) | equity | |||||||||||||||||||
Balance, December 31, 2005 | $ | 26,712 | — | 124,052 | 162,964 | (5,025 | ) | 308,703 | ||||||||||||||||
Dividends declared | — | — | — | (6,231 | ) | — | (6,231 | ) | ||||||||||||||||
Adjustment to initially apply SFAS No. 158, net of tax | — | — | — | — | (16,081 | ) | (16,081 | ) | ||||||||||||||||
Other | 21 | — | (21 | ) | — | — | — | |||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | — | 54,533 | — | 54,533 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | (3,212 | ) | (3,212 | ) | ||||||||||||||||
Net change in minimum pension liability | — | — | — | — | 4,952 | 4,952 | ||||||||||||||||||
Net change in fair value of cash flow hedges | — | — | — | — | (65 | ) | (65 | ) | ||||||||||||||||
Total comprehensive income | 56,208 | |||||||||||||||||||||||
Balance, December 31, 2006 | 26,733 | — | 124,031 | 211,266 | (19,431 | ) | 342,599 | |||||||||||||||||
Dividends declared | — | — | — | (2,448 | ) | — | (2,448 | ) | ||||||||||||||||
Sale of stock in public offering | (10,813 | ) | 16,100 | 64,992 | — | — | 70,279 | |||||||||||||||||
Grant of restricted Class B common stock | — | 166 | — | — | — | 166 | ||||||||||||||||||
Share-based compensation | 34 | 34 | ||||||||||||||||||||||
Other | 123 | — | (122 | ) | — | — | 1 | |||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | — | 58,518 | — | 58,518 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | 9,549 | 9,549 | ||||||||||||||||||
Defined benefit pension plan: | ||||||||||||||||||||||||
Prior service cost, net | — | — | — | — | 3,935 | 3,935 | ||||||||||||||||||
Actuarial loss | — | — | — | — | 155 | 155 | ||||||||||||||||||
Net change in fair value of cash flow hedges | — | — | — | — | (250 | ) | (250 | ) | ||||||||||||||||
Total comprehensive income | 71,907 | |||||||||||||||||||||||
Balance, December 31, 2007 | 16,043 | 16,266 | 188,935 | 267,336 | (6,042 | ) | 482,538 | |||||||||||||||||
Conversion of Class A common stock to Class B common stock | (7,000 | ) | 7,000 | — | — | — | — | |||||||||||||||||
Share-based compensation | — | — | 3,268 | — | — | 3,268 | ||||||||||||||||||
Grant of restricted Class B common stock | — | 20 | — | — | — | 20 | ||||||||||||||||||
Repurchase and retirement of common stock | — | (1,181 | ) | (12,699 | ) | — | — | (13,880 | ) | |||||||||||||||
Other | — | — | — | (14 | ) | — | (14 | ) | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | — | 24,790 | — | 24,790 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | (3,952 | ) | (3,952 | ) | ||||||||||||||||
Defined benefit pension plan: | ||||||||||||||||||||||||
Prior service credit, net | — | — | — | — | (266 | ) | (266 | ) | ||||||||||||||||
Actuarial loss | — | — | — | — | (7,349 | ) | (7,349 | ) | ||||||||||||||||
Net change in fair value of cash flow hedges | — | — | — | — | (56 | ) | (56 | ) | ||||||||||||||||
Total comprehensive income | 13,167 | |||||||||||||||||||||||
Balance, December 31, 2008 | $ | 9,043 | 22,105 | 179,504 | 292,112 | (17,665 | ) | 485,099 | ||||||||||||||||
2010 | 2009 | 2008 | ||||||||||
Revenues | ||||||||||||
Premiums earned, net | $ | 1,901,100 | $ | 1,869,084 | $ | 1,692,344 | ||||||
Administrative service fees | 39,546 | 48,643 | 19,187 | |||||||||
Net investment income | 49,145 | 52,136 | 56,253 | |||||||||
Total operating revenues | 1,989,791 | 1,969,863 | 1,767,784 | |||||||||
Net realized investment gains (losses): | ||||||||||||
Total other-than-temporary impairment losses on securities | (2,997 | ) | (7,118 | ) | (16,494 | ) | ||||||
Net realized gains, excluding other-than-temporary impairment losses on securities | 5,529 | 7,732 | 2,554 | |||||||||
Total net realized investment gains (losses) | 2,532 | 614 | (13,940 | ) | ||||||||
Net unrealized investment gains (losses) on trading securities | 5,433 | 10,497 | (21,064 | ) | ||||||||
Other income (expense), net | 889 | 1,237 | (2,467 | ) | ||||||||
Total revenues | 1,998,645 | 1,982,211 | 1,730,313 | |||||||||
Benefits and expenses | ||||||||||||
Claims incurred | 1,596,789 | 1,605,872 | 1,431,801 | |||||||||
Operating expenses | 304,995 | 279,418 | 251,887 | |||||||||
Total operating costs | 1,901,784 | 1,885,290 | 1,683,688 | |||||||||
Interest expense | 12,658 | 13,270 | 14,681 | |||||||||
Total benefits and expenses | 1,914,442 | 1,898,560 | 1,698,369 | |||||||||
Income before taxes | 84,203 | 83,651 | 31,944 | |||||||||
Income tax expense (benefit) | ||||||||||||
Current | 14,348 | 19,197 | 11,542 | |||||||||
Deferred | 3,054 | (4,326 | ) | (4,388 | ) | |||||||
Total income taxes | 17,402 | 14,871 | 7,154 | |||||||||
Net income | $ | 66,801 | $ | 68,780 | $ | 24,790 | ||||||
Basic net income per share | $ | 2.30 | $ | 2.33 | $ | 0.77 | ||||||
Diluted net income per share | $ | 2.28 | $ | 2.33 | $ | 0.77 |
4
2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 24,790 | 58,518 | 54,533 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 7,367 | 7,562 | 6,443 | |||||||||
Net amortization of investments | 953 | 354 | 511 | |||||||||
Provision for doubtful receivables | (1,180 | ) | (2,305 | ) | 5,125 | |||||||
Deferred tax benefit | (12,725 | ) | (1,779 | ) | (2,381 | ) | ||||||
Net loss (gain) on sale of securities | 13,940 | (5,931 | ) | (837 | ) | |||||||
Net unrealized (gain) loss on trading securities | 21,063 | 4,116 | (7,699 | ) | ||||||||
Share-based compensation | 3,268 | 200 | — | |||||||||
Proceeds from trading securities sold or matured: | ||||||||||||
Equity securities | 24,640 | 43,614 | 27,919 | |||||||||
Acquisition of securities in trading portfolio: | ||||||||||||
Equity securities | (10,737 | ) | (23,921 | ) | (22,409 | ) | ||||||
Gain on sale of property and equipment | 11 | 28 | 22 | |||||||||
(Increase) decrease in assets: | ||||||||||||
Premiums receivable | (39,788 | ) | (8,458 | ) | (27,951 | ) | ||||||
Agent balances | (5,617 | ) | (4,061 | ) | 395 | |||||||
Accrued interest receivable | (3,439 | ) | (309 | ) | 588 | |||||||
Other receivables | 58 | (3,637 | ) | (4,521 | ) | |||||||
Funds withheld reinsurance receivable | — | — | 118,635 | |||||||||
Reinsurance recoverable on paid losses | 16,576 | (17,872 | ) | (6,147 | ) | |||||||
Deferred policy acquisition costs and value of business acquired | (9,108 | ) | (5,822 | ) | (7,026 | ) | ||||||
Other assets | 4,785 | (3,179 | ) | (4,031 | ) | |||||||
Increase (decrease) in liabilities: | ||||||||||||
Claims processed and incomplete | (29,928 | ) | 38,854 | 2,803 | ||||||||
Unreported losses | 83 | (739 | ) | 3,342 | ||||||||
Loss-adjustment expenses | (275 | ) | 1,033 | 1,791 | ||||||||
Liability for future policy benefits | 13,414 | 13,711 | 14,022 | |||||||||
Liability for future policy benefits related to funds withheld reinsurance | — | — | (118,635 | ) | ||||||||
Unearned premiums | (22,458 | ) | 19,017 | 15,579 | ||||||||
Policyholder deposits | 1,902 | 1,800 | 1,810 | |||||||||
Liability to FEHBP | (10,181 | ) | 7,775 | 9,207 | ||||||||
Accounts payable and accrued liabilities | 15,322 | 7,359 | 1,903 | |||||||||
Income tax payable | (5,718 | ) | (10,034 | ) | 12,595 | |||||||
Net cash (used in) provided by operating activities | (2,982 | ) | 115,894 | 75,586 | ||||||||
Accumulated | ||||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||||
Common | Common | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||
Balance, December 31, 2007 | $ | 16,043 | $ | 16,266 | $ | 188,935 | $ | 267,336 | $ | (6,042 | ) | $ | 482,538 | |||||||||||
Conversion of Class A common stock to Class B common stock | (7,000 | ) | 7,000 | — | — | — | — | |||||||||||||||||
Share-based compensation | — | — | 3,268 | — | — | 3,268 | ||||||||||||||||||
Grant of restricted Class B common stock | — | 20 | — | — | — | 20 | ||||||||||||||||||
Repurchase and retirement of common stock | — | (1,181 | ) | (12,699 | ) | — | — | (13,880 | ) | |||||||||||||||
Other | — | — | — | (14 | ) | — | (14 | ) | ||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||
Net income | — | — | — | 24,790 | — | 24,790 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | (3,952 | ) | (3,952 | ) | ||||||||||||||||
Defined benefit pension plan | ||||||||||||||||||||||||
Prior service credit, net | — | — | — | — | (266 | ) | (266 | ) | ||||||||||||||||
Actuarial loss | — | — | — | — | (7,349 | ) | (7,349 | ) | ||||||||||||||||
Net change in fair value of cash flow hedges | — | — | — | — | (56 | ) | (56 | ) | ||||||||||||||||
Total comprehensive income | 13,167 | |||||||||||||||||||||||
Balance, December 31, 2008 | 9,043 | 22,105 | 179,504 | 292,112 | (17,665 | ) | 485,099 | |||||||||||||||||
Share-based compensation | — | — | 3,897 | — | — | 3,897 | ||||||||||||||||||
Grant of restricted Class B common stock | — | 27 | — | — | — | 27 | ||||||||||||||||||
Repurchase and retirement of common stock | — | (2,022 | ) | (24,098 | ) | — | — | (26,120 | ) | |||||||||||||||
Comprehensive income | ||||||||||||||||||||||||
Net income | — | — | — | 68,780 | — | 68,780 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | 3,539 | 3,539 | ||||||||||||||||||
Defined benefit pension plan | ||||||||||||||||||||||||
Prior service credit, net | — | — | — | — | (273 | ) | (273 | ) | ||||||||||||||||
Actuarial gain | — | — | — | — | 2,823 | 2,823 | ||||||||||||||||||
Total comprehensive income | 74,869 | |||||||||||||||||||||||
Balance, December 31, 2009 | 9,043 | 20,110 | 159,303 | 360,892 | (11,576 | ) | 537,772 | |||||||||||||||||
Share-based compensation | — | — | 1,878 | — | — | 1,878 | ||||||||||||||||||
Grant of restricted Class B common stock | — | 16 | — | — | — | 16 | ||||||||||||||||||
Repurchase and retirement of common stock | — | (353 | ) | (5,882 | ) | — | — | (6,235 | ) | |||||||||||||||
Comprehensive income | ||||||||||||||||||||||||
Net income | — | — | — | 66,801 | — | 66,801 | ||||||||||||||||||
Net unrealized change in fair value of available for sale securities | — | — | — | — | 23,602 | 23,602 | ||||||||||||||||||
Defined benefit pension plan | ||||||||||||||||||||||||
Prior service credit, net | — | — | — | — | (265 | ) | (265 | ) | ||||||||||||||||
Actuarial loss | — | — | — | — | (6,297 | ) | (6,297 | ) | ||||||||||||||||
Total comprehensive income | 83,841 | |||||||||||||||||||||||
Balance, December 31, 2010 | $ | 9,043 | $ | 19,773 | $ | 155,299 | $ | 427,693 | $ | 5,464 | $ | 617,272 | ||||||||||||
5
2008 | 2007 | 2006 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from investments sold or matured: | ||||||||||||
Securities available for sale: | ||||||||||||
Fixed maturities sold | $ | 228,436 | 299,561 | 51,519 | ||||||||
Fixed maturities matured | 91,732 | 41,248 | 32,826 | |||||||||
Equity securities | 4,450 | 1,000 | 1,209 | |||||||||
Securities held to maturity: | ||||||||||||
Fixed maturities matured | 22,875 | 13,246 | 492 | |||||||||
Acquisition of investments: | ||||||||||||
Securities available for sale: | ||||||||||||
Fixed maturities | (505,896 | ) | (327,409 | ) | (81,496 | ) | ||||||
Equity securities | (19,636 | ) | (18,379 | ) | (11,620 | ) | ||||||
Securities held to maturity: | ||||||||||||
Fixed maturities | (554 | ) | (8,244 | ) | (2,197 | ) | ||||||
Acquisition of business, net of $10,403 of cash acquired | — | — | (27,793 | ) | ||||||||
Net repayment (disbursements) for policy loans | 30 | (287 | ) | (415 | ) | |||||||
Capital expenditures | (22,411 | ) | (9,390 | ) | (11,871 | ) | ||||||
Net cash used in investing activities | (200,974 | ) | (8,654 | ) | (49,346 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net proceeds from initial public offering | — | 70,279 | — | |||||||||
Repurchase and retirement of common stock | (7,645 | ) | — | — | ||||||||
Change in outstanding checks in excess of bank balances | 18,353 | (3,076 | ) | (8,224 | ) | |||||||
Change in short-term borrowings | — | — | (1,740 | ) | ||||||||
Repayments of long-term borrowings | (1,639 | ) | (12,141 | ) | (2,503 | ) | ||||||
Proceeds from long-term borrowings | — | — | 35,000 | |||||||||
Dividends | — | (2,448 | ) | (6,231 | ) | |||||||
Proceeds from annuity contracts | 8,018 | 6,150 | 6,008 | |||||||||
Surrenders of annuity contracts | (7,195 | ) | (7,416 | ) | (16,036 | ) | ||||||
Other | 6 | 1 | — | |||||||||
Net cash provided by financing activities | 9,898 | 51,349 | 6,274 | |||||||||
Net (decrease) increase in cash and cash equivalents | (194,058 | ) | 158,589 | 32,514 | ||||||||
Cash and cash equivalents, beginning of year | 240,153 | 81,564 | 49,050 | |||||||||
Cash and cash equivalents, end of year | $ | 46,095 | 240,153 | 81,564 | ||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 66,801 | $ | 68,780 | $ | 24,790 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||
Depreciation and amortization | 15,500 | 9,643 | 7,367 | |||||||||
Net amortization of investments | 4,511 | 744 | 952 | |||||||||
Provision (reversal of provision) for doubtful receivables | (5,200 | ) | 10,489 | (1,180 | ) | |||||||
Deferred tax expense (benefit) | 3,054 | (4,326 | ) | (4,388 | ) | |||||||
Net realized investment (gains) losses | (2,532 | ) | (614 | ) | 13,940 | |||||||
Net unrealized (gains) losses on trading securities | (5,433 | ) | (10,497 | ) | 21,064 | |||||||
Share-based compensation | 1,894 | 3,924 | 3,268 | |||||||||
Proceeds from trading securities sold | ||||||||||||
Equity securities | 4,871 | 4,240 | 24,640 | |||||||||
Acquisition of securities in trading portfolio | ||||||||||||
Equity securities | (6,506 | ) | (6,132 | ) | (10,737 | ) | ||||||
Gain on sale of property and equipment (Increase) decrease in assets | 6 | — | 11 | |||||||||
Premium and other receivables, net | (47,648 | ) | (46,263 | ) | (32,210 | ) | ||||||
Deferred policy acquisition costs and value of business acquired | (6,169 | ) | (13,570 | ) | (9,108 | ) | ||||||
Other deferred taxes | 6,658 | 900 | (8,337 | ) | ||||||||
Other assets | 5,223 | (1,593 | ) | (933 | ) | |||||||
Increase (decrease) in liabilities | ||||||||||||
Claim liabilities | (236 | ) | 36,736 | (30,120 | ) | |||||||
Liability for future policy benefits | 13,904 | 15,074 | 13,414 | |||||||||
Unearned premiums | (10,001 | ) | (1,799 | ) | (22,458 | ) | ||||||
Policyholder deposits | 733 | 1,665 | 1,902 | |||||||||
Liability to FEHBP | 2,016 | 1,845 | (10,181 | ) | ||||||||
Accounts payable and accrued liabilities | (3,790 | ) | 3,339 | 15,322 | ||||||||
Net cash provided by (used in) operating activities | 37,656 | 72,585 | (2,982 | ) | ||||||||
6
2010 | 2009 | 2008 | ||||||||||
Cash flows from investing activities | ||||||||||||
Proceeds from investments sold or matured | ||||||||||||
Securities available for sale | ||||||||||||
Fixed maturities sold | $ | 121,968 | $ | 241,368 | $ | 228,436 | ||||||
Fixed maturities matured | 175,483 | 189,144 | 91,732 | |||||||||
Equity securities sold | 41,802 | 9,877 | 4,450 | |||||||||
Securities held to maturity | ||||||||||||
Fixed maturities matured | 2,587 | 7,819 | 22,875 | |||||||||
Acquisition of investments | ||||||||||||
Securities available for sale | ||||||||||||
Fixed maturities | (337,569 | ) | (459,705 | ) | (505,896 | ) | ||||||
Equity securities | (26,957 | ) | (3,684 | ) | (19,636 | ) | ||||||
Securities held to maturity | ||||||||||||
Fixed maturities | (1,050 | ) | (1,502 | ) | (554 | ) | ||||||
Net (disbursements) repayment for policy loans | 53 | (489 | ) | 30 | ||||||||
Capital expenditures | (19,222 | ) | (18,706 | ) | (22,411 | ) | ||||||
Net cash used in investing activities | (42,905 | ) | (35,878 | ) | (200,974 | ) | ||||||
Cash flows from financing activities | ||||||||||||
Repurchase and retirement of common stock | (6,235 | ) | (32,355 | ) | (7,645 | ) | ||||||
Change in outstanding checks in excess of bank balances | 281 | (5,645 | ) | 18,353 | ||||||||
Repayments of long-term borrowings | (26,367 | ) | (1,640 | ) | (1,639 | ) | ||||||
Net proceeds from short-term borrowings | 15,575 | — | — | |||||||||
Proceeds from long-term borrowings | 25,000 | — | — | |||||||||
Proceeds from annuity contracts | 10,691 | 4,307 | 8,018 | |||||||||
Surrenders of annuity contracts | (9,051 | ) | (7,093 | ) | (7,195 | ) | ||||||
Other | — | — | 6 | |||||||||
Net cash provided by (used in) financing activities | 9,894 | (42,426 | ) | 9,898 | ||||||||
Net increase (decrease) in cash and cash equivalents | 4,645 | (5,719 | ) | (194,058 | ) | |||||||
Cash and cash equivalents | ||||||||||||
Beginning of year | 40,376 | 46,095 | 240,153 | |||||||||
End of year | $ | 45,021 | $ | 40,376 | $ | 46,095 | ||||||
7
Nature of Business |
Triple-S Management Corporation (the Company or TSM) was incorporated under the laws of the Commonwealth of Puerto Rico on January 17, 1997 to engage, among other things, as the holding company of entities primarily involved in the insurance industry. | ||
The Company has the following wholly owned subsidiaries that are subject to the regulations of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of Insurance): (1) Triple-S Salud, Inc. | ||
The Company also has two other wholly owned subsidiaries, Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TC). ISI is mainly engaged in providing data processing services to the Company and its subsidiaries. TC is mainly engaged as a third-party administrator for |
The contract with the Commonwealth of Puerto Rico (the government of Puerto Rico) that allowed us to provide services to Medicaid enrollees, expired by its own terms on September 30, 2010, thus effective October 1st, 2010 we no longer provide services to these enrollees. As a result, TC will cease to exist during 2011. |
A substantial majority of the Company’s business activity is with insurers located throughout Puerto Rico, and as such, the Company is subject to the risks associated with the Puerto Rico economy. |
Significant Accounting Policies | ||
The following are the significant accounting policies followed by the Company and its subsidiaries: |
Basis of Presentation |
The accompanying consolidated financial statements have been prepared in conformity with |
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates |
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The most significant items on the consolidated balance sheets that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the near future are the assessment of other-than-temporary |
8
impairments, allowance for doubtful receivables, deferred policy acquisition costs and value of business acquired, claim liabilities, the liability for future policy benefits, and liability for pension benefits. As additional information becomes available (or actual amounts are determinable), the recorded estimates |
Reclassifications |
Certain amounts in the |
Cash Equivalents |
The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of |
Investments |
Investment in securities at December 31, |
Trading and available-for-sale securities are recorded at fair value. The fair values of debt securities (both available for sale and held to maturity investments) and equity securities are based on quoted |
market prices |
Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in |
If a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed |
9
maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings. For impaired fixed maturity securities that the Company does not intend to sell or it is more likely than not that such securities will not have to be sold, but the Company expects not to fully recover the amortized cost basis, the credit component of the other-than temporary impairment is recognized in other-than-temporary impairment losses recognized in earnings in the Company’s consolidated statements of earnings and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income. Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income. |
The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of acquisition. |
The unrealized gains or losses on the Company’s equity securities classified as available-for-sale are included in accumulated other comprehensive income as a separate component of stockholders’ equity, unless the decline in value is deemed to be other-than-temporary and the Company does not have the intent and ability to hold such equity securities until their full cost can be recovered, in which case such equity securities are written down to fair value and the loss is charged to other-than-temporary impairment losses recognized in earnings. |
A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be |
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. |
The Company regularly invests in mortgaged-backed securities and other securities subject to prepayment and call risk. Significant changes in prevailing interest rates may adversely affect the timing and amount of cash flows on such securities. In addition, the amortization of market premium and accretion of market discount for mortgaged-backed securities is based on historical experience and estimates of future payment speeds on the underlying mortgage loans. Actual prepayment speeds will differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods. |
10
Revenue Recognition |
Managed Care | |||
Subscriber premiums on the managed care business are billed in advance of their respective coverage |
Managed care premiums are billed in the month prior to the effective date of the policy with a grace period of up to two months. If the insured fails to pay, the policy can be canceled at the end of the grace period at the option of the Company. Managed care premiums are reported as earned when due. | |||
Premiums for the Medicare Advantage (MA) business are based on a bid contract with the Centers for Medicare and Medicaid Services (CMS) and billed in advance of the coverage period. MA contracts provide for a risk factor to adjust premiums paid for members that represent a higher or lower risk to the Company. Retroactive rate adjustments are made periodically based on the aggregate health status and risk scores of the Company’s MA membership. These risk adjustments are evaluated quarterly based on actuarial estimates. Actual results could differ from these estimates. As additional information becomes available, the recorded estimate | |||
Administrative service fees include revenue from certain groups which |
11
Life and Accident and Health Insurance | |||
Premiums on life insurance policies are billed in advance of their respective coverage period and the related revenue is recorded as earned when due. Premiums on accident and health and other short-term policies are recognized as earned primarily on a pro rata basis over the contract period. Premiums on credit life policies are recognized as earned in proportion to the amounts of insurance in-force. Revenues from universal life and interest sensitive policies represent amounts assessed against policyholders, including mortality charges, surrender charges actually paid, and earned policy service fees. The revenues for limited payment contracts are recognized over the period that benefits are provided rather than on collection of premiums. | |||
Property and Casualty Insurance | |||
Premiums on property and casualty contracts are billed in advance of their respective coverage period and they are recognized as earned on a pro rata basis over the policy term. The portion of premiums related to the period prior to the end of coverage is recorded in the consolidated balance sheets as unearned premiums and is transferred to premium revenue as earned. |
Allowance for Doubtful Receivables | |||
The allowance for doubtful receivables is based on management’s evaluation of the aging of accounts and such other factors, which deserve current recognition. Actual results could differ from these estimates. Receivables are charged against their respective allowance accounts when deemed to be uncollectible. | |||
Deferred Policy Acquisition Costs and Value of Business Acquired | |||
Certain direct costs for acquiring life and accident and health, and property and casualty insurance business are deferred by the Company. |
In the life and accident and health business deferred acquisition costs consist of commissions and certain expenses related to the production of life, annuity, accident and health, and credit business. In the event that future premiums, in combination with policyholder reserves and anticipated investment income, could not provide for all future maintenance and settlement expenses, the amount of deferred policy acquisition costs would be reduced to provide for such amount. The related amortization is provided over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue to expected total premium revenue to be received over the life of the policies. Interest is considered in the amortization of deferred policy acquisition cost and value of business acquired. For these contracts |
of each contract, 5.4% for 2010 and 2009, and, in the case of the value of business acquired, at the time of any acquisition. For |
12
costs expected to be incurred as the premium is earned. Costs deferred on universal life and interest sensitive products are amortized as a level percentage of the present value of anticipated gross profits from investment yields, mortality, expenses and surrender charges. Estimates used are based on the Company’s experience as adjusted to provide for possible adverse deviations. These estimates are periodically reviewed and compared with actual experience. When it is determined that future expected experience differs significantly from that assumed, the estimates are revised for current and future issues. |
The value assigned to the insurance in-force of TSV at the date of the acquisition is amortized using methods similar to those used to amortize the deferred policy acquisition costs of the life and accident and health business. |
In the property and casualty business, acquisition costs consist of commissions incurred during the production of business and are deferred and amortized ratably over the terms of the policies. | |||
Property and Equipment |
Property and equipment are stated at cost. Maintenance and repairs are expensed as incurred. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Costs of computer equipment, programs, systems, installations, and enhancements are capitalized and amortized straight-line over their estimated useful lives. The following is a summary of the estimated useful lives of the Company’s property and equipment: |
Estimated | |||
Asset | |||
Buildings Building improvements Leasehold improvements Office furniture Computer software Computer equipment, equipment, and automobiles | 20 to 50 years | ||
3 to 5 years | |||
Shorter of estimated useful life or lease term | |||
5 years | |||
3 to 10 years | |||
3 years |
Software Development Costs |
Long-Lived Assets |
Long-lived |
13
disposed of would be separately presented in the balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheets. |
Goodwill and intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. For goodwill, the impairment determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price | |||
Claim Liabilities |
Claim liabilities for managed care policies represent the estimated amounts to be paid to providers based on experience and accumulated statistical data. Loss-adjustment expenses related to such claims are currently accrued based on estimated future expenses necessary to process such claims. |
Future Policy Benefits |
The liability for future policy benefits has been computed using the level-premium method based on estimated future investment yield, mortality, morbidity and withdrawal experience. The interest rate assumption |
14
principally on select and ultimate tables in common usage in the industry. Withdrawals have been determined principally based on industry tables, modified by Company’s experience. | ||
Policyholder Deposits |
Amounts received for annuity contracts are considered deposits and recorded as a | |||
Reinsurance |
In the normal course of business, the insurance-related subsidiaries seek to limit their exposure that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. |
Reinsurance premiums, commissions, and expense reimbursements, related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and |
the terms of the reinsurance contracts. Accordingly, reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the remaining contract period in proportion to the amount of insurance protection provided. |
Premiums ceded and recoveries of losses and loss-adjustment expenses have been reported as a reduction of premiums earned and losses and loss-adjustment expenses incurred, respectively. Commission and expense allowances received by | |||
Derivative Instruments and Hedging Activities |
The Company |
On the date the derivative contract designated as a hedging instrument is entered into, the Company designates the instrument as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair-value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge), a foreign currency fair-value or cash-flow hedge (foreign-currency hedge), or a hedge of a net investment in a foreign operation. For all hedging relationships the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in |
15
offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income to the extent that the derivative is effective as hedge, until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value |
hedge or a cash-flow hedge. However, if a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within other comprehensive income. The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a fair-value hedge or a cash-flow hedge is reported in earnings. Changes in the fair value of derivative trading instruments are reported in current period earnings. |
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is de-designated as a hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. |
In all situations in which hedge accounting is discontinued and the derivative is retained, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the Company no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Company removes any asset or liability that was recorded pursuant to recognition of the firm commitment from the balance sheet, and recognizes any gain or loss in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting if not already done and recognizes immediately in earnings gains and losses that were accumulated in other comprehensive income. | |||
Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. |
16
The Company records any interest and penalties related to unrecognized tax benefits within the operating expenses in | |||
Insurance-Related Assessments |
The Company | |||
Commitments and Contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related liability. | |||
Share-Based Compensation |
Share-based compensation | |||
Earnings Per Share |
Basic earnings per share excludes dilution and is computed by dividing net income available to all classes of common stockholders by the weighted average number of all classes of common shares outstanding for the period, excluding |
The fair value information of financial instruments in the accompanying consolidated financial statements was determined as follows: |
Cash and Cash Equivalents | |||
The carrying amount approximates fair value because of the short-term nature of such instruments. | |||
Investment in Securities | |||
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 | |||
17
Policy Loans | |||
Policy loans have no stated maturity dates and are part of the related insurance contract. The carrying amount of policy loans approximates fair value because their interest rate is reset periodically in accordance with current market rates. | |||
Receivables, Accounts Payable, and Accrued Liabilities | |||
The carrying amount of receivables, accounts payable, and accrued liabilities approximates fair value because they mature and should be collected or paid within 12 months after December 31. |
Policyholder Deposits | |||
The fair value of policyholder deposits is the amount payable on demand at the reporting date, and accordingly, the carrying value amount approximates fair value. | |||
Short-term Borrowings | |||
The carrying amount of securities sold under agreements to repurchase approximates fair value due to its short-term nature. | |||
g. | Long-term Borrowings | ||
The carrying amounts and fair value of the Company’s long-term borrowings are as follows: |
2008 | 2007 | |||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | 2010 | 2009 | |||||||||||||||||||||||||||
amount | value | amount | value | Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||
Amount | Value | Amount | Value | |||||||||||||||||||||||||||||
Loans payable to bank | $ | 24,307 | 24,307 | 25,946 | 25,946 | 21,027 | 21,027 | 22,667 | 22,667 | |||||||||||||||||||||||
6.3% senior unsecured notes payable | 50,000 | 46,250 | 50,000 | 47,625 | 50,000 | 49,625 | 50,000 | 48,000 | ||||||||||||||||||||||||
6.6% senior unsecured notes payable | 60,000 | 55,800 | 60,000 | 57,825 | 35,000 | 34,388 | 60,000 | 57,420 | ||||||||||||||||||||||||
6.7% senior unsecured notes payable | 35,000 | 34,059 | 35,000 | 33,950 | 35,000 | 35,000 | 35,000 | 33,320 | ||||||||||||||||||||||||
1.96% repurchase agreement | 25,000 | 24,575 | — | — | ||||||||||||||||||||||||||||
$ | 166,027 | $ | 164,615 | $ | 167,667 | $ | 161,407 | |||||||||||||||||||||||||
Totals | $ | 169,307 | 160,416 | 170,946 | 165,346 | |||||||||||||||||||||||||||
The carrying amount of the loans payable to bank approximates fair value due to its floating interest-rate structure. The fair value of the senior unsecured notes payable and the repurchase agreement was determined using market quotations. Additional information pertinent to | |||
Derivative Instruments |
Current market pricing models were used to estimate fair value of |
18
Recently Issued Accounting Standards | |||
In |
In October 2010, the FASB issued guidance to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This guidance specifies that the following costs incurred in the acquisition of new and renewal contracts should be capitalized: (1) Incremental direct costs of contract acquisition. Incremental direct costs are those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. (2) Certain costs related directly to the following acquisition activities performed by the insurer for the contract: a. Underwriting, b. Policy issuance and processing, c. Medical and inspection, and d. Sales force contract selling. Advertising costs should be included in deferred acquisition costs only if the capitalization criteria in the direct-response advertising guidance inSubtopic 340-20, Other Assets and Deferred Costs— Capitalized Advertising Costs, are met. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2011. The Company is currently evaluating the impact the adoption of this guidance will have on its financial position or results of operations. |
In December 2010, the FASB issued guidance to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. We do not expect the adoption of this guidance to have a significant impact on our financial position or results of operations. |
In December 2010, the FASB issued guidance to require a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period for all the periods presented. This guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance is effective for business combinations for which the acquisition dates is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We expect to adopt this guidance during 2011 as part of our disclosures related to our business combination. Additional information pertinent to the business combination is included in note 28. |
There were no other new accounting pronouncements issued that had or are expected to have a material impact on | |||
19
Investment in Securities | ||
The amortized cost for debt and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale, and held-to-maturity securities by major security type and class of security at December 31, |
2008 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
cost | gains | losses | fair value | |||||||||||||
Trading securities: | ||||||||||||||||
Equity securities | $ | 40,847 | 2,781 | (11,444 | ) | 32,184 |
2010 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Trading securities Equity securities | $ | 43,832 | $ | 10,738 | $ | (3,471 | ) | $ | 51,099 |
2007 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
cost | gains | losses | fair value | |||||||||||||
Trading securities: | ||||||||||||||||
Equity securities | $ | 54,757 | 15,170 | (2,769 | ) | 67,158 |
2009 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Trading securities Equity securities | $ | 42,075 | $ | 7,064 | $ | (5,230 | ) | $ | 43,909 |
20
2008 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
cost | gains | losses | fair value | |||||||||||||
Securities available for sale: | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 422,038 | 7,991 | (220 | ) | 429,809 | ||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 78,024 | 11,961 | — | 89,985 | ||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | 121,934 | 448 | (6,077 | ) | 116,305 | |||||||||||
Municipal securities | 31,415 | 390 | (6 | ) | 31,799 | |||||||||||
Obligations of states of the United States and political subdivisions of the states | 4,196 | 36 | (110 | ) | 4,122 | |||||||||||
Corporate bonds | 100,745 | 1,625 | (7,399 | ) | 94,971 | |||||||||||
Mortgage-backed securities | 17,420 | 425 | (3 | ) | 17,842 | |||||||||||
Collateralized mortgage obligations | 103,891 | 1,287 | (2,327 | ) | 102,851 | |||||||||||
Total fixed maturities | 879,663 | 24,163 | (16,142 | ) | 887,684 | |||||||||||
Equity securities | 70,060 | 1,752 | (3,183 | ) | 68,629 | |||||||||||
Total | $ | 949,723 | 25,915 | (19,325 | ) | 956,313 | ||||||||||
2010 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities available for sale | ||||||||||||||||
Fixed maturities | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 124,735 | $ | 6,650 | $ | — | $ | 131,385 | ||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 47,427 | 5,451 | — | 52,878 | ||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | 117,519 | 3,115 | (10 | ) | 120,624 | |||||||||||
Municipal securities | 272,383 | 3,979 | (2,798 | ) | 273,564 | |||||||||||
Corporate bonds | 102,184 | 7,698 | (250 | ) | 109,632 | |||||||||||
Residential mortgage-backed securities | 12,560 | 801 | (1 | ) | 13,360 | |||||||||||
Collateralized mortgage obligations | 271,149 | 6,158 | (1,164 | ) | 276,143 | |||||||||||
Total fixed maturities | 947,957 | 33,852 | (4,223 | ) | 977,586 | |||||||||||
Equity securities | ||||||||||||||||
Common stocks | 901 | 3,430 | — | 4,331 | ||||||||||||
Preferred stocks | 4,298 | 68 | (737 | ) | 3,629 | |||||||||||
Perpetual preferred stocks | 1,000 | — | (94 | ) | 906 | |||||||||||
Mutual funds | 41,551 | 6,632 | (310 | ) | 47,873 | |||||||||||
Total equity securities | 47,750 | 10,130 | (1,141 | ) | 56,739 | |||||||||||
Total | $ | 995,707 | $ | 43,982 | $ | (5,364 | ) | $ | 1,034,325 | |||||||
21
2007 | 2009 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Estimated | ||||||||||||||||||||||||||||
Amortized | unrealized | unrealized | Estimated | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
cost | gains | losses | fair value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||||||||||
Fixed maturities | ||||||||||||||||||||||||||||||||
Obligations of government-sponsored enterprises | $ | 479,525 | 7,311 | (238 | ) | 486,598 | $ | 252,513 | $ | 2,240 | $ | (3,325 | ) | $ | 251,428 | |||||||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 85,396 | 3,034 | — | 88,430 | 48,190 | 3,148 | — | 51,338 | ||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | 75,951 | 254 | (1,176 | ) | 75,029 | 154,754 | 3,113 | (1,919 | ) | 155,948 | ||||||||||||||||||||||
Municipal securities | 15,223 | 228 | (16 | ) | 15,435 | 107,441 | 1,117 | (1,851 | ) | 106,707 | ||||||||||||||||||||||
Obligations of states of the United States and political subdivisions of the states | 2,116 | 19 | (2 | ) | 2,133 | |||||||||||||||||||||||||||
Corporate bonds | 86,061 | 246 | (2,717 | ) | 83,590 | 102,547 | 3,546 | (728 | ) | 105,365 | ||||||||||||||||||||||
Mortgage-backed securities | 14,138 | 75 | (85 | ) | 14,128 | |||||||||||||||||||||||||||
Residential mortgage-backed securities | 16,605 | 677 | (1 | ) | 17,281 | |||||||||||||||||||||||||||
Collateralized mortgage obligations | 58,126 | 416 | (256 | ) | 58,286 | 229,312 | 4,237 | (2,639 | ) | 230,910 | ||||||||||||||||||||||
Total fixed maturities | 911,362 | 18,078 | (10,463 | ) | 918,977 | |||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||
Common stocks | 4,074 | 3,435 | — | 7,509 | ||||||||||||||||||||||||||||
Preferred stocks | 4,000 | — | (1,325 | ) | 2,675 | |||||||||||||||||||||||||||
Perpetual preferred stocks | 2,849 | — | (270 | ) | 2,579 | |||||||||||||||||||||||||||
Mutual funds | 50,608 | 4,150 | (2,832 | ) | 51,926 | |||||||||||||||||||||||||||
Total fixed maturities | 816,536 | 11,583 | (4,490 | ) | 823,629 | |||||||||||||||||||||||||||
Equity securities | 66,747 | 7,354 | (3,051 | ) | 71,050 | |||||||||||||||||||||||||||
Total equity securities | 61,531 | 7,585 | (4,427 | ) | 64,689 | |||||||||||||||||||||||||||
Total | $ | 883,283 | 18,937 | (7,541 | ) | 894,679 | $ | 972,893 | $ | 25,663 | $ | (14,890 | ) | $ | 983,666 | |||||||||||||||||
2008 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
cost | gains | losses | fair value | |||||||||||||
Securities held to maturity: | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 9,082 | 240 | — | 9,322 | |||||||||||
Mortgage-backed securities | 1,749 | — | (7 | ) | 1,742 | |||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 1,488 | 379 | — | 1,867 | ||||||||||||
Corporate bonds | 8,698 | 698 | — | 9,396 | ||||||||||||
Certificates of deposit | 736 | — | — | 736 | ||||||||||||
Total | $ | 21,753 | 1,317 | (7 | ) | 23,063 | ||||||||||
2010 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities held to maturity | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 1,793 | $ | 151 | $ | — | $ | 1,944 | ||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalties | 1,478 | 203 | — | 1,681 | ||||||||||||
Corporate bonds | 9,443 | 414 | — | 9,857 | ||||||||||||
Residential mortgage-backed securities | 660 | 41 | — | 701 | ||||||||||||
Certificates of deposits | 1,241 | — | — | 1,241 | ||||||||||||
$ | 14,615 | $ | 809 | $ | — | 15,424 | ||||||||||
22
2007 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | Estimated | |||||||||||||
cost | gains | losses | fair value | |||||||||||||
Securities held to maturity: | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 31,507 | 227 | (20 | ) | 31,714 | ||||||||||
Mortgage-backed securities | 3,134 | — | (48 | ) | 3,086 | |||||||||||
Corporate bonds | 8,348 | — | (1 | ) | 8,347 | |||||||||||
Certificates of deposit | 702 | — | — | 702 | ||||||||||||
Total | $ | 43,691 | 227 | (69 | ) | 43,849 | ||||||||||
2008 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Estimated | unrealized | Estimated | unrealized | Estimated | Unrealized | |||||||||||||||||||
fair value | losses | fair value | losses | fair value | losses | |||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
Obligations of government-sponsored enterprises | $ | 16,550 | (191 | ) | 2,956 | (29 | ) | 19,506 | (220 | ) | ||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | 79,045 | (5,230 | ) | 8,932 | (847 | ) | 87,977 | (6,077 | ) | |||||||||||||||
Municipal securities | — | — | 1,276 | (6 | ) | 1,276 | (6 | ) | ||||||||||||||||
Obligations of states of the United States and political subdivisions of the states | 2,223 | (75 | ) | 183 | (35 | ) | 2,406 | (110 | ) | |||||||||||||||
Corporate bonds | 31,324 | (2,688 | ) | 29,044 | (4,711 | ) | 60,368 | (7,399 | ) | |||||||||||||||
Mortgage-backed securities | 1,374 | (2 | ) | 36 | (1 | ) | 1,410 | (3 | ) | |||||||||||||||
Collateralized mortgage obligations | 5,797 | (2,327 | ) | — | — | 5,797 | (2,327 | ) | ||||||||||||||||
Total fixed maturities | 136,313 | (10,513 | ) | 42,427 | (5,629 | ) | 178,740 | (16,142 | ) | |||||||||||||||
Equity securities | 18,571 | (2,190 | ) | 9,651 | (993 | ) | 28,222 | (3,183 | ) | |||||||||||||||
Total for securities available for sale | $ | 154,884 | (12,703 | ) | 52,078 | (6,622 | ) | 206,962 | (19,325 | ) | ||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
Mortgage-backed securities | $ | — | — | 1,741 | (7 | ) | 1,741 | (7 | ) | |||||||||||||||
2009 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities held to maturity | ||||||||||||||||
Obligations of government-sponsored enterprises | $ | 925 | $ | 6 | $ | — | $ | 931 | ||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalties | 3,786 | 132 | — | 3,918 | ||||||||||||
Corporate bonds | 9,063 | 534 | — | 9,597 | ||||||||||||
Residential mortgage-backed securities | 1,256 | 25 | (1 | ) | 1,280 | |||||||||||
Certificates of deposits | 764 | — | — | 764 | ||||||||||||
$ | 15,794 | $ | 697 | $ | (1 | ) | 16,490 | |||||||||
2010 | ||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
Estimated | Unrealized | Number of | Estimated | Unrealized | Number of | Estimated | Unrealized | Number of | ||||||||||||||||||||||||||||
Fair Value | Loss | Securities | Fair Value | Loss | Securities | Fair Value | Loss | Securities | ||||||||||||||||||||||||||||
Securites available for sale | ||||||||||||||||||||||||||||||||||||
Fixed maturities | ||||||||||||||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | $ | 2,483 | $ | (10 | ) | 5 | $ | — | $ | — | — | $ | 2,483 | $ | (10 | ) | 5 | |||||||||||||||||||
Municipal securities | 105,280 | (2,652 | ) | 53 | 692 | (146 | ) | 1 | 105,972 | (2,798 | ) | 54 | ||||||||||||||||||||||||
Corporate bonds | 5,828 | (250 | ) | 3 | — | — | — | 5,828 | (250 | ) | 3 | |||||||||||||||||||||||||
Residential mortgage-backed securities | — | — | — | 36 | (1 | ) | 1 | 36 | (1 | ) | 1 | |||||||||||||||||||||||||
Collateralized mortgage obligations | 77,417 | (1,144 | ) | 12 | 1,953 | (20 | ) | 1 | 79,370 | (1,164 | ) | 13 | ||||||||||||||||||||||||
Total fixed maturities | 191,008 | (4,056 | ) | 73 | 2,681 | (167 | ) | 3 | 193,689 | (4,223 | ) | 76 | ||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||
Preferred stocks | — | — | — | 3,263 | (737 | ) | 1 | 3,263 | (737 | ) | 1 | |||||||||||||||||||||||||
Perpetual preferred stocks | — | — | — | 906 | (94 | ) | 1 | 906 | (94 | ) | 1 | |||||||||||||||||||||||||
Mutual funds | 2,337 | (310 | ) | 2 | — | — | — | 2,337 | (310 | ) | 2 | |||||||||||||||||||||||||
Total equity securities | 2,337 | (310 | ) | 2 | 4,169 | (831 | ) | 2 | 6,506 | (1,141 | ) | 4 | ||||||||||||||||||||||||
Total for securities available for sale | $ | 193,345 | $ | (4,366 | ) | 75 | $ | 6,850 | $ | (998 | ) | 5 | $ | 200,195 | $ | (5,364 | ) | 80 | ||||||||||||||||||
23
2007 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated | unrealized | Estimated | unrealized | Estimated | unrealized | Estimated | Unrealized | Number of | Estimated | Unrealized | Number of | Estimated | Unrealized | Number of | ||||||||||||||||||||||||||||||||||||||||||||||
fair value | losses | fair value | losses | fair value | losses | Fair Value | Loss | Securities | Fair Value | Loss | Securities | Fair Value | Loss | Securities | ||||||||||||||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securites available for sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Obligations of government- sponsored enterprises | $ | 12,875 | (134 | ) | 34,957 | (104 | ) | 47,832 | (238 | ) | $ | 110,602 | $ | (2,264 | ) | 21 | $ | 25,468 | $ | (1,061 | ) | 5 | $ | 136,070 | $ | (3,325 | ) | 26 | ||||||||||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | — | — | 28,841 | (1,176 | ) | 28,841 | (1,176 | ) | 12,944 | (201 | ) | 10 | 58,866 | (1,718 | ) | 22 | 71,810 | (1,919 | ) | 32 | ||||||||||||||||||||||||||||||||||||||||
Municipal securities | 1,259 | (16 | ) | — | — | 1,259 | (16 | ) | 62,292 | (1,841 | ) | 39 | 173 | (10 | ) | 1 | 62,465 | (1,851 | ) | 40 | ||||||||||||||||||||||||||||||||||||||||
Obligations of states of the United States and political subdivisions of the states | 1,214 | (2 | ) | — | — | 1,214 | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 56,185 | (1,398 | ) | 10,654 | (1,319 | ) | 66,839 | (2,717 | ) | 10,997 | (215 | ) | 4 | 7,975 | (513 | ) | 6 | 18,972 | (728 | ) | 10 | |||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | — | — | 8,265 | (85 | ) | 8,265 | (85 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | — | — | — | 36 | (1 | ) | 1 | 36 | (1 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | 6,718 | (104 | ) | 16,528 | (152 | ) | 23,246 | (256 | ) | 101,265 | (1,732 | ) | 21 | 7,171 | (907 | ) | 10 | 108,436 | (2,639 | ) | 31 | |||||||||||||||||||||||||||||||||||||||
Total fixed maturities | 298,100 | (6,253 | ) | 95 | 99,689 | (4,210 | ) | 45 | 397,789 | (10,463 | ) | 140 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stocks | — | — | — | 2,675 | (1,325 | ) | 1 | 2,675 | (1,325 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Perpetual preferred stocks | — | — | — | 730 | (270 | ) | 1 | 730 | (270 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mutual funds | 9,994 | (907 | ) | 4 | 21,667 | (1,925 | ) | 15 | 31,661 | (2,832 | ) | 19 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total fixed maturities | 78,251 | (1,654 | ) | 99,245 | (2,836 | ) | 177,496 | (4,490 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 14,454 | (1,408 | ) | 17,911 | (1,643 | ) | 32,365 | (3,051 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total equity securities | 9,994 | (907 | ) | 4 | 25,072 | (3,520 | ) | 17 | 35,066 | (4,427 | ) | 21 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for securities available for sale | $ | 92,705 | (3,062 | ) | 117,156 | (4,479 | ) | 209,861 | (7,541 | ) | $ | 308,094 | $ | (7,160 | ) | 99 | $ | 124,761 | $ | (7,730 | ) | 62 | $ | 432,855 | $ | (14,890 | ) | 161 | ||||||||||||||||||||||||||||||||
Securities held to maturity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | — | — | — | $ | 55 | $ | (1 | ) | 1 | $ | 55 | $ | (1 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Obligations of government- sponsored enterprises | $ | — | — | 10,831 | (20 | ) | 10,831 | (20 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | — | — | 3,086 | (48 | ) | 3,086 | (48 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | — | 8,347 | (1 | ) | 8,347 | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total for securities held to maturity | $ | — | — | 22,264 | (69 | ) | 22,264 | (69 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
The Company regularly monitors and evaluates the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes |
reflect adjustments to the effective yield. | ||||
24
• | Identification and evaluation of securities that have possible indications of other-than- temporary impairment, which includes an analysis of all investments with gross unrealized investments losses that represent 20% or more of their cost and all investments with an unrealized loss greater than $50. | ||
• | Review and evaluation of any other security based on the investee’s current financial condition, liquidity, near-term recovery prospects, implications of rating agency actions, the outlook for the business sectors in which the investee operates and other factors. This evaluation is in addition to the evaluation of those securities with a gross unrealized investment loss representing 20% or more of cost. | ||
• | Consideration of evidential matter, including an evaluation of factors or triggers that may or may not cause individual investments to qualify as having other-than-temporary impairments; and | ||
• | Determination of the status of each analyzed security as other-than-temporary or not, with documentation of the rationale for the decision. |
Obligations of | ||
Corporate | ||
Residential Mortgage-Backed Securities and Collateralized Mortgage |
25
least senior (or most junior), 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. Because the decline in fair value is attributable to changes in interest rates and not credit | ||
Perpetual Preferred Stocks:Because this security has experienced a significant improvement during the past year, the issuers’ capital ratios are above regulatory levels, the Company does not have the intent to sell the investment, and the Company has the intent and ability to hold the investments until a market price recovery, this investment is not considered other-than-temporarily impaired. | ||
Mutual Funds:Most of the unrealized losses in the Company’s investment in |
26 |
Triple-S Management Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 (dollar amounts in thousands, except per share data) |
Maturities of investment securities classified as available for sale and held to maturity were as follows at December 31, |
Amortized | Estimated | Amortized | Estimated | |||||||||||||
cost | fair value | Cost | Fair Value | |||||||||||||
Securities available for sale: | ||||||||||||||||
Securities available for sale | ||||||||||||||||
Due in one year or less | $ | 5,423 | 5,423 | $ | 10,288 | $ | 10,466 | |||||||||
Due after one year through five years | 74,981 | 70,489 | 92,110 | 95,731 | ||||||||||||
Due after five years through ten years | 245,224 | 252,822 | 203,723 | 213,045 | ||||||||||||
Due after ten years | 432,724 | 438,257 | 358,127 | 368,841 | ||||||||||||
Residential mortgage-backed securities | 12,560 | 13,360 | ||||||||||||||
Collateralized mortgage obligations | 103,891 | 102,851 | 271,149 | 276,143 | ||||||||||||
Mortgage-backed securities | 17,420 | 17,842 | ||||||||||||||
$ | 947,957 | $ | 977,586 | |||||||||||||
$ | 879,663 | 887,684 | ||||||||||||||
Securities held to maturity: | ||||||||||||||||
Securities held to maturity | ||||||||||||||||
Due in one year or less | $ | 1,601 | 1,606 | $ | 1,241 | $ | 1,241 | |||||||||
Due after one year through five years | 11,322 | 12,058 | 9,443 | 9,857 | ||||||||||||
Due after five years through ten years | 3,799 | 3,850 | ||||||||||||||
Due after ten years | 3,282 | 3,807 | 3,271 | 3,625 | ||||||||||||
Mortgage-backed securities | 1,749 | 1,742 | ||||||||||||||
Residential mortgage-backed securities | 660 | 701 | ||||||||||||||
$ | 14,615 | $ | 15,424 | |||||||||||||
$ | 21,753 | 23,063 | ||||||||||||||
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 | ||
27
Information regarding realized and unrealized gains and losses from investments for the years ended December 31, |
2008 | 2007 | 2006 | 2010 | 2009 | 2008 | |||||||||||||||||||
Realized gains (losses): | ||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
Realized gains (losses) | ||||||||||||||||||||||||
Fixed maturity securities | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Gross gains from sales | $ | 1,876 | 1,208 | — | $ | 1,947 | $ | 5,323 | $ | 1,876 | ||||||||||||||
Gross losses from sales | (225 | ) | (1,797 | ) | (687 | ) | (505 | ) | (4 | ) | (225 | ) | ||||||||||||
Gross losses from other-than-temporary impairments | (3,872 | ) | — | — | (95 | ) | (1,711 | ) | (3,872 | ) | ||||||||||||||
Total fixed maturity securities | 1,347 | 3,608 | (2,221 | ) | ||||||||||||||||||||
Total debt securities | (2,221 | ) | (589 | ) | (687 | ) | ||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||
Gross gains from sales | 3,358 | 8,873 | 4,318 | 1,083 | 717 | 3,358 | ||||||||||||||||||
Gross losses from sales | (3,132 | ) | (1,558 | ) | (1,488 | ) | (961 | ) | (1,381 | ) | (3,160 | ) | ||||||||||||
Gross losses from other-than-temporary impairments | (28 | ) | — | — | ||||||||||||||||||||
198 | 7,315 | 2,830 | 122 | (664 | ) | 198 | ||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Gross gains from sales | 881 | 292 | 792 | 5,051 | 3,468 | 881 | ||||||||||||||||||
Gross losses from sales | (176 | ) | — | — | (1,086 | ) | (391 | ) | (176 | ) | ||||||||||||||
Gross losses from other-than-temporary impairments | (12,622 | ) | (1,087 | ) | (2,098 | ) | (2,902 | ) | (5,407 | ) | (12,622 | ) | ||||||||||||
(11,917 | ) | (795 | ) | (1,306 | ) | 1,063 | (2,330 | ) | (11,917 | ) | ||||||||||||||
Total equity securities | (11,719 | ) | 6,520 | 1,524 | 1,185 | (2,994 | ) | (11,719 | ) | |||||||||||||||
Net realized gains (losses) on securities | $ | (13,940 | ) | 5,931 | 837 | $ | 2,532 | $ | 614 | $ | (13,940 | ) | ||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Changes in unrealized gains (losses): | ||||||||||||||||||||||||
Recognized in income: | ||||||||||||||||||||||||
Changes in unrealized gains (losses) | ||||||||||||||||||||||||
Recognized in income | ||||||||||||||||||||||||
Equity securities — trading | $ | (21,064 | ) | (4,116 | ) | 7,699 | $ | 5,433 | $ | 10,497 | $ | (21,064 | ) | |||||||||||
Recognized in accumulated other comprehensive loss: | ||||||||||||||||||||||||
Recognized in accumulated other comprehensive loss | ||||||||||||||||||||||||
Fixed maturities — available for sale | $ | 928 | 18,640 | (2,434 | ) | 22,014 | (406 | ) | 928 | |||||||||||||||
Equity securities — available for sale | (5,734 | ) | (7,251 | ) | (1,581 | ) | 5,831 | 4,583 | (5,734 | ) | ||||||||||||||
$ | (4,806 | ) | 11,389 | (4,015 | ) | $ | 27,845 | $ | 4,177 | $ | (4,806 | ) | ||||||||||||
Not recognized in the consolidated financial statements: | ||||||||||||||||||||||||
Not recognized in the consolidated financial statements | ||||||||||||||||||||||||
Fixed maturities — held to maturity | $ | 1,152 | 1,266 | (114 | ) | $ | 113 | $ | (614 | ) | $ | 1,152 |
The deferred tax liability (asset) on unrealized gains and | ||
28
As of December 31, |
Net Investment Income | ||
Components of net investment income were as follows: |
Years ended December 31 | ||||||||||||||||||||||||
2008 | 2007 | 2006 | Years ended December 31 | |||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Fixed maturities | $ | 48,197 | 37,205 | 35,217 | $ | 44,371 | $ | 46,285 | $ | 48,197 | ||||||||||||||
Equity securities | 5,451 | 5,271 | 3,821 | 3,452 | 4,077 | 5,451 | ||||||||||||||||||
Policy loans | 387 | 394 | 336 | 441 | 411 | 387 | ||||||||||||||||||
Cash equivalents and interest-bearing deposits | 1,003 | 2,187 | 1,903 | 197 | 577 | 1,003 | ||||||||||||||||||
Other | 1,215 | 2,137 | 1,380 | 684 | 786 | 1,215 | ||||||||||||||||||
Total | $ | 56,253 | 47,194 | 42,657 | $ | 49,145 | $ | 52,136 | $ | 56,253 | ||||||||||||||
Premium and Other Receivables, Net | ||
Premium and other receivables, net as of December 31 were as follows: |
2008 | 2007 | |||||||
Premium | $ | 90,315 | 54,330 | |||||
Self-funded group receivables | 35,749 | 31,344 | ||||||
FEHBP | 9,600 | 10,202 | ||||||
Agent balances | 38,491 | 34,164 | ||||||
Accrued interest | 11,802 | 8,363 | ||||||
Reinsurance recoverable on paid losses | 42,181 | 58,757 | ||||||
Other | 23,765 | 21,033 | ||||||
251,903 | 218,193 | |||||||
Less allowance for doubtful receivables: | ||||||||
Premium | 10,467 | 11,753 | ||||||
Other | 4,278 | 4,172 | ||||||
14,745 | 15,925 | |||||||
Premium and other receivables, net | $ | 237,158 | 202,268 | |||||
2010 | 2009 | |||||||
Premium | $ | 144,501 | $ | 98,429 | ||||
Self-funded group receivables | 73,750 | 70,315 | ||||||
FEHBP | 11,001 | 10,297 | ||||||
Agent balances | 37,262 | 37,888 | ||||||
Accrued interest | 9,781 | 9,287 | ||||||
Reinsurance recoverable | 47,342 | 43,951 | ||||||
Other | 22,177 | 27,999 | ||||||
345,814 | 298,166 | |||||||
Less allowance for doubtful receivables: | ||||||||
Premium | 13,106 | 20,280 | ||||||
Other | 6,928 | 4,954 | ||||||
20,034 | 25,234 | |||||||
Premium and other receivables, net | $ | 325,780 | $ | 272,932 | ||||
29
Deferred Policy Acquisition Costs and Value of Business Acquired | ||
The movement of deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) for the years ended December 31, |
DPAC | VOBA | Total | ||||||||||||||||||||||
Balance, December 31, 2005 | $ | 81,568 | — | 81,568 | ||||||||||||||||||||
Capitalization upon acquisition of GA Life | — | 22,823 | 22,823 | |||||||||||||||||||||
Termination of coinsurance funds withheld agreement | (60,000 | ) | — | (60,000 | ) | |||||||||||||||||||
Acquisition of business ceded in coinsurance funds withheld agreement | — | 60,000 | 60,000 | |||||||||||||||||||||
Additions | 44,056 | — | 44,056 | |||||||||||||||||||||
VOBA interest at an average rate of 5.29% | — | 4,427 | 4,427 | |||||||||||||||||||||
Amortization | (26,799 | ) | (14,658 | ) | (41,457 | ) | ||||||||||||||||||
Net change | (42,743 | ) | 72,592 | 29,849 | ||||||||||||||||||||
Balance, December 31, 2006 | 38,825 | 72,592 | 111,417 | |||||||||||||||||||||
Additions | 46,898 | — | 46,898 | |||||||||||||||||||||
VOBA interest at an average rate of 5.27% | — | 3,874 | 3,874 | |||||||||||||||||||||
Amortization | (32,508 | ) | (12,442 | ) | (44,950 | ) | ||||||||||||||||||
Net change | 14,390 | (8,568 | ) | 5,822 | ||||||||||||||||||||
DPAC | VOBA | Total | ||||||||||||||||||||||
Balance, December 31, 2007 | 53,215 | 64,024 | 117,239 | $ | 53,215 | $ | 64,024 | $ | 117,239 | |||||||||||||||
Additions | 49,470 | — | 49,470 | 49,470 | — | 49,470 | ||||||||||||||||||
VOBA interest at an average rate of 5.40% | — | 3,425 | 3,425 | — | 3,425 | 3,425 | ||||||||||||||||||
Amortization | (33,442 | ) | (10,345 | ) | (43,787 | ) | (33,442 | ) | (10,345 | ) | (43,787 | ) | ||||||||||||
Net change | 16,028 | (6,920 | ) | 9,108 | 16,028 | (6,920 | ) | 9,108 | ||||||||||||||||
Balance, December 31, 2008 | $ | 69,243 | 57,104 | 126,347 | 69,243 | 57,104 | 126,347 | |||||||||||||||||
Additions | 55,632 | — | 55,632 | |||||||||||||||||||||
VOBA interest at an average rate of 5.29% | — | 3,066 | 3,066 | |||||||||||||||||||||
Amortization | (35,923 | ) | (9,205 | ) | (45,128 | ) | ||||||||||||||||||
Net change | 19,709 | (6,139 | ) | 13,570 | ||||||||||||||||||||
Balance, December 31, 2009 | 88,952 | 50,965 | 139,917 | |||||||||||||||||||||
Additions | 54,247 | — | 54,247 | |||||||||||||||||||||
VOBA interest at an average rate of 5.24% | — | 2,752 | 2,752 | |||||||||||||||||||||
Amortization | (42,324 | ) | (8,506 | ) | (50,830 | ) | ||||||||||||||||||
Net change | 11,923 | (5,754 | ) | 6,169 | ||||||||||||||||||||
Balance, December 31, 2010 | $ | 100,875 | $ | 45,211 | $ | 146,086 | ||||||||||||||||||
The amortization expense of the deferred policy acquisition costs and value of business acquired is included within the operating expenses in the accompanying consolidated statement of earnings. |
The estimated amount of the year-end VOBA balance expected to be amortized during the next five years is as follows: |
Year ending December 31: | ||||||||
2009 | $ | 9,428 | ||||||
2010 | 8,116 | |||||||
2011 | 7,273 | $ | 7,404 | |||||
2012 | 6,493 | 6,602 | ||||||
2013 | 5,805 | 5,895 | ||||||
2014 | 5,184 | |||||||
2015 | 4,561 |
30
Property and Equipment, Net | ||
Property and equipment, net as of December 31 are composed of the following: |
2008 | 2007 | |||||||||||||||
2010 | 2009 | |||||||||||||||
Land | $ | 6,531 | 6,531 | $ | 7,309 | $ | 7,309 | |||||||||
Buildings and leasehold improvements | 44,791 | 43,664 | 45,472 | 45,034 | ||||||||||||
Office furniture and equipment | 16,208 | 15,868 | 14,401 | 16,821 | ||||||||||||
Computer equipment and software | 56,482 | 36,361 | 89,266 | 69,652 | ||||||||||||
Automobiles | 461 | 539 | 525 | 513 | ||||||||||||
124,473 | 102,963 | 156,973 | 139,329 | |||||||||||||
Less accumulated depreciation and amortization | 66,025 | 59,548 | 80,228 | 70,526 | ||||||||||||
Property and equipment, net | $ | 58,448 | 43,415 | $ | 76,745 | $ | 68,803 | |||||||||
On July 1, 2009, the Company, through TSS, entered into an Asset Purchase Agreement (the Agreement) to acquire certain managed care assets of La Cruz Azúl de Puerto Rico, Inc. (LCA) in Puerto Rico and the U.S. Virgin Islands on such date, generating an intangible asset. Such intangible asset, net as of December 31, 2010 and 2009 amounted to $3.9 and $5.6 million, respectively, and is included within other assets in the accompanying consolidated balance sheets. Amortization expense recorded during 2010 and 2009 amounted to $3.6 and $1.3 million. The | ||
9. | Fair Value Measurements | |
Assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs |
Level Input: | Input Definition: | |||
Level 1 | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. | |||
Level 2 | Inputs other than quoted prices included in Level | |||
Level 3 | Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
31
deemed necessary to ensure that the security or derivative’s fair value adequately represents the price that would be received or paid in the marketplace. Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria. The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in estimating fair value could affect the results. The fair value measurement levels are not indicative of risk of investment. The following table summarizes fair value measurements by level at December 31, |
Level 1 | Level 2 | Level 3 | Total | 2010 | ||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||
Equity securities held for trading | $ | 32,184 | — | — | 32,184 | $ | 51,099 | $ | — | $ | — | $ | 51,099 | |||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||||||||||
Fixed maturity securities | 89,985 | 796,418 | 1,281 | 887,684 | ||||||||||||||||||||||||||||
Obligations of government-sponsored enterprises | — | 131,385 | — | 131,385 | ||||||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 52,878 | — | — | 52,878 | ||||||||||||||||||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | — | 120,624 | — | 120,624 | ||||||||||||||||||||||||||||
Municipal securities | — | 273,564 | — | 273,564 | ||||||||||||||||||||||||||||
Corporate Bonds | — | 109,632 | — | 109,632 | ||||||||||||||||||||||||||||
Residential agency mortgage-backed securities | — | 13,360 | — | 13,360 | ||||||||||||||||||||||||||||
Collaterized mortgage obligations | — | 276,143 | — | 276,143 | ||||||||||||||||||||||||||||
Total fixed maturities | 52,878 | 924,708 | — | 977,586 | ||||||||||||||||||||||||||||
Equity securities | 31,506 | 36,037 | 1,086 | 68,629 | ||||||||||||||||||||||||||||
Common stocks | 4,331 | — | — | 4,331 | ||||||||||||||||||||||||||||
Preferred stocks | 3,629 | — | — | 3,629 | ||||||||||||||||||||||||||||
Perpetual preferred stocks | 906 | — | — | 906 | ||||||||||||||||||||||||||||
Mutual funds | 27,858 | 18,971 | 1,044 | 47,873 | ||||||||||||||||||||||||||||
Total equity securities | 36,724 | 18,971 | 1,044 | 56,739 | ||||||||||||||||||||||||||||
Derivatives (reported within other assets in the consolidated balance sheets) | — | 1,674 | — | 1,674 | — | 748 | — | 748 | ||||||||||||||||||||||||
Total | $ | 153,675 | 834,129 | 2,367 | 990,171 | |||||||||||||||||||||||||||
$ | 140,701 | $ | 944,427 | $ | 1,044 | $ | 1,086,172 | |||||||||||||||||||||||||
32
2009 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity securities held for trading | $ | 43,909 | $ | — | $ | — | $ | 43,909 | ||||||||
Securities available for sale | ||||||||||||||||
Fixed maturity securities | ||||||||||||||||
Obligations of government-sponsored enterprises | — | 251,428 | — | 251,428 | ||||||||||||
U.S. Treasury securities and obligations of U.S. government instrumentalities | 51,338 | — | — | 51,338 | ||||||||||||
Obligations of the Commonwealth of Puerto Rico and its instrumentalities | — | 155,948 | — | 155,948 | ||||||||||||
Municipal securities | — | 106,707 | — | 106,707 | ||||||||||||
Corporate Bonds | — | 105,365 | — | 105,365 | ||||||||||||
Residential agency mortgage-backed securities | — | 17,281 | — | 17,281 | ||||||||||||
Collaterized mortgage obligations | — | 230,910 | — | 230,910 | ||||||||||||
Total fixed maturities | 51,338 | 867,639 | — | 918,977 | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | 7,509 | — | — | 7,509 | ||||||||||||
Preferred stocks | 2,675 | — | — | 2,675 | ||||||||||||
Perpetual preferred stocks | 2,579 | — | — | 2,579 | ||||||||||||
Mutual funds | 6,961 | 44,190 | 775 | 51,926 | ||||||||||||
Total equity securities | 19,724 | 44,190 | 775 | 64,689 | ||||||||||||
Derivatives (reported within other assets in the consolidated balance sheets) | — | 1,608 | — | 1,608 | ||||||||||||
$ | 114,971 | $ | 913,437 | $ | 775 | $ | 1,029,183 | |||||||||
33
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 |
Fixed | Fixed | |||||||||||||||||||||||
Maturity | Equity | Maturity | Equity | |||||||||||||||||||||
Securities | Securities | Total | Securities | Securities | Total | |||||||||||||||||||
Beginning balance | $ | 4,280 | 989 | 5,269 | ||||||||||||||||||||
Begining balance December 31, 2008 | $ | 1,281 | $ | 1,086 | $ | 2,367 | ||||||||||||||||||
Total gains or losses: | ||||||||||||||||||||||||
Realized in earnings | (3,883 | ) | — | (3,883 | ) | (1,281 | ) | — | (1,281 | ) | ||||||||||||||
Unrealized in other accumulated comprehensive income | 884 | 97 | 981 | — | — | — | ||||||||||||||||||
Purchases and sales | — | — | — | — | (1,086 | ) | (1,086 | ) | ||||||||||||||||
Transfers in and/or out of Level 3 | — | — | — | 775 | 775 | |||||||||||||||||||
Ending balance | $ | 1,281 | 1,086 | 2,367 | ||||||||||||||||||||
Ending balance December 31, 2009 | $ | — | $ | 775 | $ | 775 | ||||||||||||||||||
Total gains or losses: | ||||||||||||||||||||||||
Realized in earnings | — | — | — | |||||||||||||||||||||
Unrealized in other accumulated comprehensive income | — | (299 | ) | (299 | ) | |||||||||||||||||||
Purchases and sales | — | 568 | 568 | |||||||||||||||||||||
Transfers in and/or out of Level 3 | — | — | ||||||||||||||||||||||
Ending balance December 31, 2010 | $ | — | $ | 1,044 | $ | 1,044 | ||||||||||||||||||
34
Claim Liabilities | ||
The activity in claim liabilities during |
2008 | 2007 | 2006 | 2010 | 2009 | 2008 | |||||||||||||||||||
Claim liabilities at beginning of year | $ | 353,830 | 314,682 | 297,563 | $ | 360,446 | $ | 323,710 | $ | 353,830 | ||||||||||||||
Reinsurance recoverable on claim liabilities | (54,834 | ) | (32,066 | ) | (28,720 | ) | (30,712 | ) | (30,432 | ) | (54,834 | ) | ||||||||||||
Net claim liabilities at beginning of year | 298,996 | 282,616 | 268,843 | 329,734 | 293,278 | 298,996 | ||||||||||||||||||
Claim liabilities acquired from GA Life | — | — | 8,771 | |||||||||||||||||||||
Claims incurred: | ||||||||||||||||||||||||
Claims incurred | ||||||||||||||||||||||||
Current period insured events | 1,432,843 | 1,241,866 | 1,264,871 | 1,594,977 | 1,594,814 | 1,429,730 | ||||||||||||||||||
Prior period insured events | (9,918 | ) | (31,007 | ) | (19,669 | ) | (10,067 | ) | (1,887 | ) | (9,918 | ) | ||||||||||||
Total | 1,422,925 | 1,210,859 | 1,245,202 | 1,584,910 | 1,592,927 | 1,419,812 | ||||||||||||||||||
Payments of losses and loss-adjustment expenses: | ||||||||||||||||||||||||
Payments of losses and loss-adjustment expenses | ||||||||||||||||||||||||
Current period insured events | 1,195,414 | 1,004,346 | 1,045,771 | 1,316,321 | 1,309,304 | 1,192,301 | ||||||||||||||||||
Prior period insured events | 233,229 | 190,133 | 194,429 | 269,562 | 247,167 | 233,229 | ||||||||||||||||||
Total | 1,428,643 | 1,194,479 | 1,240,200 | 1,585,883 | 1,556,471 | 1,425,530 | ||||||||||||||||||
Net claim liabilities at end of year | 293,278 | 298,996 | 282,616 | 328,761 | 329,734 | 293,278 | ||||||||||||||||||
Reinsurance recoverable on claim liabilities | 30,432 | 54,834 | 32,066 | 31,449 | 30,712 | 30,432 | ||||||||||||||||||
Claim liabilities at end of year | $ | 323,710 | 353,830 | 314,682 | $ | 360,210 | $ | 360,446 | $ | 323,710 | ||||||||||||||
As a result of differences between actual amounts and estimates of insured events in prior years, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred. | ||
The credits in the claims incurred and loss-adjustment expenses for prior period insured events for | ||
The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits amounting to $11,879, $12,945, and $11,989 |
11. | Federal Employees’ Health Benefits Program (FEHBP) | |
Islands as well as retirees and eligible dependents. The FEHBP is financed through a negotiated contribution made by the federal government and employees’ payroll deductions. | ||
The accounting policies for the FEHBP are the same as those described in the Company’s summary of significant accounting policies. Premium rates are determined annually by |
35
determined by the federal government. Operating expenses are allocated from | ||
The operations of the FEHBP do not result in any excess or deficiency of revenue or expense as this program has a special account available to compensate any excess or deficiency on its operations to the benefit or detriment of the federal government. Any transfer to/from the special account necessary to cover any excess or deficiency in the operations of the FEHBP is recorded as a reduction/increment to the premiums earned. The contract with OPM provides that the cumulative excess of the FEHBP earned income over health benefits charges and expenses represents a restricted fund balance denoted as the special account. Upon termination of the contract and satisfaction of all the FEHBP’s obligations, any unused remainder of the special reserve would revert to the Federal Employees Health Benefit Fund. In the event that the contract terminates and the special reserve is not sufficient to meet the FEHBP’s obligations, the FEHBP contingency reserve will be used to meet such obligations. If the contingency reserve is not sufficient to meet such obligations, the Company is at risk for the amount not covered by the contingency reserve. | ||
The contract with OPM allows for the payment to the Company of service fees as negotiated between | ||
The Company also has funds available related to the FEHBP amounting to $28,093 and $22,797 as of December 31, 2010 and 2009, respectively and are included within the cash and cash equivalents in the accompanying consolidated balance sheets. Such funds must only be used to cover health benefits charges, administrative expenses and service charges required by the FEHBP. | ||
A contingency reserve is maintained by the OPM at the U.S. Treasury, and is available to the Company under certain conditions as specified in government regulations. Accordingly, such reserve is not reflected in the accompanying consolidated balance sheets. The balance of such reserve as of December 31, | ||
The claim payments and operating expenses charged to the FEHBP are subject to audit by the U.S. government. Management is of the opinion that an adjustment, if any, resulting from such audits will not have a significant effect on the accompanying financial statements. The claim payments and operating expenses reimbursed in connection with the FEHBP have been audited through 2004 by OPM. |
12. | Short-Term Borrowings | |||
36
securities in the normal course of business operations, but have agreed to resell to the Company substantially the same securities on the maturity dates of the agreements. | ||
At December 31, 2010 investment securities available for sale with fair value of $16,199 (face value of $14,630) were pledged as collateral under these agreements. | ||
13. | Long-Term Borrowings | |
A summary of the borrowings entered by the Company at December 31, |
2008 | 2007 | |||||||
Senior unsecured notes payable of $50,000 issued on September 2004; due September 2019. Interest is payable semiannually at a fixed rate of 6.30% | $ | 50,000 | 50,000 | |||||
Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60% | 60,000 | 60,000 | ||||||
Senior unsecured notes payable of $35,000 issued on January 2006; due January 2021. Interest is payable monthly at a fixed rate of 6.70% | 35,000 | 35,000 | ||||||
Secured loan payable of $41,000, payable in monthly installments of $137 through July 1, 2024, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.43% and 6.24% at December 31, 2008 and 2007, respectively) | 24,307 | 25,946 | ||||||
Total borrowings | $ | 169,307 | 170,946 | |||||
2010 | 2009 | |||||||
Senior unsecured notes payable of $50,000 issued on September 2004; due September 2019. Interest is payable semiannually at a fixed rate of 6.30%. | $ | 50,000 | $ | 50,000 | ||||
Senior unsecured notes payable of $60,000 issued on December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%. | 35,000 | 60,000 | ||||||
Senior unsecured notes payable of $35,000 issued on January 2006; due January 2021. Interest is payable monthly at a fixed rate of 6.70%. | 35,000 | 35,000 | ||||||
Secured loan payable of $41,000, payable in monthly installments of $137 through July 1, 2024, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 1.29% and 1.28% at December 31, 2010, and 2009, respectively). | 21,027 | 22,667 | ||||||
Repurchase agreement of $25.0 million entered on November 2010, due November 2015. Interest is payable quarterly at a fixed rate of 1.96%. | 25,000 | — | ||||||
Total borrowings | $ | 166,027 | $ | 167,667 | ||||
Aggregate maturities of the Company’s borrowings as of December 31, |
Year ending December 31: | ||||||||
2009 | $ | 1,640 | ||||||
2010 | 1,640 | |||||||
Year ending December 31 | ||||||||
2011 | 1,640 | $ | 1,640 | |||||
2012 | 1,640 | 1,640 | ||||||
2013 | 1,640 | 1,640 | ||||||
2014 | 1,640 | |||||||
2015 | 26,640 | |||||||
Thereafter | 161,107 | 132,827 | ||||||
$ | 166,027 | |||||||
$ | 169,307 | |||||||
All of the Company’s senior notes |
37
non- financial covenants with which | ||
Debt issuance costs related to each of the Company’s senior unsecured notes were deferred and are being amortized over the term of its respective senior note. Unamortized debt issuance costs related to these senior unsecured notes as of December 31, | ||
The secured loan payable previously described is guaranteed by a first position held by the bank on the Company’s land, building, and substantially all leasehold improvements, as collateral for the term of the |
loan under a continuing general security agreement. This secured loan contains certain non-financial covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control. | ||
The | ||
Interest expense on the above borrowings amounted to |
14. | Derivative Instruments and Hedging Activities | |
By using derivative financial instruments the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty is obligated to the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties. | ||
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, currency exchange rates, commodity prices, or market indexes. The market risk associated with derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. |
The Company has invested in | |||
During 2005 the Company invested in two structured note agreements amounting to $5,000 each, maturing in May 25, 2012, where the interest income received is linked to the performance of the Dow Jones Euro STOXX 50 and Nikkei 225 Equity Indexes (the Indexes). Under these agreements the principal invested by the Company is protected, the only amount that varies according to the performance of the Indexes is the interest to be received upon the maturity of the instruments. Should the Indexes experience a negative performance during the holding period of |
38
the structured notes, no interest will be | |||
The changes in the fair value of the embedded derivative component are recorded as gains or losses in earnings in the period of change. During the years ended December 31, | |||
As of December 31, |
Agency Contract and Expense Reimbursement | ||
The operating expense reimbursements in connection with processing Medicare claims have been audited through | ||
On September 12, 2008, the Centers for Medicare and Medicaid Services (CMS) announced that First Coast Service Options (FCSO), a non-affiliated third party organization based in Jacksonville, Florida, was awarded the Medicare Administrative Contract (MAC) for Jurisdiction 9 (Florida, Puerto Rico and the U.S. Virgin Islands). FCSO proposed |
39
Reinsurance Activity | ||
The effect of reinsurance on premiums earned and claims incurred is as follows: |
Premiums earned | Claims incurred(1) | |||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | Premiums Earned | Claims Incurred(1) | |||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||||||||
Gross | $ | 1,780,765 | 1,564,873 | 1,584,857 | 1,443,046 | 1,249,554 | 1,266,610 | $ | 1,981,700 | $ | 1,950,097 | $ | 1,777,652 | $ | 1,611,289 | $ | 1,611,675 | $ | 1,439,933 | |||||||||||||||||||||||||||||
Ceded | (85,308 | ) | (81,325 | ) | (77,644 | ) | (20,121 | ) | (38,695 | ) | (22,869 | ) | (80,600 | ) | (81,013 | ) | (85,308 | ) | (26,379 | ) | (18,748 | ) | (20,121 | ) | ||||||||||||||||||||||||
Assumed | — | 4,413 | — | 1,461 | ||||||||||||||||||||||||||||||||||||||||||||
Net | $ | 1,695,457 | 1,483,548 | 1,511,626 | 1,422,925 | 1,210,859 | 1,245,202 | $ | 1,901,100 | $ | 1,869,084 | $ | 1,692,344 | $ | 1,584,910 | $ | 1,592,927 | $ | 1,419,812 | |||||||||||||||||||||||||||||
(1) | The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits amounting to $11,879, $12,945, and $11,989 |
agreements, the subsidiaries would be liable for such defaulted amounts. During 2010, 2009 and 2008 TSP placed 14.37%, 13.53%, and 11.84% of its reinsurance business with one reinsurance company. | ||||
• | Organ transplant excess of loss treaty covering 100% of the claims up to a maximum of $1,000 per person, per life. | ||
• | Routine medical care excess of loss treaty covering 100% of claims from the amount of $100 and up to a maximum of $900 per covered person, per contract year. |
TSP has a number of pro rata and excess of loss reinsurance treaties whereby the subsidiary retains for its own account all loss payments for each occurrence that does not exceed the stated amount in the agreements and a catastrophe cover, whereby it protects itself from a loss or disaster of a catastrophic nature. Under these treaties, TSP ceded premiums of $63,746, $67,541, and $72,115, in 2010, 2009, and 2008, respectively. | ||
Reinsurance cessions are made on excess of loss and on a proportional basis. Principal reinsurance agreements are as follows: |
40
• | Personal property catastrophe excess of loss. This treaty provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of | ||
• | Commercial property catastrophe excess of loss. This treaty provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of | ||
• | Property catastrophe excess of loss. This treaty provides protection for | ||
• | Personal lines quota share. This treaty provides protection of |
• | Reinstatement premium protection. This treaty provides a maximum limit of approximately | ||
• | Casualty excess of loss treaty. This treaty provides reinsurance for losses in excess of $225 up to a maximum of $12,000. | ||
• | Medical malpractice excess of loss. This treaty provides reinsurance in excess of $150 up to a maximum of $1,500 per incident. | ||
• | Builders’ risk quota share and first surplus covering contractors’ risk. This treaty provides protection on a 20/80 quota share basis for the initial $2,500 and a first surplus of $10,000 for a maximum of $12,000 for any one risk. | ||
• | Surety quota share treaty covering contract and miscellaneous surety bond business. This treaty provides reinsurance of up to $5,000 for contract surety bonds, subject to an aggregate of $10,000 per contractor and $3,000 per miscellaneous surety bond. |
41
• | Group life pro rata agreement, reinsuring 50% of the risk up to $250 on the life of any participating individual of certain groups insured. This contract was cancelled on June 30, 2009. | ||
• | Group life insurance facultative agreement, reinsuring risk in excess of $25 of certain group life policies and a combined pro rata and excess of loss agreement effective July 1, 2008, reinsuring 50% of the risk up to $200 and ceding the excess. | ||
• | Group life insurance facultative excess of loss agreements in which TSV retains a portion of the losses on the life of any participating individual of certain groups insured. Any excess will be recovered from the reinsurer. This agreement provides for various retentions ($25, $50 and $75) of the losses. The contract was cancelled during December 2009. | ||
• | Facultative pro rata agreements for the long-term disability insurance, reinsuring 65% of the risk. |
• | Accidental death catastrophic reinsurance covering each and every accident arising out of one event or occurrence resulting in the death or dismemberment of five or more persons. The retention for each event is $250 with a maximum of $1,000 for each event and $2,000 per year. | ||
• | Several reinsurance agreements, mostly on an excess of loss basis up to a maximum retention of $50. For certain new life products that have been issued after 1999, the retention limit is $175. | ||
Income Taxes | ||
Under Puerto Rico income tax law, the Company is not allowed to file consolidated tax returns with its subsidiaries. The Company and its subsidiaries are subject to Puerto Rico income taxes. The Company’s insurance subsidiaries are also subject to U.S. federal income taxes for foreign source dividend income. As of December 31, |
TSV operates as a qualified domestic life insurance company and is subject to the alternative minimum tax and taxes on its capital gains. | ||
Federal income taxes | ||
TSM, |
42
On July 10, 2009 the Governor of Puerto Rico signed into law Puerto Rico’s Act No. 37, which requires certain corporations to pay a 5% additional special tax over the tax obligation through December 31, 2011. The effective tax rate includes the additional special tax, as enacted. | ||
Recently, the Government of Puerto Rico adopted a comprehensive tax reform in two phases. The first phase of the tax reform was enacted in the last quarter of 2010 and was mostly related to reducing the income tax burden to individuals. In 2010 only, corporations received an income tax credit amounting to 7% of the tax determined, defined as the tax liability less certain credits. The second phase of the reform, which was approved on January 31, 2011, provides for the reduction of the maximum corporate income tax rate from 40.95% to approximately 30%, including the elimination of the above mentioned 5% additional special tax for corporations, as well as adding several tax credits and deductions, among other tax reliefs and changes. | ||
The income tax expense differs from the amount computed by applying the Puerto Rico statutory income tax rate to the income before income taxes as a result of the following: |
2008 | 2007 | 2006 | ||||||||||
Income before taxes | $ | 31,944 | 72,645 | 67,559 | ||||||||
Statutory tax rate | 39.0 | % | 39.0 | % | 39.0 | % | ||||||
Income tax expense at statutory rate of 39% | 12,458 | 28,332 | 26,348 | |||||||||
Increase (decrease) in taxes resulting from: | ||||||||||||
Exempt interest income | (13,561 | ) | (9,990 | ) | (9,196 | ) | ||||||
Effect of taxing life insurance operations as a qualified domestic life insurance company instead of as a regular corporation | (1,336 | ) | (1,115 | ) | (1,674 | ) | ||||||
Effect of using earnings under statutory accounting principles instead of | ||||||||||||
GAAP for TSI and STS | 6,406 | 371 | (1,718 | ) | ||||||||
Effect of taxing capital gains at a preferential rate | (237 | ) | (1,406 | ) | (541 | ) | ||||||
Dividends received deduction | (810 | ) | (821 | ) | (325 | ) | ||||||
Other permanent disallowances, net | 5,564 | 2,308 | 2,626 | |||||||||
Adjustment to deferred tax assets and liabilities for changes in effective tax rates | — | (2,131 | ) | (2,009 | ) | |||||||
Other adjustments to deferred tax assets and liabilities | (300 | ) | (423 | ) | (399 | ) | ||||||
Tax credit benefit | (1,286 | ) | — | — | ||||||||
Other | 256 | (998 | ) | (86 | ) | |||||||
Total income tax expense | $ | 7,154 | 14,127 | 13,026 | ||||||||
43
2010 | 2009 | 2008 | ||||||||||
Income before taxes | $ | 84,203 | $ | 83,651 | $ | 31,944 | ||||||
Statutory tax rate | 40.95 | % | 40.95 | % | 39.0 | % | ||||||
Income tax expense at statutory rate | 34,481 | 34,255 | 12,458 | |||||||||
Increase (decrease) in taxes resulting from | ||||||||||||
Exempt interest income | (11,955 | ) | (13,201 | ) | (13,561 | ) | ||||||
Effect of taxing life insurance operations as a qualified domestic life insurance company instead of as a regular corporation | (5,336 | ) | (4,759 | ) | (1,336 | ) | ||||||
Effect of using earnings under statutory accounting principles instead of GAAP for TSS and TSP | (1,430 | ) | (3,089 | ) | 6,406 | |||||||
Effect of taxing capital gains at a preferential rate | 907 | 446 | (237 | ) | ||||||||
Dividends received deduction | (221 | ) | (262 | ) | (810 | ) | ||||||
Adjustment to deferred tax assets and liabilities for changes in effective tax rates | — | (239 | ) | — | ||||||||
Other adjustments to deferred tax assets and liabilities | (132 | ) | (771 | ) | (300 | ) | ||||||
Tax credit benefit | (1,569 | ) | (2,386 | ) | (1,286 | ) | ||||||
Other permanent disallowances, net: | ||||||||||||
Effect of capital gains preferential rate on impairments | — | 1,385 | 2,916 | |||||||||
Disallowance of expenses related to exempt interest income | 1,115 | 871 | 1,792 | |||||||||
Disallowed interest expense | 597 | 730 | 1,014 | |||||||||
Other | 423 | 1,404 | (158 | ) | ||||||||
Total other permanent differences | 2,135 | 4,390 | 5,564 | |||||||||
Other adjustments | 522 | 487 | 256 | |||||||||
Total Income Tax Expense | $ | 17,402 | $ | 14,871 | $ | 7,154 | ||||||
44
Deferred income taxes reflect the tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. The net deferred tax asset at December 31, |
2008 | 2007 | 2010 | 2009 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Deferred tax assets | ||||||||||||||||
Allowance for doubtful receivables | $ | 5,325 | 5,422 | $ | 7,679 | $ | 9,869 | |||||||||
Liability for pension benefits | 14,681 | 9,885 | 17,443 | 13,161 | ||||||||||||
Employee benefits plan | 4,214 | 4,856 | 2,509 | 3,142 | ||||||||||||
Postretirement benefits | 1,454 | 1,789 | 1,434 | 1,668 | ||||||||||||
Deferred compensation | 1,661 | 1,519 | 2,185 | 1,952 | ||||||||||||
Accumulated depreciation | 334 | 356 | 289 | 312 | ||||||||||||
Impairment loss on investments | 2,816 | 565 | 2,891 | 3,654 | ||||||||||||
Contingency reserves | — | 50 | 214 | 214 | ||||||||||||
Unrealized loss on trading securities | 1,300 | — | ||||||||||||||
Share-based compensation | 10 | 592 | ||||||||||||||
Unrealized loss on derivative instruments | 82 | — | 175 | 89 | ||||||||||||
Alternative minimum income tax credit | 940 | 830 | 955 | 955 | ||||||||||||
Purchased tax credits | 8,337 | — | 42 | 7,388 | ||||||||||||
Other | 767 | 544 | 1,135 | 754 | ||||||||||||
Gross deferred tax assets | 41,911 | 25,816 | 36,961 | 43,750 | ||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Deferred tax liabilities | ||||||||||||||||
Deferred policy acquisition costs | (7,531 | ) | (7,102 | ) | (7,359 | ) | (8,103 | ) | ||||||||
Catastrophe loss reserve trust fund | (5,495 | ) | (5,035 | ) | (6,247 | ) | (5,935 | ) | ||||||||
Unrealized gain upon acquisition of GA Life | (1,753 | ) | (2,092 | ) | (539 | ) | (982 | ) | ||||||||
Unrealized gain on trading securities | — | (1,859 | ) | (1,135 | ) | (285 | ) | |||||||||
Unrealized gain on securities available for sale | (988 | ) | (1,842 | ) | (4,658 | ) | (1,626 | ) | ||||||||
Unrealized gain on derivative instruments | — | (383 | ) | |||||||||||||
Unamortized bond issue costs | (347 | ) | (383 | ) | (224 | ) | (318 | ) | ||||||||
Cash-flow hedges | — | (37 | ) | |||||||||||||
Contingency reserves | (302 | ) | — | |||||||||||||
Other | (300 | ) | (300 | ) | (9 | ) | (38 | ) | ||||||||
Gross deferred tax liabilities | (16,716 | ) | (19,033 | ) | (20,171 | ) | (17,287 | ) | ||||||||
Net deferred tax asset | $ | 25,195 | 6,783 | $ | 16,790 | $ | 26,463 | |||||||||
The net deferred tax asset shown in the table above at December 31, 2010 and 2009 is reflected in the consolidated balance sheets as $29,445 and $37,551, respectively, in deferred tax assets and $12,655 and $11,088, in deferred tax liabilities, respectively, reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Company. | ||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes that it is more likely than not that the Company will realize the benefits of these deductible differences. |
45 |
Pension Plans | ||
Noncontributory Defined-Benefit Pension Plan | ||
The Company sponsors a noncontributory defined-benefit pension plan for all of its employees and for the employees for certain of its |
46
2008 | 2007 | 2010 | 2009 | |||||||||||||
Change in benefit obligation: | ||||||||||||||||
Change in benefit obligation | ||||||||||||||||
Projected benefit obligation at beginning of year | $ | 89,598 | 88,774 | $ | 90,888 | $ | 84,776 | |||||||||
Service cost | 5,287 | 5,489 | 4,975 | 4,912 | ||||||||||||
Interest cost | 5,458 | 5,072 | 6,033 | 5,712 | ||||||||||||
Benefit payments | (7,926 | ) | (5,141 | ) | (3,963 | ) | (7,004 | ) | ||||||||
Actuarial losses (gains) | (7,641 | ) | 1,774 | |||||||||||||
Plan amendments | — | (6,370 | ) | |||||||||||||
Actuarial losses | 15,979 | 2,492 | ||||||||||||||
Projected benefit obligation at end of year | $ | 84,776 | 89,598 | $ | 113,912 | $ | 90,888 | |||||||||
Accumulated benefit obligation at end of year | $ | 62,371 | 66,042 | $ | 85,858 | $ | 67,825 | |||||||||
Change in fair value of plan assets: | ||||||||||||||||
Change in fair value of plan assets | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 63,614 | 59,520 | $ | 53,433 | $ | 44,100 | |||||||||
Actual return on assets (net of expenses) | (16,588 | ) | 4,234 | 8,260 | 8,337 | |||||||||||
Employer contributions | 5,000 | 5,000 | 9,800 | 8,000 | ||||||||||||
Benefit payments | (7,926 | ) | (5,140 | ) | (3,963 | ) | (7,004 | ) | ||||||||
Fair value of plan assets at end of year | $ | 44,100 | 63,614 | $ | 67,530 | $ | 53,433 | |||||||||
Funded status at end of year | $ | (40,677 | ) | (25,984 | ) | $ | (46,382 | ) | $ | (37,455 | ) | |||||
Amounts in accumulated other comprehensive income not yet recognized as a component of net periodic pension cost: | ||||||||||||||||
Development of prior service cost (credit): | ||||||||||||||||
Amounts in accumulated other comprehensive income not yet recognized as a component of net periodic pension cost | ||||||||||||||||
Development of prior service credit | ||||||||||||||||
Balance at beginning of year | $ | (5,822 | ) | 606 | $ | (4,922 | ) | $ | (5,372 | ) | ||||||
Amortization | 450 | (58 | ) | 449 | 450 | |||||||||||
Prior service cost (credit) arising during the year | — | (6,370 | ) | |||||||||||||
Unrecognized net prior service cost (credit) | (5,372 | ) | (5,822 | ) | ||||||||||||
Net prior service credit | (4,473 | ) | (4,922 | ) | ||||||||||||
Development of actuarial loss: | ||||||||||||||||
Development of actuarial loss | ||||||||||||||||
Balance at beginning of year | 30,373 | 30,409 | 38,245 | 42,559 | ||||||||||||
Amortization | (1,788 | ) | (1,959 | ) | (2,400 | ) | (2,487 | ) | ||||||||
Loss arising during the year | 13,975 | 1,923 | ||||||||||||||
(Gain)/Loss arising during the year | 11,980 | (1,827 | ) | |||||||||||||
Unrecognized actuarial loss | 42,560 | 30,373 | ||||||||||||||
Actuarial net loss | 47,825 | 38,245 | ||||||||||||||
Sum of deferrals | $ | 37,188 | 24,551 | $ | 43,352 | $ | 33,323 | |||||||||
Net amount recognized | $ | (3,489 | ) | (1,433 | ) | $ | (3,029 | ) | $ | (4,132 | ) |
The amounts recognized in the balance sheets as of December 31, 2010 and 2009 consist of the following: |
2010 | 2009 | |||||||
Pension liability | $ | 46,382 | $ | 37,455 | ||||
Accumulated other comprehensive loss, net of a deferred tax of $16,373 and $12,944 in 2010 and 2009, respectively | 27,821 | 20,379 |
47
2010 | 2009 | 2008 | ||||||||||
Components of net periodic benefit cost | ||||||||||||
Service cost | $ | 4,976 | $ | 4,912 | $ | 5,287 | ||||||
Interest cost | 6,033 | 5,712 | 5,458 | |||||||||
Expected return on assets | (4,262 | ) | (4,018 | ) | (5,027 | ) | ||||||
Amortization of prior service (benefit) cost | (450 | ) | (450 | ) | (450 | ) | ||||||
Amortization of actuarial loss | 2,400 | 2,487 | 1,788 | |||||||||
Net periodic benefit cost | $ | 8,697 | $ | 8,643 | $ | 7,056 | ||||||
2008 | 2007 | |||||||
Pension liability | $ | 40,676 | 25,984 | |||||
Accumulated other comprehensive loss, net of a deferred tax of $14,383 and $9,501 in 2008 and 2007, respectively | 22,805 | 15,050 |
2008 | 2007 | 2006 | ||||||||||
Components of net periodic benefit cost: | ||||||||||||
Service cost | $ | 5,287 | 5,489 | 5,459 | ||||||||
Interest cost | 5,458 | 5,072 | 4,655 | |||||||||
Expected return on assets | (5,027 | ) | (4,383 | ) | (3,858 | ) | ||||||
Amortization of prior service cost (benefit) | (450 | ) | 58 | 48 | ||||||||
Amortization of actuarial loss | 1,788 | 1,959 | 2,435 | |||||||||
Net periodic benefit cost | $ | 7,056 | 8,195 | 8,739 | ||||||||
Net periodic pension expense may include settlement charges as a result of retirees selecting lump-sum distributions. Settlement charges may increase in the future if the number of eligible participants deciding to receive distributions and the amount of their benefits increases.
48 Triple-S Management Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 (dollar amounts in thousands, except per share data)
Increasing risk is rewarded with compensating returns over time, and therefore, prudent risk taking is justifiable for long-term investors.
Triple-S Management Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 2008 (
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