UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark~~(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

orOr

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to _____

COMMISSION FILE NUMBER: 001-33865

Triple-S Management Corporation

Puerto Rico		66-0555678
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1441 F.D. Roosevelt Avenue San Juan, Puerto Rico		00920
(Address of principal executive offices)		(Zip code)

(787) 749-4949

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☑
	Non-accelerated filer ☐	Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☑ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title of each class		Outstanding at ~~September 30, 2017~~March 31, 2018
Common Stock Class A, $1.00 par value		950,968
Common Stock Class B, $1.00 par value		~~22,951,139~~22,331,922

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended ~~September 30, 2017~~March 31, 2018

Table of Contents

Part I – Financial Information			3

	Item 1.	Financial Statements	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

		Cautionary Statement Regarding Forward-Looking Information	33
		Overview	33
		Recent Developments	34
		Recent Accounting Standards	3936
		Managed Care Membership	3936
		Consolidated Operating Results	4037
		Managed Care Operating Results	4339
		Life Insurance Operating Results	4641
		Property and Casualty Insurance Operating Results	4742
		Liquidity and Capital Resources	4943

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5145

	Item 4.	Controls and Procedures	5145

Part II – Other Information			5345

	Item 1.	Legal Proceedings	5345

	Item 1A.	Risk Factors	5345

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5446

	Item 3.	Defaults Upon Senior Securities	5446

	Item 4.	Mine Safety Disclosures	5446

	Item 5.	Other Information	5446

	Item 6.	Exhibits	5446

SIGNATURES			5547

Table of Contents

Part I – Financial Information

~~Item 1.~~

Item 1.

Financial Statements

Triple-S Management Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(dollar amounts in thousands, except share data)

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Assets
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities	$	1,123,990		$	1,151,643
Equity securities		332,705			270,349
Securities held to maturity, at amortized cost:
Fixed maturities		2,839			2,836
Fixed maturities available for sale, at fair value							$	1,323,777		$	1,216,788
Fixed maturities held to maturity, at amortized cost								2,483			2,319
Equity investments, at fair value								272,189			342,309
Other invested assets, at net asset value								44,149			34,984
Policy loans		9,260			8,564			9,262			9,077
Cash and cash equivalents		269,942			103,428			212,610			198,941
Total investments and cash		1,738,736			1,536,820			1,864,470			1,804,418
Premiums and other receivables, net		930,972			286,365			775,258			899,327
Deferred policy acquisition costs and value of business acquired		201,467			194,787			202,581			200,788
Property and equipment, net		73,609			66,369			76,825			74,716
Deferred tax asset		66,969			57,768			65,065			65,123
Goodwill		25,397			25,397			25,397			25,397
Other assets		49,642			51,493			91,395			46,996
Total assets	$	3,086,792		$	2,218,999		$	3,100,991		$	3,116,765
Liabilities and Stockholders' Equity
Claim liabilities	$	1,108,698		$	487,943		$	1,034,761		$	1,106,876
Liability for future policy benefits		336,518			321,232			344,536			339,507
Unearned premiums		165,819			79,310			174,056			86,349
Policyholder deposits		177,265			179,382			176,704			176,534
Liability to Federal Employees' Health Benefits and Federal Employees' Programs		46,742			34,370
Liability to Federal Employees' Health Benefits and
Federal Employees' Programs								56,656			52,287
Accounts payable and accrued liabilities		273,656			169,449			334,945			354,894
Deferred tax liability		21,902			18,850			19,127			21,891
Long-term borrowings		32,870			35,085			31,275			32,073
Liability for pension benefits		26,592			30,892			33,382			33,672
Total liabilities		2,190,062			1,356,513			2,205,442			2,204,083
Stockholders’ equity:
Triple-S Management Corporation stockholders' equity
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at September 30, 2017 and December 31, 2016, respectively		951			951
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,951,139 and 23,321,163 shares at September 30, 2017 and December 31, 2016, respectively		22,951			23,321
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 950,968 at March 31, 2018 and December 31, 2017, respectively								951			951
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 22,331,922 and 22,627,077 shares at March 31, 2018 and December 31, 2017, respectively								22,332			22,627
Additional paid-in capital		55,060			65,592			39,153			53,142
Retained earnings		761,179			730,904			829,186			785,390
Accumulated other comprehensive income		57,268			42,395			4,609			51,254
Total Triple-S Management Corporation stockholders' equity		897,409			863,163			896,231			913,364
Non-controlling interest in consolidated subsidiary		(679	)		(677	)		(682	)		(682	)
Total stockholders' equity		896,730			862,486			895,549			912,682
Total liabilities and stockholders' equity	$	3,086,792		$	2,218,999		$	3,100,991		$	3,116,765

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Earnings (Unaudited)

(dollar amounts in thousands, except per share data)

	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
	2017		2016			2017		2016			2018			2017
Revenues:
Premiums earned, net	$	714,325	$	721,187		$	2,139,489	$	2,188,770		$	752,034		$	702,273
Administrative service fees		3,391		4,146			12,318		13,749			3,348			4,379
Net investment income		12,395		12,337			37,109		36,570			13,755			12,016
Other operating revenues		941		871			3,027		2,598			1,071			965
Total operating revenues		731,052		738,541			2,191,943		2,241,687			770,208			719,633
Net realized investment gains (losses):
Total other-than-temporary impairment losses on securities		-		-			-		(1,434	)
Net realized gains, excluding other-than-temporary impairment losses on securities		3,753		5,376			8,143		8,388
Net realized investment gains on sale of securities		3,753		5,376			8,143		6,954
Net realized investment gains												2,942			336
Net unrealized investment losses on equity investments												(16,199	)		-
Other income, net		3,409		734			6,521		5,468			1,163			2,525
Total revenues		738,214		744,651			2,206,607		2,254,109			758,114			722,494
Benefits and expenses:
Claims incurred		583,625		629,169			1,815,785		1,877,950			618,989			620,863
Operating expenses		119,145		123,406			348,811		367,498			133,134			110,946
Total operating costs		702,770		752,575			2,164,596		2,245,448			752,123			731,809
Interest expense		1,709		1,893			5,116		5,729			1,690			1,686
Total benefits and expenses		704,479		754,468			2,169,712		2,251,177			753,813			733,495
Income (loss) before taxes		33,735		(9,817	)		36,895		2,932			4,301			(11,001	)
Income tax expense (benefit)		11,824		(7,873	)		6,622		(2,457	)
Income taxes												387			(6,658	)
Net income (loss)		21,911		(1,944	)		30,273		5,389			3,914			(4,343	)
Less: Net loss attributable to non-controlling interest		1		3			2		6			-			1
Net income (loss) attributable to Triple-S Management Corporation	$	21,912	$	(1,941	)	$	30,275	$	5,395		$	3,914		$	(4,342	)
Earnings per share attributable to Triple-S Management Corporation
Basic net income (loss) per share	$	0.91	$	(0.08	)	$	1.25	$	0.22		$	0.17		$	(0.18	)
Diluted net income (loss) per share	$	0.91	$	(0.08	)	$	1.25	$	0.22		$	0.17		$	(0.18	)

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
	2017		2016			2017		2016			2018			2017
Net income (loss)	$	21,911	$	(1,944	)	$	30,273	$	5,389		$	3,914		$	(4,343	)
Other comprehensive (loss) income, net of tax:
Net unrealized change in fair value of available for sale securities, net of taxes		1,851		(1,884	)		14,719		33,523			(6,894	)		8,472
Defined benefit pension plan:
Actuarial loss, net		48		525			154		1,754			131			53
Prior service credit, net		-		(59	)		-		(209	)
Total other comprehensive income (loss), net of tax		1,899		(1,418	)		14,873		35,068
Comprehensive income (loss)		23,810		(3,362	)		45,146		40,457
Total other comprehensive (loss) income, net of tax												(6,763	)		8,525
Comprehensive (loss) income												(2,849	)		4,182
Comprehensive income attributable to non-controlling interest		1		3			2		6			-			1
Comprehensive income (loss) attributable to Triple-S Management Corporation	$	23,811	$	(3,359	)	$	45,148	$	40,463
Comprehensive (loss) income attributable to Triple-S Management Corporation											$	(2,849	)	$	4,183

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(dollar amounts in thousands)

	2017			2016			2018			2017
Balance at January 1	$	863,163		$	847,526		$	913,364		$	863,163
Share-based compensation		1,651			2,266			391			(1,443	)
Stock issued upon the exercise of stock options		-			55
Repurchase and retirement of common stock		(12,553	)		(21,427	)		(14,675	)		-
Comprehensive income		45,148			40,463
Comprehensive (loss) income								(2,849	)		4,183
Total Triple-S Management Corporation stockholders' equity		897,409			868,883			896,231			865,903
Non-controlling interest in consolidated subsidiary		(679	)		(676	)		(682	)		(678	)
Balance at September 30	$	896,730		$	868,207
Balance at March 31							$	895,549		$	865,225

See accompanying notes to unaudited condensed consolidated financial statements.

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~~Triple-S Management Corporation~~

~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~

~~(dollar amounts in thousands)~~

Nine months ended
September 30,

2017 2016
Cash flows from operating activities:
Net income $ 30,273 5,389
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,835 10,617
Net amortization of investments 7,396 6,181
Additions to the allowance for doubtful receivables 2,043 2,498
Deferred tax benefit (9,993 ) (4,026 )
Net realized investment gain on sale of securities (8,143 ) (6,954 )
Interest credited to policyholder deposits 3,151 3,091
Share-based compensation 1,651 1,931
(Increase) decrease in assets:
Premium and other receivables, net (646,650 ) (53,816 )
Deferred policy acquisition costs and value of business acquired (7,139 ) (5,250 )
Deferred taxes (218 ) (2,384 )
Other assets 2,976 (15,598 )
Increase in liabilities:
Claim liabilities 620,755 19,612
Liability for future policy benefits 15,286 25,874
Unearned premiums 86,509 79,806
Liability to Federal Employees' Health Benefits and Federal Employees' Programs 12,372 7,779
Accounts payable and accrued liabilities 71,745 8,261
Net cash provided by operating activities 191,849 83,011

~~(Continued)~~

~~Table of Contents~~

Triple-S Management Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(~~dollar~~Dollar amounts in thousands)

Nine months ended
September 30,

2017 2016
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold $ 287,223 $ 227,631
Fixed maturities matured/called 15,503 32,308
Equity securities sold 38,318 67,054
Securities held to maturity:
Fixed maturities matured/called 1,546 1,220
Acquisition of investments:
Securities available for sale:
Fixed maturities (260,538 ) (258,378 )
Equity securities (75,507 ) (153,399 )
Securities held to maturity:
Fixed maturities (1,550 ) (1,124 )
Increase in other investments (2,207 ) (1,939 )
Net change in policy loans (696 ) (471 )
Net capital expenditures (15,949 ) (3,517 )
Net cash used in investing activities (13,857 ) (90,615 )
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances 8,371 (1,035 )
Repayments of long-term borrowings (2,028 ) (1,230 )
Repurchase and retirement of common stock (12,553 ) (21,371 )
Proceeds from policyholder deposits 12,130 12,488
Surrenders of policyholder deposits (17,398 ) (13,543 )
Net cash used in financing activities (11,478 ) (24,691 )
Net increase (decrease) in cash and cash equivalents 166,514 (32,295 )
Cash and cash equivalents:
Beginning of period 103,428 197,818
End of period $ 269,942 $ 165,523

	Three months ended March 31,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	3,914		$	(4,343	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		3,410			2,990
Net amortization of investments		1,939			2,356
Additions (reductions) to the allowance for doubtful receivables		709			(3,209	)
Deferred tax benefit		(1,503	)		(7,525	)
Net realized investment gain on sale of securities		(2,942	)		(336	)
Net unrealized loss on equity investments		16,199			-
Interest credited to policyholder deposits		1,094			991
Share-based compensation		391			(1,443	)
Decrease (increase) in assets:
Premium and other receivables, net		123,360			(3,263	)
Deferred policy acquisition costs and value of business acquired		(161	)		(822	)
Deferred taxes		431			(265	)
Other assets		(40,489	)		(37	)
(Decrease) increase in liabilities:
Claim liabilities		(72,115	)		42,361
Liability for future policy benefits		5,029			4,930
Unearned premiums		87,707			84,470
Liability to Federal Employees' Health Benefits and Federal Employees' Programs		4,369			2,836
Accounts payable and accrued liabilities		(869	)		11,274
Net cash provided by operating activities		130,473			130,965
(Continued)

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Triple-S Management Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)

	Three months ended March 31,
	2018			2017
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold	$	443,419		$	26,023
Fixed maturities matured/called		5,368			5,001
Securities held to maturity:
Fixed maturities matured/called		1,048			703
Equity investments sold		113,863			10,272
Other invested assets sold		845			-
Acquisition of investments:
Securities available for sale:
Fixed maturities		(575,694	)		(33,738	)
Securities held to maturity:
Fixed maturities		(1,212	)		(382	)
Equity investments		(49,591	)		(5,482	)
Other invested assets		(9,683	)		-
Increase in other investments		(4,136	)		(2,044	)
Net change in policy loans		(185	)		18
Net capital expenditures		(4,861	)		(3,295	)
Net cash used in investing activities		(80,819	)		(2,924	)
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances		(19,992	)		(11,401	)
Repayments of long-term borrowings		(810	)		(24,676	)
Proceeds from long-term borrowings		-			24,266
Repurchase and retirement of common stock		(14,259	)		-
Proceeds from policyholder deposits		6,237			4,116
Surrenders of policyholder deposits		(7,161	)		(4,890	)
Net cash used in financing activities		(35,985	)		(12,585	)
Net increase in cash and cash equivalents		13,669			115,456
Cash and cash equivalents:
Beginning of period		198,941			103,428
End of period	$	212,610		$	218,884

See accompanying notes to unaudited condensed consolidated financial statements.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(1)	Basis of Presentation

The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited. In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries. The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial ~~statements~~statement presentation. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included. The results of operations for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results for the full year ending December 31, ~~2017.~~2018.

(2)	~~Recent~~Significant Accounting ~~Standards~~Policies

~~On August 28,~~Investments

Fixed maturities and other invested assets

Investment in debt securities at March 31, 2018 and December 31, 2017 ~~the Financial Accounting Standard Board (FASB) issued,~~ ~~Derivatives~~consists mainly of obligations of government‑sponsored enterprises, U.S. Treasury securities and ~~Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, ~~which finalizes Proposed~~ ~~Accounting Standard Update (ASU~~) ~~No. 2016-310~~obligations of U.S. government instrumentalities, obligations of the ~~same name,~~Commonwealth of Puerto Rico and ~~aims~~its instrumentalities, municipal securities, corporate bonds, residential mortgage-backed securities, collateralized mortgage obligations. The Company classifies its debt securities in one of two categories: available-for-sale or held-to-maturity. Securities classified as held-to-maturity are those securities in which the Company has the ability and intent to ~~improve~~hold until maturity. All other securities not included in held-to-maturity are classified as available-for-sale.

Available-for-sale securities are recorded at fair value. The fair values of debt securities (both available-for-sale and held-to-maturity investments) are based on quoted market prices for those or similar investments at the ~~financial~~ reporting date. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The purpose of this guidance is to better align an entity’s risk management activitiespremiums and ~~financial reporting for hedging relationships through changes to both the designation~~discounts, respectively. Unrealized holding gains and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentationlosses, net of the ~~effects~~related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are included in earnings and are determined on a specific‑identification basis.

Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from held-to-maturity to available-for-sale are recorded as a separate component of other comprehensive income. The unrealized holding gains or losses included in the separate component of other comprehensive income for securities transferred from available-for-sale to held-to-maturity, are maintained and amortized into earnings over the remaining life of the ~~hedging instrument and~~security as an adjustment to yield in a manner consistent with the hedged item in the financial statements. Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedgesamortization or accretion of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness, and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Since we currently do not have these types of financial instruments, the adoption of this guidance should not have a material impactpremium or discount on the ~~presentation of the Company’s consolidated result of operations.~~

~~On July 13, 2017, the FASB issued guidance which finalizes Proposed ASU No. 2016-370, and addresses narrow issues identified as a result of the complexity~~ associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. Part I of the ASU addresses the complexity of accounting for certain financial instruments with down round features (i.e., features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings), in response to stakeholders who, among other things, expressed concern that current accounting guidance creates cost and complexity for entities that issue financial instruments (e.g., warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II addresses the difficulty of navigating ~~Topic 480~~, ~~Distinguishing Liabilities from Equity~~, because of the existence of pending content in the Codification that results from the indefinite deferral of accounting requirements concerning mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests. For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Since we currently do not have these types of financial instruments, the adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.security.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

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 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.

A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, market conditions, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

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 may differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods.

Other invested assets at March 31, 2018 and December 31, 2017 consist mainly of alternative investments in partnerships which invest in several private debt and private equity funds. Portfolios are diversified by vintage year, stage, geography, business sectors and number of investments. These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair values of the investments in this class have been estimated using the net asset value (NAV) of the Company’s ownership interest in the partnerships. Total unfunded capital commitments for these positions as of March 31, 2018 amounted to $107,035. The remaining average commitments period is approximately three years.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

Equity investments

Investment in equity securities at March 31, 2018 and December 31, 2017 consists of mutual funds whose underlying assets are comprised of domestic equity securities, international equity securities and higher risk fixed income instruments. Equity investments are recorded at fair value. The fair values of equity investments are based on quoted market prices. Unrealized holding gains and losses, on equity investments are included in earnings. Realized gains and losses from the sale of equity investments are included in earnings and are determined on a specific‑identification basis.

Recent Accounting Standards

On ~~May 10, 2017,~~February 28, 2018, the ~~FASB~~Financial Accounting Standard Board (FASB) issued guidance for Technical Corrections and Improvement to ~~provide clarity~~Financial Instruments – Overall: Recognition and ~~reduce both~~Measurement of Financial Assets and Financial Liabilities. Areas for correction or improvement include (1) ~~diversity in practice~~equity securities without a readily determinable fair value—discontinuation, (2) equity securities without a readily determinable fair value—adjustments, (3) forward contracts and ~~(2) cost and complexity when applying the guidance in Topic 718,~~ ~~Compensation-Stock Compensation~~, to a change in the terms and conditions of a share-based payment award. The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award. This guidance indicates an entity should accountpurchased options, (4) presentation requirements for ~~the effects of a modification unless the following criteria are met: (1) t~~hecertain fair value ~~(or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the~~option liabilities, (5) fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately beforeoption liabilities denominated in a foreign currency, and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an(6) transition guidance for equity ~~or liability instrument is the same as the classification of the original award immediately before the original award is modified.~~ securities without a readily determinable fair value. For ~~all~~public companies, these amendments, ~~which should~~will be applied on a prospective basis, ~~are effective~~ for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ~~We are currently evaluating the impact the adoption of this guidance may have on the Company's consolidated financial statements.~~

~~On March 10, 2017,~~ the FASB issued guidance to improve the presentation of defined benefit costs in the income statement. In particular, the guidance requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, this guidance allows only the service cost component to be eligible for capitalization, when applicable (e.g., as a cost of internally manufactured inventory or a self-constructed asset). ~~For public companies, these amendments, which should be applied on a prospective basis, are effective for~~Public entities with fiscal years beginning ~~after~~between December 15, 2017 ~~including~~and June 15, 2018 are not required to adopt these amendments until the interim ~~periods within those fiscal years. Since we do not present a subtotal of income from operations, the~~period beginning after June 15, 2018. The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

Recently Adopted Accounting Standards

On January ~~26, 2017,~~ 5, 2016, the FASB issued guidance to ~~simplify~~enhance the ~~manner~~reporting model for financial instruments to provide users of financial statements with more decision-useful information. Among the many targeted improvements to U.S. GAAP are (1) requiring equity investments, except those accounted for under the equity method of accounting or those that result in ~~which an entity is required~~consolidation of the investee, to ~~evaluate goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied~~be measured at fair value with changes in fair value recognized in net income; (2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a ~~reporting unit’s goodwill with~~qualitative assessment to identify impairment; (3) eliminating the ~~carrying amount of that goodwill. Instead, under the amendments in this guidance, an entity should (1) perform its annual or interim goodwill impairment test by comparing~~requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; and (4) clarifying that an entity should evaluate the need for a ~~reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value,~~valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the ~~understanding~~entity’s other deferred tax assets. This guidance applies to all entities that ~~the loss recognized should not exceed the total amount of goodwill allocated to~~hold financial assets or owe financial liabilities. The Company also adopted guidance issued by FASB on March 9, 2018 that ~~reporting unit. Additionally, this guidance~~ removes the ~~requirements~~previous guidance for ~~any reporting unit with a zero or negative carrying amount to perform a qualitative assessment~~Other Than Temporary Impairment of Certain Investments in Equity Securities as required by SEC Staff Accounting Bulletin (SAB) No. 117 and ifSEC Release No. 33-9273, since it ~~fails such qualitative test, to perform Step 2 of the goodwill impairment test.~~ is no longer applicable. For public companies, these amendments ~~which should be applied on a prospective basis, are~~became effective for fiscal years beginning after December 15, ~~2019,~~2017, including interim periods within those fiscal years. ~~We are currently evaluating the impact the adoption of~~The Company adopted this guidance ~~may~~for equity securities effective January 1, 2018. A cumulative-effect adjustment of $39,882 was made from accumulated other comprehensive income to the beginning retained earnings at the implementation date.

Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months ended March 31, 2018 that could have a material impact on the ~~Company's consolidated~~Corporation’s financial ~~statements.~~position, operating results or financials statement disclosures.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

~~Other than the accounting pronouncement disclosed above, there were no other new accounting~~ pronouncements issued during the three months and nine months ended September 30, 2017 that could have a material impact on the Corporation’s financial position, operating results or financial statements disclosures.

(3)	Investment in Securities

The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for ~~available-for-sale and held-to-maturity~~the Company’s investments in securities by major security type and class of security at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, were as follows:

September 30, 2017

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Securities available for sale:
Fixed maturities:
Obligations of government- sponsored enterprises $ 3,349 $ 25 $ - $ 3,374
U.S. Treasury securities and obligations of U.S. government instrumentalities 72,349 54 (76 ) 72,327
Obligations of the Commonwealth of Puerto Rico and its instrumentalities 8,000 83 - 8,083
Municipal securities 699,770 32,950 (349 ) 732,371
Corporate bonds 246,787 16,411 (26 ) 263,172
Residential mortgage-backed securities 21,012 30 (96 ) 20,946
Collateralized mortgage obligations 23,769 31 (83 ) 23,717
Total fixed maturities 1,075,036 49,584 (630 ) 1,123,990
Equity securities:
Mutual funds 251,208 47,213 (293 ) 298,128
Alternative investments 34,331 519 (273 ) 34,577
Total equity securities 285,539 47,732 (566 ) 332,705
Total $ 1,360,575 $ 97,316 $ (1,196 ) $ 1,456,695

	March 31, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value

Fixed maturities available for sale
Obligations of government- sponsored enterprises	$	1,441	$	6	$	-		$	1,447
U.S. Treasury securities and obligations of U.S. government instrumentalities		268,264		570		(335	)		268,499
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		8,117		9		-			8,126
Municipal securities		758,689		24,033		(1,587	)		781,135
Corporate bonds		187,392		14,349		(1,168	)		200,573
Residential mortgage-backed securities		52,624		149		(764	)		52,009
Collateralized mortgage obligations		12,335		6		(353	)		11,988
Total fixed maturities available for sale	$	1,288,862	$	39,122	$	(4,207	)	$	1,323,777

	March 31, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Fixed maturities held to maturity
U.S. Treasury securities and obligations of U.S. government instrumentalities	$	617	$	131	$	-	$	748
Residential mortgage-backed securities		191		2		-		193
Certificates of deposit		1,675		-		-		1,675
Total	$	2,483	$	133	$	-	$	2,616

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

December 31, 2016

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Securities available for sale:
Fixed maturities:
Obligations of government- sponsored enterprises $ 41,442 $ 87 $ (15 ) $ 41,514
U.S. Treasury securities and obligations of U.S. government instrumentalities 85,652 157 (9 ) 85,800
Obligations of the Commonwealth of Puerto Rico and its instrumentalities 17,930 2,189 (68 ) 20,051
Municipal securities 650,175 34,187 (559 ) 683,803
Corporate bonds 263,351 12,182 (661 ) 274,872
Residential mortgage-backed securities 684 34 - 718
Collateralized mortgage obligations 45,069 58 (242 ) 44,885
Total fixed maturities 1,104,303 48,894 (1,554 ) 1,151,643
Equity securities - Mutual funds 240,699 30,101 (451 ) 270,349
Total $ 1,345,002 $ 78,995 $ (2,005 ) $ 1,421,992

September 30, 2017

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Securities held to maturity:
U.S. Treasury securities and obligations of U.S. government instrumentalities $ 618 $ 164 $ - $ 782
Residential mortgage-backed securities 191 2 - 193
Certificates of deposit 2,030 - - 2,030
Total $ 2,839 $ 166 $ - $ 3,005

	March 31, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Equity investments - Mutual Funds	$	238,539	$	35,111	$	(1,461	)	$	272,189

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

December 31, 2016

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Securities held to maturity:
U.S. Treasury securities and obligations of U.S. government instrumentalities $ 619 $ 158 $ - $ 777
Residential mortgage-backed securities 191 18 - 209
Certificates of deposit 2,026 - - 2,026
Total $ 2,836 $ 176 $ - $ 3,012

	March 31, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Other invested assets - Alternative investments	$	43,859	$	927	$	(637	)	$	44,149

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value

Securities available for sale
Fixed maturities
Obligations of government- sponsored enterprises	$	1,431	$	13	$	-		$	1,444
U.S. Treasury securities and obligations of U.S. government instrumentalities		118,858		41		(550	)		118,349
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		8,059		34		-			8,093
Municipal securities		771,789		30,468		(1,467	)		800,790
Corporate bonds		217,046		17,767		(489	)		234,324
Residential mortgage-backed securities		32,465		2		(355	)		32,112
Collateralized mortgage obligations		22,003		10		(337	)		21,676
Total fixed maturities		1,171,651		48,335		(3,198	)		1,216,788
Equity securities
Mutual Funds		292,460		50,072		(223	)		342,309
Alternative investments		34,669		559		(244	)		34,984
Total equity securities		327,129		50,631		(467	)		377,293
Total	$	1,498,780	$	98,966	$	(3,665	)	$	1,594,081

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	December 31, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Securities held to maturity:
U.S. Treasury securities and obligations of U.S. government instrumentalities	$	617	$	154	$	-	$	771
Residential mortgage-backed securities		191		2		-		193
Certificates of deposit		1,511		-		-		1,511
Total	$	2,319	$	156	$	-	$	2,475

Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

September 30, 2017
Less than 12 months 12 months or longer Total

Estimated
Fair Value

Gross
Unrealized
Loss

Number of
Securities

Estimated
Fair Value

Gross
Unrealized
Loss

Number of
Securities

Estimated
Fair Value

Gross
Unrealized
Loss

Number of
Securities

Securities available for sale:
Fixed maturities
U.S. Treasury securities and obligations of U.S. governmental instrumentalities $ 35,951 $ (76 ) 3 $ - $ - - $ 35,951 $ (76 ) 3
Municipal securities 97,929 (349 ) 14 - - - 97,929 (349 ) 14
Corporate bonds 15,215 (26 ) 3 - - - 15,215 (26 ) 3
Residential mortgage-backed securities 15,462 (96 ) 7 - - - 15,462 (96 ) 7
Collateralized mortgage obligations 17,947 (77 ) 4 657 (6 ) 2 18,604 (83 ) 6
Total fixed maturities 182,504 (624 ) 31 657 (6 ) 2 183,161 (630 ) 33
Equity securities
Mutual funds 20,880 (293 ) 4 - - - 20,880 (293 ) 4
Alternative investments 10,640 (147 ) 9 2,667 (126 ) 1 13,307 (273 ) 10
Total equity securities 31,520 (440 ) 13 2,667 (126 ) 1 34,187 (566 ) 14
Total for securities available for sale $ 214,024 $ (1,064 ) 44 $ 3,324 $ (132 ) 3 $ 217,348 $ (1,196 ) 47

	March 31, 2018
	Less than 12 months							12 months or longer							Total
	Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities


Fixed maturities available for sale
U.S. Treasury securities and obligations of U.S. governmental instrumentalities	$	70,224	$	(335	)		6	$	-	$	-			-	$	70,224	$	(335	)		6
Municipal securities		173,011		(1,581	)		26		712		(6	)		1		173,723		(1,587	)		27
Corporate bonds		94,616		(1,168	)		21		-		-			-		94,616		(1,168	)		21
Residential mortgage-backed securities		30,529		(764	)		19		-		-			-		30,529		(764	)		19
Collateralized mortgage obligations		3,464		(94	)		1		7,898		(259	)		2		11,362		(353	)		3
Total fixed maturities	$	371,844	$	(3,942	)		73	$	8,610	$	(265	)		3	$	380,454	$	(4,207	)		76

Other invested assets - Alternative investments	$	16,031	$	(185	)		5	$	5,694	$	(452	)		2	$	21,725	$	(637	)		7

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Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

	December 31, 2016																					December 31, 2017
	Less than 12 months							12 months or longer							Total							Less than 12 months							12 months or longer							Total
	Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities		Estimated Fair Value		Gross Unrealized Loss			Number of Securities

Securities available for sale:
Securites available for sale
Fixed maturities
Obligations of government- sponsored enterprises	$	9,483	$	(15	)		1	$	-	$	-			-	$	9,483	$	(15	)		1
U.S. Treasury securities and obligations of U.S. governmental instrumentalities		12,937		(9	)		1		-		-			-		12,937		(9	)		1	$	96,617	$	(550	)		7	$	-	$	-			-	$	96,617	$	(550	)		7
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		7,758		(68	)		5		-		-			-		7,758		(68	)		5
Municipal securities		84,252		(559	)		13		-		-			-		84,252		(559	)		13		162,731		(1,467	)		27		-		-			-		162,731		(1,467	)		27
Corporate bonds		105,054		(661	)		22		-		-			-		105,054		(661	)		22		80,374		(489	)		16		-		-			-		80,374		(489	)		16
Residential mortgage-backed securities																							31,736		(355	)		19		-		-			-		31,736		(355	)		19
Collateralized mortgage obligations		32,120		(239	)		8		784		(3	)		1		32,904		(242	)		9		13,630		(239	)		3		7,294		(98	)		2		20,924		(337	)		5
Total fixed maturities		251,604		(1,551	)		50		784		(3	)		1		252,388		(1,554	)		51		385,088		(3,100	)		72		7,294		(98	)		2		392,382		(3,198	)		74
Equity securities-Mutual funds		22,615		(451	)		4		-		-			-		22,615		(451	)		4
Equity securities
Mutual funds																							42,983		(223	)		6		-		-			-		42,983		(223	)		6
Alternative investments																							9,986		(212	)		5		3,162		(32	)		1		13,148		(244	)		6
Total equity securities																							52,969		(435	)		11		3,162		(32	)		1		56,131		(467	)		12
Total for securities available for sale	$	274,219	$	(2,002	)		54	$	784	$	(3	)		1	$	275,003	$	(2,005	)		55	$	438,057	$	(3,535	)		83	$	10,456	$	(130	)		3	$	448,513	$	(3,665	)		86

The ~~Corporation~~Company reviews the ~~investment~~available for sale and other invested assets portfolios under the ~~Corporation’s~~Company’s impairment review policy. Given market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and material other-than-temporary impairments may be recorded in future periods. The Corporation from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

Obligations of U.S. Government Instrumentalities and Municipal Securities: The unrealized losses on the ~~Corporation’s~~Company’s investments in U.S. Government Instrumentalities and Municipal Securities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, these ~~positions~~investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the ~~Corporation~~Company does not intend to sell the investments and it is not more likely than not that the ~~Corporation~~Company will ~~not~~ be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the ~~Corporation~~Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

~~Obligations of the Commonwealth of Puerto Rico and its Instrumentalities:~~ Our holdings in Puerto Rico municipals consist of escrowed bonds which are backed by U.S. Government securities and therefore have an implicit AA+/Aaa rating. These bonds do not bear Puerto Rico credit risk. As of September 30, 2017, investments in these escrowed bonds were not at an unrealized loss position.

Corporate Bonds: The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions. All corporate bonds with an unrealized loss have investment grade ratings. Because the decline in estimated fair value is principally attributable to changes in interest rates; because the Company does not intend to sell the investments and it is not more likely than not that the Company will ~~not~~ be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Company expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

Residential ~~Mortgage-Backed Securities~~mortgage-backed securities and Collateralized ~~Mortgage Obligations~~mortgage obligations: The unrealized losses on investments in residential mortgage-backed securities and collateralized mortgage obligations (“CMOs”) were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored ~~enterprises.~~enterprise. Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss. The ~~Corporation~~investment grade credit rating of our securities reflects the seniority of the securities that the Company owns. The Company does not consider these investments other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality; the ~~Corporation~~Company does not intend to sell the investments and it is more likely than not that the ~~Corporation~~Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the ~~Corporation~~Company expects to collect all contractual cash flows.

~~Mutual Funds and Alternative Investments:~~15 As

Table of ~~September 30, 2017, investments~~Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in mutual funds and alternative investments with unrealized losses are not considered other-than-temporarily impaired based on market conditions and the length of time the funds have been in a loss position. There were no impairments on mutual funds and alternative investments during the three months and nine months ended September 30, 2017. During the nine months ended September 30, 2016, we recorded an other-than-temporary impairment related to certain mutual funds amounting to $1,434. There were no impairments on mutual funds and alternative investments during the three months ended September 30, 2016.thousands, except per share data)

(unaudited)

Maturities of investment securities classified as available for sale and held to maturity were as follows:

	September 30, 2017				March 31, 2018
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Securities available for sale:
Fixed maturities available for sale
Due in one year or less	$	15,708	$	15,839		29,553		29,684
Due after one year through five years		306,564		309,836		382,708		383,269
Due after five years through ten years		154,246		160,637		350,676		353,952
Due after ten years		553,737		593,015		460,966		492,875
Residential mortgage-backed securities		21,012		20,946		52,624		52,009
Collateralized mortgage obligations		23,769		23,717		12,335		11,988
	$	1,075,036	$	1,123,990	$	1,288,862	$	1,323,777
Securities held to maturity:
Fixed maturities held to maturity
Due in one year or less	$	2,030	$	2,030		1,675		1,675
Due after ten years		618		782		617		748
Residential mortgage-backed securities		191		193		191		193
	$	2,839	$	3,005	$	2,483	$	2,616

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.

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Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

Information regarding realized and unrealized gains and losses from investments is as follows:

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 2017 2016
Realized gains (losses):
Fixed maturity securities:
Securities available for sale:
Gross gains from sales $ 933 $ 187 $ 1,334 $ 2,060
Gross losses from sales (194 ) (20 ) (830 ) (1,482 )
Total fixed maturity securities 739 167 504 578
Equity securities:
Securities available for sale:
Gross gains from sales 3,014 5,873 7,641 8,985
Gross losses from sales - (664 ) (2 ) (1,175 )
Gross losses from other-than-temporary impairments - - - (1,434 )
Total equity securities 3,014 5,209 7,639 6,376
Net realized gains on securities available for sale $ 3,753 $ 5,376 $ 8,143 $ 6,954

	Three months ended March 31,
	2018			2017
Realized gains (losses)
Fixed maturity securities:
Securities available for sale:
Gross gains	$	172		$	17
Gross losses		(7,930	)		(119	)
Total debt securities		(7,758	)		(102	)
Equity investments:
Gross gains		8,203			438
Gross losses		(499	)		-
Total equity securities		7,704			438
Other invested assets:
Gross gains		3,207			-
Gross losses		(211	)		-
Total other invested assets		2,996			-
Net realized investment gains	$	2,942		$	336

	Three months ended September 30,						Nine months ended September 30,					Three months ended March 31,
	2017			2016			2017			2016		2018			2017
Changes in net unrealized gains (losses):
Recognized in accumulated other comprehensive income:
Fixed maturities – available for sale	$	(1,199	)	$	(5,762	)	$	1,614		$	35,566	$	(10,222	)	$	(439	)
Equity securities – available for sale		3,605			2,608			17,516			12,285
Other invested assets													(25	)		11,143
	$	2,406		$	(3,154	)	$	19,130		$	47,851	$	(10,247	)	$	10,704
Not recognized in the consolidated financial statements:
Fixed maturities – held to maturity	$	(2	)	$	(14	)	$	(10	)	$	49	$	(23	)	$	2

The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$4,503~~$3,679 and $~~14,328~~2,136, respectively.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, no individual investment in securities exceeded 10% of stockholders’ equity.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(4)	Premiums and Other Receivables, Net

Premiums and other receivables, net were as follows:

	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Premium	$	126,200	$	91,528	$	84,731	$	103,027
Self-funded group receivables		51,198		57,728		40,236		39,859
FEHBP		13,892		14,321		14,084		13,346
Agent balances		33,743		25,495		29,346		32,818
Accrued interest		11,636		13,668		12,417		14,331
Reinsurance recoverable		656,625		58,295		552,615		661,679
Other		73,788		62,637		78,053		70,150
		967,082		323,672		811,482		935,210
Less allowance for doubtful receivables:
Premium		27,135		27,320		27,002		26,490
Other		8,975		9,987		9,222		9,393
		36,110		37,307		36,224		35,883
Total premium and other receivables, net	$	930,972	$	286,365	$	775,258	$	899,327

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had premiums and other receivables of ~~$87,765~~$51,976 and ~~$57,750,~~$81,838, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations. The related allowance for doubtful receivables as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were ~~$17,299~~$17,009 and ~~$18,812,~~$16,436, respectively.

Reinsurance recoverable as of September 30, 2017 includes approximately $604,000 related to the expected catastrophe losses covered by the Property and Casualty segment’s reinsurance program, reflecting the anticipated gross losses related to Hurricanes Irma and Maria in September 2017.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(5)	Fair Value Measurements

Our condensed consolidated balance sheets include the following financial instruments: securities available for sale, equity investments, policy loans, policyholder deposits, and long-term borrowings. We consider the carrying amounts of policy loans, policyholder deposits, and long-term borrowings to approximate their fair value due to the short period of time between the origination of these instruments and the expected realization or payment. Certain assets are measured at fair value on a recurring basis and are disclosed below. These assets are classified into one of three levels of a hierarchy defined by GAAP. For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see the consolidated financial statements and notes thereto included in our ~~2016~~2017 Annual Report on Form 10-K.

The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

	September 30, 2017								March 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Securities available for sale:
Fixed maturity securities

Fixed maturity securities available for sale
Obligations of government-sponsored enterprises	$	-	$	3,374	$	-	$	3,374	$	-	$	1,447	$	-	$	1,447
U.S. Treasury securities and obligations of U.S government instrumentalities		72,327		-		-		72,327		268,499		-		-		268,499
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		8,083		-		8,083		-		8,126		-		8,126
Municipal securities		-		732,371		-		732,371		-		781,135		-		781,135
Corporate bonds		-		263,172		-		263,172		-		200,573		-		200,573
Residential agency mortgage-backed securities		-		20,946		-		20,946		-		52,009		-		52,009
Collateralized mortgage obligations		-		23,717		-		23,717		-		11,988		-		11,988
Total fixed maturities		72,327		1,051,663		-		1,123,990	$	268,499	$	1,055,278	$	-	$	1,323,777
Equity securities - Mutual funds		170,566		127,562		-		298,128

Equity investments									$	138,685	$	133,504	$	-	$	272,189

Alternative investments - measured at net asset value		-		-		-		34,577	$	-	$	-	$	-	$	44,149
Total	$	242,893	$	1,179,225	$	-	$	1,456,695

Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amount presented in this table is intended to facilitate the reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

	December 31, 2016								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Securities available for sale:
Fixed maturity securities
Obligations of government-sponsored enterprises	$	-	$	41,514	$	-	$	41,514	$	-	$	1,444	$	-	$	1,444
U.S. Treasury securities and obligations of U.S government instrumentalities		85,800		-		-		85,800		118,349		-		-		118,349
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		20,051		-		20,051		-		8,093		-		8,093
Municipal securities		-		683,803		-		683,803		-		800,790		-		800,790
Corporate bonds		-		274,872		-		274,872		-		234,324		-		234,324
Residential agency mortgage-backed securities		-		718		-		718		-		32,112		-		32,112
Collateralized mortgage obligations		-		44,885		-		44,885		-		21,676		-		21,676
Total fixed maturities		85,800		1,065,843		-		1,151,643		118,349		1,098,439		-		1,216,788
Equity securities - Mutual funds and alternative investments		166,595		76,222		27,532		270,349
Equity securities - Mutual funds										193,160		149,149		-		342,309
Alternative investments - measured at net asset value										-		-		-		34,984
Total equity securities										193,160		149,149		-		377,293

Total	$	252,395	$	1,142,065	$	27,532	$	1,421,992	$	311,509	$	1,247,588	$	-	$	1,594,081

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

There were no transfers ~~in and/or out of Level 3 and~~ between Levels 1 and 2 during the three months ended March 31, 2018 and ~~nine months ended September 30, 2017 and 2016. Level 3 securities are partnerships~~ ~~measured at fair value using the net asset value affected by changes in the fair market value of the investments held in these partnerships.~~

~~Alternative investments represent investments in partnerships which invest in several private debt and private equity funds.~~ These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair values of the investments in this class have been estimated using the net asset value of the Company’s ownership interest in the partnerships. ~~Total unfunded capital commitments for these positions as of September 30, 2017 amounted to $113,181.~~

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

2017.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on our condensed consolidated balance sheets at March 31, 2018 and December 31, 2017 are as follows:

	September 30, 2017										March 31, 2018
	Carrying		Fair Value								Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total		Value		Level 1		Level 2		Level 3		Total
Assets:
Policy loans	$	9,260	$	-	$	9,260	$	-	$	9,260	$	9,262	$	-	$	9,262	$	-	$	9,262

Liabilities:
Policyholder deposits	$	177,265	$	-	$	177,265	$	-	$	177,265	$	176,704	$	-	$	176,704	$	-	$	176,704
Long-term borrowings:
Loans payable to bank - variable		33,159		-		33,159		-		33,159		31,541		-		31,541		-		31,541
Total long-term borrowings		33,159		-		33,159		-		33,159
Total liabilities	$	210,424	$	-	$	210,424	$	-	$	210,424	$	208,245	$	-	$	208,245	$	-	$	208,245

	December 31, 2016										December 31, 2017
	Carrying		Fair Value								Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total		Value		Level 1		Level 2		Level 3		Total
Assets:
Policy loans	$	8,564	$	-	$	8,564	$	-	$	8,564	$	9,077	$	-	$	9,077	$	-	$	9,077

Liabilities:
Policyholder deposits	$	179,382	$	-	$	179,382	$	-	$	179,382	$	176,534	$	-	$	176,534	$	-	$	176,534
Long-term borrowings:
Loans payable to bank - variable		11,187		-		11,187		-		11,187		32,350		-		32,350		-		32,350
6.6% senior unsecured notes payable		24,000		-		24,000		-		24,000
Total long-term borrowings		35,187		-		35,187		-		35,187
Total liabilities	$	214,569	$	-	$	214,569	$	-	$	214,569	$	208,884	$	-	$	208,884	$	-	$	208,884

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(6)	Claim Liabilities

A reconciliation of the beginning and ending balances of claim liabilities is as follows:

	Three months ended March 31, 2018
	Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of period	$	367,357		$	739,519		$	1,106,876
Reinsurance recoverable on claim liabilities		-			(633,099	)		(633,099	)
Net claim liabilities at beginning of period		367,357			106,420			473,777
Claims incurred
Current period insured events		603,947			30,907			634,854
Prior period insured events		(20,226	)		(1,818	)		(22,044	)
Total		583,721			29,089			612,810
Payments of losses and loss-adjustment expenses
Current period insured events		322,388			7,021			329,409
Prior period insured events		226,246			22,746			248,992
Total		548,634			29,767			578,401
Net claim liabilities at end of period		402,444			105,742			508,186
Reinsurance recoverable on claim liabilities		-			526,575			526,575
Claim liabilities at end of period	$	402,444		$	632,317		$	1,034,761

Three months ended
September 30, 2017

Nine months ended
September 30, 2017

Managed
Care

Other
Business
Segments *
Consolidated
Managed
Care

Other
Business
Segments *
Consolidated

Claim liabilities at beginning of period $ 371,428 $ 132,812 $ 504,240 $ 349,047 $ 138,896 $ 487,943
Reinsurance recoverable on claim liabilities - (33,368 ) (33,368 ) - (38,998 ) (38,998 )
Net claim liabilities at beginning of period 371,428 99,444 470,872 349,047 99,898 448,945
Claims incurred
Current period insured events 541,648 40,719 582,367 1,724,890 95,227 1,820,117
Prior period insured events (2,463 ) (3,391 ) (5,854 ) (19,158 ) (5,920 ) (25,078 )
Total 539,185 37,328 576,513 1,705,732 89,307 1,795,039
Payments of losses and loss-adjustment expenses
Current period insured events 529,497 15,320 544,817 1,456,098 38,222 1,494,320
Prior period insured events 24,819 5,794 30,613 242,384 35,325 277,709
Total 554,316 21,114 575,430 1,698,482 73,547 1,772,029
Net claim liabilities at end of period 356,297 115,658 471,955 356,297 115,658 471,955
Reinsurance recoverable on claim liabilities - 636,743 636,743 - 636,743 636,743
Claim liabilities at end of period $ 356,297 $ 752,401 $ 1,108,698 $ 356,297 $ 752,401 $ 1,108,698

Three months ended
September 30, 2016

Nine months ended
September 30, 2016

Managed
Care

Other
Business
Segments *
Consolidated
Managed
Care

Other
Business
Segments *
Consolidated

Claim liabilities at beginning of period $ 341,505 $ 140,359 $ 481,864 $ 348,297 $ 143,468 $ 491,765
Reinsurance recoverable on claim liabilities - (38,109 ) (38,109 ) - (40,714 ) (40,714 )
Net claim liabilities at beginning of period 341,505 102,250 443,755 348,297 102,754 451,051
Claims incurred
Current period insured events 588,960 26,166 615,126 1,800,023 78,006 1,878,029
Prior period insured events 9,105 (2,197 ) 6,908 (15,488 ) (5,131 ) (20,619 )
Total 598,065 23,969 622,034 1,784,535 72,875 1,857,410
Payments of losses and loss-adjustment expenses
Current period insured events 553,062 17,049 570,111 1,501,480 38,702 1,540,182
Prior period insured events 16,633 7,095 23,728 261,477 34,852 296,329
Total 569,695 24,144 593,839 1,762,957 73,554 1,836,511
Net claim liabilities at end of period 369,875 102,075 471,950 369,875 102,075 471,950
Reinsurance recoverable on claim liabilities - 39,427 39,427 - 39,427 39,427
Claim liabilities at end of period $ 369,875 $ 141,502 $ 511,377 $ 369,875 $ 141,502 $ 511,377

*	Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.

~~Claim liabilities as~~

Table of ~~September 30, 2017 include approximately $618,000 of Property and Casualty gross losses related~~Contents

Triple-S Management Corporation

Notes to ~~the impact of Hurricanes Irma and Maria~~Condensed Consolidated Financial Statements

(dollar amounts in ~~September 2017.~~thousands, except per share data)

(unaudited)

	Three months ended March 31, 2017
	Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of period	$	349,047		$	138,896		$	487,943
Reinsurance recoverable on claim liabilities		-			(38,998	)		(38,998	)
Net claim liabilities at beginning of period		349,047			99,898			448,945
Claims incurred
Current period insured events		602,620			28,226			630,846
Prior period insured events		(15,340	)		(1,333	)		(16,673	)
Total		587,280			26,893			614,173
Payments of losses and loss-adjustment expenses
Current period insured events		350,450			7,965			358,415
Prior period insured events		192,352			17,945			210,297
Total		542,802			25,910			568,712
Net claim liabilities at end of period		393,525			100,881			494,406
Reinsurance recoverable on claim liabilities		-			35,898			35,898
Claim liabilities at end of period	$	393,525		$	136,779		$	530,304

*	Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.

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.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the three months ended March 31, 2018 and ~~nine months ended September 30,~~ 2017 ~~and 2016~~ are due primarily to better than expected utilization trends. Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying ~~condensed~~ consolidated financial statements.

The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to ~~$7,112~~$6,179 and ~~$20,746~~$6,690 during the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2018 and 2017, respectively. ~~The change~~

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in ~~the liability for future policy benefits during the three months and nine months ended September 30, 2016 amounted to $7,136 and $20,540, respectively.~~thousands, except per share data)

(unaudited)

The following is information about total incurred but not reported (IBNR) liabilities plus expected development on reported claims included in the liability for unpaid claims adjustment expenses for the Managed Care segment as of ~~September 30, 2017.~~March 31, 2018.

Incurred Year	Total of IBNR Liabilities Plus Expected Development on Reported Claims		Total of IBNR Liabilities Plus Expected Development on Reported Claims
2015		66,221
2016		20,708
2017		268,792		44,970
2018				281,559

(7)	~~Reinsurance Activity~~

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.

~~Reinsurance cessions are made on excess of loss and on a proportional basis. Principal reinsurance agreements are as follows:~~

~~Primary Reinsurance:~~

~~Commercial Property quota share contract. This treaty covers a maximum of $30,000 for any one risk. Under this treaty 30% of the risk is ceded to reinsurers. The remaining exposure is covered by a~~ ~~Property Per Risk excess of loss contract~~ ~~that provides reinsurance in excess of $500 up to a maximum of $21,000, or the remaining 70% for any one risk.~~

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 $12,500 for a maximum of $14,500 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.

~~Facultative reinsurance is obtained when coverage per risk is required.~~Pension Plan

~~Table~~The components of ~~Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

net periodic benefit cost were as follows:

~~Excess of Loss Reinsurance:~~

~~Casualty excess of loss contract. This treaty provides reinsurance for losses up to $12,000, subject to a retention of $225.~~

~~Medical malpractice excess of loss. This treaty provides reinsurance for losses up to $3,000, subject to a retention of $150.~~

~~Catastrophe Reinsurance:~~

	Three months ended March 31,
	2018			2017
Components of net periodic benefit cost:
Interest cost	$	1,693		$	1,798
Expected return on assets		(2,281	)		(2,199	)
Amortization of actuarial loss		215			86
Settlement loss		325			-
Net periodic benefit cost	$	(48	)	$	(315	)

InEmployer Contributions: The Company disclosed in its audited consolidated financial statements for the ~~event~~year ended December 31, 2017 that it expected to contribute $2,000 to the pension program in 2018. As of ~~a Catastrophe,~~March 31, 2018, the Company has a ~~Personal Lines Catastrophe excess of loss contract~~ ~~that provides protection from losses up~~not made contributions to ~~$125,000, subject to a $5,000 retention, a~~ ~~Commercial Catastrophe excess of loss contract~~ ~~up to $135,000, subject to a $10,000 retention, and a~~ ~~Property Catastrophe excess of loss contract~~ ~~that provides a protection of $285,000 in excess of~~ the Personal and Commercial lines Catastrophe contracts, subject to $200,000 in respect of the ceded portion of the Primary Commercial Lines Quota Share treaty mentioned above. In addition, the above combined $15,000 retention is further reduced to $10,000 by the ~~Clash Cover Property Catastrophe excess of loss contract.The losses would be net of any Facultative reinsurance. Also, the Company purchases personal and commercial~~ ~~Reinstatement Premium Protection contracts~~ ~~to cover the necessity of reinstating the catastrophe program in the event it is activated.~~

~~All principal reinsurance contracts are~~ ~~for a period of one year, on a calendar basis, and are subject to modifications and negotiations in each renewal.~~pension program.

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(8)	~~Long-Term Borrowings~~Comprehensive Income

~~A summary~~The accumulated balances for each classification of ~~the borrowings entered by the Company is~~other comprehensive income, net of tax, are as follows:

September 30,
2017

December 31,
2016

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%, fully paid in January 2017. $ - $ 24,000
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.23% and 1.77% at September 30, 2017 and December 31, 2016, respectively) 9,957 11,187
Secured loan payable of $20,150, payable in monthly installments of $84 through January 1, 2024, plus interest at a rate reset periodically of 275 basis points over selected LIBOR maturity (which was 4.05% at September 30, 2017). 19,478 -
Secured loan payable of $4,116, payable in monthly installments of $49 through January 1, 2024, plus interest at a rate reset periodically of 325 basis points over selected LIBOR maturity (which was 4.55% at September 30, 2017). 3,724 -
Total borrowings 33,159 35,187

Less: unamortized debt issuance costs 289 102
$ 32,870 $ 35,085

On December 28, 2016, TSM entered into a $35,500 credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11,187, (ii) Term Loan B in the principal amount of $20,150 and (iii) Term Loan C in the principal amount of $4,116. Term Loan A was used to refinance the outstanding balance of the previous $41,000 secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% Senior Unsecured Notes due December 2020 ($24,000), and fund a portion of a debt service reserve for the Loan (approximately $200). Interest payable commenced on January 1, 2017, in the case of Term Loan A, and on February 1, 2017, in the case of Term Loan B and Term Loan C. The Credit Agreement includes certain financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business.

~~On March 11, 2016~~ ~~Triple-S Salud, Inc. (TSS)~~ entered into a $30,000 revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit had an interest rate of LIBOR plus 220 basis points and contained certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017 and was not renewed.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

On April 18, 2017, Triple-S Advantage, Inc. (TSA) entered into a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 25 basis points, matures on April 17, 2018, and includes certain financial and non-financial covenants that are customary for this type of facility. As of September 30, 2017, there is no outstanding balance in this line of credit.

~~(9)~~

~~Pension Plan~~

~~The components of net periodic benefit cost for the three months and nine months ended September 30 were as follows:~~

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 2017 2016
Components of net periodic benefit cost:
Service cost $ - $ 779 $ - $ 2,907
Interest cost 1,652 1,874 5,248 6,575
Expected return on assets (2,021 ) (1,928 ) (6,419 ) (6,908 )
Amortization of prior service benefit - (96 ) - (342 )
Amortization of actuarial loss 79 863 251 2,877
Settlement loss 580 - 1,211 -
Net periodic benefit cost $ 290 $ 1,492 $ 291 $ 5,109

Effective January 31, 2017, the Company froze the pay and service components of amounts used to calculate pension benefits for active employees who participated in the pension plan. Therefore, as of the Effective Date, active employees in the pension plan will not accrue additional benefits for future service and eligible compensation received.

~~Employer Contributions:~~ The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2016 that it expected to contribute $4,000 to the pension program in 2017. As of September 30, 2017 the Corporation has contributed $4,000 to the pension program.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollar amounts in thousands, except per share data)~~

~~(unaudited)~~

	Three months ended March 31,
	2018			2017

Net Unrealized Gain on Securities Beginning Balance	$	76,238		$	62,371
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement		(39,882	)		-
Other comprehensive income before reclassifications		(4,540	)		8,741
Amounts reclassified from accumulated other comprehensive income		(2,354	)		(269	)
Net current period change		(6,894	)		8,472
Ending Balance		29,462			70,843

Liability for Pension Benefits Beginning Balance		(24,984	)		(19,976	)
Amounts reclassified from accumulated other comprehensive income		131			53
Ending Balance		(24,853	)		(19,923	)
Accumulated Other Comprehensive Income Beginning Balance		51,254			42,395
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement		(39,882	)	$	-
Other comprehensive income before reclassifications		(4,540	)		8,741
Amounts reclassified from accumulated other comprehensive income		(2,223	)		(216	)
Net current period change		(6,763	)		8,525
Ending Balance	$	4,609		$	50,920

~~(10)~~(9)

Stock Repurchase Program

The Company repurchases shares through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, under repurchase programs authorized by the Board of Directors.

In August 2017 the Company’s Board of Directors authorized a $30,000 repurchase program of its Class B common ~~stock.~~stock, and in February 2018 the Company’s Board of Directors authorized a $25,000 expansion of this program. During the three months ended ~~September 30, 2017,~~March 31, 2018, the Company repurchased and retired under this program ~~539,034~~563,559 shares at an average per share price of ~~$23.51,~~$25.10, for an aggregate cost of ~~$12,553.~~

~~(11)~~

~~Comprehensive Income~~

~~The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:~~

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 2017 2016

Net Unrealized Gain on Securities Beginning Balance $ 75,239 $ 97,885 $ 62,371 $ 62,478
Other comprehensive income before reclassifications 4,853 2,417 21,233 40,233
Amounts reclassified from accumulated other comprehensive income (3,002 ) (4,301 ) (6,514 ) (6,710 )
Net current period change 1,851 (1,884 ) 14,719 33,523
Ending Balance 77,090 96,001 77,090 96,001
Liability for Pension Benefits Beginning Balance (19,870 ) (35,776 ) (19,976 ) (36,855 )
Amounts reclassified from accumulated other comprehensive income 48 466 154 1,545
Ending Balance (19,822 ) (35,310 ) (19,822 ) (35,310 )
Accumulated Other Comprehensive Income Beginning Balance 55,369 62,109 42,395 25,623
Other comprehensive income before reclassifications 4,853 2,417 21,233 40,233
Amounts reclassified from accumulated other comprehensive income (2,954 ) (3,835 ) (6,360 ) (5,165 )
Net current period change 1,899 (1,418 ) 14,873 35,068
Ending Balance $ 57,268 $ 60,691 $ 57,268 $ 60,691

~~(12)~~

~~Share-Based Compensation~~

Share-based compensation expense recorded during the three months and nine months ended September 30, 2017 was $1,481 and $1,651, respectively. Share-based compensation expense (benefit) recorded during the three months and nine months ended September 30, 2016 was ($383) and $1,931, respectively. The benefit during the three months ended September 30, 2016 results from a decrease in the ~~2014 and 2015 grants expected performance shares payouts.~~ ~~There was no cash received from stock option exercises during the nine months ended September 30, 2017 and 2016.~~$14,259.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

(10)	Share-Based Compensation

Share-based compensation expense (benefit) recorded during the three months ended March 31, 2018 and 2017 was $391 and ($1,443), respectively. The benefit recorded in the 2017 period results from a decrease in the 2014 and 2015 grants expected performance shares payouts. During the three months ended March 31, 2018, 16,271 shares repurchased and retired as a result of non-cash tax withholdings upon vesting of shares. There were no non-cash tax withholdings during the three months ended March 31, 2017.

~~(13)~~(11)

Net Income (Loss) Available to Stockholders and Net Income (Loss) per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended September 30,					Nine months ended September 30,				Three months ended March 31,
	2017		2016			2017		2016		2018		2017
Numerator for earnings per share:
Net income (loss) attributable to TSM available to stockholders	$	21,912	$	(1,941	)	$	30,275	$	5,395	$	3,914	$	(4,342	)
Denominator for basic earnings per share:
Weighted average of common shares		24,142,192		24,386,076			24,177,344		24,534,647		23,277,633		24,143,261
Effect of dilutive securities		65,830		-			54,364		70,632		117,364		-
Denominator for diluted earnings per share		24,208,022		24,386,076			24,231,708		24,605,279		23,394,997		24,143,261
Basic net income (loss) per share attributable to TSM	$	0.91	$	(0.08	)	$	1.25	$	0.22	$	0.17	$	(0.18	)
Diluted net income (loss) per share attributable to TSM	$	0.91	$	(0.08	)	$	1.25	$	0.22	$	0.17	$	(0.18	)

~~No dilutive securities have been included in~~The Company generated a loss from continuing operations attributable to the ~~diluted earnings per share calculation~~Company’s common stockholders for the three months ended ~~September 30, 2016 due to our reporting~~March 31, 2017, so the effect of ~~a net loss for~~dilutive securities is not considered because their effect would be antidilutive. If the ~~quarter.~~Company had generated income from continuing operations during the three months ended March 31, 2017, the effect of restricted stock awards on the diluted shares calculation would have been an increase in shares of 59,284 shares.

~~(14)~~(12)

Contingencies

The following information supplements and amends, as applicable, the disclosures in Note 23 to the Consolidated Financial Statements of the Company’s ~~2016~~2017 Annual Report on Form 10-K. Our business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, ~~USVI,~~U.S. Virgin Islands (USVI), Costa Rica, ~~BVI,~~British Virgin Islands (BVI), and Anguilla governmental authorities. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. The Commissioner of Insurance of Puerto Rico, as well as other Federal, Puerto Rico, USVI, Costa Rica, BVI, and Anguilla government authorities, regularly make inquiries and conduct audits concerning the Company's compliance with such laws and regulations. Penalties associated with violations of these laws and regulations may include significant fines and exclusion from participating in certain publicly funded programs and may require the Company to comply with corrective action plans or changes in our practices.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

We are involved in various legal actions arising in the ordinary course of business. We are also defendants in various other litigations and proceedings, some of which are described below. Where the Company believes that a loss is both probable and estimable, such amounts have been recorded. Although we believe our estimates of such losses are reasonable, these estimates could change as a result of further developments in these matters. In other cases, it is at least reasonably possible that the Company may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Company is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution. The outcome of legal proceedings is inherently uncertain and pending matters for which accruals have not been established have not progressed sufficiently to enable us to estimate a range of possible loss, if any. Given the inherent unpredictability of these matters, it is possible that an adverse outcome in one or more of these matters could have a material adverse effect on the consolidated financial condition, operating results and/or cash flows of the Company.

Additionally, we may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have rights to acquire shares of the Company on favorable terms pursuant to agreements previously entered by our predecessor managed care subsidiary, Seguros de Servicios de Salud de Puerto Rico, Inc. (SSS), with physicians or dentists who joined our provider network to sell such new provider shares of SSS at a future date (Share Acquisition Agreements) or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.

Claims by Heirs of Former Shareholders

On August 28, 2017, local Court of First Instance entered summary judgement in Heirs of Dr. Juan Acevedo, et al., v. Triple-S Management Corporation, et al. ordering the Company to issue 63,000 stock shares in favor of Plaintiffs, plus costs and legal fees. The Company appealed said judgement and on March 15, 2018, Puerto Rico Court of Appeals revoked said judgement and ruled in favor of the Company dismissing the complaint with prejudice. The Court ’s opinion held that issuance of Dr. Blanco’s shares of stock occurred under the Puerto Rico Corporations Statute of 1956, therefore the Corporations Statute of 1995 was inapplicable to the controversy; applicable law was Puerto Rico Insurance Code and Puerto Rico Corporations Statute of 1956; the amendment approved by the stockholders on April 29, 1990 was a relaxation of the restrictions to transfer the shares of stock by inheritance, not a restriction by itself; Dr. Blanco had actual notice of the original restrictions and as such it was not necessary for the restrictions to appear clear and conspicuously on the certificates of the shares of stock he owned; Dr. Blanco’s actual notice of the restrictions was attributable to Plaintiffs as heirs; and Dr. Blanco’s shares were correctly redeemed by the Company.

In re Blue Cross Blue Shield Antitrust Litigation

TSS is a co-defendant with multiple Blue Plans and the Blue Cross Blue Shield Association (BCBSA) in a multi-district class action litigation filed by a group of providers and subscribers on July 24, 2012 and October 1, 2012, respectively, that has since been consolidated by the United States District Court for the Northern District of Alabama, Southern Division, in the case captioned In re Blue Cross Blue Shield Association Antitrust Litigation. Essentially, provider plaintiffs allege that the exclusive service area requirements of the Primary License Agreements with the Blue Plans constitute an illegal horizontal market allocation under federal antitrust laws. As per provider plaintiffs, the quid pro quo for said “market allocation” is a horizontal price fixing and boycott conspiracy” implemented through the Inter-Plans Program Committee (“IPPC”) and whose benefits are allegedly derived through the BCBSA’s Blue Card/National Accounts Program. Among the remedies sought, provider plaintiffs seek increased compensation rates and operational changes. In turn, subscriber plaintiffs allege that the alleged conspiracy to allocate markets have prevented subscribers from being offered competitive prices and resulted in higher premiums for Blue Plan subscribers. Subscribers seek damages in the form of supra-competitive premiums allegedly charged by the Blue Plans and/or the difference between what subscribers have paid the Blues and the lower competitive premiums that non-competing Blues would have charged. Both actions seek injunctive relief.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

Prior to consolidation, motions to dismiss were filed by several plans, including TSS - whose request was ultimately denied by the court without prejudice. On April 6, 2015, plaintiffs filed suit in the United States District Court of Puerto Rico against TSS. Said complaint, nonetheless, is believed not to preclude TSS’ jurisdictional arguments. Since inception, the Company has joined BCBSA and other Blue Plans in vigorously contesting these claims. On April 5, 2018, the United States District Court for the Northern District of Alabama, Southern Division, issued it’s ruling on the parties’ respective motions for partial summary judgment on the standard of review applicable to plaintiffs’ claims under Section 1 of the Sherman Act and subscriber plaintiffs’ motion for partial summary judgment on the Blue Plan’s single entity defense. After considering the “undisputed” facts (for summary judgment purposes only) and evidence currently on record in the light most favorable to defendants, the court essentially found that: (a) the Exclusive Service Areas constitute horizontal market allocations that are subject to the Per Se standard of review; (b) the National Best Efforts Rule constitutes an “output restriction” subject to the Per Se standard of review; (c) there remain genuine issues of material fact as to whether defendants’ conduct can be shielded by the “single entity” defense; and (d) claims concerning the BlueCard Program and uncoupling rules are due to be analyzed under the Rule of Reason standard.

Presently, the court’s ruling is being reviewed and evaluated for purposes of determining the course to follow. Meanwhile, the settlement negotiations between the parties through mediation have been suspended for the time being.

Claims Relating to the Provision of Health Care Services

TSS was a defendant in several claims for collection of monies in connection with the provision of health care services. Among them are individual complaints filed before ASES by ~~Heirs~~six community health centers alleging TSS breached their contracts with respect to certain capitation payments and other monetary claims. The Company has reached a settlement agreement with all six community health centers totaling $1,200, which has been accrued as of ~~Former Shareholders~~March 31, 2018.

ASES Audits

The Company is subject to audits in connection with the provision of services to private and ~~Triple-S Salud, Inc. (TSS) are defending eight individual lawsuits, all filed~~governmental entities. These audits may include numerous aspects of our business, including claim payment practices, contractual obligations, service delivery, third-party obligations, and business practices, among others. Deficiencies in ~~state court, from persons who claim to~~audits could have ~~inherited~~ a ~~total~~material adverse effect on our reputation and business, including termination of 113 shares of the Company or one of its predecessors or affiliates (before giving effect to the 3,000-for-one stock split). While each case presents unique facts and allegations, the lawsuits generally allege that the redemption of the shares by the Company pursuant to transfer and ownership restrictions containedcontracts, significant increases in the ~~Company's (or its predecessors' or affiliates') articles~~cost of ~~incorporation~~managing and ~~bylaws was improper.~~

~~In one~~remediating deficiencies, payment of ~~these cases, entitled Heirs~~contractual penal clauses, and others, any of ~~Dr. Juan Acevedo, et al, v. Triple-S Management Corporation, et al, filed~~which could have a material and adverse effect on ~~March 27, 2008, the Puerto Rico Court~~our results of First Instance issued a summary judgement on August 28, 2017 in favor of plaintiff ordering TSS to issue the corresponding shares to the plaintiff. TSS will appeal the Puerto Rico Court of First Instance’s summary judgementoperations, financial position and ~~continue to conduct a vigorous defense of this matter.~~

Management believes these claims are time barred under one or more statutes of limitations and will vigorously defend them on these grounds; however, as a result of the Puerto Rico Supreme Court’s decision to deny the applicability of the statute of limitations contained in the local securities law, some of these claims will likely be litigated on their merits.

~~ASES Audits~~cash flows.

On July 2, 2014, ASES notified TSS that the results of an audit conducted in connection with the government health plan contract for several periods between October 2005 and September 2013, reflected an overpayment of premiums made to TSS pursuant to prior contracts with ASES in the amount of $7,900. The alleged overpayments were related to duplicated payments or payments made for deceased members, and ASES requested the reimbursement of the alleged overpayment. On January 16, 2015, TSS filed an injunction against ASES under the case Triple-S Salud, Inc. v. Administración de Seguros de Salud de Puerto Rico. TSS contends that ASES’ request for reimbursement has no merits on several grounds, including a 2011 settlement between both parties covering the majority of the amount claimed by ASES, and that ASES, under the terms of the contracts, was responsible for certifying the membership. TSS also amended its claim to include the Puerto Rico Health Department (PRHD), as it asserts the PRHD is an indispensable party for the resolution of this matter and to seek the payment of approximately $5,000, since the premiums paid to TSS should have been higher than what ASES actually paid given the additional risk assumed by TSS. The case was assigned to a Special Commissioner, who on March 17, 2017 issued a report recommending the court to dismiss the complaint in favor of TSS. On May 26, 2017, the court issued a partial judgement dismissing the complaint in favor of TSS with respect to the alleged overpayments for the period between October 2005 and September 2010, which represented approximately $7,400 of the total alleged claim. ~~After this partial dismissal, the only remaining claim pending to be adjudicated is for the alleged overpayments for the 2011-2013 period, which amounts to approximately $500.~~ On July 27, 2017, ASES appealed the court’s partial judgement and on ~~August 25, 2017 TSS~~January 31, 2018, the Puerto Rico Court of Appeals entered judgement in favor of the Company, thus validating the 2011 settlement agreement. No plea for reconsideration nor a writ of certiorari was filed ~~its opposition~~by ASES before the Court of Appeals or the Puerto Rico Supreme Court. The parties reached a settlement agreement for the remaining amount in controversy subject to ~~ASES’ appeal. TSS will continue to conduct a vigorous defense~~the final approval of ~~this matter.~~ASES Board of Directors.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

~~(15)~~(13)

Segment Information

The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees, net investment income, and revenues derived from other segments. Operating costs include claims incurred and operating expenses. The Corporation calculates operating income or loss as operating revenues less operating costs.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

The following tables summarize the operations by reportable ~~segment:~~segment for the three months ended March 31, 2018 and 2017:

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2017			2016			2017			2016			2018			2017
Operating revenues:
Managed Care:
Premiums earned, net	$	653,734		$	660,660		$	1,955,246		$	2,007,972		$	686,602		$	640,147
Administrative service fees		3,391			4,146			12,318			13,749			3,348			4,379
Intersegment premiums/service fees		1,781			1,384			4,946			4,521			1,348			1,534
Net investment income		4,097			3,628			12,135			11,215			4,857			3,892
Total managed care		663,003			669,818			1,984,645			2,037,457			696,155			649,952
Life Insurance:
Premiums earned, net		40,845			38,729			121,001			116,286			41,089			40,298
Intersegment premiums		107			212			409			551			381			191
Net investment income		6,070			6,355			18,487			18,681			6,058			6,087
Total life insurance		47,022			45,296			139,897			135,518			47,528			46,576
Property and Casualty Insurance:
Premiums earned, net		19,746			21,798			62,962			64,512			24,063			21,548
Intersegment premiums		153			153			460			460			153			153
Net investment income		2,106			2,358			6,164			6,612			2,442			1,924
Total property and casualty insurance		22,005			24,309			69,586			71,584			26,658			23,625
Other segments: *
Intersegment service revenues		2,796			2,502			6,641			7,664			239			1,586
Operating revenues from external sources		976			878			3,130			2,693			1,071			1,000
Total other segments		3,772			3,380			9,771			10,357			1,310			2,586
Total business segments		735,802			742,803			2,203,899			2,254,916			771,651			722,739
TSM operating revenues from external sources		87			7			220			12			398			78
Elimination of intersegment premiums/service fees		(2,041	)		(1,749	)		(5,535	)		(5,532	)		(1,602	)		(1,598	)
Elimination of intersegment service revenues		(2,796	)		(2,502	)		(6,641	)		(7,664	)		(239	)		(1,586	)
Other intersegment eliminations		-			(18	)		-			(45	)
Consolidated operating revenues	$	731,052		$	738,541		$	2,191,943		$	2,241,687		$	770,208		$	719,633

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2017 2016 2017 2016
Operating income (loss):
Managed care $ 34,819 $ (22,022 ) $ 19,157 $ (26,443 )
Life insurance 4,477 4,247 13,402 14,899
Property and casualty insurance (11,115 ) 4,017 (5,273 ) 9,516
Other segments * 373 (894 ) 517 (1,255 )
Total business segments 28,554 (14,652 ) 27,803 (3,283 )
TSM operating revenues from external sources 87 7 220 12
TSM unallocated operating expenses (2,759 ) (1,771 ) (7,876 ) (7,645 )
Elimination of TSM intersegment charges 2,400 2,382 7,200 7,155
Consolidated operating income 28,282 (14,034 ) 27,347 (3,761 )
Consolidated net realized investment gains 3,753 5,376 8,143 6,954
Consolidated interest expense (1,709 ) (1,893 ) (5,116 ) (5,729 )
Consolidated other income, net 3,409 734 6,521 5,468
Consolidated income (loss) before taxes $ 33,735 $ (9,817 ) $ 36,895 $ 2,932

Depreciation and amortization expense:
Managed care $ 2,567 $ 2,622 $ 7,455 $ 8,395
Life insurance 315 247 913 751
Property and casualty insurance 136 91 388 402
Other segments* 166 160 489 479
Total business segments 3,184 3,120 9,245 10,027
TSM depreciation expense 197 197 590 590
Consolidated depreciation and amortization expense $ 3,381 $ 3,317 $ 9,835 $ 10,617

	Three months ended March 31,
	2018			2017
Operating income (loss):
Managed care	$	10,618		$	(18,582	)
Life insurance		3,625			3,935
Property and casualty insurance		3,079			2,067
Other segments *		175			143
Total business segments		17,497			(12,437	)
TSM operating revenues from external sources		398			78
TSM unallocated operating expenses		(2,210	)		(2,217	)
Elimination of TSM intersegment charges		2,400			2,400
Consolidated operating income (loss)		18,085			(12,176	)
Consolidated net realized investment gains		2,942			336
Consolidated net unrealized investment losses on equity investments		(16,199	)		-
Consolidated interest expense		(1,690	)		(1,686	)
Consolidated other income, net		1,163			2,525
Consolidated income (loss) before taxes	$	4,301		$	(11,001	)

Depreciation and amortization expense:
Managed care	$	2,641		$	2,239
Life insurance		300			280
Property and casualty insurance		104			114
Other segments*		168			160
Total business segments		3,213			2,793
TSM depreciation expense		197			197
Consolidated depreciation and amortization expense	$	3,410		$	2,990

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

September 30,
2017

December 31,
2016

Assets:
Managed care $ 1,141,233 $ 1,013,872
Life insurance 857,598 816,920
Property and casualty insurance 1,006,658 349,159
Other segments * 19,987 26,034
Total business segments 3,025,476 2,205,985
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments 72,884 17,033
Property and equipment, net 22,152 22,380
Other assets 20,208 21,646
115,244 61,059
Elimination entries-intersegment receivables and others (53,928 ) (48,045 )
Consolidated total assets $ 3,086,792 $ 2,218,999

	March 31, 2018			December 31, 2017
Assets:
Managed care	$	1,253,980		$	1,092,715
Life insurance		860,674			853,289
Property and casualty insurance		915,910			1,094,773
Other segments *		18,304			19,027
Total business segments		3,048,868			3,059,804
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments		64,099			81,169
Property and equipment, net		22,370			22,257
Other assets		25,036			22,763
		111,505			126,189
Elimination entries-intersegment receivables and others		(59,382	)		(69,228	)
Consolidated total assets	$	3,100,991		$	3,116,765

*	Includes segments that are not required to be reported separately, primarily the data processing services organization and the health clinic.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(dollar amounts in thousands, except per share data)

(unaudited)

~~(16)~~(14)

Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued. No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standards Codification.

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refers to Triple-S Management Corporation and its subsidiaries. The MD&A included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months ~~and nine months~~ ended ~~September 30, 2017.~~March 31, 2018. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, ~~2016~~2017 and the MD&A included therein, and our unaudited consolidated financial statements and accompanying notes as of and for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 included in this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.

Overview

We are one of the most significant players in the managed care industry in Puerto Rico and have over 55 years of experience in this industry. We offer a broad portfolio of managed care and related products in the Commercial, Medicaid and Medicare Advantage markets. In the Commercial market, we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. We also participate in the Government of Puerto Rico Health Insurance Plan (a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.) (Medicaid), by administering the provision of health benefits in designated service regions in Puerto Rico. See details of the Medicaid contract in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 under the sub-caption “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.”

We have the exclusive right to use the Blue Cross Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands (USVI), Costa Rica, the British Virgin Islands (BVI) and Anguilla. As of ~~September 30, 2017,~~March 31, 2018, we served approximately ~~995,000~~974,000 managed care members across all regions of Puerto Rico. For the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our managed care segment represented approximately 91% ~~and 92%, respectively~~ of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets.

We participate in the managed care market through our subsidiaries, Triple-S Salud, Inc. (TSS),; Triple-S Advantage, Inc. (TSA), and Triple-S Blue, Inc. I.I. (TSB). TSS, TSA and TSB are Blue Cross Blue Shield Association (BCBSA) licensees, which provides us with exclusive use of the Blue Cross and Blue Shield name and mark throughout Puerto Rico, the ~~U.S. Virgin Islands,~~USVI, Costa Rica, the ~~British Virgin Islands,~~BVI, and Anguilla.

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We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc., and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (TSP).

Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income. See note 1413 of the Condensed Consolidated Financial Statements included in Quarterly Report on Form 10-Q.

Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals, and government-sponsored programs, principally Medicare and the Government of Puerto Rico Health Insurance Plan. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, ~~and~~ investment income, and revenues derived from other non-reportable segments. Substantially all of our earnings are generated in Puerto Rico.

Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment’s results of operations depend to a significant extent on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation, commission payments to brokers and other overhead business expenses.

We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.

Recent Developments

Puerto Rico Economy

~~During~~On April 19, 2018, the ~~past decade, Puerto Rico has been facing economic and~~Oversight Board certified a fiscal ~~challenges and its economy has been contracting. In response to~~plan that differed substantially from the ~~Commonwealth of Puerto Rico (the “Commonwealth”)~~draft fiscal ~~and economic crisis, on June 30, 2016,~~plans previously submitted by the ~~U.S. Congress enacted~~government. On April 19, 2018, the Oversight Board also certified a fiscal plan for the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), which, among other things, established a Federally-appointed oversight board (the “Oversight Board”) comprised of seven members with ample powers over the finances of the Commonwealth and its instrumentalities. PROMESA also established a temporary stay on litigation to enforce rights or remedies related to financial liabilities of the Commonwealth, its instrumentalities and municipalities, which expired on May 1, 2017. Finally, PROMESA established two separate mechanisms to restructure the debts of the Commonwealth, its public corporations and municipalities. The first mechanism permits modifications of financial indebtedness with the consent of a supermajority of affected financial creditors. The second mechanism is a court-supervised debt-adjustment process, which is modeled after Chapter 9 of the U.S. Bankruptcy Code and is codified in Title III of PROMESA.

Electric Power Authority. On ~~February 28, 2017, the Governor of Puerto Rico submitted a 10-year fiscal plan to~~April 20, 2018, the Oversight Board certified a fiscal plan for ~~its review and approval. After certain revisions, a final plan was approved by the Oversight Board on March 13, 2017, which includes spending reductions~~each of $25.7 billion. The plan implies larger concessions from bondholders since there would be approximately $8 billion available for debt service payments over the next 10 years, compared to around $35 billion that is owed over that period. The plan also proposes (i) certain significant changes to the Commonwealth’s healthcare delivery model in order to reduce expenses and (ii) the elimination of subsidies to the municipalities, many of which have contracts for the provision of healthcare or other insurance products with our subsidiaries. The Oversight Board also required and approved fiscal plans for several government instrumentalities, including the Puerto Rico Aqueduct and Sewer Authority (“PRASA”), the University of Puerto Rico, ~~Electric Power Authority (“PREPA”), and~~ the Puerto Rico Highways and Transportation Authority ~~(“PRHTA”), among others.~~

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On May 3, 2017, the Oversight Board filed an order seeking the protection of the provisions of Title III of PROMESA for the Commonwealth. Subsequently, the Oversight Board filed Title III petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA” by its Spanish acronym), which issued bonds secured by a portion of the sales and use tax, the Employee Retirement System, PRHTA and PREPA. While the proceedings under Title III of PROMESA are ongoing, all enforcement and collection actions against the Commonwealth and these instrumentalities by its creditors are stayed. As a result of this court-supervised debt-adjustment process, the principal and interest payments due on general obligation and bonds issued by these government instrumentalities will likely be restructured.

~~On July 14, 2017, the Oversight Board authorized~~ Government Development Bank ~~for Puerto Rico~~ (“GDB”) ~~to pursue the restructuring of its debts under Title VI of PROMESA and conditionally certified GDB’s Restructuring Support Agreement (“RSA”) under the relevant provisions of Title VI.~~. The RSA provides for the organized and consensual restructuring of a substantial portion of GDB’s liabilities, including GDB public bonds, deposit claims by municipalities and certain non-public entities and claims under certain GDB-issued letters of credit and guarantees. In exchange for releasing GDB from liability relating to these claims, the claim-holders will receive new bonds to be issued by a new entity (the “Issuer”). In order to secure and service the new bonds, GDB will transfer to the Issuer its entire municipal loan portfolio, certain real estate assets available for sale, proceeds of certain public entity loans and a certain amount of cash.

Although these entities are the only instrumentalities for which the Oversight Board has sought the restructuring authority provided by Title III of PROMESA or approved a restructuring under Title VI of PROMESA, in the future, the Oversight Board may use the restructuring mechanisms provided by Title III or Title VI of PROMESA for other instrumentalities of the Commonwealth, including its municipalities.

Although the Oversight Board has not sought the protection of Title III of PROMESA for the Puerto Rico Health Insurance Administration (“ASES” by its Spanish acronym), the instrumentality responsible for the administration of the Government’s health plan, ASES may be affected by the Commonwealth’s fiscal plan and the proceedings commenced for the Commonwealth under Title III of PROMESA because its state-based funding is solely dependent on appropriations from the Government’s general fund. Notwithstanding the Government’s statement in recent legislation that its public policy includes guaranteeing the continuity of public services in essential areas such as health, security, education, social work and development, among others, it is uncertain how the Commonwealth’s Title III proceeding will affect ASES and the contracts administered by it.

If the liquidity of the Government of Puerto Rico, its agencies, municipalities and public corporations becomes significantly affected as a result of their inability to raise funding in the market or generate enough revenues, we may face credit losses in our premium and fees receivables from these and other government related entities. As of September 30, 2017, the Company had premiums and other receivables of $87.8 million from the Government of Puerto Rico, including its agencies, municipalities and public corporations with a related allowance for doubtful receivables of $17.3 million, see note 3 ~~to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.~~

On September 6, 2017 and September 20, 2017, respectively, Hurricanes Irma and Maria struck Puerto Rico. The extent of the damages from such storms is still currently being evaluated. However, reports indicate that the damages are severe and widespread and that there has been substantial damage to Puerto Rico’s power grid, infrastructure, buildings, residences and other structures. The federal government has approved a major disaster declaration for Puerto Rico, and the Federal Emergency Management Agency (“FEMA”) announced that federal disaster assistance has been made available to the Government of Puerto Rico. FEMA has awarded approximately $500 million in emergency relief assistance to individuals, public corporations and municipalities in the Commonwealth. These federal funds will be an important factor in the recovery of the Commonwealth. On October 31, 2017, due to the devastation caused by the passing of Hurricanes Irma and Maria over the Commonwealth, the Oversight Board requested the Commonwealth, PREPA and several other instrumentalities of the Commonwealth to submit revised fiscal plans to account for the new reality in the wake of the devastation and destruction caused by the hurricanes. The revised fiscal plans, which will need to take into account anticipated expenses and revenues, as well as the anticipated population loss due to the hurricanes, is expected to be(the ones certified by the Oversight Board ~~by February 2, 2018.~~

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~~Under~~last year and the ~~Managed Care segment,~~recently certified fiscal plans) reflect that the ~~Company also provides health coverage to certain employees of the Government of Puerto Rico~~government and its instrumentalities including PREPA, which together constitute one of our largest customers by number of insured lives. The Government of Puerto Rico and PREPA have been particularly affected by the aftermath of Hurricanes Irma and Maria. Prior to the storms, the Government and PREPA were facing serious fiscal and financial challenges and their inability to access the capital markets has placed serious constraints on their liquidity. After the storms, the Government and PREPA have had to dedicate their remaining liquidity to disaster relief and recovery operations. The Government and PREPA have each announced that they dowill not have sufficient ~~financial resources~~revenues to ~~undertake all disaster relief and recovery operations without~~pay their debt service obligations in full while continuing to provide essential services, implying a need for significant debt relief. Furthermore, the Commonwealth’s certified fiscal plan assumes for substantial federal government ~~financial assistance. Moreover, as a result~~funding to address disaster recovery and reconstruction efforts. The Governor has stated publicly that he does not intend to implement certain material elements of the storms, the Government’s tax base has been adversely affected due to the massive and long-lasting power outages and water shortages. As a result, at the request of the government of Puerto Rico, Congress approved a relief package that includes over $4.5 billion in loans to improve the Puerto Rico government’s liquidity position in the short-term. Similarly, PREPA’s revenue base has been adversely affected to the extent that it depends on the amounts charged for consumption of electricity. Although it is still too early to quantify the short or long-term impacts of these storms on Puerto Rico, we believe that the effects will be material and adverse to the financial position of the Government, PREPA and our other governmental customers, such as municipalities. As a result, we may face additional credit losses from our receivables from the Government, PREPA, and other governmental entities, such as municipalities, as a result of the constraints on liquidity imposed by the response to the damages caused by the storms.Commonwealth’s certified fiscal plan.

~~Legislation~~

~~On July 23, 2017, the Commonwealth enacted Act 47-2017 (“Act 47”), which, among other things, imposes restrictions on utilization review (“UR”) processes related~~See Item 1A. Risk Factors – Risks Related to hospitalizations and the ability of managed care organizations (“MCO”s), to conduct internal review processes at any level of appeal. Act 47 also creates a statutory cause of action against MCOs for intervening with the “diagnostic and medical treatment of a patient” making them joint and severally liable in those cases in which the patient suffers damages as a direct or indirect result of such intervention. Act 47 orders the Puerto Rico Patient's Advocate Office and the Puerto Rico Health Insurance Administration (“ASES”), to adopt the necessary regulations to ensure compliance with the provisions of Act 47 within 60 days of its enactment. Act 47 specifically orders ASES to regulate UR according to the United States’ national standards. We are closely monitoring how Act 47 and its regulations will impact the Company insofar as such regulations have not been adopted.

On August 30, 2017, the Oversight Board notified the Governor and the Legislative Assembly that the Compliance Certification issued by the Government regarding Act 47 failed to provide the required formal estimate of the law’s fiscal impact. Moreover, the Oversight Board noted that its preliminary analysis leads it to conclude that Act 47our Business – “Our business is significantly inconsistent with the Fiscal Plan for Puerto Rico. As a result, the Oversight Board requested that the Government provide a formal estimate of public health care expenditure impacts from implementing the law. Under PROMESA, the Oversight Board has the authority to prevent the effectiveness of a law that does not comply with the Fiscal Plan for Puerto Rico. Once the Government provides the Oversight Board with the requested formal estimate, the Oversight Board would proceed to evaluate whether or not Act 47 is consistent with the Fiscal Plan for Puerto Rico.

On September 17, 2017, the Governor of Puerto Rico issued an executive order declaring a state of emergency for the Commonwealth due to the imminent impact of Hurricane Maria. On September 19, 2017, the United States Department of Health and Human Services also declared that the Commonwealth was undergoing a state of public health emergency, and authorized certain waivers and modifications for Medicare and Medicaid beneficiaries under the authority of the Social Security Act. In addition, the Office of the Commissioner of Insurance of Puerto Rico (“OCI”), the Puerto Rico Department of Health (“PRDH”), the Puerto Rico Health Insurance Administration (“PRHIA”), and the Centers for Medicare & Medicaid Services (“CMS”), all under the authority vested by state and federal laws, have since issued additional waivers and guidelines addressing preauthorization requirements, referrals, prescription drugs management, providers access, among others, during the extent of the state of emergency declaration. As of the date of this filing, we have implemented a series of initiatives to comply with the requirements of these regulators and to guarantee our insured population access to the health services they need. We will continue monitoring these regulatory requirements to assess the impact, if any, on our operations.

On September 29, 2017, CMS issued a memorandum addressing the Star Ratings for health plans that have been impacted by the recent natural disasters and have been designated as emergency or major disaster areas by FEMA. As a result of this order, CMS will allow health plans that believe that their operations and/or clinical care has had major issues which will impact the data used for Star Ratings measures to contact CMS to inform of such impacts. CMS will in turn evaluate each case and consider a variety of strategies to address these issues, which can include alternative sampling, modifying timeframes of measurements and reversions to last year’s score if the majority of enrollees are in disaster areas and alternative strategies are not feasible. We are closely monitoring any impacts that may affect our Star Rating measures for 2020 and will address with CMS any issues that we may identify.

On October 12, 2017, President Trump signed an executive order requiring the adoption of regulations changing certain requirements of the Affordable Care Act. Specifically, the executive order would require the implementation of regulations that would exempt certain association plans from complying with Affordable Care Act requirements, easing restrictions on certain short-term health plans and health reimbursement arrangements and limiting hospital and insurance company consolidation while promoting competition and choice. To the extent that certain provisions of the Affordable Care Act are not applicablegeographically concentrated in Puerto Rico and ~~that regulations implementing these changes have yet to be adopted, it is unclear at this time how~~weakness in the ~~executive order or any regulations required to be promulgated thereunder would affect~~economy and the ~~Puerto Rico market.~~

On November 3, 2017, the U.S. House of Representatives approved a bill that would reauthorize the Children’s Health Insurance Program (CHIP) for five years. Under this bill, the Commonwealth is assigned nearly $1,000 million in Medicaid funds. These funds are partfiscal health of the ~~federal funding that~~government has adversely impacted and may continue to adversely impact us, particularly following Hurricanes Irma and Maria.” included in our Annual Report on Form 10-K for the Puerto Rico government uses to finance the Puerto Rico Government’s health insurance program. These funds will extend the funding of the Puerto Rico Government’s health insurance program until early 2019. This bill is now under the consideration of the U.S Senate.

year ended December 31, 2017.

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Puerto Rico Government Health Reform Program

~~On June 30, 2017, TSS agreed to extend its contract with ASES~~In early February 2018, the Government of Puerto Rico issued a Request for Proposal (“RFP”) for the ~~provision~~administration of ~~health services in the Metro North and West regions of the Puerto Rico Government’s health insurance~~its Medicaid program ~~which expired on June 30, 2017, for a three-month period beginning July 1, 2017 and ending September 30, 2017. Due~~that introduces significant changes to the ~~passing~~model, including the elimination of ~~Hurricane Maria through Puerto Rico,~~ ~~the parties have agreed~~geographical areas and allowing participants to ~~further extend the term of the contract for an additional period of two months expiring on November 30, 2017.~~This extension is intended to ensure the continuity of services while the parties conclude negotiations for the renewal of the contract through the remainder of the Puerto Rico Government’s 2017-2018 fiscal year, which ends June 30, 2018. Under the contract extension, ASES will increase its payment to TSS fromselect insurance carriers. The Company has submitted a rate of $165.93 to $183.38 per member per month (PMPM) for the Metro North region and from $138.37 to $148.99 PMPM for the West region. The new rates reflect cost and utilization trends for the 2016-2017 fiscal year and are subject to CMS approval,RFP which is ~~expected to occur during~~currently under evaluation by the 90 day extension period. ASES will continue to pay current PMPM rates until CMS approves new PMPM rates, at which time ASES will pay the cumulative difference between both rates. Upon reaching an agreement on outstanding terms of the contract renewal, the new rates will also apply for the remainder of the 2017-2018 fiscal year.Government Health Insurance Plan administration. See Item 1A. Risk Factors—Risks Related to Our Business – “We are dependent on a small number of government contracts to generate a significant amount of the revenues of our managed care business.’’ included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~Hurricanes Irma and Maria~~

In early September 2017, Hurricane Irma, a category 5 Hurricane, passed north of Puerto Rico causing severe damage to the northern part of Island. Two weeks later, on September 20, 2017, Hurricane Maria, a category 4 Hurricane, made landfall in Puerto Rico causing catastrophic damage, including Island wide electric power and water outages, as well as damage to Puerto Rico’s communications and transportation infrastructure. The damage caused by Hurricane Maria interrupted the Company’s ability to operate for several days, after which we resumed operations with a reduced schedule and workforce. The Company’s facilities and infrastructure, however, only experienced minor damages. By October 2, 2017, we had resumed our normal schedule of operations with most of our workforce present. As of the date of this filing, the Company’s operations have been fully restored, ~~with the assistance of power from back-up generators,~~ and we continue to provide services to our providers and members, except for certain satellite offices that continue to operate on a reduced schedule due to a lack of electrical power. While the extent of the damages suffered by our providers and customers is currently unknown and will not be known for some time, we continue to monitor our provider and customer base and are taking the necessary steps to counter any adverse effects the Company may experience.

Our Managed Care claim liabilities as of September 30, 2017 has been estimated taking into consideration the impact of these hurricanes in the utilization of services by using our previous experience with similar catastrophic events. Usually in events like these, the utilization of services decreases temporarily until our membership regains full access to providers. Also, these events may cause providers to take longer in submitting claims for services provided, adding additional complexity to the estimates of incurred claims. We seek to determine our claim liabilities, using actuarially sound assumptions, to account for possible anticipatable changes in utilization. Nonetheless, actual experience may differ from our estimate. Furthermore, unforeseen major public health issues following these catastrophic events, such as pandemics and epidemics, like mosquito-borne epidemics (Dengue, Zika, etc.), conditions for which vaccines may not exist, are not effective, or have not been widely administered, could have a material adverse effect on our business, financial condition, and results of operations.

Our Property and Casualty segment, using claims information received to date and post event catastrophe model estimations, anticipates that gross losses, before reinsurance, related to Hurricanes Irma and Maria will approximate $5.0 million and $613.0 million, respectively. This also has the effect of increasing our reinsurance recoverable by approximately $604.0 million. We expect to collect such balances from our reinsurers. The segment’s reinsurance program includes excess of loss catastrophe coverage for losses and allocated loss expenses in excess of $10.0 million after application of facultative and primary reinsurance. Hurricane Irma’s net retained losses are estimated in $3.5 million after application of facultative and proportional reinsurance. Hurricane Maria’s net retained losses approximate $10.5 million, including unallocated loss expenses. While the segment’s ultimate losses cannot be determined with certainty at this time, management believes the catastrophe coverage for losses and allocated loss expenses is sufficient to cover anticipated gross losses. During the three months ended September 30, 2017, we have recorded net incurred claims related to these events of approximately $14.0 million.

2017.

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~~In addition, during the three months ended September 30, 2017, the Property~~Political and Casualty segment’s net premium earned have been impacted by approximately $3.0 million related to reinsurance costs, including estimates for catastrophe reinsurance reinstatement costs for the rest of the year.Regulatory Developments

~~Accounts receivable as of September 30, 2017 have increased as compared to December 31, 2016. This increase is attributed to~~CMS announced final benchmark rates for the ~~aforementioned reinsurance receivable~~2019 Medicare Advantage plans. The call letter maintains the zero claims adjustment, and to the Island wide disruption of the power grid and transportation and communication infrastructure caused by Hurricane Maria. Although we regularly monitor collections of past due balances, during this quarter we have strengthened our Managed Care allowance for doubtful receivables considering not only the aftermath of Hurricane Maria but the economic challenges faced by the Government of Puerto Rico.

~~The damage caused by Hurricanes Irma and Maria has also materially affected the economy of~~allows certain Puerto Rico ~~and the businesses~~counties to qualify for double bonus status. The impact of many of our customers. All businesses on the island have been affected by the lack of power and potable water, inconsistent access to telecommunications and logistical problems due to affected transportation infrastructure. This, in turn, has adversely affected many businesses that we serve. To the extent that these businesses are unable to recover their losses or are unable to return to normal operations in the near future, their ability to continue as viable businesses may be affected. Further, the damages caused by the hurricanes are expected to accelerate out-migration from the island to the US mainland further increasing the population decline that the Commonwealth has been experiencing during the past years. In the short term out-migration is expected to accelerate, however, the magnitude will depend on the pace of the recovery and reconstruction efforts in the island. All these factors may affect the Puerto Rico economy andupdates, result in a ~~reduction~~Puerto Rico benchmark estimated average increase of ~~our customer base and erode our revenue base. We expect that Hurricane Maria’s aftermath will have a significant and long-lasting impact on the people and communities the Company serves.~~

about 5.7%. See Item 1A. Risk Factors—Risks Related to ~~Our Business~~the Regulation of our Industry – “~~Our failure~~“The revised rate calculation system for Medicare Advantage, the payment system for the Medicare Part D and changes in the methodology and payment policies used by CMS to ~~accurately estimate incurred but not reported claims would affect~~establish rates could reduce our ~~reported financial results”, “Our ability to manage~~profitability and the benefits we offer our ~~exposure to underwriting risks in our life insurance and property and casualty insurance businesses depends on the availability and cost of reinsurance coverage”, and “If our reinsurers do not pay our claims or do not pay them in a timely manner, we may incur losses”~~ beneficiaries’’ included in our Annual Report on Form 10-K for the year ended December 31, ~~2016. Additional information~~2017.

Property and Casualty Reinsurance Program

The Company’s Property and Casualty segment completed the renewal of its reinsurance property and catastrophe program with an effective date of April 1^st, 2018 with a term of twelve-months ending on ~~how each reportable segment determines its claim liabilities, and the variables considered~~March 31^st, 2019. The new reinsurance program considers an increase in cessions in the ~~development of this amount,~~Commercial Property quota share agreement from 30% to 35% and provides the segment with additional catastrophe loss protection. The new reinsurance program is ~~included in our latest Annual Report on Form 10-K under “Item 7.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations―Critical Accounting Estimates”.~~

~~OptumInsight, Inc. Master Service Agreement~~

~~On August 29, 2017, TSS and OptumInsight, Inc. (“Optum”) entered into a Master Services Agreement (the “Agreement”). Pursuant~~expected to ~~the terms~~increase non proportional reinsurance cost by approximately $5.0 million when compared to cost of the Agreement, Optum will provide healthcare technology and operations services, including information technology, claims processing and application development, to TSS and its affiliates. The Agreement was effective August 31, 2017 (the “Effective Date”) and has an initial term of ten (10) years. TSS has the right to extend the term of the Agreement for two (2) additional one (1) year terms.

Under the terms of the Agreement, Optum will: (i) continue providing services already provided to TSS and its affiliates, (ii) provide new services requested by TSS and (iii) provide services in support of any third party administrator arrangements entered into by TSS or its affiliates, in accordance with the terms of separate statements of work to be entered into by the parties. Pursuant to the Agreement, Optum will provide TSS and its affiliates with certain claims intake, claims processing, claims adjustment and quality assurance services, as well as with a broad range of information technology services such as application development and maintenance, infrastructure management and support, and general service and operations management. Optum will assume responsibility for these operations after a transition period set forth in the Agreement. As part of the services to be provided under the Agreement, TSS expects that certain employees of its data processing services affiliate, Interactive Systems, Inc., will become employees of Optum and certain third-party services agreements entered into by TSS and its affiliates will be assigned to Optum. The Agreement is subject to the approval of the Puerto Rico Health Insurance Administration (“ASES” by its Spanish acronym).previous program.

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As compensation for the services provided under the Agreement, TSS expects to pay Optum approximately $260,000,000 during the initial ten (10) year term of the Agreement, based on TSS’ current business levels. This amount may not necessarily be evenly distributed throughout the years of the contract term and may fluctuate as a result of changes in TSS’ business levels. The compensation‘s structure under the Agreement includes a combination of fixed and variable fees which may increase or decrease, as set forth in the Agreement, based on the number of members enrolled under a health care plan offered or administered by TSS. TSS may also pay additional fees to Optum for the development and implementation of additional infrastructure projects. With this Agreement, TSS expects to strengthen its core processes and technological capabilities, while also reducing costs.

The Agreement contains representations and warranties and indemnity, termination and default provisions customary for these types of transactions. The Agreement contains a general liability cap which limits each party’s liability under the Agreement to an amount equal to the greater of (i) $20,000,000 or (ii) the total amount of fees paid by TSS to Optum for the performance of services under the Agreement during the twelve (12) month period prior to the most recent event giving rise to liability. TSS may terminate the Agreement for cause, as such term is defined in the Agreement. TSS may also terminate the Agreement for any reason by providing one hundred eighty (180) days’ prior written notice and paying a negotiated termination fee if the effective date of such termination is at least three (3) years after the Effective Date. In the event that TSS terminates the Agreement for convenience, due to a change in laws, or relating to regulatory approval, TSS shall pay Optum a termination fee that fluctuates between $250,000 and $11,250,000, depending on the circumstances, and pro-rated based on the number of months remaining in the contract year. Optum may terminate the Agreement only if TSS (i) fails to pay Optum any material amounts due under the Agreement or (ii) materially breaches certain sections of the Agreement without curing said breach within the period described in the Agreement.

Recent Accounting Standards

For a description of recent accounting standards, see note 2 to the unaudited condensed consolidated financial statements included in this ~~Quarterly Report~~quarterly report on Form 10-Q.

Managed Care Membership

	As of September 30,				As of March 31,
	2017		2016		2018		2017
Managed care enrollment:
Commercial ¹		492,498		521,994		467,896		505,848
Medicare		123,194		113,950		112,080		121,352
Medicaid		379,199		402,358		394,454		389,130
Total		994,891		1,038,302		974,430		1,016,330
Managed care enrollment by funding arrangement:
Fully-insured		831,170		860,619		825,742		847,327
Self-insured		163,721		177,683		148,688		169,003
Total		994,891		1,038,302		974,430		1,016,330

⁽¹⁾	Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, Federal government employees and local government employees.

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Consolidated Operating Results

The following table sets forth the Corporation’s consolidated operating results. Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.

	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
(dollar amounts in millions)	2017		2016			2017		2016			2018			2017
Revenues:
Premiums earned, net	$	714.3	$	721.2		$	2,139.5	$	2,188.8		$	752.0		$	702.3
Administrative service fees		3.4		4.2			12.3		13.7			3.3			4.4
Net investment income		12.4		12.3			37.1		36.6			13.8			12.0
Other operating revenues		1.0		0.9			3.0		2.6			1.1			0.9
Total operating revenues		731.1		738.6			2,191.9		2,241.7			770.2			719.6
Net realized investment gains		3.7		5.4			8.1		7.0			2.9			0.3
Net unrealized investment losses on equity investments												(16.2	)		-
Other income, net		3.4		0.7			6.6		5.4			1.2			2.6
Total revenues		738.2		744.7			2,206.6		2,254.1			758.1			722.5
Benefits and expenses:
Claims incurred		583.6		629.2			1,815.8		1,878.0			619.0			620.9
Operating expenses		119.2		123.4			348.8		367.5			133.1			110.9
Total operating expenses		702.8		752.6			2,164.6		2,245.5			752.1			731.8
Interest expense		1.7		1.9			5.1		5.7			1.7			1.7
Total benefits and expenses		704.5		754.5			2,169.7		2,251.2			753.8			733.5
Income before taxes		33.7		(9.8	)		36.9		2.9
Income (loss) before taxes												4.3			(11.0	)
Income tax expense (benefit)		11.8		(7.9	)		6.6		(2.5	)		0.4			(6.7	)
Net income (loss) attributable to TSM	$	21.9	$	(1.9	)	$	30.3	$	5.4		$	3.9		$	(4.3	)

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Operating Revenues

Consolidated premiums earned, net ~~for the three months ended September 30, 2017 decreased~~increased by ~~$6.9~~$49.7 million, or ~~1.0%~~7.1%, to ~~$714.3 million when compared to the three months ended September 30, 2016.~~$752.0 million. This ~~decrease~~increase primarily reflects ~~lower~~higher premiums in the Managed Care segment by ~~$6.9~~$46.4 million ~~mainly~~ due to higher average premiums rates across all businesses. In the ~~Medicaid profit~~Medicare business, premiums also increased as the result of achieving a 4-star rating in our Medicare Advantage HMO contract that resulted in a 5% bonus applied to the benchmark used in premium calculation as well as higher sharing ~~accrual recorded during the three months ended September 30, 2016,~~on rebates. These increases are partially offset by lower Commercial and Medicare membership.

Net unrealized investment losses on equity investments

The $16.2 million in consolidated net unrealized investment losses on equity investments is the impact of new accounting guidance implemented effective January 1, 2018, which requires the ~~suspension~~change in unrealized gain (loss) of ~~the HIP fee pass~~equity investments, previously recorded through and lower Medicare additional risk score revenue. These decreases were partially offset by higher average premium rates in the Commercial and Medicaid businesses. With the Medicaid contract extension that was effective July 1, 2017 the average premium rates of this business increased by approximately 9%.comprehensive income, to be recorded through earnings.

~~Other Income, Net~~

Consolidated other income increased by $2.7 million during the three months ended September 30, 2017 compared with the three months ended September 30, 2016, mostly due to a special distribution received from the Puerto Rico Joint Underwriting Association (JUA) in the Property and Casualty segment of $2.4 million, net of special tax.

~~Table of Contents~~

Claims Incurred

Consolidated claims incurred decreased by ~~$45.5~~$1.9 million, or ~~7.2%~~0.3%, to ~~$583.6~~$619.0 million ~~during the three months ended September 30, 2017,~~ mostly due to lower claims in the Managed Care ~~segment offset by an increase in claims in the Property and Casualty~~ segment. The decrease in Managed Care claims primarily reflects lower ~~claims incurred across all businesses~~enrollment in the ~~segment driven~~segment’s Medicare and Commercial businesses, offset in part by the estimated decrease in utilization as a consequence of Hurricanes Irma and Maria as well as favorable fluctuations in the prior period reserve developments in the Commercial and Medicare businesses. The Property and Casualty segment’s estimated net retained losses related to Hurricanes Irma and Maria were approximately $3.5 million and $10.5 million, respectively after the application of reinsurance. higher utilization. The consolidated loss ratio decreased by ~~550~~610 basis points to ~~81.7%.~~

~~Operating Expenses~~

~~Consolidated operating expenses~~82.3% mostly reflecting the higher Managed Care premiums during the three months ended September 30, 2017 decreased by $4.2 million, or 3.4%, to $119.2 million. The lower operating expenses are mostly the result of the decrease in the Health Insurance Providers Fee (HIP fee) of $11.6 million due to the 2017 tax holiday, offset by increase in personnel costs, provision for doubtful receivables and other general operating expenses totaling approximately $7.3 million. For the three months ended September 30, 2017, the consolidated operating expense ratio decreased 40 basis points to 16.6%.

~~Income Taxes~~

Consolidated income tax expense increased by $19.7 million, to an expense of $11.8 million for the three months ended September 30, 2017. The year over year change in income taxes primarily results from an increase in the taxable income from the Managed Care segment, which has a higher effective tax rate than other segments.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Operating Revenues~~

Consolidated premiums earned, net for the nine months ended September 30, 2017 decreased by $49.3 million, or 2.3%, to $2,139.5 million when compared to the nine months ended September 30, 2016. This decrease primarily reflects lower premiums in the Managed Care segment by $52.8 million mainly due to lower membership in the segment’s Medicaid and Commercial businesses, the impact of the suspension of the HIP fee pass through and lower Medicare additional risk score revenue. These decreases were partially offset by higher average premium rates in the Commercial business and Medicaid premium collections related to the Managed Care segment’s compliance with the contracts quality incentive metrics.

~~Other Income, Net~~

Consolidated other income increased by $1.2 million during the period ended September 30, 2017 compared with the period ended September 30, 2016, mostly due to the $2.4 million JUA special distribution received by the Property and Casualty segment, net of special tax, offset in part by a decrease of $1.1 million reflecting the collection of interest charged for late payment related to the prior Medicaid contract during the nine months ended September 30, 2016.

~~Claims Incurred~~

Consolidated claims incurred decreased by $62.2 million, or 3.3%, to $1,815.8 million during the nine months ended September 30, 2017, mostly due to lower claims in the Managed Care segment offset by an increase in claims in the Property and Casualty segment. The decrease in Managed Care claims primarily reflects lower claims incurred in all of the segment’s businesses driven by lower enrollment in the segment’s Commercial and Medicaid businesses, the estimated decrease in utilization caused by the aforementioned Hurricanes as well as favorable fluctuations in the prior period reserve developments in the Commercial and Medicare businesses. The Property and Casualty segment’s estimated net retained losses related to Hurricanes Irma and Maria were approximately $3.5 million and $10.5 million, respectively after the application of reinsurance. ~~The consolidated loss ratio decreased by 90 basis points to 84.9%.~~2018 period.

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Operating Expenses

Consolidated operating expenses ~~during the nine months ended September 30, 2017 decreased~~increased by ~~$18.7~~$22.2 million, or ~~5.1%~~20.0%, to ~~$348.8 million as compared to the~~$133.1 million. The higher operating expenses ~~during the nine months ended September 30, 2016. The lower operating expenses and expense ratio~~ are mostly the result of the ~~decrease in~~reinstatement of the ~~HIP~~Health Insurance Providers Fee (HIP fee) of ~~$33.1~~$11.7 million ~~due to the 2017 moratorium offset by increase in~~and higher professional services and personnel ~~costs and other general operating expenses totaling approximately $14.4 million.~~costs. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the consolidated operating expense ratio ~~decreased 50~~increased 190 basis points to ~~16.2%~~17.6%.

Income Taxes

Consolidated income taxes increased by ~~$9.1~~$7.1 million, to ~~a net~~an expense of ~~$6.6~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. The year over year change in income taxes primarily ~~results from an~~reflects the increase in ~~the taxable~~ income ~~from~~before taxes in the Managed Care segment, which has a higher effective tax rate than our other segments.

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Managed Care Operating Results

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(dollar amounts in millions)	2017			2016			2017			2016			2018			2017
Operating revenues:
Medical premiums earned, net:
Commercial	$	198.9		$	206.3		$	607.4		$	636.8		$	198.7		$	205.1
Medicare		264.3			255.3			788.5			789.4			287.9			257.7
Medicaid		190.9			199.4			560.3			582.8			200.3			177.7
Medical premiums earned, net		654.1			661.0			1,956.2			2,009.0			686.9			640.5
Administrative service fees		4.8			5.2			16.3			17.3			4.4			5.6
Net investment income		4.1			3.6			12.1			11.2			4.8			3.9
Total operating revenues		663.0			669.8			1,984.6			2,037.5			696.1			650.0
Medical operating costs:
Medical claims incurred		539.2			598.0			1,705.7			1,784.5			583.7			587.3
Medical operating expenses		89.0			93.8			259.7			279.4			101.8			81.3
Total medical operating costs		628.2			691.8			1,965.4			2,063.9			685.5			668.6
Medical operating income (loss)	$	34.8		$	(22.0	)	$	19.2		$	(26.4	)	$	10.6		$	(18.6	)
Additional data:
Member months enrollment:
Commercial:
Fully-insured		994,409			1,039,842			3,009,252			3,199,546			961,290			1,013,205
Self-funded		495,616			534,653			1,504,283			1,617,900			449,778			507,167
Total Commercial member months		1,490,025			1,574,495			4,513,535			4,817,446

Medicare member months		368,102			344,167			1,095,086			1,059,702

Medicaid member months		1,138,162			1,205,792			3,480,525			3,634,029
Total Commercial														1,411,068			1,520,372
Medicare														338,340			363,727
Medicaid														1,171,345			1,173,273
Total member months		2,996,289			3,124,454			9,089,146			9,511,177			2,920,753			3,057,372
Medical loss ratio		82.4	%		90.5	%		87.2	%		88.8	%		85.0	%		91.7	%
Operating expense ratio		13.5	%		14.1	%		13.2	%		13.8	%		14.7	%		12.6	%

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Medical Operating Revenues

Medical premiums earned ~~for the three months ended September 30, 2017 decreased~~increased by ~~$6.9~~$46.4 million, or ~~1.0%~~7.2%, to ~~$654.1 million when compared to the medical premiums earned during the three months ended September 30, 2016.~~$686.9 million. This ~~decrease~~increase is principally the result of the following:

~~Premiums earned~~Medical premiums generated by the Commercial business decreased by ~~$7.4~~$6.4 million, or ~~3.6%~~3.1%, to ~~$198.9~~$198.7 million. This fluctuation primarily reflects lower ~~fully-insured~~ member enrollment during the quarter ofby approximately ~~45,400~~52,000 member months and ~~$3.6~~$3.9 million related to the ~~suspension~~reinstatement of the HIP fee ~~pass-through; partially offset by an increase~~pass-through in ~~average premium rates of approximately 4%.~~2018.

~~Premiums earned~~Medical premiums generated by the Medicare business increased by ~~$9.0~~$30.2 million, or ~~3.5%~~11.7%, to ~~$264.3~~$287.9 million, primarily reflecting an increase in member month enrollment of approximately 24,000 lives; offset in part by lower additional risk score revenue adjustments in 2017 by $6.1 million, and lower average premium rates reflecting a reduction in the ~~2017~~2018 Medicare reimbursement ~~rates.~~rates for the first time since 2012, the increase related to the 4-star rating achievement in our 2018 HMO product, and to higher average membership risk score. These increases were partially offset by decrease in membership by approximately 25,000 lives.

Medical premiums generated by the Medicaid business amounted to $200.3 million, $22.6 million, or 12.7% higher when compared to the prior period. Increase primarily reflects higher premiums rates effective July 1, 2017, $3.7 million related to the reinstatement of the HIP fee pass-through in 2018, and $3.8 million in premiums related to our achievement of the contract’s quality incentive metrics.

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•

Premiums earned by the Medicaid business amounted to $190.9 million, $8.5 million, or 4.3% lower than the same period last year. Decrease primarily reflects the 2.5% excess profit accrual that increased 2016 premiums by $15.6 million, lower member months enrollment by approximately 67,600 lives, and $2.8 million related to the suspension of the HIP fee pass-through as a result of the 2017 moratorium; partially offset by ~~the impact of the new premium rates that were effective July 1~~^st ~~2017, which increased average premium rates by approximately 9%.~~

Medical Claims Incurred

Medical claims incurred during the three months ended ~~September 30, 2017~~March 31, 2018 decreased by ~~$58.8~~$3.6 million, or ~~9.8%~~0.6%, to ~~$539.2~~$583.7 million when compared to the three months ended ~~September 30, 2016.~~March 31, 2017. The medical loss ratio (MLR) of the segment decreased ~~810~~670 basis points during the ~~2017~~2018 period, to ~~82.4%~~85.0%. This fluctuation is primarily attributed to the net effect of the following:

The medical claims incurred of the Commercial business decreased by ~~$34.7~~$9.6 million, or ~~19.3%~~5.6%, during the ~~2017~~2018 period ~~and its~~mostly driven by lower enrollment. The MLR, at ~~73.1%~~81.3%, was ~~1,430~~220 basis points lower than the same quarter last year. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been 75.7%, 550 basis points lower than the adjusted MLR for last year. The estimated decrease in utilization related to Hurricanes Irma and Maria accounts for approximately 570 of the 550-basis-points decrease in the adjusted MLR.

The medical claims incurred of the Medicare business decreased by $18.9 million, or 7.9%, during the 2017 period and its MLR decreased by 1,030 basis points, to 83.3%. Adjusting for the effect of prior period reserve developments in 2017 and 2016 and moving the additional risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately 85% this quarter, about 250 basis points lower than last year, primarily reflecting the estimated decrease in utilization caused by Hurricanes Irma and Maria in September 2017; which lowered the adjusted MLR by 580 basis points. The reduction in the adjusted MLR was offset in part by higher trends in Part B drugs, pharmacy benefits and the improvement in benefits in 2017 products taking advantage of the HIP fee moratorium.

•

The medical claims incurred in the Medicaid business decreased by $5.2 million, or 2.9%, during the 2017 period primarily reflecting lower member months enrollment. The MLR increased by 130 basis points, to 91.0% when compared to the same quarter last year. Adjusting for the effect of prior period reserve developments in 2017 and 2016, as well as for the impact of the 2.5% excess profit accrual and this year’s quality incentive premiums, the Medicaid MLR would have been approximately 90.6% this quarter, about 50 basis points higher than last year. The higher MLR primarily reflects increased pharmacy and outpatient claim trends; offset partially by the estimated decrease in utilization caused by the hurricanes, which lowered the adjusted MLR by 50 points, and the ~~impact of the higher premium rates that were effective July 1~~^st ~~2017.~~

~~Medical Operating Expenses~~

Medical operating expenses for the three months ended September 30, 2017 decreased by $4.8 million, or 5.1%, to $89.0 million when compared to the three months ended September 30, 2016. The operating expense ratio decreased by 60 basis points to 13.5% in 2017. The lower operating expenses and expense ratio are mostly the result of the decrease in the HIP Fee of $11.6 million due to the 2017 moratorium offset by increase in personnel costs, provision for doubtful receivables and other general operating expenses totaling approximately $6.8 million.

~~Table of Contents~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Medical Operating Revenues~~

Medical premiums earned for the nine months ended September 30, 2017 decreased by $52.8 million, or 2.6%, to $1,956.2 million when compared to the medical premiums earned during the nine months ended September 30, 2016. This decrease is principally the result of the following:

Premiums earned by the Commercial business decreased by $29.4 million, or 4.8%, to $607.4 million. This fluctuation primarily reflects lower fully-insured enrollment during the year of approximately 190,300 member months and $10.9 million related to the suspension of the HIP fee pass-through; offset by an increase in average premium rates of approximately 5%.

~~Premiums earned by the Medicare business decreased by $0.9 million, or 0.1%, to $788.5 million~~, primarily reflecting lower additional risk score revenue by $27.1 million as well as lower average premium rates due to a reduction in the 2017 Medicare reimbursement rates. These decreases were partially offset by an increase in member months enrollment of approximately 35,400 lives.

•

Premiums earned by the Medicaid business decreased by $22.5 million, or 3.9% to $560.3 million. This decrease primarily reflects lower fully-insured member months enrollment by approximately 153,500 lives, $8.1 million related to the suspension of the HIP fee pass-through as a result of the 2017 moratorium and, the impact of the profit sharing accrual in the 2016 period that increased premiums by $4.6 million. Decreases are partially offset by a $10.1 increase in million premium collections related to our compliance with the contract’s quality incentive metrics and ~~the impact of the new premium rates that were effective July 1~~^st ~~2017, which increased average premium rates by approximately 9%.~~

~~Medical Claims Incurred~~

Medical claims incurred during the nine months ended September 30, 2017 decreased by $78.8 million, or 4.4%, to $1,705.7 million when compared to the nine months ended September 30, 2016. The MLR of the segment decreased 160 basis points during the 2017 period, to 87.2%. This fluctuation is primarily attributed to the net effect of the following:

~~The medical claims incurred of the Commercial business decreased by $70.5 million, or 12.8%, during the 2017 period and its MLR, at 79.1%, was 730 basis points~~point lower than the same period last year. Adjusting for the effect of prior period reserve developments, the Commercial MLR would have been ~~80.0%~~82.6%, ~~490~~30 basis points lower than the adjusted MLR for last year primarily reflecting the estimated decrease in utilization caused by Hurricanes Irma and Maria in September 2017 as well as the ongoing claim trends that are lower than our premium trends following the continuity of our underwriting discipline. The estimated decrease in utilization related to the aforementioned hurricanes account for approximately 190 of the 490-basis-points decrease in the adjusted MLR.year.

The medical claims incurred of the Medicare business ~~decreased~~increased by ~~$6.1~~$1.2 million, or ~~0.9%~~0.5%, during the ~~2017~~2018 period and its MLR decreased by 70940 basis points, to ~~89.3%~~84.6%. Adjusting for the effect of prior period reserve developments in ~~2017~~2018 and ~~2016~~2017 and moving the ~~additional~~ risk score revenue adjustments to their corresponding period, the Medicare MLR would have been approximately ~~90.4% for the period ended September 30, 2017, which remains consistent to prior years adjusted MLR. The estimated decrease in utilization caused by Hurricanes Irma and Maria mitigated the impact of~~86.1% this quarter, about 800 basis points lower than last year, primarily reflecting the higher ~~trends~~premium revenue recorded in ~~Part B drugs and pharmacy benefits experienced by this business as well as~~ the improvement of benefits in 2017 products taking advantage of the HIP fee moratorium. The estimated decrease in utilization related to the aforementioned hurricanes lowered by approximately 200 basis points the quarter’s adjusted MLR.2018 period.

•

The medical claims incurred in the Medicaid business decreased by $2.2 million, or 0.4%, during the 2017 period and its MLR increased by 320 basis points, to 92.9%. Adjusting for the effect of prior period reserve developments in 2017 and 2016, as well as for the impact of the 2.5% excess profit accrual and this year’s quality incentive premiums, the Medicaid MLR would have been approximately 93.3%, about 320 basis points higher than last year. The higher MLR primarily reflects increased pharmacy and outpatient claim trends, partially offset by the estimated decrease in utilization caused by Hurricanes Irma and Maria, which lowered the adjusted MLR by 20 basis points, and ~~the impact of the higher premium rates that were effective July 1~~^st ~~2017.~~

The medical claims incurred in the Medicaid business increased by $4.8 million, or 2.8%, during the 2018 period. The MLR, at 89.2%, was 860 basis point lower than the same period last year. Adjusting for the effect of prior period reserve developments, the Medicaid MLR would have been approximately 90.0% this quarter, 300 basis points lower than the adjusted MLR for last year. The improved MLR primarily reflects the higher premium revenue recorded in the 2018 period.

~~Table of Contents~~

Medical Operating Expenses

Medical operating expenses ~~for the nine months ended September 30, 2017 decreased~~increased by ~~$19.7~~$20.5 million, or ~~7.1%~~25.2%, to ~~$259.7 million when compared to the nine months ended September 30, 2016.~~$101.8 million. The operating expense ratio ~~decreased~~increased by 60210 basis points to ~~13.2%~~14.7% in ~~2017.~~2018. The ~~lower~~higher operating expenses and expense ratio are mostly the result of the ~~decrease~~increase in the HIP Fee of ~~$33.1~~$11.7 million due to the moratorium in the fee in 2017, ~~moratorium offset by increase in~~and higher professional services and personnel ~~costs and other general operating expenses totaling approximately $13.4 million.~~costs.

Table of Contents

Life Insurance Operating Results

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(dollar amounts in millions)	2017			2016			2017			2016			2018			2017
Operating revenues:
Premiums earned, net:
Premiums earned	$	41.0		$	40.8		$	124.6		$	120.3		$	43.0		$	41.8
Assumed earned premiums		2.0			0.4			3.4			3.1			0.8			0.9
Ceded premiums earned		(2.1	)		(2.3	)		(6.6	)		(6.6	)		(2.3	)		(2.2	)
Premiums earned, net		40.9			38.9			121.4			116.8			41.5			40.5
Net investment income		6.1			6.4			18.5			18.7			6.0			6.1
Total operating revenues		47.0			45.3			139.9			135.5			47.5			46.6
Operating costs:
Policy benefits and claims incurred		23.1			22.5			68.7			65.8			25.0			23.7
Underwriting and other expenses		19.4			18.6			57.8			54.8			18.9			19.0
Total operating costs		42.5			41.1			126.5			120.6			43.9			42.7
Operating income	$	4.5		$	4.2		$	13.4		$	14.9		$	3.6		$	3.9
Additional data:
Loss ratio		56.5	%		57.8	%		56.6	%		56.3	%		60.2	%		58.5	%
Operating expense ratio		47.4	%		47.8	%		47.6	%		46.9	%		45.5	%		46.9	%

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Operating Revenues

Premiums earned, net increased by ~~$2.0~~$1.0 million, or ~~5.1%~~2.5% to ~~$40.9~~$41.5 million ~~driven by a $1.6M increase~~as the result of higher sales in ~~assumed reinsurance premiums and premium’s growth in~~ the ~~segment’s~~ Individual Life and ~~Cancer~~Group lines of ~~business, as well as growth in the Costa Rica operations.~~business.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by ~~$0.6~~$1.3 million, or 2.7% to $23.1 million, mainly driven by an increase in assumed claims brought by higher volume of assumed reinsurance premiums during this period. The loss ratio for the period decreased to 56.5% in 2017, or 130 basis points.

~~Underwriting and Other Expenses~~

~~Increase in underwriting and other expenses of $0.8 million, or 4.3%~~5.5%, to ~~$19.4 million mostly reflects higher~~ ~~commissions following the segment’s premium growth.~~ In addition, the segment has incurred in higher development and marketing expenses related to the expansion of the Costa Rica operations. The segment’s operating expense ratio decreased to 47.4%, or 40 basis points following the higher volume of business during this quarter.

~~Table of Contents~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Operating Revenues~~

Premiums earned, net increased by $4.6 million, or 3.9% to $121.4 million as the result of premium growth in the segment’s Individual Life and Cancer lines of business, as well as growth in the Costa Rica operations.

~~Policy Benefits and Claims Incurred~~

~~Policy benefits and claims incurred increased by $2.9 million, or 4.4% to $68.7~~$25.0 million, mostly as the result of ~~the~~ higher ~~volume~~number of ~~business during the year, particularly~~death benefits paid in the ~~Cancer and~~ Individual Life and Group lines of business. The loss ratio for the period increased to 56.6% in 2017, or 30 basis points, reflecting the higher volume in the Cancer line of business, which has a higher loss ratio, as well as to a higher claims experience in this particular line of business.

Underwriting and Other Expenses

~~Increase in underwriting~~Underwriting and other expenses ~~of $3.0~~were in line with previous year, decreasing $0.1 million, or ~~5.5%~~0.5%, to ~~$57.8 million mostly reflects higher~~ ~~commissions following the segment’s premium growth mentioned above.~~ ~~In addition, the segment has incurred in higher development and marketing expenses related to the expansion of the Costa Rica operations. As a result, the~~$18.9 million. The segment’s operating expense ratio ~~increased~~improved 140 basis points to ~~47.6%, or 70 basis points.~~45.5%.

Table of Contents

Property and Casualty Insurance Operating Results

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(dollar amounts in millions)	2017			2016			2017			2016			2018			2017
Operating revenues:
Premiums earned, net:
Premiums written	$	31.0		$	32.4		$	104.8		$	100.9		$	33.6		$	27.4
Premiums ceded		(13.4	)		(11.8	)		(40.1	)		(35.3	)		(14.7	)		(10.1	)
Change in unearned premiums		2.3			1.4			(1.3	)		(0.6	)		5.3			4.4
Premiums earned, net		19.9			22.0			63.4			65.0			24.2			21.7
Net investment income		2.1			2.3			6.2			6.6			2.4			1.9
Total operating revenues		22.0			24.3			69.6			71.6			26.6			23.6
Operating costs:
Claims incurred		22.0			9.4			43.5			30.0			11.1			10.6
Underwriting and other expenses		11.1			10.9			31.3			32.1			12.4			10.9
Total operating costs		33.1			20.3			74.8			62.1			23.5			21.5
Operating (loss) income	$	(11.1	)	$	4.0		$	(5.2	)	$	9.5
Operating income													$	3.1		$	2.1
Additional data:
Loss ratio		110.6	%		42.7	%		68.6	%		46.2	%		45.9	%		48.8	%
Operating expense ratio		55.8	%		49.5	%		49.4	%		49.4	%		51.2	%		50.2	%

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Operating Revenues

Total premiums written ~~decreased~~increased by ~~$1.4~~$6.2 million, or ~~4.3%~~22.6%, to ~~$31.0~~$33.6 million, driven by ~~lower~~higher sales of Commercial Property and ~~Medical Malpractice~~Commercial Auto products, mainly as a result of ~~steep competition and current market conditions.~~the acquisition of a large Commercial Property account.

The premiums ceded to reinsurers increased by ~~$1.6~~$4.6 million, or ~~13.6%~~45.5%, mostly reflecting ~~adjustments related to the catastrophe reinsurance, including estimates for catastrophe reinsurance reinstatement costs for the rest of the year.~~

~~The change in unearned premiums mostly reflects the segments lower~~higher premiums written in ~~2017.~~Commercial insurance products during 2018.

~~Table of Contents~~

Claims Incurred

Claims incurred increased by ~~$12.6~~$0.5 million, or ~~134.0%~~4.7%, to ~~$22.0 million during the three months ended September 30, 2017 driven by net losses related to Hurricanes Irma and Maria, as a result, the segment’s~~$11.1 million. The loss ratio ~~increased~~decreased by ~~6,790~~390 basis points, to ~~110.6%~~45.9% during this ~~period.~~

~~On September 6, 2017, Hurricane Irma passed north~~period, primarily as the result of ~~Puerto Rico causing losses to properties~~favorable loss experience in the Commercial Auto, General Liability, and ~~businesses. Two weeks later, on September 20, 2017 Hurricane Maria made landfall and caused extensive damages in Puerto Rico.~~ ~~Estimated net retained losses related to Hurricanes Irma and Maria were approximately $3.5 million and $10.5 million, respectively after the application~~Medical Malpractice lines of ~~reinsurance. Estimated gross losses related to Hurricanes Irma and Maria were $5.0 million and $613.0 million, respectively.~~ While the segment’s ultimate losses cannot be determined with certainty at this time, management believes the catastrophe coverage for losses and allocated loss expenses is sufficient to cover anticipated gross losses.business.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by ~~$0.2~~$1.5 million, or ~~1.8%~~13.8%, to ~~$11.1~~$12.4 million mostly due to ~~lower profit commissions accruals following~~a higher net commission expense due to the ~~losses caused by Hurricanes Irma and Maria during the three months ended September 30, 2017~~increase in premiums written. The operating expense ratio was ~~55.8%~~51.2%, ~~630~~100 basis points higher than ~~last year mostly driven by the decrease in net premiums earned.~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Operating Revenues~~

Total premiums written increased by $3.9 million, or 3.9%, to $104.8 million, driven by higher sales of Commercial property and Commercial liability products, mainly as a result of the acquisition of a large account, as well as to higher sales of Personal package products.

The premiums ceded to reinsurers increased by $4.8 million, or 13.6%, mostly reflecting higher premiums written in Commercial insurance products during the nine months ended September 30, 2017 as well as adjustments related to the catastrophe reinsurance, including estimates for catastrophe reinsurance reinstatement costs for the rest of theprior year.

~~The change in unearned premiums mostly reflects the segments higher premiums written in 2017.~~

~~Claims Incurred~~

Claims incurred increased by $13.5 million, or 45.0%, to $43.5 million during the nine months ended September 30, 2017 driven by net losses related to Hurricanes Irma and Maria, as a result the segment’s loss ratio increased by 2,240 basis points, to 68.6% during this period. ~~Estimated gross losses related to Hurricanes Irma and Maria were $5.0 million and $613.0 million, respectively.~~ While the segment’s ultimate losses cannot be determined with certainty at this time, management believes the catastrophe coverage for losses and allocated loss expenses is sufficient to cover anticipated gross losses.

~~Underwriting and Other Expenses~~

~~Underwriting and other operating expenses decreased by $0.8 million, or 2.5%, to $31.3 million mostly due to lower personnel costs and commissions. The operating expense ratio was 49.4% in both periods.~~

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Liquidity and Capital Resources

Cash Flows

A summary of our major sources and uses of cash for the periods indicated is presented in the following table:

	Nine months ended September 30,						Three months ended March 31,
(dollar amounts in millions)	2017			2016			2018			2017
Sources (uses) of cash:
Cash provided by operating activities	$	191.8		$	83.0		$	130.5		$	131.0
Net sales (purchases) of investment securities		2.8			(86.6	)
Net (purchases) proceeds of investment securities								(75.9	)		0.4
Net capital expenditures		(15.9	)		(3.5	)		(4.9	)		(3.3	)
Proceeds from long-term borrowings		24.3			-			-			24.3
Payments of long-term borrowings		(26.3	)		(1.2	)		(0.8	)		(24.7	)
Proceeds from policyholder deposits		12.1			12.5			6.2			4.1
Surrender of policyholder deposits		(17.4	)		(13.5	)
Surrenders of policyholder deposits								(7.2	)		(4.9	)
Repurchase and retirement of common stock		(12.6	)		(21.4	)		(14.3	)		-
Other		7.7			(1.6	)		(20.0	)		(11.4	)
Net increase (decrease) in cash and cash equivalents	$	166.5		$	(32.3	)
Net increase in cash and cash equivalents							$	13.6		$	115.5

Cash flow from operating activities increased by $108.8 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, principally due to, lower claims paid by $64.0 million, ~~a decrease~~Increase in net purchases of investments in securities are part our asset/liability management strategy using cash ~~paid to suppliers and employees of $73.0 million~~, ~~and lower incomes tax paid by $5.6 million; offset by a decrease in premium collections of $38.8 million.~~

Net capital expenditures increased by $12.4 million during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, principally due to initiatives related to information technology in the Managed Care segment.on hand.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2017, we received ~~the remaining~~ $24.3 million from a loan with a commercial bank related with a credit agreement entered into in December 2016. These proceeds were used during the 2017 period to prepay the outstanding principal amount of $24.0 million of the 6.6% senior unsecured notes. ~~See note 7~~ ~~to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q.~~

In August 2017 the Company’s Board of Directors authorized a $30.0 million repurchase program of its Class B common ~~stock.~~stock and in February 2018 the Company’s Board of Directors authorized a $25.0 million expansion of this program. Repurchases were conducted through open-market purchases of Class B shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company repurchased and retired ~~539,034 shares~~under this program 563,559 of our Class B Common Stock shares at an average per share price of ~~$23.51,~~$25.10, for an aggregate cost of ~~$12.6~~$14.3 million.

The fluctuation in the Other ~~uses/sources~~uses of cash is attributed to changes in the amount of outstanding checks over bank balances.

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Financing and Financing Capacity

We have several short-term facilities available to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of ~~September 30, 2017,~~March 31, 2018, we had $60.0 million of available credit under these facilities. There are no outstanding short-term borrowings under these facilities as of ~~September 30, 2017.~~

~~On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes originally due December 2020 (the 6.6% notes). These unsecured notes were paid in full on January 11, 2017.~~March 31, 2018.

On December 28, 2016, TSM entered into a $35.5 million credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11.2 million, (ii) Term Loan B in the principal amount of $20.2 million and (iii) Term Loan C in the principal amount of $4.1 million. Term Loan A matures in October 2023 while the Term Loans B and C mature in January 2024. Term Loan A was used to refinance ~~the~~a previous $41.0 million secured loan payable with the same commercial bank in Puerto Rico. Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% senior unsecured notes due December 2020 ($24.0 million).bank. Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (i) 1% over LIBOR for Term Loan A, (ii) 2.75% over LIBOR for Term Loan B, and (iii) 3.25% over LIBOR for Term Loan C. The loan includes certain financial and 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 and dividends. Failure to meet these covenants may trigger the accelerated payment of the outstanding balance. As of ~~September 30, 2017~~March 31, 2018 we are in compliance with these covenants.

~~On March 11, 2016~~ ~~TSS~~ entered into a $30.0 million revolving loan agreement with a commercial bank in Puerto Rico. This unused line of credit had an interest rate of LIBOR plus 220 basis points and includes certain financial and non-financial covenants that are customary for this type of facility. This revolving loan agreement matured on March 11, 2017, and was not renewed.

On April 18, 2017, TSA entered into a $10.0 million revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 25 basis points ~~and~~ contains certain financial and non-financial covenants that are customary for this type of facility. ~~As of September 30, 2017, there is no outstanding balance in this~~This line of ~~credit.~~credit matured on April 17, 2018. The Company intends to renew this facility for an additional year.

We anticipate that we will have sufficient liquidity to support our currently expected needs.

Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in our exposure to financial market risks since December 31, ~~2016.~~2017. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” ofincluded in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, management, under the supervision and with the participation of the chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the “disclosure controls and procedures” ~~as of the end of this period~~ (as such term is defined under Exchange Act Rule 13a-15(e)) of the Corporation and its subsidiaries. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or ~~mistakes.~~mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on ~~their~~this evaluation,~~, the Company’s~~ our chief executive officer and chief financial officer have concluded that as of ~~September 30, 2017,~~March 31, 2018, which is the end of the period covered by this Quarterly Report on Form 10-Q, ~~the Company’s~~our disclosure controls and procedures ~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were~~are effective to a reasonable level of assurance.

~~Remediation of Material Weakness~~

~~Management first reported on Form 10-Q for the quarterly period ended June 30, 2017 a material weakness~~There were no significant changes in ~~the Company’s~~our disclosure controls and procedures, or in factors that could significantly affect internal ~~control over financial reporting, related~~controls, subsequent to the ~~review process of~~date the Managed Care claims paid data input in our incurred but not reported (“IBNR”) actuarial model. As the result of an inspection from the Public Company Accounting Oversight Board, our independent registered public accounting firm requested that we re-evaluate certain internal controls related to the review process of the Managed Care claims paid data input in the IBNR actuarial model. As the result of this re-evaluation, management agreed that controls were not appropriately designed to validate that the claims paid information in the lag triangles used in the IBNR actuarial models is reviewed with enough precision to ascertain data is accurately presented by incurred date. A material weakness is a deficiency, or combination of deficiencies, in internal control overchief executive officer and chief financial ~~reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.~~

~~Table of Contents~~

~~During the third quarter of 2017~~, management designed, documented and implemented additional control procedures and enhanced existing control procedures related to the preventive controls over the accuracy of the incurred date component of the Managed Care claims paid data within the claim lags. These procedures include: (a) full incorporation into the process of additional personnel hired in January 2017, (b) strengthening the review process over the accuracy of the claims paid data within the IBNR model, and (c) strengthening the claims paid reconciliation process to include the incurred date component within the IBNR model on a monthly and historical basis.

~~The Company~~officer completed the documentation and testing of the design and operating effectiveness of the controls described above and, as of September 30, 2017, has concluded that the steps taken have remediated the material weakness relatedevaluation referred to ~~the review of the incurred date component of the Managed Care claims paid data within the IBNR model.~~above.

Changes in Internal Controls Over Financial Reporting

~~Other than the control procedures as described above, which were implemented to remediate the material weakness, no~~No changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended ~~September 30, 2017~~March 31, 2018 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

Part II – Other Information

Item 1.

Legal Proceedings

For a description of legal proceedings that have experienced significant developments during this quarter, see note 1312 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q.

Item 1A.

Risk Factors

For a description of our risk factors, see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

~~The following text updates the disclosure included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016, under the sub-caption “The health care reform law and the implementation of that law could have a material adverse effect on our business, financial condition, cash flows, or results of operations.~~”

On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010 (ACA) to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, in January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. Following the passage of the Budget Resolution, on March 6, 2017, the U.S. House of Representatives introduced legislation known as the American Health Care Act (AHCA), which, if enacted, would amend or repeal significant portions of the ACA. Among other changes, the AHCA would sunset the annual insurance industry assessment as of December 31, 2017, essentially eliminate the individual and employer mandates by eliminating penalties and providing retroactive relief for failing to maintain or provide minimum essential coverage, and permit insurers to charge individuals a 30% surcharge on premiums for failing to demonstrate continuous coverage. The AHCA would also make significant changes to Medicaid by, among other things, making the ACA Medicaid expansion optional for states, repealing the ACA requirement that state Medicaid plans provide the same essential health benefits that are required by plans available through the exchanges, implementing a per capita cap on federal payments to states beginning in fiscal year 2020, and changing certain eligibility requirements. On May 4, 2017, the U.S. House of Representatives approved the AHCA to repeal portions of the ACA.

The U.S. Senate spent several months developing its alternative to the AHCA, culminating in several votes on various substitute amendments during the last week of July 2017. None of the Senate substitutes, including a skinny package that would have repealed coverage mandates but maintained subsidies, were able to pass in the U.S. Senate. While it is uncertain when or if the provisions in the AHCA will become law, or the extent to which any such changes may impact our business, it is clear that Congress is taking concrete steps to repeal and replace certain aspects of the ACA.

On October 12, 2017, President Trump signed an executive order requiring the implementation of regulations that would exempt certain association plans from complying with Affordable Care Act requirements, easing restrictions on certain short-term health plans and health reimbursement arrangements and limiting hospital and insurance company consolidation while promoting competition and choice. To the extent that certain provisions of the Affordable Care Act are not applicable in Puerto Rico and that regulations implementing these changes have yet to be adopted, it is unclear at this time how the executive order or any regulations required to be promulgated thereunder would affect the Puerto Rico market.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Purchases of Equity Securities by the Issuer~~

~~The following table presents information related to our repurchases of common stock for the period indicated:~~

(Dollar amounts in millions, except per share data)
Total Number
of Shares
Purchased

Average
Price
Paid per
Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs ¹

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
Programs

July 1, 2017 to July 31, 2017 - $ - - $ 30.0
August 1, 2017 to August 31, 2017 199,034 23.59 199,034 25.3
September 1, 2017 to September 30, 2017 340,000 23.47 340,000 17.4

(Dollar amounts in millions, except per share data)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs ¹		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs

January 1, 2018 to January 31, 2018		111,113	$	23.77		111,113	$	7.2
February 1, 2018 to February 28, 2018		114,150		23.81		114,150		29.5
March 1, 2018 to March 31, 2018		338,296		26.34		338,296		20.6

¹	In August 2017 the Company's Board of Directors authorized a $30.0 million Share Repurchase Program of its Class B common stock. In February 2018 the Company's Board of Directors authorized a $25.0 million expansion of this program.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

	Exhibits	Description

10.1*	~~Amendment to Extend Contract~~11	Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the ~~Provision~~three months ended March 31, 2018 and 2017 has been omitted as the detail necessary to determine the computation of ~~Physical & Behavioral Health Services under~~earnings per share can be clearly determined from the ~~Government Health Plan Program dated as~~material contained in Part I of ~~September 28, 2017, by and between the Administracion de Seguros de Salud de Puerto Rico and Triple-S Salud, Inc.~~this Quarterly Report on Form 10-Q.

~~10.2*+~~	~~Master Services Agreement, dated as of August 29, 2017, by and between Triple-S Salud, Inc. and OptumInsight, Inc.~~

31.1*	Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

	31.2*	Certification of the Executive Vice President 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.C Section 1350.

	32.2*	Certification of the Executive Vice President and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.

All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

*	Filed herein.

+	~~Confidential treatment requested as to certain portions, which portions have been provided separately to the Securities and Exchange Commission.~~

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SIGNATURES

Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			Triple-S Management Corporation

			Registrant

Date:	~~November 9, 2017~~May 8, 2018	By:	/s/ Roberto García-Rodríguez
			Roberto García-Rodríguez
			President and Chief Executive Officer

Date:	~~November 9, 2017~~May 8, 2018	By:	/s/ Juan J. Román-Jiménez
			Juan J. Román-Jiménez
			Executive Vice President and Chief Financial Officer

5547

	Three months ended September 30, 2017									Nine months ended September 30, 2017
	Managed Care			Other Business Segments *			Consolidated			Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of period	$	371,428		$	132,812		$	504,240		$	349,047		$	138,896		$	487,943
Reinsurance recoverable on claim liabilities		-			(33,368	)		(33,368	)		-			(38,998	)		(38,998	)
Net claim liabilities at beginning of period		371,428			99,444			470,872			349,047			99,898			448,945
Claims incurred
Current period insured events		541,648			40,719			582,367			1,724,890			95,227			1,820,117
Prior period insured events		(2,463	)		(3,391	)		(5,854	)		(19,158	)		(5,920	)		(25,078	)
Total		539,185			37,328			576,513			1,705,732			89,307			1,795,039
Payments of losses and loss-adjustment expenses
Current period insured events		529,497			15,320			544,817			1,456,098			38,222			1,494,320
Prior period insured events		24,819			5,794			30,613			242,384			35,325			277,709
Total		554,316			21,114			575,430			1,698,482			73,547			1,772,029
Net claim liabilities at end of period		356,297			115,658			471,955			356,297			115,658			471,955
Reinsurance recoverable on claim liabilities		-			636,743			636,743			-			636,743			636,743
Claim liabilities at end of period	$	356,297		$	752,401		$	1,108,698		$	356,297		$	752,401		$	1,108,698

	Three months ended September 30, 2016								Nine months ended September 30, 2016
	Managed Care		Other Business Segments *			Consolidated			Managed Care			Other Business Segments *			Consolidated

Claim liabilities at beginning of period	$	341,505	$	140,359		$	481,864		$	348,297		$	143,468		$	491,765
Reinsurance recoverable on claim liabilities		-		(38,109	)		(38,109	)		-			(40,714	)		(40,714	)
Net claim liabilities at beginning of period		341,505		102,250			443,755			348,297			102,754			451,051
Claims incurred
Current period insured events		588,960		26,166			615,126			1,800,023			78,006			1,878,029
Prior period insured events		9,105		(2,197	)		6,908			(15,488	)		(5,131	)		(20,619	)
Total		598,065		23,969			622,034			1,784,535			72,875			1,857,410
Payments of losses and loss-adjustment expenses
Current period insured events		553,062		17,049			570,111			1,501,480			38,702			1,540,182
Prior period insured events		16,633		7,095			23,728			261,477			34,852			296,329
Total		569,695		24,144			593,839			1,762,957			73,554			1,836,511
Net claim liabilities at end of period		369,875		102,075			471,950			369,875			102,075			471,950
Reinsurance recoverable on claim liabilities		-		39,427			39,427			-			39,427			39,427
Claim liabilities at end of period	$	369,875	$	141,502		$	511,377		$	369,875		$	141,502		$	511,377

	September 30, 2017		December 31, 2016

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%, fully paid in January 2017.	$	-	$	24,000
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 2.23% and 1.77% at September 30, 2017 and December 31, 2016, respectively)		9,957		11,187
Secured loan payable of $20,150, payable in monthly installments of $84 through January 1, 2024, plus interest at a rate reset periodically of 275 basis points over selected LIBOR maturity (which was 4.05% at September 30, 2017).		19,478		-
Secured loan payable of $4,116, payable in monthly installments of $49 through January 1, 2024, plus interest at a rate reset periodically of 325 basis points over selected LIBOR maturity (which was 4.55% at September 30, 2017).		3,724		-
Total borrowings		33,159		35,187

Less: unamortized debt issuance costs		289		102
	$	32,870	$	35,085

(Dollar amounts in millions, except per share data)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs ¹		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs

July 1, 2017 to July 31, 2017		-	$	-		-	$	30.0
August 1, 2017 to August 31, 2017		199,034		23.59		199,034		25.3
September 1, 2017 to September 30, 2017		340,000		23.47		340,000		17.4