~~Investments~~Recently Adopted Accounting Standards

~~Fixed maturities~~

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued guidance to increase transparency and comparability among organizations by requiring the recognition of a lease right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payment on the balance sheet, for both finance and operating leases with lease terms of more than 12 months. The classification of finance or operating will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. Lessors are required to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In July 2018, the FASB issued the following guidance “Leases – Targeted Improvements” and “Codification Improvement to Leases” to assist in the implementation of leases and address certain technical corrections and improvement to the recently issued lease standard. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors and other ~~invested assets~~

~~Investment in debt securities at September 30,~~implementation considerations. For public companies, the amended guidance is effective for fiscal years beginning after December 15, 2018, and December 31, 2017 consists mainly of obligations of government‑sponsored enterprises, U.S. Treasury securities and obligations of U.S. government instrumentalities, municipal securities, corporate bonds, residential mortgage-backed securities, and collateralized mortgage obligations.including interim periods within those fiscal years. The Company ~~classifies~~adopted the standard effective January 1, 2019 recognizing approximately $8,800 in ROU assets and lease liabilities for its ~~debt securities~~operating leases in ~~one~~its condensed consolidated balance sheet. ROU assets are included within the other assets and the lease liabilities are included within the accounts payable and accrued liabilities line items in the accompanying condensed consolidated balance sheet. No cumulative effect adjustment to opening balance of retained earnings on the adoption date was required. Most of the operating leases are related to real estate. The Company adopted the following two ~~categories: available-for-sale or held-to-maturity. Securities classified~~accounting policies as ~~held-to-maturity are those securities in which~~a result of the adoption of the standard: (1) to not separate lease components from nonlease components and (2) to not apply the recognition requirements of ASC 842 to short-term leases. In addition, the Company ~~has the ability~~implemented control processes and ~~intent to hold until maturity. All other securities not included in held-to-maturity are classified~~procedures, 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~~necessary, based on quoted market prices for those or similar investments at the reporting date. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts, respectively. Unrealized holding gains and losses, net of the 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 losseschanges resulting from the ~~sale of available-for-sale securities are included in earnings and are determined on a specific‑identification basis.~~new standard.

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 security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security.

Table of Contents

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~~

On March 5, 2019, the FASB issued guidance for Leases (Topic 842): Codification Improvements. The amendments in ~~an unrealized loss position and~~this update include issues brought to the ~~Company has~~FASB’s attention through interactions with stakeholders in order to clarify its intent when applying 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.

guidance. 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~~issues were: (1) determining the fair value of ~~any available-for-sale~~the underlying asset by lessors that are not manufacturers or ~~held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce~~dealers; (2) presentation on 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 amountstatement of cash flows ~~on such securities. In addition, the amortization~~ of ~~market premium~~sales type and ~~accretion of market discount~~direct financing leases; and (3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections. The amendments in this update 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~~ ~~September~~ ~~30, 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~~Issue 1 affect all lessors that are not ~~redeemable with~~manufacturers or dealers. Issue 2 affects all lessors that are depository and lending entities within the ~~funds. Distributions from each fund~~scope of Topic 942, and Issue 3 affect all entities that 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~~ ~~September~~ ~~30, 2018 amounted to $88,691. The remaining average commitments period is approximately three years.~~

~~Table of Contents~~

~~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 September 30, 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 August 29, 2018, the Financial Accounting Standard Board (FASB) issued guidance for Intangibles – Goodwill and Other – Internal-Use Software. Guidance addresses customer’s accounting for implemented costs incurred in a cloud computing arrangement that is a service contract and aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. The amendments require a customer in a hosting arrangement that is a service contract to determine which implementation costs to capitalize as an asset related to service contract and which costs to expense. Additionally, it requires the customer to expense the capitalized implementation costs over the term of the hosting arrangement.lessees or lessors. For public companies, ~~these~~the amendments for Issue 1 and Issue 2, will be ~~applied on a prospective basis,~~effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The ~~adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.~~

~~On August 28, 2018, the FASB issued guidance~~amendments for ~~Compensation – Retirement Benefits – Defined Benefit Plans – General which addresses changes~~Issue 3 are effective to the ~~disclosure requirement for defined benefit plans. The amendments~~original transition requirements on Topic 842 and were implemented in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Specifically certain disclosure requirements are removed (i.e. the amounts of accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, related party disclosures concerning the amount of future annual benefits covered by an insurance and annuity contracts and significant transactions between the employer and related parties and the plan) while certain other disclosures are added (i.e. the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period). For public companies, these amendments, will be applied for fiscal years beginning after December 15, 2020. The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.

On August 27, 2018, the FASB issued guidance for Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement. This update focuses on improving the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. Specifically certain disclosure requirements are removed (the amount of, and reasons for, transfer between LevelJanuary 1, and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation processes for Level 3 fair value measurements) while it modifies and adds certain other disclosures (the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements). The amendments regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent period in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. For public companies, these amendments will be applied for fiscal years beginning after December 15, 2019. ~~The adoption of this guidance should not have a material impact on the presentation of the Company’s consolidated result of operations.~~

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

On August 15, 2018, the FASB issued guidance for Financial Services – Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts which provides meaningful improvements to the existing revenue recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments improve the timeliness of recognizing changes in the liability for future policy benefits and modify rate used to discount future cash flows, simplify and improve the accounting for certain market-based options or guarantees associated with deposit contracts, simplify the amortization of deferred acquisition costs, and improves the effectiveness of the required disclosures. Specifically, this guidance requires an insurance entity to review and update, if needed, the assumptions used to measure cash flows and discount rate at each reporting date, measure all market risk benefits associated with deposit and disclose liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in measurement, including changes thereto and the effect of those changes on measurement. Additionally, the amendment simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, and requires that those balances be amortized on a constant level basis over the expected term of the related contracts. For public companies, these amendments will be applied for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this guidance may have on the Company’s consolidated financial statements.

On July 30, 2018 and July 18, 2018, the FASB issued the following guidance Leases – Targeted Improvement and Codification Improvement to Leases, respectively, to assist in the implementation of leases and address certain technical corrections and improvement to the recently issued lease standard. Leases – Targeted Improvement provides entities with an additional and optional transition method to adopt the new lease standard under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. It also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components for the associated lease component. Codification: Improvement Leases addresses the following areas of correction or improvement (1) residual value guarantees, (2) rate implicit in the lease, (3) lessee reassessment of lease classification, (4) lessor reassessment of lease term and purchase option, (5) variable lease payments that depend on an index or a rate, (6) investment tax credits, (7) lease term and purchase option, (8) transition guidance for amounts previously recognized in business combinations, (9) certain transition adjustments, (10) transition guidance for leases previously classified as capital leases, (11) transition guidance for modification to leases previously classified as direct financing or sales-type leases, (12) transition guidance for sales and leaseback transactions; (13) impairment of net investment in the lease, (14) unguaranteed residual assets, (15) effect of initial direct costs on the rate implicit in the lease, and (16) failed sale and leaseback transactions. For public companies, these amendments will be applied for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We expect the standard to have a significant impact on our consolidated balance sheet, but not in our consolidated statement of earnings. The most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases. The Company will adopt the standard in the first quarter of 2019 and is currently compiling an inventory of arrangements containing a lease and accumulating the lease data necessary to apply the amended guidance. In addition, the Company will implement updates to its control processes and procedures, as necessary, based on changes resulting from the new standard.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

On July 16, 2018, the FASB issued guidance Codification Improvements which represents changes to clarify, correct errors in, or make minor improvements to the Codification. The change addresses conflicts or unclear intent in the following areas: (1) Comprehensive Income – Overall, (2) Debt – Modifications and Extinguishments, (3) Distinguishing Liabilities from Equity – Overall, (3) Compensation – Stock Compensation – Income Taxes, (4) Derivatives and Hedging – Overall – Other Presentation Matters, (5) Fair Value Measurement – Overall and (6) Financial Services – Brokers and Dealers – Liabilities and Financial Services – Depository and Lending. Some of the amendments in this update do not require transition guidance and are effective immediately. However, many of the amendments do have transition guidance, effective for public companies for annual periods beginning after December 15, 2018. We are currently evaluating the impact the adoption of this guidance may have on the Company’s consolidated financial statements.

~~Recently Adopted Accounting Standards~~

On February 28, 2018, the FASB issued guidance for Technical Corrections and Improvement to Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. Areas for correction or improvement include (1) equity securities without a readily determinable fair value—discontinuation, (2) equity securities without a readily determinable fair value—adjustments, (3) forward contracts and purchased options, (4) presentation requirements for certain fair value option liabilities, (5) fair value option liabilities denominated in a foreign currency, and (6) transition guidance for equity securities without a readily determinable fair value. For public companies, these amendments, became effective on a prospective basis, for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Public entities with fiscal years beginning between December 15, 2017 and June 15, 2018 are not required to adopt these amendments until the interim period beginning after June 15, 2018. The Company adopted this guidance effective June 30, 2018. The adoption of this guidance did not have a material impact on the presentation of the Company’s consolidated result of operations.

Future Adoptions of Accounting Standards

On ~~January 5, 2016,~~April 25, 2019, the FASB issued ~~guidance~~Accounting Standard Update (ASU) 2019-04: Codification Improvements to ~~enhance~~Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendment in this update represent changes to clarify, correct errors in or improve the ~~reporting model for financial instruments~~codification. Such amendments should make the codification easier to ~~provide users~~understand and easier to apply by eliminating inconsistencies and providing clarifications. Within the clarifications was the FASB’s intent to include all reinsurance recoverables within the scope 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 consolidation of the investee, to 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 qualitative assessment to identify impairment; (3) eliminating the 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 valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This guidance applies to all entities that hold financial assets or owe financial liabilities. The Company also adopted guidance issued by FASB on March 9, 2018 that removes the previous guidance for Other Than Temporary Impairment of Certain Investments in Equity Securities as required by SEC Staff Accounting Bulletin (SAB) No. 117 and SEC Release No. 33-9273, since it is no longer applicable.ASU 2016-13 (Topic 326). For public companies, ~~these amendments became~~the improvements related to ASU 2016-13 (Topic 326) and ASU 2016-01 (Topic 825) are effective for fiscal years beginning after December 15, ~~2017,~~2019, including interim periods within those fiscal years. ~~The Company adopted~~We are currently evaluating the impact the adoption of this guidance ~~for equity securities effective January 1, 2018. A cumulative-effect adjustment of $39,882 was made from accumulated other comprehensive income to~~may have on the ~~beginning retained earnings at the implementation date.~~Company’s condensed consolidated financial statements.

Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months and nine months ended September 30, ~~2018~~2019 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

(3)	Investment in Securities

The amortized cost for debt securities and cost for ~~equity securities,~~alternative investments, gross unrealized gains, gross unrealized losses, and estimated fair value for the Company’s investments in securities by major security type and class of security at as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, were as follows:

	September 30, 2018									September 30, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value

Fixed maturities available for sale:
Fixed maturities available for sale
Obligations of government-sponsored enterprises	$	11,460	$	-	$	(130	)	$	11,330	$	16,969	$	568	$	(1	)	$	17,536
U.S. Treasury securities and obligations of U.S. government instrumentalities		225,968		11		(1,488	)		224,491		111,744		5,654		-			117,398
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		8,234		-		(5	)		8,229
Municipal securities		679,796		13,967		(4,521	)		689,242		612,680		41,420		-			654,100
Corporate bonds		213,048		9,525		(1,007	)		221,566		190,078		22,866		(43	)		212,901
Residential mortgage-backed securities		59,483		-		(987	)		58,496		249,233		8,239		(113	)		257,359
Collateralized mortgage obligations		11,054		-		(358	)		10,696		9,078		538		-			9,616
Total fixed maturities available for sale	$	1,209,043	$	23,503	$	(8,496	)	$	1,224,050	$	1,189,782	$	79,285	$	(157	)	$	1,268,910

	September 30, 2018								September 30, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Fixed maturities held to maturity:
Fixed maturities held to maturity
U.S. Treasury securities and obligations of U.S. government instrumentalities	$	617	$	107	$	-	$	724	$	615	$	175	$	-	$	790
Residential mortgage-backed securities		190		3		-		193		165		2		-		167
Certificates of deposit		1,683		-		-		1,683		1,080		-		-		1,080
Total	$	2,490	$	110	$	-	$	2,600	$	1,860	$	177	$	-	$	2,037

September 30, 2018

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Equity investments - Mutual funds $ 267,852 $ 39,518 $ (1,010 ) $ 306,360

	September 30, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value

Other invested assets - Alternative investments	$	94,338	$	3,445	$	(699	)	$	97,084

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

September 30, 2018

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Estimated
fair value

Other invested assets - Alternative investments $ 71,479 $ 1,950 $ (302 ) $ 73,127

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

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

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities available for sale
Fixed maturities
Obligations of government- sponsored enterprises	$	21,470	$	120	$	(1	)	$	21,589
U.S. Treasury securities and obligations of U.S. government instrumentalities		174,675		2,349		-			177,024
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		8,295		-		-			8,295
Municipal securities		692,205		18,112		(538	)		709,779
Corporate bonds		186,085		9,724		(239	)		195,570
Residential mortgage-backed securities		75,373		1,298		-			76,671
Collateralized mortgage obligations		10,266		208		-			10,474
Total fixed maturities	$	1,168,369	$	31,811	$	(778	)	$	1,199,402

	December 31, 2018
	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	$	125	$	-	$	742
Residential mortgage-backed securities		190		2		-		192
Certificates of deposit		1,685		-		-		1,685
Total	$	2,492	$	127	$	-	$	2,619

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

Other invested assets - Alternative investments	$	72,627	$	2,042	$	(654	)	$	74,015

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

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, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:

September 30, 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:
Obligations of government-sponsored enterprises
$ 11,330 $ (130 ) 2 $ - $ - - $ 11,330 $ (130 ) 2
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
196,342 (1,488 ) 21 - - - 196,342 (1,488 ) 21
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
7,485 (5 ) 4 - - - 7,485 (5 ) 4
Municipal securities 306,834 (3,727 ) 56 23,631 (794 ) 2 330,465 (4,521 ) 58
Corporate bonds 128,028 (1,007 ) 44 - - - 128,028 (1,007 ) 44
Residential mortgage-backed securities
53,395 (741 ) 21 5,100 (246 ) 4 58,495 (987 ) 25
Collateralized mortgage obligations 6,333 (148 ) 2 4,115 (210 ) 1 10,448 (358 ) 3
Total fixed maturities $ 709,747 $ (7,246 ) 150 $ 32,846 $ (1,250 ) 7 $ 742,593 $ (8,496 ) 157
Other invested assets - Alternative investments $ 13,460 $ (224 ) 5 $ 8,817 $ (78 ) 2 $ 22,277 �� $ (302 ) 7

	September 30, 2019
	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
Obligations of government- sponsored enterprises	$	1,094	$	(1	)		1	$	-	$	-			-	$	1,094	$	(1	)		1
Corporate bonds		5,086		(43	)		1		-		-			-		5,086		(43	)		1
Residential mortgage-backed securities		39,227		(113	)		8		-		-			-		39,227		(113	)		8
Total fixed maturities	$	45,407	$	(157	)		10	$	-	$	-			-	$	45,407	$	(157	)		10
Other invested assets - Alternative investments	$	20,599	$	(313	)		7	$	9,601	$	(386	)		1	$	30,200	$	(699	)		8

December 31, 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

Securites available for sale:
Fixed maturities:
U.S. Treasury securities and obligations of U.S. governmental instrumentalities
$ 96,617 $ (550 ) 7 $ - $ - - $ 96,617 $ (550 ) 7
Municipal securities 162,731 (1,467 ) 27 - - - 162,731 (1,467 ) 27
Corporate bonds 80,374 (489 ) 16 - - - 80,374 (489 ) 16
Residential mortgage-backed securities
31,736 (355 ) 19 - - - 31,736 (355 ) 19
Collateralized mortgage obligations 13,630 (239 ) 3 7,294 (98 ) 2 20,924 (337 ) 5
Total fixed maturities 385,088 (3,100 ) 72 7,294 (98 ) 2 392,382 (3,198 ) 74
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 $ 438,057 $ (3,535 ) 83 $ 10,456 $ (130 ) 3 $ 448,513 $ (3,665 ) 86

	December 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
Obligations of government- sponsored enterprises	$	1,469	$	(1	)		1	$	-	$	-			-	$	1,469	$	(1	)		1
Municipal securities		62,328		(349	)		10		17,648		(189	)		3		79,976		(538	)		13
Corporate bonds		52,539		(239	)		18		-		-			-		52,539		(239	)		18
Total fixed maturities	$	116,336	$	(589	)		29	$	17,648	$	(189	)		3	$	133,984	$	(778	)		32
Other invested assets - Alternative investments	$	7,399	$	(351	)		3	$	10,447	$	(303	)		2	$	17,846	$	(654	)		5

The Company reviews the available for sale and other invested assets portfolios under the 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 Company 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.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

Obligations of Government-Sponsored ~~Enterprises, U.S. Treasury Securities and Obligations of U.S. Government Instrumentalities, and Municipal Securities:~~Enterprises: The unrealized losses of these 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 investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Company does not intend to sell the investments and it is not more likely than not that the Company will 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.

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 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.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

Residential mortgage-backed securities ~~and Collateralized mortgage obligations~~: The unrealized losses on these 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 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 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 Company does not intend to sell the investments and it is 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.

~~Obligations of the Commonwealth of Puerto Rico and its Instrumentalities:~~

Alternative investments:As of September 30, 2018, our holdings in Puerto Rico municipals consist of escrowed bonds. The Company does not intend to sell the investments and it is 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.

~~Alternative Investments:~~ ~~As of September 30, 2018,~~2019, 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 impaired positions for the nine-month period ending September 30, 2018.~~

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

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

	September 30, 2018				September 30, 2019
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Fixed maturities available for sale
Due in one year or less	$	11,238	$	11,263	$	750	$	750
Due after one year through five years		400,523		398,067		454,665		474,047
Due after five years through ten years		419,705		418,411		262,866		283,037
Due after ten years		307,040		327,117		213,190		244,101
Residential mortgage-backed securities		59,483		58,496		249,233		257,359
Collateralized mortgage obligations		11,054		10,696		9,078		9,616
	$	1,209,043	$	1,224,050	$	1,189,782	$	1,268,910
Fixed maturities held to maturity
Due in one year or less		1,683		1,683	$	1,080	$	1,080
Due after ten years		617		724		615		790
Residential mortgage-backed securities		190		193		165		167
	$	2,490	$	2,600	$	1,860	$	2,037

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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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

(4)	Realized and Unrealized Gains (Losses)

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

													Three months ended September 30,						Nine months ended September 30
	Three months ended September 30,						Nine months ended September 30,						2019			2018			2019			2018
	2018			2017			2018			2017
Realized gains (losses)
Fixed maturity securities:
Securities available for sale:
Gross gains	$	587		$	933			2,099		$	1,334		$	950		$	587		$	3,597		$	2,099
Gross losses		(2,892	)		(194	)		(13,695	)		(830	)		-			(2,892	)		(319	)		(13,695	)
Total fixed securities		(2,305	)		739			(11,596	)		504			950			(2,305	)		3,278			(11,596	)
Equity investments:
Gross gains		1,218			3,014			9,972			7,641			401			1,218			2,532			9,972
Gross losses		(67	)		-			(1,091	)		(2	)		(443	)		(67	)		(1,488	)		(1,091	)
Total equity investments		1,151			3,014			8,881			7,639			(42	)		1,151			1,044			8,881
Other invested assets:
Gross gains		311			-			4,104			-			179			311			500			4,104
Gross losses		(113	)		-			(324	)		-			-			(113	)		(56	)		(324	)
Total other invested assets		198			-			3,780			-			179			198			444			3,780
Net realized investment (losses) gains	$	(956	)	$	3,753		$	1,065		$	8,143
Net realized investment gains (losses)													$	1,087		$	(956	)	$	4,766		$	1,065

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
	2018			2017			2018			2017			2019		2018			2019		2018
Changes in net unrealized (losses) gains:
Recognized in accumulated other comprehensive (loss) income:

Changes in net unrealized gains (losses):
Recognized in accumulated other comprehensive income (loss):
Fixed maturities – available for sale	$	(8,873	)	$	(1,199	)	$	(30,130	)	$	1,614		$	11,544	$	(8,873	)	$	48,095	$	(30,130	)
Other invested assets		894			3,605			1,333			17,516			686		894			1,358		1,333
	$	(7,979	)	$	2,406		$	(28,797	)	$	19,130		$	12,230	$	(7,979	)	$	49,453	$	(28,797	)
Not recognized in the consolidated financial statements:
Fixed maturities – held to maturity	$	(13	)	$	(2	)	$	(46	)	$	(10	)	$	14	$	(13	)	$	50	$	(46	)

The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income (loss) ~~income~~ during the nine months ended September 30, 2019 and 2018 was $9,892 and ~~2017~~ ~~was~~ $7,980, ~~and~~ $~~4,503~~, respectively.

As of September 30, ~~2018~~2019, and December 31, ~~2017, no~~2018, 0 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)~~

(5)

Premiums and Other Receivables, Net

Premiums and other receivables, net were as follows:

	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Premium	$	73,624	$	103,027	$	171,491	$	94,613
Self-funded group receivables		34,851		39,859		28,900		31,184
FEHBP		13,670		13,346		14,161		14,030
Agent balances		26,076		32,818		31,728		30,224
Accrued interest		12,243		14,331		8,659		12,426
Reinsurance recoverable		428,298		661,679		269,324		399,202
Other		84,460		70,150		124,612		88,807
		673,222		935,210		648,875		670,486
Less allowance for doubtful receivables:
Premium		31,379		26,490		27,847		32,487
Other		8,946		9,393		12,723		9,555
		40,325		35,883		40,570		42,042
Total premium and other receivables, net	$	632,897	$	899,327	$	608,305	$	628,444

As of September 30, ~~2018~~2019, and December 31, ~~2017,~~2018, the Company had premiums and other receivables of ~~$52,170~~$57,430 and ~~$81,838,~~$54,329, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations. The related allowance for doubtful receivables as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 were ~~$19,614~~$17,138 and ~~$16,436,~~$20,984, respectively.

(6)

Goodwill

Certain business combination transactions have resulted in goodwill, which represents the excess of the acquisition cost over the fair value of net assets acquired, and is assigned to reporting units. Goodwill recorded as of September 30, 2019 and December 31, 2018 were $28,970 and $25,397, respectively, which is mostly attributable to the Medicare Advantage reporting unit within the Managed Care segment.

In an effort to expand the health clinics reporting unit, the Company purchased various health clinics across different municipalities in Puerto Rico, resulting in a recognition of goodwill of $3,573 during the nine months ended September 30, 2019. The fair values initially assigned to the assets acquired and liabilities assumed are preliminary and are subject to refinement for up to one year after the closing date of the acquisition as new information becomes available.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

~~(5)~~(7)

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.~~value. 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 ~~2017~~2018 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, 2018								September 30, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Fixed maturity securities available for sale:
Fixed maturity securities available for sale
Obligations of government-sponsored enterprises	$	-	$	11,330	$	-	$	11,330	$	-	$	17,536	$	-	$	17,536
U.S. Treasury securities and obligations of U.S government instrumentalities		224,491		-		-		224,491		117,398		-		-		117,398
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		8,229		-		8,229
Municipal securities		-		689,242		-		689,242		-		654,100		-		654,100
Corporate bonds		-		221,566		-		221,566		-		212,901		-		212,901
Residential agency mortgage-backed securities		-		58,496		-		58,496		-		257,359		-		257,359
Collateralized mortgage obligations		-		10,696		-		10,696		-		9,616		-		9,616
Total fixed maturities		224,491		999,559		-		1,224,050	$	117,398	$	1,151,512	$	-	$	1,268,910

Equity investments	$	143,638	$	162,722	$	-	$	306,360	$	154,898	$	107,216	$	5,169	$	267,283

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

Fixed maturity securities
Obligations of government-sponsored enterprises	$	-	$	1,444	$	-	$	1,444	$	-	$	21,589	$	-		$	21,589
U.S. Treasury securities and obligations of U.S government instrumentalities		118,349		-		-		118,349		177,024		-		-			177,024
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		-		8,093		-		8,093		-		8,295		-			8,295
Municipal securities		-		800,790		-		800,790		-		709,779		-			709,779
Corporate bonds		-		234,324		-		234,324		-		195,570		-	��		195,570
Residential agency mortgage-backed securities		-		32,112		-		32,112		-		76,671		-			76,671
Collateralized mortgage obligations		-		21,676		-		21,676		-		10,474		-			10,474
Total fixed maturities		118,349		1,098,439		-		1,216,788	$	177,024	$	1,022,378	$	-		$	1,199,402
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	$	311,509	$	1,247,588	$	-	$	1,594,081
Equity investments									$	147,348	$	128,011	$	3,805		$	279,164

There were 0 transfers between Levels 1 and 2 during the three and nine months ended September 30, 2019 and 2018.

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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 between Levels 1~~

During the three months ended December 31, 2018, the Company purchased an equity investment with fair value amounting to $3,805 which was classified as a Level 3. A reconciliation of the beginning and ~~2 during~~ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30 ~~2018 and 2017.~~is as follows:

~~A summary of the carrying value and~~

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Three months ended		Nine months ended
	September 30, 2019		September 30, 2019
Beginning Balance	$	5,130	$	3,805
Realized gains		-		-
Unrealized in other accumulated comprehensive income		39		114
Purchases		-		1,250
Sales		-		-
Capital Distributions		-		-
Ending Balance	$	5,169	$	5,169

The fair value ~~by level~~ of ~~financial instruments not recorded at~~investment securities is estimated based on quoted market prices for those or similar investments. Additional information pertinent to the estimated fair value ~~on our condensed consolidated balance sheets at~~ ~~September~~ ~~30, 2018 and December 31, 2017 are as follows:~~of investment in securities is included in Note 3.

September 30, 2018

Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
Assets:
Policy loans $ 9,680 $ - $ 9,680 $ - $ 9,680

Liabilities:
Policyholder deposits $ 174,126 $ - $ 174,126 $ - $ 174,126
Long-term borrowings:
Loans payable to bank - variable 29,924 - 29,924 - 29,924
Total liabilities $ 204,050 $ - $ 204,050 $ - $ 204,050

December 31, 2017

Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
Assets:
Policy loans $ 9,077 $ - $ 9,077 $ - $ 9,077

Liabilities:
Policyholder deposits $ 176,534 $ - $ 176,534 $ - $ 176,534
Long-term borrowings:
Loans payable to bank - variable 32,350 - 32,350 - 32,350
Total liabilities $ 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)~~(8)

Claim Liabilities

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

	Nine months ended September 30, 2019
	Managed Care			Other Business Segments *			Consolidated


Claim liabilities at beginning of period	$	394,226		$	542,563		$	936,789
Reinsurance recoverable on claim liabilities		-			(315,543	)		(315,543	)
Net claim liabilities at beginning of period		394,226			227,020			621,246
Claims incurred
Current period insured events		1,934,859			85,726			2,021,426
Prior period insured events		(29,038	)		(8,254	)		(38,133	)
Total		1,905,821			77,472			1,983,293
Payments of losses and loss-adjustment expenses
Current period insured events		1,606,458			41,849			1,648,307
Prior period insured events		303,289			32,145			335,434
Total		1,909,747			73,994			1,983,741
Net claim liabilities at end of period		390,300			230,498			620,798
Reinsurance recoverable on claim liabilities		-			181,193			181,193
Claim liabilities at end of period	$	390,300		$	411,691		$	801,991

Nine months ended
September 30, 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 1,764,038 80,774 1,844,812
Prior period insured events (30,404 ) 122,951 92,547
Total 1,733,634 203,725 1,937,359
Payments of losses and loss-adjustment expenses:

Current period insured events 1,438,611 40,317 1,478,928
Prior period insured events 249,073 40,621 289,694
Total 1,687,684 80,938 1,768,622
Net claim liabilities at end of period 413,307 229,207 642,514
Reinsurance recoverable on claim liabilities - 395,600 395,600
Claim liabilities at end of period $ 413,307 $ 624,807 $ 1,038,114

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

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

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

Nine months ended
September 30, 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 1,724,890 95,227 1,820,117
Prior period insured events (19,158 ) (5,920 ) (25,078 )
Total 1,705,732 89,307 1,795,039
Payments of losses and loss-adjustment expenses:

Current period insured events 1,456,098 38,222 1,494,320
Prior period insured events 242,384 35,325 277,709
Total 1,698,482 73,547 1,772,029
Net claim liabilities at end of period 356,297 115,658 471,955
Reinsurance recoverable on claim liabilities - 636,743 636,743
Claim liabilities at end of period $ 356,297 $ 752,401 $ 1,108,698

	Nine months ended September 30, 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		1,764,038			80,774			1,844,812
Prior period insured events		(30,404	)		122,951			92,547
Total		1,733,634			203,725			1,937,359
Payments of losses and loss-adjustment expenses
Current period insured events		1,438,611			40,317			1,478,928
Prior period insured events		249,073			40,621			289,694
Total		1,687,684			80,938			1,768,622
Net claim liabilities at end of period		413,307			229,207			642,514
Reinsurance recoverable on claim liabilities		-			395,600			395,600
Claim liabilities at end of period		413,307		$	624,807		$	1,038,114

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

The actual amounts of claims incurred in connection with insured events occurring in a prior period typically differ from estimates of such claims made in the prior period. Amounts included as incurred claims for prior period insured events reflect the aggregate net amount of these differences.

~~The unfavorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the nine months ended September 30, 2018 is driven~~ ~~by an adverse development of approximately $128,707, in losses related to Hurricane Maria, offset by~~ better than expected utilization trends in the Managed Care segment. The favorable developments in the claims incurred and loss-adjustment expenses for prior period insured events for the nine months ended September 30, 2017 are due primarily to better than expected utilization trends in the Managed Care segment. Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in the accompanying condensed consolidated financial statements. Claim liabilities as of September 30, 2018 include approximately $488,180 related to the impact of Hurricane María, which made landfall in Puerto Rico in September 2017.

The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits expense, which amounted to ~~$22,348~~ $26,211 and $22,348during the nine months ended September 30, ~~2018. The change in the liability for future policy benefits during the nine months ended September 30, 2017 amounted to $20,746.~~

2019 and 2018, respectively.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Dollar amounts in 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, ~~2018.~~2019.

Incurred
Year

Total of IBNR Liabilities Plus Expected
Development on Reported Claims

2017 $ 11,965
2018 325,427

Incurred Year	Total of IBNR Liabilities Plus Expected Development on Reported Claims
2018	$	16,040
2019		328,401

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

~~(7)~~(9)

Pension Plan

The components of net periodic benefit cost were as follows:

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
Components of net periodic benefit cost:	2018			2017			2018			2017
Components of net periodic benefit cost:													2019			2018			2019			2018
Components of net periodic benefit cost:
Components of net periodic benefit cost:	$	1,713		$	1,652		$	5,099		$	5,248		$	1,748		$	1,713		$	5,230		$	5,099
Expected return on assets		(2,255	)		(2,021	)		(6,817	)		(6,419	)		(2,209	)		(2,255	)		(6,643	)		(6,817	)
Amortization of actuarial loss		240			79			670			251			98			240			277			670
Settlement loss		395			580			1,045			1,211			555			395			1,305			1,045
Net periodic benefit cost	$	93		$	290		$	(3	)	$	291		$	192		$	93		$	169		$	(3	)

Employer Contributions: The Company disclosed in its audited consolidated financial statements for the year ended December 31, ~~2017~~2018 that it expected to contribute $2,000 to the pension program in ~~2018.~~2019. As of September 30, ~~2018,~~2019, the Company has contributed $2,000 to the pension program.

~~(8)~~(10)

Reinsurance

Triple-S Propiedad, Inc. (TSP) uses facultative reinsurance, pro rata, and excess of loss reinsurance treaties to manage its exposure to losses, including those from catastrophe events. TSP has geographic exposure to catastrophe losses from hurricanes and earthquakes. The incidence and severity of catastrophes are inherently unpredictable. Under these treaties, TSP ceded premiums written were ~~$12,658~~$12,355 and ~~$13,370~~$12,658 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$40,124~~$ 36,028 and ~~$40,091~~$40,124 for the nine months ended September 30, ~~2018,~~2019, and ~~2017,~~2018, respectively. During the ~~nine~~three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, TSP ceded claims incurred amounting to ~~$153,707~~$81 and ~~$603,893,~~$84,113, respectively, related to losses caused by Hurricanes Irma and Maria. During the nine months ended September 30, 2019 and 2018, TSP ceded claims incurred amounting to $760 and $153,707, respectively, related to losses caused by Hurricanes Irma and Maria.

Principal reinsurance agreements are as follows:

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

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

Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to ~~$350~~$375 in $30,000 risks.

Catastrophe protection is purchased limiting losses to ~~$10,000~~$5,000 per event with losses up to approximately ~~$915,000.~~$775,000. After this, there is a retention of $24,500 from the next $70,000, for a total protection of $815,000 in an $845,000 event.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

All principal reinsurance contracts are for a period of one year and are subject to modifications and negotiations in each renewal. TSP’s current property and catastrophe reinsurance program was renewed effective April 1, ~~2018~~2019 for a twelve months period ending March 31, ~~2019.~~2020. Other contracts were renewed as expiring on January 1, ~~2018.~~2019.

~~(9)~~(11)

~~Income Taxes~~Stockholder’s Equity

~~The net deferred tax asset at September 30, 2018~~

aCommon Stock

On July 29, 2019, the Company issued 48,602 Class A shares to the heirs of a former shareholder, as a result of a litigation settlement. During July 2019, the Board of Directors authorized and ~~December 31, 2017~~approved the conversion (Conversion) of the ~~Company~~Company’s remaining issued and ~~its subsidiaries is composed~~outstanding Class A common shares into Class B common shares. Effective on August 7, 2019, all Class A holders of record received 1 Class B share for each Class A share held. Upon the ~~following:~~

September 30,
2018

December 31,
2017

Deferred tax assets
Gross deferred tax assets $ 127,563 $ 87,058
Less: valuation allowance (12,696 ) (8,283 )
Deferred tax assets 114,867 78,775

Deferred tax liabilities
Gross deferred tax liabilities (34,485 ) (35,543 )
Net deferred tax asset $ 80,382 $ 43,232

~~The net deferred tax asset shown in the table above at September 30, 2018~~Conversion, all remaining outstanding Class A shares were automatically cancelled and ~~December 31, 2017 is reflected in the consolidated balance sheets as $83,593~~extinguished, and $65,123, respectively, in deferred tax assets and $3,210 and $21,891, in deferred tax liabilities, respectively, reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Company ~~because under Puerto Rico income tax law,~~now maintains a single class of common shares.

bDividend

The issuance of 48,602 Class A shares entitled all Class B shareholders to certain anti-dilution rights; therefore, all holders of Class B shares at the close of business on July 26, 2019 (Record Date) received a share dividend of 0.051107 Class B shares for every Class B share they owned as of that time. On August 6, 2019, the Company ~~is not allowed~~paid the Class B share dividend which amounted to ~~file consolidated tax returns with its subsidiaries.~~$24,655; cash was paid in lieu of fractional shares so that shareholders receive a whole number of shares of common stock.

At September 30, 2018, the Company and its subsidiaries have net operating loss carry-forwards for Puerto Rico income tax purposes of approximately $169,000, which are available to offset future taxable income for up to December 2028. The carryforwards generally expire in 2026 through 2028. The valuation allowance is mostly related to the net operating losses generated by the Company’s ~~U.S. Virgin Islands (USVI), the health's clinic's operations,~~ and the Property and Casualty segment losses related to hurricane Maria that based on the available evidence are not considered to be realizable at the reporting dates. Except for the valuation allowance, the Company concluded that as of September 30, 2018, it is more likely than not that the entities that have these net operating loss carry-forwards will generate sufficient taxable income within the applicable net operating loss carry-forward periods to realize its deferred tax asset. This conclusion is based on the historical results of each entity, adjusted to exclude non-recurring conditions, and the forecast of future profitability. Management will continue to evaluate, on a quarterly basis, if there are any significant events that will affect the Company’s ability to utilize these deferred tax assets.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

~~(10)~~(12)

Comprehensive Income (Loss)

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

	Three months ended September 30,						Nine months ended September 30,						Three months ended						Nine months ended
	2018			2017			2018			2017			September 30,						September 30,
													2019			2018			2019			2018
Net Unrealized Gain on Securities Beginning Balance	$	21,260		$	75,239		$	76,238		$	62,371		$	55,678		$	21,260		$	27,308		$	76,238
Unrealized loss reclassified to beginning retained earnings as a result of implementation new accounting pronouncement		-			-			(39,882	)		-			-			-			-			(39,882	)
Other comprehensive (loss) income before reclassifications		(6,981	)		4,853			(20,460	)		21,233
Amounts reclassified from accumulated other comprehensive income (loss)		765			(3,002	)		(852	)		(6,514	)
Other comprehensive income (loss) before reclassifications														10,160			(6,981	)		41,473			(20,460	)
Amounts reclassified from accumulated other comprehensive (loss) income														(870	)		765			(3,813	)		(852	)
Net current period change		(6,216	)		1,851			(21,312	)		14,719			9,290			(6,216	)		37,660			(21,312	)
Ending Balance		15,044			77,090			15,044			77,090			64,968			15,044			64,968			15,044
Liability for Pension Benefits Beginning Balance		(24,722	)		(19,870	)		(24,984	)		(19,976	)		(24,134	)		(24,722	)		(24,246	)		(24,984	)
Amounts reclassified from accumulated other comprehensive income		147			48			409			154			61			147			173			409
Ending Balance		(24,575	)		(19,822	)		(24,575	)		(19,822	)		(24,073	)		(24,575	)		(24,073	)		(24,575	)
Accumulated Other Comprehensive (Loss) Income Beginning Balance		(3,462	)		55,369			51,254			42,395
Accumulated Other Comprehensive Income (Loss) Beginning Balance														31,544			(3,462	)		3,062			51,254
Unrealized loss reclassified to beginning retained earnings as the result of implementing new accounting pronouncement		-			-			(39,882	)		-			-			-			-			(39,882	)
Other comprehensive (loss) income before reclassifications		(6,981	)		4,853			(20,460	)		21,233
Amounts reclassified from accumulated other comprehensive income (loss)		912			(2,954	)		(443	)		(6,360	)
Other comprehensive income (loss) before reclassifications														10,160			(6,981	)		41,473			(20,460	)
Amounts reclassified from accumulated other comprehensive (loss) income														(809	)		912			(3,640	)		(443	)
Net current period change		(6,069	)		1,899			(20,903	)		14,873			9,351			(6,069	)		37,833			(20,903	)
Ending Balance	$	(9,531	)	$	57,268		$	(9,531	)	$	57,268		$	40,895		$	(9,531	)	$	40,895		$	(9,531	)

~~(11)~~

~~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, 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, 2018, the Company repurchased and retired under this program 259,925 shares at an average per share price of $23.06, for an aggregate cost of $5,995. During the nine months ended~~ ~~September~~ ~~30, 2018, the Company repurchased and retired under this program 903,888 shares at an average per share price of $24.76, for an aggregate cost of $22,390.~~

~~Table of Contents~~

~~(Unaudited)~~

~~(12)~~(13)

Share-Based Compensation

Share-based compensation expense recorded during the three months ended September 30, 2019 and 2018 was $2,817 and ~~2017 was~~ $919, ~~and $1,481,~~ respectively. Share-based compensation expense recorded during the nine months ended September 30, 2019 and 2018 was $8,723 and ~~2017 was~~ $3,462, ~~and $1,651,~~ respectively. During the nine months ended September 30, 2019 and 2018, 602 and 24,796 shares, respectively, were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. There were no0 non-cash tax withholdings during the ~~nine~~three months ended September 30, ~~2017.~~2019 and 2018.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

~~(13)~~(14)

Net Income (Loss) ~~Income~~ Available to Stockholders and Net Income (Loss) ~~Income~~ 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 September 30,					Nine months ended September 30,
	2018			2017		2018			2017		2019		2018			2019		2018
Numerator for earnings per share:
Net (loss) income attributable to TSM available to stockholders	$	(17,567	)	$	21,912	$	(52,400	)	$	30,275
Net income (loss) attributable to TSM available to stockholders											$	13,948	$	(17,567	)	$	79,665	$	(52,400	)
Denominator for basic earnings per share:
Weighted average of common shares		22,895,582			24,142,192		23,058,754			24,177,344		23,830,106		22,895,582			23,143,361		23,058,754
Effect of dilutive securities		-			65,830		-			54,364		63,701		-			73,937		-
Denominator for diluted earnings per share		22,895,582			24,208,022		23,058,754			24,231,708		23,893,807		22,895,582			23,217,298		23,058,754
Basic net (loss) income per share attributable to TSM	$	(0.77	)	$	0.91	$	(2.27	)	$	1.25
Diluted net (loss) income per share attributable to TSM	$	(0.77	)	$	0.91	$	(2.27	)	$	1.25
Basic net income (loss) per share attributable to TSM											$	0.59	$	(0.77	)	$	3.44	$	(2.27	)
Diluted net income (loss) per share attributable to TSM											$	0.58	$	(0.77	)	$	3.43	$	(2.27	)

The Company excluded the effect of dilutive securities during the three months and nine months ended September 30, 2018 because their effect would have been anti-dilutive given the net loss attributable to stockholders in ~~the period.~~those periods. If the Company had generated income from continuing operations during the three months ~~ended~~ and nine months ended September 30, 2018, the effect of restricted stock awards on the diluted shares calculation would have been an increase in shares of 75,986 and 92,076 shares, respectively.

~~(14)~~(15)

Contingencies

The following information supplements and amends, as applicable, the disclosures in Note 2324 to the Consolidated Financial Statements of the Company’s ~~2017~~2018 Annual Report on Form 10-K. ~~Our~~The Company’s business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, ~~USVI,~~U.S. Virgin Islands (USVI), Costa Rica, 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.

~~We are~~

The Company is 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.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

Additionally, wethe Company 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.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

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. On June 1, 2018, the Puerto Rico Supreme Court denied Plaintiffs’ petition for a Writ of Certiorari; a request for reconsideration has been denied by the Puerto Rico Supreme Court, thus the Court of Appeals Sentence in favor of the Company is final.

~~On September 20, 2018, local Court of First Instance entered partial summary judgement in Wanda Irizarry Antonmattei,~~TSS are defending 5 individual lawsuits: Vera Sanchez, et ~~al.,~~al, v. Triple-S; Olivella Zalduondo, et al, v. Seguros de Servicios de Salud, et al; Montilla Lopez, et al v. Seguros de Servicio de Salud, et al; Cebollero Santamaria v. Triple-S Salud, Inc., et al; and Ruiz de Porras, et al, v. Triple-S Salud, Inc. All claims were filed in the Puerto Rico ~~Inc.,~~Court of First Instance by persons who claim to have inherited a total of 62 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 contained in the Company’s (or its predecessors’ or affiliates’) articles of incorporation and bylaws was improper. Consequently, the remedy requested by the plaintiffs is to be recognized as shareholders of the Company in the corresponding proportion.

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, these claims are being litigated on their merits.

In Montilla López, et al. ~~ordering the Company to issue 63,000 stock shares~~v. Seguros de Servicios de Salud, et al. local Court of First Instance entered summary judgment in favor of ~~Plaintiffs.~~Company dismissing all claims on November 2,2018. Plaintiffs filed an Appeal before Puerto Rico Court of Appeals and the Puerto Rico Supreme Court, both of which have been denied. Plaintiff’s first request for reconsideration was denied by the Supreme Court. On October 21,2019, the Company filed its opposition to Plaintiff’s second request for reconsideration before the Supreme Court.

In Cebollero Santamaria v. Triple-S Salud, Inc., et. al. the Puerto Rico Court of First Instance entered partial summary judgment in favor of plaintiff. The Company filed a request for reconsideration ~~of said judgement;~~that is pending adjudication, and ~~will~~intends to continue defending this case vigorously in an appeal stage if necessary.

In Vera Sanchez, et al, v. Triple-S, Inc., the Puerto Rico Court of First Instance entered summary judgment in favor of the Company. Plaintiffs appealed before the Puerto Rico Court of Appeals. The Company filed its opposition on October 31, 2019.

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”~~conspiracy implemented through ~~the Inter-Plans Program Committee (“IPPC”)~~BCBSA and whose benefits are allegedly derived through the BCBSA’s ~~Blue Card/~~BlueCard/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 infor the ~~form of supra-competitive~~amounts that the Blue Plan premiums allegedly ~~charged by~~have been artificially inflated as a result of 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.~~ alleged antitrust violations.Both actions seek injunctive relief.

Table of Contents

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 combination of Exclusive Service Areas ~~constitute horizontal market allocations that are subject to the~~ ~~Per Se~~ ~~standard of review; (b)~~and the National Best Efforts Rule ~~constitutes an “output restriction”~~are subject to the Per Se standard of review; ~~(c)~~(b) there remain genuine issues of material fact as to whether defendants’ conduct can be shielded by the “single entity” defense; and ~~(d)~~(c) claims concerning the BlueCard Program and uncoupling rules are due to be analyzed under the Rule of Reason standard.

On April 16, 2018 Defendants moved the Federal District Court for the Northern District of Alabama to certify for immediate interlocutory appeal the court’s April 5, 2018 Standard of Review Ruling. On June 12, 2018 Hon. Judge Proctor agreed to grant Defendant’s motion for certification pursuant to 28 U.S.C. §1292(b). Defendants filed their Notice of Appeal on July 12, 2018. On December 12, 2018, the Court of Appeals for the Eleventh Circuit denied Defendants’ petition to appeal the District Court’s Standard of Review Ruling. The parties re-commenced mediation with subscribers on April 2019 and with providers on September 2019.

Joint Underwriting Association Litigation

On August 19, 2011, plaintiffs, purportedly a class of motor vehicle owners, filed an action in the United States District Court for the District of Puerto Rico against the JUA and TSP, alleging violations under the Puerto Rico Insurance Code, the Puerto Rico Civil Code, the Racketeer Influenced and Corrupt Organizations Act (RICO) and the local statute against organized crime and money laundering. JUA is a private association created by law to administer a compulsory public liability insurance program for motor vehicles in Puerto Rico (CLI). As required by its enabling act, JUA is composed of all the insurers that underwrite private motor vehicle insurance in Puerto Rico and exceed the minimum underwriting percentage established in such act. TSP is a member of JUA.

In this lawsuit, entitled Noemí Torres Ronda, et al v. JUA et al., plaintiffs allege that the defendants illegally charged and misappropriated a portion of the CLI premiums paid by motor vehicle owners in violation of the Puerto Rico Insurance Code. Specifically, they claim that because the defendants did not incur in acquisition or administration costs allegedly totaling 12% of the premium dollar, charging for such costs constitutes the illegal traffic of premiums. Plaintiffs also claim that the defendants, as members of JUA, violated RICO through various inappropriate actions designed to defraud motor vehicle owners located in Puerto Rico and embezzle a portion of the CLI premiums for their benefit.

Plaintiffs seek the reimbursement of funds for the class amounting to $406,600 treble damages under RICO, and equitable relief, including a permanent injunction and declaratory judgment barring defendants from their alleged conduct and practices, along with costs and attorneys’ fees.

Since 2011, TSP has been defending this claim and, jointly with other defendants, has filed several pleas in connection with the certification of the class and the dismissal of the claim. On October 7, 2019, defendants’ petition for summary judgment was granted.

Table of Contents

Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

As a result, the joint defense group obtained certification of the standard of review decision, and on July 9, 2018 appealed the matter to the 11th Circuit. Presently, the case is in a “holding pattern” until the 11^th ~~Circuit decides whether to take the Standard of Review ruling on appeal.~~

If successful, plaintiffs would be entitled to recover treble damages plus attorneys’ fees, costs and expenses. In addition, the challenged practice would likely be enjoined nationwide. Even if class certification is denied, any one plaintiff could still challenge the entire system and seek the same broad relief as the current putative classes. An injunction in favor of a single plaintiff could likely apply to the entire system. Damages experts have yet to issue damage estimates. Estimates of potential exposure towards providers, after trebling, exceed $15 billion. Potential trebled damages towards subscribers are close to $150 million. Possibilities of success are difficult to predict globally and are contingent on whether the ~~Per Se~~ or the Rule of Reason standard of review will apply to the practice, which classes are certified, what practice is being challenged, and whether the judge decides the case on summary judgment or a jury does at trial. The likelihood of success globally appears to be greater as to providers than as to subscribers. As part of the Joint Defense Group, TSS intends to defend vigorously while engaging in serious efforts to resolve the case through mediation.

~~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 six community health centers alleging TSS breached their contracts with respect to certain capitation payments and other monetary claims. In May 2018, the Company settled this case with all six community health centers and paid a settlement agreement totaling $1,200.

~~ASES Audits~~

The Company is subject to audits in connection with the provision of services to private and 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 audits could have a material adverse effect on our reputation and business, including termination of contracts, significant increases in the cost of managing and remediating deficiencies, payment of contractual penal clauses, and others, any of which could have a material and adverse effect on our results of operations, financial position and 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. 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. On July 27, 2017, ASES appealed the court’s partial judgement and on 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 by ASES before the Court of Appeals or the Puerto Rico Supreme Court. The parties reached a settlement agreement for the remaining $500 in controversy subject to the final approval of ASES Board of Directors, which has been accrued as of September 30, 2018.

~~Table of Contents~~

~~Triple-S Management Corporation~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(Unaudited)~~

~~(15)~~(16)

Segment Information

The Company’s operations ~~of the Corporation~~ are conducted principally through ~~three~~3 business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The ~~Corporation~~Company 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~~Company calculates operating income or loss as operating revenues less operating costs.

The following tables summarize the operations by reportable segment for the three months and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:

	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Operating revenues:
Managed Care:
Premiums earned, net	$	680,393		$	653,734		$	2,044,989		$	1,955,246		$	746,043		$	680,393		$	2,244,448		$	2,044,989
Administrative service fees		3,802			3,391			11,216			12,318			2,607			3,802			7,695			11,216
Intersegment premiums/service fees		1,390			1,781			4,061			4,946			1,483			1,390			4,612			4,061
Net investment income		6,776			4,097			17,547			12,135			5,624			6,776			16,981			17,547
Total managed care		692,361			663,003			2,077,813			1,984,645			755,757			692,361			2,273,736			2,077,813
Life Insurance:
Premiums earned, net		42,049			40,845			124,318			121,001			45,365			42,049			133,598			124,318
Intersegment premiums		235			107			832			409			471			235			1,457			832
Net investment income		6,428			6,070			19,105			18,487			6,709			6,428			20,091			19,105
Total life insurance		48,712			47,022			144,255			139,897			52,545			48,712			155,146			144,255
Property and Casualty Insurance:
Premiums earned, net		20,003			19,746			66,662			62,962			23,613			20,003			64,470			66,662
Intersegment premiums		153			153			460			460			153			153			460			460
Net investment income		2,518			2,106			7,724			6,164			2,533			2,518			7,404			7,724
Total property and casualty insurance		22,674			22,005			74,846			69,586			26,299			22,674			72,334			74,846
Other segments: *
Intersegment service revenues		(5	)		2,796			283			6,641			2,076			(5	)		6,049			283
Operating revenues from external sources		1,575			976			4,234			3,130			3,167			1,575			6,335			4,234
Total other segments		1,570			3,772			4,517			9,771			5,243			1,570			12,384			4,517
Total business segments		765,317			735,802			2,301,431			2,203,899			839,844			765,317			2,513,600			2,301,431
TSM operating revenues from external sources		446			87			1,254			220			310			446			1,138			1,254
Elimination of intersegment premiums/service fees		(1,778	)		(2,041	)		(5,073	)		(5,535	)		(2,107	)		(1,778	)		(6,529	)		(5,073	)
Elimination of intersegment service revenues		5			(2,796	)		(283	)		(6,641	)		(2,076	)		5			(6,049	)		(283	)
Consolidated operating revenues	$	763,990		$	731,052		$	2,297,329		$	2,191,943		$	835,971		$	763,990		$	2,502,160		$	2,297,329

* Includes segments that are not required to be reported separately, primarily the health clinics.

*	~~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,

2018 2017 2018 2017
Operating income (loss):
Managed care $ 14,229 $ 34,819 $ 26,264 $ 19,157
Life insurance 5,681 4,477 14,637 13,402
Property and casualty insurance (46,880 ) (11,115 ) (114,820 ) (5,273 )
Other segments * 288 373 890 517
Total business segments (26,682 ) 28,554 (73,029 ) 27,803
TSM operating revenues from external sources 446 87 1,254 220
TSM unallocated operating expenses (1,780 ) (2,759 ) (6,575 ) (7,876 )
Elimination of TSM intersegment charges 2,400 2,400 7,200 7,200
Consolidated operating (loss) income (25,616 ) 28,282 (71,150 ) 27,347
Consolidated net realized investment (losses) gains (956 ) 3,753 1,065 8,143
Consolidated net unrealized investment losses on equity investments 5,632 - (11,343 ) -
Consolidated interest expense (2,000 ) (1,709 ) (5,515 ) (5,116 )
Consolidated other income, net 1,943 3,409 3,600 6,521
Consolidated (loss) income before taxes $ (20,997 ) $ 33,735 $ (83,343 ) $ 36,895

Depreciation and amortization expense:
Managed care $ 2,214 $ 2,567 $ 7,659 $ 7,455
Life insurance 272 315 868 913
Property and casualty insurance 89 136 301 388
Other segments* 175 166 515 489
Total business segments 2,750 3,184 9,343 9,245
TSM depreciation expense 197 197 590 590
Consolidated depreciation and amortization expense $ 2,947 $ 3,381 $ 9,933 $ 9,835

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

September 30,
2018

December 31,
2017

Assets:
Managed care $ 1,130,401 $ 1,092,715
Life insurance 852,750 853,289
Property and casualty insurance 762,705 1,094,773
Other segments * 20,787 19,027
Total business segments 2,766,643 3,059,804
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments 59,496 81,169
Property and equipment, net 21,326 22,257
Other assets 23,547 22,763
104,369 126,189
Elimination entries-intersegment receivables and others (52,584 ) (69,228 )
Consolidated total assets $ 2,818,428 $ 3,116,765

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

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Operating income (loss):
Managed care	$	5,393		$	14,229		$	56,805		$	26,264
Life insurance		6,686			5,681			17,541			14,637
Property and casualty insurance		6,620			(46,880	)		14,958			(114,820	)
Other segments *		(690	)		288			(1,812	)		890
Total business segments		18,009			(26,682	)		87,492			(73,029	)
TSM operating revenues from external sources		310			446			1,138			1,254
TSM unallocated operating expenses		(1,643	)		(1,780	)		(6,812	)		(6,575	)
Elimination of TSM intersegment charges		2,403			2,400			7,209			7,200
Consolidated operating income (loss)		19,079			(25,616	)		89,027			(71,150	)
Consolidated net realized investment gains (losses)		1,087			(956	)		4,766			1,065
Consolidated net unrealized investment gains (losses) on equity investments		1,267			5,632			24,259			(11,343	)
Consolidated interest expense		(2,062	)		(2,000	)		(5,681	)		(5,515	)
Consolidated other income, net		485			1,943			3,359			3,600
Consolidated income (loss) before taxes	$	19,856		$	(20,997	)	$	115,730		$	(83,343	)

Depreciation and amortization expense:
Managed care	$	2,931		$	2,214		$	8,480		$	7,659
Life insurance		268			272			813			868
Property and casualty insurance		86			89			266			301
Other segments*		249			175			627			515
Total business segments		3,534			2,750			10,186			9,343
TSM depreciation expense		150			197			543			590
Consolidated depreciation and amortization expense	$	3,684		$	2,947		$	10,729		$	9,933

* Includes segments that are not required to be reported separately, primarily the health clinics.

	September 30, 2019			December 31, 2018
Assets:
Managed care	$	1,225,511		$	1,078,262
Life insurance		946,378			863,470
Property and casualty insurance		627,058			747,583
Other segments *		26,403			20,705
Total business segments		2,825,350			2,710,020
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments		34,601			57,818
Property and equipment, net		23,776			21,733
Other assets		33,421			22,521
		91,798			102,072
Elimination entries-intersegment receivables and others		(86,782	)		(51,844	)
Consolidated total assets	$	2,830,366		$	2,760,248

* Includes segments that are not required to be reported separately, primarily the health clinics.

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Triple-S Management Corporation

Notes to Condensed Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

(Unaudited)

~~(16)~~(17)

Subsequent Events

On November 2, 2018 TSP entered into a multi-year high excess cover reinsurance agreement that includes both retroactive and prospective covers. The agreement is effective from April 1, 2018 until March 31, 2023. The Company will account for this agreement in accordance with the provisions of Accounting Standards Codification 944 Financial Services – Insurance (ASC 944). Included in ASC 944 is specific guidance on accounting for reinsurance of short-duration and long duration reinsurance contracts (formerly Statement of Financial Accounting Standards (SFAS) 113, as amended).

~~The retroactive portion is~~

In October 2019, the Company’s Board of Directors authorized an adverse development reinsurance cover (ADC) providing for a coverage of $50,000 in excess of $76,500 of net losses, representing the adverse development related to Hurricane Maria experienced as of June 30, 2018. The Company expects to record in its consolidated balance sheet a reinsurance recoverable equal to the adverse development related to Hurricane Maria claims in excessexpansion of the ~~$76,500 million of net incurred losses~~existing Class B share repurchase program, authorizing up to $25,000 in repurchases, effective forty-eight hours after the $50,000 excess, a premium payable for the premium allocated to the retroactive cover, and a liability for a deferred gain on retroactive reinsurance. The reinsurance asset and liability will be released as the underlying recoveries are realized. The prospective portionpublication of the ~~agreement provides catastrophe umbrella coverage for a five-year period ending March 31, 2023 and should be recognized into operations based~~press release issued on November 7, 2019 announcing the ~~coverage period.~~commencement of such program.

The Company evaluated subsequent events through the date the condensed consolidated 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.

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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, ~~2018.~~2019. 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, ~~2017~~2018 and the MD&A included therein, and our ~~unaudited~~ condensed consolidated financial statements and accompanying notes as of and for the three months and nine months ended September 30, ~~2018~~2019 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~~disclaim 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~~60 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 ~~funded by the Puerto Rico Government and Medicaid,~~ 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.~~benefits. 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, ~~2017~~2018 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, ~~2018,~~2019, we served approximately ~~959,000~~925,000 managed care members across all regions of Puerto Rico. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, our managed care segment represented approximately ~~91%~~92% 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 USVI, Costa Rica, the BVI, and Anguilla.

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We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc. ~~(TSV)~~, 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 1516 of the unaudited Condensed Consolidated Financial Statements included in ~~this~~ 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.~~Medicaid. 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, investment income, and revenues derived from other non-reportable segments. Substantially all 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 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

~~Pursuant~~PROMESA and the Oversight Board

The Commonwealth has been enduring a fiscal and economic crisis for several years. Such crisis prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act ~~Pub. L. 114–187,~~(“PROMESA”) in June ~~30, 2016, 130 Stat. 549, the Financial Oversight and Management Board for Puerto Rico~~2016. PROMESA, among other things, created a federal fiscal oversight board (the “Oversight Board”) ~~has certified~~with broad powers over the Commonwealth’s fiscal ~~plans~~affairs and established two mechanisms for the restructuring of the obligations of the Commonwealth, its instrumentalities and municipalities, contained in Titles III and VI of PROMESA. The Commonwealth and several of its instrumentalities ~~including~~are currently in the process of restructuring their debts through the mechanisms provided by PROMESA.

In August 2016, President Obama appointed the seven voting members of the Oversight Board through the process established in PROMESA, which authorized the President to select the members from several lists required to be submitted by congressional leaders. On February 15, 2019, the First Circuit of the U.S. Court of Appeals (the “First Circuit”) declared such appointments unconstitutional upon concluding that they did not comply with the Appointments Clause of the U.S. Constitution, which requires that principal federal officers be appointed by the President, with the advice and consent of the U.S. Senate. The First Circuit, however, validated the Oversight Board’s past acts and did not dismiss the petitions under Title III of PROMESA, as the plaintiffs had requested. In doing so, the First Circuit relied on a doctrine known as the “de facto officer doctrine,” which provides that acts performed by an officer that has assumed official duties without having been properly appointed to an office are valid even though it is later discovered that the officer’s appointment is legally deficient. The parties challenging the constitutionality of PROMESA appealed the First Circuit’s decision to the U.S. Supreme Court and the First Circuit stayed its decision pending the appeal. The U.S. Supreme Court held oral arguments on this case on October 15, 2019 and is expected to issue a decision before the end of its current term (June 2020). Given the lack of precedents interpreting the provisions of PROMESA, no assurances can be given as to the outcome of the appeal. Any outcome that results in the voidance of the Oversight Board’s past actions could create further fiscal instability and adversely affect the Puerto Rico ~~Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, the University~~economy.

Table of ~~Puerto Rico, the Puerto Rico Highways and Transportation Authority and Government Development Bank for Puerto Rico.~~Contents

Commonwealth Fiscal Plan and Plan of Adjustment

The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated ~~as of October 23, 2018~~May 9, 2019 (the ~~“Most Recent~~Commonwealth Fiscal ~~Plan”)~~Plan). The ~~Most Recent~~Commonwealth Fiscal Plan estimates a ~~16.1%~~4.7% contraction in real ~~gross national product (“GNP”)~~GNP in fiscal year 2018, ~~(July 1, 2017 – June 30, 2018), without~~after accounting for the impact of disaster relief funding ~~related to Hurricanes Irma~~ and ~~Maria or~~ the measures and structural reforms ~~proposed~~contemplated by the plan. ~~Taking into account such factors, the Most Recent Fiscal Plan estimates an 8.0% contraction in real GNP in fiscal year 2018.~~ It also projects that disaster relief ~~funding~~spending will have a short-term ~~simulative~~stimulative effect on ~~Puerto Rico’s~~the economy, which, combined with the estimated effects of the proposed fiscal measures and structural reforms, ~~the plan estimates~~ will result in ~~variable~~real GNP growth ~~from~~of approximately 4% and 1.5% in fiscal years 2019 and 2020, respectively. The Commonwealth Fiscal Plan estimates that the Commonwealth’s population will continue to decline at rates of approximately 1% to 2% annually through ~~2022, followed by GNP contraction in~~ fiscal year ~~2023 as disaster relief funding decreases.~~2024.

~~The Most Recent Fiscal Plan outlines a number of structural reforms and fiscal measures that~~On September 27, 2019, the Oversight Board ~~deems necessary~~filed a plan of adjustment for the Commonwealth, the Employees Retirement System of the Government of the Commonwealth and the Puerto Rico Public Buildings Authority in the pending debt restructuring proceedings under Title III of PROMESA. The proposed plan of adjustment, which has not yet been confirmed by the Title III court and may suffer significant changes before confirmation, provides a framework for the Commonwealth to ~~improve the Commonwealth’s fiscal balance~~exit bankruptcy.

Recent Political Developments

The indictment of two former senior Puerto Rico government officials on fraud and ~~economic condition. Such measures include structural reforms, such as labor, ease of doing business, energy sector, and infrastructure reforms,~~related charges in July 2019, as well as fiscal measures, such as agency consolidations, reductions in budgetary appropriations, and pension reform. The Most Recent Fiscal Plan and the fiscal plans certified by the Oversight Board for the Commonwealth’s instrumentalities conclude that the Commonwealth and its instrumentalities will not be able to meet all of their contractual obligations, even after implementing the measures and reforms contemplated therein,

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~~The~~other scandals involving former Puerto Rico Governor, Ricardo Rosselló Nevares, and other senior government ~~officers have publicly expressed their disagreement~~officials led to massive protests and, ultimately, Rosselló’s resignation. Then Secretary of Justice, Wanda Vázquez Garced, was sworn in as Governor on August 7, 2019 in accordance with ~~several~~the successorship provisions of the measures contemplated by the Most Recent Fiscal Plan, particularly the pension reform, which contemplates average pension benefit reductions of approximately 10%, and the labor reform, which contemplates the elimination of certain mandatory benefits to public and private employees. The Governor had also previously challenged the Oversight Board’s authority with respect to certain matters related to the Commonwealth’s budget and a previous version of the fiscal plan before the U.S. District Court for the District of Puerto Rico ~~(the “District Court”) in~~ ~~Hon. Ricardo Roselló Nevares v. The Financial Oversight and Management Board for Puerto Rico, Case No. 17-3283 (the “Adversary Proceeding~~”). The District Court issued an order on August 27, 2018 partially dismissing certain portions of the Adversary Proceeding and, on October 9, 2018, the District Court certified certain aspects such order for interlocutory appeal.Constitution.

See Item 1A. Risk Factors – Risks Related to our Business – “~~Our~~“Our business is geographically concentrated in Puerto Rico and weakness in the economy and the fiscal health of the government has adversely impacted and may continue to adversely impact ~~us, particularly following Hurricanes Irma and Maria~~.us.” included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

~~Puerto Rico Government~~Medicaid Cliff

The U.S. House of Representatives’ Committee on Energy and Commerce recently approved the “Territories Health ~~Reform Program~~

~~TSS extended~~Care Improvement Act” as part of H.R. 2328 and forwarded it to the ~~term of its contract with~~full House for consideration. The bill provides for approximately $12 billion in funding over four years for the Puerto Rico Medicaid program. The U.S. Congress, particularly the US Senate, have requested the inclusion of accountability measures to ensure the proper use of funds in the bill and have requested additional information concerning Puerto Rico’s Medicaid program to the U.S. Department of Health ~~Insurance Administration (“ASES,” by its Spanish acronym) for~~and Human Services. Conversations between the ~~offering of health care services for~~House and the Senate regarding the Medicaid ~~subscribers~~spending cliff are ongoing. Our expectation is that a final agreement will be included in an ‘extenders’ package, likely to be enacted in the ~~Metro North and West regions~~first quarter of ~~the Government of Puerto Rico’s health insurance program, known as the Government Health Plan (the “Contract”).~~ 2020.

The ~~amendment signed on June 30, 2018 extended~~Continuing Resolution (CR) approved by Congress that included the ~~term of the Contract until July 31, 2018. On July 31, 2018 TSS signed another~~ extension of ~~the terms of the Contract until October 31, 2018. All other provisions of the Contract, as amended, including the per member per month payments made by ASES~~temporary Medicaid funding in Puerto Rico is set to ~~TSS, will remain in full force and effect during the extension periods.~~

~~On September~~expire on November 21, 2018, TSS entered into a contract with ASES whereby TSS, as one of five managed care organizations (“MCOs”), will offer health care services to Medicaid and Child Health Insurance subscribers for the Government of Puerto Rico’s revised Medicaid health insurance program (the “New Contract”). ~~The New Contract requires MCOs to serve subscribers on an island-wide basis, rather than assigning each MCO specific regions.~~ ~~The term of the New Contract is from November 1, 2018 to September 30, 2021, which term may be extended~~2019. A CR extending funding for an additional ~~year at ASES’s option. Under this agreement, TSS~~term is ~~responsible for the provision of medical, mental, pharmacy and dental healthcare services on an at-risk basis~~expected to ~~subscribers who enroll with TSS. ASES will pay TSS a per member per month rate that will vary depending on the clinical condition or category of the subscriber. Premiums rates will~~ be ~~negotiated for each contract year.~~ The New Contract initially assigned Triple-S approximately 280,000 subscribers. Once the term of the New Contract commences, subscribers will have approximately three months to select their insurance carriers, during which time, MCOs will be able to compete for membership across Puerto Rico.

~~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, 2017.~~

~~Political and Regulatory Developments~~

CMS announced final benchmark rates for the 2019 Medicare Advantage plans. The call letter maintains the zero claims adjustment and allows certain Puerto Rico counties to qualify for double bonus status. The impact of these updates, result in a Puerto Rico benchmark estimated average increase of about 5.7%. See Item 1A. Risk Factors—Risks Related to the Regulation of our Industry – “~~The revised rate calculation system for Medicare Advantage, the payment system for the Medicare Part D and changes~~approved in the ~~methodology and payment policies used by CMS to establish rates could reduce our profitability and the benefits we offer our beneficiaries’’ included in our Annual Report~~following weeks, until Congress can reach a final agreement on ~~Form 10-K for the year ended December 31, 2017.~~federal government spending.

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Government Health Plan Negotiations

The agreement for the administration of the Government Health Plan with ASES provides for an annual review of per member per month (PMPM) payment rates. The rating period for CY 2018-2019 expired on October 31, 2019. On October 31, 2019, we entered into an amendment to the agreement which provides, among other matters, for a 15-day extension of the CY 2018-2019 PMPM rates while the parties reach an agreement on applicable PMPM rates for CY 2019-2020. Once the parties agree on the new rates, these rates shall be effective as of November 1, 2019.

Share Repurchase Program

In October 2019, the Board of Directors authorized an expansion of the existing Class B share repurchase program, authorizing up to $25.0 million in repurchases, effective forty-eight hours after the publication of the press release issued on November 7, 2019 announcing the commencement of such program.

Property & Casualty Litigation

As of September 30, 2019, our Property and Casualty –subsidiary had been served in a total of 270 cases relating to Hurricane ~~Maria Unfavorable Reserve Development~~

~~During the three months ended~~Maria. Of those, 218 remained open as of September 30, ~~2018,~~2019. In addition, based on our review of the publicly available Puerto Rico court system’s electronic docket, as of September 30, 2019, an additional 178 cases had been filed, but not served, against our Property and Casualty ~~segment increased by approximately $68.9 million~~subsidiary. The Puerto Rico court system’s electronic docket is entirely outside our control and we are not able to ~~$968.5 million~~verify its accuracy or completeness. The Company performed additional analysis of case reserves for claims in which lawsuits have been filed against TSP but not served. Following this analysis, as well as the customary review of the reserves, the Company determined that there is no need to increase its estimate of gross losses nor adjust reserves related to Hurricane Maria. ~~With this increase in the gross losses related~~The Company will continue to ~~this catastrophe, the segment reports $52.3 million~~closely monitor all claims made and ~~$128.7 million unfavorable prior period reserve development, net of reinsurance, during the three months and nine months ended September 30, 2018.~~

As loss information has continued to emerge during the three months ended September 30, 2018, gross reserves were updated reflecting a worsening of the loss expectations for Hurricane Maria. As a consequence, the segment increased specific and bulk reserves for unpaid claims.

On November 2, 2018 TSP entered into a multi-year high excess cover reinsurance agreement that includes both retroactive and prospective covers. The agreement is effective April 1, 2018 until March 31, 2023. The retroactive portion is an adverse development reinsurance cover providing for a coverage of $50 million in excess of $76.5 million of net losses, representing the adverse development related to Hurricane Maria experienced as of June 30, 2018. The prospective portion of the agreement provides catastrophe umbrella coverage for a five-year period ending March 31, 2023. This reinsurance agreement will increase TSP’s statutory surplus, improve RBC scores, and assures catastrophe protection for five years for a portion of our reinsurance program. See Note 16 of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

~~As the result of the unfavorable reserve development, TSP estimates that its Risk Based Capital (RBC) at the end of the year is going to be lower than the 300% minimum requirement~~lawsuits properly served and will ~~require a plan to increase the capital~~adjust reserves if and surplus. The lower capital levels could also negatively impact the segment’s A.M. Best rating for 2018. Management is evaluating several alternatives to increase TSP’s statutory capital in order to meet minimum capital requirements, which could include reinsurance agreements, capital infusion, and/or the issuance of surplus notes.

when any new material information emerges.See Item 1A. Risk Factors− – Risks Related to ~~Our~~our Business – “~~Our failure~~“Large-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations” See also “We face risks related to ~~accurately estimate incurred but not reported claims would affect our reported financial results”, “Our ability to manage our exposure to underwriting risks in our life insurance and property and casualty insurance business depends on the availability and cost of reinsurance coverage”, “If our reinsurers do not pay our claims or do not pay them in a timely manner, we may incur losses”, “A downgrade in our A.M. Best rating could affect our ability to write new business or renew our existing business in our property and casualty segment”, and “Our insurance subsidiaries are subject to minimum capital requirements. Our failure to meet these standards could subject us to regulatory actions~~litigation.” included in our Annual Report on Form 10-K for the year ended December 31, ~~2017. Additional information~~2018.

Medicare STARS Rating

On October 9, 2019, the Centers for Medicare and Medicaid Services (CMS) announced STARS Ratings for year 2020. Triple-S Advantage received a 4-star rating in its HMO contract and 4.5 stars in its Part D (Pharmacy) offering. The new ratings reflect a half-star reduction from current ratings of 4.5 stars (HMO) and 5 stars (Part D), respectively, and will apply in payment year 2021. STARS Ratings for plans are calculated based on ~~how~~the results achieved by the plan on a contract in terms of measures spanning four categories: Healthcare Effectiveness Data and Information Set (HEDIS) measures, Consumer Assessment of Healthcare Providers and Systems (CAHPS) and Health Outcomes Survey (HOS) measures, Administrative measures, and Part D measures. The reduction in the ratings is due to a combination of the adjustment in CMS thresholds for 4 and 5 stars and lower scores on CAHPS and HOS measures, which were offset in part by an improvement in HEDIS measures.

Conversion of Remaining Class A Shares into Class B Shares and Elimination of Dual Class Equity Structure

On July 16, 2019, the Company announced that its Board of Directors authorized the conversion (Conversion) of the Company’s remaining issued and outstanding Class A common shares into Class B common shares, effective August 7, 2019.

As the result of a recent litigation settlement, the Company issued 48,602 Class A shares to the heirs of a former shareholder preceding the Conversion. The issuance of these new Class A shares entitled all Class B shareholders to certain anti-dilution rights; therefore, all holders of Class B shares at the close of business on July 26, 2019 (Record Date) received a share dividend of 0.051107 Class B shares for every Class B share they owned as of that time, as determined by the anti-dilution formula in the Company’s articles of incorporation. The Class B share dividend became payable on August 6, 2019; cash was paid in lieu of fractional shares so that shareholders receive a whole number of shares of common stock.

Effective upon the Company’s public announcement on August 7, 2019, all Class A holders of record received one Class B share for each ~~reportable segment determines its claim liabilities,~~Class A share held. Upon the Conversion, all remaining outstanding Class A shares were automatically cancelled and extinguished, and the ~~variables considered in~~Company will maintain a single class of common shares. See Note 11 of the ~~development of this amount, is~~unaudited Condensed Consolidated Financial Statements included in ~~our latest Annual~~this Quarterly Report on Form ~~10-K under Item 7. Management’s Discussion and Analysis~~10-Q.

Table of ~~Financial Condition and Results of Operations~~−~~Critical Accounting Estimates”.~~Contents

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 on Form 10-Q.

~~Table of Contents~~

Managed Care Membership

	As of September 30,
	2019		2018
Managed care enrollment:
Commercial ¹		442,069		453,823
Medicare		128,660		111,389
Medicaid		354,230		394,149
Total		924,959		959,361
Managed care enrollment by funding arrangement:
Fully-insured		805,882		819,267
Self-insured		119,077		140,094
Total		924,959		959,361

As of September 30,
2018 2017
Managed care enrollment:
Commercial ¹
453,823 492,498
Medicare 111,389 123,194
Medicaid 394,149 379,199
Total 959,361 994,891
Managed care enrollment by funding arrangement:
Fully-insured 819,267 831,170
Self-insured 140,094 163,721
Total 959,361 994,891

~~(1)~~(¹)

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

Table of Contents

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					Nine months ended
	Three months ended September 30,					Nine months ended September 30,					September 30,					September 30,
(dollar amounts in millions)	2018			2017		2018			2017		2019		2018			2019		2018
Revenues:
Premiums earned, net	$	742.4		$	714.3	$	2,236.3		$	2,139.5	$	815.0	$	742.4		$	2,442.5	$	2,236.3
Administrative service fees		3.8			3.4		11.2			12.3		2.6		3.8			7.7		11.2
Net investment income		16.2			12.4		45.6			37.1		15.2		16.2			45.6		45.6
Other operating revenues		1.6			1.0		4.2			3.0		3.1		1.6			6.3		4.2
Total operating revenues		764.0			731.1		2,297.3			2,191.9		835.9		764.0			2,502.1		2,297.3
Net realized investment (losses) gains		(0.9	)		3.7		1.1			8.1
Net realized investment gains (losses)												1.1		(0.9	)		4.8		1.1
Net unrealized investment gains (losses) on equity investments		5.6			-		(11.3	)		-		1.3		5.6			24.3		(11.3	)
Other income, net		1.9			3.4		3.6			6.6		0.5		1.9			3.4		3.6
Total revenues		770.6			738.2		2,290.7			2,206.6		838.8		770.6			2,534.6		2,290.7
Benefits and expenses:
Claims incurred		648.6			583.6		1,959.7			1,815.8		680.0		648.6			2,009.5		1,959.7
Operating expenses		141.0			119.2		408.8			348.8		136.9		141.0			403.6		408.8
Total operating expenses		789.6			702.8		2,368.5			2,164.6		816.9		789.6			2,413.1		2,368.5
Interest expense		2.0			1.7		5.5			5.1		2.1		2.0			5.7		5.5
Total benefits and expenses		791.6			704.5		2,374.0			2,169.7		819.0		791.6			2,418.8		2,374.0
(Loss) income before taxes		(21.0	)		33.7		(83.3	)		36.9
Income tax (benefit) expense		(3.4	)		11.8		(30.9	)		6.6
Net (loss) income attributable to TSM	$	(17.6	)	$	21.9	$	(52.4	)	$	30.3
Income (loss) before taxes												19.8		(21.0	)		115.8		(83.3	)
Income tax expense (benefit)												5.9		(3.4	)		36.1		(30.9	)
Net income (loss) attributable to TSM											$	13.9	$	(17.6	)	$	79.7	$	(52.4	)

Three Months Ended September 30, ~~2018~~2019 Compared to Three Months Ended September 30, ~~2017~~2018

Operating Revenues

Consolidated premiums earned, net increased by ~~$28.1~~$72.6 million, or ~~3.9%~~9.8%, to ~~$742.4 million,~~$815.0 million. This increase primarily ~~reflecting~~reflects higher ~~Medicaid and Medicare~~ premiums ~~within~~in the Managed Care ~~segment. Increase~~segment by $65.8 million primarily due to higher average premiums rates and an increase in ~~Medicaid premiums mostly reflects higher~~ membership ~~while~~ in the Medicare business, premiums increased due to this year’s achievement of a four-star rated Medicare Advantage HMO contract that resulted in a 5% bonus applied to the benchmark used in premium calculation as well as anand fully-insured Commercial businesses. The increase ~~in the 2018 Medicare reimbursement rates. These increases were~~was partially offset by lower ~~Commercial and Medicare~~Medicaid membership.

~~Net unrealized investment gains on equity investments~~

The $5.6 million in consolidated net unrealized investment gains on equity investments is the impact of a new accounting guidance implemented effective January 1, 2018, which requires the change in unrealized gain (loss) of equity investments, previously recorded through comprehensive income, to be recorded through earnings.

Claims Incurred

Consolidated claims incurred increased by ~~$65.0~~$31.4 million, or ~~11.1%~~4.8%, to ~~$648.6~~$680.0 million ~~mainly driven~~mostly due a $79.1 million increase in claims incurred in the Managed Care segment, partially offset by a $52.3 million of unfavorable prior period reserve development ~~in the Property and Casualty segment~~ related to Hurricane Maria a category 4 hurricane that impacted Puerto Rico in September 2017. In addition, the 2017 period includes an estimated reduction of $32.9 million in the Managed Care segment due to a drop in utilization caused by Hurricanes Irma and Maria and $13.5 million of hurricane related net losses recognized by the Property and Casualty ~~segment.~~segment during prior year quarter. The increase in Managed Care claims primarily reflects higher Medicare and Commercial fully-insured enrollment, offset in part by the decrease in Medicaid membership. The consolidated loss ratio ~~increased~~decreased by ~~570~~400 basis points to ~~87.4%~~83.4%.

~~See “Recent Developments – Property and Casualty – Hurricane Maria Unfavorable Reserve Development”.~~

~~Table of Contents~~

Operating Expenses

Consolidated operating expenses ~~increased~~decreased by ~~$21.8~~$4.1 million, or ~~18.3%~~2.9%, to ~~$141.0~~$136.9 million. The ~~higher~~decrease in operating expenses ~~are~~ mostly results from the ~~result of the reinstatement~~suspension in 2019 of the Health Insurance Providers Fee (HIP fee) of $13.1 million, offset in part by higher ~~professional services~~personnel cost and ~~personnel costs related to ongoing Managed Care initiatives, and Medicaid new model implementation~~ ~~expenses of $1.0 million~~.commission expense. For the three months ended September 30, ~~2018,~~2019, the consolidated operating expense ratio ~~increased 230~~decreased 220 basis points to ~~18.9%~~16.7%.

Table of Contents

Income Taxes

Consolidated income tax ~~benefit~~expense for the three months ended September 30, ~~2018~~2019 was ~~$3.4~~$5.9 million, compared to ~~an expense~~a benefit of ~~$11.8~~$3.4 million during the three months ended September 30, ~~2017.~~2018. The year over year change in income taxes ~~primarily~~mostly reflects the loss before taxes in the 2018 period in the Property and Casualty segment.

Nine Months Ended September 30, ~~2018~~2019 Compared to Nine Months Ended September 30, ~~2017~~2018

Operating Revenues

Consolidated premiums earned, net increased by ~~$96.8~~$206.2 million, or ~~4.5%~~9.2%, to ~~$2,236.3 million, reflecting~~$2,442.5 million. This increase primarily reflects higher ~~Medicaid and Medicare~~ premiums ~~within~~in the Managed Care ~~segment. Increase in Medicaid premiums mostly reflects the~~segment by $199.8 million due to higher average premiums rates ~~that became effective July 1, 2017 as well as increase in membership. In the Medicare~~across all Managed Care lines of business ~~premiums 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~~and an increase in ~~the 2018~~ Medicare ~~reimbursement rates. These increases were~~and fully-insured Commercial membership. The increase was partially offset by lower ~~Commercial and Medicare~~Medicaid membership.

Net unrealized investment ~~losses~~gains (losses) on equity investments

The ~~$11.3~~$24.3 million in consolidated net unrealized investment ~~losses on equity investments is~~gains reflects the impact of ~~a new accounting guidance implemented effective January 1, 2018, which requires the change~~changes in ~~unrealized gain (loss) of~~ equity ~~investments, previously recorded through comprehensive income, to be recorded through earnings.~~markets.

Claims Incurred

Consolidated claims incurred increased by ~~$143.9~~$49.8 million, or ~~7.9%~~2.5%, to ~~$1,959.7~~$2,009.5 million ~~mainly driven~~due to a $172.3 million increase in claims incurred in the Managed Care segment, partially offset by a $128.7 million of unfavorable prior period reserve development ~~in the Property and Casualty segment~~ related to Hurricane Maria a category 4 hurricane that impacted Puerto Rico in September 2017. In addition, the 2017 period includes $32.9 million in the Managed Care segment due to a drop in utilization caused by Hurricanes Irma and Maria and $13.5 million of hurricane related net losses recognized by the Property and Casualty ~~segment.~~segment during the prior year. The increase in Managed Care claims primarily reflects higher Medicare and Commercial fully-insured enrollment, offset in part by the decrease in Medicaid membership. The consolidated loss ratio ~~increased~~decreased by ~~270~~530 basis points to ~~87.6%~~82.3%.

~~See “Recent Developments – Property and Casualty – Hurricane Maria Unfavorable Reserve Development”.~~

Operating Expenses

Consolidated operating expenses ~~increased~~decreased by ~~$60.0~~$5.2 million, or ~~17.2%~~1.3%, to ~~$408.8~~$403.6 million. The ~~higher~~decrease in operating expenses ~~are~~ mostly result from the ~~result of the reinstatement~~suspension of the HIP fee of $37.0 million, ~~and~~offset in part by higher ~~professional services and~~ personnel costs ~~related to ongoing Managed Care initiatives.~~and commission expense. For the nine months ended September 30, ~~2018,~~2019, the consolidated operating expense ratio ~~increased 200~~decreased 170 basis points to ~~18.2%~~16.5%.

Income Taxes

Consolidated income tax ~~benefit~~expense for the nine months ended September 30, ~~2018~~2019 was ~~$30.9~~$36.1 million, compared to ~~an expense~~a benefit of ~~$6.6~~$30.9 million during the nine months ended September 30, ~~2017.~~2018. The year over year change in income taxes ~~primarily~~mainly reflects the loss before taxes in the 2018 period in the Property and Casualty segment.

Table of Contents

Managed Care Operating Results

	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in millions)	2019			2018			2019			2018
Operating revenues:
Medical premiums earned, net:
Commercial	$	203.1		$	197.3		$	602.4		$	590.8
Medicare		367.1			283.6			1,065.7			851.3
Medicaid		176.3			199.8			577.7			603.9
Medical premiums earned, net		746.5			680.7			2,245.8			2,046.0
Administrative service fees		3.6			4.9			10.9			14.3
Net investment income		5.7			6.8			17.0			17.5
Total operating revenues		755.8			692.4			2,273.7			2,077.8
Medical operating costs:
Medical claims incurred		645.2			566.1			1,905.9			1,733.6
Medical operating expenses		105.2			112.1			311.0			317.9
Total medical operating costs		750.4			678.2			2,216.9			2,051.5
Medical operating income	$	5.4		$	14.2		$	56.8		$	26.3
Additional data:
Member months enrollment:
Commercial:
Fully-insured		964,321			939,110			2,872,836			2,840,884
Self-funded		356,059			427,791			1,072,510			1,317,244
Total commercial		1,320,380			1,366,901			3,945,346			4,158,128
Medicare		386,995			334,836			1,156,438			1,008,063
Medicaid		1,065,885			1,191,681			3,187,753			3,564,769
Total member months		2,773,260			2,893,418			8,289,537			8,730,960
Medical loss ratio		86.4	%		83.2	%		84.9	%		84.7	%
Operating expense ratio		14.0	%		16.4	%		13.8	%		15.4	%

Three months ended
September 30,

Nine months ended
September 30,

(dollar amounts in millions) 2018 2017 2018 2017
Operating revenues:
Medical premiums earned, net:
Commercial $ 197.3 $ 198.9 $ 590.8 $ 607.4
Medicare 283.6 264.3 851.3 788.5
Medicaid 199.8 190.9 603.9 560.3
Medical premiums earned, net 680.7 654.1 2,046.0 1,956.2
Administrative service fees 4.9 4.8 14.3 16.3
Net investment income 6.8 4.1 17.5 12.1
Total operating revenues 692.4 663.0 2,077.8 1,984.6
Medical operating costs:
Medical claims incurred 566.1 539.2 1,733.6 1,705.7
Medical operating expenses 112.1 89.0 317.9 259.7
Total medical operating costs 678.2 628.2 2,051.5 1,965.4
Medical operating income $ 14.2 $ 34.8 $ 26.3 $ 19.2
Additional data:
Member months enrollment:
Commercial:
Fully-insured 939,110 994,409 2,840,884 3,009,252
Self-funded 427,791 495,616 1,317,244 1,504,283
Total Commercial 1,366,901 1,490,025 4,158,128 4,513,535
Medicare 334,836 368,102 1,008,063 1,095,086
Medicaid 1,191,681 1,138,162 3,564,769 3,480,525
Total member months 2,893,418 2,996,289 8,730,960 9,089,146
Medical loss ratio 83.2 % 82.4 % 84.7 % 87.2 %
Operating expense ratio 16.4 % 13.5 % 15.4 % 13.2 %

Three Months Ended September 30, ~~2018~~2019 Compared to Three Months Ended September 30, ~~2017~~2018

Medical Operating Revenues

Medical premiums earned increased by ~~$26.6~~$65.8 million, or ~~4.1%~~9.7%, to ~~$680.7~~$746.5 million. This increase is principally the result of the following:

~~Medical premiums generated by the Medicare business amounted to $283.6 million~~, ~~$19.3 million, or 7.3% higher than last year,~~ primarily reflecting an increase in the Medicare reimbursement rates for the first time since 2012, the increase related to the 4-star rating achievement in our 2018 HMO product, and higher average membership risk score. These increases were offset partially by a decrease in enrollment of approximately 33,000 member months.

•	Medical premiums generated by the Medicare business increased by $83.5 million, or 29.4% to $367.1 million, primarily reflecting an increase in enrollment by approximately 52,000 member months, and higher average premium rates reflecting an increase in the average membership risk score.

Medical premiums generated by the Medicaid business increased $8.9 million, or 4.7% to $199.8 million. Increase primarily reflects higher membership by approximately 54,000 member months, $8.7 million of premiums related to the achievement of the contract’s quality incentive metrics, and $3.6 million related to the reinstatement of the HIP fee pass-through in 2018. These increases were partially offset by the impact of the profit sharing accrual, which decreased 2018 premiums by approximately $5.6 million.

Medical premiums generated by the Commercial business ~~decreased~~increased by ~~$1.6~~$5.8 million, or ~~0.8%~~2.9%, to ~~$197.3~~$203.1 million. This fluctuation primarily reflects ~~lower~~higher fully-insured enrollment during the ~~year~~quarter by approximately ~~55,000~~25,000 member months, and higher average premium rates, offset in part by ~~$3.0~~$2.9 million related to the ~~reinstatement~~suspension of the HIP fee pass-through in ~~2018.~~2019.

•

Medical premiums generated by the Medicaid business decreased by $23.5 million, or 11.8% to $176.3 million, primarily reflecting a decrease in membership of approximately 126,000 member months, and $3.6 million related to the suspension of the HIP fee pass-through in 2019. The premiums for the quarter were also lowered by a retroactive adjustment done by ASES following the reclassification of a portion of the High Cost High Need (HCHN) population into lower premium rates. The decrease in membership follows the lower membership assigned to us by ASES when implementing the new contract effective November 1, 2018.

Table of Contents

Medical Claims Incurred

Medical claims incurred increased by ~~$27.0~~$79.1 million, or ~~5.0%~~14.0%, to ~~$566.1~~$645.2 million when compared to the three months ended September 30, ~~2017.~~2018. The medical loss ratio (MLR) of the segment increased 80320 basis points during the ~~2018~~2019 period, to ~~83.2%~~86.4%. This fluctuation is primarily attributed to the net effect of the following:

The medical claims incurred ofin the Medicare business increased by $69.7 million, or 30.6%, during the 2019 period. The MLR, at 81.1% was 80 basis points higher than the same period last year. The higher MLR mostly reflects lower favorable prior period reserve development in 2019 when compared to the prior year and improved benefits in the 2019 product offerings.

The medical claims incurred in the Commercial business increased by ~~$21.2~~$5.4 million, or ~~14.6%~~3.3%, during the ~~2018 period and its~~2019 period. The MLR, at 84.5 points higher than last year, primarily reflecting the decrease in utilization in the 2017 period caused by Hurricanes Irma and Maria and unfavorable prior period reserve development. The hurricane related decrease in utilization84.7% was ~~estimated to lower 2017 claims by approximately $16.6 million,~~ ~~or 830~~ basis points of last year’s MLR. Adjusting for the effect of prior period reserve development in 2018 and 2017 period as well as adjusting for the 2017 hurricane related impact in utilization, the Commercial MLR would have been approximately 83.3%, 41020 basis points higher than the same period last year, mostly reflecting ~~claim trends higher than premium trends.~~

the impact of the elimination of the HIP fee pass-through in 2019, offset in part by favorable prior period reserve developments.

~~Medical~~The medical claims incurred ofin the ~~Medicare~~Medicaid business increased by ~~$7.8~~$4.0 million, or ~~3.5%~~2.3%, during the ~~2018~~2019 period. The MLR, at 99.6%, was 1,370 basis point higher than the same period last year, the increased MLR reflects required target MLR of the current Medicaid contract, the impact of the elimination in 2019 of the HIP fee pass-through, and ~~its MLR decreased by 300 basis points, to 80.3%, primarily reflecting higher premium rates, the estimated impact in utilization~~a timing difference in the ~~2017 period caused by Hurricanes Irma and Maria, and higher benefits on the 2018 products.~~recognition of member acuity in premiums. The ~~hurricane related decrease in utilization was estimated to lower 2017 claims by approximately $15.3 million, or 580 basis points~~current Medicaid contract requires a minimum MLR of ~~last year’s MLR. Adjusting for the effect~~92%, including allocation of prior period reserve development in the 2018 and 2017 periods, moving the risk score revenue to it corresponding period, as well as adjusting for the 2017 hurricane related impact in utilization, the Medicare MLR would have been approximately 82.7%, 510 basis points lower than last year, primarily reflecting the higher premium rates in the 2018 period.healthcare quality improvement expenses.

The Medicaid claims incurred decreased by $2.0 million, or 1.2%, during the 2018 period and its MLR, at 85.9%, is 510 basis points lower than last year. The hurricane related decrease in utilization was estimated to lower 2017 claims by approximately $1.0 million, or 50 basis points of last year’s MLR. Adjusting for the effect of prior period reserve developments, the increase in quality incentive premiums, and the 2018 profit sharing accrual, the Medicaid MLR would have been approximately 87.3%, 50 basis points lower than the adjusted MLR for last year.

Medical Operating Expenses

Medical operating expenses ~~increased~~decreased by ~~$23.1~~$6.9 million, or ~~26.0%~~6.2%, to ~~$112.1~~$105.2 million. The operating expense ratio ~~increased~~decreased by ~~290~~240 basis points to ~~16.4%~~14.0% in ~~2018.~~2019. The ~~higher~~lower operating expenses ~~and expense ratio~~ are mostly driven by a $13.1 million decrease in the ~~reinstatement~~HIP Fee due to the moratorium of the ~~HIP~~ fee in ~~2018 of $13.1 million,~~2019, offset in part by higher ~~professional services and~~ personnel costs ~~related to ongoing operational~~ and ~~clinical initiatives, and the expenses related to the new Medicaid model implementation expenses.~~commission expense.

Nine Months Ended September 30, ~~2018~~2019 Compared to Nine Months Ended September 30, ~~2017~~2018

Medical Operating Revenues

Medical premiums earned increased by ~~$89.8~~$199.8 million, or ~~4.6%~~9.8%, to ~~$2,046.0~~$2,245.8 million. This increase is principally the result of the following:

•	Medical premiums generated by the Medicare business increased by $214.4 million, or 25.2%, to $1,065.7 million, primarily reflecting an increase in member months enrollment by approximately 148,000 and higher average premium rates, mainly reflecting higher membership risk score in 2019.

Medical premiums generated by the ~~Medicare~~Commercial business increased by ~~$62.8~~$11.6 million, or ~~8.0%~~2.0%, to ~~$851.3~~$602.4 million. This fluctuation primarily reflects higher fully-insured member enrollment during the year by approximately 32,000 member months and higher average premium rates, offset in part by $9.0 million~~, primarily reflecting an increase in the Medicare reimbursement rates for the first time since 2012, the increase~~ related to the ~~4-star rating achievement~~suspension of the HIP fee pass-through in ~~our 2018 HMO product, increase in the risk score adjustment, as well as to a higher average membership risk score.~~

2019.

Medical premiums generated by the Medicaid business ~~amounted to $603.9 million, $43.6~~decreased by $26.2 million or ~~7.8% higher when compared~~4.3% to ~~the prior period. Increase~~$577.7 million. This decrease primarily reflects ~~higher premiums rates effective July 1, 2017,~~lower enrollment by approximately 377,000 member months, the $6.3 million impact of the profit sharing accrual, and $10.9 million related to the ~~reinstatement~~suspension of the HIP fee pass-through in ~~2018, an $8.7 million~~2019. The decrease in membership follows the lower membership assigned to us by ASES when implementing the new Medicaid contract effective November 1, 2018. The increase in ~~premiums related~~average premium rates is due to the ~~achievement of~~change in model brought by the ~~contract’s quality incentive metrics, and an increase in~~new contract, where we now insure members across Puerto Rico which have higher average premium rates per member, ~~months enrollment of approximately 84,000. These increases were partially offset by impact of~~compared to the ~~profit sharing accrual, which decreased 2018 premiums by approximately $5.6 million.~~previous contract where we covered only two service regions with lower premium rates per member.

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Table of Contents

Medical premiums generated by the Commercial business decreased by $16.6 million, or 2.7%, to $590.8 million. This fluctuation primarily reflects lower fully-insured enrollment during the year by approximately 168,000 member months and $9.0 million related to the reinstatement of the HIP fee pass-through in 2018.

Medical Claims Incurred

Medical claims incurred increased by ~~$27.8~~$172.3 million, or ~~1.6%~~9.9%, to ~~$1,733.6~~$1,905.9 million ~~and~~when compared to the nine months ended September 30, 2018. The MLR of the segment ~~decreased 250~~increased 20 basis points during the ~~2018~~2019 period, to ~~84.7%~~84.9%. ~~This~~The fluctuation in claims incurred is primarily attributed to the net effect of the following:

The medical claims incurred ofin the Medicare business increased by ~~$14.0~~$148.5 million, or ~~2.0%~~20.7%, during the ~~2018~~2019 period ~~and its~~mostly driven by higher enrollment. The MLR, decreased by 490 basis points, to 84.4%, primarily reflecting higher premium rates, the decrease in utilization in the 2017 period caused by Hurricanes Irma and Maria and higher benefits on 2018 products. The hurricane related decrease in utilizationat 81.4% was estimated to lower 2017 claims by approximately $15.3 million, or 200 basis points of last year’s MLR. Adjusting for the effect of prior period reserve development in 2018 and 2017 period, moving the risk score revenue to it corresponding period, as well as adjusting for the 2017 hurricane related impact in utilization, the Medicare MLR would have been approximately 85.1%, about 590 basis points lower than last year, primarily reflecting the higher premium rates in the 2018 period offset in part by the increased utilization of services as the result of the waiver of pre-authorization requirements mandated by CMS following the impact of the hurricanes in 2017 and changes in benefits. The waiver was in place until June 15, 2018.

Medicaid medical claims incurred increased by $10.1 million, or 1.9%, in the 2018 period and its MLR decreased by 500 basis points, to 87.9%. The hurricane related decrease in utilization was estimated to lower 2017 claims by approximately $1.0 million, or 10 basis points of last year’s MLR. Adjusting for the effect of prior period reserve developments, the increase in quality incentive premiums, and the 2018 profit sharing accrual, the Medicaid MLR would have been approximately 87.8%, 380300 basis points lower than the ~~adjusted MLR for~~same period last year, ~~mostly reflecting the impact of higher premium rates~~driven by favorable prior period reserve developments in ~~2018~~2019 and the impact of cost containment initiatives.

The Commercial medical claims incurred increased by $3.7 million, or 0.8%, during the 2018 period and its MLR, at 82.0%, was 290 basis points higher year over year, primarily reflecting the decrease in utilization in the 2017 period caused by Hurricanes Irma and Maria These decreases were offset in part by ~~favorable prior period reserve development.~~ improved benefits in the 2019 product offerings.

The ~~hurricane related decrease~~medical claims incurred in ~~utilization was estimated to lower 2017 claims~~the Commercial business increased by ~~approximately $16.6~~$14.6 million, or ~~280~~3.0%, during the 2019 period. The MLR, at 82.8%, was 80 basis points of last year’s MLR. Adjusting for the effect of prior period reserve development in 2018 and 2017 period as well as adjusting for the 2017 hurricane related impact in utilization, the Commercial MLR would have been approximately 83.5%, 250 basis pointspoint higher than the same period last year, mostly reflecting ~~claim trends~~the elimination of the HIP fee pass through in 2019.

The medical claims incurred in the Medicaid business increased by $9.2 million, or 1.7%, during the 2019 period. The MLR, at 93.4%, was 550 basis point higher than ~~premium trends.~~the same period last year. The increased MLR reflects the higher required target MLR of the current Medicaid contract, the impact of the elimination in 2019 of the HIP fee pass-through, and a timing difference in the recognition of member acuity in premiums. The current Medicaid contract requires a minimum MLR of 92%, including allocation of healthcare quality improvements expenses.

Medical Operating Expenses

~~Medical~~Total medical operating expenses ~~increased~~decreased by ~~$58.2~~$6.9 million, or ~~22.4%~~2.2%, to ~~$317.9~~$311.0 million. The operating expense ratio ~~increased~~decreased by ~~220~~160 basis points to ~~15.4%~~13.8% in ~~2018.~~2019. The ~~higher~~lower operating ~~expenses and~~ expense ratio ~~are mostly driven by~~reflects the ~~reinstatement~~suspension of the HIP fee in ~~2018,~~2019, resulting in ~~an increase~~a decrease of $37.0 million, and a higher ~~professional services and~~volume of business, offset by increases in personnel costs ~~related to ongoing operational~~ and ~~clinical initiatives~~.commission expense.

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Life Insurance Operating Results

													Three months ended						Nine months ended
	Three months ended September 30,						Nine months ended September 30,						September 30,						September 30,
(dollar amounts in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Operating revenues:
Premiums earned, net:
Premiums earned	$	43.7		$	41.0		$	129.7		$	124.6		$	47.3		$	43.7		$	139.7		$	129.7
Assumed earned premiums		0.7			2.0			2.0			3.4			0.6			0.7			1.6			2.0
Ceded premiums earned		(2.1	)		(2.1	)		(6.6	)		(6.6	)		(2.1	)		(2.1	)		(6.2	)		(6.6	)
Premiums earned, net		42.3			40.9			125.1			121.4			45.8			42.3			135.1			125.1
Net investment income		6.4			6.1			19.1			18.5			6.7			6.4			20.0			19.1
Total operating revenues		48.7			47.0			144.2			139.9			52.5			48.7			155.1			144.2
Operating costs:
Policy benefits and claims incurred		25.3			23.1			73.8			68.7			25.9			25.3			79.2			73.8
Underwriting and other expenses		17.7			19.4			55.8			57.8			20.0			17.7			58.4			55.8
Total operating costs		43.0			42.5			129.6			126.5			45.9			43.0			137.6			129.6
Operating income	$	5.7		$	4.5		$	14.6		$	13.4		$	6.6		$	5.7		$	17.5		$	14.6
Additional data:
Loss ratio		59.8	%		56.5	%		59.0	%		56.6	%		56.6	%		59.8	%		58.6	%		59.0	%
Operating expense ratio		41.8	%		47.4	%		44.6	%		47.6	%		43.7	%		41.8	%		43.2	%		44.6	%

Three Months Ended September 30, ~~2018~~2019 Compared to Three Months Ended September 30, ~~2017~~2018

Operating Revenues

Premiums earned, net increased by ~~$1.4~~$3.5 million, or ~~3.4% to $42.3 million mainly as the result of higher sales in the Individual Life and Cancer lines of business.~~

~~Policy Benefits and Claims Incurred~~

~~Policy benefits and claims incurred increased by $2.2 million, or 9.5%~~8.3%, to $25.3 million, mostly reflecting a higher volume of claims as well as an increase in the average cost per claim in the Cancer line of business. As a result, the segment’s loss ratio increased 330 basis point to 59.8%.

~~Underwriting and Other Expenses~~

~~Underwriting and other expenses decreased $1.7 million, or 8.8%, to $17.7 million. The segment’s operating expense ratio improved 560 basis points to 41.8%.~~

~~Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017~~

~~Operating Revenues~~

~~Premiums earned, net increased by $3.7 million, or 3.0% to $125.1~~$45.8 million, mainly as the result of higher sales and improved policy retention in the ~~segment’s~~ Individual Life and Cancer lines of business.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by ~~$5.1~~$0.6 million, or ~~7.4%~~2.4%, to ~~$73.8~~$25.9 million, mostly as the result of higher ~~number of death benefits paid in~~actuarial reserves following improved portfolio persistency during the ~~Individual Life line of business as well as increased average cost of claims in the Cancer line~~period and higher volume of business. ~~As a result, the~~The segment’s loss ratio ~~increased 240~~decreased 320 basis point to ~~59.0%~~56.6%.

Underwriting and Other Expenses

Underwriting and other expenses ~~decreased $2.0~~increased by $2.3 million, or ~~3.5%~~13.0%, to ~~$55.8 million.~~$20.0 million, mainly as the result of higher commission expense reflecting the segment’s higher volume of business and improved portfolio persistency. The segment’s operating expense ratio increased 190 basis points to 43.7%.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Operating Revenues

Premiums earned, net increased by $10.0 million, or 8.0%, to $135.1 million, mainly as the result of higher sales and improved policy retention in the Individual Life and Cancer lines of business.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $5.4 million, or 7.3%, to $79.2 million, mostly as the result of higher actuarial reserves following improved portfolio persistency during the period and higher volume of business. The segment’s loss ratio decreased by 40 basis point to 58.6%.

Underwriting and Other Expenses

Underwriting and other expenses increased $2.6 million, or 4.7%, to $58.4 million mainly due to higher commissions and personnel costs, partly offset by a decrease in DAC & VOBA amortization reflecting the segment’s higher volume of business and improved portfolio persistency. The segment’s operating expense ratio improved ~~300~~140 basis points to ~~44.6%~~43.2%.

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Property and Casualty Insurance Operating Results

													Three months ended						Nine months ended
	Three months ended September 30,						Nine months ended September 30,						September 30,						September 30,
(dollar amounts in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Operating revenues:
Premiums earned, net:
Premiums written	$	33.3		$	31.0		$	99.7		$	104.8		$	40.0		$	33.3		$	107.4		$	99.7
Premiums ceded		(12.6	)		(13.4	)		(40.1	)		(40.1	)		(12.3	)		(12.6	)		(36.0	)		(40.1	)
Change in unearned premiums		(0.5	)		2.3			7.5			(1.3	)		(4.0	)		(0.5	)		(6.5	)		7.5
Premiums earned, net		20.2			19.9			67.1			63.4			23.7			20.2			64.9			67.1
Net investment income		2.5			2.1			7.7			6.2			2.5			2.5			7.4			7.7
Total operating revenues		22.7			22.0			74.8			69.6			26.2			22.7			72.3			74.8
Operating costs:
Claims incurred		58.2			22.0			155.1			43.5			10.2			58.2			28.3			155.1
Underwriting and other expenses		11.4			11.1			34.5			31.3			9.4			11.4			29.1			34.5
Total operating costs		69.6			33.1			189.6			74.8			19.6			69.6			57.4			189.6
Operating loss	$	(46.9	)	$	(11.1	)	$	(114.8	)	$	(5.2	)
Operating income (loss)													$	6.6		$	(46.9	)	$	14.9		$	(114.8	)
Additional data:
Loss ratio		288.1	%		110.6	%		231.1	%		68.6	%		43.0	%		288.1	%		43.6	%		231.1	%
Operating expense ratio		56.4	%		55.8	%		51.4	%		49.4	%		39.7	%		56.4	%		44.8	%		51.4	%

Three Months Ended September 30, ~~2018~~2019 Compared to Three Months Ended September 30, ~~2017~~2018

Operating Revenues

Total premiums written increased by ~~$2.3~~$6.7 million, or ~~7.4%~~20.1%, to ~~$33.3~~$40.0 million, mainly driven by higher sales ~~and premium rates~~ of Commercial ~~Auto~~ and Personal Package products and in Commercial ~~Package~~Liabilities products.

~~The premiums~~Premiums ceded to reinsurers decreased by ~~$0.8~~$0.3 million, or ~~6.0%~~2.4%, mostly reflecting ~~lower premiums written~~a decrease in ~~Commercial insurance products during 2018 and lower facultative cessions. These decreases were offset in part by an increase~~non-proportional reinsurance costs, mainly for the property catastrophe coverage, as well as the impact of the decrease in cessions in the Commercial quota share agreement from ~~30%~~35% in ~~2017~~2018 to ~~35% 2018.~~25% in 2019. This fluctuation was offset in part by higher catastrophe non-proportional reinsurance costs.

~~The $2.8 decrease million in the change in unearned premiums reflects the increase in premiums written experienced in the 2018 quarter.~~

Claims Incurred

Claims incurred ~~increased~~decreased by ~~$36.2~~$48.0 million, or ~~164.5%~~82.5%, to ~~$58.2~~$10.2 million, primarily driven by a $52.3 million of unfavorable prior period reserve development in claims in the prior year quarter related to Hurricane ~~Maria,~~Maria. As a ~~category 4 hurricane that impacted Puerto Rico in September 2017. The increase was offset in part by~~result, the ~~$13.5 million of net losses related~~loss ratio decreased to ~~Hurricanes Irma and Maria recognized in the 2017 quarter. See “Recent Developments – Property and Casualty – Hurricane Maria Unfavorable Reserve Development”.~~43.0% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses ~~were in line with previous year, increasing $0.3~~decreased by $2.0 million, or ~~2.7%~~17.5%, to ~~$11.4~~$9.4 million. mostly due to lower net commission expense. The operating expense ratio was ~~56.7%~~39.7%, 901,670 basis points ~~higher~~lower than prior year.

Nine Months Ended September 30, ~~2018~~2019 Compared to Nine Months Ended September 30, ~~2017~~2018

Operating Revenues

Total premiums written ~~decreased~~increased by ~~$5.1~~$7.7 million, or ~~4.9%~~7.7%, to ~~$99.7~~$107.4 million, driven by ~~lower~~higher volume of Commercial ~~Property,~~and Personal Package, Commercial ~~Package,~~Liability, and Commercial ~~Liability~~Auto products, offset by lower sales of Commercial Property products, mostly resulting from the selective and disciplined underwriting of Commercial risks.

The premiums ceded to reinsurers ~~remained at $40.1~~decreased by $4.1 million, ~~including an increase~~or 10.2%, mostly reflecting a decrease in cessions in the Commercial quota share agreement from ~~30%~~35% in ~~2017~~2018 to ~~35% 2018.~~25% since April 2019, as well as the impact of the related incoming portfolio transfer. These decreases were offset in part by higher non-proportional reinsurance costs, mostly in property catastrophe reinsurance.

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~~The $8.8 million increase in the change in unearned premiums reflects the lower premiums written in the 2018 period.~~

Claims Incurred

Claims incurred ~~increased~~decreased by ~~$111.6~~$126.8 million, or ~~256.6%~~81.8%, to ~~$155.1~~$28.3 million driven by a $128.7 million unfavorable prior period reserve development in claims in prior year related to Hurricane ~~Maria,~~Maria. As a ~~category 4 hurricane that impacted Puerto Rico in September 2017. The increase was offset in part by~~result, the ~~$13.5 million of net losses related~~loss ratio decreased to ~~Hurricanes Irma and Maria recognized in the 2017~~43.6% during this period. ~~See “Recent Developments – Property and Casualty – Hurricane Maria Unfavorable Reserve Development”.~~

Underwriting and Other Expenses

Underwriting and other operating expenses ~~increased~~decreased by ~~$3.2~~$5.4 million, or ~~10.2%~~15.7%, to ~~$34.5~~$29.1 million mostly due to ~~higher amortization of deferred acquisition costs and personnel costs, offset by~~ lower ~~commissions~~net commission expense following the decrease in net premiums earned. The operating expense ratio was ~~51.4%~~44.8%, ~~200~~660 basis points ~~higher~~lower than prior year.

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
	Nine months ended September 30,						September 30,
(dollar amounts in millions)	2018			2017			2019			2018
Sources (uses) of cash:
Cash (used in) provided by operating activities	$	(3.9	)	$	191.8
Net (purchases) sales of investment securities		(52.5	)		2.8
Cash used in operating activities							$	(3.5	)	$	(3.9	)
Net sales (purchases) of investment securities								0.7			(52.5	)
Net capital expenditures		(12.3	)		(15.9	)		(14.7	)		(12.3	)
Proceeds from long-term borrowings		-			24.3
Payments of long-term borrowings		(2.4	)		(26.3	)		(2.4	)		(2.4	)
Proceeds from policyholder deposits		14.7			12.1			15.1			14.7
Surrenders of policyholder deposits		(21.4	)		(17.4	)		(16.5	)		(21.4	)
Repurchase and retirement of common stock		(22.4	)		(12.6	)		-			(22.4	)
Other		8.3			7.7			2.7			8.3
Net (decrease) increase in cash and cash equivalents	$	(91.9	)	$	166.5
Net decrease in cash and cash equivalents							$	(18.6	)	$	(91.9	)

~~Decrease~~Net sales (proceeds) from investments in net cash provided by operating expenses by approximately $195.7 million mostly reflects Property and Casualty hurricane related claim payments and the collection in advance of October CMS premiums in the 2017 period; offset insecurities are part ~~by collections of the higher 2018 Medicare premiums primarily due to the increase in~~ ~~reimbursement rates and the increase related to the 4-star rating achievement in~~ our ~~2018 HMO product~~.asset/liability management strategy.

~~During the nine months ended~~ ~~September~~ ~~30, 2017, we received $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.~~

In August 2017, the Company’s Board of Directors authorized a $30.0 million repurchase program of its Class B common 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 months ended September 30, 2018, the Company repurchased and retired under this program 903,888 of our Class B Common Stock shares at an average per share price of $24.23, for an aggregate cost of $22.4 million. No share repurchases were made during the nine months ended September 30, 2019.

The fluctuation in the other sources of cash is attributed to changes in the amount of outstanding checks over bank balances.

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Financing and Financing Capacity

Short-term facilities

We have several short-term facilities available to address timing differences between cash receipts and ~~disbursements. These short-term facilities~~disbursements, which are ~~mostly~~advances from the Federal Home Loan Bank of New York (“FHLBNY”), repurchase agreements and a revolving credit facility.

In August 2019, TSS and TSV became members of the FHLBNY, which provides access to collateralized advances. The borrowing capacity of TSS and TSV is up to 30% of their admitted assets as disclosed in the ~~form~~most recent filing to the Commissioner of ~~arrangements to sell securities under repurchase agreements.~~Insurance but is constrained by the amount of collateral held at the FHLBNY. As of September 30, ~~2018, we~~ ~~had $60.0~~ 2019, the borrowing capacity is $83.2 million for TSS and $49.2 million for TSV.

•

As of September 30, 2019, TSS has $60.0 million of available credit under repurchase agreements with broker-dealers, which are short term borrowing facilities using securities as collateral.

TSA has a $10.0 million revolving loan agreement with a commercial bank in Puerto Rico. This line of ~~available~~ credit ~~under these facilities.~~ 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. This line of credit matured on April 30, 2019 and was renewed for an additional year.

There are no outstanding short-term borrowings under any of these facilities as of September 30, ~~2018.~~2019.

Long-term loan

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 a previous $41.0 million secured loan payable with the same commercial 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, ~~2018,~~2019, we are in compliance with these covenants.

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 contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit had an original maturity date of April 17, 2018 and was renewed for an additional year, maturing on April 30, 2019.

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, ~~2017.~~2018.

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, ~~2017.~~2018. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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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 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 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 this evaluation, our chief executive officer and chief financial officer have concluded that as of September 30, ~~2018,~~2019, which is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance.

There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the chief executive officer and chief financial officer completed the evaluation referred to above.

Changes in Internal Controls Over Financial Reporting

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, ~~2018~~2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1.

Legal Proceedings

For a description of legal proceedings that have experienced significant developments during this quarter, see Note 1415 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, ~~2017.~~2018. The following text updates disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Under the sub-caption “Certain of our current and former providers may bring materially dilutive claims against us.”, the fourth paragraph was amended to read as follows:

We believe that we should prevail in any litigation with respect to these matters; however, we cannot predict the outcome of any such litigation, including with respect to the magnitude of any claims that may be asserted by any plaintiff, and the interests of our shareholders could be materially diluted to the extent that claims under the share acquisition agreements are successful. In addition, all remaining shares of our Class A common stock were converted into Class B common stock on August 7, 2019, at which point we ceased to have a dual-class structure and the remaining antidilution protection afforded to holders of Class B shares by that structure ceased.

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Under the sub-caption “Heirs of certain of our former shareholders may bring materially dilutive claims against us.”, the second paragraph was amended to read as follows:

We believe that we should prevail in litigation with respect to these matters; however, we cannot predict the outcome of any such litigation regarding these non-medical heirs. The interests of our existing shareholders could be materially diluted to the extent that any such claims are successful. In addition, all remaining shares of our Class A common stock were converted into Class B common stock on August 7, 2019, at which point we ceased to have a dual-class structure and the remaining antidilution protection afforded to holders of Class B shares by that structure ceased.

The risk described under the sub-caption “The dual class structure may not successfully protect against significant dilution of your shares of Class B common stock.” was eliminated.

The sub-caption “Future sales of our Class B common stock, or the perception that such future sales may occur, may have an adverse impact of its market price.”, was amended to read as follows:

Sales of a substantial number of shares of our common stock in the public market, or the perception that large sales could occur, could cause the market price of our Class B common stock to decline. Either of these limits our future ability to raise capital through an offering of equity securities. As of December 31, 2018, there were 21,980,168 shares of Class B common stock and 950,968 shares of Class A common stock. Our Class A common stock is no longer subject to contractual lockup; thus, such shares are freely tradable without restriction or further registration under the Securities Act by persons other than our ‘‘affiliates’’ within the meaning of Rule 144 under the Securities Act, although such shares will continue not to be listed on the NYSE and will not be fungible with our listed shares of Class B common stock until conversion of all remaining Class A common stock to Class B common stock, which occurred on August 7, 2019.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Purchases of Equity Securities by the Issuer~~Not applicable.

~~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, 2018 to July 31, 2018 - $ - - $ 18.5
August 1, 2018 to August 31, 2018 115,626 25.93 115,626 15.5
September 1, 2018 to September 30, 2018 144,299 20.77 144,299 12.5

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.

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Item 6.

Exhibits

Exhibits	Description

10.1*	~~Contract~~Amendment to the contract between ~~the~~ Administración de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc. ~~for~~to administer the provision of physical & behavioral health services under the Government Health Plan ~~Program (File No. 001-33865).~~Program.

11	Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

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.

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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 ~~8, 2018~~7, 2019	By:	/s/ Roberto García-Rodríguez
			Roberto García-Rodríguez
			President and Chief Executive Officer

Date:	November ~~8, 2018~~7, 2019	By:	/s/ Juan J. Román-Jiménez
			Juan J. Román-Jiménez
			Executive Vice President and Chief Financial Officer

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~~Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~(Former name, former address and former fiscal year, if changed since last report)~~Common Stock Class B, $1.00 par value	GTS	New York Stock Exchange (NYSE)

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

Title of each class		Outstanding at September 30, ~~2018~~2019
~~Common Stock Class A, $1.00 par value~~		~~950,968~~
Common Stock Class B, $1.00 par value		~~21,985,524~~24,333,036

Part I – Financial Information			3

	Item 1.	Financial Statements	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3430


	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4743

	Item 4.	Controls and Procedures	4844

Part II – Other Information			4844

	Item 1.	Legal Proceedings	4844

	Item 1A.	Risk Factors	4844

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49 45

	Item 3.	Defaults Upon Senior Securities	49 45

	Item 4.	Mine Safety Disclosures	49 45

	Item 5.	Other Information	49 45

	Item 6.	Exhibits	49 46

SIGNATURES			5047

	2018			2017
Balance at January 1	$	913,364		$	863,163
Share-based compensation		3,462			1,651
Repurchase and retirement of common stock		(23,014	)		(12,553	)
Comprehensive (loss) income		(73,303	)		45,148
Total Triple-S Management Corporation stockholders' equity		820,509			897,409
Non-controlling interest in consolidated subsidiary		(671	)		(679	)
Balance at September 30	$	819,838		$	896,730

	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Triple-S Management Corporation Stockholders’ Equity			Non-controlling Interest in Consolidated Subsidiary			Total Stockholders’ Equity
Balance, December 31, 2018	$	951		$	21,980		$	34,021		$	761,970		$	3,062		$	821,984		$	(676	)	$	821,308
Share-based compensation		-			177			1,409			-			-			1,586			-			1,586
Repurchase and retirement of common stock		-			(1	)		(15	)		-			-			(16	)		-			(16	)
Comprehensive income (loss)		-			-			-			34,786			13,497			48,283			(3	)		48,280
Balance, March 31, 2019	$	951		$	22,156		$	35,415		$	796,756		$	16,559		$	871,837		$	(679	)	$	871,158
Share-based compensation		-			44			4,276			-			-			4,320			-			4,320
Comprehensive income (loss)		-			-			-			30,931			14,985			45,916			(5	)		45,911
Balance, June 30, 2019	$	951		$	22,200		$	39,691		$	827,687		$	31,544		$	922,073		$	(684	)	$	921,389
Share-based compensation		-			1			2,816			-			-			2,817			-			2,817
Issuance of Common Stock		48			-			1,151			-			-			1,199			-			1,199
Stock dividend		-			1,133			23,522			(24,655	)		-			-			-			-
Dividend		-			-			-			(11	)		-			(11	)		-			(11	)
Common Stock Class A conversion to Class B		(999	)		999			-			-			-			-			-			-
Comprehensive income (loss)		-			-			-			13,948			9,351			23,299			(2	)		23,297
Balance, September 30, 2019	$	-		$	24,333		$	67,180		$	816,969		$	40,895		$	949,377		$	(686	)	$	948,691

Balance, December 31, 2017	$	951		$	22,627		$	53,142		$	785,390		$	51,254		$	913,364		$	(682	)	$	912,682
Share-based compensation		-			285			106			-			-			391			-			391
Repurchase and retirement of common stock		-			(580	)		(14,095	)		-			-			(14,675	)		-			(14,675	)
Comprehensive income (loss)		-			-			-			3,914			(6,763	)		(2,849	)		-			(2,849	)
Cumulative effect adjustment due to implementation of ASU 2016-01		-			-			-			39,882			(39,882	)		-			-			-
Balance, March 31, 2018	$	951		$	22,332		$	39,153		$	829,186		$	4,609		$	896,231		$	(682	)	$	895,549
Share-based compensation		-			-			2,151			-			-			2,151			-			2,151
Repurchase and retirement of common stock		-			(89	)		(2,254	)		-			-			(2,343	)		-			(2,343	)
Comprehensive (loss) income		-			-			-			(38,747	)		(8,071	)		(46,818	)		1			(46,817	)
Balance, June 30, 2018	$	951		$	22,243		$	39,050		$	790,439		$	(3,462	)	$	849,221		$	(681	)	$	848,540
Share-based compensation		-			3			916			-			-			919			-			919
Repurchase and retirement of common stock		-			(260	)		(5,735	)		-			-			(5,995	)		-			(5,995	)
Comprehensive (loss) income		-			-			-			(17,567	)		(6,069	)		(23,636	)		10			(23,626	)
Balance, September 30, 2018	$	951		$	21,986		$	34,231		$	772,872		$	(9,531	)	$	820,509		$	(671	)	$	819,838

	September 30, 2018
	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
Assets:
Policy loans	$	9,680	$	-	$	9,680	$	-	$	9,680

Liabilities:
Policyholder deposits	$	174,126	$	-	$	174,126	$	-	$	174,126
Long-term borrowings:
Loans payable to bank - variable		29,924		-		29,924		-		29,924
Total liabilities	$	204,050	$	-	$	204,050	$	-	$	204,050

	Nine months ended September 30, 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		1,724,890			95,227			1,820,117
Prior period insured events		(19,158	)		(5,920	)		(25,078	)
Total		1,705,732			89,307			1,795,039
Payments of losses and loss-adjustment expenses:
Current period insured events		1,456,098			38,222			1,494,320
Prior period insured events		242,384			35,325			277,709
Total		1,698,482			73,547			1,772,029
Net claim liabilities at end of period		356,297			115,658			471,955
Reinsurance recoverable on claim liabilities		-			636,743			636,743
Claim liabilities at end of period	$	356,297		$	752,401		$	1,108,698

Incurred Year	Total of IBNR Liabilities Plus Expected Development on Reported Claims
2017	$	11,965
2018		325,427

	September 30, 2018			December 31, 2017
Deferred tax assets
Gross deferred tax assets	$	127,563		$	87,058
Less: valuation allowance		(12,696	)		(8,283	)
Deferred tax assets		114,867			78,775

Deferred tax liabilities
Gross deferred tax liabilities		(34,485	)		(35,543	)
Net deferred tax asset	$	80,382		$	43,232

(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, 2018 to July 31, 2018		-	$	-		-	$	18.5
August 1, 2018 to August 31, 2018		115,626		25.93		115,626		15.5
September 1, 2018 to September 30, 2018		144,299		20.77		144,299		12.5