UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20202021

or

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

For the transition period from                         to                        

COMMISSION FILE NUMBER:  001-33865

TRIPLE-S MANAGEMENT CORPORATION

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

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

(787) 749-4949
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading
Symbol(s) 
Name of each exchange on which registered 
Common Stock, Class B, $1.00 par valueGTSNew York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes  ☐  No

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  ☑ No

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

Title of each class
Outstanding at June 30, 20202021
  
Common Stock, Class B, $1.00 par value23,437,56523,796,037





Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended June 30, 20202021

Table of Contents

Part I – Financial Information
3
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
3428
Cautionary Statement Regarding Forward-Looking Information
3428
Overview
3428
Recent Developments
3529
Recent Accounting Standards
3832
Managed Care Membership
3832
Consolidated Operating Results
3933
Managed Care Operating Results
4135
Life Insurance Operating Results
4438
Property and Casualty Insurance Operating Results
4540
Liquidity and Capital Resources
4641
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
4843
Item 4.  Controls and Procedures
4943
Part II – Other Information
4944
Item 1.  Legal Proceedings
4944
Item 1A.  Risk Factors
4944
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
5144
Item 3.  Defaults Upon Senior Securities
5144
Item 4.  Mine Safety Disclosures
5144
Item 5.  Other Information
5144
Item 6.  Exhibits
5245
SIGNATURES
5346


2
Table of Contents

Part I -  Financial Information

Item 1.  Financial Statements
Triple-S Management Corporation
Condensed Consolidated Interim Balance Sheets (Unaudited)
(dollar amounts in thousands, except share data)information)

 
June 30,
2020
  
December 31,
2019
  
June 30,
2021
  
December 31,
2020
 
Assets            
Investments and cash:            
Fixed maturities available for sale, at fair value $1,292,751  $1,242,883 
Fixed maturities held to maturity, at amortized cost  1,860   1,860 
Fixed-maturities available-for-sale, at fair value $1,288,691  $1,342,465 
Fixed-maturities held-to-maturity, at amortized cost  1,866   1,867 
Equity investments, at fair value  344,604   287,525   523,430   404,328 
Other invested assets, at net asset value  105,525   100,508   117,767   114,905 
Policy loans  10,958   10,861   10,422   10,459 
Cash and cash equivalents  141,071   109,837   174,390   110,989 
Total investments and cash  1,896,769   1,753,474   2,116,566   1,985,013 
Premiums and other receivables, net  547,209   567,692   484,617   488,840 
Deferred policy acquisition costs and value of business acquired  238,636   234,885   252,064   248,325 
Property and equipment, net  126,685   88,588   136,146   131,974 
Deferred tax asset  76,010   77,294   107,942   119,534 
Goodwill  28,614   28,599   28,614   28,614 
Other assets  107,507   68,294   99,513   86,118 
Total assets $3,021,430  $2,818,826  $3,225,462  $3,088,418 
Liabilities and Stockholders’ Equity                
Claim liabilities $725,214  $709,258  $809,548  $787,102 
Liability for future policy benefits  396,205   386,017   430,950   414,997 
Unearned premiums  89,456   93,301   97,221   97,481 
Policyholder deposits  200,499   189,120   213,300   206,109 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs  59,184   47,781   45,665   45,109 
Accounts payable and accrued liabilities  456,607   325,761   382,116   332,699 
Deferred tax liability  10,999   10,257   14,249   15,046 
Short-term borrowings  15,000   54,000   45,000   30,000 
Long-term borrowings  54,940   25,694   50,583   52,751 
Liability for pension benefits  33,791   34,465   132,077   139,611 
Total liabilities  2,041,895   1,875,654   2,220,709   2,120,905 
Stockholders’ equity:                
Triple-S Management Corporation stockholders’ equity                
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,437,565 and 23,799,633 shares at June 30, 2020 and December 31, 2019, respectively  23,438   23,800 
Common stock, $1 par value. Authorized 100,000,000 shares; issued and outstanding 23,796,037 and 23,430,292 shares at June 30, 2021 and December 31, 2020, respectively
  23,796   23,430 
Additional paid-in capital  52,372   60,504   60,484   57,399 
Retained earnings  847,486   830,198   944,091   897,221 
Accumulated other comprehensive income  56,949   29,363 
Accumulated other comprehensive loss, net  (22,892)  (9,820)
Total Triple-S Management Corporation stockholders’ equity  980,245   943,865   1,005,479   968,230 
Non-controlling interest in consolidated subsidiary  (710)  (693)  (726)  (717)
Total stockholders’ equity  979,535   943,172   1,004,753   967,513 
Total liabilities and stockholders’ equity $3,021,430  $2,818,826  $3,225,462  $3,088,418 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated interim financial statements.

3
Table of Contents

Triple-S Management Corporation
Condensed Consolidated Interim Statements of Earnings (Unaudited)
(dollar amounts in thousands, except per share data)information)

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
June 30,
  
Six months ended
June 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
Revenues:            
Revenues            
Premiums earned, net $858,535  $859,493  $1,734,432  $1,627,495  $987,880  $858,535  $1,996,316  $1,734,432 
Administrative service fees  2,809   2,456   5,003   5,088   2,676   2,809   5,441   5,003 
Net investment income  13,815   15,062   28,126   30,438   14,960   13,815   28,606   28,126 
Other operating revenues  303   1,591   4,342   3,168   1,817   303   4,593   4,342 
Total operating revenues  875,462   878,602   1,771,903   1,666,189   1,007,333   875,462   2,034,956   1,771,903 
Net realized investment (losses) gains  (221)  2,364   (687)  3,679 
Net realized investment gains (losses)  2,514   (221)  2,731   (687)
Net unrealized investment gains (losses) on equity investments  28,338   3,323   (28,468)  22,992   12,743   28,338   21,295   (28,468)
Other income, net  801   1,705   4,406   2,874   4,851   801   7,962   4,406 
Total revenues  904,380   885,994   1,747,154   1,695,734   1,027,441   904,380   2,066,944   1,747,154 
Benefits and expenses:                
Claims incurred  653,087   706,304   1,367,609   1,329,494 
Benefits and expenses                
Claims incurred, net of reinsurance  844,064   653,087   1,694,622   1,367,609 
Operating expenses  178,659   134,084   340,860   266,747   151,253   178,659   302,354   340,860 
Total operating costs  831,746   840,388   1,708,469   1,596,241   995,317   831,746   1,996,976   1,708,469 
Interest expense  1,864   1,831   3,717   3,619   2,217   1,864   4,209   3,717 
Total benefits and expenses  833,610   842,219   1,712,186   1,599,860   997,534   833,610   2,001,185   1,712,186 
Income before taxes  70,770   43,775   34,968   95,874   29,907   70,770   65,759   34,968 
Income tax expense  27,181   12,849   17,531   30,165   6,353   27,181   18,898   17,531 
Net income  43,589   30,926   17,437   65,709   23,554   43,589   46,861   17,437 
Net loss attributable to non-controlling interest  (10)  (5)  (17)  (8)  6   10   9   17 
Net income attributable to Triple-S Management Corporation $43,599  $30,931  $17,454  $65,717  $23,560  $43,599  $46,870  $17,454 
Earnings per share attributable to Triple-S Management Corporation                                
Basic net income per share $1.88  $1.35  $0.75  $2.88  $1.00  $1.88  $2.01  $0.75 
Diluted net income per share $1.87  $1.35  $0.75  $2.87  $1.00  $1.87  $1.99  $0.75 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated interim financial statements.

4
Table of Contents

Triple-S Management Corporation
Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited)
(dollar amounts in thousands)

Three months ended
June 30,
Six months ended
June 30,
 
Three months ended
June 30,
  
Six months ended
June 30,
 
2020201920202019 2021  2020  2021  2020 
Net income$43,589$30,926$17,437$65,709 $23,554  $43,589  $46,861  $17,437 
Other comprehensive income, net of tax:    
Net unrealized change in fair value of available for sale securities, net of taxes11,40114,92927,28028,370
Other comprehensive income (loss), net of tax:                
Net unrealized change in fair value of available-for-sale securities, net of taxes  2,263   11,401   (14,290)  27,280 
Defined benefit pension plan:                    
Actuarial loss, net15356306112  609   153   1,218   306 
Total other comprehensive income, net of tax11,55414,98527,58628,482
Total other comprehensive income (loss), net of tax  2,872   11,554   (13,072)  27,586 
Comprehensive income55,14345,91145,02394,191  26,426   55,143   33,789   45,023 
Comprehensive loss attributable to non-controlling interest(10)(5)(17)(8)  6   10   9   17 
Comprehensive income attributable to Triple-S Management Corporation$55,153$45,916$45,040$94,199 $26,432  $55,153  $33,798  $45,040 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated interim financial statements.

5
Table of Contents


Triple-S Management Corporation
Condensed Consolidated Interim Statements of Stockholders’ Equity (Unaudited)
(dollar amounts in thousands)

  
Class A
Common
Stock
  
Class B
Common
Stock
  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income
  
Triple-S
Management
Corporation
Stockholders’
Equity
  
Non-controlling
Interest in
Consolidated
Subsidiary
  
Total
Stockholders’
Equity
 
Balance, December 31, 2019 $-  $23,800  $60,504  $830,198  $29,363  $943,865  $(693) $943,172 
Share-based compensation  -   590   1,769   -   -   2,359   -   2,359 
Repurchase and retirement of common stock  -   (584)  (8,511)  -   -   (9,095)  -   (9,095)
Comprehensive (loss) income  -   -   -   (26,145)  16,032   (10,113)  (7)  (10,120)
Cummulative effect adjustment due to implementation of ASU 2016-13  -   -   -   (166)  -   (166)  -   (166)
Balance, March 31, 2020 $-  $23,806  $53,762  $803,887  $45,395  $926,850  $(700) $926,150 
Share-based compensation  -   7   4,228   -   -   4,235   -   4,235 
Repurchase and retirement of common stock  -   (375)  (5,618)  -   -   (5,993)  -   (5,993)
Comprehensive income (loss)  -   -   -   43,599   11,554   55,153   (10)  55,143 
Balance, June 30, 2020 $-  $23,438  $52,372  $847,486  $56,949  $980,245  $(710) $979,535 
                                 
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 
  
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, 2020
 $0  $23,430  $57,399  $897,221  $(9,820) $968,230  $(717) $967,513 
Share-based compensation  0   250   932   0   0   1,182   0   1,182 
Comprehensive income (loss)  0   0   0   23,310   (15,944)  7,366   (3)  7,363 
Balance, March 31, 2021 $0  $23,680  $58,331  $920,531  $(25,764) $976,778  $(720) $976,058 
Share-based compensation  0   137   2,614   0   0   2,751   0   2,751 
Repurchase and retirement of common stock  0   (21)  (461)  0   0   (482)  0   (482)
Comprehensive income (loss)  0   0   0   23,560   2,872   26,432   (6)  26,426 
Balance, June 30, 2021 $0  $23,796  $60,484  $944,091  $(22,892) $1,005,479  $(726) $1,004,753 
                                 
Balance, December 31, 2019
 $0  $23,800  $60,504  $830,198  $29,363  $943,865  $(693) $943,172 
Share-based compensation  0   590   1,769   0   0   2,359   0   2,359 
Repurchase and retirement of common stock  0   (584)  (8,511)  0   0   (9,095)  0   (9,095)
Comprehensive (loss) income  0   0   0   (26,145)  16,032   (10,113)  (7)  (10,120)
Cumulative effect adjustment due to implementation of ASU 2016-01  0   0   0   (166)  0   (166)  0   (166)
Balance, March 31, 2020 $0  $23,806  $53,762  $803,887  $45,395  $926,850  $(700) $926,150 
Share-based compensation  0   7   4,228   0   0   4,235   0   4,235 
Repurchase and retirement of common stock  0   (375)  (5,618)  0   0   (5,993)  0   (5,993)
Comprehensive income (loss)  0   0   0   43,599   11,554   55,153   (10)  55,143 
Balance, June 30, 2020 $0  $23,438  $52,372  $847,486  $56,949  $980,245  $(710) $979,535 

SeeThe accompanying notes toare an integral part of these unaudited condensed consolidated interim financial statements.

6
Table of Contents
Triple-S Management Corporation
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)

  
Six months ended
June 30,
 
  2020  2019 
Cash flows from operating activities:      
Net income $17,437  $65,709 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  7,744   7,045 
Net amortization of investments  1,270   847 
Additions to the allowance for doubtful receivables  5,658   246 
Deferred tax (benefit) expense  (4,976)  16,592 
Net realized investment losses (gains) on sale of securities  687   (3,679)
Net unrealized losses (gains) on equity investments  28,468   (22,992)
Interest credited to policyholder deposits  3,160   2,811 
Share-based compensation  6,594   5,907 
Loss on disposition of property and equipment  154   - 
Decrease (increase) in assets:        
Premium and other receivables, net  22,359   18,674 
Deferred policy acquisition costs and value of business acquired  (5,588)  (12,475)
Deferred taxes  (91)  69 
Other assets  (35,348)  (4,767)
Increase (decrease) in liabilities:        
Claim liabilities  15,956   (71,362)
Liability for future policy benefits  10,188 �� 13,164 
Unearned premiums  (3,845)  (521)
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs  11,403   4,239 
Accounts payable and accrued liabilities  89,052   6,798 
Net cash provided by operating activities  170,282   26,305 

(Continued)
7
Table of Contents

Triple-S Management Corporation
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
(Dollar amountsdollar in thousands)
  
Six months ended
June 30,
 
  2020  2019 
       
Cash flows from investing activities:      
Proceeds from investments sold or matured:      
Securities available for sale:      
Fixed maturities sold $66,316  $315,495 
Fixed maturities matured/called  18,752   14,420 
Securities held to maturity:        
Fixed maturities matured/called  339   1,178 
Equity investments sold  72,775   70,054 
Other invested assets sold  11,814   2,096 
Acquisition of investments:        
Securities available for sale:        
Fixed maturities  (91,930)  (291,533)
Securities held to maturity:        
Fixed maturities  (340)  (539)
Equity investments  (160,104)  (67,560)
Other invested assets  (20,799)  (15,424)
Increase in other investments  (2,400)  (2,692)
Net change in policy loans  (97)  (771)
Net capital expenditures  (45,927)  (10,659)
Capital contribution on equity method investees  (4,933)  - 
Net cash (used in) provided by investing activities  (156,534)  14,065 
Cash flows from financing activities:        
Change in outstanding checks in excess of bank balances  34,024   13,189 
Repayments of short-term borrowings  (39,000)  - 
Proceeds from long-term borrowings  30,841   - 
Repayments of long-term borrowings  (1,618)  (1,613)
Repurchase and retirement of common stock  (14,982)  (1)
Proceeds from policyholder deposits  16,421   8,204 
Surrenders of policyholder deposits  (8,200)  (11,421)
Net cash provided by financing activities  17,486   8,358 
Net increase in cash and cash equivalents  31,234   48,728 
Cash and cash equivalents:        
Beginning of period  109,837   117,544 
End of period $141,071  $166,272 

  
Six months ended
June 30,
 
  2021  2020 
Cash flows from operating activities:      
Net income $46,861  $17,437 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  7,113   7,744 
Net amortization of investments  1,550   1,270 
Provision for doubtful receivables  1,476   5,658 
Deferred tax expense (benefit)  13,100   (4,976)
Net realized investment (gains) losses on sale of securities  (2,731)  687 
Net unrealized (gains) losses on equity investments  (21,295)  28,468 
Interest credited to policyholder deposits  3,259   3,160 
Share-based compensation  3,933   6,594 
Loss on disposition of property and equipment  0   154 
(Increase) decrease in assets:        
Premium and other receivables, net  2,233   22,359 
Deferred policy acquisition costs and value of business acquired  (2,677)  (5,588)
Deferred taxes  42   (91)
Other assets  (14,705)  (35,348)
Increase (decrease) in liabilities:        
Claim liabilities  22,446   15,956 
Liability for future policy benefits  15,953   10,188 
Unearned premiums  (260)  (3,845)
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs  556   11,403 
Accounts payable and accrued liabilities  (1,897)  89,052 
Net cash provided by operating activities  74,957   170,282 

(Continued)

7
Table of Contents
Triple-S Management Corporation
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
(dollar in thousands)

  
Six months ended
June 30,
 
  2021  2020 
       
Cash flows from investing activities:      
Proceeds from investments sold or matured:      
Securities available-for-sale:      
Fixed-maturities sold $113,336  $66,316 
Fixed-maturities matured/called  14,554   18,752 
Securities held-to-maturity:        
Fixed-maturities matured/called  0   339 
Equity investments sold  76,348   72,775 
Other invested assets sold  14,855   11,814 
Other invested assets matured  210   0 
Acquisition of investments:        
Securities available for sale:        
Fixed-maturities  (102,356)  (91,930)
Securities held to maturity:        
Fixed-maturities  0   (340)
Equity investments  (172,177)  (160,104)
Other invested assets  (8,407)  (20,799)
Increase in other investments  (706)  (2,400)
Net change in policy loans  37   (97)
Net capital expenditures  (11,200)  (45,927)
Capital contribution on equity method investees  0   (4,933)
Net cash used in investing activities  (75,506)  (156,534)
Cash flows from financing activities:        
Change in outstanding checks in excess of bank balances  47,264   34,024 
Proceeds from (repayments of) short-term borrowings  15,000   (39,000)
Proceeds from long-term borrowings  0   30,841 
Repayments of long-term borrowings  (2,246)  (1,618)
Repurchase and retirement of common stock  0   (14,982)
Proceeds from policyholder deposits  9,516   16,421 
Surrenders of policyholder deposits  (5,584)  (8,200)
Net cash provided by financing activities  63,950   17,486 
Net increase in cash and cash equivalents  63,401   31,234 
Cash and cash equivalents:        
Beginning of period  110,989   109,837 
End of period $174,390  $141,071 

See accompanying notes to unaudited condensed consolidated interim financial statements.


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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


(1)1.Basis of Presentation


The accompanying condensed consolidated interim financial statements prepared by Triple-S Management Corporation (Triple-S, TSM, the Company, the Corporation, we, us or our) and its subsidiaries are unaudited.  In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries. The condensed consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) for complete financial statement presentation pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Accordingly, these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

2020.

In the opinion of management, all adjustments, consisting of a normal recurring nature necessary for a fair presentation of such condensed consolidated interim financial statements, have been included.  The results of operations for the three months and six months ended June 30, 20202021 are not necessarily indicative of the results for the full year ending December 31, 2020.2021.

(2)2.Significant Accounting Policies

InvestmentsRecently Adopted Accounting Standards
 

Fixed maturities

On August 28, 2018, the Financial Accounting Standards Board (FASB) issued guidance for Compensation – Retirement Benefits – Defined Benefit Plans – General which addresses changes to the disclosure requirement for defined benefit plans. The amendments in this guidance modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.  Specifically, the guidance removes certain disclosure requirements, including 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, and adds other disclosures including the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and an explanation for the reasons for significant gains and losses related to changes in the benefit obligation for the period.   The Company adopted the standard effective January 1, 2021.  The adoption of this guidance did not have a material impact on the presentation and disclosures of the Company’s consolidated financial statements.
 

InvestmentOn December 18, 2019, the FASB issued Accounting Standard Update (ASU) 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in debt securities at June 30, 2020this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. Also, the amendments simplify the accounting for income taxes by requiring the following: (1) that an entity recognize a franchise tax that is partially based on income in accordance with Topic 740 and December 31, 2019 consists mainlyaccount for any incremental amount incurred as a non-income-based tax; (2) that an entity evaluate when a step-up in the tax basis of obligationsGoodwill should be considered part 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.  The Company classifies its debt securities in one of two categories: available-for-sale or held-to-maturity.  Securities classified as held-to-maturity are those securitiesthe business combination in which the Company has the abilitybook goodwill was originally recognized and intent to hold until maturity.  All other securities not included in held-to-maturity are classified as available-for-sale.


Available-for-sale securities are recorded at fair value.  The fair values of debt securities (both available-for-sale and held-to-maturity investments) are based on quoted market prices for those or similar investments at the 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 aswhen it should instead be considered a separate componenttransaction; and (3) that an entity reflect the effect of other comprehensive income until realized.  Realized gains and losses from the sale of available-for-sale securities are includedan enacted change in earnings and are determined on a specific identification basis.


Transfers of securities between categories are recorded at fair value at the date of transfer.  Unrealized holding gainstax laws 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 includedrates in the separate componentannual effective tax rate computation in the interim period that included the enactment date. The Company adopted the standard effective January 1, 2021. The adoption 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 inthis guidance did not have a manner consistent with the amortization or accretion of premium or discountmaterial impact on the associated security.


If a fixed maturity security is in an unrealized loss position and the Company does not have the intent to sell the fixed maturity security, or it is more likely than not that the Company will not have to sell the fixed maturity security before recoveryresults of its amortized cost basis, the credit component of the impairment, if any, is recorded as an allowance for credit losses with an offsetting entry in the Company’s consolidated statementsfinancial statements.
On January 16, 2020, the FASB issued guidance to clarify the interaction between the accounting standards on recognition and measurement of earningsfinancial instruments in Topic 321: Investments – Equity Securities, the one on equity method investments in Topic 323: Investments – Equity Method and Joint Ventures, and forward contracts and purchased options in Topic 815: Derivatives and Hedging. The amendments clarify that upon an increase or decrease in level of ownership or degree of influence, a company should remeasure the non-credit componentinterest held in the investee to take into account observable transactions immediately before applying or discontinuing the equity method of accounting under Topic 323. The guidance also clarifies that an entity should not consider whether, upon the settlement of the impairment is recognizedforward contract or exercise of the purchase option, individually or with existing investments, the underlying securities would be accounted for under the equity method in other comprehensive income.  Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for whichTopic 323 or the fair value option. The Company expects to fully recoveradopted the amortized cost basis continue to be recognized in accumulated other comprehensive income.standard effective January 1, 2021. The adoption of this guidance did not have a material impact on the results of the Company’s consolidated financial statements.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


Future Adoptions of Accounting Standards
If a fixed maturity security is in an unrealized loss position and
On January 7, 2021, the Company hasFASB issued ASU 2021-01: Reference Rate Reform (Topic 848): Scope Refinement – to clarify 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 Company will write off any previously recognized allowance for credit losses and will decrease the amortized cost basisscope of the security. Ifrecent reference reform guidance in Topic 848. This ASU refines the allowance has been fully written offscope of Topic 848 and clarifies that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the fair value is less than its amortized cost basis,discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The ASU also amends the amortized cost basis is written downexpedients and an impairment loss is recognizedexceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in the Company’s consolidated statementsASU are effective immediately for all entities. The Company is currently in the process of earnings. Asidentifying its LIBOR-based contracts that will be affected by the phase-out of LIBOR and expects to use the optional expedients provided in this ASU.
Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three and six months ended June 30, 2020, no allowance for credit losses was recorded in the condensed consolidated interim financial statements.


The credit component of the 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 discounting2021 that could have a material impact on 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. If there is an increase in the projected future cash flows of the fixed maturity security in subsequent periods, allfinancial position, operating results or part of the allowance for credit losses may be reversed.financials statement disclosures.


When evaluating whether it has the ability and intent to hold the investment until a market price recovery, the Company 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 of the impairment, market conditions, changes in the security’s rating, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.


Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method.  Dividend and interest income are recognized when earned.


The Company regularly invests in mortgaged-backed securities and other securities subject to prepayment and call risk.  Significant changes in prevailing interest rates may adversely affect the timing and amount of cash flows on such securities.  In addition, the amortization of market premium and accretion of market discount for mortgaged-backed securities is based on historical experience and estimates of future payment speeds on the underlying mortgage loans.  Actual prepayment speeds may differ from original estimates and may result in material adjustments to amortization or accretion recorded in future periods.


Equity investments


Investment in equity securities at June 30, 2020 and December 31, 2019 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 mainly based on quoted market prices for those or similar investments at the reporting date.  For a specific equity investment, the fair value is estimated using the net asset value (NAV) of the Company’s ownership interest in the partnership.  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.


Other invested assets


Other invested assets at June 30, 2020 and December 31, 2019 consist mainly of alternative investments in partnerships that invest in several private debt and private equity funds.  Portfolios are diversified by vintage year, stage, geography, business sectors and number of investments. These investments are not redeemable with the funds. Distributions from each fund are received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the funds will be liquidated in the next 5 to 12 years. The fair value 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 June 30, 2020 amounted to $58,071.  The remaining average commitments period is approximately three years. 
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

Health Insurance Providers Fee
3.Investment in Securities

The Patient Protectionamortized cost for debt securities and Affordable Care Act (ACA)alternative investments, gross unrealized gains and losses, and estimated fair value for the Company’s investments in securities by major security type and class of security as amended by the Health Care and Education Reconciliation Act mandates an annual Health Insurance Providers Fee (HIP Fee).  The annual HIP Fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk each applicable calendar year. The initial estimated annual fee is accrued as of January 1, with a corresponding deferred cost that is amortized over 12 months on a straight-line basis. The fee payment is due on September 30 of each year.  The deferred cost is included within the other asset line item and the accrued fee is included within the accounts payable and accrued liabilities line item in the accompanying condensed consolidated balance sheets. The fee is presented within operating expenses in the accompanying condensed consolidated statements of earnings. The HIP Fee was waived for all health insurance providers during the year ended December 31, 2019. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Further Consolidated Appropriations Act of 2020, signed into law on December 20, 2019, repealed the HIP Fee effective calendar years beginning after December 31, 2020. As of June 30, 2020, the HIP Fee deferred cost amounted to $24,2242021 and the accrued HIP Fee amounted to $55,470. As of December 31, 2019, 0 balance was deferred or accrued for the HIP Fee. 2020, were as follows:

  June 30, 2021 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
 Fixed-maturities available-for-sale            
Obligations of government-sponsored enterprises $21,320  $417  $(38) $21,699 
U.S. Treasury securities and obligations of U.S. government instrumentalities  103,958   6,038   0   109,996 
Municipal securities  615,133   44,147   (618)  658,662 
Corporate bonds  177,610   25,427   (55)  202,982 
Residential mortgage-backed securities  275,611   14,224   (817)  289,018 
Collateralized mortgage obligations  5,829   505   0   6,334 
Total fixed-maturities available-for-sale $1,199,461  $90,758  $(1,528) $1,288,691 
Recently Adopted Accounting Standards
 December 31, 2020 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Fixed-maturities available-for-sale            
Obligations of government-sponsored enterprises $24,496  $665  $(9) $25,152 
U.S. Treasury securities and obligations of U.S. government instrumentalities  103,694   7,993   0   111,687 
Municipal securities  646,961   54,067   0   701,028 
Corporate bonds  189,516   30,280   0   219,796 
Residential mortgage-backed securities  249,801   21,487   (57)  271,231 
Collateralized mortgage obligations  12,954   638   (21)  13,571 
Total fixed-maturities available-for-sale $1,227,422  $115,130  $(87) $1,342,465 

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  In addition, on April 25, 2019, the FASB issued Accounting Standard Update (ASU) 2019-04: Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this update represent changes to clarify, correct errors in or improve the codification. Such amendments should make the codification easier to 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 ASU 2016-13 (Topic 326). For public companies, the improvements related to ASU 2016-13 (Topic 326) and ASU 2016-01 (Topic 825) are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard effective January 1, 2020 and recognized $166, net of deferred tax asset, as a cumulative effect adjustment to the opening balance of retained earnings on the adoption date. In addition, the Company implemented control processes and procedures, as necessary, based on changes resulting from the new standard.


On January 26, 2017, the FASB issued guidance to simplify the manner in which an entity is required to evaluate goodwill for impairment by eliminating Step 2 from the goodwill impairment test.  Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  Instead, under the amendments in this guidance, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, this guidance removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test.  For public companies, these amendments, which should be applied on a prospective basis, are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard effective January 1, 2020. Upon adoption of this standard, if the carrying amount of any of the reporting units exceeds its fair value, the Company will be required to record an impairment charge for the difference up to the amount of the goodwill.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

 June 30, 2021 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
Fixed-maturities held-to-maturity            
U.S. Treasury securities and obligations of U.S. government instrumentalities $613  $164  $0  $777 
Residential mortgage-backed securities  164   9   0   173 
Certificates of deposit  1,089   0   0   1,089 
Total fixed-maturities held-to-maturity $1,866  $173  $0  $2,039 

  December 31, 2020 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
Fixed-maturities held-to-maturity            
U.S. Treasury securities and obligations of U.S. government instrumentalities $614  $201  $0  $815 
Residential mortgage-backed securities  164   17   0   181 
Certificates of deposit  1,089   0   0   1,089 
Total fixed-maturities held-to-maturity $1,867  $218  $0  $2,085 
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 Level 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 certain other disclosures are modified and added (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, including interim periods within those fiscal years.  The Company adopted the standard effective January 1, 2020. The adoption of this guidance did not have a material impact on the presentation and disclosures of the Company’s condensed consolidated interim financial statements.
 June 30, 2021 
 
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Other invested assets - Alternative investments $107,658  $14,066  $(3,957) $117,767 

 December 31, 2020 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Other invested assets - Alternative investments $112,171  $6,119  $(3,385) $114,905 


On August 29, 2018, the FASB issued guidance for Intangibles – Goodwill and Other – Internal-Use Software. Guidance addresses customers’ 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 the 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.  For public companies, these amendments will be applied on a prospective basis, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company adopted the standard effective January 1, 2020. The adoption of this guidance did not have a material impact on the results of the Company’s condensed consolidated interim financial statements.
Future Adoption of Accounting Standards

On March 12, 2020, the FASB issued ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU was issued to provide optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments, which are elective and apply to all entities, provide expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the contracts that are affected by the reference reform rate to determine the impact if we elect any of the expedients provided by this ASU.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


Other than the accounting pronouncements disclosed above, there were no other new accounting pronouncements issued during the three months and six months ended June 30, 2020 that could have a material impact on the Company’s financial position, operating results or financials statement disclosures.

(3)Investment in Securities


The amortized cost for debt securities and cost for 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 June 30, 2020 and December 31, 2019, were as follows:

  June 30, 2020 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
 Fixed maturities available for sale            
Obligations of government- sponsored enterprises $17,198  $834  $-  $18,032 
U.S. Treasury securities and obligations of U.S. government instrumentalities  102,649   9,318   -   111,967 
Municipal securities  592,541   51,941   -   644,482 
Corporate bonds  195,227   31,534   -   226,761 
Residential mortgage-backed securities  267,075   15,965   (263)  282,777 
Collateralized mortgage obligations  7,983   749   -   8,732 
Total fixed maturities available for sale $1,182,673  $110,341  $(263) $1,292,751 

 December 31, 2019 
  
Amortized
cost
  
Gross
Unrealized
gains
  
Gross
Unrealized
losses
  
Estimated
fair value
 
             
 Fixed maturities available for sale            
Obligations of government- sponsored enterprises $17,209  $477  $-  $17,686 
U.S. Treasury securities and obligations of U.S. government instrumentalities  102,230   4,779   -   107,009 
Municipal securities  595,051   34,735   (22)  629,764 
Corporate bonds  187,096   21,721   (74)  208,743 
Residential mortgage-backed securities  262,783   8,073   (320)  270,536 
Collateralized mortgage obligations  8,674   471   -   9,145 
Total fixed maturities available for sale $1,173,043  $70,256  $(416) $1,242,883 
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

  June 30, 2020 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Fixed maturities held to maturity            
U.S. Treasury securities and obligations of U.S. government instrumentalities $615  $223  $-  $838 
Residential mortgage-backed securities  165   6   -   171 
Certificates of deposit  1,080   -   -   1,080 
Total $1,860  $229  $-  $2,089 

 
 December 31, 2019 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
Fixed maturities held to maturity            
U.S. Treasury securities and obligations of U.S. government instrumentalities $615  $158  $-  $773 
Residential mortgage-backed securities  165   1   -   166 
Certificates of deposit  1,080   -   -   1,080 
Total $1,860  $159  $-  $2,019 

 June 30, 2020 
 
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Other invested assets - Alternative investments $106,790  $2,082  $(3,347) $105,525 

 December 31, 2019 
  
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
             
Other invested assets - Alternative investments $97,575  $3,721  $(788) $100,508 

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim 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 June 30, 20202021 and December 31, 20192020 were as follows:

 June 30, 2020  June 30, 2021 
 Less than 12 months  12 months or longer  Total  Less than 12 months  12 months or longer  Total 
 
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
  
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
  
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
  
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
  
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
  
Estimated
Fair Value
  
Gross
Unrealized
Loss
  
Number of
Securities
 
                                                      
Fixed maturities available for sale                           
Fixed-maturities available-for-sale                           
Obligations of government-sponsored enterprises $4,094  $(38)  4  $0  $0   0  $4,094  $(38)  4 
Municipal securities  63,123   (618)  15   0   0   0   63,123   (618)  15 
Corporate bonds  3,945   (55)  1   0   0   0   3,945   (55)  1 
Residential mortgage-backed securities $9,137  $(263)  3  $-  $-   -  $9,137  $(263)  3   58,807   (817)  19   0   0   0   58,807   (817)  19 
Total fixed maturities $9,137  $(263)  3  $-  $-   -  $9,137  $(263)  3 
Total fixed-maturities available-for-sale $129,969  $(1,528)  39  $0  $0   0  $129,969  $(1,528)  39 
Other invested assets - Alternative investments $56,414  $(3,129)  14  $5,953  $(218)  2  $62,367  $(3,347)  16  $6,771  $(388)  4  $18,284  $(3,569)  7  $25,055  $(3,957)  11 

 December 31, 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                           
Municipal securities $10,656  $(22)  3  $-  $-   -  $10,656  $(22)  3 
Corporate bonds  5,047   (74)  1   -   -   -   5,047   (74)  1 
Residential mortgage-backed securities  79,902   (320)  16   -   -   -   79,902   (320)  16 
Total fixed maturities $95,605  $(416)  20  $-  $-   -  $95,605  $(416)  20 
Other invested assets - Alternative investments $24,437  $(605)  8  $10,580  $(183)  1  $35,017  $(788)  9 

 December 31, 2020 
  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 $1,539  $(9)  1  $0  $0   0  $1,539  $(9)  1 
Residential mortgage-backed securities  3,624   (57)  1   0   0   0   3,624   (57)  1 
Collateralized mortgage obligations  6,060   (21)  2   0   0   0   6,060   (21)  2 
Total fixed-maturities available-for-sale $11,223  $(87)  4  $0  $0   0  $11,223  $(87)  4 
Other invested assets - Alternative investments $12,584  $(808)  4  $16,396  $(2,577)  6  $28,980  $(3,385)  10 

The Company reviews the available for saleavailable-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 impairments and allowances for credit losses may be recorded in future periods.  The CorporationCompany from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

 
Obligations of government-sponsored enterprises and Municipal securities:  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, they have investment-grade ratings. The Company does not consider these investments to be credit-impaired because of several factors: 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 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 at maturity; and because the Company expects to collect all contractual cash flows.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

Corporate bonds:  The unrealized losses of these bonds were mainly caused by fluctuations in interest rates and general market conditions.  All corporate bonds with an unrealized loss have investment grade ratings.  The Company does not consider these investments to be credit-impaired because of several factors: 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 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 at maturity; and because the Company expects to collect all contractual cash flows.

Residential mortgage-backed securities:securities: The unrealized losses on these investments were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities 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 to be credit impairedcredit-impaired because of several factors: the decline in fair value is attributable to changes in interest rates;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 at maturity; and because the Company expects to collect all contractual cash flows.


Alternative investments:Investments:  As of June 30, 2020,2021, alternative investments with unrealized losses arewere not considered credit impairedcredit-impaired based on market conditions.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)


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

 June 30, 2020 
  
Amortized
cost
  
Estimated
fair value
 
Fixed maturities available for sale      
Due in one year or less $27,639  $28,173 
Due after one year through five years  498,068   535,717 
Due after five years through ten years  205,045   225,692 
Due after ten years  176,863   211,660 
Residential mortgage-backed securities  267,075   282,777 
Collateralized mortgage obligations  7,983   8,732 
  $1,182,673  $1,292,751 
Fixed maturities held to maturity        
Due in one year or less $1,080  $1,080 
Due after ten years  615   838 
Residential mortgage-backed securities  165   171 
  $1,860  $2,089 

 June 30, 2021 
  
Amortized
cost
  
Estimated
fair value
 
Fixed-maturities available-for-sale      
Due in one year or less $52,773  $53,720 
Due after one year through five years  566,110   602,331 
Due after five years through ten years  171,147   180,602 
Due after ten years  127,991   156,686 
Residential mortgage-backed securities  275,611   289,018 
Collateralized mortgage obligations  5,829   6,334 
  $1,199,461  $1,288,691 
Fixed-maturities held-to-maturity        
Due in one year or less $1,089  $1,089 
Due after five years through ten years  613   777 
Residential mortgage-backed securities  164   173 
  $1,866  $2,039 

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.


Investments with an amortized cost of $239,285$220,696 and $145,981 and a fair$227,890 (fair value of $258,342$236,233 and $152,916$250,088) at June 30, 20202021 and December 31, 2019,2020, respectively were pledged with the Federal Home Loan Bank of New York (FHLBNY) to secure short-term borrowings.

14
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

4.Realized and Unrealized Gains (Losses)

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

 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2021  2020  2021  2020 
Realized gains (losses)            
Fixed-maturity securities            
Fixed-maturities available-for-sale:            
Gross gains $80  $777  $90  $1,551 
Gross losses  (621)  0   (966)  (6)
Total fixed-maturity securities  (541)  777   (876)  1,545 
Equity investments                
Gross gains  1,383   60   1,883   990 
Gross losses  (16)  (1,158)  (419)  (2,770)
Gross losses from impaired securities  0   0   0   (678)
Total equity investments  1,367   (1,098)  1,464   (2,458)
Other invested assets                
Gross gains  1,688   100   2,143   226 
Total other invested assets  1,688   100   2,143   226 
Net realized gains (losses) on securities $2,514  $(221) $2,731  $(687)

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

The gross losses from impaired securities during the six months ended June 30, 2020 are related to an equity method investment held by the Company.
 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2021  2020  2021  2020 
Changes in net unrealized (losses) gains:            
Recognized in accumulated other comprehensive income (loss):            
Fixed-maturities available-for-sale $(3,087) $20,482  $(25,813) $40,238 
Other invested assets  6,404   (4,766)  7,375   (4,198)
  $3,317  $15,716  $(18,438) $36,040 
Not recognized in the consolidated financial statements:                
Fixed-maturities held-to-maturity $7  $(2) $(45) $70 

The change in deferred tax asset (liability) on unrealized gains (losses) recognized in Accumulated Other Comprehensive Income during the six months ended June 30, 2021 and 2020 was $3,290 and ($7,205), respectively.

As of June 30, 2021 and December 31, 2020, 0 individual investment in securities exceeded 10% of stockholders’ equity.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

(4)Realized and Unrealized Gains (Losses)


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

 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2020  2019  2020  2019 
Realized gains (losses)            
Fixed maturity securities:            
Securities available for sale:            
Gross gains $777  $1,775  $1,551  $2,647 
Gross losses  -   (1)  (6)  (319)
Total fixed securities  777   1,774   1,545   2,328 
Equity investments:                
Gross gains  60   829   990   2,131 
Gross losses  (1,158)  (408)  (2,770)  (1,045)
Gross losses from impaired securities  -   -   (678)  - 
Total equity investments  (1,098)  421   (2,458)  1,086 
Other invested assets:                
Gross gains  100   189   226   321 
Gross losses  -   (20)  -   (56)
Total other invested assets  100   169   226   265 
Net realized investment (losses) gains $(221) $2,364  $(687) $3,679 


The gross losses from impaired securities during the six months ended June 30, 2020 is related to an equity method investment held by the Company.
 
Three months ended
June 30,
  
Six months ended
June 30,
 
  2020  2019  2020  2019 
Changes in net unrealized gains (losses):            
Recognized in accumulated other comprehensive income (loss):            
Fixed maturities – available for sale $20,482  $19,461  $40,238  $36,551 
Other invested assets  (4,766)  99   (4,198)  672 
  $15,716  $19,560  $36,040  $37,223 
Not recognized in the consolidated financial statements:                
Fixed maturities – held to maturity $(2) $21  $70  $36 


The change in deferred tax liability on unrealized gains recognized in accumulated other comprehensive income during the six months ended June 30, 2020 and 2019 was $7,205 and $7,446, respectively.


As of June 30, 2020, and December 31, 2019, 0 individual investment in securities exceeded 10% of stockholders’ equity.


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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)

(5)5.Premiums and Other Receivables, Net


Premiums and other receivables, netOther Receivables, Net were as follows:

  
June 30,
2020
  
December 31,
2019
 
Premium $145,775  $188,861 
Self-funded group receivables  23,946   28,672 
FEHBP  13,053   13,894 
Agent balances  36,344   30,784 
Accrued interest  10,595   11,307 
Reinsurance recoverable  235,291   239,767 
Other  135,938   110,952 
   600,942   624,237 
Less allowance for doubtful receivables:        
Premium  41,406   36,622 
Other  12,327   19,923 
   53,733   56,545 
Total premium and other receivables, net $547,209  $567,692 

  
June 30,
2021
  
December 31,
2020
 
Premium $157,606  $106,322 
Self-funded group receivables  26,395   26,412 
FEHBP  13,120   12,830 
Agent balances  34,996   31,509 
Accrued interest  10,171   10,418 
Reinsurance recoverable  165,236   216,314 
Other  128,917   135,774 
   536,441   539,579 
Less allowance for doubtful receivables:        
Premium  37,293   37,231 
Other  14,531   13,508 
   51,824   50,739 
Total premium and other receivables, net $484,617  $488,840 

As of June 30, 2020,2021 and December 31, 2019,2020, the Company had premiums and other receivables of $70,004$79,211 and $49,176,$53,397, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of June 30, 20202021 and December 31, 20192020 were $25,631$24,563 and $22,091,$23,752, respectively.
(6)Property and Equipment, Net


Reinsurance recoverable as of June 30, 2021 and December 31, 2020 includes $124,877 and $172,021, respectively, related to catastrophe losses covered by the Property and equipment, net are composed of the following:
  June 30,  December 31, 
  2020  2019 
       
Land $10,976  $10,976 
Buildings and leasehold improvements ��129,070   92,752 
Office furniture and equipment  31,420   27,878 
Computer equipment and software  132,405   133,922 
Automobiles  700   761 
   304,571   266,289 
Less accumulated depreciation and amortization  177,886   177,701 
Property and equipment, net $126,685  $88,588 


On June 19, 2020, the Company acquired a 9-story office building (the Building), located at 1451 F.D. Roosevelt Avenue, in San Juan, Puerto Rico, as well as the adjoining multi-level parking structure and a parking lot. See Note 9 for further information on the credit agreement obtained to partially finance the acquisition of the Building.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
Casualty segment’s reinsurance program.

(7)6.Fair Value Measurements


Our condensed consolidated balance sheetsConsolidated Balance Sheets include the following financial instruments: securities available for sale,fixed-maturities available-for-sale, equity investments, policy loans, policyholder deposits, short-term borrowings and long-term borrowings.  We consider the carrying amounts of policy loans, policyholder deposits, short-term borrowings and long-term borrowings to approximate their fair value and are considered Level 2 financial instruments.  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 20192020 Annual Report on Form 10-K.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

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

 June 30, 2020  June 30, 2021 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
                        
Fixed maturity securities available for sale            
Fixed-maturities available-for-sale            
Obligations of government-sponsored enterprises $-  $18,032  $-  $18,032  $0  $21,699  $0  $21,699 
U.S. Treasury securities and obligations of U.S government instrumentalities  111,967   -   -   111,967 
U.S. Treasury securities and obligations of U.S. government instrumentalities  109,996   0   0   109,996 
Municipal securities  -   644,482   -   644,482   0   658,662   0   658,662 
Corporate bonds  -   226,761   -   226,761   0   202,982   0   202,982 
Residential agency mortgage-backed securities  -   282,777   -   282,777   0   289,018   0   289,018 
Collateralized mortgage obligations  -   8,732   -   8,732   0   6,334   0   6,334 
Total fixed maturities $111,967  $1,180,784  $-  $1,292,751 
Total fixed-maturities available-for-sale $109,996  $1,178,695  $0  $1,288,691 
Equity investments $185,308  $154,059  $5,237  $344,604  $275,539  $242,692  $5,199  $523,430 

  December 31, 2019 
  Level 1  Level 2  Level 3  Total 
             
Fixed maturity securities            
Obligations of government-sponsored enterprises $-  $17,686  $-  $17,686 
U.S. Treasury securities and obligations of U.S government instrumentalities  107,009   -   -   107,009 
Municipal securities  -   629,764   -   629,764 
Corporate bonds  -   208,743   -   208,743 
Residential agency mortgage-backed securities  -   270,536   -   270,536 
Collateralized mortgage obligations  -   9,145   -   9,145 
Total fixed maturities $107,009  $1,135,874  $-  $1,242,883 
Equity investments $177,136  $105,180  $5,209  $287,525 


There were 0 transfers between Levels 1 and 2 during the three and six months ended June 30, 2020 and the year ended December 31, 2019.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)


A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and six months ended June 30 is as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)      
  
Three months ended
  
Six months ended
 
  June 30, 2020  June 30, 2020 
Beginning Balance $5,239  $5,209 
Unrealized in other accumulated comprehensive income  (2)  28 
Ending Balance $5,237  $5,237 

  December 31, 2020 
  Level 1  Level 2  Level 3  Total 
             
Fixed-maturities available-for-sale            
Obligations of government-sponsored enterprises $0  $25,152  $0  $25,152 
U.S. Treasury securities and obligations of U.S. government instrumentalities  111,687   0   0   111,687 
Municipal securities  0   701,028   0   701,028 
Corporate bonds  0   219,796   0   219,796 
Residential agency mortgage-backed securities  0   271,231   0   271,231 
Collateralized mortgage obligations  0   13,571   0   13,571 
Total fixed-maturities available-for-sale $111,687  $1,230,778  $0  $1,342,465 
Equity investments $220,118  $179,108  $5,102  $404,328 

The fair value of investment securities is estimated based on quoted market prices for those or similar investments.  Additional information pertinent to the estimated fair value of investment in securities is included in Note 3.

(8)Claim Liabilities

There were 0 transfers between Levels 1 and 2 during the three and six months ended June 30, 2021 and the year ended December 31, 2020.

A reconciliation of the beginning and ending balances of claim liabilitiesassets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30 is as follows:
  
Six months ended
June 30, 2020
 
  
Managed
Care
  
Other
Business
Segments *
  Consolidated 
          
          
Claim liabilities at beginning of period $341,277  $367,981  $709,258 
Reinsurance recoverable on claim liabilities  -   (137,017)  (137,017)
Net claim liabilities at beginning of period  341,277   230,964   572,241 
Claims incurred            
Current period insured events  1,308,194   58,559   1,366,753 
Prior period insured events  (3,392)  (9,821)  (13,213)
Total  1,304,802   48,738   1,353,540 
Payments of losses and loss-adjustment expenses            
Current period insured events  1,039,871   23,660   1,063,531 
Prior period insured events  257,073   27,952   285,025 
Total  1,296,944   51,612   1,348,556 
Net claim liabilities at end of period  349,135   228,090   577,225 
Reinsurance recoverable on claim liabilities  -   147,989   147,989 
Claim liabilities at end of period $349,135  $376,079  $725,214 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

  
Three months ended
  Six months ended 
  June 30, 2021  June 30, 2021 
Beginning Balance $5,142  $5,102 
Unrealized gain in other accumulated comprehensive income  57   97 
Balance as of June 30, $5,199  $5,199 
*Other Business Segments include the Life Insurance and Property and Casualty segments, as well as intersegment eliminations.

2018
Table of Contents

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)(Unaudited)

7.Claim Liabilities

The tables below present a reconciliation of the beginning and ending balances of Claim Liabilities during the six months ended June 30:

  
Six months ended
June 30, 2021
 
  
Managed
Care
  
Other
Business
Segments *
  Consolidated 
          
Claim liabilities at beginning of period $445,655  $341,447  $787,102 
Reinsurance recoverable on claim liabilities  0   (138,816)  (138,816)
Net claim liabilities at beginning of period  445,655   202,631   648,286 
Claims incurred            
Current period insured events  1,647,480   59,924   1,707,404 
Prior period insured events  (32,204)  (1,991)  (34,195)
Total  1,615,276   57,933   1,673,209 
Payments of losses and loss-adjustment expenses            
Current period insured events  1,294,829   24,750   1,319,579 
Prior period insured events  221,548   49,554   271,102 
Total  1,516,377   74,304   1,590,681 
Net claim liabilities at end of period  544,554   186,260   730,814 
Reinsurance recoverable on claim liabilities  0   78,734   78,734 
Claim liabilities at end of period $544,554  $264,994  $809,548 

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

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)

 
Six months ended
June 30, 2019
  
Six months ended
June 30, 2020
 
 
Managed
Care
  
Other
Business
Segments *
  Consolidated  
Managed
Care
  
Other
Business
Segments *
  Consolidated 
                  
                  
Claim liabilities at beginning of period $394,226  $542,563  $936,789  $341,277  $367,981  $709,258 
Reinsurance recoverable on claim liabilities  -   (315,543)  (315,543)  0   (137,017)  (137,017)
Net claim liabilities at beginning of period  394,226   227,020   621,246   341,277   230,964   572,241 
Claims incurred                        
Current period insured events  1,288,235   57,020   1,345,255   1,308,194   58,559   1,366,753 
Prior period insured events  (27,588)  (6,167)  (33,755)  (3,392)  (9,821)  (13,213)
Total  1,260,647   50,853   1,311,500   1,304,802   48,738   1,353,540 
Payments of losses and loss-adjustment expenses                        
Current period insured events  954,147   23,429   977,576   1,039,871   23,660   1,063,531 
Prior period insured events  277,624   26,581   304,205   257,073   27,952   285,025 
Total  1,231,771   50,010   1,281,781   1,296,944   51,612   1,348,556 
Net claim liabilities at end of period  423,102   227,863   650,965   349,135   228,090   577,225 
Reinsurance recoverable on claim liabilities  -   214,462   214,462   0   147,989   147,989 
Claim liabilities at end of period $423,102  $442,325  $865,427  $349,135  $376,079  $725,214 

*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 favorable developments in the claims incurred and loss-adjustment expenses for prior periodprior-period insured events for the six months ended June 30, 2021 and 2020 and 2019 arewere primarily due primarily to better than expected utilization trends.  Reinsurance recoverable on unpaid claims is reported as premiumsPremium and other receivables, netOther Receivables, Net in the accompanying condensed consolidated interim financial statements.


The claims incurred disclosed in thisthe table above exclude the portion of the change in the liability for future policy benefits expense, which amountedamounting to $4,746 $10,767 and $14,069$21,413 during the three months and six months ended June 30, 2021, respectively, and $4,746 and $14,069 during the three months and six months ended June 30, 2020, respectively. The change inrespectively, which is included within the liability for future policy benefits during the three months and six months ended June 30, 2019 amounted to $9,297 and $17,994, respectively.consolidated Claims Incurred.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


The following is information about incurred and paid claims development, net of reinsurance, as of June 30, 2021, as well as cumulative claim frequency. Additional information presented includes total incurred but not reported (IBNR)incurred-but-not-reported liabilities plus expected development on reported claims which is included inwithin the liability for unpaidnet incurred claims adjustment expenses for the Managed Care segment as of June 30, 2020.amounts.

Incurred Year 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
  
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2019 $25,985 
2020  268,323   129,300 
2021  352,651 

(9)8.
Short-Term Borrowings

Long-Term Borrowings


A summary of the borrowings entered by the Company are as follows:

  June 30, 2020  December 31, 2019 
       
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 1.18% at June 30, 2020). $5,447  $6,267 
Secured loan payable of $20,150, payable in monthly installments of $84 through January 1, 2024, plus interest at a rate reset periodically of 275 basis points over selected LIBOR maturity (which was 4.20% at June 30, 2020).  16,707   17,211 
Secured loan payable of $4,116, payable in monthly installments of $49 through January 1, 2024, plus interest at a rate reset periodically of 325 basis points over selected LIBOR maturity (which was 4.70% at June 30, 2020).  2,107   2,401 
Secured loan payable of $31,350, payable in monthly installments of $105 through May 1, 2025, plus interest at prime rate (which was 3.25% at June 30, 2020). Last payment of $25,185 due on June 19, 2025.  31,350   - 
Total borrowings  55,611   25,879 
         
Less: unamortized debt issuance costs  671   185 
  $54,940  $25,694 

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)


Aggregate maturities of the Company’s borrowings as of June 30, 2020 are summarized as follows:

Remaining of 2020 $2,245 
2021  4,490 
2022  4,490 
2023  4,196 
2024  14,484 
Thereafter  25,706 
  $55,611 


On June 19, 2020, TSM entered into a $31,350 Credit Agreement (the Loan) with a commercial bank in Puerto Rico. The proceeds of the Loan were used by the Company to partially finance the acquisition of the Building (see Note 6).


The Loan is guaranteed by a mortgage over the Building, a pledge of all collateral related to the Building and an assignment of the rents collected for the lease of office space in the Building. Pursuant to the credit agreement, interest is payable on the outstanding principal balance of the Loan at an annual rate equal to the Prime Rate. Interest shall be paid on a monthly basis commencing on July 1, 2020 until the principal of the Loan has been paid in full.


The Company may, at its option and at any time, upon written notice as specified in the credit agreement, prepay prior to maturity, all or any part of the Loan upon the payment of a penalty fee of the outstanding principal amount at the time of the prepayment of 3% during the first year, 2% during the second year and 1% during the third year, and thereafter at par.


The four term loans under credit agreements with commercial banks in Puerto Rico include certain customary financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business. The Company was in compliance with all these covenants as of June 30, 2020.

Short-term Borrowings


The Company has several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from FHLBNY and a revolving credit facility.

In August 2019, Triple-S Salud, Inc. (TSS)TSS and Triple-S Vida, Inc. (TSV)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 most recent filing with the Commissioner of Insurance but is constrained by the amount of collateral held at the FHLBNY (see Note 3). As of June 30, 2021 and December 31, 2020, the borrowing capacity was approximately $120,074 for TSS$193,732 and $91,943 for TSV.  As of December 31, 2019, the borrowing capacity was approximately $82,200 for TSS and $48,900 for TSV.$200,338, respectively. The outstanding balance as of June 30, 2020 for TSV is $15,000 . TSS had 0 outstanding balance as of June 30, 2020. The outstanding balance as of2021 and December 31, 2019 for TSS2020 was $45,000 and TSV was $25,000 and $29,000,$30,000, respectively. The average interest rate of the outstanding balance is 0.41%balances was 0.34% and 1.79%0.33% as of June 30, 20202021 and December 31, 2019,2020, respectively.

Triple-S Advantage, Inc. (TSA) has a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 250 basis points and contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit matured on June 30, 2020
•
TSA has a $10,000 revolving loan agreement with a commercial bank in Puerto Rico. This line of credit has an interest rate of 30-day LIBOR plus 250 basis points and contains certain financial and non-financial covenants that are customary for this type of facility. This line of credit matured on June 30, 2021 and was renewed for an additional year.  There was 0 outstanding balance as of June 30, 2021.

9.Pension Plan


The components of net periodic benefit cost were as follows:
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2021  2020  2021  2020 
Components of net periodic benefit cost:            
Interest cost $1,375  $1,540  $2,750  $3,080 
Expected return on assets  (1,100)  (2,209)  (2,200)  (4,418)
Amortization of actuarial loss  975   244   1,950   488 
Settlement loss  1,000   356   2,000   712 
Net periodic benefit cost (income) $2,250  $(69) $4,500  $(138)

Employer Contributions:  The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2020 that it expected to contribute $10,000 to the pension program in 2021.  As of June 30, 2020, there is 0 outstanding balance.2021, the Company has contributed $10,000 to the pension program. 

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

(10)10.Pension Plan

The components of net periodic benefit cost were as follows:
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2020  2019  2020  2019 
Components of net periodic benefit cost:            
Interest cost $1,540  $1,741  $3,080  $3,482 
Expected return on assets  (2,209)  (2,217)  (4,418)  (4,434)
Amortization of actuarial loss  244   90   488   179 
Settlement loss  356   375   712   750 
Net periodic benefit cost $(69) $(11) $(138) $(23)


Employer Contributions:  The Company disclosed in its audited consolidated financial statements for the year ended December 31, 2019 that it expected to contribute $2,000 to the pension program in 2020.  As of June 30, 2020, the Company has 0t made contributions to the pension program. 

(11)Stock Repurchase ProgramReinsurance


The Company repurchases shares through open market transactions, in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, under repurchase programs authorized by the Board of Directors. Shares purchased under share repurchase programs are retired and returned to authorized and unissued status.


In August 2017 the Company’s Board of Directors authorized a $30,000 repurchase program (2017 $30,000 program) of its Class B common stock.  In February 2018 the Company’s Board of Directors authorized a $25,000 expansion of this program. In October 2019 the Company’s Board of Directors authorized an expansion to this repurchase program increasing its remaining balance up to a total of $25,000, effective November 2019. During the three months ended June 30, 2020, the Company repurchased and retired under this program 375,373 shares at an average per share price of $15.96, for an aggregate cost of $5,993. During the six months ended June 30, 2020, the Company repurchased and retired under this program 952,820 shares at an average per share price of $15.72, for an aggregate cost of $14,982. During the three months and six months ended June 30, 2019 0 stocks were repurchased under a repurchase program. This program was completed in May 2020.

(12)
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 $14,310$14,471 and $10,245$14,310 for the three months ended June 30, 20202021 and 2019,2020, respectively, and $30,717$29,454 and $23,674$30,717 for the six months ended June 30, 2020,2021 and 2019,2020, respectively. During(Refunded) ceded incurred losses and loss adjustment expenses during the three months and six months ended June 30, 2021 and 2020 were $(323) and $1,565, respectively, and $(267) and $39,956, respectively. The ceded incurred losses and loss adjustment expenses for the six months ended June 30, 2020, TSP ceded claims incurred amounting to $40,000 include $40,000 related to earthquake losses caused by the January 2020 earthquakes.ceded under catastrophe reinsurance.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)


Principal reinsurance agreements are as follows:
•
Casualty excess of loss treaty provides reinsurance for losses up to $20,000, 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.
Casualty excess of loss treaty provides reinsurance for losses up to $20,000, subject to a retention of $225.
 
•
Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to $400 in $30,000 risks.
Medical malpractice excess of loss treaty provides reinsurance for losses up to $3,000, subject to a retention of $150.
 
•
Catastrophe protection is purchased limiting losses to $5,000 per event with losses up to approximately $809,000 in a $814,000 event.
Property reinsurance treaty includes proportional cessions and a per risk excess of loss contract limiting losses to $400 in $30,000 risks.
 
Catastrophe protection is purchased limiting losses to $5,000 per event with losses up to approximately $811,450 in a $816,450 event.


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, 20202021 for a twelve monthstwelve-month period ending March 31, 2021.2022. Other contracts were renewed as expiringthat expired on January 1, 2020.2021 were renewed.

(13)Leases


The Company’s subsidiaries lease their regional offices, certain equipment, and warehouse facilities under non-cancelable operating leases. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms ranges from 0.5 to 14.4 years. The Company identifies leases when it has both the right to obtain substantially all economic benefits from the use of the asset and the right to direct the use of the asset.


The Company recognizes the right-of -use of assets and lease liabilities related to operating leases in its balance sheet statement under the caption of other assets and accounts payables and accrued liabilities, respectively. As of June 30, 2020, the right -of -use asset and lease liabilities balance was $14,421 and $14,655, respectively. As of December 31, 2019, the right-of -use asset and lease liabilities balance was $10,438 and $10,586, respectively. The weighted -average remaining lease term is 6.0 years as of June 30, 2020.


The Company uses the incremental borrowing rate for purposes of discounting lease payments for our operating leases since our lease agreements do not provide a readily determinable implicit rate. We estimate our incremental borrowing rate based on information available at lease commencement date. The weighted-average discount rate of our operating leases is 5.2% as of June 30, 2020.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)
11.Comprehensive Income (Loss)


Undiscounted cash flowsThe accumulated balances for each classification of operating leasesother comprehensive income (loss), net of tax, are summarized as follows:

Remaning of 2020 $2,063 
2021  3,935 
2022  3,371 
2023  2,273 
2024  1,798 
Thereafter  3,415 
Total lease payments  16,855 
Less: imputed interest  (2,200)
Total $14,655 

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2021  2020  2021  2020 
Net Unrealized Gain on Securities            
Beginning Balance $75,136  $73,709  $91,689  $57,830 
Other comprehensive income (loss) before reclassifications  4,274   10,681   (12,105)  26,730 
Amounts reclassified from accumulated other comprehensive (loss) income  (2,011)  720   (2,185)  550 
Net current period change  2,263   11,401   (14,290)  27,280 
Ending Balance  77,399   85,110   77,399   85,110 
Liability for Pension Benefits                
Beginning Balance  (100,900)  (28,314)  (101,509)  (28,467)
Amounts reclassified from accumulated other comprehensive income  609   153   1,218   306 
Ending Balance  (100,291)  (28,161)  (100,291)  (28,161)
Accumulated Other Comprehensive Income                
Beginning Balance  (25,764)  45,395   (9,820)  29,363 
Other comprehensive income (loss) before reclassifications  4,274   10,681   (12,105)  26,730 
Amounts reclassified from accumulated other comprehensive (loss) income  (1,402)  873   (967)  856 
Net current period change  2,872   11,554   (13,072)  27,586 
Ending Balance $(22,892) $56,949  $(22,892) $56,949 

At December 31, 2019, operating lease commitments under lessee arrangements were $4,713, $3,790, $3,200, $2,171, $1,710 and $2,707 for 2020 through 2024 and thereafter, respectively. The following presents the lease cost recognized by the Company:

 Six months ended 
  June 30, 2020 
Operating lease cost $1,903 
Short-term lease cost  629 
Total lease cost $2,532 
12.Share-Based Compensation


Also,Share-based compensation expense recorded during the Company leases certain floorsthree months ended June 30, 2021 and 2020 was $2,751 and $4,235, respectively. Share-based compensation expense recorded during the six months ended June 30, 2021 and 2020 was $3,933 and $6,594, respectively. During the three and six months ended June 30, 2021, 20,823 shares were repurchased and retired as the result of onenon-cash tax withholdings upon vesting of its buildings and generates rental income. Maturity analysis of lease payments to be received from its lessees as of shares. During the six months ended June 30, 2020 is summarized, 6,882 shares were repurchased and retired as follows:the result of non-cash tax withholdings upon vesting of shares. There were 0 non-cash tax withholdings during the three months ended June 30, 2020.

Remaining of 2020 $945 
2021  1,909 
2022  1,947 
2023  1,986 
2024  2,026 
Thereafter  2,625 
Total $11,438 


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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

(14)Comprehensive Income (Loss)


The accumulated balances for each classification of other comprehensive income (loss), net of tax, are as follows:
  Three months ended  Six months ended 
  June 30,  June 30, 
  2020  2019  2020  2019 
Net Unrealized Gain on Securities            
Beginning Balance $73,709  $40,749  $57,830  $27,308 
Other comprehensive income before reclassifications  10,681   16,820   26,730   31,313 
Amounts reclassified from accumulated other comprehensive income (loss)  720   (1,891)  550   (2,943)
Net current period change  11,401   14,929   27,280   28,370 
Ending Balance  85,110   55,678   85,110   55,678 
Liability for Pension Benefits Beginning Balance  (28,314)  (24,190)  (28,467)  (24,246)
Amounts reclassified from accumulated other comprehensive income  153  ��56   306   112 
Ending Balance  (28,161)  (24,134)  (28,161)  (24,134)
Accumulated Other Comprehensive Income Beginning Balance  45,395   16,559   29,363   3,062 
Other comprehensive income before reclassifications  10,681   16,820   26,730   31,313 
Amounts reclassified from accumulated other comprehensive income (loss)  873   (1,835)  856   (2,831)
Net current period change  11,554   14,985   27,586   28,482 
Ending Balance $56,949  $31,544  $56,949  $31,544 


(15)Share-Based Compensation


 Share-based compensation expense recorded during the three months ended June 30, 2020 and 2019 was $4,235 and $4,320, respectively. Share-based compensation expense recorded during the six months ended June 30, 2020 and 2019 was $6,594 and $5,907, respectively. During the six months ended June 30, 2020 and 2019,6,882 and 602 shares, respectively, were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. There were 0 non-cash tax withholdings during the three months ended June 30, 2020 and 2019.

(16)13.Net Income Available to Stockholders and Net Income per Share
 

The following table sets forth the computation of basic and diluted earnings per share:
 
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2020  2019  2020  2019 
Numerator for earnings per share:            
Net income attributable to TSM available to stockholders $43,599  $30,931  $17,454  $65,717 
Denominator for basic earnings per share:                
Weighted average of common shares  23,193,626   22,830,399   23,287,787   22,794,297 
Effect of dilutive securities  77,677   64,601   85,198   72,394 
Denominator for diluted earnings per share  23,271,303   22,895,000   23,372,985   22,866,691 
Basic net income per share attributable to TSM $1.88  $1.35  $0.75  $2.88 
Diluted net income per share attributable to TSM $1.87  $1.35  $0.75  $2.87 


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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2021  2020  2021  2020 
Numerator for earnings per share:            
Net income attributable to TSM available to stockholders $23,560  $43,599  $46,870  $17,454 
Denominator for basic earnings per share:                
Weighted average of common shares  23,478,867   23,193,626   23,355,965   23,287,787 
Effect of dilutive securities  120,111   77,677   160,331   85,198 
Denominator for diluted earnings per share  23,598,978   23,271,303   23,516,296   23,372,985 
Basic net income per share attributable to TSM $1.00  $1.88  $2.01  $0.75 
Diluted net income per share attributable to TSM $1.00  $1.87  $1.99  $0.75 

(17)Contingencies

The following information supplements and amends, as applicable, the disclosures in Note 24 to the Consolidated Financial Statements of the Company’s 2019 Annual Report on Form 10-K.  The Company’s business is subject to numerous laws and regulations promulgated by Federal, Puerto Rico, 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.


The Company is involved in various legal actions arising in the ordinary course of business. The Company is also defendant 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 the Company believes the 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. However, there are legal proceedings where a loss is reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses. We currently believe that the range of possible losses for such proceedings in excess of established reserves is, in the aggregate, from $0 to approximately $10,000 at June 30, 2020. The outcome of legal proceedings is inherently uncertain; 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 effect on the consolidated financial condition, operating results and/or cash flows of the Company.


Additionally, we may face various potential litigation claims that have not been asserted to date.

Claims by Heirs of Former Shareholders


The Company and TSS are defending 4 individual lawsuits: Vera Sanchez, et al, v. Triple-S; Olivella Zalduondo, et al, v. Seguros de Servicios 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 Court of First Instance by persons who claim to have inherited a total of 41 shares of the Company or one of its predecessors or affiliates (before giving effect to a 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.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)
(unaudited)


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 on June 20, 2019. The Company filed a request for reconsideration that is pending adjudication and 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. On June 24, 2020, the Court of Appeals revoked the summary judgement and remanded the case back to the Court of First Instance on the grounds that summary judgement was inappropriate because there are disputes as to issues of material fact. We will continue to defend this case vigorously.


In Ruiz de Porras, et. al. v. Triple-S, Inc. the discovery stage is now completed.  The Company intends to file a motion for summary judgment to dismiss all claims.


In Olivella Zalduondo, et al, v. Seguros de Servicios de Salud, et al, the Court of First Instance entered summary judgment in favor of the Company in November 2019, dismissing the complaint with prejudice. Plaintiffs appealed the decision on January 16, 2020. The Company will continue to defend this case as needed.

In re Blue Cross Blue Shield Antitrust Litigation


TSS is a co-defendant with multiple Blue Plans and the Blue Cross Blue Shield Association in a multi-district class action litigation filed by a group of providers and subscribers on July 24, 2012 and October 1, 2012, respectively, that has since been consolidated by the United States District Court for the Northern District of Alabama, Southern Division, in the case captioned In re Blue Cross Blue Shield Association Antitrust Litigation. Essentially, provider plaintiffs allege that the exclusive service area requirements of the Primary License Agreements with the Blue Plans constitute an illegal horizontal market allocation under federal antitrust laws. As per provider plaintiffs, the quid pro quo for said “market allocation” is a horizontal price fixing and boycott conspiracy implemented through BCBSA and whose benefits are allegedly derived through the BCBSA’s 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 for the amounts that the Blue Plan premiums allegedly have been artificially inflated as a result of the alleged antitrust violations. Both actions seek injunctive relief.
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Triple-S Management Corporation
Notes to Condensed Consolidated Interim 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 and the National Best Efforts Rule are subject to the Per Se standard of review; (b) there remain genuine issues of material fact as to whether defendants’ conduct can be shielded by the “single entity” defense; and (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 in April 2019 and with providers in September 2019. Based on the state of negotiation with subscribers, the Company has accrued $32,000 related to this legal proceeding. 

Claims Relating to the Provision of Health Care Services

TSS is a defendant in several claims for collection of monies in connection with the provision of health care services.


On April 17, 2015, the Puerto Rico Health Insurance Administration ("ASES" by its Spanish acronym) notified the Company of a complaint from a medical service provider demanding payment amounting to $5,073. Claimant alleges that TSS did not pay the claims, paid them incorrectly, or recovered payments from the provider for which TSS did not have the right. TSS answered the complaint and counterclaimed. TSS denies any wrongdoing and will continue to defend this matter vigorously. The parties have concluded the claim reconciliation process and have agreed on a settlement amount to be paid by ASES. On July 28, 2020 ASES approved the disbursment and issued a resolution closing the complaint.


On January 12, 2015, American Clinical Solutions LLC, a limited liability company that provides clinical laboratory services filed a complaint in Florida state court alleging that TSM and TSS failed to pay certain clinical laboratory services provided to Blue Cross Blue Shield members. TSS and TSM have filed a motion to dismiss alleging lack of jurisdiction. TSM and TSS also requested a transfer of the case to Puerto Rico. Plaintiff has requested jurisdictional discovery, which is ongoing. The claim amounts to $5,000. TSS and TSM will continue to vigorously oppose this claim.

(18)14.Segment Information
 

The Company’s operations of the Company are conducted principally through 3 reportable business segments: Managed Care, Life Insurance, and Property and Casualty Insurance.  The 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,Premiums Earned, Net, Administrative Service Fees and revenues derived from other segments.Net Investment Income. Operating costs include claims incurredClaims Incurred and operating expenses.Operating Expenses.  The CorporationCompany calculates operating income or loss as operating revenues less operating costs.

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Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


The following tables summarize the operations by reportable segment for the three months and six months ended June 30, 20202021 and 2019:2020:
 
 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
June 30,
  
Six months ended
June 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
Operating revenues:                        
Managed Care:                        
Premiums earned, net $788,773  $793,355  $1,598,059  $1,498,405  $909,229  $788,773  $1,840,659  $1,598,059 
Administrative service fees  2,809   2,456   5,003   5,088   2,676   2,809   5,441   5,003 
Intersegment premiums/service fees  1,076   1,645   2,719   3,129   899   1,076   1,721   2,719 
Net investment income  4,690   5,479   9,698   11,357   5,890   4,690   11,000   9,698 
Total managed care  797,348   802,935   1,615,479   1,517,979 
Total Managed Care  918,694   797,348   1,858,821   1,615,479 
Life Insurance:                                
Premiums earned, net  47,523   44,511   93,709   88,233   53,479   47,523   105,389   93,709 
Intersegment premiums  545   508   1,036   986   586   545   1,175   1,036 
Net investment income  6,795   6,822   13,725   13,382   6,658   6,795   13,066   13,725 
Total life insurance  54,863   51,841   108,470   102,601 
Total Life Insurance  60,723   54,863   119,630   108,470 
Property and Casualty Insurance:                                
Premiums earned, net  22,239   21,627   42,664   40,857   25,172   22,239   50,268   42,664 
Intersegment premiums  154   154   307   307   154   154   307   307 
Net investment income  2,323   2,384   4,448   4,871   2,247   2,323   4,278   4,448 
Total property and casualty insurance  24,716   24,165   47,419   46,035 
Total Property and Casualty Insurance  27,573   24,716   54,853   47,419 
Other segments: *��                               
Intersegment service revenues  2,007   2,007   5,042   3,973   4,218   2,007   7,449   5,042 
Operating revenues from external sources  303   1,591   4,342   3,168   1,817   303   4,593   4,342 
Total other segments  2,310   3,598   9,384   7,141   6,035   2,310   12,042   9,384 
Total business segments  879,237   882,539   1,780,752   1,673,756   1,013,025   879,237   2,045,346   1,780,752 
TSM operating revenues from external sources  7   377   255   828   165   7   262   255 
Elimination of intersegment premiums/service fees  (1,775)  (2,307)  (4,062)  (4,422)  (1,639)  (1,775)  (3,203)  (4,062)
Elimination of intersegment service revenues  (2,007)  (2,007)  (5,042)  (3,973)  (4,218)  (2,007)  (7,449)  (5,042)
Consolidated operating revenues $875,462  $878,602  $1,771,903  $1,666,189  $1,007,333  $875,462  $2,034,956  $1,771,903 

*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 Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
June 30,
  
Six months ended
June 30,
 
 2020  2019  2020  2019  2021  2020  2021  2020 
Operating income (loss):                        
Managed care $29,322  $29,302  $43,489  $51,412 
Life insurance  9,457   5,215   14,506   10,855 
Property and casualty insurance  6,777   4,784   6,535   8,338 
Managed Care $7,210  $29,322  $25,964  $43,489 
Life Insurance  6,378   9,457   12,181   14,506 
Property and Casualty Insurance  1,947   6,777   5,788   6,535 
Other segments *  (2,409)  (730)  (2,913)  (1,122)  (2,334)  (2,409)  (4,432)  (2,913)
Total business segments  43,147   38,571   61,617   69,483   13,201   43,147   39,501   61,617 
TSM operating revenues from external sources  7   377   255   828   165   7   262   255 
TSM unallocated operating expenses  (1,841)  (3,137)  (3,244)  (5,169)  (3,753)  (1,841)  (6,589)  (3,244)
Elimination of TSM intersegment charges  2,403   2,403   4,806   4,806   2,403   2,403   4,806   4,806 
Consolidated operating income  43,716   38,214   63,434   69,948   12,016   43,716   37,980   63,434 
Consolidated net realized investment (losses) gains  (221)  2,364   (687)  3,679 
Consolidated net realized investment gains (losses)  2,514   (221)  2,731   (687)
Consolidated net unrealized investment gains (losses) on equity investments  28,338   3,323   (28,468)  22,992   12,743   28,338   21,295   (28,468)
Consolidated interest expense  (1,864)  (1,831)  (3,717)  (3,619)  (2,217)  (1,864)  (4,209)  (3,717)
Consolidated other income, net  801   1,705   4,406   2,874   4,851   801   7,962   4,406 
Consolidated income before taxes $70,770  $43,775  $34,968  $95,874  $29,907  $70,770  $65,759  $34,968 
                                
Depreciation and amortization expense:                                
Managed care $2,930  $2,792  $5,976  $5,549 
Life insurance  308   273   580   545 
Property and casualty insurance  91   86   203   180 
Managed Care $2,440  $2,930  $4,792  $5,976 
Life Insurance  318   308   645   580 
Property and Casualty Insurance  74   91   144   203 
Other segments*  352   193   673   378   351   352   702   673 
Total business segments  3,681   3,344   7,432   6,652   3,183   3,681   6,283   7,432 
TSM depreciation expense  156   196   312   393   411   156   830   312 
Consolidated depreciation and amortization expense $3,837  $3,540  $7,744  $7,045  $3,594  $3,837  $7,113  $7,744 

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

 
June 30,
2020
  
December 31,
2019
  
June 30,
2021
  
December 31,
2020
 
Assets:            
Managed care $1,344,379  $1,190,538 
Life insurance  1,030,522   981,370 
Property and casualty insurance  603,537   592,758 
Managed Care $1,478,811  $1,319,389 
Life Insurance  1,095,606   1,051,819 
Property and Casualty Insurance  529,690   583,404 
Other segments *  30,304   28,346   38,692   34,020 
Total business segments  3,008,742   2,793,012   3,142,799   2,988,632 
Unallocated amounts related to TSM:                
Cash, cash equivalents, and investments  20,214   28,167   17,369   16,489 
Property and equipment, net  65,461   25,623   73,088   68,678 
Other assets  46,134   37,176   92,919   88,684 
  131,809   90,966   183,376   173,851 
Elimination entries-intersegment receivables and others  (119,121)  (65,152)  (100,713)  (74,065)
Consolidated total assets $3,021,430  $2,818,826  $3,225,462  $3,088,418 

*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 Interim Financial Statements
(dollar amounts in thousands, except per share data)and share information)
(unaudited)
(Unaudited)


(19)15.Subsequent Events


The Company evaluated subsequent events through the date the unaudited condensed consolidated interim financial statements were issued.  No events, other than those described in these notes, have occurred that require adjustment or disclosure pursuant to current Accounting Standard 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”,“Corporation,” the “Company”, “TSM”, “we”,“Company,” “TSM,” “we,” “our,” and “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 six months ended June 30, 2020.2021.  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, 20192020 and the MD&A included therein, and our unaudited condensed consolidated interim financial statements and accompanying notes as of and for the three months and six months ended June 30, 20202021 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 anyno obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise.  Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, the development of the COVID-19 outbreak, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.

Overview

We areTriple-S is a health services company and one of the most significanttop players in the managed care industry in Puerto Rico and have overhealth care industry. With more than 60 years of experience, in this industry.we are the premier health care brand and serve more people through the most attractive provider networks on the island. We have the exclusive right to use the Blue Cross and Blue Shield (BCBS) name and mark throughout Puerto Rico, the U.S. Virgin Islands (USVI), Costa Rica, the British Virgin Islands (BVI) and Anguilla, and we offer a broad portfolio of managed care and related products in the Commercial, MedicaidMedicare Advantage and Medicare AdvantageMedicaid 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, (aa government of Puerto Rico and U.S. federal government funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.) (Medicaid) (Medicaid or the Government health plan). See details

Our commitment to our valued customers and provider partners, backed by our heritage of excellent care, access and service have positioned Triple-S for continued growth in the Medicaid contracthealthcare arena. Our progressive use of technology and clinical data, value-based partnerships with care providers and initial investments in Item 1Aambulatory and primary care assets are a strong foundation for differentiation and growth through the development of Part Ian integrated delivery system over the next several years. We believe continued investment and focus on delivering an excellent healthcare experience and great service, coupled with health management programs that improve outcomes and quality of life while reducing the total cost of care, will separate Triple-S from our competition and strengthen the financial performance of our Annual Report on Form 10-K forbusiness well into the year ended December 31, 2019 under the sub-caption “We are dependent on a small numberfuture.

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Table of government contracts to generate a significant amount of the revenues of our managed care business.”Contents
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 June 30, 2020,2021, we served approximately 932,0001 million managed care members across all regions ofin Puerto Rico.  For the six months ended June 30, 2021 and 2020, and 2019, our managed careManaged Care segment represented approximately 92% of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets in Puerto Rico.

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 uslicensees.

Triple-S is also a well-known brand in the life insurance and property and casualty insurance markets, 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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a significant share in each. 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 numbersreported balances 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 1814 of the Condensed Consolidated Interim Financial Statementsunaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

Our revenuesrevenue primarily consistconsists of premiums earned, net and investment income.  Premiums are derived from the sale of managed care products and property and casualty and life insurance contracts.  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 theirmanagement’s 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;earned net and administrative service fees, multiplied by 100.

Recent Developments

COVID-19

COVID-19 Situation in Puerto Rico

As of August 5, 2020,July 30, 2021, the Puerto Rico Department of Health reported 19,651 positivea cumulative total of 126,158 and 19,329 confirmed (RT-PCR+) and probable (antigen) COVID-19 cases, respectively, and a total of 2462,578 confirmed and probable COVID-19-related deaths in Puerto Rico.

Puerto Rico was under a stay-at-home order (as amended and extended, the “Order”) from March 15, 2020 until June 16, 2020.  The Order requiredGovernor of Puerto Rico also issued several consecutive executive orders establishing COVID-19 related restrictions and the closure of non-essential businesses for the same period of time.  On May 1, 2020, the Governor issued a new order providingrules for the gradual re-opening of the economy, beginning onwhich were in effect from May 4, 2020 providedto July 4, 2021.  As of July 5, the Governor delegated all authority to issue guidelines and protocols to address the COVID-19 emergency to the Puerto Rico Secretary of Health.

Puerto Rico began its COVID-19 vaccination program in December 2020 and as of May 12, 2021, all citizens 12 years old and older are eligible to receive the vaccine. The Puerto Rico Department of Health reported as of July 1, 2021 that the risk of contagion does not increase significantly.  The Governor has issued several other executive orders establishing the rules to continue the gradual re-openingover 60% of the economy,eligible population had received the latestfull dose of which is effective until August 15, 2020. However, due to the recent increase in COVID-19 cases,vaccine and over 70% of the last two (2) executive orders have reinstated certain social distancing measures, such aseligible population had received at least the total closure of businesses on Sundays, subject to certain exceptions.

Healthcare is considered an essential service under the Order; therefore, all functions of our Managed Care business, other than sales, have been excluded from closure.  Our Life and Property & Casualty businesses, which had been closed since March 16, 2020, re-opened on May 5, 2020, subject to compliance with certain safety and risk management measures.first dose.

We have implemented our business continuity and risk mitigation plans and are closely monitoring how the outbreak developsdevelopments in order to ensure the health and safety of our employees and visitors.

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Economic Impact

As mentioned below, the 2021 Fiscal Plan (defined below) estimates that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus measures, some of which are summarized below, have more than offset the estimated income loss due to reduced economic activity and have caused a temporary increase in personal income on a net basis. ItHowever, it is still too early to fully assess the ultimate economicmedium- and long-term impact of the pandemic and lockdown.  However,lockdown in the 2020 Fiscal Plan (as defined below) estimates that the economy of Puerto Rico will contract by 4% in real terms in fiscal year 2020 (which ended on June 30, 2020), largely due to the COVID-19 pandemic, with a limited recovery of 0.5% in fiscal year 2021.  These projections incorporate the combined effect of the measures enacted by the federal and Puerto Rico governments (discussed below), which are expected to play an essential role in mitigating the economic damage from the sudden economic shock caused by the pandemic.  
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economy.  See Item 1A.  Risk Factors – Risks Related to our Business – “OurOur business is geographically concentrated in Puerto Rico and weakness in the economy and the fiscal health of the government has adversely impactedaffected and may continue to adversely impact us.”affect us. included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Legislative Measures and Initiatives

The federal and state governments have enacted a number of measures in response to the COVID-19 outbreak and the impact the outbreak has had on the economy, public health, government, individuals, and businesses. We include summaries of some of those measures below.

Funding and Economic Relief for Puerto Rico

Public Law 116-127, known as theThe Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, makes approximately $182.9$182.9 million available for Puerto Rico’s Medicaid Program and increases the percentage of federal government funding for its Medicaid program expenditures from 76% to approximately 82% during the emergency period.  Public Law 116-136, theThe Coronavirus Aid, Relief, and Economic Security or CARES Act, enacted on March 27, 2020, includesthe Coronavirus Response and Relief Supplemental Appropriations Act of 2021, enacted on December 27, 2020, and the American Rescue Plan, enacted on March 11, 2021 include a series of direct relief and financial assistance measures for Puerto Rico residents and businesses.  The CARES Act also assigns $2.2 billion to the Government of Puerto Rico to cover necessary expenditures related to COVID-19 and not included in the territory’s budget, among other measures. The Puerto Rico government has earmarked approximately $1 billion for its COVID-19 response.

Measures Impacting our Business

The FFCRA and CARES Act also require health plans and insurers to cover testing for COVID-19 without imposing cost-sharing or prior authorization requirements.  On April 16, 2020, the Puerto Rico Government enacted Act number 43, which requires health plans and insurers to cover COVID-19-related diagnostic and treatment services, including hospitalization, without cost-sharing.  Our regulators have also issued regulations andor circular letters requiring waivers of pre-authorizations for certain services and drugs, requiring temporary coverage of certain out-of-network providers and services, and limiting cost-sharing for certain services.  See Item 1A. Risk Factors – “TheRisks Related to our Business – Pandemics, like the COVID-19 pandemicpandemics and local, state and federal governments’ response to the pandemicpandemics may have a material adverse effect on our business, financial condition and results of operations” in this Quarterlyoperations. included on our Annual Report on Form 10-Q.10-K for the year ended December 31, 2020.

Puerto Rico Economy

The Puerto Rico economy entered a recession in the fourth quarter of fiscal year 2006. Puerto Rico’s gross national product (GNP) contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the Planning Board) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019, primarily due to federal disaster recovery spending related to Hurricanes Irma and María. The Planning Board estimates, however, that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19 pandemic and the measures taken by the government in response to the same, and that the negative effects of COVID-19 will continue through the current fiscal year, resulting in a contraction in real GNP of approximately -2%.

Puerto Rico’s population has also been in decline over the past decade. Estimates by the U.S. Census Bureau indicate the population has decreased by 14.3%, or approximately 530,000 people, from April 1, 2010 to July 1, 2019. The 2021 Fiscal Plan (as defined below) projects that population will continue to steadily decline at an average rate of approximately 1.2% per year, due to a combination of outmigration and economic factors. The weakness of Puerto Rico’s economy has also adversely affected employment. Total average annual employment, as measured by the Puerto Rico Department of Labor and Human Resources (the DLHR) has decreased approximately 20% since 2007. The reduction in total employment began in the fourth quarter of fiscal year 2007, when total employment was 1,244,425, and continued consistently until the first half of fiscal year 2015, after which it mostly stabilized.  According to the most recent data from DLHR, Puerto Rico’s average total employment as of February 2021 was 952,000, a decrease of 13,000 from total employment of 965,000 as of February 2020.  The DLHR also reported an average unemployment rate of approximately 9.2% as of February 2021, up from a 9.0% unemployment rate reported by the DLHR as of February 2020.

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PROMESA and the Oversight Board

The Commonwealth has been enduring a fiscal and economic crisis for over a decade. Such crisis prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”)(PROMESA) in June 2016. PROMESA, among other things, created a federal fiscal oversight board (the “Oversight Board”)Oversight Board) with broad powers over the Commonwealth’s fiscal 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 arehave been in the process of restructuring their debts through the mechanisms provided by PROMESA.PROMESA for some time.

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 May 27, 2020April 23, 2021 (the “20202021 Fiscal Plan”)Plan). The 2021 Fiscal Plan provides that, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. As mentioned above,a result, the 20202021 Fiscal Plan’s economic projections incorporate adjustments for the short-term income effects caused by such stimulus programs. For example, the 2021 Fiscal Plan estimates that the economy of Puerto Rico will contractreal GNP contracted by 4% in real terms3% in fiscal year 2020 largely duebut estimates the GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the COVID-19 pandemic, with a limited recovery of 0.5% in fiscal year 2021. This new economic outlook exacerbates the Commonwealth government’s fiscal challenges. As a result of these changes, the 20202021 Fiscal Plan projects that the Commonwealthreal GNP will have a pre-contractual debt service deficit each year through 2025grow 1% and 0.6%, respectively, but projects that growth adjusted for income effects for such years will be approximately 3.8% and 1.5%, respectively.

The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented.implemented, the Commonwealth will have a pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the proposed fiscal measures and structural reforms willcould drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 20252026 and that the structural reforms could drive a cumulative 0.88%0.90% increase in growth by fiscal year 2029.2051 (equal to approximately $30.7 billion). However, even after the fiscal measures and structural reforms, and before contractual debt service, the 20202021 Fiscal Plan’s projections reflectPlan projects that there will be an annual deficit starting in fiscal year 2032.2036.

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On February 28, 2020,July 27, 2021, the Oversight Board filed an amended planthe Sixth Amended Title III Joint Plan of adjustmentAdjustment for the Commonwealth, the Employees Retirement System of the Government of the Commonwealth and the Puerto Rico Public Buildings Authorityet. al. (the Proposed Plan) in the pending debt restructuring proceedings under Title III of PROMESA (the “ProposedPROMESA. The Proposed Plan, which has substantial support from several creditor constituencies but is still subject to confirmation in the Title III proceeding, seeks to restructure approximately $35 billion of Adjustment”). In lightdebt and other claims against the Commonwealth, PBA and ERS, and more than $50 billion of unfunded pension liabilities. On July 29, 2021, the COVID-19 pandemic, however,Title III court approved the disclosure statement for the Proposed Plan. The Oversight Board requestedhas proposed that the court adjourn court proceedings related to the Proposed Planfinal hearings on confirmation of Adjustment so as to allow for the Government and the Oversight Board to prioritize the health and safetya plan of the people of Puerto Rico and to gain a better understanding of the economic and fiscal impact of the pandemic.adjustment take place in November 2021.

Property & Casualty Litigation

As of June 30, 2020,2021, our Property and Casualty subsidiary had been served in a total of 461487 cases relating to Hurricane Maria. Of those, 341274 remained open as of June 30, 2020.2021. SeeItem 1A. Risk Factors – Risks Related to our Business – “Large-scaleLarge-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations”operations. and “WeWe face risks related to litigation”litigation. included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.

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Property and Casualty Reinsurance Program

The Company’s Property and Casualty segment completed the renewal of its reinsurance property and catastrophe program with an effective date of April 1, 2020 for twelve-month2021 with a term of twelve-months ending on March 31, 2021.2022.  The new reinsurance program considers a change in cessions in the Commercial Property quota share agreement from 25% to 20% and provides the segment with a catastrophe loss protection of $809$811.5 million in excess of $5 million. The cost of entering into the new reinsurance program is estimated to be approximately $2.0 million more thanremain similar to the expiring program.

Recent Seismic ActivityASES Contract Renewal

On January 7, 2020, a magnitude 6.4 earthquake struckThe Puerto Rico causing island-wide power outages and extensive damageHealth Insurance Administration (ASES by its Spanish acronym) has notified us of its exercise of its right to infrastructure and property in the southwest region of the island.  The 6.4 magnitude earthquake was preceded by foreshocks and followed by aftershocks. During the three months ended March 31, 2020, the Company recognized $5 million in losses related to this event, which is its maximum exposure for a single event under its current reinsurance program.

See “Item 1A.  Risk Factors—Risks Related to Our Business – 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”included inextend our Annual Report on Form 10-K for the year ended December 31, 2019.

Legislative Initiatives

On July 20, 2020, the Governor of Puerto Rico announced she would call the legislature to an extraordinary session for the consideration of legislative projects affecting the healthcare insurance industry, among other measures.

Acquisition of Life Insurance Portfolio

Effective June 1, 2020, our Life Insurance company acquired a life insurance portfolio from a local insurance company. The portfolio represents approximately $5.5 million in annualized premiums.

ASES Contract Premium Negotiations

Our contract with ASESagreement for the provision of health coverage to the medically indigent in Puerto Rico under the Puerto Rico Health Reform Program (similar to Medicaid), provides for an additional year, from October 1, 2021 to September 30, 2022. The renewal is subject to premium negotiations for the annual negotiation of premium rates. The premium rates for the current contract year expired on June 30, 2020. However, we have executed amendments to the contract extending the current premium rates until August 30, 2020 while new premium ratesextended term, which are negotiated. The new premium rates will be effective retroactively from July 1, 2020 and will apply through the expiration of the contract on September 30, 2021.under way.

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Recent Accounting Standards

For a description of recent accounting standards, see Note 2 toof the unaudited condensed consolidated interim financial statements included in this quarterly reportQuarterly Report on Form 10-Q.

Managed Care Membership

 As of June 30,  As of June 30, 
 2020  2019  2021  2020 
Managed care enrollment:      
Managed Care enrollment:      
Commercial 1  433,471   436,407   418,414   433,471 
Medicare  134,601   128,670   136,490   134,601 
Medicaid  364,157   364,495   445,881   364,157 
Total  932,229   929,572   1,000,785   932,229 
Managed care enrollment by funding arrangement:        
Fully-insured  823,247   811,594 
Managed Care enrollment by funding arrangement:        
Fully insured  898,573   823,247 
Self-insured  108,982   117,978   102,212   108,982 
Total  932,229   929,572   1,000,785   932,229 

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

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Consolidated Operating Results

The following table sets forth the Corporation’sour 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  Six months ended  Three months ended  Six months ended 
 June 30,  June 30,  June 30,  June 30, 
(dollar amounts in millions) 2020  2019  2020  2019 
Revenues:            
(dollar in millions) 2021  2020  2021  2020 
Revenues            
Premiums earned, net $858.5  $859.5  $1,734.4  $1,627.5  $987.9  $858.5  $1,996.3  $1,734.4 
Administrative service fees  2.8   2.5   5.0   5.1   2.6   2.8   5.4   5.0 
Net investment income  13.8   15.0   28.1   30.4   15.0   13.8   28.6   28.1 
Other operating revenues  0.4   1.6   4.4   3.2   1.9   0.4   4.7   4.4 
Total operating revenues  875.5   878.6   1,771.9   1,666.2   1,007.4   875.5   2,035.0   1,771.9 
Net realized investment (losses) gains  (0.2)  2.4   (0.7)  3.6 
Net realized investment gains (losses)  2.5   (0.2)  2.7   (0.7)
Net unrealized investment gains (losses) on equity investments  28.3   3.3   (28.5)  23.0   12.7   28.3   21.3   (28.5)
Other income, net  0.8   1.7   4.4   2.9   4.9   0.8   8.0   4.4 
Total revenues  904.4   886.0   1,747.1   1,695.7   1,027.5   904.4   2,067.0   1,747.1 
Benefits and expenses:                
Benefits and expenses                
Claims incurred  653.1   706.3   1,367.6   1,329.5   844.0   653.1   1,694.6   1,367.6 
Operating expenses  178.7   134.1   340.9   266.7   151.3   178.7   302.4   340.9 
Total operating expenses  831.8   840.4   1,708.5   1,596.2   995.3   831.8   1,997.0   1,708.5 
Interest expense  1.8   1.8   3.7   3.6   2.2   1.8   4.2   3.7 
Total benefits and expenses  833.6   842.2   1,712.2   1,599.8   997.5   833.6   2,001.2   1,712.2 
Income before taxes  70.8   43.8   34.9   95.9   30.0   70.8   65.8   34.9 
Income tax expense  27.2   12.9   17.5   30.2   6.4   27.2   18.9   17.5 
Net income attributable to TSM $43.6  $30.9  $17.4  $65.7  $23.6  $43.6  $46.9  $17.4 

Three Months Ended June 30, 20202021 Compared to Three Months Ended June 30, 20192020

Operating Revenues

Consolidated premiums earned, net decreasedincreased by $1.0$129.4 million, or 0.1%15.1%, to $858.5 million during the three months ended June 30, 2020.$987.9 million.  This decreaseincrease primarily reflects lowerhigher premiums in the Managed Care segment by $4.5 million offset in part by a$120.5 million. The growth in Managed Care premiums reflects higher average premium rates across all lines of business and an increase in the Life Insurance segment of $3.1 million.Medicaid membership.

Net unrealized investment gainsUnrealized Investment Gains (Losses) on equity investmentsEquity Investments

The $28.3$12.7 million in consolidated net unrealized investment gains on equity investments reflect the impact of changes in equity markets.

Claims Incurred

Consolidated claims incurred decreasedincreased by $53.2$190.9 million, or 7.5%29.2%, to $653.1$844.0 million, and the consolidated loss ratio decreased 610increased 930 basis points, to 76.1%85.4%, when compared to the prior-year period primarily reflecting lower claims across all segments, mostly the result of the COVID-19 pandemic. Managed Care claims incurred decreased $43. 7 million and its MLR decreased 510 basis points reflecting lower utilization of services as the result of the government enforced lockdown and the prohibition of elective procedures due to the COVID-19 pandemic, as well as the reinstatement of the HIP fee pass-through in 2020. This reduction is offset by other costs such as COVID-19 related treatment and testing, the waiver of medical and payment policies, and the assistance we are providing to our elderly population and other vulnerable members.
Following the government enforced lockdown related to the COVID-19 pandemic in mid-March, we have seen a decrease inmore normalized utilization of Managed Care services as memberscompared to the low utilization in the prior-year quarter due to the pandemic, increased benefits in the Medicare product offering in 2021 and providers deferred non-emergentthe effect of the elimination of the Health Insurance Providers Fee (HIP fee) pass-through in 2021.

Operating Expenses

Consolidated operating expenses decreased by $27.4 million, or elective health services.  While this trend has caused, and may continue15.3%, to cause, a short-term$151.3 million. The decrease in our claim costs, we expect these costsoperating expenses primarily reflects the accrual in the prior year quarter of a contingency reserve related to increasea legal proceeding in the Managed Care segment amounting to $32.0 million and affect our medical cost trends as the demand forelimination in 2021 of the deferred non-emergent or elective health services resumes.HIP fee of $14.9 million offset in part by higher personnel costs.  The accessconsolidated operating expense ratio decreased 540 basis points, to and demand for care was most constrained from mid-March through April, began to recover in late May and approached more typical levels by the end of this quarter.15.3%.

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Operating Expenses
Consolidated operating expenses increased by $44.6 million, or 33.3%, to $178.7 million. The increase in operating expenses mostly results from the recognition of a contingency reserve of $32 million related to a legal proceeding in our Managed Care segment (see Note 17 to the unaudited condensed consolidated interim financial statements included in this quarterly report on Form 10-Q) and the reinstatement in 2020 of the Health Insurance Providers Fee (HIP fee) of $14.9 million.  For the three months ended June 30, 2020, the consolidated operating expense ratio increased 510 basis points to 20.7%.
Income Taxes

Consolidated income tax expense for the three months ended June 30, 2020 increased2021 decreased by $14.3$20.8 million, to $27.2$6.4 million, primarily reflecting the higherlower taxable income in 2020.2021.

Six Months Ended June 30, 20202021 Compared to Six Months Ended June 30, 20192020

Operating Revenues

Consolidated premiums earned, net increased by $106.9$261.9 million, or 6.6%15.1%, to $1,734.4$1,996.3 million during the six months ended June 30, 2020.2021.  This increase primarily reflects higher premiums in the Managed Care segment by $242.7 million due to higher average premium rates in all lines of business and Life Insurance segments by $99.8 million and $5.6 million, respectively.an increase in Medicaid membership.

Net unrealized investment lossesUnrealized Investment Gains (Losses) on equity investmentsEquity Investments

The $28.5$21.3 million in consolidated net unrealized investment lossesgains on equity investments reflect the impact of changes in equity markets.

Claims Incurred

Consolidated claims incurred increased by $38.1$327.0 million, or 2.9%23.9%, to $1,367.6$1,694.6 million, during the six months ended June 30, 2020.2021.  The consolidated loss ratio decreased 280increased 600 basis points, to 78.9%84.9%, from the prior-year period, mostly reflecting lowerhigher Managed Care claim trends and utilization of services since mid-March asbecause of COVID-19-related testing and treatments costs, the resultwaiver of medical and payment policies (see Recent Developments – COVID-19 – Measures Impacting our Business included in this quarterly report on Form 10-Q), increased benefits in the government enforced lockdown2021 Medicare product and a more normalized utilization of services compared to the low utilization in the prior year due to the COVID-19 pandemic and the effect in the MLR of the reinstatement of the HIP fee pass-through in 2020.  These decreases were partially offset by the increased benefits in our 2020 Medicare product offering and $5 million of earthquake losses recorded by the Property and Casualty segment.pandemic.
Following the government enforced lockdown related to the COVID-19 pandemic in mid-March, we have seen a decrease in utilization of Managed Care services as members and providers deferred non-emergent or elective health services.  While this trend has caused, and may continue to cause, a short-term decrease in these costs, we expect  these costs to increase in the second half of the year and affect our medical cost trends as the demand for the deferred non-emergent or elective health services resumes.  The access to and demand for care was most constrained from mid-March through April, began to recover in late May and approached more typical levels by the end of June.

Operating Expenses

Consolidated operating expenses increaseddecreased by $74.2$38.5 million, or 27.8%11.3%, to $340.9$302.4 million. The increasedecrease in operating expenses mostly results fromprimarily reflects the recognitionaccrual in the prior year quarter of a $32 million contingency reserve related to a legal proceeding in ourthe Managed Care segment (see Note 17amounting to $32.0 million and the unaudited condensed consolidated interim financial statements included in this quarterly report on Form 10-Q), the reinstatementelimination of the HIP fee in 20202021 of $31.2 millionmillion. These decreases were partially offset by higher personnel costs and higher amortization of deferred acquisition costs.professional fees. The consolidated operating expense ratio increased 330decreased 450 basis points, to 19.6%15.1%.

Income Taxes

Consolidated income tax expense for the six months ended June 30, 2020 decreasedincreased by $12.7$1.4 million, or 8.0%, to $17.5$18.9 million, primarily reflecting the lowerhigher taxable income in 2020.2021.

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Managed Care Operating Results

 Three months ended  Six months ended  
Three months ended
June 30,
  
Six months ended
June 30,
 
 June 30,  June 30, 
(dollar amounts in millions) 2020  2019  2020  2019 
Operating revenues:            
Medical premiums earned, net:            
(dollar in millions) 2021  2020  2021  2020 
Operating revenues            
Medical premiums earned, net            
Medicare $372.4  $366.0  $760.2  $698.6  $408.4  $372.4  $810.7  $760.2 
Medicaid  221.1   227.0   442.0   401.4   291.8   221.1   614.5   442.0 
Commercial  195.8   200.8   396.9   399.3   209.6   195.8   416.6   396.9 
Medical premiums earned, net  789.3   793.8   1,599.1   1,499.3   909.8   789.3   1,841.8   1,599.1 
Administrative service fees  3.4   3.6   6.7   7.3   3.0   3.4   6.1   6.7 
Net investment income  4.7   5.5   9.7   11.4   5.9   4.7   11.0   9.7 
Total operating revenues  797.4   802.9   1,615.5   1,518.0   918.7   797.4   1,858.9   1,615.5 
Medical operating costs:                
Medical operating costs                
Medical claims incurred  627.0   670.7   1,304.8   1,260.7   803.9   627.0   1,615.3   1,304.8 
Medical operating expenses  141.1   102.9   267.2   205.9   107.6   141.1   217.6   267.2 
Total medical operating costs  768.1   773.6   1,572.0   1,466.6   911.5   768.1   1,832.9   1,572.0 
Medical operating income $29.3  $29.3  $43.5  $51.4  $7.2  $29.3  $26.0  $43.5 
                
Additional data:                
Member months enrollment:                
Commercial:                
Fully-insured  975,212   955,463   1,953,554   1,908,515 
Self-funded  327,030   353,961   657,262   716,451 
Total commercial  1,302,242   1,309,424   2,610,816   2,624,966 
Additional data                
Member months enrollment                
Medicare  405,203   385,835   813,110   769,443   409,012   405,203   817,793   813,110 
Medicaid  1,077,456   1,092,132   2,145,472   2,121,868   1,332,994   1,077,456   2,629,183   2,145,472 
Commercial                
Fully insured  948,839   975,212   1,905,786   1,953,554 
Self-funded  298,854   327,030   594,691   657,262 
Total Commercial  1,247,693   1,302,242   2,500,477   2,610,816 
Total member months  2,784,901   2,787,391   5,569,398   5,516,277   2,989,699   2,784,901   5,947,453   5,569,398 
Medical loss ratio  79.4%  84.5%  81.6%  84.1%  88.4%  79.4%  87.7%  81.6%
Operating expense ratio  17.8%  12.9%  16.6%  13.7%  11.8%  17.8%  11.8%  16.6%

Three Months Ended June 30, 20202021 Compared to Three Months Ended June 30, 2019
Managed Care Operating Revenues
Managed Care premiums earned decreased by $4.5 million, or 0.6%, to $789.3 million. This decrease is principally the result of the following:2020

Medical Premiums generated by the Medicare business increased by $6.4 million, or 1.7% to $372.4 million, mostly due to an increase in enrollment of approximately 19,000 member months, which primarily reflects a more competitive product offering, and an increase in the average membership risk score. This increase in premiums earned was partially offset by the recognition of estimated premium rebates due to the lower MLR resulting from the decreased utilization of services following the pandemic-related lockdown. Earned, Net

Premiums generated by the Medicaid business decreased by $5.9 million, or 2.6% to $221.1 million, primarily reflecting lower membership of approximately 15,000 member months. In addition, the 2019 quarter includes retroactive premiums related to adjustments to the premium rates for high cost high need members as part of an ongoing reconciliation with ASES.

•
MedicalPremiums generated by the Commercial business decreased by $5.0 million, or 2.5%, to $195.8 million, mainly reflecting lower average premium rates and the recognition of estimated premium rebates due to the lower MLR resulting from the decreased utilization of services following the government enforced lockdown due to the COVID-19 pandemic.  These decreases were partially offset by an increase in fully-insured enrollment during the quarter by approximately 20,000 member months and the reinstatement of the HIP fee pass-through in 2020.
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Managed Care Claims Incurred
Managed Care claims incurred decreased by $43.7 million, or 6.5%, to $627.0 million when compared to the three months ended June 30, 2019. The medical loss ratio (MLR) of the segment decreased 510 basis points during the 2020 period, to 79.4%.  This fluctuation is primarily attributed to the net effect of the following:
Claims incurred in the Medicare business decreased by $13.9 million, or 4.6%, during the 2020 period and its MLR decreased 520 basis points to 77.2%.  The lower MLR mostly reflects lower utilization of services as the result of the government enforced lockdown due to the COVID-19 pandemic, which was in force during most of the second quarter, partially offset by improved benefits in the 2020 product offerings and the impact of the previously mentioned estimated premium rebates.

Claims incurred in the Medicaid business increased by $0.3 million, or 0.1%, during the 2020 period.  The MLR, at 93.7%, was 260 basis point higher than the same period last year.  The higher MLR mostly reflects the impact of the retroactive premiums adjustment in the second quarter of 2019 mentioned above.

Claims incurred in the Commercial business decreased by $30.1 million, or 18.6%, during 2020 and its MLR decreased 1,340 basis points, to 67.5%.  The lower MLR mostly reflects the impact of the lower utilization as a result of the lockdown and the reinstatement of the HIP fee pass-through in 2020.  These decreases were partially offset by the impact of the previously mentioned estimated premium rebates and the impact in 2019 of favorable prior period reserve development.
Managed Care Operating Expenses
Managed Care operating expenses increased by $38.2 million, or 37.1%, to $141.1 million.  The operating expense ratio increased by 490 basis points to 17.8% in 2020. The higher operating expenses and expense ratio are mostly driven by the recognition of a contingency reserve related to a legal proceeding and a $14.9 million increase in the HIP Fee following the reinstatement of the fee in 2020, offset in part by lower professional fees and personnel costs.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Managed Care Operating Revenues
Managed Care premiums earned increased by $99.8$120.5 million, or 6.7%15.3%, to $1,599.1$909.8 million. This increase is principally the result of the following:

Premiums generated by the Medicaid business increased by $70.7 million, or 32.0%, to $291.8 million, primarily reflecting an increase in enrollment of approximately 256,000 member months and higher average premium rates following the premium rate increase effective July 2020. These increases were partially offset by the elimination of the HIP fee pass-through in 2021.

•
Premiums generated by the Medicare business increased by $61.6$36.0 million, or 8.8%9.7%, to $760.2$408.4 million, mostlyprimarily due to higher average premium rates reflectingresulting from an increase in the premium rate benchmark and average membership risk score revenue in 2020, and higher memberscore. Member months enrollment by approximately 44,000.  These increases were partially offset byincreased slightly compared with the recognition of estimated premium rebates due to the lower MLR resulting from the decreased utilization of services as the result of the government enforced lockdown due to the COVID-19 pandemic.prior-year period.

Premiums generated by the Medicaid business increased by $40.6 million, or 10.1% to $442.0 million, primarily reflecting higher average premium rates, an increase in enrollment of approximately 24,000 member months, the reinstatement of the HIP fee pass-through in 2020, and the impact of the profit sharing accrual recorded in 2019. These increases were partially offset due to the impact recognized in the 2019 period, of the retroactive premiums related to adjustments to the premium rates for high cost high need members as part of an ongoing reconciliation with ASES.

•
Premiums generated by the Commercial business decreasedincreased by $2.4$13.8 million, or 0.6%7.0%, to $396.9 million.  This fluctuation$209.6 million, primarily reflects lowerreflecting higher average premium rates and the recognition of estimated premium rebates due to the lower MLR resulting from the decreased utilization of services as the result of the government enforced lockdown.  These decreases wererates. This increase was partially offset by higher fully-insured enrollment during the quarter bya decrease of approximately 45,00026,000 fully insured member months and the reinstatementelimination of the HIP feeFee pass-through in 2020.2021.

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Managed CareMedical Claims Incurred

Managed CareMedical claims incurred increased by $176.9 million, or 28.2%, to $803.9 million when compared to the three months ended June 30, 2020. The medical loss ratio (MLR) of the segment increased 900 basis points during the 2021 period, to 88.4%.  This fluctuation is principally attributed to the net effect of the following:

•
Claims incurred in the Medicaid business increased by $68.1 million, or 32.9%, during the 2021 period.  The MLR, at 94.3%, was 60 basis points higher than the same period last year. The increase in claims cost is due to higher member months, a more normalized utilization of services compared to the low utilization experienced in the prior-year quarter due to the pandemic, COVID-19-related testing and treatment costs, and the waiver of medical and payment policies. In addition, the 2021 MLR was impacted by the elimination of the HIP fee pass-through in 2021.

•
Claims incurred in the Medicare business increased by $61.6 million, or 21.4%, during the 2021 period and its MLR increased 830 basis points to 85.5%. These increases reflect a more normalized utilization of services compared to the low utilization experienced in the prior-year quarter due to the pandemic, improved benefits in the 2021 product offerings, COVID-19-related testing and treatment costs and the waiver of medical and payment policies, partially offset by favorable prior period reserve development in the 2021 period.

•
Claims incurred in the Commercial business increased by $47.2 million, or 35.7%, during 2021 and its MLR increased 1,810 basis points, to 85.6%.  The higher MLR principally reflects higher claim trends, a more normalized utilization of services compared to the low utilization experienced in the prior-year quarter due to the pandemic, COVID-19-related testing and treatment costs and the elimination of the HIP fee pass-through in 2021.

Medical Operating Expenses

Medical operating expenses decreased by $33.5 million, or 23.7%, to $107.6 million, primarily reflecting the accrual in the prior year quarter of a contingency reserve related to a legal proceeding and the elimination of the HIP fee in 2021, partially offset by higher personnel costs and professional services. The operating expense ratio decreased 600 basis points to 11.8% in 2021.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Medical Premiums Earned, Net

Medical premiums earned increased by $242.7 million, or 15.2%, to $1,841.8 million. This increase is principally the result of the following:

Premiums generated by the Medicaid business increased by $172.5 million, or 39.0%, to $614.5 million, primarily reflecting higher average premium rates following two premium rates increases that were effective in May 2020 and July 2020 and an increase in enrollment of approximately 484,000 member months. In addition, following a reconciliation process with ASES this year, we recognized premiums corresponding to prior periods in the first quarter of 2021.  These increases were partially offset by the elimination of the HIP fee pass-through in 2021.

•
Premiums generated by the Medicare business increased by $50.5 million, or 6.6%, to $810.7 million, primarily due to higher average premium ratesreflecting an increase in the premium rate benchmark and membership risk score. Member months increased slightly when compared with the prior-year period.

•
Premiums generated by the Commercial business increased by $19.7 million, or 5.0%, to $416.6 million, mainly reflecting higher average premium rates in the 2021 period.  This increase was partially offset by the elimination of the HIP fee pass-through in 2021 and a decrease of approximately 48,000 fully insured member months.

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Medical Claims Incurred

Medical claims incurred increased by $44.1$310.5 million, or 3.5%23.8%, to $1,304.8$1,615.3 million when compared to the six months ended June 30, 2019.2020.  The MLR of the segment decreased 250increased 610 basis points during 2020,2021, to 81.6%87.7%. This fluctuation is primarilyprincipally attributed to the net effect of the following:

Claims incurred in the MedicareMedicaid business increased by $38.8$150.5 million, or 6.8%37.0%, during the 2020 period2021 and its MLR decreased 150130 basis points, to 80.0%90.7%. The increase in claim cost is due to higher member monthsmonths. The lower MLR reflects the premium rates increases and prior period premiums recognized this year, partially offset by COVID-19-related testing and treatment costs, the loser MLR.  The lower MLR mostly reflects lower utilizationwaiver of services as the result of the government enforced lockdown due to the COVID-19 pandemic, which was in force during most of the second quarter, partially offset by improved benefits in the 2020 product offerings.  In addition, the 2019 MLR was favorably impacted by prior period reserve development.

The Managed Care claims incurred in the Medicaid business increased by $42.3 million, or 11.6%, during 2020medical and its MLR increased 130 basis points, to 92.0%. The higher MLR mostly reflects the impact of the retroactive premiums adjustment in the second quarter of 2019 mentioned above and an unfavorable prior period reserve development in the 2020 period.

Claims incurred in the Commercial business decreased by $37.0 million, or 11.3%, during 2020 and its MLR decreased 890 basis points, to 73.0%. These decreases mostly result from lower utilization related to the COVID-19 lockdownpayment policies and the impact in the MLR of the reinstatementelimination of the HIP fee pass-through in 2020. These decreases were partially offset by the impact of the previously mentioned estimated premium rebates, higher fully-insured enrollment, and the impact in 2019 of favorable prior period reserve development.2021.

•
Claims incurred in the Medicare business increased by $92.2 million, or 15.2%, during the 2021 period and its MLR increased 640 basis points, to 86.4%.  The higher MLR reflects a more normalized utilization of services compared to the low utilization experienced in the prior-year period due to the pandemic, improved benefits in the 2021 product offerings, COVID-19-related testing and treatment costs and the waiver of medical and payment policies. These increases were partially offset by favorable prior period reserve development in the 2021 period.

•
Claims incurred in the Commercial business increased by $67.8 million, or 23.4%, during 2021 and its MLR increased 1,290 basis points, to 85.9%. These increases primarily result from higher claim trends, a more normalized utilization of services compared to low utilization in the prior year due to the pandemic, COVID-19-related testing and treatment costs, the waiver of medical and payment policies and the elimination of the HIP fee pass-through in 2021. These increases were partially offset by the lower fully insured membership enrollment.

Managed CareMedical Operating Expenses

Managed CareMedical operating expenses increaseddecreased by $61.3$49.6 million, or 29.8%18.6%, to $267.2 million. The operating expense ratio increased by 290 basis points to 16.6%$217.6 million, primarily reflecting the accrual in 2020. The higher operating expenses mostly result from the recognitionprior year of a contingency reserve related to a legal proceeding and the reinstatement in 2020elimination of the HIP fee of $31.2 million,in 2021 offset in part by a decreasean increase in the provision for doubtful accountspersonnel costs and professional fees. The operating expense ratio decreased 480 basis points to 11.8% in 2021.

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Life Insurance Segment Operating Results

 Three months ended  Six months ended  Three months ended  Six months ended 
 June 30,  June 30,  June 30,  June 30, 
(dollar amounts in millions) 2020  2019  2020  2019 
(dollar in millions) 2021  2020  2021  2020 
Operating revenues:                        
Premiums earned, net:                        
Premiums earned $50.6  $46.8  $99.6  $92.4  $56.9  $50.6  $112.1  $99.6 
Assumed earned premiums  -   0.3   -   1.0 
Ceded premiums earned  (2.5)  (2.1)  (4.8)  (4.2)  (2.9)  (2.5)  (5.6)  (4.8)
Premiums earned, net  48.1   45.0   94.8   89.2   54.0   48.1   106.5   94.8 
Net investment income  6.8   6.8   13.7   13.4   6.7   6.8   13.1   13.7 
Total operating revenues  54.9   51.8   108.5   102.6   60.7   54.9   119.6   108.5 
Operating costs:                                
Policy benefits and claims incurred  20.6   27.3   48.0   53.3   29.6   20.6   59.0   48.0 
Underwriting and other expenses  24.8   19.3   46.0   38.4   24.7   24.8   48.4   46.0 
Total operating costs  45.4   46.6   94.0   91.7   54.3   45.4   107.4   94.0 
Operating income $9.5  $5.2  $14.5  $10.9  $6.4  $9.5  $12.2  $14.5 
Additional data:                                
Loss ratio  42.8%  60.7%  50.6%  59.8%  54.8%  42.8%  55.4%  50.6%
Operating expense ratio  51.6%  42.9%  48.5%  43.0%  45.7%  51.6%  45.4%  48.5%

Three Months Ended June 30, 20202021 Compared to Three Months Ended June 30, 20192020

Operating Revenues

Premiums earned, net increased by $3.1$5.9 million, or 6.9%12.3%, to $48.1$54.0 million, mainly as the result of higher sales, mainly in the Individual Life, Cancer, and Group Business lines of business, and by the acquisition of an insurance portfolio during this quarter. Although premiums increased over the same period last year, premium growth slowed down during the second quarter as a result of the two-month government enforced lockdown due to COVID-19.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred decreased by $6.7 million, or 24.5%, to $20.6 million, mostly as the result of lower actuarial reserves following an increase of policy cancellations and lower claim levels through all lines of business due to the lockdown. As a result, the segment’s loss ratio decreased 1,790 basis point to 42.8%.
Underwriting and Other Expenses
Underwriting and other expenses increased $5.5 million, or 28.5%, to $24.8 million mostly reflecting higher amortization of deferred acquisition costs as a result of policy cancellations following the segment’s lower volume of business due to the COVID-19 lockdown. The segment’s operating expense ratio increased 870 basis points to 51.6%.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Operating Revenues
Premiums earned, net increased by $5.6 million, or 6.3%, to $94.8 million, mainlyprimarily as the result of higher sales across all lines of business, particularly in the Individual Life and Cancer lines of business. Although premiums increased over the same period lastLast year premium growth slowed down during the two-month COVID-19 government-enforced lockdown, which severely affected sales and increased policy cancellations.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $9.0 million, or 43.7%, to $29.6 million, primarily as the result of higher actuarial reserves, due to higher persistency during the period, and higher benefits paid driven by the lower volume of claim submissions in the prior year quarter following the government-enforced lockdown due to COVID-19 pandemic. As a result, the segment’s loss ratio increased 1,200 basis points, to 54.8%.

Underwriting and Other Expenses

Underwriting and other expenses decreased $0.1 million, or 0.4%, to $24.7 million, while the segment’s operating expense ratio decreased 590 basis points, to 45.7%.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Operating Revenues

Premiums earned, net increased by $11.7 million, or 12.3%, to $106.5 million, primarily as the result of increased persistency and new sales across all lines of business, particularly in the Individual Life, Cancer and Group Life lines of business. In addition, during the second quarter as a result of 2020, this segment acquired an insurance portfolio that contributed additional premiums in the two-month government enforced lockdown.Cancer and Group Life lines of business.

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Policy Benefits and Claims Incurred

Policy benefits and claims incurred decreasedincreased by $5.3$11.0 million, or 9.9%22.9%, to $48.0$59.0 million, mostlyprimarily as the result of lowerhigher actuarial reserves, followingdue to higher policy cancellations than usual, mainlypersistency during the period, and higher benefits paid driven by the lower volume of claim submissions in the Home Services line of business afterprior year quarter following the government-enforced lockdown due to COVID-19 lockdown. pandemic. As a result, the segment’s loss ratio decreased 920increased 480 basis pointpoints, to 50.6%55.4%.

Underwriting and Other Expenses

Underwriting and other expenses increased $7.6$2.4 million, or 19.8%5.2%, to $46.0$48.4 million, mostlyprimarily reflecting an increase in commissions expense resulting from higher sales during the period, offset in part by lower amortization of deferred acquisition costs as a result of policy cancellations due to the lockdown.costs. The segment’s operating expense ratio increased 550decreased 310 basis points to 48.5%.

Property and Casualty Insurance Operating Results

 Three months ended  Six months ended 
  June 30,  June 30, 
(dollar amounts in millions) 2020  2019  2020  2019 
Operating revenues:            
Premiums earned, net:            
Premiums written $38.4  $36.4  $71.6  $67.3 
Premiums ceded  (14.3)  (10.3)  (30.7)  (23.7)
Change in unearned premiums  (1.7)  (4.3)  2.1   (2.5)
Premiums earned, net  22.4   21.8   43.0   41.1 
Net investment income  2.3   2.4   4.4   4.9 
Total operating revenues  24.7   24.2   47.4   46.0 
Operating costs:                
Claims incurred  6.5   9.4   17.4   18.0 
Underwriting and other expenses  11.5   10.0   23.5   19.7 
Total operating costs  18.0   19.4   40.9   37.7 
Operating income $6.7  $4.8  $6.5  $8.3 
Additional data:                
Loss ratio  29.0%  43.1%  40.5%  43.8%
Operating expense ratio  51.3%  45.9%  54.7%  47.9%

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Operating Revenues
Total premiums written increased by $2.0 million, or 5.5%, to $38.4 million, driven by higher sales of Commercial Package policies partially offset by a decrease in Commercial Liability policies.
The premiums ceded to reinsurers increased by $4.0 million, or 38.8%, as a result of the increase in premiums written and higher costs in nonproportional reinsurance mostly resulting from lower reinsurance premium adjustment in current period when compared to the same period in prior year.
The change in unearned premiums is $2.6 million lower than the same period in prior year mostly resulting from the effects of the changes in the quotas share cession. In current year the commercial quota share changed from 25% to 20% and in prior year the quota share changed from 35% to 25%.
Claims Incurred
Claims incurred decreased by $2.9 million, or 30.9%, to $6.5 million primarily driven by better loss experience in the segment’s ongoing business resulting from the effects of the lockdown. As a result, the loss ratio decreased 1,410 basis points, from 43.1% to 29.0%45.4%.

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Property and Casualty Insurance Operating Results

 
Three months ended
June 30,
  
Six months ended
June 30,
 
(dollar in millions) 2021  2020  2021  2020 
Operating revenues            
Premiums earned, net:            
Premiums written $41.2  $38.4  $77.8  $71.6 
Premiums ceded  (14.4)  (14.3)  (29.4)  (30.7)
Change in unearned premiums  (1.5)  (1.7)  2.2   2.1 
Premiums earned, net  25.3   22.4   50.6   43.0 
Net investment income  2.3   2.3   4.3   4.4 
Total operating revenues  27.6   24.7   54.9   47.4 
Operating costs   ��            
Claims incurred  11.6   6.5   21.1   17.4 
Underwriting and other expenses  14.0   11.5   28.0   23.5 
Total operating costs  25.6   18.0   49.1   40.9 
Operating income $2.0  $6.7  $5.8  $6.5 
Additional data:                
Loss ratio  45.8%  29.0%  41.7%  40.5%
Operating expense ratio  55.3%  51.3%  55.3%  54.7%

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Operating Revenues

Total premiums written increased by $2.8 million, or 7.3%, to $41.2 million, primarily driven by higher premiums in Personal Package, Commercial Auto and Commercial Property products, partially offset by a decrease in Commercial Package products.

Claims Incurred

Claims incurred increased by $5.1 million, or 78.5%, to $11.6 million, primarily resulting from lower losses in the 2020 period in the segment’s on-going business as a result of the two-month government-enforced lockdown because of the COVID-19 pandemic. As a result, the loss ratio increased 1,680 basis points, to 45.8% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $1.5$2.5 million, or 15.0%21.7%, to $11.5$14.0 million mostlyprimarily due to higher net commission expense following the increase in net premiums earned. The net commission expense for the current period is unfavorably impacted by a lower capitalization of deferred acquisition costs. The operating expense ratio was 51.3%55.3%, 540400 basis points higher than prior year.

Six Months Ended June 30, 20202021 Compared to Six Months Ended June 30, 20192020

Operating Revenues

Total premiums written increased by $4.3$6.2 million, or 6.4%8.7%, to $71.6$77.8 million, mostlyprimarily driven by higher premiums, particularly in Personal Package, Commercial Package,Property, Commercial Auto and Commercial PropertyLiability products, partially offset by lowera decrease in Commercial Liability premiums.Package products.

The premiums ceded to reinsurers increaseddecreased by $7.0$1.3 million, or 29.5%4.2%, mostlyprimarily due to approximately $3.0 million of the reinsurance reinstatement premiums in 2020 following the losses recorded after the earthquakes experienced in the southwest region of Puerto Rico in January 2020, as well as higher premiums written and increased nonproportional reinsurance costs.
The changeoffset in unearned premiums is favorably impacting premiums earnedpart by $4.6 million when compared to prior year mostly reflecting the benefits of the changesan increase in the commercial quota share program.cost of catastrophe reinsurance protection.

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Claims Incurred

Claims incurred decreasedincreased by $0.6$3.7 million, or 3.3%21.3%, to $17.4$21.1 million mostly due to better loss experienceprimarily resulting from lower losses in the segment’s on-going business due to the effects2020 period because of the COVID-19 measures and lockdown, partiallypandemic, offset in part by the recognition of $5.0 million of earthquake losses after the January 2020 events. As a result, the loss ratio improvedincreased by 330120 basis points, to 40.5%41.7% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $3.8$4.5 million, or 19.3%19.1%, to $23.5$28.0 million, mostly due tobecause of higher net commission expense following the increase in net premiums earned. Current year net commission expense is impactedaffected by a lower capitalization of deferred acquisition costscosts. . The operating expense ratio was 54.7%55.3%, 68060 basis points higher 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:

 Six months ended  
Six months ended
June 30,
 
 June 30, 
(dollar amounts in millions) 2020  2019 
(dollar in millions) 2021  2020 
Sources (uses) of cash:            
Cash provided by operating activities $170.3  $26.3  $75.0  $170.3 
Net (purchases) proceeds of investment securities  (105.6)  25.5 
Net purchases of investment securities  (64.3)  (105.6)
Net capital expenditures  (45.9)  (10.7)  (11.2)  (45.9)
Capital contribution on equity method investees  (4.9)  -   -   (4.9)
Proceeds from long-term borrowings  30.8   -   -   30.8 
Payments of long-term borrowings  (1.6)  (1.6)  (2.2)  (1.6)
Net change in short-term borrowings  (39.0)  -   15.0   (39.0)
Proceeds from policyholder deposits  16.4   8.2   9.5   16.4 
Surrenders of policyholder deposits  (8.2)  (11.4)  (5.6)  (8.2)
Repurchase and retirement of common stock  (14.9)  -   -   (14.9)
Other  33.8   12.4   47.2   33.8 
Net increase in cash and cash equivalents $31.2  $48.7  $63.4  $31.2 

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The increasedecrease of approximately $144.0$95.3 million in net cash provided by operating activities is mostly due to higher premium collections partiallyclaims paid in the Managed Care segments, offset in part by higher claimspremiums collections, and lower income taxes paid.paid, and lower cash paid to suppliers and employees.

Net (purchases) proceeds from investmentThe net purchases of investments in securities are part of our asset/liability management strategy.

The increasedecrease in capital contribution reflects capital contributions made in the 2020 period in exchange for a participation in equity method investees.
On June 19, 2020, TSM entered into a $31.4 million Credit Agreement (the Loan) with a commercial bank in Puerto Rico. The proceeds of the Loan were used by the Company to partially finance the acquisition of a Building, which such acquisition is included within the capital expenditures in the statement of cash flows.  For further details, see Note 9 of the condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

The net change in short-term borrowings represents the repaymentadvances of short-term facilities available to address timing differences between cash receipts and disbursements.

The fluctuation in other sources of cash reflects the $13.2 million change in outstanding checks in excess of bank balances.

Stock Repurchase Program

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.  In October 2019 the Company’s Board of Directors authorized an additional expansion to this program increasing its remaining balance up to a total of $25.0 million, effective November 2019.  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 sixthree months ended June 30,March 31, 2020, the Company repurchased and retired under this program 952,820577,447 shares at an average per share price of $15.72,$15.57, for an aggregate cost of $15.0 million, completing the amount available for repurchases under this program.$9.0 million. The program was completed in 2020.

The fluctuation in other sources
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Table of cash reflects the $20.8 million change in outstanding checks in excess of bank balances.Contents
Financing and Financing Capacity

Long-Term Borrowings

TSM has a $35.5 million credit agreement (the Loan) 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 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) 100 basis points over LIBOR for Term Loan A, (ii) 275 basis points over LIBOR for Term Loan B, and (iii) 325 basis points over LIBOR for Term Loan C.  The loan includes certain financial and non-financial covenants, which are customary for this type of facility, including negative covenants imposing certain restrictions on the Company’s business.  Failure to meet these covenants may trigger the accelerated payment of the outstanding balance.  As of June 30, 2020, we areThe Company was in compliance with these covenants.covenants as of June 30, 2021.

As detailed above, the three term loans under our credit agreement with a commercial bank in Puerto Rico bear interest rates in relation to 1-month and 3-month LIBOR, a widely used interest rate benchmark.

In July 2017, the Financial Conduct Authority (“FCA”)(FCA) in the United Kingdom, which regulates LIBOR, announced that it would phase out this benchmark by the end of 2021. In response, the U.S. Federal Reserve convened the Alternative Reference Rates Committee (“ARRC”)(ARRC), a working group comprised of private market participants, to ensure a transition to a new reference rate.

The ARRC has recommended the use of the Secured Overnight Financing Rate (“SOFR”)(SOFR), which is an index based on the cost of borrowing overnight cash collateralized by U.S. Treasury securities. Currently, there is no definitive information regarding the future use of SOFR as a widely accepted benchmark or any other replacement rate.
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If LIBOR rates are no longer available and we have not agreed with the bank on a replacement rate, we are subject to an alternative benchmark rate, as defined in the credit agreement of our long-term bank loan.  At this time we cannot assess the impact, if any, on the interest paid on this loan. We are in regular contact with the lender about this subject, but at this point the bank has not yet determined a course of action. Alternatively, the loan could be refinanced by us without prepayment penalties.

We will closely follow any new developments regarding the LIBOR phase out.

On June 19, 2020, TSM entered into a $31.4 million Credit Agreement with a commerciaIcommercial bank in Puerto Rico. The proceeds of the Loanproceeds were used by the Company to partially finance the acquisition of a Building.building. The Credit Agreement is guaranteed by a mortgage over the Building,building, a pledge of all collateral relaterelated to the Buildingbuilding and an assignment of the rents collected for the lease of office space in the Building.building. Approximately 64.25% of the acquired Buildingbuilding is currently leased to thirdthird parties. The Company expectsto move withinis in the next yearprocess of moving some of its offices currently leased to third parties to thethe new Buildingbuilding and together with the leased spaceexpects to fully occupy the new facilities.facilities together with the leased space. Pursuant to the credit agreement,Credit Agreement, interest is payable on the outstanding principal balance of the Loan at an annual rate equal to the Prime Rate. Interest shall be paid on a monthly basis commencingMonthly interest payments commenced on July 1, 2020 and will continue to be paid each month until the principal of the Loan has been paid in full.

The Company may, at its option and at any time, upon notice as specified in the credit agreement,Credit Agreement, prepay prior to maturity, all, or any part of the Term Loan upon the payment of a penalty fee of the outstanding principal amount at the time of the prepayment of 3% during the first year, 2% during the second year, and 1% during the third year and thereafter at par.

The Credit Agreement includes certain customary financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business. The Company was in compliance with these covenants as of June 30, 2020.2021.

See
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For further details, see Note 913, Borrowings, of the condensed consolidated interim financial statements includedNotes to Consolidated Financial Statements in this QuarterlyItem 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-Q10-K for a summary of the long-term borrowings.year ended December 31, 2020.

Short-Term Facilities

We have several short-term facilities available to address timing differences between cash receipts and disbursements, consisting of collateralized advances from the Federal Home Loan Bank of New York (“FHLBNY”)(FHLBNY) and a revolving credit facility.  See Note 98 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for details of available short-term facilities.

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

For further details, see Note 13, Borrowings, of the Notes to the Consolidated Financial Statements, included in “Item 8, Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 2019.
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, 2019.2020.  A discussion of our market risk is incorporated by reference to “ItemItem 7A. Quantitative and Qualitative Disclosures about Market Risk”Risk included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.

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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,Management, under the supervision and with the participation of the chief executive officerPresident and chief financial officer,Chief Executive Officer and Executive Vice President 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,Management, including the chief executive officerPresident and chief financial officer,Chief Executive Officer and Executive Vice President 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 officerPresident and chief financial officerChief Executive Officer and Executive Vice President and Chief Financial Officer have concluded that as of June 30, 2020,2021, 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 officerPresident and chief financial officerChief Executive Officer and Executive Vice President and Chief Financial Officer completed the evaluation referred to above.

Changes in Internal Controls Over Financial Reporting

No changes in ourThe Company hired a new Chief Financial Officer, Victor J. Haddock-Morales, replacing Juan J. Román Jiménez, who retired. As the Company’s principal financial officer, Mr. Haddock-Morales, will oversee the Company’s internal control overcontrols and financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended June 30, 2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.moving forward.

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Part II – Other Information

Item 1.Legal Proceedings

For a descriptionNone of the legal proceedings that have experienced significant developments during this quarter, seedisclosed in Note 17 to25 of the unaudited condensed consolidated interim financial statements includedConsolidated Financial Statements in this quarterly reportthe Company’s 2020 Annual Report on Form 10-Q.10-K had a material development during the six months ended June 30, 2021.

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, 2019.
The following risk factor was updated during the three months ended June 30, 2020.
The COVID-19 pandemic and local, state and federal governments’ response to the pandemic may have a material adverse effect on our business, financial condition and results of operations.
On March 11, 2020, the World Health Organization characterized the outbreak of a novel strain of coronavirus (COVID-19) as a global pandemic.  In response, the Puerto Rico Governor issued a stay at home order (as amended and extended, the “Order”) from March 15, 2020 until June 16, 2020.  The Order required the closure of non-essential businesses for the same period of time.  On May 1, 2020, the Governor issued a new order providing for the gradual re-opening of the economy beginning on May 4, 2020, provided that the risk of contagion does not increase significantly.  New sales have been affected in all our segments and lines of business during the lockdown as sales functions in all our businesses, had to be performed remotely given that they were not considered essential under the Order.

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At this point it is not possible to reliably estimate the length or severity of this outbreak, the length and effectiveness of government and private sector mitigation measures, and other variables which will determine the ultimate financial impact of the pandemic on the Company.  Additionally, the situation is rapidly developing and evolving.  We are therefore unable to reliably estimate the ultimate impact of the COVID-19 pandemic on the Company.  However, certain risks discussed in our 2019 Annual Report on Form 10-K may increase or materialize.  We are closely monitoring the development of the situation to assess its impact on our business.  We have experienced a temporary decrease in utilization caused by postponement or cancelation of elective services and medical appointments driven by the Order, which could cause our MLR to temporarily drop below the Affordable Care Act (ACA) and Medicare required ratios.  Conversely, the pandemic could result in a material increase in medical claims as COVID-19 cases increases and the return of deferred utilization.  In addition, the postponement or cancellation of medical appointments, treatments and evaluations in our High Cost High Needs (HCHN) Medicaid membership during the pandemic has and may continue to affect our ability to provide qualifying encounter or utilization data to certify them as such, which has and may continue to result in assignment of such members to a different rate cell with lower premium payments and retroactive premium adjustments by ASES. See Item 1A.  Risk Factors – Risks Relating to the Regulation of Our Industry– “ASES’s risk adjustment payment system and payment structure, and its dependence on scarce or unavailable data, make our revenue and profitability difficult to predict and could result in material retroactive adjustments to our results of operations.”
Furthermore, COVID-19 related federal and state legislation and regulation may adversely impact our business, financial condition and results of operations. For example, the U.S. and Puerto Rico legislatures have enacted or are contemplating measures requiring health care insurers to cover and/or waive pre-authorization and cost-sharing for COVID-19 related testing, vaccines, treatment or services, which may adversely affect our profitability.  In addition, any legislation requiring insurance companies to make advance payments to providers not linked to services previously provided increases our credit risk and could have a material impact on our business financial conditions and results of operations.
See Item 1A.  Risk Factors – Risks Related to our Business – “Our inability to contain managed care costs may adversely affect our business and profitability” included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Our Property & Casualty business interruption policies include an exclusion of coverage due to virus or bacteria.  However, there are federal and local legislative efforts to retroactively eliminate such exclusions or otherwise require property and casualty insurers to cover COVID-19 losses under their business interruption policies.  While we believe this type of legislative measure could be challenged on constitutional and other grounds, if successfully implemented, it would have a material adverse effect on our Property and Casualty Insurance segment.  With respect to our Life segment, there is a risk that the pandemic result in a higher number of deaths, and therefore a higher number of claims for death benefits than assumed in our actuarial models.
See Item 1A. Risk Factors – Risks Related to our Business – “Large-scale natural disasters may have a material adverse effect on our business, financial condition and results of operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Finally, while estimates vary, the COVID-19 pandemic is widely considered to have had and continue to have a significant effect on the Puerto Rico, U.S. and global economies. Financial market volatility caused by the pandemic may decrease the value of our investment portfolios, including our pension plan asset portfolio. Furthermore, as the financial capacity of our customers is adversely affected, we may experience delinquency in premium payments and ultimately a decrease in insured customers in our commercial line of business and premiums earned, net, or other adverse effects. See Item 1A. Risk Factors – Risks Related to our Business – “Our investment portfolios are subject to varying economic and market conditions.” See also “The securities and credit markets could experience extreme volatility and disruption.” and “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.” included in our Annual Report on Form 10-K for the year ended December 31, 2019.
These and other risks, some of which we may be unable to identify at this time due to the evolving and highly uncertain nature of this event, could adversely impact our business, financial condition and results of operations.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

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

(Dollar amounts in millions, except per share data) 
Total Number
of Shares
Purchased
(1)
  
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
 
             
Apri 1, 2020 to April 30, 2020  197,739  $15.15   197,739  $3.0 
May 1, 2020 to May 31, 2020  177,634   16.87   177,634   - 
June 1, 2020 to June 30, 2020  -   -   -   - 
(Dollar amounts in millions, except per share data) 
Total Number
of Shares
Purchased (1)
  
Average
Price
Paid per
Share
  
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs
  
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
Programs
 
             
April 1, 2021 to April 30, 2021  -  $-   -  $- 
May 1, 2021 to May 31, 2021  -   -   -   - 
June 1, 2021 to June 30, 2021  20,823   23.15   -   - 

(1) In August 2017 Represents shares repurchased and retired as the result of non-cash tax witholdings upon vesting of shares of participants under the Company’s Boardequity compensation plans.  In June 2021, 20,823 shares were repurchased and retired as the result of Directors authorized a $30.0 million Share Repurchase Programnon-cash tax witholdings upon vesting of its Class B common stock. In October 2019 the Company’s Board of Directors authorized an expansion to this repurchase program, effective November 2019, increasing its remaining balance up to a total of $25.0 million.shares.

Item 3.Defaults Upon Senior Securities
 
Not applicable.
 
Item 4.Mine Safety Disclosures
 
Not applicable.
 
Item 5.Other Information

We are reporting the following events corresponding to Item 1.01 of Form 8-K (Entry into a Material Definitive Agreement).
 
On August 5, 2020, Triple-S Salud, Inc., a Puerto Rico insurance company (“Triple-S”) and managed care subsidiary of Triple-S Management Corporation (the “Company”), entered into two amendments (collectively, the “Amendments”) with the Puerto Rico Health Insurance Administration (“ASES,” by its Spanish acronym) for the offering of health care services for the Medicaid and Child Health Insurance subscribers for the Government of Puerto Rico’s revised Medicaid health insurance program (the “Contract”). The Company announced the entry into the Contract under Item 1.01 of a Current Report on Form 8-K dated September 27, 2018, an amendment to the Contract under Item 1.01 of a Current Report on Form 8-K dated November 6, 2019 and a further amendment to the Contract under Item 1.01 of a Current Report on Form 8-K dated November 19, 2019.Not applicable.
 
The first amendment (“Amendment I”), among other things, extended the rating period which ended on June 30, 2020 to July 31, 2020 (the “Extension Period”) to provide Triple-S and ASES additional time to negotiate revised PMPM for the rating period commencing on July 1, 2020. During the Extension Period, the existing per member per month payment rates made by ASES to Triple-S under the Contract for enrollees remained the same. In addition, Amendment I provides that upon final agreement of revised per member per month payment rates, and the approval of such payment rates by CMS and the Financial Oversight and Management Board for Puerto Rico, such rates would be effective as of July 1, 2020, and ASES and Triple-S would reconcile any differences in per member per month payments made during the Extension Period as a result of the revised rates.
The second amendment (“Amendment J”), among other things, extended the rating period which ended on July 31, 2020 (as a result of Amendment I) to August 31, 2020 (the “Additional Extension Period”) to provide Triple-S and ASES additional time to negotiate revised PMPM for the rating period commencing on July 1, 2020. During the Additional Extension Period, the existing per member per month payment rates made by ASES to Triple-S under the Contract for will remain the same. In addition, Amendment J provides that upon final agreement of revised per member per month payment rates, and the approval of such payment rates by CMS and the Financial Oversight and Management Board for Puerto Rico, such rates would be effective as of July 1, 2020, and ASES and Triple-S would reconcile any differences in per member per month payments made during the Additional Extension Period as a result of the revised rates.
The foregoing summary of the terms and conditions of the Amendments is subject to, and qualified in its entirety by, the full text of the Amendments included as exhibits to this Quarterly Report on Form 10-Q.
 
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Item 6.Exhibits

ExhibitsDescription
  
10.1*
Amendment to the contract between Administracion de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health Services under the Government Health Plan dated as of May 1, 2020.
10.2*
Amendment to the contract between Administracion de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health Services under the Government Health Plan dated as of June 29, 2020.
10.3*
Amendment to the contract between Administracion de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health Services under the Government Health Plan dated as of July 31, 2020.
11
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three and six months ended June 30, 20202021 and 20192020 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:August 6, 20205, 2021 By:/s/ Roberto García-Rodríguez 
    Roberto García-Rodríguez
    President and Chief Executive Officer
     
Date:August 6, 20205, 2021 By:/s/ JuanVictor J. Román-JiménezHaddock-Morales 
    JuanVictor J. Román-JiménezHaddock-Morales
    Executive Vice President and Chief Financial Officer



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