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 JuneSeptember 30, 2021

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, $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 JuneSeptember 30, 2021
  
Common Stock, $1.00 par value23,796,03723,794,612





Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended JuneSeptember 30, 2021

Table of Contents

Part I – Financial Information
3
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Cautionary Statement Regarding Forward-Looking Information
28
Overview
28
Recent Developments
29
Recent Accounting Standards
3233
Managed Care Membership
3233
Consolidated Operating Results
3334
Managed Care Operating Results
3536
Life Insurance Operating Results
3839
Property and Casualty Insurance Operating Results
40
Liquidity and Capital Resources
41
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
43
Item 4.  Controls and Procedures
43
Part II – Other Information
44
Item 1.  Legal Proceedings
44
Item 1A.  Risk Factors
44
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
4445
Item 3.  Defaults Upon Senior Securities
4445
Item 4.  Mine Safety Disclosures
4445
Item 5.  Other Information
4445
Item 6.  Exhibits
4546
SIGNATURES
4647


2
Table of Contents

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

 
June 30,
2021
  
December 31,
2020
  
September 30,
2021
  
December 31,
2020
 
Assets            
Investments and cash:            
Fixed-maturities available-for-sale, at fair value $1,288,691  $1,342,465  $1,290,234  $1,342,465 
Fixed-maturities held-to-maturity, at amortized cost  1,866   1,867   1,870   1,867 
Equity investments, at fair value  523,430   404,328   518,765   404,328 
Other invested assets, at net asset value  117,767   114,905   119,396   114,905 
Policy loans  10,422   10,459   10,480   10,459 
Cash and cash equivalents  174,390   110,989   122,709   110,989 
Total investments and cash  2,116,566   1,985,013   2,063,454   1,985,013 
Premiums and other receivables, net  484,617   488,840   496,477   488,840 
Deferred policy acquisition costs and value of business acquired  252,064   248,325   255,010   248,325 
Property and equipment, net  136,146   131,974   137,762   131,974 
Deferred tax asset  107,942   119,534   111,206   119,534 
Goodwill  28,614   28,614   28,614   28,614 
Other assets  99,513   86,118   99,143   86,118 
Total assets $3,225,462  $3,088,418  $3,191,666  $3,088,418 
Liabilities and Stockholders’ Equity                
Claim liabilities $809,548  $787,102  $798,508  $787,102 
Liability for future policy benefits  430,950   414,997   438,008   414,997 
Unearned premiums  97,221   97,481   101,331   97,481 
Policyholder deposits  213,300   206,109   214,912   206,109 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs  45,665   45,109   35,358   45,109 
Accounts payable and accrued liabilities  382,116   332,699   389,918   332,699 
Deferred tax liability  14,249   15,046   13,533   15,046 
Short-term borrowings  45,000   30,000   0   30,000 
Long-term borrowings  50,583   52,751   49,498   52,751 
Liability for pension benefits  132,077   139,611   133,659   139,611 
Total liabilities  2,220,709   2,120,905   2,174,725   2,120,905 
Stockholders’ equity:                
Triple-S Management Corporation stockholders’ equity                
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 
Common stock, $1 par value. Authorized 100,000,000 shares;
  
   
 
issued and outstanding 23,794,612 and 23,430,292 shares at        
September 30, 2021 and December 31, 2020, respectively  23,795   23,430 
Additional paid-in capital  60,484   57,399   63,471   57,399 
Retained earnings  944,091   897,221   952,258   897,221 
Accumulated other comprehensive loss, net  (22,892)  (9,820)  (21,850)  (9,820)
Total Triple-S Management Corporation stockholders’ equity  1,005,479   968,230   1,017,674   968,230 
Non-controlling interest in consolidated subsidiary  (726)  (717)  (733)  (717)
Total stockholders’ equity  1,004,753   967,513   1,016,941   967,513 
Total liabilities and stockholders’ equity $3,225,462  $3,088,418  $3,191,666  $3,088,418 

The accompanying notes are 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 in thousands, except per share information)

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  2021  2020  2021  2020 
Revenues                        
Premiums earned, net $987,880  $858,535  $1,996,316  $1,734,432  $1,019,696  $922,934  $3,016,012  $2,657,366 
Administrative service fees  2,676   2,809   5,441   5,003   3,875   3,752   9,316   8,755 
Net investment income  14,960   13,815   28,606   28,126   17,572   14,168   46,178   42,294 
Other operating revenues  1,817   303   4,593   4,342   3,925   2,052   8,518   6,394 
Total operating revenues  1,007,333   875,462   2,034,956   1,771,903   1,045,068   942,906   3,080,024   2,714,809 
Net realized investment gains (losses)  2,514   (221)  2,731   (687)  1,015   507   3,746   (180)
Net unrealized investment gains (losses) on equity investments  12,743   28,338   21,295   (28,468)
Net unrealized investment (losses) gains on equity investments  (7,912)  11,040   13,383   (17,428)
Other income, net  4,851   801   7,962   4,406   11,085   1,811   19,047   6,217 
Total revenues  1,027,441   904,380   2,066,944   1,747,154   1,049,256   956,264   3,116,200   2,703,418 
Benefits and expenses                                
Claims incurred, net of reinsurance  844,064   653,087   1,694,622   1,367,609   878,947   761,792   2,573,569   2,129,401 
Operating expenses  151,253   178,659   302,354   340,860   154,526   158,809   456,880   499,669 
Total operating costs  995,317   831,746   1,996,976   1,708,469   1,033,473   920,601   3,030,449   2,629,070 
Interest expense  2,217   1,864   4,209   3,717   2,016   2,096   6,225   5,813 
Total benefits and expenses  997,534   833,610   2,001,185   1,712,186   1,035,489   922,697   3,036,674   2,634,883 
Income before taxes  29,907   70,770   65,759   34,968   13,767   33,567   79,526   68,535 
Income tax expense  6,353   27,181   18,898   17,531   5,607   9,989   24,505   27,520 
Net income  23,554   43,589   46,861   17,437   8,160   23,578   55,021   41,015 
Net loss attributable to non-controlling interest  6   10   9   17   7   3   16   20 
Net income attributable to Triple-S Management Corporation $23,560  $43,599  $46,870  $17,454  $8,167  $23,581  $55,037  $41,035 
Earnings per share attributable to Triple-S Management Corporation                                
Basic net income per share $1.00  $1.88  $2.01  $0.75  $0.35  $1.02  $2.35  $1.77 
Diluted net income per share $1.00  $1.87  $1.99  $0.75  $0.35  $1.02  $2.34  $1.76 

The accompanying notes are 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 (Loss) (Unaudited)
(dollar in thousands)

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  2021  2020  2021  2020 
Net income $23,554  $43,589  $46,861  $17,437  $8,160  $23,578  $55,021  $41,015 
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   421   4,743   (13,869)  32,023 
Defined benefit pension plan:                                
Actuarial loss, net  609   153   1,218   306   621   247   1,839   553 
Total other comprehensive income (loss), net of tax  2,872   11,554   (13,072)  27,586   1,042   4,990   (12,030)  32,576 
Comprehensive income  26,426   55,143   33,789   45,023   9,202   28,568   42,991   73,591 
Comprehensive loss attributable to non-controlling interest  6   10   9   17   7   3   16   20 
Comprehensive income attributable to Triple-S Management Corporation $26,432  $55,153  $33,798  $45,040  $9,209  $28,571  $43,007  $73,611 

The accompanying notes are 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 in thousands)

 
Class A
Common
Stock
  
Class B
Common
Stock
  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
(Loss) Income
  
Triple-S
Management
Corporation
Stockholders’
Equity
  
Non-controlling
Interest in
Consolidated
Subsidiary
  
Total
Stockholders’
Equity
 
 
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  $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   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   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  $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   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)  0   (21)  (461)  0   0   (482)  0   (482)
Comprehensive income (loss)  0   0   0   23,560   2,872   26,432   (6)  26,426   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  $0  $23,796  $60,484  $944,091  $(22,892) $1,005,479  $(726) $1,004,753 
Share-based compensation  0   1   3,030   0   0   3,031   0   3,031 
Repurchase and retirement of common stock  0   (2)  (43)  0   0   (45)  0   (45)
Comprehensive income (loss)  0   0   0   8,167   1,042   9,209   (7)  9,202 
Balance, September 30, 2021 $0  $23,795  $63,471  $952,258  $(21,850) $1,017,674  $(733) $1,016,941 
                                                                
Balance, December 31, 2019
 $0  $23,800  $60,504  $830,198  $29,363  $943,865  $(693) $943,172  $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   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)  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)
Comprehensive income (loss)  0   0   0   (26,145)  16,032   (10,113)  (7)  (10,120)
Cumulative effect adjustment due to implementation of ASU 2016-13  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  $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   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)  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   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  $0 ��$23,438  $52,372  $847,486  $56,949  $980,245  $(710) $979,535 
Share-based compensation  0   7   1,842   0   0   1,849   0   1,849 
Repurchase and retirement of common stock  0   (15)  (250)  0   0   (265)  0   (265)
Comprehensive income (loss)  0   0   0   23,581   4,990   28,571   (3)  28,568 
Balance, September 30, 2020 $0  $23,430  $53,964  $
871,067  $61,939  $1,010,400  $(713) $1,009,687 

The accompanying notes are 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)
(dollarDollar amounts in thousands)

 
Six months ended
June 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020 
Cash flows from operating activities:            
Net income $46,861  $17,437  $55,021  $41,015 
Adjustments to reconcile net income to net cash provided by operating activities:        
Adjustments to reconcile net income to net cash
        
provided by operating activities:
        
Depreciation and amortization  7,113   7,744   10,667   10,855 
Net amortization of investments  1,550   1,270   2,290   2,151 
Provision for doubtful receivables  1,476   5,658 
Deferred tax expense (benefit)  13,100   (4,976)
(Reversal) provision for doubtful receivables  (340)  2,229 
Deferred tax expense
  8,635   2,277 
Net realized investment (gains) losses on sale of securities  (2,731)  687   (3,746)  180 
Net unrealized (gains) losses on equity investments  (21,295)  28,468   (13,383)  17,428 
Interest credited to policyholder deposits  3,259   3,160   4,874   4,788 
Share-based compensation  3,933   6,594   6,964   8,443 
Loss on disposition of property and equipment  0   154 
Gain on sale of property and equipment  0   154 
(Increase) decrease in assets:                
Premium and other receivables, net  2,233   22,359   (7,811)  26,038 
Deferred policy acquisition costs and value of business acquired  (2,677)  (5,588)  (5,474)  (10,827)
Deferred taxes  42   (91)  45   (109)
Other assets  (14,705)  (35,348)  (11,197)  (29,831)
Increase (decrease) in liabilities:                
Claim liabilities  22,446   15,956   11,406   77,662 
Liability for future policy benefits  15,953   10,188   23,011   22,099 
Unearned premiums  (260)  (3,845)  3,850   2,307 
Liability to Federal Employees’ Health Benefits and Federal Employees’ Programs  556   11,403   (9,751)  10,093 
Accounts payable and accrued liabilities  (1,897)  89,052   25,638   36,729 
Net cash provided by operating activities  74,957   170,282   100,699   223,681 

(Continued)

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

 
Six months ended
June 30,
 
 2021  2020  
Nine months ended
September 30,
 
       2021  2020 
Cash flows from investing activities:            
Proceeds from investments sold or matured:            
Securities available-for-sale:      
Securities available for sale:      
Fixed-maturities sold $113,336  $66,316  $140,866  $94,557 
Fixed-maturities matured/called  14,554   18,752   18,271   37,450 
Securities held-to-maturity:        
Securities held to maturity:        
Fixed-maturities matured/called  0   339   747   1,079 
Equity investments sold  76,348   72,775   99,951   80,152 
Other invested assets sold  14,855   11,814   19,652   13,231 
Other invested assets matured  210   0 
Acquisition of investments:                
Securities available for sale:                
Fixed-maturities  (102,356)  (91,930)  (129,066)  (206,387)
Securities held to maturity:                
Fixed-maturities  0   (340)  (751)  (1,087)
Equity investments  (172,177)  (160,104)  (199,046)  (201,324)
Other invested assets  (8,407)  (20,799)  (9,317)  (25,442)
Increase in other investments  (706)  (2,400)  (4,470)  (3,924)
Net change in policy loans  37   (97)  (21)  240 
Net capital expenditures  (11,200)  (45,927)  (16,948)  (52,549)
Capital contribution on equity method investees  0   (4,933)  0   (7,083)
Net cash used in investing activities  (75,506)  (156,534)  (80,132)  (271,087)
Cash flows from financing activities:                
Change in outstanding checks in excess of bank balances  47,264   34,024   20,594   16,814 
Proceeds from (repayments of) short-term borrowings  15,000   (39,000)
Net change in short-term borrowings  (30,000)  28,500 
Proceeds from long-term borrowings  0   30,841   0   30,841 
Repayments of long-term borrowings  (2,246)  (1,618)  (3,370)  (2,760)
Repurchase and retirement of common stock  0   (14,982)  0   (14,980)
Proceeds from policyholder deposits  9,516   16,421   12,594   21,586 
Surrenders of policyholder deposits  (5,584)  (8,200)  (8,665)  (12,829)
Net cash provided by financing activities  63,950   17,486 
Net cash (used in) provided by financing activities  (8,847)  67,172 
Net increase in cash and cash equivalents  63,401   31,234   11,720   19,766 
Cash and cash equivalents:                
Beginning of period  110,989   109,837   110,989   109,837 
End of period $174,390  $141,071  $122,709  $129,603 

See accompanying notes to unaudited condensed consolidated interim financial statements.


8
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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)


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. The condensed consolidated interim financial statements do not include all 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, 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 and sixnine months ended JuneSeptember 30, 2021 are not necessarily indicative of the results for the full year ending December 31, 2021.

2.Significant Accounting Policies

Recently Adopted Accounting Standards
 
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.
 
On December 18, 2019, the FASB issued Accounting StandardStandards Update (ASU) 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this 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 account 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 Goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should instead be considered a separate transaction; and (3) that an entity reflect the effect of an enacted change in tax laws or rates in the annual 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 this guidance did not have a material impact on the results of the Company’s consolidated financial statements.
 
On January 16, 2020, the FASB issued guidance to clarify the interaction between the accounting standards on recognition and measurement of financial 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 interest 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 forward contract or exercise of the purchase option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option. The Company adopted the 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 in thousands, except per share and share information)
(Unaudited)

Future Adoptions of Accounting Standards
 
On January 7, 2021, the FASB issued ASU 2021-01: Reference Rate Reform (Topic 848): Scope Refinement – to clarify the scope of the recent reference reform guidance in Topic 848. This ASU refines the scope 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 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 expedients and exceptions 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 ASU are effective immediately for all entities. The Company is currently in the process of identifying 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 sixnine months ended JuneSeptember 30, 2021 that could have a material impact on the Company’s financial position, operating results or financials statement disclosures.

10
Table of Contents

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

3.Investment in Securities

The amortized cost for debt securities and 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 of JuneSeptember 30, 2021, and December 31, 2020, were as follows:

 June 30, 2021 September 30, 2021 
 
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair value
 
                    
Fixed-maturities available-for-sale                    
Obligations of government-sponsored enterprises $21,320  $417  $(38) $21,699  $21,303  $294  $(53) $21,544 
U.S. Treasury securities and obligations of U.S. government instrumentalities  103,958   6,038   0   109,996   104,546   5,367   (4)  109,909 
Municipal securities  615,133   44,147   (618)  658,662   611,211   40,598   (853)  650,956 
Corporate bonds  177,610   25,427   (55)  202,982   177,640   23,510   (69)  201,081 
Residential mortgage-backed securities  275,611   14,224   (817)  289,018   284,745   16,807   (546)  301,006 
Collateralized mortgage obligations  5,829   505   0   6,334   5,301   437   0   5,738 
Total fixed-maturities available-for-sale $1,199,461  $90,758  $(1,528) $1,288,691  $1,204,746  $87,013  $(1,525) $1,290,234 

 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 

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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)

 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 
 September 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  $154  $0  $767 
Residential mortgage-backed securities  164   8   0   172 
Certificates of deposit  1,093   0   0   1,093 
Total fixed-maturities held-to-maturity $1,870  $162  $0  $2,032 

  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 

 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 
 September 30, 2021 
 
Amortized
cost
  
Gross
unrealized
gains
  
Gross
unrealized
losses
  
Estimated
fair value
 
   ��         
Other invested assets - Alternative investments $105,151  $17,908  $(3,663) $119,396 

 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 

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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)

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 JuneSeptember 30, 2021 and December 31, 2020 were as follows:

 June 30, 2021  September 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                                                      
Obligations of government-sponsored enterprises $4,094  $(38)  4  $0  $0   0  $4,094  $(38)  4  $4,665  $(22)  4  $1,518  $(31)  1
  $6,183  $(53)  5 
U.S. Treasury securities and obligations of U.S. government instrumentalities  983   (4)  1   0   0   0   983   (4)  1 
Municipal securities  63,123   (618)  15   0   0   0   63,123   (618)  15   70,535   (853)  16   0   0   0   70,535   (853)  16 
Corporate bonds  3,945   (55)  1   0   0   0   3,945   (55)  1   3,931   (69)  1   0   0   0   3,931   (69)  1 
Residential mortgage-backed securities  58,807   (817)  19   0   0   0   58,807   (817)  19   48,592   (546)  13   0   0   0   48,592   (546)  13 
Total fixed-maturities available-for-sale $129,969  $(1,528)  39  $0  $0   0  $129,969  $(1,528)  39  $128,706  $(1,494)  35  $1,518  $(31)  1  $130,224  $(1,525)  36 
Other invested assets - Alternative investments $6,771  $(388)  4  $18,284  $(3,569)  7  $25,055  $(3,957)  11  $2,439  $(105)  2  $18,022  $(3,558)  7  $20,461  $(3,663)  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-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 allowances for credit losses may be recorded in future periods. The Company from time to time may sell investments as part of its asset/liability management process or to reposition its investment portfolio based on current and expected market conditions.

 
Obligations of government-sponsored enterprises, U.S. treasury securities and obligations of U.S government instrumentalities, 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: 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, 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-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 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: As of JuneSeptember 30, 2021, alternative investments with unrealized losses were not considered credit-impaired based on market conditions.

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

 June 30, 2021  September 30, 2021 
 
Amortized
cost
  
Estimated
fair value
  
Amortized
cost
  
Estimated
fair value
 
Fixed-maturities available-for-sale            
Due in one year or less $52,773  $53,720  $60,380  $61,218 
Due after one year through five years  566,110   602,331   572,854   605,722 
Due after five years through ten years  171,147   180,602   149,432   157,360 
Due after ten years  127,991   156,686   132,034   159,190 
Residential mortgage-backed securities  275,611   289,018   284,745   301,006 
Collateralized mortgage obligations  5,829   6,334   5,301   5,738 
 $1,199,461  $1,288,691  $1,204,746  $1,290,234 
Fixed-maturities held-to-maturity                
Due in one year or less $1,089  $1,089  $1,093  $1,093 
Due after five years through ten years  613   777 
Due after ten years  613   767 
Residential mortgage-backed securities  164   173   164   172 
 $1,866  $2,039  $1,870  $2,032 

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.

InvestmentsOn September 30, 2021 and December 31, 2020 investments with an amortized cost of $220,696$207,890 and $227,890 (fair value of $236,233$223,930 and $250,088) at June 30, 2021 and December 31, 2020,, respectively, were pledged with the Federal Home Loan Bank of New York (FHLBNY) to secure short-term borrowings.

14

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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Table of Contents
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2021
  2020
  2021
  2020
 
Realized gains (losses)            
Fixed-maturity securities            
Fixed-maturities available-for-sale            
Gross gains 
$
0
  
$
402
  
$
90
  
$
1,953
 
Gross losses  
(138
)
  
(1
)
  
(1,104
)
  
(7
)
Total fixed-maturity securities  
(138
)
  
401
   
(1,014
)
  
1,946
 
Equity investments                
Gross gains  
238
   
67
   
2,121
   
1,057
 
Gross losses  
(19
)
  
(479
)
  
(438
)
  
(3,249
)
Gross losses from impaired securities  
0
   
0
   
0
   
(678
)
Total equity investments  
219
   
(412
)
  
1,683
   
(2,870
)
Other invested assets                
Gross gains  
934
   
518
   
3,077
   
744
 
Total other invested assets  
934
   
518
   
3,077
   
744
 
Net realized gains (losses) on securities 
$
1,015
  
$
507
  
$
3,746
  
$
(180
)

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 sixnine months ended JuneSeptember 30, 2020 are related to an equity method investment held by the Company.
 
 
Three months ended
June 30,
  
Six months ended
June 30,
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 2021  2020  2021  2020 2021 2020 2021 2020 
Changes in net unrealized (losses) gains:            
Changes in net unrealized gains (losses):        
Recognized in accumulated other comprehensive income (loss):                    
Fixed-maturities available-for-sale $(3,087) $20,482  $(25,813) $40,238 
Fixed-maturities – available-for-sale $(3,742) $4,705  $(29,555) $44,943 
Other invested assets  6,404   (4,766)  7,375   (4,198)  4,136   1,498   11,511   (2,700)
 $3,317  $15,716  $(18,438) $36,040  $394  $6,203  $(18,044) $42,243 
Not recognized in the consolidated financial statements:                                
Fixed-maturities held-to-maturity $7  $(2) $(45) $70 
Fixed-maturities – held-to-maturity $(11) $(6) $(56) $64 

The change in deferred tax asset (liability) on unrealized gains (losses) recognized in Accumulated Other Comprehensive Income during the sixnine months ended JuneSeptember 30, 2021 and 2020 was $3,2903,212 and ($7,205)$8,446, respectively.

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

16
15

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

5.Premiums and Other Receivables, Net

Premiums and Other Receivables, Net were as follows:

 
June 30,
2021
  
December 31,
2020
  
September 30,
2021
  
December 31,
2020
 
Premium $157,606  $106,322 
Premiums $177,298  $106,322 
Self-funded group receivables  26,395   26,412   27,767   26,412 
FEHBP  13,120   12,830   15,002   12,830 
Agent balances  34,996   31,509   30,235   31,509 
Accrued interest  10,171   10,418   9,206   10,418 
Reinsurance recoverable  165,236   216,314   157,665   216,314 
Other  128,917   135,774   128,988   135,774 
  536,441   539,579   546,161   539,579 
Less allowance for doubtful receivables:                
Premium  37,293   37,231 
Premiums  34,433   37,231 
Other  14,531   13,508   15,251   13,508 
  51,824   50,739   49,684   50,739 
Total premium and other receivables, net $484,617  $488,840  $496,477  $488,840 

As of JuneSeptember 30, 2021 and December 31, 2020, the Company had premiums and other receivables of $79,211$70,372 and $53,397, respectively, from the Government of Puerto Rico, including its agencies, municipalities and public corporations.  The related allowance for doubtful receivables as of JuneSeptember 30, 2021 and December 31, 2020 were $24,563$20,164 and $23,752, respectively.

Reinsurance recoverable as of JuneSeptember 30, 2021 and December 31, 2020 includes $124,877$115,160 and $172,021, respectively, related to catastrophe losses covered by the Property and Casualty segment’s reinsurance program.

6. Fair Value Measurements

Our condensed Consolidated Balance Sheets include the following financial instruments: 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 2020 Annual Report on Form 10-K.

17
16

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, 2021  September 30, 2021 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
                        
Fixed-maturities available-for-sale                        
Obligations of government-sponsored enterprises $0  $21,699  $0  $21,699  $0  $21,544  $0  $21,544 
U.S. Treasury securities and obligations of U.S. government instrumentalities  109,996   0   0   109,996   109,909   0   0   109,909 
Municipal securities  0   658,662   0   658,662   0   650,956   0   650,956 
Corporate bonds  0   202,982   0   202,982   0   201,081   0   201,081 
Residential agency mortgage-backed securities  0   289,018   0   289,018   0   301,006   0   301,006 
Collateralized mortgage obligations  0   6,334   0   6,334   0   5,738   0   5,738 
Total fixed-maturities available-for-sale $109,996  $1,178,695  $0  $1,288,691  $109,909  $1,180,325  $0  $1,290,234 
Equity investments $275,539  $242,692  $5,199  $523,430  $276,531  $236,893  $5,341  $518,765 

  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.

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

17

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(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 and sixnine months ended JuneSeptember 30 is as follows:

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 
  
Three months ended
  Nine months ended 
  September 30, 2021  September 30, 2021 
Beginning Balance $5,199  $5,102 
Unrealized in other accumulated comprehensive income  142   239 
Ending Balance
 $5,341  $5,341 

18
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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)

7.Claim Liabilities

The tables below present a reconciliation of the beginning and ending balances of Claim Liabilities during the sixnine months ended JuneSeptember 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 

  
Nine months ended
September 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  2,485,095   92,526   2,577,621 
Prior period insured events  (35,986)  982  (35,004)
Total  2,449,109   93,508   2,542,617 
Payments of losses and loss-adjustment
            
expenses            
Current period insured events  2,124,676   47,360   2,172,036 
Prior period insured events  236,405   63,086   299,491 
Total  2,361,081   110,446   2,471,527 
Net claim liabilities at end of period  533,683   185,693   719,376 
Reinsurance recoverable on claim liabilities  0   79,132   79,132 
Claim liabilities at end of period $533,683  $264,825  $798,508 

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

19
18

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, 2020
 
  
Managed
Care
  
Other
Business
Segments *
  Consolidated 
          
          
Claim liabilities at beginning of period $341,277  $367,981  $709,258 
Reinsurance recoverable on claim liabilities  0   (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  0   147,989   147,989 
Claim liabilities at end of period $349,135  $376,079  $725,214 
 
Nine months ended
September 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  0   (137,017)  (137,017)
Net claim liabilities at beginning of period  341,277   230,964   572,241 
Claims incurred            
Current period insured events  2,000,825   84,358   2,085,183 
Prior period insured events  24,297  (7,885)  16,412
Total  2,025,122   76,473   2,101,595 
Payments of losses and loss-adjustment
            
expenses
            
Current period insured events  1,678,400   45,815   1,724,215 
Prior period insured events  267,427   41,081   308,508 
Total  1,945,827   86,896   2,032,723 
Net claim liabilities at end of period  420,572   220,541   641,113 
Reinsurance recoverable on claim liabilities  0   145,807   145,807 
Claim liabilities at end of period $420,572  $366,348  $786,920 

*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-period insured events for the sixnine months ended JuneSeptember 30, 2021 and 2020 were primarily due to better than expected utilization trends. Reinsurance recoverable on unpaid claims is reported as Premium and Other Receivables, Net in the accompanying condensed consolidated financial statements.


The claims incurred disclosed in the table above exclude the portion of the change in the liability for future policy benefits amounting to $10,767$9,539 and $21,413$30,952 during the three months and sixnine months ended JuneSeptember 30, 2021, respectively, and $4,74613,737 and $14,06927,806 during the three months and sixnine months ended JuneSeptember 30, 2020, respectively, which is included within the consolidated Claims Incurred.

20
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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 is information about incurred and paid claims development, net of reinsurance, as of JuneSeptember 30, 2021, as well as cumulative claim frequency. Additional information presented includes total incurred-but-not-reported liabilities plus expected development on reported claims which is included within the net incurred claims amounts. 

Incurred Year 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2020  129,300 
2021  352,651 
19

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)
Incurred Year 
Total of IBNR Liabilities Plus Expected
Development on Reported Claims
 
2020  $119,675 
2021  360,419 

8.
Short-Term Borrowings

Our credit agreements with commercial banks in Puerto Rico include certain customary financial and non-financial covenants, including negative covenants imposing certain restrictions on the Company’s business. For one of our credit agreements, covering 3 term loans, the Company was not in compliance with the Debt Service Coverage Ratio covenant of the credit agreement during the quarter ended September 30, 2021. As of September 30, 2021 and December 31, 2020, the outstanding balance of the debt was $20,217 and $22,644, respectively. On November 1, 2021, the financial banking institution waived the Company’s obligation to comply with this covenant for the quarter ended September 30, 2021 and quarters ending on December 31, 2021 and March 31, 2022.

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, TSS and TSV became members of the FHLBNY, which provides access to collateralized advances. The borrowing capacity of TSS and TSV is up to 30%15% and 10%, respectively, 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 JuneSeptember 30, 2021 and December 31, 2020, the borrowing capacity was approximately $193,732$192,430 and $200,338, respectively. TheThere was 0 outstanding balance as of JuneSeptember 30, 2021 and2021. As of December 31, 2020 the outstanding balance was $45,000 and $30,000, respectively.$30,000. The average interest rate of the outstanding balancesbalance was 0.34% and 0.33% as of June 30, 2021 and December 31, 2020, respectively.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 JuneSeptember 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,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  2021  2020  2021  2020 
Components of net periodic benefit cost:                        
Interest cost $1,375  $1,540  $2,750  $3,080  $1,370  $1,474  $4,120  $4,554 
Expected return on assets  (1,100)  (2,209)  (2,200)  (4,418)  (1,098)  (2,211)  (3,298)  (6,629)
Amortization of actuarial loss  975   244   1,950   488   994   396   2,944   884 
Settlement loss  1,000   356   2,000   712   1,359   356   3,359   1,068 
Net periodic benefit cost (income) $2,250  $(69) $4,500  $(138) $2,625  $15 $7,125  $(123)

 
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 JuneSeptember 30, 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 in thousands, except per share and share information)
(Unaudited)

10.Reinsurance

Triple-S Propiedad, Inc. (TSP) uses facultative reinsurance, pro rata, and excess of loss reinsurance treaties to manage its exposure to losses, including those from catastrophe events. TSP has geographic exposure to catastrophe losses from hurricanes and earthquakes. The incidence and severity of catastrophes are inherently unpredictable.
 
20

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)
Under these treaties, TSP ceded premiums written were $14,471$14,791 and $14,310$14,920 for the three months ended JuneSeptember 30, 2021 and 2020, respectively, and $29,454$44,245 and $30,717$45,637 for the sixnine months ended JuneSeptember 30, 2021 and 2020, respectively. (Refunded) cededCeded incurred losses and loss adjustment expenses during the three months and sixnine months ended JuneSeptember 30, 2021 and 2020 were $(323)$3,926 and $1,565,$5,419, respectively, and $(267)$3,167 and $39,956,$45,802, respectively. The ceded incurred losses and loss adjustment expenses for the sixnine months ended JuneSeptember 30, 2020 include $40,000 related to earthquake losses ceded under catastrophe reinsurance.
 

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.
 
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, 2021 for a twelve-month period ending March 31, 2022. Other contracts that expired on January 1, 2021 were renewed.

22
21

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

The accumulated balances for each classification of other comprehensive income (loss), net of tax, are as follows:
 
  
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 
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
  2021  2020  2021  2020 
Net Unrealized Gain on Securities            
Beginning Balance $77,399  $85,110  $91,689  $57,830 
Other comprehensive income (loss)
                
before reclassifications  1,233   5,149   (10,872)  31,879 
Amounts reclassified from accumulated                
  other comprehensive (loss) income  (812)  (406)  (2,997)  144
 
Net current period change  421   4,743   (13,869)  32,023 
Ending Balance  77,820   89,853   77,820   89,853 
Liability for Pension Benefits                
Beginning Balance  (100,291)  (28,161)  (101,509)  (28,467)
Amounts reclassified from accumulated                
  other comprehensive income
  621   247   1,839   553 
Ending Balance  (99,670)  (27,914)  (99,670)  (27,914)
Accumulated Other Comprehensive (Loss) Income
                
Beginning Balance  (22,892)  56,949   (9,820)  29,363 
   Other comprehensive income (loss)                
before reclassifications  1,233   5,149   (10,872)  31,879 
Amounts reclassified from accumulated                
  other comprehensive (loss) income  (191)  (159)  (1,158)  697 
Net current period change  1,042   4,990   (12,030)  32,576 
Ending Balance $(21,850) $61,939  $(21,850) $61,939 

12.Share-Based Compensation

Share-based compensation expense recorded during the three months ended JuneSeptember 30, 2021 and 2020 was $2,7513,031 and $4,2351,849, respectively. Share-based compensation expense recorded during the sixnine months ended JuneSeptember 30, 2021 and 2020 was $3,9336,964 and $6,5948,443, respectively. During the three and six months ended JuneSeptember 30, 2021, and 2020, 20,8232,063 and 14,040 shares were repurchased and retired as the result of non-cash tax withholdings upon vesting of shares. During the sixnine months ended JuneSeptember 30, 2021 and 2020,22,886, 6,882 and 20,922 shares 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.

23
22

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

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,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  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  $8,167  $23,581  $55,037  $41,035 
Denominator for basic earnings per share:                                
Weighted average of common shares  23,478,867   23,193,626   23,355,965   23,287,787   23,494,415   23,073,511   23,402,622   23,215,840 
Effect of dilutive securities  120,111   77,677   160,331   85,198   116,257   120,469   143,655   102,229 
Denominator for diluted earnings per share  23,598,978   23,271,303   23,516,296   23,372,985   23,610,672   23,193,980   23,546,277   23,318,069 
Basic net income per share attributable to TSM $1.00  $1.88  $2.01  $0.75  $0.35  $1.02  $2.35  $1.77 
Diluted net income per share attributable to TSM $1.00  $1.87  $1.99  $0.75  $0.35  $1.02  $2.34  $1.76 

14.Contingencies
The following information supplements and amends, as applicable, the disclosures in Note 25 to the Consolidated Financial Statements of the Company’s 2020 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 on September 30, 2021, the range of possible losses for such proceedings in excess of established reserves is, in the aggregate, from $0 to approximately $10,000. 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.


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.


23

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(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 its 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.   On July 29, 2020, the Defendants reached a settlement agreement with subscribers, which was subject to approval by the BCBSA and Member Plans boards, as well as from the Federal District Court for the Northern District of Alabama. Following the BCBSA Board of Directors and Members Plans’ August 14, 2020 approval, on September 30, 2020, the Company’s Board of Directors voted to approve the Settlement Agreement. On November 30, 2020, the Federal District Court for the Northern District of Alabama issued its Memorandum Opinion and Preliminary Order approving settlement terms. The Settlement Agreement requires a monetary settlement payment from defendants. On March 1, 2021, the plans finished producing the data for settlement notice and allocation. The deadline for class members to opt-out or file objections to Settlement was July 28, 2021. The Company's portion of the monetary settlement payment was estimated at $32,000, which was accrued during the year ended December 31, 2020. As of September 30, 2021 the accrued amount related to this contingency was $27,364.



Following the suspension of negotiation efforts with providers and the stay of litigation proceedings from July 2019 to October 2020, providers resumed their mediation efforts with Defendants in October 2021.

24

Triple-S Management Corporation
Notes to Condensed Consolidated Interim Financial Statements
(dollar in thousands, except per share and share information)
(Unaudited)
14.15.Segment Information
 
The 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 and Net Investment Income. Operating costs include Claims Incurred and Operating Expenses.  The Company calculates operating income or loss as operating revenues less operating costs.

24
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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 the operations by reportable segment for the three months and sixnine months ended JuneSeptember 30, 2021 and 2020:
 
 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  2021  2020  2021  2020 
Operating revenues:            
Operating revenues            
Managed Care:                        
Premiums earned, net $909,229  $788,773  $1,840,659  $1,598,059  $939,210  $849,529  $2,779,869  $2,447,588 
Administrative service fees  2,676   2,809   5,441   5,003   3,875   3,013   9,316   8,755 
Intersegment premiums/service fees  899   1,076   1,721   2,719   598   644   2,319   2,624 
Net investment income  5,890   4,690   11,000   9,698   8,088   5,065   19,088   14,763 
Total Managed Care  918,694   797,348   1,858,821   1,615,479   951,771   858,251   2,810,592   2,473,730 
Life Insurance:                                
Premiums earned, net  53,479   47,523   105,389   93,709   54,394   49,616   159,783   143,325 
Intersegment premiums  586   545   1,175   1,036   636   516   1,811   1,552 
Net investment income  6,658   6,795   13,066   13,725   6,785   6,900   19,851   20,625 
Total Life Insurance  60,723   54,863   119,630   108,470   61,815   57,032   181,445   165,502 
Property and Casualty Insurance:                                
Premiums earned, net  25,172   22,239   50,268   42,664   26,092   23,789   76,360   66,453 
Intersegment premiums  154   154   307   307   153   153   460   460 
Net investment income  2,247   2,323   4,278   4,448   2,569   2,103   6,847   6,551 
Total Property and Casualty Insurance  27,573   24,716   54,853   47,419 
Total Property and Casualty insurance  28,814   26,045   83,667   73,464 
Other segments: *                                
Intersegment service revenues  4,218   2,007   7,449   5,042   2,229   2,595   9,678   7,637 
Operating revenues from external sources  1,817   303   4,593   4,342   3,925   2,052   8,518   6,394 
Total other segments  6,035   2,310   12,042   9,384   6,154   4,647   18,196   14,031 
Total business segments  1,013,025   879,237   2,045,346   1,780,752   1,048,554   945,975   3,093,900   2,726,727 
TSM operating revenues from external sources  165   7   262   255   130   100   392   355 
Elimination of intersegment premiums/service fees  (1,639)  (1,775)  (3,203)  (4,062)  (1,387)  (574)  (4,590)  (4,636)
Elimination of intersegment service revenues  (4,218)  (2,007)  (7,449)  (5,042)  (2,229)  (2,595)  (9,678)  (7,637)
Consolidated operating revenues $1,007,333  $875,462  $2,034,956  $1,771,903  $1,045,068  $942,906  $3,080,024  $2,714,809 

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

25

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

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
  
Nine months ended
September 30,
 
 2021  2020  2021  2020  2021  2020  2021  2020 
Operating income (loss):                        
Managed Care $7,210  $29,322  $25,964  $43,489  $8,532  $13,006  $34,496  $56,495 
Life Insurance  6,378   9,457   12,181   14,506   5,591   5,682   17,772   20,188 
Property and Casualty Insurance  1,947   6,777   5,788   6,535 
Property and Casualty insurance  1,975   4,386   7,763   10,921 
Other segments *  (2,334)  (2,409)  (4,432)  (2,913)  (2,161)  (1,639)  (6,593)  (4,552)
Total business segments  13,201   43,147   39,501   61,617   13,937   21,435   53,438   83,052 
TSM operating revenues from external sources  165   7   262   255   130   100   392   355 
TSM unallocated operating expenses  (3,753)  (1,841)  (6,589)  (3,244)  (4,875)  (1,633)  (11,464)  (4,877)
Elimination of TSM intersegment charges  2,403   2,403   4,806   4,806   2,403   2,403   7,209   7,209 
Consolidated operating income  12,016   43,716   37,980   63,434   11,595   22,305   49,575   85,739 
Consolidated net realized investment gains (losses)  2,514   (221)  2,731   (687)  1,015   507   3,746   (180)
Consolidated net unrealized investment gains (losses) on equity investments  12,743   28,338   21,295   (28,468)
Consolidated net unrealized investment (losses) gains on equity investments  (7,912)  11,040   13,383   (17,428)
Consolidated interest expense  (2,217)  (1,864)  (4,209)  (3,717)  (2,016)  (2,096)  (6,225)  (5,813)
Consolidated other income, net  4,851   801   7,962   4,406   11,085   1,811   19,047   6,217 
Consolidated income before taxes $29,907  $70,770  $65,759  $34,968  $13,767  $33,567  $79,526  $68,535 
                                
Depreciation and amortization expense:                                
Managed Care $2,440  $2,930  $4,792  $5,976  $2,319  $2,085  $7,111  $8,061 
Life Insurance  318   308   645   580   320   289   965   869 
Property and Casualty Insurance  74   91   144   203 
Property and Casualty insurance  72   93   216   296 
Other segments*  351   352   702   673   355   240   1,057   913 
Total business segments  3,183   3,681   6,283   7,432   3,066   2,707   9,349   10,139 
TSM depreciation expense  411   156   830   312   488   404   1,318   716 
Consolidated depreciation and amortization expense $3,594  $3,837  $7,113  $7,744  $3,554  $3,111  $10,667  $10,855 

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

 
June 30,
2021
  
December 31,
2020
  
September 30,
2021
  
December 31,
2020
 
Assets:            
Managed Care $1,478,811  $1,319,389  $1,456,710  $1,319,389 
Life Insurance  1,095,606   1,051,819   1,095,884   1,051,819 
Property and Casualty Insurance  529,690   583,404   508,783   583,404 
Other segments *  38,692   34,020   35,854   34,020 
Total business segments  3,142,799   2,988,632   3,097,231   2,988,632 
Unallocated amounts related to TSM:                
Cash, cash equivalents, and investments  17,369   16,489   16,945   16,489 
Property and equipment, net  73,088   68,678   74,209   68,678 
Other assets  92,919   88,684   90,257   88,684 
  183,376   173,851   181,411   173,851 
Elimination entries-intersegment receivables and others  (100,713)  (74,065)  (86,976)  (74,065)
Consolidated total assets $3,225,462  $3,088,418  $3,191,666  $3,088,418 

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

26

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

15.16.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.


27

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

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the “Corporation,” the “Company,” “TSM,” “we,” “our,” and “us” 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 sixnine months ended JuneSeptember 30, 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, 2020 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 sixnine months ended JuneSeptember 30, 2021 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 under no 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.issues, the risk that a condition of closing of the Merger may not be satisfied or that the closing of the Merger might otherwise not occur; the risk that a regulatory approval or a Blue Cross and Blue Shield Association approval that may be required for the Merger is not obtained or is obtained subject to conditions that are not anticipated; the diversion of management time on Merger-related issues; risks related to disruption of management time from ongoing business operations due to the proposed Merger; and unexpected costs, charges or expenses resulting from the proposed Merger.

Overview

Triple-S is a health services company and one of the top players in the Puerto Rico health care industry. With more than 60 years of experience, 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, Medicare Advantage and Medicaid markets. In the Commercial market, we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. We also participate in the Government of Puerto Rico Health Insurance Plan, a government of Puerto Rico 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 or the Government health plan).

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 healthcare arena. Our progressive use of technology and clinical data, value-based partnerships with care providers and initial investments in ambulatory and primary care assets are a strong foundation for differentiation and growth through the development of an 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 business well into the future.

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As of JuneSeptember 30, 2021, we served approximately 1 million managed care members in Puerto Rico.  For the sixnine months ended JuneSeptember 30, 2021 and 2020, our Managed Care segment represented approximately 92% of our total consolidated premiums earned.

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.

Triple-S is also a well-known brand in the life insurance and property and casualty insurance markets, with a significant share in each. We participate in the life insurance market through our subsidiary Triple-S Vida (TSV), and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad (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 reported 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 1415 of the unaudited condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

Our revenue primarily consists 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 management’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, net, and administrative service fees, multiplied by 100.

Recent Developments

Triple-S Management-GuideWell Merger Agreement
On August 24, 2021, Triple-S Management Corporation and GuideWell Mutual Holding Corporation, a Florida not-for-profit mutual insurance holding company (GuideWell) announced that on August 23, 2021, Triple-S, GuideWell and GuideWell Merger, Inc., a Delaware corporation and a wholly owned subsidiary of GuideWell (Merger Sub), entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which, subject to the satisfaction or waiver of certain conditions and on the terms set forth therein, Merger Sub will be merged with and into Triple-S, with Triple-S surviving the merger as a wholly-owned subsidiary of GuideWell (the Merger).
At the effective time of the Merger, except as otherwise provided under the Merger Agreement, each share of Triple-S common stock, par value $1.00 per share will be automatically canceled and retired and converted into the right to receive $36.00 in cash, without interest and less any applicable withholding taxes.
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COVID-19

COVID-19 Situation in Puerto Rico

As of July 30,November 1, 2021, the Puerto Rico Department of Health reported a cumulative total of 126,158151,819 and 19,32933,407 confirmed (RT-PCR+) and probable (antigen) COVID-19 cases, respectively, and a total of 2,5783,234 confirmed and probable COVID-19-related deaths in Puerto Rico. According to the Puerto Rico Department of Health, as of November 1, 2021, the positivity rate was 1.98%.

Puerto Rico was under a stay-at-home order from March 15, 2020 until June 16, 2020.  The Governor of Puerto Rico also issued several consecutive executive orders establishing COVID-19 related restrictions and the rules for the gradual re-opening of the economy, which were in effect from May 4, 2020 to July 4, 2021.  As of July 5, 2021 the Governor delegated all authority to issue guidelines and protocols to address the COVID-19 emergency to the Puerto Rico Secretary of Health. However, the Governor continues to issue executive orders establishing COVID-19 related restrictions as deemed necessary.

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,October 20, 2021 that over 60%80% of the eligible population had received the full dose of the COVID-19 vaccine and over 70%88% of the eligible population had received at least the first dose. According to data from the Centers for Disease Control and Prevention, Puerto Rico has the highest COVID-19 vaccination rate in the United States, with 73.4% of its population fully vaccinated.  A COVID-19 vaccine third dose or booster is available for eligible populations.

We have implemented our business continuity and risk mitigation plans and are closely monitoring outbreak developments 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. However, it is still too early to fully assess the ultimate medium- and long-term impact of the pandemic and lockdown in the Puerto Rico economy.  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 affected and may continue to adversely affect us. included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Funding and Economic Relief for Puerto Rico

The Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, makes approximately $182.9 million available for Puerto Rico’s Medicaid Program and increases the percentage of federal government funding for its Medicaid program expendituresFMAP (as defined below) from 76% to approximately 82% during the emergency period.  The Coronavirus Aid, Relief, and Economic Security or CARES Act, enacted on March 27, 2020, the 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 or 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 – Risks Related to our Business – Pandemics, like the COVID-19 pandemics and local, state and federal governments’ response to the pandemics may have a material adverse effect on our business, financial condition and results of operations. included on our Annual Report on Form 10-K for the year ended December 31, 2020.

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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, andsame. The Planning Board projected that the negative effects of COVID-19 willwould continue through the current fiscal year 2021, resulting in a contraction in real GNP of approximately -2%., followed by 0.8% real GNP growth in fiscal year 2022.

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%11.8%, or approximately 530,000440,000 people, from April 1, 2010 to July 1, 2019.2020. The 2021 Fiscal Plan (as defined below) projects that population will continue to steadily decline at an average rate of approximately 1.2%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%23% 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 FebruaryAugust 2021 was 952,000,982,000, a decrease of 13,0001% increase from total employment of 965,000972,000 as of FebruaryAugust 2020. The DLHR also reported an average unemployment rate of approximately 9.2%8.4% as of FebruaryAugust 2021, upa 0.1% increase from a 9.0% 8.3%unemployment rate reported by the DLHR as of FebruaryAugust 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) in June 2016. PROMESA, among other things, created a federal fiscal oversight board (the 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 have been in the process of restructuring their debts through the mechanisms provided by 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 April 23, 2021 (the 2021 Fiscal 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 a result, the 2021 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 real GNP contracted by 3% in fiscal year 2020 but estimates the GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the 2021 Fiscal Plan projects that real GNP will grow 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.

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The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented, the Commonwealth will have a pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the fiscal measures could drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 2026 and that the structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $30.7 billion). However, even after the fiscal measures and structural reforms, and before contractual debt service, the 2021 Fiscal Plan projects that there will be an annual deficit starting in fiscal year 2036.

On July 27,30, 2021, the Oversight Board filed the SixthSeventh Amended Title III Joint Plan of Adjustment for the Commonwealth, et. al. (the Proposed Plan) in the pending debt restructuring proceedings under Title III of PROMESA. 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 debt and other claims against the Commonwealth, PBAthe Public Building Administration and ERS, and more than $50 billionthe Employee Retirement System. In October of unfunded pension liabilities. On July 29, 2021, the Title III courtPuerto Rico government approved legislation establishing the disclosure statementframework for the debt restructuring under the Proposed Plan. The Oversight Board has proposed thatProposed Plan is expected to be amended to reflect certain changes required by such legislation. The final hearings onfor the confirmation of a plan of adjustment take place inare scheduled to begin on November 8, 2021 and continue as necessary until November 23, 2021.

Property & Casualty Litigation

As of JuneSeptember 30, 2021, our Property and Casualty subsidiary had been served in a total of 487490 cases relating to Hurricane Maria. Of those, 274255 remained open as of JuneSeptember 30, 2021. 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. and We face risks related to litigation. included in our Annual Report on Form 10-K for the year ended December 31, 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, 2021 with a term of twelve-months ending on March 31, 2022.  The reinsurance program provides the segment with a catastrophe loss protection of $811.5 million in excess of $5 million. The cost of entering into the new reinsurance program is estimated to remain similar to the expiring program.

ASES Contract Renewal

The Puerto Rico Health Insurance Administration (ASES by its Spanish acronym) has notified us of its exercise of its right to extend our agreement for the provision of health coverage to the medically indigent in Puerto Rico under the Puerto Rico Health Reform Program (similar to Medicaid) for an additional year, from October 1, 2021 to September 30, 2022. The renewal is subject to premium negotiations for the extended term, which are under way.

Medicaid Cliff
Medicaid is jointly funded by the federal government and state governments. States receive a percentage of their Medicaid program expenditures from the federal government, through a formula known as the Federal Medical Assistance Percentage (FMAP). The FMAP varies by state based on factors such as per capita income. However, unlike states, the FMAP for Puerto Rico and other U.S. territories is fixed, and federal funding is capped per funding period.
The Further Consolidated Appropriations Act of 2019, assigned to Puerto Rico an FMAP of 76% and up to approximately $5.342 billion in Medicaid funding. It was understood among the federal government, Congress, the territories, and members of the healthcare system that the 2019 legislation allocated federal contributions and matching rates to run the Medicaid program until September 30, 2021. Efforts were being made in Congress to address the expiration of funding. However, the Centers for Medicare and Medicaid Services (CMS) determined that the 2019 legislation granted the territories with a baseline amount to run the Medicaid program for perpetuity, including an inflation adjustment.
32
Based on CMS’ determination, the allocation of $2.9B assigned to Puerto Rico for Fiscal Year 2020 will be used as a baseline to run the Medicaid program in perpetuity along with the inflation adjustment.  However, CMS’ interpretation is that the FMAP was not addressed in the same way. Therefore, without Congressional action, Puerto Rico’s FMAP will revert to 55 percent. In addition, Puerto Rico will continue to qualify for the temporary 6.2 percentage point increase (to approximately 82%) under the FFCRA through the end of the quarter in which the public health emergency ends, if Puerto Rico continues to meet the applicable statutory requirements. As an administrative interpretation of a statute, CMS’ determination is susceptible to legal challenges by anyone with standing, as well as to a change in interpretation with a new government administration.
On September 30, 2021, the current FMAP of 76% was extended until December 3, 2021 by the Continuing Resolution that was approved to fund the federal government for 2022. In addition, as part of the negotiations relating to the reconciliation package, Congress is proposing to increase Puerto Rico’s FMAP to 76% for 2022 and to 83% for 2023 and going forward. See Item 1A.  Risk Factors – Risks Related to our Business – We are dependent on a small number of government contracts to generate a significant amount of the revenues for our Managed Care segment included in our Annual Report on Form 10-K for the year ended December 31, 2020. See alsoItem 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 affected and may continue to adversely affect us included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Standards

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

Managed Care Membership

 As of June 30,  As of September 30, 
 2021  2020  2021 2020 
Managed Care enrollment:           
Commercial 1
  418,414   433,471  
416,033
 
429,503
 
Medicare  136,490   134,601  
136,459
 
136,135
 
Medicaid  445,881   364,157   
449,474
  
385,344
 
Total  1,000,785   932,229   
1,001,966
  
950,982
 
Managed Care enrollment by funding arrangement:             
Fully insured  898,573   823,247  
907,705
 
843,152
 
Self-insured  102,212   108,982   
94,261
  
107,830
 
Total  1,000,785   932,229   
1,001,966
  
950,982
 

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

32
33
Consolidated Operating Results

The following table sets forth our 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 
 June 30,  June 30,  
Three months ended
September 30,
 
Nine months ended
September 30,
 
(dollar in millions) 2021  2020  2021  2020  2021 2020 2021 2020 
Revenues            
Revenues:         
Premiums earned, net $987.9  $858.5  $1,996.3  $1,734.4  
$
1,019.7
 
$
923.0
 
$
3,016.0
 
$
2,657.4
 
Administrative service fees  2.6   2.8   5.4   5.0  
3.9
 
3.7
 
9.3
 
8.7
 
Net investment income  15.0   13.8   28.6   28.1  
17.6
 
14.2
 
46.2
 
42.3
 
Other operating revenues  1.9   0.4   4.7   4.4   
3.8
  
2.0
  
8.5
  
6.4
 
Total operating revenues  1,007.4   875.5   2,035.0   1,771.9   
1,045.0
  
942.9
  
3,080.0
  
2,714.8
 
Net realized investment gains (losses)  2.5   (0.2)  2.7   (0.7) 
1.0
 
0.5
 
3.7
 
(0.2
)
Net unrealized investment gains (losses) on equity investments  12.7   28.3   21.3   (28.5)
Net unrealized investment (losses) gains on equity investments 
(7.9
)
 
11.1
 
13.4
 
(17.4
)
Other income, net  4.9   0.8   8.0   4.4   
11.1
  
1.8
  
19.1
  
6.2
 
Total revenues  1,027.5   904.4   2,067.0   1,747.1   
1,049.2
  
956.3
  
3,116.2
  
2,703.4
 
Benefits and expenses                
Benefits and expenses:         
Claims incurred  844.0   653.1   1,694.6   1,367.6  
879.0
 
761.8
 
2,573.6
 
2,129.4
 
Operating expenses  151.3   178.7   302.4   340.9   
154.5
  
158.8
  
456.9
  
499.7
 
Total operating expenses  995.3   831.8   1,997.0   1,708.5  
1,033.5
 
920.6
 
3,030.5
 
2,629.1
 
Interest expense  2.2   1.8   4.2   3.7   
2.0
  
2.1
  
6.2
  
5.8
 
Total benefits and expenses  997.5   833.6   2,001.2   1,712.2   
1,035.5
  
922.7
  
3,036.7
  
2,634.9
 
Income before taxes  30.0   70.8   65.8   34.9  
13.7
 
33.6
 
79.5
 
68.5
 
Income tax expense  6.4   27.2   18.9   17.5   
5.6
  
10.0
  
24.5
  
27.5
 
Net income attributable to TSM $23.6  $43.6  $46.9  $17.4  
$
8.1
 
$
23.6
 
$
55.0
 
$
41.0
 

Three Months Ended June September30, 2021 Compared to Three Months Ended June September30, 2020

Operating Revenues

Consolidated premiums earned, net increased by $129.4$96.7 million, or 15.1%10.5%, to $987.9$1,019.7 million. This increase primarily reflects higher premiums in the Managed Care segment by $120.5$89.7 million. The growth in Managed Care premiums reflects higher average premium rates across all lines of business and an increase in Medicaid and Medicare membership.

Net Unrealized Investment (Losses) Gains (Losses) on Equity Investments

The $12.7$7.9 million in consolidated net unrealized investment gainslosses on equity investments reflect the impact of changes in equity markets.

Claims Incurred

Consolidated claims incurred increased by $190.9$117.2 million, or 29.2%15.4%, to $844.0$879.0 million, and the consolidated loss ratio increased 930370 basis points, to 85.4%86.2%, when compared to the prior-year period primarily reflecting a more normalized utilization of Managed Care services compared to the lowlower utilization in the prior-year quarter due to the pandemic, COVID-19-related testing and treatments costs, increased benefits in the Medicare product offering in 2021 and the effect of the elimination of the Health Insurance Providers Fee (HIP fee) pass-through in 2021.

In the 2020 period, following the government-enforced lockdown related to the COVID-19 pandemic, we experienced a decrease in utilization of Managed Care services as members and providers deferred non-emergent or elective health services.
Operating Expenses

Consolidated operating expenses decreased by $27.4$4.3 million, or 15.3%2.7%, to $151.3$154.5 million. The decrease in operating expenses primarily reflects the accrual in the prior year quarter of a contingency reserve related to a legal proceeding in the Managed Care segment amounting to $32.0 million and the elimination in 2021 of the HIP fee of $14.9$12.1 million and lower business promotion expenses related to COVID-19 relief efforts incurred in 2020, offset in part by higher personnel costs.  The consolidated operating expense ratio decreased 540200 basis points, to 15.3%15.1%.

33
34
Income Taxes

Consolidated income tax expense for the three months ended JuneSeptember 30, 2021 decreased by $20.8$4.4 million, to $6.4$5.6 million, primarily reflecting lower taxable income in 2021.

SixNine Months Ended June September30, 2021 Compared to SixNine Months Ended June September30, 2020

Operating Revenues

Consolidated premiums earned, net increased by $261.9$358.6 million, or 15.1%13.5%, to $1,996.3$3,016.0 million during the sixnine months ended JuneSeptember 30, 2021. This increase primarily reflects higher premiums in the Managed Care segment by $242.7$332.4 million due to higher average premium rates in all lines of business and an increase in Medicaid and Medicare membership.

Net Unrealized Investment Gains (Losses) on Equity Investments

The $21.3$13.4 million in consolidated net unrealized investment gains on equity investments reflect the impact of changes in equity markets.

Claims Incurred

Consolidated claims incurred increased by $327.0$444.2 million, or 23.9%20.9%, to $1,694.6$2,573.6 million, during the sixnine months ended JuneSeptember 30, 2021. The consolidated loss ratio increased 600520 basis points, to 84.9%85.3%, from the prior-year period, reflecting higher Managed Care claim trends and utilization of services because of COVID-19-related testing and treatments costs, the waiver 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 2021 Medicare product and a more normalized utilization of services compared to the low utilization in the prior year due to the pandemic.

In the 2020 period, following the government-enforced lockdown related to the COVID-19 pandemic, we experienced a decrease in utilization of Managed Care services as members and providers deferred non-emergent or elective health services.
Operating Expenses

Consolidated operating expenses decreased by $38.5$42.8 million, or 11.3%8.6%, to $302.4$456.9 million. The decrease in operating expenses primarily reflects the elimination of the HIP fee in 2021 by $43.4 million and the accrual in the prior year quarter of a contingency reserve related to a legal proceeding in the Managed Care segment amounting to $32.0 million and the elimination of the HIP fee in 2021 of $31.2 million. These decreases were partially offset by higher personnel costs and professional fees. The consolidated operating expense ratio decreased 450360 basis points, to 15.1%.

Income Taxes

Consolidated income increasedtaxes decreased by $1.4$3.0 million, or 8.0%10.9%, to $18.9$24.5 million, primarily reflecting higher taxablethe impact of the unrealized investment gains on equity investments in the 2021 income tax expense compared with the impact of the unrealized investment loss in 2021.the 2020 income tax expense.

34
35
Managed Care Operating Results

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
 
Nine months ended
September 30,
 
(dollar in millions) 2021  2020  2021  2020  2021 2020 2021 2020 
Operating revenues            
Medical premiums earned, net            
Operating revenues:         
Medical premiums earned, net:         
Medicare $408.4  $372.4  $810.7  $760.2  
$
423.1
 
$
400.7
 
$
1,233.8
 
$
1,160.9
 
Medicaid  291.8   221.1   614.5   442.0  
302.2
 
240.9
 
916.7
 
682.9
 
Commercial  209.6   195.8   416.6   396.9   
214.4
  
208.4
  
631.0
  
605.3
 
Medical premiums earned, net  909.8   789.3   1,841.8   1,599.1  
939.7
 
850.0
 
2,781.5
 
2,449.1
 
Administrative service fees  3.0   3.4   6.1   6.7  
3.9
 
3.1
 
10.0
 
9.8
 
Net investment income  5.9   4.7   11.0   9.7   
8.1
  
5.1
  
19.1
  
14.8
 
Total operating revenues  918.7   797.4   1,858.9   1,615.5   
951.7
  
858.2
  
2,810.6
  
2,473.7
 
Medical operating costs                
Medical operating costs:
         
Medical claims incurred  803.9   627.0   1,615.3   1,304.8  
833.8
 
720.3
 
2,449.1
 
2,025.1
 
Medical operating expenses  107.6   141.1   217.6   267.2   
109.4
  
124.9
  
327.0
  
392.1
 
Total medical operating costs  911.5   768.1   1,832.9   1,572.0   
943.2
  
845.2
  
2,776.1
  
2,417.2
 
Medical operating income $7.2  $29.3  $26.0  $43.5  
$
8.5
 
$
13.0
 
$
34.5
 
$
56.5
 
Additional data                
Member months enrollment                
Additional data:         
Member months enrollment:         
Commercial:         
Fully insured 
966,002
 
966,906
 
2,871,788
 
2,920,460
 
Self-funded  
281,153
  
324,372
  
875,844
  
981,634
 
Total commercial  
1,247,155
  
1,291,278
  
3,747,632
  
3,902,094
 
Medicare  409,012   405,203   817,793   813,110   
410,939
  
407,170
  
1,228,732
  
1,220,280
 
Medicaid  1,332,994   1,077,456   2,629,183   2,145,472   
1,342,953
  
1,132,626
  
3,972,136
  
3,278,098
 
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  2,989,699   2,784,901   5,947,453   5,569,398   
3,001,047
  
2,831,074
  
8,948,500
  
8,400,472
 
Medical loss ratio  88.4%  79.4%  87.7%  81.6% 
88.7
%
 
84.7
%
 
88.0
%
 
82.7
%
Operating expense ratio  11.8%  17.8%  11.8%  16.6%  
11.6
%
  
14.6
%
  
11.7
%
  
15.9
%

Three Months Ended June September30, 2021 Compared to Three Months Ended June September30, 2020

Medical Premiums Earned, Net

Medical premiums earned increased by $120.5$89.7 million, or 15.3%10.6%, to $909.8$939.7 million. This increase is principally the result of the following:

Premiums generated by the Medicaid business increased by $70.7$61.3 million, or 32.0%25.4%, to $291.8$302.2 million, primarily reflecting an increase in enrollment of approximately 256,000210,000 member months and higher average premium ratesrates. In addition, following the premium rate increase effective July 2020.a reconciliation process with ASES this quarter we recognized premiums corresponding to prior periods. These increases were partially offset by the elimination of the HIP fee pass-through in 2021.

•
Premiums generated by the Medicare business increased by $36.0$22.4 million, or 9.7%5.6%, to $408.4$423.1 million, primarily due to higher average premium rates resulting from an increase in the premium rate benchmark, andhigher average membership risk score. Memberscore and higher enrollment of approximately 3,800 members months increased slightlywhen compared with the prior-year period.

•
Premiums generated by the Commercial business increased by $13.8$6.0 million, or 7.0%2.9%, to $209.6$214.4 million, primarily reflecting higher average premium rates. This increase was partially offset by a decrease of approximately 26,000 fully insured member months and the elimination of the HIP Fee pass-through in 2021.

35
36
Medical Claims Incurred

Medical claims incurred increased by $176.9$113.5 million, or 28.2%15.8%, to $803.9$833.8 million when compared to the three months ended JuneSeptember 30, 2020. The medical loss ratio (MLR) of the segment increased 900400 basis points during the 2021 period, to 88.4%88.7%.  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 Medicaid business increased by $61.2 million, or 27.1%, during the 2021 period.  The MLR, at 95.2%, was 120 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 lower utilization experienced in the prior-year quarter due to the pandemic, and COVID-19-related testing and treatment costs. 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.

Claims incurred in the Medicare business increased by $26.1 million, or 8.1%, during the 2021 period and its MLR increased 190 basis points to 82.5%. These increases reflect a more normalized utilization of services compared to the lower 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 $26.2 million, or 15.3%, during 2021 and its MLR increased 1,000 basis points, to 91.9%.  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$15.5 million, or 23.7%12.4%, to $107.6$109.4 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 and lower business promotion expenses driven by the COVID-19 relief efforts incurred in 2020, partially offset by higher personnel costs and professional services.costs. The operating expense ratio decreased 600300 basis points to 11.8%11.6% in 2021.

SixNine Months Ended June September30, 2021 Compared to SixNine Months Ended June September 30, 2020

Medical Premiums Earned, Net

Medical premiums earned increased by $242.7$332.4 million, or 15.2%13.6%, to $1,841.8$2,781.5 million. This increase is principally the result of the following:

Premiums generated by the Medicaid business increased by $172.5$233.8 million, or 39.0%34.2%, to $614.5$916.7 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 484,000694,000 member months. In addition, following a reconciliation process with ASES this year, we recognized premiums corresponding to prior periods in the first and third 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$72.9 million, or 6.6%6.3%, to $810.7$1,233.8 million, primarily due to higher average premium rates reflecting an increase in the premium rate benchmark and membership risk score. Member months increased slightlyby approximately 8,500 when compared with the prior-year period.

•
Premiums generated by the Commercial business increased by $19.7$25.7 million, or 5.0%4.2%, to $416.6$631.0 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 48,00049,000 fully insured member months.

36
Medical Claims Incurred

Medical claims incurred increased by $310.5$424.0 million, or 23.8%20.9%, to $1,615.3$2,449.1 million when compared to the sixnine months ended JuneSeptember 30, 2020. The MLR of the segment increased 610530 basis points during 2021, to 87.7%88.0%. This fluctuation is principally attributed to the net effect of the following:

Claims incurred in the Medicaid business increased by $150.5$211.7 million, or 37.0%33.4%, during 2021 and its MLR decreased 13060 basis points, to 90.7%92.1%. The increase in claim cost is due to higher member months. 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 waiver of medical and payment policies and the elimination of the HIP fee pass-through in 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.

37
•
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.

Claims incurred in the Medicare business increased by $118.3 million, or 12.7%, during the 2021 period and its MLR increased 490 basis points, to 85.1%. 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 $94.0 million, or 20.4%, during 2021 and its MLR increased 1,180 basis points, to 87.9%. 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.
Medical Operating Expenses

Medical operating expenses decreased by $49.6$65.1 million, or 18.6%16.6%, to $217.6$327.0 million, primarily reflecting the elimination of the HIP fee in 2021, the accrual in prior year of a contingency reserve related to a legal proceeding and lower business promotion expenses driven by the elimination of the HIP feeCOVID-19 relief efforts incurred in 20212020, offset in part by an increase in personnel costs and professional fees.costs. The operating expense ratio decreased 480420 basis points to 11.8%11.7% in 2021.

37
38
Life Insurance Segment Operating Results

 Three months ended  Six months ended 
 June 30,  June 30,  
Three months ended
September 30,
 
Nine months ended
September 30,
 
(dollar in millions) 2021  2020  2021  2020  2021 2020 2021 2020 
Operating revenues:                     
Premiums earned, net:                     
Premiums earned $56.9  $50.6  $112.1  $99.6  
$
57.9
 
$
52.6
 
$
170.0
 
$
152.2
 
Assumed earned premiums 
-
 
0.1
 
-
 
0.1
 
Ceded premiums earned  (2.9)  (2.5)  (5.6)  (4.8)  
(2.8
)
  
(2.6
)
  
(8.4
)
  
(7.4
)
Premiums earned, net  54.0   48.1   106.5   94.8  
55.1
 
50.1
 
161.6
 
144.9
 
Net investment income  6.7   6.8   13.1   13.7   
6.8
  
6.9
  
19.9
  
20.6
 
Total operating revenues  60.7   54.9   119.6   108.5   
61.9
  
57.0
  
181.5
  
165.5
 
Operating costs:                         
Policy benefits and claims incurred  29.6   20.6   59.0   48.0  
30.8
 
30.6
 
89.8
 
78.6
 
Underwriting and other expenses  24.7   24.8   48.4   46.0   
25.5
  
20.7
  
73.9
  
66.7
 
Total operating costs  54.3   45.4   107.4   94.0   
56.3
  
51.3
  
163.7
  
145.3
 
Operating income $6.4  $9.5  $12.2  $14.5  
$
5.6
 
$
5.7
 
$
17.8
 
$
20.2
 
Additional data:                         
Loss ratio  54.8%  42.8%  55.4%  50.6% 
55.9
%
 
61.1
%
 
55.6
%
 
54.2
%
Operating expense ratio  45.7%  51.6%  45.4%  48.5%  
46.3
%
  
41.3
%
  
45.7
%
  
46.0
%

Three Months Ended June September30, 2021 Compared to Three Months Ended June September30, 2020

Operating Revenues

Premiums earned, net increased by $5.9$5.0 million, or 12.3%10.0%, to $54.0$55.1 million, primarily as the result of higher sales across all lines of business, particularly in the Individual Life and Cancer lines of business. Last year premium growth slowed down duringdue to the two-month COVID-19 government-enforced lockdown and restrictions, which severely affected sales and increased policy cancellations.

Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $9.0$0.2 million, or 43.7%0.7%, to $29.6$30.8 million, while the segment’s loss ratio decreased 520 basis points, to 55.9% following the segment’s increased premiums.
Underwriting and Other Expenses
Underwriting and other expenses increased $4.8 million, or 23.2%, to $25.5 million, primarily as the result of reflecting an increase in commissions expense resulting from higher actuarial reserves, due to higher persistencysales during the period, and higher benefits paid driven by the lower volumeamortization 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 thedeferred acquisition costs. The segment’s operating expense ratio decreased 590increased 500 basis points, to 45.7%46.3%.

SixNine Months Ended June September30, 2021 Compared to SixNine Months Ended June September30, 2020

Operating Revenues

Premiums earned, net increased by $11.7$16.7 million, or 12.3%11.5%, to $106.5$161.6 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 of 2020, this segment acquired an insurance portfolio that contributed additional premiums in the Cancer and Group Life lines of business.

38
Policy Benefits and Claims Incurred

Policy benefits and claims incurred increased by $11.0$11.2 million, or 22.9%14.2%, to $59.0$89.8 million, primarily as the result of higher actuarial reserves, due to higherimproved 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 480140 basis points, to 55.4%55.6%.

39
Underwriting and Other Expenses

Underwriting and other expenses increased $2.4$7.2 million, or 5.2%10.8%, to $48.4$73.9 million, primarily reflecting an increase in commissions expense resulting from higher sales during the period offset in part by lowerand higher amortization of deferred acquisition costs. The segment’s operating expense ratio decreased 31030 basis points to 45.4%45.7%.

39
Property and Casualty Insurance Operating Results

 
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
September 30,
 
Nine months ended
September 30,
 
(dollar in millions) 2021  2020  2021  2020  2021 2020 2021 2020 
Operating revenues            
Operating revenues:         
Premiums earned, net:                     
Premiums written $41.2  $38.4  $77.8  $71.6  
$
46.0
 
$
44.0
 
$
123.8
 
$
115.6
 
Premiums ceded  (14.4)  (14.3)  (29.4)  (30.7) 
(14.8
)
 
(14.9
)
 
(44.2
)
 
(45.6
)
Change in unearned premiums  (1.5)  (1.7)  2.2   2.1   
(4.9
)
  
(5.2
)
  
(2.7
)
  
(3.1
)
Premiums earned, net  25.3   22.4   50.6   43.0  
26.3
 
23.9
 
76.9
 
66.9
 
Net investment income  2.3   2.3   4.3   4.4   
2.5
  
2.2
  
6.8
  
6.6
 
Total operating revenues  27.6   24.7   54.9   47.4   
28.8
  
26.1
  
83.7
  
73.5
 
Operating costs   ��            
Operating costs:         
Claims incurred  11.6   6.5   21.1   17.4  
13.5
 
10.4
 
34.6
 
27.8
 
Underwriting and other expenses  14.0   11.5   28.0   23.5   
13.3
  
11.3
  
41.3
  
34.8
 
Total operating costs  25.6   18.0   49.1   40.9   
26.8
  
21.7
  
75.9
  
62.6
 
Operating income $2.0  $6.7  $5.8  $6.5  
$
2.0
 
$
4.4
 
$
7.8
 
$
10.9
 
Additional data:                         
Loss ratio  45.8%  29.0%  41.7%  40.5% 
51.3
%
 
43.5
%
 
45.0
%
 
41.6
%
Operating expense ratio  55.3%  51.3%  55.3%  54.7%  
50.6
%
  
47.3
%
  
53.7
%
  
52.0
%

Three Months Ended June September30, 2021 Compared to Three Months Ended June September30, 2020

Operating Revenues

Total premiums written increased by $2.8$2.0 million, or 7.3%4.5%, to $41.2$46.0 million, primarily driven by higher premiums in Personal Package, Commercial Liability, Commercial Auto and Commercial Property products, partially offset by a decrease in Commercial Package products.

Claims Incurred

Claims incurred increased by $5.1$3.1 million, or 78.5%29.8%, to $11.6$13.5 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.pandemic and an increase in loss adjustment expenses related to catastrophe claims. As a result, the loss ratio increased 1,680780 basis points, to 45.8%51.3% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $2.5$2.0 million, or 21.7%17.7%, to $14.0$13.3 million primarily due to higher net commission expense following the increase in net premiums earned. The net commission expense for the current period iswas also unfavorably impacted by a lower capitalization of deferred acquisition costs. The operating expense ratio was 55.3%50.6%, 400330 basis points higher than prior year.

SixNine Months Ended June September30, 2021 Compared to SixNine Months Ended June September30, 2020

Operating Revenues

Total premiums written increased by $6.2$8.2 million, or 8.7%7.1%, to $77.8$123.8 million, primarily driven by higher premiums, particularly in Personal Package, Commercial Property, Commercial Auto and Commercial Liability products, partially offset by a decrease in Commercial Package products.

The premiums ceded to reinsurers decreased by $1.3$1.4 million, or 4.2%3.1%, primarily due to $3.0 million of reinsurance reinstatement premiums in 2020 following the losses recorded after the earthquakes in the southwest region of Puerto Rico in January 2020, offset in part by an increase in the cost of catastrophe reinsurance protection.

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Claims Incurred

Claims incurred increased by $3.7$6.8 million, or 21.3%24.5%, to $21.1$34.6 million primarily resulting from lower losses in the 2020 period because of the COVID-19 pandemicand an increase in loss adjustment expenses related to catastrophe claims, offset in part by the recognition of $5.0 million of earthquake losses after the January 2020 events. As a result, the loss ratio increased by 120340 basis points, to 41.7%45.0% during this period.

Underwriting and Other Expenses

Underwriting and other operating expenses increased by $4.5$6.5 million, or 19.1%18.7%, to $28.0$41.3 million, mostly because of higher net commission expense following the increase in net premiums earned. Current year net commission expense iswas also affected by a lower capitalization of deferred acquisition costs. The operating expense ratio was 55.3%53.7%, 60170 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
June 30,
  
Nine months ended
September 30,
 
(dollar in millions) 2021  2020  2021 2020 
Sources (uses) of cash:           
Cash provided by operating activities $75.0  $170.3  $100.7  
$
223.7
 
Net purchases of investment securities  (64.3)  (105.6)  (63.2) 
(211.7
)
Net capital expenditures  (11.2)  (45.9)  (16.9) 
(52.5
)
Capital contribution on equity method investees  -   (4.9)  -  
(7.1
)
Proceeds from long-term borrowings  -   30.8   -  
30.9
 
Net change in short-term borrowings  (30.0) 
28.5
 
Payments of long-term borrowings  (2.2)  (1.6)  (3.4) 
(2.8
)
Net change in short-term borrowings  15.0   (39.0)
Proceeds from policyholder deposits  9.5   16.4   12.6  
21.6
 
Surrenders of policyholder deposits  (5.6)  (8.2)  (8.7) 
(12.8
)
Repurchase and retirement of common stock  -   (14.9)  -  
(14.9
)
Other  47.2   33.8   20.6   
16.9
 
Net increase in cash and cash equivalents $63.4  $31.2  $11.7  
$
19.8
 

The decrease of approximately $95.3$123 million in net cash provided by operating activities is mostly due to higher claims paid in the Managed Care segments, offset in part by higher premiums collections, and lower income taxes paid, and lower cash paid to suppliers and employees.

The net purchases of investments in securities are part of our asset/liability management strategy.

The decrease in capital contribution reflects capital contributions made in the 2020 period in exchange for a participation in equity method investees.

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

The fluctuation in other sources of cash principally reflects the $13.2$3.8 million change in outstanding checks in excess of bank balances.

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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 three months ended March 31, 2020, the Company repurchased and retired under this program 577,447 shares at an average per share price of $15.57, for an aggregate cost of $9.0 million. The program was completed in 2020.

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Financing and Financing Capacity

Long-Term Borrowings

TSM has $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.  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.  The Company was not in compliance with these covenants asthe Debt Service Coverage Ratio covenant of Junethe credit agreement during the quarter ended September 30, 2021. As of September 30, 2021 and December 31, 2020, the outstanding balance of the debt was $20,217 and $22,644, respectively. On November 1, 2021, the financial banking institution waived the Company’s obligation to comply with this covenant for the quarter ended September 30, 2021 and quarters ending on December 31, 2021 and March 31, 2022.

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) 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), 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), 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.

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 commercial bank in Puerto Rico. The proceeds were used by the Company to partially finance the acquisition of a building. The Credit Agreement 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. Approximately 64.25% of the acquired building is currently leased to third parties. The Company is in the process of moving some of its offices currently leased to third parties to the new building and expects to fully occupy the new facilities together with the leased space. 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. Monthly 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.

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The Company may, at its option and at any time, upon 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, 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 JuneSeptember 30, 2021.

42
For further details, see Note 13, Borrowings, of the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the 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) and a revolving credit facility.  See Note 8 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.

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, 2020.  A discussion of our market risk is incorporated by reference to Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, Management, under the supervision and with the participation of the President and 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, including the President and 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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer have concluded that as of JuneSeptember 30, 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.

43
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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer completed the evaluation referred to above.

Changes in Internal Controls Over Financial Reporting

The 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’sNo changes in our internal controls andcontrol over financial reporting moving forward.(as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended September 30, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II – Other Information

Item 1.Legal Proceedings

NoneFor a description of the legal proceedings disclosedthat have experienced significant developments during this quarter, see Note 14 to the unaudited condensed consolidated interim financial statements included in Note 25 of the Consolidated Financial Statements in the Company’s 2020 Annual Reportthis quarterly report on Form 10-K had a material development during the six months ended June 30, 2021.10-Q.

Item 1A.Risk Factors

For a description of our risk factors, see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
The following risk factor was added during the three months ended September 30, 2021.
The conditions to Merger may not be met, or the Merger Agreement may be terminated, which could result in the Merger not being completed and a decline in the share price of the Company, as well as adversely affect our financial condition and results of operations.

If the Company fails to obtain shareholder approval of the Merger Agreement, or fails to obtain the required regulatory or Blue Cross and Blue Shield Association approvals, or other conditions to the closing of the Merger are not met, the Merger may not be consummated or may be significantly delayed, which could result in a decline in the price of our shares and could have a material and adverse effect on our results of operations, financial position and cash flows. The Merger Agreement provides for the payment of a termination fee of $17,985,000 by the Company should the Merger Agreement be terminated pursuant to certain provisions. Should the Merger Agreement be terminated pursuant to an event triggering the payment of the termination fee by the Company, the termination of the Merger Agreement and the payment of such termination fee could result in a material and adverse effect on our results of operations, financial position and cash flows.
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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
  
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   -   - 
(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
 
             
July 1, 2021 to July 31, 2021  -  $-   -  $- 
August 1, 2021 to August 31, 2021  -   -   -   - 
September 1, 2021 to September 30, 2021  2,063   21.90   -   - 

(1) Represents shares repurchased and retired as the result of non-cash tax witholdings upon vesting of shares of participants under the Company’s equity compensation plans.  In JuneSeptember 2021, 20,8232,063 shares were repurchased and retired as the result of non-cash tax witholdings upon vesting of shares.

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

44
45
Item 6.Exhibits
 

ExhibitsDescription
  
10.1*
Amendment to the contract between Administración de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health Services under the Provision of Physical and Behavioral Health Services Under the Government Health Plan dated as of September 9, 2021.

10.2*
Amendment to the contract between Administración de Seguros de Salud de Puerto Rico (ASES) and Triple-S Salud, Inc., to administer the Provision of Physical & Behavioral Health Services under the Provision of Physical and Behavioral Health Services Under the Government Health Plan dated as of September 29, 2021.

11
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three and sixnine months ended JuneSeptember 30, 2021 and 2020 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.

45
46
SIGNATURESSIGNATURES

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 5,
November 4, 2021
 
By:
/s/ Roberto García-Rodríguez
 
   Roberto García-Rodríguez
   President and Chief Executive Officer
    
Date:
August 5,
November 4, 2021
 
By:
/s/ Victor J. Haddock-Morales
 
   Victor J. Haddock-Morales
   Executive Vice President and Chief Financial Officer



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