Triple-S Management Corporation Reports Fourth Quarter 2018 Results

SAN JUAN, Puerto Rico, Feb. 28, 2019 /PRNewswire/ -- Triple-S Management Corporation (NYSE:GTS), a leading managed care company in Puerto Rico, today announced its fourth quarter 2018 results.

Quarterly Consolidated and Other Highlights

• Net loss of $10.9 million, or $0.48 loss per share, versus net income of $24.2 million, or $1.03 per diluted share, in the prior-year period; net loss in the fourth quarter of 2018 was driven by net unrealized losses on equity investments and a change in the effective tax rate of certain deferred tax assets/liabilities, which together impacted after-tax results by approximately $29.6 million, or $1.30 per share;
• Adjusted net income of $10.1 million, or $0.44 per diluted share, versus adjusted net income of $22.1 million, or $0.94 per diluted share, in the prior-year period.
• Excluding the above mentioned deferred tax adjustment and the cost of retroactive reinsurance, adjusted net income was $17.8 million, or $0.78 per diluted share, compared to adjusted net income of $15.2 million, or $0.65 per diluted share, in the fourth quarter of 2017, after excluding the impact of the hurricanes in that period;
• Operating revenues of $723.7 million, a 2.4% increase from the prior-year period, primarily reflecting higher Managed Care premiums;
• Consolidated loss ratio rose 270 basis points to 80.9%;
• Medical loss ratio ("MLR") rose 290 basis points to 83.8%, primarily driven by lower Managed Care utilization in the 2017 period related to the hurricanes.

"The fourth quarter signaled a return to normalcy at Triple-S after undergoing a couple of quarters of hurricane-related impact," said Roberto Garcia-Rodriguez, President and Chief Executive Officer.  "The financial results of our core Managed Care segment continued improving, driven once again by our Medicare Advantage offering.  We have also fared well under the revised Medicaid health plan, gaining a significant amount of membership that was initially assigned to other carriers.  We completed a smooth transition to our new consolidated pharmacy benefits manager.  And perhaps most importantly, there were no additional adverse reserve developments in our P&C segment during the quarter."

"Looking forward, our overall strategy remains firmly on track," added Mr. Garcia-Rodriguez.  "We are focused on growing our market share in Medicare Advantage, buoyed by our 4.5-star quality rating in our HMO product and 4.0-star quality rating in our PPO product for payment year 2020.  Additionally, we will concentrate on further optimizing our infrastructure and developing both analytical and clinical capabilities to accelerate our top-line growth, generate operating efficiencies, improve patient outcomes and create long-term value for our shareholders."

Selected Consolidated Quarterly Details

• Consolidated premiums earned were $702.3 million, up 2.2% from the prior-year period, primarily reflecting higher Medicare premiums within the Managed Care segment related to achieving a four-star rated Medicare Advantage HMO contract in 2018, resulting in a 5% bonus applied to the benchmark used in the premium calculation, as well as an increase in the 2018 Medicare reimbursement rates. The increase was partially offset by lower membership.
• Consolidated claims incurred were $567.9 million, up 5.7% year-over-year, mostly driven by significantly lower utilization experienced in the prior-year period in the Managed Care segment following the hurricanes. Consolidated loss ratio of 80.9% rose 270 basis points from the prior-year period.
• Consolidated operating expenses of $145.9 million increased by $17.5 million, or 13.7%, from the prior-year period, while the Company's operating expense ratio increased 210 basis points year-over-year to 20.7%. The increase in operating expenses primarily reflects the reinstatement of the Health Insurance Providers fee ("HIP fee") of $13.1 million, higher professional services expense related to the Company's ongoing Managed Care initiatives, as well as implementation costs related to the new Medicaid model that became effective November 1, 2018.
• Consolidated income tax expense was $1.1 million, compared to $17.9 million in the prior-year period, primarily due to a change in the effective tax rate of certain deferred tax liabilities in the Company's Property and Casualty segment to reflect the expected tax rate at which they will reverse, and a change in the enacted tax rate, from 39% to 37.5%, following the Puerto Rico income tax reform enacted in December 2018. These changes increased the deferred tax expense by approximately $9.5 million. The consolidated income tax expense also reflects the tax impact of net unrealized losses on equity investments and the lower operating income of the Managed Care segment.

Selected Managed Care Segment Quarterly Details

• Managed Care premiums earned were $643.1 million, up 1.5% year over year.
• Medicare premiums earned of $279.0 million increased 13.0% from the prior-year period, largely reflecting an increase in Puerto Rico's 2018 Medicare fee-for-service benchmark for the first time since 2012, an increase in premium rates as the result of attaining a four-star rating for the Company's 2018 HMO product, and higher average membership risk score. These increases were partially offset by a year-over-year decrease in member month enrollment of approximately 33,000.
• Commercial premiums earned of $192.0 million declined 2.0% from the prior-year period, mainly due to an approximate year-over-year decline of 38,000 in fully-insured member month enrollment, and partially offset by the reinstatement of the HIP fee pass-through and higher premium rates.
• Medicaid premiums earned decreased 9.9% from the prior-year period to $172.1 million, primarily reflecting a significant reduction in member month enrollment due to the commencement of the new Medicaid contract on November 1, and partially offset by $3.6 million associated with the reinstatement of the HIP fee pass-through in 2018. As of January 31, 2019, the Company had approximately 333,000 Medicaid members enrolled in the Company's program, which is an increase of 53,000 members from the initial assignment of approximately 280,000.
• Reported MLR of 83.8% increased 290 basis points from the prior year, primarily reflecting lower utilization in the prior-year period related to hurricanes. The impact of the hurricanes reduced claims in the fourth quarter of 2017 by an estimated $20.7 million, or 320 basis points of MLR. Excluding this impact on utilization, adjusting for prior period reserve developments and moving risk-score revenue to its corresponding period, Managed Care MLR would have been approximately 85.1% in the fourth quarter of 2018, similar to the same metric for the prior-year period.

2019 Outlook

The Company is initiating the following full year 2019 consolidated guidance:

• Consolidated operating revenue is expected to be between $3.04 billion to $3.08 billion, which includes Managed Care premiums earned, net between $2.71 billion and $2.75 billion;
• Consolidated claims incurred ratio is expected to be between of 81.3% and 83.3%, while the Managed Care MLR is expected to be between 84.0% and 86.0%;
• Consolidated operating expense ratio is expected to be between of 17.6% and 18.6%;
• The effective tax rate is expected to be between 25.0% and 30.0%; and
• Adjusted net income per diluted share is expected to be between $1.85 to $2.05. Adjusted net income per diluted share guidance does not account for any share repurchase activity during 2019.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss its financial results for the three months ended December 31, 2018. To participate, callers within the U.S. and Canada should dial 1-877-451-6152 and international callers should dial 1-201-389-0879 at least five minutes before the call.

To listen to the webcast, participants should visit the "Investor Relations" section of the Company's website at www.triplesmanagement.com several minutes before the event is broadcast and follow the instructions provided to ensure they have the necessary audio application downloaded and installed. This program is provided at no charge to the user. An archived version of the call, also located on the "Investor Relations" section of Triple-S Management's website, will be available about two hours after the call ends and for at least the following two weeks. This news release, along with other information relating to the call, will be available on the "Investor Relations" section of the website.

In addition, a replay will be available through March 14, 2019 by calling 1-844-512-2921 or 1-412-317-6671 and entering passcode 13687038. A replay will also be available at www.triplesmanagement.com for 30 days.

About Triple-S Management Corporation

Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association. It is one of the leading players in the managed care industry in Puerto Rico. Triple-S Management has the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico, the U.S. Virgin Islands, and Costa Rica. With 60 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care and related products in the Commercial, Medicare Advantage, and Medicaid markets under the Blue Cross Blue Shield marks. It also provides non-Blue Cross Blue Shield branded life and property and casualty insurance in Puerto Rico. For more information about Triple-S Management, visit www.triplesmanagement.com or contact [email protected].

Non-GAAP Financial Measures

This earnings release presents information about the Company's adjusted net income, which is a non-GAAP financial metric provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America (GAAP). A reconciliation of adjusted net income to net income, the most comparable GAAP financial measure, is provided in the accompanying tables found at the end of this release.

Forward-Looking Statements

This document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances. Sentences that include "believe", "expect", "plan", "intend", "estimate", "anticipate", "project", "may", "will", "shall", "should" and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.

All forward-looking statements in this news release reflect management's current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the U.S. Securities and Exchange Commission (SEC).

In addition, the Company operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight. The following factors, if markedly different from the Company's planning assumptions (either individually or in combination), could cause Triple-S Management's results to differ materially from those expressed in any forward-looking statements shared here:

• Trends in health care costs and utilization rates
• Ability to secure sufficient premium rate increases
• Competitor pricing below market trends of increasing costs
• Re-estimates of policy and contract liabilities
• Changes in government laws and regulations of managed care, life insurance or property and casualty insurance
• Adverse regulatory actions, including in connection with operating challenges arising from the migration of our Medicare Advantage claims and clinical management platforms
• Significant acquisitions or divestitures by major competitors
• Introduction and use of new prescription drugs and technologies
• A downgrade in the Company's financial strength ratings
• A downgrade in the Government of Puerto Rico's debt
• Litigation or legislation targeted at managed care, life insurance or property and casualty insurance companies
• Ability to contract with providers consistent with past practice
• Ability to successfully implement the Company's disease management, utilization management and Star ratings programs
• Ability to maintain Federal Employees, Medicare and Medicaid contracts
• Volatility in the securities markets and investment losses and defaults
• General economic downturns, major disasters, and epidemics

This list is not exhaustive. Management believes the forward-looking statements in this release are reasonable. However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on the Company's results of operations or financial condition. In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations. In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of the United States) the Company does not intend to update or revise any of them in light of new information or future events.

Readers are advised to carefully review and consider the various disclosures in the Company's SEC reports.

Earnings Release Schedules and Supplemental Information

Exhibit I

Exhibit II

Exhibit III

Exhibit IV

Segment Performance Supplemental Information

Exhibit V

Reconciliation of Non-GAAP Financial Measures

SOURCE Triple-S Management Corporation

Related Links

http://www.triplesmanagement.com

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