Triple-S Management Corporation (NYSE: GTS), the largest managed care company in Puerto Rico, today announced consolidated revenues of $516.9 million and operating income of $34.2 million for the three months ended December 31, 2009. Net income of $28.1 million, or $0.96 per diluted share, includes an after tax net gain of $3.7 million, or $0.13 per share, in net realized and unrealized gains on investments and derivatives.
Fourth-Quarter Consolidated Highlights
- Total consolidated operating revenues increased 11.2% year over year to $511.8 million;
- Operating income was $34.2 million;
- Excluding net realized and unrealized gains on investments and a derivatives gain; included within other income (expenses), net income was $24.4 million, or $0.83 per diluted share;
- Consolidated loss ratio was 84.7% and the medical loss ratio (MLR) was 88.7%;
- Consolidated operating expense ratio decreased 70 basis points to 14.5%;
- Commercial member months enrollment, including ASO, increased 19.0%;
"We recorded solid membership growth in the fourth quarter, specifically in the Commercial business, which largely reflected the July 2009 acquisition of La Cruz Azul (LCA)," said Ramon M. Ruiz-Comas, President and Chief Executive Officer. "In the quarter, we also benefitted from the favorable impact of ASO government contract profit sharing in the Metro-North region, offset by costs related to swine flu, primarily in our Commercial segment. As we concluded our second year as a public company, our balance sheet remains healthy."
Ruiz-Comas added, "Importantly, we enter 2010 with a well-balanced revenue stream, enabling us to diversify risk and insulate ourselves from the variability that can occur in our businesses. We have put in place several initiatives aimed at lowering our MLR while preserving quality of care, and anticipate that we will begin the migration of an initial set of members onto our new IT system beginning in April. We continue to evaluate opportunities to expand our geographic footprint within Puerto Rico, the Caribbean and Central America, and remain confident in our competitive position and our ability to execute the strategy we have outlined."
Selected Fourth Quarter Details
- Consolidated Premiums Increased 9.4%. Consolidated premiums were $479.9 million, an increase of 9.4% versus a year ago, principally due to increased volume and higher rates in the Managed Care business. Reported Managed Care net premiums increased to $432.1 million driven by an 18.0% year over year rise in Commercial premiums. The increase resulted primarily from growth in Commercial membership, reflecting in large part the acquisition of LCA, as well as higher premium rates across all businesses.
- Administrative Service Fees Rose 162.0%. Administrative service fees increased $11.5 million to $18.7 million, reflecting Metro-North region members added in November 2008, the LCA acquisition, which added 72,000 members, and organic growth. In addition, as the result of the savings achieved in the Metro-North region, we recognized a higher than anticipated performance incentive.
- Consolidated Operating Margins Improved to 6.7%. As a result of a 100 basis point improvement in Managed Care margins, consolidated operating margins increased by 40 basis points to 6.7%. Offsetting this improvement in the Managed Care margins were respective year over year declines of 160 and 410 basis points in the Life Insurance and Property and Casualty businesses.
- Managed Care Membership Increased 12.7%. Total Commercial membership was 737,286, up 24.4% from the prior year, primarily reflecting the addition of LCA members and other organic growth. Reform membership rose 2.4% to 540,142 and Medicare membership declined 7.5% to 69,605.
- Consolidated Claims Incurred Increased 11.5%. Consolidated claims incurred were $406.3 million, an 11.5% increase from a year ago, principally due to higher claims in the Managed Care segment resulting from higher enrollment and the addition of LCA's members. The consolidated loss ratio rose to 84.7%, largely reflecting the effect of reserve developments in our Managed Care segment and the impact of premium adjustments in the Reform business. Excluding the effect of these items, the consolidated loss ratio increased 140 basis points, primarily resulting from increased utilization, particularly among local government employees, and the effect of the swine flu.
- Managed Care MLR Improved 160 Basis Points Sequentially to 88.7%. The quarter-to-quarter improvement was driven by a decrease in the Medicare MLR, and to a lesser degree in the Commercial MLR, offset in part by an increase in the Reform MLR.
- Consolidated Operating Expense Ratio Fell 70 Basis Points to 14.3%. The decline in this ratio was achieved despite a 6.6% increase in operating expenses, reflecting efficiencies associated with our scalable infrastructure and general cost control discipline. Overall, operating expenses increased $4.4 million, to $71.3 million, primarily due to higher Commercial volume, incremental expenses associated with the LCA acquisition, and the addition of the Metro-North region ASO contract in November 2008.
- Adjusted Net Income Rose to $24.4 million, or $0.83 Per Diluted Share. This compares with $21.3 million, or $0.66 per diluted share, in the corresponding quarter of 2008. Net income for the three months ended December 31, 2009 was $28.1 million, or $0.96 per diluted share, which included $0.13 per diluted share in after tax net realized and unrealized gains on investments.
Pro Forma Net Income (Unaudited) Three months ended Year ended December 31, December 31, ------------------ ------------- (dollar amounts in millions) 2009 2008 2009 2008 ------------------------------------------------------------------------ Pro forma net income: Net income $28.1 $2.0 $68.8 $24.8 Net realized investment (gains) losses, net of tax (1.5) 9.9 (0.5) 11.8 Net unrealized trading investments (gains) losses, net of tax (2.1) 8.7 (8.9) 18.8 Derivative loss, net of tax (0.1) 0.7 - 4.4 --------------------------- ---- --- --- --- Pro forma net income $24.4 $21.3 $59.4 $59.8 -------------------- ----- ----- ----- ----- Diluted pro forma net income per share $0.83 $0.66 $2.01 $1.86 --------------------- ----- ----- ----- -----
Year-End Recap
For the year ended December 31, 2009, consolidated operating revenues rose 11.6% to $2.0 billion, primarily reflecting growth in the Managed Care segment. Consolidated claims incurred for the year ended December 31, 2009 were $1.61 billion, up 12.4% year over year. The consolidated loss ratio increased 140 basis points to 86.0%. Consolidated operating expenses for the period were $279.4 million and the operating expense ratio was 14.5%. Pro forma net income for the year ended December 31, 2009 was $59.4 million, or $2.01 per diluted share, based on weighted average shares outstanding of 29.6 million, compared with $59.8 million, or $1.86 per diluted share, based on weighted average shares outstanding of 32.2 million at the same time last year.
As of December 31, 2009, Triple-S Management had $39.0 million in parent company cash, cash equivalents, and investments.
Segment Performance
Triple-S Management operates in three segments: 1) Managed Care, 2) Life Insurance, and 3) Property and Casualty Insurance. Management 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 minus operating expenses. Operating margin is defined as operating gain or loss divided by operating revenues.