Triple-S announces consolidated revenues of $587.7 and net loss of $1.7 million for Q4 2013

Triple-S Management Corporation (NYSE: GTS), the leading managed care company in Puerto Rico, today announced consolidated revenues of $587.7 million and a consolidated net loss of $1.7 million for the three months ended December 31, 2013. Net income for the year was $54.3 million, or $1.95 per diluted share, compared with $54.0 million, or $1.90 per diluted share, in 2012. Pro-forma net income was $37.8 million, or $1.36 per diluted share, compared with $49.6 million, or $1.74 per diluted share, in 2012.

Quarterly Consolidated Highlights

• Total consolidated operating revenues were $588.0 million;
• Consolidated operating loss was $3.2 million;
• Consolidated loss ratio was 85.5%;
• Medical loss ratio (MLR) was 89.4%;
• Managed Care member month enrollment increased 28.1% year over year;
• Medicaid self-insured member month enrollment was up 60.3% from the prior year;
• Medicare member month enrollment fell 7.4% compared with the year-ago period.

Ramón Ruiz-Comas, President and CEO of Triple-S Management Corporation commented, "Reflecting several challenges within our Managed Care segment, the Company's quarterly and full-year financial results were below expectations.  Management is disappointed with this performance. The Commercial business incurred a net loss in the fourth quarter, which had historically been one of the most profitable in any given calendar year. In the period, the Commercial business experienced unexpectedly high utilization of preventive care services, including vaccinations, an outbreak of dengue fever and influenza, increased costs in specialty drugs, and continued losses in the U.S. Virgin Islands.  While the Medicare Advantage (MA) segment demonstrated improvement in 2013, its performance deteriorated in the fourth quarter substantially due to unfavorable prior period reserve developments.  Furthermore, the Managed Care business experienced an ongoing reduction in overall premiums due to membership losses, largely reflecting employee attrition."

Mr. Ruiz-Comas continued, "Several challenges still lie ahead, including the miSalud request for proposal (RFP) issued by the Government late last week, which incorporates a change to an at-risk model effective July 1, 2014, the impact of all recent regulations in the industry and taxes, continued pricing pressure in the Commercial segment stemming from heavy competition, and the unknown effect that the recent downgrade on Puerto Rico Government debt may have on the economy. Given these challenges, we believe that it is not prudent to provide 2014 guidance at this time."

"In an effort to improve overall financial performance, the Company is embarking on a comprehensive strategic review of its businesses and processes, and management is taking immediate corrective steps. In the Commercial business, Triple-S will review its underwriting and pricing taking into account the latest trends in utilization and cost, implement new approaches and solutions to reduce specialty pharmacy costs, and revamp the U.S. Virgin Islands business model to ensure future profitability. Within MA, we will transfer pharmacy benefit management of the Triple-S MA portfolio to Abarca Health, seek an increase in MA membership by continuing to enroll new dual members throughout the year, continue the transition to a pay-for-performance physician model, and integrate the newly acquired Pharmacy Insurance Company of America (PICA) Part D portfolio, which had approximately 6,000 lives as of January 1, 2014," Mr. Ruiz-Comas concluded.

Selected Quarterly Details

• Pro Forma Net Income Was $1.3 Million, or $0.05 Per Diluted Share.  Weighted average shares outstanding were 27.4 million. This compares with pro forma net income of $15.2 million, or $0.53 per diluted share, in the corresponding quarter of 2012, based on weighted average shares outstanding of 28.4 million.
• Managed Care Membership.  Our Managed Care membership increased by 27.1% year over year, reflecting the addition of the three new Medicaid (miSalud) regions effective October 1, 2013. Medicaid membership (all self-funded) increased 58.6%, to 1,420,371. Medicare membership decreased 8.1% year over year, to 112,839.  Fully-insured and self-funded Commercial membership declined by 7.0% and 6.5%, respectively.
• Consolidated Premiums Fell 2.6%, to $543.8 Million.  The decrease in consolidated premiums was principally due to lower Managed Care premiums, resulting from lower Medicare and Commercial fully-insured member month enrollment.
• Administrative Service Fees Increased 10.9%, to $30.6 Million.  The higher service fee income reflects the addition of the three new Medicaid regions offset, in part, by the lower per-member, per-month fees agreed upon in the new miSalud contract that became effective July 1, 2013.
• Managed Care MLR Increased 290 Basis Points, to 89.4%.  The increased MLR primarily reflects higher utilization and cost trends in the Commercial sector due to an outbreak of dengue fever and influenza, increased costs in specialty drugs, greater utilization of preventive care services, including vaccinations, and higher utilization and costs in the U.S. Virgin Islands business.
• Consolidated Loss Ratio Increased 260 Basis Points, to 85.5%.  The higher consolidated loss ratio mainly reflects the 290-basis-point increase in the Managed Care MLR. The loss ratio of the Property and Casualty segment increased by 740 basis points, while the loss ratio of the Life Insurance segment decreased by 170 basis points.
• Consolidated Operating Expense Ratio Rose 220 Basis Points, to 22.0%.  The higher consolidated operating expense ratio was largely due to the combination of decreased premiums and increased operating expenses, including expenses related to the addition of the three new miSalud ASO regions, a $2.4 million goodwill impairment charge related to the acquisition of a controlling interest in a health clinic, and premium taxes that became effective July 1, 2013.
• Consolidated Operating Income Declined 115.0%, to a Loss of $3.2 Million.  The decrease in operating income primarily reflects the effect of the increased utilization in the Managed Care segment and increased operating expenses, resulting in a 400-basis-point decrease in the consolidated operating margin.

Twelve-Month Recap
For the 12 months ended December 31, 2013, consolidated operating revenues decreased 2.3%, to $2.4 billion, primarily reflecting lower member month enrollment in the Medicare and Commercial sectors of the Managed Care segment. Consolidated claims incurred for the 12-month period were $1.8 billion, down 4.5% year over year. The 12-month consolidated loss ratio decreased 170 basis points, to 83.5%, and the MLR fell 190 basis points, to 86.9%.  This decline was driven by lower utilization and cost trends in the Medicare business, primarily at American Health. Consolidated operating expenses for the 12 months ended December 31, 2013 were $477.4 million and the operating expense ratio was 20.7%. Pro forma net income for the 12-month period was $37.8 million, or $1.36 per diluted share, based on weighted average shares outstanding of 27.8 million, compared with $49.6 million, or $1.74 per diluted share, based on weighted average shares outstanding of 28.5 million at the same time last year.

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 income or loss divided by operating revenues.  The adjusted medical loss ratio accounts for subsequent adjustments to estimates, such as MA premium adjustments and prior period reserve developments, and presents them in the corresponding period.

Conference Call and Webcast
Management will host a conference call and webcast on February 11, 2014 at 8:00 a.m., Eastern Time to discuss its financial results for the three months ended December 31, 2013.  To participate, callers within the U.S. and Canada should dial 1-877-941-6009, and international callers should dial 1-480-629-9819 about five minutes before the presentation.

To listen to the webcast, participants should visit the "Investor Relations" section of the Company's Web site 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 Web site, 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 Web site.