Triple-S Management Corporation announced its second quarter 2018 results, that included a net loss of $38.7 million, or $1.68 loss per diluted share, versus net income of $12.7 million, or $0.52 per diluted share in the prior-year period.
During the second quarter of 2018, the company recorded approximately $76.4 million of unfavorable prior period reserve development — approximately $47.5 million after-tax impact, or $2.06 per diluted share — in the Property and Casualty segment as increased gross losses related to Hurricane María claims caused the segment to exceed its catastrophe reinsurance coverage limit.
“Notably and unfortunately, the second quarter was also impacted by an unfavorable prior period reserve development in our property and casualty segment. As a result, we recorded a loss per share of $1.68 versus diluted earnings per share of $0.52 in the prior year period,” said Triple-S President said Roberto García-Rodríguez, during a call with analysts to discuss earnings.
The second quarter stood out in several ways, he said.
“We continued making strides in our strategic transformation. We submitted what we believe will be a very competitive product offering for the 2019 Medicare Advantage enrollment season. We were selected as one of five participants to enter the final stage of the Puerto Rico government Medicaid bid and we welcomed two key hires to the senior executive team,” he said.
Adjusted net loss of $37.3 million, or $1.62 loss per diluted share, versus adjusted net income of $9.4 million, or $0.39 per diluted share, a year ago mostly reflecting the after-tax impact of the unfavorable reserve development in the Property and Casualty segment related to Hurricane María claims. Excluding the impact of this unfavorable development, adjusted net income would have been $10.2 million, or $0.44 per diluted share.
“It is important to remember that Hurricane María caused unprecedented catastrophic damage in Puerto Rico including islandwide electric power water outages, as well as severe damage to Puerto Rico’s telecommunications and transportation infrastructure that took months to restore,” he said.
“During those months, we used a globally recognized post-landfall catastrophe model as the primary source to estimate gross losses,” he said. “The use of cat models to estimate losses until actual damages can be accurately estimated, is common practice in the insurance industry for events of this magnitude.”
Operating revenues of $763.1 million, a 3.0 percent increase from the prior-year period, reflecting higher Managed Care premiums. Consolidated loss ratio rose 870 basis points to 93.3 percent, mostly driven by the unfavorable reserve development related to Hurricane María claims recognized by the Property and Casualty segment.
Medical loss ratio (“MLR”) improved to 86.1 percent, driven primarily by Managed Care premium trends that are higher than claim trends, the company noted.
Consolidated operating loss of $63.6 million compared to operating income of $11.2 million in the prior-year period. Excluding the impact of the Property and Casualty unfavorable development, consolidated operating income for the 2018 period would have been $12.8 million.
“While we continue to execute well on our initiatives to position the company for long-term success, our second quarter performance was clearly affected by the unfavorable prior period reserve development at our Property and Casualty segment,” said Garcia-Rodriguez.
“As the quarter progressed, we received more detailed claim information, allowing us for the first time to base our reserves on actual data rather than model projections,” he said.
“This led us to recognize a significant increase in the estimated gross losses related to Hurricane María, which exceeded the estimates generated by the industry-recognized post-landfall catastrophic model we had been using to establish our reserves, as well as our $733 million catastrophe reinsurance coverage limit,” he added.
“Importantly, this development is an isolated event that has no impact on our ongoing operations—which performed better year over year—nor on our overall growth strategy,” continued Mr. Garcia-Rodriguez.
“We continue investing considerably in our Managed Care operations and modernizing our infrastructure to consistently expand our margins over time,” he said.
“We also remain focused on increasing our share of Medicare Advantage business and on further expanding our ambulatory clinic network to enable sustainable growth and long-term value for our shareholders,” he added.