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Edited Transcript of GTS earnings conference call or presentation 8-Nov-18 1:30pm GMT

Q3 2018 Triple-S Management Corp Earnings Call

San Juan Nov 15, 2018 (Thomson StreetEvents) -- Edited Transcript of Triple-S Management Corp earnings conference call or presentation Thursday, November 8, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Juan Jose Román-Jiménez

Triple-S Management Corporation - Executive VP & CFO

* Roberto García-Rodríguez

Triple-S Management Corporation - President, CEO & Director

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Conference Call Participants

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* Peter Heinz Costa

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Garrett Edson

ICR, LLC - SVP

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Presentation

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Operator [1]

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Good day, and welcome to the Triple-S Management Third Quarter 2018 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Garrett Edson, Senior Vice President, ICR. Please go ahead, sir.

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Garrett Edson, ICR, LLC - SVP [2]

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Thank you and good morning. Welcome to the Triple-S Management Third Quarter 2018 Earnings Conference Call. With us today, are your hosts, Bobby Garcia, President and Chief Executive Officer of Triple and Juan Jose Roman, the Executive Vice President and Chief Financial Officer. In addition, Madeline Hernandez, Chief Operating Officer and President of Managed Care, will be available during Q&A. By now, everyone should have access to the earnings announcement, which was released prior to this call and which may also be found on the company's website at triplesmanagement.com.

Before we begin formal remarks, we need to remind everyone that each quarter Triple-S management executives will provide their current view of the company's future, and thus they will be sharing forward-looking information. These statements can be affected by risks and uncertainties involved in the business. Despite management's best efforts, actual results may differ materially from such forward-looking statements and what you hear on today's call. These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them.

Further information on factors that could impact the company and the statements and projections contained herein, please refer to the Safe Harbor section in today's news release and the company's filings with the Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us as of the date of this call. We disclaim any obligation to update all forward-looking statements unless required by law.

In addition, this call is being webcast, and an archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at www.triplesmanagement.com. If you cannot download a copy of the release, you can contact us at (787) 792-6488, and we will get one to you immediately and can add you to the distribution list moving forward.

With that, I'd now like to turn the call over to Bobby Garcia. Please go ahead.

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [3]

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Thanks, Garrett, and good morning everyone. Thanks for joining us today as we review our results for the third quarter of 2018. Our results overall in the third quarter were clearly impacted by the material increase in our estimated gross losses from Hurricane Maria. So we will spend a fair amount of time today discussing this development.

Before doing so, however, I'd like to stress that our underlying business across all segments is progressing well. We continue delivering on key operational and clinical initiatives, and remain keenly focused on our strategic priorities, aimed at improving profitability and positioning the company for sustainable growth.

Total operating revenue for the quarter was $764 million, up 4% from a year ago. This increase reflects continued premium trend improvements in our Managed Care segment, specifically Medicare Advantage and Medicaid, as well as a solid performance in our Life segment. All in, we recorded a loss per share of $0.77 in the third quarter compared to diluted earnings per share of $0.91 in the prior-year period. Our adjusted net loss was $0.97 compared to adjusted diluted earnings of $0.77 per share a year ago. Excluding the prior-period reserve development in the P&C segment, we would have recorded adjusted diluted earnings per share for the quarter of $0.60. This compares favorably with the prior-year period in which adjusted diluted earnings, excluding the estimated favorable hurricane-related impact in the Managed Care segment's utilization and the hurricane-related net retained losses recognized by P&C, was $0.55 per diluted share. Again, this reflects continued improvement in our core business.

We are obviously disappointed that we've had to increase our reserve for gross losses related to Hurricane Maria. We are constantly updating our loss reserve estimates as we receive new claims and get new information on existing claims. And during September, we saw a rush of new claims as well as amendments to existing claims and the reopening of closed claims, right around the first anniversary of the hurricane; whereas the number of new claims filed per month had been decreasing steadily since landfall, averaging 160 from June to August, including a low of 147 in August alone, we received 613 new claims in September. We believe this sudden increase was driven by news reports that created public uncertainty as to whether claimants would forgo their claims entirely if they did not file them within 1 year of the event.

I note that since the anniversary passed, new claims have dropped dramatically; they totaled 40 in October and are running at a similar clip in November. While reserves may still shift as by definition their estimates that may develop upward or downward, based on the significant drop in new claims, the percentage of cases closed, the status of individual case reserves, and the additional reserve taken in the third quarter, we do not expect further significant loss developments moving forward. Given the increase in our loss reserves, risk-based capital at our P&C segment will fall below the minimum requirement, requiring a plan to increase the capital and surplus.

To that end and with pricing now much more favorable than we had seen in the second quarter, we decided to enter into a 5-year high excess cover reinsurance agreement effective as of April 1, 2018. The reinsurance provides us with several key benefits. First, it retroactively provides us with $50 million in spillover coverage of the incurred losses for which we reserved during the third quarter. Second, we locked in reinsurance pricing for 5 years of umbrella coverage for $180 million in prospective losses from future storms or earthquakes. This protects us from any pricing increase for this portion of our reinsurance coverage during that time. Third, if our loss estimates prove to be conservative and we have a favorable reserve development over the covered period, we will be entitled to the return of a portion of our premium at the end of the agreement in 2023. Finally, the retroactive reinsurance provides P&C with additional statutory capital in surplus improving its RBC ratio and reducing the capital contribution required from the parent. This allows us to preserve capital to continue our strategic transformation.

We have submitted a plan to the Commissioner of Insurance, which is pending approval, to increase RBC at the subsidiary level. As part of that plan, we would issue surplus notes to the subsidiary of up to $22 million, $10 million by year-end and the difference as necessary by second quarter of 2019. In a few minutes, Juan Jose will walk you through additional details of the reinsurance agreement and its impact on the financial statements.

Our decision to acquire retroactive excess cover reinsurance and issue surplus notes resulted from a careful evaluation of the P&C market in Puerto Rico post Maria. While the significant adverse development over the past 2 quarters has given us pause, we believe our P&C segment's underlying business fundamentals are sound. A hard pricing market, a reduction in the number of players, and our enhanced reinsurance coverage, point to a solid return on investment for our P&C segment in the coming years. So barring any unexpected future losses, we intend to support its recovery and growth. Perhaps most importantly, and as I mentioned earlier, these reserve developments have no impact on our long-term growth strategy, more on our Managed Care performance.

Our team has remained keenly focused on execution of our key initiatives and that commitment is producing positive results. We selected Abarca as our PBM in September and are scheduled to consolidate our pharmacy benefits for our commercial and MA businesses under one banner in January 2019. We signed the contract to participate in the revised Medicaid plan for Puerto Rico, which launched last week. While our assigned membership of 280,000 beneficiaries is well below our prior number and Medicaid premiums are, therefore, expected to decline in the fourth quarter, we are seeing encouraging signals from our points of sale and service in the early stages of the open enrollment period. This suggests that Medicaid members recognize the value of the Triple-S brand, the breadth of our network, and the quality of our services, which should lead to greater membership in 2019.

Also as Juan Jose will discuss in detail, our overall adjusted MLR improved 110 basis points year-over-year. And finally, shortly after the end of the quarter, we were excited to learn that our Medicare Advantage HMO offering reached to 4.5-star quality rating for payment year 2020, confirming the strength of our provider relationships and the effectiveness of our clinical and operational initiatives.

In terms of guidance, we are maintaining our directional guidance for the Managed Care commercial and Medicare membership and reducing expected Medicare MLR, while raising directional guidance for premiums earned in our Life Insurance segment. More specifically, for our commercial business, we continue to expect full-year at-risk member month enrollment to be between 3.7 million and 3.8 million and MLR for the full year to be between 80.5% and 82.5%. In our Medicare Advantage business, we continue to expect member month enrollment between 1.25 million and 1.35 million, and we now expect full-year MLR for 2018 between 84% and 86%, down from our previous expectation of 85% to 87%. Life insurance premiums earned for 2018 are now expected to be between $165 million and $167 million, up from our previous expectation of between $160 million and $164 million. Property and Casualty continues to expect premiums earned for 2018 between $82 million and $86 million.

Finally, our outlook for consolidated operating expenses for full-year 2018 is now between $550 million and $555 million, up from the prior range of $530 million to $545 million, mostly reflecting higher expenses related to Medicare open enrollment and the new Medicaid model implementation.

To sum up, we're confident that the worst of the reserve development in P&C is now behind us, and we believe the additional reinsurance we've purchased will help ensure that this segment meets its RBC requirements as soon as possible. Meanwhile, our core Managed Care segment, particularly our Medicare Advantage offering, continues to improve. We remain very well capitalized despite the reserve developments and our long-term growth strategy remains on track.

Juan Jose will now provide you with more specific financials by business segment. Juan Jose?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [4]

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Thank you, Bobby, and welcome to everyone on this call. I'm going to discuss our third quarter results emphasizing the results of our Managed Care segment and the claims development of our Property and Casualty segment. As Bobby mentioned, our results this quarter reflect continuing, improvement in our Managed Care segment, but were again negatively impacted by the unfavorable prior-period reserve development in the Property and Casualty segment.

I will discuss these developments in a moment, but will first discuss the Managed Care quarterly results. Before getting into the details, I would like to remind everyone that the 2017 third quarter results for the Managed Care segment were helped by the aftermath of Hurricane Irma and Maria. This is consistent with our experience following our catastrophic events as Hurricanes Irma and Maria temporarily reviews the utilization of Managed Care services until our membership and provider network [bears] with a fallout from the storm. The hurricanes are also -- also had a disruptive effect on the entire claims submission adjudication and payment process.

Let me now discuss the Managed Care results. Managed Care premiums for the quarter were $27 million higher than a year ago, primarily reflecting increased Medicare and Medicaid premiums. In our Medicare business, earned premiums were 7% higher than last year, largely reflecting the increase in the fee-for-service benchmark for Puerto Rico in 2018, an increase in premium rates related to the 4-star rating we achieved for our 2018 HMO products and higher average risk scores. These increases were offset in part by a decrease in member month when compared to last year. Then 5% increase in our Medicaid earned premiums mostly reflects higher membership, approximately $9 million related to the achievement of the contracts quality incentive metrics and nearly $4 million related to the reinstatement of the HIP fee pass-through in 2018. These increases were partially offset by the recording of approximately $6 million profit sharing accrual with assets. As a note, with the new Medicaid plan in effect as of November 1, impacting our member count, we expect fourth quarter earned premium to be materially lower than they were in the prior-year period as it will take time to regain market share. In addition, we expect certain additional operating expenses related to the implementation of the new model.

In our Commercial business, earned premiums were slightly lower than last year, mostly due to lower fully-insured membership and partially offset by the reinstatement of the HIP fee pass-through on premium rate increases. The lower membership has been largely driven by attrition within existing accounts, reflecting the prolonged weakness in the Puerto Rico economy.

Managed Care claims were up $27 million year-over-year, primarily driven by the normalization of utilization pattern in 2018 when compared to the reduced utilization experienced in 2017 as a result of Hurricanes Irma and Maria, which we estimate lowered 2017 Managed Care claims by approximately $33 million and 2017 MLR by 500 basis points. After adjusting for reserve development risk of revenue and the impact of hurricanes, the recasted MLR of the Managed Care segment improved by 110 basis points over last year.

Let me give you more details regarding the MLR for each of the Managed Care segments. Medicare MLR of 80.3% improved 300 basis points when compared to the same period last year, even with the hurricane-related reduced utilization in the prior-year period, which lowered the prior-year MLR by approximately 580 basis points or $15 million. Excluding the impact of prior-period reserve development, moving risk-score revenue to its corresponding period and adjusting for the 2017 hurricane-related impact in utilization, Medicare MLR in 2018 would have been 82.7%, a 510 basis point decrease from the prior-year period. The lower adjusted MLR mostly reflects higher average premiums.

Medicaid MLR was 85.9%, a 510 basis point improvement compared to last year. We estimate that the 2017 Medicaid MLR was lower by approximately 50 basis points as a result of the estimated hurricane-related drop in utilization. Excluding the impact of prior-period reserve developments and adjusting for the 2017 hurricane-related impact in utilization, the recasted Medicaid MLR would have been 87.3%, 50 basis points lower than last year.

Our Commercial MLR of 84.5% is over 1,100 basis points higher than last year. We estimate that the 2017 Commercial MLR has an approximate 830 basis point reduction from the estimated hurricane-related decrease in utilization or [$16.60 million]. Excluding the impact in both periods of prior-period reserve development and adjusting for the 2017 hurricane-related impact in utilization, the recasted 2018 MLR would have been 83.3%, 410 basis points higher than a year ago, mostly reflecting claims trends higher than premium trends.

Let's move on to the segment quarterly operating expenses. The Managed Care segment's operating expenses were up $23 million from a year ago. The increase reflects a $13 million increase from reinstated HIP fee, higher professional services and personnel costs related to the ongoing operational and clinical Managed Care initiative, and expenses related to implementation of the new Medicaid model.

Let me share some comments on our Life and Property and Casualty segments. Life premiums earned were up approximately 3% from last year, primarily reflecting premium growth in the segment's individual line of business. The segment's operating income was $5.7 million, $1.2 million higher year-over-year, reflecting higher volume of business. As Bobby mentioned, in our Property and Casualty segment, we reported this quarter an unfavorable prior-period reserve development from losses related to the Hurricane Maria, not entirely covered by reinsurance. The estimated gross losses related to this event increased this quarter by [$58.9 million] from $899 million as of June 30, 2018 to $968 million as of September 30, 2018, which increased net claims incurred recognized during the current quarter by $52.3 million. This increase in the loss expectation from the Hurricane Maria caused this segment $46.9 million net operating loss during this quarter.

As is the case for all claim liabilities, the gross losses related to Hurricane Maria are based on our best estimate of ultimate expected cost of claim with the information currently on hand and are subject to uncertainty. As of November 6, 2018, we have received about 17,645 claims related to the Hurricane Maria and have paid losses and loss expenses of approximately $513 million.

As Bobby mentioned, on November 2, our Property and Casualty segment entered into a reinsurance agreement, which is considered effective as of April 1, 2018. This agreement provides catastrophic coverage in 2 ways. One portion of the agreement is retroactive and covers $50 million in excess of the $76.5 million of Hurricane Maria unfavorable development we had recorded in the second quarter of 2018. The second portion is prospective and expands the current catastrophe insurance coverage versus from this reinsurer for a period of 5 years ending March 31, 2023. This agreement improve our P&C statutory capital and surplus, as well as its risk-based capital ratio, reduce the amount of additional capital infusion required into the segment and looking reinsurance pricing for the next 5 years.

In addition, should we [end] up non-incurring claims up to the full amount, we will be able to receive 75% of the excess premium paid in excess of the covered losses from -- when the contract expires in 2023. Since this agreement was executed in November 2018, it will be recorded in Q4 financial statements. The immediate impact in our income statement will be primarily related to the increased cost of the prospective reinsurance coverage, which we estimate will increase our current reinsurance costs by approximately $5.2 million each contract year. For Q4 2018, we estimate reinsurance costs will increase by approximately $4 million since this contract is retroactive to April 2018. In future periods, the increased reinsurance costs will be offset by the amortization of approximately $25 million deferred gain related to the retrospective component, which will be amortized into income in proportion to Hurricane Maria claims payments.

Now returning to our overall results, consolidated income tax benefit was $3 million compared to an expense of $12 million in the prior-year period, primarily reflecting the unfavorable reserve development recognized by the Property and Casualty segment in the third quarter and the favorable impact of lower (inaudible) utilization in the Managed Care segment earnings in the prior year, following the landfall of the hurricanes.

Total cash and investments at the parent company level was $59 million as of September 30, 2018. Although we're obviously disappointed with the results this quarter, we believe that the underlying business in each of the Managed Care, Life and P&C segments, remains sound. And our overall long-term growth strategy, we have noted on prior calls, remain unchanged.

We will now proceed to our Q&A section. Operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first to Peter Costa at Wells Fargo Securities.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [2]

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Wanted to see if I understand this reinsurance cover agreement correctly. So rather than booking a gain in the fourth quarter, you're going to defer that gain and amortize it over the period of the contract. And that's going to offset the cost of the premiums for this contract other than in the fourth quarter itself, where you are going to pay $4 million because it's retroactive. Is that correct?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [3]

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That is correct. The only other caveat will be -- Peter, hi, this is on Juan Jose. The other caveat will be the timing. So it will offset fully the $25 million increase in the reinsurance costs. But the amortization will depend or will happen as we pay or use the $50 million. So there could be a mismatch over the timing difference when one will offset the other, but at the end of the 5 years, one will almost fully offset the other.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [4]

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Okay. And then from a -- so you've essentially already used this up with this charge that you're taking at this point, and it's really just the way -- for me to think about it, it's sort of a loan, if you will, to protect your capital at the sub. Is that the better way to think about this?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [5]

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That's a better way to say it, yes.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [6]

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Okay. So further assessments, if the claim damages go higher again, you'd have a similar problem taking a charge in the quarter and could you be -- would you be able to do some cover like this going forward, or will just use up your capacity to do this sort of a thing?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [7]

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We could do another one, right. So if that happens then we will evaluate that. But the capacity is there, yes.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [8]

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Okay. And now in terms of -- you said you had to talk to the government in terms of your plan for your capital being put into the sub. How sure are you of where you are with that and if this plan will work versus you being having to put in more capital right away?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [9]

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We did meet already with the Commissioner, presented our plan. Now we are formally presenting the plan, they're going to review. Obviously, there is no guarantee, but the feedback was positive.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [10]

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Okay. And now let's look at the claims and see where we're going with that at this point. Sorry, I've got a little bit of a mismatch in terms of the claims, in terms of the way they've been coming in versus what you're saying now versus what you said before. If I go back and look at sort of the claims, the dialog we've had in the past, it looks like you had maybe 80 million more of claims -- I'm sorry not 80 million, 80 claims more in this past quarter then what I would have otherwise calculated as you had said, sort of 125 before and then 75 would have been the number up to the -- towards the end of August and a 613 in the last month of the quarter. But yes, you said you had an average of 160 of the prior quarters and there was 200 in the quarter before that, I know I'm jumbling numbers around here. But basically, it looks -- there's more claims coming in and then even more with, if I look at the 17,645, that looks like almost 100 more claims as opposed to the 40 more claims that you talked about in the last month. So where is the mismatch in my numbers?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [11]

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Yes, let me clarify. So, in July we received 160, almost 147. Then it jumped to 613 in September. So the total for the quarter was 921. Q2 total was 899. Now in the month of October, we received 40 claims.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [12]

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Okay, end of August though -- August 28, you put out a thing (inaudible) conference. I guess, it was -- you talked about a smaller number of claims at that point in time, it seems like the number increased a little bit.

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [13]

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Yes. So what happened is that in September -- the numbers were coming down every month as we discussed before. What happened in September we saw a rush in of claims, which we attribute to the news that people believe that they only have 1 year to submit claims or even to submit a lawsuit. So that's why we -- what we saw there normally of an increase, but we were averaging 100, 150, I think that was what was coming, that the average was coming down close to 150. Then in September, we saw the spike to 600. However, in October it went back down to 40. Do that clarify?

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [14]

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Maybe, I'll get back to you on this offline. So looking at claim damages or paid claims, you said you paid $513 million of claims at this point, is that correct?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [15]

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That is correct.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [16]

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And that's up from -- most of them are from $430 million last quarter, is that correct? Was it $390 million at around?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [17]

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In last quarter, was $390 million, yes.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [18]

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$390 million, okay. And so last quarter then the $430 million was sort of the amount of claims that you had received, but had not yet paid. And what's that number today, was it claims received but not paid?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [19]

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Yes, so in reserve right now we have $455 million of reserve that we have available that we have not paid.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [20]

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And it's claims received that you have not paid?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [21]

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Received loss, IBNR.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [22]

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[Loss plus IBNR]. So what's the IBNR component of that?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [23]

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IBNR, well, I have -- IBNR is around $15 million.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [24]

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$50 million?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [25]

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$15 million.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [26]

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So, that's not a very big IBNR at this point for remaining claims coming in, given that they are coming in at a rate of 40 a month or so. You believe that you're going to need to adjust that higher or is there some view that some of the claims that you've received is going to go down in value?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [27]

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They are coming down. The majority of what we're seeing is really personal claims now. That doesn't mean we are not receiving commercial, but the majority being is really personal claims.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [28]

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Can you talk about the business interruption insurance and where does that stand at that point in time?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [29]

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Yes, as of September 30, around 8% or $80 million is what the estimated incurred for business interruption; is around 8% of the total loss.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [30]

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And how much of that have you settled?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [31]

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It will be more than half.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [32]

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And when I read the press in Puerto Rico, it seems like there is quite a bit of disruption between people's expectations in terms of what is repaid versus what's actually being paid. Does that mean that these claim numbers and amendments and reopened claims are going to continue going forward? How should I think about that in terms of -- and how are you thinking about that at this point?

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [33]

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Yes, I would say -- Peter, and this is Bobby, that we do our best to reach estimates that are reasonable based on due diligence and the work of our adjusters and there is always room for interpretation and negotiation, but there comes a time when you determine that your reserve is reasonable and if the other party, for whatever reason, has a different interpretation, then it will have to go either in arbitration, some kind of legal proceeding, because there are -- as you say, there is a lot of press out there, there are a lot of public adjusters that have gotten involved in this, and so at some point, you need to say we feel that we have done our job and will stand by our numbers.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [34]

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Of the incremental $52 million this quarter, how much of that was related to the new claims that came in versus claim amendments or reopened claims?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [35]

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So new claims is around half of the increase. Slightly higher, probably about 50-50 -- within 50% and 60% is what we estimate is for new claims.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [36]

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And then getting away from this P&C business for a minute. The agreement with Abarca, that's really (inaudible) where that will take effect. What do you think that can do from an operating point of view in terms of improved costs?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [37]

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We will see some savings from the pure operational standpoint, right. There will be some efficiencies, will be one PBM. There are some costs that are lower than our previous contract. So we will see some savings from the operational standpoint. In the multi-utilization, we will see savings, part of it was -- took into consideration when we prepared our bid for the MA business. At that time, we did have a very good sense as to how much will be the saving that was -- we took that into consideration to improve their benefits and our product in MA. And in the case of Commercial actually, that will help us to bend or control the increased costs that we're seeing specifically in pharmacy. So the benefit that we see for Commercial is bend the cost, but also should allow us to be more competitive, especially for new accounts.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [38]

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So from a bottom line impact, not that big a deal, but more from a maintenance of the existing book of business that you have and increasing your competitiveness going forward, is that the way to think of it?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [39]

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It's a good way to think about it. We do expect some positive in the MLR of our Commercial.

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [40]

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So we're taking a balanced approach for this, Peter.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [41]

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And then you increased for this year, your view on operating expenses, by $20 million at the bottom and -- with Life at the top, so call it $15 million at the midpoint. And it looked like it was really for marketing for Medicare and Medicaid. You kind of knew about that, that you were going to have marketing before, and you knew -- for Medicare, and you knew that you'd have the open enrollment period for Medicaid. Why did you increase that number at this point?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [42]

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First of all, we did increase, and perhaps to do with the Medicaid, is not only marketing, but there are significant changes to the new program. So it's requiring us to invest or to incur expenses related to systems and the setup of certain additional requirements from the contract. So that is new. We have decided to increase our business promotion for our MA. So that's a decision we took based on what we see in the market, our product. So we are investing some additional money, so we did decide to increase some of the expenses related to the enrollment process of our MA. Life lastly, we do have some increases in professional services for projects that started later during the year, that are impacting our expenses.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [43]

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Got it. And then looking at the life count in Medicaid, you are down about 100,000 lives, a little more given the other enrollment period. How many of those lives do you think you can get back or how much growth can you get from the choosers as people perceive through the open enrollment period, choosing which plan they are going to get, given there is an incremental health plan offered?

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [44]

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It's too early to tell, Peter. We do feel optimistic just based on the activity in our regional offices, the visits to our website, what we hear from providers, our call centers. So we are expecting an increase, but at this point, we can't give you an estimate of that number. So the closer we can get to our prior number, the better, but it's still early.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [45]

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Presumably, you have a view on people choosing you at this point in time. But you don't really know who's choosing somebody else. When do you find out how many of your current lives have chosen somebody else? Will that come to you almost immediately or does that take a month or 2 to get together?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [46]

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It will probably a month to start seeing the information. We have not received yet the official numbers for the week -- instead of just a week for example, as of today, we're trying to prepare for the call and for the question, but we have not received from the government yet how the member sheet has changed. So to Bobby's point, it's more what we see based on the calls, their visit to our offices, we see a good momentum. But we don't have data yet to share.

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Operator [47]

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(Operator Instructions) And we'll go next to (inaudible).

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Unidentified Analyst, [48]

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I'm just a little confused. I think you're using some figures of $8 billion to $9 billion of P&C losses of which you had 15% market share when speaking in the last couple of months. Is that still accurate?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [49]

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Those figures were provided by the Commissioner of Insurance. We estimate that based on what he has seen that it could be around $8 billion total losses, not Commercial, total for the market.

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Unidentified Analyst, [50]

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And then, so where does the $10 billion difference (inaudible) from ISO PCS, because using these figures, it seems like you are still under-reserved from $100 million to $1.6 billion?

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [51]

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John, I would say first that when you look at figures from companies such as that, those are --

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Unidentified Analyst, [52]

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Such as the Gold Standard?

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [53]

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No, no, I'm just saying that they include -- I'm saying is that they include insurance that may not be covered locally and that includes pharmaceuticals, that includes large multinational retailers. And so we are using numbers that are built from our current portfolio. So not just applying a percentage to total market. No, that's pretty much it.

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Unidentified Analyst, [54]

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Okay. And then those current numbers, you're using actual numbers that you feel like you're going to have to pay versus the actual claim is by the adjusters, is that correct?

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [55]

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Yes, but also the taking into account the other party's estimates as well and documentation. So it's an ongoing process of review together with the claimant.

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Unidentified Analyst, [56]

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Got you. So I mean, I guess, my next question is, how much have you guys allocated in your guidance for increased legal expenses since it seems like the island is truck full of litigators at this point?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [57]

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Usually what we do is that we estimate our loss adjustment expenses (inaudible) is based usually on a percentage of the total estimated claim. So that include expected legal cases. So the reserve consider expenses to settle the claims.

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Unidentified Analyst, [58]

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At this at this juncture, how much are you spending incremental and legal expenses, given that the last couple of months which probably starts on activity increased dramatically?

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Juan Jose Román-Jiménez, Triple-S Management Corporation - Executive VP & CFO [59]

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Not much at all. There has been some lawsuits, some of them any way they are, we're fine with the results, but at this point minimum.

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Unidentified Analyst, [60]

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Okay. I guess we'll have to wait and see.

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Operator [61]

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And at this time there are no further questions, I would like to turn the conference back over to management for closing remarks.

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Roberto García-Rodríguez, Triple-S Management Corporation - President, CEO & Director [62]

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Okay. Thank you, operator. And we'd like to thank everyone for your time and ongoing support for Triple-S. If you have any additional questions, please reach out and have a wonderful morning.

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Operator [63]

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And that does conclude today's conference. Again thank you for your participation.