AM Best has affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bbb+” (Good) of Triple-S Salud, Inc. (TSS) and its affiliate, Triple-S Vida, Inc. (TSV). These companies are collectively referred to as Triple-S Management Group. Concurrently, AM Best has affirmed the Long-Term ICR of “bb+” (Fair) of ultimate parent, Triple-S Management Corporation (TSM) [NYSE: GTS]. The outlook of these Credit Ratings (ratings) is stable.
Furthermore, AM Best has revised the outlook to stable from negative and affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” (Good) of Triple-S Blue, Inc., I.I. (TSB). In addition, AM Best has revised the outlook to positive from stable and affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” (Good) of Triple-S Propiedad, Inc. (TSP) (Guaynabo, PR). Lastly, AM Best has assigned an FSR of B++ (Good) and a Long-Term ICR of “bbb+” (Good) to Triple-S Advantage, Inc. (TSA). The outlook assigned to these ratings is stable. All companies are domiciled in San Juan, PR, unless otherwise specified.
The ratings of Triple-S Management Group reflect the group’s aggregate balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), for Triple-S Management Group, is very strong and has been able to withstand some volatility in earnings over the last year. The insurance entities have good liquidity and financial flexibility with access to borrow from the Federal Home Loan Bank of New York and credit from repurchase agreements. Furthermore, the parent organization, TSM, has access to the credit markets. TSM has low financial leverage of 5% at year-end 2020 and strong earnings before interest and taxes (EBIT) interest coverage at over 10x.
Triple-S Management Group has diversified sources of earnings from managed care and life insurance products. The group’s earnings trend remained profitable in 2020; however, gains were lower, attributable to higher managed care benefit costs. Premiums have trended favorably in recent years, with higher premiums from its Medicare, Medicaid and commercial lines of business. Medicare and Medicaid premiums have increased in the last two years as the result of higher membership and premium rates. Commercial medical premiums, which had trailed for some time, increased during 2020, reflecting higher fully insured premiums, favorably contributing to the overall results. Furthermore, TSV has experienced premium growth due to new sales and the acquisition of a block of business from another insurer on the island. AM Best also expects TSV’s suite of life and ancillary products to contribute to premium growth over the medium term as the group continues to expand its product offering.
The entities of Triple-S Management Group operations are largely from Puerto Rico, which continues to operate in an environment still feeling the effects of COVID-19 pandemic as the commonwealth is in the process of vaccinating its residents. Puerto Rico’s economy was in the process of recovery prior to the pandemic, and the impact of the pandemic likely will further delay the recovery. However, TSM continues to be a large presence in Puerto Rico, holding market share in each of its products, spanning from life insurance to health care services, and benefits from name recognition and branding from the Triple-S name and the Blue Cross Blue Shield trademarks.
The ratings of TSB reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate ERM. The revision of the TSB’s outlook to stable is attributed to AM Best’s expectation of strengthened risk-adjusted capitalization in 2020 following a capital contribution from its parent, TSV. Although TSB experienced capital deterioration in 2019 from operating losses, its capital levels have increased in 2020, reflecting the higher capital contribution that more than offset operating losses. The balance sheet strength assessment includes implicit support of TSV and TSM. AM Best expects TSV to continue to provide capital to support TSB’s growing business.
The ratings of TSP reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal ERM.
The positive outlooks reflect continued improvement in TSP’s overall balance sheet strength in recent years. AM Best expects the company to continue to stabilize its balance sheet, while maintaining the strongest level of risk-adjusted capitalization, as measured by BCAR, supported by organic capital generation in support of modest premium growth. In addition, the company is expected to continue its profitable operating performance as it executes its business plan.
TSP’s operating performance assessment is adequate due to its improved underwriting and operating performance largely driven by management initiatives, which includes revising underwriting guidelines, culling unprofitable books of business and significant rate increases. However, AM Best views the company’s business profile as limited due to its geographic concentration in Puerto Rico, which exposes its results to weather-related events and regulatory challenges. AM Best categorizes the company’s ERM program as marginal, as risk management capabilities do not align fully with its risk profile. TSP demonstrated weakness in the company’s reinsurance purchasing decision for the enterprise as the company significantly exceeded the catastrophe reinsurance program with losses from Hurricane Maria. While the losses associated with Hurricane Maria were unprecedented in nature, the size of the loss led to the marginal assessment. Since then, TSP made changes to its overall risk management program with reductions in its retained loss tolerance, increase in the level of reinsurance protection as well as more regular modelling and stress testing. While management has refined and enhanced the overall ERM framework and capabilities, more time is needed to determine the ultimate effectiveness of these changes.
The rating assignments for TSA reflect its balance sheet strength, which AM Best assesses as weak, as well as its strong operating performance, limited business profile and appropriate ERM. TSA’s risk-adjusted capitalization, as measured by BCAR, is weak. Additionally, financial support has been provided primarily via surplus notes, which has resulted in financial leverage in excess of 24% at TSA. The strong operating performance assessment reflects solid operating results over the last two years, stemming from growth in Medicare Advantage, which is the core business of this entity. Underwriting income at TSA has exceeded $60 million each of the past two years as the company has experienced significant growth in its Medicare Advantage business, following a higher star rating achievement in 2018 that has resulted in higher average premium rates and membership growth over the last two years. TSA has become a larger part of the TSM organization, reporting net premiums of more than $1 billion in each of the last five years, and eclipsing $1.5 billion in 2020. Furthermore, improvement in operating performance the past few years has favorably contributed to the overall earnings of TSM. In addition, TSA has received capital support from its TSS and TSM in the form of surplus notes, which have allowed the entity to sustain its business growth while still managing some organic capital growth. TSA is fully integrated within the Triple-S organization and easily identifiable as a part of the TSM organization as it carries the name and trademark of the parent.
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Senior Financial Analyst—L/H
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