A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit ratings (ICR) of “bbb+” of Triple-S Salud, Inc. (TSS) and Triple-S Vida, Inc. (TSV). Additionally, A.M. Best has affirmed the debt rating of “bbb” on $50 million 6.30% senior unsecured notes due 2019 of TSS. A.M. Best also has affirmed the ICR of “bb+” of the holding company, Triple-S Management Corporation (TSM) (NYSE: GTS). The outlook for all ratings is stable. All companies are domiciled in San Juan, PR.
The ratings of TSS reflect the company’s brand strength in Puerto Rico, its increase in membership and diversified product portfolio. TSS benefits from strong brand name recognition in its market and has the largest share of all managed care companies operating in Puerto Rico. The company reported sizeable membership growth in the commercial sector in 2009 and a nominal gain in the health reform segment (Commonwealth of Puerto Rico’s Medicaid managed care program). TSS’ commercial enrollment grew by more than 25%, largely due to the acquisition of the membership of La Cruz Azul de Puerto Rico. The commercial segment reported an improvement in statutory underwriting results in 2009 and its first gain in four years. The improvement is the result of initiatives taken to improve the operating performance of this sector.
Offsetting these strengths is a high concentration of earnings and premiums from government-funded programs and the very competitive operating landscape. A large portion of TSS’ revenues are generated from the Medicare Advantage line of business, which is susceptible to federal government regulations. The large dependence on Medicare Advantage may challenge TSS’ earnings in the future, with federal payment rates frozen for 2011 and the unknown rate change for 2012 and beyond. The health reform segment reported declining profitability over the past few years and reported an underwriting loss in 2009. Furthermore, with the Commonwealth of Puerto Rico facing budget issues, there is concern that renewal rate negotiations may be delayed and the appropriate level of increase may not be obtained. A.M. Best believes TSS may face challenges in growing its commercial segment organically due to the highly competitive and concentrated operating environment. However, due to TSS’ diverse product portfolio and cross-selling opportunities at TSM affiliates, TSS should remain a prominent player in Puerto Rico.