A.M. Best Co. has revised the outlook to positive from stable and 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). A.M. Best also has revised the outlook to positive from stable and affirmed the ICR of “bb+” of the holding company, Triple-S Management Corporation (TSM) [NYSE: GTS]. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of “a-” of Triple-S Propiedad, Inc. (TSP). The outlook for these ratings is stable. All companies are domiciled in San Juan, PR. The revised outlook reflects TSS and TSV’s strong foothold in government-sponsored health insurance operations, sustained competitive positioning in commercial group business and strengthened risk-based capital position. The TSM organization continues its pursuit of a careful business expansion and diversification strategy that includes the acquisition of complementary provider services while raising its percentage of revenue between its members, providers and employer groups. TSV provides life insurance and other ancillary services, which complements the brand and enhances product diversification objectives of the organization. For TSV, risk-adjusted capital has been solid over the last five years, reflecting a favorable earnings trend and includes the distribution of interest payments on its surplus notes. The ratings also reflect TSP’s excellent capitalization, solid operating profitability, which has benefitted from favorable reserve development over the long term, and a strong market presence within Puerto Rico. Partially offsetting TSS’ positive rating factors is the potential for goodwill impairment and capital strain as a consequence of its purchase of Socios Mayores en Salud Holdings. There also is the potential for integration risk associated with American Health Inc. TSS is exposed to strong business concentration risk with respect to the organization’s significant participation in the government business sector. Statistically, Puerto Rico’s economy has worsened over the last five years; however, TSS reported increased earnings and maintained consistent return-on-revenue scores, despite the tough economic environment. TSV expanded into annuity products and continues to maintain a high percentage of surplus notes in the construction of its capital balance.
Partially offsetting rating factors for TSP are the company's geographic risk concentration, competitive operating environment and above average underwriting expense ratio relative to the commercial casualty composite. While the underwriting expense ratio reflects the high commission costs, the ratio remains in line with its local market peers. With all business written in Puerto Rico, the company remains exposed to the potential for frequent and severe weather-related events, as well as judicial and regulatory concerns. Despite these concerns and ongoing competitive market pressures, the outlook reflects expectations for continued strong capitalization and profitable operating results over the near term.Factors that could result in upward rating movement for TSS and TSV include continued positive and sustainable trends in premium development and capital growth; prudent and carefully executed geographic diversification initiatives; and improvements in underwriting performance across all lines of business. For TSP, factors that could result in upward rating movement include an improvement in operating earnings and a resulting return on revenue measures, which can be sustained over a period of time. Accordingly, this would enhance the company’s ability to generate additional organic surplus growth while strengthening overall capitalization. For TSS and TSV factors that could result in downward rating movement include deterioration in Puerto Rico’s economy; deterioration in capitalization and the inability to achieve revenue and cash flow targets. For TSP, factors that could result in downward rating pressure over the near term include weakened operating earnings due to deteriorating underwriting performance, or a material increase in catastrophe losses which weakens overall capitalization. A.M. Best believes that TSP is well positioned at its current rating level. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding BCAR for Life/Health Insurers” and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.