Greetings and Welcome to Triple-S Management fourth-quarter 2019 conference call. [Operator instructions] Please note this conference is being recorded.I will now turn the conference over to your host, Garrett Edson, Senior Vice President of ICR. Please proceed sir.

Thank you, and good morning. Welcome to the Triple-S Management fourth-quarter 2019 earnings conference call. With us today are your host Bobby Garcia, President and Chief Executive Officer of Triple-S 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 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. For 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obligation to update our forward-looking statements unless required by law.In addition, this call is being webcast and an archived version will be available shortly after the call ends on the investor relations portion of the company's website at www.triplesmanagement.com.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.

Thanks, Garrett and good morning, everyone. Thank you for joining us today. This morning, we'll report total operating revenues of $831.2 million for the fourth quarter, a 14.9% increase from the prior year. On the bottom line, we recorded adjusted net income of $6 million or $0.25 per diluted share compared to adjusted net income of $10.1 million or $0.44 per diluted share in the prior year period.These results capped off a strong 2019 and exceeded the company's initial expectations for both the top and bottom line, primarily reflecting solid growth in membership and premium rates across our core Managed Care segment. 2019 ended appropriately with a successful Medicare Advantage enrollment season that rendered over 8,200 net new members as of January 3, 2020. CMS is most recent membership report date. Importantly, our membership grew 16% year-over-year and we now maintain a 23% market share in MA, up 300 basis points from a year ago.Our success was possible thanks to innovative flexible products including equal menu plan that offers a choice of non-medical supplemental benefits as well as smart brand and sales strategies that adapted quickly to a very competitive field and focused retention efforts that managed to renew 93% of our existing members. Likewise, our fully insured commercial membership continued its upward trend with a historically high retention rate of 98% and an increase of 37,000 member months in the fourth quarter, resulting in a 3.5% increase in premiums over the same period last year.These results reflect the determination of many people from those in product design to the marketing and retention and sales teams, whom I would like to personally thank for their hard work. It also points to a sound long-term strategy focused on providing a unique integrated healthcare experience in partnership with our provider community. Before expanding on our strategy and the progress of our ongoing transformation, I would like to take a minute to address the seismic activity that shook Puerto Rico in the first few weeks of 2020. The island experienced a 6.4 magnitude earthquake on January 7 and numerous aftershocks in the following days.They damaged several hundred homes and other structures in the South and Southwest of Puerto Rico. Damages have been limited in scope. Loss estimates vary and the Puerto Rico government is still calculating the extent of damages. But its initial estimates put total earthquake-related island wide losses at $200 million. As of today, the company has received 45 earthquake related claims and expects losses of approximately $5.5 million related to the reinsurance deductible and related expenses. We estimate that our total exposure to this event will be approximately $40 million less than 5% of our reinsurance program.Separately with the respect to Hurricane Maria, we provided an update on P&C reserves and pending claims in our earnings release earlier this morning. There were no major new developments in the fourth quarter and we believe this segment remains adequately reserved to handle all remaining claims to date. Now back to our core managed segment and the membership growth that is taking hold as a result of Triple-S' multi-year transformation. Since 2016 and despite the setback of Hurricane Maria, we have been developing the capabilities of our workforce, investing in systems, streamlining processes and strengthening our provider network.Our vision is to lead the healthcare market in Puerto Rico by offering our customers seamless access to high-value healthcare. We aim to achieve this by building an integrated delivery system in partnership with providers that is enabled by population health and care management programs and interoperable technology ecosystem and the alignment of clinical and financial outcomes around the quality of care. In 2019, we made important progress in laying the foundation of this delivery system. I'd like to highlight a few of the initiatives, the service building blocks.First, we ramped up the core functions of HMS Essette, a best-in-class care management platform we licensed in 2018 to strengthen our clinical support capabilities across various settings. This has significantly improved the productivity of our utilization, disease and case management teams, allowing our nurses to spend more time in the field caring for patients. We plan on expanding this tool's functionality in 2020 to enable automated authorizations and incorporate analytics to address health conditions at earlier stages of development.Second, the claims processing functions, we transferred to Optum in late 2017 have continued maturing through the adoption of robotic process automation. This has helped accelerate our payment cycle and reduce our claims inventories to historically low levels. Third, during the fourth quarter of 2019, Triple-S completed the transition of its technology backbone to a state of the art Tier III data center facility administered by Optum and migrated our core platforms to the Microsoft Azure cloud through a real-time high availability, high capacity connection. This has added a level of reliability and resiliency that significantly enhances our business continuity capabilities.Finally, by year end, we had opened seven multi-disciplinary ambulatory clinics in strategic locations around the island. Beginning in March of 2020, we will open an eighth clinic, which will also be the fourth in the San Juan Metro area completing our initial build-out phase, focused on the aggregation of an island wide ambulatory care network. During 2020, we will focus on integrating these clinics through common service platforms, clinical programs and a distinctive member experience.Generally, these clinics offer primary care, selected specialty care, preventive services, radiology, laboratory and pharmacy services in a single location to the members of several commercial and Medicare Advantage health plans. As of 2019 year-end, we are also operating four urgent care centers and four workplace clinics and expect to open two more workplace clinics during the first quarter of 2020. Together, this network of facilities aims to support our primary medical groups in our shared goal of improving the quality of healthcare in Puerto Rico.As we look further into 2020, the company is initiating the following full-year 2020 guidance. We expect operating revenue to be between $3.62 billion and $3.66 billion, which includes Managed Care premiums earned net between $3.25 billion and $3.29 billion. Our consolidated claims incurred ratio is expected to be between 81% and 83% while the Managed Care MLR is expected to be between 83.5% and 85.5%.We expect our consolidated operating ratio to be between 17.5% and 18.5%. The effective tax rate is expected to be between 28% and 30%. Finally, our outlook for adjusted net income per diluted share is between $2.60 and $2.80. These expectations consider approximately $0.24 per diluted share related to the estimated impact of losses incurred at the company's property and casualty segment and after the recent earthquake activity experienced in Puerto Rico during January.Adjusted net income per diluted share does not account for any potential share repurchase activity during 2020. It also excludes realized and unrealized investment gains and losses as well as any private equity investment income. The company is assuming a weighted average diluted share count for full-year 2020 of 23.1 million shares. Summing up, we are quite pleased with the advances made across each of our businesses throughout 2019. We continue to focus on our disciplined approach to implement a strategy that is patient centered and committed to quality outcomes.I'll now ask Juan Jose to address our financial results.

Thank you, Bobby and good morning to everyone on this call. We completed a strong 2019 for Triple-S with another quarter of solid premium growth and a successful open enrollment season. For the first quarter, we reported GAAP diluted net income per share of $0.55 and adjusted diluted net income per share of $0.25 compared to GAAP net loss per share of $0.48 and adjusted net income per share of $0.44 in the prior year period.Let me now discuss the Managed Care segment results in detail. Managed Care premiums earned for the quarter rose 99 million or 15% over the same period last year, primarily reflecting increased membership in all lines of business and higher average premium rates in our Medicare and Medicaid businesses. The higher average premium rate in the Medicare business primarily reflects an increase in the average membership with core.These premium increases were partially offset by the impact of this year's suspension of the HIP Fee pass through. Managed Care claims were up 82 million year-over-year, while the MLR at 83.7% was 10 basis points lower than last year, reflecting lower MLR's in the Medicare and commercial businesses.These decreases were partially offset by higher MLR in the Medicaid business and the effect of the 2019 HIP Fee moratorium on the Medicaid and commercial loss ratios. These increases in the Medicaid MLR is mainly due to the challenges ASES is experiencing with the recognition and payment of the high-cost, high need population and challenges in obtaining required documentation from our providers on a timely basis to support the high-cost, high need classification of our members.We're dealing with this issue on two fronts. First, as mentioned last quarter, we continue working with ASES to work on the challenges they have with respect to the recognition of the high cost, high need membership. Second, we are also working with our providers to make sure members' conditions are properly documented and that data meeting counters that will support each member's acuity going forward. Once this process is stabilized, we expect premium rates to align with the relative acuity of our membership.Moving on to the Managed Care quarterly operating expenses, the segment operating expenses increased 11 million from a year ago, reflecting higher provision for bad debt and personnel costs. We also incurred higher business promotion and commission expenses, which we have noted would occur on our prior earnings calls and which were mainly due to the Medicare and Medicaid open enrollment seasons. These increases were partially offset by a decrease in the HIP fee due to the 2019 moratorium.Let me comment briefly on our Life and Property & Casualty segment. Life premiums earned were up approximately 9% from the prior-year period, primarily reflecting premium growth in the segments Individual and Cancer lines of business. The segment's operating income decreased by $1 million to $4.3 million mostly due to higher amortization of deferred acquisition costs.P&C net premiums earned were 23 million, 6 million higher than last year, reflecting higher reinsurance costs in 2018, including the impact of the multi-year reinsurance contract and increased sales of commercial products. The segment's operating loss this quarter was 0.5 million, compared to operating income of 4.7 million during the same quarter last year.The fourth quarter of this year includes approximately 1.6 million of guarantee fund assessment, which is expected to be recovered through premium surcharges in future renewals and new business and higher net commissions incurred by 2.2 million due to the increase in net premiums earned. The 2018 quarter includes a favorable prior period reserve development.Returning to our overall results, consolidated income tax expense was 3.3 million, 2 million higher than the prior-year period mostly due to the impact of unrealized gains and losses. Total cash and investments at the parent company level were 28 million as of December 31, 2019.As we discussed on our last quarter's call effective November 2019, our board of directors authorized the expansion of our share repurchase program to 25 million. During the fourth quarter of 2019, 527,881 shares were repurchased at an aggregate cost of 10 million. As of February 26, 10 million remain available for repurchase under the program. We're pleased with our strong operating results in 2019 and remain focused on our overall Managed Care go strategy further progressing on our key initiatives.We will now proceed to our Q&A session. Operator, please open the call for questions.

Thank you. At this time we'll conduct a question-and-answer session. [Operator Instructions] Peter, your line is live. You may speak.

Hi. Good morning. First, let's start with the Medicaid business. MLR in that business trended up over 100% this quarter. We had expected some of the third quarter's problems to continue into this quarter, but then we expected some resolution in February that might be retroactive. Is there any expectation of any retroactive adjustment at this point in time or is that gone at this point? When should we expect to see some improvement in the Medicaid MLR?

Good morning, Peter. This is Juan Jose. Yes, you are right. We continue working with ASES to complete our reconciliation of the accounts of the high cost, high-need membership. We have submitted additional information and we're working on some of the premium that is possible that will be retroactive or related to some of the membership in 2019. We do expect the process, in general, to stabilize, so Q1 will be more stable in term of MLR and the premiums as compared to Q3 and Q4. So we are seeing stabilization now and we do expect that going forward in addition to the fact that there was an increase in premium rates effective November 1.

The November 1 rate increase really didn't help you very much considering the MLR continued to go higher. Where do we stand on the February date that you've talked about? Is that not happening now or is that late?

No. We continue to work with them. As I said, we have submitted a significant amount of information but the process is not completed. Once it is completed, we will know how much of any premium that will be retroactive, will be collected. But we understand we are approaching the final stage of that process and our target is to complete it this week.

Okay. Thank you. Let's move on to the earthquake a little bit here. I think I understood you to say there was a charge of 5.5 million or something in terms of the quarter, but then I look at the dollar amount of the charge that the EPS impacted. It looks like more a seven and change million charge. What's the net there of that 2 million, roughly?Yes, Peter. The difference is the deductible plus expense is 5.5 plus we do expect a restatement that will be around $3 million. So all in, is around $8.5 million the total impact, but the reinstatement of the reinsurance program.

So that's the higher cost for reinsurance coming forward?

No. It will be a restatement because the program ends on March. So since we will use the catastrophe program for this event, then we will restate the program and it will cost us around $3 million.

That's the incremental cost. Okay. Now that's going to impact you going forward in this quarter. You know the business didn't really generate any earnings. We're getting to the point where there is tighter capital in that business relative to where it's been and beyond that, it's not generating earnings. Is it time to consider selling that business or perhaps putting it into to run off, if you can't find a buyer and bring what capital is there back to you or is it something that you continue to expect to run ongoing and contribute more capital?

The Q4 loss, really have some items that are non-recurrent, like the guarantee for an assessment. We do expect that the – our projection for the year is that that segment will be profitable. So Q4 is an outlier. If you look at Q1, 2 and 3 of last year there were profitable and we do expect the segment to be profitable again in 2020. So there is some outlier in Q4 like the guarantee fund. So in general, we do not expect to put any other capital. RBC increase again at the end of the year. We are approximately at 220, so we continue improving our RBC for that business as we go. In terms of pure performance, the business continues to be profitable and our expectation is that 2020 will be the same.

Yeah, so that's a – go ahead Peter.

So I just want to clear, no added need to capital, no plans to sell or remove the business at this point in time or put it runoff, correct?

So Peter, this is Bobby. Juan Jose was referring to the quarter. So it was one part of the answer, which is that the RBC continues to improve. The loss that you saw for the quarter reflect some one-time charges, specifically the guarantee fund was the major assessment there, was a major impact. So with respect to the future of the P&C business, we will always maintain options open and that's a continuous dialog with our Board of Directors and strategic consideration that we've always had on the table. What the future of the business is with respect to our overall strategy. So that's as much as I can say at this point. P&C is performing as expected and its part of our legacy business. We will continue to focus our future on the Managed Care and what we consider close adjacencies to Managed Care.

Okay. Let's dig into the Maria business just a little bit. Again, the claims went up a little bit from I think 11 incremental claims in the court. If I can, what you talked about last time versus this time in total 396 identified last time 407 this time, so only 11 new claims in court. I guess that's a net number. So were any of those claims in court settled at this point or is that just a completely net new number that's gross as well?

The number we reported in the press release is the net number. So we do deduct cases that have closed and so we reconcile it against the last numbers we gave. So that's the case as we had reported. When we say the cases, we reported they're the cases where we have been served and we subtract the cases where we've closed and any new cases are added, and that's the number we reported.

Okay, so were there cases settled?

There were cases settled.

If I look into the average, I know average is a gross and not a great way to do it, but you settled for an average of 440,000 in terms of the number of claims that went away the incremental payments. If we continue that at that rate, you'd bubble over the growth liability. So was there something that caused that used to be a little bit higher and your expectation for the remaining ones to be a little bit lower given that the number of cases in court has actually grown?

Peter, as you said, you cannot average claims paid in a quarter because some quarters we will pay a small number of claims with a high average amount and in others will be by their country, vice-versa. So as any other quarter we went through our detailed analysis of our reserve and we're really focusing case by case. So we continue to be comfortable with our reserve. Really, you cannot extrapolate one quarter to the other. The reason on this quarter to be more specific is that we do have some individual cases, a handful of them that the average is most – the amount paid is more – is bigger than the average.

Yeah. If I could just add one thing, Peter. Let's say we look at this on an individual case basis. So where we settle cases is, when we believe that the settlement made business sense, meaning that we are paying a fair amount, and we do a reserve on the same basis. So we reserve, what we believe is the fair value of the claims. Therefore, we don't believe it will impact our overall reserve amount. That's why we have the same reserve in the last quarter.

Okay. Then last question on Maria the public adjuster on some of the claims that are being litigated, many of the claims that are being litigated showed up in some news reports about I guess potential questions about. Has that impacted your view or anything that you've done at this point in time?

No, Peter. We don't factor that in. We really do try to keep focused on the information we have at hand and are we rely on our adjusters and on the experts that are in our P&C segment. So we consider that, say extraneous noise and we prefer not to get involved in those kinds of controversies. So we'll continue with any public adjuster, with any claimer, with any broker comes in and wants sit down and have a reasonable conversation about the value of claims, we want to close the claims as much as anybody else. But it has to be for what we can see fair value, not sure what we consider sometimes the exaggerated and unfounded claims.

Okay. And then last question and maybe I'll get back in the queue, but just talk about the Medicare Advantage business a little bit more. It seems like that's going well. You're taking some share there. Where is that share coming from? Is it new lives coming on board to you as opposed to others or is it coming from your competitors?

Yes. I would say both the market grew slightly year over year, overall size of the market and I think it was a little less than 1% closer to 2%. So we did gain some share of market from some of our competitors. So we had not just the highest number of member growth but also percentage wise the highest percentage within the Puerto Rico market in Medicare this year. In the open enrollment season, we had the highest percentage increase in our membership and also the highest number of net new members.

So these numbers are coming in with risk scores that have already been looked at by another managed care company. So the risk scores are probably better than your typical new lives in Medicare advantage is that a fair statement?

There is some new membership so some agents, but there is also there is a mix there, so we can tell you that the, the average risk or is that new membership at this point is it's going to be higher or lower than what we typically see.

Okay. Thank you very much.

[Operator instructions] At this time, I would like to turn the call back over to management for closing comments.

Thank you. Despite a challenging environment in Puerto Rico we've made significant strides in our market and during 2019. We were honored as the best employer. This recognition reflects the level of engagement of our employees that they've shown as we transform the company. Over the past three years, we've laid down key pieces to deliver a holistic member experience, and we are now focused on designing an integrated delivery system that will sustain and drive our transformation and contribute to healthier communities, long-term growth and profitability. Thank you for your time and ongoing support. Please reach out to us if you have any more questions and have a great day.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time.