Thank you for standing by. This is the conference operator. Welcome to the Triple-S Management Second Quarter 2020 Earnings call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator instructions] I would now like to turn the call over to Rory Rumore from ICR. Please go ahead.

Thank you, and good morning. Welcome to the Triple-S Management Second Quarter 2020 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 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. 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 In addition, this call is being webcast and an archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at www.triplesmanagement.com.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, Rory, and good morning, everyone. We appreciate your taking the time to join us this morning and hope you are continuing to stay safe and healthy. Today, we reported total operating revenues of $875.5 million for the second quarter. This is slightly below our top-line from the prior year period. But on the bottom line, we reported strong adjusted net income of $40.9 million or $1.76 per diluted share, 57% more than the second quarter of 2019. As expected, we experienced lower utilization due to stay-at-home measures established in Puerto Rico to help combat COVID-19. Moreover, our managed care membership has remained relatively steady since the beginning of the pandemic, with only a modest sequential decrease in our commercial business. As a result, MLR decreased 510 basis points to 79.4% for the quarter. Most importantly, we adapted to the new environment very well and have remained resolute in support of our members, employees, providers and communities through this unprecedented period. Our telehealth platforms and prescription drug home delivery service, among other initiatives, provides our members with the ability to handle their medical needs safely and remotely. And to ensure we are providing our seniors with much needed assistance and care, during the second quarter, we arranged for monthly supply of groceries to 44,000 dual seniors for a three-month period. We also entered partnerships to provide healthy meal options for seniors to purchase at an accessible price while we cover delivery fees. Our foundation also continues to provide vital funding to nonprofits that are addressing food insecurity, particularly for the homeless and other underserved populations. I am proud of our entire team and their efforts to deliver superior service and the healthcare experience our members have come to expect. They have been quick to design and implement initiatives that respond to these unique times and make sure that our services are there when most needed. Before delving into our managed care performance in the quarter, we want to provide an update on the current status of the island as well as what we have been seeing in recent days. As of August 3, our health department has reported over 18,700 confirmed and suspected cases of COVID on the island and 230 people have unfortunately passed away from the virus. While it initially appeared as if Puerto Rico may make it through the pandemic relatively unscathed compared to other jurisdictions, we have seen a spike in cases in recent weeks. Many of these have been attributed to the increased volume of passengers arriving through the airport. In response, the governor quickly reinstated certain restrictions from her earlier lockdown order and has announced that further restrictions will be implemented if the curve and infection does not flatten over the course of the next few weeks. While this setback is disappointing, it demonstrates the resolve of the Puerto Rico government to contain the spread of COVID-19 and the success of these efforts so far. Notably, the number of positive COVID cases on the island is 615 per 100,000 residents compared with the U.S. average of 1,146 per 100,000 residents, and the mortality rate in Puerto Rico is 6.9 to 100,000 compared with a national average of 42.7. Moreover, hospitals continue to have capacity to accept patients and are thankfully far from being overwhelmed. Overall, occupancy at hospitals, meaning for all patients, not just those diagnosed with COVID-19 stands at 54%, with 65% of ICU beds and only 28% of ventilators in use. We are hopeful the Puerto Rico government's most recent measures will counter the recent spike in cases and keep these hospitalization trends under control. That said, the impact of rolling back openings undoubtedly will have some additional near-term impact on the economy. Before the spike, many businesses had reopened in some capacity, taking appropriate precautions and tourism was picking up. On the other hand, most of the manufacturing remained open during this period. We're closely watching the next round of stimulus that will be coming out of Congress and what will it entail for the residents and businesses of Puerto Rico. But we are not expecting a significant economic rebound in the immediate term and believe that the economy will begin recovering in earnest when COVID cases slow to a trickle and people feel safe to resume their daily activities within the new normal. Let me now turn to our Managed Care segment. Our Medicare Advantage membership remains steady, and as I mentioned earlier, we are focused on facilitating more services during the pandemic to heighten engagement and drive retention. As a reminder, there will be no HIP fee in 2021, which will be a potential tailwind for next year. As you may recall, our Medicaid contract with the Puerto Rico Health Insurance Administration provides for the annual negotiation of premium rates. The rates for the current contract year expired on June 30, 2020. However, we have executed amendments to the contract, extending the current premium rates until August 30, 2020, while new premium rates are negotiated. The new premium rates will be effective retroactively from July 1, 2020, through September 30, 2021. Also in the next weeks, we expect to see an influx of new Medicaid patients as one of our competitors exits the Puerto Rico market. Their membership is expected to be split among the four remaining Medicaid providers. Finally, in our commercial business, the vast majority of members are continuing to pay their premiums, and we are offering various methods to pay remotely as well as grace periods and deferrals for those of our members who are struggling. Again, member attrition during the quarter was less than expected as we believe the stimulus has allowed more businesses to navigate through the pandemic. With the recent rollback of openings, we are obviously paying close attention to see whether businesses can remain resilient. Moving briefly to Hurricane Maria, we provided an update on P&C reserves and pending claims in our earnings release earlier this morning. We are pleased with the significant number of claims that were closed during the second quarter. This progress has continued into July. And as of July 31, 2020, we have only 487 open claims. We believe this segment remains adequately reserved to handle all remaining claims to date. Looking ahead, as we think about the near term, we are seeing utilization gradually approach a more normalized level and are closely watching how economic and public health factors impact them. And additionally, while lapsed policies and payment deferral activity has been relatively muted thus far, we continue to work closely with all our members as the recent rollback could have a near-term impact on our membership roles. In terms of guidance, given the solid second quarter results, the company is raising its full year 2020 adjusted net income per diluted share guidance to between $2.80 and $3.00 from its previous guidance of between $2.60 and $2.80. Adjusted net income per diluted share assumes a weighted average diluted share count for full year 2020 of 23.4 million shares and assumes no further share repurchases. Summing up, we generated solid results in the second quarter, and our entire team is working tirelessly to ensure our members are receiving superior service. Our management continues to closely monitor the ongoing public health and economic crises in Puerto Rico and across the country. At the same time, we are still moving forward on key portions of our longer-term strategic plan that are both mission-critical to our current managed care business and foundational for the company's transition toward a value-based integrated care delivery system over the longer term. To this end, I am pleased to announce the appointment of [Juan Serano] as Executive Vice President and Chief Strategy Officer, a newly created role from which he will lead the build-out of our IDS capabilities and oversee our ambulatory clinic network and medical group practice. Juan has brought experience in the payer and provider space over a 25-year career. Our vision remains clear and, in fact, has taken on greater relevance in this time of crisis to create value for all our stakeholders by providing seamless access to high-quality, affordable and holistic healthcare. With this, I'll now ask Juan Jose to address our financial results.

Thank you, Bobby, and good morning to everyone on this call. As expected, lockdown measures intended to limit the spread of COVID-19 caused significant disruptions in the availability and utilization of medical services in Puerto Rico from mid-March through June 2020. Many providers' offices were closed, elective surgeries were suspended and many individuals did not seek or postpone medical services that they otherwise may have. As a result, incurred Medicare costs decreased significantly during the quarter. As of June 30, 2020, some lockdown restrictions have been lifted, but measures intended to limit the spread of COVID-19 are still in place. Looking ahead, we expect a significant portion of the deferred utilization to come back in the second half of the year. This will result in an increase in the MLR relative to what would be normal for that period in the absence of COVID. Now to our second quarter results. We reported GAAP net income per diluted share of $1.87 and adjusted diluted net income per diluted share of $1.76 compared to GAAP net income per diluted share of $1.35 and adjusted net income per diluted share of $1.12 in the prior year period. Let me now discuss the managed care segment results in detail. Managed care premiums earned for the quarter decreased $5 million or 0.6% over the same period last year. The decrease is due to the recognition of estimated premium rebates in the Medicare and commercial businesses as a result of lower utilization resulting from the government enforced lockdown. In addition, the 2019 quarter included Medicaid retroactive premiums related to adjustments to the premium rate for the high cost high need members as part of the ongoing reconciliation process with ASES. These decreases were partially offset by increased membership in the Medicare and commercial businesses, higher average premium rates in the commercial and Medicaid businesses and [indiscernible] HIP fee pass-through in 2020. Medicaid average premium rates increased due to the renegotiated rates of approximately 6% effective November 2019 and another 6% increase effective May 2020 to provide for an increase in rates to certain providers required by ASES as of the same date. Managed care claims were down $44 million year-over-year and the MLR at 79.4% was 510 basis points lower than last year, mainly due to lower utilization of services I explained a moment ago. This reduction was partially offset by other costs such as COVID-19 related treatment and testing, waivers of medical and payment policies and the financial assistant we're providing to our members. We saw lower utilization in almost all service categories; such as in patient, office visits and procedures. A notable exception is pharmacy, where we did not see a decrease as in the other categories, but rather a slight increase over expected utilization in the month of March and April as members rushed to refill their medication due to the lockdown. While this trend has caused, and may continue to cause, a short-term decrease in our claim costs, we expect our claim cost to increase as the demand for the deferred non-emergent or elective health services resumes. The access to and demand for care was most constrained from mid-March through April and began to recover in late May, approaching more typical levels by the end of the second quarter. Moving on to the managed care quarterly operating expenses. The segment's operating expenses increased $38 million from a year ago, primarily reflecting the accrual of $32 million related to a potential litigation loss. In the Blue Cross Blue Shield Antitrust Litigation we have disclosed in prior periodic filings. The restatement in 2020 of the HIP fee, which represents an additional $15 million and $4 million of members assistance to support COVID-19 relief efforts, partially offset by lower professional fees and personnel costs. Let me comment briefly on our Life and Property and Casualty segments. Life premiums earned were up approximately 7% from the prior year period, primarily reflecting premium growth in the segment individual life, cancer and group business lines of business and by the acquisition of an insurance portfolio during this quarter. Although, premium increased over the same period last year, premium growth decelerated during the second quarter as a result of a slowdown in sales due to the two-month government enforced lockdown. The segment's operating income was $9.5 million compared to $5.2 million in the prior year period, with the difference mostly due to lower actuarial reserves, following an increase in policy cancellations and lower claims levels through our line of business due to the lockdown, offset in part by higher amortization of deferred acquisition costs. Let me turn to our P&C segment, where net premiums earned in the quarter were $22 million; $1 million higher than last year. The segment operating income this quarter was $6.7 million compared to operating income of $4.8 million during the same quarter last year, primarily due to better loss experience. As you may have seen in the news, hurricane Isaias passed approximately 150 miles south of Puerto Rico as a tropical storm last week. The storm caused floating mainly along the costal plains, but little wind damage. Based on an initial assessment, Triple-S Propiedad does not expect that storm-related claims will present a material exposure for several reasons. First, the company has limited its exposure to condominiums or properties along coastal areas since late 2017. Second, it does not offer flood insurance as a stand-alone coverage and its personal package coverage has a limit of $2500 per policy. Finally, most of the homes that suffered damages are uninsured and uninsurable due to their location and construction. Returning to our overall results, we experienced an increase in consolidated income tax expense of $14 million, resulting from the higher taxable income in 2020. Under the company's share repurchase program, we repurchased 375,373 shares during the second quarter of 2020 at an aggregate cost of $6 million. This program was completed in May 2020. As Bobby mentioned, we will continue to support our members, community, employees and providers. We will be there for them through the pandemic and beyond. We hope you continue to stay safe and healthy in these unprecedented times. We will now proceed to our Q&A session. Operator, please open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] We will pause for a moment as callers join the queue [Operator Instructions] The first question comes from [Mick Fenwal] from Snow Capital Partners. Please, go ahead.

I just wanted to ask about the P&C business. What's the remaining claims? What was the -- sorry, average dollar value paid in the quarter?

I don't have the average with me. But as Bobby said, we were able to close, close to 150 claims during the quarter. And now we're down to 487 as of July.

Are you holding a legal reserve against those? Or just any update on court service process on those?

Yes. So as we have said before, all our claims and all the legal cases have a reserve established based on our estimate of the claim loss for each of them. So 100% of the cases have been -- have a reserve. Some of the cases that we closed during the quarter actually did have a lawsuit attached to it, which will be closed, right, because we were able to reach a settlement.

Are the courts open in Puerto Rico right now?

Yes, they opened on July 15. So cases are proceeding through the system.

This concludes the question-and-answer session. I would like to turn the conference back over to Bobby Garcia for any closing remarks.

Thank you, operator, and thanks once again to the entire Triple-S team for all the hard work and efforts to aid our members through this unprecedented time. We're all in this together, and we are all in on helping our members and employees, their families, our members and providers to get through COVID safely and begin returning to normal, while we build a health care delivery system for the longer-term that is patient-centered and committed to quality outcomes. Thank you for your time and ongoing support. I hope everyone remains safe and healthy. Please reach out to us if you have any more questions, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.