Leadership in Finance: Triple-S Management’s Juan Jose Román

During a time when the economy and credit markets were shaky, the CFO helped transform his company from a closely held, non-profit insurance group to a publicly traded corporation.

With treasury and agency securities you can state that you have the ability and intent to hold them to maturity, and you can wait until the market recuperates. But when you look at equity securities or privately issued debt, it’s not the U.S. government. So it’s an issue of discussing the credit of the specific issuer. How long do you think it would take the value to recover? For example, if you have perpetual preferred securities issued by a bank, it’s a challenge to justify a temporary impairment.

Was Triple-S exposed to the subprime mortgage or banking crisis?
We didn’t have any subprime-related securities in our portfolio, so we weren’t affected by that crisis. We did have some positions in financial institutions. We have some common stock and the impact over the last year and a half has been about $1 million to $1.5 million [in losses]. During 2008 we recorded OTTI of about $16 million, mostly related to three mutual funds that replicate the Russell 1000, the S&P 500 and large-scale growth companies. The mutual funds are all paying interest and they are well-capitalized.

Not a lot of risky bets.
Not at all.  But what happened is that they have been under their cost for more than a year. So when you do the OTTI evaluation, you have to document your analysis of whether the market will recuperate in the next 12 months. Who really knows? If I knew I would be rich.

Do you think accounting has played a bigger role than in the past with regard to your investment portfolio?
Accounting is really affecting how you manage your business. We are comfortable with our portfolio of investments. I have the intention and the ability to hold the securities.  They are performing even better than their benchmark. Even with that, I still had to make the OTTI adjustment. I already have the securities recorded at market value on my balance sheet. So now it’s a matter of taking the change in value through to the income statement.

As a public company you file financial results in generally accepted accounting principles. Will moving to international standards be a headache?
It will. First, you need to train everyone on your staff — the accounting staff and the finance group. But you also will have to discuss the impact with other executives within the company so everyone understands how the financial results will change and the effect that could have. For example, when you make a capital investment under GAAP, it’s recorded as an amortized cost. But under international standards, you can mark-to-market the value of your facilities. That may affect our real estate investments.

Will there be information-technology issues if you start filing under international financial reporting standards?
Yes, we will need to change our systems because they don’t support IFRS. We are in the process of long-term planning and we are looking very closely at new applications. We’ll have a finance person and IT person work on this together.

If President Obama’s health plan goes through, will it affect Triple-S?
That’s an interesting question because, for example, Puerto Rico doesn’t get exactly the same Medicaid benefits as the states. There is a block allocation, and a formula to determine how much each state will get. That formula is not used for Puerto Rico. We get a fixed block of funding from Medicaid that is lower than the state formula. So I think it will be a matter of our governor probably asking Obama whether Puerto Rico can be a part of that program – and trying to get more funding for our Medicaid program. But it’s hard to say because right now the plan is still just a general idea of where the president wants to go.

 

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