10-Q 1 g13293e10vq.htm TRIPLE-S MANAGEMENT CORPORATION TRIPLE-S MANAGEMENT CORPORATION
Table of Contents

 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMMISSION FILE NUMBER: 0-49762
Triple-S Management Corporation
(Exact name of registrant as specified in its charter)
     
Puerto Rico   66-0555678
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    
     
1441 F.D. Roosevelt Avenue    
San Juan, Puerto Rico   00920
(Address of principal executive offices)   (Zip code)
(787) 749-4949
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o    Accelerated filer o    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
  Smaller Reporting Company o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
             
 
Title of each class
     
Outstanding at April 25, 2008
  Common Stock Class A, $1.00 par value       16,042,809
  Common Stock Class B, $1.00 par value       16,266,554
 
 

 


 

Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended March 31, 2008
Table of Contents
             
        PAGE  
PART I — FINANCIAL INFORMATION        
 
           
  Financial Statements        
 
  Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007     3  
 
  Consolidated Statements of Earnings for the three months ended March 31, 2008 and 2007     4  
 
  Consolidated Statements of Stockholders' Equity and Comprehensive Income for the three months ended March 31, 2008 and 2007     5  
 
  Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007     6  
 
  Notes to Consolidated Financial Statements     8  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     20  
  Quantitative and Qualitative Disclosures About Market Risk     28  
  Controls and Procedures     28  
 
           
PART II — OTHER INFORMATION        
 
           
  Legal Proceedings     28  
  Risk Factors     29  
  Unregistered Sales of Equity Securities and Use of Proceeds     29  
  Defaults Upon Senior Securities     29  
  Submission of Matters to a Vote of Security Holders     29  
  Other Information     29  
  Exhibits     29  
 
           
        30  
 EX-3.(I)(B) CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
 EX-3.(I)(C) ARTICLES OF INCORPORATION
 EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
 EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
 EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
 EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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Part I — Financial Information
Item 1. Financial Statements
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)
                 
    (Unaudited)    
    March 31,   December 31,
    2008   2007
 
ASSETS
               
 
               
Investments and cash:
               
Equity securities held for trading, at fair value
  $ 46,312       67,158  
Securities available for sale, at fair value:
               
Fixed maturities
    933,212       823,629  
Equity securities
    82,825       71,050  
Securities held to maturity, at amortized cost:
               
Fixed maturities
    26,052       43,691  
Policy loans
    5,105       5,481  
Cash and cash equivalents
    62,184       240,153  
 
Total investments and cash
    1,155,690       1,251,162  
 
Premiums and other receivables, net
    211,314       202,268  
Deferred policy acquisition costs and value of business acquired
    118,987       117,239  
Property and equipment, net
    43,162       43,415  
Net deferred tax asset
    5,578       6,783  
Other assets
    32,017       38,675  
 
Total assets
  $ 1,566,748       1,659,542  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Claim liabilities:
               
Claims processed and incomplete
  $ 170,024       186,065  
Unreported losses
    173,754       149,996  
Unpaid loss-adjustment expenses
    19,189       17,769  
 
Total claim liabilities
    362,967       353,830  
 
Liability for future policy benefits
    197,099       194,131  
Unearned premiums
    103,416       132,599  
Policyholder deposits
    47,354       45,959  
Liability to Federal Employees’ Health Benefits Program (FEHBP)
    18,035       21,338  
Accounts payable and accrued liabilities
    136,682       228,980  
Short-term borrowings
    9,825        
Long-term borrowings
    170,537       170,946  
Liability for pension benefits
    26,849       29,221  
 
Total liabilities
    1,072,764       1,177,004  
 
Stockholders’ equity:
               
Common stock Class A
    16,043       16,043  
Common stock Class B
    16,266       16,266  
Additional paid-in capital
    189,673       188,935  
Retained earnings
    268,524       267,336  
Accumulated other comprehensive income (loss)
    3,478       (6,042 )
 
Total stockholders’ equity
    493,984       482,538  
 
Total liabilities and stockholders’ equity
  $ 1,566,748       1,659,542  
 
See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
For the three months ended March 31, 2008 and 2007
(Dollar amounts in thousands, except per share data)
                 
    Three months ended
    March 31,
    2008   2007
 
REVENUES:
               
Premiums earned, net
  $ 404,399       348,465  
Administrative service fees
    3,713       3,509  
Net investment income
    13,432       11,121  
 
Total operating revenues
    421,544       363,095  
Net realized investment gains
    609       1,196  
Net unrealized investment loss on trading securities
    (6,250 )     (1,925 )
Other income (expense), net
    (1,521 )     209  
 
Total revenues
    414,382       362,575  
 
BENEFITS AND EXPENSES:
               
Claims incurred
    350,207       297,318  
Operating expenses
    60,031       56,137  
 
Total operating costs
    410,238       353,455  
 
Interest expense
    3,673       3,952  
 
Total benefits and expenses
    413,911       357,407  
 
Income before taxes
    471       5,168  
 
INCOME TAX EXPENSE (BENEFIT):
               
Current
    (184 )     1,060  
Deferred
    (547 )     (397 )
 
Total income taxes
    (731 )     663  
Net income
  $ 1,202       4,505  
 
Basic net income per share
  $ 0.04       0.17  
 
Diluted net income per share
  $ 0.04       0.17  
 
See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Unaudited)

For the three months
ended March 31, 2008 and 2007
(Dollar amounts in thousands, except per share data)
                 
    2008   2007
 
BALANCE AT JANUARY 1
  $ 482,538       342,599  
 
               
Dividends
          (2,448 )
Share-based compensation
    738        
Other
    (14 )      
 
               
Comprehensive income (loss):
               
Net income
    1,202       4,505  
Net unrealized change in fair value of available for sale securities
    9,350       1,582  
Defined benefit pension plan:
               
Actuarial loss, net
    296        
Prior service credit, net
    (70 )      
Net change in fair value of cash flow hedges
    (56 )     (65 )
 
Total comprehensive income
    10,722       6,022  
 
BALANCE AT MARCH 31
  $ 493,984       346,173  
 
See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARES
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2008 and 2007
(Dollar amounts in thousands, except per share data)
                 
    Three months ended
    March 31,
    2008   2007
 
Net income
  $ 1,202       4,505  
 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    1,800       1,716  
Net amortization of investments
    192       190  
Provision for doubtful receivables
    205       1,463  
Deferred tax benefit
    (547 )     (397 )
Net gain on sale of securities
    (609 )     (1,196 )
Net unrealized loss of trading securities
    6,250       1,925  
Share-based compensation
    738        
Proceeds from trading securities sold:
               
Equity securities
    20,476       9,842  
Acquisition of securities in trading portfolio:
               
Equity securities
    (5,687 )     (6,024 )
(Increase) decrease in assets:
               
Premiums receivable
    (14,749 )     (19,161 )
Agents balances
    6,386       4,809  
Accrued interest receivable
    (1,855 )     (1,124 )
Other receivables
    (3,589 )     (4,522 )
Reinsurance recoverable on paid losses
    4,599       (589 )
Deferred policy acquisition costs and value of business acquired
    (1,748 )     (1,395 )
Prepaid income tax
    191        
Other assets
    6,374       2,821  
Increase (decrease) in liabilities:
               
Claims processed and incomplete
    (16,041 )     4,031  
Unreported losses
    23,758       9,077  
Unpaid loss-adjustment expenses
    1,420       81  
Liability for future policy benefits
    2,968       3,148  
Unearned premiums
    (29,183 )     (3,205 )
Policyholder deposits
    457       428  
Liability to FEHBP
    (3,303 )     56  
Accounts payable and accrued liabilities
    (117,815 )     (4,320 )
Income tax payable
          1,430  
 
 
               
Net cash (used in) provided by operating activities
  $ (118,110 )     3,589  
 
(Continued)

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2008 and 2007
(Dollar amounts in thousands, except per share data)
                 
    Three months ended
    March 31,
    2008   2007
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
               
Proceeds from investments sold or matured:
               
Securities available for sale:
               
Fixed maturities sold
  $ 67,267       59,497  
Fixed maturities matured
    48,133       5,178  
Fixed maturity securities held to maturity
    22,863       209  
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
    (205,474 )     (66,243 )
Equity securities
    (12,143 )     (499 )
Fixed maturity securities held to maturity
    (5,120 )      
Net disbursements for policy loans
    376       (34 )
Net capital expenditures
    (1,547 )     (1,447 )
 
Net cash used in investing activities
    (85,645 )     (3,339 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
Change in outstanding checks in excess of bank balances
    15,446       2,140  
Repayments of short-term borrowings
    (45,661 )      
Proceeds from short-term borrowings
    55,486        
Repayments of long-term borrowings
    (409 )     (410 )
Dividends paid
          (2,448 )
Proceeds from policyholder deposits
    2,611       1,440  
Surrenders of policyholder deposits
    (1,673 )     (1,938 )
Other
    (14 )      
 
Net cash provided by (used in) financing activities
    25,786       (1,216 )
 
Net decrease in cash and cash equivalents
    (177,969 )     (966 )
Cash and cash equivalents at beginning of the period
    240,153       81,320  
 
Cash and cash equivalents at end of the period
  $ 62,184       80,354  
 
See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries (the Corporation or TSM) are unaudited, except for the balance sheet information as of December 31, 2007, which is derived from the Corporation’s audited consolidated financial statements, pursuant to the rules and regulations of the United States Securities and Exchange Commission. The consolidated interim financial statements do not include all of the information and the footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results for the full year.
(2) Recent Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 157, Fair Value Measurements. FAS 157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. FAS 157 does not require any new fair value measurements. We adopted FAS 157 on January 1, 2008. This adoption did not have an impact on our financial position or results of operations. See Note 7, Fair Value Measurements, to our unaudited consolidated financial statements for the three months ended March 31, 2008 included in this Quarterly Report on Form 10-Q for discussion of the impact of adoption of FAS 157.
In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. FAS 159 allows entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under the fair value option. We adopted FAS 159 on January 1, 2008. The Corporation has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with GAAP. Accordingly, the adoption of FAS 159 did not have an impact on our financial position or operating results.
In March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities. FAS 161 requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. This statement expands the current disclosure framework in FAS 133. FAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We do not expect the adoption of FAS 161 to have a material impact on our consolidated financial statements.
There were no other new accounting pronouncements issued during the first three months of 2008 that had a material impact on our financial position, operating results or disclosures.
(3) Segment Information
The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees and net investment income. Operating costs include claims incurred and operating expenses. The Corporation calculates operating income or loss as operating revenues less operating costs.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
The following tables summarize the operations by major operating segment for the three months ended March 31, 2008 and 2007:
                 
    Three months ended
    March 31,
    2008   2007
 
Operating revenues:
               
Managed Care:
               
Premiums earned, net
  $ 359,111       304,831  
Administrative service fees
    3,713       3,509  
Intersegment premiums /service fees
    1,650       1,627  
Net investment income
    5,602       4,829  
 
Total managed care
    370,076       314,796  
Life Insurance:
               
Premiums earned, net
    22,129       22,380  
Intersegment premiums
    92       82  
Net investment income
    3,934       3,620  
 
Total life insurance
    26,155       26,082  
Property and Casualty Insurance:
               
Premiums earned, net
    23,159       21,254  
Intersegment premiums
    154       154  
Net investment income
    2,964       2,552  
 
Total property and casualty insurance
    26,277       23,960  
Other segments — intersegment service revenues *
    11,068       11,040  
 
Total business segments
    433,576       375,878  
TSM operating revenues from external sources
    932       120  
Elimination of intersegment premiums
    (1,896 )     (1,863 )
Elimination of intersegment service fees
    (11,068 )     (11,040 )
 
Consolidated operating revenues
  $ 421,544       363,095  
 
*   Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of managed care services.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
                 
    Three months ended
    March 31,
    2008   2007
 
Operating income:
               
Managed care
  $ 5,332       4,100  
Life insurance
    2,505       2,975  
Property and casualty insurance
    2,097       1,393  
Other segments *
    109       138  
 
Total business segments
    10,043       8,606  
TSM operating revenues from external sources
    932       120  
TSM unallocated operating expenses
    (2,140 )     (1,826 )
Elimination of TSM intersegment charges
    2,471       2,740  
 
Consolidated operating income
    11,306       9,640  
Consolidated net realized investment gains
    609       1,196  
Consolidated net unrealized loss on trading securities
    (6,250 )     (1,925 )
Consolidated interest expense
    (3,673 )     (3,952 )
Consolidated other income (expense), net
    (1,521 )     209  
 
Consolidated income before taxes
  $ 471       5,168  
 
 
               
Depreciation expense:
               
Managed care
  $ 984       896  
Life insurance
    182       179  
Property and casualty insurance
    372       360  
 
Total business segments
    1,538       1,435  
TSM depreciation expense
    262       281  
 
Consolidated depreciation expense
  $ 1,800       1,716  
 
*   Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of managed care services.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
                 
    March 31,   December 31,
    2008   2007
 
Assets:
               
Managed care
  $ 666,216       762,422  
Life insurance
    445,493       430,807  
Property and casualty insurance
    367,947       375,415  
Other segments *
    11,012       11,255  
 
Total business segments
    1,490,668       1,579,899  
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
    83,812       82,980  
Property and equipment,net
    22,260       22,523  
Other assets
    3,387       2,280  
 
 
    109,459       107,783  
Elimination entries-intersegment receivables and others
    (33,379 )     (28,140 )
 
Consolidated total assets
  $ 1,566,748       1,659,542  
 
 
               
Significant noncash items:
               
Net change in unrealized gain on securities available for sale:
               
Managed care
  $ 4,167       2,928  
Life insurance
    3,104       3,253  
Property and casualty insurance
    1,598       3,085  
 
Total business segments
    8,869       9,266  
Amount related to TSM
    481       283  
 
Consolidated net change in unrealized gain on securities available for sale
  $ 9,350       9,549  
 
 
               
Net change in liability for pension benefits:
               
Managed care
  $ 151       2,838  
Life
    2       35  
Property and casualty
    19       275  
Other segments*
    48       844  
 
Total business segments
    220       3,992  
Amount related to TSM
    6       98  
 
Consolidated net change in liability for pension benefits
  $ 226       4,090  
 
 
*   Includes segments that are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of managed care services.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
(4) Investment in Securities
The amortized cost for debt securities and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and held-to-maturity securities by major security type and class of security at March 31, 2008 and December 31, 2007, were as follows:
                                 
    March 31, 2008
            Gross   Gross    
    Amortized   unrealized   unrealized   Estimated fair
    cost   gains   losses value   value
 
Trading securities:
                               
Equity securities
  $ 40,161       8,862       (2,711 )     46,312  
 
Securities available for sale:
                               
Fixed maturities
    914,746       24,680       (6,214 )     933,212  
Equity securities
    78,890       7,506       (3,571 )     82,825  
 
 
    993,636       32,186       (9,785 )     1,016,037  
 
Securities held to maturity:
                               
Fixed maturities
    26,052       772       (12 )     26,812  
 
 
  $ 1,059,849       41,820       (12,508 )     1,089,161  
 
                                 
    December 31, 2007
            Gross   Gross    
    Amortized   unrealized   unrealized   Estimated fair
    cost   gains   losses   value
 
Trading securities:
                               
Equity securities
  $ 54,757       15,170       (2,769 )     67,158  
 
Securities available for sale:
                               
Fixed maturities
    816,536       11,583       (4,490 )     823,629  
Equity securities
    66,747       7,354       (3,051 )     71,050  
 
 
    883,283       18,937       (7,541 )     894,679  
 
Securities held to maturity:
                               
Fixed maturities
    43,691       227       (69 )     43,849  
 
 
  $ 981,731       34,334       (10,379 )     1,005,686  
 
Investment in securities at March 31, 2008 are mostly comprised of U.S. Treasury securities, obligations of government sponsored enterprises and obligations of U.S. government instrumentalities (57.9%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (9.6%), obligations of the government of Puerto Rico and its instrumentalities (10.1%) and obligations of U.S. states and municipalities and its instrumentalities (2.2%). The remaining 20.2% of the investment portfolio is comprised of corporate bonds, equity securities and mutual funds.
The Corporation regularly monitors the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating the length of time and the extent to which cost exceeds fair value, the prospects and financial condition of the issuer, and the Corporation’s intent and ability to retain the investment to allow for recovery in fair value, among other factors. This process is not exact and further requires consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its fair value solely due to changes in interest rates, impairment may not be appropriate. If after monitoring and analyzing, the Corporation determines that a decline in the estimated fair value of any available-for-sale or held-to-

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The impairment is charged to operations and a new cost basis for the security is established. No other-than-temporary impairment was recognized during the three months ended March 31, 2008 and March 31, 2007.
(5) Premiums and Other Receivables
Premiums and other receivables as of March 31, 2008 and December 31, 2007 were as follows:
                 
    March 31,   December 31,
    2008   2007
 
Premium
  $ 71,003       54,330  
Self-funded group receivables
    30,111       31,344  
FEHBP
    9,511       10,202  
Agents balances
    26,488       32,874  
Accrued interest
    10,218       8,363  
Reinsurance recoverable
    54,158       58,757  
Other
    25,955       22,323  
 
 
    227,444       218,193  
 
Less allowance for doubtful receivables:
               
Premiums
    11,771       11,753  
Other
    4,359       4,172  
 
 
    16,130       15,925  
 
Total premiums and other receivables
  $ 211,314       202,268  
 
(6) Claim Liabilities
The activity in the total claim liabilities for the three months ended March 31, 2008 and 2007 is as follows:
                 
    Three months ended
    March 31,
    2008   2007
 
Claim liabilities at beginning of period
  $ 353,830       314,682  
Reinsurance recoverable on claim liabilities
    (54,834 )     (32,066 )
 
Net claim liabilities at beginning of period
    298,996       282,616  
 
Incurred claims and loss-adjustment expenses:
               
Current period insured events
    358,324       309,565  
Prior period insured events
    (11,241 )     (16,191 )
 
Total
    347,083       293,374  
 
Payments of losses and loss-adjustment expenses:
               
Current period insured events
    171,599       144,814  
Prior period insured events
    160,982       135,636  
 
Total
    332,581       280,450  
 
Net claim liabilities at end of period
    313,498       295,540  
Reinsurance recoverable on claim liabilities
    49,469       32,331  
 
Claim liabilities at end of period
  $ 362,967       327,871  
 
As a result of differences between actual amounts and estimates of insured events in prior periods, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
The credits in the incurred claims and loss-adjustment expenses for prior period insured events for the three months ended March 31, 2008 and 2007 is due primarily to better than expected utilization trends.
The claims incurred disclosed in this table exclude the change in the liability for future policy benefits amounting to $3,124 and $3,944 during the three months ended March 31, 2008 and 2007, respectively.
(7) Fair Value Measurements
We adopted FAS 157 on January 1, 2008. Beginning on this date, assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FAS 157, are as follows:
     
Level Input:   Input Definition:
 
   
Level 1
  Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
 
   
Level 2
  Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
 
   
Level 3
  Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The following table summarizes fair value measurements by level at March 31, 2008 for assets measured at fair value on a recurring basis:
                                 
    Level 1   Level 2   Level 3   Total
 
Equity securities held for trading:
  $ 46,312                   46,312  
Securities available for sale:
                               
Fixed maturity securities
          933,212             933,212  
Equity securities
    47,522       35,303             82,825  
Derivatives (reported within other assets in the consolidated balance sheets)
          2,493             2,493  
 
Total
  $ 93,834       971,008             1,064,842  
 
(8) Share-Based Compensation
No grants of stock options, restricted stock awards or performance awards were given during the three-month period ended March 31, 2008. Share-based compensation expense recorded during the three months ended March 31, 2008 was $738. No share-based compensation expense was recorded during the three months ended March 31, 2007.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
(9) Comprehensive Income
The accumulated balances for each classification of other comprehensive income are as follows:
                                 
                            Accumulated  
    Unrealized     Liability for             other  
    gain (loss) on     pension     Cash flow     comprehensive  
    securities     benefits     hedges     income  
 
BALANCE AT JANUARY 1
  $ 9,554       (15,652 )     56       (6,042 )
Net current period change
    9,350       226       (56 )     9,520  
 
BALANCE AT MARCH 31
  $ 18,904       (15,426 )           3,478  
 
(10) Income Taxes
Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries. The Corporation and its subsidiaries are subject to Puerto Rico income taxes. The Corporation’s insurance subsidiaries are also subject to U.S. federal income taxes for foreign source dividend income. As of December 31, 2007, tax years 2003 through 2006 for the Corporation and its subsidiaries are subject to examination by Puerto Rico taxing authorities.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.
(11) Pension Plan
The components of net periodic benefit cost for the three months ended March 31, 2008 and 2007 were as follows:
                 
    Three months ended
    March 31,
    2008   2007
 
Components of net periodic benefit cost:
               
Service cost
  $ 1,316       1,356  
Interest cost
    1,422       1,294  
Expected return on assets
    (1,225 )     (1,128 )
Prior service cost
    (113 )     14  
Actuarial loss
    479       514  
 
Net periodic benefit cost
  $ 1,879       2,050  
 
Employer contributions
The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2007 that it expected to contribute $5,000 to its pension program in 2008. As of March 31, 2008, the Corporation

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
contributed $4,000 to the pension program. The Corporation currently anticipates contributing an additional $1,000 to fund its pension program in 2008.
(12) Net Income Available to Stockholders and Basic Net Income per Share
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2008 and 2007:
                 
    Three months ended
    March 31,
    2008   2007
 
Numerator for earnings per share:
               
 
               
Net income available to stockholders
  $ 1,202       4,505  
 
Denominator for basic earnings per share:
               
Weighted average of common shares
    32,142,809       26,735,000  
Effect of dilutive securities
    52,490        
 
Denominator for diluted earnings per share
    32,195,299       26,735,000  
 
Basic net income per share
  $ 0.04       0.17  
 
               
Diluted net income per share
  $ 0.04       0.17  
 
(13) Contingencies
Various litigation claims and assessments against the Corporation have arisen in the ordinary course of business, including but not limited to its activities as an insurer and employer. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning the Corporation’s compliance with applicable insurance and other laws and regulations. Management believes, based on the opinion of legal counsel, that the aggregate liabilities, if any, arising from such claims, assessments, audits and lawsuits would not have a material adverse effect on the consolidated financial position or results of operations of the Corporation. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could have a material adverse effect on our operating results and/or cash flows. Where the Corporation believes that a loss is both probable and estimable, such amounts have been recorded. In other cases, it is at least reasonably possible that the Corporation may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Corporation is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.
Additionally, we may face various potential litigation claims that have not to date been asserted, including claims from persons purporting to have contractual rights to acquire shares of the Corporation on favorable terms or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.
Jordán et al Litigation
On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, Triple-S, Inc. (TSI) and others (the defendants) in the Court of First Instance for San Juan, Superior Section, alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, breach of contract with providers, and damages in the amount of $12.0 million. The plaintiffs also asserted that in light of TSI’s former tax exempt status, the assets of TSI belong to a charitable trust to be held for the benefit of the people of Puerto Rico (the charitable trust claim). They also requested that the Corporation sell shares to them pursuant to a contract with TSI dated August 16, 1989 regarding the acquisition of shares. The Corporation believes that many of the allegations brought by the plaintiffs in this complaint have been resolved in favor of the Corporation and TSI in previous cases brought by the same plaintiffs in the United States

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
District Court for the District of Puerto Rico and in the local courts. The defendants, including the Corporation and TSI, answered the complaint, filed a counterclaim and filed several motions to dismiss.
On May 9, 2005, the plaintiffs amended the complaint to allege causes of action similar to those dismissed in another case closed in favor of the Corporation and to seek damages of approximately $207.0 million. Defendants moved to dismiss all claims in the amended complaint. Plaintiffs opposed the motions to dismiss and defendants filed corresponding replies. In 2006, the Court held several hearings concerning these dispositive motions and stayed all discovery until the motions were resolved.
On January 19, 2007, the Court denied a motion by the plaintiffs to dismiss the defendants’ counterclaim for malicious prosecution and abuse of process. The Court ordered plaintiffs to answer the counterclaim by February 20, 2007. Although they filed after the required date, plaintiffs have filed an answer to the counterclaim.
On February 7, 2007, the Court dismissed the charitable trust, RICO and violation of due process claims as to all the plaintiffs. The tort, breach of contract and violation of the Puerto Rico corporations’ law claims were dismissed only against certain of the physician plaintiffs. The Court allowed the count based on antitrust to proceed, and in reconsideration allowed the charitable trust and RICO claims to proceed. The Corporation appealed to the Puerto Rico Court of Appeals the denial of the motion to dismiss as to the antitrust allegations and the Court’s decision to reconsider the claims previously dismissed.
On May 30, 2007 the Puerto Rico Court of Appeals granted leave to replead the RICO and antitrust claims only to the physician plaintiffs, consistent with certain requirements set forth in its opinion, to allow the physician plaintiffs the opportunity to cure the deficiencies and flaws the Court found in plaintiffs allegations. The Court dismissed the charitable trust claim as to all plaintiffs, denying them the opportunity to replead that claim, and dismissed the RICO and antitrust claims as to the non-physician plaintiffs. Also, the Court of Appeals granted leave to replead a derivative claim capacity on behalf of the Corporation to the lone shareholder plaintiff. The plaintiffs moved for the reconsideration of this judgment. On July 18, 2007 the Court of Appeals denied the plaintiffs motion for reconsideration, which has granted plaintiffs leave to replead certain matters. On August 17, 2007, plaintiffs filed a petition for certiorari by the Puerto Rico Supreme Court, which was opposed on August 27, 2007. The plaintiffs petition for certiorari was denied by the Puerto Rico Supreme Court on November 9, 2007. The plaintiffs have yet to amend their allegations. If they fail to do so, the defendants will move to dismiss the complaint.
Thomas Litigation
On May 22, 2003, a putative class action suit was filed by Kenneth A. Thomas, M.D. and Michael Kutell, M.D., on behalf of themselves and all others similarly situated and the Connecticut State Medical Society against the Blue Cross Blue Shield Association (BCBSA) and substantially all of the other Blue Cross and Blue Shield plans in the United States, including TSI.
The class action complaint alleges that the health care plans are the agents of BCBSA licensed entities, and as such have committed the acts alleged above and acted within the scope of their agency, with the consent, permission, authorization and knowledge of the others, and in furtherance of both their interest and the interests of other defendants.
TSI, along with the other defendants, moved to dismiss the complaint on multiple grounds, including but not limited to arbitration and applicability of the McCarran Ferguson Act.
The parties were ordered to engage in mediation by the U.S. District Court for the Southern District of Florida, and twenty four plans, including TSI, were actively participating in the mediation efforts. The mediation resulted in the creation of a Settlement Agreement that was filed with the Court on April 27, 2007. The Corporation recorded an accrual for the estimated settlement, which is included within accounts payable and accrued liabilities in the accompanying unaudited consolidated financial statements. On April 19, 2008, the Court issued the final order approving the settlement.
Lens Litigation
On October 23, 2007, Ivonne Houellemont, Ivonne M. Lens and Antonio A. Lens, heirs of Dr. Antonio Lens-Aresti, a former shareholder of TSI, filed a suit against TSI in the Court of First Instance for San Juan, Superior Section.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
The plaintiffs are seeking the return of 16 shares (prior to giving effect to the 3,000-for-one stock split) that were redeemed in 1996, a year after the death of Dr. Lens-Aresti, or compensation in the amount of $40,000 per share which they allege is a share’s present value, alleging that they were fraudulently induced to submit the shares for redemption in 1996. At the time of Dr. Lens-Aresti’s death, the bylaws of TSI would not have permitted the plaintiffs to inherit Dr. Lens-Aresti’s shares, as those bylaws provided that in the event of a shareholder’s death, shares could be redeemed at the price originally paid for them or could be transferred only to an heir who was either a doctor or dentist. The plaintiffs’ complaint also states that they purport to represent as a class all heirs of the TSI’s former shareholders whose shares were redeemed upon such shareholders’ deaths. On October 31, 2007, the Corporation filed a motion to dismiss the claims as barred by the applicable statute of limitations. On December 21, 2007, the plaintiffs filed an opposition to our motion to dismiss, alleging that the two year statute of limitations is not applicable in connection with the redemption of the stock by the Corporation that took place in 1996. On March 3, 2008, the Corporation filed a reply to plaintiffs’ opposition to the motion to dismiss. In its reply, the Corporation renews its motion to dismiss and further argued that plaintiffs’ argument is wrong because the statute of limitations has expired, pursuant the two year term provided under the Uniform Security Act of Puerto Rico Civil code for cases of this nature. Management believes that the statute of limitations has expired and expects to prevail in this litigation. Regarding the plaintiffs’ attempt to represent a purported class, as of the date of this Quarterly Report on Form 10-Q, no further efforts have been made by the plaintiffs in this case.
Colón Litigation
On October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSI predecessor stock, filed suit against TSI and the Commissioner of Insurance in the Court of First Instance for San Juan, Superior Section. Mr. Colón-Dueño owned one share of TSI predecessor stock that was redeemed in 1999 for its original purchase price pursuant to an order issued by the Commissioner of Insurance requiring the redemption of a total of 1,582 shares that had been previously sold by TSI. TSI appealed this Commissioner of Insurance’s order to the Puerto Rico Court of Appeals, which upheld that order by decision dated March 31, 2000. The plaintiff requests that the court direct TSI to return his share of stock and pay damages in excess of $500,000 and attorney’s fees. On January 23, 2008, TSI filed a motion for summary judgment, on the ground that inter alia the finding of the Commissioner of Insurance is firm and final and cannot be collaterally attacked in this litigation. Plaintiffs have petitioned the Court to hold the motion in abeyance pending discovery. Discovery is currently in its preliminary stages. TSI believes that this claim is meritless, as the validity of the share repurchase was decided by the Court of Appeals in 2000, and plans to vigorously contest this matter.
Acevedo Litigation
On March 27, 2008, the heirs of the estates of physicians Juan Acevedo, Rafael Angel Blanco-Pagán and Francisco Casalduc-Roselló, each a former shareholder of TSI’s predecessor, filed a suit against the Corporation and TSI in the Puerto Rico Court of First Instance for Mayagüez, Superior Section. The heirs of each of the estates of Dr. Acevedo, Dr. Blanco-Pagán and Dr. Casalduc-Roselló are seeking the return of a total of 38 shares (prior to giving effect to the 3,000-for-one stock split) of the Corporation, as alleged successor to TSI, the payment of dividends in connection with such shares, and the Corporation’s recognition of each heir’s status as a shareholder of the Corporation. The number of shares indicated in this disclosure is based solely on information provided in the complaint filed by the plaintiffs and could differ from our corporate records. Each of the estates claims that they were fraudulently induced to tender the shares for redemption. Based on the opinion of counsel, management believes that the statute of limitations has expired and expects to prevail in this litigation, as the redemption took place more than 20 years ago.
Puerto Rico Center for Municipal Revenue Collection
On March 1, 2006 and March 3, 2006, respectively, the Puerto Rico Center for Municipal Revenue Collection (CRIM) imposed a real property tax assessment of approximately $1.3 million and a personal property tax

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)
assessment of approximately $4.0 million upon TSI for the fiscal years 1992-1993 through 2002-2003, during which time TSI qualified as a tax-exempt entity under Puerto Rico law pursuant to rulings issued by the Puerto Rico tax authorities. In imposing the tax assessments, CRIM contends that because a for-profit corporation, such as TSI, is not entitled to such an exemption, the rulings recognizing the tax exemption that were issued should be revoked on a retroactive basis and property taxes should be applied to TSI for the period when it was exempt. On March 28, 2006 and March 29, 2006, respectively, TSI challenged the real and personal property tax assessments in the Court of First Instance for San Juan, Superior Section.
On October 29, 2007, the Court entered summary judgment for CRIM affirming the real property tax assessment of approximately $1.3 million. TSI filed a motion for reconsideration of the Court’s summary judgment decision, which was denied. On November 29, 2007 TSI appealed this determination to the Court of Appeals and has requested an argumentative hearing. On January 19, 2008 CRIM filed a brief in opposition to TSI’s appeal. On March 3, 2008 TSI filed its response to the brief submitted by CRIM.
On December 5, 2007, the Court entered a summary judgment for CRIM with respect to the personal property assessment that was notified on January 22, 2008. On January 31, 2008, TSI filed a motion for reconsideration, which was denied. TSI appealed this decision on February 21, 2008 with the Court of Appeals, requested an argumentative hearing and also requested a consolidation of both property tax cases.
On April 17, 2008, the Court of Appeals approved the consolidation of both property tax cases. As of the date hereof, the Court of Appeals has not resolved TSI’s request for an argumentative hearing.
Management believes that these municipal tax assessments are improper and currently expects to prevail in these litigations.
Regulatory Actions
On October 25, 2007, the House of Representatives of the Legislative Assembly (the “House”) of the Commonwealth of Puerto Rico approved a resolution ordering the House’s Committee on Health to investigate TSI, our managed care subsidiary. The resolution states that TSI originally intended to operate as a not-for-profit entity in order to provide low-cost health insurance and improve the health services offered by certain government agencies. The resolution orders the Committee to investigate the effects of TSI’s alleged failure to provide low-cost health insurance, among other obligations, and requires the Committee to prepare and submit a report to the House detailing its findings, conclusions and recommendations on or prior to sixty (60) days from the approval of the resolution. The Committee may refer any finding of wrongdoing to the Secretary of Justice of the Commonwealth of Puerto Rico for further investigation. We believe that TSI and its predecessor managed care companies have complied with such obligations in all material respects, but cannot predict the outcome of the proposed investigation and are currently unable to ascertain the impact these matters may have on our business, if any. The Puerto Rico Department of Justice and the Commissioner of Insurance have also launched similar investigations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting our financial condition and results of operations for the three months ended March 31, 2008. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2007.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.
Overview
We are the largest managed care company in Puerto Rico in terms of membership and have over 45 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the Commercial, Commonwealth of Puerto Rico Health Reform (the Reform) and Medicare (including Medicare Advantage and the Part D stand-alone prescription drug plan (PDP)) markets. In the Commercial market we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. The Reform is a government of Puerto Rico-funded managed care program for the medically indigent, similar to the Medicaid program in the U.S. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico, serve approximately one million members across all regions of Puerto Rico and hold a leading market position covering approximately 25% of the population. For the three months ended March 31, 2008, our managed care segment represented approximately 89.0% of our total consolidated premiums earned, net and approximately 47.8% of our operating income. We also have significant positions in the life insurance and property and casualty insurance markets. Our life insurance segment had a market share of approximately 15% (in terms of premiums written) as of December 31, 2006. Our property and casualty segment had a market share of approximately 9% (in terms of direct premiums) as of December 31, 2006.
We participate in the managed care market through our subsidiary, Triple-S, Inc. (TSI). Our managed care subsidiary is a Blue Cross and Blue Shield Association (BCBSA) licensee, which provides us with exclusive use of the Blue Shield brand in Puerto Rico.
We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc. (TSV) and in the property and casualty insurance market through our subsidiary, Seguros Triple-S, Inc. (STS), which represented approximately 5.5% and 5.8%, respectively, of our consolidated premiums earned, net for the three months ended March 31, 2008 and 23.0% and 18.6%, respectively, of our operating income for that period.
Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income.

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Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and Reform. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income. Substantially all of our earnings are generated in Puerto Rico.
Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment’s results of operations depend in significant part on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation expenses, commission payments to brokers and other overhead business expenses.
We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned, net and administrative service fees, multiplied by 100.
Recent Accounting Standards
For a description of recent accounting standards, see note 2 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
Managed Care Membership
                 
    As of March 31,
    2008   2007
 
Managed care enrollment:
               
Commercial 1
    576,209       579,887  
Reform
    343,534       353,460  
Medicare Advantage
    65,538       42,357  
 
Total
    985,281       975,704  
 
Managed care enrollment by funding arrangement:
               
Fully-insured
    821,764       814,092  
Self-insured
    163,517       161,612  
 
Total
    985,281       975,704  
 
 
(1)   Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, U.S. Federal government employees and local government employees.

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Consolidated Operating Results
The following table sets forth the Corporation’s consolidated operating results. Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.
                 
    Three months ended
    March 31,
(Dollar amounts in millions)   2008   2007
 
Revenues:
               
Premiums earned, net
  $ 404.4       348.5  
Administrative service fees
    3.7       3.5  
Net investment income
    13.4       11.1  
 
Total operating revenues
    421.5       363.1  
Net realized investment gains
    0.6       1.2  
Net unrealized investment loss on trading securities
    (6.2 )     (1.9 )
Other income (expense), net
    (1.5 )     0.2  
 
Total revenues
    414.4       362.6  
 
Benefits and expenses:
               
Claims incurred
    350.2       297.3  
Operating expenses
    60.0       56.1  
 
Total operating expenses
    410.2       353.4  
Interest expense
    3.7       4.0  
 
Total benefits and expenses
    413.9       357.4  
 
Income before taxes
    0.5       5.2  
Income tax expense (benefit)
    (0.7 )     0.7  
 
Net income
  $ 1.2       4.5  
 
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Operating Revenues
Consolidated premiums earned, net and administrative service fees increased by $56.1 million, or 15.9%, to $408.1 million during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The increase was primarily due to an increase in the premiums earned, net in our managed care segment, principally due to an increased volume in the Medicare business and the increases in premium rates of the Reform business during 2007.
Consolidated net investment income increased by $2.3 million, or 20.7%, to $13.4 million during the three months ended March 31, 2008. This increase is attributed to a higher yield in 2008 as well as to a higher balance of invested assets.
Net Unrealized Loss on Trading Securities and Other Income (Expense), Net
The combined balance of our consolidated net unrealized loss on trading securities and other income (expense), net increased by $6.0 million, to $7.7 million during the three months ended March 31, 2008. The increase is principally due to an increase in the unrealized loss on trading securities and a decrease in the fair value of the derivative component of our investment in structured notes linked to the Euro Stoxx 50 and Nikkei 225 stock indexes; both decreases are due to market fluctuations. The unrealized loss experienced on trading securities represents a decrease of 9.7% in the market value of the portfolio, which is consistent with the decrease experienced in the Standard and Poor’s 500 Index of 10.3%. The change in the fair value of the derivative component of these structured notes is included within other income (expense), net.
Claims Incurred
Consolidated claims incurred during the three months ended March 31, 2008 increased by $52.9 million, or 17.8%, to $350.2 million when compared to the claims incurred during the three months ended March 31, 2007. This increase is principally due to increased claims in the managed care segment as a result of higher enrollment and

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utilization trends. The consolidated loss ratio increased by 1.3 percentage points to 86.6%, primarily due to higher utilization trends in the managed care segment for the period, particularly in the Medicare and Reform businesses.
Operating Expenses
Consolidated operating expenses during the three months ended March 31, 2008 increased by $3.9 million, or 7.0%, to $60.0 million as compared to the operating expenses during the 2007 period. This increase is primarily attributed to a higher volume of business, particularly in the Medicare business of our managed care segment and an increase in the commission expense of our property and casualty insurance segment. The consolidated operating expense ratio decreased by 1.2 percentage points during the 2008 period mainly due to the aforementioned increase in volume.
Income Tax Expense (Benefit)
The decrease in income tax expense (benefit) during the three months ended March 31, 2008 is primarily the result of the lower income before tax during the period.
Managed Care Operating Results
                 
    Three months ended
    March 31,
(Dollar amounts in millions)   2008   2007
 
Medical operating revenues:
               
Medical premiums earned, net:
               
Commercial
  $ 182.0       180.3  
Reform
    81.0       71.8  
Medicare
    96.9       53.5  
 
Medical premiums earned, net
    359.9       305.6  
Administrative service fees
    4.6       4.4  
Net investment income
    5.6       4.8  
 
Total medical operating revenues
    370.1       314.8  
 
Medical operating costs:
               
Medical claims incurred
    327.9       275.5  
Medical operating expenses
    36.9       35.2  
 
Total medical operating costs
    364.8       310.7  
 
Medical operating income
  $ 5.3       4.1  
 
Additional data:
               
 
Member months enrollment:
               
Commercial:
               
Fully-insured
    1,235,489       1,253,743  
Self-funded
    496,062       479,323  
 
Total commercial member months
    1,731,551       1,733,066  
Reform
    1,033,660       1,064,846  
Medicare Advantage
    190,529       128,630  
 
Total member months
    2,955,740       2,926,542  
 
Medical loss ratio
    91.1 %     90.2 %
Operating expense ratio
    10.1 %     11.4 %
 

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Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Medical Operating Revenues
Medical premiums earned for the three months ended March 31, 2008 increased by $54.3 million, or 17.8%, to $359.9 million when compared to the medical premiums earned during the three months ended March 31, 2007, principally as a result of the following:
    Medical premiums generated by the Medicare business increased during the three months ended March 31, 2008 by $43.4 million, or 81.1%, to $96.9 million, primarily due to an increase in member months enrollment of 61,899, or 48.1% and premium rate increases. The increase in member months is the net result of an increase of 64,542, or 69.2%, in the membership of our Medicare Advantage products and a decrease of 2,643, or 7.5%, in the membership of our PDP product.
 
    Medical premiums earned in the Reform business increased by $9.2 million, or 12.8%, to $81.0 million during the 2008 period. This fluctuation is primarily due to the increases in premium rates during 2007, one effective July 1, 2007, of approximately 8.7% and a retroactive increase in rates of approximately 6.7% effective November 1, 2006 negotiated in June 2007; mitigated by a decrease in member months enrollment in the Reform business by 31,186 or 2.9%.
 
    Medical premiums generated by the Commercial business increased by $1.7 million, or 0.9%, to $182.0 million during the three months ended March 31, 2008. This fluctuation is primarily the result of an increase in average premium rates in corporate accounts of 4.5%; partially offset by a decrease in member months enrollment of 18,254, or 1.5%.
Medical Claims Incurred
Medical claims incurred during the three months ended March 31, 2008 increased by $52.4 million, or 19.0%, to $327.9 million when compared to the three months ended March 31, 2007. The increase in medical claims incurred is mainly related to an increase in the medical claims incurred of the Medicare business of $44.3 millions due to an increase in members and higher medical loss ratio (MLR) as well as to an increase in the claims incurred of the Reform business of $10.2 million. The MLR of the segment increased 0.9 percentage points during the 2008 period, to 91.1%, primarily attributed to the effect of the following:
    The Medicare business has experienced an expected overall increase in utilization trends, but the increase is most noticeable in outpatient visits and ambulatory procedures. We expect the utilization trends of the Medicare business to increase and then to stabilize as the business matures. Also, the higher MLR in the Medicare business is also impacted by the change in mix between dual and non-dual eligible members within the business. The Medicare Advantage member months enrollment during the three months ended March 31, 2008 has a higher concentration of dual eligible members than during the same period of the prior year. In our experience dual eligible members have a higher utilization than non-dual eligible members.
 
    The higher MLR experienced by the Reform business in 2008 is primarily due to the effect of prior period reserve developments and the retroactive premium rate increase received by this business during June 2007. If we exclude the effect of prior period reserve developments in the 2007 and 2008 periods and considering the retroactive premium rate increase in the 2007 period, the MLR actually decreased by 2.2 percentage points during the 2008 period.
 
    During the 2008 period the MLR of the Commercial business decreased by 2.1 percentage points primarily as the result of our termination and re-pricing strategy of less profitable groups and cost containment initiatives.
Medical Operating Expenses
Medical operating expenses for the three months ended March 31, 2008 increased by $1.7 million, or 4.8%, to $36.9 million when compared to the three months ended March 31, 2007. This increase is primarily attributed to the higher volume of the segment, particularly in the Medicare business. The segment’s operating expense ratio decreased by 1.3 percentage points in the 2008 period.

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Life Insurance Operating Results
                 
    Three months ended
    March 31,
(Dollar amounts in millions)   2008   2007
 
Operating revenues:
               
Premiums earned, net:
               
Premiums earned
  $ 24.1       24.5  
Premiums earned ceded
    (2.0)     (2.1 )
 
Net premiums earned
    22.1       22.4  
Commission income on reinsuarance
    0.1       0.1  
 
Premiums earned, net
    22.2       22.5  
Net investment income
    3.9       3.6  
 
Total operating revenues
    26.1       26.1  
 
Operating costs:
               
Policy benefits and claims incurred
    12.0       11.6  
Underwriting and other expenses
    11.6       11.5  
 
Total operating costs
    23.6       23.1  
 
Operating income
  $ 2.5       3.0  
 
Additional data:
               
Loss ratio
    54.1 %     51.6 %
Operating expense ratio
    52.3 %     51.1 %
 
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Operating Revenues
Premiums earned for the segment decreased by $0.4 million, or 1.6%, to $24.1 million during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007. This decrease was primarily the result of a decrease in premiums generated by the group disability and life insurance businesses of approximately $0.7 million and $0.2 million, respectively. This decrease was offset in part by an increase in sales of individual life and cancer policies of approximately $0.3 million and $0.2 million, respectively.
Policy Benefits and Claims Incurred
Policy benefits and claims incurred during the three months ended March 31, 2008 increased by $0.4 million, or 3.4%, to $12.0 million in the 2008 period when compared to the 2007 period. This increase is primarily the result of higher claims received during the period in the individual life and group disability businesses. This resulted in a 2.5 percentage points increase in the loss ratio, from 51.6% in 2007 to 54.1% in 2008.
Underwriting and Other Expenses
Underwriting and other expenses for the segment increased by $0.1 million, or 0.9%, during the three months ended March 31, 2008 primarily as a result of an increase in general expenses. The segment’s operating expense ratio increased by 1.2 percentage points during the three months ended March 31, 2008, from 51.1% in 2007 to 52.3% in 2008.

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Property and Casualty Insurance Operating Results
                 
    Three months ended
    March 31,
(Dollar amounts in millions)   2008   2007
 
Operating revenues:
               
Premiums earned, net:
               
Premiums written
  $ 35.5       35.2  
Premiums ceded
    (15.6)     (15.4 )
Change in unearned premiums
    3.4       1.6  
 
Premiums earned, net
    23.3       21.4  
Net investment income
    3.0       2.6  
 
Total operating revenues
    26.3       24.0  
 
Operating costs:
               
Claims incurred
    10.3       10.2  
Underwriting and other expenses
    13.9       12.4  
 
Total operating costs
    24.2       22.6  
 
Operating income
  $ 2.1       1.4  
 
Additional data:
               
Loss ratio
    44.2 %     47.7 %
Operating expense ratio
    59.7 %     57.9 %
Combined ratio
    103.9 %     105.6 %
 
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Operating Revenues
Total premiums written during the three months ended March 31, 2008 increased by $0.3 million, or 0.9%, to $35.5 million, principally as a result of an increase in premiums from dwelling and commercial multi-peril policies of approximately $1.5 million and $0.4 million, respectively, offset by a decrease in premiums from the auto liability line of business of approximately $0.9 million.
Premiums ceded to reinsurers increased by approximately $0.2 million, or 1.3% to $15.6 million during the first quarter of 2008. The ratio of premiums ceded to premiums written increased by 0.1 percentage points, from 43.8% in 2007 to 43.9% in 2008, primarily as the result of the effects of the mix of business.
Change in unearned premiums present an increase of $1.8 million when compared to prior year is the result of the segment’s higher volume of business during the last quarter of the year 2007, which is now being amortized into income.
Claims Incurred
Claims incurred during the three months ended March 31, 2008 increased by $0.1 million, or 1.0%, to $10.3 million. The loss ratio decreased by 3.5 percentage points, to 44.2% during the three months ended March 31, 2008, primarily as a result of the segment’s adherence to underwriting guidelines and enhancements to the claims handling process as well as to a change in the mix of business subscribed during the period. These efforts have resulted in improved loss ratios in the several lines of business.
Underwriting and Other Expenses
Underwriting and other operating expenses for the three months ended March 31, 2008 increased by $1.5 million, or 12.1%, to $13.9 million. The operating expense ratio increased by 1.7 percentage points during the same period, to 59.7% in 2008. This increase is primarily due to increases in net commission expense as a result of the increase in net premiums earned and to commission rate increases to various general agencies in several lines of business during 2007. In addition, the segment has experienced increases in other underwriting expenses, including salaries and related expenses.

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Liquidity and Capital Resources
Cash Flows
A summary of our major sources and uses of cash for the periods indicated is presented in the following table:
                 
    Three months ended
    March 31,
(Dollar amounts in millions)   2008   2007
 
Sources of cash:
               
Proceeds from short-term borrowings
  $ 55.5        
Proceeds from policyholder deposits
    2.6       1.4  
Cash provided by operating activities
          3.6  
Other
    15.8       2.1  
 
 
               
Total sources of cash
    73.9       7.1  
 
Uses of cash:
               
Cash used in operating activities
    (118.1 )      
Net purchases of investment securities
    (84.5 )     (1.9 )
Capital expenditures
    (1.5 )     (1.4 )
Dividends
          (2.4 )
Payments of long-term borrowings
    (0.4 )     (0.4 )
Payments of short-term borrowings
    (45.7 )      
Surrenders of policyholder deposits
    (1.7 )     (1.9 )
 
 
               
Total uses of cash
    (251.9 )     (8.0 )
 
 
               
Net decrease in cash and cash equivalents
  $ (178.0 )     (0.9 )
 
Cash flows from operating activities decreased by $121.7 million during the three months ended March 31, 2008, principally due to the effect of a decrease of $17.7 million in the payable related to unsettled investment acquisitions as of December 31, 2007 and an increase in claims paid of $51.9 million. This fluctuation was offset in part by an increase in premiums collected of $30.3 million, an increase of $11.0 million in net proceeds received from trading securities and an increase of $1.9 million in interest received. The increase in premiums collected of $30.3 million would have been higher when considering the $22.8 million of managed care premiums collected in December 2007 but corresponding to January 2008.
In the 2008 period the proceeds from short-term borrowings exceeded payments of short-term borrowings by $9.8 million. Short-term borrowings are used to address timing differences between cash receipts and disbursements.
The increase in the other sources of cash of $13.7 million is principally the result of a higher balance in outstanding checks over bank balances in the 2008 period.
Net purchases of investment securities increased by $82.6 million during the period, primarily as the result of purchases of investments with trade date in December 2007 and a settlement date in January 2008.
In March 2007, we declared and paid dividends to our stockholders amounting to $2.4 million.
Financing and Financing Capacity
We have several short-term facilities available to meet our liquidity needs. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of March 31, 2008, we had $53.0 million of available credit under these facilities. There were $9.8 million outstanding short-term borrowings under these facilities as of March 31, 2008.
As of March 31, 2008, we had the following senior unsecured notes payable:
  On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes).

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  On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes due December 2020 (the 6.6% notes).
  On September 30, 2004, we issued and sold $50.0 million of its 6.3% senior unsecured notes due September 2019 (the 6.3% notes).
The 6.3% notes, the 6.6% notes and the 6.7% notes contain certain covenants. At March 31, 2008, we and our managed care subsidiary, as applicable, are in compliance with these covenants.
In addition, as of March 31, 2008 we are a party to a secured term loan with a commercial bank, FirstBank Puerto Rico. This secured loan bears interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 100 basis points and requires monthly principal repayments of $0.1 million. As of March 31, 2008, this secured loan had an outstanding balance of $25.5 million and average annual interest rates of 4.7%.
This secured loan is guaranteed by a first lien on our land, buildings and substantially all leasehold improvements, as collateral for the term of the agreements under a continuing general security agreement. This secured loan contains certain covenants which are customary for this type of facility, including, but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control. As of March 31, 2008, we are in compliance with these covenants. Failure to meet these covenants may trigger the accelerated payment of the secured loan’s outstanding balance.
We anticipate that we will have sufficient liquidity to support our currently expected needs.
Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have exposure to market risk mostly in our investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in our exposure to financial market risks since December 31, 2007. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2007.
Item 4. Controls and Procedures
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2008. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2008. There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed the evaluation referred to above.
Part II — Other Information
Item 1. Legal Proceedings
For a description of legal proceedings, see note 13 to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q.

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Item IA. Risk Factors
The following risk factors contain updated information from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.
Heirs of certain of our former shareholders may bring materially dilutive claims against us.
For much of our history, we and our predecessor entity have restricted the ownership or transferability of our shares, including by reserving to us or our predecessor a right of first refusal with respect to share transfers and by limiting ownership of such shares to physicians and dentists. In addition, we and our predecessor, consistent with the requirements of our and our predecessor’s bylaws, have sought to repurchase shares of deceased shareholders at the amount originally paid for such shares by those shareholders. Nonetheless, former shareholders’ heirs who were not eligible to own or be transferred shares because they were not physicians or dentists at the time of their purported inheritance (“non-medical heirs”), may claim an entitlement to our shares or to damages with respect to the repurchased shares notwithstanding applicable transfer and ownership restrictions. Our records indicate that there may be as many as approximately 450 former shareholders whose non-medical heirs may claim to have inherited up to 10,500,000 shares after giving effect to the 3,000-for-one stock split. As of the date of this Quarterly Report on Form 10-Q, two judicial claims seeking the return of or compensation for 54 shares (prior to giving effect to the 3,000-for-one stock split) had been brought by non-medical heirs of former shareholders whose shares were repurchased upon their death. In one claim, heirs purport to represent as a class all non-medical heirs of deceased shareholders whose shares we repurchased. In addition, we have received inquiries from non-medical heirs with respect to over 600 shares (or 1,800,000 shares after giving effect to the 3,000-for-one stock split).
We believe that we should prevail in litigation with respect to these matters; however, we cannot predict the outcome of any such litigation regarding these non-medical heirs. The interests of our existing shareholders could be materially diluted to the extent that any such claims are successful.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
     
Exhibits   Description
 
   
3(i)(a)
  Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3(i)(d) to TSM’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 0-49762).
 
   
3(i)(b)*
  Amendment to Article Tenth of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation.
 
   
3(i)(c)*
  Articles of Incorporation of Triple-S Management Corporation, as currently in effect.

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Exhibits   Description
 
   
11
  Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months ended March 31, 2008 and 2007 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
 
   
12
  Statements re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio for the three months ended March 31, 2008 and 2007 has been omitted as the detail necessary to determine the computation of the loss ratio, operating expense ratio and combined ratio can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
 
   
31.1
  Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
 
   
31.2
  Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
 
   
32.1
  Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
 
   
32.2
  Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.
All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
 
*  Filed herein.
SIGNATURES
Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
    Triple-S Management Corporation    
 
           
    Registrant    
 
           
Date: May 9, 2008
  By:   /s/ Ramón M. Ruiz-Comas
 
Ramón M. Ruiz-Comas, CPA
   
 
      President and    
 
      Chief Executive Officer    
 
           
Date: May 9, 2008
  By:   /s/ Juan J. Román
 
Juan J. Román, CPA
   
 
      Vice President of Finance    
 
      and Chief Financial Officer    

30