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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-49762

Triple-S Management Corporation

(Exact name of registrant as specified in its charter)

Puerto Rico (State or other jurisdiction of incorporation or organization)		66-0555678 (I.R.S. Employer Identification No.)
1441 F.D. Roosevelt Avenue San Juan, Puerto Rico (Address of principal executive offices)		00920 (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, or 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.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		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 July 17, 2008
Common Stock Class A, $1.00 par value		16,042,809
Common Stock Class B, $1.00 par value		16,286,489

 

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended June 30, 2008

Table of Contents

				PAGE
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements			3
		Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007			3
		Consolidated Statements of Earnings for the three months and six months ended June 30, 2008 and 2007			4
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the six months ended June 30, 2008 and 2007			5
		Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			6
		Notes to Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.		Controls and Procedures			33
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			34
Item 1A		Risk Factors			34
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3.		Defaults Upon Senior Securities			34
Item 4.		Submission of Matters to a Vote of Security Holders			34
Item 5.		Other Information			34
Item 6.		Exhibits			35
SIGNATURES					36
EX-10.1 EXTENSION AGREEMENT
EX-31.1 SECTION 302, CERTIFICATION OF 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

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)
		June 30,				December 31,
		2008				2007
Assets
Investments and cash:
Equity securities held for trading, at fair value		$	45,749				67,158
Securities available for sale, at fair value:
Fixed maturities			921,348				823,629
Equity securities			79,269				71,050
Securities held to maturity, at amortized cost:
Fixed maturities			24,367				43,691
Policy loans			5,377				5,481
Cash and cash equivalents			41,283				240,153
Total investments and cash			1,117,393				1,251,162
Premiums and other receivables, net			237,845				202,268
Deferred policy acquisition costs and value of business acquired			121,453				117,239
Property and equipment, net			46,951				43,415
Net deferred tax asset			10,211				6,783
Other assets			40,529				38,675
Total assets		$	1,574,382				1,659,542
Liabilities and Stockholders’ Equity
Claim liabilities:
Claims processed and incomplete		$	181,694				186,065
Unreported losses			158,898				149,996
Unpaid loss-adjustment expenses			18,903				17,769
Total claim liabilities			359,495				353,830
Liability for future policy benefits			200,619				194,131
Unearned premiums			101,666				132,599
Policyholder deposits			49,414				45,959
Liability to Federal Employees’ Health Benefits Program (FEHBP)			15,981				21,338
Accounts payable and accrued liabilities			132,719				228,980
Short-term borrowings			32,075				—
Long-term borrowings			170,127				170,946
Liability for pension benefits			28,501				29,221
Total liabilities			1,090,597				1,177,004
Stockholders’ equity:
Common stock Class A			16,043				16,043
Common stock Class B			16,286				16,266
Additional paid-in capital			190,465				188,935
Retained earnings			280,661				267,336
Accumulated other comprehensive loss			(19,670	)			(6,042	)
Total stockholders’ equity			483,785				482,538
Total liabilities and stockholders’ equity		$	1,574,382				1,659,542

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
For the three months and six months ended June 30, 2008 and 2007
(Dollar amounts in thousands, except per share data)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Premiums earned, net		$	419,157				377,346			$	823,556				725,811
Administrative service fees			3,920				3,617				7,633				7,126
Net investment income			14,302				11,047				27,734				22,168
Total operating revenues			437,379				392,010				858,923				755,105
Net realized investment gains			(1,741	)			3,784				(1,132	)			4,980
Net unrealized investment loss (gain) on trading securities			(951	)			573				(7,201	)			(1,352	)
Other income (expense), net			1,360				2,158				(161	)			2,367
Total revenues			(436,047	)			398,525				850,429				761,100
Benefits and expenses:
Claims incurred			354,780				308,023				704,987				605,341
Operating expenses			61,399				59,358				121,430				115,495
Total operating costs			416,179				367,381				826,417				720,836
Interest expense			3,926				4,058				7,599				8,010
Total benefits and expenses			420,105				371,439				834,016				728,846
Income before taxes			15,942				27,086				16,413				32,254
Income tax expense (benefit):
Current			4,291				5,938				4,107				6,998
Deferred			(486	)			343				(1,033	)			(54	)
Total income taxes			3,805				6,281				3,074				6,944
Net income		$	12,137				20,805			$	13,339				25,310
Basic net income per share		$	0.38				0.78			$	0.41				0.95
Diluted net income per share		$	0.38				0.78			$	0.41				0.95

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss) (Unaudited)
For the six months
ended June 30, 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			1,530				—
Grant of restricted Class B common stock			20				—
Other			(14	)			—
Comprehensive income (loss):
Net income			13,339				25,310
Net unrealized change in fair value of available for sale securities			(14,012	)			(6,260	)
Defined benefit pension plan:
Actuarial loss, net			587				630
Prior service (cost) credit, net			(147	)			17
Net change in fair value of cash flow hedges			(56	)			(99	)
Total comprehensive income (loss)			(289	)			19,598
Balance at June 30		$	483,785				359,749

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2008 and 2007
(Dollar amounts in thousands, except per share data)

		Six months ended
		June 30,
		2008				2007
Cash flows from operating activities:
Net income		$	13,339				25,310
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			3,572				3,395
Net amortization of investments			377				371
Provision for doubtful receivables			176				3,981
Deferred tax benefit			(1,033	)			(54	)
Net (loss) gain on sale of securities			1,132				(4,980	)
Net unrealized loss on trading securities			7,201				1,352
Share-based compensation			1,530				—
Proceeds from trading securities sold:
Equity securities			22,094				32,399
Acquisition of securities in trading portfolio:
Equity securities			(7,766	)			(12,860	)
Loss on sale of property and equipment			11				2
(Increase) decrease in assets:
Premiums receivable			(43,157	)			(43,452	)
Agents balances			670				(2,464	)
Accrued interest receivable			(3,720	)			(741	)
Other receivables			268				(4,303	)
Reinsurance recoverable on paid losses			10,204				(18,355	)
Deferred policy acquisition costs and value of business acquired			(4,214	)			(3,031	)
Prepaid income tax			(6,796	)			(4,663	)
Other assets			4,849				172
Increase (decrease) in liabilities:
Claims processed and incomplete			(4,371	)			31,197
Unreported losses			8,902				(814	)
Unpaid loss-adjustment expenses			1,134				(249	)
Liability for future policy benefits			6,488				6,903
Unearned premiums			(30,933	)			1,321
Policyholder deposits			943				864
Liability to FEHBP			(5,357	)			(1,511	)
Accounts payable and accrued liabilities			(732	)			5,844
Income tax payable			—				(9,242	)
Net cash (used in) provided by operating activities		$	(25,189	)			6,392

(Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2008 and 2007
(Dollar amounts in thousands, except per share data)

		Six months ended
		June 30,
		2008				2007
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		$	153,393				76,904
Fixed maturities matured			54,166				10,852
Equity securities			2,019				1,011
Securities held to maturity:
Fixed maturities matured			19,526				1,285
Acquisition of investments:
Securities available for sale:
Fixed maturities			(428,476	)			(100,668	)
Equity securities			(16,717	)			(14,507	)
Net proceeds (disbursements) for policy loans			104				(145	)
Net capital expenditures			(7,119	)			(3,440	)
Net cash used in investing activities			(223,104	)			(28,708	)
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances			15,649				16,989
Repayments of short-term borrowings			(474,156	)			(23,110	)
Proceeds from short-term borrowings			506,231				23,110
Repayments of long-term borrowings			(819	)			(820	)
Dividends paid			—				(2,448	)
Proceeds from policyholder deposits			5,895				2,844
Surrenders of policyholder deposits			(3,383	)			(4,033	)
Other			6				—
Net cash provided by financing activities			49,423				12,532
Net decrease in cash and cash equivalents			(198,870	)			(9,784	)
Cash and cash equivalents at beginning of the period			240,153				81,320
Cash and cash equivalents at end of the period		$	41,283				71,536

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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.

In May 2008, the FASB issued FAS 163, Accounting for Financial Guarantee Insurance Contracts — an Interpretation of FASB Statement No. 60. FAS 163 prescribes the accounting for premium revenue and claims liabilities by insurers of financial obligations, and requires expanded disclosures about financial guarantee insurance contracts. FAS 163 applies to financial guarantee insurance and reinsurance contracts issued by insurers subject to FAS 60, Accounting and Reporting by Insurance Enterprises. The Statement does not apply to insurance contracts that are similar to financial guarantee insurance contracts such as mortgage guaranty or trade-receivable insurance, financial guarantee contracts issued by noninsurance entities, or financial guarantee contracts that are derivative instruments within the scope of FAS 133. Statement 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years, except for certain disclosure requirements about the risk-management activities of the insurance enterprise that are effective for the first quarter

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

beginning after the Statement was issued (May 23, 2008). Except for those disclosures, early application is prohibited. The Corporation is currently evaluating the impact of adopting this standard.

There were no other new accounting pronouncements issued during the first six 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.

The following tables summarize the operations by major operating segment for the three months and six months ended June 30, 2008 and 2007:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Operating revenues:
Managed Care:
Premiums earned, net		$	373,439				330,712			$	732,550				635,543
Administrative service fees			3,920				3,617				7,633				7,126
Intersegment premiums /service fees			1,660				1,781				3,310				3,408
Net investment income			6,075				4,661				11,677				9,490
Total managed care			385,094				340,771				755,170				655,567
Life Insurance:
Premiums earned, net			22,783				22,483				44,912				44,863
Intersegment premiums			93				90				185				172
Net investment income			4,057				3,739				7,991				7,359
Total life insurance			26,933				26,312				53,088				52,394
Property and Casualty Insurance:
Premiums earned, net			22,935				24,151				46,094				45,405
Intersegment premiums			152				154				306				308
Net investment income			3,059				2,527				6,023				5,079
Total property and casualty insurance			26,146				26,832				52,423				50,792
Other segments — intersegment service revenues *			11,205				10,602				22,273				21,642
Total business segments			449,378				404,517				882,954				780,395
TSM operating revenues from external sources			1,111				120				2,043				240
Elimination of intersegment premiums			(1,905	)			(2,025	)			(3,801	)			(3,888	)
Elimination of intersegment service fees			(11,205	)			(10,602	)			(22,273	)			(21,642	)
Consolidated operating revenues		$	437,379				392,010			$	858,923				755,105

*		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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Operating income:
Managed care		$	13,970				17,797			$	19,302				21,897
Life insurance			3,200				2,680				5,705				5,655
Property and casualty insurance			2,271				3,593				4,368				4,986
Other segments *			179				140				288				278
Total business segments			19,620				24,210				29,663				32,816
TSM operating revenues from external sources			1,111				120				2,043				240
TSM unallocated operating expenses			(2,016	)			(2,447	)			(4,156	)			(4,273	)
Elimination of TSM intersegment charges			2,485				2,746				4,956				5,486
Consolidated operating income			21,200				24,629				32,506				34,269
Consolidated net realized investment (loss) gains			(1,741	)			3,784				(1,132	)			4,980
Consolidated net unrealized gain (loss) on trading securities			(951	)			573				(7,201	)			(1,352	)
Consolidated interest expense			(3,926	)			(4,058	)			(7,599	)			(8,010	)
Consolidated other income (expense), net			1,360				2,158				(161	)			2,367
Consolidated income before taxes		$	15,942				27,086			$	16,413				32,254
Depreciation expense:
Managed care		$	1,008				862			$	1,992				1,758
Life insurance			167				160				349				339
Property and casualty insurance			367				377				739				737
Total business segments			1,542				1,399				3,080				2,834
TSM depreciation expense			230				280				492				561
Consolidated depreciation expense		$	1,772				1,679			$	3,572				3,395

*		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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

		June 30,				December 31,
		2008				2007
Assets:
Managed care		$	690,028				762,422
Life insurance			451,946				430,807
Property and casualty insurance			341,423				375,415
Other segments *			11,042				11,255
Total business segments			1,494,170				1,579,899
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments			83,293				82,980
Property and equipment,net			22,031				22,523
Other assets			3,261				2,280
			108,585				107,783
Elimination entries — intersegment receivables and others			(28,642	)			(28,140	)
Consolidated total assets		$	1,574,382				1,659,542
Significant noncash items:
Net change in unrealized gain on securities available for sale:
Managed care		$	(5,799	)			2,928
Life insurance			(3,589	)			3,253
Property and casualty insurance			(3,930	)			3,085
Total business segments			(13,318	)			9,266
Amount related to TSM			(694	)			283
Consolidated net change in unrealized gain on securities available for sale		$	(14,012	)			9,549
Net change in liability for pension benefits:
Managed care		$	295				2,838
Life			4				35
Property and casualty			36				275
Other segments*			95				844
Total business segments			430				3,992
Amount related to TSM			10				98
Consolidated net change in liability for pension benefits		$	440				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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 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 June 30, 2008 and December 31, 2007, were as follows:

June 30, 2008
						Gross				Gross
						unrealized				unrealized				Estimated fair
		Amortized cost				gains				losses				value
Trading securities:
Equity securities		$	40,549				9,373				(4,173	)			45,749
Securities available for sale:
Fixed maturities			924,247				7,662				(10,561	)			921,348
Equity securities			81,618				2,869				(5,218	)			79,269
			1,005,865				10,531				(15,779	)			1,000,617
Securities held to maturity:
Fixed maturities			24,367				174				(73	)			24,468
		$	1,070,781				20,078				(20,025	)			1,070,834

December 31, 2007
						Gross				Gross
						unrealized				unrealized				Estimated fair
		Amortized 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 June 30, 2008 are mostly comprised of U.S. Treasury securities, obligations of government sponsored enterprises and obligations of U.S. government instrumentalities (54.2%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (12%), obligations of the government of Puerto Rico and its instrumentalities (11.6%) and obligations of U.S. states and municipalities and its instrumentalities (2.1%). The remaining 20.1% of the investment portfolio is comprised of corporate bonds, equity securities, mutual funds and certain collateralized mortgage obligations.

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-maturity

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

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. During the six months ended June 30, 2008 and 2007, the Corporation recognized other-than-temporary impairments amounting to $2,383 and $356.

(5) Premiums and Other Receivables

Premiums and other receivables as of June 30, 2008 and December 31, 2007 were as follows:

		June 30,				December 31,
		2008				2007
Premiums		$	98,359				54,330
Self-funded group receivables			31,696				31,344
FEHBP			8,978				10,202
Agents balances			32,204				32,874
Accrued interest			12,083				8,363
Reinsurance recoverable			48,553				58,757
Other			22,073				22,323
			253,946				218,193
Less allowance for doubtful receivables:
Premiums			11,757				11,753
Other			4,344				4,172
			16,101				15,925
Total premiums and other receivables		$	237,845				202,268

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

(6) Claim Liabilities

The activity in the total claim liabilities for the three months and six months ended June 30, 2008 and 2007 is as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Claim liabilities at beginning of period		$	362,967				327,871			$	353,830				314,682
Reinsurance recoverable on claim liabilities			(49,469	)			(32,331	)			(54,834	)			(32,066	)
Net claim liabilities at beginning of period			313,498				295,540				298,996				282,616
Incurred claims and loss-adjustment expenses:
Current period insured events			350,022				310,115				708,326				619,680
Prior period insured events			2,318				(4,747	)			(8,903	)			(20,938	)
Total			352,340				305,368				699,423				598,742
Payments of losses and loss-adjustment expenses:
Current period insured events			308,846				277,892				480,445				422,706
Prior period insured events			37,101				28,203				198,083				163,839
Total			345,947				306,095				678,528				586,545
Net claim liabilities at end of period			319,891				294,813				319,891				294,813
Reinsurance recoverable on claim liabilities			39,604				50,003				39,604				50,003
Claim liabilities at end of period		$	359,495				344,816			$	359,495				344,816

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.

The amount of incurred claims and loss-adjustment expenses for prior period insured events for the three months ended June 30, 2008 is due primarily to higher than expected utilization trends. The credits in the incurred claims and loss-adjustment expenses for prior period insured events for the six months ended June 30, 2008 and the three months and six months ended June 30, 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 $5,564 and $6,599 during the three months and six months ended June 30, 2008 and 2007, respectively.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

(7) Fair Value Measurements

The Corporation 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 June 30, 2008 for assets measured at fair value on a recurring basis:

		Level 1				Level 2				Level 3				Total
Equity securities held for trading		$	45,749				—				—				45,749
Securities available for sale:
Fixed maturity securities			—				921,348				—				921,348
Equity securities			43,785				35,484				—				79,269
Derivatives (reported within other assets in the consolidated balance sheets)			—				3,964				—				3,964
Total		$	89,534				960,796				—				1,050,330

(8) Share-Based Compensation

Share-based compensation expense recorded during the three months and six months ended June 30, 2008 was $792 and $1,530, respectively. No share-based compensation expense was recorded during the three months and six months ended June 30, 2007. On April 28, 2008 the Company granted 19,935 shares of restricted stock to non-employee directors pursuant to the 2007 Incentive Plan, all of which were outstanding as of June 30, 2008. Restricted stock was issued at the fair value of the stock on the grant date and vest in one year. The restriction period ends six months after each director ceases to be a member of the Board of Directors. No grants of stock options or performance awards were given during the three months and six months ended June 30, 2008.

(9) Comprehensive Income (Loss)

The accumulated balances for each classification of other comprehensive income (loss) are as follows:

														Accumulated
		Unrealized				Liability for								other
		gain (loss) on				pension				Cash flow				comprehensive
		securities				benefits				hedges				income (loss)
Balance at January 1		$	9,554				(15,652	)			56				(6,042	)
Net current period change			(14,012	)			440				(56	)			(13,628	)
Balance at June 30		$	(4,458	)			(15,212	)			—				(19,670	)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

(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 2007 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 and six months ended June 30, 2008 and 2007 were as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Components of net periodic benefit cost:
Service cost		$	1,508				1,584			$	2,825				2,940
Interest cost			1,494				1,427				2,916				2,721
Expected return on assets			(1,461	)			(1,233	)			(2,686	)			(2,361	)
Prior service cost			(127	)			16				(240	)			30
Actuarial loss			476				511				955				1,025
Net periodic benefit cost		$	1,890				2,305			$	3,770				4,355

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 June 30, 2008, the Corporation contributed $4,000 to the pension program. The Corporation currently anticipates contributing an additional $1,000 to fund its pension program in 2008.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

(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 and six months ended June 30, 2008 and 2007:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Numerator for earnings per share:
Net income available to stockholders		$	12,137				20,805			$	13,339				25,310
Denominator for basic earnings per share:
Weighted average of common shares			32,142,809				26,717,000				32,142,809				26,726,000
Effect of dilutive securities			41,550				—				38,420				—
Denominator for diluted earnings per share			32,184,359				26,717,000				32,181,229				26,726,000
Basic net income per share		$	0.38				0.78			$	0.41				0.95
Diluted net income per share		$	0.38				0.78			$	0.41				0.95

(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 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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

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. Plaintiffs amended their complaint on June 20, 2008. The Second Amended Complaint (SAC) is an attempt to try to comply with the directives of the May 30, 2007 Court of Appeals Judgment. The SAC is a reshuffling of the same allegations of the First Amended Complaint with only minor differences. Additional allegations were included in reference to certain audits conducted on two physicians. The non-physician plaintiffs were excluded from the SAC. We requested until August 11, 2008 to answer the complaint. As we did with respect to the First Amended Complaint, we will move to dismiss the allegations of the SAC.

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 defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered medically necessary services they render. TSI, along with the other defendants, moved to dismiss the complaint on multiple grounds, including but not limited an arbitration and the 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, actively participated 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. Certain physicians who were unable to either prevent the final approval of the settlement

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

or modify the terms of the agreement, appealed before the Court of Appeals for the Eleventh Circuit. The appeals were recently lodged and the clerk has yet to notify the briefing schedule.

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. 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 to 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 to the two year term provided under the Uniform Security Act of Puerto Rico 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 because 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. The Court granted TSI’s motion Requesting Change of Venue thereby transferring the case to San Juan and discovery will soon begin.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

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 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 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. On April 24, 2008, the Court of Appeals denied TSI’s request for an argumentative hearing.

On May 27, 2008, TSI submitted a motion to the Court of Appeals requesting the Court to take notice of a recent decision of the Puerto Rico Supreme Court that addresses administrative law issues involving other parties and which confirms TSI’s position that the rulings issued by the Puerto Rico tax authorities may not be revoked on a retroactive basis. On June 30, 2008 the Court of Appeals confirmed the summary judgment issued by the Court of First Instance in both property tax cases. The opinion of the Court of Appeals was notified to the parties on July 17, 2008 and TSI will submitted a motion for reconsideration on July 31, 2008. The filing of the motion for reconsideration interrupted the period of time that TSI has to submit a writ of certiorari to the Puerto Rico Supreme Court.

Management believes that these municipal tax assessments are improper and currently expects to prevail in this litigation.

Government Investigations

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.

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 and six months ended June 30, 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 six months ended June 30, 2008, our managed care segment represented approximately 89.1% of our total consolidated premiums earned, net and approximately 59.4% 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 13% (in terms of premiums written) as of December 31, 2007. Our property and casualty segment had a market share of approximately 9% (in terms of direct premiums) as of December 31, 2007.

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 5.6%, respectively, of our consolidated premiums earned, net for the six months ended June 30, 2008 and 17.8% and 13.5%, 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.

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 Developments

Healthcare Reform Contracts

All of the Reform contracts, except the contract for the Metro-North region, expired on June 30, 2008. The government of Puerto Rico (the government) notified all Healthcare Reform carriers that the expired contracts would not be subject to a competitive bid; instead they would renegotiate the contracts of all existing carriers for an additional twelve-month period ending June 30, 2009. As of the date of this Quarterly Report on Form 10-Q, TSI has not finalized the negotiation process with the government. In July 2008, the contracts were amended extending them until August 30, 2008, at which time it is expected the negotiation process will be completed. Once such negotiation is completed, premium rates will be retroactively adjusted to July 1, 2008.

On July 30, 2008, the government notified TSI that it had been selected as the managed care services carrier for the Metro-North region effective November 1, 2008. The contract for the Metro-North region is expected to be on an Administrative Services Only (ASO) basis. On an ASO agreement TSI would not generate premiums but instead administrative service fees. The Metro-North region is expected to have approximately 175,000 members.

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 June 30,
		2008				2007
Managed care enrollment:
Commercial 1			577,371				576,314
Reform			344,104				356,737
Medicare Advantage			72,134				47,470
Total			993,609				980,521
Managed care enrollment by funding arrangement:
Fully-insured			825,187				818,930
Self-insured			168,422				161,591
Total			993,609				980,521

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								Six months ended
		June 30,								June 30,
(Dollar amounts in millions)		2008				2007				2008				2007
Revenues:
Premiums earned, net		$	419.2				377.3			$	823.6				725.8
Administrative service fees			3.9				3.6				7.6				7.1
Net investment income			14.3				11.0				27.7				22.2
Total operating revenues			437.4				391.9				858.9				755.1
Net realized investment (loss) gains			(1.8	)			3.8				(1.1	)			5.0
Net unrealized investment (loss) gain on trading securities			(1.0	)			0.6				(7.2	)			(1.4	)
Other income (expense), net			1.4				2.2				(0.2	)			2.4
Total revenues			436.0				398.5				850.4				761.1
Benefits and expenses:
Claims incurred			354.8				308.0				705.0				605.4
Operating expenses			61.4				59.3				121.4				115.5
Total operating expenses			416.2				367.3				826.4				720.9
Interest expense			3.9				4.1				7.6				8.0
Total benefits and expenses			420.1				371.4				834.0				728.9
Income before taxes			15.9				27.1				16.4				32.2
Income tax expense (benefit)			3.8				6.3				3.1				6.9
Net income		$	12.1				20.8			$	13.3				25.3

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Consolidated premiums earned, net and administrative service fees increased by $42.2 million, or 11.1%, to $423.1 million during the three months ended June 30, 2008 compared to the three months ended June 30, 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. Also, during the three months ended June 30, 2007, the managed care segment received approximately $8.1 million corresponding to the retroactive increase in premium rates of the Reform business for the period between November 1, 2006 and March 31, 2007.

Consolidated net investment income increased by $3.3 million, or 30.0%, to $14.3 million during the three months ended June 30, 2008. This increase is attributed to a higher yield in 2008 as well as to a higher balance of invested assets.

Net Realized Investment Losses

Consolidated net realized investment losses of $1.8 million during the three months ended June 30, 2008 are the result of other-than-temporary impairments related to fixed income securities. The other-than-temporary impairments were offset in part by $0.6 million of net realized gains from the sale of fixed income and equity securities.

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 decreased by $2.4 million, to $0.4 million during the three months ended June 30, 2008. The decrease 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 0.8% in the market value of the portfolio, which is slightly lower than the decrease experienced by the Standard and Poor’s 500 Index of 3.2%. 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 June 30, 2008 increased by $46.8 million, or 15.2%, to $354.8 million when compared to the claims incurred during the three months ended June 30, 2007. This increase is principally due to increased claims in the managed care segment as a result of higher enrollment and utilization trends. The consolidated loss ratio increased by 3.0 percentage points to 84.6%, primarily due to the fact that during the three months ended June 30, 2007 the managed care segment recorded the retroactive premium rate increase in the Reform business described above of approximately $8.1 million, which had the effect of reducing the consolidated loss ratio by 1.8 percentage points. Also, there were a higher utilization trends in the managed care segment for the period, particularly in the Medicare business.

Operating Expenses

Consolidated operating expenses during the three months ended June 30, 2008 increased by $2.1 million, or 3.5%, to $61.4 million as compared to the operating expenses during the three months ended June 30, 2007. This increase is primarily attributed to a higher volume of business, particularly in the Medicare business of our managed care segment. The consolidated operating expense ratio decreased by 1.1 percentage point, to 14.5% during the 2008 period mainly due to the aforementioned increase in volume.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Operating Revenues

Consolidated premiums earned, net and administrative service fees increased by $98.3 million, or 13.4%, to $831.2 million during the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The increase was primarily due to an increase in the premiums earned, net in our managed care segment, principally due to a higher volume in the Medicare business and the increases in premium rates of the Reform business during the second half of 2007.

Consolidated net investment income increased by $5.5 million, or 24.8%, to $27.7 million during the six months ended June 30, 2008. This increase is attributed to a higher yield in 2008 as well as to a higher balance of invested assets.

Net Realized Investment Losses

Consolidated net realized investment losses of $1.1 million during the six months ended June 30, 2008 are primarily the result of other-than-temporary impairments related to fixed income securities. The other-than-temporary impairments were offset in part by $1.2 million of net realized gains from the sale of fixed income and equity securities.

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 decreased by $8.4 million, to $7.4 million during the six months ended June 30, 2008. The decrease is principally due to a decrease in the unrealized gain 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 10.5% in the market value of the portfolio, which is slightly lower than the decrease experienced by the Standard and Poor’s 500 Index of 12.8%. 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 six months ended June 30, 2008 increased by $99.6 million, or 16.5%, to $705.0 million when compared to the claims incurred during the six months ended June 30, 2007. This increase is principally due to increased claims in the managed care segment as a result of higher enrollment and utilization trends. The consolidated loss ratio increased by 2.2 percentage points to 85.6%, primarily due to higher utilization trends in the managed care segment for the period, particularly in the Medicare business.

Operating Expenses

Consolidated operating expenses during the six months ended June 30, 2008 increased by $5.9 million, or 5.1%, to $121.4 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. The consolidated operating expense ratio decreased by 1.2 percentage points, to 14.6% 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 six months ended June 30, 2008 is primarily the result of the lower income before tax during the period. The consolidated income tax rate decreased by 2.5 percentage points, to 18.9% during the six months ended June 30, 2008, primarily due to a higher taxable income in 2007 from our managed care segment, which has a higher effective tax rate than other segments.

Managed Care Operating Results

		Three months ended								Six months ended
		June 30,								June 30,
(Dollar amounts in millions)		2008				2007				2008				2007
Operating revenues:
Medical premiums earned, net:
Commercial		$	179.7				180.6			$	361.7				360.8
Reform			80.9				86.6				161.9				158.4
Medicare			113.6				64.3				210.5				117.8
Medical premiums earned, net			374.2				331.5				734.1				637.0
Administrative service fees			4.8				4.6				9.3				9.0
Net investment income			6.1				4.7				11.7				9.5
Total operating revenues			385.1				340.8				755.1				655.5
Medical operating costs:
Medical claims incurred			331.2				285.8				659.0				561.3
Medical operating expenses			39.9				37.2				76.8				72.3
Total medical operating costs			371.1				323.0				735.8				633.6
Medical operating income		$	14.0				17.8			$	19.3				21.9
Additional data:
Member months enrollment:
Commercial:
Fully-insured			1,228,783				1,247,353				2,464,272				2,501,096
Self-funded			499,317				484,505				995,379				963,828
Total commercial member months			1,728,100				1,731,858				3,459,651				3,464,924
Reform			1,031,631				1,068,684				2,065,291				2,133,530
Medicare			215,828				136,214				406,357				264,844
Total member months			2,975,559				2,936,756				5,931,299				5,863,298
Medical loss ratio			88.5	%			86.2	%			89.8	%			88.1	%
Operating expense ratio			10.5	%			11.1	%			10.3	%			11.2	%