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, 2006

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

For the transition period from                      to                     

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

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 March 31, 2006
Common Stock, $40.00 par value		8,911

 

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2006

Table of Contents

				PAGE
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005		3
		Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005		4
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three months ended March 31, 2006 and 2005		5
		Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005		6
		Notes to Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.		Controls and Procedures		38
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings		38
Item 1A		Risk Factors		42
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3.		Defaults Upon Senior Securities		42
Item 4.		Submission of Matters to a Vote of Security Holders		42
Item 5.		Other Information		43
Item 6.		Exhibits		43
SIGNATURES				44
EX-10.1 PURCHASE AGREEMENT DATED 1-23-06
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

Part I – Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

		(Unaudited)
		March 31,				December 31,
		2006				2005
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Equity securities		$	81,550				78,215
Securities available for sale, at fair value:
Fixed maturities			715,337				515,174
Equity securities			53,331				51,810
Securities held to maturity, at amortized cost:
Fixed maturities			21,083				21,129
Policy loans			4,888				—
Cash and cash equivalents			48,909				48,978
Total investments and cash			925,098				715,306
Premiums and other receivables, net			154,711				244,038
Deferred policy acquisition costs and value of business acquired			104,239				81,568
Property and equipment, net			38,544				34,709
Net deferred tax asset			498				2,151
Other assets			57,073				59,690
Total assets		$	1,280,163				1,137,462
LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete		$	147,069				139,694
Unreported losses			163,868				143,224
Unpaid loss-adjustment expenses			15,402				14,645
Total claim liabilities			326,339				297,563
Future policy benefits			168,457				—
Future policy benefits reserve related to funds withheld reinsurance			—				118,635
Unearned premiums			98,588				95,703
Policyholder deposits			54,384				41,738
Liability to Federal Employees Health Benefits Program			8,097				4,356
Accounts payable and accrued liabilities			119,547				106,468
Short-term borrowings			—				1,740
Long-term borrowings			185,317				150,590
Additional minimum pension liability			14,133				11,966
Total liabilities			974,862				828,759
Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,911 at March 31, 2006 and 8,904 at December 31, 2005			356				356
Additional paid-in capital			150,408				150,408
Retained earnings			166,114				162,964
Accumulated other comprehensive loss			(11,577	)			(5,025	)
Total stockholders’ equity			305,301				308,703
Total liabilities and stockholders’ equity		$	1,280,163				1,137,462

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the three months ended March 31, 2006 and 2005

		Three months ended
		March 31,
		2006				2005
REVENUE:
Premiums earned, net		$	382,104				333,389
Amounts attributable to self-funded arrangements			50,806				51,915
Less amounts attributable to claims under self-funded arrangements			(47,377	)			(48,540	)
			385,533				336,764
Net investment income			10,050				7,064
Net realized investment gains			528				3,314
Net unrealized investment gain (loss) on trading securities			2,556				(5,793	)
Other income, net			1,199				632
Total revenue			399,866				341,981
BENEFITS AND EXPENSES:
Claims incurred			326,684				302,923
Operating expenses, net of reimbursement for services			57,730				43,766
Interest expense			3,394				1,788
Total benefits and expenses			387,808				348,477
Income (loss) before taxes			12,058				(6,496	)
INCOME TAX EXPENSE (BENEFIT):
Current			2,636				1,221
Deferred			41				(2,510	)
Total income taxes			2,677				(1,289	)
Net income (loss)		$	9,381				(5,207	)
Basic net income (loss) per share		$	1,053				(585	)

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the three months

ended March 31, 2006 and 2005

		2006				2005
BALANCE AT JANUARY 1		$	308,703				301,433
Dividends			(6,231	)			—
Comprehensive income (loss):
Net income (loss)			9,381				(5,207	)
Net unrealized change in investment securities			(6,644	)			(12,488	)
Net change in fair value of cash flow hedges			92				337
Total comprehensive income (loss)			2,829				(17,358	)
BALANCE AT MARCH 31		$	305,301				284,075

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the three months ended March 31, 2006 and 2005

		Three months ended
		March 31,
		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected		$	366,287				323,459
Cash paid to suppliers and employees			(65,552	)			(44,943	)
Claims, losses and benefits paid			(305,380	)			(276,277	)
Interest received			10,462				6,359
Proceeds from trading securities sold or matured:
Fixed maturities sold			—				31,946
Equity securities			5,866				5,027
Acquisitions of investments in trading portfolio:
Fixed maturities			—				(14,463	)
Equity securities			(5,762	)			(5,116	)
Interest paid			(3,161	)			(1,509	)
Expense reimbursement from Medicare			1,155				3,003
Net cash provided by operating activities			3,915				27,486
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold			4,838				5,038
Fixed maturities matured			14,569				206
Equity securities			360				2,677
Securities held to maturity:
Fixed maturities matured			122				290
Acquisitions of investments:
Securities available for sale:
Fixed maturities			(21,844	)			(17,919	)
Equity securities			—				(2,821	)
Securities held to maturity:
Fixed maturities			—				(993	)
Acquisition of business, net of $10,403 of cash acquired			(27,793	)			—
Net disbursements for policy loans			(109	)			—
Capital expenditures			(3,780	)			(1,338	)
Proceeds from sale of property and equipment			3				2
Net cash used in investing activities			(33,634	)			(14,858	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances			2,569				8,700
Payments of short-term borrowings			(8,652	)			(17,125	)
Proceeds from short-term borrowings			6,912				17,125
Payments of long-term borrowings			(273	)			(273	)
Proceeds from long-term borrowings			35,000				—
Dividends			(6,231	)			—
Proceeds from policyholder deposits			2,255				3,164
Surrenders of policyholder deposits			(1,930	)			(1,166	)
Net cash provided by financing activities			29,650				10,425
Net (decrease) increase in cash and cash equivalents			(69	)			23,053
Cash and cash equivalents at beginning of the period			48,978				35,115
Cash and cash equivalents at end of the period		$	48,909				58,168

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2006

(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 (TSM) and its subsidiaries (the Corporation) are unaudited, except for the balance sheet information as of December 31, 2005, 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 accounting principles generally accepted in the United States of America 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, 2005.

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, 2006 are not necessarily indicative of the results for the full year.

The Corporation has several significant accounting policies that are disclosed in note 2 of the notes to the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005. These significant accounting policies have not changed from those previously disclosed, except for the addition of the following significant accounting policies related to the liability for future policy benefits and the value of business acquired resulting from the acquisition of Great American Life Assurance Company of Puerto Rico (GA Life):

Future Policy Benefits

The liability for future policy benefits has been computed using the level premium method based on estimated future investment yield, mortality, and withdrawal experience. The interest rate assumption is 5.0% for all years in issue. Mortality has been calculated principally on select and ultimate tables in common usage in the industry. Withdrawals have been determined principally on industry tables, modified by the Corporation’s experience.

Value of Business Acquired

The value assigned to the insurance in-force at the date of the acquisition is amortized using methods similar to those used to amortize the deferred policy acquisition costs as disclosed in the Corporation’s Annual Report on Form 10-K as of December 31, 2005.

(2) Recent Accounting Standards

SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140, was issued in February 2006. This statement amends SFAS No. 133, Accounting for Derivatives and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and allows an entity to remeasure at fair value a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation from the host, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. This statement also clarifies

certain issues included in the amended SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired and issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 is not expected to have an impact on the Corporation’s financial statements.

SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140, was issued in March 2006. This statement amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 is not expected to have an impact on the Corporation’s financial statements.

(3) Segment Information

The operations of the Corporation are conducted principally through four business segments: Health Insurance – Commercial Program, Health Insurance – Reform Program, Property and Casualty Insurance and Life and Disability Insurance. On January 31, 2006 the Corporation completed the acquisition of 100% of the common stock of GA Life. The results of operations and financial position of GA Life are included in the Corporation’s consolidated financial statements for the period following January 31, 2006. The operations of GA Life are included in the Corporation’s Life and Disability Insurance segment along with the operations of Seguros de Vida Triple-S, Inc. (SVTS). Prior to completing the acquisition of GA Life, the operations of SVTS were the only component of the Corporation’s Life and Disability Insurance segment. The following tables summarize the operations by major operating segment for the three months ended March 31, 2006 and 2005:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Unaudited)

		Operating Segments
		Health				Health
		Insurance				Insurance				Property				Life and
		Commercial				Reform				and Casualty				Disability
		Program				Program				Insurance				Insurance				Other *				Total
THREE MONTHS ENDED MARCH 31, 2006
Premiums earned, net		$	211,107				127,496				21,898				21,603				—				382,104
Amounts attributable to self-funded arrangements			50,806				—				—				—				—				50,806
Less: Amounts attributable to claims under self-funded arrangements			(47,377	)			—				—				—				—				(47,377	)
Intersegment premiums earned/service revenues			1,398				—				129				78				13,268				14,873
			215,934				127,496				22,027				21,681				13,268				400,406
Net investment income			3,755				801				2,364				3,010				—				9,930
Realized gain (loss) on sale of securities			485				33				(32	)			42				—				528
Unrealized gain on trading securities			1,914				—				552				90				—				2,556
Other			1,063				(4	)			54				69				—				1,182
Total revenue		$	223,151				128,326				24,965				24,892				13,268				414,602
Net income		$	2,116				3,667				2,659				507				7				8,956
Claims incurred		$	190,857				113,882				10,313				11,632				—				326,684
Operating expenses		$	28,401				9,240				11,642				11,390				12,984				73,657
Depreciation expense, included in operating expenses		$	760				157				107				135				—				1,159
Interest expense		$	1,240				324				—				1,285				—				2,849
Income tax expense		$	537				1,213				351				78				277				2,456

*		Includes segments which are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Unaudited)

		Operating Segments
		Health				Health
		Insurance				Insurance				Property				Life and
		Commercial				Reform				and Casualty				Disability
		Program				Program				Insurance				Insurance				Other *				Total
THREE MONTHS ENDED MARCH 31, 2005
Premiums earned, net		$	184,300				123,140				22,096				3,853				—				333,389
Amounts attributable to self-funded arrangements			51,915				—				—				—				—				51,915
Less: Amounts attributable to claims under self-funded arrangements			(48,540	)			—				—				—				—				(48,540	)
Intersegment premiums earned/service revenues			1,076				—				—				—				13,638				14,714
			188,751				123,140				22,096				3,853				13,638				351,478
Net investment income			3,413				741				2,105				711				—				6,970
Realized gain (loss) on sale of securities			2,103				(25	)			1,176				60				—				3,314
Unrealized loss on trading securities			(4,806	)			—				(793	)			(194	)			—				(5,793	)
Other			188				(5	)			338				62				—				583
Total revenue		$	189,649				123,851				24,922				4,492				13,638				356,552
Net income (loss)		$	(6,803	)			(911	)			2,658				(414	)			69				(5,401	)
Claims incurred		$	172,829				116,088				11,373				2,633				—				302,923
Operating expenses		$	24,240				8,914				10,341				1,982				13,405				58,882
Depreciation expense, included in operating expenses		$	644				181				107				39				—				971
Interest expense		$	1,058				204				—				279				—				1,541
Income tax expense (benefit)		$	(1,675	)			(444	)			550				12				164				(1,393	)

*		Includes segments which are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Unaudited)

		Operating Segments
		Health				Health
		Insurance				Insurance				Property				Life and
		Commercial				Reform				and Casualty				Disability
		Program				Program				Insurance				Insurance				Other *				Total
AS OF MARCH 31, 2006
Segment assets		$	481,275				92,073				305,514				396,893				4,201				1,279,956
Significant noncash item:
Net change in unrealized gain on securities available for sale		$	(1,832	)			(355	)			(877	)			(3,512	)			—				(6,576	)
AS OF DECEMBER 31, 2005
Segment assets		$	459,288				82,685				307,228				271,615				4,310				1,125,126
Significant noncash item:
Net change in unrealized gain on securities available for sale		$	(12,432	)			(1,301	)			(3,090	)			(1,844	)			—				(18,667	)
Net change in minimum pension liability			(2,048	)			—				(142	)			(76	)			(453	)			(2,719	)

*		Includes segments which are not required to be reported separately. These segments include the data processing services organization as well as the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS

		Three months ended
		March 31,
		2006				2005
TOTAL REVENUE
Total revenues for reportable segments		$	401,334				342,914
Total revenues for other segments			13,268				13,638
			414,602				356,552
Elimination of intersegment premiums earned			(1,605	)			(1,076	)
Elimination of intersegment service revenues			(13,268	)			(13,638	)
Unallocated amount — revenues from external sources			137				143
			(14,736	)			(14,571	)
Consolidated total revenue		$	399,866				341,981
NET INCOME
Net income (loss) for reportable segments		$	8,949				(5,470	)
Net income for other segments			7				69
			8,956				(5,401	)
Elimination of TSM charges:
Rent expense			1,690				1,624
Interest expense			1,343				256
Management fees			680				—
			3,713				1,880
Unallocated amounts related to TSM:
General and administrative expenses			(1,316	)			(1,222	)
Income tax expense			(221	)			(104	)
Interest expense			(1,888	)			(503	)
Other revenues from external sources			137				143
			(3,288	)			(1,686	)
Consolidated net income (loss)		$	9,381				(5,207	)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Dollar amounts in thousands, except per share data)

(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS

		Three months ended March 31, 2006
		Segment								Consolidated
		Totals				Adjustments *				Totals
Claims incurred		$	326,684				—				326,684
Operating expenses			73,657				(15,927	)			57,730
Depreciation expense			1,159				283				1,442
Interest expense			2,849				545				3,394
Income tax expense			2,456				221				2,677

		Three months ended March 31, 2005
		Segment								Consolidated
		Totals				Adjustments *				Totals
Claims incurred		$	302,923				—				302,923
Operating expenses			58,882				(15,116	)			43,766
Depreciation expense			971				277				1,248
Interest expense			1,541				247				1,788
Income tax expense (benefit)			(1,393	)			104				(1,289	)

*		Adjustments represent TSM operations and the elimination of intersegment charges.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

March 31, 2006

(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS

		March 31,				December 31,
		2006				2005
ASSETS
Total assets for reportable segments		$	1,275,755				1,120,816
Total assets for other segments			4,201				4,310
			1,279,956				1,125,126
Elimination entries — intersegment receivables and others			(38,456	)			(28,705	)
Unallocated amounts related to TSM:
Parent cash, cash equivalents and investments			11,376				11,054
Parent net property and equipment			24,479				24,760
Parent other assets			2,808				5,227
			38,663				41,041
Consolidated assets		$	1,280,163				1,137,462

OTHER SIGNIFICANT ITEMS

		As of March 31, 2006
		Segment								Consolidated
		Totals				Adjustments *				Totals
Significant noncash item — net change in unrealized gain on securities available for sale		$	(6,576	)			(68	)			(6,644	)

		As of December 31, 2005
		Segment								Consolidated
		Totals				Adjustments *				Totals
Significant noncash items:
Net change in unrealized gain on securities available for sale		$	(18,667	)			(165	)			(18,832	)
Net change in minimum pension liability			(2,719	)			(69	)			(2,788	)

*		Adjustments represent principally TSM operations and the elimination of intersegment charges.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31. 2006
(Dollar amounts in thousands) (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, 2006 and December 31, 2005, were as follows:

March 31, 2006

Gross

Gross

Amortized

unrealized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Equity securities

$

70,176

13,323

(1,949

)

81,550

		March 31, 2006
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated fair
		cost				gains				losses				value
Securities available for sale:
Fixed maturities		$	732,732				536				(17,931	)			715,337
Equity securities			40,658				14,575				(1,902	)			53,331
		$	773,390				15,111				(19,833	)			768,668

March 31, 2006

Gross

Gross

Amortized

unrealized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

$

21,083

297

(971

)

20,409

December 31, 2005

Gross

Gross

Amortized

unrealized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Equity securities

$

69,397

11,378

(2,560

)

78,215

		December 31, 2005
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated fair
		cost				gains				losses				value
Securities available for sale:
Fixed maturities		$	524,287				694				(9,807	)			515,174
Equity securities			38,675				14,550				(1,415	)			51,810
		$	562,962				15,244				(11,222	)			566,984

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

December 31, 2005

Gross

Gross

Amortized

unrealized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

$

21,129

254

(623

)

20,760

Investment in securities at March 31, 2006 are mostly comprised of U.S. Treasury securities, obligations of U.S. government sponsored agencies and obligations of U.S. government instrumentalities (62.0%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (9.6%) and obligations of the government of Puerto Rico and its instrumentalities (6.0%). The remaining 22.4% of the investment portfolio is comprised of 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-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. During the three months ended March 31, 2006 the Corporation recognized an other-than-temporary impairment amounting to $388 on one of its equity securities classified as available for sale.

The unrealized losses on investments were mainly caused by interest rate increases and market fluctuations. Because the Corporation has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

(5) Premiums and Other Receivables

Premiums and other receivables as of March 31, 2006 and December 31, 2005 were as follows:

		March 31,				December 31,
		2006				2005
Premiums		$	75,834				53,391
Self-funded group receivables			22,108				21,620
FEHBP			11,747				9,491
Accrued interest			8,051				5,074
Agents balances			3,049				—
Funds withheld reinsurance receivable			—				118,635
Reinsurance recoverable			35,086				33,915
Other			12,392				14,152
			168,267				256,278
Less allowance for doubtful receivables:
Premiums			8,365				7,792
Other			5,191				4,448
			13,556				12,240
Total premiums and other receivables		$	154,711				244,038

(6) Claim Liabilities

The activity in the total claim liabilities for the three months ended March 31, 2006 and 2005 is as follows:

		Three months ended March 31,
		2006				2005
Claim liabilities at beginning of period		$	297,563				279,325
Reinsurance recoverable on claim liabilities			(28,720	)			(26,555	)
Net claim liabilities at beginning of period			268,843				252,770
Claim liabilities acquired from GA Life			8,771				—
Incurred claims and loss-adjustment expenses:
Current period insured events			316,804				297,517
Prior period insured events			4,460				5,406
Total			321,264				302,923
Payments of losses and loss-adjustment expenses:
Current period insured events			167,711				137,351
Prior period insured events			133,859				138,995
Total			301,570				276,346
Net claim liabilities at end of period			297,308				279,347
Reinsurance recoverable on claim liabilities			29,031				25,285
Claim liabilities at end of period		$	326,339				304,632

As a result of changes in 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 in the incurred claims and loss-adjustment expenses for prior period insured events for the three months ended

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

March 31, 2006 and 2005 is due to an unfavorable development of the claim liabilities attributed to higher than expected cost per service and utilization trends.

(7) Long-term Borrowings

A summary of the Corporation’s long-term borrowings at March 31, 2006 and December 31, 2005 is as follows:

		March 31,				December 31,
		2006				2005
Secured loan payable of $20,000, payable in various different installments up to August 31, 2007, with interest payable on a monthly basis at a rate reset periodically of 130 basis points over LIBOR selected (which was 5.87% and 5.71% at March 31, 2006 and December 31, 2005, respectively)		$	11,500				11,500
Senior unsecured notes payable of $50,000 due September 2019. Interest is payable semiannually at a fixed rate of 6.30%.			50,000				50,000
Senior unsecured notes payable of $60,000 due December 2020. Interest is payable monthly at a fixed rate of 6.60%.			60,000				60,000
Senior unsecured notes payable of $35,000 due January 2021. Interest is payable monthly at a fixed rate of 6.70%.			35,000				—
Secured loan payable of $41,000, payable in monthly installments of $137 up to July 1, 2024, plus interest at a rate reset periodically of 100 basis points over LIBOR selected (which was 5.63% and 5.29% at March 31, 2006 and December 31, 2005, respectively)			28,817				29,090
Total long-term borrowings		$	185,317				150,590

On January 23, 2006 the Corporation issued and sold $35.0 million of its 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes). The 6.7% notes were privately placed to various accredited institutional investors. The notes pay interest each month beginning on March 1, 2006, until such principal becomes due and payable. These notes can be prepaid after five years at par, in full or in part, as determined by the Corporation. Debt issuance costs amounting to $306 were deferred and will be amortized over the term of the notes and are reported as other assets in the accompanying consolidated balance sheets.

(8) Comprehensive Income

The accumulated balances for each classification of comprehensive income are as follows:

														Accumulated
		Unrealized				Minimum								other
		gains on				pension				Cash flow				comprehensive
		securities				liability				hedges				income
BALANCE AT JANUARY 1		$	3,217				(8,613	)			371				(5,025	)
Net current period change			(6,644	)			—				92				(6,552	)
BALANCE AT MARCH 31		$	(3,427	)			(8,613	)			463				(11,577	)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31. 2006
(Dollar amounts in thousands)
(Unaudited)

(9) Income Taxes

Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries.

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.

(10) Pension Plan

The components of net periodic benefit cost for the three months ended March 31, 2006 and 2005 were as follows:

		Three months ended
		March 31,
		2006				2005
Components of net periodic benefit cost:
Service cost		$	1,370				1,143
Interest cost			1,175				1,030
Expected return on assets			(991	)			(843	)
Amortization of prior service cost			12				12
Amortization of actuarial loss			602				490
Net periodic benefit cost		$	2,168				1,832

Employer contributions

The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2005 that it expected to contribute $6,000 to its pension program in 2006. As of March 31, 2006, no contributions have been made. The Corporation currently anticipates contributing approximately $6,000 to fund the pension program in 2006.

(11) Net Income (Loss) Available to Stockholders and Net Income (Loss) per Share

The Corporation presents only basic earnings per share, which amount consists of the net income (loss) that is available to common stockholders divided by the weighted-average number of common shares outstanding for the period.

The following table sets forth the computation of basic net income (loss) per share for the three months ended March 31, 2006 and 2005:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended
		March 31,
		2006				2005
Numerator for basic earnings per share:
Net income (loss) available to stockholders		$	9,381				(5,207	)
Denominator for basic earnings per share:
Weighted average of outstanding common shares			8,906				8,904
Basic net income (loss) per share		$	1,053				(585	)

(12) Contingencies

	(a)		As of March 31, 2006, the Corporation is a defendant in various lawsuits arising in the ordinary course of business. Management believes, based on the opinion of its legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position and results of operations of the Corporation.
	(b)		Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an administrative proceeding before the Puerto Rico Insurance Commissioner against TSI and TSM alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSI’s common stock due to the fact that the ultimate purchasers of said shares were selected on an improper and selective basis by the Corporation in violation of the Puerto Rico Insurance Code. The plaintiffs alleged that they were illegally excluded from participation in the sale of shares by TSI due to the illegally selective nature of the sale of shares and that, consequently, the sale of shares should be eliminated.
			In December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. TSI contested such order through an administrative and judicial review process. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance issued a pronouncement providing further clarification of the content and effect of the order. This order also required that all corporate decisions undertaken by TSI through the vote of its stockholders of record, be ratified in a stockholders’ meeting or in a subsequent referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such decisions. Furthermore, on November 19, 2000, TSM held a special stockholders’ meeting, where a ratification of these decisions was undertaken except for the resolution related to the approval of the reorganization of TSI and its subsidiaries. This resolution did not reach the two thirds majority required by the order because the number of shares that were present and represented at the meeting was below such amount (total shares present and represented in the stockholders’ meeting was 64%). As stipulated in the order, TSM began the process to conduct a referendum among its stockholders in order to ratify such resolution. The process was later suspended because upon further review of the scope of the order, the Commissioner of Insurance issued an opinion in a letter dated January 8, 2002 which indicated that the ratification of the corporate reorganization was not required.
			In another letter dated March 14, 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s order of December 6, 1996 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by the Commissioner of Insurance.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

			Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals issued an order requiring the Commissioner of Insurance to order that a meeting of shareholders be held to ratify TSI’s corporate reorganization and the change of name of TSI from Seguros de Servicios de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico Circuit Court of Appeals based its decision on administrative and procedural issues directed at the Commissioner of Insurance. The Commissioner of Insurance filed a motion of reconsideration with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSM and TSI also filed a motion of reconsideration.
			On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of Insurance’s Motion for Reconsideration and ordered the plaintiffs to reply to TSI’s Motion of Reconsideration.
			On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSI’s and TSM’s Motion of Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of Insurance had the authority to waive the celebration of a referendum to ratify TSI’s reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares annulled were not decisive, was approved by the stockholders.
			On June 26, 2003, the plaintiffs presented a writ of certiorari before the Supreme Court of Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The writ was issued by the Supreme Court on August 22, 2003 when it ordered the Puerto Rico Circuit Court of Appeals to transmit the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court of Puerto Rico ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court of Puerto Rico. It is the opinion of the management and its legal counsels that the corporate reorganization as approved is in full force and effect.
	(c)		On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their ownership rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s board of directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in the complaint, eight counts were dismissed for failing to assert an actionable injury; six of them for lack of standing and two for failing to plead with sufficient particularity in compliance with the Rules. All shareholder allegations, including those described above, were dismissed in the Opinion and Order. The remaining four counts were found standing, in a limited way, in the Opinion and Order. The parties finished class certification discovery and fully briefed the issue of class certification. In addition, the defendants are evaluating the dismissal of the surviving claims. While waiting for the Court’s decision on the issue of class certification, the Court sua sponte, issued an Order to Show Cause (OTC) to plaintiffs as to why the complaint should not be dismissed with prejudice. The Court’s OTC is predicated on the parties’ submissions about class certification. The Court then granted plaintiffs leave to file a sur-reply, which they did on April

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

21, 2006. In its OTC the Court indicated that it will decide first the sustainability of the complaint before deciding plaintiffs’ request for class certification. The parties are in anticipation of the Court’s ruling on the OTC. On May 4, 2006, the Court issued an Opinion and Order which entered a summary judgment in favor of the Corporation and the case was dismissed by the Court. The plaintiffs have ten (10) business days to file for reconsideration with the Court, they may also request additional findings from the Court, and/or they have thirty (30) days to appeal the judgment to the United States Court of Appeals for the First Circuit.

	(d)		On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others 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, anti-monopolistic practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the United States District Court for the District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counterclaim and filed several motions to dismiss this claim. On February 18, 2005 the plaintiffs informed their intention to amend the complaint and the Court granted them 45 days to do so and 90 days to the defendants to file the corresponding motion to dismiss. On May 9, 2005 the plaintiffs amended the complaint and the defendants are preparing the corresponding motions to dismiss this amended complaint. The plaintiffs amended the complaint to allege causes of action similar to those dismissed by the United States District Court for the District of Puerto Rico in the Sánchez case. Defendants moved to dismiss the amended complaint. Plaintiffs have notified their opposition to some of the defendants’ motion to dismiss, and the defendants filed the corresponding replies. On January 25, 2006, the court held a hearing to argue the dispositive motions. On March 16, 2006 the Court held another hearing to hear additional argument on the same motions. The Court set a final hearing for July 6, 2006.
	(e)		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 and Blue Shield Association (BCBSA) and multiple other insurance companies including TSI. The case is pending before the U.S. District Court for the Southern District of Florida, Miami District.
			The individual plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants, which they allege have resulted in a loss of their property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged 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.
			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.
			Management believes that TSI was brought to this litigation for the sole reason of being associated with the BCBSA. However, on June 18, 2004 the plaintiffs moved to amend the complaint to

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

			include the Colegio de Médicos y Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.
			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 Court issued a 90-day stay to allow the parties to discuss their differences and come to amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the stay, both plaintiffs and defendants agreed to request the Court to extend the stay until April 21, 2006. The stay expired and the parties informed the Court that they need additional time to iron out the details of an amicable solution. The Court has not reacted to the parties’ joint request. If the Court denies another stay, the parties will have to continue the proceedings where they were left before the issuance of the first stay. In the meantime, the Court issued an Agreed Order on the Preservation of Records. This order supersedes the parties’ existing record-keeping policies in regards to the documents and materials specified in the order. The purpose of the order is to avoid the disposition of documents that might be relevant for the case.
	(f)		On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD and Orlando Armstrong, MD, on behalf of themselves and all other similarly situated and the American Podiatric Medical Association, Florida Chiropractic Association, California Podiatric Medical Association, Florida Podiatric Medical Association, Texas Podiatric Medical Association, and Independent Chiropractic Physicians, against the BCBSA and multiple other insurance companies, including TSI and all members of the BCBSA. The case is still pending before the United States District Court for the Southern District of Florida, Miami District.
			The lawsuit challenges many of the same practices as the litigation described in the immediately preceding item.
			Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA.
			On June 25, 2004, plaintiffs amended the complaint but the allegations against TSI did not vary. 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 Court issued a 90-day stay to allow the parties to discuss their differences and come to an amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the stay, both plaintiffs and defendants agreed to request the Court to extend the stay until April 21, 2006. The stay expired and the parties informed the Court that they need additional time to iron out the details of an amicable solution. The Court has not reacted to the parties’ joint request. If the Court denies another stay, the parties will have to continue the proceedings where they were left before the issuance of the first stay. In the meantime, the Court issued an Agreed Order on the Preservation of Records. This order supersedes the parties’ existing record-keeping policies in regards to the documents and materials specified in the order. The purpose of the order is to avoid the disposition of documents that might be relevant for the case.

(12) Acquisition

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
March 31, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

Effective January 31, 2006, the Corporation acquired 100% of the common stock of Great American Life Assurance Company of Puerto Rico (GA Life). As a result of this acquisition, the Corporation became one of the leading providers of life insurance policies in Puerto Rico. The acquisition was accounted by the Corporation in accordance with the provisions of SFAS No. 141, Business Combinations. The results of operations and financial condition of GA Life are included in the accompanying unaudited consolidated financial statements for the period following the effective date of the acquisition. The aggregate purchase price of the acquired entity amounted to $38,196; of this amount $37,500 were paid in cash on January 31, 2006 and $696 are direct costs related to the acquisition.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The Corporation is still in the process of evaluating the net assets acquired and of obtaining third-party valuations of certain intangible assets. Consequently, the allocation of the purchase price is preliminary and subject to revision based on the outcome of the ongoing evaluation of these assets and liabilities.

Current assets		$	219,747
Property and equipment			1,500
Value of business acquired			21,973
Total assets acquired			243,220
Total liabilities assumed			205,024
Net assets acquired		$	38,196