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 September 30, 2008

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 September 30, 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 September 30, 2008

Table of Contents

				PAGE
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007			3
		Consolidated Statements of Earnings for the three months and nine months ended September 30, 2008 and 2007			4
		Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the nine months ended September 30, 2008 and 2007			5
		Consolidated Statements of Cash Flows for the nine months ended September 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			22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			34
Item 4.		Controls and Procedures			34
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			35
Item 1A		Risk Factors			35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3.		Defaults Upon Senior Securities			35
Item 4.		Submission of Matters to a Vote of Security Holders			36
Item 5.		Other Information			36
Item 6.		Exhibits			36
SIGNATURES					37
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I — Financial Information

Item 1. Financial Statements

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

		(Unaudited)
		September 30,				December 31,
		2008				2007
Assets
Investments and cash:
Equity securities held for trading, at fair value		$	42,513				67,158
Securities available for sale, at fair value:
Fixed maturities			903,693				823,629
Equity securities			75,372				71,050
Securities held to maturity, at amortized cost:
Fixed maturities			24,433				43,691
Policy loans			5,408				5,481
Cash and cash equivalents			43,451				240,153
Total investments and cash			1,094,870				1,251,162
Premiums and other receivables, net			250,562				202,268
Deferred policy acquisition costs and value of business acquired			125,322				117,239
Property and equipment, net			50,101				43,415
Net deferred tax asset			12,945				6,783
Other assets			35,565				38,675
Total assets		$	1,569,365				1,659,542
Liabilities and Stockholders’ Equity
Claim liabilities:
Claims processed and incomplete		$	191,905				186,065
Unreported losses			141,995				149,996
Unpaid loss-adjustment expenses			18,656				17,769
Total claim liabilities			352,556				353,830
Liability for future policy benefits			204,205				194,131
Unearned premiums			100,684				132,599
Policyholder deposits			48,729				45,959
Liability to Federal Employees’ Health Benefits Program (FEHBP)			15,095				21,338
Accounts payable and accrued liabilities			132,356				228,980
Short-term borrowings			31,795				—
Long-term borrowings			169,717				170,946
Liability for pension benefits			30,094				29,221
Total liabilities			1,085,231				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			191,327				188,935
Retained earnings			290,132				267,336
Accumulated other comprehensive loss			(29,654	)			(6,042	)
Total stockholders’ equity			484,134				482,538
Total liabilities and stockholders’ equity		$	1,569,365				1,659,542

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the three months and nine months ended September 30, 2008 and 2007

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenues:
Premiums earned, net		$	433,219				375,803			$	1,256,775				1,101,614
Administrative service fees			4,448				3,908				12,081				11,034
Net investment income			14,072				11,229				41,806				33,397
Total operating revenues			451,739				390,940				1,310,662				1,146,045
Net realized investment (loss) gains			(1,101	)			1,183				(2,233	)			6,163
Net unrealized investment (loss) gain on trading securities			(3,605	)			588				(10,806	)			(764	)
Other income (expense), net			(1,147	)			(525	)			(1,308	)			1,842
Total revenues			445,886				392,186				1,296,315				1,153,286
Benefits and expenses:
Claims incurred			365,585				310,033				1,070,572				915,374
Operating expenses			63,572				57,944				185,002				173,439
Total operating costs			429,157				367,977				1,255,574				1,088,813
Interest expense			3,749				3,938				11,348				11,948
Total benefits and expenses			432,906				371,915				1,266,922				1,100,761
Income before taxes			12,980				20,271				29,393				52,525
Income tax expense (benefit):
Current			4,580				4,575				8,687				11,573
Deferred			(1,071	)			206				(2,104	)			152
Total income taxes			3,509				4,781				6,583				11,725
Net income		$	9,471				15,490			$	22,810				40,800
Basic net income per share		$	0.29				0.58			$	0.71				1.53
Diluted net income per share		$	0.29				0.58			$	0.71				1.53

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the nine months

ended September 30, 2008 and 2007

		2008				2007
Balance at January 1		$	482,538				342,599
Dividends			—				(2,448	)
Share-based compensation			2,392				—
Grant of restricted Class B common stock			20				—
Other			(14	)			1
Comprehensive income (loss):
Net income			22,810				40,800
Net unrealized change in fair value of available for sale securities			(24,210	)			1,137
Defined benefit pension plan:
Actuarial loss, net			874				935
Prior service (cost) credit, net			(220	)			27
Net change in fair value of cash flow hedges			(56	)			(185	)
Total comprehensive income (loss)			(802	)			42,714
Balance at September 30		$	484,134				382,865

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARES

For the nine months ended September 30, 2008 and 2007

		Nine months ended
		September 30,
		2008				2007
Cash flows from operating activities:
Net income		$	22,810				40,800
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			5,419				5,413
Net amortization of investments			739				556
Provision for doubtful receivables			(2,243	)			1,902
Deferred tax (benefit) expense			(2,104	)			152
Net loss (gain) on sale of securities			2,233				(6,163	)
Net unrealized loss on trading securities			10,806				764
Share-based compensation			2,392				—
Proceeds from trading securities sold:
Equity securities			23,480				38,309
Acquisition of securities in trading portfolio:
Equity securities			(9,367	)			(19,172	)
Loss on sale of property and equipment			11				2
(Increase) decrease in assets:
Premiums receivable			(50,744	)			(21,258	)
Agents balances			2,787				2,084
Accrued interest receivable			(2,484	)			(1,314	)
Other receivables			(4,508	)			(4,289	)
Reinsurance recoverable on paid losses			8,924				(16,409	)
Deferred policy acquisition costs and value of business acquired			(8,083	)			(2,935	)
Prepaid income tax			(6,901	)			(2,598	)
Other assets			9,918				2,942
Increase (decrease) in liabilities:
Claims processed and incomplete			5,840				21,703
Unreported losses			(8,001	)			11,666
Unpaid loss-adjustment expenses			887				508
Liability for future policy benefits			10,074				10,088
Unearned premiums			(31,915	)			(14,744	)
Policyholder deposits			1,407				1,192
Liability to FEHBP			(6,243	)			6,074
Accounts payable and accrued liabilities			4,972				5,459
Income tax payable			—				(9,242	)
Net cash (used in) provided by operating activities		$	(19,894	)			51,490

(Continued)

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

		Nine months ended
		September 30,
		2008				2007
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		$	162,802				101,828
Fixed maturities matured			65,088				25,733
Equity securities			4,449				1,000
Securities held to maturity:
Fixed maturities matured			20,107				7,172
Acquisition of investments:
Securities available for sale:
Fixed maturities			(449,515	)			(147,357	)
Equity securities			(17,069	)			(16,759	)
Fixed maturity securities held to maturity			(554	)			(4,891	)
Net proceeds (disbursements) for policy loans			73				(297	)
Net capital expenditures			(12,116	)			(6,329	)
Net cash used in investing activities			(226,735	)			(39,900	)
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances			17,992				17,477
Repayments of short-term borrowings			(864,419	)			(43,559	)
Proceeds from short-term borrowings			896,214				43,559
Repayments of long-term borrowings			(1,229	)			(11,730	)
Dividends paid			—				(2,448	)
Proceeds from policyholder deposits			7,156				5,133
Surrenders of policyholder deposits			(5,793	)			(5,614	)
Other			6				1
Net cash provided by financing activities			49,927				2,819
Net (decrease) increase in cash and cash equivalents			(196,702	)			14,409
Cash and cash equivalents at beginning of the period			240,153				81,564
Cash and cash equivalents at end of the period		$	43,451				95,973

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

September 30, 2008

(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 nine months ended September 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 nine months ended September 30, 2008 included in this Quarterly Report on Form 10-Q for disclosure related to 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

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

requirements about the risk-management activities of the insurance enterprise that are effective for the first quarter beginning after the Statement was issued (May 23, 2008). Except for those disclosures, early application is prohibited. This standard has no impact on our consolidated financial statements.

There were no other new accounting pronouncements issued during the first nine 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 nine months ended September 30, 2008 and 2007:

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Operating revenues:
Managed Care:
Premiums earned, net		$	387,052				330,366			$	1,119,602				965,909
Administrative service fees			4,449				3,908				12,082				11,034
Intersegment premiums /service fees			1,587				1,309				4,897				4,717
Net investment income			5,879				4,848				17,556				14,338
Total managed care			398,967				340,431				1,154,137				995,998
Life Insurance:
Premiums earned, net			23,407				21,974				68,319				66,837
Intersegment premiums			91				92				276				264
Net investment income			4,156				3,695				12,147				11,054
Total life insurance			27,654				25,761				80,742				78,155
Property and Casualty Insurance:
Premiums earned, net			22,761				23,463				68,855				68,868
Intersegment premiums			152				154				458				462
Net investment income			2,910				2,566				8,933				7,645
Total property and casualty insurance			25,823				26,183				78,246				76,975
Other segments — intersegment service revenues *			11,705				10,683				33,978				32,325
Total business segments			464,149				403,058				1,347,103				1,183,453
TSM operating revenues from external sources			1,125				120				3,168				360
Elimination of intersegment premiums			(1,830	)			(1,555	)			(5,631	)			(5,443	)
Elimination of intersegment service fees			(11,705	)			(10,683	)			(33,978	)			(32,325	)
Consolidated operating revenues		$	451,739				390,940			$	1,310,662				1,146,045

*		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
September 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Operating income:
Managed care		$	15,114				17,499			$	34,416				39,396
Life insurance			2,906				2,605				8,611				8,260
Property and casualty insurance			2,884				1,508				7,252				6,494
Other segments *			31				509				319				787
Total business segments			20,935				22,121				50,598				54,937
TSM operating revenues from external sources			1,125				120				3,168				360
TSM unallocated operating expenses			(1,996	)			(2,006	)			(6,152	)			(6,279	)
Elimination of TSM intersegment charges			2,518				2,728				7,474				8,214
Consolidated operating income			22,582				22,963				55,088				57,232
Consolidated net realized investment (loss) gains			(1,101	)			1,183				(2,233	)			6,163
Consolidated net unrealized gain (loss) on trading securities			(3,605	)			588				(10,806	)			(764	)
Consolidated interest expense			(3,749	)			(3,938	)			(11,348	)			(11,948	)
Consolidated other income (expense), net			(1,147	)			(525	)			(1,308	)			1,842
Consolidated income before taxes		$	12,980				20,271			$	29,393				52,525
Depreciation expense:
Managed care		$	1,093				1,167			$	3,085				2,925
Life insurance			172				193				521				532
Property and casualty insurance			366				377				1,105				1,114
Total business segments			1,631				1,737				4,711				4,571
TSM depreciation expense			216				281				708				842
Consolidated depreciation expense		$	1,847				2,018			$	5,419				5,413

*		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
September 30, 2008
(Dollar amounts in thousands, except per share data)
(Unaudited)

		September 30,				December 31,
		2008				2007
Assets:
Managed care		$	694,321				762,422
Life insurance			445,439				430,807
Property and casualty insurance			334,799				375,415
Other segments *			11,452				11,255
Total business segments			1,486,011				1,579,899
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments			80,495				82,980
Property and equipment, net			21,862				22,523
Other assets			3,118				2,280
			105,475				107,783
Elimination entries-intersegment receivables and others			(22,121	)			(28,140	)
Consolidated total assets		$	1,569,365				1,659,542
Significant noncash items:
Net change in unrealized gain on securities available for sale:
Managed care		$	(7,287	)			2,928
Life insurance			(9,135	)			3,253
Property and casualty insurance			(6,093	)			3,085
Total business segments			(22,515	)			9,266
Amount related to TSM			(1,695	)			283
Consolidated net change in unrealized gain on securities available for sale		$	(24,210	)			9,549
Net change in liability for pension benefits:
Managed care		$	439				2,838
Life			6				35
Property and casualty			53				275
Other segments*			141				844
Total business segments			639				3,992
Amount related to TSM			15				98
Consolidated net change in liability for pension benefits		$	654				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
September 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 September 30, 2008 and December 31, 2007, were as follows:

September 30, 2008
						Gross				Gross
						unrealized				unrealized				Estimated fair
		Amortized cost				gains				losses				value
Trading securities:
Equity securities		$	40,918				6,665				(5,070	)			42,513
Securities available for sale:
Fixed maturities			916,697				6,541				(19,545	)			903,693
Equity securities			79,621				3,826				(8,075	)			75,372
			996,318				10,367				(27,620	)			979,065
Securities held to maturity:
Fixed maturities			24,433				246				(93	)			24,586
		$	1,061,669				17,278				(32,783	)			1,046,164
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 September 30, 2008 are mostly comprised of U.S. Treasury securities, obligations of government sponsored enterprises and obligations of U.S. government instrumentalities (54.6%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (11.9%), obligations of the government of Puerto Rico and its instrumentalities (11.8%) and obligations of U.S. states and municipalities and its instrumentalities (2.2%). The remaining 19.5% of the investment portfolio is mostly 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-

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

maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The impairment is charged to operations and a new cost basis for the security is established. During the nine months ended September 30, 2008 and 2007, the Corporation recognized other-than-temporary impairments amounting to $3,940 and $356.

(5) Premiums and Other Receivables

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

		September 30,				December 31,
		2008				2007
Premiums		$	96,844				54,330
Self-funded group receivables			40,527				31,344
FEHBP			9,249				10,202
Agents balances			30,087				32,874
Accrued interest			10,847				8,363
Reinsurance recoverable			49,833				58,757
Other			26,857				22,323
			264,244				218,193
Less allowance for doubtful receivables:
Premiums			10,057				11,753
Other			3,625				4,172
			13,682				15,925
Total premiums and other receivables		$	250,562				202,268

(6) Claim Liabilities

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Claim liabilities at beginning of period		$	359,495				344,816			$	353,830				314,682
Reinsurance recoverable on claim liabilities			(39,604	)			(50,003	)			(54,834	)			(32,066	)
Net claim liabilities at beginning of period			319,891				294,813				298,996				282,616
Incurred claims and loss-adjustment expenses:
Current period insured events			360,013				311,925				1,068,339				931,605
Prior period insured events			2,592				(4,815	)			(6,311	)			(25,753	)
Total			362,605				307,110				1,062,028				905,852
Payments of losses and loss-adjustment expenses:
Current period insured events			348,382				288,469				828,827				711,175
Prior period insured events			20,095				14,776				218,178				178,615
Total			368,477				303,245				1,047,005				889,790
Net claim liabilities at end of period			314,019				298,678				314,019				298,678
Reinsurance recoverable on claim liabilities			38,537				49,881				38,537				49,881
Claim liabilities at end of period		$	352,556				348,559			$	352,556				348,559

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

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 September 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 nine months ended September 30, 2008 and the three months and nine months ended September 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, which amount to $2,980 and $2,923 during the three months ended September 30, 2008 and 2007, respectively and to $8,544 and $9,522 during the nine months ended September 30, 2008 and 2007, respectively.

(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 September 30, 2008 for assets measured at fair value on a recurring basis:

		Level 1				Level 2				Level 3				Total
Equity securities held for trading		$	42,513				—				—				42,513
Securities available for sale:
Fixed maturity securities			—				902,126				1,567				903,693
Equity securities			41,240				34,132				—				75,372
Derivatives (reported within other assets in the consolidated balance sheets)			—				2,419				—				2,419
Total		$	83,753				938,677				1,567				1,023,997

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

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30, 2008 is as follows:

		Fixed
		Maturity
		Securities
		Available
		for Sale
Beginning balance		$	—
Total gains or losses:
Realized in earnings			—
Unrealized in other accumulated comprehensive income			—
Purchases and sales			—
Transfers in and/or out of Level 3			1,567
Ending balance		$	1,567

During the three months and nine months ended September 30, 2008, certain debt securities were thinly traded due to issuer liquidity concerns. Consequently, broker quotes or other observable inputs were not always available and the fair value of these securities was estimated using internal estimates for inputs including, but not limited to, credit spreads, default rates and benchmark yields. An other-than-temporary impairment was recorded on these securities during the three months ended June 30, 2008.

For the three months and nine months ended September 30, 2008, there were no gains or losses included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.

(8) Share-Based Compensation

Share-based compensation expense recorded during the three months and nine months ended September 30, 2008 was $862 and $2,392, respectively. No share-based compensation expense was recorded during the three months and nine months ended September 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 September 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 nine months ended September 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			(24,210	)			654				(56	)			(23,612	)
Balance at September 30		$	(14,656	)			(14,998	)			—				(29,654	)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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 nine months ended September 30, 2008 and 2007 were as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Components of net periodic benefit cost:
Service cost		$	1,385				1,254			$	4,210				4,194
Interest cost			1,429				1,195				4,345				3,916
Expected return on assets			(1,317	)			(1,034	)			(4,003	)			(3,395	)
Prior service cost (credit)			(118	)			14				(358	)			44
Actuarial loss			468				501				1,423				1,526
Net periodic benefit cost		$	1,847				1,930			$	5,617				6,285

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 September 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
September 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 nine months ended September 30, 2008 and 2007:

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Numerator for earnings per share:
Net income available to stockholders		$	9,471				15,490			$	22,810				40,800
Denominator for basic earnings per share:
Weighted average of common shares			32,142,809				26,772,000				32,142,809				26,741,333
Effect of dilutive securities			50,998				—				42,396				—
Denominator for diluted earnings per share			32,193,807				26,772,000				32,185,205				26,741,333
Basic net income per share		$	0.29				0.58			$	0.71				1.53
Diluted net income per share		$	0.29				0.58			$	0.71				1.53

(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
September 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.

On August 18, 2008, the Court held a status conference to discuss the status of the case and the results of the meeting among the attorneys the Court had previously ordered. The purpose of the court-ordered meeting was to develop a work plan to bring the case to an expedient and economic resolution. On the August 18 hearing, the attorneys informed the Court that they had reached an agreement to try to simplify the case. Based on the agreement, the Triple-S defendants would send a letter to the plaintiffs’ counsel explaining the reasons why they should dismiss the majority of the allegations of the SAC, based on the terms and conditions of the agreement reached to in the Thomas Litigation. The Court agreed with this proposal, and granted all the defendants until September 19, 2008 to send such letter expressing all the arguments that justify the dismissal of the SAC. The Triple-S defendants complied and sent their letter, and so did the Officer defendants. The plaintiffs had until October 20, 2008 to react to the letters. The plaintiffs’ lawyers have moved the Court for additional time to analyze the letters. Meanwhile, the defendants do not have to answer the complaint.

Thomas Litigation

On May 22, 2003, a putative class action suit was filed by Kenneth A. Thomas, M.D. and Michael Kutell, M.D., on behalf of themselves and all others similarly situated and the Connecticut State Medical Society against the Blue Cross Blue Shield Association (BCBSA) and substantially all of the other Blue Cross and Blue Shield plans in the United States, including TSI.

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

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 right 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. However, certain physicians who were unable to either prevent the final approval of the settlement or modify the terms of the agreement, appealed before the Court of Appeals for the Eleventh Circuit. The appeals were lodged from late July to early August, 2008. 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. An argumentative hearing will be held during November 2008 in which the court will listen to both sides before resolving the motion to dismiss.

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.

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

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. 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 four years ago. The Court granted TSI’s motion Requesting Change of Venue thereby transferring the case to San Juan and discovery will soon begin.

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 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 certiorari petition to the Puerto Rico Supreme Court.

On August 15, 2008, the Court of Appeals denied TSI’s motion for reconsideration and the denial was notified on August 28, 2008. On September 29, 2008, TSI timely filed a certiorari petition with the Puerto Rico Supreme Court and as of the date hereof, the Puerto Rico Rico Supreme Court has not issued any response to TSI’s certiorari petition.

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

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

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 nine months ended September 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 nine months ended September 30, 2008, our managed care segment represented approximately 89.3% of our total consolidated premiums earned, net and approximately 62.4% 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% each, of our consolidated premiums earned, net for the nine months ended September 30, 2008 and 15.8% and 13.3%, 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 expired on June 30, 2008, except the contract for the Metro-North region. In August 2008, TSI completed the renegotiation of its two existing contracts for an additional twenty-month period beginning July 1, 2008. Premium rate increases under both contracts average 10%.

Effective November 1, 2008 TSI will commence as the carrier of the Metro-North region for a one year period. The contract for the Metro-North region is under an Administrative Services Only (ASO) agreement. 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.

Legislative and Regulatory Initiatives

On August 8, 2008, the Governor of the Commonwealth of Puerto Rico signed into law Act No. 203, which grants health service providers the right, within certain parameters, to jointly negotiate their fees and other terms and conditions of their services, with insurance companies and third party administrators. The Office of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of Insurance) is responsible for supervising these negotiations. The law also creates a Medical Plan and Insurance Tariff Review Board, with the authority to regulate, supervise and approve premiums charged by providers, health service organizations and medical plans. On October 22, 2008, the Commissioner of Insurance issued, for public comment, draft regulations implementing Act No. 203. While this new law could adversely affect us, at this time we cannot predict either an expected implementation date or the extent of its impact.

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 September 30,
		2008				2007
Managed care enrollment:
Commercial 1			588,073				576,600
Reform			340,710				352,722
Medicare			73,893				48,291
Total			1,002,676				977,613
Managed care enrollment by funding arrangement:
Fully-insured			826,127				816,068
Self-insured			176,549				161,545
Total			1,002,676				977,613

(1)		Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, U.S. Federal government employees and local government employees.

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								Nine months ended
		September 30,								September 30,
(Dollar amounts in millions)		2008				2007				2008				2007
Revenues:
Premiums earned, net		$	433.2				375.8			$	1,256.8				1,101.6
Administrative service fees			4.5				3.9				12.1				11.0
Net investment income			14.1				11.2				41.8				33.4
Total operating revenues			451.8				390.9				1,310.7				1,146.0
Net realized investment (loss) gains			(1.1	)			1.2				(2.2	)			6.2
Net unrealized investment (loss) gain on trading securities			(3.6	)			0.6				(10.8	)			(0.8	)
Other income (expense), net			(1.1	)			(0.5	)			(1.3	)			1.8
Total revenues			446.0				392.2				1,296.4				1,153.2
Benefits and expenses:
Claims incurred			365.6				310.0				1,070.6				915.4
Operating expenses			63.6				58.0				185.0				173.4
Total operating expenses			429.2				368.0				1,255.6				1,088.8
Interest expense			3.8				3.9				11.4				11.9
Total benefits and expenses			433.0				371.9				1,267.0				1,100.7
Income before taxes			13.0				20.3				29.4				52.5
Income tax expense			3.5				4.8				6.6				11.7
Net income		$	9.5				15.5			$	22.8				40.8

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

Operating Revenues

Consolidated premiums earned, net and administrative service fees increased by $58.0 million, or 15.3%, to $437.7 million during the three months ended September 30, 2008 compared to the three months ended September

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.

Consolidated net investment income increased by $2.9 million, or 25.9%, to $14.1 million during the three months ended September 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 three months ended September 30, 2008 are the result of other-than-temporary impairments related to fixed income securities amounting to $1.6 million. The other-than-temporary impairments were offset in part by $0.5 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 increased by $4.8 million, to $4.7 million during the three months ended September 30, 2008. The increase is principally due to an increase in the unrealized loss on trading securities and a decrease in the fair value of the derivative component of our investment in structured notes linked to the Euro Stoxx 50 and Nikkei 225 stock indexes amounting to $1.5 million; both decreases are due to market fluctuations. The unrealized loss experienced on trading securities represents a decrease of 7.6% in the market value of the portfolio, which is lower than the decrease experienced by the Standard and Poor’s 500 Index of 8.9%. 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 September 30, 2008 increased by $55.6 million, or 17.9%, to $365.6 million when compared to the claims incurred during the three months ended September 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 1.9 percentage points to 84.4%, primarily due to the fact there were 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 September 30, 2008 increased by $5.6 million, or 9.7%, to $63.6 million as compared to the operating expenses during the three months ended September 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 0.8 percentage point, to 14.5% during the 2008 period mainly due to the aforementioned increase in volume.

Income Tax Expense

The decrease in income tax expense during the three months ended September 30, 2008 is primarily the result of the lower taxable income during the period. The consolidated effective income tax rate increased by 3.3 percentage points, to 26.9%, during the three months ended September 30, 2008, primarily due to a reduction in the effective tax rate used by our managed care segment in the 2007 period.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Operating Revenues

Consolidated premiums earned, net and administrative service fees increased by $156.3 million, or 13.9%, to $1,268.9 million during the nine months ended September 30, 2008 compared to the nine months ended September 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.

Consolidated net investment income increased by $8.4 million, or 25.1%, to $41.8 million during the nine months ended September 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 $2.2 million during the nine months ended September 30, 2008 are primarily the result of other-than-temporary impairments related to fixed income securities amounting to $3.9 million. The other-than-temporary impairments were offset in part by $1.7 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 increased by $13.1 million, to $12.1 million during the nine months ended September 30, 2008. The increase 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 amounting to $3.9 million; both decreases are due to market fluctuations. The unrealized loss experienced on trading securities represents a decrease of 18.8% in the market value of the portfolio, which is lower than the decrease experienced by the Standard and Poor’s 500 Index of 20.6%. 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 nine months ended September 30, 2008 increased by $155.2 million, or 17.0%, to $1,070.6 million when compared to the claims incurred during the nine months ended September 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 2.1 percentage points to 85.2%, 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 nine months ended September 30, 2008 increased by $11.6 million, or 6.7%, to $185.0 million as compared to the operating expenses during the 2007 period. This increase is primarily attributed to a higher volume of business, particularly in the Medicare business of our managed care segment. The consolidated operating expense ratio decreased by 1.0 percentage points, to 14.6% during the 2008 period mainly due to the aforementioned increase in volume.

Income Tax Expense

The decrease in income tax expense during the nine months ended September 30, 2008 is primarily the result of the lower income before tax during the period. The consolidated income tax rate during the nine months ended September 31, 2008 remained consistent with the effective tax rate for the 2007 period.

Managed Care Operating Results

		Three months ended								Nine months ended
		September 30,								September 30,
(Dollar amounts in millions)		2008				2007				2008				2007
Operating revenues:
Medical premiums earned, net:
Commercial		$	184.4				177.8			$	546.1				538.7
Reform			90.4				85.4				252.3				243.8
Medicare			113.1				67.9				323.6				185.7
Medical premiums earned, net			387.9				331.1				1,122.0				968.2
Administrative service fees			5.2				4.5				14.5				13.5
Net investment income			5.9				4.8				17.6				14.3
Total operating revenues			399.0				340.4				1,154.1				996.0
Medical operating costs:
Medical claims incurred			343.8				287.6				1,002.8				848.9
Medical operating expenses			40.1				35.3				116.9				107.7
Total medical operating costs			383.9				322.9				1,119.7				956.6
Medical operating income		$	15.1				17.5			$	34.4				39.4
Additional data:
Member months enrollment:
Commercial:
Fully-insured			1,234,011				1,242,254				3,698,285				3,743,350
Self-funded			527,145				483,459				1,522,524				1,447,287
Total commercial member months			1,761,156				1,725,713				5,220,809				5,190,637
Reform			1,024,093				1,066,016				3,089,384				3,199,546
Medicare			221,412				142,831				627,769				407,675
Total member months			3,006,661				2,934,560				8,937,962				8,797,858
Medical loss ratio			88.6	%			86.9	%			89.4	%			87.7	%
Operating expense ratio			10.2	%			10.5	%			10.3	%			11.0	%