Edgar Filing: TRIPLE-S MANAGEMENT CORP

TRIPLE-S MANAGEMENT CORPORATION

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, 2006


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

For the transition period from to

COMMISSION FILE NUMBER: 0-49762

Triple-S Management Corporation

(Exact name of registrant as specified in its charter)


Puerto Rico		66-0555678
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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 September 30, 2006

Common Stock, $40.00 par value		8,911

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended September 30, 2006

Table of Contents


	PAGE
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		3
Consolidated Statements of Earnings for the three months and nine months ended September 30, 2006 and 2005		4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months ended September 30, 2006 and 2005		5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005		6
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		45
Item 4. Controls and Procedures		46

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		46
Item 1A Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3. Defaults Upon Senior Securities		46
Item 4. Submission of Matters to a Vote of Security Holders		46
Item 5. Other Information		46
Item 6. Exhibits		46

SIGNATURES		47
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICAITON 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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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


	(Unaudited)
	September 30,			December 31,
	2006			2005

ASSETS

Investments and cash:
Securities held for trading, at fair value:
Equity securities	$	82,460			78,215
Securities available for sale, at fair value:
Fixed maturities		710,997			515,174
Equity securities		61,775			51,810
Securities held to maturity, at amortized cost:
Fixed maturities		21,522			21,129
Policy loans		5,281			—
Cash and cash equivalents		62,757			48,978

Total investments, cash and cash equivalents		944,792			715,306

Premiums and other receivables, net		187,459			244,038
Deferred policy acquisition costs and value of business acquired		107,607			81,568
Property and equipment, net		41,169			34,709
Net deferred tax asset		—			2,151
Other assets		57,979			59,690

Total assets	$	1,339,006			1,137,462

LIABILITIES AND STOCKHOLDERS’ EQUITY

Claim liabilities:
Claims processed and incomplete	$	163,379			139,694
Unreported losses		164,795			143,224
Unpaid loss-adjustment expenses		16,359			14,645

Total claim liabilities		344,533			297,563

Future policy benefits		176,652			—
Future policy benefits reserve related to funds withheld reinsurance		—			118,635
Unearned premiums		94,171			95,703
Policyholder deposits		49,175			41,738
Liability to Federal Employees Health Benefits Program		2,544			4,356
Accounts payable and accrued liabilities		134,548			106,468
Short-term borrowings		—			1,740
Long-term borrowings		183,497			150,590
Income tax payable		4,677			—
Net deferred tax liability		1,013			—
Additional minimum pension liability		10,411			11,966

Total liabilities		1,001,221			828,759

Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,911 at September 30, 2006 and 8,904 at December 31, 2005		356			356
Additional paid-in capital		150,408			150,408
Retained earnings		195,563			162,964
Accumulated other comprehensive loss		(8,542	)		(5,025	)

Total stockholders’ equity		337,785			308,703

Total liabilities and stockholders’ equity	$	1,339,006			1,137,462

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)
For the three months and nine months ended September 30, 2006 and 2005
(Dollar amounts in thousands, except per share data)

Three months ended

Nine months ended

September 30,

2006

2005

2006

2005

REVENUE:

Premiums earned, net

392,004

345,728

1,163,318

1,018,735

Net fee revenue

3,725

3,234

10,356

9,746

395,729

348,962

1,173,674

1,028,481

Net investment income

10,509

7,158

31,325

21,439

Net realized investment gains

363

1,857

1,324

6,534

Net unrealized investment gain (loss) on trading securities

3,407

905

3,718

(5,522

)

Other income, net

1,295

1,576

1,208

2,066

Total revenue

411,303

360,458

1,211,249

1,052,998

BENEFITS AND EXPENSES:

Claims incurred

319,365

299,577

980,235

900,401

Operating expenses, net of reimbursement for services

55,810

44,568

170,472

133,787

Interest expense

4,089

1,880

11,175

5,524

Total benefits and expenses

379,264

346,025

1,161,882

1,039,712

Income before taxes

32,039

14,433

49,367

13,286

INCOME TAX EXPENSE (BENEFIT):

Current

6,130

802

9,545

2,781

Deferred

1,079

1,758

992

(569

)

Total income taxes

7,209

2,560

10,537

2,212

Net income

24,830

11,873

38,830

11,074

Basic net income per share

2,786

1,333

4,359

1,244

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Unaudited)
For the nine months
ended September 30, 2006 and 2005
(Dollar amounts in thousands, except per share data)


	2006			2005

BALANCE AT JANUARY 1	$	308,703			301,433

Dividends		(6,231	)		—
Comprehensive income (loss):
Net income		38,830			11,074
Net unrealized change in investment securities		(3,487	)		(12,830	)
Net change in minimum pension liability		—			(755	)
Net change in fair value of cash flow hedges		(30	)		390

Total comprehensive income (loss)		35,313			(2,121	)

BALANCE AT SEPTEMBER 30	$	337,785			299,312

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2006 and 2005
(Dollar amounts in thousands, except per share data)


	Nine months ended
	September 30,
	2006			2005

Net income	$	38,830			11,074

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,486			4,001
Amortization of investment discounts		927			400
Accretion in value of securities		(570	)		(474	)
Increase in provision for doubtful receivables		1,588			455
Increase (decrease) in net deferred taxes		776			(339	)
Gain on sale of securities		(1,324	)		(6,534	)
Unrealized (gain) loss of trading securities		(3,718	)		5,522
Proceeds from trading securities sold:
Fixed maturities		—			102,667
Equity securities		14,137			19,692
Acquisition of securities in trading portfolio:
Fixed maturities		—			(30,502	)
Equity securities		(14,599	)		(17,749	)
Loss (gain) on sale of property and equipment		22			(1	)
(Increase) decrease in assets:
Premiums receivable		(34,552	)		(8,124	)
Accrued interest receivable		41			(676	)
Agents balances		(528	)		—
Reinsurance receivable		(3,637	)		(2,343	)
Other receivables		(2,843	)		4,185
Deferred policy acquisition costs		(4,066	)		(1,186	)
Prepaid income tax		3,353			(4,254	)
Other assets		(1,142	)		(6,881	)
Increase (decrease) in liabilities:
Claims processed and incomplete		18,971			(3,726	)
Unreported losses		17,402			18,573
Unpaid loss-adjustment expenses		1,414			(110	)
Future policy benefits		10,254			—
Unearned premiums		(3,832	)		7,986
Policyholder deposits		1,356			900
Liability to FEHBP		(1,812	)		(1,643	)
Accounts payable and accrued liabilities		3,970			(5,814	)
Income tax payable		4,677			(1,827	)


Net cash provided by operating activities	$	49,581			83,272

(Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2006 and 2005
(Dollar amounts in thousands, except per share data)


	Nine months ended
	September 30,
	2006			2005

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold	$	16,151			5,373
Fixed maturities matured		30,895			17,847
Equity securities		1,209			3,487
Securities held to maturity:
Fixed maturities matured		342			721
Acquisitions of investments:
Securities available for sale:
Fixed maturities		(54,221	)		(97,818	)
Equity securities		(11,517	)		(6,821	)
Securities held to maturity:
Fixed maturities		(500	)		(8,499	)
Acquisition of business, net of $10,403 of cash acquired		(27,793	)		—
Net disbursements for policy loans		(502	)		—
Capital expenditures		(9,468	)		(5,031	)

Net cash used in investing activities		(55,404	)		(90,741	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Change in outstanding checks in excess of bank balances		490			1,151
Payments of short-term borrowings		(119,547	)		(104,635	)
Proceeds from short-term borrowings		117,807			107,540
Payments of long-term borrowings		(2,093	)		(4,730	)
Proceeds from long-term borrowings		35,000			—
Dividends		(6,231	)		—
Proceeds from policyholder deposits		4,389			9,315
Surrenders of policyholder deposits		(10,213	)		(4,079	)

Net cash provided by financing activities		19,602			4,562

Net increase (decrease) in cash and cash equivalents		13,779			(2,907	)
Cash and cash equivalents at beginning of the period		48,978			35,115

Cash and cash equivalents at end of the period	$	62,757			32,208

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 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 U.S. generally accepted accounting principles 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 and nine months ended September 30, 2006 are not necessarily indicative of the results for the full year.

Certain amounts in the 2005 financial statements were reclassified to conform with the 2006 presentation.

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

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 108 addressing how the effects of prior-year uncorrected financial statement misstatements should be considered in current year financial statements. SAB No. 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches in evaluating whether or not a

misstatement is material. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of this SAB is not expected to have a material impact on the Corporation’s financial statements.

Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, was issued in September 2006. This statement changes financial reporting by requiring employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This statement also changes financial reporting by requiring employers to measure the funded status of a plan as of the date of its year-end statement of financial position. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity is required to recognize the funded status of a defined benefit pension plan and to provide required disclosures as of the end of the fiscal year ending after June 15, 2007. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Corporation expects to adopt the provisions of this statement in the financial statements for the year ending December 31, 2006. The application of this statement is estimated to increase the Corporation’s accumulated other comprehensive loss by approximately $14.0 million, net of tax.

SFAS No. 157, Fair Value Measurements, was issued in September 2006. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; it applies under other accounting statements that require or permit fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Except for certain exceptions, the provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied. The Corporation is currently evaluating the effect of this statement on its financial statements.

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109, was issued in June 2006. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation is effective for fiscal years beginning after December 15, 2006. The adoption of this Interpretation is not expected to have a material 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.

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.

(3) Segment Information

The operations of the Corporation are conducted principally through three business segments: Managed Care, Property and Casualty Insurance and Life and Disability Insurance. In prior periods we presented the Managed Care segment segregated in two segments: Health Insurance – Commercial and Health Insurance – Reform. Both of these segments are now aggregated under the caption of Managed Care segment in accordance with the aggregation criteria established by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The segment information included in this Quarterly Report on Form 10-Q corresponding the 2005 periods has been restated to present the Health Insurance – Commercial and Health Insurance – Reform segments under the caption Managed Care segment.

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). Effective June 30, 2006, the Corporation merged the operations of GA Life and SVTS after receiving required regulatory approvals. GA Life is the surviving entity. 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 and nine months ended September 30, 2006 and 2005:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
				Property		Life and
	Managed			and Casualty		Disability
	Care			Insurance		Insurance			Other *		Total

THREE MONTHS ENDED SEPTEMBER 30, 2006
Premiums earned, net	$	346,667			21,827		23,510			—		392,004
Net fee revenue		3,725			—		—			—		3,725
Intersegment premiums earned/service revenues		1,336			154		78			12,855		14,423

		351,728			21,981		23,588			12,855		410,152
Net investment income		4,770			2,340		3,285			—		10,395
Realized gain on sale of securities		(466	)		828		1			—		363
Unrealized loss on trading securities		2,537			759		111			—		3,407
Other income, net		1,003			66		208			—		1,277

Total revenue	$	359,572			25,974		27,193			12,855		425,594

Net income	$	17,780			4,672		1,499			326		24,277

Claims incurred	$	295,604			10,554		13,207			—		319,365

Operating expenses	$	38,517			10,011		10,981			12,350		71,859

Depreciation expense, included in operating expenses	$	977			101		195			—		1,273

Interest expense	$	1,755			—		1,656			—		3,411

Income tax expense (benefit)	$	5,916			737		(150	)		179		6,682


*		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 managed care services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
			Property		Life and
	Managed		and Casualty		Disability
	Care		Insurance		Insurance			Other *		Total

THREE MONTHS ENDED SEPTEMBER 30, 2005
Premiums earned, net	$	320,052		21,762		3,914			—		345,728
Net fee revenue		3,234		—		—			—		3,234
Intersegment premiums earned/service revenues		1,080		—		—			12,473		13,553

		324,366		21,762		3,914			12,473		362,515
Net investment income		4,092		2,176		772			—		7,040
Realized gain (loss) on sale of securities		1,761		128		(32	)		—		1,857
Unrealized gain on trading securities		556		295		54			—		905
Other income, net		1,382		160		17			—		1,559

Total revenue	$	332,157		24,521		4,725			12,473		373,876

Net income (loss)	$	8,427		2,807		(16	)		355		11,573

Claims incurred	$	286,332		10,826		2,419			—		299,577

Operating expenses	$	33,997		10,479		2,011			12,077		58,564

Depreciation expense, included in operating expenses	$	1,103		105		34			—		1,242

Interest expense	$	1,383		—		320			—		1,703

Income tax expense (benefit)	$	2,018		409		(9	)		41		2,459


*		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 managed care services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
			Property		Life and
	Managed		and Casualty		Disability
	Care		Insurance		Insurance			Other *		Total

NINE MONTHS ENDED SEPTEMBER 30, 2006
Premiums earned, net	$	1,028,451		65,713		69,154			—		1,163,318
Net fee revenue		10,356		—		—			—		10,356
Intersegment premiums earned/service revenues		4,225		438		234			38,320		43,217

		1,043,032		66,151		69,388			38,320		1,216,891
Net investment income		13,842		7,020		10,117			—		30,979
Realized gain on sale of securities		443		858		23			—		1,324
Unrealized gain on trading securities		2,545		1,012		161			—		3,718
Other income, net		628		174		353			—		1,155

Total revenue	$	1,060,490		75,215		80,042			38,320		1,254,067

Net income	$	23,862		8,945		4,271			350		37,428

Claims incurred	$	909,436		32,496		38,303			—		980,235

Operating expenses	$	114,273		32,729		33,345			37,311		217,658

Depreciation expense, included in operating expenses	$	2,786		340		512			—		3,638

Interest expense	$	5,004		—		4,258			—		9,262

Income tax expense (benefit)	$	7,915		1,045		(135	)		659		9,484


*		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 managed care services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
				Property			Life and
	Managed			and Casualty			Disability
	Care			Insurance			Insurance			Other *		Total

NINE MONTHS ENDED SEPTEMBER 30, 2005
Premiums earned, net	$	941,827			64,960			11,948			—		1,018,735
Net fee revenue		9,746			—			—			—		9,746
Intersegment premiums earned/service revenues		3,185			—			—			37,550		40,735

		954,758			64,960			11,948			37,550		1,069,216
Net investment income		12,405			6,461			2,244			—		21,110
Realized gain on sale of securities		5,284			1,199			51			—		6,534
Unrealized loss on trading securities		(4,990	)		(482	)		(50	)		—		(5,522	)
Other income, net		1,480			330			137			—		1,947

Total revenue	$	968,937			72,468			14,330			37,550		1,093,285

Net income	$	1,709			8,409			44			382		10,544

Claims incurred	$	860,392			32,446			7,563			—		900,401

Operating expenses	$	102,772			29,928			5,970			36,795		175,465

Depreciation expense, included in operating expenses	$	2,786			302			93			—		3,181

Interest expense	$	3,991			—			899			—		4,890

Income tax expense	$	73			1,685			(146	)		373		1,985


*		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 managed care services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
				Property			Life and
	Managed			and Casualty			Disability
	Care			Insurance			Insurance			Other *			Total

AS OF SEPTEMBER 30, 2006
Segment assets	$	616,151			316,184			406,166			5,363			1,343,864

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	(1,412	)		(798	)		(1,254	)		—			(3,464	)

AS OF DECEMBER 31, 2005
Segment assets	$	541,973			307,228			271,615			4,310			1,125,126

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	(13,733	)		(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 managed care services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS


	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005

TOTAL REVENUE

Total revenues for reportable segments	$	412,739			361,403			1,215,747			1,055,735
Total revenues for other segments		12,855			12,473			38,320			37,550

		425,594			373,876			1,254,067			1,093,285

Elimination of intersegment premiums earned		(1,568	)		(1,080	)		(4,897	)		(3,185	)
Elimination of intersegment service revenues		(12,855	)		(12,473	)		(38,320	)		(37,550	)
Unallocated amount — revenues from external sources		132			135			399			448

		(14,291	)		(13,418	)		(42,818	)		(40,287	)

Consolidated total revenue	$	411,303			360,458			1,211,249			1,052,998

NET INCOME

Net income for reportable segments	$	23,951			11,218			37,078			10,162
Net income for other segments		326			355			350			382

		24,277			11,573			37,428			10,544

Elimination of TSM charges:
Rent expense		1,726			1,666			5,101			4,907
Interest expense		1,420			330			4,164			886
Management fees		1,020			—			2,630			—

		4,166			1,996			11,895			5,793

Unallocated amounts related to TSM:
General and administrative expenses		(1,120	)		(1,223	)		(3,762	)		(3,964	)
Income tax expense		(527	)		(101	)		(1,053	)		(227	)
Interest expense		(2,098	)		(507	)		(6,077	)		(1,520	)
Other revenues from external sources		132			135			399			448

		(3,613	)		(1,696	)		(10,493	)		(5,263	)

Consolidated net income	$	24,830			11,873			38,830			11,074

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	Three months ended September 30, 2006
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	319,365		—			319,365
Operating expenses		71,859		(16,049	)		55,810
Depreciation expense		1,273		283			1,556
Interest expense		3,411		678			4,089
Income tax expense		6,682		527			7,209


	Three months ended September 30, 2005
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	299,577		—			299,577
Operating expenses		58,564		(13,996	)		44,568
Depreciation expense		1,242		271			1,513
Interest expense		1,703		177			1,880
Income tax expense		2,459		101			2,560


	Nine months ended September 30, 2006
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	980,235		—			980,235
Operating expenses		217,658		(47,186	)		170,472
Depreciation expense		3,638		1,121			4,759
Interest expense		9,262		1,913			11,175
Income tax expense		9,484		1,053			10,537


	Nine months ended September 30, 2005
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	900,401		—			900,401
Operating expenses		175,465		(41,678	)		133,787
Depreciation expense		3,181		820			4,001
Interest expense		4,890		634			5,524
Income tax expense		1,985		227			2,212


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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	September 30,			December 31,
	2006			2005

ASSETS

Total assets for reportable segments	$	1,338,501			1,120,816
Total assets for other segments		5,363			4,310

		1,343,864			1,125,126

Elimination entries — intersegment receivables and others		(46,947	)		(28,705	)

Unallocated amounts related to TSM:
Parent cash, cash equivalents and investments		11,750			11,054
Parent net property and equipment		23,999			24,760
Parent other assets		6,340			5,227

		42,089			41,041

Consolidated assets	$	1,339,006			1,137,462

OTHER SIGNIFICANT ITEMS


	As of September 30, 2006
	Segment						Consolidated
	Totals			Adjustments *			Totals

Significant noncash item — net change in unrealized gain on securities available for sale	$	(3,464	)		(23	)		(3,487	)


	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
September 30, 2006
(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, 2006 and December 31, 2005, were as follows:

September 30, 2006

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Equity securities

69,924

14,166

(1,630

)

82,460

September 30, 2006

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities available for sale:

Fixed maturities

722,335

654

(11,992

)

710,997

Equity securities

51,700

13,086

(3,011

)

61,775

774,035

13,740

(15,003

)

772,772

September 30, 2006

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

21,522

343

(760

)

21,105

December 31, 2005

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Equity securities

69,397

11,378

(2,560

)

78,215

December 31, 2005

Gross

Amortized

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
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

December 31, 2005

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

21,129

254

(623

)

20,760

Investment in securities at September 30, 2006 are mostly comprised of U.S. Treasury securities, obligations of U.S. government sponsored agencies and obligations of U.S. government instrumentalities (61.9%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (9%) and obligations of the government of Puerto Rico and its instrumentalities (5.7%). The remaining 23.4% 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 nine months ended September 30, 2006 the Corporation recognized an other-than-temporary impairment amounting to $1,350 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
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

(5) Premiums and Other Receivables

Premiums and other receivables as of September 30, 2006 and December 31, 2005 were as follows:


	September 30,		December 31,
	2006		2005

Premiums	$	86,195		53,391
Self-funded group receivables		25,052		21,620
FEHBP		9,025		9,491
Accrued interest		8,359		5,074
Agents balances		3,483		—
Funds withheld reinsurance receivable		—		118,635
Reinsurance recoverable		38,375		33,915
Other		31,663		14,152

		202,152		256,278

Less allowance for doubtful receivables:
Premiums		9,909		7,792
Other		4,784		4,448

		14,693		12,240

Total premiums and other receivables	$	187,459		244,038

(6) Claim Liabilities

The activity in the total claim liabilities for the three months and nine months ended September 30, 2006 and 2005 is as follows:


	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005

Claim liabilities at beginning of period	$	341,598			300,697			297,563			279,325
Reinsurance recoverable on claim liabilities		(29,173	)		(26,597	)		(28,720	)		(26,555	)

Net claim liabilities at beginning of period		312,425			274,100			268,843			252,770

Claim liabilities acquired from GA Life		—			—			8,771			—
Incurred claims and loss-adjustment expenses:
Current period insured events		317,413			296,815			975,170			897,434
Prior period insured events		(6,163	)		2,762			(12,471	)		2,967

Total		311,250			299,577			962,699			900,401

Payments of losses and loss-adjustment expenses:
Current period insured events		289,548			287,921			748,093			703,068
Prior period insured events		20,010			18,728			178,103			183,075

Total		309,558			306,649			926,196			886,143

Net claim liabilities at end of period		314,117			267,028			314,117			267,028
Reinsurance recoverable on claim liabilities		30,416			27,034			30,416			27,034

Claim liabilities at end of period	$	344,533			294,062			344,533			294,062

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 2006 is due to a favorable development of the claim liabilities attributed to lower than expected utilization trends. The amount in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 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 September 30, 2006 and December 31, 2005 is as follows:


	September 30,		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 6.73% and 5.71% at September 30, 2006 and December 31, 2005, respectively)	$	10,500		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 6.33% and 5.29% at September 30, 2006 and December 31, 2005, respectively)		27,997		29,090

Total long-term borrowings	$	183,497		150,590

On January 23, 2006 the Corporation issued and sold $35,000 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, net of taxes are as follows:

Accumulated

Unrealized

Minimum

other

gain (loss) on

pension

Cash flow

comprehensive

securities

liability

hedges

income

BALANCE AT JANUARY 1

3,217

(8,613

)

371

(5,025

)

Net current period change

(3,487

)

—

(30

)

(3,517

)

BALANCE AT SEPTEMBER 30

(270

)

(8,613

)

341

(8,542

)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 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 and nine months ended September 30, 2006 and 2005 were as follows:


	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005

Components of net periodic benefit cost:
Service cost	$	1,350			1,186			4,042			3,516
Interest cost		1,151			1,038			3,454			3,106
Expected return on assets		(954	)		(868	)		(2,880	)		(2,579	)
Amortization of prior service cost		12			12			36			36
Amortization of actuarial loss		602			505			1,794			1,500

Net periodic benefit cost	$	2,161			1,873			6,446			5,579

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 September 30, 2006, the corporation has contributed $8,000 to the pension program.

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

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

The following table sets forth the computation of basic net income per share for the three months and nine months ended September 30, 2006 and 2005:

Three months ended

Nine months ended

September 30,

2006

2005

2006

2005

Numerator for basic earnings per share:

Net income available to stockholders

24,830

11,873

38,830

11,074

Denominator for basic earnings per share:

Weighted average of outstanding common shares

8,911

8,904

8,909

8,904

Basic net income per share

2,786

1,333

4,359

1,244

(12) Contingencies

	(a)		As of September 30, 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. 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 have incurred a loss related to one or more of the pending lawsuits or investigations disclosed above, 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.

	(b)		Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an administrative proceeding before the Puerto Rico Insurance Commissioner (the 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.

			On May 26, 2006, Plaintiff Ibrahim Pérez filed a motion requesting a voluntary dismissal of the case with prejudice arguing that the controversy had become moot. The Supreme Court granted the motion, and on June 30, 2006 issued a Judgment dismissing this case as requested by Plaintiff Pérez.

	(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. On May 4, 2006, the Court issued an Opinion and Order, which entered a summary judgment in favor of all the defendants, and dismissing the case. Plaintiffs filed a notice of appeal before the United States Court of Appeals for the First Circuit. The Appeals Court notified the briefing schedule, and Plaintiffs filed their brief on August 21, 2006. Respondent filed theirs on September 30, 2006. The Court has yet to notify the date for the hearing to argue the case.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30. 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

	(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 May 9, 2005 the plaintiffs amended the complaint and the defendants prepared 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 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 arguments on the same motions. On July 6, 2006 the Court held the last of three hearings to hear arguments on the defendants dispositive motions. The Court stayed all discovery until the motions are resolved. The Corporation is unable to estimate the range of possible loss which may be ultimately realized upon the resolution of this case.

	(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 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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30. 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

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.

During September 2006, the Court, sua sponte, ordered the parties to engage in Mediation with former US District Judge, Edward Davis. Judge Davis divided the group of plans into smaller groups to facilitate the process. Since September the parties have been engaged in Mediation, which is slated to end by December 2006.

The Corporation is unable to estimate the range of possible loss which may be ultimately realized upon the resolution of this 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.

			During September 2006, the Court, sua sponte, ordered the parties to engage in Mediation with former US District Judge, Edward Davis. Judge Davis divided the group of plans into smaller

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30. 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

groups to facilitate the process. Since September the parties have been engaged in Mediation, which is slated to end by December 2006.

The Corporation is unable to estimate the range of possible loss which may be ultimately realized upon the resolution of this case.

(13) Acquisition

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 was 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

The estimated fair value of the value of business acquired was actuarially determined by discounting after-tax profits at a risk rate of return equal to approximately 12%. After-tax profits were forecasted based upon models of the in force, actual invested assets as of acquisition date and best-estimate actuarial assumptions regarding premium income, claims, persistency, expenses and investment income accruing from invested assets plus reinvestment of positive cash flows. The best-estimate actuarial assumptions were based upon GA Life’s recent experience in each of its major life and health insurance product lines. The amount of value of business acquired is to be amortized, considering interest, over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue to the expected total premium revenue to be received over the life of the policies.

The following unaudited pro forma financial information presents the combined results of operations of the Corporation and GA Life as if the acquisition had occurred at January 1, 2006 and 2005. The pro forma results of operations for 2006 combine the results of the Corporation for 2006 and the historical results of GA Life for the one month period ended January 31, 2006. The unaudited pro forma financial information is not intended to represent or be indicative of the Corporation’s consolidated results of operations that would have been reported had the acquisition been completed as of the beginning of the periods presented and should not be taken as indicative of the Corporation’s future consolidated results of operations.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30. 2006
(Dollar amounts in thousands, except per share data)
(Unaudited)

Three months ended

Nine months ended

September 30,

2006

2005

2006

2005

Total revenue

411,303

381,716

1,218,532

1,122,147

Net income

24,830

15,001

39,147

24,579

Basic net income per share

2,786

1,685

4,394

2,760

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 the financial condition and results of operations of Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) for the three months and nine months ended September 30, 2006. 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, 2005.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other publicly available documents of the Corporation 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 the financial condition, results of operations and business of the Corporation. These statements are not historical, but instead represent the Corporation’s belief regarding future events, any of which, by their nature, are inherently uncertain and outside of the Corporation’s control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that the Corporation’s 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. The Corporation is 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 leading managed care company in Puerto Rico, with over 45 years of experience in the managed care industry. We offer a broad portfolio of managed care and other health insurance products in the commercial, Reform, Medicare Advantage and Part D stand-alone prescription drug plan (PDP) markets. The Reform is a Puerto Rico government-funded managed care program for the medically indigent, similar to Medicaid. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico, serve over one million members across all regions of Puerto Rico and hold a leading market position covering approximately 30% of the population. We also have significant positions in the life and property and casualty insurance markets, with market shares of 25% (in terms of premiums written, in pro forma considering the acquisition of GA Life) and 8% (in terms of net premiums), respectively, as of December 31, 2005. For the nine months ended September 30, 2006, our Managed Care segment represented 88.5% of our total consolidated premiums and 66.8% of our operating income.

We participate in the managed care market through our subsidiary, TSI. TSI is a Blue Cross and Blue Shield Association licensee, which provides TSI with exclusive use of the Blue Shield brand in Puerto Rico. TSI offers products to the commercial, Reform, Medicare Advantage and PDP market sectors. The commercial sector includes corporate accounts, self-funded employers, federal employees, local government employees, individual accounts and Medicare supplemental.

We participate in the life and disability insurance market through our subsidiary, GA Life, and in the property casualty insurance market through our subsidiary, Seguros Triple-S, Inc. (STS), which represented 5.9% and 5.6%, respectively, of our consolidated total premiums for the nine months ended September 30, 2006 and 15.7% and 17.5%, respectively of our operating income for the period.

Our revenue primarily consists of premiums earned and administrative service fees derived from the sale of managed care products in the commercial market to employer groups and to individuals and government-sponsored programs, principally Medicare and the Reform. Premiums are derived from insured contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of customer services, including claims administration, billing and membership services, among others. Revenue also includes 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 the operating income as a measure of performance of the underwriting and investment function 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 fee revenue, multiplied by 100.

Recent Developments

Puerto Rico’s Economy

The Commonwealth of Puerto Rico announced the possibility of a lack of current budgetary funds to close the fiscal year ended June 30, 2006 with a balanced budget if the legislative branch did not authorize a budget loan from the Government Development Bank for Puerto Rico (a government-sponsored bank). This situation was resolved prior to June 30, 2006 when the legislative and executive branches of the government approved a loan to provide funding for the budget related to the fiscal year ended June 30, 2006. Also, the legislative and executive branches approved a fiscal reform and a tax reform, which becomes effective November 15, 2006, that would raise additional funds in future fiscal years. The approved tax reform imposes a tax based upon the consumption of certain goods and services and repeals the excise tax regime currently in place. The Corporation’s business with the Government was not significantly affected with this situation.

Healthcare Reform Business

All of the Reform contract’s extension expired on June 30, 2006. During July 2006, the Commonwealth of Puerto Rico (the government) extended the contracts for all regions until September 30, 2006 with rates pending to be negotiated retroactively to July 1, 2006. It was later extended to October 31, 2006. In November 2006 we agreed to an average rate increase of 2.0% for the four months period ended October 31, 2006. In addition, the contract for the North and Southwest regions currently served by TSI were renewed for a one year term, from October 1, 2006 to September 30, 2007, with the applicable rates pending to be negotiated among the parties. It was later amended to be effective from November 1, 2006 for a period of 11 months. The government requested proposals to serve the Metro-North region under a Third Party Administrator pilot program. During the month of October 2006, the government informed TSI that the Metro-North region pilot program was awarded to another company. The Corporation is contesting the government’s decision. The premiums earned, net and net income related to the operations of the Metro-North region for the nine-month period ended September 30, 2006 amounted to $145.8 million and $3.3 million, respectively.

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.

Significant Transactions

Effective January 31, 2006, TSM completed the acquisition of 100% of the common stock of GA Life for $37.5 million. As a result of this acquisition, the Corporation became one of the leading providers of life insurance policies in Puerto Rico. After its acquisition, GA Life and SVTS form the Corporation’s Life and Disability Insurance segment. Effective June 30, 2006, TSM merged the operations of GA Life with those of SVTS after receiving required regulatory approvals. GA Life is the surviving entity. GA Life’s results of operations and financial condition are included in the Corporation’s consolidated financial statements included in this Quarterly Report on Form 10-Q for the period following January 31, 2006.

The historical results of operations of the entities pre-acquisition and “comparable basis” information for the three months and nine months ended September 30, 2005 are included in the following tables. Comparable basis information was determined by adding the historical statements of earnings for the Corporation and GA Life. Comparable basis information is presented in order to provide a more meaningful comparison to the current period due to the acquisition of GA Life. Comparable basis is not calculated in accordance with U.S. generally accepted accounting principles and is not intended to represent or be indicative of the results of operations of the Corporation that would have been reported had the acquisition been completed as of January 31, 2005.

Consolidated


	Three months ended September 30, 2005
							Comparable
(Dollar amounts in thousands)	TSM			GA Life			Basis

REVENUE:
Premiums earned, net	$	345,728			18,555			364,283
Amounts attributable to self-funded arrangements		53,424			—			53,424
Less amounts attributable to claims under self-funded arrangements		(50,190	)		—			(50,190	)

		348,962			18,555			367,517
Net investment income		7,158			2,779			9,937
Net realized investment gains		1,857			32			1,889
Net unrealized investment loss on trading securities		905			—			905
Other income, net		1,576			—			1,576

Total revenue		360,458			21,366			381,824

BENEFITS AND EXPENSES:
Claims incurred		299,577			10,247			309,824
Operating expenses, net of reimbursement for services		44,568			7,948			52,516
Interest expense		1,880			—			1,880

Total benefits and expenses		346,025			18,195			364,220

Income before taxes		14,433			3,171			17,604

INCOME TAX EXPENSE (BENEFIT):
Current		802			—			802
Deferred		1,758			(395	)		1,363

Total income taxes		2,560			(395	)		2,165

Net income	$	11,873			3,566			15,439

Basic net income per share	$	1,333						1,734


	Nine months ended September 30, 2005
							Comparable
(Dollar amounts in thousands)	TSM			GA Life			Basis

REVENUE:
Premiums earned, net	$	1,018,735			49,797			1,068,532
Amounts attributable to self-funded arrangements		157,778			—			157,778
Less amounts attributable to claims under self-funded arrangements		(148,032	)		—			(148,032	)

		1,028,481			49,797			1,078,278
Net investment income		21,439			7,791			29,230
Net realized investment gains		6,534			4,770			11,304
Net unrealized investment loss on trading securities		(5,522	)		—			(5,522	)
Other income, net		2,066			—			2,066

Total revenue		1,052,998			62,358			1,115,356

BENEFITS AND EXPENSES:
Claims incurred		900,401			27,605			928,006
Operating expenses, net of reimbursement for services		133,787			22,137			155,924
Interest expense		5,524			—			5,524

Total benefits and expenses		1,039,712			49,742			1,089,454

Income before taxes		13,286			12,616			25,902

INCOME TAX EXPENSE (BENEFIT):
Current		2,781			626			3,407
Deferred		(569	)		(1,187	)		(1,756	)

Total income taxes		2,212			(561	)		1,651

Net income	$	11,074			13,177			24,251

Basic net income per share	$	1,244						2,724

Life and Disability Insurance Segment


	Three months ended September 30, 2005
							Comparable
(Dollar amounts in thousands)	SVTS			GA Life			Basis

Operating revenues:
Net premiums earned:
Earned premiums	$	5,814			19,088			24,902
Earned premiums ceded		(1,977	)		(533	)		(2,510	)

Net earned premiums		3,837			18,555			22,392

Commission income on reinsurance		77			—			77

Net premiums earned		3,914			18,555			22,469

Net investment income		772			2,779			3,551
Net realized investment gains (losses)		(32	)		32			—

Total		4,654			21,366			26,020

Operating costs:
Policy benefits and claims incurred		2,419			10,247			12,666
Underwriting and other expenses		2,011			7,948			9,959

Total		4,430			18,195			22,625

Operating income	$	224			3,171			3,395


	Nine months ended September 30, 2005
							Comparable
(Dollar amounts in thousands)	SVTS			GA Life			Basis

Operating revenues:
Net premiums earned:
Earned premiums	$	17,601			51,040			68,641
Earned premiums ceded		(6,003	)		(1,243	)		(7,246	)

Net earned premiums		11,598			49,797			61,395

Commission income on reinsurance		350			—			350

Net premiums earned		11,948			49,797			61,745

Net investment income		2,244			7,791			10,035
Net realized investment gains		51			4,770			4,821

Total		14,243			62,358			76,601

Operating costs:
Policy benefits and claims incurred		7,563			27,605			35,168
Underwriting and other expenses		5,970			22,137			28,107

Total		13,533			49,742			63,275

Operating income	$	710			12,616			13,326

Selected Membership Data


	As of September 30,
	2006		2005

Managed care enrollment:
Commercial ¹		589,785		618,603
Reform		554,996		626,977
Medicare Advantage		26,843		8,461
Stand-alone PDP		17,582		—

Total		1,189,206		1,254,041

Managed care enrollment by funding arrangement:
Fully-insured		1,032,083		1,099,473
Self-insured		157,123		154,568

Total		1,189,206		1,254,041


¹		Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare supplemental, Federal employees and local government employees.

Consolidated Operating Results

The analysis in this section provides an overall view of the consolidated statements of operations and key financial information. 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 September 30, 2006 Compared to Three Months Ended September 30, 2005


	Three months ended September 30,
							Comparable
(dollar amounts in thousands)	2006			2005			Basis 2005

Operating revenues:
Premiums earned, net	$	392,004			345,728			364,283
Fee revenue		3,725			3,234			3,234
Net investment income		10,509			7,158			9,937
Net realized investment gains		363			1,857			1,889

Total		406,601			357,977			379,343

Operating costs:
Claims incurred		319,365			299,577			309,824
Operating expenses		55,810			44,568			52,516

Total		375,175			344,145			362,340

Operating income		31,426			13,832			17,003

Net unrealized gains on trading securities		3,407			905			905
Interest expense		(4,089	)		(1,880	)		(1,880	)
Other income, net		1,295			1,576			1,576

Income before taxes		32,039			14,433			17,604
Income tax expense		7,209			2,560			2,165

Net income	$	24,830			11,873			15,439

Operating revenues

Premiums earned, net presented an increase of $46.3 million, or 13.4%, to $392.0 million in 2006. On a comparable basis the consolidated earned premiums, net increased by $27.7 million, or 7.6%. This increase is primarily due to an increase in the premiums earned, net of the managed care segment, principally due to a strong growth from our Medicare Advantage and PDP products.

Net investment income increased by $3.4 million, or 46.9%, to $10.5 million in 2006. On a comparable basis the increase of $572 thousand, or 5.8%, is primarily due to a higher balance of invested assets, as well as an increase in yield during 2006.

Operating costs

Claims incurred increased by $19.8 million, or 6.6%, to $319.4 million in 2006. On a comparable basis, the consolidated claims incurred increased by $9.5 million, or 3.1%, mostly due to the increase of $9.3 million in the claims incurred of the managed care segment as a result of the increased enrollment in the Medicare Advantage and PDP business.

Operating expenses increased by $11.2 million, or 25.2%, to $55.8 million in 2006. On a comparable basis, the consolidated operating expenses increased by $3.3 million, or 6.3%, which is primarily attributed to the normal inflationary effect in operating expenses.

Net unrealized investment gains

The net unrealized gain of $3.4 million experienced in 2006 is attributed to gains in the portfolios held by the segments in equity securities attributed to the positive returns in equity markets during the 2006 quarter.

Interest expense

The interest expense of $4.1 million presented an increase of $2.2 million on both an actual and comparable basis, primarily due to the interest expense corresponding to the new debt incurred during the fourth quarter of the year 2005 and during the first quarter of 2006.

Income tax expense

The effective tax rate presented an increase of 4.8 percentage points, from 17.7% in 2005 to 22.5% in 2006. On a comparable basis, the 2005 effective tax rate was 12.3%, reflecting an increase in 2006 of 10.2 percentage points that is primarily due to higher non-deductible expenses in 2006 and an increase in taxable income related to the life segment, which has a lower effective taxable rate than our other businesses.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005


	Nine months ended September 30,
							Comparable
(dollar amounts in thousands)	2006			2005			Basis 2005

Operating revenues:
Premiums earned, net	$	1,163,318			1,018,735			1,068,532
Fee revenue		10,356			9,746			9,746
Net investment income		31,325			21,439			29,230
Net realized investment gains		1,324			6,534			11,304

Total		1,206,323			1,056,454			1,118,812

Operating costs:
Claims incurred		980,235			900,401			928,006
Operating expenses		170,472			133,787			155,924

Total		1,150,707			1,034,188			1,083,930

Operating income		55,616			22,266			34,882

Net unrealized gains on trading securities		3,718			(5,522	)		(5,522	)
Interest expense		(11,175	)		(5,524	)		(5,524	)
Other income, net		1,208			2,066			2,066

Income before taxes		49,367			13,286			25,902
Income tax expense		10,537			2,212			1,651

Net income	$	38,830			11,074			24,251

Operating revenues

Premiums earned, net presented an increase of $144.6 million, or 14.2%, to $1,163.3 million in 2006. On a comparable basis the consolidated earned premiums, net increased by $94.8 million, or 8.9%. This increase is primarily due to an increase in the premiums earned, net of the managed care segment, principally due to a strong growth from our Medicare Advantage and PDP products.

Fee revenue increased by $610 thousand, or 6.2%, to $10.5 million in 2006 that is mostly due the increased enrollment in the managed care segment’s self-funded employers business and increases in fee rates.

Net investment income increased by $9.9 million, or 46.1%, during 2006. The increase in net investment income on a comparable basis of $2.1 million, or 7.2%, reflects our higher balance of invested assets as well as an increase in yield during 2006.

Net realized investment gains decreased by $5.2 million, or 79.7%, to $1.3 million in 2006. On a comparable basis, net realized gain on sale of securities decreased by $10.0 million, or 88.3%. This decrease is primarily the result of sales of certain investments in 2005 in order to take advantage of a temporary reduction in the capital gains tax rate by 6.25 percentage points for sales of long-term capital assets, thus causing gains to be realized in the 2005 period and decreasing unrealized gains during such period.

Operating costs

Claims incurred increased by $79.8 million, or 8.9%, to $980.2 million in 2006. On a comparable basis, claims incurred increased by $52.2 million, or 5.6%, principally due to increased claims in the managed care segment as a result of increased enrollment in the Medicare Advantage and PDP businesses.

Operating expenses increased by $36.7 million, or 27.4%, to $170.5 million in 2006. On a comparable basis, the operating expenses increased by $14.5 million, or 9.3%, attributed primarily to the increased volume of business across all our segments during 2006. In addition, we experienced increases in payroll and related expenses, commission expenses and information technology related costs.

The net unrealized gain on trading securities was $3.7 million during 2006, presenting an increase of $9.2 million, on both an actual and comparable basis. This increase is attributable to gains in the portfolios held by the segments in equity securities. The unrealized loss in the 2005 period is attributable to the realization of gains in that period, as previously discussed.

Interest expense

The interest expense presented an increase of $5.7 million on both an actual and comparable basis primarily due to the interest expense corresponding to the new debt incurred by during the fourth quarter of the year 2005 and during the first quarter of 2006.

Income tax expense

The effective tax rate presented an increase of 4.7 percentage points, from 16.6% in 2005 to 21.3% in 2006. On a comparable basis, the 2005 effective tax rate was 6.4%, reflecting an increase in 2006 of 15.0 percentage points that is primarily due to higher non-deductible expenses in 2006 and an increase in taxable income related to the life segment, which has a lower effective taxable rate than our other businesses.

Managed Care Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2006			2005			2006			2005

Operating revenues:
Medical premiums earned:
Commercial	$	179,922			182,134			540,677			549,516
Reform		118,920			129,933			366,683			377,270
Medicare Advantage		43,606			8,856			111,630			17,438
PDP		4,904			—			11,593			—

Medical earned premiums		347,352			320,923			1,030,583			944,224

Fee revenue		4,376			3,443			12,449			10,534
Net investment income		4,770			4,092			13,842			12,405
Net realized investment gains (losses)		(466	)		1,761			443			5,284

Total		356,032			330,219			1,057,317			972,447

Operating costs:
Medical claims incurred		295,604			286,332			909,436			860,392
Operating expenses		38,517			33,997			114,273			102,772

Total		334,121			320,329			1,023,709			963,164

Operating income	$	21,911			9,890			33,608			9,283

Member months enrollment:
Commercial		1,304,709			1,402,758			3,995,532			4,250,772
Reform		1,673,229			1,871,709			5,211,531			5,575,698
Self-funded employers		469,320			466,728			1,387,341			1,379,187
Medicare Advantage		78,435			18,831			193,239			37,530
PDP		53,772			—			134,046			—

Member months enrollment		3,579,465			3,760,026			10,921,689			11,243,187

Additional data:
Medical loss ratio		85.1	%		89.2	%		88.2	%		91.1	%
Operating expense ratio		11.0	%		10.5	%		11.0	%		10.8	%

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Operating revenues

Medical earned premiums increased by $26.4 million, or 8.2%, to $347.4 million in 2006. This increase in medical earned premiums is the result of the following:

	•		Medical premiums generated by the segment’s Medicare Advantage business increased by $34.8 million, or 392.4%, to $43.6 million in 2006 primarily due to the increase in the member months enrollment of 59,604 members, or 316.5%. This increase reflects the initial ramp-up of this business, which commenced in 2005, as well as the introduction of additional Medicare Advantage policies during this year. In January 2006 we expanded our Medicare Advantage business with the introduction of Medicare Platino for the dual-eligible population. We expect the Medicare Advantage enrollment will continue to grow, but not at the same pace as in this initial period.

	•		In January 2006, we introduced a new stand-alone PDP, called FarmaMed that had 53,772 member months and medical premiums earned of $4.9 million.

	•		The medical premiums earned of the Reform business decreased by $11.0 million, or 8.5%, to $118.9 million, principally attributed to a reduction in the member months enrollment of this

			business by 198,480 members, or 10.6%. This business has experienced a decrease in its enrollment as a result of a shift in membership by the dual eligibles to Medicare Advantage policies offered by us and our competitors and a tightening of eligibility requirements by the Puerto Rico government. The effect of the decrease in member months enrollment was mitigated by an increase in average premium rates by approximately 5%.

	•		Medical premiums generated by the commercial business presented a decrease of $2.2 million, or 1.2%, to $179.9 million in 2006. This decrease is due to a decrease in the member months enrollment of 98,049 members, or 7.0%. The decrease in member months enrollment is primarily the result of the loss of several fully-insured accounts due to aggressive marketing and pricing by our competitors as well as qualified enrollees transferring to our or our competitors Medicare Advantage policies and fully-insured groups changing to self-funded arrangements. The decrease in enrollment was partially offset by an average increase in premium rates of approximately 4.1%.

Operating costs

Medical claims incurred presented an increase of $9.3 million, or 3.2%, to $295.6 million in 2006. This increase is mostly related to the medical claims incurred of the Medicare Advantage and PDP businesses, which increased by $28.5 million during the 2006 period due to the increase in member months enrollment mitigated by a reduction of $15.2 million in medical claims incurred related to the decreased member months enrollment of the Reform business.

The segment’s medical loss ratio decreased 4.1 percentage points due to the increased contribution in the 2006 period of the Medicare Advantage business, which has a lower medical loss ratio than the segment’s other businesses as well as due to lower utilization trends in the Reform business. The decrease in the medical loss ratio of the Reform business is attributed to lower utilization trends, particularly in the cardiovascular services, dialysis and obstetrics, among others.

Operating expenses increased by $4.5 million, or 13.3%, to $38.5 million in 2006. This increase is primarily attributed to $1.5 million of additional operating expenses related to the Medicare Advantage and PDP businesses. In addition, the operating expenses present an increase of $2.4 million that is primarily related to technology-related costs consistent with corporate business initiatives and to ordinary course payroll increases. The operating expense ratio increased by 0.5 percentage points.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Operating revenues

Medical earned premiums increased by $86.4 million, or 9.1%, to $1,030.6 million in 2006. This increase is primarily the result of the following:

	•		Medical premiums generated by the segment’s Medicare Advantage business, increased by $94.2 million, or 540.2%, primarily due to an increase in member months enrollment of 155,709, or 414.9%, reflecting the initial ramp-up of this business, which commenced in 2005, and the introduction of additional Medicare Advantage policies during this year. In January 2006, we expanded our Medicare Advantage business with the introduction of Medicare Platino for the dual-eligible population. We expect that the Medicare Advantage enrollment will continue to grow, but not at the same pace as in this initial period.

	•		In January 2006 we introduced a new stand-alone prescription drug plan, called FarmaMed, that had 134,046 member months and medical premiums earned amounting to $11.6 million.

	•		In 2006 member months of the Reform business decreased by 364,167, or 6.5%, and medical earned premiums decreased by $10.6 million, or 2.8%, to $366.7 million in 2006. This business has experienced a decrease in its member months enrollment as a result of a shift in membership by the dual eligibles to Medicare Advantage policies offered by us and our competitors and tightening of eligibility requirements by the Puerto Rico government. The effect of this decrease

			in member months enrollment was mitigated by an average increase in premium rates, effective August 1, 2005, of approximately 5%.

	•		Medical premiums earned generated by the commercial business decreased by $8.8 million, or 1.6%, to $540.7 million in 2006 due to a decrease in member months. This decrease is the result of a decrease in the member months enrollment by 255,240 members that is primarily due to the loss of several full-risk accounts due to aggressive marketing and pricing by our competitors as well as to qualified enrollees transferring to our or our competitors’ Medicare Advantage policies and full-risk accounts changing to self-funded arrangements. The decrease in enrollment is partially offset by an average increase in premium rates of 3.7%.

Net realized investment gains decreased by $2.2 million, to $1.4 million in 2006. This decrease is primarily the result of sales of certain investments in 2005 in order to take advantage of a temporary reduction in the capital gains tax rate by 6.25 percentage points for sales of long-term capital assets, thus causing gains to be realized in the 2005 period and decreasing unrealized gains during such period.

Operating costs

Medical claims incurred increased by $49.0 million, or 5.7%. This increase is principally due to the medical claims incurred related to the Medicare Advantage and PDP businesses, which presented an increase of $75.0 million attributed to its increased member months enrollment. This increase is mitigated by a decrease of $29.3 million in the medical claims incurred of the Reform business that is attributed to its decreased member months enrollment.

The segment’s medical loss ratio decreased by 2.9 percentage points mostly driven by lower utilization trends in the Reform business and by the increased contribution in the 2006 period of the Medicare Advantage business, which has a lower medical loss ratio than the segment’s other businesses. The medical loss ratio of the Reform business decreased due to lower utilization trends in cardiovascular services, dialysis and obstetrics.

Operating expenses increased by $11.5 million, or 11.2%, to $114.3 million in 2006. This increase is primarily attributed to increased administrative costs related to the Medicare Advantage and PDP businesses of approximately $6.1 million due to the introduction of our PDP product and the increased Medicare Advantage volume of business. In addition, there was an increase of $5.4 million that was primarily related to technology-related costs consistent with corporate business initiatives and to ordinary course payroll increases. The segment’s operating expense increased by 0.2 percentage points during the 2006.

Life and Disability Insurance Operating Results

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005


	Three months ended September 30,
							Comparable
(dollar amounts in thousands)	2006			2005			Basis 2005

Operating revenues:
Net premiums earned
Premiums earned	$	25,923			5,814			24,902
Premiums earned ceded		(2,230	)		(1,977	)		(2,510	)

Net premiums earned		23,693			3,837			22,392

Commission income on reinsurance		(105	)		77			77

Net premiums earned		23,588			3,914			22,469

Net investment income		3,285			772			3,551
Net realized investment gains (losses)		1			(32	)		—

Total		26,874			4,654			26,020

Operating costs:
Policy benefits and claims incurred		13,207			2,419			12,666
Underwriting and other expenses		10,981			2,011			9,959

Total		24,188			4,430			22,625

Operating income	$	2,686			224			3,395

Additional data:
Loss ratio		56.0	%		61.8	%		56.4	%
Operating expense ratio		46.6	%		51.4	%		44.3	%

Operating revenues

Premiums earned for the segment increased by $20.1 million, or 345.9%, to 25.9 million in 2006. On a comparable basis premiums earned increased by $1.0 million, or 4.1%. This increase is primarily the result of new sales of ordinary life and monthly debit ordinary (MDO) policies, as well as an increase in the cancer and other dreaded diseases attributed to the growth in sales of our cancer product.

Operating costs

Policy benefits and claims incurred for the segment increased by $10.8 million, or 446.0%, to 13.2 million in 2006. On a comparable basis the policy benefits and claims incurred increased by $541 thousand, or 4.3%, primarily due to the increases in volume of ordinary life and MDO life products and to the natural growth of the life portfolio policy reserves. The loss ratio on a comparable basis decreased by 0.4 percentage points, from 56.4% in the 2005 comparable period to 56.0% in 2006, as a result of termination or non-renewal of unprofitable groups.

Underwriting and other expenses for the segment increased by $9.0 million, or 446.0%, to $11.0 million in 2006. On a comparable basis underwriting and other expenses increased $1.0 million, or 10.3%. The operating expense ratio in a comparable basis increased by 2.3 percentage points, from 44.3% in the 2005 comparable period to 46.6% in 2006, that is primarily due to the combined effect of the management fees charged by TSM and increases in the amortization of deferred policy acquisition costs and the value of business acquired created upon the acquisition of GA Life.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005


	Nine months ended September 30,
							Comparable
(dollar amounts in thousands)	2006			2005			Basis 2005

Operating revenues:
Net premiums earned:
Premiums earned	$	71,884			17,601			68,641
Premiums earned ceded		(7,053	)		(6,003	)		(7,246	)
Assumed premiums earned		4,413			—			—

Net premiums earned		69,244			11,598			61,395

Commission income on reinsuarance		144			350			350

Net premiums earned		69,388			11,948			61,745

Net investment income		10,117			2,244			10,035
Net realized investement gains		23			51			4,821

Total		79,528			14,243			76,601

Operating costs:
Policy benefits and claims incurred		38,303			7,563			35,168
Underwriting and other expenses		33,345			5,970			28,107

Total		71,648			13,533			63,275

Operating income	$	7,880			710			13,326

Additional data:
Loss ratio		55.2	%		63.3	%		57.0	%
Operating expense ratio		48.1	%		50.0	%		45.5	%

Operating revenues

Premiums earned for the segment increased by $54.3 million, or 308.4%, to $71.9 million in 2006. On a comparable basis premiums earned increased by $3.2 million, or 4.7%. This increase is primarily the result of an increase in the life business attributed to new sales of ordinary life and MDO policies, as well as to an increase in the cancer and other dreaded diseases business attributed to the growth in sales of a new cancer product.

The 2006 period reflects $4.4 million of assumed premiums related to the coinsurance agreement with GA Life.

Net realized investment gains decreased by $28 thousand, or 54.9%, in 2006. On a comparable basis net realized investment gains decreased by $4.8 million, or 99.5%, principally due to sales realized by GA Life in 2005, prior to the effective date of our acquisition.

Operating costs

Policy benefits and claims incurred increased by $30.7 million, or 406.5%, to $38.3 million in 2006. On a comparable basis, the policy benefits and claims incurred increased by $3.1 million, or 8.9%, primarily due to our share of policy benefits and claims incurred related to the coinsurance agreement with GA Life, amounting to $2.3 million. The loss ratio on a comparable basis decreased by 1.8 percentage points, from 57.0% in the 2005 comparable period to 55.2% in 2006, as a result of the termination or non-renewal of unprofitable groups.

Underwriting and other expenses for the segment increased by $27.4 million, or 458.5%, to $33.3 million in 2006. On a comparable basis, underwriting and other expenses increased by $5.2 million, or 18.6%. The operating expense ratio on a comparable basis presents an increase of 2.6 percentage points, from 45.5% in the 2005 comparable period to 48.1% in 2006. The increase in underwriting and other expenses includes $1.8 million related to our share of the commissions and other operating expenses pursuant to the

coinsurance agreement with GA Life. The remaining increase in operating expenses is mostly related to management fees charged by TSM and the increase in the amortization expense of the deferred policy acquisition costs and value of business acquired resulting from the acquisition of GA Life.

Property and Casualty Insurance Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2006			2005			2006			2005

Operating revenues:
Net premiums earned:
Premiums written	$	41,494			40,705			112,672			110,516
Premiums ceded		(17,330	)		(14,831	)		(46,709	)		(43,896	)
Change in unearned premiums		(2,183	)		(4,112	)		188			(1,660	)

Net premiums earned		21,981			21,762			66,151			64,960

Net investment income		2,340			2,176			7,020			6,461
Net realized investment gains		828			128			858			1,199

Total		25,149			24,066			74,029			72,620

Operating costs:
Claims incurred		10,554			10,826			32,496			32,446
Operating expenses		10,011			10,479			32,729			29,928

Total		20,565			21,305			65,225			62,374

Operating income	$	4,584			2,761			8,804			10,246

Additional data:
Loss ratio		48.0	%		49.7	%		49.1	%		49.9	%
Operating expense ratio		45.5	%		48.2	%		49.5	%		46.1	%
Combined ratio		93.5	%		97.9	%		98.6	%		96.0	%

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Operating revenues

Total premiums written increased by $789 thousand, or 1.9%, to $41.5 million in 2006, that is principally as a result on increases in the inland marine and surety business that are due to increases in volume. These increases are partially offset by a decrease in the premiums written of the commercial multi-peril business.

Premiums ceded to reinsurers increased by $2.5 million, or 16.8%, to $17.3 million in 2006, primarily as a result of an increase in the portion of risk ceded to reinsurers, particularly in the proportional and excess of loss reinsurance treaties, and to increases in the cost of reinsurance. The ratio of premiums ceded to premiums written increased by 5.4 percentage points, from 36.4% in 2005 to 41.8% in 2006.

Operating costs

Claims incurred reflect a decrease of $272 thousand, or 2.5%, to $10.6 million in 2006 and the loss ratio decreased by 1.7 percentage points during this period. These decreases are primarily due to the focus on quality underwriting.

The operating expenses decreased by $468 thousand, or 4.5%, to $10.0 million in 2006. The operating expense ratio decreased by 2.7 percentage points during this period. The decrease in operating expenses is mostly due to the experience refund received in 2006 from the Compulsory Vehicle Liability Insurance Joint Underwriting Association, which is recorded as a decrease to the operating expenses, net of an increase in commission expenses. No experience refund was received in the 2005 period.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Operating revenues

Total premiums written increased by $2.2 million, or 2.0%, to $112.7 million in 2006, principally as a result of increases in the dwelling and commercial property mono-line, auto physical damage and commercial auto liability lines of business, partially offset by a decrease in the commercial multi-peril line of business.

Premiums ceded to reinsurers increased by $2.8 million, or 6.4%, to $46.7 million in 2006, as a result of an increase in the portion of risk ceded to reinsurers, particularly in the excess of loss reinsurance treaties, and to increases in the cost of reinsurance. The ratio of premiums ceded to premiums written increased by 1.8 percentage points, from 39.7% in 2005 to 41.5% in 2006.

Operating costs

Claims incurred increased by $50 thousand, or 0.2%, to $32.5 million in 2006. The loss ratio experienced a decrease of 0.8 percentage points during this period, from 49.9% in 2005 to 49.1% in 2006.

The operating expenses increased by $2.8 million, or 9.4%, to $32.7 million in 2006. The operating expense ratio increased by 3.4 percentage points during the same period, from 46.1% in 2005 to 49.5% in 2006. These increases are primarily attributable to increases in commission expenses and salaries and benefits expenses reflecting market conditions, as well as costs associated with the implementation of new IT systems.

Liquidity and Capital Resources

Cash Flows

A summary of our major sources and uses of cash for the periods indicated is presented in the following table:


	Nine months ended
	September 30,
(dollar amounts in thousands)	2006			2005

Sources of cash:
Cash provided by operating activities	$	49,581			83,272
Proceeds from long-term borrowings		35,000			—
Net proceeds from short-term borrowings		—			2,905
Net proceeds from annuity contracts		—			5,236
Other		490			1,151

Total sources of cash		85,071			92,564

Uses of cash:
Acquisition of GA Life, net of cash aquired		(27,793	)		—
Acquisition of investments, net of proceeds		(17,641	)		(85,710	)
Capital expenditures		(9,462	)		(5,031	)
Dividends		(6,231	)		—
Payments of long-term borrowings		(2,093	)		(4,730	)
Net payments of short-term borrowings		(1,740	)		—
Net surrenders of annuity contracts		(5,824	)		—
Other		(508	)		—

Total uses of cash		(71,292	)		(95,471	)

Net increase (decrease) in cash and cash equivalents	$	13,779			(2,907	)

Cash flows from operating activities decreased by $33.7 million, or 40.5%, to $49.6 million in 2006, primarily due to a decrease in net proceeds from sales of our corporate bonds trading portfolio of $72.2 million in 2005. The effect of this fluctuation is mitigated by the fact that in the 2006 period the amount of premiums collected increased by 10.6% and the amount of claims losses and benefits paid increased only by 5.7% primarily due to the lower utilization trends experienced by our managed care segment in 2006.

Cash flows from long term borrowings increased by $35.0 million during the 2006 period as a result of the issuance and sale of our 6.7% senior unsecured notes during the first quarter of 2006.

Net purchases of investment securities decreased by $40.3 million primarily as a result of $68.1 million invested in 2005 in available-for-sale securities with the proceeds received from the sale of our corporate bonds trading portfolio.

Capital expenditures increased by $4.4 million as a result of the renovation of a building adjacent to our corporate headquarters as well as costs related to the acquisition by our Property and Casualty Insurance segment of a computer system to manage its insurance operations.

In addition, on January 2006 we declared and paid a dividends amounting to $ 6.2 million.

The 2006 period reflects net surrenders of annuity contracts of $5.8 million while the 2005 period presents net proceeds from annuity contracts of $5.2 million. This fluctuation is principally due to an increase in the amount of annuity surrenders and a decrease in the proceeds received from the fixed deferred annuity product in the 2006 period.

Financing and Financing Capacity

The Corporation has significant short-term liquidity supporting its businesses. It also has available short-term facilities to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of securities sold under repurchase agreements. As of September 30, 2006, the Corporation had available $227.5 million and there is no outstanding balance as of that date.

As of September 30, 2006 the Corporation has the following senior unsecured notes payable:

	•		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. The proceeds obtained from this issuance were used to finance the acquisition of 100% of the common stock of GA Life effective January 31, 2006.

	•		On December 21, 2005, TSM issued and sold $60.0 million of its 6.6% senior unsecured notes due December 2020 (the 6.6% notes). The 6.6% notes were privately placed to various institutional accredited investors. The notes pay interest each month beginning on January 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. Proceeds were used to enter into a modified coinsurance with funds withheld reinsurance agreement with GA Life.

	•		On September 30, 2004, TSI issued and sold $50.0 million of its 6.3% senior unsecured notes due September 2019 (the 6.3% notes). The 6.3% notes are unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Corporation. The notes were privately placed to various institutional accredited investors. The notes pay interest semiannually beginning on March 2005, until such principal becomes due and payable. These notes can be prepaid after five years at par, in total or partially, as determined by the Corporation.

These notes contain certain covenants. At September 30, 2006, we are in compliance with these covenants.

In addition, we are a party to two secured loans with a commercial bank, FirstBank Puerto Rico. These secured loans bear interest rates based on the London Interbank Offered Rate (LIBOR) plus a margin specified by the commercial bank at the time of the agreement. As of September 30, 2006, the two secured loans had outstanding balances of $28.0 million and $10.5 million, respectively, and average annual interest rates of 6.0% and 6.3%, respectively. These secured loans contain restrictive covenants, including, but not limited to, the granting of certain liens, limitations on acquisitions and limitations on changes in control. At September 30, 2006, we are in compliance with these covenants.

Further details regarding the senior unsecured notes and the secured loans are incorporated by reference to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Corporation’s Annual Report on Form 10-K as of and for the year ended December 31, 2005.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Corporation is exposed to certain market risks that are inherent in the Corporation’s financial instruments, which arise from transactions entered into in the normal course of business. The Corporation has exposure to market risk mostly in its investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in the Corporation’s exposure to financial market risks since December 31, 2005. A discussion of the Corporation’s market risk as of December 31, 2005 is incorporated by reference to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” of the Corporation’s Annual Report on Form 10-K.

Item 4. Controls and Procedures

The Corporation’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures as of September 30, 2006. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2006. There were no significant changes in the Corporation’s disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed the evaluation referred to above.

Part II – Other Information

Item 1. Legal Proceedings

For a description of legal proceedings, see note 12 to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q.

Item IA. Risk Factors

Other than as disclosed in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section “Recent Developments”, no material change has occurred from risk factors previously disclosed by the Corporation in its Annual Report on Form 10-K for December 31. 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submissions of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

(a) Exhibits:

Exhibit 11 Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and nine months ended September 30, 2006 and 2005 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

Exhibit 12 Statements re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio for the three months and nine months ended September 30, 2006 and 2005 has been omitted as the detail necessary to determine the computation of the loss ratio, operating expense ratio and combined ratio can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

Exhibit 31.1 Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

Exhibit 31.2 Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).

Exhibit 32.1 Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.

Exhibit 32.2 Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.

All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

SIGNATURES

Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Triple-S Management Corporation Registrant

Date: November 13, 2006		By:	/s/ Ramón M. Ruiz-Comas
		Ramón M. Ruiz-Comas, CPA
		President and
		Chief Executive Officer

Date: November 13, 2006		By:	/s/ Juan J. Román
		Juan J. Román, CPA
		Vice President of Finance
		and Chief Financial Officer