##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 COMMISSION FILE NUMBER: 0-49762
 Triple-S Management Corporation
  Puerto Rico
    
    66-0555678(State or other jurisdiction ofincorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1441 F.D. Roosevelt AvenueSan Juan, Puerto Rico
    
    00920(Address of principal executive offices)
    
    (Zip code)
 (787) 749-4949
 Not applicable
 þ o
  o o þ
 o þ
  Title of each class
    
    Outstanding at June 30, 2006Common Stock, $40.00 par value
    
    8,911




---



##### 



Triple-S Management Corporation
 FORM 10-Q
   PAGEPART I  FINANCIAL INFORMATIONItem 1.Financial StatementsConsolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Earnings for the three months and six
months ended June 30, 2006 and 2005
    
    
    4Consolidated Statements of Stockholders Equity and Comprehensive
Income for the six months ended June 30, 2006 and 2005
    
    
    5Consolidated Statements of Cash Flows for the six months ended June
30, 2006 and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4.Controls and Procedures
    
    
    46PART II  OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    46Item 1ARisk Factors
    
    
    49Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3. Defaults Upon Senior Securities
    
    
    49Item 4. Submission of Matters to a Vote of Security Holders
    
    
    49Item 5.Other Information
    
    
    51Item 6. Exhibits
    
    
    51SIGNATURES
    
    
    52EX-10.1 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE METRO-NORTH HEALTH REGIONEX-10.2 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE NORTH HEALTH REGION.EX-10.3 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE SOUTH WEST HEALTH REGION.EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




---



##### Table of Contents



Part I  Financial Information
 
 Item 1. Financial Statements
 TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (Dollar amounts in thousands, except per share data)
 (Unaudited)June 30,
    
    December 31,2006
    
    2005ASSETSInvestments and cash:Securities held for trading, at fair value:Equity securities
    
    $
    80,017
    
    
    
    78,215Securities available for sale, at fair value:Fixed maturities
    
    
    695,310
    
    
    
    515,174Equity securities
    
    
    55,383
    
    
    
    51,810Securities held to maturity, at amortized cost:Fixed maturities
    
    
    21,005
    
    
    
    21,129Policy loans
    
    
    5,129
    
    
    
    Cash and cash equivalents
    
    
    53,946
    
    
    
    48,978Total investments, cash and cash equivalents
    
    
    910,790
    
    
    
    715,306Premiums and other receivables, net
    
    
    170,445
    
    
    
    244,038Deferred policy acquisition costs and value of business acquired
    
    
    105,606
    
    
    
    81,568Property and equipment, net
    
    
    40,503
    
    
    
    34,709Net deferred tax asset
    
    
    2,944
    
    
    
    2,151Other assets
    
    
    57,360
    
    
    
    59,690Total assets
    
    $
    1,287,648
    
    
    
    1,137,462LIABILITIES AND STOCKHOLDERS EQUITYClaim liabilities:Claims processed and incomplete
    
    $
    154,742
    
    
    
    139,694Unreported losses
    
    
    170,802
    
    
    
    143,224Unpaid loss-adjustment expenses
    
    
    16,054
    
    
    
    14,645Total claim liabilities
    
    
    341,598
    
    
    
    297,563Future policy benefits
    
    
    172,100
    
    
    
    Future policy benefits reserve related to funds withheld reinsurance
    
    
    
    
    
    
    118,635Unearned premiums
    
    
    101,603
    
    
    
    95,703Policyholder deposits
    
    
    53,852
    
    
    
    41,738Liability to Federal Employees Health Benefits Program
    
    
    4,490
    
    
    
    4,356Accounts payable and accrued liabilities
    
    
    114,644
    
    
    
    106,468Short-term borrowings
    
    
    
    
    
    
    1,740Long-term borrowings
    
    
    183,907
    
    
    
    150,590Additional minimum pension liability
    
    
    14,466
    
    
    
    11,966Total liabilities
    
    
    986,660
    
    
    
    828,759Stockholders equity:Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 8,911 at June 30, 2006 and
8,904 at December 31, 2005
    
    
    356
    
    
    
    356Additional paid-in capital
    
    
    150,408
    
    
    
    150,408Retained earnings
    
    
    170,733
    
    
    
    162,964Accumulated other comprehensive loss
    
    
    (20,509
    )
    
    
    (5,025
    )Total stockholders equity
    
    
    300,988
    
    
    
    308,703Total liabilities and stockholders equity
    
    $
    1,287,648
    
    
    
    1,137,462
 See accompanying notes to unaudited consolidated financial statements. 3




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Earnings (Unaudited)
  (Dollar amounts in thousands, except per share data)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005REVENUE:Premiums earned, net
    
    $
    389,210
    
    
    
    339,618
    
    
    
    771,314
    
    
    
    673,007Amounts attributable to self-funded
arrangements
    
    
    58,270
    
    
    
    52,439
    
    
    
    109,076
    
    
    
    104,354Less amounts attributable to claims under
self-funded arrangements
    
    
    (55,068
    )
    
    
    (49,302
    )
    
    
    (102,445
    )
    
    
    (97,842
    )392,412
    
    
    
    342,755
    
    
    
    777,945
    
    
    
    679,519Net investment income
    
    
    10,766
    
    
    
    7,217
    
    
    
    20,816
    
    
    
    14,281Net realized investment gains
    
    
    433
    
    
    
    1,363
    
    
    
    961
    
    
    
    4,677Net unrealized investment gain (loss) on trading securities
    
    
    (2,245
    )
    
    
    (634
    )
    
    
    311
    
    
    
    (6,427
    )Other income (expense), net
    
    
    (1,286
    )
    
    
    (142
    )
    
    
    (87
    )
    
    
    490Total revenue
    
    
    400,080
    
    
    
    350,559
    
    
    
    799,946
    
    
    
    692,540BENEFITS AND EXPENSES:Claims incurred
    
    
    334,186
    
    
    
    297,901
    
    
    
    660,870
    
    
    
    600,824Operating expenses, net of reimbursement
for services
    
    
    56,932
    
    
    
    45,453
    
    
    
    114,662
    
    
    
    89,219Interest expense
    
    
    3,692
    
    
    
    1,856
    
    
    
    7,086
    
    
    
    3,644Total benefits and expenses
    
    
    394,810
    
    
    
    345,210
    
    
    
    782,618
    
    
    
    693,687Income (loss) before taxes
    
    
    5,270
    
    
    
    5,349
    
    
    
    17,328
    
    
    
    (1,147
    )INCOME TAX EXPENSE (BENEFIT):Current
    
    
    779
    
    
    
    758
    
    
    
    3,415
    
    
    
    1,979Deferred
    
    
    (128
    )
    
    
    183
    
    
    
    (87
    )
    
    
    (2,327
    )Total income taxes
    
    
    651
    
    
    
    941
    
    
    
    3,328
    
    
    
    (348
    )Net income (loss)
    
    $
    4,619
    
    
    
    4,408
    
    
    
    14,000
    
    
    
    (799
    )Basic net income (loss) per share
    
    $
    518
    
    
    
    495
    
    
    
    1,571
    
    
    
    (90
    )
 See accompanying notes to unaudited consolidated financial statements. 4




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity and
Comprehensive Income (Unaudited)
 (Dollar amounts in thousands, except per share data)
 2006
    
    2005BALANCE AT JANUARY 1
    
    $
    308,703
    
    
    
    301,433Dividends
    
    
    (6,231
    )
    
    
    Comprehensive income (loss):Net income (loss)
    
    
    14,000
    
    
    
    (799
    )Net unrealized change in investment securities
    
    
    (15,621
    )
    
    
    (6,983
    )Net change in fair value of cash flow hedges
    
    
    137
    
    
    
    177Total comprehensive income (loss)
    
    
    (1,484
    )
    
    
    (7,605
    )BALANCE AT JUNE 30
    
    $
    300,988
    
    
    
    293,828
 See accompanying notes to unaudited consolidated financial statements. 5




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows (Unaudited)
 (Dollar amounts in thousands, except per share data)
 Six months endedJune 30,2006
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Premiums collected
    
    $
    746,119
    
    
    
    664,493Claims, losses and benefits paid
    
    
    (622,189
    )
    
    
    (578,955
    )Cash paid to suppliers and employees
    
    
    (126,278
    )
    
    
    (96,566
    )Interest received
    
    
    21,619
    
    
    
    14,322Income taxes paid
    
    
    (506
    )
    
    
    (6,482
    )Proceeds from trading securities sold or matured:Fixed maturities sold
    
    
    
    
    
    
    57,795Equity securities
    
    
    11,439
    
    
    
    14,021Acquisitions of investments in trading portfolio:Fixed maturities
    
    
    
    
    
    
    (32,144
    )Equity securities
    
    
    (11,579
    )
    
    
    (11,784
    )Interest paid
    
    
    (5,603
    )
    
    
    (3,064
    )Expense reimbursement from Medicare
    
    
    7,480
    
    
    
    6,986Net cash provided by operating activities
    
    
    20,502
    
    
    
    28,622CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from investments sold or matured:Securities available for sale:Fixed maturities sold
    
    
    17,337
    
    
    
    1,172Fixed maturities matured
    
    
    19,928
    
    
    
    7,920Equity securities
    
    
    362
    
    
    
    2,670Securities held to maturity:Fixed maturities matured
    
    
    277
    
    
    
    594Acquisitions of investments:Securities available for sale:Fixed maturities
    
    
    (39,447
    )
    
    
    (26,796
    )Equity securities
    
    
    (5,847
    )
    
    
    (2,822
    )Securities held to maturity:Fixed maturities
    
    
    
    
    
    
    (8,494
    )Acquisition of business, net of $10,403 of cash acquired
    
    
    (27,793
    )
    
    
    Net disbursements for policy loans
    
    
    (350
    )
    
    
    Capital expenditures
    
    
    (7,225
    )
    
    
    (3,143
    )Proceeds from sale of property and equipment
    
    
    2
    
    
    
    Net cash used in investing activities
    
    
    (42,756
    )
    
    
    (28,899
    )CASH FLOWS FROM FINANCING ACTIVITIES:Change in outstanding checks in excess of bank balances
    
    
    2,556
    
    
    
    2,451Payments of short-term borrowings
    
    
    (106,137
    )
    
    
    (77,285
    )Proceeds from short-term borrowings
    
    
    104,397
    
    
    
    75,585Payments of long-term borrowings
    
    
    (1,683
    )
    
    
    (3,183
    )Proceeds from long-term borrowings
    
    
    35,000
    
    
    
    Dividends
    
    
    (6,231
    )
    
    
    Proceeds from policyholder deposits
    
    
    3,531
    
    
    
    5,740Surrenders of policyholder deposits
    
    
    (4,211
    )
    
    
    (3,110
    )Net cash provided by financing activities
    
    
    27,222
    
    
    
    198Net increase (decrease) in cash and cash equivalents
    
    
    4,968
    
    
    
    (79
    )Cash and cash equivalents at beginning of the period
    
    
    48,978
    
    
    
    35,115Cash and cash equivalents at end of the period
    
    $
    53,946
    
    
    
    35,036
 See accompanying notes to unaudited consolidated financial statements. 6




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 (1) Basis of Presentation
    Future Policy Benefits
  Value of Business Acquired
  (2) Recent Accounting Standards
 Accounting for Uncertainty in Income Taxes an Interpretation of FASB
Statement No. 109 Accounting for Income Taxes
 7




---



##### Table of Contents



Accounting for Certain Hybrid Financial Instruments Accounting for
Derivatives and Hedging Activities Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
 Accounting for Servicing of Financial Assets Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
 (3) Segment Information
  8




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 Operating SegmentsHealth
    
    HealthInsurance
    
    Insurance
    
    Property
    
    Life andCommercial
    
    Reform
    
    and Casualty
    
    DisabilityProgram
    
    Program
    
    Insurance
    
    Insurance
    
    Other *
    
    TotalTHREE MONTHS ENDED JUNE 30, 2006Premiums earned, net
    
    $
    222,914
    
    
    
    120,267
    
    
    
    21,988
    
    
    
    24,041
    
    
    
    
    
    
    
    389,210Amounts attributable to self-funded arrangements
    
    
    58,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,270Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (55,068
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,068
    )Intersegment premiums earned/service revenues
    
    
    1,491
    
    
    
    
    
    
    
    155
    
    
    
    78
    
    
    
    12,197
    
    
    
    13,921227,607
    
    
    
    120,267
    
    
    
    22,143
    
    
    
    24,119
    
    
    
    12,197
    
    
    
    406,333Net investment income
    
    
    3,722
    
    
    
    794
    
    
    
    2,316
    
    
    
    3,822
    
    
    
    
    
    
    
    10,654Realized gain (loss) on sale of securities
    
    
    391
    
    
    
    
    
    
    
    62
    
    
    
    (20
    )
    
    
    
    
    
    
    433Unrealized loss on trading securities
    
    
    (1,906
    )
    
    
    
    
    
    
    (299
    )
    
    
    (40
    )
    
    
    
    
    
    
    (2,245
    )Other income (expense), net
    
    
    (1,423
    )
    
    
    (11
    )
    
    
    54
    
    
    
    76
    
    
    
    
    
    
    
    (1,304
    )Total revenue
    
    $
    228,391
    
    
    
    121,050
    
    
    
    24,276
    
    
    
    27,957
    
    
    
    12,197
    
    
    
    413,871Net income (loss)
    
    $
    (2,257
    )
    
    
    2,556
    
    
    
    1,614
    
    
    
    2,265
    
    
    
    17
    
    
    
    4,195Claims incurred
    
    $
    200,112
    
    
    
    108,981
    
    
    
    11,629
    
    
    
    13,464
    
    
    
    
    
    
    
    334,186Operating expenses
    
    $
    29,651
    
    
    
    8,464
    
    
    
    11,076
    
    
    
    10,974
    
    
    
    11,977
    
    
    
    72,142Depreciation expense, included in operating expenses
    
    $
    760
    
    
    
    132
    
    
    
    132
    
    
    
    182
    
    
    
    
    
    
    
    1,206Interest expense
    
    $
    1,330
    
    
    
    355
    
    
    
    
    
    
    
    1,317
    
    
    
    
    
    
    
    3,002Income tax expense (benefit)
    
    $
    (445
    )
    
    
    694
    
    
    
    (43
    )
    
    
    (63
    )
    
    
    203
    
    
    
    346
 *
    
    Includes segments which are not required to be reported separately. These segments include the
data processing services organization as well as the third-party administrator of health insurance
services. 9




---



##### Table of Contents



TRIPLE-S
MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 Operating SegmentsHealth
    
    HealthInsurance
    
    Insurance
    
    Property
    
    Life andCommercial
    
    Reform
    
    and Casualty
    
    DisabilityProgram
    
    Program
    
    Insurance
    
    Insurance
    
    Other *
    
    TotalTHREE MONTHS ENDED JUNE 30, 2005Premiums earned, net
    
    $
    190,138
    
    
    
    124,197
    
    
    
    21,102
    
    
    
    4,181
    
    
    
    
    
    
    
    339,618Amounts attributable to self-funded arrangements
    
    
    52,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,439Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (49,302
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,302
    )Intersegment premiums earned/service revenues
    
    
    1,029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,439
    
    
    
    12,468194,304
    
    
    
    124,197
    
    
    
    21,102
    
    
    
    4,181
    
    
    
    11,439
    
    
    
    355,223Net investment income
    
    
    3,410
    
    
    
    749
    
    
    
    2,180
    
    
    
    761
    
    
    
    
    
    
    
    7,100Realized gain (loss) on sale of securities
    
    
    1,445
    
    
    
    
    
    
    
    (105
    )
    
    
    23
    
    
    
    
    
    
    
    1,363Unrealized gain (loss) on trading securities
    
    
    (740
    )
    
    
    
    
    
    
    16
    
    
    
    90
    
    
    
    
    
    
    
    (634
    )Other income (expense), net
    
    
    (79
    )
    
    
    (6
    )
    
    
    (168
    )
    
    
    58
    
    
    
    
    
    
    
    (195
    )Total revenue
    
    $
    198,340
    
    
    
    124,940
    
    
    
    23,025
    
    
    
    5,113
    
    
    
    11,439
    
    
    
    362,857Net income (loss)
    
    $
    5,276
    
    
    
    (4,280
    )
    
    
    2,944
    
    
    
    474
    
    
    
    (42
    )
    
    
    4,372Claims incurred
    
    $
    164,320
    
    
    
    120,823
    
    
    
    10,247
    
    
    
    2,511
    
    
    
    
    
    
    
    297,901Operating expenses
    
    $
    25,899
    
    
    
    9,722
    
    
    
    9,108
    
    
    
    1,977
    
    
    
    11,313
    
    
    
    58,019Depreciation expense, included in operating expenses
    
    $
    858
    
    
    
    
    
    
    
    90
    
    
    
    20
    
    
    
    
    
    
    
    968Interest expense
    
    $
    1,114
    
    
    
    232
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    1,646Income tax expense (benefit)
    
    $
    1,731
    
    
    
    (1,557
    )
    
    
    726
    
    
    
    (149
    )
    
    
    168
    
    
    
    919
 *
    
    Includes segments which are not required to be reported separately. These segments include the
data processing services organization as well as the third-party administrator of health of health
insurance services. 10




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 Operating SegmentsHealth
    
    HealthInsurance
    
    Insurance
    
    Property
    
    Life andCommercial
    
    Reform
    
    and Casualty
    
    DisabilityProgram
    
    Program
    
    Insurance
    
    Insurance
    
    Other *
    
    TotalSIX MONTHS ENDED JUNE 30, 2006Premiums earned, net
    
    $
    434,021
    
    
    
    247,763
    
    
    
    43,886
    
    
    
    45,644
    
    
    
    
    
    
    
    771,314Amounts attributable to self-funded arrangements
    
    
    109,076
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,076Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (102,445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,445
    )Intersegment premiums earned/service revenues
    
    
    2,889
    
    
    
    
    
    
    
    284
    
    
    
    156
    
    
    
    25,465
    
    
    
    28,794443,541
    
    
    
    247,763
    
    
    
    44,170
    
    
    
    45,800
    
    
    
    25,465
    
    
    
    806,739Net investment income
    
    
    7,477
    
    
    
    1,595
    
    
    
    4,680
    
    
    
    6,832
    
    
    
    
    
    
    
    20,584Realized gain on sale of securities
    
    
    876
    
    
    
    33
    
    
    
    30
    
    
    
    22
    
    
    
    
    
    
    
    961Unrealized gain on trading securities
    
    
    8
    
    
    
    
    
    
    
    253
    
    
    
    50
    
    
    
    
    
    
    
    311Other income (expense), net
    
    
    (360
    )
    
    
    (15
    )
    
    
    108
    
    
    
    145
    
    
    
    
    
    
    
    (122
    )Total revenue
    
    $
    451,542
    
    
    
    249,376
    
    
    
    49,241
    
    
    
    52,849
    
    
    
    25,465
    
    
    
    828,473Net income (loss)
    
    $
    (141
    )
    
    
    6,223
    
    
    
    4,273
    
    
    
    2,772
    
    
    
    24
    
    
    
    13,151Claims incurred
    
    $
    390,969
    
    
    
    222,863
    
    
    
    21,942
    
    
    
    25,096
    
    
    
    
    
    
    
    660,870Operating expenses
    
    $
    58,052
    
    
    
    17,704
    
    
    
    22,718
    
    
    
    22,364
    
    
    
    24,961
    
    
    
    145,799Depreciation expense, included in operating expenses
    
    $
    1,520
    
    
    
    289
    
    
    
    239
    
    
    
    317
    
    
    
    
    
    
    
    2,365Interest expense
    
    $
    2,570
    
    
    
    679
    
    
    
    
    
    
    
    2,602
    
    
    
    
    
    
    
    5,851Income tax expense (benefit)
    
    $
    92
    
    
    
    1,907
    
    
    
    308
    
    
    
    15
    
    
    
    480
    
    
    
    2,802
 *
    
    Includes segments which are not required to be reported separately. These segments include the
data processing services organization as well as the third-party administrator of health insurance
services. 11




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 Operating SegmentsHealth
    
    HealthInsurance
    
    Insurance
    
    Property
    
    Life andCommercial
    
    Reform
    
    and Casualty
    
    DisabilityProgram
    
    Program
    
    Insurance
    
    Insurance
    
    Other *
    
    TotalSIX MONTHS ENDED JUNE 30, 2005Premiums earned, net
    
    $
    374,438
    
    
    
    247,337
    
    
    
    43,198
    
    
    
    8,034
    
    
    
    
    
    
    
    673,007Amounts attributable to self-funded arrangements
    
    
    104,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,354Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (97,842
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97,842
    )Intersegment premiums earned/service revenues
    
    
    2,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,077
    
    
    
    27,182383,055
    
    
    
    247,337
    
    
    
    43,198
    
    
    
    8,034
    
    
    
    25,077
    
    
    
    706,701Net investment income
    
    
    6,823
    
    
    
    1,490
    
    
    
    4,285
    
    
    
    1,472
    
    
    
    
    
    
    
    14,070Realized gain (loss) on sale of securities
    
    
    3,548
    
    
    
    (25
    )
    
    
    1,071
    
    
    
    83
    
    
    
    
    
    
    
    4,677Unrealized loss on trading securities
    
    
    (5,546
    )
    
    
    
    
    
    
    (777
    )
    
    
    (104
    )
    
    
    
    
    
    
    (6,427
    )Other income (expense), net
    
    
    109
    
    
    
    (11
    )
    
    
    170
    
    
    
    120
    
    
    
    
    
    
    
    388Total revenue
    
    $
    387,989
    
    
    
    248,791
    
    
    
    47,947
    
    
    
    9,605
    
    
    
    25,077
    
    
    
    719,409Net income (loss)
    
    $
    (1,527
    )
    
    
    (5,191
    )
    
    
    5,602
    
    
    
    60
    
    
    
    27
    
    
    
    (1,029
    )Claims incurred
    
    $
    337,149
    
    
    
    236,911
    
    
    
    21,620
    
    
    
    5,144
    
    
    
    
    
    
    
    600,824Operating expenses
    
    $
    50,139
    
    
    
    18,636
    
    
    
    19,449
    
    
    
    3,959
    
    
    
    24,718
    
    
    
    116,901Depreciation expense, included in operating expenses
    
    $
    1,683
    
    
    
    
    
    
    
    197
    
    
    
    59
    
    
    
    
    
    
    
    1,939Interest expense
    
    $
    2,172
    
    
    
    436
    
    
    
    
    
    
    
    579
    
    
    
    
    
    
    
    3,187Income tax expense (benefit)
    
    $
    56
    
    
    
    (2,001
    )
    
    
    1,276
    
    
    
    (137
    )
    
    
    332
    
    
    
    (474
    )
 *
    
    Includes segments which are not required to be reported separately. These segments include the
data processing services organization as well as the third-party administrator of health of health
insurance services. 12




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 Operating SegmentsHealth
    
    HealthInsurance
    
    Insurance
    
    Property
    
    Life andCommercial
    
    Reform
    
    and Casualty
    
    DisabilityProgram
    
    Program
    
    Insurance
    
    Insurance
    
    Other *
    
    TotalAS OF JUNE 30, 2006Segment assets
    
    $
    498,483
    
    
    
    85,503
    
    
    
    303,544
    
    
    
    393,514
    
    
    
    4,798
    
    
    
    1,285,842Significant noncash item:Net change in unrealized gain on securities
available for sale
    
    $
    (5,169
    )
    
    
    (802
    )
    
    
    (2,641
    )
    
    
    (6,861
    )
    
    
    
    
    
    
    (15,473
    )AS OF DECEMBER 31, 2005Segment assets
    
    $
    459,288
    
    
    
    82,685
    
    
    
    307,228
    
    
    
    271,615
    
    
    
    4,310
    
    
    
    1,125,126Significant noncash item:Net change in unrealized gain on securities
available for sale
    
    $
    (12,432
    )
    
    
    (1,301
    )
    
    
    (3,090
    )
    
    
    (1,844
    )
    
    
    
    
    
    
    (18,667
    )Net change in minimum pension liability
    
    
    (2,048
    )
    
    
    
    
    
    
    (142
    )
    
    
    (76
    )
    
    
    (453
    )
    
    
    (2,719
    )
 *
    
    Includes segments which are not required to be reported separately. These segments include the
data processing services organization as well
as the third-party administrator of health insurance services. 13




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005TOTAL REVENUETotal revenues for reportable segments
    
    $
    401,674
    
    
    
    351,418
    
    
    
    803,008
    
    
    
    694,332Total revenues for other segments
    
    
    12,197
    
    
    
    11,439
    
    
    
    25,465
    
    
    
    25,077413,871
    
    
    
    362,857
    
    
    
    828,473
    
    
    
    719,409Elimination of intersegment premiums earned
    
    
    (1,724
    )
    
    
    (1,029
    )
    
    
    (3,329
    )
    
    
    (2,105
    )Elimination of intersegment service revenues
    
    
    (12,197
    )
    
    
    (11,439
    )
    
    
    (25,465
    )
    
    
    (25,077
    )Unallocated amount  revenues from external sources
    
    
    130
    
    
    
    170
    
    
    
    267
    
    
    
    313(13,791
    )
    
    
    (12,298
    )
    
    
    (28,527
    )
    
    
    (26,869
    )Consolidated total revenue
    
    $
    400,080
    
    
    
    350,559
    
    
    
    799,946
    
    
    
    692,540NET INCOMENet income (loss) for reportable segments
    
    $
    4,178
    
    
    
    4,414
    
    
    
    13,127
    
    
    
    (1,056
    )Net income (loss) for other segments
    
    
    17
    
    
    
    (42
    )
    
    
    24
    
    
    
    274,195
    
    
    
    4,372
    
    
    
    13,151
    
    
    
    (1,029
    )Elimination of TSM charges:Rent expense
    
    
    1,685
    
    
    
    1,617
    
    
    
    3,375
    
    
    
    3,241Interest expense
    
    
    1,401
    
    
    
    300
    
    
    
    2,744
    
    
    
    556Management fees
    
    
    930
    
    
    
    
    
    
    
    1,610
    
    
    
    4,016
    
    
    
    1,917
    
    
    
    7,729
    
    
    
    3,797Unallocated amounts related to TSM:General and administrative expenses
    
    
    (1,326
    )
    
    
    (1,519
    )
    
    
    (2,642
    )
    
    
    (2,741
    )Income tax expense
    
    
    (305
    )
    
    
    (22
    )
    
    
    (526
    )
    
    
    (126
    )Interest expense
    
    
    (2,091
    )
    
    
    (510
    )
    
    
    (3,979
    )
    
    
    (1,013
    )Other revenues from external sources
    
    
    130
    
    
    
    170
    
    
    
    267
    
    
    
    313(3,592
    )
    
    
    (1,881
    )
    
    
    (6,880
    )
    
    
    (3,567
    )Consolidated net income (loss)
    
    $
    4,619
    
    
    
    4,408
    
    
    
    14,000
    
    
    
    (799
    )
 14




---



##### Table of Contents



TRIPLE-S
MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
 Three months ended June 30, 2006Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsClaims incurred
    
    $
    334,186
    
    
    
    
    
    
    
    334,186Operating expenses
    
    
    72,142
    
    
    
    (15,210
    )
    
    
    56,932Depreciation expense
    
    
    1,206
    
    
    
    282
    
    
    
    1,488Interest expense
    
    
    3,002
    
    
    
    690
    
    
    
    3,692Income tax expense
    
    
    346
    
    
    
    305
    
    
    
    651
 Three months ended June 30, 2006Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsClaims incurred
    
    $
    297,901
    
    
    
    
    
    
    
    297,901Operating expenses
    
    
    58,019
    
    
    
    (12,566
    )
    
    
    45,453Depreciation expense
    
    
    968
    
    
    
    272
    
    
    
    1,240Interest expense
    
    
    1,646
    
    
    
    210
    
    
    
    1,856Income tax expense
    
    
    919
    
    
    
    22
    
    
    
    941
 Six months ended June 30, 2006Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsClaims incurred
    
    $
    660,870
    
    
    
    
    
    
    
    660,870Operating expenses
    
    
    145,799
    
    
    
    (31,137
    )
    
    
    114,662Depreciation expense
    
    
    2,365
    
    
    
    565
    
    
    
    2,930Interest expense
    
    
    5,851
    
    
    
    1,235
    
    
    
    7,086Income tax expense
    
    
    2,802
    
    
    
    526
    
    
    
    3,328
 Six months ended June 30, 2006Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsClaims incurred
    
    $
    600,824
    
    
    
    
    
    
    
    600,824Operating expenses
    
    
    116,901
    
    
    
    (27,682
    )
    
    
    89,219Depreciation expense
    
    
    1,939
    
    
    
    549
    
    
    
    2,488Interest expense
    
    
    3,187
    
    
    
    457
    
    
    
    3,644Income tax expense (benefit)
    
    
    (474
    )
    
    
    126
    
    
    
    (348
    )
 
 *
    
    Adjustments represent TSM operations and the elimination of intersegment
charges. 15




---



##### Table of Contents



TRIPLE-S
MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
 June 30,
    
    December 31,2006
    
    2005ASSETSTotal assets for reportable segments
    
    $
    1,281,044
    
    
    
    1,120,816Total assets for other segments
    
    
    4,798
    
    
    
    4,3101,285,842
    
    
    
    1,125,126Elimination entries  intersegment receivables and others
    
    
    (36,084
    )
    
    
    (28,705
    )Unallocated amounts related to TSM:Parent cash, cash equivalents and investments
    
    
    11,259
    
    
    
    11,054Parent net property and equipment
    
    
    24,197
    
    
    
    24,760Parent other assets
    
    
    2,434
    
    
    
    5,22737,890
    
    
    
    41,041Consolidated assets
    
    $
    1,287,648
    
    
    
    1,137,462
 OTHER SIGNIFICANT ITEMS
 As of June 30, 2006Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsSignificant noncash item  net change in unrealized
gain on securities available for sale
    
    $
    (15,473
    )
    
    
    (148
    )
    
    
    (15,621
    )
 As of December 31, 2005Segment
    
    
    
    
    
    ConsolidatedTotals
    
    Adjustments *
    
    TotalsSignificant 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. 16




---



##### Table of Contents



TRIPLE-S
MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 (4) Investment in Securities
  June 30, 2006Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueTrading securities:Equity securities
    
    $
    70,888
    
    
    
    12,237
    
    
    
    (3,108
    )
    
    
    80,017
 June 30, 2006Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueSecurities available for sale:Fixed maturities
    
    $
    720,203
    
    
    
    302
    
    
    
    (25,195
    )
    
    
    695,310Equity securities
    
    
    46,115
    
    
    
    12,752
    
    
    
    (3,484
    )
    
    
    55,383$
    766,318
    
    
    
    13,054
    
    
    
    (28,679
    )
    
    
    750,693
 June 30, 2006Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueSecurities held to maturity:Fixed maturities
    
    $
    21,005
    
    
    
    296
    
    
    
    (1,170
    )
    
    
    20,131
 December 31, 2005Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueTrading securities:Equity securities
    
    $
    69,397
    
    
    
    11,378
    
    
    
    (2,560
    )
    
    
    78,215
 December 31, 2005Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueSecurities available for sale:Fixed maturities
    
    $
    524,287
    
    
    
    694
    
    
    
    (9,807
    )
    
    
    515,174Equity securities
    
    
    38,675
    
    
    
    14,550
    
    
    
    (1,415
    )
    
    
    51,810$
    562,962
    
    
    
    15,244
    
    
    
    (11,222
    )
    
    
    566,984
 17




---



##### Table of Contents



TRIPLE-S
MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 December 31, 2005Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimated faircost
    
    gains
    
    losses
    
    valueSecurities held to maturity:Fixed maturities
    
    $
    21,129
    
    
    
    254
    
    
    
    (623
    )
    
    
    20,760
    
 18




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 (5) Premiums and Other Receivables
  June 30,
    
    December 31,2006
    
    2005Premiums
    
    $
    87,865
    
    
    
    53,391Self-funded group receivables
    
    
    24,317
    
    
    
    21,620FEHBP
    
    
    10,604
    
    
    
    9,491Accrued interest
    
    
    7,688
    
    
    
    5,074Agents balances
    
    
    3,013
    
    
    
    Funds withheld reinsurance receivable
    
    
    
    
    
    
    118,635Reinsurance recoverable
    
    
    36,611
    
    
    
    33,915Other
    
    
    14,227
    
    
    
    14,152184,325
    
    
    
    256,278Less allowance for doubtful receivables:Premiums
    
    
    9,474
    
    
    
    7,792Other
    
    
    4,406
    
    
    
    4,44813,880
    
    
    
    12,240Total premiums and other receivables
    
    $
    170,445
    
    
    
    244,038
 (6) Claim Liabilities
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Claim liabilities at beginning of period
    
    $
    326,339
    
    
    
    304,632
    
    
    
    297,563
    
    
    
    279,325Reinsurance recoverable on claim liabilities
    
    
    (29,031
    )
    
    
    (25,285
    )
    
    
    (28,720
    )
    
    
    (26,555
    )Net claim
liabilities at
beginning of period
    
    
    297,308
    
    
    
    279,347
    
    
    
    268,843
    
    
    
    252,770Claim liabilities acquired from GA Life
    
    
    
    
    
    
    
    
    
    
    8,771
    
    
    
    Incurred claims and loss-adjustment expenses:Current period insured events
    
    
    333,790
    
    
    
    295,216
    
    
    
    650,594
    
    
    
    592,733Prior period insured events
    
    
    (3,605
    )
    
    
    2,685
    
    
    
    855
    
    
    
    8,091Total
    
    
    330,185
    
    
    
    297,901
    
    
    
    651,449
    
    
    
    600,824Payments of losses and loss-adjustment expenses:Current period insured events
    
    
    290,834
    
    
    
    277,796
    
    
    
    458,545
    
    
    
    415,147Prior period insured events
    
    
    24,234
    
    
    
    25,352
    
    
    
    158,093
    
    
    
    164,347Total
    
    
    315,068
    
    
    
    303,148
    
    
    
    616,638
    
    
    
    579,494Net claim liabilities at end of period
    
    
    312,425
    
    
    
    274,100
    
    
    
    312,425
    
    
    
    274,100Reinsurance recoverable on claim liabilities
    
    
    29,173
    
    
    
    26,597
    
    
    
    29,173
    
    
    
    26,597Claim liabilities at end of period
    
    $
    341,598
    
    
    
    300,697
    
    
    
    341,598
    
    
    
    300,697
  19




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
  (7) Long-term Borrowings
  June 30,
    
    December 31,2006
    
    2005Secured 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 6.43% and 5.71% at
June 30, 2006 and December 31, 2005, respectively)
    
    $
    10,500
    
    
    
    11,500Senior unsecured notes payable of $50,000 due September 2019.
Interest is payable semiannually at a fixed rate of 6.30%.
    
    
    50,000
    
    
    
    50,000Senior unsecured notes payable of $60,000 due December 2020.
Interest is payable monthly at a fixed rate of 6.60%.
    
    
    60,000
    
    
    
    60,000Senior 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 6.13% and
5.29% at June 30, 2006 and December 31, 2005, respectively)
    
    
    28,407
    
    
    
    29,090Total long-term borrowings
    
    $
    183,907
    
    
    
    150,590
  (8) Comprehensive Income
  AccumulatedUnrealized
    
    Minimum
    
    
    
    
    
    othergains on
    
    pension
    
    Cash flow
    
    comprehensivesecurities
    
    liability
    
    hedges
    
    incomeBALANCE AT JANUARY 1
    
    $
    3,217
    
    
    
    (8,613
    )
    
    
    371
    
    
    
    (5,025
    )Net current period change
    
    
    (15,621
    )
    
    
    
    
    
    
    137
    
    
    
    (15,484
    )BALANCE AT JUNE 30
    
    $
    (12,404
    )
    
    
    (8,613
    )
    
    
    508
    
    
    
    (20,509
    )
 20




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
 (9) Income Taxes
   (10) Pension Plan
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    1,322
    
    
    
    1,187
    
    
    
    2,692
    
    
    
    2,330Interest cost
    
    
    1,128
    
    
    
    1,038
    
    
    
    2,303
    
    
    
    2,068Expected return on assets
    
    
    (935
    )
    
    
    (868
    )
    
    
    (1,926
    )
    
    
    (1,711
    )Amortization of prior service cost
    
    
    12
    
    
    
    12
    
    
    
    24
    
    
    
    24Amortization of actuarial loss
    
    
    590
    
    
    
    505
    
    
    
    1,192
    
    
    
    995Net periodic benefit cost
    
    $
    2,117
    
    
    
    1,874
    
    
    
    4,285
    
    
    
    3,706
 Employer contributions
  (11) Net Income (Loss) Available to Stockholders and Net Income (Loss) per Share
  21




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Numerator for basic earnings per share:Net income (loss) available to stockholders
    
    $
    4,619
    
    
    
    4,408
    
    
    
    14,000
    
    
    
    (799
    )Denominator for basic earnings per share:Weighted average of outstanding common
shares
    
    
    8,911
    
    
    
    8,904
    
    
    
    8,909
    
    
    
    8,904Basic net income (loss) per share
    
    $
    518
    
    
    
    495
    
    
    
    1,571
    
    
    
    (90
    )
 (12) Contingencies
 (a)
    
    As of June 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.(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.In December 1996, the Commissioner of Insurance issued an order to annul the sale of the
1,582 shares. TSI contested such order through an administrative and judicial review
process. Consequently, the sale of 1,582 shares was cancelled and the purchase price was
returned to each former stockholder. In the year 2000, the Commissioner of Insurance
issued an order that, among other things, required that all corporate decisions undertaken
by TSI through the vote of its stockholders of record, be ratified in a stockholders
meeting or in a subsequent referendum. In November 2000, TSM, as the sole stockholder of
TSI, ratified all such decisions. Thereafter the plaintiffs filed a petition for review of
the Commissioners determination before the Puerto Rico Circuit Court of Appeals (the Court
of Appeals). TSI and the Commissioner opposed such petition.Pursuant to that review, on September 24, 2002, the Court of Appeals issued an order
requiring the Commissioner to order that a meeting of shareholders be held to ratify TSIs
corporate reorganization and the change of name of TSI from Seguros de Servicios de Salud
de Puerto Rico, Inc. to Triple-S, Inc. The Court of Appeals based its decision on
administrative and procedural issues directed at the Commissioner. Subsequently, the
Commissioner, TSM and TSI filed a motion of reconsideration. On May 18, 2003, the Court of
Appeals granted TSIs and TSMs Motion of Reconsideration and that the reorganization of
TSI was approved by the stockholders.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
 22




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements
  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. The
suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring
control of TSI through illegally capitalizing TSI and later converting it to a for-profit
corporation and depriving the stockholders of their ownership rights. The plaintiffs base
their later allegations on the supposed decisions of TSIs board of directors and
stockholders, allegedly made in 1979, to operate with certain restrictions in order to
turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court
issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in
the complaint, eight counts were dismissed for failing to assert an actionable injury; six
of them for lack of standing and two for failing to plead with sufficient particularity in
compliance with the Rules. All shareholder allegations, including those described above,
were dismissed in the Opinion and Order. The remaining four counts were found standing,
in a limited way, in the Opinion and Order. The parties finished class certification
discovery and fully briefed the issue of class certification. While waiting for the
Courts decision on the issue of class certification, the Court sua sponte, issued an
Order to Show Cause (OTC) to plaintiffs as to why the complaint should not be dismissed
with prejudice. The Courts OTC is predicated on the parties submissions about class
certification. The Court then granted plaintiffs leave to file a sur-reply, which they
did on April 21, 2006. In its OTC the Court indicated that it would decide first the
sustainability of the complaint before deciding plaintiffs request for class
certification. 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 because
Plaintiffs allegations were unsupportable at trial. Plaintiffs filed a notice of appeal
before the United States Court of Appeals for the First Circuit. Recently, the Appeals
Court notified the briefing schedule, and Plaintiffs have until August 21, 2006 to file
their brief.(d)
    
    On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a
suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior
Section, alleging, among other things, violations by the defendants of provisions of the
Puerto Rico Insurance Code, anti-monopolistic practices, unfair business practices and
damages in the amount of $12.0 million. They also requested that TSM sell shares to them.
After a preliminary review of the complaint, it appears that many of the allegations
brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases
brought by the same plaintiffs in the United States District Court for the District of
Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including
TSM and TSI answered the complaint, filed a counterclaim and filed several motions to
dismiss this claim. On February 18, 2005 the plaintiffs informed their intention to amend
the complaint and the Court granted them 45 days to do so and 90 days to the defendants to
file the corresponding motion to dismiss. On May 9, 2005 the plaintiffs amended the
complaint and the defendants 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
argument on the same motions. On July 6, 2006 the Court held the last of three
 23




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 hearings to hear arguments on the defendants dispositive motions. The Court stayed all
discovery until the motions are resolved.(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.The Court issued a 90-day stay to allow the parties to discuss their differences and come
to amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the
stay, both plaintiffs and defendants agreed to request the Court to extend the stay until
April 21, 2006. The stay expired and the parties informed the Court that they need
additional time to iron out the details of an amicable solution. The Court has not reacted
to the parties joint request. If the Court denies another stay, the parties will have to
continue the proceedings where they were left before the issuance of the first stay. In
the meantime, the Court issued an Agreed Order on the Preservation of Records. This order
supersedes the parties existing record-keeping policies in regards to the documents and
materials specified in the order. The purpose of the order is to avoid the disposition of
documents that might be relevant for the case.(f)
    
    On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD and
Orlando Armstrong, MD, on behalf of themselves and all other similarly situated and the
American Podiatric Medical Association, Florida Chiropractic Association, California
Podiatric Medical Association, Florida Podiatric Medical Association, Texas Podiatric
Medical Association, and Independent Chiropractic Physicians, against the BCBSA and
multiple other insurance companies, including TSI and all members of the BCBSA. The case
is still pending before the United States District Court for the Southern District of
Florida, Miami District.
 24




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 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.
 (13) Acquisition
 Business
Combinations
  Current assets
    
    $
    219,747Property and equipment
    
    
    1,500Value of business acquired
    
    
    21,973Total assets acquired
    
    
    243,220Total liabilities assumed
    
    
    205,024Net assets acquired
    
    $
    38,196
  25




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
   Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Total revenue
    
    $
    400,080
    
    
    
    377,192
    
    
    
    807,229
    
    
    
    740,432Net income
    
    $
    4,619
    
    
    
    11,603
    
    
    
    14,317
    
    
    
    9,577Basic net income per share
    
    $
    518
    
    
    
    1,303
    
    
    
    1,607
    
    
    
    1,076
 26




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 Notes to Consolidated Financial Statements   (Dollar amounts in thousands, except per share data)
 (14) Reconciliation of Net Income to Net Cash Provided by Operating Activities
  Six months endedJune 30,2006
    
    2005Net income (loss)
    
    $
    14,000
    
    
    
    (799
    )Adjustments to reconcile net income (loss) to net cash
provided by operating expenses:Depreciation and amortization
    
    
    2,930
    
    
    
    2,488Amortization of investment discounts
    
    
    534
    
    
    
    321Accretion in value of securities
    
    
    (334
    )
    
    
    (288
    )Increase (decrease) in provision for doubtful
receivables
    
    
    775
    
    
    
    (249
    )Decrease in net deferred taxes
    
    
    (87
    )
    
    
    (2,327
    )Gain on sale of securities
    
    
    (961
    )
    
    
    (4,677
    )Unrealized gain (loss) of trading securities
    
    
    (311
    )
    
    
    6,427Proceeds from trading securities sold:Fixed maturities
    
    
    
    
    
    
    57,795Equity securities
    
    
    11,439
    
    
    
    14,021Acquisition of securities in trading portfolio:Fixed maturities
    
    
    
    
    
    
    (32,144
    )Equity securities
    
    
    (11,579
    )
    
    
    (11,784
    )Loss on sale of property and equipment
    
    
    (1
    )
    
    
    (1
    )(Increase) decrease in assets:Premiums receivable
    
    
    (37,066
    )
    
    
    (10,469
    )Accrued interest receivable
    
    
    712
    
    
    
    8Agents balances
    
    
    (58
    )
    
    
    Reinsurance receivable
    
    
    (1,873
    )
    
    
    497Other receivables
    
    
    121
    
    
    
    1,996Deferred policy acquisition costs
    
    
    (2,065
    )
    
    
    (61
    )Prepaid income tax
    
    
    2,909
    
    
    
    (2,676
    )Other assets
    
    
    194
    
    
    
    (4,233
    )Increase (decrease) in liabilities:Claims processed and incomplete
    
    
    10,334
    
    
    
    6,717Unreported losses
    
    
    23,409
    
    
    
    14,698Unpaid loss-adjustment expenses
    
    
    1,109
    
    
    
    (43
    )Future policy benefits
    
    
    5,702
    
    
    
    Unearned premiums
    
    
    3,600
    
    
    
    (1,701
    )Policyholder deposits
    
    
    889
    
    
    
    580Liability to FEHBP
    
    
    134
    
    
    
    (2,985
    )Accounts payable and accrued liabilities
    
    
    (3,954
    )
    
    
    (662
    )Income tax payable
    
    
    
    
    
    
    (1,827
    )Net cash provided by operating activities
    
    $
    20,502
    
    
    
    28,622
 27




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cautionary Statement Regarding Forward-Looking Information
  Structure of the Organization
  
    
    Triple-S, Inc. (TSI), a health insurance company serving two major segments: the
Commercial Program and the Commonwealth of Puerto Rico Healthcare Reform Program (the
Healthcare Reform);
    
    Seguros Triple-S, Inc. (STS), a property and casualty insurance company;
    
    Great American Life Assurance Company of Puerto Rico (GA Life) a life insurance
company; and
    
    Seguros de Vida Triple-S, Inc. (SVTS), a life and disability insurance and annuity
products company.
   28




---



##### Table of Contents



Recent Developments
 Puerto Ricos Economy
  Healthcare Reform Segment
  Recent Accounting Standards
  Significant Transactions
   29




---



##### Table of Contents



Consolidated
 Three months ended June 30, 2005Comparable(Dollar amounts in thousands)
    
    TSM
    
    GA Life
    
    BasisREVENUE:Premiums earned, net
    
    $
    339,618
    
    
    
    18,949
    
    
    
    358,567Amounts attributable to self-funded arrangements
    
    
    52,439
    
    
    
    
    
    
    
    52,439Less amounts attributable to claims under
self-funded arrangements
    
    
    (49,302
    )
    
    
    
    
    
    
    (49,302
    )342,755
    
    
    
    18,949
    
    
    
    361,704Net investment income
    
    
    7,217
    
    
    
    3,054
    
    
    
    10,271Net realized investment gains
    
    
    1,363
    
    
    
    5,113
    
    
    
    6,476Net unrealized investment loss on trading securities
    
    
    (634
    )
    
    
    
    
    
    
    (634
    )Other income, net
    
    
    (142
    )
    
    
    
    
    
    
    (142
    )Total revenue
    
    
    350,559
    
    
    
    27,116
    
    
    
    377,675BENEFITS AND EXPENSES:Claims incurred
    
    
    297,901
    
    
    
    10,640
    
    
    
    308,541Operating expenses, net of reimbursement for services
    
    
    45,453
    
    
    
    8,734
    
    
    
    54,187Interest expense
    
    
    1,856
    
    
    
    
    
    
    
    1,856Total benefits and expenses
    
    
    345,210
    
    
    
    19,374
    
    
    
    364,584Income before taxes
    
    
    5,349
    
    
    
    7,742
    
    
    
    13,091INCOME TAX EXPENSE (BENEFIT):Current
    
    
    758
    
    
    
    503
    
    
    
    1,261Deferred
    
    
    183
    
    
    
    (396
    )
    
    
    (213
    )Total income taxes
    
    
    941
    
    
    
    107
    
    
    
    1,048Net income
    
    $
    4,408
    
    
    
    7,635
    
    
    
    12,043Basic net income per share
    
    $
    495
    
    
    
    
    
    
    
    1,353
 Six months ended June 30, 2005Comparable(Dollar amounts in thousands)
    
    TSM
    
    GA Life
    
    BasisREVENUE:Premiums earned, net
    
    $
    673,007
    
    
    
    31,243
    
    
    
    704,250Amounts attributable to self-funded arrangements
    
    
    104,354
    
    
    
    
    
    
    
    104,354Less amounts attributable to claims under
self-funded arrangements
    
    
    (97,842
    )
    
    
    
    
    
    
    (97,842
    )679,519
    
    
    
    31,243
    
    
    
    710,762Net investment income
    
    
    14,281
    
    
    
    5,012
    
    
    
    19,293Net realized investment gains
    
    
    4,677
    
    
    
    4,738
    
    
    
    9,415Net unrealized investment loss on trading securities
    
    
    (6,427
    )
    
    
    
    
    
    
    (6,427
    )Other income, net
    
    
    490
    
    
    
    
    
    
    
    490Total revenue
    
    
    692,540
    
    
    
    40,993
    
    
    
    733,533BENEFITS AND EXPENSES:Claims incurred
    
    
    600,824
    
    
    
    17,358
    
    
    
    618,182Operating expenses, net of reimbursement for services
    
    
    89,219
    
    
    
    14,189
    
    
    
    103,408Interest expense
    
    
    3,644
    
    
    
    
    
    
    
    3,644Total benefits and expenses
    
    
    693,687
    
    
    
    31,547
    
    
    
    725,234Income (loss) before taxes
    
    
    (1,147
    )
    
    
    9,446
    
    
    
    8,299INCOME TAX EXPENSE (BENEFIT):Current
    
    
    1,979
    
    
    
    626
    
    
    
    2,605Deferred
    
    
    (2,327
    )
    
    
    (792
    )
    
    
    (3,119
    )Total income taxes
    
    
    (348
    )
    
    
    (166
    )
    
    
    (514
    )Net income (loss)
    
    $
    (799
    )
    
    
    9,612
    
    
    
    8,813Basic net income (loss) per share
    
    $
    (90
    )
    
    
    
    
    
    
    990
 30




---



##### Table of Contents



Life and Disability Insurance Segment
 Three months ended June 30, 2005Comparable(Dollar amounts in thousands)
    
    SVTS
    
    GA Life
    
    BasisNet earned premiums and commission income:Earned premiumsLife
    
    $
    2,207
    
    
    
    15,106
    
    
    
    17,313Disability
    
    
    3,439
    
    
    
    40
    
    
    
    3,479Cancer and other dreaded diseases
    
    
    373
    
    
    
    4,193
    
    
    
    4,566Total earned premiums
    
    
    6,019
    
    
    
    19,339
    
    
    
    25,358Earned premiums ceded
    
    
    (2,004
    )
    
    
    (390
    )
    
    
    (2,394
    )Net earned premiums
    
    
    4,015
    
    
    
    18,949
    
    
    
    22,964Commission income on reinsurance
    
    
    166
    
    
    
    
    
    
    
    166Net premiums earned
    
    $
    4,181
    
    
    
    18,949
    
    
    
    23,130Claims incurred
    
    $
    2,511
    
    
    
    10,640
    
    
    
    13,151Operating expenses
    
    
    1,977
    
    
    
    8,734
    
    
    
    10,711Total underwriting costs
    
    $
    4,488
    
    
    
    19,374
    
    
    
    23,862Underwriting income (loss)
    
    $
    (307
    )
    
    
    (425
    )
    
    
    (732
    )
 Six months ended June 30, 2005Comparable(Dollar amounts in thousands)
    
    SVTS
    
    GA Life
    
    BasisNet earned premiums and commission income:Earned premiumsLife
    
    $
    4,409
    
    
    
    24,911
    
    
    
    29,320Disability
    
    
    6,793
    
    
    
    66
    
    
    
    6,859Cancer and other dreaded diseases
    
    
    586
    
    
    
    6,975
    
    
    
    7,561Total earned premiums
    
    
    11,788
    
    
    
    31,952
    
    
    
    43,740Earned premiums ceded
    
    
    (4,027
    )
    
    
    (709
    )
    
    
    (4,736
    )Net earned premiums
    
    
    7,761
    
    
    
    31,243
    
    
    
    39,004Commission income on reinsurance
    
    
    273
    
    
    
    
    
    
    
    273Net premiums earned
    
    $
    8,034
    
    
    
    31,243
    
    
    
    39,277Claims incurred
    
    $
    5,144
    
    
    
    17,358
    
    
    
    22,502Operating expenses
    
    
    3,959
    
    
    
    14,189
    
    
    
    18,148Total underwriting costs
    
    $
    9,103
    
    
    
    31,547
    
    
    
    40,650Underwriting income (loss)
    
    $
    (1,069
    )
    
    
    (304
    )
    
    
    (1,373
    )
 General Information
   31




---



##### Table of Contents



Consolidated Operating Results
  Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
 Three months ended June 30,Comparable(dollar amounts in thousands)
    
    2006
    
    2005
    
    Basis 2005Consolidated earned premiums, net
and fee revenue
    
    $
    392,412
    
    
    
    342,755
    
    
    
    361,704Consolidated claims incurred
    
    $
    334,186
    
    
    
    297,901
    
    
    
    308,541Consolidated operating expenses
    
    
    56,932
    
    
    
    45,453
    
    
    
    54,187Consolidated operating costs
    
    $
    391,118
    
    
    
    343,354
    
    
    
    362,728Consolidated loss ratio
    
    
    85.2
    %
    
    
    86.9
    %
    
    
    85.3
    %Consolidated expense ratio
    
    
    14.5
    %
    
    
    13.3
    %
    
    
    15.0
    %Consolidated combined ratio
    
    
    99.7
    %
    
    
    100.2
    %
    
    
    100.3
    %Consolidated net investment income
    
    $
    10,766
    
    
    
    7,217
    
    
    
    10,271Consolidated realized gain on sale of securities
    
    
    433
    
    
    
    1,363
    
    
    
    6,476Consolidated unrealized loss on
trading securities
    
    
    (2,245
    )
    
    
    (634
    )
    
    
    (634
    )Total consolidated net investment income
    
    $
    8,954
    
    
    
    7,946
    
    
    
    16,113Consolidated other income (expense)
    
    $
    (1,286
    )
    
    
    (142
    )
    
    
    (142
    )Consolidated interest expense
    
    $
    3,692
    
    
    
    1,856
    
    
    
    1,856Consolidated income tax expense (benefit)
    
    $
    651
    
    
    
    941
    
    
    
    1,048Consolidated net income
    
    $
    4,619
    
    
    
    4,408
    
    
    
    12,043
  
    
    The earned premiums, net and fee revenue corresponding to the Health Insurance 
Commercial Program segment increased by $33.3 million, or 17.1%, during the period. The
increase in premiums earned, net of this segment is primarily due to an increase in the
average enrollment of the Medicare Advantage business in the 2006 period. The average
enrollment of the segments rated contracts decreased during the same period, the effect
of which was mitigated by an average increase in commercial accounts premium rates of
4.0%.
    
    The earned premiums, net of the Property and Casualty Insurance segment increased by
$1.0 million during the three months ended June 30, 2006. The fluctuation in the earned
premiums of this segment is principally due to an increase in the earned premiums of the
dwelling business of $1.4 million, or 21.9%, net of a decrease in the earned premiums of
the commercial multi-peril business of $1.0 million, or 6.7%. In addition, during the
three months ended June 30, 2006 the segment experienced an increase of $1.7 million in
the change in unearned premiums resulting from changes in the mix of the business
subscribed.
 32




---



##### Table of Contents




    
    The net earned premiums and commission income on a comparable basis of the Life and
Disability Insurance segment increased by $1.0 million, or 4.3%. The increase in the
earned premiums net of this segment is due to increases in the life and cancer and other
dreaded diseases lines of business of $815 thousand, or 4.7%, and $619 thousand, or 13.5%,
respectively. The fluctuation in the premiums of these lines of business is principally
due to increased sales in the 2006 period.
    
    The earned premiums, net of the Health Insurance  Healthcare Reform Program segment
presented a decrease of $3.9 million, or 3.2% during this period. This decrease is the
result of a decrease in average enrollment, net of 5.8% increase in premium rates
effective August 1, 2005.
        33




---



##### Table of Contents



Six Months Ended June 30, 2006 Compared
 to Six Months Ended June 30, 2005
 Six months ended June 30,Comparable(dollar amounts in thousands)
    
    2006
    
    2005
    
    Basis 2005Consolidated earned premiums, net
and fee revenue
    
    $
    777,945
    
    
    
    679,519
    
    
    
    710,762Consolidated claims incurred
    
    $
    660,870
    
    
    
    600,824
    
    
    
    618,182Consolidated operating expenses
    
    
    114,662
    
    
    
    89,219
    
    
    
    103,408Consolidated operating costs
    
    $
    775,532
    
    
    
    690,043
    
    
    
    721,590Consolidated loss ratio
    
    
    85.0
    %
    
    
    88.4
    %
    
    
    87.0
    %Consolidated expense ratio
    
    
    14.7
    %
    
    
    13.1
    %
    
    
    14.5
    %Consolidated combined ratio
    
    
    99.7
    %
    
    
    101.5
    %
    
    
    101.5
    %Consolidated net investment income
    
    $
    20,816
    
    
    
    14,281
    
    
    
    19,293Consolidated realized gain on sale of securities
    
    
    961
    
    
    
    4,677
    
    
    
    9,415Consolidated unrealized gain (loss) on
trading securities
    
    
    311
    
    
    
    (6,427
    )
    
    
    (6,427
    )Total consolidated net investment income
    
    $
    22,088
    
    
    
    12,531
    
    
    
    22,281Consolidated other income
    
    $
    (87
    )
    
    
    490
    
    
    
    490Consolidated interest expense
    
    $
    7,086
    
    
    
    3,644
    
    
    
    3,644Consolidated income tax expense (benefit)
    
    $
    3,328
    
    
    
    (348
    )
    
    
    (514
    )Consolidated net income (loss)
    
    $
    14,000
    
    
    
    (799
    )
    
    
    8,813
  
    
    The earned premiums, net and fee revenue corresponding to the Health Insurance 
Commercial Program segment increased by $60.5 million, or 15.8%, during the period. The
increase in premiums earned, net of this segment is primarily due to an increase in the
average enrollment of the Medicare Advantage business in the 2006 period. The average
enrollment of the segments rated contracts decreased during the same period, the effect
of which was mitigated by an average increase in commercial accounts premium rates of
4.0%.
    
    On a comparable basis, in the 2006 period the net earned premiums and commission income
of the Life and Disability Insurance segment increased by $6.5 million, or 16.6%. The
increase in the earned premiums net of this segment is due to the following:
 o
    
    The assumed earned premiums of the segment on both the actual and comparable
basis increased by $4.4 million in the 2006 period. This increase is due to the
business assumed by SVTS during January 2006 as a result of the coinsurance funds
withheld agreement with GA
 34




---



##### Table of Contents



Life, in which SVTS assumes 69% of GA Lifes business
effective December 22, 2005. However, since TSM acquired GA Life, now both entities
form the Corporations Life and Disability Insurance segment. Thus, this reinsurance
agreement is eliminated upon the combination of both entities for segment
presentation. The effects of the reinsurance transactions corresponding to this
agreement were eliminated for consolidated financial statement purposes for the period
following January 31, 2006.o
    
    On a comparable basis, the earned premiums of the segments life and cancer
and other dreaded diseases lines of business increased by $1.4 million, or 4.6%, and
$1.3 million, or 16.6%, respectively, mostly due to new sales during the period.
 
    
    The premiums earned, net of the Property and Casualty Insurance segment increased by
$1.0 million, or 2.3%, when comparing the 2006 and 2005 periods. This increase is mostly
noted in the dwelling and auto physical damage lines of business, which increased by $1.4
million, or 11.0%, and $1.2 million, or 12.4%, respectively, during this period. The
increase in the premiums for these lines of business is attributed to increased sales
during the 2006 period.
       35




---



##### Table of Contents



Health Insurance  Commercial Program Operating Results
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Average enrollment
    
    
    633,281
    
    
    
    630,721
    
    
    
    633,986
    
    
    
    630,805Earned premiums
    
    $
    223,623
    
    
    
    190,907
    
    
    
    435,468
    
    
    
    375,964Amounts attributable to self-funded arrangements
    
    
    59,052
    
    
    
    52,699
    
    
    
    110,518
    
    
    
    104,933Less: Amounts attributable to claims under
self-funded arrangements
    
    
    (55,068
    )
    
    
    (49,302
    )
    
    
    (102,445
    )
    
    
    (97,842
    )Earned premiums and fee revenue
    
    $
    227,607
    
    
    
    194,304
    
    
    
    443,541
    
    
    
    383,055Claims incurred
    
    $
    200,112
    
    
    
    164,320
    
    
    
    390,969
    
    
    
    337,149Operating expenses
    
    
    29,651
    
    
    
    25,899
    
    
    
    58,052
    
    
    
    50,139Total underwriting costs
    
    $
    229,763
    
    
    
    190,219
    
    
    
    449,021
    
    
    
    387,288Underwriting loss
    
    $
    (2,156
    )
    
    
    4,085
    
    
    
    (5,480
    )
    
    
    (4,233
    )Loss ratio
    
    
    87.9
    %
    
    
    84.6
    %
    
    
    88.1
    %
    
    
    88.0
    %Expense ratio
    
    
    13.0
    %
    
    
    13.3
    %
    
    
    13.1
    %
    
    
    13.1
    %Combined ratio
    
    
    100.9
    %
    
    
    97.9
    %
    
    
    101.2
    %
    
    
    101.1
    %
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
  
    
    Premiums generated by the segments Medicare Advantage program presented an increase of
$38.1 million when compared to the same period in 2005. This increase is primarily due to
the increase in enrollment experienced in this business. The average enrollment of the
Medicare Advantage program presented an increase of 33,875 members upon comparison of the
2006 and 2005 periods. In January 2006, the segment expanded its Medicare Advantage
program with the introduction of Medicare Platino(for medically indigent
Medicare-qualified beneficiaries in Puerto Rico) and FarmaMed(prescription drugs program
for beneficiaries of Medicare Parts A and B). The enrollment for these programs
contributed to the increase in average membership of the Medicare Advantage business.
    
    The segment experienced a decrease in the earned premiums corresponding to its other
rated contracts lines of business of approximately $6.8 million. This decrease is the
combined effect of a decrease in the average enrollment of 32,515 members, or 6.9%, and an
average increase in premium rates of approximately 4.0%. The decrease in average
enrollment in the individual and local government employees is mainly the result of
qualifying enrollees transferring to Medicare Advantage policies. The average enrollment
of the individual and local government employees business decreased by 7,088, or 8.7%, and
5,645, or 15.6%, respectively, during the 2006 period.
  36




---



##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
  
    
    Premiums generated by the segments Medicare Advantage program presented an increase of
$65.4 million during the 2006 period. This increase is primarily due to the increase in
enrollment experienced in this business. The average enrollment of the Medicare Advantage
program presented an increase of 29,310 members upon comparison of the 2006 and 2005
periods. As previously mentioned, the increase in enrollment of this business is due to
the launching of new Medicare Advantage policies in the first quarter of the year 2006.
The enrollment for these programs contributed to the increase in average membership of the
Medicare Advantage business.
    
    The segment experienced a decrease in the earned premiums corresponding to its other
rated contracts lines of business during the 2006 period. This decrease is the combined
effect of a decrease in the average enrollment of 27,057 members, or 5.7% and an average
increase in premium rates during the six months ended June 30, 2006 of approximately 4.0%.
        . The decrease in average enrollment in the individual and local government employees is
mainly the result of qualifying enrollees transferring to Medicare Advantage policies.
The average enrollment of the individual and local government employees business decreased
by 6,009, or 7.3%, and 5,289, or 14.5%, respectively, during the 2006 period.
   37




---



##### Table of Contents



Health Insurance  Healthcare Reform Program Operating Results
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Average enrollment
    
    
    570,978
    
    
    
    619,307
    
    
    
    583,767
    
    
    
    615,283Earned premiums
    
    $
    120,267
    
    
    
    124,197
    
    
    
    247,763
    
    
    
    247,337Claims incurred
    
    $
    108,981
    
    
    
    120,823
    
    
    
    222,863
    
    
    
    236,911Operating expenses
    
    
    8,464
    
    
    
    9,722
    
    
    
    17,704
    
    
    
    18,636Total underwriting costs
    
    $
    117,445
    
    
    
    130,545
    
    
    
    240,567
    
    
    
    255,547Underwriting income (loss)
    
    $
    2,822
    
    
    
    (6,348
    )
    
    
    7,196
    
    
    
    (8,210
    )Loss ratio
    
    
    90.6
    %
    
    
    97.3
    %
    
    
    90.0
    %
    
    
    95.8
    %Expense ratio
    
    
    7.0
    %
    
    
    7.8
    %
    
    
    7.1
    %
    
    
    7.5
    %Combined ratio
    
    
    97.7
    %
    
    
    105.1
    %
    
    
    97.1
    %
    
    
    103.3
    %
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
  
    
    The segments average enrollment during the 2006 quarter decreased by 48,329 members,
or 7.8%, when compared to the average enrollment during the 2005 quarter. This decrease
is mainly due to the shift of membership into a government-sponsored Medicare Advantage
policy.
    
    In addition, during the 2006 quarter the segment increased its allowance for doubtful
receivables by approximately $3.8 million. The additional allowance for doubtful
receivables was recorded to provide for possible retroactive enrollment cancellations by
the government of Puerto Rico.
    
    Premium rates for this segment were increased, effective August 1st, 2005,
by approximately 5.8% during the Healthcare Reform contract renegotiation process for the
eleven-month period ended June 30, 2006.
   Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
  
    
    Premium rates for this segment were increased, effective August 1st, 2005,
by approximately 5.8% during the Healthcare Reform contract renegotiation process for the
eleven-month period ended June 30, 2006.
    
    The segment has experienced a decrease in enrollment during the 2006 period. The
average enrollment in the 2006 period decreased by 31,516, or 5.1%, when compared to the
2005 period.
 38




---



##### Table of Contents



This fluctuation is primarily due to the previously mentioned shift in membership into the
government-sponsored Medicare Advantage policy.
    
    In addition, during the second quarter of 2006 the segment increased its allowance for
doubtful receivables by approximately $3.8 million. The additional allowance for doubtful
receivables was recorded to provide for possible retroactive enrollment cancellations by
the government of Puerto Rico.
   Property and Casualty Insurance Operating Results
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Premiums written
    
    $
    36,446
    
    
    
    36,045
    
    
    
    71,179
    
    
    
    69,812Premiums ceded
    
    
    (15,650
    )
    
    
    (14,590
    )
    
    
    (29,379
    )
    
    
    (29,065
    )Change in unearned premiums
    
    
    1,347
    
    
    
    (353
    )
    
    
    2,370
    
    
    
    2,451Net premiums earned
    
    $
    22,143
    
    
    
    21,102
    
    
    
    44,170
    
    
    
    43,198Claims incurred
    
    $
    11,629
    
    
    
    10,247
    
    
    
    21,942
    
    
    
    21,620Operating expenses
    
    
    11,076
    
    
    
    9,108
    
    
    
    22,718
    
    
    
    19,449Total underwriting costs
    
    $
    22,705
    
    
    
    19,355
    
    
    
    44,660
    
    
    
    41,069Underwriting income
    
    $
        (562
)

    
    1,747
    
    
    
    (490
    )
    
    
    2,129Loss ratio
    
    
    52.5
    %
    
    
    48.6
    %
    
    
    49.7
    %
    
    
    50.0
    %Expense ratio
    
    
    50.0
    %
    
    
    43.2
    %
    
    
    51.4
    %
    
    
    45.0
    %Combined ratio
    
    
    102.5
    %
    
    
    91.8
    %
    
    
    101.1
    %
    
    
    95.0
    %
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
   39




---



##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
    40




---



##### Table of Contents



Life and Disability Insurance Operating Results
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
 Three months ended June 30,Comparable(dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    Basis 2005Earned premiums
    
    $
    26,603
    
    
    
    6,019
    
    
    
    25,358Earned premiums ceded
    
    
    (2,580
    )
    
    
    (2,004
    )
    
    
    (2,394
    )Net earned premiums
    
    
    24,023
    
    
    
    4,015
    
    
    
    22,964Commission income on reinsuarance
    
    
    96
    
    
    
    166
    
    
    
    166Net earned premiums and
commission income
    
    $
    24,119
    
    
    
    4,181
    
    
    
    23,130Claims incurred
    
    $
    13,464
    
    
    
    2,511
    
    
    
    13,151Operating expenses
    
    
    10,974
    
    
    
    1,977
    
    
    
    10,711Total underwriting costs
    
    $
    24,438
    
    
    
    4,488
    
    
    
    23,862Underwriting gain (loss)
    
    $

    (319
    )
    
    
    (307
    )
    
    
    (732
    )Loss ratio
    
    
    55.8
    %
    
    
    60.1
    %
    
    
    56.9
    %Expense ratio
    
    
    45.5
    %
    
    
    47.3
    %
    
    
    46.3
    %Combined ratio
    
    
    101.3
    %
    
    
    107.4
    %
    
    
    103.2
    %
  
    
    Premiums for the life business, on a comparable basis, increased by $815 thousand, or
4.7%, in the 2006 period. This increase is mostly the result of increases in the ordinary
life and monthly debit ordinary life (MDO) premiums of 2.1% and 8.3%, respectively. The
increase in premiums earned in the ordinary life and MDO business is principally due to
new sales made during the 2006 period.
    
    Premiums for the cancer and other dreaded diseases line of business on a comparable
basis increased by $619 thousand, or 13.5%, in the 2006 period. This increase is mainly
attributed to the continued growth in sales of a new cancer product.
   41




---



##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
 Six months ended June 30,Comparable(dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    Basis 2005Earned premiums
    
    $
    45,961
    
    
    
    11,788
    
    
    
    43,740Earned premiums ceded
    
    
    (4,823
    )
    
    
    (4,027
    )
    
    
    (4,736
    )Assumed earned premiums
    
    
    4,413
    
    
    
    
    
    
    
    Net earned premiums
    
    
    45,551
    
    
    
    7,761
    
    
    
    39,004Commission income on reinsuarance
    
    
    249
    
    
    
    273
    
    
    
    273Net earned premiums and
commission income
    
    $
    45,800
    
    
    
    8,034
    
    
    
    39,277Claims incurred
    
    $
    25,096
    
    
    
    5,144
    
    
    
    22,502Operating expenses
    
    
    22,364
    
    
    
    3,959
    
    
    
    18,148Total underwriting costs
    
    $
    47,460
    
    
    
    9,103
    
    
    
    40,650Underwriting loss
    
    $
    (1,660
    )
    
    
    (1,069
    )
    
    
    (1,373
    )Loss ratio
    
    
    54.8
    %
    
    
    64.0
    %
    
    
    57.3
    %Expense ratio
    
    
    48.8
    %
    
    
    49.3
    %
    
    
    46.2
    %Combined ratio
    
    
    103.6
    %
    
    
    113.3
    %
    
    
    103.5
    %
  
    
    Premiums for the life business, on a comparable basis, increased by $1.4 million, or
4.6%. This increase is mostly the result of increases in the ordinary life and MDO
business, which premiums present an increase of 9.7% and 3.2%, respectively. The increase
experienced in these lines is attributed to new sales made in the 2006 period.
    
    Premiums for the cancer and other dreaded diseases line of business increased $1.3
million, or 16.6%, in the 2006 period. This increase is mainly attributed to the growth
in sales of a new cancer product.
    
    The premiums earned on a comparable basis for the group disability lines of business
decreased by $387 thousand, or 5.6%, in the 2006 period. This fluctuation is mainly due
to a disciplined underwriting of groups where premiums have been significantly adjusted to
reflect expected losses on groups with high loss ratios and those groups have decided not
to renew.
   42




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
    Cash Flows from Operations
   
    
    The amount of claims, losses and benefits paid for the six months ended June 30, 2006
reflect an increase of $43.2 million when compared with the six months ended June 30,
2005. The increase in the amount of claims, losses and benefits paid is mostly the result
of the segments increased volume of business.
    
    The payments to suppliers and employees increased by $29.7 million when comparing the
amount paid during the 2006 and 2005 periods. This increase is basically attributed to
additional commission expense generated from the acquisition of new business and general
operating expenses.
    
    The net proceeds of investments in the trading portfolio decreased by $28.0 million for
the six months ended June 30, 2006, when compared to the six months ended June 30,
2005. The fluctuation when compared to the 2005 period is due to the sale of the
corporate bonds portfolio in mid year 2005. The corporate bonds portfolio was considered
as a trading portfolio.
    
    Interest payments increased by $2.5 million when comparing amounts paid during the 2006
and 2005 periods. This increase is attributed to the interest payments related to the two
Senior
 43




---



##### Table of Contents



Unsecured Notes issued by the Corporation during the last quarter of 2005 and the first
quarter of 2006. For a detail of these Senior Unsecured Notes refer to section Financing
and Financing Capacityof this Managements Discussion and Analysis of Financial Condition
and Results of Operations.
 
    
    Premiums collected increased by $81.6 million when comparing collections during the six
months ended June 30, 2006 with collections for the six months ended June 30, 2005. This
increase is mostly related to the increased volume of business and increases in premium
rates of the operating segments.
    
    Interest received increased by $7.3 million during the 2006 period. This increase is
mostly the related to the increase experienced in the Corporations investments in fixed
income securities during the 2006 period.
    
    The amount of income tax paid during the 2006 period is $6.0 million lower than the
corresponding amount in the 2005 period. This decrease in the amount of income tax paid
is principally due to a decrease in the taxable income between periods.
  Cash Flows from Investing Activities
   
    
    During the 2006 period the Corporation completed the acquisition of 100% of the common
stock of GA Life. This transaction had an acquisition cost of $38.2 million, including
$10.4 million of acquired cash.
    
    The amount of capital expenditures increased by $4.1 million when comparing the 2006
and 2005 periods. This increase is principally due to incurred cost related to the
renovation of one of Corporations facilities in one building adjacent to its main offices
and to expenses related to STSs acquisition of a new computer system to manage its
insurance operations.
    
    The Corporation had net a decrease of $18.4 million in the net acquisition of
investments during the 2006 period. During the six months ended June 30, 2006 and 2005
total acquisition of investments exceeded the proceeds from investments sold or matured by
$7.4 million and $25.8 million, respectively.
 Cash Flows from Financing Activities
  
    
    During the six months ended June 30, 2006 the Corporation received the proceeds from
the issuance of its 6.7% Senior Unsecured Notes amounting to $35.0 million. No long-term
debt was issued in the 2005 period.
    
    The repayments of long-term debt decreased by $1.5 million for the six months ended
June 30, 2006 when compared to the payments made in the 2005 period. This fluctuation is
due to a decrease in the repayment for one of the credit agreements, which amounted to
$1.0 million in 2006 and $2.5 million in 2005.
 44




---



##### Table of Contents




    
    On January 13, 2006 the Corporation declared and paid dividends amounting to $6.2
million. There was no dividend payment during the 2005 period.
    
    Net proceeds from policyholder deposits decreased by $3.3 million during the six month
period ended June 30, 2006. This fluctuation is basically due to a decrease in the
proceeds received from the fixed deferred annuity product.
 Financing and Financing Capacity
   
    
    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.
    
    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.
    
    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.
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  45




---



##### Table of Contents



Item 4. Controls and Procedures
  
 Part II  Other Information
 
 Item 1. Legal Proceedings
 (a)
    
    As of June 30, 2006, the Corporation is a defendant in various lawsuits arising out of the
ordinary course of business. Management believes, based on the opinion of legal counsel, that
the aggregate liabilities, if any, arising from such actions would not have a material adverse
effect on the Corporations consolidated financial position or results of operations.(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.In December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582
shares. TSI contested such order through an administrative and judicial review process.
Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to
each former stockholder. In the year 2000, the Commissioner of Insurance issued an order that,
among other things, required that all corporate decisions undertaken by TSI through the vote of
its stockholders of record, be ratified in a stockholders meeting or in a subsequent
referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such
decisions. Thereafter the plaintiffs filed a petition for review of the Commissioners
determination before the Puerto Rico Circuit Court of Appeals (the Court of Appeals). TSI and
the Commissioner opposed such petition.Pursuant to that review, on September 24, 2002, the Court of Appeals issued an order requiring
the Commissioner to order that a meeting of shareholders be held to ratify TSIs corporate
reorganization and the change of name of TSI from Seguros de Servicios de Salud de Puerto Rico,
Inc. to Triple-S, Inc. The Court of Appeals based its decision on administrative and
procedural issues directed at the Commissioner. Subsequently, the Commissioner, TSM and TSI
filed a motion of reconsideration. On May 18, 2003, the Court of Appeals granted TSIs and
TSMs Motion of Reconsideration and that the reorganization of TSI was approved by the
stockholders.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
 46




---



##### Table of Contents



Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced
and Corrupt Organizations Act, better known as the RICO Act. The suit, among other
allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through
illegally capitalizing TSI and later converting it to a for-profit corporation and depriving
the stockholders of their ownership rights. The plaintiffs base their later allegations on the
supposed decisions of TSIs board of directors and stockholders, allegedly made in 1979, to
operate with certain restrictions in order to turn TSI into a charitable corporation,
basically forever. On March 4, 2005 the Court issued an Opinion and Order. In this Opinion
and Order, of the twelve counts included in the complaint, eight counts were dismissed for
failing to assert an actionable injury; six of them for lack of standing and two for failing
to plead with sufficient particularity in compliance with the Rules. All shareholder
allegations, including those described above, were dismissed in the Opinion and Order. The
remaining four counts were found standing, in a limited way, in the Opinion and Order. The
parties finished class certification discovery and fully briefed the issue of class
certification. While waiting for the Courts decision on the issue of class certification,
the Court sua sponte, issued an Order to Show Cause (OTC) to plaintiffs as to why the
complaint should not be dismissed with prejudice. The Courts OTC is predicated on the
parties submissions about class certification. The Court then granted plaintiffs leave to
file a sur-reply, which they did on April 21, 2006. In its OTC the Court indicated that it
would decide first the sustainability of the complaint before deciding plaintiffs request for
class certification. 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. Recently,
the Appeals Court notified the briefing schedule, and Plaintiffs have until August 21, 2006 to
file their brief.(d)
    
    On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit
against TSM, TSI and others in the Court of First Instance for San Juan, Superior Section,
alleging, among other things, violations by the defendants of provisions of the Puerto Rico
Insurance Code, anti-monopolistic practices, unfair business practices and damages in the
amount of $12.0 million. They also requested that TSM sell shares to them. After a
preliminary review of the complaint, it appears that many of the allegations brought by the
plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same
plaintiffs in the United States District Court for the District of Puerto Rico and by most of
the plaintiffs in the local courts. The defendants, including TSM and TSI answered the
complaint, filed a counterclaim and filed several motions to dismiss this claim. On February
18, 2005 the plaintiffs informed their intention to amend the complaint and the Court granted
them 45 days to do so and 90 days to the defendants to file the corresponding motion to
dismiss. On May 9, 2005 the plaintiffs amended the complaint and the defendants 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 argument 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.(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.
 47




---



##### Table of Contents



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.The Court issued a 90-day stay to allow the parties to discuss their differences and come to
amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the stay, both
plaintiffs and defendants agreed to request the Court to extend the stay until April 21, 2006.
The stay expired and the parties informed the Court that they need additional time to iron out
the details of an amicable solution. The Court has not reacted to the parties joint request.
If the Court denies another stay, the parties will have to continue the proceedings where they
were left before the issuance of the first stay. In the meantime, the Court issued an Agreed
Order on the Preservation of Records. This order supersedes the parties existing
record-keeping policies in regards to the documents and materials specified in the order. The
purpose of the order is to avoid the disposition of documents that might be relevant for the
case.(f)
    
    On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD and Orlando
Armstrong, MD, on behalf of themselves and all other similarly situated and the American
Podiatric Medical Association, Florida Chiropractic Association, California Podiatric Medical
Association, Florida Podiatric Medical Association, Texas Podiatric Medical Association, and
Independent Chiropractic Physicians, against the BCBSA and multiple other insurance companies,
including TSI and all members of the BCBSA. The case is still pending before the United
States District Court for the Southern District of Florida, Miami District.The lawsuit challenges many of the same practices as the litigation described in the
immediately preceding item.Management believes that TSI was made a party to this litigation for the sole reason that TSI
is associated with the BCBSA.On June 25, 2004, plaintiffs amended the complaint but the allegations against TSI did not
vary. TSI along with the other defendants, moved to dismiss the complaint on multiple grounds,
including but not limited to arbitration and applicability of the McCarran Ferguson Act.The Court issued a 90-day stay to allow the parties to discuss their differences and come to an
amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the stay, both
plaintiffs and defendants agreed to request the Court to extend the stay until April 21, 2006.
The stay expired and the parties informed the Court that they need additional time to iron out
the details of an amicable solution. The Court has not reacted to the parties joint request.
If the Court denies another stay, the parties will have to continue the proceedings where they
were left before the issuance of the first stay. In the meantime, the Court issued an Agreed
Order on the Preservation of Records. This order supersedes the parties existing
record-keeping policies in regards to the documents and materials specified in the order. The
purpose of the order is to avoid the disposition of documents that might be relevant for the
case.
 48




---



##### Table of Contents



Item IA. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submissions of Matters to a Vote of Security Holders
      49




---



##### Table of Contents



Item 5. Other Information
  50




---



##### Table of Contents



Item 6. Exhibits
  Exhibit 3(i)
    
    Amended and Restated Articles of Incorporation of Triple-S Management Corporation,
incorporated herein by reference to Exhibit 3.1 of TSMs Current Report on Form 8-K filed by
the Corporation on April 30, 2006. (File No. 0-49762)Exhibit 3 (ii)
    
    Amended and Restated Bylaws of Triple-S Management Corporation, incorporated
herein by reference to Exhibit 3.2 of TSMs Current Report on Form 8-K filed by the Corporation
on April 30, 2006. (File No. 0-49762)Exhibit 10.1
    
    Extension to the Puerto Rico Health Insurance Contract for the Metro-North Health
Region, dated July 18, 2006, between Triple-S, Inc. and the Puerto Rico Health Insurance
Administration.Exhibit 10.2
    
    Extension to the Puerto Rico Health Insurance Contract for the North Health
Region, dated July 18, 2006, between Triple-S, Inc. and the Puerto Rico Health Insurance
Administration.Exhibit 10.3
    
    Extension to the Puerto Rico Health Insurance Contract for the South West Health
Region, dated July 18, 2006, between Triple-S, Inc. and the Puerto Rico Health Insurance
Administration.Exhibit 10.4
    
    6.70% Senior Unsecured Notes Due January 2021 Note Purchase Agreement, dated
January 23, 2006, between Triple-S Management Corporation and various institutional accredited
investors (incorporated herein by reference to Exhibit 10.1 to TSMs Quarterly Report on Form
10-Q for the quarter ended March 31, 2006 (File No. 0-49762)).Exhibit 11
    
    Statement re computation of per share earnings; an exhibit describing the
computation of the earnings per share for the three months and six months ended June 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 six months ended June 30, 2006
and 2005 has been omitted as the detail necessary to
determine the computation of the loss ratio, 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.
  51




---



##### Table of Contents



SIGNATURES
  Triple-S Management Corporation
RegistrantDate: August 11, 2006
    
    By:
    
    /s/ Ramón M. Ruiz-ComasRamón M. Ruiz-Comas, CPAPresident and
Chief Executive OfficerDate: August 11, 2006
    
    By:
    
    /s/ Juan J. RománJuan J. Román, CPAVice President of Financeand Chief Financial Officer
 52