##### Table of Contents



United States Securities and Exchange Commission Washington, D.C. 20549
 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition
period
fromto COMMISSION FILE NUMBER: 0-49762 Triple-S Management Corporation  Puerto Rico
    
    66-0555678(State or other jurisdiction of incorporation 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
(Registrants telephone number, including area code) Not applicable
(Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. Title of each class
    
    Outstanding at March 31, 2005Common Stock, $40.00 par value
    
    8,904




---



Triple-S Management Corporation FORM 10-Q For the Quarter Ended March 31, 2005  
 Table of Contents PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations for the three months ended
March 31, 2005 and 2004
    
    
    4Consolidated Statements of Stockholders Equity and Comprehensive
Income for the three months ended March 31, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    38PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    41SIGNATURES
    
    
    42EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICAITON 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)March 31,
    
    
    December 31,2005
    
    
    2004ASSETSInvestments and cash:Securities held for trading, at fair value:Fixed maturities
    
    $
    52,388
    
    
    
    72,423Equity securities
    
    
    84,076
    
    
    
    86,596Securities available for sale, at fair value:Fixed maturities
    
    
    454,123
    
    
    
    444,637Equity securities
    
    
    53,168
    
    
    
    59,186Securities held to maturity, at amortized cost:Fixed maturities
    
    
    14,973
    
    
    
    14,280Cash and cash equivalents
    
    
    58,168
    
    
    
    35,115Total investments and cash
    
    
    716,896
    
    
    
    712,237Premiums and other receivables, net
    
    
    129,100
    
    
    
    113,323Deferred policy acquisition costs
    
    
    18,252
    
    
    
    18,712Property and equipment, net
    
    
    32,454
    
    
    
    32,364Other assets
    
    
    45,125
    
    
    
    43,021Total assets
    
    $
    941,827
    
    
    
    919,657LIABILITIES AND STOCKHOLDERS EQUITYClaim liabilities:Claims processed and incomplete
    
    $
    140,987
    
    
    
    137,282Unreported losses
    
    
    148,595
    
    
    
    127,324Unpaid loss-adjustment expenses
    
    
    15,050
    
    
    
    14,719Total claim liabilities
    
    
    304,632
    
    
    
    279,325Unearned premiums
    
    
    81,190
    
    
    
    84,583Annuity contracts
    
    
    36,348
    
    
    
    34,071Liability to Federal Employees Health Benefits Program
    
    
    10,779
    
    
    
    9,791Accounts payable and accrued liabilities
    
    
    114,603
    
    
    
    100,388Short-term borrowings
    
    
    1,700
    
    
    
    1,700Income tax payable
    
    
    3,044
    
    
    
    1,827Net deferred tax liability
    
    
    
    
    
    
    1,969Additional minimum pension liability
    
    
    9,999
    
    
    
    8,840Long-term borrowings
    
    
    95,457
    
    
    
    95,730Total liabilities
    
    
    657,752
    
    
    
    618,224Stockholders equity:Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding
8,904 at March 31, 2005
and
December 31, 2004
    
    
    356
    
    
    
    356Additional paid-in capital
    
    
    150,408
    
    
    
    150,408Retained earnings
    
    
    129,324
    
    
    
    134,531Accumulated other comprehensive income
    
    
    3,987
    
    
    
    16,138Total stockholders equity
    
    
    284,075
    
    
    
    301,433Total liabilities and stockholders equity
    
    $
    941,827
    
    
    
    919,657
 See accompanying notes to unaudited consolidated financial statements.   3




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES 
 Consolidated Statements of Earnings (Loss) (Unaudited)
  (Dollar amounts in thousands, except per share data)
 Three months endedMarch 31,2005
    
    
    2004REVENUE:Premiums earned, net
    
    $
    333,389
    
    
    
    318,646Amounts attributable to self-funded
arrangements
    
    
    51,915
    
    
    
    43,038Less amounts attributable to claims under
self-funded arrangements
    
    
    (48,540
    )
    
    
    (40,582
    )336,764
    
    
    
    321,102Net investment income
    
    
    7,064
    
    
    
    6,582Net realized investment gains
    
    
    3,314
    
    
    
    1,383Net unrealized investment gain (loss) on trading securities
    
    
    (5,793
    )
    
    
    1,819Other income, net
    
    
    632
    
    
    
    566Total revenue
    
    
    341,981
    
    
    
    331,452BENEFITS AND EXPENSES:Claims incurred
    
    
    302,923
    
    
    
    275,748Operating expenses, net of reimbursement
for services
    
    
    43,766
    
    
    
    39,838Interest expense
    
    
    1,788
    
    
    
    901Total benefits and expenses
    
    
    348,477
    
    
    
    316,487Income (loss) before taxes
    
    
    (6,496
    )
    
    
    14,965INCOME TAX EXPENSE (BENEFIT):Current
    
    
    1,221
    
    
    
    3,298Deferred
    
    
    (2,510
    )
    
    
    511Total income taxes
    
    
    (1,289
    )
    
    
    3,809Net income (loss)
    
    $
    (5,207
    )
    
    
    11,156Basic net income (loss) per share
    
    $
    (585
    )
    
    
    1,239
 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)
 2005
    
    
    2004BALANCE AT JANUARY 1
    
    $
    301,433
    
    
    
    254,255Stock redemption
    
    
    
    
    
    
    (3
    )Comprehensive income:Net income (loss)
    
    
    (5,207
    )
    
    
    11,156Net unrealized change in investment securities
    
    
    (12,488
    )
    
    
    1,062Net change in fair value of cash flow hedges
    
    
    337
    
    
    
    (345
    )Total comprehensive income (loss)
    
    
    (17,358
    )
    
    
    11,873BALANCE AT MARCH 31
    
    $
    284,075
    
    
    
    266,125
 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)
 Three months endedMarch 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Premiums collected
    
    $
    323,459
    
    
    
    309,144Cash paid to suppliers and employees
    
    
    (44,943
    )
    
    
    (38,739
    )Claims, losses and benefits paid
    
    
    (276,277
    )
    
    
    (262,746
    )Interest received
    
    
    6,359
    
    
    
    6,322Proceeds from trading securities sold or matured:Fixed maturities sold
    
    
    31,946
    
    
    
    7,185Equity securities
    
    
    5,027
    
    
    
    3,346Acquisitions of investments in trading portfolio:Fixed maturities
    
    
    (14,463
    )
    
    
    (7,951
    )Equity securities
    
    
    (5,116
    )
    
    
    (3,692
    )Interest paid
    
    
    (1,509
    )
    
    
    (680
    )Expense reimbursement from Medicare
    
    
    3,003
    
    
    
    3,696Net cash provided by operating activities
    
    
    27,486
    
    
    
    15,885CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from investments sold or matured:Securities available for sale:Fixed maturities sold
    
    
    5,038
    
    
    
    15,199Fixed maturities matured
    
    
    206
    
    
    
    29,126Equity securities
    
    
    2,677
    
    
    
    1,475Securities held to maturity:Fixed maturities matured
    
    
    290
    
    
    
    2,662Acquisitions of investments:Securities available for sale:Fixed maturities
    
    
    (17,919
    )
    
    
    (27,004
    )Equity securities
    
    
    (2,821
    )
    
    
    (1,023
    )Securities held to maturity:Fixed maturities
    
    
    (993
    )
    
    
    (2,612
    )Capital expenditures
    
    
    (1,338
    )
    
    
    (576
    )Proceeds from sale of property and equipment
    
    
    2
    
    
    
    3Net cash (used in) provided by investing activities
    
    
    (14,858
    )
    
    
    17,250CASH FLOWS FROM FINANCING ACTIVITIES:Change in outstanding checks in excess of bank balances
    
    
    8,700
    
    
    
    11,437Payments of short-term borrowings
    
    
    (17,125
    )
    
    
    (6,200
    )Proceeds from short-term borrowings
    
    
    17,125
    
    
    
    6,200Payments of long-term borrowings
    
    
    (273
    )
    
    
    (273
    )Redemption of common stock
    
    
    
    
    
    
    (3
    )Proceeds from annuity contracts
    
    
    3,164
    
    
    
    3,325Surrenders of annuity contracts
    
    
    (1,166
    )
    
    
    (1,134
    )Net cash provided by financing activities
    
    
    10,425
    
    
    
    13,352Net increase in cash and cash equivalents
    
    
    23,053
    
    
    
    46,487Cash and cash equivalents at beginning of the period
    
    
    35,115
    
    
    
    48,280Cash and cash equivalents at end of the period
    
    $
    58,168
    
    
    
    94,767
 See accompanying notes to unaudited consolidated financial statements.   6




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements March 31, 2005 (Dollar amounts in thousands, except per share data) (Unaudited) (1) Basis of Presentation The accompanying consolidated interim financial statements prepared by Triple-S Management
Corporation (TSM) and its subsidiaries (the Corporation) are unaudited, except for the balance
sheet information as of December 31, 2004, which is derived from the Corporations audited
consolidated financial statements, pursuant to the rules and regulations of the United States
Securities and Exchange Commission. The consolidated interim financial statements do not include
all of the information and the footnotes required by accounting principles generally accepted in
the United States of America for complete financial statements. These consolidated interim
financial statements should be read in conjunction with the audited consolidated financial
statements included in the Corporations Annual Report on Form 10-K for the year ended December 31,
2004. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such consolidated interim financial statements have been
included. The results of operations for the three months ended March 31, 2005 are not necessarily
indicative of the results for the full year. (2) Segment Information The following tables summarize the operations by major operating segment for the three months ended
March 31, 2005 and 2004:   7




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) Operating SegmentsHealth
    
    
    HealthInsurance
    
    
    Insurance
    
    
    PropertyCommercial
    
    
    Reform
    
    
    and CasualtyProgram
    
    
    Program
    
    
    Insurance
    
    
    Other *
    
    
    TotalTHREE MONTHS ENDED MARCH 31, 2005Premiums earned, net
    
    $
    184,300
    
    
    
    123,140
    
    
    
    22,096
    
    
    
    3,853
    
    
    
    333,389Amounts attributable to self-funded arrangements
    
    
    51,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,915Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (48,540
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,540
    )Intersegment premiums earned/service revenues
    
    
    1,076
    
    
    
    
    
    
    
    
    
    
    
    13,638
    
    
    
    14,714188,751
    
    
    
    123,140
    
    
    
    22,096
    
    
    
    17,491
    
    
    
    351,478Net investment income
    
    
    3,413
    
    
    
    741
    
    
    
    2,105
    
    
    
    711
    
    
    
    6,970Realized gain (loss) on sale of securities
    
    
    2,103
    
    
    
    (25
    )
    
    
    1,176
    
    
    
    60
    
    
    
    3,314Unrealized loss on trading securities
    
    
    (4,806
    )
    
    
    
    
    
    
    (793
    )
    
    
    (194
    )
    
    
    (5,793
    )Other
    
    
    188
    
    
    
    (5
    )
    
    
    338
    
    
    
    62
    
    
    
    583Total revenue
    
    $
    189,649
    
    
    
    123,851
    
    
    
    24,922
    
    
    
    18,130
    
    
    
    356,552Net income (loss)
    
    $
    (6,803
    )
    
    
    (911
    )
    
    
    2,658
    
    
    
    (345
    )
    
    
    (5,401
    )Claims incurred
    
    $
    172,829
    
    
    
    116,088
    
    
    
    11,373
    
    
    
    2,633
    
    
    
    302,923Operating expenses
    
    $
    24,240
    
    
    
    8,914
    
    
    
    10,341
    
    
    
    15,387
    
    
    
    58,882Depreciation expense, included in operating expenses
    
    $
    825
    
    
    
    
    
    
    
    107
    
    
    
    39
    
    
    
    971Interest expense
    
    $
    1,058
    
    
    
    204
    
    
    
    
    
    
    
    279
    
    
    
    1,541Income tax expense (benefit)
    
    $
    (1,675
    )
    
    
    (444
    )
    
    
    550
    
    
    
    176
    
    
    
    (1,393
    )
   *  Includes segments which are not required to be reported separately. These segments include the life and disability insurance segment,
the data processing services organization as well as the third-party
administrator of health insurance services.   8




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) Operating SegmentsHealth
    
    
    HealthInsurance
    
    
    Insurance
    
    
    PropertyCommercial
    
    
    Reform
    
    
    and CasualtyProgram
    
    
    Program
    
    
    Insurance
    
    
    Other *
    
    
    TotalTHREE MONTHS ENDED MARCH 31, 2004Premiums earned, net
    
    $
    174,505
    
    
    
    119,398
    
    
    
    20,783
    
    
    
    3,960
    
    
    
    318,646Amounts attributable to self-funded arrangements
    
    
    43,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,038Less: Amounts attributable to claims under self-funded
arrangements
    
    
    (40,582
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,582
    )Intersegment premiums earned/service revenues
    
    
    904
    
    
    
    
    
    
    
    
    
    
    
    11,537
    
    
    
    12,441177,865
    
    
    
    119,398
    
    
    
    20,783
    
    
    
    15,497
    
    
    
    333,543Net investment income
    
    
    3,145
    
    
    
    840
    
    
    
    1,854
    
    
    
    658
    
    
    
    6,497Realized gain (loss) on sale of securities
    
    
    1,149
    
    
    
    211
    
    
    
    35
    
    
    
    (12
    )
    
    
    1,383Unrealized gain on trading securities
    
    
    1,402
    
    
    
    
    
    
    
    282
    
    
    
    135
    
    
    
    1,819Other
    
    
    52
    
    
    
    (10
    )
    
    
    562
    
    
    
    33
    
    
    
    637Total revenue
    
    $
    183,613
    
    
    
    120,439
    
    
    
    23,516
    
    
    
    16,311
    
    
    
    343,879Net income
    
    $
    6,047
    
    
    
    1,644
    
    
    
    3,328
    
    
    
    239
    
    
    
    11,258Claims incurred
    
    $
    153,240
    
    
    
    109,215
    
    
    
    10,627
    
    
    
    2,666
    
    
    
    275,748Operating expenses
    
    $
    21,994
    
    
    
    8,752
    
    
    
    8,709
    
    
    
    13,062
    
    
    
    52,517Depreciation expense, included in operating expenses
    
    $
    969
    
    
    
    
    
    
    
    121
    
    
    
    28
    
    
    
    1,118Interest expense
    
    $
    289
    
    
    
    69
    
    
    
    
    
    
    
    222
    
    
    
    580Income tax expense
    
    $
    2,043
    
    
    
    759
    
    
    
    852
    
    
    
    122
    
    
    
    3,776
   *  Includes segments which are not required to be reported separately. These segments include the life and disability insurance segment,
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 SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) Operating SegmentsHealth
    
    
    HealthInsurance
    
    
    Insurance
    
    
    PropertyCommercial
    
    
    Reform
    
    
    and CasualtyProgram
    
    
    Program
    
    
    Insurance
    
    
    Other *
    
    
    TotalAS OF MARCH 31, 2005Segment assets
    
    $
    459,193
    
    
    
    88,535
    
    
    
    284,920
    
    
    
    92,442
    
    
    
    925,090Significant noncash item:Net change in unrealized gain on securities
available for sale
    
    $
    (8,225
    )
    
    
    (817
    )
    
    
    (2,338
    )
    
    
    (993
    )
    
    
    (12,373
    )AS OF DECEMBER 31, 2004Segment assets
    
    $
    443,710
    
    
    
    84,627
    
    
    
    282,393
    
    
    
    90,713
    
    
    
    901,443Significant noncash item:Net change in unrealized gain on securities
available for sale
    
    $
    523
    
    
    
    (151
    )
    
    
    867
    
    
    
    (156
    )
    
    
    1,083Net change in minimum pension liability
    
    
    313
    
    
    
    
    
    
    
    (60
    )
    
    
    (314
    )
    
    
    (61
    )
   10




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS Three months endedMarch 31,2005
    
    
    2004TOTAL REVENUETotal revenues for reportable segments
    
    $
    338,422
    
    
    
    327,568Total revenues for other segments
    
    
    18,130
    
    
    
    16,311356,552
    
    
    
    343,879Elimination of intersegment earned premiums
    
    
    (1,076
    )
    
    
    (904
    )Elimination of intersegment service revenues
    
    
    (13,638
    )
    
    
    (11,537
    )Unallocated amount - revenues from external sources
    
    
    143
    
    
    
    14(14,571
    )
    
    
    (12,427
    )Consolidated total revenue
    
    $
    341,981
    
    
    
    331,452NET INCOME (LOSS)Net income (loss) for reportable segments
    
    $
    (5,056
    )
    
    
    11,019Net income (loss) for other segments
    
    
    (345
    )
    
    
    239(5,401
    )
    
    
    11,258Elimination of TSM charges:Rent expense
    
    
    1,624
    
    
    
    1,573Interest expense
    
    
    256
    
    
    
    1591,880
    
    
    
    1,732Unallocated amounts related to TSM:General and administrative expenses
    
    
    (1,222
    )
    
    
    (1,335
    )Income tax expense
    
    
    (104
    )
    
    
    (33
    )Interest expense
    
    
    (503
    )
    
    
    (480
    )Other revenues from external sources
    
    
    143
    
    
    
    14(1,686
    )
    
    
    (1,834
    )Consolidated net income (loss)
    
    $
    (5,207
    )
    
    
    11,156
   11




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited) RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS Three months ended March 31, 2005Segment
    
    
    
    
    
    
    ConsolidatedTotals
    
    
    Adjustments *
    
    
    TotalsClaims incurred
    
    $
    302,923
    
    
    
    
    
    
    
    302,923Operating expenses
    
    
    58,882
    
    
    
    (15,116
    )
    
    
    43,766Depreciation expense
    
    
    971
    
    
    
    277
    
    
    
    1,248Interest expense
    
    
    1,541
    
    
    
    247
    
    
    
    1,788Income tax expense (benefit)
    
    
    (1,393
    )
    
    
    104
    
    
    
    (1,289
    )
 Three months ended March 31, 2004Segment
    
    
    
    
    
    
    ConsolidatedTotals
    
    
    Adjustments *
    
    
    TotalsClaims incurred
    
    $
    275,748
    
    
    
    
    
    
    
    275,748Operating expenses
    
    
    52,517
    
    
    
    (12,679
    )
    
    
    39,838Depreciation expense
    
    
    1,118
    
    
    
    279
    
    
    
    1,397Interest expense
    
    
    580
    
    
    
    321
    
    
    
    901Income tax expense
    
    
    3,776
    
    
    
    33
    
    
    
    3,809
   *  Adjustments represent TSM operations and the elimination of intersegment charges.   12




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS March 31,
    
    
    December 31,2005
    
    
    2004ASSETSTotal assets for reportable segments
    
    $
    832,648
    
    
    
    810,730Total assets for other segments
    
    
    92,442
    
    
    
    90,713925,090
    
    
    
    901,443Elimination
entries - intersegment receivables and others
    
    
    (24,831
    )
    
    
    (21,717
    )Unallocated amounts related to TSM:Parent cash, cash equivalents and investments
    
    
    13,324
    
    
    
    12,236Parent net property and equipment
    
    
    25,437
    
    
    
    25,577Parent other assets
    
    
    2,807
    
    
    
    2,11841,568
    
    
    
    39,931Consolidated assets
    
    $
    941,827
    
    
    
    919,657
 OTHER SIGNIFICANT ITEMS As of March 31, 2005Segment
    
    
    
    
    
    
    ConsolidatedTotals
    
    
    Adjustments *
    
    
    TotalsSignificant
noncash item - net change in unrealized
gain on securities available for sale
    
    $
    (12,373
    )
    
    
    (115
    )
    
    
    (12,488
    )
 As of December 31, 2004Segment
    
    
    
    
    
    
    ConsolidatedTotals
    
    
    Adjustments *
    
    
    TotalsSignificant noncash items:Net change in unrealized gain on securities
available for sale
    
    $
    1,083
    
    
    
    18
    
    
    
    1,101Net change in minimum pension liability
    
    
    (61
    )
    
    
    58
    
    
    
    (3
    )
   13




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) (3) Investment in Securities The amortized cost for debt securities and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and
held-to-maturity securities by major security type and class of security at March 31, 2005 and December 31, 2004, were as follows: March 31, 2005 (Unaudited)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueTrading securities:Fixed maturities
    
    $
    52,069
    
    
    
    849
    
    
    
    (530
    )
    
    
    52,388Equity securities
    
    
    76,661
    
    
    
    10,410
    
    
    
    (2,995
    )
    
    
    84,076$
    128,730
    
    
    
    11,259
    
    
    
    (3,525
    )
    
    
    136,464
 March 31, 2005 (Unaudited)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueSecurities available for sale:Fixed maturities
    
    $
    459,170
    
    
    
    1,435
    
    
    
    (6,482
    )
    
    
    454,123Equity securities
    
    
    35,831
    
    
    
    18,237
    
    
    
    (900
    )
    
    
    53,168$
    495,001
    
    
    
    19,672
    
    
    
    (7,382
    )
    
    
    507,291
 March 31,2005(Unaudited)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueSecurities held to maturity:Fixed maturities
    
    $
    14,973
    
    
    
    209
    
    
    
    (184
    )
    
    
    14,998
 December 31, 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueTrading securities:Fixed maturities
    
    $
    70,668
    
    
    
    2,045
    
    
    
    (290
    )
    
    
    72,423Equity securities
    
    
    74,824
    
    
    
    13,496
    
    
    
    (1,724
    )
    
    
    86,596$
    145,492
    
    
    
    15,541
    
    
    
    (2,014
    )
    
    
    159,019
   14




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) December 31, 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueSecurities available for sale:Fixed maturities
    
    $
    444,135
    
    
    
    2,659
    
    
    
    (2,157
    )
    
    
    444,637Equity securities
    
    
    34,309
    
    
    
    24,913
    
    
    
    (36
    )
    
    
    59,186$
    478,444
    
    
    
    27,572
    
    
    
    (2,193
    )
    
    
    503,823
 December 31, 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimated faircost
    
    
    gains
    
    
    losses
    
    
    valueSecurities held to maturity:Fixed maturities
    
    $
    14,280
    
    
    
    247
    
    
    
    (24
    )
    
    
    14,503
 Investment in securities at March 31, 2005 are mostly comprised of U.S. Treasury securities and
obligations of U.S. government instrumentalities (53.8%), mortgage backed and collateralized
mortgage obligations that are U.S. agency-backed (5.8%), obligations of the government of Puerto
Rico and its instrumentalities (9.2%) and obligations of states and political subdivisions (0.1%).
The remaining 31.1% of the investment portfolio is comprised of corporate debt, equity securities
and mutual funds. The Corporation regularly monitors the difference between the cost and estimated fair value of
investments. For investments with a fair value below cost, the process includes evaluating the
length of time and the extent to which cost exceeds fair value, the prospects and financial
condition of the issuer, and the Corporations intent and ability to retain the investment to allow
for recovery in fair value, among other factors. This process is not exact and further requires
consideration of risks such as credit and interest rate risks. Consequently, if an investments
cost exceeds its fair value solely due to changes in interest rates, impairment may not be
appropriate. If after monitoring and analyzing, the Corporation determines that a decline in the
estimated fair value of any available-for-sale or held-to-maturity security below cost is other
than temporary, the carrying amount of the security is reduced to its fair value. The impairment
is charged to operations and a new cost basis for the security is established. No impairments were
identified nor recognized by the Corporation during the three-month period ended March 31, 2005. The unrealized losses on investments were mainly caused by interest rate increases. Because the
Corporation has the ability and intent to hold these investments until a market price recovery or
maturity, these investments are not considered other-than-temporarily impaired. As of March 31,
2005 the Corporation has an unrealized loss of $900 on equity securities in its available-for-sale
portfolio. This unrealized loss is mostly attributed to the Corporations investment in common
stock of Doral Financial Corporation (Doral), which at March 31, 2005 had an unrealized loss
amounting to $620. According to financial market analysts Dorals stock price decline mainly
responds to Dorals announcement during the month of March of a restatement to its financial
statements for the last five years, due to a revaluation and write-down of its interest-only (IO)
strip portfolio. Management of the Corporation is closely monitoring the performance of Dorals
stock and has concluded, after careful evaluation of the market performance of Dorals stock, that
an other than temporary impairment cannot presently be determined due to the relative short period
of time elapsed since Dorals announcement the restatement of its financial statements.   15




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) (4) Premiums and Other Receivables Premiums and other receivables as of March 31, 2005 and December 31, 2004 were as follows: (Unaudited)March 31,
    
    
    December 31,2005
    
    
    2004Premiums
    
    $
    49,886
    
    
    
    45,451Self-funded group receivables
    
    
    23,129
    
    
    
    17,717FEHBP
    
    
    10,580
    
    
    
    9,346Accrued interest
    
    
    5,873
    
    
    
    5,080Reinsurance recoverable on paid losses
    
    
    29,157
    
    
    
    30,496Other
    
    
    21,548
    
    
    
    16,406140,173
    
    
    
    124,496Less allowance for doubtful receivables:Premiums
    
    
    6,637
    
    
    
    6,456Other
    
    
    4,436
    
    
    
    4,71711,073
    
    
    
    11,173Total premiums and other receivables
    
    $
    129,100
    
    
    
    113,323
 (5) Claim Liabilities The activity in the total claim liabilities for the three months ended March 31, 2005 and 2004 is
as follows: (Unaudited)Three months ended March 31,2005
    
    
    2004Claim liabilities at beginning of period
    
    $
    279,325
    
    
    
    247,920Reinsurance recoverable on claim liabilities
    
    
    (26,555
    )
    
    
    (19,357
    )Net claim liabilities at beginning of
period
    
    
    252,770
    
    
    
    228,563Incurred claims and loss-adjustment expenses:Current period insured events
    
    
    297,517
    

    
    
    280,753Prior period insured events
    
    
    5,406
    
    
    
    (5,005
    )Total
    
    
    302,923
    
    
    
    275,748Payments of losses and loss-adjustment expenses:Current period insured events
    
    
    137,351
    
    
    
    140,069Prior period insured events
    
    
    138,995
    
    
    
    124,783Total
    
    
    276,346
    
    
    
    264,852Net claim liabilities at end of period
    
    
    279,347
    
    
    
    239,459Reinsurance recoverable on claim liabilities
    
    
    25,285
    
    
    
    21,463Claim liabilities at end of period
    
    $
    304,632
    
    
    
    260,922
 As a result of changes in estimates of insured events in prior periods, the amounts included as
incurred claims for prior period insured events differ from anticipated claims incurred. The
amount in the incurred claims and loss-adjustment expenses for prior period insured events for the
three months ended March 31, 2005 is due to an unfavorable development of the claim liabilities
attributed to higher than expected cost per service and utilization trends. The credit in the
incurred claims and loss-adjustment   16




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) expenses for prior periods insured events for the three months ended March 31, 2004 is due to a
favorable development of the claim liabilities attributed to better than expected utilization
trends. (6) Comprehensive Income The accumulated balances for each classification of comprehensive income are as follows: (Unaudited)AccumulatedUnrealized
    
    
    Minimum
    
    
    
    
    
    
    othergains on
    
    
    pension
    
    
    Cash flow
    
    
    comprehensivesecurities
    
    
    liability
    
    
    hedges
    
    
    incomeBALANCE AT JANUARY 1
    
    $
    22,049
    
    
    
    (5,825
    )
    
    
    (86
    )
    
    
    16,138Net current period change
    
    
    (12,488
    )
    
    
    
    
    
    
    337
    
    
    
    (12,151
    )BALANCE AT MARCH 31
    
    $
    9,561
    
    
    
    (5,825
    )
    
    
    251
    
    
    
    3,987
 (7) Income Taxes Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns
with its subsidiaries. Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the consolidated statements of earnings
in the period that includes the enactment date. Quarterly income taxes are determined based on the
income forecasted for the full fiscal year. (8) Pension Plan The components of net periodic benefit cost for the three months ended March 31, 2005 and 2004 were
as follows: (Unaudited)Three months ended March 31,2005
    
    
    2004Components of net periodic benefit cost:Service cost
    
    $
    1,143
    
    
    
    1,035Interest cost
    
    
    1,030
    
    
    
    929Expected return on assets
    
    
    (843
    )
    
    
    (626
    )Amortization of prior service cost
    
    
    12
    
    
    
    12Amortization of actuarial loss
    
    
    490
    
    
    
    401Net periodic benefit cost
    
    $
    1,832
    
    
    
    1,751
 Employer contributions The Corporation disclosed in its audited consolidated financial statements for the year ended
December 31, 2004 that it expected to contribute $7,900 to its pension program in 2005. As of
March 31, 2005, no contributions have been made. The Corporation currently anticipates
contributing approximately $7,900 to fund the pension program in 2005.   17




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) (9) Net Income Available to Stockholders and Net Income per Share The Corporation presents only basic earnings per share, which amount consists of the net income
that is available to common stockholders divided by the weighted-average number of common shares
outstanding for the period. The following table sets forth the computation of basic net income (loss) per share for the three
months ended March 31, 2005 and 2004: (Unaudited)Three months ended March 31,2005
    
    
    2004Numerator for basic earnings per share:Net (loss) income available to stockholders
    
    $
    (5,207
    )
    
    
    11,156Denominator for basic earnings per share:Weighted average of outstanding common shares
    
    
    8,904
    
    
    
    9,002Basic net (loss) income per share
    
    $
    (585
    )
    
    
    1,239
 (10) Contingencies  (a)
    As of March 31, 2005, the Corporation is defendant in various lawsuits arising in the
ordinary course of business. Management believes, based on the opinion of its legal
counsel, that the aggregate liabilities, if any, arising from such actions would not have
a material adverse effect on the consolidated financial position and results of operations
of the Corporation.(b)
    Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an
administrative proceeding before the Puerto Rico Insurance Commissioner against TSI and
TSM alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSIs
common stock due to the fact that the ultimate purchasers of said shares were selected on
an improper and selective basis by the Corporation in violation of the Puerto Rico
Insurance Code. The plaintiffs alleged that they were illegally excluded from
participation in the sale of shares by TSI due to the illegally selective nature of the
sale of shares and that, consequently the sale of shares should be eliminated.On December 1996, the Commissioner of Insurance issued an order to annul the sale of the
1,582 shares that TSI had repurchased from the estate of deceased stockholders. TSI
contested such orders through an administrative and judicial review process. Consequently,
the sale of 1,582 shares was cancelled and the purchase price was returned to each former
stockholder. In the year 2000, the Commissioner of Insurance issued a pronouncement
providing further clarification of the content and effect of the order. This order also
required that all corporate decisions undertaken by TSI through the vote of its
stockholders of record, be ratified in a stockholders meeting or in a subsequent
referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such
decisions. Furthermore, on November 19, 2000, TSM held a special stockholders meeting,
where a ratification of these decisions was undertaken except for the resolution related to
the approval of the reorganization of TSI and its subsidiaries. This resolution did not
reach the two thirds majority required by the order because the number of shares that were
present and represented at the meeting was below such amount (total shares present and
represented in the stockholders meeting was 64%). As stipulated in the order, TSM began
the process to conduct a referendum among its
stockholders in order to ratify such resolution. The process was later suspended because
upon further review of the scope of the order, the Commissioner of Insurance issued an
opinion in a   18




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited)  letter dated January 8, 2002 which indicated that the ratification of the
corporate reorganization was not required.In another letter dated March 14, 2002, the Commissioner of Insurance stated that the
ratification of the corporate reorganization was not required and that TSI had complied
with the Commissioners order of December 6, 1996 related to the corporate reorganization.
Thereafter, the plaintiffs filed a petition for review of the Commissioners determination
before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by
the Commissioner of Insurance.Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals
issued an order requiring the Commissioner of Insurance to order a meeting of stockholders
to ratify TSIs corporate reorganization and the change of name of TSI from Seguros de
Servicio de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico Circuit Court of
Appeals based its decision on administrative and procedural issues directed at the
Commissioner of Insurance. The Commissioner of Insurance filed a motion of reconsideration
with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSI and TSM also filed
a motion of reconsideration.On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of
Insurances Motion for Reconsideration and ordered the plaintiffs to reply to TSIs and
TSMs Motion of Reconsideration.On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSIs and TSMs Motion of
Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of
Insurance had the authority to waive the celebration of a referendum to ratify TSIs
reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares
annulled were not decisive, was approved by the stockholders.On June 26, 2003, the two stockholders presented a writ of certiorari before the Supreme
Court of Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The
writ was issued by the Supreme Court on August 22, 2003, when it ordered the Puerto Rico
Circuit Court of Appeals to transmit the record of the case. On December 1, 2003, the
plaintiffs filed a motion submitting their case on the basis of their original petition.
TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in
turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court
ordered the plaintiffs to file a brief in support of their allegations. The case is still
pending before the Supreme Court of Puerto Rico. It is the opinion of management that the
corporate reorganization as approved is in full force and effect.  (c)
    On September 4, 2003, José Sánchez and others filed a putative class action complaint
against the Corporation, present and former directors of TSM and TSI, and others, in the
United States District Court for the District of Puerto Rico, alleging violations under
the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The
suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring
control of TSI through illegally capitalizing TSI and later converting it to a for-profit
corporation and depriving the stockholders of their ownership rights. The plaintiffs base
their later allegations on the supposed decisions of TSIs board of directors and
stockholders, allegedly made in 1979, to operate with certain restrictions in order to
turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court
issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in
the complaint, eight counts were dismissed for failing to assert an actionable injury; six
of them for   19




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited)  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. Finally, the Court ordered that by March 24, 2005
one of the counts left standing be replead to conform to the Rules and that by March 28,
2005 a proposed schedule for discovery and other submissions be filed. The count was
amended and accepted by the Court, the discovery schedule was submitted and the parties are
preparing to conduct discovery proceedings. This case is still pending before the United
States District Court for the District of Puerto Rico.(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 then 45 days to do so and 90 days to defendants to
file the corresponding motion to dismiss. As of this date no amended filings have been
made.(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 other 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 United States 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 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 under multiple
grounds, including but not limited to arbitration and applicability of the McCarran
Ferguson Act.   20




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited)  (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, 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 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 are alleged to have resulted in a loss of plaintiffs 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 payment due to the 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.On June 25, 2004, the plaintiffs amended the complaint but the allegations against TSI did
not vary.Management believes that TSI was made a party to this litigation for the sole reason that
TSI is associated with the BCBSA. TSI, along with the other defendants, moved to dismiss
the complaint under multiple grounds, including but not limited to arbitration and
applicability of the McCarran Ferguson Act.   21




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31, 2005(Dollar amounts in thousands, except per share data)
(Unaudited) (11)
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities A reconciliation of net income (loss) to net cash provided by operating activities is as follows: (Unaudited)Three months endedMarch 31,2005
    
    
    2004Net income (loss)
    
    $
    (5,207
    )
    
    
    11,156Adjustments to reconcile net income (loss) to net cash
provided by operating expenses:Depreciation and amortization
    
    
    1,248
    
    
    
    1,397Amortization of investment discounts
    
    
    194
    
    
    
    303Accretion in value of securities
    
    
    (106
    )
    
    
    (104
    )Decrease in provision for doubtful
receivables
    
    
    (100
    )
    
    
    (432
    )Increase (decrease) in net deferred taxes
    
    
    (2,506
    )
    
    
    1,647Gain on sale of securities
    
    
    (3,314
    )
    
    
    (1,383
    )Unrealized (gain) loss of trading securities
    
    
    5,793
    
    
    
    (1,819
    )Proceeds from trading securities sold:Fixed maturities
    
    
    31,946
    
    
    
    7,185Equity securities
    
    
    5,027
    
    
    
    3,346Acquisition of securities in trading portfolio:Fixed maturities
    
    
    (14,463
    )
    
    
    (7,951
    )Equity securities
    
    
    (5,116
    )
    
    
    (3,692
    )Loss on sale of property and equipment
    
    
    (2
    )
    
    
    (3
    )(Increase) decrease in assets:Premiums receivable
    
    
    (11,081
    )
    
    
    (10,039
    )Accrued interest receivable
    
    
    (793
    )
    
    
    (459
    )Reinsurance receivable
    
    
    1,339
    
    
    
    (1,432
 )Other receivables
    
    
    2,717
    
    
    
    2,216Deferred policy acquisition costs
    
    
    460
    
    
    
    (587
    )Other assets
    
    
    (769
    )
    
    
    (56
    )Increase (decrease) in liabilities:Claims processed and incomplete
    
    
    3,705
    
    
    
    156Unreported losses
    
    
    21,271
    
    
    
    12,627Unpaid loss-adjustment expenses
    
    
    331
    
    
    
    219Unearned premiums
    
    
    (3,393
    )
    
    
    (2,963
    )Annuity contracts
    
    
    279
    
    
    
    221Liability to FEHBP
    
    
    988
    
    
    
    2,476Accounts payable and accrued liabilities
    
    
    (2,179
    )
    
    
    1,693Income tax payable
    
    
    1,217
    
    
    
    2,163Net cash provided by
operating activities
    
    $
    27,486
    
    
    
    15,885
   22




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The Managements Discussion and Analysis of Financial Condition and Results of Operations
included in this Quarterly Report on Form 10-Q is intended to update the reader on matters
affecting the financial condition and results of operations of Triple-S Management Corporation
(TSM) and its subsidiaries (the Corporation) for the three months ended March 31, 2005. Therefore,
the following discussion should be read in conjunction with the consolidated financial statements
and notes thereto included in the Annual Report on Form 10-K filed with the United States
Securities and Exchange Commission as of and for the year ended December 31, 2004. Cautionary Statement Regarding Forward-Looking Information This Quarterly Report on Form 10-Q and other publicly available documents of the Corporation may
include statements that constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including, among other things: statements concerning the
financial condition, results of operations and business of the Corporation. These statements are
not historical, but instead represent the Corporations belief regarding future events, any of
which, by their nature, are inherently uncertain and outside of the Corporations control. These
statements may address, among other things, future financial results, strategy for growth, and
market position. It is possible that the Corporations actual results and financial condition may
differ, possibly materially, from the anticipated results and financial conditions indicated in
these forward-looking statements. The factors that could cause actual results to differ from those
in the forward-looking statements are discussed throughout this form. The Corporation is not under
any obligation to update or alter any forward-looking statement (and expressly disclaims any such
obligations), whether as a result of new information, future events or otherwise. Factors that may
cause actual results to differ materially from those contemplated by such forward looking
statements include, but are not limited to, rising healthcare costs, business conditions and
competition in the different insurance segments, government action and other regulatory issues. Structure of the Organization TSM is incorporated under the laws of the Commonwealth of Puerto Rico. It is the holding company
of several entities, through which it offers a wide range of insurance products and services.
These insurance products and services are offered through the following TSM wholly-owned
subsidiaries:  
    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; and
    Seguros de Vida Triple-S, Inc. (SVTS), a life and disability insurance and annuity
products company. In addition to the insurance subsidiaries mentioned above, TSM has the following other wholly-owned
subsidiaries: Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TCI). ISI provides data
processing services to TSM and its subsidiaries. TCI is currently engaged as the third-party
administrator in the administration of the Corporations Healthcare Reform segment. It also
provides healthcare advisory services and other health-related services to TSI and other third
parties.   23




---



##### Table of Contents



Recent Developments Healthcare Reform Segment All Reform contracts were to expire on June 30, 2005. The Reform contracts negotiation process was
scheduled to begin during the month of February 2005. However, during that month TSI was notified
of the government of Puerto Ricos (the government) interest in extending the contracts until
December 31, 2005 or June 30, 2006. During the month of April 2005, the government announced that
the contracts extension term will be for a period of twelve (12) months, with an option to cancel
on December 31, 2005. The exercise of the option to cancel on December 2005 will be determined by
October 2005. The negotiation of the terms of the contracts extension commenced during the month
of April 2005. TSI has agreed to this request and submitted proposals with modified contract
terms, including premiums. Adoption of Accounting Standard SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, was issued in
December 2004. This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for exchanges on
nonmonetary assets that do not have commercial substance. The Corporation is required to adopt
SFAS No. 153 on January 1, 2006. The adoption of SFAS No. 153 is not expected to have an impact on
the Corporations financial statements. General Information Substantially all of the revenues of the Corporation are generated from premiums earned and
investment income. Claims incurred include the payment of benefits and losses, mostly to
physicians, hospitals and other service providers, and to policyholders. A portion of the claims
incurred for each period consists of a management and actuarial estimate of claims incurred but not
reported to the segment during the period. Each segments results of operations depend largely on
their ability to accurately predict and effectively manage these claims. Operating expenses
comprise general, selling, commission, depreciation and payroll and payroll related expenses. The Corporation (on a consolidated basis and for each reportable segment), along with most
insurance entities, uses the loss ratio, the expense ratio and the combined ratio as measures of
performance. The loss ratio is computed as claims incurred divided by the premiums earned, net and
fee revenue. The expense ratio is computed as operating expenses divided by the premiums earned,
net and fee revenue. The combined ratio is the sum of the loss ratio and the expense ratio. These
ratios are relative measurements that describe, for every $100 of premiums earned, net and fee
revenue, the costs of claims and operating expenses. A combined ratio below 100 demonstrates
underwriting profit; a combined ratio above 100 demonstrates underwriting loss.  24




---



##### Table of Contents



Consolidated Operating Results The analysis in this section provides an overall view of the consolidated statements of operations
and key financial information. Further details of the results of operations of each reportable
segment are included in the analysis of operating results for the respective segments. Three months endedMarch 31,(dollar amounts in thousands)
    
    2005
    
    
    2004Consolidated earned premiums, net
and fee revenue
    
    $
    336,764
    
    
    
    321,102Consolidated claims incurred
    
    $
    302,923
    
    
    
    275,748Consolidated operating expenses
    
    
    43,766
    
    
    
    39,838Consolidated operating costs
    
    $
    346,689
    
    
    
    315,586Consolidated loss ratio
    
    
    90.0
    %
    
    
    85.9
    %Consolidated expense ratio
    
    
    13.0
    %
    
    
    12.4
    %Consolidated combined ratio
    
    
    102.9
    %
    
    
    98.3
    %Consolidated net investment income
    
    $
    7,064
    
    
    
    6,582Consolidated realized gain on sale of securities
    
    
    3,314
    
    
    
    1,383Consolidated unrealized gain (loss) on
trading securities
    
    
    (5,793
    )
    
    
    1,819Total consolidated net investment income
    
    $
    4,585
    
    
    
    9,784Consolidated income tax (benefit) expense
    
    $
    (1,289
    )
    
    
    3,809
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Consolidated earned premiums, net and fee revenue for the three months ended March 31, 2005
increased by $15.7 million or 4.9% when compared to the consolidated earned premiums, net and fee
revenue for the same period of last year. This increase is mostly due to the following:  
    The earned premiums, net and fee revenue corresponding to the Health Insurance 
Commercial segment increased by $10.9 million, or 6.1%, during this period. An increase
in the average enrollment together with increases in premium rates account for the
segments fluctuation in earned premiums and fee revenue for the period.
    The earned premiums, net corresponding to the Health Insurance  Healthcare Reform
segment increased by $3.7 million, or 3.1%, during this period. This increase is the net
result of an increase in premium rates effective July 1, 2004 and a reduction in the
average membership of the segment.
    The earned premiums, net of the Property and Casualty Insurance segment increased by
$1.3 million, or 6.3%, during this period. This increase is mostly reflected in the
premiums written for the Dwelling, Auto physical damage and Other lines of business, net
of an increase in premiums ceded. Consolidated claims incurred for the three months ended March 31, 2005 reflected an increase of
$27.2 million, or 9.9%, when compared to the claims incurred for the three months ended March 31,
2004. The consolidated loss ratio reflected an increase of 4.1 percentage points during this
period. This fluctuation is due to the following:  
    During the 2005 period the claims incurred of the Health Insurance  Commercial segment
increased by $19.6 million. This fluctuation is attributed to an increase in utilization
trends and
costs. Also, a year to date recast of the segments reserves as of December 31, 2004
presented an unfavorable development that was considered in the claims incurred during the
three months ended March 31, 2005 while the recast of the reserves as of December 31, 2003
presented a   25




---



##### Table of Contents



favorable development that was considered in the claims incurred during the
three months ended March 31, 2004.
    The increase of $6.5 million of the claims incurred of the Health Insurance Healthcare
Reform segment results mostly from higher utilization trends, particularly in risks
assumed by the segment. Also, the claims incurred by the segment in the 2005 period were
increased by an unfavorable development of the unreported losses reserve estimated as of
the end of the year 2004.The consolidated operating expenses presented an increase of $3.9 million, or 9.9%, during the 2005
period. This fluctuation is mostly due to the segments increased volume of business during this
period. The consolidated expense ratio for the three months ended March 31, 2005 increased by 0.6
percentage points when compared to the consolidated expense ratio for the same period of the prior
year. The consolidated realized gain on sale of securities is the result of the sound and timely
management of the investment portfolio in accordance with corporate investment policies and from
the normal turnover of the trading and available-for-sale securities. The unrealized loss on trading securities is related to investments held by segments in corporate
bonds and equity securities. The unrealized loss experienced during the 2005 period is mostly
attributed to losses in the portfolios held by segments in equity securities that replicate the
Standard & Poors 500 Index, the Russell 1000 Growth Index and the Russell 1000 Value Index. All
Indexes experienced negative returns in 2005. These segments plan to continue their long-term
strategy of passive management and diversification since historically, performance of these types
of investments has outperformed other financial instruments. The consolidated income tax expense for the three months period ended March 31, 2005 decreased by
$5.1 million when compared to the same period of the prior year. This decrease is mostly due to a
decrease in the taxable income when comparing the first quarter of the year 2005 with the
corresponding 2004 period. Health Insurance  Commercial Program Operating Results Three months endedMarch 31,(dollar amounts in thousands)
    
    2005
    
    
    2004Average enrollment:Corporate accounts
    
    
    307,294
    
    
    
    303,905Self-funded employers
    
    
    151,315
    
    
    
    132,757Individual accounts
    
    
    83,290
    
    
    
    84,635Federal employees
    
    
    50,154
    
    
    
    53,216Local government employees
    
    
    36,562
    
    
    
    42,952Total enrollment
    
    
    628,615
    
    
    
    617,465Earned premiums
    
    $
    185,057
    
    
    
    175,191Amounts attributable to self-funded arrangements
    
    
    52,234
    
    
    
    43,256Less: Amounts attributable to claims under
self-funded arrangements
    
    
    (48,540
    )
    
    
    (40,582
    )Earned premiums and fee revenue
    
    $
    188,751
    
    
    
    177,865Claims incurred
    
    $
    172,829
    
    
    
    153,240Operating expenses
    
    
    24,240
    
    
    
    21,994Total underwriting costs
    
    $
    197,069
    
    
    
    175,234Underwriting income (loss)
    
    $
    (8,318
    )
    
    
    2,631Loss ratio
    
    
    91.6
    %
    
    
    86.2
    %Expense ratio
    
    
    12.8
    %
    
    
    12.4
    %Combined ratio
    
    
    104.4
    %
    
    
    98.5
    %
   26




---



##### Table of Contents



Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Earned premiums and fee revenue for the three months ended March 31, 2005 reflects an increase of
$10.9 million, or 6.1%, when compared to the earned premiums and fee revenue for the three months
ended March 31, 2004. This increase is the result of the following:  
    Average enrollment as of March 31, 2005 increased by 11,150 members, or 1.8%, when
compared to the enrollment as of the same period of 2004. The increase in average
enrollment is mostly reflected in Self-funded employers and Corporate accounts businesses,
which membership increased by 18,558 members, or 14.0%, and 3,389 members, or 1.1%, during
this period, respectively. The increase in the enrollment in the Self-funded employers
business is due to the enrollment of several large corporate groups during 2004 and the
first quarter of 2005. The average enrollment of the Local government employees and
Federal employees businesses, on the other hand, reflect a decrease in membership of
6,390, or 14.9%, and 3,062, or 5.8%, during this period, respectively.
    On average, this segment increased premiums rates by approximately 5.6% during the 2005
period. Increases in premium rates combined with an increase in Self funded employers
have contributed to the increase experienced in the earned premiums and fee revenue for
the period. Claims incurred during the three months ended March 31, 2005 increased by $19.6 million, or 12.8%,
when compared to the same period in 2004. The segments loss ratio for the three months ended
March 31, 2005 increased by 5.4 percentage points when compared to the loss ratio for the three
months ended March 31, 2004. These fluctuations are attributed to the effect of the following:  
    In the 2005 period, the segment has experienced an increase in utilization trends and
costs, particularly in the prescription drug coverage, emergency room and hospital
in-patient services. Due to this increase in trends and costs, the segments actuarial
experience trend increased from 2.5% in the 2004 period to 6.2% in the 2005 period. The
increases in utilization trends and costs have caused the segments premium pricing to be
closer to the claims trend than in prior year.
    In addition, the loss ratio for the 2005 quarter is higher because the unfavorable
development of the reserves. The loss ratio for 2005 includes an unfavorable development
of $3.3 million, which has the effect of increasing the periods loss ratio by
approximately 1.8 percentage points. Also, the loss ratio of the 2004 quarter includes a
favorable development of $2.1 million, which has the effect of reducing the loss ratio of
that period by approximately 1.2 percentage points. The operating expenses for the three months ended March 31, 2005 reflect an increase of $2.2
million, or 10.2%, when compared to the three months ended March 31, 2004. This increase is due to
the expenses related to the launching of the new Medicare Advantage program and to the normal
inflationary effect in operating costs. The expense ratio for the three months ended March 31,
2005 experienced an increase of 0.4 percentage points compared to the three months ended March 31,
2004.   27




---



##### Table of Contents



Health Insurance  Healthcare Reform Program Operating Results Three months endedMarch 31,(dollar amounts in thousands)
    
    2005
    
    
    2004Average enrollment:North area
    
    
    232,977
    
    
    
    233,341Metro-north area
    
    
    215,707
    
    
    
    219,000Southwest area
    
    
    162,573
    
    
    
    165,847611,257
    
    
    
    618,188Earned premiums
    
    $
    123,140
    
    
    
    119,398Claims incurred
    
    $
    116,088
    
    
    
    109,215Operating expenses
    
    
    8,914
    
    
    
    8,752Total underwriting costs
    
    $
    125,002
    
    
    
    117,967Underwriting income (loss)
    
    $
    (1,862
    )
    
    
    1,431Loss ratio
    
    
    94.3
    %
    
    
    91.5
    %Expense ratio
    
    
    7.2
    %
    
    
    7.3
    %Combined ratio
    
    
    101.5
    %
    
    
    98.8
    %
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Earned premiums of the Healthcare Reform segment for the three months ended March 31, 2005
increased by $3.7 million, or 3.1%, when compared to the same period of last year. This increase
is the result of the net effect of the following:  
    Premium rates were increased by approximately 4.4% during the Healthcare Reform
contract renegotiation process for the twelve-month period ending on June 30, 2005. The
increase in premium rates was effective July 1, 2004.
    The average monthly enrollment for this segment decreased by 6,931 insureds, or 1.1%,
when comparing the average enrollment for the three months ended March 31, 2005 with the
average enrollment for the three months ended March 31, 2004. This decrease is attributed
to the continuous review and screening performed by the government over the persons
eligible to participate in the Healthcare Reform. Claims incurred during the three months ended March 31, 2005 reflect an increase of $6.9 million,
or 6.3%, when compared to the three months ended March 31, 2004. The loss ratio increased by 2.8
percentage points when comparing the 2005 period with the 2004 period. This fluctuation results
mostly from higher utilization trends and costs experienced during the three months ended March 31,
2005, particularly in risks assumed by the segment such as cardiovascular services, dialysis and
obstetrics, among others. In addition, the 2005 period includes the effect of an unfavorable
development of the 2004 year-end reserve estimate of approximately $3.5 million, which has the
effect of increasing the periods loss ratio by approximately 2.8 percentage points.   28




---



##### Table of Contents



Property and Casualty Insurance Operating Results Three months endedMarch 31,(dollar amounts in thousands)
    
    2005
    
    
    2004Premiums written:Commercial multiperil
    
    $
    12,984
    
    
    
    12,880Dwelling
    
    
    6,221
    
    
    
    5,699Auto physical damage
    
    
    4,995
    
    
    
    4,412Commercial auto liability
    
    
    3,679
    
    
    
    3,558Other liability
    
    
    2,325
    
    
    
    2,009Medical malpractice
    
    
    1,101
    
    
    
    988Other
    
    
    2,462
    
    
    
    1,706Total premiums written
    
    
    33,767
    
    
    
    31,252Premiums ceded
    
    
    (14,475
    )
    
    
    (12,753
    )Change in unearned premiums
    
    
    2,804
    
    
    
    2,284Net premiums earned
    
    $
    22,096
    
    
    
    20,783Claims incurred
    
    $
    11,373
    
    
    
    10,627Operating expenses
    
    
    10,341
    
    
    
    8,709Total underwriting costs
    
    $
    21,714
    
    
    
    19,336Underwriting income
    
    $
    382
    
    
    
    1,447Loss ratio
    
    
    51.5
    %
    
    
    51.1
    %Expense ratio
    
    
    46.8
    %
    
    
    41.9
    %Combined ratio
    
    
    98.3
    %
    
    
    93.0
    %
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Total premiums written for the three months ended March 31, 2005 increased by $2.5 million, or
8.0%, when compared to the three months ended March 31, 2004. This fluctuation is mostly due to an
increase in the volume of the premiums written in the Dwelling, Auto physical damage and the Other
lines of business, which experienced an increase in premiums of $522 thousand, or 9.2%, $583
thousand, or 13.2%, and $756 thousand, or 44.3%, during this period, respectively. The segment is
focusing its writings efforts to insurance related to mortgage products from financial institutions
and to increase the auto insurance business. Premiums ceded to reinsurers during the three months ended March 31, 2005 increased by $1.7
million, or 13.5 %, when compared to the same period for the prior year. The ratio of premiums
ceded to premiums written reflects an increase of 2.1 percentage points, from 40.8% in the 2004
period to 42.9% in the 2005 period. This fluctuation is mainly due to increases in premium
cessions of the commercial and personal lines quota share arrangements. Premiums cessions for the
commercial and personal lines quota share arrangements increased from 37.5% to 42.5% and 7.5% to
10.0%, respectively, during the first quarter of 2005. Claims incurred reflect an increment of $746 thousand, or 7.0% when compared to the three months
ended March 31, 2004 that is mostly attributed to the segments increased volume of business. The
loss ratio experienced an increase of 0.4 percentage points during the three months period ended
March 31, 2005 as compared to the same period of the prior year.   29




---



##### Table of Contents



Liquidity and Capital Resources Cash Flows The Corporation maintains good liquidity measures due to the quality of its assets, the
predictability of its liabilities, and the duration of its contracts. The liquidity of the
Corporation is primarily derived from the operating cash flows of its insurance subsidiaries. As of March 31, 2005 and December 31, 2004, the Corporations cash and cash equivalents amounted to
$58.2 million and $35.1 million, respectively. The sources of funds available to meet the
requirements of the Corporations operations include: cash provided from operations, maturities and
sales of securities classified within the trading and available-for-sale portfolios, securities
sold under repurchase agreements, and issuance of long and short-term debt. Management believes that the Corporations net cash flows from operations are expected to sustain
the operations for the next year and thereafter, as long as the operations continue showing
positive results. In addition, the Corporation monitors its premium rates and its claims incurred
to maintain proper cash flows and has the ability to increase premium rates throughout the year in
the monthly renewal process. Cash Flows from Operations Most of the cash flows from operating activities are generated from the insurance subsidiaries.
The basic components of the cash flows from operations are premium collections, claims payments,
payment of operating and acquisition expenses and proceeds from sales and maturities of investments
in the trading portfolio. Net cash flows provided by operating activities amounted to $27.5 million and $15.9 million for the
three months ended March 31, 2005 and 2004, respectively, an increase of $11.6 million. This
increase in cash flows from operating activities is mainly attributed to the net effect of the
following:  
    The net proceeds of investments in the trading portfolio increased by $18.5 million for
the three months ended March 31, 2005, when compared to the three months ended March 31,
2004.
    Premiums collected increased by $14.3 million when comparing collections during the
three months ended March 31, 2005 with collections for the three months ended March 31,
2004. This increase is mostly related to the increased volume of business and increases
in premium rates of the operating segments.
    The amount of claims, losses and benefits paid for the three months ended March 31,
2005 reflect an increase of $13.5 million when compared with the three months ended March
31, 2004. The increase in the amount of claims, losses and benefits paid is mostly the
result of the segments increased volume of business as well as to increased utilization
trends in both Health Insurance segments.
    The payments to suppliers and employees increased by $6.2 million when comparing the
amount paid during the 2005 and 2004 periods. This increase is basically attributed to
additional commission expense generated from the acquisition of new business and general
operating expenses. Any excess liquidity is available, among other things, to invest in high quality and diversified
fixed income securities and, to a lesser degree, to invest in marketable equity securities. Cash Flows from Investing Activities The basic components of the cash flows from investing activities are derived from acquisitions and
proceeds from sales and maturities of investments in the available-for-sale and held-to-maturity
portfolios and capital expenditures. The Corporation monitors the duration of its investment
portfolio and executes the purchases and sales of these investments with the objective of having
adequate funds available to satisfy its maturing liabilities.  30




---



##### Table of Contents



Net cash flows (used in) provided by investing activities amounted to $(14.9) million and $17.3
million for the three months ended March 31, 2005 and 2004, respectively. The decrease in the cash
flows from investing activities during this period is attributed to an increase in the amount of
investment proceeds that was reinvested. During the three months ended March 31, 2005 total
acquisition of investments exceeded the proceeds from investments sold or matured by $13.5 million.
During the three months ended March 31, 2004 the amount of proceeds from investments sold or
matured exceeded investment acquisitions by $17.8 million. Cash Flows from Financing Activities Net cash flows provided by financing activities amounted to $10.4 million and $13.4 million for the
three months ended March 31, 2005 and 2004, respectively. The decrease of $3.0 million when
compared to the same period of the prior year is mainly due to the fluctuation of the change in
outstanding checks in excess of bank balances. The change in outstanding checks in excess of bank
balances reflects a decrease of $2.7 million during the three months ended March 31, 2005 compared
to the 2004 period. The amount of checks in excess of bank balances represents a timing difference
between the issuance of checks and the cash balance in the bank account at one point in time. Financing and Financing Capacity The Corporation has significant short-term liquidity supporting its businesses. It also has
available short-term borrowings from time to time to address timing differences between cash
receipts and disbursements. These short-term borrowings are mostly in the form of securities sold
under repurchase agreements. As of March 31, 2005, the Corporation had $227.6 million in available
credit on these agreements. Outstanding short-term borrowings as of March 31, 2005 amount to $1.7
million. The amount due under outstanding short-term borrowings is expected to be repaid out of
the excess operating cash flows of the Corporation. On September 30, 2004 TSI issued and sold $50.0 million of its 6.30% senior unsecured notes due
September 2019 (the notes). The 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 investors under a note purchase agreement among TSI, the Corporation and the
investors. The notes pay interest semiannually beginning on March 2005, until such principal
becomes due and payable. The notes contain certain covenants with which TSI and the Corporation
have complied with at March 31, 2005. In addition, the Corporation has two credit agreements with a commercial bank, FirstBank Puerto
Rico. These credit agreements bear interest rates based on the London Interbank Offered Rate
(LIBOR) plus a margin specified by the commercial bank at the time of the agreement. As of March
31, 2005, the two credit agreements have an outstanding balance of $30.5 million and $15.0 million.
These credit agreements contain several restrictive covenants, including, but not limited to, the
granting of certain liens, limitations on acquisitions and limitations on changes in control. As
of March 31, 2005, management believes the Corporation is in compliance with these covenants. Further details regarding the senior unsecured notes and the credit agreements are incorporated by
reference to Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations of the Corporations Annual Report on Form 10-K as of and for the year ended December
31, 2004. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Corporation is exposed to certain market risks that are inherent in the Corporations
financial instruments, which arise from transactions entered into in the normal course of business.
The Corporation has exposure to market risk mostly in its investment activities. For purposes of
this disclosure, market risk is defined as the risk of loss resulting from changes in interest
rates and equity prices. No material changes have occurred in the Corporations exposure to
financial market risks since December 31, 2004. A discussion of the Corporations market risk as
of December 31, 2004 is incorporated by reference to Item 7a of the Corporations Annual Report on
Form 10-K.   31




---



##### Table of Contents



Item 4. Controls and Procedures The Corporations management, with the participation of the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Corporations disclosure controls and
procedures as of March 31, 2005. Based on that evaluation, the Corporations Chief Executive
Officer and Chief Financial Officer concluded that the Corporations disclosure controls and
procedures were effective as of March 31, 2005. There were no significant changes in the
Corporations disclosure controls and procedures, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed the evaluation referred to above. 
 Part II Other Information 
 Item 1. Legal Proceedings  (a)
    As of March 31, 2005, 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 against TSI and TSM
alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSIs common
stock due to the fact that the ultimate purchasers of said shares were selected on an improper
and selective basis by the Corporation in violation of the Puerto Rico Insurance Code. The
plaintiffs alleged that they were illegally excluded from participation in the sale of shares
by TSI due to the illegally selective nature of the sale of shares and that, consequently the
sale of shares should be eliminated.On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582
shares that TSI had repurchased from the estate of deceased stockholders. TSI contested such
orders through an administrative and judicial review process. Consequently, the sale of 1,582
shares was cancelled and the purchase price was returned to each former stockholder. In the
year 2000, the Commissioner of Insurance issued a pronouncement providing further clarification
of the content and effect of the order. This order also required that all corporate decisions
undertaken by TSI through the vote of its stockholders of record, be ratified in a
stockholders meeting or in a subsequent referendum. In November 2000, TSM, as the sole
stockholder of TSI, ratified all such decisions. Furthermore, on November 19, 2000, TSM held a
special stockholders meeting, where a ratification of these decisions was undertaken except
for the resolution related to the approval of the reorganization of TSI and its subsidiaries.
This resolution did not reach the two thirds majority required by the order because the number
of shares that were present and represented at the meeting was below such amount (total shares
present and represented in the stockholders meeting was 64%). As stipulated in the order, TSM
began the process to conduct a referendum among its stockholders in order to ratify such
resolution. The process was later suspended because upon further review of the scope of the
order, the Commissioner of Insurance issued an opinion in a letter dated January 8, 2002 which
indicated that the ratification of the corporate reorganization was not required.In another letter dated March 14, 2002, the Commissioner of Insurance stated that the
ratification of the corporate reorganization was not required and that TSI had complied with
the Commissioners order of December 6, 1996 related to the corporate reorganization.
Thereafter, the plaintiffs filed a petition for review of the Commissioners determination
before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by the
Commissioner of Insurance.Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals issued
an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify
TSIs corporate reorganization and the change of name of TSI from Seguros de Servicio de Salud
de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico Circuit Court of Appeals based its
decision on administrative and procedural issues directed at the Commissioner of Insurance.
The Commissioner of   32




---



##### Table of Contents



Insurance filed a motion of reconsideration with the Puerto Rico Circuit Court of Appeals on
October 11, 2002. TSI and TSM also filed a motion of reconsideration.On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of
Insurances Motion for Reconsideration and ordered the plaintiffs to reply to TSIs and TSMs
Motion of Reconsideration.On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSIs and TSMs Motion of
Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of
Insurance had the authority to waive the celebration of a referendum to ratify TSIs
reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares
annulled were not decisive, was approved by the stockholders.On June 26, 2003, the two stockholders presented a writ of certiorari before the Supreme Court
of Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The writ was
issued by the Supreme Court on August 22, 2003, when it ordered the Puerto Rico Circuit Court
of Appeals to transmit the record of the case. On December 1, 2003, the plaintiffs filed a
motion submitting their case on the basis of their original petition. TSI and TSM filed its
brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate
brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file
a brief in support of their allegations. The case is still pending before the Supreme Court of
Puerto Rico. It is the opinion of management that the corporate reorganization as approved is
in full force and effect.(c)
    On September 4, 2003, José Sánchez and others filed a putative class action complaint against
the Corporation, present and former directors of TSM and TSI, and others, in the United States
District Court for the District of Puerto Rico, alleging violations under the Racketeer
Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other
allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through
illegally capitalizing TSI and later converting it to a for-profit corporation and depriving
the stockholders of their ownership rights. The plaintiffs base their later allegations on
the supposed decisions of TSIs board of directors and stockholders, allegedly made in 1979,
to operate with certain restrictions in order to turn TSI into a charitable corporation,
basically forever. On March 4, 2005 the Court issued an Opinion and Order. In this Opinion
and Order, of the twelve counts included in the complaint, eight counts were dismissed for
failing to assert an actionable injury; six of them for lack of standing and two for failing
to plead with sufficient particularity in compliance with the Rules. All shareholder
allegations, including those described above, were dismissed in the Opinion and Order. The
remaining four counts were found standing, in a limited way, in the Opinion and Order.
Finally, the Court ordered that by March 24, 2005 one of the counts left standing be replead
to conform to the Rules and that by March 28, 2005 a proposed schedule for discovery and other
submissions be filed. The count was amended and accepted by the Court, the discovery schedule
was submitted and the parties are preparing to conduct discovery proceedings. This case is
still pending before the United States District Court for the District of Puerto Rico.(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
then 45 days to do so and 90 days to defendants to file the corresponding motion to dismiss.
As of this date no amended filings have been made.   33




---



##### Table of Contents



(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 other 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 United States
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 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 under multiple grounds,
including but not limited to arbitration and applicability of the McCarran Ferguson Act.(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, 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 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 are
alleged to have resulted in a loss of plaintiffs 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 payment due to the 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.On June 25, 2004, the plaintiffs amended the complaint but the allegations against TSI did not
vary.Management believes that TSI was made a party to this litigation for the sole reason that TSI
is associated with the BCBSA. TSI, along with the other defendants, moved to dismiss the
complaint under multiple grounds, including but not limited to arbitration and applicability of
the McCarran Ferguson Act.   34




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. 
 Item 3. Defaults Upon Senior Securities Not applicable. 
 Item 4. Submissions of Matters to a Vote of Security Holders Not applicable. 
 Item 5. Other Information Not applicable. 
 Item 6. Exhibits (a) Exhibits:  Exhibit 11 Statement re computation of per share earnings; an exhibit
describing the computation of the earnings per share for the
three months ended March 31, 2005 and 2004 has been omitted
as the detail necessary to determine the computation of
earnings per share can be clearly determined from the
material contained in Part I of this Quarterly Report on Form
10-Q.Exhibit 12 Statements re computation of ratios; an exhibit describing
the computation of the loss ratio, expense ratio and combined
ratio for the three months and nine months ended March 31,
2005 and 2004 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.All other exhibits for which provision is made in the applicable accounting regulation of the
United States Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.   35




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized. Triple-S Management Corporation
RegistrantDate: May 12, 2005
    
    By:
    
    /s/ Ramón M. Ruiz-ComasRamón M. Ruiz-Comas, CPAPresident and
Chief Executive OfficerDate: May 12, 2005
    
    By:
    
    /s/ Juan J. RománJuan J. Román, CPAVice President of Financeand Chief Financial Officer
   36