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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 
 COMMISSION FILE NUMBER 0-49762
 Triple-S Management Corporation
 Puerto Rico
    
    66-0555678(STATE OF INCORPORATION)
    
    (I.R.S. ID)
 1441 F.D. Roosevelt Avenue, San Juan, PR 00920
 (787) 749-4949
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredClass B common stock, $1.00 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Triple-S Management Corporation
 FORM 10-K
   Part IItem 1.
    
    Business.
    
    3Item 1A.
    
    Risk Factors.
    
    28Item 1B.
    
    Unresolved Staff Comments.
    
    47Item 2.
    
    Properties.
    
    47Item 3.
    
    Legal Proceedings.
    
    47Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    51Part IIItem 5.
    
    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
    
    51Item 6.
    
    Selected Financial Data.
    
    54Item 7.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations.
    
    55Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    83Item 8.
    
    Financial Statements and Supplementary Data.
    
    86Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.
    
    86Item 9A.
    
    Controls and Procedures.
    
    86Item 9B.
    
    Other Information.
    
    87Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance.
    
    87Item 11.
    
    Executive Compensation.
    
    87Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
    
    87Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence.
    
    87Item 14.
    
    Principal Accounting Fees and Services.
    
    88Part IVItem 15.
    
    Exhibits, Financial Statement Schedules.
    
    88SIGNATURES
    
    91EX-3.(I)(B) AMENDMENT TO ARTICLE TENTH A OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATIONEX-3.(I)(C) AMENDMENT TO ARTICLE FIFTH OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATIONEX-3.(I)(D) ARTICLES OF INCORPORATIONEX-10.15 SOFTWARE LICENSE AND MAINTENANCE AGREEMENTEX-10.15(A) AMENDMENT NUMBER ONE TO SOFTWARE LICENSE AND MAINTENANCE AGREEMENTEX-10.15(B) ADDENDUM NUMBER TWO TO SOFTWARE LICENSE AND MAINTENANCE AGREEMENTEX-10.15(C) ADDENDUM NUMBER THREE TO SOFTWARE LICENSE AND MAINTENANCE AGREEMENTEX-10.16 WORK ORDER AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  Page 2




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Part I
 
 Item 1. Business.
 General Description of Business and Recent Developments
      Industry Overview
 Managed Care
  Page 3




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Life Insurance
  Property and Casualty Insurance Segment
   Puerto Ricos Economy
  Page 4




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Products and Services
 Managed Care
    Health Maintenance Organization (HMO).
 Page 5




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Preferred Provider Organization (PPO)
 BlueCard.
 Medicare Supplement
 Prescription Drug Benefit Plans.
 Government Services
 Administrative Services Only
 Life Insurance
  Page 6




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Property and Casualty Insurance
  Percentage of TotalSegment Revenues forthe Year EndedDecember 31, 2007Line of BusinessCommercial multi-peril line of business
    
    
    43
    %Auto business
    
    
    25Dwelling and commercial property mono-line businesses
    
    
    17Other
    
    
    15
   Marketing and Distribution
  Branding and Marketing
  Page 7




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Distribution
 Managed Care Segment.
  Life Insurance Segment.
 Property and Casualty Insurance Segment.
 Customers
 Managed Care
  Enrollment at
    
    
    Percentage ofDecember 31, 2007
    
    
    Total EnrollmentMarket SectorCommercial
    
    
    574,251
    
    
    
    58.8
    %Reform
    
    
    353,694
    
    
    
    36.2Medicare Advantage
    
    
    49,245
    
    
    
    5.0Total
    
    
    977,190
    
    
    
    100.0
    %
 Commercial Sector
  Page 8




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Corporate Accounts.
 U.S. Federal Government Employees.
 Individual Accounts.
 Local Government Employees.
 Medicare Supplement.
 Reform Sector
    Page 9




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Medicare
 Medicare Optimo Medicare
Selecto Medicare Platino
 FarmaMed
 Life Insurance
  Property and Casualty Insurance
  Page 10




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Underwriting and Pricing
 Managed Care
     Life Insurance
  Property and Casualty Insurance
   Quality Initiatives and Medical Management
  Page 11




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Information Systems
     Page 12




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Provider Arrangements
  Medicare Optimo
    Hospitals
 Physicians.
  Subcontracting.
 Page 13




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Competition
  Managed Care
    Life Insurance
  Property & Casualty Insurance
  Page 14




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Blue Shield License
    
    
    failure to maintain our total adjusted capital at 200% of Health Risk-Based Capital
Authorized Control Level, as defined by the National Association of Insurance Commissioners
(NAIC) Risk Based Capital (RBC) model act;
    
    failure to maintain liquidity of greater than one month of underwritten claims and
administrative expenses, as defined by the BCBA, for two consecutive quarters;
    
    failure to satisfy state-mandated statutory net worth requirements;
    
    impending financial insolvency; and
    
    a change of control not otherwise approved by the BCBSA or a violation of the BCBSA voting
and ownership limitations on our capital stock.
     Page 15




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BlueCard.
 Claim Liabilities
  Investments
      Page 16




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Trademarks
  Regulation
  
    
    grant, suspend and revoke licenses to transact business;
    
    regulate many aspects of the products and services we offer;
    
    assess fines, penalties and/or sanctions;
    
    monitor our solvency and adequacy of our financial reserves; and
    
    regulate our investment activities on the basis of quality, diversification and other
quantitative criteria, within the parameters of a list of permitted investments set forth
in applicable insurance laws and regulations.
  
    
    initiatives to increase healthcare regulation, including efforts to expand the tort
liability of health plans;
    
    local government plans and initiatives;
    
    Reform and Medicare reform legislation; and
    
    Increase government concerns regarding fraud and abuse.
  Page 17




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
    
    licensure;
    
    policy forms, including plan design
and disclosures;
    
    premium rates and rating methodologies;
    
    underwriting rules and procedures;
    
    benefit mandates;
    
    eligibility requirements;
    
    security of electronically transmitted individually identifiable health information;
    
    geographic service areas;
    
    market conduct;
    
    utilization review;
    
    payment of claims, including timeliness and accuracy of payment;
    
    special rules in contracts to administer government programs;
    
    transactions with affiliated entities;
    
    limitations on the ability to pay dividends;
    
    rates of payment to providers of care;
    
    transactions resulting in a change of control;
    
    member rights and responsibilities;
    
    fraud and abuse;
    
    sales and marketing activities;
    
    quality assurance procedures;
    
    privacy of medical and other information and permitted disclosures;
    
    rates of payment to providers of care;

· surcharges on payments to providers;
    
    provider contract forms;
    
    delegation of financial risk and other financial arrangements in rates paid to providers of care;
    
    agent licensing;
    
    financial condition (including reserves);
    
    reinsurance;
    
    issuance of new shares of capital stock;
    
    corporate governance; and
    
    permissible investments.
  Puerto Rico Insurance Laws
   Page 18




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Privacy of Financial and Health Information
  Managed Care Provider Services
  Page 19




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Capital and Reserve Requirements
       Page 20




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Dividend Restrictions
   Guaranty Fund Assessments
  Federal Regulation
 The Medicare Program and Medicare Advantage
     Page 21




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The 2003 Medicare Modernization Act
 Overview.
  Prescription Drug Benefit.
 Page 22




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Dual-Eligible Beneficiaries.
 Bidding Process.
 Page 23




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Sales and Marketing.
 Annual Enrollment and Lock-in. st
 Fiscal Intermediary.
 Fraud and Abuse Laws.
 Page 24




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Federal False Claims Act.
 HIPAA and Gramm-Leach-Bliley Act
     Employee Retirement Income Security Act of 1974
  Page 25




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Other Government Programs
  Legislative and Regulatory Initiatives
    Financial Information About Segments
  Page 26




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Employees
  Available Information
  Special Note Regarding Forward-Looking Statements
    
    
    trends in health care costs and utilization rates;
    
    ability to secure sufficient premium rate increases;
    
    competitor pricing below market trends of increasing costs;
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
    
    re-estimates of our policy and contract liabilities;
    
    changes in government regulation of managed care, life insurance or property and
casualty insurance;
    
    significant acquisitions or divestitures by major competitors;
    
    introduction and use of new prescription drugs and technologies;
    
    a downgrade in our financial strength ratings;
    
    litigation or legislation targeted at managed care, life insurance or property and
casualty insurance companies;
    
    ability to contract with providers consistent with past practice;
    
    ability to successfully implement our disease management and utilization management
programs;
    
    volatility in the securities markets and investment losses and defaults;
    
    general economic downturns, major disasters and epidemics.
  
 Item 1A. Risk Factors
  Risks Relating to our Capital Stock
 Certain of our current and former providers may bring materially dilutive claims against us.
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Heirs of certain of our former shareholders may bring materially dilutive claims against us.
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The dual class structure may not successfully protect against significant dilution of your shares
of Class B common stock.
    Future sales of our Class B common stock, or the perception that such future sales may occur, may
have an adverse impact on its market price.
  Page 30




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Risks Related to Our Business
 Our inability to contain managed care costs may adversely affect our business and profitability.
  Our inability to implement increases in premium rates on a timely basis may adversely affect our
business and profitability.
  Our profitability may be adversely affected if we are unable to maintain our current provider
agreements and to enter into other appropriate agreements.
  A reduction in the enrollment in our managed care programs could have an adverse effect on our
business and profitability.
  Page 31




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We are dependent on a small number of government contracts to generate a significant amount of the
revenues of our managed care business.
  
    
    Reform:We participate in the government of Puerto Rico Health Reform Program to
provide health coverage to medically indigent citizens in Puerto Rico. Our results of
operations have depended to a significant extent on our participation in the Reform
program. During each of the years ended December 31, 2007, 2006 and 2005, the Reform
program has accounted for 21.7%, 30.2% and 37.0%, respectively , of our consolidated
premiums earned, net. During the 2007 period, we were the sole Reform provider in two of
the eight Reform regions in Puerto Rico. During the 2006 and 2005 periods, we were the sole Reform provider in three Reform regions. Since we obtained our first Reform contract in
1995, we have been the sole provider for two to three regions each year. The contract for
each geographical area is subject to termination in the event of any non-compliance by the
insurance company which is not corrected or cured to the satisfaction of the government
entity overseeing the Reform, or on 90 days prior written notice in the event that the
government determines that there is an insufficiency of funds to finance the Reform.
These contracts have one-year terms and expire on June 30 of each year. Upon the
expiration of the contract for a geographical area, the government of the Commonwealth of
Puerto Rico usually commences an open bidding process for such area. In October 2006, we
were informed that the new contract to serve one of these regions, Metro-North, had been
awarded to another managed care company effective November 1, 2006. During each of the
years ended December 31, 2006 and 2005, this region accounted for 10.7% and 14.6% of our
consolidated premiums earned, net, respectively, and 7.3% and 10.3% of our consolidated
operating income, respectively. We intend to continue to participate in the Reform
program, but we may not be able to retain the right to service a particular geographical
area in which we currently operate after the expiration of our current or any future
contracts.
    
    Medicare:We provide services through our Medicare Advantage health plans pursuant
to a limited number of contracts with CMS. These contracts generally have terms of one
year and must be renewed each year. Each of our contracts with CMS is terminable for
cause if we breach a material provision of the contract or violate relevant laws or
regulations. If we are unable to renew, or to successfully re-bid or compete for any of
these contracts, or if any of these contracts are terminated, our business would be
materially impaired. During each of the years ended December 31, 2007, 2006 and 2005,
contracts with CMS represented 16.9% 11.3% and 2.5% of our consolidated premiums earned,
net, respectively, and 39.4%, 46.0% and -1.2% of our consolidated operating income,
respectively. The Medicare business may in the future represent a greater percentage of
our results.
    
    Commercial:Our managed care subsidiary is a qualified contractor to provide managed
care coverage to federal government employees within Puerto Rico. Such coverage is
provided pursuant to a contract with the U.S. Office of Personnel Management (OPM) that is
subject to termination in the event of noncompliance not corrected to the satisfaction of
the OPM. During each of the years ended December 31, 2007, 2006 and 2005 premiums
generated under this contract represented 8.0%, 7.5% and 8.2% of our consolidated premiums
earned, net, respectively, and 1.2%, 1.1% and 2.4% of our consolidated operating income,
respectively.
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A change in our managed care product mix may impact our profitability.
  Our failure to accurately estimate incurred but not reported claims would affect our reported
financial results.
  The termination or modification of our license agreements to use the Blue Shield name and mark
could have a material adverse effect on our business, financial condition and results of
operations.
    Page 33




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Our ability to manage our exposure to underwriting risks in our life insurance and property and
casualty insurance businesses depends on the availability and cost of reinsurance coverage.
   If our reinsurers do not pay our claims or do not pay them in a timely manner, we may incur losses.
  A downgrade in our A.M. Best rating or our inability to increase our A.M. Best rating could affect
our ability to write new business or renew our existing business in our property and casualty
segment.
  Page 34




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Significant competition could negatively affect our ability to maintain or increase our
profitability.
 Managed Care
    Complementary Products
  Page 35




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As a holding company, we are largely dependent on rental payments, dividends and other payments
from our subsidiaries, although the ability of our regulated subsidiaries to pay dividends or make
other payments to us is subject to the regulations of the Commissioner of Insurance, including
maintenance of minimum levels of capital, as well as covenant restrictions in their indebtedness.
    Our results may fluctuate as a result of many factors, including cyclical changes in the insurance
industry.
  
    
    rising levels of actual costs that are not known by companies at the time they price
their products;
    
    volatile and unpredictable developments, including man-made and natural catastrophes;
    
    changes in reserves resulting from the general claims and legal environments as
different types of claims arise and judicial interpretations relating to the scope of
insurers liability develop; and
    
    fluctuations in interest rates, inflationary pressures and other changes in the
investment environment, which affect returns on invested capital.
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If we do not effectively manage the growth of our operations, we may not be able to achieve our
profitability targets.
  
    
    identify profitable new geographic markets to enter;
    
    operate in new geographic areas, as we have very limited experience operating outside
Puerto Rico;
    
    obtain licenses in new geographic areas in which we wish to market and sell our
products;
    
    successfully implement our underwriting, pricing, claims management and product
strategies over a larger operating region;
    
    properly design and price new and existing products and programs and reinsurance
facilities for markets in which we have no direct experience;
    
    identify, train and retain qualified employees;
    
    identify, recruit and integrate new independent agencies and brokers and expand the
range of Triple-S products carried by our existing agents and brokers;
    
    develop a network of physicians, hospitals and other managed care providers that meets
our requirements and those of applicable regulators; and
    
    augment our internal monitoring and control systems as we expand our business.
   We face intense competition to attract and retain employees and independent agents and brokers.
   Our investment portfolios are subject to varying economic and market conditions.
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The geographic concentration of our business in Puerto Rico may subject us to economic downturns in
the region.
   We may not be able to retain our executive officers and significant employees, and the loss of any
one or more of these officers and their expertise could adversely affect our business.
  The success of our business depends on developing and maintaining effective information systems.
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We face risks related to litigation.
  
    
    claims relating to the denial of managed care benefits;
    
    medical malpractice actions;
    
    allegations of anti-competitive and unfair business activities;
    
    provider disputes over compensation and termination of provider contracts;
    
    disputes related to self-funded business;
    
    disputes over co-payment calculations;
    
    claims related to the failure to disclose certain business practices;
    
    claims relating to customer audits and contract performance; and
    
    claims by regulatory agencies or whistleblowers for regulatory non-compliance,
including but not limited to fraud.
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Large-scale natural disasters may have a material adverse effect on our business, financial
condition and results of operations.
  Covenants in our secured term loan and note purchase agreements may restrict our operations.
  We may incur additional indebtedness in the future. Covenants related to such indebtedness could
also adversely affect our ability to pursue desirable business opportunities.
   We expect to pursue acquisitions in the future.
  
    
    disruption of on-going business operations, distraction of management, diversion of
resources and difficulty in maintaining current business standards, controls and
procedures;
    
    difficulty in integrating information technology of acquired entity and unanticipated
expenses related to such integration;
    
    difficulty in the integration of the new companys accounting, financial reporting,
management, information, human resources and other administrative systems and the lack of
control if such integration is delayed or not implemented;
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
    
    difficulty in the implementation of controls, procedures and policies appropriate for
filers with the SEC at companies that prior to acquisition lacked such controls, policies
and procedures;
    
    potential unknown liabilities associated with the acquired company;
    
    failure of acquired businesses to achieve anticipated revenues, earnings or cash flow;
    
    dilutive issuances of equity securities and incurrence of additional debt to finance
acquisitions;
    
    other acquisition-related expenses, including amortization of intangible assets and
write-offs; and
    
    competition with other firms, some of which may have greater financial and other
resources, to acquire attractive companies.
  We could be subject to possible regulatory actions in connection with alleged illegal political
contributions.
    Risks Relating to Taxation
 If the Company is considered to be a controlled foreign corporation under the related person
insurance income rules for U.S. federal income tax purposes, U.S. persons that own the Companys
shares of Class B common stock could be subject to adverse tax consequences.
  Page 41




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If the Company is considered to be a passive foreign investment company for U.S. federal income tax
purposes, U.S. persons that own the Companys shares of Class B common stock could be subject to
adverse tax consequences.
  Risks Relating to the Regulation of Our Industry
 Changes in governmental regulations, or the application thereof, may adversely affect our business,
financial condition and results of operations.
  
    
    initiatives to increase healthcare regulation, including efforts to expand the tort
liability of health plans;
    
    local government plans and initiatives;
    
    legislation to revise Medicare and the Reform; and
    
    increased governmental concern regarding fraud and abuse.
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We may be subject to regulatory and investigative proceedings, which may find that our policies,
procedures and contracts do not fully comply with complex and changing healthcare regulations.
   
    
    recoupment of amounts we have been paid pursuant to our government contracts;
    
    mandated changes in our business practices;
    
    imposition of significant civil or criminal penalties, fines or other sanctions on us
and/or our key employees;
    
    loss of our right to participate in Medicare, the Reform or other federal or local
programs; damage to our reputation;
    
    increased difficulty in marketing our products and services;
    
    inability to obtain approval for future services or geographic expansions; and
    
    loss of one or more of our licenses to act as an insurance company, preferred provider
or managed care organization or other licensed entity or to otherwise provide a service.
  As a Medicare Advantage program participant, we are subject to complex regulations. If we fail to
comply with these regulations, we may be exposed to criminal sanctions and significant civil
penalties, and our Medicare Advantage contracts may be terminated.
  The revised rate calculation system for Medicare Advantage established by the MMA could reduce our
profitability.
 Medicare Selecto Medicare Optimo
 Page 43




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CMSs risk adjustment payment system and budget neutrality factors make our revenue and
profitability difficult to predict and could result in material retroactive adjustments to our
results of operations.
    Page 44




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If during the open enrollment season our Medicare Advantage members enroll in another Medicare
Advantage plan, they will be automatically disenrolled from our plan, possibly without our
immediate knowledge.
  If we are deemed to have violated the insurance company change of control statutes in Puerto Rico,
we may suffer adverse consequences.
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Our insurance subsidiaries are subject to minimum capital requirements. Our failure to meet these
standards could subject us to regulatory actions.
   We are required to comply with laws governing the transmission, security and privacy of health
information.
   Puerto Rico insurance laws and regulations and provisions of our articles and bylaws could delay,
deter or prevent a takeover attempt that shareholders might consider to be in their best interests
and may make it more difficult to replace members of our board of directors and have the effect of
entrenching management.
    
    
    permit our board of directors to issue one or more series of preferred stock;
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
    
    divide our board of directors into three classes serving staggered three-year terms;
    
    limit the ability of shareholders to remove directors;
    
    impose restrictions on shareholders ability to fill vacancies on our board of
directors;
    
    impose advance notice requirements for shareholder proposals and nominations of
directors to be considered at meetings of shareholders; and
    
    impose restrictions on shareholders ability to amend our articles and bylaws.
    
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    
 Item 3. Legal Proceedings.
   Page 47




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Sánchez Litigation
  Jordán
et al Litigation
     Page 48




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Thomas Litigation
       Lens Litigation
  Page 49




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Colón Litigation
 inter
alia
 Puerto Rico Center for Municipal Revenue Collection
     Page 50




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Puerto Rico House of Representatives Investigation
  
 Item 4. Submissions of Matters to a Vote of Security Holders.
  
 Part II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Market Information
   High
    
    LowFourth quarter (beginning December 7, 2007)
    
    $
    21.20
    
    
    $
    14.78
  Holders
  Dividends
   Page 51




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Securities Authorized for Issuance Under Equity Compensation Plan
  Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer
  Performance Graph
   Page 52




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12/7/07
    
    12/14/07
    
    12/21/07
    
    12/28/07
    
    12/31/07GTS
    
    $
    100.00
    
    
    $
    122.11
    
    
    $
    126.07
    
    
    $
    134.19
    
    
    $
    133.40S&P500 Index
    
    $
    100.00
    
    
    $
    97.56
    
    
    $
    98.66
    
    
    $
    98.26
    
    
    $
    97.59MSHP Index
    
    $
    100.00
    
    
    $
    99.53
    
    
    $
    101.47
    
    
    $
    101.07
    
    
    $
    100.38
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Item 6. Selected Financial Data.
 Statement of Earnings Data
 (Dollar amounts in millions, except per share data)
    
    2007
    
    2006 (1)
    
    2005
    
    2004
    
    2003Years ended December 31,Premiums earned, net
    
    $
    1,483.6
    
    
    
    1,511.6
    
    
    
    1,380.2
    
    
    
    1,299.0
    
    
    
    1,264.4Administrative service fees
    
    
    14.0
    
    
    
    14.1
    
    
    
    14.4
    
    
    
    9.2
    
    
    
    8.3Net investment income
    
    
    47.2
    
    
    
    42.7
    
    
    
    29.1
    
    
    
    26.8
    
    
    
    24.7Total operating revenues
    
    
    1,544.8
    
    
    
    1,568.4
    
    
    
    1,423.7
    
    
    
    1,335.0
    
    
    
    1,297.4Net realized investments gains
    
    
    5.9
    
    
    
    0.8
    
    
    
    7.2
    
    
    
    11.0
    
    
    
    8.4Net unrealized investment gain (loss) on
trading securities
    
    
    (4.1
    )
    
    
    7.7
    
    
    
    (4.7
    )
    
    
    3.0
    
    
    
    14.9Other income, net
    
    
    3.2
    
    
    
    2.3
    
    
    
    3.7
    
    
    
    3.4
    
    
    
    4.7Total revenues
    
    
    1,549.8
    
    
    
    1,579.2
    
    
    
    1,429.9
    
    
    
    1,352.4
    
    
    
    1,325.4Benefits and expenses:Claims incurred
    
    
    1,223.8
    
    
    
    1,259.0
    
    
    
    1,208.3
    
    
    
    1,115.8
    
    
    
    1,065.4Operating expenses
    
    
    237.5
    
    
    
    236.1
    
    
    
    181.7
    
    
    
    171.9
    
    
    
    165.1Total operating costs
    
    
    1,461.3
    
    
    
    1,495.1
    
    
    
    1,390.0
    
    
    
    1,287.7
    
    
    
    1,230.5Interest expense
    
    
    15.9
    
    
    
    16.6
    
    
    
    7.6
    
    
    
    4.6
    
    
    
    3.2Total benefits and expenses
    
    
    1,477.2
    
    
    
    1,511.7
    
    
    
    1,397.6
    
    
    
    1,292.3
    
    
    
    1,233.7Income before taxes
    
    
    72.6
    
    
    
    67.5
    
    
    
    32.3
    
    
    
    60.1
    
    
    
    91.7Income tax expense
    
    
    14.1
    
    
    
    13.0
    
    
    
    3.9
    
    
    
    14.3
    
    
    
    65.4Net income
    
    
    58.5
    
    
    
    54.5
    
    
    
    28.4
    
    
    
    45.8
    
    
    
    26.3Basic net income per share (2):
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06
    
    
    
    1.71
    
    
    
    0.95Diluted net income per share:
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06
    
    
    
    1.71
    
    
    
    0.95Dividend declared per common
share (3):
    
    $
    0.82
    
    
    
    0.23
    
    
    
    
    
    
    
    
    
    
    
    
 Balance Sheet Data
 2007
    
    2006 (1)
    
    2005
    
    2004
    
    2003December 31,Cash and cash equivalents
    
    $
    240.2
    
    
    
    81.6
    
    
    
    49.0
    
    
    
    35.1
    
    
    
    47.7Total assets
    
    $
    1,659.5
    
    
    
    1,345.5
    
    
    
    1,137.5
    
    
    
    919.7
    
    
    
    834.6Long-term borrowings
    
    $
    170.9
    
    
    
    183.1
    
    
    
    150.6
    
    
    
    95.7
    
    
    
    48.4Total stockholders equity
    
    $
    482.5
    
    
    
    342.6
    
    
    
    308.7
    
    
    
    301.4
    
    
    
    254.3
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---



##### Table of Contents



Additional Managed Care Data(4)
 2007
    
    2006 (1)
    
    2005
    
    2004
    
    2003Additional Managed Care Data (4)Years ended December 31,Medical loss ratio
    
    
    87.1
    %
    
    
    87.6
    %
    
    
    90.3
    %
    
    
    88.3
    %
    
    
    86.6
    %Operating expense ratio
    
    
    11.2
    %
    
    
    11.5
    %
    
    
    10.8
    %
    
    
    10.8
    %
    
    
    10.8
    %Medical membership (period end)
    
    
    977,190
    
    
    
    979,506
    
    
    
    1,252,649
    
    
    
    1,236,108
    
    
    
    1,235,349
 (1)
    
    On January 31, 2006 we completed the acquisition of GA Life (now TSV). The results of
operations and financial condition of GA Life are included in this table for the period
following the effective date of the acquisition. See note 17 to the audited consolidated
financial statements for the years ended December 31, 2007, 2006 and 2005.(2)
    
    Further details of the calculation of basic earnings per share are set forth in notes 2 and
21 of the audited financial consolidated financial statements for the years ended December 31,
2007, 2006 and 2005.(3)
    
    Shareowners holding qualifying shares were excluded from dividend payment. See note 18 of
the audited financial consolidated financial statements for the years ended December 31, 2007,
2006 and 2005.(4)
    
    Does not reflect inter-segment eliminations.
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
    Page 55




---



##### Table of Contents



Years ended December 31,(Dollar amounts in millions)
    
    2007
    
    2006
    
    2005Premiums earned, net:Managed care
    
    $
    1,301.8
    
    
    
    1,339.8
    
    
    
    1,279.5Life insurance
    
    
    88.9
    
    
    
    86.9
    
    
    
    17.1Property and casualty insurance
    
    
    96.9
    
    
    
    88.5
    
    
    
    86.8Intersegment premiums earned
    
    
    (4.0
    )
    
    
    (3.6
    )
    
    
    (3.2
    )Consolidated premiums earned, net
    
    $
    1,483.6
    
    
    
    1,511.6
    
    
    
    1,380.2Administrative service fees:Managed care
    
    $
    17.2
    
    
    
    16.9
    
    
    
    15.5Intersegment premiums earned
    
    
    (3.2
    )
    
    
    (2.8
    )
    
    
    (1.1
    )Consolidated administrative service fees
    
    $
    14.0
    
    
    
    14.1
    
    
    
    14.4Operating income:Managed care
    
    $
    57.4
    
    
    
    45.5
    
    
    
    16.1Life insurance
    
    
    10.7
    
    
    
    11.2
    
    
    
    3.0Property and casualty insurance
    
    
    10.7
    
    
    
    11.2
    
    
    
    12.3Intersegment premiums earned
    
    
    4.7
    
    
    
    5.4
    
    
    
    2.3Consolidated operating income
    
    $
    83.5
    
    
    
    73.3
    
    
    
    33.7
  Results of Operations
 Revenue
 General.
 Page 56




---



##### Table of Contents



Managed Care Premium Revenue.
   Administrative Service Fees.
 Other Premium Revenue.
 Investment Income and Other Income.
 Expenses
 Claims Incurred.
  Page 57




---



##### Table of Contents



Operating Expenses.
 Membership
   Medicare Selecto Medicare Optimo FarmaMed
  As of December 31,2007
    
    2006
    
    2005Commercial (1)
    
    
    574,251
    
    
    
    580,850
    
    
    
    612,218Reform (2)
    
    
    353,694
    
    
    
    357,515
    
    
    
    628,438Medicare (3)
    
    
    49,245
    
    
    
    41,141
    
    
    
    11,993Total
    
    
    977,190
    
    
    
    979,506
    
    
    
    1,252,649
 (1)
    
    Commercial membership includes corporate accounts, self-funded employers, individual
accounts, Medicare Supplement, Federal government employees and local government employees.(2)
    
    Enrollment for 2005 includes the Metro-North region. The contract for this region was not
renewed effective November 1, 2006.(3)
    
    Includes Medicare Advantage as well as stand-alone PDP plan membership.
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---



##### Table of Contents



Significant Transactions
  Consolidated
 Year ended December 31, 2005Comparable(Dollar amounts in millions, except per share data)
    
    TSM
    
    GA Life
    
    BasisRevenues:Premiums earned, net
    
    $
    1,380.2
    
    
    
    61.6
    
    
    
    1,441.8Administrative service fees
    
    
    14.4
    
    
    
    
    
    
    
    14.4Net investment income
    
    
    29.1
    
    
    
    10.6
    
    
    
    39.7Total operating revenues
    
    
    1,423.7
    
    
    
    72.2
    
    
    
    1,495.9Net realized investment gains
    
    
    7.2
    
    
    
    4.4
    
    
    
    11.6Net unrealized investment loss in trading securities
    
    
    (4.7
    )
    
    
    
    
    
    
    (4.7
    )Other income, net
    
    
    3.7
    
    
    
    
    
    
    
    3.7Total revenues
    
    
    1,429.9
    
    
    
    76.6
    
    
    
    1,506.5Benefits and expenses:Claims incurred
    
    
    1,208.3
    
    
    
    29.0
    
    
    
    1,237.3Operating expenses
    
    
    181.7
    
    
    
    31.5
    
    
    
    213.2Total operating costs
    
    
    1,390.0
    
    
    
    60.5
    
    
    
    1,450.5Interest expense
    
    
    7.6
    
    
    
    1.4
    
    
    
    9.0Total benefits and expenses
    
    
    1,397.6
    
    
    
    61.9
    
    
    
    1,459.5Income before taxes
    
    
    32.3
    
    
    
    14.7
    
    
    
    47.0Income tax expense (benefit):Current
    
    
    4.0
    
    
    
    0.6
    
    
    
    4.6Deferred
    
    
    (0.1
    )
    
    
    (1.4
    )
    
    
    (1.5
    )Total income taxes
    
    
    3.9
    
    
    
    (0.8
    )
    
    
    3.1Net income
    
    $
    28.4
    
    
    
    15.5
    
    
    
    43.9
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##### Table of Contents



Life and Disability Insurance Segment
 Year ended December 31, 2005Comparable(Dollar amounts in thousands)
    
    SVTS
    
    GA Life
    
    BasisOperating revenues:Net earned premiums:Earned premiums
    
    $
    24.2
    
    
    
    63.7
    
    
    
    87.9Earned premiums ceded
    
    
    (8.0
    )
    
    
    (2.1
    )
    
    
    (10.1
    )Assumed earned premiums
    
    
    0.4
    
    
    
    
    
    
    
    0.4Net earned premiums
    
    
    16.6
    
    
    
    61.6
    
    
    
    78.2Commission income on reinsurance
    
    
    0.5
    
    
    
    
    
    
    
    0.5Premiums earned, net
    
    
    17.1
    
    
    
    61.6
    
    
    
    78.7Net investment income
    
    
    3.0
    
    
    
    10.6
    
    
    
    13.6Total operating revenues
    
    
    20.1
    
    
    
    72.2
    
    
    
    92.3Operating costs:Policy benefits and claims incurred
    
    
    8.9
    
    
    
    29.0
    
    
    
    37.9Underwriting and other expenses
    
    
    8.2
    
    
    
    31.5
    
    
    
    39.7Total operating costs
    
    
    17.1
    
    
    
    60.5
    
    
    
    77.6Operating income
    
    $
    3.0
    
    
    
    11.7
    
    
    
    14.7
 Consolidated Operating Results
  Comparable(Dollar amounts in millions)
    
    2007
    
    2006
    
    Basis 2005
    
    2005Years ended December 31,Revenues:Premiums earned, net
    
    $
    1,483.6
    
    
    
    1,511.6
    
    
    
    1,441.8
    
    
    
    1,380.2Administrative service fees
    
    
    14.0
    
    
    
    14.1
    
    
    
    14.4
    
    
    
    14.4Net investment income
    
    
    47.2
    
    
    
    42.7
    
    
    
    39.7
    
    
    
    29.1Total operating revenues
    
    
    1,544.8
    
    
    
    1,568.4
    
    
    
    1,495.9
    
    
    
    1,423.7Net realized investment gains
    
    
    5.9
    
    
    
    0.8
    
    
    
    11.6
    
    
    
    7.2Net unrealized investment gain (loss)
on trading securities
    
    
    (4.1
    )
    
    
    7.7
    
    
    
    (4.7
    )
    
    
    (4.7
    )Other income, net
    
    
    3.2
    
    
    
    2.3
    
    
    
    3.7
    
    
    
    3.7Total revenues
    
    
    1,549.8
    
    
    
    1,579.2
    
    
    
    1,506.5
    
    
    
    1,429.9Benefits and expenses:Claims incurred
    
    
    1,223.8
    
    
    
    1,259.0
    
    
    
    1,237.3
    
    
    
    1,208.3Operating expenses
    
    
    237.5
    
    
    
    236.1
    
    
    
    213.2
    
    
    
    181.7Total operating costs
    
    
    1,461.3
    
    
    
    1,495.1
    
    
    
    1,450.5
    
    
    
    1,390.0Interest expense
    
    
    15.9
    
    
    
    16.6
    
    
    
    9.0
    
    
    
    7.6Total benefits and expenses
    
    
    1,477.2
    
    
    
    1,511.7
    
    
    
    1,459.5
    
    
    
    1,397.6Income before taxes
    
    
    72.6
    
    
    
    67.5
    
    
    
    47.0
    
    
    
    32.3Income tax expense
    
    
    14.1
    
    
    
    13.0
    
    
    
    3.1
    
    
    
    3.9Net income
    
    $
    58.5
    
    
    
    54.5
    
    
    
    43.9
    
    
    
    28.4
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Year ended December 31, 2007 compared with the year ended December 31, 2006
 Operating Revenues
   Net Realized Investment Gains
  Net Unrealized Gain (Loss) on Trading Securities and Other Income, Net
  Claims Incurred
  Operating Expenses
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Income tax expense
  Year ended December 31, 2006 compared with the year ended December 31, 2005
 Operating Revenues
   Net Realized Investment Gains
  Net Unrealized Gain (Loss) on Trading Securities and Other Income, Net
  Claims Incurred
  Operating Expenses
  Interest Expense
  Page 62




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Income Tax Expense
  Managed Care Operating Results
  (Dollar amounts in millions, except enrollment data)
    
    2007
    
    2006
    
    2005Years ended December 31,Medical operating revenues:Medical premiums earned, net:Commercial
    
    $
    718.7
    
    
    
    713.2
    
    
    
    734.5Reform
    
    
    327.5
    
    
    
    455.8
    
    
    
    510.8Medicare
    
    
    255.6
    
    
    
    170.8
    
    
    
    34.2Medical premiums earned
    
    
    1,301.8
    
    
    
    1,339.8
    
    
    
    1,279.5Administrative service fees
    
    
    17.2
    
    
    
    16.9
    
    
    
    15.5Net investment income
    
    
    19.7
    
    
    
    18.8
    
    
    
    17.0Total medical operating revenues
    
    
    1,338.7
    
    
    
    1,375.5
    
    
    
    1,312.0Medical operating costs:Medical claims incurred
    
    
    1,133.2
    
    
    
    1,173.6
    
    
    
    1,155.9Medical operating expenses
    
    
    148.1
    
    
    
    156.4
    
    
    
    140.0Total medical operating costs
    
    
    1,281.3
    
    
    
    1,330.0
    
    
    
    1,295.9Medical operating income
    
    $
    57.4
    
    
    
    45.5
    
    
    
    16.1Additional data:Member months enrollment:Commercial:Fully-insured
    
    
    4,983,980
    
    
    
    5,272,987
    
    
    
    5,632,249Self funded
    
    
    1,930,850
    
    
    
    1,861,833
    
    
    
    1,840,716Total commercial
    
    
    6,914,830
    
    
    
    7,134,820
    
    
    
    7,472,965Reform
    
    
    4,262,248
    
    
    
    6,484,270
    
    
    
    7,465,777Medicare
    
    
    554,040
    
    
    
    461,718
    
    
    
    71,947Total member months
    
    
    11,731,118
    
    
    
    14,080,808
    
    
    
    15,010,689Medical loss ratio
    
    
    87.1
    %
    
    
    87.6
    %
    
    
    90.3
    %Medical expense ratio
    
    
    11.2
    %
    
    
    11.5
    %
    
    
    10.8
    %
 Year ended December 31, 2007 compared with the year ended December 31, 2006
 Medical Operating Revenues
  
    
    Medical premiums earned in the Reform business decreased by $128.3 million, or 28.1%,
to $327.5 million during the 2007 period. This fluctuation is due to a decrease in member
months enrollment in the Reform business by 2,222,022, or 34.3%, mainly as the result of
the termination
 Page 63




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of the contract for the Metro-North region, the tightening of membership
restrictions by the Puerto Rico government, and the shift in membership of dual eligibles
to Medicare Advantage policies offered by us and our competitors. The member months
enrollment of the Metro-North region was 2,040,714 during the year ended December 31,
2006. The effect of this decrease in membership was mitigated by an increase in premium
rates, effective July 1, 2007, of approximately 8.7% and a retroactive increase in rates
of approximately 6.7% effective November 1, 2006.
 
    
    Medical premiums generated by the Medicare business increased during 2007 by $84.8
million, or 49.6%, to $255.6 million, primarily due to an increase in member months
enrollment of 92,322, or 20.0%. The increase in member months is the net result of an
increase of 135,238, or 48.1%, in the membership of our Medicare Advantage products and a
decrease of 42,916, or 23.8%, in the membership of our PDP product. We expect that
Medicare Advantage enrollment will continue to experience growth, but at a slower pace
than in prior periods. In addition, the segment recognized an additional premium
adjustment of $3.2 million related to the 2006 risk scores review performed by CMS.
    
    Medical premiums generated by the Commercial business increased by $5.5 million, or
0.8%, to $718.7 million during the 2007 period. This increase is primarily the result of
an increase in average premium rates of 6.5%, partially offset by a decrease in member
months enrollment of 289,007, or 5.5%.
  Medical Claims Incurred
  Medical Operating Expenses
  Year ended December 31, 2006 compared with the year ended December 31, 2005
 Medical Operating Revenues
  
    
    Medical premiums generated by the Medicare Advantage business increased during 2006 by
$136.6 million, or 399.4%, primarily due to an increase in member months enrollment of
389,771, or 541.7%. The increase in member months enrollment is the result of an increase
of 209,327, or 290.9%, in the membership of our Medicare Advantage product and a members
months
 Page 64




---



##### Table of Contents



enrollment 180,444 of our new PDP product. The increase in members of our Medicare
Advantage business reflects the initial ramp-up of this business, which commenced in 2005,
and the introduction of additional Medicare Advantage policies. In January 2006, we
expanded our Medicare Advantage business with the introduction of Medicare Platinofor the
dual-eligible population, the medically indigent Medicare-qualified beneficiaries. Also
in January 2006, we introduced a new PDP product, FarmaMed, which had premiums of $15.1
million during the 2006 period. In 2006, many members of our PDP business transferred to
one of our Medicare Advantage policies, we expect this trend to continue in 2007 and, as a
result, to experience a decrease in the enrollment of this business.
 
    
    During 2006, member months enrollment in the Reform business decreased by 981,507, or
13.1%, and premiums earned during the year decreased by $55.0 million, or 10.8%. This
business experienced a decrease in its member months as a result of the termination of the
Metro-North region effective November 1, 2006. Monthly premiums earned from the
Metro-North region averaged approximately $16.2 million in 2006. In addition, this
business also experienced a shift in membership by dual eligibles to Medicare Advantage
policies offered by us and our competitors and a tightening of membership restrictions by
the government of Puerto Rico. The effect of this decrease in membership was mitigated by
an increase in premium rates, effective August 1, 2005, of approximately 5.0%.
    
    Medical premiums generated by the Commercial sector decreased by $21.3 million, or
2.9%. This decrease was due to a decrease in member months of 359,262, or 6.4%, primarily
as a result of the loss of several fully-insured accounts due to aggressive pricing by our
competitors as well as qualified enrollees transferring to our or our competitors
Medicare Advantage policies and fully-insured groups changing to self-funded arrangements,
offset in part by an average increase in premium rates of approximately 3.7%.
  Medical Claims Incurred
  Medical Operating Expenses
  Life Insurance Operating Results
  Page 65




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Comparable(Dollar amounts in millions)
    
    2007
    
    2006
    
    Basis 2005
    
    2005Years ended December 31,Operating revenues:Premiums earned, netPremiums earned, net
    
    $
    97.4
    
    
    
    91.9
    
    
    
    87.9
    
    
    
    24.2Premiums earned ceded
    
    
    (8.8
    )
    
    
    (9.7
    )
    
    
    (10.1
    )
    
    
    (8.0
    )Assumed premiums earned
    
    
    
    
    
    
    4.4
    
    
    
    0.4
    
    
    
    0.4Net premiums earned
    
    
    88.6
    
    
    
    86.6
    
    
    
    78.2
    
    
    
    16.6Commission income on reinsurance
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.5Premiums earned, net
    
    
    88.9
    
    
    
    86.9
    
    
    
    78.7
    
    
    
    17.1Net investment income
    
    
    15.0
    
    
    
    13.7
    
    
    
    13.6
    
    
    
    3.0Total operating revenues
    
    
    103.9
    
    
    
    100.6
    
    
    
    92.3
    
    
    
    20.1Operating costs:Policy benefits and claims incurred
    
    
    45.7
    
    
    
    43.6
    
    
    
    37.9
    
    
    
    8.9Underwriting and other expenses
    
    
    47.5
    
    
    
    45.8
    
    
    
    39.7
    
    
    
    8.2Total operating costs
    
    
    93.2
    
    
    
    89.4
    
    
    
    77.6
    
    
    
    17.1Operating income
    
    $
    10.7
    
    
    
    11.2
    
    
    
    14.7
    
    
    
    3.0Additional data:Loss ratio
    
    
    51.4
    %
    
    
    50.2
    %
    
    
    48.2
    %
    
    
    52.0
    %Expense ratio
    
    
    53.4
    %
    
    
    52.7
    %
    
    
    50.4
    %
    
    
    48.0
    %
 Year ended December 31, 2007 compared with the year ended December 31, 2006
 Operating Revenues
   Policy Benefits and Claims Incurred
  Page 66




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Underwriting and Other Expenses
  Year ended December 31, 2006 compared with the year ended December 31, 2005
 Operating Revenues
   Policy Benefits and Claims Incurred
  Underwriting and Other Expenses
  Page 67




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Property and Casualty Insurance Operating Results
 (Dollar amounts in millions)
    
    2007
    
    2006
    
    2005Years ended December 31,Operating revenues:Premiums earned, net:Premiums written
    
    $
    170.9
    
    
    
    158.9
    
    
    
    151.1Premiums ceded
    
    
    (69.1
    )
    
    
    (65.7
    )
    
    
    (59.2
    )Change in unearned premiums
    
    
    (4.9
    )
    
    
    (4.7
    )
    
    
    (5.1
    )Premiums earned, net
    
    
    96.9
    
    
    
    88.5
    
    
    
    86.8Net investment income
    
    
    11.8
    
    
    
    9.6
    
    
    
    8.7Total operating revenues
    
    
    108.7
    
    
    
    98.1
    
    
    
    95.5Operating costs:Claims incurred
    
    
    44.9
    
    
    
    41.7
    
    
    
    43.6Underwriting and other operating expenses
    
    
    53.1
    
    
    
    45.2
    
    
    
    39.6Total operating costs
    
    
    98.0
    
    
    
    86.9
    
    
    
    83.2Operating income
    
    $
    10.7
    
    
    
    11.2
    
    
    
    12.3Additional data:Loss ratio
    
    
    46.3
    %
    
    
    47.1
    %
    
    
    50.2
    %Expense ratio
    
    
    54.8
    %
    
    
    51.1
    %
    
    
    45.6
    %Combined ratio
    
    
    101.1
    %
    
    
    98.2
    %
    
    
    95.8
    %
 Year ended December 31, 2007 compared with the year ended December 31, 2006
 Operating Revenues
   Claims Incurred
  Underwriting and Other Operating Expenses
  Page 68




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Year ended December 31, 2006 compared with the year ended December 31, 2005
 Operating Revenues
   Claims Incurred
  Underwriting and Other Operating Expenses
  Page 69




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
  (dollar amounts in millions)
    
    2007
    
    2006
    
    2005Years ended December 31,Sources of cash:Cash provided by operating activities
    
    $
    115.9
    
    
    
    75.6
    
    
    
    50.8Net proceeds from investments sold
    
    
    1.0
    
    
    
    
    
    
    
    Proceeds from long-term borrowings
    
    
    
    
    
    
    35.0
    
    
    
    60.0Proceeds from short-term borrowings
    
    
    54.5
    
    
    
    117.8
    
    
    
    174.1Proceeds from annuity contracts
    
    
    6.1
    
    
    
    6.0
    
    
    
    11.5Net proceeds from initial public offering
    
    
    70.3
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    3.9Total sources of cash
    
    
    247.8
    
    
    
    234.4
    
    
    
    300.3Uses of cash:Net purchases of investment securities
    
    
    
    
    
    
    (9.3
    )
    
    
    (94.7
    )Acquisition of GA Life, net of cash acquired
    
    
    
    
    
    
    (27.8
    )
    
    
    Capital expenditures
    
    
    (9.4
    )
    
    
    (11.9
    )
    
    
    (7.6
    )Dividends
    
    
    (2.4
    )
    
    
    (6.2
    )
    
    
    Payments of long-term borrowings
    
    
    (12.1
    )
    
    
    (2.5
    )
    
    
    (5.1
    )Payments of short-term borrowings
    
    
    (54.5
    )
    
    
    (119.5
    )
    
    
    (174.0
    )Surrenders of annuity contracts
    
    
    (7.4
    )
    
    
    (16.0
    )
    
    
    (5.1
    )Other
    
    
    (3.4
    )
    
    
    (8.7
    )
    
    
    Total uses of cash
    
    
    (89.2
    )
    
    
    (201.9
    )
    
    
    (286.5
    )Net increase in cash and cash equivalents
    
    $
    158.6
    
    
    
    32.5
    
    
    
    13.8
 Year ended December 31, 2007 compared to year ended December 31, 2006
       Page 70




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##### Table of Contents



Year ended December 31, 2006 compared to year ended December 31, 2005
        Financing and Financing Capacity
   
    
    On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured
notes payable due January 2021 (the 6.7% notes). The 6.7% notes were privately placed to
various institutional accredited investors. The notes pay interest each month until the
principal becomes due and payable. These notes can be redeemed after five years at par,
in whole or in part, as determined by us. The proceeds obtained from this issuance were
used to finance the acquisition of 100% of the common stock of GA Life effective January
31, 2006.
    
    On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured
notes due December 2020 (the 6.6% notes). The 6.6% notes were privately placed to various
institutional accredited investors. The notes pay interest each month until the principal
becomes due and payable. These notes can be redeemed after five years at par, in whole or
in part, as determined by us. The proceeds obtained from this issuance were used to pay
the ceding commission to GA Life on the effective date of the coinsurance funds withheld
reinsurance agreement.
    
    On September 30, 2004, our managed care subsidiary issued and sold $50.0 million of its
6.3% senior unsecured notes due September 2019 (the 6.3% notes). The 6.3% notes are
unconditionally guaranteed as to payment of principal, premium, if any, and interest by
us. The notes were privately placed to various institutional accredited investors. The
notes pay interest semiannually until the principal becomes due and payable. These notes
can be prepaid after five years at par, in
 Page 71




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##### Table of Contents



whole or in part, as determined by our managed
care subsidiary. Most of the proceeds obtained from this issuance were used to repay
$37.0 million of short-term borrowings. The remaining proceeds were used for general
business purposes.
       Planned Capital Expenditures
  Contractual Obligations
   
    
    Liability for future policy benefits  This liability was excluded because we do not
expect to make payments in the future until the occurrence of an insurable event, such as
death or disability, or because the occurrence of a payment triggering event, such as the
surrender of a policy or contract, is not under our control. The determination of the
timing of payment of this liability is not reasonably fixed and determinable since the insurable event has not yet occurred. As of
December 31, 2007, our liability for future policy benefits amounted to $194.1 million.
    
    Unearned premiums  This amount accounts for the premiums collected prior to the end
of coverage period and does not represent a future cash outflow. As of December 31, 2007,
we had $132.6 million in unearned premiums.
 Page 72




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##### Table of Contents




    
    Policyholder deposits  The cash outflows related to these instruments are not
included because they do not have defined maturities, such that the timing of payments and
withdrawals is uncertain. There are currently no significant policyholder deposits in
paying status. As of December 31, 2007, our policyholder deposits had a carrying amount
of $45.9 million.
    
    Other long-term liabilities  Due to the indeterminate nature of their cash outflows,
$59.4 million of other long-term liabilities are not reflected in the following table,
including $29.2 million of liability for the pension benefits and $21.3 million in
liabilities to the Federal Employees Health Benefit Plan.
 Contractual obligations by year(Dollar amounts in millions)
    
    Total
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterLong-term borrowings (1)
    
    $
    302.9
    
    
    
    12.6
    
    
    
    12.6
    
    
    
    12.5
    
    
    
    12.4
    
    
    
    12.2
    
    
    
    240.6Operating leases
    
    
    13.3
    
    
    
    5.3
    
    
    
    3.7
    
    
    
    2.2
    
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.4Purchase obligations (2)
    
    
    235.5
    
    
    
    235.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    Claim liabilities (3)
    
    
    299.0
    
    
    
    203.2
    
    
    
    57.0
    
    
    
    12.8
    
    
    
    8.9
    
    
    
    6.0
    
    
    
    11.1$
    850.7
    
    
    
    456.3
    
    
    
    73.4
    
    
    
    27.6
    
    
    
    22.6
    
    
    
    18.7
    
    
    
    252.1
 (1)
    
    As of December 31, 2007, our long-term borrowings consist of our managed care subsidiarys
6.3% senior unsecured notes payable (which are unconditionally guaranteed as to payment of
principal, premium, if any, and interest by us), our 6.6% senior unsecured notes payable, our
6.7% senior unsecured notes payable, and a loan payable to a commercial bank. Total
contractual obligations for long-term borrowings include the current maturities of long term
debt. For the 6.3%, 6.6% and 6.7% senior unsecured notes, scheduled interest payments were
included in the total contractual obligations for long-term borrowings until the maturity
dates of the notes in 2019, 2020, and 2021, respectively. We may redeem the notes starting
five years after issuance; however no redemption is considered in this schedule. The interest
payments related to our loan payable were estimated using the interest rate applicable as of
December 31, 2007. The actual amount of interest payments of the loans payable will differ
from the amount included in this schedule due to the loans variable interest rate structure.
See the Financing and Financing Capacity section for additional information regarding our
long-term borrowings.(2)
    
    Purchase obligations represent payments required by us under material agreements to purchase
goods or services that are enforceable and legally binding and where all significant terms are
specified, including: quantities to be purchased, price provisions and the timing of the
transaction. Other purchase orders made in the ordinary course of business for which we are
not liable are excluded from the table above. Estimated pension plan contributions amounting
to $5.0 million were included within the total purchase obligations. However, this amount is
an estimate which may be subject to change in view of the fact that contribution decisions are
affected by various factors such as market performance, regulatory and legal requirements and
plan funding policy.(3)
    
    Claim liabilities represent the amount of our claims processed and incomplete as well as an
estimate of the amount of incurred but not reported claims and loss-adjustment expenses. This
amount does not include an estimate of claims to be incurred subsequent to December 31, 2007.
The expected claims payments are an estimate and may not necessarily present the actual claims
payments to be made by us. Also, the estimated claims payments included in the table above do
not include $54.8 million of reserves ceded under reinsurance contracts. Since reinsurance
contracts do not relieve us from our obligations to policyholders, in the event that any of the reinsurance companies is unable to
meet its obligations under the existing reinsurance agreements, we would be liable for such
defaulted amounts. Off-Balance Sheet Arrangements
  Page 73




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##### Table of Contents



Restriction on Certain Payments by the Corporations Subsidiaries
     Solvency Regulation
  Other Contingencies
 Legal Proceedings
   Guarantee Associations
   Page 74




---



##### Table of Contents



Critical Accounting Estimates
   Claim Liabilities
  Property andManaged
    
    Life
    
    Casualty(Dollar amounts in millions)
    
    Care
    
    Insurance
    
    Insurance
    
    ConsolidatedClaims processed and incomplete (1)
    
    $
    85.5
    
    
    
    26.6
    
    
    
    74.0
    
    
    
    186.1Unreported losses (2)
    
    
    111.3
    
    
    
    8.6
    
    
    
    30.1
    
    
    
    150.0Unpaid loss-adjustment expenses (3)
    
    
    4.8
    
    
    
    0.3
    
    
    
    12.6
    
    
    
    17.7$
    201.6
    
    
    
    35.5
    
    
    
    116.7
    
    
    
    353.8
 (1)
    
    The liability for claims processed and incomplete represents those claims that have been
incurred and reported to us that remain unpaid as of the balance sheet date. This amount
includes claims that have been investigated and adjusted but have not been paid as well as
those reported claims that have not gone through the investigation and adjustment process.(2)
    
    The liability for estimated unreported losses is the amount needed to provide for the
estimated ultimate cost of settling those claims related to insured events that have occurred
but have not been reported to us. Page 75




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##### Table of Contents



(3)
    
    The liability for unpaid loss-adjustment expenses is the amount needed to provide for the
estimated ultimate cost required to investigate and adjust claims related to insured events
that have occurred as of the balance sheet date, whether or not the claims have been reported
to us at that date.   Managed Care Segment
     Page 76




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##### Table of Contents



(Dollar amounts in millions)Completion Factor1
    
    Claims Trend Factor2(Decrease) Increase
    
    (Decrease) IncreaseIn unpaid claim
    
    In claims trend
    
    In unpaid claimIn completion factor
    
    liabilities
    
    factor
    
    liabilities(0.6)%
    
    $
    8.7
    
    
    
    (0.6
    )%
    
    $
    6.3(0.4)%
    
    
    5.8
    
    
    
    (0.4
    )%
    
    
    4.2(0.2)%
    
    
    2.9
    
    
    
    (0.2
    )%
    
    
    2.00.2%
    
    
    (2.9
    )
    
    
    0.2
    %
    
    
    (2.0
    )0.4%
    
    
    (5.8
    )
    
    
    0.4
    %
    
    
    (4.5
    )0.6%
    
    
    (8.6
    )
    
    
    0.6
    %
    
    
    (6.3
    )
 
 1
    
    Assumes (decrease) increase in the completion factors for the most recent twelve months.2
    
    Assumes (decrease) increase in the claims trend factors for the most recent twelve months.   Page 77




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##### Table of Contents



(Dollar amounts in millions
    
    2006
    
    2005
    
    2004Years ended December 31,Total incurred claims:As reported (1)
    
    $
    1,184.3
    
    
    
    1,148.2
    
    
    
    1,062.7On a retrospective basis
    
    
    1,160.7
    
    
    
    1,137.5
    
    
    
    1,070.4Variance
    
    $
    23.6
    
    
    
    10.7
    
    
    
    (7.7
    )Variance to total incurred claims as reported
    
    
    2.0
    %
    
    
    0.9
    %
    
    
    -0.7
    %
 
 (1)
    
    Includes total claims incurred less adjustments for prior year reserve development.   
    
    Through the management of our cash flows and investment portfolio.
    
    We have the ability to increase the premium rates throughout the year in the monthly
renewal process, when renegotiating the premiums for the following contract year of each
group as they become due. We consider the actual claims trend of each group when
determining the premium rates for the following contract year.
    
    We have available short-term borrowing facilities that from time to time address
differences between cash receipts and disbursements.
  Life Insurance Segment
     Page 78




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##### Table of Contents



Property and Casualty Insurance Segment
       Liability for Future Policy Benefits
  Page 79




---



##### Table of Contents



Accounting and Reporting by
Insurance Enterprises
 Deferred Policy Acquisition Costs and Value of Business Acquired
     Page 80




---



##### Table of Contents



Impairment of Investments
      Allowance for Doubtful Receivables
  Page 81




---



##### Table of Contents



Other Significant Accounting Policies
  Recently Issued Accounting Standards
 The Fair Value Option for Financial
Assets and Financial Liabilities Fair Value Measurements
 Fair Value Measurement
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements  an
amendment to ARB No. 51
 Page 82




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Market Risk Exposure
        
    
    the market risk information is limited by the assumptions and parameters established in
creating the related sensitivity analysis, including the impact of prepayment rates on
mortgages; and
    
    the model assumes that the composition of assets and liabilities remains unchanged
throughout the year.
 Page 83




---



##### Table of Contents



Interest Rate Risk
  Equity Price Risk
  Risk Measurement
 Trading Portfolio
  Other than Trading Portfolio
  Interest Rate Risk
  Page 84




---



##### Table of Contents



(Dollar amounts in millions)
 Expected
    
    Amount of
    
    %Change in Interest Rates
    
    Fair Value
    
    Decrease
    
    ChangeDecember 31, 2007:Base Scenario
    
    $
    867.5+100 bp
    
    
    819.3
    
    
    
    (48.2
    )
    
    
    (5.6
    )%+200 bp
    
    
    777.3
    
    
    
    (90.2
    )
    
    
    (10.4
    )%+300 bp
    
    
    732.6
    
    
    
    (134.9
    )
    
    
    (15.6
    )%December 31, 2006:Base Scenario
    
    $
    749.7+100 bp
    
    
    716.6
    
    
    
    (33.1
    )
    
    
    (4.4
    )%+200 bp
    
    
    685.8
    
    
    
    (63.9
    )
    
    
    (8.5
    )%+300 bp
    
    
    657.1
    
    
    
    (92.6
    )
    
    
    (12.4
    )%
  Equity Price Risk
  Other Risk Measurement
     Page 85




---



##### Table of Contents



Accounting for Derivative Instruments and Certain Hedging Activities
 
 Item 8. Financial Statements and Supplementary Data.
 Financial Statements
  Selected Quarterly Financial Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
  
 Item 9A. Controls and Procedures.
    Page 86




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##### Table of Contents



Item 9B. Other Information.
  
 Part III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  Page 87




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
  
 Item 15. Exhibits and Financial Statements Schedules.
 Financial Statements and Schedules
 Financial Statements
    
    DescriptionF-1
    
    Report of Independent Registered Public Accounting FirmF-2
    
    Consolidated Balance Sheets as of December 31, 2007 and 2006F-3
    
    Consolidated Statements of Earnings for the years ended
December 31, 2007, 2006 and 2005F-4
    
    Consolidated Statements of Stockholders Equity and
Comprehensive Income for the years ended December 31, 2007,
2006 and 2005F-5
    
    Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005F-7
    
    Notes to Consolidated Financial Statements  December 31,
2007, 2006 and 2005Financial Statements Schedules
    
    DescriptionS-1
    
    Schedule II  Condensed Financial Information of the RegistrantS-2
    
    Schedule III  Supplementary Insurance InformationS-3
    
    Schedule IV  ReinsuranceS-4
    
    Schedule V  Valuation and Qualifying Accounts
  Exhibits
 Exhibits
    
    Description3(i)(a)
    
    Amended and Restated Articles of Incorporation of Triple-S Management Corporation (incorporated
herein by reference to Exhibit 3(i) to TSMs Annual Report on
Form 10-K for the Year Ended December 31, 2006 (File No. 0-49762)
and to Exhibit 3(i) to TSMs Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 2007 (File No. 0-49762)).3(i)(b)*
    
    Amendment to Article Tenth A of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation.3(i)(c)*
    
    Amendment to Article Fifth of the Amended and Restated Articles of Incorporation of Triple-S Management Corporation.3(i)(d)*
    
    Articles of Incorporation of
Triple-S Management Corporation, as currently in effect.3(ii)
    
    Amended and Restated Bylaws (incorporated herein by reference to
Exhibit 3.1 to TSMs Current Report on Form 8-K filed on October 23, 2007 (File No. 0-49762)).
 Page 88




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##### Table of Contents



Exhibits
    
    Description10.1
    
    Puerto Rico Health Insurance Contract for the North and South-West
Regions (incorporated herein by reference to Exhibit 10.1 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2007
(File No. 0-49762)).10.2
    
    Amendment to agreement between Puerto Rico Health Insurance
Administration and Triple-S, Inc. for the provision of health
insurance coverage to eligible population in the North and
South-West regions (incorporated herein by reference to Exhibit 10.1
of TSMs Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2007 (File No. 0-49762)).10.3
    
    Federal Employees Health Benefits Contract (incorporated herein by
reference to Exhibit 10.5 to TSMs General Form of Registration of
Securities on Form 10 (File No. 0-49762)).10.4
    
    Credit Agreement with FirstBank Puerto Rico in the amount of
$41,000,000 (incorporated herein by reference to Exhibit 10.6 to
TSMs General Form of Registration of Securities on Form 10 (File
No. 0-49762)).10.5
    
    Credit Agreement with FirstBank Puerto Rico in the amount of
$20,000,000 (incorporated herein by reference to Exhibit 10.7 to
TSMs General Form of Registration of Securities on Form 10 (File
No. 0-49762)).10.6
    
    Non-Contributory Retirement Program (incorporated herein by
reference to Exhibit 10.8 to TSMs General Form of Registration of
Securities on Form 10 (File No. 0-49762)).10.7
    
    BCBSA Licensure Documents (incorporated herein by reference to
Exhibit 10.10 to TSMs General Form of Registration of Securities on
Form 10 (File No. 0-49762)).10.8
    
    Blue Shield License and other Agreements with Blue Cross Blue Shield
Association (incorporated herein by reference to Exhibit 10.1 to
TSMs Quarterly Report on Form 10-Q for the Quarter Ended March 31,
2007 (File No. 0-49762).10.9
    
    Stock Purchase Agreement by and between Triple-S Management
Corporation and Great American Financial Resources, Inc. dated
December 15, 2005 (incorporated herein by reference to Exhibit 10.9
to TSMs Registration Statement on Form S-1 filed on November 16,
2007 (File No. 0-49762)).10.10
    
    Reinsurance Agreement between Great American Life Assurance Company
of Puerto Rico and Seguros de Vida Triple-S, Inc. dated December 15,
2005 (incorporated herein by reference to Exhibit 10.14 to TSMs
Annual Report on Form 10-K for the year ended December 31, 2005
(File No. 0-49762)).10.11
    
    6.30% Senior Unsecured Notes Due September 2019 Note Purchase
Agreement, dated September 30, 2004, between Triple-S Management
Corporation, Triple-S, Inc. and various institutional accredited
investors (incorporated herein by reference to Exhibit 10.15 to
TSMs Annual Report on Form 10-K for the year ended December 31,
2005 (File No. 0-49762)).
 Page 89




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##### Table of Contents



Exhibits
    
    Description10.12
    
    6.60% Senior Unsecured Notes Due December 2020 Note Purchase
Agreement, dated December 15, 2005, between Triple-S Management
Corporation and various institutional accredited investors
(incorporated herein by reference to Exhibit 10.16 to TSMs Annual
Report on Form 10-K for the year ended December 31, 2005 (File No.
0-49762)).10.13
    
    6.70% Senior Unsecured Notes Due December 2021 Note Purchase
Agreement, dated January 23, 2006, between Triple-S Management
Corporation and various institutional accredited investors
(incorporated herein by reference to Exhibit 10.1 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2006
(File No. 0-49762)).10.14
    
    Triple-S Management Corporation 2007 Incentive Plan, dated October 16, 2007 (incorporated herein by reference to Exhibit C to TSMs 2007 Proxy Statement (File No. 0-49762)).10.15*
    
    Software License and Maintenance Agreement between Quality Care
Solutions, Inc, and Triple-S, Inc. dated August 16, 2007.10.15(a)*
    
    Addendum Number One to the Software License and Maintenance Agreement between Quality Care Solutions, Inc. and Triple-S, Inc.10.15(b)*
    
    Addendum Number Two to the Software License and Maintenance Agreement between Quality Care Solutions, Inc. and Triple-S, Inc.10.15(c)*
    
    Addendum Number Three to the Software License and Maintenance Agreement between Quality Care Solutions, Inc. and Triple-S, Inc.10.16*
    
    Work order Agreement between Quality Care Solutions, Inc. and Triple-S, Inc.11.1
    
    Statement re computation of per share earnings; an exhibit
describing the computation of the earnings per share 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 II of this Annual Report on Form 10-K.12.1
    
    Statement re computation of ratios; an exhibit describing the
computation of the loss ratio, expense ratio and combined ratio has
been omitted as the detail necessary to determine the computation
of the loss ratio, operating expense ratio and combined ratio can
be clearly determined from the material contained in Part II of
this Annual Report on Form 10-K.21.1
    
    List of Subsidiaries of Triple-S Management Corporation
(incorporated herein by reference to Exhibit 21 to TSMs General
Form of Registration of Securities on Form 10 (File No. 0-49762)).31.1*
    
    Certification of the President and Chief Executive Officer required
by Rule 13a-14(a)/15d-14(a).31.2*
    
    Certification of the Vice President of Finance and Chief Financial
Officer required by Rule 13a-14(a)/15d-14(a).32.1*
    
    Certification of the President and Chief Executive Officer required
pursuant to 18 U.S. Section 1350.32.2*
    
    Certification of the Vice President of Finance and Chief Financial
Officer required pursuant to 18 U.S. Section 1350.
  
 *
    
    Filed herein. Page 90




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##### Table of Contents



SIGNATURES
  Triple-S Management Corporation
RegistrantBy:
    /s/ Ramón M. Ruiz-Comas
    
    Date: March 11, 2008Ramón M. Ruiz-ComasPresident and Chief Executive OfficerBy:
    /s/ Juan J. Román
    
    Date: March 11, 2008Juan J. RománVice President of Finance and Chief Financial Officer  By:
    /s/ Wilmer Rodríguez-Silva
    
    Date: March 11, 2008Wilmer Rodríguez-Silva, MDDirector and Chairman of the BoardBy:
    /s/ Vicente J. León-Irizarry
    
    Date: March 11, 2008Vicente J. León-Irizarry, CPADirector and Vice-Chairman of the BoardBy:
    /s/ Luis A. Clavell-Rodríguez
    
    Date: March 11, 2008Luis A. Clavell-Rodríguez, MDDirector and Secretary of the BoardBy:
    /s/ Jesús R. Sánchez-Colón
    
    Date: March 11, 2008Jesús R. Sánchez-Colón, DMDDirector and Assistant Secretary of the BoardBy:
    /s/ Adamina Soto-Martínez
    
    Date: March 11, 2008Adamina Soto-Martínez, CPADirector and Treasurer of the Board Page 91




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##### Table of Contents



By:
    /s/ Carmen Ana Culpeper-Ramírez
    
    Date: March 11, 2008Ms. Carmen Ana Culpeper-RamírezDirector and Assistant Treasurer of the BoardBy:
    /s/ Valeriano Alicea-Cruz
    
    Date: March 11, 2008Valeriano Alicea-Cruz, MDDirectorBy:
    /s/ José Arturo Álvarez-Gallardo
    
    Date: March 11, 2008Mr. José Arturo Álvarez-GallardoDirectorBy:
    /s/ Arturo R. Córdova-López
    
    Date: March 11, 2008Arturo R. Córdova-López, MDDirectorBy:
    /s/ Porfirio E. Díaz-Torres
    
    Date: March 11, 2008Porfirio E. Díaz-Torres, MDDirectorBy:
    /s/ Antonio F. Faría-Soto
    
    Date: March 11, 2008Mr. Antonio F. Faría-SotoDirectorBy:
    /s/ Manuel Figueroa-Collazo
    
    Date: March 11, 2008Manuel Figueroa-Collazo, PE, Ph.D.DirectorBy:
    /s/ José Hawayek-Alemañy
    
    Date: March 11, 2008José Hawayek-Alemañy, MDDirectorBy:
    /s/ Wilfredo López-Hernández
    
    Date: March 11, 2008Wilfredo López-Hernández, MDDirector Page 92




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##### Table of Contents



By:
    /s/ Jaime Morgan-Stubbe
    
    Date: March 11, 2008Jaime Morgan-Stubbe, Esq.DirectorBy:
    /s/ Roberto Muñoz-Zayas
    
    Date: March 11, 2008Roberto Muñoz-Zayas, MDDirectorBy:
    /s/ Miguel A. Nazario-Franco
    
    Date: March 11, 2008Mr. Miguel A. Nazario-FrancoDirectorBy:
    /s/ Juan E. Rodríguez-Díaz
    
    Date: March 11, 2008Juan E. Rodríguez-Díaz, Esq.Director Page 93




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES




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##### 



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
  
 Table of Contents
 PageReport of Independent Registered Public Accounting Firm
    
    
    1Consolidated Balance Sheets
    
    
    2Consolidated Statements of Earnings
    
    
    3Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    7




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 /s/ KPMG LLPMarch 7, 2008Stamp No. 2222076 of the Puerto RicoSociety of Certified Public Accountantswas affixed to the record copy of this report.




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2007
    
    
    2006AssetsInvestments and cash:Equity securities held for trading, at fair value (cost of $54,757 in 2007 and
$66,930 in 2006)
    
    $
    67,158
    
    
    
    83,447Securities available for sale, at fair value:Fixed maturities (amortized cost of $816,536 in 2007 and $714,113 in 2006)
    
    
    823,629
    
    
    
    702,566Equity securities (cost of $66,747 in 2007 and $50,132 in 2006)
    
    
    71,050
    
    
    
    61,686Securities held to maturity, at amortized cost:Fixed maturities (fair value of $43,849 in 2007 and $46,881 in 2006)
    
    
    43,691
    
    
    
    47,989Policy loans
    
    
    5,481
    
    
    
    5,194Cash and cash equivalents
    
    
    240,153
    
    
    
    81,564Total investments and cash
    
    
    1,251,162
    
    
    
    982,446Premium and other receivables, net
    
    
    202,268
    
    
    
    165,626Deferred policy acquisition costs and value of business acquired
    
    
    117,239
    
    
    
    111,417Property and equipment, net
    
    
    43,415
    
    
    
    41,615Net deferred tax asset
    
    
    6,783
    
    
    
    9,292Other assets
    
    
    38,675
    
    
    
    35,113Total assets
    
    $
    1,659,542
    
    
    
    1,345,509Liabilities and Stockholders EquityClaim liabilities:Claims processed and incomplete
    
    $
    186,065
    
    
    
    147,211Unreported losses
    
    
    149,996
    
    
    
    150,735Unpaid loss-adjustment expenses
    
    
    17,769
    
    
    
    16,736Total claim liabilities
    
    
    353,830
    
    
    
    314,682Liability for future policy benefits
    
    
    194,131
    
    
    
    180,420Unearned premiums
    
    
    132,599
    
    
    
    113,582Policyholder deposits
    
    
    45,959
    
    
    
    45,425Liability to Federal Employees Health Benefits Program
    
    
    21,338
    
    
    
    13,563Accounts payable and accrued liabilities
    
    
    228,980
    
    
    
    110,609Borrowings
    
    
    170,946
    
    
    
    183,087Income tax payable
    
    
    
    
    
    
    9,242Liability for pension benefits
    
    
    29,221
    
    
    
    32,300Total liabilities
    
    
    1,177,004
    
    
    
    1,002,910Stockholders equity:Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued
and outstanding 16,042,809 and 26,733,000 at December 31, 2007 and 2006,
respectively
    
    
    16,043
    
    
    
    26,733Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued
and outstanding 16,266,554 shares at December 31, 2007
    
    
    16,266
    
    
    
    Additional paid-in capital
    
    
    188,935
    
    
    
    124,031Retained earnings
    
    
    267,336
    
    
    
    211,266Accumulated other comprehensive loss, net
    
    
    (6,042
    )
    
    
    (19,431
    )482,538
    
    
    
    342,599Commitments and contingenciesTotal
liabilities and stockholders equity
    
    $
    1,659,542
    
    
    
    1,345,509
  2




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2007
    
    
    2006
    
    
    2005Revenues:Premiums earned, net
    
    $
    1,483,548
    
    
    
    1,511,626
    
    
    
    1,380,204Administrative service fees
    
    
    14,018
    
    
    
    14,089
    
    
    
    14,445Net investment income
    
    
    47,194
    
    
    
    42,657
    
    
    
    29,138Total operating revenues
    
    
    1,544,760
    
    
    
    1,568,372
    
    
    
    1,423,787Net realized investment gains
    
    
    5,931
    
    
    
    837
    
    
    
    7,161Net unrealized investment gain (loss) on
trading securities
    
    
    (4,116
    )
    
    
    7,699
    
    
    
    (4,709
    )Other income, net
    
    
    3,217
    
    
    
    2,323
    
    
    
    3,732Total revenues
    
    
    1,549,792
    
    
    
    1,579,231
    
    
    
    1,429,971Benefits and expenses:Claims incurred
    
    
    1,223,775
    
    
    
    1,258,981
    
    
    
    1,208,367Operating expenses
    
    
    237,533
    
    
    
    236,065
    
    
    
    181,703Total operating costs
    
    
    1,461,308
    
    
    
    1,495,046
    
    
    
    1,390,070Interest expense
    
    
    15,839
    
    
    
    16,626
    
    
    
    7,595Total benefits and expenses
    
    
    1,477,147
    
    
    
    1,511,672
    
    
    
    1,397,665Income before taxes
    
    
    72,645
    
    
    
    67,559
    
    
    
    32,306Income tax expense (benefit):Current
    
    
    15,906
    
    
    
    15,407
    
    
    
    4,033Deferred
    
    
    (1,779
    )
    
    
    (2,381
    )
    
    
    (160
    )Total income taxes
    
    
    14,127
    
    
    
    13,026
    
    
    
    3,873Net income
    
    $
    58,518
    
    
    
    54,533
    
    
    
    28,433Basic net income per share
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06Diluted net income per share
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06
  3




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
   AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    
    
    
    
    other
    
    
    Totalcommon
    
    
    common
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    stockholdersstock
    
    
    stock
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance, December 31, 2004
    
    $
    26,712
    
    
    
    
    
    
    
    124,052
    
    
    
    134,531
    
    
    
    16,138
    
    
    
    301,433Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,433
    
    
    
    
    
    
    
    28,433Net unrealized change in fair value
of available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,832
    )
    
    
    (18,832
    )Net change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,788
    )
    
    
    (2,788
    )Net change in fair value of cash-
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    457Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,270Balance, December 31, 2005
    
    
    26,712
    
    
    
    
    
    
    
    124,052
    
    
    
    162,964
    
    
    
    (5,025
    )
    
    
    308,703Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,231
    )
    
    
    
    
    
    
    (6,231
    )Adjustment to initially apply SFAS
No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,081
    )
    
    
    (16,081
    )Other
    
    
    21
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,533
    
    
    
    
    
    
    
    54,533Net unrealized change in fair value
of available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,212
    )
    
    
    (3,212
    )Net change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,952
    
    
    
    4,952Net change in fair value of cash-
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,208Balance, December 31, 2006
    
    
    26,733
    
    
    
    
    
    
    
    124,031
    
    
    
    211,266
    
    
    
    (19,431
    )
    
    
    342,599Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,448
    )
    
    
    
    
    
    
    (2,448
    )Sale of stock in public offering
    
    
    (10,813
    )
    
    
    16,100
    
    
    
    64,992
    
    
    
    
    
    
    
    
    
    
    
    70,279Grant of restricted Class B common
stock
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Share-based compensation
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Other
    
    
    123
    
    
    
    
    
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    1Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,518
    
    
    
    
    
    
    
    58,518Net unrealized change in fair value
of available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,549
    
    
    
    9,549Defined benefit pension plan:Prior service cost, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,935
    
    
    
    3,935Actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    155Net change in fair value of cash-
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (250
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,907Balance, December 31, 2007
    
    $
    16,043
    
    
    
    16,266
    
    
    
    188,935
    
    
    
    267,336
    
    
    
    (6,042
    )
    
    
    482,538
  4




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
  
 2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    58,518
    
    
    
    54,533
    
    
    
    28,433Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    7,562
    
    
    
    6,443
    
    
    
    5,230Net amortization (accretions) of investments
    
    
    354
    
    
    
    511
    
    
    
    (153
    )Provision for doubtful receivables
    
    
    (2,305
    )
    
    
    5,125
    
    
    
    1,067Deferred tax benefit
    
    
    (1,779
    )
    
    
    (2,381
    )
    
    
    (160
    )Net gain on sale of securities
    
    
    (5,931
    )
    
    
    (837
    )
    
    
    (7,161
    )Net unrealized (gain) loss on trading securities
    
    
    4,116
    
    
    
    (7,699
    )
    
    
    4,709Share-based compensation
    
    
    200
    
    
    
    
    
    
    
    Proceeds from trading securities sold or matured:Fixed maturities sold
    
    
    
    
    
    
    
    
    
    
    102,667Equity securities
    
    
    43,614
    
    
    
    27,919
    
    
    
    36,156Acquisition of securities in trading portfolio:Fixed maturities
    
    
    
    
    
    
    
    
    
    
    (30,502
    )Equity securities
    
    
    (23,921
    )
    
    
    (22,409
    )
    
    
    (25,785
    )Gain (loss) on sale of property and equipment
    
    
    28
    
    
    
    22
    
    
    
    (1
    )(Increase) decrease in assets:Premiums receivable
    
    
    (8,458
    )
    
    
    (27,951
    )
    
    
    (8,805
    )Agent balances
    
    
    (4,061
    )
    
    
    395
    
    
    
    (3,183
    )Accrued interest receivable
    
    
    (309
    )
    
    
    588
    
    
    
    (17
    )Other receivables
    
    
    (3,637
    )
    
    
    (4,521
    )
    
    
    5,099Funds withheld reinsurance receivable
    
    
    
    
    
    
    118,635
    
    
    
    (118,635
    )Reinsurance recoverable on paid losses
    
    
    (17,872
    )
    
    
    (6,147
    )
    
    
    (3,419
    )Deferred policy acquisition costs and value of
business acquired
    
    
    (5,822
    )
    
    
    (7,026
    )
    
    
    (62,856
    )Other assets
    
    
    (3,179
    )
    
    
    (4,031
    )
    
    
    (14,423
    )Increase (decrease) in liabilities:Claims processed and incomplete
    
    
    38,854
    
    
    
    2,803
    
    
    
    2,412Unreported losses
    
    
    (739
    )
    
    
    3,342
    
    
    
    15,900Loss-adjustment expenses
    
    
    1,033
    
    
    
    1,791
    
    
    
    (74
    )Liability for future policy benefits
    
    
    13,711
    
    
    
    14,022
    
    
    
    Liability for future policy benefits related to funds
withheld reinsurance
    
    
    
    
    
    
    (118,635
    )
    
    
    118,635Unearned premiums
    
    
    19,017
    
    
    
    15,579
    
    
    
    11,120Policyholder deposits
    
    
    1,800
    
    
    
    1,810
    
    
    
    1,231Liability to FEHBP
    
    
    7,775
    
    
    
    9,207
    
    
    
    (5,435
    )Accounts payable and accrued liabilities
    
    
    7,359
    
    
    
    1,903
    
    
    
    588Income tax payable
    
    
    (10,034
    )
    
    
    12,595
    
    
    
    (1,827
    )Net cash provided by operating activities
    
    $
    115,894
    
    
    
    75,586
    
    
    
    50,811
  5




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007
    
    
    2006
    
    
    2005Cash flows from investing activities:Proceeds from investments sold or matured:Securities available for sale:Fixed maturities sold
    
    $
    299,561
    
    
    
    51,519
    
    
    
    13,099Fixed maturities matured
    
    
    41,248
    
    
    
    32,826
    
    
    
    22,822Equity securities
    
    
    1,000
    
    
    
    1,209
    
    
    
    3,488Securities held to maturity:Fixed maturities matured
    
    
    13,246
    
    
    
    492
    
    
    
    1,816Acquisition of investments:Securities available for sale:Fixed maturities
    
    
    (327,409
    )
    
    
    (81,496
    )
    
    
    (118,758
    )Equity securities
    
    
    (18,379
    )
    
    
    (11,620
    )
    
    
    (6,876
    )Securities held to maturity:Fixed maturities
    
    
    (8,244
    )
    
    
    (2,197
    )
    
    
    (10,252
    )Acquisition of business, net of $10,403 of cash acquired
    
    
    
    
    
    
    (27,793
    )
    
    
    Net disbursements for policy loans
    
    
    (287
    )
    
    
    (415
    )
    
    
    Capital expenditures
    
    
    (9,390
    )
    
    
    (11,871
    )
    
    
    (7,574
    )Net cash used in investing activities
    
    
    (8,654
    )
    
    
    (49,346
    )
    
    
    (102,235
    )Cash flows from financing activities:Net proceeds from initial public offering
    
    
    70,279
    
    
    
    
    
    
    
    Change in outstanding checks in excess of bank balances
    
    
    (3,076
    )
    
    
    (8,224
    )
    
    
    3,914Repayments of short-term borrowings
    
    
    (54,519
    )
    
    
    (119,547
    )
    
    
    (174,035
    )Proceeds from short-term borrowings
    
    
    54,519
    
    
    
    117,807
    
    
    
    174,075Repayments of long-term borrowings
    
    
    (12,141
    )
    
    
    (2,503
    )
    
    
    (5,140
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    35,000
    
    
    
    60,000Dividends
    
    
    (2,448
    )
    
    
    (6,231
    )
    
    
    Proceeds from annuity contracts
    
    
    6,150
    
    
    
    6,008
    
    
    
    11,510Surrenders of annuity contracts
    
    
    (7,416
    )
    
    
    (16,036
    )
    
    
    (5,074
    )Other
    
    
    1
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    51,349
    
    
    
    6,274
    
    
    
    65,250Net increase in cash and cash equivalents
    
    
    158,589
    
    
    
    32,514
    
    
    
    13,826Cash and cash equivalents, beginning of year
    
    
    81,564
    
    
    
    49,050
    
    
    
    35,224Cash and cash equivalents, end of year
    
    $
    240,153
    
    
    
    81,564
    
    
    
    49,050
  6




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    (1)
    
    Nature of BusinessTriple-S Management Corporation (the Company or TSM) was incorporated under the laws of the
Commonwealth of Puerto Rico on January 17, 1997 to engage, among other things, as the holding
company of entities primarily involved in the insurance industry.The Company has the following wholly owned subsidiaries that are subject to the regulations of
the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of
Insurance): (1) Triple-S, Inc. (TSI) a managed care organization that provides health
benefits services to subscribers through contracts with hospitals, physicians, dentists,
laboratories, and other organizations located mainly in Puerto Rico; (2) Triple-S Vida, Inc.
(TSV), which is engaged in the underwriting of life and accident and health insurance policies
and the administration of annuity contracts; and (3) Seguros Triple-S, Inc. (STS), which is
engaged in the underwriting of property and casualty insurance policies. The Company and TSI
are members of the Blue Cross and Blue Shield Association (BCBSA).Effective January 31, 2006, the Company completed the acquisition of 100% of the common stock
of Great American Life Assurance Company of Puerto Rico (GA Life) (now Triple-S Vida, Inc.)
and, effective June 30, 2006, the Company merged the operations of its former life and
accident and health insurance subsidiary, Seguros de Vida Triple-S, Inc. (SVTS), into GA Life.
The results of operations and financial position of GA Life are included in the Companys
consolidated financial statements for the period following January 31, 2006. Prior to
completing the acquisition of GA Life, the operations of SVTS were the sole component of the
Companys life insurance segment. Effective November 1, 2007, GA Life changed its name to
Triple-S Vida, Inc., after receiving required regulatory approvals.The Company also has two other wholly owned subsidiaries, Interactive Systems, Inc. (ISI) and
Triple-C, Inc. (TC). ISI is mainly engaged in providing data processing services to the
Company and its subsidiaries. TC is mainly engaged as a third-party administrator for TSI in
the administration of the Commonwealth of Puerto Rico Health Care Reforms (the Reform) business. Also, TC provides healthcare advisory services to TSI and other health
insurance-related services to the health insurance industry.A substantial majority of the Companys business activity is with insurers located throughout
Puerto Rico, and as such, the Company is subject to the risks associated with the Puerto Rico
economy.(2)
    
    Significant Accounting PoliciesThe following are the significant accounting policies followed by the Company and its
subsidiaries:
 (a)
    
    Basis of PresentationThe accompanying consolidated financial statements have been prepared in conformity with
U.S. generally accepted accounting principles (GAAP).The consolidated financial statements include the financial statements of the Company and
its subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.(b)
    
    Use of EstimatesThe preparation of the consolidated financial statements in conformity with GAAP requires
the Company to make a number of estimates and assumptions relating to the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, and the reported amounts of revenue
and expenses during the period. Actual results could differ from those estimates. The
most significant items on the consolidated balance sheets that involve a greater degree
of accounting
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    estimates and actuarial determinations subject to changes in the near future are the
allowance for doubtful receivables, deferred policy acquisition costs and value of
business acquired, claim liabilities, the liability for future policy benefits, and
liability for pension benefits . As additional information becomes available (or actual
amounts are determinable), the recorded estimates will be revised and reflected in
operating results. Although some variability is inherent in these estimates, the Company
believes the amounts provided are adequate.(c)
    
    ReclassificationsCertain amounts in the 2006 and 2005 consolidated financial statements were reclassified
to conform to the 2007 presentation.(d)
    
    Cash EquivalentsThe Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. Cash equivalents of $192,534 and $37,271 at
December 31, 2007 and 2006, respectively, consist principally of obligations of
government-sponsored enterprises and certificates of deposit with an initial term of less
than three months.(e)
    
    InvestmentsInvestment in securities at December 31, 2007 and 2006 consists mainly of obligations of
government-sponsored enterprises, U.S. Treasury securities and obligations of U.S.
government instrumentalities, obligations of the Commonwealth of Puerto Rico and its
instrumentalities, municipal securities, obligations of states of the United States and
political subdivisions of the states, corporate bonds, mortgage-backed securities,
collateralized mortgage obligations, and equity securities. The Company classifies its
debt and equity securities in one of three categories: trading, available for sale, or
held to maturity. Trading securities are bought and held principally for the purpose of
selling them in the near term. Securities classified as held to maturity are those
securities in which the Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held to maturity are classified
as available for sale.Trading and available-for-sale securities are recorded at fair value. The fair values of
debt securities (both available for sale and held to maturity investments) and equity
securities are based on quoted market prices at the reporting date for those or similar
investments. Held-to-maturity debt securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums and discounts. Unrealized holding gains and
losses on trading securities are included in operations. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other comprehensive income until
realized. Realized gains and losses from the sale of available-for-sale securities are
included in earnings and are determined on a specific-identification basis.Transfers of securities between categories are recorded at fair value at the date of
transfer. Unrealized holding gains and losses are recognized in operations for transfers
into trading securities. Unrealized holding gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as a separate
component of other comprehensive income. The unrealized holding gains or losses included
in the
separate component of other comprehensive income for securities transferred from
available for sale to held to maturity, are maintained and amortized into earnings over
the remaining life of the security as an adjustment to yield in a manner consistent with
the amortization or accretion of premium or discount on the associated security.
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    A decline in the fair value of any available-for-sale or held-to-maturity security below
cost that is deemed to be other than temporary results in an impairment to reduce the
carrying amount to fair value. The impairment is charged to earnings and a new cost basis
for the security is established. To determine whether an impairment is other than
temporary, the Company considers whether it has the ability and intent to hold the
investment until a market price recovery and considers whether evidence indicating the
cost of the investment is recoverable outweighs evidence to the contrary. Evidence
considered in this assessment includes the reasons for the impairment, the severity and
duration of the impairment, market conditions, changes in value subsequent to year-end,
forecasted performance of the investee, and the general market condition in the
geographic area or industry the investee operates in.Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity or available-for-sale security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized when earned.The Company regularly invests in mortgaged-backed securities and other securities subject
to prepayment and call risk. Significant changes in prevailing interest rates may
adversely affect the timing and amount of cash flows on such securities. In addition, the
amortization of market premium and accretion of market discount for mortgaged-backed
securities is based on historical experience and estimates of future payment speeds on
the underlying mortgage loans. Actual prepayment speeds will differ from original
estimates and may result in material adjustments to amortization or accretion recorded in
future periods.(f)
    
    Revenue Recognition
 (i)
    
    Managed CareSubscriber premiums on the managed care business are billed in advance of their
respective coverage period and the related revenue is recorded as earned during the
coverage period. Managed care premiums are billed in the month prior to the
effective date of the policy with a grace period of up to two months. If the
insured fails to pay, the policy can be canceled at the end of the grace period at
the option of the Company. Managed care premiums are reported as earned when due.Premiums for the Medicare Advantage (MA) business are based on a bid contract with
the Centers for Medicare and Medicaid Services (CMS) and billed in advance of the
coverage period. MA contracts provide for a risk factor to adjust premiums paid for
members that represent a higher or lower risk to the Company. Retroactive rate
adjustments are made periodically based on the aggregate health status and risk
scores of the Companys MA membership. These risk adjustments are evaluated
quarterly based on actuarial estimates. Actual results could
differ from these estimates. As additional information becomes available, the
recorded estimate will be revised and reflected in operating results.The Company offers prescription drug coverage to Medicare eligible beneficiaries as
part of its MA plans (MA-PD) and on a stand-alone basis (stand-alone PDP). Premiums
are based on a bid contract with CMS that considers the estimated costs of
providing prescription drug benefits to enrolled
participants. MA-PD and stand-alone PDP premiums are subject to adjustment,
positive or negative, based upon the application of risk corridors that compare the
estimated prescription drug costs included in the bids to CMS to actual
prescription drug costs. Variances exceeding certain thresholds may result in CMS
making additional payments to the Company or in the Company refunding CMS a portion
of the premiums collected. The Company estimates and records adjustments to earned
premiums related to estimated risk corridor payments based upon actual prescription
drug costs for each reporting period as if the annual contract were to end at the
end of each reporting period.
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    Administrative service fees include revenue from certain groups which have managed
care contracts that provide for the group to be at risk for all or a portion of
their claims experience. For these groups, the Company is not at risk and only
handles the administration of the insurance coverage for an administrative service
fee. The Company pays claims under self-funded arrangements from its own funds, and
subsequently receives reimbursement from these groups. Claims paid under
selffunded arrangements are excluded from the claims incurred in the accompanying
consolidated financial statements. Administrative service fees under the
self-funded arrangements are recognized based on the groups membership or incurred
claims for the period multiplied by an administrative fee rate plus other fees. In
addition, some of these self-funded groups purchase aggregate and/or specific
stop-loss coverage. In exchange for a premium, the groups aggregate liability or
the groups liability on any one episode of care is capped for the year. Premiums
for the stop-loss coverage are actuarially determined based on experience and other
factors and are recorded as earned over the period of the contract in proportion to
the coverage provided. This fully insured portion of premiums is included within
the premiums earned, net in the accompanying consolidated statements of earnings.(ii)
    
    Life and Accident and Health InsurancePremiums on life insurance policies are billed in advance of their respective
coverage period and the related revenue is recorded as earned when due. Premiums on
accident and health and other short-term policies are recognized as earned
primarily on a pro rata basis over the contract period. Premiums on credit life
policies are recognized as earned in proportion to the amounts of insurance
in-force. Revenues from universal life and interest sensitive policies represent
amounts assessed against policyholders, including mortality charges, surrender
charges actually paid, and earned policy service fees. The revenues for limited
payment contracts are recognized over the period that benefits are provided rather
than on collection of premiums.(iii)
    
    Property and Casualty InsurancePremiums on property and casualty contracts are recognized as earned on a pro rata
basis over the policy term. The portion of premiums related to the period prior to
the end of coverage is recorded in the consolidated balance sheets as unearned
premiums and is transferred to premium revenue as earned.
 (g)
    
    Allowance for Doubtful ReceivablesThe allowance for doubtful receivables is based on managements evaluation of the aging
of accounts and such other factors, which deserve current recognition. Actual results
could differ from these estimates. Receivables are charged against their respective
allowance accounts when deemed to be uncollectible.(h)
    
    Deferred Policy Acquisition Costs and Value of Business AcquiredCertain costs for acquiring life and accident and health, and property and casualty
insurance business are deferred by the Company. Acquisition costs related to the managed
care business are expensed as incurred.In the life and accident and health business deferred acquisition costs consist of
commissions and certain expenses related to the production of life, annuity, accident and
health, and credit business. The amount of deferred policy acquisition costs is reduced
by a provision for future maintenance and settlement expenses which are not provided
through future premiums. The related amortization is provided, considering interest, over
the anticipated premium-paying period of the related policies in proportion to the ratio
of annual premium revenue to expected total premium revenue to be received over the life
of the policies. Expected premium revenue is estimated by using the same mortality and
withdrawal assumptions used in computing liabilities for future policy benefits. The
method followed in computing deferred policy acquisition costs limits the amount
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    of such deferred costs to their estimated net realizable value. In determining estimated
net realizable value, the computations give effect to the premiums to be earned, related
investment income, losses and loss-adjustment expenses, and certain other costs expected
to be incurred as the premium is earned. Costs deferred on universal life and interest
sensitive products are amortized as a level percentage of the present value of
anticipated gross profits from investment yields, mortality and surrender charges.
Estimates used are based on the Companys experience as adjusted to provide for possible
adverse deviations. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs significantly
from that assumed, the estimates are revised for current and future issues.The value assigned to the insurance in-force of TSV at the date of the acquisition is
amortized using methods similar to those used to amortize the deferred policy acquisition
costs of the life and accident and health business.In the property and casualty business, acquisition costs consist of commissions incurred
during the production of business and are deferred and amortized ratably over the terms
of the policies.(i)
    
    Property and EquipmentProperty and equipment are stated at cost. Maintenance and repairs are expensed as
incurred. Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets. Costs of computer equipment, programs, systems,
installations, and enhancements are capitalized and amortized straight-line over their
estimated useful lives. The following is a summary of the estimated useful lives of the
Companys property and equipment:
 EstimatedAsset category
    
    useful lifeBuildings
    
    20 to 50 yearsBuilding improvements
    
    3 to 5 yearsLeasehold improvements
    
    Shorter of estimated useful life or lease termOffice furniture
    
    5 yearsComputer software
    
    3 to 10 yearsComputer equipment, equipment, and automobiles
    
    3 years
 (j)
    
    Software Development CostsIn March 1998, the American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, which
provides guidance on accounting for such costs. SOP 98-1 requires computer software costs
that are incurred in the preliminary project stage to be expensed as incurred. Once the
capitalization criteria of SOP 98-1 have been met, directly attributable development
costs should be capitalized. It also provides that upgrade and maintenance costs should
be expensed. Our treatment of such costs is consistent with SOP 98-1, with the costs
capitalized being amortized over the expected useful life of the software. During the
year ended December 31, 2006 the Company capitalized approximately $3,640 associated with
the implementation of new software. No software development costs were capitalized during
the year ended December 31, 2007.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (k)
    
    Long-Lived AssetsIn accordance with Statement of Financial Accounting Standards(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets, long-lived assets, such as property and equipment, and purchased intangible
assets subject to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed of would be separately
presented in the balance sheets and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and liabilities of a
disposal group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated balance sheets.Goodwill and intangible assets that have indefinite useful lives are tested annually for
impairment, and are tested for impairment more frequently if events and circumstances
indicate that the asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount exceeds the assets fair value. For goodwill, the impairment
determination is made at the reporting unit level and consists of two steps. First, the
Company determines the fair value of a reporting unit and compares it to its carrying
amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying amount of the reporting
units goodwill over the implied fair value of that goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation, in accordance with SFAS No. 141, Business
Combinations. The residual fair value after this allocation is the implied fair value of
the reporting unit goodwill.(l)
    
    Claim LiabilitiesClaims processed and incomplete and unreported losses for managed care policies represent
the estimated amounts to be paid to providers based on experience and accumulated
statistical data. Loss-adjustment expenses related to such claims are currently accrued
based on estimated future expenses necessary to process such claims.TSI contracts with various independent practice associations (IPAs) for certain medical
care services provided to some policies subscribers. The IPAs are compensated on a
capitation basis. In the Reform business and one of the MA policies, TSI retains a
portion of the capitation payments to provide for incurred but not reported losses. At
December 31, 2007 and 2006, total withholdings and capitation payable amounted to $29,119
and $23,796, respectively, which are recorded as part of the liability for claims
processed and incomplete in the accompanying consolidated balance sheets.Unpaid claims and loss-adjustment expenses of the life and accident and health business
are based on a case-basis estimates for reported claims, and on estimates, based on
experience, for unreported claims and loss-adjustment expenses. The liability for policy
and contract claims and claims expenses has been established to cover the estimated net
cost of insured claims.The liability for losses and loss-adjustment expenses for the property and casualty
business represents individual case estimates for reported claims and estimates for
unreported losses, net of any salvage and subrogation based on past experience modified
for current trends and estimates of expenses for investigating and settling claims.
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    The above liabilities are necessarily based on estimates and, while management believes
that the amounts are adequate, the ultimate liability may be in excess of or less than
the amounts provided. The methods for making such estimates and for establishing the
resulting liability are continually reviewed, and any adjustments are reflected in the
consolidated statements of earnings in the period determined.(m)
    
    Future Policy BenefitsThe liability for future policy benefits has been computed using the level-premium method
based on estimated future investment yield, mortality, and withdrawal experience. The
interest rate assumption is 5.0% for all years in issue. Mortality has been calculated
principally on select and ultimate tables in common usage in the industry. Withdrawals
have been determined principally based on industry tables, modified by Companys
experience.(n)
    
    Policyholder DepositsAmounts received for annuity contracts are considered deposits and recorded as a
liability. Interest accrued on such deposits, which amounted to $1,800, $1,810, and
$1,230, during the years ended December 31, 2007, 2006, and 2005, respectively, is
recorded as interest expense in the accompanying consolidated statements of earnings.(o)
    
    ReinsuranceIn the normal course of business, the insurance-related subsidiaries seek to limit their
exposure that may arise from catastrophes or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas of exposure
with other insurance enterprises or reinsurers.Reinsurance premiums, commissions, and expense reimbursements, related to reinsured
business are accounted for on bases consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Accordingly,
reinsurance premiums are reported as prepaid reinsurance premiums and amortized over the
remaining contract period in proportion to the amount of insurance protection provided.Premiums ceded and recoveries of losses and loss-adjustment expenses have been reported
as a reduction of premiums earned and losses and loss-adjustment expenses incurred,
respectively. Commission and expense allowances received by STS in connection with
reinsurance ceded have been accounted for as a reduction of the related policy
acquisition costs and are deferred and amortized accordingly. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim liability associated with
the reinsured policy.(p)
    
    Derivative Instruments and Hedging ActivitiesThe Company accounts for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities in accordance with the provisions of
Statement of SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities, as amended, which requires entities to recognize all derivative instruments,
whether or not designated in hedging relationships, as either assets or liabilities in
the balance sheet at their respective fair values. Changes in the fair value of
derivative instruments are recorded in
earnings, unless specific hedge accounting criteria are met in which case the change in
fair value of the instrument is recorded within other comprehensive income.On the date the derivative contract designated as a hedging instrument is entered into,
the Company designates the instrument as either a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (fair-value hedge), a hedge of a
forecasted transaction or the variability of cash flows to be received or paid related to
a recognized asset or liability (cash-flow hedge), a foreign currency fair-value or
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    cash-flow hedge (foreign-currency hedge), or a hedge of a net investment in a foreign
operation. For all hedging relationships the Company formally documents the hedging
relationship and its risk-management objective and strategy for undertaking the hedge,
the hedging instrument, the hedged item, the nature of the risk being hedged, how the
hedging instruments effectiveness in offsetting the hedged risk will be assessed, and a
description of the method of measuring ineffectiveness. This process includes linking all
derivatives that are designated as fair-value, cash-flow, or foreign-currency hedges to
specific assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of
hedged items. Changes in the fair value of a derivative that is highly effective and that
is designated and qualifies as a fair-value hedge, along with the loss or gain on the
hedged asset or liability or unrecognized firm commitment of the hedged item that is
attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a
derivative that is highly effective and that is designated and qualifies as a cash-flow
hedge are recorded in other comprehensive income to the extent that the derivative is
effective as hedge, until earnings are affected by the variability in cash flows of the
designated hedged item. Changes in the fair value of derivatives that are highly
effective as hedges and that are designated and qualify as foreign-currency hedges are
recorded in either earnings or other comprehensive income, depending on whether the hedge
transaction is a fair-value hedge or a cash-flow hedge. However, if a derivative is used
as a hedge of a net investment in a foreign operation, its changes in fair value, to the
extent effective as a hedge, are recorded in the cumulative translation adjustments
account within other comprehensive income. The ineffective portion of the change in fair
value of a derivative instrument that qualifies as either a fair-value hedge or a
cash-flow hedge is reported in earnings. Changes in the fair value of derivative trading
instruments are reported in current period earnings.The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the fair value or cash flows
of the hedged item, the derivative expires or is sold, terminated, or exercised, the
derivative is de-designated as a hedging instrument, because it is unlikely that a
forecasted transaction will occur, a hedged firm commitment no longer meets the
definition of a firm commitment, or management determines that designation of the
derivative as a hedging instrument is no longer appropriate.In all situations in which hedge accounting is discontinued and the derivative is
retained, the Company continues to carry the derivative at its fair value on the balance
sheet and recognizes any subsequent changes in its fair value in earnings. When hedge
accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the Company no longer adjusts the hedged
asset or liability for changes in fair value. The adjustment of the carrying amount of
the hedged asset or liability is accounted for in the same manner as other components of
the carrying amount of that asset or liability. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm commitment, the Company
removes any asset or liability that was recorded pursuant to recognition of the firm
commitment from the balance sheet, and recognizes any gain or loss in earnings. When it
is probable that a forecasted transaction will not occur, the Company discontinues hedge
accounting if not already done and recognizes immediately in earnings gains and losses
that were accumulated in other comprehensive income.(q)
    
    Income TaxesIncome 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
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    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.
Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes(FIN 48) as of January 1, 2007, the Company recognizes the effect of income
tax positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount that is greater than
50% likely of being realized. Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. Prior to the adoption of FIN 48, the
Company recognized the effect of income tax positions only is such positions were
probably of being sustained.The Company records any interest and penalties related to unrecognized tax benefits
within the operating expenses in our consolidated statement of earnings.(r)
    
    Insurance-Related AssessmentsThe Company accounts for insurance-related assessments in accordance with the provisions
of SOP No. 97-3, Accounting by Insurance and Other Enterprises
for Insurance-related Assessments. This SOP prescribes liability recognition when the
following three conditions are met: (1) the assessment has been imposed or the
information available prior to the issuance of the financial statements indicates it is
probable that an assessment will be imposed; (2) the event obligating an entity to pay
(underlying cause of) an imposed or probable assessment has occurred on or before the
date of the financial statements; and (3) the amount of the assessment can be reasonably
estimated. Also, this SOP provides for the recognition of an asset when the paid or
accrued assessment is recoverable through either premium taxes or policy surcharges.(s)
    
    Commitments and ContingenciesLiabilities for loss contingencies arising from claims, assessments, litigation, fines,
and penalties and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment and/or remediation can be reasonably
estimated. Legal costs incurred in connection with loss contingencies are expensed as
incurred. Recoveries of costs from third parties, which are probable of realization, are
separately recorded as assets, and are not offset against the related liability.(t)
    
    Share-based CompensationThe Company accounts for share-based compensation in accordance with the provisions of SFAS No. 123 (R), Share-Based Payment. This
statement requires that all share-based compensation be recognized as an expense in the
financial statements and that such cost be measured at the fair value of the award. The
Company recognizes compensation expense based on estimated grant date fair value using
the Black-Scholes option-pricing model.(u)
    
    Earnings Per ShareThe Company calculates and presents earnings per share in accordance with SFAS No. 128,
Earnings per Share. Basic earnings per share excludes dilution and is computed by
dividing net income available to all classes of common stockholders by the weighted
average number of all classes of common shares outstanding for the period, excluding
non-vested restricted stocks. Diluted earnings per share is computed in the same
manner as basic earnings per share except that the number of shares is increased to
include the number of additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued. Dilutive common shares are included
in the diluted earnings per share calculation using the treasury stock method. See note
21 for additional earnings per share information. As disclosed in note 18, the
accompanying consolidated financial statements give retroactive effect to the
3,000-for-one stock split of shares of common stock effected on May 1, 2007.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (v)
    
    Fair Value of Financial InstrumentsFinancial instruments that potentially subject the Company to concentrations of credit
risk consist principally of investments in corporate bonds, premiums receivable, accrued
interest receivable, and other receivables.The fair value information of financial instruments in the accompanying consolidated
financial statements was determined as follows:
 (i)
    
    Cash and Cash EquivalentsThe carrying amount approximates fair value because of the short-term nature of such instruments.(ii)
    
    Investment in SecuritiesThe fair value of investment securities is estimated based on quoted market prices
for those or similar investments. Additional information pertinent to the estimated
fair value of investment in securities is included in note 3.(iii)
    
    Policy LoansPolicy loans have no stated maturity dates and are part of the related insurance
contract. The carrying amount of policy loans approximates fair value because their
interest rate is reset periodically in accordance with current market rates.(iv)
    
    Receivables, Accounts Payable, and Accrued LiabilitiesThe carrying amount of receivables, accounts payable, and accrued liabilities
approximates fair value because they mature and should be collected or paid within
12 months after December 31.(v)
    
    Policyholder DepositsThe fair value of policyholder deposits is the amount payable on demand at the
reporting date, and accordingly, the carrying value amount approximates fair value.(vi)
    
    BorrowingsThe carrying amounts and fair value of the Companys borrowings are as follows:
 2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueLoans payable to bank
    
    $
    25,946
    
    
    
    25,946
    
    
    
    38,087
    
    
    
    38,0876.3% senior unsecured notes payable
    
    
    50,000
    
    
    
    47,625
    
    
    
    50,000
    
    
    
    47,8976.6% senior unsecured notes payable
    
    
    60,000
    
    
    
    57,825
    
    
    
    60,000
    
    
    
    58,1046.7% senior unsecured notes payable
    
    
    35,000
    
    
    
    33,950
    
    
    
    35,000
    
    
    
    34,062Totals
    
    $
    170,946
    
    
    
    165,346
    
    
    
    183,087
    
    
    
    178,150
  16




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The carrying amount of the loans payable to bank approximates fair value due to its
floating interest-rate structure. The fair value of the senior unsecured notes
payable was determined using market quotations. Additional information pertinent to
long-term borrowings is included in note 10.(vii)
    
    Derivative InstrumentsCurrent market pricing models were used to estimate fair value of interest-rate
swap agreement and structured notes agreements. Fair values were determined using
market quotations provided by outside securities consultants or prices provided by
market makers. Additional information pertinent to the estimated fair value of
derivative instruments is included in note 11.
 (w)
    
    Recently Issued Accounting StandardsIn February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115(Statement 159). Statement 159 gives the Company the
irrevocable option to carry most financial assets and liabilities at fair value that are
not currently required to be measured at fair value. If the fair value option is elected,
changes in fair value would be recorded in earnings at each subsequent reporting date.
SFAS 159 is effective for the Companys 2008 fiscal year. The Company is currently
evaluating the impact the adoption of this statement could have on its financial
condition, results of operations and cash flows.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement
(Statement 157). Statement 157 defines fair value, establishes a framework for the
measurement of fair value, and enhances disclosures about fair value measurements. The
Statement does not require any new fair value measures. The Statement is effective for
fair value measures already required or permitted by other standards for fiscal years
beginning after November 15, 2007. The Company is required to adopt Statement 157
beginning on January 1, 2008. Statement 157 is required to be applied prospectively,
except for certain financial instruments. Any transition adjustment will be recognized as
an adjustment to opening retained earnings in the year of adoption. In November 2007, the
FASB proposed a one-year deferral of Statement 157s fair-value measurement requirements
for nonfinancial assets and liabilities that are not required or permitted to be measured
at fair value on a recurring basis. The Company is currently evaluating the impact of
adopting Statement 157 on its results of operations and financial position.In December 2007, the FASB issued SFAS No. 141R, Business Combinations
(Statement 141R) and SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment to ARB No. 51(Statement 160). Statements 141R and
160 require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and require
noncontrolling interests (previously referred to as minority interests) to be reported as
a component of equity, which changes the accounting for transactions with noncontrolling
interest holders. Both Statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. Statement 141R will be applied to
business combinations occurring after the effective date. Statement 160 will be applied
prospectively to all noncontrolling interests, including any that arose before the
effective date. The Company
currently does not expect the adoption of Statement 141R and Statement 160 to have an
impact on its results of operations and financial position.
  17




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (3)
    
    Investment in SecuritiesThe amortized cost for debt 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 December 31, 2007 and 2006 were as
follows:
 2007Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimatedcost
    
    gains
    
    losses
    
    fair valueTrading securities:Equity securities
    
    $
    54,757
    
    
    
    15,170
    
    
    
    (2,769
    )
    
    
    67,158
 2006Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimatedcost
    
    gains
    
    losses
    
    fair valueTrading securities:Equity securities
    
    $
    66,930
    
    
    
    17,436
    
    
    
    (919
    )
    
    
    83,447
  18




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities available for sale:Obligations of government-sponsored enterprises
    
    $
    479,525
    
    
    
    7,311
    
    
    
    (238
    )
    
    
    486,598U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    
    85,396
    
    
    
    3,034
    
    
    
    
    
    
    
    88,430Obligations of the
Commonwealth of Puerto Rico
and its instrumentalities
    
    
    75,951
    
    
    
    254
    
    
    
    (1,176
    )
    
    
    75,029Municipal securities
    
    
    15,223
    
    
    
    228
    
    
    
    (16
    )
    
    
    15,435Obligations of states of the
United States and political
subdivisions of the states
    
    
    2,116
    
    
    
    19
    
    
    
    (2
    )
    
    
    2,133Corporate bonds
    
    
    86,061
    
    
    
    246
    
    
    
    (2,717
    )
    
    
    83,590Mortgage-backed securities
    
    
    14,138
    
    
    
    75
    
    
    
    (85
    )
    
    
    14,128Collateralized mortgage
obligations
    
    
    58,126
    
    
    
    416
    
    
    
    (256
    )
    
    
    58,286Total fixed maturities
    
    
    816,536
    
    
    
    11,583
    
    
    
    (4,490
    )
    
    
    823,629Equity securities
    
    
    66,747
    
    
    
    7,354
    
    
    
    (3,051
    )
    
    
    71,050Total
    
    $
    883,283
    
    
    
    18,937
    
    
    
    (7,541
    )
    
    
    894,679
  19




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2006Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities available for sale:Obligations of government-sponsored enterprises
    
    $
    444,710
    
    
    
    243
    
    
    
    (7,576
    )
    
    
    437,377U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    
    93,652
    
    
    
    
    
    
    
    (944
    )
    
    
    92,708Obligations of the Commonwealth
Commonwealth of Puerto Rico
and its instrumentalities
    
    
    53,388
    
    
    
    138
    
    
    
    (1,823
    )
    
    
    51,703Corporate bonds
    
    
    48,882
    
    
    
    6
    
    
    
    (966
    )
    
    
    47,922Mortgage-backed securities
    
    
    16,001
    
    
    
    56
    
    
    
    (214
    )
    
    
    15,843Collateralized mortgage
obligations
    
    
    57,480
    
    
    
    147
    
    
    
    (614
    )
    
    
    57,013Total fixed maturities
    
    
    714,113
    
    
    
    590
    
    
    
    (12,137
    )
    
    
    702,566Equity securities
    
    
    50,132
    
    
    
    13,112
    
    
    
    (1,558
    )
    
    
    61,686Total
    
    $
    764,245
    
    
    
    13,702
    
    
    
    (13,695
    )
    
    
    764,252
 2007Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities held to maturity:Obligations of government-sponsored enterprises
    
    $
    31,507
    
    
    
    227
    
    
    
    (20
    )
    
    
    31,714Mortgage-backed securities
    
    
    3,134
    
    
    
    
    
    
    
    (48
    )
    
    
    3,086Corporate bonds
    
    
    8,348
    
    
    
    
    
    
    
    (1
    )
    
    
    8,347Certificates of deposit
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    702Total
    
    $
    43,691
    
    
    
    227
    
    
    
    (69
    )
    
    
    43,849
  20




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2006Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities held to maturity:Obligations of government-sponsored enterprises
    
    $
    31,034
    
    
    
    5
    
    
    
    (816
    )
    
    
    30,223Mortgage-backed securities
    
    
    3,775
    
    
    
    
    
    
    
    (106
    )
    
    
    3,669Corporate bonds
    
    
    11,513
    
    
    
    8
    
    
    
    (569
    )
    
    
    10,952Certificates of deposit
    
    
    667
    
    
    
    
    
    
    
    
    
    
    
    667Index linked certificate of deposit
    
    
    1,000
    
    
    
    370
    
    
    
    
    
    
    
    1,370Total
    
    $
    47,989
    
    
    
    383
    
    
    
    (1,491
    )
    
    
    46,881
   21




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    unrealized
    
    
    Estimated
    
    
    unrealized
    
    
    Estimated
    
    
    unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    lossesSecurities available for sale:Obligations of government-
sponsored enterprises
    
    $
    12,875
    
    
    
    (134
    )
    
    
    34,957
    
    
    
    (104
    )
    
    
    47,832
    
    
    
    (238
    )Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    
    
    
    
    
    
    
    
    28,841
    
    
    
    (1,176
    )
    
    
    28,841
    
    
    
    (1,176
    )Municipal securities
    
    
    1,259
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    1,259
    
    
    
    (16
    )Obligations of states of the United
States and political subdivisions
of the states
    
    
    1,214
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    1,214
    
    
    
    (2
    )Corporate bonds
    
    
    56,185
    
    
    
    (1,398
    )
    
    
    10,654
    
    
    
    (1,319
    )
    
    
    66,839
    
    
    
    (2,717
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    8,265
    
    
    
    (85
    )
    
    
    8,265
    
    
    
    (85
    )Collateralized mortgage
obligations
    
    
    6,718
    
    
    
    (104
    )
    
    
    16,528
    
    
    
    (152
    )
    
    
    23,246
    
    
    
    (256
    )Total fixed maturities
    
    
    78,251
    
    
    
    (1,654
    )
    
    
    99,245
    
    
    
    (2,836
    )
    
    
    177,496
    
    
    
    (4,490
    )Equity securities
    
    
    14,454
    
    
    
    (1,408
    )
    
    
    17,911
    
    
    
    (1,643
    )
    
    
    32,365
    
    
    
    (3,051
    )Total for securities
available for sale
    
    $
    92,705
    
    
    
    (3,062
    )
    
    
    117,156
    
    
    
    (4,479
    )
    
    
    209,861
    
    
    
    (7,541
    )Securities held to maturity:Obligations of government-
sponsored enterprises
    
    $
    
    
    
    
    
    
    
    
    10,831
    
    
    
    (20
    )
    
    
    10,831
    
    
    
    (20
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    3,086
    
    
    
    (48
    )
    
    
    3,086
    
    
    
    (48
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    8,347
    
    
    
    (1
    )
    
    
    8,347
    
    
    
    (1
    )Total for securities
held to maturity
    
    $
    
    
    
    
    
    
    
    
    22,264
    
    
    
    (69
    )
    
    
    22,264
    
    
    
    (69
    )
  22




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2006Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    unrealized
    
    
    Estimated
    
    
    unrealized
    
    
    Estimated
    
    
    unrealizedfair value
    
    
    losses
    
    
    fair value
    
    
    losses
    
    
    fair value
    
    
    lossesSecurities available for sale:Obligations of government-
sponsored enterprises
    
    $
    71,628
    
    
    
    (636
    )
    
    
    346,369
    
    
    
    (6,940
    )
    
    
    417,997
    
    
    
    (7,576
    )U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    
    92,708
    
    
    
    (944
    )
    
    
    
    
    
    
    
    
    
    
    92,708
    
    
    
    (944
    )Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    4,588
    
    
    
    (68
    )
    
    
    31,165
    
    
    
    (1,755
    )
    
    
    35,753
    
    
    
    (1,823
    )Corporate bonds
    
    
    43,190
    
    
    
    (560
    )
    
    
    3,959
    
    
    
    (406
    )
    
    
    47,149
    
    
    
    (966
    )Mortgage-backed securities
    
    
    10,969
    
    
    
    (137
    )
    
    
    2,841
    
    
    
    (77
    )
    
    
    13,810
    
    
    
    (214
    )Collateralized mortgage
obligations
    
    
    11,958
    
    
    
    (52
    )
    
    
    23,112
    
    
    
    (562
    )
    
    
    35,070
    
    
    
    (614
    )Total fixed maturities
    
    
    235,041
    
    
    
    (2,397
    )
    
    
    407,446
    
    
    
    (9,740
    )
    
    
    642,487
    
    
    
    (12,137
    )Equity securities
    
    
    6,570
    
    
    
    (681
    )
    
    
    11,113
    
    
    
    (877
    )
    
    
    17,683
    
    
    
    (1,558
    )Total for securities
available for sale
    
    $
    241,611
    
    
    
    (3,078
    )
    
    
    418,559
    
    
    
    (10,617
    )
    
    
    660,170
    
    
    
    (13,695
    )Securities held to maturity:Obligations of government-
sponsored enterprises
    
    $
    
    
    
    
    
    
    
    
    5,854
    
    
    
    (816
    )
    
    
    5,854
    
    
    
    (816
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    3,669
    
    
    
    (106
    )
    
    
    3,669
    
    
    
    (106
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    9,444
    
    
    
    (569
    )
    
    
    9,444
    
    
    
    (569
    )Total for securities
held to maturity
    
    $
    
    
    
    
    
    
    
    
    18,967
    
    
    
    (1,491
    )
    
    
    18,967
    
    
    
    (1,491
    )
   23




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Obligations of Government-sponsored Enterprises, U.S. Treasury Securities and Obligations of
U.S. Government Instrumentalities, Obligations of States of the United States and Political
Subdivisions of the States, and Obligations of the Commonwealth of Puerto Rico and its
Instrumentalities
 Corporate Bonds
 Mortgage-Backed Securities and Collateralized Mortgage Obligations
 Equity Securities
  24




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     Amortized
    
    
    Estimatedcost
    
    
    fair valueSecurities available for sale:Due in one year or less
    
    $
    40,625
    
    
    
    40,557Due after one year through five years
    
    
    105,952
    
    
    
    106,398Due after five years through ten years
    
    
    226,026
    
    
    
    229,272Due after ten years
    
    
    371,669
    
    
    
    374,988Collateralized mortgage obligations
    
    
    58,126
    
    
    
    58,286Mortgage-backed securities
    
    
    14,138
    
    
    
    14,128$
    816,536
    
    
    
    823,629Securities held to maturity:Due in one year or less
    
    $
    2,637
    
    
    
    2,634Due after one year through five years
    
    
    25,949
    
    
    
    25,973Due after five years through ten years
    
    
    3,200
    
    
    
    3,201Due after ten years
    
    
    8,771
    
    
    
    8,955Mortgage-backed securities
    
    
    3,134
    
    
    
    3,086$
    43,691
    
    
    
    43,849
     25




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007
    
    
    2006
    
    
    2005Realized gains (losses):Fixed maturity securities:Trading securities:Gross gains from sales
    
    $
    
    
    
    
    
    
    
    
    2,235Gross losses from sales
    
    
    
    
    
    
    
    
    
    
    (542
    )
    
    
    
    
    
    
    
    1,693Securities available for sale:Gross gains from sales
    
    
    1,208
    
    
    
    
    
    
    
    137Gross losses from sales
    
    
    (1,797
    )
    
    
    (687
    )
    
    
    (214
    )(589
    )
    
    
    (687
    )
    
    
    (77
    )Total debt securities
    
    
    (589
    )
    
    
    (687
    )
    
    
    1,616Equity securities:Trading securities:Gross gains from sales
    
    
    8,873
    
    
    
    4,318
    
    
    
    6,339Gross losses from sales
    
    
    (1,558
    )
    
    
    (1,488
    )
    
    
    (1,776
    )7,315
    
    
    
    2,830
    
    
    
    4,563Securities available for sale:Gross gains from sales
    
    
    260
    
    
    
    792
    
    
    
    2,043Gross losses from sales and
impairments
    
    
    (1,055
    )
    
    
    (2,098
    )
    
    
    (1,061
    )(795
    )
    
    
    (1,306
    )
    
    
    982Total equity securities
    
    
    6,520
    
    
    
    1,524
    
    
    
    5,545Net realized gains on
securities
    
    $
    5,931
    
    
    
    837
    
    
    
    7,161
  26




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007
    
    
    2006
    
    
    2005Changes in unrealized gains (losses):Recognized in income:Fixed maturities  trading
    
    $
    
    
    
    
    
    
    
    
    (1,755
    )Equity securities  trading
    
    
    (4,116
    )
    
    
    7,699
    
    
    
    (2,954
    )$
    (4,116
    )
    
    
    7,699
    
    
    
    (4,709
    )Recognized in accumulated other
comprehensive income:Fixed maturitiesavailable for sale
    
    $
    18,640
    
    
    
    (2,434
    )
    
    
    (9,615
    )Equity securitiesavailable for sale
    
    
    (7,251
    )
    
    
    (1,581
    )
    
    
    (11,742
    )$
    11,389
    
    
    
    (4,015
    )
    
    
    (21,357
    )Not recognized in the consolidated
financial statements:Fixed maturitiesheld to maturity
    
    $
    1,266
    
    
    
    (114
    )
    
    
    (963
    )
   (4)
    
    Net Investment IncomeComponents of net investment income were as follows:
 Year ended December 312007
    
    
    2006
    
    
    2005Fixed maturities
    
    $
    37,205
    
    
    
    35,217
    
    
    
    24,094Equity securities
    
    
    5,271
    
    
    
    3,821
    
    
    
    3,228Policy loans
    
    
    394
    
    
    
    336
    
    
    
    Cash equivalent interest and interest-bearing
deposits
    
    
    2,187
    
    
    
    1,903
    
    
    
    702Other
    
    
    2,137
    
    
    
    1,380
    
    
    
    1,114Total
    
    $
    47,194
    
    
    
    42,657
    
    
    
    29,138
  27




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (5)
    
    Premium and Other Receivables, NetPremium and other receivables as of December 31 were as follows:
 2007
    
    
    2006Premium
    
    $
    54,330
    
    
    
    53,377Self-funded group receivables
    
    
    31,344
    
    
    
    24,854FEHBP
    
    
    10,202
    
    
    
    9,187Agent balances
    
    
    32,874
    
    
    
    28,813Accrued interest
    
    
    8,363
    
    
    
    8,054Reinsurance recoverable on paid losses
    
    
    58,757
    
    
    
    40,885Other
    
    
    22,323
    
    
    
    18,686218,193
    
    
    
    183,856Less allowance for doubtful receivables:Premium
    
    
    11,753
    
    
    
    12,128Other
    
    
    4,172
    
    
    
    6,10215,925
    
    
    
    18,230Premium and other receivables, net
    
    $
    202,268
    
    
    
    165,626
  28




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (6)
    
    Deferred Policy Acquisition Costs and Value of Business AcquiredThe movement of deferred policy acquisition costs (DPAC) and value of business acquired (VOBA)
for the years ended December 31, 2007, 2006, and 2005 is summarized as follows:
 DPAC
    
    
    VOBA
    
    
    TotalBalance, December 31, 2004
    
    $
    18,712
    
    
    
    
    
    
    
    18,712Additions
    
    
    26,257
    
    
    
    
    
    
    
    26,257Ceding commission of coinsurance funds
with held agreement (see note 17)
    
    
    60,000
    
    
    
    
    
    
    
    60,000Amortization
    
    
    (23,401
    )
    
    
    
    
    
    
    (23,401
    )Net change
    
    
    62,856
    
    
    
    
    
    
    
    62,856Balance, December 31, 2005
    
    
    81,568
    
    
    
    
    
    
    
    81,568Capitalization upon acquisition of GA Life
    
    
    
    
    
    
    22,823
    
    
    
    22,823Termination of coinsurance funds withheld
agreement
    
    
    (60,000
    )
    
    
    
    
    
    
    (60,000
    )Acquisition of business ceded in coinsurance
funds with held agreement
    
    
    
    
    
    
    60,000
    
    
    
    60,000Additions
    
    
    44,056
    
    
    
    
    
    
    
    44,056VOBA interest at an average rate of 5.29%
    
    
    
    
    
    
    4,427
    
    
    
    4,427Amortization
    
    
    (26,799
    )
    
    
    (14,658
    )
    
    
    (41,457
    )Net change
    
    
    (42,743
    )
    
    
    72,592
    
    
    
    29,849Balance, December 31, 2006
    
    
    38,825
    
    
    
    72,592
    
    
    
    111,417Additions
    
    
    46,898
    
    
    
    
    
    
    
    46,898VOBA interest at an average rate of 5.27%
    
    
    
    
    
    
    3,874
    
    
    
    3,874Amortization
    
    
    (32,508
    )
    
    
    (12,442
    )
    
    
    (44,950
    )Net change
    
    
    14,390
    
    
    
    (8,568
    )
    
    
    5,822Balance, December 31, 2007
    
    $
    53,215
    
    
    
    64,024
    
    
    
    117,239
   Year ending December 31:2008
    
    $
    10,4102009
    
    
    9,2652010
    
    
    8,2792011
    
    
    7,2302012
    
    
    6,460
  29




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (7)
    
    Property and Equipment, NetProperty and equipment as of December 31 are composed of the following:
 2007
    
    
    2006Land
    
    $
    6,531
    
    
    
    6,531Buildings and building and leasehold improvements
    
    
    43,664
    
    
    
    41,214Office furniture and equipment
    
    
    15,868
    
    
    
    13,264Computer equipment and software
    
    
    36,361
    
    
    
    31,457Automobiles
    
    
    539
    
    
    
    413102,963
    
    
    
    92,879Less accumulated depreciation and amortization
    
    
    59,548
    
    
    
    51,264Property and equipment, net
    
    $
    43,415
    
    
    
    41,615
 (8)
    
    Claim LiabilitiesThe activity in claim liabilities during 2007, 2006, and 2005 is as follows:
 2007
    
    
    2006
    
    
    2005Claim liabilities at beginning of year
    
    $
    314,682
    
    
    
    297,563
    
    
    
    279,325Reinsurance recoverable on claim liabilities
    
    
    (32,066
    )
    
    
    (28,720
    )
    
    
    (26,555
    )Net claim liabilities at beginning of year
    
    
    282,616
    
    
    
    268,843
    
    
    
    252,770Claim liabilities acquired from GA Life
    
    
    
    
    
    
    8,771
    
    
    
    Claims incurred:Current period insured events
    
    
    1,240,100
    
    
    
    1,266,132
    
    
    
    1,202,952Prior period insured events
    
    
    (31,007
    )
    
    
    (19,669
    )
    
    
    5,415Total
    
    
    1,209,093
    
    
    
    1,246,463
    
    
    
    1,208,367Payments of losses and loss-adjustment
expenses:Current period insured events
    
    
    1,003,283
    
    
    
    1,046,477
    
    
    
    1,004,060Prior period insured events
    
    
    189,430
    
    
    
    194,984
    
    
    
    188,234Total
    
    
    1,192,713
    
    
    
    1,241,461
    
    
    
    1,192,294Net claim liabilities at end of year
    
    
    298,996
    
    
    
    282,616
    
    
    
    268,843Reinsurance recoverable on claim liabilities
    
    
    54,834
    
    
    
    32,066
    
    
    
    28,720Claim liabilities at end of year
    
    $
    353,830
    
    
    
    314,682
    
    
    
    297,563
  30




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
        (9)
    
    Federal Employees Health Benefits Program (FEHBP)TSI entered into a contract, renewable annually, with OPM as authorized by the Federal
Employees Health Benefits Act of 1959, as amended, to provide health benefits under the
FEHBP. The FEHBP covers postal and federal employees resident in the Commonwealth of Puerto
Rico and the United States Virgin Islands as well as retirees and eligible dependents. The
FEHBP is financed through a negotiated contribution made by the federal government and
employees payroll deductions.The accounting policies for the FEHBP are the same as those described in the Companys summary
of significant accounting policies. Premium rates are determined annually by TSI and approved
by the federal government. Claims are paid to providers based on the guidelines determined by
the federal government. Operating expenses are allocated from TSIs operations to the FEHBP
based on applicable allocation guidelines (such as, the number of claims processed for each
program).The operations of the FEHBP do not result in any excess or deficiency of revenue or expense as
this program has a special account available to compensate any excess or deficiency on its
operations to the benefit or detriment of the federal government. Any transfer to/from the
special account necessary to cover any excess or deficiency in the operations of the FEHBP is
recorded as a reduction/increment to the premiums earned. The contract with OPM provides that
the cumulative excess of the FEHBP earned income over health benefits charges and expenses
represents a restricted fund balance denoted as the special account. Upon termination of the
contract and satisfaction of all the FEHBPs obligations, any unused remainder of the special
reserve would revert to the Federal Employees Health Benefit Fund. In the event that the
contract terminates and the special reserve is not sufficient to meet the FEHBPs obligations,
the FEHBP contingency reserve will be used to meet such obligations. If the contingency
reserve is not sufficient to meet such obligations, the Company is at risk for the amount not
covered by the contingency reserve.The contract with OPM allows for the payment of service fees as negotiated between TSI and
OPM. Service fees, which are included within the other income, net in the accompanying
consolidated statements of earnings, amounted to $895, $861, and $800, respectively, for each
of the years in the three-year period ended December 31, 2007.A contingency reserve is maintained by the OPM at the U.S. Treasury, and is available to the
Company under certain conditions as specified in government regulations. Accordingly, such
reserve is not reflected in the accompanying consolidated balance sheets. The balance of such
reserve as of December 31, 2007 and 2006 was $18,004 and $17,747, respectively. The Company
received $5,512, $4,850, and $1,059, of payments made from the contingency reserve fund of OPM
during 2007, 2006, and 2005, respectively.
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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     (10)
    
    BorrowingsA summary of the borrowings entered by the Company at December 31, 2007 and 2006 is as
follows:
 2007
    
    
    2006Secured note payable of $20,000, payable in various
installments through August 31, 2007, with interest
payable on a monthly basis at a rate reset periodically of
130 basis points over selected LIBOR maturity (which
was 6.67% at December 31, 2006).
    
    $
    
    
    
    
    10,500Senior unsecured notes payable of $50,000 due September
2019. Interest is payable semiannually at a fixed rate of
6.30%.
    
    
    50,000
    
    
    
    50,000Senior unsecured notes payable of $60,000 due December
2020. Interest is payable monthly at a fixed rate of 6.60%.
    
    
    60,000
    
    
    
    60,000Senior unsecured notes payable of $35,000 due January 2021.
Interest is payable monthly at a fixed rate of 6.70%.
    
    
    35,000
    
    
    
    35,000Secured loan payable of $41,000, payable in monthly
installments of $137 through July 1, 2024, plus interest
at a rate reset periodically of 100 basis points over selected
LIBOR maturity (which was 6.24% and 6.35% at
December 31, 2007 and 2006, respectively).
    
    
    25,946
    
    
    
    27,587Total borrowings
    
    $
    170,946
    
    
    
    183,087
  Year ending December 31:2008
    
    $
    1,6402009
    
    
    1,6402010
    
    
    1,6402011
    
    
    1,6402012
    
    
    1,640Thereafter
    
    
    162,746$
    170,946
  32




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
         (11)
    
    Derivative Instruments and Hedging ActivitiesThe Company uses derivative instruments to manage the risks associated with changes in
interest rates and to diversify the composition of its investment in securities.By using derivative financial instruments the Company exposes itself to credit risk and market
risk. Credit risk is the failure of the counterparty to perform under the terms of the
derivative contract. When the fair value of a derivative contract is positive, the
counterparty is obligated to the Company, which creates credit risk for the Company. When the
fair value of a derivative contract is negative, the Company owes the counterparty and,
therefore, it does not possess credit risk. The Company minimizes the credit risk in
derivative instruments by entering into transactions with high-quality counterparties.Market risk is the adverse effect on the value of a financial instrument that results from a
change in interest rates, currency exchange rates, commodity prices, or market indexes. The
market risk associated with derivative instruments is managed by establishing and monitoring
parameters that limit the types and degree of market risk that may be undertaken.
 (a)
    
    Cash Flow HedgeThe Company has invested in an interest-rate related derivative hedging instrument to
manage its exposure on its debt instruments.The Company assesses interest rate cash flow risk by continually identifying and
monitoring changes in interest rate exposures that may adversely impact expected future
cash flows and by evaluating hedging opportunities. The Company maintains risk management
control systems to monitor interest rate cash flow risk attributable to both the
Companys outstanding or forecasted debt obligations as well as the Companys offsetting
hedge positions. The risk management control systems involve the use of analytical
techniques to estimate the expected impact of changes in interest rates on the Companys
future cash flows.
  33




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
       (b)
    
    Other Derivative Instruments
      34




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     (12)
    
    Agency Contract and Expense ReimbursementTSI processes and pays claims as fiscal intermediary for the Medicare  Part B Program. Claims
from this program, which are excluded from the accompanying consolidated statements of
earnings, amounted to $322,930, $413,806, and $618,725, for each of the years in the
three-year period ended December 31, 2007.TSI is reimbursed for administrative expenses incurred in performing this service. For the
years ended December 31, 2007, 2006, and 2005, TSI was reimbursed by $10,783, $13,073, and
$13,889, respectively, for such services, which are deducted from operating expenses in the
accompanying consolidated statements of earnings.The operating expense reimbursements in connection with processing Medicare claims have been
audited through 2002 by federal government representatives. Management is of the opinion that
no significant adjustments will be made affecting cost reimbursements through December 31,
2007.
 (13)
    
    Reinsurance ActivityThe effect of reinsurance on premiums earned and claims incurred is as follows:
 Premiums earned
    
    
    Claims incurred(1)2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Gross
    
    $
    1,564,873
    
    
    
    1,584,857
    
    
    
    1,447,054
    
    
    
    1,247,788
    
    
    
    1,267,871
    
    
    
    1,225,065Ceded
    
    
    (81,325
    )
    
    
    (77,644
    )
    
    
    (67,250
    )
    
    
    (38,695
    )
    
    
    (22,869
    )
    
    
    (16,698
    )Assumed
    
    
    
    
    
    
    4,413
    
    
    
    400
    
    
    
    
    
    
    
    1,461
    
    
    
    Net
    
    $
    1,483,548
    
    
    
    1,511,626
    
    
    
    1,380,204
    
    
    
    1,209,093
    
    
    
    1,246,463
    
    
    
    1,208,367
 
 (1)
    
    The claims incurred disclosed in this table exclude the change in the liability
for future policy benefits amounting to $14,682 and $12,518 during the years ended December
31, 2007 and 2006, respectively. As of December 31, 2005 the Company had no liability for
future policy benefits.
 (a)
    
    Reinsurance Ceded ActivityTSI, STS and TSV, in accordance with general industry practices, annually purchase
reinsurance to protect them from the impact of large unforeseen losses and prevent sudden
and unpredictable changes in net income and stockholders equity of the Company.
Reinsurance contracts do not relieve any of the subsidiaries from their obligations to
policyholders. In the event that all or any of the reinsuring companies might be unable
to meet their obligations under existing reinsurance agreements, the subsidiaries would
be liable for such defaulted amounts. During 2007, 2006, and 2005, STS placed 9% of its
reinsurance business with one reinsurance company.TSI has two excess of loss reinsurance treaties whereby it cedes a portion of its
premiums to third parties. Reinsurance contracts are primarily for periods of one year,
and are subject to modifications and negotiations in each renewal date. Premiums ceded
under these contracts amounted to $3,349 and $2,249 in 2007 and 2006,
  35




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     
    
    Organ transplant excess of loss treaty covering 100% of the claims up to a
maximum of $1,000 per person, per life.
    
    Routine medical care excess of loss treaty covering 100% of claims from the
amount of $100 and up to a maximum of $900 per covered person, per contract year.
   
    
    Property quota share treaty covering for a maximum of $20,000 for any one risk.
Under this treaty 40.0% of the risk is ceded to reinsurers. The remaining exposure
is covered by a property per risk excess of loss treaty that provides reinsurance in
excess of $500 up to a maximum of $12,000, or the remaining 60.0% for any one risk.
    
    Personal property catastrophe excess of loss. This treaty provides protection for
losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss
of $70,000.
    
    Commercial property catastrophe excess of loss. This treaty provides protection
for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum
loss of $190,000.
    
    Property catastrophe excess of loss. This treaty provides protection for losses
in excess of $70,000 and $190,000 with respect to personal and commercial lines,
respectively, resulting from any catastrophe, subject to a maximum of $150,000.
    
    Personal lines quota share. This treaty provides protection of 13.20% on all
ground-up losses, subject to a limit of $1,000 for any one risk.
    
    Reinstatement premium protection. This treaty provides a maximum limit of
approximately $4,200 for personal lines and $13,800 in commercial lines to cover the
necessity of reinstating the catastrophe program in the event it is activated.
    
    Casualty excess of loss treaty. This treaty provides reinsurance for losses in
excess of $225 up to a maximum of $12,000.
    
    Medical malpractice excess of loss. This treaty provides reinsurance in excess of
$150 up to a maximum of $1,500 per incident.
    
    Builders risk quota share and first surplus covering contractors risk. This
treaty provides protection on a 20/80 quota share basis for the initial $2,500 and a
first surplus of $10,000 for a maximum of $12,000 for any one risk.
    
    Surety quota share treaty covering contract and miscellaneous surety bond
business. This treaty provides reinsurance of up to $5,000 for contract surety
bonds, subject to an aggregate of $10,000 per contractor and $3,000 per
miscellaneous surety bond.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
       
    
    Group life pro rata agreement, reinsuring 50% of the risk up to $150 on the life
of any participating individual of certain groups insured.
    
    Group life insurance facultative agreement, reinsuring risk in excess of $25 of
certain group life policies.
    
    Group life insurance facultative excess of loss agreements in which TSV retains a
portion of the losses on the life of any participating individual of certain groups
insured. Any excess will be recovered from the reinsurer. This agreement provides
for various retentions ($25, $50, and $75) of the losses.
    
    Facultative pro rata agreements for the long-term disability insurance,
reinsuring 65% of the risk.
    
    Accidental death catastrophic reinsurance covering each and every accident
arising out of one event or occurrence resulting in the death or dismemberment of
five or more persons. The retention for each event is $250 with a maximum of $1,000
for each event and $2,000 per year.
    
    Several reinsurance agreements, mostly on an excess of loss basis up to a maximum
retention of $50. For certain new life products that have been issued since 1999,
the retention limit is $175.
 (b)
    
    Reinsurance Assumed ActivityOn December 22, 2005, the Companys former life insurance subsidiary SVTS entered into a
coinsurance funds withheld agreement with GA Life. Under the terms of this agreement SVTS
assumed 69% of all the business written as of and after the effective date of the
agreement. On the effective date of the agreement, SVTS paid an initial ceding commission
of $60,000 for its participation in the business written by GA Life as of and after the
effective date of the agreement. This amount was considered a policy acquisition cost and
was included within the deferred policy acquisition costs as of December 31, 2005. This amount, upon the acquisition
of GA Life, was transferred to the value of business acquired when the agreement was
canceled.As in other coinsurance funds withheld agreements, GA Life invests the premiums received
from policyholders, pays commissions, processes claims and engages in other
administrative activities. GA Life also carries the reserves for the policies written as
well as the underlying investments purchased with the premiums received from
policyholders.On January 31, 2006 the Company completed the acquisition of 100% of the common stock of
GA Life. The results of operations and financial position of GA Life are included in the
Companys consolidated financial statements for the period following January 31, 2006.
Effective June 30, 2006, the Company merged the
operations of its former life insurance subsidiary, SVTS, into GA Life after receiving
required regulatory approvals. The coinsurance funds withheld agreement was canceled
effective February 1, 2006, subsequent to the acquisition of GA Life. Premiums earned and
claims incurred assumed during the month ended January 31, 2006 amounted to $4,413 and
$2,292, respectively.
  37




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (14)
    
    Income TaxesUnder Puerto Rico income tax law, the Company is not allowed to file consolidated tax returns
with its subsidiaries. The Company and its subsidiaries are subject to Puerto Rico income
taxes. The Companys insurance subsidiaries are also subject to U.S. federal income taxes for
foreign source dividend income. As of December 31, 2007, tax years 2003 through 2006 of the
Company and its subsidiaries are subject to examination by Puerto Rico taxing authorities.On January 1, 2007, the Company adopted the provisions of Fin 48: no
adjustment was required upon the adoption of this accounting pronouncement.TSI and STS are taxed essentially the same as other corporations, with taxable income
determined on the basis of the statutory annual statements filed with the insurance regulatory
authorities. Also, operations are subject to an alternative minimum income tax, which is
calculated based on the formula established by existing tax laws. Any alternative minimum
income tax paid may be used as a credit against the excess, if any, of regular income tax over
the alternative minimum income tax in future years.TSV operates as a qualified domestic life insurance company and is subject to the alternative
minimum tax and taxes on its capital gains. After the merger of GA Life and SVTS, SVTS ceased
to exist and its tax responsibilities are now assumed by TSV.Federal income taxes were recognized by the Companys insurance subsidiaries amounted  to approximately $164,
$148, and $139 in 2007, 2006, and 2005, respectively.TSM, TCI, and ISI are subject to Puerto Rico income taxes as a regular corporation, as defined
in the P.R. Internal Revenue Code, as amended.
  38




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007
    
    
    2006
    
    
    2005Income before taxes
    
    $
    72,645
    
    
    
    67,559
    
    
    
    32,306Statutory tax rate
    
    
    39.0
    %
    
    
    39.0
    %
    
    
    39.0
    %Income tax expense at statutory
rate of 39%
    
    
    28,332
    
    
    
    26,348
    
    
    
    12,599Increase (decrease) in taxes resulting from:Exempt interest income
    
    
    (9,990
    )
    
    
    (9,196
    )
    
    
    (7,441
    )Effect of taxing life insurance operations as a
qualified domestic life insurance company
instead of as a regular corporation
    
    
    (1,115
    )
    
    
    (1,674
    )
    
    
    (752
    )Effect of using earnings under statutory accounting
principles instead of GAAP for TSI and STS
    
    
    371
    
    
    
    (1,718
    )
    
    
    (84
    )Effect of taxing capital gains at a preferential rate
    
    
    (1,406
    )
    
    
    (541
    )
    
    
    (1,762
    )Dividends received deduction
    
    
    (821
    )
    
    
    (325
    )
    
    
    (430
    )Other permanent disallowances, net
    
    
    2,308
    
    
    
    2,626
    
    
    
    1,123Adjustment to deferred tax assets and liabilities for
changes in effective tax rates
    
    
    (2,131
    )
    
    
    (2,009
    )
    
    
    1,500Other adjustments to deferred tax assets and liabilities
    
    
    (423
    )
    
    
    (399
    )
    
    
    (723
    )Other
    
    
    (998
    )
    
    
    (86
    )
    
    
    (157
    )Total income tax expense
    
    $
    14,127
    
    
    
    13,026
    
    
    
    3,873
  39




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007
    
    
    2006Deferred tax assets:Allowance for doubtful receivables
    
    $
    5,422
    
    
    
    6,593Liability for pension benefits
    
    
    9,885
    
    
    
    12,492Employee benefits plan
    
    
    4,856
    
    
    
    4,011Postretirement benefits
    
    
    1,789
    
    
    
    1,863Deferred compensation
    
    
    1,519
    
    
    
    1,343Accumulated depreciation
    
    
    356
    
    
    
    379Impairment loss on investments
    
    
    565
    
    
    
    611Contingency reserves
    
    
    50
    
    
    
    2,516Alternative minimum income tax credit
    
    
    830
    
    
    
    458Other
    
    
    544
    
    
    
    13Gross deferred tax assets
    
    
    25,816
    
    
    
    30,279Deferred tax liabilities:Deferred policy acquisition costs
    
    
    (7,102
    )
    
    
    (8,903
    )Catastrophe loss reserve trust fund
    
    
    (5,035
    )
    
    
    (3,752
    )Unrealized gain upon acquisition of GA Life
    
    
    (2,092
    )
    
    
    (3,036
    )Unrealized gain on trading securities
    
    
    (1,859
    )
    
    
    (3,217
    )Unrealized gain on securities available for sale
    
    
    (1,842
    )
    
    
    (2
    )Unrealized gain on derivative instruments
    
    
    (383
    )
    
    
    (387
    )Unamortized bond issue costs
    
    
    (383
    )
    
    
    (501
    )Cash-flow hedges
    
    
    (37
    )
    
    
    (196
    )Other
    
    
    (300
    )
    
    
    (993
    )Gross deferred tax liabilities
    
    
    (19,033
    )
    
    
    (20,987
    )Net deferred tax asset
    
    $
    6,783
    
    
    
    9,292
   40




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (15)
    
    Pension PlansOn December 31, 2006, the Company adopted the recognition and disclosures provisions of SFAS
No. 158, Employers Accounting for Defined Benefit Pension and Other Post Retirement Plans.Noncontributory Defined-Benefit Pension PlanThe Company sponsors a noncontributory defined-benefit pension plan for all of its employees
and for the employees for certain of its subsidiaries who are age 21 or older and have
completed one year of service. Pension benefits begin to vest after five years of vesting
service, as defined, and are based on years of service and final average salary, as defined.
The funding policy is to contribute to the plan as necessary to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974, as amended,
plus such additional amounts as the Company may determine to be appropriate from time to time.
The measurement date used to determine pension benefit measures for the pension plan is
December 31.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007
    
    
    2006Change in benefit obligation:Projected benefit obligation at beginning of year
    
    $
    88,774
    
    
    
    84,272Service cost
    
    
    5,489
    
    
    
    5,459Interest cost
    
    
    5,072
    
    
    
    4,655Benefit payments
    
    
    (5,141
    )
    
    
    (4,614
    )Actuarial losses (gains)
    
    
    1,774
    
    
    
    (1,102
    )Plan amendments
    
    
    (6,370
    )
    
    
    104Projected benefit obligation at end of year
    
    $
    89,598
    
    
    
    88,774Accumulated benefit obligation at end of year
    
    $
    66,042
    
    
    
    64,366Change in fair value of plan assets:Fair value of plan assets at beginning of year
    
    $
    59,520
    
    
    
    49,501Actual return on assets (net of expenses)
    
    
    4,234
    
    
    
    6,633Employer contributions
    
    
    5,000
    
    
    
    8,000Benefit payments
    
    
    (5,140
    )
    
    
    (4,614
    )Fair value of plan assets at end of year
    
    $
    63,614
    
    
    
    59,520Funded status at end of year
    
    $
    (25,984
    )
    
    
    (29,254
    )Amounts in accumulated other comprehensive income not yet
recognized as a component of net periodic pension cost:Development of prior service cost (credit):Balance at beginning of year
    
    $
    606
    
    
    
    550Amortization
    
    
    (58
    )
    
    
    (48
    )Prior service cost (credit) arising during the year
    
    
    (6,370
    )
    
    
    104Unrecognized net prior service cost (credit)
    
    
    (5,822
    )
    
    
    606Development of actuarial loss:Balance at beginning of year
    
    
    30,409
    
    
    
    36,722Amortization
    
    
    (1,959
    )
    
    
    (2,436
    )Loss (gain) arising during the year
    
    
    1,923
    
    
    
    (3,877
    )Unrecognized actuarial loss
    
    
    30,373
    
    
    
    30,409Sum of deferrals
    
    $
    24,551
    
    
    
    31,015Net amount recognized
    
    $
    (1,433
    )
    
    
    1,761
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2007
    
    2006Pension liability
    
    $
    25,984
    
    
    
    29,254Accumulated other comprehensive loss, net of a deferred
tax of $9,501 and $12,017 in 2007 and 2006, respectively
    
    
    15,050
    
    
    
    18,998
  2007
    
    
    2006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    5,489
    
    
    
    5,459
    
    
    
    4,737Interest cost
    
    
    5,072
    
    
    
    4,655
    
    
    
    4,145Expected return on assets
    
    
    (4,383
    )
    
    
    (3,858
    )
    
    
    (3,467
    )Amortization of prior service cost
    
    
    58
    
    
    
    48
    
    
    
    48Amortization of actuarial loss
    
    
    1,959
    
    
    
    2,435
    
    
    
    2,017Net periodic benefit cost
    
    $
    8,195
    
    
    
    8,739
    
    
    
    7,480
   Prior service cost
    
    $
    (446
    )Actuarial loss
    
    
    1,764
  2007
    
    2006
    
    2005Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    5.50
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation increase
    
    Graded; 3.50% to 8.00%
    
    Graded; 3.50% to 8.00%
    
    Graded; 3.00% to 6.50%
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
      (a)
    
    Plan AssetsThe Companys weighted average asset allocations at December 31, 2007 and 2006 were as
follows:
 Asset category
    
    2007
    
    2006Equity securities
    
    
    59
    %
    
    
    62
    %Debt securities
    
    
    31
    
    
    
    28Real estate
    
    
    9
    
    
    
    8Other
    
    
    1
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    %
   
    
    Increasing risk is rewarded with compensating returns over time, and therefore,
prudent risk taking is justifiable for long-term investors.
    
    Risk can be controlled through diversification of asset classes and investment
approaches, as well as diversification of individual securities.
    
    Risk is reduced by time, and over time the relative performance of different
asset classes is reasonably consistent. Over the long-term, equity investments have
provided and should continue to provide superior returns over other security types.
Fixed-income securities can dampen volatility and provide liquidity in periods of
depressed economic activity.
    
    The strategic or long-term allocation of assets among various asset classes is an
important driver of long-term returns.
    
    Relative performance of various asset classes is unpredictable in the short-term
and attempts to shift tactically between asset classes are unlikely to be rewarded.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     
    
    Ensure assets are available to meet current and future obligations of the
participating programs when due.
    
    Earn a minimum rate of return no less than the actuarial interest rate.
    
    Earn the maximum return that can be realistically achieved in the markets over
the long-term at a specified and controlled level of risk in order to minimize
future contributions.
    
    Invest the assets with the care, skill, and diligence that a prudent person
acting in a like capacity would undertake. The committee acknowledges that, in the
process, it has the objective of controlling the costs involved with administering
and managing the investments of the National Retirement Trust.
 (b)
    
    Cash FlowsThe Company expects to contribute $5,000 to its pension program in 2008.The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid:
 Year ending December 31:2008
    
    $
    2,8652009
    
    
    3,7972010
    
    
    4,2102011
    
    
    4,5062012
    
    
    5,5382013  2017
    
    
    6,175
 Noncontributory Supplemental Pension Plan
  (16)
    
    Catastrophe Loss Reserve and Trust FundIn accordance with Chapter 25 of the Insurance Code, as amended, STS is required to record a catastrophe loss reserve. This
catastrophe loss reserve is supported by a trust fund for the payment of catastrophe losses.
The reserve increases by amounts determined by applying a contribution rate, not in excess of
5%, to catastrophe written premiums as instructed annually by the Commissioner of Insurance,
unless the level of the reserve exceeds 8% of catastrophe exposure, as defined. The reserve
also increases by an amount equal to the resulting return in the supporting trust fund and
decreases by payments on catastrophe losses or authorized withdrawals from the trust fund.
Additions to the catastrophe loss reserve are deductible for income tax purposes.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
         (17)
    
    Business Combinations
 Business Combinations
  Current assets
    
    $
    219,747Property and equipment
    
    
    1,500Value of business acquired
    
    
    22,823Total assets acquired
    
    
    244,070Total liabilities assumed
    
    
    (205,874
    )Net assets acquired
    
    $
    38,196
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    premium income, claims, persistency, expenses and investment income accruing from invested
assets plus reinvestment of positive cash flows. The best-estimate actuarial assumptions were
based upon GA Lifes recent experience in each of its major life and health insurance product
lines. The amount of value of business acquired is to be amortized, considering interest, over
the anticipated premium-paying period of the related policies in proportion to the ratio of
annual premium revenue to the expected total premium revenue to be received over the life of
the policies.The following unaudited pro forma financial information presents the combined results of
operations of the Company and GA Life as if the acquisition had occurred at the beginning of
each period presented. The unaudited pro forma financial information is not intended to
represent or be indicative of the Companys consolidated results of operations that would have
been reported had the acquisition been completed as of the beginning of the periods presented
and should not be taken as indicative of the Companys future consolidated results of
operations.
 Unaudited2006
    
    2005Operating revenues
    
    $
    1,576,492
    
    
    
    1,516,632Net income
    
    
    54,850
    
    
    
    43,814Basic net income per share
    
    
    2.05
    
    
    
    1.64
 (18)
    
    Stockholders Equity
 (a)
    
    Common StockOn April 24, 2007, the Companys Board of Directors (the Board) authorized a
3,000-for-one stock split of its Class A common stock effected in the form of a dividend
of 2,999 shares for every one share outstanding. This stock split was effective on May 1,
2007 to all stockholders of record at the close of business on April 24, 2007. The total
number of authorized shares and par value per share were unchanged by this action. The
par value of the additional shares resulting from the stock split was reclassified from
additional paid in capital to common stock. All references to the number of shares and
per share amounts in this consolidated financial statements are presented after giving
retroactive effect to the stock split.In May 2007, the Company cancelled 24,000 director qualifying shares. Since February
2007, Board members are no longer required to hold qualifying shares to participate in
the Board of Directors of the Company.In December 7, 2007, the Company completed the initial public offering (IPO) of its Class
B common stock. In this public offering the Company sold 16,100,000 shares, 10,813,191 of
which were shares previously owned by selling shareholders. Proceeds received under this
public offering amounted to $70,279, net of $6,380 of expenses directly related to the
offering.For a period of five years after the completion of our IPO, subject to the extension or
shortening under certain circumstances, each holder of Class B common stock will benefit
from anti-dilution protections provided in our amended and restated articles of
incorporation.(b)
    
    Preferred StockAuthorized capital stock includes 100,000,000 of preferred stock with a par value of $1.00
per share. As of December 31, 2007 and 2006, there are no issued and outstanding
preferred stock shares.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (c)
    
    DividendsOn March 12, 2007, the Board declared a cash dividend of $2,448 distributed pro rata
among all of the Companys issued and outstanding Class A common shares, excluding those
shares issued to the representatives of the community that are members of the Board (the
qualifying shares). All stockholders of record as of the close of business on March 23,
2007, except those who only hold qualifying shares, received a dividend per share of
$0.09 for each share held on that date.On January 13, 2006, the Board declared a cash dividend of $6,231 distributed pro rata
among all of the Companys issued and outstanding Class A common shares, excluding
qualifying shares. All stockholders of record as of the close of business on January 16,
2006, except those who only hold qualifying shares, received a dividend per share of
$0.23 for each share held on that date.(d)
    
    Liquidity RequirementsAs members of the BCBSA, the Company and TSI are required by membership standards of the
association to maintain liquidity as defined by BCBSA. That is, to maintain net worth
exceeding the Company Action Level as defined in the National Association of Insurance
Commissioners (NAIC) Risk-Based Capital for Insurers Model Act. The companies are in
compliance with this requirement.
 (19)
    
    Comprehensive IncomeThe accumulated balances for each classification of other comprehensive income are as follows:
 AccumulatedUnrealized
    
    
    Liability
    
    
    
    
    
    
    othergains on
    
    
    for pension
    
    
    Cash-flow
    
    
    comprehensivesecurities
    
    
    benefits
    
    
    hedges
    
    
    income (loss)Beginning balance
    
    $
    5
    
    
    
    (19,742
    )
    
    
    306
    
    
    
    (19,431
    )Net current period change
    
    
    8,383
    
    
    
    4,090
    
    
    
    (250
    )
    
    
    12,223Reclassification adjustments for
gains and losses
reclassified
in income
    
    
    1,166
    
    
    
    
    
    
    
    
    
    
    
    1,166Ending balance
    
    $
    9,554
    
    
    
    (15,652
    )
    
    
    56
    
    
    
    (6,042
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The related deferred tax effects allocated to each component of other comprehensive income in
the accompanying consolidated statements of stockholders equity and comprehensive income in
2007 and 2006 are as follows:
 2007Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    10,005
    
    
    
    (1,622
    )
    
    
    8,383Less reclassification adjustment for
gains and losses realized in income
    
    
    1,384
    
    
    
    (218
    )
    
    
    1,166Net change in unrealized
gain
    
    
    11,389
    
    
    
    (1,840
    )
    
    
    9,549Liability for pension benefits
    
    
    6,697
    
    
    
    (2,607
    )
    
    
    4,090Cash-flow hedges
    
    
    (409
    )
    
    
    159
    
    
    
    (250
    )Net current period change
    
    $
    17,677
    
    
    
    (4,288
    )
    
    
    13,389
 2006Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    (6,008
    )
    
    
    1,201
    
    
    
    (4,807
    )Less reclassification adjustment for
gains and losses realized in income
    
    
    1,993
    
    
    
    (398
    )
    
    
    1,595Net change in unrealized
gain
    
    
    (4,015
    )
    
    
    803
    
    
    
    (3,212
    )Liability for pension benefits
    
    
    7,915
    
    
    
    (2,963
    )
    
    
    4,952Cash-flow hedges
    
    
    (105
    )
    
    
    40
    
    
    
    (65
    )Adjustment to initially apply SFAS No.158
    
    
    (26,233
    )
    
    
    10,152
    
    
    
    (16,081
    )Net current period change
    
    $
    (22,438
    )
    
    
    8,032
    
    
    
    (14,406
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    (20,452
    )
    
    
    2,350
    
    
    
    (18,102
    )Less reclassification adjustment for
gains and losses realized in income
    
    
    (905
    )
    
    
    175
    
    
    
    (730
    )Net change in unrealized
gain
    
    
    (21,357
    )
    
    
    2,525
    
    
    
    (18,832
    )Minimum pension liability adjustment
    
    
    (4,515
    )
    
    
    1,727
    
    
    
    (2,788
    )Cash-flow hedges
    
    
    749
    
    
    
    (292
    )
    
    
    457Net current period change
    
    $
    (25,123
    )
    
    
    3,960
    
    
    
    (21,163
    )
 (20)
    
    Share-Based CompensationIn December 2007 the Company adopted the 2007 Incentive Plan (the Plan), which permits the
board of directors the grant of stock options, restricted stock awards and performance awards
to eligible officers, directors and key employees. The Plan authorizes grants to issue up to
4,700,000 of Class B common shares of authorized but unissued stock. At December 31, 2007,
there were 3,367,583 additional shares available for the Company to grant under the Plan.
Stock options can be granted with an exercise price at least equal the stocks fair market
value at the date of grant. The stock option awards vest in equal annual installments over 3
years and its expiration date cannot exceed 7 years. The restricted stock and performance
awards are issued at the fair value of the stock on the grant date. Restricted stock awards
vest in equal annual installments over 3 years. Performance awards vest on the last day of the
performance period, provided that at least minimum performance standards were achieved.The fair value of each option award is estimated on the date of grant using the Black-Scholes
option-pricing model that used the weighted average assumptions in the following table. In
absence of adequate historical data, the Company estimates the expected life of the option
using the shortcut method allowed by Staff Accounting Bulletin (SAB) No. 107. Since the
Company is a newly-public entity, expected volatility is computed based on the average
historical volatility of similar entities with publicly traded shares. The risk-free rate for
the expected term of the option is based on the U.S. Treasury zero-coupon bonds yield curve in
effect at the time of grant.The following assumptions were used in the development of fair value of option awards:
 2007Expected dividend yield
    
    
    0.00
    %Expected volatility (per year)
    
    
    33.00
    %Expected term (in years)
    
    
    4.50Risk-free interest rate
    
    
    3.51
    %
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     Stock option activity during the periods indicated is as follows:
 Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsicshares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueBeginning balance
    
    
    
    
    
    $
    Grants
    
    
    999,309
    
    
    
    14.50Ending balance
    
    
    999,309
    
    
    $
    14.50
    
    
    
    2.92
    
    
    $
    5,706Excercisable at end of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
 The weighted average grant date fair value of options granted during the year 2007 was $14.50.
There were no options exercised during the year ended December 31, 2007.A summary of the status of the Companys nonvested restricted and performance shares as of
December 31, 2007, and changes during the year ended December 31, 2007, are presented below:
 Restricted Awards
    
    
    Performance AwardsWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exerciseshares
    
    
    Price
    
    
    shares
    
    
    PriceBeginning balance
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Grants
    
    
    166,554
    
    
    
    14.50
    
    
    
    166,554
    
    
    
    14.50Ending balance
    
    
    166,554
    
    
    $
    14.50
    
    
    
    166,554
    
    
    $
    14.50Excercisable at end of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 At December 31, 2007, there was $8,590 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Plan. That cost is expected
to be recognized over a weighted average period of 2.92 years. No shares vested during the
year ended December 31, 2007.The Company currently uses authorized and unissued Class B common shares to satisfy share
award exercises.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (21)
    
    Net Income Available to Stockholders and Basic Net Income per ShareThe following table sets forth the computation of basic and diluted earnings per share for the
three-year period ended December 31, 2007.
 2007
    
    
    2006
    
    
    2005Numerator for earnings per share:Net income available to stockholders
    
    $
    58,518
    
    
    
    54,533
    
    
    
    28,433Denominator for basic earnings per share  Weighted average of common shares
    
    
    27,200,067
    
    
    
    26,729,500
    
    
    
    26,712,000Effect of dilutive securities  Non-vested
restricted stock awards
    
    
    2,038
    
    
    
    
    
    
    
    Denominator for diluted earnings per share
    
    
    27,202,105
    
    
    
    26,729,500
    
    
    
    26,712,000Basic net income per share
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06Diluted net income per share
    
    $
    2.15
    
    
    
    2.04
    
    
    
    1.06
 During the year ended December 31, 2007, the weighted average of stock option shares of 83,276
were excluded from the denominator for diluted earnings per share because the stock options
were anti-dilutive. There were no anti-dilutive stock options during the years ended December
31, 2006 and 2005.
 (22)
    
    CommitmentsThe Company leases its regional offices, certain equipment, and warehouse facilities under
noncancelable operating leases. Minimum annual rental commitments at December 31, 2007 under
existing agreements are summarized as follows:
 Year ending December 31:2008
    
    $
    5,3382009
    
    
    3,6502010
    
    
    2,2392011
    
    
    1,2482012
    
    
    509Thereafter
    
    
    375Total
    
    $
    13,359
 Rental expense for 2007, 2006, and 2005 was $4,007, $3,962, and $2,185, respectively, after
deducting the amount of $303, $348, and $495, respectively, reimbursed by Medicare (see
note 12).
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (23)
    
    Contingencies
 (a)
    
    Legal Proceedings
 (i)
    
    At December 31, 2007, the Company is defendant in various lawsuits
arising in the ordinary course of business. In the opinion of management, with the
advice of its legal counsel, the ultimate disposition of these matters will not have
a material adverse effect on the consolidated financial position and results of
operations of the Company.(ii)
    
    TSM, TSI, and others are defendants in a complaint where the plaintiffs
allege that the defendants, among other things, violated provisions of the Puerto
Rico Insurance Code, antitrust violations, unfair business practices, breach of
contract with providers, and damages. The plaintiffs also asserted that, in light of
TSIs former tax exempt status, the assets of TSI belong to a charitable trust held
in the benefit of the people of Puerto Rico (the charitable trust claim). The
plaintiffs also requested the Company sell shares to them pursuant to a contract
with TSI dated August 16, 1989 regarding the acquisition of shares. 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 U.S. District Court for the District of Puerto
Rico and in the local courts. The defendants, including TSM and TSI answered the
complaint, filed a counter-claim and filed several motions to dismiss.On May 9, 2005, the plaintiffs amended the complaint to allege causes of
action similar to those dismissed by the U.S. District Court for the District of
Puerto Rico in another case. Defendants moved to dismiss the amended complaint.
Plaintiffs opposed the motions to dismiss and defendants filed corresponding
replies. In 2006, the Court held several hearings concerning these dispositive
motions and stayed all discovery until the motions were resolved.On January 19, 2007, the Court denied a motion by the plaintiffs to dismiss
the defendants counterclaim for malicious prosecution and abuse of process. The
Court ordered plaintiffs to answer counterclaim by February 20, 2007. Although they
filed after the required date, plaintiffs filed an answer to the counterclaim.On February 7, 2007 the Court dismissed the charitable trust, RICO and
violation of due process claims as to all the plaintiffs. The tort, breach of
contract and violation of the Puerto Rico corporations law
claims, were dismissed only against certain of the physician plaintiffs. The
Court allowed the count based on antitrust to proceed, and in reconsideration
allowed the charitable trust and RICO claims to proceed. The Company appealed to
the Puerto Rico Court of Appeals the denial of the motion to dismiss as to the
antitrust allegations and the Courts decision to reconsider the claims previously
dismissed.On May 30, 2007 the Puerto Rico Court of Appeals granted leave to replead the
RICO and antitrust claims only to the physician plaintiffs, consistent with certain
requirements set forth in its opinion, to allow the physician plaintiffs the
opportunity to cure the deficiencies and flaws the Court found in the plaintiffs
allegations. The Court dismissed the charitable trust claim as to all plaintiffs,
denying them the opportunity to replead that claim, and dismissed the RICO and
antitrust claims as to the non-physician plaintiffs. Also, the Court of Appeals
granted leave to replead a derivative claim capacity on behalf of the Corporation
to the lone shareholder plaintiff. The plaintiffs moved for the reconsideration of
this judgment. On July 18, 2007 the Court of Appeals denied the plaintiffs motion
for reconsideration, which has granted plaintiffs leave to replead certain matters.
On August 17, 2007, plaintiffs filed a petition for certiorari by the Puerto Rico
Supreme Court, which we opposed on August 27, 2007. The plaintiffs petition for
certiorari was denied by the Puerto Rico Supreme Court on November 9, 2007. The
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Company is unable to estimate the range of possible loss that may be ultimately
realized upon the resolution of this case. In the opinion of management, with the
advice of its legal counsel, the ultimate disposition of these matters will not
have a material adverse effect on the consolidated financial position and results
of operations of the Company.
 (iii)
    
    On May 22, 2003 a putative class action suit was filed by Kenneth A.
Thomas, M.D. and Michael Kutell, M.D., on behalf of themselves and all others
similarly situated and the Connecticut State Medical Society against the BCBSA and
substantially all of the other Blue plans in the United States, including TSI. 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 healthcare plans are the agents of
BCBSA licensed entities, and as such have committed the acts alleged above and
acted within the scope of their agency, with the consent, permission, authorization
and knowledge of the others, and in furtherance of both their interest and the
interests of other defendants. Management believes that TSI was brought to this
litigation for the sole reason of being associated with the BCBSA. However, on
June 18, 2004 the plaintiffs moved to amend the complaint to include the Colegio de
Médicos y Cirujanos de Puerto Rico (a compulsory association grouping all
physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de
Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against
TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.
TSI, along with the other defendants, moved to dismiss the complaint on multiple
grounds, including but not limited to arbitration and applicability of the McCarran
Ferguson Act. The parties have been ordered to engage in mediation, and twenty four
plans, including TSI, are actively participating in the mediation efforts. The
mediation resulted in the creation of a Settlement Agreement that was filed with
the Court on April 27, 2007, and on May 31, 2007, the District Court preliminarily
approved the Settlement Agreement. The Company has recorded its best estimate of
the possible outcome of this case as an accrual, which is included within the
accounts payable and accrued liabilities in the accompanying consolidated financial
statements as of and for the year ended December 31, 2007. A final approval hearing
for the Settlement
Agreement was held on November 14, 2007. The Court has yet to issue the final
approval of the settlement.(iv)
    
    TSI is a defendant in a complaint, filed on October 23, 2007, where the
plaintiffs allege that, as heirs of a former shareholder of TSI, they were
fraudulently induced to submit shares for redemption in 1996. The plaintiffs are
seeking the return of 16 shares (prior to giving effect to the 3,000-for-one stock
split) that were redeemed in 1996, a year after the death of the former
shareholders, or compensation in the amount of $40,000 per share which they allege
is a shares present value. At the time of death of the former shareholder, the
bylaws of TSI would not have permitted the plaintiffs to inherit, as those bylaws
provided that in the event of a shareholders death, shares could be redeemed at the
price originally paid for them or could be transferred only to an heir who was
either a doctor or dentist. The plaintiffs complaint also states that they purport
to represent as a class all heirs of the TSIs former shareholders whose shares were
redeemed upon such shareholders deaths. On October 31, 2007, the Corporation filed
a motion to dismiss the claims as barred by the applicable statute of limitations.
On December 21, 2007, the plaintiffs filed an opposition to our motion to dismiss,
alleging that the two year statute of limitations is not applicable in connection
with the redemption of the stock that took place in 1996. On
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    March 3, 2008, the
Company filed a reply to plaintiffs opposition to the motion to dismiss. In its
reply, the Corporation renews its motion to dismiss and further argues that
plaintiffs argument is wrong because the statute of limitations has expired,
pursuant the two year term provided under the Uniform Security Act of Puerto Rico
Civil code for cases of this nature. The Company is unable to estimate the range of
possible loss that may be ultimately realized upon the resolution of this case. In
the opinion of management, with the advice of its legal counsel, the ultimate
disposition of these matters will not have a material adverse effect on the
consolidated financial position and results of operations of the Company.
 (v)
    
    TSI and the Commissioner of Insurance of Puerto Rico are defendants in a
complaint with one former shareholder of TSI predecessor stock that was redeemed in
1999 for its original purchase price pursuant to an order issued by the Commissioner
of Insurance, requiring the redemption of a total of 1,582 shares that had been
previously sold by the Company. The Company appealed this Commissioner of
Insurances order to the Puerto Rico Court of Appeals, which upheld that order by
decision dated March 31, 2000. The plaintiff requests that the court direct TSI to
return his share of stock and pay damages and attorneys fees. On January 23, 2008,
the Company filed a motion for summary judgment, on the ground inter aliathat the
finding of the Insurance Commissioner is firm and final and cannot be collaterally
attacked in this litigation. Plaintiffs have petitioned the Court to hold the motion
in abeyance pending discovery. TSI believes that this claim is meritless, as the
validity of the share repurchase was decided by the Court of Appeals in 2000, and
plans to vigorously contest this matter. The Company is unable to estimate the range
of possible loss that may be ultimately realized upon the resolution of this case.
In the opinion of management, with the advice of its legal counsel, the ultimate
disposition of these matters will not have a material adverse effect on the
consolidated financial position and results of operations of the Company.(vi)
    
    On March 1, 2006 and March 3, 2006, respectively, the Puerto Rico Center
for Municipal Revenue Collection (CRIM) imposed a real property tax assessment of
approximately $1.3 million and a personal property tax assessment of approximately
$4.0 million upon TSI for the fiscal years 1992-1993 through 2002-2003, during which
time TSI qualified as a tax-exempt entity under Puerto Rico law pursuant to rulings
issued by the Puerto Rico tax authorities. In imposing the tax assessments, CRIM
contends that because a for-profit corporation, such as TSI, is not entitled to such
an exemption, the rulings recognizing the tax exemption that were issued should be
revoked on a retroactive basis and property
taxes should be applied to TSI for the period when it was exempt. On March 28, 2006
and March 29, 2006, respectively, TSI challenged the real and personal property tax
assessments.On October 29, 2007, the Court entered a summary judgment for CRIM affirming the
real property tax. TSI filed a motion for reconsideration of the Courts summary
judgment decision, which was denied. On November 29, 2007 TSI appealed this
determination and has requested an argumentative hearing. On January 19, 2008 CRIM
filed an allegation in opposition of TSIs appeal and on March 3, 2008 TSI filed
its response to the allegation submitted by CRIM.On December 5, 2007, the Court entered a summary judgment for CRIM with respect to
the personal property assessment that was notified on January 22, 2008. On January
31, 2008, TSI filed a motion for reconsideration, which was denied. TSI appealed
this decision on February 21, 2008 and also requested a consolidation of both
property tax cases.The Company believes that these municipal tax assessments are improper and
currently expects to prevail in this litigation. The Company is unable to estimate
the range of possible loss that may be ultimately realized upon the resolution of
this case. In the opinion of management, with the advice of its
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    legal counsel, the
ultimate disposition of these matters will not have a material adverse effect on
the consolidated financial position and results of operations of the Company.
 (b)
    
    Guarantee AssociationsPursuant to the Insurance Code, STS is a member of Sindicato de Aseguradores para la
Suscripción Conjunta de Seguros de Responsabilidad Profesional Médico-Hospitalaria
(SIMED) and of the Sindicato de Aseguradores de Responsabilidad Profesional para Médicos.
Both syndicates were organized for the purpose of underwriting medical-hospital
professional liability insurance. As a member, the subsidiary shares risks with other
member companies and, accordingly, is contingently liable in the event that the
above-mentioned syndicates cannot meet their obligations. During
2007, 2006 and 2005, no
assessments or payments were made for this contingency.Additionally, pursuant to Article 12 of Rule LXIX of the Insurance Code, STS is a member
of the Compulsory Vehicle Liability Insurance Joint Underwriting Association
(the Association). The Association was organized during 1997 to underwrite insurance
coverage of motor vehicle property damage liability risks effective January 1, 1998. As a
participant, STS shares the risk, proportionately with other members, based on a formula
established by the Insurance Code. During the three-year period ended December 31, 2007,
the Association distributed good experience refunds. STS received refunds amounting to
$1,023, $769, and $918, in 2007, 2006, and 2005, respectively.STS is a member of the Asociación de Garantía de Seguros de Todas Clases, excepto Vida,
Incapacidad y Salud and TSI, TSV are members of the Asociación de Garantía de Seguros de
Vida, Incapacidad y Salud. As members, they are required to provide funds for the payment
of claims and unearned premiums reimbursements for policies issued by insurance companies
declared insolvent. During 2006 and 2005, STS paid assessments of $995 and $965,
respectively. During 2007 no assessment or payment was made by STS in connection with
insurance companies declared insolvent. Moreover, no assessments were attributable to TSI
and Triple-S Vida, Inc. during 2007, 2006, and 2005.
 (24)
    
    Statutory AccountingTSI, TSV and STS (collectively known as the regulated subsidiaries) are regulated by the
Commissioner of Insurance. The regulated subsidiaries are required to prepare financial
statements using accounting practices prescribed or permitted by the Commissioner of
Insurance, which differ from GAAP.The accumulated earnings of TSI, TSV, and STS are restricted as to the payment of dividends by
statutory limitations applicable to domestic insurance companies. Such limitations restrict
the payment of dividends by insurance companies generally to unrestricted unassigned surplus
funds reported for statutory purposes. As more fully described in note 16, a portion of the
accumulated earnings of STS are also restricted by the catastrophe loss reserve balance
(amounting to $29,918 and $27,823 as of December 31, 2007 and 2006, respectively) as required
by the Insurance Code.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The net admitted assets, unassigned surplus, and capital and surplus of the insurance
subsidiaries at December 31, 2007 and 2006 are as follows:
 2007TSI
    
    STS
    
    TSVNet admitted assets
    
    $
    702,125
    
    
    
    273,601
    
    
    
    310,428Unassigned surplus
    
    
    67,768
    
    
    
    57,346
    
    
    
    (17,021
    )Capital and surplus
    
    
    217,768
    
    
    
    95,765
    
    
    
    45,039
 2006TSI
    
    STS
    
    GA LifeNet admitted assets
    
    $
    557,146
    
    
    
    255,702
    
    
    
    292,972Unassigned surplus
    
    
    190,419
    
    
    
    47,892
    
    
    
    (22,790
    )Capital and surplus
    
    
    191,419
    
    
    
    84,215
    
    
    
    39,270
 The net income (loss) of the insurance subsidiaries for the years ended December 31, 2007,
2006, and 2005 is as follows:
 TSI
    
    STS
    
    TSV2007
    
    $
    41,742
    
    
    
    14,608
    
    
    
    7,7362006
    
    
    24,723
    
    
    
    9,270
    
    
    
    7,0772005
    
    
    16,126
    
    
    
    10,107
    
    
    
    (58,046
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (25)
    
    Supplementary Information on Noncash Transactions Affecting Cash Flow Activities
 2007
    
    2006
    
    2005Supplementary information:Noncash transactions affecting cash flows activities:Change in net unrealized gain on securities
available for sale, including deferred income
tax liability of $1,842, $2, and $805 in 2007,
2006, and 2005, respectively
    
    $
    9,549
    
    
    
    (3,212
    )
    
    
    (18,832
    )Change in cash-flow hedges, including deferred
income tax liability of $37, $196, and $236
in 2007, 2006, and 2005, respectively
    
    
    (250
    )
    
    
    (65
    )
    
    
    457Change in liability for pension benefits, and
deferred income tax asset of $9,885, $2,340,
and $5,303, in 2007, 2006, and 2005,
respectively
    
    
    4,090
    
    
    
    4,952
    
    
    
    (2,788
    )Adjustment to initially apply SFAS No. 158,
including deferred income tax effect of
$10,152 in 2006.
    
    
    
    
    
    
    (16,081
    )
    
    
    Unsettled investment acquisitions
    
    
    117,706
    
    
    
    226
    
    
    
    379Unsettled investment sales
    
    
    
    
    
    
    (13
    )
    
    
    (2,845
    )Other:Income taxes paid
    
    
    25,940
    
    
    
    2,813
    
    
    
    5,351Interest paid
    
    
    14,102
    
    
    
    14,215
    
    
    
    9,118
 On January 31, 2006, the Company acquired GA Life (now TSV). Refer to note 17 for a summary of
assets acquired and liabilities assumed as part of the acquisition.
 (26)
    
    Segment InformationThe operations of the Company are conducted principally through three business segments:
Managed Care, Life Insurance, and Property and Casualty Insurance. Business segments were
identified according to the type of insurance products offered. These segments and a
description of their respective operations are as follows:
 
    
    Managed Care segment TSI is engaged in the sale of managed care products to the
commercial market sector (including corporate accounts, U.S. federal government
employees, local government employees, individual accounts and Medicare supplement) as
well as to the Medicare Advantage, the Commonwealth of Puerto Rico Health Reform
(the Reform) and stand-alone PDP. The following represents a description of the major
contracts by sector:
 
    
    Commercial The premiums for this business are mainly originated through
TSIs internal sales force and a network of brokers and independent agents. TSI is a
qualified contractor to provide health
coverage to federal government employees within Puerto Rico. Earned premiums
revenue related to this contract amounted to $121,126, $113,355, and $113,181 for
the three-year period ended December 31, 2007, 2006, and 2005, respectively (see
note 9). Under its commercial business, TSI also provides health coverage to
certain employees of the Commonwealth of Puerto Rico and its instrumentalities.
Earned premium revenue related to such health plans amounted to $46,649, $54,143,
and $64,623, for
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    the three-year period ended December 31, 2007, 2006, and 2005,
respectively. TSI also processes and pays claims as fiscal intermediary for the
Medicare  Part B Program in Puerto Rico and is reimbursed for operating expenses
(see note 12).
 
    
    Medicare TSI provides services through its Medicare health plans
pursuant to a limited number of contracts with CMS. These contracts generally have
terms of one year and must be renewed each year. Each of our contracts with CMS is
terminable for cause if TSI breaches a material provision of the contract or violate
relevant laws or regulations. The premiums for this business are mainly originated
through TSIs internal sales force and a network of brokers and independent agents.
Earned premium revenue related to the Medicare business amounted to $255,570,
$170,820 and $34,236 the three-year period ended December 31, 2007, 2006 and 2005,
respectively.
    
    Reform TSI participates in the Reform to provide health coverage to
medically indigent citizens in Puerto Rico. The Reform program provides health
coverage to medically indigent citizens in Puerto Rico, as defined by the laws of
the Commonwealth of Puerto Rico. The Reform consists of a single policy with the
same benefits for each qualified medically indigent citizen. Earned premium revenue
related to this business amounted to $327,544, $455,891, and $510,839, for
three-year period ended December 31, 2007, 2006, and 2005, respectively. During
these periods, TSI was the sole provider in three of the eight Reform regions in
Puerto Rico. Since the Reforms inception in 1995, TSI had been the sole provider
for two to three regions each year. The contract for each geographical area is
subject to termination in the event of any noncompliance by the insurance company,
which is not corrected or cured to the satisfaction of the government entity
overseeing the Reform, or on ninety days prior written notice in the event that the
government determines that there is an insufficiency of funds to finance the Reform.
These contracts usually have one-year terms and expire on June 30. Upon the
expiration of the contract for a geographical area, of the Commonwealth of Puerto
Rico usually commences an open bidding process to select the carrier for each area.
In October 2006, TSI was informed that the new contract to serve one of these
regions, Metro-North, had been awarded to another managed care company effective
November 1, 2006. The contracts for the other two areas were renewed for additional
terms ending June 30, 2008.
 
    
    Life Insurance segment This segment offers primarily life and accident and health
insurance coverage, and annuity products. The premiums for this segment are mainly
subscribed through TSVs internal sales force and a network of independent brokers and
agents.
    
    Property and Casualty Insurance segmentThe predominant insurance lines of business
of this segment are commercial multiple peril, auto physical damage, auto liability, and
dwelling. The premiums for this segment are originated through a network of independent
insurance agents and brokers. Agents or general agencies collect the premiums from the
insureds, which are subsequently remitted to STS, net of commissions. Remittances are due
60 days after the closing date of the general agents account current.
 The Company evaluates performance based primarily on the operating revenues and operating
income of each segment. Operating revenues include premiums earned, net, administrative
service fees and net investment income. Operating costs include claims incurred and operating
expenses. The Company calculates operating income or loss as operating revenues less operating
costs.The accounting policies for the segments are the same as those described in the summary of
significant accounting policies included in the notes to consolidated financial statements.
Services provided between reportable segments are done at transfer prices which approximate
fair value. The financial data of each segment is accounted for separately; therefore no
segment allocation is necessary. However, certain operating expenses are centrally managed,
therefore requiring an allocation to each segment. Most of these expenses are distributed to
each segment based on different parameters, such as payroll hours, processed claims, or square
footage, among others. In addition, some depreciable
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    assets are kept by one segment, while
allocating the depreciation expense to other segments. The allocation of the depreciation
expense is based on the proportion of asset used by each segment. Certain expenses are not
allocated to the segments and are kept within TSMs operations.The following tables summarize the operations by operating segment for each of the years in
the three-year period ended December 31, 2007, 2006, and 2005.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007
    
    
    2006
    
    
    2005Operating revenues:Managed care:Premiums earned, net
    
    $
    1,298,776
    
    
    
    1,337,070
    
    
    
    1,276,307Fee revenue
    
    
    14,018
    
    
    
    14,089
    
    
    
    14,445Intersegment premiums/fee revenue
    
    
    6,229
    
    
    
    5,531
    
    
    
    4,274Net investment income
    
    
    19,673
    
    
    
    18,852
    
    
    
    16,958Total managed care
    
    
    1,338,696
    
    
    
    1,375,542
    
    
    
    1,311,984Life:Premiums earned, net
    
    
    88,505
    
    
    
    86,595
    
    
    
    17,130Intersegment premiums
    
    
    356
    
    
    
    293
    
    
    
    Net investment income
    
    
    15,016
    
    
    
    13,749
    
    
    
    3,018Total life
    
    
    103,877
    
    
    
    100,637
    
    
    
    20,148Property and casualty:Premiums earned, net
    
    
    96,267
    
    
    
    87,961
    
    
    
    86,767Intersegment premiums
    
    
    616
    
    
    
    591
    
    
    
    Net investment income
    
    
    11,849
    
    
    
    9,589
    
    
    
    8,706Total property and casualty
    
    
    108,732
    
    
    
    98,141
    
    
    
    95,473Other segments  intersegment service revenues *
    
    
    44,971
    
    
    
    53,375
    
    
    
    50,004Total business segments
    
    
    1,596,276
    
    
    
    1,627,695
    
    
    
    1,477,609TSM operating revenues from external sources
    
    
    656
    
    
    
    467
    
    
    
    456Elimination of intersegment premiums
    
    
    (7,201
    )
    
    
    (6,415
    )
    
    
    (4,274
    )Elimination of intersegment service revenue
    
    
    (44,971
    )
    
    
    (53,375
    )
    
    
    (50,004
    )Consolidated operating
revenues
    
    $
    1,544,760
    
    
    
    1,568,372
    
    
    
    1,423,787
 
 *
    
    Includes segments that are not required to be reported separately. These segments include the data
processing services organization as well as the third-party administrator of health insurance services. 61




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007
    
    
    2006
    
    
    2005Operating income:Managed care
    
    $
    57,392
    
    
    
    45,472
    
    
    
    16,112Life
    
    
    10,716
    
    
    
    11,196
    
    
    
    3,045Property and casualty
    
    
    10,740
    
    
    
    11,250
    
    
    
    12,244Other segments *
    
    
    891
    
    
    
    1,115
    
    
    
    543Total business segments
    
    
    79,739
    
    
    
    69,033
    
    
    
    31,944TSM operating revenues from external sources
    
    
    656
    
    
    
    467
    
    
    
    456TSM unallocated operating expenses
    
    
    (7,846
    )
    
    
    (6,648
    )
    
    
    (5,271
    )Elimination of TSM charges
    
    
    10,903
    
    
    
    10,474
    
    
    
    6,588Consolidated operating income
    
    
    83,452
    
    
    
    73,326
    
    
    
    33,717Consolidated net realized investment gains
    
    
    5,931
    
    
    
    837
    
    
    
    7,161Consolidated net unrealized gain (loss) on trading
securities
    
    
    (4,116
    )
    
    
    7,699
    
    
    
    (4,709
    )Consolidated interest expense
    
    
    (15,839
    )
    
    
    (16,626
    )
    
    
    (7,595
    )Consolidated other income, net
    
    
    3,217
    
    
    
    2,323
    
    
    
    3,732Consolidated income before
taxes
    
    $
    72,645
    
    
    
    67,559
    
    
    
    32,306
 2007
    
    
    2006
    
    
    2005Depreciation expense:Managed care
    
    $
    4,277
    
    
    
    3,788
    
    
    
    3,640Life
    
    
    677
    
    
    
    750
    
    
    
    439Property and casualty
    
    
    1,488
    
    
    
    775
    
    
    
    62Total business segments
    
    
    6,442
    
    
    
    5,313
    
    
    
    4,141TSM depreciation expense
    
    
    1,120
    
    
    
    1,130
    
    
    
    1,089Consolidated depreciation
expense
    
    $
    7,562
    
    
    
    6,443
    
    
    
    5,230
 
 *
    
    Includes segments that are not required to be reported separately. These segments include the data processing
services organization as well as the third-party administrator of health insurance services. 62




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2007
    
    
    2006Assets:Managed care
    
    $
    762,422
    
    
    
    600,948Life
    
    
    430,807
    
    
    
    407,994Property and casualty
    
    
    375,415
    
    
    
    326,894Other segments *
    
    
    11,255
    
    
    
    7,807Total business segments
    
    
    1,579,899
    
    
    
    1,343,643Unallocated amounts related to TSM:Cash, cash equivalents, and investments
    
    
    82,980
    
    
    
    11,879Property and equipment, net
    
    
    22,523
    
    
    
    23,792Other assets
    
    
    2,280
    
    
    
    4,096107,783
    
    
    
    39,767Elimination entries  intersegment receivables and others
    
    
    (28,140
    )
    
    
    (37,901
    )Consolidated total assets
    
    $
    1,659,542
    
    
    
    1,345,509
 2007
    
    
    2006Significant noncash items:Net change in unrealized gain on securities available for sale:Managed care
    
    $
    2,928
    
    
    
    (1,560
    )Life
    
    
    3,253
    
    
    
    (1,457
    )Property and casualty
    
    
    3,085
    
    
    
    (183
    )Total business segments
    
    
    9,266
    
    
    
    (3,200
    )Amount related to TSM
    
    
    283
    
    
    
    (12
    )Consolidated net change in unrealized gain on securities
available for sale
    
    $
    9,549
    
    
    
    (3,212
    )Net change in liability for pension benefits:Managed care
    
    $
    2,838
    
    
    
    3,795Life
    
    
    35
    
    
    
    212Property and casualty
    
    
    275
    
    
    
    197Other segments *
    
    
    844
    
    
    
    614Total business segments
    
    
    3,992
    
    
    
    4,818Amount related to TSM
    
    
    98
    
    
    
    134Consolidated net change in liability for pension benefits
    
    $
    4,090
    
    
    
    4,952Adjustment to initially apply SFAS No. 158, net of tax:Managed care
    
    $
    
    
    
    
    (10,959
    )Life
    
    
    
    
    
    
    (1,145
    )Property and casualty
    
    
    
    
    
    
    (144
    )Other segments *
    
    
    
    
    
    
    (3,278
    )Total business segments
    
    
    
    
    
    
    (15,526
    )Amount related to TSM
    
    
    
    
    
    
    (555
    )Consolidated net change in liability for pension benefits
    
    $
    
    
    
    
    (16,081
    )
 
 *
    
    Includes segments that are not required to be reported separately. These segments include the data processing services
organization as well as the third-party administrator of health insurance services. 63




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (27)
    
    Quarterly Financial Information (Unaudited)The results of operations of GA Life are included in the quarterly financial information for
the period following January 31, 2006.
 2007March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenues:Premiums earned, net
    
    $
    348,465
    
    
    
    377,346
    
    
    
    375,803
    
    
    
    381,934
    
    
    
    1,483,548Administrative service fees
    
    
    3,509
    
    
    
    3,617
    
    
    
    3,908
    
    
    
    2,984
    
    
    
    14,018Net investment income
    
    
    11,121
    
    
    
    11,047
    
    
    
    11,229
    
    
    
    13,797
    
    
    
    47,194Total operating revenues
    
    
    363,095
    
    
    
    392,010
    
    
    
    390,940
    
    
    
    398,715
    
    
    
    1,544,760Net realized investment
gains (losses)
    
    
    1,196
    
    
    
    3,784
    
    
    
    1,183
    
    
    
    (232
    )
    
    
    5,931Net unrealized investment gain
(loss) on trading securities
    
    
    (1,925
    )
    
    
    573
    
    
    
    588
    
    
    
    (3,352
    )
    
    
    (4,116
    )Other income (loss), net
    
    
    209
    
    
    
    2,158
    
    
    
    (525
    )
    
    
    1,375
    
    
    
    3,217Total revenues
    
    
    362,575
    
    
    
    398,525
    
    
    
    392,186
    
    
    
    396,506
    
    
    
    1,549,792Benefits and expenses:Claims incurred
    
    
    297,318
    
    
    
    308,023
    
    
    
    310,033
    
    
    
    308,401
    
    
    
    1,223,775Operating expenses
    
    
    56,137
    
    
    
    59,358
    
    
    
    57,944
    
    
    
    64,094
    
    
    
    237,533Total operating costs
    
    
    353,455
    
    
    
    367,381
    
    
    
    367,977
    
    
    
    372,495
    
    
    
    1,461,308Interest expense
    
    
    3,952
    
    
    
    4,058
    
    
    
    3,938
    
    
    
    3,891
    
    
    
    15,839Total benefits and expenses
    
    
    357,407
    
    
    
    371,439
    
    
    
    371,915
    
    
    
    376,386
    
    
    
    1,477,147Income before taxes
    
    
    5,168
    
    
    
    27,086
    
    
    
    20,271
    
    
    
    20,120
    
    
    
    72,645Income tax expense (benefit):Current
    
    
    1,060
    
    
    
    5,938
    
    
    
    4,575
    
    
    
    4,333
    
    
    
    15,906Deferred
    
    
    (397
    )
    
    
    343
    
    
    
    206
    
    
    
    (1,931
    )
    
    
    (1,779
    )Total income taxes
    
    
    663
    
    
    
    6,281
    
    
    
    4,781
    
    
    
    2,402
    
    
    
    14,127Net income
    
    $
    4,505
    
    
    
    20,805
    
    
    
    15,490
    
    
    
    17,718
    
    
    
    58,518Basic net income per share
    
    $
    0.17
    
    
    
    0.78
    
    
    
    0.58
    
    
    
    0.62
    
    
    
    2.15Diluted net income per share
    
    $
    0.17
    
    
    
    0.78
    
    
    
    0.58
    
    
    
    0.62
    
    
    
    2.15
  64




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2006March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenues:Premiums earned, net
    
    $
    380,531
    
    
    
    387,637
    
    
    
    390,431
    
    
    
    353,027
    
    
    
    1,511,626Administrative service fees
    
    
    3,429
    
    
    
    3,202
    
    
    
    3,725
    
    
    
    3,733
    
    
    
    14,089Net investment income
    
    
    10,050
    
    
    
    10,766
    
    
    
    10,509
    
    
    
    11,332
    
    
    
    42,657Total operating revenues
    
    
    394,010
    
    
    
    401,605
    
    
    
    404,665
    
    
    
    368,092
    
    
    
    1,568,372Net realized investment gains (losses)
    
    
    528
    
    
    
    433
    
    
    
    363
    
    
    
    (487
    )
    
    
    837Net unrealized investment gain (loss) on trading securities
    
    
    2,556
    
    
    
    (2,245
    )
    
    
    3,407
    
    
    
    3,981
    
    
    
    7,699Other income (loss), net
    
    
    1,199
    
    
    
    (1,286
    )
    
    
    1,295
    
    
    
    1,115
    
    
    
    2,323Total revenues
    
    
    398,293
    
    
    
    398,507
    
    
    
    409,730
    
    
    
    372,701
    
    
    
    1,579,231Benefits and expenses:Claims incurred
    
    
    324,707
    
    
    
    332,210
    
    
    
    317,388
    
    
    
    284,676
    
    
    
    1,258,981Operating expenses
    
    
    57,730
    
    
    
    56,932
    
    
    
    55,810
    
    
    
    65,593
    
    
    
    236,065Total operating costs
    
    
    382,437
    
    
    
    389,142
    
    
    
    373,198
    
    
    
    350,269
    
    
    
    1,495,046Interest expense
    
    
    3,798
    
    
    
    4,095
    
    
    
    4,493
    
    
    
    4,240
    
    
    
    16,626Total benefits and expenses
    
    
    386,235
    
    
    
    393,237
    
    
    
    377,691
    
    
    
    354,509
    
    
    
    1,511,672Income before taxes
    
    
    12,058
    
    
    
    5,270
    
    
    
    32,039
    
    
    
    18,192
    
    
    
    67,559Income tax expense (benefit):Current
    
    
    2,636
    
    
    
    779
    
    
    
    6,130
    
    
    
    5,862
    
    
    
    15,407Deferred
    
    
    41
    
    
    
    (128
    )
    
    
    1,079
    
    
    
    (3,373
    )
    
    
    (2,381
    )Total income taxes
    
    
    2,677
    
    
    
    651
    
    
    
    7,209
    
    
    
    2,489
    
    
    
    13,026Net income
    
    $
    9,381
    
    
    
    4,619
    
    
    
    24,830
    
    
    
    15,703
    
    
    
    54,533Basic net income per share
    
    $
    0.35
    
    
    
    0.17
    
    
    
    0.93
    
    
    
    0.59
    
    
    
    2.04Diluted net income per share
    
    $
    0.35
    
    
    
    0.17
    
    
    
    0.93
    
    
    
    0.59
    
    
    
    2.04
 65




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans,




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    47,772
    
    
    
    1,224Receivables:Due from subsidiaries*
    
    
    597
    
    
    
    360Other
    
    
    25
    
    
    
    29Total receivables
    
    
    622
    
    
    
    389Investment in securities
    
    
    35,208
    
    
    
    9,655Prepaid income tax
    
    
    111
    
    
    
    Net deferred tax assets
    
    
    367
    
    
    
    218Accrued interest
    
    
    173
    
    
    
    79Other assets
    
    
    198
    
    
    
    523Total current assets
    
    
    84,451
    
    
    
    12,088Notes receivable from subsidiaries*
    
    
    57,000
    
    
    
    79,000Investment in securities
    
    
    
    
    
    
    1,000Accrued interest on note receivable from subsidiaries
    
    
    8,151
    
    
    
    4,001Net deferred tax assets
    
    
    543
    
    
    
    574Investments in wholly owned subsidiaries*
    
    
    448,579
    
    
    
    377,341Property and equipment, net
    
    
    22,523
    
    
    
    23,792Other assets
    
    
    863
    
    
    
    912Total assets
    
    $
    622,110
    
    
    
    498,708Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    1,640
    
    
    
    12,140Due to subsidiary*
    
    
    6,015
    
    
    
    15,159Accounts payable and accrued expenses
    
    
    8,045
    
    
    
    6,465Income taxes payable
    
    
    
    
    
    
    291Total current liabilities
    
    
    15,700
    
    
    
    34,055Long-term debt
    
    
    119,306
    
    
    
    120,947Liability for pension benefits
    
    
    4,566
    
    
    
    1,107Total liabilities
    
    
    139,572
    
    
    
    156,109Stockholders equity:Common stock Class A, $1 par value. Authorized 100,000,000 shares;
issue and outstanding 16,042,809 and 26,733,000 shares at December 31, 2007 and 2006, respectively
    
    
    16,043
    
    
    
    26,733Common stock Class B, $1 par value. Authorized 100,000,000 shares;
issue and outstanding 16,266,554 at December 31,2007
    
    
    16,266
    
    
    
    Additional paid-in capital
    
    
    188,935
    
    
    
    124,031Retained earnings
    
    
    267,336
    
    
    
    211,266Accumulated other comprehensive loss, net
    
    
    (6,042
    )
    
    
    (19,431
    )482,538
    
    
    
    342,599Commitments and contingenciesTotal liabilities and
stockholders equity
    
    $
    622,110
    
    
    
    498,708
 
   2




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2007
    
    
    2006
    
    
    2005Rental income*
    
    $
    7,096
    
    
    
    6,897
    
    
    
    6,724Management fees
    
    
    3,880
    
    
    
    3,650
    
    
    
    General and administrative expenses
    
    
    (7,846
    )
    
    
    (6,648
    )
    
    
    (5,271
    )Operating income
    
    
    3,130
    
    
    
    3,899
    
    
    
    1,453Other revenue (expenses):Equity in net income of subsidiaries
    
    
    57,980
    
    
    
    53,632
    
    
    
    27,604Interest expense, net of interest income of
$5,477, $6,088, and $1,809 in 2007, 2006,
and 2005, respectively*
    
    
    (2,557
    )
    
    
    (2,078
    )
    
    
    (336
    )Other income
    
    
    397
    
    
    
    
    
    
    
    Total other revenue, net
    
    
    55,820
    
    
    
    51,554
    
    
    
    27,268Income before income taxes
    
    
    58,950
    
    
    
    55,453
    
    
    
    28,721Income tax expense (benefit):Current
    
    
    520
    
    
    
    772
    
    
    
    208Deferred
    
    
    (88
    )
    
    
    148
    
    
    
    80Total income tax expense, net
    
    
    432
    
    
    
    920
    
    
    
    288Net income
    
    $
    58,518
    
    
    
    54,533
    
    
    
    28,433
 
   3




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    otherstock
    
    
    stock
    
    
    paid-in
    
    
    Retained
    
    
    comprehensiveClass A
    
    
    Class B
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance, December 31, 2004
    
    $
    26,712
    
    
    
    
    
    
    
    124,052
    
    
    
    134,531
    
    
    
    16,138
    
    
    
    301,433Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,433
    
    
    
    
    
    
    
    28,433Net unrealized change in
fair value of available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,832
    )
    
    
    (18,832
    )Net change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,788
    )
    
    
    (2,788
    )Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    457Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,270Balance, December 31, 2005
    
    
    26,712
    
    
    
    
    
    
    
    124,052
    
    
    
    162,964
    
    
    
    (5,025
    )
    
    
    308,703Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,231
    )
    
    
    
    
    
    
    (6,231
    )Adjustment to initially apply
SFAS No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,081
    )
    
    
    (16,081
    )Other
    
    
    21
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,533
    
    
    
    
    
    
    
    54,533Net unrealized change in
fair value of available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,212
    )
    
    
    (3,212
    )Net change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,952
    
    
    
    4,952Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,208Balance, December 31, 2006
    
    
    26,733
    
    
    
    
    
    
    
    124,031
    
    
    
    211,266
    
    
    
    (19,431
    )
    
    
    342,599Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,448
    )
    
    
    
    
    
    
    (2,448
    )Sale of stock in public offering
    
    
    (10,813
    )
    
    
    16,100
    
    
    
    64,992
    
    
    
    
    
    
    
    
    
    
    
    70,279Grant of resticted Class B
common stock
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Share-based compensation
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Other
    
    
    123
    
    
    
    
    
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    1Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,518
    
    
    
    
    
    
    
    58,518Net unrealized change in
fair value of available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,549
    
    
    
    9,549Defined benefit pension plan:Prior service cost, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,935
    
    
    
    3,935Actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    155Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    (250
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,907Balance, December 31, 2007
    
    $
    16,043
    
    
    
    16,266
    
    
    
    188,935
    
    
    
    267,336
    
    
    
    (6,042
    )
    
    
    482,538
  4




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    58,518
    
    
    
    54,533
    
    
    
    28,433Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Equity in net income of subsidiaries*
    
    
    (57,980
    )
    
    
    (53,632
    )
    
    
    (27,604
    )Depreciation and amortization
    
    
    1,120
    
    
    
    1,130
    
    
    
    1,090Share-based compensation
    
    
    200
    
    
    
    
    
    
    
    Provision for obsolescence
    
    
    
    
    
    
    (83
    )
    
    
    (25
    )Deferred income tax (benefit) expense
    
    
    (88
    )
    
    
    148
    
    
    
    80Other
    
    
    (394
    )
    
    
    
    
    
    
    Changes in assets and liabilities:Receivables*
    
    
    (233
    )
    
    
    1,062
    
    
    
    (583
    )Accrued interest*
    
    
    (4,244
    )
    
    
    (1,842
    )
    
    
    (1,354
    )Prepaid income tax and other assets
    
    
    (146
    )
    
    
    517
    
    
    
    (2,553
    )Accounts payable, accrued expenses, liability for pension benefit
and due to subsidiary*
    
    
    (3,945
    )
    
    
    6,807
    
    
    
    3,948Income taxes payable
    
    
    (291
    )
    
    
    291
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (7,483
    )
    
    
    8,931
    
    
    
    1,432Cash flows from investing activities:Acquisition of investment in securities classified as available for sale
    
    
    (28,202
    )
    
    
    
    
    
    
    (3,000
    )Proceeds from sale and maturities of investment in securities
classified as available for sale
    
    
    4,393
    
    
    
    335
    
    
    
    Notes receivable from subsidiaries*
    
    
    22,000
    
    
    
    4,000
    
    
    
    (57,000
    )Acquisition of business
    
    
    
    
    
    
    (38,196
    )
    
    
    Net retirement (acquisition) of property and equipment
    
    
    149
    
    
    
    (162
    )
    
    
    (273
    )Net cash used in investing activities
    
    
    (1,660
    )
    
    
    (34,023
    )
    
    
    (60,273
    )Cash flows from financing activities:Dividends
    
    
    (2,448
    )
    
    
    (6,231
    )
    
    
    Repayments of long-term borrowings
    
    
    (12,141
    )
    
    
    (2,503
    )
    
    
    (5,140
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    35,000
    
    
    
    60,000Net proceeds from initial public offering
    
    
    70,279
    
    
    
    
    
    
    
    Other
    
    
    1
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    55,691
    
    
    
    26,266
    
    
    
    54,860Net increase (decrease) in cash and cash equivalents
    
    
    46,548
    
    
    
    1,174
    
    
    
    (3,981
    )Cash and cash equivalents, beginning of year
    
    
    1,224
    
    
    
    50
    
    
    
    4,031Cash and cash equivalents, end of year
    
    $
    47,772
    
    
    
    1,224
    
    
    
    50Supplemental information:Income taxes paid
    
    $
    922
    
    
    
    402
    
    
    
    170Interest paid
    
    
    7,751
    
    
    
    7,809
    
    
    
    2,093Noncash activities:Change in net unrealized gain on securities available for sale, including
deferred income tax liability of $67, $2, and $805 in 2007, 2006
and 2005, respectively
    
    $
    9,549
    
    
    
    (3,212
    )
    
    
    (18,832
    )Change in cash-flow hedges, including deferred tax liability of
$37 and $196,$236 in 2007, 2006 and 2005, respectively
    
    
    (250
    )
    
    
    (65
    )
    
    
    457Change in
liability for pension benefits  and deferred income tax asset of $9,502,
$2,340, and $5,303, in 2007, 2006, and 2005, respectively
    
    
    4,090
    
    
    
    4,952
    
    
    
    (2,788
    )Adjustment to initially apply SFAS No. 158, including deferred income
tax effect of $10,152 in 2006
    
    
    
    
    
    
    (16,081
    )
    
    
    
 
   5




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    (1)
    
    OrganizationTriple-S Management Corporation (the Company or TSM) was incorporated under the laws of the
Commonwealth of Puerto Rico on January 17, 1997 to engage, among other things, as the holding
company of entities primarily involved in the insurance industry.The Company has the following wholly owned subsidiaries that are subject to the regulations of
the Commissioner of Insurance of the Commonwealth of Puerto Rico (the Commissioner of
Insurance): (a) Triple-S, Inc. (TSI) a managed care organization, that provides health
benefits services to subscribers through contracts with hospitals, physicians, dentists,
laboratories, and other organizations located mainly in Puerto Rico; (b) Triple-S Vida, Inc.
(TSV), which is engaged in the underwriting of life and accident and health insurance policies
and the administration of annuity contracts; and (c) Seguros Triple-S, Inc. (STS), which is
engaged in the underwriting of property and casualty insurance policies. The Company and TSI
are members of the Blue Cross and Blue Shield Association (BCBSA).Effective January 31, 2006, the Company completed the acquisition of 100% of the common stocks
of Great American Life Assurance Company of Puerto Rico (GA Life) (now Triple-S Vida, Inc.)
and effective June 30, 2006, the Company merged the operations of its former life and accident
and health insurance subsidiary, Seguros de Vida Triple-S, Inc. (SVTS), into the GA Life. The
results of operations and financial position of GA Life are included as part of equity in net
income of subsidiaries in the accompanying statements of earnings for the period following
January 31, 2006. Effective November 1, 2007 GA Life changed its name to Triple-S Vida, Inc.,
after receiving required regulatory approvals.The Company also has two other wholly owned subsidiaries, Interactive Systems, Inc. (ISI) and
Triple-C, Inc. (TC). ISI is mainly engaged in providing data processing services to the
Company and its subsidiaries. TC is mainly engaged as a third party administrator for TSI in
the administration of the Commonwealth of Puerto Rico Health Care Reform business
(the Reform). Also, TC provides health care advisory services to TSI and other health
insurance-related services to the health insurance industry.A substantial majority of the Companys business activity through its subsidiaries is with
insureds located throughout Puerto Rico and, as such, the Company is subject to the risks
associated with the Puerto Rico economy.(2)
    
    Significant Accounting PoliciesThe significant accounting policies followed by the Company are set forth in the notes to the
consolidated financial statements of the Company referred to in Item 15 to the Annual Report
on Form 10-K.
  6




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    (3)
    
    Property and Equipment, NetProperty and equipment as of December 31 are composed of the following:
 2007
    
    
    2006Land
    
    $
    6,531
    
    
    
    6,531Buildings and leasehold improvements
    
    
    27,778
    
    
    
    27,92734,309
    
    
    
    34,458Less accumulated depreciation and amortization
    
    
    (11,786
    )
    
    
    (10,666
    )Property and equipment, net
    
    $
    22,523
    
    
    
    23,792
 (4)
    
    Investment in Wholly Owned SubsidiariesSummarized combined financial information for the Companys wholly owned subsidiaries as of
and for the years ended December 31, 2007 and 2006 is as follows:
 2007
    
    
    2006AssetsCash, cash equivalents, and investments
    
    $
    1,168,182
    
    
    
    943,784Receivables, net
    
    
    216,525
    
    
    
    186,919Other assets
    
    
    195,192
    
    
    
    212,940Total assets
    
    $
    1,579,899
    
    
    
    1,343,643Liabilities and EquityClaim liabilities
    
    $
    353,830
    
    
    
    314,682Future policy benefits related to funds withheld reinsurance
    
    
    194,131
    
    
    
    180,420Unearned premiums
    
    
    132,599
    
    
    
    113,582Annuity contracts
    
    
    46,083
    
    
    
    45,509Accounts payable and other liabilities
    
    
    404,677
    
    
    
    312,109Total liabilities
    
    
    1,131,320
    
    
    
    966,302Stockholders equity
    
    
    448,579
    
    
    
    377,341Total liabilities and equity
    
    $
    1,579,899
    
    
    
    1,343,643
 The net income of the subsidiaries during the three-year period ended December 31, 2007 was
$57,980, $53,632, and $27,604. The Company allocates to its subsidiaries certain expenses
incurred in the
administration of their operations. Total charges including other expenses paid on behalf of
the subsidiaries amounted to $4,989, $4,346 and $3,828, in the three-year period ended
December 31, 2007.
  7




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    (5)
    
    Long-Term BorrowingsA summary of the long-term borrowings entered by the Company at December 31, 2007 and 2006
follows:
 2007
    
    
    2006Secured note payable of $20,000, payable in various
installments through August 31, 2007, with interest payable
on a monthly basis at a rate reset periodically of 130 basis
points over selected LIBOR maturity (which was 6.67%
at December 31, 2006.)
    
    $
    
    
    
    
    10,500Senior unsecured notes payable of $60,000 due
December 2020. Interest is payable monthly at a fixed
rate of 6.60%.
    
    
    60,000
    
    
    
    60,000Senior unsecured notes payable of $35,000 due
January 2021. Interest is payable monthly at a fixed
rate of 6.70%.
    
    
    35,000
    
    
    
    35,000Secured loan payable of $41,000, payable in monthly
installments of $137 through July 1, 2024, plus interest at a
rate reset periodically of 100 basis points over selected
LIBOR maturity (which was 6.24% and 6.35% at
December 31, 2007 and 2006, respectively).
    
    
    25,946
    
    
    
    27,587120,946
    
    
    
    133,087Less current maturities
    
    
    (1,640
    )
    
    
    (12,140
    )Total loans payable to bank
    
    $
    119,306
    
    
    
    120,947
 Aggregate maturities of the Companys long term borrowings as of December 31, 2007 are
summarized as follows:
 2008
    
    $
    1,6402009
    
    
    1,6402010
    
    
    1,6402011
    
    
    1,6402012
    
    
    1,640Thereafter
    
    
    112,746$
    120,946
 All of the Companys senior notes can be prepaid at par, in total or partially, five years
after issuance as determined by the Company. The Companys senior unsecured notes contain
certain covenants with which the Company has complied with at December 31, 2007.
  8




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    Debt issuance costs related to each of the Companys senior unsecured notes were deferred and
are being amortized over the term of its respective senior note. Unamortized debt issuance
costs related to these senior unsecured notes as of December 31, 2007 and 2006 amounted to
$768 and $828, respectively, and are included within the other assets in the accompanying
balance sheets.The secured loan note payable previously described is guaranteed by a first position held by
the bank on the Companys and its subsidiaries land, building, and substantially all leasehold
improvements, as collateral for the term of the loans under a continuing general security
agreement. This secured loan contains certain covenants, which are customary in this type of
facility, including but not limited to, restrictions on the granting of certain liens,
limitations on acquisitions and limitation on changes in control. As of December 31, 2007, the
Company is in compliance with these covenants.The Company was also a party to another secured loan whose outstanding balance of $10,500 was
repaid upon its maturity on August 1, 2007.Interest expense on the above long-term borrowings amounted to $8,415, $8,545 and $2,018, in
the three-year period ended December 31, 2007.(6)
    
    Income TaxesThe Company is subject to Puerto Rico income taxes. Under Puerto Rico income tax law, the
Company is not allowed to file consolidated tax returns with its subsidiaries. As of December
31, 2007, tax years 2003 through 2006 are subject to examination by Puerto Rico taxing
authorities.On January 1, 2007, the Company adopted the provisions of FASB Interpretation No.48,
Accounting for Uncertainty in income Taxes an Interpretation of FASB statement No.109;no
adjustment was required upon the adoption of this accounting pronouncement.The income tax expense differs from the amount computed by applying the Puerto Rico statutory
income tax rate to net income before income taxes as a result of the following:
 2007
    
    
    2006
    
    
    2005Income tax expense at statutory
rate of 39%
    
    $
    22,990
    
    
    
    21,626
    
    
    
    11,201Increase (decrease) in taxes resulting from:Equity in net income of wholly
owned subsidiaries
    
    
    (22,612
    )
    
    
    (20,916
    )
    
    
    (10,765
    )Disallowances
    
    
    154
    
    
    
    37
    
    
    
    (68
    )Other, net
    
    
    (100
    )
    
    
    173
    
    
    
    (80
    )Total income tax expense
    
    $
    432
    
    
    
    920
    
    
    
    288
  9




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##### Table of Contents



TRIPLES MANAGEMENT CORPORATION
     2007
    
    
    2006Deferred tax assets:Employee benefits plan
    
    $
    388
    
    
    
    292Accumulated depreciation
    
    
    356
    
    
    
    379Liability for pension benefits
    
    
    344
    
    
    
    406Deferred compensation
    
    
    155
    
    
    
    121Postretirement benefits
    
    
    
    
    
    
    17Unrealized loss on securities available for sales
    
    
    
    
    
    
    60Gross deferred tax assets
    
    
    1,243
    
    
    
    1,275Deferred tax liabilities:Unamortized bond issue costs
    
    
    (196
    )
    
    
    (211
    )Postretirement benefits
    
    
    (54
    )
    
    
    Cash-flow hedges
    
    
    (37
    )
    
    
    (196
    )Unrealized loss on securities available for sales
    
    
    (7
    )
    
    
    Other
    
    
    (39
    )
    
    
    (76
    )Gross deferred tax liabilities
    
    
    (333
    )
    
    
    (483
    )Net deferred tax asset
    
    $
    910
    
    
    
    792
   10




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##### Table of Contents



TRIPLES MANAGEMENT CORPORATION
    (7)
    
    Transaction with Related Parties
  2007
    
    2006
    
    2005Rent charges to subsidiaries
    
    $
    7,023
    
    
    
    6,824
    
    
    
    6,588Interest charged to subsidiary on
notes receivable
    
    
    4,821
    
    
    
    5,620
    
    
    
    1,353
 (8)
    
    Contingencies
  (9)
    
    Business Combinations
 Business Combinations
  Current assets
    
    $
    219,747Property and equipment
    
    
    1,500Value of business acquired
    
    
    22,823Total assets acquired
    
    
    244,070Total liabilities assumed
    
    
    (205,874
    )Net assets acquired
    
    $
    38,196
  11




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##### Table of Contents



TRIPLES MANAGEMENT CORPORATION
    were based upon GA Lifes recent
experience in each of its major life and health insurance product lines. The amount of value
of business acquired is to be amortized, considering interest, over the anticipated
premium-paying period of the related policies in proportion to the ratio of annual premium
revenue to the expected total premium revenue to be received over the life of the policies.(10)
    
    Stockholders Equity
 (a)
    
    Common StockOn April 24, 2007, the Companys Board of Directors (the Board) authorized a
3,000-for-one stock split of its Class A common stock effected in the form of a dividend
of 2,999 shares for every one share outstanding. This stock split was effective on May 1,
2007 to all stockholders of record at the close of business on April 24, 2007. The total
number of authorized shares and par value per share were unchanged by this action. The
par value of the additional shares resulting from the stock split was reclassified from
additional paid in capital to common stock. All references to the number of shares and
per share amounts in these consolidated financial statements are presented after giving
retroactive effect to the stock split.In May 2007, the Company cancelled 24,000 director qualifying shares. Since February
2007, Board members are no longer required to hold qualifying shares to participate in
the Board of Directors of the Company.In December 7, 2007, the Company completed the initial public offering (IPO) of its Class
B common stock. In this public offering the Company sold 16,100,000 shares, 10,813,191 of
which were shares previously owned by selling shareholders. Proceeds received under this
public offering amounted to $70,279, net of $6,248 of expenses directly related to the
offering.For a period of five years after the completion of our IPO, subject to the extension or
shortening under certain circumstances, each holder of Class B common stock will benefit
from anti-dilution protections provided in our amended and restated articles of
incorporation.
 (b)
    
    Preferred StockAuthorized capital stock includes 100,000,000 of preferred stock with a par vale of $1.00
per share. As of December 31, 2007 and 2006, there are no issued and outstanding
preferred stock shares.(c)
    
    DividendsOn March 12, 2007, the Board declared a cash dividend of $2,448 distributed pro rata
among all of the Companys issued and outstanding Class A common shares, excluding those
shares issued to the representatives of the community that are members of the Board (the
qualifying shares). All stockholders of record as of the close of business on March 23,
2007, except those who only hold qualifying shares, received a dividend per share of
$0.09 for each share held on that date.On January 13, 2006, the Board declared a cash dividend of $6,231 distributed pro rata
among all of the Companys issued and outstanding Class A common shares, excluding
qualifying shares. All
 12




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TRIPLES MANAGEMENT CORPORATION
     13




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule III - Supplementary Insurance Information
For the years ended December 31, 2007, 2006 and 2005
 (Dollar amounts in thousands)
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization ofPolicy
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred PolicyAcquisition
    
    
    
    
    
    
    Liability for
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AcquisitionCosts and Value
    
    
    
    
    
    
    Future
    
    
    
    
    
    
    Policy Claims
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Costs and Value
    
    
    Other
    
    
    Netof Business
    
    
    Claim
    
    
    Policy
    
    
    Unearned
    
    
    and Benefits
    
    
    Premium
    
    
    Investment
    
    
    Claims
    
    
    of Business
    
    
    Operating
    
    
    PremiumsSegment
    
    Acquired
    
    
    Liabilities
    
    
    Benefits
    
    
    Premiums
    
    
    Payable
    
    
    Revenue
    
    
    Income
    
    
    Incurred
    
    
    Acquired
    
    
    Expenses
    
    
    Written2007Managed care
    
    $
    
    
    
    $
    201,604
    
    
    $
    
    
    
    $
    27,923
    
    
    $
    
    
    
    $
    1,301,792
    
    
    $
    19,673
    
    
    $
    1,133,241
    
    
    $
    
    
    
    $
    148,063
    
    
    $
    1,301,792Life insurance
    
    
    93,564
    
    
    
    35,485
    
    
    
    194,131
    
    
    
    2,931
    
    
    
    
    
    
    
    88,861
    
    
    
    15,016
    
    
    
    45,669
    
    
    
    16,033
    
    
    
    31,459
    
    
    
    88,861Property and casualty insurance
    
    
    23,675
    
    
    
    116,741
    
    
    
    
    
    
    
    101,745
    
    
    
    
    
    
    
    96,883
    
    
    
    11,849
    
    
    
    44,865
    
    
    
    28,917
    
    
    
    24,210
    
    
    
    101,747Other non-reportable segments, parent
company operations and net
consolidating entries.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,988
    )
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    (11,149
    )
    
    
    Total
    
    $
    117,239
    
    
    $
    353,830
    
    
    $
    194,131
    
    
    $
    132,599
    
    
    $
    
    
    
    $
    1,483,548
    
    
    $
    47,194
    
    
    $
    1,223,775
    
    
    $
    44,950
    
    
    $
    192,583
    
    
    $
    1,492,4002006Managed care
    
    $
    
    
    
    $
    185,249
    
    
    $
    
    
    
    $
    17,812
    
    
    $
    
    
    
    $
    1,339,807
    
    
    $
    18,852
    
    
    $
    1,173,622
    
    
    $
    
    
    
    $
    156,448
    
    
    $
    1,339,807Life insurance
    
    
    88,590
    
    
    
    35,164
    
    
    
    180,420
    
    
    
    1,960
    
    
    
    
    
    
    
    86,888
    
    
    
    13,749
    
    
    
    43,619
    
    
    
    16,339
    
    
    
    29,483
    
    
    
    84,752Property and casualty insurance
    
    
    22,827
    
    
    
    94,269
    
    
    
    
    
    
    
    93,810
    
    
    
    
    
    
    
    88,552
    
    
    
    9,589
    
    
    
    41,740
    
    
    
    25,118
    
    
    
    20,033
    
    
    
    93,252Other non-reportable segments, parent
company operations and net
consolidating entries.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,621
    )
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    (11,356
    )
    
    
    Total
    
    $
    111,417
    
    
    $
    314,682
    
    
    $
    180,420
    
    
    $
    113,582
    
    
    $
    
    
    
    $
    1,511,626
    
    
    $
    42,657
    
    
    $
    1,258,981
    
    
    $
    41,457
    
    
    $
    194,608
    
    
    $
    1,517,8112005Managed care
    
    $
    
    
    
    $
    178,978
    
    
    $
    
    
    
    $
    8,829
    
    
    $
    
    
    
    $
    1,279,511
    
    
    $
    16,849
    
    
    $
    1,155,878
    
    
    $
    
    
    
    $
    139,994
    
    
    $
    1,279,511Life insurance
    
    
    61,677
    
    
    
    22,478
    
    
    
    
    
    
    
    181
    
    
    
    118,635
    
    
    
    17,130
    
    
    
    3,018
    
    
    
    8,902
    
    
    
    264
    
    
    
    7,937
    
    
    
    17,130Property and casualty insurance
    
    
    19,891
    
    
    
    96,107
    
    
    
    
    
    
    
    86,693
    
    
    
    
    
    
    
    86,767
    
    
    
    8,706
    
    
    
    43,587
    
    
    
    23,137
    
    
    
    16,505
    
    
    
    91,883Other non-reportable segments, parent
company operations and net
consolidating entries.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,204
    )
    
    
    456
    
    
    
    
    
    
    
    
    
    
    
    (6,134
    )
    
    
    Total
    
    $
    81,568
    
    
    $
    297,563
    
    
    $
    
    
    
    $
    95,703
    
    
    $
    118,635
    
    
    $
    1,380,204
    
    
    $
    29,029
    
    
    $
    1,208,367
    
    
    $
    23,401
    
    
    $
    158,302
    
    
    $
    1,388,524




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule IV - Reinsurance
For the years ended December 31, 2007, 2006 and 2005
 (Dollar amounts in thousands)
 PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    Net
    
    
    AssumedAmount
    
    
    Companies (1)
    
    
    Companies
    
    
    Amount
    
    
    to Net2007Life insurance in force
    
    $
    10,321,749
    
    
    
    2,459,100
    
    
    
    
    
    
    
    7,862,649
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    97,700
    
    
    
    8,839
    
    
    
    
    
    
    
    88,861
    
    
    
    0.0
    %Accident and health insurance
    
    
    1,305,141
    
    
    
    3,349
    
    
    
    
    
    
    
    1,301,792
    
    
    
    0.0
    %Property and casualty insurance
    
    
    170,884
    
    
    
    69,137
    
    
    
    
    
    
    
    101,747
    
    
    
    0.0
    %Total premiums
    
    $
    1,573,725
    
    
    
    81,325
    
    
    
    
    
    
    
    1,492,400
    
    
    
    0.0
    %2006Life insurance in force
    
    $
    10,433,690
    
    
    
    6,957,946
    
    
    
    
    
    
    
    3,475,744
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    89,736
    
    
    
    9,397
    
    
    
    4,413
    
    
    
    84,752
    
    
    
    5.2
    %Accident and health insurance
    
    
    1,341,952
    
    
    
    2,145
    
    
    
    
    
    
    
    1,339,807
    
    
    
    0.0
    %Property and casualty insurance
    
    
    158,975
    
    
    
    65,723
    
    
    
    
    
    
    
    93,252
    
    
    
    0.0
    %Total premiums
    
    $
    1,590,663
    
    
    
    77,265
    
    
    
    4,413
    
    
    
    1,517,811
    
    
    
    0.3
    %2005Life insurance in force
    
    $
    4,443,620
    
    
    
    1,887,180
    
    
    
    
    
    
    
    2,556,440
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    24,195
    
    
    
    7,465
    
    
    
    400
    
    
    
    17,130
    
    
    
    2.3
    %Accident and health insurance
    
    
    1,285,805
    
    
    
    6,294
    
    
    
    
    
    
    
    1,279,511
    
    
    
    0.0
    %Property and casualty insurance
    
    
    151,127
    
    
    
    59,244
    
    
    
    
    
    
    
    91,883
    
    
    
    0.0
    %Total premiums
    
    $
    1,461,127
    
    
    
    73,003
    
    
    
    400
    
    
    
    1,388,524
    
    
    
    0.0
    %
 
 (1)
    
    Premiums ceded on the life insurance business are net of commission income on reinsurance
amounting to $258, $275 and $541 for the years ended December 31, 2007, 2006 and 2005.




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule V - Valuation and Qualifying Accounts
For the years ended December 31, 2007, 2006 and 2005
 (Dollar amounts in thousands)
 AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Costs and
    
    
    Other Accounts
    
    
    Deductions -
    
    
    End ofPeriod
    
    
    Expenses
    
    
    - Describe (1)
    
    
    Describe (2)
    
    
    Period2007Allowance for doubtful receivables
    
    $
    18,230
    
    
    
    6,661
    
    
    
    
    
    
    
    (8,966
    )
    
    
    15,9252006Allowance for doubtful receivables
    
    $
    12,240
    
    
    
    8,570
    
    
    
    1,380
    
    
    
    (3,960
    )
    
    
    18,2302005Allowance for doubtful receivables
    
    $
    11,173
    
    
    
    3,829
    
    
    
    
    
    
    
    (2,762
    )
    
    
    12,240
 
 (1)
    
    Represents amount of allowance for doubtful accounts acquired upon the purchase of GA Life
and other adjustments.(2)
    
    Deductions represent the write-off of accounts deemed uncollectible.