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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, 2008
 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 001-33865
 Triple-S Management Corporation
 Puerto Rico
(STATE OF INCORPORATION)
    
    66-0555678
(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 þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Triple-S Management Corporation
 FORM 10-K
   Part I
    
    
    
    3Item 1.
    
    Business
    
    3Item 1A.
    
    Risk Factors
    
    3Item 1B.
    
    Unresolved Staff Comments
    
    49Item 2.
    
    Properties
    
    49Item 3.
    
    Legal Proceedings
    
    50Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    52Part II
    
    
    
    52Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    52Item 6.
    
    Selected Financial Data
    
    55Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    56Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    83Item 8.
    
    Financial Statements and Supplementary Data
    
    87Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial
Disclosures.
    
    87Item 9A.
    
    Controls and Procedures
    
    88Item 9B.
    
    Other Information
    
    89Part III
    
    
    
    89Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    89Item 11.
    
    Executive Compensation.
    
    90Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    90Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    90Item 14.
    
    Principal Accounting Fees and Services
    
    90Part IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    90SIGNATURES
    
    94EX-10.8EX-10.17EX-31.1EX-31.2EX-32.1EX-32.2
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Part I
 
 Item 1. Business.
 General Description of Business and Recent Developments
         Page 3




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Industry Overview
 Managed Care
   .
 Page 4




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Life Insurance
  Property and Casualty Insurance Segment
   Puerto Ricos Economy
      Page 5




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Products and Services
 Managed Care
    Health Maintenance Organization (HMO).
 Preferred Provider Organization (PPO)
 BlueCard.
 Medicare Supplement
 Prescription Drug Benefit Plans.
 Page 6




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Government Services. Medicare
Services (CMS) of the U.S. Department of Health and Human Services (HHS)
 Administrative Services Only.
 Life Insurance
  Property and Casualty Insurance
  Percentage of Total SegmentRevenues for the Year EndedLine of Business
    
    December 31, 2008Commercial multi-peril
    
    
    45
    %Auto
    
    
    22Dwelling and commercial property mono-line
    
    
    19Other
    
    
    14
  Page 7




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Marketing and Distribution
  Branding and Marketing
  Distribution
 Managed Care Segment.
  Life Insurance Segment.
 Page 8




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Property and Casualty Insurance Segment.
 Customers
 Managed Care
  Enrollment at
    
    Percentage ofMarket Sector
    
    December 31, 2008
    
    Total EnrollmentCommercial
    
    
    592,723
    
    
    
    49.6
    %Reform
    
    
    527,447
    
    
    
    44.1Medicare Advantage
    
    
    75,280
    
    
    
    6.3Total
    
    
    1,195,450
    
    
    
    100.0
    %
 Commercial Sector
  Corporate Accounts.
 U.S. Federal Government Employees.
 Individual Accounts.
 Local Government Employees.
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Medicare Supplement.
 Reform Sector
      Medicare Advantage Sector
  Page 10




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Medicare Optimo Medicare Selecto Medicare Platino
 FarmaMed
 Life Insurance
  Property and Casualty Insurance
  Underwriting and Pricing
 Managed Care
     Life Insurance
  Page 11




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Property and Casualty Insurance
   Quality Initiatives and Medical Management
    Page 12




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Information Systems
     Provider Arrangements
  Medicare Optimo
   Page 13




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Hospitals
 Physicians.
  Subcontracting.
  Competition
  Managed Care
    Page 14




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Life Insurance
  Property & Casualty Insurance
   Blue Shield License
    Page 15




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
    
    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.
      BlueCard.
 Claim Liabilities
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Investments
      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
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
    
    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 provide greater access to coverage for uninsured and under-insured
populations;
    
    initiatives to increase healthcare regulation, including enhanced efforts to expand the
tort liability improve quality of health plans care;
    
    Reform and Medicare reform legislation;
    
    local government plans and initiatives;
    
    Reform and Medicare reform legislation; and
    
    increased government concerns regarding fraud and abuse.; and
    
    initiatives to increase health care regulation, including efforts to expand the tort
liability of health plans.
   
    
    licensure;
    
    
    
    transactions resulting in a change of control;
    
    policy forms, including plan design and
disclosures;
    
    
    
    member rights and responsibilities;
    
    premium rates and rating methodologies;
    
    
    
    fraud and abuse;
    
    underwriting rules and procedures;
    
    
    
    sales and marketing activities;
    
    benefit mandates;
    
    
    
    quality assurance procedures;
    
    eligibility requirements;
    
    
    
    privacy of medical and other information and
permitted disclosures;
    
    security of electronically transmitted
individually identifiable health
information;
    
    
    
    rates of payment to providers of care;
    
    geographic service areas;
    
    
    
    surcharges on payments to providers;
    
    market conduct;
    
    
    
    provider contract forms;
    
    delegation of financial risk and other
financial
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
    
    utilization review;
    
    
    
    arrangements in rates paid to
providers of care;
    
    payment of claims, including timeliness
and accuracy of payment;
    
    
    
    agent licensing;
    
    special rules in contracts to administer
government programs;
    
    
    
    financial condition (including reserves);
    
    transactions with affiliated entities;
    
    
    
    reinsurance;
    
    limitations on the ability to pay
dividends;
    
    
    
    issuance of new shares of capital stock;
    
    rates of payment to providers of care;
    
    
    
    corporate governance; and
    
    permissible investments.
  Puerto Rico Insurance Laws
     Page 19




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Privacy of Financial and Health Information
  Managed Care Provider Services
  Capital and Reserve Requirements
    Page 20




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Dividend Restrictions
   Page 21




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Guaranty Fund Assessments
  Federal Regulation
 The Medicare Advantage and Medicare Part D Programs
    .
  Page 22




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The 2003 Medicare Modernization Act
  
  Page 23




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Dual-Eligible Beneficiaries.
 Sales and Marketing.
 Annual Enrollment and Lock-in
 Page 24




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Fiscal Intermediary.
 Fraud and Abuse Laws.
 Federal False Claims Act.
 HIPAA and Gramm-Leach-Bliley Act
   Page 25




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Employee Retirement Income Security Act of 1974
  Other Government Programs
  Legislative and Regulatory Initiatives
 Puerto Rico Initiatives
  Page 26




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Federal Initiatives
    Page 27




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.
 Financial Information About Segments
  Employees
  Available Information
 www.sec.gov
 Special Note Regarding Forward-Looking Statements
  Page 28




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
    
    trends in health care costs and utilization rates;
    
    ability to secure sufficient premium rate increases;
    
    competitor pricing below market trends of increasing costs;
    
    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
  Page 29




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Risks Relating to our Capital Stock
 Certain of our current and former providers may bring materially dilutive claims against us.
     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.
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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.
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A reduction in the enrollment in our managed care programs could have an adverse effect on our
business and profitability.
  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, 2008, 2007 and 2006, the Reform program has
accounted for 20.1%, 22.1% and 30.2%, respectively , of our consolidated premiums earned,
net. During the 2008 period, we were the sole Reform provider in two of the eight Reform
regions in Puerto Rico on a fully insured basis. One region was awarded to us on an ASO
basis for a one year period beginning November 1, 2008. 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, except for
the Metro-North region contract. 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. During the year ended December 31, 2006, this region accounted for
10.7% of our consolidated premiums earned, net and 7.4% of our consolidated operating
income. 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, 2008, 2007 and 2006, contracts with CMS represented
25.9%, 17.2% and 11.3% of our consolidated premiums earned, net, respectively, and 12.4%,
34.6% and 46.0% 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 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, 2008, 2007 and 2006 premiums generated under this contract represented 7.3%,
8.2% and 7.5% of our consolidated premiums earned, net, respectively. The operating income
generated under this contract represented 1.1% of our consolidated operating income, during
each of the years ended December 31, 2008, 2007 and 2006.
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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.
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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.
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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.
  Significant competition could negatively affect our ability to maintain or increase our
profitability.
 Managed Care
   Complementary Products
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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 securities and credit markets recently have been experiencing extreme volatility and
disruption.
   
    
    Significantly reducing the value of the debt securities we hold in our investment
portfolio, and creating net realized capital losses that reduces our operating results
and/or net unrealized capital losses that reduce our shareholders equity.
    
    Reducing interest rates on high quality short-term debt securities and thereby
materially reducing our net investment income and operating results.
    
    Making it more difficult to value certain of our investment securities, for example if
trading becomes less frequent, which could lead to significant period-to-period changes in
our estimates of the fair values of those securities and cause period-to-period volatility
in our operating results and shareholders equity.
    
    Reducing our ability to issue other securities.
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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.
  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.
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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;
    
    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.
  Page 42




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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.
  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 provide greater access to coverage for uninsured and under-insured
populations;
    
    enhanced efforts to improve quality of health care;
    
    Reform and Medicare reform legislation;
    
    local government plans and initiatives;
    
    increased government concerns regarding fraud and abuse; and
    
    initiatives to increase health care regulation, including efforts to expand the tort
liability of health plans.
  Page 44




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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;
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
    
    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 and the payment system for the Medicare
Part D established by the MMA could reduce our profitability.
 Medicare Selecto Medicare Optimo
    Page 46




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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.
   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
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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;
    
    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
   Page 49




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Item 3. Legal Proceedings.
    Hau et al Litigation (formerly known as Jordan et al)
  Thomas Litigation
  Page 50




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Colón Litigation
  Puerto Rico Center for Municipal Revenue Collection
   Dentists Association Litigation
    Claims by Heirs of Former Shareholders
  Page 51




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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
    
    Low2007Fourth quarter (beginning December 7, 2007)
    
    $
    21.20
    
    
    $
    14.782008First quarter
    
    $
    21.69
    
    
    $
    16.83Second quarter
    
    
    19.94
    
    
    
    16.34Third quarter
    
    
    18.05
    
    
    
    15.19Fourth quarter
    
    
    16.43
    
    
    
    6.55
  Holders
  Dividends
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Securities Authorized for Issuance Under Equity Compensation Plan
  Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer
  Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of SharesPart of Publicly
    
    that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced
    
    Purchased Under the(Dollar amounts in millions, except per share data)
    
    Shares Purchased
    
    per Share
    
    Programs1
    
    ProgramsDecember 1, 2008 to
December 31, 2008
    
    
    1,181,500
    
    
    $
    11.75
    
    
    
    1,181,500
    
    
    $
    26.1
 
 1
    
    In October 2008, the Board of Directors authorized a $40.0 million share repurchase
program, which commenced on December 8, 2008. Performance Graph
   Page 53




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Comparison of cumulative return of Class B Common Stock




12/7/2007
$100.00

12/31/2007
$133.40
$97.59
$100.38

3/31/2008
$116.50
$87.91
$65.25

6/30/2008
$107.92
$85.07
$58.66

9/30/2008
$107.52
$77.52
$61.83

12/31/2008
$75.91
$60.03
$45.37 Page 54




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Item 6. Selected Financial Data.
 Statement of Earnings Data
 2008
    
    2007
    
    2006 (1)
    
    2005
    
    2004(Dollar amounts in millions, except per share data)Years ended December 31,Premiums earned, net
    
    $
    1,695.5
    
    
    
    1,483.6
    
    
    
    1,511.6
    
    
    
    1,380.2
    
    
    
    1,299.0Administrative service fees
    
    
    19.2
    
    
    
    14.0
    
    
    
    14.1
    
    
    
    14.4
    
    
    
    9.2Net investment income
    
    
    56.2
    
    
    
    47.2
    
    
    
    42.7
    
    
    
    29.1
    
    
    
    26.8Total operating revenues
    
    
    1,770.9
    
    
    
    1,544.8
    
    
    
    1,568.4
    
    
    
    1,423.7
    
    
    
    1,335.0Net realized investments gains (losses)
    
    
    (13.9
    )
    
    
    5.9
    
    
    
    0.8
    
    
    
    7.2
    
    
    
    11.0Net unrealized investment gain (loss) on
trading securities
    
    
    (21.1
    )
    
    
    (4.1
    )
    
    
    7.7
    
    
    
    (4.7
    )
    
    
    3.0Other income (loss), net
    
    
    (2.5
    )
    
    
    3.2
    
    
    
    2.3
    
    
    
    3.7
    
    
    
    3.4Total revenues
    
    
    1,733.4
    
    
    
    1,549.8
    
    
    
    1,579.2
    
    
    
    1,429.9
    
    
    
    1,352.4Benefits and expenses:Claims incurred
    
    
    1,434.9
    
    
    
    1,223.8
    
    
    
    1,259.0
    
    
    
    1,208.3
    
    
    
    1,115.8Operating expenses
    
    
    251.9
    
    
    
    237.5
    
    
    
    236.1
    
    
    
    181.7
    
    
    
    171.9Total operating costs
    
    
    1,686.8
    
    
    
    1,461.3
    
    
    
    1,495.1
    
    
    
    1,390.0
    
    
    
    1,287.7Interest expense
    
    
    14.7
    
    
    
    15.9
    
    
    
    16.6
    
    
    
    7.6
    
    
    
    4.6Total benefits and expenses
    
    
    1,701.5
    
    
    
    1,477.2
    
    
    
    1,511.7
    
    
    
    1,397.6
    
    
    
    1,292.3Income before taxes
    
    
    31.9
    
    
    
    72.6
    
    
    
    67.5
    
    
    
    32.3
    
    
    
    60.1Income tax expense
    
    
    7.1
    
    
    
    14.1
    
    
    
    13.0
    
    
    
    3.9
    
    
    
    14.3Net income
    
    
    24.8
    
    
    
    58.5
    
    
    
    54.5
    
    
    
    28.4
    
    
    
    45.8Basic net income per share (2):
    
    $
    0.77
    
    
    
    2.15
    
    
    
    2.04
    
    
    
    1.06
    
    
    
    1.71Diluted net income per share:
    
    $
    0.77
    
    
    
    2.15
    
    
    
    2.04
    
    
    
    1.06
    
    
    
    1.71Dividend declared per common
share (3):
    
    $
    
    
    
    
    0.82
    
    
    
    0.23
    
    
    
    
    
    
    
    
 Balance Sheet Data
 December 31,
    
    2008
    
    2007
    
    2006 (1)
    
    2005
    
    2004Cash and cash equivalents
    
    $
    46.1
    
    
    
    240.2
    
    
    
    81.6
    
    
    
    49.0
    
    
    
    35.1Total assets
    
    $
    1,548.5
    
    
    
    1,659.5
    
    
    
    1,345.5
    
    
    
    1,137.5
    
    
    
    919.7Long-term borrowings
    
    $
    169.3
    
    
    
    170.9
    
    
    
    183.1
    
    
    
    150.6
    
    
    
    95.7Total stockholders equity
    
    $
    485.9
    
    
    
    482.5
    
    
    
    342.6
    
    
    
    308.7
    
    
    
    301.4
 Page 55




---



##### Table of Contents



Additional Managed Care Data(4)
 2008
    
    2007
    
    2006 (1)
    
    2005
    
    2004Additional Managed Care Data (4)Years ended December 31,Medical loss ratio
    
    
    88.9
    %
    
    
    87.1
    %
    
    
    87.6
    %
    
    
    90.3
    %
    
    
    88.3
    %Operating expense ratio
    
    
    10.5
    %
    
    
    11.2
    %
    
    
    11.5
    %
    
    
    10.8
    %
    
    
    10.8
    %Medical membership (period end)
    
    
    1,195,450
    
    
    
    977,190
    
    
    
    979,506
    
    
    
    1,252,649
    
    
    
    1,236,108
 (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 18 to the audited consolidated
financial statements for the years ended December 31, 2008, 2007 and 2006.(2)
    
    Further details of the calculation of basic earnings per share are set forth in notes 2 and
22 of the audited financial consolidated financial statements for the years ended December 31,
2008, 2007 and 2006.(3)
    
    Shareowners holding qualifying shares were excluded from dividend payment. See note 19 of
the audited financial consolidated financial statements for the years ended December 31, 2008,
2007 and 2006.(4)
    
    Does not reflect inter-segment eliminations.
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
    Page 56




---



##### Table of Contents



Years ended December 31,(Dollar amounts in millions)
    
    2008
    
    2007
    
    2006Premiums earned, net:Managed care
    
    $
    1,513.0
    
    
    
    1,301.8
    
    
    
    1,339.8Life insurance
    
    
    92.8
    
    
    
    88.9
    
    
    
    86.9Property and casualty insurance
    
    
    93.8
    
    
    
    96.9
    
    
    
    88.5Intersegment premiums earned
    
    
    (4.1
    )
    
    
    (4.0
    )
    
    
    (3.6
    )Consolidated premiums earned, net
    
    $
    1,695.5
    
    
    
    1,483.6
    
    
    
    1,511.6Administrative service fees:Managed care
    
    $
    22.5
    
    
    
    17.2
    
    
    
    16.9Intersegment premiums earned
    
    
    (3.3
    )
    
    
    (3.2
    )
    
    
    (2.8
    )Consolidated administrative service fees
    
    $
    19.2
    
    
    
    14.0
    
    
    
    14.1Operating income:Managed care
    
    $
    52.6
    
    
    
    57.4
    
    
    
    45.5Life insurance
    
    
    12.5
    
    
    
    10.7
    
    
    
    11.2Property and casualty insurance
    
    
    13.1
    
    
    
    10.7
    
    
    
    11.2Intersegment premiums earned
    
    
    5.9
    
    
    
    4.7
    
    
    
    5.4Consolidated operating income
    
    $
    84.1
    
    
    
    83.5
    
    
    
    73.3
  Results of Operations
 Revenue
 General.
 Page 57




---



##### Table of Contents



Managed Care Premium Revenue.
   Administrative Service Fees.
 Other Premium Revenue.
 Investment Income and Other Income.
 Expenses
 Claims Incurred.
  Page 58




---



##### Table of Contents



Operating Expenses.
 Membership
   Medicare Selecto Medicare Optimo FarmaMed
  As of December 31,2008
    
    2007
    
    2006Commercial (1)
    
    
    592,723
    
    
    
    574,251
    
    
    
    580,850Reform(2)
    
    
    527,447
    
    
    
    353,694
    
    
    
    357,515Medicare (3)
    
    
    75,280
    
    
    
    49,245
    
    
    
    41,141Total
    
    
    1,195,450
    
    
    
    977,190
    
    
    
    979,506
 (1)
    
    Commercial membership includes corporate accounts, self-funded employers, individual
accounts, Medicare Supplement, Federal government employees and local government employees.(2)
    
    Includes rated and self-funded members.(3)
    
    Includes Medicare Advantage as well as stand-alone PDP plan membership.
 Page 59




---



##### Table of Contents



Consolidated Operating Results
  (Dollar amounts in millions)
    
    2008
    
    2007
    
    2006Years ended December 31,Revenues:Premiums earned, net
    
    $
    1,695.5
    
    
    
    1,483.6
    
    
    
    1,511.6Administrative service fees
    
    
    19.2
    
    
    
    14.0
    
    
    
    14.1Net investment income
    
    
    56.2
    
    
    
    47.2
    
    
    
    42.7Total operating revenues
    
    
    1,770.9
    
    
    
    1,544.8
    
    
    
    1,568.4Net realized investment (losses) gains
    
    
    (13.9
    )
    
    
    5.9
    
    
    
    0.8Net unrealized investment gain (loss) on trading
securities
    
    
    (21.1
    )
    
    
    (4.1
    )
    
    
    7.7Other income (expense), net
    
    
    (2.5
    )
    
    
    3.2
    
    
    
    2.3Total revenues
    
    
    1,733.4
    
    
    
    1,549.8
    
    
    
    1,579.2Benefits and expenses:Claims incurred
    
    
    1,434.9
    
    
    
    1,223.8
    
    
    
    1,259.0Operating expenses
    
    
    251.9
    
    
    
    237.5
    
    
    
    236.1Total operating costs
    
    
    1,686.8
    
    
    
    1,461.3
    
    
    
    1,495.1Interest expense
    
    
    14.7
    
    
    
    15.9
    
    
    
    16.6Total benefits and expenses
    
    
    1,701.5
    
    
    
    1,477.2
    
    
    
    1,511.7Income before taxes
    
    
    31.9
    
    
    
    72.6
    
    
    
    67.5Income tax expense
    
    
    7.1
    
    
    
    14.1
    
    
    
    13.0Net income
    
    $
    24.8
    
    
    
    58.5
    
    
    
    54.5
 Year ended December 31, 2008 compared with the year ended December 31, 2007
 Operating Revenues
   Net Realized Investment Losses
  Net Unrealized Loss on Trading Securities and Other Income (Expense), Net
  Page 60




---



##### Table of Contents



Claims Incurred
  Operating Expenses
  Income tax expense
  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
  Page 61




---



##### Table of Contents



Claims Incurred
  Operating Expenses
  Income tax expense
  Managed Care Operating Results
  Page 62




---



##### Table of Contents



(Dollar amounts in millions)
    
    2008
    
    2007
    
    2006Operating revenues:Medical premiums earned, net:Commercial
    
    $
    734.2
    
    
    
    718.7
    
    
    
    713.2Reform
    
    
    340.1
    
    
    
    327.5
    
    
    
    455.8Medicare
    
    
    438.7
    
    
    
    255.6
    
    
    
    170.8Medical premiums earned, net
    
    
    1,513.0
    
    
    
    1,301.8
    
    
    
    1,339.8Administrative service fees
    
    
    22.5
    
    
    
    17.2
    
    
    
    16.9Net investment income
    
    
    23.1
    
    
    
    19.7
    
    
    
    18.8Total operating revenues
    
    
    1,558.6
    
    
    
    1,338.7
    
    
    
    1,375.5Medical operating costs:Medical claims incurred
    
    
    1,345.4
    
    
    
    1,133.2
    
    
    
    1,173.6Medical operating expenses
    
    
    160.6
    
    
    
    148.1
    
    
    
    156.4Total medical operating costs
    
    
    1,506.0
    
    
    
    1,281.3
    
    
    
    1,330.0Medical operating income
    
    $
    52.6
    
    
    
    57.4
    
    
    
    45.5Additional data:Member months enrollment:Commercial:Fully-insured
    
    
    4,947,854
    
    
    
    4,983,980
    
    
    
    5,272,987Self-funded
    
    
    2,049,140
    
    
    
    1,930,850
    
    
    
    1,861,833Total Commercial member months
    
    
    6,996,994
    
    
    
    6,914,830
    
    
    
    7,134,820Reform:Fully-insured
    
    
    4,101,905
    
    
    
    4,262,248
    
    
    
    6,484,270Self-funded
    
    
    376,975
    
    
    
    
    
    
    
    Total Reform member months
    
    
    4,478,880
    
    
    
    4,262,248
    
    
    
    6,484,270Medicare:Medicare Advantange
    
    
    727,274
    
    
    
    416,512
    
    
    
    281,274Stand-alone PDP
    
    
    127,658
    
    
    
    137,528
    
    
    
    180,444Total Medicare member months
    
    
    854,932
    
    
    
    554,040
    
    
    
    461,718Total member months
    
    
    12,330,806
    
    
    
    11,731,118
    
    
    
    14,080,808Medical loss ratio
    
    
    88.9
    %
    
    
    87.0
    %
    
    
    87.6
    %Operating expense ratio
    
    
    10.5
    %
    
    
    11.2
    %
    
    
    11.5
    %
 Year ended December 31, 2008 compared with the year ended December 31, 2007
 Medical Operating Revenues
  
    
    Medical premiums generated by the Medicare business increased by $183.1 million, or
71.6%, to $438.7 million, primarily due to an increase in member months enrollment of
300,892, or 54.3%, and a change in the mix of products. The increase in member months is
the net result of an increase of 310,762, or 74.6%, in the membership of our Medicare
Advantage products, mainly in dual eligible members, and a decrease of 9,870, or 7.2%, in
the membership of our PDP product.
    
    Medical premiums generated by the Commercial business increased by $15.5 million, or
2.2%, to $734.2 million during 2008. This fluctuation is primarily the net result of an
increase in the average premium rates of approximately 4.4% offset in part by a decrease in
fully-insured member months enrollment of 36,126 or 0.7%.
    
    Medical premiums earned of the Reform business increased by $12.6 million, or 3.8%, to
$340.1 million during 2008. This fluctuation is primarily due to the increases in premium
rates of approximately 10% effective on July 1, 2008 and during
2007 of 8.6%, partially
offset by a decrease in member months enrollment of 160,343, or 3.8%.
 Page 63




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##### Table of Contents



Medical Claims Incurred
  
    
    The medical claims incurred of the Medicare business increased by $190.0 million during
the 2008 period mainly as the result of the increase in member months and a higher MLR by
10.0 percentage points. The higher MLR is in part due to the effect of prior period reserve
developments and to higher utilization trends. Excluding the effect of prior period reserve
developments in the 2007 and 2008 periods, the MLR increased by 7.1 percentage points. The
increase in utilization trends is primarily the result of higher utilization in outpatient
visits and drug benefits for the dual eligible product. The higher MLR is also the result
of a change in enrollment mix between dual and non-dual eligible members within the
business. Member months during the year ended December 31, 2008 have a higher concentration
of dual eligible members than the prior year. Dual eligible members have higher utilization
and MLR than non-dual eligible members.
    
    The medical claims incurred of the Reform business increased by $16.9 million during the
2008 period and its MLR increased by 1.6 percentage points during the year ended December
31, 2008. The higher MLR is primarily the effect of prior period reserve developments and
the retroactive premium rate increase received by this business during June 2007 amounting
to $2.8 million corresponding to 2006. Excluding the effect of prior period reserve
developments in the 2007 and 2008 periods and considering the effect of this retroactive
premium rate increase, the MLR actually decreased by 1.5 percentage points during the 2008
period.
    
    The medical claims incurred of the Commercial business increased by $5.3 million during
the 2008 period and its MLR decreased by 1.2 percentage points during the year ended
December 31, 2008. The lower MLR is primarily the result of the re-pricing or termination
of less profitable groups, cost containment initiatives and lower utilization trends in drug
and medical services.
 Medical Operating Expenses
  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 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.
 Page 64




---



##### Table of Contents




    
    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
  Page 65




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##### Table of Contents



Life Insurance Operating Results
 (Dollar amounts in millions)
    
    2008
    
    2007
    
    2006Years ended December 31,Operating revenues:Premiums earned, netPremiums earned, net
    
    $
    100.1
    
    
    
    97.4
    
    
    
    91.9Premiums earned ceded
    
    
    (7.6
    )
    
    
    (8.8
    )
    
    
    (9.7
    )Assumed premiums earned
    
    
    
    
    
    
    
    
    
    
    4.4Net premiums earned
    
    
    92.5
    
    
    
    88.6
    
    
    
    86.6Commission income on reinsurance
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Premiums earned, net
    
    
    92.8
    
    
    
    88.9
    
    
    
    86.9Net investment income
    
    
    16.5
    
    
    
    15.0
    
    
    
    13.7Total operating revenues
    
    
    109.3
    
    
    
    103.9
    
    
    
    100.6Operating costs:Policy benefits and claims incurred
    
    
    47.4
    
    
    
    45.7
    
    
    
    43.6Underwriting and other expenses
    
    
    49.4
    
    
    
    47.5
    
    
    
    45.8Total operating costs
    
    
    96.8
    
    
    
    93.2
    
    
    
    89.4Operating income
    
    $
    12.5
    
    
    
    10.7
    
    
    
    11.2Additional data:Loss ratio
    
    
    51.1
    %
    
    
    51.4
    %
    
    
    50.2
    %Expense ratio
    
    
    53.2
    %
    
    
    53.4
    %
    
    
    52.7
    %
 Year ended December 31, 2008 compared with the year ended December 31, 2007
 Operating Revenues
  Policy Benefits and Claims Incurred
  Underwriting and Other Expenses
  Year ended December 31, 2007 compared with the year ended December 31, 2006
 Operating Revenues
  Page 66




---



##### Table of Contents




    
    The premiums earned generated by the segment increased by $5.5 million, or 6.0%, to $97.4
million during the 2007 period. Premiums earned by GA Life during the month of January 2006
were $6.6 million, which are not reflected in our consolidated financial statements.
Eliminating the effect of GA Lifes premiums for the month of January 2006, the premiums
earned in the segment decreased by $1.1 million primarily the result of lower sales in the
Group Disability and Group Life businesses offset in part by an increase in the premiums of
the Individual Life and Cancer businesses.
    
    On December 22, 2005, we entered into a coinsurance funds withheld agreement with GA Life
pursuant to which our former subsidiary SVTS assumed 69% of all the business written by GA
Life (prior to its acquisition by us) as of and after the effective date of the agreement.
Our results reflect premiums assumed under this agreement of $4.4 million, which represents
our share of premiums for the month of January 2006 under the coinsurance agreement. The
effects of the reinsurance transactions corresponding to this agreement were eliminated for
consolidated financial statement purposes for the period following January 31, 2006.
 Policy Benefits and Claims Incurred
  Underwriting and Other Expenses
  Page 67




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##### Table of Contents



Property and Casualty Insurance Operating Results
 (Dollar amounts in millions)
    
    2008
    
    2007
    
    2006Years ended December 31,Operating revenues:Premiums earned, net:Premiums written
    
    $
    168.0
    
    
    
    170.9
    
    
    
    158.9Premiums ceded
    
    
    (72.1
    )
    
    
    (69.1
    )
    
    
    (65.7
    )Change in unearned premiums
    
    
    (2.1
    )
    
    
    (4.9
    )
    
    
    (4.7
    )Premiums earned, net
    
    
    93.8
    
    
    
    96.9
    
    
    
    88.5Net investment income
    
    
    12.5
    
    
    
    11.8
    
    
    
    9.6Total operating revenues
    
    
    106.3
    
    
    
    108.7
    
    
    
    98.1Operating costs:Claims incurred
    
    
    42.1
    
    
    
    44.9
    
    
    
    41.7Underwriting and other operating expenses
    
    
    51.1
    
    
    
    53.1
    
    
    
    45.2Total operating costs
    
    
    93.2
    
    
    
    98.0
    
    
    
    86.9Operating income
    
    $
    13.1
    
    
    
    10.7
    
    
    
    11.2Additional data:Loss ratio
    
    
    44.9
    %
    
    
    46.3
    %
    
    
    47.1
    %Expense ratio
    
    
    54.5
    %
    
    
    54.8
    %
    
    
    51.1
    %Combined ratio
    
    
    99.4
    %
    
    
    101.1
    %
    
    
    98.2
    %
 Page 68




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##### Table of Contents



Year ended December 31, 2008 compared with the year ended December 31, 2007
 Operating Revenues
    Claims Incurred
  Underwriting and Other Operating Expenses
  Year ended December 31, 2007 compared with the year ended December 31, 2006
 Operating Revenues
   Claims Incurred
  Page 69




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##### Table of Contents



Underwriting and Other Operating Expenses
  Liquidity and Capital Resources
 Cash Flows
  (dollar amounts in millions)
    
    2008
    
    2007
    
    2006Years ended December 31,Sources of cash:Cash provided by operating activities
    
    $
    
    
    
    
    115.9
    
    
    
    75.6Net proceeds from investments sold
    
    
    
    
    
    
    1.0
    
    
    
    Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    35.0Proceeds from annuity contracts
    
    
    8.0
    
    
    
    6.1
    
    
    
    6.0Net proceeds from initial public offering
    
    
    
    
    
    
    70.3
    
    
    
    Other
    
    
    18.3
    
    
    
    
    
    
    
    Total sources of cash
    
    
    26.3
    
    
    
    193.3
    
    
    
    116.6Uses of cash:Cash used in operating activities
    
    
    (3.0
    )
    
    
    
    
    
    
    Net purchases of investment securities
    
    
    (178.6
    )
    
    
    
    
    
    
    (9.3
    )Acquisition of GA Life, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (27.8
    )Capital expenditures
    
    
    (22.4
    )
    
    
    (9.4
    )
    
    
    (11.9
    )Dividends
    
    
    
    
    
    
    (2.4
    )
    
    
    (6.2
    )Payments of long-term borrowings
    
    
    (1.6
    )
    
    
    (12.1
    )
    
    
    (2.5
    )Payments of short-term borrowings
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Surrenders of annuity contracts
    
    
    (7.1
    )
    
    
    (7.4
    )
    
    
    (16.0
    )Repurchase and retirement of common stock
    
    
    (7.6
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (3.4
    )
    
    
    (8.7
    )Total uses of cash
    
    
    (220.3
    )
    
    
    (34.7
    )
    
    
    (84.1
    )Net increase (decrease) in cash and cash equivalents
    
    $
    (194.0
    )
    
    
    158.6
    
    
    
    32.5
 Year ended December 31, 2008 compared to year ended December 31, 2007
   Page 70




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##### Table of Contents



Year ended December 31, 2007 compared to year ended December 31, 2006
        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.
 Page 71




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##### Table of Contents




    
    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 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
   Page 72




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##### Table of Contents




    
    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, 2008,
we had $110.1 million in unearned premiums.
    
    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, 2008, our policyholder deposits had a carrying amount
of $48.7 million.
    
    Other long-term liabilities  Due to the indeterminate nature of their cash outflows,
$64.5 million of other long-term liabilities are not reflected in the following table,
including $44.1 million of liability for the pension benefits and $11.2 million in
liabilities to the Federal Employees Health Benefits Plan Program.
 Contractual obligations by year(Dollar amounts in millions)
    
    Total
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterLong-term borrowings (1)
    
    $
    283.4
    
    
    
    11.7
    
    
    
    11.6
    
    
    
    11.6
    
    
    
    11.5
    
    
    
    11.5
    
    
    
    225.5Operating leases
    
    
    16.9
    
    
    
    6.0
    
    
    
    4.4
    
    
    
    2.7
    
    
    
    1.2
    
    
    
    0.5
    
    
    
    2.1Purchase obligations (2)
    
    
    151.6
    
    
    
    148.5
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    Claim liabilities (3)
    
    
    293.3
    
    
    
    206.2
    
    
    
    52.3
    
    
    
    11.3
    
    
    
    10.5
    
    
    
    5.5
    
    
    
    7.5Estimated obligation for future
policy benefits (4)
    
    
    994.9
    
    
    
    70.2
    
    
    
    61.3
    
    
    
    57.8
    
    
    
    55.0
    
    
    
    52.6
    
    
    
    698.0$
    1,740.1
    
    
    
    442.6
    
    
    
    130.9
    
    
    
    84.5
    
    
    
    78.7
    
    
    
    70.3
    
    
    
    933.1
 (1)
    
    As of December 31, 2008, 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, 2008. 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 $7 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, 2008.
The expected claims payments are an estimate and may differ materially from the actual claims
payments made by us in the future. Also, claim liabilities are presented gross, and thus do
not reflect the effects of reinsurance under which $30.4 million of reserves had been ceded at
December 31, 2008.(4)
    
    Our life insurance segment establishes, and carries as liabilities, actuarially determined
amounts that are calculated to meet its policy obligations when a policy matures or
surrenders, an insured dies or
 Page 73




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##### Table of Contents



Off-Balance Sheet Arrangements
  Restriction on Certain Payments by the Corporations Subsidiaries
      Solvency Regulation
  Page 74




---



##### Table of Contents



Other Contingencies
 Legal Proceedings
   Guarantee Associations
    Critical Accounting Estimates
  Page 75




---



##### Table of Contents



Claim Liabilities
  Property andManaged
    
    
    Life
    
    
    Casualty(Dollar amounts in millions)
    
    Care
    
    
    Insurance
    
    
    Insurance
    
    
    ConsolidatedClaims processed and incomplete (1)
    
    $
    78.2
    
    
    
    31.3
    
    
    
    46.6
    
    
    
    156.1Unreported losses (2)
    
    
    119.3
    
    
    
    8.3
    
    
    
    22.5
    
    
    
    150.1Unpaid loss-adjustment expenses (3)
    
    
    4.4
    
    
    
    0.3
    
    
    
    12.8
    
    
    
    17.5$
    201.9
    
    
    
    39.9
    
    
    
    81.9
    
    
    
    323.7
 (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.(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



Page 77




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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)%
    
    $11.2
    
    (0.6)%
    
    $6.0(0.4)%
    
    7.5
    
    (0.4)%
    
    4.0(0.2)%
    
    3.7
    
    (0.2)%
    
    2.00.2%
    
    (3.7)
    
    0.2%
    
    (2.0)0.4%
    
    (7.4)
    
    0.4%
    
    (4.0)0.6%
    
    (11.0)
    
    0.6%
    
    (6.0)
 
 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.    (Dollar amounts in millions
    
    2007
    
    
    2006
    
    
    2005Years ended December 31,Total incurred claims:As reported (1)
    
    $
    1,156.8
    
    
    
    1,184.3
    
    
    
    1,148.2On a retrospective basis
    
    
    1,149.2
    
    
    
    1,160.7
    
    
    
    1,137.5Variance
    
    $
    7.6
    
    
    
    23.6
    
    
    
    10.7Variance to total incurred claims as reported
    
    
    0.7
    %
    
    
    2.0
    %
    
    
    0.9
    %
 (1)
    
    Includes total claims incurred less adjustments for prior year reserve development. Page 78




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##### Table of Contents




    
    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
     Property and Casualty Insurance Segment
    Page 79




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##### Table of Contents



Liability for Future Policy Benefits
   Accounting and Reporting by
Insurance Enterprises
 Page 80




---



##### Table of Contents



Deferred Policy Acquisition Costs and Value of Business Acquired
     Impairment of Investments
   Page 81




---



##### Table of Contents



Allowance for Doubtful Receivables
    Other Significant Accounting Policies
  Recently Issued Accounting Standards
 Fair Value Measurements
 Page 82




---



##### Table of Contents



The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of FASB Statement No. 115
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for Derivative Instruments and Hedging
Activities
 Accounting for Financial Guarantee Insurance Contracts  an
Interpretation of FASB Statement No. 60 Accounting and Reporting by Insurance
Enterprises
 Employers Disclosures about Pensions and Other Postretirement Benefits, Fair
Value Measurements.
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Market Risk Exposure
  Page 83




---



##### Table of Contents




    
    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.
  Interest Rate Risk
  Equity Price Risk
  Page 84




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##### Table of Contents



Risk Measurement
 Trading Portfolio
  Other than Trading Portfolio
  Interest Rate Risk
  Page 85




---



##### Table of Contents



(Dollar amounts in millions)Expected
    
    Amount of
    
    %Change in Interest Rates
    
    Fair Value
    
    Decrease
    
    ChangeDecember 31, 2008:Base Scenario
    
    $
    910.7+100 bp
    
    
    891.0
    
    
    
    (19.7
    )
    
    
    (2.2
    )%+200 bp
    
    
    844.9
    
    
    
    (65.8
    )
    
    
    (7.2
    )%+300 bp
    
    
    787.7
    
    
    
    (123.0
    )
    
    
    (13.5
    )%December 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
    )%
  Equity Price Risk
  Other Risk Measurement
   Accounting for Derivative Instruments and Certain
Hedging Activities
 Page 86




---



##### Table of Contents



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.
  Page 87




---



##### Table of Contents



Item 9A. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Report on Internal Control Over Financial Reporting
  (i)
    
    pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company;(ii)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and(iii)
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the consolidated financial statements.
     (c) Changes in Internal Control Over Financial Reporting
  (d) Remediation of Material Weakness
  1.
    
    Improving the governance process over the Companys investment activities, by
including OTTI analysis as a quarterly agenda at the meetings of our Investment Committee
and report at least quarterly at the meetings of our Audit Committee.2.
    
    Amending and expanding our OTTI evaluation selection criteria for impaired
investments to require an individual OTTI analysis for all impaired investments if such
investments are impaired for more than one month over a materiality level to be
determined.3.
    
    Preparing more robust supporting documentation and related reports used for the OTTI
analysis by including additional information for those impaired investments described in
the previous paragraph, addressing the reasons for the decline in value, period for which
the decline has been observed, an estimate of the anticipated recovery period and its
related probability of recoverability, credit ratings for the issue and issuer (where
available) and any changes thereto.4.
    
    Implementing a procedure designed to effectively disseminate the most recent
authoritative accounting pronouncements related to OTTI to ensure that our employees
involved in the evaluation receive the information on a timely basis.
  Page 88




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##### Table of Contents



Report
of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated
Framework
    
 Internal ControlIntegrated Framework
  
 
 Item 9B. Other Information.
  
 Part III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   Page 89




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##### Table of Contents



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.
  
 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, 2008 and 2007F-3
    
    Consolidated Statements of Earnings for the years ended
December 31, 2008, 2007 and 2006F-4
    
    Consolidated Statements of Stockholders Equity and
Comprehensive Income for the years ended December 31, 2008,
2007 and 2006F-5
    
    Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006F-7
    
    Notes to Consolidated Financial Statements  December 31,
2008, 2007 and 2006
 Financial Statements Schedules
    
    DescriptionS-1
    
    Schedule II  Condensed Financial Information of the RegistrantS-2
    
    Schedule III  Supplementary Insurance Information
 Page 90




---



##### Table of Contents



Financial Statements Schedules
    
    DescriptionS-3
    
    Schedule IV  ReinsuranceS-4
    
    Schedule V  Valuation and Qualifying Accounts
  Exhibits
 Exhibits
    
    Description3(i)(a)
    
    Amended and Restated Articles of Incorporation (incorporated
herein by reference to Exhibit 3(i)(d) to TSMs Annual Report on
Form 10-K for the Year Ended December 31, 2007 (File No.
001-33865).3(i)(b)
    
    Amendment to Article Tenth of the Amended and Restated Articles
of Incorporation of Triple-S Management Corporation, incorporated
by reference to Exhibit 3(i)(b) to TSMs Quarterly Report on Form
10-Q for the quarter ended March 31, 2008 (File No. 001-33865).3(i)(c)
    
    Articles of Incorporation of Triple-S Management Corporation, as
currently in effect, incorporated by reference to Exhibit 3(i)(c)
to TSMs Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008 (File No. 001-33865).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. 001-33865)).10.1
    
    Agreement between the 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 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended September 30,
2008 (File No. 001-33865)).10.2
    
    Extension to the agreement between the 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
June 30, 2008 (File No. 001-33865)).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. 001-33865)).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. 001-33865)).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. 001-33865)).10.6
    
    Non-Contributory Retirement Program (incorporated herein by
reference to Exhibit 10.8 to TSMs General Form of Registration
of
 Page 91




---



##### Table of Contents



Exhibits
    
    DescriptionSecurities on Form 10 (File No. 001-33865)).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. 001-33865)).10.8*
    
    Blue Shield License and other Agreements with Blue Cross Blue
Shield Association.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. 001-33865)).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. 001-33865)).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. 001-33865)).10.12
    
    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. 001-33865)).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. 001-33865)).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. 001-33865)).10.15
    
    Software License and Maintenance Agreement between Quality Care
Solutions, Inc, and Triple-S, Inc. dated August 16, 2007
(incorporated herein by reference to Exhibit 10.15 to TSMs
Annual Report on Form 10-K for the year ended December 31, 2007
(File No. 001-33865)).10.15(a)
    
    Addendum Number One to the Software License and Maintenance
Agreement between Quality Care Solutions, Inc, and Triple-S, Inc.
(incorporated herein by reference to Exhibit 10.15(a) to TSMs
Annual Report on Form 10-K for the year ended December 31, 2007
(File No. 001-33865)).10.15(b)
    
    Addendum Number Two to the Software License and Maintenance
 Page 92




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##### Table of Contents



Exhibits
    
    DescriptionAgreement between Quality Care Solutions, Inc, and Triple-S, Inc.
(incorporated herein by reference to Exhibit 10.15(b) to TSMs
Annual Report on Form 10-K for the year ended December 31, 2007
(File No. 001-33865)).10.15(c)
    
    Addendum Number Three to the Software License and Maintenance
Agreement between Quality Care Solutions, Inc, and Triple-S, Inc.
(incorporated herein by reference to Exhibit 10.15(c) to TSMs
Annual Report on Form 10-K for the year ended December 31, 2007
(File No. 001-33865)).10.16
    
    Work Order Agreement between Quality Care Solutions, Inc. and
Triple-S, Inc. (incorporated herein by reference to Exhibit 10.16
to TSMs Annual Report on Form 10-K for the year ended December
31, 2007 (File No. 001-33865)).10.17*
    
    Agreement between the Puerto Rico Health Insurance
Administration and Triple-S,
Inc. for the provision of act as Third Party Administrator in the Metro-North
Region.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.
001-33865)).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 93




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##### Table of Contents



SIGNATURES
  Triple-S Management Corporation
RegistrantBy:
    
    /s/ Ramón M. Ruiz-Comas
    
    
    
    Date:
    
    March 18, 2009Ramón M. Ruiz-Comas
President and Chief Executive OfficerBy:
    
    /s/ Juan J. Román
    
    
    
    Date:
    
    March 18, 2009Juan J. Román
Vice President of Finance and
Chief Financial Officer
  By:
    
    /s/ Luis A. Clavell-Rodríguez
    
    
    
    Date:
    
    March 18, 2009Luis A. Clavell-Rodríguez, MD
Director and Chairman of the BoardBy:
    
    /s/ Vicente J. León-Irizarry
    
    
    
    Date:
    
    March 18, 2009Vicente J. León-Irizarry, CPA
Director and Vice-Chairman of the BoardBy:
    
    /s/ Jesús R. Sánchez-Colón
    
    
    
    Date:
    
    March 18, 2009Jesús R. Sánchez-Colón, DMD
Director and Secretary of the BoardBy:
    
    /s/ Adamina Soto-Martínez
    
    
    
    Date:
    
    March 18, 2009Adamina Soto-Martínez, CPA
DirectorBy:
    
    /s/ Ms. Carmen Ana Culpeper-Ramírez
    
    
    
    Date:
    
    March 18, 2009Ms. Carmen Ana Culpeper-Ramírez
Director
 Page 94




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##### Table of Contents



By:
    
    /s/ Valeriano Alicea-Cruz
    
    
    
    Date:
    
    March 18, 2009Valeriano Alicea-Cruz, MD
DirectorBy:
    
    /s/ Mr. José Arturo Álvarez-Gallardo
    
    
    
    Date:
    
    March 18, 2009Mr. José Arturo Álvarez-Gallardo
DirectorBy:
    
    /s/ Porfirio E. Díaz-Torres
    
    
    
    Date:
    
    March 18, 2009Porfirio E. Díaz-Torres, MD
DirectorBy:
    
    /s/ Mr. Antonio F. Faría-Soto
    
    
    
    Date:
    
    March 18, 2009Mr. Antonio F. Faría-Soto
DirectorBy:
    
    /s/ Manuel Figueroa-Collazo
    
    
    
    Date:
    
    March 18, 2009Manuel Figueroa-Collazo, PE, Ph.D.
DirectorBy:
    
    /s/ José Hawayek-Alemañy
    
    
    
    Date:
    
    March 18, 2009José Hawayek-Alemañy, MD
DirectorBy:
    
    /s/ Jaime Morgan-Stubbe
    
    
    
    Date:
    
    March 18, 2009Jaime Morgan-Stubbe, Esq.
DirectorBy:
    
    /s/ Roberto Muñoz-Zayas
    
    
    
    Date:
    
    March 18, 2009Roberto Muñoz-Zayas, MD
DirectorBy:
    
    /s/ Juan E. Rodríguez-Díaz
    
    
    
    Date:
    
    March 18, 2009Juan E. Rodríguez-Díaz, Esq.
Director
 Page 95




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES




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##### Table of Contents



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
 Internal
Control-Integrated Framework




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2008
    
    
    2007AssetsInvestments and cash:Equity securities held for trading, at fair value (cost of $40,847 in 2008 and
$54,757 in 2007)
    
    $
    32,184
    
    
    
    67,158Securities available for sale, at fair value:Fixed maturities (amortized cost of $879,663 in 2008 and $816,536 in 2007)
    
    
    887,684
    
    
    
    823,629Equity securities (cost of $70,060 in 2008 and $66,747 in 2007)
    
    
    68,629
    
    
    
    71,050Securities held to maturity, at amortized cost:Fixed maturities (fair value of $23,063 in 2008 and $43,849 in 2007)
    
    
    21,753
    
    
    
    43,691Policy loans
    
    
    5,451
    
    
    
    5,481Cash and cash equivalents
    
    
    46,095
    
    
    
    240,153Total investments and cash
    
    
    1,061,796
    
    
    
    1,251,162Premium and other receivables, net
    
    
    237,158
    
    
    
    202,268Deferred policy acquisition costs and value of business acquired
    
    
    126,347
    
    
    
    117,239Property and equipment, net
    
    
    58,448
    
    
    
    43,415Net deferred tax asset
    
    
    25,195
    
    
    
    6,783Other assets
    
    
    39,515
    
    
    
    38,675Total assets
    
    $
    1,548,459
    
    
    
    1,659,542Liabilities and Stockholders EquityClaim liabilities:Claims processed and incomplete
    
    $
    156,137
    
    
    
    186,065Unreported losses
    
    
    150,079
    
    
    
    149,996Unpaid loss-adjustment expenses
    
    
    17,494
    
    
    
    17,769Total claim liabilities
    
    
    323,710
    
    
    
    353,830Liability for future policy benefits
    
    
    207,545
    
    
    
    194,131Unearned premiums
    
    
    110,141
    
    
    
    132,599Policyholder deposits
    
    
    48,684
    
    
    
    45,959Liability to Federal Employees Health Benefits Program
    
    
    11,157
    
    
    
    21,338Accounts payable and accrued liabilities
    
    
    148,713
    
    
    
    228,980Borrowings
    
    
    169,307
    
    
    
    170,946Liability for pension benefits
    
    
    44,103
    
    
    
    29,221Total liabilities
    
    
    1,063,360
    
    
    
    1,177,004Stockholders equity:Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued
and outstanding 9,042,809 and 16,042,809 at December 31, 2008 and 2007,
respectively
    
    
    9,043
    
    
    
    16,043Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued
and outstanding 22,104,989 and 16,266,554 shares at December 31, 2008 and
2007, respectively
    
    
    22,105
    
    
    
    16,266Additional paid-in capital
    
    
    179,504
    
    
    
    188,935Retained earnings
    
    
    292,112
    
    
    
    267,336Accumulated other comprehensive loss, net
    
    
    (17,665
    )
    
    
    (6,042
    )485,099
    
    
    
    482,538Commitments and contingenciesTotal liabilities and stockholders
equity
    
    $
    1,548,459
    
    
    
    1,659,542
  2




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2008
    
    
    2007
    
    
    2006Revenues:Premiums earned, net
    
    $
    1,695,457
    
    
    
    1,483,548
    
    
    
    1,511,626Administrative service fees
    
    
    19,187
    
    
    
    14,018
    
    
    
    14,089Net investment income
    
    
    56,253
    
    
    
    47,194
    
    
    
    42,657Total operating revenues
    
    
    1,770,897
    
    
    
    1,544,760
    
    
    
    1,568,372Net realized investment (losses) gains
    
    
    (13,940
    )
    
    
    5,931
    
    
    
    837Net unrealized investment (loss) gain on
trading securities
    
    
    (21,064
    )
    
    
    (4,116
    )
    
    
    7,699Other income (loss), net
    
    
    (2,467
    )
    
    
    3,217
    
    
    
    2,323Total revenues
    
    
    1,733,426
    
    
    
    1,549,792
    
    
    
    1,579,231Benefits and expenses:Claims incurred
    
    
    1,434,914
    
    
    
    1,223,775
    
    
    
    1,258,981Operating expenses
    
    
    251,887
    
    
    
    237,533
    
    
    
    236,065Total operating costs
    
    
    1,686,801
    
    
    
    1,461,308
    
    
    
    1,495,046Interest expense
    
    
    14,681
    
    
    
    15,839
    
    
    
    16,626Total benefits and
expenses
    
    
    1,701,482
    
    
    
    1,477,147
    
    
    
    1,511,672Income before taxes
    
    
    31,944
    
    
    
    72,645
    
    
    
    67,559Income tax expense (benefit):Current
    
    
    11,542
    
    
    
    15,906
    
    
    
    15,407Deferred
    
    
    (4,388
    )
    
    
    (1,779
    )
    
    
    (2,381
    )Total income taxes
    
    
    7,154
    
    
    
    14,127
    
    
    
    13,026Net income
    
    $
    24,790
    
    
    
    58,518
    
    
    
    54,533Basic net income per share
    
    $
    0.77
    
    
    
    2.15
    
    
    
    2.04Diluted net income per share
    
    
    0.77
    
    
    
    2.15
    
    
    
    2.04
  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, 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
    )
    
    
    482,538Conversion of Class A common stock to
Class B common stock
    
    
    (7,000
    )
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,268
    
    
    
    
    
    
    
    
    
    
    
    3,268Grant of restricted Class B common stock
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Repurchase and retirement of common stock
    
    
    
    
    
    
    (1,181
    )
    
    
    (12,699
    )
    
    
    
    
    
    
    
    
    
    
    (13,880
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,790
    
    
    
    
    
    
    
    24,790Net unrealized change in fair value
of available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,952
    )
    
    
    (3,952
    )Defined benefit pension plan:Prior service credit, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (266
    )
    
    
    (266
    )Actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,349
    )
    
    
    (7,349
    )Net change in fair value of cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,167Balance, December 31, 2008
    
    $
    9,043
    
    
    
    22,105
    
    
    
    179,504
    
    
    
    292,112
    
    
    
    (17,665
    )
    
    
    485,099
  4




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    24,790
    
    
    
    58,518
    
    
    
    54,533Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    7,367
    
    
    
    7,562
    
    
    
    6,443Net amortization of investments
    
    
    953
    
    
    
    354
    
    
    
    511Provision for doubtful receivables
    
    
    (1,180
    )
    
    
    (2,305
    )
    
    
    5,125Deferred tax benefit
    
    
    (12,725
    )
    
    
    (1,779
    )
    
    
    (2,381
    )Net loss (gain) on sale of securities
    
    
    13,940
    
    
    
    (5,931
    )
    
    
    (837
    )Net unrealized (gain) loss on trading securities
    
    
    21,063
    
    
    
    4,116
    
    
    
    (7,699
    )Share-based compensation
    
    
    3,268
    
    
    
    200
    
    
    
    Proceeds from trading securities sold or matured:Equity securities
    
    
    24,640
    
    
    
    43,614
    
    
    
    27,919Acquisition of securities in trading portfolio:Equity securities
    
    
    (10,737
    )
    
    
    (23,921
    )
    
    
    (22,409
    )Gain on sale of property and equipment
    
    
    11
    
    
    
    28
    
    
    
    22(Increase) decrease in assets:Premiums receivable
    
    
    (39,788
    )
    
    
    (8,458
    )
    
    
    (27,951
    )Agent balances
    
    
    (5,617
    )
    
    
    (4,061
    )
    
    
    395Accrued interest receivable
    
    
    (3,439
    )
    
    
    (309
    )
    
    
    588Other receivables
    
    
    58
    
    
    
    (3,637
    )
    
    
    (4,521
    )Funds withheld reinsurance receivable
    
    
    
    
    
    
    
    
    
    
    118,635Reinsurance recoverable on paid losses
    
    
    16,576
    
    
    
    (17,872
    )
    
    
    (6,147
    )Deferred policy acquisition costs and value of
business acquired
    
    
    (9,108
    )
    
    
    (5,822
    )
    
    
    (7,026
    )Other assets
    
    
    4,785
    
    
    
    (3,179
    )
    
    
    (4,031
    )Increase (decrease) in liabilities:Claims processed and incomplete
    
    
    (29,928
    )
    
    
    38,854
    
    
    
    2,803Unreported losses
    
    
    83
    
    
    
    (739
    )
    
    
    3,342Loss-adjustment expenses
    
    
    (275
    )
    
    
    1,033
    
    
    
    1,791Liability for future policy benefits
    
    
    13,414
    
    
    
    13,711
    
    
    
    14,022Liability for future policy benefits related to funds
withheld reinsurance
    
    
    
    
    
    
    
    
    
    
    (118,635
    )Unearned premiums
    
    
    (22,458
    )
    
    
    19,017
    
    
    
    15,579Policyholder deposits
    
    
    1,902
    
    
    
    1,800
    
    
    
    1,810Liability to FEHBP
    
    
    (10,181
    )
    
    
    7,775
    
    
    
    9,207Accounts payable and accrued liabilities
    
    
    15,322
    
    
    
    7,359
    
    
    
    1,903Income tax payable
    
    
    (5,718
    )
    
    
    (10,034
    )
    
    
    12,595Net cash (used in) provided by
operating
activities
    
    
    (2,982
    )
    
    
    115,894
    
    
    
    75,586
 5




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008
    
    
    2007
    
    
    2006Cash flows from investing activities:Proceeds from investments sold or matured:Securities available for sale:Fixed maturities sold
    
    $
    228,436
    
    
    
    299,561
    
    
    
    51,519Fixed maturities matured
    
    
    91,732
    
    
    
    41,248
    
    
    
    32,826Equity securities
    
    
    4,450
    
    
    
    1,000
    
    
    
    1,209Securities held to maturity:Fixed maturities matured
    
    
    22,875
    
    
    
    13,246
    
    
    
    492Acquisition of investments:Securities available for sale:Fixed maturities
    
    
    (505,896
    )
    
    
    (327,409
    )
    
    
    (81,496
    )Equity securities
    
    
    (19,636
    )
    
    
    (18,379
    )
    
    
    (11,620
    )Securities held to maturity:Fixed maturities
    
    
    (554
    )
    
    
    (8,244
    )
    
    
    (2,197
    )Acquisition of business, net of $10,403 of cash acquired
    
    
    
    
    
    
    
    
    
    
    (27,793
    )Net repayment (disbursements) for policy loans
    
    
    30
    
    
    
    (287
    )
    
    
    (415
    )Capital expenditures
    
    
    (22,411
    )
    
    
    (9,390
    )
    
    
    (11,871
    )Net cash used in investing activities
    
    
    (200,974
    )
    
    
    (8,654
    )
    
    
    (49,346
    )Cash flows from financing activities:Net proceeds from initial public offering
    
    
    
    
    
    
    70,279
    
    
    
    Repurchase and retirement of common stock
    
    
    (7,645
    )
    
    
    
    
    
    
    Change in outstanding checks in excess of bank balances
    
    
    18,353
    
    
    
    (3,076
    )
    
    
    (8,224
    )Change in short-term borrowings
    
    
    
    
    
    
    
    
    
    
    (1,740
    )Repayments of long-term borrowings
    
    
    (1,639
    )
    
    
    (12,141
    )
    
    
    (2,503
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    35,000Dividends
    
    
    
    
    
    
    (2,448
    )
    
    
    (6,231
    )Proceeds from annuity contracts
    
    
    8,018
    
    
    
    6,150
    
    
    
    6,008Surrenders of annuity contracts
    
    
    (7,195
    )
    
    
    (7,416
    )
    
    
    (16,036
    )Other
    
    
    6
    
    
    
    1
    
    
    
    Net cash provided by financing activities
    
    
    9,898
    
    
    
    51,349
    
    
    
    6,274Net (decrease) increase in cash and cash
equivalents
    
    
    (194,058
    )
    
    
    158,589
    
    
    
    32,514Cash and cash equivalents, beginning of year
    
    
    240,153
    
    
    
    81,564
    
    
    
    49,050Cash and cash equivalents, end of year
    
    $
    46,095
    
    
    
    240,153
    
    
    
    81,564
  6




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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. Effective February 16, 2009, TSI
and STS change their name to Triple-S Salud, Inc. and Triple-S Propiedad, Inc., respectively.
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.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).
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 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 of the period they are determined. Although some variability is
inherent in these estimates, the Company believes the amounts provided are adequate.(c)
    
    ReclassificationsCertain amounts in the 2007 and 2006 consolidated financial statements were reclassified
to conform to the 2008 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 $2,564 and $192,534 at
December 31, 2008 and 2007, 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, 2008 and 2007 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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.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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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.TSI 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 TSI or in TSI refunding CMS a portion of
the premiums collected. TSI 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.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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The Company also handles the administration of the insurance coverage for the
Reform Metro-North region for an administrative fee per member. The Company is not
at risk and pays claims from such region from the Commonwealth of Puerto Rico
funds.(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. In the event that future premiums, in combination with
policyholder reserves and anticipated investment income could not provide for all future
maintenance and settlement expenses, the amount of deferred policy acquisition costs
would be reduced to provide for such amount. The related amortization is provided 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. Interest is considered in the amortization of deferred policy
acquisition cost and value of business acquired. For contracts accounted for under SFAS
No. 60, Accounting and Reporting by Insurance Enterprises, interest is considered at a
level rate, set at the time of issue
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    of each contract and, in the case of the value of
business acquired, at the time of any acquisition. For SFAS No. 60 contract interest is
currently set as 5.4%. For contracts accounted for under SFAS No. 97, Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses from the Sale of Investments, deferred amounts are amortized at
historical and forecasted credited interest rates, in accordance with the requirements
set forth in that statement. 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 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (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. The Company 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, 2008 the Company
capitalized approximately $16,408 associated with the implementation of new software. No
software development costs were capitalized during the year ended December 31, 2007.(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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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, 2008 and 2007, total withholdings and capitation payable amounted to $24,462
and $29,119, 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.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 incurred on such deposits, which amounted to $1,902, $1,800, and
$1,810, during the years ended December 31, 2008, 2007, and 2006, 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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
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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 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 if such positions were probable of being sustained.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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
nonvested 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 22 for
additional earnings per share information. As disclosed in note 19, the accompanying
consolidated financial statements gave 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 ValueWe adopted FAS 157, Fair Value Measurements,on January 1, 2008. This adoption did not
have an impact on the Companys financial position or results of operations. Additional
information pertinent to the fair value measurement is included in note 8.In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB
Statement No. 157, or FSP 157-2. FSP 157-2 defers the effective date of FAS 157 to fiscal
years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial
liabilities that are not recognized or disclosed at fair value in the consolidated
financial statements on a recurring basis (at least annually). Therefore, disclosures
related to the nonfinancial assets and nonfinancial liabilities that are measured at fair
value on a nonrecurring basis have not been included.In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115. FAS 159 allows
entities to measure many financial instruments and certain other assets and liabilities
at fair value on an instrument-by-instrument basis under the fair value option. We
adopted FAS 159 on January 1, 2008. The Corporation has chosen not to elect the fair
value option for any items that are not already required to be measured at fair value in
accordance with GAAP. Accordingly, the adoption of FAS 159 did not have an impact on the
Companys financial position or operating results.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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (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:
 2008
    
    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueLoans payable to bank
    
    $
    24,307
    
    
    
    24,307
    
    
    
    25,946
    
    
    
    25,9466.3% senior unsecured notes payable
    
    
    50,000
    
    
    
    46,250
    
    
    
    50,000
    
    
    
    47,6256.6% senior unsecured notes payable
    
    
    60,000
    
    
    
    55,800
    
    
    
    60,000
    
    
    
    57,8256.7% senior unsecured notes payable
    
    
    35,000
    
    
    
    34,059
    
    
    
    35,000
    
    
    
    33,950Totals
    
    $
    169,307
    
    
    
    160,416
    
    
    
    170,946
    
    
    
    165,346
 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 11.(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 12.
 (w)
    
    Recently Issued Accounting StandardsIn 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.
 19
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    In March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and
Hedging Activities. FAS 161 requires companies with derivative instruments to disclose
information about how and why a company uses derivative instruments, how derivative
instruments and related hedged items are accounted for under FAS 133, Accounting for
Derivative Instruments and Hedging Activities, and how derivative instruments and related
hedged items affect a companys financial position, financial performance, and cash
flows. This statement expands the current disclosure framework in FAS 133. FAS 161 is
effective prospectively for periods beginning on or after November 15, 2008. We do not
expect the adoption of FAS 161 to have a material impact on the Companys consolidated
financial statements.In May 2008, the FASB issued FAS 163, Accounting for Financial Guarantee Insurance
Contracts  an Interpretation of FASB Statement No. 60. FAS 163 prescribes the
accounting for premium revenue and claims liabilities by insurers of financial
obligations, and requires expanded disclosures about financial guarantee insurance
contracts. FAS 163 applies to financial guarantee insurance and reinsurance contracts
issued by insurers subject to FAS 60, Accounting and Reporting by Insurance Enterprises.
The Statement does not apply to insurance contracts that are similar to financial
guarantee insurance contracts such as mortgage guaranty or trade-receivable insurance,
financial guarantee contracts issued by noninsurance entities, or financial guarantee
contracts that are derivative instruments within the scope of FAS 133. Statement 163 is
effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years, except for certain disclosure requirements
about the risk-management activities of the insurance enterprise that are effective for
the first quarter beginning after the Statement was issued. Except for those
disclosures, early application is prohibited. This standard has no impact on the
Companys consolidated financial statements.In April 2008, the FASB issued a FASB Staff Position (FSP) amending the factors that
should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and
Other Intangible Assets. The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under Statement 142 and the period of
expected cash flows used to measure the fair value of the asset under FASB Statement No.
141 (revised 2007), Business Combinations,and other U.S. generally accepted accounting
principles (GAAP). This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years.
Early adoption is prohibited. The adoption of the FSP did not have a material impact on
the Companys consolidated financial statements.In December 2008, the FASB issued a FSP amending FASB 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits,to provide guidance on an
employers disclosures about plan assets of a defined benefit pension or other
postretirement plan. This FSP requires employers to disclose information about fair
value measurements of plan assets that would be similar to the disclosures about fair
value measurements required by FAS 157, Fair Value Measurements.The disclosures about
plan assets required by this FSP are required for fiscal years ending after December 15,
2009. Upon initial application, the provisions of this FSP are not required for earlier
periods that are presented for comparative purposes. Earlier application of the
 20
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    provisions of this FSP is permitted. The adoption of the FSP did not have a material
impact on the Companys consolidated financial statements.
 (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, 2008 and 2007 were as
follows:
 2008Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimatedcost
    
    gains
    
    losses
    
    fair valueTrading securities:Equity securities
    
    $
    40,847
    
    
    
    2,781
    
    
    
    (11,444
    )
    
    
    32,184
 2007Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Estimatedcost
    
    gains
    
    losses
    
    fair valueTrading securities:Equity securities
    
    $
    54,757
    
    
    
    15,170
    
    
    
    (2,769
    )
    
    
    67,158
 21
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities available for sale:Obligations of government-sponsored enterprises
    
    $
    422,038
    
    
    
    7,991
    
    
    
    (220
    )
    
    
    429,809U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    
    78,024
    
    
    
    11,961
    
    
    
    
    
    
    
    89,985Obligations of the
Commonwealth of Puerto Rico
and its instrumentalities
    
    
    121,934
    
    
    
    448
    
    
    
    (6,077
    )
    
    
    116,305Municipal securities
    
    
    31,415
    
    
    
    390
    
    
    
    (6
    )
    
    
    31,799Obligations of states of the
United States and political
subdivisions of the states
    
    
    4,196
    
    
    
    36
    
    
    
    (110
    )
    
    
    4,122Corporate bonds
    
    
    100,745
    
    
    
    1,625
    
    
    
    (7,399
    )
    
    
    94,971Mortgage-backed securities
    
    
    17,420
    
    
    
    425
    
    
    
    (3
    )
    
    
    17,842Collateralized mortgage
obligations
    
    
    103,891
    
    
    
    1,287
    
    
    
    (2,327
    )
    
    
    102,851Total fixed maturities
    
    
    879,663
    
    
    
    24,163
    
    
    
    (16,142
    )
    
    
    887,684Equity securities
    
    
    70,060
    
    
    
    1,752
    
    
    
    (3,183
    )
    
    
    68,629Total
    
    $
    949,723
    
    
    
    25,915
    
    
    
    (19,325
    )
    
    
    956,313
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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
 2008Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities held to maturity:Obligations of government-sponsored enterprises
    
    $
    9,082
    
    
    
    240
    
    
    
    
    
    
    
    9,322Mortgage-backed securities
    
    
    1,749
    
    
    
    
    
    
    
    (7
    )
    
    
    1,742U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    
    1,488
    
    
    
    379
    
    
    
    
    
    
    
    1,867Corporate bonds
    
    
    8,698
    
    
    
    698
    
    
    
    
    
    
    
    9,396Certificates of deposit
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    736Total
    
    $
    21,753
    
    
    
    1,317
    
    
    
    (7
    )
    
    
    23,063
 23
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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
  2008Less 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
    
    $
    16,550
    
    
    
    (191
    )
    
    
    2,956
    
    
    
    (29
    )
    
    
    19,506
    
    
    
    (220
    )Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    79,045
    
    
    
    (5,230
    )
    
    
    8,932
    
    
    
    (847
    )
    
    
    87,977
    
    
    
    (6,077
    )Municipal securities
    
    
    
    
    
    
    
    
    
    
    1,276
    
    
    
    (6
    )
    
    
    1,276
    
    
    
    (6
    )Obligations of states of the United
States and political subdivisions
of the states
    
    
    2,223
    
    
    
    (75
    )
    
    
    183
    
    
    
    (35
    )
    
    
    2,406
    
    
    
    (110
    )Corporate bonds
    
    
    31,324
    
    
    
    (2,688
    )
    
    
    29,044
    
    
    
    (4,711
    )
    
    
    60,368
    
    
    
    (7,399
    )Mortgage-backed securities
    
    
    1,374
    
    
    
    (2
    )
    
    
    36
    
    
    
    (1
    )
    
    
    1,410
    
    
    
    (3
    )Collateralized mortgage
obligations
    
    
    5,797
    
    
    
    (2,327
    )
    
    
    
    
    
    
    
    
    
    
    5,797
    
    
    
    (2,327
    )Total fixed maturities
    
    
    136,313
    
    
    
    (10,513
    )
    
    
    42,427
    
    
    
    (5,629
    )
    
    
    178,740
    
    
    
    (16,142
    )Equity securities
    
    
    18,571
    
    
    
    (2,190
    )
    
    
    9,651
    
    
    
    (993
    )
    
    
    28,222
    
    
    
    (3,183
    )Total for securities
available for sale
    
    $
    154,884
    
    
    
    (12,703
    )
    
    
    52,078
    
    
    
    (6,622
    )
    
    
    206,962
    
    
    
    (19,325
    )Securities held to maturity:Mortgage-backed securities
    
    $
    
    
    
    
    
    
    
    
    1,741
    
    
    
    (7
    )
    
    
    1,741
    
    
    
    (7
    )
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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
    )
 The Company regularly monitors and evaluates the difference between the cost and estimated
fair value of investments. For investments with a fair value below cost, the process includes
evaluating the length of time and the extent to which cost exceeds fair value, the prospects
and financial condition of the issuer, and the Companys intent and ability to retain the
investment to allow for recovery in fair value, among other factors. This process is not exact
and further requires consideration of risks such as credit and interest rate risks.
Consequently, if an investments cost exceeds its fair value solely due to changes in interest
rates, impairment may not be appropriate. If after monitoring and analyzing, the Company
determines that a decline in the estimated fair value of any available-for-sale or
held-to-maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The
impairment is charged to operations and a new cost basis for the security is established.
During the three year-period ended December 31, 2008, 2007, and 2006, the Company recognized
other-than-temporary impairments amounting to $16,522, $1,087, and $2,098, respectively, on
some of its fixed maturities and equity securities classified as available for sale.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    We continue to review the investment portfolios under the Companys impairment review policy.
Given the current market conditions and the significant judgments involved, there is a
continuing risk that further declines in fair value may occur and additional material
other-than-temporary impairments may be recorded in future periods.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: The unrealized losses on the Companys investments in 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 in obligations of the Commonwealth of Puerto Rico and its instrumentalities
were mainly caused by interest rate increases. The contractual terms of these investments do
not permit the issuer to settle the securities at a price less than the par value of the
investment. Because the decline in fair value is attributable to changes in interest rates and
not credit quality, and because the Company has the ability and intent to hold these
investments until a market price recovery or maturity, these investments are not considered
other-than-temporarily impaired.Corporate Bonds: The Companys unrealized losses on investments in corporate bonds are
comprised of small unrealized losses in most of the corporate bonds. Unrealized losses of
these bonds were principally caused by interest rate increases. Because the decline in fair
value is principally attributable to changes in interest rates and because the Company has the
ability and intent to hold these investments until a market price recovery or maturity, these
investments are not considered other-than-temporarily impaired.Mortgage-Backed Securities and Collateralized Mortgage Obligations: The unrealized losses on
investments in mortgage-backed securities and collateralized mortgage obligations were caused
by interest rate increases. The contractual cash flows of these securities are guaranteed by a
U.S. government-sponsored enterprise. Because the decline in fair value is attributable to
changes in interest rates and not credit quality, and because the Company has the ability and
intent to hold these investments until a market price recovery or maturity, these investments
are not considered other-than-temporarily impaired.Equity Securities: The Companys investment in equity securities classified as available for
sale consist mainly of investments in common and preferred stock of domestic banking
institutions and investments in several mutual funds. The unrealized loss experienced in the
investment in common stocks of domestic banking institutions is mainly due to the general
economic conditions in the past three years. The unrealized loss related to the Companys
investments in preferred stock of domestic banking institutions and in investments in several
mutual funds investing in fixed income securities is mainly caused by interest rate increases.
Because the unrealized losses on equity securities were mainly caused by interest rate
increases and not credit quality, and because the Company has the ability and intent to hold
these investments until a market price recovery, these investments are not considered
other-than-temporarily impaired.
 26
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Maturities of investment securities classified as available for sale and held to maturity were
as follows at December 31, 2008:
 Amortized
    
    
    Estimatedcost
    
    
    fair valueSecurities available for sale:Due in one year or less
    
    $
    5,423
    
    
    
    5,423Due after one year through five years
    
    
    74,981
    
    
    
    70,489Due after five years through ten years
    
    
    245,224
    
    
    
    252,822Due after ten years
    
    
    432,724
    
    
    
    438,257Collateralized mortgage obligations
    
    
    103,891
    
    
    
    102,851Mortgage-backed securities
    
    
    17,420
    
    
    
    17,842$
    879,663
    
    
    
    887,684Securities held to maturity:Due in one year or less
    
    $
    1,601
    
    
    
    1,606Due after one year through five years
    
    
    11,322
    
    
    
    12,058Due after five years through ten years
    
    
    3,799
    
    
    
    3,850Due after ten years
    
    
    3,282
    
    
    
    3,807Mortgage-backed securities
    
    
    1,749
    
    
    
    1,742$
    21,753
    
    
    
    23,063
 Expected maturities may differ from contractual maturities because some issuers have the right
to call or prepay obligations with or without call or prepayment penalties.Investments with an amortized cost of $5,356 and $5,249 (fair value of $5,602 and $5,220) at
December 31, 2008 and 2007, respectively, were deposited with the Commissioner of Insurance to
comply with the deposit requirements of the Insurance Code of the Commonwealth of Puerto Rico
(the Insurance Code). Investment with an amortized cost of $554 and $527 (fair value of $554
and $527) at December 31, 2008 and 2007, respectively, were deposited with the Commissioner of
Insurance of the Government of the U.S. Virgin Islands.Investments with a face value of $510 (fair value of $508) at December 31, 2007, were held by
a financial institution as collateral for the Companys interest-rate swap agreement (see note
12).
 27
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Information regarding realized and unrealized gains and losses from investments for the years
ended December 31, 2008, 2007, and 2006 is as follows:
 2008
    
    
    2007
    
    
    2006Realized gains (losses):Fixed maturity securities:Securities available for sale:Gross gains from sales
    
    $
    1,876
    
    
    
    1,208
    
    
    
    Gross losses from sales
    
    
    (225
    )
    
    
    (1,797
    )
    
    
    (687
    )Gross losses from other-than-temporary
impairments
    
    
    (3,872
    )
    
    
    
    
    
    
    Total debt securities
    
    
    (2,221
    )
    
    
    (589
    )
    
    
    (687
    )Equity securities:Trading securities:Gross gains from sales
    
    
    3,358
    
    
    
    8,873
    
    
    
    4,318Gross losses from sales
    
    
    (3,132
    )
    
    
    (1,558
    )
    
    
    (1,488
    )Gross losses from other-than-temporary
impairments
    
    
    (28
    )
    
    
    
    
    
    
    198
    
    
    
    7,315
    
    
    
    2,830Securities available for sale:Gross gains from sales
    
    
    881
    
    
    
    292
    
    
    
    792Gross losses from sales
    
    
    (176
    )
    
    
    
    
    
    
    Gross losses from other-than-temporary
impairments
    
    
    (12,622
    )
    
    
    (1,087
    )
    
    
    (2,098
    )(11,917
    )
    
    
    (795
    )
    
    
    (1,306
    )Total equity securities
    
    
    (11,719
    )
    
    
    6,520
    
    
    
    1,524Net realized gains (losses) on
securities
    
    $
    (13,940
    )
    
    
    5,931
    
    
    
    837
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008
    
    
    2007
    
    
    2006Changes in unrealized gains (losses):Recognized in income:Equity securities  trading
    
    $
    (21,064
    )
    
    
    (4,116
    )
    
    
    7,699Recognized in accumulated other
comprehensive loss:Fixed maturities  available for
sale
    
    $
    928
    
    
    
    18,640
    
    
    
    (2,434
    )Equity securities  available for
sale
    
    
    (5,734
    )
    
    
    (7,251
    )
    
    
    (1,581
    )$
    (4,806
    )
    
    
    11,389
    
    
    
    (4,015
    )Not recognized in the consolidated
financial statements:Fixed maturities  held to maturity
    
    $
    1,152
    
    
    
    1,266
    
    
    
    (114
    )
 The deferred tax liability on unrealized gains and losses recognized in accumulated other
comprehensive income during the years 2008, 2007, and 2006 aggregated $854, $1,840, and $803,
respectively.As of December 31, 2007, investments in obligations that are payable from and secured by the
same source of revenue or taxing authority, other than investment instruments of the U.S. and
the Commonwealth of Puerto Rico governments, did not exceed 10% of stockholders equity. As of
December 31, 2008 and 2007, no investment in equity securities individually exceeded 10% of
stockholders equity.
 (4)
    
    Net Investment IncomeComponents of net investment income were as follows:
 Years ended December 312008
    
    
    2007
    
    
    2006Fixed maturities
    
    $
    48,197
    
    
    
    37,205
    
    
    
    35,217Equity securities
    
    
    5,451
    
    
    
    5,271
    
    
    
    3,821Policy loans
    
    
    387
    
    
    
    394
    
    
    
    336Cash equivalents and
interest-bearing deposits
    
    
    1,003
    
    
    
    2,187
    
    
    
    1,903Other
    
    
    1,215
    
    
    
    2,137
    
    
    
    1,380Total
    
    $
    56,253
    
    
    
    47,194
    
    
    
    42,657
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (5)
    
    Premium and Other Receivables, NetPremium and other receivables as of December 31 were as follows:
 2008
    
    
    2007Premium
    
    $
    90,315
    
    
    
    54,330Self-funded group receivables
    
    
    35,749
    
    
    
    31,344FEHBP
    
    
    9,600
    
    
    
    10,202Agent balances
    
    
    38,491
    
    
    
    34,164Accrued interest
    
    
    11,802
    
    
    
    8,363Reinsurance recoverable on paid losses
    
    
    42,181
    
    
    
    58,757Other
    
    
    23,765
    
    
    
    21,033251,903
    
    
    
    218,193Less allowance for doubtful receivables:Premium
    
    
    10,467
    
    
    
    11,753Other
    
    
    4,278
    
    
    
    4,17214,745
    
    
    
    15,925Premium and other receivables, net
    
    $
    237,158
    
    
    
    202,268
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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, 2008, 2007, and 2006 is summarized as follows:
 DPAC
    
    
    VOBA
    
    
    TotalBalance, 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 withheld 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
    
    
    
    117,239Additions
    
    
    49,470
    
    
    
    
    
    
    
    49,470VOBA interest at an average rate of 5.40%
    
    
    
    
    
    
    3,425
    
    
    
    3,425Amortization
    
    
    (33,442
    )
    
    
    (10,345
    )
    
    
    (43,787
    )Net change
    
    
    16,028
    
    
    
    (6,920
    )
    
    
    9,108Balance, December 31, 2008
    
    $
    69,243
    
    
    
    57,104
    
    
    
    126,347
 The amortization expense of the deferred policy acquisition costs and value of business
acquired is included within the operating expenses in the accompanying consolidated statement
of earnings.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The estimated amount of the year-end VOBA balance expected to be amortized during the next
five years is as follows:
 Year ending December 31:2009
    
    $
    9,4282010
    
    
    8,1162011
    
    
    7,2732012
    
    
    6,4932013
    
    
    5,805
 (7)
    
    Property and Equipment, NetProperty and equipment as of December 31 are composed of the following:
 2008
    
    
    2007Land
    
    $
    6,531
    
    
    
    6,531Buildings and leasehold improvements
    
    
    44,791
    
    
    
    43,664Office furniture and equipment
    
    
    16,208
    
    
    
    15,868Computer equipment and software
    
    
    56,482
    
    
    
    36,361Automobiles
    
    
    461
    
    
    
    539124,473
    
    
    
    102,963Less accumulated depreciation and amortization
    
    
    66,025
    
    
    
    59,548Property and equipment, net
    
    $
    58,448
    
    
    
    43,415
 (8)
    
    Fair Value MeasurementsThe Corporation adopted FAS 157 on January 1, 2008. Beginning on this date, assets recorded
at fair value in the consolidated balance sheets are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. Level inputs, as
defined by FAS 157, are as follows:
 Level Input:
    
    Input Definition:Level 1
    
    Inputs are unadjusted, quoted prices for identical assets or
liabilities in active markets at the measurement date.Level 2
    
    Inputs other than quoted prices included in Level I that are
observable for the asset or liability through corroboration
with market data at the measurement date.Level 3
    
    Unobservable inputs that reflect managements best estimate
of what market participants would use in pricing the asset or
liability at the measurement date.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The following table summarizes fair value measurements by level at December 31, 2008 for
assets measured at fair value on a recurring basis:
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalEquity securities held for trading
    
    $
    32,184
    
    
    
    
    
    
    
    
    
    
    
    32,184Securities available for sale:Fixed maturity securities
    
    
    89,985
    
    
    
    796,418
    
    
    
    1,281
    
    
    
    887,684Equity securities
    
    
    31,506
    
    
    
    36,037
    
    
    
    1,086
    
    
    
    68,629Derivatives (reported within other
assets in the consolidated
balance sheets)
    
    
    
    
    
    
    1,674
    
    
    
    
    
    
    
    1,674Total
    
    $
    153,675
    
    
    
    834,129
    
    
    
    2,367
    
    
    
    990,171
 A reconciliation of the beginning and ending balances of assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the year ended December
31, 2008 is as follows:
 FixedMaturity
    
    
    EquitySecurities
    
    
    Securities
    
    
    TotalBeginning balance
    
    $
    4,280
    
    
    
    989
    
    
    
    5,269Total gains or losses:Realized in earnings
    
    
    (3,883
    )
    
    
    
    
    
    
    (3,883
    )Unrealized in other accumulated
comprehensive income
    
    
    884
    
    
    
    97
    
    
    
    981Purchases and sales
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    $
    1,281
    
    
    
    1,086
    
    
    
    2,367
 During the year ended December 31, 2008, certain debt securities were thinly traded due to
issuer liquidity concerns. Consequently, broker quotes or other observable inputs were not
always available and the fair value of these securities was estimated using internal
estimates for inputs including, but not limited to, credit spreads, default rates and
benchmark yields. An other-than-temporary impairment was recorded on these securities
during the year ended December 31, 2008.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (9)
    
    Claim LiabilitiesThe activity in claim liabilities during 2008, 2007, and 2006 is as follows:
 2008
    
    
    2007
    
    
    2006Claim liabilities at beginning of year
    
    $
    353,830
    
    
    
    314,682
    
    
    
    297,563Reinsurance recoverable on claim liabilities
    
    
    (54,834
    )
    
    
    (32,066
    )
    
    
    (28,720
    )Net claim liabilities at beginning of year
    
    
    298,996
    
    
    
    282,616
    
    
    
    268,843Claim liabilities acquired from GA Life
    
    
    
    
    
    
    
    
    
    
    8,771Claims incurred:Current period insured events
    
    
    1,432,843
    
    
    
    1,241,866
    
    
    
    1,264,871Prior period insured events
    
    
    (9,918
    )
    
    
    (31,007
    )
    
    
    (19,669
    )Total
    
    
    1,422,925
    
    
    
    1,210,859
    
    
    
    1,245,202Payments of losses and loss-adjustment
expenses:Current period insured events
    
    
    1,195,414
    
    
    
    1,004,346
    
    
    
    1,045,771Prior period insured events
    
    
    233,229
    
    
    
    190,133
    
    
    
    194,429Total
    
    
    1,428,643
    
    
    
    1,194,479
    
    
    
    1,240,200Net claim liabilities at end of year
    
    
    293,278
    
    
    
    298,996
    
    
    
    282,616Reinsurance recoverable on claim liabilities
    
    
    30,432
    
    
    
    54,834
    
    
    
    32,066Claim liabilities at end of year
    
    $
    323,710
    
    
    
    353,830
    
    
    
    314,682
 As a result of differences between actual amounts and estimates of insured events in prior
years, the amounts included as incurred claims for prior period insured events differ from
anticipated claims incurred.The credits in the claims incurred and loss-adjustment expenses for prior period insured
events for 2008, 2007 and 2008 are due primarily to better than expected utilization trends.
Reinsurance recoverable on unpaid claims is reported as premium and other receivables, net in
the accompanying consolidated financial statements.The claims incurred disclosed in this table exclude the change in the liability for future
policy benefits amounting to $11,989, $12,916 and $13,779 during the years ended December 31,
2008, 2007 and 2006, respectively.
 (10)
    
    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
 34
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 $931, $895, and $861, respectively, for each
of the years in the three-year period ended December 31, 2008.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, 2008 and 2007 was $23,365 and $18,004, respectively. The Company
received $2,540, $5,512, and $4,850, of payments made from the contingency reserve fund of OPM
during 2008, 2007, and 2006, respectively.The claim payments and operating expenses charged to the FEHBP are subject to audit by the
U.S. government. Management is of the opinion that an adjustment, if any, resulting from such
audits will not have a significant effect on the accompanying financial statements. The claim
payments and operating expenses reimbursed in connection with the FEHBP have been audited
through 2004 by OPM.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (11)
    
    BorrowingsA summary of the borrowings entered by the Company at December 31, 2008 and 2007 is as
follows:
 2008
    
    
    2007Senior unsecured notes payable of $50,000 issued on September
2004; due September 2019. Interest is payable semiannually
at a fixed rate of 6.30%
    
    $
    50,000
    
    
    
    50,000Senior unsecured notes payable of $60,000 issued on December
2005; due December 2020. Interest is payable monthly at a
fixed rate of 6.60%
    
    
    60,000
    
    
    
    60,000Senior unsecured notes payable of $35,000 issued on January
2006; 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 2.43% and 6.24% at
December 31, 2008 and 2007, respectively)
    
    
    24,307
    
    
    
    25,946Total borrowings
    
    $
    169,307
    
    
    
    170,946
 Aggregate maturities of the Companys borrowings as of December 31, 2008 are summarized as
follows:
 Year ending December 31:2009
    
    $
    1,6402010
    
    
    1,6402011
    
    
    1,6402012
    
    
    1,6402013
    
    
    1,640Thereafter
    
    
    161,107$
    169,307
 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 TSI and the Company have complied with at December 31, 2008.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, 2008 and 2007 amounted to
$1,140 and $1,239, respectively, and are included within the other assets in the accompanying
consolidated balance sheets.The secured loan payable previously described is guaranteed by a first position held by the
bank on the Companys land, building, and substantially all leasehold improvements, as
collateral for the term of the
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    loan under a continuing general security agreement. This
secured loan contains certain covenants, which are customary for this type of facility,
including but not limited to, restrictions on the granting of certain liens, limitations on
acquisitions and limitations on changes in control. 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 borrowings amounted to $10,451, $11,565, and $11,695, for the
years ended December 31, 2008, 2007, and 2006, respectively.
 (12)
    
    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 had 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.The Company had a variable-rate debt that was used to finance the acquisition of real
estate from subsidiaries (see note 11). The debt obligations expose the Company to
variability in interest payments due to changes in interest rates. On December 6, 2002,
management entered into an interest-rate swap agreement, with an effective date of April
1, 2003, to manage fluctuations in cash flows resulting from interest rate risk. The
interest-rate swap agreement matured on March 30, 2008. Changes in the fair value of the
interest-rate swap, designated as a hedging instrument that effectively offsets the
variability of cash flows associated with the variable-rate of the long-term debt
 37
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 obligation, was reported in accumulated other comprehensive income, net of the related
tax effect. This amount was subsequently reclassified into interest expense as a yield
adjustment of the hedged debt obligation in the same period in which the related interest
affects earnings. During the year ended December 31, 2008, the Company recorded $2 of
interest expense related to this agreement. During the years ended December 31, 2007 and
2006 the Companys interest expense was reduced by $419 and $379, respectively, of
interest received related to this agreement. No amount representing cash-flow hedge
ineffectiveness was recorded since the terms of the swap agreement allow the Company to
assume no ineffectiveness in the agreement.As of December 31, 2007, the fair value of the interest rate swap amounted to $93 and was
included within the other assets in the accompanying consolidated balance sheets.
 (b)
    
    Other Derivative InstrumentsThe Company has invested in other derivative instruments in order to diversify its
investment in securities and participate in the foreign stock market.During 2005 the Company invested in two structured note agreements amounting to $5,000
each, where the interest income received is linked to the performance of the Dow Jones
Euro STOXX 50 and Nikkei 225 Equity Indexes (the Indexes). Under these agreements the
principal invested by the Company is protected, the only amount that varies according to
the performance of the Indexes is the interest to be received upon the maturity of the
instruments. Should the Indexes experience a negative performance during the holding
period of the structured notes, no interest will be received and no amount will be paid
to the issuer of the structured notes. The contingent interest payment component within
the structured note agreements meets the definition of an embedded derivative. In
accordance with the provisions of SFAS No. 133, as amended, the embedded derivative
component of the structured notes is separated from the structured notes and accounted
for separately as a derivative instrument.The changes in the fair value of the embedded derivative component are recorded as gains
or losses in earnings in the period of change. During the years ended December 31, 2008
and 2007 the Company recorded a loss associated with the change in the fair value of this
derivative component of $4,658 and $45, respectively. During the year ended December 31,
2006 the Company recorded a gain associated with the change in the fair value of this
derivative component of $1,046. The change in the fair value of the embedded derivative
component is included within the other income, net in the accompanying consolidated
statement of earnings.As of December 31, 2008 and 2007, the fair value of the derivative component of the
structured notes amounted to $1,674 and $6,332, respectively, and is included within the
Companys other assets in the accompanying consolidated balance sheets. The investment component of the
structured notes is accounted for as held-to-maturity debt securities and is included
within the investment in securities in the accompanying consolidated balance sheets. As
of December 31, 2008 the fair value and amortized cost of the investment component of
both structured notes amounted to $9,396 and $8,698, respectively. As of December 31,
2007 the fair value and amortized cost of the investment component of both structured
notes amounted to $8,347 and $8,348, respectively.
 38
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (13)
    
    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 $312,358, $322,930, and $413,806, for each of the years in the
three-year period ended December 31, 2008.TSI is reimbursed for administrative expenses incurred in performing this service. For the
years ended December 31, 2008, 2007, and 2006, TSI was reimbursed by $8,678, $10,783, and
$13,073, 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,
2008.On September 12, 2008, the Centers for Medicare and Medicaid Services (CMS) announced that
First Coast Service Options (FCSO), a non-affiliated third party organization based in
Jacksonville, Florida, was awarded the Medicare Administrative Contract (MAC) for Jurisdiction
9 (Florida, Puerto Rico and the U.S. Virgin Islands). FCSO proposed TSM subsidiary, TSI as a
subcontractor in MAC Jurisdiction 9 to perform certain provider customer service functions,
among others, in Puerto Rico, effective March 1, 2009.
 (14)
    
    Reinsurance ActivityThe effect of reinsurance on premiums earned and claims incurred is as follows:
 Premiums earned
    
    
    Claims incurred(1)2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007
    
    
    2006Gross
    
    $
    1,780,765
    
    
    
    1,564,873
    
    
    
    1,584,857
    
    
    
    1,443,046
    
    
    
    1,249,554
    
    
    
    1,266,610Ceded
    
    
    (85,308
    )
    
    
    (81,325
    )
    
    
    (77,644
    )
    
    
    (20,121
    )
    
    
    (38,695
    )
    
    
    (22,869
    )Assumed
    
    
    
    
    
    
    
    
    
    
    4,413
    
    
    
    
    
    
    
    
    
    
    
    1,461Net
    
    $
    1,695,457
    
    
    
    1,483,548
    
    
    
    1,511,626
    
    
    
    1,422,925
    
    
    
    1,210,859
    
    
    
    1,245,202
 
 (1)
    
    The claims incurred disclosed in this table exclude the change in the
liability for future policy benefits amounting to $11,989, $12,916 and $13,779 during the
years ended December 31, 2008, 2007 and 2006, respectively. (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
 39
    
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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% 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% for any one risk.
In addition, STS has an additional property catastrophe excess of loss contract that
provides protection for losses in excess of $5,000 resulting from any catastrophe,
subject to a maximum loss of $10,000.
    
    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 $195,000.
    
    Property catastrophe excess of loss. This treaty provides protection for losses
in excess of $70,000 and $195,000 with respect to personal and commercial lines,
respectively, resulting from any catastrophe, subject to a maximum of $175,000.
    
    Personal lines quota share. This treaty provides protection of 11.75% on all
ground-up losses, subject to a limit of $1,000 for any one risk.
 40
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    Reinstatement premium protection. This treaty provides a maximum limit of
approximately $4,700 for personal lines and $13,700 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.
    
    
    Group life pro rata agreement, reinsuring 50% of the risk up to $250 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 and a combined pro rata and excess of loss agreement
effective July 1, 2008, reinsuring 50% of the risk up to $200 and ceding the excess.
    
    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.
 41
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    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 after 1999,
the retention limit is $175.
    
    TSV assumes 100% of the organ transplant risk, since January 31, 2007. Based on
the experience of relatively low claims for this risk, the Company believes any
single event of this nature will not have a significant adverse effect on the
consolidated financial statements.
 (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 $1,461, respectively.
 (15)
    
    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, 2008, tax years 2004 through 2007 of the
Company and its subsidiaries are subject to examination by Puerto Rico taxing authorities.
 42
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 $112, $164, and $148, in 2008, 2007, and 2006, 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.
 43
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The income tax expense differs from the amount computed by applying the Puerto Rico statutory
income tax rate to the income before income taxes as a result of the following:
 2008
    
    
    2007
    
    
    2006Income before taxes
    
    $
    31,944
    
    
    
    72,645
    
    
    
    67,559Statutory tax rate
    
    
    39.0
    %
    
    
    39.0
    %
    
    
    39.0
    %Income tax expense at
statutory rate of 39%
    
    
    12,458
    
    
    
    28,332
    
    
    
    26,348Increase (decrease) in taxes resulting from:Exempt interest income
    
    
    (13,561
    )
    
    
    (9,990
    )
    
    
    (9,196
    )Effect of taxing life insurance operations
as a qualified domestic life insurance
company instead of as a regular
corporation
    
    
    (1,336
    )
    
    
    (1,115
    )
    
    
    (1,674
    )Effect of using earnings under statutory
accounting principles instead ofGAAP for TSI and STS
    
    
    6,406
    
    
    
    371
    
    
    
    (1,718
    )Effect of taxing capital gains at a
preferential rate
    
    
    (237
    )
    
    
    (1,406
    )
    
    
    (541
    )Dividends received deduction
    
    
    (810
    )
    
    
    (821
    )
    
    
    (325
    )Other permanent disallowances, net
    
    
    5,564
    
    
    
    2,308
    
    
    
    2,626Adjustment to deferred tax assets and
liabilities for changes in effective
tax rates
    
    
    
    
    
    
    (2,131
    )
    
    
    (2,009
    )Other adjustments to deferred tax
assets and liabilities
    
    
    (300
    )
    
    
    (423
    )
    
    
    (399
    )Tax credit benefit
    
    
    (1,286
    )
    
    
    
    
    
    
    Other
    
    
    256
    
    
    
    (998
    )
    
    
    (86
    )Total income tax expense
    
    $
    7,154
    
    
    
    14,127
    
    
    
    13,026
 44
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Deferred income taxes reflect the tax effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and income tax purposes.
The net deferred tax asset at December 31, 2008 and 2007 of the Company and its subsidiaries
is composed of the following:
 2008
    
    
    2007Deferred tax assets:Allowance for doubtful receivables
    
    $
    5,325
    
    
    
    5,422Liability for pension benefits
    
    
    14,681
    
    
    
    9,885Employee benefits plan
    
    
    4,214
    
    
    
    4,856Postretirement benefits
    
    
    1,454
    
    
    
    1,789Deferred compensation
    
    
    1,661
    
    
    
    1,519Accumulated depreciation
    
    
    334
    
    
    
    356Impairment loss on investments
    
    
    2,816
    
    
    
    565Contingency reserves
    
    
    
    
    
    
    50Unrealized loss on trading securities
    
    
    1,300
    
    
    
    Unrealized loss on derivative instruments
    
    
    82
    
    
    
    Alternative minimum income tax credit
    
    
    940
    
    
    
    830Purchased tax credits
    
    
    8,337
    
    
    
    Other
    
    
    767
    
    
    
    544Gross deferred tax assets
    
    
    41,911
    
    
    
    25,816Deferred tax liabilities:Deferred policy acquisition costs
    
    
    (7,531
    )
    
    
    (7,102
    )Catastrophe loss reserve trust fund
    
    
    (5,495
    )
    
    
    (5,035
    )Unrealized gain upon acquisition of GA Life
    
    
    (1,753
    )
    
    
    (2,092
    )Unrealized gain on trading securities
    
    
    
    
    
    
    (1,859
    )Unrealized gain on securities available for sale
    
    
    (988
    )
    
    
    (1,842
    )Unrealized gain on derivative instruments
    
    
    
    
    
    
    (383
    )Unamortized bond issue costs
    
    
    (347
    )
    
    
    (383
    )Cash-flow hedges
    
    
    
    
    
    
    (37
    )Contingency reserves
    
    
    (302
    )
    
    
    Other
    
    
    (300
    )
    
    
    (300
    )Gross deferred tax liabilities
    
    
    (16,716
    )
    
    
    (19,033
    )Net deferred tax asset
    
    $
    25,195
    
    
    
    6,783
 In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management
believes that it is more likely than not that the Company will realize the benefits of these
deductible differences.
 45
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (16)
    
    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.
 46
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2008
    
    
    2007Change in benefit obligation:Projected benefit obligation at beginning of year
    
    $
    89,598
    
    
    
    88,774Service cost
    
    
    5,287
    
    
    
    5,489Interest cost
    
    
    5,458
    
    
    
    5,072Benefit payments
    
    
    (7,926
    )
    
    
    (5,141
    )Actuarial losses (gains)
    
    
    (7,641
    )
    
    
    1,774Plan amendments
    
    
    
    
    
    
    (6,370
    )Projected benefit obligation at end of year
    
    $
    84,776
    
    
    
    89,598Accumulated benefit obligation at end of year
    
    $
    62,371
    
    
    
    66,042Change in fair value of plan assets:Fair value of plan assets at beginning of year
    
    $
    63,614
    
    
    
    59,520Actual return on assets (net of expenses)
    
    
    (16,588
    )
    
    
    4,234Employer contributions
    
    
    5,000
    
    
    
    5,000Benefit payments
    
    
    (7,926
    )
    
    
    (5,140
    )Fair value of plan assets at end of year
    
    $
    44,100
    
    
    
    63,614Funded status at end of year
    
    $
    (40,677
    )
    
    
    (25,984
    )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
    
    $
    (5,822
    )
    
    
    606Amortization
    
    
    450
    
    
    
    (58
    )Prior service cost (credit) arising during the year
    
    
    
    
    
    
    (6,370
    )Unrecognized net prior service cost (credit)
    
    
    (5,372
    )
    
    
    (5,822
    )Development of actuarial loss:Balance at beginning of year
    
    
    30,373
    
    
    
    30,409Amortization
    
    
    (1,788
    )
    
    
    (1,959
    )Loss arising during the year
    
    
    13,975
    
    
    
    1,923Unrecognized actuarial loss
    
    
    42,560
    
    
    
    30,373Sum of deferrals
    
    $
    37,188
    
    
    
    24,551Net amount recognized
    
    $
    (3,489
    )
    
    
    (1,433
    )


47
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES










2008
    
    

2007Pension liability
    
    $
    40,676
    
    
    
    25,984Accumulated other comprehensive loss, net of a deferred
tax of $14,383 and $9,501 in 2008 and 2007, respectively
    
    
    22,805
    
    
    
    15,050




2008
    
    

2007
    
    

2006Components of net periodic benefit cost:Service cost
    
    $
    5,287
    
    
    
    5,489
    
    
    
    5,459Interest cost
    
    
    5,458
    
    
    
    5,072
    
    
    
    4,655Expected return on assets
    
    
    (5,027
    )
    
    
    (4,383
    )
    
    
    (3,858
    )Amortization of prior service cost (benefit)
    
    
    (450
    )
    
    
    58
    
    
    
    48Amortization of actuarial loss
    
    
    1,788
    
    
    
    1,959
    
    
    
    2,435Net periodic benefit cost
    
    $
    7,056
    
    
    
    8,195
    
    
    
    8,739






Prior service cost
    
    $
    (449
    )Actuarial loss
    
    
    2,291




2008
    

2007
    

2006Discount rate
    
    
    6.75
    %
    
    
    6.25
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Rate of compensation increase
    
    Graded; 3.50%
    
    Graded; 3.50%
    
    Graded; 3.50%to 8.00%
    
    to 8.00%
    
    to 8.00%


48
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
        (a)
    
    Plan AssetsThe Companys weighted average asset allocations at December 31, 2008 and 2007 were as
follows:
 Asset category
    
    2008
    

2007Equity securities
    
    
    58
    %
    
    
    59
    %Debt securities
    
    
    31
    
    
    
    31Real estate
    
    
    9
    
    
    
    9Other
    
    
    2
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
 The Companys plan assets are invested in the National Retirement Trust. The National
Retirement Trust was formed to provide financial and legal resources to help members of
the BCBSA offer retirement benefits to their employees.The investment program for the National Retirement Trust is based on the precepts of
capital market theory that are generally followed by institutional investors, who by
definition, are long-term oriented investors. This philosophy holds that:
 
    
    Increasing risk is rewarded with compensating returns over time, and therefore,
prudent risk taking is justifiable for long-term investors.
 49
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    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.
 Investments will be made for the sole interest of the participants and beneficiaries of
the programs participating in the National Retirement Trust. Accordingly, the assets of
the National Retirement Trust shall be invested in accordance with these objectives:
 
    
    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. In the process, the Administration of the
Trust 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 $7,000 to its pension program in 2009.The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid:
 Year ending December 31:2009
    
    $
    3,7262010
    
    
    4,1432011
    
    
    4,4082012
    
    
    5,0082013
    
    
    6,2442014  2018
    
    
    42,060
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Noncontributory Supplemental Pension PlanIn addition, the Company sponsors a noncontributory supplemental pension plan. This plan
covers employees with qualified defined benefit retirement plan benefits limited by the U.S.
Internal Revenue Code maximum compensation and benefit limits. At December 31, 2008 and 2007,
the Company has recorded a pension liability of $3,426 and $3,237, respectively. The charge to
accumulated other comprehensive loss related to the noncontributory pension plan at December
31, 2008 and 2007 amounted to $464 and $602, respectively, net of a deferred tax asset of $296
and $384, respectively.(17)
    
    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.This trust may invest its funds in securities authorized by the Insurance Code, but not in
investments whose value may be affected by hazards covered by the catastrophic insurance
losses. The interest earned on these investments and any realized gains (loss) on investment
transactions are part of the trust fund and are recorded as income (expense) of the Company.
An amount equal to the investment returns is recorded as an addition to the catastrophe loss
reserve.The assets in this fund, which amounted to $31,349 and $29,096 as of December 31, 2008 and
2007, respectively, are to be used solely and exclusively to pay catastrophe losses covered
under policies written in Puerto Rico.STS is required to make deposits to the trust fund, if any, on or before January 30 of the
following year. Contributions are determined by a rate imposed by the Commissioner of
Insurance for the catastrophe policies written in that year. Additions in 2008 and 2007,
amounting to $850 and $822, respectively, were determined by applying a rate of 1% to
catastrophe premiums written.The amount in the trust fund may be withdrawn or released in the case that STS ceases to
underwrite risks subject to catastrophe losses. Also, authorized withdrawals are allowed when
the catastrophe loss reserve exceeds 8% of the catastrophe exposure, as defined.Retained earnings are restricted in the accompanying consolidated balance sheets by the total
catastrophe loss reserve balance, which as of December 31, 2008 and 2007 amounted to $32,200
and $29,918, respectively.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (18)
    
    Business CombinationsEffective January 31, 2006, the Company acquired 100% of the common stock of GA Life. As a
result of this acquisition, the Corporation became one of the leading providers of life
insurance policies in Puerto Rico. The acquisition was accounted by the Company in accordance
with the provisions of SFAS No. 141, Business Combinations. The results of operations and
financial condition of GA Life are included in the accompanying consolidated financial
statements for the period following the effective date of the acquisition. The aggregate
purchase price of the acquired entity amounted to $38,196; of this amount $37,500 was paid in
cash on January 31, 2006 and $696 was direct costs related to the acquisition.The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition.
 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
 The estimated fair value of the value of business acquired was actuarially determined by
discounting after-tax profits at a risk rate of return equal to approximately 12%. After-tax
profits were forecasted based upon models of the insurance in-force, actual invested assets as
of acquisition date and best-estimate actuarial assumptions regarding premium income, claims,
persistency, expenses and investment income accruing from invested assets plus reinvestment of
positive cash flows. The best-estimate actuarial assumptions were based upon GA Lifes recent
experience in each of its major life and health insurance product lines. The amount of value
of business acquired is to be amortized, considering interest, over the anticipated
premium-paying period of the related policies in proportion to the ratio of annual premium
revenue to the expected total premium revenue to be received over the life of the policies.The following unaudited pro forma financial information presents the combined results of
operations of the Company and GA Life as if the acquisition had occurred at the beginning of
2006. 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 2006 period presented and should
not be taken as indicative of the Companys future consolidated results of operations.
 Operating revenues
    
    $
    1,576,492Net income
    
    
    54,850Basic net income per share
    
    
    2.05
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (19)
    
    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 the 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 the Companys amended and restated certificate
of incorporation.On December 8, 2008, the Company converted 7 million issued and outstanding Class A
shares into Class B shares, in conjunction with the expiration of the lockup agreements
signed by holders of Class A shares at the time of the Companys initial public offering.(b)
    
    Stock Repurchase ProgramThe Company may repurchase its common stock under a $40,000 share repurchase program
authorized by the Companys Board of Directors in October 2008. Repurchases may be
conducted through open-market purchases and privately-negotiated transactions of Class B
shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as
amended. During 2008, the Company repurchased and retired approximately 1,181,500 shares
at an average per share price of $11.75, for an aggregate cost of $13,880. Therefore, as
of December 31, 2008, $26,120 remained authorized by the Companys Board of Directors for
future repurchases. At December 31, 2008, the Company had unsettled shares repurchases
amounting to $6,235. Such amount is included in the accompanying consolidated balance
sheet as account payable and accrued liabilities. The timing and extent of any purchases
under the program will depend on market conditions, the trading price of the shares and
other considerations, and the program may be suspended or terminated at any time.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (c)
    
    Preferred StockAuthorized capital stock includes 100,000,000 of preferred stock with a par value of
$1.00 per share. As of December 31, 2008 and 2007, there are no issued and outstanding
preferred shares.(d)
    
    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.(e)
    
    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.
 (20)
    
    Comprehensive IncomeThe accumulated balances for each classification of other comprehensive income are as follows:
 AccumulatedUnrealized
    
    
    Liability
    
    
    
    
    
    
    othergains (losess) on
    
    
    for pension
    
    
    Cash-flow
    
    
    comprehensivesecurities
    
    
    benefits
    
    
    hedges
    
    
    lossBeginning balance
    
    $
    9,554
    
    
    
    (15,652
    )
    
    
    56
    
    
    
    (6,042
    )Net current period change
    
    
    (16,856
    )
    
    
    (7,615
    )
    
    
    (56
    )
    
    
    (24,527
    )Reclassification adjustments for
gains and losses reclassified
in income
    
    
    12,904
    
    
    
    
    
    
    
    
    
    
    
    12,904Ending balance
    
    $
    5,602
    
    
    
    (23,267
    )
    
    
    
    
    
    
    (17,665
    )
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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
2008 and 2007 are as follows:
 2008Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding losses on securities
arising during the period
    
    $
    (18,944
    )
    
    
    2,088
    
    
    
    (16,856
    )Less reclassification adjustment for
gains and losses realized in income
    
    
    14,138
    
    
    
    (1,234
    )
    
    
    12,904Net change in unrealized loss
    
    
    (4,806
    )
    
    
    854
    
    
    
    (3,952
    )Liability for pension benefits
    
    
    (12,411
    )
    
    
    4,796
    
    
    
    (7,615
    )Cash-flow hedges
    
    
    (93
    )
    
    
    37
    
    
    
    (56
    )Net current period change
    
    $
    (17,310
    )
    
    
    5,687
    
    
    
    (11,623
    )
 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2006Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding losses 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 loss
    
    
    (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
    )
 (21)
    
    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, 2008,
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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 was a newly public entity, expected volatility was 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 was 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
    %
 Stock option activity during the periods indicated is as follows:
 Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    AggregateNumber of
    
    
    exercise
    
    
    contractual
    
    
    intrinsicshares
    
    
    price
    
    
    term (years)
    
    
    valueOutstanding balance at January 1, 2008
    
    
    999,309
    
    
    $
    14.50Grants
    
    
    Outstanding balance at December 31, 2008
    
    
    999,309
    
    
    $
    14.50
    
    
    
    5.93
    
    
    $
    Exercisable at December 31, 2008
    
    
    333,100
    
    
    $
    14.50
    
    
    
    5.93
    
    
    $
    
 During 2007, 999,309 options were granted. 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, 2008 and 2007. No options were granted in 2008.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    A summary of the status of the Companys nonvested restricted and performance shares as of
December 31, 2008, and changes during the year ended December 31, 2008, are presented below:
 Restricted awards
    
    
    Performance awardsWeighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exerciseshares
    
    
    price
    
    
    shares
    
    
    priceOutstanding balance at January 1, 2008
    
    
    166,554
    
    
    $
    14.50
    
    
    
    166,554
    
    
    $
    14.50Granted
    
    
    19,935
    
    
    
    18.81
    
    
    
    Lapsed
    
    
    (55,516
    )
    
    
    14.50
    
    
    
    Outstanding balance at December 31, 2008
    
    
    130,973
    
    
    $
    15.16
    
    
    
    166,554
    
    
    $
    14.50Excercisable at end of year
    
    
    55,516
    
    
    $
    14.50
    
    
    
    
    
    
    $
    
 The weighted average grant date fair value of restricted shares granted during the year 2008
and 2007 were $18.81 and $14.50, respectively. There were no restricted shares exercised
during the year ended December 31, 2008 and 2007.At December 31, 2008 and 2007, there was $5,956 and $8,590, respectively, 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 1.92 years. The Company currently uses authorized and unissued Class B common shares to
satisfy share award exercises.(22)
    
    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, 2008.
 2008
    
    
    2007
    
    
    2006Numerator for earnings per share:Net income available to stockholders
    
    $
    24,790
    
    
    
    58,518
    
    
    
    54,533Denominator for basic earnings per share 
Weighted average of common shares
    
    $
    32,120,461
    
    
    
    27,200,067
    
    
    
    26,729,500Effect of dilutive securities  Nonvested
restricted stock awards
    
    
    42,094
    
    
    
    2,038
    
    
    
    Denominator for diluted earnings per share
    
    
    32,162,555
    
    
    
    27,202,105
    
    
    
    26,729,500Basic net income per share
    
    $
    0.77
    
    
    
    2.15
    
    
    
    2.04Diluted net income per share
    
    
    0.77
    
    
    
    2.15
    
    
    
    2.04
 During the years ended December 31, 2008 and 2007, the weighted average of stock option shares of
999,309 and 83,276, respectively, were excluded from the denominator for diluted earnings per share
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    because the stock options were anti-dilutive. There were no anti-dilutive stock options during
the year ended December 31, 2006.(23)
    
    CommitmentsThe Company leases its regional offices, certain equipment, and warehouse facilities under
noncancelable operating leases. Minimum annual rental commitments at December 31, 2008 under
existing agreements are summarized as follows:
 Year ending December 31:2009
    
    $
    6,0392010
    
    
    4,4082011
    
    
    2,7312012
    
    
    1,1192013
    
    
    473Thereafter
    
    
    2,134Total
    
    $
    16,904
 Rental expense for 2008, 2007, and 2006 was $3,532, $4,007, and $3,962, respectively, after
deducting the amount of $265, $303, and $348, respectively, reimbursed by CMS for the
administration of the Medicare Part B Program (see note 13).(24)
    
    Contingencies
 (a)
    
    Legal ProceedingsAs of December 31, 2008, the Company is a defendant in various lawsuits arising in the
ordinary course of business. We are also defendants in various other claims and
proceedings, some of which are described below. Furthermore, the Commissioner of
Insurance, as well as other Federal and Puerto Rico government authorities, regularly
make inquiries and conduct audits concerning the Corporations compliance with applicable
insurance and other laws and regulations.Management believes that the aggregate liabilities, if any, arising from all such claims,
assessments, audits and lawsuits will not have a material adverse effect on the
consolidated financial position or results of operations of the Corporation. However,
given the inherent unpredictability of these matters, it is possible that an adverse
outcome in certain matters could have a material adverse effect on the Companys
financial condition, operating results and/or cash flows. Where the Corporation believes
that a loss is both probable and estimable, such amounts have been recorded. In other
cases, it is at least reasonably possible that the Corporation may incur a loss related
to one or more of the mentioned pending lawsuits or investigations, but the Corporation
is unable to estimate the range of possible loss which may be ultimately realized, either
individually or in the aggregate, upon their resolution.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Hau et al Litigation (formerly known as Jordan et al)On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit
against the Corporation, TSI and others in the Court of First Instance for San Juan,
Superior Section (the Court), alleging, among other things, violations by the
defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair
business practices, RICO violations, breach of contract with providers, and damages in
the amount of $12 million. Following years of complaint amendments, motions practice and
interim appeals up to the level of the Puerto Rico Supreme Court, the plaintiffs amended
their complaint on June 20, 2008 to allege with particularity the same claims initially
asserted but on behalf of a more limited group of plaintiffs, and increase their claim
for damages to approximately $207 million. At a status conference held on August 18,
2008, the parties informed the Court that they had reached an agreement to try to
simplify the case. Based on the agreement, which was approved by the Court, the
defendants sent a letter to the plaintiffs on September 19, 2008 explaining the reasons
why the allegations of the amended complaint should be dismissed. We are currently
waiting for the plaintiffs to reply.Thomas LitigationOn May 22, 2003, Kenneth A. Thomas, M.D. and Michael Kutell, M.D. filed a putative class
action suit against the Blue Cross Blue Shield Association and substantially all of the
other Blue Cross and Blue Shield plans in the United States, including TSI. The
complaint alleges that the defendants, on their own and as part of a common scheme,
systematically deny, delay and diminish the payments due to doctors so that they are not
paid in a timely manner for the covered medically necessary services they render. TSI,
along with the other defendants, moved to dismiss the complaint on multiple grounds,
including but not limited an arbitration right and the applicability of the McCarran
Ferguson Act. The parties announced a Settlement Agreement on April 27, 2007 and on
April 19, 2008, the Court granted final approval of the settlement. A small group of
physicians filed an appeal of the settlement that is pending in the Eleventh Circuit.
The Company recorded an accrual for the settlement that is included within accounts
payable and accrued liabilities in the accompanying consolidated financial statements.Colón LitigationOn October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSI predecessor
stock, filed suit against TSI and the Puerto Rico Commissioner of Insurance (the
Commissioner) in the Court of First Instance for San Juan, Superior Section. The sale of
that share to Mr. Colón-Dueño was voided in 1999 pursuant to an order issued by the
Commissioner in which the sale of 1,582 shares to a number of TSI shareholders was
voided. The Puerto Rico Court of Appeals upheld the order on March 31, 2000. The
plaintiff requests that the court direct TSI to return his share of stock and pay damages
in excess of $500,000 and attorneys fees. Management plans to vigorously contest this
lawsuit because, among other reasons, the Commissioners order is final and cannot be
collaterally attacked in this litigation.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Puerto Rico Center for Municipal Revenue CollectionOn 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
fiscal years 1992-1993 through 2002-2003. During that 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 revoked the tax rulings
retroactively, based on its contention that a for-profit corporation such as TSI is not
entitled to such an exemption. On March 28, 2006 and March 29, 2006, respectively, TSI
challenged the real and personal property tax assessments in the Court of First Instance
for San Juan, Superior Section. The court granted summary judgment affirming the real
property and personal property tax assessments on October 29, 2007 and December 5, 2007,
respectively.After unsuccessfully filing motions for reconsideration in both cases, TSI appealed the
courts decisions before the Puerto Rico Court of Appeals on November 29, 2007 and
February 21, 2008, respectively. TSI also requested a consolidation of both cases, which
the Court of Appeals approved on April 17, 2008. On May 27, 2008, TSI submitted a motion
to the Court of Appeals requesting the Court to take notice of a recent decision of the
Puerto Rico Supreme Court that addresses administrative law issues involving other
parties and which TSI believes confirms its position that the rulings issued by the
Puerto Rico tax authorities may not be revoked on a retroactive basis. On June 30, 2008
the Court of Appeals confirmed the summary judgment issued by the Court of First Instance
in both property tax cases. On September 29, 2008, TSI timely filed a certiorari
petition with the Puerto Rico Supreme Court, which is currently pending. Management
believes that these municipal tax assessments are improper and expects to prevail in this
litigation.Dentists Association LitigationOn February 11, 2009, the Puerto Rico Dentists Association (Colegio de Cirujanos
Dentistas de Puerto Rico, or CCD) filed a complaint in the Puerto Rico Court of First
Instance for San Juan against 24 health plans operating in Puerto Rico that offer dental
health coverage. The Company, TSI, and Triple-C, Inc., a Company subsidiary, were
included as defendants. This litigation purports to be a class action filed on behalf of
Puerto Rico dentists who are similarly situated; however, the complaint does not include
a single dentist as a class representative nor a definition of the intended class.The complaint alleges that the defendants, on their own and as part of a common scheme,
systematically deny, delay and diminish the payments due to dentists so that they are not
paid in a timely and complete manner for the covered medically necessary services they
render. The complaint also alleges, among other things, violations to the Puerto Rico
Insurance Code, antitrust laws, the Puerto Rico racketeering statute, unfair business
practices, breach of contract with providers, and damages in the amount of $150 million.
In addition, the complaint claims that the Puerto Rico Insurance Companies Association
(ACODESE for its Spanish acronym) is the hub of an alleged conspiracy concocted by the
member plans to defraud dentists.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    There are numerous available defenses to oppose both the request for class certification
and the merits. The Company intends to vigorously defend this claim.Claims by Heirs of Former ShareholdersThe Company and TSI are also defending four individual lawsuits and one purported class
action, all filed in state court, from persons who claim to have inherited a total of 90
shares of the Company or one of its predecessors (before giving effect to the
3,000-for-one stock split). While each case presents unique facts, the lawsuits
generally allege that the redemption of the shares by the Company pursuant to transfer
and ownership restrictions contained in the Companys (or its predecessors) articles of
incorporation and bylaws was improper. On February 18, 2009, the Court of First Instance
for San Juan, Superior Section, issued an order granting our motion to dismiss the
purported class action suit, on grounds that the claim was time barred under the Puerto
Rico Securities Act. Motions to dismiss are pending in a majority of the remaining cases
and discovery has begun in all of them. Management believes all these claims are time
barred under one or more statutes of limitations, and intends to vigorously defend
against them.(b)
    
    Guarantee AssociationsPursuant to the Insurance Code, STS is a member of Sindicato de Aseguradores para la
Suscripción Conjunta de Seguros de Responsabilidad Professional Médico-Hospitalaria
(SIMED) and of the Sindicato de Aseguradores de Responsabilidad Professional 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 2008, 2007, and 2006, 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, 2008,
the Association distributed good experience refunds. STS received refunds amounting to
$1,131, $1,023, and $769, in 2008, 2007, and 2006, 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 2008 and 2007 no assessment or payment was made by STS in
connection with insurance companies declared insolvent. During 2006, STS paid assessments
of $995. Moreover, no assessments were attributable to TSI and Triple-S Vida, Inc. during
2008, 2007, and 2006.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (25)
    
    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 17, a portion of the
accumulated earnings of STS are also restricted by the catastrophe loss reserve balance
(amounting to $31,349 and $29,918 as of December 31, 2008 and 2007, respectively) as required
by the Insurance Code.The net admitted assets, unassigned surplus, and capital and surplus of the insurance
subsidiaries at December 31, 2008 (preliminary) and 2007 are as follows:
 2008TSI
    
    STS
    
    TSVNet admitted assets
    
    $
    593,781
    
    
    
    270,684
    
    
    
    332,041Unassigned surplus
    
    
    62,089
    
    
    
    57,508
    
    
    
    (13,318
    )Capital and surplus
    
    
    212,089
    
    
    
    96,525
    
    
    
    48,742
 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
 The statutory net income of the insurance subsidiaries for the years ended December 31, 2008
(preliminary), 2007, and 2006 is as follows:
 TSI
    
    STS
    
    TSV2008
    
    $
    26,838
    
    
    
    4,767
    
    
    
    2,6242007
    
    
    41,742
    
    
    
    14,608
    
    
    
    7,7362006
    
    
    24,723
    
    
    
    9,270
    
    
    
    7,077
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (26)
    
    Supplementary Information on Noncash Transactions Affecting Cash Flow Activities
 2008
    
    2007
    
    2006Supplementary information:Noncash transactions affecting cash
flows activities:Change in net unrealized gain on
securities available for sale,
including deferred income tax
liability of $854, $1,840, and
$803
in 2008, 2007, and 2006,
respectively
    
    $
    (3,952
    )
    
    
    9,549
    
    
    
    (3,212
    )Change in cash-flow hedges,
including deferred income tax
liability of $37, $159 and $40
in 2008, 2007, and 2006,
respectively
    
    
    (56
    )
    
    
    (250
    )
    
    
    (65
    )Change in liability for pension
benefits, and deferred income
tax asset of $4,796, $2,189, and
$7,189, in 2008, 2007, and 2006,
respectively
    
    
    (7,615
    )
    
    
    4,090
    
    
    
    4,952Adjustment to initially apply SFAS
No. 158, including deferred
income tax effect of $10,152
in 2006.
    
    
    
    
    
    
    
    
    
    
    (16,081
    )Unsettled shares repurchases
    
    
    6,235
    
    
    
    
    
    
    
    Unsettled investment acquisitions
    
    
    
    
    
    
    117,706
    
    
    
    226Unsettled investment sales
    
    
    (1,500
    )
    
    
    
    
    
    
    (13
    )Other:Income taxes paid
    
    
    25,597
    
    
    
    25,940
    
    
    
    2,813Interest paid
    
    
    14,330
    
    
    
    14,102
    
    
    
    14,215
 On January 31, 2006, the Company acquired GA Life (now TSV). Refer to note 18 for a summary of
assets acquired and liabilities assumed as part of the acquisition.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (27)
    
    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 $124,239, $121,126, and $113,355 for the three-year period ended
December 31, 2008, 2007, and 2006, respectively (see note 10). 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 $40,686, $46,649, and $54,143, for the three-year period
ended December 31, 2008, 2007, and 2006, 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 13).
    
    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 $438,723,
$255,570, and $170,820 the three-year period ended December 31, 2008, 2007, and
2006, 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 $340,123, $327,544, and $455,891, for
three-year period ended December 31, 2008, 2007, and 2006, respectively. 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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, 2009. Effective November 2008, the Company was
awarded with the Metro-North Region as an Administrative Service Only (ASO) contract
for the term of one year. Administrative service fee for the Metro-North Region for
the year ended December 31, 2008 amounted to $2,712; which is included in the
Administrative service fee in the accompanying consolidated statement of earnings.
 
    
    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 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, 2008, 2007, and 2006.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008
    
    
    2007
    
    
    2006Operating revenues:Managed care:Premiums earned, net
    
    $
    1,509,778
    
    
    
    1,298,776
    
    
    
    1,337,070Fee revenue
    
    
    19,187
    
    
    
    14,018
    
    
    
    14,089Intersegment premiums/fee revenue
    
    
    6,538
    
    
    
    6,229
    
    
    
    5,531Net investment income
    
    
    23,091
    
    
    
    19,673
    
    
    
    18,852Total managed care
    
    
    1,558,594
    
    
    
    1,338,696
    
    
    
    1,375,542Life:Premiums earned, net
    
    
    92,469
    
    
    
    88,505
    
    
    
    86,595Intersegment premiums
    
    
    374
    
    
    
    356
    
    
    
    293Net investment income
    
    
    16,482
    
    
    
    15,016
    
    
    
    13,749Total life
    
    
    109,325
    
    
    
    103,877
    
    
    
    100,637Property and casualty:Premiums earned, net
    
    
    93,211
    
    
    
    96,267
    
    
    
    87,961Intersegment premiums
    
    
    610
    
    
    
    616
    
    
    
    591Net investment income
    
    
    12,545
    
    
    
    11,849
    
    
    
    9,589Total property and casualty
    
    
    106,366
    
    
    
    108,732
    
    
    
    98,141Other segments  intersegment service revenues*
    
    
    46,578
    
    
    
    44,971
    
    
    
    53,375Total business segments
    
    
    1,820,863
    
    
    
    1,596,276
    
    
    
    1,627,695TSM operating revenues from external sources
    
    
    4,135
    
    
    
    656
    
    
    
    467Elimination of intersegment premiums
    
    
    (7,523
    )
    
    
    (7,201
    )
    
    
    (6,415
    )Elimination of intersegment service revenue
    
    
    (46,578
    )
    
    
    (44,971
    )
    
    
    (53,375
    )Consolidated operating
revenues
    
    $
    1,770,897
    
    
    
    1,544,760
    
    
    
    1,568,372
 
 *
    
    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. 67
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008
    
    
    2007
    
    
    2006Operating income:Managed care
    
    $
    52,632
    
    
    
    57,392
    
    
    
    45,472Life
    
    
    12,489
    
    
    
    10,716
    
    
    
    11,196Property and casualty
    
    
    13,147
    
    
    
    10,740
    
    
    
    11,250Other segments*
    
    
    985
    
    
    
    891
    
    
    
    1,115Total business segments
    
    
    79,253
    
    
    
    79,739
    
    
    
    69,033TSM operating revenues from external sources
    
    
    4,135
    
    
    
    656
    
    
    
    467TSM unallocated operating expenses
    
    
    (9,283
    )
    
    
    (7,846
    )
    
    
    (6,648
    )Elimination of TSM charges
    
    
    9,991
    
    
    
    10,903
    
    
    
    10,474Consolidated operating income
    
    
    84,096
    
    
    
    83,452
    
    
    
    73,326Consolidated net realized investment gains (losses)
    
    
    (13,940
    )
    
    
    5,931
    
    
    
    837Consolidated net unrealized gain (loss) on trading
securities
    
    
    (21,063
    )
    
    
    (4,116
    )
    
    
    7,699Consolidated interest expense
    
    
    (14,681
    )
    
    
    (15,839
    )
    
    
    (16,626
    )Consolidated other income, net
    
    
    (2,468
    )
    
    
    3,217
    
    
    
    2,323Consolidated income before taxes
    
    $
    31,944
    
    
    
    72,645
    
    
    
    67,559
 2008
    
    
    2007
    
    
    2006Depreciation expense:Managed care
    
    $
    4,339
    
    
    
    4,277
    
    
    
    3,788Life
    
    
    656
    
    
    
    677
    
    
    
    750Property and casualty
    
    
    1,450
    
    
    
    1,488
    
    
    
    775Total business segments
    
    
    6,445
    
    
    
    6,442
    
    
    
    5,313TSM depreciation expense
    
    
    922
    
    
    
    1,120
    
    
    
    1,130Consolidated depreciation expense
    
    $
    7,367
    
    
    
    7,562
    
    
    
    6,443
 
 *
    
    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 68
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2008
    
    
    2007Assets:Managed care
    
    $
    678,889
    
    
    
    762,422Life
    
    
    460,109
    
    
    
    430,807Property and casualty
    
    
    337,869
    
    
    
    375,415Other segments*
    
    
    12,620
    
    
    
    11,255Total business segments
    
    
    1,489,487
    
    
    
    1,579,899Unallocated amounts related to TSM:Cash, cash equivalents, and investments
    
    
    58,480
    
    
    
    82,980Property and equipment, net
    
    
    21,648
    
    
    
    22,523Other assets
    
    
    4,079
    
    
    
    2,28084,207
    
    
    
    107,783Elimination entries  intersegment receivables and others
    
    
    (25,235
    )
    
    
    (28,140
    )Consolidated total assets
    
    $
    1,548,459
    
    
    
    1,659,542
 2008
    
    
    2007Significant noncash items:Net change in unrealized gain on securities available for sale:Managed care
    
    $
    (4,359
    )
    
    
    2,928Life
    
    
    538
    
    
    
    3,253Property and casualty
    
    
    1,139
    
    
    
    3,085Total business segments
    
    
    (2,682
    )
    
    
    9,266Amount related to TSM
    
    
    (1,270
    )
    
    
    283Consolidated net change in unrealized gain on securities available for sale
    
    $
    (3,952
    )
    
    
    9,549Net change in liability for pension benefits:Managed care
    
    $
    (4,946
    )
    
    
    2,838Life
    
    
    (81
    )
    
    
    35Property and casualty
    
    
    (490
    )
    
    
    275Other segments*
    
    
    (1,948
    )
    
    
    844Total business segments
    
    
    (7,465
    )
    
    
    3,992Amount related to TSM
    
    
    (150
    )
    
    
    98Consolidated net change in liability for pension benefits
    
    $
    (7,615
    )
    
    
    4,090
 
 *
    
    Includes segments that are not required to be reported separately. These segments include the data processing services
organization as well as the third-party administrator of health insurance services. 69
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (28)
    
    Quarterly Financial Information (Unaudited)
 2008March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenues:Premiums earned, net
    
    $
    404,399
    
    
    
    419,157
    
    
    
    433,219
    
    
    
    438,682
    
    
    
    1,695,457Administrative service fees
    
    
    3,713
    
    
    
    3,920
    
    
    
    4,448
    
    
    
    7,106
    
    
    
    19,187Net investment income
    
    
    13,432
    
    
    
    14,302
    
    
    
    14,072
    
    
    
    14,447
    
    
    
    56,253Total operating
revenues
    
    
    421,544
    
    
    
    437,379
    
    
    
    451,739
    
    
    
    460,235
    
    
    
    1,770,897Net realized investment
gains (losses)
    
    
    609
    
    
    
    (1,741
    )
    
    
    (1,101
    )
    
    
    (11,707
    )
    
    
    (13,940
    )Net unrealized investment
loss on trading securities
    
    
    (6,250
    )
    
    
    (951
    )
    
    
    (3,605
    )
    
    
    (10,257
    )
    
    
    (21,063
    )Other income (loss), net
    
    
    (1,521
    )
    
    
    1,360
    
    
    
    (1,147
    )
    
    
    (1,160
    )
    
    
    (2,468
    )Total revenues
    
    
    414,382
    
    
    
    436,047
    
    
    
    445,886
    
    
    
    437,111
    
    
    
    1,733,426Benefits and expenses:Claims incurred
    
    
    350,207
    
    
    
    354,780
    
    
    
    365,585
    
    
    
    364,342
    
    
    
    1,434,914Operating expenses
    
    
    60,031
    
    
    
    61,399
    
    
    
    63,572
    
    
    
    66,885
    
    
    
    251,887Total operating costs
    
    
    410,238
    
    
    
    416,179
    
    
    
    429,157
    
    
    
    431,227
    
    
    
    1,686,801Interest expense
    
    
    3,673
    
    
    
    3,926
    
    
    
    3,749
    
    
    
    3,333
    
    
    
    14,681Total benefits and
expenses
    
    
    413,911
    
    
    
    420,105
    
    
    
    432,906
    
    
    
    434,560
    
    
    
    1,701,482Income before taxes
    
    
    471
    
    
    
    15,942
    
    
    
    12,980
    
    
    
    2,551
    
    
    
    31,944Income tax expense (benefit):Current
    
    
    (184
    )
    
    
    4,291
    
    
    
    4,580
    
    
    
    2,855
    
    
    
    11,542Deferred
    
    
    (547
    )
    
    
    (486
    )
    
    
    (1,071
    )
    
    
    (2,284
    )
    
    
    (4,388
    )Total income taxes
    
    
    (731
    )
    
    
    3,805
    
    
    
    3,509
    
    
    
    571
    
    
    
    7,154Net income
    
    $
    1,202
    
    
    
    12,137
    
    
    
    9,471
    
    
    
    1,980
    
    
    
    24,790Basic net income per share
    
    $
    0.04
    
    
    
    0.38
    
    
    
    0.29
    
    
    
    0.06
    
    
    
    0.77Diluted net income per share
    
    
    0.04
    
    
    
    0.38
    
    
    
    0.29
    
    
    
    0.06
    
    
    
    0.77
 70
    
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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
 71




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule III  Supplementary Insurance Information
For the years ended December 31, 2008, 2007 and 2006
 (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
    
    
    Written2008Managed care
    
    $
    
    
    
    $
    201,849
    
    
    $
    
    
    
    $
    5,585
    
    
    $
    
    
    
    $
    1,513,025
    
    
    $
    23,091
    
    
    $
    1,345,371
    
    
    $
    
    
    
    $
    160,591
    
    
    $
    1,513,025Life insurance
    
    
    101,243
    
    
    
    39,948
    
    
    
    207,545
    
    
    
    3,370
    
    
    
    
    
    
    
    92,843
    
    
    
    16,482
    
    
    
    47,432
    
    
    
    16,404
    
    
    
    33,000
    
    
    
    92,843Property and casualty insurance
    
    
    25,104
    
    
    
    81,913
    
    
    
    
    
    
    
    101,186
    
    
    
    
    
    
    
    93,821
    
    
    
    12,546
    
    
    
    42,111
    
    
    
    27,383
    
    
    
    23,725
    
    
    
    95,867Other non-reportable segments, parent company
operations and net consolidating entries.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,232
    )
    
    
    4,134
    
    
    
    
    
    
    
    
    
    
    
    (9,216
    )
    
    
    Total
    
    $
    126,347
    
    
    $
    323,710
    
    
    $
    207,545
    
    
    $
    110,141
    
    
    $
    
    
    
    $
    1,695,457
    
    
    $
    56,253
    
    
    $
    1,434,914
    
    
    $
    43,787
    
    
    $
    208,100
    
    
    $
    1,701,7352007Managed 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
    
    
    $
    1,517,811




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule IV  Reinsurance
For the years ended December 31, 2008, 2007 and 2006
 (Dollar amounts in thousands)
 PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    Net
    
    
    AssumedAmount
    
    
    Companies (1)
    
    
    Companies
    
    
    Amount
    
    
    to Net2008Life insurance in force
    
    $
    10,503,170
    
    
    
    2,823,647
    
    
    
    
    
    
    
    7,679,523
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    100,413
    
    
    
    7,570
    
    
    
    
    
    
    
    92,843
    
    
    
    0.0
    %Accident and health insurance
    
    
    1,518,648
    
    
    
    5,623
    
    
    
    
    
    
    
    1,513,025
    
    
    
    0.0
    %Property and casualty insurance
    
    
    167,982
    
    
    
    72,115
    
    
    
    
    
    
    
    95,867
    
    
    
    0.0
    %Total premiums
    
    $
    1,787,043
    
    
    
    85,308
    
    
    
    
    
    
    
    1,701,735
    
    
    
    0.0
    %2007Life 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
    %
 
 (1)
    
    Premiums ceded on the life insurance business are net of commission income on reinsurance amounting
to $287, $258 and $275 for the years ended December 31, 2008, 2007 and 2006.




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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, 2008, 2007 and 2006
 (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)
    
    
    Period2008Allowance for doubtful receivables
    
    $
    15,925
    
    
    
    821
    
    
    
    
    
    
    
    (2,001
    )
    
    
    14,7452007Allowance for doubtful receivables
    
    $
    18,230
    
    
    
    6,661
    
    
    
    
    
    
    
    (8,966
    )
    
    
    15,9252006Allowance for doubtful receivables
    
    $
    12,240
    
    
    
    8,570
    
    
    
    1,380
    
    
    
    (3,960
    )
    
    
    18,230
 
 (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.




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans as of December 31, 2006
  /s/ KPMG LLP




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,952
    
    
    
    47,772Receivables:Due from subsidiaries
    
    
    8,956
    
    
    
    597Other
    
    
    70
    
    
    
    25Total receivables
    
    
    9,026
    
    
    
    622Investment in securities
    
    
    56,528
    
    
    
    35,208Prepaid income tax
    
    
    385
    
    
    
    111Net deferred tax assets
    
    
    414
    
    
    
    367Accrued interest
    
    
    868
    
    
    
    173Other assets
    
    
    115
    
    
    
    198Total current assets
    
    
    69,288
    
    
    
    84,451Note receivable from subsidiary
    
    
    37,000
    
    
    
    57,000Accrued interest on note receivable from subsidiary
    
    
    11,339
    
    
    
    8,151Net deferred tax assets
    
    
    1,459
    
    
    
    543Investments in wholly owned subsidiaries
    
    
    484,535
    
    
    
    448,579Property and equipment, net
    
    
    21,648
    
    
    
    22,523Other assets
    
    
    768
    
    
    
    863Total assets
    
    $
    626,037
    
    
    
    622,110Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    1,640
    
    
    
    1,640Due to subsidiary
    
    
    197
    
    
    
    6,015Accounts payable and accrued expenses
    
    
    14,154
    
    
    
    8,045Total current liabilities
    
    
    15,991
    
    
    
    15,700Long-term debt
    
    
    117,667
    
    
    
    119,306Liability for pension benefits
    
    
    7,280
    
    
    
    4,566Total liabilities
    
    
    140,938
    
    
    
    139,572Stockholders equity:Common stock Class A, $1 par value. Authorized 100,000,000 shares;
issue and outstanding 9,042,809 and 16,042,809 shares at
December 31, 2008 and 2007
    
    
    9,043
    
    
    
    16,043Common stock Class B, $1 par value. Authorized 100,000,000 shares;
issue and outstanding 22,104,989 and 16,266,554 at December 31, 2008
and December 31, 2007
    
    
    22,105
    
    
    
    16,266Additional paid-in capital
    
    
    179,504
    
    
    
    188,935Retained earnings
    
    
    292,112
    
    
    
    267,336Accumulated other comprehensive loss, net
    
    
    (17,665
    )
    
    
    (6,042
    )485,099
    
    
    
    482,538Commitments and contingenciesTotal liabilities and stockholders equity
    
    $
    626,037
    
    
    
    622,110
  2




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2008
    
    
    2007
    
    
    2006Rental income
    
    $
    7,361
    
    
    
    7,096
    
    
    
    6,897Management fees
    
    
    2,805
    
    
    
    3,880
    
    
    
    3,650General and administrative expenses
    
    
    (9,283
    )
    
    
    (7,846
    )
    
    
    (6,648
    )Operating income
    
    
    883
    
    
    
    3,130
    
    
    
    3,899Other revenue (expenses):Equity in net income of subsidiaries
    
    
    26,103
    
    
    
    57,980
    
    
    
    53,632Interest expense, net of interest income of
$6,093, $5,477, and $6,088, in 2008, 2007,
and 2006, respectively
    
    
    (1,941
    )
    
    
    (2,557
    )
    
    
    (2,078
    )Other income
    
    
    13
    
    
    
    397
    
    
    
    Total other revenue, net
    
    
    24,175
    
    
    
    55,820
    
    
    
    51,554Income before income taxes
    
    
    25,058
    
    
    
    58,950
    
    
    
    55,453Income tax expense (benefit):Current
    
    
    631
    
    
    
    520
    
    
    
    772Deferred
    
    
    (363
    )
    
    
    (88
    )
    
    
    148Total income tax expense, net
    
    
    268
    
    
    
    432
    
    
    
    920Net income
    
    $
    24,790
    
    
    
    58,518
    
    
    
    54,533
  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, 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
    )
    
    
    482,538Conversion of Class A common stock to
Class B common stock
    
    
    (7,000
    )
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,268
    
    
    
    
    
    
    
    
    
    
    
    3,268Grant of restricted Class B common stock
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Repurchase and retirement of common stock
    
    
    
    
    
    
    (1,181
    )
    
    
    (12,699
    )
    
    
    
    
    
    
    
    
    
    
    (13,880
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,790
    
    
    
    
    
    
    
    24,790Net unrealized change in fair value
of available for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,952
    )
    
    
    (3,952
    )Defined benefit pension plan:Prior service credit, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (266
    )
    
    
    (266
    )Actuarial loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,349
    )
    
    
    (7,349
    )Net change in fair value of cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,167Balance, December 31, 2008
    
    $
    9,043
    
    
    
    22,105
    
    
    
    179,504
    
    
    
    292,112
    
    
    
    (17,665
    )
    
    
    485,099
  4




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    24,790
    
    
    
    58,518
    
    
    
    54,533Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Equity in net income of subsidiaries
    
    
    (26,103
    )
    
    
    (57,980
    )
    
    
    (53,632
    )Depreciation and amortization
    
    
    922
    
    
    
    1,120
    
    
    
    1,130Share-based compensation
    
    
    3,268
    
    
    
    200
    
    
    
    Provision for obsolescence
    
    
    
    
    
    
    
    
    
    
    (83
    )Deferred income tax (benefit) expense
    
    
    (607
    )
    
    
    (88
    )
    
    
    148Other
    
    
    1,965
    
    
    
    (394
    )
    
    
    Changes in assets and liabilities:Receivables
    
    
    (8,404
    )
    
    
    (233
    )
    
    
    1,062Accrued interest
    
    
    (3,883
    )
    
    
    (4,244
    )
    
    
    (1,842
    )Prepaid income tax and other assets
    
    
    (189
    )
    
    
    (146
    )
    
    
    517Accounts payable, accrued expenses, liability for pension benefit
and due to subsidiary
    
    
    (3,475
    )
    
    
    (3,945
    )
    
    
    6,807Income taxes payable
    
    
    
    
    
    
    (291
    )
    
    
    291Net cash (used in) provided by operating activities
    
    
    (11,716
    )
    
    
    (7,483
    )
    
    
    8,931Cash flows from investing activities:Acquisition of investment in securities classified as available for sale
    
    
    (70,684
    )
    
    
    (28,202
    )
    
    
    Proceeds from sale and maturities of investment in securities
classified as available for sale
    
    
    45,905
    
    
    
    4,393
    
    
    
    335Notes receivable from subsidiaries
    
    
    
    
    
    
    22,000
    
    
    
    4,000Acquisition of business
    
    
    
    
    
    
    
    
    
    
    (38,196
    )Net retirement (acquisition) of property and equipment
    
    
    (47
    )
    
    
    149
    
    
    
    (162
    )Net cash used in investing activities
    
    
    (24,826
    )
    
    
    (1,660
    )
    
    
    (34,023
    )Cash flows from financing activities:Dividends
    
    
    
    
    
    
    (2,448
    )
    
    
    (6,231
    )Repayments of long-term borrowings
    
    
    (1,639
    )
    
    
    (12,141
    )
    
    
    (2,503
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    35,000Net proceeds from initial public offering
    
    
    
    
    
    
    70,279
    
    
    
    Repurchases and retirement of common stock
    
    
    (7,645
    )
    
    
    
    
    
    
    Other
    
    
    6
    
    
    
    1
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (9,278
    )
    
    
    55,691
    
    
    
    26,266Net increase (decrease) in cash and cash equivalents
    
    
    (45,820
    )
    
    
    46,548
    
    
    
    1,174Cash and cash equivalents, beginning of year
    
    
    47,772
    
    
    
    1,224
    
    
    
    50Cash and cash equivalents, end of year
    
    $
    1,952
    
    
    
    47,772
    
    
    
    1,224Supplemental information:Income taxes paid
    
    $
    1,149
    
    
    
    922
    
    
    
    402Interest paid
    
    
    7,357
    
    
    
    7,751
    
    
    
    7,809Noncash activities:Change in net unrealized gain on securities available for sale, including
deferred income tax liability of $854, $1,840, and $803 in 2008, 2007
and 2006, respectively
    
    $
    (3,952
    )
    
    
    9,549
    
    
    
    (3,212
    )Change in cash-flow hedges, including deferred tax liability of
$37 and $159, $40 in 2008, 2007 and 2006, respectively
    
    
    (56
    )
    
    
    (250
    )
    
    
    (65
    )Change in liability for pension benefits and deferred income tax asset
of $4,796, $2,189, and $7,189 in 2008, 2007, and 2006, respectively
    
    
    (7,615
    )
    
    
    4,090
    
    
    
    4,952Adjustment to initially apply SFAS No. 158, including deferred income
tax effect of $10,152 in 2006
    
    
    
    
    
    
    
    
    
    
    (16,081
    )Unsettled shares repurchases
    
    
    6,235
    
    
    
    
    
    
    
    
  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. Effective February
16, 2009, TSI and STS change their name to Triple-S Salud, Inc. and Triple-S Propiedad, Inc.,
respectively. 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.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:
 2008
    
    
    2007Land
    
    $
    6,531
    
    
    
    6,531Buildings and leasehold improvements
    
    
    27,825
    
    
    
    27,77834,356
    
    
    
    34,309Less accumulated depreciation and amortization
    
    
    (12,708
    )
    
    
    (11,786
    )Property and equipment, net
    
    $
    21,648
    
    
    
    22,523
 (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, 2008 and 2007 is as follows:
 2008
    
    
    2007AssetsCash, cash equivalents, and investments
    
    $
    1,003,316
    
    
    
    1,168,182Receivables, net
    
    
    250,644
    
    
    
    216,525Other assets
    
    
    235,527
    
    
    
    195,192Total assets
    
    $
    1,489,487
    
    
    
    1,579,899Liabilities and EquityClaim liabilities
    
    $
    323,710
    
    
    
    353,830Future policy benefits
    
    
    207,545
    
    
    
    194,131Unearned premiums
    
    
    110,141
    
    
    
    132,599Annuity contracts
    
    
    48,764
    
    
    
    46,083Accounts payable and other liabilities
    
    
    314,792
    
    
    
    404,677Total liabilities
    
    
    1,004,952
    
    
    
    1,131,320Stockholders equity
    
    
    484,535
    
    
    
    448,579Total liabilities and
equity
    
    $
    1,489,487
    
    
    
    1,579,899
 The net income of the subsidiaries during the three-year period ended December 31, 2008 was
$26,103, $57,980, and $53,632. 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 $8,596, $4,989 and $4,346, in the three-year
period ended December 31, 2008.
  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, 2008 and 2007
follows:
 2008
    
    
    2007Senior unsecured notes payable of $60,000 issued on December
2005; due December 2020. Interest is payable monthly at a
fixed rate of 6.60%.
    
    $
    60,000
    
    
    
    60,000Senior unsecured notes payable of $35,000 issued on January
2006; 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 2.43% and 6.24% at
December 31, 2008 and 2007, respectively).
    
    
    24,307
    
    
    
    25,946119,307
    
    
    
    120,946Less current maturities
    
    
    (1,640
    )
    
    
    (1,640
    )Total loans payable to bank
    
    $
    117,667
    
    
    
    119,306
  2009
    
    
    1,6402010
    
    
    1,6402011
    
    
    1,6402012
    
    
    1,6402013
    
    
    1,640Thereafter
    
    
    111,107$
    119,307
    8




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    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.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 $7,301, $8,415 and $8,545, in
the three-year period ended December 31, 2008.(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, 2008, tax years 2004 through 2007 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 and 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:
 2008
    
    
    2007
    
    
    2006Income tax expense at statutory
rate of 39%
    
    $
    9,772
    
    
    
    22,990
    
    
    
    21,626Increase (decrease) in taxes resulting from:Equity in net income of wholly
owned subsidiaries
    
    
    (10,180
    )
    
    
    (22,612
    )
    
    
    (20,916
    )Disallowances
    
    
    678
    
    
    
    154
    
    
    
    37Other, net
    
    
    (2
    )
    
    
    (100
    )
    
    
    173Total income tax
expense
    
    $
    268
    
    
    
    432
    
    
    
    920
  9




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
     2008
    
    
    2007Deferred tax assets:Employee benefits plan
    
    $
    535
    
    
    
    388Accumulated depreciation
    
    
    334
    
    
    
    356Liability for pension benefits
    
    
    440
    
    
    
    344Deferred compensation
    
    
    198
    
    
    
    155Unrealized loss on securities available for sale
    
    
    217
    
    
    
    Impairment loss on investments
    
    
    299
    
    
    
    Tax credit
    
    
    243
    
    
    
    Other
    
    
    
    
    
    
    37Gross deferred tax assets
    
    
    2,266
    
    
    
    1,280Deferred tax liabilities:Unamortized bond issue costs
    
    
    (180
    )
    
    
    (196
    )Postretirement benefits
    
    
    (136
    )
    
    
    (54
    )Other
    
    
    (77
    )
    
    
    (120
    )Gross deferred tax
liabilities
    
    
    (393
    )
    
    
    (370
    )Net deferred tax asset
    
    $
    1,873
    
    
    
    910
   10




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    (7)
    
    Transaction with Related PartiesThe following are the significant related-party transactions made for the three-year period
ended December 31, 2008, 2007 and 2006:
 2008
    
    2007
    
    2006Rent charges to subsidiaries
    
    $
    7,286
    
    
    
    7,023
    
    
    
    6,824Interest charged to subsidiary on
notes receivable
    
    
    3,189
    
    
    
    4,821
    
    
    
    5,620
  
    
    On December 22, 2005, TSV borrowed $57,000 from TSM; this note receivable bears
interest at an annual rate 6.6%. Accrued interest at December 31, 2008 and 2007 amounted
to $11,339 and $8,150, respectively.
 The note receivable from subsidiary are due on demand; however, pursuant to the requirements
established by the Commissioner of Insurance of the Commonwealth of Puerto Rico (Commissioner
of Insurance), the parties agreed that no payment of the total principal nor the interest due
on the loan will be made without first obtaining written authorization from the Commissioner
of Insurance within at least 60 days prior to the proposed payment date. Written authorization
to convert $20,000 of the TSVs note receivable into a capital contribution was obtained from
the Commissioner of Insurance during 2008.(8)
    
    ContingenciesAt December 31, 2008 and 2007, the Company is defendant in various lawsuits 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 position
and results of operations of the Company.(9)
    
    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 affected 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.
 11




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    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 the 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 the Companys amended and restated certificate
of incorporation.On December 8, 2008, the Company converted 7 million issued and outstanding Class A
shares into Class B shares, in conjunction with the expiration of the lockup agreements
signed by holders of Class A shares at the time of the Companys IPO.(b)
    
    Stock Repurchase ProgramThe Company may repurchase its common stock under a $40,000 share repurchase program
authorized by the Companys Board of Directors in October 2008. Repurchases may be
conducted through open-market purchases and privately-negotiated transactions of Class B
shares only, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as
amended. During 2008, the Company repurchased and retired approximately 1,181,500 shares
at an average per share price of $11.75, for an aggregate cost of $13,880. Therefore, as
of December 31, 2008, $26,120 remained authorized by the Companys Board of Directors for
future repurchases. At December 31, 2008, the Company had unsettled shares repurchases
amounting to $6,235. Such amount is included in the accompanying consolidated balance
sheet as account payable and accrued liabilities. The timing and extent of any purchases
under the program will depend on market conditions, the trading price of the shares and
other considerations, and the program may be suspended or terminated at any time.(c)
    
    Preferred StockAuthorized capital stock includes 100,000,000 of preferred stock with a par value of
$1.00 per share. As of December 31, 2008 and 2007, there are no issued and outstanding
preferred shares.(d)
    
    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.
 12




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    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.
 13