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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, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 
 COMMISSION FILE NUMBER 0-49762
 Triple-S Management Corporation
 Puerto Rico
    
    66-0555678(STATE OF INCORPORATION)
    
    (I.R.S. ID)
 1441 F.D. Roosevelt Avenue, San Juan, PR 00920
 (787) 749-4949
 None
 Common Stock, $40.00 Par Value
 o þ
 o þ
 þ o
 o
 o o þ
 o þ
   
 *
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Triple-S Management Corporation
 FORM 10-K
   Part IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    
    15Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    19Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    43Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    44Item 9A.
    
    Controls and Procedures
    
    
    44Item 9B.
    
    Other Information
    
    
    44Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    44Item 11.
    
    Executive Compensation
    
    
    44Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    44Item 13.
    
    Certain Relationships and Related Transactions
    
    
    44Item 14.
    
    Principal Accounting Fees and Services
    
    
    45Part IVItem 15.
    
    Exhibits and Financial Statements Schedules
    
    
    45Signatures
    
    
    47EX-10.14 REINSURANCE AGREEMENT, GREAT AMERICAN LIFE ASSURANCE COMPANY OF PUERTO RICOEX-10.15 PURCHASE AGREEMENT, 6.30% SENIOR UNSECURED NOTES DUE SEPTEMBER 2019EX-10.16 PURCHASE AGREEMENT, 6.60% SENIOR UNSECURED NOTES DUE DECEMBER 2020EX-31.1 TRIPLE-S MANAGEMENT CORPORATION 2005 ANNUAL REPORTEX-14.1 CODE OF ETHICSEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  Page 2




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##### Table of Contents



Part I
 
 Item 1. Business.
 General Description of Business and Recent Developments
  
    
    Triple-S, Inc. (TSI), a health insurance company serving two major segments: the
Commercial Program and the Commonwealth of Puerto Rico Health Reform Program (the Reform);
    
    Seguros Triple-S, Inc. (STS), a property and casualty insurance company; and
    
    Seguros de Vida Triple-S, Inc. (SVTS), a life and disability insurance and annuity products company.
        Page 3




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
    
    TSIs accumulated statutory net income while operating under the tax exemption,
amounting to $132.8 million, was deemed distributed to TSM.
 
    
    For tax purposes, TSM recognized the exempt accumulated statutory net income as gross
income. On this amount, TSM recognized an income tax liability amounting to $51.8
million, which was determined by applying a tax rate of 39% to the exempt accumulated
statutory net income deemed distributed to TSM. This income tax liability was recorded by
TSM within the current income tax expense in the 2003 consolidated statements of earnings.
Of this tax $37.0 million were paid on July 31, 2003, the date of the closing agreement,
and $14.8 million on April 15, 2004.
   Available Information
  Cautionary Statement Regarding Forward-Looking Information
  Page 4




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Puerto Ricos Economy
   Insurance Industry
    Health Insurance  Commercial Segment
   Page 5




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Medicare
Optimo Medicare
Selecto
    
    
    initiatives to increase healthcare regulation, including efforts to expand the tort liability of health plans,
    
    local government plans and initiatives, and
    
    Medicare reform legislation.
   Page 6




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Health Insurance Reform Segment
   Page 7




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Medicare Platino
 Page 8




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Property and Casualty Insurance Segment
        Page 9




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Life and Disability Insurance Segment
      Page 10




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Financial Information About Segments
  Trademarks
  Human Resources and Labor Matters
  
 Item 1A. Risk Factors
  Page 11




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Reinsurance
  Dependence on Large Contracts
     Page 12




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License Agreement with the Blue Cross Blue Shield Association
     Geographical Concentration
  Page 13




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Litigation
  Competition
  Regulations
    Dependence on Information Systems
  Business Acquisitions
  
    
    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.
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
    
    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 Securities and Exchange Commission at companies that prior to acquisition
lacked such controls, policies and procedures.
    
    Potential unknown liabilities associated with the acquired company or under-estimating know liabilities.
    
    Failure of acquired business to achieve anticipated revenues, earnings or cash flow.
    
    Incurrence of additional debt related to future acquisitions.
    
    Competition with other entities, some of which may have greater financial and other
resources, to acquire attractive companies.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    
 Item 3. Legal Proceedings.
 (a)
    
    As of December 31, 2005, the Corporation is a defendant in various lawsuits arising in
the ordinary course of business. Management believes, based on the opinion of legal
counsel, that the aggregate liabilities, if any, arising from such actions would not have
a material adverse effect on the Corporations consolidated financial position or results
of operations.(b)
    
    Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an
administrative proceeding before the Puerto Rico Insurance Commissioner against TSI and
TSM alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSIs
common stock due to the fact that the ultimate purchasers of said shares were selected on
an improper and selective basis by the Corporation in violation of the Puerto Rico
Insurance Code. The plaintiffs alleged that they were illegally excluded from
participation in the sale of shares by TSI due to the illegally selective nature of the
sale of shares and that, consequently, the sale of shares should be eliminated.In December 1996, the Commissioner of Insurance issued an order to annul the sale of the
1,582 shares that TSI had repurchased from the estate of deceased stockholders. TSI
contested such order through an administrative and judicial review process. Consequently,
the sale of 1,582 shares was cancelled and the purchase price was returned to each former
stockholder. In the year 2000, the Commissioner of Insurance issued a pronouncement
providing further clarification of the content and effect of the order. This order also
required that all corporate decisions undertaken by TSI through the vote of its
stockholders of record, be ratified in a stockholders meeting or in a subsequent
referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such
decisions. Furthermore, on November 19, 2000, TSM held a special
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stockholders meeting, where a ratification of these decisions was undertaken except for
the resolution related to the approval of the reorganization of TSI and its subsidiaries.
This resolution did not reach the two thirds majority required by the order because the
number of shares that were present and represented at the meeting was below such amount
(total shares present and represented in the stockholders meeting was 64%). As stipulated
in the order, TSM began the process to conduct a referendum among its stockholders in order
to ratify such resolution. The process was later suspended because upon further review of
the scope of the order, the Commissioner of Insurance issued an opinion in a letter dated
January 8, 2002 which indicated that the ratification of the corporate reorganization was
not required.In another letter dated March 14, 2002, the Commissioner of Insurance stated that the
ratification of the corporate reorganization was not required and that TSI had complied
with the Commissioners order of December 6, 1996 related to the corporate reorganization.
Thereafter, the plaintiffs filed a petition for review of the Commissioners determination
before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by
the Commissioner of Insurance.Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals
issued an order requiring the Commissioner of Insurance to order that a meeting of
shareholders be held to ratify TSIs corporate reorganization and the change of name of TSI
from Seguros de Servicios de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico
Circuit Court of Appeals based its decision on administrative and procedural issues
directed at the Commissioner of Insurance. The Commissioner of Insurance filed a motion of
reconsideration with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSM and
TSI also filed a motion of reconsideration.On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of
Insurances Motion for Reconsideration and ordered the plaintiffs to reply to TSIs Motion
of Reconsideration.On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSIs and TSMs Motion of
Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of
Insurance had the authority to waive the celebration of a referendum to ratify TSIs
reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares
annulled were not decisive, was approved by the stockholders.On June 26, 2003, the plaintiffs presented a writ of certiorari before the Supreme Court of
Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The writ was
issued by the Supreme Court on August 22, 2003 when it ordered the Puerto Rico Circuit
Court of Appeals to transmit the record of the case. On December 1, 2003, the plaintiffs
filed a motion submitting their case on the basis of their original petition. TSI and TSM
filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a
separate brief on December 31, 2003. On June 24, 2004 the Supreme Court of Puerto Rico
ordered the plaintiffs to file a brief in support of their allegations. The case is still
pending before the Supreme Court of Puerto Rico. It is the opinion of the management and
its legal counsels that the corporate reorganization as approved is in full force and
effect.(c)
    
    On September 4, 2003, José Sánchez and others filed a putative class action complaint
against the Corporation, present and former directors of TSM and TSI, and others, in the
United States District Court for the District of Puerto Rico, alleging violations under
the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The
suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring
control of TSI through illegally capitalizing TSI and later converting it to a for-profit
corporation and depriving the stockholders of their ownership rights. The plaintiffs base
their later allegations on the supposed decisions of TSIs board of directors and
stockholders, allegedly made in 1979, to operate with certain restrictions in order to
turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court
issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in
the complaint, eight counts were dismissed for failing to assert an actionable injury; six
of them for lack of standing and two for failing to plead with sufficient particularity in
compliance with the Rules. All shareholder allegations, including those described above,
were dismissed in the Opinion and Order. The remaining four counts were found standing,
in a limited way, in the Opinion and Order. Finally, the Court ordered that by March 24,
2005 one of the counts left standing be replead to conform to the Rules and that by March
28, 2005 a proposed schedule for discovery and other submissions be filed. The count was
amended and accepted by the Court and the discovery schedule was submitted. The parties
have finished class certification discovery. The parties fully briefed the issue of class
certification and are awaiting the Courts decision. In addition, the defendants are
evaluating the dismissal of the surviving claims. This case is still pending before the
United States District Court for the District of Puerto Rico.
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(d)
    
    On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a
suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior
Section, alleging, among other things, violations by the defendants of provisions of the
Puerto Rico Insurance Code, anti-monopolistic practices, unfair business practices and
damages in the amount of $12.0 million. They also requested that TSM sell shares to them.
After a preliminary review of the complaint, it appears that many of the allegations
brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases
brought by the same plaintiffs in the United States District Court for the District of
Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including
TSM and TSI answered the complaint, filed a counterclaim and filed several motions to
dismiss this claim. On February 18, 2005 the plaintiffs informed their intention to amend
the complaint and the Court granted them 45 days to do so and 90 days to the defendants to
file the corresponding motion to dismiss. On May 9, 2005 the plaintiffs amended the
complaint and the defendants are preparing the corresponding motions to dismiss this
amended complaint. The plaintiffs amended the complaint to allege causes of action
similar to those dismissed by the United States District Court for the District of Puerto
Rico in the Sánchez case. Defendants moved to dismiss the amended complaint. Plaintiffs
have notified their opposition to some of the defendants motion to dismiss, and the
defendants filed the corresponding replies. On January 25, 2006, the court held a hearing
to argue the dispositive motions.(e)
    
    On May 22, 2003 a putative class action suit was filed by Kenneth A. Thomas, M.D. and
Michael Kutell, M.D., on behalf of themselves and all others similarly situated and the
Connecticut State Medical Society against the Blue Cross and Blue Shield Association
(BCBSA) and multiple other insurance companies including TSI. The case is pending before
the U.S. District Court for the Southern District of Florida, Miami District.The individual plaintiffs bring this action on behalf of themselves and a class of
similarly situated physicians seeking redress for alleged illegal acts of the defendants,
which they allege have resulted in a loss of their property and a detriment to their
business, and for declaratory and injunctive relief to end those practices and prevent
further losses. Plaintiffs alleged that the defendants, on their own and as part of a
common scheme, systematically deny, delay and diminish the payments due to doctors so that
they are not paid in a timely manner for the covered, medically necessary services they
render.The class action complaint alleges that the health care plans are the agents of BCBSA
licensed entities, and as such have committed the acts alleged above and acted within the
scope of their agency, with the consent, permission, authorization and knowledge of the
others, and in furtherance of both their interest and the interests of other defendants.Management believes that TSI was brought to this litigation for the sole reason of being
associated with the BCBSA. However, on June 18, 2004 the plaintiffs moved to amend the
complaint to include the Colegio de Médicos y Cirujanos de Puerto Rico (a compulsory
association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of
the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs
against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.TSI, along with the other defendants, moved to dismiss the complaint on multiple grounds,
including but not limited to arbitration and applicability of the McCarran Ferguson Act.The Court issued a 90-day stay to allow the parties to discuss their differences and come
to amicable agreement. The stay expired on March 7, 2006. Upon the expiration of the
stay, both plaintiffs and defendants agreed to request the Court to extend the stay until
April 21, 2006.(f)
    
    On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD and
Orlando Armstrong, MD, on behalf of themselves and all other similarly situated and the
American Podiatric Medical Association, Florida Chiropractic Association, California
Podiatric Medical Association, Florida Podiatric Medical Association, Texas Podiatric
Medical Association, and Independent Chiropractic Physicians, against the BCBSA and
multiple other insurance companies, including TSI and all members of the BCBSA. The case
is still pending before the United States District Court for the Southern District of
Florida, Miami District.The lawsuit challenges many of the same practices as the litigation described in the
immediately preceding item.Management believes that TSI was made a party to this litigation for the sole reason that
TSI is associated with the BCBSA.
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On June 25, 2004, plaintiffs amended the complaint but the allegations against TSI did not
vary. TSI along with the other defendants, moved to dismiss the complaint on multiple
grounds, including but not limited to arbitration and applicability of the McCarran
Ferguson Act.The Court issued a 90-day stay to allow the parties to discuss their differences and come
to an amicable agreement. The stay expired on March 7, 2006. Although the parties are
still in the process of discussing their differences, they have not moved the Court to
extend the stay. The defendants suggested that plaintiffs join in a request to extend the
stay, but the plaintiffs have not reacted to the defendants invitation.
 
 Item 4. Submissions of Matters to a Vote of Security Holders.
  
 Part II
 
 Item 5. Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of
Equity Securities.
 Market Information
   Holders
  Dividends
  Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer
  Page 18




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Item 6. Selected Financial Data.
 (Dollar amounts in thousands, except per share data)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Statement of Earnings DataYears ended December 31,Premiums earned, net
    
    $
    1,380,204
    
    
    
    1,298,959
    
    
    
    1,264,395
    
    
    
    1,236,647
    
    
    
    1,155,399Amounts attributable to
self-funded arrangements
    
    
    210,905
    
    
    
    179,166
    
    
    
    160,127
    
    
    
    150,684
    
    
    
    134,374Less amounts attributable to claims under
self-funded arrangements
    
    
    (196,460
    )
    
    
    (169,924
    )
    
    
    (151,806
    )
    
    
    (141,138
    )
    
    
    (126,295
    )Premiums earned, net and fee revenue
    
    
    1,394,649
    
    
    
    1,308,201
    
    
    
    1,272,716
    
    
    
    1,246,193
    
    
    
    1,163,478Net investment income
    
    
    29,029
    
    
    
    26,499
    
    
    
    24,679
    
    
    
    24,778
    
    
    
    25,405Net realized investments gains
    
    
    7,161
    
    
    
    10,968
    
    
    
    8,365
    
    
    
    185
    
    
    
    4,655Net unrealized investment gain (loss)
on trading securities
    
    
    (4,709
    )
    
    
    3,042
    
    
    
    14,893
    
    
    
    (8,322
    )
    
    
    (3,625
    )Other income, net
    
    
    3,732
    
    
    
    3,360
    
    
    
    4,703
    
    
    
    2,075
    
    
    
    483Total revenue
    
    $
    1,429,862
    
    
    
    1,352,070
    
    
    
    1,325,356
    
    
    
    1,264,909
    
    
    
    1,190,396Net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229
    
    
    
    48,249
    
    
    
    21,715Basic net income per share (1):
    
    $
    3,193
    
    
    
    5,135
    
    
    
    2,857
    
    
    
    1,085
    
    
    
    1,052Balance Sheet DataDecember 31,Total assets
    
    $
    1,137,462
    
    
    
    919,657
    
    
    
    834,623
    
    
    
    721,892
    
    
    
    656,058Long-term borrowings
    
    $
    150,590
    
    
    
    95,730
    
    
    
    48,375
    
    
    
    50,015
    
    
    
    55,650Total stockholders equity
    
    $
    308,703
    
    
    
    301,433
    
    
    
    254,255
    
    
    
    231,664
    
    
    
    186,028
 (1)
    
    Further details of the calculation of basic earnings per share are set forth in notes 2 and 22 of the audited
consolidated financial statements for the years ended December 31, 2005, 2004 and 2003.
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  General
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Consolidated Operating Results
  (Dollar amounts in thousands)
    
    2005
    
    2004
    
    2003Years ended December 31,Consolidated premiums earned, net and fee revenue:Health insurance  Commercial Program
    
    $
    779,913
    
    
    
    720,789
    
    
    
    699,365Health insurance  Reform Program
    
    
    510,839
    
    
    
    484,742
    
    
    
    477,614Property and casualty
    
    
    86,767
    
    
    
    86,228
    
    
    
    78,334Life and disability
    
    
    17,130
    
    
    
    16,442
    
    
    
    17,403Consolidated premiums earned, net and fee revenue
    
    $
    1,394,649
    
    
    
    1,308,201
    
    
    
    1,272,716Consolidated claims incurred
    
    $
    1,208,367
    
    
    
    1,115,793
    
    
    
    1,065,350Consolidated operating expenses
    
    
    181,703
    
    
    
    171,879
    
    
    
    165,149Consolidated underwriting costs
    
    $
    1,390,070
    
    
    
    1,287,672
    
    
    
    1,230,499Consolidated loss ratio
    
    
    86.6
    %
    
    
    85.3
    %
    
    
    83.7
    %Consolidated expense ratio
    
    
    13.0
    %
    
    
    13.1
    %
    
    
    13.0
    %Consolidated combined ratio
    
    
    99.6
    %
    
    
    98.4
    %
    
    
    96.7
    %Consolidated net investment income
    
    $
    29,029
    
    
    
    26,499
    
    
    
    24,679Consolidated net realized gain on sale of securities
    
    
    7,161
    
    
    
    10,968
    
    
    
    8,365Consolidated net unrealized gain (loss)
on trading securities
    
    
    (4,709
    )
    
    
    3,042
    
    
    
    14,893Consolidated net investment income
    
    $
    31,481
    
    
    
    40,509
    
    
    
    47,937Consolidated income tax expense
    
    $
    3,764
    
    
    
    14,014
    
    
    
    65,397Net income (loss) per segment:Health insurance  Commercial Program
    
    $
    15,384
    
    
    
    23,757
    
    
    
    49,071Health insurance  Reform Program
    
    
    (43
    )
    
    
    9,250
    
    
    
    14,034Property and casualty
    
    
    9,863
    
    
    
    11,085
    
    
    
    9,677Life and disability
    
    
    2,098
    
    
    
    996
    
    
    
    3,716Other operating segments and TSM
    
    
    1,131
    
    
    
    715
    
    
    
    (50,269
    )Consolidated net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229
 Year ended December 31, 2005 compared with the year ended December 31, 2004
  
    
    The premiums earned, net and fee revenue corresponding to the Health Insurance 
Commercial Program presented an increase of $59.1 million, or 8.2%, during this period.
The increase in premiums earned, net of this segment is due to a 1.2% increase in average
enrollment together with a 6.0% increase in average premium rates in 2005.
    
    The premiums earned, net of the Health Insurance  Reform segment presented an increase
of $26.1 million, or 5.4%, in 2005, as compared to the premiums earned, net in 2004. This
increase is the result of a 4.5% increase in average premium rates together with a 0.9%
increase in the average membership of the segment.
  Page 20




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
    
    During 2005, the claims incurred of the Health Insurance  Commercial segment increase
of $57.1 million, or 9.2%, is primarily attributed to an increase in utilization and costs
of services as well as to an increase in average enrollment.
 
    
    The claims incurred of the Health Insurance Reform segment increased $40.2 million, or
9.2%, when comparing the amounts incurred in the years 2005 and 2004. The increase in the
claims incurred of this segment results mostly from higher utilization trends and costs,
particularly in the risks assumed by the segment, such as cardiovascular services,
dialysis and obstetrics and HIV, among others. In addition, this segment also experienced
an increase in claims incurred that is attributed to the increase in its average
enrollment.
      Year ended December 31, 2004 compared with the year ended December 31, 2003
  
    
    The premiums earned, net and fee revenue corresponding to the Health Insurance 
Commercial Program increased $21.4 million, or 3.1%, during this period. The increase in
premiums earned, net of this segment is due to increases in premium rates and an increase
in the average enrollment of Self-funded Employers accounts.
    
    The premiums earned of the property and casualty insurance segment increased by $7.9
million, or 10.1%, during the year 2004. This increase is mostly the result of the
segments increased volume of business, particularly in the Dwelling and Auto Physical
Damage lines of business.
    
    The premiums earned, net of the Health Insurance  Reform segment increased $7.1
million, or 1.5%, in 2004, as compared to the premiums earned, net in 2003. The increase
in the premiums earned, net of this segment is due to increases in premium rates during
the contract renegotiation process, net of a decrease in membership.
  Page 21




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Health Insurance  Commercial Program Operating Results
 (Dollar amounts in thousands)
    
    2005
    
    2004
    
    2003Years ended December 31,Average enrollment:Corporate accounts
    
    
    305,362
    
    
    
    302,634
    
    
    
    305,100Self-funded employers
    
    
    152,194
    
    
    
    141,009
    
    
    
    128,803Individual accounts
    
    
    86,628
    
    
    
    84,807
    
    
    
    84,407Federal employees
    
    
    49,244
    
    
    
    51,917
    
    
    
    53,993Local government employees
    
    
    34,910
    
    
    
    40,257
    
    
    
    43,177Total average enrollment
    
    
    628,338
    
    
    
    620,624
    
    
    
    615,480Premiums earned, net
    
    $
    768,672
    
    
    
    714,442
    
    
    
    693,645Amount attributable to self-funded arrangements
    
    
    211,975
    
    
    
    180,216
    
    
    
    161,014Less amounts
attributable to claims under self-funded arrangements
    
    
    (196,460
    )
    
    
    (169,924
    )
    
    
    (151,806
    )Premiums earned, net
and fee revenue
    
    $
    784,187
    
    
    
    724,734
    
    
    
    702,853Claims incurred
    
    $
    677,870
    
    
    
    620,751
    
    
    
    584,448Operating expenses
    
    
    103,562
    
    
    
    94,930
    
    
    
    92,264Total underwriting costs
    
    $
    781,432
    
    
    
    715,681
    
    
    
    676,712Underwriting income
    
    $
    2,755
    
    
    
    9,053
    
    
    
    26,141Loss ratio
    
    
    86.4
    %
    
    
    85.7
    %
    
    
    83.2
    %Expense ratio
    
    
    13.2
    %
    
    
    13.1
    %
    
    
    13.1
    %Combined ratio
    
    
    99.6
    %
    
    
    98.8
    %
    
    
    96.3
    %
 General
  Page 22




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Year ended December 31, 2005 compared with the year ended December 31, 2004
  
    
    Premiums for the segments Medicare Advantage program, which was launched in the year
2005, amounted to $34.2 million. No Medicare Advantage premiums were reflected in the
2004 period.
    
    In 2005, the segments average enrollment increased 7,714 members, or 1.2%, when
compared to the year 2004. The increase in the average enrollment is mostly reflected in
the self-funded employers and corporate accounts businesses, which membership increased by
11,185, or 7.9%, and 2,728, or 0.9%, during this period, respectively. This increase in
average enrollment is mostly attributed to new groups acquired throughout 2005. The
average enrollment of the local government employees and Federal employees businesses, on
the other hand, decreased by 5,347, or 13.3%, and 2,673, or 5.1%, during this year,
respectively.
    
    On average, this segment increased premium rates by approximately 6% during the year
2005.
     Year ended December 31, 2004 compared with the year ended December 31, 2003
  
    
    The segment constantly monitors claims trends, particularly in the rated corporate
accounts and Individual lines of business. This practice assures adequate premium rates
that reflect the actual claims trend of each particular business. On average, this
segment increased premium rates by 4.5% during the year 2004.
    
    The increase in total average enrollment of 5,144 members, or 0.8%, during the year
2004 when compared to 2003 is mainly the result of flat employment levels in Puerto Rico
during the last three years. The most significant increase in enrollment is in the
Self-funded Employers, which presents an increase of 12,206 members, or 9.5%, since during
this period certain large corporate accounts groups shifted from the rated business to
self-funded arrangements, assuming the risk associated with insuring their employees. The
increase experienced in this business is mitigated by the decrease experienced in 2004 in
the Local government employees and Federal employees businesses, which present a decrease
of 2,920 members, or 6.8%, and 2,076, or 3.8%, respectively.
  Page 23




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##### Table of Contents




    
    The business growth experienced in 2004 resulted in an increase of $2.3 million in
payroll expenses and commissions due to agents and brokers.
    
    The increase in technology related expenses of $1.5 million is directly related to the
segments commitment to continuously enhance services to its members and service
providers.
    
    During 2004, the segment experienced an increase in legal expenses of $1.3 million and
an increase in professional services and consulting fees of $1.5 million mostly as a
result of assistance related to legal, governmental and regulatory matters related to its
business.
    
    All of these increases in 2004 were offset by a reduction in pension expense due to
non-recurring pension settlements of $4.6 million in 2003, resulting from the number of
retirees selecting lump-sum benefits instead of annuities.
 Health
Insurance  Reform Program Operating Results
 (Dollar amounts in thousands)
    
    2005
    
    2004
    
    2003Years ended December 31,Average enrollment:North Area
    
    
    235,738
    
    
    
    232,956
    
    
    
    236,766Metro-North Area
    
    
    220,517
    
    
    
    217,441
    
    
    
    224,903Southwest Area
    
    
    163,807
    
    
    
    164,357
    
    
    
    168,109Total average enrollment
    
    
    620,062
    
    
    
    614,754
    
    
    
    629,778Premiums earned, net
    
    $
    510,839
    
    
    
    484,742
    
    
    
    477,614Claims incurred
    
    $
    478,008
    
    
    
    437,834
    
    
    
    428,045Operating expenses
    
    
    36,432
    
    
    
    35,777
    
    
    
    34,637Total underwriting costs
    
    $
    514,440
    
    
    
    473,611
    
    
    
    462,682Underwriting (loss) income
    
    $
    (3,601
    )
    
    
    11,131
    
    
    
    14,932Loss ratio
    
    
    93.6
    %
    
    
    90.3
    %
    
    
    89.6
    %Expense ratio
    
    
    7.1
    %
    
    
    7.4
    %
    
    
    7.3
    %Combined ratio
    
    
    100.7
    %
    
    
    97.7
    %
    
    
    96.9
    %
 General
  Year ended December 31, 2005 compared with the year ended December 31, 2004
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
    
    Premium rates for this segment were increased, effective August 1st, 2005,
by approximately 5.8% during the Healthcare Reform contract renegotiation process for the
eleven-month period ending June 30, 2006. In addition, premium rates were increased by
approximately 4.4% for the thirteen-month period ended July 31, 2005. On average the
increase in premium rates during 2005 was 4.5%.
 
    
    The average enrollment for this segment increased by 5,308 members, or 0.9%, when
comparing the 2005 and 2004 periods.
    Year ended December 31, 2004 compared with the year ended December 31, 2003
  
    
    During the Reform contract renegotiation process, premium rates were increased by
approximately 4.4% and 4.2% for the twelve-month periods ended June 30, 2005 and June 30,
2004, respectively. On average the increase in premium rates during 2004 was 4.4%.
 
    
    The average enrollment for this segment decreased by 15,024 members, or 2.4%, during
the year 2004. This decrease is attributed to the continuous review and screening
performed by the Government of Puerto Rico over the lists of persons eligible to
participate in the Reform.
    Page 25




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Property and Casualty Insurance Operating Results
 (Dollar amounts in thousands)
    
    2005
    
    2004
    
    2003Years ended December 31,Premiums written:Commercial multi-peril
    
    $
    65,649
    
    
    
    56,506
    
    
    
    54,986Dwelling
    
    
    26,094
    
    
    
    28,323
    
    
    
    22,624Auto physical damage
    
    
    20,690
    
    
    
    18,922
    
    
    
    15,821Commercial auto liability
    
    
    14,520
    
    
    
    14,082
    
    
    
    12,753Other liability
    
    
    8,541
    
    
    
    8,485
    
    
    
    6,522Medical malpractice
    
    
    6,504
    
    
    
    6,499
    
    
    
    5,986All other
    
    
    9,129
    
    
    
    9,057
    
    
    
    9,435Total premiums written
    
    
    151,127
    
    
    
    141,874
    
    
    
    128,127Premiums ceded
    
    
    (59,244
    )
    
    
    (52,215
    )
    
    
    (43,771
    )Change in unearned premiums
    
    
    (5,116
    )
    
    
    (3,431
    )
    
    
    (6,022
    )Net premiums earned
    
    $
    86,767
    
    
    
    86,228
    
    
    
    78,334Claims incurred
    
    $
    43,587
    
    
    
    45,977
    
    
    
    43,390Operating expenses
    
    
    39,642
    
    
    
    40,182
    
    
    
    37,354Total underwriting costs
    
    $
    83,229
    
    
    
    86,159
    
    
    
    80,744Underwriting income (loss)
    
    $
    3,538
    
    
    
    69
    
    
    
    (2,410
    )Loss ratio
    
    
    50.2
    %
    
    
    53.3
    %
    
    
    55.4
    %Expense ratio
    
    
    45.7
    %
    
    
    46.6
    %
    
    
    47.7
    %Combined ratio
    
    
    95.9
    %
    
    
    99.9
    %
    
    
    103.1
    %
 General
  Year ended December 31, 2005 compared with the year ended December 31, 2004
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Year ended December 31, 2004 compared with the year ended December 31, 2003
    
    
    In 2004, the segment experienced increased costs for catastrophe coverage as well as
the need to compensate for the coverage increase in the property business.
    
    The amount of premiums ceded in the 2003 period was reduced as a result of the
cancellation of the property surplus treaty. This cancellation resulted in a reinsurance
portfolio transfer resulting in net incoming business and a reduction in the amount of
premiums ceded.
    
    During 2003 the segment increased its retention in the personal lines quota share
treaty from 70% to 95%. In addition, as a result of the increased retention, the segment
received an incoming reinsurance portfolio transfer causing a reduction in the premiums
ceded in the 2003 period.
    
    
    The effect of an increase in commission expense due to the segments increased volume
of business
    
    During 2004, the segment recorded a guaranty fund assessment to cover liabilities of
insolvent companies. This assessment, which amounted to $871 thousand, was charged to
operations during 2004.
    
    The experience refund received from the Compulsory Vehicle Liability Insurance Joint
Underwriting Association increased by $202 thousand, from $633 thousand during 2003 to
$840 thousand during 2004. This refund is recorded as a decrease to the operating
expenses for the period.
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##### Table of Contents



Life and Disability Insurance Operating Results
 (Dollar amounts in thousands)
    
    2005
    
    2004
    
    2003Years ended December 31,Net earned premiums and commission income:Earned premiums:Group disability
    
    $
    13,681
    
    
    
    13,392
    
    
    
    14,115Group life
    
    
    8,768
    
    
    
    10,138
    
    
    
    10,588Cancer and other dreaded diseases
    
    
    1,746
    
    
    
    179
    
    
    
    Total earned premiums
    
    
    24,195
    
    
    
    23,709
    
    
    
    24,703Earned premiums ceded
    
    
    (8,006
    )
    
    
    (7,966
    )
    
    
    (7,816
    )Assumed earned premiums
    
    
    400
    
    
    
    
    
    
    
    Net earned premiums
    
    
    16,589
    
    
    
    15,743
    
    
    
    16,887Commission income on reinsurance
    
    
    541
    
    
    
    699
    
    
    
    516Net premiums earned
    
    $
    17,130
    
    
    
    16,442
    
    
    
    17,403Claims incurred
    
    $
    8,902
    
    
    
    11,231
    
    
    
    9,467Operating expenses
    
    
    8,201
    
    
    
    7,347
    
    
    
    6,036Total underwriting costs
    
    $
    17,103
    
    
    
    18,578
    
    
    
    15,503Underwriting income (loss)
    
    $
    27
    
    
    
    (2,136
    )
    
    
    1,900Loss ratio
    
    
    52.0
    %
    
    
    68.3
    %
    
    
    54.4
    %Expense ratio
    
    
    47.9
    %
    
    
    44.7
    %
    
    
    34.7
    %Combined ratio
    
    
    99.9
    %
    
    
    113.0
    %
    
    
    89.1
    %
 General
  Year ended December 31, 2005 compared with the year ended December 31, 2004
  
    
    The earned premiums of the cancer and other dreaded diseases line of business increased
by $1.6 million during the year 2005. This fluctuation is attributed to an increase in
the average certificates in force of this business by 8,221 during this year. This line
of business was introduced during the latter part of the year 2004.
 
    
    The earned premiums of the group life line of business decreased by $1.4 million, or
13.5%, during the year 2005. This fluctuation is attributed to the loss of one major
group in the group life business, effective December 31, 2004. This particular group had
annualized premiums of $1.4 million and an average loss ratio of 92.0%. The segment is
closely monitoring claims experience and considering this experience upon each groups
renewal process. This practice has resulted in the loss during the renewal process of
several groups with higher than expected claims experience once the premiums were adjusted
to reflect actual claims experience.
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Year ended December 31, 2004 compared with the year ended December 31, 2003
  
    
    The earned premiums of the group disability line of business decreased by $723
thousand, or 5.1%, during the year 2004. This decrease is mostly attributed to the fact
that during the first quarter of 2003, the segment revised its methodology for estimating
the premiums of its short-term disability business. This revision resulted in a
non-recurring adjustment increasing earned premiums of this line of business by
approximately $1.1 million during the year 2003. The average certificates in force of the
group disability line of business increased by 3,996 certificates, or 2.3%, during the
year 2004.
 
    
    The earned premiums of the group life line of business decreased by $450 thousand, or
4.3%, during the 2004 period is attributed to a decrease in the average certificates in
force of 9,802, or 6.6%. This decrease is attributed to the loss of several groups with
higher than expected claims experience since the segment is closely monitoring claims
experience and considering this experience upon each groups renewal process.
    Liquidity and Capital Resources
 Cash Flows
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##### Table of Contents



Cash Flows from Operations
   
    
    Increase in collections of premiums of $86.2 million in 2005 and $35.3 million in 2004.
The increase in premium collections is the result of the increased premium rates and
increased volume of business of the operating segments.
    
    Increase of $75.5 million in 2005 and $13.2 million in 2004 in the amount of cash paid
to suppliers and employees. This increase is principally attributed to the initial ceding
commission of $60.0 million paid by SVTS to GA Life on the effective date of the
coinsurance funds withheld agreement (described in Item 1. Business of this Annual
Report on Form 10-K in the section corresponding to the Life and Disability Insurance
segment). The initial ceding commission was recorded by the Corporation within the
deferred policy acquisition costs. Also, the Corporation has incurred additional
commission expense generated from the acquisition of new business and general operating
expenses.
    
    Increase of $100.7 million and $26.3 million in 2005 and 2004, respectively, in the
amount of claims losses and benefits paid. In both years the increase in the amount of
claims losses and benefits paid is mostly the result of the segments increased volume of
business as well as to increased utilization trends in both Health Insurance segments.
    
    Decrease in income taxes paid of $35.6 million in 2005 and an increase in income taxes
paid of $5.4 million in 2004. The decrease in the amount of income taxes paid in 2005 is
mostly due to the fact that the 2004 period includes the payment of $14.8 million of the
last installment of the $51.8 million income tax liability related to the closing
agreement with the PRTD upon the termination of TSIs tax exemption. In addition, on
April 15, 2004 TSI paid $22.1 million corresponding to its income tax liability for the
year 2003 and the first installment of the estimated tax corresponding to the year 2004.
In the 2005 period, the Corporation paid its regular estimated income tax installments.
    
    The net proceeds of investments in the trading portfolio increased by $98.9 million
during the 2005 period. This fluctuation during 2005 is due to the sale of the corporate
bonds portfolio, which was considered as a trading portfolio. In addition, in 2004, the
amount of net acquisitions of investments in the trading portfolio decreased by $12.3
million.
    
    The amount of interest paid increased by $1.8 million in 2005 and $712 thousand in
2004. This increase is principally attributed to the interest paid related to the 6.3%
senior unsecured notes issued and sold by TSI in September 2004.
    
    The contingency reserve funds payment from the Federal Employee Health Benefit Plan
decreased by $4.1 million in 2005 and $7.8 million in 2004. The amount collected from the
contingency reserve funds of the FEHBP was $1.1 million, $5.2 million and $13.0 million
during 2005, 2004 and 2003, respectively. This fluctuation is related to the results of
operations of the program during each particular year.
  Cash Flows from Investing Activities
   Page 30




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
    
    The Corporation is currently rehabilitating facilities in one of the two buildings
adjacent to the Corporations main offices, on which the Corporation incurred costs of
approximately $1.6 million during the year 2005 (see Item 2. Properties and section
Planned Capital Expenditures for additional details).
    
    In 2005, TSI acquired approximately $1.0 million of telephone equipment and services
for the operation of the Medicare business call center.
    
    During the year 2005, STS has incurred expenses of approximately $1.0 million related
to the acquisition of a new computer system to manage its insurance operations (see
section Planned Capital Expenditures for additional details.
 Cash Flows from Financing Activities
  
    
    The change in outstanding checks in excess of bank balances decreased by $2.8 million
during the year 2005 and increased by $9.5 during the year 2004. This represents a timing
difference between the issuance of checks and the cash balance in the bank account at one
point in time.
    
    In the 2005 period the proceeds from short-term borrowings exceeded payments of
short-term borrowings by $40 thousand. On the other hand, in the year 2004 the payment of
short-term borrowings exceeded the proceeds of short-term borrowings by $37.0 million.
Short-term borrowings are used to address timing differences between cash receipts and
disbursements.
    
    The repayments of long-term borrowings increased by $2.5 million during the year 2005
and by $1.0 million in the year 2004. The fluctuations in the repayments of long-term
borrowings are due to additional repayments to one of the Corporations credit agreements
amounting to $3.5 in 2005 and $1.0 million in 2004.
    
    Total long-term borrowings proceeds amounted to $60.0 million and $50.0 million during
the years 2005 and 2004. There were no long-term borrowings proceeds during the year
2003. In 2005, the Corporation received proceeds from the 6.6% senior unsecured notes
amounting to $60.0 million. In 2004, the Corporation received proceeds from the 6.3%
senior unsecured notes amounting to $50.0 million. This represents an increase of $10.0
million in the amount of proceeds received from the issuance of long-term borrowings
during the year 2005.
    
    The amount of net proceeds from annuity contracts during the years 2005, 2004 and 2003
amounted to $6.4 million, $6.4 million and $11.2 million, respectively. This fluctuation
noted between the years 2004 and 2003 is primarily due to the Corporations new deferred
annuity product introduced in late 2002.
 Financing and Financing Capacity
   
    
    On September 30, 2004 TSI issued and sold $50.0 million of its 6.3% senior unsecured
notes due September 2019 (the 6.3% notes). The 6.3% notes are unconditionally guaranteed
as to payment of principal, premium, if any, and interest by the Corporation. The notes
were privately placed to various institutional accredited investors. The notes pay
interest semiannually beginning on March 2005, until such principal becomes due and
payable. These notes can be prepaid after five years at par, in total or partially, as
determined by the Corporation. Most of the proceeds obtained from this issuance were used
to repay $37.0 million of short-term borrowings made by TSI. The remaining proceeds were
used for general business purposes.
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---



##### Table of Contents




    
    On December 21, 2005 TSM issued and sold $60.0 of its 6.6% senior unsecured notes due
December 2020 (the 6.6% notes). The 6.6% notes were privately placed to various
institutional accredited investors. The notes pay interest each month beginning on
January 2006, until such principal becomes due and payable. These notes can be prepaid
after five years at par, in full or in part, as determined by the Corporation. The
proceeds obtained from this issuance were used to pay the initial ceding commission to GA
Life on the effective date of the coinsurance funds withheld reinsurance agreement
(described in Item 1. Business of this Annual Report on Form 10-K in the section
corresponding to the Life and Disability Insurance segment).
    Required PrincipalOutstandingDate
    
    Balance(amounts in thousands)August 1, 2006
    
    $
    12,000August 1, 2007
    
    
    
    Planned Capital Expenditures
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##### Table of Contents



Contractual Obligations
   
    
    Annuity contracts  The cash outflows related to these instruments are not included
since these annuities do not have defined maturities, such that the timing of payments and
withdrawals is uncertain. There are currently no annuities in paying status. As of
December 31, 2005, the Corporation has $41.7 million in annuity contracts.
 
    
    Other long-term liabilities  Due to the indeterminate nature of their cash outflows,
certain categories of other long-term liabilities are not included in the following table.
These include miscellaneous long-term liabilities amounting to $22.4 million.
 Contractual obligations by year(Dollar amounts in thousands)
    
    Total
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    ThereafterLong-term borrowings (1)
    
    $
    267,991
    
    
    
    10,900
    
    
    
    22,094
    
    
    
    10,069
    
    
    
    9,982
    
    
    
    9,896
    
    
    
    205,050Operating leases
    
    
    4,717
    
    
    
    1,600
    
    
    
    1,370
    
    
    
    771
    
    
    
    415
    
    
    
    371
    
    
    
    190Purchase obligations (2)
    
    
    23,646
    
    
    
    22,433
    
    
    
    1,030
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    Claim liabilities (3)
    
    
    268,843
    
    
    
    198,939
    
    
    
    32,398
    
    
    
    12,117
    
    
    
    8,898
    
    
    
    7,558
    
    
    
    8,933$
    565,197
    
    
    
    233,872
    
    
    
    56,892
    
    
    
    23,140
    
    
    
    19,295
    
    
    
    17,825
    
    
    
    214,173
 (1)
    
    As of December 31, 2005, the Corporations long-term borrowings consist of $50.0 million of
the 6.3% senior unsecured notes payable, $60.0 million of the 6.6% senior unsecured notes
payable and $40.6 million of loans payable to a commercial bank. Total contractual
obligations for long-term borrowings include the current maturities of long term debt. For
the $50.0 million 6.3% senior unsecured notes; scheduled interest payments (amounting to $43.3
million) were included in the total contractual obligations for long-term borrowings until the
maturity date of the notes in 2019. For the $60.0 million 6.6% senior unsecured notes,
scheduled interest payments (amounting to $59.4 million) were included in the total
contractual obligations for long-term borrowings until the maturity date of the notes in 2020.
According to the terms of the senior notes, prepayments can be made five years after
issuance; however no prepayment is considered in this schedule. The interest payments related
to the Corporations loans payable were estimated using the interest rate outstanding as of
December 31, 2005 for each of the loans. 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 the Corporations long-term borrowings.(2)
    
    Purchase obligations represent payments required by the Corporation 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
are excluded from the table above. Any amounts for which the Corporation is liable under
purchase orders are reflected in the audited consolidated balance sheets as accounts payable
and accrued liabilities. Estimated pension plan contributions amounting to $6.0 million were
included within the total purchase obligations. However, this amount is an estimate which may
be subject to change in view of the fact that
contribution decisions are affected by various factors such as market performance, regulatory
and legal requirements and plan funding policy.(3)
    
    Claim liabilities represent the amount of claims processed and incomplete of the Corporation
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, 2005. The expected claims payments of
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##### Table of Contents



the health insurance, property and
casualty insurance and group life insurance were estimated using claims payment experience.
The expected claims payments of the long-term disability insurance were estimated using
actuarial estimates of expected pay-outs of those policies on which we are currently making
periodic payments. The expected claims payments are an estimate and may not necessarily
present the actual claims payments to be made by the Corporation. Also, the estimated claims
payments included in the table above do not include $28.7 million of reserves ceded under
reinsurance contracts. As of December 31, 2005, the Corporations ceded reserves are included
within the reinsurance recoverable balance in the audited consolidated financial statements.
Since reinsurance contracts do not relieve the Corporation from its obligations to
policyholders, in the event that any of the reinsurance companies is unable to meet its
obligations under the existing reinsurance agreements, the Corporation would be liable for
such defaulted amounts. The Corporation monitors the solvency of its reinsurance carriers and
does not believe the risk of insolvency is significant.
  Off-Balance Sheet Arrangements
  Restriction on Certain Payments by the Corporations Subsidiaries
    Solvency Regulation
  Other Contingencies
 (1)
    
    Legal Proceedings  Various litigation claims and assessments against the
Corporation have arisen in the course of the Corporations business, including but not
limited to, its activities as an insurer and employer. Furthermore, the Commissioner of
Insurance of the Commonwealth of Puerto Rico, 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.Based on the information currently known by the Corporations management, in its
opinion, the outcomes of such pending investigations and legal proceedings are not
likely to have a material adverse effect on the Corporations financial position,
results of operations and cash flows. However, given the inherent unpredictability of
these matters, it is possible that an adverse outcome in certain matters could, from
time to time, have an adverse effect on the Corporations operating results and/or cash
flows (see Item 3. Legal Proceedings of this Annual Report on Form 10-K).
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##### Table of Contents



(2)
    
    Guarantee Association  To operate in Puerto Rico, insurance companies, such
as TSMs insurance subsidiaries, are required to participate in guarantee associations,
which are organized to pay policyholders contractual benefits on behalf of insurers
declared to be insolvent. These associations levy assessments, up to prescribed limits,
on a proportional basis, to all member insurers in the line of business in which the
insolvent insurer was engaged. During the years 2005, 2004 and 2003, the Corporation paid
assessments in connection with insurance companies declared insolvent in the amount of
$965 thousand, $1.1 million and $500 thousand, respectively. It is the opinion of
management that any possible future guarantee association assessments will not have a
material effect on the Corporations operating results and/or cash flows.Pursuant to the Puerto Rico Insurance Code, the property and casualty insurance segment
is a member of Sindicato de Aseguradores para la Suscripción Conjunta de Seguros de
Responsabilidad Profesional Médico-Hospitalaria (SIMED) and of the Sindicato de
Aseguradores de Responsabilidad Profesional para Médicos. Both syndicates were
organized for the purpose of underwriting medical-hospital professional liability
insurance. As a member, the segment shares risks with other member companies and,
accordingly, is contingently liable in the event the previously mentioned syndicates
cannot meet their obligations. During 2005, 2004 and 2003, no assessment or payment
was made for this contingency.In addition, pursuant to Article 12 of Rule LXIX of the Insurance Code, the property
and casualty insurance segment is a member of the Compulsory Vehicle Liability
Insurance Joint Underwriting Association (the Association). The Association was
organized in 1997 to underwrite insurance coverage of motor vehicle property damage
liability risks effective January 1, 1998. As a participant, the segment shares the
risk proportionally with other members based on a formula established by the Insurance
Code. During the three-year period ended December 31, 2005, the Association
distributed good experience refunds. The segment received refunds amounting to $918,
$840, and $638 in 2005, 2004, and 2003, respectively.
 Critical Accounting Estimates
    Claim Liabilities
  (Dollar amounts in thousands)
    
    TSI
    
    STS
    
    SVTS
    
    ConsolidatedClaims processed and incomplete
    
    $
    74,654
    
    
    
    47,416
    
    
    
    17,624
    
    
    
    139,694Unreported losses
    
    
    101,184
    
    
    
    37,186
    
    
    
    4,854
    
    
    
    143,224Unpaid loss-adjustment expenses
    
    
    3,140
    
    
    
    11,505
    
    
    
    
    
    
    
    14,645$
    178,978
    
    
    
    96,107
    
    
    
    22,478
    
    
    
    297,563
 Page 35




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##### Table of Contents



Health Insurance segments
      Page 36




---



##### Table of Contents



(Dollar amounts in thousands)Completion Factor1
    
    Claims Trend Factor2(Decrease) Increase
    
    (Decrease) IncreaseIn completion factor
    

In unpaid claim liabilities
    

In claims trend factor
    

In unpaid claim liabilities(0.6)%
    
    $
    7,147
    
    
    
    (0.6
    )%
    
    $
    5,797(0.4)%
    
    
    4,754
    
    
    
    (0.4
    )%
    
    
    3,864(0.2)%
    
    
    2,371
    
    
    
    (0.2
    )%
    
    
    1,9320.2%
    
    
    (2,361
    )
    
    
    0.2
    %
    
    
    (1,932
    )0.4%
    
    
    (4,711
    )
    
    
    0.4
    %
    
    
    (3,864
    )0.6%
    
    
    (7,050
    )
    
    
    0.6
    %
    
    
    (5,797
    )
 
 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 thousands)
    
    2004
    
    2003
    
    2002Total incurred claims:As reported
    
    $
    1,054,575
    
    
    
    1,026,000
    
    
    
    1,032,200On a retrospective basis
    
    
    1,070,145
    
    
    
    1,030,010
    
    
    
    1,018,700Variance
    
    $
    (15,570
    )
    
    
    (4,010
    )
    
    
    13,500Variance to total incurred claims as reported
    
    
    -1.5
    %
    
    
    -0.4
    %
    
    
    1.3
    %
 Page 37




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##### Table of Contents




    
    Through the management of its cash flows and the investment portfolio.
    
    The Corporation has the ability to increase 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. The Corporation considers the actual claims trend of
each group when determining the premium rates for the following contract year.
    
    The Corporation has available short-term borrowing facilities that from time to time
address differences between cash receipts and disbursements. For additional information
on the Corporations credit facilities, see section Financing and Financing Capacity of
this Item.
 Property and Casualty Insurance Segment
   
    Page 38




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##### Table of Contents



Life and Disability Insurance Segment
    Impairment of Investments
     Page 39




---



##### Table of Contents



Allowance for Doubtful Receivables
    Other Significant Accounting Policies
  Recently Issued Accounting Standards
 Exchange of
Nonmonetary Assets
 Accounting Changes and Error Corrections
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Market Risk Exposure
  Page 40




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##### 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;
 
    
    The model assumes that the composition of assets and liabilities remains unchanged
throughout the year.
  Interest Rate Risk
  Equity Price Risk
  Risk Measurement
 Trading Portfolio
  Page 41




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##### Table of Contents



Other than Trading Portfolio
  (1)
    
    Interest Rate Risk  The Corporation has evaluated the net impact to the fair
value of its fixed income investments using a combination of both statistical and
fundamental methodologies. From these shocked values a resultant market price
appreciation/depreciation can be determined after portfolio cash flows are modeled and
evaluated over instantaneous 100, 200 and 300 bp rate shifts. Techniques used in the
evaluation of cash flows include Monte Carlo simulation through a series of probability
distributions over 200 interest rate paths. Necessary prepayment speeds are compiled
using Salomon Brothers Yield Book, which sources numerous factors in deriving speeds,
including but not limited to: historical speeds, economic indicators, street consensus
speeds, etc. Securities evaluated under the aforementioned scenarios include, as it
relates to the Corporation, mortgage pass-through certificates and collateralized mortgage
obligations of U.S. agencies, and private label structures, provided that cash flows
information is available. The following table sets forth the result of this analysis for
the years ended December 31, 2005 and 2004.
 (Dollar amounts in thousands)Expected
    
    Amount of
    
    %Change in Interest Rates
    
    Fair Value
    
    Decrease
    
    ChangeDecember 31, 2005:Base Scenario
    
    $
    560,146+100 bp
    
    $
    532,372
    
    
    
    (27,774
    )
    
    
    (4.96
    )%+200 bp
    
    $
    512,003
    
    
    
    (48,143
    )
    
    
    (8.59
    )%+300 bp
    
    $
    492,776
    
    
    
    (67,370
    )
    
    
    (12.03
    )%December 31, 2004:Base Scenario
    
    $
    482,019+100 bp
    
    $
    465,335
    
    
    
    (16,684
    )
    
    
    (3.46
    )%+200 bp
    
    $
    446,588
    
    
    
    (35,431
    )
    
    
    (7.35
    )%+300 bp
    
    $
    428,419
    
    
    
    (53,600
    )
    
    
    (11.12
    )%
 The Corporation believes that an interest rate shift in a 12-month period of 100 bp
represents a moderately adverse outcome, while a 200 bp shift is significantly adverse
and a 300 bp shift is unlikely given historical precedents. Although the Corporation
classifies 96% of its fixed income securities as available-for-sale, the Corporations
cash flows and the intermediate duration of its investment portfolio should allow it to
hold securities until their maturity, thereby avoiding the recognition of losses,
should interest rates rise significantly.(2)
    
    Equity Price Risk  The Corporations equity securities in the
available-for-sale portfolio are comprised primarily of stock of several Puerto Rico
financial institutions and mutual funds. Assuming an immediate decrease of 10% in the
market value of these securities as of December 31, 2005 and 2004, the hypothetical loss
in the fair value of these investments is estimated to be approximately $5.2 million and
$5.9 million, respectively.
 Page 42




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##### Table of Contents



Other Risk Measurement
    
 Item 8. Financial Statements and Supplementary Data.
 Financial Statements
  Selected Quarterly Financial Data
  Page 43




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  
 Item 9B.Other Information.
  
 Part III
 
 Item 10. Directors and Executive Officers of the Registrant.
   
 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.
  Page 44




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
  
 Item 15. Exhibits and Financial Statements Schedules.
 Financial Statements and Schedules
 Financial Statements
    
    DescriptionF-1
    
    Report of Independent Registered Public Accounting FirmF-2
    
    Consolidated Balance Sheets as of December 31, 2005 and 2004F-3
    
    Consolidated Statements of Earnings for the years ended
December 31, 2005, 2004 and 2003F-4
    
    Consolidated Statements of Stockholders Equity and
Comprehensive Income for the years ended December 31, 2005,
2004 and 2003F-5
    
    Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003F-7
    
    Notes to Consolidated Financial Statements  December 31,
2005, 2004 and 2003
 Financial StatementsSchedules
    
    DescriptionS-1
    
    Schedule II  Condensed Financial Information of the RegistrantS-2
    
    Schedule III  Supplementary Insurance InformationS-3
    
    Schedule IV  ReinsuranceS-4
    
    Schedule V  Valuation and Qualifying Accounts
  Exhibits
 Exhibits
    
    Description3(i)
    
    Articles of Incorporation of Triple-S Management Corporation as
amended (English Translation) (incorporated herein by reference
to Exhibit 3(i) to TSMs Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2002 (File No. 0-49762)).3(ii)
    
    By-Laws of Triple-S Management Corporation as amended (English
Translation) (incorporated herein by reference to Exhibit 3(ii)
to TSMs Quarterly Report on Form 10-Q for the Quarter Ended June
30, 2002 (File No. 0-49762)).10.1
    
    Puerto Rico Health Insurance Contract for the Metro-North Region
(incorporated herein by reference to Exhibit 10.1 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2003
(File No. 0-49762)).10.1 (a)
    
    Extension to the Puerto Rico Health Insurance Contract for the
Metro-North Region (incorporate herein by reference to Exhibit
10.1 to TSMs Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2005 (File No. 0-49762)).10.2
    
    Puerto Rico Health Insurance Contract for the North Region
(incorporated herein by reference to Exhibit 10.2 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2003
(File No. 0-49762)).10.2 (a)
    
    Extension to the Puerto Rico Health Insurance Contract for the
North Region (incorporate herein by reference to Exhibit 10.2 to
TSMs Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2005 (File No. 0-49762)).10.3
    
    Puerto Rico Health Insurance Contract for the South-West Region
(incorporated herein by reference to Exhibit 10.3 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2003
(File No. 0-49762)).
 Page 45




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##### Table of Contents



10.3 (a)
    
    Extension to the Puerto Rico Health Insurance Contract for the
South-West Region (incorporate herein by reference to Exhibit
10.3 to TSMs Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 2005 (File No. 0-49762)).10.4
    
    Employment Contract with Mr. Ramón Ruiz Comas, CPA (incorporated
herein by reference to Exhibit 10.4 to TSMs Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 2002 (File No.
0-49762)).10.5
    
    Employment Contract with Ms. Socorro Rivas, CPA (incorporated
herein by reference to Exhibit 10.5 to TSMs Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 2002 (File No.
0-49762)).10.6
    
    Employment Contract with Dr. Alejandro Franco (incorporated
herein by reference to Exhibit 10.9 to TSMs General Form of
Registration of Securities on Form 10 (File No. 0-49762)).10.7
    
    Federal Employees Health Benefits Contract (incorporated herein
by reference to Exhibit 10.5 to TSMs General Form of
Registration of Securities on Form 10 (File No. 0-49762)).10.8
    
    Credit Agreement with FirstBank Puerto Rico in the amount of
$41,000,000 (incorporated herein by reference to Exhibit 10.6 to
TSMs General Form of Registration of Securities on Form 10 (File
No. 0-49762)).10.9
    
    Credit Agreement with FirstBank Puerto Rico in the amount of
$20,000,000 (incorporated herein by reference to Exhibit 10.7 to
TSMs General Form of Registration of Securities on Form 10 (File
No. 0-49762)).10.10
    
    Non-Contributory Retirement Program (incorporated herein by
reference to Exhibit 10.8 to TSMs General Form of Registration
of Securities on Form 10 (File No. 0-49762)).10.11
    
    License and other Agreements with Blue Shield (incorporated
herein by reference to Exhibit 10.10 to TSMs General Form of
Registration of Securities on Form 10 (File No. 0-49762)).10.12
    
    Employment Contract with Dr. Francisco Joglar-Pesquera
(incorporated herein by reference to Exhibit 10.2 to TSMs
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2005
(File No. 0-49762)).10.13
    
    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
10.1 to TSMs Current Report on Form 8-K filed on December 21,
2005 (File No. 0-49762)).10.14
    
    Reinsurance Agreement between Great American Life Assurance
Company of Puerto Rico and Seguros de Vida Triple-S, Inc. dated
December 15, 2005.10.15
    
    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.10.16
    
    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.11.1
    
    Statement re computation of per share earnings; an exhibit
describing the computation of the earnings per share for the
years ended December 31, 2005, 2004 and 2003 has been omitted as
the detail necessary to determine the computation of earnings per
share can be clearly determined from the notes to the
consolidated financial statements.12.1
    
    Statement re computation of ratios; an exhibit describing the
computation of the loss ratio, expense ratio and combined ratio
for the years ended December 31, 2005, 2004 and 2003 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.13.1
    
    Triple-S Management Corporation Annual Report to Shareholders for
the year ended December 31, 2005.14.1
    
    Code of Ethics31.1
    
    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).
 Page 46




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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 1350.21.1
    
    List of Subsidiaries of the Corporation (incorporated herein by
reference to Exhibit 21 to TSMs General Form of Registration of
Securities on Form 10 (File No. 0-49762)).
  
 SIGNATURES
  Triple-S Management Corporation
 By:
    
    /s/ Ramón M. Ruiz-Comas
    
    Date:
    
    March 30, 2006Ramón M. Ruiz-ComasPresident and Chief Executive OfficerBy:
    
    /s/ Juan J. Román
    
    Date:
    
    March 30, 2006Juan J. RománVice President of Finance andChief Financial Officer
 Page 47




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##### Table of Contents



By:
    
    /s/ Wilmer Rodríguez-Silva, MD
    
    Date:
    
    March 30, 2006Wilmer Rodríguez-Silva, MDDirector and Chairman of the BoardBy:
    
    /s/ Mario S. Belaval
    
    Date:
    
    March 30, 2006Mr. Mario S. BelavalDirector and Vice-Chairman of the BoardBy:
    
    /s/ Jesús R. Sánchez-Colón, MD
    
    Date:
    
    March 30, 2006Jesús R. Sánchez-Colón, MDDirector and Secretary of the BoardBy:
    
    /s/ Miguel Nazario-Franco
    
    Date:
    
    March 30, 2006Miguel Nazario-FrancoDirector and Assistant Secretary of the BoardBy:
    
    /s/ Vicente J. León-Irizarry, CPA
    
    Date:
    
    March 30, 2006Vicente J. León-Irizarry, CPADirector and Treasurer of the BoardBy:
    
    /s/ Adamina Soto-Mártinez, CPA
    
    Date:
    
    March 30, 2006Adamina Soto-Mártinez, CPADirector and Assistant Treasurer of the BoardBy:
    
    /s/ Valeriano Alicea-Cruz, MD
    
    Date:
    
    March 30, 2006Valeriano Alicea-Cruz, MDDirectorBy:
    
    /s/ José Árturo Álvarez-Gallardo
    
    Date:
    
    March 30, 2006Mr. José Árturo Álvarez-GallardoDirectorBy:
    
    /s/ Arturo R. Córdova-López, MD
    
    Date:
    
    March 30, 2006Arturo R. Córdova-López, MDDirectorBy:
    
    /s/ Carmen Ana Culpeper-Ramírez
    
    Date:
    
    March 30, 2006Ms. Carmen Ana Culpeper-RamírezDirectorBy:
    
    /s/ Porfirio E. Díaz-Torres, MD
    
    Date:
    
    March 30, 2006Porfirio E. Díaz-Torres, MDDirector
 Page 48




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By:
    
    /s/ Manuel Figueroa-Collazo, PE
    
    Date:
    
    March 30, 2006Manuel Figueroa-Collazo, PE, Ph.D.DirectorBy:
    
    /s/ José Hawayek-Alemañy, MD
    
    Date:
    
    March 30, 2006José Hawayek-Alemañy, MDDirectorBy:
    
    /s/ Fernando L. Longo, MD
    
    Date:
    
    March 30, 2006Fernando L. Longo, MDDirectorBy:
    
    /s/ Wilfredo López-Hernández, MD
    
    Date:
    
    March 30, 2006Wilfredo López-Hernández, MDDirectorBy:
    
    /s/ Juan E. Rodríguez-Díaz, Esq.
    
    Date:
    
    March 30, 2006Juan E. Rodríguez-Díaz, Esq.DirectorBy:
    
    /s/ Manuel Suárez-Méndez, P.E.
    
    Date:
    
    March 30, 2006Manuel Suárez-Méndez, P.E.DirectorBy:
    
    /s/ Fernando J. Ysern Borrás, MD
    
    Date:
    
    March 30, 2006Fernando J. Ysern Borrás, MDDirector
 Page 49




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES




---



##### 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
    
    
    7Note 1 - Organization
    
    
    7Note 2 - Significant Accounting Policies
    
    
    8Note 3 - Segment Information
    
    
    19Note 4 - Investment in Securities
    
    
    26Note 5 - Net Investment Income
    
    
    35Note 6 - Premium and Other Receivables, Net
    
    
    35Note 7 - Property and Equipment, Net
    
    
    36Note 8 - Claim Liabilities
    
    
    36Note 9 - Federal Employees Health Benefits Program
    
    
    37Note 10 - Short-Term Borrowings
    
    
    39Note 11 - Long-Term Borrowings
    
    
    40Note 12 - Derivative Instruments and Hedging Activities
    
    
    41Note 13 - Retained Earnings and Stockholders Equity
    
    
    43Note 14 - Comprehensive Income
    
    
    44Note 15 - Agency Contract and Expense Reimbursement
    
    
    45Note 16 - Reinsurance Activity
    
    
    46Note 17 - Income Taxes
    
    
    48Note 18 - Pension Plan
    
    
    51Note 19 - Catastrophe Loss Reserve Trust Fund
    
    
    55Note 20 - Commitments
    
    
    57Note 21 - Contingencies
    
    
    57Note 22 - Net Income Available to Stockholders and Basic Net Income per Share
    
    
    60Note 23 - Subsequent Events
    
    
    61Note 24 - Business Combinations
    
    
    61Note 25 - Statutory Accounting
    
    
    61Note 26 - Quarterly Financial Information (Unaudited)
    
    
    64Note 27 - Reconciliation of Net Income to Net Cash Provided by Operating Activities
    
    
    66




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Report of Independent Registered Public Accounting Firm




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2005
    
    
    2004AssetsInvestments and cash:Securities held for trading, at fair value:Fixed maturities (amortized cost of $70,668 in 2004)
    
    $
    
    
    
    
    72,423Equity securities (cost of $69,397 in 2005 and $74,824 in 2004)
    
    
    78,215
    
    
    
    86,596Securities available for sale, at fair value:Fixed maturities (amortized cost of $524,287 in 2005 and $444,135 in 2004)
    
    
    515,174
    
    
    
    444,637Equity securities (cost of $38,675 in 2005 and $34,309 in 2004)
    
    
    51,810
    
    
    
    59,186Securities held to maturity, at amortized cost:Fixed maturities (fair value of $20,760 in 2005 and $14,503 in 2004)
    
    
    21,129
    
    
    
    14,280Cash and cash equivalents
    
    
    48,978
    
    
    
    35,115Total investments and cash
    
    
    715,306
    
    
    
    712,237Premium and other receivables, net
    
    
    244,038
    
    
    
    113,323Deferred policy acquisition costs
    
    
    81,568
    
    
    
    18,712Property and equipment, net
    
    
    34,709
    
    
    
    32,364Net deferred tax asset
    
    
    2,151
    
    
    
    Other assets
    
    
    59,690
    
    
    
    43,021Total assets
    
    $
    1,137,462
    
    
    
    919,657Liabilities and Stockholders EquityClaim liabilities:Claims processed and incomplete
    
    $
    139,694
    
    
    
    137,282Unreported losses
    
    
    143,224
    
    
    
    127,324Unpaid loss-adjustment expenses
    
    
    14,645
    
    
    
    14,719Total claim liabilities
    
    
    297,563
    
    
    
    279,325Future policy benefits reserve related to funds withheld reinsurance
    
    
    118,635
    
    
    
    Unearned premiums
    
    
    95,703
    
    
    
    84,583Annuity contracts
    
    
    41,738
    
    
    
    34,071Liability to Federal Employees Health Benefits Program
    
    
    4,356
    
    
    
    9,791Accounts payable and accrued liabilities
    
    
    106,468
    
    
    
    100,388Short-term borrowings
    
    
    1,740
    
    
    
    1,700Long-term borrowings
    
    
    150,590
    
    
    
    95,730Income tax payable
    
    
    
    
    
    
    1,827Net deferred tax liability
    
    
    
    
    
    
    1,969Additional minimum pension liability
    
    
    11,966
    
    
    
    8,840Total liabilities
    
    
    828,759
    
    
    
    618,224Stockholders equity:Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 8,904 shares at December 31, 2005 and 2004
    
    
    356
    
    
    
    356Additional paid-in capital
    
    
    150,408
    
    
    
    150,408Retained earnings
    
    
    162,964
    
    
    
    134,531Accumulated other comprehensive income (loss)
    
    
    (5,025
    )
    
    
    16,138308,703
    
    
    
    301,433Commitments and contingenciesTotal liabilities and stockholders equity
    
    $
    1,137,462
    
    
    
    919,657
  2




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2005
    
    
    2004
    
    
    2003Revenue:Premiums earned, net
    
    $
    1,380,204
    
    
    
    1,298,959
    
    
    
    1,264,395Amounts attributable to self-funded
arrangements
    
    
    210,905
    
    
    
    179,166
    
    
    
    160,127Less amounts attributable to claims under
self-funded arrangements
    
    
    (196,460
    )
    
    
    (169,924
    )
    
    
    (151,806
    )1,394,649
    
    
    
    1,308,201
    
    
    
    1,272,716Net investment income
    
    
    29,029
    
    
    
    26,499
    
    
    
    24,679Net realized investment gains
    
    
    7,161
    
    
    
    10,968
    
    
    
    8,365Net unrealized investment gain (loss) on
trading securities
    
    
    (4,709
    )
    
    
    3,042
    
    
    
    14,893Other income, net
    
    
    3,732
    
    
    
    3,360
    
    
    
    4,703Total revenue
    
    
    1,429,862
    
    
    
    1,352,070
    
    
    
    1,325,356Benefits and expenses:Claims incurred
    
    
    1,208,367
    
    
    
    1,115,793
    
    
    
    1,065,350Operating expenses, net of reimbursement
for services
    
    
    181,703
    
    
    
    171,879
    
    
    
    165,149Interest expense
    
    
    7,595
    
    
    
    4,581
    
    
    
    3,231Total benefits and expenses
    
    
    1,397,665
    
    
    
    1,292,253
    
    
    
    1,233,730Income before taxes
    
    
    32,197
    
    
    
    59,817
    
    
    
    91,626Income tax expense (benefit):Current
    
    
    3,924
    
    
    
    14,285
    
    
    
    70,793Deferred
    
    
    (160
    )
    
    
    (271
    )
    
    
    (5,396
    )Total income taxes
    
    
    3,764
    
    
    
    14,014
    
    
    
    65,397Net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229Basic net income per share
    
    $
    3,193
    
    
    
    5,135
    
    
    
    2,857
  3




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
   AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    TotalCommon
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    stockholdersstock
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    equityBalance, December 31, 2002
    
    $
    373
    
    
    
    150,406
    
    
    
    62,499
    
    
    
    18,386
    
    
    
    231,664Stock redemption
    
    
    (12
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    26,229
    
    
    
    
    
    
    
    26,229Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,022
    )
    
    
    (6,022
    )Net change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,292
    
    
    
    2,292Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    103Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,602Balance, December 31, 2003
    
    
    361
    
    
    
    150,407
    
    
    
    88,728
    
    
    
    14,759
    
    
    
    254,255Stock redemption
    
    
    (5
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    45,803
    
    
    
    
    
    
    
    45,803Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,101
    
    
    
    1,101Net change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    281Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,182Balance, December 31, 2004
    
    
    356
    
    
    
    150,408
    
    
    
    134,531
    
    
    
    16,138
    
    
    
    301,433Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    28,433
    
    
    
    
    
    
    
    28,433Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,832
    )
    
    
    (18,832
    )Net change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,788
    )
    
    
    (2,788
    )Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    457Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,270Balance, December 31, 2005
    
    $
    356
    
    
    
    150,408
    
    
    
    162,964
    
    
    
    (5,025
    )
    
    
    308,703
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Premiums collected
    
    $
    1,388,623
    
    
    
    1,302,383
    
    
    
    1,267,127Cash paid to suppliers and employees
    
    
    (257,822
    )
    
    
    (182,333
    )
    
    
    (169,160
    )Claim losses and benefits paid
    
    
    (1,193,548
    )
    
    
    (1,092,817
    )
    
    
    (1,066,527
    )Interest received
    
    
    28,826
    
    
    
    27,065
    
    
    
    25,139Income taxes paid
    
    
    (9,118
    )
    
    
    (44,680
    )
    
    
    (39,287
    )Proceeds from trading securities sold or
matured:Fixed maturities
    
    
    102,667
    
    
    
    50,330
    
    
    
    77,582Equity securities
    
    
    36,156
    
    
    
    26,523
    
    
    
    28,924Acquisition of investments in trading portfolio:Fixed maturities
    
    
    (30,502
    )
    
    
    (54,550
    )
    
    
    (96,237
    )Equity securities
    
    
    (25,785
    )
    
    
    (38,700
    )
    
    
    (38,956
    )Interest paid
    
    
    (5,351
    )
    
    
    (3,578
    )
    
    
    (2,866
    )Expense reimbursement from Medicare
    
    
    13,886
    
    
    
    13,980
    
    
    
    11,387Contingency reserve funds from FEHBP
    
    
    1,059
    
    
    
    5,217
    
    
    
    13,023Net cash provided by operating
activities
    
    
    49,091
    
    
    
    8,840
    
    
    
    10,149Cash flows from investing activities:Proceeds from investments sold or matured:Securities available for sale:Fixed maturities sold
    
    
    13,099
    
    
    
    86,112
    
    
    
    129,868Fixed maturities matured
    
    
    22,822
    
    
    
    69,258
    
    
    
    196,961Equity securities
    
    
    3,488
    
    
    
    8,436
    
    
    
    16,778Securities held to maturity:Fixed maturities matured
    
    
    1,816
    
    
    
    1,322
    
    
    
    1,010Acquisition of investments:Securities available for sale:Fixed maturities
    
    
    (118,758
    )
    
    
    (194,016
    )
    
    
    (416,759
    )Equity securities
    
    
    (6,876
    )
    
    
    (2,435
    )
    
    
    (14,824
    )Securities held to maturity:Fixed maturities
    
    
    (8,495
    )
    
    
    (10,154
    )
    
    
    (537
    )Capital expenditures
    
    
    (7,574
    )
    
    
    (3,494
    )
    
    
    (3,205
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    15
    
    
    
    63Net cash used in investing activities
    
    
    (100,478
    )
    
    
    (44,956
    )
    
    
    (90,645
    )
 5
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003Cash flows from financing activities:Change in outstanding checks in excess of
bank balances
    
    $
    3,914
    
    
    
    6,730
    
    
    
    (2,739
    )Repayments of short-term borrowings
    
    
    (174,035
    )
    
    
    (57,355
    )
    
    
    Proceeds from short-term borrowings
    
    
    174,075
    
    
    
    20,355
    
    
    
    38,700Repayments of long-term borrowings
    
    
    (5,140
    )
    
    
    (2,645
    )
    
    
    (1,640
    )Proceeds from long-term borrowings
    
    
    60,000
    
    
    
    50,000
    
    
    
    Redemption of common stock
    
    
    
    
    
    
    (4
    )
    
    
    (11
    )Proceeds from annuity contracts
    
    
    11,510
    
    
    
    11,002
    
    
    
    13,471Surrenders of annuity contracts
    
    
    (5,074
    )
    
    
    (4,595
    )
    
    
    (2,318
    )Net cash provided by financing
activities
    
    
    65,250
    
    
    
    23,488
    
    
    
    45,463Net increase (decrease) in cash
and cash equivalents
    
    
    13,863
    
    
    
    (12,628
    )
    
    
    (35,033
    )Cash and cash equivalents, beginning of year
    
    
    35,115
    
    
    
    47,743
    
    
    
    82,776Cash and cash equivalents, end of year
    
    $
    48,978
    
    
    
    35,115
    
    
    
    47,743
  6




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    
 (1)
    
    Organization
 (a)
    
    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) which provides hospitalization and
health benefits to subscribers through contracts with hospitals, physicians, dentists,
laboratories, and other organizations located mainly in Puerto Rico; (2) Seguros de Vida
Triple-S, Inc. (SVTS), which is engaged in the underwriting of life and disability
insurance policies and the administration of annuity contracts; and (3) Seguros Triple-S,
Inc. (STS), which is engaged in the underwriting of property and casualty insurance
policies. The Company and TSI are members of the Blue Cross and Blue Shield Association
(BCBSA).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
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 is with insureds located
throughout Puerto Rico, and as such, the Company is subject to the risks associated with
the Puerto Rico economy.(b)
    
    Reorganization of the BusinessOn December 6, 1996, the Commissioner of Insurance issued an order to annul the sale of
1,582 shares of common stock that TSI repurchased from the estate of deceased
stockholders. TSI contested such order through administrative and judicial review
processes. Consequently, the sale of 1,582 shares was cancelled and the amounts paid
returned to each former stockholder. During the year 2000, the Commissioner of Insurance
issued a pronouncement providing further clarification of the content and effect of the
order. This order also required that all corporate decisions undertaken by TSI through
the vote of its stockholders of record, be ratified in a stockholders meeting or in a
subsequent referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified
all such decisions. Furthermore, on November 19, 2000, TSM held a special stockholders
meeting, where a ratification of these decisions was undertaken except for the
resolutions related to the approval of the reorganization of TSI and its subsidiaries.
This resolution did not reach the two-thirds majority required by the order because the
number of shares that were present and represented at the meeting was below such amount
(total shares present and represented in the stockholders meeting was 64%). As
stipulated in the order, TSM began the process to conduct a referendum among its
stockholders in order to ratify such resolution. The process was later suspended because
upon further review of the
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    scope of the order, the Commissioner of Insurance issued an opinion in a letter dated
January 8, 2002, which indicated that the ratification of the corporate reorganization
was not required.In another letter to TSI dated March 14, 2002, the Commissioner of Insurance stated that
the ratification of the corporate reorganization was not required and that TSI had
complied with the Commissioner of Insurances order of December 6, 1996 related to the
corporate reorganization. Thereafter, two of TSMs stockholders filed a petition for
review of the Commissioner of Insurances determination before the Puerto Rico Circuit
Court of Appeals. Such petition was opposed by TSI and by the Commissioner of Insurance.Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals
issued an order requiring the Commissioner of Insurance to order that a meeting of
shareholders be held to ratify TSIs corporate reorganization and the change of name of
TSI from Seguros de Servicios de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto
Rico Circuit Court of Appeals based its decision on administrative and procedural issues
directed at the Commissioner of Insurance. The Commissioner of Insurance filed a motion
of reconsideration with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSM
and TSI also filed a motion of reconsideration.On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner
of Insurances Motion for Reconsideration.On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSIs and TSMs Motion
of Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner
of Insurance had the authority to waive the celebration of a referendum to ratify TSIs
reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares
annulled were not decisive, was approved by the stockholders.On June 26, 2003, the two shareholders presented a Writ of Certiorari before the Supreme
Court of Puerto Rico. TSI and TSM filed a motion opposing the
issuance of the writ. The Supreme Court of Puerto Rico issued the writ on August 22, 2003, when it ordered that the
Puerto Rico Circuit Court of Appeals transmit the record of the case. On December 1,
2003, the two shareholders filed a motion submitting their case on the basis of their
original petition. TSI filed its brief on December 30, 2003, while the Commissioner of
Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004, the
Supreme Court of Puerto Rico ordered the plaintiffs to file a brief in support of their
allegations. The outcome of the case is pending before the Supreme Court of Puerto Rico.
It is the opinion of the management and its legal counsels that the corporate
reorganization as approved is in full force and effect.
 
 (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). These principles are established
primarily by the
 8
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Financial Accounting Standards Board (FASB) and the American Institute of Certified
Public Accountants.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)
    
    Cash EquivalentsCash equivalents of $28,030 and $3,617 at December 31, 2005 and 2004, respectively,
consist principally of certificates of deposit and obligations of the Commonwealth of
Puerto Rico and the U.S. Treasury with an initial term of less than three months. For
purposes of the consolidated statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be cash
equivalents.(c)
    
    InvestmentsInvestment in securities at December 31, 2005 and 2004 consists mainly of U.S. Treasury
securities and obligations of U.S. government instrumentalities, obligations of the
Commonwealth of Puerto Rico and its instrumentalities, obligations of state and political
subdivisions, mortgage-backed securities, collateralized mortgage obligations, corporate
debt, 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. 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 operations and are
reported as a separate component of other comprehensive income until realized. 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 operations 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 a reduction in 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
 9
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 period-end and forecasted performance of the investee.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.Realized gains and losses from the sale of available-for-sale securities are included in
operations and are determined on a specific-identification basis.(d)
    
    Revenue RecognitionSubscriber premiums on health and life insurance policies are billed in advance of their
respective coverage period and the related revenue is recorded as earned during the
coverage period. The premiums of TSI and SVTS are billed in the month prior to the
effective date of the policy with a grace period of one month. If the insured fails to
pay, the policy can be canceled at the end of the grace period at the option of the
companies. Health and life insurance premiums are reported as earned when due.Certain groups have health insurance 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
fee. The Company pays claims under self-funded arrangements from its own bank accounts,
and subsequently receives reimbursement from the self-funded groups. Revenue recorded
under the self-funded arrangements are recognized based on the incurred claims for the
period plus administrative and other fees and are labeled as amounts attributable to
self-funded arrangements in the accompanying consolidated statements of earnings. 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. In addition, accounts for
certain self-insured groups are charged or credited with interest expense or income as
provided by the groups contracts.
 10
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The detail by funding option of the amount of revenue attributable to self-funded
arrangements for the years ended December 31, 2005, 2004, and 2003 is as follows:
 2005
    
    
    2004
    
    
    2003Self-funded portion:Reimbursement for claims
incurred
    
    $
    195,390
    
    
    
    165,921
    
    
    
    147,972Administrative fees
    
    
    15,515
    
    
    
    13,245
    
    
    
    12,155Totals
    
    $
    210,905
    
    
    
    179,166
    
    
    
    160,127Fully insured portion:Stop-loss premiums
    
    $
    1,117
    
    
    
    1,436
    
    
    
    1,234Organ transplant premiums
    
    
    775
    
    
    
    1,100
    
    
    
    927Totals
    
    $
    1,892
    
    
    
    2,536
    
    
    
    2,161
 Premiums 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.(e)
    
    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.(f)
    
    Deferred Policy Acquisition CostsCertain costs for acquiring property and casualty, and life and disability insurance
business are deferred by the Company. In the property and casualty business these costs
mainly relate to commissions incurred during the production of business and are deferred
and amortized ratably over the terms of the policies. In the life and disability
insurance business the deferred acquisition costs mainly relate to the production of
life, annuity, accident and health, and credit business. The amortization of the deferred
acquisition costs of the life and disability insurance business is provided considering
interest, over the anticipated premium paying period of the related policies in
proportion to the ratio of annual premium revenue to expected total premium revenue to be
received over the life of the policies. The expected premium revenue of the life and
disability insurance subsidiary is estimated by using the same mortality and withdrawal
assumptions used in computing liabilities for future policy benefits. Cost deferred by
the life and disability insurance segment related to interest sensitive products are
amortized as a level percentage of the present value of anticipated gross profits from
investment yields, mortality, and surrender charges.
 11
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The method used in calculating deferred policy acquisition costs limits the amount of
such deferred costs to actual costs or their estimated realizable value, whichever is
lower. In determining estimated realizable value, the method considers the premiums to be
earned, related investment income, losses and loss-adjustment expenses, and certain other
costs expected to be incurred as the premiums are earned.Amortization of deferred policy acquisition costs in 2005, 2004, and 2003 was $23,401,
$22,454, and $19,580, respectively.Acquisition costs related to health insurance policies are expensed as incurred.(g)
    
    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 usefullife or lease termOffice furniture
    
    5 yearsEquipment
    
    3 years
 (h)
    
    Claim LiabilitiesClaims processed and incomplete and unreported losses for health insurance 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 accrued
currently based on estimated future expenses necessary to process such claims.TSI contracts with various independent practice associations (IPAs) for certain medical
care services provided to managed care policies subscribers. The IPAs are compensated on
a capitation basis. TSI retains a portion of the capitation payments to provide for
incurred but not reported losses. At December 31, 2005 and 2004, total withholdings and
capitation payable amounted to $27,327 and $27,924, respectively, which are recorded as
part of the liability for claims processed and incomplete in the accompanying
consolidated balance sheets.The liability for losses and loss-adjustment expenses for STS represents individual case
estimates for reported claims and estimates for unreported losses, net of any salvage and
subrogation based on past
 12
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    experience modified for current trends and estimates of expenses for investigating and
settling claims.The liability for policy and contract claims of SVTS is based on the amount of benefits
contractually determined for reported claims, and on estimates, based on past experience
modified for current trends, for unreported 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.(i)
    
    Annuity ContractsAmounts received for annuity contracts are considered deposits and recorded as a
liability. Interest accrued on such annuities, which amounted to $1,230, $1,004, and $721
during the years ended December 31, 2005, 2004, and 2003, respectively, is recorded as
interest expense in the accompanying consolidated statements of earnings.(j)
    
    Reinsurance
 (i)
    
    Reinsurance CededIn the normal course of business, the insurance-related subsidiaries seek to limit
their exposure that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of risk in various
areas of exposure with other insurance enterprises or reinsurers.Reinsurance premiums, commissions, and expense reimbursements, related to reinsured
business are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contracts.
Accordingly, reinsurance premiums are reported as prepaid reinsurance premiums and
amortized over the remaining contract period in proportion to the amount of
insurance protection provided.Premiums ceded and recoveries of losses and loss-adjustment expenses have been
reported as a reduction of premiums earned and losses and loss-adjustment expenses
incurred, respectively. Commission and expense allowances received by STS in
connection with reinsurance ceded have been accounted for as a reduction of the
related policy acquisition costs and are deferred and amortized accordingly.
Amounts recoverable from reinsurers are estimated in a manner consistent with the
claim liability associated with the reinsured policy.(ii)
    
    Reinsurance AssumedSVTS in an effort to participate in the individual life insurance business,
reinsures premiums of this line of business on a coinsurance funds withheld basis.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    In this arrangement, SVTS shares proportionally in all of the risks inherent in the
underlying policies, including mortality, persistency, and fluctuations in the
investment results. In this agreement SVTS agrees to indemnify the primary insurer
for a portion of the risks associated with the underlying insurance policies in
exchange for a proportionate share of the premiums. Under coinsurance funds
withheld arrangements the primary insurer retains the ownership of the assets
supporting the reserves of the reinsured business, however, SVTS participates in
the investment income and risks associated with the assets.Reinsurance premiums, claims incurred and commissions and other expenses related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts.Assumed premiums and SVTSs share of losses have been reported as premiums earned
and losses incurred, respectively. Commissions and other deferrable expenses paid
by SVTS in connection with reinsurance assumed have been accounted for as policy
acquisition costs and are deferred and amortized accordingly.
 (k)
    
    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 Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Certain Hedging Activities, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment to SFAS No. 133. This
statement, as amended, requires that all derivative instruments, whether or not
designated in hedging relationships, be recorded on the balance sheets 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    liability or unrecognized firm commitment of the hedged item that is attributable to the
hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is
highly effective and that is designated and qualifies as a cash-flow hedge are recorded
in other comprehensive income to the extent that the derivative is effective as hedge,
until earnings are affected by the variability in cash flows of the designated hedged
item. Changes in the fair value of derivatives that are highly effective as hedges and
that are designated and qualify as foreign-currency hedges are recorded in either
earnings or other comprehensive income, depending on whether the hedge transaction is a
fair-value hedge or a cash-flow hedge. However, if a derivative is used as a hedge of a
net investment in a foreign operation, its changes in fair value, to the extent effective
as a hedge, are recorded in the cumulative translation adjustments account within other
comprehensive income. The ineffective portion of the change in fair value of a derivative
instrument that qualifies as either a fair-value hedge or a cash-flow hedge is reported
in earnings. Changes in the fair value of derivative trading instruments are reported in
current period earnings.The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the fair value or cash flows
of the hedged item, the derivative expires or is sold, terminated, or exercised, the
derivative is de-designated as a hedging instrument, because it is unlikely that a
forecasted transaction will occur, a hedged firm commitment no longer meets the
definition of a firm commitment, or management determines that designation of the
derivative as a hedging instrument is no longer appropriate.In all situations in which hedge accounting is discontinued and the derivative is
retained, the Company continues to carry the derivative at its fair value on the balance
sheet and recognizes any subsequent changes in its fair value in earnings. When hedge
accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the Company no longer adjusts the hedged
asset or liability for changes in fair value. The adjustment of the carrying amount of
the hedged asset or liability is accounted for in the same manner as other components of
the carrying amount of that asset or liability. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm commitment, the Company
removes any asset or liability that was recorded pursuant to recognition of the firm
commitment from the balance sheet, and recognizes any gain or loss in earnings. When it
is probable that a forecasted transaction will not occur, the Company discontinues hedge
accounting if not already done and recognizes immediately in earnings gains and losses
that were accumulated in other comprehensive income.(l)
    
    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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (m)
    
    Insurance-related AssessmentsThe Company accounts for insurance-related assessments in accordance with the provisions
of Statement of Position (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.(n)
    
    Impairment of Long-lived AssetsIn accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets, long-lived assets, such as property, plant, 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 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.(o)
    
    Use of EstimatesThe preparation of the consolidated financial statements in conformity with U.S. 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    sheets that involve a greater degree of accounting estimates and actuarial determinations
subject to changes in the future are the claim liabilities and the allowance for doubtful
receivables. As additional information becomes available (or actual amounts are
determinable), the recorded estimates will be revised and reflected in operating results.
Although some variability is inherent in these estimates, the Company believes the
amounts provided are adequate.(p)
    
    Fair Value of Financial InstrumentsFinancial instruments that potentially subject the Company to concentrations of credit
risk consist principally of investments in corporate bonds, premiums receivable, accrued
interest receivable, and other receivables.The fair value information of financial instruments in the accompanying consolidated
financial statements was determined as follows:
 (i)
    
    Cash and Cash EquivalentsThe carrying amount approximates fair value because of the short-term nature of
such instruments.(ii)
    
    Investment in SecuritiesThe fair value of investment securities is estimated based on quoted market prices
for those or similar investments. Additional information pertinent to the estimated
fair value of investment in securities is included in note 4.(iii)
    
    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.(iv)
    
    Annuity ContractsThe fair value of annuity contracts is the amount payable on demand at the
reporting date, and accordingly, the carrying value amount approximates fair value.(v)
    
    Short-term BorrowingsThe carrying amount of securities sold under agreements to repurchase is a
reasonable estimate of fair value due to its short-term nature.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    (vi)
    
    Long-term BorrowingsThe carrying amounts and fair value of the Companys long-term borrowings are as
follows:
 2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueLoans payable to bank
    
    $
    40,590
    
    
    
    40,590
    
    
    
    45,730
    
    
    
    45,7306.3% senior unsecured notes payable
    
    
    50,000
    
    
    
    49,546
    
    
    
    50,000
    
    
    
    50,0006.6% senior unsecured notes payable
    
    
    60,000
    
    
    
    60,000
    
    
    
    
    
    
    
    Totals
    
    $
    150,590
    
    
    
    150,136
    
    
    
    95,730
    
    
    
    95,730
 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.
 (q)
    
    Earnings Per ShareThe Company calculates and presents earnings per share in accordance with SFAS No. 128,
Earnings per Share.Basic earnings per share exclude dilution and are computed by
dividing the net income available to common stockholders by the weighted average number
of common shares outstanding for the period (see note 22). There is no potential dilution
that could affect basic earnings per share.(r)
    
    Recently Issued Accounting StandardsIn December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which
eliminates an exception in APB 29 for recognizing nonmonetary exchanges of similar
productive assets at fair value and replaces it with an exception for recognizing
exchanges of nonmonetary assets at fair value that do not have commercial substance. This
statement will be effective for the Company for nonmonetary asset exchanges occurring on
or after January 1, 2006. The adoption of this Statement is not expected to have any
impact on the Companys consolidated financial statements.In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS
No. 154 establishes, unless impracticable, retrospective application as the required
method for
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    reporting a change in accounting principle in the absence of explicit
transition requirements specific to a newly adopted accounting principle. This statement
will be effective for the Company for any accounting changes and error corrections
occurring after January 1, 2006.(s)
    
    ReclassificationCertain amounts in the 2004 and 2003 financial statements were reclassified to conform
with the 2005 presentation.
 
 (3)
    
    Segment InformationThe operations of the Company are conducted principally through four business segments.
Business segments were identified according to the type of insurance products offered. These
segments and a description of their respective operations are as follows:
 
    
    Health Insurance- Commercial Program-TSI is engaged in three principal underwriting
activities, which are its Commercial Plan, the Reform Program, and the Federal Employees
Health Benefits Program (FEHBP). The insurance coverage of the Health Insurance -
Commercial Program is provided by TSI and comprises the health insurance coverage
subscribed to all commercial groups and some government entities. The Reform Program is
considered a separate segment and is described in the following paragraph. The Commercial
Program offers a fee-for-service type plan through five distinct markets: corporate
sector; individual sector; local government sector, covering the employees of the
Commonwealth of Puerto Rico; federal government program, covering federal government
employees within Puerto Rico; Medicare Advantage; and the Medicare supplement plan
(Medigap). The premiums for this segment 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 insurance coverage to federal government employees within
Puerto Rico. The contract with the U.S. Office of Personnel Management (OPM) is subject
to termination in the event of noncompliance not corrected to the satisfaction of OPM
(see note 9). Under its Commercial Program, TSI provides health insurance coverage to
certain employees of the Commonwealth of Puerto Rico and its instrumentalities. Earned
premium revenue related to such health plans amounted to $64,623, $67,082, and $65,947
for the three-year period ended December 31, 2005, 2004, and 2003, 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 15).
    
    Health Insurance- Reform Program- This type of insurance is also provided by TSI and
the business subscribed within this segment is awarded periodically by the Commonwealth
of Puerto Ricos central government. 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. The government segregates Puerto Rico by areas or
regions. Each area is awarded to an insurance company through a bidding process.
Commencing on July 1, 2002, TSI was awarded three of the eight geographical areas: North,
Metro-North, and Southwest. All Reform contracts are subject to termination, with a prior
written notice of 90 days, in the event of noncompliance not corrected or cured to the
satisfaction of the Commonwealth of Puerto Rico or in the event the government determines
that there are not enough funds for the payment of premiums. In addition, the Reform
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    contracts stipulate that in the event that the net income for any given contract year, as
defined, exceeds 2.5% of the premiums collected for the related contract year, TSI,
through the Reform program, would need to return 75% of this excess to the Government of
Puerto Rico.
    
    Property and Casualty Insurance- This type of insurance is provided by STS. 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.
    
    Life and Disability Insurance- This type of insurance is provided by SVTS, which
offers primarily group life, group short- and long-term disability insurance coverage,
and the administration of individual retirement accounts and annuities. The premiums for
this segment are mainly subscribed through a network of brokers and independent agents.
SVTS has a coinsurance funds withheld agreement with Great American Life Assurance
Company of Puerto Rico (GA Life). Under the terms of this agreement SVTS assumes 69% of
the business written of GA Life (see note 16).
 The Companys Life and Disability Insurance segment met one of the quantitative thresholds
determined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, that require separate disclosure of an operating segment. Thus, the Life and
Disability Insurance segment is presented as a reportable segment in the year ended December
31, 2005. The segment information for the years ended December 31, 2004 and 2003 has been
restated to present the results of operations and financial position of the Life and
Disability operating segment separate from the Companys other nonreportable operating
segments.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.
The Company evaluates performance based primarily on the net income of each segment. 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 use 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 the three-year period
ended December 31, 2005, 2004, and 2003.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005Operating segmentHealthInsurance
    
    
    Insurance
    
    
    Property
    
    
    Life andCommercial
    
    
    Reform
    
    
    and Casualty
    
    
    DisabilityProgram
    
    
    Program
    
    
    Insurance
    
    
    Insurance
    
    
    Other *
    
    
    TotalPremiums earned, net
    
    $
    765,468
    
    
    
    510,839
    
    
    
    86,767
    
    
    
    17,130
    
    
    
    
    
    
    
    1,380,204Amounts attributable to self-funded arrangements
    
    
    210,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,905Less amounts attributable to claims under self-funded
arrangements
    
    
    (196,460
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196,460
    )Intersegment premiums/service revenue
    
    
    4,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,004
    
    
    
    54,278784,187
    
    
    
    510,839
    
    
    
    86,767
    
    
    
    17,130
    
    
    
    50,004
    
    
    
    1,448,927Net investment income
    
    
    13,904
    
    
    
    2,945
    
    
    
    8,706
    
    
    
    3,018
    
    
    
    
    
    
    
    28,573Net realized investment gains (losses)
    
    
    5,936
    
    
    
    (86
    )
    
    
    1,243
    
    
    
    68
    
    
    
    
    
    
    
    7,161Net unrealized investment loss on trading securities
    
    
    (4,388
    )
    
    
    
    
    
    
    (298
    )
    
    
    (23
    )
    
    
    
    
    
    
    (4,709
    )Other income (expense), net
    
    
    3,258
    
    
    
    (20
    )
    
    
    169
    
    
    
    189
    
    
    
    
    
    
    
    3,596Total revenue
    
    $
    802,897
    
    
    
    513,678
    
    
    
    96,587
    
    
    
    20,382
    
    
    
    50,004
    
    
    
    1,483,548Net income (loss)
    
    $
    15,384
    
    
    
    (43
    )
    
    
    9,863
    
    
    
    2,098
    
    
    
    302
    
    
    
    27,604Claims incurred
    
    
    677,870
    
    
    
    478,008
    
    
    
    43,587
    
    
    
    8,902
    
    
    
    
    
    
    
    1,208,367Operating expenses, net of reimbursement for services
    
    
    103,562
    
    
    
    36,432
    
    
    
    39,642
    
    
    
    8,201
    
    
    
    49,461
    
    
    
    237,298Depreciation expense, included in operating expenses
    
    
    2,963
    
    
    
    677
    
    
    
    439
    
    
    
    62
    
    
    
    
    
    
    
    4,141Interest expense
    
    
    4,510
    
    
    
    970
    
    
    
    
    
    
    
    1,323
    
    
    
    
    
    
    
    6,803Income tax expense (benefit)
    
    
    1,571
    
    
    
    (1,689
    )
    
    
    3,495
    
    
    
    (142
    )
    
    
    241
    
    
    
    3,476Segment assets
    
    
    459,288
    
    
    
    82,685
    
    
    
    307,228
    
    
    
    271,615
    
    
    
    4,310
    
    
    
    1,125,126Significant noncash items:Net change in unrealized gain on securities
available for sale
    
    
    (12,432
    )
    
    
    (1,301
    )
    
    
    (3,090
    )
    
    
    (1,844
    )
    
    
    
    
    
    
    (18,667
    )Net change in minimum pension liability
    
    
    (2,048
    )
    
    
    
    
    
    
    (142
    )
    
    
    (76
    )
    
    
    (453
    )
    
    
    (2,719
    )
 
 *
    
    Includes segments which are not required to be reported separately. These segments include the data processing services organization
as well as the third-party administrator of health insurance services. 21
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004Operating segmentHealthInsurance
    
    
    Insurance
    
    
    Property
    
    
    Life andCommercial
    
    
    Reform
    
    
    and Casualty
    
    
    DisabilityProgram
    
    
    Program
    
    
    Insurance
    
    
    Insurance
    
    
    Other *
    
    
    TotalPremiums earned, net
    
    $
    711,547
    
    
    
    484,742
    
    
    
    86,228
    
    
    
    16,442
    
    
    
    
    
    
    
    1,298,959Amounts attributable to self-funded arrangements
    
    
    179,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,166Less amounts attributable to claims under self-funded
arrangements
    
    
    (169,924
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169,924
    )Intersegment premiums/service revenue
    
    
    3,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,971
    
    
    
    51,916724,734
    
    
    
    484,742
    
    
    
    86,228
    
    
    
    16,442
    
    
    
    47,971
    
    
    
    1,360,117Net investment income
    
    
    12,590
    
    
    
    3,109
    
    
    
    7,668
    
    
    
    2,778
    
    
    
    
    
    
    
    26,145Net realized investment gains
    
    
    9,040
    
    
    
    128
    
    
    
    1,087
    
    
    
    713
    
    
    
    
    
    
    
    10,968Net unrealized investment gain on trading securities
    
    
    1,879
    
    
    
    
    
    
    
    801
    
    
    
    362
    
    
    
    
    
    
    
    3,042Other income (expense), net
    
    
    269
    
    
    
    (30
    )
    
    
    2,675
    
    
    
    240
    
    
    
    
    
    
    
    3,154Total revenue
    
    $
    748,512
    
    
    
    487,949
    
    
    
    98,459
    
    
    
    20,535
    
    
    
    47,971
    
    
    
    1,403,426Net income
    
    $
    23,757
    
    
    
    9,250
    
    
    
    11,085
    
    
    
    996
    
    
    
    363
    
    
    
    45,451Claims incurred
    
    
    620,751
    
    
    
    437,834
    
    
    
    45,977
    
    
    
    11,231
    
    
    
    
    
    
    
    1,115,793Operating expenses, net of reimbursement for services
    
    
    94,930
    
    
    
    35,777
    
    
    
    40,182
    
    
    
    7,347
    
    
    
    46,856
    
    
    
    225,092Depreciation expense, included in operating expenses
    
    
    2,841
    
    
    
    789
    
    
    
    418
    
    
    
    177
    
    
    
    
    
    
    
    4,225Interest expense
    
    
    1,928
    
    
    
    428
    
    
    
    4
    
    
    
    1,004
    
    
    
    
    
    
    
    3,364Income tax expense (benefit)
    
    
    7,146
    
    
    
    4,660
    
    
    
    1,211
    
    
    
    (43
    )
    
    
    752
    
    
    
    13,726Segment assets
    
    
    443,710
    
    
    
    84,627
    
    
    
    282,393
    
    
    
    87,135
    
    
    
    3,578
    
    
    
    901,443Significant noncash items:Net change in unrealized gain on securities
available for sale
    
    
    523
    
    
    
    (151
    )
    
    
    867
    
    
    
    (156
    )
    
    
    
    
    
    
    1,083Net change in minimum pension liability
    
    
    313
    
    
    
    
    
    
    
    (60
    )
    
    
    (49
    )
    
    
    (265
    )
    
    
    (61
    )
 
 *
    
    Includes segments which are not required to be reported separately. These segments include the data processing services organization
as well as the third-party administrator of health insurance services. 22
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2003Operating segmentHealthInsurance
    
    
    Insurance
    
    
    Property
    
    
    Life andCommercial
    
    
    Reform
    
    
    and Casualty
    
    
    DisabilityProgram
    
    
    Program
    
    
    Insurance
    
    
    Insurance
    
    
    Other *
    
    
    TotalPremiums earned, net
    
    $
    691,044
    
    
    
    477,614
    
    
    
    78,334
    
    
    
    17,403
    
    
    
    
    
    
    
    1,264,395Amounts attributable to self-funded arrangements
    
    
    160,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,127Less amounts attributable to claims under self-funded
arrangements
    
    
    (151,806
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151,806
    )Intersegment premiums/service revenue
    
    
    3,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,989
    
    
    
    49,477702,853
    
    
    
    477,614
    
    
    
    78,334
    
    
    
    17,403
    
    
    
    45,989
    
    
    
    1,322,193Net investment income
    
    
    10,734
    
    
    
    4,476
    
    
    
    6,824
    
    
    
    2,345
    
    
    
    
    
    
    
    24,379Net realized investment gains
    
    
    6,345
    
    
    
    53
    
    
    
    722
    
    
    
    595
    
    
    
    
    
    
    
    7,715Net unrealized investment gain (loss) on
trading securities
    
    
    11,157
    
    
    
    1,848
    
    
    
    2,045
    
    
    
    (157
    )
    
    
    
    
    
    
    14,893Other income (loss), net
    
    
    196
    
    
    
    (30
    )
    
    
    4,154
    
    
    
    74
    
    
    
    
    
    
    
    4,394Total revenue
    
    $
    731,285
    
    
    
    483,961
    
    
    
    92,079
    
    
    
    20,260
    
    
    
    45,989
    
    
    
    1,373,574Net income
    
    $
    49,071
    
    
    
    14,034
    
    
    
    9,677
    
    
    
    3,716
    
    
    
    1,238
    
    
    
    77,736Claims incurred
    
    
    584,448
    
    
    
    428,045
    
    
    
    43,390
    
    
    
    9,467
    
    
    
    
    
    
    
    1,065,350Operating expenses, net of reimbursement for services
    
    
    92,264
    
    
    
    34,637
    
    
    
    37,354
    
    
    
    6,036
    
    
    
    44,538
    
    
    
    214,829Depreciation expense, included in operating expenses
    
    
    3,106
    
    
    
    945
    
    
    
    423
    
    
    
    120
    
    
    
    5
    
    
    
    4,599Interest expense
    
    
    862
    
    
    
    366
    
    
    
    
    
    
    
    721
    
    
    
    
    
    
    
    1,949Income tax expense
    
    
    4,640
    
    
    
    6,879
    
    
    
    1,658
    
    
    
    320
    
    
    
    213
    
    
    
    13,710Segment assets
    
    
    407,031
    
    
    
    86,535
    
    
    
    239,478
    
    
    
    72,475
    
    
    
    2,055
    
    
    
    807,574Significant noncash items:Net change in unrealized gain on securities
available for sale
    
    
    (5,226
    )
    
    
    
    
    
    
    (527
    )
    
    
    220
    
    
    
    
    
    
    
    (5,533
    )Net change in minimum pension liability
    
    
    2,385
    
    
    
    
    
    
    
    (23
    )
    
    
    (8
    )
    
    
    (47
    )
    
    
    2,307
 
 *
    
    Includes segments which are not required to be reported separately. These segments include the data processing services organization
as well as the third-party administrator of health insurance services. 23
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    Reconciliation of Reportable Segment Totals with Financial Statements
 2005
    
    
    2004
    
    
    2003Total revenueRevenue for reportable segments
    
    $
    1,433,544
    
    
    
    1,355,455
    
    
    
    1,327,585Revenue for other segments
    
    
    50,004
    
    
    
    47,971
    
    
    
    45,9891,483,548
    
    
    
    1,403,426
    
    
    
    1,373,574Elimination of intersegment earned premiums
    
    
    (4,274
    )
    
    
    (3,945
    )
    
    
    (3,488
    )Elimination of intersegment service revenue
    
    
    (50,004
    )
    
    
    (47,971
    )
    
    
    (45,989
    )Unallocated amount:Revenue from external sources
    
    
    592
    
    
    
    560
    
    
    
    1,259(53,686
    )
    
    
    (51,356
    )
    
    
    (48,218
    )Total consolidated revenue
    
    $
    1,429,862
    
    
    
    1,352,070
    
    
    
    1,325,356
 2005
    
    
    2004
    
    
    2003Net incomeNet income for reportable segments
    
    $
    27,302
    
    
    
    45,088
    
    
    
    76,498Net income for other segments
    
    
    302
    
    
    
    363
    
    
    
    1,23827,604
    
    
    
    45,451
    
    
    
    77,736Elimination of TSM charges:Rent expense
    
    
    6,588
    
    
    
    6,084
    
    
    
    6,283Interest expense
    
    
    1,353
    
    
    
    734
    
    
    
    6587,941
    
    
    
    6,818
    
    
    
    6,941Unallocated amounts related to TSM:General and administrative expenses
    
    
    (5,271
    )
    
    
    (4,787
    )
    
    
    (6,080
    )Income tax expense
    
    
    (288
    )
    
    
    (288
    )
    
    
    (51,687
    )Interest expense
    
    
    (2,145
    )
    
    
    (1,951
    )
    
    
    (1,940
    )Other revenue from external sources
    
    
    592
    
    
    
    560
    
    
    
    1,259(7,112
    )
    
    
    (6,466
    )
    
    
    (58,448
    )Consolidated net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229
  24




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005
    
    
    2004AssetsTotal assets for reportable segments
    
    $
    1,120,816
    
    
    
    897,865Total assets for other segments
    
    
    4,310
    
    
    
    3,5781,125,126
    
    
    
    901,443Elimination entries  intersegment receivables and others
    
    
    (28,705
    )
    
    
    (21,717
    )Unallocated amounts related to TSM:Cash, cash equivalents, and investments
    
    
    11,054
    
    
    
    12,236Property and equipment, net
    
    
    24,760
    
    
    
    25,577Other assets
    
    
    5,227
    
    
    
    2,11841,041
    
    
    
    39,931Consolidated assets
    
    $
    1,137,462
    
    
    
    919,657
 2005Segment
    
    
    
    
    
    
    ConsolidatedOther significant items
    
    totals
    
    
    Adjustments (*)
    
    
    totalsClaims incurred
    
    $
    1,208,367
    
    
    
    
    
    
    
    1,208,367Operating expenses
    
    
    237,298
    
    
    
    (55,595
    )
    
    
    181,703Depreciation expense
    
    
    4,141
    
    
    
    1,089
    
    
    
    5,230Interest expense
    
    
    6,803
    
    
    
    792
    
    
    
    7,595Income taxes
    
    
    3,476
    
    
    
    288
    
    
    
    3,764Significant noncash items:Net change
in unrealized gain on securities available for sale
    
    
    (18,667
    )
    
    
    (165
    )
    
    
    (18,832
    )Net change in minimum pension liability
    
    
    (2,719
    )
    
    
    (69
    )
    
    
    (2,788
    )
 2004Segment
    
    
    
    
    
    
    ConsolidatedOther significant items
    
    totals
    
    
    Adjustments (*)
    
    
    totalsClaims incurred
    
    $
    1,115,793
    
    
    
    
    
    
    
    1,115,793Operating expenses
    
    
    225,092
    
    
    
    (53,213
    )
    
    
    171,879Depreciation expense
    
    
    4,225
    
    
    
    1,118
    
    
    
    5,343Interest expense
    
    
    3,364
    
    
    
    1,217
    
    
    
    4,581Income taxes
    
    
    13,726
    
    
    
    288
    
    
    
    14,014Significant noncash items:Net change
in unrealized gain on securities available for sale
    
    
    1,083
    
    
    
    18
    
    
    
    1,101Net change in minimum pension liability
    
    
    (61
    )
    
    
    58
    
    
    
    (3
    )
 2003Segment
    
    
    
    
    
    
    ConsolidatedOther significant items
    
    totals
    
    
    Adjustments (*)
    
    
    totalsClaims incurred
    
    $
    1,065,350
    
    
    
    
    
    
    
    1,065,350Operating expenses
    
    
    214,829
    
    
    
    (49,680
    )
    
    
    165,149Depreciation expense
    
    
    4,599
    
    
    
    1,110
    
    
    
    5,709Interest expense
    
    
    1,949
    
    
    
    1,282
    
    
    
    3,231Income taxes
    
    
    13,710
    
    
    
    51,687
    
    
    
    65,397Significant noncash items:Net change
in unrealized gain on securities available for sale
    
    
    (5,533
    )
    
    
    (489
    )
    
    
    (6,022
    )Net change in minimum pension liability
    
    
    2,307
    
    
    
    (15
    )
    
    
    2,292
 
 *
    
    Adjustments represent principally TSM operations and eliminations of intersegment charges.  25




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (4)
    
    Investment in Securities
 The 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, 2005 and 2004, were as
follows:
 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueTrading securities:Equity securities
    
    $
    69,397
    
    
    
    11,378
    
    
    
    (2,560
    )
    
    
    78,215
 2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueTrading securities:U.S. Treasury securities and
obligations of U.S.
government
instrumentalities
    
    $
    23,978
    
    
    
    601
    
    
    
    (41
    )
    
    
    24,538Corporate debt securities
    
    
    46,690
    
    
    
    1,444
    
    
    
    (249
    )
    
    
    47,885Total fixed
maturities
    
    
    70,668
    
    
    
    2,045
    
    
    
    (290
    )
    
    
    72,423Equity securities
    
    
    74,824
    
    
    
    13,496
    
    
    
    (1,724
    )
    
    
    86,596Totals
    
    $
    145,492
    
    
    
    15,541
    
    
    
    (2,014
    )
    
    
    159,019
  26




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities available for sale:U.S. Treasury securities and
obligations of U.S.
government
instrumentalities
    
    $
    426,391
    
    
    
    21
    
    
    
    (7,754
    )
    
    
    418,658Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    55,388
    
    
    
    522
    
    
    
    (1,304
    )
    
    
    54,606Corporate bonds
    
    
    6,535
    
    
    
    61
    
    
    
    (104
    )
    
    
    6,492Mortgage-backed securities
    
    
    4,667
    
    
    
    58
    
    
    
    (58
    )
    
    
    4,667Collateralized mortgage
obligations
    
    
    31,306
    
    
    
    32
    
    
    
    (587
    )
    
    
    30,751Total fixed
maturities
    
    
    524,287
    
    
    
    694
    
    
    
    (9,807
    )
    
    
    515,174Equity securities
    
    
    38,675
    
    
    
    14,550
    
    
    
    (1,415
    )
    
    
    51,810Totals
    
    $
    562,962
    
    
    
    15,244
    
    
    
    (11,222
    )
    
    
    566,984
  27




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities available for sale:U.S. Treasury securities and
obligations of
U.S. government
instrumentalities
    
    $
    337,045
    
    
    
    1,012
    
    
    
    (967
    )
    
    
    337,090Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    62,331
    
    
    
    1,231
    
    
    
    (971
    )
    
    
    62,591Obligations of state and
political subdivisions
    
    
    500
    
    
    
    2
    
    
    
    
    
    
    
    502Corporate bonds
    
    
    5,771
    
    
    
    48
    
    
    
    (3
    )
    
    
    5,816Mortgage-backed securities
    
    
    12,430
    
    
    
    160
    
    
    
    (43
    )
    
    
    12,547Collateralized mortgage
obligations
    
    
    26,058
    
    
    
    206
    
    
    
    (173
    )
    
    
    26,091Total fixed
maturities
    
    
    444,135
    
    
    
    2,659
    
    
    
    (2,157
    )
    
    
    444,637Equity securities
    
    
    34,309
    
    
    
    24,913
    
    
    
    (36
    )
    
    
    59,186Totals
    
    $
    478,444
    
    
    
    27,572
    
    
    
    (2,193
    )
    
    
    503,823
 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities held to maturity:U.S. Treasury securities
and obligations of
U.S. government
instrumentalities
    
    $
    5,993
    
    
    
    
    
    
    
    (143
    )
    
    
    5,850Mortgage-backed securities
    
    
    4,282
    
    
    
    
    
    
    
    (79
    )
    
    
    4,203Corporate bonds
    
    
    9,693
    
    
    
    
    
    
    
    (401
    )
    
    
    9,292Certificates of deposit
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    161Index linked certificate of
deposit
    
    
    1,000
    
    
    
    254
    
    
    
    
    
    
    
    1,254Totals
    
    $
    21,129
    
    
    
    254
    
    
    
    (623
    )
    
    
    20,760
  28




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    gains
    
    
    losses
    
    
    fair valueSecurities held to maturity:U.S. Treasury securities
and obligations of
U.S. government
instrumentalities
    
    $
    5,991
    
    
    
    24
    
    
    
    
    
    
    
    6,015Mortgage-backed securities
    
    
    5,126
    
    
    
    4
    
    
    
    (22
    )
    
    
    5,108Corporate bonds
    
    
    2,007
    
    
    
    
    
    
    
    (2
    )
    
    
    2,005Certificates of deposit
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Index linked certificate of
deposit
    
    
    1,000
    
    
    
    219
    
    
    
    
    
    
    
    1,219Totals
    
    $
    14,280
    
    
    
    247
    
    
    
    (24
    )
    
    
    14,503
   29




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2005Less 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:U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    $
    243,470
    
    
    
    (3,683
    )
    
    
    161,654
    
    
    
    (4,071
    )
    
    
    405,124
    
    
    
    (7,754
    )Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    2,886
    
    
    
    (113
    )
    
    
    35,368
    
    
    
    (1,191
    )
    
    
    38,254
    
    
    
    (1,304
    )Corporate bonds
    
    
    2,391
    
    
    
    (44
    )
    
    
    1,944
    
    
    
    (60
    )
    
    
    4,335
    
    
    
    (104
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    3,174
    
    
    
    (58
    )
    
    
    3,174
    
    
    
    (58
    )Collateralized mortgage
obligations
    
    
    14,725
    
    
    
    (227
    )
    
    
    14,457
    
    
    
    (360
    )
    
    
    29,182
    
    
    
    (587
    )Total fixed maturities
    
    
    263,472
    
    
    
    (4,067
    )
    
    
    216,597
    
    
    
    (5,740
    )
    
    
    480,069
    
    
    
    (9,807
    )Equity securities
    
    
    13,359
    
    
    
    (1,288
    )
    
    
    3,059
    
    
    
    (127
    )
    
    
    16,418
    
    
    
    (1,415
    )Totals for securities
available for sale
    
    $
    276,831
    
    
    
    (5,355
    )
    
    
    219,656
    
    
    
    (5,867
    )
    
    
    496,487
    
    
    
    (11,222
    )Securities held to maturity:U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    $
    5,850
    
    
    
    (143
    )
    
    
    
    
    
    
    
    
    
    
    5,850
    
    
    
    (143
    )Mortgage-backed securities
    
    
    598
    
    
    
    (2
    )
    
    
    3,605
    
    
    
    (77
    )
    
    
    4,203
    
    
    
    (79
    )Corporate bonds
    
    
    9,292
    
    
    
    (401
    )
    
    
    
    
    
    
    
    
    
    
    9,292
    
    
    
    (401
    )Totals for securities
held to maturity
    
    $
    15,740
    
    
    
    (546
    )
    
    
    3,605
    
    
    
    (77
    )
    
    
    19,345
    
    
    
    (623
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004Less 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:U.S. Treasury securities and
obligations of U.S.
government instrumentalities
    
    $
    79,145
    
    
    
    (368
    )
    
    
    70,249
    
    
    
    (599
    )
    
    
    149,394
    
    
    
    (967
    )Obligations of the
Commonwealth of Puerto
Rico and its instrumentalities
    
    
    15,648
    
    
    
    (415
    )
    
    
    19,129
    
    
    
    (556
    )
    
    
    34,777
    
    
    
    (971
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    (3
    )
    
    
    497
    
    
    
    (3
    )Mortgage-backed securities
    
    
    4,649
    
    
    
    (32
    )
    
    
    3,311
    
    
    
    (11
    )
    
    
    7,960
    
    
    
    (43
    )Collateralized mortgage
obligations
    
    
    9,493
    
    
    
    (94
    )
    
    
    6,997
    
    
    
    (79
    )
    
    
    16,490
    
    
    
    (173
    )Total fixed maturities
    
    
    108,935
    
    
    
    (909
    )
    
    
    100,183
    
    
    
    (1,248
    )
    
    
    209,118
    
    
    
    (2,157
    )Equity securities
    
    
    2,416
    
    
    
    (20
    )
    
    
    2,734
    
    
    
    (16
    )
    
    
    5,150
    
    
    
    (36
    )Totals for securities
available for sale
    
    $
    111,351
    
    
    
    (929
    )
    
    
    102,917
    
    
    
    (1,264
    )
    
    
    214,268
    
    
    
    (2,193
    )Securities held to maturity:Mortgage-backed securities
    
    $
    2,138
    
    
    
    (13
    )
    
    
    2,131
    
    
    
    (9
    )
    
    
    4,269
    
    
    
    (22
    )Corporate bonds
    
    
    2,005
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    2,005
    
    
    
    (2
    )Totals for securities
held to maturity
    
    $
    4,143
    
    
    
    (15
    )
    
    
    2,131
    
    
    
    (9
    )
    
    
    6,274
    
    
    
    (24
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     Amortized
    
    
    Estimatedcost
    
    
    fair valueSecurities available for sale:Due in one year or less
    
    $
    21,620
    
    
    
    21,432Due after one year through five years
    
    
    282,175
    
    
    
    277,316Due after five years through ten years
    
    
    160,031
    
    
    
    157,146Due after ten years
    
    
    24,488
    
    
    
    23,862Collateralized mortgage obligations
    
    
    31,306
    
    
    
    30,751Mortgage-backed securities
    
    
    4,667
    
    
    
    4,667$
    524,287
    
    
    
    515,174Securities held to maturity:Due in one year or less
    
    $
    161
    
    
    
    161Due after one year through five years
    
    
    8,998
    
    
    
    9,048Due after five years through ten years
    
    
    7,688
    
    
    
    7,348Mortgage-backed securities
    
    
    4,282
    
    
    
    4,203$
    21,129
    
    
    
    20,760
    
    
    Investments with a face value of $1,885 and $1,800 (fair value of $1,832 and $1,792)
at December 31, 2005 and 2004, respectively, were held as collateral for the short-term
borrowings of the Company (see note 10).
    
    Investments with a face value of $500 and $2,010 (fair value of $480 and $1,979) at
December 31, 2005 and 2004, respectively, were held as collateral for the Companys
interest-rate swap agreement (see note 12).
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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, 2005, 2004, and 2003 is as follows:
 2005
    
    
    2004
    
    
    2003Realized gains (losses):Fixed maturity securities:Trading securities:Gross gains from sales
    
    $
    2,235
    
    
    
    594
    
    
    
    1,480Gross losses from sales
    
    
    (542
    )
    
    
    (492
    )
    
    
    (257
    )1,693
    
    
    
    102
    
    
    
    1,223Available for sale:Gross gains from sales
    
    
    137
    
    
    
    123
    
    
    
    971Gross losses from sales
    
    
    (214
    )
    
    
    (241
    )
    
    
    (632
    )(77
    )
    
    
    (118
    )
    
    
    339Total debt securities
    
    
    1,616
    
    
    
    (16
    )
    
    
    1,562Equity securities:Trading securities:Gross gains from sales
    
    
    6,339
    
    
    
    5,608
    
    
    
    2,739Gross losses from sales
    
    
    (1,776
    )
    
    
    (1,056
    )
    
    
    (6,529
    )4,563
    
    
    
    4,552
    
    
    
    (3,790
    )Available for sale:Gross gains from sales
    
    
    2,043
    
    
    
    6,432
    
    
    
    10,593Gross losses from sales
    
    
    (1,061
    )
    
    
    
    
    
    
    982
    
    
    
    6,432
    
    
    
    10,593Total equity securities
    
    
    5,545
    
    
    
    10,984
    
    
    
    6,803Net realized gains on
securities
    
    $
    7,161
    
    
    
    10,968
    
    
    
    8,365
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005
    
    
    2004
    
    
    2003Changes in unrealized gains (losses):Recognized in income:Fixed maturities  trading
    
    $
    (1,755
    )
    
    
    (7
    )
    
    
    (1,068
    )Equity securities  trading
    
    
    (2,954
    )
    
    
    3,049
    
    
    
    15,961$
    (4,709
    )
    
    
    3,042
    
    
    
    14,893Recognized in accumulated other
comprehensive income:Fixed maturities  available for sale
    
    $
    (9,615
    )
    
    
    (1,481
    )
    
    
    (3,783
    )Equity securities  available for sale
    
    
    (11,742
    )
    
    
    2,714
    
    
    
    (4
    )$
    (21,357
    )
    
    
    1,233
    
    
    
    (3,787
    )Not recognized in the consolidated
financial statements:Fixed maturities  held to maturity
    
    $
    (592
    )
    
    
    110
    
    
    
    119
 Deferred tax liability on unrealized gains and losses recognized in accumulated other
comprehensive income during the years 2005, 2004, and 2003 aggregated $805, $3,330, and
$3,198, respectively.As of December 31, 2005, 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, 2005,
no investment in equity securities individually exceeded 10% of stockholders equity.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (5) Net Investment Income
 Components of net investment income were as follows:
 Year ended December 312005
    
    
    2004
    
    
    2003Bonds and notes
    
    $
    21,691
    
    
    
    20,108
    
    
    
    16,443Mortgage-backed securities
    
    
    1,415
    
    
    
    1,023
    
    
    
    1,495Collateralized mortgage obligations
    
    
    988
    
    
    
    930
    
    
    
    2,367Zero coupons
    
    
    553
    
    
    
    428
    
    
    
    731Common and preferred stocks
    
    
    2,821
    
    
    
    2,799
    
    
    
    2,385Securities purchased under agreement
to resell
    
    
    
    
    
    
    
    
    
    
    72Other
    
    
    1,670
    
    
    
    1,532
    
    
    
    1,434Subtotal
    
    
    29,138
    
    
    
    26,820
    
    
    
    24,927Less investment expenses
    
    
    109
    
    
    
    321
    
    
    
    248Total
    
    $
    29,029
    
    
    
    26,499
    
    
    
    24,679
 
 (6) Premium and Other Receivables, Net
 Premium and other receivables as of December 31 were as follows:
 2005
    
    
    2004Premium
    
    $
    53,391
    
    
    
    45,451Self-funded group receivables
    
    
    21,620
    
    
    
    17,717FEHBP
    
    
    9,491
    
    
    
    9,346Accrued interest
    
    
    5,074
    
    
    
    5,080Funds withheld reinsurance receivable
    
    
    118,635
    
    
    
    Reinsurance recoverable on paid losses
    
    
    33,915
    
    
    
    30,496Other
    
    
    14,152
    
    
    
    16,406256,278
    
    
    
    124,496Less allowance for doubtful receivables:Premium
    
    
    7,792
    
    
    
    6,456Other
    
    
    4,448
    
    
    
    4,71712,240
    
    
    
    11,173Premium and other receivables, net
    
    $
    244,038
    
    
    
    113,323
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (7) Property and Equipment, Net
 Property and equipment as of December 31 are composed of the following:
 2005
    
    
    2004Land
    
    $
    6,531
    
    
    
    6,531Buildings and leasehold improvements
    
    
    35,860
    
    
    
    33,272Office furniture and equipment
    
    
    11,937
    
    
    
    10,298Computer equipment
    
    
    26,130
    
    
    
    24,867Automobiles
    
    
    239
    
    
    
    25080,697
    
    
    
    75,218Less accumulated depreciation and amortization
    
    
    45,988
    
    
    
    42,854Property and equipment, net
    
    $
    34,709
    
    
    
    32,364
 
 (8) Claim Liabilities
 The activity in the total claim liabilities during 2005, 2004, and 2003 is as follows:
 2005
    
    
    2004
    
    
    2003Claim liabilities at beginning of year
    
    $
    279,325
    
    
    
    247,920
    
    
    
    244,582Reinsurance recoverable on claim liabilities
    
    
    (26,555
    )
    
    
    (19,357
    )
    
    
    (13,589
    )Net claim liabilities at beginning of year
    
    
    252,770
    
    
    
    228,563
    
    
    
    230,993Incurred claims and loss-adjustment
expenses:Current period insured events
    
    
    1,195,066
    
    
    
    1,112,325
    
    
    
    1,081,570Prior period insured events
    
    
    13,301
    
    
    
    3,468
    
    
    
    (16,220
    )Total
    
    
    1,208,367
    
    
    
    1,115,793
    
    
    
    1,065,350Payments of losses and loss-adjustment
expenses:Current period insured events
    
    
    1,004,060
    
    
    
    920,173
    
    
    
    906,098Prior period insured events
    
    
    188,234
    
    
    
    171,413
    
    
    
    161,682Total
    
    
    1,192,294
    
    
    
    1,091,586
    
    
    
    1,067,780Net claim liabilities at end of year
    
    
    268,843
    
    
    
    252,770
    
    
    
    228,563Reinsurance recoverable on claim liabilities
    
    
    28,720
    
    
    
    26,555
    
    
    
    19,357Claim liabilities at end of year
    
    $
    297,563
    
    
    
    279,325
    
    
    
    247,920
 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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The amount of incurred claims and loss-adjustment expenses for prior period insured events for
the years 2005 and 2004 are due to higher than expected cost per service and utilization
trends. The credit in the incurred claims and loss-adjustment expenses for prior period
insured events for the year 2003 is 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.
 
 (9) Federal Employees Health Benefits Program (FEHBP)
 TSI entered into a contract, renewable annually, with OPM as authorized by the Federal
Employees Health Benefits Act of 1959, as amended, to provide health benefits under the
FEHBP. The FEHBP covers postal and federal employees resident in the Commonwealth of Puerto
Rico 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 $800, $778, and $626, respectively, for each
of the years in the three-year period ended December 31, 2005.
  
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    The following summarizes the operations of the FEHBP for each of the years in the three-year
period ended December 31, 2005:
 2005
    
    
    2004
    
    
    2003Premiums earned:Billed
    
    $
    106,687
    
    
    
    105,246
    
    
    
    91,241Transfer from special account
    
    
    6,494
    
    
    
    2,897
    
    
    
    12,618113,181
    
    
    
    108,143
    
    
    
    103,859Underwriting costs:Claims incurred
    
    
    107,624
    
    
    
    102,126
    
    
    
    97,428Operating expenses
    
    
    5,318
    
    
    
    5,521
    
    
    
    6,054Total underwriting costs
    
    
    112,942
    
    
    
    107,647
    
    
    
    103,482Underwriting gain
    
    $
    239
    
    
    
    496
    
    
    
    377Interest income
    
    $
    561
    
    
    
    282
    
    
    
    249Other expense
    
    
    (800
    )
    
    
    (778
    )
    
    
    (626
    )Total interest income
and other expense, net
    
    $
    (239
    )
    
    
    (496
    )
    
    
    (377
    )
 The changes in the special account during 2005 and 2004 are as follows:
 2005
    
    
    2004Funds payable at beginning of year
    
    $
    9,791
    
    
    
    7,471Transfer to premiums earned by the FEHBP
    
    
    (6,494
    )
    
    
    (2,897
    )Contingency reserve payments
    
    
    1,059
    
    
    
    5,217Funds payable at end of year
    
    $
    4,356
    
    
    
    9,791
 The account for the FEHBP is related to the following accounts in the consolidated balance
sheets as of December 31, 2005 and 2004:
 2005
    
    
    2004Cash, cash equivalents, and investments
    
    $
    14,368
    
    
    
    17,154Premiums, accrued interest and other receivables
    
    
    9,550
    
    
    
    9,381Claim liabilities, including related unpaid
loss-adjustment expenses
    
    
    (9,842
    )
    
    
    (9,920
    )Due to TSI
    
    
    (9,720
    )
    
    
    (6,824
    )$
    4,356
    
    
    
    9,791
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    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 balance sheets. The balance of such reserve as of
December 31, 2005 and 2004 was $19,353 and $18,415, respectively. The Company received $1,059,
$5,217, and $13,023, of payments made from the contingency reserve fund of OPM during 2005,
2004, and 2003, 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 1998 by OPM.
 
 (10) Short-term Borrowings
 Short-term borrowings of $1,740 and $1,700 at December 31, 2005 and 2004, respectively,
represent securities sold under agreements to repurchase. The agreement outstanding at
December 31, 2005 matures in January 2006 and accrues interest at London Interbank Offered
Rate (LIBOR) (interest rate of 4.45%).The investment securities underlying such agreements were delivered to the dealers with whom
the agreements were transacted. The dealers may have sold, loaned, or otherwise disposed of
such securities in the normal course of business operations, but have agreed to resell to the
Company substantially the same securities on the maturity dates of the agreements.At December 31, 2005 and 2004, investment securities available for sale with fair value of
$1,832 and $1,792 (face value of $1,885 and $1,800) were pledged as collateral under these
agreements.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (11) Long-term Borrowings
 A summary of long-term borrowings entered by the Company at December 31, 2005 and 2004 is as
follows:
 2005
    
    
    2004Secured note payable of $20,000, payable in various different
installments up to August 31, 2007, with interest payable
on a monthly basis at a rate reset periodically of
130 basis points over LIBOR selected (which was
5.71% and 3.32% at December 31, 2005 and
2004, respectively).
    
    $
    11,500
    
    
    
    15,000Senior unsecured notes payable of $50,000 due September
2019. Interest is payable semiannually at a fixed
rate of 6.30%.
    
    
    50,000
    
    
    
    50,000Senior unsecured notes payable of $60,000 due December
2020. Interest is payable monthly at a fixed
rate of 6.60%.
    
    
    60,000
    
    
    
    Secured loan payable of $41,000, payable in monthly
installments of $137 up to July 1, 2024, plus interest at a
rate reset periodically of 100 basis points over
LIBOR selected (which was 5.29% and 3.30%
at December 31, 2005 and 2004, respectively).
    
    
    29,090
    
    
    
    30,730Total long-term borrowings
    
    $
    150,590
    
    
    
    95,730
 Aggregate maturities of the Companys long-term borrowings as of December 31, 2005 are
summarized as follows:
 Year ended December 31:2006
    
    $
    1,6402007
    
    
    13,1402008
    
    
    1,6402009
    
    
    1,6402010
    
    
    1,640Thereafter
    
    
    130,890$
    150,590
 As of December 31, 2005, the Company has the following senior unsecured notes payable:
 
    
    6.30% senior unsecured notes payable of $50,000 due on September 2019 (the 6.30%
notes). These notes were issued on September 30, 2004 and are unconditionally guaranteed
as to payment of
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    principal, premium, if any, and interest by the Company. The 6.30% notes
were privately placed to various institutional investors under a note purchase agreement
between TSI, the Company, and the investors. Debt issuance costs amounting to $600 were
deferred and will be amortized using the straight-line method over the term of the 6.30%
notes. These notes can be prepaid after five years at par, in total or partially, as
determined by the Company.
    
    6.60% senior unsecured notes payable of $60,000 due on December 2020 (the 6.60%
notes). These notes were issued on December 21, 2005. Debt issuance costs amounting to
$580 were deferred and will be amortized using the straight-line method over the term of
the 6.60% notes. These notes can be prepaid after five years at par, in total or
partially, as determined by the Company.
 Both the 6.30% and the 6.60% senior unsecured notes contain certain covenants with which TSI
and the Company have complied with at December 31, 2005.Unamortized debt issuance costs related to the 6.30% and the 6.60% senior unsecured notes as
of December 31, 2005 and 2004 amounted to $1,129 and $589, respectively, and are included
within the other assets in the accompanying consolidated balance sheets.The credit agreement related to the $20,000 secured note payable calls for repayments of
principal amount of not less than $250 and in integral multiples of $50. The aggregate
principal amounts shall be reduced annually to the amounts specified on or before the dates
described below:
 RequiredprincipaloutstandingDate
    
    balanceAugust 1, 2006
    
    $
    12,000August 1, 2007
    
    
    
 The loan and note payable previously described are 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 loans under a continuing general security agreement. These
credit facilities contain certain covenants, which are normal in this type of credit facility,
which the Company has complied with at December 31, 2005 and 2004.Interest expense on the above long-term borrowings amounted to $5,168, $2,005, and $1,302 for
the years ended December 31, 2005, 2004, and 2003, respectively.
 
 (12) Derivative Instruments and Hedging Activities
 The 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    value of a derivative contract is positive, the
counterparty is obligated to the Company, which creates credit risk for the Company. When the
fair value of a derivative contract is negative, the Company owes the counterparty and,
therefore, it does not possess credit risk. The Company minimizes the credit risk in
derivative instruments by entering into transactions with high-quality counterparties.Market risk is the adverse effect on the value of a financial instrument that results from a
change in interest rates, currency exchange rates, commodity prices, or market indexes. The
market risk associated with derivative instruments is managed by establishing and monitoring
parameters that limit the types and degree of market risk that may be undertaken.
 (a)
    
    Cash Flow HedgeThe Company has invested in an interest-rate related derivative hedging instrument to
manage its exposure on its debt instruments.The Company assesses interest rate cash flow risk by continually identifying and
monitoring changes in interest rate exposures that may adversely impact expected future
cash flows and by evaluating
hedging opportunities. The Company maintains risk management control systems to monitor
interest rate cash flow risk attributable to both the Companys outstanding or forecasted
debt obligations as well as the Companys offsetting hedge positions. The risk management
control systems involve the use of analytical techniques to estimate the expected impact
of changes in interest rates on the Companys future cash flows.The Company has 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. Management believes it
is prudent to limit the variability of a portion of its interest payments. To meet this
objective, 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 maturity date of the interest-rate swap agreement is March
30, 2008. This swap economically changes the variable-rate cash flow exposure on the debt
obligations to fixed cash flows. Under the terms of the interest-rate swap, the Company
receives variable interest rate payments and makes fixed interest rate payments, thereby
creating the equivalent of fixed-rate debt.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 obligation, are reported in accumulated other comprehensive income,
net of the related tax effect. This amount is 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 years ended December 31, 2005 and 2004,
the Company recorded $127 and $734 of interest expense 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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    As of December 31, 2005, the fair market value of the interest rate swap amounted to $607
and was included within the other assets in the accompanying consolidated balance sheets.
As of December 31, 2004, the fair market value of the interest-rate swap amounted to $142
and was included within the accounts payable and accrued liabilities in the accompanying
consolidated balance sheets. There were no cash-flow hedges discontinued during 2005.(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 year ended December 31, 2005
the Company recorded a gain associated with the change in the fair value of this
derivative component of $2,833 that is included within the other income, net of the
consolidated statement of earnings.As of December 31, 2005, the fair value of the derivative component of the structured
notes amounted to $5,331 and is included within the Companys other assets in the
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 consolidated balance sheets. As of December 31, 2005 the fair value
and amortized cost of the investment component of both structured notes amounted to
$7,348 and $7,688, respectively.
 
 (13) Retained Earnings and Stockholders Equity
 As 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.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (14) Comprehensive Income
 The accumulated balances for each classification of comprehensive income are as follows:
 AccumulatedUnrealized
    
    
    Minimum
    
    
    
    
    
    
    othergains on
    
    
    pension
    
    
    Cash-flow
    
    
    comprehensivesecurities
    
    
    liability
    
    
    hedges
    
    
    incomeBeginning balance
    
    $
    22,049
    
    
    
    (5,825
    )
    
    
    (86
    )
    
    
    16,138Net current period change
    
    
    (18,102
    )
    
    
    (2,788
    )
    
    
    457
    
    
    
    (20,433
    )Reclassification adjustments for
gains and losses
reclassified
in income
    
    
    (730
    )
    
    
    
    
    
    
    
    
    
    
    (730
    )Ending balance
    
    $
    3,217
    
    
    
    (8,613
    )
    
    
    371
    
    
    
    (5,025
    )
  2005Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    (20,452
    )
    
    
    2,350
    
    
    
    (18,102
    )Less reclassification adjustment for
gains and losses realized in income
    
    
    (905
    )
    
    
    175
    
    
    
    (730
    )Net change in unrealized gain
    
    
    (21,357
    )
    
    
    2,525
    
    
    
    (18,832
    )Minimum pension liability adjustment
    
    
    (4,515
    )
    
    
    1,727
    
    
    
    (2,788
    )Cash-flow hedges
    
    
    749
    
    
    
    (292
    )
    
    
    457Net current period change
    
    $
    (25,123
    )
    
    
    3,960
    
    
    
    (21,163
    )
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    7,547
    
    
    
    451
    
    
    
    7,998Less reclassification adjustment for
gains and losses realized in income
    
    
    (6,314
    )
    
    
    (583
    )
    
    
    (6,897
    )Net change in unrealized gain
    
    
    1,233
    
    
    
    (132
    )
    
    
    1,101Minimum pension liability adjustment
    
    
    35
    
    
    
    (38
    )
    
    
    (3
    )Cash-flow hedges
    
    
    459
    
    
    
    (178
    )
    
    
    281Net current period change
    
    $
    1,727
    
    
    
    (348
    )
    
    
    1,379
 2003Deferred taxBefore-tax
    
    
    (expense)
    
    
    Net-of-taxamount
    
    
    benefit
    
    
    amountUnrealized holding gains on securities
arising during the period
    
    $
    7,145
    
    
    
    (3,575
    )
    
    
    3,570Less reclassification adjustment for
gains and losses realized in income
    
    
    (10,932
    )
    
    
    1,340
    
    
    
    (9,592
    )Net change in unrealized gain
    
    
    (3,787
    )
    
    
    (2,235
    )
    
    
    (6,022
    )Minimum pension liability adjustment
    
    
    (681
    )
    
    
    2,973
    
    
    
    2,292Cash-flow hedges
    
    
    81
    
    
    
    22
    
    
    
    103Net current period change
    
    $
    (4,387
    )
    
    
    760
    
    
    
    (3,627
    )
 
 (15) Agency Contract and Expense Reimbursement
 TSI 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 $618,725, $625,841, and $579,300 for each of the years in the three-year
period ended December 31, 2005.TSI is reimbursed for administrative expenses incurred in performing this service. For the
years ended December 31, 2005, 2004, and 2003, TSI was reimbursed by $13,886, $13,980, and
$11,387, 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 1997 by federal government representatives. Management is of the opinion that
no significant adjustments will be made affecting cost reimbursements through December 31,
2005.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (16)
    
    Reinsurance ActivityThe effect of reinsurance on premiums earned and claims incurred is as follows:
 Premiums earned
    
    
    Claims incurred2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Gross
    
    $
    1,447,054
    
    
    
    1,359,140
    
    
    
    1,315,981
    
    
    
    1,225,065
    
    
    
    1,133,238
    
    
    
    1,080,207Ceded
    
    
    (67,250
    )
    
    
    (60,181
    )
    
    
    (51,586
    )
    
    
    (16,698
    )
    
    
    (17,445
    )
    
    
    (14,857
    )Assumed
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net
    
    $
    1,380,204
    
    
    
    1,298,959
    
    
    
    1,264,395
    
    
    
    1,208,367
    
    
    
    1,115,793
    
    
    
    1,065,350
 (a)
    
    Reinsurance Ceded ActivitySTS and SVTS, in accordance with general industry practices, annually purchase
reinsurance to protect them from the impact of large unforeseen losses and prevent sudden
and unpredictable changes in net income and stockholders equity of the Company.
Reinsurance contracts do not relieve any of the subsidiaries from their obligations to
policyholders. In the event that all or any of the reinsuring companies might be unable
to meet their obligations under existing reinsurance agreements, the subsidiaries would
be liable for such defaulted amounts. During 2005 and 2004, STS placed 9% of its
reinsurance business with one reinsurance company.STS has a number of pro rata and excess of loss reinsurance treaties whereby the
subsidiary retains for its own account all loss payments for each occurrence that does
not exceed the stated amount in the agreements and a catastrophe cover, whereby it
protects itself from a loss or disaster of a
catastrophic nature. Under these treaties, STS ceded premiums of $59,244, $52,214, and
$43,770 in 2005, 2004, and 2003, respectively.Reinsurance cessions are made on excess of loss and on a proportional basis. Principal
reinsurance agreements are as follows:
 
    
    Property quota share treaty covering for a maximum of $20,000 for any one risk.
Only 42.5% of this treaty was placed with reinsurers. The remaining exposure was
covered by a property per risk excess of loss treaty, which provides reinsurance in
excess of $500 up to a maximum of $12,500 or the remaining 57.5% for any one risk.
STS also has an additional property catastrophe excess of loss contract, which
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 $100,000.
    
    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 $180,000.
    
    Property catastrophe excess of loss. This treaty provides protection for losses
in excess of $110,000 and $180,000 with respect to personal and commercial lines,
respectively, resulting from any catastrophe, subject to a maximum loss of $90,000.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    Personal lines quota share. This treaty provides protection of 10.0% on all
ground-up losses, subject to a limit of $1,000 for any one risk.
    
    Reinstatement premium protection. This treaty provides a maximum limit of $2,200
in personal lines and $5,200 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 $150 up to a maximum of $11,850.
    
    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 $3,000 for contract surety
bonds, subject to an aggregate of $7,000 per contractor and $2,000 per miscellaneous
surety bond.
 Facultative reinsurance is obtained when coverage per risk is required, on a proportional
basis. All reinsurance contracts are for a period of one year, on a calendar basis, and
are subject to modifications and negotiations in each renewal.SVTS cedes insurance with seven reinsurers. Insurance is ceded on pro rata, facultative
excess of loss and catastrophic bases. Under the pro rata agreement, SVTS reinsures 50%
of the risk up to $250 on the life of any participating individual of certain groups
insured. Under this treaty, SVTS ceded premiums of $2,227 in 2005, $2,291 in 2004, and
$2,236 in 2003.The life insurance facultative excess of loss agreements provide for SVTS to retain 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. Under this facultative treaty, SVTS
ceded premiums of approximately $982 in 2005, $908 in 2004, and $756 in 2003.SVTS also has a facultative excess of loss agreements for the supplemental health
benefits insurance risk. This agreement provides for SVTS to retain $20 of the losses on
any participating individual. Any excess will be recovered from the reinsurer. Under this
facultative treaty, SVTS ceded premiums of approximately $44 and $3 in 2005 and 2004,
respectively. No premiums were ceded during the year 2003.SVTS also has facultative pro rata agreements for the long-term disability insurance risk
as follows:
 
    
    A long-term disability insurance treaty where SVTS reinsures 65% of the risk.
Premiums ceded under this agreement amount to $4,576, $4,521 and $4,507 in 2005,
2004, and 2003, respectively.
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    A long-term disability insurance treaty where SVTS reinsures 75% of the risk.
Premiums ceded under this agreement amounted to $21, $118, and $133 during the years
2005, 2004, and 2003, respectively.
 The accidental death catastrophic reinsurance covers each and every accident arising out
of one event or occurrence resulting in the death or dismemberment of five or more
persons. SVTSs retention for each event is $250 with a maximum of $1,000 for each event
and $2,000 per year. Under this treaty, the Company ceded premiums of $117 in 2005, $82
in 2004, and $90 in 2003.The ceded unearned reinsurance premiums on STS arising from these reinsurance
transactions amounted to $17,475 and $13,751 at December 31, 2005 and 2004, respectively
and are reported as other assets in the accompanying consolidated balance sheets.(b)
    
    Reinsurance Assumed ActivityOn December 22, 2005, SVTS entered into a coinsurance funds withheld agreement with GA
Life. Under the terms of this agreement SVTS will assume 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 is considered a policy acquisition cost and was deferred and will be amortized
accordingly.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.As of December 31, 2005 SVTSs share of the reserves held by GA Life amounted to $118,635
and are included in the consolidated balance sheets as future policy benefits reserve
related to funds withheld reinsurance. The funds withheld reinsurance receivable
presented within the premium and other receivables, net in the consolidated balance
sheets represents the subsidiarys share of the assets supporting the reserves of the
reinsured business and amounted to $118,635 as of December 31, 2005. The coinsurance
funds withheld receivable is supported by certain GA Lifes investments specified in the
coinsurance funds withheld agreement. These investments consist of fixed income
securities (U.S. Treasury securities) and are to be included in a trust on behalf of
SVTS. GA Life must deposit these investments in the trust within 90 days of the effective
date of the agreement.
 
 (17)
    
    Income TaxesUnder Puerto Rico income tax law, the Company is not allowed to file consolidated tax returns
with its subsidiaries.TSI was exempt through 2002 from Puerto Rico income taxes under a ruling issued by the
Department of the Treasury. On June 18, 2003, the Department of the Treasury notified the
Company that the ruling recognizing TSIs tax exemption was terminated effective December 31,
2002. The termination of the
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    ruling responds to a new public policy set by the Department of
the Treasury according to which tax exemptions under Section 1101(6) of the Puerto Rico Code
(P.R. Code) will not apply to corporations organized as for-profit, which is TSIs case.On July 31, 2003, TSM and TSI executed a closing agreement with the Department of the
Treasury. In general, the terms of the closing agreement established the termination of TSIs
tax exemption effective December 31, 2002. Accordingly, since TSIs tax status changed
effective January 1, 2003, TSI is subject to Puerto Rico income taxes as an other-than-life
insurance entity, as defined in the P.R. Code.The closing agreement also stipulates that TSM will pay taxes (Department of the Treasury tax
assessment) on TSIs accumulated statutory net income, in accordance with the income
recognition methodology applied by the Secretary of the Treasury in the closing agreement and
the ruling mentioned above. This tax ruling established the following methodology for TSM to
determine its tax liability:
 
    
    TSIs accumulated statutory net income while operating under the tax exemption,
amounting to $132,763, was deemed distributed to TSM.
    
    For tax purposes, TSM recognized the exempt accumulated statutory net income as gross
income. On this amount, TSM recognized an income tax liability amounting to $51,774,
which was determined by applying a tax rate of 39% to the exempt accumulated statutory
net income deemed distributed to TSM. The income tax was recorded by TSM within the
current income tax expense
presented in the consolidated statements of earnings. Of this tax, $37,000 was paid on
July 31, 2003, the date of the closing agreement, and $14,774 on April 15, 2004.
 STS is 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.TSI, STS, and SVTS are also subject to federal income taxes for foreign source dividend
income. No federal income taxes were recognized for 2005, 2004, and 2003.SVTS operates as a qualified domestic life insurance company and is subject to the alternative
minimum tax and taxes on its capital gains.TSM, TCI, and ISI are subject to Puerto Rico income taxes as a regular corporation, as defined
in the P.R. Code, as amended.
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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:
 2005
    
    
    2004
    
    
    2003Income before taxes
    
    $
    32,197
    
    
    
    59,817
    
    
    
    91,626Statutory tax rate
    
    
    39.0
    %
    
    
    39.0
    %
    
    
    39.0
    %Income tax expense at statutory
rate of 39%
    
    
    12,557
    
    
    
    23,329
    
    
    
    35,734Increase (decrease) in taxes resulting from:Exempt interest income
    
    
    (7,441
    )
    
    
    (5,819
    )
    
    
    (5,516
    )Alternative minimum tax
    
    
    
    
    
    
    
    
    
    
    320Excess of regular tax over capital
gain tax on SVTS
    
    
    (752
    )
    
    
    (327
    )
    
    
    Excess of regular tax over alternative
minimum tax on SVTS
    
    
    
    
    
    
    
    
    
    
    (1,164
    )Effect of using earnings under statutory
accounting principles instead of U.S.
GAAP earnings for TSI and STS
tax computations
    
    
    (84
    )
    
    
    (487
    )
    
    
    (7,014
    )Effect of taxing capital gains at a
preferential rate
    
    
    (1,762
    )
    
    
    (2,631
    )
    
    
    (1,826
    )Department of the Treasury tax
assessment
    
    
    
    
    
    
    
    
    
    
    51,774Dividends received deduction
    
    
    (430
    )
    
    
    (424
    )
    
    
    (353
    )Effect of change in TSI tax status
    
    
    310
    
    
    
    1,172
    
    
    
    (5,023
    )Other permanent disallowances, net
    
    
    1,123
    
    
    
    552
    
    
    
    195Adjustment to deferred tax assets and
liabilities for changes in effective
tax rates
    
    
    1,500
    
    
    
    
    
    
    
    Other adjustments to deferred tax assets
and liabilities
    
    
    (723
    )
    
    
    
    
    
    
    Difference between prior year income
tax accrual and income tax return
    
    
    (153
    )
    
    
    (404
    )
    
    
    Other
    
    
    (381
    )
    
    
    (947
    )
    
    
    (1,730
    )Total income tax expense
    
    $
    3,764
    
    
    
    14,014
    
    
    
    65,397
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2005
    
    
    2004Deferred tax assets:Allowance for doubtful receivables
    
    $
    4,756
    
    
    
    4,258Additional minimum pension liability
    
    
    5,303
    
    
    
    3,576Employee benefits plan
    
    
    3,253
    
    
    
    2,759Postretirement benefits
    
    
    1,770
    
    
    
    1,447Deferred compensation
    
    
    1,819
    
    
    
    2,071Nondeductible depreciation
    
    
    401
    
    
    
    423Impairment loss on investments
    
    
    207
    
    
    
    Contingency reserves
    
    
    522
    
    
    
    133Cash-flow hedges
    
    
    
    
    
    
    56Other
    
    
    457
    
    
    
    419Total gross deferred tax assets
    
    
    18,488
    
    
    
    15,142Deferred tax liabilities:Deferred policy acquisition costs
    
    
    (7,757
    )
    
    
    (5,347
    )Catastrophe loss reserve trust fund
    
    
    (5,090
    )
    
    
    (4,873
    )Unrealized gain on trading securities
    
    
    (1,726
    )
    
    
    (3,331
    )Unrealized gain on securities available for sale
    
    
    (805
    )
    
    
    (3,330
    )Unrealized gain on derivative instruments
    
    
    (283
    )
    
    
    Unamortized bond issue costs
    
    
    (440
    )
    
    
    (230
    )Cash-flow hedges
    
    
    (236
    )
    
    
    Gross deferred tax liabilities
    
    
    (16,337
    )
    
    
    (17,111
    )Net deferred tax asset (liability)
    
    $
    2,151
    
    
    
    (1,969
    )
  
 (18)
    
    Pension PlanThe Company sponsors a noncontributory defined-benefit pension plan for all of its employees
and for the employees 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
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
      2005
    
    
    2004Change in benefit obligation:Projected benefit obligation at beginning of year
    
    $
    71,078
    
    
    
    61,336Service cost
    
    
    4,737
    
    
    
    4,100Interest cost
    
    
    4,145
    
    
    
    3,843Benefit payments
    
    
    (5,106
    )
    
    
    (4,266
    )Actuarial losses
    
    
    9,418
    
    
    
    6,065Projected benefit obligation at end of year
    
    $
    84,272
    
    
    
    71,078Accumulated benefit obligation at end of year
    
    $
    61,467
    
    
    
    51,412
  2005
    
    
    2004Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    42,572
    
    
    
    32,142Actual return on assets (net of expenses)
    
    
    3,214
    
    
    
    3,765Employer contributions
    
    
    8,821
    
    
    
    10,931Benefit payments
    
    
    (5,106
    )
    
    
    (4,266
    )Fair value of plan assets at end of year
    
    $
    49,501
    
    
    
    42,572Reconciliation of funded status:Funded status
    
    $
    (34,772
    )
    
    
    (28,507
    )Unrecognized prior service cost
    
    
    550
    
    
    
    598Unrecognized actuarial loss
    
    
    36,722
    
    
    
    29,068Prepaid benefit cost
    
    $
    2,500
    
    
    
    1,159
 52
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2005
    
    
    2004
    
    
    2003Components of net periodic benefit cost:Service cost
    
    $
    4,737
    
    
    
    4,100
    
    
    
    3,631Interest cost
    
    
    4,145
    
    
    
    3,843
    
    
    
    3,778Expected return on assets
    
    
    (3,467
    )
    
    
    (2,549
    )
    
    
    (2,494
    )Amortization of prior service cost
    
    
    48
    
    
    
    48
    
    
    
    48Amortization of actuarial loss
    
    
    2,017
    
    
    
    1,706
    
    
    
    1,569Settlement loss
    
    
    
    
    
    
    
    
    
    
    4,404Net periodic benefit cost
    
    $
    7,480
    
    
    
    7,148
    
    
    
    10,936
   2005
    
    
    2004
    
    
    2003Discount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %Rate of compensation increase
    
    Graded; 3.00%
    
    Graded; 3.00%
    
    Graded; 3.00%to 6.50%
    
    to 6.50%
    
    to 6.50%
  2005
    
    
    2004
    
    
    2003Assumptions used in computing net
periodic benefit cost:Discount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.75
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %Rate of compensation increase
    
    Graded; 3.00%
    
    Graded; 3.00%
    
    Graded; 3.00%to 6.5%
    
    to 6.5%
    
    to 6.5%
  53
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
      (a)
    
    Plan AssetsThe Companys weighted average asset allocations at December 31, 2005 and 2004 by asset
category were as follows:
 Asset category
    
    2005
    
    
    2004Equity securities
    
    
    59
    %
    
    
    62
    %Debt securities
    
    
    31
    
    
    
    28Real estate
    
    
    8
    
    
    
    8Other
    
    
    2
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    %
   
    
    Increasing risk is rewarded with compensating returns over time, and therefore,
prudent risk taking is justifiable for long-term investors.
    
    Risk can be controlled through diversification of assets 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.
 54
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     
    
    Ensure assets are available to meet current and future obligations of the
participating programs when due.
    
    Earn a minimum rate of return no less than the actuarial interest rate.
    
    Earn the maximum return that can be realistically achieved in the markets over
the long-term at a specified and controlled level of risk in order to minimize
future contributions.
    
    Invest the assets with the care, skill, and diligence that a prudent person
acting in a like capacity would undertake. The Committee acknowledges that, in the
process, it has the objective of controlling the costs involved with administering
and managing the investments of the National Retirement Trust.
 The target asset allocation for the Company is as follows: 53%  67% equity securities;
26%  36% debt securities; 4%  12% real estate; and 0%  4% cash.(b)
    
    Cash FlowsThe Company expects to contribute $6,000 to its pension program in 2006.The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid:
 Year ended December 31:2006
    
    $
    3,0152007
    
    
    3,3302008
    
    
    3,4602009
    
    
    4,2052010
    
    
    4,6302011  2016
    
    
    30,570
 
 (19)
    
    Catastrophe Loss Reserve Trust FundIn accordance with the Act No. 73 of August 12, 1994, and Chapter 25 of the Insurance Code,
STS is required to establish and maintain a trust fund for the payment of catastrophe losses.
The establishment of this trust fund will increase the financial capacity in order to offer
protection for those insurers exposed to catastrophe losses. 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 gain (loss) on investment transactions becomes part of the
reserve for catastrophic insurance losses and income (expense) of the Company. The assets in
this fund, which are reported as other assets in the accompanying consolidated balance sheets,
will be used solely and exclusively to pay catastrophe losses covered under policies written
in Puerto Rico.
 55
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
        2005
    
    
    2004Catastrophe loss reserve at beginning of year
    
    $
    24,123
    
    
    
    22,418Investment income
    
    
    1,025
    
    
    
    1,042Catastrophe loss reserve trust fund at end of year
    
    
    25,148
    
    
    
    23,460Contribution payable
    
    
    721
    
    
    
    663Restricted retained earnings
    
    $
    25,869
    
    
    
    24,123
  2005
    
    
    2004Federal Home Loan Bank notes, at amortized cost (fair value
of $17,758 and $16,269 in 2005 and 2004, respectively)
    
    $
    18,297
    
    
    
    16,598Federal Farm Credit Bank note, at amortized cost (fair value
of $4,910 and $5,035 in 2005 and 2004, respectively)
    
    
    5,037
    
    
    
    5,035Obligations of the Commonwealth of Puerto Rico and
its instrumentalities, at amortized cost (fair value
of $1,541 and $1,575 in 2005 and 2004, respectively)
    
    
    1,500
    
    
    
    1,500Accrued interest receivable
    
    
    242
    
    
    
    219Cash and cash equivalents
    
    
    72
    
    
    
    108$
    25,148
    
    
    
    23,460
 56
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     Amortized
    
    
    Estimatedcost
    
    
    fair valueDue after one year through five years
    
    $
    12,296
    
    
    
    12,128Due after five years through ten years
    
    
    7,569
    
    
    
    7,353Due after ten years
    
    
    4,969
    
    
    
    4,728$
    24,834
    
    
    
    24,209
 
 (20)
    
    CommitmentsThe Company leases its regional offices, certain equipment, and warehouse facilities under
noncancelable operating leases. Minimum annual rental commitments at December 31, 2005 under
existing agreements are summarized as follows:
 Year ending December 31:2006
    
    $
    1,6002007
    
    
    1,3702008
    
    
    7712009
    
    
    4152010
    
    
    371Thereafter
    
    
    190Total
    
    $
    4,717
  
 (21)
    
    Contingencies
 (a)
    
    Legal Proceedings
 (i)
    
    At December 31, 2005, the Company is defendant in various lawsuits
arising in the ordinary course of business. In the opinion of management, with the
advice of its legal counsel, the ultimate disposition of these matters will not have
a material adverse effect on the consolidated financial position and results of
operations of the Company.(ii)
    
    The Company and others are defendants in a class action complaint
alleging violations under the Racketeer Influenced and Corrupt Organizations Act.
The suit, among other allegations, alleges a scheme to defraud the plaintiffs by
acquiring control of TSI through illegally capitalizing TSI and later converting it
into a for-profit organization and depriving the stockholders of TSI of their
ownership rights. The plaintiffs base their later allegations on the supposed
decisions of TSIs board of directors and stockholders, allegedly made in 1979, to
 57
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     (iii)
    
    TSM, TSI, and others are defendants in a complaint where the plaintiffs
allege that the defendants, among other things, violated provisions of the Puerto
Rico Insurance Code, anti-monopolistic practices and unfair business practices.
After a preliminary review of the complaint, it appears that many of the allegations
brought by the plaintiffs have been resolved in favor of TSM and TSI in previous
cases brought by the same plaintiffs in the U.S. District Court for the District of
Puerto Rico and by most of the plaintiffs in the local courts. The defendants,
including TSM and TSI answered the complaint, filed a counter-claim and filed
several motions to dismiss this claim. On May 9, 2005, the plaintiffs filed the
amended complaint and defendants are preparing the corresponding motions to dismiss
this amended complaint. The plaintiffs amended the complaint to allege similar
causes of action dismissed
by the U.S. District Court for the District of Puerto Rico in the case described in
bullet (ii) above. Defendants moved to dismiss the amended complaint. Plaintiffs
have notified their opposition to some of the defendants motion to dismiss, and
the defendants filed the corresponding replies. On January 25, 2006, the Court held
a hearing to argue the disposition of motions. In the opinion of management, with
the advice of its legal counsel, the ultimate disposition of these matters will not
have a material adverse effect on the consolidated financial position and results
of operations of the Company.(iv)
    
    On May 22, 2003, a class action suit was filed by Kenneth A. Thomas, MD
and Michael Kutell, MD, on behalf of themselves and all other similarly situated and
the Connecticut State Medical Society against the BCBSA and multiple other insurance
companies including TSI. The individual plaintiffs bring this action on behalf of
themselves and a class of similarly situated physicians seeking redress for alleged
illegal acts of the defendants, which they allege have resulted in a loss of their
property and a detriment to their business, and for declaratory and injunctive
relief to end those practices and prevent further losses. Plaintiffs alleged that
the defendants, on their own and as part of a common scheme, systematically deny,
delay, and diminish the payments due to doctors so that they are not paid in a
timely manner for the
 58
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    covered, medically necessary services they render. The class
action complaint alleges that the healthcare plans are the agents of Blue Cross and
Blue Shield licensed entities, and as such have committed the acts alleged above and
acted within the scope of their agency, with the consent, permission, authorization,
and knowledge of the others, and in furtherance of both their interest and the
interests of other defendants. Management believes that TSI was brought to this
litigation for the sole reason of being associated with BCBSA. However, on June 18,
2004, the plaintiffs moved to amend the complaint to include the Colegio de Médicos
Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto
Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de
Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel
Velázquez, MD voluntarily dismissed her complaint against TSI. TSI, along with the
other defendants, moved to dismiss the complaint under multiple grounds, including
but not limited to arbitration and applicability of the McCarran Ferguson Act. The
Court issued a 90-day stay to allow the parties to discuss their differences and
come to an amicable agreement. The stay expired on March 7, 2006. Upon the
expiration of the stay, both plaintiffs and defendants agreed to request the Court
to extend the stay until April 21, 2006. In the opinion of management, with the
advice of its legal counsel, the ultimate disposition of these matters will not have
a material adverse effect on the consolidated financial position and results of
operations of the Company.(v)
    
    On December 8, 2003, a putative class action was filed by Jeffrey
Solomon, MD, and Orlando Armstrong, MD, on behalf of themselves and all other
similarly situated and the American Podiatric Medical Association, Florida
Chiropractic Association, California Podiatric Medical Association, Florida
Podiatric Medical Association, Texas Podiatric Medical Association, and Independent
Chiropractic Physicians, against the BCBSA and multiple other insurance companies,
including TSI, all members of the BCBSA. The individual plaintiffs bring this action
on behalf of themselves and a class of similarly situated physicians seeking redress
for alleged illegal acts of the defendants, which are alleged to have resulted in a
loss of Plaintiffs
property and a detriment to their business, and for declaratory and injunctive
relief to end those practices and prevent further losses. Plaintiffs alleged that
the defendants, on their own and as part of a common scheme, systematically deny,
delay and diminish the payment due to the doctors so that they are not paid in a
timely manner for the covered, medically necessary services they render. The class
action complaint alleges that the healthcare plans are the agents of BCBSA licensed
entities, and as such have committed the acts alleged above and acted within the
scope of their agency, with the consent, permission, authorization, and knowledge
of the others, and in furtherance of both their interest and the interests of other
defendants. On June 25, 2004, plaintiffs amended the complaint but the allegations
against TSI did not vary. Management believes that TSI was made a party to this
litigation for the sole reason that TSI is associated with the BCBSA. TSI, along
with the other defendants, moved to dismiss the complaint under multiple grounds,
including but not limited to arbitration and applicability of the McCarran Ferguson
Act. The Court issued a 90-day stay to allow the parties to discuss their
differences and come to an amicable solution. The stay expired on March 7, 2006.
Although the parties are still in the process of discussing their differences, they
have not moved the Court to extend the stay. The defendants suggested that
plaintiffs join in a request to extend the stay, but the plaintiffs have not
reacted to the defendants invitation. In the
 59
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     (b)
    
    Guarantee AssociationsPursuant to the Insurance Code, STS is a member of Sindicato de Aseguradores para la
Suscripción Conjunta de Seguros de Responsabilidad Profesional Médico-Hospitalaria
(SIMED) and of the Sindicato de Aseguradores de Responsabilidad Profesional para Médicos.
Both syndicates were organized for the purpose of underwriting medical-hospital
professional liability insurance. As a member, the subsidiary shares risks with other
member companies and, accordingly, is contingently liable in the event that the
above-mentioned syndicates cannot meet their obligations. During the year 2005 STS
released an estimated assessment recorded in prior years amounting to $416 based on the
audited financial statements received from SIMED reflecting an improved financial
condition. During 2005, and 2004, 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, 2004,
the Association distributed good experience refunds. STS received refunds amounting to
$918, $840, and $638 in 2005, 2004, and 2003, respectively.STS is a member of the Asociación de Garantía de Seguros de Todas Clases, excepto Vida,
Incapacidad y Salud and TSI and SVTS 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 2005, 2004, and 2003, STS paid assessments of $965, $1,121,
and $500, respectively. Moreover, no assessments were attributable to TSI and SVTS during
2005, 2004, and 2003.
 
 (22)
    
    Net Income Available to Stockholders and Basic Net Income per ShareThe Company presents only basic earnings per share, which is comprised of the net income that
could be available to common stockholders divided by the weighted average number of common shares outstanding for the period.
 60
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
     2005
    
    2004
    
    2003Numerator for basic earnings per share:Net income available to stockholders
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229Denominator for basic earnings per share:Weighted average of common shares
outstanding
    
    
    8,904
    
    
    
    8,919
    
    
    
    9,180Basic net income per share
    
    $
    3,193
    
    
    
    5,135
    
    
    
    2,857
 
 (23)
    
    Subsequent EventsOn January 13, 2006, the board of directors (the Board) declared a cash dividend of $6,226 to
be distributed pro rata among all of the Companys issued and outstanding 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
January 16, 2006, except those who only hold qualifying shares, received a dividend per share
of $700 for each share held on that date.
 
 (24)
    
    Business CombinationsEffective January 31, 2006, the Company acquired 100% of the common stock of GA Life. As a
result of this acquisition, the Company is expected to be one of the leading providers of life
insurance policies in Puerto Rico. The acquisition will be accounted by the Company in
accordance with the provisions of SFAS No. 141, Business Combinations. The results of
operations of GA Life are not reflected in the accompanying consolidated financial statements
since the effective date of the transaction is not until 2006. The aggregate purchase price of
the acquired entity amounted to approximately $38,196; of this amount $37,500 were paid in
cash on January 31, 2006 and $696 are the estimated direct costs related to the acquisition.
The Company is in the process of obtaining third-party valuations of certain intangible
assets; thus, as of this date it is not possible to determine the allocation of the purchase
price to the net assets acquired.
 
 (25)
    
    Statutory AccountingTSI, SVTS, 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 U.S. GAAP.The principal differences resulting between the financial statements of the regulated
subsidiaries under statutory accounting practices with U.S. GAAP are as follows:
 
    
    The accounting basis of investments in debt and equity securities are based upon the
rules promulgated by NAIC Statutory Accounting Principles (SAP).
 61
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
    
    Certain assets (primarily prepaid expenses, furniture and equipment, and premiums
balances not collected within 90 days) are classified as nonadmitted and are excluded
from the balance sheets by a charge to unassigned capital and surplus.
    
    Certain notes payable are classified as surplus notes under statutory accounting
practices.
    
    Policy acquisitions costs (mainly commissions) are not deferred over the periods in
which the premiums are earned but charged to operations as incurred.
     2005 (Unaudited)TSI
    
    STS
    
    SVTSNet admitted assets
    
    $
    506,386
    
    
    
    246,493
    
    
    
    199,728Unassigned surplus
    
    
    168,542
    
    
    
    42,618
    
    
    
    16,454Capital and surplus
    
    
    195,542
    
    
    
    68,404
    
    
    
    19,014
 62
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004TSI
    
    STS
    
    SVTSNet admitted assets
    
    $
    494,199
    
    
    
    225,684
    
    
    
    71,551Unassigned surplus
    
    
    164,698
    
    
    
    36,831
    
    
    
    20,045Capital and surplus
    
    
    191,239
    
    
    
    69,455
    
    
    
    21,245
  TSI
    
    STS
    
    SVTS2005 (unaudited)
    
    $
    17,383
    
    
    
    10,098
    
    
    
    (58,046
    )2004
    
    
    31,045
    
    
    
    9,589
    
    
    
    6072003
    
    
    41,321
    
    
    
    6,207
    
    
    
    3,990
 63
    
    (Continued)




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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (26)
    
    Quarterly Financial Information (Unaudited)
 2005March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenue:Premiums earned, net
    
    $
    333,389
    
    
    
    339,618
    
    
    
    345,728
    
    
    
    361,469
    
    
    
    1,380,204Amounts attributable to
self-funded arrangements
    
    
    51,915
    
    
    
    52,439
    
    
    
    53,424
    
    
    
    53,127
    
    
    
    210,905Less amounts attributable to
claims under self-funded
arrangements
    
    
    (48,540
    )
    
    
    (49,302
    )
    
    
    (50,190
    )
    
    
    (48,428
    )
    
    
    (196,460
    )336,764
    
    
    
    342,755
    
    
    
    348,962
    
    
    
    366,168
    
    
    
    1,394,649Net investment income
    
    
    7,064
    
    
    
    7,217
    
    
    
    7,158
    
    
    
    7,590
    
    
    
    29,029Net realized investment gains
    
    
    3,314
    
    
    
    1,363
    
    
    
    1,857
    
    
    
    627
    
    
    
    7,161Net unrealized investment gain
(loss) on trading securities
    
    
    (5,793
    )
    
    
    (634
    )
    
    
    905
    
    
    
    813
    
    
    
    (4,709
    )Other income (loss), net
    
    
    632
    
    
    
    (142
    )
    
    
    1,576
    
    
    
    1,666
    
    
    
    3,732Total revenue
    
    
    341,981
    
    
    
    350,559
    
    
    
    360,458
    
    
    
    376,864
    
    
    
    1,429,862Benefits and expenses:Claims incurred
    
    
    302,923
    
    
    
    297,901
    
    
    
    299,577
    
    
    
    307,966
    
    
    
    1,208,367Operating expenses, net of
reimbursement for services
    
    
    43,766
    
    
    
    45,453
    
    
    
    44,568
    
    
    
    47,916
    
    
    
    181,703Interest expense
    
    
    1,788
    
    
    
    1,856
    
    
    
    1,880
    
    
    
    2,071
    
    
    
    7,595Total benefits and
expenses
    
    
    348,477
    
    
    
    345,210
    
    
    
    346,025
    
    
    
    357,953
    
    
    
    1,397,665Income (loss) before
taxes
    
    
    (6,496
    )
    
    
    5,349
    
    
    
    14,433
    
    
    
    18,911
    
    
    
    32,197Income tax expense:Current
    
    
    1,221
    
    
    
    758
    
    
    
    802
    
    
    
    1,143
    
    
    
    3,924Deferred
    
    
    (2,510
    )
    
    
    183
    
    
    
    1,758
    
    
    
    409
    
    
    
    (160
    )Total income taxes
    
    
    (1,289
    )
    
    
    941
    
    
    
    2,560
    
    
    
    1,552
    
    
    
    3,764Net income (loss)
    
    $
    (5,207
    )
    
    
    4,408
    
    
    
    11,873
    
    
    
    17,359
    
    
    
    28,433Basic net income (loss) per share
    
    $
    (585
    )
    
    
    495
    
    
    
    1,333
    
    
    
    1,950
    
    
    
    3,193
 64
    
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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2004March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    TotalRevenue:Premiums earned, net
    
    $
    318,646
    
    
    
    322,896
    
    
    
    325,926
    
    
    
    328,955
    
    
    
    1,296,423Amounts attributable to
self-funded arrangements
    
    
    43,038
    
    
    
    46,045
    
    
    
    46,044
    
    
    
    46,575
    
    
    
    181,702Less amounts attributable to
claims under self-funded
arrangements
    
    
    (40,582
    )
    
    
    (42,485
    )
    
    
    (42,925
    )
    
    
    (43,932
    )
    
    
    (169,924
    )321,102
    
    
    
    326,456
    
    
    
    329,045
    
    
    
    331,598
    
    
    
    1,308,201Net investment income
    
    
    6,582
    
    
    
    6,393
    
    
    
    6,516
    
    
    
    7,008
    
    
    
    26,499Net realized investment gains
    
    
    1,383
    
    
    
    1,365
    
    
    
    4,237
    
    
    
    3,983
    
    
    
    10,968Net unrealized investment gain
(loss) on trading securities
    
    
    1,819
    
    
    
    (3,252
    )
    
    
    (435
    )
    
    
    4,910
    
    
    
    3,042Other income, net
    
    
    566
    
    
    
    1,120
    
    
    
    728
    
    
    
    946
    
    
    
    3,360Total revenue
    
    
    331,452
    
    
    
    332,082
    
    
    
    340,091
    
    
    
    348,445
    
    
    
    1,352,070Benefits and expenses:Claims incurred
    
    
    275,748
    
    
    
    286,246
    
    
    
    283,946
    
    
    
    269,853
    
    
    
    1,115,793Operating expenses, net of
reimbursement for services
    
    
    39,838
    
    
    
    42,635
    
    
    
    40,416
    
    
    
    48,990
    
    
    
    171,879Interest expense
    
    
    901
    
    
    
    931
    
    
    
    1,018
    
    
    
    1,731
    
    
    
    4,581Total benefits and
expenses
    
    
    316,487
    
    
    
    329,812
    
    
    
    325,380
    
    
    
    320,574
    
    
    
    1,292,253Income before taxes
    
    
    14,965
    
    
    
    2,270
    
    
    
    14,711
    
    
    
    27,871
    
    
    
    59,817Income tax expense:Current
    
    
    3,298
    
    
    
    1,248
    
    
    
    2,756
    
    
    
    6,983
    
    
    
    14,285Deferred
    
    
    511
    
    
    
    (457
    )
    
    
    (139
    )
    
    
    (186
    )
    
    
    (271
    )Total income taxes
    
    
    3,809
    
    
    
    791
    
    
    
    2,617
    
    
    
    6,797
    
    
    
    14,014Net income
    
    $
    11,156
    
    
    
    1,479
    
    
    
    12,094
    
    
    
    21,074
    
    
    
    45,803Basic net income per share
    
    $
    1,239
    
    
    
    166
    
    
    
    1,361
    
    
    
    2,371
    
    
    
    5,137
 65
    
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    
 (27)
    
    Reconciliation of Net Income to Net Cash Provided by Operating ActivitiesA reconciliation of net income to net cash provided by operating activities follows:
 2005
    
    
    2004
    
    
    2003Net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation and amortization
    
    
    5,230
    
    
    
    5,343
    
    
    
    5,709Net amortization of investments
premiums
    
    
    408
    
    
    
    1,035
    
    
    
    1,866Accretion in value of securities
    
    
    (617
    )
    
    
    (464
    )
    
    
    (1,188
    )Increase (decrease) in provision for
doubtful receivables
    
    
    1,067
    
    
    
    2,158
    
    
    
    (4,779
    )Increase in net deferred tax asset
    
    
    (160
    )
    
    
    (271
    )
    
    
    (5,396
    )Gain on sale of securities
    
    
    (7,161
    )
    
    
    (10,968
    )
    
    
    (8,365
    )Unrealized loss (gain) of trading
securities
    
    
    4,709
    
    
    
    (3,042
    )
    
    
    (14,893
    )Proceeds from trading securities sold
or matured:Fixed maturities sold
    
    
    102,667
    
    
    
    50,330
    
    
    
    77,582Equity securities
    
    
    36,156
    
    
    
    26,523
    
    
    
    28,924Acquisition of securities in trading portfolio:Fixed maturities
    
    
    (30,502
    )
    
    
    (54,550
    )
    
    
    (96,237
    )Equity securities
    
    
    (25,785
    )
    
    
    (38,700
    )
    
    
    (38,956
    )Gain on sale of property and equipment
    
    
    (1
    )
    
    
    (16
    )
    
    
    (58
    )Decrease (increase) in premiums receivable
    
    
    (11,988
    )
    
    
    (10,956
    )
    
    
    4,809Decrease (increase) in accrued
interest receivable
    
    
    6
    
    
    
    18
    
    
    
    (218
    )Decrease (increase) in other receivables
    
    
    1,680
    
    
    
    (11,052
    )
    
    
    (9,062
    )Increase in funds withheld reinsurance
receivable
    
    
    (118,635
    )
    
    
    
    
    
    
    Increase in deferred policy acquisition costs
    
    
    (62,856
    )
    
    
    (2,041
    )
    
    
    (2,901
    )Increase in other assets
    
    
    (16,110
    )
    
    
    (5,138
    )
    
    
    (3,188
    )Increase (decrease) in claims processed
and incomplete
    
    
    2,412
    
    
    
    16,267
    
    
    
    (6,613
    )Increase in unreported losses
    
    
    15,900
    
    
    
    14,875
    
    
    
    9,139Increase (decrease) in loss-adjustment expenses
    
    
    (74
    )
    
    
    263
    
    
    
    812Increase in future policy benefits reserve
related to funds withheld reinsurance
    
    
    118,635
    
    
    
    
    
    
    
    Increase on annuity contracts
    
    
    1,231
    
    
    
    1,003
    
    
    
    365Increase in unearned premiums
    
    
    11,120
    
    
    
    5,879
    
    
    
    7,743Increase (decrease) in liability to FEHBP
    
    
    (5,435
    )
    
    
    2,320
    
    
    
    405Increase in accounts payable
and accrued liabilities
    
    
    588
    
    
    
    4,616
    
    
    
    6,914Increase (decrease) in income tax payable
    
    
    (1,827
    )
    
    
    (30,395
    )
    
    
    31,506Net cash provided by
operating activities
    
    $
    49,091
    
    
    
    8,840
    
    
    
    10,149
 66
    
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
    2005
    
    2004
    
    2003Supplementary information on noncash
transactions affecting cash flows
activities:Change in net unrealized gain on
securities available for sale, including
deferred income tax liability of $805,
$3,330, and $3,198, in 2005, 2004,
and 2003, respectively
    
    $
    (18,832
    )
    
    
    1,101
    
    
    
    (6,022
    )Retirement of fully depreciated items
    
    
    
    
    
    
    13,054
    
    
    
    1,594Change in cash-flow hedges, including
deferred income tax liability of $236 in
2005 and deferred income tax asset
of $56 and $234 in 2004 and 2003,
respectively
    
    
    457
    
    
    
    281
    
    
    
    103Change in minimum pension liability,
including related intangible asset of
$550, $598, and $645 and deferred
income tax asset of $5,303, $3,576,
and $3,614 in 2005, 2004, and 2003,
respectively
    
    
    (2,788
    )
    
    
    (3
    )
    
    
    2,292
 67
    
    (Continued)




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    50
    
    
    
    4,031Receivables:Due from subsidiaries*
    
    
    1,436
    
    
    
    766Other
    
    
    15
    
    
    
    102Total receivables
    
    
    1,451
    
    
    
    868Investment in securities
    
    
    10,004
    
    
    
    7,205Prepaid income tax
    
    
    92
    
    
    
    130Net deferred tax assets
    
    
    316
    
    
    
    404Prepaid pension cost
    
    
    2,500
    
    
    
    1,159Accrued interest
    
    
    96
    
    
    
    96Other assets
    
    
    621
    
    
    
    15Total current assets
    
    
    15,130
    
    
    
    13,908Notes receivable from subsidiaries*
    
    
    83,000
    
    
    
    26,000Investment in securities
    
    
    1,000
    
    
    
    1,000Accrued interest on note receivable from subsidiaries
    
    
    2,142
    
    
    
    788Net deferred tax assets
    
    
    312
    
    
    
    515Investments in wholly owned subsidiaries*
    
    
    299,421
    
    
    
    293,203Property and equipment, net
    
    
    24,760
    
    
    
    25,577Other assets
    
    
    1,275
    
    
    
    Total assets
    
    $
    427,040
    
    
    
    360,991Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    1,640
    
    
    
    3,140Due to subsidiary*
    
    
    10,509
    
    
    
    8,136Accounts payable and accrued expenses
    
    
    6,873
    
    
    
    5,440Total current liabilities
    
    
    19,022
    
    
    
    16,716Additional minimum pension liability
    
    
    365
    
    
    
    252Long-term debt
    
    
    98,950
    
    
    
    42,590Total liabilities
    
    
    118,337
    
    
    
    59,558Stockholders equity:Common stock at $40 par value. Authorized 12,500 shares; issued and outstanding
8,904 shares at December 31, 2005 and 2004, respectively
    
    
    356
    
    
    
    356Additional paid-in capital
    
    
    150,408
    
    
    
    150,408Retained earnings
    
    
    162,964
    
    
    
    134,531Accumulated other comprehensive income (loss)
    
    
    (5,025
    )
    
    
    16,138308,703
    
    
    
    301,433Commitments and contingenciesTotal liabilities and stockholders equity
    
    $
    427,040
    
    
    
    360,991
 
 * Eliminated on consolidation.  2




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2005
    
    
    2004
    
    
    2003Rental income*
    
    $
    6,724
    
    
    
    6,290
    
    
    
    6,082General and administrative expenses
    
    
    (5,271
    )
    
    
    (4,787
    )
    
    
    (5,570
    )Operating income
    
    
    1,453
    
    
    
    1,503
    
    
    
    512Other revenue (expenses):Equity in net income of subsidiaries*
    
    
    27,604
    
    
    
    45,451
    
    
    
    77,736Interest expense, net of interest income of
$1,809, $1,088, and $958 in 2005, 2004,
and 2003, respectively *
    
    
    (336
    )
    
    
    (863
    )
    
    
    (982
    )Realized investment gains
    
    
    
    
    
    
    
    
    
    
    650Total other revenue, net
    
    
    27,268
    
    
    
    44,588
    
    
    
    77,404Income before income taxes
    
    
    28,721
    
    
    
    46,091
    
    
    
    77,916Income tax expense (benefit):Current
    
    
    208
    
    
    
    306
    
    
    
    51,834Deferred
    
    
    80
    
    
    
    (18
    )
    
    
    (147
    )Total income tax expense, net
    
    
    288
    
    
    
    288
    
    
    
    51,687Net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229
 
 * Eliminated on consolidation.  3




---



##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    AccumulatedAdditional
    
    
    
    
    
    
    otherCommon
    
    
    paid-in
    
    
    Retained
    
    
    comprehensivestock
    
    
    capital
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance, December 31, 2002
    
    $
    373
    
    
    
    150,406
    
    
    
    62,499
    
    
    
    18,386
    
    
    
    231,664Stock redemption
    
    
    (12
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    26,229
    
    
    
    
    
    
    
    26,229Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,022
    )
    
    
    (6,022
    )Net change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,292
    
    
    
    2,292Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    103Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,602Balance, December 31, 2003
    
    
    361
    
    
    
    150,407
    
    
    
    88,728
    
    
    
    14,759
    
    
    
    254,255Stock redemption
    
    
    (5
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    45,803
    
    
    
    
    
    
    
    45,803Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,101
    
    
    
    1,101Net change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    281Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,182Balance, December 31, 2004
    
    
    356
    
    
    
    150,408
    
    
    
    134,531
    
    
    
    16,138
    
    
    
    301,433Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    28,433
    
    
    
    
    
    
    
    28,433Net unrealized change in
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,832
    )
    
    
    (18,832
    )Net change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,788
    )
    
    
    (2,788
    )Net change in fair value of
cash-flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    457Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,270Balance, December 31, 2005
    
    $
    356
    
    
    
    150,408
    
    
    
    162,964
    
    
    
    (5,025
    )
    
    
    308,703
  4




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##### Table of Contents



TRIPLE-S MANAGEMENT CORPORATION
    2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    28,433
    
    
    
    45,803
    
    
    
    26,229Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Equity in net income of subsidiaries*
    
    
    (27,604
    )
    
    
    (45,451
    )
    
    
    (77,736
    )Depreciation and amortization
    
    
    1,090
    
    
    
    1,118
    
    
    
    1,110Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    (650
    )Accretion in value of securities
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Provision for obsolescence
    
    
    (25
    )
    
    
    (44
    )
    
    
    (88
    )Provision for doubtful receivables
    
    
    
    
    
    
    
    
    
    
    (138
    )Deferred income tax benefit
    
    
    80
    
    
    
    (18
    )
    
    
    (147
    )Changes in assets and liabilities:Receivables*
    
    
    (583
    )
    
    
    (699
    )
    
    
    207Accrued interest*
    
    
    (1,354
    )
    
    
    (729
    )
    
    
    4,759Prepaid income tax, prepaid pension cost, and other assets
    
    
    (2,553
    )
    
    
    (1,245
    )
    
    
    89Accounts payable, accrued expenses, and due to subsidiary*
    
    
    3,948
    
    
    
    5,834
    
    
    
    (480
    )Income tax payable
    
    
    
    
    
    
    (14,339
    )
    
    
    13,876Net cash provided (used in) by operating activities
    
    
    1,432
    
    
    
    (9,771
    )
    
    
    (32,970
    )Cash flows from investing activities:Acquisition of investment in securities classified as available for sale
    
    
    (3,000
    )
    
    
    (1,430
    )
    
    
    (8,892
    )Proceeds from sale and maturities of investment in securities
classified as available for sale
    
    
    
    
    
    
    1,280
    
    
    
    6,689Notes receivable from subsidiaries*
    
    
    (57,000
    )
    
    
    
    
    
    
    Acquisition of property and equipment, net
    
    
    (273
    )
    
    
    (39
    )
    
    
    (11
    )Net cash used in investing activities
    
    
    (60,273
    )
    
    
    (189
    )
    
    
    (2,214
    )Cash flows from financing activities:Dividend received from wholly owned subsidiaries*
    
    
    
    
    
    
    15,000
    
    
    
    37,800Repayments of long-term borrowings
    
    
    (5,140
    )
    
    
    (2,645
    )
    
    
    (1,640
    )Proceeds from long-term borrowings
    
    
    60,000
    
    
    
    
    
    
    
    Redemption of common stock
    
    
    
    
    
    
    (4
    )
    
    
    (11
    )Net cash provided by financing activities
    
    
    54,860
    
    
    
    12,351
    
    
    
    36,149Net (decrease) increase in cash and cash equivalents
    
    
    (3,981
    )
    
    
    2,391
    
    
    
    965Cash and cash equivalents, beginning of year
    
    
    4,031
    
    
    
    1,640
    
    
    
    675Cash and cash equivalents, end of year
    
    $
    50
    
    
    
    4,031
    
    
    
    1,640Supplemental information:Income tax paid
    
    $
    170
    
    
    
    14,774
    
    
    
    37,958Interest paid
    
    
    2,093
    
    
    
    1,951
    
    
    
    1,867Noncash activities:Change in net unrealized gain on securities available for sale of
the subsidiaries*
    
    
    (18,667
    )
    
    
    1,130
    
    
    
    (5,532
    )Change in net unrealized gain on securities available for sale
    
    
    (165
    )
    
    
    (29
    )
    
    
    (490
    )Change in cash-flow hedges, including deferred tax liability of
$236 in 2005 and deferred tax asset of $56 and $234 in 2004
and 2003, respectively.
    
    
    457
    
    
    
    281
    
    
    
    103Change in minimum pension liability, including related
intangible asset of $550, $598, and $645 in 2005, 2004 and
2003, respectively
    
    
    (2,788
    )
    
    
    (3
    )
    
    
    2,292
 
 *
    
    Eliminated on consolidation.  5




---



##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
    (1) Organization
     (2) Significant Accounting Policies
  (3) Property and Equipment, Net
  2005
    
    
    2004Land
    
    $
    6,531
    
    
    
    6,531Buildings and leasehold improvements
    
    
    27,765
    
    
    
    27,49234,296
    
    
    
    34,023Less accumulated depreciation and amortization
    
    
    (9,536
    )
    
    
    (8,446
    )Property and equipment, net
    
    $
    24,760
    
    
    
    25,577
  6




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
    (4) Investment in Wholly Owned Subsidiaries
  2005
    
    
    2004AssetsCash, cash equivalents, and investments
    
    $
    704,252
    
    
    
    700,001Receivables, net
    
    
    257,531
    
    
    
    124,732Other assets
    
    
    163,343
    
    
    
    76,710Total assets
    
    $
    1,125,126
    
    
    
    901,443LiabilitiesClaim liabilities
    
    $
    297,563
    
    
    
    279,325Future policy benefits related to funds withheld reinsurance
    
    
    118,635
    
    
    
    Unearned premiums
    
    
    95,703
    
    
    
    84,583Annuity contracts
    
    
    41,738
    
    
    
    34,071Accounts payable and other liabilities
    
    
    272,066
    
    
    
    210,261Total liabilities
    
    $
    825,705
    
    
    
    608,240Stockholders equity
    
    $
    299,421
    
    
    
    293,203
   7




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
    (5) Long-Term Borrowings
  2005
    
    
    2004Secured note payable of $20,000, payable in various different
installments up to August 31, 2007, with interest payable
on a monthly basis at a rate reset periodically of 130 basis
points over LIBOR selected (which was 5.71% and 3.32%
at December 31, 2005 and 2004, respectively)
    
    $
    11,500
    
    
    
    15,000Senior unsecured notes payable of $60,000
due December 2020. Interest payable monthly
at a fixed rate of 6.60%
    
    
    60,000
    
    
    
    Secured loan payable of $41,000, payable in monthly
installments of $137 up to July 1, 2024, plus interest at a
rate reset periodically of 100 basis points over LIBOR
selected (which was 5.29% and 3.30% at
December 31, 2005 and 2004, respectively)
    
    
    29,090
    
    
    
    30,730100,590
    
    
    
    45,730Less current maturities
    
    
    (1,640
    )
    
    
    (3,140
    )Total loans payable to bank
    
    $
    98,950
    
    
    
    42,590
  2006
    
    $
    1,6402007
    
    
    13,1402008
    
    
    1,6402009
    
    
    1,6402010
    
    
    1,640Thereafter
    
    
    80,890$
    100,590
   8




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
       MaximumprincipaloutstandingDate
    
    balanceAugust 1, 2006
    
    $
    12,000August 1, 2007
    
    
    
   (6) Income Taxes
     9




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
     
    
    TSIs accumulated statutory net income while operating under the tax exemption,
amounting to $132,763, was deemed distributed to TSM.
    
    For tax purposes, TSM recognized the exempt accumulated statutory net income as gross
income. On this amount, TSM recognized an income tax liability amounting to $51,774,
which was determined by applying a tax rate of 39% to the exempt accumulated statutory
net income deemed distributed to TSM. The income tax was recorded by TSM within the
current income tax expense presented in the consolidated statements of earnings. Of this
tax, $37,000 were paid on July 31, 2003, the date of the closing agreement, and $14,774
on April 15, 2004.
  2005
    
    
    2004
    
    
    2003Income tax expense at statutory
rate of 39%
    
    $
    11,201
    
    
    
    17,975
    
    
    
    30,387Increase (decrease) in taxes resulting from:Equity in net income of wholly owned
subsidiaries
    
    
    (10,765
    )
    
    
    (17,726
    )
    
    
    (30,317
    )Disallowances
    
    
    (68
    )
    
    
    97
    
    
    
    50Department of Treasury tax assessment
    
    
    
    
    
    
    
    
    
    
    51,774Other, net
    
    
    (80
    )
    
    
    (58
    )
    
    
    (207
    )Total income tax expense
    
    $
    288
    
    
    
    288
    
    
    
    51,687
  10




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
     2005
    
    
    2004Deferred tax assets:Reserve for obsolete inventory
    
    $
    32
    
    
    
    42Additional minimum pension liability
    
    
    136
    
    
    
    92Employee benefits plan
    
    
    208
    
    
    
    68Postretirement benefits
    
    
    16
    
    
    
    11Deferred compensation
    
    
    239
    
    
    
    206Nondeductible depreciation
    
    
    401
    
    
    
    423Cash-flow hedges
    
    
    
    
    
    
    56Unrealized loss on securities available for sales
    
    
    58
    
    
    
    21Total gross deferred tax assets
    
    
    1,090
    
    
    
    919Deferred tax liabilities:Unamortized bond issue costs
    
    
    (226
    )
    
    
    Cash-flow hedges
    
    
    (236
    )
    
    
    Gross deferred tax liabilities
    
    
    (462
    )
    
    
    Net deferred tax asset
    
    $
    628
    
    
    
    919
  (7) Transaction with Related Parties
  2005
    
    
    2004
    
    
    2003Rent charges to subsidiaries
    
    $
    6,588
    
    
    
    6,083
    
    
    
    5,772Interest charged to subsidiary on
notes receivable
    
    
    1,353
    
    
    
    734
    
    
    
    658
  11




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##### Table of Contents



TRIPLE S MANAGEMENT CORPORATION
    (8) Contingencies
  (9) Subsequent Events
  (10) Business Combinations
 Business Combinations
 12




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries
Schedule III  Supplementary Insurance Information
For the years ended December 31, 2005, 2004 and 2003
 (Dollar amounts in thousands)
 Deferred
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization ofPolicy
    
    
    
    
    
    
    
    
    
    
    Policy Claims
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Deferred Policy
    
    
    Other
    
    
    NetAcquisition
    
    
    Claim
    
    
    Unearned
    
    
    and Benefits
    
    
    Premium
    
    
    Investment
    
    
    Claims
    
    
    Acquisition
    
    
    Operating
    
    
    PremiumsSegment
    
    Costs
    
    
    Liabilities
    
    
    Premiums
    
    
    Payable
    
    
    Revenue
    
    
    Income
    
    
    Incurred
    
    
    Costs
    
    
    Expenses
    
    
    Written2005Health insurance  Commercial Program
    
    $
    
    
    
    $
    108,518
    
    
    $
    8,829
    
    
    $
    
    
    
    $
    784,187
    
    
    $
    13,904
    
    
    $
    677,870
    
    
    $
    
    
    
    $
    103,562
    
    
    $
    784,187Health insurance  Reform Program
    
    
    
    
    
    
    70,460
    
    
    
    
    
    
    
    
    
    
    
    510,839
    
    
    
    2,945
    
    
    
    478,008
    
    
    
    
    
    
    
    36,432
    
    
    
    510,839Property and casualty insurance
    
    
    19,891
    
    
    
    96,107
    
    
    
    86,693
    
    
    
    
    
    
    
    86,767
    
    
    
    8,706
    
    
    
    43,587
    
    
    
    23,137
    
    
    
    16,505
    
    
    
    91,883Life and disability insurance
    
    
    61,677
    
    
    
    22,478
    
    
    
    181
    
    
    
    118,635
    
    
    
    17,130
    
    
    
    3,018
    
    
    
    8,902
    
    
    
    264
    
    
    
    7,937
    
    
    
    17,130Other non-reportable segments, parent
company operations and net
consolidating entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,274
    )
    
    
    456
    
    
    
    
    
    
    
    
    
    
    
    (6,134
    )
    
    
    Total
    
    $
    81,568
    
    
    $
    297,563
    
    
    $
    95,703
    
    
    $
    118,635
    
    
    $
    1,394,649
    
    
    $
    29,029
    
    
    $
    1,208,367
    
    
    $
    23,401
    
    
    $
    158,302
    
    
    $
    1,404,0392004Health insurance  Commercial Program
    
    $
    
    
    
    $
    101,773
    
    
    $
    6,249
    
    
    $
    
    
    
    $
    724,734
    
    
    $
    12,590
    
    
    $
    620,750
    
    
    $
    
    
    
    $
    94,930
    
    
    $
    724,734Health insurance  Reform Program
    
    
    
    
    
    
    67,137
    
    
    
    
    
    
    
    
    
    
    
    484,742
    
    
    
    3,109
    
    
    
    437,835
    
    
    
    
    
    
    
    35,777
    
    
    
    484,742Property and casualty insurance
    
    
    17,825
    
    
    
    89,627
    
    
    
    77,853
    
    
    
    
    
    
    
    86,228
    
    
    
    7,668
    
    
    
    45,977
    
    
    
    22,388
    
    
    
    17,794
    
    
    
    89,659Life and disability insurance
    
    
    887
    
    
    
    20,788
    
    
    
    481
    
    
    
    
    
    
    
    16,442
    
    
    
    2,778
    
    
    
    11,231
    
    
    
    66
    
    
    
    7,281
    
    
    
    16,442Other non-reportable segments, parent
company operations and net
consolidating entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,945
    )
    
    
    354
    
    
    
    
    
    
    
    
    
    
    
    (6,357
    )
    
    
    Total
    
    $
    18,712
    
    
    $
    279,325
    
    
    $
    84,583
    
    
    $
    
    
    
    $
    1,308,201
    
    
    $
    26,499
    
    
    $
    1,115,793
    
    
    $
    22,454
    
    
    $
    149,425
    
    
    $
    1,315,5772003Health insurance  Commercial Program
    
    $
    
    
    
    $
    93,273
    
    
    $
    5,833
    
    
    $
    
    
    
    $
    702,853
    
    
    $
    10,734
    
    
    $
    584,448
    
    
    $
    
    
    
    $
    92,264
    
    
    $
    702,853Health insurance  Reform Program
    
    
    
    
    
    
    66,243
    
    
    
    
    
    
    
    
    
    
    
    477,614
    
    
    
    4,476
    
    
    
    428,045
    
    
    
    
    
    
    
    34,637
    
    
    
    477,614Property and casualty insurance
    
    
    16,179
    
    
    
    72,431
    
    
    
    72,785
    
    
    
    
    
    
    
    78,334
    
    
    
    6,824
    
    
    
    43,390
    
    
    
    19,461
    
    
    
    17,893
    
    
    
    84,357Life and disability insurance
    
    
    492
    
    
    
    15,973
    
    
    
    86
    
    
    
    
    
    
    
    17,403
    
    
    
    2,345
    
    
    
    9,467
    
    
    
    29
    
    
    
    6,007
    
    
    
    17,403Other non-reportable segments, parent
company operations and net
consolidating entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,488
    )
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    (5,142
    )
    
    
    Total
    
    $
    16,671
    
    
    $
    247,920
    
    
    $
    78,704
    
    
    $
    
    
    
    $
    1,272,716
    
    
    $
    24,679
    
    
    $
    1,065,350
    
    
    $
    19,490
    
    
    $
    145,659
    
    
    $
    1,282,227




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##### Table of Contents



Triple-S Management Corporation and Subsidiaries  Schedule IV  Reinsurance  For the years ended December 31, 2005, 2004 and 2003
 (Dollar amounts in thousands)
 PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    Net
    
    
    AssumedAmount
    
    
    Companies (1)
    
    
    Companies
    
    
    Amount
    
    
    to Net2005Life insurance in force
    
    $
    4,443,620
    
    
    
    1,887,180
    
    
    
    
    
    
    
    2,556,440
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    8,768
    
    
    
    2,824
    
    
    
    400
    
    
    
    6,344
    
    
    
    6.3
    %Accident and health insurance
    
    
    1,312,106
    
    
    
    6,294
    
    
    
    
    
    
    
    1,305,812
    
    
    
    0.0
    %Property and casualty insurance
    
    
    151,127
    
    
    
    59,244
    
    
    
    
    
    
    
    91,883
    
    
    
    0.0
    %Total premiums
    
    $
    1,472,001
    
    
    
    68,362
    
    
    
    400
    
    
    
    1,404,039
    
    
    
    0.0
    %2004Life insurance in force
    
    $
    4,575,470
    
    
    
    2,443,567
    
    
    
    
    
    
    
    2,131,903
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    23,709
    
    
    
    7,267
    
    
    
    
    
    
    
    16,442
    
    
    
    0.0
    %Accident and health insurance
    
    
    1,210,584
    
    
    
    1,108
    
    
    
    
    
    
    
    1,209,476
    
    
    
    0.0
    %Property and casualty insurance
    
    
    141,874
    
    
    
    52,215
    
    
    
    
    
    
    
    89,659
    
    
    
    0.0
    %Total premiums
    
    $
    1,376,167
    
    
    
    60,590
    
    
    
    
    
    
    
    1,315,577
    
    
    
    0.0
    %2003Life insurance in force
    
    $
    6,027,145
    
    
    
    2,865,885
    
    
    
    
    
    
    
    3,161,260
    
    
    
    0.0
    %Premiums:Life insurance
    
    $
    24,703
    
    
    
    7,300
    
    
    
    
    
    
    
    17,403
    
    
    
    0.0
    %Accident and health insurance
    
    
    1,180,468
    
    
    
    
    
    
    
    
    
    
    
    1,180,468
    
    
    
    0.0
    %Property and casualty insurance
    
    
    128,127
    
    
    
    43,771
    
    
    
    
    
    
    
    84,356
    
    
    
    0.0
    %Total premiums
    
    $
    1,333,298
    
    
    
    51,071
    
    
    
    
    
    
    
    1,282,227
    
    
    
    0.0
    %
 
 (1)
    
    Premiums ceded on the life insurance business are net of commission income on reinsurance amounting
to $541, $699 and $516 for the years ended December 31, 2005, 2004 and 2003.




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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, 2005, 2004 and 2003
 (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)
    
    
    Period2005Allowance for doubtful receivables
    
    $
    11,173
    
    
    
    3,829
    
    
    
    
    
    
    
    (2,762
    )
    
    
    12,2402004Allowance for doubtful receivables
    
    $
    9,015
    
    
    
    5,166
    
    
    
    
    
    
    
    (3,008
    )
    
    
    11,1732003Allowance for doubtful receivables
    
    $
    13,794
    
    
    
    3,068
    
    
    
    290
    
    
    
    (8,137
    )
    
    
    9,015
 
 (1)
    
    Represents the recovery of accounts previously written-off.(2)
    
    Deductions represent the write-off of accounts deemed uncollectible and other deductions.