TRIPLE-S MANAGEMENT CORPORATION

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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

(Exact name of registrant as specified in its charter)


Puerto Rico		66-0555678
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)

1441 F.D. Roosevelt Avenue
San Juan, Puerto Rico		00920
(Address of principal executive offices)		(Zip code)

(787) 749-4949
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of each class		Outstanding at September 30, 2005

Common Stock, $40.00 par value		8,904

Part I – Financial Information

Item 1. Financial Statements

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands, except per share data)


	(Unaudited)
	September 30,		December 31,
	2005		2004

ASSETS

Investments and cash:
Securities held for trading, at fair value:
Fixed maturities	$	-		72,423
Equity securities		84,251		86,596
Securities available for sale, at fair value:
Fixed maturities		513,078		444,637
Equity securities		54,455		59,186
Securities held to maturity, at amortized cost:
Fixed maturities		22,146		14,280
Cash and cash equivalents		32,208		35,115

Total investments and cash		706,138		712,237

Premiums and other receivables, net		120,406		113,323
Deferred policy acquisition costs		19,898		18,712
Property and equipment, net		33,395		32,364
Other assets		55,853		43,021

Total assets	$	935,690		919,657

LIABILITIES AND STOCKHOLDERS’ EQUITY

Claim liabilities:
Claims processed and incomplete	$	133,556		137,282
Unreported losses		145,897		127,324
Unpaid loss-adjustment expenses		14,609		14,719

Total claim liabilities		294,062		279,325

Unearned premiums		92,569		84,583
Annuity contracts		40,207		34,071
Liability to Federal Employees Health Benefits Program		8,148		9,791
Accounts payable and accrued liabilities		98,963		100,388
Short-term borrowings		4,605		1,700
Income tax payable		—		1,827
Net deferred tax liability		—		1,969
Additional minimum pension liability		6,824		8,840
Long-term borrowings		91,000		95,730

Total liabilities		636,378		618,224

Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 8,904 at September 30, 2005 and December 31, 2004		356		356
Additional paid-in capital		150,408		150,408
Retained earnings		145,605		134,531
Accumulated other comprehensive income		2,943		16,138

Total stockholders’ equity		299,312		301,433

Total liabilities and stockholders’ equity	$	935,690		919,657

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)
For the three months and nine months ended September 30, 2005 and 2004
(Dollar amounts in thousands, except per share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004

REVENUE:

Premiums earned, net	$	345,728			325,926			1,018,735			967,468
Amounts attributable to self-funded arrangements		53,424			46,044			157,778			135,127
Less amounts attributable to claims under self-funded arrangements		(50,190	)		(42,925	)		(148,032	)		(125,992	)

		348,962			329,045			1,028,481			976,603
Net investment income		7,158			6,516			21,439			19,491
Net realized investment gains		1,857			4,237			6,534			6,985
Net unrealized investment gain (loss) on trading securities		905			(435	)		(5,522	)		(1,868	)
Other income, net		1,576			728			2,066			2,414

Total revenue		360,458			340,091			1,052,998			1,003,625

BENEFITS AND EXPENSES:

Claims incurred		299,577			283,946			900,401			845,940
Operating expenses, net of reimbursement for services		44,568			40,416			133,787			122,889
Interest expense		1,880			1,018			5,524			2,850

Total benefits and expenses		346,025			325,380			1,039,712			971,679

Income before taxes		14,433			14,711			13,286			31,946

INCOME TAX EXPENSE (BENEFIT):

Current		802			2,756			2,781			7,302
Deferred		1,758			(139	)		(569	)		(85	)

Total income taxes		2,560			2,617			2,212			7,217


Net income	$	11,873			12,094			11,074			24,729

Basic net income per share	$	1,333			1,361			1,244			2,769

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2005 and 2004

(Dollar amounts in thousands, except per share data)


	Nine months ended
	September 30,
	2005			2004

CASH FLOWS FROM OPERATING ACTIVITIES:

Premiums collected	$	1,026,383			963,274
Cash paid to suppliers and employees		(147,434	)		(130,355	)
Claims, losses and benefits paid		(888,007	)		(816,399	)
Interest received		20,689			19,288
Income taxes paid		(8,632	)		(43,464	)
Proceeds from trading securities sold or matured:
Fixed maturities sold		102,667			44,196
Equity securities		19,692			19,686
Acquisitions of investments in trading portfolio:
Fixed maturities		(30,502	)		(45,595	)
Equity securities		(17,749	)		(32,336	)
Interest paid		(4,624	)		(2,116	)
Expense reimbursement from Medicare		9,730			9,620
Contingency reserve funds from FEHBP		1,059			5,217

Net cash provided by (used in) operating activities		83,272			(8,984	)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		5,373			39,859
Fixed maturities matured		17,847			68,942
Equity securities		3,487			6,544
Securities held to maturity:
Fixed maturities matured		721			3,161
Acquisitions of investments:
Securities available for sale:
Fixed maturities		(97,818	)		(112,821	)
Equity securities		(6,821	)		(1,024	)
Securities held to maturity:
Fixed maturities		(8,499	)		(2,612	)
Capital expenditures		(5,031	)		(2,731	)
Proceeds from sale of property and equipment		—			12

Net cash used in investing activities		(90,741	)		(670	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Change in outstanding checks in excess of bank balances		1,151			8,545
Payments of short-term borrowings		(104,635	)		(48,600	)
Proceeds from short-term borrowings		107,540			11,600
Payments of long-term borrowings		(4,730	)		(2,098	)
Proceeds from long-term borrowings		—			50,000
Redemption of common stock		—			(5	)
Proceeds from annuity contracts		9,315			9,259
Surrenders of annuity contracts		(4,079	)		(3,659	)

Net cash provided by financing activities		4,562			25,042

Net (decrease) increase in cash and cash equivalents		(2,907	)		15,388
Cash and cash equivalents at beginning of the period		35,115			48,280

Cash and cash equivalents at end of the period	$	32,208			63,668

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2005

(Dollar amounts in thousands, except per share data)

(Unaudited)

(1) Basis of Presentation

The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) are unaudited, except for the balance sheet information as of December 31, 2004, which is derived from the Corporation’s audited consolidated financial statements, pursuant to the rules and regulations of the United States Securities and Exchange Commission. The consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months and nine months ended September 30, 2005 are not necessarily indicative of the results for the full year.

(2) Segment Information

The following tables summarize the operations by major operating segment for the three months and nine months ended September 30, 2005 and 2004:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments

	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance		Other *			Total

THREE MONTHS ENDED SEPTEMBER 30, 2005

Premiums earned, net	$	190,119			129,933			21,762		3,914			345,728
Amounts attributable to self-funded arrangements		53,424			—			—		—			53,424
Less: Amounts attributable to claims under self-funded arrangements		(50,190	)		—			—		—			(50,190	)
Intersegment premiums earned/service revenues		1,080			—			—		12,473			13,553

		194,433			129,933			21,762		16,387			362,515
Net investment income		3,360			732			2,176		772			7,040
Realized gain (loss) on sale of securities		1,761			—			128		(32	)		1,857
Unrealized gain on trading securities		556			—			295		54			905
Other		1,388			(6	)		160		17			1,559


Total revenue	$	201,498			130,659			24,521		17,198			373,876



Net income	$	6,436			1,991			2,807		339			11,573


Claims incurred	$	164,831			121,501			10,826		2,419			299,577


Operating expenses	$	25,046			8,951			10,479		14,088			58,564


Depreciation expense, included in operating expenses	$	1,103			—			105		34			1,242


Interest expense	$	1,127			256			—		320			1,703


Income tax expense (benefit)	$	4,058			(2,040	)		409		32			2,459


*		Includes a business segment which is not required to be reported separately. This column includes the results of operations for the life and disability insurance segment as well as the data processing services organization and the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance			Other *		Total

THREE MONTHS ENDED SEPTEMBER 30, 2004
Premiums earned, net	$	178,164			121,980			21,557			4,225		325,926
Amounts attributable to self-funded arrangements		46,044			—			—			—		46,044
Less: Amounts attributable to claims under self-funded arrangements		(42,925	)		—			—			—		(42,925	)
Intersegment premiums earned/service revenues		906			—			—			11,611		12,517

		182,189			121,980			21,557			15,836		341,562
Net investment income		3,026			793			1,906			705		6,430
Realized gain on sale of securities		2,973			—			530			734		4,237
Unrealized gain (loss) on trading securities		(483	)		—			(49	)		97		(435	)
Other		(10	)		(7	)		643			54		680

Total revenue	$	187,695			122,766			24,587			17,426		352,474

Net income	$	5,216			2,381			3,128			1,253		11,978

Claims incurred	$	157,186			111,141			13,007			2,612		283,946

Operating expenses	$	23,209			8,618			8,469			13,001		53,297

Depreciation expense, included in operating expenses	$	934			—			90			35		1,059

Interest expense	$	343			113			—			265		721

Income tax expense (benefit)	$	1,741			513			(17	)		295		2,532


*		Includes a business segment which is not required to be reported separately. This column includes the results of operations for the

		life and disability insurance segment as well as the data processing services organization and the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments

	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance			Other *			Total

NINE MONTHS ENDED SEPTEMBER 30, 2005
Premiums earned, net	$	564,557			377,270			64,960			11,948			1,018,735
Amounts attributable to self-funded arrangements		157,778			—			—			—			157,778
Less: Amounts attributable to claims under self-funded arrangements		(148,032	)		—			—			—			(148,032	)
Intersegment premiums earned/service revenues		3,185			—			—			37,550			40,735

		577,488			377,270			64,960			49,498			1,069,216
Net investment income		10,183			2,222			6,461			2,244			21,110
Realized gain (loss) on sale of securities		5,309			(25	)		1,199			51			6,534
Unrealized loss on trading securities		(4,990	)		—			(482	)		(50	)		(5,522	)
Other		1,497			(17	)		330			137			1,947

Total revenue	$	589,487			379,450			72,468			51,880			1,093,285

Net income (loss)	$	4,909			(3,200	)		8,409			426			10,544

Claims incurred	$	501,980			358,412			32,446			7,563			900,401

Operating expenses	$	75,185			27,587			29,928			42,765			175,465

Depreciation expense, included in operating expenses	$	2,786			—			302			93			3,181

Interest expense	$	3,299			692			—			899			4,890

Income tax expense (benefit)	$	4,114			(4,041	)		1,685			227			1,985


*		Includes a business segment which is not required to be reported separately. This column includes the results of operations for the

		life and disability insurance segment as well as the data processing services organization and the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments

	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance		Other *		Total



NINE MONTHS ENDED SEPTEMBER 30, 2004
Premiums earned, net	$	531,686			360,979			62,549		12,254		967,468
Amounts attributable to self-funded arrangements		135,127			—			—		—		135,127
Less: Amounts attributable to claims under self-funded arrangements		(125,992	)		—			—		—		(125,992	)
Intersegment premiums earned/service revenues		2,887			—			—		35,464		38,351

		543,708			360,979			62,549		47,718		1,014,954
Net investment income		9,196			2,401			5,594		2,043		19,234
Realized gain (loss) on sale of securities		5,616			128			551		690		6,985
Unrealized gain (loss) on trading securities		(2,239	)		—			209		162		(1,868	)
Other		184			(24	)		1,915		182		2,257

Total revenue	$	556,465			363,484			70,818		50,795		1,041,562


Net income	$	11,133			4,752			7,901		990		24,776


Claims incurred	$	473,042			329,961			34,135		8,802		845,940


Operating expenses	$	67,822			26,420			27,897		39,622		161,761


Depreciation expense, included in operating expenses	$	2,837			—			332		91		3,260


Interest expense	$	918			262			—		735		1,915


Income tax expense	$	3,550			2,089			885		646		7,170


*		Includes a business segment which is not required to be reported separately. This column includes the results of operations for the life and disability insurance segment as well as the data processing services organization and the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)


							Operating Segments

	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance			Other *			Total

AS OF SEPTEMBER 30, 2005

Segment assets	$	455,379			80,736			298,473			96,127			930,715

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	(8,480	)		(828	)		(2,289	)		(1,139	)		(12,736	)
Net change in minimum pension liability		(553	)		—			(41	)		(142	)		(736	)

AS OF DECEMBER 31, 2004

Segment assets	$	443,710			84,627			282,393			90,713			901,443

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	523			(151	)		867			(156	)		1,083
Net change in minimum pension liability		313			—			(60	)		(314	)		(61	)


*		Includes a business segment which is not required to be reported separately. This column includes the life and disability insurance segment as well as the data processing services organization and the third-party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS


	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004

TOTAL REVENUE

Total revenues for reportable segments	$	356,678			335,048			1,041,405			990,767
Total revenues for other segments		17,198			17,426			51,880			50,795

		373,876			352,474			1,093,285			1,041,562
Elimination of intersegment earned premiums		(1,080	)		(906	)		(3,185	)		(2,887	)
Elimination of intersegment service revenues		(12,473	)		(11,611	)		(37,550	)		(35,464	)
Unallocated amount — revenues from external sources		135			134			448			414

		(13,418	)		(12,383	)		(40,287	)		(37,937	)

Consolidated total revenue	$	360,458			340,091			1,052,998			1,003,625

NET INCOME

Net income (loss) for reportable segments	$	11,234			10,725			10,118			23,786
Net income (loss) for other segments		339			1,253			426			990

		11,573			11,978			10,544			24,776

Elimination of TSM charges:
Rent expense		1,666			1,445			4,907			4,328
Interest expense		330			194			886			511

		1,996			1,639			5,793			4,839

Unallocated amounts related to TSM:
General and administrative expenses	(1,223)				(1,081	)		(3,964	)		(3,807	)
Income tax expense		(101	)		(85	)		(227	)		(47	)
Interest expense		(507	)		(491	)		(1,520	)		(1,446	)
Other revenues from external sources	135				134			448			414

		(1,696	)		(1,523	)		(5,263	)		(4,886	)

Consolidated net income	$	11,873			12,094			11,074			24,729

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	Three months ended September 30, 2005
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	299,577		—			299,577
Operating expenses		58,564		(13,996	)		44,568
Depreciation expense		1,242		271			1,513
Interest expense		1,703		177			1,880
Income tax expense		2,459		101			2,560


	Three months ended September 30, 2004
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	283,946		—			283,946
Operating expenses		53,297		(12,881	)		40,416
Depreciation expense		1,059		281			1,340
Interest expense		721		297			1,018
Income tax expense		2,532		85			2,617


	Nine months ended September 30, 2005
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	900,401		—			900,401
Operating expenses		175,465		(41,678	)		133,787
Depreciation expense		3,181		820			4,001
Interest expense		4,890		634			5,524
Income tax expense		1,985		227			2,212


	Nine months ended September 30, 2004
	Segment					Consolidated
	Totals		Adjustments *			Totals

Claims incurred	$	845,940		—			845,940
Operating expenses		161,761		(38,872	)		122,889
Depreciation expense		3,260		841			4,101
Interest expense		1,915		935			2,850
Income tax expense		7,170		47			7,217


*		Adjustments represent TSM operations and the elimination of intersegment charges.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	September 30,			December 31,
	2005			2004

ASSETS

Total assets for reportable segments	$	834,588			810,730
Total assets for other segments		96,127			90,713

		930,715			901,443

Elimination entries — intersegment receivables and others		(38,003	)		(21,717	)

Unallocated amounts related to TSM:
Parent cash, cash equivalents and investments		11,410			12,236
Parent net property and equipment		25,009			25,577
Parent other assets		6,559			2,118

		42,978			39,931

Consolidated assets	$	935,690			919,657

OTHER SIGNIFICANT ITEMS


	As of September 30, 2005
	Segment						Consolidated
	Totals			Adjustments *			Totals

Significant noncash item — net change in unrealized gain on securities available for sale	$	(12,736	)		(94	)		(12,830	)
Net change in minimum pension liability		(736	)		(19	)		(755	)


	As of December 31, 2004
	Segment					Consolidated
	Totals			Adjustments *		Totals

Significant noncash items:
Net change in unrealized gain on securities available for sale	$	1,083			18		1,101
Net change in minimum pension liability		(61	)		58		(3	)


*		Adjustments represent principally TSM operations and the elimination of intersegment charges.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands)
(Unaudited)

(3) Investment in Securities

The amortized cost for debt securities and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and held-to-maturity securities by major security type and class of security at September 30, 2005 and December 31, 2004, were as follows:

September 30, 2005 (Unaudited)

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Equity securities

76,246

11,415

(3,410

)

84,251

September 30, 2005 (Unaudited)

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities available for sale:

Fixed maturities

518,992

1,042

(6,956

)

513,078

Equity securities

38,621

16,851

(1,017

)

54,455

557,613

17,893

(7,973

)

567,533

September 30, 2005 (Unaudited)

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

22,146

248

(530

)

21,864

December 31, 2004

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Trading securities:

Fixed maturities

70,668

2,045

(290

)

72,423

Equity securities

74,824

13,496

(1,724

)

86,596

145,492

15,541

(2,014

)

159,019

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

December 31, 2004

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities available for sale:

Fixed maturities

444,135

2,659

(2,157

)

444,637

Equity securities

34,309

24,913

(36

)

59,186

478,444

27,572

(2,193

)

503,823

December 31, 2004

Gross

Amortized

unrealized

Estimated fair

cost

gains

losses

value

Securities held to maturity:

Fixed maturities

14,280

247

(24

)

14,503

Investment in securities at September 30, 2005 are mostly comprised of U.S. Treasury securities and obligations of U.S. government instrumentalities (60.2%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (7.5%), obligations of the government of Puerto Rico and its instrumentalities (8.2%) and obligations of states and political subdivisions (0.1%). The remaining 24.0% of the investment portfolio is comprised of corporate debt, equity securities and mutual funds.

The Corporation regularly monitors the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating the length of time and the extent to which cost exceeds fair value, the prospects and financial condition of the issuer, and the Corporation’s intent and ability to retain the investment to allow for recovery in fair value, among other factors. This process is not exact and further requires consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its fair value solely due to changes in interest rates, impairment may not be appropriate. If after monitoring and analyzing, the Corporation determines that a decline in the estimated fair value of any available-for-sale or held-to-maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The impairment is charged to operations and a new cost basis for the security is established. During the nine-month period ended September 30, 2005 the Corporation recognized an other than temporary impairment amounting to $1,036 on one of its equity securities classified as available for sale.

The unrealized losses on investments were mainly caused by interest rate increases. Because the Corporation has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

(4) Premiums and Other Receivables

Premiums and other receivables as of September 30, 2005 and December 31, 2004 were as follows:


	(Unaudited)
	September 30,		December 31,
	2005		2004

Premiums	$	48,948		45,451
Self-funded group receivables		23,479		17,717
FEHBP		8,211		9,346
Accrued interest		5,756		5,080
Reinsurance recoverable on paid losses		32,839		30,496
Other		12,801		16,406

		132,034		124,496

Less allowance for doubtful receivables:
Premiums		7,198		6,456
Other		4,430		4,717

		11,628		11,173

Total premiums and other receivables	$	120,406		113,323

(5) Claim Liabilities

The activity in the total claim liabilities for the three months ended September 30, 2005 and 2004 is as follows:


	(Unaudited)
	Three months ended September 30,
	2005			2004

Claim liabilities at beginning of period	$	300,697			280,388
Reinsurance recoverable on claim liabilities		(26,597	)		(21,605	)

Net claim liabilities at beginning of period		274,100			258,783

Incurred claims and loss-adjustment expenses:
Current period insured events		296,815			282,194
Prior period insured events		2,762			1,752

Total		299,577			283,946

Payments of losses and loss-adjustment expenses:
Current period insured events		287,921			277,953
Prior period insured events		18,728			10,057

Total		306,649			288,010

Net claim liabilities at end of period		267,028			254,719
Reinsurance recoverable on claim liabilities		27,034			22,742

Claim liabilities at end of period	$	294,062			277,461

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

The activity in the total claim liabilities for the nine months ended September 30, 2005 and 2004 is as follows:


	(Unaudited)
	Nine months ended September 30,
	2005			2004

Claim liabilities at beginning of period	$	279,325			247,920
Reinsurance recoverable on claim liabilities		(26,555	)		(19,357	)

Net claim liabilities at beginning of period		252,770			228,563

Incurred claims and loss-adjustment expenses:
Current period insured events		889,548			841,301
Prior period insured events		10,853			4,639

Total		900,401			845,940

Payments of losses and loss-adjustment expenses:
Current period insured events		703,068			664,276
Prior period insured events		183,075			155,508

Total		886,143			819,784

Net claim liabilities at end of period		267,028			254,719
Reinsurance recoverable on claim liabilities		27,034			22,742

Claim liabilities at end of period	$	294,062			277,461

As a result of changes in estimates of insured events in prior periods, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred. The amount in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 2005 and 2004 is due to an unfavorable development of the claim liabilities attributed to higher than expected cost per service and utilization trends.

(6) Comprehensive Income

The accumulated balances for each classification of comprehensive income are as follows:

(Unaudited)

Accumulated

Unrealized

Minimum

other

gains on

pension

Cash flow

comprehensive

securities

liability

hedges

income

BALANCE AT JANUARY 1

22,049

(5,825

)

(86

)

16,138

Net current period change

(12,830

)

(755

)

390

(13,195

)

BALANCE AT SEPTEMBER 30

9,219

(6,580

)

304

2,943

(7) Income Taxes

Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.

(8) Pension Plan

The components of net periodic benefit cost for the three months and nine months ended September 30, 2005 and 2004 were as follows:


	(Unaudited)						(Unaudited)
	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004

Components of net periodic benefit cost:
Service cost	$	1,186			1,025			3,516			3,095
Interest cost		1,038			961			3,106			2,819
Expected return on assets		(868	)		(637	)		(2,579	)		(1,889	)
Amortization of prior service cost		12			12			36			36
Amortization of actuarial loss		505			426			1,500			1,228

Net periodic benefit cost	$	1,873			1,787			5,579			5,289

Employer contributions

The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2004 that it expected to contribute $7,900 to its pension program in 2005. As of September 30, 2005, the Corporation has contributed $8,821 to the pension program. The Corporation currently does not anticipate making further contributions to fund the pension program in 2005.

(9) Net Income Available to Stockholders and Net Income per Share

The Corporation presents only basic earnings per share, which amount consists of the net income that is available to common stockholders divided by the weighted-average number of common shares outstanding for the period.

The following table sets forth the computation of basic net income per share for the three months and nine months ended September 30, 2005 and 2004:

(Unaudited)

Three months ended

Nine months ended

September 30,

2005

2004

2005

2004

Numerator for basic earnings per share:

Net income available to stockholders

11,873

12,094

11,074

24,729

Denominator for basic earnings per share:

Weighted average of outstanding common shares

8,904

8,883

8,904

8,930

Basic net income per share

1,333

1,361

1,244

2,769

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

(10) Contingencies

	(a)		As of September 30, 2005, the Corporation is defendant in various lawsuits arising in the ordinary course of business. Management believes, based on the opinion of its legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position and results of operations of the Corporation.

	(b)		Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an administrative proceeding before the Puerto Rico Insurance Commissioner (the Commissioner of Insurance) against Triple-S, Inc. (TSI) and TSM alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSI’s common stock due to the fact that the ultimate purchasers of said shares were selected on an improper and selective basis by the Corporation in violation of the Puerto Rico Insurance Code. The plaintiffs alleged that they were illegally excluded from participation in the sale of shares by TSI due to the illegally selective nature of the sale of shares and that, consequently the sale of shares should be eliminated.

On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. TSI contested such orders through an administrative and judicial review process. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance issued a pronouncement providing further clarification of the content and effect of the order. This order also required that all corporate decisions undertaken by TSI through the vote of its stockholders of record, be ratified in a stockholders’ meeting or in a subsequent referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such decisions. Furthermore, on November 19, 2000, TSM held a special stockholders’ meeting, where a ratification of these decisions was undertaken except for the resolution related to the approval of the reorganization of TSI and its subsidiaries. This resolution did not reach the two thirds majority required by the order because the number of shares that were present and represented at the meeting was below such amount (total shares present and represented in the stockholders’ meeting was 64%). As stipulated in the order, TSM began the process to conduct a referendum among its stockholders in order to ratify such resolution. The process was later suspended because upon further review of the scope of the order, the Commissioner of Insurance issued an opinion in a letter dated January 8, 2002 which indicated that the ratification of the corporate reorganization was not required.

In another letter dated March 14, 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s order of December 6, 1996 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by the Commissioner of Insurance.

Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals issued an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify TSI’s corporate reorganization and the change of name of TSI from Seguros de Servicio de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico Circuit Court of Appeals based its decision on administrative and procedural issues directed at the Commissioner of Insurance. The Commissioner of Insurance filed a motion of reconsideration with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSI and TSM also filed a motion of reconsideration.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of Insurance’s Motion for Reconsideration and ordered the plaintiffs to reply to TSI’s and TSM’s Motion of Reconsideration.

On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSI’s and TSM’s Motion of Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of Insurance had the authority to waive the celebration of a referendum to ratify TSI’s reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares annulled were not decisive, was approved by the stockholders.

On June 26, 2003, the two stockholders presented a writ of certiorari before the Supreme Court of Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The writ was issued by the Supreme Court on August 22, 2003, when it ordered the Puerto Rico Circuit Court of Appeals to transmit the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court of Puerto Rico. It is the opinion of management that the corporate reorganization as approved is in full force and effect.

	(c)		On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their ownership rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s board of directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in the complaint, eight counts were dismissed for failing to assert an actionable injury; six of them for lack of standing and two for failing to plead with sufficient particularity in compliance with the Rules. All shareholder allegations, including those described above, were dismissed in the Opinion and Order. The remaining four counts were found standing, in a limited way, in the Opinion and Order. Finally, the Court ordered that by March 24, 2005 one of the counts left standing be replead to conform to the Rules and that by March 28, 2005 a proposed schedule for discovery and other submissions be filed. The count was amended and accepted by the Court, the discovery schedule was submitted. The parties just finished class certification discovery. Plaintiffs have until November 30, 2005 to file their briefs in support of their request for class certification. Defendants intend to file their opposition by December 15, 2005. This case is still pending before the United States District Court for the District of Puerto Rico.

	(d)		On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior Section, alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, anti-monopolistic practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the United States District Court for the

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counterclaim and filed several motions to dismiss this claim. On February 18, 2005 the plaintiffs informed their intention to amend the complaint and the Court granted then 45 days to do so and 90 days to defendants to file the corresponding motion to dismiss. 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 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’ motions to dismiss. Defendants will reply once the oppositions to all of the defendant’s motions are notified.

(e)

On May 22, 2003 a putative class action suit was filed by Kenneth A. Thomas, M.D. and Michael Kutell, M.D., on behalf of themselves and all other similarly situated and the Connecticut State Medical Society against the Blue Cross and Blue Shield Association (BCBSA) and multiple other insurance companies, including TSI. The case is pending before the United States District Court for the Southern District of Florida, Miami District.

The individual plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which they allege have resulted in a loss of their property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered, medically necessary services they render.

The class action complaint alleges that the health care plans are the agents of BCBSA licensed entities, and as such have committed the acts alleged above and acted within the scope of their agency, with the consent, permission, authorization and knowledge of the others, and in furtherance of both their interest and the interests of other defendants.

Management believes that TSI was brought to this litigation for the sole reason of being associated with the BCBSA. However, on June 18, 2004, the plaintiffs moved to amend the complaint to include the Colegio de Médicos Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

TSI, along with the other defendants, moved to dismiss the complaint under multiple grounds, including but not limited to arbitration and applicability of the McCarran Ferguson Act.

The Court will set a hearing to discuss the parties’ submissions by the week of December 5, 2005.

(f)

On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD, and Orlando Armstrong, MD, on behalf of themselves and all other similarly situated and the American Podiatric Medical Association, Florida Chiropractic Association, California Podiatric Medical Association, Florida Podiatric Medical Association, Texas Podiatric Medical Association, and Independent Chiropractic Physicians, against the BCBSA and multiple other insurance companies, including TSI, all members of the BCBSA. The case is still pending before the United States District Court for the Southern District of Florida, Miami District.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

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.

On June 25, 2004, the plaintiffs amended the complaint but the allegations against TSI did not vary.

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 will set a hearing to discuss the parties’ submissions by the week of December 5, 2005.

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.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

(11) Reconciliation of Net Income to Net Cash Provided by (Used in) Operating Activities

A reconciliation of net income to net cash provided by (used in) operating activities is as follows:


	(Unaudited)
	Nine months ended
	September 30,
	2005			2004

Net income	$	11,074			24,729

Adjustments to reconcile net income to net cash provided by (used in) operating expenses:

Depreciation and amortization		4,001			4,101
Amortization of investment discounts		400			801
Accretion in value of securities		(474	)		(327	)
Increase in provision for doubtful receivables		455			2,141
Increase (decrease) in net deferred taxes		(339	)		33
Gain on sale of securities		(6,534	)		(6,985	)
Unrealized loss of trading securities		5,522			1,868
Proceeds from trading securities sold:
Fixed maturities		102,667			44,196
Equity securities		19,692			19,686
Acquisition of securities in trading portfolio:
Fixed maturities		(30,502	)		(45,595	)
Equity securities		(17,749	)		(32,336	)
Loss on sale of property and equipment		(1	)		(12	)
(Increase) decrease in assets:
Premiums receivable		(8,124	)		(6,496	)
Accrued interest receivable		(676	)		(677	)
Reinsurance receivable		(2,343	)		(3,724	)
Other receivables		4,185			(1,532	)
Deferred policy acquisition costs		(1,186	)		(2,004	)
Prepaid income tax		(4,254	)		(4,058	)
Other assets		(6,881	)		(4,152	)
Increase (decrease) in liabilities:
Claims processed and incomplete		(3,726	)		623
Unreported losses		18,573			28,489
Unpaid loss-adjustment expenses		(110	)		429
Unearned premiums		7,986			746
Annuity contracts		900			734
Liability to FEHBP		(1,643	)		1,362
Accounts payable and accrued liabilities		(5,814	)		1,198
Income tax payable		(1,827	)		(32,222	)

Net cash provided by (used in) operating activities	$	83,272			(8,984	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations of Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) for the three months and nine months ended September 30, 2005. Therefore, the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2004.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q and other publicly available documents of the Corporation may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning the financial condition, results of operations and business of the Corporation. These statements are not historical, but instead represent the Corporation’s belief regarding future events, any of which, by their nature, are inherently uncertain and outside of the Corporation’s control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that the Corporation’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. The Corporation is not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.

Structure of the Organization

TSM is incorporated under the laws of the Commonwealth of Puerto Rico. It is the holding company of several entities, through which it offers a wide range of insurance products and services. These insurance products and services are offered through the following TSM wholly-owned subsidiaries:

	•		TSI, a health insurance company serving two major segments: the Commercial Program and the Commonwealth of Puerto Rico Healthcare Reform Program (the Healthcare Reform);

	•		Seguros Triple-S, Inc. (STS), a property and casualty insurance company; and

	•		Seguros de Vida Triple-S, Inc. (SVTS), a life and disability insurance and annuity products company.

In addition to the insurance subsidiaries mentioned above, TSM has the following other wholly-owned subsidiaries: Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TCI). ISI provides data processing services to TSM and its subsidiaries. TCI is currently engaged as the third-party administrator in the administration of the Corporation’s Healthcare Reform segment. It also provides healthcare advisory services and other health-related services to TSI and other third parties.

Recent Developments

Puerto Rico’s Economy

The fiscal crisis experienced by the government of Puerto Rico since the prior year has led the government to immerse itself in an analysis of different alternatives to increase its revenues, including the possibility of a tax reform. As a temporary measure, in order to complete the tax reform, in August 2005, the government increased the tax rate of corporations by 2.5 percentage points for a period of two years. The temporary increase in the tax rate is effective January 1^st, 2005. The temporary increase in the tax rate had the effect of increasing the Corporation’s income tax expense for the nine months ended September 30, 2005 by approximately $300 thousand.

Healthcare Reform Segment

All Reform contracts expired on June 30, 2005. The Reform contracts renewal negotiation process was scheduled to begin during the month of February 2005. However, during that month TSI was notified of the government of Puerto Rico’s (the government) interest in extending the contracts until December 31, 2005 or June 30, 2006. During the month of April 2005, the government announced that each contract would be extended for a period of twelve (12) months, with an option to cancel on December 31, 2005. The exercise of the option to cancel on December 2005 would have to be determined by October 2005. TSI agreed to this request and submitted proposals with modified contract terms, including premiums. The negotiation of the terms of the contracts’ extension commenced during the month of April 2005 and concluded on October 2005. As a result of the negotiation for the referred extension, premium rates for the eleven-month contract year ending June 30, 2006 were increased by approximately 5.8%. As of this date, TSI has not received a notification from the government canceling the contracts as of December 2005.

The government of Puerto Rico has a plan to move its Medicare (A and B) eligible membership from the Reform program to a Medicare Advantage plan (known as Medicare Platino) where the government will assume the premiums rather than the insured. The government-sponsored Medicare Advantage plan will offer all of the Medicare benefits plus other benefits, as determined by the government. The government is currently in the process of evaluating the proposals submitted by insurance companies in order to select those that can participate in this plan. All of the Reform members that qualify can begin moving to the government-sponsored plan beginning in January 2006. This situation could have the effect of decreasing the segment’s membership; however the extent cannot be estimated at the moment.

Adoption of Accounting Standard

SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, was issued in December 2004. This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The Corporation is required to adopt SFAS No. 153 on January 1, 2006. The adoption of SFAS No. 153 is not expected to have an impact on the Corporation’s financial statements.

SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3, was issued in May 2005. This statement changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB Opinion No. 20 required that most voluntary changes in accounting principle be recognized by including in the net income of the period the change the cumulative effect of changing to a new accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The adoption of SFAS No. 153 is not expected to have an impact on the Corporation’s financial statements.

The Corporation is required to adopt SFAS No. 154 on January 1, 2006. The adoption of SFAS No. 154 is not expected to have an impact on the Corporation’s financial statements.

General Information

Substantially all of the revenues of the Corporation are generated from premiums earned and investment income. Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. A portion of the claims incurred for each period consists of a management and actuarial estimate of claims incurred but not reported to the segment during the period. Each segment’s results of operations depend largely on their ability to accurately predict and effectively manage these claims. Operating expenses comprise general, selling, commission, depreciation and payroll and payroll related expenses.

The Corporation (on a consolidated basis and for each reportable segment), along with most insurance entities, uses the loss ratio, the expense ratio and the combined ratio as measures of performance. The loss ratio is computed as claims incurred divided by the premiums earned, net and fee revenue. The expense ratio is computed as operating expenses divided by the premiums earned, net and fee revenue. The combined ratio is the sum of the loss ratio and the expense ratio. These ratios are relative measurements that describe, for every $100 of premiums earned, net and fee revenue, the costs of claims and operating expenses. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting loss.

Consolidated Operating Results

The analysis in this section provides an overall view of the consolidated statements of operations and key financial information. Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2005			2004			2005			2004

Consolidated earned premiums, net and fee revenue	$	348,962			329,045			1,028,481			976,603

Consolidated claims incurred	$	299,577			283,946			900,401			845,940
Consolidated operating expenses		44,568			40,416			133,787			122,889

Consolidated operating costs	$	344,145			324,362			1,034,188			968,829

Consolidated loss ratio		85.8	%		86.3	%		87.5	%		86.6	%
Consolidated expense ratio		12.8	%		12.3	%		13.0	%		12.6	%

Consolidated combined ratio		98.6	%		98.6	%		100.6	%		99.2	%

Consolidated net investment income	$	7,158			6,516			21,439			19,491
Consolidated realized gain on sale of securities		1,857			4,237			6,534			6,985
Consolidated unrealized gain (loss) on trading securities		905			(435	)		(5,522	)		(1,868	)

Total consolidated net investment income	$	9,920			10,318			22,451			24,608

Consolidated income tax expense	$	2,560			2,617			2,212			7,217

Consolidated net income	$	11,873			12,094			11,074			24,729

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Consolidated earned premiums, net and fee revenue for the three months ended September 30, 2005 presented an increase of $19.9 million, or 6.1%, when compared to the consolidated earned premiums, net and fee revenue for the three months ended September 30, 2004. This fluctuation is attributed to the following:

•

The earned premiums, net and fee revenue corresponding to the Health Insurance - Commercial segment increased by $12.2 million, or 6.7%, during the period. This increase is attributed to an increase in average enrollment together with increases in premium rates during the period.

•

The earned premiums net of the Health Insurance — Healthcare Reform segment presented an increase of $8.0 million, or 6.5% during this period. The fluctuation in the earned premiums, net of this segment is attributed to an increase in its average enrollment as well as to an increase in premium rates effective August 1, 2005.

Consolidated claims incurred for the three months ended September 30, 2005 increased by $15.6 million, or 5.5%, when compared to the claims incurred for the three months ended September 30, 2004. This fluctuation is mostly due to the increase in the claims incurred of the Health Insurance — Healthcare Reform segment during the three months ended September 30, 2005. The claims incurred for this particular segment during the 2005 period presented an increase of $10.4 million, or 9.3%, when compared to the 2004 period. This fluctuation is mostly the result of higher utilization trends and costs experienced during the period, particularly in the risks assumed by the segment as well as to the segment’s increased volume of business.

The consolidated loss ratio reflected a decrease of 0.5 percentage points during the 2005 period. This fluctuation is mainly due to a decrease in the loss ratio of the Health Insurance — Commercial and the Property and Casualty Insurance segments of 1.5 and 10.6 percentage points, respectively, net of an increase in the loss ratio of the Health Insurance — Healthcare Reform segment of 2.4 percentage points.

Consolidated operating expenses for the three months ended September 30, 2005 increased by $4.2 million, or 10.3%, when compared to the operating expenses for the three months ended September 30, 2004. The increase in the consolidated operating expenses is mainly attributed to the segments increased volume of business during the 2005 period. In addition, the 2005 quarter reflects expenses amounting to $1.8 million related to the new Medicare Advantage program of the Health Insurance — Commercial segment. The 2004 quarter also includes a Compulsory Vehicle Liability Insurance Joint Underwriting Association good experience refund amounting to $840 thousand, which was recorded as a decrease to the operating expenses of that period. No experience refund from the Compulsory Vehicle Liability Insurance Joint Underwriting Association was received in the 2005 period. The consolidated expense ratio increased by 0.5 percentage points during the same period.

The consolidated realized gain on sale of securities is the result of the sound and timely management of the investment portfolio in accordance with corporate investment policies, and from the normal portfolio turnover of the trading and available for sale securities. The decrease of $2.4 million in the realized gain during the third quarter of the year 2005 when compared to the 2004 quarter is mostly due to the sale of common stocks of Popular Inc. in the 2004 period, which generated a realized gain of approximately $3.9 million, net of losses realized in the Corporation’s trading portfolios.

The unrealized gain (loss) on trading securities is related to investments held by the segments in equity securities and corporate bonds. The unrealized gain of $905 thousand experienced during the 2005 period is attributed to gains in the portfolios held by the segments in equity securities. The equity securities portfolios are designed to replicate the Standard & Poor’s 500 Index, the Russell 1000 Growth Index and the Russell 1000 Value Index. These indexes experienced positive returns in the 2005 quarter.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Consolidated earned premiums, net and fee revenue for the nine months ended September 30, 2005 increased by $51.9 million or 5.3% when compared to the consolidated earned premiums, net and fee revenue for the same period of last year. This increase is mostly due to the following:

•

The earned premiums, net and fee revenue corresponding to the Health Insurance - Commercial segment increased by $33.8 million, or 6.2%, during this period. An increase in the average

enrollment together with increases in premium rates account for the segment’s fluctuation in earned premiums and fee revenue for the period.

	•		The earned premiums, net corresponding to the Health Insurance — Healthcare Reform segment increased by $16.3 million, or 4.5%, during this period. This increase is the net result of increases in premium rates and an increment in the average membership of the segment.

	•		The earned premiums, net of the Property and Casualty Insurance segment increased by $2.4 million, or 3.9%, during this period. This increase is mostly reflected in the premiums written for the commercial multi-peril and auto physical damage lines of business, net of a decrease in the premiums written for the dwelling business and an increase in premiums ceded.

Consolidated claims incurred for the nine months ended September 30, 2005 reflected an increase of $54.5 million, or 6.4%, when compared to the claims incurred for the nine months ended September 30, 2004. The consolidated loss ratio reflected an increase of 0.9 percentage points during this period. This fluctuation is due to the following:

	•		During the 2005 period the claims incurred for the Health Insurance -Healthcare Reform segment increased by $28.5 million, or 8.6%. The loss ratio of this segment increased 3.6 percentage points during the 2005 period. The fluctuation noted in the claims incurred and loss ratio results mostly from higher utilization trends, particularly in risks assumed by the segment.

	•		The claims incurred for the Health Insurance — Commercial segment increased by $28.9 million, or 6.1%, during the 2005 period. This fluctuation is basically attributed to the segment’s increased volume of business.

The consolidated operating expenses presented an increase of $10.9 million, or 8.9%, during the 2005 period. This fluctuation is mostly due to the segments’ increased volume of business during this period and to expenses amounting to $6.8 million related to the launching of the new Medicare Advantage program by the Health Insurance — Commercial segment. The consolidated expense ratio for the nine months ended September 30, 2005 increased by 0.4 percentage points when compared to the consolidated expense ratio for the same period of the prior year.

The unrealized loss on trading securities is related to investments held by segments in equity securities and corporate bonds. The unrealized loss experienced during the 2005 period is mostly attributed to losses in the portfolios held by segments in equity securities that replicate the Standard & Poor’s 500 Index, the Russell 1000 Growth Index and the Russell 1000 Value Index. These indexes experienced a positive return in the 2005 period, however; the Corporation has recorded unrealized losses since the portfolio managers have not been able to replicate the performance of the indexes in the portfolios. In addition, during the second quarter of 2005, the Corporation sold certain investments with unrealized gains within the equity securities portfolio. This caused the realization of such gains, thus reducing the unrealized gain of the portfolios.

The consolidated income tax expense for the nine months period ended September 30, 2005 decreased by $5.0 million when compared to the same period of the prior year. This decrease is mostly due to a decrease in the taxable income when comparing the nine months ended September 30, 2005 with the corresponding 2004 period.

Health Insurance — Commercial Program Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2005			2004			2005			2004

Average enrollment:
Corporate accounts		308,551			303,087			309,839			302,926
Self-funded employers		150,783			144,921			149,643			139,224
Individual accounts		87,015			84,647			85,707			84,687
Federal employees		48,856			51,199			49,412			52,285
Local government employees		34,790			38,613			35,876			41,459

Total enrollment		629,995			622,467			630,477			620,581

Earned premiums	$	190,990			178,813			566,954			533,824
Amounts attributable to self-funded arrangements		53,633			46,301			158,566			135,876
Less: Amounts attributable to claims under self-funded arrangements		(50,190	)		(42,925	)		(148,032	)		(125,992	)

Earned premiums and fee revenue	$	194,433			182,189			577,488			543,708

Claims incurred	$	164,831			157,186			501,980			473,042
Operating expenses		25,046			23,209			75,185			67,822

Total underwriting costs	$	189,877			180,395			577,165			540,864

Underwriting income	$	4,556			1,794			323			2,844

Loss ratio		84.8	%		86.3	%		86.9	%		87.0	%
Expense ratio		12.9	%		12.7	%		13.0	%		12.5	%

Combined ratio		97.7	%		99.0	%		99.9	%		99.5	%

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Earned premiums and fee revenue for the three months ended September 30, 2005 increased by $12.2 million, or 6.7%, when compared to the earned premiums and fee revenue for the three months ended September 30, 2004. This increase in earned premiums and fee revenue is the result of the following:

	•		In the 2005 period, the average enrollment of self-funded groups and rated corporate accounts businesses presented an increase of 5,862 members, or 4.0%, and 5,464, or 1.8%, respectively, which is mostly attributed to new groups acquired throughout 2005. This increase was offset by a decrease in average enrollment in the Local government employees and Federal employees of 3,823, or 9.9%, and 2,343, or 4.6%, respectively.

	•		Premiums generated by the segment’s Medicare Advantage program amounted to $8.9 million during the 2005 quarter. This program was launched in the year 2005; therefore no premiums were reflected in the three months ended September 30, 2004.

	•		On average, the segment increased premium rates by approximately 6.4% during the 2005 quarter.

Claims incurred in the 2005 period presented an increase of $7.6 million, or 4.9%, when compared to the same period in 2004 that is attributed to the segment’s increased volume of business. The loss ratio decreased by 1.5 percentage points, from 86.3% in the 2004 period to 84.8% in the 2005 period. The fluctuation in the loss ratio is attributed to an increase in claims trends experienced by the segment in the third quarter of 2004, particularly in the cost per service and utilization of services. The increase in costs was mostly noted in the cost of prescription drugs, which was the main driver of the increase in costs experienced by the segment in the 2004 quarter. This increased claims trends, which required an increase in the actuarial reserves in the 2004 period of $2.8 million, was not experienced in the 2005 period.

Operating expenses for the three months ended September 30, 2005 increased by $1.8 million, or 7.9%, when compared to the three months ended September 30, 2004. The segment’s expense ratio increased 0.2

percentage points in the same period. These fluctuations are primarily attributed to approximately $1.9 million of expenses related to the new Medicare Advantage program.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Earned premiums and fee revenue for the nine months ended September 30, 2005 reflects an increase of $33.8 million, or 6.2%, when compared to the earned premiums and fee revenue for the nine months ended September 30, 2004. This increase is the result of the following:

	•		Average enrollment for the nine months ended September 30, 2005 increased by 9,896 members, or 1.6%, when compared to the enrollment as of the same period of 2004. The increase in average enrollment is mostly reflected in self-funded employers and corporate accounts businesses, which membership increased by 10,419 members, or 7.5%, and 6,913 members, or 2.3%, during this period, respectively. The 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, reflected a decrease in membership of 5,583, or 13.5%, and 2,873, or 5.5%, during this period, respectively.

	•		Premiums for the segment’s Medicare Advantage program, which was launched in the 2005 period, amounted to $17.4 million. No Medicare Advantage premiums were reflected in the nine months ended September 30, 2004.

	•		On average, this segment increased premiums rates in corporate accounts groups by approximately 6.4% during the 2005 period.

Claims incurred during the nine months ended September 30, 2005 increased by $28.9 million, or 6.1%, when compared to the same period in 2004; this increase is mostly attributed to the segment’s increased volume of business. The segment’s loss ratio for the nine months ended September 30, 2005 decreased by 0.1 percentage points when compared to the loss ratio for the nine months ended September 30, 2004.

The operating expenses for the nine months ended September 30, 2005 reflect an increase of $7.4 million, or 10.9%, when compared to the 2004 period. This increase is due to expenses amounting to $4.9 million related to the launching of the new Medicare Advantage program as well as to the normal inflationary effect on operating costs. The expense ratio for the nine months ended September 30, 2005 experienced an increase of 0.5 percentage points compared to the nine months ended September 30, 2004.

Health Insurance — Healthcare Reform Program Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2005			2004			2005			2004

Average enrollment:
North area		236,713			231,610			234,799			233,063
Metro-north area		221,522			216,093			219,310			217,831
Southwest area		163,601			162,783			163,567			164,744

		621,836			610,486			617,676			615,638

Earned premiums	$	129,933			121,980			377,270			360,979

Claims incurred	$	121,501			111,141			358,412			329,961
Operating expenses		8,951			8,618			27,587			26,420

Total underwriting costs	$	130,452			119,759			385,999			356,381

Underwriting income (loss)	$	(519)			2,221			(8,729	)		4,598

Loss ratio		93.5	%		91.1	%		95.0	%		91.4	%
Expense ratio		6.9	%		7.1	%		7.3	%		7.3	%

Combined ratio		100.4	%		98.2	%		102.3	%		98.7	%

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Earned premiums for the three months ended September 30, 2005 increased by $8.0 million, or 6.5%, when compared to the earned premiums for the same period of last year. This increase is mostly the result of the following:

	•		The average enrollment of the segment during the 2005 quarter increased by 11,350 members, or 1.9%, when compared to the average enrollment during the 2004 quarter, particularly in the membership of the Metro-north and North areas.

	•		Premium rates were increased by approximately 5.8% during the Healthcare Reform contract renegotiation process. New premium rates were effective August 1^st, 2005 for the eleven-month period ending June 30, 2006.

Claims incurred during the three months ended September 30, 2005 presented an increase of $10.4 million, or 9.3%, when compared to the 2004 period. The loss ratio presented an increase of 2.4 percentage points when comparing the 2005 and 2004 periods. The fluctuation results mostly from higher utilization trends and costs experienced during the three months ended September 30, 2005, particularly in the risks assumed by the segment, such as cardiovascular services, dialysis and obstetrics, among others, as well as to the segment’s increased volume of business.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Earned premiums of the Healthcare Reform segment for the nine months ended September 30, 2005 increased by $16.3 million, or 4.5%, when compared to the same period of 2004. This increase is the result of the net effect of the following:

	•		Premium rates were increased by approximately 4.4% during the Healthcare Reform contract renegotiation process for the twelve-month period ended on June 30, 2005. In addition, effective August 1^st, 2005, premium rates were increased by approximately 5.8% for the eleven-month period ending June 30, 2006.

	•		The average monthly enrollment for this segment increased by 2,038 members, or 0.3%, when comparing the average enrollment for the nine months ended September 30, 2005 with the average enrollment for the nine months ended September 30, 2004.

Claims incurred during the nine months ended September 30, 2005 increased by $28.5 million, or 8.6%, when compared to the nine months ended September 30, 2004. The loss ratio increased by 3.6 percentage points when comparing the 2005 period with the 2004 period. This fluctuation results mostly from higher utilization trends and costs experienced during the 2005 period, particularly in risks assumed by the segment such as cardiovascular services, dialysis and obstetrics, among others, as well as to the segment’s increased volume of business.

Operating expenses presented an increase of $1.2 million, or 4.4%, when comparing the 2005 and 2004 periods. The expense ratio did not change during the 2005 period. This fluctuation is due to the normal inflationary effect in operational costs.

Property and Casualty Insurance Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2005			2004			2005			2004

Premiums written:
Commercial multiperil	$	16,738			13,286			45,414			38,806
Dwelling		6,595			8,150			19,387			21,686
Auto physical damage		5,734			4,961			15,323			13,852
Commercial auto liability		4,465			4,130			11,425			10,813
Other liability		2,377			2,379			6,732			6,860
Medical malpractice		2,785			2,808			5,410			5,325
All other		2,011			2,690			6,825			6,938

Total premiums written		40,705			38,404			110,516			104,280

Premiums ceded		(14,831	)		(14,182	)		(43,896	)		(39,912	)
Change in unearned premiums		(4,112	)		(2,665	)		(1,660	)		(1,819	)

Net premiums earned	$	21,762			21,557			64,960			62,549

Claims incurred	$	10,826			13,007			32,446			34,135
Operating expenses		10,479			8,469			29,928			27,897

Total underwriting costs	$	21,305			21,476			62,374			62,032

Underwriting income (loss)	$	457			81			2,586			517

Loss ratio		49.7	%		60.3	%		49.9	%		54.6	%
Expense ratio		48.2	%		39.3	%		46.1	%		44.6	%

Combined ratio		97.9	%		99.6	%		96.0	%		99.2	%

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Total premiums written for the three months period ended September 30, 2005 increased by $2.3 million, or 6.0%, when compared to the three months period ended September 30, 2004. This increase is mostly reflected in the premiums written for commercial multi-peril and auto physical damage policies, which experienced an increase in premiums of $3.5 million, or 26.0%, and of $773 thousand, or 15.6%, respectively, but offset by a decrease of $1.6 million, or 19.1%, in dwelling policies. Although the current market continues with strong and aggressive competition for commercial lines, with premium rates at lower levels than prior years, the segment’s focus on business retention and relationships with general agents has resulted in growth of premium volume in package polices. The segment has directed efforts to strengthen relationships with financial institutions in order to increase writings for dwelling policies. The reported decrease in premiums written for this line of business is attributed to policy retention efforts of competitors and a lower originations of mortgage loans.

Claims incurred reflect a reduction of $2.2 million, or 16.8% when compared to the 2004 period. The loss ratio experienced a decrease of 10.6 percentage points during the 2005 quarter when compared to the same quarter of the prior year. This fluctuation is mostly attributed to the fact that the 2004 period reflects the losses incurred for the damages caused by Tropical Storm Jeanne in September 2004. The net losses incurred for damages caused by Tropical Storm Jeanne amounted to $2.0 million. In addition, the segment’s emphasis on quality underwriting has resulted in better loss experience for this segment.

Operating expenses for the three months ended September 30, 2005 increased by $2.0 million, or 23.7%, when compared to the operating expenses for the three months ended September 30, 2004. The expense ratio increased by 8.9 percentage points during this period. The increase in operating expenses when compared to the three months ended September 30, 2004 is mostly due to an increase in information technology consulting fees, advertising expenses and net commission expense. In addition, during the 2004 quarter, the Compulsory Vehicle Liability Insurance Joint Underwriting Association distributed to the insurance companies underwriting auto property damages liability insurance in Puerto Rico a good experience refund. The refund received by the segment, amounting to $840 thousand, was recorded as a

decrease to the operating expenses of the 2004 period. No experience refund from the Compulsory Vehicle Liability Insurance Joint Underwriting Association was received in the 2005 period.

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Total premiums written for the nine months period ended September 30, 2005 increased by $6.2 million, or 6.0%, when compared to the nine months period ended September 30, 2004. This increase is mostly reflected in the premiums written for the commercial multi-peril and auto physical damage lines of business, which experienced an increase in premiums of $6.6 million, or 17.0%, and $1.5 million, or 10.6%, during this period, respectively. The commercial auto lines of business, including auto physical damage coverage, have been targeted for growth through new business. As previously stated, since 2004 the segment directed efforts with financial institutions to increase writings for dwelling policies. The decrease of $2.3 million, or 10.6%, in the premiums written of the dwelling business in the 2005 period is attributed to policy retention efforts of competitors and to lower originations of mortgage loans.

Premiums ceded to reinsurers during the nine months period ended September 30, 2005 increased by $4.0 million, or 10.0%, when compared to the same period for the prior year. The ratio of premiums ceded to premiums written reflects an increase of 1.4 percentage points, from 38.3% in the 2004 period to 39.7% in the 2005 period. The ceding percentages for premiums in the commercial and personal lines quota share arrangements increased from 37.5% to 42.5% and from 7.5% to 10.0%, respectively, during the nine-month period ended in 2005. In addition, the catastrophe coverage was increased during the 2005 period.

Claims incurred decreased by $1.7 million, or 4.9%, during the 2005 period. The loss ratio experienced a decrease of 4.7 percentage points during the nine months period ended September 30, 2005 as compared to the same period of the prior year. As previously mentioned, the 2004 period reflects net losses amounting to $2.0 million related to losses caused by Tropical Storm Jeanne during the month of September 2004. In addition, the segment’s focus on quality underwriting has also resulted in an improvement in loss experience, particularly in the commercial multi-peril, auto liability and casualty lines of business.

The operating expenses for the nine months period ended September 30, 2005 increased by $2.0 million, or 7.3%, when compared to the operating expenses for the nine months period ended September 30, 2004. The expense ratio increased by 1.5 percentage points during the 2005 period. In the 2005 period, net commission expense presented an increase of $1.9 million as increased commission rates were granted in commercial multi-peril and commercial auto policies. In addition, for the nine month period ended September 30, 2005, technology consulting fees as well as higher payroll expenses also contribute to the increase in operating expenses.

Liquidity and Capital Resources

Cash Flows

The Corporation maintains good liquidity measures due to the quality of its assets, the predictability of its liabilities, and the duration of its contracts. The liquidity of the Corporation is primarily derived from the operating cash flows of its insurance subsidiaries.

As of September 30, 2005 and December 31, 2004, the Corporation’s cash and cash equivalents amounted to $32.2 million and $35.1 million, respectively. The sources of funds available to meet the requirements of the Corporation’s operations include: cash provided from operations, maturities and sales of securities classified within the trading and available-for-sale portfolios, securities sold under repurchase agreements, and issuance of long and short-term debt.

Management believes that the Corporation’s net cash flows from operations are expected to sustain the operations for the next year and thereafter, as long as the operations continue showing positive results. In addition, the Corporation monitors its premium rates and its claims incurred to maintain proper cash flows and has the ability to increase premium rates throughout the year in the monthly renewal process.

Cash Flows from Operations

Most of the cash flows from operating activities are generated from the insurance subsidiaries. The basic components of the cash flows from operations are premium collections, claims payments, payment of operating and acquisition expenses and proceeds from sales and maturities of investments in the trading portfolio.

Net cash flows provided by (used in) operating activities amounted to $83.3 million and $(9.0) million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $92.3 million. This increase in cash flows from operating activities is mainly attributed to the net effect of the following:

	•		The net proceeds of investments in the trading portfolio increased by $88.2 million for the nine months ended September 30, 2005, when compared to the nine months ended September 30, 2004.

	•		Premiums collected increased by $63.1 million when comparing collections during the nine months ended September 30, 2005 with collections for the nine months ended September 30, 2004. This increase is mostly related to the increased volume of business and increases in premium rates of the operating segments.

	•		The amount of income taxes paid decreased by $34.8 million when comparing the payments made in the 2005 and 2004 periods. The 2004 period includes the payment of the last installment of the $51.8 million income tax liability related to the closing agreement with the Puerto Rico Treasury Department upon the termination of TSI’s tax exemption. The first installment of $37.0 million was paid during the year 2003 and the second and last installment, amounting to $14.8 million, was paid on April 15, 2004. 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 amount of claims, losses and benefits paid for the nine months ended September 30, 2005 reflect an increase of $71.6 million when compared with the nine months ended September 30, 2004. The increase in the amount of claims, losses and benefits paid is mostly the result of the segments’ increased volume of business as well as to increased utilization trends in both Health Insurance segments.

	•		The payments to suppliers and employees increased by $17.1 million when comparing the amount paid during the 2005 and 2004 periods. This increase is basically attributed to additional commission expense generated from the acquisition of new business and general operating expenses.

	•		The contingency reserve funds payment from the Federal Employee Health Benefit Plan decreased by $4.2 million when comparing the amount collected during the nine months ended September 30, 2005 with the amount collected during the same period for 2004.

	•		Interest paid increased by $2.5 million during the 2005 period. This increase is basically attributed to the interest paid related to the senior unsecured notes during the 2005 period; these senior unsecured notes were issued and sold on September 30, 2004.

Any excess liquidity is available, among other things, to invest in high quality and diversified fixed income securities and, to a lesser degree, to invest in marketable equity securities.

Cash Flows from Investing Activities

The basic components of the cash flows from investing activities are derived from acquisitions and proceeds from sales and maturities of investments in the available-for-sale and held-to-maturity portfolios and capital expenditures. The Corporation monitors the duration of its investment portfolio and executes the purchases and sales of these investments with the objective of having adequate funds available to satisfy its maturing liabilities.

Net cash flows used in investing activities amounted to $90.7 million and $670 thousand for the nine months ended September 30, 2005 and 2004, respectively. The increase in the cash flows used in investing

activities during this period is attributed to a net increase in the acquisition of investments. During the nine months ended September 30, 2005 total acquisition of investments exceeded the proceeds from investments sold or matured by $85.7 million. During the nine months ended September 30, 2004 the amount of proceeds from investments sold or matured exceeded investment acquisitions by $2.0 million.

Cash Flows from Financing Activities

Net cash flows provided by financing activities amounted to $4.6 million and $25.0 million for the nine months ended September 30, 2005 and 2004, respectively. The decrease of $20.4 million when compared to the same period of the prior year is mainly due to the combined effect of following fluctuations:

	•		During the nine months ended September 30, 2004 the Corporation received the proceeds from the issuance of the senior unsecured notes amounting to $50.0 million. No long-term debt proceeds were received in the 2005 period.

	•		In the 2005 period the proceeds from short-term borrowings exceeded payments of short-term borrowings by $2.9 million. On the other hand, in the 2004 period 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 change in outstanding checks in excess of bank balances reflects a decrease of $7.4 million during the nine months ended September 30, 2005 compared to the 2004 period. The amount of checks in excess of bank balances represents a timing difference between the issuance of checks and the cash balance in the bank account at one point in time.

	•		The repayments of long-term debt increased by $2.6 million for the nine months period ended September 30, 2005 when compared to the payments made in the 2004 period. This fluctuation is due to an increase in the repayment for one of the credit agreements, which amounted to $3.5 million in 2005 and $1.0 million in 2004.

Financing and Financing Capacity

The Corporation has significant short-term liquidity supporting its businesses. It also has available short-term borrowings from time to time to address timing differences between cash receipts and disbursements. These short-term borrowings are mostly in the form of securities sold under repurchase agreements. As of September 30, 2005, the Corporation had $227.5 million in available credit on these agreements. Outstanding short-term borrowings as of September 30, 2005 amount to $4.6 million. The amount due under outstanding short-term borrowings is expected to be paid out of the operating cash flows of the Corporation.

On September 30, 2004 TSI issued and sold $50.0 million of its 6.30% senior unsecured notes due September 2019 (the notes). The notes are unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Corporation. The notes were privately placed to various institutional investors under a note purchase agreement among TSI, the Corporation and the investors. The notes pay interest semiannually beginning on March 2005, until such principal becomes due and payable. The notes contain certain covenants with which TSI and the Corporation have complied with at September 30, 2005.

In addition, the Corporation has two credit agreements with a commercial bank, FirstBank Puerto Rico. These credit agreements bear interest rates based on the London Interbank Offered Rate (LIBOR) plus a margin specified by the commercial bank at the time of the agreement. As of September 30, 2005, the two credit agreements have an outstanding balance of $29.5 million and $11.5 million, respectively. These credit agreements contain restrictive covenants, including, but not limited to, the granting of certain liens, limitations on acquisitions and limitations on changes in control. As of September 30, 2005, management believes the Corporation is in compliance with these covenants.

Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Corporation’s Annual Report on Form 10-K as of and for the year ended December 31, 2004.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Corporation is exposed to certain market risks that are inherent in the Corporation’s financial instruments, which arise from transactions entered into in the normal course of business. The Corporation has exposure to market risk mostly in its investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in the Corporation’s exposure to financial market risks since December 31, 2004. A discussion of the Corporation’s market risk as of December 31, 2004 is incorporated by reference to Item 7a of the Corporation’s Annual Report on Form 10-K.

Item 4. Controls and Procedures

The Corporation’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures as of September 30, 2005. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2005. There were no significant changes in the Corporation’s disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed the evaluation referred to above.

Part II — Other Information

Item 1. Legal Proceedings

(a)		As of September 30, 2005, the Corporation is a defendant in various lawsuits arising out of the ordinary course of business. Management believes, based on the opinion of legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

(b)		Drs. Carlyle Benavent and Ibrahim Pérez (the plaintiffs) caused the initiation of an administrative proceeding before the Puerto Rico Insurance Commissioner (the Commissioner of Insurance) against TSI and TSM alleging the illegality of the repurchase and subsequent sale of 1,582 shares of TSI’s common stock due to the fact that the ultimate purchasers of said shares were selected on an improper and selective basis by the Corporation in violation of the Puerto Rico Insurance Code. The plaintiffs alleged that they were illegally excluded from participation in the sale of shares by TSI due to the illegally selective nature of the sale of shares and that, consequently the sale of shares should be eliminated.

		On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. TSI contested such orders through an administrative and judicial review process. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance issued a pronouncement providing further clarification of the content and effect of the order. This order also required that all corporate decisions undertaken by TSI through the vote of its stockholders of record, be ratified in a stockholders’ meeting or in a subsequent referendum. In November 2000, TSM, as the sole stockholder of TSI, ratified all such decisions. Furthermore, on November 19, 2000, TSM held a special stockholders’ meeting, where a ratification of these decisions was undertaken except for the resolution related to the approval of the reorganization of TSI and its subsidiaries. This resolution did not reach the two thirds majority required by the order because the number of shares that were present and represented at the meeting was below such amount (total shares present and represented in the stockholders’ meeting was 64%). As stipulated in the order, TSM began the process to conduct a referendum among its stockholders in order to ratify such resolution. The process was later suspended because upon further review of the scope of the order, the Commissioner of Insurance issued an opinion in a letter dated January 8, 2002 which indicated that the ratification of the corporate reorganization was not required.

		In another letter dated March 14, 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s

		order of December 6, 1996 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals. Such petition was opposed by TSI and by the Commissioner of Insurance.

		Pursuant to that review, on September 24, 2002, the Puerto Rico Circuit Court of Appeals issued an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify TSI’s corporate reorganization and the change of name of TSI from Seguros de Servicio de Salud de Puerto Rico, Inc. to Triple-S, Inc. The Puerto Rico Circuit Court of Appeals based its decision on administrative and procedural issues directed at the Commissioner of Insurance. The Commissioner of Insurance filed a motion of reconsideration with the Puerto Rico Circuit Court of Appeals on October 11, 2002. TSI and TSM also filed a motion of reconsideration.

		On October 25, 2002, the Puerto Rico Circuit Court of Appeals dismissed the Commissioner of Insurance’s Motion for Reconsideration and ordered the plaintiffs to reply to TSI’s and TSM’s Motion of Reconsideration.

		On May 18, 2003, the Puerto Rico Circuit Court of Appeals granted TSI’s and TSM’s Motion of Reconsideration. The Puerto Rico Circuit Court of Appeals held that the Commissioner of Insurance had the authority to waive the celebration of a referendum to ratify TSI’s reorganization and that therefore the reorganization of TSI, inasmuch as the 1,582 shares annulled were not decisive, was approved by the stockholders.

		On June 26, 2003, the two stockholders presented a writ of certiorari before the Supreme Court of Puerto Rico. TSI and TSM filed a motion opposing the issuance of the writ. The writ was issued by the Supreme Court on August 22, 2003, when it ordered the Puerto Rico Circuit Court of Appeals to transmit the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court of Puerto Rico. It is the opinion of management that the corporate reorganization as approved is in full force and effect.

(c)		On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their ownership rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s board of directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. On March 4, 2005 the Court issued an Opinion and Order. In this Opinion and Order, of the twelve counts included in the complaint, eight counts were dismissed for failing to assert an actionable injury; six of them for lack of standing and two for failing to plead with sufficient particularity in compliance with the Rules. All shareholder allegations, including those described above, were dismissed in the Opinion and Order. The remaining four counts were found standing, in a limited way, in the Opinion and Order. Finally, the Court ordered that by March 24, 2005 one of the counts left standing be replead to conform to the Rules and that by March 28, 2005 a proposed schedule for discovery and other submissions be filed. The count was amended and accepted by the Court, the discovery schedule was submitted. The parties just finished class certification discovery. Plaintiffs have until November 30, 2005 to file their briefs in support of their request for class certification. Defendants intend to file their opposition by December 15, 2005. This case is still pending before the United States District Court for the District of Puerto Rico.

(d)		On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior Section, alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, anti-monopolistic

practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the United States District Court for the District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counterclaim and filed several motions to dismiss this claim. On February 18, 2005 the plaintiffs informed their intention to amend the complaint and the Court granted then 45 days to do so and 90 days to defendants to file the corresponding motion to dismiss. 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 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’ motions to dismiss. Defendants will reply once the oppositions to all of the defendant’s motions are notified.

(e)		On May 22, 2003 a putative class action suit was filed by Kenneth A. Thomas, M.D. and Michael Kutell, M.D., on behalf of themselves and all other similarly situated and the Connecticut State Medical Society against the Blue Cross and Blue Shield Association (BCBSA) and multiple other insurance companies, including TSI. The case is pending before the United States District Court for the Southern District of Florida, Miami District.

		The individual plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which they allege have resulted in a loss of their property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered, medically necessary services they render.

		The class action complaint alleges that the health care plans are the agents of BCBSA licensed entities, and as such have committed the acts alleged above and acted within the scope of their agency, with the consent, permission, authorization and knowledge of the others, and in furtherance of both their interest and the interests of other defendants.

		Management believes that TSI was brought to this litigation for the sole reason of being associated with the BCBSA. However, on June 18, 2004, the plaintiffs moved to amend the complaint to include the Colegio de Médicos Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

		TSI, along with the other defendants, moved to dismiss the complaint under multiple grounds, including but not limited to arbitration and applicability of the McCarran Ferguson Act.

		The Court will set a hearing to discuss the parties’ submissions by the week of December 5, 2005.

(f)		On December 8, 2003 a putative class action was filed by Jeffrey Solomon, MD, and Orlando Armstrong, MD, on behalf of themselves and all other similarly situated and the American Podiatric Medical Association, Florida Chiropractic Association, California Podiatric Medical Association, Florida Podiatric Medical Association, Texas Podiatric Medical Association, and Independent Chiropractic Physicians, against the BCBSA and multiple other insurance companies, including TSI, all members of the BCBSA. The case is still pending before the United States District Court for the Southern District of Florida, Miami District.

		The individual plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which are alleged to have resulted in a loss of plaintiff’s property and a detriment to their business, and for declaratory and injunctive

relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payment due to the doctors so that they are not paid in a timely manner for the covered, medically necessary services they render.

On June 25, 2004, the plaintiffs amended the complaint but the allegations against TSI did not vary.

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 will set a hearing to discuss the parties’ submissions by the week of December 5, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submissions of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

(a)		Exhibits:

		Exhibit 10.1 Extension to the 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, 2002 (File No. 0-49762)).

		Exhibit 10.2 Extension to the 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, 2002 (File No. 0-49762)).

		Exhibit 10.3 Extension to the 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, 2002 (File No. 0-49762)).

		Exhibit 11 Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and nine months ended September 30, 2005 and 2004 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

		Exhibit 12 Statements re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio for the three months and nine months ended September 30, 2005 and 2004 has been omitted as the detail necessary to determine the computation of

		the loss ratio, expense ratio and combined ratio can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
		Exhibit 31.1 Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

		Exhibit 31.2 Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).

		Exhibit 32.1 Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.

		Exhibit 32.2 Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.

		All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

SIGNATURES

Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Triple-S Management Corporation
		Registrant

Date:	November 10, 2005	By:	/s/ Ramón M. Ruiz-Comas, CPA

			Ramón M. Ruiz-Comas, CPA
			President and
			Chief Executive Officer

Date:	November 10, 2005	By:	/s/ Juan J. Román, CPA

			Juan J. Román, CPA
			Vice President of Finance
			and Chief Financial Officer


		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004		3
	Consolidated Statements of Operations for the three months and nine months ended September 30, 2005 and 2004		4
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months ended September 30, 2005 and 2004		5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.	Controls and Procedures		38
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3.	Defaults Upon Senior Securities		41
Item 4.	Submission of Matters to a Vote of Security Holders		41
Item 5.	Other Information		41
Item 6.	Exhibits		41
SIGNATURES			42
EX-10.1 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE METRO-NORTH REGION
EX-10.2 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE NORTH REGION
EX-10.3 EXTENSION TO THE PUERTO RICO HEALTH INSURANCE CONTRACT FOR THE SOUTH-WEST REGION
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF VICE PRESIDENT OF FINANCE AND CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF VICE PRESIDENT AND CFO