Triple-s Management (GTS) 10-Q 2011 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

or

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

For the transition period from                    to                    

COMMISSION FILE NUMBER: 001-33865

Triple-S Management Corporation

Puerto Rico	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 Yeso No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yeso No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

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

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

Title of each class	Outstanding at March 31, 2011
Common Stock Class A, $1.00 par value	9,042,809
Common Stock Class B, $1.00 par value	19,810,271

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2011

Table of Contents

Part I — Financial Information	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Cautionary Statement Regarding Forward-Looking Information	31
Overview	31
Recent Developments	32
Recent Accounting Standards	33
Managed Care Membership	34
Consolidated Operating Results	34
Managed Care Operating Results	36
Life Insurance Operating Results	38
Property and Casualty Insurance Operating Results	39
Liquidity and Capital Resources	40
Item 3. Quantitative and Qualitative Disclosures about Market Risk	41
Item 4. Controls and Procedures	42
Part II — Other Information	42
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3. Defaults Upon Senior Securities	43
Item 4. (Removed and Reserved)	43
Item 5. Other Information	43
Item 6. Exhibits	43
SIGNATURES	44
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

Part I — Financial Information

Item 1. Financial Statements

Triple-S Management Corporation
Consolidated Balance Sheets (Unaudited)
(Dollar amounts in thousands, except per share data)

	March		December 31,
	2011		2010
Assets
Investments and cash:
Equity securities held for trading, at fair value	$	32,768	$	51,099
Securities available for sale, at fair value:
Fixed maturities		995,703		977,586
Equity securities		81,720		56,739
Securities held to maturity, at amortized cost:
Fixed maturities		14,531		14,615
Policy loans		5,898		5,887
Cash and cash equivalents		70,388		45,021
Total investments and cash		1,201,008		1,150,947
Premiums and other receivables, net		290,054		325,780
Deferred policy acquisition costs and value of business acquired		145,385		146,086
Property and equipment, net		79,061		76,745
Deferred tax asset		27,232		29,445
Other assets		87,381		30,367
Total assets	$	1,830,121	$	1,759,370
Liabilities and Stockholders’ Equity
Claim liabilities		414,215		360,210
Liability for future policy benefits		239,819		236,523
Unearned premiums		91,045		98,341
Policyholder deposits		50,254		49,936
Liability to Federal Employees’ Health Benefits Program (FEHBP)		12,619		15,018
Accounts payable and accrued liabilities		159,400		136,567
Deferred tax liability		21,908		12,655
Short-term borrowings		—		15,575
Long-term borrowings		165,617		166,027
Liability for pension benefits		50,639		51,246
Total liabilities		1,205,516		1,142,098
Stockholders’ equity:
Common stock Class A, $1 par value. Authorized 100,000,000 shares; issued and outstanding 9,042,809 at March 31, 2011 and December 31, 2010		9,043		9,043
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 19,810,271 and 19,772,614 shares at March 31, 2011 and December 31, 2010, respectively		19,810		19,773
Additional paid-in capital		153,333		155,299
Retained earnings		438,063		427,693
Accumulated other comprehensive income		4,356		5,464
Total stockholders’ equity		624,605		617,272
Total liabilities and stockholders’ equity	$	1,830,121	$	1,759,370

See accompanying notes to unaudited consolidated financial statements.

3

Triple-S Management Corporation
Consolidated Statements of Earnings (Unaudited)
(Dollar amounts in thousands, except per share data)

	Three months ended
	March 31,
	2011			2010
Revenues:
Premiums earned, net	$	485,271		$	494,177
Administrative service fees		6,595			12,498
Net investment income		11,798			12,423
Total operating revenues		503,664			519,098
Net realized investment losses:
Total other-than-temporary impairment losses on securities		—			(1,855	)
Net realized gains, excluding other-than-temporary impairment losses on securities		5,893			476
Total net realized investment gains (losses)		5,893			(1,379	)
Net unrealized investment (loss) gain on trading securities		(1,141	)		2,030
Other income, net		14			152
Total revenues		508,430			519,901
Benefits and expenses:
Claims incurred		402,573			425,828
Operating expenses		82,711			76,871
Total operating costs		485,284			502,699
Interest expense		3,127			3,228
Total benefits and expenses		488,411			505,927
Income before taxes		20,019			13,974
Income tax expense (benefit):
Current		(153	)		3,544
Deferred		9,802			(762	)
Total income taxes		9,649			2,782
Net income	$	10,370		$	11,192
Basic net income per share	$	0.36		$	0.38
Diluted net income per share	$	0.36		$	0.38

See accompanying notes to unaudited consolidated financial statements.

4

Triple-S Management Corporation
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited)
(Dollar amounts in thousands, except per share data)

	2011			2010
Balance at January 1	$	617,272		$	537,772
Share-based compensation		793			505
Cash settlement of options granted under share-based compensation plan		(1,259	)		—
Stock issued upon the exercise of stock options		94			—
Repurchase and retirement of common stock		(1,557	)		—
Comprehensive income (loss):
Net income		10,370			11,192
Net unrealized change in fair value of available for sale securities, net of taxes		(1,641	)		13,527
Defined benefit pension plan:
Actuarial gain, net		622			371
Prior service credit, net		(89	)		(69	)
Total comprehensive income		9,262			25,021
Balance at March 31	$	624,605		$	563,298

See accompanying notes to unaudited consolidated financial statements.

5

Triple-S Management Corporation
Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands, except per share data)

	Three months ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	10,370		$	11,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,188			3,012
Net amortization of investments		1,041			755
Provision for doubtful receivables		410			1,732
Deferred tax expense (benefit)		9,802			(762	)
Net realized investment (gain) loss on sale of securities		(5,893	)		1,379
Net unrealized loss (gain) on trading securities		1,141			(2,030	)
Share-based compensation		793			505
Proceeds from trading securities sold:
Equity securities		20,804			1,156
Acquisition of securities in trading portfolio:
Equity securities		(187	)		(2,419	)
(Increase) decrease in assets:
Premium and other receivables, net		56,690			(18,889	)
Deferred policy acquisition costs and value of business acquired		701			(515	)
Other deferred taxes		92			3,422
Other assets		1,403			3,926
Increase (decrease) in liabilities:
Claim liabilities		12,339			37,188
Liability for future policy benefits		3,296			3,940
Unearned premiums		(8,015	)		(7,194	)
Policyholder deposits		270			130
Liability to FEHBP		(2,399	)		348
Accounts payable and accrued liabilities		(6,459	)		(6,385	)
Net cash provided by operating activities		101,387			30,491

(Continued)

6

Triple-S Management Corporation
Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands, except per share data)

	Three months ended
	March 31,
	2011			2010
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold	$	14,986		$	23,272
Fixed maturities matured/called		33,964			35,415
Equity securities		9,458			401
Securities held to maturity:
Fixed maturities matured/called		181			1,250
Acquisition of investments:
Securities available for sale:
Fixed maturities		(32,224	)		(83,024	)
Equity securities		(29,134	)		(1,295	)
Net outflows for policy loans		(11	)		(50	)
Acquisition of business, net of $29,370 of cash acquired		(54,058	)		—
Net capital expenditures		(3,977	)		(4,878	)
Net cash used in investing activities		(60,815	)		(28,909	)
Cash flows from financing activities:
Change in outstanding checks in excess of bank balances		3,454			(4	)
Repayments of short-term borrowings		(15,575	)		—
Repayments of long-term borrowings		(410	)		(410	)
Repurchase and retirement of common stock		(1,557	)		—
Cash settlements of stock options		(1,259	)		—
Proceeds from exercise of stock options		94			—
Proceeds from policyholder deposits		1,824			2,052
Surrenders of policyholder deposits		(1,776	)		(2,251	)
Net cash used in financing activities		(15,205	)		(613	)
Net increase in cash and cash equivalents		25,367			969
Cash and cash equivalents:
Beginning of period		45,021			40,376
End of period	$	70,388		$	41,345

See accompanying notes to unaudited consolidated financial statements.

7

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(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 and its subsidiaries are unaudited. In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries. The consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the U.S. (GAAP) 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, 2010.

     In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results for the full year.

(2) Recent Accounting Standards

     There were no new accounting pronouncements issued during the three months ended March 31, 2011 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

(3) Segment Information

     The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance. The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment. Operating revenues include premiums earned, net, administrative service fees and net investment income. Operating costs include claims incurred and operating expenses. The Corporation calculates operating income or loss as operating revenues less operating costs.

     Our Managed Care segment is engaged in the sale of managed care products to the Commercial and Medicare market sectors. Up to September 30, 2010, our Managed Care subsidiary, Triple-S Salud, Inc. (“TSS”) provided managed care services in Puerto Rico to Medicaid members in two regions on a fully-insured basis and in one region on an Administrative Service Only (ASO) basis. The current contracts between the Government and Triple-S for the provision of services to the Medicaid population of Puerto Rico expired by their own terms on September 30, 2010, thus effective October 1^st, 2010 we no longer provide services to these members. As discussed further in note 14, our Managed Care segment includes the results of operations and financial condition of American Health since February 1, 2011.

8

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

     The following tables summarize the operations by major operating segment for the three months ended March 31, 2011 and 2010:

	Three months ended
	March 31,
	2011			2010
Operating revenues:
Managed Care:
Premiums earned, net	$	432,803		$	443,059
Administrative service fees		6,595			12,498
Intersegment premiums /service fees		1,500			1,552
Net investment income		4,221			4,962
Total managed care		445,119			462,071
Life Insurance:
Premiums earned, net		26,958			25,806
Intersegment premiums		86			98
Net investment income		4,407			4,206
Total life insurance		31,451			30,110
Property and Casualty Insurance:
Premiums earned, net		25,510			25,312
Intersegment premiums		153			153
Net investment income		2,210			2,735
Total property and casualty insurance		27,873			28,200
Other segments: *
Intersegment service revenues		3,848			13,504
Operating revenues from external sources		2			—
Total other segments		3,850			13,504
Total business segments		508,293			533,885
TSM operating revenues from external sources		462			520
Elimination of intersegment premiums		(1,739	)		(1,803	)
Elimination of intersegment service fees		(3,848	)		(13,504	)
Other intersegment eliminations		496			—
Consolidated operating revenues	$	503,664		$	519,098

* Includes segments that are not required to be reported separately, primarily the data processing services organization as well as the third-party administrator of managed care services.

9

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	Three months ended
	March 31,
	2011			2010
Operating income:
Managed care	$	12,407		$	12,648
Life insurance		4,272			3,838
Property and casualty insurance		960			(902	)
Other segments *		(6	)		187
Total business segments		17,633			15,771
TSM operating revenues from external sources		462			520
TSM unallocated operating expenses		(2,506	)		(2,213	)
Elimination of TSM intersegment charges		2,791			2,321
Consolidated operating income		18,380			16,399
Consolidated net realized investment gains (losses)		5,893			(1,379	)
Consolidated net unrealized (loss) gain on trading securities		(1,141	)		2,030
Consolidated interest expense		(3,127	)		(3,228	)
Consolidated other income, net		14			152
Consolidated income before taxes	$	20,019			13,974
Depreciation expense:
Managed care	$	4,434			2,228
Life insurance		162			169
Property and casualty insurance		390			399
Total business segments		4,986			2,796
TSM depreciation expense		202			216
Consolidated depreciation expense	$	5,188			3,012

* Includes segments that are not required to be reported separately, primarily the data processing services organization as well as the third-party administrator of managed care services.

10

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	March 31,			December 31,
	2011			2010
Assets:
Managed care	$	891,968		$	790,485
Life insurance		531,588			523,246
Property and casualty insurance		325,892			339,955
Other segments *		18,586			16,842
Total business segments		1,768,034			1,670,528
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments		61,758			62,841
Property and equipment, net		20,510			20,712
Other assets		17,680			20,600
		99,948			104,153
Elimination entries-intersegment receivables and others		(37,861	)		(15,311	)
Consolidated total assets	$	1,830,121		$	1,759,370

* Includes segments that are not required to be reported separately, primarily the data processing services organization as well as the third-party administrator of managed care services.

11

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(4) Investment in Securities

     The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and held-to-maturity securities by major security type and class of security at March 31, 2011 and December 31, 2010, were as follows:

	March 31, 2011
			Gross		Gross
			unrealized		unrealized			Estimated
	Cost		gains		losses			fair value
Trading securities:
Equity securities	$	26,642	$	8,946	$	(2,820	)	$	32,768

	December 31, 2010
			Gross		Gross
			unrealized		unrealized			Estimated
	Cost		gains		losses			fair value
Trading securities:
Equity securities	$	43,832	$	10,738	$	(3,471	)	$	51,099

	March 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities available for sale:
Fixed maturities:
Obligations of government- sponsored enterprises	$	114,514	$	5,527	$	(36	)	$	120,005
U.S. Treasury securities and obligations of U.S. government instrumentalities		47,231		4,890		—			52,121
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		143,814		2,362		(279	)		145,897
Municipal securities		298,348		6,129		(2,178	)		302,299
Corporate bonds		105,778		6,460		(378	)		111,860
Residential mortgage-backed securities		10,313		695		—			11,008
Collateralized mortgage obligations		248,053		5,565		(1,105	)		252,513
Total fixed maturities		968,051		31,628		(3,976	)		995,703
Equity securities:
Common stocks		66		2,646		—			2,712
Preferred stocks		4,311		66		(750	)		3,627
Perpetual preferred stocks		1,000		—		(83	)		917
Mutual funds		67,346		7,345		(227	)		74,464
Total equity securities		72,723		10,057		(1,060	)		81,720
Total	$	1,040,774	$	41,685	$	(5,036	)	$	1,077,423

12

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	December 31, 2010
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
Securities available for sale:
Fixed maturities:
Obligations of government- sponsored enterprises	$	124,735	$	6,650	$	—		$	131,385
U.S. Treasury securities and obligations of U.S. government instrumentalities		47,427		5,451		—			52,878
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		117,519		3,115		(10	)		120,624
Municipal securities		272,383		3,979		(2,798	)		273,564
Corporate bonds		102,184		7,698		(250	)		109,632
Residential mortgage-backed securities		12,560		801		(1	)		13,360
Collateralized mortgage obligations		271,149		6,158		(1,164	)		276,143
Total fixed maturities		947,957		33,852		(4,223	)		977,586
Equity securities:
Common stocks		901		3,430		—			4,331
Preferred stocks		4,298		68		(737	)		3,629
Perpetual preferred stocks		1,000		—		(94	)		906
Mutual funds		41,551		6,632		(310	)		47,873
Total equity securities		47,750		10,130		(1,141	)		56,739
Total	$	995,707	$	43,982	$	(5,364	)	$	1,034,325

	March 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
Securities held to maturity:
Obligations of government- sponsored enterprises	$	1,793	$	130	$	—	$	1,923
U.S. Treasury securities and obligations of U.S. government instrumentalities		1,477		180		—		1,657
Corporate bonds		9,540		350		—		9,890
Residential mortgage-backed securities		480		27		—		507
Certificates of deposit		1,241		—		—		1,241
Total	$	14,531	$	687	$	—	$	15,218

13

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	December 31, 2010
			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
	cost		gains		losses		fair value
Securities held to maturity:
Obligations of government- sponsored enterprises	$	1,793	$	151	$	—	$	1,944
U.S. Treasury securities and obligations of U.S. government instrumentalities		1,478		203		—		1,681
Corporate bonds		9,443		414		—		9,857
Residential mortgage-backed securities		660		41		—		701
Certificates of deposit		1,241		—		—		1,241
Total	$	14,615	$	809	$	—	$	15,424

     Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2011 and December 31, 2011 were as follows:

	March 31, 2011
	Less than 12 months							12 months or longer							Total
			Gross							Gross							Gross
	Estimated		Unrealized			Number of		Estimated		Unrealized			Number of		Estimated		Unrealized			Number of
	Fair Value		Loss			Securities		Fair Value		Loss			Securities		Fair Value		Loss			Securities
Securites available for sale:
Fixed maturities:
Obligations of government- sponsored enterprises	$	3,408	$	(36	)		1	$	—	$	—			—	$	3,408	$	(36	)		1
Obligations of the Commonwealth of Puerto Rico and its instrumentalities		45,441		(279	)		9		—		—			—		45,441		(279	)		9
Municipal securities		82,182		(2,178	)		40		—		—			—		82,182		(2,178	)		40
Corporate bonds		11,161		(378	)		7		—		—			—		11,161		(378	)		7
Collateralized mortgage obligations		63,684		(963	)		10		2,085		(142	)		1		65,769		(1,105	)		11
Total fixed maturities		205,876		(3,834	)		67		2,085		(142	)		1		207,961		(3,976	)		68
Equity securities:
Preferred stocks		—		—			—		3,251		(750	)		1		3,251		(750	)		1
Perpetual preferred stocks		—		—			—		917		(83	)		1		917		(83	)		1
Mutual funds		1,116		(227	)		1		—		—			—		1,116		(227	)		1
Total equity securities		1,116		(227	)		1		4,168		(833	)		2		5,284		(1,060	)		3
Total for securities available for sale	$	206,992	$	(4,061	)		68	$	6,253	$	(975	)		3	$	213,245	$	(5,036	)		71

14

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	December 31, 2010
	Less than 12 months							12 months or longer							Total
			Gross							Gross							Gross
	Estimated		Unrealized			Number of		Estimated		Unrealized			Number of		Estimated		Unrealized			Number of
	Fair Value		Loss			Securities		Fair Value		Loss			Securities		Fair Value		Loss			Securities
Securites available for sale:
Fixed maturities:
Obligations of the Commonwealth of Puerto Rico and its instrumentalities	$	2,483	$	(10	)		5	$	—	$	—			—	$	2,483	$	(10	)		5
Municipal securities		105,280		(2,652	)		53		692		(146	)		1		105,972		(2,798	)		54
Corporate bonds		5,828		(250	)		3		—		—			—		5,828		(250	)		3
Residential mortgage-backed securities		—		—			—		36		(1	)		1		36		(1	)		1
Collateralized mortgage obligations		77,417		(1,144	)		12		1,953		(20	)		1		79,370		(1,164	)		13
Total fixed maturities		191,008		(4,056	)		73		2,681		(167	)		3		193,689		(4,223	)		76
Equity securities:
Preferred stocks		—		—			—		3,263		(737	)		1		3,263		(737	)		1
Perpetual preferred stocks		—		—			—		906		(94	)		1		906		(94	)		1
Mutual funds		2,337		(310	)		2		—		—			—		2,337		(310	)		2
Total equity securities		2,337		(310	)		2		4,169		(831	)		2		6,506		(1,141	)		4
Total for securities available for sale	$	193,345	$	(4,366	)		75	$	6,850	$	(998	)		5	$	200,195	$	(5,364	)		80

     The Corporation regularly monitors and evaluates the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating: (1) the length of time and the extent to which the estimated fair value has been less than amortized cost for fixed maturity securities, or cost for equity securities, (2) the financial condition, near-term and long-term prospects for the issuer, including relevant industry conditions and trends, and implications of rating agency actions, (3) the Corporation’s intent to sell or the likelihood of a required sale prior to recovery, (4) the recoverability of principal and interest for fixed maturity securities, or cost for equity securities, and (5) other factors, as applicable. 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 estimated fair value solely due to changes in interest rates, other-than temporary impairment may not be appropriate. Due to the subjective nature of the Corporation’s analysis, along with the judgment that must be applied in the analysis, it is possible that the Corporation could reach a different conclusion whether or not to impair a security if it had access to additional information about the investee. Additionally, it is possible that the investee’s ability to meet future contractual obligations may be different than what the Corporation determined during its analysis, which may lead to a different impairment conclusion in future periods. If after monitoring and analyzing impaired securities, the Corporation determines that a decline in the estimated fair value of any available-for-sale security below cost is other-than-temporary, the carrying amount of equity securities is reduced to its fair value and of fixed maturity securities is reduced by the credit component of the other-than-temporary impairment. When a decline in the estimated fair value of any held-to-maturity security below cost is deemed other-than-temporary, the carrying amount of the security is reduced by the other-than-temporary impairment. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. In periods subsequent to the recognition of an other-than-temporary impairment, the impaired security is accounted for as if it had been purchased on the measurement date of the impairment. For debt securities, the discount (or reduced premium) based on the new cost basis may be accreted into net investment income in future periods based on prospective changes in cash flow estimates, to reflect adjustments to the effective yield.

     The Corporation’s process for identifying and reviewing invested assets for other-than temporary impairments during any quarter includes the following:

• Identification and evaluation of securities that have possible indications of other-than-temporary impairment, which includes an analysis of all investments with gross unrealized investment losses that represent 20% or more of their cost and all investments with an unrealized loss greater than $50.

• Review and evaluation of any other security based on the investee’s current financial condition, liquidity, near-term recovery prospects, implications of rating agency actions, the outlook for the business sectors in which the

15

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	investee operates and other factors. This evaluation is in addition to the evaluation of those securities with a gross unrealized investment loss representing 20% or more of their cost.
•	Consideration of evidential matter, including an evaluation of factors or triggers that may or may not cause individual investments to qualify as having other-than-temporary impairments; and
•	Determination of the status of each analyzed security as other-than-temporary or not, with documentation of the rationale for the decision.

     The Corporation continually reviews its investment portfolios under the Corporation’s impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be recorded in future periods.

     Obligations of States of the United States and Political Subdivisions of the States, and Obligations of the Commonwealth of Puerto Rico and its Instrumentalities:The unrealized losses on the Corporation’s investments in obligations of states of the U.S. and political subdivisions of the states, and in obligations of the Commonwealth of Puerto Rico and its instrumentalities were mainly caused by fluctuations in interest rates and general market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. In addition, most of these investments have investment grade ratings. Because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Corporation does not intend to sell the investments; it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

     Corporate Bonds:The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions. All corporate bonds included in table above have investment grade ratings and have been in an unrealized position for less than six months. Because the decline in estimated fair value is principally attributable to changes in interest rate; the Corporation does not intend to sell the investments and its is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

     Collateralized Mortgage Obligations:The unrealized losses on investments in collateralized mortgage obligations were mostly caused by fluctuations in interest rates and credit spreads. The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored enterprise. The Corporation also has investments in private CMOs. Any loss in these securities is determined according to the seniority level of each tranche, with the least senior (or most junior), typically the unrated residual tranche, taking any initial loss. The investment grade credit rating of our securities reflects the seniority of the securities that the Corporation owns. Because the decline in fair value is attributable to changes in interest rates and not credit quality, the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, and because the Corporation expects to collect all contractual cash flows, these investments are not considered other-than-temporarily impaired.

     Preferred Stocks:This particular instrument has a specified maturity, the issuer’s capital ratios are above regulatory levels, the issuer has continued dividend payments on this instrument and interest payments on all of its outstanding debt instruments, the issuer does not have the ability to call the security at a price lower than its stated value, the Corporation expects to collect all contractual cash flows, the Corporation does not have the intent to sell the investment, and it is not more likely than not that the Corporation will be required to sell the investment before market price recovery or maturity, this investment is not considered other-than-temporarily impaired.

     Perpetual Preferred Stocks:This security has experienced an improvement in value during the three months ended March 31, 2011. The issuer’s capital ratios are above regulatory levels, the Corporation does not have the

16

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

intent to sell the investment, and the Corporation has the intent and ability to hold the investments until a market price recovery, this investment is not considered other-than-temporarily impaired.

     Mutual Funds:Most of the unrealized losses in the Company’s investment in funds that have been in an unrealized loss position less than twelve months. Because these funds have been in an unrealized loss position for a short time, the Corporation does not have the intent to sell these investments, and the Corporation has the ability to hold the investments until a market price recovery, these positions are not considered other-than-temporarily impaired.

     Maturities of investment securities classified as available for sale and held to maturity at March 31, 2011 were as follows:

	March 31, 2011
	Amortized		Estimated
	cost		fair value
Securities available for sale:
Due in one year or less	$	12,923	$	13,096
Due after one year through five years		116,068		119,831
Due after five years through ten years		222,842		232,296
Due after ten years		357,852		366,959
Residential mortgage-backed securities		10,313		11,008
Collateralized mortgage obligations		248,053		252,513
	$	968,051	$	995,703
Securities held to maturity:
Due in one year or less	$	1,241	$	1,241
Due after one year through five years		9,540		9,890
Due after ten years		3,270		3,580
Residential mortgage-backed securities		480		507
	$	14,531	$	15,218

     Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

17

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

     Information regarding realized and unrealized gains and losses from investments for the three months ended March 31, 2011 is as follows:

	Three months ended
	March 31,
	2011			2010
Realized gains (losses):
Fixed maturity securities:
Securities available for sale:
Gross gains from sales	$	221		$	32
Gross losses from sales		(151	)		(40	)
Gross losses from other-than-temporary impairments		—			(95	)
Total debt securities		70			(103	)
Equity securities:
Trading securities:
Gross gains from sales		3,790			613
Gross losses from sales		(364	)		(209	)
		3,426			404
Securities available for sale:
Gross gains from sales		2,492			80
Gross losses from sales		(95	)		—
Gross losses from other-than-temporary impairments		—			(1,760	)
		2,397			(1,680	)
Total equity securities		5,823			(1,276	)
Net realized gains (losses) on securities	$	5,893		$	(1,379	)

     The other-than-temporary impairments on its fixed maturity securities are attributable to credit losses.

	Three months ended
	March 31,
	2011			2010
Changes in net unrealized gains (losses):
Recognized in income:
Equity securities — trading	$	(1,141	)	$	2,030
Recognized in accumulated other comprehensive income:
Fixed maturities — available for sale		(1,977	)		11,574
Equity securities — available for sale		8			4,380
	$	(1,969	)	$	15,954
Not recognized in the consolidated financial statements:
Fixed maturities — held to maturity	$	(122	)	$	98

     The deferred tax liability/asset on unrealized gains and losses, respectively, recognized in accumulated other comprehensive income/ (loss) during the three months ended March 31, 2011 and 2010 aggregated to $328 and $2,427, respectively.

     As of March 31, 2011 and December 31, 2010, no individual investment in securities exceeded 10% of stockholders’ equity.

     Components of net investment income were as follows:

18

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	Three months ended
	March 31,
	2011		2010
Fixed maturities	$	11,070	$	11,190
Equity securities		310		896
Policy loans		108		106
Cash equivalents and interest-bearing deposits		83		69
Other		227		162
Total	$	11,798	$	12,423

(5) Premiums and Other Receivables, Net

     Premiums and other receivables, net as of March 31, 2011 and December 31, 2010 were as follows:

	March 31,		December 31,
	2011		2010
Premium	$	101,364	$	144,501
Self-funded group receivables		82,992		73,750
FEHBP		12,320		11,001
Agents balances		27,809		37,262
Accrued interest		10,270		9,781
Reinsurance recoverable		48,402		47,342
Other		27,341		22,177
		310,498		345,814
Less allowance for doubtful receivables:
Premiums		13,501		13,106
Other		6,943		6,928
		20,444		20,034
Total premiums and other receivables	$	290,054	$	325,780

19

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(6) Claim Liabilities

     The activity in the total claim liabilities for the three months ended March 31, 2011 and 2010 is as follows:

	Three months ended
	March 31,
	2011			2010
Claim liabilities at beginning of period	$	360,210		$	360,446
Reinsurance recoverable on claim liabilities		(31,449	)		(30,712	)
Net claim liabilities at beginning of period		328,761			329,734
Claim liabilities acquired from American Health		41,666			—
Incurred claims and loss-adjustment expenses:
Current period insured events		412,173			433,309
Prior period insured events		(12,520	)		(10,584	)
Total		399,653			422,725
Payments of losses and loss-adjustment expenses:
Current period insured events		201,886			178,430
Prior period insured events		185,237			208,350
Total		387,123			386,780
Net claim liabilities at end of period		382,957			365,679
Reinsurance recoverable on claim liabilities		31,258			31,955
Claim liabilities at end of period	$	414,215		$	397,634

     As a result of differences between actual amounts and estimates of insured events in prior periods, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.

     The credit in the incurred claims and loss-adjustment expenses for prior period insured events for the three months ended March 31, 2011 is due primarily to better than expected utilization trends.

     Reinsurance recoverable on unpaid claims is reported within the premiums and other receivables, net in the accompanying consolidated financial statements. The claims incurred disclosed in this table exclude the change in the liability for future policy benefits expense, which amounted to $2,920 and $3,103, during the three months ended March 31, 2011 and 2010, respectively.

(7) Fair Value Measurements

     Assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by current accounting guidance for fair value measurements and disclosures, are as follows:

Level Input:	Input Definition:
Level 1	Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

20

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

     The Corporation uses observable inputs when available. Fair value is based upon quoted market prices when available. If market prices are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. The Corporation limits valuation adjustments to those deemed necessary to ensure that the security or derivative’s fair value adequately represents the price that would be received or paid in the marketplace. Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria. The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in estimating fair value could affect the Corporation’s results. The fair value measurement levels are not indicative of risk of investment.

     The fair value information of financial instruments in the accompanying consolidated financial statements was determined as follows:

(i) Cash and Cash Equivalents

     The carrying amount approximates fair value because of the short-term nature of such instruments.

(ii) Investment in Securities

     The fair value of investment securities is estimated based on quoted market prices for those or similar investments. Additional information pertinent to the estimated fair value of investment in securities is included in note 4.

(iii) Policy Loans

     Policy loans have no stated maturity dates and are part of the related insurance contract. The carrying amount of policy loans approximates fair value because their interest rate is reset periodically in accordance with current market rates.

(iv) Receivables, Accounts Payable and Accrued Liabilities

     The carrying amount of receivables, accounts payable and accrued liabilities approximates fair value because they mature and should be collected or paid within 12 months after March 31, 2011.

(v) Policyholder Deposits

     The fair value of policyholder deposits is the amount payable on demand at the reporting date, and accordingly, the carrying value amount approximates fair value.

(vi) Borrowings

     The carrying amounts and fair value of the Corporation’s borrowings are as follows:

	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Loans payable to bank	$	20,617	$	20,617	$	21,027	$	21,027
6.3% senior unsecured notes payable		50,000		49,700		50,000		49,625
6.6% senior unsecured notes payable		35,000		34,615		35,000		34,388
6.7% senior unsecured notes payable		35,000		34,930		35,000		35,000
Repurchase agreeement		25,000		24,423		25,000		24,575
Totals	$	165,617	$	164,285	$	166,027	$	164,615

     The carrying amount of the loans payable to bank approximates fair value due to its floating interest-rate structure. The fair value of the senior unsecured notes payable was determined using broker quotations.

21

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(vii) Derivative Instruments

     Current market pricing models were used to estimate fair value of structured notes agreements. Fair values were determined using market quotations provided by outside securities consultants or prices provided by market makers using observable inputs.

     The following table summarizes fair value measurements by level at March 31, 2011 and December 31, 2010 for assets measured at fair value on a recurring basis:

	March 31, 2011
	Level 1		Level 2		Level 3		Total
Equity securities held for trading	$	32,768	$	—	$	—	$	32,768
Securities available for sale:
Fixed maturity securities
Obligations of government-sponsored		—		120,005		—		120,005
U.S. Treasury securities and obligations of U.S government instrumentalities		52,121		—		—		52,121
Obligations of the Commonwealth of Puerto and its instrumentalities		—		145,897		—		145,897
Municipal securities		—		302,299		—		302,299
Corporate bonds		—		111,860		—		111,860
Residential agency mortgage-backed securities		—		11,008		—		11,008
Collateralized mortgage obligations		—		252,513		—		252,513
Total fixed maturities		52,121		943,582		—		995,703
Equity securities
Common stocks		2,712		—		—		2,712
Preferred stocks		3,627		—		—		3,627
Perpetual preferred stocks		917		—		—		917
Mutual funds		56,350		16,898		1,216		74,464
Total equity securities		63,606		16,898		1,216		81,720
Derivatives (reported within other assets in the consolidated balance sheets)		—		566		—		566
Total	$	148,495	$	961,046	$	1,216	$	1,110,757

22

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Equity securities held for trading	$	51,099	$	—	$	—	$	51,099
Securities available for sale:
Fixed maturity securities
Obligations of government-sponsored		—		131,385		—		131,385
U.S. Treasury securities and obligations of U.S government instrumentalities		52,878		—		—		52,878
Obligations of the Commonwealth of Puerto and its instrumentalities		—		120,624		—		120,624
Municipal securities		—		273,564		—		273,564
Corporate bonds		—		109,632		—		109,632
Residential agency mortgage-backed securities		—		13,360		—		13,360
Collateralized mortgage obligations		—		276,143		—		276,143
Total fixed maturities		52,878		924,708		—		977,586
Equity securities
Common stocks		4,331		—		—		4,331
Preferred stocks		3,629		—		—		3,629
Perpetual preferred stocks		906		—		—		906
Mutual funds		27,858		18,971		1,044		47,873
Total equity securities		36,724		18,971		1,044		56,739
Derivatives (reported within other assets in the consolidated balance sheets)		—		748		—		748
Total	$	140,701	$	944,427	$	1,044	$	1,086,172

     The fair value of fixed maturity and equity securities included in the Level 2 category were based on market values obtained from independent pricing services, which utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and when available loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing company’s evaluated pricing applications apply available information as applicable, through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available. The independent pricing services monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants.

     A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2011 and 2010 is as follows:

	Three months ended
	March 31, 2011						March 31, 2010
	Fixed						Fixed
	Maturity		Equity				Maturity		Equity
	Securities		Securities		Total		Securities		Securities		Total
Beginning balance	$	—	$	1,044	$	1,044	$	—	$	775	$	775
Total gains or losses:
Realized in earnings		—		—		—		—		—		—
Unrealized in other accumulated comprehensive income		—		72		72		—		—		—
Purchases		—		100		100		—		—		—
Transfers in and/or out of Level 3		—		—		—		—		—		—
Ending balance	$	—	$	1,216	$	1,216	$	—	$	775	$	775

23

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(8) Share-Based Compensation

     Share-based compensation expense recorded during the three months ended March 31, 2011 and 2010 was $808 and $505, respectively. During the three months ended March 31, 2011 cash received from stock option exercises was $94, the impact of these cash receipts is included within the cash flows from financing activities in the accompanying consolidated statement of cash flows. Also, during the three months ended March 31, 2011, 243,500 options were cash-settled for $1,259 at its fair value at time of settlement. No options were exercised or cash-settled during the three months ended March 31, 2010.

(9) Comprehensive Income

     The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:

							Accumulated
	Net unrealized			Liability for			other
	gain on			pension			comprehensive
	securities			benefits			income
Balance at January 1	$	32,743		$	(27,279	)	$	5,464
Net current period change		(1,641	)		533			(1,108	)
Balance at March 31,	$	31,102		$	(26,746	)	$	4,356

(10) Income Taxes

     Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries. The Corporation and its subsidiaries are subject to Puerto Rico income taxes. The Corporation’s insurance subsidiaries are also subject to U.S. federal income taxes for foreign source dividend income. As of March 30, 2011, tax years 2004 through 2011 for the Corporation and its subsidiaries are subject to examination by Puerto Rico taxing authorities.

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.

     Recently, the government of Puerto Rico adopted a comprehensive tax reform in two phases. The first phase of the tax reform was enacted in the last quarter of 2010 and was mostly related to reducing the income tax burden to individuals. In 2010 only, corporations received an income tax credit amounting to 7% of the tax determined, defined as the tax liability less certain credits. The second phase of the reform, which was approved on January 31, 2011, provides for the reduction of the maximum corporate income tax rate from 39% to approximately 30%, the elimination of a temporary surtax of 5%, as well as adding several tax credits and deductions, among other tax reliefs and changes. As a result of this income tax rate reduction, the consolidated net deferred tax assets were decreased through a one-time charge to the consolidated deferred tax expense of approximately $6.4 million during the three months ended March 31, 2011.

24

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

(11) Pension Plan

     The components of net periodic benefit cost for the three months ended March 31, 2011 and 2010 were as follows:

	Three months ended
	March 31, 2011
	2011			2010
Components of net periodic benefit cost:
Service cost	$	829		$	1,340
Interest cost		1,904			1,547
Expected return on assets		(1,479	)		(1,064	)
Amortization of prior service benefit		(127	)		(113	)
Amortization of actuarial loss		888			608
Net periodic benefit cost	$	2,015		$	2,318

     Employer contributions:The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2010 that it expected to contribute $10,000 to its pension program in 2011. As of March 31, 2011, the Corporation has contributed $2,000 to the pension program. The Corporation expects to further contribute $8,000 to fund its pension program in 2011.

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

     The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2011 and 2010:

	Three months ended
	March 31,
	2011		2010
Numerator for earnings per share:
Net income available to stockholders	$	10,370	$	11,192
Denominator for basic earnings per share:
Weighted average of common shares		28,744,423		29,071,308
Effect of dilutive securities		227,224		155,032
Denominator for diluted earnings per share		28,971,647		29,226,340
Basic net income per share	$	0.36	$	0.38
Diluted net income per share	$	0.36	$	0.38

     During the three months ended March 31, 2011, the weighted average of stock option shares of approximately 4,032 was excluded from the denominator for the diluted earnings per share computation because the stock options were anti-dilutive. There were no anti-dilutive stock options during the three months ended March 31, 2010.

(13) Contingencies

     As of March 31, 2011, the Corporation is a defendant in various lawsuits arising in the ordinary course of business. We are also defendants in various other claims and proceedings, some of which are described below. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning the Corporation’s compliance with applicable insurance and other laws and regulations.

25

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

     Management believes that the aggregate liabilities, if any, arising from all such claims, assessments, audits and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of the Corporation. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could have a material adverse effect on the financial condition, operating results and/or cash flows. Where the Corporation believes that a loss is both probable and estimable, such amounts have been recorded. In other cases, it is at least reasonably possible that the Corporation may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Corporation is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.

     Additionally, we may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have contractual rights to acquire shares of the Corporation on favorable terms or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.

Hau et al Litigation (formerly known as Jordan et al)

     On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, the Corporation’s subsidiary TSS and others in the Court of First Instance for San Juan, Superior Section (the “Court of First Instance”), alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, RICO violations, breach of contract with providers, and damages in the amount of $12 million. Following years of complaint amendments, motions practice and interim appeals up to the level of the Puerto Rico Supreme Court, the plaintiffs amended their complaint on June 20, 2008 to allege with particularity the same claims initially asserted but on behalf of a more limited group of plaintiffs, and increase their claim for damages to approximately $207 million. After extensive discovery, plaintiffs amended their complaint for the third time in December 2010 and dropped all claims predicated on violations of the antitrust and RICO laws and the Puerto Rico Insurance Code. In addition, the plaintiffs voluntarily dismissed with prejudice any and all claims against officers of the Corporation and TSS. Two of the original plaintiffs were also eliminated from the Third Amended Complaint (TAC). The TAC only alleges breach of seven share acquisition agreements, breach of the provider contract by way of discriminatory audits and improper payment of services rendered. Against a former President of TSM, Plaintiffs allege a claim for libel and slander. In January 2011, we filed our response and a counterclaim for malicious prosecution and abuse of process. Discovery is ongoing. The Corporation intends to vigorously defend this claim.

Dentists Association Litigation

     On February 11, 2009, the Puerto Rico Dentists Association (Colegio de Cirujanos Dentistas de Puerto Rico) filed a complaint in the Court of First Instance against 24 health plans operating in Puerto Rico that offer dental health coverage. The Corporation and two of its subsidiaries, TSS and Triple-C, Inc. (“TCI”), were included as defendants. This litigation purports to be a class action filed on behalf of Puerto Rico dentists who are similarly situated.

     The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to dentists so that they are not paid in a timely and complete manner for the covered medically necessary services they render. The complaint also alleges, among other things, violations to the Puerto Rico Insurance Code, antitrust laws, the Puerto Rico racketeering statute, unfair business practices, breach of contract with providers, and damages in the amount of $150 million. In addition, the complaint claims that the Puerto Rico Insurance Companies Association is the hub of an alleged conspiracy concocted by the member plans to defraud dentists. There are numerous available defenses to oppose both the request for class certification and the merits. The Corporation intends to vigorously defend this claim.

     Two codefendant plans, whose main operations are outside Puerto Rico, removed the case to federal court in Florida, which the plaintiffs and the other codefendants, including the Corporation, opposed. The federal district court in Florida decided that it lacked jurisdiction under the Class Action Fairness Act (“CAFA”) and remanded the case to state court. The removing defendants petitioned to appeal to the First Circuit Court of Appeals. Having

26

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

accepted the appeal, the First Circuit Court of Appeals issued an order in late October 2009 which found the lower court’s decision premature. The Court of Appeals remanded the case to the federal district court in Puerto Rico (the “DC”) and allowed limited discovery to determine whether the case should be heard in federal court pursuant to CAFA. The parties completed the limited discovery in August 2010 and supplemented their previous filings.

On February 8, 2011 the DC issued its Opinion and Order, denying plaintiff’s motion to remand the case to state court because the injuries alleged in the complaint could be suffered outside Puerto Rico. It also decided to retain jurisdiction. The defendants filed a joint motion to dismiss the case on the merits, because the complaint fails to state a claim upon which relief can be granted. In addition, the parties are engaged in motions practice involving venue.

Colón Litigation

     On October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSS predecessor stock, filed suit against TSS and the Puerto Rico Commissioner of Insurance (the “Commissioner”) in the Court of First Instance. The sale of that share to Mr. Colón-Dueño was voided in 1999 pursuant to an order issued by the Commissioner in which the sale of 1,582 shares to a number of TSS shareholders was voided. TSS, however, appealed the Commissioner’s order before the Puerto Rico Court of Appeals, which upheld the order on March 31, 2000. Plaintiff requests that the court direct TSS to return his share of stock and compensate him for alleged damages in excess of $500,000 plus attorney’s fees. On January 13, 2011 case was dismissed with prejudice and plaintiff filed an appeal with the Puerto Rico Court of Appeals. The Corporation is vigorously contesting this lawsuit because, among other reasons, the Commissioner’s order is final and cannot be collaterally attacked in this litigation.

Claims by Heirs of Former Shareholders

     The Corporation and TSS are defending five individual lawsuits, all filed in state court, from persons who claim to have inherited a total of 71 shares of the Corporation or one of its predecessors or affiliates (before giving effect to the 3,000-for-one stock split) . While each case presents unique facts and allegations, the lawsuits generally allege that the redemption of the shares by the Corporation pursuant to transfer and ownership restrictions contained in the Corporation’s (or its predecessors’ or affiliates’) articles of incorporation and bylaws was improper. Management believes all these claims are time barred under one or more statutes of limitations and other grounds and is vigorously defending them. This belief is supported by the outcome of a similar claim brought by non-medical heirs against us in 2009. The Puerto Rico Court of Appeals dismissed that case as time barred under the two year statute of limitations contained in the local securities law, and the Puerto Rico Supreme Court denied the plaintiffs petition for certiorari in January 2011.

ACODESE Investigation

     During April 2010, each of the Company’s wholly-owned insurance subsidiaries received subpoenas for documents from the U.S. Attorney for the Commonwealth of Puerto Rico (the “U.S. Attorney”) and the Puerto Rico Department of Justice (“PRDOJ”) requesting information principally related to the Asociación de Compañías de Seguros de Puerto Rico, Inc. (“ACODESE” by its Spanish acronym). Also in April, the Company’s insurance subsidiaries received a request for information from the Office of the Commissioner of Insurance of Puerto Rico (“OCI”) related principally to ACODESE. The Company’s insurance subsidiaries are members of ACODESE, an insurance trade association established in Puerto Rico since 1975, and their current presidents have participated over the years on ACODESE’s board of directors.

     The Company believes similar subpoenas and information requests were issued to other member companies of ACODESE in connection with the investigation of alleged payments by the former Executive Vice President of ACODESE to members of the Puerto Rico Legislative Assembly beginning in 2005. The Company, however, has not been informed of the specific subject matter of the investigations being conducted by the U.S. Attorney, the PRDOJ or the OCI. The Company is fully complying with the subpoenas and the request for information and intends

27

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

to cooperate with any related government investigation. The Company at this time cannot reasonably assess the outcome of these investigations or their impact on the Company.

Intrusions into Triple-C, Inc. Internet IPA Database

     On September 21, 2010, we learned from a competitor that a specific internet database managed by our subsidiary TCI containing information pertaining to individuals previously insured by TSS under the Government of Puerto Rico’s Health Insurance Plan (“HIP”) and to independent practice associations (“IPAs”) that provided services to those individuals, had been accessed without authorization by certain of our competitor’s employees from September 9 to September 15, 2010. TCI served as a third-party administrator for TSS in the administration of its HIP contracts until September 30, 2010. We conducted a thorough investigation with the assistance of external resources and identified the information that was accessed and downloaded into the competitor’s system. The September 2010 intrusions may have potentially compromised protected health information of approximately 398,000 beneficiaries in the North and Metro-North regions of the HIP. Our investigation also revealed that protected health information of approximately 5,500 HIP beneficiaries, 2,500 Medicare beneficiaries and IPA data from all three HIP regions previously serviced by TSS was accessed through multiple, separate intrusions into the TCI IPA database from October 2008 to August 2010. We have no evidence indicating that the stolen information included Social Security numbers. We attempted to notify by mail all such beneficiaries whose information may have been compromised by these intrusions. We also established a toll-free call center to address inquiries and complaints from the individuals to whom notice was provided. We received a total of approximately 1,530 inquiries and no complaints from these individuals.

     Our investigation has revealed that the security breaches were the result of unauthorized use of one or more active user IDs and passwords specific to the TCI IPA database, and not the result of breaches of TCI’s, TSS’s or the Corporation’s system security features. Nonetheless, we took measures to strengthen TCI’s server security and credentials management procedures and conducted an assessment of our system-wide data and facility security to prevent the occurrence of a similar incident in the future.

     We were unable to determine the purpose of these breaches and do not know the extent of any fraudulent use of the information or its impact on the potentially affected individuals and IPAs. According to representations made by our competitor, however, the target was financial information related to IPAs rather than the beneficiaries’ information.

     We notified the appropriate Puerto Rico and federal government agencies of these events, including public notice of the breaches as required under Puerto Rico and federal law. We received a number of inquiries and requests for information related to these events from these government agencies and are cooperating with them. The Puerto Rico government agency that oversees the HIP levied a fine of $100,000 on TSS in connection with these incidents, but following our request for reconsideration, the agency withdrew the fine until the pertinent federal authorities conclude their investigations of this matter. We do not have sufficient information at this time to predict whether any future action by government entities or others as a result of the data breaches would adversely affect our business, financial condition and results of operations.

(14) Business Combination

     Effective February 7, 2011, the Corporation announced that its subsidiary, TSS completed the acquisition of 100% of the outstanding capital stock of Socios Mayores en Salud Holdings, Inc. (from now on referred to as “American Health” or “AH”), a provider of Medicare Advantage services to over 40,000 dual and non-dual eligible members in Puerto Rico. After this acquisition the Corporation expects to be better positioned for continued growth in the Medicare Advantage business. The acquisition was accounted by the Corporation in accordance with the provisions of Accounting Standard Codification Topic 805,Business Combinations. The results of operations and financial condition of AH are included in the accompanying consolidated financial statements for the period following the effective date of the acquisition. The aggregate purchase price of the acquired entity was preliminarily estimated at

28

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

approximately $83,428. Direct costs related to the acquisition amounted to $440 and were included in the consolidated operating expenses during the three months ended March 31, 2011.

     Although the closing date of the transaction was February 7, 2011, the consideration amount was determined using AH’s financial position as of January 31, 2011 and as such, TSS has acquired the net assets held by AH as of that date. Therefore, we have recorded a preliminary allocation of the purchase price to AH tangible and intangible assets acquired and liabilities assumed based on their fair value as of January 31, 2011. Additional adjustments to the purchase price allocation may occur for one year after the date of acquisition if new information becomes known about facts and circumstances that existed as of January 31, 2011 that, if known, would have affected the amounts recognized as of that date. Goodwill has been recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired. Goodwill will not be deductible for tax purposes and is attributable to synergies and economies of scale expected from the acquisition. The following table summarizes the consideration transferred to acquire AH as of March 31, 2011 and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition.

Cash	$	71,525
Due to seller		11,903
Total purchase price	$	83,428
Investments and cash and cash equivalents	$	70,359
Premiums and other receivables		21,175
Property and equipment		1,665
Intangible assets		35,060
Other assets		9,911
Claim liabilities		(41,666	)
Accounts payable and accrued liabilities		(26,710	)
Deferred tax liability		(10,518	)
Total net assets	$	59,276
Goodwill	$	24,152

     As of the date of this quarterly report, the external valuation procedures have not progressed to a stage where we can identify and quantify the intangible assets acquired in this transaction. Because the external valuation procedures have not been completed this purchase price allocation is preliminary. In addition, the Company is evaluating certain tax matters and some receivables and accounts payable that could also change the purchase price allocation. As a result, the amount of the final purchase price allocation could differ materially from the amounts presented in the unaudited interim consolidated financial statements. To the extent that any amount is assigned to a tangible or finite live intangible asset, this amount will be depreciated or amortized, as appropriate, to earnings over the expected period of benefit of the asset. At March 31, 2011, we recognized preliminary intangible assets of $35.1 million and goodwill of $24.1 million within the consolidated other assets. During the three months ended March 31, 2011 we recognized $1.4 million of amortization expense related to estimated intangible assets resulting from the AH transaction.

     The consolidated statements of earnings for the three months ended March 31, 2011 include $78,367 and $1,729 related to AH operating revenues and net income, respectively, corresponding to the period subsequent to the effective date of the acquisition. The following unaudited pro forma financial information presents the combined results of operations of the Corporation and AH as if the acquisition had occurred at the beginning of 2010. The unaudited pro forma financial information is not intended to represent or be indicative of the Corporation’s consolidated results

29

Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

of operations that would have been reported had the acquisition been completed as of the beginning of the periods presented and should not be taken as indicative of the Corporation’s future consolidated results of operations.

	Unaudited
	March 31,		March 31,
	2011		2010
Operating revenues	$	541,861	$	601,830
Net Income	$	11,858	$	11,058
Basic net income per share	$	0.41	$	0.38
Diluted net income per share	$	0.41	$	0.38

     The above pro forma operating revenues and net income considers the following estimated acquisition adjustments:

• Amortization of intangible assets — based on the estimated fair value of the tangible net assets acquired from AH, we estimate that we will recognize in our consolidated balance sheet intangible assets of approximately $59.2 million, including goodwill. We anticipate an amortization expense for the quarter ended March 2010 and 2011 of $2.1 million and $1.6 million, respectively.

• Interest expense — represents the interest expense related to the short-term reverse repurchase agreements amounting to $55.0 million to finance the first payment of the acquisition. This agreement was paid during the quarter of the acquisition. Total interest expense related to these reverse repurchase agreements was approximately $42.

• Net investment income — this pro forma adjustment represents the anticipated bond discount amortization of approximately $31 for the quarter ended March 31, 2010 due to the fair value accounting of investment in securities. For the quarter ended March 31, 2011 an additional bond discount amortization of approximately $9 was recorded.

• Acquisition costs — we recognized in the quarter ended March 31, 2010 $440 of expenses related to the acquisition.

• Current income tax expense — we recognized the tax effect of the other pro forma adjustments done to the statement of earnings. During the quarter ended March 31, 2010 the Corporation and AH were subject to Puerto Rico income taxes as a regular corporation at the then enacted tax rate of 41%. The enacted tax rate for the quarter ended March 31, 2011 was 30%.

(15) Subsequent Event

     The Corporation evaluated subsequent events through the date that these consolidated interim financial statements were issued. No events have occurred that required disclosure or adjustments.

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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 for the three months ended March 31, 2011. Therefore, the following discussion should be read in conjunction with the audited 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, 2010.

Cautionary Statement Regarding Forward-Looking Information

     This Quarterly Report on Form 10-Q and other of our publicly available documents 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 our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our 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. We are 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.

Overview

     We are one of the most significant players in the managed care industry in Puerto Rico and have over 50 years of experience in this industry. We offer a broad portfolio of managed care and related products in the Commercial and Medicare (including Medicare Advantage and the Part D stand-alone prescription drug plan (“PDP”)) markets. In the Commercial market we are the largest provider of managed care products. We offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. We also participated in the Government of Puerto Rico Health Reform (“Medicaid”) up to September 30, 2010. Medicaid is a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.

     We have the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico and U.S. Virgin Islands. As of March 31, 2011 we serve approximately 796,000 members across all regions of Puerto Rico and U.S. Virgin Islands, covering approximately 22% of the Puerto Rico population. For the three months ended March 31, 2011, our managed care segment represented approximately 90% of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets. Our life insurance segment had a market share of approximately 8% (in terms of direct premiums) during the nine months ended September 30, 2010. Our property and casualty segment had a market share of approximately 8% (in terms of direct premiums) for the nine months ended September 30, 2010.

     We participate in the managed care market through our subsidiary, Triple-S Salud, Inc. (“TSS”). Our managed care subsidiary is a Blue Cross Blue Shield Association (“BCBSA”) licensee, which provides us with exclusive use of the Blue Cross Blue Shield name and mark throughout Puerto Rico and U.S. Virgin Islands.

     We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc. (“TSV”) and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (“TSP”), each one representing approximately 5% of our consolidated premiums earned, net for the three months ended March 31 2011.

     Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in

31

consolidation and do not change net income. The following table shows premiums earned, net and net fee revenue and operating income for each segment, as well as the intersegment premiums earned, service revenues and other intersegment transactions, which are eliminated in the consolidated results:

	Three months ended
	March 31,
(Dollar amounts in millions)	2011			2010
Premiums earned, net:
Managed care	$	433.3		$	443.8
Life insurance		27.0			25.9
Property and casualty insurance		25.7			25.5
Intersegment premiums earned		(0.7	)		(1.0	)
Consolidated premiums earned, net	$	485.3		$	494.2
Administrative service fees:
Managed care	$	7.6		$	13.3
Intersegment administrative service fees		(1.0	)		(0.8	)
Consolidated administrative service fees	$	6.6		$	12.5
Operating income:
Managed care	$	12.4		$	12.7
Life insurance		4.2			3.8
Property and casualty insurance		1.0			(0.9	)
Intersegment and other		0.8			0.8
Consolidated operating income	$	18.4		$	16.4

     Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and Medicaid. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income. Substantially all of our earnings are generated in Puerto Rico.

     Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment’s results of operations depend in significant part on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation expenses, commission payments to brokers and other overhead business expenses.

     We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.

Recent Developments

Business Acquisition

     On February 7, 2011, TSM announced that TSS, our managed care subsidiary, completed the acquisition of 100% of the outstanding capital stock of Socios Mayores en Salud Holdings, Inc. (from now on referred to as “American Health” or “AH”), the ultimate parent company of American Health, Inc., a provider of Medicare Advantage services to over 40,000 dual and non-dual eligible members in Puerto Rico. The cost of this acquisition was approximately $83.4 million, funded with funds obtained from reverse repurchase agreements and unrestricted cash. The consolidated results of operations and financial condition of the Corporation included in this Quarterly Report on Form 10-Q reflects the results of operations of AH from February 1, 2011 and were included within our Managed Care segment. We are currently in the process of obtaining third-party valuations of certain intangible

32

assets; thus, as of this date it is not possible to determine the allocation of the purchase price to the net assets acquired. For additional information regarding the acquisition of AH, please see note 14 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Federal Regulation

     On March 23, 2010, President Obama signed into law federal health reform legislation, known as the Patient Protection and Affordable Care Act. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, signed into law on March 30, 2010 (collectively, Pub. L. No. 111-148, and referred to herein as “PPACA”), includes certain mandates that took effect in 2010, as well as other requirements that are to be implemented over the next several years. There are many important provisions of the legislation that will require additional guidance and clarification in form of regulations and interpretations in order to fully understand the impact of the legislation on our overall business, which we expect to occur over the next several years. Certain aspects of PPACA are currently being challenged in the judicial system. In addition, Congress may withhold the funding necessary to implement the new reforms or attempt to replace the legislation with amended provisions or repeal it altogether.

     Certain significant provisions of PPACA that will impact our business include, among others, provisions that freeze premium payments to Medicare Advantage health plans beginning in 2011 and that tie such premium to the local Medicare fee for service costs (adjustment will be phased in over between 3 and 7 years depending on the amount of the eventual adjustment), gradual closing of the coverage gap, or “donut hole” on Medicare Part D, provisions that tie Medicare Advantage premiums to the achievement of certain quality performance measures (Star Ratings), and stipulated minimum medical loss ratios.

     We currently estimate that our Medicare Advantage premium payments, on average, will decrease by approximately 6% during 2012. To address these reductions, we may have to reduce benefits, charge or increase member premiums, reduce profit margin expectations, or implement some combination of these actions. Such actions could adversely impact our membership growth, revenue expectations, and our operating margins.

     Beginning 2012, Medicare Advantage plans with an overall Star Rating of three or more stars (out of five) will be eligible for a quality bonus in their basic premium rates. Initially quality bonuses were limited to the few plans that achieved 4 or more stars as their overall rating, but CMS is using demonstration authority to expand the quality bonus to 3 star plans for a three year period through 2014. In addition, also beginning in 2012, Medicare Advantage star ratings will affect the rebate percentage available for plans to provide additional member benefits (plans with quality ratings of 3.5 stars or above will have their rebate percentage increased from a base rate of 50% to 65% or 70%). In all cases, these rebates percentages are lower than the previous percentage of 75%. Our Medicare Advantage plans are currently rated 2.5 out of 5 stars. Notwithstanding efforts to improve our star ratings and other quality measures prior to 2012, there can be no assurances that we will be successful in doing so. Accordingly, our plans may not be eligible for full level quality bonuses or increased rebates, which could adversely affect the benefits such plans can offer, reduce membership and reduce profit margins.

     The federal health reform legislation is discussed more fully under “Item 1. Business — Regulation” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

Recent Accounting Standards

     There were no new accounting pronouncements issued during the three months ended March 31, 2011 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.

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Managed Care Membership

	As of March 31,
	2011		2010
Managed care enrollment:
Commercial1		719,982		763,885
Medicare2		103,794		66,771
Medicaid3		—		534,225
Total		823,776		1,364,881
Managed care enrollment by funding arrangement:
Fully-insured		602,703		915,111
Self-insured		221,073		449,770
Total		823,776		1,364,881

(1)	Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, U.S. Federal government employees and local government employees.
(2)	Includes Medicare Advantage as well as stand-alone PDP plan membership. As of March 31, 2011 total membership attributable to the AH acquisition was 40,835
(3)	Includes rated and self-funded members. We participated in this sector up to September 30, 2010.

Consolidated Operating Results

     The following table sets forth the Corporation’s consolidated operating results. 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
	March 31,
(Dollar amounts in millions)	2011			2010
Revenues:
Premiums earned, net	$	485.3		$	494.2
Administrative service fees		6.6			12.5
Net investment income		11.8			12.4
Total operating revenues		503.7			519.1
Net realized investment gains (losses)		5.9			(1.4	)
Net unrealized investment gain on trading securities		(1.2	)		2.0
Other income, net		—			0.2
Total revenues		508.4			519.9
Benefits and expenses:
Claims incurred		402.6			425.8
Operating expenses		82.7			76.9
Total operating expenses		485.3			502.7
Interest expense		3.1			3.2
Total benefits and expenses		488.4			505.9
Income before taxes		20.0			14.0
Income tax expense		9.6			2.8
Net income	$	10.4		$	11.2
��

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Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Operating Revenues

     Consolidated premiums earned, net decreased by $8.9 million, or 1.8%, to $485.3 million during the three months ended March 31, 2011 when compared to the three months ended March 31, 2010. The decrease was mostly due to a decrease in the Medicaid premiums as a result of the termination of the Medicaid contracts effective September 30, 2010. Such decrease was offset in part by an increase in member months in the Medicare business attributed to new members acquired from AH.

     The decrease in administrative service fees of $5.9 million, or 47.2%, to $6.6 million in the 2010 period, is mostly attributed to the termination of the Medicaid contracts effective September 30, 2010.

Net Realized Investment Losses

     Consolidated net realized investment gains of $5.9 million during the 2011 period are the result net realized gains, mainly from the sale of equity securities.

Net Unrealized Losses on Trading Securities

     Consolidated net unrealized losses on trading securities increased by $3.2 million, to a loss of $1.2 million during the three months ended March 31, 2011. This fluctuation is attributed to a lower fair value of our trading securities portfolio.

Claims Incurred

     Consolidated claims incurred decreased by $23.2 million, or 5.4%, to $402.6 million during the three months ended March 31, 2011 when compared to the claims incurred during the three months ended March 31, 2010. This decrease is principally due to lower claims in the Managed Care segment as a result of the termination of the Medicaid contracts effective September 30, 2010, offset in part by an increase in claims incurred in related to the AH acquisition. The consolidated loss ratio decreased by 3.2 percentage points to 83.0%.

Operating Expenses

     Consolidated operating expenses during the three months ended March 31, 2011 increased by $5.8 million, or 7.5%, to $82.7 million as compared to the operating expenses during the three months ended March 31, 2010. This increase is mainly due to $1.0 million increase in depreciation expense related to the Managed Care segment’s new information system, $1.0 million increase in costs related to the implementation of the new information system and to the effect of costs assumed from the termination of the Medicaid business. Approximately $1.4 million of the expense associated to the AH operations are related to the amortization of intangible assets. For the three months ended March 31, 2011, the consolidated operating expense ratio decreased by 1.6 percentage points to 16.8%.

Income Tax Expense

     Consolidated income tax expense during the three months ended March 31, 2011 increased by $6.8 million to $9.6 million as compared to the income tax expense during the three months ended March 31, 2010. The consolidated income tax expense includes a one-time charge of $6.4 million resulting from the reduction of the net deferred tax assets following the reduction in income tax rates after the enactment of the new Puerto Rico tax reform, which was effective January 2011. This tax reform, decreased corporations maximum tax rate from 39% to 30% and eliminated the additional tax rate imposed on a temporary basis. The adjustment to our net deferred tax assets resulted in a consolidated effective tax rate of 48.0%, which is 28.0 percent points higher than last year.

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Managed Care Operating Results

	Three months ended
	March 31,
(Dollar amounts in millions)	2011			2010
Operating revenues:
Medical premiums earned, net:
Commercial	$	236.4		$	234.0
Medicare		194.1			120.5
Medicaid		2.8			89.3
Medical premiums earned, net		433.3			443.8
Administrative service fees		7.6			13.3
Net investment income		4.2			5.0
Total operating revenues		445.1			462.1
Medical operating costs:
Medical claims incurred		378.4			399.6
Medical operating expenses		54.3			49.8
Total medical operating costs		432.7			449.4
Medical operating income	$	12.4		$	12.7
Additional data:
Member months enrollment:
Commercial:
Fully-insured		1,463,381			1,507,114
Self-funded		724,159			766,283
Total Commercial member months		2,187,540			2,273,397
Medicare:
Medicare Advantage		246,468			173,655
Stand-alone PDP		26,567			28,125
Total Medicare member months		273,035			201,780
Medicaid:
Fully-insured		—			1,012,836
Self-funded		—			589,184
Total Medicaid member months		—			1,602,020
Total member months		2,460,575			4,077,197
Medical loss ratio		87.3	%		90.0	%
Operating expense ratio		12.3	%		10.9	%

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Medical Operating Revenues

     Medical premiums earned for the three months ended March 31, 2011 decreased by $10.5 million, or 2.4%, to $433.3 million when compared to the medical premiums earned during the three months ended March 31, 2010. This decrease is principally the result of the following:

• Medical premiums earned in the Medicaid business decreased by $86.5 million, to $2.8 million during the three months ended March 31, 2011. This fluctuation results from the termination of the Medicaid contracts effective September 30, 2010. The premiums earned reflected in the 2011 period are the result of adjustments that increase the amount receivable corresponding to the risk sharing agreement with the government of Puerto Rico included in the Metro-North region contract.

• Medical premiums generated by the Medicare business increased during the three months ended March 31, 2011 by $73.6 million, or 61.1%, to $194.1 million. This fluctuation is the result of an overall increase in the member months enrollment of this business by 71,255, or 35.3%, when compared with the same period in 2010. Increase in member month enrollment was attributed to new members acquired from AH effective February 1,

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2011, offset in part by a decrease in member months in our dual eligible product. Total member months from AH amounted to 81,957 during the three months ended March 31, 2011.

• Medical premiums generated by the Commercial business increased by $2.4 million, or 1.0%, to $236.4 million during the three months ended March 31, 2011. This fluctuation is primarily the result of an increase in average premium rates in rated group policies of approximately 5.0% partially offset by a decrease in member months enrollment by 43,733, or 2.9%.

     Administrative service fees decreased by $5.7 million, or 42.9%, to $7.6 million during the three months ended March 31, 2011. This fluctuation results from the termination of the Medicaid contracts effective September 30, 2010 as well as a lower self-insured commercial member months enrollment during the 2011 period.

     Medical Claims Incurred

     Medical claims incurred during the three months ended March 31, 2011 decreased by $21.2 million, or 5.3%, to $378.4 million when compared to the three months ended March 31, 2011. The medical loss ratio (“MLR”) of the segment decreased 2.7 percentage points during the 2011 period, to 87.3%. These fluctuations are primarily attributed to the effect of the following:

• The medical claims incurred of the Medicaid business were $93.4 million, or 5.8%, lower than the prior year mostly due to the termination of the Medicaid contracts effective September 30, 2010.

• The medical claims incurred of the Commercial business increased by $2.2 million, or 1.0%, during the 2011 period and its MLR increased by 0.1 percentage points. The higher MLR is primarily due to the effect of prior period reserve developments in the 2011 and 2010 periods. Excluding the effect of prior period reserve developments, the MLR decreased by 0.5 percentage points, mostly resulting from a lower utilization trends in 2011.

• The medical claims incurred of the Medicare business increased by $70.0 million, or 71.0% during the 2011 period primarily due to the acquisition of AH effective February 1, 2011. Total claims incurred during the 2011 period related to the AH business amounted to $68.7 million. The MLR of this business was 86.8%, which is 5.1 percentage points higher than the MLR for the prior year. The higher MLR is due to the addition of AH which has a higher MLR than our other Medicare products as well as higher utilization trends in our non-dual product as compared to last year.

Medical Operating Expenses

     Medical operating expenses for the three months ended March 31, 2011 increased by $4.5 million, or 9.0%, to $54.3 million when compared to the three months ended March 31, 2010. This increase is mainly due to $1.0 million increase in depreciation expense related with the segment’s new information system, $1.0 million increase in costs related to the implementation of this new information system and to the effect of cost assumed from the termination of the Medicaid business. Approximately $1.4 million of the expenses associated to the AH operations are related to the amortization of intangible assets. Total operating expenses during the three months ended March 31, 2011 related to the AH business amounted to $7.9 million. The operating expense ratio increased by 1.4 percentage points, from 10.9% in 2010 to 12.3% in 2011.

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Life Insurance Operating Results

	Three months ended
	March 31,
(Dollar amounts in millions)	2011			2010
Operating revenues:
Premiums earned, net:
Premiums earned	$	28.5		$	27.3
Premiums earned ceded		(1.5	)		(1.4	)
Premiums earned, net		27.0			25.9
Net investment income		4.4			4.2
Total operating revenues		31.4			30.1
Operating costs:
Policy benefits and claims incurred		12.6			12.4
Underwriting and other expenses		14.6			13.9
Total operating costs		27.2			26.3
Operating income	$	4.2		$	3.8
Additional data:
Loss ratio		46.7	%		47.9	%
Operating expense ratio		54.1	%		53.7	%

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Operating Revenues

     Premiums earned, net for the three months ended March 31, 2011 increased by $1.1 million, or 4.2% to $27.0 million when compared to the three months ended the March 31, 2010. Such increase is primarily related to higher sales in Individual Life and Special Risk lines of business.

Policy Benefits and Claims Incurred

     Policy benefits and claims incurred for the three months ended March 31, 2011 increased by $0.2 million, or 1.6%, to $12.6 million when compared to the three months ended March 31, 2010, as a result of an increase in the Group Life benefits and policy surrenders, offset in part by lower benefits in the Individual Life and Group Health lines of business. The loss ratio for the period improved from 47.9% in 2010 to 46.7% in 2011, or 1.2 percentage points.

Underwriting and Other Expenses

     Underwriting and other expenses for the three month period ended March 31, 2011 increased $0.7 million, or 5.0%, to $14.6 million when compared to the three months ended March 31, 2010. The increase is mostly related to a higher amortization of deferred policy acquisition costs and the higher volume of business of this segment. The increased operating expenses resulted in a higher operating expense ratio, which increased by 0.4 percentage points from 53.7% in 2010 to 54.1% in 2011.

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Property and Casualty Insurance Operating Results

	Three months ended
	March 31,
(Dollar amounts in millions)	2011			2010
Operating revenues:
Premiums earned, net:
Premiums written	$	32.0		$	36.2
Premiums ceded		(14.5	)		(14.5	)
Change in unearned premiums		8.2			3.8
Premiums earned, net		25.7			25.5
Net investment income		2.2			2.7
Total operating revenues		27.9			28.2
Operating costs:
Claims incurred		11.6			13.8
Underwriting and other expenses		15.3			15.3
Total operating costs		26.9			29.1
Operating income / (loss)	$	1.0		$	(0.9	)
Additional data:
Loss ratio		45.1	%		54.1	%
Operating expense ratio		59.5	%		60.0	%

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Operating Revenues

     Total premiums written during the three months ended March 31, 2011 decreased by $4.2 million, or 11.6%, to $32.0 million, mostly resulting from a decrease in premiums mostly in the Commercial Auto, Dwelling and Commercial Property Mono-line and Commercial Multi-Peril lines of business. The commercial business continues under soft market conditions, thus reducing premium rates and increasing competition for renewals and new business.

     Premiums ceded to reinsurers during the three months ended March 31, 2011 remained at $14.5 million. The ratio of premiums ceded to premiums written increased by 5.2 percentage points, from 40.1% in 2010 to 45.3% in 2011, mostly due to higher commercial property cessions which were increased from 32% to 37% and by a portfolio transfer that had the effect of increasing 2011 premiums ceded by $1.3 million.

     The change in unearned premiums presented an increase of $4.4 million, to $8.2 million during the three months ended March 31, 2011, primarily as the result of the lower volume of premiums written.

Claims Incurred

     Claims incurred during the three months ended March 31, 2011 decreased by $2.2 million, or 15.9%, to $11.6 million. The loss ratio decreased by 9.0 percentage points, to 45.1% during the three months ended March 31, 2011 as a result of favorable loss experience in the Commercial Auto, Commercial Multi-Peril, and Personal Auto lines of business resulting from lower claim amounts in the claims reported during the current period.

Underwriting and Other Expenses

     Underwriting and other operating expenses for the three months ended March 31, 2011 remained at $15.3 million. The operating expense ratio decreased by 0.5 percentage points during the same period, to 59.5% in 2011.

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Liquidity and Capital Resources

Cash Flows

     A summary of our major sources and uses of cash for the periods indicated is presented in the following table:

	Three months ended
	March 31,
(Dollar amounts in millions)	2011			2010
Sources of cash:
Cash provided by operating activities	$	101.5		$	30.5
Proceeds from policyholder deposits		1.8			2.1
Other		3.5			—
Total sources of cash		106.8			32.6
Uses of cash:
Net purchases of investment securities		(2.8	)		(24.0	)
Capital expenditures		(3.9	)		(4.9	)
Repurchase and retirement of common stock		(1.6	)		—
Cash settlements of stock options		(1.3	)		—
Payments of long-term borrowings		(0.4	)		(0.4	)
Payments of short-term borrowings		(15.6	)		—
Surrenders of policyholder deposits		(1.8	)		(2.3	)
Acquisition of business, net of cash of $29.4 million		(54.0	)		—
Total uses of cash		(81.4	)		(31.6	)
Net increase in cash and cash equivalents	$	25.4		$	1.0

     Cash flow from operating activities increased by $71.0 million for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, principally due to the effect of higher premiums collections by $74.9 million and increase in net proceeds from our trading portfolio by $16.1 million, offset in part by an increase in cash paid to suppliers and employees by $12.5 million. The increase in premiums collected is principally the result of the collection of past due Medicaid balances. The higher net proceeds from our trading portfolio is due to the sale of an actively managed trading portfolio.

     The increase of $3.5 in the other sources of cash is attributed to changes in the amount of outstanding checks over bank balances in the 2011 period.

     Net purchases of investment securities decreased by $21.2 million during the three month ended March 31, 2011, primarily due to lower investment purchases as part of our decision to increase liquidity during the 2011 quarter to pay for the AH acquisition.

     Payments of short-term borrowings increased by $15.6 million during the three month ended March 31, 2011 as a result of the repayment of outstanding balances as of December 31, 2010.

     On February 7, 2011, we acquired AH at a cost of $54.0 million, net of $29.4 million of cash acquired.

     On September 29, 2010 we announced the commencement of a $30.0 million share repurchase program. We paid approximately $1.6 million under the stock repurchase program during the three months ended March 31, 2011.

     In the 2011 period we cash-settled 243,500 stock options for $1.3 million, its fair value on settlement date.

Share Repurchase Program

     On September 29, 2010, we announced the immediate commencement of a $30.0 million share repurchase program. The program is conducted using available cash through open-market purchases and privately-negotiated transactions of Class B shares only, in accordance with Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended March 31, 2011 we repurchased and retired 83,594 shares at an average per share price of $18.62, for an aggregate cost of $1.6 million.

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Financing and Financing Capacity

     We have several short-term facilities available to address timing differences between cash receipts and disbursements. These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements. As of March 31, 2011, we had $215.0 million of available credit under these facilities. There were no outstanding short-term borrowings under these facilities as of March 31, 2011.

	As of March 31, 2011, we had the following long-term borrowings:
•	On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes).
•	On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes due December 2020 (the 6.6% notes). On October 1, 2010 we repaid $25.0 million of the principal of these senior unsecured notes.
•	On March 30, 2004, we issued and sold $50.0 million of our 6.3% senior unsecured notes due March 2019 (the 6.3% notes).
•	On November 1, 2010, we entered in a $25.0 million arrangement to sell securities under repurchase agreements that matures on November 2015. This repurchase agreement pays interests on a quarterly basis at 1.96%. The investment securities underlying such agreements were delivered to the financial institution with whom the agreement was transacted. The dealers may have loaned, or used as collateral such securities in the normal course of business operations. We maintain effective control over the investment securities pledged as collateral and accordingly, such securities continue to be carried on our consolidated balance sheet. At March 31, 2011 investment securities available for sale with fair value of $28.4 million (face value of $20.7 million) were pledged as collateral under this agreement. The proceeds obtained from this agreement were used to repay $25.0 million of the 6.6% notes

     . The 6.3% notes, the 6.6% notes and the 6.7% notes contain certain non-financial covenants. At March 31, 2011, we and our managed care subsidiary, as applicable, are in compliance with these covenants.

     In addition, we are a party to a secured term loan with a commercial bank in Puerto Rico. This secured loan bears interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 100 basis points and requires monthly principal repayments of $0.1 million. As of March 31, 2011, this secured loan had an outstanding balance of $20.9 million and average annual interest rate of 1.30%.

     This secured loan is guaranteed by a first lien on our land, buildings and substantially all leasehold improvements, as collateral for the term of the agreements under a continuing general security agreement. This secured loan contains certain non-financial covenants that are customary for this type of facility, including, but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control. As of March 31, 2011 we are in compliance with these covenants. Failure to meet these covenants may trigger the accelerated payment of the outstanding balance.

     We anticipate that we will have sufficient liquidity to support our currently expected needs.

     Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business. We have exposure to market risk mostly in our 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 our exposure to financial market risks since December 31, 2010. A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2010.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     In connection with the preparation of this Quarterly Report on Form 10-Q, management, under the supervision and with the participation of the chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined under Exchange Act Rule 13a-15(e)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

     Based on this evaluation, our chief executive officer and chief financial officer have concluded that as of March 31, 2011, which is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance except for the operations of AH. Effective February 1, 2011, TSS completed the acquisition of AH, which had not been previously subject to a review on internal controls over financial reporting under the Sarbanes Oxley Act of 2002. We immediately began the process of integrating AH’s operations, including internal controls over financial reporting and implementing Section 404 requirements to AH’s operations. AH operations represent 16% of consolidated operating revenues for the three months ended March 31, 2011 and net assets associated with AH (including intangible assets and goodwill) represent 9% of our consolidated total assets as of March 31, 2011.

     There were no significant changes in our 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.

Changes in Internal Controls Over Financial Reporting

     No changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended March 31, 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

     For a description of legal proceedings, see note 13 to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q.

Item 1A. Risk Factors

     For a description of our risk factors see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2010. See also section “Recent Developments — Federal Regulation ” in Item 2 of Part I of this Quarterly Report on Form 10-Q.

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

Purchases of Equity Securities by the Issuer

The following table presents information related to our repurchases of common stock for the period indicated:

					Total Number		Approximate
					of Shares		Dollar Value of
					Purchased as		Shares that
	Total				Part of		May Yet Be
	Number of		Average		Publicly		Purchased
(Dollar amounts in millions, except	Shares		Price Paid		Announced		Under the
per share data)	Purchased		per Share		Programs1		Programs
January 1, 2011 to January 31, 2011		47,794	$	18.51		47,794	$	23.0
February 1, 2011 to February 28, 2011		35,800	$	18.77		35,800		22.2
March 1, 2011 to March 31, 2011		—		—		—		22.2

1 In September 2010 the Board of Directors authorized the commencement of a $30.0 million share repurchase program of Class B shares only.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other Information

     Not applicable.

Item 6. Exhibits

Exhibits	Description
11	Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and six months ended March 31, 2011 and 2010 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.
31.1*	Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
31.2*	Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
32.1*	Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
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.

* Filed herein.

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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: May 9, 2011	By:	/s/ Ramón M. Ruiz-Comas
		Ramón M. Ruiz-Comas, CPA
		President and Chief Executive Officer
Date: May 9, 2011	By:	/s/ Juan J. Román
		Juan J. Román, CPA
		Vice President of Finance and Chief Financial Officer Principal Accounting Officer

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