United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2007

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: 0-49762

Triple-S Management Corporation

(Exact name of registrant as specified in its charter)

Puerto Rico		66-0555678
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)
1441 F.D. Roosevelt Avenue
San Juan, Puerto Rico		00920
(Address of principal executive offices)		(Zip code)

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                                                        Accelerated filer       o                                                         Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ 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 September 30, 2007
Common Stock, $1.00 par value		26,772,000

 

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended September 30, 2007

Table of Contents

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006			3
Consolidated Statements of Earnings for the three months and nine months ended September 30, 2007 and 2006			4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months ended September 30, 2007 and 2006			5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006			6
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 5. Other Information			34
Item 6. Exhibits			35
SIGNATURES			36
EX-10.1 AMENDMENT TO AGREEMENT WITH PUERTO RICO HEALTH INSURANCE ADMINISTRATION
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

Part I — Financial Information

Item 1. Financial Statements

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

		(Unaudited)
		September 30,				December 31,
		2007				2006
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Equity securities		$	69,968				83,447
Securities available for sale, at fair value:
Fixed maturities			728,649				702,566
Equity securities			73,406				61,686
Securities held to maturity, at amortized cost:
Fixed maturities			46,331				47,989
Policy loans			5,491				5,194
Cash and cash equivalents			95,973				81,564
Total investments and cash			1,019,818				982,446
Premiums and other receivables, net			205,034				165,626
Deferred policy acquisition costs and value of business acquired			114,352				111,417
Property and equipment, net			42,529				41,615
Net deferred tax asset			8,363				9,292
Other assets			34,465				35,113
Total assets		$	1,424,561				1,345,509
LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete		$	168,914				147,211
Unreported losses			162,401				150,735
Unpaid loss-adjustment expenses			17,244				16,736
Total claim liabilities			348,559				314,682
Liability for future policy benefits			190,508				180,420
Unearned premiums			98,838				113,582
Policyholder deposits			46,136				45,425
Liability to Federal Employees’ Health Benefits Program			19,637				13,563
Accounts payable and accrued liabilities			134,345				110,609
Borrowings			171,357				183,087
Income tax payable			—				9,242
Liability for pension benefits			32,315				32,300
Total liabilities			1,041,695				1,002,910
Stockholders’ equity:
Common stock			26,772				26,733
Additional paid-in capital			123,993				124,031
Retained earnings			249,618				211,266
Accumulated other comprehensive loss			(17,517	)			(19,431	)
Total stockholders’ equity			382,866				342,599
Total liabilities and stockholders’ equity		$	1,424,561				1,345,509

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the three months and nine months ended September 30, 2007 and 2006

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
REVENUES:
Premiums earned, net		$	375,803				390,431			$	1,101,614				1,158,599
Administrative service fees			3,908				3,725				11,034				10,356
Net investment income			11,229				10,509				33,397				31,325
Total operating revenues			390,940				404,665				1,146,045				1,200,280
Net realized investment gains			1,183				363				6,163				1,324
Net unrealized investment gain (loss) on trading securities			588				3,407				(764	)			3,718
Other income (expense), net			(525	)			1,295				1,842				1,208
Total revenues			392,186				409,730				1,153,286				1,206,530
BENEFITS AND EXPENSES:
Claims incurred			310,033				317,388				915,374				974,304
Operating expenses			57,944				55,810				173,439				170,472
Total operating costs			367,977				373,198				1,088,813				1,144,776
Interest expense			3,938				4,493				11,948				12,387
Total benefits and expenses			371,915				377,691				1,100,761				1,157,163
Income before taxes			20,271				32,039				52,525				49,367
INCOME TAX EXPENSE:
Current			4,575				6,130				11,573				9,545
Deferred			206				1,079				152				992
Total income taxes			4,781				7,209				11,725				10,537
Net income		$	15,490				24,830			$	40,800				38,830
Basic net income per share (note 7)		$	0.58				0.93			$	1.53				1.45

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

For the nine months

ended September 30, 2007 and 2006

		2007				2006
BALANCE AT JANUARY 1		$	342,599				308,703
Dividends			(2,448	)			(6,231	)
Other			1				—
Comprehensive income (loss):
Net income			40,800				38,830
Net unrealized change in fair value of available for sale securities			1,137				(3,487	)
Defined benefit pension plan:
Actuarial loss, net			935				—
Prior service cost, net			27				—
Net change in fair value of cash flow hedges			(185	)			(30	)
Total comprehensive income			42,714				35,313
BALANCE AT SEPTEMBER 30		$	382,866				337,785

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARES

For the nine months ended September 30, 2007 and 2006

		Nine months ended
		September 30,
		2007				2006
Net income		$	40,800				38,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			5,413				4,486
Net amortization of investments			556				135
Provision for doubtful receivables			1,902				1,588
Deferred tax expense			152				992
Net gain on sale of securities			(6,163	)			(1,324	)
Net unrealized (gain) loss of trading securities			764				(3,718	)
Proceeds from trading securities sold:
Equity securities			38,309				14,137
Acquisition of securities in trading portfolio:
Equity securities			(19,172	)			(14,599	)
Loss on sale of property and equipment			2				22
(Increase) decrease in assets:
Premiums receivable			(21,258	)			(34,552	)
Agent balances			2,084				(528	)
Accrued interest receivable			(1,314	)			(21	)
Other receivables			(4,289	)			(2,843	)
Reinsurance recoverable on paid losses			(16,409	)			(3,637	)
Deferred policy acquisition costs and value of business acquired			(2,935	)			(4,066	)
Prepaid income tax			(2,598	)			3,353
Other assets			2,942				459
Increase (decrease) in liabilities:
Claims processed and incomplete			21,703				18,971
Unreported losses			11,666				17,402
Unpaid loss-adjustment expenses			508				1,414
Liability for future policy benefits			10,088				10,254
Unearned premiums			(14,744	)			(3,832	)
Policyholder deposits			1,192				1,356
Liability to FEHBP			6,074				(1,812	)
Accounts payable and accrued liabilities			5,459				3,970
Income tax payable			(9,242	)			4,677
Net cash provided by operating activities		$	51,490				51,114

(Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)

		Nine months ended
		September 30,
		2007				2006
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		$	101,828				16,151
Fixed maturities matured			25,733				30,895
Equity securities			1,000				1,209
Fixed maturity securities held to maturity			7,172				342
Acquisition of investments:
Securities available for sale:
Fixed maturities			(147,357	)			(54,221	)
Equity securities			(16,759	)			(11,517	)
Securities held to maturity:
Fixed maturities			(4,891	)			(1,688	)
Acquisition of business, net of $10,403 of cash acquired			—				(27,793	)
Net disbursements for policy loans			(297	)			(502	)
Net capital expenditures			(6,329	)			(9,468	)
Net cash used in investing activities			(39,900	)			(56,592	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances			17,477				490
Repayments of short-term borrowings			(43,559	)			(119,547	)
Proceeds from short-term borrowings			43,559				117,807
Repayments of long-term borrowings			(11,730	)			(2,093	)
Proceeds from long-term borrowings			—				35,000
Dividends paid			(2,448	)			(6,231	)
Proceeds from policyholder deposits			5,133				4,389
Surrenders of policyholder deposits			(5,614	)			(10,213	)
Other			1				—
Net cash provided by financing activities			2,819				19,602
Net increase in cash and cash equivalents			14,409				14,124
Cash and cash equivalents at beginning of the period			81,564				49,050
Cash and cash equivalents at end of the period		$	95,973				63,174

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

September 30, 2007

(Unaudited)

(1) Basis of Presentation

The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries (the Corporation) are unaudited, except for the balance sheet information as of December 31, 2006, which is derived from the Corporation’s audited consolidated financial statements, pursuant to the rules and regulations of the United States Securities and Exchange Commission. The consolidated interim financial statements do not include all of the information and the footnotes required by U.S. generally accepted accounting principles 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, 2006.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months and nine months ended September 30, 2007 are not necessarily indicative of the results for the full year.

Certain amounts in the 2006 consolidated financial statements were reclassified to conform to the 2007 presentation.

(2) Recent Accounting Standards

There were no new accounting pronouncements issued during the first nine months of 2007 that have not been disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

The Corporation adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48) on January 1, 2007. See note 10 for details.

(3) Segment Information

The operations of the Corporation are conducted principally through three business segments: Managed Care, Life and Accident and Health Insurance (the Life Insurance segment), 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.

The following tables summarize the operations by major operating segment for the three months and nine months ended September 30, 2007 and 2006:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Operating revenues:
Managed Care:
Premiums earned, net		$	330,366				346,668			$	965,909				1,028,452
Administrative service fees			3,908				3,725				11,034				10,356
Intersegment premiums /service fees			1,309				1,335				4,717				4,224
Net investment income			4,848				4,770				14,338				13,842
Total managed care			340,431				356,498				995,998				1,056,874
Life Insurance:
Premiums earned, net			21,974				21,936				66,837				64,434
Intersegment premiums			92				79				264				235
Net investment income			3,695				3,285				11,054				10,117
Total life			25,761				25,300				78,155				74,786
Property and Casualty Insurance:
Premiums earned, net			23,463				21,827				68,868				65,713
Intersegment premiums			154				154				462				438
Net investment income			2,566				2,340				7,645				7,020
Total property and casualty			26,183				24,321				76,975				73,171
Other segments - intersegment service revenues *			10,683				12,855				32,325				38,320
Total business segments			403,058				418,974				1,183,453				1,243,151
TSM operating revenues from external sources			120				114				360				346
Elimination of intersegment premiums			(1,555	)			(1,568	)			(5,443	)			(4,897	)
Elimination of intersegment service fees			(10,683	)			(12,855	)			(32,325	)			(38,320	)
Consolidated operating revenues		$	390,940				404,665			$	1,146,045				1,200,280

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Operating income:
Managed care		$	17,499				22,377			$	39,396				33,165
Life insurance			2,605				3,089				8,260				9,069
Property and casualty insurance			1,508				3,756				6,494				7,946
Other segments *			509				505				787				1,009
Total business segments			22,121				29,727				54,937				51,189
TSM operating revenues from external sources			120				114				360				346
TSM unallocated operating expenses			(2,006	)			(1,120	)			(6,279	)			(3,762	)
Elimination of TSM intersegment charges			2,728				2,746				8,214				7,731
Consolidated operating income			22,963				31,467				57,232				55,504
Consolidated net realized investment gains			1,183				363				6,163				1,324
Consolidated net unrealized gain (loss) on trading securities			588				3,407				(764	)			3,718
Consolidated interest expense			(3,938	)			(4,493	)			(11,948	)			(12,387	)
Consolidated other income, net			(525	)			1,295				1,842				1,208
Consolidated income before taxes		$	20,271				32,039			$	52,525				49,367
Depreciation expense:
Managed care		$	1,167				977			$	2,925				2,786
Life insurance			193				195				532				512
Property and casualty insurance			377				101				1,114				340
Total business segments			1,737				1,273				4,571				3,638
TSM depreciation expense			281				283				842				1,121
Consolidated depreciation expense		$	2,018				1,556			$	5,413				4,759

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

		September 30,				December 31,
		2007				2006
Assets:
Managed care		$	633,387				600,948
Life insurance			424,326				407,994
Property and casualty insurance			354,444				326,894
Other segments *			8,350				7,807
Total business segments			1,420,507				1,343,643
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments			10,346				11,879
Property and equipment,net			22,801				23,792
Other assets			3,044				4,096
			36,191				39,767
Elimination entries-intersegment receivables and others			(32,137	)			(37,901	)
Consolidated total assets		$	1,424,561				1,345,509
Significant noncash items:
Net change in unrealized gain on securities available for sale:
Managed care		$	(449	)			(1,560	)
Life insurance			(690	)			(1,457	)
Property and casualty insurance			2,184				(183	)
Total business segments			1,045				(3,200	)
Amount related to TSM			92				(12	)
Consolidated net change in unrealized gain on securities available for sale		$	1,137				(3,212	)
Net change in defined benefit pension plan liability:
Managed care		$	658				3,795
Life			9				212
Property and casualty			69				197
Other segments*			205				614
Total business segments			941				4,818
Amount related to TSM			21				134
Consolidated net change in defined benefit pension plan liability		$	962				4,952

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

(4) Investment in Securities

The amortized cost for debt securities and equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and held-to-maturity securities by major security type and class of security at September 30, 2007 and December 31, 2006, were as follows:

September 30, 2007
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated fair
		cost				gains				losses				value
Trading securities:
Equity securities		$	54,215				16,525				(772	)			69,968
Securities available for sale:
Fixed maturities			735,033				1,969				(8,353	)			728,649
Equity securities			65,586				10,200				(2,380	)			73,406
			800,619				12,169				(10,733	)			802,055
Securities held to maturity:
Fixed maturities			46,331				53				(710	)			45,674
		$	901,165				28,747				(12,215	)			917,697

December 31, 2006
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated fair
		cost				gains				losses				value
Trading securities:
Equity securities		$	66,930				17,436				(919	)			83,447
Securities available for sale:
Fixed maturities			714,113				590				(12,137	)			702,566
Equity securities			50,132				13,112				(1,558	)			61,686
			764,245				13,702				(13,695	)			764,252
Securities held to maturity:
Fixed maturities			47,989				383				(1,491	)			46,881
		$	879,164				31,521				(16,105	)			894,580

Investment in securities at September 30, 2007 are mostly comprised of U.S. Treasury securities, obligations of government sponsored enterprises and obligations of U.S. government instrumentalities (58.9%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (7.6%) and obligations of the government of Puerto Rico and its instrumentalities (6.9%). The remaining 26.6% of the investment portfolio is comprised of corporate bonds, equity securities and mutual funds.

The Corporation regularly monitors the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating the length of time and the extent to which cost exceeds fair value, the prospects and financial condition of the issuer, and the Corporation’s intent and ability to retain the investment to allow for recovery in fair value, among other factors. This process is not exact and further requires consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its fair value solely due to changes in interest rates, impairment may not be appropriate. If after monitoring and analyzing, the Corporation determines that a decline in the estimated fair value of any available-for-sale or held-to-maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

The impairment is charged to operations and a new cost basis for the security is established. During the nine months ended September 30, 2007 and 2006 the Corporation recognized other-than-temporary impairments amounting to $564 and $1,350, respectively, on its equity securities classified as available for sale.

(5) Premiums and Other Receivables

Premiums and other receivables as of September 30, 2007 and December 31, 2006 were as follows:

		September 30,				December 31,
		2007				2006
Premium		$	68,696				53,377
Self-funded group receivables			30,038				24,854
FEHBP			9,942				9,187
Agents balances			26,729				28,813
Accrued interest			9,368				8,054
Reinsurance recoverable on paid losses			57,294				40,885
Other			23,099				18,686
			225,166				183,856
Less allowance for doubtful receivables:
Premiums			13,195				12,128
Other			6,937				6,102
			20,132				18,230
Total premiums and other receivables		$	205,034				165,626

(6) Claim Liabilities

The activity in the total claim liabilities for the three months and nine months ended September 30, 2007 and 2006 is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Claim liabilities at beginning of period		$	344,816				341,598			$	314,682				297,563
Reinsurance recoverable on claim liabilities			(50,003	)			(29,173	)			(32,066	)			(28,720	)
Net claim liabilities at beginning of period			294,813				312,425				282,616				268,843
Claim liabilities acquired from GA Life			—				—				—				8,771
Incurred claims and loss-adjustment expenses:
Current period insured events			311,925				317,413				931,605				975,170
Prior period insured events			(4,815	)			(6,163	)			(25,753	)			(12,471	)
Total			307,110				311,250				905,852				962,699
Payments of losses and loss-adjustment expenses:
Current period insured events			288,469				289,548				711,175				748,093
Prior period insured events			14,776				20,010				178,615				178,103
Total			303,245				309,558				889,790				926,196
Net claim liabilities at end of period			298,678				314,117				298,678				314,117
Reinsurance recoverable on claim liabilities			49,881				30,416				49,881				30,416
Claim liabilities at end of period		$	348,559				344,533			$	348,559				344,533

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

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 amount included in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 2007 and 2006 represents a favorable development of claim liabilities due primarily to better than expected utilization trends.

(7) Capital Stock

The Corporation is authorized to issue 100,000,000 shares of common stock with a par value of $1.00 per share pursuant to an amendment to the Corporation’s Article of Incorporation that became effective in February 2007.

On April 24, 2007, the Corporation’s Board of Directors (the Board) authorized a 3,000-for-one stock split effected in the form of a dividend of 2,999 shares for every one share outstanding. This stock split was effective on May 1, 2007 to all stockholders of record at the close of business on April 24, 2007. The total number of authorized shares and par value per share were unchanged by this action. The par value of the additional shares resulting from the stock split was reclassified from additional paid in capital to common stock. All references to the number of shares and per share amounts in this consolidated financial statements are presented after giving retroactive effect to the stock split.

In May 2007, the Corporation cancelled 24,000 director qualifying shares. As of February 2007, Board members are no longer required to hold qualifying shares to participate in the Board of Directors of the Corporation.

(8) Borrowings

A summary of the Corporation’s borrowings at September 30, 2007 and December 31, 2006 is as follows:

		September 30,				December 31,
		2007				2006
Secured loan payable of $20,000, payable in various different installments up to August 1, 2007, with interest payable on a monthly basis at a rate reset periodically of 130 basis points over LIBOR selected (which was 6.67% December 31, 2006)		$	—				10,500
Senior unsecured notes payable of $50,000 due September 2019. Interest is payable semiannually at a fixed rate of 6.30%.			50,000				50,000
Senior unsecured notes payable of $60,000 due December 2020. Interest is payable monthly at a fixed rate of 6.60%.			60,000				60,000
Senior unsecured notes payable of $35,000 due January 2021. Interest is payable monthly at a fixed rate of 6.70%.			35,000				35,000
Secured loan payable of $41,000, payable in monthly installments of $137 up to July 1, 2024, plus interest at a rate reset periodically of 100 basis points over LIBOR selected (which was 6.72% and 6.35% at September 30, 2007 and December 31, 2006, respectively)			26,357				27,587
Total borrowings		$	171,357				183,087

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

     (9) Comprehensive Income

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

														Accumulated
		Unrealized				Liability for								other
		gain (loss) on				pension				Cash flow				comprehensive
		securities				benefits				hedges				income
BALANCE AT JANUARY 1		$	5				(19,742	)			306				(19,431	)
Net current period change			1,137				962				(185	)			1,914
BALANCE AT SEPTEMBER 30		$	1,142				(18,780	)			121				(17,517	)

(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 January 1, 2007, tax years 2003 through 2006 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 the 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 carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date. Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.

In June 2006, FASB issued FIN 48, which among other things, provides guidance to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold which income tax positions must achieve before being recognized in the financial statements. In addition, FIN 48 requires expanded annual disclosures, including a rollforward of the beginning and ending aggregate unrecognized taxes as well as specific detail related to tax uncertainties for which it is reasonably possible the amount of unrecognized taxes will significantly increase or decrease within twelve months. The Corporation adopted FIN 48 on January 1, 2007; no adjustment was required upon the adoption of this accounting pronouncement.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

(11) Pension Plan

The components of net periodic benefit cost for the three months and nine months ended September 30, 2007 and 2006 were as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Components of net periodic benefit cost:
Service cost		$	1,254				1,350			$	4,194				4,042
Interest cost			1,195				1,151				3,916				3,454
Expected return on assets			(1,034	)			(954	)			(3,395	)			(2,880	)
Prior service cost			14				12				44				36
Actuarial loss			501				602				1,526				1,794
Net periodic benefit cost		$	1,930				2,161			$	6,285				6,446

Employer contributions

The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2006 that it expected to contribute $5,000 to its pension program in 2007. As of September 30, 2007, the Corporation contributed $5,000 to the pension program.

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

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

The following table sets forth the computation of basic net income per share after giving retroactive effect to the stock split disclosed in note 7:

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Numerator for basic earnings per share:
Net income available to stockholders		$	15,490				24,830			$	40,800				38,830
Denominator for basic earnings per share:
Weighted average of outstanding common shares giving effect to 3,000-for-one stock split			26,772,000				26,733,000				26,741,333				26,728,333
Basic net income per share giving effect to 3,000-for-one stock split		$	0.58				0.93			$	1.53				1.45

(13) Contingencies

Various litigation claims and assessments against the Corporation have arisen in the ordinary course of business, including but not limited to, its activities as an insurer and employer. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning our compliance with applicable insurance and other laws and regulations. Management believes, based

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

on the opinion of legal counsel, that the aggregate liabilities, if any, arising from such claims, assessments, audits and lawsuits would 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 our 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 have incurred 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.

Sánchez Litigation

On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, present and former directors of the board of directors of the Corporation and Triple-S, Inc. (TSI), and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act (RICO). The class action complaint, which was amended on March 24, 2005, seeks damages in excess of $40 million. The plaintiffs purport to represent, among others, providers of medical products and services covered under policies issued or administered by the defendants, as well as the subscribers to those policies. Among other allegations, the suit alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the shareholders of their ownership rights. The plaintiffs base their allegations on the alleged decisions of TSI’s board of directors and shareholders, purportedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation. On May 4, 2006, the Court issued an Opinion and Order awarding summary judgment in favor of all the defendants, thereby dismissing the case. Plaintiffs filed a notice of appeal before the United States Court of Appeals for the First Circuit. On June 13, 2007, the First Circuit issued its Opinion confirming the summary judgment entered by the District Court. The plaintiffs did not move for any type of post-judgment relief before the Court of Appeals. On September 11, 2007, the plaintiffs filed a petition for certiorari with the U.S. Supreme Court, which was docketed on September 17, 2007. We filed an opposition to the petition for certiorari on October 17, 2007.

Jordán et al Litigation

On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, TSI and others in the Court of First Instance for San Juan, Superior Section, alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, breach of contract with providers, and damages in the amount of $12.0 million. The plaintiffs also asserted that in light of TSI’s former tax-exempt status, the assets of TSI belong to a charitable trust to be held for the benefit of the people of Puerto Rico (the charitable trust claim). They also requested that the Corporation sell shares to them pursuant to a contract with TSI dated August 16, 1989 regarding the acquisition of shares. The Corporation believes that many of the allegations brought by the plaintiffs in this complaint have been resolved in favor of the Corporation and TSI in previous cases brought by the same plaintiffs in the United States District Court for the District of Puerto Rico and in the local courts. The defendants, including the Corporation and TSI, answered the complaint, filed a counterclaim and filed several motions to dismiss.

On May 9, 2005, the plaintiffs amended the complaint to allege causes of action similar to those dismissed in the Sánchez case and to seek damages of approximately $207.0 million. Defendants moved to dismiss all claims in the amended complaint. Plaintiffs opposed the motions to dismiss and defendants filed corresponding replies. In 2006, the Court held several hearings concerning these dispositive motions and stayed all discovery until the motions were resolved.

On January 19, 2007, the Court denied a motion by the plaintiffs to dismiss the defendants’ counterclaim for malicious prosecution and abuse of process. The Court ordered plaintiffs to answer the counterclaim by February 20, 2007. Although they filed after the required date, plaintiffs have filed an answer to the counterclaim.

On February 7, 2007, the Court dismissed the charitable trust, RICO and violation of due process claims as to all the plaintiffs. The tort, breach of contract and violation of the Puerto Rico corporations’ law claims were dismissed only against certain of the physician plaintiffs. The Court allowed the

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

count based on antitrust to proceed, and in reconsideration allowed the charitable trust and RICO claims to proceed. The Corporation appealed to the Puerto Rico Court of Appeals the denial of the motion to dismiss as to the antitrust allegations and the Court’s decision to reconsider the claims previously dismissed.

On May 30, 2007 the Puerto Rico Court of Appeals granted leave to replead the RICO and antitrust claims only to the physician plaintiffs, consistent with certain requirements set forth in its opinion, to allow the physician plaintiffs the opportunity to cure the deficiencies and flaws the Court found in plaintiffs allegations. The Court dismissed the charitable trust claim as to all plaintiffs, denying them the opportunity to replead that claim, and dismissed the RICO and antitrust claims as to the non-physician plaintiffs. Also, the Court of Appeals granted leave to replead a derivative claim capacity on behalf of the Corporation to the lone shareholder plaintiff. The plaintiffs moved for the reconsideration of this judgment. On July 18, 2007 the Court of Appeals denied the plaintiffs motion for reconsideration, which has granted plaintiffs leave to replead certain matters. On August 17, 2007, plaintiffs filed a petition for certiorari by the Puerto Rico Supreme Court, which was opposed on August 27, 2007. On October 16, 2007, the plaintiffs filed an Urgent Motion for acceptance of their petition for certiorari in light of the allegations of improper political contributions made with the Corporation’s funds by the Corporation’s former CEO, Miguel Vázquez-Deynes, while in office. The Corporation does not believe that the alleged activity referenced by Mr. Vázquez-Deynes relates to the claims asserted in this case by plaintiffs or to legal issues presented in the petition for certiorari. We opposed the Urgent Motion on October 30, 2007. The plaintiffs petition for certiorari was denied by the Puerto Rico Supreme Court on November 9, 2007.

Thomas Litigation

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

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

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

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

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

The parties have been ordered to engage in mediation by the District Court, and twenty four plans, including TSI, are actively participating in the mediation efforts. The mediation resulted in the creation of a Settlement Agreement that was filed with the Court on April 27, 2007, and on May 31, 2007, the District Court preliminarily approved the Settlement Agreement. The Corporation has recorded an accrual for the estimated settlement, which is included within the accounts payable and accrued liabilities in the accompanying unaudited consolidated financial statements. A final approval hearing for the Settlement Agreement has been set for November 14, 2007.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2007
(Dollar amounts in thousands, except per share data)
(Unaudited)

Lens Litigation

On October 23, 2007, Ivonne Houellemont, Ivonne M. Lens and Antonio A. Lens, heirs of Dr. Antonio Lens-Aresti, a former shareholder of TSI, filed a suit against TSI in the Court of First Instance for San Juan, Superior Section. The plaintiffs are seeking the return of 16 shares (prior to giving effect to the 3,000-for-one stock split) that were redeemed in 1996, a year after the death of Dr. Lens-Aresti, or compensation in the amount of $40,000 per share which they allege is a share’s present value, alleging that they were fraudulently induced to submit the shares for redemption in 1996. At the time of Dr. Lens-Aresti’s death, the bylaws of TSI would not have permitted the plaintiffs to inherit Dr. Lens-Aresti’s shares, as those bylaws provided that in the event of a shareholder’s death, shares could be redeemed at the price originally paid for them or could be transferred only to an heir who was either a doctor or dentist. The plaintiffs’ complaint also states that they purport to represent as a class all heirs of the TSI’s former shareholders whose shares were redeemed upon such shareholders’ deaths. On October 31, 2007, the Corporation filed a motion to dismiss the claims as barred by the applicable statute of limitations.

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 our financial condition and results of operations for the three months and nine months ended September 30, 2007. 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, 2006.

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 the largest managed care company in Puerto Rico in terms of membership and have over 45 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the Commercial, Reform and Medicare Advantage (including the Part D stand-alone prescription drug plan (PDP)) markets. The Reform program is a Puerto Rico government-funded managed care program for the medically indigent population, similar to the Medicaid program in the U.S. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico, serve approximately one million members across all regions of Puerto Rico and hold a leading market position covering approximately 25% of the population. For the nine months ended September 30, 2007, our managed care segment represented approximately 87.9% of our total consolidated premiums earned, net and approximately 68.9% of our operating income. 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 15% (in terms of premiums written) as of December 31, 2006. Our property and casualty segment had a market share of approximately 9% (in terms of direct premiums) as of December 31, 2006.

We participate in the managed care market through our subsidiary, Triple-S, Inc. (TSI). Our managed care subsidiary is a Blue Cross and Blue Shield Association (BCBSA) licensee, which provides us with exclusive use of the Blue Shield brand in Puerto Rico. We offer products to the Commercial, Reform and Medicare Advantage (including PDP) market sectors. The Commercial sector includes corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement.

We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc., which resulted from the merger of our former subsidiary Seguros de Vida Triple-S, Inc. (SVTS) into Great American Life Assurance Company of Puerto Rico (GA Life) and in the property and casualty insurance market through our subsidiary, Seguros Triple-S, Inc. (STS), which represented approximately 6.1% and 6.3%, respectively, of our consolidated premiums earned, net for the nine months ended September 30, 2007 and 14.5% and 11.2%, respectively, of our operating income for that period.

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 consolidation and do not change net income.

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 Reform. 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

Healthcare Reform Contracts

In June 2007, we renewed the contracts to serve the North and Southwest regions for a twelve-month period ending June 30, 2008.

Recent Accounting Standards

For a description of recent accounting standards, see note 2 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Managed Care Membership

		As of September 30,
		2007				2006
Managed care enrollment:
Commercial 1			576,600				589,785
Reform 2			352,722				554,996
Medicare Advantage			48,291				44,425
Total			977,613				1,189,206
Managed care enrollment by funding arrangement:
Fully-insured			816,068				1,032,083
Self-insured			161,545				157,123
Total			977,613				1,189,206

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. On January 31, 2006 we completed the acquisition of GA Life. The results of operations of GA Life are included in this table for the period following the effective date of the acquisition.

		Three months ended								Nine months ended
		September 30,								September 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Revenues:
Premiums earned, net		$	375.8				390.4			$	1,101.6				1,158.6
Administrative service fees			3.9				3.7				11.0				10.4
Net investment income			11.2				10.5				33.4				31.3
Total operating revenues			390.9				404.6				1,146.0				1,200.3
Net realized investment gains			1.2				0.4				6.2				1.3
Net unrealized gain (loss) on trading securities			0.6				3.4				(0.8	)			3.7
Other income (expense), net			(0.5	)			1.3				1.8				1.2
Total revenues			392.2				409.7				1,153.2				1,206.5
Benefits and expenses:
Claims incurred			310.0				317.4				915.4				974.3
Operating expenses			58.0				55.8				173.4				170.5
Total operating expenses			368.0				373.2				1,088.8				1,144.8
Interest expense			3.9				4.5				11.9				12.4
Total benefits and expenses			371.9				377.7				1,100.7				1,157.2
Income before taxes			20.3				32.0				52.5				49.3
Income tax expense			4.8				7.2				11.7				10.5
Net income		$	15.5				24.8			$	40.8				38.8

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Operating Revenues

Consolidated premiums earned, net and administrative service fees decreased by $14.4 million, or 3.7%, to $379.7 million during the three months ended September 30, 2007 compared to the three months ended September 30, 2006. The decrease was primarily due to a decrease in the premiums earned, net in our managed care segment, principally due to the decreased volume of the Reform business after the termination of the contract for the Metro-North region, offset in part by the growth of our Medicare Advantage business.

Net Unrealized Gain (Loss) on Trading Securities and Other Income(Expense), Net

The combined balance of our consolidated net unrealized gain on trading securities and other income, net decreased by $4.6 million, to a gain of $0.1 million during the three months ended September 30, 2007. The decrease is principally due to a decrease in the unrealized gain on trading securities and the derivative component of our investment in structured notes due to market fluctuations. The change in the fair value of the derivative component of these structured notes is included within other income, net.

Claims Incurred

Consolidated claims incurred during the three months ended September 30, 2007 decreased by $7.4 million, or 2.3%, to $310.0 million when compared to the claims incurred during the three months ended September 30, 2006. This decrease is principally due to decreased claims in the managed care segment as a result of the decreased volume of the Reform business due to the termination of the contract for the Metro-North region, net of increased enrollment in the Medicare Advantage business. The consolidated loss ratio increased by 1.2 percentage points to

82.5%, primarily due to favorable reserve developments in the Medicare Advantage claims reserve during the 2006 period and to higher utilization trends in the Reform business during the 2007 period.

Operating Expenses

Consolidated operating expenses during the three months ended September 30, 2007 increased by $2.2 million, or 3.9%, to $58.0 million as compared to the operating expenses during the 2006 period. This increase is primarily attributed to normal increases in payroll and payroll related expenses, an increase in net commission expense, as well as an increase in professional services expenses (mainly legal expenses). These increases are offset in part by the decrease in the operating expenses for the Reform business resulting from the reduction in volume of this business. The consolidated operating expense ratio increased by 1.1 percentage points during the 2007 period mainly due to the aforementioned reduction in volume.

Income Tax Expense

The consolidated effective tax rate increased by 1.1 percentage points, from 22.5% in 2006 to 23.6% in 2007, primarily due to a higher taxable income in 2007 from our managed care segment, which has a higher effective tax rate than our other segments.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

Operating Revenues

Consolidated premiums earned, net and administrative service fees decreased by $56.4 million, or 4.8%, to $1,112.6 million during the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. The decrease was primarily due to a decrease in the premiums earned, net in our managed care segment, principally due to the decreased volume of the Reform business after the termination of the contract for the Metro-North region, offset in part by the growth of our Medicare Advantage business and the increases in premium rates of the Reform business during 2007.

Consolidated net investment income increased by $2.1 million, or 6.7%, to $33.4 million during the nine months ended September 30, 2007. This increase is primarily the result of an increase of $1.1 million attributed to a higher yield in 2007 and a higher balance of invested assets and the acquisition of GA Life effective January 31, 2006. Net investment income earned by GA Life during the month of January 2006 amounted to $1.0 million, which is not included in our consolidated financial statements.

Net Realized Investment Gains

Consolidated net realized investment gains increased by $4.9 million to $6.2 million during the nine months ended September 30, 2007. This increase is primarily the result of higher sales in 2007 of investments, particularly in trading securities, in order to keep the portfolio within our established targets in each investment sector.

Net Unrealized (Loss) Gain on Trading Securities and Other Income (Expense), Net

The combined balance of our consolidated net unrealized gain (loss) on trading securities and other income, net decreased by $3.9 million, to a gain of $1.0 million during the nine months ended September 30, 2007. The decrease is primarily the net result of an increase in the fair value of the derivative component of our investment in structured notes linked to foreign stock indexes, offset in part by the unrealized loss on the trading portfolio. This unrealized loss on trading securities is due to the sale of one equity portfolio which had a net unrealized gain at the time of sale. This sale has the effect of eliminating the unrealized gain that was offsetting unrealized losses in our trading portfolio.

Claims Incurred

Consolidated claims incurred during the nine months ended September 30, 2007 decreased by $58.9 million, or 6.0%, to $915.4 million when compared to the claims incurred during the nine months ended September 30, 2006. This decrease is principally due to decreased claims in the managed care segment as a result of the decreased volume of the Reform business due to the termination of the contract for the Metro-North region, net of increased

enrollment in the Medicare Advantage business. The consolidated loss ratio decreased by 1.0 percentage points, to 83.1% in the 2007 period. The lower loss ratio is mainly the result of an overall increase in premium rates and a change in the mix of business. During the nine months ended September 30, 2007, the weight in the mix of business of the managed care segment corresponding to the Reform business decreased as a result of the termination of the contract for the Metro-North area. The Reform business has a higher loss ratio than other businesses within this segment. On the other hand, the Medicare Advantage business, which has a lower loss ratio than other businesses within the managed care segment, has a higher weight in the mix of business in the 2007 period.

Operating Expenses

Consolidated operating expenses during the nine months ended September 30, 2007 increased by $2.9 million, or 1.7%, to $173.4 million as compared to operating expenses during the 2006 period. This increase is primarily attributed to increases in professional services expense (mainly legal expenses), normal increases in payroll and payroll related expense, as well as higher technology related costs due to the new systems initiative of our managed care subsidiary. This increase is offset in part by the decrease in the operating expenses for the Reform business resulting from the reduction in volume of this business. The consolidated operating expense ratio increased by 1.0 percentage points during the 2007 period mainly due to fixed expenses not affected by a reduction in volume.

Income Tax Expense

The consolidated effective tax rate increased by 1.0 percentage points, from 21.3% in 2006 to 22.3% in 2007, primarily due to a higher taxable income in 2007 from our managed care segment, which has a higher effective tax rate than our other segments.

Managed Care Operating Results

		Three months ended								Nine months ended
		September 30,								September 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Medical operating revenues:
Medical premiums earned, net:
Commercial		$	177.8				180.2			$	538.7				540.7
Reform			85.4				118.9				243.8				366.7
Medicare Advantage			67.9				48.3				185.7				123.2
Medical premiums earned, net			331.1				347.4				968.2				1,030.6
Administrative service fees			4.5				4.3				13.5				12.4
Net investment income			4.8				4.8				14.3				13.9
Total medical operating revenues			340.4				356.5				996.0				1,056.9
Medical operating costs:
Medical claims incurred			287.6				295.6				848.9				909.4
Medical operating expenses			35.3				38.5				107.7				114.3
Total medical operating costs			322.9				334.1				956.6				1,023.7
Medical operating income		$	17.5				22.4			$	39.4				33.2
Additional data:
Member months enrollment:
Commercial:
Fully-insured			1,242,254				1,304,711				3,743,350				3,995,526
Self-funded			483,459				469,318				1,447,287				1,387,341
Total commercial member months			1,725,713				1,774,029				5,190,637				5,382,867
Reform			1,066,016				1,673,229				3,199,546				5,211,533
Medicare Advantage			142,831				132,209				407,675				327,289
Total member months			2,934,560				3,579,467				8,797,858				10,921,689
Medical loss ratio			86.9	%			85.1	%			87.7	%			88.2	%
Operating expense ratio			10.5	%			10.9	%			11.0	%			11.0	%

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Medical Operating Revenues

Medical premiums earned for the three months ended September 30, 2007 decreased by $16.3 million, or 4.7%, to $331.1 million when compared to the medical premiums earned during the three months ended September 30, 2006, principally as a result of the following:

	•		Medical premiums earned in the Reform business decreased by $33.5 million, or 28.2%, to $85.4 million during the 2007 period. This fluctuation is due to a decrease in member months enrollment in the Reform business by 607,213, or 36.3%, mainly as the result of the termination of the contract for the Metro-North region effective November 1, 2006. The member months enrollment of the Metro-North region was 598,765 during the three months ended September 30, 2006. The effect of this decrease in membership was mitigated by an increase in premium rates of approximately 8.7% effective July 1, 2007 and an increase of approximately 6.7% effective November 1, 2006.
	•		Medical premiums generated by the Commercial business decreased by $2.4 million, or 1.3%, to $177.8 million during the three months ended September 30, 2007. This fluctuation is primarily the result of a decrease in member months enrollment of 62,457, or 4.8%, partially offset by an increase in average premium rates of 3.6%.

	•		Medical premiums generated by the Medicare Advantage business increased during the three months ended September 30, 2007 by $19.6 million, or 40.6%, to $67.9 million, primarily due to an increase in member months enrollment of 10,622, or 8.0%. The increase in member months is the net result of an increase of 30,391, or 38.7%, in the membership of our Medicare Advantage products and a decrease of 19,769, or 36.8%, in the membership of our PDP product. We expect that Medicare Advantage enrollment will continue to experience growth, but a slower pace than in prior periods. In addition, during this period the segment received a higher than expected retroactive payment of $2.5 million from the Centers for Medicare and Medicaid Services (CMS) corresponding to premiums for active members during the first two quarters of 2007.

Medical Claims Incurred

Medical claims incurred during the three months ended September 30, 2007 decreased by $8.0 million, or 2.7%, to $287.6 million when compared to the three months ended September 30. 2006. The decrease in medical claims incurred is mostly related to the medical claims incurred of the Reform business, which decreased by $27.6 million due to its decreased enrollment, offset in part by a combined increase of $23.4 million in the medical claims incurred of the Medicare Advantage and PDP businesses due to an increase in members. The medical loss ratio increased by 1.8 percentage points during the 2007 period, to 86.9%, primarily due to favorable reserve developments in the Medicare Advantage claims reserve during the 2006 period and to higher utilization trends in the Reform business during the 2007 period.

Medical Operating Expenses

Medical operating expenses for the three months ended September 30, 2007 decreased by $3.2 million, or 8.3%, to $35.3 million when compared to the three months ended September 30, 2006. This decrease is primarily attributed to the decrease in the direct costs of the Reform business due to its reduction in volume. The segment’s operating expense ratio decreased by 0.4 percentage points in the 2007 period.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

Medical Operating Revenues

Medical premiums earned for the nine months ended September 30, 2007 decreased by $62.4 million, or 6.1%, to $968.2 million when compared to the medical premiums earned during the nine months ended September 30, 2006, principally as a result of the following:

	•		Medical premiums earned in the Reform business decreased by $122.9 million, or 33.5%, to $243.8 million during the 2007 period. This fluctuation is due to a decrease in member months enrollment in the Reform business by 2,011,987, or 38.6%, mainly as the result of the termination of the contract for the Metro-North region, the tightening of membership restrictions by the Puerto Rico government, and the shift in membership of dual eligibles to Medicare Advantage policies offered by us and our competitors. The member months enrollment of the Metro-North region was 1,841,815 during the nine months ended September 30, 2006. The effect of this decrease in membership was mitigated by an increase in premium rates, effective July 1, 2007, of approximately 8.7% and a retroactive increase in rates of approximately 6.7% effective November 1, 2006.
	•		Medical premiums generated by the Commercial business decreased by $2.0 million, or 0.4%, to $538.7 million during the 2007 period. This decrease is primarily the result of a decrease in member months enrollment of 252,176, or 6.3%, partially offset by an increase in average premium rates of 6.3%.
	•		Medical premiums generated by the Medicare Advantage business increased during the nine months ended September 30, 2007 by $62.5 million, or 50.7%, to $185.7 million, primarily due to an increase in member months enrollment of 80,386, or 24.6%. The increase in member months is the net result of an increase of 110,540, or 57.2%, in the membership of our Medicare Advantage products and a decrease of 30,154, or 22.5%, in the membership of our PDP product. We expect that Medicare Advantage enrollment will

continue to experience growth, but a slower pace than in prior periods. In addition, the segment recognized an additional premium adjustment of $3.2 million related to the 2006 risk scores review performed by CMS.

Administrative service fees increased by $1.1 million, or 8.9%, to $13.5 million during the 2007 period due to an increase in member months enrollment of self-funded arrangements of 59,946, or 4.3% and to a shift of several self-funded groups to arrangements where the administrative service fee is based on contracts instead of claims paid.

Medical Claims Incurred

Medical claims incurred during the nine months ended September 30, 2007 decreased by $60.5 million, or 6.7%, to $848.9 million when compared to the nine months ended September 30, 2006. The decrease in medical claims incurred is mostly related to the medical claims incurred of the Reform business, which decreased by $112.3 million due to its decreased enrollment, partially offset by a combined increase of $53.4 million in the medical claims incurred of the Medicare Advantage and PDP businesses due to an increase in members. The medical loss ratio decreased by 0.5 percentage points during the 2007 period, to 87.7%, primarily due to an overall increase in premium rates and a change in the mix of business of the segment. During the nine months ended September 30, 2007 the weight in the mix of business corresponding to the Reform business decreased as a result of the termination of the contract for the Metro-North area. The Reform business has a higher medical loss ratio than other businesses within the segment. On the other hand, the Medicare Advantage business, which has a lower medical loss ratio than other businesses, has a higher weight in the mix of business in the 2007 period.

Medical Operating Expenses

Medical operating expenses for the nine months ended September 30, 2007 decreased by $6.6 million, or 5.8%, to $107.7 million when compared to the nine months ended September 30, 2006. This decrease is primarily attributed to the decrease in the direct costs of the Reform business due to its reduction in volume. The segment’s operating expense ratio remained the same as the prior period at approximately 11%.

Life Insurance Operating Results

On January 31, 2006 we completed the acquisition of GA Life. The results of operations of GA Life are included in this table for the period following the effective date of the acquisition.

		Three months ended								Nine months ended
		September 30,								September 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Operating revenues:
Premiums earned, net:
Premiums earned		$	24.1				24.3			$	73.5				67.2
Premiums earned ceded			(2.1	)			(2.2	)			(6.6	)			(7.1	)
Assumed premiums earned			—				—				—				4.4
Net premiums earned			22.0				22.1				66.9				64.5
Commission income on reinsuarance			0.1				(0.1	)			0.2				0.1
Premiums earned, net			22.1				22.0				67.1				64.6
Net investment income			3.7				3.3				11.1				10.1
Total operating revenues			25.8				25.3				78.2				74.7
Operating costs:
Policy benefits and claims incurred			11.1				11.2				34.4				32.4
Underwriting and other expenses			12.1				11.0				35.5				33.3
Total operating costs			23.2				22.2				69.9				65.7
Operating income		$	2.6				3.1			$	8.3				9.0
Additional data:
Loss ratio			50.2	%			50.9	%			51.3	%			50.2	%
Operating expense ratio			54.8	%			50.0	%			52.9	%			51.5	%