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 June 30, 2007

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

For the transition period from                     to                     

Triple-S Management Corporation

(Exact name of registrant as specified in its charter)

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

(Registrant’s telephone number, including area code)

(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 June 30, 2007
Common Stock, $1.00 par value		26,709,000

 

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended June 30, 2007

Table of Contents

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006			3
Consolidated Statements of Earnings for the three months and six months ended June 30, 2007 and 2006			4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the six months ended June 30, 2007 and 2006			5
Consolidated Statements of Cash Flows for the six months ended June 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			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 3. Defaults Upon Senior Securities			33
Item 4. Submission of Matters to a Vote of Security Holders			33
Item 5. Other Information			33
Item 6. Exhibits			34
SIGNATURES			35
EX-10.1 AGREEMENT BETWEEN PUERTO RICO HEALTH INSURANCE ADMINISTRATION AND TRIPLE-S, INC.
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
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

		(Unaudited)
		June 30,				December 31,
		2007				2006
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Equity securities		$	68,214				83,447
Securities available for sale, at fair value:
Fixed maturities			707,871				702,566
Equity securities			73,665				61,686
Securities held to maturity, at amortized cost:
Fixed maturities			20,313				21,450
Policy loans			5,339				5,194
Cash and cash equivalents			71,536				81,320
Total investments and cash			946,938				955,663
Premiums and other receivables, net			230,923				165,358
Deferred policy acquisition costs and value of business acquired			114,448				111,417
Property and equipment, net			41,658				41,615
Net deferred tax asset			10,565				9,292
Other assets			66,483				62,164
Total assets		$	1,411,015				1,345,509
LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete		$	178,408				147,211
Unreported losses			149,921				150,735
Unpaid loss-adjustment expenses			16,487				16,736
Total claim liabilities			344,816				314,682
Liability for future policy benefits			187,323				180,420
Unearned premiums			114,903				113,582
Policyholder deposits			45,100				45,425
Liability to Federal Employees’ Health Benefits Program			12,052				13,563
Accounts payable and accrued liabilities			129,031				110,609
Borrowings			182,267				183,087
Income tax payable			—				9,242
Liability for pension benefits			35,774				32,300
Total liabilities			1,051,266				1,002,910
Stockholders’ equity:
Common stock			26,709				356
Additional paid-in capital			124,055				150,408
Retained earnings			234,128				211,266
Accumulated other comprehensive loss			(25,143	)			(19,431	)
Total stockholders’ equity			359,749				342,599
Total liabilities and stockholders’ equity		$	1,411,015				1,345,509

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
For the three months and six months ended June 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
REVENUES:
Premiums earned, net		$	377,346				387,637			$	725,811				768,168
Administrative service fees			3,617				3,202				7,126				6,631
Net investment income			11,047				10,766				22,168				20,816
Total operating revenues			392,010				401,605				755,105				795,615
Net realized investment gains			3,784				433				4,980				961
Net unrealized investment gain (loss) on trading securities			573				(2,245	)			(1,352	)			311
Other income (expense), net			2,158				(1,286	)			2,367				(87	)
Total revenues			398,525				398,507				761,100				796,800
BENEFITS AND EXPENSES:
Claims incurred			308,023				332,209				605,341				656,916
Operating expenses			59,358				56,932				115,495				114,662
Total operating costs			367,381				389,141				720,836				771,578
Interest expense			4,058				4,096				8,010				7,894
Total benefits and expenses			371,439				393,237				728,846				779,472
Income before taxes			27,086				5,270				32,254				17,328
INCOME TAX EXPENSE (BENEFIT):
Current			5,938				779				6,998				3,415
Deferred			343				(128	)			(54	)			(87	)
Total income taxes			6,281				651				6,944				3,328
Net income		$	20,805				4,619			$	25,310				14,000
Basic net income per share (note 7)		$	0.78				0.17			$	0.95				0.52

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Unaudited)
For the six months
ended June 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)

		2007				2006
BALANCE AT JANUARY 1		$	342,599				308,703
Dividends			(2,448	)			(6,231	)
Comprehensive income (loss):
Net income			25,310				14,000
Net unrealized change in fair value of available for sale securities			(6,260	)			(15,621	)
Defined benefit pension plan:
Actuarial loss, net			630				—
Prior service cost, net			17				—
Net change in fair value of cash flow hedges			(99	)			137
Total comprehensive income			19,598				(1,484	)
BALANCE AT JUNE 30		$	359,749				300,988

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARES
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)

		Six months ended
		June 30,
		2007				2006
Net income		$	25,310				14,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,395				2,930
Net amortization of investments			371				200
Provision for doubtful receivables			3,981				775
Deferred tax benefit			(54	)			(87	)
Net gain on sale of securities			(4,980	)			(961	)
Net unrealized (gain) loss of trading securities			1,352				(311	)
Proceeds from trading securities sold:
Equity securities			32,399				11,439
Acquisition of securities in trading portfolio:
Equity securities			(12,860	)			(11,579	)
Loss (gain) on sale of property and equipment			2				(1	)
(Increase) decrease in assets:
Premiums receivable			(43,452	)			(37,066	)
Agent balances			(2,464	)			(58	)
Accrued interest receivable			(741	)			712
Other receivables			(4,303	)			121
Reinsurance recoverable on paid losses			(18,355	)			(1,873	)
Deferred policy acquisition costs and value of business acquired			(3,031	)			(2,065	)
Prepaid income tax			(4,663	)			2,909
Other assets			172				194
Increase (decrease) in liabilities:
Claims processed and incomplete			31,197				10,334
Unreported losses			(814	)			23,409
Unpaid loss-adjustment expenses			(249	)			1,109
Liability for future policy benefits			6,903				5,702
Unearned premiums			1,321				3,600
Policyholder deposits			864				889
Liability to FEHBP			(1,511	)			134
Accounts payable and accrued liabilities			5,844				(3,954	)
Income tax payable			(9,242	)			—
Net cash provided by operating activities		$	6,392				20,502

(Continued)

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)

		Six months ended
		June 30,
		2007				2006
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		$	76,904				17,337
Fixed maturities matured			10,852				19,928
Equity securities			1,011				362
Fixed maturity securities held to maturity			1,285				277
Acquisition of investments:
Securities available for sale:
Fixed maturities			(100,668	)			(39,447	)
Equity securities			(14,507	)			(5,847	)
Acquisition of business, net of $10,403 of cash acquired			—				(27,793	)
Net disbursements for policy loans			(145	)			(350	)
Capital expenditures			(3,440	)			(7,225	)
Proceeds from sale of property and equipment			—				2
Net cash used in investing activities			(28,708	)			(42,756	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances			16,989				2,556
Repayments of short-term borrowings			(23,110	)			(106,137	)
Proceeds from short-term borrowings			23,110				104,397
Repayments of long-term borrowings			(820	)			(1,683	)
Proceeds from long-term borrowings			—				35,000
Dividends paid			(2,448	)			(6,231	)
Proceeds from policyholder deposits			2,844				3,531
Surrenders of policyholder deposits			(4,033	)			(4,211	)
Net cash provided by financing activities			12,532				27,222
Net (decrease) increase in cash and cash equivalents			(9,784	)			4,968
Cash and cash equivalents at beginning of the period			81,320				48,978
Cash and cash equivalents at end of the period		$	71,536				53,946

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2007
(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 (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 six months ended June 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 six 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 9 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 six months ended June 30, 2007 and 2006:

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

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Operating revenues:
Managed Care:
Premiums earned, net		$	330,712				343,181			$	635,543				681,784
Administrative service fees			3,617				3,202				7,126				6,631
Intersegment premiums /service fees			1,781				1,491				3,408				2,889
Net investment income			4,661				4,516				9,490				9,072
Total managed care			340,771				352,390				655,567				700,376
Life Insurance:
Premiums earned, net			22,483				22,468				44,863				42,498
Intersegment premiums			90				78				172				156
Net investment income			3,739				3,822				7,359				6,832
Total life			26,312				26,368				52,394				49,486
Property and Casualty Insurance:
Premiums earned, net			24,151				21,988				45,405				43,886
Intersegment premiums			154				155				308				284
Net investment income			2,527				2,316				5,079				4,680
Total property and casualty			26,832				24,459				50,792				48,850
Other segments — intersegment service revenues *			10,602				12,197				21,642				25,465
Total business segments			404,517				415,414				780,395				824,177
TSM operating revenues from external sources			120				112				240				232
Elimination of intersegment premiums			(2,025	)			(1,724	)			(3,888	)			(3,329	)
Elimination of intersegment service fees			(10,602	)			(12,197	)			(21,642	)			(25,465	)
Consolidated operating revenues		$	392,010				401,605			$	755,105				795,615

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

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Operating income:
Managed care		$	17,797				5,182			$	21,897				10,788
Life insurance			2,680				3,907				5,655				5,980
Property and casualty insurance			3,593				1,754				4,986				4,190
Other segments *			140				220				278				504
Total business segments			24,210				11,063				32,816				21,462
TSM operating revenues from external sources			120				112				240				232
TSM unallocated operating expenses			(2,447	)			(1,326	)			(4,273	)			(2,642	)
Elimination of TSM intersegment charges			2,746				2,615				5,486				4,985
Consolidated operating income			24,629				12,464				34,269				24,037
Consolidated net realized investment gains			3,784				433				4,980				961
Consolidated net unrealized gain (loss) on trading securities			573				(2,245	)			(1,352	)			311
Consolidated interest expense			(4,058	)			(4,096	)			(8,010	)			(7,894	)
Consolidated other income, net			2,158				(1,286	)			2,367				(87	)
Consolidated income before taxes		$	27,086				5,270			$	32,254				17,328
Depreciation expense:
Managed care		$	862				892			$	1,758				1,809
Life insurance			160				182				339				317
Property and casualty insurance			377				132				737				239
Total business segments			1,399				1,206				2,834				2,365
TSM depreciation expense			280				282				561				565
Consolidated depreciation expense		$	1,679				1,488			$	3,395				2,930

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

		June 30,				December 31,
		2007				2006
Assets:
Managed care		$	633,702				600,948
Life insurance			411,514				407,994
Property and casualty insurance			346,500				326,894
Other segments *			8,430				7,807
Total business segments			1,400,146				1,343,643
Unallocated amounts related to TSM:
Cash, cash equivalents, and investments			12,368				11,879
Property and equipment,net			23,231				23,792
Other assets			2,584				4,096
			38,183				39,767
Elimination entries-intersegment receivables and others			(27,314	)			(37,901	)
Consolidated total assets		$	1,411,015				1,345,509
Significant noncash items:
Net change in unrealized gain on securities available for sale:
Managed care		$	(1,851	)			(1,560	)
Life insurance			(4,086	)			(1,457	)
Property and casualty insurance			(293	)			(183	)
Total business segments			(6,230	)			(3,200	)
Amount related to TSM			(30	)			(12	)
Consolidated net change in unrealized gain on securities available for sale		$	(6,260	)			(3,212	)
Net change in defined benefit pension plan liability:
Managed care		$	443				3,795
Life			6				212
Property and casualty			47				197
Other segments*			137				614
Total business segments			633				4,818
Amount related to TSM			14				134
Consolidated net change in defined benefit pension plan liability		$	647				4,952

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 June 30, 2007 and December 31, 2006, were as follows:

June 30, 2007
						Gross				Gross
		Amortized				unrealized				unrealized				Estimated fair
		cost				gains				losses				value
Trading securities:
Equity securities		$	53,049				15,647				(482	)			68,214
Securities available for sale:
Fixed maturities			725,808				373				(18,310	)			707,871
Equity securities			63,543				12,426				(2,304	)			73,665
			789,351				12,799				(20,614	)			781,536
Securities held to maturity:
Fixed maturities			20,313				386				(812	)			19,887
		$	862,713				28,832				(21,908	)			869,637

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			21,450				370				(816	)			21,004
		$	852,625				31,508				(15,430	)			868,703

Investment in securities at June 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 (8.0%) and obligations of the government of Puerto Rico and its instrumentalities (5.7%). The remaining 27.4% of the investment portfolio is comprised of equity securities and mutual funds.

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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

ended June 30, 2007 and 2006 the Corporation recognized other-than-temporary impairments amounting to $356 and $388, respectively, on its equity securities classified as available for sale.

(5) Premiums and Other Receivables

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

		June 30,				December 31,
		2007				2006
Premium		$	85,819				53,377
Self-funded group receivables			35,390				24,854
FEHBP			9,661				9,187
Agents balances			31,277				28,813
Accrued interest			8,527				7,786
Reinsurance recoverable on paid losses			59,240				40,885
Other			23,220				18,686
			253,134				183,588
Less allowance for doubtful receivables:
Premiums			14,221				12,128
Other			7,990				6,102
			22,211				18,230
Total premiums and other receivables		$	230,923				165,358

(6) Claim Liabilities

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

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Claim liabilities at beginning of period		$	327,871				326,339			$	314,682				297,563
Reinsurance recoverable on claim liabilities			(32,331	)			(29,031	)			(32,066	)			(28,720	)
Net claim liabilities at beginning of period			295,540				297,308				282,616				268,843
Claim liabilities acquired from GA Life			—				—				—				8,771
Incurred claims and loss-adjustment expenses:
Current period insured events			310,115				340,953				619,680				657,757
Prior period insured events			(4,747	)			(10,768	)			(20,938	)			(6,308	)
Total			305,368				330,185				598,742				651,449
Payments of losses and loss-adjustment expenses:
Current period insured events			277,892				290,834				422,706				458,545
Prior period insured events			28,203				24,234				163,839				158,093
Total			306,095				315,068				586,545				616,638
Net claim liabilities at end of period			294,813				312,425				294,813				312,425
Reinsurance recoverable on claim liabilities			50,003				29,173				50,003				29,173
Claim liabilities at end of period		$	344,816				341,598			$	344,816				341,598

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
June 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 six months ended June 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. As of December 31, 2006, the Corporation was authorized to issue 12,500 shares of common stock with a par value of $40.00 per share.

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.

On 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) 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			(6,260	)			647				(99	)			(5,712	)
BALANCE AT JUNE 30		$	(6,255	)			(19,095	)			207				(25,143	)

(9) 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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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

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.

(10) Pension Plan

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

		Three months ended								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Components of net periodic benefit cost:
Service cost		$	1,584				1,322			$	2,940				2,692
Interest cost			1,427				1,128				2,721				2,303
Expected return on assets			(1,233	)			(935	)			(2,361	)			(1,926	)
Prior service cost			16				12				30				24
Actuarial loss			511				590				1,025				1,192
Net periodic benefit cost		$	2,305				2,117			$	4,355				4,285

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 June 30, 2007, no contributions have been made. The Corporation currently anticipates contributing $5,000 to fund its pension program in 2007.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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

(11)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								Six months ended
		June 30,								June 30,
		2007				2006				2007				2006
Numerator for basic earnings per share:
Net income available to stockholders		$	20,805				4,619			$	25,310				14,000
Denominator for basic earnings per share:
Weighted average of outstanding common shares giving effect to 3,000-for-one stock split			26,717,000				26,733,000				26,726,000				26,726,000
Basic net income per share giving effect to 3,000-for-one stock split		$	0.78				0.17			$	0.95				0.52

(12) 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 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 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). 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 District 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. As of July 27, 2007 plaintiffs announced their intention to file a writ of certiorari before the U.S. Supreme Court, which would be due on September 11, 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,

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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

breach of contract with providers, and damages in the amount of $12.0 million. They also requested that the Corporation sell shares to them. The Corporation’s position is 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. 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 all of the charitable trust, RICO and violation of due process claims, which affects all of the plaintiffs. Other counts of the complaint, torts, 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 count based on antitrust, and in reconsideration allowed the charitable trust and RICO claims. 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 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.

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 and Blue Shield Association (BCBSA) and substantially all of the other Blue 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, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

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

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 were ordered to engage in mediation. Twenty four plans have been 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. 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.

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 six months ended June 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 45 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the commercial, Reform, Medicare Advantage and 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 six months ended June 30, 2007, our managed care segment represented approximately 87.8% of our total consolidated premiums earned, net and approximately 64.0% of our operating income. We also have strong market 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 has 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, Medicare Advantage and PDP market sectors, including 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, Great American Life Assurance Company of Puerto Rico (GA Life), which resulted from the merger of our former subsidiary Seguros de Vida Triple-S, Inc. (SVTS) into GA Life, and in the property and casualty insurance market through our subsidiary, Seguros Triple-S, Inc. (STS), which represented approximately 6.2% and 6.3%, respectively, of our consolidated premiums earned, net for the six months ended June 30, 2007 and 16.7% and 14.6%, 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

The premium rates of the Reform business with the government of the Commonwealth of Puerto Rico were renegotiated effective November 1, 2006 for an eight-month period ended June 30, 2007. As a result of this renegotiation completed in June 2007, the premium rates of the Reform business were increased by approximately 6.7%. Furthermore, the contracts for the North and Southwest regions, currently served by us, were renewed for a one year term ending June 30, 2008, with the applicable premium rates pending to be negotiated. As of the date of this report, premium rates are still under negotiation.

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 June 30,
		2007				2006
Managed care enrollment:
Commercial 1			576,314				597,160
Reform 2			356,737				565,758
Medicare Advantage			36,022				24,701
Part D Stand-Alone Prescription Drug Plan			11,448				18,351
Total			980,521				1,205,970
Managed care enrollment by funding arrangement:
Fully-insured			818,930				1,049,064
Self-insured			161,591				156,906
Total			980,521				1,205,970

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								Six months ended
		June 30,								June 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Revenues:
Premiums earned, net		$	377.3				387.6			$	725.8				768.2
Administrative service fees			3.6				3.2				7.1				6.6
Net investment income			11.0				10.8				22.2				20.8
Total operating revenues			391.9				401.6				755.1				795.6
Net realized investment gains			3.8				0.4				5.0				1.0
Net unrealized gain (loss) on trading securities			0.6				(2.2	)			(1.4	)			0.3
Other income, net			2.2				(1.3	)			2.4				(0.1	)
Total revenues			398.5				398.5				761.1				796.8
Benefits and expenses:
Claims incurred			308.0				332.2				605.4				656.9
Operating expenses			59.3				56.9				115.5				114.7
Total operating expenses			367.3				389.1				720.9				771.6
Interest expense			4.1				4.1				8.0				7.9
Total benefits and expenses			371.4				393.2				728.9				779.5
Income before taxes			27.1				5.3				32.2				17.3
Income tax expense			6.3				0.7				6.9				3.3
Net income		$	20.8				4.6			$	25.3				14.0

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

Operating Revenues

Consolidated premiums earned, net and administrative service fees decreased by $9.9 million, or 2.5%, to $380.9 million during the three months ended June 30, 2007 compared to the three months ended June 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 sector after the loss of the Metro-North region, offset in part by the growth of our Medicare Advantage business as well as by the retroactive increase in premium rates of our two existing Reform regions. In June 2007, we finalized the negotiation of premium rates for the eight-month period ended June 30, 2007.

Net Realized Investment Gains

Consolidated net realized investment gains increased by $3.4 million, to $3.8 million during the three months ended June 30, 2007. This increase is primarily the result of higher sales in the 2007 period of investments, particularly in trading securities, in order to keep the portfolio within our established tactical allocation limits.

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

The combined balance of our consolidated net unrealized gain on trading securities and other income, net increased by $6.3 million, to a gain of $2.8 million during the three months ended June 30, 2007. The unrealized gain in 2007 is the result of fluctuations in the market particularly at the end of the quarter, which affect the net unrealized gain on trading securities as well as the market value of the derivative component of our investment in structured notes linked to foreign stock indexes. The change in the market value of the derivative component of these structured notes is included within the other income, net.

Claims Incurred

Consolidated claims incurred during the three months ended June 30, 2007 decreased by $24.2 million, or 7.3%, to $308.0 million when compared to the claims incurred during the three months ended June 30, 2006. This decrease is principally due to decreased claims in the managed care segment as a result of the decreased volume of business of the Reform sector due to the loss of the Metro-North region, net of increased enrollment in the Medicare Advantage sector. The consolidated loss ratio decreased by 4.1 percentage points to 81.6%, primarily due to the effect of an overall increase in premium rates and a change in the mix of business. During the 2007 period the weight in the mix of business of the managed care segment corresponding to the Reform business decreased as a result of the loss 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, had a higher weight in the mix of business in the 2007 quarter.

Operating Expenses

Consolidated operating expenses during the three months ended June 30, 2007 increased by $2.4 million, or 4.2%, to $59.3 million as compared to the 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 expenses 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 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 the reduction in volume.

Income Tax Expense

The consolidated effective tax rate increased by 10.0 percentage points, from 13.2% in 2006 to 23.2% 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.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

Operating Revenues

Consolidated premiums earned, net and administrative service fees decreased by $41.9 million, or 5.4%, to $732.9 million during the six months ended June 30, 2007 compared to the six months ended June 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 sector after the loss of the Metro-North region, offset in part by the growth of our Medicare Advantage business and the retroactive increase in premium rates of the Reform business. The negotiation for the increase in premium rates of the Reform business was finalized during the 2007 period, for the eight-month period ended June 30, 2007.

Consolidated net investment income increased by $1.4 million, or 6.7%, to $22.2 million during the six months ended June 30, 2007. This increase is primarily the result of 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 are not included in our consolidated financial statements.

Net Realized Investment Gains

Consolidated net realized investment gains increased by $4.0 million to $5.0 million during the six months ended June 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 allocation limits.

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

The combined balance of our consolidated net unrealized loss on trading securities and other income, net increased by $0.8 million, to a gain of $1.0 million during the six months ended June 30, 2007. This increase is primarily the net result of an increase in the market 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 is due to

the sale, as part of our strategic asset allocation, 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 six months ended June 30, 2007 decreased by $51.5 million, or 7.8%, to $605.4 million when compared to the claims incurred during the six months ended June 30, 2006. This decrease is principally due to decreased claims in the managed care segment as a result of the decreased volume of business of the Reform sector due to the loss of the Metro-North region, net of increased enrollment in the Medicare Advantage sector. The consolidated loss ratio decreased by 2.1 percentage points, to 83.4% in the 2007 period. The lower loss ratio is the result of an overall increase in premium rates and a change in the mix of business. During the six months ended June 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 loss 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 six months ended June 30, 2007 increased by $0.8 million, or 0.7%, to $115.5 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 expenses 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 2.3 percentage points, from 19.1% in 2006 to 21.4% 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								Six months ended
		June 30,								June 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Medical operating revenues:
Medical premiums earned, net:
Commercial		$	180.6				180.1			$	360.8				360.5
Reform			86.6				120.3				158.4				247.8
Medicare Advantage			60.9				39.5				111.9				68.2
PDP			3.4				4.0				5.9				6.7
Medical premiums earned, net			331.5				343.9				637.0				683.2
Administrative service fees			4.6				4.0				9.0				8.1
Net investment income			4.7				4.5				9.5				9.1
Total medical operating revenues			340.8				352.4				655.5				700.4
Medical operating costs:
Medical claims incurred			285.8				309.1				561.3				613.8
Medical operating expenses			37.2				38.1				72.3				75.8
Total medical operating costs			323.0				347.2				633.6				689.6
Medical operating income		$	17.8				5.2			$	21.9				10.8
Additional data:
Member months enrollment:
Commercial:
Fully-insured			1,247,353				1,323,715				2,501,096				2,690,815
Self-funded			484,505				462,114				963,828				918,023
Total commercial member months			1,731,858				1,785,829				3,464,924				3,608,838
Reform			1,068,684				1,727,943				2,133,530				3,538,304
Medicare Advantage			101,702				65,360				194,951				114,802
PDP			34,512				48,656				69,893				80,278
Total member months			2,936,756				3,627,788				5,863,298				7,342,222
Medical loss ratio			86.2	%			89.9	%			88.1	%			89.8	%
Operating expense ratio			11.1	%			11.0	%			11.2	%			11.0	%

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

Medical Operating Revenues

Medical premiums earned for the three months ended June 30, 2007 decreased by $12.4 million, or 3.6%, to $331.5 million when compared to the medical premiums earned during the three months ended June 30, 2006, principally as a result of the following:

	•		Medical premiums earned in the Reform business decreased by $33.7 million, or 28.0%, to $86.6 million during the 2007 period. This fluctuation is due to a decrease in member months enrollment in the Reform business by 659,259, or 38.2%, mainly as the result of the loss of the Metro-North region effective November 1, 2006. In addition, this business continues to experience a shift in membership as dual eligibles transfer to Medicare Advantage policies offered by us and our competitors, as well as to a tightening of membership restrictions by the Puerto Rico government. The effect of this decrease in membership was mitigated by an increase in premium rates of approximately 6.7%, which negotiation was finalized during June 2007, for the eight-month period ended June 30, 2007.
	•		Medical premiums generated by the Medicare Advantage business increased during the three months ended June 30, 2007 by $21.4 million, or 54.2%, primarily due to an increase in member months enrollment of

36,342, or 55.6%, offset in part by a reduction in the average premium per member per month in our product for dual-eligibles (Selecto/Platino) as a result of the positive experience of this product in 2006. We expect that Medicare Advantage enrollment will continue to experience growth, but at a slower pace than in prior periods. In addition, the segment recognized a risk sharing adjustment from CMS corresponding to 2006 amounting to approximately $3.2 million.

Administrative service fees increased by $0.6 million, or 15.0%, to $4.6 million during the 2007 period due to an increase in member months enrollment of self-funded arrangements of 22,391, or 4.8% 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 three months ended June 30, 2007 decreased by $23.3 million, or 7.5%, to $285.8 million when compared to the three months ended June 30. 2006. The decrease in medical claims incurred is mostly related to the medical claims incurred of the Reform business, which decreased by $34.6 million due to the decreased enrollment of the Reform business, offset by an increase of $11.6 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 3.7 percentage points during the 2007 period, to 86.2%, primarily due to the increase in premium rates of the Reform business. Of this decrease, 1.3 percentage points results from the increase in the Reform’s premium rates and 2.4 percentage points from premium rate increases in other businesses, the risk sharing adjustment from CMS and a change in the mix of business of the segment. During the 2007 quarter the weight in the mix of business corresponding to the Reform business decreased as a result of the loss the of Metro-North area. The Reform business has a higher medical loss ratio than other businesses within this 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 quarter.

Medical Operating Expenses

Medical operating expenses for the three months ended June 30, 2007 decreased by $0.9 million, or 2.4%, to $37.2 million when compared to the three months ended June 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 increased by 0.1 percentage points in the 2007 period.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

Medical Operating Revenues

Medical premiums earned for the six months ended June 30, 2007 decreased by $46.2 million, or 6.8%, to $637.0 million when compared to the medical premiums earned during the six months ended June 30, 2006, principally as a result of the following:

	•		Medical premiums earned in the Reform business decreased by $89.4 million, or 36.1%, to $158.4 million during the 2007 period. This fluctuation is due to a decrease in member months enrollment in the Reform business by 1,404,774, or 39.7%, mainly as the result of the loss of the Metro-North region, the shift in membership of dual eligibles to Medicare Advantage policies offered by us and our competitors, and the tightening of membership restrictions by the Puerto Rico government. The effect of this decrease in membership was mitigated by an increase in premium rates, effective November 1, 2006, of approximately 6.7%. The negotiation for the increase in premium rates was finalized during June 2007, for the eight-month period ended June 30, 2007.
	•		Medical premiums generated by the Medicare Advantage business increased during the six months ended June 30, 2007 by $43.7 million, or 64.1%, primarily due to an increase in member months enrollment of 80,149, or 69.8%, offset in part by a reduction in the average premium per member per month in our product for dual-eligibles (Selecto/Platino) as a result of a more positive risk experience than anticipated. We expect that Medicare Advantage enrollment will continue to experience growth, but at a slower pace than in prior periods. In addition, the segment recognized a risk sharing adjustment from CMS corresponding to 2006 amounting to approximately $3.2 million.

Administrative service fees increased by $0.9 million, or 11.1%, to $9.0 million during the 2007 period due to an increase in member months enrollment of self-funded arrangements of 45,805, or 5.0% 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 six months ended June 30, 2007 decreased by $52.5 million, or 8.6%, to $561.3 million when compared to the six months ended June 30, 2006. The decrease in medical claims incurred is mostly related to the medical claims incurred of the Reform business, which decreased by $84.7 million due to the decreased enrollment of the Reform business, offset by a combined increase of $30.0 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 1.7 percentage points during the 2007 period, to 88.1%, primarily due to an overall increase in premium rates and a change in the mix of business of the segment. During the six months ended June 30, 2007 the weight in the mix of business corresponding to the Reform business decreased as a result of the loss of 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 six months ended June 30, 2007 decreased by $3.5 million, or 4.6%, to $72.3 million when compared to the six months ended June 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 increased by 0.2 percentage points during the 2007 period.

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								Six months ended
		June 30,								June 30,
(Dollar amounts in millions)		2007				2006				2007				2006
Operating revenues:
Premiums earned, net:
Premiums earned		$	24.8				25.0			$	49.4				42.8
Premiums earned ceded			(2.3	)			(2.6	)			(4.5	)			(4.8	)
Assumed premiums earned			—				—				—				4.4
Net premiums earned			22.5				22.4				44.9				42.4
Commission income on reinsuarance			0.1				0.1				0.1				0.2
Premiums earned, net			22.6				22.5				45.0				42.6
Net investment income			3.7				3.8				7.4				6.8
Total operating revenues			26.3				26.3				52.4				49.4
Operating costs:
Policy benefits and claims incurred			11.7				11.5				23.3				21.1
Underwriting and other expenses			11.9				10.9				23.4				22.3
Total operating costs			23.6				22.4				46.7				43.4
Operating income		$	2.7				3.9			$	5.7				6.0
Additional data:
Loss ratio			51.8	%			51.1	%			51.8	%			49.5	%
Operating expense ratio			52.7	%			48.4	%			52.0	%			52.3	%