form10q.htm


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, 2011
 
or
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
For the transition period from     to    
 
COMMISSION FILE NUMBER:  001-33865
 
Triple-S Management Corporation
 
Puerto Rico
 
66-0555678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1441 F.D. Roosevelt Avenue
   
San Juan, Puerto Rico
 
00920
(Address of principal executive offices)
 
(Zip code)

(787) 749-4949
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes  ¨ No
 
   Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes  ¨  No
 
   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated filer  þ
Non-accelerated filer  ¨
Smaller reporting company  ¨

   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ 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, 2011
 
 
Common Stock Class A, $1.00 par value
9,042,809  
 
Common Stock Class B, $1.00 par value
19,888,614  
 


 
 

 
 
Triple-S Management Corporation
 
FORM 10-Q
 
For the Quarter Ended June 30, 2011
 
Table of Contents
 
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Part I – Financial Information
 
Item 1.  Financial Statements

Triple-S Management Corporation
           
Consolidated Balance Sheets (Unaudited)
           
(Dollar amounts in thousands, except per share data)
           
             
   
June
   
December 31,
 
   
2011
   
2010
 
Assets
           
Investments and cash:
           
Equity securities held for trading, at fair value
  $ 32,818     $ 51,099  
Securities available for sale, at fair value:
               
Fixed maturities
    1,015,962       977,586  
Equity securities
    83,329       56,739  
Securities held to maturity, at amortized cost:
               
Fixed maturities
    13,783       14,615  
Policy loans
    6,102       5,887  
Cash and cash equivalents
    57,372       45,021  
Total investments and cash
    1,209,366       1,150,947  
Premiums and other receivables, net
    304,087       325,780  
Deferred policy acquisition costs and value of business acquired
    145,812       146,086  
Property and equipment, net
    80,309       76,745  
Deferred tax asset
    24,814       29,445  
Other assets
    91,417       30,367  
Total assets
  $ 1,855,805     $ 1,759,370  
Liabilities and Stockholders' Equity
               
Claim liabilities
    398,708       360,210  
Liability for future policy benefits
    243,402       236,523  
Unearned premiums
    90,239       98,341  
Policyholder deposits
    54,882       49,936  
Liability to Federal Employees' Health Benefits Program (FEHBP)
    14,702       15,018  
Accounts payable and accrued liabilities
    139,406       136,567  
Deferred tax liability
    22,482       12,655  
Short-term borrowings
    58,315       15,575  
Long-term borrowings
    140,207       166,027  
Liability for pension benefits
    45,816       51,246  
Total liabilities
    1,208,159       1,142,098  
Stockholders’ equity:
               
Common stock Class A, $1 par value. Authorized 100,000,000 shares;  issued and outstanding 9,042,809 at June 30, 2011 and December 31, 2010
    9,043       9,043  
Common stock Class B, $1 par value. Authorized 100,000,000 shares; issued and outstanding 19,888,614 and 19,772,614 shares at June 30, 2011and December 31, 2010, respectively
    19,889       19,773  
Additional paid-in capital
    152,486       155,299  
Retained earnings
    455,149       427,693  
Accumulated other comprehensive income
    11,079       5,464  
Total stockholders' equity
    647,646       617,272  
Total liabilities and stockholders’ equity
  $ 1,855,805     $ 1,759,370  
 
See accompanying notes to unaudited consolidated financial statements.
 

Triple-S Management Corporation
                       
Consolidated Statements of Earnings (Unaudited)
                       
(Dollar amounts in thousands, except per share data)
                       
                         
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Premiums earned, net
  $ 509,843     $ 502,761     $ 995,114     $ 996,938  
Administrative service fees
    6,962       12,166       13,557       24,664  
Net investment income
    12,654       12,671       24,452       25,094  
Total operating revenues
    529,459       527,598       1,033,123       1,046,696  
Net realized investment gains:
                               
Total other-than-temporary impairment losses on securities
    -       (761 )     -       (2,616 )
Net realized gains, excluding other-than-temporary impairment losses on securities
    6,995       2,194       12,888       2,670  
Total net realized investment gains
    6,995       1,433       12,888       54  
Net unrealized investment loss on trading securities
    (119 )     (6,010 )     (1,260 )     (3,980 )
Other income (expense), net
    466       (324 )     480       (172 )
Total revenues
    536,801       522,697       1,045,231       1,042,598  
Benefits and expenses:
                               
Claims incurred
    427,941       424,838       830,514       850,666  
Operating expenses
    85,882       76,720       168,593       153,591  
Total operating costs
    513,823       501,558       999,107       1,004,257  
Interest expense
    2,957       3,372       6,084       6,600  
Total benefits and expenses
    516,780       504,930       1,005,191       1,010,857  
Income before taxes
    20,021       17,767       40,040       31,741  
Income tax expense (benefit):
                               
Current
    2,147       4,877       1,994       8,421  
Deferred
    788       (2,167 )     10,590       (2,929 )
Total income taxes
    2,935       2,710       12,584       5,492  
Net income
  $ 17,086     $ 15,057     $ 27,456     $ 26,249  
Basic net income per share
  $ 0.59     $ 0.52     $ 0.95     $ 0.90  
Diluted net income per share
  $ 0.59     $ 0.51     $ 0.95     $ 0.90  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Triple-S Management Corporation
           
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) (Unaudited)
       
(Dollar amounts in thousands, except per share data)
           
             
   
2011
   
2010
 
Balance at January 1
  $ 617,272     $ 537,772  
Share-based compensation
    1,091       678  
Cash settlement of options under share-based compensation plan
    (2,420 )     -  
Stock issued upon exercise of stock options
    914       -  
Repurchase and retirement of common stock
    (2,282 )     -  
Comprehensive income (loss):
               
Net income
    27,456       26,249  
Net unrealized change in fair value of available for sale securities, net of taxes
    4,601       31,843  
Defined benefit pension plan:
               
Actuarial loss, net
    1,178       730  
Prior service credit, net
    (164 )     (136 )
Total comprehensive income
    33,071       58,686  
Balance at June 30
  $ 647,646     $ 597,136  
 
See accompanying notes to unaudited consolidated financial statements.

 
Triple-S Management Corporation
 
Consolidated Statements of Cash Flows (Unaudited)
           
(Dollar amounts in thousands, except per share data)
           
             
   
Six months ended
 
   
June 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 27,456     $ 26,249  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    10,565       6,964  
Net amortization of investments
    913       1,683  
Provision for doubtful receivables, net
    1,955       5,048  
Deferred tax expense (benefit)
    10,590       (2,929 )
Net realized investment (gain) loss on sale of securities
    (12,888 )     (54 )
Net unrealized loss (gain) on trading securities
    1,260       3,980  
Share-based compensation
    1,091       678  
Proceeds from trading securities sold:
               
Equity securities
    21,087       2,706  
Acquisition of securities in trading portfolio:
               
Equity securities
    (628 )     (4,124 )
(Increase) decrease in assets:
               
Premium and other receivables, net
    43,009       (67,174 )
Deferred policy acquisition costs and value of business acquired
    274       (539 )
Other deferred taxes
    719       7,278  
Other assets
    (7,202 )     5,771  
Increase (decrease) in liabilities:
               
Claim liabilities
    (2,774 )     50,964  
Liability for future policy benefits
    6,879       6,478  
Unearned premiums
    (8,821 )     (15,086 )
Policyholder deposits
    597       267  
Liability to FEHBP
    (316 )     (978 )
Accounts payable and accrued liabilities
    (15,783 )     4,412  
Net cash provided by operating activities
    77,983       31,594  
 
(Continued)

 

Triple-S Management Corporation
 
Consolidated Statements of Cash Flows (Unaudited)
           
(Dollar amounts in thousands, except per share data)
           
             
 
 
Six months ended
 
   
June 30,
 
   
2011
   
2010
 
Cash flows from investing activities:
           
Proceeds from investments sold or matured:
           
Securities available for sale:
           
Fixed maturities sold
  $ 101,326     $ 43,443  
Fixed maturities matured/called
    51,443       58,312  
Equity securities sold
    14,425       14,685  
Securities held to maturity:
               
Fixed maturities matured/called
    1,440       1,276  
Acquisition of investments:
               
Securities available for sale:
               
Fixed maturities
    (140,417 )     (143,742 )
Equity securities
    (35,334 )     (17,285 )
Fixed maturity securities held to maturity
    (255 )     (250 )
Net outflows for policy loans
    (215 )     (114 )
Acquisition of business, net of $29,370 of cash acquired
    (54,058 )     -  
Net capital expenditures
    (8,460 )     (10,197 )
Net cash used in investing activities
    (70,105 )     (53,872 )
Cash flows from financing activities:
               
Change in outstanding checks in excess of bank balances
    (13,008 )     (2,483 )
Net change in short-term borrowings
    42,740       17,695  
Repayments of long-term borrowings
    (25,820 )     (820 )
Repurchase and retirement of common stock
    (1,557 )     -  
Cash settlements of stock options
    (2,420 )     -  
Proceeds from exercise of stock options
    189       -  
Proceeds from policyholder deposits
    7,679       5,772  
Surrenders of policyholder deposits
    (3,330 )     (3,959 )
Net cash provided by financing activities
    4,473       16,205  
Net increase (decrease) in cash and cash equivalents
    12,351       (6,073 )
Cash and cash equivalents:
               
Beginning of period
    45,021       40,376  
End of period
  $ 57,372     $ 34,303  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
(1)
Basis of Presentation
 
   The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation and its subsidiaries are unaudited.  In this filing, the “Corporation”, the “Company”, “TSM”, “we”, “us” and “our” refer to Triple-S Management Corporation and its subsidiaries.  The consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the U.S. (GAAP) for complete financial statements.  These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
   In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of such consolidated interim financial statements have been included.  The results of operations for the three months and six months ended June 30, 2011 are not necessarily indicative of the results for the full year.
 
(2)
Recent Accounting Standards
 
   In July 2011, the Financial Accounting Standard Board (“FASB”) issued guidance to address questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts).  A health insurer’s portion of the annual fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk for each applicable calendar year.  The amendments specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.  This guidance is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.  We are currently evaluating the impact, if any, of the adoption of this guidance will have on the financial position or results of operations.
 
   In June 2011, the Financial Accounting Standard Board (“FASB”) issued guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  The FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income.  This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2011.  We do not expect the adoption of this guidance to have an impact on our financial position or results of operations.
 
   In May 2011, the FASB issued guidance that changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements that result in common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRS”).  For many of the requirements, FASB does not intend the amendments in this guidance to result in a change in the application of the requirements in Topic 820.  Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements.  Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2011.  We do not expect the adoption of this guidance to have an impact on our financial position or results of operations.
 
 
8

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

 
   In April 2011, the FASB issued guidance to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.  The Board determined that the criterion pertaining to an exchange of collateral should not be a determining factor in assessing effective control. The Board concluded that the assessment of effective control should focus on a transferor’s contractual rights and obligations with respect to transferred financial assets, not on whether the transferor has the practical ability to perform in accordance with those rights or obligations. The Board also concluded that the remaining criteria are sufficient to determine effective control. Consequently, the amendments remove the transferor’s ability criterion from the consideration of effective control for repos and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity.  This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2011.  The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  We do not expect the adoption of this guidance to have an impact on our financial position or results of operations.
 
   Other than the accounting pronouncement disclosed above, there were no other new accounting pronouncements issued during the six months ended June 30, 2011 that could have a material impact on the Corporation’s financial position, operating results or financials statement disclosures.
 
(3)
Segment Information
 
   The operations of the Corporation are conducted principally through three business segments: Managed Care, Life Insurance, and Property and Casualty Insurance.  The Corporation evaluates performance based primarily on the operating revenues and operating income of each segment.  Operating revenues include premiums earned, net, administrative service fees and net investment income.  Operating costs include claims incurred and operating expenses.  The Corporation calculates operating income or loss as operating revenues less operating costs.
 
   Our Managed Care segment is engaged in the sale of managed care products to the Commercial and Medicare  market sectors.  Up to September 30, 2010, our Managed Care subsidiary, Triple-S Salud, Inc. (“TSS”) provided managed care services in Puerto Rico to Medicaid members in two regions on a fully-insured basis and in one region on an Administrative Service Only (ASO) basis.  The contracts between the Government and Triple-S for the provision of services to the Medicaid population expired by their own terms on September 30, 2010, thus effective October 1st, 2010 we no longer provide services to these members. As discussed further in note 14, our Managed Care segment includes the results of operations and financial condition of American Health since February 1, 2011.
 
 
9

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

 
   The following tables summarize the operations by major operating segment for the three months and six months ended June 30, 2011 and 2010:
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Operating revenues:
                       
Managed Care:
                       
Premiums earned, net
  $ 458,305     $ 451,688     $ 891,108     $ 894,747  
Administrative service fees
    6,962       12,166       13,557       24,664  
Intersegment premiums /service fees
    1,440       1,516       2,940       3,068  
Net investment income
    4,780       5,075       9,001       10,037  
Total managed care
    471,487       470,445       916,606       932,516  
Life Insurance:
                               
Premiums earned, net
    27,801       25,998       54,759       51,804  
Intersegment premiums
    88       96       174       194  
Net investment income
    4,523       4,240       8,930       8,446  
Total life insurance
    32,412       30,334       63,863       60,444  
Property and Casualty Insurance:
                               
Premiums earned, net
    23,737       25,075       49,247       50,387  
Intersegment premiums
    154       154       307       307  
Net investment income
    2,373       2,868       4,583       5,603  
Total property and casualty insurance
    26,264       28,097       54,137       56,297  
Other segments: *
                               
Intersegment service revenues
    3,794       14,171       7,642       27,675  
Operating revenues from external sources
    2       -       4       -  
Total other segments
    3,796       14,171       7,646       27,675  
Total business segments
    533,959       543,047       1,042,252       1,076,932  
TSM operating revenues from external sources
    487       488       949       1,008  
Elimination of intersegment premiums
    (1,682 )     (1,766 )     (3,421 )     (3,569 )
Elimination of intersegment service fees
    (3,794 )     (14,171 )     (7,642 )     (27,675 )
Other intersegment eliminations
    489       -       985       -  
Consolidated operating revenues
  $ 529,459     $ 527,598     $ 1,033,123     $ 1,046,696  
 
* Includes segments that are not required to be reported separately.  These segments include the data processing services organization as well as the third-party administrator of managed care services.
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Operating income:
                       
Managed care
  $ 8,998       18,467     $ 21,405       31,115  
Life insurance
    3,643       4,688       7,915       8,526  
Property and casualty insurance
    2,043       1,971       3,003       1,069  
Other segments *
    137       311       131       498  
Total business segments
    14,821       25,437       32,454       41,208  
TSM operating revenues from external sources
    491       488       953       1,008  
TSM unallocated operating expenses
    (2,521 )     (2,211 )     (5,027 )     (4,424 )
Elimination of TSM intersegment charges
    2,845       2,326       5,636       4,647  
Consolidated operating income
    15,636       26,040       34,016       42,439  
Consolidated net realized investment gains
    6,995       1,433       12,888       54  
Consolidated net unrealized loss on trading securities
    (119 )     (6,010 )     (1,260 )     (3,980 )
Consolidated interest expense
    (2,957 )     (3,372 )     (6,084 )     (6,600 )
Consolidated other income (expense), net
    466       (324 )     480       (172 )
Consolidated income before taxes
  $ 20,021       17,767     $ 40,040       31,741  
                                 
Depreciation and amortization expense:
                               
Managed care
    4,625       3,162       9,059       5,390  
Life insurance
    163       168       325       337  
Property and casualty insurance
    387       406       777       805  
Total business segments
    5,175       3,736       10,161       6,532  
TSM depreciation expense
    202       216       404       432  
Consolidated depreciation and amortization expense
  $ 5,377       3,952     $ 10,565       6,964  
 
* Includes segments that are not required to be reported separately.  These segments include the data processing services organization as well as the third-party administrator of managed care services.
 
             
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Assets:
           
Managed care
  $ 887,566     $ 790,485  
Life insurance
    546,069       523,246  
Property and casualty insurance
    334,565       339,955  
Other segments *
    17,632       16,842  
Total business segments
    1,785,832       1,670,528  
Unallocated amounts related to TSM:
               
Cash, cash equivalents, and investments
    59,552       62,841  
Property and equipment, net
    20,308       20,712  
Other assets
    20,525       20,600  
      100,385       104,153  
Elimination entries-intersegment receivables and others
    (30,412 )     (15,311 )
Consolidated total assets
  $ 1,855,805     $ 1,759,370  
 
* Includes segments that are not required to be reported separately.  These segments include the data processing services organization as well as the third-party administrator of managed care services.
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
(4)
Investment in Securities
 
   The amortized cost for debt securities and cost for equity securities, gross unrealized gains, gross unrealized losses, and estimated fair value for trading, available-for-sale and held-to-maturity securities by major security type and class of security at June 30, 2011 and December 31, 2010, were as follows:
 
   
June 30, 2011
 
         
Gross
   
Gross
       
         
unrealized
   
unrealized
   
Estimated
 
   
Cost
   
gains
   
losses
   
fair value
 
Trading securities:
                       
Equity securities
  $ 26,811     $ 8,990     $ (2,983 )   $ 32,818  
                                 
   
December 31, 2010
 
           
Gross
   
Gross
         
           
unrealized
   
unrealized
   
Estimated
 
   
Cost
   
gains
   
losses
   
fair value
 
Trading securities:
                               
Equity securities
  $ 43,832     $ 10,738     $ (3,471 )   $ 51,099  
 
   
June 30, 2011
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Estimated
 
   
cost
   
gains
   
losses
   
fair value
 
Securities available for sale:
                       
Fixed maturities:
                       
                         
Obligations of government-sponsored enterprises
  $ 100,422     $ 5,456     $ (8 )   $ 105,870  
                                 
U.S. Treasury securities and obligations of U.S. government instrumentalities
    48,990       2,736       (340 )     51,386  
                                 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    134,725       1,970       (5 )     136,690  
Municipal securities
    348,619       13,221       (1,052 )     360,788  
Corporate bonds
    106,589       7,869       (301 )     114,157  
Residential mortgage-backed securities
    9,638       780       -       10,418  
Collateralized mortgage obligations
    231,878       5,712       (937 )     236,653  
Total fixed maturities
    980,861       37,744       (2,643 )     1,015,962  
Equity securities:
                               
Common stocks
    66       2,800       -       2,866  
Preferred stocks
    4,312       145       (496 )     3,961  
Perpetual preferred stocks
    1,000       -       (96 )     904  
Mutual funds
    68,718       7,178       (298 )     75,598  
Total equity securities
    74,096       10,123       (890 )     83,329  
Total
  $ 1,054,957     $ 47,867     $ (3,533 )   $ 1,099,291  
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)


   
December 31, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Estimated
 
   
cost
   
gains
   
losses
   
fair value
 
                         
Securities available for sale:                        
Fixed maturities:                        
Obligations of government-sponsored enterprises
  $ 124,735     $ 6,650     $ -     $ 131,385  
                                 
U.S. Treasury securities and obligations of U.S. government instrumentalities
    47,427       5,451       -       52,878  
                                 
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    117,519       3,115       (10 )     120,624  
Municipal securities
    272,383       3,979       (2,798 )     273,564  
Corporate bonds
    102,184       7,698       (250 )     109,632  
Residential mortgage-backed securities
    12,560       801       (1 )     13,360  
Collateralized mortgage obligations
    271,149       6,158       (1,164 )     276,143  
Total fixed maturities
    947,957       33,852       (4,223 )     977,586  
Equity securities:                                
Common stocks
    901       3,430       -       4,331  
Preferred stocks
    4,298       68       (737 )     3,629  
Perpetual preferred stocks
    1,000       -       (94 )     906  
Mutual funds
    41,551       6,632       (310 )     47,873  
Total equity securities
    47,750       10,130       (1,141 )     56,739  
Total
  $ 995,707     $ 43,982     $ (5,364 )   $ 1,034,325  
 
   
June 30, 2011
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Estimated
 
   
cost
   
gains
   
losses
   
fair value
 
Securities held to maturity:
                       
                         
Obligations of government-sponsored enterprises
  $ 1,793     $ 157     $ -     $ 1,950  
U.S. Treasury securities and obligations of U.S. government instrumentalities
    625       87       -       712  
Corporate bonds
    9,638       290       -       9,928  
Residential mortgage-backed securities
    480       33       -       513  
Certificates of deposit
    1,247       -       -       1,247  
Total
  $ 13,783     $ 567     $ -     $ 14,350  

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

 
   
December 31, 2010
 
         
Gross
   
Gross
       
   
Amortized
   
unrealized
   
unrealized
   
Estimated
 
   
cost
   
gains
   
losses
   
fair value
 
Securities held to maturity:
                       
                         
Obligations of government-sponsored enterprises
  $ 1,793     $ 151     $ -     $ 1,944  
U.S. Treasury securities and obligations of U.S. government instrumentalities
    1,478       203       -       1,681  
Corporate bonds
    9,443       414       -       9,857  
Residential mortgage-backed securities
    660       41       -       701  
Certificates of deposit
    1,241       -       -       1,241  
Total
  $ 14,615     $ 809     $ -     $ 15,424  
 
   Gross unrealized losses on investment securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2011 and December 31, 2011 were as follows:
 
   
June 30, 2011
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
Securites available for sale:
                                                     
Fixed maturities:
                                                     
Obligations of government-sponsored enterprises
  $ 5,249     $ (8 )     1     $ -     $ -       -     $ 5,249     $ (8 )     1  
U.S. Treasury securities and obligations of U.S. government instrumentalities
  $ 27,599     $ (340 )     2       -       -       -       27,599       (340 )     2  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    18,087       (5 )     7       -       -       -       18,087       (5 )     7  
Municipal securities
    51,572       (1,052 )     11       -       -       -       51,572       (1,052 )     11  
Corporate bonds
    7,682       (301 )     5       -       -       -       7,682       (301 )     5  
Collateralized mortgage obligations
    41,011       (799 )     7       2,074       (138 )     1       43,085       (937 )     8  
Total fixed maturities
    151,200       (2,505 )     33       2,074       (138 )     1       153,274       (2,643 )     34  
Equity securities:
                                                                       
Preferred stocks
    -       -       -       3,505       (496 )     1       3,505       (496 )     1  
Perpetual preferred stocks
    -       -       -       904       (96 )     1       904       (96 )     1  
Mutual funds
    2,241       (70 )     2       1,238       (228 )     1       3,479       (298 )     3  
Total equity securities
    2,241       (70 )     2       5,647       (820 )     3       7,888       (890 )     5  
Total for securities available for sale
  $ 153,441     $ (2,575 )     35     $ 7,721     $ (958 )     4     $ 161,162     $ (3,533 )     39  

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


   
December 31, 2010
 
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
   
Estimated
Fair Value
   
Gross
Unrealized
Loss
   
Number of
Securities
 
Securites available for sale:
                                                     
Fixed maturities:
                                                     
Obligations of government-Commonwealth of Puerto Rico and its instrumentalities
  $ 2,483     $ (10 )     5     $ -     $ -       -     $ 2,483     $ (10 )     5  
Municipal securities
    105,280       (2,652 )     53       692       (146 )     1       105,972       (2,798 )     54  
Corporate bonds
    5,828       (250 )     3       -       -       -       5,828       (250 )     3  
Residential mortgage-backed securities
    -       -       -       36       (1 )     1       36       (1 )     1  
Collateralized mortgage obligations
    77,417       (1,144 )     12       1,953       (20 )     1       79,370       (1,164 )     13  
Total fixed maturities
    191,008       (4,056 )     73       2,681       (167 )     3       193,689       (4,223 )     76  
Equity securities:
                                                                       
Preferred stocks
    -       -       -       3,263       (737 )     1       3,263       (737 )     1  
Perpetual preferred stocks
    -       -       -       906       (94 )     1       906       (94 )     1  
Mutual funds
    2,337       (310 )     2       -       -       -       2,337       (310 )     2  
Total equity securities
    2,337       (310 )     2       4,169       (831 )     2       6,506       (1,141 )     4  
Total for securities available for sale
  $ 193,345     $ (4,366 )     75     $ 6,850     $ (998 )     5     $ 200,195     $ (5,364 )     80  
 
   The Corporation regularly monitors and evaluates the difference between the cost and estimated fair value of investments.  For investments with a fair value below cost, the process includes evaluating: (1) the length of time and the extent to which the estimated fair value has been less than amortized cost for fixed maturity securities, or cost for equity securities, (2) the financial condition, near-term and long-term prospects for the issuer, including relevant industry conditions and trends, and implications of rating agency actions, (3) the Corporation’s intent to sell or the likelihood of a required sale prior to recovery, (4) the recoverability of principal and interest for fixed maturity securities, or cost for equity securities, and (5) other factors, as applicable.  This process is not exact and further requires consideration of risks such as credit and interest rate risks.  Consequently, if an investment’s cost exceeds its estimated fair value solely due to changes in interest rates, other-than temporary impairment may not be appropriate.  Due to the subjective nature of the Corporation’s analysis, along with the judgment that must be applied in the analysis, it is possible that the Corporation could reach a different conclusion whether or not to impair a security if it had access to additional information about the investee.  Additionally, it is possible that the investee’s ability to meet future contractual obligations may be different than what the Corporation determined during its analysis, which may lead to a different impairment conclusion in future periods.  If after monitoring and analyzing impaired securities, the Corporation determines that a decline in the estimated fair value of any available-for-sale security below cost is other-than-temporary, the carrying amount of equity securities is reduced to its fair value and of fixed maturity securities is reduced by the credit component of the other-than-temporary impairment.  When a decline in the estimated fair value of any held-to-maturity security below cost is deemed other-than-temporary, the carrying amount of the security is reduced by the other-than-temporary impairment.  The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value.  In periods subsequent to the recognition of an other-than-temporary impairment, the impaired security is accounted for as if it had been purchased on the measurement date of the impairment.  For debt securities, the discount (or reduced premium) based on the new cost basis may be accreted into net investment income in future periods based on prospective changes in cash flow estimates, to reflect adjustments to the effective yield.
 
   The Corporation’s process for identifying and reviewing invested assets for other-than temporary impairments during any quarter includes the following:
 
Identification and evaluation of securities that have possible indications of other-than-temporary impairment, which includes an analysis of all investments with gross unrealized investment losses that represent 20% or more of their cost and all investments with an unrealized loss greater than $50.
 
Review and evaluation of any other security based on the investee’s current financial condition, liquidity, near-term recovery prospects, implications of rating agency actions, the outlook for the business sectors in which the investee operates and other factors.  This evaluation is in addition to the evaluation of those securities with a gross unrealized investment loss representing 20% or more of their cost.
 
 
15

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

 
Consideration of evidential matter, including an evaluation of factors or triggers that may or may not cause individual investments to qualify as having other-than-temporary impairments; and
 
Determination of the status of each analyzed security as other-than-temporary or not, with documentation of the rationale for the decision.
 
   The Corporation continually reviews its investment portfolios under the Corporation’s impairment review policy.  Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be recorded in future periods.
 
   Obligations of States of the United States and Political Subdivisions of the States, and Obligations of the Commonwealth of Puerto Rico and its Instrumentalities:  The unrealized losses on the Corporation’s investments in obligations of states of the U.S. and political subdivisions of the states, and in obligations of the Commonwealth of Puerto Rico and its instrumentalities were mainly caused by fluctuations in interest rates and general market conditions.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  In addition, most of these investments have investment grade ratings.  The Corporation not considered these investments other-than-temporarily impaired, because the decline in fair value is attributable to changes in interest rates and not credit quality; because the Corporation does not intend to sell the investments; because it is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows.
 
   Corporate Bonds:  The unrealized losses of these bonds were principally caused by fluctuations in interest rates and general market conditions.  All corporate bonds included in the table above have investment grade ratings and have been in an unrealized position for less than six months.  The Corporation not considered these investments other-than-temporarily impaired, because the decline in estimated fair value is principally attributable to changes in interest rates; the Corporation does not intend to sell the investments and its is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity; and because the Corporation expects to collect all contractual cash flows.
 
   Collateralized Mortgage Obligations:  The unrealized losses on investments in collateralized mortgage obligations were mostly caused by fluctuations in interest rates and credit spreads.  The contractual cash flows of these securities, other than private CMOs, are guaranteed by a U.S. government-sponsored enterprise.  The investment grade credit rating of our securities reflects the seniority of the securities that the Corporation owns.  The Corporation not considered these investments other-than-temporarily impaired, because the decline in fair value is attributable to changes in interest rates and not credit quality, the Corporation does not intend to sell the investments and it is more likely than not that the Corporation will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity, and because the Corporation expects to collect all contractual cash flows.
 
   Preferred Stocks:  This particular instrument has a specified maturity, the issuer’s capital ratios are above regulatory levels, the issuer has continued dividend payments on this instrument and interest payments on all of its outstanding debt instruments, the issuer does not have the ability to call the security at a price lower than its stated value, the Corporation expects to collect all contractual cash flows, the Corporation does not have the intent to sell the investment, and it is not more likely than not that the Corporation will be required to sell the investment before market price recovery or maturity, this investment is not considered other-than-temporarily impaired.
 
   Perpetual Preferred Stocks:  This security has experienced an improvement in value during the past twelve month period.  Because the issuer’s capital ratios are above regulatory levels, the Corporation does not have the intent to sell the investment, and the Corporation has the intent and ability to hold the investment until a market price recovery, this investment is not considered other-than-temporarily impaired.
 
   Mutual Funds:  Security that has been in an unrealized loss position more than twelve months has experienced an improvement in value during this quarter.  The other funds have been in an unrealized loss position for less than twelve months, the Corporation does not have the intent to sell these investments, and the Corporation has the ability to hold the investments until a market price recovery, these positions are not considered other-than-temporarily impaired.
 
 
16

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

 
   Maturities of investment securities classified as available for sale and held to maturity at June 30, 2011 were as follows:
 
   
June 30, 2011
 
   
Amortized
   
Estimated
 
   
cost
   
fair value
 
Securities available for sale:
           
Due in one year or less
  $ 11,537     $ 11,621  
Due after one year through five years
    173,991       179,766  
Due after five years through ten years
    173,629       183,453  
Due after ten years
    380,188       394,051  
Residential mortgage-backed securities
    9,638       10,418  
Collateralized mortgage obligations
    231,878       236,653  
    $ 980,861     $ 1,015,962  
Securities held to maturity:
               
Due in one year or less
  $ 10,885     $ 11,175  
Due after one year through five years
    -       -  
Due after five years through ten years
    -       -  
Due after ten years
    2,418       2,662  
Residential mortgage-backed securities
    480       513  
    $ 13,783     $ 14,350  
 
   Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
17

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

 
   Information regarding realized and unrealized gains and losses from investments for the three months and six months ended June 30, 2011 and 2010 is as follows:
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Realized gains (losses):
                       
Fixed maturity securities:
                       
Securities available for sale:
                       
Gross gains from sales
  $ 6,928     $ 37     $ 7,149     $ 69  
Gross losses from sales
    (84 )     (84 )     (235 )     (124 )
Gross losses from other-than-temporary impairments
    -       -       -       (95 )
Total debt securities
    6,844       (47 )     6,914       (150 )
Equity securities:
                               
Trading securities:
                               
Gross gains from sales
    76       212       3,866       825  
Gross losses from sales
    (64 )     (320 )     (428 )     (529 )
      12       (108 )     3,438       296  
Securities available for sale:
                               
Gross gains from sales
    139       2,906       2,631       2,986  
Gross losses from sales
    -       (557 )     (95 )     (557 )
Gross losses from other-than-temporary impairments
    -       (761 )     -       (2,521 )
      139       1,588       2,536       (92 )
Total equity securities
    151       1,480       5,974       204  
Net realized gains on securities
  $ 6,995     $ 1,433     $ 12,888     $ 54  
 
   The other-than-temporary impairments on fixed mantunity on fixed mantunity securities are attributable to credit losses.
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Changes in net unrealized gains (losses):
                       
Recognized in income:
                       
Equity securities – trading
  $ (119 )   $ (6,010 )   $ (1,260 )   $ (3,980 )
Recognized in accumulated other comprehensive income (loss):
                               
Fixed maturities – available for sale
    7,449       27,950       5,472       39,524  
Equity securities – available for sale
    236       (6,325 )     244       (1,945 )
    $ 7,685     $ 21,625     $ 5,716     $ 37,579  
Not recognized in the consolidated financial statements:
                               
Fixed maturities – held to maturity
  $ (120 )   $ 251     $ (242 )   $ 349  
 
   The deferred tax liability/asset related to unrealized gains and losses, respectively, recognized in accumulated other comprehensive income/ (loss) during the six months ended June 30, 2011 and 2010 aggregated to $1,115 and $7,361, respectively.
 
   As of June 30, 2011 and December 31, 2010, no individual investment in securities exceeded 10% of stockholders’ equity.
 
 
18

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

 
   Components of net investment income were as follows:
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Fixed maturities
  $ 11,509     $ 11,406     $ 22,579     $ 22,596  
Equity securities
    604       943       914       1,839  
Policy loans
    112       111       220       217  
Cash equivalents and interest-bearing deposits
    202       33       285       102  
Other
    227       178       454       340  
Total
  $ 12,654     $ 12,671     $ 24,452     $ 25,094  
 
(5)
Premiums and Other Receivables, Net
 
   Premiums and other receivables, net as of June 30, 2011 and December 31, 2010 were as follows:
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Premiums
  $ 116,081     $ 144,501  
Self-funded group receivables
    66,470       73,750  
FEHBP
    11,653       11,001  
Agent balances
    33,156       37,262  
Accrued interest
    14,478       9,781  
Reinsurance recoverable
    48,240       47,342  
Other
    33,578       22,177  
      323,656       345,814  
Less allowance for doubtful receivables:
               
Premiums
    11,351       13,106  
Other
    8,218       6,928  
      19,569       20,034  
Total premiums and other receivables, net
  $ 304,087     $ 325,780  
 
 
19

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

 
(6)
Claim Liabilities
 
   The activity in the total claim liabilities for the three months and six months ended June 30, 2011 and 2010 is as follows:
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Claim liabilities at beginning of period
  $ 414,215     $ 397,634     $ 360,210     $ 360,446  
Reinsurance recoverable on claim liabilities
    (31,258 )     (31,955 )     (31,449 )     (30,712 )
Net claim liabilities at beginning of period
    382,957       365,679       328,761       329,734  
Claim liabilities acquired from American Health
    -       -       41,666       -  
Incurred claims and loss-adjustment expenses:
                               
Current period insured events
    426,306       421,912       836,948       841,876  
Prior period insured events
    (1,547 )     574       (12,536 )     3,335  
Total
    424,759       422,486       824,412       845,211  
Payments of losses and loss-adjustment expenses:
                               
Current period insured events
    368,591       389,179       570,477       567,609  
Prior period insured events
    72,271       20,645       257,508       228,995  
Total
    440,862       409,824       827,985       796,604  
Net claim liabilities at end of period
    366,854       378,341       366,854       378,341  
Reinsurance recoverable on claim liabilities
    31,854       33,069       31,854       33,069  
Claim liabilities at end of period
  $ 398,708     $ 411,410     $ 398,708     $ 411,410  
 
   As a result of differences between actual amounts and estimates of insured events in prior periods, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred.
 
   The credit in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and six months ended June 30, 2011 is due primarily to better than expected utilization trends.
 
   Reinsurance recoverable on unpaid claims is reported within the premium and other receivables, net in the accompanying consolidated financial statements.  The claims incurred disclosed in this table exclude the change in the liability for future policy benefits expense, which amounted to $3,182 and $6,102, during the three months and six months ended June 30, 2011, respectively.  The change in the liability for future policy benefits during the three months and six months ended June 30, 2010 amount to $2,352 and $5,455, respectively.
 
(7)
Fair Value Measurements
 
   Assets recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Level inputs, as defined by current accounting guidance for fair value measurements and disclosures, are as follows:
 
 
Level Input:
 
 
 
Input Definition:
 
Level 1
 
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2
 
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3
 
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
 
 
20

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

 
   The Corporation uses observable inputs when available.  Fair value is based upon quoted market prices when available.  If market prices are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others.  The Corporation limits valuation adjustments to those deemed necessary to ensure that the security or derivative’s fair value adequately represents the price that would be received or paid in the marketplace.  Valuation adjustments may include consideration of counterparty credit quality and liquidity as well as other criteria.  The estimated fair value amounts are subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments.  Changes in the underlying assumptions used in estimating fair value could affect the Corporation’s results.  The fair value measurement levels are not indicative of risk of investment.
 
   The fair value information of financial instruments in the accompanying consolidated financial statements was determined as follows:
 
(i)            Cash and Cash Equivalents         
 
   The carrying amount approximates fair value because of the short-term nature of such instruments.
 
(ii)           Investment in Securities
 
   The fair value of investment securities is estimated based on quoted market prices for those or similar investments.  Additional information pertinent to the estimated fair value of investment in securities is included in note 4.
 
(iii)           Policy Loans
 
   Policy loans have no stated maturity dates and are part of the related insurance contract. The carrying amount of policy loans approximates fair value because their interest rate is reset periodically in accordance with current market rates.
 
(iv)           Receivables, Accounts Payable and Accrued Liabilities and Short-term Borrowings
 
   The carrying amount of receivables, accounts payable and accrued liabilities and short-term borrowings approximates fair value because they mature and should be collected or paid within 12 months after June 30, 2011.
 
(v)           Policyholder Deposits
 
   The fair value of policyholder deposits is the amount payable on demand at the reporting date, and accordingly, the carrying value amount approximates fair value.
 
(vi)           Long-term Borrowings
 
   The carrying amounts and fair value of the Corporation’s long-term borrowings are as follows:
 
   
June 30, 2011
   
December 31, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
amount
   
value
   
amount
   
value
 
Loans payable to bank
  $ 20,207     $ 20,207     $ 21,027     $ 21,027  
6.3% senior unsecured notes payable
    25,000       24,850       50,000       49,625  
6.6% senior unsecured notes payable
    35,000       34,615       35,000       34,388  
6.7% senior unsecured notes payable
    35,000       34,930       35,000       35,000  
Repurchase agreeement
    25,000       25,019       25,000       24,575  
Totals
  $ 140,207     $ 139,621     $ 166,027     $ 164,615  
 
   The carrying amount of the loans payable to bank approximates fair value due to its floating interest-rate structure. The fair value of the senior unsecured notes payable was determined using broker quotations.
 
 
21

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

 
(vii)          Derivative Instruments
 
   Current market pricing models were used to estimate fair value of structured note agreements.  Fair values were determined using market quotations provided by outside securities consultants or prices provided by market makers using observable inputs.
 
   The following tables summarize fair value measurements by level at June 30, 2011 and December 31, 2010 for assets measured at fair value on a recurring basis:
 
   
June 30, 2011
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity securities held for  trading
  $ 32,818     $ -     $ -     $ 32,818  
Securities available for sale:
                               
Fixed maturity securities
                               
Obligations of government-sponsored enterprises
    -       105,870       -       105,870  
U.S. Treasury securities and obligations of U.S government instrumentalities
    51,386       -       -       51,386  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    -       136,690       -       136,690  
Municipal securities
    -       360,788       -       360,788  
Corporate bonds
    -       114,157       -       114,157  
Residential agency mortgage-backed securities
    -       10,418       -       10,418  
Collateralized mortgage obligations
    -       236,653       -       236,653  
Total fixed maturities
    51,386       964,576       -       1,015,962  
Equity securities
                               
Common stocks
    2,866       -       -       2,866  
Preferred stocks
    3,961       -       -       3,961  
Perpetual preferred stocks
    904       -       -       904  
Mutual funds
    64,057       10,203       1,338       75,598  
Total equity securities
    71,788       10,203       1,338       83,329  
Derivatives (reported within other assets in the consolidated balance sheets)
    -       410       -       410  
Total
  $ 155,992     $ 975,189     $ 1,338     $ 1,132,519  

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


   
December 31, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity securities held for  trading
  $ 51,099     $ -     $ -     $ 51,099  
Securities available for sale:
                               
Fixed maturity securities
                               
Obligations of government-sponsored enterprises
    -       131,385       -       131,385  
U.S. Treasury securities and obligations of U.S government instrumentalities
    52,878       -       -       52,878  
Obligations of the Commonwealth of Puerto Rico and its instrumentalities
    -       120,624       -       120,624  
Municipal securities
    -       273,564       -       273,564  
Corporate bonds
    -       109,632       -       109,632  
Residential agency mortgage-backed securities
    -       13,360       -       13,360  
Collateralized mortgage obligations
    -       276,143       -       276,143  
Total fixed maturities
    52,878       924,708       -       977,586  
Equity securities
                               
Common stocks
    4,331       -       -       4,331  
Preferred stocks
    3,629       -       -       3,629  
Perpetual preferred stocks
    906       -       -       906  
Mutual funds
    27,858       18,971       1,044       47,873  
Total equity securities
    36,724       18,971       1,044       56,739  
Derivatives (reported within other assets in the consolidated balance sheets)
    -       748       -       748  
Total
  $ 140,701     $ 944,427     $ 1,044     $ 1,086,172  
 
   The fair value of fixed maturity and equity securities included in the Level 2 category were based on market values obtained from independent pricing services, which utilize evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information and for structured securities, cash flow and when available loan performance data.  Because many fixed income securities do not trade on a daily basis, the pricing company’s evaluated pricing applications apply available information as applicable, through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations.  For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available.  The independent pricing services monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants.
 
 
23

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

 
   There were no transfers between Levels I, II or III during the three and six months ended June 30, 2011 and 2010.   A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and six months ended June 30, 2011 and 2010 is as follows:
 
   
Three months ended
 
   
June 30, 2011
   
June 30, 2010
 
   
Fixed
               
Fixed
             
   
Maturity
   
Equity
         
Maturity
   
Equity
       
   
Securities
   
Securities
   
Total
   
Securities
   
Securities
   
Total
 
Beginning balance
  $ -     $ 1,216     $ 1,216     $ -     $ 775     $ 775  
Total gains or losses:
                                               
Unrealized in other accumulated comprehensive income
    -       -       -       -       (76 )     (76 )
Purchases
    -       122       122       -       -       -  
Transfers in and/or out of Level 3
    -       -       -       -       -       -  
Ending balance
  $ -     $ 1,338     $ 1,338     $ -     $ 699     $ 699  

   
Six months ended
 
   
June 30, 2011
   
June 30, 2010
 
   
Fixed
               
Fixed
             
   
Maturity
   
Equity
         
Maturity
   
Equity
       
   
Securities
   
Securities
   
Total
   
Securities
   
Securities
   
Total
 
Beginning balance
  $ -     $ 1,044     $ 1,044     $ -     $ 775     $ 775  
Total gains or losses:
                                               
Unrealized in other accumulated comprehensive income
    -       72       72       -       (76 )     (76 )
Purchases
    -       222       222       -       -       -  
Transfers in and/or out of Level 3
    -       -       -       -       -       -  
Ending balance
  $ -     $ 1,338     $ 1,338     $ -     $ 699     $ 699  
 
(8)
Share-Based Compensation
 
   Share-based compensation expense recorded during the three months and six months ended June 30, 2011 was $298 and $1,091, respectively.  Share-based compensation expense recorded during the three months and six months ended June 30, 2010 was $173 and $678, respectively.  During the six months ended June 30, 2011 cash received from stock option exercises was $189. The impact of these cash receipts is included within the cash flows from financing activities in the accompanying consolidated statement of cash flows.  During the six months ended June 30, 2011, 32,776 shares were repurchased and retired as a result of a non-cash exercise of stock options.  Also, during the six months ended June 30, 2011, 432,567 options were cash-settled for $2,420 at its fair value at time of settlement.  No options were exercised or cash-settled during the six months ended June 30, 2010.
 
 
24

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

 
(9)
Comprehensive Income
 
   The accumulated balances for each classification of other comprehensive income, net of tax, are as follows:
 
               
Accumulated
 
   
Net unrealized
   
Liability for
   
other
 
   
gain on
   
pension
   
comprehensive
 
   
securities
   
benefits
   
income
 
Balance at January 1
  $ 32,743     $ (27,279 )   $ 5,464  
Net current period change
    4,601       1,014       5,615  
Balance at June 30
  $ 37,344     $ (26,265 )   $ 11,079  
 
(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 June 30, 2011, tax years 2004 through 2011 for the Corporation and its subsidiaries are subject to examination by Puerto Rico taxing authorities.
 
   Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings in the period that includes the enactment date.  Quarterly income taxes are calculated using the effective tax rate determined based on the income forecasted for the full fiscal year.
 
   In 2010, the government of Puerto Rico adopted a comprehensive tax reform in two phases.  The first phase became effective in the last quarter of 2010 and was mostly related to reducing the income tax burden to individuals.  In 2010 only, corporations received an income tax credit amounting to 7% of the tax determined, defined as the tax liability less certain credits.  The second phase of the reform, which was approved on January 31, 2011, reduces the maximum corporate income tax rate from 39% to approximately 30%, eliminates a temporary surtax of 5%, and adds several tax credits and deductions, among other tax reliefs and changes.  As a result of this income tax rate reduction, the consolidated net deferred tax assets were decreased through a one-time charge to the consolidated deferred tax expense of approximately $6,400 during the six months ended June 30, 2011.
 
 
25

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

 
(11)
Pension Plan
 
   The components of net periodic benefit cost for the three months and six months ended June 30, 2011 and 2010 were as follows:
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Components of net periodic benefit cost:
                       
Service cost
  $ 691     $ 1,214     $ 1,520     $ 2,554  
Interest cost
    1,597       1,472       3,501       3,019  
Expected return on assets
    (1,248 )     (1,040 )     (2,727 )     (2,104 )
Amortization of prior service benefit
    (108 )     (110 )     (235 )     (223 )
Amortization of actuarial loss
    795       586       1,683       1,194  
Net periodic benefit cost
  $ 1,727     $ 2,122     $ 3,742     $ 4,440  
 
   Employer contributions:   The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2010 that it expected to contribute $10,000 to its pension program in 2011.  As of June 30, 2011, the Corporation has contributed $8,000 to the pension program.  The Corporation expects to further contribute $2,000 to fund its pension program in 2011.
 
(12)
Net Income Available to Stockholders and Net Income per Share
 
   The following table sets forth the computation of basic and diluted earnings per share for the three months and six months ended June 30, 2011 and 2010:

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Numerator for earnings per share:
                       
Net income available to stockholders
  $ 17,086     $ 15,057     $ 27,456     $ 26,249  
Denominator for basic earnings per share:
                               
Weighted average of common shares
    28,847,737       29,088,719       28,796,365       29,080,062  
Effect of dilutive securities
    196,996       213,752       213,900       185,816  
Denominator for diluted earnings per share
    29,044,733       29,302,471       29,010,265       29,265,878  
Basic net income per share
  $ 0.59     $ 0.52     $ 0.95     $ 0.90  
Diluted net income per share
  $ 0.59     $ 0.51     $ 0.95     $ 0.90  
 
   During the three months and six months ended June 30, 2011, the weighted average of stock option shares of approximately 4,032 was excluded from the denominator for the diluted earnings per share computation because the stock options were anti-dilutive.  There were no anti-dilutive stock options during the three months and six months ended June 30, 2010.
 
(13)
Contingencies
 
   As of June 30, 2011, the Corporation is a defendant in various lawsuits arising in the ordinary course of business. We are also defendants in various other claims and proceedings, some of which are described below. Furthermore, the Commissioner of Insurance, as well as other Federal and Puerto Rico government authorities, regularly make inquiries and conduct audits concerning the Corporation’s compliance with applicable insurance and other laws and regulations.
 
 
26

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

 
   Management believes that the aggregate liabilities, if any, arising from all such claims, assessments, audits and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of the Corporation. However, given the inherent unpredictability of these matters, it is possible that an adverse outcome in certain matters could have a material adverse effect on the financial condition, operating results and/or cash flows. Where the Corporation believes that a loss is both probable and estimable, such amounts have been recorded.  In other cases, it is at least reasonably possible that the Corporation may incur a loss related to one or more of the mentioned pending lawsuits or investigations, but the Corporation is unable to estimate the range of possible loss which may be ultimately realized, either individually or in the aggregate, upon their resolution.
 
   Additionally, we may face various potential litigation claims that have not been asserted to date, including claims from persons purporting to have contractual rights to acquire shares of the Corporation on favorable terms (“Share Acquisition Agreements”) or to have inherited such shares notwithstanding applicable transfer and ownership restrictions.
 
Hau et al Litigation (formerly known as Jordan et al)
 
   On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against the Corporation, the Corporation’s subsidiary TSS and others in the Court of First Instance for San Juan, Superior Section (the “Court of First Instance”), alleging, among other things, violations by the defendants of provisions of the Puerto Rico Insurance Code, antitrust violations, unfair business practices, RICO violations, breach of contract with providers, and damages in the amount of $12 million.  Following years of complaint amendments, motions practice and interim appeals up to the level of the Puerto Rico Supreme Court, the plaintiffs amended their complaint on June 20, 2008 to allege with particularity the same claims initially asserted but on behalf of a more limited group of plaintiffs, and increase their claim for damages to approximately $207 million.  After extensive discovery, plaintiffs amended their complaint for the third time in December 2010 and dropped all claims predicated on violations of the antitrust and RICO laws and the Puerto Rico Insurance Code.  In addition, the plaintiffs voluntarily dismissed with prejudice any and all claims against officers of the Corporation and TSS.  Two of the original plaintiffs were also eliminated from the Third Amended Complaint (TAC).  The TAC alleges breach of six Share Acquisition Agreements, breach of the provider contract by way of discriminatory audits and improper payment of services rendered, and reduces the claim for damages to approximately $13.3 million.  Against a former President of TSM, Plaintiffs allege a claim for libel and slander.  In January 2011, we filed our response and a counterclaim for malicious prosecution and abuse of process.  Discovery is ongoing.  The Corporation intends to vigorously defend this claim.
 
Dentists Association Litigation
 
   On February 11, 2009, the Puerto Rico Dentists Association (Colegio de Cirujanos Dentistas de Puerto Rico) filed a complaint in the Court of First Instance against 24 health plans operating in Puerto Rico that offer dental health coverage.   The Corporation and two of its subsidiaries, TSS and Triple-C, Inc. (“TCI”), were included as defendants.  This litigation purports to be a class action filed on behalf of Puerto Rico dentists who are similarly situated.
 
   The complaint alleges that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to dentists so that they are not paid in a timely and complete manner for the covered medically necessary services they render. The complaint also alleges, among other things, violations to the Puerto Rico Insurance Code, antitrust laws, the Puerto Rico racketeering statute, unfair business practices, breach of contract with providers, and damages in the amount of $150 million. In addition, the complaint claims that the Puerto Rico Insurance Companies Association is the hub of an alleged conspiracy concocted by the member plans to defraud dentists.  There are numerous available defenses to oppose both the request for class certification and the merits.  The Corporation intends to vigorously defend this claim.
 
   Two codefendant plans, whose main operations are outside Puerto Rico, removed the case to federal court in Florida, which the plaintiffs and the other codefendants, including the Corporation, opposed.  Following months of jurisdictional proceedings in the federal court system, the federal district court in Puerto Rico decided to retain jurisdiction on February 8, 2011.  The defendants filed a joint motion to dismiss the case on the merits, because the complaint fails to state a claim upon which relief can be granted.  The parties have fully briefed the merits of the joint motion and are awaiting the court’s resolution.
 
 
27

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

 
Colón Litigation
 
   On October 15, 2007, José L. Colón-Dueño, a former holder of one share of TSS predecessor stock, filed suit against TSS and the Puerto Rico Commissioner of Insurance (the “Commissioner”) in the Court of First Instance. The sale of that share to Mr. Colón-Dueño was voided in 1999 pursuant to an order issued by the Commissioner in which the sale of 1,582 shares to a number of TSS shareholders was voided. TSS, however, appealed the Commissioner’s order before the Puerto Rico Court of Appeals, which upheld the order on March 31, 2000. Plaintiff requests that the court direct TSS to return his share of stock and compensate him for alleged damages in excess of $500,000 plus attorney’s fees. On January 13, 2011, the Court of First Instance dismissed the case with prejudice and, on July 1, 2011, the Puerto Rico Court of Appeals confirmed such dismissal.  Plaintiff filed a petition before the Puerto Rico Supreme Court on July 28, 2011, requesting the revision of the Court of Appeals’ judgment.   The Corporation is vigorously contesting this lawsuit because, among other reasons, the Commissioner’s order is final and cannot be collaterally attacked in this litigation.
 
Claims by Heirs of Former Shareholders
 
The Corporation and TSS are defending three individual lawsuits, all filed in state court, from persons who claim to have inherited a total of 48 shares of the Corporation or one of its predecessors or affiliates (before giving effect to the 3,000-for-one stock split) . While each case presents unique facts and allegations, the lawsuits generally allege that the redemption of the shares by the Corporation pursuant to transfer and ownership restrictions contained in the Corporation’s (or its predecessors’ or affiliates’) articles of incorporation and bylaws was improper.  Management believes all these claims are time barred under one or more statutes of limitations and other grounds and is vigorously defending them.  This belief is supported by the outcome of a similar claim brought by non-medical heirs against us in 2009.  The Puerto Rico Court of Appeals dismissed that claim as time barred under the two year statute of limitations contained in the local securities law, and the Puerto Rico Supreme Court denied the plaintiffs petition for certiorari in January 2011.
 
ACODESE Investigation
 
   During April 2010, each of the Company’s wholly-owned insurance subsidiaries received subpoenas for documents from the U.S. Attorney for the Commonwealth of Puerto Rico (the “U.S. Attorney”) and the Puerto Rico Department of Justice (“PRDOJ”) requesting information principally related to the Asociación de Compañías de Seguros de Puerto Rico, Inc. (“ACODESE” by its Spanish acronym). Also in April, the Company’s insurance subsidiaries received a request for information from the Office of the Commissioner of Insurance of Puerto Rico (“OCI”) related principally to ACODESE. The Company’s insurance subsidiaries are members of ACODESE, an insurance trade association established in Puerto Rico since 1975, and their current presidents have participated over the years on ACODESE’s board of directors.
 
   The Company believes similar subpoenas and information requests were issued to other member companies of ACODESE in connection with the investigation of alleged payments by the former Executive Vice President of ACODESE to members of the Puerto Rico Legislative Assembly beginning in 2005. The Company, however, has not been informed of the specific subject matter of the investigations being conducted by the U.S. Attorney, the PRDOJ or the OCI. The Company is fully complying with the subpoenas and the request for information and intends to cooperate with any related government investigation. The Company at this time cannot reasonably assess the outcome of these investigations or their impact on the Company.
 
Intrusions into Triple-C, Inc. Internet IPA Database
 
   On September 21, 2010, we learned from a competitor that a specific internet database managed by our subsidiary TCI containing information pertaining to individuals previously insured by TSS under the Government of Puerto Rico’s Health Insurance Plan (“HIP”) and to independent practice associations (“IPAs”) that provided services to those individuals, had been accessed without authorization by certain of our competitor’s employees from September 9 to September 15, 2010.  TCI served as a third-party administrator for TSS in the administration of its HIP contracts until September 30, 2010.  We conducted a thorough investigation with the assistance of external resources and identified the information that was accessed and downloaded into the competitor’s system.  The September 2010 intrusions may have potentially compromised protected health information of approximately 398,000 beneficiaries in the North and Metro-North regions of the HIP.  Our investigation also revealed that protected health information of approximately 5,500 HIP beneficiaries, 2,500 Medicare beneficiaries and IPA data from all three HIP regions previously serviced by TSS was accessed through multiple, separate intrusions into the TCI IPA database from October 2008 to August 2010.  We have no evidence indicating that the stolen information included Social Security numbers.  We attempted to notify by mail all beneficiaries whose information may have been compromised by these intrusions.  We also established a toll-free call center to address inquiries and complaints from the individuals to whom notice was provided.  We received a total of approximately 1,530 inquiries and no complaints from these individuals.
 
 
28

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

 
   Our investigation has revealed that the security breaches were the result of unauthorized use of one or more active user IDs and passwords specific to the TCI IPA database, and not the result of breaches of TCI’s, TSS’s or the Corporation’s system security features.  Nonetheless, we took measures to strengthen TCI’s server security and credentials management procedures and conducted an assessment of our system-wide data and facility security to prevent the occurrence of a similar incident in the future.
 
   We were unable to determine the purpose of these breaches and do not know the extent of any fraudulent use of the information or its impact on the potentially affected individuals and IPAs.  According to representations made by our competitor, however, the target was financial information related to IPAs and management of the HIP, rather than the beneficiaries’ information.
 
   We notified the appropriate Puerto Rico and federal government agencies of these events, and gave public notice of the breaches as required under Puerto Rico and federal law.  We received a number of inquiries and requests for information related to these events from these government agencies and are cooperating with them.  The Puerto Rico government agency that oversees the HIP levied a fine of $100,000 on TSS in connection with these incidents, but following our request for reconsideration, the agency withdrew the fine until the pertinent federal authorities conclude their investigations of this matter.  We do not have sufficient information at this time to predict whether any future action by government entities or others as a result of the data breaches would adversely affect our business, financial condition and results of operations.
 
(14)
Business Combination
 
   Effective February 7, 2011, the Corporation announced that its subsidiary, TSS completed the acquisition of 100% of the outstanding capital stock of Socios Mayores en Salud Holdings, Inc. (from now on referred to as “American Health” or “AH”), a provider of Medicare Advantage services to over 40,000 dual and non-dual eligible members in Puerto Rico.  After this acquisition the Corporation expects to be better positioned for continued growth in the Medicare Advantage business.  The Corporation accounted for this acquisition in accordance with the provisions of Accounting Standard Codification Topic 805, Business Combinations.  The results of operations and financial condition of AH are included in the accompanying consolidated financial statements for the period following the effective date of the acquisition.  The aggregate purchase price of the acquired entity was preliminarily estimated at approximately $83,428.  Direct costs related to the acquisition amounted to $440 and were included in the consolidated operating expenses during the six months ended June 30, 2011.
 
   Although the closing date of the transaction was February 7, 2011, the consideration amount was determined using AH’s financial position as of January 31, 2011 and as such, TSS has acquired the net assets held by AH as of that date.   Therefore, we have recorded a preliminary allocation of the purchase price to AH tangible and intangible assets acquired and liabilities assumed based on their fair value as of January 31, 2011.  Additional adjustments to the purchase price allocation may occur for one year after the date of acquisition if new information becomes known about facts and circumstances that existed as of January 31, 2011 that, if known, would have affected the amounts recognized as of that date. Goodwill has been recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired.  Goodwill will not be deductible for tax purposes and is attributable to synergies and economies of scale expected from the acquisition.  The following table summarizes the consideration transferred to acquire AH as of June 30, 2011 and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition.
 
 
29

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

 
Cash
  $ 80,263  
Due to seller
    3,165  
Total purchase price
  $ 83,428  
         
Investments and cash and cash equivalents
  $ 70,359  
Premiums and other receivables
    19,791  
Property and equipment
    1,665  
Intangible assets
    35,060  
Other assets
    9,985  
Claim liabilities
    (41,272 )
Accounts payable and accrued liabilities
    (27,534 )
Deferred tax liability
    (10,518 )
Total net assets
  $ 57,536  
         
Goodwill
  $ 25,892  
 
   As of the date of this quarterly report, the external valuation procedures have not progressed to a stage where we can identify and quantify the intangible assets acquired in this transaction.  Because the external valuation procedures have not been completed this purchase price allocation is preliminary.  In addition, the Company is evaluating certain tax matters and some receivables and accounts payable that could also change the purchase price allocation.  As a result, the amount of the final purchase price allocation could differ materially from the amounts presented in the unaudited interim consolidated financial statements.  To the extent that any amount is assigned to a tangible or finite live intangible asset, this amount will be depreciated or amortized, as appropriate, to earnings over the expected period of benefit of the asset.  At June 30, 2011, we recognized preliminary intangible assets of $35.1 million and goodwill of $25.9 million within the consolidated other assets.  During the three months and six months ended June 30, 2011 we recognized $2.1 million and $3.5 million, respectively, of amortization expense related to estimated intangible assets resulting from the AH transaction.
 
   The consolidated statements of earnings for the three months ended June 30, 2011 include $112,177 and $691 related to AH operating revenues and net income, respectively, corresponding to the period subsequent to the effective date of the acquisition.  The consolidated statements of earnings for the six months ended June 30, 2011 include $190,544 and $2,420 related to AH operating revenues and net income, respectively, corresponding to the period subsequent to the effective date of the acquisition.  The following unaudited pro forma financial information presents the combined results of operations of the Corporation and AH as if the acquisition had occurred at the beginning of 2010.  The unaudited pro forma financial information is not intended to represent or be indicative of the Corporation’s consolidated results of operations that would have been reported had the acquisition been completed as of the beginning of the periods presented and should not be taken as indicative of the Corporation’s future consolidated results of operations.
 
   
Unaudited
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Operating revenues
  $ 529,469     $ 631,088     $ 1,069,729     $ 1,232,837  
                                 
Net Income
  $ 17,789     $ 21,677     $ 27,618     $ 33,019  
                                 
Basic net income per share
  $ 0.62     $ 0.75     $ 0.96     $ 1.14  
                                 
Diluted net income per share
  $ 0.61     $ 0.74     $ 0.95     $ 1.13  
 
 
Triple-S Management Corporation
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
(Unaudited)

 
   The above pro forma operating revenues and net income considers the following estimated acquisition adjustments:
 
 
·
Amortization of intangible assets – based on the estimated fair value of the tangible net assets acquired from AH, we estimate that we will recognize in our consolidated balance sheet intangible assets of approximately $61.0 million, including goodwill.  We anticipate an amortization expense for the three months and six months ended June 30, 2011 of $3.1 million and $1.5 million, respectively.  We anticipate an amortization expense for the three months and six months ended June 30, 2010 of $2.1 million and $4.2 million, respectively.
 
 
·
Interest expense – represents the interest expense related to the short-term reverse repurchase agreements amounting to $55.0 million to finance the first payment of the acquisition.  This agreement was paid during the quarter of the acquisition.  Total interest expense related to these reverse repurchase agreements was approximately $42.
 
 
·
Net investment income - this pro forma adjustment represents the anticipated bond discount amortization of approximately $31 and $61 for the three months and six months ended June 30, 2010, respectively, due to the fair value accounting of investment in securities.  For the three months and six months ended June 30, 2011 an additional bond discount amortization of approximately $10 and $21, respectively, was recorded.
 
 
·
Acquisition costs – we recognized in the three month and six month period ended June 30, 2010 $440 of expenses related to the acquisition.
 
 
·
Current income tax expense – we recognized the tax effect of the other pro forma adjustments done to the statement of earnings.  During the 2010 period the Corporation and AH were subject to Puerto Rico income taxes as regular corporations at the then enacted tax rate of 39% plus the temporary surtax of 5%.  The enacted tax rate for the 2011 period was 30%.
 
(15)
Subsequent Event
 
   The Corporation evaluated subsequent events through the date that these consolidated interim financial statements were issued.  No events have occurred that require disclosure or adjustments.
 
 
31

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
   The Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months and six months ended June 30, 2011.  Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2010.
 
Cautionary Statement Regarding Forward-Looking Information
 
   This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations.  These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control.  These statements may address, among other things, future financial results, strategy for growth, and market position.  It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.  The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form.  We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise.  Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues.
 
Overview
 
   We are one of the most significant players in the managed care industry in Puerto Rico and have over 50 years of experience in this industry.  We offer a broad portfolio of managed care and related products in the Commercial and Medicare (including Medicare Advantage and the Part D stand-alone prescription drug plan (“PDP”)) markets.  In the Commercial market we are the largest provider of managed care products.  We offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement.  We also participated in the Government of Puerto Rico Health Reform (“Medicaid”) up to September 30, 2010.  Medicaid is a government of Puerto Rico-funded managed care program for the medically indigent that is similar to the Medicaid program in the U.S.
 
   We have the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico and U.S. Virgin Islands.  As of June 30, 2011 we serve approximately 811,000 members across all regions of Puerto Rico and U.S. Virgin Islands, covering approximately 22% of the Puerto Rico population.  For the six months ended June 30, 2011, our managed care segment represented approximately 90% of our total consolidated premiums earned.  We also have significant positions in the life insurance and property and casualty insurance markets.  Our life insurance segment had a market share of approximately 8% (in terms of direct premiums) during the nine months ended September 30, 2010.  Our property and casualty segment had a market share of approximately 8% (in terms of direct premiums) for the year ended December 31, 2010.
 
   We participate in the managed care market through our subsidiary, Triple-S Salud, Inc. (“TSS”).  Our managed care subsidiary is a Blue Cross Blue Shield Association (“BCBSA”) licensee, which provides us with exclusive use of the Blue Cross Blue Shield name and mark throughout Puerto Rico and U.S. Virgin Islands.
 
   We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc. (“TSV”) and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (“TSP”), each one representing approximately 5% of our consolidated premiums earned, net for the six months ended June 30, 2011.
 
   Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results.  Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations.  These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income.  The following table shows premiums earned, net and net fee revenue and operating income for each segment, as well as the intersegment premiums earned, service revenues and other intersegment transactions, which are eliminated in the consolidated results:
 
 
32

 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
   
2011
   
2010
 
Premiums earned, net:
                       
Managed care
  $ 458.7     $ 452.5     $ 892.0     $ 896.3  
Life insurance
    27.9       26.1       54.9       52.0  
Property and casualty insurance
    23.9       25.2       49.5       50.7  
Intersegment premiums earned
    (0.7 )     (1.0 )     (1.3 )     (2.1 )
Consolidated premiums earned, net
  $ 509.8     $ 502.8     $ 995.1     $ 996.9  
Administrative service fees:
                               
Managed care
  $ 8.0     $ 12.9     $ 15.6     $ 26.2  
Intersegment administrative service fees
    (1.0 )     (0.7 )     (2.0 )     (1.5 )
Consolidated administrative service fees
  $ 7.0     $ 12.2     $ 13.6     $ 24.7  
Operating income:
                               
Managed care
  $ 9.0     $ 18.5     $ 21.4     $ 31.1  
Life insurance
    3.6       4.7       7.9       8.5  
Property and casualty insurance
    2.0       2.0       3.0       1.1  
Intersegment and other
    1.0       0.9       1.7       1.7  
Consolidated operating income
  $ 15.6     $ 26.1     $ 34.0     $ 42.4  
 
   Our revenues primarily consist of premiums earned, net and administrative service fees.  These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and Medicaid.  Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others.  Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income.  Substantially all of our earnings are generated in Puerto Rico.
 
   Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders.  Each segment’s results of operations depend in significant part on their ability to accurately predict and effectively manage claims.  A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period.  Operating expenses consist primarily of compensation expenses, commission payments to brokers and other overhead business expenses.
 
   We use operating income as a measure of performance of the underwriting and investment functions of our segments.  We also use the loss ratio and the operating expense ratio as measures of performance.  The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100.  The operating expense ratio is operating expenses divided by premiums earned; net and administrative service fees, multiplied by 100.
 
Recent Developments
 
Business Acquisition
 
   On February 7, 2011, TSM announced that TSS, our managed care subsidiary, completed the acquisition of 100% of the outstanding capital stock of Socios Mayores en Salud Holdings, Inc. (from now on referred to as “American Health” or “AH”), the ultimate parent company of American Health, Inc., a provider of Medicare Advantage services to over 40,000 dual and non-dual eligible members in Puerto Rico.  The cost of this acquisition was approximately $83.4 million, funded with funds obtained from reverse repurchase agreements and unrestricted cash.  The consolidated results of operations and financial condition of the Corporation included in this Quarterly Report on Form 10-Q reflects the results of operations of AH from February 1, 2011 and were included within our Managed Care segment.  We are currently in the process of completing the analysis of the third-party valuations of certain intangible assets; thus, as of this date it is not possible to determine the allocation of the purchase price to the net assets acquired.  For additional information regarding the acquisition of AH, please see note 14 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
 
 
33

 
Federal Regulation
 
   On March 23, 2010, President Obama signed into law federal health reform legislation, known as the Patient Protection and Affordable Care Act.  The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, signed into law on March 30, 2010 (collectively, Pub. L. No. 111-148, and referred to herein as “PPACA”), includes certain mandates that took effect in 2010, as well as other requirements that are to be implemented over the next several years.  There are many important provisions of the legislation that will require additional guidance and clarification in form of regulations and interpretations in order to fully understand the impact of the legislation on our overall business, which we expect to occur over the next several years.  Certain aspects of PPACA are currently being challenged in the judicial system.  In addition, Congress may withhold the funding necessary to implement the new reforms or attempt to replace the legislation with amended provisions or repeal it altogether.
 
   Certain significant provisions of PPACA that will impact our business include, among others, provisions that freeze premium payments to Medicare Advantage health plans beginning in 2011 and that tie such premium to the local Medicare fee for service costs (adjustment will be phased in over between 3 and 7 years depending on the amount of the eventual adjustment), gradual closing of the coverage gap, or "donut hole" on Medicare Part D, provisions that tie Medicare Advantage premiums to the achievement of certain quality performance measures (Star Ratings), and stipulated minimum medical loss ratios.
 
   We currently estimate that our Medicare Advantage premium payments, on average, will decrease by approximately 6% during 2012.  To address these reductions, we may have to reduce benefits, charge or increase member premiums, reduce profit margin expectations, or implement some combination of these actions.  Such actions could adversely impact our membership growth, revenue expectations, and our operating margins.
 
   Beginning 2012, Medicare Advantage plans with an overall Star Rating of three or more stars (out of five) will be eligible for a quality bonus in their basic premium rates.  Initially quality bonuses were limited to the few plans that achieved 4 or more stars as their overall rating, but CMS is using demonstration authority to expand the quality bonus to 3 star plans for a three year period through 2014.  In addition, also beginning in 2012, Medicare Advantage star ratings will affect the rebate percentage available for plans to provide additional member benefits (plans with quality ratings of 3.5 stars or above will have their rebate percentage increased from a base rate of 50% to 65% or 70%).  In all cases, these rebates percentages are lower than the previous percentage of 75%.  Our Medicare Advantage plans are currently rated 2.5 out of 5 stars.  Notwithstanding efforts to improve our star ratings and other quality measures prior to 2012, there can be no assurances that we will be successful in doing so.  Accordingly, our plans may not be eligible for full level quality bonuses or increased rebates, which could adversely affect the benefits such plans can offer, reduce membership and reduce profit margins.
 
   The federal health reform legislation is discussed more fully under “Item 1. Business – Regulation” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Recent Accounting Standards
 
   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,
 
   
2011
   
2010
 
Managed care enrollment:
           
Commercial 1
    706,659       751,986  
Medicare 2
    104,159       65,008  
Medicaid 3
    -       544,887  
Total
    810,818       1,361,881  
Managed care enrollment by funding arrangement:
               
Fully-insured
    590,297       923,691  
Self-insured
    220,521       438,190  
Total
    810,818       1,361,881  
 
(1)
Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, U.S. Federal government employees and local government employees.
(2)
Includes Medicare Advantage as well as stand-alone PDP plan membership.  As of June 30, 2011 total membership attributable to the AH acquisition was 41,828
(3)
Includes rated and self-funded members.  We participated in this sector up to September 30, 2010.
 
Consolidated Operating Results
 
   The following table sets forth the Corporation’s consolidated operating results.  Further details of the results of operations of each reportable segment are included in the analysis of operating results for the respective segments.

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
   
2011
   
2010
 
Revenues:
                       
Premiums earned, net
  $ 509.8       502.8     $ 995.1       996.9  
Administrative service fees
    7.0       12.2       13.6       24.7  
Net investment income
    12.6       12.6       24.4       25.1  
Total operating revenues
    529.4       527.6       1,033.1       1,046.7  
Net realized investment gains
    7.0       1.4       12.9       0.1  
Net unrealized investment loss on trading securities
    (0.1 )     (6.0 )     (1.3 )     (4.0 )
Other income (expense), net
    0.5       (0.3 )     0.5       (0.2 )
Total revenues
    536.8       522.7       1,045.2       1,042.6  
Benefits and expenses:
                               
Claims incurred
    427.9       424.8       830.5       850.7  
Operating expenses
    85.9       76.7       168.6       153.6  
Total operating expenses
    513.8       501.5       999.1       1,004.3  
Interest expense
    3.0       3.4       6.1       6.6  
Total benefits and expenses
    516.8       504.9       1,005.2       1,010.9  
Income before taxes
    20.0       17.8       40.0       31.7  
Income tax expense
    2.9       2.7       12.6       5.5  
Net income
  $ 17.1       15.1     $ 27.4       26.2  
 
 
35

 
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
 
Operating Revenues
 
   Consolidated premiums earned, net increased by $7.0 million, or 1.4%, to $509.8 million during the three months ended June 30, 2011 when compared to the three months ended June 30, 2010; mostly due to the higher member months enrollment in the Medicare business attributed to new members acquired from AH.  Such increase was mostly offset by the decrease in the Medicaid premiums as a result of the termination of the Medicaid contracts effective September 30, 2010.
 
   The decrease in administrative service fees of $5.2 million, or 42.6%, to $7.0 million in the 2011 period, is mostly attributed to the termination of the Medicaid contracts effective September 30, 2010.
 
Net Realized Investment Gains
 
   Consolidated net realized investment gains of $7.0 million during the 2011 period are the result of net realized gains, mainly from the sale of debt securities.
 
Net Unrealized Losses on Trading Securities
 
   Consolidated net unrealized losses on trading securities decreased by $5.9 million, to a loss of $0.1 million during the three months ended June 30, 2011.  This fluctuation is attributed to a higher fair value of our trading securities portfolio.
 
Claims Incurred
 
   Consolidated claims incurred increased by $3.1 million, or 0.7%, to $427.9 million during the three months ended June 30, 2011 when compared to the claims incurred during the three months ended June 30, 2010.  This increase is principally due to an increase in claims incurred related to the AH acquisition offset in part by lower claims in the Managed Care segment as a result of the termination of the Medicaid contracts effective September 30, 2010.  The consolidated loss ratio decreased by 0.6 percentage points to 83.9%.
 
Operating Expenses
 
   Consolidated operating expenses during the three months ended June 30, 2011 increased by $9.2 million, or 12.0%, to $85.9 million as compared to the operating expenses during the three months ended June 30, 2010.  For the three months ended June 30, 2011, the consolidated operating expense ratio increased by 1.9 percentage points to 16.8%.  This increase is mainly due to additional operating costs incurred by the Managed Care segment in order to maintain the level of services offered to members and providers while transitioning to its new IT system.  Also contributing to the increased operating expense ratio is that AH operations run at a higher operating expense ratio than the Medicaid business.  Approximately $2.1 million of the expense associated to the AH operations are related to the amortization of intangible assets.
 
Income Tax Expense
 
   Consolidated income tax expense during the three months ended June 30, 2011 slightly increased by $0.3 million, to $3.0 million, as compared to the income tax expense during the three months ended June 30, 2010, mainly as a result of higher taxable income offset by a reduction in the maximum corporate income tax rate.  The new Puerto Rico tax reform approved in 2011 provides for the reduction of the maximum corporate income tax rate from 39% to approximately 30%, the elimination of an additional tax rate imposed in 2009, as well as adding several tax credits and deductions, among other tax reliefs and changes.
 
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
 
Operating Revenues
 
   Consolidated premiums earned, net decreased by $1.8 million, or 0.2%, to $995.1 million during the six months ended June 30, 2011 when compared to the six months ended June 30, 2010.  The decrease was mostly the result of the termination of the Medicaid contracts effective September 30, 2010.  Such decrease was offset in part by an increase in member months in the Medicare business attributed to new members acquired from AH.
 
 
36

 
   The decrease in administrative service fees of $11.1 million, or 44.9%, to $13.6 million in the 2011 period, is mostly attributed to the termination of the Medicaid contracts effective September 30, 2010.
 
Net Realized Investment Gains
 
   Consolidated net realized investment gains of $12.9 million during the 2011 period are the result of net realized gains from the sale of debt and equity securities.
 
Net Unrealized Losses on Trading Securities
 
   Consolidated net unrealized losses on trading securities decreased by $2.7 million, to a loss of $1.3 million during the six months ended June 30, 2011.  This fluctuation is attributed to higher fair value of our trading securities portfolio.
 
Claims Incurred
 
   Consolidated claims incurred decreased by $20.2 million, or 2.4%, to $830.5 million during the six months ended June 30, 2011 when compared to the claims incurred during the six months ended June 30, 2010.  This decrease is principally due to lower claims in the Managed Care segment as a result of the termination of the Medicaid contracts effective September 30, 2010, offset in part by an increase in claims incurred related to the AH acquisition.  The consolidated loss ratio decreased by 1.8 percentage points to 83.5%.
 
Operating Expenses
 
   Consolidated operating expenses during the six months ended June 30, 2011 increased by $15.0 million, or 9.8%, to $168.6 million as compared to the operating expenses during the six months ended June 30, 2010.  For the six months ended June 30, 2011, the consolidated operating expense ratio increased by 1.8 percentage points to 16.8%.  This increase is mainly due to additional operating costs incurred by the Managed Care segment in order to maintain the level of services offered to members and providers while transitioning to its new IT system.  Also contributing to the increased operating expense are expenses associated to the AH operations and the effect of costs assumed from the termination of the Medicaid business.  Approximately $3.5 million of the expense associated to the AH operations are related to the amortization of intangible assets.
 
Income Tax Expense
 
   Consolidated income tax expense during the six months ended June 30, 2011 increased by $7.1 million to $12.6 million as compared to the income tax expense during the six months ended June 30, 2010.  The consolidated income tax expense includes a one-time charge of $6.4 million resulting from the reduction of the net deferred tax assets following the reduction in income tax rates after the enactment of the new Puerto Rico tax reform, which was effective January 2011.  This tax reform decreased corporations maximum tax rate from 39% to 30% and eliminated the additional tax rate imposed on a temporary basis.  The adjustment to our net deferred tax assets resulted in a consolidated effective tax rate of 31.1%, which is 13.7 percentage points higher than last year.
 
 
37

 
Managed Care Operating Results
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
   
2011
   
2010
 
Operating revenues:
 
 
                   
Medical premiums earned, net:
 
 
   
 
   
 
       
Commercial
  $ 232.4       244.0     $ 468.8       477.9  
Medicare
    226.4       117.6       420.5       238.2  
Medicaid
    (0.1 )     90.9       2.7       180.2  
Medical premiums earned, net
    458.7       452.5       892.0       896.3  
Administrative service fees
    8.0       12.9       15.6       26.2  
Net investment income
    4.8       5.1       9.0       10.0  
Total operating revenues
    471.5       470.5       916.6       932.5  
Medical operating costs:
                               
Medical claims incurred
    403.7       400.4       782.1       800.0  
Medical operating expenses
    58.8       51.6       113.1       101.4  
Total medical operating costs
    462.5       452.0       895.2       901.4  
Medical operating income
  $ 9.0       18.5     $ 21.4       31.1  
Additional data:
                               
Member months enrollment:
                               
Commercial:
                               
Fully-insured
    1,459,055       1,535,176       2,922,436       3,042,290  
Self-funded
    664,056       732,849       1,388,215       1,499,132  
Total Commercial member months
    2,123,111       2,268,025       4,310,651       4,541,422  
Medicare:
                               
Medicare Advantage
    285,168       167,640       531,636       341,295  
Stand-alone PDP
    26,637       28,256       53,204       56,381  
Total Medicare member months
    311,805       195,896       584,840       397,676  
Medicaid:
                               
Fully-insured
    -       1,030,703       -       2,043,539  
Self-funded
    -       593,594       -       1,182,778  
Total Reform member months
    -       1,624,297       -       3,226,317  
Total member months
    2,434,916       4,088,218       4,895,491       8,165,415  
Medical loss ratio
    88.0 %     88.5 %     87.7 %     89.3 %
Operating expense ratio
    12.6 %     11.1 %     12.5 %     11.0 %
 
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
 
Medical Operating Revenues
 
   Medical premiums earned for the three months ended June 30, 2011 increased by $6.2 million, or 1.4%, to $458.7 million when compared to the medical premiums earned during the three months ended June 30, 2010.  This increase is principally the result of the following:
 
Medical premiums generated by the Medicare business increased during the three months ended June 30, 2011 by $108.8 million, or 92.5%, to $226.4 million.  This fluctuation is the result of an overall increase in the member months enrollment of this business by 115,909, or 59.2%, when compared with the same period in 2010.  Increase in member months enrollment was attributed to new members acquired from AH effective February 1, 2011, offset in part by a decrease in member months in our dual eligible product.  Total member months from AH amounted to 124,684 during the three months ended June 30, 2011.
 
Decrease in medical premiums earned in the Medicaid business results from the termination of the Medicaid contracts effective September 30, 2010.
 
Medical premiums generated by the Commercial business decreased by $11.6 million, or 4.8%, to $232.4 million during the three months ended June 30, 2011.  This fluctuation is primarily the result of a decrease in member months enrollment by 76,121, or 5.0%; offset in part by an increase in average premium rates in rated group policies of approximately 2.0%.
 
 
38

 
   Administrative service fees decreased by $4.9 million, or 38.0%, to $8.0 million during the three months ended June 30, 2011.  This fluctuation results from the termination of the Medicaid contracts effective September 30, 2010 as well as a lower self-insured commercial member months enrollment during the 2011 period.
 
   Medical Claims Incurred
 
   Medical claims incurred during the three months ended June 30, 2011 increased by $3.3 million, or 0.8%, to $403.7 million when compared to the three months ended June 30, 2011.  The medical loss ratio (“MLR”) of the segment decreased 0.5 percentage points during the 2011 period, to 88.0%.  These fluctuations are primarily attributed to the effect of the following:
 
The medical claims incurred of the Medicare business increased by $110.2 million, or 117.1% during the 2011 period primarily due to the increase in volume of business as a result of the acquisition of AH effective February 1, 2011.  Total claims incurred during the 2011 period related to the AH business amounted to $99.4 million.  The MLR of the Medicare business was 90.2%, which is 10.2 percentage points higher than the MLR for the prior year.  The increased MLR is mostly due to the effect of prior period reserve developments in the 2011 and 2010 periods and to risk-score adjustments.  Excluding the effect of prior period reserve developments and risk-score premium adjustments, the MLR increased by 3.1 percentage points.  The higher MLR is due to the addition of AH, which has a higher MLR than our other Medicare products, as well as higher utilization trends in our non-dual product as compared to last year.
 
The medical claims incurred of the Medicaid business were $80.1 million, or 98.2%, lower than the prior year mostly due to the termination of the Medicaid contracts effective September 30, 2010.
 
The medical claims incurred of the Commercial business decreased by $26.8 million, or 11.9%, during the 2011 period and its MLR decreased by 7.2 percentage points.  The lower MLR is primarily due to the effect of prior period reserve developments in the 2011 and 2010 periods.  Excluding the effect of prior period reserve developments, the MLR increased by 0.6 percentage points.
 
Medical Operating Expenses
 
   Medical operating expenses for the three months ended June 30, 2011 increased by $7.2 million, or 14.0%, to $58.8 million when compared to the three months ended June 30, 2010.  The operating expense ratio increased by 1.6 percentage points, from 11.1% in 2010 to 12.7% in 2011  This increase is mainly due to additional operating costs incurred in order to maintain the level of services offered to members and providers while transitioning to the new IT system.  Also contributing to the increased operating expense are the expenses associated to the AH operations and to the effect of cost assumed from the termination of the Medicaid business.  Approximately $2.1 million of the expenses associated to the AH operations are related to the amortization of intangible assets.  Total operating expenses during the three months ended June 30, 2011 related to the AH business amounted to $12.2 million.
 
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
 
Medical Operating Revenues
 
   Medical premiums earned for the six months ended June 30, 2011 decreased by $4.3 million, or 0.5%, to $892.0 million when compared to the medical premiums earned during the six months ended June 30, 2010.  This decrease is principally the result of the following:
 
Medical premiums earned in the Medicaid business decreased by $177.5 million, to $2.7 million during the six months ended June 30, 2011.  This fluctuation results from the termination of the Medicaid contracts effective September 30, 2010.  The premiums earned that are reflected in the 2011 period result from adjustments that increase the amount receivable corresponding to the risk sharing agreement with the government of Puerto Rico included in the Metro-North region contract.
 
Medical premiums generated by the Commercial business decreased by $9.1 million, or 1.9%, to $468.8 million during the six months ended June 30, 2011.  This fluctuation is primarily the result of a decrease in member months enrollment by 119,854, or 3.9%, partially offset by an increase in average premium rates in rated group policies of approximately 2.0%.
 
 
39

 
Medical premiums generated by the Medicare business increased during the six months ended June 30, 2011 by $182.3 million, or 76.5%, to $420.5 million.  This fluctuation is the result of an overall increase in the member months enrollment of this business by 187,164, or 47.1%, when compared with the same period in 2010.  Increase in member month enrollment was attributed to new members acquired from AH effective February 1, 2011, offset in part by a decrease in member months in our dual eligible product.  Total member months from AH amounted to 206,641 during the six months ended June 30, 2011.
 
   Administrative service fees decreased by $10.6 million, or 40.5%, to $15.6 million during the six months ended June 30, 2011.  This fluctuation results from the termination of the Medicaid contracts effective September 30, 2010 as well as a lower self-insured commercial member months enrollment during the 2011 period.
 
   Medical Claims Incurred
 
   Medical claims incurred during the six months ended June 30, 2011 decreased by $17.9 million, or 2.2%, to $782.1 million when compared to the six months ended June 30, 2010.  The MLR of the segment decreased 1.6 percentage points during the 2011 period, to 87.7%.  These fluctuations are primarily attributed to the effect of the following:
 
The medical claims incurred of the Medicaid business were $173.5 million lower than the prior year mostly due to the termination of the Medicaid contracts effective September 30, 2010.
 
The medical claims incurred of the Commercial business decreased by $24.6 million, or 5.6%, during the 2011 period and its MLR decreased by 3.6 percentage points.  The lower MLR is partly due to the effect of prior period reserve developments in the 2011 and 2010 periods.  Excluding the effect of prior period reserve developments, the MLR decreased by 2.2 percentage points, mostly resulting from lower utilization trends in 2011.
 
The medical claims incurred of the Medicare business increased by $180.2 million, or 93.5% during the 2011 period primarily due to the acquisition of AH effective February 1, 2011.  Total claims incurred during the 2011 period related to the AH business amounted to $167.7 million.  The Medicare MLR was 88.7%, which is 7.8 percentage points higher than the MLR for the prior year.  The increased MLR is due in part to the effect of prior period reserve developments in the 2011 and 2010 periods and to risk-score adjustments.  Excluding the effect of prior period reserve developments and risk-score premium adjustments, the MLR increased by 5.0 percentage points.  The higher adjusted MLR is due to the addition of AH which has a higher MLR than our other Medicare products as well as higher utilization trends in our non-dual product as compared to last year.
 
Medical Operating Expenses
 
   Medical operating expenses for the six months ended June 30, 2011 increased by $11.7 million, or 11.5%, to $113.1 million when compared to the six months ended June 30, 2010.  The operating expense ratio increased by 1.5 percentage points, from 11.0% in 2010 to 12.5% in 2011.  This increase is mainly due to additional operating costs incurred in order to maintain the level of services offered to members and providers while transitioning to the new IT system.  Also contributing to the increased operating expense are expenses associated to the AH operations and the effect of cost assumed from the termination of the Medicaid business.  Approximately $3.5 million of the expenses associated to the AH operations are related to the amortization of intangible assets.  Total operating expenses during the six months ended June 30, 2011 related to the AH business amounted to $19.4 million.
 
 
40

 
Life Insurance Operating Results
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
   
2011
   
2010
 
                         
Operating revenues:
                       
Premiums earned, net:
                       
Premiums earned
  $ 29.4     $ 27.5     $ 57.9     $ 54.8  
Premiums earned ceded
    (1.5 )     (1.4 )     (3.0 )     (2.8 )
Premiums earned, net
    27.9       26.1       54.9       52.0  
Net investment income
    4.5       4.2       8.9       8.4  
Total operating revenues
    32.4       30.3       63.8       60.4  
Operating costs:
                               
Policy benefits and claims incurred
    13.5       11.9       26.0       24.3  
Underwriting and other expenses
    15.3       13.7       29.9       27.6  
Total operating costs
    28.8       25.6       55.9       51.9  
Operating income
  $ 3.6     $ 4.7     $ 7.9     $ 8.5  
Additional data:
                               
Loss ratio
    48.4 %     45.6 %     47.4 %     46.7 %
Operating expense ratio
    54.8 %     52.5 %     54.5 %     53.1 %
 
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
 
Operating Revenues
 
   Premiums earned, net for the three months ended June 30, 2011 increased by $1.8 million, or 6.9% to $27.9 million when compared to the three months ended the June 30, 2010.  Such increase is primarily related to higher sales in Individual Life and Cancer lines of business.
 
Policy Benefits and Claims Incurred
 
   Policy benefits and claims incurred for the three months ended June 30, 2011 increased by $1.6 million, or 13.4%, to $13.5 million when compared to the three months ended June 30, 2010, as a result of higher claims received in the Cancer line of business and an increase in the liability for future policy benefits driven by new business subscribed during the period.  The loss ratio for the period increased from 45.6% in 2010 to 48.4% in 2011, or 2.8 percentage points.
 
Underwriting and Other Expenses
 
   Underwriting and other expenses for the three month period ended June 30, 2011 increased $1.6 million, or 11.7%, to $15.3 million when compared to the three months ended June 30, 2010.  The increase is mostly related to a higher amortization of deferred policy acquisition costs and the higher volume of business of this segment.  The increased operating expenses resulted in a higher operating expense ratio, which increased by 2.3 percentage points from 52.5% in 2010 to 54.8% in 2011.
 
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
 
Operating Revenues
 
   Premiums earned, net for the six months ended June 30, 2011 increased by $2.9 million, or 5.6% to $54.9 million when compared to the six months ended the June 30, 2010.  Such increase is primarily related to higher sales in Individual Life and Cancer lines of business.
 
Policy Benefits and Claims Incurred
 
   Policy benefits and claims incurred for the six months ended June 30, 2011 increased by $1.7 million, or 7.0%, to $26.0 million when compared to the six months ended June 30, 2010, as a result of higher claims received in the Cancer line of business and an increase in the liability for future policy benefits driven by new business subscribed in the period.  The loss ratio for the period increased from 46.7% in 2010 to 47.4% in 2011, or 0.7 percentage points.
 
 
41

 
Underwriting and Other Expenses
 
   Underwriting and other expenses for the six month period ended June 30, 2011 increased $2.3 million, or 8.3%, to $29.9 million when compared to the six months ended June 30, 2010.  The increase is mostly related to a higher amortization of deferred policy acquisition costs and the higher volume of business of this segment.  The increased operating expenses resulted in a higher operating expense ratio, which increased by 1.4 percentage points, from 53.1% in 2010 to 54.5% in 2011.
 
Property and Casualty Insurance Operating Results
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
   
2011
   
2010
 
Operating revenues:
                       
Premiums earned, net:
                       
Premiums written
  $ 37.4     $ 34.6     $ 69.4     $ 70.8  
Premiums ceded
    (16.5 )     (14.9 )     (31.0 )     (29.4 )
Change in unearned premiums
    3.0       5.5       11.1       9.3  
Premiums earned, net
    23.9       25.2       49.5       50.7  
Net investment income
    2.3       2.9       4.6       5.6  
Total operating revenues
    26.2       28.1       54.1       56.3  
Operating costs:
                               
Claims incurred
    10.8       12.5       22.4       26.3  
Underwriting and other expenses
    13.4       13.6       28.7       28.9  
Total operating costs
    24.2       26.1       51.1       55.2  
Operating income
  $ 2.0     $ 2.0     $ 3.0     $ 1.1  
Additional data:
                               
Loss ratio
    45.2 %     49.6 %     45.3 %     51.9 %
Operating expense ratio
    56.1 %     54.0 %     58.0 %     57.0 %
 
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
 
Operating Revenues
 
   Total premiums written during the three months ended June 30, 2011 increased by $2.8 million, or 8.1%, to $37.4 million, mostly resulting from higher sales in the Commercial Multi-Peril line of business.
 
   Premiums ceded to reinsurers during the three months ended June 30, 2011 increased by $1.6 million, or 10.7%, to $16.5 million.  The ratio of premiums ceded to premiums written increased by 1.0 percentage points, from 43.1% in 2010 to 44.1% in 2011, mostly due to higher Commercial Property cessions which were increased from 32% to 37%.
 
   The change in unearned premiums presented a decrease of $2.5 million, to $3.0 million during the three months ended June 30, 2011, primarily as the result of the higher volume of premiums written.
 
Claims Incurred
 
   Claims incurred during the three months ended June 30, 2011 decreased by $1.7 million, or 13.6%, to $10.8 million.  The loss ratio decreased by 4.4 percentage points, to 45.2% during the three months ended June 30, 2011 as a result of favorable loss experience in the Commercial Multi-Peril and Personal Auto lines of business resulting from lower claim amounts in the claims reported during the current period.
 
 
42

 
Underwriting and Other Expenses
 
   Underwriting and other operating expenses for the three months ended June 30, 2011 decreased by $0.2 million, or 1.5%, to $13.4 million.  The operating expense ratio increased by 2.1 percentage points during the same period, to 56.1% in 2011.
 
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
 
Operating Revenues
 
   Total premiums written during the six months ended June 30, 2011 decreased by $1.4 million, or 2.0%, to $69.4 million, mostly resulting from a decrease in premiums mostly in the Dwelling and Commercial Property Mono-line and Commercial Auto lines of business; offset in part by higher sales in the Commercial Multi-Peril line of business.  The commercial business continues under soft market conditions, thus reducing premium rates and increasing competition for renewals and new business.
 
   Premiums ceded to reinsurers during the six months ended June 30, 2011 increased by $1.6 million, or 5.4%, to $31.0 million.  The ratio of premiums ceded to premiums written increased by 3.2 percentage points, from 41.5% in 2010 to 44.7% in 2011, mostly due to higher Commercial Property cessions which were increased from 32% to 37% and by a portfolio transfer that had the effect of increasing 2011 premiums ceded by $1.3 million.
 
   The change in unearned premiums presented an increase of $1.8 million, to $11.1 million during the six months ended June 30, 2011, primarily as the result of the lower volume of premiums written.
 
Claims Incurred
 
   Claims incurred during the six months ended June 30, 2011 decreased by $3.9 million, or 14.8%, to $22.4 million.  The loss ratio decreased by 6.6 percentage points, to 45.3% during the six months ended June 30, 2011 as a result of favorable loss experience in the Commercial Auto and Commercial Multi-Peril lines of business resulting from lower claim amounts in the claims reported during the current period.
 
Underwriting and Other Expenses
 
   Underwriting and other operating expenses for the six months ended June 30, 2011 decreased by $0.2 million, or 0.7%, to $28.7 million.  The operating expense ratio increased by 0.9 percentage points during the same period, to 57.9% in 2011.
 
 
43

 
Liquidity and Capital Resources
 
Cash Flows
 
   A summary of our major sources and uses of cash for the periods indicated is presented in the following table:
 
   
Six months ended
 
   
June 30,
 
(Dollar amounts in millions)
 
2011
   
2010
 
Sources of cash:
           
Cash provided by operating activities
  $ 78.0     $ 31.6  
Net proceeds from short-term borrowings
    42.7       17.7  
Proceeds from policyholder deposits
    7.7       5.8  
Total sources of cash
    128.4       55.1  
Uses of cash:
               
Net purchases of investment securities
    (7.4 )     (43.7 )
Capital expenditures
    (8.5 )     (10.2 )
Repurchase and retirement of common stock
    (1.6 )     -  
Cash settlements of stock options
    (2.4 )     -  
Payments of long-term borrowings
    (25.8 )     (0.8 )
Surrenders of policyholder deposits
    (3.3 )     (4.0 )
Acquisition of business, net of cash of $29.4 million
    (54.0 )        
Other
    (13.0 )     (2.5 )
Total uses of cash
    (116.0 )     (61.2 )
Net increase (decrease) in cash and cash equivalents
  $ 12.4     $ (6.1 )
 
   Cash flow from operating activities increased by $46.4 million for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010, principally due to the effect of higher premiums collections by $108.9 million and increase in net proceeds from our trading portfolio by $26.9 million, offset in part by an increase in cash paid to suppliers and employees and claims paid by $46.6 million and $28.3 million, respectively.  The increase in premiums collected is principally the result of the collection of past due Medicaid balances.  The higher net proceeds from our trading portfolio are due to the sale of an actively managed trading portfolio.
 
   Net purchases of investment securities decreased by $36.3 million during the six months ended June 30, 2011, primarily due to lower investment purchases as part of our decision to increase liquidity during the 2011 quarter to pay for the AH acquisition.
 
   Net proceeds from short-term borrowings increased by $25.0 million during the six months ended June 30, 2011 to address timing differences between cash receipts and disbursements.
 
   On February 7, 2011, we acquired AH at a cost of $54.0 million, net of $29.4 million of cash acquired.
 
   Payments of long-term borrowings increased by $25.0 million during the six months ended June 30, 2011 as the result of the repayment of $25.0 million of one of our senior unsecured notes.
 
   The increase of $10.5 in the other uses of cash is attributed to changes in the amount of outstanding checks over bank balances in the 2011 period.
 
   In the 2011 period we cash-settled 432,567 stock options for $2.4 million, its fair value on settlement date.
 
   On September 29, 2010 we announced the commencement of a $30.0 million share repurchase program.  We paid approximately $1.6 million under the stock repurchase program during the six months ended June 30, 2011.
 
Share Repurchase Program
 
   On September 29, 2010, we announced the immediate commencement of a $30.0 million share repurchase program.  The program is conducted using available cash through open-market purchases and privately-negotiated transactions of Class B shares only, in accordance with Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934, as amended.  During the six months ended June 30, 2011 we repurchased and retired 83,594 shares at an average per share price of $18.62, for an aggregate cost of $1.6 million.

 
44


Financing and Financing Capacity
 
   We have several short-term facilities available to address timing differences between cash receipts and disbursements.  These short-term facilities are mostly in the form of arrangements to sell securities under repurchase agreements.  As of June 30, 2011, we had $215.0 million of available credit under these facilities.  There are $58.3 million outstanding short-term borrowings under these facilities as of June 30, 2011.
 
   As of June 30, 2011, we had the following long-term borrowings:
 
On January 31, 2006, we issued and sold $35.0 million of our 6.7% senior unsecured notes payable due January 2021 (the 6.7% notes).
 
On December 21, 2005, we issued and sold $60.0 million of our 6.6% senior unsecured notes due December 2020 (the 6.6% notes).  On October 1, 2010 we repaid $25.0 million of the principal of these senior unsecured notes.
 
On March 30, 2004, we issued and sold $50.0 million of our 6.3% senior unsecured notes due March 2019 (the 6.3% notes). On June 10, 2011 we repaid $25.0 million of the principal of these senior unsecured notes.
 
On November 1, 2010, we entered in a $25.0 million arrangement to sell securities under repurchase agreements that matures on November 2015.  This repurchase agreement pays interests on a quarterly basis at 1.96%. The investment securities underlying such agreements were delivered to the financial institution with whom the agreement was transacted.  The dealers may have loaned, or used as collateral such securities in the normal course of business operations.  We maintain effective control over the investment securities pledged as collateral and accordingly, such securities continue to be carried on our consolidated balance sheet.  At June 30, 2011 investment securities available for sale with fair value of $27.6 million (face value of $27.9 million) were pledged as collateral under this agreement.  The proceeds obtained from this agreement were used to repay $25.0 million of the 6.6% notes.
 
   The 6.3% notes, the 6.6% notes and the 6.7% notes contain certain non-financial covenants.  At June 30, 2011, we and our managed care subsidiary, as applicable, are in compliance with these covenants.
 
   In addition, we are a party to a secured term loan with a commercial bank in Puerto Rico.  This secured loan bears interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 100 basis points and requires monthly principal repayments of $0.1 million.  As of June 30, 2011, this secured loan had an outstanding balance of $20.2 million and average annual interest rate of 1.30%.
 
   This secured loan is guaranteed by a first lien on our land, buildings and substantially all leasehold improvements, as collateral for the term of the agreements under a continuing general security agreement.  This secured loan contains certain non-financial covenants that are customary for this type of facility, including, but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control.  As of June 30, 2011 we are in compliance with these covenants.  Failure to meet these covenants may trigger the accelerated payment of the outstanding balance.
 
   We anticipate that we will have sufficient liquidity to support our currently expected needs.
 
   Further details regarding the senior unsecured notes and the credit agreements are incorporated by reference to “Item 7.—Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
   We are exposed to certain market risks that are inherent in our financial instruments, which arise from transactions entered into in the normal course of business.  We have exposure to market risk mostly in our investment activities.  For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices.  No material changes have occurred in our exposure to financial market risks since December 31, 2010.  A discussion of our market risk is incorporated by reference to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
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Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
   In connection with the preparation of this Quarterly Report on Form 10-Q, management, under the supervision and with the participation of the chief executive officer and corporate controller, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined under Exchange Act Rule 13a-15(e)).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility that judgments in decision-making can be faulty, and breakdowns as a result of simple errors or mistake. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
   Based on this evaluation, our chief executive officer and corporate controller have concluded that as of June 30, 2011, which is the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to a reasonable level of assurance except for the operations of AH.  Effective February 1, 2011, TSS completed the acquisition of AH, which had not been previously subject to a review on internal controls over financial reporting under the Sarbanes Oxley Act of 2002.  We immediately began the process of integrating AH’s operations, including internal controls over financial reporting and implementing Section 404 requirements to AH’s operations.  AH operations represent 21% and 18% of consolidated operating revenues for the three months and six months ended June 30, 2011, respectively and net assets associated with AH (including intangible assets and goodwill) represent 7% of our consolidated total assets as of June 30, 2011.
 
   There were no significant changes in our disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the chief executive officer and corporate controller completed the evaluation referred to above.
 
Changes in Internal Controls Over Financial Reporting
 
   No changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended June 30, 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Part II – Other Information
 
Item 1.  Legal Proceedings
 
   For a description of legal proceedings, see note 13 to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q.
 
Item 1A.  Risk Factors
 
   For a description of our risk factors see Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2010.  See also section “Recent Developments – Federal Regulation” in Item 2 of Part I of this Quarterly Report on Form 10-Q.
 
 
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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
   Not applicable.
 
Item 3.  Defaults Upon Senior Securities
 
   Not applicable.
 
Item 4.  (Removed and Reserved)
 
Item 5.  Other Information
 
   Not applicable.
 
Item 6.  Exhibits
 
Exhibits
Description
11
Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and six months ended June 30, 2011 and 2010 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.
Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).
Certification of the Vice President of Finance and Chief Financial Officer required by Rule 13a-14(a)/15d-14(a).
Certification of the President and Chief Executive Officer required pursuant to 18 U.S.C Section 1350.
Certification of the Vice President of Finance and Chief Financial Officer required pursuant to 18 U.S.C Section 1350.
101.INS Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 
   All other exhibits for which provision is made in the applicable accounting regulation of the United States Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
 
*
Filed herein.
 
 
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SIGNATURES
 
   Pursuant to the requirements of the United States Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Triple-S Management Corporation
 
     
  Registrant  
     
     
Date:           August 5, 2011
By:
/s/ Ramón M. Ruiz-Comas   
    Ramón M. Ruiz-Comas, CPA  
    President and  
    Chief Executive Officer  
       
Date:           August 5, 2011 By: /s/ Liliana Rivera-Corcino  
    Liliana Rivera-Corcino, CPA  
    Corporate Controller  
 
 
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