TRIPLE-S MANAGEMENT CORP - 10-Q Quarterly Report

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004

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

For the transition period from to

COMMISSION FILE NUMBER: 0-49762

Triple-S Management Corporation

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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


Title of each class		Outstanding at September 30, 2004

Common Stock, $40.00 par value		8,883

Part I – Financial Information

Item 1. Financial Statements

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)


	(Unaudited)
	September 30,		December 31,
	2004		2003
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Fixed maturities	$	69,911		68,681
Equity securities		79,490		66,824
Securities available for sale, at fair value:
Fixed maturities		411,177		407,530
Equity securities		54,907		56,040
Securities held to maturity, at amortized cost:
Fixed maturities		4,372		4,941
Cash and cash equivalents		63,668		48,280

Total investments and cash		683,525		652,296

Premiums and other receivables, net		103,779		93,491
Deferred policy acquisition costs		18,675		16,671
Property and equipment, net		32,842		34,212
Other assets		46,126		37,953

Total assets	$	884,947		834,623

LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete	$	121,638		121,015
Unreported losses		140,938		112,449
Unpaid loss-adjustment expenses		14,885		14,456

Total claim liabilities		277,461		247,920

Unearned premiums		79,450		78,704
Individual retirement annuities		32,995		26,661
Liability to Federal Employees Health Benefits Program		8,833		7,471
Accounts payable and accrued liabilities		97,892		88,342
Income tax payable		—		32,222
Net deferred tax liability		900		1,892
Additional minimum pension liability		13,839		10,081
Short-term borrowings		1,700		38,700
Long-term borrowings		96,277		48,375

Total liabilities		609,347		580,368

Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,883 at September 30, 2004 and 9,030 at December 31, 2003		355		361
Additional paid-in capital		150,408		150,407
Retained earnings		113,457		88,728

Accumulated other comprehensive income		11,380		14,759

Total stockholders’ equity		275,600		254,255

Total liabilities and stockholders’ equity	$	884,947		834,623

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)
For the three months and nine months ended September 30, 2004 and 2003
(Dollar amounts in thousands, except per share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
REVENUES:
Premiums earned, net	$	325,926			314,043			967,468			943,388
Amounts attributable to self-funded arrangements		46,044			40,790			135,127			120,974
Less amounts attributable to claims under self-funded arrangements		(42,925	)		(38,410	)		(125,992	)		(112,960	)

		329,045			316,423			976,603			951,402
Net investment income		6,516			5,868			19,491			18,252
Net realized investment gains		4,237			3,669			6,985			7,290
Net unrealized investment gain (loss) on trading securities		(435	)		(345	)		(1,868	)		9,023
Other income, net		728			532			2,414			2,906

Total revenue		340,091			326,147			1,003,625			988,873

BENEFITS AND EXPENSES:
Claims incurred		283,946			264,202			845,940			794,205
Operating expenses, net of reimbursement for services		40,416			37,301			122,889			115,708
Interest expense		1,018			776			2,850			2,244

Total benefits and expenses		325,380			302,279			971,679			912,157

Income before taxes		14,711			23,868			31,946			76,716

INCOME TAX EXPENSE (BENEFIT):
Current		2,756			6,967			7,302			71,253
Deferred		(139	)		139			(85	)		(1,490	)

Total income taxes		2,617			7,106			7,217			69,763

Net income	$	12,094			16,762			24,729			6,953

Basic net income per share	$	1,361			1,844			2,769			753

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2004 and 2003
(Dollar amounts in thousands, except per share data)


	Nine months ended
	September 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected	$	963,274			941,702
Cash paid to suppliers and employees		(130,355	)		(120,636	)
Claims, losses and benefits paid		(816,399	)		(790,982	)
Interest received		19,288			19,109
Income taxes paid		(43,464	)		(38,881	)
Proceeds from trading securities sold or matured:
Fixed maturities sold		44,196			66,319
Equity securities		19,686			18,310
Acquisitions of investments in trading portfolio:
Fixed maturities		(45,595	)		(84,367	)
Equity securities		(32,336	)		(28,183	)
Interest paid		(2,116	)		(1,367	)
Expense reimbursement from Medicare		9,620			9,437
Contingency reserve funds from FEHBP		5,217			13,023

Net cash (used in) provided by operating activities		(8,984	)		3,484

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		39,859			81,093
Fixed maturities matured		68,942			174,645
Equity securities		6,544			13,527
Securities held to maturity:
Fixed maturities matured		3,161			700
Acquisitions of investments:
Securities available for sale:
Fixed maturities		(112,821	)		(295,987	)
Equity securities		(1,024	)		(12,823	)
Securities held to maturity:
Fixed maturities		(2,612	)		—
Capital expenditures		(2,731	)		(3,259	)
Proceeds from sale of property and equipment		12			55

Net cash used in investing activities		(670	)		(42,049	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances		8,545			4,100
Payments of short-term borrowings		(37,000	)		—
Proceeds from short-term borrowings		—			37,000
Payments of long-term borrowings		(2,098	)		(1,093	)
Proceeds from long-term borrowings		50,000			—
Redemption of common stock		(5	)		(10	)
Proceeds from individual retirement annuities		9,259			9,728
Surrenders of individual retirement annuities		(3,659	)		(1,497	)

Net cash provided by financing activities		25,042			48,228

Net increase in cash and cash equivalents		15,388			9,663
Cash and cash equivalents at beginning of the period		48,280			82,776

Cash and cash equivalents at end of the period	$	63,668			92,439

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Dollar amounts in thousands, except per share data)

(Unaudited)

(1) Basis of Presentation

The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) are unaudited, except for the balance sheet information as of December 31, 2003, which is derived from the Corporation’s audited consolidated financial statements, pursuant to the rules and regulations of the United States Securities and Exchange Commission. The consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months and nine months ended September 30, 2004 are not necessarily indicative of the results for the full year.

(2) Segment Information

Separate disclosure of information about operating segments is required for any operating segment that meets any of the quantitative thresholds determined by FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131). In determining whether information about segments is required for a particular year, the evaluation should be based on comparability between years. Thus, information would be required in the current period – even if immaterial pursuant to the provisions of SFAS No. 131 – if a segment has been significant in the immediate preceding period and is expected to be significant in the future. Based on the requirements of SFAS No. 131, the only reportable segments for TSM are: the Health Insurance – Commercial, the Health Insurance – Healthcare Reform and the Property and Casualty Insurance segments. The Life and Disability Insurance Segment is not presented as a reportable segment in the 2004 periods since it did not meet any of the quantitative thresholds in the years 2003 and 2002 and is not expected to meet them in the year 2004. The segment information for the 2003 periods was restated to present the results of operations and financial position of the Life and Disability operating segment within the other non-reportable operating segments of the Corporation.

The following tables summarize the operations by major operating segment for the three months and nine months ended September 30, 2004 and 2003:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance			Other *		Total
THREE MONTHS ENDED SEPTEMBER 30, 2004
Premiums earned, net	$	178,164			121,980			21,557			4,225		325,926
Amounts attributable to self-funded arrangements		46,044			—			—			—		46,044
Less: Amounts attributable to claims under self-funded arrangements		(42,925	)		—			—			—		(42,925	)
Intersegment premiums earned/service revenues		906			—			—			11,611		12,517

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

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

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

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

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

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

Interest expense	$	343			113			—			265		721

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

* Includes segments which are not required to be reported separately. These segments include the life and disability insurance segment, the data processing services organization as well as the third party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance		Other *			Total
THREE MONTHS ENDED SEPTEMBER 30, 2003
Premiums earned, net	$	171,500			118,367			20,002		4,174			314,043
Amounts attributable to self-funded arrangements		40,790			—			—		—			40,790
Less: Amounts attributable to claims under self-funded arrangements		(38,410	)		—			—		—			(38,410	)
Intersegment premiums earned/service revenues		1,002			—			—		11,331			12,333

		174,882			118,367			20,002		15,505			328,756
Net investment income		2,472			1,019			1,702		598			5,791
Realized gain (loss) on sale of securities		2,883			(27	)		598		215			3,669
Unrealized gain (loss) on trading securities		99			(433	)		22		(33	)		(345	)
Other		35			(12	)		450		67			540

Total revenues	$	180,371			118,914			22,774		16,352			338,411

Net income	$	10,782			2,538			2,832		839			16,991

Claims incurred	$	143,576			107,296			10,325		3,005			264,202

Operating expenses	$	19,586			8,783			9,043		12,306			49,718

Depreciation expense, included in operating expenses	$	1,013			—			108		32			1,153

Interest expense	$	157			84			—		196			437

Income tax expense	$	6,270			213			574		6			7,063

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance		Other *		Total
NINE MONTHS ENDED SEPTEMBER 30, 2004
Premiums earned, net	$	531,686			360,979			62,549		12,254		967,468
Amounts attributable to self-funded arrangements		135,127			—			—		—		135,127
Less: Amounts attributable to claims under self-funded arrangements		(125,992	)		—			—		—		(125,992	)
Intersegment premiums earned/service revenues		2,887			—			—		35,464		38,351

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

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

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

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

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

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

Interest expense	$	918			262			—		735		1,915

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			and Casualty
	Program			Program			Insurance		Other *			Total
NINE MONTHS ENDED SEPTEMBER 30, 2003
Premiums earned, net	$	515,483			357,014			57,309		13,582			943,388
Amounts attributable to self-funded arrangements		120,974			—			—		—			120,974
Less: Amounts attributable to claims under self-funded arrangements		(112,960	)		—			—		—			(112,960	)
Intersegment premiums earned/service revenues		2,248			—			—		33,474			35,722

		525,745			357,014			57,309		47,056			987,124
Net investment income		7,745			3,572			5,046		1,678			18,041
Realized gain (loss) on sale of securities		5,317			(136	)		793		666			6,640
Unrealized gain (loss) on trading securities		6,677			1,189			1,283		(126	)		9,023
Other		144			(27	)		2,547		12			2,676

Total revenues	$	545,628			361,612			66,978		49,286			1,023,504

Net income	$	35,071			10,458			8,298		4,658			58,485

Claims incurred	$	436,297			320,249			30,780		6,879			794,205

Operating expenses	$	62,606			25,529			26,528		36,823			151,486

Depreciation expense, included in operating expenses	$	3,047			—			310		92			3,449

Interest expense	$	497			289			—		510			1,296

Income tax expense	$	11,157			5,087			1,372		416			18,032

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance		Property
	Commercial			Reform		and Casualty
	Program			Program		Insurance			Other *			Total
AS OF SEPTEMBER 30, 2004
Segment assets	$	430,189			82,302		266,644			86,492			865,627

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	(631	)		60		(229	)		(366	)		(1,166	)
Net change in minimum pension liability		(1,727	)		—		(142	)		(501	)		(2,370	)

AS OF DECEMBER 31, 2003
Segment assets	$	407,031			86,535		239,478			74,530			807,574

Significant noncash item:
Net change in unrealized gain on securities available for sale	$	(5,226	)		—		(527	)		220			(5,533	)
Net change in minimum pension liability		2,385			—		(23	)		(55	)		2,307

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS

r
	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
TOTAL REVENUES
Total revenues for reportable segments	$	335,048			322,059			990,767			974,218
Total revenues for other segments		17,426			16,352			50,795			49,286

		352,474			338,411			1,041,562			1,023,504
Elimination of intersegment earned premiums		(906	)		(1,002	)		(2,887	)		(2,248	)
Elimination of intersegment service revenues		(11,611	)		(11,331	)		(35,464	)		(33,474	)
Unallocated amount — revenues from external sources		134			69			414			1,091

		(12,383	)		(12,264	)		(37,937	)		(34,631	)

Consolidated total revenues	$	340,091			326,147			1,003,625			988,873

NET INCOME
Net income for reportable segments	$	10,725			16,152			23,786			53,827
Net income for other segments		1,253			839			990			4,658

		11,978			16,991			24,776			58,485

Elimination of TSM charges:
Rent expense		1,445			1,659			4,328			4,710
Interest expense		194			157			511			497

		1,639			1,816			4,839			5,207

Unallocated amounts related to TSM:
General and administrative expenses		(1,081	)		(1,575	)		(3,807	)		(4,654	)
Income tax expense		(85	)		(43	)		(47	)		(51,731	)
Interest expense		(491	)		(496	)		(1,446	)		(1,445	)
Other revenues from external sources		134			69			414			1,091

		(1,523	)		(2,045	)		(4,886	)		(56,739	)

Consolidated net income	$	12,094			16,762			24,729			6,953

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	Three months ended September 30, 2004
	Segment					Consolidated
	Totals		Adjustments *			Totals
Claims incurred	$	283,946		—			283,946
Operating expenses		53,297		(12,881	)		40,416
Depreciation expense		1,059		281			1,340
Interest expense		721		297			1,018
Income tax expense		2,532		85			2,617


	Three months ended September 30, 2003
	Segment					Consolidated
	Totals		Adjustments *			Totals
Claims incurred	$	264,202		—			264,202
Operating expenses		49,718		(12,417	)		37,301
Depreciation expense		1,153		280			1,433
Interest expense		437		339			776
Income tax expense		7,063		43			7,106


	Nine months ended September 30, 2004
	Segment					Consolidated
	Totals		Adjustments *			Totals
Claims incurred	$	845,940		—			845,940
Operating expenses		161,761		(38,872	)		122,889
Depreciation expense		3,260		841			4,101
Interest expense		1,915		935			2,850
Income tax expense		7,170		47			7,217


	Nine months ended September 30, 2003
	Segment					Consolidated
	Totals		Adjustments *			Totals
Claims incurred	$	794,205		—			794,205
Operating expenses		151,486		(35,778	)		115,708
Depreciation expense		3,449		836			4,285
Interest expense		1,296		948			2,244
Income tax expense		18,032		51,731			69,763

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS


	September 30,			December 31,
	2004			2003
ASSETS
Total assets for reportable segments	$	779,135			733,044
Total assets for other segments		86,492			74,530

		865,627			807,574

Elimination entries — intersegment receivables and others		(19,404	)		(9,565	)

Unallocated amounts related to TSM:
Parent cash, cash equivalents and investments		11,136			9,665
Parent net property and equipment		25,847			26,656
Parent other assets		1,741			293

		38,724			36,614

Consolidated assets	$	884,947			834,623

OTHER SIGNIFICANT ITEMS


	As of September 30, 2004
	Segment					Consolidated
	Totals			Adjustments *		Totals
Significant noncash item — net change in unrealized gain on securities available for sale	$	(1,166	)		30		(1,136	)
Net change in minimum pension liability		(2,370	)		9		(2,361	)


	As of December 31, 2003
	Segment						Consolidated
	Totals			Adjustments *			Totals
Significant noncash items:
Net change in unrealized gain on securities available for sale	$	(5,533	)		(489	)		(6,022	)
Net change in minimum pension liability		2,307			(15	)		2,292

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands)
(Unaudited)

(3) Investment in Securities

The Corporation’s investment in securities at September 30, 2004 and December 31, 2003, consist of the following:


	(Unaudited)
	September 30,		December 31,
	2004		2003
Trading securities, at fair value	$	149,401		135,505
Available for sale, at fair value		466,084		463,570
Held to maturity, at amortized cost		4,372		4,941

Total investments	$	619,857		604,016

The amortized cost for debt securities and equity securities, gross unrealized gain, gross unrealized losses, and estimated fair value for trading, available for sale and held to maturity securities by major security type and class of security at September 30, 2004 and December 31, 2003, were as follows:

September 30, 2004 (Unaudited)

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Trading securities:

Fixed maturities

67,928

2,235

(252

)

69,911

Equity securities

72,856

9,709

(3,075

)

79,490

140,784

11,944

(3,327

)

149,401

September 30, 2004 (Unaudited)

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Securities available for sale:

Fixed maturities

409,468

3,217

(1,508

)

411,177

Equity securities

33,275

21,694

(62

)

54,907

442,743

24,911

(1,570

)

466,084

September 30, 2004 (Unaudited)

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Securities held to maturity:

Fixed maturities

4,372

171

)

4,535

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

December 31, 2003

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Trading securities:

Fixed maturities

66,919

2,264

(502

)

68,681

Equity securities

58,101

9,823

(1,100

)

66,824

125,020

12,087

(1,602

)

135,505

December 31, 2003

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Securities available for sale:

Fixed maturities

405,547

3,931

(1,948

)

407,530

Equity securities

33,877

22,203

(40

)

56,040

439,424

26,134

(1,988

)

463,570

December 31, 2003

Amortized
cost

Gross
unrealized gains

Gross
unrealized losses

Estimated
fair value

Securities held to maturity:

Fixed maturities

4,941

118

)

5,054

Investment in securities at September 30, 2004 are mostly comprised of U.S. Treasury securities and obligations of U.S. government instrumentalities (54.8%), mortgage backed and collateralized mortgage obligations that are U.S. agency-backed (6.1%), obligations of the government of Puerto Rico and its instrumentalities (9.2%) and obligations of states and political subdivisions (0.2%). The remaining 29.7% of the investment portfolio is comprised of corporate debt, equity securities and mutual funds.

The Corporation regularly monitors the difference between the cost and estimated fair value of investments. For investments with a fair value below cost, the process includes evaluating the length of time and the extent to which cost exceeds fair value, the prospects and financial condition of the issuer, and the Corporation’s intent and ability to retain the investment to allow for recovery in fair value, among other factors. This process is not exact and further requires consideration of risks such as credit and interest rate risks. Consequently, if an investment’s cost exceeds its fair value solely due to changes in interest rates, impairment may not be appropriate. If after monitoring and analyzing, the Corporation determines that a decline in the estimated fair value of any available for sale or held to maturity security below cost is other than temporary, the carrying amount of the security is reduced to its fair value. The impairment is charged to operations and a new cost basis for the security is established. No impairments were identified nor recognized by the Corporation during the nine-month period ended September 30, 2004.

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

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

(4) Premiums and Other Receivables

Premiums and other receivables as of September 30, 2004 and December 31, 2003 were as follows:


	(Unaudited)
	September 30,		December 31,
	2004		2003
Premiums	$	40,087		37,936
Self-funded group receivables		19,123		15,790
FEHBP		8,844		7,832
Accrued interest		5,775		5,098
Reinsurance recoverable on paid losses		25,791		22,067
Other		15,315		13,783

		114,935		102,506

Less allowance for doubtful receivables:
Premiums		6,591		4,300
Other		4,565		4,715

		11,156		9,015

Total premiums and other receivables	$	103,779		93,491

(5) Claim Liabilities

The activity in the total claim liabilities for the three months ended September 30, 2004 and 2003 is as follows:


	(Unaudited)
	Three months ended September 30,
	2004			2003
Claim liabilities at beginning of period	$	280,388			248,097
Reinsurance recoverable on claim liabilities		(21,605	)		(16,896	)

Net claim liabilities at beginning of period		258,783			231,201

Incurred claims and loss-adjustment expenses:
Current period insured events		282,194			257,692
Prior period insured events		1,752			6,510

Total		283,946			264,202

Payments of losses and loss-adjustment expenses:
Current period insured events		277,953			256,751
Prior period insured events		10,057			9,706

Total		288,010			266,457

Net claim liabilities at end of period		254,719			228,946
Reinsurance recoverable on claim liabilities		22,742			18,859

Claim liabilities at end of period	$	277,461			247,805

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

The activity in the total claim liabilities for the nine months ended September 30, 2004 and 2003 is as follows:


	(Unaudited)
	Nine months ended September 30,
	2004			2003
Claim liabilities at beginning of period	$	247,920			244,582
Reinsurance recoverable on claim liabilities		(19,357	)		(13,589	)

Net claim liabilities at beginning of period		228,563			230,993

Incurred claims and loss-adjustment expenses:
Current period insured events		841,301			804,025
Prior period insured events		4,639			(9,820	)

Total		845,940			794,205

Payments of losses and loss-adjustment expenses:
Current period insured events		664,276			650,105
Prior period insured events		155,508			146,147

Total		819,784			796,252

Net claim liabilities at end of period		254,719			228,946
Reinsurance recoverable on claim liabilities		22,742			18,859

Claim liabilities at end of period	$	277,461			247,805

As a result of changes in estimates of insured events in prior periods, the amounts included as incurred claims for prior period insured events differ from anticipated claims incurred. The amounts in the incurred claims and loss-adjustment expenses for prior period insured events for the three months and nine months ended September 30, 2004 and the three months ended September 30, 2003 are due to an unfavorable development of the claim liabilities attributed to higher than expected cost per service and utilization trends. The credit in the incurred claims and loss-adjustment expenses for prior periods insured events for the nine months ended September 30, 2003 is due to a favorable development of the claim liabilities attributed to better than expected utilization trends.

(6) Short-Term Borrowings

Short-term borrowings consist of securities sold under agreements to repurchase that represent conventional funds received through private financial institutions. On September 30, 2004, the Corporation paid $37,000 of the agreements outstanding as of December 31, 2003. The reverse repurchase agreement outstanding at September 30, 2004 amounting to $1,700 matures in December 20, 2004 and accrues interest at London Interbank Offered Rate (LIBOR) of 2.03%.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

(7) Long-Term Borrowings

Long-term debt at September 30, 2004 and December 31, 2003 consists of the following:


	(Unaudited)
	September 30,		December 31,
	2004		2003
Senior unsecured notes payable of $50,000 due September 2019. Interest is payable semiannually at a fixed rate of 6.30%.	$	50,000		—
Secured loan payable of $41,000, payable in monthly installments of $137 up to July 1, 2024, plus interest at a rate reset periodically of 100 basis points over LIBOR selected (which was 2.67% and 2.17% at September 30, 2004 and December 31, 2003, respectively).		31,277		32,370
Secured loan payable of $20,000, payable in various different installments up to August 31, 2007, with interest payable on a monthly basis at a rate reset periodically of 130 basis points over LIBOR selected (which was 2.91% and 2.45% at September 30, 2004 and December 31, 2003, respectively).		15,000		16,005

Total long-term borrowings	$	96,277		48,375

On September 30, 2004 Triple-S, Inc. (TSI), a wholly-owned subsidiary of the Corporation, issued and sold $50,000 of its 6.30% senior unsecured notes due September 2019 (the notes). The notes are unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Corporation. The notes were privately placed to various institutional investors under a note purchase agreement among TSI, the Corporation and the investors. The notes pay interest semiannually beginning on March 2005, until such principal becomes due and payable. The notes contain certain covenants with which TSI and the Corporation have complied with at September 30, 2004. Debt issuance costs, which amounted to $600, were deferred and will be amortized over the term of the notes and are reported as other assets in the accompanying balance sheets.

(8) Comprehensive Income

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

(Unaudited)

Accumulated

Unrealized

Minimum

other

gains on

pension

Cash flow

comprehensive

securities

liability

hedges

income

BALANCE AT JANUARY 1

20,948

(5,822

)

(367

)

14,759

Net current period change

(1,136

)

(2,361

)

118

(3,379

)

BALANCE AT SEPTEMBER 30

19,812

(8,183

)

(249

)

11,380

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

(9) Income Taxes

Under Puerto Rico income tax law, the Corporation is not allowed to file consolidated tax returns with its subsidiaries. Triple-S, Inc. (TSI), a wholly owned subsidiary of TSM, was exempt through January 1, 2003 from Puerto Rico income taxes under a ruling issued by the Puerto Rico Treasury Department (PRTD).

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

Under a resolution passed by the Puerto Rico House of Representatives (House of Representatives), during 2002 and 2003 the Banking and Insurance Committee of the House of Representatives conducted an investigation of TSI’s tax treatment under the PRTD ruling that granted TSI’s tax exempt status. A similar investigation was approved by the Puerto Rico Senate. In addition, the PRTD conducted an audit of TSI’s compliance with the requirements of the tax ruling. All three investigations on the tax exemption were concluded in 2003. The PRTD concluded its investigations with no findings of non-compliance. The House of Representatives and the Puerto Rico Senate concluded their investigations by recommending and providing for the termination of the tax exemption solely on account of TSI’s for-profit status and the fact that no other for-profit health insurer in Puerto Rico enjoys a tax exemption under section 1101(6) of the Puerto Rico Internal Revenue Code of 1994, as amended (the P.R. Code). The Corporation was notified on June 18, 2003 by the PRTD that the ruling recognizing TSI’s tax exemption was terminated effective December 31, 2002. The termination of the ruling was in accordance with a new public policy set by the PRTD pursuant to which tax exemptions under Section 1101(6) of the P.R. Code will not apply to corporations organized as for-profit, which is TSI’s case.

On July 31, 2003, TSM and TSI executed a closing agreement with the PRTD. In general, the terms of the closing agreement established the termination of TSI’s tax exemption effective December 31, 2002. Accordingly, effective January 1, 2003 TSI is subject to Puerto Rico income taxes as an other-than-life insurance entity, as defined in the P.R. Code. The closing agreement also stipulates that TSM will pay taxes on TSI’s accumulated statutory net income, in accordance with the income recognition methodology applied by the Secretary of the Treasury in the closing agreement and the ruling mentioned above. This tax ruling established the following methodology for TSM to determine its tax liability:

• TSI’s accumulated statutory net income while operating under the tax exemption, amounting to $132,763, was deemed distributed to TSM.

• For tax purposes, TSM recognized TSI’s accumulated statutory net income as gross income. On this amount, TSM recognized an income tax liability amounting to $51,774, which was determined by applying a tax rate of 39% to the exempt accumulated statutory net income deemed distributed to TSM. During the second quarter of the year 2003, TSM recorded this income tax liability within the current income tax expense presented in the consolidated statements of earnings. Of this tax $37,000 was paid on July 31, 2003, the date of the closing agreement, and $14,774 was paid on April 15, 2004.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

(10) Pension Plan

The components of net periodic benefit cost for the three months ended September 30, 2004 and 2003 were as follows:


	(Unaudited)
	Three months ended September 30,
	2004			2003
Components of net periodic benefit cost:
Service cost	$	1,025			908
Interest cost		961			945
Expected return on assets		(637	)		(624	)
Amortization of prior service cost		12			12
Amortization of actuarial loss		426			392
Settlement loss		—			1,101

Net periodic benefit cost	$	1,787			2,734

The components of net periodic benefit cost for the nine months ended September 30, 2004 and 2003 were as follows:


	(Unaudited)
	Nine months ended September 30,
	2004			2003
Components of net periodic benefit cost:
Service cost	$	3,095			2,724
Interest cost		2,819			2,832
Expected return on assets		(1,889	)		(1,869	)
Amortization of prior service cost		36			36
Amortization of actuarial loss		1,228			1,176
Settlement loss		—			3,303

Net periodic benefit cost	$	5,289			8,202

Employer contributions

The Corporation disclosed in its audited consolidated financial statements for the year ended December 31, 2003 that it expected to contribute $5,500 to its pension program in 2004. As of September 30, 2004, the Corporation has contributed $6,531 to the pension program. The Corporation currently anticipates contributing approximately $9,500 to fund the pension program in 2004.

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

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

The Corporation has not declared or distributed dividends on its common stock.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

The following table sets forth the computation of basic net income per share for the three months and nine months ended September 30, 2004 and 2003:


	(Unaudited)
	Three months ended September 30,
	2004		2003
Numerator for basic earnings per share:
Net income available to stockholders	$	12,094		16,762

Denominator for basic earnings per share:
Weighted average of outstanding common shares		8,883		9,092

Basic net income per share	$	1,361		1,844


	(Unaudited)
	Nine months ended September 30,
	2004		2003
Numerator for basic earnings per share:
Net income available to stockholders	$	24,729		6,953

Denominator for basic earnings per share:
Weighted average of outstanding common shares		8,930		9,229

Basic net income per share	$	2,769		753

(12) Contingencies

(a) As of September 30, 2004, the Corporation is defendant in various lawsuits arising in the ordinary course of business. Management believes, based on the opinion of its legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position and results of operations of the Corporation.

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

On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance further ordered that all corporate decisions undertaken by TSI through the vote of its stockholders on record, be ratified in a stockholders’ meeting or in a subsequent referendum.

In March 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s order of October 1999 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

On October 2002, the Court of Appeals issued an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify TSI’s corporate reorganization and the change of name of TSI from “Seguros de Servicio de Salud de Puerto Rico, Inc.” to “Triple-S, Inc.”. TSI and TSM’s filed motions of reconsideration. The Puerto Rico’s Circuit Court of Appeals granted said motions on May 18, 2003. The Circuit Court held that the Commissioner of Insurance had the authority to waive the requirement that a referendum be held to ratify TSI’s reorganization and that therefore the reorganization of TSI was approved by the stockholders, inasmuch as the votes pertaining to the 1,582 shares annulled were not decisive.

On June 26, 2003, the two stockholders presented a writ of certiorari before Puerto Rico’s Supreme Court. The writ was issued by the Supreme Court on August 22, 2003 when it ordered the Circuit Court of Appeals to forward the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court.

(c) On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, some present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s Board of Directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. While this case is still in the very early preliminary stages and has not been certified as a class action, a Motion to Dismiss has been filed by the defendants. On March 15, 2004, plaintiffs filed a response to this motion. On April 30, 2004, defendants filed a Reply in Support of Motion to Dismiss. The case is still pending before the United States District Court for the District of Puerto Rico.

(d) On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior section, alleging, among other things, violations by the defendants of provisions of the Insurance Code, anti-monopolistic practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the U.S. District Court for the District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counter-claim and filed several motions to dismiss this claim. The case has recently been reassigned to a new judge.

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

The individual Plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which are alleged to have

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

resulted in a loss of plaintiff’s property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered, medically necessary services they render.

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

Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA.

However, on June 18, 2004, the Plaintiffs moved to amend the complaint to include the Colegio de Médicos Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

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

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

The individual Plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which are alleged to have resulted in a loss of Plaintiff’s property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payment due to the doctors so that they are not paid in a timely manner for the covered, medically necessary services they render. The class action complaint alleges that TSI’s health care plans are the agents of BCBSA licensed entities, and as such have committed the acts alleged above and acted within the scope of their agency, with the consent, permission, authorization and knowledge of the others, and in furtherance of both their interest and the interests of other defendants.

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

Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA. TSI, along with the other defendants, moved to dismiss the

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

complaint under multiple grounds, including but not limited to arbitration and applicability of the McCarran Ferguson Act.

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

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


	(Unaudited)
	Nine months ended
	September 30,
	2004			2003
Net income	$	24,729			6,953

Adjustments to reconcile net income to net cash (used in) provided by operating expenses:
Depreciation and amortization		4,101			4,285
Amortization of investment discounts		801			1,468
Accretion in value of securities		(327	)		(998	)
Increase in provision for doubtful receivables		2,141			148
Increase (decrease) in net deferred taxes		33			(1,015	)
Gain on sale of securities		(6,985	)		(7,290	)
Unrealized (gain) loss of trading securities		1,868			(9,023	)
Proceeds from trading securities sold:
Fixed maturities		44,196			66,319
Equity securities		19,686			18,310
Acquisition of securities in trading portfolio:
Fixed maturities		(45,595	)		(84,367	)
Equity securities		(32,336	)		(28,183	)
Loss on sale of property and equipment		(12	)		(55	)
(Increase) decrease in assets:
Premiums receivable		(6,496	)		(4,286	)
Accrued interest receivable		(677	)		387
Reinsurance receivable		(3,724	)		(4,681	)
Other receivables		(1,532	)		(1,658	)
Deferred policy acquisition costs		(2,004	)		(2,690	)
Prepaid income tax		(4,058	)		—
Other assets		(4,152	)		(3,250	)
Increase (decrease) in liabilities:
Claims processed and incomplete		623			(4,823	)
Unreported losses		28,489			7,347
Unpaid loss-adjustment expenses		429			699
Unearned premiums		746			8,371
Individual retirement annuities		734			877
Liability to FEHBP		1,362			3,919
Accounts payable and accrued liabilities		1,198			4,823
Income tax payable		(32,222	)		31,897

Net cash (used in) provided by operating activities	$	(8,984	)		3,484

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

The Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations of Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) for the three months and nine months ended September 30, 2004. Therefore, the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2003.

Cautionary Statement Regarding Forward-Looking Information

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

Structure of the Organization

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

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

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

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

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

Recent Developments

Senior Unsecured Notes

Healthcare Reform Segment

The premium rates of the Government Healthcare Reform contracts were renegotiated effective July 1, 2004 for a twelve-month period ending on June 30, 2005. As a result of this renegotiation, the premium rates of the Health Insurance – Healthcare Reform segment were increased by approximately 4.4%.

Adoption of Accounting Standard

The Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standard (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. This statement also includes required disclosures for financial instruments within its scope. For the Corporation, this statement was effective for instruments entered in or modified after May 31, 2003 and otherwise was effective January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the statement will be effective for the Corporation on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Corporation currently does not have any financial instruments within the scope of this statement.

General Information

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

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

Consolidated Operating Results

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


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2004			2003			2004			2003
Consolidated earned premiums, net and fee revenue	$	329,045			316,423			976,603			951,402

Consolidated claims incurred	$	283,946			264,202			845,940			794,205
Consolidated operating expenses		40,416			37,301			122,889			115,708

Consolidated operating costs	$	324,362			301,503			968,829			909,913

Consolidated loss ratio		86.3	%		83.5	%		86.6	%		83.5	%
Consolidated expense ratio		12.3	%		11.8	%		12.6	%		12.2	%

Consolidated combined ratio		98.6	%		95.3	%		99.2	%		95.6	%

Net investment income	$	6,516			5,868			19,491			18,252
Realized gain on sale of securities		4,237			3,669			6,985			7,290
Unrealized gain (loss) on trading securities		(435	)		(345	)		(1,868	)		9,023

Total consolidated net investment income	$	10,318			9,192			24,608			34,565

Consolidated income tax expense	$	2,617			7,106			7,217			69,763

Consolidated net income	$	12,094			16,762			24,729			6,953

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Consolidated earned premiums, net and fee revenue for the three months ended September 30, 2004 increased by $12.6 million or 4.0% when compared to the consolidated earned premiums, net and fee revenue for the same period of last year. This increase is mostly due to the following:

• The earned premiums, net and fee revenue corresponding to the Health Insurance – Commercial segment increased by $7.4 million, or 4.3%, during this period. An increase in the average enrollment together with increases in premium rates account for the segment’s fluctuation in earned premiums and fee revenue for the period.

• The earned premiums, net corresponding to the Health Insurance – Healthcare Reform segment increased by $3.6 million, or 3.1%, during this period. This increase is the net result of an increase in premium rates effective July 1, 2004, adjustments to the return premiums in the 2004 and 2003 periods and a reduction in the average membership of the segment.

• The earned premiums, net of the Property and Casualty Insurance segment increased by $1.5 million, or 7.8%, during this period. This increase is mostly reflected in the premiums written for the Dwelling and Other lines of business, net of an increase in premiums ceded and a decrease in the change in unearned premiums.

Consolidated claims incurred for the three months ended September 30, 2004 reflect an increase of $19.7 million, or 7.5%, when compared to the claims incurred for the three months ended September 30, 2003. The consolidated loss ratio reflects an increase of 2.8 percentage points during this period. This fluctuation is due to the following:

• During the 2003 period the claims incurred of the Health Insurance –Healthcare Reform segment were affected by the favorable development of their claim liabilities, which were attributed to better than expected utilization trends.

• The claims incurred of the Property and Casualty Insurance segment corresponding to the 2004 quarter include approximately $2.0 million of net losses from claims incurred related to the passage of Tropical Storm Jeanne through Puerto Rico.

The consolidated expense ratio for the three months ended September 30, 2004 increased by 0.5 percentage points when compared to the consolidated expense ratio for the same period of the prior year.

The consolidated income tax expense for the three months period ended September 30, 2004 decreased by $4.5 million when compared to the same period of the prior year. This decrease is mostly due to a decrease in the taxable income when comparing the third quarter of the year 2004 with the corresponding 2003 period as well as changes in the composition of deferred taxes.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

The consolidated earned premiums, net and fee revenues for the nine months ended September 30, 2004 present an increase of $25.2 million, or 2.6%, when compared to the consolidated earned premiums, net and fee revenues for the same period of the prior year. This increase is mostly due to the following:

• The earned premiums, net and fee revenue corresponding to the Health Insurance – Commercial segment increased by $17.3 million, or 3.3%, during this period. An increase in the average enrollment together with increases in premium rates account for the segment’s fluctuation in earned premiums and fee revenue for the period.

• The earned premiums, net of the Property and Casualty Insurance segment increased by $5.2 million, or 9.1%, during this period. This increase is mostly reflected in the premiums written for the Dwelling, Auto Physical Damage and Other Liability lines of business, net of an increase in premiums ceded and a decrease in the change in unearned premiums. These fluctuations are basically attributed to increases in the segment’s volume of business and in the cost of reinsurance.

• The earned premiums, net of the Health Insurance – Healthcare Reform segment increased by $4.0 million, or 1.1%, during this period. This increase is the net result of increases in premium rates, adjustments to the return premiums in the 2003 period and a reduction in the average membership of the segment.

The amount of consolidated claims incurred for the nine months ended September 30, 2004 reflect an increase of $51.7 million, or 6.5%, when compared to the claims incurred for the nine months ended September 30, 2003. The consolidated loss ratio reflects an increase of 3.1 percentage points during this period. This fluctuation is due to the following:

• During the 2004 period the Health Insurance –Commercial and the Health Insurance – Healthcare Reform segments experienced higher utilization trends and an increase in costs when compared to the prior period. The increase in costs is mostly noted in the cost per service of prescription drugs and in general increases in rates to providers. The increase noted in the cost of prescription drugs is the main driver of the increase in costs experienced by these segments.

• During the 2003 period the claims incurred of Health Insurance – Commercial and the Healthcare Reform segments were affected by the favorable development of their claim liabilities, which were attributed to better than expected utilization trends in that particular period.

• The increase in claims incurred of the Property and Casualty Insurance segment corresponding to the 2004 period are mostly due to an increase in volume and to approximately $2.0 million of net losses from claims incurred related to the passage of Tropical Storm Jeanne through Puerto Rico.

The consolidated expense ratio for the nine months ended September 30, 2004 increased by 0.4 percentage points when compared to the consolidated expense ratio for the same period of the prior year.

The consolidated unrealized gain (loss) on trading securities is mostly related to investments held by the insurance segments in corporate bonds and equity securities. The consolidated unrealized loss during the 2004 period is mostly attributed to fluctuations in the market value in the portfolios held by these segments in equity securities.

The consolidated income tax expense for the nine months period ended September 30, 2004 decreased by $62.5 million when compared to the same period of the prior year. This decrease is due to the effect of the following:

• On July 31, 2003, TSM and TSI executed a closing agreement with the Puerto Rico Treasury Department that stipulated that the statutory net income accumulated while TSI operated under the tax ruling was deemed distributed to TSM. As a result, TSM recognized an income tax expense of $51.8 million, which was recorded in the second quarter of the year 2003.

• A decrease in taxable income during the 2004 period that consequently reduced the consolidated income tax expense.

Health Insurance – Commercial Program Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2004			2003			2004			2003
Average enrollment:
Corporate accounts		303,087			304,380			302,926			306,195
Self-funded employers		144,921			129,229			139,224			128,644
Individual accounts		84,647			84,841			84,687			84,287
Federal employees		51,199			53,909			52,285			54,129
Local government employees		38,613			42,842			41,459			43,283

Total enrollment		622,467			615,201			620,581			616,538

Earned premiums	$	178,813			172,335			533,824			517,411
Amounts attributable to self-funded arrangements		46,301			40,957			135,876			121,294
Less: Amounts attributable to claims under self-funded arrangements		(42,925	)		(38,410	)		(125,992	)		(112,960	)

Earned premiums and fee revenue	$	182,189			174,882			543,708			525,745

Claims incurred	$	157,186			143,576			473,042			436,297
Operating expenses		23,209			19,586			67,822			62,606

Total underwriting costs	$	180,395			163,162			540,864			498,903

Underwriting income	$	1,794			11,720			2,844			26,842

Loss ratio		86.3	%		82.1	%		87.0	%		83.0	%
Expense ratio		12.7	%		11.2	%		12.5	%		11.9	%

Combined ratio		99.0	%		93.3	%		99.5	%		94.9	%

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Earned premiums and fee revenue for the three months ended September 30, 2004 reflects an increase of $7.3 million, or 4.2%, when compared to the earned premiums and fee revenue for the three months ended September 30, 2003. This increase is the result of the following:

• Average enrollment as of September 30, 2004 increased by 7,266 members, or 1.2%, when compared to the enrollment as of the same period of 2003. The increase in average enrollment is mostly reflected in Self-funded employers business, which membership increased by 15,692 members, or 12.1%, during this period. The average enrollment of the Local government

employees and Federal employees businesses reflect a decrease in membership of 4,229, or 9.9%, and 2,710, or 5.0%, during this period, respectively.

• The segment monitors premium rates to ensure adequate premium rates that cover actual claims trends. Increases in premium rates combined with an increase in Self funded employers have contributed to the increase experienced in the earned premiums and fee revenue for the period.

Claims incurred during the three months ended September 30, 2004 increased by $13.6 million, or 9.5%, when compared to the same period in 2003. The segment’s loss ratio for the three months ended September 30, 2004 increased by 4.2 percentage points when compared to the loss ratio for the three months ended September 30, 2003. These fluctuations are attributed to an increase in trends during the 2004 quarter, particularly in the cost per service and in the utilization of services when compared to the same period of the prior year. The increase in costs is mostly noted in the cost per service of prescription drugs and in general increases in rates to providers. The increase noted in the cost of prescription drugs is the main driver of the increase in costs experienced by the segment. For this segment, cost containment initiatives have been put in place to maintain cost and utilization trends at levels consistent with pricing and margin objectives.

The operating expenses for the three months ended September 30, 2004 reflect an increase of $3.6 million, or 18.5%, when compared to the three months ended September 30, 2003. This increase is due to the normal inflationary effect in operating costs in addition to increases in the following line items: salaries, commissions, professional services, data processing, advertising and provision for bad debt. The expense ratio for the three months ended September 30, 2004 experienced an increase of 1.5 percentage points compared to the three months ended September 30, 2003.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Earned premiums and fee revenue for the nine months ended September 30, 2004 reflects an increase of $18.0 million, or 3.4%, when compared to the earned premiums and fee revenue for the nine months ended September 30, 2003. This increase is the result of the following:

• Average enrollment as of September 30, 2004 increased by 4,043 members, or 0.7%, when compared to the enrollment as for the same period of 2003. The increase in average enrollment is mostly reflected in the Self-funded employers business, which membership increased by 10,580 members, or 8.2%, during this period. The average enrollment of the Corporate Accounts, Federal employees and Local Government employees businesses reflects a decrease in membership of 3,269, or 1.1%, 1,844, or 3.4%, and 1,824, or 4.2%, during this period, respectively.

• The segment monitors premium rates to ensure adequate premium rates that cover actual claims trends. Increases in premium rates combined with an increase in the average membership of the self funded employers business, have mitigated the effect of the decrease in average membership of other lines of business in the earned premiums and fee revenue for the period.

Claims incurred during the nine months ended September 30, 2004 increased by $36.7 million, or 8.4%, when compared to the same period in 2003. The segment’s loss ratio for the nine months ended September 30, 2004 increased by 4.0 percentage points when compared to the loss ratio for the nine months ended September 30, 2003. This increase is attributed to an increase in trends during the year 2004, particularly in the cost per service and in the utilization services when compared to the prior year. The increase in costs is mostly noted in the cost per service of prescription drugs and in general increases in rates to providers. The increase noted in the cost of prescription drugs is the main driver of the increase in costs experienced by the segment. For this segment, cost containment initiatives have been put in place in order to maintain cost and utilization trends at levels consistent with pricing and margin objectives. In addition, during the 2003 period the claims incurred of the segment were affected by the favorable development of its claim liabilities, which were attributed to better than expected utilization trends in that particular period.

The operating expenses for the nine months ended September 30, 2004 reflect an increase of $5.2 million, or 8.3%, when compared to the operating expenses for the nine months ended September 30, 2003. This

increase is due to the normal inflationary effect in operating costs in addition to increases in the following line items: salaries, commissions, professional services, data processing, provision for bad debts and legal services. The expense ratio for the nine months ended September 30, 2004 presents an increase of 0.6 percentage points when compared to the ratio for the nine months ended September 30, 2003.

Health Insurance – Healthcare Reform Program Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2004			2003			2004			2003
Average enrollment:
North area		231,610			234,078			233,063			237,699
Metro-north area		216,093			223,794			217,831			225,987
Southwest area		162,783			166,941			164,744			169,119

		610,486			624,813			615,638			632,805

Earned premiums	$	121,980			118,367			360,979			357,014

Claims incurred	$	111,141			107,296			329,961			320,249
Operating expenses		8,618			8,783			26,420			25,529

Total underwriting costs	$	119,759			116,079			356,381			345,778

Underwriting income	$	2,221			2,288			4,598			11,236

Loss ratio		91.1	%		90.6	%		91.4	%		89.7	%
Expense ratio		7.1	%		7.4	%		7.3	%		7.2	%

Combined ratio		98.2	%		98.1	%		98.7	%		96.9	%

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Earned premiums of the Healthcare Reform segment for the three months ended September 30, 2004 increased by $3.6 million, or 3.1%, when compared to the same period of last year. This increase is the result of the net effect of the following:

• Premium rates were increased by approximately 4.4% during the Healthcare Reform contract renegotiation process for the twelve-month period ending on June 30, 2005. The increase in premium rates was effective July 1, 2004.

• The average monthly enrollment for this segment decreased by 14,327 insureds, or 2.3%, when comparing the average enrollment for the three months ended September 30, 2004 with the average enrollment for the three months ended September 30, 2003. This decrease is attributed to the continuous review and screening performed by the Government of Puerto Rico over the persons eligible to participate in the Healthcare Reform.

• The earned premiums for the three months ended September 30, 2004 and 2003 include an adjustment decreasing premiums by approximately $600 thousand and $1.8 million, respectively. This represents an adjustment to premiums to be returned to the Administración de Seguros de Salud de Puerto Rico (ASES, by its Spanish acronym), which is the government agency that administers the Healthcare Reform. As mentioned in previous filings with the United States Securities and Exchange Commission, the Healthcare Reform contracts include a provision where if the net income for any given contract year exceeds 2.5% of earned premiums, the insurance companies have to return 75.0% of this excess to ASES.

Claims incurred during the three months ended September 30, 2004 reflect an increase of $3.8 million, or 3.6%, when compared to the three months ended September 30, 2003. The loss ratio increased by 0.5 percentage points when comparing the 2004 period with the 2003 period. This fluctuation results mostly from higher utilization trends experienced during the three months ended September 30, 2004. In addition, during the 2003 period the claims incurred of the segment were affected by the favorable development of its claim liabilities, which were attributed to better than expected utilization trends in that particular period.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Earned premiums for the nine months ended September 30, 2004 present an increase of $4.0 million, or 2.7%, when compared to the earned premiums for the nine months ended September 30, 2003. This increase is due to the net effect of the following:

• Effective July 1, 2004, premium rates were increased by approximately 4.4% during the Healthcare Reform contract renegotiation process for the twelve-month period ending on June 30, 2005. In addition, there was a premium rates increase of 4.2% that was effective on July 1, 2003.

• In the nine months ended September 30, 2003 the segment increased premiums by approximately $2.3 million when adjusting the amount recorded as return premiums to ASES. During the nine-month period ended September 30, 2004 the return premium adjustment recorded by the segment decreased premiums by $200 thousand.

• The average monthly enrollment for this segment decreased by 17,167 insureds, or 2.7%, when comparing the average enrollment for the nine months ended September 30, 2004 with the average enrollment for the nine months ended September 30, 2003. This decrease is attributed to the continuous review and screening performed by the Government of Puerto Rico over the persons eligible to participate in the Healthcare Reform.

Claims incurred during the nine months ended September 30, 2004 increased by $9.7 million, or 3.0%, when compared to the claims incurred for the same period of 2003. The loss ratio increased by 1.7 percentage points when comparing the 2004 period with the 2003 period. This fluctuation results mostly from higher utilization trends experienced during the nine months ended September 30, 2004. In addition, during the 2003 period the claims incurred of the segment were affected by the favorable development of its claim liabilities, which were attributed to better than expected utilization trends in that particular period.

Operating expenses for the nine months ended September 30, 2004 increased by $891 thousand, or 3.5%, when compared to the operating expenses for the nine months ended September 30, 2003. The expense ratio increased by 0.1 percentage points during the same period. This increase is due to the normal inflationary effect in operational costs.

Property and Casualty Insurance Operating Results


	Three months ended						Nine months ended
	September 30,						September 30,
(dollar amounts in thousands)	2004			2003			2004			2003
Premiums written:
Commercial multiperil	$	13,286			14,709			38,806			40,342
Dwelling		8,150			5,988			21,686			17,493
Auto physical damage		4,961			4,652			13,852			11,645
Commercial auto liability		4,130			4,218			10,813			10,142
Other liability		2,379			2,126			6,860			5,532
Medical malpractice		2,808			2,569			5,325			4,902
Other		2,690			1,707			6,938			6,163

Total premiums written		38,404			35,969			104,280			96,219

Premiums ceded		(14,182	)		(11,658	)		(39,912	)		(31,843	)
Change in unearned premiums		(2,665	)		(4,309	)		(1,819	)		(7,067	)

Net premiums earned	$	21,557			20,002			62,549			57,309

Claims incurred	$	13,007			10,325			34,135			30,780
Operating expenses		8,469			9,043			27,897			26,528

Total underwriting costs	$	21,476			19,368			62,032			57,308

Underwriting income	$	81			634			517			1

Loss ratio		60.3	%		51.6	%		54.6	%		53.7	%
Expense ratio		39.3	%		45.2	%		44.6	%		46.3	%

Combined ratio		99.6	%		96.8	%		99.2	%		100.0	%

PC to PW ratio		36.9	%		32.4	%		38.3	%		33.1	%

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Total premiums written for the three months ended September 30, 2004 increased by $2.4 million, or 6.8%, when compared to the three months ended September 30, 2003. This fluctuation is mostly due to an increase in the volume of the premiums written in the Dwelling and the Other lines of business, which experienced an increase in premiums of $2.2 million, or 36.1%, and $983 thousand, or 57.6%, during this period, respectively. The current market is characterized by strong and aggressive competition with premium rates at levels similar or below those of prior year. Continuous efforts through partnerships with financial institutions have contributed to the increased volume of the Dwelling business. The Commercial Auto and General Liability have also been targeted for growth in new business.

Premiums ceded to reinsurers during the three months ended September 30, 2004 increased by $2.5 million, or 21.7 %, when compared to the same period for the prior year. The ratio of premiums ceded to premiums written reflects an increase of 4.5 percentage points, from 32.4% in the 2003 period to 36.9% in the 2004 period. This fluctuation is mainly due to the cancellation of a property surplus treaty during the third quarter of 2003, which propitiated a reinsurance portfolio transfer that had the effect of decreasing premiums ceded for the period. The decrease in the change in unearned premiums of $1.6 million is also primarily due to the effect of the incoming reinsurance portfolio transfer done during the third quarter of the year 2003 and as well as to a change in the mix of the business subscribed.

Claims incurred reflect an increment of $2.7 million, or 26.0% when compared to the three months ended September 30, 2003. The loss ratio experienced an increase of 8.7 percentage points during the three months period ended September 30, 2004 as compared to the same period of the prior year. In September 2004, Puerto Rico was hit by Tropical Storm Jeanne causing considerable losses in many areas, which resulted in net losses of $2.0 million.

The operating expenses for the three months ended September 30, 2004 decreased by $574 thousand, or 6.3%, when compared to the operating expenses for the three months ended September 30, 2003. The expense ratio decreased by 5.9 percentage points during this period. The fluctuation in the total operating expenses and the expense ratio during this period is mainly due to the fact that during the third quarter of the 2004 period, the segment recorded an experience refund that was received from the Compulsory Vehicle Liability Insurance Joint Underwriting Association. This refund, amounting to $840 thousand, was recorded as a decrease to the operating expenses for the period. The experience refund from the Compulsory Vehicle Liability Insurance Joint Underwriting Association corresponding to the year 2003 was received during the second quarter of that year.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total premiums written for the nine months ended September 30, 2004 increased by $8.1 million, or 8.4%, when compared to the nine months period ended September 30, 2003. This fluctuation is mostly due to an increase in the volume of the premiums written for the dwelling, auto physical damage and other liability lines of business, which experienced an increase in premiums of $4.1 million, or 24.0%, $2.2 million, or 19.0%, and $1.3 million, or 24.0%, during this period, respectively. The strengthening of business relationships with financial institutions has resulted in additional growth in the dwelling line of business. Commercial auto, including auto physical damage coverage, as well as the other liability lines of business have been targeted for growth in new business.

Premiums ceded to reinsurers during the nine months ended September 30, 2004 increased by $8.1 million, or 25.3%, when compared to the same period for the prior year. The ratio of premiums ceded to premiums written reflects an increase of 5.2 percentage points, from 33.1% as of September 30, 2003 to 38.3% as of September 30, 2004. The increase in the premiums ceded to premiums written ratio is due to the following:

• The amount of premiums ceded for the nine months ended September 30, 2003 was reduced as a result of the cancellation of the property surplus treaty. This cancellation resulted in a reinsurance

portfolio transfer resulting in a net incoming business and a reduction in the amount of premiums ceded.

• During the 2003 period the segment increased its retention in the personal lines quota share treaty from 70% to 95%. In addition, as a result of the increased retention, the segment received an incoming reinsurance portfolio transfer causing a reduction in the premiums ceded for the nine months ended September 30, 2003.

• Increased catastrophe reinsurance costs during 2004.

The decrease in the change in unearned premiums of $5.2 million is also primarily due to the effect of the reinsurance portfolio transfers done during the 2003 period and as well as to a change in the mix of the business subscribed.

Claims incurred increased by $3.3 million, or 10.9%, when comparing the claims incurred for the nine months ended September 30, 2004 to the claims incurred for the same period in 2003. The loss ratio experienced an increase of 0.9 percentage points during this period. These fluctuations are attributed to approximately $2.0 million of net losses incurred from the passing of Tropical Storm Jeanne during the third quarter of 2004 as well as to the segment’s increased volume of business.

The operating expenses for the nine months ended September 30, 2004 increased by $1.4 million, or 5.2%, when compared to the operating expenses for the nine months ended September 30, 2003. The expense ratio decreased by 1.7 percentage point during this period. The fluctuation in the total operating expenses and the expense ratio during this period is attributed to the segment’s increased volume of business and to the effect of the following:

• During the second quarter of 2004, the segment recorded a guaranty fund assessment to cover liabilities of insolvent companies. This assessment, which amounted to $871 thousand, was charged to operations during this period.

• The experience refund received from the Compulsory Vehicle Liability Insurance Joint Underwriting Association increased $233 thousand, from $638 thousand during the 2003 period to $840 thousand during the 2004 period. This refund is recorded as a decrease to the operating expenses for the period.

Liquidity and Capital Resources

Cash Flows

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

As of September 30, 2004 and December 31, 2003, the Corporation’s cash and cash equivalents amounted to $63.7 million and $48.3 million, respectively. The sources of funds available to meet the requirements of the Corporation’s operations include: cash provided from operations, maturities and sales of securities classified within the trading and available-for-sale portfolios, securities sold under repurchase agreements, and issuance of long and short-term debt.

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

Cash Flows from Operations

Most of the cash flows from operating activities are generated from the insurance subsidiaries. The basic components of the cash flows from operations are premium collections, claims payments, payment of

operating and acquisition expenses and proceeds from sales and maturities of investments in the trading portfolio.

Net cash flows (used in) provided by operating activities amounted to $(9.0) million and $3.5 million for the nine months ended September 30, 2004 and 2003, respectively, a decrease of $12.5 million. This decrease in cash flows from operating activities is mainly attributed to the net effect of the following:

• The amount of claims, losses and benefits paid for the nine months ended September 30, 2004 reflect an increase of $25.4 million when compared with the nine months ended September 30, 2003. The increase in the amount of claims, losses and benefits paid is mostly the result of the segments’ increased volume of business as well as to increased utilization trends in both Health Insurance segments.

• The payments to suppliers and employees increased by $9.7 million when comparing the amount paid during the 2004 and 2003 periods. This increase is basically attributed to additional commission expense generated from the acquisition of new business and general operating expenses.

• The contingency reserve funds payment from the Federal Employee Health Benefit Plan decreased by $7.8 million when comparing the amount collected during the nine months ended September 30, 2004 with the amount collected during the same period for 2003.

• The amount of income taxes paid increased by $4.6 million when comparing payments made in the 2004 and 2003 periods. The 2004 period includes the payment of the last installment of the $51.8 million income tax liability of the closing agreement with the Puerto Rico Treasury Department upon the termination of TSI’s tax exemption. The first installment of $37.0 million was made on July 31, 2003 and the second and final installment, amounting to $14.8 million, was made on April 15, 2004. In addition, during 2004 TSI made a payment of $17.8 million corresponding to its income tax liability for the year 2003 and estimated tax payments amounting to $9.5 million corresponding to the year 2004.

• Premiums collected increased by $21.5 million when comparing collections during the nine months ended September 30, 2004 with collections for the nine months ended September 30, 2003. This increase is mostly related to the increased volume of business and increases in premium rates of the operating segments.

• The net acquisition of investments in the trading portfolio decreased by $13.9 million for the nine months ended September 30, 2004, when compared to the nine months ended September 30, 2003.

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

Cash Flows from Investing Activities

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

Net cash flows used in investing activities amounted to $(670) thousand and $(42.0) million for the nine months ended September 30, 2004 and 2003, respectively. The decrease in the cash flows used in investing activities during this period is attributed to a reduction in the amount of investment proceeds that was reinvested. During the nine months ended September 30, 2004 and 2003 total acquisition of investments exceeded the proceeds from investments sold or matured by $1.1 million and $38.8 million, respectively.

Cash Flows from Financing Activities

Net cash flows provided by financing activities amounted to $25.0 million and $48.2 million for the nine months ended September 30, 2004 and 2003, respectively. The decrease of $23.2 million when compared to the same period of the prior year is mainly due to the combined effect of the following:

• Debt payments increased by $38.0 million during the nine months period ended September 30, 2004 when compared to the payments made in the 2003 period. This increase is due to the payment of short-term borrowings amounting to $37.0 on September 30, 2004 as well as to the scheduled payment of $1.0 million that was done on one of the credit agreements. Payments for this credit agreement are made annually on or before August 1^st.

• The net proceeds from individual retirement annuities were $2.6 million lower during the nine months ended September 30, 2004 than during the nine months ended September 30, 2003.

• The change in outstanding checks in excess of bank balances reflects an increase of $4.4 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. The amount of checks in excess of bank balances represents a timing difference between the issuance of checks and the cash balance in the bank account at one point in time.

• During the nine months ended September 30, 2004 the Corporation received proceeds from the issuance of the senior unsecured notes amounting to $50.0 million. During the 2003 period the Corporation received $37.0 million from the issuance of short-term borrowings. This represents an increase of $13.0 million in the amount of proceeds received from the issuance of debt.

Financing and Financing Capacity

The Corporation has significant short-term liquidity supporting its businesses. It also has available short-term borrowings from time to time to address timing differences between cash receipts and disbursements. These short-term borrowings are mostly in the form of securities sold under repurchase agreements. As of September 30, 2004, the Corporation had $227.5 million in available credit on these agreements. Outstanding short-term borrowings as of September 30, 2004 amount to $1.7 million. The amount due under outstanding short-term borrowings is expected to be paid out of the operating and investing cash flows of the Corporation.

On September 30, 2004 TSI issued and sold $50.0 million of its 6.30% senior unsecured notes due September 2019 (the notes). The notes are unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Corporation. The notes were privately placed to various institutional investors under a note purchase agreement among TSI, the Corporation and the investors. The notes pay interest semiannually beginning on March 2005, until such principal is becomes due and payable. The notes contain certain covenants with which TSI and the Corporation have complied with at September 30, 2004. Most of the proceeds obtained from this issuance were used to repay $37.0 million of short-term borrowings made by TSI. The remaining proceeds were used for general business purposes.

In addition, the Corporation has two credit agreements with a commercial bank, FirstBank Puerto Rico. These credit agreements bear interest rates based on the London Interbank Offered Rate (LIBOR) plus a margin specified by the commercial bank at the time of the agreement. As of September 30, 2004, the two credit agreements have an outstanding balance of $31.3 million and $15.0 million. These credit agreements contain several restrictive covenants, including, but not limited to, the granting of certain liens, limitations on acquisitions and limitations on changes in control. As of September 30, 2004, management believes the Corporation is in compliance with these covenants. Further details regarding these credit agreements are incorporated by reference to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Corporation’s December 31, 2003 of the Corporation’s Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Corporation is exposed to certain market risks that are inherent in the Corporation’s financial instruments, which arise from transactions entered into in the normal course of business. The Corporation has exposure to market risk mostly in its investment activities. For purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates and equity prices. No material changes have occurred in the Corporation’s exposure to financial market risks since December 31, 2003. A discussion of the Corporation’s market risk as of December 31, 2003 is incorporated by reference to Item 7a of the Corporation’s Annual Report on Form 10-K.

Item 4. Controls and Procedures

The Corporation’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures as of September 30, 2004. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2004. There were no significant changes in the Corporation’s disclosure controls and procedures, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed the evaluation referred to above.

Part II – Other Information

Item 1. Legal Proceedings

(a) As of September 30, 2004, the Corporation is a defendant in various lawsuits arising out of the ordinary course of business. Management believes, based on the opinion of legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

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

On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance further ordered that all corporate decisions undertaken by TSI through the vote of its stockholders on record, be ratified in a stockholders’ meeting or in a subsequent referendum.

In March 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s order of October 1999 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals.

On October 2002, the Court of Appeals issued an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify TSI’s corporate reorganization and the change of name of TSI from “Seguros de Servicio de Salud de Puerto Rico, Inc.” to “Triple-S, Inc.” TSI and TSM’s filed motions of reconsideration. The Puerto Rico’s Circuit Court of Appeals granted said motions on May 18, 2003. The Circuit Court held that the Commissioner of Insurance had the authority to waive the requirement that a referendum be held to ratify TSI’s reorganization and that therefore the reorganization of TSI was approved by the stockholders, inasmuch as the votes pertaining to the 1,582 shares annulled were not decisive.

On June 26, 2003, the two stockholders presented a writ of certiorari before Puerto Rico’s Supreme Court. The writ was issued by the Supreme Court on August 22, 2003 when it ordered the Circuit Court of Appeals to forward the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court.

(c) On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, some present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s Board of Directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. While this case is still in the very early preliminary stages and has not been certified as a class action, a Motion to Dismiss has been filed by the defendants. On March 15, 2004, plaintiffs filed a response to this motion. On April 30, 2004, defendants filed a Reply in Support of Motion to Dismiss. The case is still pending before the United States District Court for the District of Puerto Rico.

(d) On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior section, alleging, among other things, violations by the defendants of provisions of the Insurance Code, anti-monopolistic practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the U.S. District Court for the District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counter-claim and filed several motions to dismiss this claim. The case has recently been reassigned to a new judge.

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

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

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

Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA.

However, on June 18, 2004, the Plaintiffs moved to amend the complaint to include the Colegio de Médicos Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later, on August 2004, Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

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

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

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

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

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

Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA. TSI, along with the other defendants moved to dismiss the complaint under multiple grounds, including but not limited to arbitration and applicability of the McCarran Ferguson Act.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Recently, Mr. José Davison Lampón, Esq., member of the Board of Directors (the Board) of the Corporation and several of the Board’s Committees, including the Audit Committee, passed away. Since Mr. Davison Lampón was considered a member of the Board representative of the community, upon his passing a Board vacancy arose, leaving the Board with nine directors that are representatives of the community and nine directors that are physicians or dentists. In accordance with Article 8-2 of the By-laws of the Corporation, steps have been taken to fill this vacancy as soon as possible.

Item 6. Exhibits

(a) Exhibits:

Exhibit 11 Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and nine months ended September 30, 2004 and 2003 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

Exhibit 12 Statements re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio for the three months and nine months ended September 30, 2004 and 2003 has been omitted as the detail necessary to determine the computation of the loss ratio, expense ratio and combined ratio can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

Exhibit 31.1 Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

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

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

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

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

SIGNATURES

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


	Triple-S Management Corporation Registrant

Date: November 12, 2004	By:	/s/ Ramón M. Ruiz-Comas

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

Date: November 12, 2004	By:	/s/ Juan J. Román

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


	PAGE
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		3
Consolidated Statements of Operations for the three months and nine months ended September 30, 2004 and 2003		4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months ended September 30, 2004 and 2003		5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		38
Item 4. Controls and Procedures		38
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3. Defaults Upon Senior Securities		41
Item 4. Submission of Matters to a Vote of Security Holders		41
Item 5. Other Information		41
Item 6. Exhibits		41
SIGNATURES		42
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

•		TSI’s accumulated statutory net income while operating under the tax exemption, amounting to $132,763, was deemed distributed to TSM.

•		For tax purposes, TSM recognized TSI’s accumulated statutory net income as gross income. On this amount, TSM recognized an income tax liability amounting to $51,774, which was determined by applying a tax rate of 39% to the exempt accumulated statutory net income deemed distributed to TSM. During the second quarter of the year 2003, TSM recorded this income tax liability within the current income tax expense presented in the consolidated statements of earnings. Of this tax $37,000 was paid on July 31, 2003, the date of the closing agreement, and $14,774 was paid on April 15, 2004.

(a)		As of September 30, 2004, the Corporation is defendant in various lawsuits arising in the ordinary course of business. Management believes, based on the opinion of its legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position and results of operations of the Corporation.

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

		On December 1996, the Commissioner of Insurance issued an order to annul the sale of the 1,582 shares that TSI had repurchased from the estate of deceased stockholders. Consequently, the sale of 1,582 shares was cancelled and the purchase price was returned to each former stockholder. In the year 2000, the Commissioner of Insurance further ordered that all corporate decisions undertaken by TSI through the vote of its stockholders on record, be ratified in a stockholders’ meeting or in a subsequent referendum.

		In March 2002, the Commissioner of Insurance stated that the ratification of the corporate reorganization was not required and that TSI had complied with the Commissioner’s order of October 1999 related to the corporate reorganization. Thereafter, the plaintiffs filed a petition for review of the Commissioner’s determination before the Puerto Rico Circuit Court of Appeals.

		On October 2002, the Court of Appeals issued an order requiring the Commissioner of Insurance to order a meeting of stockholders to ratify TSI’s corporate reorganization and the change of name of TSI from “Seguros de Servicio de Salud de Puerto Rico, Inc.” to “Triple-S, Inc.”. TSI and TSM’s filed motions of reconsideration. The Puerto Rico’s Circuit Court of Appeals granted said motions on May 18, 2003. The Circuit Court held that the Commissioner of Insurance had the authority to waive the requirement that a referendum be held to ratify TSI’s reorganization and that therefore the reorganization of TSI was approved by the stockholders, inasmuch as the votes pertaining to the 1,582 shares annulled were not decisive.

		On June 26, 2003, the two stockholders presented a writ of certiorari before Puerto Rico’s Supreme Court. The writ was issued by the Supreme Court on August 22, 2003 when it ordered the Circuit Court of Appeals to forward the record of the case. On December 1, 2003, the plaintiffs filed a motion submitting their case on the basis of their original petition. TSI and TSM filed its brief on December 30, 2003, while the Commissioner of Insurance, in turn, filed a separate brief on December 31, 2003. On June 24, 2004 the Supreme Court ordered the plaintiffs to file a brief in support of their allegations. The case is still pending before the Supreme Court.

(c)		On September 4, 2003, José Sánchez and others filed a putative class action complaint against the Corporation, some present and former directors of TSM and TSI, and others, in the United States District Court for the District of Puerto Rico, alleging violations under the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO Act. The suit, among other allegations, alleges a scheme to defraud the plaintiffs by acquiring control of TSI through illegally capitalizing TSI and later converting it to a for-profit corporation and depriving the stockholders of their rights. The plaintiffs base their later allegations on the supposed decisions of TSI’s Board of Directors and stockholders, allegedly made in 1979, to operate with certain restrictions in order to turn TSI into a charitable corporation, basically forever. While this case is still in the very early preliminary stages and has not been certified as a class action, a Motion to Dismiss has been filed by the defendants. On March 15, 2004, plaintiffs filed a response to this motion. On April 30, 2004, defendants filed a Reply in Support of Motion to Dismiss. The case is still pending before the United States District Court for the District of Puerto Rico.

(d)		On April 24, 2002, Octavio Jordán, Agripino Lugo, Ramón Vidal, and others filed a suit against TSM, TSI and others in the Court of First Instance for San Juan, Superior section, alleging, among other things, violations by the defendants of provisions of the Insurance Code, anti-monopolistic practices, unfair business practices and damages in the amount of $12.0 million. They also requested that TSM sell shares to them. After a preliminary review of the complaint, it appears that many of the allegations brought by the plaintiffs have been resolved in favor of TSM and TSI in previous cases brought by the same plaintiffs in the U.S. District Court for the District of Puerto Rico and by most of the plaintiffs in the local courts. The defendants, including TSM and TSI answered the complaint, filed a counter-claim and filed several motions to dismiss this claim. The case has recently been reassigned to a new judge.

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

		The individual Plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which are alleged to have

		resulted in a loss of plaintiff’s property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payments due to doctors so that they are not paid in a timely manner for the covered, medically necessary services they render.

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

		Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA.

		However, on June 18, 2004, the Plaintiffs moved to amend the complaint to include the Colegio de Médicos Cirujanos de Puerto Rico (a compulsory association grouping all physicians in Puerto Rico), Marissel Velázquez, MD, President of the Colegio de Médicos y Cirujanos de Puerto Rico, and Andrés Meléndez, MD, as plaintiffs against TSI. Later Marissel Velázquez, MD voluntarily dismissed her complaint against TSI.

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

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

		The individual Plaintiffs bring this action on behalf of themselves and a class of similarly situated physicians seeking redress for alleged illegal acts of the defendants which are alleged to have resulted in a loss of Plaintiff’s property and a detriment to their business, and for declaratory and injunctive relief to end those practices and prevent further losses. Plaintiffs alleged that the defendants, on their own and as part of a common scheme, systematically deny, delay and diminish the payment due to the doctors so that they are not paid in a timely manner for the covered, medically necessary services they render. The class action complaint alleges that TSI’s health care plans are the agents of BCBSA licensed entities, and as such have committed the acts alleged above and acted within the scope of their agency, with the consent, permission, authorization and knowledge of the others, and in furtherance of both their interest and the interests of other defendants.

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

		Management believes that TSI was made a party to this litigation for the sole reason that TSI is associated with the BCBSA. TSI, along with the other defendants, moved to dismiss the

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

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

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

•		The earned premiums, net and fee revenue corresponding to the Health Insurance – Commercial segment increased by $7.4 million, or 4.3%, during this period. An increase in the average enrollment together with increases in premium rates account for the segment’s fluctuation in earned premiums and fee revenue for the period.

•		The earned premiums, net corresponding to the Health Insurance – Healthcare Reform segment increased by $3.6 million, or 3.1%, during this period. This increase is the net result of an increase in premium rates effective July 1, 2004, adjustments to the return premiums in the 2004 and 2003 periods and a reduction in the average membership of the segment.

•		The earned premiums, net of the Property and Casualty Insurance segment increased by $1.5 million, or 7.8%, during this period. This increase is mostly reflected in the premiums written for the Dwelling and Other lines of business, net of an increase in premiums ceded and a decrease in the change in unearned premiums.

•		During the 2003 period the claims incurred of the Health Insurance –Healthcare Reform segment were affected by the favorable development of their claim liabilities, which were attributed to better than expected utilization trends.

•		The claims incurred of the Property and Casualty Insurance segment corresponding to the 2004 quarter include approximately $2.0 million of net losses from claims incurred related to the passage of Tropical Storm Jeanne through Puerto Rico.

•		The earned premiums, net and fee revenue corresponding to the Health Insurance – Commercial segment increased by $17.3 million, or 3.3%, during this period. An increase in the average enrollment together with increases in premium rates account for the segment’s fluctuation in earned premiums and fee revenue for the period.

•		The earned premiums, net of the Property and Casualty Insurance segment increased by $5.2 million, or 9.1%, during this period. This increase is mostly reflected in the premiums written for the Dwelling, Auto Physical Damage and Other Liability lines of business, net of an increase in premiums ceded and a decrease in the change in unearned premiums. These fluctuations are basically attributed to increases in the segment’s volume of business and in the cost of reinsurance.

•		The earned premiums, net of the Health Insurance – Healthcare Reform segment increased by $4.0 million, or 1.1%, during this period. This increase is the net result of increases in premium rates, adjustments to the return premiums in the 2003 period and a reduction in the average membership of the segment.

•		During the 2004 period the Health Insurance –Commercial and the Health Insurance – Healthcare Reform segments experienced higher utilization trends and an increase in costs when compared to the prior period. The increase in costs is mostly noted in the cost per service of prescription drugs and in general increases in rates to providers. The increase noted in the cost of prescription drugs is the main driver of the increase in costs experienced by these segments.

•		During the 2003 period the claims incurred of Health Insurance – Commercial and the Healthcare Reform segments were affected by the favorable development of their claim liabilities, which were attributed to better than expected utilization trends in that particular period.

•		The increase in claims incurred of the Property and Casualty Insurance segment corresponding to the 2004 period are mostly due to an increase in volume and to approximately $2.0 million of net losses from claims incurred related to the passage of Tropical Storm Jeanne through Puerto Rico.

•		On July 31, 2003, TSM and TSI executed a closing agreement with the Puerto Rico Treasury Department that stipulated that the statutory net income accumulated while TSI operated under the tax ruling was deemed distributed to TSM. As a result, TSM recognized an income tax expense of $51.8 million, which was recorded in the second quarter of the year 2003.

•		A decrease in taxable income during the 2004 period that consequently reduced the consolidated income tax expense.

		employees and Federal employees businesses reflect a decrease in membership of 4,229, or 9.9%, and 2,710, or 5.0%, during this period, respectively.

•		The segment monitors premium rates to ensure adequate premium rates that cover actual claims trends. Increases in premium rates combined with an increase in Self funded employers have contributed to the increase experienced in the earned premiums and fee revenue for the period.

•		Average enrollment as of September 30, 2004 increased by 4,043 members, or 0.7%, when compared to the enrollment as for the same period of 2003. The increase in average enrollment is mostly reflected in the Self-funded employers business, which membership increased by 10,580 members, or 8.2%, during this period. The average enrollment of the Corporate Accounts, Federal employees and Local Government employees businesses reflects a decrease in membership of 3,269, or 1.1%, 1,844, or 3.4%, and 1,824, or 4.2%, during this period, respectively.

•		The segment monitors premium rates to ensure adequate premium rates that cover actual claims trends. Increases in premium rates combined with an increase in the average membership of the self funded employers business, have mitigated the effect of the decrease in average membership of other lines of business in the earned premiums and fee revenue for the period.

•		Premium rates were increased by approximately 4.4% during the Healthcare Reform contract renegotiation process for the twelve-month period ending on June 30, 2005. The increase in premium rates was effective July 1, 2004.

•		The average monthly enrollment for this segment decreased by 14,327 insureds, or 2.3%, when comparing the average enrollment for the three months ended September 30, 2004 with the average enrollment for the three months ended September 30, 2003. This decrease is attributed to the continuous review and screening performed by the Government of Puerto Rico over the persons eligible to participate in the Healthcare Reform.

•		The earned premiums for the three months ended September 30, 2004 and 2003 include an adjustment decreasing premiums by approximately $600 thousand and $1.8 million, respectively. This represents an adjustment to premiums to be returned to the Administración de Seguros de Salud de Puerto Rico (ASES, by its Spanish acronym), which is the government agency that administers the Healthcare Reform. As mentioned in previous filings with the United States Securities and Exchange Commission, the Healthcare Reform contracts include a provision where if the net income for any given contract year exceeds 2.5% of earned premiums, the insurance companies have to return 75.0% of this excess to ASES.

•		Effective July 1, 2004, premium rates were increased by approximately 4.4% during the Healthcare Reform contract renegotiation process for the twelve-month period ending on June 30, 2005. In addition, there was a premium rates increase of 4.2% that was effective on July 1, 2003.

•		In the nine months ended September 30, 2003 the segment increased premiums by approximately $2.3 million when adjusting the amount recorded as return premiums to ASES. During the nine-month period ended September 30, 2004 the return premium adjustment recorded by the segment decreased premiums by $200 thousand.

•		The average monthly enrollment for this segment decreased by 17,167 insureds, or 2.7%, when comparing the average enrollment for the nine months ended September 30, 2004 with the average enrollment for the nine months ended September 30, 2003. This decrease is attributed to the continuous review and screening performed by the Government of Puerto Rico over the persons eligible to participate in the Healthcare Reform.

		portfolio transfer resulting in a net incoming business and a reduction in the amount of premiums ceded.

•		During the 2003 period the segment increased its retention in the personal lines quota share treaty from 70% to 95%. In addition, as a result of the increased retention, the segment received an incoming reinsurance portfolio transfer causing a reduction in the premiums ceded for the nine months ended September 30, 2003.

•		Increased catastrophe reinsurance costs during 2004.

•		During the second quarter of 2004, the segment recorded a guaranty fund assessment to cover liabilities of insolvent companies. This assessment, which amounted to $871 thousand, was charged to operations during this period.

•		The experience refund received from the Compulsory Vehicle Liability Insurance Joint Underwriting Association increased $233 thousand, from $638 thousand during the 2003 period to $840 thousand during the 2004 period. This refund is recorded as a decrease to the operating expenses for the period.

•		The amount of claims, losses and benefits paid for the nine months ended September 30, 2004 reflect an increase of $25.4 million when compared with the nine months ended September 30, 2003. The increase in the amount of claims, losses and benefits paid is mostly the result of the segments’ increased volume of business as well as to increased utilization trends in both Health Insurance segments.

•		The payments to suppliers and employees increased by $9.7 million when comparing the amount paid during the 2004 and 2003 periods. This increase is basically attributed to additional commission expense generated from the acquisition of new business and general operating expenses.

•		The contingency reserve funds payment from the Federal Employee Health Benefit Plan decreased by $7.8 million when comparing the amount collected during the nine months ended September 30, 2004 with the amount collected during the same period for 2003.

•		The amount of income taxes paid increased by $4.6 million when comparing payments made in the 2004 and 2003 periods. The 2004 period includes the payment of the last installment of the $51.8 million income tax liability of the closing agreement with the Puerto Rico Treasury Department upon the termination of TSI’s tax exemption. The first installment of $37.0 million was made on July 31, 2003 and the second and final installment, amounting to $14.8 million, was made on April 15, 2004. In addition, during 2004 TSI made a payment of $17.8 million corresponding to its income tax liability for the year 2003 and estimated tax payments amounting to $9.5 million corresponding to the year 2004.

•		Premiums collected increased by $21.5 million when comparing collections during the nine months ended September 30, 2004 with collections for the nine months ended September 30, 2003. This increase is mostly related to the increased volume of business and increases in premium rates of the operating segments.

•		The net acquisition of investments in the trading portfolio decreased by $13.9 million for the nine months ended September 30, 2004, when compared to the nine months ended September 30, 2003.

•		Debt payments increased by $38.0 million during the nine months period ended September 30, 2004 when compared to the payments made in the 2003 period. This increase is due to the payment of short-term borrowings amounting to $37.0 on September 30, 2004 as well as to the scheduled payment of $1.0 million that was done on one of the credit agreements. Payments for this credit agreement are made annually on or before August 1^st.

•		The net proceeds from individual retirement annuities were $2.6 million lower during the nine months ended September 30, 2004 than during the nine months ended September 30, 2003.

•		The change in outstanding checks in excess of bank balances reflects an increase of $4.4 million during the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. The amount of checks in excess of bank balances represents a timing difference between the issuance of checks and the cash balance in the bank account at one point in time.

•		During the nine months ended September 30, 2004 the Corporation received proceeds from the issuance of the senior unsecured notes amounting to $50.0 million. During the 2003 period the Corporation received $37.0 million from the issuance of short-term borrowings. This represents an increase of $13.0 million in the amount of proceeds received from the issuance of debt.

(a)		Exhibits:

		Exhibit 11 Statement re computation of per share earnings; an exhibit describing the computation of the earnings per share for the three months and nine months ended September 30, 2004 and 2003 has been omitted as the detail necessary to determine the computation of earnings per share can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

		Exhibit 12 Statements re computation of ratios; an exhibit describing the computation of the loss ratio, expense ratio and combined ratio for the three months and nine months ended September 30, 2004 and 2003 has been omitted as the detail necessary to determine the computation of the loss ratio, expense ratio and combined ratio can be clearly determined from the material contained in Part I of this Quarterly Report on Form 10-Q.

		Exhibit 31.1 Certification of the President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a).

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

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

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

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