Summary of TRIPLE-S MANAGEMENT CORP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is intended to update the reader on matters affecting the financial condition and results of operations for the three months ended March 31, 2009. Therefore, the following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed with the United States Securities and Exchange Commission as of and for the year ended December 31, 2008.
Cautionary Statement Regarding Forward-Looking Information This Quarterly Report on Form 10-Q and other of our publicly available documents may include statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, among other things: statements concerning our business and our financial condition and results of operations. These statements are not historical, but instead represent our belief regarding future events, any of which, by their nature, are inherently uncertain and outside of our control. These statements may address, among other things, future financial results, strategy for growth, and market position. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The factors that could cause actual results to differ from those in the forward-looking statements are discussed throughout this form. We are not under any obligation to update or alter any forward-looking statement (and expressly disclaims any such obligations), whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, but are not limited to, rising healthcare costs, business conditions and competition in the different insurance segments, government action and other regulatory issues. Overview
We are the largest managed care company in Puerto Rico in terms of membership and have 50 years of experience in the managed care industry. We offer a broad portfolio of managed care and related products in the Commercial, Commonwealth of Puerto Rico Health Reform (the Reform) and Medicare (including Medicare Advantage and the Part D stand-alone prescription drug plan (PDP)) markets. In the Commercial market we offer products to corporate accounts, U.S. federal government employees, local government employees, individual accounts and Medicare Supplement. The Reform is a government of Puerto Rico-funded managed care program for the medically indigent, similar to the Medicaid program in the U.S. We have the exclusive right to use the Blue Shield name and mark throughout Puerto Rico, serve approximately one million members across all regions of Puerto Rico and hold a leading market position covering approximately 30% of the population. For the three months ended March 31, 2009, our managed care segment represented approximately 89.4% of our total consolidated premiums earned. We also have significant positions in the life insurance and property and casualty insurance markets. Our life insurance segment had a market share of approximately 11% (in terms of premiums written) as of December 31, 2007. Our property and casualty segment had a market share of approximately 8% (in terms of direct premiums) as of December 31, 2007.
We participate in the managed care market through our subsidiary, Triple-S Salud, Inc. (TSS) (formerly known as Triple-S, Inc.). Our managed care subsidiary is a Blue Cross and Blue Shield Association (BCBSA) licensee, which provides us with exclusive use of the Blue Shield brand in Puerto Rico. We participate in the life insurance market through our subsidiary, Triple-S Vida, Inc. (TSV) and in the property and casualty insurance market through our subsidiary, Triple-S Propiedad, Inc. (TSP) (formerly known as Seguros Triple-S, Inc.), each one representing approximately 5.4%, of our consolidated premiums earned, net for the three months ended March 31, 2009.
Intersegment revenues and expenses are reported on a gross basis in each of the operating segments but eliminated in the consolidated results. Except as otherwise indicated, the numbers for each segment presented in this Quarterly Report on Form 10-Q do not reflect intersegment eliminations. These intersegment revenues and expenses affect the amounts reported on the financial statement line items for each segment, but are eliminated in consolidation and do not change net income.

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Our revenues primarily consist of premiums earned, net and administrative service fees. These revenues are derived from the sale of managed care products in the Commercial market to employer groups, individuals and government-sponsored programs, principally Medicare and Reform. Premiums are derived from insurance contracts and administrative service fees are derived from self-funded contracts, under which we provide a range of services, including claims administration, billing and membership services, among others. Revenues also include premiums earned from the sale of property and casualty and life insurance contracts, and investment income. Substantially all of our earnings are generated in Puerto Rico.
Claims incurred include the payment of benefits and losses, mostly to physicians, hospitals and other service providers, and to policyholders. Each segment's results of operations depend in significant part on their ability to accurately predict and effectively manage claims. A portion of the claims incurred for each period consists of claims reported but not paid during the period, as well as a management and actuarial estimate of claims incurred but not reported during the period. Operating expenses consist primarily of compensation expenses, commission payments to brokers and other overhead business expenses.
We use operating income as a measure of performance of the underwriting and investment functions of our segments. We also use the loss ratio and the operating expense ratio as measures of performance. The loss ratio is claims incurred divided by premiums earned, net, multiplied by 100. The operating expense ratio is operating expenses divided by premiums earned, net and administrative service fees, multiplied by 100. Recent Developments
Acquisition of La Cruz Azul de Puerto Rico On May 1, 2009, the Corporation announced that Triple-S Salud, Inc., its managed care subsidiary, has signed a definitive agreement to acquire certain managed care assets of La Cruz Azul de Puerto Rico, Inc. ("LCA"). Triple-S Salud will pay a purchase price of approximately $10.5 million in cash, based on 131,000 expected members (including full rated and ASO lives). The transaction, which will be funded with cash on hand, is expected to close on or about July 1, 2009, subject to customary closing conditions including certain third party consents. The transaction has received regulatory approvals from the Insurance Commissioner of Puerto Rico and the Blue Cross Blue Shield Association. The Corporation also announced that the Blue Cross Blue Shield Association has agreed to transfer the licensing rights to the Blue Cross brand in Puerto Rico and the Blue Cross Blue Shield brands in the U.S. Virgin Islands from the Blue Cross Blue Shield Association to the Corporation and Triple-S Salud, subject to the closing of the LCA transaction and submission of final documentation. Legislative and Regulatory Initiatives
In April 2009, the Commissioner of Insurance of Puerto Rico repealed the adoption of Rule No. 83, titled "Norms and Procedures to Regulate Insurance and Health Maintenance Holding Company Systems and the Criteria to Evaluate the Change of Control".
Recent Accounting Standards
For a description of recent accounting standards, see note 2 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Managed Care Membership

                                                             As of March 31,
                                                           2009           2008

     Managed care enrollment:
     Commercial 1                                          613,546       576,209
     Reform 2                                              521,731       343,534
     Medicare 3                                             74,186        65,538

     Total                                               1,209,463       985,281


     Managed care enrollment by funding arrangement:
     Fully-insured                                         829,042       821,764
     Self-insured                                          380,421       163,517

     Total                                               1,209,463       985,281

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(1) Commercial membership includes corporate accounts, self-funded employers, individual accounts, Medicare Supplement, U.S. Federal government employees and local government employees.

(2) Includes rated and self-funded members.

(3) Includes Medicare Advantage as well as stand-alone PDP plan membership.

Consolidated Operating Results
The following table sets forth the Corporation's consolidated operating results.
Further details of the results of operations of each reportable segment are
included in the analysis of operating results for the respective segments.

                                                              Three months ended
                                                                  March 31,
    (Dollar amounts in millions)                               2009         2008

    Revenues:
    Premiums earned, net                                    $  452.5        404.4
    Administrative service fees                                  8.9          3.7
    Net investment income                                       12.5         13.4

    Total operating revenues                                   473.9        421.5
    Net realized investment (loss) gains                        (1.7 )        0.6
    Net unrealized investment loss on trading securities        (2.4 )       (6.2 )
    Other expense, net                                          (0.4 )       (1.5 )

    Total revenues                                             469.4        414.4

    Benefits and expenses:
    Claims incurred                                            394.5        350.2
    Operating expenses                                          68.3         60.0

    Total operating expenses                                   462.8        410.2
    Interest expense                                             3.3          3.7

    Total benefits and expenses                                466.1        413.9

    Income before taxes                                          3.3          0.5
    Income tax benefit                                          (0.6 )       (0.7 )

    Net income                                              $    3.9          1.2

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Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 Operating Revenues
Consolidated premiums earned, net and administrative service fees increased by $53.3 million, or 13.1%, to $461.4 million during the three months ended March 31, 2009 compared to the three months ended March 31, 2008. The increase was primarily due to an increase in the premiums earned, net in our managed care segment, principally the result of a higher volume and premium rates in the Medicare business.
The increase in the administrative service fees of the managed care segment of $5.2 million in the 2009 period is attributed to a higher self-insured member months enrollment mostly due to the fact that the Corporation was granted the contract for the Reform's Metro-North region, which began on November 2008 on an Administrative Service Only (ASO) basis.
Consolidated net investment income decreased by $0.9 million, or 6.7%, to $12.5 million during the three months ended March 31, 2009. This decrease is attributed to a lower balance of invested assets as well as to lower yields in investment acquired during the quarter.
Net Realized Investment Losses
Consolidated net realized investment losses of $1.7 million during the three months ended March 31, 2009 are the result of other-than-temporary impairments related to fixed income and equity securities amounting to $2.7 million. The other-than-temporary impairments were offset in part by $0.9 million of net realized gains from the sale of fixed income and equity securities. Net Unrealized Loss on Trading Securities and Other Expense, Net The combined balance of our consolidated net unrealized loss on trading securities and other expense, net decreased by $4.9 million, to $2.8 million during the three months ended March 31, 2009. This decrease is attributable to lower unrealized losses on trading securities and the fair value of the derivative component of our investment in structured notes linked to the Euro Stoxx 50 and Nikkei 225 stock indexes; both fluctuations are due to general market fluctuations. The unrealized loss experienced on our trading portfolio represents a combined decrease of 8.1% in the market value of the portfolio, which is between the decrease experienced by the comparable indexes; the Standard and Poor's 500 Index decreased by 11.7% and the Russell 1000 Growth decreased by 4.6%. The change in the fair value of the derivative component of these structured notes is included within other income (expense), net. Claims Incurred
Consolidated claims incurred during the three months ended March 31, 2009 increased by $44.3 million, or 12.6%, to $394.5 million when compared to the claims incurred during the three months ended March 31, 2008. This increase is principally due to increased claims in the managed care segment as a result of higher enrollment. The consolidated loss ratio increased by 0.6 percentage points to 87.2%, primarily due to higher utilization trends in the managed care segment and the effect of changes on the reserve estimates. Operating Expenses
Consolidated operating expenses during the three months ended March 31, 2009 increased by $8.3 million, or 13.8%, to $68.3 million as compared to the operating expenses during the three months ended March 31, 2008. This increase is primarily attributed to a higher volume of business, particularly in our managed care segment as a result of the Metro-North region which began in November 2008. In addition, a contingency accrual was recorded during the 2009 period, partially offset by an insurance recovery receivable of legal expenses.
. The consolidated operating expense ratio reflects a slight increase of 0.1 percentage point, to 14.8% during the 2009.

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Managed Care Operating Results

                                                   Three months ended
                                                        March 31,
             (Dollar amounts in millions)         2009            2008

             Operating revenues:
             Medical premiums earned, net:
             Commercial                       $     189.9           182.0
             Reform                                  84.9            81.0
             Medicare                               129.7            96.9

             Medical premiums earned, net           404.5           359.9
             Administrative service fees              9.5             4.6
             Net investment income                    5.1             5.6

             Total operating revenues               419.1           370.1

             Medical operating costs:
             Medical claims incurred                370.2           327.9
             Medical operating expenses              43.1            36.9

             Total medical operating costs          413.3           364.8

             Medical operating income         $       5.8             5.3

             Additional data:

             Member months enrollment:
             Commercial:
             Fully-insured                      1,260,901       1,235,489
             Self-funded                          579,092         496,062

             Total commercial member months     1,839,993       1,731,551
             Reform:
             Fully-insured                        978,591       1,033,660
             Self-funded                          560,578               -

             Total reform member months         1,539,169       1,033,660
             Medicare                             228,273         190,529

             Total member months                3,607,435       2,955,740

             Medical loss ratio                      91.5 %          91.1 %

             Operating expense ratio                 10.4 %          10.1 %

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 Medical Operating Revenues
Medical premiums earned for the three months ended March 31, 2009 increased by $44.6 million, or 12.4%, to $404.5 million when compared to the medical premiums earned during the three months ended March 31, 2008. This increase is principally the result of the following:
� Medical premiums generated by the Medicare business increased during the three months ended March 31, 2009 by $32.8 million, or 33.8%, to $129.7 million, primarily due to an increase in member months enrollment of 37,744, or 19.8% and higher average premium rates. The fluctuation in member months is the net result of an increase of 40,825, or 25.9%, in the membership of our Medicare Advantage products and a decrease of 3,081, or 9.4%, in the membership of our PDP product.

� Medical premiums generated by the Commercial business increased by $7.9 million, or 4.3%, to $189.9 million during the three months ended March 31, 2009. This fluctuation is primarily the result of an increase in member months enrollment of 25,412, or 2.1% and increase in average premium rates per member of approximately 2.2%.

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� Medical premiums earned in the Reform business increased by $3.9 million, or 4.8%, to $84.9 million during the three months ended March 31, 2009. This fluctuation is due to an increase in premium rates, effective July 1, 2008, of approximately 10%, offset in part by a lower member months enrollment in the Reform's fully-insured membership by 55,069, or 5.3%.

Administrative service fees increased by $4.9 million, to $9.5 million during the 2009 period, mainly due to an increase in self-funded member months enrollment of 643,608. Such increase is mainly the result of the contract obtained to administer the Reform's Metro-North region, which began as an ASO contract on November 1, 2008.
Medical Claims Incurred
Medical claims incurred during the three months ended March 31, 2009 increased by $ 42.4 million, or 12.9%, to $370.2 million when compared to the three months ended March 31, 2008. The medical loss ratio (MLR) of the segment slightly increased 0.4 percentage points during the 2009 period, to 91.5%. These fluctuations are primarily attributed to the effect of the following:
� The medical claims incurred of the Medicare business increased by $36.5 million during the 2009 period primarily due to the increase in member months of 37,744, or 19.8%, and a higher MLR by 5.1 percentage points. The increased MLR is primarily due to an unfavorable reserve development in the 2009 period. Excluding the effect of prior period reserve developments in the 2009 and 2008 period, the MLR decreased by 2.5 percentage points. This decrease is mostly due to lower medical cost as a result of better utilization and premium rate increases.

� The medical claims incurred of the Commercial business increased by $6.2 million during the 2009 period and its MLR decreased by 0.6 percentage points during the three months ended March 31, 2009. The improvement in the MLR is due to higher premium yield as compared to medical cost yield.

� The medical claims incurred of the Reform business increased by $0.3 million and its MLR decreased by 4.5 percentage points during the three months ended March 31, 2009. The lower MLR is primarily due to a favorable reserve development in the 2009 period and an unfavorable reserve development in the 2008 period. In addition, in 2008 we recognized a retroactive adjustment reducing capitation rates. Excluding the effect of these items in the 2009 and 2008 period the MLR of this business increased by 0.7 percentage points, mainly due to higher utilization trends when compared to the same period of prior year.

Medical Operating Expenses
Medical operating expenses for the three months ended March 31, 2009 increased by $6.2 million, or 16.8%, to $43.1 million when compared to the three months ended March 31, 2008. This increase is mainly to the higher volume of business of the segment, mostly due to higher member months enrollment of the Medicare business and in self-funded enrollment due to the contract for the Reform's Metro-North region. In addition, a contingency accrual of approximately $5.0 million was recorded during the 2009 period, partially offset by an insurance recovery receivable of legal expenses that amounted to approximately $3.0 million. The segment's operating expenses ratio increased by 0.3 percentage points, from 10.1% in 2008 to 10.4% in 2009.

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Life Insurance Operating Results

                                                      Three months ended
                                                          March 31,
             (Dollar amounts in millions)              2009          2008

             Operating revenues:
             Premiums earned, net:
             Premiums earned                        $   26.0         24.1
             Premiums earned ceded                      (1.6 )       (2.0 )

             Net premiums earned                        24.4         22.1
             Commission income on reinsuarance           0.1          0.1

             Premiums earned, net                       24.5         22.2
             Net investment income                       4.0          3.9

             Total operating revenues                   28.5         26.1

             Operating costs:
             Policy benefits and claims incurred        12.7         12.0
             Underwriting and other expenses            12.8         11.6

             Total operating costs                      25.5         23.6

             Operating income                       $    3.0          2.5

             Additional data:
             Loss ratio                                 51.8 %       54.1 %
             Operating expense ratio                    52.2 %       52.3 %

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 Operating Revenues
Premiums earned, net for the segment increased by $2.3 million, or 10.4%, to $24.5 million during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, primarily the result of higher sales in the Cancer line of business during the period. Policy Benefits and Claims Incurred
Policy benefits and claims incurred during the three months ended March 31, 2009 increased by $0.7 million, or 5.8%, to $12.7 million during the three months ended March 31, 2009. This fluctuation is primarily the result of an increase in the claims incurred in the Cancer line of business attributed to the increased volume of this business offset in part by a lower volume and claims experience in the group life lines of business. The segment's loss ratio decreased by 2.3 percentage points, from 54.1% during the three months ended March 31, 2008 to 51.8% during the same period of 2009 mainly due to a decrease in the loss ratio of group life.
Underwriting and Other Expenses
Underwriting and other expenses for the segment increased by $1.2 million, or 10.3%, to $12.8 million during the three months ended March 31, 2009 primarily the result of the increased volume of the segment. The segment's operating expense ratio decreased by 0.1 percentage points, to 52.2% during the 2009 period.

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Property and Casualty Insurance Operating Results

                                                    Three months ended
                                                        March 31,
               (Dollar amounts in millions)          2009         2008

               Operating revenues:
               Premiums earned, net:
               Premiums written                   $   33.1         35.5
               Premiums ceded                        (12.8 )      (15.6 )
               Change in unearned premiums             4.3          3.4

               Premiums earned, net                   24.6         23.3
               Net investment income                   2.8          3.0

               Total operating revenues               27.4         26.3

               Operating costs:
               Claims incurred                        11.6         10.3
               Underwriting and other expenses        14.4         13.9

               Total operating costs                  26.0         24.2

               Operating income                   $    1.4          2.1

               Additional data:
               Loss ratio                             47.2 %       44.2 %
               Operating expense ratio                58.5 %       59.7 %
               Combined ratio                        105.7 %      103.9 %

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008 Operating Revenues
Total premiums written during the three months ended March 31, 2009 decreased by $2.4 million, or 6.8%, to $33.1 million. This fluctuation is primarily due to a decrease in premiums written in the commercial auto, dwelling and property mono-line insurance policies of approximately $2.8 million. The commercial business continues under soft market conditions, thus reducing premiums and increasing competition for renewals and new business. Also, lower activity in auto and mortgage loan origination sectors has affected the volume in the market.
Premiums ceded to reinsurers during the three months ended March 31, 2009 decreased by approximately $2.8 million, or 17.9% to $12.8 million during the first quarter of 2009. The ratio of premiums ceded to premiums written decreased by 5.2 percentage points, from 43.9% in 2008 to 38.7% in 2009. This fluctuation primarily results from the reduction of reinsurance cessions in quota shares contracts for commercial and personal property insurance risks of 5.0% and 7.2%, respectively.
The change in unearned premiums presented an increase of $0.9 million, to $4.3 million during the three months ended March 31, 2009, primarily as the result of the lower volume of premium written in the current quarter. Claims Incurred
Claims incurred during the three months ended March 31, 2009 increased by $1.3 million, or 12.6%, to $11.6 million. The loss ratio increased by 3.3 percentage points, to 47.2% during the three months ended March 31, 2009, primarily seen in the loss ratios of the commercial multi-peril and medical . . .