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Executives

Kathy Waller, Financial Relations Board

Ramon M. Ruiz-Comas, President, CEO, and Director

Juan J. Roman-Jimenez, VP Finance and CFO

Analysts

Greg Nersessian – Credit Suisse

Justin Lake – UBS

Charles Boorady - Citigroup

Carl Mcdonald – Oppenheimer

Nicole Degucci – Supra Capital Managements

Triple-S Management Corporation (GTS) Q1 2008 Earnings Call May 6, 2008 10:00 AM ET

Operator

Welcome to the Triple-S management's first quarter results conference call. (Operator instructions) This conference is being recorded Tuesday, May 6, 2008. I would now like to turn the conference over to Kathy Waller with the Financial Relations Board. Please go ahead ma'am.

Kathy Waller

Thank you Eric. Good morning everyone and welcome to Triple-S Management Corporation's first quarter 2008 conference call. With us today are your hosts, Ramon Ruiz-Comas, the Chief Executive Office and President, and Juan J. Roman, Vice President of Finance and Chief Financial Officer. I am sure all of you have heard safe harbor statements before, but we still need to get this housekeeping issue out of the way.

Each quarter, Triple-S Management executives will provide their current view of the company's future. This means they will share forward-looking information. As you know, these statements can be affected by the risks and uncertainties involved in business. Despite management's best efforts, what actually happens may be materially different from what you hear today.

To get a better understanding of why this might occur, please look at the safe harbor section in today's news release and in the company's filings with the SEC. In addition, the information shared on this call should be considered current as of today only.

After today, please use this information for your reference and remember that the company is doing no duty to update it. This call is being web cast. Shortly after it ends you will find an archive version on the Investor Relations page of the company's website at www.triplesmanagement.com.

If you do not have already have a copy of today's announcement, you may find the release there or you may call my office and speak to my assistant, Hon Huey [ph] at 312-640-6688 and she will get you one immediately. I would now like to turn the call over to Ramon. Ramon, please go ahead.

Ramon M. Ruiz-Comas

Thank you Kathy. I would also like to add my welcome to everyone. We continue to be very excited about the future for Triple-S Management and are happy to have you with us on our call today. Here is the agenda we will follow: I will begin by giving you some highlights of the quarter. Then Juan Jose will provide the story behind our numbers and I will return to share out 2008 outlook. We will then take any questions you may have.

First off, I would like to remind you that Triple-S Management is the leader in managed care, life and disability insurance and property and casualty insurance in Puerto Rico. We are the number one managed care company in Puerto Rico serving nearly 1 million people.

We also have the number one market share in life insurance and [inaudible] in property and casualty insurance. Consolidated total operating revenue for the first quarter 2008 were 421.5 million or an increase of 16.1% year-over-year. Managed care we present is approximately 88% of total operating revenue with life insurance and property and casualty contributing approximately 6% each.

When it comes to segment operating income, managed care we present 47% during this quarter life, we present 22% and property and casualty approximately 19%. Please note that a contribution from other sources of 1.4 million make the percentage total 100.

Excluding the after tax affect of net realized gains on realized investment losses, along with the results [inaudible] gains in deliveries included with the other income for the three month ended March 31,, 2008. The company reports record net income of 8.3 million or $0.25 per share, based on diluted weighted average share outstanding of 32.2 million shares.

The comparative net income for 2008 was 5.2 million, or $0.19 per share based on diluted weighted average shares outstanding of 26.7 million. During the quarter, we continue to execute on our strategic growth plan and I am proud to say we have made significant strides. I am pleased with our progress, growing our revenue while managing expenses.

While our operating margins were flat at 2.7%, we reduced our operating expense ratio by 120 basis points to 14.7%. We see further opportunities to realize additional operating efficiencies. We grew our Medicare Advantage business enrollment by nearly 65,000 members or 69.2% and ended the quarter with membership of 54,626, an increase of 23,917 members.

As stated previously, the Medicare Advantage business will be a key growth driver for us. As a reminder, Puerto Rico has more than 300,000 people eligible for Medicare today. This number is projected to increase by 2.4% each year through 2010.

We introduced a new [inaudible] product in the fourth quarter of 2007 and it is showing sequential growth. Our profits in the commercial sector centered on creating cost-effective programs for part-time employees and on uninsured as well as low salaried workers. Combined, this group make up nearly 10% of the total Puerto Rico population. We are pursuing cross selling opportunities to leverage our broad sales footprint an extensive distribution channel.

And we continue to adhere to our disciplined growth strategy. Our main near term goal is to focus on organic growth and market expansion. Although we may consider managed care acquisitions in Puerto Rico that will accelerate our growth and care. I will now turn the call over to Juan Jose who will provide you with additional details on our financials.

Juan Jose Roman-Jimenez

Thank you Ramon. I would also like to add my welcome to everyone on this call. We are very pleased to report our first quarter 2008 financial results. You already have seen our news release, so I will focus on the key area we use to track our performance and share the details behind these numbers.

Consolidated operating revenues increased 16.1% year-over-year to 421.5 million. This increase is largely in our managed care operations as the result of our significant growth in the Medicare Advantage business. In 2008, the company had a net realizing investment gain on the [inaudible] securities of 609,000 and a net unrealized investment loss of $6.2 million.

Operating income, other operating income also had a loss of 1.5 million bringing the revenue for the quarter to 414.3 million. Consolidated operating income was 11.3 million for the quarter compared to 9.7 million in the same period a year ago for a 16.5% increase. Our consolidated operating margin was flat at 2.7% year-over-year. Consolidated net income for 2008 was 1.2 million versus 4.5 million in 2007.

Adding per shares on a US GAAP basis, we are $0.04 per share versus $0.17 per share a year ago. Diluted average weighted shares outstanding for the quarter were 32.2 million compared 26.7 million in the prior period.

Excluding the after tax effect of the net realized gains, unrealized losses and the reduction in the unrealized gain in derivatives included within the other income expense, diluted earning per share would have been $0.25 per share in the three months ended March 31, 2008, representing a 31.6% growth over the first quarter of 2007.

These results illustrate the trend of our first quarter and as Ramon mentioned, they reflect a continual implantation of our focused growth strategy. Now looking into our managed care business, total medical premiums earned in the first quarter 2008 were 359.9 million, up 17.8% from 2007.

The growth was largely attributable to higher enrollment in the Medicare Advantage. Administrative services worth 4.6 million in investment income was 5.6 million. Operating income for the first quarter was 5.3 million, a 30% improvement over the year ago period.

As we expected our MLR picked up during the quarter to 91.1% versus 90.2% in 2007. Remember that we indicated in our fourth quarter conference call that our first quarter MLR in general tends to trend about 200 to 300 basis points higher than the targeted MLR for the full year.

Our operating expense ratio was 10.1% or an improvement of 130 basis points compared to 11.4% in 2007. This improvement is due to our scalable infrastructure, which allow us to grow our volume of business without increasing our operating costs at the same rate. As mentioned, we experienced significant premium growth during the quarter of 17.8% but our overall operating expenses only increased 5%.

Further breaking down our managed care segment in the first quarter 2008, our commercial business represented approximately 50.6% of total medical premium earned with 182 million in the premiums earned compared to the 180.3 million one year ago.

The commercial MLR was 90.7% down from 92.8%, an improvement of 210 basis points. Clearly, we are starting to see the benefit of the programs we commence in mid-2006, this included the reprising of letting go of unprofitable or less profitable customers, implementing stricter underwriting guidelines, increasing our compare and review of hospital admissions and increasing our focus on prescription drug cost savings initiative.

The [inaudible] business or Medicaid represented 22.5% of total medical premiums earned with 81 million in premiums earned, a 12.8% increase from the prior year period. The increase was a result of premium increases net of decreasing member month medical membership.

The [inaudible] MLR was 91.4% in the first quarter 2008 up from 88.8% in 2007. This is due primarily as a result of the effect of prior period research development in each period as well as to the interactive premium rate increase negotiated in June 2007, a portion of which covered funds to the first quarter of 2007.

Taking into consideration the effect of the reserve development and the interactive rate increase the MLR for this business would have actually decreased by 2.2 percentage points. The Medicare Advantage segment represents 26.9% of the total medical premiums earned with $96.9 million in premiums earned compared to 26.5 million, an increase of 81% from 2007.

The use increase in revenues is largely the result of enrollment growth, mix of the business, and slightly higher premiums. We were very pleased with the progress we have made in penetrating this market since our entry in 2005 and we believe there is still a strategically opportunity for us to continue to build market share.

The Medicare MLR rose to 91.6% in 2008 from 83% in 2007. While we expecting the MLR to increase in 2008 about 400 basis points, it is trending a bit higher than anticipated. This increase is due to a combination of factors.

First, we experienced significant increases in new memberships and new members tend to be heavy users of services in the beginning as they [inaudible] of demand. Second, we have increase in the total enrollment of dual eligible members, which have a higher MLR than non-dual members and that is about 300 basis points.

The area in which we sold [inaudible] were mostly ambulatory services with some increases in chemotherapy, drug costs and physician office visits. It is also worth mentioning that at the beginning of the year pharmacy costs for the non-dual membership are typically higher than later in the year because of the [inaudible] sequence to initial [inaudible] period where the beneficiary save all costs commonly referred to as the coverage debt period.

Now switching to membership. Total managed care member month enrollment was 2,952,331 for the first quarter 2008 versus 2,926,542 in 2007. The first quarter 2008 breakdown is as follows, in the Medicare segment, including [inaudible] member month enrollment was 190,529 in the first quarter of 2008, a 48.1% increase from 128,630 in the first quarter '07.

Total commercial member month enrollment was relatively flat due to [inaudible] pricing or termination of unprofitable customer or less profitable customer as I mentioned before.

Let me emphasize that while enrollment was flat year over year we saw our first sequential improvement, even if a small one, up 7,000 members. In the case of [inaudible] there was a slight decrease of 31,186 or 2.9% primarily due to the tightening of membership attrition by the government of Puerto Rico.

Moving now to our life insurance business. Total operating revenue for the first quarter 2008 was basically flat at 26.1 million. Operating income was 2.5 million in 2008 down 470,000 compared to the same period a year ago.

The gains incurred increased by 400,000 to a loss ratio of 54.1% primarily as a result of higher claims received in the first quarter of '08 particularly in the life and disability business. The operating expenses increased $100,000.

The higher operating expense ratio basically is increased of the general operating expenses. In terms of our property and casualty insurance business, we had operating revenue for the quarter of 26.3, million an increase of 2.3 million or 9.6%.

Operating income was 2.1 million up 50% for the same period a year ago. Operating costs in the quarter rose 1.5 million and the operating expense rate increase to 59.7% .Decreasing our operating expense and the operating expense ratio was driven by the increase in premiums, which equates to increasing commissions, as well as high commission rates in 2008.

Now I would like to discuss the company overall financial conditions and provide some supplemental information. As of March 31, 2008 total assets remain relatively flat at 1.6 million from December 31, 2007.

Total investment in cash worth 1.15 million at the end of the first quarter. Even the market volatility and in an effort to decrease the large swing in the net realized and unrealized gain and losses, we sold 18.2 million of our trading portfolio during the first quarter of '08 reducing our exposure to close to 30% in this quarter.

We believe the unrealized loss in investment as of March 31, 2008, is temporary as this has been consistent with the decrease in the overall capital equity market in the first quarter. Medical claims payable were 353 million as of March 31, 2007, an increase of 9.2 million or 2.6% from the prior year.

The number of day's claims payable at the end of the first quarter 2008 was 59.4 days, a decrease of 4.4 days from 63.8 days at the end of the last quarter of '07. Part of the decrease experienced in days claims paid can be attributed to the effect of favorable reserve development particularly in the last quarter of 2007.

Excluding the effect of favorable research development the days claim payable would have decreased by 2.6 days from 61.9 days as of the end of the last quarter of 2007 to 59.3 days as of the end of the first quarter in 2008. The reason for this decrease in days claims paid is due to higher amount of claims paid during the first quarter of '07 since this is one of our highest utilization periods.

In terms of our long term debt, it was 170.5 million at the end of the first quarter of 2008, a 400,000 decrease from the year end 2007. Our debt to capital ratio as of March 31, 2008 was 25.7% down [inaudible]s from 2007 and it is certainly within our targeted ranged of 25% to 30%.

For the first quarter of 2008, our net cash flows used in operation were 118.1 million, mostly resulting from investment traded in December 2007 amounting to 117.7 million with a settlement or payment date in January 2008 and premiums collected in advance in December 2007 amounting to $23 million.

Excluding these items, our cash flow would have been positive by 22 million. As of March 31, 2008, our holding company had 83.8 million cash, cash equivalent and investments, which is mostly the net proceeds received from our IPO.

Now I will turn the call over to Ramon for our guidance and outlook.

Ramon M. Ruiz-Comas

Now that we have discussed the first quarter performance, let us focus on the future. I want to reiterate the 2008 guidance we previously provided. We are projecting consolidated operating revenue to be 1.66 to 1.7 billion in 2008 based on expected overall increasing member share enrollment in our managed care segment of 1%.

[Inaudible] program is expect to show membership enrollment growth of 30% to 35%. We have good [inaudible] revenue due to the fact that the enrollment fee for MA is almost complete. About 35% of the commercial groups renew in January, our premium rate for the reform business has already been established for the fiscal year ending June 30, 2008.

Our contract retention rate in the renewal season was a near perfect 99%. We expect the consolidated load ratio to be between 83% and 83.5%. Medical [inaudible] ratio is expected to be between 87.6% and 88.1%. We will continue with our strategy to improve our MLR and margin.

We expect our consolidated operating expense ratio to decrease about 70 basis points to 15.2%. This will be achieved as we continue increasing our [inaudible] volume at a higher rate than our costs due to our stable infrastructure.

This estimate takes into consideration the effect of [inaudible] with a new IT platform for our managed care segment, which we estimate will represent an original expense in 2008 of approximately 4 million as well as increased [inaudible] with being a public company.

We anticipate achieving earnings per share of 1.88 to 1.98 based on $32.1 million weighted average shares outstanding excluding any realized or unrealized gains or losses.

Now that we have shared our thoughts with you, we would like the opportunity to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructors) Our first question comes from Greg Nersessian with Credit Suisse. Please go ahead.

Greg Nersessian – Credit Suisse

Thanks, good morning. The first question is on the MLR. Your first quarter number came in a little bit higher, or I guess toward the high end of the range that you had suggested relative to the full year guidance.

Obviously I think this to be part of predominantly from the Medicare Advantage piece. Could you just give a sense for how you expect that Medicare Advantage MLR to sort of progress through the course of the year and what gives you the confidence that you can hit the full year guidance range based on the higher first quarter result.

Juan Jose Roman-Jimenez

Yes. Hi Greg, this is Juan Jose.

Greg Nersessian – Credit Suisse

Hi Juan

Juan Jose Roman-Jimenez

Basically, as you very well mentioned, MA was delivered higher than expected. Part of it is as I mentioned the significantly decreasing members. But what we expect if we go down first keeping my first quarter as you mentioned tends to be significantly higher the MLR for the first quarter that compared to the full year.

In the case of the MA product, last year for example the first quarter was higher close to 500 basis points than the full year MLR. We expect that same situation for this year. But in addition to that, our numbers does not consider an adjustment because of the risk factors we still want to have better visibility. The possible impact of risk factors can affect that program.

But even without considering that, our analysis or our projections, we still feel confident we will achieve our guidance. Part of the specific measures we are taking with these populations are first we are tightening our [inaudible] for high tech services. We are working very closely with our providers to be sure that the coding is correct, is adequate based on the services, so where should we get the correct risk code for that program and we are enforcing our compare and reviews based on the [inaudible] MA product in general, especially for this population.

The only part maybe is that keeping in mind that in the known dual, we show a significant increase in the first quarter in the pharmacy costs. But later on, because of the [inaudible] gap or what use to be called the [inaudible] and that the insurance at the end of the year it tends to decrease significantly.

Greg Nersessian – Credit Suisse

Okay, so if I put all of those pieces together are you still thinking it is still going to end up 400 bits higher year-over-year or maybe a little bit higher than that?

Juan Jose Roman-Jimenez

Maybe a little higher. We are predicting right now about between around 85% MLR for the full year.

Greg Nersessian – Credit Suisse

And last year was 79, is that right?

Juan Jose Roman-Jimenez

It was 79.7 but by the same token we are seeing a better MLR in the commercial business than anticipated. As I mentioned, MLR is lower or ready for the first quarter in commercial by 200 basis points. So it is much better than anticipated by us.

Greg Nersessian – Credit Suisse

I see. Okay. Then you mentioned the impact, just again on the Medicare MLR. Just the impact of the commercial, oh I’m sorry, the PPRD in the first quarter versus first quarter last year. Could you just give us those numbers, what was the PPRD, the research and development in 1Q ‘08 versus 1Q ’07.

Juan Jose Roman-Jimenez

I'm not sure I follow you correctly. Can you repeat again?

Greg Nersessian – Credit Suisse

I thought you mentioned that the , I'm sorry, it was on the days claims payable was lower in part because of the reserve development book this year versus last year [inaudible] could you just go through those numbers for us?

Juan Jose Roman-Jimenez

Yes. Let me get the numbers. Basically our dates outstanding for the first quarter it was 59.4 days and it's a decrease of 4.4 from 63.8 days of the last quarter. Basically, part of that decrease has to do with the fact that we have a significant payable development in the third quarter of '07 that was reflected in the fourth quarter of '07.

The impact of that is that it's 2.6 days. So it will bring down from 63.8 days to 61.9 days in the last quarter. So that then compares to the 59.3 that we have in the first quarter of '08. And basically my comment was that again, usually in the first quarter we have an increase in claims so we pay more claims that's why you see the decrease.

Greg Nersessian – Credit Suisse

Okay. So is the better measure against 1Q '07 days claims payable, what was that number?

Juan Jose Roman-Jimenez

I don't have it immediately in front of me, but I can get that to you.

Greg Nersessian – Credit Suisse

Okay, we can go offline.

Juan Jose Roman-Jimenez

If I remember I think it's in the 60 – it's over 60, but I have to get that number.

Greg Nersessian – Credit Suisse

Okay. And then can you just give – it looked like on the commercial business the realized yields were a little bit lower than expected. What were the actual realized yields and what were your expectations and how have they changed?

Juan Jose Roman-Jimenez

Yes, okay, in terms of the commercial, our – the increasing premiums grossed before taken into consideration [inaudible] the average for the quarter has been 7.3 after buy back is 5.1% which is a little lower.

However, our trend cost is lower also. It's trending right now around 3.5% to 4%.

Greg Nersessian – Credit Suisse

Okay. And then lastly, just could you give us a sense, I know you're not giving quarterly guidance for the second quarter, but just give a sense for maybe the seasonality, the percentage of earnings, maybe first half versus second half or any flavor for how you see the second quarter?

Juan J. Roman-Jimenez

Second quarter what we expect it will be, lower MLR again because we usually see this spike in the first quarter and again, '08 show exactly the same trend as previous years. So again, it will probably, I don't have any guidance, but by quarter, but usually second half of the year tends to be better in [inaudible], MLR and margins from the first half.

Greg Nersessian – Credit Suisse

Okay, great. Thank you very much.

Juan J. Roman-Jimenez

Thanks.

Operator

Our next question comes from Justin Lake with UBS. Please go ahead.

Justin Lake – UBS

Thanks. Good morning.

Juan J. Roman-Jimenez

Morning

Justin Lake – UBS

Just a couple quick questions. Medicare, you said you mentioned the impact of dual eligibles, I just want to make sure I understood that correctly. You said the duals were 300 basis points higher from an MLR standpoint?

Juan J. Roman-Jimenez

Yes. They tend to be about 300 basis points higher than the known dual.

Justin Lake – UBS

Okay. And can you break down from a membership standpoint at quarter end, how many members you have on Medicare Advantage and break them down by duals and non-duals?

Ramon M. Ruiz-Comas

Yes. Okay. At the member month for the quarter in the known dual, we have 83,323, in the dual we have 74,468 and if we look at last year in the case of the dual, we in '07, we have 56,529 and in the dual last year we have 36,720.

Justin Lake – UBS

Okay. That makes sense that you've seen a lot hard growth in the dual population. And just given the part that the number of companies out there are just talking about potential negative collection, I'm sure given the high MLR Medicare Advantage, have you been able to look at whether or not what the MLRs of what the new members look like, especially on the dual side versus the existing book?

Juan J. Roman-Jimenez

Yes. We look at that, it's too early to conclude if we have adverse collection. As I mentioned, we have a significant increase in the [inaudible] members and many of the new ones usually they have [inaudible] that they usually satisfy in the first month of being new to the health plan.

And then it goes down or at least [inaudible] more normal trend. And that is what we stake with the new members. We definitely will have better [inaudible] next quarter as to if it represent really adverse or higher cost members, but it was just [inaudible].

Justin Lake – UBS

Got it. And one last question, you mentioned the MLR coming in closer to 85% for this year?

Juan J. Roman-Jimenez

Yes.

Justin Lake – UBS

On Medicare Advantage versus I guess the target of close to the 80, 3.5, 84.

Juan J. Roman-Jimenez

Yes.

Justin Lake – UBS

Can you give us an idea as you set your bids for next year what kind of target you're going to be looking for and is it going to be a function of – from a pricing standpoint, what target are you looking for and how do you target that given the unknown of how many duals you are going to have versus non-duals?

Juan J. Roman-Jimenez

Yes. Technically when we prepare our bid for '09, we will take into consideration the new membership that we have to project our '09 bid. In terms of MLR, we've got to target around 84 MLR, all programs together.

So for next year, basically it will be our bid will reflect the new membership that we have up to now, which reflect probably a new mix within dual and undual and it will consider the trends that we have up to now in both programs.

So basically in '09, our bid will consider those factors, does that answer your question?

Justin Lake – UBS

No, that's double. So you'll be able to embed the higher costs and the membership that you have up until this moment and you will target an MLR that's basically 100 basis points below where you are right now?

Juan J. Roman-Jimenez

Yes.

Justin Lake – UBS

Great, thank you very much.

Juan J. Roman-Jimenez

Thank you.

Operator

Our next question comes from Charles Boorady with Citi. Please go ahead.

Charles Boorady - Citigroup

Thanks, good morning. Can you go through the components of your medical cost trend for inpatient, outpatient, physician and pharmacy and if you can share with us what the unit change was versus pricing, that would be helpful as well.

Juan J. Roman-Jimenez

Okay, hi Charles. In terms of our overall trend for '08, what we're expecting is it was around 4%. If we break that out, inpatient will be 3.5% to 4%, outpatient it will be around 4% and drug cost would be up around 5% to 5.5%.

Charles Boorady - Citigroup

And do you have a unit growth versus a pricing component on that as well?

Juan J. Roman-Jimenez

I don't have it with me right now.

Charles Boorady - Citigroup

That level of medical trend, does that reflect the underlying growth in your markets before any benefit design change and is that commercial and Medicare?

Juan J. Roman-Jimenez

Actually it reflects already whatever changes we made, so these are the new trends we are seeing in '08 and this is for the commercial and the reform segment.

Charles Boorady - Citigroup

Okay. So would the comparable yield statistic be the 5% statistic you gave?

Juan J. Roman-Jimenez

Yes.

Charles Boorady - Citigroup

Okay. I see. And if I could also, on medical trends as well, is there an impact from the flu season that was higher this year than last year and now that we're past the flu season, can you tell us what the most current month of data you have is on hospital trends and whether they've started to come down again or if they're remaining at the same levels they were in the peak of the flu season?

Juan J. Roman-Jimenez

Okay. In our case in Puerto Rico we don't have a flu season like here in the states, it's kind of a difference we don't have that same situation in Puerto Rico. In some of our hospitals in general, probably our trend which is kind of a low – it's a combination of usual annual rate increases plus our airport in the concurrent review of hospital admissions that we still see or are seeing a benefit from increasing our concurrent review of those admissions,.

Charles Boorady - Citigroup

Got it. And just a final question on the balance sheet. How much cash is available at the parent corporation and can you share with us any thoughts you have on the uses of that case?

Juan J. Roman-Jimenez

Right now we have within in cash equivalent and investment 83 million, the parent company [inaudible]. And we mentioned before in our guidance our available cash – right now our strategy is to keep growing with the company and our use of those cash we take keep looking at possible acquisitions within Puerto Rico.

Charles Boorady - Citigroup

Got it. Great, thank you.

Juan J. Roman-Jimenez

Thank you Charles.

Operator

Our next question comes from Carl Mcdonald with Oppenheimer. Please go ahead.

Carl Mcdonald – Oppenheimer

Thank you. I wanted to spend a minute on the commercial business. I mean, it looks like at least on a gross basis, your premium increases in commercial were at least as good as last year, maybe even a little bit better, yet you didn't see the enrollment losses that you saw a year ago. So could you talk about the commercial environment and how that's changed with some of the competitors over the last year?

Juan J. Roman-Jimenez

Yes, [inaudible] the first one is keep in mind that in '07 and actually in '06, we were revising our portfolio of the commercial. So there are a little bit of that effect in those three years. We didn't have that same situation in '08.

In some of the commercial [inaudible] what we saw in '08, it was a much better environment in terms of our competitors. The last previous three years, '06 and '07 were very [inaudible] in terms of the rational or not rational pricing of some competitors in the market.

However, in this first quarter, what we saw was a much better environment where quotes of our competitors as compared to ours were in line. So we didn't see that irrational pricing that we saw in the previous three years.

Carl Mcdonald – Oppenheimer

Okay. And just on the Medicare loss ratio guidance, just understand what is embedded in that. I think you said you're not assuming any impact from risk adjustment payments and then also, just understand the higher trend as the dual in the first quarter, is the full year assumption assuming that that trend continues at the same level or are you assuming that there was some pent up demand and that goes away over the course of the year?

Juan J. Roman-Jimenez

Yes. Part of what we're seeing is already, we're seeing trends going down, that's why we can't project that the MLR for the year will be lower than the first quarter. What we saw or my comment was that when we are evaluating our data, we are seeing higher cases, for example of cancer where therapy was [inaudible] we can say so this year.

So what we expect is that will affect our risk factors in our favor. So that's why we have not – we are working with the numbers, we don't have a good visibility yet of how much the adjustment could be that would effect our risk factor.

However, our forecast for the year was based on the decreasing trends we are seeing right now in the business and in each of these we keep working on to control or reduce our costs.

Carl Mcdonald – Oppenheimer

Okay, thank you.

Juan J. Roman-Jimenez

Thanks.

Operator

(Operator Instructions). Our next question comes from Nicole Degucci [ph] with Supra Capital Managements [ph]. Please go ahead.

Nicole Degucci – Supra Capital Managements

Thanks. Can you talk about the cash flow and why it was so negative in the quarter and then your projections for the full year?

Juan J. Roman-Jimenez

Yes, let me explain that actually. Basically what happened is that we sold part of our portfolio in December when we restructured our portfolio and from those sales, basically we bought or trade [inaudible] 17 million of investments, however, the [inaudible] date was December but the settlement or the payment was in January.

So it crossed the year. And it was around 17 million. It shows that the negative in the cash flow because we have to recognize the payout in accounts payable for the commitment to purchase or to settle those investments.

When you look at our balance sheet, you will notice that we have an increasing accounts payable and increasing cash. And basically it was to evaluate we have to recognize the commitment to settle those transactions.

So in reality, you have to eliminate or to take out of our operating cash flow of the quarter those $117 million because they really are related between investments that were traded in December of last year with money that came from the sales that we did that same month.

The other item has to do with the collection of premiums in advance. Premiums that was related to January '08 about $23 million that was collected actually in December. It really should have been recognized, not recognized, but it was related to January '08 but was collected in last year.

So basically you have to eliminate those two transactions or those two items and you will get a positive cash flow for the quarter of about $22 million. Nicole, did I clarify?

Nicole Degucci – Supra Capital Managements

Yes, thanks. And then your projections for the year maybe as a multiple net income?

Juan J. Roman-Jimenez

The net income for the year, basically we keep our guidance for 2008 we are confident with our guidance for the full year. Again, although we saw the decrease in the MLR for the Advantage, we also have the decrease in the commercial MLR but also keep in mind we have the lower [inaudible] ration as compared to the previous guidance.

Nicole Degucci – Supra Capital Managements

No, sorry. Free cash flow guidance for the rest of the year as a multiple of net income. So is it one times net income, 1.2 times, how should we think about free cash flow?

Ramon M. Ruiz-Comas

Nicole, we can obtain that information and then call you.

Nicole Degucci – Supra Capital Managements

Thank you.

Operator

Mr. Ruiz, there are no further questions at this time. Please continue.

Ramon M. Ruiz-Comas

Okay. I would like to leave you with a few final thoughts. Triple-S Management has a strong competitive advantage in this market. We are leaders in managed care, life insurance, and property and casualty insurance in Puerto Rico, we've got strong brand recognition, provided network and penetration of the largest employers on the island.

There are many opportunities for us to improve our operations and to strengthen our margin on the business we already have. We also got leverage [inaudible] relationship to increase our revenue and create new [inaudible] that will increase our value in those relationships as well as attract new customers.

We have a solid financial condition that will support us through whatever the economy brings in the coming years, while having sufficient capital to fund our growth. As a result, we expect to reach our financial goals for 2008 and end the year with new records in key areas.

Juan Jose and I would like to thank you for joining us today. Thank you.

Operator

Ladies and gentlemen, this does conclude the Triple-S Management first quarter results conference call. ACTE [ph] would like you to thank you for your participation and you may not disconnect.

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Source: Triple-S Management Corporation, Q1 2008 Earnings Call Transcript
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