The managed care industry has experienced significant changes over in the last twenty years. An increasing focus on health care costs by employers, the government and consumers has led to the growth of alternatives to traditional indemnity health insurance, such as Health Maintenance Organizations, or HMOs, and Preferred Provider Organizations, or PPOs, which the managed care industry has introduced to attempt to contain the cost of health care by negotiating contracts with hospitals, physicians and other providers to deliver health care to plan members at favorable rates.

Total premiums in Puerto Rico for the life insurance market approximate $600 million. The main products in the market are ordinary life, cancer and other dreaded diseases, term life, disability and annuities. The main distribution channels are through independent agents. In recent years banks have established general agencies to sell many life products, such as term life and credit life.

The total property and casualty insurance market in Puerto Rico in terms of gross premiums written for 2005 was approximately $1.8 billion. There are relatively few new sources of business in this segment, and property and casualty insurance companies compete for existing accounts through aggressive pricing, more favorable policy terms and better quality of services. The main lines of business in Puerto Rico are personal and commercial auto, commercial multi peril, fire and allied lines and other general liabilities.

Approximately 70% of the market is written by the top six companies in terms of market share, and approximately 80% of the market is written by companies incorporated under the laws of, and which operate principally in, Puerto Rico.

It is estimated that the Puerto Rican property and casualty insurance market has between $80 billion and $90 billion of insured value, while the industry has capital and surplus of under $1.0 billion. As a result, the market is highly dependent on reinsurance and some local carriers have diversified their operations outside of Puerto Rico, particularly to Florida.

The Company currently offers the following managed care plans:

- The Company offers HMO plans that provide its Reform and Medicare Advantage members with health care coverage for a fixed monthly premium in addition to applicable member co-payments. Health care services can include emergency care, inpatient hospital and physician care, outpatient medical services and supplemental services, such as dental, vision, behavioral and prescription drugs, among others.

- The Company offers PPO managed care plans that provide its commercial and Medicare Advantage members and their dependent family members with health care coverage in exchange for a fixed monthly premium from its member or the member’s employer. In addition, the Company provides its PPO members with access to a larger network of providers than its HMO.

- For members who purchase its PPO and some of its Medicare Advantage products, the Company offers the BlueCard program. The BlueCard program offers these members in-network benefits through the networks of the other Blue Cross Blue Shield plans in the continental United States and certain U.S. territories.

- The Company offers Medicare Supplement products, which provide supplemental coverage for many of the medical expenses that the basic Medicare program does not cover, such as deductibles, coinsurance and specified losses that exceed the Federal program’s maximum benefits.

The Company offers a wide variety of life, accident and health and annuity products to all markets in Puerto Rico. Among these are group life and life individual insurance products.

The Company offers a wide range of property and casualty insurance products. The Company’s predominant lines of business are commercial multiple peril, commercial property mono-line policies, auto physical damage, auto liability and dwelling insurance.

Consolidated net investment income increased by $13.6 million, or 46.7%, to $42.7 million in 2006.

Consolidated net realized investment gains decreased by $6.4 million, or 88.9%, to $0.8 million in 2006.

Consolidated operating expenses during 2006 increased by $54.4 million, or 29.9%, to $236.1 million in the 2006 period as compared to the operating expenses during the 2005 period.

Consolidated interest expense for the year ended December 31, 2006 increased by $9.0 million to $16.6 million.