Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial
reporting system has been designed to provide reasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management recognizes that
there are inherent limitations in the effectiveness of any internal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Furthermore, the application of any
evaluations of effectiveness on future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, management,
including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were not effective as of that date due to a material weakness in internal control over financial reporting described below.
Material Weakness in Internal Control Over Financial Reporting
As disclosed in Part II, Item 9A. “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, we have identified certain deficiencies in internal
control that we believe rise to the level of a material weakness. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, management determined that certain process controls over the development, testing, and implementation of our actuarial
models used to estimate certain values in the Medicare supplement line of business within our life and health segment were not effective and the related management review controls did not operate at an appropriate level of precision to identify
anomalies in results timely enough to allow management to respond without delays in our financial reporting process. Notwithstanding these deficiencies, management believes that, as a result of the actions taken by management to address and
correct these deficiencies prior to the completion and filing of this Quarterly Report on Form 10-Q, and the effective operation of other internal controls over financial reporting, the material weakness did not result in any identified material
misstatements to our financial statements. As a result, there were no changes to any of our previously-released financial statements.
Changes in Internal Control Over Financial Reporting
The Company has implemented changes in processes that include enhanced controls over the development, testing, and implementation of actuarial models, and additional controls over the reporting
of the financial information that is obtained from these models. Specifically, the Company has taken the following actions:
•
Developed enhanced documentation of the product parameters and assumptions used in actuarial models and enhanced controls over their testing and implementation in the models.
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Improved reconciliations of the policyholder data between the source administrative systems and the actuarial models.
•
Implemented additional controls over the reporting processes, including enhanced analytical procedures and establishing a second independent reviewer.
•
Hired additional actuarial staff to assist with actuarial model implementation and actuarial valuation.
Except for the changes described above, which were initiated during the quarter ended December 31, 2022, and continued into the six months ending June 30, 2023, there were no changes in the
Company’s internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
No system of controls, no matter how well designed and implemented, can provide absolute assurance that the objectives of the system of controls are met. Furthermore, no evaluation of controls
can provide absolute assurance that all control issues and any instances of fraud within a company have been detected.
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PART II. OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.