Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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 the previously identified and unremediated material weakness in internal control over
financial reporting described below.
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Remediation of Material Weakness in Internal Control Over Financial Reporting
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 initially disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, we have previously 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 the design of the controls surrounding the process of reviewing insurance reserves and deferred acquisition costs within the
Company’s life and health segment was not effective. This deficiency in design did not enable the timely detection of anomalies in these values at the level of precision necessary to detect misstated values that may be material.
Notwithstanding these deficiencies, management believes that, because of the actions taken by management in identifying, and the efforts that the Company has been taking to address and correct,
these deficiencies prior to the completion and filing of relevant periodic reports, 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. Similarly, there were no changes to any of our historical financial statements.
The Company’s remediation efforts of the previously identified material weakness, which began in the quarter ended March 31, 2024, remained ongoing though the quarter ended March 31, 2025, and
through the date hereof. The Company has made significant progress in its remediation efforts, and during the quarter ended March 31, 2025, management conducted a systematic review of the components of underwriting income for the Company’s Life
products. This review included independent calculations of actuarial values for these products using a comprehensive process that had been developed, tested, and implemented during the quarter ended December 31, 2024. Based on this review,
management did not identify any material misstatement in the Company’s financial statements.
In furtherance of the remediation efforts, the Company has continued the development of a system to perform calculations independently of the actuarial models. This system is intended to verify
that the product parameters and actuarial assumptions are properly reflected in the reported values. The Company’s whole life product has been implemented on the system, which was used to validate the actuarial values for this product as of
December 31,2024. Implementation of the Company’s individual life products and its Medicare Supplement product began during the quarter ended March 31, 2025, and these system extensions are expected to be completed by June 30, 2025. The Company
currently expects that extensions of this system to accommodate the other product lines the Company offers will be operational by September 30, 2025. Full development and implementation of this system has required more time than previously
anticipated due to unforeseen complexities inherent in the actuarial software systems used to calculate and report the actuarial values. These complexities have required additional effort to understand and to replicate in this system, and to
complete the remediation process.
Changes in Internal Control Over Financial Reporting
Other than the remediation efforts described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2025 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
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.