Explanatory
Note
Triple-S
Management Corporation (the “Company”), is filing this Amendment No. 1 to
Current Report on Form 8-K/A (“Amendment No. 1”) to amend the Current Report on
Form 8-K filed by the Company with the Securities and Exchange Commission (the
“SEC”) on March 3, 2009 (the “Original Report”), to: (i) clarify that the
engagement of KPMG LLP as the Company's principal independent accountants
has ended effective upon the issuance of the Company’s financial statements for
the year ended December 31, 2008 in the Form 10-K filed today with the SEC (the
“2008 10-K”), (ii) modify the disclosure in the sixth paragraph of the Original
Report in response to a letter received by the Company from the SEC on March 5,
2009 to comply with language in Item 304(a)(2)(i) of Regulation S-K, (iii)
provide the disclosures required by Item 304(a)(1) of Regulation S-K as a result
of the completion of the Company’s financial statements for the fiscal year
ended December 31, 2008, (iv) extend the subsequent interim
period in the Original Report from February 25, 2009 through March 18, 2009, (v)
include a copy of a letter of KPMG LLP addressed to the SEC regarding the
statements made by the Company in the Original Report as amended by this
Amendment No. 1, and (vii) make other minor conforming
changes.
Item 4.01
Changes
in Registrant’s Certifying Accountant
(a),(b) In
August 2008, the Audit Committee (the “Audit Committee”) of the Board of
Directors of the Company determined to request proposals from independent
registered public accounting firms for the Company’s 2009 audit. The
Audit Committee believes that a periodic review of the appointment of the
Company’s external audit firm is beneficial to the Company and its
shareholders. KPMG LLP (“KPMG”) has acted as the principal
independent accountants of the Company for over 25 years. The Audit
Committee invited KPMG and the other three major U.S. international accounting
firms to participate in the process. As a result of this competitive
process and after careful deliberation of the proposals submitted by these four
firms, on February 25, 2009, the Audit Committee selected
PricewaterhouseCoopers, LLP (“PwC”) as the Company’s independent registered
public accountants for the fiscal year ending December 31, 2009, and
dismissed KPMG from that role, effective upon the completion of the audit of the
Company’s financial statements and the issuance of the Form 10-K for the fiscal
year ended December 31, 2008.
The
audit reports of KPMG on the consolidated financial statements of the Company as
of and for the years ended December 31, 2008 and 2007, respectively, did
not contain an adverse opinion or disclaimer of opinion, and were not qualified
or modified as to uncertainty, audit scope or accounting principles, except as
follows: KPMG’s report on the consolidated financial statements of
the Company as of and for the years ended December 31, 2008 and 2007 contained a
separate paragraph stating that “[a]s discussed in [Note 16 for 2008 and Note 15
for 2007] to the consolidated financial statements, the Company adopted the
recognition and disclosure provisions of Statement of Financial Accounting
Standards No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, as
of December 31, 2006.” The audit reports of KPMG on the effectiveness
of internal control over financial reporting as of December 31, 2008 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles, except that
KPMG advised the Company of a material weakness with respect to
other-than-temporary impairment (“OTTI”), as explained in the fifth paragraph of this
Item 4.01.
During
the two fiscal years ended December 31, 2008 and 2007, respectively, and in
the subsequent interim period through March 18, 2009: (1) there were no
disagreements between the Company and KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of KPMG,
would have caused KPMG to make reference to the subject matter of the
disagreement in its reports on the financial statements of the Company for such
years, except for the matter discussed in the following paragraph, and
(2) there were no “reportable events” as that term is defined in Item
304(a)(1)(v) of Regulation S-K, except for the matter described in the
second paragraph and further discussed in the fifth paragraph of this Item
4.01.
On
February 9, 2009, in a meeting with the Audit Committee related to the audit of
the Company’s financial statements for the year ended December 31, 2008, KPMG
provided written notice to the Audit Committee that it had a disagreement with
management related to whether a decline in fair value of certain securities held
by the Company in its investment portfolio in the second quarter of 2008
resulted in an OTTI in the value of such securities. This issue had
been presented as a review difference and discussed in an Audit Committee
meeting held on August 4, 2008. The accounting issue was resolved to
KPMG’s satisfaction at such meeting, and the Company filed its Quarterly Report
on Form 10-Q for the quarter ended June 30, 2008 having recorded an OTTI of
$2.36 million with respect to such securities in the financial statements of
such quarter. The Company has authorized KPMG to respond fully to the
inquiries of PwC, as successor auditor, regarding such
disagreement.
On
March 9, 2009, a “reportable event,” as that term is defined in Item
304(a)(1)(v) of Regulation S-K, occurred as follows: In
connection with the preparation of the Company’s consolidated financial
statements for the year ended December 31, 2008, and having assessed the
effectiveness of the Company’s internal control based on criteria described in
the “Internal Control—Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission, management concluded that
the Company’s internal control over financial reporting was not effective as of
December 31, 2008 due to the following material weakness: The
Company’s processes, procedures, and controls are not designed or operating
effectively to ensure that other-than-temporary impairment (“OTTI”) on available
for sale investment securities were recorded in accordance with generally
accepted accounting principles. Specifically, our policies and
procedures were not designed effectively to identify a complete population of
available for sale investments that should be analyzed for OTTI. Also, our
monitoring controls are not designed to consider factors that may
indicate a decline in the value of available for sale investments is other than
temporary in accordance with generally accepted accounting principles. These
control deficiencies constitute a material weakness that resulted in material
errors in net realized investment losses in our preliminary 2008 annual
consolidated financial statements which were corrected prior to issuance of the
Company’s consolidated financial statements. The Company is taking steps to
address the material weakness and improve its internal control over financial
reporting, as described in Item 9A of its 2008 10-K. The Company has
authorized KPMG to respond fully to the inquiries of PwC, as successor auditor,
regarding this material weakness.
On
February 25, 2009, the Audit Committee approved the engagement of PwC as
the Company’s new principal independent accountants for the fiscal year ending
December 31, 2009. During the two fiscal years ended
December 31, 2008 and 2007 and the subsequent interim period through March
18, 2009, the date of the filing of the Company’s 2008 10-K with the SEC, the
Company did not consult with PwC regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company’s financial statements,
and PwC did not provide either a written report or oral advice to the Company
that PwC concluded was an important factor considered by the Company in reaching
a decision as to any accounting, auditing or financial reporting
issue. The Company did not consult with PwC regarding any of the
matters or events set forth in Item 304(a)(2)(ii) of
Regulation S-K.
The
Company provided KPMG with a copy of this Current Report on Form 8-K/A prior to
its filing with the SEC. The Company has requested and received a letter from
KPMG addressed to the SEC stating whether or not it agrees with the statements
made herein. A copy of KPMG’s letter is attached hereto as
Exhibit 16.1.
Item 9.01.
Financial Statements and Exhibits
(d) Exhibits