MetLife, one of the most storied brands in the life and annuity industry, vowed to fix its operational shortcomings in tracking down 13,500 group annuitants who were due benefits, chairman, president and CEO Steven A. Kandarian said Wednesday.
“Simply put, this is not our finest hour,” Kandarian told Wall Street analysts in an unusually candid admission of the company’s oversight. “We had an operational failure that never should have happened, and it is deeply embarrassing.”
The discovery of the unpaid benefits, which had been previously announced, led MetLife to take a pre-tax charge of $510 million related to group annuity business going back many years.
Long-ago workers in defined benefits pension plans who had earned their monthly benefits but were years or decades away from retirement had often left their companies and were not easy to find, said Kandarian.
MetLife typically tries to reach the annuitants twice – once when they approach normal retirement at age 65, and a second time when they approach the required minimum distribution age of 70.5.
Instead of doing a more thorough job of tracking down the former worker to find out if the annuitant was still alive, even after two tries, MetLife released reserves when it, or the plan sponsor company, could not establish contact.
“In retrospect, based on the process we had in place, this was an error,” Kandarian said.
Though reserves released in any single period were immaterial to MetLife's past financial statements, over time they led to the sizeable reserve charge – even if the charge remains a fraction of the $40 billion in reserves to cover its portfolio of about 600,000 group annuitants.
Regulators have been urging sponsors of pension plans do a better job of finding their own unresponsive and missing participants.
Corrective Action Cited
Corrective action includes improving reserve-release practices, doing a better job of communicating with annuitants regarding benefits, make more frequent attempts to contact annuitants and use commercial annuitant locator services.
MetLife will also review and hire outside advisors to examine internal escalation practices and how the scope of the reserving issue managed to go unnoticed for so long.
“The reserve release process issues were not communicated or escalated on a timely basis throughout MetLife, which hindered our ability to identify and address them,” Kandarian said.
Analysts, who were taken by surprise last month when the company announced the size of the reserve charge, seemed satisfied that so far as management was concerned, the issue was corralled to group annuities.
“MET’s review of unresponsive and missing policyholder processes was extensive and thorough in its other business lines and management is confident in its findings of no material issues,” wrote analyst Ryan Krueger in a Wednesday note to clients.
Remediation efforts will incur additional expenses, "but it doesn't sound like anything too meaningful," Krueger wrote.
Still, the discovery seems to have shaken and embarrassed MetLife, a company which prides itself on keeping its word to policyholders.
“MetLife's core purpose is providing financial protection to our customers,” Kandarian said. “Central to that purpose is the timely payment of benefits, which makes this issue especially distressing to me. I am deeply disappointed that we fell short of our own high standards.”
MetLife's reserving issue also caused Brighthouse Financial, which MetLife spun off in August, to boost its fourth-quarter reserves by $38 million, Brighthouse said earlier this week.
Company Beats Street
The company on Tuesday reported fourth-quarter net income of $2.14 billion, after reporting a loss in the same period a year earlier.
On a per-share basis, the company said it had net income of $1.97. Earnings, adjusted for non-recurring gains, were $1.11 per share.
The results surpassed Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of $1.10 per share.
The insurer posted revenue of $15.75 billion in the period. Its adjusted revenue was $15.79 billion.
For the year, the company reported profit of $3.75 billion, or $3.38 per share. Revenue was reported as $63.21 billion.
MetLife shares have decreased 11 percent since the beginning of the year, while the Standard & Poor's 500 index has stayed nearly flat.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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