Fitch: Regulations, Litigation Affect Life Insurers Practices

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings says life insurers are changing claim-payment practices in response to recent regulatory reform initiatives and legal challenges. Over the near term, Fitch expects that these changes will result in an increase in claim payments and additional expenses as insurers adapt to new, still-evolving regulatory requirements and respond to legal challenges.

We do not feel there are any ratings implications at this time.

Several big U.S. life insurers have been criticized for lax identification and escheatment of unpaid life insurance policies. In response, several state insurance regulators, including New York and Illinois, have issued letters instructing life insurers that conduct business in their states to access and use data available via the U.S. Social Security Administration's Death Master File in order to make appropriate death benefit payments to beneficiaries and to pay the state if the policies are deemed abandoned property.

The industry has seen an increase in litigation stemming from claim-payment practices. Most recently, a lawsuit was filed in the state of Illinois alleging that MetLife and Prudential neglected to transfer policies valued at $524 million to the state even though the insurers were aware the policies should have been deemed abandoned property and were overdue for transferring. MetLife said it is possible that additional payments were missed, although it is unable to reasonably estimate how many payments were potentially missed or the cost to find out. In their 10-Q filed Sept. 30 of last year, MetLife said that "such costs may be substantial" and took a $117 million after-tax charge to increase reserves meant for locating and paying beneficiaries.

Many companies in the industry claim they already go beyond contractual obligations when examining policies and have been accessing Social Security databases to identify potential death benefits that should be paid. We feel this is an area where regulators are seeking tighter guidelines and requirements.

Still, we believe that charges associated with new reform will be manageable, and that ratings will not be affected.

Additional information is available on www.fitchratings.com

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings Kellie Geressy-Nilsen, +1-212-908-9123
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Source: Fitch Ratings