MetLife has agreed to pay $10 million to settle allegations of deficiencies in its accounting for reserves associated with its annuities business.
The U.S. Securities and Exchange Commission said the insurer failed to maintain a sufficient system of internal accounting controls, resulting in both an understatement and overstatement of reserves.
The understatement related to group annuities in MetLife’s Retirement and Income Solutions (RIS) business while the overstatement related to variable annuity guarantees assumed by a MetLife subsidiary, MetLife Reinsurance Company of Bermuda, from a former operating joint venture in Japan.
To correct the errors, MetLife in 2017 adjusted its reserves by a total of $1.4 billion.
“Investors are entitled to the reliability and accuracy of financial information,” Marc P. Berger, director of the SEC’s New York Regional Office, said in a news release. “The commission found that MetLife’s insufficient internal controls caused longstanding accounting errors.”
According to an SEC administrative order, MetLife’s incorrect accounting for the RIS annuities arose from its practice of releasing reserves – that is, reducing liability for future policy benefits, with a corresponding increase in income – associated with annuitants who had not responded to MetLife after two mailing attempts.
The company presumed those annuitants were dead or otherwise would never be found but the SEC said its “historical practices were insufficient to justify that presumption and the release of reserves.”
“Other than sending out two form letters five years apart, MetLife generally did not attempt to reach annuitants through any other means,” the commission said, noting that “if MetLife’s contact information was inaccurate or incomplete, annuitants may have never received any notification from the company that they were entitled to benefits.”
MetLife attributed the error in accounting for reserves associated with the variable annuity guarantees to data errors, including a failure to properly incorporate policyholder withdrawals into its valuation model.
“Our focus since we self-identified these issues has been to improve our processes to deliver better service to our customers,” a MetLife spokesperson said. “We successfully remediated both material weaknesses associated with this settlement as of December 2018.”