MetLife Inc.'s top executive is pledging to take actions against those who were responsible for the insurer's failure to send pension payments to thousands of retirees.
"Simply put, this is not our finest hour," MetLife President and CEO Steven Kandarian fourth-quarter 2017 earnings. "We had an operational failure that never should have happened and it is deeply embarrassing." Kandarian said the insurer would hold people accountable, but did not provide specifics on which segment or individuals would be held to account.
MetLife is improving its processes to do a better job to locate retirees, including additional mailings, phone calls and the use of third-party firms, Kandarian said. He also suggested that the Department of Labor may have helped spur the process that led to the discovery of the missing retirees. The Labor Department has been urging companies that sponsor pension plans "to do a better job of finding their own unresponsive and missing participants," Kandarian told investors on the call.
The missing annuitant issue in the company's retirement and income solutions business arm caused it to delay the release of its fourth-quarter 2017 earnings and take an after-tax charge of $331 million.
In a Feb. 13 regulatory filing, the insurer disclosed that it had completed a review of its procedures related to the group annuities business and that deficiencies in the company’s internal controls for the business amounted to a material weakness.
MetLife increased reserves by $510 million pretax, a lower figure than the $575 million it previously considered. Of the $510 million reserve increase, $372 million was considered “an error,” the company said.
The material weakness and the revisions do not impact any particular financial report from the past, and no financial restatements will be needed. A remediation plan, including using third-party advisers to examine the circumstances surrounding the material weakness, is under way.
Metropolitan Life Insurance Co. determined it also has a material weakness in internal controls over financial reporting caused by the same control deficiencies at MetLife. The subsidiary will disclose details about this impact and its remediation efforts in its annual regulatory filing.
The practice of releasing group annuity reserves that require correction goes back approximately 25 years, one executive noted on the call. The subgroup most impacted by the reserve charge involves about 13,500 of the 600,000 annuitants, or approximately 2% of the overall population. Total group annuity reserves are roughly $40 billion, according to MetLife CFO John Hele.
Separately, MetLife updated its 2018 guidance following the enactment of the new U.S. tax reform law. It now anticipates a corporate and other adjusted loss now in the range of $650 million to $850 million reflecting the new lower 21% corporate tax rate. Earlier guidance had been based on the old 35% rate. The higher loss is expected to be more than offset by lower taxes and higher adjusted earnings in its U.S. businesses, MetLife personnel said on the call.
The company is maintaining its target free cash flow ratio at 65% to 75% of adjusted earnings on average over 2018 and 2019, and said it had no change to capital management plans in 2018.