united states district court southern district of new …€¦ · i. introduction and overview 1....
TRANSCRIPT
1281715_1
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
x CITY OF WESTLAND POLICE AND FIRE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated,
Plaintiff,
vs.
METLIFE INC., et al.,
Defendants.
: : : : : : : : : : : x
Civil Action No. 1:12-cv-00256-LAK
CLASS ACTION
[PROPOSED] FOURTH AMENDED CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
DEMAND FOR JURY TRIAL
TABLE OF CONTENTS
Page
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I. INTRODUCTION AND OVERVIEW ...............................................................................1
II. JURISDICTION AND VENUE ..........................................................................................9
III. THE PARTIES...................................................................................................................10
A. Underwriter Defendants .........................................................................................14
IV. CONTROL PERSONS ......................................................................................................15
V. FRAUDULENT SCHEME AND FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD ......................................................................................18
A. MetLife Announces Agreement to Purchase AIG’s International Life Insurance Business “ALICO” for $15.5 Billion ....................................................24
B. MetLife Prices Secondary Offering of 75 Million Shares at $42.00 Per Share to Acquire AIG International Life Insurance Business ALICO ..................51
C. MetLife and AIG Jointly Offer 146 Million Shares of MetLife Common Stock Six Months Earlier than Investors Expected and Contemplated by the Agreement with AIG ........................................................................................62
D. State and Regulator Investigations into MetLife’s Failure to Pay Benefits When It Knew Policyholders Were Deceased Begin to Intensify .........................78
E. Top MetLife Officials Testify at Regulatory Hearings Admitting to the Company’s Knowledge or Reckless Disregard of False Financial Statements and Related Representations ...............................................................86
F. New York State Attorney General and New York State Department of Financial Services Issues Subpoenas and Demands Information ..........................89
G. MetLife Admits for the First Time to the Scope of Regulator Inquiries into Its Handling of Death Benefits Which Could Have a Material Impact on Its Financial Statements – Stock Price Declines ....................................................94
H. MetLife Announces After Tax Charge to Increase Reserves for Death Master File Investigations – Stock Price Declines Again ......................................98
VI. POST CLASS PERIOD EVENTS AND ADMISSIONS ...............................................104
VII. METLIFE REACHES SETTLEMENT AGREEMENT WITH SIX STATES VALUED AT $500 MILLION ........................................................................................110
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A. New York State Not Signatory to the Multi-State Settlement Agreement Announces Progress of Department of Finance Yielding $262 Million ..............114
VIII. METLIFE’S FINANCIAL STATEMENTS WERE MATERIALLY MISSTATED IN VIOLATION OF GAAP AND SEC DISCLOSURE RULES ............115
A. MetLife Failed to Disclose Loss Contingencies and Legal Proceedings in Violation of GAAP and SEC Disclosure Rules ...................................................116
1. SEC Regulation S-K Item 103 “Legal Proceedings” ..........................................118
2. ASC 450 “Contingencies” ...................................................................................119
3. SEC Regulation S-K Item 303: Management’s Discussion and Analysis ............122
B. MetLife Understated Life Insurance Claim Reserves in Violation of GAAP ...................................................................................................................123
C. The Misstatements Identified Above Were Material to MetLife’s Financial Statements ............................................................................................................126
IX. LOSS CAUSATION/ECONOMIC LOSS RELEVANT TO SECTION 10(b) EXCHANGE ACT VIOLATIONS .................................................................................128
X. NO SAFE HARBOR .......................................................................................................131
XI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET .........................................................................................................................131
XII. CLASS ACTION ALLEGATIONS ................................................................................132
XIII. CLAIMS FOR VIOLATIONS OF SECTIONS 11, 12 AND 15 OF THE SECURITIES ACT OF 1933 ...........................................................................................135
A. False and Misleading Statements and Omissions in the Registration Statements and Offering Materials ......................................................................136
B. Material Misstatements and Omissions in the Offering Materials ......................140
1. MetLife’s Financial Statements Were Materially Misstated in Violation of GAAP and SEC Disclosure Rules .......................................................................140
2. MetLife Failed to Disclose Loss Contingencies and Legal Proceedings in Violation of GAAP and SEC Disclosure Rules ...................................................141
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a. SEC Regulation S-K Item 103 “Legal Proceedings” ..........................................142
b. ASC 450 “Contingencies” ...................................................................................143
c. SEC Regulation S-K Item 303: Management’s Discussion and Analysis ............145
C. MetLife Understated Life Insurance Claim Reserves in Violation of GAAP ...................................................................................................................146
1. The Misstatements Identified Above Were Material to MetLife’s Financial Statements ............................................................................................................149
2. MetLife Admits Investigation of Death Benefit Claims Could Have a Material Impact on Its Financial Statements – Takes After-Tax Charge to Earnings ...............................................................................................................151
XIV. SAFE HARBOR IS INAPPLICABLE TO INITIAL PUBLIC OFFERINGS ................160
XV. CLASS ACTION ALLEGATIONS ................................................................................160
XVI. PRAYER FOR RELIEF ..................................................................................................162
XVII. JURY DEMAND .............................................................................................................163
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I. INTRODUCTION AND OVERVIEW
1. This is a securities class action alleging violations of the anti-fraud provisions of the
federal securities laws on behalf of all purchasers of the common stock of MetLife, Inc. (“MetLife”
or the “Company”) between February 2, 2010 and October 6, 2011, inclusive (the “Class Period”).
The claims asserted herein are brought against MetLife and certain of its current and former officers
and directors, including C. Robert Henrikson (“Henrikson”), former Chairman of the Board of
Directors (the “Board”) and former President and Chief Executive Officer (“CEO”), William J.
Wheeler (“Wheeler”), the Company’s current President of the Company’s Americas Division and
former Executive Vice President and Chief Financial Officer (“CFO”) and William Mullaney, the
Company’s former President of U.S. Business and several other key officers and directors as set
forth below (collectively, the “Individual Defendants”).
2. This action is also brought on behalf of all persons who purchased or acquired
MetLife common stock pursuant or traceable to the Company’s August 3, 2010 public offering of 75
million shares of its common stock and MetLife’s March 4, 2011 public offering of 68.5 million
shares of its common stock, respectively (the “Offerings”).
3. MetLife is a leading global provider of insurance, annuities and employee benefit
programs, serving 90 million customers in over 60 countries. According to the Company, MetLife
holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and
the Middle East. The Company is headquartered in New York, New York and trades on the New
York Stock Exchange (“NYSE”) under ticker symbol “MET.” During the Class Period, the
Company is organized into five business segments: Insurance Products, Retirement Products,
Corporate Benefit Funding and Auto & Home (collectively, “U.S. Business”) and International.
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4. MetLife has sold and serviced insurance products for more than one hundred years in
the United States. The Company has, in the past, built a reputation based in part upon marketing
itself as the Company that “pays” with a catchy slogan, “GET MET IT PAYS.” A significant
amount of the Company’s operating income and investment income is inextricably intertwined with
historical processes, procedures and policies for investigation and paying claims. For example, the
Company has engaged in the use of the Social Security Administration’s Death Master File
(“SSA-DMF”) since the 1980s. The SSA-DMF is a government-maintained database of all deaths
recorded in the United States, including demographic information about decedents as well as their
social security numbers. The SSA-DMF is described on the National Technical Information Service
website as providing information to help government agencies and private organizations and
individuals verify and track death records as follows:
Verify Death
The Death Master File, available as an online search application or as raw data files, is important for death verification. Medical researchers, hospitals, oncology programs all need to track former patients and study subjects. Investigative firms use the data to verify the death of persons, in the course of their investigations. Pension funds, insurance organizations, Federal, State and Local governments and others responsible for payments to recipients/retirees all need to know if they might be sending checks to deceased persons. Individuals may search for loved ones, or work toward growing their family trees. Professional and amateur genealogists can search for missing links.
Data File
The Death Master File (DMF) from the Social Security Administration (SSA) contains over 89 million records of deaths that have been reported to SSA. This file includes the following information on each decedent, if the data are available to the SSA: social security number, name, date of birth, date of death, state or country of residence (2/88 and prior), ZIP code of last residence, and ZIP code of lump sum payment. The SSA does not have a death record for all persons; therefore, SSA does not guarantee the veracity of the file. Thus, the absence of a particular person is not proof this person is alive.
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5. MetLife, since the 1980s, has accessed the SSA-DMF regularly or even
systematically for purposes beneficial to its bottom line. For example, the Company had utilized the
SSA-DMF in order to determine, among other things, whether its annuity policyholders have died so
that the Company can immediately stop making annuity payments to deceased policyholders. The
Company has utilized the SSA-DMF as a valuable and, in fact, reliable tool in that regard and as a
practice, once an annuitant was identified in the SSA-DMF, the Company required no further proof
of death, i.e., a death certificate, in order to stop annuity payments. In fact, the Company, through
high level executives, has conceded that it views identifications in the SSA-DMF as “substantial
evidence” that someone is deceased.
6. Conversely, however, notwithstanding its utilization of the SSA-DMF to stop
payments to deceased annuitants, the Company did not utilize the SSA-DMF, or information known
to the Company through its utilization of the SSA-DMF, to identify and locate policyholder
beneficiaries, adjust Company reserves or inform state authorities that it was in possession of
unclaimed property subject to escheatment pursuant to state unclaimed property laws.
7. Further, even when the Company learned of the death of a policyholder and
confirmed the death through its in-house death indices or through the use of the SSA-DMF, it would
not immediately recognize the death as a liability, but instead, would only begin an investigation into
the apparent proof of death. These processes and procedures had the effect of maintaining monies
and accounts that could have and likely should have been paid out to beneficiaries of its
policyholders or instead escheated to the relevant state authorities after the “dormancy period”
expired.
8. As a result of these practices and procedures, during the Class Period, defendants
caused the Company to issue materially false and misleading statements concerning the Company’s
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current and future financial condition and its potential liability to policyholders, their beneficiaries or
relevant state authorities for millions of dollars in benefits that should have been paid out to
policyholders or escheated to the states long ago and the Company’s exposure to claims of state and
federal law violations.
9. Due in part to maintaining funds that properly belong to policyholders’ beneficiaries
or state unclaimed property funds during the Class Period, the Company reported strong revenue
and income and operating earnings as a result of the Company’s purportedly strong underwriting
and investing activities, while failing to disclose that reported income was materially overstated due
to the Company’s failure to account and reserve for known liabilities associated with policyholders
who had died long ago. For example, throughout the Class Period, the Company bragged to Wall
Street securities analysts and investors that operating earnings, underwriting and mortality results
were a product of strong leadership and a disciplined approach to risk and expense managements:
• Insurance Products operating earnings were $400 million, up 55% due in large part to higher net investment income, solid underwriting results in both group life and individual life . . . .
• From an earnings perspective, results came in considerably ahead of expectations, driven mostly by its individual life insurance operations where the company benefited from favorable claims trends.
• The growth we’re seeing in the bottom line demonstrates the discipline we have maintained in our underwriting, pricing, risk management and expense control.
• We experienced excellent mortality results in our group life business due to a decrease in severity, as well as favorable reserve refinements in the current year.
• Operating earnings grew by 5%, reflecting solid mortality results.
10. The Company also falsely reported that its methods for setting loss reserves, and
specifically reserves for claims that were incurred but not reported (“IBNR”), were in accordance
with Generally Accepted Accounting Principles (“GAAP”) and applicable regulatory standards. For
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example, during the Class Period, the Company made positive statements about quarterly and annual
results as follows:
• We compute the amounts for actuarial liabilities reported in our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
• Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality . . . .
• Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established.
11. In July 2010, allegations surfaced that MetLife had for years retained monies
belonging to policyholder beneficiaries in its retained asset account (also known as the Total Control
Account or “TCA”), and the New York State Attorney General announced that he had begun a major
fraud probe into whether the Company had routinely, and in violation of relevant law and insurance
regulations, retained monies that it knew it had no right to in order to profit from the accumulation
and investment of such monies and avoid paying beneficiaries or escheating monies to the relevant
state authorities.
12. Notwithstanding these allegations and the knowledge that the Company was retaining
monies properly belonging to policyholder beneficiaries or that should have been escheated to the
states, the Company continued to report false strong financial results, including operating earnings,
purportedly based upon strong underwriting results in insurance products and completed two public
offerings of MetLife common stock, raising more than $4 billion.
13. With respect to whether the Company timely and appropriately paid policyholder
beneficiaries and escheated monies to the states, the Company falsely stated as follows:
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• “Our priority is to pay insurance benefits to those who are entitled to them . . . . When beneficiaries cannot be located, we turn those benefits over to the state.”
14. In addition, the Company in its financial statements filed with the U.S. Securities and
Exchange Commission (“SEC”) claimed that allegations of fraud or violations of law related to its
retained asset accounts were wholly without merit and, in any event, would not affect its financial
statements taken as a whole:
• “Management believes that any allegations that information about the TCA [Total Control Account] is not adequately disclosed or that the accounts are fraudulent or otherwise violate state or federal laws are without merit.”
15. As a result of the Company’s misrepresentations concerning the strength of its
business, including reported operating earnings, and the lack of merit related to ongoing regulatory
investigations, the Company’s stock traded at a Class Period high of $48.72 per share on February 7,
2011.
16. On July 28, 2011, the Company issued its financial results for the second quarter of
2011 (“2Q11”), reporting net income of $1.2 billion or $1.13 per share and operating earnings of
$1.3 billion or $1.24 per share. The 2Q11 results were purportedly the result of “[e]xcellent
underwriting results” in group life and individual life products.
17. After the July 28, 2011 announcement of its 2Q11 financial results, the Company’s
stock price spiked from a close of $39.81 on July 28, 2011 to a close of $41.21 on July 29, 2011, on
increased trading volume.
18. In truth, defendants’ representations concerning: (i) reported financial results during
the Class Period, in particular, reported income and overall segment operating earning; (ii) strong or
disciplined underwriting results and expense management; and (iii) reported mortality results and
experience were each knowingly or recklessly false when made for the following reasons:
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(a) The Company failed to account for known incurred liabilities (deaths of
policyholders that the Company actually knew of or had reason to know of), causing the Company’s
income and operating earnings to be materially misstated;
(b) Through the prior utilization of the SSA-DMF, the Company was in
possession of, or had access to, information that was strong evidence of policyholders’ death and
knew that the Company’s processes and procedures were designed or implemented to largely ignore
that evidence to retain monies that should have been escheated to state agencies or to avoid
increasing reserves;
(c) Underwriting results in both group life and individual life were materially
misstated due to the Company’s known failure to identify, account for and pay beneficiaries of
policyholders the Company actually knew had died or had reason to know had died;
(d) But for the failure to utilize the SSA-DMF to identify deceased policyholders
and recognize known incurred liabilities, pay beneficiaries or properly escheat monies to the states as
required by state law and insurance regulations, the Company would have reported financial results
materially different than those reported during the Class Period; and
(e) The Company’s financial statements failed to comply with and make
disclosures required by GAAP and SEC disclosures rules.
19. Defendants’ knowledge or reckless disregard of the material falsity of the statements
alleged herein is established by internal Company documents, facts uncovered in relation to the state
investigations, a 2007 cross check of its life insurance policies against the SSA-DMF. See ¶¶88-90,
111-123. In addition, significant facts have been largely admitted through a combination of
disclosures, including: (i) the testimony of top MetLife executives – Todd Katz (“Katz”), Executive
Vice President U.S. Business Insurance Products and Frank Cassandra (“Cassandra”), Senior Vice
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President Insurance Products Financial; (ii) that during 4Q07 MetLife had to increase reserves in its
individual life insurance business to account for unreported claims by $25 million, after-tax
(impacting operating income by $0.04 EPS); (iii) the $143 million charge to earnings to account for
liabilities in excess of reserves identified as a result of utilizing the SSA-DMF; and (iv) the
settlement with state regulators valued at $500 million, including detailed corporate reforms
designed to enhance usage of the SSA-DMF to refine processes for identifying policyholder
beneficiaries and escheatment of unclaimed property to states.
20. On August 5, 2011, only one week after the July 28, 2011 announcement of its 2Q11
results, before the market opened, the Company filed with the SEC its Form 10-Q for the period
ended June 30, 2011. The Company disclosed that:
• The regulatory investigation into its death benefits practices had expanded to more than 30 jurisdictions;
• The investigations could result in additional escheatment to the states;
• The Company could be subjected to administrative penalties; and
• The costs related to said investigations and procedures could be “substantial.”
21. In addition to the disclosures above, the Form 10-Q no longer asserted denials that
allegations concerning the Company’s retained asset accounts and potential violations of state and
federal laws were “without merit”:
Unclaimed Property Inquiries. More than 30 U.S. jurisdictions are auditing MetLife, Inc. and certain of its affiliates for compliance with unclaimed property laws. . . . It is possible that the audits and related activity may result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, administrative penalties, and changes to the Company’s procedures for the identification and escheatment of abandoned property. The Company is not currently able to estimate the reasonably possible amount of any such additional payments or the reasonably possible cost of any such changes in procedures, but it is possible that such costs may be substantial.
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22. The August 5, 2011 disclosure in MetLife’s Form 10-Q contributed to the Company’s
stock price decline between market close on Thursday, August 4, 2011, and market close on
Monday, August 8, 2011. See ¶¶149-151. By close of market hours on August 8, 2011, MetLife
stock traded down from a close of $36.90 on Thursday, August 4, 2011, to a close of $32.74 on
Monday, August 8, 2011.
23. On October 6, 2011, after market hours, the Company filed with the SEC a Form 8-K
quantifying the impact of the regulatory investigations reported on August 5, 2011, stating among
other things that it would take at least a $115 million after-tax charge to increase its reserves in
connection with its use of the SSA-DMF to identify deceased policyholders:
MetLife, Inc. . . . has identified the following non-recurring charges that it expects to incur for the third quarter of 2011:
(1) The Company expects to incur a $115 million to $135 million, after tax, charge to adjust reserves in connection with the Company’s use of the U.S. Social Security Administration’s Death Master File and similar databases to identify certain group life insurance certificates, individual life insurance policies and other contracts where the covered person may be deceased, but a claim has not yet been presented to the Company.
24. On this news reported on October 6, 2011, the Company’s stock price declined after
hours on October 6, 2011 and declined from a close of $30.69 on October 6, 2011 to $28.80 on
October 7, 2011. As detailed herein at ¶165, the October 7, 2011 decline was statistically
significant.
II. JURISDICTION AND VENUE
25. The claims asserted herein arise under and pursuant to §§11, 12(a)(2) and 15 of the
Securities Act [15 U.S.C. §§77k, 77l(a)(2) and 77o], §§10(b) and 20(a) of the Exchange Act [15
U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b-5].
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26. This Court has jurisdiction over this action pursuant to §22 of the Securities Act [15
U.S.C. §77v], §27 of the Exchange Act [15 U.S.C. §78aa] and 28 U.S.C. §§1331 and 1337.
27. Venue is properly laid in this District pursuant to §22 of the Securities Act, §27 of the
Exchange Act and 28 U.S.C. §1391(b) and (c). The acts and conduct complained of herein occurred
in substantial part in this District. MetLife’s headquarters are located in New York, New York. The
Company’s shares are traded on the New York Stock Exchange (“NYSE”),1 which is based in this
District, and the Underwriter Defendants (defined below) maintain executive offices in this District.
28. In connection with the acts and conduct alleged in this complaint, defendants, directly
or indirectly, used the means and instrumentalities of interstate commerce, including the mails,
telephonic communications and the facilities of the NYSE.
III. THE PARTIES
29. Lead Plaintiff Central States, Southeast and Southwest Areas Pension Fund (“Central
States”) purchased MetLife common stock during the Class Period as set forth in the certification
previously filed with the Court and was damaged thereby.
30. Defendant MetLife is a leading global provider of insurance, annuities and employee
benefit programs, serving 90 million customers in over 60 countries. According to the Company,
MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific,
Europe and the Middle East. The Company is headquartered in New York, New York and trades on
the NYSE under ticker symbol “MET.”
1 According to MetLife’s 2011 Annual Report, filed with the SEC on March 27, 2012, the S&P 500 index is MetLife’s market index while the S&P 500 Insurance index as MetLife’s insurance industry index.
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31. Defendant C. Robert Henrikson was, at all relevant times during the Class Period,
until his retirement on May 1, 2011, President, CEO and Chairman of the Board of Directors of the
Company. In addition, Henrikson continued to serve as the Company’s Chairman of the Board until
January 1, 2012. During the Class Period, Henrikson was a Director and Chairman of the American
Council of Life Insurers (“ACLI”), a lobbying group for the insurance industry. During the Class
Period, Henrikson was one of the key spokespersons for the Company. Henrikson was quoted in
financial press releases published during the Class Period and led or participated in multiple
Company hosted conference calls for analysts and investors during which false and misleading
statements alleged herein were made. During fiscal years 2009, 2010 and 2011, Henrikson was
compensated $11.6 million, $13.8 million and $17.8 million, respectively.
32. Defendant William J. Wheeler is currently President of the Company’s Americas
Division and has held that position since November 2011. Prior to his appointment as President,
Wheeler served as Executive Vice President and CFO of the Company and was responsible for
overseeing financial reporting risk management corporate actuarials. Wheeler was credited for
architecting the acquisition of the American Life Insurance Company (“ALICO”). During the Class
Period, Wheeler participated in multiple Company hosted conference calls for analysts and investors
during which false and misleading statements alleged herein were made. For fiscal years 2009, 2010
and 2011, Wheeler was compensated $5.9 million, $4.9 million and $8.9 million, respectively.
33. Defendant Peter M. Carlson (“Carlson”) was, at all relevant times during the Class
Period, Executive Vice President, Finance Operations and Chief Accounting Officer of the
Company. Carlson executed certain Forms 10-Q and 10-K and other Company documents which
were filed with the SEC during the Class Period.
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34. Defendant Steven A. Kandarian (“Kandarian”) is and has been since May 1, 2011, the
Company’s President and CEO. Prior to May 1, 2011, Kandarian served as the Company’s Chief
Investment Officer. As Chief Investment Officer, Kandarian oversaw the Company’s general
account portfolio. For fiscal years 2009, 2010 and 2011, Kandarian was compensated $5.4 million,
$4.1 million and $10.6 million, respectively. Kandarian participated in multiple Company hosted
conference calls during the Class Period during which false and misleading statements alleged herein
were made.
35. Defendant William J. Mullaney (“Mullaney”) was, at all relevant times during the
Class Period, President of U.S. Business. Mullaney participated in multiple Company hosted
conference calls for analysts and investors during which false and misleading statements alleged
herein were made. Mullaney resigned from the Company in or around November 2011. For fiscal
years 2009, 2010 and 2011, Mullaney was compensated $3.5 million, $4.6 million and $10.3
million, respectively.
36. The defendants named in ¶¶31-35 are referred to herein as the “Officer Defendants.”
37. Defendant Sylvia Mathews Burwell (“Burwell”) is and was a member of the Board of
Directors. Burwell has been a Director since 2004. During the Class Period, Burwell served on the
Company’s Governance and Corporate Responsibility Committee of the Board of Directors.
38. Defendant Eduardo Castro-Wright (“Wright”) was a member of the Board of
Directors during the Class Period and was a Director since 2008 until he resigned his position on
April 24, 2012. During the Class Period, Wright served on the Governance and Corporate
Responsibility and Compensation Committees of the Board of Directors.
39. Defendant Cheryl W. Grisé (“Grisé”) is and was a member of the Board of Directors
at all relevant times during the Class Period and has been a Director of the Company since February
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2004. During the Class Period, Grisé served on the Audit, Compensation and Governance and
Corporate Responsibility Committees of the Board of Directors.
40. Defendant R. Glenn Hubbard (“Hubbard”) is and was a member of the Board of
Directors at all relevant times during the Class Period and has been a Director since 2007. During
the Class Period, Hubbard served on the Finance and Risk Committee of the Board of Directors.
41. Defendant John M. Keane (“Keane”) is and was a member of the Board of Directors
at all relevant times during the Class Period and has been a Director since 2003. During the Class
Period, Keane served on the Audit and Governance and Corporate Responsibility Committees of the
Board of Directors.
42. Defendant Alfred F. Kelly, Jr. (“Kelly”) is and was a member of the Board of
Directors at all relevant times during the Class Period and has been a Director of the Company since
2009. During the Class Period, Kelly served on the Audit, Compensation and Finance and Risk
Committees of the Board of Directors.
43. Defendant James M. Kilts (“Kilts”) is and was a member of the Board of Directors at
all relevant times during the Class Period and has been a Director of the Company since 2005.
During the Class Period, Kilts served on the Compensation Committee of the Board of Directors.
44. Defendant Catherine R. Kinney (“Kinney”) is and was a member of the Board of
Directors at all relevant times during the Class Period and has been a Director of the Company since
2009. During the Class Period, Kinney served on the Audit and Finance and Risk Committees of the
Board of Directors.
45. Defendant Hugh B. Price (“Price”) is and was a member of the Board of Directors at
all relevant times during the Class Period and has been a Director of the Company since 1999.
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During the Class Period, Price served on the Audit and Compensation Committees of the Board of
Directors.
46. Defendant David Satcher (“Satcher”) is and was a member of the Board of Directors
at all relevant times during the Class Period and has been a Director of the Company since 2007.
During the Class Period, Satcher served on the Executive and Governance and Corporate
Responsibility Committees of the Board of Directors.
47. Defendant Kenton J. Sicchitano (“Sicchitano”) is and was a member of the Board of
Directors at all relevant times during the Class Period and has been a Director of the Company since
2003. During the Class Period, Sicchitano served on the Audit and Compensation Committees of
the Board of Directors.
48. Defendant Lulu C. Wang (“Wang”) is and was a member of the Board of Directors at
all relevant times during the Class Period and has been a Director of the Company since 2008.
During the Class Period, Wang served on the Finance and Risk Committees of the Board of
Directors.
49. The defendants named in ¶¶37-48 are referred to herein as the “Director Defendants.”
A. Underwriter Defendants
50. Defendant Goldman Sachs & Co. (“Goldman”) is a financial holding company, which
provides global banking, securities, underwriting and investment management services in the United
States and internationally. Goldman also provides debt and equity underwriting, mergers and
acquisitions and corporate restructuring advisory services, securities dealing and brokerage, and
trade execution services for large-market companies and institutional investors.
51. Defendant Citigroup Global Markets Inc. (“CGMI”) is the brokerage and securities
arm of banking Citigroup. CGMI provides investment banking services to corporate, institutional
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and government entities including underwriting, structuring, sales and trading across such asset
classes as equities, corporate, government and agency bonds, and mortgage-backed securities.
52. Defendant Credit Suisse Securities (USA) LLC is an investment bank in the United
States. Credit Suisse Securities was formed in 1997 and is based in New York City, and operates as
a subsidiary of Credit Suisse (USA), Inc. Credit Suisse Securities (USA) LLC provides securities
underwriting, sales and trading, investment banking, private equity, alternative assets and financial
advisory services.
53. Defendant Wells Fargo Securities, LLC provides banking services in the United
States including services related to public offering private placements, debt offering and
underwriting. Wells Fargo Securities, LLC is headquartered in San Francisco, California.
54. Defendant BofA Merrill Lynch, Pierce, Fenner & Smith Incorporated provides
securities, brokerage and dealership services as well as investment advisory services.
55. Defendant HSBC Securities (USA) Inc. (“HSBC”) is an investment banking firm that
provides financial advisory services. HSBC’s services include mergers and acquisitions, capital
raising and operates as a subsidiary of HSBC Investments (North America) Inc.
56. The defendants referenced above in ¶¶50-55 are referred to herein as “Underwriter
Defendants.”
IV. CONTROL PERSONS
57. Because of the Individual Defendants’ executive management positions at the
Company, they had access to, and knew of, the adverse undisclosed information about its business,
operations, products, operational trends, financial statements, markets and present and future
business prospects via access to internal corporate documents (including the Company’s operating
plans, budgets and forecasts, and reports of actual operations compared thereto), conversations and
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connections with other corporate officers and employees, attendance at management and/or Board
meetings and committees thereof, and via reports and other information provided to them in
connection therewith.
58. It is appropriate to treat the Individual Defendants as a group for pleading purposes
and to presume that the false, misleading and incomplete information conveyed in the Company’s
public filings, press releases and other publications as alleged herein are the collective actions of the
narrowly defined group of defendants identified above. Each of the above officers of MetLife, by
virtue of their high-level positions with the Company: (i) directly participated in the management of
the Company; (ii) was directly involved in the day-to-day operations of the Company at the highest
levels; and (iii) was privy to confidential proprietary information concerning the Company and its
business, operations, products, growth, financial statements and financial condition, as alleged
herein. Said defendants: (i) were involved in drafting, producing, reviewing and/or disseminating
the false and misleading statements and information alleged herein; (ii) were aware, or recklessly
disregarded, that the false and misleading statements were being issued regarding the Company; and
(iii) approved or ratified these statements, in violation of the federal securities laws.
59. As officers and controlling persons of a publicly held Company whose common stock
was, and is, registered with the SEC pursuant to the Exchange Act, traded on the NYSE and
governed by the provisions of the federal securities laws, the Individual Defendants each had a duty
to promptly disseminate accurate and truthful information with respect to the Company’s financial
condition and performance, growth, operations, financial statements, business, products, markets,
management, earnings, and present and future business prospects; and to correct any previously
issued statements that had become materially misleading or untrue, so that the market prices of the
Company’s publicly traded securities would be based upon truthful and accurate information. The
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Individual Defendants’ misrepresentations and omissions during the Class Period violated these
specific requirements and obligations.
60. As alleged above, the Individual Defendants: (i) participated in the drafting,
preparation and/or approval of the various press releases, shareholder reports, SEC filings and other
public statements/communications complained of herein; (ii) were aware of, or recklessly
disregarded, the misstatements contained therein and omissions therefrom; and (iii) were aware of
their materially false and misleading nature. Each of the Individual Defendants was provided with
copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or
had the ability and/or opportunity to prevent their issuance or cause them to be corrected. In fact, the
Individual Defendants certified the accuracy of the quarterly results, and consented to the content of
the financials. Accordingly, each of the Individual Defendants is responsible for the accuracy of the
public reports and releases detailed herein, and is therefore primarily liable for the representations
contained therein.
61. Because of their Board membership and/or executive and managerial positions with
MetLife, each of the Individual Defendants had access to the adverse undisclosed information about
MetLife’s business, prospects and financial condition as particularized herein, and knew (or
recklessly disregarded) that these adverse facts rendered the positive representations made by or
about MetLife and its business issued or adopted by the Company materially false and misleading.
62. In particular, pursuant to the Audit Committee Charter, the members of the Board
who were also members of the Audit Committee of the Board, part of their duties, were to monitor:
(i) the Company’s accounting and financial reporting processes; (ii) the audits of the Company’s
financial statements; (iii) the adequacy of the Company’s internal control over financial reporting;
and (iv) the Company’s compliance with legal and regulatory requirements. With respect to
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compliance with state and regulatory requirements, the Audit Committee was required to do the
following:
(a) Periodically discuss the Company’s guidelines and policies with respect to the
process by which the Company undertakes risk assessment and risk management;
(b) Review with management, the internal auditor and the independent auditor,
any correspondence with regulators or governmental agencies and any employee complaints or
published reports that are brought to its attention that raise material issues regarding the Company’s
financial statements or accounting policies; and
(c) Receive reports from the Company’s General Counsel concerning significant
legal and regulatory matters.
63. During fiscal year 2009 (“FY09”), defendants Sicchitano (Chairman of the Audit
Committee), Burwell, Grisé, Keane, Kelly, Kinney and Price served on the Company’s Audit
Committee and issued a report recommending that the audited consolidated financial results be
included in the Form 10-K for the fiscal year ended December 31, 2009.
64. During FY10, defendants Sicchitano, Grisé, Keane, Kelly, Kinney and Price served
on the Company’s Audit Committee and issued a report recommending the inclusion of the FY10
audited consolidated financial results to be included in the Form 10-K for fiscal year ended
December 31, 2010.
V. FRAUDULENT SCHEME AND FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD
65. On February 2, 2010, the Company issued a press release announcing its 4Q09 and
FY09 financial results. The Company’s reported 4Q09 results included reported false overall and
segment operating earnings of $793 million and $0.96 earnings per share (“EPS”) for 4Q09, which
beat Wall Street analysts consensus estimates of $0.95 by one penny. The press release also made
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false statements concerning purported solid underwriting, including underwriting results in group
and individual life products:
MetLife Announces Fourth Quarter and Full Year 2009 Results
* * *
MetLife, Inc. . . . today reported fourth quarter 2009 net income of $289 million, or $0.35 per share, which reflects net investment gains and losses. Operating earnings for the fourth quarter of 2009 were $793 million, or $0.96 per share.
Operating earnings for the full year 2009 were $2.4 billion, or $2.87 per share.
* * *
“MetLife delivered a very strong fourth quarter, with operating earnings significantly higher than a year ago, and both our fourth quarter and full year 2009 earnings are above the estimates we provided at Investor Day in December,” said C. Robert Henrikson, chairman, president & chief executive officer of MetLife, Inc. . . . Furthermore, in 2009 we had solid underwriting, better expense margins as well as both improving investment income and declining investment losses.”2
* * *
U.S. BUSINESS
* * *
2 According to the Company’s February 26, 2010 Form 10-K for the period ended December 31, 2009, “operating earnings” is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources. Consistent with GAAP accounting guidance for segment reporting, it is the Company’s measure of segment performance reported below. Operating earnings is not determined in accordance with GAAP and should not be viewed as a substitute for GAAP income (loss) from continuing operations, net of income tax. However, the Company believes the presentation of operating earnings herein as we measure it for management purposes enhances the understanding of segment performance by highlighting the results from operations and the underlying profitability drivers of the businesses. Operating earnings is defined as operating revenues less operating expenses, net of income tax. According to the Company, operating earnings is also an important feature of the Company’s incentive compensation program.
- 20 - 1281715_1
• Operating earnings of $882 million, up significantly from $277 million, largely due to strong business growth, [and] significant equity market improvements . . . .
Insurance Products
* * *
Insurance Products operating earnings were $400 million, up 55% due in large part to higher net investment income, solid underwriting results in both group life and individual life . . . .
Retirement Products
Premiums, fees & other revenues for Retirement Products were $732 million, up 32% on increased sales of immediate annuities and higher fee income.
66. On February 3, 2010, the Company hosted a conference call for analysts and investors
to discuss the 4Q09 and FY09 results. The call was hosted by defendants Henrikson, Kandarian and
Wheeler. During the call, defendants repeated the false financial results reported in the February 2,
2010 press release and discussed the false favorable mortality ratios for the quarter and for FY09 in
its insurance business, particularly in individual life and group life:
[WHEELER:] The growth of insurance products revenues of 8% in the fourth quarter reflects across-the-board strength in Group life, Individual Life and non-medical health.
* * *
Turning to our operating margins, lets start with our underwriting results. In US business, our mortality results were very strong in both Group Life and Individual Life with full-year mortality ratios coming in below investor day ranges. The Group Life mortality ratio for the quarter was 89.7.% bringing the full year ratio to 90.3 % versus our estimated range of 91% to 93%. Our individual mortality ratio for the quarter was 81.1%, bringing the full-year ratio to 82.5% versus our estimated range of 84% to 86%.
67. Securities analysts and investors viewed the February 2, 2010 financial reports and
information provided in the February 3, 2010 conference call as positive news for the Company,
which according to defendants had rebounded significantly from the downturn and financial crisis,
which began in 2008 and had carried through 2009. For example, on February 3, 2010, Morgan
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Stanley published a report entitled “MetLife Regaining Solid Momentum,” which substantially
repeated the Company’s false 4Q09 and FY09 results highlighting performance of the Company’s
U.S. insurance business, favorable mortality trends in the individual life business and the likely
impact of the anticipated acquisition of ALICO, the American International Group, Inc.’s (“AIG”)
international life insurance business:
MetLife
Regaining Solid Momentum
We were encouraged by MetLife’s results, with operating earnings beating our expectations, very strong business growth almost across the board . . . .
. . . Operating EPS was $0.96, although excluding a range of abnormal items, management put core EPS at $0.97, beating both our estimate of $0.93 and the consensus at $0.95.
* * *
Insurance earnings: Earnings ran $90 million ahead of expectations, with the largest upside being in individual life insurance on favorable mortality trends in the quarter.
* * *
From an earnings perspective, results came in considerably ahead of expectations, driven mostly by its individual life insurance operations where the company benefited from favorable claims trends.
68. After the Company’s press release announcing its 4Q09 and FY09 financial results,
MetLife’s shares traded at prices above $33.00 per share.
69. On February 26, 2010, the Company filed with the SEC its Form 10-K for the year
ended December 31, 2009. The Form 10-K was signed by defendant Henrikson and other members
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of the Board.3 The February 26, 2010 Form 10-K repeated the false 4Q09 and FY09 financial
results reported in the February 2, 2010 press release. In addition to the false financial results, which
materially overstated reported income and operating earnings, the February 26, 2010 Form 10-K also
misrepresented the Company’s compliance with GAAP and failed to account for known liabilities
for policyholders, who defendants knew but disregarded had already died, the February 26, 2010
Form 10-K also made the following false representations concerning policyholder funds and
described the manner in which the Company set and adjusted its IBNR reserves, including liabilities
for deaths that had occurred but had not yet been reported:
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations when a policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to provide for future annuity payments. We compute the amounts for actuarial liabilities reported in our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Liability for Future Policy Benefits and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities and non-medical health insurance. . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality . . . .
* * *
Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established.
* * *
3 The February 26, 2010 Form 10-K for the year ended December 31, 2009 was also signed by Burwell, Wright, Grisé, Hubbard, Keane, Kilts, Kinney, Price, Satcher, Sicchitano, Wang, Wheeler and Carlson.
- 23 - 1281715_1
Other Policyholder Funds
* * *
The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care and dental claims, as well as claims that have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business.
70. The February 26, 2010 Form 10-K was accompanied by the required certifications of
defendants Henrikson and Wheeler pursuant to §§302 and 906 of the Sarbanes-Oxley Act of 2002,
which stated as follows:
1. I have reviewed this annual report on Form 10-K of MetLife, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact . . . ;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant . . .;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
* * *
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
* * *
d) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
- 24 - 1281715_1
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information . . . .
A. MetLife Announces Agreement to Purchase AIG’s International Life
Insurance Business “ALICO” for $15.5 Billion
71. On March 5, 2010, the Company announced that it would enter into an agreement
with AIG to purchase AIG’s ALICO unit for approximately $15.5 billion. The Company announced
that it expected to finance the deal by issuing $8.7 billion in equity and $6.8 billion in cash. On
March 8, 2010, the Company issued a press release announcing the same, including describing an
Investor Rights Agreement that would require AIG to hold its MetLife stock for a defined time
period, later disclosed to be at least nine months:
MetLife to Acquire American Life Insurance Company from American International Group for Approximately $15.5 Billion
* * *
NEW YORK, Mar 08, 2010 (BUSINESS WIRE) – MetLife, Inc. (NYSE: MET) announced today a definitive agreement to acquire one of American International Group, Inc.’s (AIG) international subsidiaries, American Life Insurance Company (ALICO), for approximately $15.5 billion. The consideration will consist of $6.8 billion in cash and approximately $8.7 billion in MetLife equity securities, subject to closing adjustments.
Specifically, the equity security portion of the purchase price will consist of 78.2 million shares of MetLife common stock valued at $3.0 billion, 6.9 million shares of contingent convertible preferred stock valued at $2.7 billion and 40 million equity units having an aggregate stated value of $3.0 billion.
* * *
MetLife and AIG will enter into an Investor Rights Agreement which will, among other things, require AIG to hold specified amounts of MetLife securities for certain designated periods of time. Certain lock-ups will begin to expire nine months after closing. The ALICO special purpose vehicle intends to monetize the MetLife securities over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods.
- 25 - 1281715_1
72. On March 8, 2010, the Company held a conference call for analysts and investors to
discuss the agreement and announcement that MetLife would acquire ALICO from AIG for $15.5
billion. The call was hosted by defendants Henrikson, Kandarian and Wheeler. During the call,
defendants further explained the terms of the ALICO acquisition and, in particular, the terms of 78.2
million common stock and 6.9 million in convertible preferred shares scheduled to later convert into
MetLife common shares and staged lock-up periods to which AIG would be subject. The number of
shares to be delivered to AIG would be fixed and, pursuant to the lock-up agreement, AIG would not
be permitted to sell any of its MetLife shares acquired in the acquisition until at least nine months
after the close of the deal:
[WHEELER:] [W]e are paying approximately $15.5 billion to acquire Alico and it is a mixture of cash and MetLife equity and convertible equity units. . . . 78.2 million common shares and 6.9 million shares of a non-cumulative perpetual preferred stock, which is convertible into 68.6 million common shares. You should think of these convertible preferreds as common equivalent securities. And for both the common and common equivalent securities, these share amounts are fixed.
* * *
And with respect to the MetLife equity and mandatory converts held by AIG, these are subject to staged lockups and volume limitations to ensure that they are disposed of in an orderly manner.
* * *
[ANALYST:] Can you give us a little bit more detail about the staged lockup? . . .
[HENRIKSON:] . . . Nine months after closing, they have the ability to sell up to 50% of their holdings and that would – think of that as both the common and the common equivalents.
* * *
Then at three months later, they have the right to sell another 50% and these are obviously when they can first do it and the maximum amounts we don’t know actually what they will do.
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73. Between March 5, 2010 and March 9, 2010, MetLife’s stock price rose from a close
of $38.92 to $40.81.
74. On March 15, 2010, defendant Wheeler gave a presentation on behalf of MetLife at
the UBS Asset Gatherers’ Conference. During the presentation, Wheeler bragged (falsely) of the
Company’s underwriting and expense management including low mortality ratios and, in particular,
stating that they were lower in 2009 than they had been in all of the years he has been CFO:
[WHEELER:] Underwriting experience and expense management, a couple of interesting charts here. We obviously sell a lot of different types of life – or insurance. Both has a mortality or a morbidity angle to it. And what’s interesting to me about our mortality experience, which is mainly through Group Life or Individual Life . . . .
The mortality experience we had in 2009 was better than any time since I’ve been CFO . . . .
75. On April 29, 2010, the Company issued a press release announcing MetLife’s 1Q10
financial results. The Company’s report of a materially false operating earnings of $1.01 EPS beat
Wall Street analyst consensus expectations of $0.97 per share. The press release made materially
false and misleading statements regarding the Company’s expense savings efforts, and favorable
underwriting as contributing factors in its reported financial performance. The press release stated as
follows:
MetLife Announces Strong First Quarter 2010 Results
* * *
MetLife, Inc. . . . today reported first quarter 2010 net income of $805 million, or $0.97 per share, which reflects net investment gains and losses. Operating earnings for the first quarter of 2010 were $834 million, or $1.01 per share.
“MetLife delivered very strong first quarter results, generating significant earnings growth . . . “Improved equity market levels, solid underwriting results and our expense savings efforts also contributed to our strong performance in the quarter.”
* * *
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U.S. BUSINESS
* * *
Insurance Products
* * *
Operating earnings for Insurance Products were $298 million, up 92% due in large part to higher net investment income, favorable group life underwriting results and lower expenses.
Retirement Products
* * *
Operating earnings for Retirement Products were $159 million, compared with a $118 million operating loss.
76. On April 30, 2010, Wells Fargo Securities issued a report entitled “MetLife Inc.,
MET: Snoopy Gets His Groove; Q1 Results Look Like ‘New Normal.’” The report repeated the
false financial results in the April 29, 2010 press release:
MetLife, Inc.
• MetLife reported Q1 operating earnings of $1.01, higher than our estimate of $0.95 and the consensus of $0.97. . . . We believe MET shares will react positively to the earnings results.
* * *
• MetLife reported U.S. Insurance operating earnings of $298 million, up 92% from Q1 2009 though lower than our $321 expectation. . . .
• Annuities reported operating income of $159 million in Q1 2010, better than the operation loss produced in Q1 2009.
* * *
Group Life earnings of $118 million were 38.8% higher than Q1 2009 operating earnings and better than our modeled result, primarily due to lower expenses. . . .
Individual Life operating earnings of $115 million were meaningfully better than the $20 million reported for the first quarter of last year . . . .
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77. On April 30, 2010, after the Company’s press release announcing its 1Q10 financial
results, defendants held a conference call for analysts and investors to discuss the details of the
results. During the call, in addition to reiterating the Company’s financials as reported in the press
release, defendants made false and misleading statements concerning the Company’s operating
earnings and margins, disciplined underwriting, mortality ratios and expense management:
[HENRIKSON:] Thank you, Connor, and good morning, everyone. We are off to an excellent start in 2010, delivering strong results across the board.
* * *
The growth we’re seeing in the bottom line demonstrates the discipline we have maintained in our underwriting, pricing, risk management and expense control.
* * *
[WHEELER:] MetLife reported $1.01 of operating earnings per share for the first quarter. As Rob mentioned, this strong bottom-line result represents solid business growth, higher investment income, improved equity markets and the results of our expense management efforts.
* * *
Turning to our operating margins, let’s start with our underwriting results. In US Business, our mortality results were mixed this quarter. The Group Life mortality ratio for the quarter was 89.5% versus our estimated range of 90% to 95%, which is an excellent result. Our individual life mortality ratio for the quarter was 87.6%, which is slightly below our plan.
* * *
[MULLANEY:] But I think the real testament to the way that we run our business is in the mortality ratio. And we had one of the strongest mortality ratios that we’ve had in Group Life in the first quarter . . . .
78. Similarly, on May 11, 2010, Mullaney gave a presentation at the UBS Global
Financial Services Conference. Mullaney again discussed the Company’s 1Q10 false financial
results and false strong reported mortality ratios, risk management discipline and the positive impact
on the Company’s underwriting results:
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[MULLANEY:] We have also maintained our pricing and risk management discipline.
* * *
Now let’s talk a little bit about underwriting and expense management, because even though we had a strong performance in the first quarter as it relates to investment earnings, we also had very good performance both from an underwriting perspective as well as an expense management. And because of that, those were two key areas that really drove the strong performance that we had overall for the quarter.
. . . [O]ur group mortality ratio for the quarter, 89.5%.
We typically target to have that ratio somewhere between 90 and 94%. A number of companies that reported in the first quarter, so [average] mortality in both their group area as well as in their individual business, we did not see that at all.
We had a very, very strong mortality quarter in our group life business. It may actually be the best mortality quarter that we have had for a first quarter in Group life.
Group life seasonally tends to be a little higher from a mortality perspective, but we really had a strong underwriting quarter in the first quarter, and I think that really is reflective of the discipline that we’ve used in terms of managing that book of business and pricing new business as well as renewal businesses in our group life (inaudible)[.]
Individual mortality, 87.6%, it’s higher than we saw in the first quarter of last year when the mortality was unusually good. But 87.6% is right about at plan. It’s right about what we expected in terms of individual mortality for the first quarter, so we were pretty pleased with that result.
79. On May 12, 2010, MetLife’s stock price closed at $43.84 per share.
80. Defendants’ representations in ¶¶65-70 concerning: (i) reported financial results for
4Q09, FY09 and 1Q10, in particular, reported income and overall segment operating earnings for
each period; (ii) strong or disciplined underwriting results and expense management (¶65); and
(iii) reported mortality results and experience (¶¶66-67), were each knowingly or recklessly false
when made for all the reasons set forth in ¶87(a)-(p) below.
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81. On July 29, 2010, the Company issued a press release announcing its 2Q10 financial
results. The press release again falsely touted strong net income, operating earnings, strong
underwriting results in group life, including operating earnings in insurance products, based in part
on the Company’s disciplined approach to expense management. The press release stated as
follows:
MetLife Announces Strong Second Quarter 2010 Results
* * *
MetLife, Inc. . . . today reported second quarter 2010 net income of $1.5 billion, or $1.84 per share. Net income reflects net investment gains of $767 million, after tax, including gains on derivatives. Operating earnings for the second quarter of 2010 were $1.0 billion, or $1.23 per share.
“MetLife continued to deliver strong . . . and increased operating earnings by 41% over the prior year period,” . . . “Highlights of the quarter included strong underwriting results, higher net investment income and our disciplined approach to expense management.”
* * *
U.S. BUSINESS
* * *
• Excellent underwriting results in group life; improved experience in dental and solid underwriting results in individual life
* * *
• Operating earnings of $918 million, up 39% due to favorable underwriting, higher net investment income and lower expenses
Insurance Products
* * *
Operating earnings for Insurance Products were $369 million, up 29% due to favorable underwriting, higher net investment income and lower expenses.
Retirement Products
* * *
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Operating earnings for Retirement Products were $238 million, up 66%.
82. On July 29, 2010, after the Company reported its financial results, securities analysts
raved about the EPS results and specifically about the Company’s financial performance including
operating earnings above consensus estimates and reported favorable mortality results. For example,
Credit Suisse issued a report entitled “Read On 2Q10,” which stated as follows:
MET reported operating earnings of $1.23, well above the consensus estimate of $1.00. . . . [T]he $144 million of “normalized” group life earnings were unusually strong, driven by favorable mortality results.
* * *
[T]he group life mortality ratio was just 86.6%, compared to 89-90% in the past four quarters.
83. On July 30, 2010, the Company held a conference call for analysts and investors to
discuss the Company’s 2Q10 results. The call was hosted by defendants Henrikson, Kandarian,
Wheeler, Mullaney and Carlson. Defendants reiterated the false financial results in the July 29, 2010
press release and added the following false statements concerning the Company’s underwriting
results and mortality ratios:
[WHEELER:] Operating margins – turning to our operating margins, let’s talk about underwriting results. In US Business, our mortality results were quite strong this quarter. The Group Life mortality ratio for the quarter was 86.6% versus our estimated range of 90% to 95%, which is an excellent result. Our Individual life mortality ratio for the quarter was 80.4%. While higher than the exceptionally strong prior-year quarter of 74.9%, the results were quite favorable and well below our plan.
84. On July 30, 2010, Morgan Stanley issued a report entitled “Delivering the Results in a
Tough Environment,” relating to the 2Q10 results which encouraged investors, based upon
defendants’ reported results, to accumulate their positions in the stock:
Delivering the Results in a Tough Environment
* * *
- 32 - 1281715_1
Key Results Highlights: MetLife reported 2Q10 operating EPS of $1.23, versus both our estimate and the consensus of $1.00. Excluding a broad range of items, core operating EPS was $1.11. Among the divisions, there existed solid upside almost across the board, although the insurance products division drove most of the upside surprise.
* * *
Insurance product earnings ran considerably above expectations, reflecting favorable mortality, and to a lesser-extent, strong spreads and tightly controlled expenses.
85. After the July 29, 2010 press release and July 30, 2010 conference call, the
Company’s stock traded at artificially inflated prices upwards of $40.00 per share.
86. On August 2, 2010, the Company filed with the SEC its Form 10-Q for the period
ended June 30, 2010. The Form 10-Q, signed by Carlson, Executive Vice President of Finance
Operations and Chief Accounting Officer, substantially repeated the false 2Q10 financial results
reported in the July 29, 2010 press release. In addition, in discussing the New York Attorney
General’s investigation and the manner in which the Company treats its retained asset accounts, the
Company stated that any allegations that its retained asset accounts or the treatment of funds therein,
including disclosures regarding the same, violated any state or federal laws were “without merit”
and, in any event, would not affect the financial statements taken as a whole:
Retained Asset Account Matters
* * *
The New York Attorney General recently announced that his office had launched a major fraud investigation into the life insurance industry for practices related to the use of retained asset accounts and that subpoenas requesting comprehensive data related to retained asset accounts have been served on MetLife and other insurance carriers. We received the subpoena on July 30, 2010. It is possible that other state and federal regulators or legislative bodies may pursue similar investigations or make related inquiries. We cannot predict what effect any such investigations might have on our earnings or the availability of the TCA, but we believe that our financial statements taken as a whole would not be materially affected. We believe that any allegations that information about the TCA is not
- 33 - 1281715_1
adequately disclosed or that the accounts are fraudulent or otherwise violate state or federal laws are without merit.
87. Defendants’ representations in ¶¶65-86 concerning: (i) reported financial results for
4Q09, FY09, 1Q10 and 2Q10, in particular, reported income and overall segment operating earnings
for each period; (ii) strong or disciplined underwriting results and expense management (¶¶65-66,
77); and (iii) reported mortality results and experience (¶¶82-84), were each knowingly or recklessly
false when made for the following reasons:
(a) Defendants knew or recklessly disregarded that 4Q09 financial results and
FY09 financial results, as reported in the February 26, 2010 Form 10-K and 1Q10 and 2Q10
reported financial results, particularly reported income and operating earnings were materially
misstated both quantitatively and qualitatively. Because the Company, for years prior to the Class
Period and during the Class Period, admittedly failed to account for known incurred liabilities
(deaths of policyholders that the Company actually knew of or had reason to know of), which
MetLife owed benefits to beneficiaries or state authorities pursuant to unclaimed property laws,
defendants knowingly or recklessly caused the Company’s income and operating earnings to be
materially misstated. See ¶¶179-196; see also Section VIII, MetLife’s Financial Statements Were
Materially Misstated in Violation of GAAP and SEC Disclosure Rules;
(b) In addition, the Company’s 4Q09, FY09, 1Q10 and 2Q10 financial statements
were false and misleading for all of the reasons set forth below in Section VIII, MetLife’s Financial
Statements Were Materially Misstated in Violation of GAAP and SEC Disclosure Rules;
(c) Defendants also knew that the Company had, for years, systematically used
the SSA-DMF across certain of its business units for purposes beneficial to the Company’s bottom
line, including stopping payments to annuitants identified in the SSA-DMF, responding to regulatory
agency inquiries, and complying settlement agreements in litigation. Defendants also knew, through
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the prior utilization of the SSA-DMF, that the Company was in possession of, or had access to,
information that was strong evidence of death of policyholders and knew that the Company’s
processes and procedures were designed or implemented to largely ignore that evidence or
information to the extent that it would require locating beneficiaries, escheating monies to state
agencies or increasing reserves – all of which would negatively impact operating earnings;
(d) Had defendants utilized the SSA-DMF to identify deceased policyholders and
recognized known incurred liabilities, paid beneficiaries or properly escheated monies to the states
as required by state law and insurance regulations, the Company would have reported operating
earnings of materially less than $0.96 reported in 4Q09, $2.87 in FY09, $1.01 in 1Q10 and $1.23 in
2Q10;
(e) Defendants admit, contrary to representations that its financial statements
taken as a whole would not be materially impacted by investigations into its retained asset accounts,
charges to earnings would do just that. In October 2011, the Company was forced to disclose that
because of its failure to incorporate information known or accessible to the Company through
utilization of the SSA-DMF, its liabilities were in excess of its reserves. Thus, because the Company
had failed to properly account for deaths it actually knew, or should have known of, the Company
would take a $117 million after-tax charge, and operating earnings were reduced by $0.11 operating
earnings per share in 3Q11 alone. ¶¶156-170;
(f) Defendants’ statements, in ¶¶65-66, 75, 77-78, 81, 83, regarding the
Company’s purported solid underwriting experience and results in group life and individual life
products and better expense savings efforts were also knowingly materially false and misleading
when they were made. In truth, defendants knew but failed to disclose that the reported underwriting
results in both group life and individual life for 4Q09, FY09 and 1Q10 and 2Q10, to the extent that
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they contributed to purported strong financial performance was in part due to the Company’s known
failure to identify, account for and pay beneficiaries of policyholders the Company actually knew
had died or had reason to know had died, and died long ago;
(g) In addition, defendants knew or recklessly disregarded that its statements
concerning expense management (¶¶75, 77-78), July 29, 2010 and July 30, 2010 (¶¶81-84), were
false when made. In truth, as the Company has now admitted, in addition to the reasons set forth
above, defendants’ reported expense management was in part due to the Company’s failure to
escheat monies (unclaimed property), belonging to policyholders’ beneficiaries, which had not been
claimed, and that the Company owed to states pursuant to state unclaimed property laws.
Defendants’ knowing failure to recognize and account for known liabilities and expenses caused
their public statements about strong underwriting and expense management and their purported
contribution to strong financial results to be knowingly and materially false and misleading;
(h) Defendants’ statements on February 2 and February 3, 2010 (¶¶65-67),
March 15, 2010 (¶74), April 30, 2010 (¶¶76-77), July 29, 2010 and July 30, 2010 (¶¶81-84),
concerning the Company’s favorable mortality results, including an individual life mortality ratio of
81.1% and group life mortality ratio of 89.7% for 4Q09; 89.5% group life and 87.6% individual life
for 1Q10; and 86.6% group life and 80.4% individual life for 2Q10, were also knowingly or
recklessly false and misleading when made. In truth, defendants knew or recklessly disregarded that
the favorable reported mortality ratios (which were purportedly more favorable than its competitors’
reported mortality ratios) were similarly due to the Company’s failure to account for known deaths
of policyholders or access to evidence of death of policyholders. Defendants’ failure to account for
and include known evidence of death and liabilities into its risk assumptions and results materially
skewed the reported mortality ratios to be favorable for the Company as opposed to the true, less
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favorable mortality experience. On October 27, 2011, when the Company reported its financial
results for 3Q11, which included the $117 million charge to earnings related to the failure to utilize
the SSA-DMF, for purposes designed to actually locate and pay policyholder beneficiaries as
opposed to avoiding payments, the Company reported sharply increased mortality ratios including
98.5% for group life and 98.5 % for individual life. The increase in reported mortality ratios was
admittedly due to the $117 million reserve charge. ¶170;
(i) As alleged herein, defendants misrepresented the Company’s mortality
experience throughout the Class Period. The chart below shows reported mortality ratios in group
and individual life between 1Q09 and 3Q11, evidencing the long-term favorable impact of
undisclosed truth concerning the failure to utilize the SSA-DMF to calculate the true mortality ratios:
Reported Mortality Ratios During the Relevant Period
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
Reported Mortality
Ratio
G 92.2% I 82.6%
G 91.3% I 74.9%
G 92.2% I 91.1%
G 89.7% I 81.1%
G 89.5% I 87.6%
G 86.6% I 80.4%
G 89% I 86.7%
G 89.7% I 82.9%
G 88.2% I 92.5%
G 82.1% I 84.4%
G 98.5% I 98.5%
(j) In addition to the above, the Company’s financial statements for 4Q09, FY09
and 1Q10 and 2Q10 in their entirety, including the consolidated results reported in the February 26,
2010 Form 10-K were knowingly or recklessly false and misleading. Defendants knew but failed to
disclose and have now admitted that monies for years, including the Class Period, effectively
reported as assets as opposed to liabilities, likely hundreds of millions of dollars belonging to
beneficiaries of policyholders related to its individual life insurance policies, group life insurance
policies, annuities, life insurance with retained asset account features or should have been escheated
to the states as opposed to being withheld by MetLife, and invested for its own account to inflate the
Company’s balance sheet. See ¶¶179-196. MetLife’s Financial Statements Were Materially
Misstated in Violation of GAAP and SEC Disclosure Rules;
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(k) Defendants Henrikson’s and Wheeler’s Sarbanes-Oxley certifications dated
February 26, 2010 were also materially false. Defendants also knew or deliberately disregarded that
its internal controls and practices and procedures were designed and/or implemented to ignore, for
purposes of paying beneficiaries, escheating monies to states or increasing reserves, reliable
evidence in the Company’s possession or available to it, of death of policyholders, which required
the Company to pay. These deficiencies in the Company’s internal controls adversely affected the
Company’s financial reporting and defendants knew or recklessly disregarded the facts. The
Company has admitted that for at least 30 years it has used the SSA-DMF and for 15 or more years
has used it “systematically” for certain parts of its business, in particular its annuities business. See
¶140. See generally Exs. A-B.4 The Company has also admitted in 2007 that it used the SSA-DMF
to match individual life policies and that match process revealed that the Company held at least $80
million that had belonged to policyholder beneficiaries or should have been escheated to states.
Some of those policyholders died in the 1970s;
(l) Moreover, as further evidence of defendants’ knowledge and intent to
withhold beneficiaries’ monies or ignore evidence of death in its possession, defendants admit even
when the Company conducted the 2007 SSA-DMF match, when the Company found a death that
had occurred years before 2007 it used June 1, 2007 as the beginning of the dormancy period, which
starts the clock for the state escheatment of unclaimed property to states. For example, defendants
admitted during testimony before insurance regulators on May 19, 2011 and May 23, 2011 that as
part of a 2007 match of individual life policies against the SSA-DMF, when they found and
4 Unless otherwise indicated, all exhibits referenced herein are attached hereto.
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confirmed that the death of a policyholder had occurred in the 1960s or 1970s, the Company
generally and intentionally used June 1, 2007 as the date of proof of death to start the dormancy
period. Ex. A at 83-84, 127-28; Ex. B at 104;
(m) Defendants knew or recklessly disregarded and failed to disclose that the
Company’s IBNR reserves (and the related representations) were inadequate and misleading, lacked
a reasonable basis, or did not rest on a meaningful inquiry. The Company has admitted that in 2007,
in response to regulatory communications concerning the SSA-DMF and internal reviews of
Company procedures conducted with the Company’s internal auditors, that MetLife believed that
using the SSA-DMF may help to identify deceased policyholders. Ex. A at 150-51; see also id. at
30-35, 55-56. Accordingly, in 2007 MetLife cross-checked certain of its individual life insurance
policies against the SSA-DMF and identified over $80 million in unclaimed benefits or unreported
claims. Ex. A at 68, 150-51; Ex. B at 57-59, 119. Approximately $50 million of those unclaimed
benefits were paid to beneficiaries and approximately $30 million were sent to its unclaimed funds
account to begin the dormancy period for escheatment to relevant states. Ex. B at 57-59, 119; see
also Ex. A at 68. In the same year, during 4Q07, MetLife had to increase reserves in its individual
life insurance business by $25 million to account for unreported claims impacting operating income
by $0.04 EPS, after-tax:
(i) On February 7, 2008, the Company hosted a conference call for
analysts and investors to discuss the 4Q07 and FY07 financial results. During the call, Wheeler
discussed the financial results including results for the individual life insurance business. Wheeler
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specifically reported that the Company had to increase reserves in the quarter by $25 million, after
taxes, in order to account for unreported claims:5
[WHEELER:] In individual business our mortality ratio of 82.3% for the quarter was within our expected range but net underwriting results were less favorable than in the prior year due to low reinsurance coverage on certain claims, and also a $25 million after-tax increase in our reserve for unreported claims.6
(ii) On the same day UBS issued a report titled “Initial Take on 4Q07,”
which detailed the $25 million “[r]eserve increase for unreported claims” in 4Q07 as having a $20
million after-tax impact (constituting a $0.03 EPS impact) in Traditional Life and a $5 million after-
tax impact (constituting a $0.01 EPS impact) in Variable & Universal Life:
Table 1: 4Q07 Unusuals (as identified by MET)7
Segment
Description
After-Tax Impact
After-Tax EPS Impact
* * *
Group Life Legal reserve (MET would not provide details) ($10) ($0.01)
* * *
Traditional Life Reserve increase for unreported claims ($20) ($0.03)
* * *
UL/VUL Reserve increase for unreported claims ($5) ($0.01)
UL/VUL Higher non-recurring expenses ($1) ($0.00)
* * *
Total Unusuals (as identified by MET) $130 $0.17
5 $25 million after taxes equates to approximately $35 million before taxes for MetLife during 2007.
6 Although MetLife did not admit a connection between the $25 million increase in the Company’s individual life insurance business and MetLife’s 2007 cross-check of the SSA-DMF, the Company did state that the increase in reserves was to account for unreported claims. Documents uncovered in discovery and discussed herein establish the connection. See ¶90(e).
7 Excerpt of “Table 1” from UBS’s February 7, 2008 analyst report titled, “Initial Take on 4Q07.”
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Table 1: 4Q07 Unusuals (as identified by MET)7
Segment
Description
After-Tax Impact
After-Tax EPS Impact
Reported 4Q07 Operating EPS $1.60
“Adjusted” 4Q07 Operating EPS $1.43
Source: MET; UBS
(iii) On February 7, 2008, Morgan Stanley also issued a report titled
“Generally In-Line Results, and That’s a Good Thing in Today’s Environment” discussing the
Company’s financial results including a $25 million impact on reported operating income which
consisted of a $20 million impact due to the increase in “[r]eserve for unreported claims”
(constituting a $0.03 EPS impact) and a $5 million increase in “[r]eserve charge in VUL”
(constituting a $0.01 EPS impact). In fact, Morgan Stanley described the reserve increase to account
for unreported claims as “Abnormal Items [that] Influenced MetLife’s Results.”
Exhibit 18 Abnormal Items Influenced MetLife’s Results $M Operating Earnings EPS($) Reported Operating Income 1,208 1.60 * * * Legal Reserve 10 0.01 Reserve for unreported claims 20 0.03 Misc. Expenses and other Misc. Items 33 0.04 Prior Year Development -25 -0.03 * * * Tax adj related to setting up new reserve -54 -0.07 Reserve charge in VUL 5 0.01 * * * Reserve set up 12 0.02 * * * Run-rate Operating Income 1,078 1.43 Morgan Stanley Estimate Difference
1,093 -15
1.46 -0.03
Source: Company data, Morgan Stanley research
(iv) The Company’s reported financial results for 4Q07 and FY07,
specifically the acknowledgment that current reserves were not sufficient to cover unreported claims
8 Excerpt of “Exhibit 1” from Morgan Stanley’s February 7, 2008 analyst report titled, “Generally In-Line Results, and That’s a Good Thing in Today’s Environment.”
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and the concomitant increase to reserves for unreported claims in individual life insurance business
is consistent with the Company’s May 23, 2011 testimony relating to MetLife’s identification of
approximately $80 million in unclaimed benefits or unreported claims in its individual life business
based on using the SSA-DMF in 2007:
[KATZ:] In 2007, we ran just about all of our individual life businesses.
* * *
We found out of that approximately 28,000 individuals whose information showed up on the Social Security Death Index and our administrative records. Of those 28,000, we found approximately 18,000, there was a liability due for those individuals. That totaled approximately $80 million. I think it was about $84 million.
As a result of that, we now determined we had an indication of death on those individuals and began a process to search out beneficiaries – which we did – which ultimately resulted in the $50 million I explained.
However, we couldn’t find everybody. That resulted in the $30 million that I explained that went into the escheatment process.
* * *
18,000 individuals of the 28 where we felt we had an accurate match, was really a match.
And those are the people that we began the claim investigation program. Those were the people that identified that ultimately resulted in $80 million in payments of which $50 million or so were actually paid to beneficiaries and another $31 million were put into our unclaimed property for escheat.
Ex. B at 58-59, 119; see also Ex. A at 68.
(v) During the May 23, 2011 hearing, MetLife also testified that the 2007
cross-check of its individual life business included whole life, term life and universal life policies:
[CASSANDRA:] The 2007 run, we matched most of our individual life insurance policies. That would include the industrial, whole life, and any other – universal life, the life insurance products normally manufactured by individual policies.
[HANSON:] That was just the life, business, individual life?
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[CASSANDRA:] Specifically with regard to the 2007 match that we discussed, the scope of that was the individual life business, which got materially most of the business.
It was small assumed blocks of business which were not matched in 2007 and provided, of course, that we had a Social Security number to match.
[HANSON:] So it’s just individual life policies remained where they had a Social Security number. It wasn’t group. Was it a whole term?
[CASSANDRA:] Yes, whole life, term life and universal life.
Ex. B at 75-76. According to MetLife’s Form 10-K for FY07, the Company’s traditional products
include whole life and term life products: “Our individual insurance products include variable life
products, universal life products, traditional life products, including whole life and term life, and
other individual products, including individual disability and LTC insurance.” Analysts split the $25
million increase in reserves for unreported claims MetLife announced on February 7, 2008 between
the Company’s Traditional Life business (which includes whole life and term life products) and
Variable & Universal Life business. ¶87(m)(ii)-(iii). These appear to be the same lines of business
which Cassandra testified on May 23, 2011 that MetLife cross-checked against the SSA-DMF in
2007. Ex. B at 75-76;
(n) Defendants knew but failed to disclose that notwithstanding knowledge based
upon the running of a SSA-DMF match against its individual life policies in 2007 that the Company
had possession of beneficiary monies that should have been reserved for, paid to beneficiaries or
escheated to the state, it had never, for purposes of determining whether it was holding monies
belonging to policyholder beneficiaries, run a SSA-DMF match against its group life policies. See
¶140. See also Ex. A at 48-50, 69-71, 83, 127; Ex. B at 75-76, 82, 104, 128. Moreover, as of May
2011, the Company still had not used the SSA-DMF to match against group life policies. Ex. A at
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69-71; Ex. B at 82, 128. 9 However, in 2010, MetLife estimated that group life would require a
reserve increase of approximately $189 million to account for expected claims resulting from a
cross-check of its group life policies against the SSA-DMF. ¶111. Nevertheless the Company did
not reserve for the reasonable likelihood, based on its knowledge of information available to it that
significant money was owed to the beneficiaries of group life policyholders;
(o) Defendants also knew but failed to disclose that the Company had in its
possession monies that had not been paid to beneficiaries and had not been escheated to the states
that were due to policyholder beneficiaries of industrial policies; policies, which had been sold door-
to-door to low-income families more than 50 years ago that the Company had stopped selling in
1964; and
(p) Defendants admit that the Company had in place written policies about the
usage of the SSA-DMF, knew and understood how to access and use the information in the SSA-
DMF and how such usage pertained to its businesses. Company executives have testified that the
Company understood that making annuity payments to deceased annuitants would result in
economic losses to the Company that were likely not recoverable. Thus, the Company instituted or
applied policies to match annuity contracts against the SSA-DMF to avoid such losses. Conversely,
defendants knew or recklessly disregarded that maintaining or withholding death benefits from
beneficiaries even where the Company knew the policyholder was deceased, would be and in fact
was financially beneficial to the Company such that reported earnings would be inflated and
expenses and liabilities would appear to be less than the Company’s actual experience.
9 As alleged in ¶170 infra, when defendants took the charge to earnings of $117 million in 3Q11, 75% was related to group life matches in the SSA-DMF.
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88. In addition to the facts set forth above in ¶87, newly discovered facts confirm that
MetLife knew that its methodology and assumptions for computing IBNR reserves were flawed
because the Company failed to consider unreported deaths and therefore knew that its IBNR reserves
would not be sufficient to offset claims likely identified from using the SSA-DMF more broadly and
regularly in its individual life insurance and group life insurance business. MetLife knew that such
broader use of the SSA-DMF would likely require material adverse reserves adjustments and charges
to income and earnings. MetLife’s knowledge was based on internal reviews of its abandoned
property practices, facts gathered in the state investigations and the 2007 one-time cross-check of its
individual life policies against the SSA-DMF that identified thousands of deceased policyholders
resulting in a material increase to the Company’s IBNR reserves and a material decrease in reported
earnings. ¶¶89-90, 111-123.
89. As detailed below, MetLife also knew that the one-time SSA-DMF cross-check in
2007 did not match all of its individual life policies and none of its group life policies,10 and that
broader or more routine cross-checks would uncover more deceased policyholders, expose known
flaws in its methodology for computing IBNR reserves and require more charges to earnings – just
as it had in 2007. See ¶¶111(a), 177:
(a) In June 2006, MetLife’s Internal Audit Group conducted an audit of the
Company’s abandoned property and escheatment practices in its Individual Business, its Institutional
Business and Broker Dealer businesses. On June 29, 2006, the Internal Audit Group issued a report
10 In supplemental responses provided to California Insurance Department on June 30, 2011, MetLife stated, “[o]ur group life record keeping administered business is less than 25% of our entire group life inforce total.”
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and opinion (“Internal Audit Report”) detailing its findings and proposed action plan for, among
other things, using the SSA-DMF to actively identify unreported deceased policyholders beginning
in 2007.11 The Internal Audit Report contained in relevant part the following opinions and finding:
• “[A]s a result of the availability of the social security death index match, LOB should consider developing policies and procedures to detect unreported deaths of persons insured under our policies. This would be a proactive response to the increased scrutiny by States to identify abandoned property as evidenced by the Montana and recent New York abandoned property audits of MetLife and it is not a requirement under current laws and regulations.”12
• “The trend on using social security death index match is likely to continue as other states come in and audit abandoned property procedures.”
• “The Abandoned Property unit should consider developing Policies and Procedures using the social security death index as a tool to actively identify unreported deceased policies.”
• “[A] number of aged claims and maturities for Travelers that have not been turned over for escheatment.”13
• “The policy pending claims liability has not been set up to account for the unreported deceased insured’s identified by the New York State Comptroller Audit.”14
(b) The Internal Audit Report also found that states had begun to aggressively
view abandoned property as a source of revenue resulting in an “increase in audit activity” and
11 The Internal Audit Report was circulated widely at the Company to groups including the Company’s Life Administration, Financial Operations and Corporate Controllers, Corporate Risk Management, Deloitte & Touche, LLP (“Deloitte”) and Corporate Ethics and Compliance.
12 The Internal Audit Report defines LOB as a “Line of Business” and noted that scope of the audit included “the Abandoned Property Escheatment process for Individual Business, Institutional Business, and Broker Dealer.”
13 MetLife acquired Citigroup’s Traveler’s Life and Annuity business in 2005 for $11.8 billion which was among its largest acquisitions.
14 The 2006 Internal Audit Report and its findings were circulated across the leadership of the Company and the Company’s outside auditor, Deloitte.
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“large assessments for businesses.” Analyzing “Unreported Deceased Insured Monitoring,” the
Internal Audit Report recognized that as a result of recent unclaimed property audits by Montana and
New York, the Company had identified, for New York alone, 3,600 unreported deceased policies.
The Internal Audit Report detailed the financial impact from New York’s examination of
“Unreported Deceased Insured Accounting,” namely $1.8 million in pending claims liability
incurred in 1Q06 plus a $4-$6 million liability that would need to be set up.
(c) Finally, the Internal Audit Report identified several categories of abandoned
property business related risks including regulatory risks, insurance risks and operational risks as
among those it considered as part of the audit. These risks were directly related to the adequacy of
the Company’s reserves and the accuracy of the Company’s financial reporting including the risk
that: (i) the Company was not in compliance with regulations; (ii) reserves were not sufficient to
meet future events; and (iii) liabilities were not being reported accurately on the general ledger:
• Regulatory Risk
• Compliance with state abandoned property laws and regulations: The risk that the company does not comply with applicable regulations or does not have adequate processes to identify laws and monitor compliance.
• Insurance Risk
• Reserves: The risk that pending claim reserves is not sufficient to meet future events.
• Operational Risk
• Financial Reporting: Risk that liabilities, cash, and receivables are not reported accurately, timely, and completely on the general ledger.
(d) In accordance with the action plans set forth in the 2006 Internal Audit
Report, the Company designed a SSA-DMF match process that was intended to begin in 2007 and
be fully implemented by 2009. As detailed in a July 31, 2006 email, the SSA-DMF match process
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was expected to identify a “large amount of [unreported] claims,” and included quarterly sweeps of
the Company’s insurance policies against the SSA-DMF15 on the following timeline:
• 2007, process first sweep of MetLife systems for deceased policyholders in all states.
• 2008, process first sweep of GenAm, NEF and Travelers systems for deceased policyholders in all states.
• 2008 and ongoing, begin processing quarterly sweeps of the Metlife systems in all states.
• 2009 and ongoing begin processing quarterly sweeps of the GenAm, NEF and Travelers systems for deceased policyholders in all states.
(e) As explained above, the action plans called for the first cross-check to occur
in 2007, and additional SSA-DMF sweeps to occur in 2008 and regular quarterly sweeps to begin in
2008 and 2009. However, after MetLife incurred the financial consequences of the $25 million
reserve increase from the 2007 sweep (¶87(m)(i)-(iii), (v)), a June 25, 2008 email confirms that
MetLife’s upper management, alternatively referred to as the Executive Group, consisting of the
senior-most executives of the Company and including defendants Henrickson and Mullaney, and
Lisa Webber and James Lipscomp, decided that the Company would not conduct any proactive
sweeps unless required to do so by regulators:
The Executive Group has decided that we will no longer do proactive sweeps and only when required by a regulator. So the planned sweep that we had for the 4th quarter will not be processed.
15 The 2006 internal audit was, as admitted by the Company (Ex. A at 150-51), the impetus for the 2007 cross-check of its life insurance policies against the SSA-DMF which resulted in the identification of over $80 million in unclaimed benefits and $25 million in reserve charges as detailed in ¶87(m)(i)-(iii).
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(f) In addition to the known failure to conduct regular SSA-DMF cross-checks
against its insurance policies, defendants also knew that the methodology and assumptions that the
Company employed for computing its IBNR reserves, before and during the Class Period, may
ignore deaths that had already occurred. Nevertheless, the Company continued to use the same
methodology – without the necessary adjustments – even though that methodology had already been
exposed as flawed and resulted in insufficient reserves to meet MetLife’s policyholder obligations.
See ¶87(m). Instead, the methodology that the Company used assumed (despite the experience
gained from the Social Security death sweeps performed in 2007) that if a death was not actually
reported within a number of months or years after it occurred, it would never be reported. More
importantly, even when the Company had knowledge of the death of a policyholder, e.g., because it
was listed on the SSA-DMF, if it was not reported, MetLife would treat the policy as if the
policyholder had an active policy. See ¶90(f).
90. Defendants’ actual knowledge of these facts, that its flawed methodology for setting
IBNR reserves historically and currently did not account for known deaths is further established
through records MetLife produced to Verus Financial LLC (“Verus”) as part of state investigations
into MetLife’s unclaimed property practices. In fact, the Company, as early as 2010, admitted to
Verus that MetLife knew that its methodology for setting IBNR reserves: (i) did not account for
deaths on the SSA-DMF; and (ii) that it could overlook deaths with longer lag times, i.e., deaths that
occurred but had not been reported for some years:
(a) Specifically, on or around February 24, 2010, Verus sent a series of written
questions to MetLife directly inquiring about the methodology the Company used to calculate and
set IBNR reserves and whether MetLife used the SSA-DMF to analyze and calculate IBNR reserves.
In response, MetLife provided written answers in a document titled “Computation of the Reserve
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for Losses Incurred But Not Reported.” MetLife’s answers establish that MetLife knew that its
methodology for setting IBNR reserves did not account for all deceased policyholders. With the
backdrop of the 2007 match against the SSA-DMF which required a $25 million reserve charge,
MetLife knew, or recklessly ignored, that IBNR reserves were insufficient to meet future
policyholder obligations.
(b) The written answers prepared by MetLife (and additional records discussed
herein) go far beyond mere access to simple “raw data,” but provide unequivocal evidence of known
infirmities in its IBNR reserve computation process that had and would manifest into material
adverse adjustments to the Company’s financial statements. See ¶90.
(c) The Company admitted to Verus that the data used to estimate the IBNR
reserve was entirely based on paid claim experience – not reported or unreported claims experience.
Thus, regardless of whether MetLife knew it had incurred a liability through the death of a
policyholder, if MetLife had not already paid the claim, the Company would not factor the death into
its data for calculating IBNR reserves. The Company also admitted that if a claim was not reported
in some months or some years after its occurrence MetLife assumed it would never be reported and
that the IBNR reserve was not computed based upon the occurrence of a policyholder’s death but
rather whether MetLife paid a claim and the time frame between the date of death and the date of
payment. These known facts contradicted both the explicit and implicit representations made
concerning the adequacy of its IBNR reserves and its IBNR reserve methodology.
(d) As MetLife’s answers to Verus’s questions show, the Company knew and also
admitted that its methodology relied strictly on paid claims experience to calculate IBNR reserves
for both individual life and group life, removing any serious doubt as to whether the Company knew
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undisclosed facts concerning the deficiency in IBNR reserves for both individual life and group life
policies:
[VERUS QUESTION:] In computing the IBNR, are incurred claims that may never be reported (and, accordingly, should eventually be escheated to the states as unclaimed property) included in the estimation process or does the company use a method that only takes into account claims that are expected to be eventually reported by means of a death claim?
[METLIFE ANSWER:] The data used to calculate IBNR is based entirely on our paid claim experience. If a claim is escheated to a state, it will be picked up at that time as a paid claim and become part of our reporting lag experience. Claims that have been incurred but not yet reported to us a of the valuation date are still in our records as active policies; hence IBNR is calculated for them along with other active policies. There is no estimate made of claims that may never be reported.
[VERUS QUESTION:] Is the IBNR computed based on the occurrence of a death or on a death claim being actually filed?
[METLIFE ANSWER:] The IBNR methodologies, both Group Life and Individual Life, are based on our historical experience of the lag between the date the death is incurred to the date the claim is reported to us (or approved by us or paid by us).
(e) Apart from the specific questions concerning the methodologies and
assumptions used to calculate and set IBNR reserves, Verus asked MetLife whether it had ever used
the SSA-DMF for validating or computing IBNR reserves in its businesses or those MetLife had
acquired or considered acquiring. MetLife acknowledged that in 2007 it in fact had, in response to a
New York Insurance Department requirement, run a one-time match of its life insurance policies
against the SSA-DMF requiring an increase in its IBNR of $25 million. The Company also admitted
that its “regular process of calculating IBNR does not use the Social Security Death File”:
[VERUS QUESTION:] Has the company ever used the Social Security Death Index for validating or computing IBNR . . . ?
[METLIFE ANSWER:] Three years ago, the New York State Department of Insurance required the Individual Life Insurance department, to run a onetime match of the Social Security Death file against our inforce policies to determine if there were unreported deaths that should be investigated. A $25 million additional IBNR was established at that time. . . .
- 51 - 1281715_1
Our regular process of calculating IBNR does not use the Social Security Death file.
(f) Verus also asked whether funds that were escheated or should have been
escheated – when no death claim had ever been filed – were considered in calculating IBNR.
MetLife responded “no” and admitted that its “IBNR methodologies may ignore claims that have an
excessively long period between incurral and being paid”:
[VERUS QUESTION:] With regard to the historical experience that may have been used by the company to determine its IBNR reserve, have the claims and the related funds that either have been escheated or should have been escheated to the states where no death claim was ever filed, been considered?
[METLIFE ANSWER:] Whether a claim is paid due to it being filed as a claim, or appears in our ledger as a paid claim due to the funds being escheated to a state, it is treated identically as a paid claim in the IBNR calculation. Our IBNR methodologies may ignore claims that have an excessively long time period between incurral and being paid, i.e., we will assume 100% claim completion after a certain number of months or years.
(g) Finally, the Company admitted that even if a death is reported on the SSA-
DMF, if no beneficiary reports the death, there are no provisions made to IBNR reserves:
[VERUS QUESTION:] Are any provisions made in the IBNR reserves for death claims that are never reported by beneficiaries?
[METLIFE ANSWER:] No.
B. MetLife Prices Secondary Offering of 75 Million Shares at $42.00 Per Share to Acquire AIG International Life Insurance Business ALICO
91. On August 2, 2010, the Company issued a press release announcing that it had priced
a secondary offering of 75 million shares of MetLife stock at $42.00 per share to fund the purchase
of ALICO from AIG:
MetLife Prices Public Offering of Common Stock
* * *
MetLife, Inc. . . . announced today that it has priced a public offering of 75 million shares of common stock at $42.00 per share for gross proceeds of $3.15
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billion. In addition, the underwriters have an option to purchase an additional 11.25 million shares of common stock to cover over-allotments, if any.
Net proceeds from the sale of the common stock will be used to help finance the $6.8 billion cash portion of the purchase price for MetLife’s previously announced acquisition of American Life Insurance Company from American International Group, Inc. In addition to the common stock offering, MetLife also plans to offer approximately $3 billion in senior debt in several series with varying maturities and interest rates. The remainder of the cash portion of the purchase price will be funded with cash on hand.
92. On August 3, 2010, the Company filed with the SEC a Form 424(b)(5) Prospectus
Supplement (the “August 3, 2010 Registration Statement”) setting forth the terms of a common
stock, debt and equity offering in connection with the acquisition of AIG’s ALICO international life
insurance business.16 The August 3, 2010 Registration Statement was issued pursuant to the
Company’s November 6, 2007 Prospectus.17
93. The August 3, 2010 Registration Statement incorporated by reference the Form 10-K
for fiscal year ended December 31, 2009 and Forms 10-Q for periods ended March 31, 2010 and
June 30, 2010, each of which contained knowing or reckless false financial statements as detailed
16 The August 3, 2010 Registration Statement incorporated the following documents by reference:
Annual Report on Form 10-K for the year ended December 31, 2009; Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010; Definitive Proxy Statement filed on March 23, 2010; Registration Statement on Form 8-A, relating to MetLife, Inc.’s common stock and Series A Junior Participating Preferred Stock purchase rights, filed on March 31, 2000, as amended and restated by the Registration Statement on Form 8-A/A, Amendment No. 1 filed on March 11, 2010; and Current Reports on Form 8-K filed on January 29, 2010, February 22, 2010, March 5, 2010, March 11, 2010, April 13, 2010, May 3, 2010, May 7, 2010, May 17, 2010 and August 2, 2010.
17 On November 6, 2007, the Company filed a Form S-3 Registration Statement with the SEC for the offering of securities through underwriting syndicates managed or co-managed by one or more underwriters, through agents or directly to purchasers.
- 53 - 1281715_1
above at ¶87(a)-(p) and further explained below. See MetLife’s Financial Statements Were
Materially Misstated in Violation of GAAP and SEC Disclosure Rules, infra ¶¶179-196.
94. On August 6, 2010, the Company issued a press release announcing that it had
completed the offering of 86.25 million shares of its common stock and raised gross proceeds of
$3.6 billion:
MetLife Completes Public Offerings
NEW YORK, Aug 06, 2010 (BUSINESS WIRE) –
MetLife, Inc. (NYSE: MET) announced today that it has closed its recently announced public offering of 75 million shares of common stock and issued an additional 11.25 million shares of common stock pursuant to the exercise in full by the underwriters of their over-allotment option. The total offering of 86.25 million shares produced gross proceeds of approximately $3.6 billion.
MetLife also has closed its public offerings of $3 billion in aggregate principal amount of senior debt in several series with varying maturities and interest rates.
Net proceeds from the common stock and senior debt offerings will be used to help finance the company’s previously announced acquisition of American Life Insurance Company from American International Group, Inc. . . . .
95. On August 6, 2010, MetLife’s share price closed at $41.42.
96. On October 28, 2010, the Company reported its 3Q10 financial results in a press
release, boasting of increased operating earnings, strong underwriting and lower expenses,
particularly in the Company’s insurance business:
MetLife Announces Third Quarter 2010 Results
* * *
NEW YORK, Oct 28, 2010 (BUSINESS WIRE) –
MetLife, Inc. (NYSE: MET) today reported third quarter 2010 net income of $286 million, or $0.32 per share, which reflects net investment and net derivatives gains and losses. Operating earnings for the third quarter of 2010 were $878 million, or $0.99 per share.
- 54 - 1281715_1
“MetLife has delivered another strong quarter as we grew our top line and also increased operating earnings 22% over the third quarter of 2009,” . . . our focus on disciplined growth and strong underwriting contributed to the earnings increase we reported.
* * *
U.S. BUSINESS
* * *
Operating earnings of $764 million, up 21% due to solid underwriting, higher net investment income and lower expenses
. . . Operating earnings for Insurance Products were $345 million, up 14% due to favorable underwriting, higher net investment income and lower expenses.
97. On October 29, 2010, the Company held a conference call for analysts and investors
to discuss the 3Q10 results. The call was hosted by defendants Henrikson, Kandarian, Wheeler and
Mullaney. During the call, in addition to repeating the false financial results in the October 28, 2010
press release, defendants again boasted falsely of increased operating earnings, strong underwriting
results, expense management and very good mortality ratios:
[HENRIKSON:] Turning to our domestic business segment results, US business generated premium fees and other revenues of $7.1 billion, flat over the prior year period though up modestly excluding the impact of lower pension close out activity which as you know can vary from quarter to quarter.
Operating earnings grew by 21% with significant increases in each of the major segments, largely driven by very strong underwriting results as well as the benefits of ongoing expense management.
In our insurance products segment . . . . And operating earnings grew 14%, up in each product line. Group life premiums grew 2% and operating earnings were up 6% compared with the prior year period.
The group life mortality ratio was very good at 89%, and has remained below investor day guidance each quarter this year. . . .
. . . Individual life premium fees and other revenues were down, due to unusual items in the year ago period and flat when normalized. Operating earnings grew by 5%, reflecting solid mortality results.
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98. On November 1, 2010, the Company issued a press release announcing the
completion of its acquisition of ALICO from AIG for a total of $16.2 billion:
MetLife Completes Acquisition of American Life Insurance Company
* * *
MetLife, Inc. . . . announced today that it has completed its acquisition of American Life Insurance Company (Alico) from American International Group, Inc. (AIG) for $16.2 billion.
* * *
Consideration paid by MetLife to AIG for the acquisition of Alico consisted of $7.2 billion in cash consideration after adjustments and $9.0 billion in MetLife equity and other securities, subject to closing adjustments. The securities portion of the purchase price consisted of 78.2 million shares of MetLife common stock, 6.9 million shares of contingent convertible preferred stock and 40 million equity units. The values of the common and preferred stock are based on the closing price of MetLife’s common stock on October 29, the trading date prior to closing.
99. On November 30, 2010, the Company filed a Form S-3 Shelf Registration Statement
and Prospectus for the purposes of offering securities through underwriting syndicates managed or
co-managed by one or more underwriters, through agents or directly using a prospectus supplement
in remarketing or other resale transaction.18
18 The November 30, 2010 Form S-3 incorporated by reference, the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2009; Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarter ended March 31, 2010 and Quarterly Reports on Form 10-Q for the quarters ended June 30, 2010 and September 30, 2010; the Registration Statement on Form 8-A, dated March 31, 2000, relating to registration of shares of MetLife Inc.’s common stock; Definitive Proxy Statement filed on March 23, 2010; and Current Reports on Form 8-K filed January 29, 2010, February 22, 2010, March 5, 2010, March 11, 2010, April 13, 2010, May 3, 2010, May 7, 2010, May 17, 2010, August 2, 2010, August 5, 2010, August 6, 2010, August 16, 2010, October 18, 2010, October 28, 2010, October 29, 2010, November 2, 2010, November 15, 2010 and November 30, 2010.
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100. On February 9, 2011, the Company issued a press release announcing its 4Q10 and
FY10 financial results. The press release boasted of strong overall operating earnings, insurance
products operating earnings and solid group life underwriting results:
MetLife Announces Fourth Quarter and Full Year 2010 Results
* * *
MetLife, Inc. . . . today reported fourth quarter 2010 net income of $51 million, or $0.05 per share, and operating earnings of $1.2 billion, or $1.14 per share. . . .
MetLife today also reported full year 2010 net income of $2.7 billion, or $3.00 per share. Operating earnings for the full year 2010 were $3.9 billion, or $4.38 per share.
“Our 2010 financial results were strong, including a 65% increase in operating earnings, which is consistent with the guidance we provided in December at Investor Day,” said C. Robert Henrikson . . . .
* * *
U.S. BUSINESS
* * *
• Operating earnings of $841 million, down 5% as strong results in Corporate Benefit Funding earnings were offset by lower earnings in Insurance Products and Retirement Products; increased amortization of DAC and other adjustments as a part of the annual review of DAC assumptions reduced U.S. Business earnings by $17 million ($0.02 per share), after tax
Insurance Products
* * *
Operating earnings for Insurance Products were $309 million, down 23% as higher net investment income was more than offset by increased amortization of DAC and other adjustments. In addition, group life underwriting results remained solid and were consistent with fourth quarter 2009 results.
Retirement Products
* * *
Operating earnings for Retirement Products were $175 million, down 17% as higher net investment income and separate account fees were more than offset
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by the impact of the company’s variable annuity hedge program described above as well as less favorable unlocking of DAC and other adjustments.
101. On February 10, 2011, after the report of the 4Q10 and FY10 financial results, the
Company held a conference call for analysts and investors to discuss the results. During the call,
defendants made false positive statements concerning operating earnings, purportedly favorable
mortality results, underwriting and expense management. The call was hosted by Henrikson,
Kandarian, Wheeler and Mullaney:
[HENRIKSON:] In US business, premiums, fees, and other revenues were $7.2 billion, down from the prior year and flat versus the prior quarter. Operating earnings grew by 10% over the prior quarter and we were down slightly over the prior-year period. I am pleased with the financial results in US business, a direct result of our disciplined pricing and continued focus on risk management.
. . . Group life earnings were down somewhat year-over-year as expected. Individual life earnings were down $74 million versus the prior year. The earnings decline is almost entirely attributable to the net difference in DAC unlocking and other adjustments between years.
* * *
[WHEELER:] MetLife reported $1.14 of operating earnings per share for the fourth quarter and $4.38 per share for the full year 2010.
* * *
Turning to our operating margins let’s start with our underwriting results. In US business our mortality results were favorable across the board this quarter. The group life mortality ratio for the quarter was 89.7%, which was flat versus the prior-year period and in line with our expectations. For the full year group life’s mortality ratio was 88.7%, right in the middle of the 2010 investor day guidance range of 88% to 90%, which is a good result.
Our individual life mortality ratio for the quarter was 82.9%. This quarter’s results were a little higher than the very favorable prior-year quarter of 81.1%, but it’s still very favorable to our plan.
* * *
Our investment performance continued to improve, our operating margins remained strong driven by disciplined underwriting and expense management, and our earnings continued to grow.
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102. On February 15, 2011, defendant Wheeler spoke at the Bank of America Merrill
Lynch Insurance Conference. Wheeler was a stand in for Henrikson who was in Tokyo handling
matters pertaining to the ALICO acquisition. During the conference, Wheeler discussed more details
concerning the 4Q10 and FY10 financial results that were announced on February 9, 2011. In
addition, Wheeler made very specific comments about the Company’s underwriting results and its
mortality ratios:
[WHEELER:] Underwriting this quarter was only okay. It can clearly get better. Insurance product, this says from higher mortality. I think that should actually be higher morbidity. Mortality was decent for the quarter – not extraordinary, but decent.
* * *
Underwriting. Now, I’m going to spend a second on this chart, because these are our four most important underwriting ratios. Obviously, in almost every product we sell there is some kind of an underwriting margin element. But I picked the most important four.
So Group Life mortality, steady. And that is just always steady for us. Our peers, not so much. But we are very disciplined about how we price product. . . .
. . . This is clearly one of our strongest businesses and it is a very steady business for us.
Individual Life mortality, it was up a little bit year-over-year, but you can tell – but if you look at the overall last three years, it was still a very good quarter for us. You know, this number can move around a little bit, depending on high life claims generally. But we’ve kind of shown over time that we’ve remained pretty disciplined here in terms of our loss experience.
103. On February 25, 2011, the Company filed with the SEC its Form 10-K for the fiscal
year ended December 31, 2010. The Form 10-K substantially repeated the false 4Q10 and FY10
financial results reported in the February 9, 2011 press release. The Form 10-K was signed by
defendants Henrikson, Burwell, Grisé, Hubbard, Keane, Kelly, Kilts, Kinney, Price, Satcher,
Sicchitano, Wang, Wheeler and Carlson. In addition to the false financials, the Form 10-K also
made the following false purported warning representations concerning the Company’s reserve
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methodologies, mortality results (which were regularly reviewed) and compliance with state and
regulatory capital requirements:
We experienced excellent mortality results in our group life business due to a decrease in severity, as well as favorable reserve refinements in the current year.
* * *
Liability for Future Policy Benefits and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities, certain accident and health, and non-medical health insurance. . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality . . . .
* * *
Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established.
* * *
Other Policy-Related Balances
* * *
The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care and dental claims, as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business.
104. Finally, the February 25, 2011 Form 10-K again purported to disclose that the New
York Attorney General had in July 2010 launched an investigation into the manner in which the
Company keeps and reports the value of its retained asset accounts. The retained asset accounts
were subject to state unclaimed property laws and included monies that had not been claimed by
policyholders or their beneficiaries and had not been escheated to the relevant state authorities which
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defendants knew based on prior utilization of the SSA-DMF to match retained asset accounts but
failed to disclose these facts. Nevertheless, the Company continued to falsely assure investors,
however, that while the investigations were ongoing and certain other regulatory bodies might join
said investigations, any allegations that any information concerning the retained asset accounts was
not disclosed or that it violated any state or federal laws were simply “without merit.” Moreover,
defendants knew but did not disclose that other state regulators had already initiated investigations
and had developed into market conduct examinations or related inquiries into the Company’s overall
payment of death benefits (or failure to pay death benefits to policyholders, including holders of
retained assets accounts who had died long ago), regulatory investigations it was cooperating with
and producing documents:
Retained Asset Account Matters
The New York Attorney General announced on July 29, 2010 that his office had launched a major fraud investigation [TCA] into the life insurance industry for practices related to the use of retained asset accounts as a settlement option for death benefits and that subpoenas requesting comprehensive data related to retained asset accounts had been served on MetLife and other insurance carriers. . . . Management believes that any allegations that information about the TCA is not adequately disclosed or that the accounts are fraudulent or otherwise violate state or federal laws are without merit.
105. The February 25, 2011 Form 10-K also purported to make the following warnings
concerning policyholder liabilities, underwriting, claims and reserve experiences and litigation
contingencies:
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations when a policy matures or is surrendered, an insured dies. . . . We compute the amounts for actuarial liabilities reported in our consolidated financial statements in conformity with GAAP.
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106. The February 25, 2011 Form 10-K was accompanied by the required certifications of
defendants Wheeler and Henrikson pursuant to §§302 and 906 of the Sarbanes-Oxley Act of 2002,
which stated as follows:
1. I have reviewed this annual report on Form 10-K of MetLife, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading . . .;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant . . .;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
* * *
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
* * *
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information . . . .
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107. Each of the statements in, and in connection with, the February 25, 2011 Form 10-K
was false and misleading because defendants failed to disclose material facts described in ¶¶179-
196.
C. MetLife and AIG Jointly Offer 146 Million Shares of MetLife Common Stock Six Months Earlier than Investors Expected and Contemplated by the Agreement with AIG
108. On March 2, 2011, the Company issued a press release announcing the pricing of its
offering of more than 146 million shares of MetLife common stock at $43.25 per share. MetLife
announced that it was offering more than 68 million of the shares for proceeds of $2.97 billion and
AIG was offering more than 78 million of the shares:
MetLife Announces Pricing Of Common Stock And Common Equity Unit Offerings
– Offerings Will Eliminate AIG Ownership of MetLife Securities Received in Acquisition of Alico –
MetLife, Inc. . . . announced today that it and ALICO Holdings LLC, a subsidiary of American International Group, Inc. (AIG), have priced their combined offerings of 146,809,712 shares of MetLife common stock at $43.25 per share.
MetLife offered 68,570,000 shares of its common stock to the public for gross proceeds of $2.97 billion. . . .
AIG offered 78,239,712 shares of MetLife common stock to the public for gross proceeds of $3.38 billion.
109. The timing of the announced 146 million share offering was a surprise to analysts and
investors as it was delivered many months before an offering to sell the AIG shares was
contemplated, in particular, in light of the reported Investor Rights Agreement and nine month lock-
up agreement with AIG. See ¶71. Though securities analysts were initially dismayed by the
announcement they concluded that the March 4, 2011 offering appeared to be designed to simply
allow AIG to dispose of its MetLife shares in an orderly fashion as defendants had previously
indicated was the plan. The truth, however, which had not been disclosed, but was later admitted by
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the Company during testimony on May 19, 2011, was that the Company was in discussions with
state regulators in the summer of 2010 concerning the Company’s use or non-use of the SSA-DMF,
which led to changes in the utilization of the SSA-DMF later in the year. Company executives have
testified, in particular Todd Katz, Executive Vice President U.S. Business Insurance Products, that in
the summer of 2010, the Company in part due to discussions with regulators began to devise a plan
toward making a decision to utilize the SSA-DMF more regularly across its business units. Ex. A at
86; Ex. B at 124-26. According to Katz, the summer 2010 discussions and decisions to devise a plan
to use the SSA-DMF regulatory were led by his “leadership team” and then President of the U.S.
Business, Mullaney, who reported directly to the CEO Henrikson. Ex. B at 73-74. Indeed,
according to Katz, the Company had developed knowledge based upon prior and even systematic
usage of the SSA-DMF that it was an effective tool for identifying deceased policyholders and
helpful in identifying their beneficiaries to whom benefits were owed or designating funds for
escheatment to the relevant states. Ex. A at 30-35, 55-56, 150-51.
110. In December 2010, top executives at the Company, including defendant Mullaney,
had decided to adopt and begin to implement internal policies that would include the utilization of
the SSA-DMF in all business units on a regular basis, at least annually. Ex. A at 86; Ex. B at 124-
26. Defendants knew that such implementation would undoubtedly identify deceased policyholders
and help identify their beneficiaries as it had, for example, in 2007. This SSA-DMF matching
utilization would in turn result in additional expenses, higher reported mortality rates, lower
underwriting results and lower operating earnings. Moreover, disclosure of the new procedures
would highlight historical failures and falsity of prior statements including the Company’s financial
statements and would likely have a negative impact on MetLife’s stock price. However, MetLife
consideration in the form of stock delivered to AIG to complete its consideration for ALICO was at
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risk of MetLife stock price declining before AIG could sell. But AIG was subject to a nine month
lock-up agreement beginning from the close date of the transactions in November 2010.
111. In November and December 2010, MetLife’s Assistant Vice President of Life
Financial Analysis prepared a financial estimate, which was reviewed by the Company’s financial
and actuarial staff, of the liability and financial impact of implementing a Social Security Death
Index process across businesses including individual life, group term life and a series of additional
group policies.19 The financial estimate was requested by defendant Wheeler and presented in a
document, titled “Estimate of Implementing SSDI Process,” and establishes that MetLife knew that
the Company faced an estimated exposure of $230 million pre-tax ($150 million post-tax) impact on
earnings. Specifically, MetLife’s executives knew in December 2010, that the Company faced an
estimated $189 million pretax impact on earnings by implementing the SSA-DMF in its group life
business. The document made the following observations: (i) the Company had no process in place
in group life to use the SSA-DMF to identify unclaimed property; and (ii) no IBNR reserve at all for
unreported claims more than 36 months old:
Group Term Life
1. No SSDI process in place[.]
* * *
7. No IBNR provision for claims greater than 36 months. Will have no IBNR or reinsurance offset[.]
19 A December 20, 2010 email from MetLife’s Vice President & Sr. Actuary, Patrick Studley, to Cassandra and several actuaries, communicated that Stanley Tabli (Executive VP, Financial & Risk Management) had tasked MetLife’s Valuation department with reviewing the work in estimating the earnings impact from broader SSA-DMF use being assessed by Cassandra and Joe Docar (Assistant Vice President in MetLife’s Life Financial Analysis department). The purpose of this review was to give Wheeler an impact estimate by the beginning of January 2011.
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* * *
10. Potential claim liability for cancelled cases where deaths occurred while Met[Life] was the carrier[.]
Estimated Earnings Impact
* * *
Estimated retiree impact full recordkeeping customers . . . $74 [million]
* * *
Estimated retiree full recordkeeping customers . . . $29 [million]
* * *
Estimated Liability from CP . . . $56 [million]
* * *
Estimated Liability from GLIFA . . . $11 [million]
* * *
Estimated GUL over age 65 . . . $8 [million]
* * *
Estimated GUL under age 65 . . . $9 [million]
* * *
Estimated GVUL under age 65 . . . $2 [million]
(a) MetLife also knew from the December 2010 financial analysis that it faced an
estimated additional $41 million pre-tax impact on earnings from using the SSA-DMF in its
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individual life business for deaths.20 The same document made the following observations for
Individual Life:
Key Points
1. SSDI match performed in 2006. Additional Liability for deaths in 2007 through the present.
* * *
3. Liability includes the impact of all separate state reviews[.]
* * *
5. IBNR established to cover claims in the first two years of death[.]
* * *
7. Reserves and Reinsurance offset approximately 32% of Face Amount[.]
Estimated Earnings Impact
Whole Life - Open Block
* * *
Additional Liability plus deaths from 2000-2006 that died in 2007-2010 (24 cohorts) [–] $21 [million]
Additional Liability from deaths 2007-2010 new sales, with two years covered by IBNR (7 cohorts) [–] $6 [million]
Term Life - Open Block
* * *
20 The December 2010 analysis estimated an additional $41 million reserve increase for the individual life business even though a $25 million reserve increase was recorded in Q4 2007 based on the 2007 SSA-DMF match. As a result, MetLife “upper management” knowingly, or recklessly disregarded, that the Company’s IBNR reserves during the Class Period would be materially inadequate to account for all policyholder obligations when the decision was made in 2008 to discontinue any regular SSA-DMF sweeps.
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Additional Liability plus deaths from 2000-2006 that died in 2007-2010 [–] $4 [million]
Additional Liability from deaths from 2007-2010 new sales, with two years covered by IBNR [–] $1 [million]
* * *
IB UL and VUL
* * *
Additional Liability plus deaths from 2000-2006 that died in 2007-2010 [–] $7 [million]
Additional Liability from deaths from 2007-2010 new sales, with two years covered by IBNR [–] $2 [million]
(b) On December 14, 2010, the Illinois Department of Insurance, one of the lead
states in the unclaimed property audit and market conduct examination being conducted by Verus,
wrote to MetLife concerning the status of examination. The letter clarifies that MetLife had already
stated that it wanted to settle the state investigations. The December 14 letter went on to explain
clearly to MetLife that the investigations had already found that the Company routinely failed to pay
out or escheat unclaimed death benefits when the Company knew its policyholders were in fact
deceased:
The examination to date has determined that the company routinely has failed to pay out or escheat unclaimed death benefit proceeds, notwithstanding its possession of information allowing it to identify when “lost” insureds, annuitants, and account owners are, in fact, deceased.
(c) The December 14, 2010 letter from the Illinois Department of Insurance
stated:
[T]o avoid further regulatory action, the company must be prepared to enter into an agreement that will establish the conditions under which the following types of property in the company’s possession shall be considered to be unclaimed and must be escheated:
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• all unpaid life insurance, annuity contract and retained asset account death benefit proceeds or other monies due as a result of a death (as well unclaimed proceeds due under policies that are past the limiting age, maturity age, or endowment age);
• all annuity contract proceeds due under contracts that matured more than 5 years ago but have not been annuitized; and
• all proceeds of retained asset accounts that have been dormant for more than 5 years.
112. The December 14, 2010 letter to MetLife further stated that in order for any
negotiations to be successful, the Company must agree to the following terms among others:
1. The company agrees that a listing on the United States Social Security Administration’s Death Master File (the “DMF”) constitutes proof of death, subject to verification by either Accurint or Rootsweb.
2. The company agrees that the dormancy period for death benefit-related property runs from the date of Death.
113. On December 16, 2010, MetLife representatives met with the Illinois Department of
Insurance and the Florida Office of Insurance Regulation in New York. During that meeting,
MetLife communicated its intent “to begin conducting periodic matches against the Social Security
Administration Death Master File of all life insurance policies, annuity contracts, and TCAs for all
domestic lines of business for which MetLife acts as a record-keeper, no less frequently than
annually.”
114. On January 14, 2011, Cellupica sent another letter to the Illinois Department of
Insurance and the Florida Office of Insurance Regulation in response to requests made at the
December 16, 2010 meeting stating again that: “Beginning in 2011, the Company shall conduct a
match against the DMF of all of the Company’s policies, contracts, and accounts for which it acts as
a record-keeper no less frequently than annually.”
115. On January 21, 2011, Cellupica sent a follow-up letter to the Illinois Department of
Insurance and the Florida Office of Insurance Regulation. In that letter, MetLife admitted
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conducting a match in April 2006 and in 2007 of its in-force and expired/terminated individual life
insurance policies while admitting that “[t]here was no systematic use of the SSDI prior or
subsequent to the 2006/07 project,” and the Company had never systematically matched its group
life policies against the SSA-DMF.
116. On or around January 24, 2011, Wheeler prepared a PowerPoint presentation for the
Board of Directors outlining the Company’s 4Q10 results and 2011 financial plan in a document
titled, “4th Quarter 2010 Update 2011 Plan Update.” The PowerPoint presentation summarized the
Company’s 4Q10 financial estimates and performance and provided a financial plan update for 2011
and revenue estimates for separate segments of the business and called out specific negative
estimates for two events: (i) the Executive Life Insurance Company of New York (“ELNY”)
settlement; and (ii) mortality adjustments, i.e. based on the electronic matching of all in-force
administrative records against the SSA-DMF. The PowerPoint presentation included the following
two slides concerning the Company’s use of the SSA-DMF and informing the Board that it was
“likely” that it would require approximately ($100 million) impact to earnings for 2011 or 2012:
Electronic Mortality Match Policy Review
• Since late 1980’s MetLife has made use of the “Social Security Death Master File”
• In 2010, a small team was formed to:
- Review current practices
- Identify potential issues
- Recommend standard use policy for US Business
Mortality Adjustment
• Work is being planned for 2011 to conduct electronic matching of all in-force administrative records
• MetLife does not manage records for many of its group insurance contracts
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* * *
• Financial impact cannot be assessed at this time. Estimate order of magnitude adjustment of approximately $100 million after-tax.
- One-time reserve adjustment likely. Unclear if reserve will be set up in 2011, or likely 2012.
Moreover, the estimated $100 million “Mortality Adjustment” constituted an approximate $0.09 EPS
impact. On or around February 4, 2011, defendant Carlson prepared a similar PowerPoint
presentation to the CEO titled, “CEO Update – Accounting and Reporting Matters.” The February 4
PowerPoint contained the same bullet points including the likely $100 million adjustment in
connection with using the SSA-DMF to match the Company’s in-force administrative records as
contained in the January 24, 2011 presentation.
117. With these facts and known estimated adverse impact to earnings, MetLife
intentionally avoided appropriately adjusting knowingly flawed IBNR reserve setting assumptions
and methodology, causing its financial statements to be materially misstated during the Class Period
and, as discussed below, misled its outside auditor Deloitte about whether its IBNR reserve
methodology and assumptions should be adjusted.
(a) During the 2010 year-end audit which occurred in 2011, Deloitte reviewed the
Company’s IBNR reserve estimates. Deloitte specifically reviewed the Company’s policies and
IBNR reserve assumptions, lag experience and the net amount at risk, which are updated annually
and applied against the Company’s claims base. MetLife knew that the 2007 cross-check of its
individual life policies against the SSA-DMF had impacted its IBNR reserves by identifying claims
from unreported deaths that had a lag time longer than the Company’s assumptions. ¶¶90(d), 118-
120. MetLife, as evidenced by its admissions to Verus, recognized that its IBNR methodologies
may ignore claims that have an excessively long time period between incurral and being paid by
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assuming all claims would be reported after a number of months or years and if they were not then
they would never be submitted at all and would remain active policies.
(b) As part of the 2010 year-end audit, MetLife acknowledged to Deloitte that the
2007 SSA-DMF cross-check had identified claims with longer lag times than MetLife’s assumptions
accounted for. But MetLife told Deloitte that the long lag times experienced from the 2007 cross-
check and its corresponding increase in reserves should be excluded from adjusting its IBNR reserve
assumptions going forward because MetLife’s upper management had decided to not continue cross-
checking policies against the SSA-DMF. Defendants knew that if the Company continued SSA-
DMF match sweeps, the IBNR reserve assumptions would have to be adjusted to account for the
long lag periods between date of death and claims and such adjustments would negatively impact
reported reserves and earnings.
(c) A Deloitte workpaper which was part of the 2010 year-end audit that was
based on a MetLife memorandum described its IBNR reserve methodology, which confirmed that
the Company’s upper management intentionally decided to discontinue SSA-DMF sweeps and
therefore continued the methodology and application of knowingly flawed IBNR reserve
assumptions.
(d) An excerpt of the cover page of the workpaper supplied by MetLife actuaries
to Deloitte is set forth below. In it MetLife told Deloitte that the description of the methodology
used to set IBNR reserves in 2009 was also applicable as of the December 31, 2010 valuation date:
Cover Sheet
Valuation Date 12/31/2010
Line of Business Individual Life – Non-Traditional and Traditional
Products Whole Life, Term, UL, VUL
Reserve Type(s) GAAP and STAT
Prepared by Enid Reichert, FSA, MAAA, AVP & Actuary, MetLife
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Review Notes This workpaper was prepared by the Company to describe the IBNR methodology. While the document is based analysis as of 12/31/2009, the methodology is applicable as of 12/31/2010, and in fact, so are the factors themselves. The Deloitte Actuarial Specialists reviewed this analysis to understand management’s process for calculating IBNR and based on this review, concluded that their approach appears reasonable. See A/6760.A for procedures performed to ensure that this methodology is applied as described herein.
118. The substantive analysis in the attached workpaper explains that adjustments were
made to the reported claim data that impacted the IBNR reserves calculation. Specifically, the
claims identified in the 2007 sweep which had longer lag times were excluded from valid claims for
purposes of calculating the IBNR reserves. Tellingly, the exclusion of claims identified in the 2007
Social Security sweep from the IBNR calculation was based on the decision made by upper
management to discontinue running future death sweeps:
Some adjustments are performed to the reported claim data prior to calculating the lag and net amount at risk (NAAR) factors. First, we compared the reported claims to the cases included in the Social Security death sweep performed in 2007, which resulted in claims with longer than usual lag periods being reported through 2009. Since the decision has been made by upper management not to continue running these death sweeps, these longer lag periods should not be indicative of future expected experience. Therefore, any of the claims related to the death sweep were excluded from the factor calculations.
119. These internal communications unequivocally establish that despite performing the
2007 death match, identifying more than $80 million in unclaimed benefits resulting in a $25 million
increase in reserves equating to $0.04 EPS, MetLife’s Upper Management as early as 2008 decided
that the Company would no longer run SSA-DMF sweeps in its insurance business unless compelled
by regulators to do so. Deloitte’s 2010 testing audit of MetLife’s IBNR reserves rested on the false
representation from MetLife that the longer lag from claims captured through the SSA-DMF should
be excluded from MetLife’s IBNR methodology and reserve calculations because the Company’s
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upper management had decided to stop running SSA-DMF matches and therefore would not be
indicative of future experience.
120. At the same time that the Company was telling Deloitte, as part of the 2010 audit, that
it would not be conducting any additional SSA-DMF sweeps, and that the Company did not need to
adjust its IBNR reserves (or its assumptions) to account for the longer lag times uncovered by the
2007 SSA-DMF cross-check, defendants knew as set forth above in ¶111(b) that the Company had
already confirmed to Verus and the states, as part of the negotiation to settle the state investigations,
that MetLife would be required, going forward, to conduct routine matches of its policies against the
SSA-DMF. In fact, key to its negotiations with the states was MetLife explaining to the states that
the Company was planning to conduct additional routine SSA-DMF matches in 2011 against all its
policies including group life. This was the exact opposite of what the Company had told Deloitte.
121. On the same day of the March 4, 2011 offering of 146 million shares of common
stock to the public in which MetLife failed to disclose even the existence of the state investigations,
the Company sent a letter to the Illinois Department of Insurance and had agreed that the settlement,
which it had been negotiating since September 2010, would include an agreement that “a match of
its records against the DMF will constitute evidence that an individual is deceased, subject to
verification in accordance with the terms of the relevant policy or contract, applicable law, or
MetLife’s policies and procedures.” That of course would necessarily mean that the Company
would find more deceased policyholders, and would require additional reserves as it did in 2007.
122. Further, in the March 4, 2011 letter to the Illinois Department of Insurance, the
Company acknowledged again that it had conducted a cross-check of its individual life insurance
policies in 2007, and contrary to what it would tell its outside auditor, Deloitte, intended to begin
additional routine matches in 2011:
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As you are aware, MetLife conducted a comprehensive match of its in-force individual life insurance block against the DMF for the first time in early 2007. . . . As we indicated in our January 14, 2011 letter to you, we intend to begin conducting additional, routine matches against the DMF this year, with respect to all of Metlife’s policies, contracts, and accounts for which we act as a record-keeper, no less frequently than annually.
123. In the same March 4, 2011 letter the Company admitted that MetLife expected,
“based on [its] experience with the 2007 match” that the 2011 routine matches would in fact identify
more deaths.
Although we expect that this first routine match will identify a smaller number of deaths [individual life] than did the 2007 match, we expect based on our experience with the 2007 match that a certain amount of time will be needed to investigate and resolve any claims with respect to these deaths, including attempting to locate potential beneficiaries.
124. Knowing these facts, defendants thus hurriedly, on March 1, 2011, entered into a
“Coordination Agreement” with AIG, which would relieve AIG from its nine month lock-up
restrictions, allowing for AIG to offer and sell all 78 million shares of MetLife common stock
immediately, and require MetLife to use all of the net proceeds from the March 4, 2011 offering to
fund the repurchase of the 78 million shares of common stock from AIG.21 The Coordination
Agreement set the stage for the March 4, 2011 offering of 146 million shares to the public in order to
raise money and pay AIG the remaining consideration for ALICO.
125. In light of facts later disclosed, the most plausible inference to be drawn is that the
MetLife defendants under intensifying scrutiny of state regulators, particularly the states of Illinois
and Florida, needed to both raise cash and allow AIG to dispose of its shares prior to internal and
regulator findings being publicly disclosed. Had the true facts, which were known to defendants but
21 The March 1, 2011 Coordination Agreement would be attached to the March 4, 2011 Registration Statement.
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concealed from the public, concerning the Company’s usage and failure to use the SSA-DMF and
the impact on MetLife’s financial condition and financial impact of the investigations, and plan to
implement new controls and usage of the SSA-DMF been disclosed, the Company and AIG risked a
steep decline in the Company’s stock price and thus, the value of the consideration provided to AIG.
Because the number of shares MetLife delivered to AIG in November 2010 were “fixed,” the
Company could not fill the gap with new shares.
126. On March 2, 2011, Janney Capital Markets issued a report entitled “MetLife . . .
Thoughts on Common Stock Offering.” Janney Capital Markets, unaware of the undisclosed facts,
highlighted that the offering appeared to be occurring several months in advance of previous
expectations:
MetLife (MET: Buy) - Thoughts on Common Stock Offering
MET and AIG are selling common equity (147M shares, 14% of outstanding shares) and common equity units (40M units) this week. As stated in MET’s press release, “The offerings are intended to provide for an orderly disposition of the MetLife securities owned by AIG.” We (and the rest of the world) had expected these sales to occur beginning in August of this year, the time given when AIG sold its subsidiary, Alico, to MET for cash/stock/securities in November 2010.
127. On March 2, 2011, Morgan Stanley issued a report entitled “MetLife Inc. Quick
Comment: Surprising AIG Early Disposal Likely to Weigh on Stock.” The Morgan Stanley report
similarly discussed investor surprise at the timing of the offering, noting that it was indeed
“significantly earlier” than expected:
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MetLife Inc.
Quick Comment: Surprising AIG Early Disposal Likely to Weigh on Stock
Impact on our views: The surprising announcement that MetLife is allowing AIG to sell its entire ownership stake earlier than originally agreed upon is a sizable surprise that has the potential to meaningfully pressure MetLife’s stock. Not only is the proposed sale significantly earlier than we originally expected, but we were also expecting the sale to occur in smaller amounts over an extended time frame. . . .
What’s new: AIG announced its plans to sell its entire stake in MetLife, which includes 78.2 million shares and its $3 billion of equity units. Further, it also plans to sell its contingent convertible preferred stock to MetLife, who will fund the acquisition with an equally sized common stock offering of 68.6 million shares. The net result is a pending sale of 146.8 million shares of common stock (roughly $6.8 billion based on last night’s closing price) in addition to the $3 billion of equity units.
128. On March 4, 2011, the Company filed a Form 424 (b)(5) Prospectus Supplement to
the shelf registration statement and prospectus filed with the SEC on November 30, 2010 (“March 4,
2011 Registration Statement”). The March 4, 2011 Registration Statement offered 146 million
shares of common stock of Met Life, including 68 million shares of the Company’s common stock at
$43.25 per share and AIG offering another 78 million shares of MetLife common stock. The March
4, 2011 Registration Statement, incorporated by reference, the Company’s Annual Report on Form
10-K for the year ended December 31, 2010 and in Amendment No. 1 to the Form 10-K filed with
the SEC on March 1, 2011. The March 4, 2011 Registration Statement also incorporated
by reference, the Company’s Forms 8-K filed on August 2, 2010, November 30, 2010 and March 2,
2011, each of which contained false financial statements and other misrepresentations discussed
above.
129. The March 4, 2011 Registration Statement, by virtue of incorporating the February
25, 2011 Form 10-K and other financial statements, included false financial statements, in particular,
income, operating earnings, underwriting and mortality results. The March 4, 2011 Registration
Statement made additional misrepresentations of fact and made purported warnings and repeated the
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disclosures concerning the New York Attorney General’s investigations, and maintained false
statements that the Company’s retained asset accounts were adequately disclosed and any suggestion
of fraud or violations of law were “without merit.”
130. On March 8, 2011, the Company issued a press release announcing that it had
completed the public offering of more than 146 million shares of its common stock, raising gross
proceeds of $2.97 billion and that AIG had sold all of its MetLife securities received in the ALICO
acquisition:
MetLife Announces Completion of Common Stock and Common Equity Unit Offerings
NEW YORK, Mar 08, 2011 (BUSINESS WIRE) –
MetLife, Inc. (NYSE: MET) announced today that it and ALICO Holdings LLC, a subsidiary of American International Group, Inc. (AIG), have closed their recently announced offering of 146,809,712 shares of MetLife common stock.
MetLife offered 68,570,000 shares of its common stock to the public for gross proceeds of $2.97 billion. Net proceeds from MetLife’s sale of its common stock were used to repurchase and cancel 6,857,000 shares of contingent convertible preferred stock owned by AIG.
AIG offered 78,239,712 shares of MetLife common stock to the public for gross proceeds of $3.38 billion. In addition, AIG has completed its public offering of 40,000,000 common equity units of MetLife for gross proceeds of $3.32 billion. MetLife did not receive any proceeds from the offerings of the MetLife common stock or common equity units that were owned by AIG.
As a result of the offerings, AIG has sold all of the MetLife securities it received in MetLife’s acquisition of American Life Insurance Company (Alico).
Goldman, Sachs & Co., Citi and Credit Suisse were the book-running managers for the common stock transaction. Goldman, Sachs & Co. and Citi were the book-running managers for the common equity units transaction.
131. Defendants’ statements, in ¶¶96-106, concerning key business metrics in 3Q10, 4Q10
and FY10, including the respective financial statements filed with the SEC were knowingly or
recklessly false and misleading for all of the reasons set forth below in ¶137(a)-(m).
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132. On March 21, 2011, the MetLife Board announced that defendant Kandarian, then
current Executive Vice President and Chief Investment Officer, would become the Company’s new
CEO, effective May 1, 2011.
D. State and Regulator Investigations into MetLife’s Failure to Pay Benefits When It Knew Policyholders Were Deceased Begin to Intensify
133. On April 25, 2011, the California Insurance Commissioner issued a press release
announcing that it had issued a subpoena to MetLife pertaining to an investigation into MetLife’s
practices regarding the withholding of death benefits, even after having notice that a policyholder
had died. The press release noted that based upon its preliminary findings, developed through an
investigation that began in 2008 by the California Insurance Commission, that for two decades
MetLife failed to pay life insurance benefits even after learning that a policyholder had died:
Insurance Commissioner Jones, Controller Chiang Launch Investigation Into Death Payment Practices
* * *
Insurance Commissioner Dave Jones and State Controller John Chiang today announced the issuance of a subpoena and joint investigative hearing into the practices of Metropolitan Life Insurance Company (MLIC), also known as MetLife. The hearing will focus on MetLife’s practices regarding payment of benefits under life insurance policies after MetLife learns of an insured’s death – either to the beneficiaries or, if they cannot be located for three years or more, to the State’s Unclaimed Property program. MetLife learned of the deaths of insureds through a database prepared by the Social Security Administration called “Death Master,” which lists all Americans who die.
The Commissioner and the Controller are responding to preliminary findings from an audit the Controller launched in 2008, indicating that for two decades, MetLife failed to pay life insurance policy benefits to named beneficiaries or the State even after learning that an insured had died. . . . The Controller’s unclaimed property audit indicates that MetLife did not take steps to determine whether policy owners of dormant accounts are still alive, and if not, pay the beneficiaries, or the State if they cannot be located.
Simultaneously, the preliminary findings show, when MetLife knew that an owner of an annuity contract – which generates income for the policy owner at the time the annuity matures – had died, or the annuity had matured, the company did
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not contact the policy holder or beneficiary, even though it subscribed to the “Death Master” database. Furthermore, MetLife continued making premium payments from the policy holder’s account until the cash reserves were used up, and then cancelled the contract.
134. On May 4, 2011, the Company issued a press release announcing its false 1Q11
financial results noting an increase in operating earnings of 64% year-over-year and 15% in
insurance products. The press release stated as follows:22
METLIFE ANNOUNCES FIRST QUARTER 2011 RESULTS
* * *
MetLife, Inc. . . . today reported first quarter 2011 net income of $830 million, or $0.78 per share, and operating earnings of $1.4 billion, or $1.33 per share.
“With record top-line performance and a 64% increase in operating earnings over the first quarter of 2010, MetLife delivered very strong results in the first quarter of 2011,” said Steven A. Kandarian, [W]e grew operating earnings in our U.S. Business by 15% while total net investment income increased 14% over the first quarter of 2010.
* * *
U.S. BUSINESS
* * *
22 As reported in the Company’s Form 10-K for the period ended December 31, 2010:
Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources and, consistent with GAAP accounting guidance for segment reporting, is our measure of segment performance. Operating earnings is also a measure by which our senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans.
* * * [T]he presentation of operating earnings and operating earnings available to common shareholders as we measure it for management purposes enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of our businesses.
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• Operating earnings of $908 million, up 15% due to increases in Insurance Products, Retirement Products and Corporate Benefit Funding
135. On May 5, 2011, the Company held a conference call for analysts and investors to
discuss the 1Q11 financial results. The call was hosted by Henrikson, Kandarian, Wheeler and
Mullaney. Defendants again discussed the Company’s mortality rate experience, including that in
1Q11 individual life mortality ratio was 92.5%, higher than its plan and unfavorable. Defendants
failed to disclose, however, that it was not necessarily increased severity experience in 1Q11 that
resulted in higher reported mortality ratios, but instead, as later admitted by Katz and Frank
Cassandra on May 19, 2011 and May 23, 2011, the implementation of processes to include SSA-
DMF matching in its life insurance business, which, according to Katz, was begun in the summer of
2010 (Ex. A at 86; Ex. B at 124-26):
[WHEELER:] Turning to our operating margins, let’s start with our underwriting results. In U.S. Business, overall results were generally positive in the quarter with the exception of individual life. The group life mortality ratio for the quarter was 88.2% as compared to 89.5% in the prior-year quarter and at the low end of our 2011 guidance range of 88% to 93%.
Our individual life mortality ratio for the quarter was 92.5%. This is higher than plan and unfavorable compared to the prior-year quarter. This quarter’s results were negatively impacted by higher claims incidence in large face amount policies.
136. On May 10, 2011, the Company filed its Form 10-Q for the period ended March 31,
2011. The Form 10-Q repeated, in substance, the financial results reported in the May 4, 2011 press
release. The Company again purported to disclose on the investigations of the state regulatory
agencies into its death benefit practices and the usage of its retained asset accounts. Notwithstanding
ongoing audits and the preliminary findings by the California Insurance Commission and State
Controller (which it did not disclose), the Company maintained that allegations of fraud concerning
the usage of its retained asset accounts and violations of state or federal laws were without merit:
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Retained Asset Account Matters
The New York Attorney General announced on July 29, 2010 that his office had launched a major fraud investigation into the life insurance industry for practices related to the use of retained asset accounts [TCA] as a settlement option for death benefits and that subpoenas requesting comprehensive data related to retained asset accounts had been served on MetLife and other insurance carriers. . . . Management believes that any allegations that information about the TCA is not adequately disclosed or that the accounts are fraudulent or otherwise violate state or federal laws are without merit.
137. Defendants’ representations in ¶¶96-97, 100-106 concerning: (i) reported financial
results for 3Q10, 4Q10, FY10 and 1Q11, in particular, reported income and overall segment
operating earnings for each period; (ii) solid underwriting results and expense management (¶¶96-
97); and (iii) reported mortality results and experience (¶¶97, 101, 103), were each knowingly or
recklessly false for the following reasons:
(a) Defendants knew or recklessly disregarded that 3Q09, 4Q09, FY09 and FY10,
as reported in the February 25, 2011 Form 10-K for the period ended December 31, 2010, and 1Q11
financial results, particularly reported income and operating earnings, were materially misstated both
quantitatively and qualitatively. Defendants admittedly failed to account for known incurred
liabilities (deaths of policyholders that the Company actually knew of or had reason to know of),
which MetLife owed benefits to beneficiaries or state authorities pursuant to unclaimed property
laws. As such, defendants knowingly or recklessly caused the Company’s income and operating
earnings to be materially misstated. See ¶¶179-196. MetLife’s Financial Statements Were
Materially Misstated in Violation of GAAP and SEC Disclosure Rules.
(b) The Company’s 3Q10, 4Q10, FY10 and 1Q11 financial statements were false
and misleading for all of the reasons set forth in Section VIII, MetLife’s Financial Statements Were
Materially Misstated in Violation of GAAP and SEC Disclosure Rules. ¶¶179-196;
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(c) Defendants also admittedly knew that the Company had for years
systematically used the SSA-DMF across its business units for purposes beneficial to the Company’s
bottom line, including stopping payments to annuitants identified in the SSA-DMF, responding to
regulatory agency inquiries, and complying settlement agreements in litigation. Defendants also
knew, through the prior utilization of the SSA-DMF, that the Company was in possession of or had
access to information that was strong evidence of death of policyholders and knew that the
Company’s processes and procedures were designed or implemented to largely ignore that evidence
or information to the extent that it would require locating beneficiaries, escheating monies to state
agencies or increasing reserves – all of which would negatively impact operating earnings.
Defendants admit to the material impact of its failure to utilize the SSA-DMF on its financial
statements and particularly, reserves and operating earnings. In October 2011, the Company was
forced to disclose that because of its failure to incorporate information known or accessible to the
Company through utilization of the SSA-DMF its liabilities were in excess of its reserves. See
¶¶154-163;
(d) Had defendants utilized the SSA-DMF to identify deceased policyholders and
recognized known incurred liabilities, paid beneficiaries or properly escheated monies to the states
as required by state law and insurance regulations, the Company would have reported operating
earnings of materially less than $0.99 reported in 3Q10, $1.14 in 4Q10, $4.38 in FY10 and $1.33 in
1Q11;
(e) Defendants’ statements, in ¶¶96, 100-101, regarding the Company’s purported
strong or favorable underwriting experience and results in group life and individual life products and
better expense savings efforts were also knowingly materially false and misleading when they were
made. In truth, defendants knew but failed to disclose that the reported underwriting results in both
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group life and individual life for 3Q10, 4Q10, FY10 and 1Q11, to the extent that they contributed to
the Company’s financial performance, was in part due to the Company’s known failure to identify,
account for and pay beneficiaries of policyholders the Company actually knew had died or had
reason to know had died and died long ago;
(f) In addition, defendants knew or recklessly disregarded that its statements
concerning lower expenses and expense management, in ¶¶96, 100-101, were false when made. In
truth, as the Company has now admitted, in addition to the reasons set forth above, defendants’
reported expense management was in part due to the Company’s failure to escheat monies
(unclaimed property), belonging to policyholders’ beneficiaries, which had not been claimed, and
that the Company owed to states pursuant to state unclaimed property laws;
(g) Defendants’ statements concerning the Company’s mortality ratios including a
3Q10 group life ratio of 89% and individual life ratio of 86.7%; 4Q10 group life ratio of 89.7% and
individual life ratio of 82.9%; 1Q11 group life ratio of 88.2% and individual life ratio of 92.5% were
also knowingly or recklessly false and misleading when made. See ¶¶97, 101, 103, 135. In truth,
defendants knew or recklessly disregarded that the favorable reported mortality ratios were similarly
due to the Company’s failure to account for known deaths of policyholders or access to evidence of
death of policyholders. In fact, on October 27, 2011, when the Company reported its financial
results for 3Q11, which included the $117 million charge to earnings related to the failure to utilize
the SSA-DMF, for purposes designed to actually locate and pay policyholder beneficiaries as
opposed to avoiding payments, the Company reported sharply increased mortality ratios including
98.5% for group life and 98.5 % for individual life. The increase in reported mortality ratios was
admittedly due to the $117 million reserve charge. ¶170;
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(h) As alleged herein, defendants misrepresented the Company’s mortality
experience repeatedly during the Class Period. The chart in ¶171 shows reported mortality ratios in
group and individual life between 1Q09 and 3Q11, evidencing the long-term favorable impact of
undisclosed truth concerning the failure to utilize the SSA-DMF to calculate the true mortality ratios;
(i) Defendants Henrikson’s and Wheeler’s February 25, 2011 Sarbanes-Oxley
certifications were also materially false. Defendants also knew or deliberately disregarded that the
Company was not designed to assure the reliability of the financial statements, nor did the financial
statements fairly present the financial condition of the Company. Indeed, the report omitted material
facts alleged herein. The Company’s internal controls, practices and procedures were designed
and/or implemented to ignore, for purposes of paying beneficiaries, escheating monies to the state or
increasing reserves, reliable evidence in the Company’s possession or available to it, of death of
policyholders, which required the Company to pay beneficiaries or states as described;
(j) As further evidence of defendants’ knowledge or reckless disregard of the
falsity of the alleged misrepresentations, and in addition, their intent to withhold beneficiaries’
monies or ignore evidence of death in its possession, defendants admit even for the 2007 match
process, when the Company found a death that had occurred years before 2007 it used June 1, 2007
as the beginning of the dormancy period, which starts the clock for the state escheatment of
unclaimed property to states. For example, defendants admitted during testimony before insurance
regulators on May 19, 2011 and May 23, 2011 that as part of a 2007 match of individual life policies
against the SSA-DMF, when they found and confirmed that the death of a policyholder had occurred
in the 1960s or 1970s, the Company generally and intentionally used June 1, 2007 as the date of
proof of death to start the dormancy period. ¶¶87(l), 124; Ex. A at 83, 127; Ex. B at 104;
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(k) Defendants knew or recklessly disregarded and failed to disclose that the
Company’s IBNR reserves (and the related representations) were inadequate and misleading, lacked
a reasonable basis, or did not rest on a meaningful inquiry. The Company has admitted that in 2007,
in response to regulatory communications concerning the SSA-DMF and internal reviews of
Company procedures conducted with the Company’s internal auditors, that MetLife believed that
using the SSA-DMF may help to identify deceased policyholders. Ex. A at 150-51; see also id. at
30-35, 55-56. Accordingly, in 2007 MetLife cross-checked certain of its individual life insurance
policies against the SSA-DMF and identified over $80 million in unclaimed benefits or unreported
claims. Ex. A at 68, 150-51; Ex. B at 57-59, 119. Approximately $50 million of those unclaimed
benefits were paid to beneficiaries and approximately $30 million were sent to its unclaimed funds
account to begin the dormancy period for escheatment to relevant states. Ex. B at 57-59, 119; see
also Ex. A at 68. In the same year, during 4Q07, MetLife had to increase reserves in its individual
life insurance business by $25 million to account for unreported claims impacting operating income
by $0.04 EPS, after-tax. See ¶87(m)(i)-(v);
(l) Finally, defendants knew but failed to disclose that notwithstanding
knowledge based upon the running of a SSA-DMF match against its individual life policies in 2007
that the Company had in possession of beneficiary monies that should have been reserved for, paid
to beneficiaries or escheated to the state, it had never, up through May 2011 for purposes of
determining whether it was holding monies belonging to policyholder beneficiaries, run a SSA-DMF
match against its group life policies. See ¶¶138-140; Ex. A at 48-50; Ex. B at 75-76; and
(m) Defendants also knew but failed to disclose that the Company had in its
possession monies that had not been paid to beneficiaries and had not been escheated to the states
that were due to policyholder beneficiaries of industrial policies; policies, which had been sold door-
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to-door to low-income families more than 50 years ago that the Company had stopped selling in
1964.
E. Top MetLife Officials Testify at Regulatory Hearings Admitting to the Company’s Knowledge or Reckless Disregard of False Financial Statements and Related Representations
138. On May 19, 2011, certain of MetLife’s executive officers testified pursuant to a
subpoena issued by the State of Florida Office of Insurance Regulations. MetLife’s Executive Vice
President, Todd Katz, and its Senior Vice President, Frank Cassandra, gave live testimony, under
oath, before the Commission concerning the Company’s use and/or non-use of the SSA-DMF and
the Company’s processes and procedures for locating and paying beneficiaries for deceased
policyholders and compliance with Florida unclaimed property laws. Ex. A at 24-26; Ex. B at 30.
Prior to the May 23, 2011 hearing, MetLife spokesperson Chris Breslin reportedly made the
following false statement, published in Fox Business, My Money, which was knowingly or
recklessly false and misleading for the reasons set forth in ¶¶87(a)-(p), 138-140:
• “Our priority is to pay insurance benefits to those who are entitled to them . . . . When beneficiaries cannot be located, we turn those benefits over to the state.”
139. During the May 19, 2011 hearing, MetLife, through Katz and Cassandra, admitted
that the Company in fact has used the SSA-DMF since the 1980s for many of its businesses along
with other databases and systematically matched against annuities to prevent payments to reportedly
deceased policyholders who were identified in the SSA-DMF. Ex. A at 30-35, 55-56. Katz and
Cassandra also admitted that the Company did not systematically use the SSA-DMF to help identify
beneficiaries of policyholders who had died, nor use it to systematically designate to identify
property that was unclaimed for purposes of starting the escheatment of the unclaimed property to
relevant state agencies. Ex. B at 75-76. Katz also testified that regulators and MetLife’s internal
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auditors were involved in the decision to use the SSA-DMF to identify deceased policyholders and
locate their beneficiaries:
[KATZ:] So what happened to lead to the 2007?
* * *
What I would say is based on some limited matches that were done with regulators, based on internal reviews for procedure, including with our internal auditors, and looking at our business practices, we believed we had an opportunity to find some beneficiaries and identify policyholders who may have deceased. And based on that, we decided to do that.
Ex. A at 150-51; see also ¶140.
140. On May 23, 2011, MetLife executives Robert Sollmann, Jr., Executive Vice President
of Retirement Products, Katz and Cassandra testified pursuant to a subpoena issued by the State of
California Insurance Commissioner, Dave Jones. Among other things, during the testimony on May
19, 2011 and May 23, 2011, MetLife, through top executives, admitted to the following:
• Upon receiving an indication of death, MetLife would suspend annuity payments and did not require a death certificate before suspending annuity payments. Ex. A at 31-32, 34, 147.
• The Company has maintained a “Metropolitan Unclaimed Fund System” since 1987. The Unclaimed Property system tracks the date on which funds are put into the system and calculates the date of escheatment. However, the date on which money is entered into the Unclaimed Property system is administrative and not necessarily when a person is identified as deceased in the SSA-DMF. Ex. A at 41, 68-69.
• In 2007, the Company used the SSA-DMF to do a sweep and learned of deaths that had occurred as early as 1965 as a result of using the SSA-DMF index, yet only started the dormancy period for escheatment from June 2007, meaning that defendants knew that the liability had been incurred, and in fact had been incurred years earlier, but specifically intended to hold the money for an additional period (or relevant state escheatment period). Ex. A at 83, 127; Ex. B at 104.
• The Company admitted that even if it found during its SSA-DMF matches in 2010 that a person died in 2005, it would start the dormancy period as of the date of the match as opposed to the date of the death. Ex. A at 68-69, 130; Ex. B at 188-89.
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• The Company ran the vast majority of policies in the individual life business against the SSA-DMF in 2007 but not other blocks of business, for example group life. Ex. B at 75-76, 82; Ex. A at 48-50.
• Prior to 2010 and through May 2011, the Company had not run SSA-DMF matches for its group life policies. Ex. B at 82, 128; Ex. A at 69-71.
• In 2007, the Company recognized that utilizing the SSA-DMF was an effective tool in determining identities of deceased policyholders and their beneficiaries, and it was an effective tool for match sweeps against retained asset accounts, individual life business, general annuities and group life business. Ex. A at 77, 139-40; Ex. B at 126.
• In 2006, the Company ran a SSA-DMF match against its retained asset account and learned of 1300 matches, which resulted in payments to beneficiaries and escheatments to the states. The Company did not run a SSA-DMF match again until 2010 against its retained assets account. Ex. B at 222.
• MetLife used the SSA-DMF in its annuity business, retained asset account business and for group annuities. MetLife was matching once a month to suspend payments to annuitants matched in the SSA-DMF. The Company began using the SSA-DMF systematically in its annuities business in the mid-90s. Ex. A at 30-35, 55-56; Ex. B at 87-88.
• The Company used the SSA-DMF in 2004 and 2005 to provide data to certain states about how the SSA-DMF was being used and understood thereafter that it was a useful tool to help find policyholders. Ex. A at 51-52; Ex. B at 53-55.
• The Company began examining processes and procedures for using the SSA-DMF more broadly and more frequently in the Summer of 2010 as part of discussions with state regulators. Katz and Mullaney were involved in the 2010 discussions and decision making and made a decision to use the SSA-DMF more frequently and broadly in December 2010. Ex. A at 86; Ex. B at 124-26.
• MetLife understood that retained asset accounts are subject to unclaimed property laws. Ex. A at 94; Ex. B at 217-18.
141. On May 24, 2011, Henrikson gave a presentation to institutional investors at the
Barclays Capital Americas Select Conference. During the conference, Henrikson spoke directly
about the Company’s acquisition of ALICO, the book value of the Company relative to the share
price, and suggested to investors that it was a good time to invest in the Company in light of
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increases in operating earnings, net income and the attractiveness of the Company’s financial
statements:
[HENRIKSON:] Okay. Financial review, you can see the numbers. They are what they are, and I think they’re pretty attractive. I’ll talk about this in another way in a second, but you can see the increase in the premium fees and other revenues, the operating earnings, net income available, book value numbers, and so forth. Book value numbers, I’m not supposed to ever say this is good time, and so forth and so on, but it’s important that – where the stock is trading relative to the book value, as people remind me.
* * *
So, we’re financially strong. I would say everything we do in one way or another is about maintaining and increasing our financial strength, and that includes topline growth. We’re disciplined in our growth. We’re diversified by product, geography, distribution, all of this with an eye to shareholder value.
F. New York State Attorney General and New York State Department of Financial Services Issues Subpoenas and Demands Information
142. On July 5, 2011, Reuters reported that the New York Attorney General had issued
subpoenas to nine life insurance companies, including MetLife, specifically demanding information
regarding their procedures for identifying beneficiaries of life insurance policies and compliance
with relevant state escheatment laws:
NY Subpoenas Nine Life Insurance Companies
New York’s top legal officer has sent subpoenas to nine leading life insurers seeking information about their practices in identifying and paying out policies for deceased customers . . . .
New York Attorney General Eric Schneiderman last month sent subpoenas to units of AXA SA, Genworth Financial Inc, Guardian Life Insurance Co of America, Manulife Financial Corp, Massachusetts Mutual Life Insurance Co, MetLife Inc, New York Life Insurance Co, Prudential Financial Inc, and TIAA-CREF, the source said.
* * *
The investigation is looking into whether insurance companies have done enough to identify beneficiaries of life insurance policies once a customer dies, the source told Reuters on Tuesday.
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Schneiderman’s office is also seeking information about unclaimed policy proceeds that are supposed to be turned over to the state.
143. On July 5, 2011, the New York State Insurance Department, also known as the New
York State Department of Financial Services, sent a letter to all insurers doing business in the State
of New York, including MetLife, directing each to identify deceased policyholders and pay unpaid
benefits by using an official government death list and make payments to their beneficiaries. The
letter expressed concerns that insurance companies, doing business in New York State, may have
been aware of death through utilization of the SSA-DMF, but continuing to deduct premiums until
the policy lapses. In addition, the Department of Financial Services was concerned that life insurers
were using the SSA-DMF to stop annuity payments, but not to locate beneficiaries. The letter was
comprehensive and set forth the requirements and procedures for life insurance companies to follow
to comply with the directive to cross-check policyholders or annuity contracts, insurance policies
and retained asset accounts:
The Department is investigating allegations of unfair claims and trade practices by authorized life insurers and fraternal benefit societies (collectively, “life insurers”). . . . In particular, there may be instances where a death has occurred and no claim has been filed, but premiums continue to be deducted from the account value or cash value until the policy lapses. In other instances, life insurance policies, annuity contracts, or retained asset accounts may simply remain dormant after death. In these instances, a valid death benefit is either not paid or the payment is delayed.
. . . Some life insurers have utilized the U. S. Social Security Administration’s Death Master File (“SSA Master File”) to stop annuity payments once a contract holder dies, but do not use the SSA Master File to determine if any death benefit payments are due under life insurance policies, annuity contracts, or retained asset accounts.
* * *
To address the Department’s concerns, life insurers should cross-check all life insurance policies, annuity contracts and retained asset accounts on their administration data files, including group policies for which a life insurer maintains detail insured records, with the latest updated version of the SSA Master File, or another database or service that is at least as comprehensive as the SSA Master File, to identify any death benefit payments that may be due under life insurance policies,
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annuity contracts, or retained asset accounts as a result of the death of an insured or contract or account holder.
* * *
Each report and update submitted to the Superintendent shall be subscribed and affirmed as true under penalty of perjury by a senior officer of the life insurer.
144. On July 28, 2011, the Company issued a press release announcing its financial results
for 2Q11. The Company’s press release again touted record financial results driven in part by record
underwriting results in group life and 48% increase in U.S. annuity:
MetLife Announces Second Quarter 2011 Results
* * *
MetLife, Inc. . . . today reported second quarter 2011 net income of $1.2 billion, or $1.13 per share, and operating earnings of $1.3 billion, or $1.24 per share.
* * *
U.S. BUSINESS
• U.S. Business operating earnings of $908 million, up 12% due to increases in Insurance Products, Retirement Products and Corporate Benefit Funding
* * *
• Excellent underwriting results in group life . . . .
* * *
Insurance Products
Operating earnings for Insurance Products – which includes group life, individual life and non-medical health insurance – were $449 million, up 22% due to increases in all three business lines. In particular, the rise in earnings was driven by record underwriting results in group life, solid underwriting in non-medical health and higher net investment income. Premiums, fees & other revenues for Insurance Products were $5.0 billion, relatively unchanged.
Retirement Products
Operating earnings for Retirement Products – which includes the company’s U.S. annuity products – were $201 million, up 48% driven by higher
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separate account fee income. Total annuity sales increased 48% to $7.3 billion, driven by strong growth in variable annuities across all distribution channels.
145. On July 28, 2011, Morgan Stanley issued a report entitled “MetLife Inc. Quick
Comment: 2Q11 Earnings First Glance.” The report discussed the 2Q11 results and noted the
“highly favorable” results in mortality rates reported in group life:
MetLife Inc.
Quick Comment: 2Q11 Earnings First Glance
Earnings well above: MetLife reported 2Q11 operating EPS of $1.24, substantially above our estimate of $1.08. After adjusting for a broad-range of abnormal items, we put core run-rate EPS at $1.37, similarly well above our core estimate of $1.28 on a comparable basis.
Highlights include:
• US Businesses – . . . Adjusted earnings of $980 million ran considerably above our expectations by $117 million. Every division contributed to the upside, but highly favorable mortality in group life was the single largest variance.
146. On July 29, 2011, the Company held a conference call for investors and analysts to
discuss the financial results for its 2Q11. The conference call was hosted by defendants Kandarian,
Wheeler and Mullaney. During the call, defendants made the following representations, in particular
about the Company’s U.S. insurance business, including “excellent” mortality ratios for 2Q11,
while failing to disclose known facts concerning the Company’s claims practices or their impact on
the Company’s financial statements:
[KANDARIAN:] Another area strong performance is in US business insurance products where we grew earnings by 22% in the quarter on strong underwriting results and higher net investment income.
* * *
[WHEELER:] Thanks, Steve, and good morning, everybody. MetLife reported operating earnings of $1.3 billion or $1.24 per share for the second quarter, which, when added to our first-quarter earnings, results in an annualized ROE of 11.8% for the first six months of this year.
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* * *
Insurance products’ strong performance was driven by a significant increase in group insurance underwriting margins and continued improvement in investment margins. The group life mortality ratio for the quarter was an excellent 82.1% as compared to 86.6% in the prior year quarter and well below our 2011 guidance range of 88% to 93%.
This result represents group life’s best ever mortality quarter. . . .
* * *
[MULLANEY:] Colin, it’s Bill Mullaney, let me start on the mortality question. Yes, we had an excellent quarter as it relates to group life mortality. As Bill said in his remarks, it was the best quarter we ever had. Second quarter tends to be a better quarter for us seasonally historically.
I think in terms of thinking about the group life mortality going forward, obviously we don’t think it will stay at 82%, it was –like I said, quite a good quarter. But I would think more toward the low end of the range for the balance of the year. We gave a range at Investor Day of 88% to 93% and I think modeling toward the low end of the range is probably the best way to think about it.
147. After the July 28, 2011 announcement of its 2Q11 financial results, and the July 29,
2011 conference call, the Company’s stock price spiked from a close of $39.81 on July 28, 2011 to a
close of $41.21 on July 29, 2011, on increased trading volume.
148. Each of the statements alleged in ¶¶144-146 above were knowingly or recklessly false
and misleading because defendants knew or recklessly disregarded for all of the reasons set forth
herein, each of the following facts:
(a) Operating earnings were materially overstated;
(b) Mortality ratios were materially misrepresented;
(c) Underwriting margins were materially misrepresented; and
(d) Defendants failed to disclose that material reserve charges were imminent and
as a result of its failure to account and reserve for death it knew of or had reason to know of.
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G. MetLife Admits for the First Time to the Scope of Regulator Inquiries into Its Handling of Death Benefits Which Could Have a Material Impact on Its Financial Statements – Stock Price Declines
149. Just one week later, on August 5, 2011 before the Market opened, the Company filed
its Form 10-Q for the period ended June 30, 2011 with the SEC. The Company disclosed that the
regulatory investigations into its death benefits practices had expanded to more than 30
jurisdictions. In addition, gone from the Form 10-Q were the previously reported denials that
allegations concerning the Company’s retained asset accounts and claims that potential violations of
state and federal laws were “without merit.” Instead, for the first time the Company disclosed that it
might be subject to additional escheatment to the states and that the costs related to said
investigations could be “substantial”:
Unclaimed Property Inquiries. More than 30 U.S. jurisdictions are auditing MetLife, Inc. and certain of its affiliates for compliance with unclaimed property laws. Additionally, MLIC and certain of its affiliates have received subpoenas and other regulatory inquiries from certain regulators and other officials relating to claims-payment practices and compliance with unclaimed property laws. On July 5, 2011, the New York Insurance Department issued a letter requiring life insurers doing business in New York to use data available on the U.S. Social Security Administration’s Death Master File or a similar database to identify instances where death benefits under life insurance policies, annuities, and retained asset accounts are payable, to locate and pay beneficiaries under such contracts, and to report the results of the use of the data. It is possible that other jurisdictions may pursue similar investigations or inquiries, or issue directives similar to the New York Insurance Department’s letter. It is possible that the audits and related activity may result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, administrative penalties, and changes to the Company’s procedures for the identification and escheatment of abandoned property. The Company is not currently able to estimate the reasonably possible amount of any such additional payments or the reasonably possible cost of any such changes in procedures, but it is possible that such costs may be substantial.
150. On August 5, 2011, before the market opened, Bloomberg issued an article discussing
the Company’s August 5, 2011 Form 10-Q, which disclosed that 30 jurisdictions were investigating
the Company’s practices with respect to paying death benefits. The article noted the Company’s
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disclosure that the cost of the investigations and additional escheatments to the states could be
substantial:
MetLife Says 30 Jurisdictions Are Auditing Unpaid Benefits
MetLife Inc. (MET), the largest U.S. life insurer, said more than 30 U.S. jurisdictions are auditing its practices in a review of whether the industry is holding unclaimed funds owed to policyholders, beneficiaries or states.
The audits may lead to more payments to beneficiaries, administrative penalties or changes in procedures, New York-based MetLife said today in its quarterly filing with the U.S. Securities and Exchange Commission.
“The company is not currently able to estimate the reasonably possible amount of any such additional payments or the reasonably possible cost of any such changes in procedures,” MetLife said. “It is possible that such costs may be substantial.”
State regulators are intensifying a probe into unpaid benefits after Florida Insurance Commissioner Kevin McCarty said in May that insurers may be keeping at least $1 billion in unclaimed funds. MetLife and No. 2 Prudential Financial Inc. are among nine firms subpoenaed in June as part of New York Attorney General Eric Schneiderman’s probe, a person familiar with the matter has said.
151. MetLife’s disclosure in its Form 10-Q and news concerning the possibility of
additional investigations, audits and related activity that may result in administrative penalties,
additional payments and escheatment of abandoned property contributed to the decline of MetLife
stock price from a close of $36.90 on August 4, 2011 to as low as $34.93 on August 5, 2011 and its
close at $36.35 on massive trading volume of 22 million shares on Friday, August 5, 2011. 22
million shares traded was the highest one-day trading volume MetLife experienced in the prior four
months.
152. While MetLife’s stock price on August 5, 2011 opened above the prior day’s close, as
the market digested MetLife’s disclosures, MetLife’s stock price fell to a low of $34.93 – 5.3%
decline from the prior day’s close of $36.90 to close approximately 1.5% down at $36.35.
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153. After the market closed on August 5, 2011, Standard & Poor’s (“S&P”) announced
that it had downgraded the U.S. credit rating. This was the first time in history that U.S. credit/debt
rating had been downgraded.23
154. At 6:42 P.M. EST, on August 5, 2011 Bloomberg updated the story it ran earlier in
the day under the title, “MetLife Says 30 Jurisdiction Are Auditing Unpaid Benefits,” repeating
verbatim its story of MetLife, but adding critical details concerning Prudential’s Form 10-Q filing,
which had also been filed with the SEC after market hours on August 5. The Prudential Form 10-Q
stated that it too was under investigation by 33 jurisdictions. The 6:42 p.m. Bloomberg article
included that AIG had taken a charge of $100 for the same issue just one day earlier and stated as
follows:
23 After market hours on the August 5, 2011, The Atlantic.com published an article titled, “Why has S&P downgraded the U.S.?” The article suggested that the downgrade “shouldn’t be completely shocking,” and that none of the key financial indicators had changed much since May 2011, other than “S&P has become more gravely concerned with U.S. politics.” http://www.theatlantic.com/business/archive/2011/08/why-has-s-p-downgraded-the-us/243192/
On August 6, 2011, Forbes issued an article titled, “S&P Downgrades U.S. to AA+: So What?” noting that the “downgrade should come as no surprise” and that S&P had been telegraphing that it would downgrade the U.S. for weeks. http://www.forbes.com/sites/petercohan/2011/08/06/ sp-downgrades-u-s-to-aa-so-what/
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Prudential Probe
Prudential is being examined on behalf of 33 U.S. jurisdictions for compliance with unclaimed property laws, the Newark, New Jersey-based insurer said today in its quarterly filing.24
Requiring insurers to be more proactive in identifying unclaimed policies could result in additional payments of death benefits and the return of abandoned funds to states. It will also lead to changes in the company’s practices, which will impact claim payments and reserves, according to the filing.
“It is possible that results of operations or the cash flow of the company in a particular quarterly or annual period could be materially affected,” the filing said. “Ultimate payments in connection with these matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect.”
American International Group Inc., the insurer majority owned by the U.S. Treasury Department, added $100 million to reserves for death claims at its life insurance unit in the second quarter, according to a regulatory filing yesterday. The company has changed its claims process to use information, including data from the Social Security Administration, to determine when insured people die.
* * *
AIG has received regulators’ inquiries into claims-settlement practices, the New York-based company said in the filing.
155. These material disclosures from MetLife, the confluence of large insurance company
disclosures (AIG and Prudential) of possible identical fraudulent conduct and the announcement of
the S&P downgrade contributed to the Company’s stock price decline between Thursday, August 4,
2011 and Monday, August 8, 2011. By the close of the market on August 8, 2011, MetLife stock
24 On August 5, 2011, after market hours (at 5:21 p.m. EST), Prudential Financial Inc. (“Prudential”) similarly disclosed in a Form 10-Q that it was subject to widespread investigation into its usage of the SSA-DMF and would possibly be subject to additional payments unreported deaths claims and claims for abandoned funds and that its results of operations could be materially affected. http://www.sec.gov/Archives/edgar/data/1137774/000119312511212600/0001193125-11-212600-index.htm
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was down from a close of $36.90 per share on Thursday, August 4, 2011, to a close of $32.74 per
share on Monday, August 8, 2011.
H. MetLife Announces After Tax Charge to Increase Reserves for Death Master File Investigations – Stock Price Declines Again
156. On October 6, 2011, at 4:24 P.M. EST, after the market closed, the Company filed a
Form 8-K with the SEC quantifying the current impact of its prior failure to report and account for
IBNR liabilities, stating among other things that it would take at least a $115 million after-tax charge
to increase its reserves in connection with its use of the SSA-DMF to identify deceased
policyholders:
MetLife, Inc. . . . has identified the following non-recurring charges that it expects to incur for the third quarter of 2011:
(1) The Company expects to incur a $115 million to $135 million, after tax, charge to adjust reserves in connection with the Company’s use of the U.S. Social Security Administration’s Death Master File and similar databases to identify certain group life insurance certificates, individual life insurance policies and other contracts where the covered person may be deceased, but a claim has not yet been presented to the Company.
(2) The Company estimates $80 million to $100 million, after tax, in catastrophe losses in its Auto & Home business. This estimate is $42 million to $62 million, after tax, higher than the Company’s plan provision of $38 million for the quarter. The higher losses are due to severe storm activity during the quarter, including the impact from Hurricane Irene.
(3) On September 1, 2011, the New York State Insurance Department’s Liquidation Bureau filed a liquidation plan for Executive Life Insurance Company of New York (“ELNY”), which had been under rehabilitation by the Liquidation Bureau since 1991. The plan will involve the satisfaction of insurers’ financial obligations under a number of state life and health insurance guaranty associations and also contemplates that additional industry support for certain ELNY policyholders will be provided. The Company expects to incur a net charge of approximately $40 million, after tax, related to ELNY.
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157. The $115 to $135 million charge related to the SSA-DMF reported in the Form 8-K
comprised of at least 45% of the total of up to $275 million charges MetLife disclosed on October 6,
2011.
158. At 4:35 P.M. EST, after market hours on October 6, 2011, Bloomberg published
another article, this time by Andrew Frye titled, “MetLife Has Charge of Up to $135 Million on
Death Benefits,” which discussed only the fact that MetLife would take a charge to increase reserves
in connection with the SSA-DMF:
MetLife Inc. (MET), the largest U.S. life insurer, said it will take a charge of $115 million to $135 million for the third quarter to adjust reserves as it uses additional data to identify cases where it hadn’t paid claims.
The review involves the use of Social Security Administration death records, the New York-based insurer said today in a regulatory filing.
159. After market hours, at 5:08 P.M. EST, on October 6, 2011, Reuters published an
article titled, “UPDATE 2-MetLife to take up to $275 mln in 3rd-qtr charges.” The article, which is
set forth in full below, also noted that MetLife shares fell in after hours trading:
* Charges pertain to claims reserves, natural disasters
* Analysts expect difficult quarter due to markets, rates
* Shares fall 2.8 pct after-hours (Adds background on losses, after-hours stock movement)
Oct 6 (Reuters) - MetLife Inc (MET.N), the largest life insurer in the United States, said on Thursday it would take up to $275 million in third-quarter charges, in part to increase reserves for policies where it may know the holder is dead but no claim has been filed.
Earlier this year, California regulators subpoenaed the company on its practices related to benefits payouts. The subpoena was spurred by an audit that the state said showed MetLife failed to pay even when it knew the insured was dead.
In particular, regulators nationwide have been looking into industry use of the Social Security Administration’s “Death Master File,” amid claims that companies used the list to end annuity payments but not to find and pay policyholders.
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MetLife said it would take an after-tax charge of $115 million to $135 million to adjust reserves for cases where benefits may be payable.
It also forecast charges of $80 million to $100 million for catastrophe losses in its auto and home business – more than twice what it had expected for the period. Like other insurers, the company blamed the impact of late August’s Hurricane Irene, the first hurricane to hit the United States in three years.
In addition, MetLife said it would take a $40 million charge for the liquidation of Executive Life Insurance Company of New York, its share of obligations under industry guaranty agreements. Executive Life went into rehabilitation in 1991, and New York authorities moved to liquidate it in September.
MetLife is due to report full results for the quarter later this month. Analysts expect it to have been a difficult quarter for the life insurance industry, in particular as weak stock markets and low interest rates hurt investment income.
MetLife shares, which were the top gainer among S&P insurance stocks on Thursday, fell 2.8 percent to $29.83 in after-hours trading on the news. (Reporting by Ben Berkowitz, editing by Matthew Lewis)
160. On October 6, 2011, Credit Suisse after the filing of the Form 8-K issued a report
entitled “Quick Comment on MET’s 3Q11.” The report detailed the disclosures in the Company’s
Form 8-K of the same date concerning the reserve charge resulting from the Company’s failure to
use the SSA-DMF. In addition, the report revealed that the internal review resulting in the charge
had been done at least one year earlier:
MetLife, Inc.
Quick Comment on MET’s 3Q11
▪ Action/Event: Today MET disclosed it would incur total charges of $235mm-$275mm (or $197mm-$237mm excluding the normal quarterly catastrophe load) related to three items. The charges were due to: (1) a $115-$135mm after tax charge related to claim reconciliation with the US Social Security Administration’s Death Master File (11c-13c/sh) . . . .
▪ The $115mm-$135mm is an addition to reserves from an internal review that determined future liabilities are in excess of current reserves, reinsurance and IBNR. MET conducted an internal review in which it matched deceased policyholders with the U.S. Social Security Administration’s Death Master File and determined situations where the individual may be deceased but the related claim had not yet been filed.
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The reserve addition relates 75% to group business and 25% to individual life policies.
▪ MET conducted this review over a year ago. It is unclear if any fines will come from the individual states.
161. On October 7, 2011, Zacks Equity Research published an article entitled “MetLife’s
Charges to Dampen 3Q Results.” The article discussed the Company’s disclosures of a day earlier
and pegged the bulk of the charges and extraordinary expenses to reserves resulting from MetLife’s
failure to use the SSA-DMF to pay beneficiaries of insurance policies:
MetLife’s Charges to Dampen 3Q Results
Yesterday, MetLife Inc. (MET-Analyst Report) intimidated [sic] about a string of charges worth about $275 million that it expects to incur in the third quarter of 2011, as per the statement filed with the Securities and Exchange Commission (SEC) and other federal authorities.
The bulk of the extraordinary expenses include a post-tax charge of $115-135 million to make necessary alterations to its insurance reserves. This primarily requires reaching out to those insurance policies and other contracts where the policyholders may have died but a claim is yet to be filed with MetLife.
162. On October 7, 2011, A.M. Best published an article discussing the expected charges
related to the Company’s use of the SSA-DMF:
MetLife to Record Up to $275 Million in Charges; Some on Social Security Death Master File
MetLife Inc. will post up to $275 million in third-quarter charges, in part, on adjusting reserves related to its use of the U.S. Social Security Administration’s Death Master File and similar databases.
In a Form 8-K, MetLife . . . said it expects to incur a $115 million to $135 million charge, after tax, related to the death master file, which lists the name of every Social Security number holder who has died. The databases will identify some group life insurance certificates, individual life insurance policies and other contracts where a covered person may be dead but a claim hasn’t yet been made.
163. On October 7, 2011, MetLife’s stock price declined to a closing price of $28.80 per
share from a closing price of $30.69 per share on the prior day, a price decline of $1.89 per share or
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-6.16 percent. In contrast to the decline in MetLife’s stock price, the S&P 500 index declined -0.81
percent while S&P 500 Insurance index declined -3.13 percent.
164. Because MetLife’s Form 8-K was filed on October 6, 2011 at 4:24:44 p.m., after the
market had closed, it is possible to objectively assess the significance of the disclosures contained
therein by analyzing MetLife’s stock price reaction to the negative disclosure using an event study.25
An event study is a regression analysis which measure the effect of an event like a company’s
earnings announcement on its stock price and is useful in assessing loss causation and materiality.
See Madge S. Thorsen, Richard A. Kaplan & Scott Hakala, Rediscovering the Economics of Loss
Causation, 6 J. Bus. & Sec. L. 93, 99 (2006). Event studies determine the historical relationship
between a company’s stock price and market and industry indices, and then analyzes whether the
price decline following the event is larger than the stock’s normal historical price volatility. Event
studies are characterized as “[t]he gold standard, which is accepted by both courts and economists”
when assessing materiality and causation.
165. Here, the event study was used to determine whether MetLife’s price decline on
October 7, 2011 was statistically significant. Using the event study methodology, with the S&P 500
as the market index (per MetLife’s 2011 Annual Report) and the S&P 500 Insurance index as the
insurance industry index (also per MetLife’s 2011 Annual Report), the October 7, 2011 price decline
is statistically significant. MetLife’s stock price decline on October 7, 2011 was statistically
significant at the commonly used 5% level meaning that the probability of a price decline equal to,
or greater than MetLife’s actual price decline occurring randomly was less than 5%. This
25 Plaintiffs have engaged a Certified Financial Analyst to employ an event study to evaluate the MetLife’s October 6, 2011 disclosures and following stock price movement.
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probability is identified below as the “p-value.” The event study was run with both a 120 day and a
one year control period prior to October 7, 2011, both concluding that the decline was statistically
significant.26 A statistically significant price movement is one that is unlikely to have occurred
26 1 YEAR CONTROL PERIOD SUMMARY OUTPUT
Regression StatisticsMultiple R 91.67%R Square 84.04%Adjusted R Square 83.85%Standard Error 0.96%Observations 254
ANOVAdf SS MS F Significance F
Regression 3 0.12194 0.04065 438.85652 0.00000 Residual 250 0.02316 0.00009 Total 253 0.14510
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept (0.001) 0.001 (1.707) 8.91% (0.002) 0.000 S&P 500 1.587 0.047 33.502 0.00% 1.494 1.681 S&P 500 Insurance (residual) 1.303 0.102 12.722 0.00% 1.101 1.505 Event: 10/7/2011 (0.021) 0.010 (2.087) 3.79% (0.040) (0.001)
120 DAY CONTROL PERIOD
SUMMARY OUTPUT
Regression StatisticsMultiple R 93.80%R Square 87.98%Adjusted R Square 87.68%Standard Error 1.06%Observations 121
ANOVAdf SS MS F Significance F
Regression 3 0.0970 0.0323 285.5808 0.0000Residual 117 0.0132 0.0001Total 120 0.1102
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept (0.001) 0.001 (1.467) 14.51% (0.003) 0.000 S&P 500 1.603 0.058 27.622 0.00% 1.488 1.718 S&P 500 Insurance (residual) 1.084 0.132 8.235 0.00% 0.823 1.344 Event: 10/7/2011 (0.025) 0.011 (2.228) 2.78% (0.046) (0.003)
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simply by chance. In other words, it likely was caused by the company specific information
disclosed in this case the information contained in MetLife’s Form 8-K. Ultimately, it will be up to
an expert to fully analyze this price decline and determine its cause.
166. To the extent plaintiff is obligated to ascribe a rough proportion of the loss from
October 6, 2011 to October 7, 2011, at least 45% of the total charges were incurred in connection
with the SSA-DMF.
167. As a result of the news that the Company would have to increase its reserves to cover
IBNR losses, the Company’s stock price declined from $30.69 on October 6, 2011 to $28.80 on
October 7, 2011.
VI. POST CLASS PERIOD EVENTS AND ADMISSIONS
168. On October 11, 2011, Bloomberg published a report discussing MetLife’s reported
after-tax charge to increase reserves as a result of death benefits investigation:
MetLife Joins AIG Taking Benefit Charge Amid Regulatory Probes
MetLife Inc. (MET), the largest U.S. life insurer, has joined American International Group Inc. (AIG) by taking a charge tied to reserves for death benefits as regulators probe the industry’s practices for unclaimed funds.
MetLife said last week that it will take a third-quarter charge of $115 million to $135 million as it uses data such as Social Security Administration death records to identify cases where it hadn’t paid claims. AIG said in August that it added about $100 million to reserves in the second quarter after changing its process for determining when policyholders die.
* * *
MetLife began using the Social Security Death Master File to stop some annuity payouts starting in the late 1980s, Todd Katz, an executive vice president at the New York-based insurer, said at a May hearing in Florida.
* * *
MetLife’s Change
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MetLife checked group life policies for the first time against the databases, which contributed to the charge announced last week, said Christopher Breslin [Vice President Corporate Media Relations], a spokesman.
169. On October 27, 2011, the Company issued a press release announcing its 3Q11
financial results noting that as a result of the reserve charges announced on October 6, 2011,
operating earnings for insurance products were down 23%. The press release stated as follows:
MetLife Announces Third Quarter 2011 Results
* * *
MetLife, Inc. today reported third quarter 2011 net income of $3.6 billion, or $3.33 per share, and operating earnings of $1.2 billion, or $1.11 per share.
* * *
THIRD QUARTER 2011 SUMMARY
Operating earnings of $1.2 billion, or $1.11 per share, reflecting:
• a $117 million ($0.11 per share), after tax, charge to increase reserves in connection with the company’s use of the U.S. Social Security Administration’s Death Master File and similar databases to identify potential life insurance claims that have not yet been presented to the company; the charge mostly impacted the Insurance Products segment
* * *
U.S. BUSINESS
* * *
Premiums, fees & other revenues of $7.7 billion, up 9% primarily due to growth in Corporate Benefit Funding and Retirement Products
Insurance Products
Operating earnings for Insurance Products – which includes group life, individual life and non-medical health insurance – were $265 million, down 23% largely due to the previously mentioned reserve adjustment, which impacted group and individual life results.
170. On October 28, 2011, the Company held a conference call for analysts and investors
to discuss the Company’s 3Q11 financial results. The call was hosted by defendants Wheeler and
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Kandarian. During the call, defendants explained the impact of the $117 million after-tax charge
related to the death benefit and SSA-DMF issues alleged herein. In addition, the Company reported
that its individual life mortality rate was a whopping 98.5% and group life mortality ratio was also
98.5%:
[KANDARIAN:] As noted in the 8-K we filed October 6, MetLife recorded a number of one-time charges in the third quarter. Absent these charges and some other one-time items, MetLife’s earnings would have been $1.28 per share, which we believe is closer to the Company’s true earnings power.
* * *
[WHEELER:] There were several unusual items in this quarter. First, we have taken an after-tax charge of $117 million or $0.11 per share to increase reserves in connection with our use of the US Social Security Administration’s Death Master File and similar databases to identify potential life insurance claims for pending and incurred, but not reported claim liabilities referred to as IBNR – over 70% of the charges in our Group Life business, nearly 25% in Individual Life with the balance in Corporate Benefit Funding.
* * *
The Group Life mortality ratio for the quarter was 98.5%. It’s elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously. Adjusting for this item, the loss ratio was 88.9%, near the low end of the 2011 guidance range of 88% to 93% and in line versus the prior-year quarter of 89%.
* * *
Our Individual Life mortality ratio for the quarter was 98.5%, elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously. On the normalized basis, the mortality loss ratio was 89%, up from the prior-year quarter of 86.7% and above plan due to higher large face claims in the quarter.
* * *
While reserve adjustments go through the income statement, the hedges in our derivatives portfolio do not go through the income statement, but are rather reflected in unrealized gains.
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171. In addition to the details of the financial impact of the reserve charge, the report
stated that both group life and individual life mortality ratios had skyrocketed to 98.5%, higher than
had been reported at any time since 1Q09:
Reported Mortality Ratios During the Relevant Period
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
Reported Mortality
Ratio
G 92.2% I 82.6%
G 91.3% I 74.9%
G 92.2% I 91.1%
G 89.7% I 81.1%
G 89.5% I 87.6%
G 86.6% I 80.4%
G 89% I 86.7%
G 89.7% I 82.9%
G 88.2% I 92.5%
G 82.1% I 84.4%
G 98.5% I 98.5%
172. On December 5, 2011, the New York State Department of Financial Services issued
an Interim Report of the Superintendent pursuant to §308 of the New York Insurance Law. The
report confirmed that insurers, including MetLife, have retained monies for years that they knew or
had reason to know should have been paid to beneficiaries on policyholders’ deaths, some dating
back to the 1970s:
Interim Report of the Superintendent Pursuant to Section 308 of the New York Insurance Law
Relating to Investigating Claims and Locating Beneficiaries Owed Death Benefits Under Life Insurance Policies, Annuity Contracts, and Retained Asset Accounts
December 5, 2011 Summary
LIFE INSURERS SHOULD REGULARLY MATCH life insurance policies against a reliable death list, rather than just waiting for claims to be filed. The technology exists, and it is clear that some insurers have been utilizing such death list databases in determining whether to curtail annuity payments. In response to the Department’s investigation, life insurers that have undertaken the prescribed matching efforts have made $52.6 million in payments to almost 8,000 beneficiaries that would not have otherwise been made. About $16.9 million of that sum has been paid to New York payees. Moreover, matching done as a result of the Department’s review has already produced another almost 28,000 matches for which claims processing has been initiated and located another almost one million initial matches that need further checking, but will likely result in substantial additional payments.
Background
THE DEPARTMENT OF FINANCIAL SERVICES (the “Department” or “DFS”) has been conducting an inquiry into allegations of unfair claims and trade
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practices by authorized life insurers and fraternal benefit societies (collectively, “insurers”) based on concerns that insurers may not be adopting and implementing proper standards for investigating claims and locating beneficiaries with respect to death benefits under life insurance policies, annuity contracts, and retained asset accounts. In particular, there may be instances where a death has occurred and no claim has been filed, but premiums continue to be deducted from the account value or cash value until the policy lapses. In some instances beneficiaries may be unaware that they have been named as a beneficiary and not realize that they need to file a claim. In the context of retained asset accounts, funds may simply remain dormant after the death . . . .
Recently, the Department issued a letter pursuant to Section 308 of the New York Insurance Law (“308 letter”) advising all insurers that a cross-check of all life insurance policies, annuity contracts, and retained asset accounts on their administration data files, including group policies for which an insurer maintains detailed insured records, should be performed with the latest updated version of the U. S. Social Security Administration’s Death Master File (“SSA-DMF”) – or another database or service that is at least as comprehensive as the SSA-DMF – to identify any death benefit payments that may be due under life insurance policies, annuity contracts, or retained asset accounts as a result of the death of an insured or contract or account holder. . . .
Findings to Date
BASED ON THE DEPARTMENT’S INVESTIGATION, including responses to the Department’s 308 requests, it appears that some insurers have utilized the SSA-DMF to stop annuity payments once a contract holder dies, but have not used the SSA-DMF to determine if any death benefit payments are due under life insurance policies, annuity contracts, or retained asset accounts.
* * *
The earliest year of death for which a benefit payment has been made thus far is 1970 . . . .
Type of Business Earliest Date of
Death Largest
Amount Paid Average
Amount Paid
Individual Life 1970 $673,485 $6,994
Group Life 1989 $199,827 $2,786
Individual Annuity 1994 $365,264 $36,363
Group Annuity 1988 $167,821 $6,978
Retained Assets 2005 $137,690 $17,836
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* * *
Overall, insurers report that they have cross-checked approximately 79.22 million policy records against the SSA-DMF. This has resulted in approximately 2.68 million initial matches. Many initial matches have been eliminated for reasons such as: policies not in force at time of death, match is not with the same person, and claim already submitted. Insurers are still in the process of validating and/or investigating approximately 950,000 initial matches. Approximately 7,934 payments have already been made to individuals totaling approximately $52.6 million, including about 1,209 payments made to New York payees totaling approximately $16.9 million. Insurers have also initiated claims processing for approximately 27,889 other matches.
* * *
With regard to specific practices involving utilization of the SSA-DMF, there are a small number of insurers that have been performing regular SSA-DMF cross-checks for a number of years including Massachusetts Mutual Life Insurance Company and Prudential Insurance Company of America. Some other insurers have more recently adopted regular cross-check procedures, including Metropolitan Life Insurance Company. However, many insurers have not made regular use of SSA-DMF cross-checks to pay unreported insurance benefits.
173. On February 28, 2012, the Company filed its Form 10-K for the year ended
December 31, 2011. The Form 10-K made additional disclosures about the impact of the
Company’s historical failure to use the SSA-DMF and the effect on the Company’s current financial
statements:
On an annual basis, we perform experience studies, as well as update our assumptions surrounding both expected policyholder behaviors and the related investment environment. These updates, commonly known as unlocking events, result in changes to certain insurance related liabilities, DAC and revenue amortization. The impact of updates to our assumptions, in both 2011 and 2010 primarily related to policyholder behaviors, such as projected premium assumptions and various factors impacting persistency, coupled with insurance related refinements, resulted in a net increase to operating earnings of $41 million. Partially offsetting these favorable impacts was a $109 million charge, recorded in the third quarter of the current year, related to our use of the Death Master File, in both our group and individual life businesses.
* * *
The Company’s use of the Death Master File in connection with our post-retirement benefit business resulted in a charge in the third quarter of the current year
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of $8 million. Other insurance liability refinements and mortality results negatively impacted our year-over-year operating earnings by $20 million.
174. On October 31, 2012, the Company issued a press release announcing its 3Q12
financial results. The press release also reported: “Third quarter 2011 results were negatively
impacted by a reserve increase for potential unreported life insurance claims and higher
catastrophes.” MetLife’s Form 10-Q for 3Q12 filed on November 7, 2012 stated: “In the third
quarter of 2011, the Company incurred a $117 million after tax charge to increase reserves in
connection with the Company’s use of the U.S. Social Security Administration’s Death Master File
and similar databases to identify potential life insurance claims that had not been presented to the
Company.”
VII. METLIFE REACHES SETTLEMENT AGREEMENT WITH SIX STATES VALUED AT $500 MILLION
175. On April 23, 2012, Bloomberg reported that MetLife had agreed with state agencies
and regulators to pay the states a total of $500 million to settle claims related to death benefits:
MetLife to Pay $500 Million to Settle Death-Benefit Probe
MetLife Inc. (MET), the largest U.S. life insurer, will pay about $500 million in a multistate settlement after regulators reviewed whether companies were holding funds that should go to beneficiaries.
MetLife said $188 million will be paid in 2012, and remaining funds over the next 17 years. The New York-based company said it reserved for the expense after taking charges against earnings (MET), including one in the first quarter for $52 million. The insurer said it will use Social Security Administration records to determine when policyholders die.
* * *
Life insurers are generally required to pay claims after being notified of a policyholder’s death and receiving a valid death certificate. Chiang said a hearing showed that MetLife didn’t use information the insurer had from Social Security data to pay benefits and wasn’t forwarding funds to his office as unclaimed property.
* * *
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Jones, Cuomo
* * *
. . . An investigation by New York’s Department of Financial Services into instances where insured parties died and beneficiaries didn’t file claims has led to more than 32,000 payments totaling $262.2 million, according to a statement from Cuomo today.
176. On April 23, 2012, the Company issued a press release regarding the resolution of the
multi-state examination into its use of the SSA-DMF:
MetLife Resolves Multi-State Examinations
NEW YORK – (BUSINESS WIRE) – Apr. 23, 2012 – MetLife, Inc. (NYSE: MET) issued the following statement today regarding its resolution of multi-state examinations related to unclaimed property and the company’s use of the Social Security Death Master File:
* * *
MetLife agrees that periodic matching of administrative records against available external sources such as the Social Security Death Master File is a best practice, and the company is implementing a monthly matching process which it believes will be effective in identifying the small proportion of deaths where a claim is not submitted.
* * *
The total insurance in force for these “industrial” policyholders is approximately $438 million, for which the company is appropriately reserved. The company expects that $188 million of the total will be paid out in 2012, with the remainder paid over the next 17 years. In the first quarter of 2012, the company recorded a $52 million post-tax charge representing a multi-state examination payment related to unclaimed property and MetLife’s use of the Social Security Death Master File, as well as the expected acceleration of benefit payments to policyholders under the settlement.
177. The Regulatory Settlement Agreement between MetLife and the participating states
details that in addition in exchange for the releases of claims, which could have been brought by the
states, the Company agreed to wide-ranging corporate reforms, agreed to pay the states $40 million
for the cost of their investigations and subject itself to enforcement action for failure to comply with
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the terms of the agreement. The Regulatory Settlement Agreement, excerpted below, also
memorialized certain of the findings leading to concerns about the Company’s death benefit
practices:
WHEREAS, based upon the information gathered to date, the Departments have identified concerns regarding:
A. The adequacy of the Company’s policies and procedures to ensure that life insurance and endowment policies, annuities, “Retained Asset Accounts” (hereafter defined) and other funds are either timely paid out to “Beneficiaries” (hereafter defined), or timely reported or remitted in accordance with the “Unclaimed Property Laws” and the “Insurance Laws” (hereafter defined);
B. The Company’s historical use of the DMF to terminate payment under annuity contracts in the “payout” phase to annuitants who have died, but not attempt to locate Beneficiaries to pay out the death benefit under annuity contracts or life policies issued by the Company;
C. The adequacy of the Company’s policies and procedures to ensure that the financial benefits due under matured annuity contracts are paid to annuitants or reported and remitted in accordance with the Unclaimed Property Laws and the Insurance Laws;
D. The adequacy of the Company’s policies and procedures to ensure that assets held in the Company’s Retained Asset Accounts are paid to Beneficiaries or “Accountholders” (hereafter defined) or reported and remitted in accordance with the Unclaimed Property Laws, when the Accountholder is listed as deceased on the DMF, or, alternatively, the Accountholder has not initiated a financial or administrative action with respect to the Retained Asset Account for an extended period of time;
* * *
WHEREAS, in 2007, the Company matched substantially all of its individual life policies for which it had electronic records, including policies in in-force, terminated and non-forfeiture status against the DMF and identified over $50 million in death benefits, which were paid to Beneficiaries and over $30 million in unclaimed benefits which have been or will be reported and remitted to the appropriate states in accordance with the Unclaimed Property Laws;
WHEREAS, in 2010, subsequent to the commencement of the Multi-State Examination, the Company established its Electronic Death Match (“EDM”)
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initiative pursuant to which the Company committed to match its individual life and annuity, group life and annuity and retained asset accounts against the DMF no less frequently than annually and, in 2011, in accordance with that initiative, as well as a request for a report by the New York Superintendent of Insurance pursuant to Section 308 of the New York Insurance Law, the Company performed matches of the administrative records for individual and group life, individual and group annuities and retained asset accounts of all of the MetLife affiliated companies for all fifty states, and the Company has to date identified approximately $96 million to be paid to Beneficiaries from these matches, and over $16 million to be paid to the states as unclaimed property;
* * *
Business Reforms. The Company agrees that within sixty (60) days from the Effective Date of this Agreement, the Company shall adopt the following policies and procedures:
a. Perform comparisons, either directly or indirectly, of all of its in-force Insureds, Accountholders, Annuity Contract Owners, and annuitants, for which the Company provides Recordkeeping services, against the DMF, or an equivalent database containing the same information as the DMF, on at least a monthly basis in accordance with the transition period set forth in Schedule B. The Company shall use the comparison criteria specified in Schedule A. In the event that the Company uses different comparison criteria than those specified in Schedule A, the Company may be subject to sanctions to the extent that it obtains five percent (5%) fewer valid matches than would otherwise have been obtained using Schedule A.
b. Subject to Schedule B, if the Company is not contacted by a Beneficiary within one hundred twenty (120) days of the Date of Death Notice, the Company shall promptly commence a Thorough Search, which shall be completed within one (1) year from the Date of Death Notice. At the conclusion of that one (1) year period, if (i) the Beneficiary cannot be located by a Thorough Search and (ii) the Company is unable to establish an Exception, it shall report and remit the death benefit proceeds as Unclaimed Property to the affected state(s) in accordance with the applicable Unclaimed Property Laws. . . .
c. For the sole purpose of this Agreement, the Company, within the time period in Schedule B, shall implement policies and procedures establishing a DMF listing as prima facie proof of death and requiring the Company to initiate its death claims process and conduct a Thorough Search for Beneficiaries in accordance with Section 2(b) of this Agreement. . . .
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d. Utilize the DMF on all of its Life Insurance Policy, Annuity Contract, and Retained Asset Account product lines using the comparison methodologies . . . .
A. New York State Not Signatory to the Multi-State Settlement Agreement Announces Progress of Department of Finance Yielding $262 Million
178. On April 23, 2012, New York State Governor Andrew Cuomo issued a press release
announcing that the investigation being done by the New York State Department of Financial
Services had recovered more than $260 million from insurance companies, an increase of over $200
million from the reported $52 million in December 2011:
Governor Cuomo Announces DFS Investigation into Life Insurers Recovers More Than a Quarter Billion Dollars in Unpaid Benefits for Consumers Nationwide
Investigation Finds Tens of Thousands of Policies Went Unpaid Because Insurance Companies Did Not Check if Policy Holders Had Died; Investigation Helped 7,525 New Yorkers Recover Almost $100 Million in Life Insurance Payouts
Albany, NY (April 23, 2012)
Governor Andrew M. Cuomo today announced that a Department of Financial Services (DFS) investigation into how insurance companies tracked life insurance policy holders has resulted in 32,715 payments to consumers nationwide totaling $262.2 million, including 7,525 payments totaling $95.9 million to New Yorkers.
* * *
Meanwhile, the investigation found that insurance companies often used the list of recent deaths to verify the status of people getting annuity checks, and, when a death was verified, the insurance company stopped the annuity payment.
* * *
As a result of its investigation, the state demanded that insurers use the U.S. Social Security Administration’s Death Master File to investigate policies for which no claims have been made and to find beneficiaries who are eligible for benefits but have not filed claims. New York was the first state to order the cross-check policy and will issue a regulation to mandate this action in the future. Following that edict, insurers reported they cross-checked approximately 89.58 million records. Insurers are still investigating more than 445,000 potential matches for unpaid claims.
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Some of the larger individual payments made so far include the following:
$344,757.37 to a Northport, New York beneficiary on an individual life insurance policy where the insured died in 2007.
$217,031.88 to a Rockville Center, New York beneficiary on two individual annuities where the annuitant died in 2006.
$138,051.81 to a Queens, New York beneficiary on an individual life insurance policy where the insured died in 1998.
$107,399.60 to a Brooklyn, New York beneficiary on an individual annuity where the annuitant died in 2005.
VIII. METLIFE’S FINANCIAL STATEMENTS WERE MATERIALLY MISSTATED IN VIOLATION OF GAAP AND SEC DISCLOSURE RULES
179. As detailed herein, defendants concealed significant loss exposures stemming from
the Company’s blatant disregard of the SSA-DMF in its life insurance business for purposes of
locating beneficiaries of deceased policyholders recognizing liabilities or escheating unclaimed
property to the states. By concealing these loss exposures, each of MetLife’s Class Period financial
statements27 were materially misstated and in violation of GAAP28 and SEC disclosure rules for the
following reasons:
27 MetLife’s Class Period financial statements filed with the SEC include: Forms 10-Q filed on May 5, 2010, August 2, 2010, August 3, 2010 Registration Statement, November 4, 2010, May 10, 2011 and August 5, 2011; Forms 10-K filed on February 26, 2010, February 25, 2011; and the March 4, 2011 Registration Statement.
28 GAAP constitutes those standards recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practices at a particular time. The SEC has the statutory authority for the promulgation of GAAP for public companies and has delegated that authority to the Financial Accounting Standards Board (“FASB”). SEC Regulation S-X, Rule 4-01, 17 C.F.R. § 210.4-01(a)(1), provides that financial statements filed with the SEC that are not presented in conformity with GAAP will be presumed to be misleading, despite footnotes or other disclosures.
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(a) MetLife failed to disclose loss contingencies and legal proceedings related to a
multi-state investigation concerning the Company’s use of the SSA-DMF, in violation of FASB
Accounting Standards Codification (“ASC”) 450, SEC Regulation S-K, Item 103, and SEC
Regulation S-K, Item 303; and
(b) MetLife understated life insurance claim reserves for IBNR claims that had
been identified on the SSA-DMF, in violation of ASC 944 and American Institute of Certified Public
Accountants (“AICPA”) accounting rules.
180. Both of the above misstatements were material to the Company’s Class Period
financial statements. The multi-state investigation which began in 2009 (that MetLife failed to
disclose) resulted in a $500 million settlement (potentially increasing to $700 million) that was
revealed after the Class Period while the understatement of claim reserves resulted in over $143
million in after-tax charges that MetLife was forced to record at the end of the Class Period.
A. MetLife Failed to Disclose Loss Contingencies and Legal Proceedings in Violation of GAAP and SEC Disclosure Rules
181. During the Class Period, MetLife concealed material loss exposures relating to a
multi-state examination surrounding MetLife’s use of the SSA-DMF. The multi-state investigations
began by at least September 22, 2009 when Florida and Illinois launched a joint Market Conduct
Examination of the Company’s use of the SSA-DMF.”29 Despite the fact that these investigations
began in late 2009, MetLife did not disclose the investigations or the possibility of losses stemming
from the investigations until August 2011 when the Company first disclosed it was under
investigation and disclosed to investors the related costs “may be substantial.” The full extent of
29 Regulatory Settlement Agreement, dated April 19, 2012.
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MetLife’s true loss exposure was eventually revealed after the Class Period when the Company
settled with state regulators for up to $700 million. See April 23, 2012 LifeHealthPRO article
entitled, “MetLife’s Landmark Unclaimed Property Settlement Could Approach $700 million.”
http://www.lifehealthpro.com/2012/04/23/metlifes-landmark-unclaimed-property-settlement-co.
182. MetLife’s failure to disclose these investigations and related loss exposures in its
Class Period financial statements violated GAAP and SEC disclosure rules. As depicted in the chart
below, MetLife failed to make these required GAAP and SEC disclosures in each of its Class Period
financial statements.
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Item 103 Reg. S-K: ‘Legal Proceedings’
Item 303 Reg. S-K: MD&A
ASC 450: footnotes to the financial statements
Form 10-K filed on Feb. 26, 2010 none none none
Form 10-Q filed on May 5, 2010 none none none
Form 10-Q filed on August 2, 2010 none none none
Prospectus filed on August 3, 2010
none none none
Form 10-Q filed on November 4, 2010
none none none
Form 10-K filed on Feb. 25, 2011 none none none
Prospectus filed on March 4, 2011
none none none
Form 10-Q filed on May 10, 2011 none none none
Form 10-Q filed on August 5, 2011 partial30 partial partial
1. SEC Regulation S-K Item 103 “Legal Proceedings”
183. MetLife’s failure to make any disclosures regarding the multi-state investigation prior
to August 2011 was in direct violation of SEC Regulation S-K, Item 103 “Legal Proceedings,”
which requires the disclosure of “proceedings known to be contemplated by governmental
authorities.” For any such contemplated investigation or proceeding, Item 103 requires the
following information to be disclosed in the financial statements:
Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its
30 MetLife disclosed the multi-state investigation for the first time but did not provide a range of the possible loss exposure faced by the Company.
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subsidiaries is a party or of which any of their property is the subject. Include the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding and the relief sought.
184. Clearly, the multi-state market conduct examination that began in late 2009 and
escalated throughout the Class Period was the exact type of governmental proceeding described
under this SEC disclosure rule. MetLife’s failure to disclose the investigation in any of its Class
Period financial statements through August 2011 was a violation of SEC Regulation S-K and
rendered the financial statements materially false and misleading. The fact that the multi-state
investigation had not yet resulted in any formal action as of each reporting date did not negate the
disclosure requirement as Item 103 clearly covers proceedings “known to be contemplated by
governmental authorities.” In fact, MetLife demonstrated its view of the disclosure threshold for this
type of contemplated government proceeding when it disclosed a similar investigation beginning in
mid 2010.31 Notably, this disclosed investigation on MetLife’s use of retained asset accounts did not
result in any monetary settlements with New York or other states while the SSA-DMF investigation
that went entirely undisclosed has resulted in a $700 million multi-state settlement.
2. ASC 450 “Contingencies”
185. MetLife’s lack of disclosures regarding the SSA-DMF investigations and potential
loss exposure stemming from those investigations also violated FASB, ASC 450. In addition to the
disclosure requirements found in SEC Regulation S-K, ASC 450 requires disclosure in the footnotes
31 In its August 2, 2010 Form 10-Q, MetLife disclosed details of an investigation concerning its retained asset account. The disclosure stated: “The New York Attorney General recently announced that his office had launched a major fraud investigation into the life insurance industry for practices related to the use of retained asset accounts and that subpoenas requesting comprehensive data related to retained asset accounts have been served on MetLife and other insurance carriers.”
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to the financial statements for material loss contingencies and/or significant risks and uncertainties.
Notably, the SEC staff has reminded registrants that Item 103 of SEC Regulation S-K and FASB
Codification Topic 450, Contingencies have different requirements and objectives and should be
approached separately to ensure compliance.32 The occurrence, or non-occurrence, of a future event,
such as a possible enforcement action or litigation brought by state insurance commissioners or state
attorneys general meets the definition of a loss contingency under GAAP.33 Under ASC 450,
disclosing a loss contingency in the notes to the financial statements is required when there is more
than a remote chance that a loss will be incurred (even in the event that a reliable estimate of
eventual losses cannot be made at the time).34 In fact, ASC 450 specifically addresses the disclosure
of “Litigation, Claims, and Assessments” and, notably, the SEC has stated that these GAAP rules
apply to pending litigation or proceedings. The SEC has noted that companies often are exposed to
financial loss prior to the commencement of a formal claim, i.e., a company may expect a current
32 AICPA National Conference on Current SEC & PCAOB Development (December, 2010). Therefore, the statutory requirements that govern SEC Regulation S-K disclosures are independent of the requirement to file financial statements that are in compliance with GAAP. Stressing the importance of this concept, the SEC staff has noted that management needs to “take back the financial statements” (to provide the disclosures required by GAAP) from the lawyers who may want to restrict litigation disclosures.
33 ASC 450 (formerly Statement of Financial Accounting Standards No. 5, Accounting for Contingencies) defines a loss contingency as “an existing condition, situation, or set of circumstances involving uncertainty as to [a] possible . . . loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.”
34 It is clear that the threshold for disclosure of a loss contingency (as opposed to a higher threshold for the accrual of a loss contingency) is very low – GAAP requires disclosure if, “[t]he chance of the future event or events occurring is more than remote but less than likely.” Under ASC 450: “The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible loss or range of loss or state that such an estimate cannot be made.”
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government investigation to result in a formal claim upon completion of the investigation. ASC 450
states:
The following factors, among others, must be considered in determining whether accrual and/or disclosure is required with respect to pending or threatened litigation and actual or possible claims and assessments:
a. The period in which the underlying cause (i.e., the cause for action) of the pending or threatened litigation or of the actual or possible claim or assessment occurred.
b. The degree of probability of an unfavorable outcome.
c. The ability to make a reasonable estimate of the amount of loss.
* * *
With respect to unasserted claims and assessments, an enterprise must determine the degree of probability that a suit may be filed or a claim or assessment may be asserted and the possibility of an unfavorable outcome. . . . [A]n investigation of an enterprise by a governmental agency, if enforcement proceedings have been or are likely to be instituted, is often followed by private claims for redress, and the probability of their assertion and the possibility of loss should be considered in each case.
186. Once again, it is clear that the multi-state market conduct examination that began in
late 2009 and escalated throughout the Class Period met the disclosure criteria under this GAAP
disclosure rule. MetLife’s failure to disclose the investigation in any of its Class Period financial
statements through August 2011 was a violation of ASC 450 and rendered the financial statements
materially false and misleading.35 Similar to the disclosure rules of SEC Regulation S-K described
above, the fact that the investigation had not yet resulted in any formal action as of each reporting
date did not negate the disclosure requirement as ASC 450 clearly covers “pending or threatened
35 SEC Regulation S-X, Rule 4-01, 17 C.F.R. §210.4-01(a)(1), provides that financial statements filed with the SEC that are not presented in conformity with GAAP will be presumed to be misleading.
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litigation” and “unasserted claims.” Notably, MetLife disclosed the retained asset account
investigation, referred to above, in the footnotes to its financial statements under the heading
“Contingencies, Commitments and Guarantees,” beginning in August 2010, but failed to disclose the
more material SSA-DMF investigation.
3. SEC Regulation S-K Item 303: Management’s Discussion and Analysis
187. Similar to the disclosure requirements of ASC 450 which pertain to the footnotes of
the financial statements, SEC Regulation S-K, Item 303, requires disclosure of contingent liabilities
in the “Management’s Discussion and Analysis” section of the financial statements. Specifically,
Item 303 requires a company to disclose “uncertainties . . . that the registrant reasonably expects
will have a material . . . unfavorable impact on . . . income.” The SEC has consistently commented
that these disclosure rules cover contingent liabilities such as government investigations and
contemplated legal proceedings. For example, in a speech during the 2004 AICPA National
Conference on Current SEC and PCAOB Developments,36 Scott A. Taub, Deputy Chief Accountant
in the SEC’s Office of the Chief Accountant noted the following regarding the disclosure
requirements of ASC 450-20-50 and SEC Regulation S-K, Item 303:
Given these requirements, the recording of a material accrual for a contingent liability related to an event that occurred several years before should not be the first disclosure regarding that contingency. Rather, disclosures regarding the nature of the contingency and the amounts at stake should, in most cases, have already been provided. Disclosures should discuss the nature of the contingency and the possible range of losses for any item where the maximum reasonably possible loss is material. Vague or overly broad disclosures that speak merely to litigation, tax, or other risks in general, without providing any information about the specific kinds of loss contingencies being evaluated are not sufficient.
36 Similar remarks were made at subsequent conferences, including the 2010 AICPA National Conference on Current and SEC and PCAOB Developments.
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The SEC’s Taub completed his point by commenting: “I find it somewhat surprising how often
‘zero’ is the recorded loss [i.e., a no loss exposure at all has been disclosed] right up until a large
settlement is announced.” This was precisely what occurred in MetLife’s financial statements
during the Class Period – the Company made no disclosures prior to August 5, 2011 and then, just
seven months later, investors were blindsided by the announcement of the $700 million multi-state
settlement.
B. MetLife Understated Life Insurance Claim Reserves in Violation of GAAP
188. MetLife was also required under GAAP to record a liability, also known as a reserve,
for expected payouts related to life insurance benefits. More specifically, MetLife was required to
reserve for death benefits that had been incurred (i.e., the claimant had already died) but not yet
reported (i.e., a beneficiary had not yet notified MetLife). Under GAAP, these reserves are referred
to as “incurred but not yet reported” or “IBNR” and are fundamental to the financial statements of
insurance companies. ASC 944 states:
A liability for unpaid claims (including estimates of costs for claims relating to insured events that have occurred but have not been reported to the insurer)… shall be accrued when insured events occur.
189. The Audit and Accounting Guide for Life and Health Insurance Entities (“AICPA
Audit and Accounting Guide”), which was applicable to MetLife during the Class Period, contains
similar accounting guidance, including: “Insurance entities [are required to] set up estimated
reserves for unreported claims [or] Incurred but not reported claims: . . .claims relating to insured
events that have occurred (the insured has died or become disabled so that payment under the
terms of an insurance contract is due ) but the entity has not yet received notice of the claim as of
the date of the financial statements.”
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190. In violation of these essential and fundamental GAAP provisions for the insurance
industry, MetLife blatantly ignored information it knew or had available to it through utilization of
the SSA-DMF and failed to record liabilities (reserves) for life insurance claims that had clearly been
incurred (and were easily identifiable using the SSA-DMF) but had not yet been reported. As a
result, MetLife understated its life insurance claim reserves and overstated its earnings in its Class
Period financial statements. MetLife’s financial statements also included the false representation
that:
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities, certain accident and health, and non-medical health insurance . . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP . . . .
191. As alleged herein, defendants knew or recklessly disregarded, during the Class
Period, that MetLife’s reserves were not adequate to cover all incurred claims identified or
identifiable in the SSA-DMF. For example, according to the multi-state Regulatory Settlement
Agreement, the testimony of MetLife executives on May 19, 2011 and May 23, 2011, and Wheeler’s
statement on MetLife’s February 7, 2008, 4Q07 earnings conference call, MetLife performed a
match across certain of its life insurance records using the SSA-DMF, discovered over $80 million
in unreported claims and during 4Q07, had to increase reserves in its individual life insurance
business for unreported claims by $25 million, after-tax (impacting operating income by $0.04 EPS).
In 2010, after the multi-state examination had begun, MetLife performed additional matches using
the SSA-DMF. Despite the Company’s awareness that a cross-check during 2007 in its individual
life insurance business uncovered tens of millions in unclaimed benefits and a concomitant
$25 million increase to reserves in MetLife’s individual life insurance business for unreported claims
that impacted operating income by $0.04 EPS in 4Q07, defendants continued to understate claim
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reserves throughout the Class Period until recording charges totaling $143 million after-tax
(approximately $220 million before-tax) in late 2011 and early 2012.
192. The charges recorded by MetLife included a $117 million after-tax charge in 3Q11,
equal to $0.11 per share, to “increase reserves in connection with the company’s use of the
U.S. Social Security Administration’s Death Master File and similar databases to identify potential
life insurance claims that have not yet been presented to the company.” After the Class Period, in
1Q12, MetLife announced an additional $26 million after-tax charge related to IBNR claims
associated with the SSA-DMF. In total, the estimated claims to be paid as a result of the SSA-DMF
settlements with the states is $667 million with $188 million to be paid out by the end of 2012. As
part of the settlement, MetLife also admitted that by failing to use the SSA-DMF during the Class
Period, the Company had failed to “identify liabilities” (and therefore failed to record adequate claim
reserves) in its Class Period financial statements37 and the Company was fixing the problem going
forward.
193. Based on the above charges MetLife was forced to record in order to establish its
reserves in accordance with GAAP, MetLife’s Class Period reserves were understated by at least the
following amounts:
37 Pursuant to the settlement to resolve the audits, the Company will, among other things, take specified action to identify liabilities under life insurance, annuity, and retained asset contracts, and, to the extent that it is unable to locate owners of amounts payable, to escheat these amounts with interest at a specified rate to the appropriate states. Additionally, the Company has agreed to accelerate the final date of certain industrial life policies and to escheat unclaimed benefits of such policies. Pursuant to the settlements, the Company will, among other things, adopt specified procedures for identifying liabilities under life insurance, annuity, and retained asset contracts, for seeking to contact and pay beneficiaries under such liabilities, and for escheating unclaimed property to appropriate states.
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(in $millions) December 31, 2009 December 31, 2010
Group Life: Liability for Future Policy Benefits $2,981 $2,717
minimum additional reserve required $15438 $154
% understated 5.2% 5.7%
C. The Misstatements Identified Above Were Material to MetLife’s Financial
Statements
194. MetLife’s disclosure violations and understatement of claim reserves were both
material misstatements in the Company’s Class Period financial statements. In SEC Staff
Accounting Bulletin No. 99 (“SAB 99”), the SEC makes clear that any determination of materiality
hinges on both qualitative and quantitative factors. The SEC notes that “exclusive reliance on . . .
any percentage or numerical threshold has no basis in the accounting literature or the law.”
Instead, SAB 99 cites to the concept of materiality from FASB Statement of Financial Accounting
Concepts No. 2, Qualitative Characteristics of Accounting Information.39
195. The disclosure (or lack of disclosure) of the investigation and associated loss
contingencies surrounding the multi-state conduct examination into MetLife’s use of the SSA-DMF
was clearly qualitatively and quantitatively material during the Class Period. There are several
38 Calculated based on after-tax charges of $117 million in 3Q11 and $26 million in 1Q12, a tax rate of 35% (which was the effective tax rate for MetLife’s insurance products business segment at 3Q11 and 1Q12), and 70% of the charges being allocated to group life (which was the disclosed 75% for the 3Q11 charge).
39 “The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”
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qualitative factors including the egregiousness of the practices MetLife was engaged in (including
the fact that MetLife was using the same SSA-DMF to promptly stop making annuity payments to
deceased customers) and the fact that state government investigations are serious events that are
clearly important to investors regardless of size. Quantitatively, the size of the eventual settlement,
$700 million settlement, is clear evidence that the disclosure of the investigation and associated loss
exposures faced by the Company would have been material to investors during the Class Period.
196. The understatement of life insurance claim liabilities and reserves was also
qualitatively and quantitatively material. Qualitatively, claim reserves are one of the most important
components of an insurance company’s financial statements and closely watched by investors. For
example, the Company has stated:
Our earnings significantly depend upon the extent to which our actual claims experience is consistent with the assumptions we use in setting prices for our products and establishing liabilities for future policy benefits and claims.
* * *
The Company’s principal cash outflows primarily relate to the liabilities associated with its various life insurance, property and casualty, annuity and group pension products, operating expenses and income tax, as well as principal and interest on its outstanding debt obligations. Liabilities arising from its insurance activities primarily relate to benefit payments under the aforementioned products, as well as payments for policy surrenders, withdrawals and loans.
Quantitatively, as shown below, the $143 million in after-tax charges recorded by MetLife in 2011-
2012 to correct for the understatement of claim reserves would have materially impacted MetLife’s
reported results in each of the quarters during the Class Period:
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(in $millions) 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Originally Reported Net Income
$289 $805 $1,526 $286 $51 $830 $1,206
additional reserve requirement as a % of reported net income
50% 18% 9% 50% 280% 17% 12%
IX. LOSS CAUSATION/ECONOMIC LOSS RELEVANT TO SECTION 10(b)
EXCHANGE ACT VIOLATIONS
197. Plaintiffs incorporate by reference ¶¶149-167 set forth above including the October 6,
2011 disclosures, including the event study examining the Company’s stock price movements in
connection with the October 6 disclosure.
198. During the Class Period, as detailed herein, defendants made false and misleading
statements concerning the current and future financial condition of the Company and engaged in a
scheme to deceive investors regarding the same. Specifically, as alleged herein, the Company
qualitatively and quantitatively misstated its financial results for each of the reporting periods
alleged herein.
199. In addition to the false financial statements the Individual Defendants and MetLife
represented the overall strength of the Company’s business by falsely and repeatedly stating that the
Company’s mortality and underwriting experience were more favorable than they were in truth, and
failing to disclose that its mortality underwriting and overall operating results were materially
misstated because the Company ignored evidence of known policyholder deaths and failed to pay
beneficiaries monies owed to them or escheat unclaimed property to states. These materially false
representations caused MetLife’s stock to trade at an inflated level and operated as a fraud or deceit
on the Class (defined below).
200. Later, when the relevant truth regarding financial impact of the Company’s flawed
processes and procedures of utilization or non-utilization of the SSA-DMF and exposure to
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beneficiaries of deceased policyholders and state agencies, MetLife’s stock price declined, as the
prior artificial inflation came out of the stock price.
201. Throughout the Class Period, it was part of defendants’ scheme to present a
misleading picture of MetLife’s financial condition and prospects by failing to truthfully disclose
that the Company’s true financial condition, earnings, reserves, expenses, losses, underwriting and
mortality experience and exposure to states for escheatment of unclaimed property. Defendants’
financial reports were in violation of GAAP and/or SEC disclosure rules and inconsistent with the
Company’s representations concerning its true financial condition processes and procedures for
assessing and reserving for claims, its reported income and earnings results.
202. Defendants’ false and misleading statements concerning its operational financial
statements had the intended effect as they each and together caused MetLife’s stock to trade at
artificially inflated prices throughout the Class Period, causing MetLife’s stock to trade as high as
$47.72 per share on February 7, 2011. When the relevant true facts of the Company’s financial and
operating conditions, which had been concealed by defendants’ fraudulent scheme, began to be
revealed to the market, MetLife’s stock price declined as the prior artificial inflation began to come
out of MetLife’s stock price.
203. For example, during the Class Period defendants misrepresented the Company’s true
financial condition. Notwithstanding that the Company, in May 2011, through certain of its senior
officers, testified that its processes and procedures prior to and during the Class Period knowingly
did not include the broad utilization of the SSA-DMF to determine liabilities to beneficiaries and
states, and that the Company had been in discussion with state regulators surrounding its usage or
non-usage of the SSA-DMF, defendants maintained that with respect to inquiries concerning
retained asset accounts (which were subject to unclaimed property laws). Moreover, on July 28,
2011, the Company announced its 2Q11 financial results with no mention of the ongoing
investigations or known financial impact of the internal findings or findings by regulators. See
¶¶144-146. The Company’s positive 2Q11 financial results, which again boasted of highly favorable
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mortality ratios in group life, strong underwriting results and operating earnings (¶¶144-146) caused
the stock price to remain artificially inflated.
204. On August 5, 2011, MetLife filed its Form 10-Q for the period ending June 30, 2011,
MetLife disclosed for the first time that regulators from 30 jurisdictions had begun to investigate,
not only its handling of retained asset accounts, but its overall handling of unclaimed property and
failure to cross-check its policies with the SSA-DMF. This was new information that included
financial exposure, the breadth and depth of which were not previously disclosed. In fact, the
August 5, 2011 Form 10-Q disclosed for the first time the regulatory investigation would result in:
(i) additional payment to beneficiaries; (ii) additional escheatment of funds to states; (iii)
administrative penalties; and (iv) changes to the Company’s internal procedures for compliance with
state escheatment laws.
205. There was more, while the Company had previously contended that disclosures
related to the handling of retained assets were sufficient and that allegations of fraud were without
merit, those blanket denials were removed and instead replaced with a warning that costs associated
with the investigations and payments related to unclaimed property inquiries could be substantial.
206. The August 5, 2011 disclosures in MetLife’s Form 10-Q contributed to the
Company’s stock price to decline of 11% between Friday, August 5, 2011, and Monday, August 8,
2011. By close of market hours on August 8, 2011, MetLife stock traded down from a close of
$36.90 on Thursday, August 4, 2011, to a close of $32.74 on Monday, August 8, 2011.
207. On October 6, 2011, MetLife filed with the SEC a Form 8-K quantifying the impact
of the regulatory investigations reported on August 5, 2011, stating among other things that it would
take at least a $115 million after-tax charge to increase its reserves in connection with its use of the
SSA-DMF to identify deceased policyholders. See ¶¶156-162.
208. As a result of the October 6, 2011 news that the Company would have to increase its
reserves to cover IBNR losses, the Company’s stock price declined from $30.69 on October 6, 2011
to $28.80 on October 7, 2011. ¶¶156-167.
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209. Like other members of the Class of purchasers of MetLife stock who purchased at
artificially inflated prices during the Class Period, lead plaintiff suffered an economic loss, i.e.,
damages, under the Federal Securities Laws when MetLife’s stock price continued to decline
following the Company’s disclosures on August 5, 2011 and October 6, 2011 regarding defendants’
scheme to conceal MetLife’s true financial condition.
X. NO SAFE HARBOR
210. MetLife’s verbal “Safe Harbor” warnings accompanying its oral forward-looking
statements (“FLS”) issued during the Class Period were ineffective to shield those statements from
liability.
211. Defendants are also liable for any false or misleading FLS pleaded because, at the
time each FLS was made, the speaker knew the FLS was false or misleading and the FLS was
authorized and/or approved by an executive officer of MetLife who knew that the FLS was false.
None of the historic or present tense statements made by defendants were assumptions underlying or
relating to any plan, projection or statement of future economic performance, as they were not stated
to be such assumptions underlying or relating to any projection or statement of future economic
performance when made, nor were any of the projections or forecasts made by defendants expressly
related to or stated to be dependent on those historic or present tense statements when made.
XI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET
212. Plaintiff will rely upon the presumption of reliance established by the fraud-on-the-
market doctrine in that, among other things:
(a) Defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
(b) The omissions and misrepresentations were material;
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(c) The Company’s stock traded in an efficient market;
(d) The misrepresentations alleged would tend to induce a reasonable investor to
misjudge the value of the Company’s stock; and
(e) Plaintiff and other members of the Class purchased MetLife common stock
between the time defendants misrepresented or failed to disclose material facts and the time the true
facts were disclosed, without knowledge of the misrepresented or omitted facts.
213. At all relevant times, the market for MetLife common stock was efficient for the
following reasons, among others:
(a) As a regulated issuer, MetLife filed periodic public reports with the SEC; and
(b) MetLife regularly communicated with public investors via established market
communication mechanisms, including through regular dissemination of press releases on the major
news wire services and through other wide-ranging public disclosures, such as communications with
the financial press, securities analysts and other similar reporting services.
XII. CLASS ACTION ALLEGATIONS
214. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules
of Civil Procedure on behalf of all persons who purchased MetLife common stock during the Class
Period (the “Class”). Excluded from the Class are defendants and their families, and directors and
officers of MetLife and their families and affiliates.
215. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial benefits to
the parties and the Court. MetLife has over 1 billion shares of common stock outstanding.
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216. There is a well-defined community of interest in the questions of law and fact
involved in this case. Questions of law and fact common to the members of the Class which
predominate over questions which may affect individual Class members include:
(a) Whether the Exchange Act was violated by defendants;
(b) Whether defendants omitted and/or misrepresented material facts;
(c) Whether defendants’ statements omitted material facts necessary in order to
make the statements made, in light of the circumstances under which they were made, not
misleading;
(d) Whether defendants knew or recklessly disregarded that their statements were
false and misleading;
(e) Whether the price of MetLife common stock was artificially inflated; and
(f) The extent of damage sustained by Class members and the appropriate
measure of damages.
217. Plaintiff’s claims are typical of those of the Class because plaintiff and the Class
sustained damages from defendants’ wrongful conduct.
218. Plaintiff will adequately protect the interests of the Class and has retained counsel
who are experienced in class action securities litigation. Plaintiff has no interests which conflict
with those of the Class.
219. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy.
COUNT I
For Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Against MetLife, the Officer Defendants and the Director Defendants
220. Plaintiff incorporates ¶¶1-219 by reference.
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221. During the Class Period, defendants disseminated or approved the false statements
specified above, which they knew or recklessly disregarded were misleading in that they contained
misrepresentations and failed to disclose material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
222. Defendants violated §10(b) of the Exchange Act and Rule 10b-5 in that they:
(a) Employed devices, schemes, and artifices to defraud;
(b) Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they were
made, not misleading; or
(c) Engaged in acts, practices, and a course of business that operated as a fraud or
deceit upon plaintiff and others similarly situated in connection with their purchases of MetLife
common stock during the Class Period.
223. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for MetLife common stock. Plaintiff and the Class
would not have purchased MetLife common stock at the prices they paid, or at all, if they had been
aware that the market prices had been artificially and falsely inflated by defendants’ misleading
statements.
224. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and the
other members of the Class suffered damages in connection with their purchases of MetLife
common stock during the Class Period.
COUNT II
For Violation of Section 20(a) of the Exchange Act Against All Defendants Except the Underwriter Defendants
225. Plaintiff incorporates ¶¶1-225 by reference.
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226. The Individual Defendants acted as controlling persons of MetLife within the
meaning of §20(a) of the Exchange Act. By virtue of their positions and their power to control
public statements about MetLife, the Individual Defendants and directors had the power and ability
to control the actions of MetLife and did control communications made to the public and investors,
including, but not limited to, the Offering Materials. MetLife controlled the Individual Defendants
and its other officers and employees. By reason of such conduct, defendants are liable pursuant to
§20(a) of the Exchange Act.
XIII. CLAIMS FOR VIOLATIONS OF SECTIONS 11, 12 AND 15 OF THE SECURITIES ACT OF 1933
227. The Securities Act claims set forth herein below are based on strict liability and
negligence and are not based on any allegation that any defendant engaged in fraud or intentional
misconduct. Plaintiff specifically disclaims any reference to or reliance on allegations of fraud.
228. This claim is brought on behalf of all persons who purchased or acquired the common
stock of MetLife pursuant or traceable to the Company’s false and misleading August 3, 2010
Registration Statement and the March 4, 2011 Registration Statement (collectively, the “Offering
Materials”). The Offering Materials were issued in connection with MetLife’s August 3, 2010
public offering of 75 million shares of MetLife common shares and MetLife’s March 4, 2011
offering of 68.5 million shares of MetLife common shares, respectively (the “Offerings”).
229. Plaintiff seeks to recover damages under §§11 and 12(a)(2) and 15 of the Securities
Act, 15 U.S.C. §§77k, 77l(a)(2) and 77o, for untrue statements of material fact, the omission of facts
necessary to make statements not misleading and the omission of material facts required to be stated
in the Offering Materials.
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A. False and Misleading Statements and Omissions in the Registration Statements and Offering Materials
230. The August 3, 2010 Offering: On August 3, 2010, the Company filed the August 3,
2010 Registration Statement with the SEC setting forth the terms of MetLife common stock, offering
of 75 million shares of its common stock in connection with the acquisition of AIG’s ALICO
international life insurance business.40 Through the August 3, 2010 Registration Statement, MetLife
as the issuer would offer 75,000,000 (seventy-five million) shares of MetLife common stock $0.01 a
value per share. If the underwriters sold more than 75,000,000 shares of the common stock, the
underwriters would have the option to purchase 11.25 million additional shares to cover the over-
allotments.
231. The August 3, 2010 Registration Statement by reference the February 26, 2010 Form
10-K for fiscal year ended December 31, 2009 and Forms 10-Q for periods ended March 31, 2010
and June 30, 2010, each of which contained false financial statements as detailed below at ¶¶237-
263. In addition, the August 3, 2010 Registration Statement purported to warn investors in its
40 The August 3, 2010 Registration Statement included the August 3, 2010 Prospectus Supplement, which was issued pursuant to MetLife’s November 6, 2007 shelf registration statement and prospectus and incorporated the following documents by reference:
Annual Report on Form 10-K for the year ended December 31, 2009; Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010; Definitive Proxy Statement filed on March 23, 2010 Registration Statement on Form 8-A, relating to MetLife, Inc.’s common stock and Series A Junior Participating Preferred Stock purchase rights, filed on March 31, 2000, as amended and restated by the Registration Statement on Form 8-A/A, Amendment No. 1 filed on March 11, 2010; and Current Reports on Form 8-K filed on January 29, 2010, February 22, 2010, March 5, 2010, March 11, 2010, April 13, 2010, May 3, 2010, May 7, 2010, May 17, 2010 and August 2, 2010.
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common stock of certain risks connected to the August 3, 2010 offering. Each of the purported
warnings were false however because they omitted material facts:
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations when a policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to provide for future annuity payments. We compute the amounts for actuarial liabilities reported in our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
* * *
Liability for Future Policy Benefits and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities and non-medical health insurance. . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality . . . .
* * *
Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established.
232. On August 6, 2010, the Company issued a press release announcing that it had
completed the offering of 86.25 million shares of its common stock, which included the over
allotment provided to underwriters and raised gross proceeds of $3.6 billion:
MetLife Completes Public Offerings
NEW YORK, Aug 06, 2010 (BUSINESS WIRE) –
MetLife, Inc. . . . announced today that it has closed its recently announced public offering of 75 million shares of common stock and issued an additional 11.25 million shares of common stock pursuant to the exercise in full by the underwriters of their over-allotment option. The total offering of 86.25 million shares produced gross proceeds of approximately $3.6 billion.
MetLife also has closed its public offerings of $3 billion in aggregate principal amount of senior debt in several series with varying maturities and interest rates.
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Net proceeds from the common stock and senior debt offerings will be used to help finance the company’s previously announced acquisition of American Life Insurance Company from American International Group, Inc. . . . .
233. The March 4, 2011 Offering: On March 4, 2011, the Company filed the March 4,
2011 Registration Statement, which included the March 4, 2011 Form 424 (b)(5) Prospectus
Supplement to the shelf registration statement and prospectus filed with the SEC on November 30,
2010.41
234. In addition to the false financials, the March 4, 2011 Registration Statement also
made the following false purported warnings representations concerning the Company’s reserve
methodologies, mortality results and compliance with state and regulatory capital requirements:
We experienced excellent mortality results in our group life business due to a decrease in severity, as well as favorable reserve refinements in the current year.
* * *
Liability for Future Policy Benefits and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities, certain accident and health, and non-medical health insurance. . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality . . . .
* * *
41 The March 4, 2011 Registration Statement offered 146 million shares of common stock of Met Life, including 68 million shares of the Company’s common stock at $43.25 per share and AIG offering another 78 million shares of MetLife common stock. The March 4, 2011 Registration Statement, incorporated by reference, the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and in Amendment No. 1 to the Form 10-K/A filed with the SEC on March 1, 2011. The March 4, 2011 Registration Statement also incorporated by reference, the Company’s Forms 8-K filed on August 2, 2010, November 30, 2010, March 1, 2011 and March 2, 2011, each of which contained false financial statements and other misrepresentations discussed above.
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Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established.
* * *
Other Policy-Related Balances
* * *
The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care and dental claims, as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from actuarial analyses of historical patterns of claims and claims development for each line of business.
235. The March 4, 2011 Registration Statement also purported to make the following
warnings concerning policyholder liabilities, underwriting, claims and reserve experiences and
litigation contingencies. Each of the following statements were false and misleading because the
Registration Statements omitted material facts:
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations when a policy matures or is surrendered, an insured dies. We compute the amounts for actuarial liabilities reported in our consolidated financial statements in conformity with GAAP.
236. On March 8, 2011, the Company issued a press release announcing that it had
completed the public offering of more than 68 million shares of its common stock, raising gross
proceeds of $2.97 billion:
MetLife Announces Completion of Common Stock and Common Equity Unit Offerings
NEW YORK, Mar 08, 2011 (BUSINESS WIRE) –
MetLife, Inc. . . . announced today that it and ALICO Holdings LLC, a subsidiary of American International Group, Inc. (AIG), have closed their recently announced offering of 146,809,712 shares of MetLife common stock.
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MetLife offered 68,570,000 shares of its common stock to the public for gross proceeds of $2.97 billion. Net proceeds from MetLife’s sale of its common stock were used to repurchase and cancel 6,857,000 shares of contingent convertible preferred stock owned by AIG.
B. Material Misstatements and Omissions in the Offering Materials
1. MetLife’s Financial Statements Were Materially Misstated in Violation of GAAP and SEC Disclosure Rules
237. The Offering Materials omitted facts concerning significant loss exposures stemming
from the Company’s disregard of the SSA-DMF in its life insurance business for purposes of
locating beneficiaries of deceased policyholders recognizing liabilities or escheating unclaimed
property to the states. By omitting these loss exposures, each of MetLife’s Class Period financial
statements42 were materially misstated and in violation of GAAP43 and SEC disclosure rules for the
following reasons:
(a) The Offering Materials omitted loss contingencies and legal proceedings
related to a multi-state investigation concerning the Company’s use of the SSA-DMF, in violation of
ASC 450, SEC Regulation S-K, Item 103, and SEC Regulation S-K, Item 303; and
42 MetLife’s Class Period financial statements filed with the SEC include: Forms 10-Q filed on May 5, 2010, August 2, 2010, August 3, 2010 Registration Statement, November 4, 2010, May 10, 2011; and August 5, 2011 Form 10-K filed on February 26, 2010, February 25, 2011; and the March 4, 2011 Registration Statement.
43 GAAP constitutes those standards recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practices at a particular time. The SEC has the statutory authority for the promulgation of GAAP for public companies and has delegated that authority to the Financial Accounting Standards Board. SEC Regulation S-X, Rule 4-01 17 C.F.R. § 210.4-01(a)(1), provides that financial statements filed with the SEC that are not presented in conformity with GAAP will be presumed to be misleading, despite footnotes or other disclosures.
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(b) The financial statements incorporated in the Offering Materials understated
life insurance claim reserves for IBNR claims that had been identified on the SSA-DMF, in violation
of ASC 944 and AICPA accounting rules.
238. The above omissions and misstatements were material to the Company’s Class Period
financial statements. The multi-state investigation which began in 2009 (that MetLife failed to
disclose) resulted in a $500 million settlement (potentially increasing to $700 million) that was
revealed after the Class Period while the understatement of claim reserves resulted in over $143
million in after-tax charges that MetLife was forced to record at the end of the Class Period.
2. MetLife Failed to Disclose Loss Contingencies and Legal Proceedings in Violation of GAAP and SEC Disclosure Rules
239. The Offering Materials omitted material loss exposures relating to a multi-state
examination surrounding MetLife’s use of the SSA-DMF. The multi-state investigations began by at
least September 22, 2009 when Florida and Illinois launched a joint Market Conduct Examination of
the Company’s use of the SSA-DMF.”44 Despite the fact that these investigations began in late
2009, The Offering Materials did not disclose the investigations or the possibility of losses stemming
from the investigations until August 2011 when the Company first disclosed it was under
investigation and disclosed to investors the related costs “may be substantial.” The full extent of
MetLife’s true loss exposure was eventually revealed after the Class Period when the Company
settled with state regulators for $700 million.
240. The omissions of these investigations and related loss exposures in its Class Period
financial statements and Offering Materials violated GAAP and SEC disclosure rules. As depicted in
44 Regulatory Settlement Agreement, dated April 19, 2012.
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the chart below, MetLife’s financial statements in the Offering Materials failed to make these
required GAAP and SEC disclosures in each of its Class Period financial statements.
Item 103 Reg. S-K: ‘Legal Proceedings’
Item 303 Reg. S-K: MD&A
ASC 450: footnotes to the financial statements
Form 10-K filed on Feb. 26, 2010 none none none
Form 10-Q filed on May 5, 2010 none none none
Form 10-Q filed on August 2, 2010 none none none
Prospectus filed on August 3, 2010
none none none
Form 10-Q filed on November 4, 2010
none none none
Form 10-K filed on Feb. 25, 2011 none none none
Prospectus filed on March 4, 2011
none none none
Form 10-Q filed on May 10, 2011 none none none
Form 10-Q filed on August 5, 2011 partial45 partial partial
a. SEC Regulation S-K Item 103 “Legal Proceedings”
241. The Offering Materials omitted any disclosures regarding the multi-state investigation
prior to August 2011 was in direct violation of SEC Regulation S-K, Item 103 “Legal Proceedings,”
which requires the disclosure of “proceedings known to be contemplated by governmental
45 MetLife disclosed the multi-state investigation for the first time but did not provide a range of the possible loss exposure faced by the Company.
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authorities.” For any such contemplated investigation or proceeding, Item 103 requires the
following information to be disclosed in the financial statements:
Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. Include the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding and the relief sought.
242. The omissions of these investigations in any of its Class Period financial statements
through August 2011 was a violation of SEC Regulation S-K and rendered the financial statements,
incorporated into the Offering Materials, materially false and misleading.
b. ASC 450 “Contingencies”
243. The omission of the SSA-DMF investigations and potential loss exposure stemming
from those investigations also violated FASB, ASC 450. In addition to the disclosure requirements
found in SEC Regulation S-K, ASC 450 requires disclosure in the footnotes to the financial
statements for material loss contingencies and/or significant risks and uncertainties. Notably, the
SEC staff has reminded registrants that Item 103 of SEC Regulation S-K and FASB Codification
Topic 450, Contingencies have different requirements and objectives and should be approached
separately to ensure compliance.46 The occurrence, or non-occurrence, of a future event, such as a
possible enforcement action or litigation brought by state insurance commissioners or state attorneys
46 AICPA National Conference on Current SEC & PCAOB Development (December, 2010). Therefore, the statutory requirements that govern Regulation S-K disclosures are independent of the requirement to file financial statements that are in compliance with GAAP. Stressing the importance of this concept, the SEC staff has noted that management needs to “take back the financial statements” (to provide the disclosures required by GAAP) from the lawyers who may want to restrict litigation disclosures.
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general meets the definition of a loss contingency under GAAP.47 Under ASC 450, disclosing a loss
contingency in the notes to the financial statements is required when there is more than a remote
chance that a loss will be incurred (even in the event that a reliable estimate of eventual losses
cannot be made at the time).48 In fact, ASC 450 specifically addresses the disclosure of “Litigation,
Claims, and Assessments” and, notably, the SEC has stated that these GAAP rules apply to pending
litigation or proceedings. The SEC has noted that companies often are exposed to financial loss
prior to the commencement of a formal claim, i.e., a company may expect a current government
investigation to result in a formal claim upon completion of the investigation. ASC 450 states:
The following factors, among others, must be considered in determining whether accrual and/or disclosure is required with respect to pending or threatened litigation and actual or possible claims and assessments:
a. The period in which the underlying cause (i.e., the cause for action) of the pending or threatened litigation or of the actual or possible claim or assessment occurred.
b. The degree of probability of an unfavorable outcome.
c. The ability to make a reasonable estimate of the amount of loss.
* * *
47 ASC 450 (formerly Statement of Financial Accounting Standards No. 5, Accounting for Contingencies) defines a loss contingency as “an existing condition, situation, or set of circumstances involving uncertainty as to [a] possible . . . loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.”
48 It is clear that the threshold for disclosure of a loss contingency (as opposed to a higher threshold for the accrual of a loss contingency) is very low – GAAP requires disclosure if, “[t]he chance of the future event or events occurring is more than remote but less than likely.” Under ASC 450: “The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible loss or range of loss or state that such an estimate cannot be made.”
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With respect to unasserted claims and assessments, an enterprise must determine the degree of probability that a suit may be filed or a claim or assessment may be asserted and the possibility of an unfavorable outcome. . . .
[A]n investigation of an enterprise by a governmental agency, if enforcement proceedings have been or are likely to be instituted, is often followed by private claims for redress, and the probability of their assertion and the possibility of loss should be considered in each case.
244. The omission of the of the investigation in any of its Class Period financial statements
of the Offering Materials was a violation of ASC 450 and rendered the financial statements
materially false and misleading.49
c. SEC Regulation S-K Item 303: Management’s Discussion and Analysis
245. Similar to the disclosure requirements of ASC 450 which pertain to the footnotes of
the financial statements, SEC Regulation S-K, Item 303, requires disclosure of contingent liabilities
in the “Management’s Discussion and Analysis” section of the financial statements. Specifically,
Item 303 requires a company to disclose “uncertainties . . . that the registrant reasonably expects
will have a material . . . unfavorable impact on . . . income.” The SEC has consistently commented
that these disclosure rules cover contingent liabilities such as government investigations and
contemplated legal proceedings. For example, in a speech during the 2004 AICPA National
Conference on Current SEC and PCAOB Developments,50 Scott A. Taub, Deputy Chief Accountant
49 SEC Regulation S-X, Rule 4-01, 17 C.F.R. §210.4-01(a)(1), provides that financial statements filed with the SEC that are not presented in conformity with GAAP will be presumed to be misleading.
50 Similar remarks were made at subsequent conferences, including the 2010 AICPA National Conference on Current and SEC and PCAOB Developments.
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in the SEC’s Office of the Chief Accountant, noted the following regarding the disclosure
requirements of ASC 450-20-50 and SEC Regulation S-K, Item 303:
Given these requirements, the recording of a material accrual for a contingent liability related to an event that occurred several years before should not be the first disclosure regarding that contingency. Rather, disclosures regarding the nature of the contingency and the amounts at stake should, in most cases, have already been provided. Disclosures should discuss the nature of the contingency and the possible range of losses for any item where the maximum reasonably possible loss is material. Vague or overly broad disclosures that speak merely to litigation, tax, or other risks in general, without providing any information about the specific kinds of loss contingencies being evaluated are not sufficient.
The SEC’s Taub completed his point by commenting: “I find it somewhat surprising how often
‘zero’ is the recorded loss [i.e., a no loss exposure at all has been disclosed] right up until a large
settlement is announced.”
C. MetLife Understated Life Insurance Claim Reserves in Violation of GAAP
246. MetLife was also required under GAAP to record a liability, also known as a reserve,
for expected payouts related to life insurance benefits. More specifically, MetLife was required to
reserve for death benefits that had been incurred (i.e., the claimant had already died) but not yet
reported (i.e., a beneficiary had not yet notified MetLife). Under GAAP, these reserves are referred
to as “incurred but not yet reported” or “IBNR” and are fundamental to the financial statements of
insurance companies. ASC 944 states:
A liability for unpaid claims (including estimates of costs for claims relating to insured events that have occurred but have not been reported to the insurer)… shall be accrued when insured events occur.
247. The Audit and Accounting Guide for Life and Health Insurance Entities(“AICPA
Audit and Accounting Guide”), which was applicable to MetLife during the Class Period, contains
similar accounting guidance, including: “Insurance entities [are required to] set up estimated
reserves for unreported claims [or] Incurred but not reported claims: . . .claims relating to insured
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events that have occurred (the insured has died or become disabled so that payment under the
terms of an insurance contract is due ) but the entity has not yet received notice of the claim as of
the date of the financial statements.”
248. In violation of these essential and fundamental GAAP provisions for the insurance
industry, the Offering Materials omitted material information concerning utilization of the SSA-
DMF and that liabilities (reserves) were not recorded for life insurance claims that had been incurred
(and were easily identifiable using the SSA-DMF) but had not yet been reported in the Offering
Materials omitted that MetLife’s financial statements understated the Company’s life insurance
claim reserves and overstated its earnings in its Class Period financial statements. MetLife’s
financial statements and Offering Materials also included the false representation that:
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities, certain accident and health, and non-medical health insurance . . . . Such liabilities are established based on methods and underlying assumptions in accordance with GAAP . . . .
249. As alleged herein, the Offering Materials omitted that MetLife’s reserves were not
adequate to cover all incurred claims identified or identifiable in the SSA-DMF. For example,
according to the multi-state Regulatory Settlement Agreement, the testimony of MetLife’s
executives on May 19, 2011 and May 23, 2011, and Wheeler’s statement on MetLife’s February 7,
2008, 4Q07 earnings conference call, MetLife performed a match across certain of its life insurance
records using the SSA-DMF, discovered over $80 million in unreported claims and during 4Q07,
had to increase reserves in its individual life insurance business for unreported claims by
$25 million, after-tax (impacting operating income by $0.04 EPS). In 2010, after the multi-state
examination had begun, MetLife performed additional matches using the SSA-DMF. Despite the
Company’s findings that a cross-check during 2007 in its individual life insurance business
uncovered tens of millions in unclaimed benefits and a concomitant $25 million increase to reserves
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in MetLife’s individual life insurance business for unreported claims that impacted operating income
by $0.04 EPS in 4Q07, defendants continued to understate claim reserves throughout the Class
Period until recording charges totaling $143 million after-tax (approximately $220 million before-
tax) in late 2011 and early 2012.
250. The charges recorded by MetLife included a $117 million after-tax charge in 3Q11,
equal to $0.11 per share, to “increase reserves in connection with the company’s use of the
U.S. Social Security Administration’s Death Master File and similar databases to identify potential
life insurance claims that have not yet been presented to the company.” After the Class Period, in
1Q12, MetLife announced an additional $26 million after-tax charge related to IBNR claims
associated with the SSA-DMF. In total, the estimated claims to be paid as a result of the SSA-DMF
settlements with the states is $667 million with $188 million to be paid out by the end of 2012.
251. Based on the above charges MetLife was forced to record in order to establish its
reserves in accordance with GAAP, MetLife’s Class Period reserves were understated by at least the
following amounts:
(in $millions) December 31, 2009 December 31, 2010
Group Life: Liability for Future Policy Benefits $2,981 $2,717
minimum additional reserve required $15451 $154
% understated 5.2% 5.7%
51 Calculated based on after-tax charges of $117 million in 3Q11 and $26 million in 1Q12, a tax rate of 35% (which was the effective tax rate for MetLife’s insurance products business segment at 3Q11 and 1Q12), and 70% of the charges being allocated to group life (which was the disclosed 75% for the 3Q11 charge).
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1. The Misstatements Identified Above Were Material to MetLife’s Financial Statements
252. MetLife’s disclosure violations and understatement of claim reserves were both
material misstatements in the Company’s Class Period financial statements. In SEC SAB 99, the
SEC makes clear that any determination of materiality hinges on both qualitative and quantitative
factors. The SEC notes that “exclusive reliance on . . . any percentage or numerical threshold has
no basis in the accounting literature or the law.” Instead, SAB 99 cites to the concept of
materiality from FASB Statement of Financial Accounting Concepts No. 2, Qualitative
Characteristics of Accounting Information.52
253. The disclosure (or lack of disclosure) of the investigation and associated loss
contingencies surrounding the multi-state conduct examination into MetLife’s use of the SSA-DMF
was clearly qualitatively and quantitatively material during the Class Period. There are several
qualitative factors including the egregiousness of the practices MetLife was engaged in (including
the fact that MetLife was using the same SSA-DMF to promptly stop making annuity payments to
deceased customers) and the fact that state government investigations are serious events that are
clearly important to investors regardless of size. Quantitatively, the size of the eventual settlement,
$700 million settlement, is clear evidence that the disclosure of the investigation and associated loss
exposures faced by the Company would have been material to investors during the Class Period.
52 “The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”
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254. The understatement of life insurance claim liabilities and reserves was also
qualitatively and quantitatively material. Qualitatively, claim reserves are one of the most important
components of an insurance company’s financial statements and closely watched by investors. For
example the Company has stated:
Our earnings significantly depend upon the extent to which our actual claims experience is consistent with the assumptions we use in setting prices for our products and establishing liabilities for future policy benefits and claims.
* * *
The Company’s principal cash outflows primarily relate to the liabilities associated with its various life insurance, property and casualty, annuity and group pension products, operating expenses and income tax, as well as principal and interest on its outstanding debt obligations. Liabilities arising from its insurance activities primarily relate to benefit payments under the aforementioned products, as well as payments for policy surrenders, withdrawals and loans.
Quantitatively, as shown below, the $143 million in after-tax charges recorded by MetLife in 2011-
2012 to correct for the understatement of claim reserves would have materially impacted MetLife’s
reported results in each of the quarters during the Class Period.
(in $millions) 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Originally Reported Net Income
$289 $805 $1,526 $286 $51 $830 $1,206
additional reserve requirement as a % of reported net income
50% 18% 9% 50% 280% 17% 12%
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2. MetLife Admits Investigation of Death Benefit Claims Could Have a Material Impact on Its Financial Statements – Takes After-Tax Charge to Earnings
255. On August 5, 2011, only one week after the July 28, 2011 announcement of its 2Q11
results, the Company filed with the SEC its Form 10-Q for the period ended June 30, 2011. The
Company disclosed that:
• The regulatory investigation into its death benefits practices had expanded to more than 30 jurisdictions;
• The investigations could result in additional escheatment to the states;
• The Company could be subjected to administrative penalties; and
• The costs related to said investigations and procedures could be “substantial.”
256. The August 5, 2011 disclosure in MetLife’s Form 10-Q contributed to the Company’s
stock price to decline 11% between Friday, August 5, 2011, and Monday, August 8, 2011. By close
of the market on August 8, 2011, MetLife stock traded down from a close of $36.90 per share on
Thursday, August 4, 2011, to a close of $32.74 per share on Monday, August 8, 2011.
257. On October 6, 2011, the Company filed with the SEC a Form 8-K quantifying the
impact of the regulatory investigations reported on August 5, 2011, stating among other things that it
would take at least a $115 million after-tax charge to increase its reserves in connection with its use
or failure to use the SSA-DMF to identify deceased policyholders:
MetLife, Inc. . . . has identified the following non-recurring charges that it expects to incur for the third quarter of 2011:
(1) The Company expects to incur a $115 million to $135 million, after tax, charge to adjust reserves in connection with the Company’s use of the U.S. Social Security Administration’s Death Master File and similar databases to identify certain group life insurance certificates, individual life insurance policies and other contracts where the covered person may be deceased, but a claim has not yet been presented to the Company.
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258. On the same day, on October 6, 2011, after the filing of the Form 8-K, Credit Suisse
issued a report entitled “Quick Comment on MET’s 3Q11.” The report detailed the disclosures in
the Company’s Form 8-K of the same date concerning the reserve charge resulting from the
Company’s failure to use the SSA-DMF:
MetLife, Inc.
Quick Comment on MET’s 3Q11
▪ Action/Event: Today MET disclosed it would incur total charges of $235mm-$275mm (or $197mm-$237mm excluding the normal quarterly catastrophe load) related to three items. The charges were due to: (1) a $115-$135mm after tax charge related to claim reconciliation with the US Social Security Administration’s Death Master File (11c-13c/sh) . . . .
▪ The $115mm-$135mm is an addition to reserves from an internal review that determined future liabilities are in excess of current reserves, reinsurance and IBNR. MET conducted an internal review in which it matched deceased policyholders with the U.S. Social Security Administration’s Death Master File and determined situations where the individual may be deceased but the related claim had not yet been filed. The reserve addition relates 75% to group business and 25% to individual life policies.
259. On the October 6, 2011 disclosures, the Company’s stock price declined from $30.69
on October 6, 2011 to $28.80 on October 7, 2011.
260. On October 27, 2011, the Company issued a press release announcing its 3Q11
financial results. The press release stated as follows:
METLIFE ANNOUNCES THIRD QUARTER 2011 RESULTS
* * *
MetLife, Inc. . . . today reported third quarter 2011 net income of $3.6 billion, or $3.33 per share, and operating earnings of $1.2 billion, or $1.11 per share.
* * *
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THIRD QUARTER 2011 SUMMARY
Operating earnings of $1.2 billion, or $1.11 per share, reflecting:
a $117 million ($0.11 per share), after tax, charge to increase reserves in connection with the company’s use of the U.S. Social Security Administration’s Death Master File and similar databases to identify potential life insurance claims that have not yet been presented to the company; the charge mostly impacted the Insurance Products segment
261. On October 28, 2011, the Company held a conference call for analysts and investors
to discuss the Company’s 3Q11 financial results and explain the impact of the $117 million after-tax
charge on earnings, its group and individual life business and mortality ratios. The Company
reported that its individual life mortality rate was a whopping 98.5% and group life mortality ratio
was also 98.5%:
[KANDARIAN:] As noted in the 8-K we filed October 6, MetLife recorded a number of one-time charges in the third quarter. Absent these charges and some other one-time items, MetLife’s earnings would have been $1.28 per share, which we believe is closer to the Company’s true earnings power.
* * *
[WHEELER:] There were several unusual items in this quarter. First, we have taken an after-tax charge of $117 million or $0.11 per share to increase reserves in connection with our use of the US Social Security Administration’s Death Master File and similar databases to identify potential life insurance claims for pending and incurred, but not reported claim liabilities referred to as IBNR – over 70% of the charges in our Group Life business, nearly 25% in Individual Life with the balance in Corporate Benefit Funding.
* * *
The Group Life mortality ratio for the quarter was 98.5%. It’s elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously. . . .
* * *
Our Individual Life mortality ratio for the quarter was 98.5%, elevated due to the reserve strengthening related to the life insurance claims adjustment that I mentioned previously.
* * *
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While reserve adjustments go through the income statement . . . .
262. In addition to the details of the financial impact of the reserve charge, the report
stated that both group life and individual life mortality rates had skyrocketed to 98.5%, higher than
had been reported at any time since 1Q09:
Reported Mortality Ratios During the Relevant Period
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
Reported Mortality
Ratio
G 92.2% I 82.6%
G 91.3% I 74.9%
G 92.2% I 91.1%
G 89.7% I 81.1%
G 89.5% I 87.6%
G 86.6% I 80.4%
G 89% I 86.7%
G 89.7% I 82.9%
G 88.2% I 92.5%
G 82.1% I 84.4%
G 98.5% I 98.5%
263. On February 28, 2012, the Company filed its Form 10-K for the year ended
December 31, 2011. The Form 10-K made additional disclosures about the impact of the
Company’s historical failure to use the SSA-DMF and the effect on the Company’s financial
statements:
On an annual basis, we perform experience studies, as well as update our assumptions surrounding both expected policyholder behaviors and the related investment environment. These updates, commonly known as unlocking events, result in changes to certain insurance related liabilities, DAC and revenue amortization. The impact of updates to our assumptions, in both 2011 and 2010 primarily related to policyholder behaviors, such as projected premium assumptions and various factors impacting persistency, coupled with insurance related refinements, resulted in a net increase to operating earnings of $41 million. Partially offsetting these favorable impacts was a $109 million charge, recorded in the third quarter of the current year, related to our use of the Death Master File, in both our group and individual life businesses.
* * *
The Company’s use of the Death Master File in connection with our post-retirement benefit business resulted in a charge in the third quarter of the current year of $8 million. Other insurance liability refinements and mortality results negatively impacted our year-over-year operating earnings by $20 million.
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COUNT III
Violations of Section 11 of the Securities Act Against All Defendants Except Kandarian and Mullaney
264. Plaintiff repeats and reallege each and every allegation contained above in ¶¶227-263
as if fully set forth herein.
265. This Count is brought pursuant to §11 of the Securities Act, 15 U.S.C. §77k, and is
asserted against all defendants on behalf of themselves and all persons who purchased or acquired
MetLife common stock pursuant or traceable to the August 3, 2010 Registration Statement Offering
and the March 4, 2011 Registration Statement Offering. For purposes of this Count, plaintiff
affirmatively states that it does not allege that defendants committed intentional or reckless
misconduct or that defendants acted with scienter or fraudulent intent.
266. Lead Plaintiff Central States purchased 8,394 shares of MetLife common stock on
August 3, 2010 at $42.00 pursuant to and traceable to the August 3, 2010 Registration Statement and
was damaged thereby. Central States also purchased 72,120 shares of MetLife common stock on
March 3, 2011, at $43.25 and 51,800 shares on March 4, 2011, pursuant to and traceable to the
March 4, 2011 Registration Statement has been damaged thereby.
267. The August 3, 2010 Registration Statement and the March 4, 2011 Registration
Statement were both defective and inaccurate, contained untrue statements of material fact and
omitted to state facts necessary to make the statements in the Offering Materials made not
misleading, and omitted to state material facts required to be stated therein.
268. The August 3, 2010 Registration Statement was signed by Henrikson, Wheeler,
Burwell, Grisé, Hubbard, Keane, Kilts, Price, Satcher, Sicchitano and Wang.
- 156 - 1281715_1
269. The March 4, 2011 Registration Statement was signed by Henrikson, Wheeler,
Carlson, Burwell, Wright, Grisé, Hubbard, Keane, Kelly, Kilts, Kinney, Price, Satcher, Sicchitano
and Wang.
270. Defendant MetLife is the registrant and issuer for both the Offerings. As such,
MetLife is strictly liable for the materially false statements contained in the August 3, 2010
Registration Statement and the March 4, 2011 Registration Statement.
271. Credit Suisse Securities (USA) LLC, Wells Fargo Securities, LLC, BofA Merrill
Lynch, Pierce, Fenner & Smith Incorporated and HSBC participated in and served as underwriters to
the August 3, 2010 Offering.
272. Goldman Sachs, CGMI, Credit Suisse (USA) LLC, Wells Fargo Securities, LLC,
BofA Merrill Lynch, Pierce, Fenner & Smith Incorporated and HSBC participated in and served as
underwriters to the March 4, 2011 Offering.
273. The Underwriter Defendants helped draft and disseminate the August 3, 2010
Offering Materials and failed to conduct an adequate due diligent investigation, which was a
substantial factor leading to the harm complained of herein.
274. Defendant MetLife and the Individual Defendants who signed the August 3, 2010
Registration Statement and/or March 4, 2011 Registration Statement are strictly liable for the false
and misleading statements and omissions incorporated into the registration statements.
275. These defendants each had a duty to make a reasonable and diligent investigation of
the truthfulness and accuracy of the statements contained in the Offering Materials. They had a duty
to ensure that such statements were true and accurate and that there were no omissions of material
facts that would make the statements misleading. In the exercise of reasonable care, the Individual
Defendants knew or should have known of the material misstatements and omissions contained in
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the Offering documents and also should have known of the omissions of material facts necessary to
make the statements made therein not misleading. As such, the Individual Defendants are liable to
Lead Plaintiff Central States and the Class.
276. The Underwriter Defendants were each underwriters, as that term is used in §11(a)(5)
of the Securities Act, and were sellers of MetLife common stock with respect to the Offerings and
the Company’s common stock sold through the Offering Materials. The underwriters were paid
more than $93 million in connection with the August 3, 2010 offering and more than $31 million in
connection with the March 4, 2011 offering. The Underwriter Defendants were required to
investigate with due diligence the representations contained therein to confirm that they did not
contain materially misleading statements or omit material facts. None of the Underwriter
Defendants made a reasonable investigation or possessed reasonable grounds for the belief that the
statements described herein, which were contained in the August 3, 2010 Registration Statement and
the March 4, 2011 Registration Statement were true, were without omission of any material facts,
and/or were not misleading.
277. None of the untrue statements of omissions alleged herein was a forward-looking
statement, but rather, each concerned exiting facts.
278. Lead Plaintiff Central States purchased or acquired MetLife common stock in the
Offerings or traceable thereto in reliance upon the defective August 3, 2010 Registration Statement
and March 4, 2011 Registration Statement and without knowledge of the untruths and/or omissions
alleged herein. Plaintiff and the Class sustained damages when the price of MetLife common stock
declined substantially due to material misstatements and/or omissions in the Offering Materials.
279. By reasons of the conduct herein alleged, each defendant violated, and/or controlled a
person who violated §11 of the Securities Act.
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280. This action was brought within one year after the plaintiff discovered or reasonably
could have discovered the untrue statements and omissions. Less than three years has elapsed from
the date of the Offerings.
COUNT IV
For Violation of Section 12(a)(2) of the Securities Act Against All Defendants Except Goldman and Citigroup
With Respect to the August 2010 Offering
281. Plaintiff incorporates ¶¶227-280 by reference herein.
282. This claim is brought by lead plaintiff pursuant to §12(a)(2) of the Securities Act, 15
U.S.C. 77l(a)(2), on behalf of all purchasers of MetLife common stock pursuant to the Offering
Materials and is asserted against all defendants. For purposes of this Count, plaintiff does not claim
that defendants committed intentional or reckless misconduct or that defendants acted with scienter
or fraudulent intent.
283. Defendants were sellers and offerors and/or solicitors of purchasers of the MetLife
common stock offered pursuant to the Offering Materials for financial gain. Defendants issued,
caused to issue, and/or signed the August 3, 2010 Registration Statement and/or the March 4, 2011
Registration Statement. The Offering Materials each contained a prospectus and prospectus
supplements used to induce investors, such as plaintiff and the other members of the Class, to
purchase MetLife common stock.
284. The prospectus supplements and documents incorporated by reference into the
Offering Materials contained untrue statements of material fact, omitted to state other facts necessary
to make the statements therein made not misleading and omitted material facts required to be stated
therein.
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285. Plaintiff and the other Class members did not know, nor could they have known, of
the untruths or omissions contained in the Offering Materials.
286. At the time of their purchases or acquisition of MetLife shares, lead plaintiff and
other members of the Class did not know of, or in the exercise of reasonable diligence could not
have known the facts concerning the false statements/omissions alleged herein and could not have
reasonably discovered those facts prior to the Offerings.
287. Less than one year has elapsed between the time that plaintiff discovered or
reasonably could have discovered the facts upon which this claim is based and the time that plaintiff
filed this allegation of violations of §12(a)(2) of the Securities Act. Less than three years has
elapsed between the time that the securities upon which this Count is brought were offered to the
public and the time plaintiff filed this claim.
288. By reason of the false statements/omissions alleged herein, defendants violated
§12(a)(2) of the Securities Act and are liable to lead plaintiff and the Class members who purchased
or acquired MetLife common stock pursuant to the Offering Materials, each of whom has been
damaged as a result of such violation.
COUNT V
Violation of Section 15 of the Securities Act Against All Defendants Except Castro-Wright and
the Underwriter Defendants
289. Plaintiffs repeat and reallege each and every allegation contained in ¶¶227-288 above,
as if fully set forth herein.
290. This Count is brought pursuant to §15 of the Securities Act, 15 U.S.C. §77o, on
behalf of Lead Plaintiff Central States and other members of the Class who purchased or otherwise
acquired MetLife common stock pursuant to the Offering Materials and who were damaged thereby
- 160 - 1281715_1
against all defendants except the underwriter defendants. For purposes of this Count, Plaintiffs
affirmatively state that they do not claim that defendants committed intentional or reckless
misconduct or that defendants acted with scienter or fraudulent intent.
291. Each of the defendants except the underwriter defendants acted as controlling persons
of MetLife within the meaning of §15 of the Securities Act by virtue of his position as a director
and/or senior officer of MetLife. By reason of their senior management positions and/or
directorships at the Company, as alleged above, all defendants except the underwriter defendants,
individually and acting pursuant to a common plan, had the power to influence and exercise the same
to cause MetLife to engage in the conduct complained of herein. Defendants were able to and did
control the contents of the Offering Materials, which contained materially false statements and
financial information and were culpable participants in the violation of §§11 and 12 of the Securities
Act alleged herein. By reason of such conduct, each of the defendants except the underwriter
defendants are liable pursuant to §15 of the Securities Act jointly and severally to plaintiffs and other
members of the Class.
XIV. SAFE HARBOR IS INAPPLICABLE TO INITIAL PUBLIC OFFERINGS
292. Defendants are liable for any false and misleading forward-looking statement issued
in the August 3, 2010 Registration Statement and/or March 4, 2011 Registration Statement. The
Safe Harbor provision of §27A of the Securities Act, 15 U.S.C. 77z-2(b)(2)(D), specifically excludes
those statements “made in connection with an initial public offering,” which includes all of the false
and misleading statements at issue.
XV. CLASS ACTION ALLEGATIONS
293. Plaintiff brings this action as a class action pursuant to Rules 23(a) and (b)(3) of the
Federal Rules of Civil Procedure on behalf of a class consisting of all those who acquired shares of
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MetLife common stock traceable to the Company’s false and misleading August 3, 2010
Registration Statement and March 4, 2011 Registration Statement for its IPO (the “Class”), and who
were damaged thereby. Excluded from the Class are defendants and their families, the officers and
directors of the Company, at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which defendants have or had a
controlling interest.
294. The members of the Class are so numerous that joinder of all members is
impracticable. MetLife stock was actively traded on the NYSE. While the exact number of Class
members is unknown to plaintiff at this time and can only be ascertained through appropriate
discovery, plaintiff believes that there are hundreds, if not thousands, of members in the proposed
Class. Record owners and other members of the Class may be identified from records maintained by
MetLife or its transfer agent and may be notified of the pendency of this action by mail, using the
form of notice similar to that customarily used in securities class actions. MetLife has more than
11.5 million shares of stock outstanding.
295. Plaintiff’s claims are typical of the claims of the members of the Class as all members
of the Class are similarly affected by defendants’ wrongful conduct in violation of federal law that is
complained of herein.
296. Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class and securities litigation.
297. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the Securities Act was violated by defendants’ acts as alleged herein;
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(b) whether statements made by defendants to the investing public in the Offering
Materials misrepresented material facts about the business, operations and management of MetLife;
and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
298. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation make it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
XVI. PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action and certifying plaintiff as a Class
representative under Rule 23 of the Federal Rules of Civil Procedure;
B. Awarding compensatory damages in favor of plaintiff and the other Class members
against all defendants, jointly and severally, for all damages sustained as a result of defendants’
wrongdoing, in an amount to be proven at trial, including interest thereon;
C. Awarding plaintiff and the Class their reasonable costs and expenses incurred in this
action, including counsel fees and expert fees;
D. Awarding rescission or a rescissory measure of damages; and
E. Such equitable/injunctive or other relief as deemed appropriate by the Court.
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XVII. JURY DEMAND
Plaintiff demands a trial by jury.
DATED: ROBBINS GELLER RUDMAN & DOWD LLP SHAWN A. WILLIAMS
SHAWN A. WILLIAMS
Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: 415/288-4545 415/288-4534 (fax) [email protected]
ROBBINS GELLER RUDMAN & DOWD LLP SAMUEL H. RUDMAN 58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax) [email protected]
Lead Counsel for Plaintiff
EXHIBIT A
J \ FLORIDA OFFICE OF INSURANCE REGULATION
MEDIA ADVISORY
IN RE: METROPOLITAN LIFE INSURANCE COMPANY (METLIFE)
IN RE:
DATE:
TIME:
LOCATION:
**********
Pub1ic Hearing
May 19, 2011
Commenced at 9:30 a.m. Conc1uded at 12:45 p.m.
Pat Thomas Committee Room Ta11ahassee, F1orida
REPORTED BY: SANDRA L. NARGIZ Certified Rea1time Reporter Certificate of Merit Ho1der [email protected]
ACCURATE STENOTYPE REPORTERS, INC. 2894 REMINGTON GREEN LANE
TALLAHASSEE, FL 32308 850.878.2221 [email protected]
APPEARANCES:
THE PANEL:
{
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KEVIN M. McCARTY Insurance Commissioner State of Florida
JEFF ATWATER Chief Financial Officer State of Florida
P.K. Jameson General Counsel
~L Department of Financial Services
BELINDA MILLER Acting General Counsel
FL Office of Insurance Regulation
MARY BETH SENKEWICZ Deputy Insurance Commissioner
FL Office of Insurance Regulation
TRISH CONNORS Associate Deputy Attorney General
State of Florida
CHRIS HUNT Assistant Attorney General State of Florida
ANOUSH BRANGACCIO Executive Senior Attorney
FL Office of Insurance Regulation
RHODA JOHNSON Senior Attorney
~L Office of Insurance Regulation
KENNETH T INKHI\M Senior Attorney
~L Office of Insurance Regulation
TIM GRAY, Senior Attorney FL Office of Insurance Regulation
JIM PAFFORD Director of Market Investigations FL Office of Insurance Regulation
Page3
CRISTI OWEN, Insurance Examiner FL Office of Insurance Regulation
JUST IN DURRANCE Chief Deputy Commissioner
FL Office of Insurance Regulation
RALPH T , HUDGENS Insurance Commissioner GA Office of Insurance
JIM MtMFORD First Deputy Commissioner Iowa Insurance Division
ROBERT WAGNER, General Counsel Illinois Insurance Division
STEPHEN W, ROBERTSON Insurance Commissioner Indiana Department of Insurance
DENISE BRIGNAC Ghief Deputy Commissioner
MARY McAUSLAND Chief Market Conduct Examiner
Maryland Insurance Administration
MARTY FLEISCHHACKER Audit Director
Minnesota Department of Commerce
JIM MEALER Chief Market Conduct Examiner
Missouri Department of Insurance
ADAM HAMM, Insurance Commissioner North Dakota Insurance Department
DOUG WHEELER, Director NJ Division of Insurance
MARY TAYLOR Lt. Governor/Director of Insurance
OH Department of Insurance
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ELLEN EDWARDS Assistant General Counsel OK Insurance Department
MICHAEL F, CONSEDINE Insurance Commissioner PA Insurance Department
JULIE MIX McPEAK Commissioner of Insurance
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TN Department of Commerce/Insurance
ON BEHALF OF METLIF:
JOHN COX, ATTORNEY VA State Corporation Division
YEN LUCAS, Chief Counsel PA Department of Insurance
STEVE PARTON, Special Examiner IL Department of Insurance
DR, THERESE "TERRI" VAUGHAN Chief Executive Officer NAIC
SCOTT HOLEMAN Director of Communications NAIC
KERI KISH, An tifraud Counsel NAIC
Teresa Wynn Roseborough, Counsel Joy Ryan, Counsel Todd Katz Frank Cassandra Larry Vranka
PROCEEDINGS
Page 5
COMMISSIONER McCARTY: Goodmom;,g. Myoamo
3 is Kevin McCarty. I am Insurance Commissioner with 4 the State of Florida. 5 This hearing is being held today on behalf of 6 the Office of Insurance Regulations in cooperation 7 and in conjunction with the National Association of a Insurance Commissioners. I hereby call this 9 hearing to order.
10 For the record, today's date is May 19, 2011, 11 and we are conducting this public hearing in Room
412 of the Knott Building in Tallahassee, Florida. Notice of this hearing was previously published in
14 the Florida Administrative Weekly in accordance with Florida law.
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15 16 Members of the public may offer comments about 17 this hearing today by sending an e-mail to the 18 address: Public [email protected]. 19 Please include in the title of your e-mail 20 that this is the subject matter of life insurance 21 companies so that we can relate your comments to 22 today's hearing. 23 I would like to personally thank all of the 24 people who have taken time out of your busy 25 schedules to attend our hearing. We want to thank
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Public Hearing May 19, 2011
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1 the staff members of Florida's Chief Financial 2 officer, Jeff Atwater, who may be joining us during 3 this proceedings, and representatives of his 4 office, as well as Florida Attorney General Pam 5 Bondi's office. 6 I am very appreciative of the leadership of 7 both the General as well as the CFO in addressing 8 these very important issues concerning fair claim 9 practices for insurance policies.
10 We'd also like to take this opportunity to 11 thank the number of insurance commissioners and 12 their staffs for making the trip across the country 13 to Tallahassee to be here today to address this 14 very important public policy issue. 15 Again, I would also like to express my 16 appreciation to the National Association of 17 Insurance Commissioners, its chief executive 18 officer, Dr. Vaughn, and it's chief operating 19 officer, Andy Beal, whose assistance in setting 20 this up has been invaluable. 21 And I especially would like to thank the 22 Florida Channel for providing a live telecast of 23 our heamg today as well as a web stream of the 24 hearing and providing access to the hearing at its 25 conclusion.
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1 I would like to note that the National 2 Association of Insurance Commissioners has formed a 3 task force on investigations of life and annuity 4 claims settlement practices. As many of us are 5 keenly aware, there are· various state officials in 6 a number of states that have initiated audits, 7 examinations, and investigations of a group of 8 large insurance companies regarding the claims 9 settlement practice with a particular focus on
10 unclaimed property. 11 One of the main questions at issue is the ways 12 in which insurance companies are using information 13 they secure from the Social Security 14 Administration's Death Master Fiie. The NAIC task 15 force is actively working on these issues and is 16 developing a work plan for handling ongoing 17 investigations in process as well as engaging in 18 additional multistate market conduct examinations 19 covering most of the insurance industry. 20 Before I begin, I would like to clarify about 21 what are today's objectives. 22 The purpose of this hearing is to learn about 23 life insurance industry's policies, practices, and 24 procedures regarding claims settlement and 25 unclaimed property.
Metropolitan Life Insurance Company .
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1 Specifically, we want to know how life 2 insurance companies utilize the Death Master for 3 Social Security and process notice of an insured or 4 annuity's death. 5 We want to be sure that the public is educated 6 in general about the life insurance industry and 7 their practices. We know that life insurance 8 companies work very hard to sign up people to 9 purchase their products and accept billions of
10 dollars a year in premium dollars. We also know, 11 based on information widely available in the public 12 domain, that many beneficiaries go unpaid for a 13 variety ofreasons. 14 We are hopeful that by engaging in a 15 discussion in this public forum, more people are 16 encouraged to have conversation with their 17 children, their grandchildren, and other 18 beneficiaries about life insurance policies that 19 are currently in place so that payments that are 20 promised under the policies reach their intended 2l. beneficiaries. 22 We want to ensure that companies work as hard 23 to find beneficiaries and pay money owed as they 24 have worked to sign up the policyholders to 25 purchase their products in the first place.
·~ Page 9
1 We also want to ensure that if beneficiaries 2 cannot be found, that the proceeds of life 3 insurance policies and annuities are reported and 4 properly remitted to the appropriate state for 5 safekeeping until the rightful owners are found. 6 Florida has an outstanding record for 7 returning unclaimed property to their rightful 8 owners. My fellow insurance conunissioners are 9 dedicated to ensuring that promises made are
10 promises kept, and that death benefits are paid to 11 their consumers. 12 To be very clear, this is not a hearing on any 13 examination that may be going on or underway in any 14 state at this time. It is not an adversarial 15 hearing, but it is an evidentiary hearing .. No 16 decisions will be made today. 17 I have subpoenaed two market leaders here 18 today so they can tell us in an open and 19 transparent forum about claims settlement practice 20 and identify any misunderstandings or explain what 21 they are doing to find as many people as possible 22 to fulfill their legal obligations. 23 I appreciate very much the companies coming 24 forward for this hearing and wish to emphasize that 25 multistate examinations of the majority of the
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Metropolitan Life Insurance Cornpany
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1 insurance industry are forthcoming. 2 At this time, I would like to recognize P. K. 3 Jameson, General Counsel for Jeff Atwater, our CFO, 4 for a brief conunent. 5 MS. JAMESON: Thank you, Commissioner McCarty. 6 I just want to say I appreciate the 7 opportunity you offered to the Department of 8 Financial Services and Chief Financial Officer Jeff 9 Atwater to participate in the hearing today. We
10 are very interested in hearing the discussions 11 today. And the CFO's definitely concerned that the 12 citizens of Florida are receiving the benefits that 13 they are due. Thank you. 14 COMMISSIONER McCARTY: A,d possibly we will be
15 joined later during our questioning session by CFO 16 Atwater, and we certainly welcome his 17 patticipation. 18 At this point I would like to recognize the 19 representative of the Florida Office of the 20 Attorney General, Trish Connors. 21 Deputy attorney General Connors. 22 MS. CONNORS: Good morning. My name is Trish 23 Connors. I am the Associate Deputy Attorney 24 General for the Office of the Attorney General. On 25 behalf of the Attorney General, Pam Bondi, I would
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1 like to thank Conunissioner McCarty for the 2 tremendous leadership he has shown regarding this 3 extremely important and, frankly, more than 4 unsettling matter, and for facilitating what 5 continues to be comprehensive multiagency review. 6 The Office of Attorney General is charged with 7 pr'otecting the public interests with various civil 8 enforcement tools that ensure, among other things, 9 that our citizens are protected from unscrupulous
10 business practices. 11 Some of our most vulnerable citizens are the 12 elderly; they and many other Floridians have paid 13 premiums over decades for life insurance policies 14 with an expectation that their rightful 15 beneficiaries would receive the funds owed them in 16 a timely manner. 17 We have been a partner in this matter with the 18 Office oflnsurance Regulation and the Department 19 of Financial Services and with Conunissioner 20 McCarty's strong leadership from the beginning. 21 As Commissioner McCarty has noted, this is not 22 an advisary process, but it is an examination 23 hearing and it's an opportunity for the companies 24 here today to explain in a very transparent way 25 their policies, practices, and procedures regarding
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claims settlement and unclaimed property. In that regard, the Florida Attorney General's
office looks forward to hearing firsthand your companies' candid testimony and complete answers today if there are any questions regarding these matters, answers that we hope will inform us as an enforcement agency regarding our responsibilities so that the Attorney General can make the appropriate decision.
It is imperative that companies doing business in the state observe and follow Florida law. In particular, it is important that companies doing business in Florida exercise the utmost due diligence in fulfilling their contractual and regulatory obligations.
Our senior citizens and other life insurance policyholders have every expectation, when they enter into a contract as significant as a life insurance policy, that their insurance companies will perform the appropriate due diligence expected in a fiduciary relationship to locate and properly notify beneficiaries in a timely manner upon the policyholder's death.
The ongoing cooperative work of the Florida agencies in this multiagency review operates not
Page-13
only to the benefit of Floridians, but as demonstrated by these proceedings today, also provides your companies with an opportunity to address our collective concerns.
It is my hope and the Attorney General's hope 6 that Metlife and Nationwide will fully avail 7 themselves of this opportunity today by providing 8 full and complete testimony. 9 Thank you, Conunissioner.
10 COMMISSIONER McCARTY: Thank you, Deputy 11 Attorney General Connors. Thank you. 12 Next on our program and part of the hearing, I 13 would recognize our general counsel for the Office 14 oflnsurance Regulation, Ms. Belinda Miller. She 15 is going to do a PowerPoint presentation that will 16 futther explain the topics of today's hearing. 17 Ms. Miller. 18 MS. MILLER: Thank you, Commissioner. Thank 19 you to everyone who came today. We do appreciate 20 it. 21 This PowerPoint will be posted on our website 22 so I am not going to belabor this because the 23 purpose of this is really to give you an overview 24 of what the issues are and what we want to go 25 through today.
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Public Hearing May 19, 2011
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1 The purpose of this hearing is Florida and the 2 NAIC are holding this hearing to evaluate existing 3 industrywide practices related to life insurance 4 and annuities claims settlement issues, the use of 5 the Social Security Administration's Death Master 6 File, compliance with Florida's Unclaimed Property 7 laws, and areas where these practices can be 8 improved. 9 What we are going to talk about are life
10 insurance policies and annuity policies. Life 11 insurance includes both the individual policies and 12 group policies. 13 Annuities were talked about. There are a lot 14 different of annuities, but what we are going to 15 focus on is -- basically, there are two types. 16 There are annuities that are in the pay-in phase 17 and there are annuities that are in the pay-out 18 status. The policyholders are paying premium to 19 the insurance company or the insurance company is 20 paying out on the annuity to their beneficiary. 21 We know from public sources that there is an 22 issue with unpaid benefits. That's been commented 23 on in the press, in a variety of places. The first 2 4 quote, I think the life insurance goes unclaimed 2 5 each year for one simple reason: Beneficiaries
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1 don't know that the money exists. It's difficult 2 to estimate the extent of this and the
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3 recordkeeping I think may or may not be strong. 4 Florida has an unfair claims settlement 5 practice law, and this is not substantially 6 different than other states. 7 We are looking at this issue in terms of 8 whether the companies have implemented standards 9 for the proper investigation of claims, whether
. 10 they are denying claims or withholding benefits 11 without conducting a reasonable investigation. 12 The insurance companies cannot fail to 13 identify deceased insureds and settle claims for 14 death benefits which they can do under information 15 in their books and records, when they can find 16 those people when it benefits them. They also 1 7 can't lawfully terminate policies or continue to 18 pay premiums when they know or have reason to know 19 or it's in their records that the insureds have 20 already died. 21 A related issue is whether companies are 22 complying with obligations to report and remit 23 unclaimed death benefits for the Unclaimed Property 24 law. 25 Under Florida's Unclaimed Property law, all
Metropolitan Life Insurance Company
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1 funds due are owing under an life insurance policy 2 or annuity contract which has matured or terminated 3 or presumed unclaimed if they are unclaimed for 4 more than five years after the funds become due and 5 payable. 6 And the fact that the State is the best 7 repository for unclaimed property has been 8 established by a Supreme Court case, Connecticut 9 Mutual Life versus Moore. It's established law.
10 And that is the purpose of the unclaimed property 11 area which in Florida has a tremendous track record 12 for actually getting that property back to the 13 people who it belongs to. 14 The Unclaimed Property law is even more 15 specific. The life insurance policy or annuity 16 contract not matured by actual proof of death of 1 7 insured or annuitant is deemed mature and the 10 proceeds due and payable if the company knows the 19 insured or annuitant has died. 20 What are the issues? We want to know if 21 insurance companies fail to initiate claim 22 processes or thwart to remit unclaimed death 23 benefits in situations where individuals have died 24 with in-force policies or accounts but 25 beneficiaries have not filed claims because they
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1 were unaware of the policy? 2 Do insurance companies have information in 3 books and records identifying when lost customers 4 are deceased, with active policies or accounts, but 5 then fail to act on this information, except when 6 it is in their best interest to do so: For 7 example, in the pay-out annuity or a company-owned 8 life insurance policy, et cetera? 9 Do companies have .adequate controls to monitor
10 when retained asset accounts have been dormant for 11 years so they can locate the account holder and 12 report and remit proceeds to Unclaimed Property? 13 Do companies routinely fail to pay out annuity 14 contracts after maturity date or report and remit 15 unclaimed property to divisions of states if the 16 owners cannot be located? 17 These are some of the issues. 18 There are a variety of ways insurance 19 companies become aware of death of their insureds. 20 We are not just talking about the Death Master 21 File. They might get a call from a relative or a 22 representative of the decedent. They might perform 23 a search for a new address if they get returned 24 mail. 25 Or companies might actually receive a claim
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form and/or death certificate in connection with 1 unpaid and escheated or remitted to the State? one insurance policy and then have other insurance 2 Do they require a certified death certificate policies on the same decedent. They also can use 3 and completed claim form before settling a claim? information contained in or derived from publicly 4 Do they close claim files if they don't available databases such as the Social Security 5 receive the required information, if they get a Administration Death Master File. 6 claim form and not the death certificate or if they
This is the Death Master File. It's available 7 get the call and not the claim form? on the internet. The Death Master File has a list 8 Do companies drain policies and allow them to of all the people who have died as reported to the 9 lapse after the death of the insured? Social Security Administration. 10 Many policies have a feature where, of course,
According to Congressional testimony, the 11 the premium continues to be paid out of the cash Death Master File is very accurate. In other 12 value of the policy until the cash value is words, people aren't on there who aren't really 13 exhausted and then the policy lapses. One of the dead. The only indication that they have had of 14 issues here is whether that happens after the errors are occasionally there are people who are 15 company has notice of a death. not reported in the Death Master File who have, in 16 And will companies report and remit death fact, died. So it may be there is somebody not on 17 benefits to the State without a death certificate? there who is actually dead because they didn't have 18 There are a variety of scenarios that we can a Social Security number or other identifying 19 talk about and I am sure that the companies will information. 20 raise.
Companies access the Death Master File in a 21 A death certificate and claim form may be variety of different ways. There are a number of 22 received by one beneficiary but not all places that they can either buy access to it or -- 23 beneficiaries. A phone call or a letter is well, they can buy access to it. The Accurrint is 24 received from a relative reporting the death, but a used by a lot of companies. They can go to 25 claim is never filed or perfected. A search for a
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rootsweb.com, and we understand there are many 1 new address following receipt of returned mail different ways they can access this data. 2 indicates the insured is deceased, but a claim is
Again, insurance companies can use the Death 3 never filed. Master File for a variety of purposes. They can ·4 Do companies allow this built-up cash value of use it to perform antifraud procedures, verify 5 life policies to be used to keep policies in force · dates of death prior tq paying out on a policy, 6 after the insureds have died or allow the policies perform death sweeps of company-owned life 7 to terminate or lapse after the cash value has been insurance policies. So if they have a 8 drained? company-owned life insurance policy, we know that 9 Here's an example: The insured dies in 1995, companies expect the insurance company to 10 policy is in force, but no claim is ever filed. occasionally look and see if any of their employees 11 Six months later, the policy is set to expire due have died or any of the people who are covered 12 to failure to pay premiums. Although the insured under that policy. 13 is listed in the Death Master File as deceased, the
And they can perform regular comparisons 14 insurance company begins using automatic premium against their records to identify deceased 15 loans to keep the policy in force. Five years annuitants in the pay-out phase so that they stop 16 later, ·the cash value of the policy has been used making payments to the annuitants. So the question 17 up and the policy is allowed to expire without any is do they run the Death Master File on a regular 18 value. basis against annuities in the accumulation 19 Antiforfeiture provisions are a consumer phase -- in other words, where the person is paying 20 protection device. They should not be used to in -- or against their life insurance policies? 21 usurp the value of a policy after death or result
What happens when a company finds one of their 22 in people not getting the proceeds of the policy insureds on the Death Master File and makes a 23 when the person has actually died, the insured. match? If the death is identified on the Death 24 Another issue is whether the dormancy period Master File, will they allow death benefits to go 25 is accurately calculated.
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1 Here's an example: The dormancy period is the 2 time that the claim remains unpaid before it is 3 required to be submitted to Unclaimed Property. So 4 an insured dies in 1989, the policy is in force and 5 a claim is never filed. 6 The Death Master File comparison is performed 7 in 2009 and it identifies the death of the insured 8 that happened back in 1989. 9 The insurance company verifies the insured
10 died while the policy was in force and no benefits 11 have ever been paid. 12 Does the company wait for five more years or 13 do they go ahead and remif that to the Unclaimed 14 Property division of the State? 15 We have an issue of small face values policy 16 or industrial life policies which we know years ago 17 in Florida were actually quite a large part of the 18 market. These policies were marketed door to door, 19 and consumers bought them and paid premiums over 20 long periods of time, sometimes paying more than 21 the policies were worth. And this is not unique to 22 the companies who are represented here, this is 23 just in general. 24 Millions of these industrial policies remain 25 in force. Some of them were written in the 1930s
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1 and '40s. 2 Did the companies try to find out if the 3 people who bought these policies were deceased? 4 Aud what have they done to find out if they are 5 deceased, and have they remitted the benefits or 6 the unclaimed property related to these policies? 7 Retained asset accounts: This is handled 8 differently by different insureds, but a lot of 9 insurers set up retained asset accounts in order to
10 pay beneficiaries through a retained asset account; 11 in other words, that account is set up for that 12 beneficiary without just sending them a check. 13 There are estimates -- this is from 14 Bloomberg -- 28 billion is held by life insurance 15 companies industrywide in this form. Many 16 companies use this as a default settlement payment 17 option. Companies also describe this as an option 18 that allows beneficiaries to have time to decide 19 what to do with this money following the death of 20 the insured. 21 And companies sometimes hold these in their
122 general corporate accounts where they are not
123 guaranteed by the FDIC. 24 The question is what are companies doing to
[25 monitor these retained asset accounts to ensure I
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1 that they do not become lost? 2 Do they attempt to contact the owners of these 3 accounts if they have not heard from them for a 4 period of years? 5 Do they take any steps to determine if the RAA 6 owners have died? 7 Or do they have written report remittance 8 policies for these for unclaimed property? 9 A similar question arises about matured
10 annuities. 11 What are companies doing to locate owners of 12 these annuities and remit unclaimed payments to the 13 State if the owners cannot be located? 14 In conclusion, we want to be find out and 15 discuss what insurance companies are doing to meet 16 their obligations to report and remit unclaimed 17 prope1ty in their possession. What are they doing 18 to utilize available information and methodologies 19 to identify customers who are deceased and 20 beneficiaries who are due money? 21 Those are the issues. 22 COMMISSIONER McCARTY: Thaokyo", Ms. Mill".
23 Today, as I mentioned previously, we are 24 receiving testimony from two insurance companies 25 that have been subpoenaed to be here, Metlife and
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1 Nationwide. And I think out of respect and request 2 of the companies, we'll be handling these in two 3 separate proceedings. 4 So we'll take a brief break. We'll commence 5 the questioning with regard to the subject matter 6 today with Metlife first and followed by 7 Nationwide. 8 And we ask at this time for a brief break and 9 we'll give the opportunity to retire to some
10 comfortable quarters and take a little break. Aud 11 we'll see you this afternoon. Thank you very much. 12 We'll take a couple-minute break. 13 (Nationwide representatives depart.) 14 COMMISSIONER McCARTY: Eve,yone please take
15 their seats. We are back on the record. 16 At this time I recognize Rhoda Johnson to 17 swear in representatives from Metlife before we 18 begin. 19 MS. JOHNSON: When I call your name, please 20 raise your hand or nod so the panel participants or 21 audience can recognize you. 22 Today, we have testifying on behalf of 23 Metropolitan Life Insurance Company the following 24 individuals: 25 Todd Katz, executive vice president, Frank
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1 Cassandra, senior vice president; and Teresa Lynn 2 Roseborough who is the deputy general counsel. 3 MS. ROSEBOROUGH: I am here in my role as 4 counsel for the company and I will not be a fact 5 witness. 6 MS. JOHNSON: okay. I don't know if they 7 heard you. Can you press the mic. Is it on? a Okay. 9 She stated that she's here as counsel, she
10 will not be offering testimony. 11 Okay. Mr. Katz, Mr. Cassandra, will you 12 please raise your hand, and Madam Court reporter, 13 please swear them in. 14 (Witnesses were sworn.)
1 raised in the subpoena.
Public Hearing May 19, 2011
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2 Metlife met with the Office's acting general 3 counsel in advance of the hearing to discuss the 4 details of the subpoena issued to Metlife and the 5 conduct of this hearing. 6 Following that meeting, Metlife raised 7 objections to the office of this hearing to breech 8 the confidentiality of the ongoing market conduct 9 exam or seek information that would invade the
10 privacy of our customers. 11 Without repeating those objections, we reserve 12 all our rights to participate in this process and 13 cooperate in this matter at a later date. 14 Thank you.
15 COMMISSIONER McCARTY: This hearing is being 15 COMMISSIONER McCARTY: co,l<lw,hm oow from
16 the witness? 16 transcribed, so we ask that you identify yourself 17 prior to responding in order for us to maintain an 17 MR. KATZ: Mr. Commissioner, I am going to 10 accurate record. Also, please do not speak over 18 apologize. I want to make sure I answer it 19 each other. Thank you. 19 correctly. 20 MS. ROSEBOROUGH: We do have an additional 20 COMMISSIONER McCARTY: Thaok you, Mr. Ka1z.
21 witness here, Larry Vranka, who is a consultant -MS. JOHNSON: I'm sorry, we do need to swear
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COMMISSIONER McCARTY: Thank you. As I briefly described at the beginning of
this hearing, the protocol we'll follow today is that we have three Florida agencies that have a series of questions .. We really are trying to focus on the subject matter that was previously discussed in the presentation made by Ms. Belinda Miller.
It's important for us, in order to meet our ambitious schedule for today, to focus our attentions lo specific questions presented and the answers to the specific questions as they are presented.
I would like to begin with that line of questioning and begin really talking about the specific use of public databases, specifically the Social Security Death Master.
Does Metlife own or access information contained in the Social Security Administration's Death Master File either directly or indirectly?
· And if you could go to the podium to answer, that will be great.
MS. RYAN: Joy Ryan from Blank Meenan. Just a quick statement for the record.
On behalf of our client Metlife, let me note we are happy to be here today to discuss the issues
21 Does Metlife own or access inf01mation 22 contained in the Social Security Administration 23 Death_Master File directly or indirectly? 24 MR. KATZ: Metlife does use the Social 25 Security Death Master. We use it in many of our
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1 businesses. And in the spirit of trying to answer 2 your question, I will stop there and let you follow 3 up. 4 COMMISSIONER McCARTY: Ooesth,Motlffoowooc
5 access any other systems containing other death 6 information either directly or indirectly? 7 MR. KATZ: Yes, we use other databases 8 periodically, also, in the way you described. 9 COMMISSIONER McCARTY: How;, tho o~,, Maste<
10 File information kept by Metlife? And by that, I 11 mean what systems, what departments, and who's 12 responsible for maintaining the Social Security 13 Death Master or other Death Master Files? 14 MR. KATZ: So it probably makes sense for me 15 to answer tbat question with a statement at first. 16 Because Metlife is a very large, complex 17 organization with many different departments, many 18 different businesses, many different products,. 19 doing business in many different jurisdictions, 20 it's going to be difficult to give one specific 21 answer for the whole company. 22 So what I am going to try to do in the spirit 23 of time is give you general answers on topics like 24 that one. To the extent there is exceptions to 25 those geueral answers, if I can articulate those, I
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1 will. And in the spirit of completeness, as you 2 indicated previously, we can provide more detailed 3 information in follow up in writing if that would 4 be okay. 5 So we do maintain the Social Security index 6 data, it's actually consolidated with other 7 information that Metlife maintains of deaths 8 throughout the organization, and we do that in a 9 centralized repository and it's managed by one of
10 our business units. 11 COMMISSIONER McCARTY: When did Mctlite nest
12 obtain a Social Security Death Master either 13 directly or indirectly? 14 MR. KATZ: So it will be difficult for me to 15 say exactly when. What I can say is we began using 16 the Social Security death index when, shortly after 17 it became commercially available. I believe that 18 was in the late '80s. 19 COMMISSIONER McCARTY: Does Metlife utilize
20 Death Master to identify potentially deceased 21 customers on an ongoing and systematic basis? In 22 other words, do they use it monthly, quarterly 23 yearly? Or do they use it just after --24 periodically or after --25 MR. KATZ: We use the Social Security Death
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1 Master File in different ways in different parts of 2 our business. 3 We, in fact, use it in our annuity business, 4 in our life insurance business, and in our retained 5 asset account business, our total control account. 6 And the duration it's used and the timing and 7 frequency of its use are driven by the nature of 8 the specific products, the technology available at 9 any given time, and the data that may exist for any
10 given product. 11 COMMISSIONER McCARTY: Okay. The we'll 12 explore that with the different products. That 13 would probably be great. 14 Does Metlife use the Social Security Death 15 Master File information for group annuities? 16 MR. KATZ: We do. And I probably should talk 17 a little bit about why we do and how that works, if 18 that would be okay. 19 For group annuity business, group annuities 20 are typically claims that for the most part are in · 21 a pay-off status; and so in a similar reason for 22 using it as Social Security Administration has 23 indicated, we use it as a means to prevent duration 24 errors. 25 If you think about the death -- the annuity
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1 business almost getting a regular check each month, 2 and if we receive an indication of death, that an 3 individual has an annuity, we will suspend that 4 payment and write to the family to assure that that 5 death occurred. 6 And I should clarify that. The rationale for 7 that is if we didn't and continued with payments, 8 by definition, if we were making payments to people 9 who were dead, those would be duration errors, they
10 would be inappropriate payments, and they also 11 could put the beneficiary in a bad spot because 12 they are getting money that actually isn't theirs. 13 COMMISSIONER McCARTY: Right. Unde'1itood.
14 Without -- I understand that's a large corporation 15 and as you already specified. 16 And just in general, how long has Metlife used 17 the Death Master for group annuities? 18 MR. KATZ: To the best of my knowledge, we 19 have been using it since the late '80s. 20 COMMISSIONER McCARTY: Okay. 21 MR. KATZ: I can't give you an exact year. 22 COMMISSIONER McCARTY: That's fine. 23 Does Metlife have written policies and 24 procedures as it relates to the use of the Death 25 Master File for group annuities?
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1 l\1R. KATZ: I believe we do, yes. 2 COMMISSIONER McCARTY: Jfso, whee were those
3 policies and procedures implemented? 4 MR. KATZ: I do not know. 5 COMMISSIONER McCARTY: A,d we would like to
6 know that answer. 7 MR. KATZ: We can follow up and get you that. 8 l just want to make sure I give a complete answer. 9 So I don't know exactly what was written --
10 COMMISSIONER McCARTY: We also would like to
11 know how the policies and procedures evolved over 12 time. 13 MR. KATZ: Most definitely. 14 COMMISSIONERMcCARTY: How long has Metlife
15 systematically matched up group annuities against 16 the Death Master File? 17 MR. KATZ: So, we began using the Death Master 18 File for our group annuity business, as I said 19 previously, in the '80s. 20 If your question gets at at what point was 21 that -- did that go from a paper process to a 22 system process, is that --23 COMMISSIONER McCARTY: Actually, if you 24 start -- let's just say it's late, sometime in the 25 late '80s. Do you use it like quarterly to do
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1 match-ups? Or --2 MR. KATZ: Excuse me. I don't know the
( 3 frequency that we did in the late '80s. I can 4 certainly tell you the frequency we do today and 5 have done in recent years. We certainly can follow 6 up and give details of what exactly was done. 7 COMMISSIONER McCARTY: What is the match-up 8 rate timeline for today? 9 MR. KATZ: Currently, for group annuities, we
10 are matching once a month. 11 COMMISSIONER McCARTY: Once a month. Okay. 12 What do you do when you get a match? I 13 presume you would stop making the annuity payment. 14 MR. KATZ: For a group annuity, we consider a 15 match an indication of death. We suspend the 16 annuity payment. We write to the family indicating 17 that we have done that. 18 Should, for whatever reason, the family or 19 someone contact us and indicate that was an error 20 and that the individual is still alive, we would 21 obviously reverse that transaction. 22 And it's important to point out in some cases 23 it results in stopping a payment, and some cases it 24 results in the change of the individual to whom the 25 annuity is going to. And in some cases it will
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1 result in a death benefit ultimately to be paid. 2 And all of those are examples of some of the 3 actions that we take, we take there. 4 COMMISSIONER McCARTY: ooyourequireadcath · 5 certificate before stopping payments? 6 MR. KATZ: We do not. 7 And I think the key to that, just to give you 8 a little more color, is just the fact that the 9 individual is dead is an indication that additional
10 payments aren't appropriate at that point in time. 11 I will juxtapose that later to life insurance. 12 COMMISSIONER McCARTY: Do you pay and cemit 13 death. benefits or death payments due based on the 14 Death Master File? 15 MR. KATZ: I am sorry, please repeat your 16 question. 17 COMMISSIONER McCARTY: oo you remit ,,,ot,im,d 18 · property based on the Death Master File? 19 MR. KATZ: Yes, we do. And just again for 20 completeness, we have a very robust unclaimed 21 property system for each of our administrative. 22 units. They will have specific procedures for 23 their product, and those procedures articulate how 24 unclaimed property is determined and how it should 25 be put into the Unclaimed Property system.
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MS. MILLER: And that system is available for group annuities? It's used for group annuities, the robust system you described, unclaimed property, is used for group annuities if you find out someone is dead but you can't locate the beneficiary?
MR. KATZ: Let me answer in general. In any situation where we determine there is
unclaimed property, it would be our intent to move that into the Unclaimed Property system, and that could emerge from any place in the company.
And I am trying to think of a scenario in a group annuity that could be a situation where a beneficiary couldn't be reached, additional funds are due, and that beneficiaty can't be located.
MS. MILLER: Are there any policies that you have that are not included in your Unclaimed Property system or that are not ever run through that or remitted?
MR. KATZ: I am not aware of situations where we identify unclaimed property and don't put it through our Unclaimed Property system.
Essentially, the process is pretty comprehensive for the company. And if we determine there is unclaimed property that's due, we put it
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in the system and we escheat it as required. MS. MILLER: And when you get a match with the
Death Master File, is that when you determine that unclaimed property is due if you can't find the beneficiary?
MR. KATZ: So for any given product, there will be specific procedures. They vary by product. And we can go through the products ·or we can certainly respond in writing if you would like.
But based on the specifics cif that product, we would have protocols that determine when something is nnclaimed and then submit unclaimed numbers.
It's a pretty _significant number for 20 l 0, we had about $51 million in unclaimed properties escheated to the states.
MS. MILLER: How much unclaimed propetty have you identified that has not yet been escheated to the states?
MR. KATZ: I don't know the answer off the top of my head, although one of my peers may have.
MR. CASSANDRA: At the end of 2010, the total outstanding in the unclaimed fund system was approximately $3 25 million.
MS. MILLER: $325 million? MR. CASSANDRA: Yes.
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Public Hearing May 19, 2011 --
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1 MR. KATZ: That money would be scheduled to be 2 distributed according to the State's duration. 3 MS. MILLER: That starts -- there is a 4 dormancy period of five years, and that starts when 5 you run Death Master and identify a person has 6 died? 7 MR. KATZ: The dormancy period really would 8 vary, and I don't mean to get into for each product 9 because each product is different. And so it would
10 be based on the specifics of the given product. 11 And I really couldn't generalize in the way you 12 have done. 13 MR. CASSANDRA: I would just add one other 14 thing. 15 The system is programmed to take into account 16 the rules and regulations of all the various 17 states. 18 MS. MILLER: Okay. Any idea how many 19 policyholders that $325 million represents? 20 MR. CASSANDRA: I am sorry, I don't have that 21 number right at my finger tips, but we could 22 certainly follow up with you on that. 23 And it does include not only policies, but it 24 could include other items such as uncashed checks, 25 and so on.
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1 MS. JAMESON: Hi. I am P .K. Jameson with the 2 Department of Financial Services, the Unclaimed 3 Property Bureau is in the Department of Financial 4 Services for Florida, which you probably know._ But 5 I have a couple of questions. 6 Has your company ever remitted unclaimed 7 property to Florida that was past due? 8 MR. KATZ: I don't know the answer to that 9 question. I don't know if the folks here can
10 answer that. I am not aware that we have or that 11 we haven't. Certainly we can check that_ and we'll 12 let you know. 13 MS. JAMESON: I would appreciate that. And if 14" so, my question relates to statutory interest on 15 past-due accounts, if that's provided along with 16 the property, if it's included. 17 MR. KATZ: So is your question do we add 18 statutory interest for money that is escheated, is 19 that your question? 20 MS. JAMESON: Yes, to money-sent to Florida's 21 Unclaimed Property unit, do you include interest, 22 statutory interest, along with that? And in 23 particular, if it's a late file, there is -- in 24 Florida we have a statutory requirement for 25 interest on late files.
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1 And my question is, do you remit that as well 2 along with that property? 3 MR. KATZ: Sure, I will give you half an 4 answer. 5 Our intent would be to remit interest as 6 required in any situation. Because I am not 7 familiar specifically around the Florida Statute 8 and exactly how it works, I can't answer at this 9 time, but we certainly can get you that
10 information. 11 MS. JAMESON: Okay. Then perhaps you could 12 tell me, you mentioned your Unclaimed Property 13 system. I am not sure if you're the best person to 14 answer that or if that is Mr. Cassandra. 15 I would like to know a little bit more about 16 that system. And you say it's programmed I believe 17 you said to account for the variances in the State 18 laws. 19 And so I would be interested to know, with 20 regard to Florida, how your system operates to 21 remit unclaimed property to us, and what additional 22 items you might have like interest add-ons. 23 I know some products have interest that are 24 contained within the contractual product. And 25 then, like I said, there are statutory interest
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1 also. And if your system accounts for those 2 things, I would like to understand how that works. 3 MR. CASSANDRA: Yes, our system is called the 4 "Metropolitan Unclaimed Fund System." 5 COMMISSIONER McCARTY: E,cosom,. Wooldyoo
6 mind coming to the mic. This is being recorded and 7 it's much better if you can speak into the mike. 8 Thank you. 9 MR. CASSANDRA: So the system is called the
10 _ "Metropolitan Unclaimed Fund System." To the best 11 of my knowledge -- I am not directly responsible 12 for that system or its maintenance and programming. 13 But based on the best of my knowledge and 14 belief, that system was designed to take into 15 account the rules and regulations of each of the 16 various states and to act as a repository for funds 17 where we cannot find the rightful owner until such 18 time as each state's applicable dormancy period has 19 passed. 20 MS. JAMESON: So do you know if the particular 21 State requirements is with regard to dormancy 22 periods and reporting requirements or if it 23 actually also accounts for interest 24 responsibilities? 25 MR. CASSANDRA: I cannot answer with a hundred
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1 percent certainty about the interest calculations. 2 I know the system was designed to take into 3 account the statutory regulations. Not being 4 intimately familiar with the exact rules of 5 Florida, I can't tell you whether or not that's 6 exactly right. 7 MS. JAMESON: Okay. How long have you had 8 this system? 9 MR. CASSANDRA: That system I believe was
10 designed and again in the late '80s, approximately 11 around 1987. 12 MS. JAMESON: Okay. You have had, I am sure, 13 modifications from that time and to date to keep up 14 with State laws? 15 · MR. CASSANDRA: Yes, most of our IT systems --16 to the best of my knowledge, that system is kept up 17 to date and routinely maintained. 18 MS. JAMESON: What is your -- how do you go 19 about monitoring the changes in State laws to 20 ensure that you are complying with Unclaimed 21 Property laws in the states? 22 MR. CASSANDRA: I am not completely familiar 23 with exactly how. Another department keeps up with 24 those particular rules and regulations. I have to 25 defer that perhaps to our legal.
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1 MR. KATZ: I can give --2 We do have a group that's accountable for 3 tracking all laws and reg changes coming out of the 4 various states. They are responsibile for getting 5 that information out on the system, and then the 6 businesses are responsible for working those 7 systems. So it's kind of a format of how it works.
·8 MS. JAMESON: Do you have a particular peison 9 that's responsible for keeping up to date on the
10 states' laws and ensuring your system is up to 11 date? 12 MR. KATZ: It's probably two people. So there 13 is one individual that's gotaccountability for 14 understanding the different laws and interpreting 15 how they impact our business. And then the 16 different administrative departments would have 17 accountability of taking that information and 18 making their appropriate changes to our systems 19 such that we are in compliance. 20 MS. JAMESON: Okay. Can you tell me a person, 21 a name of a person or a title, that would be 22 responsible for the accountability side? 23 MR. KATZ: I can't at this moment, but we 24 certainly can get you that information. 25 MS. JAMESON: Okay.
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MS. ROSEBOROUGH: I would hesitate to say there are a lot of people who would claim that job and that have that responsibility across the company in different types of circumstances for different products. But we can get you on a high level an understanding of how we are organized to have those compliance procedures populated across the organization.
MR. KATZ: As we indicated earlier, the company is so broad and we are in a lot of different businesses, it probably isn't one person, but we can show you organizationally where it would sit and where that responsibility exists.
MS. JAMESON: Okay, I would appreciate that. And if you could, do you have written policies
or procedures that show how that information is disseminated out and that gives guidance on following the various State laws?
MR. KATZ: I believe we do, and we can certainly share copies of what we have with you.
MS.·JAMESON: Okay. I appreciate that. And also, if you could show, provide us with
your policies and procedures going back maybe 10. years, if you had modifications, that would be helpful as well so we can understand how you
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1 maintain up-to-date processes for us. 2 MR. KATZ: I think, to the extent we have 3 historical items on record, we absolutely will 4 share that. 5 MS. JAMESON: Thank you. 6 MR. KATZ: I want to share one other piece on 7 escheat in Florida because I gave an aggregate 8 number for the country. 9 I just did want to share that in Florida in
10 2010, we escheated over $2.7 million,.so it's not 11 an insignificant number. And I am just sharing 12 that in the context of the processes are there and 13 I am certain we'll work very closely with your 14 department to make sure you are getting the money. 15 MS. JAMESON: That's on your latest report 16 that you just filed? Is that the number that you 1 7 just --18 MR. CASSANDRA: I am not sure. 19 MR. KATZ: We can verify where that number 20 came from. 21 MS. JAMESON: Okay. 22 COMMISSIONER McCARTY: Ms. Miller.. 23 MS. MILLER: I know you are going to get to 24 the rest of the questions, but this has left me 25 with a question.
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1 Your Unclaimed Property system tracks, then, 2 the date of death and then five years after date of 3 death for Florida, or three years for other states, 4 then it would alert you that you need to remit that 5 property to Unclaimed Property. That's what it's 6 for, right? 7 MR. KATZ: The Unclaimed Property system will 8 track the date that the funds are put in the 9 system, and then the appropriate timing for which
10 the claim needs to be paid. The actual time in 11 terms of when it goes into the specific -- into the 12 system would be driven by the administrative 13 processes for any given product. 14 MS. MILLER: So ifl have a relative who died 15 in 1995 and you were already using Death Master 16 list in 1995, you would have picked that up and put 17 it in unclaimed property if you didn't know how to 18 contact me? 19 MR. KATZ: It's hard for me to respond to a 20 hypothetical, but I think you are getting at a 21 question which I think deserves some good 22 discussion, which is what is the appropriate date 23 to be used for the period of dormancy? Is it the 24 date of death? Is it the date of notice? And how 25 does that work?
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1 And the answer really is going to vary for us 2 based on the specifics of any given product and the 3 jurisdiction and the rules that apply in that 4 jurisdiction. 5 MS. MILLER: I think we are getting to the 6 heart of it. 7 Date of notice, though, would be when you get 8 notice from the Death Master File that person has 9 died, right?
10 · MR. KATZ: Yes. So we are getting to the 11 heart of the issue. So we should probably spend a 12 few minutes on it.
. 13 When we get the Death Master Index and we use 14 it, and we match and find someone is dead, we begin 15 an investigation process around that notice. 16 And we would start the clock; we contact, we 17 would reach out to the assumed beneficiary and 18 attempt to get clarity that there was a real death, 19 get proof of death. And it's an important 20 distinction in the life insurance versus the 21 annuity business. 22 So that in the life insurance business, our 23 liability begins when there's a proof of death, 24 which is different than, let's say, in the annuity 25 business, when -- I think it's important to explain
Metropolitan Life Insurance Company
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1 why. Because just because someone is dead in a 2 life insurance business doesn't necessarily mean 3 that that individual or the beneficiary should be 4 due a benefit. 5 MS. MILLER: Just because somebody is dead 6 doesn't mean they are due a benefit. But just 7 because somebody is dead does mean the clock starts 8 ticking for unclaimed property. 9 MR. KATZ: Yes. I think what you are asking
10 me to do is testify to the interpretation of a law, 11 and I am probably not the best to do that. I can 12 testify to the facts on how we do it, but not to 13 whether the clock ticks one way or the another. 14 MS. MILLER: Okay. But how you do it, does 15 Metlife -- if you can't find somebody -- you made a 16 match, you got your Social Security Death Master 17 File, and in your record you got evidence somebody 18 died. 19 Do you try to look for their beneficiaries? I 20 am hearing yes. And if you don't find them, then 21 you put it in the system and wait five years for 22 the unclaimed property dormancy period and then 23 tum it over. Is that the way it works? 24 MR. KATZ: Let's talk -- it's easier for me to 25 talk about a practical example.
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1 So we shared that we use the Social Security 2 Death Index in our life business. 3 In 2007, we ran the death index against a 4 majority of our individual life business, and just 5 to give you a sense of how that worked. 6 At that point in time, we identified about 7 $84 million of deaths, claim values of deaths, and 8 we began a process then to investigate those 9 deaths.
10 Since 2007, we have paid out about 11 $51 million, and we set up about another 12 32 million -- let's call these round numbers, I 13 don't want to quote them exactly. On a 14 going-forward basis, I am going to ask my 15 colleagues the date we set up that for escheat was? 16 MS. ROSEBOROUGH: For the purposes ofthe2007 17 match against most our life ·systems, we used 18 June l st, 2007, as the initial date of donnancy. 19 MS. MILLER: When you say it's "most" of your 20 life business, what part of your life business was 21 not included in that? 22 MR. KATZ: For most of the individual business 23 that was in our records, and it's a big chunk of it 24 that we used, we had some assumed businesses that 25 were relatively small that might not have been
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included. And then we also have some business 1 because that wasn't the first time we used the where a lot of business we don't have a Social 2 death index in our life business. Security number. So we don't have a Social 3 So I shared in the late '80s we kicked off a Security number, matching it against the death 4 ten-year program to search out beneficiaries we index is a less effective tool. That will get at 5 thought -- search out policyholders that we thought the industrial block which I would like to spend a 6 was quite effective; and still today, some of the little bit of time on; I am sure you have questions 7 policyholders we connected with back then are about that. 8 submitting claims.
MS. MILLER: Okay. We can go on the agenda. 9 Around 2000, in connection with our At some point we want to know if you can match that 10 demutualization, we felt it was important to update with the date of birth or some other -- you got the 11 address records for our clients. So we went name of the person. And would you have a date of 12 through a pretty aggressive process to update birth in your records? 13 address records. And even still today, we use the
MR. KATZ: We might; we might not. 14 post office electronic adjust change records and When we did the match, keep in mind that most 15 match that against our system; again another way to
industrial policies were issued a long time ago. 16 keep in touch with our clients. In some cases, the records were not particularly 17 Around 2004, 2005, a few specific states had good. 18 expressed an interest in understanding how the
I should probably make a point that in the 19 death index was being used. And we did a match or early '80s, we made a decision to take the entire 20 gave those states data to do a match at that time industrial life block and convert it to paid up. 21 in '04 and '05. And subsequent to that, it became So no individual policyholder, to best of my 22 apparent to us that this may be a useful tool that know ledge, has had to make a premium payment as 23 would enable us to find policyholders. And so in long as they had a premium paying policy in 1981. 24 '06, we made the decision to apply that as I
So that kind of creates a bit of a challenge 25 described.
Page 51 Page·s3
because one of the ways you stay in contact with 1 I think it's important to make a point here your customers is you collect premium from them, 2 that that match we did in '07 discovered, as I and we told them them in 1982 you no longer have to 3 shared, about $84 million of claims to be paid. remit any more premium to us. 4 That's not a small number. But over that period
What happened after that is in the late '80s 5 that we matched, the company paid out about -into the early '90s, we began aggressive efforts 6 $44 billion in death claims. through a campaign called our Family Reunion 7 So in the grand scheme o-f things, over Program to really reach out and try to connect with 8 99 percent of the claims for that period were those policyholders. 9 submitted by the beneficiaries in a dollar
And if you think back to that time, late '80s 10 perspective in the standard way of doing business. or early '90s, the technology wasn'_t all that great 11 I know it was more than you asked. I will then. And we were actually able to reunit about 12 pause and let you ask the next question. half a million policyholders. And it probably 13 COMMISSIONER McCARTY: Let's then move to·
makes sense to spend a little time on that because 14 another policy fotm. I think it's relevant in the context of how we are 15 Does Metlife use the Social Security Death trying to connect with beneficiaries, if you would 16 Master for individual annuities paid in status? like us to. Would that be okay? 17 MR. KATZ: So yes, we do.
COMMISSIONER McCARTY: o,,,,yo,"'"'·'"'"" 18 COMMISSI_ONER McCARTY: 1r,o, how long ha,e
a follow-up question. 19 you done that? MS. MILLER: Can you go ahead? 20 MR. KATZ: I don't have the exact dates on how MS. CONNORS: It is just one, and it may be my 21 long we have been doing it. It's been for a number
ignorance of how the process works. What prompted 22 of years. the search in 2007? 23 The frequency, I think it's an important point
MR. KATZ: That's a great question. So it's 24 to make in the annuity business because it gets a probably worthwhile to go back a little further 25 little complex.
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Public Hearing May 19, 2011
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1 Similar to what I stated earlier, many 2 different blocks of business and many different 3 policies in different states because of that, for 4 the annuity business, it's difficult for me to give 5 a general answer that fits the whole business. My 6 associate might have the exact date handy. 7 MR. CASSANDRA: Yes, I believe we started to 8 do those runs on our oldest blocks of business 9 around the first quarter of 2005.
10 MR. KATZ: First quarter of 2005. 11 COMMISSIONER McCARTY: so 2oos ro, individn,1
12 annuities and paid-in status? 13 MR. KATZ: That's correct. 14 COMMISSIONER McCARTY: Are there written 15 policies and procedures with regard to the 16 utilization of the Death Masters for individual 17 annuities in the paid-in status? 18 MR. KATZ: I believe there are. We can 19 certainly share them. 20 COMMISSIONER McCARTY: A,a a, yon tmow whoo
21 those policies and procedures were implemented? 22 MR. KATZ: I do not. 23 COMMISSIONER McCARTY: And do you 24 systematically match since 2005 the Death Master 25 with the paid-in annuities?
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1 MR. KATZ: The procedures have matured over 2 the years and changed over the years, so it would 3 be hard for me to outright say we systematically 4 match. 5 I probably should go back to a point I made 6 earlier on the group annuity business. 7 I indicated we started using the file in the 8 late '80s. We probably didn't start using it for 9 systematic matches in the way you are describing
10 until later, probably the mid-'90s. 11 So I guess, generally speaking, I am going to 12 do the best I can to give you some of the history, 13 but I probably want to put a disclaimer out there 14 that these dates go a ways back, so consider them 15 give or take a few years in the context of the 16 period we are talking about. 17 COMMISSIONER McCARTY: okay. "'"'""Y'"'" 18 a match, I presume you stop making the annuity 19 payments? 20 MR. KATZ: So is your question of the defetTed 21 annuity? 22 COMMISSIONER McCARTY: Paying. 23 MR. KATZ: In a deferred annuity situation --24 MS. ROSEBOROUGH: I think we might need to 25 clarify. When we talk about annuities and being
Metropolitan Life Insurance Company
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1 paid-out status, meaning that checks are being paid 2 to an annuitant at that period of time. And it 3 sounds like you are using the phrase "paid-in 4 status" to mean that same thing. 5 Am I incorrect about how you are using that 6 term? 7 MS. MILLER: What we mean is when you get a 8 match, then the policyholder doesn't owe you any 9 more money, they don't have to pay anymore?
10 COMMISSIONER McCARTY: You stop collecting 11 payments? 12 MR. KATZ: So --13 MS. MILLER: I think we said paid out. We 14 meant paid in. 15 COMMISSIONER McCARTY: I am sorry. 16 MR. KATZ: Certainly if they are dead, they 17 are likely not to continue to pay. I can't tell 18 you definitively for every policy exactly how it 19 works, but your logic holds true. 20 MS. MILLER: But when you match the Social 21 Security Death Index, then you think they are dead, 22 right? And so you don't continue to send them 23 bills or ask them for payments in. You would 24 expect them to stop paying, right? 25 MR. KATZ: I think that sounds right. I just
-------Page 57
1 want to be careful because this isn't a place I 2 have detailed knowledge. I don't want you to 3 believe every situation that would happen, but the 4 logic there makes sense. 5 COMMISSIONER McCARTY: Let's turn our 6 attention now to the paid-out status. I apologize 7 on the individual annuities. 8 Do you use a Death Master for the paid-out and 9 the individual?
10 MR. KATZ: Yes, wedo. 11 · COMMISSIONER McCARTY: What date was that 12 started? 13 MR. KATZ: I do not know. 14 COMMISSIONER McCARTY: Wonld it be possible it
15 started the same time you used it for the group? 16 MR. KATZ: I believe it happened after the 17 group. I think that's when we started, was in the 18 group annuities. Again, I will defer do my team 19 for individual annuities. Do we have a specific 20 date? 21 MR. CASSANDRA: I don't have it. We can 22 follow up. 23 MR. KATZ: We can follow up. It was 24 subsequent to group annuities; that's when we first 25 started using it.
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Metropolitan Life Insurance Company
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1 COMMISSIONER McCARTY: Again, you have 2 policies and procedures in place for utilization of 3 Death Master for the paid-out status? 4 MR. KATZ: If we do, we can certainly submit 5 those. 6 COMMISSIONER McCARTY: Do you know the date 7 that those were first developed? 8 MR. KATZ: Do not. 9 COMMISSIONER McCARTY: How do you utilize
10 that? Do you utilize that on a monthly basis, 11 quarterly basis? 12 MR. KATZ: The frequency of use? 13 COMMISSIONER McCARTY: Which may have o,ot,cd 14 over time. 15 MR. KATZ: Evolved over time. Currently, I 16 believe it's monthly. 17 MR. CASSANDRA: They vary. We have a lot of 18 older business on the system, and the frequency of 19 match can be annually, quarterly, or monthly, to _ 20 the best of my knowledge. 21 MS. MILLER: But at least annually, you run 22 your individual annuity in paid-out status to see 23 if they match the master file? 24 MR. CASSANDRA: I have to be clear. 25 As I said, we have various blocks and various
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1 legacy administrative systems. That procedure is 2 on our oldest annuity business and we intend to 3 expand those out to our newer blocks of business 4 over time. 5 MS. ROSEBOROUGH: And also, I just want to 6 still, the terrninology is a little bit of concern. 7 When we say annuities in a paid-out status, we
·8 mean that we are issuing checks on a monthly, 9 typically, basis to an annuitant.
10 And when it's in a deferred status; it's · 11 accumulating or premiums may be paid into it or it 12 may be just accumulating value based on interest 13 being earned without any additional monies being 14 paid into it. · 15 But we are not paying out on that annuity. 16 MS. MILLER: We switched to individual 17 annuities and paid-out status. So we are talking 18 about one is in the status where you are paying 19 out. 20 MS. ROSEBOROUGH: I don't know that we caught 21 that switch. 22 MS. MILLER: I am sorry about that. But 23 the ·· I think the answer that I heard is that at 24 least annually, you run all your individual 25 anuities that are in pay-out status across that
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Master Index to see if those people have died. MR. KATZ: We probably don't want to say "all"
because we have many disparate systems. But generally speaking, for the majority of our business, we are looking to run that business against the ones that are in past status, yes.
MS. MILLER: Okay. COMMISSIONER McCARTY: But once you've made
the match, you stop the payout. MR. KATZ: The procedures are the same
procedures, generally the same procedures, that I described for group.
COMMISSIONER McCARTY: ""'''"doo't cememb" a death certificate?
MR. KATZ: That's correct. COMMISSIONER McCARTY: Okay. MR. CASSANDRA: I should ask, we don't require
a death certificate. There may be a circumstance where there is a death benefit and there may be a different protocol there. But I think your question is in the context of stopping the payment, _. correct?
MS. MILLER: Yes, but if there is a death benefit, would you investigate that claim and see if that person·· you can find the beneficiary, and
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they can make a claim. MR. KATZ: That's correct. MS. MILLER: -- and a settlement process
happen. MS. ROSEBOROUGH: While you are collecting
your thoughts, this is probably a good moment, we've got a more precise dollar figure for Florida escheat as of December 2010.
MR. CASSANDRA: Yes, Ms. Jameson. I think the numberl provided was 2-1/2. It's.actually 2.0.
COMMISSIONER McCARTY: Let's go now to does Metlife use the Death Master information for corporate-owned life insurance?
MR. KATZ: I didn't come prepared to talk about corporate-owned life insurance.
MR. CASSANDRA: I think I can answer. COMMISSIONER McCARTY: w'"td ''" ,tease come
up. Thank you very much. MR. CASSANDRA: Yes, sir. As you know corporate-owned life insurance,
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the connection with the·· potentially can be lost between the employee and employer. So, yes, I believe it has been our practice to use the Social Security Death Master File on our ··
COMMISSIONER McCARTY: Can you tetl a date on
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Page 62
1 or about when you started using the Death Master 2 with regards to corporate-owned life insurance? 3 MR. CASSANDRA: I am sorry, I don't know that 4 date, but we can follow up and get that for you. 5 COMMISSIONER McCARTY: Do you have written 6 policies and procedures with regard to the use of 7 the Death Master? 8 MR. CASSANDRA: I believe that to be the case, 9 but I don't have personal knowledge of it. I have
10 not seen them. 11 COMMISSIONER McCARTY: so then we would not 12 know when those policies and procedures were first 13 implemented? 14 MR. CASSANDRA: I think we have to follow up 15 on that. 16 MR. KATZ: Generally speaking, we definitely 17 should keep going through this. One of the notes 18 we discussed, we can put together for you a pretty 19 comprehensive chart that lays out policy type by 20 policy type that really gets at all the stuff. We 21 are going to do our best to continue to answer your 22 questions, but given the level of detail you are 23 looking for, we want to make sure we give you 24 comprehensive information, and we can certainly do 25 that in writing.
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1 COMMISSIONER McCARTY: But you do use it 2 currently for corporate-owned life insurance 3 policies? 4 MR.KATZ: Wedo. 5 COMMISSIONER McCARTY: What is the frequency 6 you match the Social Security Death Master against 7 the --8 MR. KATZ: I don't know. 9 MR. CASSANDRA: I believe we do that monthly.
10 COMMISSIONER McCARTY: Do monthly, as is the 11 case with the annuities? 12 MR. CASSANDRA: Yes, with some annuities. 13 COMMISSIONER McCARTY: With some annuities' 14 MR. KATZ: Let me give a clarification to 15 another question you asked previously about 16 anuities and paid-out status. 17 Around 2000 is when we began using the Death 18 Master Index for payouts. The payout, individual 19 pay-out annuities and the frequency is monthly for 20 that. 21 COMMISSIONER McCARTY: Let's now tum our 22 attention to individual life policies. 23 Does Metlife use the Social Security Death 24 File information with respect to individual life 25 policies?
Metropolitan Life Insurance Company
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1 MR. KATZ: Yes, we do. 2 COMMISSIONER McCARTY: If so, how long have 3 you been using the Death Master? 4 MR. KATZ: I described a little bit of history 5 before. You want me -- I can repeat it. 6 We used it initially in the early part of the 7 last decade. '04, '05 is probably a proximity. 8 COMMISSIONER McCARTY: Approximately 2004,
9 2005, you began to use it for individual life 10 policies? 11 MR. KATZ: For portions ofour business in 12 certain jurisdictions. 13 COMMISSIONER McCARTY: A,d how oo,n d;ct yov 14 apply that? 15 MR. KATZ: We applied it once -- I should be 16 clear. 17 In that situation, we provided a very diverse 18 jurisdiction, and in the records to some of those 19 jurisdictions, and they actually did the match 20 themselves. So it really varies by jurisdiction. 21 COMMISSIONER McCARTY: Do you have policies 22 and procedures in place for utilizing the Social 23 Security Death Master as it relates to individual 24 life insurance policies? 25 MR. KATZ: Yes.
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1 COMMISSIONER McCARTY: When were those 2 policies and procedures first established? 3 MR. KATZ: I can't tell you an exact date. 4 COMMISSIONER McCARTY: B"'wh,nyoe referred 5 back to the dates of the mid-2004, 2005, that was 6 not a systemic, ongoing quarterly or monthly 7 match-up that we have testimony as with regard to 8 the annuities? 9 MR. KATZ: That's correct. That's correct.
10 COMMISSIONER McCARTY: Okay. 11 MS. ROSEBOROUGH: Let me clarify. There may 12 have been some instances in the early 2000s where 13 the use of the Death Master File for limited --14
15 MS. JOHNSON: Commission, we have been 16 inforrned by the Florida Channel that they must 17 speak at --18 COMMISSIONER McCARTY: Please speak upat the 19 m1c. 20 MS. ROSEBOROUGH: !just want to clarify that 21 there may have been isolated incidents in early 22 2000s when the Death Master was run against small 23 pockets or limited pockets of policies on a regular 24 basis approximately annually before we got to the 25 more broad types of uses that Mr. Katz is
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.:o!::.,. 1 testifying to. 1 But the first of those matches for -· I should 2 COMMISSIONER McCARTY: Okay. Let's try and 2 say that's for all of our life business.
( 3 nail that down. 3 The first of those matches took place just 4 You had access to, some access to the Social 4 this past month. 5 Security Death Master approximately the late 1980s. 5 MS. MILLER: When you ran a match in 2007 6 Is that correct? 6 against most of your policies, how much, then, did 7 MR. KATZ: Yes. 7 you tum over to Unclaimed Property? You would 8 COMMISSIONER McCARTY: Thooomp,ny hod""'' 8 have found people who at that point had been dead 9 to information with regard to Social Security Death 9 for years? We would have expected a spike, and I
10 Master in the late 1980s, 1990s or thereabouts. 10 didn't really see that. 11 MR. KATZ: That is correct. 11 MR. KATZ: Yes, as we talked earlier, we found 12 COMMISSIONER McCARTY: And the company 12 about $84 million in deaths as a result of the 13 systemically and actively used the Social Security 13 dollars. 51 million were paid out. 32 million, 14 Death Master to make a match with regard to group 14 again, approximately, were set up into our 15 annuities, some collies, and other annuities. 15 unclaimed fund system. They were set up with the 16 MR. KATZ: I think a little later probably 16 2007 date to begin the 3- or 5-year period. 17 mid-'90s. 17 MS. MILLER: Okay. So those were people who 18 COMMISSIONER McCARTY: Mid-'90s. You first 18 died before 2007, so you are not using the date of 19 utilized the Social Security Death Master on an ad 19 death to determine that that starts the dormancy 20 hoc basis for life policies somewhere on or about 20 period, you are using the date you ran that system? 21 mid-2000, 2004, 2005? 21 MR. KATZ: For the purposes of that, that's 22 MS. ROSEBOROUGH: I would say on an ad hoc 22 what we did, that's correct. 23 basis by early 2000. ' 23 MS. MILLER: Is that what you've always done, 24 MS. MILLER: I need to interrupt here. If you 24 is not use date of death but use the date you ran 25 want to give testimony, that would be great. But 25 it?
Page 67 Page 69
1 we would need to swear you in as a fact witness if 1 MR. KATZ: For the purpose of the match, that 2 you are going to give testimony. I know you are 2 was really the first time we did a full 3 trying to clarify, but that's not just legal. 3 comprehensive match for our business. 4 MS. ROSEBOROUGH: I was just trying to 4 MS. MILLER: When you did the match in 2007, 5 clarify. 5 if somebody had been dead-· say they died in 6 MS. MILLER: Okay. 6 1995 -- you would have picked it up for the first 7 COMMISSIONER McCARTY: Whothasboenthescop, 7 time, right? 8 of comparison of in-force, out-of-force policies 8 MR. KATZ: That's correct, they could have 9 with regard to the Social Security information? 9 died much earlier. We used 2007 to establish the
10 MR. KATZ: Let me speak specifically to the 10 dormancy period, that's correct. 11 more comprehensive match we did _in 2007. And the 11 MS. MILLER: If they already had been dead for 12 scope of-that would have been policies that were in 12 more than five years, why didn't you just tum it 13 force, cancelled, in nonforfeiture status including 13 over to Unclaimed Property? 14 last -- 14 MS. ROSEBOROUGH: I am going to ask the -15 COMMISSIONER McCARTY: What is your current 15 witness not to testify to a legal conclusion, but -16 process, policy and procedure with regard to 16 he's already testified, the fact what we did is we 17 running the Social Security Death Master with 17 used the June 2007 date as the date we started the 18 respect to individual life policies? 18 dormancy period, and we believe that's consistent 19 MR. KATZ: So, after 2007, we have random 19 with Florida law. 20 match, and we got a lot of learnings from that, and 20 MS. MILLER: Okay. 21 it led us to believe it made sense to run that 21 COMMISSIONER McCARTY: Does Metlife use a 22 match more frequently. 22 Social Security Death Master for group life 23 And more recently, in 2010, we made the 23 policies? 24 decision to run that match against our individual 24 MR. KATZ: We currently have not. However, 25 life business no less frequently than once a year. 25 the procedures implemented in 2010 will begin using
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1 group life policies in 2011. 2 I should make an important caveat as it 3 relates to group life policies. The vast majority 4 of group life policies, the records are not 5 maintained by the insurance company, they are 6 maintained by the employer. So the complications 7 of group life are different than what we talked 8 about up until now. 9 COMMISSIONER McCARTY: So 2010, did you
10 establish policies and procedures for the use of 11 the Social Security Death Master? 12 MR. KATZ: We did, yes. 13 COMMISSIONER McCARTY: Does Metlife --14 MR. KATZ: I should make a clarification on 15 that and ask Frank to help me out to be sure. 16 In terms of the dates that the policies and 17 procedures around this match was established, am I 18 giving the accurate date? 19 MR. CASSANDRA: We began to establish those 20 policies and procedures around the group insurance 21 business in late 2010. 22 And I would make one further clarification 23 with respect to the'[uestion about have we ever 24 matched group life insurance business. 25 There were a couple of instances where a group
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1 policyholder who was the keeper of the records 2 asked for that or had done that sweep on their own. 3 I was just trying to clarify the process. 4 MS. MILLER: I think that is all the different 5 types of policies. And we have a few questions 6 about retained asset accounts. 7 But are there .any types of policies that we 8 have missed that we haven't discussed that you use 9 Death Master to run against?
10 MR. KATZ: I am not aware of others. 11 Certainly we can check, and I am sure we'll share 12 that information with you. 13 MR. CASSANDRA: I would just add to that --14 COMMISSIONER McCARTY: Thank you. I 15 apologize. We should have made this a little more 16 convenient. 17 MR. CASSANDRA: That's quite all right. 18 I would also say we do use the Social Security · 19 Death Master File on certain other pay-out business 20 such as group disability and long-term care claims 21 that are in pay-out status. 22 MS. MILLER: Now you heard the issue is that 23 when it's paid-out status, when the company is 24 stopping a payment, you use that file frequently 25 and regularly; and then when it is a matter of
Metropolitan Life Insurance Company
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1 paying someone a death benefit, it's later and not 2 as consistent. 3 Do you have any response to that? It seems to 4 me that that's a little offensive to people. When 5 you are looking for a way to stop paying them, you 6 can find them? But when you are looking for a way 7 to pay them, benefit due, you can't find them. 8 MR. KATZ: I think that is the core of the 9 issue we talked about, and I think it's important
10 we articulate -- we articulated the procedures. We 11 haven't gotten into the whys. I would be happy to 12 give you some of that. 13 Assume the policy is in pay-out status, like 14 annuities we talked about, when we have an 15 indication of death, in the same way the Social 16 Security information uses it when they have an 17 indication of death, it's appropriate at that point 18 in time not to have a grace period and extend that 19 by continuing payments. I don't think I heard a 20 lot of debate about that. 21 I think the question, then, is well, then what 22 should you do with your life insurance business? 23 · The life insurance business, as I shared' 24 earlier, we want to make sure that beneficiaries 25 understand how much life insurance their.
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1 policyholder has, and they understand thee 2 importance of submitting claims. 3 And as I shared earlier, about 99 perc@t of 4 life insurance claims are paid through the normal 5 course. And that doesn't mean that the beneficiary 6 is ready to submit that claim a month or two months 7 after that death occurs. When they do submit that, 8 we have expedited processes to make sure that those· 9 claims are paid on time.
10 We do think that the Death Master Index for 11 the life insurance business provides a valuable 12 tool as a safety net for the limited number of 13 individuals who don't submit the claim. And we 14 think it's a good business practice to use it in 15 that way, but not as a way to change the dynamic 16 for the life insurance business which has worked 17 for a hundred-plus years. 18 And again, the testament to that is the vast, 19 vast majority of claims come in through the normal 20 process. But if you are one of the individuals who 21 didn't come through the normal process, we think 22 having the safety net I am describing is a good 23 thing. And we think it makes sense. And it is 24 certainly something we want to kind of have more 25 dialogue about how as an industry and regulators we
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1 can do that process. 2 MS. MILLER: We think it's a good thing, too. 3 We think that when you find the match, you have an 4 obligation to investigate that claim, see if you 5 can find that beneficiary. That's I think maybe 6 what hasn't been done consistently. 7 When you find the death on the Death Master,. 8 then you have notice of that death. You have an 9 indication that person has died. We are not even
10 arguing that then you should cut a check to the 11 person listed. 12 But we do think you have an obligation then to 13 see if you can find the beneficiaries. And that's 14 what I think has not been done. 15 The other thing I think is you are not running 16 all of them through, from what I am hearing today, 17 you are not running all your policies through that 18 Death Master File to see if you can match them. 19 MR. KATZ: Respectfully, we do plan to make 20 best efforts to run as many policies through as we 21 possibly can. And so that gets to the second part 22 of your, I don't want to say question, or 23 statement. I want to respond to a question. 24 So I understand the concern. I think our 25 objective here is to let the normal course of life
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. 1 insurance work. 2 I should make a point that if, in fact, a 3 match is found in an annuity and we do have notice 4 someone is dead, we do have procedures to share 5 that information within our organization. 6 And we haven't been presented with information 7 around policyholders wherein an annuity was paid 8· and a life insurance claim wasn't. And I would say 9 if there was situations where that happened, our
10 intent would be to expedite that life insurance 11 policy as quickly as possible. 12 COMMISSIONER McCARTY: Let mejost m,k, '""'
13 understand what you just said. 14 So you are saying in the event that somebody 15 has an annuity and you identify them througli the 16 Social Security Death Master, and you terminate the 17 payments on that annuity, and they also have a life 18 insurance policy, you would initiate an 19 investigation to pay that life insurance policy? 20 · MR. KATZ: Yeah, I didn't say that. 21 But what I said is we have procedures to share 22 that information, so I will give you a 23 hypothetical, is a better way. 24 If an individual showed up on the Death Master 25 Index and we had a match for an annuity, we would
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ask our annuity operations to share that death with our life insurance operations. And the life insurance operations would see if there was a match up on the file; and if there was, they would do an investigation.
Now, again, we want to be vety careful that that doesn't lead anybody to believe they don't have to submit claims or provide proof of death, because just because there is a match, in many cases we find matches, and I will give you an example.
The person was on our admin file but the date of death may have happened after the policy term. That does happen sometimes. Or the date of death might have happened, and it's a second-to-die to policy, so it was the first-to-die person. So we really think it's important we investigate these.
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and procedures in place to inform the division responsible for insurance claims, of life claims, of the termination of the annuity benefits?
MR. KATZ: We do have some, we do have policies and procedures in place.
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were put in effect?
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MR. KATZ: I don't. We can certainly share that information with you.
MS. MILLER: Does Metlife really run all its policies against the Death _Master File to see if
. any of those insureds are dead and then to investigate the claim?
MR. KATZ: Maybe I can ask Frank to come up because he is probably best to talk about what we intend to do.
MR. CASSANDRA: Thank you .. So, yes, we do believe that a routine matching
of life insurance business against the Social Security Death Master File is a good business practice and will serve as a very effective safety net around the standard process which exists today.
We have, after moving from the learnings of our 2007 match, we came together and made a decision that we would begin to implement that process for matching all policies no less frequently than.annually.
So now you might ask why that distinction between monthly for the annuities and longer for the life insurance?
And the practical reason is we don't want to insert ourselves into the process, the process
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Public Hearing May 19, 2011
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1 which works very well right now, where 2 beneficiaries come foiward and claim their 3 benefits. We believe that beneficiaries should be 4 given an appropriate amount of time to get their 5 loved ones' affairs in order. 6 Some individuals may in fact had a grieving 7 period and they don't want to deal with financial 8 issues. We think if we are doing the match almost 9 in real time, we'll be inserting ourselves into a
10 process that works. 11 And based on our results in the 2007 sweep, we 12 saw that more than 99 percent of the total claims 13 had been presented to us in the normal course 14 through the very traditional way of handling life 15 insurance. So we think again, that is a good 16 safety net. 17 We do believe that we should do it on a 18 routine basis, and we think that that annually 19 provides that good type of safety net and, in fact, 20 gives us the time to do the necessary 21 investigations to reach out to beneficiaries. 22 I would make the point that the match is 23 really only the first step when it comes to 24 investigating life insurance claims. So as Todd 25 pointed out, just the mere fact that we know an
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1 individual may, in fact, have died is not in and of 2 itself generally enough to establish the company's 3 liability. 4 COMMISSIONER McCARTY: But it does initiate an 5 investigation. 6 MR. CASSANDRA: And it does and we believe it 7 should, and we do -' right now there is a robust 8 investigation in an attempt to find those 9 beneficiaries.
10 COMMISSIONER McCARTY: We appreciate 11 prospectively 2010 going foiward that using this to 12 augment the system that's worked so well in the 13 . past. 14 Are you willing, is your company willing to go 15 back and use the Social Security Death Master and 16 investigate claims back to the late 19 80s, 1990s? 17 MR. CASSANDRA: I would say that the match we 18 did in 2007 --19 COMMISSIONER McCARTY: weo,tatt th, way back?
20 MR. CASSANDRA: -- went all the back. 21 In that match we matched not only in-force 22 policies, but we matched any type of cancer 23 policies or any types of policies that had ended 24 for a reason other than death. We did that in 25 2007.
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1 And when we designed for the match in terms of 2 the logic, it was a little more complicated because 3 one of the situations that did concern us was the 4 possibility that I think you laid out on your 5 slides, where a policy may have been in forfeiture, 6 being extended under one of the forfeiture options, 7 and the beneficiary not actually knowing the policy 8 actually existed, did not submit a claim. 9 When we did that 2007 match, we did our very
10 best to take that into account. 11 And so to the extent that any one of those 12 situations may have occurred in the past, we think 13 we have identified most of them. We think once we 14 will implement the ongoing procedure will make any 15 such occurrence ve1y rare. 16 Now of course Metropolitan is a very large 17 company and very complicated. Could I say with 18 absolute one hundred percent certainty that our 19 2007 match identified every possible beneficiary? 20 Unfortunately, I can't say that. Maybe some have 21 fallen through the cracks. But we think we took a 22 very, very rigorous approach in that match in 2007 23 and going foiward; in fact, that first match is 24 being made again in 2011 and should make any 25 probability of that pretty rare.
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1 MR. KATZ: Just one quick clarification to add 2 to what Frank said. 3 When we paid the claims, we paid them based on 4 the policy value at the date of death. So if you 5 have an example of somebody who died in 1980, and 6 we ran the match and their policy, let's say, 7 lapsed in 1985, when they submitted the claim, we 8 ran the match in 2007, that lapsed policy would 9 have been caught, would have been paid based on the
10 policy value back to the date of death. And then 11 any State-required interest would be added to that 12 and paid to the beneficiary. 13 COMMISSIONER McCARTY: s,,e1wcen1hct;m,yoo 14 initially started using the Social Security Death 15 Master up and through 2007, you went and gone back, 16 and the policies that may have been extinguished or 17 diminished because of being provisions for 18 forfeiture, they would have been reinstated at the 19 full value and people paid with interest? 20 MR. KATZ: The first part is absolutely true. 21 And to the extent there was required statut01y 22 interest, interest would have been paid. And it 23 varies by state. 24 But, yes, we would have taken -- reinstated 25 the policies to what the value was at the date of
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1 death, and that's what would have· been paid. 2 COMMISSIONER McCARTY: so the result would be 3 that it would been as if you have been using the 4 Social Security master all along? 5 MR. KATZ: Well yes and no. Because the 6 ultimate result would have been the timing --7 COMMISSIONER McCARTY: What was that? 8 MR. CASSANDRA: The timing would have been 9 different because those payments occurred post
10 2007. 11 If we had run the master index in my example 12 in '82, which I don't think we could have, and 13 found that that person died in '80, they would have 14 still gotten paid the same amount, but they would 15 have gotten paid sooner. 16 But I think, Commissioner, your question was 17 did we match against the universal Social Security 18 file? And that answer to that question is yes. 19 And did we match our entire block wherever we 20 had appropriate data? We made every attempt to use 21 as much of the in-force as we had records on, 22 except for that exception, the very small blocks of 23 assumed business that Todd spoke al;,9ut. 24 So I think your question is when you did it in 25 2007, was that sort of an issue to date-type sweep
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1 and did it catch all of those individuals? We 2 think it did. 3 Can I make l 00 percent assurance that we 4 caught every one? No. We made every effort. 5 And in terms of the logic that was built into 6 the sweep, it definitely did consider the concern 7 because it did concern us as well. So the match 8 was not only in-force policies, it also included 9 policies that might otherwise have cancelled.
10 MS. MILLER: Will you go back now and do the 11 same thing for small blocks of assumed business 12 that wasn't included in that match? 13 MR. CASSANDRA: Yes, that's in the scope. 14 That match may have -- what is today's date? In 15 fact, that match may have already been accomplished 16 at this point and investigations commenced. 17 MS. CONNORS: While we are on this topic, how 18 old were some of these policies? What's the oldest 19 policy you had when you did the 2007 search? How 20 much far back did you go? Do you have that off the 21 top of your head? 22 MR. CASSANDRA: I believe the earliest, the 23 earliest death we found in that sweep was in the 24 late 1970s. We actually had one earlier death 25 which was back to 1965, but we were -- I believe it
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was early '60s. I can't be certain as to exact date. We could not find the beneficiary on that file so it was entered into the Unclaimed Property system.
MS. CONNORS: So you have maintained those records, you have the records indicating breakdown of policyholders and how old the claims were?
MR. CASSANDRA: Yes, I believe that we do have a lot of detail. I don't know if we have exactly the detail you would like to see, but we do have the detail of that match. It took us quite a while to do the necessary investigations.
As I said, on life insurance, the match is only the starting point for that. The outreach to attempt to find the beneficiary can be intense, but our objective has always been to get the benefit in the hands of the rightful beneficiary. If we can't find that beneficiary, to escheat to the states in accordance with the laws of that state.
MS. CONNORS: If I can ask an open-ended question. What do you believe your fiduciary duty is with respect to this process?
MR. CASSANDRA: I am sorry? MS. CONNORS: What do you believe your
fiduciary duty is with respect to this process?
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MS. ROSEBOROUGH: And lam going to intenupt that because that I think that question calls for a legal conclusion.
I am happy for them to talk to you about what they think our responsibilities are as an insurance company with respect to that, but not focused on a question about fiduciary duty.·
MR. KATZ: Our goal is to pay every claim that should be paid, pay it accurately and promptly. So that's not a legal conclusion, but that's our business practice.
MS. CONNORS: When do you feel that that responsibility kicks in in the procedures that you described?
.MR. KATZ: So, I think what you are describing now, you are asking a different question which is for each state, how do you interpret given laws. That's not something I can testify to, the interpretation of the laws. They vary by state, too.
MS. CONNORS: What prompted -- what month in 20 IO did you change these policies and procedures to more frequency?
MR. KATZ: I am trying to think. It was toward the end of the year.
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1 MR. CASSANDRA: We began to examine the 2 process in terms of the entire business in late 3 summer of 2010, and we took the decision to 4 implement the ongoing matches less frequently than 5 armuall y in December. 6 MS. CONNORS: What prompted that decision? 7 MR. CASSANDRA: For all the reasons that we've 8 given you, that we have given; that we think it's a 9 good business practice, and will serve as a very
10 good safety net around our standard process. 11 Metropolitan desires to pay every claim as promptly 12 and accurately as possible. 13 We felt that technology had progressed to the 14 point where making these matches was not only 15 possible, but efficient, and not as subject to 16 false positives as you may have seen earlier. 17 So in looking at the totality of the 18 situation, including the improvement in technology, 19 it's very easy I think for us in this technology 20 age in 2011 to sort of impute that technology back 21 in time. 22 But if you think about that, you realize that 23 we've come a very long way in terms of our ability 24 to do these sort of data manipulations. And I 25 think the sum total of that, and particularly the
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1 safety net aspect, our desire to put something .2 around the standard process, which we believe works 3 very well, was the main element of why we decided 4 to do that. 5 MS. CONNORS: So your decision doesn't have 6 anything to do with the public attention drawn to 7 the issue through the media? 8 MR. KATZ: I think prior to -- I am not sure 9 there was a whole lot of public attention. I will
10 answer a different question which might be in line 11 which is we were in discussions with regulators 12 about this very topic, and I can assure you we are 13 most interested in what our regulators and what's 14 on their minds. 15 And part of our decision process was that we 16 had an opportunity to make an improvement, and we 17 made the decision to do that. So I don't want to 18 sit here and tell you that the discussion with our 19 regulators wasn't part of that, too, because it 20 was. 21 MR. CASSANDRA: I will state the obvious, that 22 the match that we did, particularly with the logic 23 to try to uncover the situation particularly on the 24 cancer policies, occurred back in 2007, I think
\ 25 long before people appreciated this particular
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1 topic. 2 Metlife had a history not only through the 3 late '80s of going out and doing campaigns, 4 including some significant advertising and 5 outreach, particularly to our industrial block in 6 order to find policyholders. We had a history 7 going back all the way to the late 1980s, doing 8 that effective research. We did the match when we 9 felt that technology had progressed to the point
10 where it allowed us to do so. And we did that 11 match in 2007, and so we are proud that we did that 12 early. 13 MS. CONNORS: Thank you. 14 MS. MILLER: I think it's good that you did it 15 in 2007. But in 2007, you identified a bunch of 16 policyholders who had died years before that and 17 you need to remit that money to Unclaimed Property. 18 MR. KATZ: We understand your concern. I 19 should make one -- I want to clarify one other 20 item, but I can pause. 21 MS. JAMESON: As I understood your testimony, 22 and correct me ifl am wrong, you start the 23 dormancy period for your recordkeeping at the time 24 you make the match, is that right? 25 MR. KATZ: For the 2007 match.
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1 MS. JAMESON: 2007 match. So from your 2 perspective, we would expect to see in 2012 3 remittances to Unclaimed Property for Floridians, 4 and all the states, I assume, would see a large 5 uptick in unclaimed property remittances to the 6 state next year? 7 MR. KATZ: So the total out of that match was 8 about 32 million. I think about 11 million of that 9 has already been escheated, and am I getting the
10 facts right? About 3 2 million in the '07 match, 11 about 11 million has already been escheated. And 12 every state has a different duration. And the 13 balance would be escheated based on the prospective 14 durations. 15 MS. JAMESON: So the 11 million would be to 16 states that have shorter than five years? 17 MR. KATZ: That makes sense, yes. 18 COMMISSIONER JAMESON: Do you --19 MR. KATZ: I should say I believe that's the 20 case. Logically, that makes sense. 21 MR. CASSANDRA: Yes, where the rules of that 22 particular state required it to be shorter. 23 COMMISSIONER JAMESON: Okay. 24 MR. CASSANDRA: In terms of a specific 25 different defined date of dormancy when it starts
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1 to run. 2 COMMISSIONER JAMESON: So I would assume lhoo, 3 from what you told me, that Florida has not 4 received any unclaimed property from the 2007 match 5 because our dormancy period is five years? 6 MR. CASSANDRA: I am sorry, I don't know I can 7 answer that question specifically. That's very 8 specific. But we could go back and say of those 9 Florida residents identified, what's the status of
10 those? 11 COMMISSIONER JAMESON: That would be helpful. 12 So you have -- do you keep a record, then, in 13 your accounts by state or by -- you have some way 14 to track all these accounts while you are waiting 15 on the dormancy periods to expire or while you are 16 looking for -- I am assuming during this time you 17 are actually looking for the heirs or 18 beneficiaries. 19 MR. CASSANDRA: Yes. When we can't find a 20 beneficiary or other rightful owner, we enter it 21 into Metropolitan's unclaimed system which is the 22 system that tracks unclaimed property for the 23 various states. 24 COMMISSIONER JAMESON: Okay. Soyoucan 25 identify how much, the dollar value of assets that
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COMMISSIONER McCARTY: Is the retained asset accounts the default options in terms of the settlement of most policies or certain policies?
MR. KATZ: The default option will vary based on the policy type.
COMMISSIONER McCARTY: They lend to be !owe, value policies?
MR. KATZ: For policies under a certain value, I think it's 5,000 or 10,000 and check is through default. The actual default option would vary based on the election of the policyholder, either group policyholder or the individual. For individual business, the policyholder is given the opportunity to make an election. Sometimes they do, sometimes they don't.
COMMISSIONER McCARTY: If they don't, the default is retained, I assume?
MR. KATZ: If they don't, then the beneficiary will be given an opportunity to make an election. And if they don't, then the fault, depending on state requirements -- each state has different requirements, is typically?
COMMISSIONER McCARTY: On the average, how long is a retained asset account left open?
MR. KATZ: I don't know. A significant amount
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1. you have essentially on hold for Floridians? 1 of them close very, very quickly. 2 MR. CASSANDRA: Again, I don't know that I can 2 MR. CASSANDRA: Based on my memory, my 3 answer that specific question. I believe the 3 recollection, approximately 70 percent of the 4 answer to that is yes, I believe that we can. But 4 accounts are closed by the beneficiary within the 5 I don't have the number here and we would have to· s first year. 6 get back to you on that. 6 COMMISSIONER McCARTY: Where are those 7 COMMISSIONER JAMESON: Okay. Thank you. 7 retained asset accounts held? 0 COMMISSIONER McCARTY: Turning ourattention 0 MR. KATZ: They are held at -- our 9 to just a few more questions as it relates to 9 administrator is BFY. They do the account
10 retained asset accounts. 10 management. 11 Does Metlife use retained assets accounts? 11 MR. CASSANDRA: l think, Commissioner McCarty, 12 MR. KATZ: Yes. 12 they are general account assets. 13 COMMISSIONER McCARTY: When did you begin 13 COMMISSIONER McCARTY: so th,ya,e not subj,ct 14 using retained asset accounts? 14 to the provisions of the FDIC? 1 s MR. KATZ: 1984. Mid-'80s. 15 MR. CASSANDRA: They are not.
. 16 COMMISSIONER McCARTY: ooyoo know how m,ch 16 COMMISSIONER McCARTY: Wh,1 ,,,-,n you, vi,w,· 1 7 assets are retained in those accounts? 17 the benefit of having retained asset accounts as 18 MR. KATZ: I did when we talked about this a 18 opposed to paying out the claim? 19 lot, not too .long ago. 19 MR. KATZ: So the retained asset account will 20 MR. CASSANDRA: The balance at 12-31 was in 20 give the beneficiary the opportunity to take time 21 the range of about $12 billion. 21 to make an election. Their retained asset account 22 COMMISSIONER McCARTY: 12 million? 22 will give them a minimum guaranteed interest rate. 23 MR. CASSANDRA: Billion. 23 COMMISSIONER McCARTY: But that nocessacily is 24 COMMISSIONER McCARTY: $12 billion? 24 not necessarily an interest rate that's competitive 25 MR. CASSANDRA: Yes. 25 in the financial markets, if they had taken it in a
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1 lump sum? Met makes some money off maintaining 2 those accounts. 3 MR. KATZ: We can dimensionallize this a 4 little bit. 5 MR. CASSANDRA: At this point, a significant 6 portion of our retained asset accounts actually 7 have a minimum guaranteed rate that's much higher 8 than currently available money average. About 9 one-third of our balances have a 3 percent minimum
10 interest rate guaranty, where if you looked at 11 similarly situated money market accounts available 12 today, you would be talking about single-digit 13 basis point-type yields on money market accounts 14 So individuals who had retained asset accounts 15 with 3 percent minimum interest rate guaranties are 16 faring very well in today's environment. 17 COMMISSIONER McCARTY: Are retained asset 18 accounts subject to unclaimed property laws? 19 MR. KATZ: I believe they would be. 20 MR. CASSANDRA: I believe it is. 21 By the way, Commissioner, you asked a question 22 as to whether or not those funds were covered by 23 FDIC insurance. . ~-24 They are not. They are covered under the 25 State, various State guaranty association coverage
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1 which some instances is actually higher than 2 available FDIC coverage. 3 COMMISSIONER McCARTY: What does the pmcess
4 of procedure have in place to test to determine 5 whether the property should be remitted as 6 unclaimed? 7 MR. KATZ: So, make a couple of points. 8 One, we contact our policyholders at least 9 quarterly. If they have activity on their account,
10 it's monthly. 11 It's important to keep in mind that retained 12 asset accounts is control accounts, it's not an 13 active account, they can't put deposits in. They 14 can only post the account or cut checks. We also 15 send them a 1099 for.any interest earned. 16 If, in fact, we have three pieces of returned 17 mail, we will begin a process to investigate 18 whether or not that individual is alive and. try to 19 locate them. And if, in fact, we can't, then we 20 would --21 COMMISSIONER McCARTY: But you attempt to 22 reach them quarterly? 23 MR. KATZ: We send them statements at least 24 quarterly, yes. The activity would be more 25 frequent than that.
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1 I should make one other point about RAAs, now 2 that you've asked. We've matched the index against 3 RAAs also. We did it in 2006 and we did it again 4 in 2010. 5 MS. MILLER: You ran the Death Master File 6 against your RAAs, and anybody that you found on 7 there that was deceased, then what did you do? 8 MR. KATZ: We began an investigation process 9 of those and attempted to identify a beneficiary.
10 If we couldn't find the beneficiary, we would then 11 begin the process of moving those funds into our 12 unclaimed property system. 13 And I've got a little bit of stats on that. 14 For Florida, in 20 I 0, we escheated 353 items with a 15 value of about 156,000; for the whole company --16 for the whole country, about 9,000 items in 2010 17 for a balance of2.8 million. 18 So it's important to note some of these deal 19 with checks, not just closed accounts for the 20 puipose of --21 COMMISSIONER McCARTY: Are you aware of any
22 obligation to utilize the Death Master File for 23 Social Security to determine the life insurance 24 policies have insured pursuant to any settlement 25 agreement with any state in which Metlife has
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1 entered into? 2 MS. ROSEBOROUGH: Can I get you to repeat the 3 question? 4 COMMISSIONER McCARTY: Areyouawaceofany
5 obligations to utilize the Social Security Death 6 Master when a life insurance policy has an insured 7 due to any settlement agreements Metlife has 8 entered into? 9 MS. ROSEBOROUGH: Let me state that there are
10 some settlement agreements that at" different times 11 called for use of the Death Master File for 12 different purposes. I don't know if you are 13 referring to a specific settlement agreement or 14 just asking about is it the case there have been 15 settlement agreements that call for some limited 16 purpose use of the Death Master file; the answer to 17 that question would be yes. 18 COMMISSIONER McCARTY: Yes. 19 Would you care to elaborate on which those 20 agreements are? 21 MS. ROSEBOROUGH: I would be glad to. It 22 would more appropriate for me to answer such 23 questions in writing in a confidential setting. 24 COMMISSIONER McCARTY: okay. w1,a1 w,·, "'"' 25 like to know is if you had the result of any prior
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1 investigations or by any State insurance department 2 or auditor or State comptroller, whether policies 3 and procedures have been altered by Metlife 4 specific to that state and whether or not those 5 policies and procedures would then apply on a more 6 universal application nationwide. 7 MS. ROSEBOROUGH: I understand your question. 8 We'll take that question and respond in writing. 9 COMMISSIONER McCARTY: Trish, do you have any
10 follow up? 11 MS. CONNORS: Thank you, Commissioner. 12 In the interest of time, I only have a couple 13 of quick questions about whether you took into 14 account competitor practices in making your 15 determinations as to how you would pursue changes 16 in your policies and practices? 17 MR. KATZ: I can't speak for historically how 18 every decision has been made in the company. So if 19 you are asking --20 MS. CONNORS: Let's take 2010. 21 MR. KATZ: No, we don't -- certainly we always 22 consider the marketplace in the context of what we 23 do. But I wouldn't consider what competitors do in 24 their practices as a primary driver for this. 25 MS. CONNORS: Has this ever been the subject
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1 of any topic of discussion or any topic of 2 discussion at any particular association meetings 3 or any meetings with competitors involving life 4 insurance annuities or any other matter? 5 MR. KATZ: Not that I am aware of. 6 MS. CONNORS: Are you the person that 7 regularly attends these trade association meetings 8 or are there others in your company?. 9 MR. KATZ: I'm sorry?
10 MS. CONNORS: Are you the person that usually 11 attends --12 MR. KATZ: I am not the person, no. 13 MS. CONNORS: Ca_n I get the names of the 14 people who attend those trade association meetings 15 from someone? 16 MR. KATZ: Yeah, I think it would be best --17 maybe we can identify a couple trade associations 18 and then tell you people who have attended them and 19 maybe even more directly get a response to your 20 question. 21 MS. CONNORS: Thank you. 22 COMMISSIONER McCARTY: CFO Atwater. 23 CFO ATWATER: Thank you, Commissioner. 24 I have been able to catch some of this from 25 the office, so I wouldn't want to retread anything.
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Public Hearing May 19, 2011
Page 100
But thanks for your patience; I appreciate that. I would like to, if you could educate me or
enlighten me on the demutualization process that took place, and that was the year 2000?
MR. KATZ: That's correct, in 2000. CFO ATWATER: Here's where I have been trying
to go is for policyholders in Florida at that time, what transaction took place for the trading of a mutual ownership to the stock ownership? And could you explain to me how that took place?
MR. KATZ: I guess, first off, I will say I am not an expert on demutualization, that happened l O or l 2 years ago. I can speak at a high level as best I can. And to the extent that there is more follow-up questions or detailed questions, we can give those.
CFO ATWATER: Fine. MR. KATZ: What demutualization is is a
conversion of a company, mutual company, to a stock company and the distribution of the full value of the company to the policyholders. And so that's essentially what happened.
We made a decision in that process to include a minimum distribution of a certain amount of shares, I believe it was 10, for any given
Page 101
policyholder associated with the demutualization. Is that right, or cash equivalent? It didn't just have to be through stock.
CFO ATWATER: Mr. Katz, is that correct? MR. KATZ: Yes. CFO ATWATER: That would mean that Floridians
holding a life policy would have received in 2000, year 2000 or thereabouts, l O shares or a check in the mail for the value of 10 shares?
MR. KATZ: Or more. MR. CASSANDRA: Or more. 10 was the miriimum. CFO ATWATER: lO was the minimum. So all
policyholders? MR. CASSANDRA: Yes, all policies in force as
15. defined open under the plan of demutualization 16 which was developed under -- developed and approved 17 by the New York State Insurance Department; so as a 18 New York state domiciled insured, New York state 19 had oversight responsibility. 20 CFO ATWATER: But they wouldn't have 21 received -- obviously, eve1y Floridan didn't 22 receive IO shares. The only reason the envelope 23 would have come into the state of Florida is that 24 the person was a policyholder? 25 MR. CASSANDRA: Policyholder of record.
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Public Hearing May 19, 2011
Page 102
1 CFO ATWATER: A life policyholder? 2 MR. CASSANDRA: It could include other 3 policies. 4 CFO ATWATER: But all life policies? 5 MR. CASSANDRA: All policies -- as I said, we 6 are not expe1ts on demutualization. 7 But the plan of demutualization specified the 8 different classes of policyholders and the 9 different types of policies, so annuities versus
10 life insurance, and would have specified the 11 treatment and how the equity share would have been 12 determined. When Todd referred to 10 shares, no 13 policyholder as defined in the plan got less than 14 10. Many got much more. 15 MR. KATZ: We would want to refer to the plan 16 which is something we can share just to make sure 17 we give you complete information. 18 CFO ATWATER: I appreciate that. 19 If I could -- would I be accurate that the 20 vast majority of the individual life policyholders 21 in Florida would have been part of the 22 demutualization shareholder recipient? 23 MR. CASSANDRA: I believe that is true, yes. 24 CFO ATWATER: All right. So here's just a 25 number I would like you to help me understand a
Page 103
1 little bit more fully. 2 These are records, and let me just say, too, I 3 am presenting you information that I haven't seen 4 that our staff has provided to me. So you are more 5 than welcomed to check on the numbers for the value 6 of them. 7 That in 2004 and 2006, Metlife provided to us, 8 the State, to our unclaimed property area, 140,000 9 accounts, $85 million that you were unable to get
10 into the hands of individuals who were due that. In Would that surprise you? I 12 MR. CASSANDRA: I am not familiar with the 113 numbers you are quoting, so I am sorry, I can't --114 MR. KATZ: There were a lot of shares 15 distributed, and those numbers -- I don't know if 16 we have data on that. 17 CFO ATWATER: So let me walk through my 18 understanding how this works. I am trying to be 19 enlightened and educated on this. So which would 20 have meant that the effort to provide the 21 shareholder with the check or the shares bounced 22 back to you, you were unable to make the connection 23 or you would never have provided them to us. 24 MS. ROSEBOROUGH: So let me take a stab at 25 this.
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Metropolitan Life Insurance Company
Page 104
1 Because the demutualization was handled much 2 more by legal than by the business, being an 3 abnormal event. So in the case of an escheatment 4 of policies and shares of stock and cash, there 5 were separate treatments. 6 There was a class of policies that we in New 7 York and under our plan of demutualization belonged 8 to policyholders that we could not locate, that 9 they were lost policyholders. We reached out to
10 various states and let them know that we had a 11 significant amount of cash and property belonging 12 to policyholders whose last known addresses were in 13 their states, that we didn't have a realistic 14 thought that we were going to find them in the near 15 future. 16 And with certain states, including the State 17 of Florida, we reached the agreement we would 18 escheat that cash and shares early in essence in 19 order to give the State the opportunity to identify 20 those people and to get the stock or get the cash 21 to them. 22 And in the specific case of Florida, with the 23 Attorney General's Office, there was additional 24 outreach. The Attorney General's Office attempted 25 to get addresses to us in order to help us define
Page 105
1 Floridians that were entitled to that property. 2 And is that the process that you --3 CFO ATWATER: Yeah, I amjust trying to find 4 that out. That's helpful. So did you first try? 5 MS. ROSEBOROUGH: Yes, we did. In fact, we 6 had very significant efforts as we approached 7 demutualization to try to find policyholders to 8 correct addresses. We hired outside vendors to 9 assist with that process. We ran our data through
10 a lot of different databases. 11 In fact, one of the things.we shared with 12 Florida and with several other states is, Here's 13 what we've already done to try find these· 14 individuals. And we've asked you to confirm with 15 us if you felt that we had done everything that the 16 law required us fo do in order to try to locate 17 them. And I believe that Florida did so agree. 18 CFO ATWATER: You are pros in this business, 19 so it's not meant to be anything but a serious 20 question. You tried, and sent us 140,000 of them. 21 MS. ROSEBOROUGH: Don't hold me to a number of
22 how much we serit. 23 CFO ATWATER: It's a number I have; don't hold 24 me to that. But I am just saying that's the 25 information I have been shared. So that's okay.
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Metropolitan Li[e Insurance Company Public Hearing May 19, 2011
Page 106 Page 108
1 Would you believe that after that period of 1 into the agreement with your company, and that's 2 time, from 2000 to 2004 to 2006, when you provided 2 how that the sales process worked at that time? 3 them to us after your best efforts with all the 3 MS. ROSEBOROUGH: Right. 4 outside parties, that maybe the vast majority were 4 Moreover, that's how premiums were collected. 5 deceased? 5 The individuals were called "debit agents." They 6 MS. ROSEBOROUGH: Of those policyholders? 6 were much like postmen, beloved members of the 7 CFO ATWATER: Right. 7 communities, went out weekly or monthly and went 8 MS. ROSEBOROUGH: I think our representation 8 door to door to collect various small amounts of 9 to you is that we've done everything we thought we 9 money that were paid as the premium on those
10 could to try to find those people. As you know, a 10 policies. 11 lot of those policies got 10 shares, the minimum 11 CFO ATWATER: Okay. So what percentage of 12 number of shares, and were for industrial policies 12 those policies, if it is 140,000 or some number 13 that there were no Social Security numbers. 13 thereabouts, whatever that number proves to be, if 14 CFO ATWATER: Okay. 14 we can get our heads together and find that out 15 MS. ROSEBOROUGH: Sometimes those industrial 15 together, would you suspect would be the industrial 16 policies -- 16 policy? 11 CFO ATWATER: There is no gouging here. I am 11 MS. ROSEBOROUGH: I can't -- I would suspect a 18 just curious, as pros, if they're industrial -- 10 large part of it, but I can't characterize it for 19 define that for me. That means they are further 19 you. We can fin that out. 20 dated back, is that a terminology that they are 20 CFO ATWATER: Okay. 21 older policies? 21 MR. KATZ: It's probably worthwhile to add, to 22 MS. ROSEBOROUGH: Yes, the terminology, 22 give you a little sense of what's going to happen 23 "industrial policyholder," for us refers to 23 to those industrial policies. 24 policies that had a face value ofless than a 24 So we are holding industrial policies on our 25 thousand dollars and with an interval payment of 25 books, and some of those individuals, when we ran
Page 107
1 premium that was weekly or monthly. 2 CFO ATWATER: Would have been an older policy? 3 MS. ROSEBOROUGH: Metlife stopped selling 4 those policies in 1964, so it would have been older 5 policies. 6 · CFO ATWATER: Let me ask that question. 7 If you stopped selling the product in '64 and 8 they didn't respond in 2000 to an asset we were 9 trying to provide them, would the conclusion have
10 been that they have passed, at least a reasonable 11 assumption? 12 MS. ROSEBOROUGH: It would have been possible 13 that some of those individuals were deceased and it 14 would have been possible that some of them just 15 moved to different areas of the country that 16 they -- last known address for us was when they 1 7 lived on a street that doesn't even exist anymore. 10 Those policies were largely sold door to door, 19 and the record collecting for those policy was 20 vastly different than the way you would collect 21 records for our modem policy when you don't use 22 door-to-door agents anymore. 23 CFO ATWATER: So they come door-to-door, sat 24 at the dining room table, discussed the value of 2 5 such an asset and made that decision and entered
Page 109
1 the sweep in '07, we would have found -- right? --2 that they were dead and those proceeds wou1d have 3 been paid or escheated as I described. 4 Keep in mind, all of those industrial policies 5 that were, in fact, in force and paying premium 6 payments after 1981 would have been -- we said this 7 earlier -- converted to paid-up status which means 8 no further premiums are due. 9 So generally speaking, one of two things are
10 going to happen on those policies eventually. 11 Either a beneficiary will come forward and 12 present proof of death or -- I should-say one of · 13 three -- we might find that person in the death
· 14 match sweep, or those policies will reach their 15 maturation period, and at that point we'll 16 investigate to see if that individual is alive and 1 7 we can locate them. And if we can't, then those 10 policies will be escheated to the State. I don't. 19 know if that's helpful. 20 CFO ATWATER: It is. I think I am just trying 21 to again maybe get to the basis of what I have 22 heard a few times mentioned from Mr. Cassandra, 23 just passing again, trying to stay connected to the 24 conversation by way of electronics, and yourself, 2 5 Mr. Katz, that the goal is to get the money to
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Public Hearing May 19, 2011
Page 110
1 everybody as fast as you can. 2 So I am just trying to walk through what I am 3 seeing in numbers; that in 2000, you went through 4 the process, and in 2004, you couldn't find them 5 and you provided us with 140,000. It's 85 million, 6 and that all of those people represented life 7 insurance policies, or let's say a great majority, 8 which you are stating; and in all likelihood, maybe 9 we could draw some conclusions that the vast
10 majority have probably been deceased, which is why 11 you couldn't find them. You may not want to draw 12 that conclusion. 13 But these were last sold -- many of these were 14 last sold in '64. Since that time, you provided us 15 with this number for the demutualization, you have 16 only provided us, of the 140,000, 8700 of the 17 policies to try to find the people. Where are 18 those policies? 19 MS. ROSEBOROUGH: First let me say I don't 20 know, but let me also think that you may be 21 crossing -w
22 CFO ATWATER: That's fine. 23 .MS. ROSEBOROUGH: Just to clarify, so the 24 policyholders that were entitled to the shares at 25 the demutualization, I might be owner of five or
Page 111
1 six different policies, and I might be the insured 2 of only one of those policies. And the other of 3 those, I might be owner. But the insured might be 4 my child, my spouse, iny aunt, my grandmother, 5 whatever. 6 So when you talk -- when we talk about 7 policyholders, we're talking in terms of an 8 individual who may be the owner of a number of 9 different policies but only insured under one.
10 Second thing I would clarify is that our 11 information is that the agreement that we made on 12 the escheatment of shares and cash to Florida in 13 the 2003, 2004 time period was for 900,000 shares 14 and $1.4 million's about. And that at that time, 15 Florida agreed that we. had appropriately reached 16 out to find those individuals and had appropriately 17 applied for. And it was appropriate to make an 18 agreement to escheat those funds earlier than they 19 would have then escheated if we followed Florida 20 law at the time. 21 So it was on the basis of that understanding 22 to give Florida opportunity to review what we had 23 done, again with the support of AG's office in 24 particular and your office that we went through 25 that process and --
Metropolitan Life Insurance Company
-Page 112
1 CFO ATWATER: How many policies? 2 MS. ROSEBOROUGH: We would have to do the 3 math, but every policy got at least 10 shares, but 4 every policy had an opportunity or some policies 5 got more than that. So I can't just do straight 6 math and tell you how many policies that were 7 involved in that, because some of them may have 8 been participating policies that would have also 9 got an additional allocation of shares out of
10 demutualization. 11 I can see if that information is available, 12 but I don't know off the top of my head. 13 CFO ATWATER: You mentioned a number that was 14 agreed upon in '04. 15 MS. ROSEBOROUGH: Those were shares. 16 CFO ATWATER: Shares. 17 MS. ROSEBOROUGH: Shares ofMetlife stock. 18 CFO ATWATER: Representing what portion of 19 these policies or do you know that number? 20 MS. ROSEBOROUGH: I don't know. You can't do 21 it by straight math. Some policies might have 22 gotten more than a minimum number of shares. 23 CFO ATWATER: I think you mentioned that -- we 24 are just conversing, I guess, not under testimony, 25 we haven't been sworn -- that these 140,000
--
Page113
1 policies or accounts that we received that were to 2 address not finding them for demutualization, you 3 believe that those have all been taken care of in a 4 prior agreement; and we should not be awaiting 5 those policies to help find those Floridians that 6 are awaiting the pay-out on the policy? 7 MS. ROSEBOROUGH: I can't, based on the 8 information I have available to me, try to 9 understand where your 140,000 number is coming
10 from. So I can only speak to what I ·know was in 11 the written agreement between us in --12 CFO ATWATER: You believe that, put to rest, 13 everybody who was in the demutualization program? 14 MS. ROSEBOROUGH: No. That agreement was 15 specifically aimed at policyholders that we 16 believed we were not going to be able to find. 17 There would have been other policyholders that 18 might have gotten shares who we felt we could find 19 but later didn't find. And those shares later 20 escheated for some purpose, reason or another. It 21 may have been through a match or some other action 22 that caused them to be escheated. 23 CFO ATWATER: I appreciate that. I appreciate 24 that. I'd like at some point we do the math and 25 get to the bottom of that, and I think we'll all
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May 19, 2011 Metropolitan Life Insurance Company
Page 114 Page116
1 agree we'll do that. Is that fair to say? 1 are very open to doing everything we can to try to 2 MS. ROSEBOROUGH: Share whatever data you 2 find people and reunite them to their policies. 3 would like us to provide, we'll provide that. 3 CFO ATWATER: I think, when we can sit down, 4 CFO ATWATER: The point I think we find 4 we would like to reconcile the number we have, that 5 perplexing, if that hasn't achieved one hundred 5 if they weren't found then, and they weren't part 6 percent of taking care of these individuals that 6 of what you determined and what you may have 7 are your customers that you see, we are just 7 reached an agreement with with the State, are those 8 looking at data. 8 people somehow actively now in a dormant process 9 MS. ROSEBOROUGH: So, for example, many 9 that would be turned over to the slate so we can
10 policyholders continue to hold their shares in the 10 help find them or where are those policies? There 11 trust. So just because a policyholder -- 11 seems to be a very different reconciliation of the 12 Let's say you were in life and fine and in 12 numbers. 13 contact with the company in 2000, you accepted your 13 MS. ROSEBOROUGH: We are happy to work with 14 20 shares of Metlife stock. You thought it was a 14 you to see if we can get to an understanding of 15 good investment. You held onto those shares. You 15 what the numbers are, and if there is anything else 16 might have held those shares for a time. Then 16 to be done, to try to look for those folks. 17 maybe you died or otherwise abandoned the shares, 17 CFO ATWATER: Thank you. 18 those would have been programmed for escheatment at 18 So Mr. Katz, to that point, I want to be sure 19 that time. 19 I understood something again that I overheard. 20 CFO ATWATER: Sure. I am referring to the 20 I heard you mention that, in the testimony, 21 underlying life policy itself, that is all. 21 that 2007, there was a random match made. Was that 22 MS. ROSEBOROUGH: The underlying life policy, 22 what you had said? 23 again, the shares would have gone to the holder of 23 MR. KATZ: No. 24 that policy, the owner of that policy, who may or 24 What I said, in 2007, we matched the vast 25 may not have been insured under the policy. For 25 majority of our individual life records against the
Page115 Page 1"17
1 the most part, those policies had very, very low 1 Social Security Death Index. 2 face values, often as low as 65, $75. 2 CFO ATWATER: A random? 3 CFO ATWATER: So again, the point is when we 3 MR. KATZ: I am not sure what you mean by 4 get to the bottom of the math, all I would like to 4 "random. 11
5 be sure of is if information was available to you 5 We matched the whole file with the Death 6 in an effort in 2000 to find them, and that you 6 Index. 7 have made an effort, you say externally and 7 CFO ATWATER: It wasn't random? 8 internally, to find them, that we see numbers today 8 MR. KATZ: No. 9 that we just would like to reconcile to what you 9 CFO ATWATER: I misunderstood.
10 have in yam information; that it would be, 10 So 2007 was a full match. 11 noth withstanding where some of tho sic policies, the 11 MR. KATZ: It was a full match for the systems 12 shares they may have received or the face value of 12 that we matched. 13 some of those policies, it would still seem hard 13 There were a small number of assumed blocks we 14 for me to reconcile -- that's all -- that all of 14 talked about that weren't included in that, from an 15 these individuals -- what may still be living and 15. individual life perspective. The work we'll do in H enjoying a fine life and what others are still 16 2010 will bring -- that question kicked off 2010, 17 somewhere awaiting someone to find the family. 17 that will happen the rest of this year, will bring 18 MS. ROSEBOROUGH: So I think part of that is 18 in the rest of the block. 19 you are asking are there policies out there where 19 CFO ATWATER: When did -- so, l think l heard 20 we can do more to try to find those families, find 20 that you had said that it was helpful if there had 21 beneficiaries. And we are always willing to do 21 been some dialogue going on between yourselves and 22 everything that we can do to find them. 22 the regulators to come to a conclusion that this 23 I think there has been testimony about the 23 was a good time to -- or may be the appropriate 24 family reunion program, constant outreach programs, 24 information now available, to start using this on a 25 that additional efforts that were made in 2000. We 25 regular basis.
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Public Hearing May 19, 2011
Page118
1 MR. KATZ: Yeah. We have been working with 2 Florida and a number of other regulators through 3 Unclaimed Properties, and we've had productive 4 dialogues. 5 And our objectives, as we make decisions, is 6 to the best we understand the intentions of our 7 regulators, we use that information to help guide
Metropolitan Life Insurance Company
Page 120
1 99 percent is a big number, I percent didn't. And 2 so we think, using the match as a safety net for 3 that l percent is a good idea. So that's kind of a 4 little bit ofreview on the difference of products. 5 I should also make a point on annuity 6 business, we are in contact with those customers 7 all the time.
8 us in how we do our business, absolutely compelled 8 On the life business, for many of those 9 or required to do anything. 9 policyholders, as we talked about, especially those
10 CFO ATWATER: For my benefit again, I thought 10 in premium payments status, we may not have spoken 1l. and I wanted to clarify this too. 11 to them or been in contact with them as often. 1.2 That you had been using the Death Master File 12 So the first thing is product difference. The 13 for group annuities as far back as the 1980s and 13 second is data. 14 around 2000 began using it on a monthly basis. But 14 If you look back to the '80s and '90s when we 15 the reason we were now confident to begin using the 15 were doing work on the annuity business, we had 16 tool in 2010 on the life side, the 20-year gap -- 16 Social Security numbers for our annuitants. You 17 MR. KATZ: I think it's first important -- the 17 had to because you were required to. 18 dates you got are a little bit off. So let's just 18 For life insurance at that point in time, the 19 agree I think your point is, we used it much 19 majority of our policyholders we didn't have Social 20 earlier in the arumities business than we have in 20 Security numbers on file. So attempting to do a 21 the life business. We kind of put on the record 21 match with Social Security, we didn't have Social 22 the justification, but I think that's the core of 22 Security numbers, was the problem, not as effective 23 the concept of why such a big gap, right? 23 as otherwise could be. 24
25
CFO ATWATER: Right. 24 And then the last piece of technology. If you MR. KATZ: So I think there is three things I 25 look back to our admin records then, they were very
f--~--~~~~~~~~~~~~~~~~~~~-+~~~~~~~~~~~~~~~--~~~--·-·----
Page119
1 will point to. 2 First is the differences in the policies. And 3 I think it's very important, and I talked to this, 4 that in the annuity business, you got indication of . 5 a death, you get that information. It is likely 6 that if you continue to make payments, those will 7 be errors. 8 And in many cases, those errors would put a 9 responsibility upon that family member or whoever
10 might get that check to have property that they are 11 not entitled to, and we actually have to collect 12 it. 13 So that was the rationale, and that's the same 14 rationale that the Social Security Administration, 15 amongst others, had articulated for our annuity 16 business. 1 7 So the life insurance busiaess is a business 18 where, generally speaking, the vast majority of 19 claims are submitted in a timely basis by 2 o beneficiaries. 21 And when we do -- and the study we did based 22 on the '07 match really indicated about 99 percent 23 of benefit payments would, in fact -- or were, in 24 fact, made as a result of the beneficiaries. 25 We think, based on that information, while
Page 121
1 different, especially for life insurance, than they 2 are now. So the ability to do that in a process 3 that was working most effectively we thought would 4 have less value than doing other things like I 5 described, like our campaigns. And the Family 6 Reunion Campaign found over 500,000 policyholders. 7 We had Epcot, down here in Florida, where we 8 had kiosks and we had individuals, and we found a 9 significant amount of policyholders whose
10 beneficiaries to this date are still filing claims. 11 So we felt that was a better usage. But as 12 technology matured and as our business matured, it 13 became apparent to us that we would have 14 opportunities to take that process and make it 15 better. And that's essentially what we are doing 16 by using it ot1 life insurance, which we think it's 1 7 a good idea to use it on life insurance as we 10 described. 19 CFO ATWATER: So what percentage of life 20 policies go dormat1t, as in if you cannot make the 21 connectiot1, and they fall into --22 MR. KATZ: I don't know the number. I would 23 suggest it's a small t1umber. We would get back to 24 you and get the exact number. I will ask the folks 25 at the table.
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Public Hearing May 19, 2011
Metropolitan Life Insurance Company
Page 122 Page 124
1 CFO ATWATER: It's really a pretty basic 1 MR. CASSANDRA: To be clear, what goes into 2 question, I mean, that's why we are here. What 2 the Unclaimed Fund System is not only life 3 percentage of life insurance payouts you never find 3 insurance policies, it includes other forms of 4 the person? 4 unclaimed property like uncashed checks, as we 5 MR. KATZ: We can give you some other numbers 5 discussed earlier, any retained asset accounts 6 that might be more representative. 6 where we couldn't find the account holder. 7 We paid out $11 billion in life insurance 7 CFO ATWATER: Okay. Thank you--8 claims in 2010, across products. We escheated 8 COMMISSIONER McCARTY: Okay. I recognize 9 about $51 million in funds to the different states. 9 General Counsel for the Insurance Department of
10 Now, obviously, there is different pieces in 10 Illinois, Mr. Wagner. 11 those numbers, but the amount that's escheated as a 11 MR. WAGNER: Thank you, Commissioner McCarty. 12 percent of the total is very small. 12 I have only a couple follow-up questions in the 13 To get you an exact number on how many were 13 interest of time. 14 dormant, we can get you that. But that would give 14 I did want to say that Illinois insurance 15 you an idea of what we are talking about. 15 director, Michael McRaith, asked that I express his 16 CFO ATWATER: So we don't have anyone here 16 appreciation to you, to the CFO, to the Attorney 17 today who could say over time what portions of our 17 General for your efforts today, and express his 18 life policies were -- we do not find and -- 18 support for this public discussion of these 19 MR. KATZ: I think we have given you an 19 important consumer protection questions, even 20 indication of a way to think about that. We don't 20 though those questions may be difficult or 21 have that information. We'll be happy to get that 21 contentious. Regulators have the primary 22 for you. But I think it's reasonable, the way I 22 responsibility to ask questions and to search for 23 layed it out, to think about it that way: 23 answers from our regulated industries and 24 11 billion claims paid, 51 million escheated, so 24 professions. We support and will continue to 25 it's a very small percent. 25 participate in professional, responsible, and
Page 123 Page 125
1 CFO ATWATER: Whatportionofthoselife 1 balanced examinations of insurer conduct and will 2 dollars value are in the dormancy process now? 2 coordinate· with other states for that purpose when 3 MR. KATZ: We did testify to a number. I will 3 and as needed. 4 ask my associates to -- that are in .the -- the 4 We talked a lot about the DMF today. 5 number. 5 What are the other ways the company learns 6 Frank, do you have the number? 6 about deaths? 7 MR. CASSANDRA: I am sorry, I missed that. 7 MR. KATZ: So we learn about deaths in many 8 MR. KATZ: Number of dollars unclaimed in our 8 ways. The most common way is the beneficiary would 9 unclaimed fund system. 9 tell us. Certainly, DMF isn't fail-safe, and there
10 MR. CASSANDRA: I think I testified earlier 10 are probably other examples, but from the 11 that was approximately $325 million was the balance 11 beneficiary is the most common. 12 in the unclaimed fund system that is awaiting the 12 MR. WAGNER: What are the other examples? 13 dormancy -- 13 Phone calls, letters, what? 14 CFO ATWATER: I am sorry. 14 MR. KATZ: Yeah, we may get a phone call from 15 MR. CASSANDRA: That's progressing through the 15 a beneficiary. We may get a notification from a 16 dormancy period to be escheated. 16 policyholder who's not the beneficiary or 17 CFO ATWATER: Do you have an estimate of what 17 individual that's not the beneficiary, may get a 18 you have not yet identified should be in that pool? 18 notification from a group policyholder. Those . 19 MR. CASSANDRA: I am sorry, I haven't, no. 19 are -- but it's primarily notifications from 20 MR. KATZ: I would say when we identify that a 20 others, how we get them. 21 claim or a situation should be escheated, we have 21 MR. WAGNER: If a claim is otherwise payable 22 processes to put it into the general fund system. 22 and you don't have a Social Security number, do you 23 So we shouldn't believe there is a substantive 23 still pay the claim? 24 situation where there is significant monies to be 24 MR. KATZ: Yeah, generally speaking, I would 25 escheated and haven't made it to the system. 25 say if a claim comes in and it's payable and we
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Public Hearing May 19, 2011
1 determine there is a liability, whether or not
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2 there is a Social Security number, I would think 3 the claim should be paid. I will ask my associate. 4 I don't know if there is tax consequences with 5 that in today's environment that require us -- if 6 you are getting at the question would that be a 7 reason for us not to pay a claim, I don't believe 0 that that's the case. 9 MR. CASSANDRA: I don't believe that's the
10 case either. 11 Maybe I should stand up. 12 I don't think that's the case, Mr. Wagner. I 13 don't believe that to be the case. 14 But I am not a tax expert, so the question may 15 be there may be some tax rules where you may not 16 want to do -- or you may need to get the Social 17 Security number in advance and then pay the claim. 18 I am just not quite sure. 19 MR. WAGNER: Thank you. 20 When you get a match on the DMF for an annuity 21 paid out, you stop payments, right? As of what 22 date do you stop the payments? 23 MR. KATZ: So I would presume the answer to 2 ~ that question would vary based on the specifics of 25 any given contract or the rules that govern any
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1 given jurisdiction. 2 And our intent would be to stop according to 3 what the policy form said and what the mies 4 generating the policy would be. It's not going to 5 be one standard. I can't answer. 6 MR. WAGNER: I want to make sure l understood 1 this. 8 . Did you say that when you ran the match in 9 2007, the date of death that you -- the date that
10 you used for the triggering of the dormancy period 11 was 2007, correct? 12 MR. KATZ: That's correct. 13 MR. WAGNER: Okay. June !st, 2007. You also 14 said that the earliest date, in response to the 15 Attorney General's question, I think the earliest 16 date that you found on that match was a death in 1 7 1964. Correct? 10 MR. CASSANDRA: I think we said early '60s. I 19 think I clarified that to say early '60s. 20 MR. KATZ: On that one, was there a liability? 21 I think you talked about --22 MR. CASSANDRA: Yeah, I think we could not 23 find the beneficiary. 24 MR. WAGNER: So the date of death was 1965 and 25 the date for your system that you triggered the
Metropolitan Life Insurance Con1pany
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1 dormancy period was 2007. Have I got that right? 2 MR. CASSANDRA: I can't say that, I can't 3 speak to this exact example, Mr. Wagner, because it 4 may depend on where, what state that policy was 5 issued and where the beneficiary lived at the time. 6 The dormancy period we would have calculated 7 consistent with the State, the particular State 8 rule. So I am not -- I don't have personal 9 knowledge of this particular case in order to
10 really answer your question. 11 MR. WAGNER: But you are pretty sure that the 12 oldest date was l 965, date of death, correct? 13 MR. CASSANDRA: I think that, yes, that was 14 represented to me. 15 MR. WAGNER: Right. You also testified that 16 the date that you used to trigger the dormancy 17 period is 2007. Correct? For escheat purposes? 10 MS. ROSEBOROUGH: Let me take responsibility 19 for that because I represented to the witness and I 20 believe it to be the case that --21 MR. WAGNER: Hold it. Commissioner, I wonder 22 if we could swear in --23 COMMISSIONER McCARTY: That would be fine. 24 (At this point, Ms. Roseborough was sworn 25 by the Court Reporter.)
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1 MS. MILLER: Can you include the testimony 2 you've already given, just to clean up the record? 3 MS. ROSEBOROUGH: Why don't we have a side bar 4 whether that would be -- I certainly believe 5 everything that I said previously is true and 6 accurate to the best of my ability. 7 MS. MILLER: That's fine. We just wanted that 8 acknowledgement. 9 MS. ROSEBOROUGH: And I wanted to say,
10 Mr. Cassandra is relying on information that I 11 provided to him, and I say that to you not in the 12 context of waiving a privileged communication. He 13 took -- I took that fact from others and I 14 communicated that to him. 15 He is quite right to add the caution that 16 there may have been instances where we understood 17 the law of a particular state to require a 18 different dormancy state than our system, what we 19 considered to be the appropriate date. 20 And I may have been too overly general in 21 applying that date. But that date is the date that 22 we believe at least was used most of the time to 23 trigger the dormancy periods and for the results of 24 the match that went into the escheatment system, to 25 our MUFS system. If we understood State law to
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apply or require a different date, we would have used a different date.
MR. WAGNER: So if, for example, that 1965 death is -- it still may not be escheated to the State because the five years haven't run, correct?
MR. CASSANDRA: It would depend on what state that particular policy is in.
MR. WAGNER: Either three or five years. Right. If it were for three years, then that policy would have escheated in 2010, is that correct?
MR. CASSANDRA: And it would depend on what the requirements of that particular state required for the beginning of the dormancy period.
MR. WAGNER: That's a little different? Because I thought you just said for purposes of triggering the dormancy period in the 2007 match, that you used the date of June 1, 2007. Now it
. sounds like you are saying it might be a different date depending upon a given state.
MS. ROSEBOROUGH: Again, let me take responsibility for that and say that I believe that as a general matter, the date that we used for triggering dormancy periods in the 2007 match was June 1st, 2007:
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I cannot represent and I would not want my witness to represent that we know that to be perfectly true for every state and jurisdiction that we apply in our system because the system rules are intended to try to produce the result that we believe is required by State law. And the State laws vary on what's the proper date for initiating the dormancy period.
So that's why Mr. Cassandra was quite right to correct me on the inf01mation I.got by saying that that would have been generally true, that we would apply the date that we· felt was consistent with State law, and there may have been different dates· applied for different states if we understood that a different date was required by the law of that particular state.
MR. WAGNER: So depending upon the law of the state that's applicable, this person that died in 1965, that contract may yet -- may not yet have been escheated, cotTect?
MS. ROSEBOROUGH: I don't think there has been testimony to a specific 1965 case. I think there has been a representation there were deaths identified in the 1960s that the witness believes resulted in escheatments.
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Public Hearing May 19, 2011
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So I can't represent to you today that we know exactly where any particular -- where that -- those particular cases may already been escheated, whether they are still in our system or not. It
5 would depend on what state was involved in those 6 cases and how the system applied the data it had 7 about those cases. 8 MR. WAGNER: I am not asking about a 9 particular case. I am asking about your policies
10 and procedures. 11 And the testimony we have today is that your 12 policies and procedures were first to run the DMF 13 against your book in 2007. 14 And your next policy and procedure was and is 15 that for purposes of calculating the dormancy 16 period, the date of June 1, 2007, was used? 17 MS. ROSEBOROUGH: You said "was and is." So 18 let me make a clarification. 19 Again, we were in discussions with the State 20 of Florida and with the State of Illinois to come 21 to an agreement about what date we would use on a 22 go-forward basis as initiation of the dormancy 23 period for purposes of those states. 24 And I believe in the context of those 25 discussions we made a lot of progress on an
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1 agreement and understanding in that direction, and 2 I think it would not be appropriate to breach the 3 confidentiality of the specifics of those 4 negotiations here in a public forum. 5 We, of course, are open to and would like to 6 continue those discussions with Florida and with 7 Illinois and any other state that would like to 8 talk to us about these issues. But I consider 9 those discussions to be confidential.
10 MR. WAGNER: I am not talking about any 11 negotiations, and I will not talk about anything 12 that's confidential under the laws of the state of 13 Illinois. That's not what I am asking. 14 MS. ROSEBOROUGH: I apologize. When you said 15. "was and is," I thought you were trying to speak to 16 a present state. It made me think you were 17 referring back to the negotiations. And I 18 apologize if that's not where the question was 19 gomg. 20 MR. KATZ: Maybe I can add. I think what you 21 are getting at is what is our intent here. 22 Our intent here is when we apply the Death 23 Index, we identify a death, our intent is to submit 24 claims to our Unclaimed Fund System consistent with 25 applicable laws in any given state. And I think
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Public Hearing May 19, 2011
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1 that's what you are getting at. That clearly is 2 our intent. 3 And I think what we talked about here is when 4 we did the match in 2007, that's exactly what our 5 intent was. And we spoke earlier about this 6 June !st, 2007, date, and I think what we want to 7 do here is correct our testimony to be clear that 8 to the extent that we believe the State had a 9 different requirement, it was our intent to use
10 that state. Is that where you are going? 11 MR. WAGNER: If it didn't have a different 12 requirement, then that person that died in the 13 1960s, those policy proceeds may not yet have been 14 escheated according to your policies and 15 procedures, is that correct? 16 MS. ROSEBOROUGH: Let me respond this way. 17 If we had a match in 2007 and if we used as 18 the beginning of the dormancy period 2007, and if 19 that death was reportable to a state that had a 20 three-year dormancy period, and depending on 21 whether it was a report and pay state or a report 22 and pay later state, all those things would 23 determine whether or not those funds had already 24 been escheated or not escheated. 25 So you are right, there are funds, as we said,
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Metropolitan Life Insurance Company
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1 of retained asset accounts prior to 2008? 2 MR. KATZ: Let me see ifl can give you those 3 numbers. 4 The data I have here won't be responsive to 5 the question; instead, what it will do is share by 6 year approximately how much was escheated, but it 7 doesn't go back all the way. It would give you a 8 flavor to the answer. 9 In 2005, approximately 193 million -- I am
10 going to go sequentially. 11 '06, one -- oh, I am sorry, 103,000. 12 '06, about 104,000. 13 '07, about 111,000. 14 In '08 -- I am sure these are after we did the 15 match -- about 2. 9 million. 16 In '09, 6.6 million. 17 And' 10 about 2.8 million. 18 MR. WAGNER: Thank you. 19 Commissioner, that is all I have. Thanks. 20 COMMISSIONER McCARTY: Commissioner Ham.
21 Excuse me, Commissioner Consedine. I apologize. 22 COMMISSIONER CONSEDINE: Thank you, 23 Commissioner McCarty. And again, my thanks for 24 hosting this proceeding today, and for your 25 hospitality thus far.
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1 from the 2007 match that are in the MUFS system for 1 Again in the interest of time, just a couple 2 escheatment which have not yet actually been 2 of quick questions. 3 escheated. 3 I guess one of the areas that I think troubles 4 MR. WAGNER: And some of them may be deaths 4 me is -- again, these are a hypothetical -- where· 5 that occurred iri the '80s, '70s, or '60s, is that 5 you have an insurer who has passed away and you 6 correct? 6 know now, using procedures you have going forward 7 MS. ROSEBOROUGH: I don't have knowledge of 7 from the.DMF, that the insured is deceased. 8 the monies that have not yet been escheated, what 8 And that policy has an APL provision. As part 9 death dates have been associated with those funds. 9 of the safety net that you are talking about going
10 MR. WAGNER: No one can answer that today? 10 forward, are you going. to cease from drawing down 11 MS. ROSEBOROUGH: No, we can. 11 on the policy proceeds through the APL so that you 12 MR. KATZ: We can get you that. I think 12 don't potentially end up in a situation where an 13 what -- 13 event it is exhausted after a period of time? 14 MR. WAGNER: That's fine. It really is. 14 MR. KATZ: Our intent in the '07 match and in 15 Thank you. I've probably beaten that horse way to 15 our prospective policies, we identify a match, is I 16 death. 16 to restore the policy value to the value it had on
1
1 7 COMMISSIONER McCARTY: Any forther q""stio"'? 1 7 the date of death, and then pay any required 18 MR. WAGNER: The company began its retained 10 interest from the date of death to payment as ! 19 asset account program in 1987, correct? 19 required by any state. 120 MR. KATZ: I believe it was a little bit 20 I think it gets at the issue. That's an issue ii 21 earlier than that. Let's just say the '80s. 21 that's been talked about. We think that really 22 MR. WAGNER: Right now there is 12 billion in 22 gets at what makes most sense for consumers. I 23 those accounts? 23 COMMISSIONER CONSEDINE: ""'that's,''"'"
124 MR. KATZ: Approximately. 24 going forward, not necessarily one that you applied 125 MR. WAGNER: Howmuchhasbeenescheatedout 25 retroactively? ' I
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1 MR. KATZ: It is. 2 MR. CASSANDRA: Maybe I can just add a little 3 bit. On the industrial block, I think we testified 4 earlier that as early as 1981 we waived all further 5 premium payments on the industrial block. 6 So in that block of older policies, I believe 7 there is concern that potentially, the data is not 8 perfect. We don't believe that anyone can -- no 9 policy can actually terminate in the way that would
10 concern you and the way that would concern us. 11 Second, in the 2007 match, we used a 12 historical file of all Metlife active and cancelled 13 policies against the historical Social Security 14 file. So it would have caught anyone that might 15 have -- for the blocks of business that we matched, 16 it would have caught anyone in that situation that 17 inadvertently that may have happened to. 10 And going forward as a safety net basis, our 19 programming and matches will catch those, and we 2 o think in the future, occurrence of that would be 21 very rare once our safety net is in place. 22 I think historically, we did it on the 23 industrial, we cleaned up anyone who had fallen 24 through the cracks by virtue of the '07 match. And 2 5 now going forward, the new process should keep that
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1 probability to a bare minimum. 2 COMMISSIONER CONSEDINE: Thank you. 3 I just want to make sure we are also clear on 4 when you talk about a match, especially for the 5 2007, 2010, once you are going forward, what 6 exactly do you mean in terms of do you have to have 7 a complete match off the DMF in terms of first 8 name, last name, date of birth, Social Security 9 number, or is there also a match when you have
10 three of the four or two of the four? 11 MR. CASSANDRA: Yes, we learned a lot by 12 virtue of the 2007 match. We learned a lot about 13 our administrative systems and data. We also 14 learned a lot about the capabilities of the Social 15 Security file itself. 16 We found that the highest probability occurred 1 7 essentially when you had a three-point match .. I
· 18 will define three-point match: A Social Security 19 number plus a date of birth, and in some blocks of 20 business plus or minus two years, because we may 21 have not actually had the insured's actual date of 22 birth. 23 So when we had other than that three-point 24 match -- because we did identify situations where 25 there was a single match, just the Social
Pnblic Hearing May 19, 20ll
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1 Security -- the probability of actually, that 2 actually being the person insured was very, very 3 low. 4 Out of about 39,000 hits, we only had about 5 700 where the records actually worked out in the 6 case of only a one-point match. 7 So in terms of working this forward, there was 8 a lot of learning in working with that data. And 9 the match appears to be very effective and
10 efficient when you have that three-point match. 11 COMMISSIONER CONSEDINE: so a match does
12 require that you have to have a Social Security 13 number as part of that three-point? 14 MR. CASSANDRA: I think to match against the 15 Death Master File, that's our assumption. 16 COMMISSIONER CONSEDINE: fo, mmple, wi<h <he
17 industrial policies in particular, aren't you 10 looking at situations where you have potentially a 19 large number of policyholders who may not have 20 provided that information to you?
MR. CASSANDRA: Yes, that is true. COMMISSIONER CONSEDINE: So'" that case, do
23 we then have a group that's potentially not going
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24 to benefit from the safety net procedure going 25 forward?
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1 MR. KATZ: The match or that group by 2 definition is far less effective, I think, as Frank 3 talked about. 4 When we did the three-point match, 28,000 5 records hit on the three-point match. Only about 6 18,000 of them were actually payable. So we want 7 to make sure this has value. 8 But there is many situations where you find 9 that date.is inaccurate or policy provisions
10 resulted in no liability in that situation .. 11 But I think to your point, we looked at 39,000 12 partial matches where the data wasn't complete, and 13 as it rolls off, we found 743, 743 matches. 14 So to your point, for those industrial 15 policies where we.don't have a Social Security 16 number, we don't think matching the Death Index is · 11 the best tool. 18 We think efforts like the Family Reunion 19 Program, we think efforts like address clean-ups 20 makes sense. And frankly, we have been talking 21 about other ways to get at it, whether it's website 22 enhancements or other ways to reach out and try to 23 reach out and connect with our policyholders. 24 COMMISSIONER CONSEDINE: So I am'"'''"''"'" 25 if your current operational procedures are with
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Public Hearing May 19, 2011
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1 respect to life policies, that you will only 2 trigger the dormancy when you actually have a 3 complete claim or death certificate, or in the case 4 of a safety net where you have a full match, what 5 is the procedure going to be with respect to those 6 groups where you don't have a formal claim and 7 don't have a perfect match with respect to the 8 escheating of those particular policies to the 9 State?
1 o MR. KATZ: I think our intent is whenever 11 there is a known liability and a beneficiary can't 12 be found, it's incumbent upon us to comply with 13 Unclaimed Property laws and escheat. 14 I think you are describing a challenging 15 topic, which is we have individuals on record that 16 we don't have known a liability for. 17 I think the point that I made earlier, which I 10 may not have made that well, is because they are in 19 policy status -- and I should make an important 20 point: Many of these policies, while issued to 21 policyholders a long time ago, the policy owners, 22 many situations, the policyholders are the 23 children. So we are still getting claims on a 24 regular basis on very old policies. 25 And any time that claim is submitted, we would
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1 certainly make efforts to pay the beneficiary, and 2 if they couldn't be located, escheat. 3 We also think we can come up with other ways 4 to improve upon that process. And we welcome 5 suggestions and we would be happy to have 6 discussions with regulators about ways to get 7 better there. 8 COMMISSIONER CONSEDINE: fostso l """"""'
9 with respect to that group that we are talking 1 o about right now, they aren't, then, being actively 11 escheated to the State until you come up with sort 12 of a process going forward on how to handle those 13 particular situations? 14 MR. KATZ: Once we know there is a known 15 liability and a beneficiary can't be found, then 16 they would be escheated. Obviously, that known 1 7 liability depends on the policy form and the 10 regulations of any given state. 19 MR. CASSANDRA: I would just add that of 20 course, Conunissioner, also, when those policies 21 reach the end of the mortality table. So we 22 attempt to outreach when those policyholders reach, 23 and then we would escheat. 24 MR. KATZ: There may be another point probably 25 worth making here just to give a little context
Metropolitan Life Insurance Company
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1 around these very small policies. 2 These policies, Metlife incurs an expense to 3 maintain these policies on our systems. We incur 4 and expense to the extent we decide to do efforts 5 like the Family Reunion Program. And the policies 6 I say are very, very small. 7 So we just want to make sure you know that we 8 think it is in our best interest, to the extent we 9 can come up with ways to find beneficiaries, to do
10 that. 11 And again, we welcome suggestions on how to 12 improve upon that. 13 COMMISSIONER McCARTY: Thank you. One last
14 question. Obviously, we have been putting the 15 spotlight on you here. 16 But the process we are employing here with 1 7 respect to these examinations is unique I think in 10 many respects, at least based on my experience with 19 market conduct exams. And we certainly, as 2 o regulators, want to ensure that process continues 21 to be fair, transparent, and welcome feedback from 22 the companies as we go through this process. 23 And I think today represents a good start on 24 that, on concerns or issues that you might have to 25 ensure that we end up -- we have a process in place
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1 that is fair to both sides and gives you an 2 opportunity, just as we are giving you an 3 opportunity here today, to answer questions but 4 also address any concerns you might have. 5 MR. KATZ: I think we would suggest and I 6 think it would be a great idea for regulatory 7 bodies like NA!C, industry leaders and legislators 8 to get together and talk about this. We think 9 there are opportunities to look at best practices
10 as an industry to collectively identify the best 11 ways to connect consumers with their proceeds. And 12 we welcome that discussion. · 13 We have taken many steps, as we articulated, 14 to do that, and We think as an industry --15 certainly I don't want to speak for our 16 competitors, but a Metlife, we are always looking 17 to continue to get better. I don't think we are 18 ever going to be perfect, but we also aspire to get 19 · better here and we want to work with you to make 20 that happen. 21 COMMISSIONER CONSEDINE: Th,ok ''" "~ "'"''
22 Thank you, Conunissioner. 23 COMMISSIONER McCARTY: Commissioner Ham.
24 COMMISSIONER HAM: I have a few follow-up 25 questions.
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1 Let me start with saying I appreciate very 1 2 much the work that Florida and other states have 2
3 already done on this issue as well as the questions 3 4 already asked this morning, and, quite frankly, the 4
5 testimony from Metlife. I know a lot more now than 5 6 I did at the beginning of today. So I appreciate 6 7 that. 7
8 My follow-up questions go back to the 8
9 beginning of your testimony earlier this morning. 9 10 Your testimony was that you used the DMF on group 10
11 annuities going back to the late '80s and that you 11
12 have policies and procedures in place on that block 12
13 of business. 13 14 What I didn't catch, if you testified to it, 14
15 was how long you had those policies and procedures 15 16 in place? 16
17 MR. KATZ: For specifically group annuities? 17 18 COMMISSIONER HAM: Correct. 18
19 MR."KATZ: We currently have policies and 19 20 procedures in place for group annuities. And those 20
21 procedures have been modified in different ways 21
22 over the years. I can't tell you what date they 22 23 were first set up nor can I -- 23 24 COMMISSIONER HAM: Can you give an apprnximate 24 25 date? The '80s, the '90s? 25
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1 MR. KATZ: I would say more systemic usage 1 2 occurred in the '90s, is probably the date, but I 2 3 would rather go back and get you the exact 3 4 infotmation. 4 5 COMMISSIONER HAM: If I understood your 5 6 testimony earlier this morning, you don't feel 6
7 comfortable, as well as anyone else here from 7
8 Metlife, to specifically describe those .policies 8 9 and procedures. Is that correct? 9
10 MR. KATZ: Well, I think we described them at 10 11 a fairly high level, but I think it is fairly 11
12 straightforward that in a group annuity situation, 12
13 when we identify a miltch -- I am talking about 13 14 today -- we will suspend that payment, write out to 14 15 the family and if, in fact, the family doesn't come . 15 16" back and indicate; wait a second, this person is 16 17 really alive, then that annuity payment will be 17 18 discontinued and there won't be other payments. 18 19 If there's specifics beyond that, I can try to 19 20 answer them. I just don't know what you would like 20 21 to know. 21 22 COMMISSIONER HAM: Did I understand you 22 23 correctly, you are going to provide a complete 23 24 copy -- 24 25 MR. KATZ: Yes. 25
Public Hearing May 19, 2011
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COMMISSIONER HAM: Related, if I also heard your testimony correctly, you said that you have policies and procedures in place when using the DMF for individual life insurance policies, correct?
MR. KATZ: That is correct. COMMISSIONER HAM: How long have those
policies and procedures been in place? MR. KATZ: So prior to the most recent changes
that Mr. Cassandra testified to that were really developed at the end of last year, the procedures on individual life are more ad hoc procedures based on any specific situation.
' I talked a little bit about what we did in the
early part of the last decade. I talked a little bit about 2007. So I would think of those not as specific overall business procedures, but as specific campaigns at any given point in time.
COMMISSIONER HAM: Do you have an explanation
or can you help me understand a little bit more why it appears in your company that you have had formal policies and procedures, at least on group annuities, for a longer period of time than on individual life insurance policies? -
MR. KATZ: Sure. Again, 1 think that is really the core of the substance of the issues in
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the case of the three points that we talked about here today. One is the nature of the policy.
So annuity policies, good records, and a person paying every month, an indication of death. If the person is dead, any additional payments woule be errors and the result is we would need to recapture that money.
For life insurance, the beneficiary, we· think it's important for them to understand the responsibility to know the policy and submit the claims.
We have found through the study of the data emerging out of the 2007 match that, in fact, over 99 percent of claims paid were paid as a result of beneficiaries who were submitting the claims. I think that's a real important fact here.
That being said, that I percent is important to us, it's important to-them. So we made the decision, after doing that analysis and understanding the data, that we had a useful tool that had become more useful in time as technology has improved and as more of our data was more mature, with more Social Security information on the system, and that enabled us to make decisions to use the Death Index as a catch-all, as a safety
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1 net in addition to that normal policy. 2 To go back to the '80s, what you could do 3 today with technology or even the early '90s, you 4 just couldn't do that back then. 5 I should make one other very quick point about 6 annuities. I had also talked earlier about the 7 fact that when an annuity match is captured, that 8 will share that information. 9 And I want to make sure it's clear that
10 sharing that information will vary by department 11 and by timing. I don't want to lead you to believe 12 that shares across the whole organization. 13 COMMISSIONER HAM: Then the only other couple 14 questions I have for you go back to this extensive 15 testimony that you provided already about the 2007 16 run. You know what I am talking about? 17 MR. KATZ: I do, yes. 18 COMMISSIONER HAM: I am still a little hazy as 19 to why it was specifically done then. I understood 20 your testimony about 2004, 2005 and all those 21 issues. But I am still: Why 2007? 22 MR. KATZ: First off, I say any time that 23 there is a process improvement, it's always a good 24 question to say why didn't you do it sooner? It .25 happens in our business all the time. So what
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1 happened to lead to the 2007? 2 First off, it's hard for me, because I didn't 3 make the decision based in 2007, to say what was 4 going through people's minds at that point in time. 5 What I would say is based on some limited 6 matches that were done with regulators, based on 7 internal reviews of our procedures, including with 8 our internal auditors, and looking at our business 9 practices, we believed we had an opportunity to
10 find some beneficiaries and identify policyholders 11 who may have deceased. And based on that, we 12 decided to do that. 13 I can't attest to the exact thinking in the
. 14 minds of people that were doing that, but what I 15 can attest to is sort of a sequence of events. 16 So I hope that's helpful. 17 COMMISSIONER HAM: Were there any policies 18 that were not caught as a part of that run? 19 MR. KATZ: The run was against the majority of 20 our blocks. There were a small number of acquired 21 blocks -- this is not unusual in our business --22 small number of required acquired blocks that 23 weren't part of that '07 run. 24 Again, we only ran it against blocks with a 25 Social Security number, so as I testified to, we
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1 have subsequent business without a Social Security 2 number. 3 And then in 2010, the new process which we are 4 executing in '11, those acquired blocks would be 5 part of it, they are relatively small. 6 COMMISSIONER HAM: [ ask you the same question 7 I asked on the policies and procedures. 8 Do you have any further explanation as to why 9 you have regularly been using the DMF on annuities
10 dating back to the late '80s, but the first time 11 you used on it on individual life policies is '07? 12 MR. KATZ: I won't repeat everything, but it's 13 the same three points. 14 It's the type of policy, the nature of the 15 payments of those policies. It's the evolution of 16 technology. And it's the data available; 17 specifically, the availability of Social Security 18 numbers of those policies. 19 I think -- unless you are getting at something 20 else --21 COMMISSIONER HAM: I understood that. I want 22 to make sure that's the sum total of your testimony 23 on that issue. 24 MR. KATZ: Yes. It's hard for me, again, to 25 attest, and I can't testify to all the reasons the
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1 company made any decision over the last 20 years. 2 I don't want to give anybody the impression that's 3 what I am doing today. 4 What I am trying to do is, standing here 5 today, articulate what I believe are the material 6 differences between the individual life business 7 and the annuity business to be responsive to your 8 question. And that's really the key aspects as I 9 just shared.
10 COMMISSIONER HAM: Thank you. No further 11 questions. 12 COMMISSIONER McCARTY: CommissimwM,Peak.
13 And we need to wrap this up pretty quickly. 14 COMMISSIONER McPEAK: Let me add my th'"'' for 15 the State-of Florida and NAIC for hosting this 16 important meeting, and also for your participation, 17 Metlife. 18 Most ofmy questions have already been 19 addressed by my colleagues from Illinois and 20 Pennsylvania and North Dakota. 21 But I do want- to follow up, Mr. Katz, on 22 something I think you mentioned. And that's when 23 we were talking about life insurance policies, I 24 think you said that your position is your liability 25 begins at proof of death. Is that correct? Did I
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record your comments correctly? MR. KATZ: We believe we have a liability for
a life insurance policy based on the circumstances in any given contract and in any given areas. However, in virtually all of our forrus ·· and I will ask our experts to help us ·· proof of death is a requirement for a liability.
MR. CASSANDRA: The only ·· I would just clarify that the contracts can contain conditions for proof of loss.
COMMISSIONER McPEAK: And that actually leads
me to follow-up questions. So in 2007, when you did your one-time match
and then I guess since you are going to do annual matches with the Death Master File moving forward, does that three-point match through the DMF, does that constitute proof of death on a life policy?
MR. CASSANDRA: I would like to be a little careful about the tenns that we are using here, proof of loss.
We think that entry on the Death Master File is substantial evidence that someone has passed.
Proof of loss I think is a technical terru that exists in a lot of states. I would hesitate to comment on exactly that terminology, proof of loss.
Page 155
I would ask my lawyers to talk about that if you want further infonnation.
COMMISSIONER McPEAK: Generally, if there is a
three-point match with the DMF with one of your life policy insureds, would you require a beneficiary file a proof of claim or file a death certificate?
MR. CASSANDRA: That begins the investigatory phase. As I say, the match is just the first step. And that we reach out and attempt to find the beneficiary and invite a claim on that.
COMMISSIONER McPEAK: You do, then, require a
death certificate for the life policies? MR. CASSANDRA: In most situations, yes.
There have been times in the past we decided to waive that certificate as a proof of loss.
An example might be the Massey coal accident and we waived those requirements and 911 for deaths in the World Trade Center, in order to expedite payments, we waived death certiflcates. And in certain other limited situations we may have waived that in the past, but as our general process, a death certificate is the best proof of that.
COMMISSIONER McPEAK: but then I think I remember also that you said you do not require a
Public Hearing May 19, 2011
Page 156
1 death certificate to stop the annuity payments in 2 the pay-off phases on the annuity side when there 3 is a match with the DMF. Is that also correct? 4 MR. KATZ: That is correct. However, if an 5 annuitant's family member indicates that the 6 annuitant is alive, we'll continue payments. 7 MR. CASSANDRA: I could also point out another 8 analogy to you which you may find interesting. 9 The social Security Death Master File was
10 originally developed by the Social Security 11 Administration to avoid duration pay-out errors 12 under the Social Security program itself. You may 13 also be aware that under the Social Security 14 program, death benefits may be payable to 15 beneficiaries as well. 16 When the Social Security Administration today 17 uses the Death Master File, it uses it to stop 18 annuity payments immediately. Generally, the death 19 of the annuitant is, in and of itself, enough to 20 establish the fact that payments under the contract 21 should no longer be made. 22 They do not, however, reach out to invite 23 claims for the death benefits under the Social 24 Security program. What they instruct any potential 25 beneficiary to do is to provide ·· fill out a claim
Page 157
1 forru and provide proof of loss to claim the death 2 benefits: 3 So there is a similar analogy I think to the 4 scenario that you just outHned under the Social 5 Security program, and that was the original purpose 6 and intent of the DMF. 7 MR. KATZ: I think, as Frank said, that 8 certainly is one of the key reasons why we believe 9 Social Security implemented the program they did.
10 We can't testify exactly what they were thinking, 11 but the nuance here, as Frank points out, is quite 12 consistent with some of the discussions we have 13 been having. 14 COMMISSIONER McPEAK: I appreciate your 15 response to that.. That's very helpful. 16 I think that you can still, though, draw a 17 distinction between Social Security death benefits 18 and a life policy where premiums have been paid, a 19 contract has been purchased by persons prior to 20 their death. 21 But I thank you for your comments. I don't 22 have any other questions. 23 COMMISSIONER McCARTY: Commissiooec Robiosoo
24 who promised to be brief. 25 COMMISSIONER ROBINSON: Thank you
Accurate Stenotype Reporters (39) Page 154 . Page 157
Public Hearing May 19, 2011
1 Can you hear me now?
Page 158
2 The question is that when Metlife discovers 3 incorrect annuity payments when using the Social 4 Security Death Index, do you attempt to recoup 5 incorrect payments that you made? 6 MR. KATZ: Yes, we do. Ifwe discovered we 7 overpaid on an annuity, we'll attempt to recover 8 those funds.
Metropolitan Life Insurance Company
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CERTIFICATE OF REPORTER
6 E OF FLORIDA )
7 TY OF LEON )
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Page 160
9 COMMISSIONER ROBINSON: Thatwo"ldseemtob, 10
1 o a fairly work-intensive effort, to make those 11 collections, wouldn't it?
I, SANDRA L. NARGIZ, RMR, CRR, certify that I
authorized to and did stenographically report the
12 MR. KATZ: That's right. That's really one of 13 the primary reasons why the Death Index is used to 14 cease those payments and prevent those errors. 15 It's not only work-intensive efforts for us, but in 16 some cases, it will put that family member in a 1 7 tough spot. 18 I should make a point that in many situations, 19 when an annuitant dies, we get notification from 20 the family, too. But that doesn't always happen. 21 So it's a burden on us, it's a burden on the 22 family. And so that's really the core of why we 23 have certainly used it for this business and part 24 of the same reasons why we think the same thing. 25 COMMISSIONER ROBINSON: Thank you.
Page 159
1 COMMISSIONER McCARTY: Okay. No further
2 questions from the panel. 3 At this time we want to take this opportunity 4 to very much thank you, Mr. Katz, and your team for 5 participating in our hearing today. 6 We'll be adjourning now, go off the record. 7 We'll return here in an hour and 15 minutes which 8 would put us here at 2 o'clock. 9 Thank you very much.
10 (Proceedings concluded at 12:45 p.m.) 11
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11 eedings herein, and that the transcript is a true
12 complete record of my stenographic notes.
13 I further certify that I am not a relative,
14 oyaa, attorney or counsel of any of the parties,
15 a relative or employee of any of the parties'
nor
16 rney or counsel connected with the action, nor am I
17 ncially interested in the action.
18 WITNESS my hand and official seal this 22nd
19 of May, 2011.
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SANDRA L. NARGIZ, RMR, CRR 2894 REMINGTON GREEN LANE TALLAHASSEE, FL 32308 850-878-2221
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May 19, 2011
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91:21,24 12-31 (1) 2000 (14) 68: 16 110:16 $2.7 (l) 91:20 52:9;63: l 7;66:23; 32 (4)
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08 (l) 66:5,10;79: 16;88:7; 25; 132: 13, 16; 134:4,6, 136: 16 absolutely (3) 136:14 118:13 17, 18; 135: I; 138: 11; 60s (4) 45:3;81:20; 118 :8
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Accurate Stenotype Reporters
Public Hearing May 19, 2011
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anuities (2) 59:25;63:16
anymore (3) 56:9;107:17,22
APL (2) 137:8,11
apologize (6) 28: 18;57:6;71: 15; 133: 14,18;136:21
apparent (2) 52:22;121:13
appears (2) 140:9;148:20
applicable (3) 41: 18;131: 18; 133:25
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applied (S) 64:15;111:17;131:14; 132:6;137:24
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approached (1) 105:6
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assistance (1) 122: I, 16; 123: I, 14, 17; bare (1) 108:6 6: 19 124:7 139: I beneficiaries (32)
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associated (2) auditor (1) 38: 10;4 l: l3;47:2;59: 12; 16:25;20:23;23: 10,18; 101:1;135:9 98:2 78: 11 ;81 :3,9;89: 13; 24:20;48: 19;5 l: 16;52:4;
associates (1) auditors (1) 92:4, l 1;93:2;113:7; 53:9;72:24;74: I 3;78:2, 123:4 151 :8 119:21,25; 126:24; 3,21;79:9;90: 18; l 15:2l;
Association (7) audits (1) l44:l8;l48:l l;l5l:3,5, 119:20,24;121: 10; 5:7;6: 16;7:2;94:25; 7:6 6,11;154:3 144:9; 149: 15; 151: 10; 99:2,7,14 augment (1) basic (l) 156: 15
associations (I) 79:12 122: I beneficiary (41) 99:17 aunt (l) basically (l) 14:20;20:22;23: 12;
Assume (4) 111:4 14: 15 32:11;36:6, 14,15;37:5; 72: 13;89:4;90:2;92: 17 automatic (1) basis (19) 47: l 7;48:3;60:25;73:5;
assumed (5) 21:14 19: 19;30:21;49: 14; 74: 5 ;80:7, 19;8 l: 12; 47: I 7;49:24;82:23; avail (1) 58:10,11;59:9;65:24; 84:2, 15, 17, 18 ;90:20; 83:11;117:13 13:6 66:20,23;78: l8;94:l3; 92: 18;93:4,20;96:9,10;
assuming (1) availability (1) 109:21; l l 1:2 l;l 17:25; 109:11;125:8,l l,15,16, 90:16 152:17 118: l4; 119: 19; 132:22; I 7;127:23; 128:5;
assumption (2) available (15) 138: 18; 142:24 142: 11; 143: 1, 15; 149:8; 107:11;140:15 8: 11; 18 :5,7;24: 18; Beal (l) 155:6,11;156:25
assurance (I) 30:17;3 l:8;36'1;94:8, 6:19 benefit (13) 83:3 11;95:2; 112: 11; 113:8; beaten (I) 13: I ;35: 1 ;48 :4,6;
assure (2) 115:5; 117:24;152: 16 135: 15 60: 19,24;72: l,7;84: 16; 32:4;87:12 · average (2) became (3) 93: l 7;118: 10; 119:23;
attempt (10) 92:23;94:8 30: l 7;52:21; [21: [3 140:24 24:2;47: 18 ;79:8; avoid (l) become (4) benefits (19) 82:20;84: 15;9 5:21; 156: 11 16:4;17:[9;24:l; 9: 10; 10: 12; 14:22; 143:22; 155: 10; 158:4,7 awaiting (4) [49:21 15: 10, l 4, 16,23; 16:23;
attempted (2) 113:4,6;115:17; began (11) 19:25;20: l 7;22: l 0;23: 5;
Accurate Stenotype Reporters
Public Hearing May 19, 2011
35: l 3;76:21 ;78:3; 156: 14,23; 157:2,17
best (25) 16:6; l 7:6;32:18; 40: 13;4 l :10,13;42: 16; 48:11;50:22;55:12; 58:20;62:21;74:20;77:8; 80: 10;99: 16;100: 14; 106:3; 118:6;129:6; 141: l 7;144:8;145:9, 1 O; 155:23
better (7) 41 :7;75:23;121: 11, 15; 143:7;145:17,19
beyond (1) 147:19
BFY (1) 93:9
big (3) 49:23;118:23;120: I
billion (8) 23: 14;53:6;91:21,23, 24; 122:7,24; 135:22
billions (1) 8:9
bills (I) 56:23
birth (5) 50:11,13;139:8,19,22
bit (16) 31: 17;40: 15;50:7 ,25; 59:6;64:4;94:4;96: 13; 103:1;118:18;120:4; 135:20; 138:3;148: 13,15, 19
Blank (1) 27:22
block (9) 50:6,21 ;82: 19;88:5; 117: 18; l 38:3,5,6; 146: 12
blocks (14) 54:2,8;58:25;59:3; 82:22;83: 11 ;117: 13; 138: 15;139: 19; 151 :20, 21,22,24;152:4
Bloomberg (l) 23: 14
bodies (1) .145:7
Bondi (1) 10:25
Bondi's (1) 6:5
book (1) 132:13
books (3) 15:15;17:3;108:25
both (3) 6:7;14:11;145:l
bottom (2) 113:25;115:4
bought (2) 22: 19;23:3
(3) arguing - bought
'"""-""''''"'-·--=~,-·,·,,e,, __ '''''"'~=··~·~"-'"~'·~'·~=~----·--·,,"~''-~',,,=='=========·=·····-'--"'-•-Metropolitan Life Insurance Company Public Hearing
May 19, 2011
bounced (1) calcnlations (1) 20;131:22;132:9;140:6, certainty (2) 60: 18 103:21 42:1 22;142:3;149:1 42:1;80:18 circumstances (2)
breach (1) call (8) cases (10) certificate (14) 44:4;154:3 133:2 5:8; 17:21 ;20:7,23; 34:22,23,25;50: 17; 18: I ;20:2,6,17,21; citizens ( 4)
break (4) 25: 19;49: 12;97: 15; 76:10;119:8; 132:3,6,7; 3 5:5 ;60: 14, 18; 142:3; 10: 12;1 l:9, l 1;12:16 25:4,8, 10, 12 125: 14 158:16 155:7, 13, 16,23; 156: I civil (1)
breakdown (1) called (5) cash (11) certificates (1) 11 :7 84:6 41 :3,9;51 :7;97: 11; 20: 11, 12;21:4,7, 16; 155:20 claim (44)
breech (1) 108:5 10 I :2; 104:4, 11, 18,20; certified (1) 6:8;16:21 ;17:25;20:3, 28:7 calls (2) 111:12 20:2 3,4,6,7,21,25;21 :2, 10;
brief (4) 85:2; 125: 13 Cassandra (88) cetera (1) 22:2,5;44:2;46: I 0;49:7; 10:4;25:4,8;157:24 came (3) 26:1,11;37:21,25; 17:8 60:24;61:1 ;73 :6, 13;
briefly (1) 13: 19;45:20;77: 17 38:13,20;40: 14;41 :3,9, CFO (SS) 7 4:4;7 5:8;77:6;78 :2; 27:2 campaign (2) 25;42:9,15,22;45: 18; 6:7; 10:3,15;99:22,23; 80:8;81:7;85:8;86: 11;
bring (2) 51:7;121:6 54:7;57:21 ;58: 17,24; 100:6, 17;10 l :4,6,12,20; 93: l 8;123 :21 ;125:21,23, 117:16,17 campaigns (3) 60: 17;6 l :9, 16,19;62:3,8, 102: 1,4,18,24;103: 17; 25;126:3,7,17; 142:3,6,
broad (2) 88:3;121 :5; 148: 17 l 4;63:9, 12;70: 19;7 l: 13, 105:3,18,23;106:7, 14, 25; 155:6,11;156:25; 44:10;65:25 can (118) 17;77: 10;79:6, 17,20; l 7;107:2,6,23;108: 11, 157:1
Building (1) 5:21;9: 18;12:8;14:7; 82:8;83: l 3,22;84:8,23; 20;109:20;110:22; claims (39) 5:12 15: 14,15; 17: 11; 18:3,23, 86: l,7;87:21;89:21,24; 112:1,13,16,18,23; 7:4,8,24;9: 19;12: I;
built (1) 24,25; 19:2,3,4,14;20: 18; 90:6, 19;91 :2,20,23,25; 113: 12,23; 114:4,20; 14:4; 15:4,9,10,13; 16:25; 83:5 25:21 ;26:7;29:25;30:2, 93:2,11,15;94:5,20; 115:3;116:3,17;1 l 7:2,7, 31 :20;52:8;53 :3,6,8;
built-up (1) 15 ;33 :7;34:3 ,5;37:8,8; I 01: 11,14,25; I 02:2,5, 9,19;118: 10,24;121 :19; 71 :20;73:2,4,9, l 9;76:8, 21:4 39:9, 1, 1 ;40:9;4 l :7;43: 1, 23;103: 12; 109:22; 122: I, 16; 123: I, 14, 17; 20,20;78: 12,24;79: 16;
bunch (1) 20,24;44:5, 12, 19,25; 123:7, I 0,15, 19; 124: I; 124:7,16 81 :3;84:7; 119: 19; 88:15 45: 19;48: 11;50:9,10; 126:9;127: 18,22; 128:2, CFO's (1) 121: 10;122:8,24;
burden (2) 51 :20;54: 18;55: 12; 13; 129: 10; 130 :6,12; 10:11 133:24;142:23; 149: 11, 158:21,21 57:21,23;58:4, l 9;60:25; 131:9; 138:2; 139: 11; challenge (1) 14,15;156:23
Bureau (1) 61: I, 16,21,25;62:4, 18, 140: 14,21; 143: 19; 50:25 clarification (5) 39:3 24;64:5;71: l 1;72:6; 148:9; 154:8, 18; 155:8, challenging (1) 63: 14;70: 14,22;81: I;
business (81) 74: 1,5,13,18,21 ;77: 1,7; 14;156:7 142: 14 132:18 11: IO; 12: I 0, 13 ;29: 19; 83:3;84:15,20;85:18; catch (4) change (4) clarified (1) 30: 10;31:2,3,4,5,19; 87: 12;88:20;90:6,24; 83: I ;99:24; 13 8: 19; 34:24;52:14;73: 15; 127:19 32:1;33:18;43: 15;47:21, 91 :2,4;94:3;95: 14;97:2; 146: 14 85:22 clarify (13) 22,25 ;48 :2;4 9: 2,4, 20,20, 99: 13, l 7; I 00: 13,14, 15; catch-all (1) changed (1) 7:20;32:6;55:25; 22;50: l,2;52:2;53: 10, 102: 16; I 08: 14, l 9; 149:25 55:2 65:11,20;67:3,5;71:3; 24;54:2,4,5,8 ;55:6; 109: 17;110: I ;112: 11; caught (6) changes (5) 88: 19;110:23;11 l: 10; 58: 18;59:2,3 ;60:5,5; 113: 1 O; 115:20,22;116,:l, 59:20;81 :9 ;83 :4; 42: 19;43:3, 18;98: 15; '118:11;154:9 64: 11;67:25;68:2;69:3; 3,9, 14; 122:5,14;129: I; 138:14,16;151:18 148:8 clarity (1) 70:21,24;71: 19;72:22, 133:20;135: 10,11,12; caused (1) Channel (2) 47:18 23;73: 11,14, 16;77: 12, 136:2; 138:2,8,9; 143 :3; 113:22 6:22;65:16 class (1) 13;82:23;83: 11;85:11; 144:9; 146:23,24; caution (1) characterize (1) 104:6 86:2,9;92: 13; 104:2; 14 7: 19; 148: 19; 151: 15; 129:15 108: 18 classes (1) 105: 18; 118:8,20,21; · 154:9;157:16;158:1 caveat (1) charged (1) 102:8 119:4,16,17,17; 120:6,8, cancelled (3) 70:2 . 11:6 clean (1) 15;121: 12;13 8: 15; 67: 13 ;83 :9; 138: 12 cease (2) chart (1) 129:2 139:20;146: 13; 148: 16; cancer (2) 137: 10;158: 14 62:19 cleaned (1) 150:25;!51:8,21;152:l; . 79:22;87:24 Center (1) check (10) 138:23 153:6,7;158:23 candid (1) 155:19 23: 12;32: 1 ;39:11; clean-ups (1)
businesses (5) 12:4 centralized (1) 71: 11 ;74: I 0;92:9; 101 :8; 141:19 29: 1,18;43:6;44: 11; capabilities (1) 30:9 103:5,21;119:10 clear (7) 49:24 139:14 certain (9) checks (6) 9: 12;58:24;64: 16;
busy (1) captured (1) 45: 13;64: 12;7 l: 19; 38:24;56: 1 ;59:8; 124: I ;134:7; 139:3; 5:24 150:7 84: I ;92:3,8; l00:24; 95: 14;96: 19;124:4 150:9
buy (2) care (4) 104:16;155:2 l Chief (4) clearly (1) 18:23,24 71 :20;97: 19; 113:3; certainly (24) 6:1,17,18;10:8 134: I
114:6 10: 16;34:4,5;37:9; child (1) client (1) c careful (3) 38:22;39: l L ;40:9;43:24; 11 l :4 27:24
57: I ;76:6;154: 19 44:20;54: L 9;56: l 6;58:4; children (2) clients (2) calculated (2) case (19) 62:24;7 l: 11 ;73 :24;77: l; 8:17;142:23 52:11,16
21:25;128:6 16:8;62:8;63: 11; 98:21; 125:9; 129:4; chunk (1) clock (3) calculating (1) 89:20;97: 14; 104:3,22; 143: 1;144: 19; 145:15; 49:23 47:16;48:7,13
132: 15 126: 8, l 0, 12, 13; 128 :9, 157:8; 158:23 circumstance (1) close (2)
Accurate Stenotype Reporters ( 4) bounced - close
'""-----~-------,,~--~"-·'~ ----- --'~--=-===-=-~-· -•·, ---~~---~-=~==----~~-=-~-~-·--~=,=-----·--· -~-~--''"' - -, -· - --Metropolitan Life Insurance Company
20:4;93:l 91 :7 ,8, 13, 16,22,24;92: l, 98:23;99:3;145: 16 18: 11 closed (2) 6,16,23;93:6,11,13,16, complete (8) conjunction (1)
93:4;96:19 23;94: 17,21;95:3,2 l; 12:4;13:8;33:8; 5:7
( closely (1) 96:21;97:4, 18,24;98:9, 102: 17; 139:7; 141: 12; connect (4)
45: 13 l 1;99:22,23; 124:8,11; 142:3;147:23 51:8,16;141:23; coal (1) 128:21,23; 135: 17; completed (1) 145:11
155:17 136: 19,20,20,21,22,23; 20:3 connected (2) colleagues (2) 137:23; 139:2; 140: 11,16, completely (1) 52:7; 109:23
49:15;153:19 22; 14 l:24;143:8,20; 42:22 Connecticut (1) collect (4) 144: 13; 145:21,22,23,23, completeness (2) 16:8
51 :2; 107:20; 108:8; 24; 146: 18,24; 147:5,22; 30: 1 ;35:20 connection (5) 119: 11 148: 1,6, l 8; 150: 13, 18; complex (2) 18:1;52:9;61:21;
collected (1) 151: l 7;152:6,21 ;153: 10, 29: 16;53:25 103:22;121:21 108:4 12, 12, 14; 154: l l; l 55:3, compliance (3) Connors (22)
collecting (3) 12,24; 157: 14,23,23,25; 14:6;43: 19;44:7 10:20,21,22,23; 13: l l; 56: 10;61:5; 107: 19 158:9,25;159:l complicated (2) 51:21 ;83: l 7;84:5,20,24;
collections (1) Commissioners (5) 80:2,17 85: 12,21;86:6;87:5; 158:11 5:8;6: 11,17;7:2;9:8 complications (1) 88: 13;98: 11,20,25;99:6,
collective (1) common (2) 70:6 10,13,21 13:4 125:8,11 comply (1) Consedine (10)
collectively (1) communicated (1) 142:12 136:21,22; 137:23; 145:10 129:14 complying (2) 139:2;140:11,16,22;
collies (1) communication (1) 15:22;42:20 141 :24; 143:8; 145 :21 66: 15 129:12 comprehensive (6) consequences (1)
color (1) communities (1) l l:5;36:24;62: 19,24; 126:4 35:8 108:7 67:11;69:3 consider (6)
comfortable (2) companies (41) comptroller (1) 34: 14;55: 14;83:6; 25:10;147:7 5:21 ;7:8,12;8:2,8,22; 98:2 98:22,23;133:8
coming (4) 9:23;11 :23; 12: 10, 12, 19; concept (1) considered (1) 9:23;4 l:6;43:3;113:9 13:3; 15:8, 12,21; 16:21; 118:23 129: 19
commence (1) 17 :2,9, 13, l 9 ,25; 18 :21, concern (9) consistent (6) _ 25:4 25; 19:3,10;20:8, 16,19; 59:6;74:24;80:3 ;83 :6, 69: 18;72:2;128:7;
commenced (1) 21 :4;22:22;23 :2, 15, 16, 7;88: 18; 138:7, 10, 10 131: 12; 133:24; 157: 12 83:16 17,21,24;24: 11,15,24; concerned (1) consistently (1)
comment (2) 25:2;144:22 10: 11 74:6 10:4;154:25 companies' (1) concerning (1) consolidated (1)
commented (1) 12:4 6:8 30:6 14:22 company (38) concerns (3) constant (1)
comments ( 4) 14: 19,19; 16: 18; 19: 10, 13:4; 144:24; 145:4 115:24 5: 16,21;154: I; 157:21 22;20: 15;2 l: 14;22:9, 12; concluded (1) constitute (1)
commercially (1) 25:23;26:4;29:2l;36:l l, 159: IO 154:17 30:17 24;39:6;44:4, 10;53: 5; conclusion (8) consultant (1)
Commission (1) 66:8, 12;70:5;7 l:23; 6:25;24: 14;69: 15; 26:21 65: 15 79: 14;80: l 7;85:6;96: 15; 85:3,10; 107:9; 110: 12; consumer (2)
COMMISSIONER (180) 98: 18;99:8; 100: 19, 19, 117:22 21:19;124:19 5:2,3;10:5,14; 11: 1,19, 20,21; 108:1 ;114: 13; conclusions (1) consumers (4) 21; 13:9,10,18;24:22; 125 :5; 135: 18; 148 :20; 110:9 9: 11 ;22: 19; 137:22; 25: 14;26: 15;27: 1;28: 15, 153: I conditions (1) 145:11 17,20;29:4,9;30:11,19; company-owned (3) 154:9 contact (9) 31:11;32: 13,20,22;33:2, 17:7;19:7,9 conduct (5) 24:2;34: 19;46: 18; 5,10,14,23;34:7,11;35:4, company's (1) 7: 18;28:5,8; 125: I; 47: l6;5 l:l;95:8;114:l3; 12,17;41:5;45:22;51: 18; 79:2 144: 19 120:6,ll 53: 13,18;54: 11, 14,20, comparison (2) conducting (2) contain (1) 23;55:17,22;56: 10,15; 22:6;67:8 5:l 1;15:ll 154:9 57 :5, 11, l 4;58: 1,6,9, 13; comparisons (1) confident (1) contained (4) 60:8, 13, l 6;61: 11, 17 ,25; 19: 14 118:15 18:4;27: 18;28:22; 62:5, l l ;63: 1,5, 10, 13,2 l; compelled (1) confidential (3) 40:24 64:2,8,13,21;65: 1,4, 10, 118:8 97:23;133:9,12 containing (1) l 8;66:2,8, 12, l 8;67:7, 15; competitive (1) confidentiality (2) 29:5 69:21;70:9, 13;7 l: 14; 93:24 28:8; 133:3 contentious (1) 75: 12;76: 18,24;79:4,10, competitor (1) confirm (1) 124:21 l 9;81: 13;82:2,7, 16; 98: 14 105: 14 context (8) 89: 18,23;90:2,l l,24; competitors (3) Congressional (1) 45: 12;5 l: 15;55: 15;
Accurate Stenotype Reporters
Public Hearing May 19, 2011
60:21 ;98:22; 129: 12; 132:24;143:25
continue (10) 15: 17;56: 17,22;62:2 l; 114:10;119:6;124:24; 133:6;145: 17; 156:6
continued (1) 32:7
continues (3) l l:5;20:11;144:20
continuing (1) 72:19
contract (8) 12: l 8;16:2,16; 126:25; 131: 19; 154:4; 156:20; 157: 19
contracts (2) 17:14;154:9
contractual (2) 12:14;40:24
control (2) 31 :5;95: 12
controls (1) 17:9
convenient (1) 71:16
conversation (2) 8: 16;109:24
conversing (1) 112:24
conversion (1) 100: 19
convert (1) 50:21
converted (1) 109:7
cooperate (1) 28:13
cooperation (1) 5:6
cooperative (1) 12:24
coordinate (1) 125:2
copies (1) 44:20
copy (1) 147:24
core (4) 72:8;118:22;148:25; 158:22
corporate (1) 23:22
corporate-owned (5) 61: 13, 15,20;62:2;63:2
corporation (1) 32: 14
correctly (4) 28: 19; 147:23; 148:2; 154:1
Counsel (7) 10:3;13: 13;26:2,4,9; 28:3;124:9
(5) closed - Counsel
/ \
Metropolitan Life Insurance Company
country (4) 84:2;89:25; 121 :10; 30:7;49:7,7 ,9;68: 12; depart (1) 6: !2;45:8;96: 16; 126:22; 127:9,9,14, 16, 125:6,7; 131 :23; 135 :4; 25:13 107:15 24,25; 128: 12, 12, 16; 155:18 Department (10)
couple (8) 129: 19,21,21,21; 130: I, debate (1) 10:7;11:18;39:2,3; 39:5;70:25;95 :7; 2, 18,20,23; 13 l :7, 12, 15; 72:20 42:23;45: 14;98: I; 98: 12;99: 17; 124: 12; 132: 16,21; 134:6;137: 17, debit (1) 101: 17; 124:9;150: 10 137:1;150:13 18; 139:8, 19,21; 141 :9; 108:5 departments (3)
couple-minute (1) 146:22,25;147:2 decade (2) 29:11,17;43:16 25:12 dated (1) 64:7; 148: 14 depend (4)
course (7) 106:20 decades (1) 128 :4; 130:6, 12; 132:5 20: 10;73:5;74:25; dates (8) 11: 13 depending (4) 78: 13;80: 16;133:5; 19:6;53:20;55: 14; deceased (15) 92:20;130:20;13 l: 17; 143:20 65:5;70: 16; 118: 18; 15: 13;17:4; 19: 15; 134:20
Court (3) 131:13;135:9 21 :2, 13 ;23 :3,5;24: 19; depends (1) 16:8;26: 12; 128:25 date-type (1) 30:20;96:7; l06:5; 143:17
coverage (2) 82:25 l07: 13; 110: IO; 137 :7; deposits (1) 94:25;95:2 dating (1) 151:11 95:13
covered (3) 152:10 decedent (2) Deputy (5) 19: 12;94:22,24 dead (18) 17:22;18:3 10:21,23; 13: 10;26:2;
covering (1) 18: 14,18;32:9;35:9; December (2) 51:18 7: 19 36:5;47: 14;48: 1,5,7; 61:8;86:5 derived (1)
cracks (2) 56: 16,21 ;68:8;69: 5, 11; decide (2) 18:4 80:21;138:24 75:4;77:5; 109:2; 149:5 23:18;144:4 describe (2)
creates (1) deal (2) decided (3) 23:17;147:8 50:25 78:7;96:18 87:3; 151: 12;155: 15 described (11)
crossing (1) Death (190) decision (16) 27:2;29:8;36:3 ;52:25; 110:21 7: 14;8:2,4;9: 10; 12:23; 12:9;50:20;52:24; 60: 12;64:4;85: 14; 109:3;
curious (2) 14:5; 15: 14,23; 16: 16,22; 67:24;77: 18;86:3,6; 121 :5,18; 147: 10 106:18;141:24 17:19,20; 18: 1,6,7,8,12, 87:5, 15, 17;98: 18; describing (4)
current (2) 16,21; 19:3,6,7, 18,23,24, 100:23; 107 :25; 149: 19; 55:9;73:22;85: 15; 67:15;141:25 24,25;20:2,6,9, 15, 16, 17, 151:3;153:l 142:14
currently (7) 21,24;21: 13,21;22:6,7; decisions (3) deserves (1) 8: 19;34:9;58: 15;63:2; 23: 19;27: 16,19;28:23, 9: 16;118:5;149:24 46:21 69:24;94:8; 146: 19 25;29:5,9, 13, 13;30: 12, dedicated (1) designed (4)
customers (7) . 16,20,25;3 l: 14,25 ;32:2, 9:9 41: 14;42:2,10;80: I 17:3;24: 19;28:10; 5, 17,24;33: 16, l 7;34: 15; deemed (1) desire (1) 30:21;5 l:2;! 14:7;120:6 35: 1,4, 13,13, 14,18;37:3; 16: 17 87:1
cut (2) 38:5;46:2,3, 15,24;4 7:8, default (6) desires (1) 74'10;95: 14 . 13, 18, 19,23;48: 16;49:2, 23: 16;92:2,4, 10, 10, 17 86:11
3;50:4;52:2, 19;53 :6, 15; defer (2) detail (4) D 54: 16,24;56:21;57:8; 42:25;57: 18 62:22;84:9,10,11
58:3;60: 14, 18, 19,23; deferred (3) detailed (3) Dakota (1) 61: 12,24;62: l ,7;63:6, 17, 55:20,23;59: 10 30:2;57:2; 100: 15
153:20 23;64:3,23;65: 13,22; define (3) details (2) data (21) 66:5,9,14,19;67: 17; .l 04:25; 106: 19; 139: 18 28:4;34:6
19:2;30:6;3 l :9;52:20; 68:19,24;69:22;70:11; defined (3) determinations (1) 82:20;86:24; 103: 16; 71:9,19;72: l, 15,17;73:7, 89:25;101:15;102: 13 98: 15 105:9;114:2,8;120:13; 10;74:7,7,8,18;75: 16,24; definitely (4) determine (10) 132:6; 136:4; 138:7; 76: 1,8, 13, 14;77:4,13; 10:11 ;33: 13;62: 16; 24:5;36:8,24;37:3,11; 139: 13; 140:8; 141: 12; 79: 15,24;8 l :4, 10, 14; 83:6 68: l 9;95:4;96:23; 126: l; 149: 12,20,22; 152:16 82: 1;83 :23,24;96: 5,22; definition (2) 134:23
databases (4) 97:5,l l,16;109:12,13; 32:8;141:2 determined (3) 18:5;27: 15;29:7; 117: 1,5; 118: 12; 119:5; definitively (1) 35:24;102:12;116:6 105:10 127:9,16,24; 128: 12; 56:18 developed (5)
date (76) 130:4; 133:22,23; demonstrated (1) 58:7;101:16,16; 5:10;17:14;28:13; 134: 19; 135:9, 16; 137: 17, 13:2 148:10;156:10 42: 13, l 7;43:9, 11 ;46:2,2, 18;140:15;141:16; demutualiza lion (17) developing (1) 8,22,24,24;47:7 ;49: 15, 142:3; 149 :4,25; 15 3 :25; 52: 10; 100:3, 12,18; 7:16 18;50:11,12;54:6;57:l l, 154:6, 15, 17,21; 155:6, 101: I, 15; 102:6,7 ,22; device (1) 20;58:6;6 l :25;62:4; 13,20,23; 156: l,9, 14, 17, 104: 1,7; 105:7; l lO: 15, 21:20 65:3;68: 16, 18,20,24,24; 18,23; 157: l, 17,20; 25;112: 10; l 13:2, 13 dialogue (2) 69: 17, 17;70: 18;76: 12, 158:4,13 denying (1) 73:25;117:21 14;8 l :4, 10,25;83: 14; deaths (10) 15:10 dialogues (1)
Accurate Stenotype Reporters
118:4 died (26)
Public Hearing May 19, 2011
15 :20;16: 19,23; 18 :9, 17;19: 12;21 :6,23;22: 10; 24:6;38:6;46: 14;4 7:9; 48: 18;60: 1;68: l 8;69:5, 9 ;74:9;79:1;81 :5;82:13; 88: 16;114:17; 131: 18; 134: 12
dies (3) 21 :9;22:4;158: 19
difference (2) 120:4,12
differences (2) 119:2;153:6
different (55) 14: 14; 15:6;18:22; 19:2;23:8;29: 17,18, 18, 19;3 l: 1,1, l 2;38:9;43: 14, 16;44:4,5,11;47:24;54:2, 2,3 ;60:20;70:7;71 :4; 82:9;85:16;87: 10;89: 12, 25;92:21;97: I 0,12; I 02:8,9;105: 10;107: 15, 20;1 l l: l,9;116: 11; 121: 1;122:9,l O; 129: 18; 130: 1,2,15,19; 131: 13, 14,15;134:9,11; 146:21
differently (1) 23:8
difficult (5) 15: 1 ;29:20;30: 14; 54:4;124:20
diligence (2) 12: 14,20
dimeusionallize (1) 94:3
diminished (1) 81:17
dining (1) 107:24
direction (1) 133:1
directly (6) 27: l 9;28:23;29:6; 30: 13;4 l: 11;99: 19
director (1) 124:15
disability (1) 71:20
disclaimer (1) 55:13
discontinued (1) 147:18
discovered (2) 53:2;!58:6
discovers (1) 158:2
discuss (3) 24: ! 5;27:25;28:3
discussed (5) 27:6;62: 18;7 l :8; 107:24; 124:5
(6) country - discussed
so,e,,_,,,·.·.,··-·~~=-=""-'· ~-- ,_-_--, ,, .. -... ,,,,,~=-·'==~=,~'"='"=J-~=~-'=-··· •~--~
{ '( __
Metropolitan Life Insurance Company
discussion (7) 66:3;116:3;121:7; effect (1) 11:8;12:7 -8: 15;46:22;87: 18; 137:10 76:25 engaging (2) 99: l,2;124: 18; 145:12 Dr (1) effective (7) 7:17;8:14
discussions (8) 6:18 50:5;52:6;77: 14;88:8; enhancements(!) 10: 10;87:11; 132: 19, drain (1) 120:22; 140:9; 141:2 141:22 25;133:6,9;143 :6; 20:8 effectively (1) enjoying (1) 157:12 drained (1) 121 :3 115:16
disparate (1) 21:8 efficient (2) enlighten(!) 60:3 draw (3) 86:15;140:10 100:3
disseminated(!) 110:9,11 ;157: 16 effort (5) enlightened (1) 44:17 drawing (1) 83:4;103:20;115:6,7; 103: 19
distinction (3) 137:10 158:10 enough (2) 47:20;77:21; 157: 17 drawn (1) efforts (11) 79:2;156:19
distributed (2) 87:6 51:6;74:20;105:6; ensure (7) 38:2;103:15 driven (2) 106:3; 115:25; 124: 17; 8:22;9: l; l l:8;23:25;
distribution (2) 3 l:7;46: 12 14 l: 18, 19; 14 3: l; 144:4; 42:20;144:20,25 100:20,24 driver (1) 158:15 ensuring (2)
diverse (1) 98:24 either (8) 9:9;43: 10 64:17 due (19) l 8:23;27: 19;29:6; enter (2)
division (2) 10: 13; 12: 13,20; 16: I, 30:12;92:11;109:11; 12: 18;90:20 22:14;76:19 4,18;21:l 1;24:20;35:13; 126: 10;130:8 entered ( 4)
divisions (1) 36: 15,25;37:4;39:7; elaborate (1) 84:3 ;97: l,8;107:25 17:15 48:4,6;72:7;97:7; 97: 19 entire (3)
DMF(l3) 103:10;109:8 elderly (1) 50:20;82: 19;86:2 125:4,9;126:20; duration (6) 11: 12 entitled (3) 132: 12;137:7; 139:7; 31:6,23;32:9;38:2; election (4) 105: I ;110:24;119: 11 146:10;148:3; 152:9; 89:12;156:ll 92:11,14,19;93:21 entry (1) 154: 16; 155:4; 156:3; durations (1) electronic (1) 154:21 157:6 89:14 52:14 envelope (1)
dollar (3) during (3) electronics (!) 101 :22 53:9;61:7;90:25 6:2; 10: 15;90: 16 109:24 environment (2)
dollars (6) duty (3) element (1) 94:16;126:5 8: 10,10;68: 13; 106:25; 84:21,25;85:7 87:3 Epcot (1) 123:2,8 dynamic (1) else (3) 121 :7
domain (1) 73: 15 116:15;147:7;152:20 equity (1) 8:12 ~- e-mail (2) 102:11
domiciled (I) E 5:17,19 equivalent (1) 101:18 emerge (1) 10 I :2
done (18) earlier (21) 36:l l error (1) 23:4;34:5,6,17;38: 12; 44:9;54: 1;55:6;68: l l; emerging (1) 34: 19 53: 19;68:23;7 l :2;74:6, 69: 9; 72: 24;73: 3 ;8 3: 24; 149: 13 errors (8) 14;!05: 13,15; I 06:9; 86: 16;109:7; l l l: 18; emphasize (1) 18: 15;3 l:24;32:9; 111:23;116: 16; 146:3; 118:20; 123: lO; 124:5; 9:24 119:7,8;149:6;156:l l; 150:19;151:6 134:5;135:2 l; 138:4; employee (I) 158: 14
door (6) 142: 17; 146:9;147:6; 61:22 escheat ·(11) 22: 18, 18; I 07: 18, 18; 150:6 employees(!) 37: 1;45:7;49:15;61:8; I 08:8,8 earliest (4) 19: 11 84: 18;104:18;111:18;
doo.r-to-door (2) 83:22,23;127: 14, 15 employer (2) 128: 17; 142: l 3;143:2,23 107:22,23 early (15) 61:22;70:6 escheated (33)
dormancy (34) 50:20;51:6,11;64:6; employing (1) 20: 1;37: 15,17;39: 18; 21 :24;22: I ;38:4,7; 65: 12,21;66:23;84: l; 144:16 45: l 0;89:9, 11,13;96: 14; 41 :18,21 ;46:23 ;48:22; 88: 12; 104: 18; 127: 18, enable (1) l09:3,l8;lll:l9;l l3:20, 49: 18;68: 19;69: 10,18; 19; 138:4; l 48: 14; 150:3 52:23 22; 122:8,11,24;123: 16, 88:23;89:25 ;90 :5, 15; earned (2) enabled (1) 21,25; 130:4, 10; 13 l :20; 123:2,13,16; 127: 10; 59: 13;95: 15 149:24 132:3; 134: 14,24,24; 128: 1,6, 16; 129: 18,23; easier(!) encouraged(!) 135 :3,8,25; l 36:6; 130:14,17,24;131:8; 48:24 8: 16 143:11,16 132:15,22;134: 18,20; easy(!) end (6) escheating (1) 142:2 86: 19 37:21;85:25; 137: 12; 142:8
dormant (4) educate (1) 143:2 l; 144:25; 148: 10 escheatment (5) 17: 10;116:8; 121 :20; 100:2 ended (1) 104:3; l l l: 12;114: 18; 122: 14 educated (2) 79:23 129:24;135:2
down (4) 8:5;103:19 enforcement (2) escheatments (1)
Accurate Stenotype Reporters
131 :25
Public Hearing May 19, 2011
especially ( 4) 6:21 ;120:9;12 l: I; 139:4
essence (1) 104:18
Essentially (5) 36:23;9 l: 1;100:22; 121:15;139:17
establish (5) 69:9;70: 10,19;79:2; 156:20
established (4) 16:8,9;65:2;70: 17
estimate (2) 15:2;123:17
estimates (1) 23:13
et (1) 17:8
evaluate (1) 14:2
even (7) 16: 14;52: 13;74:9; 99: 19;107: 17; 124: 19; 150:3
event (3) 75: 14; 104:3;137: 13
events(!) 151:15
eventually (1) I 09: 10
everybody (2) 110:1;113:13
everyone (2) 13:19;25:14
evidence (2) 48:17;154:22
evidentiary (1) 9:15
evolution (!) 152:15
evolved (3) 33:11;58:13,15
exact (11) 32:21;42:4;53:20; 54·6'65·3·84· [ · i2 I ·24· . . ' . ' . ' . ' 122: 13; 128:3; 147:3; 151:13
exactly (14) 30: 15;33:9;34:6;40:8; 42:6,23;49: 13;56: 18; 84:9; 132:2; 134:4; 139:6; 154:25;157:10
exam (1) 28:9
examination (2) 9:13;11:22
examina lions (5) 7:7, 18;9:25; 125: 1; 144:17
examine(!) 86: I
(7) discussion - examine
example (12) express (3) 15; 156:5; 158: 16,20,22 8:23;9:2 l; 15: 15 ;23:2, 17:7;21:9;22: 1 ;48:25; 6:15;124:15,17 far (4) 4;24: 14;36:4;37:4; 76: 11;8 l :5;82: 11; 114:9; expressed (1) 83:20;118:13;136:25; 41: l 7;47:14;48: 15,20; 128:3;130:3; 140: 16; 52:18 141:2 52:23;60:25;72 :6,7;
( 155:17 extend (1) faring (1) 74:3,5,7, 13;76: 10;79:8; examples (3) 72:18 94:16 84:2, 15, l 8;88:6;90: 19;
35:2;125:10,12 extended (1) fast (1) 96: 10;104: 14; 105:3,7, exams (1) 80:6 110: 1 13; 106: 1 O; 108: 14;
144: 19 extensive (1) fault (1) 109: 13;110:4, 11,17; except (2) 150:14 92:20 111: 16;113:5,16,18, 19;
l 7:5;82:22 extent (9) FDlC (4) 114:4; 115:6,8, 17 ,20,20, exception (1) l 5:2;29:24;45:2; 23:23;93: 14;94:23; 22;116:2,10;122:3,18;
82:22 80: 11 ;81 :21 ;100: 14; 95:2 124:6; 127:23; 14 l :8; exceptions (1) 134:8;144:4,8 feature (1) 144:9; 151: 1 O; 155: 1 O;
29:24 externally (1) 20:10 156:8 Excuse (3) 115:7 feedback (1) finding (1)
34:2;4 l:5;136:21 extinguished (1) 144:21 113:2 executing (1) 81:16 feel (2) finds (1)
152:4 extremely (1) 85:12;147:6 19:22 executive (2) 11:3 fellow (1) fine (8)
6: l 7;25:25 9:8 32:22;100: l 7;110:22; exercise (1) F felt (7) 114:12;115:16;128:23;
12:13 52: 10;86: 13;88:9; 129:7;135:14 exhausted (2) face (4) 105:15;113: 18; 121: 11; finger (1)
20:13;137:13 22:15;106:24;115:2, 131:12 38:21 exist (2) 12 few (7) first (34)
31 :9; 107: 17 facilitating (1) 47: 12;52: 17;55: 15; 8:25; 14:23;25:6; existed (1) 11:4 71 :5;91 :9;109:22; 29: 15;30: 11 ;52: 1 ;54:9,
80:8 fact (27) 145:24 10;57 :24;58:7 ;62: 12; existing (1) 16:6; 18: 17 ;26:4;3 l :3; fiduciary (4) 65:2;66:18;68: l ,3;69:2,
14:2 35:8;67:l ;69: 16;75:2; 12:21 ;84:21,25;85:7 6;78:23;80:23;8 l:20; exists (4) 78:6,19,25;79: 1 ;80:23; figure (1) 93:5; 100: l 1;105:4;
' \ 15: 1;44: 13;77: 15; 83: 15;95: 16,19; 105: 5, 61:7 110: 19;118: l 7;119:2;
154:24 l 1;109:5;119:23,24; File (60) 120: 12; 132: 12; 139:7; expand (1) 129: 13; 147: 15; 149: 13, 7: 14; 14:6; 17:21; 18:6, 146:23;150:22; 151:2;
59:3 16;150:7; 156:20 7 ,8, 12,16,21; 19:4, 18,23, 152:10;155:9 expect (3) facts (2) 25;2 l: 13;22:6;27: 19; firsthand (1)
19: 10;56:24;89:2 48:12;89:10 28:23;29: 10;3 l: 1,15; 12:3 expectation (2) fail (4) 32:25 ;33: 16, 18;35: 14, first-to-die (1)
11:14;12:17 15: 12; 16:21; 17: 5, 13 18 ;3 7 :3;39:23 ;47: 8; 76:16 expected (2) fail-safe (1) 48: l 7;55:7;58:23;61 :24; fits (1)
12:20;68:9 125:9 63:24;65:13;7 l: 19,24; 54:5 expedite (2) failure (1) 74:18;76:4,12;77:4, 13; five (12)
75:10;155:19 21:12 82: 18;84:3;96:5,22; 16:4;2 l: 15;22: 12; expedited (1) fair (4) 97:11,16;117:5;118:12; 38:4;46:2;48:21 ;69: 12;
73:8 6:8;114:1;144:21; 120:20; 138: 12, 14; 89: l 6;90:5; 110:25; expense (2) 145:1 139'15; 140: 15; 154: 15, 130:5,8
144:2,4 fairly (3) 21;155:6,6;156:9,17 flavor (1) experience (1) 147:11,11;158:10 filed (6) 136:8
144: 18 fall (1) 16:25;20:25;21 :3, 10; Florida (50) expert (2) l 21 :21 22:5;45:16 · 5:4,12;14,15;6:4,22;
100:12;126:14 fallen (2) files (3) 9:6; 10: 12, 19; 12:2,11, 13, experts (2) 80:21;138:23 20:4;29: 13;39:25 24; 14: 1; 15 :4; 16: 11;
102:6;154:6 false (1) filing (1) 22: l 7;27:4;39:4,7,24; expire (3) 86:16 121:10 40:7 ,20;42:5;45:7 ,9;
21:11,17;90:15 familiar ( 4) fill (1) 46:3;61:7;65: 16;69: 19; explain (5) 40:7;42:4,22; 103: 12 156:25 90:3,9;96: 14; 100:7;
9:20;1 l:24;13:16; families (1) fin (1) 101 :23;102:21; 104: 17, 47:25; 100: 10 115:20 108: 19 22;105:12,17;11 l: 12,15,
explanation (2) family (16) Financial (8) 19,22;118:2;121:7; 148:18;152:8 32:4;34: 16, 18;5 l:7; 6: l; 10:8,8; 11: 19;39:2, 132:20; 133:6; 146:2;
explore (1) 115: 17,24; l l 9:9;121:5; 3;78:7;93:25 153: 15 31: 12 141: 18; 144: 5; 14 7: l 5, find (61) Floridan (1)
Accurate Stenotype Reporters
Public Hearing May 19, 2011
101:21 Florida's (4)
6: 1;14:6;15:25;39:20 Floridians (7)
11:12;13:1;89:3;91:l; 101:6;105:l;l 13:5
focus (4) 7 :9;14: l 5;27:5,9
focused (1) 85:6
folks (3) 39:9;116:16;121:24
follow (13) 12:11;27:3;29:2;30:3; 3 3 :7;34:5;38:22;57 :22, 23;62:4, 14;98: 10; 153:21
followed (2) 25:6;111:19
following (5) 21: 1;23: 19;25:23; 28:6;44:18
follow-up (6) S 1: 19;100: 15; 124: 12; 145:24;146:8; 154: 12
force (11) 7 :3,15;2 l :5,10, 15; 22:4, 10,25;67: 13; 101:14;109:5
forfeiture (J.) 80:5,6;81:18
form (10) 18: 1 ;20:3,6,7,21; 23: 15;53: 14;127:3; 143:17;157:l
formal (2) 142:6;148:20
format (1) 43:7
formed (1) 7:2
forms (2) 124:3; 154:5
forthcoming (1) 10:1
forum (3) 8:15;9:19;133:4
forward (16) 9:24; 12:3;78:2;79: 11; 80:23; 109: 11; 13 7 :6, 10, 24; 138: 18,25;139: 5; 140:7,25; 143: 12; 154: 15
fo11nd (18) 9:2,5;68:8,11 ;75:3; 8 2: 13;83 :23;96:6; 109: 1; l 16:5;121:6,8;127: 16; 139: 16; 141: 13; 142: 12; 143:15;149:12
fo11r (2) 139:10,10
Frank (8) 25:25;70: 15;77:7; 81 :2; 123:6; 14 l :2; 157:7,
.
(8) example - Frank
(
11 .. gets (6) 23:23;93:22;94:7 5:5,9,11, 13,17,22,25; frankly (3) 33 :20 ;53 :24;62:20; guaranties (1) 6:24,24;7:22;9: 12, 15,15,
11 :3; 141:20; 146:4 74:21 ;137:20,22 94:15 24;10:9,10;11:23;12:3; frequency (9) given (24) guaranty (2) 13: 12, 16; 14: l,2;26: 15;
31 :7;34:3,4;53:23; 31:9,10;37:6;38: 10; 94:10,25 27:3;28:3,5,7;48 :20; 58:12,18;63:5 ,l 9;85:23 46: l 3;47:2;62:22;78:4; guess (5) 74:16;159:5
frequent (1) 85: 17 ;86:8,8;92: 13,19; 55: 11 ;100: 11; 112:24; Hearings@FLO!Rcom (1) 95:25 I 00:25 ;122: 19; 126:25; 137:3;154:14 5:18
frequently (5) 127: I; 129:2; 130:20; guidance (1) hearng (1) 67:22,25;71 :24;77:20; 133 :25; 143: 18; 148: 17; 44:17 6:23 86:4 154:4,4 guide (1) heart (2)
fulfill (1) gives (3) 118:7 47:6, 11 9:22 44: 17;78:20; 145: I heirs (1)
fulfilling (1) giving (2) H 90: 17 12:14 70:!8;145:2 held (6)
full (7) glad (1) half (2) 5:5;23: 14;93:7,8; 13 :8;69:2;81: 19; 97:21 40:3;51: 13 114:15,16 I 00:20; 117:10, 11; 142:4 goal (2) Ham (16) help (8)
folly (2) 85:8;109:25 136:20;145:23,24; 70: 15;]02:25;104:25; 13:6;103:1 goes (3) 146: 18,24; 14 7:5,22; 113:5; 116: 10;118:7;
fund (9) 14:24;46:11;124: l 148: 1,6, 18; 150: 13, 18; 148:19;154:6 37:22;4 l:4,10;68: 15; go-forward (1) 151: 17; 152:6,21; 153: 10 helpful (7) 123:9,12,22; 124:2; 132:22 hand (2) 44:25;90: 11; 105:4; 133:24 going-forward (1) 25:20;26: 12 109:19;117:20;151:16;
funds (14) 49:14 handle (1) 157:15 11: 15;16: 1,4;36:14; Good (21) 143:12 hereby (1) 41 :16;46:8;94:22;96: 11; 5:2;10:22;46:21; handled (2) 5:8 111: 18; 122:9; 134:23, 50: 18;61 :6;73:14,22; 23:7;104:l Here's (5) 25;135:9;158:8 74:2;77: 13;78: 15, 19; handling (3) 21 :9;22: 1;100:6;
further (11) 86:9,10;88: 14;114: 15; 7: 16;25:2;78: 14 102:24;105:12 13:16;5 l:25;70:22; 117:23;120:3; 12 l: 17; hands (2) hesitate (2) 106: 19; 109:8; 135: 17; 144:23;149:3; 150:23 84:17;103:10 44:1;154:24 138:4; 152:8; 153: IO; gouging (1) handy (1) Hi (1) 155:2;159:l 106: 17 54:6 39:1
future (2) govern (1) happen (8) high (3) 104:15;138:20 126:25 57:3;61:4;76: 14; 44:5; I 00: 13; 147: 11
grace (1) 108:22; l 09: 10; 117: 17; higher (2) G 72:18 145:20; 158:20 94:7;95:1
grand (1) happened (10) highest (1) gap (2) 53:7 22:8;5 l :5;57: 16;75:9; 139: 16
118:16,23 grandchildren (1) 76: 13,15; 100: 12,22; hired (1) gave (2) 8:17 138:17;151:l 105:8
45:7;52:20 grandmother (1) happens (3) historical (3) General (30) 111 :4 19:22;20: 14; 150:25 45:3;138:12,13
6:4,7;8:6;10:3,20,21, great (7) happy (6) historically (2) 24,24,25; 11 :6; 12:8; 27:21;31:13;51:l l,24; 27:25;72: I 1;85:4; 98:17;138:22 13: 11,13;22:23 ;23:22; 66:25; 110:7; 145:6 116: 13; 122:21;143:5 history (4) 26:2;28:2;29 :23,25; grieving (1) hard (7) 55: 12;64:4;88:2,6 32: 16;36:7;51: 18;54:5; 78:6 8:8,22;46: 19;55:3; hit (1) 93: 12; 123:22; 124:9, 17; group (43) 115: 13; 151:2; 152:24 141:5 129:20; 130;23; 155:22 7:7; 14: 12;3 l: 15, 19, hazy (l) hits (1)
generalize (1) 19;3 2: 17 ,25;33: 15, 18; 150: 18 140:4
{
38:11 34:9, 14;36:2,2,4, 13; head (3) hoc (3) generally (11) · 43:2;55:6;57: 15, 17, 18, 37:20;83:2 l; 112: 12 66:20,22;148: 11
55:11;60:4,l l ;62: 16; 24;60: 12;66: 14;69:22; heads (1) hold (6) 79:2;!09:9;119:18; 70: 1,3,4,7,20,24,25; 108: 14 23:21 ;9 l: I; 105:21,23; 125:24;131:11;155:3; 71:20;92: 12; 118: 13; I hear (2) 114: 10; 128:21 156: 18 125: 18;140:23; 141: I; I 28:15;158:I holder (3)
General's (5) 143:9; 146:10, 17,20; I heard (9) 17: 11;114:23; 124:6 12:2;13:5; I 04:23,24; 147: 12;148:21
I 24:3;26:7;59:23; holding (3)
127:15 groups (1) 71:22;72: 19; 109:22; 14:2; 10 l :7; l 08 :24 generating (1) 142:6 , 116:20;117:19;148:I holds (1)
127:4 guaranteed (3) j hearing (30) 56: 19
Accurate Stenotype Reporters
-·-' - . Public Hearing
May 19, 2011
hope (4) 12:6; 13:5,5;151: 16
hopeful (1) 8:14
horse (1) 135:15
hospitality (1) 136:25
hosting (2) 136:24;153:15
hour (1) 159:7
hundred (3) 41 :25;80: 18; 114:5
hundred-plus (1) 73:17
hypothetical (3) 46:20;75:23; 137:4
I
idea (5) 3 8: 18;120:3;121: 17; 122: 15;145:6
identified (9) 19:24;37: 17;49:6; 80: 13,19;88: 15;90:9; 123:18;131:24
identifies (1) 22:7
identify (20) 9:20;15:13;19: 15; 24: 19;26: 16;30:20; 36:21 ;38:5;75: 15 ;90:25;
. 96:9;99:17;104:19; 123:20; 133:23; 137: 15; 139:24;145: 10; 14 7: 13; 151:10
identifying (2) 17:3; 18: 19
ignorance (1) 51:22
lllinois (6) 124: 10,14; 132:20; 133:7,13;153:19
immediately (1) 156: 18
impact (1) 43: 15
imperative (1) 12: 10
implement (3) 77: 18;80: 14;86:4
implemented (6) 15:8;33:3;54:21; 62: 13;69:25; 157:9
importance (1) 73:2
important (25) 6:8,14; 11:3; 12: 12; 27:8;34:22;47: 19,25; 52: I 0;53: 1,23_;70:2; 72:9;76:l 7;95: l [;96: 18;
(9) frankly - important
118: l 7;119:3; 124:19; 142: 19; 149:9, 16, 17, 18; 153:16
( impression (1)
153:2 improve(2)
143:4;144:12 improved (2)
14:8;149:22 improvement (3)
86: 18;87: 16; 150:23 impute (1)
86:20 inaccurate (1)
141:9 inadvertently (1)
138:17 inappropriate (1)
32:10 incidents (1)
65:21 include (7)
5: 19;38:23,24;39:21; 100:23;102:2; 129:1
included (7) 36: 17;39: 16;49:21; 50:1;83:8,12;117:l4
includes (2) 14:11;124:3
including (5) 67: 13;86:18;88:4; 104:16;151:7
incorrect (3) 56:5;158:3,5
incumbent (1) 142:12
incur (1) 144:3
incurs (1) 144:2
index (22) 30:5,16;47: 13 ;49:2,3; 50:5;52:2, l 9;56:21; 60: 1;63:18;73: 10;75:25; 82:11;96:2;117: 1,6; 133:23; 141: 16; 149:25; 158:4,13
indicate (2) 34:19;147:16
indicated (5) 30:2;31 :23;44:9;55:7; 119:22
indicates (2) 21:2;156:5
indicating (2) 34:16;84:6
indication (10) 18:14;32:2;34: 15; 35:9;72:15, I 7;74:9; 119:4; 122:20; 149:4
indirectly (4) 27: 19;28:23;29:6; 30: 13
individual (42) initiating (1) 14: 11 ;32:3;34:20,24; 131 :8 35:9;43: 13;48:3;49:4, .initiation (1) 22;50:22;53:16;54: 11, 132:22 16;57:7 ,9,19;58:22; insert (1) 59: 16,24;63: 18,22,24; 77:25 64:9, 23;67: 18,24;7 5; 24; inserting (1) 79: 1 ;92:12,13;95: 18; 78:9 102:20;109: 16;111 :8; insignificant (1) 116:25;117: 15;125: 17; 45: l l 148:4,l l,23;152:l l; instances (4) 153:6 65: 12;70:25;95: I;
individuals (17) 129:16 l 6:23;25:24;73: 13,20; instead (1) 78:6;83: l ;94: 14; l 03: I 0; 136:5 I 05: 14; I 07: 13; I 08 :5, instruct (1) 25;111:16;114:6; 156:24 115: 15; 121:8; 142: 15 Insurance (108)
industrial (19) 5:3,6,8,20;6:9,11,17; 22: 16,24;50:6,16,21; 7:2,8, 12, 19 ,23 ;8:2,6,7, 88: 5; I 06: 12, 15, 18,23; 18;9:3,8;10:l;l l:13,18; 108: 15,23,24; 109:4; 12: 16, 19, 19; 13: 14; 14:3, 138:3,5,23;140: 17; 10, 11, 19, 19 ,24; 15: 12; 141:14 16: l, 15,21; 17 :2,8, 18;
industries (1) 18:2,2; 19:3,8,9, I 0,2 l; 124:23 21: l 4;22:9;23: l 4;24: 15,
industry (7) 24;25:23;31 :4;35: 11; 7: 19;8:6; 10: 1;73:25; 47:20,22;48:2;6 l: 13, 15, 145:7,10,14 20;62:2;63 :2;64:24;
industry's (1) 70:5,20,24;72:22,23,25; 7:23 73:4,l l,16;75:1,8,10,18,
iudustrywide (2) 19;76:2,3,20;77:12,23;. 14:3;23:15 78: 15,24;84: 13;85:5;
in-force (5) 94:23;96:23;97:6;98: l; 16:24;67:8;79:21; 99:4; 10 l: 17; 102: 10; 82:21;83:8 110:7; 119: 17;120: 18;
inform (2) 121: l ,16,l 7; 122:3,7; 12:6;76:19 124:3 ,9, 14; 148:4,23;
information (54) 149:8; 153:23;154:3 7: 12;8: 11; 15: 14;17:2, insured (21) 5; 18:4,20;20:5;24: 18; 8:3; 16: 17,19;20:9; 27:17;28:9,21;29:6,10; 21 :2,9, 12,23;22:4,7,9; 30:3,7;31: l 5;40: 10; 23:20;96:24;97:6; 43:5, 17 ,24;44: 16;6 l: 12; l0l:l8;lll:l,3,9; 62:24;63 :24;66:9;67 :9; 114:25;137:7;140:2 71: 12;72:16;75:5,6,22; insureds (8) 77:2; 102: 17;103:3; 15: 13, 19; 17: 19; 19:23; 105:25;1 l l:l 1;112: 11; 2 l:6;23:8;77:5; 155:5 113:8; 115:5,l O; 117:24; insured's (1) 118:7;119:5,25;122:21; 139:21 129: IO; 131: 10; 140:20; insurer (2) 147:4; 149:23; 150: 8, l O; 125:1;137:5 155:2 insurers (1)
informed (1) 23:9 65: 16 intend (2)
initial (1) 59:2;77:9 49: 18 intended (2)
initially (2) 8:20; 131:5 64:6;81:14 intense (I)
initiate (3) 84:15 16:21 ;75: I 8;79:4 intent (13)
initiated (1) 36:9;40:5;7 5: 10; 7:6 127:2; 133 :21,22,23;
"134:2,5,9;137: 14; 142:10;157:6
intentions (1) 118:6
interest (28) 17:6;39: 14,18,21,22, 25;40: 5,22,23,25;4 l :23; 42: l ;52: 18;59: 12;81: 11, 19 ,22,22;93 :22,24; 94: I 0, 15;95: 15;98: 12; 124: 13; 137: l ,18; 144:8
interested (3) I 0: I 0;40: 19;87: 13
interesting (1) 156:8
interests (1) 1 l:7
internal (2) 151:7,8
internally (1) 115:8
internet (1) 18:8
interpret (1) 85:17
interpretation (2) 48:10;85:19
interpreting (1) 43:14
interrupt (2) 66:24;85: I
interval (1) 106:25
intimately (1) 42:4
into (32) 12: l 8;35:25;36: 10; 38:8,15;4 l:7, 14;42:2; 46: 11, 11 ;51 :6;59: 11,14; 68:14;72: l 1;77:25;78:9; 80: l 0;83 :5;84:3;90:21; 96:11;97:l,8;98:13; 101 :23; 103: 10;108: l; 121 :2 l; 123:22;124: l; 129:24
invade (1) 28:9
invaluable (1) 6:20
investigate (8) 49:8;60:24;74:4; 76: l 7;77:6;79: 16;95: 17; 109: 16
investigating (1) 78:24
investigation (8) 15:9,11;47:15;75:19; 76:5;79:5,8;96:8
investigations (7) 7:3, 7, I 7;78:21 ;83: 16; 84: 12;98: I
investigatory (1) 155:8
Public Hearing May 19, 2011
investment (1) 114:15
invite (2) 155:11;156:22
involved (2) 112:7;132:5
involving (1) 99:3
iso la led (1) 65:21
issue (16) 6: 14;7: 11; 14:22;15:7, 21 ;21 :24;22: 15;47: 11; 71 :22;72:9;82:25;87:7; 13 7:20,20; 146:3; 15 2:23
issued (4) 28:4;50: 16; 128:5; 142:20
issues (14) 6:8;7: 15;13:24; 14:4; 16:20; 17: 17;20: 14; 24:2 l ;27:25;78:8; 133:8; 144:24; 148:25; 150:21
issuing (1) 59:8
item (1) 88:20
items (5) 38:24;40:22;45:3; 96:14,16
J
Jameson (29) I 0:3,5;39: i, l, 13,20;
40: 11 ;4 l :20;42:7, 12, 18; 43:8,20,25;44: 14,2 l; 45 :5, 15,21 ;61 :9;88 :21; 89:1,15,18,23;90:2,l l, 24;91:7
Jeff (3) 6:2;10:3,8
job (1) 44:2
Johnson (6) 25: 16, 19;26:6,22,25; 65:15
joined (1) 10:15
joining (1) 6:2
Joy (1) 27:22
June (7) 49: 18;69: 17; 127: 13; 130: 18,25; 132: l 6;134:6
jurisdiction (6) 47:3,4;64: 18,20; 127:1;131:3
jurisdictions (3) 29:19;64:12,19
j ustifica lion (I) l 18:22
.
Accurate Stenotype Reporters (10) impression - justification
juxtapose (1) key (3) 25; 16:9, 14;48: 10;69: 19; 16; 143: 15, 17; 153 :24; 35;11 35;7; 153 :8; 157;8 105: 16; 111:20; 129:17, 154:2,7
kicked (2) 25; 131 :6, 13,15, 17 life (118) K 52:3;117:16 lawfully (1) 5:20;7:3 ,23;8; 1,6,7,
kicks (1) 15: 17 18;9:2;11;13;12:16,18; Katz (198) 85:13 laws (17) 14:3,9,10,24; 16; 1,9, 15;
25:25;26:l 1;28:17,20, kind (5) 14:7 ;40: 18;42: l 4, 19, 17 :8; 19:7 ,9 ,21 ;21:5; 24;29:7,14;30: 14,25; 43:7;50:25;73:24; 21 ;43 :3, 10, 14;44: 18; 22: 16;23: 14;25:23;3 l :4; 31: 16;32: 18,21 ;33: 1,4,7, 118:21;120:3 84: l 9;85: 17, 19;94: 18; 35: l 1;47:20,22;48:2; 13,17 ;34:2,9, l 4;35:6, 15, kiosks (1) l 3 l :7; 133: 12,25; 142: 13 49:2,4,17,20,20;50:21; 19;36 :7 ,20;37:6, 19;38: l, 121 :8 lawyers (1) 52:2;6 l: 13, 15,20;62:2; 7;39:8,17;40:3;43:l,12, Knott (1) 155: 1 63 :2,22,24;64:9 ,24; 23;44:9, 19;45 :2,6, 19; 5:12 layed (1) 66:20;67: 18,25;68:2; 46:7, 19;47: 10;48:9,24; knowing (1) 122:23 69:22;70: 1,3,4,7,24; 49:22;50: 14;51:24; 80:7 lays (1) 72:22,23,25;73:4,l l,16; 53: 17,20;54: 10,13,18, knowledge (10) 62:19 74:25;75:8,10,17,19; 22;55: 1,20,23;56: 12,16, 32:18;41:11,13;42:16; lead (3) 76:2,2,20;77: 12,23; 25;57: 10,13, 16,23;58:4, 50:23;57 :2;58 :20;62:9; 76:7;150:11;151:l 78: 14,24;84: 13;96:23; 8, 12, l 5;60:2, 10, 15;6 l :2, 128:9;135:7 leaders (2) 97:6;99:3; 10 I :7; I 02: 1, 14;62: l 6;63:4,8, 14;64: 1, known (6) 9:17;145:7 4, I 0,20; 110:6; 114: 12, 4,11,15,25;65:3,9,25; 104:12;107:16; leadership (3) 2!,22;115:16;116:25; 66:7,11,16;67:10,19; 142:l l,16;143:14,16 6:6; 11:2,20 117:15;118:16,21; 68:l l,21;69:1,8,24; knows (1) leads (1) 119: 17; 120:8, 18; 121: l, 70: 12, 14;7 l: I 0;72:8; 16:18 154:11 16,17, 19; 122:3,7, 18; 74: l 9;75:20;76:22;77: 1, learn (2) 123: 1;124:2; 142: I; 7;81: l,20;82:5;85:8,15, L 7:22; 125:7 148:4,11,23;149:8; 24;87:8;88: 18,25;89:7, learned (3) 152: 11; 153 :6,23;154:3, 17, 19;91: 12, 15, l 8;92:4, laid (1) 139:11,12,14 l 7;155:5, 13; 157: 18 8,18,25;93:8,l 9;94:3,l 9; 80:4 learning (1) likelihood (1) 95:7 ,23;96:8;98: 17 ,21; lapse (2) 140:8 110:8 99:5,9,12,16; 100:5,11, 20:9;2 l:7 learnings (2) likely (2) 18; 101:4,5, 10; 102: 15; lapsed (2) 67:20;77: 16 56:17;119:5 103: 14;108:21; 109:25; 81:7,8 learns (1) limited (6) 116: l 8,23;117:3,8,11; lapses (1) 125:5 65:13,23;73: 12;97:15; l 18: I, l 7 ,25; 121 :22; 20:13 least (9) 151:5;155:21 122:5, 19; 123 :3,8,20; large (8) 58:21;59:24;95:8,23; line (2) 125:7,14,24; 126:23; 7:8;22: 17;29: 16; 107: 1 O; 112:3; 129:22; 27:13;87:10 127: l 2,20;133:20; 32: 14;80: 16;89:4; 144:18;148:21 list (2) 135: 12,20,24; 136:2; 108:18;140:19 led (1) 18:8;46:16 137: 14; 138: I; 141: I; largely (1) 67:21 listed (2)
. 142:10;143:14,24; 107:18 left (2) 21:13;74:ll 145:5;146: 17, 19; 147: I, Larry (1) 45:24;92:24 little (29) 10,25; 148:5,8,24; 26:21 legacy (1) 25:10;31:17;35:8; 150: 17 ,22; 151: 19; last (12) . 59: l 40: 15;50:7;51: 14,25; 152: 12,24;153 :21; 64:7;67: 14; 104: 12; legal (7) 53:25;59:6;64:4;66: 16; 154:2;156:4; 157:7; 107:16;110:13,14; 9:22;42:25;67:3; 71: 15;72:4;80:2;94:4; 158:6,12;159:4 120:24; 139:8; 144: 13; 69: 15;85:3, 10; 104:2 96· 13-103· J · 108·22· . ' . ' .. '
keenly (1) 148:10,14;153:l legislators (1) 118: 18; 120:4; 130: 15; 7:5 late(22) 1_45:7 135:20; 138:2;!43:25;
keep (10) 30: 18;32: 19;33:24,25; less (8) 148: 13, 14, 19; 150: 18; 21:5,15;42: 13;50: 15; 34:3;39:23,25;42: 10; 50:5;67:25;77: 19; 154:18 52: 16;62: l 7;90: 12; 51 :5, 10;52:3 ;55 :8;66 :5, 86:4; l 02: 13; 106:24; live (1) 95: 11 ;109:4; 138:25 10;70:21 ;79: !6;83:24; 121:4;141:2 6:22
keeper (1) 86:2;88:3,7; 146: l l; letter (1) lived (2) 71: I 152:10 20:23 107:17;128:5
keeping (1) later (ll) letters (1) living (1) 43:9 10: 15;2 l:l l, 16;28: 13; 125:13 115:15
keeps (1) 35: l l ;55: l 0;66: l 6;72: l; level (4) loans (1) 42:23 113:19,19;134:22 44:6;62:22; 100: 13; 21:15
kept(3) latest (1) 147:ll locate (8) 9: 10;29: 10;42: 16 45: 15 liability (12) 12:21;17:11;24:ll;
Kevin (1) law (17) 47:23;79:3; 126: l; 36:5;95: 19; 104:8; 5:3 5: 15; 12: l l; 15:5,24, l27:20;l41:IO;l42:l l, 105:16;109:17
Accurate Stenotype Reporters
Public Hearing May 19, 2011
located (4) 17: 16;24: 13;36: 15; 143:2
logic (5) 56: 19;57:4;80:2;83:5; 87:22
Logically (1) 89:20
long (16) 22:20;32: 16;33: 14; 42:7;50:16,24;53: 18,21; 64:2;86:23;87:25;91: 19; 92:24; 142:21; 146: 15; 148:6
longer (4) 51 :3;77:22;148:22; 156:21
long-term (1) 71:20
look (6) 19:11;48:19;116:16; 120: 14,25; 145:9
looked (2) 94:10;141:11
looking (12) 15 :7;60:5;62:23 ;72:5, 6;86: 17;90: 16,17; 114: 8; 140: 18;145: 16; 151 :8
looks (1) 12:3
loss (6) 154: 10,20,23,25; 155:16;157:l
lost (4) 17 :3;24: I ;61 :21; 104:9
lot (23) 14: 13;18:25;23:8; 44:2,10;50:2;58: 17; 67: 20;72:20;84:9;87 :9; 91 :19;103:14;105:10; 106: l 1;125:4;132:25; 139: 11,12,14; 140:8; 146:5; 154:24
loved (1) 78:5
low (3) 115:1,2;140:3
lower (1) 92:6
lump (1) 94: 1
Lynn (1) 26: l
M
Madam (1) 26: 12
mail (4) 17 :24;2 l: l ;95: 17; 101:9
main (2) 7: 11;87:3
(11) juxtapose - main
~~~·~· .,,,--"·----, .. - •·· .. ·•·c-··•-·-··,,,,,•-••··,·•~•··ee,,,,·~---~~"'''''''-'"' . - . ---· . MetropofftaiiLife Irisifraiice Company___ - ---- ---- - - ------- Public Hearing May 19, 2011
maintain ( 4)· 7;63:6, l 8;64:3,23;65: 13, 109:15 124:15 Mid-'80s (1) 26: 17;30:5;45: 1; 144:3 22;66:5,l 0,14, l 9;67: 17; mature (2) mean (13) 91 :15
maintained (4) 69:22;70:11;71:9,19; 16:17;149:23 29: 11;38:8;48:2,6,7; mid-'90s (3) . 42: 17;70:5,6;84:5 73: l 0;74:7,18;75: 16,24; matured (6) 56:4, 7;59:8;73:5; l O l :6; 55:10;66:17,18
( maintaining (2) 77:4,13;79:15;81: 15; 16:2,16;24:9;55: 1; 117:3;122:2;139:6 might (28) 29:12;94:1 82:4,l l ;96:5,22;97:6,l l, 121:12,12 meaning (1) 17:21,22,25;40:22;
maintains (1) 16; 118: 12; 140: 15; maturity (1) 56:1 49:25;50: 14, 14;54:6; 30:7 154: 15,21; 156:9,17 17:14 means (3) 55:24;76:15;77:21;83:9;
maintenance (1) Masters (1) May (68) 31 :23;106: 19; 109:7 87: 10;109: 13; 110:25; 41:12 54:16 5: 10,16;6:2;9: 13; 15:3, meant (3) 111:1,3,3;112:21;
majority (13) match (116) 3;18: 17;20:21 ;31:9; 56: 14; 103:20;105: 19 113: 18;114:16; 119: 10; 9:25;49:4;60 :4;70:3; 19:24;34: 12, 15;37:2; 37:20;51 :21;52:22; media (1) 122:6; 130: 19; 138: 14; 73: 19;102:20; 106:4; 47: 14;48: 16;49:17; 58:13;59:11,12;60:18, 87:7 144:24;145:4; 155: 17 110:7,10;116:25; 50: 10,15;52: 15,19,20; l 9;65: 11,21 ;76: 13;78:6; Meenan (1) mike (1) 119: 18;120: 19;151:19 53:2;54:24;55:4, 18; 79: 1;80:5, 12;81: 16; 27:22 41:7
makes (10) 56:8,20;58: 19,23;60:9; 83: 14, l 5;86: 16; 110: 11, meet (2) Miller (47) 19:23;29: 14;51: 14; 63:6;64: l 9;66: 14;67: 11, 20;1 l l:8;112:7;113:21; 24:15;27:8 13: 14,17, 18;24:22; 57:4;73:23;89: 17,20; 20,22,24;68:5;69: 1,3,4; 114:24,25;115: 12,15; meeting (2) 27:7;36: I, l 6;37:2, 16,24; 94: 1;137:22; 141 :20 70: 17;74:3,18;75:3,25; 116:6;117:23; 120:10; 28:6;153:16 38:3,18;45: 22,23 ;46: 14;
making (9) 76:3,9;77: 17;78:8,22; 124:20; 125: 14, 15, 17; meetings (4) 4 7:5;48:5, 14;49: 19; 6: 12;19: 17;32:8; 79: 17,21 ;80: 1,9,19,22, 126: 14, 15, 15, 16; 128:4; 99:2,3,7,14 50:9;51:20;56:7, 13,20; 34: 13;43: 18;55: 18; 23;8 l :6,8;82: 17, 19;83 :7, 129: 16,20; 130:4; 131: 13, member (3) 58:21 ;59: 16,22;60:7 ,23; 86: 14;98:14; 143:25 12, 14, 15;84: 11, 13; 19, 19; 132:3; 134: 13; -119:9; 156:5;158: 16 61 :3;66:24;67:6;68 :5,
managed (1) 87:22;88:8,11,24,25; 135:4; 138: 17; 139:20; Members (3) 17,23;69:4,11,20;71 :4, 30:9 89:1,7, 10;90:4;109: 14; 140: 19; 142: 18; 143 :24; 5:16;6:1;108:6 22;74:2;77:3;83: 10;
management (1) 113:21; 116:21;1 l 7: 10, 151: 11; 155:21; 156:8, 12, memory (1) 88: 14;96:5;129: 1,7 93:10 11;119:22;120:2,21; 14 93:2 million (29)
manipulations (1) 126:20;127:8, 16; maybe (13) mention (1) 37:14,23,24;38: 19; 86:24 129:24; 130: l 7,24;134:4, 44:23;74:5;77:7; 116:20 45: l 0;49:7, 11, 12;5 l: 13;
manner (2) 17;135:1;136:15; 80:20;99: 17, 19;106:4; mentioned (6) 53:3;68: 12, 13,13;89:8,8, 11:16;12:22 137: 14, 15; 138: 11,24; 109:21; 110:8; 114: 17; 24:23;40: 12;109:22; 10,11,15;91 :22;96: 17;
many (33) 139 :4,7,9, 12, 17, 18,24, 126: 11;133:20; l38:2 112:13,23;153:22 103:9;110:5;122:9,24; 7:4;8:12;9:21;11:12; 25; 140:6,9, 10, 11, 14; McCARTY (125) mere (1) 123: 11;136:9,15,16, 17 19: 1;20: 10;23: 15;28:25; 141: 1,4,5; 142:4,7; 5:2,3; 10:5, 14; 11: 1,21; 78:25 Millions (1) 29: 17,17,18, 19;38: 18; 147: 13; 149: 13; 150:7; 13: 10;24:22;25: 14; met (2) 22:24 54: l ,2;60:3 ;7 4 :20;76:9; 154: 13,16; 155:4,9; 156:3 26: 15;27: 1 ;28:15,20; 28:2;94: 1 million's (1) 102: 14;110: 13; 112: 1,6; matched (10) 29:4,9;30: 11, 19;31: 11; methodologies (1) 111:14 l 14:9;119:8;120:8; 33: 15;53:5;70:24; 32: 13,20,22;33:2,5,10, 24:18 mind (4) 122: 13;125:7; 141:8; 79:21,22;96:2; 116:24; 14,23;34:7,l 1;35:4,12, Metlife ( 44) 41:6;50:15;95:1 l; 142:20,22; 144: 18; 117:5, 12; 138: 15 17;41 :5;45:22;51: 18; 13:6;24:25;25:6,17; · 109:4 145:13;158:18 matches (11) 53:13,18;54:11,14,20, 27: 17 ,24;28:2,4,6,21,24; minds (3)
market (7) 55:9;68: 1,3;76: 10; 23;55: 17,22;56: 10,15; 29:4,10,16;30:7,11,19; 87:14;151:4,14 7: 18;9: l 7;22: 18;28:8; 86:4,14;138:19;141: 12, 57:5,11,14;58:1,6,9,13; 31: 14;32:16,23;33: 14; minimum (10) 94:11,13;144: 19 13;151:6;154:15 60:8,13, 16;6 l: 11, 17,25; 48: 15;53: 15;6 l: 12; 93:22;94:7 ,9, 15;
marketed (1) matching (5) 62:5, l 1;63: 1,5, l 0, 13,21; 63:23;69:21 ;70: 13;77:3; 100:24;101:ll,12; 22:18 34: 10;50:4;77: 11, 19; 64:2,8,13,21 ;65: 1,4, 10, 88:2;91 :11;96:25;97:7; 106:11;112:22;139: l
marketplace (1) 141:16 l 8;66:2,8, 12, I 8;67:7, 15; 98:3;103:7;107:3; minus (1) 9.8:22 match-up (2) 69:21;70:9, 13;7 l: 14; l 12:l 7;114:14;138:12; 139:20
markets (1) 34:7;65:7 75: 12;76: 18,24;79:4, I 0, 144:2; 145:16; 146:5; minutes (2) 93:25 match-ups (1) 19;8 l: I 3;82:2, 7;91 :8, 13, 147:8; 153: 17; 158:2 47:12;159:7
Massey (1) 34: l 16,22,24;92: 1 ;6,16,23; Metropolitan (5) missed (2) 155:17 material (l) 93:6, 11, 13,16,23;94: 17; 25:23;41:4,10;80: 16; 71:8;123:7
Master (86) 153:5 9 5 :3,21 ;96:21 ;97:4, 18, 86:11 misunderstandings ( l) 7: 14;8:2;14:5; 17:20; .math (5) 24;98:9;99:22; 124:8, 11; Metropolitan's (1) 9:20 18 :6,7,8, 12, 16,2 l; 19:4, 112:3,6,21;113:24; 128:23; 135: 17; 136:20, 90:21 misunderstood (1) 18,23,25;21: 13;22:6; 115:4 23; 144: 13; 145:23; mic (3) 117:9 27: 16, 19;28:23,25;29:9, matter (9) 153: 12; 157:23; 159: l 26:7;41:6;65: 19 modern (1) 13,13;30: 12,20;3 I: l, 15; 5:20; 11 :4, 17;25:5; McCarty's (1) Michael (1) 107:21 32: 17,25;33: 16, 17; 27:6;28: 13;71 :25;99:4; l l:20 124: 15 modifications (2) 35: 14,18;37:3;38:5; 130:23 McPeak(7) mid-2000 (1) 42: 13;44:24 46: 15;47:8, 13 ;48: 16; matters (1) 153:12,14;154:ll; 66:21 modified (1) 53: 16;54:24;57:8;58:3, 12:6 155:3, 12,24; 157: 14 mid-2004 (1) 146:21 23;60: 1;61: 12,24;62: l, maturation (1) McRaith (l) 65:5 moment (2)
Accurate Stenotype Reporters (12) maintain - moment
.. ·--··=M""····"et=r-op-o""u'~tnsur'='co;;;;a·riy·' ·-,=·""'·~-..... " r~>.. ·=L~··· ·~= ·····C'C<•,. =··== ... Public Hearing
i \.
43:23;61:6 money (18)
8 :23; 15: 1 ;23: 19; 24:20;32: 12;38: 1 ;39: 18, 20;45: 14;56:9;88:17; 94: l ,8,I I,13; 108:9; I 09:25; 149:7
monies (3) 59: 13;123:24;135:8
monitor (2) l 7:9;23:25
monitoring (1) 42:19
month (7) 32:1;34:10,11;68:4; 73:6;85:21 ;149:4
monthly (14) 30:22;58: IO, 16, 19; 59:8;63:9,10, 19;65:6; 77:22;95: !0;107: I; !08:7;118:14
months (2) 21:11;73:6
Moore (1) 16:9
more (47) 8: 15; 11 :3;16:4, 14; 22: 12,20;30:2;35:8; 40: 15;51 :4;53: l ];56:9; 61:7 ;65:25;67: 11,22,23; 69: 12;71 :15;73:24; 78: l 2;80:2;85:23;91:9; 95:24;97:22;98:5;99: 19; 100: 14;101: 10,11; 102: 14; 103: 1,4; 104:2; 112:5,22;115:20; 122:6; 146:5; 147: I; 148: 11, 19; 149:21,22,22,23
Moreover (1) 108:4·
morning (5) 5:2; 10:22;146:4,9;
. 147:6 mortality (1)
143:21 most (22)
7: 19; 11: 11 ;31 :20; 33: 13;42: 15;49: 17,19, 22;50: 15;68:6;80: 13; 87: l 3;92:3; 115: I; 121 :3; 125:8,11;129:22; 137:22; 148:8; 153: 18; 155:14
move (2) 36:9;53:13 .
moved (1) 107:15
moving (3) 77: 16;96: 11 ;154: 15
much (24) 9:23;25: 11 ;37: 16; 41:7;61: I 8;68:6;69:9; 72:25;82:21;83 :20;
May 19, 2011
90:25;91: 16;94:7; nod (1) observe (1) 24;30:9;37:20;38: 13; 102: 14; 104: 1 ;105:22; 25:20 12:11 43: l 3;44: 11 ;45 :6;48: 13; 108:6;118:19;135:25; nonforfeiture (1) obtain (1) 51: 1,21;59: 18;62: 17; 136:6; 145:21; 146:2; 67:13 30:12 70:22;73:20;80:3,6,l l, 159:4,9 nor (1) obvious (1) 18;8 l: I ;83 :4,24;88: 19,
MUFS (2) 146:23 87:21 19;95:8;96:1;105:11; 129:25; 135: I normal (6) obviously (5) 109:9,12; 111 :2,9; 114:5;
multiagency (2) 73:4, 19,21;74:25; 34:21; 10 I :21; 122: IO; 127:5,20; 135: 10; l l:5;12:25 78:13;150:I 143:16;144:14 136: 11; 13 7:3,24;
multistate (2) North (1) occasionally (2) 144: 13; 149:2;150:5; 7:18;9:25 153:20 18:15;19:ll 155 :4; 157 :8; 158: 12
must (1) note (3) occurred (7) one·point (1) 65:16 7: 1;27:24;96: 18 32:5;80:12;82:9; 140:6
Mutual (3) noted (1) 87:24;135:5; 139: 16; ones (1) 16:9;100:9,19 11 :21 147:2 60:6
notes (1) occurrence (2) ones' (1) N 62:17 80:15;138:20 78:5
nothwithstanding (1) occurs (1) one·third (1) NAIC (4) 115:11 73:7 94:9
7: 14;14:2; 145:7; Notice (9) o'clock (1) one·time (1) 153:15 5: 13;8:3;20: 15;46:24; 159:8 154:13
nail (1) 47:7 ,8,15;74:8;75:3 off (13) ongoing (7) 66:3 notification (3) 37: 19;52:3;83:20; 7: 16; 12:24;28:8;
name (7) 125: 15,18; 158: 19 94: I; 100: 1 !;112: 12; 30:21 ;65:6;80: 14;86:4 5:2;10:22;25: 19; notifications (1) 117: 16;118: 18;139:7; only (26) 43:21;50: 12; 139:8,8 125:19 141:13; 150:22; 151 :2; 13: I; 18: 14;38:23;
names (1) notify (1) 159:6 78:23 ;79:21 ;83:8;84: 14; 99: 13 12:22 offensive (1) 86: l 4;88:2;95: 14;98: 12;
National (3) nuance (1) 72:4 101 :22;110:16;1 l l :2,9; 5:7;6:16;7:l 157:11 offer (1) 113: 1 O; 124:2, 12; 140:4,
Nationwide (5) number (53) 5:16 6; 141 :5;142: 1 ;150: 13; 13 :6;25: 1,7, 13;98 :6 6: 11;7:6; 18: 19,22; offered (1) 151 :24; 154:8; 158: 15
nature (3) 37: 13;38:21 ;45: 8,11,16, 10:7 onto (1) 31:7;149:2;152:14 19;50:3,4;53:4,21; offering (1) 114:15
near (1) 61: I 0;73: 12;9 l: 5; 26:10 open (5) 104: 14 102:25;105:21,23; Office (16) 9: 18;92:24;10 I: 15;
necessarily (4) I 06: 12; I 08: 12, 13; 5:6;6:4,5;10: 19,24; 116:1;133:5 48 :2;93 :23,24; 137 :24 110: 15;1 I l:8;112: 13,19, 11 :6, 18;12:3; 13:13; open·ended (1)
necessary (2) 22;113:9;116:4;117:13; 28:7;52: 14;99:25; 84:20 78:20;84: 12 118:2; 120: l; 121 :22,23, 104:23,24;! 11:23,24 operates (2)
need (9) 24;122: 13; 123:3,5,6,8; officer (4) 12:25;40:20 26:22;46:4;55:24; 125:22; 126:2,17; 139:9, 6:2,18,19;]0:8 operating (1) 66:24;67: I ;88: 17; 19; 140: 13, 19; 141: 16; Office's (1) 6: 18 126: 16; 149:6; 153: 13 151 :20,22,25; 152:2 28:2 operational (1)
needed (1) numbers (17) officials (1) 141:25 125:3 3 7: 12;49: 12; I 03:5, 13, 7:5 .operations (3)
needs (1) 15;106: 13;110:3;115:8; often (3). 76: 1,2,3 46:10 116: 12,15; 120: 16,20,22; 64:13;115:2;120:11 opportunities (2)
negotiations (3) 122:5,11;136:3;152:18 old (3) 121: 14;145:9 133:4,11,17 83: 18;84:7;142:24 opportunity (17)
net (14) 0 older (5) 6: 10; 10:7;11:23; 13:3, 73:12,22;77: 15;78: 16, 58:18;106:21; 107:2,4; 7;25:9;87: 16;92: 14, 19; 19;86: 10;87: I; 120:2; objections {2) 138:6 93:20; I 04: 19; 111:22; 137:9;138:18,21; 28:7,11 oldest (4) 112:4;!45:2,3; 151 :9; 14024;142:4;150:I objective (2) 54:8;59:2;83: 18; 159:3
new (8) 74:25;84: 16 128:12 opposed (1) 17:23;2 l: I; IOl: l7, 18, objectives (2) once (10) 93:18 18; [04:6; 138:25; l52:3 7:21;118:5 34: I0,11 ;55: l 7;60:8; option (4)
newer (1) obligation (3) 64: 15;67:25;80: 13; 23: 17,17;92:4, IO 59:3 74:4,12;96:22 138:21; 139:5; 143: 14 options (2)
Next (4) obligations (5) One (SO) 80:6;92:2 l 3: 12 ;53: 12 ;89:6; 9:22; 12: 15; 15:22; 7:11;[4:25;18:2; order (11) 132: 14 24: 16;97:5 19:22;20: 13,22;29:20, 5:9;23:9;26: l 7;27:8;
Accurate Stenotype Reporters (13) money - order
-.,.,...--~··--- - =······-···-~-···=--~---·==~~----~~---.·-··-"-·"·=---,~-==-~ Metropolitan Life Insurance Company
78:5;88:6; 104: 19,25; l 05: 16; 128:9; l 55: 19
organization (5) 29: l 7;30:8;44:8;75:5; 150:12
organizationally (1) 44:12
organized (l) 44:6
original (l) 157:5
originally (l) 156:10
others (6) 71: 10;99:8; l 15: 16; 119:15;125:20;129:13
otherwise ( 4) 83:9; 114:17; 120:23; 125:21
ourselves (2) 77:25;78:9
out (57) 5:24;14:20;17: 13; 19:6;20: l 1;23:2,4; 24: 14;25: 1;34:22;36:5; 43:3,5;44:l 7;47: 17; 49: 10;5 l :8;52:4,5;53:5; 5 5: 13;56: 13;59 :3,15, 19; 62: 19;68: 13;70: 15; 7 8:21,25;80:4;88:3; 89:7;93: 18; 104:9; 105:4; 108:7,14,19;1 l l:16; 112:9;115:!9;122:7,23; 126:21 ;135:25 ;140:4,5; 141:22,23; 147: 14; 149: 13; l 55: 10; 156:7,22, 25;157: 11
outlined (l) 157:4
out-of-force (l) 67:8
outreach (5) 84: 14;88:5; 104:24; 115:24;143:22
outright (l) 55:3
outside (2) 105:8;106:4
outstanding (2) 9:6;37:22
over (21) 11 :13 ;22: 19;26: 18; 33:11;45:10;48:23;53:4, 7;55: l ,2;58: 14, l 5;59:4; 68:7;69:13;116:9;121:6; 122:17; 146:22; 149: 13; 153:1
overall (l) 148:16
overheard (l) 116:19
overly (l) 129:20
overpaid (1) participation (2) 31:21;156:2 158:7 10:17;!53:!6 payout (2)
oversight (1) particular (22) 60:9;63:18 101:19 7:9;!2:12;39:23; pay-out (10)
overview (l) 41 :20;42:24;43:8;87:25; 14: l 7;17:7;19: 16; 13:23 89:22;99:2;1 l l :24; 59:25;63: 19;7 l: 19,2 l;
owe (l) 128:7 ,9;129:17;130:7, 72: 13;113:6; 156: l l 56:8 13; 13 ! : !6;132:2,3,9; payouts (2)
owed (2) 140: 17; 142:8; 143: 13 63:18;122:3 8:23;! l:!5 particularly (5) peers (l)
owing (l) 50: l 7;86:25;87:22,23; 37:20 16:! 88:5 Pennsylvania (l)
own (4) parties (l) 153:20 27: l 7;28:2 l ;29:4;7 l :2 106:4 people (30)
owner (6) partner (l) 5:24;8:8, 15;9:2_1; 41: l 7;90:20; 1!0:25; 11: 17 15: 16; 16: 13; 18:9, 13,15; l l l:3,8;114:24 parts (l) 19:12;21 :22;23:3;32:8;
owners (8) 31: 1 43: 12;44:2;60: 1;68:8, 9:5,8; 17: l 6;24:2,6, 11, passed (4) l 7;72:4;8 l: 19;87:25; 13;!42:21 41 :19;107:10;!37:5; 99:14,18; 104:20;
ownership (2) 154:22 !06:10;110:6,17;! 16:2, 100:9,9 passing (l) 8;151:14
109:23 people's (l) p past (7) 15 l :4
39:7;60:6;68:4;79: 13; percent (18) paid (40) 80: 12; 155: 15,22 42: 1;53:8;73:3;78: 12;
9:lO;ll:12;20:11; past-due (l) 80: 18;83:3;93:3;94:9, 22:11,19;35: l ;46: 10; 39:15 15;114:6;1 !9:22;120:l, 49: l 0;50:21 ;53 :3,5, 16; patience (l) 1,3; l 22: l 2,25; 149: 14, 17 56:l,13,14;59:l l,14; 100:l percentage (3) 68: 13;73 :4,9;7 5:7;8 l :3, panse (2) 108: 11; 121:19; 122:3 3,9,12, 19,22;82: I, 14,l 5; 53:12;88:20 perfect (3) 85:9; l 08:9;109:3; l 22:7, pay (20) 138:8;142:7;145: 18 24; 126 :3,21; 149: 14, 14; 8:23; 15: 18; 17: 13; perfected (l) 157:18 21 :12;23: l 0;35: l 2;56:9, 20:25
paid-in (4) l 7;72:7;75:19;85:8,9; perfectly (1) 54: 12, 17 ,25;56:3 86:11;125:23;126:7,17; 131:3
paid-out (9) 134:21,22;137: l 7;143: l perform (5) 56: I ;57:6,8;58:3,22; payable (6) 12:20; 17 :22; 19:5,7, 14 59:7, 17;63: 16;7 l:23 16:5, 18; 125:21,25; performed (l)
paid-up (l) 141:6;!56:14- 22:6 109:7 pay-in (l) perhaps (2)
Pam (2) 14:16 40:il;42:25 6:4;10:25 paying (15) period (37)
panel (2) 14: 18;20; 19:6,20; 21:24;22: 1 ;24:4;38:4, 25:20; 159:2 22 :20;50:24;55:22; 7;41: 18;46:23;48:22;
paper (l) 56:24;59: 15,18;72: 1,5; 53:4,8;55: 16;56:2; 33:21 93: 18;109:5;!49:4 68: 16,20;69: 10,18;
part (21) payment (12) 72: 18;78:7;88:23;90:5; 13: 12;22: 17;3 I :20; 23: 16;32:4;34: 13, 16, 106: 1;109: 15;111: 13; 49:20;64:6;74 :21 ;8 l :20; 23;50:23;60:21;71 :24; 123: 16;127: IO; 128: 1,6, 87: 15, 19; 102:21; I 06:25; 13 7: 18; 147: 14, 17; 130: 14,17;13 l:8; 108: 18; 115: 1, 18; 116:5; 17 132: 16,23; 134: 18,20; 137:8; 140: 13; 148: 14; payments (33) 137:13;148:22 15 l: 18,23; !'52:5; l 58:23 8:19;19:17;24:12; periodically (2)
partial (l) 32:7 ,8, 10;35:5,10,13; 29:8;30:24 141:12 55: 19;56: 11,23;72: 19; periods (5)
participants (l) 75: l 7;82:9;109:6;1 l 9:6, 22:20;4 I :22;90:15; 25:20 23;120: 10;126:21,22; 129:23; 130:24
participate (3) 138:5; 147: 18; 149:5; perplexing (l) 10:9;28: 12; 124:25 152: 15; 155:20; 156: 1,6, l 14:5
participating (2) 18,20; 158:3,5, 14 person (28) l 12:8;159:5 pay-off (2) 19:20;2 l:23;38:5;
Accurate Stenotype Reporters
Public Hearing May 19, 2011
40: 13;43:8,20,21;44: l l; 4 7 :8;50:12;60:25;74:9, 11;76:12,16;82:13;99:6, 10,12; 101 :24; 109: 13; 122:4;13 l: 18; 134: 12; 140:2; 147: 16; 149:4,5
personal (2) 62:9;128:8
personally (l) 5:23
persons (l) 157:19
perspective (3) 53:!0;89:2;117:15
phase (4) 14: !6;19: 16,20; 155 :9
phases (l) 156:2
phone (3) 20:23;125: 13, 14
phrase (l) 56:3
picked (2) 46:16;69:6
piece (2) 45 :6; 120:24
pieces (2) 95:16;122:lO
PK (l) 39:1
place (20) 8: 19,25;36: l 1 ;57: I; 58:2;64:22;68:3;76: 19, 23;95:4; 100:4,8, 10; 13 8:2 l; l 44:25; 146: 12, 16,20;!48:3,7
places (2) 14:23;18:23
plan (7) 7: 16;74: 19;101: 15; l 02:7; 13, 15;104: 7
Please (9) 5: 19;25: 14, 19;26: 12, 13,18;35: 15;61: 17; 65: 18
plus (2) l 39: 19,20
pm {l) 159: IO
pockets (2) 65:23,23
podium (l) 27:20
point (40) 10:18;33:20;34:22;. 35: 10;49:6;50: 10, 19; 53: 1,23;55:5;68 :8; 72: l 7;75:2;78:22;83: 16; 84: 14;86: 14;88:9;94:5; 96: !; 109: 15; 113 :24; 114:4;1!5:3;116: 18; 118:19;119:1;120:5,18; 128:24;141:ll,14;
(14) organization - point
s.•,,,,,,..=,,,,.·=· -~""'c:'.""'"'!~'!!!'.·cc·.'s'!c~-f-· .. 3--'e'c,r~~··-====~ -------------- - ---'-~~"!'.:!",ccoce~ - -•-=-=.c·.~~=c~c-ce_·.CC=_c:_e,c_-_-_"----,~---"'~'-'~"'·~~--="'-
Metropolitan Life Insurance Company Public Hearing May 19, 2011
142: 17 ,20;143:24; policyholder (16) 61:7 - .. 95:4; 132: 14; 140:24; 38:15;40:16;114:18 148: 17; 150:5; 151 :4; 50:22;56:8;71: I ;73: I; premium (13) 142:5 programming (2) 156:7;158:18 92: 11, 12,13;10 I: 1,24, 8: 10; 14: 18;20: 11; procedures (54) 41:12;138:19
pointed (1) 25;102: 1,13; 106:23; 21: 14;50:23,24;51:2,4; 7:24;11:25; 19:5; programs (1) 78:25 114:11;125:16,18 I 07: I; I 08:9; I 09:5; 32:24;33:3, 11 ;35:22,23; 115:24
points (4) policyholders (39) 120:10;138:5 3 7:7 ;44:7, 16,23;54: 15, progress (1) 95:7;149: 1;152: 13; 8:24;12:17;14: 18; premiums (8) 21;55:1;58:2;60:10,l l, 132:25 157:11 38: I 9;51:9,13;52:5, 7 ,23; 11: 13;15: 18;2 l :12; 11;62:6,12;64:22;65:2; progressed (2)
point-type (1) 7 5:7 ;84:7 ;88:6, 16;95 :8; 22: 19;59: 11; I 08:4; 69:25;70: 10,17,20; 86:13;88:9 94:13 100:7 ,21; 101: 13; 102:8, 109:8;157:18 72: I 0;75:4,21 ;76: 19,23; progressing (1)
policies (170) 20;104:8,9,12; 105:7; prepared (1) 85: 13,22;98:3,5;132: 10, 123: 15 6:9;7:23;8: 18,20;9:3; I 06:6; 110:24; 11 l :7; 61: 14 12; 134: 15; 13 7:6; promised (2) 11:13,25;14: 10,10,l l, l 13:l5,l7;ll4:l0;l20:9, present (2) 14 l :25;146: 12,15,20,21; 8 :20; 157:24 12; 15: 17; 16:24;17:4; 19;121 :6,9; 140: 19; 109:12;133:16 14 7:9; 148:3,7, 10, 11, 16, promises (2) 18:3; 19:8,21 ;20:8, 10; 14 l :23; 142:21,22; presentation (2) 21;151:7;152:7 9:9,10 21 :5,5,6;22: 16, 18,21,24; 143:22;151:10 13:15;27:7 proceeding (1) prompted (3) 23 :3,6;24:8;3 2 :23;33 :3, policyholder's (1) presented ( 4) 136:24 51:22;85:21 ;86:6 11 ;36: 16;38:23;44:15, 12:23 27: 10,12;75:6;78: 13 proceedings (4) promptly (2) 23;50: 16;54:3,15,21; pool (1) presenting (1) 6:3;13:2;25:3;159: 10 85:9;86:11 58:2;62:6, 12;63 :3,22,25; 123: 18 103:3 proceeds (8) proof (16) 64: 10,21,24;65:2,23; populated (1) president (2) 9:2;16:18;17:12; 16: 16;47: 19,23;76:8; 66:20;67:8,12, 18;68:6; 44:7 25:25;26: I 21 :22;109:2; 134: 13; I 09: 12; 153:25; 154:6, 10, 69:23;70: 1,3,4, 10, 16,20; portion (3) press (2) 137:11;145:ll 17,20,23,25; 155:6, 16, 71 :5,7;74: 17 ,20;76:18, 94:6;112:18;123:l 14:23;26:7 process (54) . 23;157:1 23;77:4,19;79 :22,23,23; portions (2) presume (3) 7:17;8:3;11:22;28:12; proper (2) 81: 16,25;83 :8,9,18; 64:11;122:17 34: 13;55: 18;126:23 33:21,22;36:23;47: 15; 15:9;131:7 85:22;87:24;92:3 ,3,7 ,8; position (1) presumed (1) 49:8;51:22;52:12;61 :3; properly (2) 96:24;98:2,5,l 6;10 l:14; 153:24 16:3 67: 16;71 :3;73:20,21; 9:4;12:21 102:3,4,5,9; I 04:4,6; positives (1) pretty (8) 74: I ;77: 15,19,25,25; properties (2) 106: 11, 12,16,21,24; 86:16 36:23;37: 13;52:12; 78: 10;84:22,25;86:2,10; 37:14;118:3 107:4,5,18; I 08: 10,12, possession (1) 62: 18;80:25;122: I; 87:2, 15;95:3,17;96:8, 11; property (63) 23,24; 109:4, I 0,14,18; 24: 17 128:11;153: 13 I 00:3,23;105:2,9; I 08:2; 7: 10,25;9:7; 12: I ;14:6; 110:7,17,18;111:l,2,9; possibility (1) prevent (2) 110:4; 111 :25; 116:8; 15:23,25; 16:7 ,I 0, 12, 14; 112: 1,4,6,8, 19 ,21; l 13: 1, 80:4 3!:23;158:14 l 21 :2,l 4;123:2; 137:23; 17: 12,15;22:3,14;23:6; 5;115:1,1 i, 13,19; l 16:2, possible (8) previously (7) 138:25; 143:4, 12; 144: 16, 24:8,17;35: l 8,21,24,25; 10;119:2;121 :20; 9:21;57: 14;75: 11; 5: 13;24:23;27:6;30:2; 20,22,25;150:23; 152:3; 36:4,9,10, 18,21,22,25; 122: 18;124:3; 132:9, 12; 80: 19;86: 12, 15; 107: l 2, 33: 19;63: 15;129:5 155:22 37:4,16;39:3,7,16,21; 134: 14; 137: 15; 138:6, 14 primarily (1) processes (6) . 40:2,12,2l;42:2l;46:1,5, 13;140:17;141:15; possibly (2) · 125:19 16:22;45:l ,12;46: 13; 5,7, l 7;48:8,22;68:7;
· 142:1,8,20,24;143:20; 10:14;74:21 primary (3) 73:8;123:22 69: 13;84:3;88: l 7;89:3, 144: l,2,3,5; 146: 12, 15, post (3) 98:24;124:21;158: 13 produce (1) 5;90:4,22;94: 18;95:5; 19;147:8; 148 :3,4,7,2 l, 52: 14;82:9;95: 14 prior (8) 131 :5 96:12;103:8;104:l l; 23;149:3; 15 i: 17; 152:7, posted (1) 19:6;26: l 7;87:8; product (13) 105:1;119: 10; 124:4; 11,15,18; 153:23; 155: 13 13:2 l 97:25;113:4;136: I; 31: 10;35:23;37:6,7, 142:13
policy (79) postmen (1) l48:8;i57:19 I 0;3 8:8,9, I 0;40:24; pros (2) 6: 14;12: 19; 16: I, l 5; 108:6 privacy (1) 46: 13;47:2; 107:7; 105:18;106:18 17: 1,8; 18:2; 19:6,9,13; potential (1) 28:10 120:12 prospective (2) 20: 12,13;2 l: I 0, l l, 15, 156:24 privileged (1) productive (1) 89:13;137:15 16, 17 ,21,22;22 :4, l 0, l 5; potentially (6) 129: 12 118:3 . prospectively (1) 50:24;53: 14;56: 18; 30:20;6 l:2 l; 137: 12; probability (4) products (10) 79: 11 62: 19,20;67: 16;72: 13; 138:7;140: 18,23 80:25; 139: I, 16; 140: I 8 :9 ,25 ;29: 18;3 l :8, 12; protected (1) 75: I I; 18, l 9;76: 13, 16; PowerPoint (2) probably (26) 3 7:8;40:23;44:5; 120:4; l l :9 80:5,7;8 l :4,6,8, 10; 13: 15,21 29:14;3.l: 13,16;39:4; 122:8 protecting (1) 83:19;92:5;97:6;10 l :7; practical (2) 43:12;44:l 1;47:l l; professional (1) . l l :7 107:2,19,21; I 08: 16; 48:25;77:24 48: l l ;50: 19;5 l: 13,25; 124:25 protection (2) 112:3,4; l 13 :6; l.14:2 l, practice (8) 55:5,8,l 0, l 3 ;60:2;6 I :6; professions (1) 21:20;124:19 22,24,24,25; 127:3,4; 7:9;9: 19; 15:5;61 :23; 64:7;66: I 6;77:8; 108:21; 124:24 protocol (2) 128:4; 130:7, 10; 132: 14; 73: 14;77: 14;85:11 ;86:9 l 10: 10; 125: 10; 135: 15; program (13) 27:3;60:20 134:13;137:8,11,16; practices (13) 143:24;147:2 13: 12;51 :8;52:4; protocols (1) 138:9; 141 :9; 142: 19,2 l; 6:9;7:4,23;8:7;1 l: 10, problem (1) 113: 13; 115:24;135: 19; 37: 11 143: l 7; 149:2, 10; 150: l; 25; 14:3,7;98: 14,16,24; 120:22 141: 19; 144:5; 156: 12, 14, proud (1) 152: 14; 154:3, l 7; 155:5; 145:9;151:9 procedure (7) 24;157:5,9 88: l I 157:18 precise (1) 59: 1;67: 16;80: 14; programmed (3) proves (1)
Accurate Stenotype Reporters (15) pointed - proves
-~--M""e~fr~o~p~~-1it~f;I'.fo,tn,'~iir~a~n~ce~c""'"'om~-~pa~,~,y~-~--===-~--~---cC,,,,,----~~-- . --- -- '" -------==,--~~-, Public Hearing
May 19, 2011
108:13 quick (5) 119:22;122:1;128:10; 102: 15 35: 12, 17;40: 1,5,21;46:4; provide (10) 27:23;8 l: I ;98: 13; 135: 14; 137:21; 147: 17; referred (2) 51:4;88:17
30:2;44:22;76:8; 137:2; 150:5 148:9,25; 153 :8; 158: 12, 65:4;102:12 remittance (1) 103:20;107:9;1 !4:3,3; quickly (3) 22 referring (3) 24:7 147:23; 156:25;157: I 75:11;93:1;153:13 reason (10) 97:13; 114:20;133: 17 remittances (2)
provided (13) quite (9) 14:25; 15: 18;3 l :21; refers (1) 89:3,5 39: 15;61:10;64: 17; 22: I 7;52:6;71: 17; 34: 18;77:24;79:24; 106:23 remitted (6) 103:4,7,23;106:2;110:5, 84: ll; 126:18; 129: 15; 101:22;113:20;118:15; reg (1) 9:4;20: 1;23:5;36: 19; 14, 16; 129: 11; 140:20; 131 :9; 146:4;157: 11 126:7 43:3 39:6;95:5 150: 15 quote (2) reasonable (3) regard (11) repeat (4)
provides (3) 14:24;49: 13 15: 11; 107: 10; 122:22 12:2;25:5;40:20; 35: 15;64:5;97:2; 13:3;73:ll ;78: 19 quoting (1) reasons (6) 41 :21 ;54: l 5;62:6;65 :7; 152: 12
providing (3) 103:13 8: 13;86:7;152:25; 66:9,14;67:9,16 repeating (1) 6:22,24;13:7 157:8;158:13,24 regarding (6) 28:11
provision (1) R recapture (1) 7 :8,24; 11 :2,25; 12: 5,7 report (9) 137:8 149:7 regards (1) 15:22; 17: 12, 14;20: 16;
provisions ( 4) RAA (1) receipt (1) 62:2 24:7, 16;45: 15; 134:21,2 l 21: 19;8 l: 17;93: 14; 24:5 21: I regular (6) reportable (1) 141:9 RAAs (3) receive (5) 19: 14, 18;32: I ;65 :23; 134: 19
proximity (1) 96:1,3,6 11: 15;17:25;20:5; 117:25;142:24 reported (3) 64:7 raise (3) 32:2;101:22 regularly (3) 9:3;18:9,16
public (14) 20:20;25:20;26: 12 received (7) 71:25;99:7; 152:9 reporter (2) 5: ll ,16,18;6: 14;8:5, raised (2) 20:22,24;90:4; 101 :7, regulated (1) 26: l 2;128:25 11,15; 11 :7;14:21;27: 15; 28:1,6 21; ll3: l;ll5:l 2 124:23 reporting (2) 87:6,9;124: 18; 133:4 rau (11) receiving (2) Regulation (2) 20:24;41:22
publicly (1) 49:3;68:5,20,24;8 l :6, 10: 12;24:24 11:18;13:14 repository (3) 18:4 8;96:5;105:9; 108:25; recent (2) Regulations (6) 16:7;30:9;41: 16
published (1) 127:8;151:24 34:5;148:8 5:6;38: l 6;41: 15;42:3, represent (3) 5: 13 random (5) recently (1) 24;143:18 131:1,2;132:l
purchase (2) 67: 19; 116:21; 117:2,4, 67:23 regulators (11) representation (2) 8:9,25 7 recipient (1) 73:25;87:l l,13,l9; 106:8;131:23
purchased (1) range (1) 102:22 117:22;1 l 8 :2,7; 124:21; representative (3) 157: 19 91:21 recognize ( 6) 143:6;144:20; 151 :6 l 0: 19; 17:22; 122:6
purpose (10) rare (3) I 0:2, 18; 13: 13;25: 16, regulatory (2) representatives (3) 7:22; 13:23; 14: l; 80: 15,25; 138:21 21;124:8 12:15;145:6 6:3;25: 13, 17' 16: I 0;69: l ;96:20;97: 16; rate (6) recollection (1) reinstated (2) represeuted (4) 113:20;125:2;157:5 34:8;93 :22,24;94:7, 93:3 81:18,24 22:22;110:6; 128: 14,
purposes (8) _ 10, 15 reconcile (3) relate (1) 19 19:4;49: 16;68 :21; rather (1) 115:9,14;116:4 5:21 Representing (1) 97: 12; 128: 17; 130: 16; 147:3 reconciliation (1) related (4) 112:18 132:15,23 rationale (3) ll6: 11 14:3; 15:2 l ;23 :6; 148: I represents (2)
pursuant (1) 32:6;119: 13,14 record (16) relates (5) 38:19;144:23 96:24 reach (12) 5: I 0;9:6; 16: 11 ;25: 15; 32:24;39: 14;64:23; request (1)
pursue (1) _ 8:20;47:17;51:8; 26:18;27:23;45:3;48: 17; 70:3;9 l :9 25: l 98:15 78:21;95:22; 109: 14; -90: 12;101 :25;107: 19; relationship (1) require (10)
put (18) 141:22,23; 143:21,22; 118:21;129:2;142:15; 12:21 20:2;35:4;60: 17; 32: 11;35:25;36:21,25; 155:10;156:22 154:1;159:6 relative (3) 126:5; 129: 17; 130: I; 46:8,16;48:21 ;55: 13; reached (5) recorded (1) 17:21 ;20:24;46:14 140: 12;155:5, 12,25 62: I 8;76:25;87: l ;95: 13; 36: 14; 104:9,17; 41:6 relatively (2) required (15) 113:12;118:21;119:8; I l l:15;116:7 recordkeeping (2) 49:25;152:5 20:5;22:3;37: 1;40:6; 123:22;158: 16;159:8 ready (1) 15:3;88:23 relevant (1) 81 :21 ;89:22; 105: 16;
putting (1) 73:6 records (23) 51:15 118:9; 120: 17; 130: 13; 144:14 real (3) 15: 15, 19; 17:3; 19: 15; relyiug (1) 131 :6, 15; 137: 17, 19;
47: 18;78:9; 149: 16 49:23;50: 13,17;52: 11, 129:10 151 :22 Q realistic (1) 13,14;64: l 8;70:4;7 I: I; remain (1) requirement (4)
104: 13 82:21 ;84:6,6; 103:2; 22:24 39:24; 134:9, 12; 154:7 quarter (2) realize (1) I 07:21; 116:25; 120:25; remains (1) requirements (6)
54:9,10 86:22 140:5; 141 :5; 149:3 22:2 4 l:2 l ,22;92:21,22; quarterly (8) really (27) recoup (1) remember (2) 130: 13; 155: 18
30:22;33:25;58: 11,19; l3 :23; 18: 13;27:5, 14; 158:4 60:13;155:25 research (1) 65:6;95:9,22,24 38:7,11 ;47: l ;51 :8; recover (1) remit (16) 88:8
quarters (1) 62:20;64:20;68: I 0;69:2; 158:7 15:22; 16:22; 17: 12, 14; reserve (1) 25: 10 76: l 7;77:3;78:23;97:24; refer (1) 20: l 6;22: 13;24: 12, 16; 28: 11
Accurate Stenotype Reporters (16) provide - reserve
residents (1) 90:9
respect (12)
( 25: 1;63:24;67: 18; 70:23 ;84:22,25;85:6; 142: l,5,7;143 :9;144: l 7
Respectfully (1) 74: 19
respects (1) 144:18
respond (6) 37:9;46: 19;74:23; 98:8;107:8; 134: 16
responding (1) 26: 17
response ( 4) 72:3;99: 19; 127: 14; 157:15
responsibile (1) 43:4
responsibilities (3) 12:7;41 :24;85:5
responsibility (9) 44 :3, 13;85: 13; IO I: l 9; 119:9; 124:22; 128: 18; 130:22;149: 10
responsible (7) 29: 12;4 l: 11 ;43:6,9, 22;76:20;124:25
responsive (2) 136:4; 153:7
rest (4) 45:24;113:12;117:[7, 18
restore (1) 137: 16
result (10) 21:21 ;35:1 ;68: 12; 82:2,6;97:25;119:24; l31:5;149:6,l4
resulted (2) 131:25;141:10
results (4) 34:23,24;78:l l; 129:23
retained (25) 17: 10;23:7 ,9, 10,25; 31:4;7 l :6;91: 10, 11, 14, l 7;92: l ,17,24;93:7, 17, 19,21;94:6, 14, 17;95: 11; 124:5; 135: 18; 136: l
retire (1) 25:9
retread (1) . 99:25
retroactively (1) 137:25
return (1) 159:7
returned (3) 17:23;2[:1;95:16
returning (1) 9:7
Reunion (5) 77:l 1;78:[8 seats (1) 5 l:7; 115:24; 121 :6; routinely (2) 25:15 141:18;144:5 17:13;42:17 second (5)
reunit (1) rule (1) 74:21; l l l: lO; 120: 13; 51:12 128:8 138:ll;l47:l6
reunite (1) rules (10) second-to-die (1) l 16:2 38: 16;4 l: 15;42:4,24; 76:15
reverse (1) 47:3;89:21;126: 15,25; secure (1) 34:21 127:3;131:5 7:13
review (4) run (20) Security (76) ll:5;12:25;111:22; l 9: 18;36: 18;38:5; 7: 13 ;8:3; 14:5; 18:5,10, 120:4 5 8:21 ;59:24 ;60: 5;65 :22; 19;27: 16, 18;28:22,25;
reviews (1) 67:21,24;71 :9;74:20; 29: 12;30:5,12,16,25; 151 :7 77:3;82: 11 ;90: I; 130: 5; 31: 14,22;48: 16;49: I;
Rhoda (1) 132: 12; 150: 16; 151: 18, 50:3,4;53: 15;56:21; 25:16 19,23 61 :24;63:6,23;64:23;
Right (31) running (3) 66:5,9,13,19;67:9,i 7; 32: 13;38:2 l ;42:6; 67:17;74:15,17 69:22;70: l l ;71: 18; 46:6;4 7:9 ;56:22,24,25; runs (1) 72: 16;75: 16;77: 13; 69:7;71: 17;78: 1 ;79:7; 54:8 79: 15;8 l: 14;82:4,l 7; 88:24;89: 1 O; IO 1:2; Ryan (2) 96:23;97:5; 106: 13; 102:24; 106:7; 108:3; 27:22,22 l l 7: 1;119: 14; 120: 16,20, 109: l;l 18:23,24; 21,22;125:22;126:2,17; 126:21;128:1,[5; s 138:_ 13; 139:8, 15, 18; 129: 15;130:9; 131:9; 140:1,12;141:15; 134:25; 135:22;143: 10; safekeeping (1) 149:23; 151 :25; 152: l, 158:12 9:5 17; l 56:9, l 0, 12, 13, 16,
rightful (6) safety (14) 24;157:5,9,l 7;158:4 9:5,7;11:14;41:17; 73: 12,22;77: 14;78: 16, seeing (1) 84: l 7;90:20 19;86: 10;87: I; 120:2; 110:3
rights (1) 13 7:9; 138: 18,21; seek (1) 28: 12 140:24;142:4; 149:25 28:9
rigorous (1) sales (1) seem (2) 80:22 108:2 115: 13;158:9
Robinson (4) same (13) seems (2) 157 :23,25; 158 :9 ,25 18:3;56:4;57: 15; 72:3;116:11
robust (3) 60:10,11;72:15;82:14; selling (2) 35:20;36:3;79:7 83: 11; 119 :13; 152:6, 13; 107:3,7
role (1) 158:24,24 send (3) 26:3 sat (1) 56:22;95:15,23
rolls (1) 107:23 sending (2) 14 l: 13 saw (1) 5:17;23:12
Room (2) 78:12 senior (2) 5:11;107:24 saying (5) ' 12:16;26:l
rootswebcom (1) 75: 14;105:24; 130: 19; sense (11) 19:i 131:10;!46:l 29: 14;49:5;51:14;
Roseborough (54) scenario (2) 5 7:4;67:21 ;73:23;89: 17, 26:2,3,20;44: I ;49: 16; 36: l 2;157:4 20; 108:22; 137:22; 55:24;59:5,20;6 l :5; scenarios (1) 141:20 65: l 1,20;66:22;67:4; 20:18 sent (3) 69: 14;85: l ;97:2,9,2 l; schedule (1) 39:20;105:20,22 98:7; 103:24; 105:5,21; 27:9 separate (2) l06:6,8, 15,22; l 07:3, 12;. scheduled (1) 25:3; 104:5 108:3,17; 110: 19,23; 38:1 sequence (1) 112:2,15,17,20;113:7, schedules (1) 151:15 14;114:2,9,22;115:18; 5:25 sequentially (1)
I
l l 6: 13; 128: l 8,24; 129:3, scheme (1) 136: lO 9;130:21;!31:21; 53:7 series (1) 132: 17; 133: 14; 134: 16; scope (3) 27:5
i 135:7,11 67:7,12;83:13 serious (1) I round (1) search (7) 105: 19 I 49: 12 17:23;20:25;51 :23; serve (2) j routine (2) 52:4,5;83: 19; 124:22 77: 14;86:9
Accurate Stenotype Reporters
Public Hearing May 19, 2011
Services (4) I0:8;1 l:19;39:2,4
session (1) 10:15
set (8) 21: l 1;23:9,ll;49: l l, l 5;68: 14,15; 146:23
setting (2) 6:19;97:23
settle (1) 15: 13
settlement (15) 7:4,9,24;9:19;12: I; 14:4; 15:4;23: 16;61 :3; 92:3;96:24;97:7,10, 13, 15
settling (1) 20:3
several (1) 105:12
share (15) 44:20;45:4,6,9;54: 19; 71: l l ;75:4,21 ;76: I; 77: 1; 102: 11, 16; 114:2; 136:5;150:8
shared (8) 49: 1;52:3;53:3;72:23; 73:3; 105: l l,25; 153 :9
shareholder (2) 102:22;103:21
shares (30) 100:25; IOI :8,9,22; I 02: l 2; 103: 14,2 l; l 04:4, 18;106:l l,12;110:24; 111: 12,13;112:3,9, 15, 16,17 ,22; 113: 18, 19; 114:10,14,15,16, 17,23; 115:12;150: l2
sharing (2) 45:11;150:10
shorter (2) 89: [6,22
shortly (1) 30: 16
show (3) 44: 12, 16,22
showed (l) 75:24
shown (1) l l :2
side (4) 43:22; 118: 16; 129:3; 156:2
sides (1) 145: l
sign (2) 8:8,24
significant (9) 12: 18;37: 13;88:4; 92:25;94:5; 104: 11; 105:6; 121:9; 123 :24
similar (4) 24:9;3 l :21 ;54: 1; 157:3
(17) residents - similar
similarly (1) sometime (1) staff (2) stating (1) 94:11 33:24 6:1;103:4 110:8
simple (1) sometimes (6) staffs (1) stats (1) 14:25 22:20;23:21;76: 14; 6:12 96:13
single (1) 92: 14, 15;106: 15 stand (1) status (25) 139:25 somewhere (2) 126: 11 14: 18;3 l :21;53: 16;
single-digit (1) 66:20;115:17 standard (5) 54: 12, 17;56: l,4;57:6; 94:12 sooner (2) 53: 10;77: 15;86: 10; 58:3,22;59:7,IO,l 7, 18,
sit (3) 82:15;150:24 87:2;127:5 25;60:6;63:16;67: 13; 44:13;87:18;116:3 sorry (14) standards (1) 71 :21,23;72: 13;90:9;
situated (1) 26:22;35: 15;38:20; 15:8 I 09 :7; 120: IO; 142: 19 94:11 56: !5;59:22;62:3;84:23; standing (I) Statute (I)
situation (15) 90:6;99:9; 103: l 3;123:7, 153:4 40:7 36:8, 13;40:6;55:23; 14,19;136:11 start (7) statutory (7) 57 :3;64: 17;86: l 8;87:23; sort (5) 33:24;47: 16;55:8; 39: 14,18,22,24;40:25; 123:21,24;137: 12; 82:25;86:20,24; 88:22;117:24;144:23; 42:3;81:21 138: 16; 141: IO; 147: 12; 143:11;151:15 146:1 stay (2) 148:12 sounds (3) started (9) 51:1;109:23
situations (13) 56:3,25; 130: 19 54:7;55:7;57: 12, 15, step (2) 16:23;36:20;75:9; sources (1) 17 ,25;62: I ;69: 17;8 l: 14 78:23;155:9 80:3,12; 139:24; 140: 18; 14:21 starting (1) steps (2) 141:8; 142:22; 143: 13; speak (11) 84:14 24:5;145:13 155:14,21;158:18 26: 18;41 :7;65:17 ,18; starts (5) still (16)
Six (2) 67: 10;98: 17; 100: 13; 38:3,4;48:7;68: 19; 34:20;52:6, 13 ;59:6; 21:11;111:l 113: 10; 128:3;133: 15; 89:25 82: 14; 115: 13, 15, 16;
slides (1) 145:15 State (76) 121: 10; 125:23; 130:4; 80:5 speaking (6) 5:4;7:5;9:4, 14; 12: 11; 132:4; 142:23;150: 18,
small (16) 55:11;60:4;62:16; 16:6;20: I, 17;22: 14; 21;157:16 22: 15;49:25;53 :4; 109:9; 119:18; 125:24 24: 13;40: l 7;41:21; stock (7) 65:22;82:22;83:l l; specific (21) 42: 14,19;44: 18;81:23; I 00:9, 19; 101:3; I 04 :4, I 08:8; 117: 13; 121 :23; 16: 15;27: I 0, 11,15; 84:19;85: 17 ,19;87:21; 20;!12:17;114:14 122: 12,25; 144: 1,6; 29:20;3 l :8;35:22;37:7; 89:6,12,22;90: 13;92:21, stop (13) 151:20,22; 152:5 46: l l ;52: 17;57: 19; 2 l ;94:25,25; 96:25 ;97: 9; 19: 16;29:2;34: 13;
Social (76) 89:24;90:8;91 :3;97: 13; 98: 1,2,4; IO I: 17, 18, 18, 55: 18;56: 10,24;60:9; 7: 13;8:3; 14:5; 18:5,[0, 98:4; 104:22;13 l :22; 23;103:8; 104: 16,19; 72:5;126:21,22;127:2; l 9;27:16, 18;28:22,24; 148:12,16,17 109: 18; 116:7,9; 128:4, 7, 156:l,17 29: 12;30:5, 12, 16,25; Specifically (10) 7; 129: l 7,18,25; l 30:5,6, stopped (2) 31 :14,22;48: 16;49: l; 8: l ;27: 15;40:7;67: 10; 13,20; 131:3,6,7, 13,16, I 07 :3,7 50:2,3;53: l 5;56:20; 90:7; 113: l 5; 146: 17; 18;132:5,19,20; 133:7, stopping (4) 61 :23;63:6,23;64:22; 147:8; 150:19; 152: l 7 12, 16,25; 134:8, 10, 19,21, 34:23;35:5;60:21; 66:4,9, 13,19;67:9,l 7; specifics (6) 22; 137:19; 142:9; 71:24 69:22;70: l l ;71: 18; 37: 10;38: 10;47:2; 143:11,18;153:15 straight (2) 72: 15;75:16;77: 12; 126:24; 133:3; 147: 19 stated (2) 112:5,21 79: 15;81:14;82:4,l 7; specified (3) 26:9;54:l straightforward(!) 96:23;97:5;106: 13; 32:15;102:7,10 statement (3) 147: 12 117:1; 119: 14; 120: 16, l 9, spend (3) 27:23;29: l 5;74:23 stream (1) 21,21; 125:22;126:2,16; 47:11;50:6;51:14 statements (1) 6:23 138: 13;139:8,14,18,25; spike (1) 95:23 street (1) 140: 12; 141: 15; 149:23; 68:9 State-required (1) 107:17 15 l:25; 152: 1, 17; l 56:9, spirit (3) 81:11 strong (2) l 0, 12, 13, 16,2 3; 157:4,9, 29:l,22;30:l states (27) 11:20;15:3 l 7;158:3 spoke (2) 7:6; 15:6; 17: 15;3 7: 15, study (2)
sold (3) 82:23;134:5 18;38: 17;41: 16;42:21; l 19:21;149:12 107: 18;110:13, 14 spoken (1) 43:4;46:3;52:17,20; stuff (1)
somebody (8) 120: 10 54:3;84: 18;89:4,16; 62:20 18: l 7;48:5,7, 15, 17; spot (2) 90:23; I 04: l 0, 13, 16; subject (7) 69:5;75: 14;8 l :5 32:11;158:17 105: 12;122:9;l25:2; 5:20;25:5;27:6;86: 15;
somehow (1) spotlight ( 1) 131: 14; 132 :23; 146:2; 93: 13;94: 18;98:25 116:8 144:15 154:24 submit (9)
someone (9) spouse (1) states' (1) 37: 12;58:4;73:6,7, 13; 34:19;36:5;47: 14; 111:4 43:10 76:8;80:8;133:23; 48: I ;72: 1 ;75:4;99: 15; stab (1) State's (2) 149: 10 115:17;154:22 103:24 38:2;41:18 submitted (5)
''i!i1i- t .\cripl·k Accurate Stenotype Reporters
Public Hearing May 19, 2011
22:3;53:9;8 l :7; 119:19;142:25
submitting (3) 52:8;73:2; 149: 15
subpoena (2) 28:1,4
subpoenaed (2) 9: l 7;24:25
subsequent (3) 52:21 ;57:24; 152: I
substance (1) 148:25
substantial (1) 154:22
substantially (1) 15:5
substantive (1) 123:23
suggest (2) 121:23;145:5
suggestions (2) 143:5; 144: 11
sum (3) 86:25;94: I; 152:22
summer (I) 86:3
support (3) l I l:23;124:18,24
Supreme (1) 16:8
sure (32) 8:5;20: 19;28: 18;33:8; 40:3, 13;42: l 2;45: 14, 18; 50:7;62 :23 ;70: l 5;7 l: 11; 72:24;73:8;75: 12;87:8; 102: 16; 114:20; l l 5: 5; l 16: 18;117:3; l 26: 18; 127:6;128: l l;l36: 14; 139:3; 14 l :7; 144:7; 148:24; l 50:9; 152:22
surprise (1) l 03: l l
suspect (2) 108:15,17
suspend (3) 32:3;34: 15;147: 14
swear (5) 25: 17 ;26: 13,22;67: I; 128:22
sweep (7) 71:2;78: l 1;82:25; 83:6,23; 109: l, l 4
sweeps (1) 19:7
switch (1) 59:21
switched (I) 59: 16
sworn ( 4) 26: 14,24;112:25; 128:24
system (57) 33:22;35:2 l,25;36: l,
(18) similarly - system
.. '"'·- .•. .,,M_e~tr~o~p"'ol:'1"It""a-nLfrer;;-~.;',:';.';;.,e'compa11y "' '"·····'"=~~·· •.. ~-=-~·-,.-,.-. ~---=,=.~-·~.~-·=·,-·.··=""-·- . ' . Public Hearing
May 19, 2011
(
3, lO, 18,22;37: 1,22; 6:22 106:25 . 118:16; 141: 17; 149:20 trust (1) 3 8: I 5;40: 13, 16,20;4 l: I, tend (1) three (10) tools (1) 114: 11 3,4,9, I 0, 12, 14;42:2,8,9, 92:6 27:4;46:3;95: 16; 11:8 try (20) 16;43:5, 10;46: 1,7,9, 12; ten-year (1) I 09: 13; 118:25; 130:8,9; top (3) 23:2;29:22;48: 19; 48:21;52: [5;58: 18; 52:4 139: 10; 149: I; I 52: 13 37:19;83:21;112:12 51 :8;66:2;87:23;95: 18; 68: 15,20;79: l 2;84:4; Teresa (1) three-point (9) topic (6) 105:4,7, 13,16; I 06: IO; 90:21,22;96: 12; 123:9, 26:! 139: 17, 18,23; 140: I 0, 83: 17 ;87: l 2;88: I; 110:17;113:8;115:20; 12,22,25;124:2; [27:25; term (3) 13; 141:4,5; 154: 16; 99:l,1;142:15 l l6:l,l6;131:5;14l:22; l 29: 18,24,25; 13 l :4,4; 56:6;76: l 3; [54:23 155:4 topics (2) 147:19 132:4,6; 133:24; 135: l; terminate (4) three-year (1) 13: 16;29:23 trying (17) 149:24 15: 17;2 l :7;75: 16; 134:20 total (7) 27:5;29: I ;36: 12;
systematic (2) 138:9 throughout (1) 3 l:5;37:21 ;78: 12; 51: 16;67:3,4;71 :3; 30:21;55:9 terminated (1) 30:8 86:25;89:7;122: 12; 85:24; 100:6;!03: 18;
systematically (3) 16:2 thus (1) 152:22 105:3; [07:9;109:20,23; 33: 15;54:24;55:3 termination (1) 136:25 totality (1) l 10:2;133:15;153:4
systemic (2) 76:21 thwart (1) 86:17 turn (5) 65:6;147:1 terminology (4) 16:22 touch (1) 48:23;57:5;63:2 l;
systemically (1) 59:6; 106:20,22; ticking (1) 52:16 68:7;69:12 66:13 154:25 48:8 tough (1) turned (1)
systems (11) terms (14) ticks (1) 158:17 116:9 29:5,11 ;42: 15;43:7, 15:7;46: l 1;70: 16; 48:13. toward (1) Turning (1) 18;49: 17;59: 1 ;60:3; 80: I ;83:5;86:2,23; timeline (1) 85:25 91:8 l l 7:l l;l39:13;l44:3 89:24;92:2;1l 1:7;139:6, 34:8 track (3) two (9)
7;140:7;154:19 timely (3) 16: 11;46:8;90: l4 9: 17; 14:15;24:24; T test (1) l l:16;[2:22;119:19 tracking (1) 25:2;43: 12;73:6; 109:9;
95:4 times (3) 43:3 139: 10,20 table (3) testament (1) 97: 10;! 09:22;155: 15 tracks (2) type (6)
107:24; 121 :25; 143:2 l 73: [8 timing (5) 46:1;90:22 62: 19,20;78: l 9;79:22; talk (16) testified (7) 31 :6;46:9;82:6,8; trade (4) 92:5; 152: [4
14:9;20: 19;3 l: 16; 69: 16; 123:10; 128: 15; 150:11 99:7 ,l 4, 17; l 55: l 9 types (7) 48 :24,25;55:25;61: 14; 138:3;146: [4;148:9; tips (1) trading (1) 14: 15;44:4;65:25; 77:8;85:4;[ l 1 :6,6; 15 l :25 38:21 100:8 71 :5,7;79:23;102:9 [33:8,11;139:4;!45:8; testify (7) title (2) traditional (1) typically (3) 155: I 48: lO, 12;69: 15;85: 18; 5:19;43:21 78:14 31 :20;59:9;92:22
ialked (18) 123:3; I 52:25; I 57: 10 today (45) transaction (2) 14: 13;68: l 1 ;70:7; testifying (2) 5:5,17;6: 13,23;9: 16, 34:21;100:8 u 72:9, 14;9 l: 18; 117: 14; 25:22;66: I 18; 10:9,1 l; l 1:24; 12:5; transcribed (1) 119:3; 120:9; l 25:4; testimony (24) 13:2,7,19,25;24:23;25:6, 26:16 ultimate (1) l 27:21; 134:3; 137:2 l; 12:4; 13:8; 18: II; 22;27 :3,9 ,25;34:4,8; transparent (3) 82:6 141 :3; 148: 13, 14; 149: l; 24:24;26: 10;65:7;66:25; 52:6,13;74: 16;77: 15; 9: 19;11:24;144:21 ultimately (1) 150:6, 67:2;88:21;112:24; 94: 12; l 15:8; 122: 17; treatment (1) 35: I
talking (14) 115:23; 116:20; [29: l; 124: 17; 125:4; 132: 1, 11; I 02: 1 l unable (2) l 7:20;27: [4;55: 16; 13 l :22; [32: l 1;134:7; 135: 10;136:24; 144:23; treatments (1) 103:9,22 59:l7;94:l2;l l l:7; 146:5,9, 10; 147:6;148:2; 145:3; 146:6;147: 14; 104:5 unaware (1) 122: 15; 133: IO; l 37:9; l 50: I 5,20; l 52:22 149:2;150:3; 153:3,5; tremendous (2) 17:l 141 :20; 143:9; 147: 13; thanks (4) 156:16;159:5 ll:2;16:11 uncashed (2) 150:16;153:23 100: l; 136: 19,23; today's (7) tried (1) 38:24;124:4
Tallahassee (2) 153:14 5: 10,22;7:21 ;13: 16; 105:20 unclaimed (76) 5:12;6:13 theirs (1) 83: 14;94: 16; 126:5 trigger (3) 7: 10,25;9:7; 12: I; 14:6;
task (2) 32: l2 Todd (4) 128: 16; 129:23; l 42:2 24; l 5 :23,23,25; l 6:3,3,7, 7:3, 14 thereabouts (3) 25:25;78 :24;82:23; triggered (1) 10, 14,22; 17: 12, l 5 ;22:3,
tax (3) 66: 10; 101:8; 108: 13 102:12 127:25 13;23:6;24:8, l 2, 16; 126:4, 14,15 thinking (2) . together (5) triggering (3) 35: 17,20,24,25;36:3,9,
team (2) 151:13;157:IO 62: 18;77: l 7; 108: 14, 127: IO; 130: 17,24 10, 17 ,21,22,25;37:4, 12, 57: 18;159:4 though (3) 15;[45:8 trip (1) 12, 14,16,22;39:2,6,21;
technical (1) I 47:7;124:20;157:16 told (2) 6:[2 40: 12,21 ;41:4,[0;42:20; 154:23 thought (9) 51:3;90:3 Trish (3) 46: 1,5,7,17;48:8,22;
technology (12) i 52:5,5; 104: 14; 106:9; took (10) 10:20,22;98:9 68:7, 15;69: 13;84:3; 3 l :8;5 I: l l ;86: 13, 18, l 14:14;1 !8:lO;l2!:3; 68:3;80:21;84:l l; troubles (1) 88:l 7;89:3,5;90:4,21,22; 19,20;88:9; [20:24; l30:l6;133:15 86:3;98: 13; 100:4,8,10; 137:3 94: 18;95 :6;96: 12; 103 :8; 121: 12; 149:21; 150:3; thoughts (1) 129:13,13 true (7) 118:3;123:8,9,[2; 124:2, 152: 16 61:6 tool (6) 56: 19;8 l :20; l 02:23; 4; 133:24; 142: 13
telecast (1) thousaud (1) 50:5;52:22;73: 12; 129:5; 131 :3, l l; 140:21 uncover (1)
AccLtrate Stenotype Reporters (19) systematic - uncover
87:23 under (20)
8:20; 15: 14,25; 16: I; 19: 13;80:6;92:8;94:24;
( I 01: 15,16; 104:7; 111:9; 112:24;114:25;133:12; 156: 12, 13,20,23;157:4
underlying (2) 114:21,22
Understood (10) 32:13;88:21;116:19; 127:6; 129: 16,25; 131: 14; 147:5; 150: 19; 152:21
underway (I) 9:13
unfair (1) 15:4
Unfortunately (1) 80:20
unique (2) 22:21;144:17
unit (1) 39:21
units (2) 30: 10;35:22
universal (2) 82:17;98:6
unless (1) 152:19
unpaid (4) 8: 12; 14:22;20: 1;22:2
unscrupulous (1) 11 :9
unsettling (1) 11:4
unusual (1) 151:21
up (47) 6:20;8:8,24;2 l: 17; 23:9,11;29:3;30:3;33:7, 15;34:6;38:22;42: 13, 16, 23;43:9, 10;46: 16;49: l l, l 5;50:21 ;57:22,23; 61: 18;62:4, l 4;65: 18; 68: 14,15;69:6;70:8; 75:24;76:4;77:7;8 l: 15; 98: 10;126: 11; 129:2; 137: 12; 138:23; 143:3, l 1;144:9,25;146:23; 153:13,21
update (2) 52: 10,12
upon (8) 12:22; 112: 14; 119:9; 130:20; 131: 17; 142: 12; 143:4;144:12
uptick (1) 89:5
up-to-date (1) 45:l
usage (2) 121:11;147:l
use (50) 90:25;92:7,8;96: 15; waiting (1) 14:4; 18:3;19:3,5; 100:20; 101 :9;103:5; 90:14 23: 16;27: 15;28:24,25; 106:24; I 07 :24; 115: 12; waive (1) 29:7;30:22,23,25;3 I :3,7, 121 :4; 123 :2; 137: 16, 16; 155:16 14 ,23;32:24;33 :25; 141:7 waived (4) 47: 13;49: I ;52: 13;53: 15; values (3) 138:4; 155: 18,20,21 57 :8 ;58: 12;6 l: 12,23; 22:15;49:7; 115:2 waiving (1) 62:6;63: 1,23;64:9; variances (1) 129:12 65: 13;68:24,24;69:2 l; 40:17 walk (2) 70: 10;71 :8, 18,24;73: 14; varies (2) 103:17;1 I0:2 79: l 5;82:20;9 l: 11; 64:20;81:23 way (31) 97: 11,16; 107:21; 118:7; variety (6) 11 :24;29:8;38: 11; 121: 17; 132:21 ;134:9; 8: 13;14:23; 17: 18; 48: 13,23;52: 15;53: 1 O; 149:25 18:22; 19:4;20: 18 55:9;72:5,6, 15 ;73: 15, 15;
used (32) various (12) 75:23;78: 14;79: 19; 18 :25;21 :5,16,20; 7:5; 11 :7;38: 16;4 l: 16; 86:23;88:7;90: l 3;94:21; 31 :6;32: 16;36:2,4; 43:4;44: 18;58:25,25; 107:20;109:24; 122:20, 46:23;49: 17,24;52: l, 19; 90:23;94:25; 104: 10; 22,23; 125:8; 134: 16; 57: 15;64:6;66:13;69:9, 108:8 135: 15; 136:7; 138:9, l O 17;118:19;127:!0; vary (10) ways (16) 128: 16;129:22;130:2, 18, 37:7;38:8;47: 1;58: 17; 7: 11; 17: 18; 18:22; 23; 132: 16; 134: 17; 85:19;92:4,IO;l 26:24; 19:2;3 l: I ;51: I ;55: 14; 138: 11; 146: 10;152:11; 131:7;150:10 125:5,8; 14 l :21,22; 158:13,23 vast (8) 143:3,6;144:9;145:l l;
useful (3) 70:3;73:18, 19;102:20; 146:21 52:22;149:20,21 106:4;! 10:9;116:24; web (1)
uses (4) 119: 18 6:23 65:25;72: 16; 156:17, vastly (1) website (2) 17 107:20 13:21;141:21
using (33) Vaughn (1) Weekly (3) 7: 12;2 l: 14;30: 15; 6:18 5:14;107:1;108:7 31 :22;32: 19;33: 17; vendors (1) welcome (5) 46: 15;55:7,8;56:3,5; 105:8 10:16;143:4;144:11, 57:25;62: 1;63: l 7;64:3; verifies (1) 21;145:12 68: 18,20;69:25;79: 11; 22:9 welcomed (1) 81: 14;82:3;91: 14; verify (2) 103:5 117:24;118:12,14,15; 19:5;45: 19 weren't (4) 120:2; 121:16; 137:6; versus (3) 116:5,5;117: 14; 148 :3; 152:9; 154: 19; 16:9;47:20;102:9 151:23 158:3 vice (2) What's (5)
usually (1) 25:25;26: I 83: 18;87: l 3;90:9; 99: 10 view (1) 108:22;131:7
usurp (1) 93:16 whenever (1) 21:21 virtually (I) 142:10
utilization (2) 154:5 wherein (1) 54: 16;58:2 virtue (2) 75:7
utilize (7) 138:24;139:12 wherever (1) 8:2;24: 18;30: l 9;58:9, Vranka (2) 82:19 !0;96:22;97:5 26:21,23 whole (7)
ntilized (1) vulnerable (1) 29:21;54:5;87:9; 66: 19 11: 11 , 96:15,16;117:5;150:12
,itilizing (1) who·'s (2) 64:22 w 29:11;125:16
utmost (1) whose (3) 12: 13 Wagner (27) 6:19;104:12;121:9
124: 10, l l; 125: 12,21; whys (1) v 126: 12, l 9; 127:6, l 3,24; 72:11
~ 128:3,11,15,21;130:3,8, widely (1) valuable (1) 15;131:17;132:8; 8:11
73: 11 133: IO; 134: 11 ;135:4, 10, willing (3) value (27) l 4, 18,22,25; 136: 18 79:14,14;115:21
20: 12, l 2;2 l :4,7, 16, 18, wait (3) wish (1) 21;59: l 2;8 l:4, 10, 19,25; 22: 12;48:21; 147: 16 9:24
Accurate Stenotype Reporters
Public Hearing May 19, 2011
withholding (1) 15:10
within (3) 40:24;75:5;93:4
without (8) 15:11;20: 17;2 l :17; 23:12;28:11;32:14; 59:13;152:l
witness (9) 26:5,21,24;28: 16; 67: 1 ;69: 15; 128: 19; 131:2,24
Witnesses (1) 26:14
wonder (1) 128:21
words (4) 18: 13; 19:20;23: 11; 30:22
work (12) 7: 16;8:8,22; 12:24; 45: 13;46:25;7 5: I; 116:13;117:15;120:15; 145: 19;146:2
worked (6) 8:24;49:5;73: 16; 79: 12; 108:2;140:5
working (6) 7:15;43:6;118:1; 121:3;!40:7,8
work-intensive (2) 158:10,15
works (11) 31: l 7;40:8,;4 l :2;43:7; 48:23;5 l:22;56: 19;78: I, 10;87:2;103:18
World (1) 155:19
worth (2) 22:21;143:25
worth while (2) 5 l:25;108:21
woule (1) 149:6
wrap (1) 153: 13
write (3) 32:4;34: 16; 14 7: 14
writing (5) 30:3;37:9;62:25; 97:23;98:8
written (8) 22:25;24:7;32:23; 33:9;44:15;54: 14;62:5; 113: 11
wrong (1) 88:22
y
year (12) 8: 10; 14:25;32:2 l; 67:25;85:25;89:6;93: 5;
(20) under - year
(
\
J
\
I00:4;101:8;117:l7; 136:6;148:10
yearly (1) 30:23
years (29) 16:4;17: 11 ;21: 15; 22: 12,16;24:4;34:5; 3 8 :4;44:24;46:2,3; 48:2 l ;53:22;55:2,2,15; 68:9;69: 12;73: l 7;88:16; 89: 16;90:5;100: 13; 130:5,8,9; 139:20; 146:22;153:l
yields (1) 94:13
York (4) 101 :17,18,18; 104:7
I !
Accurate Stenotype Reporters
Public Hearing May 19, 2011
(21) yearly - York
EXHIBIT B
Page 1
BEFORE THE
INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA
DAVE JONES
---O0O---
IN THE MATTER OF:
METROPOLITAN LIFE INSURANCE File No. COMPANY'S PRACTICES AND IH-2011-00002PROCEDURES RELATING TO THEUSE OF DEATH MASTER FILEDATA AND RELATED INFORMATION
________________________________/
OFFICIAL TRANSCRIPT OF PROCEEDINGS
INVESTIGATIVE HEARING REGARDING PRACTICES OF METROPOLITAN LIFE INSURANCE COMPANY
CONDUCTED BY THE CALIFORNIA INSURANCE COMMISSIONER AND THE CALIFORNIA STATE CONTROLLER
May 23, 2011
Secretary of State Building First Floor Auditorium 1500 11th Street Sacramento, California 95614 (commencing at 9:37 a.m.)
REPORTED BY: JANICE M. KNETZGER, CSR NO. 4434
Page 2
1 A P P E A R A N C E S
2
3 QUESTIONING PANEL:
4 DAVE JONES, California Insurance Commissioner
5
6 JOHN CHIANG, California State Controller
7 RICHARD CHIVARO, Chief Counsel
8 California State Controller's Office
9 ADAM COLE, General Counsel
10 California Department of Insurance
11 PAUL HANSON, Director of Enforcement
12 Minnesota Department of Commerce
13 BELINDA MILLER, General Counsel
14 Florida Office of Insurance Regulation
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1 A P P E A R A N C E S (Cont'd)
2 ON BEHALF OF METROPOLITAN LIFE INSURANCE COMPANY:
3
4 TERESA ROSEBOROUGH, Deputy General Counsel Legal Affairs
5 METLIFE 1095 Avenue of the Americas
6 New York, New York 10036
7 ROBERT E. SOLLMANN, JR., Executive VP
8 Retirement Products METLIFE
9 1095 Avenue of the Americas New York, New York 10036
10
11 TODD B. KATZ, Executive VP US Business Insurance Products
12 METLIFE 501 U.S. Highway 22
13 Bridgewater, New Jersey 08807
14 FRANK CASSANDRA, Senior VP
15 Insurance Products Financial METLIFE
16 501 U.S. Highway 22 Bridgewater, New Jersey 08807
17
18 LAW OFFICES OF SIDLEY AUSTIN, LLP BY: BRADFORD A. BERENSON, ESQ.
19 1501 K Street N.W. Washington, DC 20005
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1 May 23, 2011
2 I N D E X
3 ---o0o---
4 EXHIBITS MARKED FOR IDENTIFICATION
5
6 Exhibit No. Description Page
7 1 2-pg document entitled 148 "Death Match - Referral to
8 Life Insurance or Total Control Accounts
9 2A 8/9/04 letter to Mellon Investor 229
10 Services from ACS - Lynden Lyman
11 2B 6/2/04 letter to Mellon Investor 229
12 Services from ACS - Lynden Lyman
13 2C 4/6/04 letter to Michael Cummings 229 from Richard Chivaro, Chief Counsel
14 2D 12/30/03 letter to Michael Cummings 229
15 from Richard Chivaro, Chief Counsel
16 2E 12/29/03 letter to Mellon Investor 229 Services from ACS - Lynden Lyman
17 2F 9/4/03 letter to Lynden Lyman from 229
18 MetLife - Michael Cummings
19 3 12/17/99 letter to New York State 230 Department of Insurance from
20 MetLife - Joseph Reali (4 pgs)
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1 May 23, 2011
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3 P R O C E E D I N G S
4 ---o0o---
5 The above-entitled matter came on this day
6 Monday, May 23, 2011 and the following proceedings were
7 had and taken to wit:
8 ---o0o---
9 COMMISSIONER JONES: Good morning. Thank you
10 for joining us at today's investigatory hearing.
11 My name is Dave Jones. I'm the Insurance
12 Commissioner for the state of California and I want to
13 welcome you to this investigative hearing.
14 Present with me are: State Controller John
15 Chiang. Linda Miller, General Counsel of the Florida
16 Office Department of Insurance. Paul Hanson, Director
17 of Enforcement of the Minnesota Department of Insurance.
18 Adam Cole, General Counsel of the California Department
19 of Insurance.
20 We will be joined shortly by Rick Chivaro,
21 General Counsel of the California Controller's Office.
22 The purpose of today's hearing is to
23 investigate practices in the insurance industry
24 regarding the payment of death benefits under life
25 insurance policies and annuities.
Page 6
1 State controllers and state insurance
2 regulators of a number of states are examining life
3 insurance companies to understand whether they are using
4 information they have that indicates a policyholder has
5 died and whether they are paying out benefits once they
6 have that information.
7 Initial information from publicly available
8 sources suggest some troubling practices in this area.
9 For example, initial information indicates
10 that life insurers who receive detailed information
11 about the death of their policyholders from a database
12 prepared by the Social Security Administration called
13 "Death Master."
14 Insurers use Death Master for a variety of
15 purposes
16 Some insurers appear to use Death Master to
17 cut off payments on annuities when an annuity owner
18 dies, but do not use that information to identify life
19 insurance policyholders who die and pay their
20 beneficiaries.
21 Further, initial information indicates that
22 some insurers pay premium to themselves from the
23 built-up cash value of the policy after a policyholder
24 dies even though the insurer has notice of the death
25 from the Death Master data file or another source.
Page 7
1 In that situation, not only does the
2 beneficiary receive no payment, but the insurer
3 increases its revenues by draining the value out the
4 policy until there's nothing left.
5 We're troubled about the possibility that
6 insurers may be using death information to boost their
7 finances by stopping annuity payments on one side of
8 their house, but not using that same information on the
9 other side of their house to pay policyholders whose
10 beneficiaries are due benefits.
11 More generally, we want to understand what
12 insurers do to investigate the deaths of their
13 policyholders and pay beneficiaries who are owed money.
14 We have subpoenaed Metropolitan Life
15 Insurance, generally known as MetLife, to testify under
16 oath before us today to answer questions about its
17 practices in this and related areas.
18 MetLife is one of the largest life insurers
19 and insurers of annuities in the United States and it
20 has substantial market share in California.
21 I'm very pleased today to be joined by our
22 State Controller John Chiang.
23 I want to commend Controller Chiang for his
24 initiation of an investigation into the death benefits
25 of unclaimed property held at insurance companies and
Page 8
1 for the extraordinary work of his department and his
2 staff and he personally on this issue.
3 We're very excited at the Department of
4 Insurance to be working closely with the State
5 Controller and the State Controller's office on this
6 matter
7 While our focus today is on MetLife, we're
8 looking at practices around the industry. As of today,
9 I have commenced market conduct examinations, which are
10 investigations of ten of the largest life insurers in
11 the United States to investigate their practices as
12 well.
13 My comments this morning are based on
14 preliminary information about practices in the industry.
15 Our purpose today is to get more definitive information
16 about these practices.
17 This hearing today is part of a coordinated,
18 multi-state investigation by insurance departments and
19 controllers around the United States.
20 Minnesota and Florida insurance regulators are
21 participating in this hearing. We will be sharing
22 information from this hearing with other state
23 regulators and continuing to cooperate with them on this
24 multi-state investigation process.
25 Today's hearing will proceed as follows:
Page 9
1 After my opening statement, Controller John
2 Chiang will make an opening statement. Then, General
3 Counsel Adam Cole will provide some additional
4 background to further set the stage for the hearing.
5 We'll then swear in the participants from
6 MetLife and question them.
7 Following that, we will provide an opportunity
8 for members of the public to make comments.
9 We want to welcome the representatives from
10 MetLife to the hearing today.
11 We'll take one 15-minute break in the morning,
12 recess for lunch from 12:30 to 1:30 and take one
13 15-minute break in the afternoon.
14 With that, it's my great pleasure to introduce
15 our State's Controller, Controller John Chiang.
16 CONTROLLER CHIANG: Thank you very much for
17 the invitation to participate in this morning's hearing.
18 Good morning to all.
19 In July of 2008, my office initiated audits of
20 the life insurance industry to determine whether the
21 industry was complying with California's unclaimed
22 property laws.
23 Specifically, I was concerned that insurance
24 companies were holding on to the proceeds of life
25 insurance for years and sometimes decades after the
Page 10
1 insured had died.
2 I was concerned that the life insurance
3 industry was ignoring information that it had access to
4 which would identify deceased clients and enabled the
5 company to pay those benefits to either the insured's
6 beneficiaries or to the state of California so that we
7 could return those benefits to the beneficiaries.
8 All too often, for one reason or another, we
9 know beneficiaries under life insurance policies fail to
10 come forward when their loved ones die.
11 There are many reasons why: Parents buy life
12 insurance policies for their children. Perhaps as
13 adults when the owners die do not even know about. Or
14 the children may be raising families of their own in
15 different states unaware of an old policy that sits in a
16 dresser drawer or is forgotten in a safe deposit box.
17 Let's be perfectly clear. The insurance
18 companies know about these policies, even if the
19 beneficiaries don't.
20 That's where my office comes in.
21 If life insurance benefits are not claimed by
22 the heirs, those benefits are required to be sent to the
23 California Controller's unclaimed property program where
24 we can safeguard those funds until the beneficiaries
25 come forward.
Page 11
1 Back in 1948, the Supreme Court of the United
2 States recognized the important role all 50 states play
3 in this process.
4 The courts of California statutes recognize
5 that the State is a far better depository of those
6 unclaimed death benefits than an insurance company.
7 That's because an insurance company may go out
8 of business or may merge with another company or it may
9 simply use, loose or draw down those unclaimed death
10 benefits.
11 The state of California will hold those
12 unclaimed death benefits in perpetuity until the
13 beneficiaries are located or come forward to claim the
14 benefits.
15 Here are my concerns:
16 I believe the insurance industry is sitting on
17 hundreds of millions of dollars in unclaimed death
18 benefits that should be turned over to the State.
19 I'm also concerned that the insurance industry
20 is ignoring its obligation under California laws and the
21 laws of other states.
22 I'm concerned that the insurance industry is
23 not holding up its end of the sacred bargain it struck
24 with its client when it issued life insurance policies
25 in the first place.
Page 12
1 The laws in this regard are clear.
2 What is even more clear is that the insurance
3 industry has a moral as well as a legal obligation to
4 pay death benefits.
5 When you think about the expectations of all
6 the parties, they are simple.
7 The clients who purchase life insurance
8 policies to protect their families after they died fully
9 expect that the benefits will go to their loved ones
10 upon their the death.
11 The beneficiaries and heirs of a life
12 insurance policy owner -- if they know about the policy
13 -- expect they will receive the benefits upon the death
14 of the insured.
15 And finally, the insurance company at least
16 should expect that after issuing a policy and collecting
17 premiums for months and years, it will one day pay out
18 the death of an insured.
19 The questions that we are going to consider at
20 this hearing are:
21 Have those expectations been met? Is the
22 industry doing all it can do to pay the loved ones of
23 its insureds clients upon their death? And finally, is
24 the insurance industry complying with its contractual,
25 moral and legal obligations?
Page 13
1 Today's hearing is a continuation of a process
2 that will allow us to do so and hopefully get some
3 answers to these questions.
4 Again, Commissioner Jones, thank you for the
5 opportunity to participate today.
6 COMMISSIONER JONES: Thank you very much,
7 Controller Chiang.
8 We appreciate your department and your
9 personal involvement in this process. Thank you for
10 your leadership on this issue.
11 Next, we're going to have an opportunity to
12 hear some additional background information that will be
13 presented by Adam Cole, General Counsel for the
14 Department of Insurance.
15 We want to direct your attention to the magic
16 screen that is descending from on high and turn the mic
17 over to Adam.
18 MR. COLE: The purpose of our hearing today is
19 for the California Commissioner of Insurance and our
20 Controller to evaluate potential industry-wide practices
21 related to several areas:
22 Life insurance and annuities claims settlement
23 issues;
24 Use of the Death Master database that
25 Commissioner Jones referred to;
Page 14
1 Compliance with California's unfair claims
2 practices law and other insurance statutes. That's the
3 insurance side of the laws at issued here;
4 And finally, compliance with California's
5 unclaimed property laws. That's the Controller's side
6 of the law that's at issue.
7 Life Insurance Policies.
8 I wanted to say a couple of words about what
9 life insurance policies are and what annuities are
10 because we're going to be discussing those issues at
11 some length.
12 There are two primary types of life insurance;
13 term and whole life.
14 In a term life policy, the insured pays a
15 premium for a limited period of time. If the insured
16 dies when the policy is in force, a death benefit is
17 paid. There's no cash value. The policy lapses and no
18 death benefit is paid after premiums end.
19 By contrast, a whole life insurance policy is
20 a policy in which the insured also pays a premium.
21 In addition to a death benefit, there is a
22 cash value that builds up over time. If an insured
23 stops paying premiums, the insurer may itself -- pay
24 itself premium out of the cash value.
25 The policy pays a death benefit so long as the
Page 15
1 policy is in force through one of these premium sources.
2 Group life insurance is either term or whole
3 life insurance coverage covering a group of people,
4 usually employees of an employee.
5 These benefits are offered under a life
6 insurance policy often kick in many, many years down the
7 line.
8 It's fair to say that a life insurance policy
9 is a long-term promise by an insurer.
10 Annuity Contracts. What is an annuity
11 contract?
12 It's a contract by an owner and an insurer
13 where in exchange for premium payments, the insurer
14 promises to make periodic payments to a person called
15 the annuitant -- whoever is going to receive those
16 payments.
17 There are a variety of different types of
18 annuities.
19 Annuities are either in the pay-in stage or
20 the deferred stage, which is the stage where the person
21 who has purchased the annuity is still paying premiums
22 in and awaiting the benefit that will eventually come to
23 him or her.
24 Then, annuities go into the pay-out phase.
25 That is, after all of the premium has been paid in, the
Page 16
1 insurance company then pays out the promised benefit.
2 Payments begin on maturity date or annuity
3 commencement date. That's the date where the payments
4 are triggered.
5 Payments may be for a guaranteed period, for
6 life, or both.
7 Payments are generally due upon the death of
8 the owner or annuitant. That's an additional benefit.
9 A death benefit is typically associated with an annuity.
10 Again, as with a life insurance policy, since
11 payments from the insurance company typically arrives
12 many years later, it's also fair to say that an annuity
13 contract is a long-term promise by an insurer.
14 The Problem of Unpaid Benefits.
15 The existence of unpaid benefits -- under both
16 life insurance policies and limited use -- is a problem
17 in the life industry.
18 To quote from a New York Times article in
19 February of this year: "Hundreds of millions of dollars
20 in life insurance go unclaimed each year for one simple
21 reason; the beneficiaries do not know the money exists."
22 "It is difficult to accurately estimate the
23 extent of unclaimed life insurance policies."
24 A Professor Emeritus at Indiana University
25 states in that same article: "Whether the companies
Page 17
1 have good recordkeeping I honestly don't know, but I
2 strongly doubt it."
3 The Potential Violations of California's
4 Insurance Laws.
5 And this is what the Department of Insurance
6 is looking into.
7 I will place a few of these statutes on the
8 screen, but the principle point here is to indicate that
9 a number of our laws in the Insurance Code are
10 implicated.
11 Perhaps most significantly is the Unfair
12 Practices Act which is a law that requires insurance
13 companies to make sure that they engage in fair and
14 timely claim settlement practices.
15 In California, it is illegal for an insurance
16 company -- and I'm quoting now just two provisions of
17 the statute -- "to fail to adopt and implement
18 reasonable standards of prompt investigation and
19 proceeding and processing the claims arising under
20 insurance policies."
21 And secondly, it is illegal for an insurance
22 company "not to attempt in good faith to effectuate
23 prompt, fair and equitable settlements of claims in
24 which liability has become reasonably clear."
25 There are several statutes of ours which refer
Page 18
1 to the timing on which payment is to be made by an
2 insurance company to a beneficiary.
3 In essence, the short answer is that:
4 "Whenever possible payment is to be paid within 30 days
5 after the death of the insured." Interest runs from 30
6 days after the death of the insured.
7 And those are laws that are also at issue
8 here.
9 Further, two additional laws from the
10 California Insurance Code that we, as a condition of
11 granting Certificates of Authority or licenses to
12 insurance companies need to be comfortable that the
13 insurance company's management is exercising competency,
14 character and integrity.
15 We look at whether claims under policies are
16 promptly and fairly adjusted.
17 We look at fairness and honesty of methods of
18 doing business.
19 And finally, on the insurance laws, we also
20 look as a condition of Certificates of Authority being
21 held, at whether insurers are carrying out their
22 contracts in good faith.
23 On the unclaimed property side that the
24 Controller will be looking into, the question has to do
25 with escheat.
Page 19
1 Escheat is the process by which funds or
2 monies held by an entity such as an insurance company
3 which are abandoned or unclaimed are then turned over to
4 the State which then attempts to find the owner.
5 California has a law in its unclaimed property
6 books that require insurance companies that after three
7 years of dormancy of an insurance policy, that it be
8 turned over to the State for its -- to the Controller's
9 office.
10 I want to comment just very briefly on a case
11 that Controller Chiang referred to, a 1948 case
12 Connecticut Mutual versus Moore.
13 This is a significant case because the U.S
14 Supreme Court at that time determined and held that
15 state -- Controller's offices and escheat and unclaimed
16 property departments have a very strong interest in
17 making sure that benefits get into the hands of
18 policyholders and the terms of the policy itself which
19 may refer presentation of the death certificate are
20 overridden by the State's interest.
21 What we're looking at here are whether --
22 questions as to whether insurance companies have
23 information indicating that consumers are deceased with
24 active policies, but failed to act on this information,
25 except when it is in their best interest to do so.
Page 20
1 Whether insurance companies have failed to pay death
2 benefits or escheat death benefits in situations where
3 the insurance company had information that individuals
4 have died with policies in force, but beneficiaries have
5 not actually filed claims because they were unaware of
6 the policy.
7 Do insurance companies have adequate controls
8 to monitor when retained asset accounts have been
9 dormant and to try to locate the owners or escheat the
10 benefits.
11 A "retained asset account" is a mechanism that
12 a life insurance companies have to hold money after
13 someone has died, belongs to a beneficiary and is held
14 with interest for some period of time until a
15 beneficiary comes forward and says: "I want to take all
16 or some of that money out of the retained asset
17 account."
18 Different Ways Insurers Become Aware of the
19 Deaths of Their Customers.
20 There are a number of sources that can give
21 rise to information about this.
22 For example, relatives or representatives of
23 the person who died can call or send a letter to the
24 insurance company. That's short of filing a formal
25 claim.
Page 21
1 The insurance company when searching for new
2 addresses gets returned mail. Claims filed and/or death
3 certificates received in connection with other policies
4 or contracts insuring that same person. Information
5 from Death Master which has been referred to.
6 What is the Death Master File?
7 Just a few words about this. It is a very
8 prevalent form of death information available in the
9 United States.
10 It is a product of the Social Security
11 Administration. It contains today about 87 million
12 records of people who have died.
13 The information in Death Master is quite
14 comprehensive. It includes Social Security numbers,
15 addresses, names, deaths of birth and other information.
16 Death Master is very, very accurate. 99.5
17 percent accurate, in fact.
18 In Congressional testimony given by the Deputy
19 Commissioner of Systems at the Social Security
20 Administration that oversees Death Master, that person,
21 Bill Gray, has testified that: "The death data that we
22 maintain is 99.5 percent accurate overall."
23 How is Death Master accessed by entities such
24 as insurance companies?
25 Well, there are a number of available tools
Page 22
1 commercially available programs and subscription
2 services that insurance companies and others subscribe
3 to. We've just thrown a few of those on the screen
4 which enable insurance companies to access this
5 information.
6 There is a potential problem which we're
7 looking at today about selective use of the Death Master
8 file.
9 Insurance companies may be using Death Master
10 for certain purposes.
11 For example:
12 To perform anti-fraud procedures.
13 To verify dates of death prior to paying out
14 on a policy.
15 To perform death sweeps of large
16 corporate-owned accounts.
17 Performing regular comparisons against their
18 records to identify deceased annuity holders in the
19 pay-out phase and to stop making payments under their
20 contract.
21 That is, once that pay-out is due, the
22 insurance company looks at Death Master to determine
23 someone has died and stops paying the annuity.
24 The question we are looking at here today --
25 among others -- is whether insurance companies use Death
Page 23
1 Master regularly against their life insurance policies
2 to determine whether a life insurance policyholder has
3 died to get money in the hands of beneficiaries.
4 What happens when there's a match of a
5 policyholder in the insurance company's files with a
6 reading on Death Master?
7 These are questions that we have.
8 Do insurers allow death benefits to go
9 unreported or unclaimed even when they know through
10 Death Master that an insured has died?
11 Do insurers use policy cash values to pay
12 themselves premium after the death of the insured even
13 if though know from Death Master that the policyholder
14 had died?
15 The other information on deaths that insurance
16 companies have in their files and what do insurance
17 companies do when they have information, but there has
18 not been a formal claim filed by the beneficiary.
19 I want to just give a couple of examples.
20 Example 1: A phone call or letter received
21 from a relative reporting on the death of an insured,
22 but no claim is every formally filed by the beneficiary.
23 What do insurance companies do in that
24 situation?
25 Second example: A death certificate and a
Page 24
1 claim are received from one of several beneficiaries,
2 but not all beneficiaries file a claim.
3 What happens in that situation?
4 Third example: A search for a new address
5 following receipt of returned mail indicates the insured
6 is deceased, but again, no claim has formally been
7 filed.
8 We've questions about whether insurers allow
9 the built-up cash value of their policies -- as
10 Commissioner Jones indicated in his opening statement --
11 to be used to pay for the continued sustenance of the
12 policy, even though a policyholder has died until the
13 policy value is drained.
14 Just to give an example here.
15 Here's the situation. An insured dies in 2005
16 with her policy in force. No claim is filed. Six
17 months later, the policy is set to expire because
18 there's been no premium payments.
19 Although the insured is listed in the Death
20 Master database as deceased, the insurer begins to
21 withdraw premium from the cash value to keep it in
22 force.
23 Five years the later, the cash value of the
24 policy has been used and the policy is allowed to expire
25 without any value.
Page 25
1 The question: What happens in that situation?
2 Is that happening here with insurance companies such as
3 MetLife?
4 Dormancy Period Calculations For Escheatment.
5 This is the Controller's set of issues.
6 The question is: How do insurers calculate
7 the dormancy period for escheatment?
8 That means the number of years a claim goes
9 unpaid before it is considered unpayable and has to be
10 turned over to the State.
11 Do insurers rely on something other than the
12 actual date of death in calculating that time frame?
13 An example here: An insured dies in 1989 with
14 a policy. No claim is filed. A Death Master file
15 comparison performed in 2009 identifies the death of the
16 insured 20 years earlier.
17 The insurer verified the insured died while
18 his policy was in force and no benefits have ever been
19 paid.
20 When will the insurer consider the proceeds
21 due to be escheated?
22 It should be noted that improper calculation
23 of the dormancy period allows insurers unlawfully to
24 retain millions of dollars in proceeds for years, if not
25 decades, after they are due to be escheated.
Page 26
1 I want to just mention a few words about a
2 concept: Demutualized Insurance Companies.
3 This may come up in some of the questions.
4 In the late 1990s, many large insurance
5 companies demutualized and that required them to contact
6 all their in-force policyholders.
7 Demutualization means that you are a mutual
8 insurance company, your owners are your policyholders
9 exclusively.
10 A stock insurance company is an insurance
11 company whose owners are members of the public, like any
12 other stock corporation.
13 Insurance companies sometimes convert from one
14 of those forms to the other.
15 In late 1990s, large demutualized insurance
16 companies acknowledged as part of a process of trying --
17 I should say, in this process -- the insurance company
18 when it turns itself into a stock insurance company, it
19 is required to go out and try to locate all of its
20 policyholders because they are going to become
21 stockholders and they need to get their stock or some
22 cash payout.
23 The demutualization process requires a search
24 to find policyholders.
25 Large demutualized companies acknowledge that,
Page 27
1 they, in fact, lost contact with many, many of their
2 policyholders at the time of demutualization.
3 What searches, including use of Death Master
4 did insurers perform that allowed them to identify which
5 lost policyholders were actually dead?
6 What did the insurers do if they determined
7 that an insured was deceased?
8 Over a decade later, are these insurers
9 holding onto unclaimed death benefits due to any of
10 these lost or dead policyholders?
11 These are questions that we have.
12 I want to mention industrial policies very
13 briefly.
14 An industry policy was a form of policy issued
15 many, many years ago.
16 Small value policies, often sold door-to-door
17 with premiums collected weekly or monthly.
18 The demographic of the owners of these
19 policies typically was lower income individuals.
20 The policies were, as stated here, and
21 sometimes the premiums ended up being more than the
22 actual benefits offered under the policies.
23 There are millions of these policies in force
24 industry-wide today.
25 What is the quality of record keeping for
Page 28
1 these policies, some of which were issued more than 50
2 years ago?
3 What do insurers do when they determine that
4 an insured was deceased?
5 What have the insurance companies done to
6 determine which of these insureds are deceased and what
7 benefits are due?
8 Last, I just want to mention retained asset
9 accounts very briefly. We referred to it earlier.
10 The retained asset account is, in fact, quite
11 significant.
12 Twenty-eight billion dollars is held in the
13 United States in retained assets accounts by life
14 insurance companies.
15 This is money that's understood by everyone to
16 belong to a beneficiary. It is sitting in insurance
17 companies' accounts.
18 Many insurers use them as their default method
19 of payment.
20 They are a short-term option that insurers
21 refer to enable people to sort of get over a period of
22 grieving and then the money is going to be termed over
23 to them. And there are issues about -- the account's
24 not being guaranteed by the FDIC.
25 The point that we're focused on is a retained
Page 29
1 asset account held by an insurance company, owned by a
2 beneficiary, the beneficiary does not come forward for
3 some period of time, what does the insurance do with the
4 money in that account?
5 Again, with that brief background
6 introduction, we will then begin to proceed to
7 questions.
8 COMMISSIONER JONES: Thank you very much,
9 Mr. Cole. I think we can have the lights come up now.
10 Good morning. I want to welcome the
11 representatives of MetLife to the hearing.
12 I see that we have five individuals seated
13 before us.
14 In a moment, we'll put those individuals under
15 oath who are planning to testify. I'm wondering if we
16 could proceed from my left to your right. Perhaps you
17 can just identify yourself and your title.
18 MS. ROSEBOROUGH: Good morning. Teresa Wynn
19 Roseborough, Deputy General Counsel for MetLife.
20 MR. SOLLMANN: Good morning, everyone. Bob
21 Sollmann, Executive Vice-President of Retirement
22 Products.
23 MR. KATZ: Good morning. Todd Katz, Executive
24 Vice-President, Insurance Products.
25 MR. CASSANDRA: Good morning. Frank
Page 30
1 Cassandra, Senior Vice-President, Insurance Products
2 Finance.
3 MR. BERENSON: Good morning. Brad Berenson.
4 I'm with Sidley Austin. I'm outside counsel for
5 MetLife.
6 COMMISSIONER JONES: Welcome. Which of you
7 will be testifying this morning?
8 MR. KATZ: Three of us.
9 COMMISSIONER JONES: Very good. I'm wondering
10 if the individuals who will be testifying -- I believe
11 it's Mr. Sollmann, Mr. Katz and Mr. Cassandra -- if you
12 could raise your right hand and I'll administer the oath
13 to you.
14 Do you solemnly state under penalty of perjury
15 that the evidence you should give in this matter shall
16 be the truth and nothing but the truth?
17 MR. KATZ: Yes.
18 MR. SOLLMANN: Yes.
19 MR. CASSANDRA: Yes.
20 COMMISSIONER JONES: Very good. I understand
21 that counsel wants to put on the record a reservation of
22 rights.
23 MR. BERENSON: Thank you very much.
24 Very briefly, Mr. Commissioner, I appreciate
25 the opportunity.
Page 31
1 MetLife is here to address all of the topics
2 that were identified in the subpoena and that were the
3 subject of the PowerPoint that has just been presented
4 and is looking very forward to doing that.
5 Prior to this session, there were meetings
6 with your General Counsel -- with Mr. Cole -- at which
7 the scope and format of this hearing were discussed.
8 Following those meetings, MetLife did
9 communicate to the Department certain objections and
10 reservations based in law to the scope and format of the
11 hearings, particularly to the extent that there might be
12 questions that call for the disclosure of information
13 that would ordinarily be protected as a trade secret or
14 that would be private customer information.
15 We don't anticipate any particular problems
16 this morning and MetLife intends to cooperate fully with
17 the hearing, but I did want to make clear that nothing
18 we say or do her today is intended to waive those
19 objections and all of our rights under the law are
20 specifically reserved.
21 If there are questions that get into some of
22 those areas, we'd be delighted to followup with
23 information in the contexts of the market conduct with
24 them. Thanks.
25 COMMISSIONER JONES: Very good.
Page 32
1 I'm wondering as to each of the sworn
2 witnesses, if you could, starting from my left and
3 moving to my right, briefly describe your current
4 responsibilities at MetLife and past responsibilities.
5 Way don't we start with Mr. Sollmann.
6 MR. SOLLMANN: As executive vice president
7 responsible for retirement products, I have the overall
8 responsibility for our individual annuity business.
9 Prior to that job, I held responsibilities
10 across MetLife in the 37 years I've been with the
11 company in mergers and acquisitions and our
12 institutional business area.
13 COMMISSIONER JONES: Very good. Mr. Katz.
14 MR. KATZ: Good morning. Is my mic working?
15 I'm not sure it is.
16 COMMISSIONER JONES: There should be a little
17 green light lit on it. This gentleman might help you.
18 MR. KATZ: The green light is red. Is that
19 better?
20 COMMISSIONER JONES: That's a lot better.
21 MR. KATZ: I have responsibility for the
22 insurance products area that includes all of our
23 individual life products, our group life products.
24 Prior to that, I held roles similar to that
25 for specific smaller lines of business, like our dental
Page 33
1 business and disability.
2 And prior to that, I was in our group
3 department for several years earlier.
4 COMMISSIONER JONES: Very good. Mr.
5 Cassandra.
6 MR. CASSANDRA: Yes, good morning. I provide
7 financial oversight to insurance products in the United
8 States. I've been with MetLife for 25 years.
9 Prior to this assignment, I had various
10 assignments around the company in group insurance areas,
11 including pricing.
12 MR. COLE: Can you talk a little bit closer
13 into the mic?
14 MR. CASSANDRA: Yes.
15 COMMISSIONER JONES: I just want to make sure.
16 We do have a reporter who is transcribing and I want to
17 make sure that the reporter can hear as well.
18 THE REPORTER: It's hard to hear them.
19 COMMISSIONER JONES: We just want to ask if
20 the representatives from MetLife can hold the mic a
21 little closer. It will be easier for both the public
22 and the reporter to hear.
23 THE REPORTER: Thank you.
24 COMMISSIONER JONES: One of our first sets of
25 questions has to do with the Social Security
Page 34
1 Administration's Death Master file.
2 For ease of communication, we're going to
3 refer to that as Death Master throughout the hearing.
4 I want to begin by just asking, to whom should
5 I best pose questions with regard to the company's use
6 of the Death Master Files?
7 MR. KATZ: That would be me.
8 COMMISSIONER JONES: Are you familiar with the
9 Death Master File?
10 MR. KATZ: I am, yes.
11 COMMISSIONER JONES: Does MetLife use Death
12 Master?
13 MR. KATZ: MetLife does use Death Master, yes.
14 COMMISSIONER JONES: Can you explain for us
15 how MetLife accesses the Death Master File?
16 MR. KATZ: Sure. That one will take just a
17 little bit more detail because MetLife is a very large
18 organization with multiple divisions with mutual
19 products and different jurisdictions.
20 The way the Death Master File is accessed
21 would vary by area -- which we can talk about in depth.
22 As we go through this, we'll do our best to
23 give you complete answers by area. I can sort of
24 articulate that if you'd like.
25 What I would say as we go through as a caveat,
Page 35
1 I'm going to do my best to speak in general terms.
2 Over the duration of our company, we've made a
3 number of acquisitions. We've made a number of new
4 products and different products.
5 While we try to make our answer as complete as
6 possible, there probably will be some exceptions. To
7 the extent that I know of these exceptions, I will
8 certainly reference that.
9 So commissioner, I can go through each of the
10 products if you like or I can allow you to ask
11 questions. Whatever you'd prefer.
12 COMMISSIONER JONES: Maybe we can start
13 chronologically. I'm wondering if you could tell us
14 when MetLife first began to use Death Master.
15 MR. KATZ: Sure.
16 MetLife first began to use Death Master in the
17 late '80s. That usage was primarily in our group annuity
18 business.
19 That was a fairly manual process for a
20 business that had records of Social Security numbers and
21 those records were on individuals that were in a
22 repetitive payment mode for the most part.
23 The decision was made to use that, both in the
24 context of payments but also accurate records on that
25 information.
Page 36
1 Also, just to make it a point, if that
2 information matured and became more systematized in the
3 '90s, there was a recognition that in that group annuity
4 business, in situations where an individual was in
5 payment mode and there an indication of death, it would
6 be a useful tool to prevent duration errors like not pay
7 out annuity payments in error, which would be bad for
8 the person potentially getting that money and for the
9 company.
10 I'll just add one other comment. The Social
11 Security Administration at that time also articulated
12 that as a poor usage of that information.
13 COMMISSIONER JONES: With regard to the
14 company's first utilization of Death Master for the
15 group annuity business, can you describe more
16 specifically how it was used or what it was used for
17 with regard to the group annuity business?
18 MR. KATZ: Isn't that what I just described?
19 This was quite awhile ago. I would think of
20 it as two primary purposes; one accurate record keeping
21 in terms of our policyholders, both in terms of
22 administrative records and reserving, and accurate
23 payment information in the same way that I described.
24 When it was first used, it was a very manual
25 process back then.
Page 37
1 Unfortunately, I'm not an expert as to what
2 was going on much more definitely than that.
3 COMMISSIONER JONES: When it was first used in
4 the group annuity context then, was it used to determine
5 when someone had died and when it would be appropriate
6 to cease making an annuity payment?
7 MR. KATZ: Initially, it was used more to make
8 sure we were managing records in the right way.
9 As the process evolved over time, it certainly
10 was used as a means to prevent duration errors by
11 sending a letter of notification to an individual where
12 we had an indication of death, advising that individual
13 of such indication and that the payments were suspended.
14 If at any time an individual wrote back and
15 said that that was an error -- which didn't happen all
16 that often -- we'd certainly reinstate that.
17 The process that I'm describing here is more
18 focused on really preventing duration errors and
19 enabling higher levels of accuracy and mitigating
20 situations where we had to collect overpayments or an
21 individual accidently used those funds when they weren't
22 entitled to do so.
23 COMMISSIONER JONES: What does the term
24 "duration error" mean?
25 MR. KATZ: Sure. If you think -- the way I'm
Page 38
1 using it -- I don't know if it's a legal term. I don't
2 think it is.
3 If you think about payout annuities, when an
4 individual is receiving payments, they are entitled to
5 receive those payments for a certain amount of time in
6 the contract or based on the regulation that govern the
7 contract.
8 In most situations, when someone is dead, that
9 is the time -- or somewhere around that time -- where
10 either the payments will cease or the payments will
11 change.
12 There could be a primary payment and then
13 there could be another individual gets the payment after
14 that or could be additional proceeds paid for at the
15 time of death.
16 It's to make sure the claim is being paid, the
17 annuity is being paid for the appropriate duration and
18 to avoid situations where it's being paid for too long.
19 Mr. Cassandra, I don't know if you want to add
20 to that.
21 MR. CASSANDRA: No, only to say that if it was
22 being paid consistent with the contractual terms.
23 Generally, annuity contracts require in order to receive
24 the funds the annuitant is alive.
25 The fact that an annuity contract has passed,
Page 39
1 in and of itself is mutually enough under the contract
2 provisions to end the company's liability or to modify
3 it to a contingent beneficiary with a payout.
4 COMMISSIONER JONES: When MetLife first began
5 to use Death Master in this fashion as you described for
6 the group annuity business, can you provide us with some
7 estimate of the number of group annuity policies to
8 which it was applied?
9 MR. KATZ: I don't have that number.
10 COMMISSIONER JONES: Okay. You mentioned that
11 it was first used manually. At what point did the
12 company's use shift from manual to some other mode of
13 use?
14 MR. KATZ: This is -- I'm going to do my best
15 with history to be as accurate as I can. I ask you to
16 appreciate that some of these dates happened a long time
17 ago.
18 In the '90s -- I'll characterize it in the
19 mid-'90s, the latter part of the '90s, as technology
20 advanced, opportunities to systemize our processes
21 became more apparent to us and there were a number
22 different enhancements over that period of time to go
23 from a more manual to a more systemized approach.
24 COMMISSIONER JONES: Can you identify more
25 specifically when in the '90s the company began to use
Page 40
1 Death Master in a more systemized approach?
2 MR. KATZ: I prefer to say it's in the
3 mid-'90s. I can't give you a specific date because it
4 did evolved over time.
5 We certainly can respond back to you with more
6 clarity on the different enhancements and when they
7 happened. I don't have that.
8 COMMISSIONER JONES: With regard to the use of
9 Death Master for the group annuity business, is it true
10 then that as it used Death Master for the group annuity
11 business that payments would be stopped for annuitants
12 whose name showed up in the Death Master File?
13 MR. CASSANDRA: I would say, no, not just the
14 name, Commissioner.
15 We would do a match using the Social Security
16 number and the month and the year of birth.
17 If a match wasn't identified, the payment
18 would be suspended and we would reach out to the family
19 members to determine to verify that fact that that
20 annuitant had passed.
21 MR. COLE: Can you speak very close into that
22 microphone. Very close.
23 MR. CASSANDRA: Yes, I will.
24 COMMISSIONER JONES: Were any of the
25 policyholders who had annuities through group annuity
Page 41
1 policies, were they also policyholders who had life
2 insurance policies with MetLife?
3 MR. KATZ: I can't tell you definitively which
4 ones had which, but, if, in fact, we became aware that
5 an individual had life insurance, we certainly would
6 have attempted to reach out to that beneficiary making
7 it good on those claims.
8 COMMISSIONER JONES: With regard to the group
9 annuity business, is it the case that most of those
10 holders of those policies also hold corporate or group
11 life insurance policies?
12 MR. KATZ: I don't know the answer to that,
13 but generally speaking I would look at those as a
14 separate entity.
15 I wouldn't think of it as an employer would
16 buy annuity business and group life business.
17 Currently, if you think the group annuity
18 business, some of those policies were older in nature
19 and once they are on our books generally would stay on
20 our books.
21 Group life insurance, generally the employer
22 is managing the records and that business is more
23 inclined to move from company to company.
24 So if you're theorizing, hey, he's got the
25 group business, you'd generally have the group life
Page 42
1 insurance business too. I wouldn't say that's usually
2 the case.
3 COMMISSIONER JONES: Did MetLife on a routine
4 business use Death Master to identify those who had life
5 insurance policies who also had group -- those who had
6 annuities had a group annuity policies?
7 MR. KATZ: We did not apply the Death Master
8 Index to our group life business.
9 The main thing I should point out there is,
10 for the group life business for the most part, the
11 employer has the records. It's a very important
12 distinction.
13 We're not in possession of who is covered. In
14 the vast majority of our group life business, the
15 employer is the one who maintains that information and
16 sharing with us information when an individual is dead.
17 COMMISSIONER JONES: With regard to annuitants
18 that you were identifying as having a match under Death
19 Master, was any effort made simultaneously to determine
20 whether that annuitant had a life insurance policy,
21 either individual or group, or any other form of
22 placement of that life insurance policy?
23 MR. KATZ: You're asking back historically?
24 COMMISSIONER JONES: Let's stick with the
25 period of time we're talking about.
Page 43
1 You told us late '80s to mid- or late-'90s,
2 Death Master was used for your group annuity business.
3 I'm asking during that period of time, was Death Master
4 simultaneously used?
5 If you had identified someone who had annuity
6 on the group side, did you simultaneously look to see if
7 they had a life insurance policy from the company in
8 some way, shape or form?
9 MR. KATZ: I do not know the specific detailed
10 answer back from that exactly what was done. We
11 certainly can follow up.
12 COMMISSIONER JONES: You're not aware of a
13 systemic effort by the company to do that sort of match?
14 MR. KATZ: We certainly have had procedures to
15 share information within the company. Those procedures
16 vary by area and vary over time.
17 I want to be careful not to lead you down a
18 path that we did something or didn't do something
19 because it was a while ago and it might have been
20 different by area.
21 COMMISSIONER JONES: Okay. You've testified
22 that the company began using Death Master manually and
23 then in a more systemized way with regard to your group
24 annuity practice.
25 Did you use Death Master for any other part of
Page 44
1 your business? If so, when did you start using it for
2 those other parts of your business?
3 MR. KATZ: So we have used Death Master for
4 other parts of our business.
5 I think for today, we can talk maybe next
6 about our individual life business, if you'd like, or
7 would you like us to speak to our individual unit
8 business?
9 COMMISSIONER JONES: What was the first next
10 chronological use of Death Master, if you will?
11 We talked about your initial use of the group
12 annuity practice. What was the first next chronological
13 use of Death Master?
14 MR. KATZ: I'm going to ask my team -- let me
15 talk --
16 MS. ROSEBOROUGH: For business uses and
17 related to litigation --
18 COMMISSIONER JONES: We should have you on the
19 mic. If you're going to testify, we need to put you
20 under oath or is it that you're just trying to clarify
21 the question?
22 MS. ROSEBOROUGH: It's is a legal point.
23 I'm just isolating that they are discussing
24 today business use, outside the context of litigation.
25 With that context in mind, I think the next
Page 45
1 use would be something that Mr. Sollmann can do.
2 MR. SOLLMANN: Let me just begin by saying --
3 and Adam I think you touched on this in your
4 presentation.
5 By far, the most frequent method that we learn
6 of a death is from an agent, broker or a family member
7 or even a funeral home.
8 Part of that is because in the annuity
9 business both on the payout side of our business and
10 also because of the deferred business, we're in frequent
11 contact with the contract holder and their family,
12 typically, through, of course, periodic payments of
13 payout annuities to the owner as well as on the deferred
14 business quarterly statements of their account value,
15 annual prospectus mailings, privacy notices, and so
16 forth.
17 Nevertheless, it's my understanding that
18 beginning in the early 2000s with respect to the
19 individual annuity business, we began to use the Death
20 Master to conduct periodic sweeps for both payout
21 annuities and for deferred annuities on some of our
22 administrative systems that support the majority of a
23 most mature blocks of annuity business.
24 As we continued to evolve and systemize our
25 procedures in this area, we plan to expand these sweeps
Page 46
1 this year throughout our entire block of deferred
2 annuity business as well.
3 In general, these sweeps are conducted monthly
4 for payout annuities and quarterly for deferred
5 annuities.
6 When we have an indication of death from any
7 of these Death Master sweeps -- or frankly from any
8 other source -- we seek to confirm that death by sending
9 notification or a death claim packet to the last address
10 we have on file.
11 With respect to payout annuities, payments are
12 suspended at that time.
13 If we didn't hear back, we have a really
14 established process of following up at regular intervals
15 for up to five years from the date of death.
16 The five-year period is important because in
17 annuities, for annuities, death payments are considered
18 taxable income.
19 While I'm not an tax expert, the Internal
20 Revenue Code allows the beneficiary to defer the
21 collection of that death benefit for a maximum of five
22 years.
23 If we find that the last address is invalid
24 through that five-year period, then we will generally
25 put the case through something we call a "finder
Page 47
1 process" where we will try to identify and look for a
2 valid address.
3 If after a year we can't indicate a valid
4 address, then we would follow our standard escheatment
5 procedures.
6 COMMISSIONER JONES: This is now for those who
7 have individual annuities. This is different from the
8 group annuity that was testified to a moment ago?
9 MR. SOLLMANN: That's correct.
10 COMMISSIONER JONES: When did you start
11 undertaking periodic sweeps for both payout deferred
12 annuities in the individual annuity context?
13 MR. SOLLMANN: Generally speaking, beginning
14 in the early 2000s.
15 COMMISSIONER JONES: As to payout annuities,
16 you do those sweeps monthly. As deferred annuities, you
17 do though sweeps quarterly?
18 MR. SOLLMANN: That's correct.
19 COMMISSIONER JONES: With regard to both of
20 those classes of individual annuitants, did MetLife
21 during this period of time also undertake to determine
22 if there was a match on the individual annuity side as
23 to whether that individual annuitant also had a life
24 insurance policy issued by MetLife?
25 MR. SOLLMANN: First, I would say that I'm not
Page 48
1 aware of any specific case where this has been an issue
2 where, in fact, we might have been looking for or
3 verifying a death claim on an individual business, but
4 it left a life insurance claim for that individual
5 outstanding for some period of time.
6 Nevertheless, it is my understanding that we
7 do have a variety of systems and procedures across our
8 business that have been developed over some period of
9 time that do inform other product areas.
10 We continually have been evolving those
11 procedures and processes over time and, in fact, it's my
12 understanding that recently we took additional steps to
13 document formalize these procedures.
14 COMMISSIONER JONES: Again, just
15 chronologically, when did you begin to actually check to
16 see if an individual annuitant also had a life insurance
17 policy in the context of there being a Death Master
18 match?
19 MR. SOLLMANN: I think these processes evolved
20 over time. I don't have the specific dates when that
21 began. It evolved over time through a more formal
22 processes and more recently we systemized that process.
23 COMMISSIONER JONES: Was it this year?
24 MR. SOLLMANN: I'm not aware of what year.
25 COMMISSIONER JONES: Was it two years ago?
Page 49
1 MR. SOLLMANN: I can't say. We can follow up
2 and give you more specific information on that.
3 COMMISSIONER JONES: Can you tell me whether
4 it was in the last five years?
5 MR. SOLLMANN: I'm not aware of it being in
6 the last five years. I don't know the answer to your
7 question.
8 COMMISSIONER JONES: You don't know whether it
9 was either within the last five years or earlier than
10 the last five years that you began to systematically
11 look to see if a life annuitant for whom you had a Death
12 Master match also had a life insurance policy?
13 MR. SOLLMANN: Systematically on a more formal
14 basis, we began that process within the last year.
15 COMMISSIONER JONES: Within the last year.
16 Okay.
17 Within the last year, what exactly would you
18 do when you found an annuitant -- an individual
19 annuitant whom there had been a Death Master match.
20 What would you do with regard to that annuitant?
21 MR. SOLLMANN: It's my understanding that we
22 would pass that information along through various
23 systems that are available to our product areas.
24 Beyond that, I don't have the detailed
25 information with me as to exactly how that communication
Page 50
1 took place.
2 COMMISSIONER JONES: Is there anybody from
3 MetLife who can tell us with regard to the company's
4 practice in the last year how -- when a match has been
5 made on the individual annuity side -- how the company
6 goes about informing the life insurance policy side that
7 there is such a match?
8 MR. KATZ: I don't think we can.
9 COMMISSIONER JONES: That's very disappointing
10 because our subpoena asked that MetLife provide
11 representatives that can answer these questions.
12 And so, I'm very disappointed that there is no
13 one here from the company that can answer that question
14 since we were very clear in our subpoena that we needed
15 witnesses who can answer those questions.
16 MR. KATZ: Maybe I can try to help. We're
17 trying to answer your questions as best we can and that
18 really is our intent.
19 If your question is: Are their procedures
20 within the organization that share information? The
21 answer to that is yes.
22 What I tried to explain before and I can
23 probably -- Several different business units, several
24 different products, several different geographies, and
25 so the procedures would be different.
Page 51
1 We can't paint a blanket answer for you, which
2 I think is what you're looking for.
3 COMMISSIONER JONES: I'm happy to take them in
4 turn. That's what I've been trying to do.
5 You first testified about group annuities and
6 your practices there.
7 And then, you testified that sometime more
8 recently with regard to individual annuities, you have
9 been doing a match vis-à-vis with life insurance.
10 And so, my question is very specific as to
11 individual annuities and life insurance, what the
12 company does vis-a-vis finding a match on the annuity
13 side, what it does with regard to when it discovers the-
14 a match occurs on the annuity side what it does, if
15 anything, to try to determine if there's a match on the
16 life insurance.
17 MR. SOLLMANN: Commissioner, on the individual
18 entity side, we do have with us I'm told a description
19 of the processes we used in this case which we will be
20 happy to provide at the next break.
21 COMMISSIONER JONES: Okay. And that's the
22 process that's begun in 2011?
23 MR. SOLLMANN: That's correct.
24 COMMISSIONER JONES: All right.
25 MR. SOLLMANN: I should clarify, not 2011,
Page 52
1 earlier 2010.
2 COMMISSIONER JONES: In 2010?
3 MR. SOLLMANN: Correct.
4 MR. COLE: Are you going to testify under oath
5 that everything that appears in that document that you
6 have provided us is absolutely true and correct?
7 MS. ROSEBOROUGH: On behalf of my witness
8 here, I would not allow him to claim that kind of
9 arrogance to purport to speak to 100 percent of the
10 services provided. He will be able to testify that
11 that's the process typically followed.
12 MR. COLE: Well, no.
13 My question was: You were referring to
14 providing us with a document. If you're going to
15 provide us with a document, will one of you testify
16 under oath now that what appears in that document is
17 entirely correct?
18 MS. ROSEBOROUGH: They will be prepared to
19 testify that the document is correct in terms of the
20 documentation of the process that's been settled upon
21 for executing its responsibility.
22 Whether or not your question goes to whether
23 the document is accurate, yes, they will be able to
24 testify that the document is an accurate portrayal of
25 the process.
Page 53
1 MR. COLE: I'd like to get someone under oath
2 then to testify now that the information in that
3 document set forth in that is a correct description of
4 everything that it purports to describe.
5 MS. ROSEBOROUGH: After they look at the some
6 of the documents, we can confirm that would be their
7 testimony.
8 COMMISSIONER JONES: You'll give it to us at
9 the break. You'll have a chance to review it. We'll
10 resume and you can attest as to the correctness of the
11 document.
12 Are there any other areas of the company in
13 which Death Master has been used in addition to what we
14 talked about so far? If so, when did you begin using it
15 that way?
16 MR. KATZ: Let's spend a few minutes talking
17 about the individual life business.
18 Absent usage relative to litigation -- which
19 Teresa we already mentioned -- I'm not going to talk to
20 that.
21 We used the Social Security Death Index in the
22 individual life business in the last decade -- in the
23 2000s.
24 I'll give you a couple of instances and then
25 I'll bring it all the way up to current.
Page 54
1 In 2004 and 2005, through discussions with a
2 few of our regulators -- I can get you the specific
3 states. I don't have them in my fingertips. It's just
4 a handful.
5 We were in discussions about the value of that
6 information and the potential to use it to identify
7 people that had life insurance.
8 Either we used that information or we shared
9 our administrative records with the regulators and they
10 used that information as a means to identify individuals
11 that were deceased at that time.
12 MR. CASSANDRA: Those two states were Montana
13 and New York.
14 COMMISSIONER JONES: Was your use limited then
15 to policyholders in Montana and New York?
16 MR. CASSANDRA: I think there was New Jersey
17 too.
18 MR. KATZ: I think there was. Let us validate
19 the states. We want to make sure we get you the correct
20 information. I believe it was.
21 At that point in time, it was for residents in
22 those states.
23 I want to make it clear. It wasn't
24 necessarily us using it.
25 In some of those instances, it may have been
Page 55
1 us giving our admin records to states for them to use
2 it.
3 We'd be happy to give you exhaustive detail on
4 that information.
5 COMMISSIONER JONES: We would like that.
6 With regard to your use of it for those three
7 or so states, how did you use it, if at all?
8 MR. KATZ: Let me do this because I can't talk
9 to that in depth.
10 What I can do is talk to you in depth about
11 what we learned and what we did after that and I think
12 I'll come back to your question through that
13 description. If I can't, you can certainly follow up.
14 COMMISSIONER JONES: Okay.
15 MR. KATZ: What we did learn as a result of
16 that in '05 and in '06 was that there was an opportunity
17 to use this tool as a means to improve upon our life
18 insurance claim process.
19 I'm going to talk about some data in a few
20 minutes out of our 2007 run. I think it's worthwhile to
21 spend time on that data.
22 Essentially what that data showed us was that
23 for the period we matched in '07, that approximately 99
24 percent of the claim dollars paid over the period we
25 studied were submitted through the normal claims
Page 56
1 practice.
2 We found less that one percent of claimed
3 dollars paid through this match we did in '07.
4 Let me explain what we did in '07.
5 COMMISSIONER JONES: Before we get to that, 99
6 percent of the claimed dollars paid were paid through
7 the normal process?
8 MR. KATZ: Correct.
9 COMMISSIONER JONES: The key phrase there is
10 "claimed dollars paid."
11 That doesn't answer the question as to what
12 number of other life insurance policyholders died and
13 their beneficiaries were not paid. Correct?
14 MR. KATZ: So let me give you --
15 COMMISSIONER JONES: Is that correct?
16 MR. KATZ: No. It might be helpful for me to
17 tell you exactly what we did in '07 and bring it back.
18 I think that explanation will --
19 COMMISSIONER JONES: Well, let me just stick
20 with this phrase "99 percent of claimed dollars paid."
21 That's just of the dollars you've actually
22 paid, 99 percent occurred through the claims process,
23 one percent did not.
24 But again, that does not answer the question
25 as to life insurance policies where beneficiaries were
Page 57
1 not paid, of what percentage had actually died and you
2 knew that information about their death.
3 MR. KATZ: Sure, so let me --
4 COMMISSIONER JONES: That's a yes?
5 MR. KATZ: No. That is not a yes. I'd like
6 to give you the information and answer your question.
7 COMMISSIONER JONES: Please answer the
8 question.
9 MR. KATZ: Okay. The death match study we did
10 in 2007 identified approximately $80 million in claimed
11 payments for individuals that were not paid through the
12 normal process.
13 Of that $80 million, approximately $50 million
14 we were able to locate the beneficiary and pay that
15 money.
16 For the balance of approximately $30 million,
17 we were not able to locate the beneficiary.
18 In the situations where we were not able to
19 locate the beneficiary, those funds were put through our
20 unclaimed property system, ultimately to be escheated to
21 the states.
22 So about $80 million of funds through the
23 match.
24 Over that same period of time, we paid about
25 $44 billion in claims to individuals through our normal
Page 58
1 process.
2 COMMISSIONER JONES: What was the 2007 death
3 match study?
4 MR. KATZ: That's what I wanted to explain.
5 In 2007, we ran just about all of our
6 individual life businesses. There was a small segment
7 of the blocks that weren't included, and I can talk more
8 about that if you like, against the Death Master Index.
9 We ran that using a three-point match; Social
10 Security number, date of birth within two years and
11 name.
12 We found out of that approximately 28,000
13 individuals whose information showed up on the Social
14 Security Death Index and our administrative records. Of
15 those 28,000, we found approximately 18,000, there was a
16 liability due for those individuals. That totalled
17 approximately $80 million. I think it was about $84
18 million.
19 As a result of that, we now determined we had
20 an indication of death on those individuals and began a
21 process to search out beneficiaries -- which we did --
22 which ultimately resulted in the $50 million I
23 explained.
24 However, we couldn't find everybody. That
25 resulted in the $30 million that I explained that went
Page 59
1 into the escheatment process.
2 MR. CASSANDRA: I'd just like to add something
3 to Mr. Katz's statement.
4 In that 2007 match of the Death Master File,
5 we looked at all of the vast majority of the individual
6 business life records from policy statuses that included
7 any policy that may have been cancelled.
8 We did not only match at that point in time
9 for in force cases, we looked back for any case that may
10 have terminated for any reason other than death.
11 COMMISSIONER JONES: Do you know the number of
12 policies you ran Death Master against in 2007 in total?
13 MR. CASSANDRA: We ran it against, I think,
14 approximately a little more than 10 million records --
15 which does not exactly match to -- a policy that does
16 not equate apples to apples to a policy.
17 There may have been more than one record. It
18 was approximate.
19 COMMISSIONER JONES: What was the total number
20 of individual life insurance policy records at that
21 time?
22 MR. CASSANDRA: We have approximately over six
23 million policies in force right now. I don't know
24 exactly what the numbers may have been at that period of
25 time.
Page 60
1 COMMISSIONER JONES: You mentioned -- I
2 believe Mr. Katz mentioned that in 2007, you ran Death
3 Master against almost all the individual life business.
4 What elements of the business did you not run it
5 against?
6 MR. CASSANDRA: Over time MetLife had acquired
7 through a merger and acquisition process some small
8 assumed cases from insurers that had gone into
9 receivership.
10 Just to give you a sense of the magnitude,
11 we're talking about less than 100,000 policies of a
12 total of 1.6 million.
13 The matching of those policies is in scope for
14 the match that we just conducted for our 2011 match.
15 MR. KATZ: Let me add one more clarification
16 there.
17 We did not run it against policies where we
18 did not have a Social Security number. We only ran it
19 against policies with the Social Security numbers.
20 That's an important distinction.
21 Mr. Cole had his slide about our industrial
22 policies which we would be happy to testify about if
23 you'd like.
24 A significant amount of those do not have
25 Social Security numbers. As such, we've used other
Page 61
1 means over the years to try to contact those
2 policyholders and did not use the Death Index match.
3 COMMISSIONER JONES: Do you know the number of
4 industrial policyholders' policies were in force in
5 2007?
6 MR. CASSANDRA: I do not have the number for
7 2007, Commissioner. I know at the end of 2010, we had
8 approximately 1.5 million in force.
9 COMMISSIONER JONES: Mr. Chiang.
10 CONTROLLER CHIANG: Can you give me the
11 universe of policies that did not have a Social Security
12 number?
13 MR. KATZ: We can give you an estimate of
14 that.
15 As of today -- if you guys can help me on
16 this -- it's somewhere around 300,000 in the industrial
17 block.
18 Just for clarification, for group life why
19 wouldn't you have Social Security numbers? Social
20 Security numbers really weren't collected from MetLife
21 on a routine basis until the mid-'80s.
22 If you think back historically for individual
23 life insurance policies, we have records where we don't
24 have a Social Security number.
25 What we chose to do -- this is an important
Page 62
1 distinction -- in the late '80s, I talked to you about
2 in the annuity business using manual processes as a
3 means to use the Death Index.
4 In the late '80s, we put forth a significant
5 effort that lasted over ten years to locate
6 policyholders that we may have lost contact with. It's
7 a program called the Family Union Program, Reunion
8 Program.
9 In the decade from the late '80s to the late
10 '90s, we were able to locate over 500,000 policyholders.
11 Those were individuals that still to this day, or as
12 recently as this year, we're not getting claims on.
13 We thought it was a good effort on our behalf
14 to get a good touch with people in that block.
15 I should make one more distinction, if you'd
16 allow me.
17 We made a decision for that industrial block
18 in the early '80s to convert the majority of that to
19 paid-up status.
20 That's an important distinction.
21 So point number one, by being in paid-up
22 status, there were no additional premiums due for
23 policies that were in premium paying status at the time
24 we made that conversion.
25 Those policies since then have continued to
Page 63
1 perform so individuals continue to get dividends year
2 after year after year over that period of time, but they
3 go to the policy value.
4 It creates a challenge because they are not
5 sending us a bill -- we're sending them a bill. They
6 are not sending us money.
7 That's where we've had challenges keeping in
8 contact with those people.
9 We want to make sure that it's clear that one
10 of those two things for that block I'm talking about are
11 going to happen.
12 Either a beneficiary will come forth with a
13 valid claim that we will pay -- I guess one of three
14 things.
15 One of these individuals will be identified on
16 the Death Master Index. If they were, I want to make it
17 clear, we run it, as Mr. Cassandra said, against lapsed
18 policies.
19 By doing so, that policy happened to have
20 lapsed and in this block, they wouldn't have -- we would
21 restore it to the original value.
22 And then lastly, if we never did get a claim,
23 those policies would superannuate at the end of the
24 mortality table and, as such, if we couldn't find the
25 beneficiary at that time, we would then escheat the
Page 64
1 funds.
2 Maybe I gave you too much detail.
3 COMMISSIONER JONES: We're getting a little
4 bit ahead. I just want to make sure that we have a
5 complete understanding what's happening in the company
6 chronologically.
7 Let me go back to the 2004/2005 discussion we
8 talked about with the regulators, maybe as many as
9 three. You provided some of your files to those
10 regulators. You'll identify for us who the names of the
11 regulators are. Is that correct?
12 MR. KATZ: Sure.
13 COMMISSIONER JONES: Also, you did some
14 internal Death Master matches as to the residents of
15 those states for those three states in which you were
16 cooperating with regulators.
17 You did some matches against individual life
18 insurance policy. Is that correct?
19 MR. CASSANDRA: No, I'm sorry,
20 Mr. Commissioner. I think you doubled up on that.
21 In those the cases where the State asked us
22 for administrative records, they would have done the
23 match and, in fact, in at least one state they provided
24 back death certificates to us in order for us to
25 adjudicate the claims.
Page 65
1 In 2004 and 2005, these instances, we were
2 providing records and matches to the best of my
3 knowledge.
4 COMMISSIONER JONES: Then, when they provided
5 you with information after they had done the match, what
6 sort of information did they provide and what did you do
7 with that information?
8 MR. CASSANDRA: To the extent that they
9 provided back information, proof that someone had died
10 in the form of a death certification, we paid benefits
11 to the beneficiary.
12 COMMISSIONER JONES: But you required a death
13 certificate from those three or so states.
14 MR. CASSANDRA: We didn't require it from the
15 -- To best of my knowledge, we didn't require it from
16 them. The regulators provided it to us.
17 COMMISSIONER JONES: Did those regulators
18 provide any other information with regard to whether a
19 match had occurred or not?
20 MR. CASSANDRA: I do not know.
21 MR. KATZ: I think what -- we're prepared to
22 give you exhaustive detail about the '07 match and our
23 current match.
24 For the '04/'05, we're probably not as
25 prepared as you'd like us to be to give you that detail.
Page 66
1 It's quite a while ago.
2 Certainly, we can attempt to follow up with
3 any requests that you might have on that period.
4 COMMISSIONER JONES: Between the '04/'05 work
5 with the three or so states and the 2007 Death Master
6 study that you testified to, was there any other use of
7 Death Master in addition to what you've already
8 testified to?
9 MR. KATZ: For the individual life business?
10 COMMISSIONER JONES: Anywhere within the
11 company.
12 MR. KATZ: Sure. Yeah. I think -- I've got
13 to remember the dates. You may have it.
14 MR. CASSANDRA: I can take this one.
15 COMMISSIONER JONES: Okay.
16 MR. CASSANDRA: We have used and continue to
17 use the Death Master File in our corporate-owned life
18 insurance products.
19 To the best of my knowledge and belief, we
20 started that in the mid-'90s.
21 And on the corporate and life insurance
22 products, what happens oftentimes is that the policy
23 owners will lose contact with the insured.
24 There's little incentive for the family
25 members of a former employee to notify the former
Page 67
1 employer of the death.
2 Under those contracts, we use the Death Master
3 File as some evidence that, in fact, someone had passed.
4 And if, in fact, someone had passed, we would
5 seek out a death certificate in order to pay benefits.
6 MR. COLE: Can you please speak closer to the
7 microphone.
8 MR. CASSANDRA: Yes, maybe there's something
9 that I'm not doing.
10 MR. COLE: Keep it really close.
11 MR. CASSANDRA: Okay.
12 COMMISSIONER JONES: So since the funding --
13 Go ahead.
14 MR. KATZ: I don't know. We also use it in
15 our disability business and our long-term care business.
16 I'm not aware of the dates. Either on a break
17 or as a follow-up, we can certainly get you the dates
18 when that commenced.
19 Those businesses weren't articulated in the
20 subpoena, but certainly we have no problem sharing that
21 so I have the dates.
22 In addition, we also use it for our retained
23 asset account, our total control account business.
24 COMMISSIONER JONES: We'll get to each of
25 those in tern in a moment. Let me stick with the
Page 68
1 corporate-owned life insurance product.
2 You just testified that you began to use Death
3 Master in the mid-'90s. Was that done in a manual
4 fashion or was that done in a more systematic fashion?
5 MR. CASSANDRA: I don't have personal
6 knowledge of exactly how that particular sweep was done.
7 I'm sorry. I can't tell you exactly. I don't have
8 personal knowledge.
9 COMMISSIONER JONES: Get really close. I can
10 hear. It's close.
11 Was there a point at which Death Master was
12 used in a systematic way with regard to the
13 corporate-owned life insurance products?
14 MR. CASSANDRA: It was used monthly. It was
15 part of their standard process.
16 COMMISSIONER JONES: So they would run a match
17 against the corporate-owned life insurance products.
18 They would run the file against the corporate-owned life
19 insurance products. Is that correct?
20 MR. CASSANDRA: To the best of my knowledge.
21 COMMISSIONER JONES: What would they do when
22 they found a match?
23 MR. CASSANDRA: That would be the first
24 indication that someone may have, in fact, had passed.
25 I believe we communicated at that point with the
Page 69
1 policyholder.
2 COMMISSIONER JONES: And then, what would
3 happen after that?
4 MR. CASSANDRA: We would essentially invite
5 the claim and say: "You need to provide claim form and
6 proof of that."
7 COMMISSIONER JONES: Did you communicate with
8 the beneficiary or did you just communicate directly
9 with the owner of the corporate life insurance product?
10 MR. CASSANDRA: In that instance, the owner of
11 the policy is the beneficiary, the corporate-owned life
12 insurance benefits paid. The company owns the policy.
13 COMMISSIONER JONES: So you'd invite them to
14 make a claim. Have you continued to use Death Master in
15 this fashion?
16 MR. CASSANDRA: I'm sorry?
17 COMMISSIONER JONES: Are you still using Death
18 Master for that corporate-owned life insurance product?
19 MR. CASSANDRA: Yes, sir.
20 COMMISSIONER JONES: Do you know what the
21 number of corporate-owned life insurance products are
22 that were enforce in the '90s?
23 MR. CASSANDRA: I'm sorry. I don't.
24 COMMISSIONER JONES: Do you have any idea what
25 number of corporate-owned life insurance products are in
Page 70
1 force now?
2 MR. CASSANDRA: I do not. I'll have to get
3 back to you on that.
4 COMMISSIONER JONES: All right. You just
5 testified that you've also used it in the disability
6 business. Can you explain how you used it in that line
7 of business?
8 MR. KATZ: Sure. I'm going to speak at a high
9 level only because we didn't prepare exhaustively for
10 that because it was outside the scope, but I have no
11 problem sharing.
12 Generally in a similar way, we talked about
13 using it in the annuity business.
14 Many disability policies are in force and
15 claims are paid until such time as an individual is no
16 longer eligible for the claim.
17 One of the reasons why an individual wouldn't
18 be eligible for a claim would be that they died.
19 So in a similar way that I described the
20 annuity business, we're looking to make sure we're
21 creating duration errors in paying out benefits longer
22 than is appropriate in the disability phase.
23 COMMISSIONER JONES: Do you know when MetLife
24 began to use it for your disability insurance policies?
25 MR. KATZ: I don't. We can certainly get that
Page 71
1 for you. That's not a hard number to find.
2 MR. CASSANDRA: The earliest that I can
3 remember is the early 2000s as well. We'll have to
4 check that.
5 COMMISSIONER JONES: And then, with regard its
6 utilization for your long-term care insurance, can you
7 explain how the company's used the Death Master File for
8 that line of business?
9 MR. KATZ: A similar type of discussion as to
10 disability.
11 Again, I'm just going to give you the high
12 level, which is in many cases in long-term care when
13 someone is in payment status, payment status may only
14 exist while the individual's alive.
15 We think about the same about logic I just
16 testified to about the other businesses. I don't have
17 the date when we started. We can certainly follow up
18 and get that to you.
19 COMMISSIONER JONES: Do you know which decade
20 it was that you began to use it for the long-term care
21 insurance?
22 MR. KATZ: I do not.
23 COMMISSIONER JONES: Do any of the witnesses
24 know?
25 MR. CASSANDRA: I don't have personal
Page 72
1 knowledge of it.
2 MR. KATZ: That's not a hard one to get you.
3 On a break we can get that for you.
4 MR. COLE: I just want to clarify one thing.
5 The first of our enumerated topics for this hearing in
6 our subpoena is: "Policies and procedures, specific
7 rules, specifications, project descriptions, manuals and
8 instructions concerning the use of Death Master to
9 identify potentially deceased customers across all lines
10 of business."
11 MR. KATZ: Our intent certainly is the best as
12 we can to answer all your questions. If we can't answer
13 them immediately, we will attempt to answer them
14 throughout the day today. That is our intent.
15 COMMISSIONER JONES: We promised a break at
16 11:00.
17 Before we take a break, let me see if the
18 Controller has any questions.
19 Let me see if the Controller has any follow-up
20 questions in this line of questioning and then we'll
21 turn this Ms. Miller and to Mr. Hanson.
22 CONTROLLER CHIANG: One question: This
23 question deviates slightly from the approach that we're
24 taking.
25 You we have been going chronologically via
Page 73
1 business line.
2 My question regards the use of Death Master
3 from a holistic approach.
4 At what level of management was the decision
5 made to use Death Master and how is the information
6 communicated across business lines?
7 I'm trying to get a sense of why different
8 chronology for the use of Death Master.
9 MR. KATZ: I think I understand your question.
10 Unfortunately, I do not know the answer.
11 Many of these decisions were made well in the
12 past and so, as I sit here today, I can't speak to that.
13 The one thing I can speak to -- which I'd like
14 to get into some depth later on -- is our decision that
15 we made in 2010 to take a more holistic approach to the
16 Death Master Index.
17 I'd be happy to share with you that decision
18 process because I was personally involved in it and talk
19 to you how that was made. I can't speak to what was
20 done historically.
21 CONTROLLER CHIANG: Can anybody provide a
22 better sense of the approach -- not working within the
23 insurance industry or within the insurance industry --
24 is there a lower-level management decision or would that
25 rise to executive management or it could rise to court
Page 74
1 consideration --
2 Is it viewed as a fundamental change in the
3 operations for a particular product line or was that
4 viewed as impacting company-wide operations?
5 MR. KATZ: Are you asking historically? I
6 just want to make sure I follow.
7 CONTROLLER CHIANG: If you can answer in a
8 historical context, that's s the gist of my question.
9 If not, what would be the current view?
10 MR. KATZ: I can't answer it historically.
11 What I can do is in the context of the current
12 changes, my leadership team and management up to my boss
13 were involved in that dialogue of what we were going to
14 do there.
15 CONTROLLER CHIANG: Your boss held what
16 position at what level and where is that position in the
17 organizational structure of MetLife?
18 MR. KATZ: My boss is the President of the US
19 Business and he reports to our CEO. He was involved in
20 the discussions.
21 COMMISSIONER JONES: Ms. Miller.
22 MS. MILLER: I just have one clarifying
23 question.
24 You testified that you didn't run through
25 Death Master on people without Social Security numbers.
Page 75
1 I think you said 800,000 industrial life
2 members were in that category. Is that the total number
3 of policies that have never been run through Death
4 Master or is that just industrial life?
5 MR. KATZ: I believe -- and maybe someone can
6 help me -- but I checked that number just to be sure.
7 The number I was attempting to comment on was
8 the industrial life block.
9 I assume your question is: Are there
10 additional policies beyond those that don't have Social
11 Security numbers? I don't know the answer to that. We
12 can certainly find that out.
13 MR. HANSON: In the 2007 Death Master run,
14 will you go over in detail again what the scope of that
15 was and what the specific policies types and periods of
16 periods of time they looked at for that?
17 MR. CASSANDRA: The 2007 run, we matched most
18 of our individual life insurance policies. That would
19 include the industrial, whole life, and any other --
20 universal life, the life insurance products normally
21 manufactured by individual policies.
22 MR. HANSON: That was just the life, business,
23 individual life?
24 MR. CASSANDRA: Specifically with regard to
25 the 2007 match that we discussed, the scope of that was
Page 76
1 the individual life business, which got materially most
2 of the business.
3 It was small assumed blocks of business which
4 were not matched in 2007 and provided, of course, that
5 we had a Social Security number to match.
6 MR. HANSON: So it's just individual life
7 policies remained where they had a Social Security
8 number. It wasn't group. Was it a whole term?
9 MR. CASSANDRA: Yes, whole life, term life and
10 universal life. But I think you said group life was not
11 in that scope of that.
12 I think group life was not in that scope of
13 that because of a very important distinction between
14 group insurance and individual insurance.
15 In group insurance, the company does not keep
16 records. The group policyholder is the party who
17 generally does the administration of the records.
18 MR. HANSON: Without running Death Master,
19 what happens in any of these lines of business at
20 MetLife? They go until when? What happens to them long
21 after anybody could possibly believe the policyholder is
22 still alive?
23 MR. KATZ: You're hitting on a very good
24 point, which is, is -- does it make sense -- this
25 isn't your question, but is there a place to use Death
Page 77
1 Master in the individual life business? We believe
2 there is.
3 We believe our learning from the '07 match
4 told us that while 99 percent were claimed dollars paid,
5 the normal process works. For one percent, it may not.
6 And so, we believe it makes sense that -- and
7 so to answer your question, what will happen to those
8 one percent? Those one percent of policies either
9 ultimately would get paid or would superannuate and
10 would be escheated -- certainly the industrial block,
11 which was a big chunk of where our focus was.
12 I just simply want to try to answer your
13 question.
14 MR. HANSON: I don't know if you're answering
15 my question.
16 I have the same conundrum that Commissioner
17 Jones had which is: Claimed dollars paid doesn't mean
18 that if the person never submits a claim, I don't know
19 that that's reflected in claims paid 99 percent.
20 MR. KATZ: I should clarify that then.
21 If you think about over a period of time we
22 had, I'll generalize two sources to gather claims; one
23 was a normal process and the other was out of the death
24 match.
25 If you looked over a period of time, about 99
Page 78
1 percent of the claimed dollars paid came from the normal
2 sources and about one percent of those claims never were
3 submitted through the normal processes -- or we don't
4 believe they were -- and we caught them through the
5 death match.
6 We think it's a useful safety net for those
7 situations where the normal process doesn't work.
8 MR. CASSANDRA: That match was designed for
9 exactly that purpose, Mr. Hanson, which was to attempt
10 to identify individuals who may have passed but where
11 the beneficiary did not come forward.
12 That was actually the purpose of that 2007
13 match as a safety net to find anyone that may not have
14 presented a claim.
15 MR. HANSON: My next question is: To your
16 knowledge, who is in the Death Master File? From what I
17 can tell, it's people that were receiving Social
18 Security benefits.
19 MR. CASSANDRA: I'm not an expert exactly on
20 exactly the sources to the Social Security Death Master
21 File.
22 My understanding is that it contains
23 approximately 87 million deaths that were reported in
24 some way to the Social Security Administration.
25 MR. KATZ: You gave a good point.
Page 79
1 There could certainly be people who aren't on
2 the Death Master Index. There is a challenge to the
3 industry and its regulators and it's something for us to
4 talk about because what the policies state is that the
5 beneficiary should submit a claim.
6 We think it's important for individuals to
7 share with their beneficiaries how much insurance they
8 have so they know they should submit their claim at the
9 time the person dies.
10 We think that Death Master Index is a good
11 tool to capture the majority of individuals that didn't
12 follow that normal process. We think that's a small
13 slice in total.
14 We also think that other efforts like outreach
15 to policyholders can help there too.
16 I described the process we did in the '80s and
17 '90s just to reach out to policyholders. We currently
18 match the majority of our admin records against the
19 national change of address database to help stay in
20 touch with policyholders.
21 We certainly have robust policies for returned
22 mail so that if we're in touch with policyholder, we
23 can't get in touch with them.
24 If your question is getting at, what about if
25 all that doesn't work? Ultimately, we can only pay if
Page 80
1 we're given information that shows us that there's a
2 liability due.
3 On many of our policies, however, they do
4 superannuate.
5 All that really means is that at a certain
6 point in time, you assume that you have an unclaimed
7 property situation and that money is turn over to the
8 State.
9 MR. HANSON: One other question that I have
10 is: What has been kind of -- maybe this is outside the
11 scope of the subpoena.
12 You sold these policies over many years. How
13 are they being marketed to folks?
14 I look at marketing material and it looks like
15 the companies make representations: "We're there for
16 you. We're going to be there for your family or estate
17 or what have you."
18 Is that the general thrust of how you market
19 your annuities?
20 MR. KATZ: Our greatest responsibility we
21 believe is to make good on our promises to our
22 customers. If we're not able to do that, it would be
23 difficult to ask customers to do business with us.
24 I can't comment specifically to any specific
25 marketing piece, but inherent in what we do is a
Page 81
1 promise, that when we have a liability, to pay that
2 liability.
3 We paid out over $11 billion in claims.
4 That's what we paid in 2010 in life insurance claims.
5 So we take that very seriously.
6 We also believe the processes around our
7 insurance are quite effective. They work for 99 percent
8 of the time. There is a small percent where they don't.
9 We think that index a good safety net.
10 Maybe after the break, we can talk about what
11 we are doing now and where we want to go perspectively.
12 We also think continuously doing things to
13 stay in touch with your customers is also a good idea.
14 COMMISSIONER JONES: Okay. You've testified a
15 moment ago that with regard to group life, it's
16 typically the policyholder which is the corporate entity
17 or customer that has the records, but is there some
18 percentage of your group life business where you
19 actually know who the actual individual policyholder is?
20 And if so, what percentage or number of
21 individual members, if you will, in group life policies
22 do you have knowledge about?
23 MR. KATZ: The answer is: Yes, there are some
24 group life businesses where we are managing the records.
25 I don't have the percent of that. We can get
Page 82
1 you that.
2 What I will tell you is, it's been growing
3 over time where employers may ask us to manage their
4 records. It's relatively small still.
5 That did lead to our decision in 2010 -- which
6 I think I can talk to -- including the group life
7 business where we have the records as part of our match
8 going forward.
9 It's early days on that work, but we think it
10 makes sense to look at that in the same safety net way
11 that I described before.
12 I should make a point. The group business is
13 a little different in that in many situations the
14 employer is the one that submits the claim. So the
15 employer has a role there.
16 We're very conscious on anything we do in our
17 business to work closely with our group customers to
18 make sure what we are doing is also with their
19 expectations.
20 COMMISSIONER JONES: So prior to 2010, you
21 weren't running Death Master against the records you had
22 of individuals who were members of group life policies?
23 MR. KATZ: Generally speaking, we were not.
24 COMMISSIONER JONES: Can you give me the order
25 of the magnitude; 20 percent of the business, 30 percent
Page 83
1 of the business -- of your group business?
2 MR. KATZ: I can't.
3 MR. CASSANDRA: It's a minority of the
4 business, but I don't have the exact history for you.
5 MR. KATZ: We certainly can get you that.
6 COMMISSIONER JONES: We would like to know
7 that.
8 MR. KATZ: I would like to make a point for
9 completeness. There have been some situations in the
10 group business where a specific group customer has used
11 the match. And in those situations, obviously, we then
12 were presented with claims.
13 So we wouldn't be the one doing the match, but
14 we're aware of certain group of customers who have taken
15 it upon themselves to use the Death Index for their
16 records.
17 COMMISSIONER JONES: How many?
18 MR. KATZ: Not many.
19 MR. CASSANDRA: A handful.
20 MR. KATZ: A handful. It's small.
21 COMMISSIONER JONES: You testified a moment
22 ago that for a certain period of time, there were two
23 sources for claims; the normal claims process and Death
24 Master.
25 But just to be clear, what period of time are
Page 84
1 we talking about as it relates to the individual life
2 insurance part of your business, it was 2007 that you
3 first began to use Death Master in a systematic way
4 across life insurance policies to determine if there
5 were matches. Is that correct?
6 MR. KATZ: In 2007, we did a systematic match.
7 It was one match, but it went back all the way back on
8 our records.
9 COMMISSIONER JONES: I understand 2007 was the
10 first time you ran that systematic match across life
11 insurance policies where you had a Social Security
12 number -- excluding some of the policies that you
13 testified to a moment ago in the mergers and
14 acquisitions acquired company policies and some of the
15 other categories, but 2007 was the first time and you
16 ran it once that time?
17 MR. KATZ: In a comprehensive way, individual
18 businesses with the caveats that you articulated --
19 COMMISSIONER JONES: That's a yes?
20 MR. KATZ: Yeah. You didn't say "individual."
21 That's what I wanted to clarify.
22 COMMISSIONER JONES: And then, when was the
23 next time that you ran Death Master across your life
24 insurance policyholders policies?
25 MR. KATZ: In 2010, we initiated a
Page 85
1 comprehensive death match program - which I'll let
2 Mr. Cassandra talk about which has a running Death Index
3 throughout all of our -- the majority of our business --
4 which I'm going to touch in a minute -- in a systemized
5 way. And some of that kicked off in late 2010 for our
6 retained asset accounts and then it's rolling throughout
7 2011.
8 I believe the individual life piece was just
9 matched this month and that will continue throughout
10 2011.
11 COMMISSIONER JONES: Let's start there after
12 the break. We'll take a 15-minute break. Thank you
13 very much.
14 (Recess was taken from 11:15 a.m. to 11:39 a.m.)
15 COMMISSIONER JONES: We're going to resume the
16 hearing now.
17 I want to begin by asking some additional
18 clarifying questions about some of the things we talked
19 about this morning.
20 Then, we'll give MetLife's representatives an
21 opportunity to talk about what's happening commencing in
22 2010.
23 Before we go there, earlier in the hearing,
24 MetLife testified to its utilization of Death Master for
25 annuities.
Page 86
1 In the slide presentation earlier, there was
2 some discussion that with an annuity there is what's
3 called a pay-in period and a payout period.
4 I'm wondering if you could describe for us
5 what those two terms mean in the context of an annuity
6 -- if any of the witnesses could.
7 MR. SOLLMANN: I'll be happy to.
8 COMMISSIONER JONES: If you could just get
9 real close to the mic. I'm having some problem.
10 MR. SOLLMANN: As Mr. Cole's presentation
11 outlined, a payout annuity is one where we are making
12 payments to the owner in the form of a monthly income.
13 A deferred annuity is one which is in a pay-in
14 status where the ultimate benefit to the contract holder
15 is at some point in the future.
16 COMMISSIONER JONES: So in your original
17 presentation or testimony, one of the witnesses used the
18 phrase "deferred annuity." That's synonymous with a
19 pay-in period for annuity?
20 MR. SOLLMANN: That's correct. In the trade,
21 those are commonly called "deferred variable annuities."
22 COMMISSIONER JONES: Okay. And with regard to
23 annuities that are in a pay-in period, is there
24 typically a death benefit associated with those
25 annuities?
Page 87
1 MR. SOLLMANN: There typically is, yes.
2 COMMISSIONER JONES: For MedLife's annuity
3 product, do they typically have a death benefit
4 associated with their specific annuity products that are
5 in the pay-in or deferred status?
6 MR. SOLLMANN: That's typically the status,
7 yes.
8 COMMISSIONER JONES: You testified as well
9 that Death Master was used initially manually and then
10 more systematic with regard to annuities.
11 Was Death Master also used for annuities that
12 are in the pay-in period?
13 MR. SOLLMANN: Yes. The description of the
14 process that I outlined earlier -- that began in the
15 early 2000s -- applied equally to our payout business as
16 well as to a portion of our deferred business. So let
17 we just talked a minute about that.
18 COMMISSIONER JONES: Thank you.
19 MR. SOLLMANN: And so, it was being used in
20 the early 2000s, to the best of my knowledge, for across
21 all of our payout business.
22 For deferred annuities that were on similar
23 administrative systems that support the majority of our
24 older, more mature blocks of business, we used it as
25 well.
Page 88
1 As I said earlier, as we continued to evolve
2 those processes and procedures this year, we planned on
3 continuing to expand that process to the rest of our
4 deferred annuity business.
5 COMMISSIONER JONES: Prior to this year, what
6 percentage of the deferred pay-in annuity business were
7 using Death Master to do matches for?
8 MR. SOLLMANN: I don't have the exact number.
9 I can tell you, just in a high level, that the
10 majority of our in force business, our book of business,
11 block of business, are those of older contracts.
12 The newer business would be the ones that we
13 plan on extending this process to. I could get you the
14 exact number if that would be helpful.
15 COMMISSIONER JONES: That would be helpful.
16 What I'm interested in is what percentage of
17 deferred annuities you were using Death Master for prior
18 to 2010?
19 MR. SOLLMANN: I don't have that with me, but
20 I can give that to you.
21 COMMISSIONER JONES: As to those annuities
22 that were in pay-in or deferred status when in the
23 utilization of Death Master you reached a match, what
24 was then done with regard to any communication with the
25 annuitant?
Page 89
1 MR. SOLLMANN: Sure. Again, we would use the
2 same process on payout annuities and on these pay-in
3 contracts as well.
4 That process involved sending notification or
5 a death claim packet to the last address. We have a
6 rigorous and periodic process for following up. If we
7 don't hear back from the initial letter, we let -- that
8 period goes on for a maximum of five years -- again,
9 consistent with the Internal Revenue Code's provision
10 that allows a beneficiary to defer taking the death
11 benefit for up to five years.
12 If, in the course of that five years we have
13 still been unable to identify a beneficiary, we will go
14 through what we call a finder process. Basically, it is
15 outside outsources to be able to identify a valid
16 address.
17 If, at the end of the year we're unsuccessful
18 there and commencing with the fifth year of that period
19 from date of death, we will then begin the escheatment
20 process.
21 COMMISSIONER JONES: So that was the practice
22 with regard to some portion of the deferred pay-in
23 annuities, but commencing in 2010 to now, you've now
24 expanded that practice to all of the deferred pay-in
25 annuities?
Page 90
1 MR. SOLLMANN: We will be expanding that to
2 all of them this year.
3 COMMISSIONER JONES: I'm wondering if the term
4 "Association Group Life" has any meaning to you? And,
5 if so, what is that term generally understood to mean?
6 MR. KATZ: Can you repeat the term?
7 COMMISSIONER JONES: Association Group Life
8 Insurance.
9 MR. KATZ: I'm going to make an assumption
10 that it would be group life offered for an association.
11 I don't know of it as a formal term.
12 MR. CASSANDRA: That's not a term that we
13 commonly use.
14 COMMISSIONER JONES: In your testimony
15 previously with regard to how you did or did not use
16 Death Master with group life, were you including -- if
17 you will -- group life policies for membership-based
18 associations?
19 Is there any distinction in your business with
20 regard to group life policies for an association-based
21 group life insurance policy?
22 MR. KATZ: For the purposes of -- I'm not
23 aware of any distinction.
24 COMMISSIONER JONES: And for purposes of Death
25 Master?
Page 91
1 MR. KATZ: No. I'm not aware of any
2 distinction there.
3 If we have association business, it's very
4 small and it's not a market for us.
5 COMMISSIONER JONES: Do you treat that in any
6 way different than the other group life insurance
7 policies in which you have used or have not used Death
8 Master?
9 MR. KATZ: I'm not aware of any differences.
10 COMMISSIONER JONES: There was a document that
11 was alluded to a little bit earlier in the hearing that
12 provided a little more detail in response to some of our
13 questions.
14 I want to -- I don't know if that has been
15 provided to us yet. I'm wondering if you have it, it
16 could be provided to us, and if you would be willing to
17 tell us what the source of the document is, and then we
18 can receive it and make sure it's part of our record.
19 MR. SOLLMANN: Commissioner, are you referring
20 to the request for shared information from an individual
21 and released to other parts of the company?
22 COMMISSIONER JONES: It was whether a document
23 was alluded to by counsel earlier. There was some
24 colloquy about the accurateness of the document so that
25 may be it.
Page 92
1 MR. SOLLMANN: What I can testify to is that
2 the document that I have here -- which we will share
3 with you -- is a true and accurate copy of the current
4 version of this policy.
5 This policy went into effect in the beginning
6 of 2010.
7 As I mentioned earlier, we had a less formal
8 process that was in existence prior to that or early
9 2010.
10 The written description of the steps we take
11 to share this information is what's reflected in this
12 document.
13 If I could just read an excerpt from this
14 document, I think it might be helpful and give you a
15 sense of the steps we take to share information beyond
16 (inaudible.)
17 COMMISSIONER JONES: It might be, but what I'd
18 like to suggest is: Maybe we could get a copy and the
19 court reporter could get a copy, then we can take a look
20 at it. If we have followup questions, we can ask those
21 after the lunch break.
22 MS. ROSEBOROUGH: The copy that witness has
23 annotations from counsel on it. We'll try to get you a
24 clean copy over the lunch break, but the copy with us
25 has communications on it.
Page 93
1 COMMISSIONER JONES: Well, why don't we wait
2 to ask about that and wait to take testimony about that
3 until such time as we can actually get a copy of it.
4 Now, the other question that I have has to
5 deal with MetLife's practices when you have a
6 circumstance where a life insurance policy is not
7 completely paid up, but some premium has been collected
8 on that policy, and then for whatever reason, the
9 company stops getting premium on the policy.
10 What does MetLife do in that circumstance with
11 regard to the policy like that?
12 MR. KATZ: It's going to be a varied answer
13 because we have many different policy forms in different
14 states and different -- what I'm going to call --
15 nonforfeiture elections that exist in those policy
16 forms.
17 I can speak to a couple of examples, but more
18 likely than not it's not going to be a complete answer.
19 We can go through it and you can follow up as much as
20 you'd like.
21 COMMISSIONER JONES: Okay.
22 MR. KATZ: So probably the most important
23 point I want to make in the context of those policies
24 is: If we did a death match subsequent to what I'm
25 going to describe momentarily, that death match would
Page 94
1 include any active in force policies, any policies in
2 nonforfeiture status and any cancelled policies.
3 So to the extent that a policy lapses for
4 whatever reason, if later through a match we identify
5 that that individual, in fact, died while that policy
6 was in force, the policy will be -- the value will be
7 reinstated to the value that it was when the individual
8 died and the beneficiary would receive interest
9 consistent with statutory requirements.
10 I just want to make sure that is clear first.
11 In some of our policies, they do have what are
12 called "nonforfeiture provisions."
13 These nonforfeiture provisions are designed to
14 keep policies in force in situations where an individual
15 doesn't make required premium payments.
16 In many cases, the policyholder can elect a
17 nonforfeiture provision that they would like.
18 For example, they might elect a paid in full
19 paid-up status. They may elect extended term insurance.
20 They may elect a premium loan.
21 Essentially, if you think about policies that
22 have cash value in force, depending on -- again, most
23 policies have elections -- we'll honor what that
24 election is.
25 To the extent that that election results in
Page 95
1 the action -- that would happen. So in a paid-up
2 status, it would convert to paid-up. An extended term,
3 it would be extended for a period of time at a given
4 face amount.
5 In an automatic policy loan, the loan would be
6 taken out of the policy proceeds.
7 In all of the circumstances, the
8 administration would be consistent with whatever the
9 form would be required -- I believe -- and we would act
10 on it accordingly.
11 So to your question, could there ever be a
12 situation where an individual doesn't make a premium and
13 there's cash value in that policy and the policy
14 ultimately lapsed, that certainly could happen.
15 However, going back to my first point, if
16 however, we subsequent to that run a match and we find
17 that that individual's death preceded the date that
18 policy lapsed -- whatever the value was at the time
19 that that person died -- that's the value that we use
20 in the means of ultimately paying out to the beneficiary
21 or, if we can't find the beneficiary, escheating those
22 funds to the State. I gave you a lot there.
23 MR. CASSANDRA: Could I augment Todd's answer
24 with one other point?
25 I think Todd's testified earlier that on the
Page 96
1 industrial block, we had made decision -- the company
2 made a decision in the very early '80s, on or about
3 1981, to waive any future premiums on those policies.
4 So under that industrial block, no premiums are due.
5 It's a situation which I believe would lead to
6 -- we don't think can happen on the industrial block
7 business.
8 COMMISSIONER JONES: So with regard to
9 nonindustrial block business, what number of policies
10 are we talking about here that MetLife has in the
11 individual product line?
12 MR. KATZ: How many policies do we have in our
13 nonindustrial individual --
14 COMMISSIONER JONES: Yes.
15 MR. KATZ: -- life block?
16 MR. CASSANDRA: Total in force, Commissioner?
17 COMMISSIONER JONES: Yes.
18 MR. CASSANDRA: More than six million.
19 COMMISSIONER JONES: Six million.
20 In the early part of the 2000s, what number of
21 policies did the individual block did you have in force
22 that were nonindustrial?
23 MR. CASSANDRA: I don't have that number with
24 me.
25 COMMISSIONER JONES: In the '90s, do any of
Page 97
1 the witnesses know -- either the '90s or early 2000s --
2 what number of individual non-industrial policies were
3 in force?
4 MR. KATZ: I don't know the answer.
5 COMMISSIONER JONES: With regard to the
6 automatic policy loan provision that you just described
7 a moment ago, if I understand that correctly, what that
8 is a provision that allows MetLife to begin to collect
9 when the cash value of the policy -- the premium that
10 otherwise would have been required to have been paid in
11 the event that the policyholder is not paying a premium
12 anymore. Is that correct?
13 MR. KATZ: That's correct.
14 As a means to keep the policy in force, in
15 most cases the individual is electing that piece, making
16 that election such that their policy doesn't lapse.
17 COMMISSIONER JONES: Of the six million
18 individual non-industrial policies that you have in
19 force now, what percentage of those have automatic loan
20 payment provisions?
21 MR. KATZ: I don't know.
22 COMMISSIONER JONES: Do any of the witnesses
23 know what percentage of the book of business has that
24 provision?
25 MR. CASSANDRA: I'm sorry, Commissioner. I
Page 98
1 don't know.
2 COMMISSIONER JONES: Is it the majority of the
3 book of business that has that provision?
4 MR. CASSANDRA: I couldn't say.
5 COMMISSIONER JONES: We'd be interested in
6 what percentage of the in force individual life
7 insurance policies have the automatic loan payment
8 provision?
9 With regard to the utilization of Death Master
10 as it relates to the individual policies, I believe it
11 was your testimony that it wasn't until 2007 that there
12 was a systematic utilization of Death Master across
13 individual policies to determine if there was a match.
14 Is that correct?
15 MR. KATZ: Absent any reference to litigation
16 -- which we will speak today -- that is correct.
17 COMMISSIONER JONES: Let's talk about
18 litigation.
19 You caveated your answers a couple of times by
20 qualifying it by saying that absent litigation, you did
21 "X." Absent litigation, you did "Y."
22 Can you share with us how Death Master has
23 been used in the context of whatever litigation is that
24 you're referring to?
25 MS. ROSEBOROUGH: Let me offer as a general
Page 99
1 statement, we're glad to provide the details of that in
2 a confidential setting.
3 For purposes of this setting, I'll just note
4 that for purposes of complying with obligations under
5 certain settlement agreements, we made very narrow
6 limited use of the Death Master File.
7 I'm happy to share the details of that in a
8 more confidential setting.
9 COMMISSIONER JONES: Can any of the witnesses
10 testify at this point whethere that was litigation
11 brought by a state regulator?
12 MS. ROSEBOROUGH: It was not.
13 COMMISSIONER JONES: Are all of those matters
14 resolved at this time?
15 MS. ROSEBOROUGH: They are.
16 COMMISSIONER JONES: Is there any pending
17 litigation involving the utilization of Death Master?
18 MS. ROSEBOROUGH: There's not and the subject
19 of those litigations was not utilization or
20 non-utilization of Death Master.
21 COMMISSIONER JONES: But Death Master was used
22 in some context in association with those --
23 MS. ROSEBOROUGH: The resolution.
24 COMMISSIONER JONES: -- the resolution of
25 those particular lawsuits?
Page 100
1 MS. ROSEBOROUGH: Yes.
2 COMMISSIONER JONES: Have there been
3 settlements that have been filed publicly with courts
4 with regard to those lawsuits?
5 MS. ROSEBOROUGH: Yes.
6 COMMISSIONER JONES: And so if the settlements
7 are publicly available, why is it that the witnesses
8 can't testify about the utilization of Death Master in
9 association with those lawsuits.
10 MS. ROSEBOROUGH: I'm glad to provide you with
11 copies of the settlement agreements. I'm glad to
12 provide you the details how we executed our
13 responsibilities under the settlement agreements, but in
14 a more confidential setting.
15 COMMISSIONER JONES: The settlements
16 themselves are public, but you can't testify about them
17 at this time?
18 MS. ROSEBOROUGH: The witnesses are not
19 prepared to testify about the details of how we executed
20 our obligations under those settlement agreements.
21 The execution of obligation under the
22 settlement agreement in some instances included use of
23 the Death Master File to make sure we fulfilled our
24 obligations under those settlement agreements.
25 COMMISSIONER JONES: Okay. So we're not going
Page 101
1 to waive here our right in a public hearing to have
2 access to the settlement agreements and testimony
3 related thereto.
4 I know you're asserting that they're
5 confidential in nature. You can only provide them to us
6 confidentially.
7 I respectfully disagree. I think if the
8 settlements are public, we should have a right to them.
9 I think our subpoena contemplated all
10 utilization of Death Master, so I don't think it's
11 responsive also not to have a witness testify about
12 this.
13 MS. ROSEBOROUGH: To be clear, we're happy to
14 provide you with copies of the settlement agreements
15 themselves and have no concerns about discussing the
16 settlement agreements with you.
17 COMMISSIONER JONES: Okay. So we're going to
18 reserve our ability to call witnesses back from MetLife
19 to talk about those settlement agreements once you've
20 produced them for us.
21 MS. ROSEBOROUGH: We're happy to do that.
22 COMMISSIONER JONES: Is there any other --
23 other than your utilization of Death Master commencing
24 in 2010, are there any other uses to which Death Master
25 was put other than what you've already testified to so
Page 102
1 far in this hearing?
2 MR. KATZ: I believe we have given you a
3 comprehensive view of our whole business.
4 I can't tell you definitively we've covered,
5 you know, the four corners of the organization. As I
6 explained before, it's a very large organization. But
7 to the best of my knowledge, I think we've covered the
8 gamut.
9 I just want to make one point. We mentioned
10 retained asset accounts. I don't believe we talked
11 about them, so we certainly can and will, if you'd like
12 us to --
13 COMMISSIONER JONES: I think what we're going
14 to do is wait until later in the hearing to pick up the
15 issue of retained asset accounts.
16 MR. KATZ: That is another area.
17 To answer your question, I believe we've
18 covered the gamut. I can't be sure of that, but some of
19 you will agree. I can give you as much stuff as you
20 like.
21 MR. CASSANDRA: Commissioner, could I just
22 clarify one other point?
23 When you had asked about nonforfeiture
24 options, I just wanted to be clear that you understood
25 when we did the 2007 match against the Death Master
Page 103
1 File, we considered that situation in how we thought
2 about the logic for that match.
3 That match included a match not only against
4 in force policies, but also policies that may have
5 cancelled in the example that we gave.
6 So that we believe to the extent that that may
7 have happened at some point in the past since that 2007
8 sweep was, in fact, an issue of being a type sweep, we
9 believe any such situation like that would have been
10 caught by that match.
11 So can I say we got everyone? We think we
12 were concerned about that situation. We contemplated it
13 and any logic that we developed we intended to uncover
14 all of those.
15 COMMISSIONER JONES: How far back in time did
16 that sweep go with regard to the life insurance policies
17 issued by MetLife?
18 MR. CASSANDRA: It used the entire Social
19 Security Death Master File.
20 So on the one side, it was Social Security
21 data, all Social Security data was included.
22 And from our side -- as we testified before
23 under the individual businesses -- we attempted to
24 include the vast majority of the business other than
25 those assumed blocks and policies for which we had
Page 104
1 Social Security information.
2 COMMISSIONER JONES: I understand that, but
3 you've testified that not only did you run the sweep
4 against in force policies, but also the policies that
5 had lapsed, I think is your testimony.
6 My question is: How far back in time did you
7 do that run and try to pick up lapsed policies?
8 MR. CASSANDRA: I think we went back as far we
9 actually had data on in administrative systems.
10 The earliest death that we identified in that
11 particular match was, I believe in the late 1970s.
12 We actually picked up a death that was earlier
13 in the 1960s. It appears that that was on a policy
14 owner, not an insured, however.
15 COMMISSIONER JONES: You've testified earlier,
16 too, that originally Death Master was used manually with
17 regard to group life insurance policies in a manual
18 fashion and later on --
19 MR. CASSANDRA: Not group life, Commissioner.
20 COMMISSIONER JONES: I'm sorry. Say again.
21 MR. CASSANDRA: You said group life. Not
22 group life. You may have meant group annuity.
23 COMMISSIONER JONES: I meant group annuity.
24 You're absolutely correct.
25 I need to have a better understanding of the
Page 105
1 computer records that MetLife has with regard to life
2 insurance policies.
3 At what portion in MetLife's history did it
4 begin to actually computerize records with regard to
5 life insurance policies?
6 MR. KATZ: That's a difficult question to
7 answer. You know, the enhancements to technology that
8 emerged over the last 50 years are constant so I'm not
9 in a position today to testify to all the different
10 enhancements that have happened.
11 I'm not aware, frankly, of what happened when,
12 and I don't think any of the other witnesses are.
13 What we can do, we'd be happy to, is follow up
14 in writing with some information that kind of lays out
15 what happens specifically when.
16 But I think you're asking for things that
17 happened back in the '70s, '80s and '90s and it's very
18 hard to put all of that together in the level and depth
19 and accuracy that you want for this discussion.
20 COMMISSIONER JONES: Are records associated
21 with all of your in force life insurance policies
22 computerized now?
23 MR. KATZ: I want to be careful to say "all,"
24 but I believe the vast, vast majority of them are.
25 By saying "all," you will find one that isn't,
Page 106
1 but I believe the vast majority is.
2 COMMISSIONER JONES: At what point in the
3 company's history would the company be confident in
4 saying -- most if not all -- of the records were
5 computerized?
6 MR. KATZ: I think you're asking me to
7 speculate on something I don't know the answer to. I
8 don't know.
9 COMMISSIONER JONES: Do any of the other
10 witnesses know at what point, with some confidence,
11 MetLife felt that it had all of its policyholders
12 records and computerized at some point?
13 MR. CASSANDRA: I don't think -- no.
14 COMMISSIONER JONES: Can we have somebody help
15 with that microphone? Maybe you can borrow the
16 microphone to your right. Thanks.
17 MR. CASSANDRA: I can't speculate as to when
18 that happened, but I could give you an example.
19 Prior to our demutualization, the company took
20 a very specific -- undertook a specific effort to try to
21 find all of its -- to make sure it had records on all of
22 its policyholders.
23 There were techniques used, including address
24 verification associated with that demutualization in
25 2000/2001 to attempt to find each and every
Page 107
1 policyholder.
2 COMMISSIONER JONES: Okay. So prior to that
3 period of time, thought, you've indicated -- Actually,
4 let me back up.
5 You've indicated with regard to the industrial
6 policies that only some portion of those industrial life
7 policies have Social Security numbers associated with
8 them?
9 MR. KATZ: Correct.
10 COMMISSIONER JONES: I think you said there
11 were roughly one million industrial life policies.
12 MR. CASSANDRA: 1.5 million.
13 COMMISSIONER JONES: 1.5 million. I
14 apologize.
15 I think you indicated that it was something on
16 the order of 800,000 for which you ran Death Master
17 against because you had a Social Security number
18 associated with those policies. Was that the right
19 number?
20 MR. KATZ: I think we probably have that -- I
21 think it's about 800,000 that do not have.
22 MR. CASSANDRA: Actually, it's higher than
23 that. It's more approximately a million where we don't
24 have the Social Security numbers on the industrials.
25 COMMISSIONER JONES: Okay. Are then all of
Page 108
1 the industrials computerized at this point?
2 MR. CASSANDRA: To the best of my knowledge
3 and belief, they are.
4 COMMISSIONER JONES: Were they all
5 computerized as of 2007 when you ran the Death Master
6 sweep against the individual life insurance policies for
7 which you had Social Security numbers?
8 MR. CASSANDRA: I believe that to be the case,
9 Commissioner, but I can't say with 100 percent
10 certainty.
11 COMMISSIONER JONES: Was any effort made with
12 regard to the industrial life insurance policies for
13 which you did not have the Social Security number to run
14 the other elements of Death Master against those
15 policies to determine that there might be a match?
16 MR. CASSANDRA: We actually did get data when
17 we did the 2007 match and we looked at what we called
18 other than the three-point matches.
19 It was our experience that we found 39,000,
20 what I would call other than three-point matches when we
21 did that 2007 search.
22 We diligently through -- including human
23 research, the match was just the starting point. We
24 actually researched all of those. It proved to be a
25 very unreliable use of the Death Master.
Page 109
1 We only uncovered approximately 700 valid
2 claims payable to beneficiaries out of 39,000 where we
3 had other than a three-point match in that 2007 sweep.
4 COMMISSIONER JONES: With regard to the 39,000
5 that you found, there was a match other than the
6 three-point match, what steps did you take to try to
7 contact those policyholders or beneficiaries?
8 MR. CASSANDRA: I think we -- The match was
9 the first step. We used Internet third-party vendors,
10 for example, to help us, like Rootsweb or Accurint to
11 try to find individuals and other record searches to try
12 to find them.
13 COMMISSIONER JONES: So was it then after
14 those additional record searches that you narrowed the
15 number down to 7000?
16 MR. CASSANDRA: That's all that we could find.
17 MR. KATZ: I think it's also important to
18 clarify that this may be an issue that we couldn't find
19 them or it also may be an issue that it's just a
20 mismatch, that you have somebody in the file.
21 A very common example is, in the industrial
22 block, you have an individual policy owner who is the
23 owner, but the insured is the child.
24 The record keeping way back then when that was
25 set up wasn't particularly great.
Page 110
1 So our goal was really where claims we have a
2 valid liability and, if we do, then act on them.
3 The problem was, absent a three-point match;
4 Social Security number, date of birth within two years
5 and the name, the effectiveness was far lower than it
6 would have been.
7 MR. CASSANDRA: It was a case that it was not
8 our insured.
9 COMMISSIONER JONES: With regard to the
10 industrial policies, was it the practice of MetLife to
11 have a physical policy file for each of the industrial
12 policies?
13 MR. KATZ: I'm assuming you're asking way, way
14 back when?
15 COMMISSIONER JONES: Yes.
16 MR. KATZ: I don't know the answer for that.
17 I think it's a reasonable assumption that we had some
18 type of record. I can't testify to that for sure.
19 COMMISSIONER JONES: When the Death Master
20 sweep was done on the individual life insurance policies
21 in 2007, were there written physical records associated
22 with the industrial life insurance policies in force at
23 that point?
24 MR. KATZ: Well, there may have been, but if
25 your question is: Did we -- what data did we use to
Page 111
1 match. Is that what you would like? Or did we use
2 paper files?
3 COMMISSIONER JONES: That's where I was going
4 next.
5 MR. KATZ: I don't believe we did. What we
6 did was: We took the data that we had from our admin
7 systems, created a file and used that file to do the
8 match.
9 What we didn't have on that file were the
10 individuals that did not have Social Security numbers,
11 which is a fairly substantiative portion of the
12 industrial life block.
13 I should make a point on that block.
14 Keep in mind that in the ten years of late
15 '80s to early '90s, we put forth substantive efforts to
16 find those people -- whether it was through our Family
17 Reunion Program, national advertising. National
18 spokesman. We had Willard Scott be our spokesman.
19 And then, prior to demutualization, another
20 exhaustive effort to find those people to see if their
21 addresses were right, so the SS tool we didn't find to
22 be as effective as others for individuals where we just
23 didn't have the SS.
24 MR. CASSANDRA: I have several newspaper
25 articles from that time which were explaining our
Page 112
1 efforts to find industrial policyholders.
2 And, in fact, during period -- that multi-year
3 period where we did the Family Reunion Program, we spent
4 about -- The record shows we spend about $20 million in
5 terms of TV advertising, print advertising, events such
6 as luncheons.
7 We had a particularly intense effort in
8 Southern Florida where we believe that many of the
9 policyholders coming from the northeast where a
10 significant portion of our business was may have
11 relocated.
12 We hired Willard Scott, who was a TV
13 personality at the time, to actually host many of those.
14 In Florida, at Disney World, we actually had a
15 pavilion set up so that visitors could come over and
16 query the systems to find out whether or not we had an
17 industrial policy for them.
18 COMMISSIONER JONES: How long was the family
19 reunion project in effect?
20 MR. CASSANDRA: From the records that we show,
21 up to ten years.
22 COMMISSIONER JONES: What was the period of
23 time we're talking about?
24 MR. CASSANDRA: I believe - the dates of
25 theses articles are -- This one is October 25th, 1990.
Page 113
1 So it started in the late '80s and it ran
2 through the mid-'90s. And in some cases, what the
3 contact actually was -- actually put us in contact with
4 the policyholder, so the address records and the update
5 could be made, but there was no death at that point in
6 time.
7 So one could argue that the program is still
8 in force today because we are still getting claims from
9 individuals who were reunited with the company through
10 the Family Reunion Program.
11 COMMISSIONER JONES: How many policyholders
12 were identified though the Family Reunion Program?
13 MR. CASSANDRA: From the records we have from
14 that time, we estimate about a half million
15 policyholders were reunited from the company through the
16 Family Reunion Program.
17 COMMISSIONER JONES: And at the time that you
18 did the 2007 Death Master sweep, was there any manual
19 check of the industrial life insurance policies against
20 the Death Master database?
21 MR. KATZ: If, in fact, we had a Social
22 Security number for those policyholders -- we may have
23 updated it over time, then they would have been run --
24 it should have been run against the Death Index.
25 If we didn't have Social Security number, we
Page 114
1 did not have a separate match process for those policies
2 where no Social Security number existed.
3 COMMISSIONER JONES: But even as to those with
4 no Social Security number, my understanding is you're
5 doing a computerized match based on a Death Master File
6 running against your administrative systems.
7 My question is sort of different. And that
8 is, was there any physical search of the industrial
9 policies, physical written records at the time of the
10 2007 sweep to ascertain whether there was information in
11 the physical file that might match up with that master?
12 MR. KATZ: I don't believe so, but I just want
13 to clarify. If there were records -- physical records
14 for the block, our intent would have been to have
15 captured those in our systemic records, I believe.
16 My instincts would be: If we had records of
17 information that were at one point on paper, we would
18 have looked at in our systems.
19 COMMISSIONER JONES: I understand. But there
20 was no physical inspection of written records.
21 MR. KATZ: Not that I'm aware of.
22 COMMISSIONER JONES: Okay. You testified
23 earlier that your utilization of Death Master was
24 limited to a three-point match as you described it;
25 Social Security number, date of birth and name.
Page 115
1 MR. KATZ: We should clarify that.
2 COMMISSIONER JONES: Please.
3 MR. KATZ: We matched -- of the files we
4 matched with a three-point match, we found 28,000
5 matches that wound up in about 18,000 claims with a
6 three-point match. 28,000 matches, about 18,000 claims
7 with a three-point match.
8 We also matched with just Social Security and
9 name, just Social Security and date of birth. And I'll
10 ask my team to confirm, I assume just Social Security
11 alone, too. That resulted in an additional 39,000
12 matches or less than complete matches.
13 Of that group, we found about 700 good claims.
14 COMMISSIONER JONES: When you say "good
15 claims," does that mean that someone actually made a
16 claim that fell in that 39,000?
17 MR. KATZ: No. We found that those were
18 legitimate deaths where the individuals who were on our
19 administrative record.
20 We would have invited that beneficiary to
21 submit a claim. And if, in fact, the beneficiary
22 couldn't be reached, those claims then would have gone
23 through our unclaimed properties system.
24 COMMISSIONER JONES: With regard to providing
25 those beneficiaries to make a claim, those that fell
Page 116
1 within the 30 -- is it 37 or 39,000?
2 MR. KATZ: About 39,000.
3 COMMISSIONER JONES: 39,000.
4 Did you invite the beneficiary to make a claim
5 only after you a subjected those 39,000 policies to the
6 additional data searches that were testified a moment
7 ago as some of the other data sources?
8 MR. KATZ: I don't know exactly the sequence
9 of it, but I'll try to speak in generalities.
10 We identified 39,000 matches. And I would say
11 for the same part, 28,000 three-point matches. 28,000
12 three-point. 39 one- or two-point matches. All of
13 those were investigated.
14 The effort to investigate them involved first
15 determining -- I think first determining: "Is this
16 truly a match?" And then once we know it truly is a
17 match, "Can we find the beneficiary?"
18 And if we can't find the beneficiary and, in
19 fact, validated that it is a good claim, going ahead and
20 proceeding with the unclaimed property procedures.
21 COMMISSIONER JONES: So there was some effort
22 to try to find some location for the beneficiary after
23 you determined that it was within the context of the
24 28,000 for which you and a three-point match and 39,000
25 for which you had a one-point or more match, you then
Page 117
1 made an effort to see if you could find where those
2 beneficiaries were by looking at what precisely?
3 MR. KATZ: On many of them, once we determined
4 it was a good claim, we would have that beneficiary on
5 record and so we would have written to the last address
6 of the beneficiary on record.
7 If, in fact, the last beneficiary on record
8 couldn't be found, we would use other sources in an
9 effort to find that beneficiary, including some of the
10 computer sources that we talked about. And if that
11 couldn't be done, begin the unclaimed property process.
12 COMMISSIONER JONES: What did the
13 communication you sent to the beneficiary's last known
14 address or other addresses provide -- what did it state
15 to them -- the potential beneficiary?
16 MR. KATZ: I do not know.
17 MR. CASSANDRA: That's a level of detail that
18 I don't know.
19 COMMISSIONER JONES: Did you require them to
20 submit a claim?
21 MR. KATZ: We would have invited them to
22 submit a claim, yes.
23 COMMISSIONER JONES: And then, was there any
24 effort --
25 MR. KATZ: Just to be clear, I believe that's
Page 118
1 what we did. I don't want to testify to the record that
2 that's exactly what we did, so we can certainly follow
3 up.
4 COMMISSIONER JONES: That would be helpful.
5 Was there any effort to publish the names of
6 the individuals for which there had been a three-point
7 match and the individuals for which there had been at
8 least a one-point match?
9 MR. KATZ: So publish the names?
10 COMMISSIONER JONES: Let me define what that
11 means. I mean somehow, in some way, make those names
12 publicly available?
13 MR. KATZ: So let's be clear what we're
14 talking about because there's different code words.
15 There's the 28,000 and 39,000 that had an
16 initial match that kind of came up that could be a match
17 and the 18,000 and the 700 that actually were a match.
18 Which one would you like?
19 COMMISSIONER JONES: Let's start with the
20 28,000.
21 MR. KATZ: So the 28,000 and the 39,000 -- I'm
22 going to apologize. I have a phone in my pocket.
23 So the 28,000 and 39,000, before they were
24 brought back to the 18 and 700 were just data that
25 showed we could have a match.
Page 119
1 So until we took the 28,000 down to the 18 and
2 said: "We really do have a match" and the 39 to the 700
3 and said: "We really do have a match," there wouldn't
4 have been any outreach action to do because we didn't
5 have -- my example could be that we identified that the
6 person who died was not the person who had coverage.
7 And that happens fairly often because of data
8 inconsistencies.
9 MR. CASSANDRA: Just to make that clear, the
10 policy owner may have died but not the insured.
11 MR. KATZ: If that's the case, there wouldn't
12 be a liability to be paid for that.
13 COMMISSIONER JONES: So with regard to the
14 18,000 that I guess are a derivative of the 28,000,
15 18,000 claims that are actually made of the 28,000?
16 MR. KATZ: 18,000 individuals of the 28 where
17 we felt we had an accurate match, was really a match.
18 And those are the people that we began the
19 claim investigation program. Those were the people that
20 identified that ultimately resulted in $80 million in
21 payments of which $50 million or so were actually paid
22 to beneficiaries and another $31 million were put into
23 our unclaimed property for escheat.
24 COMMISSIONER JONES: Was there any publication
25 of the 18,000 names?
Page 120
1 MR. KATZ: So the ones where we were able to
2 find the bene, no -- I would think not because we found
3 the bene and paid them.
4 COMMISSIONER JONES: Actually, I thought you
5 said that you did a three-point match, discovered
6 28,000. You did further analysis and decided 18,000 of
7 them were actually accurate.
8 And then, there was a subset of that where
9 actual claims were paid. So it's roughly 3,000 or so I
10 think you testified to.
11 MR. KATZ: Let me clarify.
12 We're going just to do the three-point match
13 first and we'll come back to the two-point match.
14 Think of it this way: About 28,000 matches of
15 which 18,000 were accurate matches where we determined
16 it was a true match, we truly had a liability.
17 MR. CASSANDRA: Meaning our insured.
18 MR. KATZ: It was our insured. I should be
19 clear about that. May not have a liability, but it's
20 our insured.
21 With those we then wrote to the beneficiaries
22 and we said: "Look, we have reason to believe" -- I
23 don't know if that's exactly what the letter said. This
24 is the gist of it -- "that so and so died and they had
25 insurance."
Page 121
1 As a result of that, we paid out $50 million
2 in claim payments.
3 COMMISSIONER JONES: How many policies?
4 MR. KATZ: I'm going to try to see. I don't
5 know if I can be linear on this.
6 So 18,000 policies all of which $50 million
7 were paid to benes in dollars and $30 million --
8 COMMISSIONER JONES: I got that before.
9 MR. KATZ: How many policies? We certainly
10 can get it.
11 MR. CASSANDRA: I don't have the number of
12 policies. I have the dollars.
13 COMMISSIONER JONES: So not all 18,000 were
14 paid out, I take it?
15 MR. KATZ: They were either paid out or they
16 were put into our unclaimed fund system to be escheated.
17 COMMISSIONER JONES: So with regard to the
18 18,000, they were either paid out or escheated?
19 MR. KATZ: I want to be careful in saying
20 "all," but generally speaking, that's what should have
21 happened.
22 COMMISSIONER JONES: Then with regard to
23 39,000 for which you had a one or more match, only 700
24 were either paid out or escheated?
25 MR. KATZ: You got it. Approximately.
Page 122
1 COMMISSIONER JONES: With regard to the
2 original 28,000 for which you had a three-point match
3 and the 39,000 for which you had a one or more point
4 match, there was no publication of the names of those
5 individuals?
6 You describe what you did with them, but there
7 was no publication of the names of individuals?
8 MR. KATZ: Correct.
9 COMMISSIONER JONES: That was m original
10 question.
11 MR. KATZ: Yeah. So at some point, some
12 segments of them as they funneled through the system may
13 have resulted in some states which required some level
14 of publication prior to funds being escheated, we would
15 have executed our responsibilities to do that.
16 So I'll give you an example. In one state,
17 they may say before you escheat -- this is the way
18 California does it -- in California, California does
19 outreach.
20 In some other states, they may require us to
21 do an outreach and if we were required to do that in a
22 given state, we would have done that.
23 But the segment between the 28 and the 18 or
24 the 39,000 and the 700, there was no outreach because we
25 didn't identify those as lost policies.
Page 123
1 COMMISSIONER JONES: At the close of the last
2 session, there was some testimony about what the company
3 started to do in 2010 with regard to the utilization
4 with Death Master.
5 Why don't you go ahead and share that with us
6 now.
7 MR. KATZ: Sure.
8 COMMISSIONER JONES: I'm sorry, Mr. Katz. I
9 want to apologize. Ms. Miller has a follow-up question.
10 MS. MILLER: Of the $31 million that was put
11 into your unclaimed property system in 2007, all of that
12 was related to California claims has been escheated.
13 Right?
14 MR. KATZ: I can't testify to that.
15 MS. MILLER: Is there a statute it's three
16 years? In Florida, it's five. We talked about that at
17 our hearing.
18 MR. KATZ: So my understanding is that in
19 California, there is a three-year period. And in the
20 report for 2011, which ultimately will be escheated at
21 the latter part of 2011, you'd see an increase in the
22 amount because of this group.
23 So we can certainly testify to those amounts
24 if you'd like.
25 COMMISSIONER JONES: I think the Controller is
Page 124
1 going to have a line of questioning about the
2 responsibilities under California law so we can hold off
3 on that for the moment, Ms. Miller.
4 Let me ask, though, if there aren't any
5 follow-up with this line of questioning, we can now go
6 to what the company started doing in 2010.
7 MR. KATZ: Sure. S I think I want to back up
8 just a second to get to what led to what we did in 2010.
9 In 2007, we ran this match and we learned a
10 whole lot of information. We learned about three-point
11 matches. We learned about two-point matches. We
12 learned about processes to connect with policyholders.
13 In fact, some of that learning goes a little
14 bit further back.
15 And throughout 2008 and 2009, we were going
16 through these exhaustive procedures as best we could to
17 locate those policyholders and pay out these
18 beneficiaries, and I kind of gave you the sense of the
19 order of the magnitude.
20 In 2009, we had structural changes in the
21 company, and this may get at Commissioner Chiang's
22 question about the decision-making.
23 We created a US Business at that time. So
24 prior to that, business units were managed separately.
25 We created one US Business at that point in time.
Page 125
1 Throughout I'd say, the early part of 2010, we
2 began looking at the experiences that emerged out of the
3 '07 match.
4 We also were engaged in discussions with
5 regulators about questions around unclaimed property.
6 And ultimately, we took a look at what we
7 wanted to do across our US Business in this specific
8 area. And I was charged to lead a team to look at this
9 issue holistically.
10 Based on that review, determined that we felt
11 we had an opportunity to use that Master Index more
12 effectively across the US Business to provide the safety
13 net that I've been describing before. Presented a
14 recommendation to my boss to use that universally in a
15 way that we'll describe -- I want to be careful with
16 "universally" -- generally, with the majority of our
17 business.
18 We'll describe that in-depth in a moment.
19 That recommendation was accepted and in late
20 2010, we began the process of executing on that program.
21 So I can certainly now tell you about that
22 program or I can pause and let you ask questions.
23 COMMISSIONER JONES: Why don't you talk about
24 the program.
25 MR. KATZ: Sure. I'll turn it over to
Page 126
1 Mr. Cassandra.
2 MR. CASSANDRA: So in recognizing the fact
3 that the Social Security Death Master File could be a
4 very effective safety net, we took the decision to match
5 against the Social Security Death Master no less
6 frequently than annually the policies for which we had
7 of records. Okay?
8 So that includes our retain asset accounts,
9 our individual life insurance businesses, our annuities
10 and the group life insurance business where we have the
11 records and are the record keeper.
12 We believe that an annual match will provide a
13 very effective safety net.
14 We will -- those procedures were recommended
15 to include -- as we did in 2007 -- logic to capture not
16 only active policies, but also any policies that may
17 have ended due to expiring of the nonforfeiture option
18 period.
19 So in late 2010, we began our first match
20 consistent with this new policy by matching our retained
21 asset accounts and we have been moving through and, in
22 fact, the individual business has been matched again,
23 and will be completely matched again to the extent that
24 we have to have the records in by the end of this month.
25 COMMISSIONER JONES: So between 2007 and 2010,
Page 127
1 were there any sweeps of product lines using Death
2 Master?
3 MR. KATZ: Absolutely.
4 COMMISSIONER JONES: Which ones?
5 MR. KATZ: We testified a little bit to what
6 we did in annuities, disability and long-term care and
7 so those processes that we testified to already were
8 going on during those durations.
9 MR. SOLLMANN: Commissioner, I would add on
10 the individual annuity side -- as I testified to earlier
11 -- we have a regular.
12 COMMISSIONER JONES: Can you hold the mic a
13 little closer, sir.
14 MR. SOLLMANN: Sure. In the individual
15 annuity business, we conduct sweeps on a monthly basis
16 for payout business and quarterly for deferred payments
17 business.
18 COMMISSIONER JONES: Okay. So on the annuity
19 side between 2007 and 2010, you're doing monthly for
20 payout annuities and quarterly for pay-in annuities.
21 MR. SOLLMANN: As I said, we began that
22 process in 2000.
23 The only caveat I'd add is that on the sweeps
24 we were doing on our deferred book of business was
25 limited to all older blocks of business.
Page 128
1 COMMISSIONER JONES: Okay. You then testified
2 earlier about what you did with regard to
3 corporate-owned and group life insurance, disability,
4 long-term care. That work continued between 2007 and
5 2010?
6 MR. KATZ: I believe it did. We want to get
7 you -- certainly you had asked for the dates when we
8 commenced long-term care and disability.
9 I believe those proceeded 2007. We will
10 certainly verify that and get you that information.
11 COMMISSIONER JONES: So on the group life
12 insurance side, are you doing -- during this period of
13 time 2007 to 2010, are you doing quarterly, monthly or
14 annual sweeps using Death Master?
15 MR. KATZ: We were not doing sweeps with group
16 life insurance.
17 COMMISSIONER JONES: Okay. With regard to --
18 MR. KATZ: I'm sorry. For completeness
19 except. For completeness except in those situations
20 which I testified to where specific customers may have
21 done that on their own.
22 COMMISSIONER JONES: Okay. And then with
23 regard to disability insurance 2007 to 2010, monthly,
24 quarterly or annually. Do you know?
25 MR. CASSANDRA: I believe it was monthly.
Page 129
1 COMMISSIONER JONES: And then, with regard to
2 long-term care insurance from 2007 to 2010, monthly,
3 quarterly or annually?
4 MR. CASSANDRA: I believe it was monthly as
5 well.
6 COMMISSIONER JONES: And so let me ask the
7 same question with regard to company-owned life
8 insurance during the period 2007 to 2010, were you using
9 Death Master monthly, quarterly or annually?
10 MR. CASSANDRA: I believe it was monthly. So
11 you may be asking why are --
12 COMMISSIONER JONES: You saw where I was
13 going.
14 MR. CASSANDRA: What the frequency is --
15 COMMISSIONER JONES: More specifically, let me
16 ask the question.
17 Why are you using it on a monthly basis for
18 these other private lines, but only annually with regard
19 to the life insurance product line?
20 MR. CASSANDRA: Right. We believe that the
21 frequency needs to consider the underlying contractual
22 provisions and the promises that are in embedded in
23 those policies.
24 So on the annuity business, for example, the
25 main use of the Death Master File is to avoid a duration
Page 130
1 payout errors and to avoid having to try to go out and
2 recover payments that were made after the death of the
3 annuitant.
4 Again, under the contract, the annuitant must
5 be alive in order to receive the benefits. So again, we
6 used Death Master to avoid errors in that situation.
7 On the life insurance side, as we said, the
8 process for beneficiaries presenting the claims to the
9 company works exceedingly well, and has been the
10 historical method for individuals to claim life
11 insurance benefits.
12 Based on experience of our 2007 study, we saw
13 that process did, in fact, work exceptionally well.
14 While. While we uncovered in that 2007 sweep, we
15 uncovered a little over $80 million worth of benefit
16 payments, that was just a small fraction of the total
17 benefits that were incurred, claimed and paid out using
18 the normal practice.
19 So $80 million -- it's a meaningful number,
20 certainly. It did represent a very small percentage of
21 the total benefits that the company paid.
22 Again, we think that the Death Master File's
23 best use this life insurance is as a safety net under
24 that standard process.
25 One of the concerns you'd have is that
Page 131
1 individuals will certainly, based on their own facts and
2 circumstances, want to take a little bit of time to get
3 their loved one's affairs in order before they actually
4 make a claim for life insurance benefits.
5 And if you are making -- if the company is
6 matching almost in realtime, the company would be
7 injecting themselves into that process, perhaps
8 inappropriately.
9 So what we think is, the standard process of
10 beneficiaries claiming their benefits works very well.
11 An annual match will serve them as a very effective
12 safety net.
13 The last point I would make is that in most --
14 under the provisions of most states, interest is payable
15 to beneficiaries if claims are delayed.
16 So, in fact, in California it's my
17 understanding that delayed settlement interest is
18 payable to beneficiaries from 30 days after the date of
19 death.
20 So the fact that the match is not done on the
21 same frequency, there is actually good underlying
22 reasons for a more staggered match on life insurance
23 than on annuities.
24 COMMISSIONER JONES: I have to say that again,
25 the one percent figure is a figure of paid claims.
Page 132
1 I'm not persuaded that that represents the
2 percentage of total policies in effect or policies that
3 have lapsed due to death where someone has died and a
4 benefit is owed.
5 But even taking the one percent figure for the
6 moment, which is $80 million, that's a big number. How
7 many policyholders does that represent? These are
8 relatively low-value policies is my understanding.
9 MR. CASSANDRA: I think the answer to that was
10 the result of the 18,000 and the 700 that we talked
11 about before.
12 MR. KATZ: That's going back over a really
13 long time. So about 18,000 or so policyholders going
14 back 20, 30, 40 years. So it's the vast majority of
15 policies are coming in through the normal process.
16 COMMISSIONER JONES: The vast majority of
17 claims that you pay are coming into the normal process.
18 That still doesn't answer the question as to
19 whether or what percentage of claims that should be paid
20 or benefits that should be paid because someone died and
21 there was policy in effect, what percentage of your
22 total policyholders that represents.
23 So without belaboring that, I'm not persuaded
24 of the argument you're making with regard to the
25 frequency of utilization of Death Master in the
Page 133
1 individual life insurance context.
2 MR. CASSANDRA: But I think I wanted to take a
3 minute -- if you will indulge me -- just to make sure
4 you understand that when you do that Death Master File
5 sweep, it is, in effect, an issue to the that sweep, so
6 any individual who had passed and Social Security number
7 is on the Death Master File and it matched with our
8 records, we were able to identify those folks and
9 actually pay out the benefits to their beneficiary.
10 So I think to the point of, you know, is that
11 a good estimate of individuals who may not have
12 otherwise claimed the benefit, we think that it is
13 because once you do that match, once do you the match of
14 the Death Master File and you go back through the whole
15 history, you have essentially have swept it clean to the
16 point, to the extent possible.
17 Our intent is to sweep it clean up to that
18 moment in time.
19 MR. KATZ: There are two cohorts,
20 Commissioner, which I think you may be getting at that's
21 important that are included in numbers and Mr. Hanson
22 got at that too.
23 One is the individuals who are not on the
24 Death Index, we can't match against them.
25 And two, the other individuals who we don't
Page 134
1 have Social Security numbers for.
2 So that is the place that I would say
3 supplements the one percent, if that's where your line
4 is going.
5 COMMISSIONER JONES: What you've testified to
6 is before you get to the Death Master sweep in 2010, you
7 assume that all of the records of your policyholders
8 have been put in your system but you can't tell us when
9 that happened and how much of that has happened. That's
10 one big assumption.
11 Second, you have to have a match, at least
12 initially of least three points and sometimes one point.
13 So again, I'm not convinced that the one
14 percent figure is actually representative of the total
15 percentage of policies in effect or policies that have
16 lapsed for which a benefit should be paid.
17 I don't need to belabor the argument on that
18 point.
19 I guess there were a couple of examples that
20 the slide presentation went through that I want to run
21 by you and see if I can get your reaction to, so I can
22 better understand -- we as a panel have a better
23 understanding of what your general practices are.
24 One example was a circumstance in which
25 there's some communication from a relative of a MetLife
Page 135
1 policyholder in which that relative of the MetLife
2 policyholder, goes, once the policyholder's died, what
3 is it we're supposed to do?
4 What does MetLife do in that circumstance when
5 they receive that kind of communication from a relative
6 of a policyholder?
7 MR. KATZ: I'm going to answer the question
8 relative to our individual life business, if that's okay
9 because I think we can give a dozen different answers.
10 Is that where you'd like us to focus on?
11 I think that's where the example was.
12 COMMISSIONER JONES: I'm sorry. Start with
13 the individual life.
14 MR. KATZ: That's where the example came from.
15 So we do get some of our claims through
16 telephone calls from beneficiaries or even other family
17 members.
18 And when we do get the call in that said the
19 person died, that would kickoff our claim process.
20 We would then send the individual information
21 asking them to fill out a claim information and provide
22 us with proof of death and we would -- if you received
23 that information back, we would then proceed with paying
24 the claim.
25 Now, the followup, well, what if you don't get
Page 136
1 it back, well, what do you do next?
2 We have procedures -- I don't want to attest
3 to them exactly, but they involve at least two or three
4 outreaches to whom we deem to be the beneficiary to
5 really determine: "Do we have a valid claim here?"
6 All we have so far is somebody called us and
7 told us that someone is dead.
8 We make best efforts, if in fact we can't
9 guest notification, to use third-party sources to verify
10 whether we have a valid claim here.
11 And in some cases, we'll write to the State in
12 an effort to get the death certificate all in the effort
13 to assess whether we have a valid claim here.
14 If, in fact, those efforts prove to be
15 insufficient or they prove that there is no valid claim,
16 we then end the process. We have not taken on -- we
17 don't have a liability. We don't have funds due and
18 owed because all we have is a call from someone that
19 told us that someone died.
20 If however through that process we do get the
21 information to secure there is a valid claim and proof
22 of death, and we have liability that's due and payable,
23 we will search out a beneficiary and see if there is a
24 beneficiary to be paid.
25 If there is a beneficiary to be paid, that
Page 137
1 beneficiary would be paid through the normal process.
2 If, in fact, the beneficiary can be located
3 and we go through a process of searching out that
4 beneficiary and ultimately deem them -- that we can't
5 find, them then we'll go through our unclaimed process.
6 COMMISSIONER JONES: So in all of these
7 responses to that sort of communication from a relative
8 of the policyholder, do you require a death
9 certification as proof of death.
10 MR. KATZ: Yeah. Our general procedure -- and
11 we do have some exceptions which can I can certainly
12 talk to. On 9/11, we didn't require death certificates.
13 The Massey Energy thing, we didn't require a death
14 certificate. So there will be exceptions.
15 But our normal procedure is, when someone
16 reaches out to us, tells us that someone is dead, we
17 will ask them to complete paperwork and provide us with
18 information that shows there's proof of death, which is
19 a death certificate. And once there is proof of death
20 and we have a good claim, then we can proceed.
21 COMMISSIONER JONES: That's true even when you
22 have a three-point Death Master match for that
23 individual?
24 MR. KATZ: That's a good point. I should have
25 used the other example.
Page 138
1 So we did make a decision when we ran the 2007
2 match to proceed without death certificates in an effort
3 to expedite those claims.
4 MR. CASSANDRA: For ones that we entered into
5 the unclaimed property system.
6 MR. KATZ: So just to be clear, for
7 escheatment purposes. Obviously, we couldn't pay if
8 there was a bene.
9 COMMISSIONER JONES: Could you repeat that.
10 MR. KATZ: For escheatment purposes.
11 COMMISSIONER JONES: So, let me make sure I
12 understand then, with regard to the utilization of Death
13 Master and the universes of the 228,000 and the 39,000,
14 you required a -- you suspended your normal requirement
15 that you had a death certificate that you pay out
16 beneficiaries in that context using the 2007 sweep, but
17 you did require death certificate for purposes of
18 escheatment.
19 Do I understand that correctly? Do you want
20 to explain it again?
21 MR. CASSANDRA: Sorry, Commissioner. I think
22 you had it backwards. In the 2000 sweep, after the
23 match, outreach to beneficiary, invited a claim, we
24 would have gotten a death certificate and paid to the
25 beneficiary.
Page 139
1 For those individuals where we couldn't find a
2 beneficiary and we entered that, we entered those
3 benefits into our claim fund system without a death
4 certificate.
5 COMMISSIONER JONES: I understand.
6 So the requirement of a death certificate to
7 pay out the benefit, but to enter them into the
8 unclaimed property system for purposes of escheatment,
9 you suspended the death certificate requirement as it
10 related to that sweep?
11 MR. CASSANDRA: I believe so.
12 COMMISSIONER JONES: Is that similar approach
13 being utilized in 2010 going forward under your new
14 policy?
15 MR. CASSANDRA: I don't know that we've
16 actually have come to take that decision as of yet.
17 COMMISSIONER JONES: Okay. And then, the
18 other example in the slide was the situation where mail
19 is returned to you when you sent it out to a
20 policyholder's address.
21 And you know from the mail being returned as
22 well as a Death Master match that it would appear that
23 the individual has died. What does the company do in
24 that circumstance?
25 MR. KATZ: So you'd like me to answer in
Page 140
1 reference to the individual life business,
2 Mr. Commissioner?
3 COMMISSIONER JONES: Yes.
4 MR. KATZ: So the death match we've already
5 described whether or not there was a returned mail issue
6 wouldn't change or alter the way the Death Master Index
7 program would work.
8 We still would have followed and proceeded as
9 I described.
10 If you're asking during the normal course of
11 business, we get returned mail from the policyholder, we
12 would make efforts to try to get the correct address for
13 that policyholder as best we could.
14 Now, we're probably here talking about
15 policyholders that are in paid-up status because if they
16 are not in paid-up status, they'd be paying us.
17 That was sort of the genesis of some of the
18 things I described with the Family Reunion Program of
19 really trying to reach back out and find those
20 policyholders.
21 But just because the policyholder is lost and
22 we're not connecting to them doesn't mean that they're
23 dead. I don't know if that's where you are going.
24 COMMISSIONER JONES: Are there any
25 circumstances under new policy which you implemented in
Page 141
1 2010, are there any circumstances under which you could
2 get some indication that the policyholder may have died,
3 whether it's a returned letter, a phone call, and then
4 you run Death Master against that individual to further
5 confirm whether the individual has died?
6 MR. KATZ: So even going back and
7 prospectively, I talked about when we get a notification
8 that an individual has died, a call or so forth, we will
9 exhaust many means, and in some situations, will check
10 the Death Index.
11 COMMISSIONER JONES: My apologies. Let me
12 clarify the question.
13 If a letter comes back to you or some
14 communication, some written communication you've mailed
15 t a policyholder comes back to you, do you take any
16 steps at that point to ascertain whether the individual
17 is alive or not?
18 MR. KATZ: I'm trying to presume what the
19 situation is. Let's say it's a bill.
20 COMMISSIONER JONES: Fair enough.
21 MR. KATZ: So if we sent someone a bill and
22 they don't respond, we try to find out there's a good
23 address.
24 I don't believe in the life business we're
25 using mail as a way -- as an indication to say: "Okay.
Page 142
1 Now this is the moment where we should go and check that
2 Death Index."
3 However, when we ultimately sweep, and if that
4 is -- that person had died, we would then find about
5 that person.
6 COMMISSIONER JONES: It's not until you do
7 that annual sweep that that would occur?
8 MR. KATZ: Yeah. I think, just to gauge your
9 question, do we, when we get returned mail -- do we then
10 say: "Ah. That may be an indication that this person
11 is dead. Let's go find out." I think that's the gist
12 of your question?
13 COMMISSIONER JONES: Yes.
14 MR. KATZ: I don't believe we do that. I'd
15 prefer to reserve. Maybe at the lunch break I can check
16 with our expert just to make sure I articulate that.
17 COMMISSIONER JONES: Are there any other
18 circumstances under which you'd run Death Master against
19 the name of a policyholder prior to the annual sweep
20 that your 2010 and going for policy contemplates?
21 MR. KATZ: Yeah. So as I described, when we
22 get a notification of death, someone calls us and we
23 write out to that person and say: "Hey, complete a
24 claim" and that individual does not respond and we send
25 a second notice and we send a third notice, and that
Page 143
1 person still doesn't respond, we will make -- bring
2 other efforts to look at publicly available data,
3 including, depending on the circumstance, Death Index to
4 see if, in fact, we can get a death certificate,
5 validate whether or not there is a claim and if there is
6 one, then we reach out to -- in that case probably by
7 then those funds are going to be escheated because
8 probably we exhausted best efforts through the person.
9 COMMISSIONER JONES: You used the term "Death
10 Index." Is that different than Death Master?
11 MR. KATZ: Same concept. But the nuance I
12 want to make sure is, one thing we talked about is the
13 systematic line against all of our policies.
14 Now what I'm talking about is using it as a
15 tool periodically when we've been notified of a death to
16 check the file and assess whether or not that
17 individual's on the file. It's not a run.
18 COMMISSIONER JONES: I understand.
19 But in addition to receiving a letter or a
20 call from a relative, are there any other circumstances
21 where you would use Death Master to check and see
22 weather other than your annual sweep, check to see
23 whether an individual policyholder has died?
24 MR. KATZ: So let me broaden it to say some
25 other form of notice.
Page 144
1 It could be a call. It could be some other
2 way.
3 And in those cases, I think we'd proceed as I
4 described.
5 Absent some other form of notice, I'm not
6 aware of using Death Master. But again, I reserve the
7 right to make sure I get the right answer for you.
8 COMMISSIONER JONES: We're going to in a
9 moment break for lunch. Let's see if any other members
10 of the panel has any questions to follow up before we do
11 that. Ms. Miller.
12 MS. MILLER: When you have a bad address and
13 you look for a new one, do you use Accurint or a
14 services like that to look for a new address?
15 MR. KATZ: We use our admin files against the
16 national change of address database, I believe,
17 quarterly.
18 When we have a bad address, we have an address
19 correction unit. I'm not sure exactly what the tools
20 are that they use, but we can certainly follow up and
21 tell you what they are, but their goal is to try to find
22 the address.
23 COMMISSIONER JONES: Any other follow-up for
24 the members of the panel? Mr. Hanson.
25 MR. HANSON: For group and individual
Page 145
1 annuities, what percentage are in the accumulation or
2 deferred period and what are in the demutualization
3 period, any idea?
4 MR. KATZ: Unfortunately for group, I don't
5 know the answer. For group, perhaps you can help me.
6 MR. CASSANDRA: For group annuities, the vast
7 majority are actually in payout status or are in a
8 deferred status pending.
9 If you think about the way the group annuity
10 business works, an individual might have left an
11 employer with a vested benefit, but they can't begin to
12 collect on their retirement annuity until they reach a
13 certain action. So they have both types, but the vast
14 majority are actually in payout status receiving a
15 monthly benefit on the group annuity side.
16 MR. SOLLMANN: On the individual business, I
17 don't have the number with me. We can get that, if you
18 like it.
19 I believe the vast majority of our cases are
20 not in payout. The much larger portion of our business
21 is represented by deferred pay-in annuities.
22 MR. HANSON: You distinguish between older
23 books of business and that's where you run Death Master.
24 What distinguishes an older book from -- where's the
25 delineation?
Page 146
1 MR. SOLLMANN: An older book of business is
2 business that we typically wrote before, I would say,
3 generally speaking 2000/ 2001.
4 Those are contracts where the contract holder
5 is likely to be older in age, where there's more
6 likelihood that they may be -- they have the opportunity
7 for being eligible for death benefit.
8 The newer blocks of business are of the more
9 modern form of variable annuities that I mentioned
10 earlier that typically have benefit riders associated.
11 MR. HANSON: That was any next question.
12 The products that you have enhanced benefit
13 riders and things like that, what becomes the amount
14 that's escheated?
15 I've seen people talk about the cash value of
16 the underlying assets, but with death benefits riders,
17 you could have a conceivably higher death benefit.
18 MR. SOLLMANN: I believe it is the death
19 benefit.
20 MR. HANSON: The death benefit rider.
21 MR. SOLLMANN: The death benefits payable
22 under the contract, which may include a rider inclusion.
23 MR. HANSON: And then for just general
24 business out there for life, do you people have closed
25 blocks, you're not selling that policy form anymore and
Page 147
1 what percentage of your business is in closed blocks on
2 your in force business?
3 MR. KATZ: I'll start this and I'll ask Frank
4 to give some color.
5 When we talk about the closed block at
6 MetLife, generally we're talking about business that
7 existed prior to the demutualization.
8 Some of that is the industrial policies that
9 we've already talked about. Some of it are ordinary
10 policies.
11 MR. CASSANDRA: I think perhaps the
12 Commissioner was talking about close block from the
13 perspective of not accurately not being marketed.
14 And yes, so the blatant example of that would
15 be industrial block.
16 So we haven't sold industrial insurance since
17 1964. So effectively, that's a closed block. If I
18 think I'm reading your question correct.
19 MR. HANSON: Or other older term life products
20 that aren't industrial, do you have blocks where the
21 business is not being sold anymore. It's moved on to
22 new more modern policy forms?
23 MR. CASSANDRA: Yes.
24 MR. HANSON: I assume you have those blocks?
25 MR. CASSANDRA: Yes, we do.
Page 148
1 MR. HANSON: Do you ever change the
2 nonguaranteed elements in them after they are closed?
3 MR. CASSANDRA: I'm shot sure. I can't speak
4 specifically to any particular block. I'm sorry. I
5 don't think I'm prepared to answer that.
6 COMMISSIONER JONES: Okay. We're going to
7 take a break. I know the schedule originally
8 contemplated we'd come back at 12:30. We're running a
9 little bit long. I'm sorry. Did I say 12:30 1:30?
10 Let's come back at 1:45. We'll resume at 1:45. Thank
11 you.
12 (Lunch recess taken.)
13 COMMISSIONER JONES: Okay. If the court
14 reporter is ready and the witnesses are ready and the
15 panel is ready, we'll resume.
16 I think there was a document provided to our
17 counsel that's talked about earlier in the hearing. Why
18 don't we put that into the record.
19 MR. COLE: Primarily here; during the break,
20 MetLife provided us with a document entitled: "Death
21 Match -- Referral to Life Insurance or Total Control
22 Accounts."
23 I want to ask the court reporter to receive a
24 copy of this from MetLife. Has that been provided to
25 the court reporter?
Page 149
1 MS. ROSEBOROUGH: It has not.
2 MR. COLE: I'd like the court reporter to mark
3 that as Exhibit 1.
4 (Whereupon, Exhibit 1 was marked
5 for identification)
6 MR. COLE: Just so we're very, very clear on
7 this, would one of the sworn witnesses please testify in
8 just a few sentences as to what this document is. It's
9 dated September 8, 2010.
10 MR. SOLLMANN: Sure. I'll take that question.
11 As I mentioned earlier in the morning, we do
12 have and have had a process, my understanding, to share
13 information with other parts of the company,
14 particularly on this document with our life insurance
15 death claim unit and our total control account.
16 That process was informal and then we began to
17 formalize that process in early 2010, the first part of
18 2010.
19 This version that you see here is the latest
20 version of the current process that we use, and I can
21 answer any other questions you might have on this point.
22 MR. COLE: Just so I'm clear, this is a
23 two-page document. Is this the totality of the document
24 or is there more to this document?
25 MR. SOLLMANN: I'm not sure I have the answer
Page 150
1 to that question. I've been told that it is the
2 entirety.
3 MR. COLE: Okay. Thank you. So before the
4 close of this hearing, if you'll make sure to get a copy
5 to the court reporter for marking, we'd appreciate it.
6 COMMISSIONER JONES: All right. I believe
7 there was some other questions we had in the first half
8 of the hearing that MetLife might have a chance to do a
9 little more research on. I think we might actually hear
10 some testimony about that at this moment.
11 MR. KATZ: I'm going to give the data quickly.
12 It's only a couple of pieces and I'll have some more
13 follow-ups.
14 Toward the end of the testimony, there was a
15 discussion of loss of addresses and in particular -- or
16 bad addresses -- and our procedures around that.
17 I want to give a couple of clarifying
18 statements.
19 First of all, in, if fact, we get returned
20 mail into our individual life unit and it indicates
21 deceased, we will perform an investigation. Similarly
22 to the investigation I described when we get a phone
23 call that advises that someone is deceased.
24 I'm not going to through that whole
25 investigation process again, but I can if you'd like.
Page 151
1 Secondly, in our address correction unit, we
2 do have procedures -- and I did confirm that -- to use
3 publicly available sources of data, such as Accurint and
4 Rootsweb to determine if there's any indication if that
5 individual is dead. Again, that supplements those
6 topics.
7 Any question on those? There were a few
8 others.
9 COMMISSIONER JONES: I don't think we have any
10 additional questions.
11 MR. KATZ: The other ones are very quick.
12 There are dates you asked for about when we
13 began using Death Index and Death Master in various
14 businesses.
15 I'm going to give you some dates. I would say
16 these are approximates only because I got them from
17 someone else. I want to validated, but I'm sure the
18 order of magnitude is close.
19 What I'm describing here is for our disability
20 business or for our long-term care business and I'm
21 describing usage for individuals that are in claimed
22 payment status.
23 So for individual disability, we began using
24 the Death Match in 1995. I was not able to ascertain
25 the frequency of that or any decisions that led to its
Page 152
1 usage.
2 In 2001, we began using it for group
3 disability and for long-term care.
4 So I believe we testified a little bit to the
5 frequencies on these already in the current state. So
6 if you have any further questions, I'll be happy to
7 answer them.
8 COMMISSIONER JONES: I think there are no
9 additional questions.
10 MR. KATZ: That was really all of the
11 follow-ups that we have.
12 COMMISSIONER JONES: Okay. Thank you.
13 Now I want to turn the mic over to the
14 Controller Chiang and afford him an opportunity to ask a
15 series of questions.
16 CONTROLLER CHIANG: Thank you.
17 Please describe the original structure within
18 the MetLife entity that handles the escheat obligations
19 of the state of California?
20 MR. KATZ: So I'm going to explain the nuance
21 that I'll need to describe. We have an unclaimed
22 property organization that is part of an organization,
23 which I can talk about how that works.
24 However, each operation within the
25 organization has responsibilities to determine when it's
Page 153
1 appropriate for a specific item to go into the unclaimed
2 funds system.
3 The way I would describe it is the admin unit
4 that has accountability of any given business and we've
5 talked about the various businesses has responsibility
6 to apply administrative processes to identify when
7 something should go into the system and then the claimed
8 funds group -- which is my organization -- is
9 responsible for the management of those funds once it's
10 put into the system through ultimate escheatment.
11 CONTROLLER CHIANG: Can you state, "when
12 something goes into the system," what that something is?
13 MR. KATZ: Sure. That "something" could be
14 uncashed checks. It could be --
15 CONTROLLER CHIANG: In the unclaimed property
16 procedure?
17 MR. KATZ: Yeah. And that process can vary
18 for the different types of property.
19 CONTROLLER CHIANG: So how is that
20 determination made within each business unit?
21 MR. KATZ: Sure. So within each business
22 unit, we have administrative rules that incorporate our
23 best understanding of the appropriate regulations in any
24 given jurisdiction, including how they may vary for any
25 given contract. And those rules are included in the
Page 154
1 administrative procedures for each of those operating
2 units.
3 I'm not purposefully being vague. They do
4 vary by area.
5 CONTROLLER CHIANG: How are the administrative
6 rules reviewed and enforced?
7 MR. KATZ: So I'll answer this more broadly.
8 Across our organization, we have controlled
9 processes including auditing processes that are aimed
10 periodically to look at our different businesses to
11 assess whether they are operating consistent with our
12 contracts, with our customer expectations and with the
13 applicable law and in given entity.
14 CONTROLLER CHIANG: You raise an interesting
15 point. How do you test that versus consumers'
16 expectations?
17 MR. KATZ: Well, consumer expectations are
18 very important to us so one of the things we look at
19 very closely is the responses we get from our customers,
20 whether it's customer complaints or surveys that we do,
21 or any feed back that we get from customers.
22 Sometimes, it's quite good, too. And we
23 certainly incorporate that to help us understand where
24 we have opportunities to get better.
25 CONTROLLER CHIANG: And how long have you been
Page 155
1 doing that and the frequency by which you do that?
2 MR. KATZ: So I certainly can tell you in some
3 of these businesses we've been doing customer service
4 surveys for at least ten-plus years, maybe further than
5 that.
6 It varies by business in terms of who we're
7 speaking to.
8 I can't tell you exactly for any given
9 business, but it's not a new phenomenon.
10 In terms of complaints and tracking
11 complaints, there are statutory requirements around how
12 you do that and we have an organization that's
13 accountable for making sure we manage that
14 appropriately.
15 CONTROLLER CHIANG: Okay. You said that's
16 subject to audit processes.
17 Are these internal? To the extent they are
18 internal, can you describe the process by which you do
19 internal audit reviews?
20 And then to the extent that you do any
21 external audit reviews, please describe who you consult
22 or contract with.
23 MR. KATZ: So we have a fairly robust internal
24 audit process. I'm probably not going to be able to
25 give you exhaustive detail on how it works, except to
Page 156
1 say that the auditing team is essentially auditing
2 against the controls and the expectations.
3 Once we select a business to be audited, we'll
4 perform the audit. They may assess findings out of that
5 audit and from there, there may be management action
6 that we attempt to act upon that's internal.
7 External auditors, certainly we have an
8 external auditor. I'm not aware -- maybe there's people
9 on the panel who are aware -- if any of our external
10 auditors have been involved in the unclaimed property
11 audits.
12 MR. CASSANDRA: I don't have any knowledge of
13 them having done that.
14 CONTROLLER CHIANG: Can you share with us any
15 of the findings that the internal audit reviews have
16 identified over the past few years.
17 MR. KATZ: At this very moment, I don't have
18 those at my finger tips. I assume that we can share
19 that.
20 CONTROLLER CHIANG: If you can go back and
21 contact the appropriate individuals and share your
22 findings.
23 My concern is this: In 2002, MetLife
24 escheated property to the state of California and one of
25 the categories was annuities, a second category is death
Page 157
1 benefits.
2 So assuming that you fulfilled your
3 obligations under those two particular property tax
4 codes -- or property-type code for 2002. But in 2003,
5 2004, 2005, 2006, we do not have property submitted to
6 the state of California under those property types and
7 that's what's why I'm trying to get to my affirmative
8 question that I asked earlier.
9 Do you have some type of identification at
10 what level of management -- because you may have lines
11 of businesses that are fulfilling your obligations and
12 in other areas you have inconsistent application perhaps
13 of the rules or a change in policy, so I'm trying to get
14 a sense of what is taking place.
15 MR. KATZ: So would you be so kind as to
16 repeat those dates? We're not going to be able to
17 respond to them today, but I want to make sure we have
18 them, and then certainly that on information I'm not
19 familiar with, we'll come back and take a look at it.
20 CONTROLLER CHIANG: Sure. So in 2002, we see
21 escheated property in the categories, two that are
22 identified are annuities and death benefits.
23 However, property escheated by MetLife in
24 those categories we do not appear to have any for the
25 years 2003, 2004, 2005 and 2006.
Page 158
1 MR. KATZ: Okay. So we will take a look at
2 that. The one possibility that I will throw out is the
3 potential that we have some coding issues in our
4 systems. So let us check that out and really make sure.
5 Our intent, obviously, is to submit unclaimed
6 property consistent with what it should be.
7 It's reasonable that if we had a prior issue,
8 it would be on those years, but I want to check that out
9 for you.
10 CONTROLLER CHIANG: And then, following up on
11 your last statement you do want to escheat, how does
12 MetLife determine when it will escheat proceeds due
13 under policies identified by its 2007 comparison?
14 MR. KATZ: So the actual -- so let's -- we're
15 going to talk about individual life.
16 For individual life, we escheat based on our
17 -- typically, it's based on the time we know we have a
18 liability that's due and unpaid and we can't find the
19 rightful owner of that property, then we begin the
20 unclaimed property process, which I believe in
21 California is three years.
22 The 2007 match was somewhat unique in that we
23 made the decision to waive the requirement of proof of
24 death. So one could assume if we had required proof of
25 death, then the escheatment period would have started
Page 159
1 subsequent to 2007, but instead we chose not to require
2 proof of death and, as such, used the 2007 date as the
3 date for purposes of establishing liability for
4 unclaimed property.
5 CONTROLLER CHIANG: Actually, you used the
6 term "to know." Can you further delineate your
7 definition of "to know," so actual versus constructive?
8 If you choose actual or somewhere near there, what
9 constitutes the sufficiency for the policies of MetLife?
10 MR. KATZ: What I prefer to testify to is what
11 we did, which was resume -- when we ran the match in
12 2007 and identified that we had information indicating
13 death, kicking off expectation and investigations that
14 subsequently weren't successful, we selected that data
15 as the date as opposed to using a subsequent date where
16 we have had proof for the purposes of establishing
17 escheatment date.
18 CONTROLLER CHIANG: And which unit within
19 MetLife making that determination.
20 MR. KATZ: That would have been for the
21 purposes of the '07 -- I'm not exactly sure if that was
22 done in the claim area or the unclaimed funds area. We
23 can certainly get you an answer to that.
24 CONTROLLER CHIANG: The variation in 2007, how
25 is that determination made and by whom?
Page 160
1 MR. KATZ: I do not know the answer to that.
2 We can certainly get that and let you know.
3 CONTROLLER CHIANG: I understand that there
4 may be perhaps some shortcomings in the 2007 approach,
5 but I thought the 2007 approach was more constructive
6 and ultimately was resulted in a resolution for the
7 benefit of the beneficiaries.
8 Has there been any discussion as to the action
9 you took in 2007 and perhaps moving to that approach?
10 MR. KATZ: Actually, there has. So for the
11 life business, as with other business, we are -- have
12 implemented a new comprehensive approach that began in
13 late 2010 where no less than annually we will match the
14 Death Index.
15 And we think -- as we described before -- that
16 will provide an valuable safety net for the limited
17 number of policies that don't come in through the normal
18 course.
19 We have not yet perfected all the details
20 exactly how that will work in the context of what would
21 acceptable for proof or not as we talked earlier.
22 CONTROLLER CHIANG: That's the third time one
23 of you has used the term "safety net."
24 I actually don't believe it's the most
25 constructive approach. It is a back-ended approach,
Page 161
1 even though you get to the point where you're trying to
2 assist individuals.
3 Why isn't it used more affirmatively as a tool
4 in the front end?
5 One of comments was: You didn't want to
6 assert yourself into the process. But I don't
7 personally find it invasive if in the event that
8 somebody passed away and my family received notice that
9 we may be the beneficiary of the proceeds when somebody
10 -- a loved one passed away.
11 MR. KATZ: So we're now going to have a
12 conversation about timing, is really what we're talking
13 about.
14 So we think the normal process works quite
15 well. We can debate the numbers, bur over the period we
16 looked at $44 million paid, only $80 million found for
17 the Death Index and that's over a really long period of
18 time.
19 CONTROLLER CHIANG: The $44 billion describes
20 which universe?
21 MR. KATZ: So for the 207 match, the universe
22 of policies that we matched on that same period we paid
23 out $44 billion through the normal process, but the
24 matches paid out $80 million.
25 CONTROLLER CHIANG: And so your comments
Page 162
1 originally said in the context of the life policies.
2 We're still talking about them?
3 MR. KATZ: That is correct.
4 So your question is a fair one. Why a year?
5 Why not six months or three months or every month?
6 And so we spent a fair amount of time as a
7 group as we implemented this procedure to come up what
8 we thought was the best answer.
9 What we felt is -- we're talking about the
10 process around life insurance that generally is quite
11 effective -- our data shows the vast majority of claims
12 come in through the normal process.
13 And we would never want to implement a process
14 that leads beneficiaries to believe -- or individual
15 policyholders to believe -- that they need only to
16 discuss with their beneficiaries how much life insurance
17 they have and have that beneficiary understand their
18 responsibilities under that program.
19 Our presumption on that is, if beneficiaries
20 understand that, they will file claims, and generally
21 that's what happened.
22 It's early days on this. We think, since we
23 ran it in '07 and we'll run it again in '10, we'll see
24 what kind of data gets in terms of what falls out.
25 If we find -- as we continually perfect the
Page 163
1 process -- that running it more frequently would be a
2 benefit, we'll do that consideration.
3 What we said is: We're going to run it no
4 less frequently than once a year.
5 CONTROLLER CHIANG: Do you see any
6 disadvantage to doing it more frequently. Is there a
7 significant cost to run the match?
8 MR. CASSANDRA: We think the concern would be
9 that it would circumvent the standard process right now
10 just from a practical standpoint.
11 You could get communications that cross in the
12 early days surrounding the death of the insured, where
13 the company's trying to reach out, the beneficiary is
14 either trying to reach in or has not yet prepared
15 themselves to reach in yet.
16 There's the practical question of the timing
17 of the communications between the beneficiary and the
18 insurer.
19 CONTROLLER CHIANG: So I appreciate your
20 concern for the loved ones of the individuals who passed
21 away. Have you done any substantive research as to the
22 appropriate time for the insurance company to interject
23 themselves in the process?
24 MR. CASSANDRA: I don't know any research on
25 that particular aspect.
Page 164
1 CONTROLLER CHIANG: Let me go back to the
2 original question. What's the disadvantage?
3 As you said, you may cross over. We don't
4 have clarity as to whether there's a negative impact to
5 providing a letter of information to the beneficiaries.
6 I don't understand the harm, if it's not a
7 cost concern. I'm not clear what the objection is.
8 MR. KATZ: Well, I don't want to say whether
9 there or isn't a cost concern because we haven't allowed
10 that to be a driver in our decision-making process. I
11 don't know what the costs are.
12 I think the prevailing thought process here
13 was that the current process works extremely well. And
14 so adding something above the current process is, you
15 know, something that we thought made sense.
16 I think this is a great topic for dialogue
17 between the insurance industry and regulators to talk
18 about what best practices are. And we would be very
19 interesting in engaging in discussions.
20 We delved this one-year period based on the
21 analytics coming out of our '07 match, so we have done
22 some level of research and we found that that is a good
23 duration.
24 But we welcome dialogue if there's a best
25 practice to get at here then try to help get at it.
Page 165
1 CONTROLLER CHIANG: I sincerely appreciate
2 that because we are trying to do the same thing, reach
3 the best outcomes for people.
4 I'm still not clear. So you said you did the
5 analytics of 2007. You did the analytics measuring what
6 exactly?
7 MR. KATZ: I don't have the numbers in front
8 of me, but when we looked at it from the date someone
9 goes on the Social Security file, what's the proximity
10 of that for death payments --
11 Actually, I want to be careful. I don't want
12 to testify to a process that I don't have extreme
13 knowledge to.
14 I'd say all the analytics came out of the '07
15 match led us to believe to do it no less than frequently
16 than one year is the right answer.
17 I'd say if there's data available that
18 indicates we have an opportunity to significantly
19 improve the customer's experience by doing this sooner,
20 we would be happy to engage in that dialogue.
21 I also think we just ran it again for
22 individual life business this past month. And we'll
23 have some learnings that come out of that that we'll be
24 happy to share.
25 I just want to be careful because we're having
Page 166
1 a discussion about a process that we believe generally
2 works quite well and a change to that it that we believe
3 will make it even better.
4 CONTROLLER CHIANG: So that's the issue that's
5 unresolved in my mind. You state it works well, but you
6 don't have criteria and then we don't have outcomes.
7 This could be very easily resolved if you ask
8 the question, you know, across the base, what would be
9 the appropriate time for us to notify you when you're
10 applying to submit the claim, the best way to submit
11 your to submit your claim to get a return of the money,
12 the proceeds.
13 MR. KATZ: I think you're making a good point.
14 Should we speak to our customers and understand what
15 they want in the context of doing this.
16 There is one thing we just have watch, and I
17 want to make this is point because what I wouldn't want
18 is anything that we do result in beneficiaries believing
19 that they do not need to submit a claim.
20 Because it's very possible that there will be
21 situations that for whatever reason someone doesn't get
22 on the Death Index or gets on the Death Index much
23 later.
24 And sos we want to be very careful that
25 there's nothing that we do, or as an industry
Page 167
1 collectively decide to do, that leads beneficiaries to
2 believe that they don't have the responsibility to
3 submit claims.
4 It's an important part of the system and it
5 works quite well.
6 So we have been looking at it in addition to
7 what they do, how can we make it even better. So I just
8 think that's a dialogue we want to be cautious of as we
9 think through this service.
10 CONTROLLER CHIANG: So if you don't use the
11 actual date of death as triggering the dormancy, what
12 definition does MetLife use so that I have a clear
13 understanding so we can have a further discussion of
14 your escheatment and obligations to the state of
15 California?
16 MR. KATZ: So I believe for life insurance we
17 use the date due and payable when we are no longer --
18 we're not able to find the beneficiary.
19 CONTROLLER CHIANG: Could you restate that
20 again? Due and payable --
21 MR. KATZ: When we believe we have a liability
22 -- When we believe we have a liability on our books to
23 pay out proceeds and we can't find the beneficiary to
24 whom that money is due to, we would then kick off our
25 unclaimed property process starting with the date that
Page 168
1 we believe we have that liability.
2 CONTROLLER CHIANG: So referencing scenarios
3 discussed earlier, an individual calls in believing they
4 may receive some proceeds, and then you start your -- I
5 believe it's the standard operating procedures.
6 You mentioned how you addressed some of the
7 claims. I don't know if it's scrutinized within
8 MetLife.
9 They do not submit a claim. They do not
10 submit any information or provide a death certificate.
11 At what point, do you determine that there is
12 a liability due?
13 MR. KATZ: I think it's at the time when we
14 receive sufficient proof of death and as such approve
15 the claim, that would be the time that we would begin
16 the liability. And that sufficient proof of death in
17 our standard process does involve getting a death
18 certificate.
19 MR. CASSANDRA: Could I just make one point
20 that I'm not sure is obvious to folks?
21 There is almost -- the question that's sort
22 of sitting out there is just the fact that someone has
23 died means that the company has a liability.
24 In insurance contracts, there are also --
25 there are contestability periods on life insurance
Page 169
1 contracts.
2 There are also other conditions, including
3 exclusions that may apply in those contracts to actually
4 -- which are important in terms of the adjudication of a
5 claim.
6 And just by virtue of the fact, without
7 someone submitting a claim without the facts around the
8 debt, it may -- that may -- just that in and of itself
9 may not be sufficient for the company to know it has a
10 liability.
11 I know that's a subtlety of the insurance here
12 and the question seems to assume that just because the
13 person is dead, automatically 100 percent of them result
14 in a liability to the company. I just want to make sure
15 that that's understood.
16 CONTROLLER CHIANG: I appreciate you sharing
17 that.
18 I'm just trying to reach a definitive point by
19 which people have an understanding of the application of
20 escheatment laws.
21 Your view of when the obligation is triggered,
22 the extreme -- I'm not saying you follow this practice
23 -- is that in certain instances, you would never have a
24 triggering responsibility.
25 Assume people exceed the mortality charts.
Page 170
1 You don't pick up the -- when should the State expect
2 that money and the property owners expect that money?
3 MR. KATZ: There are circumstances where we
4 will never be provided with proof of death or sufficient
5 information to make a decision there being a claim.
6 In most circumstances, those policies will
7 remain active, and depending on the type of policy would
8 remain active until such time as they would endow or
9 superannuate. At that point, we'd go through the
10 unclaimed property process.
11 And I should make one important point to what
12 I talked about earlier. To the extent that we are in a
13 situation where we're in contact with the client and
14 we've got bad addresses and we have other things that we
15 do aimed at kicking off investigations, including the
16 Death Index, if any of those lead us down the path that
17 someone is death, we will then take it on our behalf to
18 do an investigation of that death.
19 So in the example you described where an
20 individual calls us and says so and so is dead, we write
21 them three times, they never respond. We look on
22 Rotsweb, Accurint. We access the SSI. These are all
23 examples of things we could do. We go to the State to
24 try to purchase a death certificate.
25 And all of that ultimately results in us never
Page 171
1 getting sufficient proof that that person is dead, we're
2 going to or the purposes of discussion assume that the
3 person isn't dead, and we're not going to pay that claim
4 or ultimately begin the escheat period.
5 CONTROLLER CHIANG: Is the application of this
6 interpretation consistent with all 50 states?
7 MR. KATZ: So what I would say in all 50
8 states, it's our intent to comply with the laws in each
9 of those states and we do our best to do that. The
10 actual application and process could vary based on
11 what's required in each state.
12 CONTROLLER CHIANG: Along those lines, are
13 there any states in which you use the data to calculate
14 the dormancy period?
15 MR. KATZ: I do not know.
16 CONTROLLER CHIANG: If you could follow up and
17 provide a response.
18 MR. KATZ: Sure.
19 CONTROLLER CHIANG: Does the company require a
20 death certificate before escheating policies matched in
21 connection with its 2007 comparison?
22 MR. KATZ: Generally speaking, we don't. So
23 for the 2007 match --
24 CONTROLLER CHIANG: 2007, you did not.
25 Subsequent to and prior to?
Page 172
1 MR. KATZ: In the normal course of business,
2 we require death certificates. There have been
3 exceptions throughout our history where we thought there
4 were extenuating circumstances where we decided to waive
5 that requirement.
6 I mentioned a few earlier; 9/11, Massey Energy
7 tragedy, the 2007 Death Match Index run.
8 And in those cases, we determined it was
9 appropriate not to determine death certificates
10 certificate in making that decision.
11 CONTROLLER CHIANG: Prior to the 2007
12 comparison a notice of the death that the policyholder
13 insured by MetLife had to receive, has the MetLife
14 allowed the insurance of the death benefit to go unpaid
15 or unescheated if a beneficiary cannot be located and a
16 death certificate has not been received?
17 MR. KATZ: So I think I answered that unless
18 it's a slightly different twist.
19 In the example I gave before, we have a
20 situation where we are notified by phone, let's say, of
21 someone's death and we exhaust all the efforts that I've
22 described, including the potential to write to the state
23 to get a death certificate, and we can't get proof that
24 there's a death, we wouldn't consider that a liability.
25 And as such, we wouldn't have any unclaimed
Page 173
1 funds to escheat because that policy would still be
2 active.
3 CONTROLLER CHIANG: Have you ever calculated
4 the benefits provided based on death in the dormancy
5 standard?
6 MR. CASSANDRA: I'm sorry. I don't understand
7 the question.
8 CONTROLLER CHIANG: Have you done different
9 applications of your current interpretation of the
10 application of escheatment versus the application of
11 escheatment understanding applying the date of death
12 standard?
13 MR. CASSANDRA: I have never done any such
14 calculation. I dont have any personal knowledge.
15 CONTROLLER CHIANG: Has the company ever done
16 such?
17 MR. KATZ: I'm not aware. Again, there are
18 different rules that apply in different states. And
19 what we can testify to is it is our intent to comply
20 with those rules.
21 CONTROLLER CHIANG: If you are able to locate
22 the beneficiaries of these policies, do you pay interest
23 on the benefits?
24 MR. KATZ: So in situations where we find the
25 beneficiary, we would, and presume it's a good claim.
Page 174
1 We would pay the proceeds of the claim and pay
2 any interest that's required by the given state based on
3 how that varies in a given state.
4 In California, it is from 30 days past the
5 date of death to the beneficiary.
6 CONTROLLER CHIANG: And do you afford similar
7 treatment from the escheatments to the state of
8 California?
9 MR. KATZ: So is your question: Do we
10 calculate interest will the same way when we're
11 escheating? We do not.
12 CONTROLLER CHIANG: Can you explain?
13 MR. KATZ: That is our interpretation of the
14 applicable law.
15 CONTROLLER CHIANG: Okay. How long has that
16 been the determination of the company and could you
17 provide me the basis for it?
18 MR. KATZ: I don't know how long it's been and
19 I can't provide the basis for an interpretation of the
20 law. That, I'm not aware.
21 MS. ROSEBOROUGH: I would just say that the
22 witness has been asked to testify as to facts and the
23 construction of law and testifying that they believe are
24 current practices are consist with state laws as we
25 understand it.
Page 175
1 What would be the application if the law were
2 different is something they are not prepared to testify
3 to.
4 CONTROLLER CHIANG: Thank you. How much have
5 you escheated as a result of the 2007 one-time Death
6 Master match to the state of California?
7 MR. CASSANDRA: So the Death Match that was
8 done in 2007 had a dormancy date in 2007. We reported
9 to California in April the amount of approximately $9.4
10 million in total and we estimate that amount three and a
11 half million of that was directly as a result of the
12 match itself.
13 MR. KATZ: We should be very clear, the nine
14 million is the full amount of unclaimed property that we
15 presented. And as Mr. Cassandra testified,
16 approximately three to three and a half million we would
17 attest to this match.
18 CONTROLLER CHIANG: Three to three and a half
19 million?
20 MR. CASSANDRA: I'm saying 9.4 was the total
21 we reported in our April report to California.
22 MR. KATZ: Just for clarification, that's what
23 we reported. Obviously, you're very familiar with the
24 process. Although that money hasn't been escheated yet,
25 it will be escheated as we go through the process and
Page 176
1 you get a final number.
2 CONTROLLER CHIANG: We have some uncertainty
3 here because we didn't see the numbers. They varied
4 significantly over the prior years, so obviously they
5 had a question as to the application of what was
6 happening within the escheatment process.
7 MR. CASSANDRA: I think you noticed that the
8 April 2011 number was higher, and that we're generally
9 attributing it to the results of the 2007 match.
10 CONTROLLER CHIANG: Can you comment on the
11 demutualization process, what transpired there?
12 I'm trying to apply application of what
13 happened during the demutualization process and then
14 what took place, in fact, with the delayed policies?
15 MR. KATZ: S we can do our best to give you
16 some information and speak generally. None of us that
17 are witnesses have any involvement in the
18 demutualization process, but we'll do our best to do
19 that.
20 So when an insurance company demutualizes --
21 essentially -- by the way, if I'm covering it at the
22 wrong level, just interrupt me.
23 We go from a mutual company to a stock
24 company. And as a result, upon demutualization the --
25 we give the full value of the company surplus to our
Page 177
1 policyholders, which we did as per the demutualization
2 documents in 2000.
3 So at that time, we did a significant amount
4 of work prior to demutualization in an effort to locate
5 lost policyholders clean up addresses, which we did.
6 And ultimately, it resulted in payments of
7 about ten shares minimum per policyholder, some were
8 cash. Some of that went to the policyholders, and when
9 those policyholders couldn't be located, some of those
10 were escheated to the State.
11 I'm speaking at a very high level, but that's
12 the general gist. I'm not sure where you want to go
13 with that.
14 CONTROLLER CHIANG: So my concern is about the
15 value of the lost policyholders. Can you attach a
16 figure to it?
17 MR. KATZ: For the purposes of the escheating
18 the stock or for the purposes of their life insurance?
19 CONTROLLER CHIANG: Both.
20 MR. KATZ: Okay. I can't.
21 So your question is: How much was escheated
22 as a result of lost policyholders? We can certainly
23 follow up with you.
24 I do know back at that time there was
25 significant dialogue between us and the State and a fair
Page 178
1 amount of documentation, but I don't have that in front
2 of me.
3 CONTROLLER CHIANG: Do you have a sense of the
4 -- how much has been paid out to the policyholders and
5 the state of California and what the difference is and
6 how you're going to proceed forward on this particular
7 issue?
8 MR. KATZ: Can you repeat the question? I'm
9 sorry.
10 CONTROLLER CHIANG: Sure. How much has been
11 paid out to the beneficiaries? What has been escheated
12 to the state of California? Obviously, it's an
13 obligation. And then the company's thinking as we go
14 forward to resolve the situation.
15 MR. KATZ: I can't answer question directly
16 because we don't track it in that way, but what I can
17 share with you is, if you think about the block of --
18 the block of lost policyholders, we put forth
19 significant efforts to try to find them, and found many
20 of them, and as such have been in contact with them, and
21 receive claims from them every day. I shouldn't say
22 "every day," regularly.
23 The vast majority of policyholders sit in what
24 we have been calling our industrial block. And as it
25 relates to those blocks, while we don't have regular
Page 179
1 contact with those individuals, we don't have an
2 indication that those individuals have died, nor do we
3 have liability for death claims for those individuals.
4 What we did find when we ran the match in
5 2007, out of that, there was a fair amount of older
6 claims, and those older claims have been paid or
7 escheated, as I explained.
8 In the context of lost policyholders, we have
9 those on our books and one of two things will happen;
10 either a beneficiary will come forward, and when they do
11 a claim will be paid. I guess one of three things.
12 We'll find them a subsequent match when they
13 get added to the Death Index.
14 Or if neither of those happen, when those
15 policies reach the superannuation date at the end of the
16 table, because they are all in paid-up status in that
17 industrial block, they will be go through the unclaimed
18 property system at that point.
19 CONTROLLER CHIANG: Thank you.
20 COMMISSIONER JONES: Thank you, Mr. Chiang.
21 I just have few follow-up questions on the
22 demutualization.
23 What's the total number of lost policyholders
24 that the company believed it didn't have a way to
25 communicate with at the time it demutualized in 2007?
Page 180
1 MR. KATZ: I'm going to see if I have it in my
2 notes. I may not. We do not have that information
3 handy right now. Certainly -- I'm sorry. I apologize.
4 So we had 1.1 million policyholders at the
5 demutualization, 800,000 of which were holders of
6 industrial life policies.
7 So 1.1 approximately, lost policyholders,
8 about 800 of them had industrial life policies where
9 we're no longer collecting premiums.
10 COMMISSIONER JONES: Under the terms of the
11 New York Superintendent's order with regard to your
12 demutualization, what were your obligations vis-à-vis
13 the 1.1 million lost policyholder?
14 MR. KATZ: I can't describe that.
15 COMMISSIONER JONES: Can you describe
16 generally what the company did pursuant to its
17 demutualization activities to try to find these 1.1
18 million lost policyholders?
19 MR. KATZ: Sure. There were two primary
20 efforts that proceed demutualization that were fairly
21 significant; the Family Reunion Program that we
22 described, which we believe enabled us to get back in
23 contact with about 500,000 policyholders, plus the work
24 we did around our addresses in our data base, which also
25 was quite effective in finding policyholders.
Page 181
1 COMMISSIONER JONES: Of those -- the 500,000
2 you testified to that you found through the Family
3 Reunion Program, were those 50,000 policyholders all
4 policyholders who were part of the 1.1 million total
5 lost policyholders or does the 500,000 represent several
6 other classes of policyholders?
7 MR. KATZ: I don't know exactly. My
8 understanding -- I'll ask my team to help me here -- is
9 that the 1.1 was the amount that were lost at the point
10 of demutualization. So as such, the 500 would have been
11 found and hence be an amount --
12 Is that accurate.
13 MR. CASSANDRA: Right. So the Family Reunion
14 Program happened before the demutualization of those
15 policyholders. It was 500,000 that we quoted earlier
16 were found -- considered found at the time of the
17 demutualization.
18 The 1.1 million we just talked about does not
19 include the 500,000.
20 COMMISSIONER JONES: And then with regard to
21 the second way you tried find people using addresses, I
22 take it that also occurred before the completion of
23 demutualization such that any of those -- such as the
24 1.1 million lost policyholders represents those
25 policyholders you could not find after you utilized
Page 182
1 Family Reunion and after you utilized the address search
2 activity?
3 MR. KATZ: That is correct. What I would
4 suggest we do here is, we have fairly exhaustive
5 documentation around our demutualization, some of which
6 we have here, some of which we may not, that we would be
7 happy to share.
8 I think it's a topic that's fairly complex.
9 Certainly, we can continue to attempt to
10 testify to it, but this is maybe better suited through
11 documents. We have something prepared and would be
12 happy to enter it into the record.
13 COMMISSIONER JONES: We're happy to receive
14 those. Do you want to provide those to us at this time
15 then and describe what they are?
16 MS. ROSEBOROUGH: Do you want us to do it at
17 the break and then we can go over it?
18 COMMISSIONER JONES: That's fine, too. How
19 many documents are we talking about?
20 MS. ROSEBOROUGH: We have available to share
21 with you correspondence with the state of Florida and
22 correspond with the state of New York where we
23 documented our efforts to find the lost policyholders.
24 We have correspondence with the state of
25 California, some of which relates to the same process.
Page 183
1 We also have descriptions that we were
2 provided inside the order, approved our order -- by the
3 provided by the state of New York approving our order of
4 demutualization.
5 COMMISSIONER JONES: Okay. All of these
6 actives relate to activities at MetLife before or
7 contemporaneous with demutualization. These aren't the
8 activities that were targeted at the 1.1 million lost
9 policyholders after demutualization, were they?
10 MS. ROSEBOROUGH: Correct. They are not.
11 COMMISSIONER JONES: We're happy to take those
12 into the record at the break.
13 But post demutualization, 1.1 million lost
14 policyholder. Is it fair to assume that some of
15 policyholders were dead?
16 MR. KATZ: You're asking a hypothetical.
17 COMMISSIONER JONES: No. I'm asking from the
18 company's perspective, is it fair to assume they were
19 dead, some of them?
20 MR. KATZ: Yeah. It's probably reasonable to
21 assume some were dead. What's tricky is, it's not
22 reasonable to assume specifically which were dead and
23 when they died.
24 So that's why we felt using things like the
25 Death Master Index could help us do that where Social
Page 184
1 Security numbers were, in fact, available.
2 COMMISSIONER JONES: So did you do that in
3 2000 then, run Death Master against the 1.1 million
4 policyholders that you'd identified as lost
5 policyholders?
6 MR. KATZ: We did not do that in 2001.
7 COMMISSIONER JONES: Did you do that in 2002?
8 MR. KATZ: We explained that --
9 COMMISSIONER JONES: Well, it's a yes or no
10 question.
11 MS. ROSEBOROUGH: I instruct the witness not
12 to answer.
13 I think I've indicated that there were usages
14 of the Death Master Index prior to the system use in
15 2007 that were used -- where the Death Index was used to
16 insure our compliance requirements with certain class
17 action settlement agreements.
18 I'll provide those agreements to you and I'm
19 glad to discuss with you on a confidential basis how we
20 used the Death Master File to ensure our compliance with
21 the obligations under those settlement agreements.
22 COMMISSIONER JONES: Okay. Putting aside our
23 dispute about whether or not you can testify about those
24 agreements right now, was there any effort in 2002,
25 outside of the litigation context, to do a system sweep
Page 185
1 of the 1.1 million lost policyholders using Death
2 Master?
3 MR. KATZ: Not that I'm aware.
4 COMMISSIONER JONES: Was there any effort in
5 2003, outside of the litigation context to do a systemic
6 sweep of the 1.1 million lost policyholders using Death
7 Master?
8 MR. KATZ: Would it be okay if a made a
9 clarifying point here?
10 COMMISSIONER JONES: Certainly.
11 MR. KATZ: A significant chunk of these don't
12 have Social Security numbers.
13 COMMISSIONER JONES: That's fine. Did you or
14 did you not in 2003 sweep those policyholders using
15 Death Master, outside of litigation?
16 MR. KATZ: Not that I'm aware of.
17 COMMISSIONER JONES: Okay. Was there any
18 point in time when you did sweep the 1.1 million lost
19 policyholders using Death Master File, and when was
20 that?
21 MR. KATZ: To the extent that any of the
22 policies had Social Security numbers, those were swept
23 against the Death Index, other than small block we
24 talked about in that 2007 match.
25 COMMISSIONER JONES: They have been swept
Page 186
1 since then?
2 MR. KATZ: Actually, they were swept this
3 month, but that's the last time.
4 MR. CASSANDRA: Mr. Commissioner, could I make
5 one clarification?
6 So for the purposes of demutualization, we're
7 talking about the policy owners.
8 Under the plan of demutualization, the policy
9 owner would have been the party who was eligible for
10 demutualization proceeds.
11 In many of the cases of the industrial block,
12 the policy owner was not the insured under the contract.
13 So if sort of the line of questioning is
14 implying that with absolute certainty there's a death
15 benefit payable under these "lost policyholders," I
16 don't think that blanket assumption is absolutely
17 correct."
18 COMMISSIONER JONES: What percentage of the
19 1.1 million lost policyholders were -- I'm sorry. What
20 percentage of 1.1 million lost policies were in a
21 situation where the owner was different than the
22 policyholder?
23 MR. CASSANDRA: I don't know that. I don't
24 have that statistic for you, but it's one fact in the
25 context of these policies that should be considered.
Page 187
1 COMMISSIONER JONES: Some number of the 1.1
2 million policies were policies where the owner and the
3 policyholder was the same. Correct?
4 MR. CASSANDRA: That is possible.
5 COMMISSIONER JONES: And Death Master was not
6 run outside the litigation context against those
7 policies until 2007?
8 MR. CASSANDRA: To the best of my knowledge.
9 MR. KATZ: Other than that, we gave you a few
10 other examples with a couple states, but other than
11 that.
12 COMMISSIONER JONES: Okay. And then was there
13 any effort to do a manual check of the 1.1 million
14 policy files against Death Master other than litigation
15 with the three states you testified to in 2004 that you
16 were engaged in some discussions with, and the 2007
17 sweep? Any manual checking of the 1.1 million policy
18 files?
19 MR. KATZ: Not that I'm aware of.
20 COMMISSIONER JONES: All right. Then you
21 testified a moment ago that with regard to 2007 Death
22 Master sweep, when you identified beneficiaries whose
23 benefits needed to be paid either because you had a
24 three-point match and you filed an investigation to
25 determine the benefit you needed to pay, or you had more
Page 188
1 than a one-point match and you filed an investigation to
2 decide the benefit you needed to pay.
3 In those circumstances where you determined
4 that either a benefit needed to be paid or there needed
5 to be an escheatment, you chose 2007 as the date of
6 which you would run the date of death for purposes of
7 calculating interest payments owed in those cases.
8 MR. KATZ: No.
9 COMMISSIONER JONES: Can you clarify that?
10 MR. KATZ: Sure. For purposes of claims to be
11 paid to beneficiaries, we pay interest from 30 days past
12 the date of death, as we believe is consistent with the
13 State requirement.
14 In other states, we did what was consistent we
15 believed for those given states.
16 For funds to be escheated, we started the
17 escheatment process for lost property in that 2007 date
18 and did not apply settlement interest, which is also our
19 interpretation of how the law requires us to do it.
20 COMMISSIONER JONES: Even if through a
21 three-point Death Master match there was an indication
22 of the death occurred earlier than 2007, you chose 2007
23 as the date in which the dormancy period began to run
24 for purposes of escheatment?
25 MR. KATZ: Right. We normally do it from the
Page 189
1 date we have a liability. And that liability happens
2 when there is proof of death, which by nature of the
3 2007 match would be subsequent to 2007.
4 We chose not to require death certificates
5 and, as such, set that 2000 date as the date to begin
6 the unclaimed property process.
7 COMMISSIONER JONES: So you understand why
8 that answer may be less than satisfactory for the
9 Controller and I because you testified earlier that you
10 had Death Master, were using it for certain portions of
11 business, principally annuities.
12 It wasn't used for life insurance benefits in
13 the individual contexts until 2007.
14 So while I respect what you said or
15 understand, rather, what you said in regards to when you
16 believe liability attaches for purposes of escheatment
17 is when you have knowledge, you didn't use a database
18 that was available to you to have knowledge earlier.
19 And so I guess what I find troubling is given
20 that history, why would you choose 2007 as the date of
21 liability and not an earlier date?
22 MR. KATZ: Well, again, it's hard for me to
23 testify exactly what the thinking was and why different
24 options were chosen.
25 I think the point I made earlier which was --
Page 190
1 our belief is that liability begins -- or I should say
2 the unclaimed property timing begins when liability is
3 established.
4 And while I recognize the fact that in some
5 cases the date of death was earlier in the process, in
6 fact, liability on these cases really wasn't established
7 because there was no proof of death.
8 And so we selected the 2007 date because that
9 was the date that we -- for the purposes of running the
10 match had been the first time we ran the match the match
11 on that block of business and began the process.
12 As an alternative, and I see your point,
13 you're saying why didn't you go back earlier than that.
14 In our interpretation of our responsibility wouldn't
15 have required us to do that.
16 COMMISSIONER JONES: Have you done any
17 analysis of what the interest savings is to MetLife by
18 virtue of choosing 2007 as the date at which liability
19 and dormancy period runs versus choosing the actual date
20 of death as reflected in Death Master on those
21 policyholders for whom you made a match?
22 MR. KATZ: I don't know that I can tell you
23 that information.
24 MR. CASSANDRA: We've not made any such
25 calculation, to my knowledge.
Page 191
1 COMMISSIONER JONES: Okay.
2 MR. KATZ: I should also make just an
3 important point.
4 During that dormancy period, the dormancy
5 period, we used to the extent we could to search for
6 beneficiaries.
7 I don't know if that's helpful or intuitive,
8 but it's worth noting that in 2007, after we run that
9 match, it wasn't as if, okay, let's just turn the money
10 over.
11 Our understanding of part of why we have a
12 dormancy period is, as an insurance company, it gives us
13 the opportunity to search out beneficiaries to see if we
14 can find them and then escheat only in until situations
15 where we can't. We put in pretty substantive efforts to
16 make that happen.
17 COMMISSIONER JONES: Let me see if either
18 Minnesota or Florida have any questions at this point.
19 MS. MILLER: I have a couple of questions.
20 You mentioned that you have access to other
21 databases and other methods of finding people. We
22 mentioned Accurint.
23 Are there other systems that MetLife uses, for
24 example, when it's underwriting or in other departments
25 to find information about it's own customers?
Page 192
1 MR. KATZ: What type of customer?
2 MS. MILLER: Your customers?
3 MR. KATZ: So if your question is: Do we use
4 publicly available information in other ways throughout
5 the organization, I'm certain we do.
6 MS. MILLER: So for marketing and those kind
7 of things, you try and market products, there are all
8 kinds of systems out there where you can look and see if
9 you can identify a subset of customers by certain
10 findings. Right?
11 MR. KATZ: That's not the area that I have
12 responsibility for so I can't comment to that, but that
13 sounds logical.
14 MS. MILLER: You're aware of such systems.
15 Correct?
16 MR. KATZ: Give me an example of one?
17 MS. MILLER: Well, I think there are a variety
18 of them. Some of them are call predictive modeling type
19 of systems. Some of them are called, just data mining
20 systems. I don't have trade names, but there are a
21 variety of them.
22 MR. KATZ: I should make a point the majority
23 of our business in the individual space is agent driven.
24 We do have a very small direct marketing arm
25 of our business, but for the most part our business is
Page 193
1 agent driven, so I don't know if that helps.
2 MS. MILLER: So even on the annuity side, you
3 wouldn't regularly use these systems, or would you?
4 MR. SOLLMANN: I'm speaking for the individual
5 annuity side. We use the same databases as Todd
6 described that we use in other places in the company.
7 We also do not have -- in our case, we don't have a
8 direct consumer -- direct to consumer, direct marketing
9 business at all.
10 MR. KATZ: So we do market, we use data and
11 information. I want to be careful that if you're asking
12 us to testify to a specific system or specific tools, we
13 can't testify to that because we're not aware of it.
14 We did also just want to share that we do have
15 some direct in our organization. It's relatively small.
16 The majority of what we do is face-to-face distribution
17 on the retail side.
18 MS. MILLER: What I'm really getting at: Are
19 there other systems besides just matching with the Death
20 Master File directly where you can get information about
21 your customers to try and narrow down this group of a
22 million or so policyholders that you can't find because
23 you don't have a Social Security number?
24 There are a lot of different systems out there
25 to give life insurance companies routinely information
Page 194
1 about their customers or perspective customers.
2 MR. KATZ: Yeah, so we talked about this a
3 little in Florida, too.
4 I think the issue of lost policyholders is not
5 just a MetLife issue, it's an industry issue. It comes
6 across multiple jurisdictions.
7 And I think is a place that's fertile ground
8 for the industry to talk about with our regulators ways
9 to do that.
10 Our intent is whenever there's an individual
11 that we can find out if will they are dead, to get those
12 moneys in the hands of the beneficiaries.
13 So we certainly would be open to dialogue
14 around those practices in that space.
15 MS. MILLER: Well, I think that in areas where
16 the companies are marketing in areas where it
17 financially benefits -- not to be crass -- but
18 financially benefits the company, that there are a lot
19 of systems and efforts available.
20 You could find a lot about the policyholders
21 and perspective holders and do.
22 And if you can think in terms of next steps,
23 applying those types of systems to this issue would make
24 some sense.
25 You know before you write somebody what kind
Page 195
1 of prescriptions they've bought -- you know an awful lot
2 about that person.
3 MR. KATZ: You know, I think that's an area we
4 can and should have more discussions.
5 I probably should have made another point in
6 this context.
7 I think some of the hypothesis around all of
8 this is that somehow MetLife's intention here is
9 designed to make more money. And what we're doing here
10 is we're using this data in one way on one side of the
11 house and another way on the other, and the reason we're
12 doing that is because we're looking to hold funds that
13 we shouldn't hold and defer policyholders.
14 And I just want to make two points that I
15 think are important on that.
16 One is, that couldn't be further from the
17 truth. We're talking about a very large company and
18 we're talking about rather insignificant dollar amounts
19 in the context of that.
20 Keep in mind, we ran the Death Match in '07 on
21 our life business going back decades, and $80 million is
22 not small, but found $80 million over decades, we're
23 talking about relatively small numbers.
24 The other piece which I think is important
25 relates to the industrial life policies, those policies
Page 196
1 continue to perform. What I mean by that is that we
2 issue dividends to those policyholders every year.
3 Ao as those policies stay on our books, they
4 are growing. And one of the things in the PowerPoint
5 was: Do you have situations where policyholders pay in
6 more premium than their face amount.
7 In the industrial block, since we've made them
8 paid up and we've been issuing dividends every year,
9 those policies are growing, and in some cases are double
10 or triple the face amount what they were at the time of
11 issue.
12 And ultimately when a beneficiary comes
13 forward, they'll be escheated at the whole -- it will go
14 to the beneficiary at full value. Or if they are
15 escheated, they will be escheated when they superannuate
16 at that full value.
17 I want to make sure that's clear in the
18 context of this dialogue.
19 MR. HANSON: For the 1.1 million policyholders
20 that were lost, do you have any idea of the approximate
21 face amount of risk on those?
22 MR. KATZ: I don't have that answer.
23 MR. CASSANDRA: I don't have that handy, but
24 these would tend to be very little face amount policies.
25 MR. HANSON: Did your actuaries or anyone
Page 197
1 internally then look at that and say: "We can't find
2 these policyholder, we have some assumption that some of
3 them aren't every going to submit claims, let's release
4 some reserves." Anything like that?
5 MR. CASSANDRA: I think the documentation of
6 that is covered in both the plan of demutualization and
7 the demutualization that Teresa said she was going to
8 share at the end of the meeting.
9 I think if you look at those documents, you
10 may see information.
11 MR. HANSON: Older blocks of business for
12 individual annuities, you're doing a quarterly Death
13 Master match?
14 MR. SOLLMANN: We're doing it monthly on our
15 payout annuity business and quarterly on our deferral
16 business.
17 MR. HANSON: Do they receive annual or
18 quarterly policy statements?
19 MR. SOLLMANN: The owners are in receipt of
20 our payout annuities, they are getting a monthly check
21 from us.
22 The owners of the deferred contracts, the
23 pay-in annuities, get a quarterly statement from us
24 showing the value of their contract on which investments
25 they have, and so on.
Page 198
1 They also get an annual prospectus from us if
2 it's a variable contract showing what funds are with us
3 deferred and they frequently get privacy notices from us
4 as well.
5 MR. HANSON: Ao notwithstanding Death Master,
6 what does the company do when you stop -- they start
7 coming back?
8 MR. SOLLMANN: Sure. So if any of those
9 documents is returned to us as mail that can't be
10 delivered, we would follow the process that we talked
11 about earlier trying to locate that individual.
12 To the extent we could not locate that
13 individual, then we would follow our normal process that
14 could ultimately lead us to an escheat situation.
15 MR. HANSON: What is the normal process?
16 You can't locate the person or main
17 beneficiaries, what is the process when you finally get
18 to escheating the property?
19 MR. SOLLMANN: My understanding is that we
20 generally try to follow a process that would call for
21 regular follow-ups for at least a year. And to the
22 extent that we can't identify that individual at the end
23 of that period, we could follow our normal escheatment
24 processes.
25 COMMISSIONER JONES: We have been talking quit
Page 199
1 a bit about industrial policies. And my guess is that
2 there are significant numbers of the public who have no
3 clue what we're talking about.
4 It's a term of art used in the industry. I'm
5 wondering if you can give us some better understanding
6 what is an industrial policy. What are we talking
7 about?
8 MR. KATZ: Sure. Industrial policies
9 typically have a face amount of $1,000 or less, and
10 typically the premiums were paid weekly or monthly. And
11 typically the agent is the one collect the premiums.
12 MetLife stopped issuing industrial policies in
13 1964, around 1967.
14 COMMISSIONER JONES: When those were paid on a
15 weekly or monthly basic, how much would the policy owner
16 typically be paying?
17 MR. KATZ: It's small. I don't know the
18 number.
19 MR. CASSANDRA: Generally, cents, nickels and
20 dimes.
21 COMMISSIONER JONES: And who are these
22 policies typically sold to?
23 MR. KATZ: I want to be careful because I
24 don't know my answer definitively, but they were
25 typically designed for, given the lower face amount, of
Page 200
1 people who their life insurance needs would be for an
2 amount of that level, so --
3 COMMISSIONER JONES: Typically lower income,
4 individual households.
5 MR. KATZ: I don't know that definitively if
6 that's the case.
7 COMMISSIONER JONES: Are you aware of any
8 marketing materials that MetLife utilized prior to 1964
9 to sell these policies and who were they being marketed
10 to?
11 MR. KATZ: I'm not.
12 COMMISSIONER JONES: Any of the other
13 witnesses have any understanding? I think you've
14 testified you've have been with the company some --
15 MR. SOLLMANN: 37 years.
16 COMMISSIONER JONES: 37 years. And I'm just
17 wondering if you have any understanding as to whom these
18 policies were marketed when they were marketed?
19 MR. SOLLMANN: I don't. I grew up on the
20 employee benefit side of our business.
21 MR. CASSANDRA: I was born in 1964.
22 COMMISSIONER JONES: There you go. But
23 generally, these were policies that were sold by agents,
24 they were sold door-to-door in communities throughout
25 this country?
Page 201
1 They were very low face value life insurance
2 policies, about $1,000 or less, I think you testified
3 to. And generally speaking, in the literature that's
4 available with regard to these policies in the industry,
5 these were policies that tended to be purchased by
6 people of more modest means. Is that fair?
7 MR. KATZ: That's reasonable assumption.
8 Yeah.
9 MR. CASSANDRA: Okay. And then those were the
10 policies, Commissioner, that the Family Reunion Program
11 was actually targeted at.
12 So you might recall this morning we testified
13 about the Family Reunification Program, which was a
14 Metropolitan-specific effort to attempt to find all
15 these owners. And we ran multiple media ads, spent
16 about $20 million at that point in time.
17 COMMISSIONER JONES: In regard to the $80
18 million in life insurance benefits you paid out as a
19 result of the 2007 Death Master sweep, what was the
20 average benefit paid out within that $80 million?
21 MR. KATZ: We're going to do some math right
22 now. We're going to take the 80 million and divide it
23 by the 18,000, plus the 700.
24 MR. CASSANDRA: About $4,700. I just took the
25 84 value and divided by 18,000, give or take some cents.
Page 202
1 Lucky I brought my calculator.
2 COMMISSIONER JONES: So about $4,700 on
3 average?
4 MR. CASSANDRA: That's what it looks like.
5 COMMISSIONER JONES: 18,000 plus 700 people
6 that were paid out?
7 MR. CASSANDRA: Shall I do it again? 84
8 million, 18,700 -- $4,491.
9 MR. KATZ: We'll make sure that's entered as
10 an estimate, but that will give you the order of
11 magnitude.
12 COMMISSIONER JONES: I'm just wondering based
13 on your knowledge of your policyholders whether you can
14 share with us what sort of impact there might be on a
15 family or individual not to receive, say, a payout of
16 $4,700 in the context where a parent or grandparent or
17 some other family member passed away and had a life
18 insurance policy with you.
19 MR. KATZ: I think that impact is going to
20 depend on the person. It's hard to make a general
21 statement on that.
22 I think in any situation when someone buys
23 life insurance, they bought it for a reason.
24 And our intent is to pay out all amounts that
25 are due. And the presumption is that individuals bought
Page 203
1 it to serve whatever purpose they served. It's a
2 personal situation.
3 COMMISSIONER JONES: So I mean, it's a real
4 benefit when they are paid, then that.
5 MR. KATZ: I think so. Sure.
6 COMMISSIONER JONES: It make as difference in
7 their life, that's why they purchased the policy.
8 MR. KATZ: Yeah. I think -- well, keep going.
9 I'm not sure where you're going.
10 COMMISSIONER JONES: Yes or no, they buy the
11 policy for a reason?
12 MR. KATZ: I think it depends on the person.
13 You have some individuals who may be more well off and
14 the payment of life insurance may, relative to their
15 networth, be relatively small; and for others maybe less
16 well off relatively large.
17 It's going to depend on the person.
18 COMMISSIONER JONES: But the owner of the
19 policy or the insured individual and the owner, if they
20 are co-terminus, bought that policy with an idea in mind
21 of helping a beneficiary when they passed away.
22 Correct?
23 MR. KATZ: That's reasonable.
24 COMMISSIONER JONES: That's the deal. That's
25 they come to your company.
Page 204
1 MR. KATZ: Sure.
2 COMMISSIONER JONES: So I guess what I'm
3 struggling with is your characterization of the
4 importance of the $84 million that you did pay out as a
5 result of the Death Master sweep in 2007 as substantial
6 relatively small dollars.
7 I'm struggling with that because I think that
8 people buy this, people get this insurance because they
9 believe it confers a real benefit to the beneficiaries.
10 From where I sit, $84 million is a substantial sum and
11 $4,700 is a substantial sum.
12 MR. KATZ: We agree. For any individual that
13 got paid those proceeds, for that individuals, that's a
14 big deal.
15 That's why we think using the Death Index on a
16 regular basis as a safety net to supplement the core
17 process.
18 So over that period where we found $80 million
19 from the Death Index, we also paid $44 billion through
20 the normal channel. So the normal channel process
21 works.
22 We found $80 million, and anybody who was one
23 of those 18,000 people who got that $80 million, for
24 that person, that's real important.
25 That's why we believe to make sense as to use
Page 205
1 that safety net process on a perspective basis so that
2 when the core process happens to not work, there's a way
3 to support that.
4 COMMISSIONER JONES: That's where you and I
5 have a disagreement.
6 I think that rather than using it as a safety
7 net, it should be an integral part of the company's
8 effort to try to make sure that beneficiaries get paid.
9 Not an afterthought. Those are my words, of course.
10 MR. KATZ: Can I comment on that?
11 COMMISSIONER JONES: Absolutely.
12 MR. KATZ: I think that would be a great topic
13 for discussion between regulators and the industry.
14 Because this is the type of thing, and we're perfectly
15 comfortable talking about it in a public forum in a
16 hearing, but this industry and the NAIC over the years
17 have enacted substantive change that helps our
18 customers. That's what we're here to do.
19 So we would welcome engaging in a dialogue to
20 determine the best practice across the industry. And if
21 this effort leads to that dialogue and we get to a place
22 where we all feel good, that's what we're trying to do
23 here.
24 COMMISSIONER JONES: You testified to the
25 company's new policy as to 2010. I think you testified
Page 206
1 as well in April of this year, you did another Death
2 Master sweep against individual life insurance policies.
3 Is that correct?
4 MR. CASSANDRA: It was in June.
5 COMMISSIONER JONES: June of --
6 MR. CASSANDRA: I'm sorry, right. We intend
7 to finish by the end of June.
8 COMMISSIONER JONES: Maybe I better clarify
9 that. Let's go back to 2010.
10 Since 2010, can you describe again the uses to
11 which you put the Death Master File?
12 MR. CASSANDRA: We took the decision that we
13 were going to begin use of the Death Master File no less
14 frequently than annually in the businesses where we had
15 records.
16 We began that process in 2010. It began with
17 the first product that we matched under the process, our
18 retained asset accounts. The second product in the list
19 was our individual life business, which we are doing
20 live in May.
21 COMMISSIONER JONES: That's the part I didn't
22 understand. You're in the midst of doing the individual
23 life business?
24 MR. CASSANDRA: In fact, the raw match -- I'm
25 informed the raw match has been in run now we're
Page 207
1 beginning the investigatory phase.
2 COMMISSIONER JONES: Can you explain -- will
3 you be using the same protocols that you used in the
4 2007 sweep for this most recent sweep of the individual
5 life insurance policies?
6 MR. CASSANDRA: I would say generally. I can
7 not say absolute, 100 percent certainty every protocol
8 is the same, but the logic and the intent, which is to
9 find every policy that person insured has died, that is
10 our intent.
11 COMMISSIONER JONES: You'll start with the
12 three-point match, and then you'll do a one-point and
13 greater match as you testified to earlier you did in
14 2007?
15 MR. CASSANDRA: I believe that to be the case.
16 I can't say with absolute certainty. The first sweep is
17 to be the three-point.
18 COMMISSIONER JONES: What will you do after
19 that?
20 MR. CASSANDRA: We'll start the investigatory
21 phase to determine if those three-point match hits are
22 actually our insured and begin to find the beneficiary.
23 COMMISSIONER JONES: Is it your intention as
24 to do an additional sweep using one point greater
25 matches?
Page 208
1 MR. CASSANDRA: I don't know if we've taken
2 that decision yet.
3 COMMISSIONER JONES: What other product lines
4 do you plan to apply Death Master to based on this new
5 2010 policy?
6 You said retained asset accounts, individual
7 accounts. What comes next after that?
8 MR. CASSANDRA: The group life insurance
9 business where we are the record keeping.
10 COMMISSIONER JONES: Just where you are the
11 record keeper.
12 And you're continuing to use it on a monthly
13 or quarterly basis on the annuity product based on
14 whether it's pay-in or a pay-out status. Is that
15 correct?
16 MR. SOLLMANN: Yes. And as I mentioned
17 earlier, the block of the deferred business that we are
18 currently running against, we're running that as a
19 result by the end of this year.
20 COMMISSIONER JONES: Okay. Remind me, which
21 block of deferred business was that?
22 MR. SOLLMANN: I made a distinct earlier today
23 between our older business and our newer generation
24 business. It's about 5050 on the deferred side we will
25 add this year.
Page 209
1 COMMISSIONER JONES: Okay. Now I want to turn
2 our attention to the retained asset accounts because
3 we've had some testimony about that.
4 And you've indicated that you did a Death
5 Master sweep in 2010 -- well, you did a Death Master
6 sweep late 2010 earlier this year against retained asset
7 accounts.
8 Can you describe how you used retained asset
9 accounts, what they are?
10 MR. KATZ: I'll also clarify we had done a
11 sweep prior to that in 2006, which I can talk to also,
12 but retained asset accounts are a life settlement option
13 available in most policies.
14 They are aimed to enable the policyholder or
15 beneficiary to funds put into a retained asset account
16 to enable them to have time to decide what to do with
17 those funds.
18 Retained asset accounts offer interest rates
19 that are pegged to be above at least one of two market
20 indices.
21 I can give you what those indices are, I just
22 don't have them of the top of my head, and they have a
23 minimum interest rate.
24 The minimum interest rate varies anywhere from
25 three percent to a half a percent.
Page 210
1 They are insurance contracts that are
2 supplemental contracts and feed back from our customers
3 is extremely positive on our retained asset accounts.
4 One of the stats I think is worthwhile to
5 share with you is about half of our retained asset
6 accounts today are earning an interest rate of three
7 percent. And in today's environment, we think that's
8 quite competitive.
9 So let me stop there. That's probably a
10 general answer.
11 COMMISSIONER JONES: Does MetLife refer to
12 these as total control accounts?
13 MR. KATZ: That's our product, our total
14 control account.
15 COMMISSIONER JONES: That's synonymous with
16 retained asset total account?
17 MR. KATZ: Our version of retained asset
18 account.
19 COMMISSIONER JONES: You mentioned that it's a
20 life settlement option. For which of your products is
21 retained asset account or total control account a life
22 settlement option?
23 MR. KATZ: I believe, I'll ask Mr. Cassandra
24 to help me, it's for individual and life.
25 MR. CASSANDRA: That's correct.
Page 211
1 COMMISSIONER JONES: And with regard to that
2 option, is it an opt-in option or opt-out option?
3 MR. KATZ: So the optionality would depend on
4 the type of contract that's in place.
5 For individual life insurance, the
6 policyholders will have the option to elect the
7 settlement option. Typically, either a retained asset
8 account, total con troll account or a check.
9 The policyholder usually doesn't make an
10 election. If they don't make an election, then the
11 beneficiary will have the option to make an election.
12 If the beneficiary doesn't make an election, the default
13 will be the total control account.
14 I should make another point about what the
15 total control account is. It's an account that's
16 interest bearing, but it's also check writing. So the
17 individual, once they have the account open, if they
18 want to write one check to themselves, they can close it
19 immediately. And, in fact, a significant amount of our
20 accounts close relatively quickly.
21 COMMISSIONER JONES: So if I understand
22 correctly, first the policyholder is given the election,
23 so they are given the option to decide whether or not a
24 retained asset account will be utilized in the event of
25 their death and the payment of benefits.
Page 212
1 MR. KATZ: We're talking about individual
2 here. The individual policyholder would have that first
3 option.
4 COMMISSIONER JONES: And then, if they don't
5 make an election then the beneficiary can make the
6 election.
7 MR. KATZ: When they fill out the claim
8 form -- I should note, what I'm articulating is a
9 general statement. There are some state laws that
10 govern how this works, so in certain jurisdictions it
11 may work a little differently.
12 COMMISSIONER JONES: So does the policyholder
13 at the time they purchase the policy have to
14 affirmatively elect in some way the total control
15 account?
16 MR. KATZ: They may or they may not. They
17 don't have to make an election. In fact, most do not.
18 COMMISSIONER JONES: So then, it defaults to
19 the beneficiary. So on your claim form, generally, how
20 is that manifested?
21 Is it a box that has to be checked or
22 unchecked? Can you explain that for us?
23 MR. KATZ: There's some indication, I'm not
24 sure if it's a box or if they write it in.
25 We'd be certainly happy to provide you with
Page 213
1 copies of the forms to give you more details on that, we
2 do ask them to make an affirmative election.
3 COMMISSIONER JONES: So if they don't somehow
4 affirmatively ask for the total control account and the
5 policyholder hasn't asked for it, then it defaults to
6 the total control account?
7 MR. KATZ: Correct. Our thought process there
8 in just about every circumstance that we can think of,
9 the total control account provides more benefits to the
10 individuals than the check.
11 Once they get a check, they are precluded from
12 opening the total control account. It's done.
13 So if we send them a check, they've now lost
14 that option. So we send them the total control account,
15 and we clearly articulate to them, this is an account
16 you can write one check and take all your money out
17 immediately if you wish to do so.
18 COMMISSIONER JONES: What percentage of the
19 individual life insurance policies have either the
20 policyholder -- let's start with the policyholder.
21 What percentage of those in which benefits
22 have not been paid have the policyholders elected the
23 total control account?
24 MR. KATZ: I'll have all of these answers in
25 the fall.
Page 214
1 COMMISSIONER JONES: Is it a small percentage?
2 MR. KATZ: What percent elect total control
3 account? I don't know. We can follow up.
4 COMMISSIONER JONES: I think you said most
5 don't.
6 MR. KATZ: Policyholders, it's a very small
7 percentage that make an election at all.
8 COMMISSIONER JONES: Have that make any
9 election?
10 MR. KATZ: Correct.
11 COMMISSIONER JONES: Do you have any estimate
12 of the percentage of beneficiaries that make an election
13 one way or the other?
14 MR. KATZ: I don't.
15 COMMISSIONER JONES: Of the life insurance
16 policies in which benefits have been -- let me ask this
17 question in a different way.
18 What number total control accounts do you have
19 open currently in the individual side?
20 MR. KATZ: Do we have more copies? I don't
21 have them right now. So I h ave it in aggregate. I
22 don't have it broken down between group and individual.
23 It's approximately 500,000, I forget, for a
24 total of about $12 billion in assets.
25 COMMISSIONER JONES: You mentioned the
Page 215
1 interest that's paid on these accounts.
2 Does the company earn more interest on this
3 money that's held in these accounts than the
4 beneficiaries who now own the accounts earn?
5 MR. KATZ: So we pay out interest on the
6 account consistent with the contract, and that interest
7 has varied over the years. It's been much higher than
8 it is. Right now, it's a very low interest rate
9 environment.
10 The company holds the funds in our general
11 account, and our general account earnings vary based on
12 the risk and duration of any given product.
13 So we certainly do aim to earn more than we
14 credit, but I would suggest to you if you look at the
15 environment right now, the three percent rate is fairly
16 compelling.
17 COMMISSIONER JONES: But if you earn more on
18 the aggregate dollars that are held in total control
19 accounts, if you earn more than the interest rate
20 available to the beneficiaries in those accounts, you
21 don't pass those additional earnings directly on to
22 beneficiaries. Correct?
23 MR. KATZ: We pay out the beneficiaries, the
24 account holders, consistent with our obligations,
25 consistent with the customer agreement and consistent
Page 216
1 with the way we're supposed to do it.
2 We take risk on our total accounts. We
3 provide guarantees and we invest the money and -- even
4 those these aren't bank accounts, because they are not,
5 you think about it in the context of financial accounts
6 more generally.
7 COMMISSIONER JONES: Fair enough. But the
8 question was: If you earn more by investing the
9 aggregate dollars in the total control accounts than
10 what you have contracted to provide those account
11 beneficiaries by way of interest, you don't pass through
12 to them the additional earnings that you make on their
13 money?
14 MR. KATZ: If we made more, we don't pass that
15 through; and if he we make less, we don't ask them to
16 pay us less.
17 COMMISSIONER JONES: Have you ever made less
18 on their money?
19 MR. KATZ: So we have guarantees out there in
20 today's environment where the rates are pretty good. I
21 don't have the data in front of me, but I believe there
22 are some quarters -- especially at the height of the
23 financial crisis -- where the financials on this
24 business wasn't particularly favorable.
25 COMMISSIONER JONES: But you made less than
Page 217
1 the contracted interest amount on those accounts?
2 I imagine those interest -- as you said the
3 indices themselves fluctuate based on what's happening
4 overall in the financial market.
5 So you actually earned less than the interest
6 that was paid to them, if you know?
7 MR. KATZ: We have guarantees here, so if you
8 take -- I'm going to give you a hypothetical because I
9 don't want to testify --
10 COMMISSIONER JONES: If you know. If you
11 don't know, you don't know. That's fine, too.
12 MR. KATZ: Yeah, I mean, I don't know.
13 COMMISSIONER JONES: That's fair. All right.
14 Then I guess with regard to the total control
15 accounts, do you have any practices or procedures for
16 determining when those accounts have gone dormant?
17 MR. KATZ: So our procedures are on total
18 control account. We contact our policyholders
19 regularly. We send them statements at least once a
20 quarter, and once a month if there's activity in the
21 account. We send them an annual 1099 for the interest
22 earned.
23 If we have three instances of returned mail,
24 we will then assume that that account is lost in some
25 way and we'll begin a procedure to search for the owner,
Page 218
1 and if ultimately can't find the owner, begin our
2 unclaimed property process system.
3 COMMISSIONER: Go ahead.
4 MR. KATZ: Many cases, we may find the
5 individual is decease, and if we do, then the
6 beneficiary, if one is named, the proceeds will move to
7 that beneficiary.
8 We also, as I mentioned earlier, have deployed
9 the Social Security Death Match twice thus far for
10 accounts -- for total control accounts. We did it first
11 in 2006 and again in 2010. And that's certainly another
12 way to search for people who may have died.
13 COMMISSIONER JONES: What's the search
14 procedure you use when mail has been returned three
15 times?
16 MR. KATZ: I can't testify exactly to what
17 that is.
18 Certainly, our intent is, for example, if
19 there's a beneficiary, try to find the beneficiary. But
20 if that search criteria fails, that account would go
21 through the unclaimed property system then. And I don't
22 know the exact procedure. I apologize.
23 COMMISSIONER JONES: I'd be interested in
24 knowing that if there is a document or someone could
25 testify.
Page 219
1 Once it goes on unclaimed property, what does
2 that mean and what happens then.
3 MR. KATZ: Then, we follow the unclaimed
4 property rules of the given state that would apply for
5 the purposes of determining escheatment. So I guess
6 that's really the answer.
7 COMMISSIONER JONES: Okay. When the mail has
8 been returned three times and you begin the search
9 procedure, does the search procedure include utilization
10 of the Death Master File to try to make a determination
11 whether the beneficiary of the total control account has
12 passed away?
13 MR. KATZ: Unfortunately, that's the question
14 you asked before.
15 I don't have specific details on what exactly
16 what we look at for that.
17 I do know the steps subsequent the mail and
18 following the unclaimed property. I'm not as clear on
19 exactly what those search steps are.
20 MR. CASSANDRA: I believe we write letters to
21 the account holder and to the beneficiary.
22 COMMISSIONER JONES: Say again, I'm sorry.
23 MR. CASSANDRA: Write letters to the last
24 known address or to the address of the beneficiary, if
25 we have one listed on the file.
Page 220
1 COMMISSIONER JONES: That's part of the search
2 procedure?
3 MR. CASSANDRA: That's what I believe that to
4 be. We can follow up with you on that.
5 COMMISSIONER JONES: Other than the return of
6 mail three times, is there any other triggers with
7 regard to the initiation search procedure, or was the
8 returned mail three times the only trigger?
9 MR. KATZ: So the only think that's new
10 emerging -- and this is relatively new out of the
11 discussions last fall -- around retained asset accounts,
12 we did a fair amount of work both within NCOIL and NAIC
13 in context of the NCOIL model law.
14 We believe that will ultimately result in
15 certain states requiring a certain period of dormancy
16 and that third definition of dormancy, which we clearly
17 would intend to comply with.
18 COMMISSIONER JONES: But right now, you don't
19 start at the dormancy clock running until you've
20 concluded the search procedure and decide you can't find
21 the person?
22 MR. KATZ: Either through the returned mail
23 process or through the Death Match process, which we
24 talked about earlier.
25 COMMISSIONER JONES: Okay. Of the 500,000
Page 221
1 total control accounts you have, how many are now
2 considered in the dormancy period?
3 MR. KATZ: How many have moved into the
4 unclaimed property system?
5 COMMISSIONER JONES: Yeah.
6 MR. KATZ: I don't know the number. I can
7 give you some data on the '06 match which might help
8 you. We may have that, I apologize.
9 MR. CASSANDRA: It appears the total number of
10 TCA in our unclaimed fund system is about 38,000.
11 COMMISSIONER JONES: Do you have a figure for
12 California?
13 MR. CASSANDRA: I'm sorry. I don't have that
14 detail. I'm going to check. We may have.
15 MR. KATZ: We're going to check.
16 COMMISSIONER JONES: While you're checking --
17 MR. CASSANDRA: We reported 776 items for
18 California that well escheat this year.
19 COMMISSIONER JONES: That's the number that
20 you believe --
21 MR. CASSANDRA: Not quite the question.
22 COMMISSIONER JONES: I understand. But you
23 reported 776 escheating in your most recent report to
24 the Controller's Office?
25 MR. CASSANDRA: Yes.
Page 222
1 COMMISSIONER JONES: Can you share with us
2 what you did in 2006 vis-à-vis the Death Master File and
3 how you used it in relation to total control accounts?
4 MR. KATZ: Yeah. It's similar to what we
5 talked about life insurance in 2007. We ran it against
6 the population of active total control accounts.
7 We identified 1,300 accounts where there were
8 matches. Went through a process to investigate those
9 matches. Many of those accounts were closed.
10 Some of those accounts resulted in
11 beneficiaries being located and funds being either paid
12 or transferred to the beneficiaries not being located
13 and escheatment to the states.
14 COMMISSIONER JONES: And what was the trigger
15 point for deciding that you had a Death Master File
16 match in 2006 with regarding the total control account
17 accounts?
18 MR. KATZ: I don't know the answer to that.
19 MR. CASSANDRA: Could you define "trigger
20 points"?
21 COMMISSIONER JONES: You talked earlier about
22 using the three points and some cases using the one
23 point. What was the protocol used?
24 MR. CASSANDRA: In 2006, I believe it was just
25 the Social Security number that triggered the
Page 223
1 investigation.
2 COMMISSIONER JONES: Regardless of any other
3 data field match, if you had a match on Social
4 Security --
5 MR. KATZ: If you think about that in the
6 context of the TCAs, we would -- by definition, we
7 should have a Social on all of these accounts.
8 MR. CASSANDRA: Because of the tax reporting
9 requirements under the TCA.
10 COMMISSIONER JONES: Why didn't you require
11 matches on the other as you've been doing on the
12 individual life insurance side?
13 MR. CASSANDRA: I don't know. I was not
14 involved in the definition of the 2006 criteria.
15 COMMISSIONER JONES: Should I ask you?
16 MR. KATZ: Why in '06 did we only use the
17 one-point match?
18 THE COURT: Right.
19 MR. KATZ: Per TCA, we would have assessed for
20 all of those because generally we're sending out 1099s.
21 So if we had an account open --
22 Keep in mind, this account would typically be
23 a beneficiary of a life insurance claim that would have
24 provided us a Social when that claim was filed.
25 We felt that the records on that were pretty
Page 224
1 good that, and that would in and of itself create a
2 fairly good match.
3 COMMISSIONER JONES: With regard to those
4 1,300 accounts for which you had a positive match with
5 the Death Master File, do you have a breakout with
6 regard to, you know, the number that were escheated, the
7 number in which those amounts were paid to some
8 downstream beneficiary and anything else you might have
9 done with the money.
10 MR. KATZ: I think the stats we can share with
11 you, but I think they are national and not California.
12 COMMISSIONER JONES: That's fine.
13 MR. CASSANDRA: So of the 12, roughly 1,300,
14 791 of them were closed. 362 were closed before a
15 match. 274 paid to a beneficiary, heir, state or trust.
16 155 sent to the unclaimed fund system.
17 COMMISSIONER JONES: I got lost somewhere.
18 There were 1,300 matches, you said 791 were closed?
19 MR. CASSANDRA: Right.
20 COMMISSIONER JONES: Of the 1,300, a total of
21 791 were closed. And then 362.
22 MR. KATZ: We're breaking down the 791 is
23 what --
24 COMMISSIONER JONES: What does the 362
25 represent?
Page 225
1 MR. CASSANDRA: Closed by the account holder.
2 There was no balance in it.
3 MR. KATZ: So we found a match, but there was
4 no money in the account.
5 COMMISSIONER JONES: Okay. And then 274 were
6 paid to the other beneficiaries.
7 MR. CASSANDRA: Beneficiary or on the heir.
8 COMMISSIONER JONES: 155 were unclaimed
9 property. And then, you said you ran it again in 2010.
10 Could you describe how you used the Death
11 Master File with regard to the total control account in
12 2010?
13 MR. KATZ: I don't have that handy. But is
14 your question: Was it a one-point match?
15 COMMISSIONER JONES: I'm just generally
16 interested in what you did.
17 Was it the same process that you did in 2006
18 or did you do something different?
19 MR. CASSANDRA: We did both. So where we had
20 a Social Security number and the date of birth, we had
21 4,800 accounts.
22 COMMISSIONER JONES: Social Security alone?
23 MR. CASSANDRA: 2,900.
24 MR. KATZ: And that process was done really
25 toward the end of the year in 2010. I don't have stats
Page 226
1 here for the breakout of that. It's still being worked
2 as we speak.
3 MR. CASSANDRA: Just one point I'd like to
4 make.
5 Two-thirds of those, based on the date of
6 death on file, two-thirds of those happened within the
7 last year -- to the best of our knowledge -- so it's
8 very recent.
9 That goes to the point about if you're
10 matching in real time, most of these accounts generally
11 will resolve themselves by the beneficiary coming
12 forward and claiming the benefits without doing the
13 match.
14 COMMISSIONER JONES: So with regard to the
15 total control accounts that you paid out as a result of
16 the 2006 or 2010 sweep, did you require a death
17 certificate before you paid out those accounts to give
18 the beneficiary of the beneficiary so to speak, or an
19 heir?
20 MR. CASSANDRA: I'm sorry. I don't know that
21 level of detail. I don't know.
22 COMMISSIONER JONES: Do you know what, if
23 anything, was required before you closed the account and
24 made a payment to another beneficiary heir?
25 MR. CASSANDRA: It's just an assumption
Page 227
1 because I don't have actual knowledge of what those
2 extra steps are. I don't have that knowledge.
3 COMMISSIONER JONES: With regard to those
4 accounts that you moved into unclaimed property status
5 based on the 2006 or 2010 sweep, what was the triggering
6 determination that caused you to conclude to move them
7 to the unclaimed property status?
8 MR. CASSANDRA: I believe it was that we could
9 not find the beneficiary after trying to communicate by
10 a letter.
11 COMMISSIONER JONES: You had a match on Death
12 Master, couldn't find them, decided to move it into
13 unclaimed property?
14 MR. KATZ: We tried to find the appropriate
15 beneficiary, couldn't find the appropriate beneficiary
16 and then moved it into unclaimed property.
17 COMMISIONER JONES: Great. I'll se if the
18 Controller has any questions.
19 CONTROLLER CHIANG: Just along the lines of
20 the questioning earlier, I'm not quite clear about the
21 financial vehicles where the Commissioner was asking
22 about the differential, whether if in the event of
23 earning surplus versus actual payments, the use of.
24 Do you have separate financing vehicles for
25 these particular accounts.
Page 228
1 It's an area of active interest in the
2 financial community for private equity.
3 MR. CASSANDRA: The TCAs are part of the
4 general account of MetLife.
5 CONTROLLER CHIANG: Thank you.
6 COMMISSIONER JONES: We're going to take a
7 break. But before we do, let me see if Florida or
8 Minnesota have any questions about retained asset
9 accounts.
10 MR. HANSON: Concerning the general account in
11 the investment, what was the -- in the first quarter
12 this ear, what was the investment in the portfolio?
13 MR. CASSANDRA: I don't have that level of
14 detail. I'm sorry.
15 MR. HANSON: Basically, what you're saying is
16 you make the spread between what you pay out on that
17 investment deal on your general portfolio?
18 MR. CASSANDRA: Yes, and if the earned rate
19 was lower --
20 COMMISSIONER JONES: Great. And so I think at
21 this point, the insurance general counsel can talk to
22 counsel for MetLife about the additional documents that
23 we're going to put in the record.
24 Let's take a 15minute break. Thank you.
25 (Recess was taken from at 3:38 p.m. to 3:56 p.m.)
Page 229
1 COMMISSIONER JONES: Why don't we go back on
2 the record if the reporter's ready.
3 So there was some documents that were provided
4 to us and in a moment ask our general counsel to
5 describe those and put those into the record.
6 And then I think what I'd like to do is go a
7 little bit out of order, but see if there's any members
8 of the public who wish to provide any comment, and then
9 we'll close out with the last round of questioning.
10 Mr. Cole.
11 MR. COLE: Yes, during the break, MetLife has
12 provided us with two sets of documents, which I want to
13 have marked as exhibits and placed into the record of
14 this proceeding.
15 The first set of documents are six single-page
16 letters in the timeframe of 2003 to 2004 between MetLife
17 and the California Controller's office regarding certain
18 aspects of escheat of stock and placement of that stock
19 into the Controller's accounts after demutualization.
20 I'd like to have that document, which the
21 first page of which is a letter from ACS to Mellon
22 Investors dated August 9, 2004.
23 I'd like to have that identified as Exhibit 2.
24 (Whereupon, Exhibit 2 was marked
25 for identification)
Page 230
1 MR. COLE: And the second is a four-page
2 letter from MetLife to the New York Department of
3 Insurance, also relating to demutualization issues.
4 That letter is dated December 17, 1999, and I'd like
5 that marked Exhibit 3.
6 (Whereupon, Exhibit 3 was marked
7 for identification)
8 MS. ROSEBOROUGH: Mr. Cole, if I might note
9 that in the packet of letters that you referred to as
10 Exhibit Number 2, there's a letter dated December 29,
11 2003 from the Controller's Office noting that, on behalf
12 of -- "As agent for the State of California, we have
13 reviewed the due diligence previously undertaken by
14 Mellon Investor Services on behalf of MetLife Inc., in
15 the escheatment of property associated with MetLife's
16 demutualization. We believe that the due diligence was
17 generally consistent with the California unclaimed
18 property law."
19 COMMISSIONER JONES: Right. I have it here.
20 Okay.
21 So let's see if there's any member of the
22 public who would like to comment at this time.
23 We have a microphone set up here for that
24 purpose. And if individuals would like to come forward,
25 identify themselves and share with the panel any comment
Page 231
1 they'd like to make, this would be an appropriate time
2 for that.
3 MS. BURNS: My name is Bonnie Burns. I
4 represent California Health Advocates. We're a
5 nonprofit advocacy group. And I thought I'd just bring
6 some personal experience to this.
7 I've been a consultant to consumer groups for
8 over 30 years. And in the time that I've been working
9 with Medicare beneficiaries, the primary population that
10 we serve and I've served throughout my career, and I've
11 seen some of the results of people being sold what I
12 would call low-value life insurance policies.
13 These are policies that pay very small
14 amounts, anywhere from $1,000 to $5,000. And in some
15 cases people were sold multiple policies, maybe two or
16 three policies of $1,000 each because of the sales
17 activity of certain agents when they entered their home
18 to sell them Medigap or later the Medicare Advantage
19 programs.
20 So often people buy these without even
21 understanding what they have. And the reason that they
22 are buying them primarily in those small amounts is
23 because is they want to be able to leave some money or
24 for a family member or that they want to pay for burial
25 expenses.
Page 232
1 Those are the two primary reasons that they
2 buy theses types of policies. And rarely are people
3 going out trying to buy these. These are the products
4 that they are very often sold.
5 And so I have a client come to me fairly
6 recently that I thought might illustrate some effect
7 that this can have on families when claims don't get
8 paid.
9 This is a woman who had -- she's in her 50s
10 and she had lost her husband in a horrible automobile
11 accident on Highway 17. And were in the process of
12 losing their house through foreclosure, which happened
13 not long after he died.
14 She knew that he had $1,000 policy somewhere,
15 but they didn't know how to collect on that policy.
16 Eventually, she got in touch with the company
17 and had a number of different conversations by phone
18 with the company that was demanding proof from her that
19 she didn't have.
20 A lot of her belongings were locked up in the
21 house when she was evicted for nonpayment of her
22 mortgage.
23 Eventually, she came to me through a mutual
24 acquaintance. And because I don't do case work anymore,
25 I called one of your deputies and she was very quick to
Page 233
1 help this woman to put her in contact with the right
2 person, and within days, that $1,000 was paid.
3 And she had been living in her car. She had
4 no money to even pay for a hotel. That $1,000
5 represented the only money that she had until she could
6 get on to one of the public programs.
7 So that $1,000 would be a small amount to a
8 lot of people. To her, it was everything.
9 Without intervention, it's hard to say whether
10 she would have ever gotten that money paid.
11 I wanted to put just a little bit of a human
12 face on that because I know this happens.
13 We have clients -- and I have over the years
14 -- older people who have bought these smaller
15 denomination life insurance policies -- and either they
16 forget that they have them or they put them into a
17 safety deposit box, and when they die, often people
18 don't even know these policies exist.
19 And so, I think that might be some of the
20 policy issues you've been talking about today that
21 belong to people who lost track of them. Their family
22 may not even know that they had them, and the people who
23 bought them, had bought them with the intent to do
24 something for their family to either pay for their
25 funeral expenses or to help fund a grandchild's college
Page 234
1 education, or some purpose that they had in mind when
2 they originally bought these policies.
3 And older people when they buy something like
4 that will pay for it long after it's of any value to
5 them.
6 I have seen people in the past pay more for
7 these small policies than they actually ever get out in
8 benefits. And that's been an issue for me as an
9 advocate over the years.
10 Washington passed a law long time ago that
11 stopped that kind of behavior. You can't price a policy
12 so that ultimately people will pay more in premiums than
13 they ever get in benefits. California never adopted
14 anything like that that I know of.
15 My work at the NAIC as a consumer
16 representative long before the consumer program began,
17 this issue of life insurance policies has come up over
18 the years. And there have been various, you know,
19 models that have been adopted and changed over the
20 years. But there still a lot of loopholes in those
21 models in terms of protections.
22 So one of the things I'd like to suggest to
23 you are some of the things that we learned from the
24 long-term care insurance that might actually be of
25 benefit to some of the discussion that we are having
Page 235
1 today.
2 And that's that if companies selling life
3 insurance policies had to include a third party notice
4 as part of the application so that someone else knows
5 not only that they have the policy but would be notified
6 if that person failed to pay premiums, or would be
7 notified when there were any changes to the policy or to
8 the company.
9 For instance, if a block of business is sold
10 off or a company is acquired by another company, a
11 third-party notice could be very helpful.
12 And if that were done as part of the
13 application process and it was required periodically
14 after that so companies would be required to send the
15 policyholders information, that they could appoint a
16 third party to receive notices about their policy, I
17 think that might help alleviate some of what you've been
18 talking about today.
19 In the event that there was a third-party
20 notice, somebody who was that third party, they should
21 receive a copy of the schedule page so they know and
22 will know in the future what that person owns along with
23 the contact information for the company.
24 And that should be part of any documents that
25 a third party would get.
Page 236
1 In listening to the company talking about when
2 they do conclude that they are unable to contact
3 somebody, you know, I was wondering when the company was
4 saying that they conclude this after they have received
5 three returned mailings. I was wondering how long is
6 that period of time between each of those mailings? Is
7 it a month? Is it six months? Is it a year?
8 How long does that take before that -- you
9 know, before they conclude that the person is
10 unreachable? A third-party notice would solve part of
11 that problem if people designated one.
12 And so, I think company should be required to,
13 when they get returned mail from an address that's
14 incorrect, that they should be required to make a
15 personal contact or attempt to make a personal contact
16 with whatever information that they have on hand instead
17 of waiting until that's happened three times.
18 There have been incidences of companies
19 mailing out things to people at the wrong address -- not
20 at the person's incorrect address, but a wrong address
21 that somehow got into the company's records.
22 I've had that happen with other products when
23 people are cancelled because their notice went to the
24 wrong place.
25 So I think there needs to be more contact with
Page 237
1 the person who's bought the policy and that a
2 third-party notice would go along ways toward
3 alleviating some of the what we're hearing about today.
4 COMMISSIONER JONES: Thank you very much.
5 Any other members of the public who wish to
6 comment at this time?
7 On the point raised by Ms. Burns, is there any
8 time period requirement between each of the three pieces
9 of mail that becomes a trigger, if they are returned,
10 for purposes of deciding that a total control account is
11 dormant?
12 MR. KATZ: First of all, the situation you
13 described was unfortunate and one in that we hope isn't
14 indicative of the industry more in general around the
15 personal indivdual's circumstance.
16 The period between mailings varies by product.
17 In many cases, it's once a month, but it can vary by
18 product. As always, we welcome suggestions on how to
19 improve and want to do our best to continue to do what
20 makes sense for our policyholders.
21 COMMISSIONER JONES: With regard for total
22 control accounts though where those three pieces of mail
23 is a triggering event, how frequently are mailings sent
24 to beneficiaries who have funds in a total control
25 account?
Page 238
1 MR. KATZ: So for a total control account, if
2 there's activity in the account, it's once a month. If
3 there's no activity in the account, it's once a quarter.
4 COMMISSIONER JONES: Very good.
5 I want to go back to 1987 when it was
6 testified earlier that MetLife first started using Death
7 Master on annuities.
8 And I'm wondering if one of the witnesses can
9 share with us how the company organized for reporting
10 purposes and administrative purposes the annuity side of
11 its business and life insurance side of the business.
12 If someone could sketch out what the org chart
13 was generally for MetLife with that period of time in
14 regard to those lines of business, that would be
15 helpful.
16 MR. KATZ: I can't do that. Not that I
17 wouldn't, I don't have it at the top of my head. I can
18 certainly follow up as best we can.
19 COMMISSIONER JONES: Any of the other
20 witnesses have any understanding?
21 It was mentioned that in 2010 there was a
22 change in the corporate structure that permitted a more
23 holistic approach to these issues.
24 I'm trying to figure out what was that change
25 from?
Page 239
1 MR. KATZ: We can talk about how we were
2 organized before 2009 and after. I can't go back to
3 '87.
4 Prior to 2009, we were managed in three
5 operating units. We had an institutional business,
6 which was essentially group home insurance and pension
7 corporate benefit funding products, and then we had an
8 individual business, which was individual life and
9 annuities and our home business.
10 And in 2009, those were consolidated to form
11 one holistic US Business.
12 COMMISSIONER JONES: Then prior to 2009, what,
13 if any, mechanisms were there to coordinate information
14 for decision-making across the three separate
15 organizational structures that existed prior to 2009?
16 MR. KATZ: I guess there was a combination of
17 formal and informal procedures that were that used to
18 run the company. I think bringing it together as one US
19 Business enabled us to be more streamline across our
20 business.
21 COMMISSIONER JONES: With regard to the
22 utilization of Death Master in particular, were there
23 any mechanisms prior to 2009 to share information, one
24 element of the operating structure with the other
25 elements of the operating structure as related to Death
Page 240
1 Master?
2 MR. KATZ: Is this around decisions to use
3 Death Master?
4 COMMISSIONER JONES: Yes.
5 MR. KATZ: Not that I'm aware of.
6 COMMISSIONER JONES: And then with regard to
7 actual determinations made with the utilization of Death
8 Master, were there any across the three operating arms
9 prior to 2099?
10 MR. KATZ: Yeah. There were different needs,
11 more formalized, some les formalized around sharing
12 information.
13 Certainly we talked to the 2007 match, which I
14 think is indicative of taking in a whole lot of death
15 information and then using that at that point for our
16 individual life business.
17 MR. SOLLMANN: We also spoke about the process
18 we have in place which you now have a copy of the
19 procedure relative to individual annuities.
20 COMMISSIONER JONES: Do you know whether 1987
21 the present MetLife retained any consultants to
22 determine whether MetLife was properly internally
23 coordinating the use of Death Master.
24 MR. KATZ: I do not know.
25 COMMISSIONER JONES: Any of the other
Page 241
1 witnesses have any knowledge?
2 MR. SOLLMANN: Not that I'm aware of.
3 MR. CASSANDRA: I have no knowledge.
4 COMMISSIONER JONES: Do you know whether
5 MetLife's board ever discussed whether MetLife was
6 coordinating utilization of Death Master across its
7 annuities and sides of this business?
8 MR. KATZ: I do not know.
9 MR. CASSANDRA: I don't know.
10 MR. SOLLMANN: Neither do I.
11 COMMISSIONER JONES: Are you aware of any
12 discussions on the part of MetLife executives since 1987
13 with respect to the utilization of Death Master between
14 the annuities and life insurance side of the business?
15 MR. KATZ: Other than what we testified
16 earlier -- which was around the formation of 2010
17 holistic decision -- I'm not aware of other types of
18 discussions that crossed lines.
19 COMMISSIONER JONES: Any of the other
20 witnesses have any other information to that question?
21 MR. CASSANDRA: My understanding is the same
22 as Mr. Katz's.
23 MR. SOLLMANN: Yes.
24 COMMISSIONER JONES: Okay. Does MetLife
25 currently have any policies in place -- corporate
Page 242
1 policies in place as opposed to life insurance policies
2 in place -- Does MetLife have any corporate policies in
3 place that govern the retention of documents held by the
4 company?
5 MR. KATZ: I believe we do, yes.
6 COMMISSIONER JONES: Can you describe in
7 general terms what those document retention policies are
8 currently?
9 MR. KATZ: I can not.
10 COMMISSIONER JONES: Any other witnesses have
11 any information on this?
12 MR. CASSANDRA: I know we have a formal
13 program, but I can not quote it to you to the specifics
14 of what it actually requires.
15 MR. SOLLMANN: We have a very robust document
16 retention process and training around that across our
17 company, but those practices vary across the company
18 among the faces of each of the businesses.
19 COMMISSIONER JONES: Are you aware of any
20 occasion when MetLife has purged data from its
21 administrative systems?
22 MR. KATZ: Aware of any occasion where MetLife
23 has purged data from its administrative systems?
24 MR. KATZ: I'm not. I'm trying to think of
25 the circumstance where we would. I'm not aware of any.
Page 243
1 COMMISSIONER JONES: Any of the other
2 witnesses?
3 MR. CASSANDRA: I'm not aware of any.
4 MR. SOLLMANN: Not that I'm aware.
5 COMMISSIONER JONES: Are you aware of any
6 policies that MetLife has with regard to purging data
7 from its administrative systems?
8 MR. CASSANDRA: I would assume in our document
9 retention program it covers that, but I don't have that
10 in front of me.
11 COMMISSIONER JONES: Any witnesses have any
12 understanding what the policies might be with regard to
13 purge of data?
14 MR. SOLLMANN: No.
15 MR. CASSANDRA: I don't have any information
16 personally.
17 COMMISSIONER JONES: Is there any procedure
18 for archiving records or information that had been
19 maintained in the course of administrating either
20 annuities or life insurance policies for customers of
21 MetLife.
22 MR. KATZ: I do not know. There very well may
23 be.
24 COMMISSIONER JONES: Do any witnesses have an
25 understanding what the company's archiving policies
Page 244
1 might be with respect to policyholder information?
2 MR. CASSANDRA: I don't know the specifics.
3 MR. KATZ: And we can -- well, keep going. We
4 just don't have it.
5 COMMISSIONER JONES: That's fine.
6 Mr. Sollmann.
7 MR. SOLLMANN: Are you making a distinction
8 between document retention and archiving?
9 COMMISSIONER JONES: Yes.
10 MR. SOLLMANN: Not that I'm aware of.
11 COMMISSIONER JONES: Do you believe such
12 policies exist?
13 MR. KATZ: We do have a robust document
14 retention policy. As Mr. Sollmann testified, we have
15 training on that. We just don't have that at the top of
16 our fingertips right now.
17 COMMISSIONER JONES: Okay. With regard to
18 policies -- insurance policies that have lapsed -- do
19 you continue to retain records associated with those
20 insurance policies?
21 MR. KATZ: I believe we did.
22 COMMISSIONER JONES: Has that always been
23 MetLife's policy and practice?
24 MR. KATZ: I can't attest to "always," but
25 going fairly far back and indicated by the match that
Page 245
1 with did, we matched against the substantive amount of
2 lapsed policies.
3 COMMISSIONER JONES: When you ran the 2007
4 sweep, I think you testified that the earliest policy
5 owner for which you had a match was 1974, if I remember
6 correctly.
7 MR. CASSANDRA: I think the date of death was
8 '78, I believe.
9 COMMISSIONER JONES: The date of death was
10 '78.
11 What would account for not coming across
12 policies with earlier dates of death?
13 MR. CASSANDRA: I think it would be to the
14 point Todd made around the fact that Social Security
15 numbers were not required on life insurance policies
16 that early on.
17 So there may have been limitations in the
18 data, specifically as regards a match against the Social
19 Security Death Master File under older policies where
20 Social Security numbers were not part of the
21 administrative data.
22 MR. KATZ: I also think Social Security only
23 began capturing stats on the file in the late '60s,
24 early '70s, something like that.
25 MR. CASSANDRA: It was probably a combination
Page 246
1 of the two.
2 COMMISSIONER JONES: When did MetLife begin
3 requiring the Social Security number on the life
4 insurance and annuities?
5 MR. KATZ: In the early '80s for life
6 insurance.
7 COMMISSIONER JONES: And annuities?
8 MR. CASSANDRA: I believe it was with respect
9 to certain task force changes that were made in the
10 mid-'80s.
11 COMMISSIONER JONES: Does that answer both
12 life insurance policies and annuities or just life
13 insurance policies?
14 MR. SOLLMANN: It probably would have been
15 earlier for life insurance than annuities, but don't
16 know the specific dates.
17 COMMISSIONER JONES: It would be earlier for
18 life insurance than annuities but not sure of the
19 particular date. Is that right?
20 MR. SOLLMANN: The other way around. Earlier
21 for annuities.
22 COMMISSIONER JONES: Earlier than '87?
23 MR. SOLLMANN: I just don't have that
24 information with me.
25 COMMISSIONER JONES: We would like a follow-up
Page 247
1 on that where you can provide us with that information.
2 Going back to the Death Master File itself,
3 has MetLife customized the Death Master File in any way
4 to its own use?
5 MR. KATZ: So what we've done is taken the
6 Death Master File and combined it with other systems
7 where we have notice of death and used both of those
8 sources to do the matches.
9 COMMISSIONER JONES: What are the other
10 systems?
11 MR. KATZ: I don't have a complete list of
12 what all the systems are.
13 COMMISSIONER JONES: Can you describe any of
14 them?
15 MR. CASSANDRA: I know for certain that the
16 deaths reported under the group annuity program --
17 COMMISSIONER JONES: Say again. I'm sorry.
18 MR. CASSANDRA: -- any deaths reported under
19 the group annuity program would be part of that file as
20 well.
21 COMMISSIONER JONES: So it would be Death
22 Master plus --
23 MR. CASSANDRA: Anything reported by --
24 COMMISSIONER JONES: -- reported by customers.
25 MR. CASSANDRA: Or other sources.
Page 248
1 COMMISSIONER JONES: -- or other sources with
2 regard to deaths of annuitants.
3 MR. KATZ: It could be for other lines, too.
4 This is probably one -- I think what you're
5 getting at is what's the full content of the file in
6 addition to the Death Match that we used in '07, so is
7 that where you want to go?
8 COMMISSIONER JONES: Well, we can start with
9 '07. I don't know if there are any other periods of
10 time in which you may have augmented or customized Death
11 Master, but let's start with '07.
12 I think you testified that you coupled it with
13 some other database systems. You weren't sure exactly
14 which onces completely, but of the ones you can recall,
15 what are they?
16 MR. KATZ: Yeah. I don't know. I can testify
17 to what I think I think. I think it was some of our
18 annuity and life systems.
19 I'd rather get you as a follow-up in writing
20 exactly what the components of that was.
21 COMMISSIONER JONES: When you say "annuities"
22 and "life systems," what do you mean?
23 MR. KATZ: Claims of death and/or death
24 notices on those systems. I'm hypothesizing here, so i
25 prefer to get you the documents.
Page 249
1 COMMISSIONER JONES: That's fine.
2 But as to that then, were they used to augment
3 Death Master or were they used as a filter to screen out
4 matches that were made on Death Master?
5 MR. KATZ: I believe to augment.
6 COMMISSIONER JONES: Okay. Are there any
7 other databases that MetLife utilized in 2007 other than
8 Death Master, claims information on the annuity side,
9 claims information on the life insurance side, any other
10 data --
11 MR. KATZ: For purposes of the match that we
12 did?
13 COMMISSIONER JONES: Yes.
14 MR. KATZ: Let us respond as a follow-up and
15 we'll get you a comprehensive list.
16 COMMISSIONER JONES: Okay. Moving forward
17 from 2007, in addition to those systems that you've
18 already testified to or database you testified to, any
19 other data bases you turn to for information as you're
20 using Death Master to either augment or filter Death
21 Master?
22 MR. KATZ: So from our perspective?
23 COMMISSIONER JONES: Yes.
24 MR. CASSANDRA: For the prospective approach,
25 we would not be filtering any data out of Social
Page 250
1 Security Death Master. It is our intent to augment the
2 file with deaths reported anywhere had the US Business
3 into that single file.
4 So that if a death had not been reported to
5 the Social Security Administration but had otherwise
6 been reported to us, we would have put that into the --
7 we intend to put that into the database so as to share
8 that information across --
9 COMMISSIONER JONES: Across the company?
10 MR. CASSANDRA: Yes.
11 COMMISSIONER JONES: All right. We talked a
12 little bit earlier about the group life book of business
13 of the company.
14 I'm wondering if you could share with us the
15 total value of the group life book of business that's in
16 force currently?
17 MR. KATZ: The amount of insurance in force?
18 COMMISSIONER JONES: Yes.
19 MR. KATZ: It's a big number.
20 MR. CASSANDRA: I believe on a direct basis,
21 $2.8 trillion.
22 COMMISSIONER JONES: When you say "direct
23 basis," can you explain what the "direct" means there?
24 MR. CASSANDRA: Any seed reinsurance.
25 COMMISSIONER JONES: Before seeded
Page 251
1 reinsurance.
2 Have you used Death Master for purposes of
3 determining if individuals had died with eligible --
4 beneficiaries were eligible under a group life policy?
5 MR. KATZ: So we touched on this a little bit
6 earlier that we have not. However, there have been some
7 limited instances where group customers have done that
8 on their own and presented us with information.
9 COMMISSIONER JONES: Of the $2.8 trillion of
10 in force policies that represent the value of the group
11 life book of business, what value would you place on
12 those customers who have used Death Master themselves in
13 the aggregate, if you understand what I'm saying?
14 MR. KATZ: As a percentage?
15 COMMISSIONER JONES: Either as a percentage of
16 the $2.8 trillion.
17 MR. KATZ: I think it's relatively small.
18 De minimus.
19 COMMISSIONER JONES: De minimus.
20 MR. CASSANDRA: I think so.
21 COMMISSIONER JONES: How do you handle group
22 life policy claims? What's the process that you go
23 through for that?
24 MR. KATZ: Sure. So the employer generally is
25 the one that submits a claim to us. They may take on
Page 252
1 the role of gathering all the information that would
2 enable us to pay the claim and submitting it to us.
3 They may send us partial information and we
4 would afford the beneficiary ultimately to complete the
5 information, and then it's a process of what we
6 described previously.
7 COMMISSIONER JONES: If -- actually, strike
8 that.
9 Do you require that the group life customer
10 provide you with a death certificate in order to perfect
11 the claim?
12 MR. KATZ: Generally we do, yes.
13 COMMISSIONER JONES: If you don't receive a
14 death certificate, what do you do with that particular
15 insured's policy?
16 MR. KATZ: This is where the group business
17 gets a little bit tricky because by nature we have
18 different arrangements in place with different customers
19 for the purposes of claim processing.
20 So I can't give you "here's what we do and
21 don't do" in that context.
22 We tend to put forth the best efforts to
23 secure that information because typically if an employer
24 is providing a death -- the validity of that death is
25 usually pretty clear.
Page 253
1 However, there are circumstances where they've
2 told us about a death and, for example, it's in a
3 contestability period, or it's a situation where maybe
4 it's a homicide, and there's other situations where the
5 death benefit wouldn't be paid.
6 That's a pretty rigorous approach, but the
7 procedures can vary by the customer.
8 COMMISSIONER JONES: But in most, if not all,
9 cases you require a death certificate to perfect the
10 claim?
11 MR. KATZ: I believe so. I believe, and I
12 don't have this number handy, that there is a threshold
13 on some cases that below certain levels we may not.
14 MR. CASSANDRA: I don't have any information.
15 MR. KATZ: There are situations that we'll
16 make a situation to waive the requirements. The
17 examples I talked about earlier, both big group
18 exposures during 9/11 and Massey Energy's unfortunate
19 situation.
20 While that is our standard procedure, we will
21 make exceptions when we think it makes sense.
22 COMMISSIONER JONES: If a circumstance where a
23 group life policy owner reports a death but does not
24 provide a death certificate, what happens to the claim?
25 MR. KATZ: Generally speaking, we would make
Page 254
1 -- put forth best efforts to work with the beneficiary
2 to help them perfect the claim.
3 In some cases, we would reach out and try to
4 get death certificates. I don't have all the specific
5 details on the group life. We can certainly follow-up
6 in more depth for you.
7 COMMISSIONER JONES: Are there any
8 circumstances in which you close the claim without
9 paying it because you don't get a death certificate?
10 MR. KATZ: I'm not sure.
11 COMMISSIONER JONES: Are you planning to run
12 Death Master against the group life book of business as
13 a part of your 2010 decision or not?
14 MR. KATZ: We are for those cases where we
15 have records.
16 COMMISSIONER JONES: Remind me again, what
17 percentage of the book of business are those for which
18 you have records?
19 MR. KATZ: We don't have the number.
20 MR. CASSANDRA: It's a minority of the
21 business. It's a small piece of the business.
22 COMMISSIONER JONES: When will you be running
23 Death Master against this small portion of the book of
24 business?
25 MR. CASSANDRA: It's scheduled to be completed
Page 255
1 by June 3rd.
2 COMMISSIONER JONES: Of this calendar year?
3 MR. CASSANDRA: That's correct, if 2011.
4 COMMISSIONER JONES: How will you apply Death
5 Master to that particular book of business?
6 Will you be applying it any differently than
7 what you testified to as your intent with regard to the
8 individual?
9 MR. CASSANDRA: Our intent is to use it in a
10 manner substantially similar to what we do on the
11 individual side.
12 COMMISSIONER JONES: Any difference that
13 you're aware of?
14 MR. CASSANDRA: Other than some nuances which
15 I may not be aware, no, our intent is to use the same
16 protocols.
17 MR. KATZ: I want to be a little bit careful
18 in the context of our discussion around group in that
19 some of what you're asking us to describe is prospective
20 in nature.
21 We haven't fully communicated our intent fully
22 to our group to customers, so we prefer to do that tan
23 use this forum as a way to do that.
24 COMMISSIONER JONES: But again, your intention
25 is to limit the utilization of Death Master to those for
Page 256
1 whom you have administratively information about the
2 individual members of that group for whom the group life
3 insurance is being provided. Is that correct?
4 MR. KATZ: That's correct.
5 COMMISSIONER JONES: That's a small portion of
6 the overall book of business?
7 MR. KATZ: That's right.
8 COMMISSIONER JONES: All right. There are no
9 plans to use Death Master with regard to the rest of
10 that group book of business, are they?
11 MR. CASSANDRA: Not at the current time. We
12 don't have the records to actually practically make the
13 match.
14 COMMISSIONER JONES: Okay. Let's me see if
15 either Florida or the Minnesota departments have any
16 additional questions.
17 We'll start with you, sir.
18 MR. HANSON: Back to the group business and
19 not having information, is that you don't have the name
20 and is Social Security number for the employee?
21 MR. CASSANDRA: That's correct.
22 MR. HANSON: Who how do you verify from time
23 to time that the employer is paying or remitting the
24 correct premium for the list?
25 MR. CASSANDRA: Generally group contracts are
Page 257
1 experience rated so that we're doing an annual review of
2 the experience that emerges under the program, at that
3 time a premium reconciliation is generally done in the
4 aggregate.
5 We look for a number of lives and total face
6 amount of insurance in force times the premium rates.
7 But there's no listing life by life on the group
8 insurance coverage.
9 MR. KATZ: We should just make some small
10 clarification, that's for the -- other than business,
11 we do have the records.
12 MR. HANSON: How do you verify the number of
13 lives versus the claim experience?
14 MR. CASSANDRA: The customer reports the lives
15 in the aggregate to us in bulk and we do a premium --
16 MR. HANSON: Do you have corroboration of
17 that?
18 MR. CASSANDRA: At the time of the annual
19 review of experience -- group insurance contracts are
20 generally experienced rated.
21 The underwriter will be looking at the rates
22 applicable to the case times the total number of lives
23 and the total face amount of insurance in force, and we
24 do a premium reconciliation.
25 MR. HANSON: You're going to augment Death
Page 258
1 Master by deaths that you had reported in your other
2 business, that goes back to some prior line of
3 questioning.
4 Prior to more recent times, do companies not
5 -- when they have an individual life claim, they don't
6 check group and annuity and see if they've got business
7 anywhere else.
8 MR. KATZ: There definitely is information
9 sharing around the organization. It's become far more
10 formal.
11 MR. HANSON: Just to clarify, prior to say
12 2009, would the individual life claim reviewer pull up
13 the group system and annuity system and see if there's
14 any other business anywhere?
15 MR. KATZ: Prior to 2009, the policies in
16 place were a little bit more informal by department.
17 The intent where we could was to share
18 information. But as you correctly pointed out in recent
19 years, we've improved these processes and Mr. Sollmann
20 gave a good example of that in the annuity business.
21 MR. HANSON: So the answer is now?
22 MR. KATZ: No. I think were more informal
23 processes to share information prior to that.
24 MR. HANSON: Could an individual life examiner
25 actually pull up the group business and the annuity
Page 259
1 business and look at it?
2 MR. CASSANDRA: Since the group would not have
3 had -- since we didn't have the data, there would have
4 been no system to look up life by life data on.
5 MR. HANSON: So if you have a group claim on
6 an individual, could the group person talk to the
7 individual annuity business, the individual life
8 business and look to see if they had other claims out
9 there?
10 MR. KATZ: So the systematic access for some
11 of this, as we talked about, in the organization has
12 changed over the years to get better in that.
13 We're not aware of any situations where there
14 was a death claim over here and way over here there
15 wasn't and we didn't handle it in the right way.
16 MR. HANSON: The reason I ask is because it
17 wouldn't seem to make any sense to augment Death Master
18 with these other claims when they have already been
19 applied t the other lines of business in the company.
20 Do you follow me?
21 Unless you think this department over here
22 didn't communicate -- in other words, when this person
23 died in a group or life business, there should have been
24 some circle back where they figure out whether that
25 person had other business.
Page 260
1 MR. KATZ: To the extent our information
2 sharing is insufficient, creating an overall company
3 review of death we think is a good failsafe to apply
4 across our business. And to make sure if it didn't work
5 through regular information sharing, it wasn't on the
6 SSDI, we would certainly would capture it on the
7 systemic approach.
8 MR. HANSON: In the individual life business,
9 do you have a total in force for that, too?
10 MR. CASSANDRA: Yes. For the industrial
11 block, which we talked about, was about 1.5 --
12 approximately 1.5 million policies, which represented
13 about $2.4 billion in force. And on the other
14 individual, other than industrial, more than six million
15 policy about a trillion in force.
16 MR. HANSON: For individual and group
17 annuities, do you have, for fixed and variable? Do you
18 have assets under management for fixed business and
19 variable business assets under management?
20 MR. KATZ: I don't have the numbers.
21 MR. SOLLMANN: Well, you're exactly right.
22 That's how we do measure our in force in the general
23 account and for variable products in separate accounts,
24 but I don't have that information at hand.
25 MR. HANSON: That's what would be there as
Page 261
1 sort of a counterpart to in force business provided.
2 MR. SOLLMANN: We don't have individual
3 records on each of those contracts we'd use for purposes
4 of administering those contracts. But once way we
5 measure the growth of our business or the size of our
6 business was insurance in force by assets under
7 management.
8 MR. KATZ: We'd be happy to provide you the
9 detailed breakdown of assets under management.
10 MR. HANSON: The payout option, you said that
11 when you're running Death Master against your annuities
12 during the payout, you suspend when you have Death
13 Master sweep that indicates the person may have died,
14 how does that match up? That's a yes, I take it.
15 MR. CASSANDRA: Yes.
16 MR. HANSON: How does that match up with the
17 annuitization option the person has selected?
18 There's a period certain. There's life.
19 There's joint survivor. All sorts of different terms
20 they use for how a person elects to get the
21 annuitization payment.
22 MR. CASSANDRA: I think what we testified was
23 that the match is the first part of the investigation.
24 In fact, you may have a contingent beneficiary
25 who is eligible for payments at that time. There may be
Page 262
1 a death benefit payable at that time.
2 As you correctly point out, there may have
3 been an annuity certain, and so the beneficiary might be
4 eligible for commuted value in that particular instance.
5 Yes, you're right. That's the reason for a
6 suspension. And then someone has to go in and look at
7 what exact benefits are due at that point in time.
8 MR. SOLLMANN: Let me answer your question on
9 the individual annuity side of the business.
10 If there's an annuitant that's in payout
11 status, once that individual dies under similar
12 contracts, that's when our obligations end.
13 There may be a period of certain benefits, as
14 Mr. Cassandra mentioned.
15 On the individual side, on the pay-in side of
16 our business, there are seven options, and I can go
17 through those if that would be helpful.
18 MR. HANSON: Sure.
19 MR. SOLLMANN: Including the lump sum, you can
20 also defer the contract for up to five years. There are
21 cases you can let the spouse, in effect, step into the
22 shoes of the original contract owner and continue those
23 benefits.
24 There's an income payment option where the
25 beneficiary can receive those installments -- payments
Page 263
1 in installments.
2 There's -- you can roll over the death benefit
3 to another carrier through a tax-free exchange.
4 You can actually disclaim the benefit because
5 you may want another beneficiary or estate to receive
6 the benefits.
7 MS. MILLER: I don't have any other questions.
8 I think I do have one comment, that's just to
9 thank the Commissioner and the Controller for having us
10 and having this hearing.
11 And we appreciate your efforts and appreciate
12 you including Florida.
13 And thank the company for your cooperation for
14 coming to this hearing as well as the one in Florida. I
15 appreciate it.
16 COMMISSIONER JONES: Thank you very much.
17 So before we close here, there's just a couple
18 of questions that occurred to me.
19 Let me ask if the Controller's Office have any
20 additional questions.
21 CONTROLLER'S OFFICE: No thank you.
22 COMMISSIONER JONES: Is Death Master or has
23 Death Master been used to ascertain whether a claim is
24 made inappropriately or fraudulently?
25 Is it being used in any way to verify claims
Page 264
1 made?
2 MR. KATZ: There are some data field
3 verification work that I know it's used for. I wouldn't
4 consider it as a tool -- is there an example that
5 you're thinking of?
6 COMMISSIONER JONES: We, explored those uses
7 by if company or non-uses by the company of Death Master
8 for purposes of deciding when people should keep paying
9 or de-paid.
10 It occurred to me to wonder when someone
11 submits a claim form for benefits, is Death Master used
12 to verify if, in fact, the claim is warranted or
13 justifiable?
14 MR. KATZ: I can't give you too many
15 specifics. Certainly, there's an anti-fraud component
16 that I've articulate.
17 If you think about it, it's about another
18 resource that we could use. I wouldn't say we use it
19 consistently in that context.
20 But if you think about how the best example
21 may be in the payout annuity piece, that, look, if we
22 didn't apply it in and nobody told us that that
23 individual was dead, there is a potential that we could
24 pay those payments for a long time when they really
25 weren't there.
Page 265
1 That's probably a good example of where the
2 fraud usage may come in.
3 In some cases it's fraud, some cases the
4 person who's getting those funds just may not know that
5 they are not entitled to them, especially if it's a
6 direct deposit or something like that. So we avoid
7 those situations.
8 MR. CASSANDRA: Could I add another point I
9 think of what might not be obvious?
10 So it's our understanding right now that the
11 rigor with which an individual's name and Social
12 Security number can get entered onto the Social Security
13 Death Master File is not very rigorous.
14 The Social Security Administration does not --
15 it's our understanding that they don't require any
16 proof, merely a telephone call, in fact, can get
17 someone's name and Social Security number entered onto
18 the Death Master File.
19 You know, it has occurred to us in the realm
20 of unintended consequences that today there's no
21 incentive for anyone to put information onto the Social
22 Security Death Master File in a fraudulent fashion in
23 the way it's generally used across the industry.
24 I think it would be good for the regulators
25 and for the industry to think about unintended
Page 266
1 consequences which would have just merely listing on the
2 Social Security Death Master deemed an absolute proof of
3 death.
4 I think before anyone would think about that
5 should understand very clearly the rigor with which
6 Social Security Administration screens the entry of
7 deaths onto that file. Because one could see -- and
8 this is a hypothetical situation -- but one could
9 certainly see that the potential for someone to report a
10 death into the Social Security Administration solely for
11 the purposes of attempting to collect on a life
12 insurance benefit.
13 I don't think that's the case now, but it
14 could potentially be unintended consequence of a change
15 in the very historical process of the way life insurance
16 benefits are claimed.
17 COMMISSIONER JONES: The information available
18 to us based on testimony provided by the Social Security
19 Administration in Congress is that there's a high degree
20 of certainty with regard to the names on the list.
21 That's directly at odds with what you just said.
22 MR. CASSANDRA: No. Let me just clarify.
23 I think that's true today, given that the
24 traditional uses of the database today.
25 I'm saying -- should that process change
Page 267
1 significantly -- the uses change far beyond what the
2 Social Security Administration's intent was originally
3 when it was first used, there might be the opportunity
4 for unintended consequences.
5 I think it's good if we spent a little time to
6 think about that as we go forward.
7 COMMISSIONER JONES: That's different than the
8 question I was asking, which is whether it's being used
9 for other than maybe determinations that annuity
10 payments should be paid, which was a concrete example.
11 But are other ways in which Death Master is
12 being used to decide that a payment shouldn't be made?
13 It sounds like the answer is no.
14 MR. KATZ: Not that I'm aware of, no. I'm
15 trying to --
16 COMMISSIONER JONES: You're not using it
17 routinely -- every claim that comes in the door, you're
18 not doing a match against Death Master to see if it's
19 verified or not?
20 MR. KATZ: No.
21 COMMISSIONER JONES: And then going back to
22 the industrial policies, have your company's actuaries
23 done any estimation of the number of industrial policies
24 written by the company, any estimation of the number of
25 industrial policies for whom the policyholder is
Page 268
1 probably dead?
2 MR. KATZ: I'm not aware of any such study.
3 MR. CASSANDRA: I don't have any knowledge of
4 any such study.
5 COMMISSIONER JONES: Sir?
6 MR. SOLLMANN: I'm not involved in that side
7 of the business.
8 COMMISSIONER JONES: You have no knowledge?
9 MR. SOLLMANN: No.
10 COMMISSIONER JONES: And what about with
11 regard to --
12 MR. KATZ: Could I just make an important
13 point about those policies, that those policies are
14 still all performing, so those are still getting
15 dividends every year.
16 COMMISSIONER JONES: You made that point
17 before. They are getting dividends as a result of those
18 policy owners' prior interest in the mutual company, and
19 that interest being converted to a stock ownership
20 interest in some form?
21 MR. KATZ: No. Let me give you the context of
22 where I'm going with this.
23 If the discussion went along the lines of --
24 and you haven't said this -- but you know what, you've
25 lost these policyholders, why don't you go ahead and
Page 269
1 just escheat some amount to the state because you
2 believe some of them are dead.
3 And we had no reason to escheat in that case.
4 And we want make sure that as long as those policies are
5 active on the books, they are growing in value as part
6 of that block, they are growing.
7 So some of those policies today -- they may
8 have been issued with $1,000 face amount, they may have
9 a two or $3,000 face amount today.
10 I'm not suggesting that you are saying that's
11 what we should do here.
12 But ultimately when those policies are either
13 paid out, talking about the industrial block now, or
14 escheated to the state which all of them will be, it
15 will be at the value associated with, you know, the
16 growth of that time.
17 MR. CASSANDRA: Just to clarify, I think what
18 Mr. Katz again meant is they are getting policy
19 dividends, not stock dividends.
20 COMMISSIONER JONES: You testified earlier
21 that with regard to those policies that at some point
22 they reach -- I think the term of art was, they become
23 endowed or they reach a point of superannuation.
24 Can you explain those two terms for us?
25 MR. CASSANDRA: Superannuation is when the
Page 270
1 policy that hasn't been matured by death, in other words
2 death hasn't occurred, it reaches the end of the
3 mortality table that's used to value those policies.
4 So for the industrial block that's age 99. So
5 upon reaching age 99 or earlier, depending on the
6 policy.
7 And when policies -- if they reach the end of
8 mortality table for which they are used for valuing them
9 -- the money would be escheated to the state at that
10 point in time.
11 MR. KATZ: We would attempt to locate a
12 beneficiary and the policyholder and if we couldn't, we
13 would escheat.
14 COMMISSIONER JONES: How long would it take to
15 locate before you decided to escheat policies that have
16 reached that point?
17 MR. KATZ: I think the dormancy period would
18 begin on the date of superannuation, so it's a
19 three-year period in California.
20 COMMISSIONER JONES: Are there any industrial
21 policies that have reached that point of superannuation?
22 MR. KATZ: I don't know.
23 MR. CASSANDRA: I would venture to say, yes,
24 there is. And to the extent that they've failed the
25 dormancy period, they've been escheated.
Page 271
1 COMMISSIONER JONES: You're accounting for
2 those then?
3 MR. CASSANDRA: Yes. In fact, as I understand
4 it, one month before the policy would otherwise reach
5 the superannuation age, a letter is sent to the last
6 address of record on those policies in an attempt to
7 reach out to the beneficiary at that point in time.
8 If we don't get a response to that, it's
9 entered into the unclaimed property process.
10 COMMISSIONER JONES: You testified previously,
11 you said it reached an endowment or superannuation. Did
12 I understand --
13 MR. CASSANDRA: An endowment is a different
14 type of policy.
15 COMMISSIONER JONES: Explain that term.
16 MR. CASSANDRA: Endowment is a policy that
17 grows to its maturity value and pays out at maturity.
18 MR. KATZ: Ao I just want to make sure it's
19 clear that these benefits can be escheated -- as I
20 understand it -- without there being a death.
21 You hit that period where the person is dead
22 or alive, that money goes to the unclaimed property
23 process if we can't locate a beneficiary.
24 MR. HANSON: When was the demutualization
25 completed? What was the end date?
Page 272
1 MR. KATZ: In 2000.
2 MR. HANSON: Year 2000. So you've got 800,000
3 lost industrial policyholders, probably haven't found
4 any of them in the last ten years.
5 MR. KATZ: I don't know the answer to that.
6 MR. HANSON: And you say you didn't mail a
7 check to that person, here's your dividends for this
8 year, you just credited to their policy value?
9 MR. CASSANDRA: They get additional insurance.
10 MR. HANSON: You may still have 800,000 or
11 more lost industrial policyholders today?
12 MR. KATZ: We may.
13 MR. HANSON: There's no contract --
14 MR. KATZ: We're saying more likely than not
15 the number would have gone down as claims were paid or
16 policies superannuated. But the issue of lost
17 policyholders is an industry issue and we welcome
18 discussion on how to improve upon that.
19 We think the Death Index is a good use, but
20 the problem is it's not perfect because many of these
21 policies --
22 MR. HANSON: I just wanted to get to that
23 "performing" isn't that this person was getting a
24 regular check coming to them, it's just being credited
25 to their account. And you may not have any better
Page 273
1 information today about those 800,000 than you did ten
2 or eleven years ago now?
3 MR. KATZ: That's correct. I was attempting
4 to juxtapose against the hypothesis that says that money
5 is just sitting there in MetLife and making sure that
6 you understood that the policies are being credited.
7 COMMISSIONER JONES: Okay. And then I guess,
8 finally, I appreciate that you said earlier about what
9 the company is guided by with regard to its efforts in
10 this area, but is it not the case that to the extent
11 that beneficiaries are not paid or money is not
12 escheated to the state of California, the company
13 benefits financially?
14 MR. CASSANDRA: I don't think -- while I
15 understand your comment -- I don't think you can say
16 that with absolute certainty because on the annuity side
17 when we use the benefit, we're using it to avoid
18 durational payout errors, which is pay an amount other
19 than that promised under the premiums.
20 COMMISSIONER JONES: I wasn't talking about
21 Death Master specifically. I was just saying that, in
22 general, when benefits are not paid by the company or
23 benefits are not escheated to the state, the longer it
24 takes to do either of those things two things, the
25 greater the financial benefit to MetLife. True or
Page 274
1 false?
2 MR. CASSANDRA: Again, I'm not sure I can
3 agree to that.
4 COMMISSIONER JONES: Why not?
5 MR. CASSANDRA: Because on death proceeds, we
6 pay interest on death proceeds from -- at least in the
7 state of California -- from the date of death.
8 So I think there are factors that go both ways
9 in that question. I appreciate your position that you
10 think intuitively that's the answer. I can't say that
11 with absolute certainty.
12 COMMISSIONER JONES: Other than the interest
13 on death proceeds, with regard to interest paid
14 vis-à-vis escheatment, that doesn't kick in until
15 liability accrues, and liability may or may not accrue
16 until well after the death of the individual, as to what
17 you testified to earlier.
18 So other than the interest payment on the
19 death benefits, it just seems to me that the longer it
20 takes to pay a benefit or the longer it takes to the
21 escheat the funds, the better off the company.
22 MR. KATZ: I think there's two other aspects
23 I'd bring into it, one is the cost associated with
24 managing the blocks on our book at any point in time.
25 And I wouldn't presume that the claim
Page 275
1 allowable for those expenses cover those expenses. On
2 some of the blocks it's not close.
3 But the other factor -- which is probably the
4 most important -- is we're in a business where your
5 reputation matters.
6 And so we're having a conversation today about
7 -- as I think you are hypothesizing -- what I believe
8 would be the de minimus in context of the overall size
9 and earnings of the company.
10 And on the other side of the equation is the
11 importance of us making sure we are delivering on the
12 promises to our commitments so that we build a level of
13 trust with our customers, and that's very important to
14 us. I can't place a value on it, but I can tell you
15 it's large.
16 COMMISSIONER JONES: I appreciate that.
17 But I hope you appreciate the concerns that
18 the Controller of the state of California, the Insurance
19 Commission of the state of California and other
20 insurance regulators in unclaimed property agencies with
21 regard to the extent to which life insurance companies
22 have availed themselves of a readily available tool to
23 determine whether or not benefits can and should be paid
24 and whether funds should be escheated to the state.
25 And we appreciate your participation in the
Page 276
1 hearing today. We will look forward to the additional
2 information that you've indicated you can provide us
3 upon further investigation.
4 And we will reserve with our ability to invite
5 you to come back to testify further about questions that
6 couldn't be answered. We appreciate your participation
7 in the hearing today.
8 MR. CASSANDRA: Thank you.
9 COMMISSIONER JONES: If there aren't any other
10 questions by the members of the panel, that will
11 conclude our hearing.
12 And I want to thank the members of the public
13 who attended, as well as I want to thank the
14 representatives of MetLife for attending, too.
15 ---o0o---
16 (Whereupon, the hearing concluded at 4:55 p.m.)
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Page 277
1 REPORTER'S CERTIFICATE
2
3 I, JANICE M. KNETZGER, CSR No. 4434, Certified
4 Shorthand Reporter, certify;
5 That the foregoing proceedings were taken
6 before me at the time and place therein set forth, at
7 which time the witnesses were put under oath by
8 California Insurance Commissioner Dave Jones;
9 That the testimony of the witnesses, the
10 questions propounded, and all objections and statements
11 made at the time of the examination were recorded
12 stenographically by me and were thereafter transcribed;
13 That the foregoing is a true and correct
14 transcript of my shorthand notes so taken.
15 I further certify that I am not a relative or
16 employee of any attorney of the parties, nor financially
17 interested in the action.
18 I declare under penalty of perjury under the
19 laws of California that the foregoing is true and
20 correct.
21 Dated this 26th day of May, 2011.
22
23
24 JANICE M. KNETZGER, CSR No. 4434
25