Analysts wave off $1.57B death benefit suit against Met, Pru

Analysts wave off $1.57B death benefit suit against Met, Pru
Illinois lawsuit alleges MetLife and Prudential owe some $524M in unclaimed death benefits
APR 23, 2012
Analysts pooh-poohed a death benefit lawsuit against MetLife Inc. and Prudential Financial Inc. seeking more than $1 billion in damages. The state of Illinois recently unsealed a lawsuit filed by Total Asset Recovery Services LLC against the two massive carriers, alleging that the insurers owed the state some $524 million in unclaimed death benefit proceeds that should have been escheated to Illinois. Further, TARS said the state whistle-blower act entitled Illinois to collect treble damages for a total of $1.57 billion. News of the suit, which was filed last January, was first reported by The Wall Street Journal. The complaint, filed in the circuit court of Cook County, is the latest chapter in the unclaimed-death-benefits debacle. Last spring, state treasury departments and controllers shed light on carriers’ use of the Social Security Administration’s Master Death File to terminate annuity payments on deceased individuals — and the companies’ failure to use the list to identify dead individuals whose death benefits became payable to beneficiaries. In situations where beneficiaries can’t be located, the proceeds are to be submitted to the states under escheatment law. The billion-dollar amount TARS is asking for dwarfs the amounts carriers have paid or have reserved in anticipation of future claims. Prudential, for instance, is reserving $99 million for claims tied to its financial services unit and about $40 million for its closed block of life insurance business. Meanwhile, MetLife is reserving $117 million. Analysts weren’t surprised that the suit was filed but found the $1.57 billion figure hard to believe. TARS said the two carriers account for 4,766 unclaimed policies that should have been reported to the state between 1988 and 2010. The group also estimates the average policy is worth $110,000, based on data from the American Council of Life Insurers. “These policies could be 50 or 60 years old, so I would dare say $110,000 in face value wasn’t widespread,” said Edward Shields, associate director, equity research at Sandler O'Neill + Partners LP. “I doubt that,” said Steven Schwartz, a life insurance analyst with Raymond James & Associates Inc., of the $1.57 billion figure. “[This suit] is not happening; I didn’t think much of it,” he added. Tom Prescott, an owner of TARS, insists that his company’s estimated damages were correct. “The insurance companies contend that our method for calculating damages is wrong,” he said. “Even if the wrongdoing is on a small portion of business, it’s going to be a very large amount of money.” John Calagna, spokesman for MetLife, dismissed the figures in the TARS complaint. “The figures are based on unreliable assumptions and wildly overstated insurance amounts,” he said, adding that the policies at hand had a maximum face amount of $1,000. Prudential spokesman Bob DeFillippo did not comment on the lawsuit.

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