MetLife to pay $10M over internal control failures

Background of the corporation

 MetLife, Inc is a leading global provider of insurance, annuities and employee
benefit programs. 
 With 152 years of experience, the MetLife companies are a leading innovator and
a recognized leader in protection planning and retirement and savings solutions
around the world.
 Established a strong presence in more than 40 markets globally through organic
growth, acquisitions, joint ventures and other partnerships.
 MetLife companies offer life, accident and health insurance, retirement and
savings products through agents, third-party distributors such as banks and
brokers, and direct marketing channels. 
 Trusted by tens of millions of customers worldwide, and we serve more than 90
of the top 100 FORTUNE 500® companies in the United States.

Facts and issues:

 MetLife overstated its reserves by $896 million for a subsidiary MetLife
Reinsurance Company of Bermuda (MrB). This failure was due to conflicting
pieces of data that were received in a joint venture, and a failure to reconcile the
separate pieces of data.
 MetLife’s internal controls unit of the MetLife’s finance department found that
there was no evidence to support the basis for accounting practice to release
reserves.
Further, it was unable to locate any record or documentation of the following:
 The actual policy stating under what circumstances it was deemed
appropriate to release reserves or documentation of any kind describing
which department or what level leadership created the policy
 Legal review or due diligence performed to approve the policy
 Any record of reviews or testing performed on the policies or procedures as
technology advanced, assumptions changed, or shortcomings were identified
 The company did not properly address issues or concerns that were identified
with the policy. As early as 2014, several employees had raised questions
related to the practices for releasing reserved funds for the unresponsive
individuals; however, the concerns were not escalated to the senior management
in a timely manner in order to perform substantive analysis. The concerns did not
reach the board of directors or audit committee until December 2017.
Violations committed by MetLife:
 Securities and Exchange Commission (“SEC”) charge the company because it
violated the books and records and internal accounting controls provisions of the
federal securities laws.
 The SEC’s order also finds that MetLife overstated reserves and understated
income relating to variable annuity guarantees assumed by a MetLife subsidiary.
MetLife disclosed that this error was caused by data mistakes, including a failure
to properly incorporate policyholder withdrawals into MetLife’s valuation model.

How could have these been avoided?

These violations could have been avoided if the management was able to properly
correct the operations of the internal control in a way that it complies the needs of the
client and governing agencies. The internal control should also comply with applicable
laws and regulations and have a reliable financial report that is transparent and
accurate. There is also a need for good communication and monitoring to ensure
effectiveness and efficiency for the operations.

Conclusion
In conclusion, MetLife is one of the most successful companies globally but due to its
internal control failure charged by the Securities and Exchange Commission, which cost
the company for $10 million to settle the violations. This issue shows that there is a
need for improvement in MetLife’s internal control in order to avoid these problem to
happen again.