Cuomo Said to Subpoena AIG, Lincoln in Death-Benefits Probe

By David Evans, Inyoung Hwang and Hugh Son
Bloomberg News
August 19, 2010

New York Attorney General Andrew Cuomo subpoenaed American International Group Inc. as part of a fraud investigation focusing on life insurers' retention of death benefits, a spokesman for his office said.

Lincoln National Corp., Aetna Inc., CNO Financial Group Inc. and Principal Financial Group Inc. also were ordered to turn over records, said Richard Bamberger, the spokesman.

Cuomo is widening a probe after saying on July 29 that he subpoenaed MetLife Inc. and Prudential Financial Inc., the two largest U.S. life insurers. Bloomberg Markets magazine reported July 28 that more than 100 carriers earn investment income on $28 billion owed to life-insurance beneficiaries. The companies hold money in so-called retained-asset accounts, which include a "checkbook" for clients to access their funds

"The substantial interest earned on these accounts mostly benefit and enrich the insurers at the expense of the families to whom the money really belongs," Cuomo said in a statement last month. "Beneficiaries are not adequately informed by the insurers of the details of these accounts including the fact that the insurers are making huge profits at the expense of the grieving family."

AIG, the bailed-out insurer, and Hartford, Connecticut- based Aetna said their firms will cooperate with Cuomo.

'Immediate Access'

"Aetna believes that its checkbook program provides a valuable service to our beneficiaries," said Cynthia Michener, a spokeswoman for the company. Employers sponsoring group life benefits programs through Aetna "appreciate the convenience, immediate access to funds, and additional interest that the checkbook program provides."

Life insurers say the accounts provide beneficiaries with access to their funds while giving mourners time to decide what to do with the cash. The accounts provide "interest income that compares favorably with many other on-demand deposits," the American Council of Life Insurers, an industry lobby group, said this month in a statement.

Principal's clients with the accounts are told they have "complete access to those funds," the Des Moines, Iowa-based insurer said today in a statement. "Our representatives also explain to the beneficiary that they can write a draft for the full amount and deposit it into their own personal bank account at any time."

AIG "will assist with Mr. Cuomo's examination, as is our standard practice," said Mark Herr, a spokesman for the New York-based insurer.

'In a Heartbeat'

Tony Zehnder, a spokesman for Carmel, Indiana-based CNO, and Lincoln's Laurel O'Brien, didn't return messages seeking comment. Lincoln has about $800 million in retained-asset accounts, company executives said in a July 29 conference call.

"Our planners would in a heartbeat move that money to the right place on behalf of their customers," Chief Executive Officer Dennis Glass said on the call.

The National Association of Insurance Commissioners issued a consumer alert this month to tell beneficiaries they may be able to earn higher interest rates by avoiding the retained- asset accounts. The NAIC also said the draft books issued by carriers may not be identical to checkbooks.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the NAIC in an Aug. 5 letter that death-benefit recipients may mistakenly believe their funds are guaranteed by her agency, which backstops bank deposits.

Insurers "should explain that these accounts are not FDIC- insured, and that fact should be clearly and conspicuously disclosed not only to policyholders, but also to their beneficiaries at the time of the policyholder's death," she said.

Genworth, Unum

Genworth Financial Inc., Unum Group, New York Life Insurance Co., Northwestern Mutual Life Insurance Co., Guardian Life Insurance Co. of America and an insurer acquired by France's Axa SA, were also subpoenaed, a person briefed on the demands said last month.

Cuomo said July 29 that the records he was seeking from MetLife and Prudential include information about how and when beneficiaries are informed of the terms of the accounts. Cuomo also sought to find out the difference between what insurers pay to clients and the income companies make by investing the funds.

Richard Shelby, ranking Republican on the Senate Banking Committee, and Representative Edolphus Towns, the New York Democrat who is chairman of the House Oversight Committee, have pushed for congressional review of industry practices.

Georgia's regulator, John Oxendine, said this month that he began an investigation of Prudential and MetLife.

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