Annuities sold at least 30 years ago have come back to bite Northwestern Mutual Life Insurance to the tune of $84 million.
The company settled a lawsuit claiming it illegally reduced potential payouts on annuities, cheating investors who used them as retirement investments.
The settlement covers about 4,000 current and 29,000 former owners of the annuities that were pursuing a class action.
Annuities are placing insurance companies under pressure as Canadians are living longer. Experts are projecting annuity payouts to match the growing lifespan of Canadians, with many insurers yet to adjust actuarial tables and rates, leaving profits vulnerable.
In this case, experts for the plaintiffs argued compensation could reach $278 million, who claimed the company broke contractual obligations in 1985 when it quietly changed its calculations for dividends on deferred, fixed annuities. It cost the plaintiffs millions of dollars annually.
Northwestern Mutual denied wrongdoing in agreeing to settle.
"This lawsuit was a case of a small group of customers seeking more than their fair share of dividends, which would have come at the expense of all our other policy owners," Northwestern Mutual spokeswoman Betsy Hoylman said. "At this point, it is best for our policy owners to close this matter."
Investors said they were deprived of their "contracted-for investment in the growth and profitability of Northwestern” because the company paid what it called "dividends" on the annuities in question.
However, these payouts only accounted for interest on short-term bonds into which it had moved assets.
According to its website, Northwestern Mutual expects to pay more than $5.5 billion of dividends to policy holders this year. The website shows it has $230 billion of assets, and oversees $24 billion of annuity assets in 351,000 client contracts.
The company settled a lawsuit claiming it illegally reduced potential payouts on annuities, cheating investors who used them as retirement investments.
The settlement covers about 4,000 current and 29,000 former owners of the annuities that were pursuing a class action.
Annuities are placing insurance companies under pressure as Canadians are living longer. Experts are projecting annuity payouts to match the growing lifespan of Canadians, with many insurers yet to adjust actuarial tables and rates, leaving profits vulnerable.
In this case, experts for the plaintiffs argued compensation could reach $278 million, who claimed the company broke contractual obligations in 1985 when it quietly changed its calculations for dividends on deferred, fixed annuities. It cost the plaintiffs millions of dollars annually.
Northwestern Mutual denied wrongdoing in agreeing to settle.
"This lawsuit was a case of a small group of customers seeking more than their fair share of dividends, which would have come at the expense of all our other policy owners," Northwestern Mutual spokeswoman Betsy Hoylman said. "At this point, it is best for our policy owners to close this matter."
Investors said they were deprived of their "contracted-for investment in the growth and profitability of Northwestern” because the company paid what it called "dividends" on the annuities in question.
However, these payouts only accounted for interest on short-term bonds into which it had moved assets.
According to its website, Northwestern Mutual expects to pay more than $5.5 billion of dividends to policy holders this year. The website shows it has $230 billion of assets, and oversees $24 billion of annuity assets in 351,000 client contracts.
