Should Hartford’s Annuity Holders Be Worried?
March 24, 2012 by Leslie Scism
Under pressure from hedge-fund titan John Paulson, Hartford Financial Services Group said Wednesday it would exit its annuity business and weigh a sale of a large portion of its life-insurance operations. Hartford will stop new annuity sales on April 27.
So what does this mean for holders of Hartford annuities?
In industry parlance, Hartford is putting its annuity operation into “runoff.” The term can sound ominous to a policyholder. But it doesn’t mean the company is setting a block of business into a raft and casting it adrift.
In Hartford’s instance, it means that the company isn’t going to be selling new annuities. It is discontinuing sales. But it is obligated under state-insurance regulations to protect its existing customers and service their accounts until the day that all of the accounts have been drawn down.
Transactions like the one proposed by the Hartford are typically subject to approval by state regulators. Their sole interest is to protect policyholders, not to look out for Paulson’s pocketbook or that of any other shareholder.
So regulators would be expected to require that the runoff unit remain with the same reserves and backup capital that the regulators previously required to protect existing accountholders.
“As the Department does with any proposed transaction of this type, we will review it with great diligence to ensure that the commitments to all policyholders are protected,” said Connecticut Insurance Commissioner Thomas B. Leonardi in a statement Wednesday. “To comment on any specifics would be premature and inappropriate at this time.”
In a statement Wednesday, Moody’s Investors Service changed its outlook to negative from stable for Hartford Life & Annuity Insurance Co.’s “insurance financial strength” rating; it is A3. This is the unit containing the majority of the individual annuity business. Moody’s noted there would remain strong ties between the life and property-and-casualty businesses, and the rating agency expects that Hartford would provide support to the life group in a stress scenario.
Hartford would be expected to save money by laying off salespeople who market to financial advisers, product-design people, marketing staff and so on. But it would be expected to retain the employees who handle such things as customers’ money transfers, withdrawal requests, beneficiary changes and account statements.
With variable annuities, remember, customers’ money is in mutual-fund-like accounts. These are so-called separate accounts, not the “general” account of the insurer itself. So nothing changes with their money: It stays at the fund manager where it is.
For people who own Hartford’s fixed annuities or indexed annuities, though, their money is part of the insurer’s general account. But the same applies about regulators looking to ensure that same level of required reserves and backup capital will be there to protect them.
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