Hartford Reports New York Subpoena
By Elliot Blair Smith
The USA's biggest variable annuities seller, Hartford Financial Services Group (HIG), said Tuesday it has been subpoenaed by the New York attorney general's office to provide records on its sale of the investment to that state's senior citizens.
The inquiry comes at a time when state and federal regulators are weighing heightened disclosure requirements to wring out sales abuses of the retirement product, which combines life insurance with the market performance of mutual funds. Americans own $1.1 trillion of the long-term investments.
Regulators are concerned that investment advisers are marketing variable annuities to elderly and unsophisticated clients who are not always aware the investment ties up their money for several years, pays high commissions relative to other investments and subjects them to stock market losses.
Hartford spokesman Joshua King said the insurer is "fully committed to cooperating" with the New York attorney general's inquiry. Late last year, Hartford fired two employees for failing to cooperate with the attorney general's investigation of bid-rigging in the insurance industry, and it hired a former prosecutor to strengthen its internal compliance.
Hartford, with variable annuity sales of $15.2 billion last year, 12% of the market, topped the industry for the 13th-consecutive year, according to Vards/Morningstar.
The New York Insurance Department says it has received only five complaints against Hartford related to variable annuities in the last three years. But because state and federal governments regulate the product differently, there is no central repository of complaints.
Last year, the NASD, which regulates stock brokerage firms, proposed a rule that would require greater supervision of brokers who market variable annuities to senior citizens.
The Securities and Exchange Commission is considering a related rule that would require greater sales disclosures. And the National Association of Insurance Commissioners is promoting its own "sales to seniors" rule that would place greater responsibility on state regulators.
Carl Wilkerson, chief counsel of the American Council of Life Insurers, says, "We don't have any evidence of a systemic pattern of abuse in the industry. (But) the states and the SEC have developed thoughtful initiatives that are worth careful consideration."