Hartford Exits Annuities. Industry Shrugs.
March 24, 2012 by Maria Wood
By Maria Wood
March 22, 2012 •
Now that the news has sunk in that Hartford has decided to abandon its annuity business, industry groups and advisors say the action will have a negligible impact on annuity sales going forward. What it could mean, however, is that advisors and their clients must take a closer look at the financial strength of the company behind the annuity.
In a prepared statement, Cathy Weatherford, president and CEO of the Insured Retirement Institute (IRI) in Washington, D.C., stressed that the insurance industry is strong financially and that lifetime income products continue to meet the needs of the retirees and pre-retirees, particularly baby boomers.
“Across the board, all indicators point to a strong insured retirement industry including recent reports from leading rating firms that have underscored the stability of the life insurance sector—citing their strong capital and liquidity,” Weatherford stated.
Prudential Annuities gave a statement to LifeHealthPro.com via email. It said that the company “remains committed to the annuity market, and we are comfortable with our overall risk profile.”
Advisors, meanwhile, say Hartford’s exit from its variable annuity business will have little effect on sales of annuities, given the public’s growing desire for guaranteed income in retirement. But the decision highlights the obligation of both advisors and their clients to research the financial depth of the carrier underwriting an annuity contract.
Jim Brogan, president and founder of Brogan Financial in Knoxville, Tenn., says he does not sell many variable annuities and points out that Hartford was not a dominant player in the VA space at this time (according to IRI, Hartford represented only 0.6 percent of VA sales in 2011), as it was back in the ‘90s.
“I don’t think it will impact sales so much,” Brogan says, adding he does the bulk of his annuity business in fixed indexed annuities. What happened, he explains, is that many VA providers got squeezed in the 2008-09 recession when the cost of providing guarantees and death benefit step-ups caused them to suffer losses. “They were giving away too much and not charging enough,” Brogan says. Since then, providers have scaled back on guarantees, he adds.
Yet the action by Hartford does emphasis the necessity of carriers to be prudent when underwriting products like variable annuities, Brogan says. “To me, this is just a little blip on the radar screen,” he says. “But it underscores the need for the companies to be actuarially sound with their pricing so in the rush to capture premium they don’t price themselves into a problem.”
Advisors, too, must carry out a more in-depth study of the carriers offering the annuity. “As advisors, we have to work with companies that have a great track record,” Brogan says, “to make sure we are giving our clients products where the company can stand behind those guarantees.”
Matt Golab, RIA and a licensed insurance agent at Aaron Matthews Financial Resources in Elk Grove, Calif., says Hartford’s decision has both positive and negative implications for the annuity industry. It’s positive in the sense that a company that may not have been equipped to handle the long-term risk exposure of variable annuities has left the marketplace. “We’ve seen a lot of the variable annuity companies who wanted to get into the business but were not really prepared for it are leaving,” he says.
In Hartford’s case, the company may not have wanted VAs to become an even larger portion of its business, Golab says. “Annuities were becoming too much of their business and that wasn’t their business focus,” he contends.
On the negative side, one less carrier leaves consumers with fewer choices, and advisors with a tougher job in choosing the right carrier, Golab says.
“It puts a little more work on both the consumer and the advisor to really understand how the insurance company is set up with reserves, how they are taking on risk and what their obligations are for consumers in the future with such things as lifetime income plans and death benefit features, things like that,” Golab says.