Here's Why The Hartford Is Really Killing Its Annuity Business
March 24, 2012 by Halah Touryalai
Love them or hate them, annuities sell. Last year sales hit $240.3 billion, an 8% jump from 2010. So why is The Hartford, a pioneer in the industry, dumping them?
Yesterday the insurance giant said it is exiting the annuity business so it can focus on its property and casualty insurance, group benefits and mutual funds. The move came over pressure from one of its largest shareholders, billionaire hedge fund manager, John Paulson, who last year urged the company to split up.
The Hartford was a leader in the annuity space before the crisis, particularly variable annuities. But its exposure to the guarantees that come along with some variable annuities made it extremely vulnerable when the market was collapsing. The firm hadn’t hedged much of that exposure and ended up being one of just three insurance companies to take TARP funds. Its shares tumbled drastically and it was forced to cut hundreds of jobs in the aftermath. It also lost its CEO Ramani Ayer who retired in 2009 amid the mess.
During that time, the firm all but stopped selling new variable annuities. John Nadal, an analyst with Sterne, Agee & Leach says, “One thing that investors don’t recognize as much as they should is the importance of maintaining distribution.” Financial advisors who once relied on the firm’s variable annuities for their clients were suddenly, and perhaps rightfully so, pulling back.
The drop-off in annuity sales led to an outflow of employee talent. “Their best wholesalers left and went to competitors. So if your best talent leaves you you’re dead in the water,” Nadal adds.
The firm tried to get back in the game last year with a few new annuity launches but did not gain much momentum because the distribution channel (financial advisors) were still wary of how committed the company was to annuities in the long haul, according to Nadal. The Hartford would not comment on annuity sales.
With all that in mind, it seems like The Hartford’s decision to kill off the annuity business was only a matter of time since the crisis.