The recession has forced a make-under of sorts at The Hartford Financial Services Group Inc., where advisers are now contending with a significantly different carrier than it did five years ago.
The insurer last week announced the latest of its divestments, selling off its block of 700,000 individual life insurance policies to Prudential Financial Inc. in a reinsurance transaction for $615 million in cash considerations. Going forward, Hartford's primary business will be in property/casualty insurance, mutual funds and group benefits.
The Prudential transaction was the fourth major sale for The Hartford this year. Following pressure in February from major shareholder and hedge fund manager John Paulson to split the company's life and property/casualty units, the insurer began shedding its more capital-intensive businesses and placing its existing variable annuities business into runoff.
In July, The Hartford sold its broker-dealer, Woodbury Financial Services Inc., to American International Group Inc.'s Advisor Group. A month later, the insurer sold its new annuity business capabilities to Forethought Financial Group Inc., and then followed that with the sale of its retirement plans business to Massachusetts Mutual Life Insurance Co.
The Hartford's spokesman Robert DeMallie referred to a statement from finance chief Christopher Swift, made when the carrier announced in March that it would change its focus and concentrate on property/casualty, mutual funds and group benefits.
"As we have done for more than 200 years, The Hartford will continue to honor its commitments to policyholders and provide a high level of service to its customers," Mr. Swift said in the statement. "In addition, we will continue to maintain capital resources and financial strength required by our business strategy and consistent with our current ratings."
The insurer's transformation in such a short period of time signals the end of an era for advisers, many of whom worked with the company in its variable annuity heyday or had sold its 401(k) plans to small businesses.
“The Hartford, a major player in our lives at one point, is now almost non-existent, except to maintain existing clients who have contracts,” said Robert Fross, partner at Fross & Fross Wealth Management. “They were a significant portion of this industry, and now they are an afterthought.”
Robert Kline, an adviser with United Advisors LLC, worked with the company for well over a decade, as the carrier built clout in the variable annuity arena with its Director and Leaders contracts.
“The products were great, and I had a few situations where clients died and the family was grateful for the big death benefit and the increase over the current value [of the annuity],” he said.
The Hartford's claim to fame was its Principal First variable annuity rider, first offered in 2003 for as little as 50 basis points. It permitted 7% withdrawals of premiums put in.
Hartford was a pioneer in the guaranteed-withdrawal-benefits space because its features allowed clients to receive a stream of income from an annuity without actually annuitizing the account and giving up control of the asset.
“What made their guarantee different in the minds of clients who were afraid of annuitization was that Hartford had a withdrawal benefit that didn't have the word 'annuitization' in it,” Mr. Fross said. “The client had income for life but didn't have to annuitize.”
In turn, those attractive features built up the company's credit among advisers and clients, bumping them to the top position among VA sellers.
In the heat of the VA arms race in 2007, when life insurers jockeyed for annuity sales and to offer the richest features, Hartford brought in $13.4 billion in total life business revenues, of which $2.23 billion came from individual variable annuity sales. Total revenues for the entire company came out to $25.9 billion that year, according to 10-K filings with the Securities and Exchange Commission.
By comparison, 2011 was a leaner year for Hartford, with the company bringing in total revenues of $21.8 billion, of which only $1.6 billion came from individual variable annuities.
Advisers and broker-dealer firms took a step back from The Hartford after the 2008 financial crisis pushed the carrier to receive federal aid and retrench products; many annuity contracts were worth less than their guarantees. Hartford re-entered the VA space in late 2009 with its Personal Retirement Manager VA product, which gave clients access to income — though not as generous as in previous years — with far less risk to the company itself.
The company, however, was trying to forge relationships with advisers who had moved on to insurers. “They withdrew quite a bit before making a big push,” said Judson Forner, an investment analyst with Valmark Securities Inc. “I don't think our advisers have sold Hartford in a long time.”
These days, most of the interaction advisers have with Hartford is tied to servicing old annuity contracts, which has gone well.
In the past, when a company decides to exit a corner of the annuity business, service has tended to go downhill fairly rapidly, advisers said. This hasn't been the case with The Hartford, they said.
“We didn't sell any of the newer products, but the clients still received good service from Hartford after they stopped offering the annuities,” Mr. Fross said.
“We haven't had any issues with the legacy business,” Mr. Forner said. “The people working there do a good job.”