War of words ensues over equity index annuity

Aug 28, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - An annuity marketing group is demanding that a rating firm retract damaging statements about the group and its new equity index product.

The Annexus Group in Scottsdale, Ariz., which comprises a dozen "independent marketing organizations," this month sent a cease-and-desist letter to Premium Producers Group LLC in Santa Ana, Calif., a developer of software that evaluates and grades equity index annuities.

Annexus alleged that Premium Producers issued opinions and ratings of its new BalancePlus annuity that were "false, libelous and defamatory," and violated federal unfair-competition laws. The annuity is issued by American Investors Life Insurance Company Inc. of Topeka, Kan.

Premium Producers' software incorrectly concluded that the annuity had poor historical returns and crediting methods, according to attorney Mark Chester, a principal with Chester & Shein PC in Scottsdale, the law firm representing Annexus.

But Mitchell Maynard, founder of Premium Producers and the developer of the rating software, said that Mr. Chester is "misinformed" and that Annexus is being "disingenuous" about the review of the BalancePlus annuity.

"Our statements and review are true," Mr. Maynard said. "An unflattering review does not constitute falsification, libel or defamation."

Annexus is demanding that Premium Producers retract its ratings and reviews of the annuity, as well as allegedly disparaging comments made about Annexus on its website.

"Mr. Maynard blacklisted Annexus members, implying that they could not provide fair opinions on products," said Don Dady, president of Annexus. He noted that Annexus members offer many products, including equity index annuities, from many different insurers.

"Annexus mandates that a member have at least $50 million in sales of its products," Mr. Maynard said. "That restraint creates a conflict."

If Premium Producers doesn't come up with a formal written apology, Mr. Chester said, a lawsuit seeking monetary damages - including the loss of sales traceable to the comments about the annuity and Annexus - is possible.

But Mr. Maynard rejected the notion that anything he has done has hurt - or could hurt - sales.

As a new product, BalancePlus has no historical returns, Mr. Maynard added. So the analysis is hypothetical back-testing of the crediting method, and the returns depend on the hypothetical time period tested, he said.

Mr. Chester, however, said that Premium Producers' ratings are biased because the firm is in a position to benefit financially from the results. He claims that Premium Producers suggested to insurance agents and advisers via e-mails that they stop doing business with Annexus members and divert their equity index business to Premium Producers "preferred" independent-marketing organizations, from which the company receives compensation.

Denying compensation

Mr. Maynard denied that he receives any compensation other than from the sale of his software. He added that he simply refers consumers to agents, via his website, based on the consumer's location and other characteristics.

"I think that Mr. Maynard is using his business recklessly in order to promote his software," Mr. Dady said.

The attorney's letter may be an outgrowth of a feud that has been simmering between Mr. Maynard and the executives of Financial Independence Group Inc. in Cornelius, N.C., including Bo Johnson, the firm's chief marketing officer. Financial Independence Group is a member company of Annexus.

Mr. Johnson accused Mr. Maynard of "calling out" organizations - including Annexus - that don't use his software. He also said that Mr. Maynard wasn't above accepting "overrides" from producers that purchased his software and that Mr. Maynard asked for overrides when marketing his software to Financial Independence Group.

"When we didn't give him that override, he developed a dislike of FIG," Mr. Johnson said.

"That override proposal was made at a time when we were trying to make PPG into an independent-marketing organization," Mr. Maynard said. "We are now strictly an EIA-rating firm."

"I think it's possible that the BalancePlus annuity would have received a more favorable review if Mr. Maynard had received the overrides he had asked us for," Mr. Johnson said. "I told [Mr. Maynard] that if he did not leave FIG out of this foolishness, the next letter would be from an attorney."

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