The rippling effect of Hartford's restructuring

Insurer never recovered VA business it lost after the financial crisis

Mar 25, 2012 @ 12:01 am

By Darla Mercado

Financial advisers were shocked by Hartford Financial Services Group Inc.'s announcement last Wednesday that it is retreating from the annuity business.

The exit was so quick that as late as two weeks ago, The Hartford's wholesalers were still meeting with advisers to give them the low-down on a new variable annuity guarantee in an effort to win back producers and increase sales.

“The word from the wholesaler was that they were committed to getting back into the space,” said Thomas M. Fross, a partner at Fross & Fross Financial LLC.

In fact, he had sold his first VA contract in a long time with The Hartford just two weeks ago.

“They had these plans and seemed ready to re-emerge as a contender in the market space,” said Ethan Young, annuity product manager at Commonwealth Financial Network.

The insurer, which once dominated the VA sellers' list before the crisis, last week said that it would stop selling new annuity products, and would try to sell or look at other strategic alternatives for its individual life insurance and its retirement plan businesses.

The purge at The Hartford comes after the company's largest shareholder, hedge fund manager John Paulson, urged the company to take drastic measures to boost the insurer's share price.

The insurer will concentrate its efforts on property-and-casualty insurance, group benefits and mutual funds — businesses that are expected to deliver greater profitability.

The company will discontinue new annuity sales April 27 and will take a related after-tax charge of $15 million to $20 million in the second quarter.

David Snowden, a spokesman for The Hartford, said that “many” of the insurer's annuity employees will continue in their current roles.

“We are stopping sales but will continue to service annuity customers and the in-force business,” he said. “We don't expect a significant near-term impact.”

The insurer's announcement doesn't affect clients' ability to add to their existing annuities, Mr. Snowden said.

TARP MONEY

Financial advisers and broker-dealers have shied away from the insurer since the financial crisis, when The Hartford suffered losses tied to its VA business and wound up taking government money under the Troubled Asset Relief Program.

The Hartford has been trying to right the ship for its annuities business over the past year, luring product development veteran Steve Kluever away from Jackson National Life Insurance Co., releasing a new de-risked VA product and entering the fixed-indexed-annuity business.

Still, winning back advisers was proving difficult and few seemed interested in the new VA product. Last year, Hartford garnered $910.8 million in flows into its variable annuities and ranked 23rd of 38 VA sellers, according to Morningstar Inc.

“We never suspended their sales, but we weren't doing a lot of Hartford business and hadn't been since 2008,” Mr. Young said. “They made this concerted effort to slow sales and derisk.”

Further, broker-dealers already had an array of big-name insurers from which to choose, especially among those that stayed in the business during the crisis and maintained a force of wholesalers. Those companies include Jackson, MetLife Inc. and Prudential Financial Inc.

KISS OF DEATH

“There's only so much shelf space,” said Judson Forner, an investment analyst at ValMark Securities Inc.

“The product was OK but needed improvements,” he said. “Their sales team seemed excited about where they thought they could go with the products in the industry.”

Although insurers have their own reasons for exiting businesses, researchers agree that it is the kiss of death if advisers aren't won over.

“Allowing the distribution structure to disintegrate” was a major error on the part of The Hartford, said Tamiko Toland, managing director for retirement income consulting at Strategic Insight.

The Hartford's distribution unit, Planco LLC, once gave it wholesaling reach, but the division has undergone significant changes in recent years, she said.

“They had a force on the street that was bringing the ideas to people, and in the absence of the distribution network, a good idea could not be disseminated,” Ms. Toland said.

“You have to have good product, but the distribution force is equally important in having a successful sales process out there,” Mr. Loffredi said.

“I don't know if Hartford was able to get the message out on the new stuff they have,” he said. “It was too little, too late.”

dmercado@investmentnews.com

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