The Hartford makes 180-degree turn with reorganization

The recession has forced a makeover of sorts at The Hartford Financial Services Group Inc., where financial advisers are contending with a significantly different insurer than they did five years ago.

In its most recent move to divest assets, the insurer last month sold its block of 700,000 individual-life-insurance policies to Prudential Financial Inc. in a reinsurance transaction for $615 million in cash considerations.

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 annuity 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.

Hartford spokesman Robert DeMallie referred to a statement from finance chief Christopher Swift, made when the insurer said 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.

The insurer's transformation in such a short period signals the end of an era for advisers, many of whom worked with the company in its VA 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 nonexistent, except to maintain existing clients who have contracts,” said Robert Fross, partner at Fross & Fross Wealth Management.

Robert Kline, an adviser with United Advisors LLC, worked with the company for more than a decade as the insurer built clout in the VA 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 VA rider, first offered in 2003 for as little as 50 basis points. It permitted a 7% annual withdrawal of premiums put in.

The Hartford was a pioneer in the guaranteed-withdrawal-benefits business 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.”

TOP VA SELLER

In turn, those attractive features built up the company's credit among advisers and clients, bumping it 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, The Hartford brought in $13.4 billion in total life business revenue, of which $2.23 billion came from individual VA sales. Total revenue for the entire company was $25.9 billion that year, according to 10-K filings with the Securities and Exchange Commission.

By comparison, 2011 was a leaner year for The Hartford, with the company bringing in total revenue of $21.8 billion, of which just $1.6 billion came from individual VAs.

Advisers and broker-dealer firms took a step back from The Hartford after the financial crisis pushed it to receive federal aid and retrench products. Many annuity contracts became worth less than their guarantees.

The Hartford re-entered the VA business 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 other 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 that advisers have with The Hartford is tied to servicing old annuity contracts, which has gone well.

Generally, when a company decides to exit a corner of the annuity business, service tends to go downhill fairly rapidly, advisers said.

This hasn't been the case with The Hartford, they said.

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Related Topics: 61 IQ Center, American Funds Distributors, The Hartford