Insurance regulators in New York are joining Connecticut's insurance commissioner in examining whether The Hartford made improper disclosures or engaged in misleading practices in its marketing of a new variable annuity.
Meanwhile, the Iowa Insurance Division said it's closely watching Connecticut and Finra to see what actions, if any, to take.
Some plaintiff's attorneys are also predicting litigation woes for The Hartford Financial Services Group Inc., which on Aug. 23 sent clients a letter that made statements intended to entice them to swap their benefit-rich variable annuities for an updated product.
“This letter leaves out material information that reasonable investors would want to know to consider whether this [VA exchange] is viable for them.” said Steven B. Caruso, a resident partner at Maddox Hargett & Caruso PC. “This is a half-baked solicitation that's designed to spur action [by clients],”
In the letter — which was ob¬tained by InvestmentNews — The Hartford said it had introduced a VA with “new features” not included in previous contracts. It is available to those who meet “certain eligibility requirements” through its Personal Retirement Manager Exchange Program Opportunity.
The move infuriated many advisers, who claimed that the insurer
didn't tell them in advance about the letter, and felt that the swap wouldn't be beneficial for many clients.
“Our concern would have to be with the disclosure made,” said Andy Mais, spokesman for the New York State Insurance Department.
New York's Regulation 60 requires proposed life insurance and annuity replacements to provide critical information, including surrender charges and projected returns, which would allow clients to compare products.
Thomas R. Sullivan, Connecticut's insurance commissioner, wrote in an e-mail that The Hartford's replacement VA has been filed and approved by the state's insurance department.
“However, in light of the concerns that have been identified by financial advisers through InvestmentNews, the department will look into this matter further to determine whether any misleading practices have occurred,” Mr. Sullivan wrote.
Mr. Sullivan and Mr. Mais said their offices have not received any consumer complaints related to the product or the letter.
The Iowa Insurance Division is looking to Connecticut and the
Financial Industry Regulatory Authority Inc., which also oversees variable annuities, for guidance.
“Recognizing that Commissioner Sullivan is not only the domestic regulator but also chair of the [National Association of Insurance Commissioners' Life Insurance and Annuities Committee], if he needs to bring the matter to any further attention, we will follow on that level,” said Tom Alger, spokesman for the Iowa Insurance Division. “We want to see what they do rather than making a decision.”
Finra spokeswoman Nancy Condon declined to comment for this story.
Tim Benedict, a spokesman for The Hartford, wrote in an e-mail: “The Hartford works closely with state insurance regulators and responds promptly to regulatory requests.” He declined to comment further.
Several attorneys contacted by InvestmentNews said that per common law and securities regulations, more information should have been provided to the clients who received the letters.
“What triggers the duty to disclose under common law can vary from state to state, but failure to disclose amounts to deceit under common law,” said Scot D. Bernstein, a plaintiff's attorney at an eponymous firm.
Not everyone thought the letter should raise concerns, since it recommended that clients talk to their advisers about the exchange. The suitability checks that go on during the exchange process ought to catch any cases in which such a switch wouldn't be beneficial for the customer, said Steven B. Davis, an attorney with Stradley Ronon Stevens & Young LLP.
“If the system works the way it's designed to, then this letter is just a piece of helpful information,” Mr. Davis said.
[An expanded version of this story will appear in the Sept. 13 issue of InvestmentNews. It will also be available on InvestmentNews.com begining on that date]
