Nationwide to pay $2.1M in variable annuity settlement

Nationwide Life Insurance Co. has reached a $2.1 million settlement with five state insurance regulators over nine-year-old claims involving allegedly unsuitable variable annuity sales. The five states are California, Kansas, Minnesota, Missouri and Wisconsin. The circumstances behind the settlement — which also involved Nationwide Life and Annuity Insurance Co. — go back to 2001 and 2002 when advisers at Waddell & Reed Inc. began pushing a pair of new variable annuities that were developed specifically for the firm by Nationwide. The products are the Waddell & Reed Advisors Select Plus Annuity and the Waddell & Reed Select Annuity. Clients allegedly were encouraged to switch from contracts issued by United Investors Life Insurance Co. into the Nationwide product, leading to the surrender of 6,742 UILIC annuities that were valued at $616 million. Almost 5,000 of the investors generated surrender charges totaling more than $9.6 million. In 2005, the Financial Industry Regulatory Authority Inc. — then NASD — hit the firm with a $5 million fine and an order to repay clients up to $11 million. While much of the regulatory focus had been on Waddell & Reed, regulators in the five states believe that Nationwide failed to take required actions to ensure that the firm's supervision and control over the sales were adequate. As part of the settlement, Nationwide will offer to reimburse affected clients for their surrender charges and provide an option to rescind some of the riders purchased with the annuities. It will also raise the death benefit to 103% of the first year's premiums, plus 100% of subsequent premiums for clients who bought a Select Plus variable annuity with an Extra Value rider. "We feel it is in the best interests of all parties to settle these matters rather than to continue to engage further resources on them," Chad Green, a Nationwide spokesman, noted in an e-mail. "The settlement resolves the matter and allows Nationwide and the participating states to move on." The company entered the agreement without any admission of wrongdoing and says that it has fully cooperated with regulators to reach the settlement.