Advisers and annuity researchers alike were surprised by Hartford Financial Services Group Inc.'s announcement today that it was retreating from the annuity space.
The exit was so quick, that as late as last week, Hartford's wholesalers were still visiting 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, partner at Fross & Fross Financial LLC. In fact, he had written his first ticket in a long time with The Hartford late last week.
“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. He received e-mail communications from the carrier today.
The carrier, which once dominated the VA sellers' list before the crisis, today said it would place its individual annuity business into runoff, and seek sales or other strategic alternatives for its individual life insurance business and its retirement plan business.
Moreover, the company plans to sell its independent broker-dealer, Woodbury Financial Services. According to InvestmentNews'
broker-dealer database, Woodbury is the 24th largest independent B-D in the U.S., with around 1,600 reps.
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 carrier's share price.
As a result of the purge, The Hartford 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 stop new annuity sales on April 27 and will take a related after-tax charge of $15 million to $20 million in the second quarter.
David Snowden, spokesman with 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."
Mr. Snowden added that the insurer's announcement does not affect clients' ability to add to their existing annuities.
Financial advisers and broker-dealers have shied away from the carrier since the financial crisis, when The Hartford suffered losses tied to its variable annuities business and wound up taking goverment TARP money.
The Hartford has been trying to right the ship for its annuities business over the last year, luring product development veteran Steve Kluever away from Jackson National Life Insurance Co., releasing a new de-risked variable annuity product and entering the fixed indexed annuities space.
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 out of 38 among VA sellers, according to Morningstar.
“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 de-risk.”
Further, broker-dealers already had an array of big-name insurers to choose from, especially among those who stayed in the business during the crisis and maintained a force of wholesalers:
Prudential Financial Inc.,
MetLife Inc. and Jackson.
“There's only so much shelf space,” said Judson Forner, an investment analyst at ValMark Securities Inc. “The product was okay, but needed improvements. Their sales team seemed excited about where they thought they could go with the products in the industry.”
Although carriers have their own reasons for exiting businesses, researchers agree that if advisers aren't won over by an insurer, then it's the kiss of death.
“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.
Hartford's distribution unit, Planco LLC, once gave it wholesaling reach, but the division has undergone significant changes in recent years, she noted.
“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.”
“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. It was too little, too late.”
