The Hartford to Focus on Insurance Instead of Annuities
The Hartford to Focus on Insurance Instead of Annuities
Sept. 10, 2009 – Having accepted a $3.4 billion, taxpayer-funded federal bailout earlier this year, officials for The Hartford Financial Services Group say the reviving company will focus future business on insurance instead of maintaining its position as the top provider of annuities in the United States.
The Hartford’s chairman and top executive, Ramani Ayer, announced the insurer’s change in business focus during an insurance conference held earlier today in New York City and broadcast on the Internet. Officials for The Hartford already ceased underwriting new variable annuities in Britain and Japan and are looking to reduce additional business costs. The Hartford Financial Services Group recently reported a second-quarter net loss of $15 million, which was much lower than industry analysts predicted and was the smallest loss posted by The Hartford during the past year.
Partly bolstered by a $3.4 billion infusion of taxpayer dollars and stock market investment gains, The Hartford recently reported an unexpected $360 million gain that reduced its total loss to $15 million for the second quarter of this year, company officials reported. The Hartford had posted losses totaling $4.6 billion during the prior three quarters combined.
The Hartford, like other life insurers, suffered significant losses tied to annuities and mortgage-backed investments that reduced its capital holdings. But company officials said the firm finished the second quarter of 2009 with a suitable level of capital and used some of its $3.4 billion in taxpayer bailout funds to increase the capital surplus backing its life insurance operations and policies.
The Hartford was a life insurance industry leader in annuity sales as insurers began offering guaranteed returns for annuity owners during the 1980s and 1990s. In 2002, the Hartford made it easier for consumers to make withdrawals from their annuities. The insurer’s “Principal First” annuity product guaranteed withdrawals of up to 7 percent per year to allow owners to recover their principle investment. Annuity owners also could add investment gains to the guaranteed amount after maintaining the Principal First annuity for five years.
The Hartford’s annuity product became so popular it sparked an industry-wide trend of offering guaranteed annual, monthly and sometimes daily investment returns to consumers on top of their normal investment gains. Some insurers also promised to increase the guaranteed repayment amount by up to 7 percent each year.
Although a solid profit-generator for several years, annuities proved to be a serious liability in 2008 when many large life insurance companies had to build up their reserves and capital levels to meet state regulatory requirements prove their ability to honor their annuity policies. The downturn inflicted a $2.6 billion third-quarter loss on the Hartford’s balance sheet, including a $932 million loss tied to the insurer’s annuity business. Officials for the Hartford in October arranged a $2.5 billion capital infusion from German insurance giant Allianz SE.
Comments
Leave a Reply