The Minnesota Department of Commerce has imposed a $275,000 fine in connection with allegations that an Iowa insurer sold unapproved annuity contracts to its residents.
American Equity Investment Life Insurance Company, West Des Moines, Iowa (NYSE:AEL), agreed to pay the fine to resolve the allegations.
Minnesota is one of several states that prohibit residents from buying insurance policies and annuity contracts that are not approved for sale within its jurisdiction, even when residents travel outside the state to buy the products.
Minnesota regulators are alleging that American Equity issued 541 annuity contracts between 2002 and November 2008 to Minnesota residents on forms that the Minnesota department has not approved.
The contracts offered a 10% premium bonus to customers who agreed to accept a surrender period that was longer than Minnesota allows, according to American Equity Chief Executive Officer Wendy Waugaman. The surrender period was long
Minnesota generally allows a surrender charge of up to 9% for a surrender period of up to 9 years, Minnesota officials say.
In addition to paying the fine, American Equity will adjust the surrender periods and surrender charges associated with the 541 unapproved contracts sold to Minnesota residents to comply with Minnesota law, officials say.
“The company must also reimburse all policyholders that surrendered their contracts prior to the department’s consent order to make up the difference between the surrender charge they actually incurred and the surrender charge to which they would have been subject had the policy complied with Minnesota law,” officials say.
American Equity will tell the affected policyholders of the changes by mail.
American Equity also must create an audited program to ensure that its producers sell Minnesota residents only policies filed and approved by Minnesota regulators.
American Equity did not violate the Minnesota annuity sales rules intentionally, and, in some cases, the Minnesota residents who bought the products owned property in Iowa and appeared to have strong ties to Iowa, Waugaman says.
Going forward, “we certainly will abide by [Minnesota's] law,” Waugaman says.