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March 22, 2012 at 12:23 PM
Now that the news has sunk in that Hartford has decided to abandon its annuity business, industry groups and advisors say the action will have a negligible impact on annuity sales going forward. What it could mean, however, is that advisors and their clients must take a closer look at the financial strength of the company behind the annuity.
In a prepared statement, Cathy Weatherford, president and CEO of the Insured Retirement Institute (IRI) in Washington, D.C., stressed that the insurance industry is strong financially and that lifetime income products continue to meet the needs of the retirees and pre-retirees, particularly baby boomers.
“Across the board, all indicators point to a strong insured retirement industry including recent reports from leading rating firms that have underscored the stability of the life insurance sector—citing their strong capital and liquidity,” Weatherford stated.
Prudential Annuities gave a statement to LifeHealthPro.com via email. It said that the company “remains committed to the annuity market, and we are comfortable with our overall risk profile.”
Advisors’ View
Advisors, meanwhile, say Hartford’s exit from its variable annuity business will have little effect on sales of annuities, given the public’s growing desire for guaranteed income in retirement. But the decision highlights the obligation of both advisors and their clients to research the financial depth of the carrier underwriting an annuity contract.
Jim Brogan, president and founder of Brogan Financial in Knoxville, Tenn., says he does not sell many variable annuities and points out that Hartford was not a dominant player in the VA space at this time (according to IRI, Hartford represented only 0.6 percent of VA sales in 2011), as it was back in the ‘90s.
“I don’t think it will impact sales so much,” Brogan says, adding he does the bulk of his annuity business in fixed indexed annuities. What happened, he explains, is that many VA providers got squeezed in the 2008-09 recession when the cost of providing guarantees and death benefit step-ups caused them to suffer losses. “They were giving away too much and not charging enough,” Brogan says. Since then, providers have scaled back on guarantees, he adds.
Yet the action by Hartford does emphasize the necessity of carriers to be prudent when underwriting products like variable annuities, Brogan says. “To me, this is just a little blip on the radar screen,” he says. “But it underscores the need for the companies to be actuarially sound with their pricing so in the rush to capture premium they don’t price themselves into a problem.”
