Broker-dealers and financial advisers are walking away from the insurance and annuity products of The Hartford Financial Services Group Inc. in the wake of the company's restructuring.
On March 21, the company announced that it will no longer offer annuities and that it will sell off its life insurance operations and Woodbury Financial Services Inc., its independent-contractor broker-dealer.
Bank of America Merrill Lynch, pulled The Hartford's life insurance products from its shelves after Standard & Poor's downgraded Hartford Life and Annuity Insurance Co. to BBB+, from A, the same day as the announcement.
Edward D. Jones & Co. LP, a significant distributor of The Hartford's life insurance policies, suspended sales of life coverage and annuities later that week.
Even firms that haven't stopped selling Hartford products outright no longer are actively suggesting the insurer when advisers submit requests for life insurance quotes. Such is the case at Cadaret Grant & Co. Inc.
Raymond James Financial Inc. isn't actively quoting the insurer either, leaving the decision to use Hartford in the hands of advisers.
Broker-dealer executives and advisers point to the abruptness of The Hartford's announced restructuring as the reason that they are backing away from its products for now.
WAIT AND SEE
“There was no notice. We didn't have any knowledge of this, and whenever there's news on a product partner and it creates an amount of uncertainty for us, our position is to stop sales,” said Merry Mosbacher, a principal in Edward Jones' insurance marketing unit.
Broker-dealers hope to get a better sense of what the unfolding developments will mean for policyholders before continuing with new sales. They are worried that the changes to the annuity and life insurance business will lead to a decline in customer service.
“Companies make changes like this all the time,” said James Steves, sales manager at Cadaret Grant Agency. “But the difference is that in the insurance business, when people buy a life policy, they feel like they're buying security.”
Many broker-dealers are allowing representatives to sell Hartford annuities through April 27, when the company will halt sales. The firms note that the products hadn't been popular among advisers for some time and that the insurer only recently started to rev up its sales efforts.
But it is the in-force annuity business that worries advisers.
Hartford holds $68.7 billion in variable annuity assets, according to Morningstar Inc. How exactly the insurer will treat this business after it ends sales is what keeps advisers and broker-dealer executives up at night.
Many of the company's VA holders have access to attractive guaranteed benefits at low prices.
Those customers also may have accumulated living and death benefits that are greater than the account value of their contract. This means that The Hartford's in-force contracts largely are expected to stay on.
“It's not likely that consumers are going to want to exchange,” said Rosemarie Mirabella, an analyst with A.M. Best Co. Inc.
As a result, advisers and broker-dealer executives fret about the quality of service. Anecdotally, they said that when insurers stop selling a product line, the support system tends to deteriorate, with fewer people available to answer advisers' and clients' annuity-related questions or to make changes in beneficiary designations, and other adjustments.
“Service is definitely a concern,” said David T. Provinsal, managing partner at Paradigm Wealth Management LLC.
A number of his clients have Hartford VA contracts that are seven or eight years old, and all things being equal, he would like to keep them at the insurer.
Mr. Provinsal isn't the only one with concerns about service.
Kraig Lange, first vice president and manager of Stifel Nicolaus & Co. Inc.'s insurance and annuities department, said that the firm has a substantial block of Hartford VA contracts in its clients' accounts and is concerned about how The Hartford will attend to them.
He recalled that when ING Groep NV stopped selling variable annuities, it was hard to get personnel on the phone to answer questions about existing products.
“You couldn't get hold of anyone at ING; it was hard to just call someone up,” Mr. Lange said.
Hartford spokesman David Snowden said that the insurer will continue to serve annuity customers and the in-force business.UNKNOWN FALLOUT
Advisers' fears continue over to the life insurance side, where they have been avoiding the insurer since the announcement. They question whether the entity buying The Hartford's life insurance unit will continue to offer its suite of products and provide the same level of customer service and underwriting.
“We've never been a fan of their annuities, but Hartford has a great universal-life policy with a long-term-care rider that we're big fans of, and now we worry that it will go away,” said Bruce Cacho-Negrete, a financial adviser with The Starner Group at Raymond James & Associates Inc.
He added that while The Hartford historically has had favorable underwriting and attractive rates for high-net-worth clients, he will hold off on writing new life insurance policies with them for now.
Not all advisers expect to sit tight and wait for the company's next move, however.
Brian T. Niemann, president of Wealth Management Group LLC, has a number of retirement plan clients who are getting their service through The Hartford.
The insurer's retirement plan unit is also up for sale, and plan sponsor clients are anxious, he said. The firm is weighing the possibility of talking to some plan sponsors about moving to another 401(k) provider, likely Fidelity Investments.
“It's not just the client anxiety, but the pricing on the products isn't as competitive as what other pro-viders have,” Mr. Niemann said. “We're not talking about moving all of our Hartford business, but we want clients to be aware of what's going on.”
dmercado@investmentnews.com
