The news this week that Hartford Financial Services Group has made a rather sudden exit from the annuities business is surely the kind of moment that prompts many folks in the retirement business to check their footing.
But is this most recent about-face on the part of a major carrier a harbinger of things to come or an isolated incident, especially as a challenged market continues to settle back into its foundations after nearly four years of struggles?
Wednesday’s announcement that Hartford, whose net income last year fell by more than 60 percent, was opting to leave the annuities space and redouble its efforts in group benefits, mutual funds and property and casualty insurance, did come as serious shock for its individual advisors—many of whom were still signing sales agreements. Future Hartford annuities sales will be shuttered as of April 27.
Hartford was a big innovator and a significant player pre-financial meltdown, but the troubles had been growing. The company says this is a chance to retreat gracefully.
Its broker-dealer, Woodbury Financial Services, with 1,600 representatives, is on the chopping block; the retirement plan division will also be up for grabs, raising the biggest spike of speculation regarding perceived insolvency in the business.
Hartford’s pending split and sell-off is the latest in a series of significant departures by major players—MetLife announced Nov. 11 that it was retreating from the LTCI business, and December brought news that Sun Life was discontinuing sales of variable annuities and both ING and John Hancock made significant "restructuring" changes to their annuities holdings.
The end of the world as we know it? Probably not, though you’ll likely have a different opinion as a Hartford annuities advisor.
Bigger forces were also at work in those late-2011 drop-outs, with the foreign-owned ING, John Hancock and Sun Life facing increased international scrutiny and standards on their cash reserves. The volatile market is also a factor, but the fact that the annuities business still charted $240 billion in sales in 2011—an 8 percent increase from the year before—may give credence to the admittedly troubled Hartford being an isolated case.
“From my perspective, this industry is still very strong and very well-capitalized, as evidenced by last year’s huge growth in sales,” said Cathy Weatherford, president and CEO of IRI, in an interview with BenefitsPro on Thursday. “At this post-crisis point, companies need to make strategic decisions, but we’ve seen plenty of new entrants into the marketplace and lots of good innovation.”
Hartford only had a 0.6 percent share of the variable annuities market in the U.S., she added; the fact that even the President has now positioned lifetime income products as a more reliable component of the retirement marketplace—especially with that tremendous Baby Boomer bubble already beginning to burst—adds a bit of validation to the prospects for the annuity market. Beyond this particular instance.
As for Hartford, estimates are that the company can get as much as $3 billion by selling off its holdings, a move that was enthusiastically prompted a month ago by the hedge fund which owns a significant chunk of the business. Those investors got what they wanted, with an immediate jump in share prices in the last two days and no drop in Moody’s ratings.