In the past month, an insurance industry giant, Hartford Life, boldly stated its immediate departure from the annuity business and the intent to sell its life insurance division. The public nature of the announcement and the move itself seems to have been at least partially catalyzed by comments from a large institutional stockholder.
Hartford’s withdrawal from the annuity business marks the departure of one of the pioneers in variable annuities. The cessation of taking on new annuity business will require that the company take a charge of $15 million to $20 million dollars this quarter. Hartford Life’s ratings dropped soon thereafter.
Publically announcing the intent to sell the life business has put the company and its distribution force in a challenging position. The drop in ratings, perhaps combined with the announcement, caused some of Hartford’s institutional clients to cease sales of their products; other producers are showing some reluctance to present the product to clients. Hartford is one of the few remaining carriers to support a field force. These life insurance professionals have tied their careers to this carrier. They are in an unenviable position, even though the carrier is not deserting them.
Those who remember Phoenix Life’s decline may also remember that Phoenix supported its field force financially for a considerable period while they looked for a resolution. Hartford is rumored to be doing the same thing (This is not to suggest Hartford’s current position is the same as Phoenix at that time; it’s not.) It seems they are trying to retain their field force with some form of income assurance during this time. While this is certainly the right thing to do for these employees, it is also indicative of the value of life iånsurance professionals and of a distribution system. No doubt, the outlook for selling the company with a distribution system in place seems more attractive than selling the company without that rare commodity.
It may well be that if Hartford can wait out the backlash of the announcement and ratings drop they can successfully distribute product until a buyer is found (or another “strategic alternative” as the press release states) They certainly have a better chance of doing so if they can keep their producers in place.
Make no mistake, the departure of Hartford from the life and annuity business is a continuation of the challenges the economy has been facing since 2008, combined with the decisions much of the industry made in the years prior. The difference between Hartford and some of the other carriers that are managing through the challenges is that they have options and they have shareholders. They have options because of their property casualty business. They are a viable business without the life company. Many life insurance companies today are stock companies; in this case, the stockholders spoke up. More specifically one stockholder spoke up, the owner of a hedge fund that owns a good share of Hartford stock.
Stockholders don’t care what happens to the distribution force that is affected by these actions any more than they care about the effect on the remaining policyholders. If non-guaranteed charges to products increase due to adverse selection or if some policyholders can’t keep their policies or replace them, stockholders don’t care. They aren’t supposed to care.
It is more surprising how many companies have managed to run their businesses with long-term vision even though they have stockholders to keep happy than it is surprising that a stockholder, in this case, pushed for an action that, no doubt, makes sense by the numbers.
To me, as editor of this magazine and as a life insurance agent, at heart, the most important component of this story is those producers. Many readers may compete with them in different markets, but they are life insurance agents just like we are. I, personally, am pleased that the company has given their labor to is appreciating their value at this difficult time. Obviously, they have choices. Good life insurance producers always do. They are the only stockholders in their own careers and will, no doubt, make clear-headed decisions just like their company did.
We keep getting the same two messages – good producers are a valuable commodity – and the companies we represent are businesses, and nothing more. We want them to care about our clients as much as we do. Well, they generally don’t. We care about our clients, which is why they trust us – and it’s why we are a valuable commodity. It’s a neat circle, isn’t it?
