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Are annuities a problem?

By Sheyna Steiner · Bankrate.com
Thursday, March 22, 2012
Posted: 2 pm ET

On Wednesday, the Hartford announced it would be exiting the annuity and life insurance business. According to the press release, the company will stop new annuity sales April 27.

In order to divest the company of the annuity arm, the company is placing the annuity business into runoff. That means the company will allow the existing annuities to be drawn down until they are depleted.

"As part of the runoff strategy, The Hartford will continue to pursue actions to reduce the risks associated with the legacy annuity blocks, and to improve capital efficiency," the press release stated.

According to the Insured Retirement Institute, or IRI, the Hartford represented 0.6 percent of all variable annuity sales in 2011.

But what about all the current annuity holders? According to a blog post on the Wall Street Journal website, they don't have much to be worried about: Insurance regulations require that The Hartford continue to service accounts until all outstanding annuities are depleted, the Journal post "Should Hartford's annuity holders be worried?" reports.

… regulators would be expected to require that the runoff unit remain with the same reserves and backup capital that the regulators previously required to protect existing accountholders.

“As the Department does with any proposed transaction of this type, we will review it with great diligence to ensure that the commitments to all policyholders are protected,” said Connecticut Insurance Commissioner Thomas B. Leonardi in a statement Wednesday. “To comment on any specifics would be premature and inappropriate at this time.”

The actions by The Hartford shouldn't be taken as a criticism of the annuity business, necessarily.

"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," said IRI President and CEO Cathy Weatherford in a press release.

According to the IRI, variable-annuity sales are recovering from the financial crisis and have reached pre-2008 levels, and sales of income annuities have recently improved.

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