The Hartford Financial Services Group wants to get out of the variable-annuity business — fast.
The company is offering customers a better "cash surrender" value to people who have annuities with a Lifetime Income Builder II rider, which is a special endorsement offered at an additional cost. Basically, the rider ensures regular payments over time, and The Hartford wants to offer a larger cash value now in order to pay off the obligation.
Every annuity has a cash surrender value, and the difference to customers could be tens of thousands of dollars, though they give up the steady payments an annuity provides.
The offer was detailed in a filing last week with the U.S. Securities and Exchange Commission.
In an example of how it might work, The Hartford says a variable annuity with a Lifetime Income Benefit II payment base of $100,000 will have a cash surrender value now of $80,000 compared with $60,000 before the offer. The payment base is a dollar figure used in calculating annual annuity payments. For example, an annuity might pay 5 percent to 7 percent of the payment base each year.
"We are making this offer because high market volatility, declines in the equity markets, and the low interest rate environment make continuing to provide the Lifetime Income Builder II rider costly to us," the company said in its filing.
The move to offer people a better deal to end their annuity contracts early is part of a larger strategy at The Hartford, which is focusing on more profitable, less risky parts of its business, such as property-casualty, group benefits and mutual funds. The company is selling its retirement plans and individual life business.
The value of The Hartford's variable-annuity business in the U.S. was $66.7 billion as of Sept. 30, though it was unclear how much of the total are accounts with "Lifetime Income" riders.
The Hartford no longer offers annuities as part of its restructuring strategy, but it must maintain cash reserves to fulfill obligations to existing customers. The cash surrender program aims to get some of the riskiest obligations off the company's books.
The Hartford's chairman and CEO, Liam E. McGee, said Friday that the company is "examining a range of options to address the legacy annuity blocks."
"Similar to programs introduced by several other companies, it offers the contract holder the option to surrender the policy at a premium to the current account value," McGee said of the cash surrender program.
"We continue to examine other options to accelerate the runoff of the U.S. and international annuities and look forward to updating you on our progress," McGee told analysts during a conference call Friday while the company reported third-quarter earnings. "With any actions we take, we will continue to honor our obligations to contract holders."