AXA Equitable to Pay New York DFS $20M Fine Over Annuity Changes

March 18, 2014

New York officials announced AXA Equitable will pay a $20 million fine to the state’s Department of Financial Services (DFS) for violating insurance law related to certain variable annuity products.

DFS said its investigation uncovered that AXA made changes to certain variable annuity products that limited the potential returns for existing customers without providing adequate notice to DFS.

DFS said those omissions limited DFS’ ability to put in place important consumer protections, such as requiring existing customers to affirmatively “opt in” to the altered product rather than remaining in that investment by default. This affected tens of thousands of New Yorkers with variable annuity products at AXA, according to the announcement.

“Insurers have a fundamental responsibility to be clear and upfront with their regulators, particularly when a company’s actions can impact the retirement savings of tens of thousands of New Yorkers,” New York Gov. Andrew M. Cuomo said in a statement. “Unfortunately, AXA did not meet that basic test and today’s action should send a signal that failing to do so is simply unacceptable.”

Benjamin M. Lawsky, New York Superintendent of Financial Services, said “When it comes to retirement products, insurers must go above and beyond to explain any changes that would alter investor returns. Here, AXA changed the rules on these important products midstream and should have done more to disclose those changes to the Department. AXA has done the right thing in resolving this matter.”

In 2009, 2010, and 2011, AXA filed requests with DFS and its predecessor agency to amend and restate the Plans of Operation for certain variable annuity accounts in order to implement its AXA Tactical Manager strategy (“ATM Strategy”), according to the announcement.

These filings, through which AXA applied the ATM Strategy to new funds and existing funds, failed to inform and adequately explain to DFS the significance of the changes caused by introduction and application of the ATM Strategy to existing policyholders, DFS said. For example, the filings did not address how existing policyholders who had not elected to invest in the ATM Strategy could end up invested in such funds.

The ATM Strategy is designed to smooth funds’ returns during periods of high market volatility. However, the application of the ATM Strategy can, especially during volatile markets, limit the gains that may accrue to a policyholder’s account without the ATM Strategy, DFS said.

DFS said many policyholders invested in variable annuities, including variable annuities with guaranteed living and death benefits, because they were interested in making more aggressive investments to capture market rises. These policyholders were comfortable taking such aggressive positions because they had purchased an annuity benefit guarantee that provided certain levels of benefits regardless of the performance of the selected investment options, according to DFS.

DFS said the changes effectively altered the nature of the product that the policyholders purchased, yet AXA did not explain in its filings to DFS that it was making such changes to its variable annuity products. DFS said the absence of detail and discussion in the filings regarding the significance of the implementation of the ATM Strategy had the effect of misleading DFS regarding the scope and potential effects of the ATM Strategy on the relevant funds and the possible consequences for policyholders.

Source: New York State Department of Financial Services

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Latest Comments

  • March 19, 2014 at 11:49 pm
    James Walsh says:
    I was thinking the same thing as Rob Jones. The stakeholders deserve the money, not NY DFS! DFS!
  • March 18, 2014 at 4:06 pm
    Rob Jones says:
    Paying DFS! Excuse me - but if you levied the fine because they short-changed policy holders without due notification - why pay the fine to DFS? Why not return some lost gains... read more
  • March 18, 2014 at 2:29 pm
    Nadia Bessamra says:
    ...policyholders invested in variable annuities, including variable annuities with guaranteed living and death benefit, they purchased an annuity benefit guarantee that provid... read more
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