The Hartford Financial Services Group, Inc. announced it has reached a settlement with the New York, Connecticut and Illinois Attorneys General resolving matters relating to their investigations of the compensation arrangements between the insurer and its property-casualty agents and brokers.
As part of the deal, The Hartford will no longer pay its property-casualty insurance agents commissions that are contingent upon growth or future performance but will implement a new supplemental payment scheme with fixed commissions per policy based more on an agency’s past performance with the insurer.
In this change in compensation plans, the insurer joins others including Chubb and Travelers in instituting fixed commission plans for agents.
The company also reported a settlement regarding the New York Attorney General’s investigation of market timing within the company’s variable annuity products.
In settling both the market timing and broker compensation matters, The Hartford said it has agreed to pay, in total, $115 million.
The Hartford did not admit or deny any violation of federal or state law as a result of this settlement.
Other previously disclosed matters that were under investigation by these attorneys general have been concluded, according to the insurer.
In addition, The Hartford had previously disclosed an investigation by the staff of the Securities and Exchange Commission into matters related to market timing. In light of the settlement announced today, the company said that the SEC staff informed The Hartford that it has concluded its investigation without recommending any enforcement action.
The $115 million total amount consists of $89 million in restitution ($84 million for market timing and $5 million for broker compensation) and $26 million in penalties.
According to the insurer, a “substantial portion” of the cost of the settlement has already been funded by a previously disclosed reserve of $83 million set aside for regulatory matters.
Commenting on the announcement, The Hartford Chairman and CEO Ramani Ayer said, “We are pleased to have these matters behind us. Since these investigations began more than three years ago, we have cooperated fully with the attorneys general and other regulators. We have worked assiduously to strengthen and improve our business practices and will continue to do so. We emerge from this period with an unwavering resolve to uphold our longstanding commitment to providing our customers with outstanding products and exemplary service.”
Of the total settlement amount, $5 million will be paid into a fund to compensate certain commercial property-casualty policyholders “related to a limited number of isolated instances of improper quoting between 2001 and 2004.”
The attorneys general found that in these instances, certain employees of The Hartford engaged in improper underwriting by providing quotes for commercial insurance that were not based on an adequate assessment of the risk. The company said these activities were not in keeping with its standards and that over the last several years, the company has voluntarily strengthened its internal controls, guidelines and training in this area.
The Hartford also agreed that it will forego paying contingent compensation in any line of its property-casualty business in which more than 65 percent of the U.S. market does not pay contingent compensation.
The Hartford said it has decided to implement a new program for 2008 to compensate property-casualty agents and brokers for their performance in these lines of insurance and in its other standard commercial lines of insurance. Under this new supplemental commission program, The Hartford will pay a fixed commission, set prior to the sale of a particular insurance policy, that is based among other things on the agent or broker’s past performance.
“We value our strong partnerships with independent agents and brokers,” said Ramani Ayer. “Our new property-casualty supplemental commission program reflects their feedback for a more predictable compensation package.”
On its Website, The Hartford makes available information about its compensation practices and the nature and range of property-casualty agent and broker compensation. This information will be updated to include a description of the new supplemental commission program.
In addition to the property-casualty fund monies, $84 million of the settlement will be paid into a fund to compensate certain variable annuity contract holders of The Hartford for harm the New York Attorney General found to have resulted from the market timing activities of variable annuity contract holders from 1998 through 2003. The Hartford will retain an independent distribution consultant to develop a distribution plan for this fund that will be subject to the New York Attorney General’s approval.
Source: the Hartford
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