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HARTFORD, Conn.--Hartford Financial Services Group Inc. on Monday said it will pay $115 million in fines and restitution to end regulatory investigations into market timing and broker compensation practices.
In a statement, the Hartford, Conn.-based financial firm said the settlement concludes probes by the New York attorney general into market timing within Hartford's variable annuity products business. Variable annuities are hybrid securities that are marketed and sold by insurers for retirement planning.
As a result of the settlement announced Monday, the Securities and Exchange Commission informed Hartford "that it has concluded its investigation (related to market timing) without recommending any enforcement action," Hartford said.
Hartford's annuity products have been a focus of regulators since 2005, when it received a subpoena from then-New York Attorney General Eliot Spitzer over broker compensation arrangements linked to the sale of group annuity products. Hartford previously had been subpoenaed by Mr. Spitzer and Connecticut Attorney General Richard Blumenthal about variable annuity sales.
The settlement announced Monday further resolves probes by attorneys general in New York, Connecticut and Illinois relating to compensation arrangements between Hartford and its property/casualty agents and brokers. The New York State Insurance Department also signed on to the settlement.
Hartford was one of many insurance companies that colluded with brokers to artificially inflate bids and pay undisclosed contingent commissions to steer business, the regulators had charged.
Under its $115 million settlement agreement--in which Hartford did not admit or deny violating state or federal laws--a total of $84 million will go towards restitution for certain of Hartford's variable annuity contract holders found to have been harmed due to market-timing activities from 1998 through 2003.
Another $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," Hartford said.
Hartford also will pay a total of $26 million in penalties, of which $20 million will go to New York and $3 million each to Connecticut and Illinois.
Most of the $115 million settlement amount will be paid by $83 million in reserves previously set aside for regulatory matters, Hartford said.
As part of the pact, Hartford--like a number of other insurance companies that reached regulatory settlements in the bid-rigging scandal--agreed to forego paying contingent compensation in any line of its property/casualty business in which more than 65% of the U.S. market does not pay contingent compensation.
At the same time, though, the insurer announced that beginning in 2008, it will launch a new supplemental commission program to compensate brokers and agents in many commercial lines of business.
Under the new supplemental commission program, Hartford will pay a fixed commission--set prior to the sale of a particular insurance policy--that is based on the agent or broker's past performance, among other things.
"We value our strong partnerships with independent agents and brokers," Hartford Chairman and Chief Executive Officer Ramani Ayer said in a statement. "Our new property/casualty supplemental commission program reflects their feedback for a more predictable compensation package."
Mr. Ayer noted that the company is "pleased" to have settled these matters. "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."