Hartford to Pay $115 Million in Fines

On Monday, Hartford Financial Services Group Inc. announced that it will pay $115 million in fines and restitution to end regulatory investigations into market timing and broker compensation practices.   
  
The Securities and Exchange Commission, as a result of the Hartford’s settlement announcement, “has concluded its investigation (related to market timing) without recommending any enforcement action,” according to the carrier.   
  
Since 2005, Hartford’s annuity products have been a focus of regulators after receiving a subpoena from former 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.   
  
Regulators had charged that Hartford was among many carriers that colluded with brokers to artificially inflate bids and pay undisclosed contingent commissions to steer business.  
  
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, according to the $115 million settlement agreement. Hartford under the agreement did not admit or deny violating state or federal laws.   
  
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.  
  
The majority 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 agreement, Hartford 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.   
  
However, at the same time, the carrier announced that starting 2008, it plans to launch a new supplemental commission program to compensate brokers and agents in many commercial lines of business.  
  
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, under the new supplemental commission program,  
  
“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.”