Forethought Financial Group, a privately-owned Houston based firm, is bringing more annuities business to Texas with its purchase of The Hartford Financial Services Group Inc. (HIG)’s annuities units. The deal was announced on April 26. It was just in March that The Hartford made it known that it was planning to get out of the annuities business to focus on mutual funds, group benefits, and property and casualty insurance. It will will, however, keep managing is current annuity policies.
The Hartford had reported huge earning losses in its annuities business. Earnings dipped from $96 million during to 2010’s final quarter to $86 million during 2011’s last quarter and its overall net income had also plunged downward to $127 million from $619 million the year before. Low interest rates also hurt the financial firm.
The terms of the sale to Forethought were not revealed. However, the Texas firm is buying The Hartford’s distribution, management, and marketing units.
Forethought makes fixed and indexed annuities and sells them through both independent marketing groups and agents. It hasn’t been involved in the broker-dealer market. However, Forethought’s purchase of Hartford should allow the Texas-based company to start making variable annuities that registered representatives can sell.
Notwithstanding the woes of Houston’s AIG, Texas is gaining ground in the insurance business. “Annuities have become the latest darling of the retail financial industry with a focus on safety,” said Texas securities fraud lawyer William Shepherd. “While the term ‘guaranteed’ is prohibited in the sale of most securities, it is allowed in the sale of insurance products.”
Annuities are a contract between the buyer and the insurer that are supposed to help an investor meet long-term financial objectives, such as retirement. The customer makes either a series of payments or just one lump sum to purchase the annuity. In return, the insurance company makes payments to the buyer periodically either right away or at a date in the future. There may be a death benefit involved that would allow your beneficiary to benefit. The three kinds of annuities are indexed, fixed, and variable.
Annuities are generally long-term investments, and there can be harsh penalties for withdrawing money from this type of investment during the first several years. There also may be “surrender charges” for cancelling one’s contract early on.
“Not only are annuities an ‘easy sale,’ the commissions can be huge,” said Texas annuities fraud lawyer William Shepherd. That is the true allure of these products and the reason they are not only being sold by insurance salespersons, but also by stock brokers, advisors, bankers and CPS’s. Who knows who will join in the fun next.”
Although the downside of annuity investing is limited, it is real. On the other hand, the upside is limited and very often misstated. “For example, it may sound as if a buyer will earn 6% or more guaranteed, while the real rate of return may be less than 3%,” said Houston securities fraud lawyer William Shepherd.
Some of the risks of investing in annuities may include:
• If you need the money sooner, you might have to pay a tough penalty • Your annuity might not do as well as projected, which could hurt you financially • If your insurer becomes unable to fulfill its part of the contract, this could prevent you from getting paid.
Contact our Texas securities fraud law firm to request your free case evaluation.
Hartford selling its units that market annuities, AP/GMA, April 26, 2012
The Hartford to Sell Individual Annuity Business, AvonPatch, April 27, 2012
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