Another insurer settles annuities suit

Attorney General Lori Swanson on Thursday announced her office's second settlement with a life insurance company involving the questionable sale of long-term annuities to Minnesota senior citizens.

Swanson said the settlement with Iowa-based American Equity Investment Life Insurance Co. will affect as many as 2,400 Minnesotans whose claims for refunds total $125 million.

At a Capitol news conference, Swanson also said her office has filed a lawsuit making similar allegations of improper sales to seniors against AmerUs/American Investors. A previous lawsuit against Midland National Life Insurance Co. is pending.

In October, the state settled with Allianz Life Insurance Co. of North America in a case involving 7,000 Minnesotans who had annuities valued at $325 million.

Swanson said senior citizens have become popular targets of insurers rather than younger workers, because they have built up nest eggs over a lifetime of work.

"If you're a hunter, you go where the ducks are," Swanson said.

Deferred annuities provide purchasers with a guaranteed payout after a number of years. They often carry a substantial penalty for early withdrawals, which some advocates say make them unsuitable investments for the elderly.

Swanson cited the case of Norman Pederson, an 80-year-old Aitkin resident, who placed his $24,000 in savings in a 15-year annuity.

Pederson, who receives $488 a month from Social Security, paid $6,685 in penalties when he withdrew money from the annuity to supplement his income.

Pederson and others in his situation now will be entitled to refunds, Swanson said. Under terms of the settlement, senior citizens who purchased deferred annuities from American Equity since Jan. 1, 2001, will receive letters from the attorney general and the insurer explaining the refund process.

Insurers in Minnesota agree that annuity sales several years ago were not monitored as closely as they should have been, and that agents were not trained concerning issues of product suitability for certain clients. Current suitability standards are tighter, said Mark Kulda, vice president of the Insurance Federation of Minnesota.

"Should a 95-year-old buy a 10-year deferred annuity? Most companies have a huge red flag that goes up when that happens," Kulda said. "Maybe a couple of years ago that red flag wasn't as big."

As part of the two settlements, the insurers said they will instruct agents to obtain additional financial information regarding liquid assets and disposable income before selling a deferred annuity. The goal of additional screening is to ensure that the buyer has adequate finances to cover daily living expenses and emergencies, Swanson said.

In the AmerUS/American Investors lawsuit, Swanson alleges that the insurer would gain the confidence of older clients by selling living wills for $2,000 to protect the seniors' belongings from probate. The personal financial information gleaned from those transactions was used to sell the same clients deferred annuities. Des Moines-based AmerUS/American did not respond to a request for comment concerning the suit.

Minnesota is not alone in raising concerns about the sales of long-term annuities to senior citizens.

The National Association of Insurance Commissioners set up a task force to look into the sales of annuities, and last summer issued a model suitability standard for states to consider. Thirty-one states, including Minnesota, have legislation built along the model's provisions.