Hartford Financial Services Group Inc. plans to add features to its annuity lineup in the United States and Japan in the next two months as it responds to market pressure that factored into a 20.9% decline in quarterly earnings.
The Connecticut insurer will add income-for-life riders next month to its two U.S. variable annuities and an income feature in September to its Japanese one.
Ramani Ayer, Hartford’s chairman and chief executive officer, said Friday during its quarterly conference call that one of the U.S. riders will offer improved spousal benefits, and the other will increase withdrawal benefits.
Hartford was an early entrant in Japan, but increased competition forced its earnings there to drop to just under $1 billion in the second quarter, Mr. Ayer said.
“The rapidly growing variable annuity market in Japan is drawing strong domestic and foreign competition,” he said. “Today there are more competitors and product choices than ever before.”
Thomas M. Marra, Hartford’s president and chief operating officer, said during the call that its Japanese operations got off to a “torrid start” when they began in 2000, but now that more competitors are entering the market, Hartford is responding.
Starting Sept. 1, its Japanese variable annuity will offer a guaranteed-income withdrawal benefit of 3% a year after it has been held for 10 years. Previously customers had to hold it for 15 years before receiving the benefit.
Analysts said competitors are offering similar products in Japan.
“They are playing catch-up with products there, and that is a little disappointing, considering that they were the leader in that market originally, but that is part of the game,” said J. Paul Newsome, an analyst with A.G. Edwards & Sons in St. Louis. “There are a lot of very successful annuity writers that never want to be innovators. It is easier to be second or third in line with products.”
Mr. Marra said Hartford is looking for ways to keep up with and exceed the competition. “This will be a good offering. It is not the hottest on the street, but it should position us well.”
Hartford wants to introduce additional products in Japan down the road, he said.
“One product that has been dormant in the market is fixed annuities,” Mr. Marra said. “We want to look into ways we can renew interest in fixed annuities in Japan. We have to work on all of our products in the U.S. and Japan.”
Last week Hartford reported that its net income fell 20.9% from a year earlier, to $476 million, or $1.52 a share, even though variable annuity sales and deposits rose 12%, to $3.2 billion. Assets under management in variable annuities increased 6%, to $106 billion.
Despite this growth, Hartford projected that variable annuity sales could drop to $2.8 billion this quarter. It would be disappointed if that happened, so “we want to be a little careful,” Mr. Marra said. “We are pleased with our performance, and we are coming up with new products, but the market jitters are evident, so we have to be a little careful.”
Analysts said Hartford has been proceeding with caution since cutting its full-year earnings guidance to a range of $8.50 to $8.80 a share, because of a charge of $158 million, or 50 cents a share, related to reinsurance recoverables. Previously, it had expected earnings of $8.80 to $9.10 a share.
Alain Karoglan, an analyst with Deutsche Bank AG who covers the insurance industry, including Hartford, said many analysts are misinterpreting the new guidance. After the charge is taken into account, Hartford actually increased its guidance by 20 cents, he said.
“Hartford is looking to invest in growth opportunities in Japan and in other areas, including starting a variable annuity business in the U.K.,” Mr. Karoglan said. “They are going to continue to invest in their business and still have excess capital to buy back shares. They have always been and will continue to be very disciplined when it comes to growing their business.”
Mr. Marra said his company has experienced “steady progress” in European variable annuities over the past five quarters and is “optimistic” that the platform can be successful.
Hartford recorded double-digit growth in its life insurance operations and retail product group. Sales and deposits in all of its asset accumulation businesses topped $10 billion in the second quarter. Assets under management in its life insurance operations rose 13% from a year earlier, to $291 billion. Assets under management in the retail product group rose 10%, to $150 billion.
