American Equity fined $275K for unapproved annuity sales

The Minnesota Commerce Department has hit American Equity Investment Life Insurance Co. with a $275,000 fine for allegedly selling unapproved annuity contracts to state residents.
Between 2002 and November 2008, American Equity sold 541 contracts that weren’t approved by the state, amounting to more than $28 million in total face value, according to an announcement from the department.
The department has ordered the insurer to reimburse annuity holders who surrendered their products before their consent orders and to adjust the contracts so they’re in accordance with Minnesota law. Clients who surrendered their contracts and lost their bonus credits shall be reimbursed, according to the consent order.
The annuities were sold in cross-border sales, in which customers from one state traveled to another state to obtain products that aren’t sold in their home jurisdictions, explained Wendy Waugaman, chief executive and president of American Equity Life Holding Co. In this case, Minnesotans traveled to Iowa to buy the annuities under different surrender periods and terms that were permitted in Iowa, a move that Minnesota and a handful of other states won’t allow.
Some of the company’s products offer attractive benefits to consumers — depending on the state — but the clients are expected to hold the product as long as 16 years, Ms. Waugaman explained. “It offers customers a financial advantage they can’t get in their home state,” she said in an interview.
Officials in Minnesota also ordered that American Equity must shorten and reduce the surrender charge provisions in compliance with Minnesota law, which allows up to a 9% surrender charge for a nine-year period. This will cost American Equity $2.5 million.
All bonuses, enhancements and interest credits from the original contracts will also be credited toward the new Minnesota-approved forms. The department also ordered the insurer to establish an audit program to ensure that Minnesota residents get only state-approved policies.
The impact on the agents who sold these annuities will vary on a case by case basis, but Ms. Waugaman explained that this isn’t a situation in which the agent made an unsuitable sale. “Minnesota is an exception, not the rule,” she said. “From our standpoint, we and the agents are obligated to know the law, so we take responsibility for that, but this isn’t a situation in which the agent misrepresented the product.”