American Equity Latest to Settle With Minn. Attorney General Over Annuity Sales Practices

WEST DES MOINES, Iowa, Feb 11, 2008 (A. M. Best via COMTEX) -- AMEB | news | PowerRating | PR Charts -- A second life insurer has reached a settlement with Minnesota's attorney general, who charged the company sold long-term deferred annuities to senior citizens that weren't suitable for their financial needs. At the same time, Attorney General Lori Swanson sued another life insurer over alleged deceptive sales of annuities to the elderly, marking her fourth such suit since she took office in January 2007.

The action against American Equity Investment Life Insurance Co., which Swanson filed last April, alleged the company sold unsuitable long-term, high surrender-fee annuities to senior citizens. The settlement, approved in Hennepin County District Court, is based on her settlement with Allianz Life Insurance Company of North America, announced last October, and allows up to 2,400 seniors to make claims for refunds totaling $125 million, the attorney general's office said.

American Equity, a top seller of equity-indexed annuities in the United States, also agreed to pay the state $250,000.

Other key terms of the deal include:

-- Minnesota consumers 65 or older who bought a deferred annuity from American Equity between Jan. 1, 2001 and the present will receive a letter from the attorney general and American Equity informing them of the settlement and that they may submit a claim for a full refund, without penalties. If a sale was unsuitable or based on misrepresentations, American Equity must offer the consumer a refund of their premium, without surrender charges or penalties, plus 4.15% interest compounded annually.

-- As for suitability review, American Equity is to obtain more information from consumers such as whether the consumer has sufficient liquid assets and disposable income to pay for ongoing living expenses and emergencies without access to all of the money that would be paid into the deferred annuity.

In a statement, the Iowa-based American Equity Investment Life Holding Co. (NYSE: AEL) said it hasn't admitted any liability or acknowledged the validity of any claims that were asserted in the attorney general's suit.

"The burdens of litigation are enormous, and we prefer to use our time and resources in furtherance of our efforts to provide superior products and excellent service," said David J. Noble, chairman, chief executive officer and president of American Equity, in a statement.

Swanson also sued AmerUs Life Insurance Co. and American Investors Life Insurance Co., also top sellers of equity-indexed annuities, alleging they sold unsuitable annuities to seniors and misrepresented or failed to disclose the material terms and conditions of the products, such as the long surrender charge periods and costly surrender charges. Both of these companies, also based in Iowa, were acquired in 2006 by the U.K.-based Aviva and are now part of Aviva USA.

Minnesota's top cop also charges the companies sold many annuities in the state through "living trust mills." These entities sold "unneeded boilerplate" living trusts to seniors for about $2,000, Swanson alleges.

In a statement, Aviva said based on an initial review of the complaint, it appears that Swanson's suit is based on allegations that were already included and resolved by American Investors and AmerUs in a consent order with Minnesota through the Department of Commerce in August 2007. "We question why the Minnesota attorney general is pursuing matters that were already raised and resolved by the State of Minnesota," the company said.

"We have made a number of offers during the past several months to meet with the Minnesota attorney general to respond to requests for information and work out a resolution of these issues, just as we did with the Minnesota DOC," Aviva said. "However, the Minnesota attorney general never accepted any of our offers to meet and discuss these matters."

Swanson has a similar suit pending against Midland National Life Insurance Co., also of Iowa and a unit of Sammons Financial.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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