Annuity sales lead to penalty, restitution Penn Life agrees to pay state $925,000 under settlement

Guy Boulton

Jun. 17, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- Pennsylvania Life Insurance Co. has agreed to pay a record penalty of $925,000 to the state and to offer restitution to up to 2,200 people in Wisconsin to settle allegations of inappropriate sales of annuities.

The Wisconsin Office of the Commissioner of Insurance announced the agreement with Penn Life, a subsidiary of Universal American (NYSE:UAM) Financial Corp., late Monday afternoon.

The settlement affects as many as 2,200 people, most of them seniors, who were sold more than $55 million in annuity products since 2000, according to the insurance commissioner's office.

Annuities are a contract sold by life insurance companies that guarantee a fixed or variable payment in the future, usually for retirement.

The products can be a helpful financial-planning tool when used correctly. But they have also generated controversy for being sold inappropriately to people who did not understand how the products are designed or what their terms are.

In 2006, the state insurance commissioner received 294 complaints about how annuities were sold.

The settlement requires Penn Life to offer consumers who were sold annuities or life insurance policies the opportunity to have their purchases reviewed by an independent remediation firm.

If the firm determines the sale was improper, the consumer could be eligible for repayment of any penalties and has the right to surrender the current annuity without paying penalties, said Eileen Mallow, assistant deputy commissioner.

Penn Life will notify eligible customers by mail once it has hired a remediation firm. The insurance commissioner's office expects the notices will be mailed by late summer.

"We strongly encourage these consumers to consult with their advisers, including tax and legal counsel, as they participate in this process," Kim Shaul, deputy commissioner of insurance, said in the news release.

Penn Life, which denies violating state law, could not be reached for comment late Monday.

The state began investigating Penn Life's principal Wisconsin insurance agency, Premier Marketing Group, after complaints alleging that insurance agents made misleading representations or sold unsuitable annuities or other policies to customers, according to the commissioner's office.

That investigation began in 2005, according to a filing with the Securities and Exchange Commission by Universal American. The insurance commissioner has since revoked the licenses of several insurance agents affiliated with Premier Marketing Group.

Universal American, based in Rye Brook, N.Y., stopped selling annuity products in September 2006, according to the SEC filing. Under the settlement agreement, Penn Life cannot sell annuities in Wisconsin for four years.

The settlement agreement also addresses sales practices of Penn Life affiliates such as Marquette National, Pyramid Life, Constitution Life and Union Bankers. Those companies sell such products as long-term care insurance policies; Medicare Advantage and Medicare Part D plans; and Medicare supplemental policies.

Newstex ID: KRTB-0130-26028531