Hartford Got Relief From Ex-Manager Turned Regulator (Update1)
By Andrew Frye
February 12, 2009
Feb. 12 (Bloomberg) -- Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, got almost $1 billion in reserve relief from a state regulator who is a former executive at the company.
Connecticut Insurance Commissioner Thomas Sullivan rebuffed a Feb. 10 request by the Consumer Federation of America and the Center for Economic Justice to recuse himself from matters involving his former employer. He approved a change in accounting standards that reduces the amount of money Hartford must hold for customer obligations by about $987 million. The insurer announced the action in a regulatory filing today.
"It has been nearly two years since I left my position in the insurance industry," Sullivan said yesterday in an e-mail to Birny Birnbaum of the Center for Economic Justice and CFA's Bob Hunter, a former insurance regulator for Texas. "Neither I nor my spouse or children have any financial interest in the insurance industry that would serve as a conflict of interest prohibited by the Connecticut Code of Ethics for Public Officials."
Sullivan, who was senior vice president of Hartford's Specialty Risk Services, was appointed commissioner in 2007 by Governor Jodi Rell. He told Bloomberg today in an e-mail that his statement to the groups was "self evident." Shannon Lapierre, a spokeswoman for the Hartford, Connecticut-based company declined to comment.
Sullivan's decision not to recuse himself may diminish consumers' trust in his supervision of the industry, according Michael Hoffman, executive director of the Center for Business Ethics at Bentley University in Waltham, Massachusetts. Sullivan could have avoided the perception of a conflict of interest by asking a committee to decide on his suitability to consider the issue, Hoffman said.
"You have to be very careful" when asked to step aside, Hoffman said. "That's a very dangerous thing to decide on your own."
Sullivan isn't the only regulator to ease standards. New York's Eric Dinallo allowed life insurers in his state to get a benefit from equity-market hedges when calculating reserve needs. MetLife Inc., the biggest U.S. life insurer, said in December the change would give the firm a benefit of about $1.8 billion. Regulators in Iowa and Ohio have signaled they may provide relief.
Life insurers are turning to state regulators after losses on mortgage-backed securities and guaranteed-return retirement products depleted assets. The industry failed to win nationwide capital relief when the National Association of Insurance Commissioners voted down a series of proposals by the American Council of Life Insurers last month.
Sullivan supported the nationwide reform, while CFA's Hunter opposed it.
Hartford Chief Financial Officer Lizabeth Zlatkus said on a conference call with analysts last week that the insurer requested the reserve changes because the rules were "unduly" conservative. The relief from Connecticut allows Hartford greater use of anticipated tax benefits.
Hartford has plummeted more than 80 percent in the last year in New York Stock Exchange composite trading.
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