Cuomo: Axa to pay DFS $20 million fine over insurance violations on retirement products

Gov. Andrew Cuomo on Monday announced that Axa Equitable will pay a $20 million fine to the New York State Department of Financial Services (DFS) for violations of insurance law.

The violations are related to certain variable-annuity products, which are investments that many consumers rely on to help pay for their retirements, the governor’s office said in a news release.

A DFS investigation uncovered that Axa made changes to certain variable-annuity products that limited the potential returns for existing customers without providing adequate notice to DFS, Cuomo’s office said.

Those omissions limited DFS’ ability to put consumer protections in place, such as requiring existing customers to affirmatively “opt in” to the altered product rather than remaining in that investment by default.

The omissions affected tens of thousands of New Yorkers with variable annuity products at Axa, the state says.

“Insurers have a fundamental responsibility to be clear and upfront with their regulators, particularly when a company’s actions can impact the retirement savings of tens of thousands of New Yorkers,” Cuomo said in the news release. “Unfortunately, Axa did not meet that basic test and today’s action should send a signal that failing to do so is simply unacceptable.”

For three straight years beginning in 2009, Axa filed requests with DFS and its predecessor agency to amend and restate the plans of operation for certain variable-annuity accounts in order to implement its Axa Tactical Manager (ATM) strategy).

Axa used the filings to apply the ATM strategy to new funds and existing funds. However, the company “failed” to inform and adequately explain to DFS how the introduction and application of the ATM strategy would impact existing policyholders, according to Cuomo’s office.

For example, the filings did not address how existing policyholders could end up invested in such funds, if they hadn’t elected to invest in the ATM strategy.

The ATM strategy is designed to smooth funds’ returns during periods of high market volatility, when investment prices may fall. However, the application of the ATM strategy can limit the gains that may accrue to a policyholder’s account without the ATM strategy, especially during a rising market.

Many policyholders invested in variable annuities, including variable annuities with guaranteed living and death benefits, because they were interested in making more aggressive investments to capture gains from rising prices, according to Cuomo’s office.

These policyholders were comfortable taking such aggressive positions because they had purchased an annuity-benefit guarantee that provided certain levels of benefits regardless of the performance of the selected investment options, Cuomo contends.

The changes effectively altered the nature of the product that the policyholders purchased, yet Axa did not explain in its filings to DFS that it was making such changes to its variable-annuity products. The absence of detail and discussion in the filings regarding the significance of the implementation of the ATM strategy had the effect of misleading the department regarding the scope and potential effects of the ATM strategy on the relevant funds and the possible consequences for policyholders, according to Cuomo’s office.

Contact Reinhardt at ereinhardt@cnybj.com