Great American Life Insurance Co. and its affiliate, Annuity Investor’s Life Insurance Co., have agreed to a settlement with Minnesota’s attorney general over the sale of deferred annuities to Minnesota residents.

Lori Swanson

Minnesota Attorney General Lori Swanson said the settlement will allow Minnesota seniors to make refund claims involving about 2,000 policies with an estimated value of about $50 million.

The Great American settlement is modeled after previous settlements the attorney general reached with Allianz Life Insurance Co. of North America in October 2007; American Equity Investment Life Insurance Co. in February 2008, AmerUs Life Insurance Co. and American Investors Life Insurance Co., now part of the Aviva Corp. in October 2008, and Midland National Life Insurance Co. in December 2008.

The settlement provides for a refund process for seniors who purchased policies from the companies, and requires the companies to improve their standards of suitability review through an “enhanced suitability review procedure,” according to a statement from Swanson.

Refund process

Minnesota consumers who were age 65 or older and purchased a deferred annuity from Great American between Jan. 1, 2001 and Aug. 1, 2008, will receive a letter from the attorney general and Great American informing them of the settlement and their opportunity to submit a claim for a full refund, without penalties.  Consumers who purchased annuities after Aug. 1, 2008, may file complaints with the attorney general’s office.

Swanson said refund requests will be “liberally construed” in favor of the consumer.  If it is determined that an Great American deferred annuity sale was unsuitable or based on misrepresentations, Great American will offer the consumer a refund of their premium, without surrender charges or penalties, plus 4.15% interest compounded annually.

As part of the application process for future annuity sales, Great American will request and obtain additional information from consumers that is necessary to make a suitability determination.  The additional information includes 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.  Great American must obtain the customer’s monthly income, living expenses and disposable assets, as well as total liquid assets, percentage of liquid assets placed into the annuity and anticipated significant changes to the household income, living expenses or liquid assets.

As part of Great American’s enhanced suitability review procedure, the company will also conduct a manual “elevated review” of annuity applications if a consumer is 65 years of age or older and meets one or more of six agreed upon criteria.

If an annuity application is subject to elevated review, Great American will issue the policy only if it determines and documents specific, objective evidence clearly establishing that the sale is suitable for the consumer in light of his or her stated financial condition, needs and objectives, according to Swanson.

The settlement was approved by Ramsey County District Court Judge Michael Monahan.