Allianz settles annuity lawsuit

Oct. 9--When retirees Edmund and Ruby Schulz of Apple Valley took out a pair of annuities worth $46,000 from Allianz Life Insurance Co. three years ago, they said they were assured by the salesman they could withdraw a monthly allowance for living expenses immediately.

But when Edmund had surgery for colon cancer two months later and needed his money, the company said he couldn't get a monthly payment until 2014, when he'd be 92. Any sooner, and he'd lose more than a quarter of his money as a penalty because the annuity hadn't matured.

"That's when I lost my cool with the salesman," the 85-year-year-old retired Lutheran pastor said.

What did he say to the salesman? "You don't want to ask," Schulz said.

Schulz now can tell the company: Show me the money.

Minnesota Attorney General Lori Swanson and Allianz Life Insurance Co. of North America on Monday settled a state lawsuit brought against the Golden Valley-based company that will allow more than 7,000 Minnesota seniors to get their money back after buying deferred annuities that may have been unsuitable for their financial needs.

The attorney general had sued Allianz in January, saying the company violated Minnesota law by not adequately disclosing to seniors that their money could be tied up for as long as 15 years and that they could not cash in their annuity early without substantial penalty.

The settlement affects customers age 65 and older who bought annuities from Allianz since Jan. 1, 2001.

The total amount of refunds could reach $325 million if every senior applies, Swanson said. The customers will have 120 days to respond once they receive a letter from the attorney general. Allianz does not anticipate every senior will respond and there will be no material impact on the company's finances.

Allianz admitted no wrongdoing in the settlement, which was filed in Hennepin County District Court. The company will, however, pay $500,000 in attorney fees and expenses, Swanson said.

Swanson wants the settlement to cause other companies that write deferred annuities to stop preying on seniors. Allianz Life was the nation's leader in writing fixed annuities last year with $6.6 billion in premiums.

"I would hope this (settlement) would have an effect and these other companies would knock it off," she said.

The attorney general said her office unsuccessfully tried to negotiate a settlement with Allianz prior to filing the lawsuit.

Since then, Allianz got a new CEO, Gary Bhojwani, and Swanson credited Bhojwani's personal involvement for Monday's agreement.

"With this settlement, Allianz is taking yet another step to continue to earn the trust and confidence that our consumers place in us every day," Bhojwani said in statement Monday.

Besides agreeing to refund without penalty the money of seniors who ask for it, Allianz also agreed to procedures that would obtain additional information from any consumer buying deferred annuities.

The information would determine if they have sufficient liquid assets and disposable income to pay for ongoing living expenses and emergencies without access to the money going into the long-term deferred annuity.

Furthermore, if the consumer is age 65 or older, the application will be "red flagged" for additional scrutiny. The company has agreed to look for potential trouble ahead, asking if the consumer has liquid assets after the purchase that are less than $75,000 or if they anticipate a significant increase in living expenses or a reduction in income or liquid assets during the deferral period, among other criteria.

The state Commerce Department said it is working with 10 other states on a national settlement involving Allianz Life. The department has brought enforcement actions against other insurance companies, including a $2.5 million fine against a group of Conseco insurance companies last year to settle charges of misconduct and selling unsuitable investments to more than 5,000 mostly Minnesota seniors.