Date: February 5, 2010
For more information contact: Jim Guidry, (608) 264-6239 or jim.guidry@wisconsin.gov

Wisconsin, Four Other States Reach $2.1 Million
Annuity Settlement with Nationwide Life

Madison, WI—Wisconsin Insurance Commissioner Sean Dilweg announced that he, along with four other state insurance departments, have entered into a $2.1 million settlement agreement with Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company relating to the alleged unsuitable sale of Nationwide Life variable annuities to clients of Kansas-based financial advisory firm, Waddell & Reed, Inc. Wisconsin's portion of the settlement is $234,686.

"This multi-state settlement agreement by Nationwide Life reached with regulators in Kansas, California, Missouri, Minnesota and Wisconsin is the latest example of state insurance regulators working together to ensure a properly functioning market and the suitability of annuity sales," said Dilweg.

In December, the National Association of Insurance Commissioners (NAIC) adopted a model regulation for suitability in annuity transactions. One of the provisions of the model requires that insurance agents or insurers recommending the purchase or exchange of an annuity have reasonable grounds for believing that the recommendation is suitable for the consumer. Wisconsin participated in the working group that developed a new annuity model law under consideration at the NAIC and is working with state legislators to introduce new annuity supervision regulations in the state.

Though the violations outlined in the settlement pertain to the sale of Nationwide Life annuities by Kansas-based financial adviser Waddell & Reed, Inc., regulators from the five states assert that Nationwide Life and Nationwide Life and Annuity did not take the required steps to ensure that Waddell's supervision and control were adequate. In entering into this settlement, Nationwide Life does not admit to the allegations made by regulators that it violated any law or regulation.

In August 2005, the Wisconsin Commissioner of Insurance and the Wisconsin Department of Financial Institutions - Division of Securities issued a consent order against Waddell & Reed, Inc. censuring the firm for its conduct. The firm was ordered to pay a civil money penalty of $45,726.95 to Wisconsin. That order, in conjunction with a 2004 order issued by the Financial Industry Regulatory Authority, required that Waddell & Reed establish an $11 million fund from which restitution would be made to clients who were affected by the firm's actions. The firm was also ordered to hire an independent consultant to distribute the restitution payments.

Nationwide Settlement Details

Additional remedies for consumers who surrendered their United Life Insurance Company Advantage II variable annuity policy in exchange for a purchase of a Waddell & Reed Select or Select Plus variable annuity policy include:

  • Nationwide will offer to reimburse the consumer for any surrender charge they may have incurred by exchanging policies.
  • The option to rescind some of the riders the consumer may have purchased in conjunction with their annuity.
  • An increase of the death benefit to 103 percent of first year premiums plus 100 percent of subsequent premiums for those who purchased a Select Plus variable annuity with the Extra Value Rider.

Affected consumers will soon receive a notice from Nationwide Life informing them of their restitution options. Consumers have 60 days from the day of delivery to respond.

A copy of the Regulatory Settlement Agreement (opens in new window) can be viewed on OCI's Web site.

OCI publications such as "Understanding Annuities" and "Wisconsin Buyer's Guide to Annuities" contain valuable information for consumers who wish to better understand annuity products. These publications can be ordered free from the agency by writing to OCI Publications, P.O. Box 7873, Madison, WI 53707-7873, calling 800-236-8517, or visiting the OCI Web site at oci.wi.gov and clicking on the publications button on the home page.

Created by the Legislature in 1871, Wisconsin's Office of the Commissioner of Insurance (OCI) was vested with broad powers to ensure that the insurance industry responsibly and adequately met the insurance needs of Wisconsin citizens. Today, OCI's mission is to lead the way in informing and protecting the public and responding to its insurance needs.