The Hartford Financial Services Group, Inc. announced a settlement regarding the New York Attorney General’s investigation of market timing within the company’s variable annuity products.

The company has also settled with the New York, Connecticut and Illinois Attorneys General, resolving matters relating to their investigations of the compensation arrangements between The Hartford and its property-casualty agents and brokers. The State of New York Insurance Department joined in the settlement. The company also announced that other previously disclosed matters that were under investigation by these attorneys general have been concluded.

In settling both the market timing and broker compensation matters, The Hartford has agreed to pay, in total, US$115 million. This amount consists of US$89 million in restitution (US$84 million for market timing and US$5 million for broker compensation) and US$26 million in penalties. A substantial portion of the cost of the settlement has already been funded by the previously disclosed reserve of US$83 million set aside for regulatory matters. The Hartford did not admit or deny any violation of federal or state law as a result of this settlement.

In addition, The Hartford had previously disclosed an investigation by the staff of the Securities and Exchange Commission into matters related to market timing. In light of the settlement announced today, the commission’s staff informed The Hartford that it has concluded its investigation without recommending any enforcement action.

Commenting on the announcement, The Hartford’s Chairman and CEO, Ramani Ayer said, “We are pleased to have these matters behind us. Since these investigations began more than three years ago, we have cooperated fully with the attorneys general and other regulators. We have worked assiduously to strengthen and improve our business practices and will continue to do so. We emerge from this period with an unwavering resolve to uphold our longstanding commitment to providing our customers with outstanding products and exemplary service.”

Of the total settlement, US$84 million will be paid into a fund to compensate certain variable annuity contract holders of The Hartford for harm the New York Attorney General found to have resulted from the market timing activities of variable annuity contract holders from 1998 through 2003. The Hartford will retain an independent distribution consultant to develop a distribution plan for this fund that will be subject to the New York Attorney General’s approval.

Also, US$5 million will be paid into a fund to compensate certain commercial property-casualty policyholders related to a limited number of isolated instances of improper quoting between 2001 and 2004.

The attorneys general found that in these instances, certain employees of The Hartford engaged in improper underwriting by providing quotes for commercial insurance that were not based on an adequate assessment of the risk. These activities were not in keeping with The Hartford’s standards. Over the last several years, the company has voluntarily strengthened its internal controls, guidelines and training in this area.

The Hartford also agreed that it will forego paying contingent compensation in any line of its property-casualty business in which more than 65% of the U.S. market does not pay contingent compensation. It has decided to implement a new program for 2008 to compensate property-casualty agents and brokers for their performance in these lines of insurance and in its other standard commercial lines of insurance. Under this new supplemental commission program, The Hartford will pay a fixed commission, set prior to the sale of a particular insurance policy, that is based among other things on the agent or broker’s past performance.

“We value our strong partnerships with independent agents and brokers,” said Ayer. “Our new property-casualty supplemental commission program reflects their feedback for a more predictable compensation package.”

“Consumers planning for retirement and small business owners trusted Hartford as the steward of their insurance policies and long-term savings, only to have their trust violated,” said NY Attorney General Andrew Cuomo. “Today Hartford has finally ended this troubling history and pledged to restore consumer confidence as well as transparency and competition in the marketplace. This settlement underscores the enduring commitment of my office to aggressively pursue corporate wrongdoing, wherever we find it.”