#81 | Symetra Accumulator IUL 1.0
Symetra has been a bold newcomer to the independent space with highly competitive Guaranteed UL products and, now, an aggressive Indexed UL product in Accumulator IUL 1.0. In keeping with Symetra’s general modus operandi of buying market share (presumably at the expense of profitability), Accumulator IUL sports a 12% cap, 115% bonus and industry average policy charges. No surprise, then, that it illustrates quite well. Will it hold up over the long run? I doubt it. When Symetra gives away pricing on GUL, you should probably take it because they can’t change the deal later. When Symetra gives away pricing on IUL, you should adjust for the real world. If Symetra was sustainably pricing to the market, Accumulator IUL would have a roughly 10% cap and 6% illustrated rate. If you can’t make Accumulator IUL work with those stats, then you’re probably best off looking elsewhere.
One of the last posts I wrote on The Life Product Review in 2013 before going to MetLife was called Symetra’s Gambit. At the time, Symetra was making a splash with extremely low-cost GUL at a time when a lot of the major players were pulling back. My point was that we’d seen this movie before – a new market entrant willing to give away pricing on a commoditized product in order to build a presence and, ultimately, attempt to pivot to more profitable or sustainable products. Accumulator IUL 1.0, released last October, represents the first chance to see if their strategy will work.
Not that Symetra left much to chance. Accumulator IUL makes a compelling case. For starters, it has a 12% cap on its SPX 1 year point-to-point account. While this isn’t an outlier in itself, it’s definitely at the high end of today’s market. I’ve always said, and still believe, that PacLife’s caps are the truest indicator of sustainable pricing. Pac’s cap is 10.5% on Versa Flex 5, so it’s not a far fetch to say that Symetra’s cap is on the high side. Accumulator IUL also has a 115% multiplier starting in year 11. This, too, is a rich feature in itself and is made even richer by the 12% cap. Companies that have a 12% cap usually don’t have a multiplier (Principal) and companies that offer a multiplier don’t usually have a 12% cap (John Hancock, Nationwide, etc). Symetra has both.
As if that wasn’t enough, there’s another thing that sets Accumulator IUL apart. The vast majority of IUL products credit indexed interest based on the average account value throughout the year. Accumulator IUL credits interest based on the account value at the beginning of the year, before any monthly charges are deducted. This is an unmitigated benefit to customers, although the size of the benefit depends on how big the monthly charges are relative to the account value. In the same way that Minnesota Life can afford a slightly higher cap because it credits interest based on the end of year account values, after all charges have been deducted, you would expect Symetra to have a slightly lower cap because it credits interest based on the beginning of year account values. But, instead, Symetra sports a 12% cap and a 115% multiplier. Rich, indeed.
Now, here’s the part where you’re probably expecting me to tell you that the policy charges in this contract are egregiously high in order for Symetra to fund all of these benefits – but that’s not true. In fact, the charges are pretty lean. It looks like Symetra basically pegged PacLife’s PIA 5 product and cut out some charges. The premium loads are identical but the COI charges and base charges (at least on a 45 year old) are lower on Symetra’s for a very long time, even when both products are blended to have identical target premiums.
Accumulator IUL ticks a few other boxes as well. Symetra has taken the more aggressive interpretation of the illustrated loan arbitrage provision of AG49, meaning that it applies the 115% multiplier on top of the maximum 1% pure illustrated rate arbitrage. Using the AG49 maximum rate of 6.92%, Accumulator IUL can illustrate a grand total of 1.96% in loan arbitrage over the 6% loan interest rate. Symetra also added a robust compensation adjustment feature that is a carbon copy of PacLife’s. Both products recapture commission costs through the base charge over the first 10 years and by very nearly the same ratio. For every $1 of additional compensation, base policy charges over the first 10 years increase by about $2.25 in both PIA 5 and Accumulator IUL. Depending on who you ask, adjustable compensation with a clear cost to the client is either revered or reviled. It was a bold move on Symetra’s part, but one that will probably pay off because the product itself illustrates so well that Symetra can win on both compensation and illustrated performance, should a producer decide to put a little extra jingle in his pockets. Finally, Symetra also chose to add an indexed option pegged to the JP Morgan Efficiente 5 Index, which it also uses in its FIA suite. Although there are some benefits to these custom indices, as I’ll discuss in future articles, they aren’t reason enough to choose one product over another. But it’s a nice addition to the story for Symetra.
Like I said, Symetra didn’t leave much to chance. Accumulator IUL is a strong product in all the right ways. It’s fundamentally simpler than many of its competitors that rely on highly complex mechanism to deliver similar performance. It’s more transparent, thanks to Symetra’s clear and concise marketing and highlighting of its features. It has reasonable charges paired with very competitive upside potential. And, of course, it illustrates really well. If you like IUL, then it’s hard not to love this product.
That’s what makes this product so difficult to review. Giving away pricing on a GUL is very different than giving it away on an IUL because the ultimate pricing is always in the hands of the insurer. As a result, Accumulator IUL’s extremely attractive illustrated values raise a bigger question – will at actually perform that much better than virtually identical products sold by other companies?
To answer that question, you have to develop a rationale for how Symetra can illustrate such a competitive product. Your rationale will lead you to a belief about whether or not this product will really perform better than its peers over the next 50 years – because that’s exactly what the illustration says and, in recommending this product over another one, you’re implying to the client. I’ll posit three rationales. First, Symetra is better at investing and therefore will always have a higher option budget than its competitors. Second, Symetra has a Japanese parent that has different accounting and profitability metrics that have allowed them to build a better product. Finally, Symetra is simply taking a lower initial return on Accumulator IUL in order to make a splash, gain marketshare and cement their distribution relationships.
Let’s tackle them in turn. For the first rationale, it’s impossible for anyone to predict that a specific company will be better at investing than its peers over the next 30 years. Symetra might have a higher option budget now, but as we’ve seen over and over again in this business, yield winners today are losers tomorrow and vice versa. The second argument, I think, could be convincing. I don’t know anything about Japanese accounting, but I’ve priced products under both GAAP and Stat and I’ve seen how much accounting matters for initial pricing. Products that look terrible under Stat can look fine under GAAP and vice versa. The one gap in this product’s story is that the ultimate COI charges are extremely high, some of the highest in my sample set of 28 products. In GAAP, high late policy charges can essentially pay for rich benefits now while still maintaining a healthy ROI, thanks to accrual accounting. If that’s what Symetra is doing with this product, then consider today to be Christmas and Accumulator IUL to be a gift – until, of course, someone in the CFO organization wakes up and makes the necessary adjustments to put profitability back in line. In the long run, it all evens out. We can dispatch with this rationale as well.
That leaves us with the final explanation – Symetra is simply buying marketshare. There’s just no way around this conclusion. They did it in GUL and they’re probably doing it again in IUL. Right now, their business model is selling 8% return GUL products where they’ve surrendered all pricing levers. Wouldn’t it be better to sell an 8% return product where Symetra can generate profits any time they please by just changing the cap? That’s an excellent trade. It’s also a playbook that plenty of other companies have tried before. Remember Minnesota Life’s 17% cap? How about PennMutual’s 14% cap and 2% floor? Ah, the good ‘ol days. But it worked. Those companies are major players now and have cemented their position in the consideration set of advisors selling IUL.
In a lot of ways, Accumulator IUL is the perfect contrast to PacLife PDX. Symetra is offering very high current caps that show an advantage forever on the illustration, despite having all of the same mechanics and drivers as other IUL products. PDX shows strong illustrated performance by using an entirely different set of mechanics that puts more money to work in the options budget. The two products are mechanically different and will actually perform differently. One could believe that PDX will outperform Symetra over time because the mechanics are different, but it would be extremely difficult to believe that Symetra will outperform other functionally identical IUL products without buying into one of the first two theories. If Symetra is just buying marketshare, then the party will end – it’s only a question of when.
So where does this leave you, the advisor? If you’re selling IUL, then you should seriously consider selling Accumulator IUL, but not because of its 12% cap and illustrated performance. You should consider it because Symetra is a solid company with deep FIA expertise, always a plus in the IUL market. You should consider it because the product itself is simple, transparent and straightforward. If it happens to give a little bit of a better cap than some of its peers early on, then great, but you shouldn’t illustrate this product with the notion that it will actually perform better. My recommendation is to run Accumulator IUL as if it has a 10% cap. It will still be competitive, its positive attributes will still shine, and it will still get the consideration it deserves. But you’ll probably avoid setting false expectations about sustainable outperformance.