#133 | Nationwide Accumulator II IUL
Nationwide’s life insurance business is in an interesting spot. Five years ago, Nationwide’s calling card was low-cost Guaranteed UL sold primarily in the BGA market. That kicked off a growth spurt that has landed Nationwide as a top-10 seller of universal life insurance and newfound relevance in the market, even though their business has changed quite a bit over the last 5 years. Now, Nationwide’s sales are dominated by Indexed UL sold through World Financial Group, the gargantuan middle-market, multi-level marketing life insurance distributor that funnels its business through just a handful of companies. Nationwide is caught between a slowdown on its home turf, independent BGA distribution, and its staggering success at WFG. Nationwide didn’t need to make a new flagship, Accumulator II, for WFG but rather to claw back share and grow in BGA distribution. So how does Accumulator II accomplish that goal?
By doing exactly what practically every other Indexed UL product released in the last two years has done – add Index Return Multipliers (IRMs) to juice illustrated performance. Nationwide was actually one of the first companies in the market to offer an IRM on the last version of its IUL Accumulator product, but they played it safe. The 15% IRM was only available on a subset of the indexed accounts and the maximum illustrated rate for accounts with the IRM couldn’t exceed the AG49 Maximum Illustrated Rate for the product. Accumulator II breaks with the old product on both counts. All indexed accounts now get a 15% IRM beginning in year 6 and the total illustrated rate can now exceed the AG49 Maximum Illustrated Rate. Fixed charges in the first 10 years have increased, substantially in some cases, which is likely somewhat related to the additional cost of applying the 15% IRM to all indexed accounts. In short, Nationwide is now playing by the same AG49 interpretation as most of its competitors.
But in order to get an edge on illustrated performance, Nationwide added two indexed accounts, in addition to the Core (no fee) and High Cap (1% fee) accounts, with the new Advanced Multiplier – a 50% IRM funded with a 2.25% asset charge. All in, that means illustrated returns in Advanced Multiplier accounts sit at 1.65 times the maximum AG49 illustrated rate for the product. Accumulator II certainly has the crediting structure to be one of the most competitively illustrated IUL products on the market. But, to Nationwide’s credit, they decided to carry over their stance on loans from their old product into the new one by only offering Standard loan options with no illustrated loan arbitrage. Accumulator II is designed to compete well in terms of illustrated cash value performance, but doesn’t play the illustrated loan arbitrage games that many of its competitors do. That’s a commendable, conservative and client-friendly stance.
The mixture of aggressive moves and conservative backstops is the curious dichotomy in Accumulator II. For every one of its moves to enhance competitiveness on the illustration, there’s a countervailing move somewhere else in the product to curtail risk and enhance returns for Nationwide. Beyond the fact that Nationwide only uses standard loans on a product that would absolutely crush illustrated income with indexed loans, the most obvious place to find this dichotomy is in the 9.25% cap for the S&P 500 accounts. Quick math on the Advanced Multiplier accounts tells you that the option budget for the product is about 4.5% (2.25% / 50% = 4.5%). At today’s option prices, a 4.5% budget almost exactly buys a 9.25% cap. So, what’s the problem? Isn’t that the way Indexed UL products are supposed to work?
The problem is that Nationwide might be the only company right now that is actually following its option budgets. Most other life insurers are holding their breath and hoping that option prices drop back to the historic lows we saw up until 18 months ago. Any cap over 10% right now is very likely to drop, potentially significantly, over the next 12 months. Nationwide, on the other hand, is priced to the market. That’s the right way to do it. The fact that other companies are essentially trying to ride out a bad market just to stay competitive on the illustration is evidence of just how deluded the Indexed UL market has become. But for Nationwide to make such aggressive structural changes to its product and then not follow through with a competitive cap is evidence of the dichotomy.
The most curious thing about Accumulator II, though, is how Nationwide played with the guaranteed charges. Most life insurers don’t pay much attention to guaranteed charges because they don’t directly impact illustrated values or tax calculations. But with Accumulator II, Nationwide made a series of concerted changes that push way more flexibility into Nationwide’s hands. For example, the Core accounts in Accumulator II that are marketed as no-charge, basic indexed accounts allow for Nationwide to charge an asset-based fee of up to 0.5%. In other words, Nationwide can assess a 0.5% asset-based charge in the future on an account that the client specifically purchased because it didn’t have an asset-based charge at issue. The addition asset-based charge fundamentally changes the nature of the risk of the account and puts more levers in Nationwide’s hands. Nationwide doesn’t have a history of making adverse changes to non-guaranteed elements, but for some reason they left that door wide open with Accumulator II.
Sometimes the sequel isn’t better than the original. Caddyshack II (yes, that happened). The Next Karate Kid. Jaws: The Revenge. And, unfortunately, Nationwide IUL Accumulator II is arguably another one on that list. If given the choice between this product and its predecessor, I’d chose the predecessor. Juicing illustrated performance with IRMs is a cheap trick that, frankly, is being played much more aggressively by Nationwide’s competitors. If a producer has bought into the IRM story, then there are plenty of products that will blow the doors off of Accumulator II now and especially by Q2 of next year. In my opinion, Nationwide would have been better off sticking to their story as a high-quality, high-road, low-charge company selling responsible Indexed UL products. But apparently, they didn’t have either the fortitude or patience to pull off being different in the Indexed UL market and that’s a shame.
Nationwide also released IUL Protector II concurrently with Accumulator II. I chose not to review Protector II because it shares many of the same attributes and changes from its predecessor as Accumulator II. The new products both carry over IUL Rewards, which are guaranteed enhancements conditional on specified persistency and funding requirements. Under IUL Rewards, Accumulator II receives a 0.2% asset credit and Protector II receives a 25% reduction in COI charges. The difference between the Rewards is a nod to the different design and purpose of each product and, in my mind, is appropriate.