#157 | John Hancock’s Enhanced Indexed Accounts

With Lincoln and Pacific Life brandishing their latest and deadliest weapons for the Indexed UL illustration war, it should come as no surprise that John Hancock felt a little bit underpowered. Its current Accumulation IUL 18 chassis, which sports a 2% asset-based charge to fund a 55% Index Credit Multiplier and an interest bonus of up to 0.85%, is easily in the top-quartile but its performance pales compared to the new products from Lincoln and Pacific Life. If you’re just waking up from a 12 year coma, you’d probably think I was talking about the Guaranteed UL market where these three companies engaged in a mutually destructive and unsustainable price war for years. But no, this is Indexed UL. Same story, different product. Some things never change.

John Hancock’s solution is to introduce two new account options – the Enhanced Capped Indexed Account and the Enhanced High Capped Indexed Account. Both account options have a 3% asset-based charge in addition to the 2% asset-based charge in the base contract for a grand total of 5%. According to the filings, which were curiously not bracketed for variability in rates, the 3% asset-based charge buys a 122% ICM in the Enhanced Capped account and an 86% ICM in the Enhanced High Capped account. These additional ICMs will bring the total multipliers to 177% and 116%, respectively. With those multipliers, Accumulation IUL 18 will out-illustrate even Lincoln’s WealthAccumulate IUL 18 with higher asset-based charges and the unique Positive Performance Credit. Wait, how’s that possible?

The math is a little bit squirrely here. How is it that a 2% asset-based charge in the base contract buys a 55% multiplier, which implies a 3.63% option budget, and the new Enhanced 3% asset-based charge buys a 122% ICM that implies a 2.45% option budget? And on top of that, how is it that John Hancock is offering a 10% cap that is running at a current cost of about 4.75%? It’s possible that the filings don’t have the current or accurate multipliers, but then why weren’t they bracketed? I guess we’ll see when the final rates are released. But, in any event, the fact remains that John Hancock isn’t messing around about its Indexed UL market share. They’re playing for keeps. As every other company has found out, playing for keeps in Indexed UL these days means arming up for the illustration war.

How hard was it for John Hancock to build a new weapon? They didn’t even need a new product. They simply filed an endorsement to the current policy in order to add more leverage to illustrated performance. This is proof that companies can ramp up their product leverage basically any time they want through a simple rate change or policy endorsement. What’s to stop Lincoln and PacLife from increasing their asset-based charges and multipliers in response? Not much. What’s to stop the companies that have tepidly played the charge-funded ICM game, like Securian and Nationwide, from diving in head first? Nada. Here’s the other interesting tidbit about John Hancock’s filing – it was approved in less than a week in the state where I first found it. That’s right, less than a week. With a single person reviewing it. The last sentence of the filing was particularly telling: “We [John Hancock] trust these forms are acceptable to you [state insurance department].” Hmm. That’s an interesting way to put things. Remind me again, who is regulating whom?