#196 | Securian Eclipse Accumulation IUL

Last year, I wrote an article about Securian’s decision to drop their S&P 500 point-to-point cap to 10.5%, which is a long fall from the 17% cap their Eclipse IUL sported when it was released in 2008. Read the article here if you want the full scoop, but the gist of what I was saying is that Securian can no longer play the same game that it always has. Their game, in short, was to push the absolute ragged edge of pricing, illustrating and selling their Indexed UL products. They were the primary instigator and perpetrator of the illustration war that has engulfed the Indexed UL market and that they dominated for years. That’s how little Minnesota Life became mighty Securian. My question in that article was that if Securian no longer has a high cap by any measure and their products no longer blow the doors off of their peers in terms of illustrated performance what happens next? How will Securian transition away from how they built their business? What will they be when they grow up?

Well, if Eclipse Accumulation IUL (EAIUL) is any indication, Securian is making a significant break from the past. Whereas previous Minnesota Life IUL products were geared for maximizing illustrated performance, EAIUL is designed to be low-cost, simple and streamlined – and it delivers on all of those dimensions. Its predecessor, Orion IUL, had a whole slew of indexed account options, including options with charge-funded multipliers. Eclipse Accumulation IUL has just four crediting options and none of them have charge-funded multipliers. Even their low volatility index option is a classic S&P 500 index that has been around for over a decade and not one of the many newly-invented, highly speculative proprietary indices being employed by other life insurers. With EAIUL, Securian is playing it straight.

The policy charges have also been dramatically trimmed and are now some of the lowest in the industry. Orion IUL had a 10 year per thousand charge schedule that was basically the industry average, but EAIUL’s per thousand charges are as much as 40% lower than Orion and now sits near the bottom of the pack for accumulation-oriented IUL products. Securian also took the opportunity to trim out the early COI charges in EAIUL relative to Orion IUL by a meaningful margin. All in, if funded at the maximum non-MEC level, Orion IUL ranked 45th out of the 71 Indexed UL products that I track and model in my Dynamic Illustration Tool. EAIUL rings in at 16th, but 13 out of those 16 products with lower charges are death benefit oriented Indexed UL products. Just Mutual of Omaha Income Advantage IUL, Ameritas Value Plus IUL and AIG Max Accumulator+ 2019 have lower expense charge structures, and AIG only by a hair. If Securian’s goal was to have a low-cost chassis, it’s pretty hard to argue that they didn’t achieve that in EAIUL.

So what do policyholders lose in the bargain? Not much, if anything. Caps and participation rates are the same as in the outgoing Eclipse IUL and Orion IUL, which is in keeping with Securian’s seemingly iron-clad commitment to offer identical rates for newly issued and in-force policies. The big change is the structure of the persistency bonus offered by the two products. Orion IUL’s illustrated prowess was in no small part impacted by the Annual Policy Credit, a highly complex (see this article) and opaque policy mechanism that Securian never really could or did explain in any depth other than to say that it was “like a Whole Life dividend” and that producers should “trust us.” Fortunately, EAIUL swaps the opaque Annual Policy Credit for a fairly straightforward rolling indexed interest bonus paid at the end of each policy year. The bonus size is different for different ages, rate classes and face amounts, but it’s about 1-1.5% of the total previously earned indexed credits over the previous 10 years and is paid from year 11 to age 100. I wish that Securian would declare the bonus rate on the illustrations and I don’t see why they didn’t, but at least they do disclose the total amount of the bonus interest being added each year to illustrated performance. It’s a start.

What producers lose in the bargain, however, is pretty clear – Target premium. Orion IUL didn’t have blockbuster Targets to begin with and EAIUL walks those back by 10-15%. This puts EAIUL between 20% and 30% behind the highest Target products in the industry. Securian may be making up the difference by change payouts (unlikely) or some sort of production bonus plan (also unlikely), but the headline risk is that producers who are sensitive to compensation will go with products that illustrate better and, you know, just happen to pay more commission. It’s a gutsy play on Securian’s part because they traditionally were no slouch in the commission department. But with EAIUL, they’re living in no man’s land – compensation that lags other accumulation-oriented IUL products but not compensation so low that it falls in the death benefit oriented IUL camp. For Securian’s best producers and distributors, it may not matter, but if Securian is looking to win over agents with this product then they’ll face an uphill battle when the conversation turns to the brass tacks of how the producer is getting paid.

With Eclipse Accumulation IUL, Securian is effectively bowing out of the illustration war in Indexed UL and joining the other side. It’s like if Elizabeth Warren went to work at Goldman Sachs or Coach K took a job at UNC – unthinkable. What would drive Securian to do this? It’s not like they couldn’t have done a bigger charge-funded multiplier and sported illustrated performance that would have made even PacLife blush. They could have easily followed Allianz, AIG and Nationwide down the proprietary index rabbit-hole to prop up illustrated performance and caps. But they didn’t. They chose not to. For Securian, it seems, what’s going on these days in Indexed UL is just a bridge too far. They’re not willing to take the risk, even though they certainly could continue to fight the fight.

The reality is that Securian has changed. They may have made a fortune by recklessly playing fast and loose with Indexed UL, but now that they’re flush, they want to play it safe and diversify their winnings. They’re making plays in linked-benefit life products, fixed indexed annuity products and group insurance. Indexed UL is no longer the only bet they’re making or, it appears, even the main bet. This reminds me of what happened with a group of mid-20s daytraders I knew when I lived in Austin that all made a killing, somewhere between $1 million and $10 million each, in the market crash of 2009. Some of the guys took their newfound wealth and made even bigger, even riskier bets with even more leverage believing that their “skill” would continue to be rewarded. Without exception, all of them went bust within a couple of years. Others traded more conservatively, trying to still safely play the game, and they generally ended up bleeding out over time. But the smart one took his $8 million and invested it in a diversified set of income producing assets. He is now bust-proof, thanks to playing fast and loose and hitting the jackpot but knowing when to quit. Securian, it seems, knows when to quit.

That is, if you can really call developing a low-cost, simple, straightforward, consumer-friendly, well-priced and more sustainable Indexed UL product “quitting.” Hardly. Securian is only bowing out of the Indexed UL illustration war, not the Indexed UL market. People regularly ask me which Indexed UL product is my favorite and my stock answer, as I’ve written many times, is that I like the simple, low-cost ones – and I’m thrilled to add one more to the list. Welcome to the rebellion, Securian.