#256 | Symetra’s Gambit – Follow Up

In late 2013, just before I closed down the first iteration of The Life Product Review and joined MetLife, I wrote an article entitled Symetra’s Gambit. The crux of the article was that Symetra was carving out marketshare by offering artificially – and temporarily – cheap Guaranteed UL pricing in order to get a foot in the door of the independent life insurance market and ultimately attempt to transition the business away from Guaranteed UL and towards more profitable and more sustainable products. From what I heard later, the article made its way around Symetra and caused a bit of a stir.  This week, Symetra has decided to pull its vaunted Guaranteed UL product, now in its 7th iteration, as of the end of 2020. It appears that the gambit is now over.

There are some interesting angles to Symetra’s exit. First, Symetra chose to exit, not reprice. This is always somewhat curious to me. The cost of keeping an insurance product on the shelf is next to nil. As long as the pricing is profitable, any sales in the product are arguably accretive to earnings in that they help to fill the hole created by the cost of developing, pricing, filing and marketing the product. A company pulling a product is quite a statement – it either means that the cost of keeping it active is high, such as if the product needs to be repriced for a new CSO table, or that there’s suddenly no way to make the pricing profitable.

How do things like that change on a dime? Simple. Guaranteed UL pricing relies on corporate assumptions about future interest rates. If the corporate actuarial area sets a new corporate assumption for future interest rates, the so-called profitability of a Guaranteed UL block can swing from deep in the black to deep in the red in the blink of an eye. That’s why you so often see companies gorging on Guaranteed UL one minute and then swearing it off the next.

But there’s another way – the Lincoln way. Believe it or not, Lincoln still offers LifeGuarantee UL, their flagship Guaranteed UL product. It’s not competitive. Lincoln has priced it consistently with today’s interest rates, not projections of future rate increases. Nonetheless, they’ve kept it on the shelf because – who knows? – maybe one day they’ll want to make a play in the space and they’ll have the chassis ready when they are. The fact that Symetra chose to exit, rather than reprice, is a curious move.

Second, Symetra is a Japanese insurer. The interaction between accounting treatment and Guaranteed UL has been clear over time. Equitable, John Hancock, Voya, Transamerica and other European or Canadian domiciled companies dropped out of Guaranteed UL nearly a decade ago, when low interest rates first started to take hold. From there, a trickle of US stock companies followed over time – MetLife in 2013 all the way up to Prudential earlier this year – as long-term interest rate expectations gradually reflected the persistency of the low-rate environment. It’s only a matter of time before the two remaining major stock companies selling Guaranteed UL (Principal and American General) exit the market. Accounting treatment is fate.

The companies that remain are generally mutuals (Nationwide, Pacific Life and PennMutual), privately held (American National and Sammons) – and Japanese insurers, namely Symetra and Protective. Earlier this year, Protective rolled out a wickedly competitive Guaranteed UL product for level pay scenarios. As I pointed out in the review of that article, the way Protective priced the product leads me to believe that it is heavily reliant on mean-reversion interest rate assumptions. Based on Protective’s moves, I would have said that Symetra could use the same tool to stay in the Guaranteed UL space. But they didn’t. So does that mean that it’s only a matter of time before Protective follows suit? Or was this just a Symetra thing and doesn’t have anything to do with their Japanese ownership? We shall see.

Third, and perhaps most interestingly, is that Symetra’s gambit worked – and it worked so well that they no longer feel like they need Guaranteed UL. By every metric, Symetra’s Indexed UL business is absolutely on a tear, posting more than 50% growth in both policies and premiums in a year where the Indexed UL market actually shrank. Indexed UL now makes up a whopping 90% of Symetra’s business. Back in 2013, I wrote that I was “cautiously optimistic” that Symetra could pull off their strategy. It seems that I didn’t give them enough credit. They’re now a top-10 Indexed UL player and, clearly, that’s where they’re putting their focus.

In some ways, Symetra pulling out of Guaranteed UL is an acknowledgement that it’s no longer worth being in that business – for anyone, but even a company that cut its teeth and grew its business on that product line. And it’s only a matter of time before more companies follow suit. What will be left of the Guaranteed UL market? Not much, I’m afraid.

The tragedy of companies like Symetra exiting the business is that, arguably, there’s about to be no better time to sell Guaranteed UL. With the new administration, the estate tax exemption limits are surely going to be on the chopping block. It’s not difficult to imagine a world with a joint estate tax exemption of $10 million, meaning that thousands of families suddenly have an estate tax problem that could be handled effectively and efficiently with life insurance. Guaranteed UL has been the perfect application for that need because it’s simple, straightforward and fully guaranteed. The price is less important than the simplicity of the structure and how it fits into the planning process. Guaranteed UL is attractive because it’s guaranteed, not because it’s cheap. In my view, companies would do well to follow Lincoln’s example – stay in the market, but price to profitability. What’s there to lose?