Interest Recapture in Annuities — The Third Exit Cost

By Editorial Team

Published April 1, 2026 · Updated May 5, 2026

Surrender charges and MVAs are well-known. A growing number of contracts — including SILAC’s Denali series — add a third layer: interest or bonus recapture that only applies if you exit before the end of the surrender period.

Most discussions of annuity exit costs stop at two factors: the surrender charge schedule and, where applicable, the market value adjustment. These are the most visible costs, the ones required to be disclosed in the contract summary and agent sales materials. But a small and growing number of fixed indexed annuity products include a third mechanism: interest recapture, bonus recapture, or premium bonus clawback that applies to early surrenders and excess withdrawals.

These provisions are not hidden — they are disclosed in the contract — but they are often inadequately explained during the sales process, and they substantially change the math for policyholders who surrender early. SILAC Insurance Company’s Denali series is the most widely distributed example of this structure in the current market, and understanding how it works provides a useful template for evaluating similar products.

Why Some Carriers Use This Structure

The conventional FIA fee structure involves a charge that reduces the option budget — the money available to purchase call options that fund potential index credits. Most carriers accomplish this through a spread (a percentage deducted from any positive index credit), a lower participation rate, or a lower cap. These costs apply regardless of how long the policyholder holds the contract.

A recapture structure works differently. Instead of reducing every year’s potential credit by a spread or capping the upside, the carrier offers full (or near-full) option budget to the policyholder year over year — delivering higher caps and participation rates than comparable products — but reserves the right to recapture a portion of interest or bonus credits if the policyholder exits before completing the surrender period.

The economic logic is that the carrier has priced its hedging costs and distribution expenses assuming a full contract term. A policyholder who leaves in year two received higher credits than they would have under a spread-based product, but the carrier hasn’t recovered its costs. The recapture mechanism corrects for this at surrender.

For policyholders who hold to maturity, this structure is genuinely beneficial — the higher caps and participation rates translate to more index credits over the full surrender period. For policyholders who exit early, it can be devastating.

SILAC Denali: A Detailed Look

SILAC Insurance Company’s Denali FIA series is structured around a premium bonus (up to 20% in the latest product iteration) and higher-than-market caps and participation rates on S&P 500 and other index strategies. The product is available in 7-, 10-, and 14-year surrender periods.

The recapture mechanism works as follows: if a policyholder takes an excess withdrawal (above the 5% annual free-withdrawal allowance) or fully surrenders during the surrender charge period, they incur:

1. The standard surrender charge on the excess withdrawal amount.
2. An MVA, if applicable in the policyholder’s state and if interest rates have risen since issue.
3. Interest recapture— the return of a portion of credited interest and any premium bonus, scaled to contract year. In policy year one, the recapture is 100% of interest credited and 100% of the premium bonus. The recapture percentage declines over the surrender period, reaching zero at completion.

The key phrase from SILAC’s own disclosures: “We’re able to allow Denali to have higher caps and participation rates without forcing your policyholder to have a fee dragging off their account value every year — it’s sort of we get it on the back end if they surrender their policy early or take an excess withdrawal.”

That’s an accurate description of the economics, and it’s worth taking seriously. The product genuinely offers higher current caps than a comparable spread-based product. The cost is that early surrender is substantially more expensive than the surrender charge schedule alone suggests.

The Full Exit Cost: A Worked Example

To illustrate the combined impact, consider a policyholder who purchased a Denali 10-year FIA with a 15% premium bonus on $100,000, has accumulated $120,000 in account value at the end of year three, and wishes to fully surrender:

Account value at surrender:$120,000

Free withdrawal (5%):$6,000 — no charges

Excess subject to charges:$114,000

Surrender charge (year 3, approx. 8%):−$9,120

MVA (if rates rose 1%, 7 years remaining ≈ −7%):−$7,434

Interest recapture (year 3, ~60% of interest credited ≈ $12,000 × 60%):−$7,200

Net surrender value: ~$96,246

The policyholder who put in $100,000, accumulated $120,000, and surrenders in year three receives roughly $96,000 — less than original premium. This is not a design flaw or a predatory provision; it is the product behaving exactly as disclosed. But it is a materially different outcome than a policyholder comparing only surrender charge schedules might have anticipated.

Important Note: No Recapture at Death

One significant protection in SILAC’s Denali structure: there is no interest recapture at death. The full account value — including the premium bonus and all credited interest — passes to named beneficiaries. The recapture mechanism applies only to living surrenders and excess withdrawals, not to the death benefit. This is a meaningful distinction for buyers who are primarily concerned with estate transfer rather than personal liquidity.

Other Carriers with Similar Structures

SILAC is the most prominent current example, but the underlying design pattern — higher current crediting rates funded by back-end recapture rather than front-end fee drag — has appeared in various forms across the FIA market:

• Premium bonus recapture has been a feature in products from American Equity, Global Atlantic, and several regional carriers that offer large upfront bonuses. The bonus is contractually “vested” over the surrender period — if the policyholder exits early, a prorated portion is returned.
• Spread-based products from most carriers do not use explicit recapture; instead, the annual spread or lower cap acts as a continuous implicit cost. The total cost profile is different — spread products charge you every year regardless, recapture products charge you only if you leave early.
• Living benefit riders on many products from carriers including Nationwide and Global Atlantic include similar vesting schedules on rider bonuses that reduce the guaranteed benefit base if surrender occurs within the first several contract years.

The Right Framework for Evaluating These Products

A recapture-structured product is not inherently worse than a spread-based one. The analysis depends on your holding period assumption and your actual likelihood of needing liquidity during the surrender period.

For a policyholder with high conviction they will hold a 10-year contract to maturity, the higher caps and participation rates of a Denali-style product may translate to substantially better accumulation than a comparable spread-based product — because the implicit cost of the recapture provision, which they’ll never incur, is zero.

For a policyholder who might face a liquidity event — a healthcare need, a family emergency, a need to reposition assets — the recapture provision can turn a manageable surrender cost into a severe one.

Before purchasing any FIA with a premium bonus or interest recapture feature, request a written surrender illustration that shows the total exit cost including recapture at each year of the surrender period. Compare that to the surrender illustration on the spread-based alternative you’re considering. The break-even point — the year at which you’d have been better off with the recapture product — will tell you whether the higher caps are worth the added exit risk.