Facing Risk In The Year Ahead

How insurance products can help address the challenges of rising rates, sustained volatility and persistent inflation

As we look to a new year, many of the risks that plagued financial strategies will not go away any time soon. The financial environment created by a storm of rising interest rates, sustained market volatility and inflation at 40-year highs is challenging for even the most prepared savers and the financial professionals helping them.

In fact, a majority of Americans continue to be pessimistic about the economy, with 62 percent worrying that a major recession is right around the corner, according to a recent Allianz Life Insurance Company of North America (Allianz Life) study.*

The good news is that we have insurance products that can help mitigate these risks.

Addressing historic inflation
When it comes to inflation-fighting features, Allianz Life fixed index annuities (FIAs), registered index linked annuities (RILAs) and fixed index universal life insurance (FIUL) policies all offer innovative opportunities for clients during uncertain times. The potential for these features to help address inflation is not guaranteed. A variety of factors including interest rates, product caps and rates, market index performance, and crediting methods all affect how these inflation-fighting features work.¹

In addition to providing varying levels of protection from market downturns, accumulation potential, tax deferral, and a death benefit (during the accumulation phase) for beneficiaries, FIAs and RILAs both offer guaranteed lifetime² income that can increase each year the annuity earns a credit through either built-in or additional-cost riders.

It’s not just that increases can happen–they actually do, and often. Nearly all Allianz Life FIA customers (99 percent) received an income payment increase at least once through our income benefits.³

This ability to earn income increases may be top of mind for some clients as they begin to think about retirement during recent inflation. Our study found that 75 percent say they worry the rising cost of living will affect their retirement plans, and more than three in four respondents (78 percent) say a guaranteed lifetime income option⁴ (such as an annuity) as part of their retirement strategy would ease concerns about inflation.

Managing market risks
To help address risks that market volatility can pose to retirement security, Allianz Life offers lock features on select allocation options within certain FIAs and FIUL insurance policies, as well as with select index strategies (also called crediting methods) in the Allianz Index Advantage^® suite of RILAs.

The manual lock features allow clients the opportunity to secure an index value (or Index Option Value, for RILAs) once for each index allocation or RILA Index Option selected during a crediting period, and receive a positive credit.⁵

There is also an automatic lock feature,⁶ which gives clients and their financial professional the ability to set one or more targets (above or below—for FIUL—the current daily adjustment) for any of the select index allocations or index option values at any time before a lock is executed each term. If a target is met, it will be automatically locked in until the end of that crediting period.

This innovative feature gives clients the flexibility to potentially capture increases or limit losses during times of uncertainty. It can also help decrease the probability of receiving zero percent interest credit on FIAs and FIULs, and negative index performance until the end of term on RILAs. By electing the lock feature, clients no longer participate in any potential gains (or losses) for the rest of the term. The index value or RILA index option value used to determine credits may be higher or lower than the value at the time of request.

Diversification⁷ among allocation options on an FIA, RILA or FIUL can be another strong tool in addressing market risks. Some allocation options may offer the potential for more interest but may provide less consistency and more volatility. Others may have a lower interest potential but may provide more consistency.

Finding the right balance will depend on a client’s financial goals and risk tolerance. Because Allianz offers a number of different allocation options, clients can work with their financial professional to make an appropriate choice to fit their unique needs.

Helping financial professionals along the way
In light of our unique economic environment, the role of a financial professional has perhaps never been more important. More people say they are willing to seek out guidance from a financial professional in the coming year, according to the Allianz Life 2022 New Year’s Resolutions Study. One in three (33 percent) Americans say they are more likely to seek out the guidance of a financial professional in 2023, compared with just 22 percent in 2021.

To help financial professionals better serve their clients, Allianz Life enhanced our service model to help you monitor and identify opportunities to potentially lock in gains or index values across all product lines. These tools can help you more easily manage your book of business, and also add value for clients. You are able to easily log in to access index or performance lock reports on our website to help you identify lock opportunities for clients reaching certain index percentage thresholds.⁸

And the results can be impactful. On RILA products, we’ve helped financial professionals and their clients execute Performance Lock over 148,000 times in 2021, with an average locked-in credit of 14 percent.⁹ For FIUL clients, the Index Lock has been executed over 11,000 times, with an 11.44 percent average locked-in credit.¹⁰ Our FIA allocations with an active Index Lock have an average crediting rate of 6.3 percent.¹¹

Allianz Life is also continuing to look for ways to upgrade the experience with Allianz Life for you and your clients. For example, we recently announced our first-ever Automatic Risk-Class Upgrade Underwriting Program for the Allianz Life Pro+^® Advantage Fixed Index Universal Life Insurance Policy. This means that if your clients qualify, they would receive a Preferred Plus Nontobacco risk class (or Preferred Tobacco),¹² and the cost for their insurance is less, meaning more value added for your clients.

A partner in Allianz Life
With the tumultuous year we have had, and looking ahead to more uncertainty in 2023, the role that insurance products like annuities and fixed index universal life insurance play can be extremely important.

Allianz Life offers financial professionals and their clients innovative products designed to help manage retirement risk. We are constantly evolving to create the new and useful products that consumers want and need to a level of protection from retirement risk, and we’re committed to helping you and your clients mitigate some of the most pressing risks facing us in the year ahead. [ET]

*Allianz Life conducted an online survey, the 2022 Q3 Quarterly Market Perceptions Study, in September 2022 with a nationally representative sample of 1,004 Respondents age 18+.

Footnotes:

1. The potential for these features to help address inflation is not guaranteed.
2. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.
3. The total number of fixed index annuity (FIA) contracts used for this analysis was 34,960 and represents an increase of any amount in a given year. Income benefits were elected from 1/1/2008 (when the first contract eligible for annual reset method income increases was elected) through 12/31/2020. Income increases are reflective of multiple FIA products and income benefits that were available at that time. Individual contracts may have seen varying amounts of income increases. There is no guarantee a contract will receive an increase in any given year. Results for fixed index contracts are not a prediction of results for RILA contracts, as they will vary. Past results are not a guarantee of future results.
4. Total number of manual and automatic Performance Locks performed between 1/1/2021 and 12/31/2021. Average locked-in credits for clients who applied the Performance Lock feature between 1/1/2021 and 12/31/2021. The total number of contracts used for this analysis was 54,469 and one-year and three-year term index options were included. Potential credit varies by index strategy and index. Past performance is not an indication of future results.
5. Exercising a lock may result in a credit higher or lower than if the lock had not been exercised.
6. This feature may be discontinued at any time.
7. Diversifying among allocation options within an annuity or life insurance policy does not ensure a profit or protection against a loss.
8. We will not provide advice or notify the financial professional or clients regarding whether clients should exercise a lock or the optimal time for doing so, or warn financial professionals or clients if it is a sub-optimal time to execute a lock.
9. The total number of index variable annuity contracts used for this analysis was 54,469 and represents Performance Locks performed between 1/1/2021 and 12/31/2021 for Allianz Index Advantage® Variable Annuity, Allianz Index Advantage ADV® Variable Annuity, Allianz Index Advantage® NF Variable Annuity and Allianz Index Advantage Income^® Variable Annuity. Potential credit varies by index strategy and index. By electing the Performance Lock, your clients will no longer participate in any potential gains (or losses) for the rest of the crediting period. Past performance is not an indication of future results.
10. Average locked interest rate percentage for clients who applied the Index Lock feature between August 17, 2019, and September 30, 2022. The total number of policies used for this analysis was 11,150. Potential interest varies by index allocation. Past results are not a guarantee of future results.
11. Average locked interest rate for clients who applied the Index Lock feature between September 9, 2019, and November 22, 2022. The total number of contracts used for this analysis was 7,970 and both one-year and two-year crediting methods were included. Potential interest varies by index strategy and index. Past results are not a guarantee of future performance. Exercising an Index Lock may result in a credit higher or lower than if the Index Lock had not been exercised. We will not provide advice or notify you regarding whether you should exercise an Index Lock or the optimal time for doing so.
12. To be eligible for the risk-class upgrade, your client’s base death benefit must be a minimum of $500,000 coverage. Flat extra cases, Juvenile, Preferred Tobacco, Rated Cases, and Table 2 cases will receive a Standard risk class.

Products are issued by Allianz Life Insurance Company of North America. Variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com (L40538, L40538-NF, L40538-IAI, L40538-IADV).

For more complete information about Allianz Index Advantage Variable Annuity, Allianz Index Advantage ADV Variable Annuity, Allianz Index Advantage NF Variable Annuity, Allianz Index Avantage Income Variable Annuity, Allianz Index Advantage Income ADV Variable Annuity and any available variable options, call Allianz Life Financial Services, LLC at 800.542.5427 for a prospectus. The prospectuses contain details on investment objectives, risks, fees, and expenses, as well as other information about the index variable annuity and the available variable options, which your clients should carefully consider. Encourage your clients to read the prospectuses thoroughly before sending money.

This notice does not apply in the state of New York.