New details on Allianz's latest annuity product

More details are emerging on Allianz Life Insurance Co. of North America's upcoming structured-product annuity. The life insurer posted a prospectus for its Index Advantage annuity via a filing with the Securities and Exchange Commission on Aug. 12. Allianz expects to release the product in mid-September, according to Matt Gray, vice president of product innovation. Index Advantage, which has been filed as a variable annuity, is only the latest entry in the growing list of structured-product annuities. In general, these offerings differ from traditional variable annuities with living benefits in that they offer clients downside protection but put a cap on growth. They also don't provide living benefits, such as the guaranteed-lifetime-withdrawal benefits that customers and advisers had grown to love. Carriers like the concept because it allows them to rein in account growth without facing the long-term liability of making lifetime-income payments to clients. MetLife Inc. and Axa Equitable Life Insurance Co. both have structured product annuities on the market. “These aren't income guarantees,” said Tamiko Toland, managing director for retirement income consulting at Strategic Insight. “For many people that’s what the doctor ordered. Not everyone needs an income guarantee, and for many people—especially if the relative cost is low and they don’t require the income—these are great products.” Allianz's offering will give clients the opportunity to capture growth based on the performance of one of three indexes — the S&P 500, the Russell 2000 and the Nasdaq 100. Investors aren't neither directly or indirectly invested in these underlying funds, however. Rather, the index performance is tied to a calculation Allianz uses to determine how much growth it should credit an account. The insurer has two index-based strategies, both of which protect against negative index performance and limit how much investors can get based on index performance. The Index Protection Strategy will give the account a declared credit — which can be changed each year — as long as the index value in a given year is greater than or equal to zero. Investors get no credits if the index falls. The Index Performance Strategy grants clients a credit based on the index's return, but it subjects that return to a cap. Allianz declares a buffer on the date of issue, representing the limit to which Allianz will absorb a decline in the index. Clients can lose money if they get a loss that goes beyond the buffer. Though the caps change each year, the buffers will always stay the same. Though Allianz's ability to adjust the cap each year keeps it from being too generous when interest rates are very low and the economy is less than promising, there can be some benefits for the client. Indeed, the insurer could also adjust the cap upward in a given year, provided the conditions are right. “The cap can be up or down, and it can be to your benefit. You wouldn't want to be locked in with a low-rate environment,” Ms. Toland said. Allianz's new annuity also offers a trio of traditional variable investments, which don't provide any principal protection. These are the AZL MVP Growth Index Strategy Fund, the AZL MVP Balanced Index Strategy Fund and the AZL Money Market Fund. Per the prospectus, the Index Advantage has a product fee of 1.25%, plus fund expenses for the three variable investments: The money market fund weighs in at 0.66% for total annual fund operating expenses, the balanced index strategy comes in at 0.87%, and the growth index strategy fund is 0.78%. The surrender schedule is six years, and clients can lose as much as 8.5% if they decide to pull the contract before the first year is up. Mr. Gray noted that Allianz’s background as a major indexed annuity seller has been helpful in putting together Index Advantage. “We understand how to build these products – the underlying risk management, the guts that go into them,” he said. “One thing we can bring is that expertise and leadership on the indexed side.”