Some Allianz variable annuities hit with fee hikes as firm dials back

Fee hikes are on the way for a number of clients who own variable annuities from Allianz Life Insurance Co. of North America. Clients who own the Investment Protector variable annuity rider will see a 35-basis-point increase in their rider charges starting Aug. 19. The new charge will be 1.15%, 1.25% or 1.30%, depending on when the contract was issued. The Investment Protector is an accumulation benefit that protects investors' principal and locks in a percentage of the highest contract value for a date that's at least 10 years in the future. The affected block of business was originated in 2009, according to Adam Brown, assistant vice president of actuarial product development at Allianz. This product accounted for about 15% to 25% of the insurer's sales of variable annuities with living benefits. “As we look to manage our business, especially our in-force business, we manage it in blocks,” Mr. Brown said. “Unfortunately in this case, because of low rates and the immediate nature of the guarantee, we've had to raise fees.” The cost of Income Protector rider contracts with a 7% or 8% annual increase — a boost in the value of the benefit base used to calculate income payments — will increase by 20 basis points. The new charge for single life versions of the rider will be 1.35% or 1.40% and 1.40% or 1.50% for joint life, depending on when the contract was issued. On the flip side, Income Protector contracts that have a 5% annual increase will have a 10-basis-point cut in costs. The new charge for single and joint life is 1.10%. The richer versions of Income Protector were written in better economic times. However, the version with the 5% increase was written when interest rates were even less optimal. The improvement in rates since then has allowed the insurer to cut costs a bit, Mr. Brown observed. Since July 22, new sales or new additions of Investment Protector also have been subject to some changes. In the past, the feature gave clients 100% of their highest anniversary value guaranteed in 10 years, but clients now will receive 80% of their highest anniversary value or a return of purchase payments at the end of the 10-year period. “The low-interest-rate environment and the relatively volatile equity market have put pressure on the [guaranteed-minimum-accumulation-benefits] market,” Mr. Brown said. “We had what we believed to be the strongest benefits in the market, but we've dialed it back a little bit. They're still very strong.”