Fixed index
universal
life (FIUL)
insurance
Allianz Life Insurance Company of North America
Illustrating FIUL post-AG 49:
Key questions to ask when reviewing product illustrations
(1/2016)
On September 1, 2015 Uniform Actuarial Guideline 49 (AG 49) went into place regarding
all fixed index universal life (FIUL) insurance policies and how they can be illustrated.
Allianz Life Insurance Company of North America (Allianz)
specializes in creative and flexible index allocation options that
leverage our in-house dynamic hedging capabilities. These
innovative index allocation options are among the top-selling
options for the majority of our policyholders, and are a true
differentiator of Allianz FIUL. It is important to know what this
means when reviewing FIUL products and illustrations.
The goal of the new guideline is to standardize illustrations
across the industry by establishing maximum illustrated
rates, policy loan spreads, and side-by-side illustrations with
additional disclosures.
Allianz is supportive of standardizing how FIUL policies are
illustrated. But while the industry as a whole needed some
kind of guidelines because of different strategies in the
market for illustrating FIUL, you may have questions about
why illustrations in the industry differ. Keep in mind, there are
many considerations to take into account beyond the policy’s
accumulation potential when determining if a product is
suitable for a client.
Maximum illustrated rates
AG 49 defines the maximum illustrated rate on a consistent basis for
all carriers. The illustrated rate will be capped for all index allocation
options that are the lesser of:
1. The average annual look-back rate for the S&P 500® Index, using the
product’s current annual cap, 0% floor, and 100% participating rate of all
the possible 25-year periods from the most recent 65 calendar years.
2. The carrier’s annual net investment earnings rate of the general
account assets times 1.45 (which is the maximum assumed earned
interest rate that can be used). This applies only to insurers that
engage in a hedging program for indexed-based interest.
More scrutiny could come to the FIUL space due to accumulation
bonus designs and minimum floors being implemented by carriers
in the post-AG 49 era.
Sales opportunities from AG 49
AG 49 has created positive guidelines for the FIUL industry. However,
for those carriers that offer innovative allocation options other than
the S&P 500® Index, it is important to understand how to review the
illustrations with your client. That can be done by considering the
product features such as loan types, accumulation bonuses, and riders
that a carrier may be providing.
AG 49 focuses on the S&P 500® Index as the sole parameter
for calculating the carrier’s maximum illustrated rate. The
safeguards within AG 49 are designed to prevent a carrier
from artificially inflating their caps for illustrative purposes.
P
Must be accompanied by the Allianz Life Pro+® Fixed Index Universal Life Insurance
Policy agent guide (M-5345).
Guarantees are backed by the financial strength and claims paying ability of Allianz Life Insurance
Company of North America.
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297.
For financial professional use only – not for use with the public.
ASI-406
Page 1 of 6
Comparing three FIUL products
Consider this hypothetical illustration Allianz Life Pro+® Fixed Index Universal Life Insurance Policy, Minnesota Life
Eclipse Indexed Universal Life, and North American Builder IUL7. It is intended to show how certain features such
as accumulation potential, loan amounts, and accumulation bonuses differ among the three carriers.
The hypothetical examples are provided for illustrative purposes only. They are intended to show how the
products work and are not intended to predict future results. These examples are not indicative of our competitive
position in every scenario. They are not intended to provide a comprehensive overview of all policy features.
Assumptions:
AGE 45
GENDER Male
RISK CLASS Preferred Nontobacco
LOANS Beginning at age 66 for 20 years
OPTION B (SWITCHING TO OPTION A IN YEAR 21) $1 million death benefit
ANNUAL PREMIUM $47,435 for 20 years
GUARANTEED MINIMUM RATES Allianz Life Pro+ 0.1%, Minnesota Life Eclipse 2.0%, North American Builder IUL7 3.0%
NONGUARANTEED MAXIMUM ILLUSTRATED RATES Allianz Life Pro+ 7.06%, Minnesota Life Eclipse 7.26%, North American Builder IUL 7.42%
CARRIER
Allianz Life Pro+
Minnesota Life’s Eclipse
North American’s Builder IUL7
Death benefit amount
(year 20, nonguaranteed rate)
$2,845,384
$2,867,357
$2,976,786
Death benefit amount (year 20, minimum
guaranteed rate/maximum charges)
$1,723,869
$1,901,118
$1,927,286
Accumulation value
(year 20, nonguaranteed rate)
$1,845,384
$1,850,085
$2,005,643
Accumulation value (guaranteed
minimum rate/maximum charges)
$723,869
$883,846
$956,143
Loan amount (nonguaranteed)
$210,372
$211,444
$234,780
$210,372 for 4 years,
then policy lapses
$211,444 for 3 years,
then policy lapses
$234,780 for 3 years,
then policy lapses
Loan amount (minimum guaranteed
rates/maximum charges)
Based on these numbers alone, most people would select North American’s Builder IUL7 because they would be
illustrating the highest potential loan amount. However, some questions need to be asked before an educated
decision can be made concerning which product might be appropriate for a client who is looking for death benefit
protection and cash value accumulation potential that can be accessed through policy loans for future needs.
Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse, or affect guarantees
against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in
excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. You should consult a tax professional.
For financial professional use only – not for use with the public.
Page 2 of 6
1. What is the loan type, loan rate, and the terms of the loan?
CARRIER
Allianz Life Pro+
Minnesota Life’s Eclipse
North American’s Builder IUL7
$1,845,384
$1,850,085
$2,005,643
Accumulation value (guaranteed
minimum rate/maximum charges)
$723,869
$883,846
$956,143
Loan amount (nonguaranteed)
$210,372
$211,444
$234,780
Indexed, 5% guaranteed
Indexed, 5% guaranteed
Variable, 5.47% (6% cap)
$210,372 for 4 years,
then policy lapses
$211,444 for 3 years,
then policy lapses
$234,780 for 3 years,
then policy lapses
Accumulation value
(year 20, nonguaranteed rate)
Loan type and rate
Loan amount (minimum guaranteed
rates/maximum charges)
The carrier with the highest potential loan amount also has a variable loan interest rate with a maximum rate of
6%. Variable loan rates are tied to the Moody’s Corporate Bond Yield Average, which ranges from 5.47% to 6.82%
for a 10-25 historical year average and may be more beneficial in a low interest rate environment. So it’s possible
that North American’s Builder IUL7 could max out its loan rate at 6% at some point in the future when the client is
ready to take loans against their policy.
In addition to the terms listed above, there are many other variables that each carrier imposes on their loans –
so it’s also important to understand the different rules of the carrier. For additional information about policy loan
options, please reference “Policy loan options are not always created equal” (MLIF-1103).
2. Is there an accumulation bonus included in the illustration? And if so, is the
accumulation bonus guaranteed?
CARRIER
Accumulation value
(year 20, nonguaranteed rate)
Accumulation value (guaranteed
minimum rate/maximum charges)
Loan type and rate
Loan amount (nonguaranteed)
Loan amount (minimum guaranteed
rates/maximum charges)
Bonus
Allianz Life Pro+
Minnesota Life’s Eclipse
North American’s Builder IUL7
$1,845,384
$1,850,085
$2,005,643
$723,869
$883,846
$956,143
Indexed, 5% guaranteed
Indexed, 5% guaranteed
Variable, 5.47% (6% cap)
$210,372
$211,444
$234,780
$210,372 for 4 years,
then policy lapses
$211,444 for 3 years,
then policy lapses
$234,780 for 3 years,
then policy lapses
60 bps guaranteed
bonus starting in year 11
100 bps not guaranteed
bonus starting in year 11
75 bps guaranteed
bonus starting in year 11
Two of the carriers shown have guaranteed bonuses, but carrier Minnesota Life does not. Even though the
illustrated values are reflecting a 100 bps bonus, when it comes time to credit the bonus, they could credit an
amount different than 100 bps or make product adjustments to pay for the nonguaranteed bonus. This is another
variable you will want to know when looking at different carriers.
Be sure to educate yourself on the specific parameters for any carrier’s accumulation bonus. If it is unclear, call the
carrier for clarification. For more detail on common accumulation bonus designs, please reference “Understanding
accumulation bonuses” (ASI-405).
For financial professional use only – not for use with the public.
Page 3 of 6
3. What is the illustrated rate?
CARRIER
Allianz Life Pro+
Minnesota Life’s Eclipse
North American’s Builder IUL7
$1,845,384
$1,850,085
$2,005,643
Accumulation value (guaranteed
minimum rate/maximum charges)
$723,869
$883,846
$956,143
Loan amount (nonguaranteed)
$210,372
$211,444
$234,780
Indexed, 5% guaranteed
Indexed, 5% guaranteed
Variable, 5.47% (6% cap)
$210,372 for 4 years,
then policy lapses
$211,444 for 3 years,
then policy lapses
$234,780 for 3 years,
then policy lapses
60 bps guaranteed
bonus starting in year 11
100 bps not guaranteed
bonus starting in year 11
75 bps guaranteed
bonus starting in year 11
7.06%
7.26%
7.42%
Accumulation value
(year 20, nonguaranteed rate)
Loan type and rate
Loan amount (minimum guaranteed
rates/maximum charges)
Bonus
Illustrated rate
Now we see why each carrier offers the potential loan amount it does. The one with the highest potential loan
amount is also showing the highest illustrated rate, which does not include the bonuses listed above. If the 100 bps
bonus is incorporated, Minnesota Life is now illustrating the highest rate, even though they don’t have the highest
loan amount or loan rate.
Knowing that these illustrated rates are determined according to AG 49, does one carrier actually have the ability to
show more interest being credited based on the other product features they offer? And are the same rates really
an apples-to-apples comparison?
Regardless of the rate illustrated, it is only intended to give the client an idea of how the product and index allocation
option could work. The illustrated rates and results shown by any carrier are not guaranteed and are not intended to
predict future results.
For financial professional use only – not for use with the public.
Page 4 of 6
Running illustrations at the same rate
Because of how AG 49 was established, it allows each carrier to set a maximum illustrated rate that may vary by
company. Companies with higher illustrated rates will typically show higher accumulation potential (as you saw in the
previous example). However, as indicated, these rates are the maximum rates an FIUL illustration can be run at, and
the accumulation value is not guaranteed.
To help you review illustrations among carriers when you have the option of running them at various rates, consider
running each illustration at the same illustrated rate. In the example below we run each illustration at 7.00%.
CARRIER
Accumulation value (year 20,
nonguaranteed rate)
Accumulation value (guaranteed
minimum rate/maximum charges)
Loan type and rate
Loan amount (minimum guaranteed
rates/maximum charges)
Bonus
Loan amount
Allianz Life Pro+
Minnesota Life’s Eclipse
North American’s Builder IUL7
$1,832,325
$1,792,378
$1,890,322
$723,869
$883,846
$960,110
Indexed, 5% guaranteed
Indexed, 5% guaranteed
Variable, 5.47% (6% cap)
$206,663 for 4 years,
then policy lapses
$198,305 for 3 years,
then policy lapses
$205,581 for 4 years,
then policy lapses
60 bps guaranteed
bonus starting in year 11
100 bps not guaranteed
bonus starting in year 11
75 bps guaranteed
bonus starting in year 11
$206,663
$198,305
$205,581 at a 5.47% loan rate
$193,283 at a 6.00% loan rate
When these products are illustrated at the same rate, we see the carrier with
a guaranteed loan rate and a guaranteed bonus starts to look pretty good. It is
important to note there are other factors that may impact the values in a policy,
including potential loan amounts. The 7% illustrated rate does not take into account
the allocation option. Our innovative indexes such as the blended index and Barclays
US Dynamic Balance Index II also help differentiate Allianz from the competition.
If loan rates remain very low, these carriers would illustrate higher than Allianz from
a loan amount standpoint. But even with a variable loan rate of 5.47% and a 7.00%
illustrated rate, North American has a potential loan amount very close to Allianz
– so it doesn’t take much of a change in their loan rate for their loan amount to
become less competitive.
Keep in mind that the tables above do not represent a comprehensive overview
of all features and benefits. Life Insurance policies have many factors and features
to consider such as death benefit options, index allocation options offered, and
fees and charges. Be sure to review all of the material details about the products
with your clients before making specific recommendations. No single policy is
appropriate for all clients. Competitor information is believed to be current and
accurate as of December 2015. Product rates, features, and availability may vary
by age and state. Consult the insurance company or policy form for full details.
As you can see,
it is important to
ask key questions
when comparing
FIUL illustrations
in the post-AG 49
environment.
Find out more about
our innovative
allocation options
and how we stack up
to the competition.
Call the Life Case
Design Team at
800.950.7372.
Keep in mind that different time periods and different index allocation options will produce higher or lower indexed interest. The credited interest
rate is based on the caps, participation rates, or spreads in the policy and is subject to change on any policy anniversary based on several external
factors including, but not limited to, market volatility, short-term interest rates, and long-term interest yields. See the contract for more details.
For financial professional use only – not for use with the public.
Page 5 of 6
True to our promises …
so you can be true to yours.
®
A leading provider of annuities and life insurance, Allianz Life Insurance Company
of North America (Allianz) bases each decision on a philosophy of being true:
True to our strength as an important part of a leading global financial organization.
True to our passion for making wise investment decisions. And true to the people
we serve, each and every day.
Through a line of innovative products and a network of trusted financial
professionals, and with over three million contracts issued, Allianz helps people
as they seek to achieve their financial and retirement goals. Founded in 1896,
Allianz is proud to play a vital role in the success of our global parent, Allianz SE,
one of the world’s largest financial services companies.
While we pride ourselves on our financial strength, we’re made of much more
than our balance sheet. We believe in making a difference with our clients by being
true to our commitments and keeping our promises. People rely on Allianz today
and count on us for tomorrow – when they need us most.
Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company
of North America.
For financial professional use only – not for use with the public.
www.allianzlife.com
Products are issued by:
Allianz Life Insurance Company
of North America
5701 Golden Hills Drive
Minneapolis, MN 55416-1297
800.950.1962
(1/2016)
Page 6 of 6