New FIA Index Designed for Rising Rate Environment

The introduction of a new balanced index option for investors in the Allianz 360 and Allianz 222 fixed indexed annuity (FIA) product line will offer financial advisors options better suited to a rising interest rate environment.

The new index option, the PIMCO Tactical Balanced Index, is open to new Allianz 222 and 360 FIA contract holders, Allianz Life Insurance of North America announced recently.

Beginning May 3, the index will also be made available to new 365i and Signature 7 FIA contracts, said Matt Gray, vice president of product innovation for Allianz Life, which captured 27 percent of all FIA sales in 2014.

With $13 billion in FIA sales in 2014, Allianz Life is the No. 1 seller by far of FIAs in the U.S., according to Wink’s Sales and Market Report. In the hot-selling FIA segment, competitors are bound to pay close attention to the market leader.

“This is another tool in the bag to help producers depending on where producers think rates are going,” Gray said in an interview with InsuranceNewsNet last week.

PIMCO (Pacific Investment Management Co.) is owned by Allianz, the global German insurer, and describes the index as a tool to provide “a stable risk profile through constantly evolving equity and interest rate market environments.”

The Federal Reserve raised a benchmark interest rate by a quarter percent in December for the first time in nearly a decade and Federal Reserve Chair Jane Yellen has signaled the central bank will act to raise rates further this year as the unemployment rate falls and the economy improves.

With a slowly improving economy, many market watchers say the era of ultralow rates may have finally come to an end.

FIAs sold in record numbers last year and the category is far outpacing annuity industry sales averages, according to industry data.

FIA sales hit $54.5 billion last year, an increase of 13 percent compared to 2014, according to LIMRA Secure Retirement Institute data. The increase outpaced all fixed annuity sales, which rose 7 percent in 2015 compared to 2014, LIMRA data also show.

Separate data published by Wink’s report show 2014 indexed annuity sales reached $46.8 billion, an increase of 21.3 percent from 2013.

Innovation: Daily Adjustment in Duration Mechanics

Advisors find FIAs offer a good match for clients who like some expose to market gains in exchange for limiting exposure to market losses. Balanced indexes are used as a way to control the volatility of investments within the FIA.

Allianz 222 and 360 already offer investment allocations using a balanced index from Barclays. The PIMCO index offers a daily adjustment in the duration of the bond portion of the index, changing the duration mechanics, Gray said.

In rising rate environments, shorter bond durations give advisors more flexibility to maneuver. That represents a change from years of bond investment mechanics geared to helping advisors in a falling interest rate environment.

“So, if a rising rate situation is detrimental to a client, they (advisors) don't have a tool inside of anybody's FIA to address that so we thought it was important to offer a complementary strategy for them to do that,” Gray said.

The PIMCO index represents a diversification strategy to offer producers complementary choices” to help advisors “work with their clients and set them up for how they want to be positioned,” he added.

PIMCO’s Tactical Balanced Index will be offered only through Allianz FIAs until Dec. 31, 2020, when the exclusivity deal runs out.

After that, other insurers selling FIAs will be able to use the index under terms agreed to with PIMCO.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].