Minnesota (State or other jurisdiction of incorporation or organization) | 6311 (Primary Standard Industrial Classification Code Number) | 41-1366075 (I.R.S. Employer Identification No.) |
Glossary | 5 | |
Summary | 12 | |
Who Should Consider Purchasing the Contract? | 13 | |
What Are the Contract's Charges? | 14 | |
What Are the Contract's Benefits? | 14 | |
What Are the Index-Linked Crediting Methods and How Do They Work? | 14 | |
When Do You Establish the Values Used to Determine Index-Linked Credits? | 15 | |
What Factors Impact the DPSCs, Precision Rates and Caps? | 16 | |
How Do the Index-Linked Crediting Methods Compare? | 16 | |
How Can I Allocate My Purchase Payments? | 19 | |
What Are the Different Values Within the Contract? | 19 | |
How Do We Apply Credits to the Index Options? | 20 | |
Can My Contract Lose Value Because of Negative Changes in an Index's Value? | 20 | |
Can I Transfer Between the Index Options? | 20 | |
How Can I Take Money Out of My Contract? | 21 | |
How Does the Income Benefit Work? | 21 | |
What Are My Annuity Options? | 22 | |
Does the Contract Provide a Death Benefit? | 23 | |
What If I Need Customer Service? | 23 | |
Fee Tables | 23 | |
Owner Transaction Expenses | 23 | |
Owner Periodic Expenses | 23 | |
Annual Operating Expenses of the AZL Government Money Market Fund | 24 | |
Examples | 25 | |
Condensed Financial Information | 25 | |
1. | Risk Factors | 25 |
Liquidity Risk | 25 | |
Risk of Changes to the Income Benefit Prior to the Issue Date | 26 | |
Risk of Investing in Securities | 26 | |
Risk of Negative Returns | 27 | |
Calculation of Credits | 28 | |
Substitution of an Index | 28 | |
Changes to Caps, Precision Rates, Declared Protection Strategy Credits (DPSCs), and Notice of Buffers and Floors | 29 | |
Investment in Derivative Securities | 29 | |
AZL Government Money Market Fund Risk | 30 | |
Our Financial Strength and Claims-Paying Ability | 30 | |
Regulatory Protections | 30 | |
2. | The Variable Annuity Contract | 31 |
When the Accumulation Phase Ends | 31 | |
State Specific Contract Restrictions | 32 | |
When The Contract Ends | 32 | |
3. | Ownership, Annuitants, Determining Life, Beneficiaries, and Payees | 32 |
Owner | 32 | |
Joint Owner | 32 | |
Annuitant | 32 | |
Determining Life (Lives) | 33 | |
Beneficiary | 34 | |
Eligible Persons(s) And Covered Person(s) | 34 | |
Payee | 35 | |
Assignments, Changes of Ownership and Other Transfers of Contract Rights | 35 | |
4. | Purchasing the Contract | 36 |
Purchase Requirements | 36 | |
Applications Sent Electronically | 36 | |
Allocation of Purchase Payments and Transfers Between the Index Options | 37 | |
Electronic Transfer and Allocation Instructions | 37 | |
Automatic Investment Plan (AIP) | 38 | |
Free Look/Right to Examine Period | 38 | |
5. | AZL Government Money Market Fund | 39 |
Substitution and Limitation on Holdings | 40 | |
Excessive Trading and Market Timing | 41 | |
Voting Privileges | 43 | |
6. | Valuing Your Contract | 43 |
Accumulation Units | 43 | |
Computing Variable Account Value | 44 | |
7. | Index Options | 44 |
Determining Index Option Value for the Index Protection Strategy | 45 | |
Determining Index Option Values for the Index Precision Strategy, Index Performance Strategy and Index Guard Strategy | 46 | |
The Alternate Minimum Value | 49 | |
Optional Rebalancing Program | 50 | |
8. | Expenses | 50 |
Annual Contract Fees: Product Fee and Rider Fees | 50 | |
Contract Maintenance Charge | 53 | |
Withdrawal Charge | 53 | |
Financial Adviser Fees | 55 | |
Premium Tax | 55 | |
Income Tax | 56 | |
AZL Government Money Market Fund Expenses | 56 | |
9. | Access to Your Money | 56 |
Free Withdrawal Privilege | 57 | |
Systematic Withdrawal Program | 57 | |
Minimum Distribution Program and Required Minimum Distribution (RMD) Payments | 57 | |
Waiver of Withdrawal Charge Benefit | 58 | |
Suspension of Payments or Transfers | 58 | |
10. | The Annuity Phase | 58 |
Calculating Your Annuity Payments | 59 | |
Annuity Payment Options | 59 | |
When Annuity Payments Begin | 60 |
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10. | 64 | |
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11. | Income Benefit | 61 |
Removing the Income Benefit | 61 | |
Income Payment Overview | 61 | |
Calculating Your Lifetime Income Percentages | 62 | |
Requesting Income Payments | 63 | |
Calculating Your Income Payments | 64 | |
Automatic Annual Income Payment Increases | 65 | |
Income Benefit Supplement | 66 | |
Taxation of Income Payments | 66 | |
When the Income Period Ends | 66 | |
When the Income Benefit Ends | 67 | |
12. | Death Benefit | 67 |
Maximum Anniversary Value | 68 | |
Death of the Owner and/or Annuitant | 69 | |
Death Benefit Payment Options During the Accumulation Phase | 69 | |
13. | Taxes | 71 |
Qualified and Non-Qualified Contracts | 71 | |
Taxation of Annuity Contracts | 71 | |
Taxation of Income Payments | 72 | |
Tax-Free Section 1035 Exchanges | 72 | |
14. | Other Information | 73 |
The Registered Separate Account | 73 | |
Our General Account | 73 | |
Our Unregistered Separate Account | 73 | |
Distribution | 73 | |
Additional Credits for Certain Groups | 75 | |
Administration/Allianz Service Center | 75 | |
Legal Proceedings | 75 | |
Status Pursuant to Securities Exchange Act of 1934 | 75 | |
15. | Information on Allianz Life | 76 |
Directors, Executive Officers and Corporate Governance | 76 | |
Executive Compensation | 81 | |
Security Ownership of Certain Beneficial Owners and Management | 95 | |
Transactions with Related Persons, Promoters and Certain Control Persons | 95 | |
Risks Associated with the Financial Services Industry | 95 | |
16. | Financial Statements | 110 |
17. | Privacy Notice | 111 |
18. | Table of Contents of the Statement of Additional Information (SAI) | 112 |
Appendix A – Available Indices | 113 | |
Standard & Poor's 500 Index | 113 | |
Russell 2000® Index | 114 | |
Nasdaq-100® Index | 114 | |
EURO STOXX 50® | 115 | |
Appendix B – Daily Adjustment | 116 | |
Appendix C – Selected Financial Data and Consolidated Financial Statements | 118 | |
Management's Discussion and Analysis of Financial Condition and Results of Operations (For the 12 month period ended December 31, 2017) | 118 | |
Consolidated Financial Statements and Supplemental Schedules | 118 | |
For Service or More Information | 119 | |
Our Service Center | 119 |
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Back Cover | ||
Back Cover |
FEES AND EXPENSES | Prospectus Location | |||
Charges for Early Withdrawals | Your Contract is subject to withdrawal charges that differ depending on when you purchased the Contract. •If you purchase the Contract on or after May 1, 2024, and you withdraw money from the Contract within six years of your last Purchase Payment, you will be assessed a withdrawal charge of up to 8% of the Purchase Payment withdrawn, declining to 0% over that time period. •If you purchased the Contract on or before April 30, 2024, and you withdraw money from the Contract within six years of your last Purchase Payment, you will be assessed a withdrawal charge of up to 8.5% of the Purchase Payment withdrawn, declining to 0% over that time period. | Fee Tables 4. Valuing Your Contract 6. Expenses Appendix B – Daily Adjustment | ||
For example, for Contracts issued on or after May 1, 2024, if you invest $100,000 in the Contract and make an early withdrawal, you could pay a withdrawal charge of up to $8,000 (or $8,500 for Contracts issued on or before April 30, 2024). In addition, if you take a full or partial withdrawal (including financial adviser fees that you choose to have us pay from this Contract) from an Index Option on a date other than the Term End Date, a Daily Adjustment will apply to the Index Option Value that is available for withdrawal. The Daily Adjustment also applies if before the Term End Date you execute a Performance Lock, you annuitize the Contract, we pay a death benefit, or we deduct Contract fees and expenses. The Daily Adjustment may be negative depending on the applicable Crediting Method. You will lose money if the Daily Adjustment is negative. •Index Dual Precision Strategy, Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. Daily Adjustments under these Crediting Methods may be positive, negative, or equal to zero. A negative Daily Adjustment will result in a loss. In extreme circumstances, a negative Daily Adjustment could result in a loss beyond the protection of the 10%, 20%, or 30% Buffer; or -10% Floor, as applicable. The maximum potential loss from a negative Daily Adjustment is: -99% for the Index Dual Precision Strategy, Index Precision Strategy, and Index Performance Strategy; and -35% for the Index Guard Strategy. •Index Protection Strategy with Trigger. Daily Adjustments under this Crediting Method may be positive or equal to zero, but cannot be negative. | ||||
Transaction Charges | Other than withdrawal charges and Daily Adjustments that may apply to withdrawals and other transactions under the Contract, there are no other transaction charges. | Not Applicable | ||
Ongoing Fees and Expenses (annual charges) | The table below describes the fees and expenses that you may pay each year, depending on the options you choose. Please refer to your Contract specifications page for information about the specific fees you will pay each year based on the options you have elected. These ongoing fees and expenses do not reflect any financial adviser fees paid to a Financial Professional from your Contract Value or other assets of the Owner. If such charges were reflected, these ongoing fees and expenses would be higher. | Fee Tables 6. Expenses Appendix E – Fund Available Under the Contract | ||
Annual Fee | Minimum | Maximum | ||
Base Contract(1) | 0.01% | 0.01% | ||
Investment Options(2) (Fund fees and expenses) | 0.88% | 0.88% | ||
Optional Benefits Available for an Additional Charge(3) (for a single optional benefit, if elected) | 0.20% | 0.20% |
FEES AND EXPENSES | Prospectus Location | |||
(1) An amount attributable to the estimated contract maintenance charge based on expected Contract sales. | ||||
(2) As a percentage of the AZL Government Money Market Fund's average daily net assets. | ||||
(3) As a percentage of the Charge Base. This is the current charge for the Maximum Anniversary Value Death Benefit. | ||||
Because your Contract is customizable, the choices you make affect how much you will pay. To help you understand the cost of owning your Contract, the following table shows the lowest and highest cost you could pay each year, based on current charges. This estimate assumes that you do not take withdrawals from the Contract, whichcould be subject to a withdrawal charge, and if taken from the Index Dual Precision Strategy, Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy Index Options could result in substantial losses due to the application of negative Daily Adjustments. | ||||
Lowest Annual Cost: $853 | Highest Annual Cost: $1,036 | |||
Assumes: •Investment of $100,000 in the Variable Option (even though you cannot select the Variable Option for investment) •5% annual appreciation •Traditional Death Benefit •No additional Purchase Payments, transfers, or withdrawals •No financial adviser fees | Assumes: •Investment of $100,000 in the Variable Option (even though you cannot select the Variable Option for investment) •5% annual appreciation •Maximum Anniversary Value Death Benefit with a 0.20% rider fee •No additional Purchase Payments, transfers, or withdrawals •No financial adviser fees | |||
RISKS | ||||
Risk of Loss | You can lose money by investing in the Contract, including loss of principal and previous earnings. | Risk Factors | ||
Not a Short-Term Investment | • This Contract is not a short-term investment and is not appropriate if you need ready access to cash. • Considering the benefits of tax deferral and long-term income, the Contract is generally more beneficial to investors with a long investment time horizon. • Withdrawals are subject to income taxes, and may also be subject to a 10% additional federal tax for amounts withdrawn before age 59 1∕2. • If, within six years after we receive a Purchase Payment, you take a full or partial withdrawal (including financial adviser fees that you choose to have us pay from this Contract), withdrawal charges will apply. A withdrawal charge will reduce your Contract Value or the amount of money that you actually receive. Withdrawals may reduce or end Contract guarantees. • Amounts invested in an Index Option must be held in the Index Option for the full Term before they can receive a Performance Credit. We apply a Daily Adjustment if, before the Term End Date, you take a full or partial withdrawal (including financial adviser fees that you choose to have us pay from this Contract), you execute a Performance Lock, you annuitize the Contract, we pay a death benefit, or we deduct Contract fees and expenses. • The Traditional Death Benefit may not be modified, but it will terminate if you take withdrawals that reduce both the Contract Value and Guaranteed Death Benefit Value to zero. Withdrawals may reduce the Traditional Death Benefit’s Guaranteed Death Benefit Value by more than the value withdrawn and could end the Traditional Death Benefit. | Risk Factors 4. Valuing Your Contract 10. Death Benefit Appendix B – Daily Adjustment |
RISKS | Prospectus Location | |||
Risks Associated with Investment Options | • An investment in the Contract is subject to the risk of poor investment performance and can vary depending on the performance of the Variable Option and the Index Options available under the Contract. • The Variable Option and each Index Option have their own unique risks. • You should review the Fund’s prospectus and disclosures, including risk factors, before making an investment decision. | Risk Factors | ||
Insurance Company Risks | An investment in the Contract is subject to the risks related to us. All obligations, guarantees or benefits of the Contract are the obligations of Allianz Life and are subject to our claims-paying ability and financial strength. More information about Allianz Life, including our financial strength ratings, is available upon request by visiting www.allianzlife.com/about/financial-ratings, or contacting us at (800) 624-0197. | Risk Factors | ||
RESTRICTIONS | ||||
Investments | • Certain Index Options may not be available under your Contract. • You cannot allocate Purchase Payments to the Variable Option. The sole purpose of the Variable Option is to hold Purchase Payments until they are transferred to your selected Index Options. • We restrict additional Purchase Payments during the Accumulation Phase. Each Index Year, you cannot add more than your initial amount (i.e., the total of all Purchase Payments received before the first Quarterly Contract Anniversary of the first Contract Year) without our prior approval. • We do not accept additional Purchase Payments during the Annuity Phase. • We typically only allow assets to move into the Index Options on the Index Effective Date and on subsequent Index Anniversaries as discussed in section 3, Purchasing the Contract – Allocation of Purchase Payments and Contract Value Transfers. However, if you execute an Early Reallocation, we will move assets into an Index Option on the Business Day we receive your Early Reallocation request in Good Order. • You can typically transfer Index Option Value only on Term End Dates. However, you can transfer assets out of an Index Option before the Term End Date by executing a Performance Lock as discussed in section 4, Valuing Your Contract – Performance Locks. • We do not allow assets to move into an established Index Option until the Term End Date. If you request to allocate a Purchase Payment into an established Index Option on an Index Anniversary that is not a Term End Date, we will allocate those assets to the same Index Option with a new Term Start Date. • We reserve the right to substitute the Fund in which the Variable Option invests. We also reserve the right to discontinue accepting new allocations into specific Index Options and to substitute Indexes either on a Term Start Date or during a Term. We also reserve the right to decline any or all Purchase Payments at any time on a nondiscriminatory basis. | Risk Factors 3. Purchasing the Contract 4. Valuing Your Contract 5. Information Related to the Variable Option's Underlying Fund Appendix A – Available Indexes | ||
Optional Benefits | • The optional Maximum Anniversary Value Death Benefit may not be modified. Withdrawals may reduce the Maximum Anniversary Value Death Benefit’s Guaranteed Death Benefit Value by more than the value withdrawn and will end the Maximum Anniversary Value Death Benefit if the withdrawals reduce both the Contract Value and Guaranteed Death Benefit Value to zero. | 10. Death Benefit | ||
TAXES | ||||
Tax Implications | • Consult with a tax professional to determine the tax implications of an investment in and withdrawals from or payments received under the Contract. • If you purchased the Contract through a tax-qualified plan or individual retirement account (IRA), you do not get any additional tax benefit under the Contract. • Generally, earnings under a Non-Qualified Contract are taxed at ordinary income rates when withdrawn, and may also be subject to a 10% additional federal tax for amounts withdrawn before age 59 1∕2. • Generally, distributions from Qualified Contracts are taxed at ordinary income tax rates when withdrawn, and may also be subject to a 10% additional federal tax for amounts withdrawn before age 59 1∕2. | 11. Taxes |
CONFLICTS OF INTEREST | Prospectus Location | |||
Investment Professional Compensation | Your Financial Professional may receive compensation for selling this Contract to you, in the form of commissions, additional cash benefits (e.g., cash bonuses), and non-cash compensation. We and/or our wholly owned subsidiary distributor may also make marketing support payments to certain selling firms for marketing services and costs associated with Contract sales. This conflict of interest may influence your Financial Professional to recommend this Contract over another investment for which the Financial Professional is not compensated or compensated less. | 12. Other Information – Distribution | ||
Exchanges | Some Financial Professionals may have a financial incentive to offer you a new contract in place of one you already own. You should only exchange your contract if you determine, after comparing the features, fees, and risks of both contracts, that it is better for you to purchase the new contract rather than continue to own your existing contract. | 12. Other Information – Distribution |
Currently Available Crediting Methods, Term Lengths, and Negative Index Performance Protection | Currently Available Indexes | Positive Index Performance Participation Limit |
Index Protection Strategy with Trigger 1-year Term with 100% downside protection | • S&P 500® Index • Russell 2000® Index • Nasdaq-100® Index • EURO STOXX 50® • iShares® MSCI Emerging Markets ETF | • 0.10% minimum Trigger Rate |
Index Dual Precision Strategy 1-year Term with 10%, 20%, or 30% Buffer • For Contracts issued from May 1, 2023, to November 13, 2023, the Index Dual Precision Strategy is not available. • For Contracts issued from November 14, 2023, to April 30, 2024, only the 10% Buffer is available. • For Contracts issued since May 1, 2024, the 10%, 20%, and 30% Buffers are available. | • S&P 500® Index • Russell 2000® Index • Nasdaq-100® Index • EURO STOXX 50® • iShares® MSCI Emerging Markets ETF | • 0.10% minimum Trigger Rate |
Index Precision Strategy 1-year Term with 10% Buffer | • S&P 500® Index • Russell 2000® Index • Nasdaq-100® Index • EURO STOXX 50® • iShares® MSCI Emerging Markets ETF | • 0.10% minimum Trigger Rate |
Index Guard Strategy 1-year Term with -10% Floor | • S&P 500® Index • Russell 2000® Index • Nasdaq-100® Index • EURO STOXX 50® • iShares® MSCI Emerging Markets ETF | • 0.10% minimum Cap |
Currently Available Crediting Methods, Term Lengths, and Negative Index Performance Protection | Currently Available Indexes | Positive Index Performance Participation Limit |
Index Performance Strategy 1-year Term with 10%, 20%, or 30% Buffer • For Contracts issued from May 1, 2023, to November 13, 2023, only the 10% Buffer is available. • For Contracts issued since November 14, 2023, the 10%, 20%, and 30% Buffers are available. | • S&P 500® Index • Russell 2000® Index • Nasdaq-100® Index • EURO STOXX 50® • iShares® MSCI Emerging Markets ETF | • 0.10% minimum Cap • Can be “uncapped” (i.e., we do not declare a Cap for that Term) |
Index Performance Strategy 3-year Term with 10% or 20% Buffer | • S&P 500® Index • Russell 2000® Index | • 2% minimum Cap • Can be uncapped • 100% minimum Participation Rate |
Index Performance Strategy 6-year Term with 10% or 20% Buffer • For Contracts issued from May 1, 2023, to November 13, 2023, only the 10% Buffer is available. • For Contracts issued since November 14, 2023, the 10% and 20% Buffers are available. | • S&P 500® Index • Russell 2000® Index | • 5% minimum Cap • Can be uncapped • 100% minimum Participation Rate |
If the Index Return were… | Credit Received Under Each Crediting Method | Analysis | ||||
Index Protection Strategy with DPSC | Index Protection Strategy with Cap | Index Precision Strategy | Index Performance Strategy | Index Guard Strategy | ||
1% | 4% | 1% | 8% | 1% | 1% | The Index Precision Strategy provides the most return potential in this example because the Performance Credit would be equal to the 8% Precision Rate. |
25% | 4% | 4.50% | 8% | 10% | 10% | The Index Performance Strategy and Index Guard Strategy provide the most return potential in this example. If Caps were not equal between Index Performance Strategy and Index Guard Strategy, the Crediting Method with the higher Cap would provide the highest return potential. |
-8% | 0% | 0% | 0% | 0% | -8% | The Index Guard Strategy has the highest risk of loss in this example as it provides the least amount of protection in periods of small negative returns. |
-25% | 0% | 0% | -15% | -15% | -10% | The Index Protection Strategy with DPSC and with Cap provide the most loss protection in this example. You cannot lose assets based on a loss in Index Value under the Index Protection Strategy. |
Number of Complete Years Since Purchase Payment | Withdrawal Charge Amount |
0 | 8.5% |
1 | 8% |
2 | 7% |
3 | 6% |
4 | 5% |
5 | 4% |
6 years or more | 0% |
Number of Complete Years Since Purchase Payment | Withdrawal Charge Amount | |
Contracts issued on or before April 30, 2024 | Contracts issued on or after May 1, 2024 | |
0 | 8.5% | 8% |
1 | 8% | 8% |
2 | 7% | 7% |
3 | 6% | 6% |
4 | 5% | 5% |
5 | 4% | 4% |
6 years or more | 0% | 0% |
Index Protection Strategy with Trigger | Index Dual Precision Strategy, Index Precision Strategy, and Index Performance Strategy | Index Guard Strategy | |
Daily Adjustment Maximum Potential Loss | 0% | 99% | 35% |
(as a percentage of Index Option Value, applies for distributions from an Index Option before any Term End Date)(3) |
(per year) | $50 |
Optional Benefit Expenses – Maximum Anniversary Value Death Benefit (as a percentage of |
(expenses that are deducted from Fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) | 0.88% |
1 Year | 3 Years | 5 Years | 10 Years | |
Contracts issued on or before April 30, 2024 | $9,597 | $10,422 | $10,933 | $13,122 |
Contracts issued on or after May 1, 2024 | $9,097 | $10,422 | $10,933 | $13,122 |
1 Year | 3 Years | 5 Years | 10 Years | |
Contracts issued on or before April 30, 2024 | N/A* | $3,422 | $5,933 | $13,122 |
Contracts issued on or after May 1, 2024 | N/A* | $3,422 | $5,933 | $13,122 |
1 Year | 3 Years | 5 Years | 10 Years | |
Contracts issued on or before April 30, 2024 | $1,097 | $3,422 | $5,933 | $13,122 |
Contracts issued on or after May 1, 2024 | $1,097 | $3,422 | $5,933 | $13,122 |
January 1, 2008 through December 31, 2017 | ||||
S&P 500® Index | Nasdaq-100® Index | Russell 2000® Index | EURO STOXX 50® | |
Returns without dividends | 8.04% | 14.91% | 9.23% | -0.21% |
Returns with dividends | 10.36% | 16.13% | 10.74% | 3.88% |
January 1, 2014 through December 31, 2023 | |||||
S&P 500® Index | Nasdaq-100® Index | Russell 2000® Index | EURO STOXX 50® | iShares® MSCI Emerging Markets ETF | |
Returns without dividends | 11.02 % | 19.57 % | 6.76 % | 4.60 % | 1.04 % |
Returns with dividends | 13.09 % | 20.79 % | 8.19 % | 8.10 % | 3.22 % |
We will not provide advice or notify you regarding whether you should execute a Performance Lock or Early Reallocation or the optimal time for doing so. We will not warn you if you execute a Performance Lock or Early Reallocation at a sub-optimal time. We are not responsible for any losses related to your decision whether or not to execute a Performance Lock or Early Reallocation. |
Financial Adviser Fee Withdrawal | Contract Value | Guaranteed Death Benefit Value for a Contract with the Traditional Death Benefit | Guaranteed Death Benefit Value for a Contract with the Maximum Anniversary Value Death Benefit |
Prior to 1st years withdrawal | $ 100,000 | $ 90,000 | $ 105,000 |
$5,000 withdrawal (subject to an | |||
8% withdrawal charge) | – [($5,000 ÷ (1 – 8%)] | ||
Amount withdrawn | – $5,435 | – [($5,435 ÷ 100,000) x 90,000] | – [($5,435 ÷ 100,000) x 105,000] |
= - $4,892 | = - $5,707 | ||
After 1st years withdrawal | $ 94,565 | $ 85,108 | $ 99,293 |
Prior to 2nd years withdrawal | $ 97,000 | $ 85,108 | $ 99,293 |
$5,000 withdrawal (not subject to a | |||
withdrawal charge) | – $5,000 | – [($5,000 ÷ 97,000) x 85,108] | – [($5,000 ÷ 97,000) x 99,293] |
= - $4,388 | = - $5,119 | ||
After 2nd years withdrawal | $ 92,000 | $ 80,720 | $ 94,174 |
Prior to 3rd years withdrawal | $ 80,000 | $ 80,720 | $ 94,174 |
$5,000 withdrawal (not subject to a | – $5,000 | – [($5,000 ÷ 80,000) x 80,720] | – [($5,000 ÷ 80,000) x 94,174] |
withdrawal charge) | = - $5,045 | = - $5,886 | |
After 3rd years withdrawal | $ 75,000 | $ 75,675 | $ 88,288 |
UPON THE DEATH OF A SOLE OWNER | |
Action if the Contract is in the Accumulation Phase | Action if the Contract is in the Annuity Phase |
• If this is an Inherited IRA Contract, the Beneficiary can either: remaining life expectancy of the deceased Inherited IRA Owner and the Contract Value as of the Business Day we receive a Valid Claim, until ten years after the Inherited IRA Owner’s death at which time we make a lump sum payment, or – receive a lump sum payment of the Contract Value as of the Business Day we receive a Valid Claim. • For all other Contracts, we pay a death benefit to the Beneficiary unless the Beneficiary is the surviving spouse and continues the Contract. surviving spouse Beneficiary continues the Contract: –we increase the Contract Value to equal the Death Benefit Value if greater and available, and the death benefit ends, –the surviving spouse becomes the new Owner, – –upon the surviving Beneficiary(ies) receives the Contract Value. Traditional Death Benefit or Maximum Anniversary Value Death Benefit are not available and the Contract Value. | • The Beneficiary becomes the Payee. If we are still required to make Annuity Payments under the selected Annuity Option, the Beneficiary also becomes the new Owner. Payee continue. No death benefit is payable. Payments end or continue as follows. –Annuity Option guaranteed period ends. – Annuity Option B, F, or G, payments end. –For more information on the Annuity • If the deceased was an Annuitant and there is a surviving joint Annuitant, Annuity Payments to the Payee continue during the lifetime of the surviving joint Annuitant. No death benefit is payable. • For a Qualified Contract, the Annuity Payments must end ten years after the Owner’s death. |
• FOR JOINTLY OWNED CONTRACTS: The sole primary Beneficiary is the surviving Joint Owner regardless of any other named primary Beneficiaries. If both Joint Owners die within 120 hours of each other, we pay the death benefit to the named surviving primary Beneficiaries. If there are no named surviving primary Beneficiaries, we pay the death benefit to the named surviving contingent Beneficiaries, or equally to the estate of the Joint Owners if there are no named surviving contingent Beneficiaries. | |
• NAMING AN ESTATE AS A BENEFICIARY: If an |
Beneficiary, unless the Spouse is the sole primary Beneficiary. If estate can be a contingent beneficiary. |
• An assignment may be a taxable event. In addition, there are other restrictions on changing the ownership of a Qualified Contract and Qualified Contracts generally cannot be assigned absolutely or on a limited basis. You should consult with your tax adviser before assigning this Contract. |
• An assignment will only change the Determining Life (Lives) if it involves removing a Joint Owner due to divorce, replacing Joint Owners with a Trust, or adding a Joint Owner if that person is a spouse within the meaning of federal tax law of the existing Owner. |
We do not accept additional Purchase Payments if you have an Inherited IRA, or Inherited Roth IRA Contract. |
On your application if you select… | Your Index Effective Date will be either… |
the earliest Index Effective Date | • your Issue Date, or • the first Business Day of the next month if the Issue Date is the 29th, 30th, or 31st of a month |
the deferred Index Effective Date | • your first Quarterly Contract Anniversary, or • the next Business Day if the first Quarterly Contract Anniversary occurs on a non-Business Day, or the first Business Day of the next month if the first Quarterly Contract Anniversary is the 29th, 30th, or 31st of a month |
• In order to apply Purchase Payments we receive after the Index Effective Date to your selected Index Option(s) on the next Index Anniversary, we must receive them before the end of the Business Day on the Index Anniversary (or before the end of the prior Business Day if the anniversary is a non-Business Day). |
• Purchase Payments we hold in the Variable Option before transferring them to your selected Index Options are subject to Contract fees and expenses (e.g. contract maintenance charge), and market risk and may lose value. |
• do not cancel your Contract during this time, we re-allocate your Contract Value to the Index Options according to your |
Variable Account Value increases when…. | Variable Account Value decreases when…. |
• we hold assets in the Variable Option on an interim basis before transferring them to your selected Index Option(s), or due to a Contract Value increase associated with the death of a Determining Life, or • there is positive Fund performance | • you take assets out of the Variable Option by withdrawal (including financial adviser fees that you choose to have us pay from this Contract), • we transfer assets held in the Variable Option on an interim basis to your selected Index Option(s) according to allocation instructions, • there is negative Fund performance, or • we deduct Contract fees and expenses |
Contract fees and expenses we deduct from the Variable Option include the rider fee, contract maintenance charge, and withdrawal charge as described in section 6, Expenses.Financial adviser fees that you choose to have us pay from this Contract are described in section 1, The Contract. |
Index Option Values increase when…. | Index Option Values decrease when…. |
• you add assets to an Index Option by Purchase Payment, make allocation instruction changes that transfer Contract Value, or request an Early Reallocation into the Index Option, • we transfer assets held in the Variable Option on an interim basis to your selected Index Option according to allocation instructions, or • you receive a positive Performance Credit or Daily Adjustment | • you take assets out of an Index Option by withdrawal (including any financial adviser fees that you choose to have us pay from this Contract), make allocation instruction changes that transfer Contract Value, or request an Early Reallocation out of the Index Option, • you receive a negative Performance Credit or Daily Adjustment, or • we deduct Contract fees and expenses |
Contract fees and expenses we deduct from the Index Options include the rider fee, contract maintenance charge, and withdrawal charge as described in section 6, Expenses. Financial adviser fees that you choose to have us pay from this Contract are described in section 1, The Contract. |
• The Index Dual Precision Strategy, Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy allow negative Performance Credits. A negative Performance Credit means you can lose principal and previous earnings. The maximum potential negative Performance Credit is: -90% with a 10% Buffer; -80% with a 20% Buffer; -70% with a 30% Buffer; and -10% with the Floor. |
• Because we calculate Index Returns only on a single date in time, you may experience negative or flat performance even though the Index you selected for a given Crediting Method experienced gains through some, or most, of the Term. |
• If an Index Performance Strategy Index Option is “uncapped” for one Term (i.e., we do not declare a Cap for that Term) it does not mean that we will not declare a Cap for it on future Term Start Dates. On the next Term Start Date we can declare a Cap for the next Term, or declare it to be uncapped. |
What is the asset protection? | |
Index Protection Strategy with Trigger | • Most protection. • If the Index loses value, the Performance Credit is zero. You do not receive a negative Performance Credit. |
What is the asset protection? | |
Index Dual Precision Strategy | • Less protection than the Index Protection Strategy with Trigger and Index Guard Strategy. Protection is equal to or greater than what is available with the Index Precision Strategy depending on the Index Option. Offers the same protection levels as the Index Performance Strategy. • Buffer absorbs 10%, 20%, or 30% of loss, but you receive a negative Performance Credit for losses greater than the Buffer. • Potential for large losses in any Term. • More sensitive to large negative market movements because small or moderate negative market movements within the applicable 10%, 20%, or 30% Buffer result in a positive Performance Credit. In a period of extreme negative market performance, the risk of loss is greater with the Index Dual Precision Strategy than with the Index Guard Strategy. |
Index Precision Strategy | • Less protection than the Index Protection Strategy with Trigger and Index Guard Strategy. Protection may be equal to or less than what is available with the Index Dual Precision Strategy and Index Performance Strategy depending on the Index Option. • Buffer absorbs 10% of loss, but you receive a negative Performance Credit for losses greater than 10%. • Potential for large losses in any Term. • More sensitive to large negative market movements because small negative market movements are absorbed by the 10% Buffer. In a period of extreme negative market performance, the risk of loss is greater with the Index Precision Strategy than with the Index Guard Strategy. |
Index Guard Strategy | • Less protection than the Index Protection Strategy with Trigger, but more than Index Dual Precision Strategy, Index Precision Strategy, and Index Performance Strategy. • Permits a negative Performance Credit down to the -10% Floor. • Protection from significant losses. • More sensitive to smaller negative market movements that persist over time because the -10% Floor reduces the impact of large negative market movements. • In an extended period of smaller negative market returns, the risk of loss is greater with the Index Guard Strategy than with the Index Dual Precision Strategy, Index Precision Strategy, and Index Performance Strategy. • Provides certainty regarding the maximum loss in any Term. |
Index Performance Strategy | • Less protection than the Index Protection Strategy with Trigger and Index Guard Strategy. Index Options with a 10% Buffer provide the same protection as the Index Precision Strategy. The 20% and 30% Buffers provide more protection than what is available with the Index Precision Strategy. Offers the same protection levels as the Index Dual Precision Strategy. • Buffer absorbs 10%, 20%, or 30% of loss depending on the Index Option you select, but you receive a negative Performance Credit for losses greater than the Buffer. • Potential for large losses in any Term. • More sensitive to large negative market movements because small or moderate negative market movements are absorbed by the Buffer. In a period of extreme negative market performance, the risk of loss is greater with the Index Performance Strategy than with the Index Guard Strategy. • In extended periods of moderate to large negative market performance, 3-year and 6-year Terms may provide less protection than the 1-year Terms because, in part, the Buffer is applied over a longer period of time. |
What is the growth opportunity? | |
Index Protection Strategy with Trigger | • Growth opportunity limited by the Trigger Rates. • May perform best in periods of small positive market movements relative to the other Crediting Methods, because such small positive market movements may result in positive Performance Credits that are greater than the Index Return while also providing complete protection from any Index losses. • These Trigger Rates will generally be less than Caps, and Index Precision Strategy's Trigger Rates. Growth opportunity may be more or less than the Index Dual Precision Strategy depending on Trigger Rates. |
What is the growth opportunity? | |
Index Dual Precision Strategy | • Growth opportunity limited by the Trigger Rates. • May perform best in periods of small or moderate negative market movements as it provides a positive Performance Credit in these environments while other Crediting Methods do not. • Generally less growth opportunity than the Index Precision Strategy and Index Performance Strategy. • Growth opportunity may be more or less than the Index Protection Strategy with Trigger and Index Guard Strategy depending on Trigger Rates and Caps. |
Index Precision Strategy | • Growth opportunity limited by the Trigger Rates. • May perform best in periods of small positive market movements. • Generally more growth opportunity than the Index Protection Strategy with Trigger and Index Dual Precision Strategy. However, less growth opportunity than the Index Dual Precision Strategy during periods of small or moderate negative market movements. • Growth opportunity may be more or less than the Index Guard Strategy or Index Performance Strategy depending on Trigger Rates and Caps. |
Index Guard Strategy | • Growth opportunity limited by the Caps. • May perform best in a strong market. • Growth opportunity that generally may be matched or exceeded only by the Index Performance Strategy. However, growth opportunity may be more or less than the Index Dual Precision Strategy, Index Precision Strategy, or Index Performance Strategy depending on Trigger Rates and Caps. |
Index Performance Strategy | • Growth opportunity limited by the Caps and/or Participation Rates. If we do not declare a Cap for an Index Option, there is no maximum limit on the positive Index Return for that Index Option. In addition, you can receive more than the positive Index Return if the Participation Rate applies and is greater than its 100% minimum. However, the Participation Rate cannot boost Index Returns beyond a declared Cap. • May perform best in a strong market. • 1-year Term with 10% Buffer Index Options, 3-year Term with 10% or 20% Buffer Index Options, and 6-year Term with 10% or 20% Buffer Index Options have the most growth opportunity. • Growth opportunity for the 1-year Term with 20% or 30% Buffer may be less than the Index Dual Precision Strategy, Index Precision Strategy, and Index Guard Strategy depending on Trigger Rates and Caps. |
What can change within a Crediting Method? | |
Index Protection Strategy with Trigger | • Renewal and Early Reallocation Trigger Rates for existing Contracts can change on each Term Start Date. – 1-year Term has a 0.10% minimum Trigger Rate. |
Index Dual Precision Strategy | • Renewal and Early Reallocation Trigger Rates for existing Contracts can change on each Term Start Date. – 1-year Term with a 10%, 20%, or 30% Buffer has a 0.10% minimum Trigger Rate. • The 10%, 20%, or 30% Buffers for the currently available Index Options cannot change. However, if we add a new Index Option to your Contract after the Issue Date, we establish the Buffer for it on the date we add the Index Option to your Contract. The minimum Buffer is 5% for a new Index Option. |
Index Precision Strategy | • Renewal and Early Reallocation Trigger Rates for existing Contracts can change on each Term Start Date. – 1-year Term has a 0.10% minimum Trigger Rate. • The 10% Buffers for the currently available Index Options cannot change. However, if we add a new Index Option to your Contract after the Issue Date, we establish the Buffer for it on the date we add the Index Option to your Contract. The minimum Buffer is 5% for a new Index Option. |
Index Guard Strategy | • Renewal and Early Reallocation Caps for existing Contracts can change on each Term Start Date. – 1-year Term has a 0.10% minimum Cap. • The -10% Floors for the currently available Index Options cannot change. However, if we add a new Index Option to your Contract after the Issue Date, we establish the Floor for it on the date we add the Index Option to your Contract. The minimum Floor is -25% for a new Index Option. |
What can change within a Crediting Method? | |
Index Performance Strategy | • Renewal and Early Reallocation Caps and/or Participation Rates for existing Contracts can change on each Term Start Date. – 1-year Term with 10%, 20%, or 30% Buffer has a 0.10% minimum Cap. – 3-year Term with 10% or 20% Buffer has a 2% minimum Cap, and 100% minimum Participation Rate. – 6-year Term with 10% or 20% Buffer has a 5% minimum Cap, and 100% minimum Participation Rate. • The 10%, 20%, and 30% Buffers for the currently available Index Options cannot change. However, if we add a new Index Option to your Contract after the Issue Date, we establish the Buffer for it on the date we add the Index Option to your Contract. The minimum Buffer is 5% for a new Index Option. |
• For any Index Option with theIndex Dual Precision Strategy, Index Precision Strategy, or Index Performance Strategy,you participate in any negative Index Return in excess of the Buffer, which reduces your Contract Value. For example, for a 10% Buffer we absorb the first -10% of Index Return and you could lose up to 90% of the Index Option Value. However, for any Index Option with the Index Guard Strategy, we absorb any negative Index Return in excess of the -10% Floor, so your maximum loss is limited to -10% of the Index Option Value due to negative Index Returns. |
• Trigger Rates, Caps, and Participation Rates as set by us from time-to-time may vary substantially based on market conditions. However, in extreme market environments, it is possible that all Trigger Rates, Caps, and Participation Rates will be reduced to their respective minimums of 0.10%, 2%, 5%, or 100% as stated in the table above. |
• If your Contract is within its free look period you may be able to take advantage of any increase in initial Trigger Rates, Caps, and/or Participation Rates by cancelling your Contract and purchasing a new Contract. |
• If the initial Trigger Rates, Caps, and/or Participation Rates available on the Index Effective Date are not acceptable you have the following options. |
– Cancel your Contract if you are still within the free look period. If you took a withdrawal that was subject to a withdrawal charge (including financial adviser fees that you choose to have us pay from this Contract) we will refund any previously deducted withdrawal charge upon a free look cancellation. |
– Request to extend your Index Effective Date if you have not reached your first Quarterly Contract Anniversary. |
– If the free look period has expired, request a full withdrawal and receive the Cash Value. This withdrawal is subject to withdrawal charges, income taxes, and may also be subject to a 10% additional federal tax for amounts withdrawn before age 59 1∕2. If this occurs on or before the Index Effective Date, the Daily Adjustment does not apply. If this occurs after the Index Effective Date, you are subject to the Daily Adjustment. |
• Trigger Rates, Caps, and Participation Rates can be different from Index Option to Index Option. For example, Caps for the Index Performance Strategy 1-year Terms can be different between the S&P 500® Index and the Nasdaq-100® Index; and Caps for the S&P 500® Index can be different between 1-year, 3-year, and 6-year Terms on the Index Performance Strategy, and between the 1-year Terms for the Index Guard Strategy and Index Performance Strategy. Initial, renewal, and Early Reallocation rates may also be different from Contract-to-Contract. For example, assume that on August 3, 2023 we set Caps for the Index Performance Strategy 1-year Term with 10% Buffer using the S&P 500® Index as follows: |
– 13% initial rate and 12% Early Reallocation rate for new Contracts issued in 2023, |
– 14% renewal rate and 14% Early Reallocation rate for existing Contracts issued in 2022, and |
– 12% renewal rate and 13% Early Reallocation rate for existing Contracts issued in 2021. |
First Index Option | Second Index Option | |||
Index Option Value | Index Option Base | Index Option Value | Index Option Base | |
Prior to partial withdrawal | $ 75,000 | $ 72,000 | $ 25,000 | $ 22,000 |
$10,000 partial withdrawal | – $7,500 | – $7,200 | – $2,500 | – $2,200 |
After partial withdrawal | $ 67,500 | $ 64,800 | $ 22,500 | $ 19,800 |
• Amounts removed from the Index Options during the Term for partial withdrawals you take (including any financial adviser fees that you choose to have us pay from this Contract) and deductions we make for Contract fees and expenses do not receive a Performance Credit on the Term End Date. However, the remaining amount in the Index Options is eligible for a Performance Credit on the Term End Date. |
• You cannot specify from which Index Option or the Variable Option we deduct Contract fees and expenses; we deduct Contract fees and expenses from each Index Option and the Variable Option proportionately based on its percentage of Contract Value. |
Crediting Method and Term Length | If Index Value is less than it was on the Term Start Date (i.e., Index Return is negative): | If Index Value is equal to or greater than it was on the Term Start Date (i.e., Index Return is zero or positive): |
Index Protection Strategy with Trigger 1-year Term | Performance Credit is zero. | Performance Credit is equal to the Trigger Rate set on the Term Start Date. |
Index Dual Precision Strategy 1-year Term • For Contracts issued from May 1, 2023, to November 13, 2023, the Index Dual Precision Strategy is not available. • For Contracts issued from November 14, 2023, to April 30, 2024, only the 10% Buffer is available. • For Contracts issued since May 1, 2024, the 10%, 20%, and 30% Buffers are available. | Performance Credit is equal to the Trigger Rate if the negative Index Return is less than or equal to the 10%, 20%, or 30% Buffer. However, if the negative Index Return is greater than the 10%, 20%, or 30% Buffer you receive a Performance Credit equal to the negative Index Return in excess of the applicable Buffer. Assume you select a 1-year Term Index Option with 10% Buffer. If the Index Return for the year is… • -8%, the Performance Credit is equal to the Trigger Rate set on the Term Start Date. • -12%, the Performance Credit is -2%. Instead assume you select a 1-year Term Index Option with 20% Buffer, and the Index Return for the Term is… • -19%, the Performance Credit is equal to the Trigger Rate set on the Term Start Date. • -24%, the Performance Credit is -4%. Instead assume you select a 1-year Term Index Option with 30% Buffer, and the Index Return for the Term is… • -29%, the Performance Credit is equal to the Trigger Rate set on the Term Start Date. • -36%, the Performance Credit is -6%. | Performance Credit is equal to the Trigger Rate set on the Term Start Date. |
Index Precision Strategy 1-year Term | Performance Credit is equal to the negative Index Return in excess of the 10% Buffer. If the Index Return is… • -8%, the Performance Credit is zero. • -12%, the Performance Credit is -2%. | Performance Credit is equal to the Trigger Rate set on the Term Start Date. |
Index Guard Strategy 1-year Term | Performance Credit is equal to the negative Index Return subject to the -10% Floor. If the Index Return is… • -8%, the Performance Credit is -8%. • -12%, the Performance Credit is -10%. | Performance Credit is equal to the Index Return up to the Cap set on the Term Start Date. Assume the Cap is 8%. If the Index Return is… • 0%, the Performance Credit is zero. • 6%, the Performance Credit is 6%. • 12%, the Performance Credit is 8%. |
Crediting Method and Term Length | If Index Value is less than it was on the Term Start Date (i.e., Index Return is negative): | If Index Value is equal to or greater than it was on the Term Start Date (i.e., Index Return is zero or positive): |
Index Performance Strategy 1-year Term • For Contracts issued from May 1, 2023, to November 13, 2023, only the 10% Buffer is available. • For Contracts issued since November 14, 2023, the 10%, 20%, and 30% Buffers are available. | Performance Credit is equal to the negative Index Return in excess of the 10%, 20%, or 30% Buffer. Assume you select a 1-year Term Index Option with 10% Buffer. If the Index Return for the year is… • -8%, the Performance Credit is zero. • -12%, the Performance Credit is -2%. Instead assume you select a 1-year Term Index Option with 20% Buffer, and the Index Return for the Term is… • -19%, the Performance Credit is 0%. • -24%, the Performance Credit is -4%. Instead assume you select a 1-year Term Index Option with 30% Buffer, and the Index Return for the Term is… • -29%, the Performance Credit is 0%. • -36%, the Performance Credit is -6%. | Performance Credit is equal to the Index Return up to any Cap set on the Term Start Date. Assume the Cap for the 1-year Term is 8%. If the Index Return for the year is… • 0%, the Performance Credit is zero. • 6%, the Performance Credit is 6%. • 12%, the Performance Credit is 8%. If instead the 1-year Term is uncapped, the Performance Credit is 12%. |
Index Performance Strategy 3-year Term | Performance Credit is equal to the negative Index Return in excess of the 10% or 20% Buffer. Assume you select a 3-year Term Index Option with 10% Buffer. If the Index Return for the Term is… • -19%, the Performance Credit is -9%. • -24%, the Performance Credit is -14%. Instead assume you select a 3-year Term Index Option with 20% Buffer, and the Index Return for the Term is… • -19%, the Performance Credit is 0%. • -24%, the Performance Credit is -4%. | Performance Credit is equal to the Index Return multiplied by the Participation Rate, up to any Cap set on the Term Start Date. Assume the Participation Rate is 100% and the Cap is 80%. If the Index Return for the Term is… • 0%, the Performance Credit is zero. • 65%, the Performance Credit is 65%. • 90%, the Performance Credit is 80%. If instead the Participation Rate is 110% and the 3-year Term is uncapped, and the Index Return for the Term is… • 0%, the Performance Credit is zero. • 65%, the Performance Credit is 71.5%. • 90%, the Performance Credit is 99%. |
Index Performance Strategy 6-year Term • For Contracts issued from May 1, 2023, to November 13, 2023, only the 10% Buffer is available. • For Contracts issued since November 14, 2023, the 10% and 20% Buffers are available. | Performance Credit is equal to the negative Index Return in excess of the 10% or 20% Buffer. If the Index Return for the Term is… • -19%, the Performance Credit is -9%. • -24%, the Performance Credit is -14%. Instead assume you select a 6-year Term Index Option with 20% Buffer, and the Index Return for the Term is… • -19%, the Performance Credit is 0%. • -24%, the Performance Credit is -4%. | Performance Credit is equal to the Index Return multiplied by the Participation Rate, up to any Cap set on the Term Start Date. Assume the Participation Rate is 100% and the Cap is 85%. If the Index Return for the Term is… • 0%, the Performance Credit is zero. • 65%, the Performance Credit is 65%. • 90%, the Performance Credit is 85%. If instead the Participation Rate is 110% and the 6-year Term is uncapped, and the Index Return for the Term is… • 0%, the Performance Credit is zero. • 65%, the Performance Credit is 71.5%. • 90%, the Performance Credit is 99%. |
We will not provide advice or notify you regarding whether you should execute a Performance Lock or Early Reallocation or the optimal time for doing so. We will not warn you if you execute a Performance Lock or Early Reallocation at a sub-optimal time. We are not responsible for any losses related to your decision whether or not to execute a Performance Lock or Early Reallocation. |
Currently the Contract does not offer any variable investment options to which you can allocate money. As such, and given the design of the Contract, we do not believe there to be a risk of excessive trading and market timing. However, if we were to offer multiple variable investment options in the future, they would be subject to the following provisions. |
This Contract is not designed for professional market timing organizations, or other persons using programmed, large, or frequent transfers, and we may restrict excessive or inappropriate transfer activity. |
Issue Date | Non-Quarterly Contract Anniversaries | Quarterly Contract Anniversaries* | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• The Charge Base is equal to your initial Purchase Payment. • We begin calculating and accruing the daily rider fee, on the day after the Issue Date. | • First we calculate and accrue the daily rider fee, using the Charge Base. If this is a non-Business Day we use the Charge Base from the end of the prior Business Day. • Then if this is a Business Day we increase/decrease the Charge Base as follows.
• First we process
We no longer assess the 0.20% additional rider fee once we receive either the first Valid Claim from any one Beneficiary, or due proof of a Determining Life’s death if you and the Determining Life are different individuals and the Determining Life predeceases you. We deduct the Allianz Index 53
Contract Maintenance Charge (Administrative Expenses) Your annual contract maintenance charge is $50. This charge is for Contract administration and maintenance expenses. We waive this charge as follows: • • During the Accumulation Phase, if you take a full withdrawal of the Cash Value and the Contract Value is at least $100,000 at the end of the last Business Day before the withdrawal. • During the Annuity Phase if the Contract Value on the last Business Day before the Annuity Date is at least $100,000. • When paying death benefits. During the Accumulation Phase, we deduct the contract maintenance • on a dollar for dollar basis from the Contract Value on the Contract Anniversary (or the next Business Day if the Contract Anniversary is • we deduct it proportionately from each Index Option and the If you take a full withdrawal from your Contract (other than on a Contract Anniversary) Withdrawal Charge You can take withdrawals during the Accumulation We do not assess a withdrawal charge on
Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 54
4.Contract earnings. We already withdrew your requested
Upon a full withdrawal, we first deduct any The withdrawal charge compensates us for expenses associated with selling the Contract. Allianz Index 55 Reduction or Elimination of the Withdrawal Charge We may reduce or eliminate the withdrawal charge when the Contract is sold under circumstances that reduce its sales expenses. We will implement this withdrawal charge reduction or elimination in a nondiscriminatory manner. For example, if a large group of individuals purchases Contracts or if a prospective purchaser already has a relationship with us. We may choose not to deduct a withdrawal charge under a Contract issued to an officer, director, or employee of Allianz Life or any of its affiliates. Also, we may reduce or eliminate the withdrawal charge when a Contract is sold by a Financial Professional appointed with Allianz Life to any members of his or her immediate family and the Financial Professional waives their commission. We must pre-approve any withdrawal charge reduction or elimination.
Daily Adjustment Maximum Potential Loss
Premium Tax Premium tax is based on your state of residence at the time you make each Purchase Payment. In states that assess a premium tax, we do not currently deduct it from the Contract, although we reserve the right to do so in the future. Premium tax normally ranges from 0% to 3.5% of the Purchase Payment, depending on the state or governmental entity. Income Tax Currently, we do not deduct any Contract related income tax we incur, although we reserve the right to do so in the future. Fund Expenses Charges deducted from and expenses paid out of the assets Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 56 These expenses reduce the Fund's performance and, therefore, negatively affect your Contract Value and any payments based on Contract Value. 7.Access to Your Money • • • when we pay a death benefit. You can take withdrawals during the Accumulation Any partial withdrawal must be for at least $100.* The Contract Value after a partial withdrawal (including any withdrawal charge) must be at least $2,000.*
Does not apply to RMD payments under our minimum distribution program. We deduct any partial withdrawal (including any withdrawal charge) proportionately from each Index Option and the A partial or full withdrawal is subject to a withdrawal charge if taken within six years of your last Purchase Payment, and, if taken on a day other than a Term End Date, we See the Fee Tables and section We pay withdrawals promptly, but in no event later than seven days after receipt of your request in Good Order at our Service Center, unless the suspension of payments or transfers provision is in effect (see the discussion later in this section).
Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 57 Free Withdrawal Privilege Each Contract Year during the Accumulation Phase, Example
Minimum Distribution Program and Required Minimum Distribution (RMD) Payments If you own an IRA or SEP IRA Contract, you can participate in the minimum distribution program during the Accumulation We can make payments to you
Waiver of Withdrawal Charge Benefit After the first Contract Year, • begin confinement after the first Contract Anniversary in an eligible facility (a hospital, nursing facility, or assisted living facility) for at least 90 days in a 120-day period, or • are unable to perform at least two of six activities of daily living (ADLs) for at least 90 consecutive days. ADLs include bathing, dressing, toileting, continence, eating, and transferring (moving into or out of a bed, chair, or wheelchair). We must receive proof of staying in an eligible facility or ADL eligibility before we waive the withdrawal charge. For ADL eligibility we may require, at our expense, an examination or tests by a physician of our choice. This waiver is not available if
58 withdrawal privilege amount during the Contract Year. We apply the Daily Adjustment to the Index Options if withdrawals under this benefit are deducted on days other than the Term End Date. Suspension of Payments or Transfers We may be required to suspend or postpone transfers or payments for • • trading on the New York Stock Exchange is restricted; • an emergency (as determined by the SEC) exists as a result of which disposal of Fund shares by the Separate Account, or disposal of securities owned by the Fund, is not reasonably practicable, or it is not reasonably practical for the Separate Account or the Fund to determine the value of their net assets; or • during any other period when the SEC, by order, so permits for the protection of Owners. 8.The Annuity Phase Prior to annuitization, you can Annuity Payments offer a guaranteed lifetime income stream with certain tax advantages and are designed for Owners who You can We base Annuity Payments upon the following:
Contract Value • The age of the Annuitant and any • The gender of the Annuitant and any joint Annuitant where permitted. • The Annuity Option you select. • Your Contract’s interest rate (or current rates, if higher) and mortality table. For any Index Option for which the Annuity Date is not a Term End Date, Contract Value reflects the Daily Adjustment. We guarantee the dollar amount of Annuity Payments and this amount remains fixed and does not change during the entire annuity Annuity Payment Options You can choose one of the Annuity Options described Option Option B - Life. We make Annuity Payments during the life of the Annuitant, and the last payment is the one that is due before the Option Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 59 Option Option G - Joint and 2/3 Survivor Annuity. We make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant. Upon the death of one Annuitant, Annuity Payments to the Payee continue during the lifetime of the surviving joint Annuitant at Under Annuity Options B, F and After the Annuity Payments are usually lower if you select an Annuity Option that requires us to make more frequent Annuity Payments or to make payments over a longer period of time. If you choose life contingent Annuity Payments, payout rates for a younger Annuitant are lower than the payout rates for an older Annuitant and payout rates for life with a guaranteed period are typically lower than life only payments. Monthly payout rates are lower than annual payout rates, payout rates for a
Annuity Payments must
60 9.Benefits Available Under the Contract The following tables summarize information about the benefits available under the Contract.
Allianz Index 61
Traditional
• Benefit only available during the Accumulation
Allianz Index 62
Allianz Index 63
10.Death Benefit The Contract provides the Traditional Death The death benefit is only available during the Accumulation If there are multiple Beneficiaries, each Beneficiary receives the portion of the death benefit he or she is entitled to when we receive his or her Valid Claim. If a Beneficiary dies before you or the Designated Life, that Each Beneficiary’s portion of the death benefit From the time we determine the death benefit until we make a complete distribution, any amount in the Index Options and Allianz Index 64 On the first death of a Determining Life during the Accumulation Phase, if your selected death benefit is in effect, your Beneficiary(ies) will receive the greater of the Contract Value or Guaranteed Death Benefit Value. The If the date we are determining the death benefit is not Examples of the impact of withdrawals for financial adviser fees that you choose to have us pay from this Contract on the death benefit are included in section 1. Maximum Anniversary Value The Maximum Anniversary Value is initially equal to the Purchase Payment received on the Issue Date. At the end of each Business Day, we adjust the Maximum Anniversary Value as follows. • We increase it by the dollar amount of any additional Purchase Payments. • We reduce it by the percentage of any Contract Value you withdraw (including any withdrawal charge). If the Index Effective Date occurs after the Issue Date, the Maximum Anniversary Value on the Index Effective Date is calculated in the same way as on an Index Anniversary. On each Index Anniversary before the end date (or on the next Business Day if the Index Anniversary is not on a Business Day) the Maximum Anniversary Value is equal to the greater of: • its current value after processing any additional Purchase Payments, or withdrawals you take (including any withdrawal charge), or • the Contract Value determined at the end of the Business Day after we process all daily transactions including Performance Credits, any additional Purchase Payments, withdrawals you take including any withdrawal charges, and deductions we make for other Contract fees and expenses. Contract Value reflects the Daily Adjustment for an Index Option for which this anniversary is not a Term End Date. Negative Index Option performance, withdrawals you take, and deductions we make for Contract fees or expenses decrease the Contract Value and reduce the likelihood of receiving increases to the Maximum Anniversary Value. On and after the end date, we no longer make this comparison and The end date occurs on the earliest of: • the older Determining Life’s 91st birthday, or • the end of the Business Day we receive the first Valid Claim from any one Beneficiary. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 65
• • On the 1st Index Anniversary the Contract Value is greater than the Maximum Anniversary Value, so the Maximum Anniversary Value increases to equal the Contract Value of $110,000. • On the 2nd and 3rd Index Anniversaries the Contract Value is less than the Maximum Anniversary Value, so we neither increase nor decrease the Maximum Anniversary Value. The Maximum Anniversary Value will stay at $110,000 until the Contract Value on an Index Anniversary is greater than this amount or you make an additional Purchase Payment (either of which will increase the Maximum Anniversary Value), or you take a withdrawal (which will decrease the Maximum Anniversary Value). • On the 4th Index Anniversary the Contract Value is greater than the Maximum Anniversary Value, so the Maximum Anniversary Value increases to equal the Contract Value of $120,000. What Happens Upon Death? If you are the Determining Life, or if you and the Determining Life (Lives) are different individuals and die • Contract Value determined at the end of the Business Day during which we receive his or her Valid Claim. In this instance, if the Beneficiary: − is a surviving spouse and chooses to continue the Contract; − selects death benefit payment Option B; or − selects death benefit payment Option C and takes payment over a period not extending beyond the Beneficiary’s life expectancy; we increase the Contract Value to equal the Guaranteed Death Benefit Value if greater when we receive a Valid Claim. If you and the Determining Life (Lives) are different individuals and do not die • If a Determining Life dies before you, we do not pay a death benefit to the Beneficiary(ies), but we may increase the Contract Value if the Traditional Death Benefit or Maximum Anniversary Value Death Benefit are still in effect. At the end of the Business Day we receive due proof of a Determining Life’s death, we increase the Contract Value to equal the Guaranteed Death Benefit Value if greater, and your selected death benefit ends. • Upon your death, your Beneficiary(ies) receive the Contract Value determined at the end of the Business Day during which we receive each Beneficiary’s Valid Claim. Upon the death of a Determining Life, if we increase the Contract Value to equal the Guaranteed Death Benefit Value, we allocate this increase to the Variable Option. On the next Index Anniversary we transfer the Variable Account Value to the Index Options according to the allocation instructions. The Traditional Death Benefit and Maximum Anniversary Value Death Benefit end upon the earliest of the following. • The Business Day before the Annuity Date. • The Business Day that the Guaranteed Death Benefit Value and Contract Value are both zero. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 66 • Upon the death of a Determining Life, the end of the Business Day we receive a Valid Claim from all Beneficiaries if you and the Determining Life are the same individuals, or if you and the Determining Life (Lives) are different individuals and die within 120 hours of each other. • Upon the death of a Determining Life, the end of the Business Day we receive due proof of the Determining Life’s death if you and the Determining Life (Lives) are different individuals and do not die within 120 hours of each other. • Upon the death of an Owner (or Annuitant if the Owner is a non-individual), the end of the Business Day we receive the first Valid Claim from any one Beneficiary, if the Owner (or Annuitant) is no longer a Determining Life. • The Business Day the Contract ends.
Death of the Owner and/or Annuitant Death Benefit Payment Options During the Accumulation Phase Each Beneficiary must select one of the death benefit payment options listed below. If a Beneficiary requests a lump sum payment under Option A, we pay that Beneficiary within seven days of receipt of his or her Valid Claim, unless the suspension of payments or transfers provision is in effect. Payment of the death benefit may be delayed, pending receipt of any state forms. Spousal Continuation: If the Beneficiary is the deceased • • he or she is subject to any remaining withdrawal charge; and • upon the surviving spouse’s death, their Beneficiary(ies) receive the Contract Value determined at the end of the Business Day during which we receive a Valid Claim from each Beneficiary. Death Benefit Payment Options The following applies to Non-Qualified Contracts. Different rules may apply to Qualified Contracts. For more information, please see section 11, Taxes – Distributions Upon the Owner’s Death (or Annuitant’s Death if the Owner is a Non-Individual). Option A:Lump sum payment of the death benefit. Option B:Payment of the entire death benefit within five years of the date of any Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 67 Option C:If the Beneficiary is an individual, payment of the death benefit as Annuity Payments under Annuity Options Distribution from Non-Qualified Contracts under Option C must begin within one year of the date of the If In all events, notwithstanding any provision to the contrary in the Contract or this prospectus, This section provides a summary explanation of the tax ramifications of purchasing a Contract. Annuity Contracts in General Annuity contracts are a means of setting aside money for future needs – usually retirement. Congress recognized the importance of saving for retirement and provided special rules in the Code for annuities. There are different rules regarding how you will be taxed, depending upon how you take the money out and whether the annuity is Qualified or Non-Qualified. Generally, any taxable distribution is subject to income taxes at ordinary income tax rates (instead of capital gains rates). You can purchase either a Qualified Contract or a Non-Qualified Contract. This prospectus does not address specific state tax laws. You should discuss state taxation with your tax adviser. Qualified Contracts If you purchase the IRA, Roth IRA, SEP IRA, Inherited IRA, Inherited Roth IRA, or to fund a qualified retirement plan, the Contract is referred to as a Qualified Contract. Qualified Contracts are subject to certain restrictions under the Code, including restrictions on the amount of annual contributions, restrictions on how much you can earn and still be able to contribute to a Qualified Contract, and specialized restrictions on withdrawals. Qualified Contracts must be purchased from earned income from the relevant year or years, or from a rollover or transfer from a qualified contract. An IRA to IRA indirect rollover can occur only once in any A Qualified Contract funded by an annuity does not provide any additional tax deferral. However, the Contract has features and benefits other than tax deferral that may make it appropriate for an IRA or qualified retirement plan. You should consult your tax adviser regarding these features and benefits before purchasing a Qualified Contract. We may issue the following types of Qualified Contracts to an individual. Purchasers of a Contract for use with IRAs have the right to revoke their purchase within seven days of the earliest of the establishment of the IRA, or their purchase. • IRA (traditional IRA). Section 408 of the Code permits eligible individuals to fund IRAs. IRA contributions are limited each year to the lesser of a dollar amount specified in the Code or 100% of the amount of earned income included in the Owner’s income. Contributions may be tax deductible based on the Owner’s income. Contributions must be made in cash. The limit on the amount contributed to an IRA does not apply to distributions from certain other types of IRAs or qualified retirement plans that are transferred or rolled over on a tax-deferred basis into an IRA. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 68 • Roth IRA. Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA are limited each year to the lesser of a dollar amount specified in the Code or 100% of the amount of earned income included in the Owner’s income. Contributions are also limited or prohibited if the Owner’s income is above certain limits. Contributions must be made in cash. The limit on the amount contributed to a Roth IRA does not apply to distributions from certain other types of IRAs or qualified retirement plans that are transferred or rolled over (conversion) into a Roth IRA. Conversions to a Roth IRA from an IRA or other eligible qualified retirement plan are permitted regardless of an individual’s income. A conversion to a Roth IRA results in a taxable event, but not a 10% additional federal tax for early withdrawal if certain qualifications are met (please consult your tax adviser for more details). • SEP IRA. Employers may establish SEP IRAs under Code Section 408(k) to provide IRA contributions on behalf of their employees. In addition to all of the general rules governing IRAs, such plans are subject to additional requirements and different contribution limits. • Inherited IRA and Inherited Roth IRA. The Code permits beneficiaries of investments that were issued under qualified retirement plans or IRAs to directly transfer the death benefit from that investment into a variable annuity contract (Inherited IRA or Inherited Roth IRA). If you purchase this Contract as a transfer from another carrier, you will become the Owner of the new Inherited IRA or Inherited Roth IRA Contract. The ownership of this Contract will also reflect the name of the deceased previous owner. Once an Inherited IRA or Inherited Roth IRA is established, no further Purchase Payments can be made. We may choose not to allow this Contact to be purchased as an Inherited IRA or Inherited Roth IRA. We may issue the following type of Qualified • Qualified Retirement Plans: Pension and Profit-Sharing Plans. A qualified plan is a retirement or pension plan that meets the requirements for tax qualification under the Code. Sections 401(a) and 401(k) of the Code permit employers, including self-employed individuals, to establish various types of retirement plans for employees. These retirement plans may permit the purchase of the Contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees are not included in the gross income of the employee until distributed from the plan. The tax consequences to participants may vary, depending upon the particular plan design. Participant loans are not allowed under the Contracts purchased in connection with these plans. If the Contract is purchased for a qualified plan under Section 401 of the Code, the plan is both the Owner and the Beneficiary. The authorized signatory, plan administrator, or plan trustee for the plan must make representations to us that the plan is qualified under the Code on the Issue Date and is intended to continue to be qualified for the entire Accumulation Phase of the Contract, or as long as the qualified plan owns the Contract. The qualified plan may designate a third party administrator to act on its behalf. All tax reporting is the responsibility of the plan. In the event the qualified plan instructs us to roll the plan assets into an IRA for the Annuitant under this Contract, we change the qualification type of the Contract to an IRA and make the Annuitant the Owner. The qualified plan is responsible for any reporting required for the rollover transactions out of the plan. We are responsible for any reporting required for the Contract as an IRA. Purchasers of Contracts for use with pension or profit-sharing plans should obtain competent tax advice as to the tax treatment and suitability of holding an annuity within a plan. Because of the minimum Purchase Payment requirements, these Contracts may not be appropriate for some retirement plans that are funded on a periodic basis. Owners, Annuitants and Beneficiaries are cautioned that benefits under a Qualified Contract may be Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 69 Summary of Individuals and Entities That Can Own a Qualified Contract Currently, we offer the following types of Qualified Contracts.
Non-Qualified Contracts You can instead purchase a Non-Qualified Contract, which is not qualified pursuant to a specialized provision of the Code. There are no Code restrictions on annual contributions to a Non-Qualified Contract or how much you can earn and still contribute to a Contract. Non-Qualified Contracts Owned by Non-Individuals When a Non-Qualified Contract is owned by a non-individual (other than a trust holding the Contract as an agent for an individual), the Contract is not generally treated as an annuity for tax purposes. This means that the Contract may not receive the benefits of tax deferral and any Contract earnings may be taxable every year. Taxation of Withdrawals When you take money out of a Contract, we may deduct premium tax that we pay on your Contract. This tax varies from 0% to 3.5%, depending on your state. Currently, we pay this tax and do not pass it on to you. Section 72 of the Code governs taxation of annuities in general. An Owner is generally not taxed on increases in the value of a Contract until a distribution occurs, either in the form of withdrawals or as Annuity Payments. For a full withdrawal (total redemption), a partial withdrawal, or a death benefit, the recipient is taxed on the portion of the payment that exceeds your investment in the Contract (often referred to as cost basis). For Non-Qualified Contracts, this cost basis is generally the Purchase Payments, while for Qualified Contracts there is generally no cost basis, which means the withdrawal is fully taxable, except for qualified distributions from Roth IRAs and IRAs where you have separately tracked and reported any after-tax contributions that you have made. For Non-Qualified Contracts, the taxable portion of a partial withdrawal is the portion of the payment considered to be gain in the Contract (for example, the difference, if any, between the Contract Value immediately before the withdrawal, unreduced by any withdrawal charges, and the Contract’s cost basis). The withdrawals are generally taxed as though you were paid taxable earnings first, and then as a non-taxable return of Purchase Payments. Distributions from a Roth IRA generally are not subject to income tax if the Roth IRA has been held for five years (starting with the year in which the first contribution is made to any Roth IRA) and the Owner satisfies a triggering event such as attaining age 59 1∕2, death, disability or a first time homebuyer (subject to a $10,000 lifetime limit). Distribution before satisfying the five year period or triggering event requirement may subject the distribution to taxation. Please be aware that each Roth IRA conversion has its own five year holding period requirement for purposes of determining if the 10% additional federal tax described below applies. 10% Additional Federal Tax Withdrawals (whether partial or full) and Annuity Payments taken before age 59 1∕2 are subject to a 10% additional federal tax unless an exception applies. The exceptions are different for Qualified Contracts and Non-Qualified Contracts, and are also different for IRAs and qualified plans. If the Contract is jointly owned, we send each Joint Owner a check for half of Allianz Index 70 the withdrawal amount and we tax report that Joint Owner individually. Tax reporting each Joint Owner individually can create a discrepancy in taxation if only one Joint Owner is under age 59 1∕2 because that Joint Owner may be subject to the 10% additional federal tax. Exceptions to the 10% Additional Federal Tax for Qualified Contracts 1) distributions made on or after the date you (or the Annuitant as applicable) reach age 59 1∕2; 2) 3) 4) 5) 6) distributions made on account of an IRS levy upon the Qualified Contract; 7) distributions from an IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D) of the Code) for you and your 8) distributions from an IRA made to you, to the extent such distributions do not exceed your qualified higher education expenses (as defined in Section 72(t)(7) of the Code) for the tax year; 9) distributions from an IRA which are qualified first-time homebuyer distributions (as defined in Section 72(t)(8) of the Code); 10) distributions made to an alternate Payee pursuant to a qualified domestic relations order (does not apply to an IRA); 11) distributions made to a reservist called to active duty after September 11, 2001, for a period in excess of 179 days (or for an indefinite period), from IRAs or amounts attributable to elective deferrals under a 401(k) plan made during such active period; 12) distributions that 13) 14) distributions that are qualified disaster recovery distributions; 15) distributions due to having a terminal illness; 16) distributions that are emergency personal expense distributions up to $1,000 after December 31, 2023; and 17) distributions that are eligible distributions as a domestic abuse victim, not to exceed the lesser of $10,000 or 50% of the IRA or qualified plan vested benefit value, after December 31, 2023. With respect to (13) through (17) above, a qualified birth or adoption distribution, a qualified disaster recovery distribution, a terminal illness distribution, an emergency personal expense distribution and an eligible distribution as a domestic abuse victim may each be repaid any time within the 3-year period from the With respect to For 2020 only, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, permitted corona-virus related distributions from Qualified Contracts and IRAs up to an aggregate amount of $100,000. This type of distribution was an exception to the 10% additional federal tax. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 71 The tax associated with the distributions may be paid ratably over three years, beginning with the 2020 tax year. The CARES Act also allows you to recontribute the amount you withdrew to an eligible retirement plan (to which you can make a rollover contribution) in one or more payments within three years. Exceptions to the 10% Additional Federal Tax for Non-Qualified Contracts 1) paid on or after you reach age 59 1∕2; 2) paid after you die; 3) paid if you 4) paid in a series of substantially equal payments made annually (or more frequently) for your life (or life expectancy) or joint lives of you and your designated Beneficiary; 5) paid as annuity payments under an immediate annuity; or 6) that come from Purchase Payments made before August 14, 1982. With respect to (4) above, if the series of substantially equal periodic payments is modified before the later of your attaining age Non-Qualified Annuity Medicare Tax Distributions from Non-Qualified Contracts are considered investment income for purposes of the Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may apply to some or all of the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately.) This tax does not apply to distributions from Qualified Contracts. Please consult a tax adviser for more information. Payments for Financial Adviser Fees Any financial adviser fees that you choose to have us pay from this Contract to your Financial Professional or Financial Professional's firm may result in a taxable distribution. Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract rather than from other assets you may have. RMDs From Qualified Contracts Distributions from a Qualified Contract must commence no later than the required beginning date. For Roth IRAs, no distributions are required during the Owner’s lifetime. For IRAs other than Roth IRAs, the required beginning date is April 1 of the calendar year following the year in which you attain age 73. If you reached age 70 1∕2 on or before December 31, 2019, then age 70 1∕2 applies instead of age 73. If you reached age 72 on or before December 31, 2022, then age 72 applies instead of age 73. If you reach age 74 after December 31, 2032, then age 75 applies instead of age 73. Under a qualified plan or 403(b), the required beginning date is generally April 1 of the calendar year following the later of the calendar year in which you reach the age noted for IRAs above or retire. Generally, RMDs must be made over a period not exceeding the life or life expectancy of the individual or the joint lives or life expectancies of the individual and his or her designated Beneficiary. If the RMDs are not made, a 25% excise tax is imposed as to the amount not distributed. If you are attempting to satisfy these rules through partial withdrawals, the present value of future benefits provided under the Contract may need to be included in calculating the amount required to be distributed. If you enroll in our minimum distribution program, we make RMD payments to you that are designed to meet this Contract’s RMD requirements. Diversification Code Section 817(h) and accompanying Treasury Department Regulations impose diversification standards on the assets underlying variable annuity contracts. The Code provides that a variable annuity contract cannot be treated as an annuity contract for any period during which its investments are not adequately diversified as required by the United States Treasury Department. If the Contract no longer qualifies as an annuity contract, you would be subject to federal income tax Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 72 each year with respect to Contract earnings accrued. We intend to manage all available Index Options, and we intend that all available underlying funds be managed by the investment advisers so that they comply with these diversification standards. Owner Control The Treasury Department has indicated that the diversification regulations do not provide guidance regarding the circumstances in which an Owner’s control of the Separate Account’s investments may cause the Owner to be treated as the owner of the Separate Account’s assets, which would cause the Contract to lose its favorable tax treatment. In certain circumstances, variable annuity contract owners have been considered for federal income tax purposes to be the owners of the separate account’s assets, due to their ability to exercise investment control over those assets. In this case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area and some of our Contract’s features, such as the flexibility of an Owner to allocate Purchase Payments and transfer amounts among any available variable investment options, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give Owners investment control over Separate Account assets, we reserve the right to modify the Contracts as necessary to prevent an Owner from being treated as the owner of the Separate Account assets. Taxation of Annuity Payments For Annuity Payments from Non-Qualified Contracts, the portion of each payment included in income is determined by an exclusion ratio. The exclusion ratio is a Generally, Annuity Payments from Qualified Contracts are fully taxable unless you have separately tracked and reported any after-tax contributions that you have made. Annuity Payments that are qualified distributions from Roth IRAs are federal income tax free. Owners, Annuitants and Beneficiaries under the Contracts should seek competent financial advice about the tax consequences of any distributions. Distributions Upon the Owner’s Death (or Annuitant’s Death If the Owner Is a Non-individual) Section 72(s) of the Code requires that, to be treated as an annuity contract for federal income tax purposes, a Non-Qualified Contract must contain certain provisions regarding distributions when an Owner dies. Specifically, Section 72(s) requires that: (a) if an Annuitant dies on or after you annuitize the Contract, but before distribution of the entire Contract’s interest, the entire Contract’s interest must be distributed at least as rapidly as under the distribution method being used as of the Annuitant’s date of death; and (b) if any Owner (or the Annuitant if the Owner is a non-individual) dies before you annuitize the Contract, the Contract’s entire interest must be distributed within five years after the Owner’s date of death. These requirements are satisfied as to any part of an Owner’s interest that is payable to, or for the benefit of, a designated Beneficiary and distributed over the designated Beneficiary’s life, or over a period not extending beyond that Beneficiary’s life expectancy, provided that distributions begin within one year of the Owner’s death. The designated Beneficiary refers to an individual designated by the Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated Beneficiary is the deceased Owner’s surviving spouse, the surviving spouse can continue the Contract as the new Owner. If a couple is married in a jurisdiction (including a foreign country) that recognizes same-sex marriage, that marriage will be recognized for all federal tax purposes regardless of the law in the jurisdiction where they reside. However, the IRS did not recognize civil unions and registered domestic partnerships as marriages for federal tax purposes. Depending on the state in which your Contract is issued, we may offer certain spousal benefits to same-sex civil union couples, domestic partners or spouses. You should be aware, however, that, if state law does not recognize the civil union or registered domestic partnership as a marriage, we cannot permit the surviving partner/spouse to continue the Contract within the meaning of the federal tax law. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 73 Same-sex civil union couples, domestic partners and spouses should contact their financial professional and a qualified tax adviser regarding their personal tax situation, the implications of any Contract benefits based on a spousal relationship, and their partner’s/spouse’s rights and benefits under the Contract. Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements. Upon death of an Owner of a Qualified Contract, the Setting Every Community Up for Retirement (SECURE) Act (contained within the Further Consolidated Appropriations Act enacted December 20, 2019) made significant changes to the payment options available to Beneficiaries of Owners who die on or after January 1, 2020. The rules discussed below reference IRA Contracts, but similar rules also apply to qualified retirement plans. With some exceptions, IRA Beneficiaries must receive their entire death benefit by December 31 following the tenth anniversary of the IRA Owner’s death. The payment options for IRA Beneficiaries differ depending on several factors, including whether a Beneficiary is an Eligible Designated Beneficiary (EDB). An EDB includes any Beneficiary of the deceased IRA Owner who at time of death is: 1) the surviving spouse, 2) an individual not more than ten years younger than the IRA Owner, 3) a minor child of the IRA Owner, 4) a chronically ill individual, or 5) disabled individual. EDB status is determined at the IRA Owner’s death. If you are an EDB, then you can begin RMD payments based on your single life expectancy (“stretch payments”) in the year following the deceased Owner’s death. You must begin to receive these RMD payments by December 31 of the year following the deceased Owner’s death (but see the exception for a spouse beneficiary below). If you are an EDB that elected to receive payments over your life expectancy, once you die, then your beneficiary must receive their entire death benefit by December 31 following the tenth anniversary of your death. Proposed Treasury Regulations would also require your beneficiary in certain circumstances to continue stretch payments during this 10-year period. For a minor child Beneficiary, the payments based on life expectancy may continue only until the minor child reaches the age of majority (age 21 or the age specified in Treasury Regulations), unless the original IRA Owner had already reached the date at which he/she was required to begin receiving RMD payments, proposed Treasury Regulations would require a minor child Beneficiary to receive an RMD payment each year if the Owner died on or after their required beginning date. The minor child Beneficiary must receive their entire death benefit by December 31 following the tenth anniversary of reaching the age of majority. If you were the spouse Beneficiary of the deceased Owner’s IRA Contract and your spouse had not yet reached the date at which he/she was required to begin receiving RMD payments (treating a Roth IRA as a traditional IRA for this purpose only), then you can wait to begin receiving RMD payments until the year that your spouse would have reached age 73 (age 75 if your spouse would have reached age 74 after December 31, 2032). Alternatively, if the deceased Owner had already reached the date at which he/she was required to begin receiving RMD payments, you must begin to receive these RMD payments by December 31 of the year following the deceased Owner’s death. If you are a designated Beneficiary (generally an individual), but are not an EDB, the entire death benefit must be distributed by December 31 after the tenth anniversary of the IRA Owner’s death. If you die before the end of the ten-year period and the entire death benefit has not been distributed, your beneficiary must receive the entire death benefit by the same date you would have been required to receive the death benefit. Proposed Treasury Regulations would require you to receive an RMD each year if the Owner died on or after their required beginning date. If the Beneficiary of the IRA Contract is a trust, current Treasury Regulations provide “see-through” treatment for trusts that meet certain requirements. If such treatment applies, the beneficiaries of the trust, rather than the trust itself will be treated as having been designated as beneficiaries of the IRA Contract for purposes of determining the distribution period for RMD payments. Due to the changes made by SECURE, there is uncertainty regarding which distribution options are available when a trust is the Beneficiary of an IRA Contract. Proposed Treasury Regulations provide some additional If the IRA Beneficiary is not a “designated beneficiary” (e.g., beneficiary is an estate, charity, or a trust that does not meet the requirements for “see-through” treatment), then the payment options are unchanged by the SECURE Act. If the IRA Owner had not yet reached the date at which he/she was required to begin receiving RMD payments (treating a Roth IRA as a traditional IRA for this purpose only), then these IRA Beneficiaries must receive their entire death benefit by December 31 following the fifth anniversary of the IRA Owner’s death. Alternatively, if the deceased Owner had already Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 74 reached the date at which he/she was required to begin receiving RMD payments, these IRA Beneficiaries can begin RMD payments based on the single life expectancy of the Owner in the year of the deceased Owner’s death, reduced by one. These Beneficiaries must begin to receive these RMD payments by December 31 of the year following the deceased Owner’s death. The SECURE Act impacts situations when the IRA Owner died before January 1, 2020 and the Beneficiary had elected stretch payments. In this situation, the stretch payments can continue to the Beneficiary, but once that Beneficiary dies, the successor beneficiary must receive any remaining death benefit by December 31 following the tenth anniversary of the original Beneficiary’s death. Proposed Treasury Regulations would require the successor beneficiary to receive an RMD payment each year. The SECURE Act may limit the annuitization options that a Beneficiary may elect at the IRA Owner’s death to comply with the new death benefit payment rules. Also, if an IRA Owner elected an annuitization option and then dies, action may be needed by the Beneficiary if any remaining Annuity Payments do not comply with the new death benefit payment rules for a Beneficiary. Tax-Free Section 1035 Subject to certain restrictions, you can make a Before making an exchange, you should compare both contracts carefully. Remember that if you exchange a life insurance policy or annuity contract for the Contract described in this prospectus: • • there is a new withdrawal charge period for this Contract, • other fees and expenses under this Contract may be higher (or lower), • the benefits may be different, and • you no longer have access to any benefits from your previous contract. If the exchange does not qualify for Section 1035 treatment, you also may have to pay federal income tax, including a possible additional federal tax, on the exchange. You should not exchange an existing life insurance policy or another annuity contract for this Contract unless you determine the exchange is in your best interest and not just better for the person selling you the Contract who generally earns a commission on each sale. Multiple Non-Qualified Contracts Purchased In the Same Year By the Same Owner Code Section 72(e)(12) provides that multiple Non-Qualified deferred annuity contracts issued within the same calendar year to the same owner by one company or its affiliates are treated as one annuity contract for purposes of determining a distribution’s tax consequences. This treatment may result in adverse tax consequences, including more rapid taxation of distributions from combined contracts. For purposes of this rule, contracts received in a Section 1035 exchange are considered issued in the year of the exchange. You should consult a tax adviser Assignments, Pledges and Gratuitous Transfers Any assignment or pledge (or agreement to assign or pledge) the Contract Value is treated for federal income tax purposes as a full withdrawal. The Contract will not qualify for tax deferral while the assignment or pledge is effective. Qualified Contracts generally cannot be assigned, pledged, or transferred to another individual. For Non-Qualified Contracts, the Contract’s cost basis is increased by the amount includible as income with respect to such amount or portion, though it is not affected by any other aspect of the assignment or pledge (including its release). If an Owner transfers a Non-Qualified Contract (an ownership change) without adequate consideration to a person other than their spouse (or to a former spouse incident to divorce), the Owner is taxed on the difference between his or her Contract Value and the Contract’s cost basis at the time of transfer. In such case, the transferee’s investment in the Contract is increased to reflect the increase in the transferor’s income. An Owner should consult a tax adviser before requesting an assignment, transfer, or pledge. Allianz Index 75 Income Tax Withholding Any part of a distribution that is taxable to the Owner or Beneficiary is subject to federal and/or state income tax withholding. Generally, we withhold amounts from Annuity Payments at the same rate as wages, and we withhold 10% from non-periodic payments, such as withdrawals. However, in most cases, you may elect not to have taxes withheld or to have withholding done at a different rate. Certain distributions from retirement plans qualified under Code Section 401 that are not directly rolled over to another eligible retirement plan or IRA, are subject to a mandatory 20% federal income tax withholding. The 20% withholding requirement generally does not apply to: • a series of substantially equal payments made at least annually for the life or life expectancy of the participant or joint and last survivor expectancy of the participant and a designated Beneficiary, or for a specified period of ten years or more; or • RMDs; or • any part of a distribution not included in gross income (for example, returns of after-tax contributions); or • hardship withdrawals. Plan participants should consult a tax adviser regarding income tax withholding requirements. Federal Estate Taxes While no attempt is being made to discuss the Contract’s federal estate tax implications, an Owner should keep in mind the annuity contract’s value payable to a Beneficiary upon the Owner’s death is included in the deceased Owner’s gross estate. Depending on the annuity contract, the annuity’s value included in the gross estate may be the value of the lump sum payment payable to the designated Beneficiary, or the actuarial value of the payments to be received by the Beneficiary. Consult an estate planning adviser for more information. Generation-Skipping Transfer Tax The Code may impose a “generation-skipping transfer tax” when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations may require us to deduct this tax from your Contract, or from any applicable payment, and pay it directly to the IRS. Foreign Tax Credits We may benefit from any foreign tax credits attributable to taxes paid by certain funds to foreign jurisdictions to the extent permitted under the federal tax law. Possible Tax Law Changes Although the likelihood of legislative or regulatory changes is uncertain, there is always the possibility that the Contract’s tax treatment could change. Consult a tax adviser with respect to legislative or regulatory developments and their effect on the Contract. We have the right to modify the Contract in response to legislative or regulatory changes that could otherwise diminish the favorable tax treatment that annuity owners currently receive. We make no guarantee regarding the tax status of any Contract and do not intend the above discussion as tax advice. 12.Other Information The Registered Separate Account We established Allianz Life Variable Account B (the Separate Account) as a separate account under Minnesota insurance law on May 31, 1985. The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise our management of the Separate Account. The Separate Account holds the Fund's shares Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 76 We own the assets of the Separate Account. If the Separate Our General Account Our general account holds all our assets other than assets in our separate accounts. We own our general account assets, and, subject to applicable law, have sole investment discretion over them. The assets are subject to our general business operation liabilities and claims of our creditors and may lose value. We have not registered our general account as an investment company under the Investment Company Act of 1940. Our general account assets fund guarantees provided in the Contracts, including obligations associated with the Our Unregistered Separate Account We hold the assets you allocate to the Index Options in Credits. We invest the assets in Separate Account IANA in hedging instruments, including derivative An Owner who allocates Contract Value to an Distribution Allianz Life Financial Services, LLC (ALFS), a wholly owned subsidiary of Allianz Life Insurance Company of North America, serves as principal underwriter for the Contracts. ALFS is a limited liability company organized in Minnesota, and is located at 5701 Golden Hills Drive, Minneapolis, MN 55416. ALFS is registered as a We have entered into a distribution agreement with ALFS for the distribution of the Contracts. ALFS also may perform various administrative services on our behalf. We may fund ALFS operating and other expenses, including: • overhead, • legal • accounting • Financial Professional • compensation for the ALFS management • other expenses associated with the Contracts. Financial Professionals and their managers may also be eligible for various benefits, such as production incentive bonuses, insurance benefits, and non-cash compensation items that we may provide jointly with ALFS. Non-cash items include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, awards, merchandise and other similar items. ALFS does not itself sell the Contracts on a retail basis. Rather, ALFS enters into selling agreements with other Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 77 The following table shows the aggregate dollar amount of underwriting commissions paid to ALFS for Allianz Life’s last fiscal year. The underwriter did not retain any part of the commissions.
We and/or ALFS may make bonus payments to certain selling firms based on aggregate sales of our variable insurance contracts (including this Contract) or persistency standards, or as part of a special promotion. These additional payments are not offered to all selling firms, and the terms of any particular agreement governing the payments may vary among selling firms. In some instances, the amount paid may be significant. A portion of the payments made to selling firms may be passed on to their Financial Professionals. Financial Professionals may receive cash and non-cash compensation and other benefits. Ask your Financial Professional for further information about what they and their firm may receive in connection with your Commissions paid on the Contract, including other incentives or payments, are not charged directly to the Owners or the Separate Account. We intend to recover commissions and other expenses indirectly through fees and Broker-dealers and their Financial Professionals and managers involved in sales of the Contracts may receive payments from us for administrative and other services that do not directly involve the sale of the Contracts, including payments made for recordkeeping, the recruitment and training of personnel, production of promotional literature and similar services. In addition, certain firms and their Financial Professionals may receive compensation for distribution and administrative services when acting in a wholesaling capacity and working with retail firms. In certain instances, we and/or ALFS may make payments to a We and/or ALFS may pay certain selling firms additional marketing support allowances for: • • sales promotions relating to the Contracts; • costs associated with sales conferences and educational seminars; • the cost of client meetings and presentations; and • other sales expenses incurred by them. We retain substantial discretion in determining whether to grant a marketing support payment to a particular We may also make payments for marketing and wholesaling support to Additional information regarding marketing support payments can be found in the Distributor section of the Statement of Additional Information. Some Financial Professionals may have a financial incentive to offer you a new contract in place of the one you already own. You should only exchange your contract if you determine, after comparing the features, fees and risks of both contracts, that it is better for you to purchase the new contract rather than continue to own your existing contract. The In certain instances, an investment adviser and/or subadviser (and/or their affiliates) of We offer the Contracts to the public on a continuous basis. We anticipate continuing to offer the Contracts but reserve the right to discontinue the offering. Additional Credits for Certain Groups We may credit additional amounts to a Contract instead of modifying charges because of special circumstances that result in lower sales or administrative expenses or better than expected mortality or persistency experience. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 78 Administration/Allianz Service Center The Allianz Service Center performs certain administrative services regarding the Contracts and is located at 5701 Golden Hills Drive, Minneapolis, Minnesota. The Service Center mailing address and telephone number are listed at the back of this prospectus. The administrative and routine customer services performed by our Service Center include processing and mailing of account statements and other mailings to Owners, responding to Owner correspondence and inquiries. Allianz Life also contracts with Tata Consultancy Services (Tata) located at #42(P) & 45(P), Think Campus, Electronic City, Phase II, Bangalore, Karnataka 560100, India, to perform certain administrative services including: • • • routine customer service including: − processing of Contract changes, − processing withdrawal requests (both partial and total), and − processing requests for fixed annuity payments. Services performed by Tata are overseen and quality control checked by our Service Center. To reduce expenses, only one copy of most financial reports and prospectuses, including reports and the prospectus for the Legal Proceedings We and our subsidiaries, like other life insurance companies, from time to time are involved in legal proceedings of various kinds, including regulatory proceedings and individual and class action lawsuits. In some legal proceedings involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any such proceedings cannot be predicted with certainty, we believe that, at the present time, there are no pending or threatened legal proceedings to which we, the Separate Account, or ALFS is a party that are reasonably likely to materially affect the Separate Account, our ability to meet our obligations under the Contracts, or ALFS ability to perform its obligations. Status Pursuant to Securities Exchange Act of 1934 Allianz Life hereby relies on the exemption provided by Rule 12h-7 under the Securities Exchange Act of 1934 from the requirement to file reports pursuant to Section 15(d) of that Act. 13.Information on Allianz Life Allianz Life is a stock life insurance company organized under the laws of the State of Minnesota in 1896. Our address is 5701 Golden Hills Drive, Minneapolis, MN 55416. We are a wholly owned subsidiary of Allianz of America, Inc. (AZOA), a financial holding company. AZOA is a wholly owned subsidiary of Allianz Europe, B.V., which in turn is a wholly owned subsidiary of Allianz SE, which is registered in Munich, Germany. We currently offer fixed Directors, Executive Officers and Corporate Governance BOARD OF DIRECTORS The Board currently consists of The Board holds regular quarterly meetings, generally in February, April/May, The current members of our Board are as Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 79 Andreas G. Wimmer Director and Chair of the Board Andreas G. Wimmer, age Mr. Wimmer brings to the Board extensive experience in the financial services and insurance industries, as well as extensive experience in investments and asset management, including serving as a Member of the Board of Management of Allianz SE, Asset Management, US Life Insurance. Director, President, and Chief Executive Officer Jasmine M. Jirele, age Previously, Ms. Jirele was the Senior Vice President, Chief Growth Officer of Allianz Life from October 2018 to September 2021. In that role, Ms. Jirele was responsible for the oversight of new business strategy, product innovation, marketing, and corporate communications. Previously, Ms. Jirele was a Governor of Allianz Strategic Investments, LLC from January to October 2021 and a Governor of Allianz Individual Insurance Group, LLC and TruChoice Financial Group, LLC from September 2021 to November 2022. She was previously a Governor of Allianz Investment Management LLC from January 1, 2021 to February 15, 2022. Ms. Jirele was also the President of William E. Gaumond Director, Senior Vice President, Chief Financial Officer and Treasurer William E. Gaumond, age Mr. Gaumond also has served as the Chief Financial Officer of Allianz Foundation for North America since March 2016. He also serves as a Governor of Allianz Life Financial Services, LLC, Allianz Investment Management U.S. LLC, and Allianz Strategic Investments, LLC. Mr. Gaumond also serves as a Director and the President of Allianz Fund Investments, Inc., AZL PF Investments, Inc., and Dresdner Kleinwort Pfandbriefe Investments II, Inc.. Mr. Gaumond also serves as a Director and the President of AZOA Services Corporation. He is also a Director of Questar Agency, Inc., Questar Capital Corporation, Yorktown Financial Companies, Inc., and Allianz Technology of America, Inc. Mr. Gaumond also serves as a Director of Allianz of America, Inc., and as its Executive Vice President. He also serves as a Director of Allianz Finance Corporation, and as its Chief Financial Officer and Treasurer. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 80 Mr. Gaumond previously served as a Director of Questar Asset Management, Inc. from January 2016 to September 2021, and as a Governor of Allianz Individual Insurance Group, LLC and TruChoice Financial Group, LLC from January 2018 to November 2022. Mr. Gaumond served as the President of PFP Holdings, Inc. from December 2015 to February 2021 and as a Director of PFP Holdings, Inc. from December of 2015 to December of 2022. Mr. Gaumond previously served as the Interim Controller for Allianz Life and Allianz Life of New Mr. Gaumond brings to the Board extensive financial services, investment, and insurance industry experience. Mr. Gaumond is responsible for all finance and risk management functions, with oversight of the controller, financial planning, treasury, and corporate risk management areas. Lauren K. Day Director Lauren K. Day, age 46, joined the Allianz Life Prior to joining Allianz SE, Ms. Day brings to the Board Udo Frank Director Udo Frank, age Mr. Kevin E. Walker Independent Director Kevin E. Walker, age Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 81 Mr. Walker brings to the Board extensive experience in the insurance industry, as well as extensive experience in finance and operations. Walter R. White Director Walter R. White, age 67, joined Allianz Life in 2009 and has served as an Allianz Life Board member since January 1, 2012. Mr. White also has served as a member of its Audit Committee and its Nomination, Evaluation and Compensation Committee since May 2022. Mr. White also has served as a Director of Allianz Life of New York and as a member its Audit and Evaluation Committee and its Conflict of Interest Committee since January 1, 2024. Previously, Mr. White served as the President, Chief Executive Officer, and as a member of the Executive Committee of Allianz Life from January 1, 2012 to September 1, 2021; and then as a Senior Advisor through December 31, 2021. Mr. White also previously served as the Chair of the Board, the Chief Executive Officer, Chair of the Executive Committee and Chair of the Conflict of Interest Committee of Allianz Life of New York, and as a Board member and the President of AZOA Services Corporation and as the Chair of its Shared Plans Management Committee. Mr. White also served as a Governor of Allianz Individual Insurance Group, LLC, Allianz Investment Management LLC, Allianz Investment Management U.S. LLC, and TruChoice Financial Group, LLC. In addition, Mr. White previously served as a Director of Questar Capital Corporation and Questar Agency, Inc. Mr. White brings to the Board extensive financial services and brokerage experience as well as key strategic planning and leadership skills developed as the former President and Chief Executive Officer of Allianz Life and the former President of Woodbury Financial. Howard E. Woolley Director Howard E. Woolley, age 66, joined Allianz Life’s Board of Directors on May 1, 2020 and is a member of its Audit Committee and its Nomination, Evaluation and Compensation Committee. Mr. Woolley also has served as a Director of Allianz Life of New York and as a member its Audit and Evaluation Committee since January 1, 2024. In 2015, Mr. Woolley formed Howard Woolley Group LLC, a strategic business and public policy firm serving leading technology and wireless industry clients, and serves as its President. He is a leader in the field of regulatory risk management, public policy, and government affairs. Mr. Woolley is an NACD Leadership Fellow and an international member of the Australian Institute of Company Directors. Mr. Woolley serves as a member of the board of directors of Apple Hospitality REIT, Inc., a publicly traded real estate investment trust that owns hotels across the United States, and is a member of its Compensation Committee and its Nomination and Governance Committee. He also serves as the Lead Independent Director for telecommunications company Somos Inc., and is a member of its Executive Committee, its Compensation Committee and its Nomination and Governance Committee. He serves on the boards of trustees for Johns Hopkins Medicine, Johns Hopkins University and Syracuse University. Mr. Woolley is co-chair of the Johns Hopkins University & Medicine External Affairs Committee and serves on the Johns Hopkins Medicine Executive Committee and the Syracuse University Audit, Academic Affairs and Executive Committees. Mr. Woolley brings to the Board more than 20 years of extensive board experience and brings a wealth of experience and insights in several areas, including risk management. EXECUTIVE OFFICERS The current executive officers (other than Karim Akhavan-Hezavei Senior Vice President, Chief Karim Akhavan-Hezavei, age Mr. Akhavan-Hezavei was previously the Chief Operating Officer for Allianz Services from January 2019 to July 2022. He was also a member of the Allianz Services Executive Management team with responsibility for operations and IT, global projects, and development of global business models. Allianz 82 Mr. Akhavan-Hezavei has served at various Allianz affiliates since 2013 in a variety of Gretchen Cepek Senior Vice President, General Counsel, and Secretary Gretchen Cepek, age Senior Vice President, Chief Jenny L. Guldseth, age Neil H. McKay Senior Vice President, Chief Actuary Neil H. McKay, age Jean-Roch P.F. Sibille Senior Vice President, Chief Investment Officer Jean-Roch P.F. Sibille, age Mr. Sibille leads the investment management, liquidity planning, hedging, and trading functions at Allianz Life. He is also a member of the global Allianz Investment Management Board, which Mr. Sibille earned an Executive Master of Business Administration at the Kellogg-WHU School of Management, Eric J. Thomes Senior Vice President, Chief Distribution Officer Eric J. Thomes, age 51, joined Allianz Life in 1995 and has served as its Senior Vice President, Chief Distribution Officer since April 1, 2019. He also serves as the President and a Allianz Index 83 the President and Chief Executive Officer and Board Chair of Yorktown Financial Companies, Inc., Questar Agency, Inc. and Questar Capital Corporation, respectively. Mr. Thomes previously served as a Director of Questar Asset Management, Inc. from April 2019 to September 2021. He also served as a Governor of Allianz Individual Insurance Group, LLC, and TruChoice Financial Group, LLC, from April 2019 to November 2022. Mr. Thomes is responsible for the development, design and implementation of Allianz Life’s and Allianz Life of New York’s sales and distribution strategies. Prior to his current roles, Mr. Thomes served as the Field Senior Vice President, Emmanuelle Thommerot Senior Vice President, Chief Marketing and Strategy Officer Emmanuelle Thommerot, age Ms. Thommerot brings over 15 years of marketing, strategy and transformation experience in insurance, financial services and CORPORATE GOVERNANCE Committees of the Board The Executive Committee of the Board The Audit Committee of the Board is currently composed of Messrs. Frank (Chair), The Nomination, Evaluation and Compensation Committee (NEC Committee) is currently composed of Messrs. Independence of Certain Directors Allianz Life is not subject to the independence standards of the New York Stock Exchange or any other national securities exchange, but is subject to the independence standards required under the Model Audit Rule. Applying the independence standards of the Model Audit Rule to the current members of the Board, the Board has determined that Messrs. Frank, Code of Ethics All of our officers and employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are subject to Executive Compensation Compensation Discussion and Analysis In this section, we provide an overview of the goals and principal components of our executive compensation program and describe how we determine the compensation of our • The details of each Executive Summary Allianz Compensation Philosophy and Strategy Overview The overriding goal of Allianz • providing total compensation opportunities that are competitive with the levels of total compensation available at the large diversified financial services companies with which Allianz Life most directly competes in the marketplace; • setting performance metrics and objectives for variable compensation arrangements that reward executives for attaining both annual targets and long-term business objectives, thereby providing individual executives with the opportunity to earn above-average compensation by achieving above-average results; • establishing equity-based arrangements that align executives’ financial interests with those of Allianz SE by ensuring executives have a material financial stake in the equity value of Allianz SE and the business success of its affiliates; and • structuring compensation packages and outcomes to foster internal pay equity. Allianz Index 85 Compensation Components To support this pay-for-performance strategy, Allianz
In addition, Allianz Life offers all employees, including our NEOs, broad-based benefits, including comprehensive medical, dental and vision insurance, group term life insurance and participation in a 401(k) plan. How Compensation Decisions Are Made Role of the Board of Directors and Compensation Committee The framework governing the executive compensation policies for Allianz Life, except as such policies relate to the compensation for the Chief Executive Officer, is set through the Compensation • • Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 86 • Review and approve any special benefits or perquisites in effect for, or offered to, any prospective, current or former Allianz Life employee, regardless of the employee’s level or assignment within Allianz Life. Such benefits and perquisites are those that are unusual or different from the benefits offered to all similarly-situated employees. • Review and approve any employment agreements proposed to be made with any prospective or current employee of Allianz Life. • Review and approve any individual severance agreement with any Allianz Life officer. This does not include an arrangement where the employee receives severance or incentive payments under existing terms of a broad-based benefit or compensation plan. • Oversee Allianz Life’s compliance with regulations with respect to compensation matters and adopt and monitor adherence to global and local process requirements and timelines, including those required under the Corporate Rules (as defined under the Allianz Life Standard for Corporate Rules) mandated by Allianz SE. The Compensation Committee will at all times be composed of at least Following its review and decision, the Compensation Committee produces and submits a report on executive compensation to Allianz Role of the Chief Executive Officer Our Chief Executive Officer assists the Compensation Committee in its review of the total compensation of all the NEOs except Role of Allianz Allianz • • gathering and correlating performance ratings and reviews for individual executive officers, including the NEOs; • reviewing executive compensation recommendations against appropriate market data and for internal consistency and equity; and • reporting to, and answering requests for information from, the Compensation Committee. Allianz Use of Competitive Compensation Data Because Allianz Life competes most directly for executive talent with other large diversified financial services companies, Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 87 All these information sources are employed to measure and compare actual pay levels not only on an aggregate, total compensation basis, but Internal Pay Equity Analysis Allianz Components of Total Compensation For Our NEOs Allianz Life provides total compensation to our NEOs that consists of several components. These components include the three components of the total compensation program (i.e., base salary, annual Base Salary Allianz AIP Allianz Life offers annual cash bonuses to certain executive officers under the AIP. The AIP is designed to improve performance and profitability by motivating employees to accomplish organizational objectives and financial goals. Bonus awards that may be paid pursuant to the AIP are within the sole discretion of the Compensation Committee, and with respect to our CEO, the Chair of the Board, and are intended to:
Allianz Index Advantage+ NF®Variable 88 AEI The • provide an incentive that will encourage future superior individual performance, and • encourage the retention of employees who have demonstrated exceptional performance and/or are anticipated to significantly contribute to the long-term Awards made pursuant to the Benefit Perquisites Allianz Life provides our NEOs with certain limited perquisites. All of our employees, including our NEOs, may participate in the qualified 401(k) plan. Allianz Life and Allianz Life of New York generally provide our executive officers, including our NEOs, with a matching contribution up to Certain Retention Arrangements Allianz Life maintains retention bonus arrangements with certain executives, pursuant to which retention bonus payments are paid so long as such executive remains employed with Allianz Life in good standing. Severance Arrangements Allianz Life NEOs are Other than the Executive Severance Plan, Other Compensation Policies Tax and Accounting Implications Stock-Based Allianz Index 89 Summary Compensation Table The following table sets forth the compensation paid by Allianz Life
(1) Represents the grant date fair value of the (2) The following table provides additional details regarding compensation found in the “All Other Compensation” column.
(3) Represents reimbursement or payments made to defray the costs of a spouse’s travel. (4) Represents Milestone Anniversary Program, which pays a bonus at three and five year anniversaries, and then every five years thereafter. (5) Represents company matching contribution to the Allianz Supplemental Asset Accumulation Plan for deferrals in excess of IRS compensation limit. (6) Represents reimbursement under the Lifestyle Spending Account for financial planning, tax preparation services and other eligible expenses supporting NEO’s wellbeing. (7) Represents severance arrangement payable. Ms. Mahone was entitled to a severance arrangement of a lump sum cash payment of $660,000 upon separation. Allianz Index 90 Performance-Based Incentive Compensation Plans AIP The AIP is intended to provide an incentive that will encourage superior individual performance and encourage retention of employees who have demonstrated exceptional performance or who are anticipated to significantly contribute to The AEI The AEI is designed to recognize the Allianz Index 91 Grants of Plan-Based Awards The following table provides additional information about plan-based compensation disclosed in the Summary Compensation Table. This table includes both equity and non-equity awards granted
(1) The target and maximum columns show the target award and maximum award for 2023 for each NEO under the AIP. There is no threshold amount for any participant in the AIP. The actual 2023 awards granted to the NEOs are listed in the Non-Equity Incentive Compensation column of the Summary Compensation Table. AIP target and maximum awards are a pre-designated percentage of base salary determined at the executive’s level. (2) RSUs have a vesting schedule as disclosed in the footnotes to the Summary Compensation Table. See “Outstanding Equity Awards at December 31, 2023” for disclosure regarding the number of RSUs that are unvested as of December 31, 2023. (3) The target and maximum columns show the target award and maximum award for 2023 for each NEO under the AEI. There is no threshold amount for any participant in the AEI. The actual 2023 awards granted to the NEOs are listed in the Stock Awards column of the Summary Compensation Table. Allianz Index 92 Outstanding Equity Awards at December 31, The following table sets forth the outstanding equity awards at the December 31,
(1) Represents unvested RSUs issued pursuant to the AEI. RSUs issued under the AEI during 2023 are subject to a four-year vesting period from the grant date. At the end of the respective vesting period, the RSUs are exercised uniformly for all participants, provided they remain employed by Allianz (2) For each of the NEOs, the number of RSUs listed on the first line were exercised in 2024, the RSUs listed on the second line will exercise in 2025, the RSUs listed on the third line will exercise in 2026, and the RSUs listed on the fourth line will exercise in 2027. (3) Based on an assumed stock price of $267.81 per share, which was the arithmetic average of the closing prices of an Allianz SE share in the electronic cash market trading system Xetra (or any successor system) on December 29, 2023 and the nine immediately preceding trading days, converted from Euros into U.S. dollars. Allianz SE Option Exercises and Stock Grants Vested in The following table summarizes the value received from Allianz SE stock
(1) Represents Allianz Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 93 Executive Severance Plan Executive officers who have the title of Senior Vice President or above and report directly to a senior executive officer at a specific level or title of Chief Executive Officer are eligible to receive severance The following table shows the lump sum payments that would have been payable to each of our NEOs had they been terminated on December 31,
Director Compensation The following table provides information on compensation paid to the directors of Allianz Life for the year ended December 31,
(1) Represents cash compensation provided to our independent directors that is formalized in the Non-Employee Director Compensation Plan for the year ended December 31, 2023. (2) Mr. Wimmer and Ms. Day did not receive any compensation for their services as directors since they are employed by one of our affiliates. (3) As employee directors, Ms. Jirele and Mr. Gaumond did not receive any compensation for their service as directors. The compensation Ms. Jirele and Mr. Gaumond received as executive officers of Allianz Life is disclosed in the Summary Compensation Table as set forth herein. Allianz Index 94 CEO Pay Ratio In accordance with SEC rules, we determined the annual total compensation of our median compensated employee and present a comparison of that annual total compensation to the annual total compensation of our President and Chief Executive Officer (“CEO”), Jasmine M. Jirele. • The 2023 annual total compensation of our CEO was $3,579,193. • The 2023 annual total compensation of our median compensated employee was $114,941. Accordingly, we estimate the ratio of our CEO's annual total compensation to the annual total compensation of our median compensated employee for 2023 was 31 to 1. Determining the Median Compensated Employee In 2023, we determined the median compensated employee by collecting compensation data for all employees, including full-time, part-time, seasonal, and temporary employees, excluding our CEO, employed by the Company as of December 31, 2023. We selected December 31, 2023 as the date upon which we would identify the median employee because it enabled us to make such identification in a reasonably efficient manner and it aligns with the methodology used in the other compensation-based disclosures above. As of December 31, 2023, our employee population consisted of 2,108 individuals. We do not have any employees who work outside of the U.S. We identified our median compensated employee, using total compensation as our compensation measure, which included annual base salary, cash-based incentive compensation, long-term incentive compensation, and sales-based incentive compensation earned for 2023, plus employer contributions to the Allianz Asset Accumulation Plan, life insurance premiums, and other compensation. Compensation for full-time employees hired after January 1, 2023, was annualized for the full year 2023. We did not make any cost of labor adjustments as the majority of our employees are compensated based upon the cost of labor in Minneapolis, MN, the location of our corporate headquarters. We did not include amounts representing employer medical and dental contributions. This methodology was consistently applied to all our employees included in the calculation and is consistent with the methodology we use for our NEOs as set forth in the 2023 Summary Compensation Table. Our pay ratio and compensation amount have been calculated using methodologies and assumptions consistent with SEC rules. The ratio and compensation amount may not be directly comparable to those of other companies because the methodologies and assumptions used to identify the median employee and determine that employee's total compensation may vary significantly among companies. Security Ownership of Certain Beneficial Owners and Management We are an indirect wholly owned subsidiary of Allianz SE. Allianz Transactions with Related Persons, Promoters and Certain Control Persons We are a wholly owned subsidiary of AZOA, which is a wholly owned subsidiary of Allianz Europe B.V. Allianz Europe B.V. is a wholly owned subsidiary of Allianz SE, our ultimate parent, which is registered in Munich, Germany. Business and Operational Risks Relevant to the Contract As an insurance company, a number of risks may affect our business. However, because the Contract (and any other insurance contract that we offer) is a regulated insurance product, as opposed to an investment in our business, many of the risks that may be relevant to an investor in our business are unlikely to be relevant to you. The risks described below are only those business and operational risks that are likely to be relevant to you as a purchaser of the Contract. Risks Primarily Related to Our Financial Strength and Claims-Paying Ability We make Annuity Payments, pay death benefits, and apply Performance Credits for this Contract from our general account. We also pay benefits for other insurance contracts from our general account, and our general account is subject to claims by our creditors. Our ability to make payments from our general account is subject to our financial strength and claims-paying ability. The following risks relate to circumstances and events that may negatively affect our general account and, in turn, our financial strength and claims-paying ability. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 95 Financial losses may threaten our financial strength and claims-paying ability. As an Owner of the Contract, you do not share in the profits and losses generated by our business. However, if we were to experience significant losses, we might not have sufficient assets in our general account to satisfy all of our financial obligations under the Contract. Circumstances and events that may result in financial losses include, but are not necessarily limited to, the circumstances and events listed below. We cannot predict the specific impact any of these circumstances or events may ultimately have on our financial strength or claims-paying ability. • Difficult Economic Conditions. Our financial condition is affected by conditions in the global capital markets and the economy generally. During an economic downturn, the demand for our financial insurance products and services could be adversely affected. In addition, an economic downturn could cause the number and amount of full and partial withdrawals under our insurance products to increase significantly, and owners of our insurance products may choose to defer making purchase payments, defer paying insurance premiums, or stop paying them altogether. • Unfavorable Interest Rate Environments. During periods of declining interest rates, we may experience financial losses as the spread between interest rates that we credit to customers under our insurance products and returns on our investments tighten. A sustained low interest rate environment presents challenges for us and other life insurance companies, as it generally reduces investment returns, raises the value of future obligations, and challenges asset-liability matching. During periods of increasing interest rates, we may experience financial losses due to increases in full and partial withdrawals under our insurance products as our customers choose to forgo insurance protection in favor of potentially higher returns. In an attempt to curb rising inflation, the Federal Reserve and other central banks raised interest rates multiple times in 2022 and 2023. It is unclear whether and how interest rates will change in future periods. Although we take measures to manage economic risks associated with different interest rate environments, we may not be able to fully mitigate those risks. • Losses on Fixed Maturity Investments. Our fixed maturity investments are subject to interest rate risk and credit risk. Interest rate risk refers to how the values of our fixed maturity investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally result in decreases and increases, respectively, in the values of our fixed maturity investments. Credit risk refers to the risk that a counterparty will default on its commitments to us under a fixed maturity investment. See “Defaults by Counterparties” below. • Losses on Equity Investments. Our equity investments are generally valued based on quoted market prices and are subject to market risk. Market risk refers to how market prices for equity investments are subject to fluctuation. A downward fluctuation in the market price for an equity investment could result in losses upon the sale of that investment. Fluctuations in market prices may result from, among other things, actual or perceived changes in the attractiveness of specific investments or in general market conditions. • Losses on Real Estate Investments. A portion of our investment portfolio consists of mortgage loans and mortgage-backed securities related to commercial, agricultural and residential real estate. The value of our real estate investments may be negatively impacted by general, regional, and local economic conditions in the real estate sector, such as supply and demand, market volatility, interest rate fluctuations, vacancy rates, and geographic and extreme weather risks, as well as the creditworthiness of obligors. • Losses upon the Sale of Illiquid Investments. We hold certain investments that may lack liquidity, such as privately placed fixed maturity investments, mortgage loans, collateralized debt obligations, commercial mortgage-backed securities, equity real estate and limited partnership interests. Although we seek to minimize the likelihood that we would need to sell illiquid investments, if we were required to liquidate these investments on short notice, we may have difficulty doing so and may be forced to sell them for less than their fair value. • Prolonged and Elevated Inflationary Periods. During inflationary periods, the value of our fixed maturity investments may fall. See “Losses on Fixed Maturity Investments” above. Inflation also increases expenses, which will negatively impact our financial condition in the event that such additional costs cannot be offset. Prolonged and elevated inflation could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic activity and our growth. Recently, the economy has experienced elevated inflation and inflationary pressures, which may continue in future periods. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 96 • Loss of Market Share to Competitors. There is strong competition among insurers, banks, brokerage firms and other financial institutions and providers seeking clients for the types of products and services that we provide. A loss of market share to our competitors could result in financial losses to our business. Our ability to successfully compete is dependent on numerous factors, some of which include the successful implementation of our business strategy, our financial strength, the attractiveness of our products and services, our relationships with distributors, and our reputation. Our ability to compete may also be hindered if our competitors obtain or seek to enforce intellectual property rights against us, or if we are otherwise precluded from offering products or services that are in demand. Our ability to compete may also be hindered if we are not able to protect or enforce our own intellectual property rights. • Defaults by Counterparties. Third-parties that owe us, or hold on our behalf (i.e., custodians), money, securities, or other assets may not fulfill their obligations to us. These parties may include issuers of investments that we may hold, borrowers under loans that we may hold or extend, reinsurers, counterparties under swap and other derivative contracts and other third-parties (e.g., customers, trading counterparties, brokers, dealers, banks, investment funds, clearing agents, exchanges and clearing houses). In addition, with respect to secured transactions, the risk of default may be exacerbated when the collateral held by us, or for us, cannot be fully recovered, cannot be liquidated or is liquidated at a price that is not sufficient to cover the full amount owed to us. A party may default on its obligations for a variety of reasons, including bankruptcy, lack of liquidity, downturns in the economy or real estate market and operational failure. General economic conditions and trends may also result in increased defaults. • Impairments of Other Financial Institutions. We routinely execute transactions with counterparties in the financial services industry, including brokers, dealers, commercial banks, investment banks, insurers, reinsurers and other investment and financial institutions. A disruption to, or decline in the financial condition of, such financial institutions may expose us to financial losses. Multiple bank failures in 2023 resulted in periods of market disruption and volatility and reduced confidence in depository institutions. While these events did not significantly impact our business, if banks or other financial institutions with whom we do business were to enter into receivership or become insolvent in the future, there could be an adverse effect on our business and financial condition. • Payments through Guaranty Associations. When an insurance • Ineffectiveness of Risk Management Policies. Our risk management policies and • Impacts of Climate Conditions.We are Changes in applicable law may negatively affect our We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we operate. Our Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 97 departments, state securities administrators, state banking authorities, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority, the Internal Revenue Service, the Department of Labor, and the U.S. Commodity Futures Trading Commission. Changes to We are faced with significant challenges due to the fact that our regulatory environment is evolving Cyber-Security and Data Privacy. We are subject to federal and state laws, regulations, and directives that require financial Various states have also adopted laws raising the standard of care owed by broker-dealers, investment advisers, or insurance agents to their customers. For example, at least 40 states have adopted the NAIC revisions to its Suitability in Annuity Transactions Model Regulation, which imposes a requirement that any recommendation of an annuity product be in the consumer’s best interest. Some states have also adopted laws that differ from the NAIC’s Suitability in Annuity Transactions Model Regulation but impose similar obligations. As changes are adopted by our state regulator(s) and made applicable to us or the third-party firms that distribute our products, they could have an adverse impact on our business. In states that have adopted these increased standards with respect to annuity recommendations, this may lead to an increased risk of In addition, sales of annuities to employee benefit plans governed by provisions of the Employee Retirement Income Security Act ("ERISA") and to IRAs governed by similar provisions under the Internal Revenue Code are subject to restrictions that require ERISA fiduciaries to perform their duties solely in the interests of ERISA plan participants and beneficiaries, and that prohibit ERISA fiduciaries from causing a covered plan or retirement account to engage in certain prohibited transactions absent an exemption. The definition of a "fiduciary" as it relates to ERISA plans and IRAs has been the subject of multiple Department of Labor rulemaking initiatives, interpretive guidance releases, and subsequent legal challenges in recent years. On October 31, 2023, the Department of Labor proposed rule amendments that would broaden the circumstances under which fiduciary duties are imposed, particularly with regard to recommendations to "rollover" assets from a qualified retirement plan to an IRA or from an IRA to another IRA. We continue to closely monitor these ongoing regulatory developments. It remains unclear the extent to which these regulatory initiatives and the evolving nature of enforcement and interpretation of them could ultimately affect how our insurance products are marketed and Allianz Index 98 have an adverse impact on our ability to sell annuities and other products, and to retain in-force business. Inconsistencies among the rules adopted by the SEC, the DOL, and state insurance regulators could increase this impact. Artificial Intelligence. State regulators and the NAIC are evaluating existing regulatory frameworks for insurance industry use of artificial intelligence, machine learning, and large language models (“AI”). Regulators are concerned about the privacy and protection of individual consumer data and about bias and discrimination resulting from the use of AI in algorithms and predictive models, as may be used either directly by insurance companies or indirectly through third party service providers. For example, in December 2023, the NAIC adopted a model bulletin on the use of AI by insurers, which was intended to remind insurance companies that decisions impacting consumers that are made or supported by advanced analytical and computational technologies, including AI, must comply with all applicable insurance laws and regulations, including unfair trade practices. The bulletin also sets forth state insurance regulators’ expectations on how insurers should govern the use of such technologies by or on behalf of the insurer to make or support such decisions. Our adoption of new AI technologies may be inhibited by the emergence of industry-wide standards, a changing legislative and regulatory environment, and other factors. In addition, our adoption of new AI technologies may expose us to increased compliance costs and heightened regulatory risks. Our reserves could be inadequate due to differences between our actual experience and We establish and carry reserves to pay future benefits and claims of contract owners. Our reserves are calculated based on a number of estimates and assumptions, including estimates and assumptions related to future mortality, morbidity, interest rates, future equity performance, reinvestment rates, persistency, claims experience, and contract owner elections (i.e., the exercise or non-exercise of contract benefits). The assumptions and estimates used in connection with the reserve estimation process are inherently uncertain, involve the exercise of significant judgment and reflect evolving information. For example, the current rates of mortality and morbidity may continue to improve in the future due to medical and technological advancements that result in contract owners living longer than anticipated. We periodically review the adequacy of reserves and the underlying assumptions and make adjustments when appropriate. We cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the contract liabilities will grow to the level assumed prior to payment of benefits or claims. If actual results differ significantly from our estimates and assumptions, our claim costs could increase significantly and our reserves could be inadequate. If so, we will be required to increase reserves. However, we cannot be certain that our reserves will ultimately be sufficient to pay future benefits and claims of contract owners. The amount of statutory capital that Statutory accounting standards and capital and reserve requirements are prescribed by the applicable state insurance regulators and the NAIC. State insurance regulators have established regulations that govern reserving requirements and provide minimum capitalization requirements based on risk-based capital Litigation and regulatory proceedings may negatively affect our financial We have been named as defendants in Allianz Index 99 Reinsurance may not be available or affordable, or may not be adequate to protect As part of our overall risk management strategy, we purchase reinsurance for certain risks underwritten by our various business segments. While reinsurance agreements generally bind the reinsurer for the life of the business reinsured at generally fixed pricing, market conditions beyond our control can determine the availability and cost of the reinsurance protection for new business. Our Certain types of insurance and investment products that we offer expose us to risks associated with fluctuations in financial Downgrades and potential downgrades to our claims-paying and financial • reductions in new sales of insurance products, annuities and other investment products; • increases in our cost of capital or limitations on our access to sources of capital; • harm to our relationships with distributors and sales specialists; • increases in the number or amount of full and partial withdrawals under our insurance products; • pressure on us to reduce prices or increase crediting rates for many of our insurance products; and • harm to our ability to obtain reinsurance or obtain reasonable pricing for reinsurance. Similarly, credit rating agencies also evaluate the insurance industry as a whole and may change Allianz Life’s and other insurance companies’ financial strength ratings based on the agencies’ overall view of the industry. It is possible that Allianz Life’s credit rating could be similarly downgraded in the future based on credit rating agencies’ evaluation of the life insurance industry as a whole due to changes in their view of Allianz Life relative to the industry or The Customers, regulators, and other Allianz Index 100 signed two bills into law that will require significant climate-related disclosures by large entities doing business Breaches of security, or interference with our technology infrastructure, could harm our business. Our business Publicly-reported cyber-security threats and incidents have dramatically increased in recent years, and financial services companies and their third-party service providers are increasingly the targets of cyber-attacks involving the encryption and/or threat to disclose personal or confidential information (e.g., ransomware) or disruptions of communications (e.g., denial of service) to extort money or for other malicious purposes. The techniques used to attack systems and networks change frequently, are becoming more sophisticated, and can originate from a wide variety of sources. The use of remote or flexible work arrangements, remote access tools, and mobile technology have expanded potential targets for cyber-attack. We have implemented and maintain security measures designed to protect against breaches of security and other interference with systems and networks resulting from attacks by third parties, including hackers, and from employee error or malfeasance. We also require third party vendors who, in the provision of services to us, are provided with or process information pertaining to our business or our clients to meet certain information security standards. Changes in our technology platforms Despite the measures we have taken and proprietary information or our Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 101 protecting our networks and systems used in connection with our products and services. It is possible that a cyber-security incident could persist for an extended period of time without detection. There may be an increased risk of cyberattacks during periods of geo-political or military conflict. The failure to protect our A number of our businesses are subject to privacy regulations and confidentiality • • • drafting appropriate contractual provisions into any contract that raises proprietary and confidentiality issues; • maintaining secure storage facilities for tangible records; • limiting access to electronic information; and • in the event of a security breach, providing credit monitoring or other services to affected customers. In addition, we must develop, implement and maintain a comprehensive written information security program with appropriate administrative, technical and physical safeguards to protect such confidential information. If we do not properly comply with privacy regulations and protect confidential information, we could experience adverse consequences, including regulatory sanctions, such as penalties, fines and loss of license, as well as loss of reputation and possible litigation. This could have an adverse impact on our Protection from system interruptions and operating errors is important to our business. Operating errors and system or network interruptions could delay and disrupt our ability to develop, deliver or maintain our products and services, causing harm to our business and reputation and resulting in loss of customers or revenue. Operating errors and system or network interruptions may also interfere with, impede or cause delays in our calculation of values, processing of transactions and making of payments under the Contract. Interruptions could be caused by operational failures arising from employee error or malfeasance, interference by third parties (including hackers and other cyber-attacks), implementation of new technology, and maintenance of existing technology. Our financial, accounting, data processing or other operating systems and facilities may fail to operate or report data properly, experience connectivity disruptions or otherwise become disabled as a result of events that are wholly or partially beyond our control, adversely affecting our ability to process transactions or provide products and services to customers. The cause of these interruptions can include fires, floods, earthquakes and other natural disasters, power losses, equipment failures, attacks by third parties, failures of internal or vendor software or systems and other events beyond our control. In addition, we rely on third party service providers and vendors for certain communications, technology and business functions and face the risk of operational failure (including, without limitation, failure caused by an inaccuracy, untimeliness or other deficiency in data reporting), termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other third party service providers that we use to facilitate or are component providers to our transactions and other product manufacturing and distribution activities. These risks are heightened by the evolution in the financial markets of increasingly sophisticated products, by business-driven hedging, by compliance issues and by other risk management or investment or by financial management strategies. Any such failure, termination or constraint could adversely impact our ability to implement transactions, service our clients, manage our exposure to risk or otherwise achieve desired outcomes. The occurrence of natural or man-made disasters and catastrophes could adversely affect our The occurrence of natural or man-made disasters and catastrophes, including extreme weather events, acts of terrorism, Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 102 disturbing our ordinary business operations, and by impacting claims. Such disasters and catastrophes may also impact us indirectly by changing the condition and behaviors of our customers, business counterparties and regulators, as well as by causing declines or volatility in the economic and financial markets. Climate conditions could increase our overall risk as extreme weather events may become more likely or frequent. We rely on certain third-parties to provide certain services important to our business operations. While we monitor the performance of such third-parties, including those with employees who operate remotely, successful implementation and execution of their business continuity strategies are largely outside of our control. Weaknesses or failures within a vendor’s business continuity plan in light of a natural or man-made disaster or catastrophe could materially disrupt our business operations. Operational risk is inherent in our business and can manifest itself in various ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, human errors, employee misconduct, external fraud, and inability to recruit, motivate, and retain key employees. These events can potentially result in financial loss, harm to our reputation and/or hinder our operational effectiveness. Management attempts to control these risks and keep operational risk at low levels by maintaining a sound and well controlled environment in light of the characteristics of our business, markets and regulatory environment in which we operate. Notwithstanding these measures, operational risk is part of the business environment in which we operate, and we may experience operational disruptions and incur losses from time to time due to these types of risks. The statutory financial statements The financial statements of the subaccounts of Allianz Life Variable Account B of Allianz Life Insurance Company of North America (“Variable Account B”) as of December 31, 2023 are incorporated herein by reference to Variable Account B’s Form N-VPFS (File No. 811-05618) filed with the SEC have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. Allianz Index 103 Appendix A – Available Indexes S&P 500® Index
The S&P 500® Index is comprised of 500 stocks representing major U.S. industrial sectors. The "S&P 500® Index" is a It is not possible to invest directly in an index. Allianz products are not sponsored, endorsed, sold or promoted by NEITHER S&P DOW JONES INDICES Russell 2000® Index The Russell 2000® Index is an equity index that measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not affect the performance and characteristics of the true small-cap index. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix A 104 The Russell 2000® Index (the Nasdaq-100® The NASDAQ-100 Index® includes 100 of the largest domestic and international non-financial securities listed on The NASDAQ Stock Market® based on market capitalization. The Product(s) is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. EURO STOXX 50® The EURO STOXX STOXX Limited, Deutsche Börse Group and their licensors, research partners or data providers have no relationship to Allianz Life Insurance Company of North America STOXX, Deutsche Börse Group and their licensors, research partners or data providers do not: • sponsor, endorse, sell or promote Allianz products. • recommend that any person invest in Allianz products or any other securities. • have any responsibility or liability for or make any decisions about the timing, amount or pricing of Allianz products. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix A 105 • have any responsibility or liability for the administration, management or marketing of Allianz products. • consider the needs of Allianz products or the owners of Allianz products in determining, composing or calculating the EURO STOXX 50 or have any obligation to do so. STOXX, Deutsche Börse Group and their licensors, research partners or data providers give no warranty, and exclude any liability (whether in negligence or otherwise), in connection with the Allianz products or their performance. STOXX does not assume any contractual relationship with the purchasers of Allianz products or any other third parties. Specifically, • STOXX, Deutsche Börse Group and their licensors, research partners or data providers do not give any warranty, express or implied, and exclude any liability about: • The results to be obtained by Allianz products, the owner of Allianz products or any other person in connection with the use of the EURO STOXX 50 and the data included in the EURO STOXX 50; • The accuracy, timeliness, and completeness of the EURO STOXX 50 and its data; • The merchantability and the fitness for a particular purpose or use of the EURO STOXX 50 and its data; • The performance of Allianz products generally. • STOXX, Deutsche Börse Group and their licensors, research partners or data providers give no warranty and exclude any liability, for any errors, omissions or interruptions in the EURO STOXX 50 or its data; • Under no circumstances will STOXX, Deutsche Börse Group or their licensors, research partners or data providers be liable (whether in negligence or otherwise) for any lost profits or indirect, punitive, special or consequential damages or losses, arising as a result of such errors, omissions or interruptions in the EURO STOXX 50 or its data or generally in relation to Allianz products, even in circumstances where STOXX, Deutsche Börse Group or their licensors, research partners or data providers are aware that such loss or damage may occur. The licensing Agreement between Allianz and STOXX is solely for their benefit and not for the benefit of the owners of Allianz products or any other third parties. iShares® MSCI Emerging Markets ETF The iShares® MSCI Emerging Markets ETF distributed by BlackRock Investments, LLC. iShares®, BLACKROCK®, and the corresponding logos are registered trademarks of BlackRock, Inc. and its affiliates (“BlackRock”) and are used under license. These trademarks have been licensed for certain purposes by Allianz Life Insurance Company of North America ("Allianz") and its wholly-owned subsidiaries. Products offered by Allianz or its wholly-owned subsidiaries are not sponsored, endorsed, sold or promoted by BlackRock, and purchasers of such products do not acquire any interest in the iShares® MSCI Emerging Markets ETF nor enter into any relationship of any kind with BlackRock. BlackRock makes no representations or warranties, express or implied, to the owners of any products offered by Allianz or its wholly-owned subsidiaries, or any member of the public regarding the advisability of purchasing a product from Allianz or its wholly-owned subsidiaries. BlackRock has no obligation or liability for any errors, omissions, interruptions or use of the iShares MSCI Emerging Markets ETF or any data related thereto, or with the operation, marketing, trading or sale of any products or services offered by Allianz and its wholly-owned subsidiaries. Allianz Index Appendix A 106 Appendix B – Generally We designed the Daily Adjustment to provide an Index Option Value for (i) any Index (ii) for the Index Dual Precision (iii) either any Index losses greater than the 10%, 20%, or 30% Buffer, or Index losses down to the (iv) the The Daily Adjustment formula has two primary components, (i) the change in Proxy Value and (ii) accumulated proxy interest, Daily Adjustment Formula The formula for the calculation of the Daily Adjustment is as follows: Daily Adjustment = Where: (a) change in Proxy Value = (current Proxy Value – beginning Proxy Value) (b) proxy interest Calculating Change in Proxy Value The change in Proxy Value represents the current hypothetical value of the Proxy Investment (current Proxy Value), less the cost of the Proxy Investment on the Term Start Date (beginning Proxy Value). The current Proxy Value is the Proxy Value calculated on the same day as the Daily Adjustment. The beginning Proxy Value is the Proxy Value calculated on the The Proxy Value is calculated differently for each Crediting Method. For the Index Performance Strategy, the Proxy Value Term Start Date. For Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix B 107 For the Index Guard Strategy, the Proxy Value involves tracking four hypothetical With respect to our Proxy Value formula, we designed the at-the-money call For the Index Dual Precision Strategy, the Proxy Value involves tracking two hypothetical derivatives and is calculated using the following formula: Proxy Value = [Trigger Rate x (in-the-money binary call)] – (out-of-the-money put) With respect to our Proxy Value formula, we designed the in-the-money binary call to value the potential for gains equal to the Trigger Rate if on the Term End Date, the Index For the Index Precision Strategy, the Proxy Value involves tracking two hypothetical derivatives and is calculated using the following formula: Proxy Value = [Trigger Rate x (at-the-money binary call)] – (out-of-the-money put) With respect to our Proxy Value formula, we designed the at-the-money binary call to value the potential for gains equal to the Trigger Rate if on the Term End Date, the Index Value is greater than or equal to the Index Value on the Term Start Date, and the out-of-the-money put to value the potential for Index losses greater than the Buffer for the Index Precision Strategy. Similar to the Index Performance Strategy and Index Dual Precision Strategy, it is important to note that the out-of-the-money put will almost always reduce the Proxy Value, even when the current Index Value on a Business Day is higher than the Index Value on the Term Start Date. This is because the risk that the Index Value could be lower on the Term End Date is present to some extent whether or not the current Index Value on a Business Day is lower than the Index Value on the Term Start Date. For the Index Protection Strategy with Trigger, the Proxy Value involves tracking one hypothetical derivative and is calculated using the following formula: Proxy Value = Trigger Rate x (at-the-money binary call) With respect to our Proxy Value formula, we designed the at-the-money binary call to value the potential for gains equal to the Trigger Rate if on the Term End Date, the Index Value is greater than or equal to the Index Value on the Term Start Date. Calculating Proxy Interest The proxy interest is an amount of interest that is earned to provide compensation for the cost of the Proxy Investment on the Term Start Date. The proxy interest is approximated by the value of amortizing the cost of the Proxy Investment over the Term to zero. The formula for proxy interest involves the calculation of: (i) the beginning Proxy Value (the formula for which varies depending on the Crediting Method, as previously discussed), and (ii) the time remaining during the Term. The time remaining during the Term is equal to the number of days remaining in the Term divided by the Term length. The Term length is equal to the number of days from the Term Start Date to the Term End Date. The proxy interest may be significantly different from current interest rates available on interest bearing investments. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix B 108 Additional Information You can find a more detailed explanation of the calculation of the Proxy Value, including examples, Allianz Index Appendix B 109 Appendix C – Rider Fee Calculation Example Please note that this example may differ from your actual results due to rounding. You purchase a Contract with the Maximum Anniversary Value Death Benefit. On the Quarterly Contract Anniversary your annual rider fee is 0.20% and your Contract Value and Charge Base are $100,000. This Contract Value includes any gains or losses on the Variable Option and any Daily Adjustments or Performance Credits on the Index Options. During the quarter you make no additional Purchase Payments and take no withdrawals. We calculate the daily rider fee amount for this quarter as follows: (the Charge Base) x (annual rider fee ÷ 365) = daily rider fee amount, or:$100,000 x (0.20% ÷ 365) = $0.55 If there are 89 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly rider fee is: (number of days in the current quarter) x (daily rider fee amount), or: 89 x $0.55 = $48.77 On the next Quarterly Contract Anniversary we would deduct $48.77 from the Contract Value. We first account for any gains/losses on the Variable Option and add any Daily Adjustments or Performance Credits to the Index Option Values, then process any additional Purchase Payments, withdrawals you take, and deductions we make for the total quarterly rider fee. We then set the Charge Base equal to this new Contract Value. If the Contract Value at the end of the day on the Quarterly Contract Anniversary after all processing is $101,250 we would begin computing the daily rider fee for the next quarter on the next day as: (the Charge Base) x (annual rider fee ÷ 365) = daily rider fee amount, or: $101,250 x (0.20% ÷ 365) = $0.55 If you make an additional Purchase Payment of $15,000 on the 43rd day of the next quarter, your Charge Base would increase by the dollar amount of the payment to $116,250 ($101,250 + $15,000). We would then use this new Charge Base to begin computing the daily rider fee for the remainder of the quarter on the next day as: (the Charge Base) x (annual rider fee ÷ 365) = daily rider fee amount, or: $116,250 x (0.20% ÷ 365) = $0.64 If there are 92 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly rider fee is: (number of days in the current quarter) x (daily rider fee amount), or: (43 x $0.55) + (49 x $0.64) = $23.86 + $31.21 = $55.07 On the next Quarterly Contract Anniversary we would deduct $55.07 from the Contract Value after we account for any gains/losses on the Variable Option and add any Daily Adjustments or Performance Credits to the Index Option Values. We would then process any additional Purchase Payments, withdrawals you take, and deductions we make for the total quarterly rider fee and set the Charge Base equal to this new Contract Value and begin computing the daily rider fee for the next quarter on the next day. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024 110 Appendix D – Material Contract Variations by State and Issue Date Your Contract is subject to the law of the state in which it is issued. Some of the features of your Contract may differ from the features of a Contract issued in another state because of state-specific legal requirements. In addition, not all features and benefits are approved in all states. All material state variations in the Contract are disclosed in this Appendix. If you would like more information regarding state specific Contract provisions, you should contact your Financial Professional or contact our Service Center at the toll-free telephone number listed at the back of this prospectus. Crediting Method and/or Index Option Availability Restrictions
Material State Contract Variations
Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix D 111
Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix D 112
Allianz Index Advantage+ NF® Variable Annuity Prospectus – Appendix D 113 Appendix E – Fund Available Under the Contract The following includes information about the Fund available under the Contract. More information about the Fund is available in the Fund's prospectus, which may be amended from time to time and can be found online at www.allianzlife.com/variableoptions. You can also request this information at no cost by calling (800) 624-0197, or by sending an email request to contact.us@allianzlife.com. The current expenses and performance information below reflects fees and expenses of the Fund, but do not reflect the other fees and expenses that your Contract may charge. Expenses would be higher and performance would be lower if these other charges were included. The Fund's past performance is not necessarily an indication of future performance.
(1) The AZL® Government Money Market Fund’s annual expenses reflect a temporary fee reduction. Please see the AZL® Government Money Market Fund’s prospectus for information regarding the expense reimbursement or fee waiver arrangement. Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix E 114 Appendix F – Selected Financial Data and Statutory Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations (For the 12 The following discussion of our financial condition and results of operations should be read in conjunction with our Statutory Financial Statements as of December 31, 2023 The Allianz Index Advantage+ NF® Variable Annuity Prospectus – May 1, 2024Appendix F 115
Item 11(f). Selected Financial Data (dollars in millions, unless otherwise stated) The following table sets forth the Company’s selected historical financial data. The selected financial data has been derived from the Statutory Financial Statements included elsewhere in this prospectus, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s audited Statutory Financial Statements. These historical results are not necessarily indicative of results to be expected for any future period.
Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 1 of 22 Item 11(h). Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides an assessment by management of the Company’s financial condition as of December 31, 2023, compared with December 31, 2022, and its results of operations for each of the three years ended December 31, 2023, 2022, 2021, respectively. The information contained herein should be read in conjunction with the financial statements, notes, exhibits and schedules in the 2023 and 2022 Annual Statement and audited Statutory Financial Statements of the Company. Amounts are presented on a non-consolidated basis in accordance with Statutory Accounting Principles (SAP). Forward-looking Statements This report reviews the Company’s financial condition and results of operations. Where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts, and may contain words like “believe”, “expect”, “estimate”, “project”, “budget”, “forecast”, “anticipate”, “plan”, “will”, “shall”, “may”, and other words, phrases or expressions with similar meaning. Forward-looking statements are subject to risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update publicly or revise any forward-looking statements. Company Overview Allianz Life is a wholly owned subsidiary of Allianz of America, Inc. (AZOA), which is a subsidiary of Allianz Europe, B.V.. Allianz Europe, B.V. is a wholly owned subsidiary of Allianz SE, the Company’s ultimate parent, which is incorporated in Munich, Germany. The Company is a life insurance company domiciled in the State of Minnesota and is licensed to sell insurance products in all U.S. states, except New York, several U.S. territories, and Canada. The Company offers a portfolio of individual fixed-indexed annuities, variable-indexed annuities, and individual ordinary fixed-indexed universal life (FIUL) products. The Company’s products are either sold through licensed independent agents contracted with a field marketing organization or insurance agency, or licensed registered representatives contracted with a broker/dealer. The Company also maintains a closed portfolio of fixed and variable annuities, individual and group long-term care (LTC) and group life, annuity and accident and health policies, and does not actively issue new policies related to these products. The Company has organized its principal operations into the following segments: Individual Annuities, Life, and Legacy. Individual Annuities The Individual Annuities segment provides tax-deferred investment growth and lifetime income opportunities for our customers through fixed, fixed-indexed, variable-indexed and variable products. The “fixed” and “variable” classifications describe whether we or the contractholders bear the investment risk of the assets supporting the contract. We are one of the largest sellers of fixed-indexed and variable-indexed products. Fixed and variable annuities provide for both asset accumulation and asset distribution needs. Our Individual Annuity products are sold through both independent distribution channels made up of agents and registered representatives. Fixed annuities provide guarantees related to the preservation of principal and interest credited. In 2023, sales of our fixed-indexed annuity products were higher than the prior year due to impacts of increasing interest rates and strong sales for the Allianz ABC®, Core Income 7® Annuity and Essential Income 7® Annuity products (the 2023 sales promotion) and a favorable market environment, due to a 2023 sales promotion. In 2022, sales of our fixed-indexed annuity products were higher than the prior year due to impacts of increasing interest rates and strong sales for the Allianz 222® due to a 2022 sales promotion. Variable annuities allow the contractholder to make deposits into various investment options and also have unique product features that allow for guaranteed minimum income benefits, guaranteed minimum accumulation benefits, guaranteed minimum death benefits, and guaranteed minimum withdrawal benefits. The variable annuity products with guaranteed minimum benefits which provide a minimum return based on their initial deposit may be increased by additional deposits, bonus amounts, or other account crediting features. The income and accumulation benefits shift a portion of the investment risk from the contractholder back to the Company. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 2 of 22 The Company's variable annuity sales strategy is focused on variable-indexed annuity products, which combines a separate account option with a general account option that is similar to a fixed-indexed annuity. In 2023, sales of variable-indexed annuities were higher than the prior year due to stronger sales for the Index Advantage Income® product driven by the market environment. In 2022, sales of variable-indexed annuities were lower than the prior year due to weaker sales for the Index Advantage Income® product driven by the market environment. The Company discontinued selling traditional variable annuities and fixed annuities and the business is in run-off, however, in-force contracts are material and thus reported within the Individual Annuities segment. Life Our life insurance products provide flexibility and control over a person’s assets, providing the assurance that the beneficiaries will be protected after the insured is gone and, in certain cases, to add cash value accumulation potential. The sales focus of our Life segment is our FIUL insurance products. Deposits are credited to an account maintained for the policyholder. Our individual life products are sold through independent distribution channels made up of agents and registered representatives. The Life business has continued to grow for the last several years and was driven by strong product proposition. Legacy The Legacy business consists of closed blocks of LTC and Special Markets products. The Special Markets products include individual and group annuity and life products, including universal life and term life insurance. Although Legacy products are part of the total results, the Company does not allocate additional resources to these areas other than to maintain the operational support to its current customers. The Company enters into reinsurance agreements to manage risk resulting from businesses we have chosen to exit. The performance of these product lines is not material enough to warrant discussion as separate operating segments. Income and Expense Allocation We maintain segregated investment portfolios for the Company but do not maintain segregated portfolios for each segment. All net investment income and other Corporate income and expense activity is allocated to the segments. Assets are only monitored at the total Company level, and as such, asset disclosures by segment are not included herein. Income and expense related to assets backing policyholder reserves are allocated to the segments based on policyholder statutory reserve levels. The results of our segments also reflect allocation of income and expense related to assets backing surplus. Income and expense related to assets backing surplus are allocated to the segments based on estimated required capital levels for each segment. Basis of Presentation The Statutory Financial Statements have been prepared in accordance with accounting practices prescribed or permitted by the Minnesota Department of Commerce (the Department). The Department recognizes statutory accounting practices prescribed or permitted by the state of Minnesota for determining and reporting the financial condition and results of operations of an insurance company and its solvency under Minnesota insurance law. The state of Minnesota has adopted the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual as its prescribed basis of SAP, without significant modification. The Company has no material statutory accounting practices that differ from those of the Department or NAIC SAP. These practices differ in some respects from accounting principles generally accepted in the United States of America (U.S. GAAP). The effects of these differences, while not quantified, are presumed to be material to the Statutory Financial Statements. The preparation of Statutory Financial Statements in conformity with NAIC SAP requires management to make certain estimates and assumptions that affect reported amounts of admitted assets and liabilities, including reporting or disclosure of contingent assets and liabilities as of December 31, 2023, and 2022 and the reported amounts of revenues and expenses during the reporting period. Future events, including changes in mortality, morbidity, interest rates, capital markets, and asset valuations could cause actual results to differ from the estimates used within the Statutory Financial Statements. Such changes in estimates are recorded in the period they are determined. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 3 of 22 Adoption of New Financial Accounting Standards See Note 3 – “Accounting Changes and Correction of Errors” of the Company’s audited Statutory Financial Statements in this prospectus for information related to recent accounting pronouncements. Application of Critical Accounting Policies Our accounting policies require management to make interpretative and valuation judgments and to make estimates based upon assumptions that affect the amounts of assets, liabilities, revenues, and expenses reported in our Statutory Financial Statements. Because the use of assumptions and estimates inherently entails uncertainty, the effects of accounting policies under different conditions could produce results that are significantly different. A discussion of the presentation of the business factors that affect critical accounting policies can be found in Note 2 of the accompanying Statutory Financial Statements and are summarized below. Accounting for Investments Investment valuation and presentation are determined to be in accordance with methods prescribed by the NAIC. See Note 5 and 6 of the audited Statutory Financial Statements for additional information regarding the portfolio and fair value of investments. Aggregate Reserves for Life Policies and Annuity Contracts See Notes 12 through 14 of the audited Statutory Financial Statements for additional information regarding our annuity and life actuarial reserves, deposit liabilities, and separate accounts. Derivatives See Notes 2 and 5 of the audited Statutory Financial Statements for additional information regarding our derivatives and hedging instruments. Reinsurance See Note 11 of the audited Statutory Financial Statements for additional information regarding reinsurance agreements we have entered into to manage insurance risk, as well as businesses we exited. Income Taxes See Note 9 of the audited Statutory Financial Statements for additional information regarding income tax estimates and assumptions. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 4 of 22 Results of Operations
Year Ended December 31, 2023Compared toYear Ended December 31, 2022 Overview The increase in capital and surplus was primarily driven by spread margin from Fixed-indexed annuities, impacts from positive equity markets, and a lower dividend payment to AZOA. Income •Premium and annuity considerations: Individual Annuities premium and annuity considerations increased primarily due to higher fixed-indexed annuity premium driven by competitive product features and the 2023 sales promotion. The Life segment increased as a result of an increase in first year and renewal premiums on Life Pro Plus Advantage® due to a growing block of business. •Net investment income: Net investment income increased slightly due to growth in the fixed-indexed, and life blocks of business, and higher yielding assets. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased primarily due to ceded Modco activity including reserves, investment income, option values and realized gains & losses as a result of favorable market activity. •Fees from separate accounts: Fees from separate accounts decreased primarily due to lower separate account assets on the traditional variable annuity block of business due to a decline in the block of business as these products are no longer sold. •Other income: Other income increased primarily due to derivative income on interest rate swaps that hedge variable annuities, primarily driven by a decrease in interest rates compared to 2022. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 5 of 22 Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased primarily due to increases in surrenders on fixed and variable annuity and the life lines of business, as well as increased death claim activity on the life line of business. •Change in aggregate reserves: Change in aggregate reserves increased on the Life segment due to the Life Voluntary Reserve that was established in 2023 and higher index credits as a result of the positive equity market performance in 2023, partially offset by a decrease in reserves for surrenders. Change in aggregate reserves decreased on the Annuity segment due to a decrease in variable annuity reserves due to positive equity market movements, partially offset by an increase in fixed annuity reserves due to increases in premium as a result of the 2023 sales promotion. •General and administrative and commission: General, administrative and commission expense increased due to an increase in commissions expense as a result of higher sales of fixed-indexed annuities. Expenses on the Life segment also increased due to an increase in first year and renewal commissions which is consistent with production. •Net transfers to separate accounts: Net transfers to separate accounts is driven by new premium and offset by contractholder withdrawals, and decreased due to increased surrender benefits and withdrawals for variable annuity contracts. •Income tax expense (benefit): Income tax benefit was driven by derivative hedging impacts in the Individual Annuity and Life segments. •Net realized capital (loss) gain: Net realized capital loss due to losses on derivatives hedging both fixed-indexed and variable-indexed annuity product liabilities as a result of an increase in equity markets, partially offset by gains on derivatives used to hedge Life product liabilities. Capital and Surplus •Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to gains on derivatives used to hedge product liabilities in the Individual Annuities and Life segments. •Dividends to parent: Dividends of $500 were paid to the parent in 2023. •Other change in capital and surplus: Other change in capital and surplus was lower in 2023 due to an increase in deferred income taxes. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Overview The decrease in capital and surplus was primarily driven by dividends paid to AZOA, net realized capital losses on derivatives, and a decrease in Other change in capital and surplus which is lower due to a large one-time gain on new reinsurance transactions in Q4 2021. These impacts were partially offset by decreases in policyholder benefits and surrenders due to the reinsurance transaction and a decrease in aggregate reserve change due to negative equity markets. Income •Premium and annuity considerations: Premium and annuity considerations increased primarily due to higher fixed-indexed annuity premium driven by competitive product features and a 2022 sales promotion for the Allianz 222® products. For the Life segment, premiums and annuity considerations increased as a result of an increase in first year and renewal premiums on Life Pro Plus Advantage® due to a growing block of business. •Net investment income: Net investment income decreased primarily due to a decrease in fixed annuity invested assets as a result of a coinsurance transaction in Q4 2021, partially offset by an increase in the Life segment due to an increase in invested assets. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments was negative primarily due to Modco ceded reserves and Modco ceded investment income, as well as a decrease in reinsurance deferred gain impacts in the Individual Annuities segment. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 6 of 22 •Fees from separate accounts: Fees from separate accounts decreased primarily due to lower separate account assets on the traditional variable annuity block of business due to negative equity markets. •Other income: Other income decreased primarily due to derivative income on interest rate swaps that hedge variable annuities, primarily driven by increasing interest rates, within the Individual Annuity segment. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders decreased primarily due to decreases in surrenders within the Individual Annuity segment driven primarily by an increase in ceded benefits as a result of the reinsurance transaction in Q4 2021, partially offset by an increase in surrender and death claim activity in the Life segment. •Change in aggregate reserves: Change in aggregate reserves decreased primarily due to a decrease in the Individual Annuities segment driven by a decrease in index crediting on fixed annuity, partially offset by an increase in variable annuity reserves; both due to equity market movements. The Life segment reserves also decreased due to lower index credits as a result of the negative equity market performance in 2022, partially offset by an increase in premiums. •General and administrative and commission: General, administrative and commission expense increased slightly due to an increase in commissions expense as a result of higher premium from the sale of fixed-indexed annuities in the Individual Annuity segment. •Net transfers to separate accounts: Net transfers to separate accounts is driven by new premium and offset by contractholder withdrawals, and decreased due to lower variable-indexed premium in the Individual Annuities segment. •Income tax expense (benefit): Income tax benefit was driven by relatively low taxable income driven by derivative hedging impacts in the Individual Annuity segment, further impacted by Low Income Housing Tax Credits. •Net realized capital (loss) gain: Net realized capital loss due to losses on derivatives hedging both the fixed-indexed annuities and life products, partially offset by gains on derivatives hedging variable-indexed annuity product liabilities as a result of a decrease in equity markets. Capital and Surplus •Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to losses on derivatives in the Individual Annuities segment and the Life segment. •Dividends to parent: Dividends of $4,100 were paid to the parent in 2022 as a result of the Q4 2021 reinsurance transaction. •Other change in capital and surplus: Other change in capital and surplus was higher in 2021 due to the net deferred gain on the reinsurance agreements. Other unfavorable impacts in 2022 include a change in deferred income taxes as a result of negative hedging impacts. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 7 of 22 Individual Annuities Segment Results of Operations
Selected Operating Performance Measures
Deposits and in-force amounts in the table above are for direct and assumed business. Deposits reflect amounts collected on both new and renewal business. In-force represents account values of the annuity contracts. In 2023, sales of our fixed-indexed annuity products were higher than the prior year due to the 2023 sales promotion. In 2022, sales of our fixed-indexed annuity products were higher than the prior year due to impacts of increasing interest rates and strong sales for Allianz 222® due to a 2022 sales promotion. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 8 of 22 Change in Key Market Factors Our Individual Annuities segment is impacted by various market impacts which are summarized below:
Year Ended December 31, 2023Compared toYear Ended December 31, 2022 Overview The Individual Annuities segment net increase in capital and surplus was driven by spread margin from Fixed-indexed annuities, and impacts from positive equity markets. Income •Premium and annuity considerations: Premium and annuity considerations increased primarily due to higher fixed-indexed annuity premium driven by competitive product features and a 2023 sales promotion. •Net investment income: Net investment income increased slightly due to growth in the fixed-indexed annuity block of business and higher yielding assets. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased primarily due to ceded Modco activity including reserves, investment income, option values and realized gains & losses as a result of favorable market activity. •Fees from separate accounts: Fees from separate accounts decreased primarily due to lower separate account assets on the traditional variable annuity block of business due to a decline in the block of business as these products are no longer sold. •Other income: Other income increased primarily due to derivative income on interest rate swaps that hedge variable annuities, primarily driven by a decrease in interest rates compared to 2022. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased primarily due to increases in surrenders on both the fixed and variable annuity lines of business. •Change in aggregate reserves: Change in aggregate reserves decreased primarily due to a decrease in variable annuity reserves due to positive equity market movements, partially offset by an increase in fixed annuity reserves due to increases in premium as a result of the 2023 sales promotion. •General and administrative and commission: General, administrative and commission expense increased due to an increase in commissions expense as a result of higher sales of fixed-indexed annuities. •Net transfers to separate accounts: Net transfers to separate accounts is driven by new premium and offset by contractholder withdrawals, and decreased due to increased surrender benefits and withdrawals for variable annuity contracts. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 9 of 22 •Net realized capital (loss) gain: Net realized capital loss due to losses on derivatives hedging both fixed-indexed and variable-indexed annuity product liabilities as a result of an increase in equity markets. Capital and Surplus •Change in unrealized capital gain (loss): Unrealized capital gains are primarily due to gains on derivatives used to hedge product liabilities on fixed-indexed annuities, partially offset by losses on derivatives hedging variable-indexed annuities. •Other change in capital and surplus: Other change in capital and surplus was higher in 2023 due to an increase in deferred income taxes. Year Ended December 31, 2022 Compared toYear Ended December 31, 2021 Overview The Individual Annuities segment net increase in capital and surplus was lower compared to the prior year due to one-time impacts of new reinsurance agreements in 2021 that covered certain fixed-indexed annuities, in addition to negative equity market impacts in 2022. Income •Premium and annuity considerations: Premium and annuity considerations increased primarily due to higher fixed-indexed annuity premium driven by competitive product features and a 2022 sales promotion for the Allianz 222® products. •Net Investment Income: Net investment income decreased primarily due to decreases in fixed annuity allocated investment income due to lower reserves as a result of a coinsurance transaction in Q4 2021. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments was negative primarily due to Modco ceded reserves and Modco ceded investment income, as well as a decrease in reinsurance deferred gain impacts. •Fees from separate accounts: Fees from separate accounts decreased primarily due to lower separate account assets on the traditional variable annuity block of business due to negative equity markets. •Other income: Other income decreased primarily due to derivative income on interest rate swaps that hedge variable annuities, primarily driven by increasing interest rates. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders decreased primarily due to decreases in surrenders on both the fixed and variable annuity lines of business as well as decreases in death claims and annuitizations on the fixed annuity line of business. The fixed annuity decreases are also driven primarily by an increase in ceded benefits as a result of the reinsurance transaction in Q4 2021. •Change in aggregate reserves: Change in aggregate reserves decreased primarily due to a decrease in fixed reserves due to a decrease in index crediting, partially offset by an increase in variable annuity reserves; both due to negative equity market movements. •General and administrative and commission: General, administrative and commission expense increased due to an increase in commissions expense as a result of higher sales of fixed-indexed annuities. •Net transfers to separate accounts: Net transfers to separate accounts is driven by new premium and offset by contractholder withdrawals, and decreased due to lower variable-indexed premium. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. •Net realized capital (loss) gain: Net realized capital loss due to losses on derivatives hedging fixed-indexed annuities, partially offset by gains on derivatives hedging variable-indexed annuity product liabilities as a result of a decrease in equity markets. Capital and Surplus •Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to losses on derivatives used to hedge product liabilities on fixed-indexed annuities, partially offset by gains on derivatives hedging variable-indexed annuities. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 10 of 22 •Other change in capital and surplus: Other change in capital and surplus was higher in 2021 due to the net deferred gain on new reinsurance agreements. Other unfavorable impacts in 2022 include a change in deferred income taxes as a result of negative hedging impacts. Life Segment Results of Operations
Selected Operating Performance Measures
First year and renewal premiums and in-force amounts in the table above are for direct and assumed business. In-force amounts represent life insurance in-force on our FIUL business and certain universal life, and term life business. The continued increase in first year and renewal premiums in 2023, 2022 and 2021 is a result of continued product enhancements and overall strong product proposition. The movement of in-force, year over year, is primarily driven by policyholder activity. Increases are driven by new business, and decreases are driven by policyholder charges, surrenders, and claims. Year Ended December 31, 2023Compared toYear Ended December 31, 2022 Overview The Life segment net change in capital and surplus increased primarily due to gains on derivatives, partially offset by higher aggregate reserve impacts driven by higher index credits due to favorable equity markets. Income •Premium and annuity considerations: Premiums and annuity considerations increased as a result of an increase in first year and renewal premiums on Life Pro Plus Advantage® due to a growing block of business. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 11 of 22 •Net investment income: Net investment income increased primarily due to an increase in Life average invested assets. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased as a result of ceded modified coinsurance reserves on certain Life products. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased primarily due to an increase in surrender and death claim activity on a growing block of business. •Change in aggregate reserves: Change in aggregate reserves increased due to the Life Voluntary Reserve that was established in 2023 and higher index credits as a result of the positive equity market performance in 2023, partially offset by a decrease in reserves for surrenders. •General and administrative and commission: General and administrative and commission expense increased due to an increase in first year and renewal commissions which is consistent with premium production, as well as an increase in allocated expenses. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. •Net realized capital (loss) gain: Net realized capital gain increased due to gains on derivatives used to hedge Life product liabilities as a result of positive equity markets in 2023. Capital and Surplus •Change in unrealized capital gain (loss): Change in unrealized capital gain increased due to derivatives hedging the Life product liabilities as a result of positive equity markets in 2023. •Other change in capital and surplus: Other change in capital and surplus has a limited impact on the Life Segment. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Overview The Life segment net change in capital and surplus decreased primarily due to tax impacts and capital losses on derivatives driven by negative equity markets, partially offset by lower aggregate reserve impacts driven by lower index credits. Income •Premium and annuity considerations: Premiums and annuity considerations increased as a result of an increase in first year and renewal premiums on Life Pro Plus Advantage® due to a growing block of business. •Net investment income: Net investment income increased primarily due to an increase in Life average invested assets. •Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased slightly as a result of ceded modified coinsurance reserves on certain Life products. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased primarily due to an increase in surrender and death claim activity on a growing block of business. •Change in aggregate reserves: Change in aggregate reserves decreased due to lower index credits as a result of the negative equity market performance in 2022, partially offset by an increase in premiums. •General and administrative and commission: General and administrative and commission expense increased primarily due to an increase in allocated expenses. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. •Net realized capital (loss) gain: Net realized capital loss increased due to losses on derivatives used to hedge Life product liabilities as a result of negative equity markets in 2022. Capital and Surplus •Change in unrealized capital gain (loss): Change in unrealized capital losses increased due to an increase in losses on derivatives hedging the Life product liabilities as a result of negative equity markets in 2022. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 12 of 22 •Other change in capital and surplus: Other change in capital and surplus has a limited impact on the Life Segment. Legacy Segment Results of Operations
Selected Operating Performance Measures
Gross premium written in the table above are for direct and assumed business. Gross premiums written reflect premiums collected on renewal business. There are no new premiums as these are closed blocks of business. Gross premiums written remained relatively consistent in 2023 and 2022 with small movements due to assumed premium and rate increases outpacing decrements within LTC products. In-force amounts represent gross life insurance within our Special Markets products. The continued decline in in-force volume is attributable to the Legacy segment being a closed block of business. Year Ended December 31, 2023Compared toYear Ended December 31, 2022 Overview The Legacy segment unfavorable change in capital and surplus was driven by higher deficiency reserves and increases in policyholder benefits as well as general and administrative expenses. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 13 of 22 Income •Premium and annuity considerations: Premium increased driven by assumed premium and policy rate increases outpacing decrements within LTC products. •Net investment income: Net investment income increased driven by slight growth in LTC reserves on the aging block of business and higher allocated yields. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased driven by higher paid claims on the LTC block business. •Change in aggregate reserves: Change in aggregate reserves increased driven by an increase in premium deficiency claim reserves in 2023, partially offset by a lower increase in active life reserves. •General and administrative and commission: General, administrative and commission expense increased due to an increase in TPA administrative expenses on LTC. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. Capital and Surplus •Change in unrealized capital gain (losses): Change in unrealized capital gains increased driven by unrealized gains on credit default swaps. •Other change in capital and surplus: Other change in capital and surplus was driven by a prior year error correction recorded in 2023. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Overview The Legacy segment unfavorable change in capital and surplus was driven by decrease in tax benefit as compared to the prior year, partially offset by lower deficiency reserves. Income •Net investment income: Net investment income increased driven by growth in LTC reserves and higher allocated yields. Benefits and Other Expenses •Policyholder benefits and surrenders: Policyholder benefits and surrenders increased driven by higher paid claims on the LTC block business. •Change in aggregate reserves: Change in aggregate reserves decreased driven by lower increase in LTC premium deficiency reserves in 2022. •Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based on the Company's effective rate. Capital and Surplus •Change in unrealized capital gain (losses): Change in unrealized capital gains increased driven by unrealized gains on credit default swaps. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 14 of 22 Dividends
We are required to meet minimum statutory capital and surplus requirements. Our statutory capital and surplus as of December 31, 2023 and 2022, were in compliance with these requirements. The maximum amount of ordinary dividends that can be paid by Minnesota insurance companies to the stockholder without prior approval of the Department is subject to restrictions relating to statutory earned surplus, also known as unassigned funds. Unassigned funds are determined in accordance with the accounting procedures and practices governing preparation of the statutory annual statement. In accordance with Minnesota Statutes, the Company may declare and pay from its Unassigned surplus cash dividends of not more than the greater of 10% of its prior year-end statutory surplus, or the net gain from operations before net realized capital gain of the insurer for the 12-month period ending the 31st day of the next preceding year. Based on these limitations, ordinary dividends of $1,587 can be paid in 2024 without prior approval of the Commissioner of Commerce. Financial Condition Investment Strategy Our investment strategy focuses on diversification by asset class. We seek to achieve economic diversification, while limiting overall credit and liquidity risks. We attempt to mitigate these credit and liquidity risks by adhering to investment policies that provide portfolio diversification on an asset class, creditor, and industry basis, and by complying with investment limitations governed by state insurance laws and regulations, as applicable. We also consider all relevant objective information available in estimating the cash flows related to structured securities. We actively monitor and manage exposures, and determine whether any securities are impaired. The aggregate credit risk taken in the investment portfolio is influenced by our risk/return preferences, the economic and credit environment, and the ability to manage this risk through liability portfolio management. We also have an asset-liability management strategy to align cash flows and duration of the investment portfolio with contractholder liability cash flows and duration. The following table presents the investment portfolio at December 31:
Bonds Refer to Note 5 of the audited Statutory Financial Statements for information regarding the nature of our portfolio of bonds. The tables below presents the NAIC rating for the Company's bond portfolio at December 31, 2023 and 2022. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 15 of 22
Sub-prime and Alt-A Mortgage Exposure Sub-prime lending is the origination of loans to customers with weaker credit profiles. Due to the high quality of our mortgage-backed securities, and the lack of sub-prime loans in the securities, we do not have a material exposure to sub-prime or Alt-A mortgages in those holdings. Alt-A loans are defined as any security backed by residential mortgage collateral which is not clearly identifiable as prime or sub-prime. Commercial Mortgage-backed, Asset-backed, and Residential Mortgage-backed Securities Commercial mortgage-backed securities (CMBS) represent pools of commercial mortgages that are broadly diversified across property types and geographical areas. The following table summarizes our exposure to CMBS holdings by NAIC class and vintage year as of December 31:
Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 16 of 22
Asset backed security (ABS) holdings consist primarily of aircraft leases, credit card receivables and other asset-backed securities that meet specific criteria, such as credit quality, insurance requirements, or other limits. The following table summarizes our exposure to other ABS holdings by NAIC class and vintage year as of December 31:
Non-agency residential mortgage-backed securities (NA RMBS) are backed by pools of residential mortgage loans made to non-prime borrowers, diversified across geographies. The following table summarizes our exposure to NA RMBS holdings by NAIC class and vintage year as of December 31:
Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 17 of 22
Unrealized investment losses on bonds, for investment grade (NAIC classes 1-2) and below investment grade (NAIC classes 3-6) securities by duration are as follows at December 31:
See Note 5 of the audited Statutory Financial Statements for additional disclosures in regards to unrealized investment losses on bonds. Other-than-temporary impairments, by market sector, for impairments included in the Statutory Statements of Operations, were as follows at December 31:
Refer to Note 6 of the audited Statutory Financial Statements for information regarding the fair value and fair value hierarchy level of our financial instruments. Mortgage Loans on Real Estate See Note 5 of the audited Statutory Financial Statements and Schedules for information regarding Mortgage Loans on Real Estate. Loan-to-value (LTV) and debt service coverage (DSC) ratios are common measurements used to assess the risk and quality of mortgage loans. The LTV ratio, calculated at the time of origination, is the percentage of the loan amount relative to the value of the underlying property. The DSC ratio, based upon the most recently received financial statements from the debtor, is calculated as the amount of the property’s net income divided by the debt service payments. See Note 5 of the audited Statutory Financial Statements for additional information relating to LTV and DSC ratios. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 18 of 22 Properties collateralizing mortgage loans are geographically dispersed throughout the United States as follows at December 31:
Properties collateralizing commercial mortgage loans are diversified by property type as follows at December 31:
Liquidity and Capital Resources Overview The Company’s liquidity requirements are generally met through funds provided by investment income, receipt of insurance premiums, M&E fees and benefit rider income, maturities and sales of investments, reinsurance recoveries, and capital contributions from Allianz SE, as needed. The Company has access to funding through securities lending under which the Company lends bonds and receives cash collateral and short term securities in an amount in excess of the fair value of the securities loaned. The Company is a member of the Federal Home Loan Bank (FHLB) of Des Moines, which provides access to collateralized borrowings. Funding from the FHLB is collateralized with bonds from the Company’s general account investment portfolio. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 19 of 22 Reinsurance may play a key role in funding the Company’s continued growth, and may be utilized for any product for which there is significant uncertainty related to future claims experience. Moreover, the Company is generally risk adverse for its smaller lines of business, and predictability of future profitability takes precedence over retaining a large percentage of risk. The Company does not utilize the capital markets as a source of capital. Should the need for capital arise, the Company may obtain capital contributions from Allianz SE as an alternative source of funding. If capital infusions are deemed necessary, the Company obtains prior approval by the Department, as appropriate. The primary uses of funds are policy benefits, commissions, other product-related acquisition costs, investment purchases, operating expenses, and dividends to AZOA. The Company routinely reviews its sources and uses of funds in order to meet its ongoing obligations. Financial Ratings and Strength •Standard & Poor’s AA (Very Strong) •Moody’s Aa3 (Strong) •AM Best A+ (Superior) Financial strength ratings are based upon an independent review of the Company, its ultimate parent (Allianz SE), subsidiaries, and the industry in which the Company operates. Each rating agency assigns ratings based on an independent review and takes into account a variety of factors to arrive at its final rating. Ratings are subject to change and there can be no assurance that the ratings afforded to the Company in the future will be consistent with historical ratings. Cash Flows The following table sets forth information from our Statutory Statements of Cash Flows for the years ended December 31:
We have the funds necessary to meet the capital requirements of all states in which we do business, and to support our operations. The decrease in net cash provided by operating activities in 2023 as compared to 2022 is primarily due to an increase in benefits and loss-related payments as a result of higher surrender activity and commissions and expenses, partially offset by an increase in premiums. The increase in net cash provided by operating activities in 2022 as compared to 2021 is primarily due to a decrease in benefits and loss-related payments as a result of ceded coinsurance reserves in 2021.These impacts were partially offset by an increase in premiums, higher commission and expense allowances on reinsurance ceded, and continued growth in investment income due to higher invested assets driven by positive cash flows. The increase in net cash used in investing activities in 2023 as compared to 2022 is driven by lower net bond sales, and a decrease in proceeds from hedging results driven by market impacts. The decrease in net cash provided by investing activities in 2022 as compared to 2021 is similarly driven by lower net bond sales, and a decrease in proceeds from hedging results driven by market impacts. The decrease in net cash used in financing and miscellaneous activities in 2023 compared to 2022 is primarily driven by a decrease in dividends paid to AZOA. The increase in net cash used in financing and miscellaneous activities in 2022 compared to 2021 is primarily driven by an increase in dividends paid to AZOA. Risk-Based Capital Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 20 of 22 See Note 17 of the audited Statutory Financial Statements for information regarding the Risk-Based Capital (RBC). The Company's RBC ratio significantly exceeds required minimum thresholds as of December 31, 2023 and 2022. Commitments & Contingencies The Company has guarantees to provide for the maintenance of certain subsidiary’s regulatory capital and surplus levels and has limited partnerships and private placement investments that require a commitment of capital. See Note 21 of the audited Statutory Financial Statements for information regarding commitments and contingencies. The Company has mortgage notes payable; see Note 7 of the audited Statutory Financial Statements for additional information. The Company has contractual obligations in the form of Policyholder liabilities; see Notes 12 through 14 of the audited Statutory Financial Statements for additional information regarding our annuity and life actuarial reserves, deposit liabilities, and separate accounts. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet transactions, arrangements or other relationships that management believes would be reasonably likely to have a material effect on the Company’s liquidity or capital position. The Company utilizes derivatives for which the company is either required to settle variation margin or post collateral; see Note 5 of the audited Statutory Financial Statements for additional information regarding derivative collateral management. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 21 of 22 Item 11(j). Quantitative and Qualitative Disclosures about Market Risk Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. Refer to Note 4 of the audited Statutory Financial Statements for additional details on how we mitigate our market exposure risk and our overall risk management practices. Sensitivity Analysis To assess the impact of changes in interest rate and equity markets, we perform sensitivity tests. Sensitivity tests measure the instantaneous impact of a single hypothetical interest rate or equity price change on our income, or fair value of an asset or liability, while holding all other rates or prices constant. To assess interest rate risk, we perform a sensitivity test which instantaneously shocks interest rates across all maturities by a hypothetical 50 bps. To assess equity risk, we perform a sensitivity test which instantaneously shocks all equity prices by a hypothetical 15%. Interest Rate Risk One means of assessing exposure to interest rate changes is to measure the potential change in the statutory value of an asset due to a hypothetical change in interest rates of 50 bps across all maturities. We noted that under this model, with all other factors remaining constant, a 50 bps increase in interest rates would cause our post-tax income to decrease by $13 as of December 31, 2023. We also examined the impact on post-tax income due to a hypothetical decrease in interest rates of 50 bps across all maturities. Under this model, with all other factors being constant, we estimated that such a decline would cause our post-tax income to decrease by $24 as of December 31, 2023. Note that the impacts referenced reflect the net hedge impact and do not include any economic impact related to our fixed-income investment portfolio or economic changes in reserve calculations. Equity Market Risk One means of assessing exposure to changes in equity market prices is to estimate the potential changes in post-tax income from a hypothetical change in equity market prices of 15%. Under this model, with all other factors constant, we estimated that a decrease in equity market prices would cause our post-tax income to decrease by $160, while an increase in equity market prices would cause our post-tax income to increase by $90 based on our equity exposure as of December 31, 2023. Note that the impacts referenced reflect the net hedge impact and do not include any economic impact related to our fixed-income investment portfolio or economic changes in reserve calculations. Management's Discussion and Analysis of Financial Condition and Results of Operations (for the 12 month period ended December 31, 2023) Page 22 of 22 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Financial Statements December 31, 2023 and 2022 (With Report of Independent Auditors Thereon) Report of Independent Auditors To the Board of Directors of Allianz Life Insurance Company of North America Opinions We have audited the accompanying statutory financial statements of Allianz Life Insurance Company of North America (the "Company"), which comprise the statutory statements of admitted assets, liabilities and capital and surplus as of December 31, 2023 and 2022, and the related statutory statements of operations, of capital and surplus, and of cash flow for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the "financial statements"). Unmodified Opinion on Statutory Basis of Accounting In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in accordance with the accounting practices prescribed or permitted by the Minnesota Department of Commerce Insurance Division described in Note 2. Adverse Opinion on U.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles section of our report, the accompanying financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2023 and 2022, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2023. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles As described in Note 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Minnesota Department of Commerce Insurance Division, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Minnesota Department of Commerce Insurance Division. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Statutory Financial Statements as of December 31, 2023 Page 1 of 69 In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date the financial statements are available to be issued. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with US GAAS, we: •Exercise professional judgment and maintain professional skepticism throughout the audit. •Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. •Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed. •Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. •Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. /s/PricewaterhouseCoopers LLP Minneapolis, Minnesota April 8, 2024 Statutory Financial Statements as of December 31, 2023 Page 2 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus December 31, 2023 and 2022 (Dollars in millions, except share data)
Statutory Financial Statements as of December 31, 2023 Page 3 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus December 31, 2023 and 2022 (Dollars in millions, except share data)
Statutory Financial Statements as of December 31, 2023 Page 4 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Statements of Operations Years ended December 31, 2023, 2022, and 2021 (Dollars in millions)
Statutory Financial Statements as of December 31, 2023 Page 5 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Statements of Capital and Surplus Years ended December 31, 2023, 2022, and 2021 (Dollars in millions)
Statutory Financial Statements as of December 31, 2023 Page 6 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Statutory Statements of Cash Flow Years ended December 31, 2023, 2022, and 2021 (Dollars in millions)
Statutory Financial Statements as of December 31, 2023 Page 7 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (1) Organization and Nature of Operations Allianz Life Insurance Company of North America (the Company) is a wholly-owned subsidiary of Allianz of America, Inc. (AZOA or parent company), which is a wholly-owned subsidiary of Allianz Europe, B.V. Allianz Europe, B.V. is a wholly-owned subsidiary of Allianz SE. Allianz SE is a European company registered in Munich, Germany, and is the Company’s ultimate parent. The Company has a wholly-owned life insurance company subsidiary, Allianz Life Insurance Company of New York (AZNY). The Company also wholly owns a captive reinsurer, Allianz Life Insurance Company of Missouri (AZMO). The Company is a life insurance company licensed to sell annuity, group and individual life, and group and individual accident and health policies in the United States, Canada, and several U.S. territories. Based on statutory net premium written, the Company's business is predominately annuity. The annuity business consists of fixed-indexed, variable-indexed, variable, and fixed annuities. The life business consists of both individual and group life. Life business includes products with guaranteed premiums and benefits and consists principally of fixed-indexed universal life (FIUL) policies and closed blocks of universal life policies, term insurance policies, and limited payment contracts. Accident and health business is primarily comprised of closed blocks of long-term care (LTC) insurance. The Company’s primary distribution channels are through independent agents, broker-dealers, banks, and third-party marketing organizations. After evaluating the Company’s ability to continue as a going concern, management is not aware of any conditions or events which raise substantial doubt concerning the Company’s ability to continue as a going concern as of the date of filing these Statutory Financial Statements. (2) Summary of Significant Accounting Policies (a)Basis of Presentation The Statutory Financial Statements have been prepared in accordance with accounting practices prescribed or permitted by the Minnesota Department of Commerce (the Department). The Department recognizes statutory accounting practices prescribed or permitted by the state of Minnesota for determining and reporting the financial condition and results of operations of an insurance company and its solvency under Minnesota insurance law. The state of Minnesota has adopted the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual as its prescribed basis of statutory accounting principles (SAP), without significant modification. The Company has no material statutory accounting practices that differ from those of the Department or NAIC SAP. These practices differ in some respects from accounting principles generally accepted in the United States of America (U.S. GAAP). The effects of these differences, while not quantified, are presumed to be material to the Statutory Financial Statements. The more significant of these differences are as follows: (1) Acquisition costs, such as commissions and other costs incurred in connection with acquiring new and renewal business, are charged to current operations as incurred. Under U.S. GAAP, acquisition costs that are directly related to the successful acquisition of insurance contracts are capitalized and charged to operations on a straight-line basis over the expected term of the related contracts. (2) Aggregate reserves for life policies and annuity contracts, excluding variable annuities, are based on statutory mortality and interest assumptions without consideration for lapses or withdrawals. Under U.S. GAAP, aggregate reserves consider lapses and withdrawals. (3) Certain reinsurance transactions, primarily used for annuity business, are recognized as reinsurance for statutory purposes only. (4) Ceded reinsurance recoverable are netted against their related reserves within Policyholder liabilities, Life policies and annuity contracts and Life policy and contract claims, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Under U.S. GAAP, these ceded reserves are presented on a gross basis as an asset. Statutory Financial Statements as of December 31, 2023 Page 8 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (5) The Company reinsures a portion of its in-force block of business through several reinsurance agreements. Under NAIC SAP, the after-tax gains associated with these indemnity reinsurance transactions are recorded in Unassigned surplus and recognized through income as future earnings of the books of business emerge. Under U.S. GAAP, the pretax gains associated with such transactions that qualify as reinsurance, are deferred as liabilities and are amortized into operations over the revenue-producing period of the policies. (6) Bonds are carried at values prescribed by the NAIC, generally amortized cost, except for those with an NAIC rating of 6, which are reported at the lower of amortized cost or fair value. Under U.S. GAAP, bonds classified as “available-for-sale” are carried at fair value, with unrealized gains and losses recorded in stockholder’s equity. (7) Changes in deferred income taxes are recorded directly to Unassigned surplus. Under U.S. GAAP, these items are generally recorded as an item of income tax benefit or expense in operations. Moreover, under NAIC SAP, a valuation allowance may be recorded against the deferred tax asset (DTA) and admittance testing may result in an additional charge to capital and surplus for nonadmitted portions of DTAs. Under U.S. GAAP, a valuation allowance may be recorded against the DTA and reflected as an expense. (8) Investments in subsidiaries are carried at net equity values as prescribed by the NAIC. Changes in equity values are reflected in Unassigned surplus within the Statutory Statements of Capital and Surplus as credits or charges to Unassigned surplus. Under U.S. GAAP, wholly owned subsidiary results are consolidated. (9) The Company is required to establish an asset valuation reserve (AVR) liability and an interest maintenance reserve (IMR) liability. The AVR provides for a standardized statutory investment valuation reserve for certain invested assets. Changes in this reserve are recorded as direct charges or credits to Unassigned surplus. The IMR is designed to defer net realized capital gains and losses, net of tax, resulting from changes in the level of prevailing market interest rates and amortize them into income within the Statutory Statements of Operations over the remaining life of the investment sold. The IMR represents the unamortized portion of applicable investment gains and losses as of the balance sheet date. There is no such concept under U.S. GAAP. (10) Canadian asset and liability amounts are expressed in Canadian dollars without foreign exchange translation into U.S. dollars. A net foreign currency translation adjustment is recorded within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus with an offset to Other changes in capital and surplus within the Statutory Statements of Capital and Surplus. Under U.S. GAAP, Canadian assets and liabilities are converted to U.S. dollars, with any translation adjustment recorded to stockholder’s equity. (11) Certain assets designated as “nonadmitted assets” are not recognized and are charged directly to Unassigned surplus within the Statutory Statements of Capital and Surplus. These include, but are not limited to, investments in unaudited subsidiary, controlled, and affiliated (SCA) entities, electronic data processing (EDP) software, portions of goodwill, furniture and fixtures, prepaid expenses, receivables outstanding greater than 90 days, and portions of DTAs. There is no such concept under U.S. GAAP. (12) A provision is made for amounts ceded to unauthorized reinsurers in excess of collateral in the form of a trust or letter of credit through a direct charge to Unassigned surplus within the Statutory Statements of Capital and Surplus. There is no such requirement under U.S. GAAP. (13) Revenues for universal life policies and annuity contracts, excluding deposit-type contracts, are recognized as revenue when received within the Statutory Statements of Operations. Under U.S. GAAP, policy and contract fees charged for the cost of insurance, policy administrative charges, amortization of policy initiation fees, and surrender contract charges are recorded as revenues when earned. Statutory Financial Statements as of December 31, 2023 Page 9 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (14) Benefits for universal life policies and annuity contracts within the Statutory Statements of Operations, excluding deposit-type contracts, consist of payments made to policyholders. Under U.S. GAAP, benefits represent interest credited, and claims and benefits incurred in excess of the policyholder’s contract balance. (15) Derivatives are reported at fair value in accordance with SSAP No. 86, Derivatives (SSAP No. 86) and SSAP No. 108, Derivatives Hedging Variable Annuity Guarantees (SSAP No. 108). See additional information in section (k) of this note and note 5. Changes in the fair value of derivatives, except those reported under SSAP No. 108, are recorded as direct adjustments to Unassigned surplus as a component of Change in unrealized capital gains (losses) within the Statutory Statements of Capital and Surplus. For derivatives reported under SSAP No. 108, changes in fair value are recognized as net deferred assets or liabilities within Other assets or Other liabilities, respectively, in the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, for fluctuations in fair value that do not offset the changes in the hedged item. The deferred asset or liability is amortized over the timeframe required under SSAP No. 108. Under U.S. GAAP, changes in the fair value of derivatives are recorded in derivative income (loss) as part of operating income and the hedged derivatives are carried at fair value. In addition, the effective and ineffective portions of a hedge are accounted for separately. (16) Commissions allowed by reinsurers on business ceded are reported as income when received within the Statutory Statements of Operations. Under U.S. GAAP, such commissions are deferred and amortized as a component of deferred acquisition costs to the extent recoverable. (17) The Statutory Financial Statements do not include a statement of comprehensive income as required under U.S. GAAP. (18) The Statutory Statements of Cash Flow do not classify cash flows consistent with U.S. GAAP and a reconciliation of net income to net cash provided from operating activities is not provided. (19) The calculation of reserves and transfers in the separate account statement requires the use of a Commissioners Annuity Reserve Valuation Method (CARVM) allowance on annuities for NAIC SAP. There is no such requirement under U.S. GAAP. (20) Sales inducements and premium bonuses are included in Life policies and annuity contracts in the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, and are charged to current operations as incurred. Under U.S. GAAP, deferred sales inducements and premium bonuses are similarly reserved; however, the costs are capitalized as assets and charged to operations as future profits are recognized in a manner similar to acquisition costs. (21) Negative cash balances are presented as a negative asset within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. These balances are presented as a liability under U.S. GAAP. (22) Embedded derivatives are not separated from the host contract and accounted for separately as a derivative instrument. Under U.S. GAAP, entities must separate the embedded derivative from the host contracts and separately account for those embedded derivatives at fair value. (23) For certain annuity products with a market value adjustment feature sold to Minnesota residents (MN MVA) and variable-indexed annuities, the Department requires the Company to maintain a separate asset portfolio to back related reserves. These assets and liabilities are required to be included as part of the Separate account assets and Separate account liabilities presented on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Under U.S. GAAP, there is no such requirement. Statutory Financial Statements as of December 31, 2023 Page 10 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (b)Permitted and Prescribed Statutory Accounting Practices The Company is required to file annual statements with insurance regulatory authorities, which are prepared on an accounting basis permitted or prescribed by such authorities. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the NAIC. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The Company has no permitted or prescribed practices that differ from NAIC SAP that had an impact on net income or surplus as of December 31, 2023, 2022, and 2021. The Company’s subsidiary, AZMO, has adopted an accounting practice that is prescribed by the Department of Insurance, Financial Institutions, and Professional Registration of the State of Missouri (the Missouri Department). The effect of the accounting practice allows a letter of credit to be carried as an admitted asset. The balance of the letter of credit asset at December 31, 2023 and 2022 was $99 and $117, respectively. Under NAIC SAP, this letter of credit would not be allowed as an admitted asset. This prescribed practice does not impact the net income of AZMO and results in increases to surplus of $99 and $117 as of December 31, 2023 and 2022, respectively. The Company’s carrying value of its investment in AZMO per the audited statutory surplus was $391 and $395, and the carrying value of its investment in AZMO would have been $292 and $278 if AZMO had completed Statutory Financial Statements in accordance with the NAIC SAP as of December 31, 2023 and 2022, respectively. AZMO maintains an adequate amount of surplus such that if it had not adopted the prescribed practice, surplus would still exceed the risk-based capital requirements. (c)Use of Estimates The preparation of Statutory Financial Statements in conformity with NAIC SAP requires management to make certain estimates and assumptions that affect reported amounts of admitted assets and liabilities, including reporting or disclosure of contingent assets and liabilities as of December 31, 2023 and 2022, and the reported amounts of revenues and expenses during the reporting period. Future events, including changes in mortality, morbidity, interest rates, capital markets, and asset valuations could cause actual results to differ from the estimates used within the Statutory Financial Statements. Such changes in estimates are recorded in the period they are determined. (d)Premiums and Annuity Considerations Life premiums are recognized as income over the premium paying period of the related policies. Nondeposit-type annuity considerations are recognized as revenue when received. Accident and health premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. (e)Aggregate Reserves for Life Policies and Annuity Contracts Reserves are principally calculated as the minimum reserves permitted by the state where the contract is issued for the year in which the contract is issued. For the Company’s fixed annuity product lines, reserves are calculated using CARVM. The Company uses both issue year and change in fund basis for the calculation method, on a curtate basis, using the maximum allowable interest rate. Deferred fixed-interest and fixed-indexed annuities typically have a two-tier structure to encourage annuitization, or a single-tier structure, which may include a market value adjustment. Either two-tier or single-tier annuities may include bonuses. For the Company’s variable and variable-indexed annuity product lines, reserves are calculated using VM-21, Requirements for Principle-Based Reserves for Variable Annuities (VM-21). Variable deferred annuities include a wide range of guaranteed minimum death benefits and living benefits (income, accumulation, and withdrawal). Reserves for immediate annuities are calculated using current prescribed mortality tables. Statutory Financial Statements as of December 31, 2023 Page 11 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Aggregate reserves for life insurance policies are principally calculated using the Commissioners Reserve Valuation Method (CRVM) or VM-20, Requirements for Principle-Based Reserves for Life Products, depending on the policy's issue date. Additional reserves are held for supplemental benefits and for contracts with secondary guarantees, consistent with prescribed regulations and actuarial guidelines. Statutory capital volatility arises on the FIUL products due to the timing mismatch between when changes in the Company's derivative instruments and the hedged statutory reserve are recognized in income. To reduce the Company's capital sensitivity, the Company records a voluntary reserve, which accounts for policyholder index credits that are not included in minimum reserves minus expected investment income before credits are paid (floored at zero). The Company began recording this reserve in 2023, and the balance was $302 as of December 31, 2023. The Company performs an annual asset adequacy analysis as required by regulation covering substantially all of its reserves. These tests are not only performed under the required interest rate scenarios, but also under additional stochastically generated interest and equity growth scenarios. Sensitivity tests, including policy lapse, annuitization, maintenance expenses, and investment return, are performed to evaluate potential insufficiencies in reserve adequacy. The results of these tests and analysis resulted in $0 of additional reserves at December 31, 2023 and 2022, respectively. (f)Aggregate Reserves for Accident and Health Policies For accident and health business, reserves consist of active life reserves (mainly reserves for unearned premiums and reserves for contingent benefits on individual LTC business) and claim reserves (the present value of amounts not yet due). Claim reserves represent incurred but unpaid claims under group policies. For the LTC business, the asset adequacy analysis was performed through a gross premium valuation. At December 31, 2023 and 2022, the results of these tests and analysis supported the establishment of additional reserves of $492 and $412, respectively. (g)Deposit-type Contracts Deposit-type contracts represent liabilities to policyholders in a payout status, who have chosen a fixed payout option without life contingencies. The premiums and claims related to deposit-type contracts are not reflected in the Statutory Statements of Operations as they do not have insurance risk. The Company accounts for the contract as a deposit-type contract in the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (h)Policy and Contract Claims Policy and contract claims include the liability for claims reported but not yet paid, claims incurred but not yet reported (IBNR), and claim settlement expenses on the Company’s accident and health business. Actuarial reserve development methods are generally used in the determination of IBNR liabilities. In cases of limited experience or lack of credible claims data, loss ratios are used to determine an appropriate IBNR liability. Claim and IBNR liabilities of a short-term nature are not discounted, but those claim liabilities resulting from disability income or LTC benefits include interest and mortality discounting. (i)Reinsurance The Company assumes and cedes business with other insurers. Reinsurance premium and benefits paid or provided are accounted for in a manner consistent with the basis used in accounting for original policies issued and the terms of the reinsurance contracts. Amounts recoverable from reinsurers represent account balances and unpaid claims covered under reinsurance contracts. Amounts paid or deemed to have been paid for claims covered by reinsurance contracts are recorded as a reinsurance recoverable and are included in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Included in Unassigned surplus is the gain recognized when the Company enters into a coinsurance, modified coinsurance (modco) or yearly renewable term (YRT) agreement on existing business. The gain is deferred and Statutory Financial Statements as of December 31, 2023 Page 12 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) amortized into operations on a basis consistent with how the future earnings emerge on the underlying business. Reserve adjustments related to reinsurance ceded in the Statutory Statements of Operations include reserve changes received from reinsurers on modified coinsurance (modco) and funds withheld treaties. Under a modco or funds withheld agreement, the ceded reserves and a portfolio of assets remain on the Company's Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Ceded reserves for modco are presented within Life policies and annuity contracts on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, while ceded reserves for funds withheld are presented within Funds held under reinsurance treaties. Assets supporting these treaties are considered restricted as they are not under the full control of the Company. (j)Investments Investment values are determined in accordance with methods prescribed by the NAIC. Bonds and Stocks The Securities Valuation Office (SVO) of the NAIC evaluates the credit quality of the Company’s bond investments. Bonds rated at “1” (highest quality), “2” (high quality), “3” (medium quality), “4” (low quality), or “5” (lower quality) are reported at cost adjusted for the amortization of premiums, accretion of discounts, and any impairment. Bonds rated at “6” (lowest quality) are carried at the lower of amortized cost or fair value with any adjustments to fair value recorded to Unassigned surplus within the Statutory Statements of Capital and Surplus. In accordance with its investment policy, the Company invests primarily in high-grade marketable securities. Dividends are accrued on the date declared and interest is accrued as earned. Premiums or discounts on bonds are amortized using the constant-yield method. Loan-backed securities and structured securities are amortized using anticipated prepayments, in addition to other less significant factors. Prepayment assumptions for loan-backed and structured securities are obtained from various external sources or internal estimates. The Company believes these assumptions are consistent with those a market participant would use. The Company recognizes income using the modified scientific method based on prepayment assumptions and the estimated economic life of the securities. For structured securities, except for collateralized debt obligations (CDOs) and impaired bonds, when actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments retrospectively. Any resulting adjustment is included in Net investment income on the Statutory Statements of Operations. For CDOs and impaired bonds, when adjustments are made for anticipated prepayments and other expected changes in future cash flows, the effective yield is recalculated using the prospective method as required by Statement of Statutory Accounting Principles (SSAP) No. 43R – Loan Backed and Structured Securities (SSAP No. 43R). Hybrid securities are investments structured to have characteristics of both stocks and bonds. The Company records these securities within Bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Common stocks, other than investments in subsidiaries and Federal Home Loan Bank (FHLB) stock, are carried at fair value. FHLB stock is carried at cost, which approximates fair value. Gross realized gains and losses are computed based on the average amortized cost of all lots held for a particular CUSIP. The fair value of bonds and common stocks is obtained from third-party pricing sources whenever possible. Management completes its own independent price verification (IPV) process, which ensures security pricing is obtained from a third-party source other than the sources used by the Company's internal and external investment managers. The IPV process supports the reasonableness of price overrides and challenges by the Statutory Financial Statements as of December 31, 2023 Page 13 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) internal and external investment managers and reviews pricing for appropriateness. Results of the IPV process are reviewed by the Company’s Pricing Committee. The Company reviews its combined investment portfolio, including subsidiaries, in aggregate each quarter to determine if declines in fair value are other than temporary. For bonds for which the fair value is less than amortized cost, the Company evaluates whether a credit loss exists by considering primarily the following factors: (a) the length of time and extent to which the fair value has been less than the amortized cost of the security; (b) changes in the financial condition, credit rating, and near-term prospects of the issuer; (c) whether the issuer is current on contractually obligated interest and principal payments; (d) changes in the financial condition of the security’s underlying collateral, if any; and (e) the payment structure of the security. For loan-backed securities, the Company must allocate other-than-temporary impairments (OTTI) between interest and noninterest-related declines in fair value. Interest-related impairments are considered other than temporary when the Company has the intent to sell the investment prior to recovery of the cost of the investment. The Company maintains a prohibited disposal list that restricts the ability of the investment managers to sell securities in a significant unrealized loss position and requires formal attestations from investment managers regarding their lack of intent to sell certain securities. The Company evaluates whether equity securities are other-than-temporarily impaired through a review process which includes, but is not limited to, market analysis, analyzing current events, assessing recent price declines, and management’s judgment related to the likelihood of recovery within a reasonable period of time. Impairments considered to be other-than-temporary are recorded as a reduction of the cost of the security, and a corresponding realized loss is recognized on the Statutory Statements of Operations in the period in which the impairment is determined. Recognition of the realized loss is subject to potential offset by AVR and IMR. The Company holds certain cash equivalents which receive bond treatment based on their underlying securities. These are classified as Other assets receiving bond treatment in Note 5. Investment in Subsidiaries Common stock of the Company’s insurance subsidiaries is carried at SAP capital and surplus, and investments in non-insurance subsidiaries are carried at U.S. GAAP equity value adjusted for certain items that are considered to be non-admitted. Unaudited subsidiaries are fully non-admitted. Mortgage Loans on Real Estate Mortgage loans on real estate, including commercial mortgage loans (CMLs) and residential mortgage loans (RMLs), are carried at the outstanding principal balance, adjusted for any impairment. The fair value of CMLs is calculated by analyzing individual loans and assigning ratings to each loan based on a combination of loan-to-value ratios and debt service coverage ratios. Fair value is determined based on these factors as well as the contractual cash flows of each loan and the current market interest rates for similar loans. The fair value of RMLs is calculated by discounting estimated cash flows, with discount rates based on current market conditions. The Company evaluates loans quarterly to assess whether there is an impairment based on the likelihood of receiving all contractual cash flows. The Company accounts for interest income on impaired loans on a cash basis. Interest accrual is discontinued for impaired loans and interest income is only recognized when received. Payments received on impaired loans are applied to accrued interest, and payments received in excess of accrued interest are applied to principal. Statutory Financial Statements as of December 31, 2023 Page 14 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Real Estate Real estate primarily represents the Company’s home office property, and is carried at depreciated cost less encumbrances in accordance with SSAP No. 40 – Real Estate Investments. Real estate income, including income received from home office property, is included in Net investment income on the Statutory Statements of Operations. Real estate, exclusive of land, is depreciated on a straight-line basis over estimated useful lives ranging from 3 to 40 years. At December 31, 2023 and 2022, accumulated depreciation was $88 and $83, respectively. Furthermore, as of December 31, 2023 and 2022, real estate was presented net of encumbrances of $8 and $20, respectively, as discussed in Note 7. The Company had real estate classified as held for sale that was transferred from RMLs in the amount of $4 and $0 as of December 31, 2023 and 2022, respectively. Allianz Life sold properties with a book value of $1, $4 and $3 during the years ended December 31, 2023, 2022 and 2021, respectively, and recognized a gain of $0, $1, and $0 during the years ended December 31, 2023, 2022 and 2021, respectively. Cash, Cash Equivalents and Short-term Investments Cash and cash equivalents may include cash on hand, demand deposits, money market funds, reverse repurchase agreements (repo), and highly liquid debt instruments purchased with an original maturity of three months or less. Due to the short-term nature of these investments, the carrying value is deemed to approximate fair value. In the normal course of business, the Company enters into bilateral and tri-party repos, whereby the Company purchases securities and simultaneously agrees to resell the same securities at a stated price on a specified date in the future, for the purpose of earning a specified rate of return. An affiliate of the Company serves as the agent in the bilateral agreements and an unaffiliated bank serves as the custodian in the tri-party agreements. The bilateral agreements require purchases of specifically identified securities. If at any time the fair value of those purchased securities falls below the purchase price, additional collateral in the form of cash or additional securities is required to be transferred to ensure margin maintenance. The tri-party agreements allow for the purchase of certain bonds and structured securities, and require a minimum of 102% of fair value of the securities purchased to be maintained as collateral. The Company’s repos are accounted for as collateralized lending in accordance with SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 103R), whereby the amounts paid for the securities are reported as cash equivalents within Cash and cash equivalents on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The difference between the amount paid and the amount at which the securities will be resold is reported as interest income within Net investment income on the Statutory Statements of Operations. Short-term investments are comprised of bonds due in one year or less at original purchase. Due to the short-term nature of these investments, the carrying value is deemed to approximate fair value. Policy Loans Policy loans are supported by the underlying cash value of the policies. Policy loans are carried at unpaid principal balances plus accrued interest income on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The unpaid principal balances are not in excess of the cash surrender values of the related policies. Statutory Financial Statements as of December 31, 2023 Page 15 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Other Invested Assets The Company participates in securities lending arrangements whereby specific securities are loaned to other institutions. The Company receives collateral from these arrangements including cash and cash equivalents, which can be reinvested based on the Company's discretion, and noncash collateral, which may not be sold or re-pledged unless the counterparty is in default. The Company accounts for its securities lending transactions as secured borrowings, in which the cash collateral received and the related obligation to return the cash collateral are recorded in Other invested assets and Other liabilities, respectively, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Noncash collateral received is not reflected on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Securities on loan remain on the Company’s Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, and interest and dividend income earned by the Company on loaned securities is recognized in Net investment income on the Statutory Statements of Operations. Company policy requires a minimum of 102% of fair value of securities loaned under securities lending agreements to be maintained as collateral. The Company's sources of cash used to return cash collateral is dependent upon the liquidity of current market conditions. The Company has policies in place to manage reinvested collateral at appropriate levels of liquidity. The Company invests in low income housing tax credit (LIHTC) investments for tax benefits. In accordance with SSAP No. 93 – Low Income Housing Tax Credit Property Investments, the LIHTC investments are carried at cost and adjusted for amortization based on the proportion of total tax credits and other tax benefits expected to be received over the life of the investments. The Company records an asset for the full unfunded investment amount upon entering into a LIHTC agreement; amortization decreases the asset balance over time. A corresponding liability is recorded for the unfunded commitment balance beginning when the LIHTC investment is initially funded, which decreases as the Company provides capital to fund. The asset and liability are recorded in Other invested assets and Other liabilities, respectively, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The tax benefit is recognized within Income tax expense within the Statutory Statements of Operations. The amortization of the investment is recorded as Net investment income and any impairments are included in Net realized capital gain (loss) within the Statutory Statements of Operations. The Company invests in limited partnerships (LPs) which are recorded using the equity method in line with SSAP No. 48, Joint Ventures, Partnerships, and Limited Liability Companies. The assets are recorded in Other invested assets and Other liabilities, respectively, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company recognizes income in Net investment income on the Statutory Statement of Operations for distributions deemed to be income distributions by the LP if the accumulated earnings balance is positive, and if it is zero, it reduces the book value. For distributions deemed to be a return of capital by the LP, the book value is reduced regardless of whether the undistributed accumulated earnings balance is positive. Receivables and payables for securities are carried at fair value on the trade date and represent a timing difference on securities that are traded at the balance sheet date but not settled until subsequent to the balance sheet date. Receivables and payables for securities are included in Other invested assets and Other liabilities, respectively, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (k) Derivatives The Company utilizes derivatives within certain actively managed investment portfolios for hedging purposes. Hedge Accounting The Company elects hedge accounting under SSAP No. 86 and SSAP No. 108 for certain qualifying derivative instruments. To qualify for hedge accounting, at inception, the Company formally documents the risk management objective and strategy for undertaking the hedging transaction. The documentation links a specific derivative to a specific asset or liability on the Statutory Statements of Assets, Liabilities, and Capital Statutory Financial Statements as of December 31, 2023 Page 16 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) and Surplus, identifies how the derivative is expected to offset the exposure to changes in the hedged item's fair value or variability in cash flows attributable to the designated hedge risk, and the effectiveness testing methods to be used. Hedge effectiveness is formally assessed at inception and on a quarterly basis throughout the life of the designated hedging relationships. Hedge effectiveness is assessed using qualitative and quantitative methods. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include analysis of changes in fair value or cash flows associated with the hedge relationship. Hedge effectiveness may be measured using either the dollar offset method or regression analysis. The dollar offset method compares changes in fair value or cash flows of the hedging instrument with changes in the fair value or cash flows of the hedged item attributable to the hedged risk. Regression analysis is a statistical technique used to measure the relationships between the fair values or cash flows of a derivative and a hedged item and how each reacts to changes in the designated hedge risk (i.e., interest rates, foreign currency rates). A derivative instrument is either classified as an effective hedge or an ineffective hedge. Entities must account for the derivative at fair value if deemed to be ineffective or becomes ineffective. For those derivatives qualifying as effective for hedge accounting under SSAP No. 86, the change in the carrying value or cash flow of the derivative shall be recorded consistently with the way that changes in the carrying value or cash flows of the hedged item are recorded. For those derivatives qualifying as effective for hedge accounting under SSAP No. 108, the derivative is carried at fair value. Foreign Currency Swaps The Company utilizes foreign currency swaps to hedge cash flows and applies hedge accounting. Specifically, the Company uses foreign currency swaps to hedge foreign currency and interest rate fluctuations on certain underlying foreign currency denominated fixed-maturity securities. The foreign currency swaps are reported at amortized cost from the date hedge accounting is designated and deemed to be effective, which is consistent with the accounting for the bonds that are the subject of the hedge accounting transactions. Interest Rate Swaps on Variable Annuity Insurance Liabilities The Company utilizes interest rate swaps (IRS) to hedge the interest rate risk on certain variable annuity guarantee benefits. These are accounted for as a cash flow hedge under SSAP No. 86 and a fair value hedge under SSAP No. 108. Prior to January 1, 2020, the Company had IRS that hedge the interest rate risk on certain variable annuity guarantee benefits held at amortized cost in accordance with SSAP No. 86. The initial book value of the IRS represented the book value created from inception until the designation of hedge accounting. These IRS were held at amortized cost and changes were recognized to the extent they offset changes in the AG43 reserve for the hedged item due to interest rate movement. The initial book value and subsequent changes due to the hedged item or realized gains or losses recorded under hedge accounting (hedge adjustment) are amortized over the duration of the hedge program, approximated by AG43 standard scenario revenues. Effective January 1, 2020, the Company de-designated its previous hedging relationship under SSAP No. 86 and simultaneously designated the hedging relationship described above under SSAP No. 108. The remaining balance of the SSAP No. 86 hedge adjustment is recorded within Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, and will be amortized over the life of the former hedge program. The table below represents the hedge adjustment balance under SSAP No. 86: Statutory Financial Statements as of December 31, 2023 Page 17 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
Effective January 1, 2020, the Company designated the hedging relationship described above under SSAP No. 108. The hedged item consists of a portion of the Company's variable annuity block of business minimum benefit guarantees that are sensitive to interest rate movement. The hedged portion of the block is determined on a monthly basis based on the percentage of the economic liability being hedged. The related hedging instrument is a portfolio of interest rate swap derivatives which follows a dynamic hedging strategy. Changes in interest rates impact the present value of the future product cash flows. The Company recognizes a net deferred asset or liability within Other assets or Other liabilities, respectively, on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus for fluctuations in fair value that do not offset the changes in the hedged liability. Beginning July 1, 2021, the Company elected to amortize the deferred balance that existed as of June 30, 2021 over five years, in accordance with SSAP No. 108, paragraph 14.c. Changes in the deferred balance after July 1, 2021 will be amortized over the timeframe required under SSAP No. 108, paragraph 14, which is the Macaulay duration of guarantee benefit cash flows, capped at 10 years. The hedge strategy is compliant with VM-21 Clearly Defined Hedge Strategy (CDHS) requirements and meets all the criteria to be defined as an effective hedge relationship as required by SSAP No. 108. The Company entered into this hedging relationship effective January 1, 2020 and no changes in hedging strategy have occurred since inception. Hedge effectiveness is measured in accordance with SSAP No. 108 on a quarterly basis, both prospectively and retrospectively, and remains highly effective as of December 31, 2023. In accordance with SSAP No. 108, an amount equal to the net deferred asset and deferred liability is allocated from Unassigned funds to Special surplus funds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The following table shows the deferred activity for the years ended December 31, 2023 and 2022.
The net deferred balance will amortize over the next 10 years, as shown below: Statutory Financial Statements as of December 31, 2023 Page 18 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
The company did not have other changes related to open derivatives removed from SSAP No. 86 and captured in scope of SSAP No. 108 for the years ended December 31, 2023 and 2022. During the years ended December 31, 2023 and 2022, the fair value changes available for application under SSAP No. 108 was $(58) and $(1,712), respectively. The Company did not have any hedging strategies identified as no longer highly effective and did not terminate any hedging strategies during the years ended December 31, 2023 and 2022. Nonqualifying hedging Futures and Options Contracts The Company provides benefits through certain life and annuity products which are linked to the fluctuation of various market indices, and certain variable annuity contracts that provide minimum guaranteed benefits. The Company has analyzed the characteristics of these benefits and has entered into over-the-counter (OTC) option contracts, exchange-traded option (ETO) contracts, and exchange-traded futures contracts tied to an underlying index with similar characteristics with the objective to economically hedge these benefits. Management monitors in-force amounts as well as option and futures contract values to ensure satisfactory matching and to identify unsatisfactory mismatches. If actual persistency deviated, management would purchase or sell option and futures contracts as deemed appropriate or take other actions. The OTC option contracts and ETO contracts are reported at fair value in Derivative assets and Derivative liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The fair value of the OTC options is derived internally and deemed by management to be reasonable via performing an IPV process. The process of deriving internal derivative prices requires the Company to calibrate Monte Carlo scenarios to actual market information. The calibrated scenarios are applied to derivative cash flow models to calculate fair value prices for the derivatives. The fair value of the ETO contacts is based on quoted market prices. Incremental gains and losses from expiring options are included in Net realized capital gain (loss) on the Statutory Statements of Operations. The liability for the related policyholder benefits is reported in Life policies and annuity contracts on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The unrealized gain or loss on open OTC option contracts is recognized as a direct adjustment to Unassigned surplus within the Statutory Statements of Capital and Surplus. Any unrealized gains or losses on open OTC option contracts are recognized as realized when the contracts mature (see Note 5 for further discussion). Futures contracts do not require an initial cash outlay, and the Company has agreed to daily net settlement based on movements of the representative index. Therefore, no asset or liability is recorded as of the end of the reporting period. A derivative asset or liability and an offsetting variation margin payable or receivable is recorded in Derivative assets or Derivative liabilities in the Statutory Statements of Admitted Statutory Financial Statements as of December 31, 2023 Page 19 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Assets, Liabilities, and Capital and Surplus for the outstanding unpaid variation margin representing market movements on the last trading day of the year. Gains and losses are not considered realized until the termination or expiration of the futures contract. Unrealized gains and losses on futures contracts are reflected in the Statutory Statements of Capital and Surplus in Unassigned surplus, within Change in unrealized capital gains (loss). Realized gains and losses on futures contracts are included in the Statutory Statements of Operations, Net realized capital gain (loss), net of taxes and interest maintenance reserve. Interest Rate Swaps, Credit Default Swaps, Total Return Swaps, and To Be Announced Securities The Company utilizes IRS, credit default swaps (CDS), total return swaps (TRS), and To Be Announced (TBA) securities to economically hedge market risks embedded in certain life and annuity products. The IRS, CDS, TRS and TBA securities are reported at fair value in Derivative assets or Derivative liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The fair value of the IRS, CDS, and TBA securities are derived using a third-party vendor software program and deemed by management to be reasonable. Centrally cleared IRS fair values are obtained from the exchange on which they are traded. The fair value of the TRS is based on counterparty pricing and deemed by management to be reasonable. Changes in unrealized gains and losses on the swaps are recorded as a direct adjustment to Unassigned surplus within the Statutory Statements of Capital and Surplus. Gains and losses on exchange cleared IRS are recorded as unrealized until the contracts mature or are disposed at which time they are recorded as realized, subject to offset by IMR. (l) Corporate-Owned Life Insurance Corporate-owned life insurance (COLI) is recognized initially as the amount of premiums paid. Subsequent measurement of the contract is based upon the amount that could be realized assuming the surrender of an individual-life policy (or certificate in a group policy), otherwise known as the cash surrender value (CSV), in accordance with SSAP No. 21 – Other Admitted Assets (SSAP No. 21). Changes in CSV resulting from subsequent measurement of the contract are recognized as a component of Other income on the Statutory Statements of Operations. The Company’s COLI policies are reported in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (m) Borrowed Money The Company is a member of the FHLB of Des Moines, primarily for the purpose of participating in the FHLB’s mortgage collateralized loan advance program with short-term and long-term funding facilities. Members are required to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. Through its membership, the Company has issued debt to the FHLB in exchange for cash advances. It is part of the Company’s strategy to utilize funds borrowed from the FHLB for operations and strategic initiatives. The Company’s current borrowings are not subject to prepayment obligations. Funds obtained from the FHLB and accrued interest are included within Borrowed money within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus in accordance with SSAP No. 15 – Debt and Holding Company Obligations. The collateral pledged to FHLB is reported as admitted assets within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus in accordance with admissibility testing under SSAP No. 30 – Unaffiliated Common Stock. (n) Income Taxes The Company and its subsidiaries file a consolidated federal income tax return with AZOA and all of its wholly-owned subsidiaries. The consolidated tax allocation agreement stipulates that each company participating in the return will bear its share of the tax liability pursuant to certain tax allocation elections under the Internal Revenue Code (IRC) and its related regulations and reimbursement will be in accordance with an intercompany tax reimbursement arrangement. The Company, and its insurance subsidiaries, generally will be paid for the tax benefit of any of their tax attributes used by any member of the consolidated group. Statutory Financial Statements as of December 31, 2023 Page 20 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Any such change could significantly affect the amounts reported in the Statutory Statements of Operations. Management uses best estimates to establish reserves based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Quarterly, management evaluates the appropriateness of such reserves based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums, and other rulings issued by the Internal Revenue Service or the tax courts. The Company utilizes the asset and liability method of accounting for income taxes. DTAs and deferred tax liabilities (DTLs), net of the nonadmitted portion are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Gross DTAs and DTLs are measured using enacted tax rates and are considered for admitted tax asset status according to the admissibility test as set forth by the NAIC. Changes in DTAs and DTLs, including changes attributable to changes in tax rates, are recognized as a component of Unassigned surplus on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (o)Separate Accounts Separate account assets and liabilities are primarily funds held for the exclusive benefit of variable and variable-indexed annuity contract holders. Separate account assets are reported at fair value in accordance with SSAP No. 56 – Separate Accounts (SSAP No. 56), with the exception of certain bonds, mortgage loans, other invested assets, cash, cash equivalents, securities lending reinvested collateral assets and investment income due and accrued. Certain assets that are allocated to the index options for the Allianz Index Advantage Variable Annuity (VIA), as listed above, are carried at amortized cost in accordance with the product filing requirements in the state of Minnesota. Amounts due from separate accounts primarily represent the difference between the surrender value of the contracts and the Separate account liability as disclosed on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. This receivable represents the surrender fee that would be paid to the Company upon the surrender of the policy or contract by the policyholder or contract holder as of December 31. Amounts charged to the contract holders for mortality and contract maintenance, and other administrative services fees are included in income within Fees from separate accounts on the Statutory Statements of Operations. These fees have been earned and assessed against contract holders on a daily or monthly basis throughout the contract period and are recognized as revenue when assessed and earned. Transfers to (from) separate accounts within the Statutory Statements of Operations primarily includes transfers for new premium and annuity considerations, benefit payments, surrender charge wear-off, realized and unrealized investment gains/losses, investment income, and other contractholder behavior. (p)Receivables Receivable balances approximate estimated fair values. This is based on pertinent information available to management as of year-end, including the financial condition and creditworthiness of the parties underlying the receivables. Any balances outstanding more than 90 days are nonadmitted on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (q) Reclassifications In the year ended December 31, 2023 there was an amendment to a reinsurance treaty which converted ceded reserves from modco to funds withheld. This change resulted in the funds withheld reserve balance to be material enough to warrant its own line, Funds held under reinsurance treaties on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Prior to this change, the funds withheld reserve balance was included in Other liabilities. The prior year balance was reclassified from Other liabilities to Funds held Statutory Financial Statements as of December 31, 2023 Page 21 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) under reinsurance treaties on the Statutory Statement of Admitted Assets, Liabilities, and Capital and Surplus to conform to the current year presentation. (3)Accounting Changes and Corrections of Errors Accounting Changes Not applicable. Recently Issued Accounting Standards – Adopted in 2023 In March 2020, the NAIC adopted NS 2020-12, Reference Rate Reform, which provides optional guidance for a limited period of time to ease the potential burden on accounting for reference rate reform. The expedients outlined in the amendment are for modifications solely related to reference rate reform and optionally suspend assessments for re-measuring a contract. The Company adopted these amendments effective March 12, 2020. In August 2023, the NAIC adopted NS 2023-05, whereby the sunset date for relief afforded by NS 2020-12, was deferred until December 31, 2024. The Company has evaluated the impact of the new guidance and has identified financial assets which have terms related to reference rates that are expected to be discontinued. As of December 31, 2023, the Company has utilized the optional expedient to account for all modifications to financial assets occurring as a result of reference rate reform as a continuation of the existing financial asset. There was no impact on net income or surplus during the year ended December 31, 2023, as a result of adopting the revisions. InAugust 2023, the NAIC adopted INT 23-01 Negative IMR. The temporary relief, which is optional for all companies required to maintain an AVR and IMR, allows for those entities to admit a limited amount of a net negative IMR balance as an admitted asset on a reporting entity's balance sheet. The revisions were effective as of August 13, 2023, and will be automatically nullified on January 1, 2026. Although the Company currently has a net positive IMR balance, the Company has adopted this item for the purposes of December 31, 2023 reporting. There was no impact on net income or surplus during the year ended December 31, 2023, as a result of adopting the INT. Recently Issued Accounting Standards – Adopted in 2022 Not applicable. Statutory Financial Statements as of December 31, 2023 Page 22 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Recently Issued Accounting Standards – Adopted in 2021 In July 2020, the NAIC adopted revisions to SSAP No. 32R, Preferred Stock. The revisions update the definitions, measurement, and impairment guidance for various types of preferred stock and require perpetual preferred stock to be measured at fair value, not to exceed any currently effective call price, instead of at the lower of cost or fair value. The revisions were effective January 1, 2021. The implementation of these revisions on January 1, 2021 resulted in a pre-tax increase to surplus of $2. In 2021, the NAIC extended the following interpretations (INT) in response to the COVID-19 pandemic: •INT 20-03, Troubled Debt Restructuring due to COVID-19. This INT followed the interagency COVID-19 guidance issued by federal and state prudential banking regulators (and concurred by the FASB) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, a modification of a mortgage loan or bank loan terms did not result in troubled debt restructurings as long as the modification was in response to COVID-19, the borrower was current at the time of the modification, and the modification was short-term. In addition, insurers were not required to designate mortgage loans or bank loans with deferrals granted due to COVID-19 as past due or report them as nonaccrual loans. This INT was effective for the period beginning March 1, 2020 and originally expired on December 31, 2020. In January 2021, the provisions in this INT were extended updating the effective period to be the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency declared by the President terminates. This INT did not impact the Company. •INT 20-07, Troubled Debt Restructuring of Certain Debt Investments Due to COVID-19. This INT provided temporary guidance by allowing practical expedients when assessing whether modifications made to debt securities (under SSAP 26R and 43R) due to COVID-19 are insignificant. Specifically, the guidance proposed restructurings in response to COVID-19 are considered to be insignificant if the restructuring resulted in a 10% or less shortfall amount in the contractual amount due and did not extend the maturity of the investment by more than 3 years. This INT was effective for the period beginning March 1, 2020 and originally expired on December 31, 2020. In January 2021, the provisions in this INT were extended updating the effective period to be the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency declared by the President terminates. This INT did not impact the Company. In November 2021, the NAIC adopted revisions to SSAP No. 43R, Loan Backed and Structured Securities. The revisions state that non-rated residual tranches currently classified as bonds should be reclassified to other invested assets, and held at lower of cost or market. The revisions are effective December 31, 2022, with early application permitted. The company has adopted these revisions, resulting in no change due to no non-rated residual tranches classified as bonds as of December 31, 2021. There was no impact on net income or surplus during the year-ended December 31, 2021, as a result of adopting the revisions. Statutory Financial Statements as of December 31, 2023 Page 23 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Recently Issued Accounting Standards – To Be Adopted In August of 2023, the NAIC adopted revisions to SSAP No. 26R, SSAP No. 43R, and updated references for various SSAPs to accommodate the two newly revised and adopted standards. Both revised SSAPs as well as the updated references were adopted as part of SAPWG's Principles Based Bond Definition project, and represent the first step towards implementing the new bond definition. The revised standards will be effective starting January 1, 2025. The Company has begun assessing the impacts of the amendments on the financial statements in anticipation of the January 1, 2025 effective date. In December 2023, the NAIC adopted revisions to the Annual Statement Instructions through Ref #2023-15: IMR/AVR Specific Allocations. The revisions clarify the treatment of realized gains or losses in the context of allocating those gains and losses to either AVR or IMR. While the amendment reflects a SAP Clarification, the amendment addresses a new concept in basing the allocation of realized gains or losses on an "Acute Credit Event." The amendment is effective beginning January 1, 2024, and the Company plans to adopt these revisions as of that date. As this amendment applies to future transactions, there will be no impact to net income or surplus upon adoption. Corrections of Errors The Company records corrections of errors in accordance with SSAP No. 3 – Accounting Changes and Correction of Errors (SSAP No. 3). SSAP No. 3 prescribes that the correction of errors in previously issued Statutory Financial Statements will be reported as an adjustment to capital and surplus in the period the error is detected. These errors are shown within Correction of errors, net of tax, on the Statutory Statements of Capital and Surplus. During 2023, an error was identified related to the consistency of presenting internal exchanges between lines of business. These internal exchanges represent 1035 tax-free exchanges initiated by the policyholder to transition from an existing annuity contract to a new like kind annuity contract. On the Fixed Annuity line of business, the transaction is accounted for as a surrender within Surrenders on the Statement of Operations, and a subsequent application of premium on the new contract within Premiums and annuity considerations on the Statement of Operations. This methodology was not consistently applied to the Variable Annuity line of business, as the transaction was recorded net, with no financial statement impact. This error resulted in an equal and offsetting understatement of Premium and annuity consideration and Surrenders within the Statement of Operations for periods ended prior to January 1, 2023. Beginning January 1, 2023, the Company began recording the Variable Annuity transactions similarly to Fixed Annuities. There was no impact recorded as a correction of an error in the Statements of Capital and Surplus as surplus was correct as of December 31, 2022 due to the immateriality of the adjustment. During 2023, an error was identified related to the Company’s calculation of reserves for certain long-term care (LTC) products. Joint policies were incorrectly labeled within the LTC experience studies used by management to set morbidity-related assumptions for 2022 and 2023 unlocking. Had the correct experience studies been used when setting assumptions, management determined they would have set their best estimate morbidity-related assumptions differently for 2022. This error resulted in a $43 pre-tax decrease of Accident and health policies on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus and a $34 increase in after-tax surplus within the Statutory Statements of Capital and Surplus for periods ended prior to January 1, 2023. During 2021, an error was identified related to the Company’s calculation of scheduled payments for certain fixed-indexed annuity products. The model for policies that have elected the scheduled payment option always used an income period of 10 years. After payments are received, future benefits and therefore the remaining benefit period, should have reduced but did not. This resulted in the Company holding excess reserves after policyholders elected this option. The error resulted in a $50 pre-tax overstatement of policyholder liabilities for life policies and annuity contracts and a corresponding $40 after-tax understatement of total capital and surplus as of December 31, 2020. Policyholder liabilities for life policies and annuity contracts on the Company’s financial statements were adjusted in 2021 to correct for the prior period impact. During the year ended December 31, 2022 there were no corrections of errors recorded on the Statutory Statements of Capital and Surplus. Statutory Financial Statements as of December 31, 2023 Page 24 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (4)Risk Disclosures The following is a description of the significant risks facing the Company and how it attempts to mitigate those risks: (a)Credit Risk Credit risk is the risk that issuers of fixed-income securities, borrowers of mortgages on commercial real estate, or other parties with whom the Company has transactions, such as reinsurers and derivative counterparties, default on their contractual obligations, resulting in unexpected credit losses. The Company mitigates this risk by adhering to investment policies and limits that provide portfolio diversification on an asset class, asset quality, creditor, and geographical basis, and by complying with investment limitations from applicable state insurance laws and regulations. The Company considers all relevant objective information available in estimating the cash flows related to structured securities. The Company actively monitors and manages exposures, and determines whether any securities are impaired. The aggregate credit risk is influenced by management’s risk/return preferences, the economic and credit environment, and the ability to manage this risk through liability portfolio management. For derivative counterparties, the Company mitigates credit risk by tracking and limiting exposure to each counterparty through limits that are reported regularly and, once breached, restricts further trades; establishing relationships with counterparties rated BBB+ and higher; and monitoring the CDS of each counterparty as an early warning signal to cease trading when credit default swap spreads imply severe impairment in credit quality. The Company executes Credit Support Annexes (CSA) with all active and new counterparties which further limits credit risk by requiring counterparties to post collateral to a segregated account to cover any counterparty exposure. Additionally most transactions are cleared through a clearinghouse thereby transferring counterparty risk from the bank to the clearinghouse that tends to have stronger credit. This often leads to increased collateralization and lower counterparty risk for the Company. (b) Credit Concentration Risk Credit concentration risk is the risk of increased exposure to significant asset defaults (of a single security issuer); economic conditions (if business is concentrated in a certain industry sector or geographic area); or adverse regulatory or court decisions (if concentrated in a single jurisdiction) affecting credit. The Company’s Finance Committee, responsible for asset/liability management (ALM) issues, recommends an investment policy to the Company’s Board of Directors (BOD) and approves the strategic asset allocation and accompanying investment mandates for an asset manager with respect to asset class. The investment policy and accompanying investment mandates specify asset allocation among major asset classes and the degree of asset manager flexibility for each asset class. The investment policy complies, at a minimum, with state statutes. Compliance with the policy is monitored by the Finance Committee who is responsible for implementing internal controls and procedures. Deviations from the policy are monitored and addressed. The Finance Committee and, subsequently, the BOD review the investment policy at least annually. To further mitigate this risk, internal concentration limits based on credit rating and sector are established and are monitored regularly. Any ultimate obligor group exceeding these limits is placed on a restricted list to prevent further purchases, and the excess exposure may be actively sold down to comply with concentration limit guidelines. Any exceptions require Chief Risk Officer approval and monitoring by the Risk Committee. Further, the Company performs a quarterly concentration risk calculation to ensure compliance with the State of Minnesota insurance regulations. (c) Liquidity Risk Liquidity risk is the risk that unexpected timing or amounts of cash needed will require liquidation of assets in a market that will result in a realized loss or an inability to sell certain classes of assets such that an insurer will be unable to meet its obligations and contractual guarantees. Liquidity risk also includes the risk that in the event of a company liquidity crisis, refinancing is only possible at higher interest rates. Liquidity risk can be Statutory Financial Statements as of December 31, 2023 Page 25 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) affected by the maturity of liabilities, the presence of withdrawal penalties, the breadth of funding sources, and terms of funding sources. It can also be affected by counterparty collateral triggers as well as whether anticipated liquidity sources, such as credit agreements, are cancelable. The Company manages liquidity within four specific domains: (1) monitoring product development, product management, business operations, and the investment portfolio; (2) setting ALM strategies; (3) managing the cash requirements stemming from the Company’s derivative dynamic economic hedging activities; and (4) establishing liquidity facilities to provide additional liquidity. The Company has established liquidity risk limits, which are approved by the Company’s Risk Committee, and the Company monitors its liquidity risk regularly. The Company also sets target levels for the liquid securities in its investment portfolio. (d) Interest Rate Risk Interest rate risk is the risk that movements in interest rates or interest rate volatility will cause a decrease in the value of an insurer’s assets relative to the value of its liabilities and/or an unfavorable change in prepayment activity resulting in compressed interest margins. The Company has an ALM strategy to align cash flows and duration of the investment portfolio with policyholder liability cash flows and duration. The Company further limits interest rate risk on variable annuity guarantees through interest rate hedges. The Company monitors the economic and accounting impacts of interest rate sensitivities on assets and liabilities regularly. (e) Equity Market Risk Equity market risk is the risk that movements in equity prices or equity volatility will cause a decrease in the value of an insurer’s assets relative to the value of its liabilities. The policy value of the fixed-indexed universal life, fixed-indexed annuity, and variable-indexed annuity products is generally linked to equity market indices. The Company economically hedges this exposure with derivatives. Variable annuity products guarantee minimum payments regardless of market movements. The Company has adopted an economic hedging program to manage the equity risk of these products. The Company monitors the impacts of equity sensitivities on assets and liabilities regularly. Basis risk is the risk that variable annuity hedge asset values change unexpectedly relative to the value of the underlying separate account funds of the variable annuity contracts. Basis risk may arise from the Company’s inability to directly hedge the underlying investment options of the variable annuity contracts. The Company regularly reviews and synchronizes fund mappings, product design features, hedge design, and manages funds line-up. (f) Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, from human misbehavior or error, or from external events. Operational risk is comprised of the following seven risk categories: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients/third-party, products and business practices; (5) damage to physical assets; (6) business disruption and system failure; and (7) execution, delivery, and process management. Operational risk is comprehensively managed through a combination of core qualitative and quantitative activities. The Operational Risk Management framework includes the following key activities: (1) an Operational Risk Capital Model covering all material types of operational risks, under which the Company quantifies and regularly monitors operational risk; (2) a loss data capture policy to create transparency and gather information about losses that meet a designated threshold, requiring business owners to identify and resolve the root cause of operational loss events; and (3) a bottom-up risk assessment process for significant operational risk scenarios to proactively manage significant operational risk scenarios throughout the organization. Statutory Financial Statements as of December 31, 2023 Page 26 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (g) Regulatory Change Risk Regulatory change risk is the risk that regulatory changes and imposed regulation may materially impact the Company's business model, sales levels, company financials and ability to effectively comply with regulations. The Company actively monitors all regulatory changes and participates in national and international discussions relating to legal, regulatory, and accounting changes. The Company maintains active membership with various professional and industry trade organizations. A formal process exists to review, analyze, and implement new legislation as it is enacted. (h) Rating Agency Risk Rating agency risk is the risk that rating agencies change their outlook or rating of the Company or a subsidiary of the Company. The rating agencies generally utilize proprietary capital adequacy models in the process of establishing ratings for the Company. The Company is at risk of changes in these models and the impact that changes in the underlying business that it is engaged in can have on such models. To mitigate this risk, the Company maintains regular communications with the rating agencies and evaluates the impact of significant transactions on such capital adequacy models and considers the same in the design of transactions to minimize the adverse impact of this risk. Rating agency capital is calculated and analyzed at least annually. Rating agency risk is also addressed in the TRA process and on an ad hoc basis as necessary. (i)Mortality/Longevity Risk Mortality/longevity risk is the risk that mortality experience is different than the life expectancy assumptions used by the Company to price its products. The Company mitigates mortality risk primarily through reinsurance, whereby the Company cedes a significant portion of its mortality risk to third parties. The Company also manages mortality risk through the underwriting process. Both mortality and longevity risks are managed through the review of life expectancy assumptions and experience in conjunction with active product management. (j) Lapse Risk Lapse risk is the risk that actual lapse experience evolves differently than the assumptions used for pricing and valuation exercises leading to a significant loss in Company value and/or income. The Company mitigates this risk by performing sensitivity analysis at the time of pricing to affect product design, adding Market Value Adjustments and surrender charges when appropriate, regular ALM analysis, and exercising management levers at issue, as well as post-issue as experience evolves. Policyholder experience is monitored regularly. (k) Cyber Security Risk Cyber security risk is the risk of losses due to external and/or internal attacks impacting the confidentiality, integrity, and/or availability of key systems, data, and processes reliant on digital technology. The Company has implemented preventative, detective, response, and recovery measures including firewalls, intrusion detection and prevention, advanced malware detection, spyware and anti-virus software, email protection, network and laptop encryption, web content filtering, web application firewalls, and regular scanning of all servers and network devices to identify vulnerabilities. Controls are implemented to prevent and review unauthorized access. (l) Reinsurance Risk Reinsurance risk is the risk that reinsurance companies default on their obligation where the Company has ceded a portion of its insurance risk. The Company uses reinsurance to limit its risk exposure to certain business lines and to enable better capital management. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. Statutory Financial Statements as of December 31, 2023 Page 27 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The Company mitigates this risk by requiring certain counterparties to post collateral to cover the exposure and to meet thresholds related to the counterparty’s credit rating, exposure, or other factors. For counterparties that are not initially required to post collateral, if the thresholds are not met by those counterparties, they are required to establish a trust or letter of credit backed by assets meeting certain quality criteria. All arrangements are regularly monitored to determine whether trusts or letters of credit are sufficient to support the ceded liabilities and that their terms are being met. In addition, the Company reviews the financial standings and ratings of its reinsurance counterparties and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies regularly. (5)Investments (a) Bonds, Other Assets Receiving Bond Treatment, and Stocks At December 31, the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investments, excluding investments in affiliates, are shown below:
Statutory Financial Statements as of December 31, 2023 Page 28 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) At December 31, 2023, amortized cost differed from the carrying value of bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus due to NAIC-6 rates bonds where the market value was lower than amortized cost. The total unrealized losses recorded by the Company for these bonds was $1 as of December 31, 2023 and $1 as of December 31, 2022. The Company had NAIC-6 rated bonds with a statement value of $29 and $2 as of December 31, 2023 and 2022, respectively. There was no interest due on bonds in default, which was excluded from investment income due and accrued as of December 31, 2023 and 2022. At December 31, 2023 and 2022, the Company had hybrid securities with a carrying value of $0 and $0, respectively. As of December 31, 2023 and 2022, investments with a statement value of $31 and $32, respectively, were held on deposit with various insurance departments and in other trusts as required by statutory regulations. The amortized cost and fair value of bonds and other assets receiving bond treatment reported in the statutory Annual Statement Schedule D Part 1A at December 31, 2023, by contractual maturity, are shown below:
Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Proceeds from sales of bonds includes sales, maturities, paydowns, and other redemptions of bonds and other assets receiving bond treatment. Proceeds from sales of bonds for the years ended December 31 are shown below:
Proceeds from sales of common stocks for the years ended December 31 are shown below:
Proceeds from sales of preferred stocks for the years ended December 31 are shown below:
Statutory Financial Statements as of December 31, 2023 Page 29 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) For the years ended December 31, 2023 and 2022, there were 72 and 174 CUSIPs sold, disposed, or otherwise redeemed as a result of a callable feature, respectively. The aggregate amount of investment income generated as a result of these transactions was $4 and $73 for 2023 and 2022, respectively. The Company’s bond portfolio includes mortgage-backed securities. Due to the high quality of these investments and the lack of subprime loans within the securities, the Company does not have a material exposure to subprime mortgages. (b) Unrealized Investment Losses To determine whether or not declines in fair value are other than temporary, the Company performs a quarterly review of its entire combined investment portfolio, including investments held by subsidiaries, using quoted market prices by third-party sources. For further discussion, see Notes 2 and 6. Unrealized losses and the related fair value of investments held by the Company for the years ended December 31 are shown below:
As of December 31, 2023 and 2022, the number of investment holdings that were in an unrealized loss position was 5,164 and 5,895, respectively, for bonds, and 24 and 30, respectively, for common stocks. As of December 31, 2023 and 2022, of the total amount of unrealized losses, $7,766, or 97.9%, and $11,091, or 97.9%, respectively, are related to unrealized losses on investment grade securities. Investment grade is defined as a security having an NAIC SVO credit rating of 1 or 2. Unrealized losses on securities are principally related to changes in interest rates or changes in sector spreads from the date of purchase. As contractual payments continue to be met, management continues to expect all contractual cash flows to be received and does not consider these investments to be other-than-temporarily impaired. Statutory Financial Statements as of December 31, 2023 Page 30 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (c) Realized Investment Gains (Losses) Net realized capital gains (losses) for the years ended December 31 are shown below:
(d) Net Investment Income Major categories of net investment income for the years ended December 31 are shown below:
Interest income due and accrued for the years ended December 31 was as follows:
The Company had no aggregate deferred interest as of December 31, 2023 and 2022. Statutory Financial Statements as of December 31, 2023 Page 31 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The Company had the following cumulative amounts of paid-in-kind (PIK) interest included in the current principal balance as of December 31, 2023 and 2022:
(e) Mortgage Loans on Real Estate The Company's investment in mortgage loans on real estate includes CMLs and RMLs at December 31, 2023 and 2022. At December 31, 2023 and 2022, the Company's CML portfolio includes concentrations exceeding 10% for the following states:
The maximum lending rates for CMLs made during 2023 and 2022 were 9.1% and 6.6%, respectively. The minimum lending rates for CMLs made during 2023 and 2022 were 3.9% and 2.8%, respectively. The maximum percentage of any one loan to the value of security at the time of the loan extension exclusive of insured, guaranteed or purchased money mortgages was 109.7% and 76.5% during 2023 and 2022, respectively. At December 31, 2023 and 2022, the Company's RML portfolio includes concentrations exceeding 10% for the following states:
The maximum lending rates for RMLs made during 2023 and 2022 was 14.0% and 12.0%, respectively. The minimum lending rates for RMLs made during 2023 and 2022 was 2.8% and 2.8%, respectively. The maximum percentage of any one loan to the value of security at the time of the loan extension exclusive of insured, guaranteed or purchased money mortgages for RMLs was 172.8% and 160.9% during 2023 and 2022, respectively. As of December 31, 2023 and 2022, there were $2 and $0, respectively of taxes, assessments, or amounts advanced that were excluded from the mortgage loan investment total. (1) Age Analysis of Mortgage Loans The following table presents an age analysis of the Company's mortgage loan investments as of December 31, 2023 and 2022 by type: Statutory Financial Statements as of December 31, 2023 Page 32 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
The Company had the following allowance for credit losses as of December 31:
There were no mortgage loan investments greater than 90 days past due and still accruing interest as of December 31, 2023 and 2022. There were no mortgage loan investments for which interest was reduced as of December 31, 2023 and 2022. As of December 31, 2023 and 2022 there were no RMLs in which the Company participated as a co-lender in a mortgage loan agreement. As of December 31, 2023 and 2022, for CML investments, the recorded investment for which the Company participated as a co-lender in a mortgage loan agreement was $2,338 and $2,505, respectively. (2) Impaired Mortgage Loans For the years ended December 31, 2023, and 2022, the recorded investment in impaired CMLs was $56, and $69, respectively. The average recorded investment in impaired mortgage loans for the year ended December 31, 2023, and 2022 was $91 and $69, respectively. There was no related allowance for credit losses on these investments and the Company did not participate as a co-lender in the related mortgage loan agreement. The recorded investment in impaired CMLs in nonaccrual status was $56 and $0 for the years ended December 31, 2023 and 2022, respectively. There was no recorded investment in impaired RMLs for the years ended December 31, 2023, and 2022. There was $7, $5 and $0 interest income recognized on impaired mortgage loans for the years ended December 31, 2023, 2022 and 2021, respectively. The Company recognizes interest income on its impaired mortgage loans upon receipt of payment. As of December 31, 2023 and 2022, the Company derecognized mortgage loans as a result of foreclosure of $3 and $0, respectively. (3) Credit Quality Indicators The Company analyzes certain financing receivables for credit risk by using specific credit quality indicators. The Company has determined the loan-to-value ratio and the debt service coverage ratio are the most reliable indicators in analyzing the credit risk of its CML portfolio. The loan-to-value ratio is based on the Company’s internal valuation methodologies, including discounted cash flow analysis and comparative sales, depending on the characteristics of the property being evaluated. The debt service coverage ratio analysis is normalized to reflect a 25 year amortization schedule. Statutory Financial Statements as of December 31, 2023 Page 33 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The credit quality of CMLs as of December 31 is shown below:
The Company has determined the delinquency status and the loan-to-value ratio are the most reliable indicators in analyzing the credit risk of its RML portfolio. The loan-to-value ratio is based on the Company's internal valuation methodologies, including discounted cash flow analysis and comparative sales, depending on the characteristics of the property being evaluated. The loan-to-value ratios of RMLs as of December 31 are shown below:
Statutory Financial Statements as of December 31, 2023 Page 34 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (4) Restructured Mortgage Loans For impaired mortgage loans that are not in default, the Company recognizes and records interest income as earned. For impaired mortgage loans that are in default, the accrued interest on the loan is recorded as investment income due and accrued if deemed collectible by the Company. If an impaired mortgage loan in default has any investment income due and accrued which is 180 days past due and collectible, the investment income continues to accrue, but all interest related to the loan is reported as a nonadmitted asset. If accrued interest on an impaired mortgage loan in default is not collectible, the accrued interest is written off immediately and no further interest is accrued. During 2023, two CMLs, which were both supported by a single property and with a total principal balance at time of restructure of $74, were modified in a way that met the definition of a troubled debt restructuring under SSAP No. 36. The modification of the CMLs resulted in a portion of the existing carrying values of the loan being written off, alongside a partial principal paydown on the remaining principal of the loans. Additionally, the loans were modified to reflect a new interest rate and a new term for the loan. Upon modification, the Company wrote off $19 of the existing loans’ principal, while receiving an immediate principal paydown of $17, resulting in a single loan with a new principal balance of $38. These mortgage loans had not defaulted prior to being restructured. The Company had the following recorded investments, realized capital losses, and contractual commitments related to restructured loans as of December 31:
(f) Loan-Backed Securities SSAP No. 43R requires the bifurcation of impairment losses on loan-backed or structured securities into interest and noninterest-related portions. The noninterest portion is the difference between the present value of cash flows expected to be collected from the security and the amortized cost basis of the security. The interest portion is the difference between the present value of cash flows expected to be collected from the security and its fair value at the balance sheet date. The Company recognized loan-backed securities in OTTI for the years ended December 31, 2023, 2022, and 2021as follows:
Statutory Financial Statements as of December 31, 2023 Page 35 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (g) Derivatives and Hedging Instruments The Company uses exchange-traded and OTC derivative instruments as a risk management strategy to economically hedge its exposure to various market risks associated with both its products and operations. Derivative assets and liabilities that do not qualify for hedge accounting treatment are recorded at fair value in the Statutory Financial Statements using valuation techniques further discussed in Note 6. The Company does not have derivative contracts with financing premium as of December 31, 2023 and 2022. Derivatives held by the Company are designated as either a fair value hedging instrument (fair value hedge), a cash flow hedging instrument (cash flow hedge), or a nonqualified hedging instrument (nonqualifying strategies). (1) Cash Flow Hedges Foreign Currency Swaps on Debt Securities Foreign currency swaps have notional amounts and maturity dates equal and offsetting to the underlying debt securities and are determined to be highly effective as of December 31, 2023 and 2022. (2) Fair Value Hedges Interest Rate Swaps on Variable Annuity Insurance Liabilities IRS traded after June 2013 are centrally cleared through an exchange. For IRS traded prior to June 2013 the IRS exposure was netted with other OTC derivatives upon settlement and were subject to the rules of the International Swaps and Derivatives Association, Inc. agreements. The fair values of the collateral posted for OTC and exchange traded derivatives are discussed in the derivative collateral management section below. Prior to January 1, 2020, the Company designated hedge accounting for these IRS as a cash flow hedge under SSAP No. 86. The amounts previously recorded under the SSAP No. 86 relationship continue to be deferred and amortized over the life of the former hedge program. Effective January 1, 2020, the Company de-designated its previous hedging relationship under SSAP No. 86 and simultaneously designated the hedging relationship under SSAP No. 108 as a fair value hedge. The relationship is deemed to be highly effective at December 31, 2023. (3) Nonqualifying Strategies Futures and Options Contracts OTC options and ETO are cleared through the Options Clearing Corporation, which operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission. The fair values of the collateral posted for futures, OTC options, and ETO are discussed in the derivative collateral management section below. Interest Rate Swaps The Company can receive the fixed or variable rate; IRS are traded in varying maturities. The fair values of the collateral posted and variation margin for OTC and centrally cleared IRS are discussed in the derivative collateral management section below. Credit Default Swaps The CDS within the investment portfolios assume credit risk from a single entity or referenced index for the purpose of synthetically replicating investment transactions. The Company can be required to pay or be the net receiver on the contract depending on the net position. Credit events include bankruptcy of the reference and failure to pay by the reference. As the potential future exposure (PFE) is not determinable, the PFE is zero for the following reasons: Statutory Financial Statements as of December 31, 2023 Page 36 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (a) CDS are used to hedge indices allocated to products by policyholders. Fluctuations in value of the CDS are offset by credits provided to policyholders and results in a minimal amount of hedge inefficiency. It is impossible to determine the potential future amount of hedge inefficiency. (b) The CDS used are exchange traded and daily variation margin is required to settle market movements. This minimizes counterparty credit risk. It also makes it impossible to determine what the potential future exposure related to counterparty risk, net of variation margin received could be. The fair value of the collateral posted for centrally cleared CDS is discussed in the derivative collateral management section below. Total Return Swaps The Company engages in the use of OTC TRS, which allow the parties to exchange cash flows based on a variable reference rate such as the three-month SOFR and the return of an underlying index. The fair value of the collateral posted for OTC TRS is discussed in the derivative collateral management section below. To Be Announced Securities The Company uses OTC TBA forward contracts to gain exposure to the investment risk and return of mortgage-backed securities. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The fair value of the collateral posted for OTC TBA securities is discussed in the derivative collateral management section below. The following table presents a summary of the aggregate notional amounts and fair values of the Company’s derivative instruments reported on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31:
Derivative Collateral Management The Company manages derivative collateral for the general account and separate account combined. Additionally, said derivative collateral is managed separately between exchange-traded and OTC derivatives. The total collateral posted for exchange-traded derivatives at December 31, 2023 and 2022, had a fair value of $2,312 and $1,203, respectively, and is included in Bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus and recorded at amortized cost. The Company retains ownership of the Statutory Financial Statements as of December 31, 2023 Page 37 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) exchange-traded collateral, but the collateral resides in an account designated by the exchange. The collateral is subject to specific exchange rules regarding rehypothecation. The total collateral posted for OTC derivatives at December 31, 2023 and 2022, had a fair value of $44 and $25, respectively, and is included in Bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus and recorded at amortized cost. The Company posts collateral to OTC counterparties based upon exposure amounts. The Company retains ownership of the OTC collateral. (h) Offsetting Assets and Liabilities The Company elects to disclose derivative assets and liabilities eligible for offset under SSAP No. 64 – Offsetting and Netting of Assets and Liabilities on a gross basis on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus in accordance with the provisions set forth in SSAP No. 86. This treatment is consistent with the Company’s historical reporting presentation. (i) Securities Lending The Company loaned securities with a carrying value of $2,835 and $2,510 and a fair value of $2,612 and $2,102 as of December 31, 2023 and 2022, respectively. The aggregate amount of collateral received through securities lending at December 31 is as follows:
The aggregate amount of cash collateral reinvested through securities lending at December 31 is as follows:
As of December 31, 2023 and 2022, the Company had no borrowings outstanding from collateral securities lending. Reinvested collateral is recorded in Other invested assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The amount and type of reinvested collateral at December 31 is as follows: Statutory Financial Statements as of December 31, 2023 Page 38 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
(j) Reverse Repurchase Agreements The Company participates in both bilateral and tri-party repos. As of December 31, 2023 and 2022, the Company did not sell or acquire any securities that resulted in default. The Company did not recognize a liability to return cash collateral as of December 31, 2023 and 2022. All collateral received, as of December 31, 2023 and 2022, were bonds with a designated NAIC-1 rating. Further information related to repos for the years ended December 31, 2023 and 2022, is as follows:
(k) Non-insurance SCA Investments A summary of the Company’s SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities, non-insurance SCA investments, including their respective asset value and NAIC filing information, as of December 31, 2023 is as follows:
(l) FHLB Agreements The Company held Class A FHLB membership stock of $10 and $10 at December 31, 2023 and 2022 and activity stock of $113 and $80 at December 31, 2023 and 2022, respectively. The Company has a fully collateralized borrowings with a balance of $2,500 and $2,000 as of December 31, 2023 and 2022 which is recorded in Borrowed money on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. All FHLB transaction activity occurs in the Company's general account. Securities collateral pledged to FHLB at December 31 is as follows: Statutory Financial Statements as of December 31, 2023 Page 39 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
The maximum of collateral pledged to FHLB during the year ended December 31 was as follows:
As of December 31, 2023 and 2022, the Company had $2,500 and $2,000, respectively, in total borrowing capacity under its agreement with the FHLB. The maximum amount of aggregate borrowing from FHLB during the years ended December 31, 2023 and 2022 was $4,085 and $2,400, respectively. Borrowings are not subject to prepayment penalties. Outstanding borrowings as of December 31, 2023, were issued on various dates ranging from October 17, 2016 to September 30, 2023 and interest rates on those borrowings range from 0.2% to 6.2%. Interest paid on borrowings was $164 and $37 for the years ended December 31, 2023 and 2022, respectively. (m) Restricted Assets As of December 31, 2023 and 2022, the Company had the following restricted assets, including assets pledged to others as collateral:
(n) Low Income Housing Tax Credits As of December 31, 2023 the Company had various LIHTC investments with a range of 2 to 14 remaining years of unexpired tax credits and no required holding period. The amount of tax credits and other tax benefits recognized during the years ended December 31, 2023, 2022 and 2021 is $57, $52, and $44, respectively. The balance of the investment recognized in the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus for the years ended December 31, 2023 and 2022 is $394 and $448, respectively. Additionally, the Company's LIHTC investments require a commitment of capital. The Company has open capital commitments of $117 and $207 at December 31, 2023 and 2022, respectively, which are recorded as an unfunded commitment liability in other liabilities. LIHTC commitments are considered an open capital commitment beginning when the Company formally commits to fund the LIHTC, but they are not recorded as an unfunded commitment asset and liability until the Company has begun funding the LIHTC. Statutory Financial Statements as of December 31, 2023 Page 40 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (o) Joint Ventures The Company has no investments in joint ventures, partnerships or limited liability companies that exceed 10% of its admitted assets. The Company recognized impairments on joint ventures of $2 and $0 for the years ended December 31, 2023 and 2022, respectively. (6) Fair Value Measurements SSAP No. 100R – Fair Value establishes a fair value hierarchy that prioritizes the inputs used in the valuation techniques to measure fair value. Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 – Valuations derived from techniques that utilize observable inputs, other than quoted prices included in Level 1, which are observable for the asset or liability either directly or indirectly, such as: (a) Quoted prices for similar assets or liabilities in active markets. (b) Quoted prices for identical or similar assets or liabilities in markets that are not active. (c) Inputs other than quoted prices that are observable. (d) Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Valuations derived from techniques in which the significant inputs are unobservable. Level 3 fair values reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). The Company has analyzed the valuation techniques and related inputs, evaluated its assets and liabilities reported at fair value, and determined an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Based on the results of this evaluation and investment class analysis, each financial asset and liability was classified into Level 1, 2, or 3. The following presents the assets and liabilities measured at fair value on a recurring basis and their corresponding level in the fair value hierarchy at December 31:
Statutory Financial Statements as of December 31, 2023 Page 41 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
The following is a discussion of the methodologies used to determine fair values for the assets and liabilities listed in the above table. These fair values represent an exit price (i.e., what a buyer in the marketplace would pay for an asset in a current sale or charge to transfer a liability). The Company has not made changes to valuation techniques in 2023. (a) Valuation of Bonds and Unaffiliated Stock The fair value of bonds is based on quoted market prices in active markets when available. Based on the market data, the securities are categorized into asset class, and based on the asset class of the security, appropriate pricing applications, models and related methodology, and standard inputs are utilized to determine what a buyer in the marketplace would pay for the security in a current sale. When quoted prices are not readily available or in an inactive market, standard inputs used in the valuation models, listed in approximate order of priority, include, but are not limited to, benchmark yields, reported trades, Municipal Securities Rulemaking Board reported trades, Nationally Recognized Municipal Securities Information Repository material event notices, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In some cases, including private placement securities and certain difficult-to-price securities, internal pricing models may be used that are based on market proxies. Internal pricing models based on market spread and U.S. Treasury rates are used to value private placement holdings. The primarily unobservable input used in the discounted cash flow models for states and political subdivisions, foreign government, and corporate bonds is a corporate index option adjusted spread (OAS). CDO and certain mortgage-backed securities are priced by a third-party vendor and the Company internally reviews the valuation for reasonableness. The Company does not have insight into the specific inputs; however, the key unobservable inputs would generally include default rates. Generally, U.S. Treasury securities and exchange-traded stocks are included in Level 1. Most bonds for which prices are provided by third-party pricing sources are included in Level 2, because the inputs used are market observable. Bonds for which prices were obtained from broker quotes, certain bonds without active trading markets and private placement securities that are internally priced are included in Level 3. The fair value of unaffiliated common stocks is based on quoted market prices in active markets when available and included in Level 1. When quoted prices are not readily available or in an inactive market, the Company arrives at fair value utilizing internal pricing models based on available market inputs or obtains valuations from third party brokers or investment managers. Such investments may be categorized in Level 2 or Level 3. The primary unobservable input used to value common stock are indicative quotes received from third-party vendors. Statutory Financial Statements as of December 31, 2023 Page 42 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (b) Valuation of Derivatives Active markets for OTC options do not exist. The fair value of OTC options is derived internally, by calculating their expected discounted cash flows, using a set of calibrated, risk-neutral stochastic scenarios, including a market data monitor, a market data model generator, a stochastic scenario calibrator, and the actual asset pricing calculator. The valuation results are reviewed by Management via the Pricing Committee. OTC options that are internally priced, foreign currency swaps, credit default swaps (CDS), To Be Announced (TBA) securities, and interest rate swaps (IRS) are included in Level 2, because they use market observable inputs. TRS are included in Level 3 because they use valuation techniques in which significant inputs are unobservable. The fair value of ETOs and futures are based on quoted market prices and are generally included in Level 1. Certain derivatives are priced using external third-party vendors. The Company has controls in place to monitor the valuations of these derivatives. Using market observable inputs, IRS prices are derived from a third-party source and are independently recalculated internally and reviewed for reasonableness at the position level on a monthly basis. TRS prices are obtained from the respective counterparties. These prices are also internally recalculated and reviewed for reasonableness at the position level on a monthly basis. The Company does not have insight into the specific inputs used by third-party vendors; however, the key unobservable input would generally include the spread. (c) Valuation of Separate Account Assets and Separate Account Derivative Liabilities Separate account assets and Separate account derivative liabilities, with the exception of certain bonds, mortgage loans, cash, cash equivalents, securities lending reinvested collateral assets and investment income due and accrued, are carried at fair value, which is based on the fair value of the underlying assets which are described throughout this note. Funds in the separate accounts are primarily invested in variable investment option funds with the following investment types: bond, domestic equity, international equity, or specialty. Variable investment option funds are included in Level 1 because their fair value is based on quoted prices in active, observable markets. The remaining investments are categorized similar to the investments held by the Company in the general account (e.g., if the separate account invested in bonds, short-term investments and derivatives, that portion could be classified within Level 2 or Level 3). Assets carried at amortized cost within the separate account have an amortized cost of $27,720 and $23,506 as of December 31, 2023 and 2022, respectively, and a fair value of $24,877 and $20,008 as of December 31, 2023 and 2022, respectively. Separate account assets carried at amortized cost are included in the table in section 6(h) below. (d) Level 3 Rollforward The following table provides a reconciliation of the beginning and ending balances for the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis:
Statutory Financial Statements as of December 31, 2023 Page 43 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
(e) Transfers The Company reviews its fair value hierarchy classifications quarterly. Transfers between levels occur when there are changes in the observability of inputs and market activity. All transfers into Level 3 were a result of observable inputs no longer being considered reliable or could no longer be validated against an alternative source. The transfers out of Level 3 were a result of securities no longer being carried at fair value as a result of new availability of reliable observable inputs or the ability to validate market price of the security against an alternative source. (f) Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs Bonds: The primary unobservable input used in the discounted cash flow models for states and political subdivisions, foreign government, and corporate bonds is a corporate index option adjusted spread (OAS). The corporate index OAS used is based on a security's sector, rating, and average life. A significant increase (decrease) of the corporate index OAS in isolation could result in a decrease (increase) in fair value. CDO and certain mortgage-backed securities are priced by a third-party vendor and the Company internally reviews the valuation for reasonableness. The Company does not have insight into the specific inputs used; however, the key unobservable inputs would generally include default rates. A significant increase (decrease) in default rates in isolation could result in an decrease (increase) in fair value. Common stocks: The primary unobservable inputs used to value common stock are indicative quotes received from third-party vendors and subsequent offering prices. A significant increase (decrease) in either the indicative quotes or offering prices in isolation could result in an increase (decrease) in fair value. Derivative assets and liabilities: The TRS are priced by a third-party vendor and the Company internally reviews the valuation for reasonableness. The key unobservable input would generally include the spread. For a long position, a significant increase (decrease) in the spread used in the fair value of the TRS in isolation could result in higher (lower) fair value. For a short position, a significant increase (decrease) in the spread used in the fair value of the TRS in isolation could result in lower (higher) fair value. (g) Estimates The Company has been able to estimate the fair value of all financial assets and liabilities. Statutory Financial Statements as of December 31, 2023 Page 44 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (h) Aggregate Fair Value of Financial Instruments The following tables present the carrying amounts and fair values of all financial instruments at December 31 (b):
Statutory Financial Statements as of December 31, 2023 Page 45 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
A description of the Company’s valuation techniques for financial instruments not reported at fair value and categorized within the fair value hierarchy is shown below: Valuation of FHLB Stock FHLB stock, included in Common stocks, is not traded in an active market and is categorized in Level 3. FHLB stock is carried at cost, which approximates fair value unless it is impaired, based on provisions within the Company’s FHLB agreement that allow for return of outstanding shares of FHLB stock at the Company’s cost basis. Valuation of Mortgage Loans on Real Estate The fair value of commercial mortgage loans on real estate is calculated by analyzing individual loans and assigning ratings to each loan based on a combination of loan-to-value ratios and debt service coverage ratios. Fair value is determined based on these factors as well as the contractual cash flows of each loan and the current market interest rates for similar loans. The fair value of residential mortgage loans on real estate is calculated by discounting estimated cash flows, with discount rates based on current market conditions. Statutory Financial Statements as of December 31, 2023 Page 46 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Valuation of Cash Equivalents Cash equivalents are comprised of money market mutual funds, cash equivalent bonds, and reverse repurchase agreements. The fair value of money market mutual funds and cash equivalent bonds are based on quoted market prices in active markets and included in Level 1. Reverse repurchase prices are provided by third-party pricing sources and included in Level 2, because the inputs used to determine fair value are market observable. Valuation of Short-term Investments Short-term investments are comprised of bonds due in one year or less at original purchase. Due to the short-term nature of these investments, the carrying value is deemed to approximate fair value. The fair value leveling of short-term investments is determined similarly as bonds as discussed above. Valuation of Securities Lending Reinvested Collateral Assets Collateral held from securities lending agreements is primarily comprised of short-term and long-term highly liquid fixed-maturity securities. Fair values are determined and classified within the fair value hierarchy in a manner consistent with the method utilized to determine the fair value of similar securities (fixed-income securities, equity securities, cash and cash equivalents) held within the Company’s general account investment portfolio. Valuation of Other Invested Assets Other invested assets include surplus notes, residuals on asset-backed securities, LIHTC investments, limited partnership investments, loans to affiliates, and restricted stock unit (RSU) assets. ◦Surplus notes and residuals on asset-backed securities for which prices are provided by third-party pricing sources using observable inputs are included in Level 2. Prices provided by third-party pricing sources that do not have observable market data or are determined internally are included in Level 3. Residuals are carried at the lower of amortized cost or market value. ◦LIHTC investments (including the unfunded commitment asset) fair value is set equal to carrying value, as there is no observable market data on which to calculate fair value. Due to the use of unobservable inputs, they are categorized as Level 3. ◦Limited partnership investments are recorded using the equity method in line with SSAP No. 48, Joint Ventures, Partnerships, and Limited Liability Companies, using unobservable inputs. Due to the use of unobservable inputs, they are categorized as Level 3. The Company believes the equity method approximates fair value. ◦Loans to affiliates are carried at cost. Due to the lack of an active market, the current carrying value is the only market price at which the transaction could be settled, and therefore the Company believes cost approximates fair value. Due to the use of unobservable inputs, they are categorized as Level 3. ◦RSU assets are tied to the share price of Allianz SE stock but does not participate in an active market; given this, it is categorized as Level 2. Valuation of COLI The COLI policies held by the Company are carried at their respective cash surrender values, which approximates fair value. The cash surrender value of the policies is based on the value of the underlying assets, which are regularly priced utilizing observable inputs. The COLI asset is included within Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. At December 31, 2023 and 2022, the cash surrender value in an investment vehicle is $750 and $692, respectively, and is allocated into the following categories based on primary underlying investment characteristics: Statutory Financial Statements as of December 31, 2023 Page 47 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
Valuation of Deposit-Type Contracts Fair values of deposit-type contracts are based on discounted cash flows using internal inputs, including the discount rate and consideration of the Company’s own credit standing and a risk margin for actuarial inputs. Valuation of Other Investment Contracts Other investment contracts are included within Life policies and annuity contracts within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Other investment contracts include certain reserves related to deferred annuities and other payout annuities that may include life contingencies, but do not have significant mortality risk due to substantial periods certain. Fair values are based on discounted cash flows using internal inputs, including the discount rate and consideration of the Company’s own credit standing and a risk margin for market inputs. Valuation of Borrowed Money The fair value of the FHLB borrowing is calculated on a discounted cash flow basis. Each position includes a monthly interest rate, a maturity payment amount, and a maturity date. The interest and maturity payments are projected as of the valuation date, and the expected cash flows are discounted using the valuation date swap curve. Valuation of Payable for Securities Lending Securities lending payable is set equal the to the cash collateral received. Due to the short-term nature of these loans, the carrying value is deemed to approximate fair value. Valuation of Payable for Securities Included in Payable for securities is the LIHTC investments unfunded commitment liability. As there is no observable market data on which to calculate fair value of the LIHTC investment unfunded commitment asset and liability, fair value is set equal to carrying value, and the balance is categorized as Level 3. Valuation of Separate Account Liabilities The fair value of separate account liabilities approximates the fair value of separate account assets. (7) Mortgage Notes Payable In 2004, the Company obtained an $80 mortgage loan from an unrelated third-party for the Company’s headquarters. In 2005, the Company agreed to enter into a separate loan agreement with the same counterparty in conjunction with the construction of an addition to the Company’s headquarters of $65. This loan was funded in 2006 and combined with the existing mortgage. As of December 31, 2023 and 2022, the combined loan had a balance of $8 and $20, respectively, and is reported within Real estate on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. This 20 year, fully amortizing loan has an interest rate of 5.52%, with a maturity date of August 1, 2024. The level principal and interest payments are made monthly. The loan allows for prepayment; however, it is accompanied by a make-whole provision. Interest expense for all loans is $1, $1, and $2, in 2023, 2022, and 2021, respectively, and is presented in Net investment income on the Statutory Statements of Operations. Statutory Financial Statements as of December 31, 2023 Page 48 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The future principal payments required under the loan are as follows:
Statutory Financial Statements as of December 31, 2023 Page 49 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (8) Electronic Data Processing Equipment and Software (EDP) EDP at December 31 and the changes in the balance for the years then ended are as follows:
The Company has a gross EDP asset of $71 and $67 and accumulated depreciation and amortization of $(4) and $(4) at December 31, 2023 and 2022, respectively. Servers, computers and peripherals are depreciated over the lesser of their useful life or three years and the net balance is nonadmitted. Software is amortized over the lesser of its useful life or five years. Nonoperating software is nonadmitted and operating software is admitted to the extent it meets the criteria defined in SSAP No. 16R - Electronic Data Processing Equipment and Software. (9) Income Taxes (a) Deferred Tax Assets and Liabilities The components of the net DTA or net DTL are as follows:
Statutory Financial Statements as of December 31, 2023 Page 50 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
The amount of admitted adjusted gross DTAs allowed under each component of SSAP No. 101 – Income Taxes (SSAP No. 101) as of December 31 are as follows:
Statutory Financial Statements as of December 31, 2023 Page 51 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
Ratios used for threshold limitation as of December 31 are as follows:
The Company did not use tax planning strategies on the determination of net admitted adjusted gross DTAs. The Company’s tax planning strategies do not include the use of reinsurance. (b) Unrecognized Deferred Tax Liabilities There are no temporary differences for which DTLs are not recognized. (c) Current and Deferred Income Taxes The significant components of income taxes incurred (i.e. Current income tax expense) include:
Statutory Financial Statements as of December 31, 2023 Page 52 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) DTAs and DTLs consist of the following major components:
The realization of the DTAs is dependent upon the Company’s ability to generate sufficient taxable income in future periods. Based on historical results and the prospects for future current operations, management anticipates that it is more likely than not that future taxable income will be sufficient for the realization of the remaining DTAs. The Inflation Reduction Act was enacted on August 16, 2022. The Company has determined as of December 31, 2023 that it is an applicable corporation with respect to the Corporate Alternative Minimum Tax ("CAMT"), but that it will not incur a CAMT liability in 2023. The financial statements, therefore, do not include any impact related to CAMT. The Company has made an accounting election to disregard CAMT when evaluating the need for a Valuation Allowance for its non-CAMT DTAs. In computing taxable income, life insurance companies are allowed a deduction attributable to their life insurance and accident and health reserves. The Tax Act of 2017 significantly changed the methodology by Statutory Financial Statements as of December 31, 2023 Page 53 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) which these reserves are computed for tax purposes. The changes are effective for tax years beginning after 2017 and are subject to a transition rule that spreads the additional income tax liability over the subsequent eight years beginning in 2018. Due to complexities in the new methodology and limited guidance from the Internal Revenue Service and U.S. Treasury, the Company has recorded provisional amounts for the deferred tax revaluation associated with the changes in the computation of life insurance tax reserves based on information available at December 31, 2017. Pursuant to Interpretation of the SAP Working Group 18-01: Updated Tax Estimates under the Tax Cuts and Jobs Act, provisional tax computations related to these amounts were reasonably estimated as of December 31, 2017 and The Change in net deferred income tax is comprised of the following (this analysis is exclusive of the nonadmitted DTAs as the Change in nonadmitted assets is reported separately from the Change in net deferred income tax in the Unassigned surplus section of the Statutory Statements of Capital and Surplus):
(d) Reconciliation of Federal Income Tax Rate to Actual Effective Rate The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference are as follows: Statutory Financial Statements as of December 31, 2023 Page 54 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
(e) Carryforwards, Recoverable Taxes, and IRC Section 6603 Deposits As of December 31, 2023, there are $0 for operating losses and foreign tax credit carryforwards available for tax purposes. As of December 31, 2023 and 2022, there was $104 and $206, respectively of Federal income taxes available for recoupment in the event of future net losses. As of December 31, 2023, the Company admitted a deposit under Section 6603 of the IRC in the amount of $179, which is within Current federal and foreign income tax recoverable on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. There were no deposits admitted as of December 31, 2022. The Company had tax contingencies computed in accordance with SSAP No. 5R, Liabilities, Contingencies and Impairment of Assets, and SSAP No. 101 as of December 31, 2023 and 2022. The Company does not believe the tax contingencies will significantly increase within the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in federal income tax expense. During the years ended December 31, 2023, 2022, and 2021 the Company recognized expenses of $(12), $7, and $23 in interest and penalties, respectively. The Company had $28 and $40 for the unrecognized tax benefits and related accrued interest at December 31, 2023 and 2022, respectively. (f) Consolidated Federal Income Tax Return Statutory Financial Statements as of December 31, 2023 Page 55 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The Company's federal income tax return is consolidated with its parent, AZOA. The method of allocation among companies is subject to a written agreement with AZOA, approved by the Board of Directors of AZOA, that provides for computation of federal income taxes primarily on a separate company basis with the Company receiving reimbursement by AZOA for the benefit of all tax attributes, including credits and losses, when such attributes are utilized in the AZOA consolidated federal income tax return. In 2023, the Company amended the agreement to include the corporate alternative minimum tax applying principles described above. Intercompany tax balances are settled annually after the consolidated return is filed. The Company is included in the consolidated group for which AZOA files a federal income tax return on behalf of all group members. As a member of the AZOA consolidated group, the Company is no longer subject to U.S. Federal and non-U.S. income tax examinations for years prior to 2016, though examinations of combined returns filed by AZOA, which include the Company, by certain U.S. state and local tax authorities, may still be conducted for 2016 and subsequent years. The Internal Revenue Service (IRS) examination of AZOA for the 2016 and 2017 income tax returns has completed the exam phase and has been assigned to Appeals for an issue related to variable annuity hedging income recognition. A verbal agreement for the settlement of this hedging issue has been reached with the IRS. The settlement is subject to a final closing agreement. The IRS has also initiated an examination of AZOA's 2018-2020 income tax returns, which is expected to close by the end of 2024. As of December 31, 2023, the companies included in the consolidated group for which AZOA files a federal income tax return are included below:
(10) Accident and Health Claim Reserves Accident and health claim reserves are based on estimates that are subject to uncertainty. Uncertainty regarding reserves of a given accident year is gradually reduced as new information emerges each succeeding year, thereby allowing more reliable reevaluations of such reserves. While management believes that reserves as of December 31, 2023 are appropriate, uncertainties in the reserving process could cause reserves to develop favorably or unfavorably in the near term as new or additional information emerges. Any adjustments to reserves are reflected in the operating results of the periods in which they are made. Movements in reserves could significantly impact the Company’s future reported earnings. Statutory Financial Statements as of December 31, 2023 Page 56 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Activity in the accident and health claim reserves is summarized as follows:
Prior year incurred claim reserves for 2023, 2022 and 2021 were favorable as a result of re-estimation of unpaid claims and claim adjustment expenses, principally on the individual LTC line of business. Statutory Financial Statements as of December 31, 2023 Page 57 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (11) Reinsurance The Company primarily enters into reinsurance agreements to manage risk resulting from its life, annuity, and accident and health businesses, as well as businesses the Company has chosen to exit. In the normal course of business, the Company seeks to limit its exposure to loss by ceding risks under yearly renewal term, coinsurance, and modified coinsurance. The Company monitors the financial exposure and financial strength of the reinsurers on an ongoing basis. The Company attempts to mitigate risk by securing recoverable balances with various forms of collateral, including arranging trust accounts and letters of credit with certain reinsurers. The effect of reinsurance on reserves, deposit-type contracts, and claims, for amounts recoverable from other insurers, was as follows:
Reinsurance reserves, recoverables, and receivables at December 31, 2023 and 2022, are covered by collateral of $14,101 and $12,894, respectively, in addition to the letter of credit on behalf of AZMO, as noted in Note 2. Life insurance, annuities, and accident and health business assumed from and ceded to other companies are as follows:
Statutory Financial Statements as of December 31, 2023 Page 58 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) The Company holds securities backing term life and universal life with secondary guarantees ceded reserves in compliance with Actuarial Guideline 48. As of both December 31, 2023 and 2022, the Company had 8 reinsurance contracts in which risks under covered policies have been ceded. The Company held primary securities in an amount at least equal to the required level of primary securities for all of these contracts. There are no nonaffiliated reinsurers owned in excess of 10% or controlled, either directly or indirectly, by the Company or by a representative, officer, trustee, or director of the Company. There are no policies issued by the Company that have been reinsured with a company chartered in a country other than the United States that is owned in excess of 10% or controlled directly or indirectly by an insured, a beneficiary, a creditor, or any other person not primarily engaged in the insurance business. The Company does not have any reinsurance agreements in effect under which the reinsurer may unilaterally cancel any reinsurance for reasons other than for nonpayment of premium or other similar credits. The Company does not have reinsurance agreements in effect such that the amount of losses paid or accrued through the statement date may result in a payment to the reinsurer of amounts that, in aggregate and allowing for offset of mutual credits from other reinsurance agreements with the same reinsurer, exceed the total direct premium collected under the reinsured policies. The Company did not write off any uncollectible recoverables during 2023, 2022, or 2021. The Company executed or amended the following agreements during the current year, that included policies or contracts that were in force as of the effective date of the agreement: The Company maintains a modified-coinsurance agreement with Resolution Re for certain fixed-indexed annuities and Resolution Re has a retrocession agreement with Talcott Life Re for 20% of the quota-share. A novation of that agreement resulted in Talcott Life Re directly facing Allianz Life instead of facing Resolution Re. This does not result in the modification or derecognition of the novated reinsured liabilities, and does not have any financial impact on the Company. Effective November 30, 2023, the Company amended a reinsurance agreement with Talcott Life Re that covered an inforce block of certain fixed-indexed annuities. The amendment converted the agreement from a modified coinsurance basis to a funds withheld coinsurance basis, and did not result in a change in the reinsurance credits taken. This amendment resulted in reserves being reclassified from Life policies and annuity contracts on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus to Funds held under reinsurance treaties on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus which amounted to $10,016 as of the effective date and $9,757 as of December 31, 2023. Statutory Financial Statements as of December 31, 2023 Page 59 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (12) Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics Information regarding the Company’s annuity actuarial reserves and deposit liabilities by withdrawal characteristics at December 31 is as follows:
Statutory Financial Statements as of December 31, 2023 Page 60 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) (13) Life Actuarial Reserves by Withdrawal Characteristics Information regarding the Company’s life actuarial reserves by withdrawal characteristics at December 31 is as follows:
Statutory Financial Statements as of December 31, 2023 Page 61 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
(14)Separate Accounts The Company’s separate accounts represent funds held for the benefit of contract holders entitled to payments under variable annuity contracts, variable life policies and market value adjusted annuity contracts issued through the Company’s separate accounts and underwritten by the Company. As of December 31, 2023 and 2022, the Company's separate accounts are classified as nonguaranteed. Information regarding the Company’s separate accounts for the years ended December 31 is as follows: Statutory Financial Statements as of December 31, 2023 Page 62 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities)
As of December 31, 2023 and 2022, the Company’s separate accounts included legally insulated assets and non-insulated assets attributed to the following products/transactions:
The Company’s separate account liabilities contain guaranteed benefits. The liabilities for guaranteed benefits are supported by the Company’s general account assets. To compensate the general account for the risk taken, the separate account paid risk charges of $155, $163, $171, $180, and $204 during the past five years, respectively. The general account of the Company paid $59, $59, $4, $19, and $16 towards separate account guarantees during the past five years, respectively. As of December 31, 2023 and 2022, the Company has lent assets with a carrying value of $852 and $1,399, and a fair market value of $741 and $1,149, respectively. The Company lends the securities and the borrower provides cash collateral and short term securities to support the loan. The aggregate amount of collateral received was $761 and $1,179 as of December 31, 2023 and 2022, which was comprised of $760 and $1,059 of cash collateral and $1 and $120 of non-cash collateral, respectively. The Company's separate account securities lending program is the same as the general account program. Statutory Financial Statements as of December 31, 2023 Page 63 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) A reconciliation of net transfers to (from) separate accounts for the years ended December 31 is included in the following table:
(15)Related-Party Transactions (a) Organization Changes On January 1, 2021, the Company formed Allianz Strategic Investments (ASI), a non-insurance subsidiary. ASI’s sole operations are investment activities associated with direct equity holdings performed in coordination with Allianz Life. Allianz Life has made various capital contributions into ASI in the form of preferred and common stock investments as indicated in the table below in 15(e). The company legally dissolved and terminated its subsidiary Questar Asset Management (QAM) on September 30, 2021. Upon termination, QAM paid a dividend to Yorktown. Yorktown subsequently paid a dividend to the Company as indicated in the table below in 15(e). On November 30, 2022, the Company sold Allianz Individual Insurance Group (AIIG) and its wholly-owned subsidiaries, TruChoice Financial Group, LLC and Inforce Solutions, LLC. (b) Related-Party Invested Assets The Company has an agreement to lend AZOA $39. The remaining loan balance was $25 and $30 as of December 31, 2023 and 2022, respectively, and is included in Other invested assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. Repayment of this loan began in 2021 and has a final maturity date of August 30, 2026. The interest rate is a fixed rate of 4.49%. Interest income earned and accrued had an immaterial impact to the Company during 2023, 2022, and 2021, respectively. The Company invests in limited partnerships that are managed by its affiliate Pacific Investment Management Company (PIMCO). The total committed capital for the limited partnerships is $234 and $223 of which $91 and $91 is unfunded as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the fair value of the investment is $248 and $143 respectively, and is recorded in Other invested assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company has a seed money investment in exchange traded funds that are managed by a related party, PIMCO, with reported balances of $30 and $31 as of December 31, 2023 and 2022, respectively, within Other invested assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. There is no additional commitment related to these investments. The Company invests in bonds that are managed by a related party, PIMCO. The Company's committed capital for the PIMCO bonds was $1,315 and $1,260 as of December 31, 2023 and 2022, respectively, of which $423 and $488 was unfunded as of December 31, 2023 and 2022, respectively. The Company reported balances of $804 and $725 as of December 31, 2023 and 2022, respectively, related to the PIMCO bonds within Bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company has a seed money investment in exchange traded funds that are managed by a related party, AIM. The Company reported a balance of $89 and $57 as of December 31, 2023 and 2022 related to the seed money Statutory Financial Statements as of December 31, 2023 Page 64 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) investment within Stocks on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. There is no additional commitment related to these investments. (c) Service Fees The Company incurred fees for services provided by affiliated companies of $409, $205, and $194 in 2023, 2022, and 2021, respectively. The Company’s liability for these expenses was $47 and $32 at December 31, 2023 and 2022, respectively, and is included in Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. In the normal course of business, the outstanding amount is settled in cash. The Company earned revenues for various services provided to affiliated companies and subsidiaries of $99, $80, and $71 in 2023, 2022, and 2021, respectively. The receivable for these revenues was $7 and $6 as of December 31, 2023 and 2022, respectively, and is included in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. In the normal course of business, the outstanding amount is settled in cash. The Company has agreements with its affiliates PIMCO and with certain other related parties whereby (1) specific investment options managed by PIMCO are made available through the Company's separate accounts to holders of the Company's variable annuity products, and (2) the Company receives compensation for providing administrative and recordkeeping services relating to the investment options managed by PIMCO. Income recognized by the Company from this affiliate for distribution and in-force related costs as a result of providing investment options to the contractholders was $4, $5, and $7 during 2023, 2022, and 2021, respectively, which is included in Fees from separate accounts on the Statutory Statements of Operations. At December 31, 2023 and 2022, $0 and $0, respectively, were included for related receivables of these fees in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company has incurred commission expense related to the distribution of variable annuity products from Allianz Life Financial Services, LLC (ALFS) in the amount of $402, $372, and $427 for the years ended December 31, 2023, 2022, and 2021, respectively. The Company has an agreement with ALFS, whereby interest receivable is assigned to the Company and 12b-1 fee receivables are assigned to the Company and AZNY. The Company has also agreed with AZNY to share in reimbursing ALFS for direct and indirect expenses incurred in performing services for the Company and AZNY. In the event that assigned receivables exceed expenses, ALFS records a dividend-in-kind to the Company and a loss on the transaction with AZNY. The Company recorded a net (expense) revenue from this agreement of $(51), $(42), and $(42) for the years ended December 31, 2023, 2022, and 2021, respectively. (d) Dividends to Parent The Company paid cash dividends to AZOA of $500, $4,100, and $900 in 2023, 2022, and 2021, respectively. Based on the ordinary dividend limitations set forth under Minnesota Insurance Law, the dividends paid in 2023 were ordinary and 2022, and 2021 were considered extraordinary. (e) Capital Contributions and Dividends with Subsidiaries During the years ended December 31, the Company received dividends from its subsidiaries as follows:
Statutory Financial Statements as of December 31, 2023 Page 65 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) During the years ended December 31, the Company made capital contributions to subsidiaries as follows:
(f) Reinsurance The Company wholly-owns AZMO, a Special Purpose Life Reinsurance Captive Insurance Company domiciled in Missouri. The Company cedes to AZMO, and AZMO provides reinsurance on a coinsurance basis and modified coinsurance basis, a 100% quota share of the Company’s net liability of level term life insurance policies and certain universal life insurance policies written directly by the Company. The total premium and associated reserve amounts ceded from the Company to AZMO for the years ended December 31, 2023, 2022, and 2021 were $3, $3, and $2, respectively. The Company recorded a ceding commission of $1 for 2023, 2022, and 2021, respectively. In addition, the Company recorded a deferred gain of $97 upon execution of the reinsurance agreement in 2009, of which $3, $3 and $3 was amortized in 2023, 2022, and 2021, respectively, and included in Commissions and expense allowances on reinsurance ceded on the Statutory Statements of Operations. The Company has reinsurance recoverables and receivables related to reinsurance agreements with affiliated entities. Total affiliated reinsurance recoverables and receivables were $5 and $1 as of December 31, 2023 and 2022, respectively, and are included in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (g) Line of Credit Agreement The Company has a line of credit agreement with its subsidiary, AZNY, to provide liquidity, as needed. The Company’s lending capacity under the agreement is limited to 5% of the general account admitted assets of AZNY as of the preceding year end. The Company provided $30 to AZNY under the terms of this (h) SCA or SSAP 48 Entity Loss Tracking The Company had the losses from the following entities for the year ended December 31, 2023 and did not have any losses for the years ended December 2022 and 2021.
SCA or SSAP 48 entity losses did not have any impact on other investments for the years ended December 31, 2023, 2022, and 2021 respectively. (16) Employee Benefit Plans The Company participates in Statutory Financial Statements as of December 31, 2023 Page 66 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) of the participants’ eligible compensation, although contributions remain subject to annual limitations set by the Internal Revenue Service. The Company matches up to a maximum of 7.5% of the employees’ eligible compensation. Participants are 100% vested in the Company’s matching contribution after three years of service. The AAAP administration expenses and the trust fund, including trustee fees, investment manager fees, and audit fees, are payable from the trust fund but may, at the Company’s discretion, be paid by the Company. All legal fees are paid by the Company. It is the Company’s policy to fund the AAAP costs as incurred. The Company has expensed $15, $15, and $13 in 2023, 2022, and 2021, respectively, toward the AAAP matching contributions and administration expenses. A defined group of highly compensated employees is eligible to participate in the AZOAC Deferred Compensation Plan. The purpose of the plan is to provide tax planning opportunities, as well as supplemental funds upon retirement. The plan is unfunded, meaning no assets of the Company have been segregated or defined to represent the liability for accrued assets under the plan. Employees are 100% vested upon enrollment in the plan for funds they have deferred. Employees’ funds are invested on a pay period basis and are immediately vested. Participants and the Company share the administrative fee. The accrued liability of $78 and $69 as of December 31, 2023 and 2022, respectively, is recorded in Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company sponsors a nonqualified deferred compensation plan for a defined group of agents. The Company can make discretionary contributions to the plan in the form and manner the Company determines reasonable. Discretionary contributions are currently determined based on production. The accrued liability of $47 and $50 as of December 31, 2023 and 2022, respectively, is recorded in Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company participates in a stock-based compensation plan sponsored by Allianz SE, which awards certain employees Restricted Stock Units (RSU) that are tied to Allianz SE stock. Allianz SE determines the number of RSU granted to each participant. The Company records expense equal to the change in fair value of the units during the reporting period, which includes the Company's estimate of the number of awards expected to be forfeited. A change in value of $17, $8, and $8 was recorded in 2023, 2022, and 2021, respectively, and is included in General and administrative expenses on the Statutory Statements of Operations. The related liability of $34 and $21 as of December 31, 2023 and 2022, respectively, is recorded in Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. (17)Statutory Capital and Surplus Statutory accounting practices prescribed or permitted by the Company’s state of domicile are directed toward insurer solvency and protection of policyholders. As such, the Company is required to meet minimum statutory capital and surplus requirements. The Company’s statutory capital and surplus as of December 31, 2023 and 2022, were in compliance with these requirements. The maximum amount of ordinary dividends that can be paid by Minnesota insurance companies to the stockholder without prior approval of the Department is subject to restrictions relating to statutory earned surplus, also known as unassigned funds. Unassigned funds are determined in accordance with the accounting procedures and practices governing preparation of the statutory annual statement. In accordance with Minnesota Statutes, the Company may declare and pay from its Unassigned surplus cash dividends of not more than the greater of 10% of its prior year-end statutory surplus, or the net gain from operations before net realized capital gain of the insurer for the 12-month period ending the 31st day of the next preceding year. Based on these limitations, ordinary dividends of $1,587 can be paid in 2024 without prior approval of the Department. Regulatory Risk-Based Capital An insurance enterprise’s state of domicile imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of an enterprise’s regulatory total adjusted capital to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, Statutory Financial Statements as of December 31, 2023 Page 67 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) each of which requires specified corrective action. This ratio for the Company significantly exceeds required minimum thresholds as of December 31, 2023 and 2022. (18) Direct Premiums Written by Third-Party Administrators The Company has direct premiums written by third-party administrators (TPAs). The types of business written by the TPAs include life, accidental death and dismemberment, medical, disability, excess risk, and LTC. The authority granted to the TPAs includes binding authority, claims payment, claims adjustment, underwriting, and premium collection. Total premiums written by TPAs were $255, $204, and $136 for 2023, 2022, and 2021, respectively. For the years ended December 31, 2023, 2022, and 2021, there were no individual TPAs that wrote premiums that equaled at least 5% of the capital and surplus of the Company. (19)Capital Structure The Company is authorized to issue three types of capital stock, as outlined in the table below:
Holders of Class A preferred stock and of common stock are entitled to one vote per share with respect to all matters presented to or subject to the vote of shareholders. Holders of Class B preferred stock have no voting rights. All issued and outstanding shares are owned by AZOA. See Note 1 for further discussion. Each share of Class A preferred stock is convertible into one share of the Company’s common stock. The Company may redeem any or all of the Class A preferred stock at any time. Dividends will be paid to each class of stock only when declared by the BOD. In the event a dividend is declared, dividends must be paid to holders of Class A preferred stock, Class B preferred stock, and common stock, each in that order. As discussed in Note 15 to these Statutory Financial Statements, the Company carried out various capital transactions with related parties during 2023, 2022, and 2021. (20)Reconciliation to the Annual Statement The Company is required to file an Annual Statement with the Department. As of December 31, 2023 and 2022, there is no difference in admitted assets or liabilities between this report and the Annual Statement. As of December 31, 2023, 2022, and 2021, there is no difference in capital and surplus or net income between this report and the Annual Statement. (21) Commitments and Contingencies The Company and its subsidiaries are named as defendants in various pending or threatened legal proceedings on an ongoing basis, arising from the conduct of business, including three putative class action proceedings: Sanchez v. Statutory Financial Statements as of December 31, 2023 Page 68 of 69 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to Statutory Financial Statements (Dollars in millions, except share data and security holdings quantities) Allianz Life Ins. Co. of North America (Superior Court of California, L.A. County, BC594715), Small v. Allianz Life Ins. Co. of North America (United Stated District Court, Central District of California, Case No. 2:20-cv-01944-AB (KESx)(Small I), and Small v Allianz Life Ins. Co. of North America (Superior Court of California, L.A. County, 22STCV17838)(Small II). The Sanchez case was certified as a class; and the parties settled the matter and the settlement has been granted final approval by the Court. The two Small cases are related. Small I case has been certified as a class action. The court granted partial judgment in favor of the class, with damages yet to be tried, and granted partial judgment to the Company on claims of class members with time-barred claims. The class certification decision is on appeal, and the district court action is stayed pending appeal. Small II has not been certified as a class action and is currently stayed. The Company generally intends to vigorously contest the lawsuits, but may pursue settlement negotiations in some cases, if appropriate. The outcome of the cases is uncertain at this time, and there can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on the Company and/or its subsidiaries. The Company recognizes legal costs as incurred. The Company is contingently liable for possible future assessments under regulatory requirements pertaining to insolvencies and impairments of unaffiliated insurance companies. Provision has been made for assessments currently received and assessments anticipated for known insolvencies. The financial services industry, variable and fixed annuities, life insurance, distribution companies, and broker-dealers, is subject to close scrutiny by regulators, legislators, and the media. Federal and state regulators, such as state insurance departments, state securities departments, the SEC, the Financial Industry Regulatory Authority, the Internal Revenue Service, and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning various selling practices, including suitability reviews, product exchanges, sales to seniors, and compliance with, among other things, insurance and securities law. The Company is and may become subject to ongoing market conduct examinations and investigations by regulators, which will or may result in fines and/or otherwise have a material adverse effect on the Company. It can be expected that annuity and life product designs, management, and sales practices will be an ongoing source of regulatory scrutiny and enforcement actions, litigation, and rulemaking. These matters could result in legal precedents and new industry-wide legislation, rules, and regulations that could significantly affect the financial services industry, including life insurance and annuity companies. It is unclear at this time whether any such litigation or regulatory actions will have a material adverse effect on the Company in the future. Certain guarantees of the Company provide for the maintenance of a subsidiary’s regulatory capital, surplus levels and liquidity sufficient to meet certain obligations. Those unlimited guarantees are made on behalf of certain wholly owned subsidiaries (AZNY, AZMO, ALFS and Questar Capital Corporation, through its parent, Yorktown). These guarantees are not limited and cannot be estimated as of the balance sheet date. From time to time, the Company makes capital contributions to these subsidiaries as needed under the guarantees. Capital contributions made during the years ended December 31, 2023, 2022, and 2021 are detailed in Note 15. The Company had investments in limited partnerships that required a commitment of capital of $659 and $446 for the years ended December 31, 2023 and 2022, respectively. The Company had commitments to fund private placement investments of $3,107 and $1,889 as of December 31, 2023 and 2022, respectively. (22) Subsequent Events The Company has evaluated subsequent events through April 8, 2024, which is the date the Statutory Financial Statements were available to be issued. No material subsequent events have occurred since December 31, 2023 that require adjustment to the Statutory Financial Statements. In March 2024, the Company made a capital contribution of $30 to Allianz Life Insurance Company of New York. Statutory Financial Statements as of December 31, 2023 Page 69 of 69 For Service or More Information The SEC Our Service Center If you need customer service (for Contract changes, information on Contract Values, requesting a withdrawal or transfer, changing your allocation instructions, etc.) please contact our Service Center at (800) 624-0197. To send
For general customer service by email, please use this address: contact.us@allianzlife.com. To send information by email, please use this address: variableannuity@send.allianzlife.com. To send information over the web, please upload to your account on our website at: www.allianzlife.com. If you have questions about whether you can submit certain information by email or over the web, please contact our Service Center. All dealers that effect transactions in these securities EDGAR Contract ID No.: C000241317 Allianz Index Back Cover PART II - INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. NOT APPLICABLE. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
2. Not applicable
Exhibit 3(a) to Registrant's initial registration on Form S-1 (File No. 333-185864), is incorporated by reference. |
(b) | Bylaws, as amended and restated August 1, 2006, of Allianz Life Insurance Company of North America, filed on January 3, 2013 as Exhibit 3(b) to Registrant's initial registration on Form S-1 (File No. 333-185864), is incorporated by reference. |
4.(a) | Individual Variable Annuity Contract, | |
(b) | Contract Schedule | |
(c) | Index Options Contract Schedule Page, S40877-02, filed on December 19, 2022 as Exhibit 4(c) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(d)(i) | Application for Individual Variable Annuity Contract | |
(d) | Annuity Purchase Acknowledgment, E-APA-VAR-03, filed on December 19, 2022 as Exhibit 4(d)(ii) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(e)(i) | Index Performance Strategy | |
(ii) | Index Performance Strategy Rider III – S40904-01, filed on December 19, 2022 as Exhibit 4(e)(ii) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(f) | Index Protection Strategy | |
(g) | ||
Traditional Death Benefit | ||
(h) | Index Guard Strategy Rider-S40889-03, filed on December 19, 2022 as Exhibit 4(h) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(i)(i) | Index Precision Strategy Rider, S40891-02, filed on December 19, 2022 as Exhibit 4(i) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(ii) | Index Precision Strategy Rider, S40891-03, incorporated by reference as Exhibit | |
(j) | Index Dual Precision Strategy Rider, S40909, incorporated by reference as Exhibit 4(i)(ii) from Registrant's Initial Registration on Form S-1 (File No. 333-274933), electronically filed on October 11, 2023. | |
(k) | Index Options Contract Schedule, S40877-03, incorporated by reference as Exhibit 4(i)(iv) from Registrant's Initial Registration on Form S-1 (File No. 333-274933), electronically filed on October 11, 2023. | |
(l) | Performance Lock Rider S40908, filed on December 19, 2022 as Exhibit 4(j) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(m) | Waiver of Withdrawal Charge Rider-S40749-01, filed on December 19, 2022 as Exhibit 4(k) to Registrant's Initial Registration on Form S-1 (File No. 333-268951), is incorporated by reference. | |
(n) | Maximum Anniversary Death Benefit Rider- | |
(o) | Inherited IRA/Roth IRA Endorsement-S40713 incorporated by reference as exhibit EX-99.B4.q. from Pre-Effective Amendment No. 1 to Registrant's Form N-4 (File Nos. 333-134267 and 811-05618), electronically filed on September 25, 2006. | |
(p) | Roth IRA Endorsement-S40342 incorporated by reference as exhibit EX-99.B4.l. from Pre-Effective Amendment No. 1 to Registrant's Form N-4 (File Nos. 333-134267 and 811-05618), electronically filed on September 25, 2006. | |
(q) | IRA Endorsement-S40014 incorporated by reference as exhibit EX-99.B4.g. from Pre-Effective Amendment No.1 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618), electronically filed on December 30, 1999. | |
(r) | Unisex Endorsement-(S20146) incorporated by reference as exhibit EX-99.B4.h. from Pre-Effective Amendment No.1 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618), electronically filed on December 30, 1999. |
24. | (a) | Board Resolution, effective December 11, 2012, of the Board of Directors of Allianz Life Insurance Company of North America, filed on January 3, 2013 as Exhibit 24(b) to Registrant's initial registration on Form S-1 (File No. 333-185864), is incorporated by reference. |
(c)* | Powers of Attorney, filed herewith. |
99.* | Daily Adjustment Calculation Exhibit, IXA-010c, filed herewith. |
107*. | Filing Fee Table, filed herewith. |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: | |
(i) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; | |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. | |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. | |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
(4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. | |
(5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: | |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. | |
(6) | Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
Signature | Title | |
Director, President & Chief Executive Officer | ||
Director and Board Chair | ||
Walter R. White* | Director | |
Udo Frank | Director | |
William E. Gaumond | Director, Senior Vice President, Chief Financial Officer and Treasurer (principal accounting officer) | |
Kevin E. Walker | Director | |
Howard E. Woolley* | Director | |
Lauren Kathryn Day* | Director |
Exhibit | Description of Exhibit |
1(c) | The current specimen of the selling agreement (General Agency Agreement) |
5 | Opinion of Legality |
23(a) | Consent of Independent Registered Public Accounting Firm |
24(c) | Powers of Attorney |
99 | Daily Adjustment Calculation |
107 | Fee Table Exhibit |