Interest Rates

Interest rates represent the cost of capital or what you pay to borrow money. A detailed definition of interest rates is beyond the scope of this glossary. What is important to remember is that interest rates are critical components of virtually every financial product you consume. This is especially true with annuities because, in general, insurance companies manufacture annuity products through a combination of bonds and derivatives. As a result, interest rates are the raw material of all annuity types.

Low Interest Rates Affecting Insurance Companies

The ultra-low interest rates that exist at the moment are affecting insurance company profitability and operations. On the profitability side, current policy premiums must be reinvested into bonds that have low yields and are fully priced. Investment income and underwriting profitability (which is often rare) are the main components of insurance company profitability. As large fixed income investors, insurance companies are challenged in the current interest rate environment. On the operations...

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Retirees Suffer in Current Low Interest Rate Environment

Financial Times personal finance columnist Matthew Vincent discusses the challenges that retirees face in the current economic environment. The gist of the story is that these are brutal times for savers who need to generate interest income to fund current spending needs. In other words, these are brutally difficult times for many retirees.

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Annuity Product Persistency Levels are Increasing

Annuity persistency refers to whether people hold on to their existing annuity products or exchange them--typically through a Section 1035 exchange --for new products. Higher levels of persistency suggest that annuity owners are sticking with existing products which are likely more valuable than what would be available in the current market through an exchange.

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Annuity

Capital Market

Guaranteed Living Benefit

Section 1035 Exchange

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Annuity

Capital Market

Guaranteed Living Benefit

Section 1035 Exchange

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Allianz Reports Strong Revenue Growth Coupled with Earnings Challenges Due to Low Interest Rates

Allianz Life Insurance Company of North America reported strong revenue growth for the third quarter of 2010. Fixed indexed annuity sales increased 36 percent and totaled $1.9 billion. Variable annuity sales quadrupled to $800 million. Allianz attributes the revenue growth to more risk averse consumers in the wake of the financial crisis.

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Fixed Indexed Annuity

Life Insurance

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Fixed Indexed Annuity

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Retail Investors Moving Money into Bond Funds at Record Pace

Over the past several years, retail investors in the United States have been moving their money into bond funds at a pace not seen in 23 years. The movement of money into fixed income funds by individual investors has outpaced contributions into equity funds for 30 straight months.

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