S-1 1 advs12022.htm INDEX ADVANTAGE ADV S1 APRIL 2022



As filed with the Securities and Exchange Commission on April 15, 2022                              Registration No. 333-


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Allianz Life Insurance Company of North America
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
6311
(Primary Standard Industrial
Classification Code Number)
41-1366075
(I.R.S. Employer
Identification No.)
5701 Golden Hills Drive
Minneapolis, MN 55416
(800) 950-5872
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Erik T. Nelson, Esq.
Allianz Life Insurance Company of North America
5701 Golden Hills Drive
Minneapolis, MN 55416
(763) 765-7453
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer                                                      [   ]                                        Accelerated filer                                                         [   ]
Non-accelerated filer                                                      [X]                                        Smaller reporting company   [   ]
(Do not check if a smaller reporting company)
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
                                                                                                                                                                                                    

Pursuant to Rule 429, the prospectus filed herewith is combined with the prospectus from the Prior Registration Statement (File No. 333-213125).




PART I – PROSPECTUS
ALLIANZ Index Advantage ADV ® VARIABLE ANNUITY CONTRACT
An individual flexible purchase payment index-linked and variable deferred annuity contract (the Contract)
Issued by Allianz Life® Variable Account B (the Separate Account) and
Allianz Life Insurance Company of North America (Allianz Life, we, us, our)
Prospectus Dated: April 29, 2022
Standard Annuity Features Available Investment Options Optional Features
• Five fixed annuitization options
(Annuity Options) • Free withdrawal privilege allows you withdraw up to 10% of your total purchase payments during the six-year withdrawal charge period for withdrawals from the index-linked investment options. Withdrawals from the variable investment options are not subject to a withdrawal charge. • Systematic withdrawal program • Minimum distribution program for certain tax-qualified Contracts • Waiver of withdrawal charge benefit
(not available in all states) • Guaranteed death benefit
(Traditional Death Benefit) 		• 22 index-linked investment options (Index Options) based on different combinations of four credit calculation methods (Crediting Methods) , four nationally recognized third-party broad based equity securities indexes and an exchange-traded fund (Index or Indexes) , and two time periods for measuring Index performance (Term) • Three variable investment options
(Variable Options) 		•  Maximum Anniversary Value Death Benefit:
Locks in any annual investment gains to potentially provide a death benefit greater than the Traditional Death Benefit. This optional benefit has an additional rider fee.
    
Crediting Methods Currently Available
Only the Index Performance Strategy offers 1-year and 3-year Terms.
All other Crediting Methods only offer 1-year Terms. 		Indexes Currently
Available with
1-year Terms 		Indexes Currently
Available with
3-year Terms
(Index Performance Strategy only)
• Index Protection Strategy
• Index Precision Strategy
• Index Guard Strategy
• Index Performance Strategy
• S&P 500 ® Index
• Russell 2000 ® Index
• Nasdaq-100 ® Index
• EURO STOXX 50 ®
• iShares ® MSCI Emerging Markets ETF 		• S&P 500 ® Index
• Russell 2000 ® Index
Crediting Methods, Indexes, and the 3-year Terms may not be available in all states as detailed in Appendix G.
    
Crediting Method Highlights
All Crediting Methods provide a level of protection against negative Credits from negative Index performance, and a limit on positive Credits from positive Index performance. Credits are the return you receive on the Term End Date when you allocate assets to an Index Option.
  Negative Index Performance Protection Positive Index Performance Participation Limit
Index Protection
Strategy 		•  100%
–  You will never receive a negative Credit 		•  Declared Protection Strategy Credits (DPSCs)
(the return you receive if Index performance is zero or positive)
–  DPSCs cannot be less than 1.50%
Index Precision
Strategy 		•  Buffers (the amount of negative Index performance we absorb over the duration of a Term before you receive a negative Credit)
–  Buffers are 10% 		•  Precision Rates (the return you receive if Index performance is zero or positive)
–  Precision Rates cannot be less than 1.50%
Index Guard
Strategy 		•  Floors (the maximum amount of negative Index performance you absorb)
–  Floors are -10% 		•  Caps
(the upper limit on positive Index performance)
–  Caps cannot be less than 1.50%
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
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Crediting Method Highlights
All Crediting Methods provide a level of protection against negative Credits from negative Index performance, and a limit on positive Credits from positive Index performance. Credits are the return you receive on the Term End Date when you allocate assets to an Index Option.
  Negative Index Performance Protection Positive Index Performance Participation Limit
Index Performance Strategy •  Buffers
–  Buffers for 1-year Terms are 10%
–  Buffers for 3-year Terms are 20% 		•  1-year Term: Caps
–  Caps cannot be less than 1.50%
•  3-year Term: Caps
–  Caps cannot be less than 5%
–  Can be uncapped
The Contract’s risks are described in Risk Factors on page 30 of this prospectus.
Variable Options Currently Available
AZL® MVP Growth Index Strategy Fund AZL® MVP Balanced Index Strategy Fund AZL® Government Money Market Fund
You can allocate the money you put into the Contract (Purchase Payments) to any or all of the available Index Options and Variable Options (Allocation Options) . You may also reallocate and transfer Contract Value among the Allocation Options subject to certain restrictions described in this prospectus. Your Contract Value is the current value of the Purchase Payments you invest that includes the returns of your selected Allocation Options. It reflects deductions we make for Contract fees and expenses. All withdrawals you take and financial adviser fees that you choose to have us pay from this Contract reduce your Contract Value dollar for dollar, including partial withdrawals that may be subject to a withdrawal charge.
If you allocate Purchase Payments or transfer Contract Value to the Index Options, you receive Credits calculated by us based on the performance of one or more Indexes over a Term as measured by the Index Return and the applicable Buffer, Floor, DPSC, Precision Rate, or Cap. The Index Return is the percentage change in Index value from the Term Start Date to the Term End Date. The Term Start Date is the date on which a Term begins and we set the DPSCs, Precision Rates, and Caps for an Index Option; this can occur on either the Index Effective Date or an Index Anniversary. The Term End Date is the date on which a Term ends and we apply Credits; this can only occur on an Index Anniversary. The Index Effective Date is the first day we allocate assets to an Index Option. An Index Anniversary is a twelve-month anniversary of the Index Effective Date. 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.
Credits may be positive, negative, or equal to zero, depending on the applicable Crediting Method and the performance of the applicable Index. The Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy allow negative Performance Credits. A Performance Credit is the Credit you receive on a Term End Date for any Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. A negative Performance Credit means you can lose principal and previous earnings. These losses could be significant. The risk of loss can become greater in the case of an early withdrawal (a withdrawal taken from the Index Options within six years after we receive a Purchase Payment) due to withdrawal charges. Withdrawals will be subject to federal and state taxation, and withdrawals taken before age 59  1 ⁄ 2 may also be subject to a 10% additional federal tax. If this is a Non-Qualified Contract, a withdrawal will be taxable to the extent that gain exists within the Contract. A Non-Qualified Contract is a Contract that is not purchased under a pension or retirement plan that qualifies for special tax treatment under sections of the Internal Revenue Code (the Code) .
DPSCs, Precision Rates, and Caps that we use to determine Credits for a Contract can change on each Term Start Date and may vary substantially based on market conditions. However, in extreme market environments, it is possible that all DPSCs, Precision Rates, and Caps will be reduced to their respective minimums of 1.50%, or 5% as stated in the table above. 10% or 20% Buffers and -10% Floors that we use to determine Credits for a Contract do not change. The Crediting Methods are described in greater detail in the Summary of the Index Options, and in section 4, Valuing Your Contract – Calculating Credits. The Indexes are described in Appendix A. For historical information on the DPSCs, Precision Rates, and Caps, see Appendix C. For historical Index Option performance information, see Appendix D.
The Daily Adjustment is how we calculate Index Option Values (the portion of your Contract Value in the Index Options) on days other than the Term Start Date or Term End Date for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. The Index Options with the Index Protection Strategy and the Variable
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Options are not subject to the Daily Adjustment. The Daily Adjustment approximates the Index Option Value that will be available on the Term End Date. 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), annuitize the Contract, we pay a death benefit, or we deduct Contract fees and expenses, we calculate the Index Option Value by applying the Daily Adjustment. All withdrawals you take are subject to the Daily Adjustment, even withdrawals that are not subject to a withdrawal charge (Penalty-Free Withdrawals) . Penalty-Free Withdrawals include withdrawals you take under the free withdrawal privilege or waiver of withdrawal charge benefit, and payments you take under our minimum distribution program. In extreme circumstances the Daily Adjustment could result in a loss beyond the protection of the 10% or 20% Buffer, or -10% Floor, but it cannot result in a total loss of -100%. Such losses will be greater if the amount withdrawn (including financial adviser fees that you choose to have us pay from this Contract) is also subject to a withdrawal charge, or is a deduction of Contract fees and expenses.
If you allocate Purchase Payments or transfer Contract Value to the Variable Options, the value of your investment (Variable Account Value) increases and decreases each Business Day based on your selected Variable Options’ performance. A Business Day is each day the New York Stock Exchange is open for trading and it ends when regular trading on the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern Time. The Separate Account holds the assets you allocate to the Variable Options. The Variable Options do not provide any protection against loss of principal. You can lose principal and previous earnings that you allocate to the Variable Options.
Index-linked and variable annuity contracts are complex insurance and investment vehicles. Before you invest, be sure to ask your Financial Professional (the person who advises you regarding the Contract) about the Contract’s features, benefits, risks, fees and expenses, whether the Contract is appropriate for you based upon your financial situation and objectives, and for a specific recommendation to purchase the Contract. The Contract may be available through third-party financial advisers who charge a financial adviser fee for their services. If you choose to pay financial adviser fees from this Contract, the deduction of this financial adviser fee is in addition to this Contract’s fees and expenses, and the deduction is treated the same as any other withdrawal under the Contract. As such, withdrawals to pay financial adviser fees may be subject to withdrawal charges, will reduce the Contract Value and Guaranteed Death Benefit Value (perhaps significantly), and may be subject to income taxes (including tax penalties if you are younger than age 59  1 ⁄ 2 ). Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
The Contract is designed for purchasers working with a Financial Professional registered or affiliated with an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended, or under state securities law, as applicable. Allianz Life is not an investment adviser, does not provide investment advice with regard to the Contract, and is not a party to any agreement between you and your Financial Professional.
All guarantees under the Contract, including Credits, are the obligations of Allianz Life and are subject to our claims-paying ability and financial strength.
Please read this prospectus before investing and keep it for future reference. The prospectus describes all material rights and obligations of purchasers under the Contract. It contains important information about the Contract and Allianz Life that you ought to know before investing including material state variations. Availability of Index Options may vary by financial intermediary. You can obtain information on which Index Options are available to you by calling (800) 624-0197, or from your Financial Professional. This prospectus is not offered in any state, country, or jurisdiction in which we are not authorized to sell the Contracts. You should rely only on the information contained in this prospectus. We have not authorized anyone to give you different information.
If you are a new investor in the Contract, you may cancel your Contract within 10 days of receiving it without paying fees or penalties. In some states, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total Contract Value.  You should review this prospectus, or consult with your Financial Professional, for additional information about the specific cancellation terms that apply.
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. An investment in this Contract is not a deposit of a bank or financial institution and is not federally insured or guaranteed by the Federal Deposit Insurance Corporation or any other federal government agency. An investment in this Contract involves investment risk including the possible loss of principal.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
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Additional information about certain investment products, including variable annuities, has been prepared by the Securities & Exchange Commission’s (SEC) staff and is available at investor.gov .
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Glossary
This prospectus is written in plain English. However, there are some technical words or terms that are capitalized and are used as defined terms throughout the prospectus. For your convenience, we included this glossary to define these terms.
Accumulated Alternate Interest – the sum of alternate interest earned for the entire time you own your Contract. We use the Accumulated Alternate Interest to calculate the Alternate Minimum Value for certain Contracts as stated in Appendix F. The alternate interest for each Index Year is equal to either 70% or 87.5% of the Index Option Base multiplied by the alternate interest rate. The alternate interest rate is stated in your Contract and does not change for the entire time you own your Contract.
Accumulation Phase – the first phase of your Contract before you request Annuity Payments. The Accumulation Phase begins on the Issue Date.
Allocation Options – the Variable Options and Index Options available to you under the Contract.
Alternate Minimum Value – for certain Contracts as stated in Appendix F, the guaranteed minimum Index Option Value we provide for each Crediting Method if you take a withdrawal, annuitize the Contract, transfer out of Index Options to the Variable Options, or if we pay a death benefit.
Annuitant – the individual upon whose life we base the Annuity Payments. Subject to our approval, the Owner designates the Annuitant, and can add a joint Annuitant for the Annuity Phase. There are restrictions on who can become an Annuitant.
Annuity Date – the date we begin making Annuity Payments to the Payee from the Contract. The earliest available Annuity Date is the second Contract Anniversary, and the latest possible Annuity Date is either age 90 or age 100 depending on the requirements of the Financial Professional you purchased your Contract through and your state of residence.
Annuity Options – the annuity income options available to you under the Contract.
Annuity Payments – payments made by us to the Payee pursuant to the chosen Annuity Option.
Annuity Phase – the phase the Contract is in once Annuity Payments begin.
Beneficiary – the person(s) or entity the Owner designates to receive any death benefit, unless otherwise required by the Contract or applicable law.
Buffer – for each Index Option with the Index Precision Strategy and Index Performance Strategy, this is the negative Index Return that we absorb over the duration of a Term (which can be either one or three years) before applying a negative Performance Credit. We do not apply the Buffer annually on a 3-year Term Index Option. The Index Precision Strategy Buffers are 10%, and Index Performance Strategy Buffers are either 10% or 20%. Buffers do not change.
Business Day – each day on which the New York Stock Exchange is open for trading. Allianz Life is open for business on each day that the New York Stock Exchange is open. Our Business Day ends when regular trading on the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern Time.
Cap – for any Index Option with the Index Performance Strategy or Index Guard Strategy, this is the upper limit on positive Index performance over the duration of a Term (which can be either one, or three years) and the maximum potential Performance Credit for an Index Option. We do not apply the Cap annually on a 3-year Term Index Option. On each Term Start Date, we set a Cap for each Index Option with the Index Performance Strategy and Index Guard Strategy. The Caps applicable to your Contract are shown on the Index Options Statement.
Charge Base – the Contract Value on the preceding Quarterly Contract Anniversary (or the initial Purchase Payment received on the Issue Date if this is before the first Quarterly Contract Anniversary), increased by the dollar amount of subsequent Purchase Payments, and reduced proportionately for subsequent withdrawals you take or financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge) and deductions we make for Contract fees and expenses. All withdrawals you take reduce the Charge Base, even Penalty-Free Withdrawals. We use the Charge Base to determine the next product fee and rider fee (if applicable) we deduct.
Contract – the individual flexible purchase payment index-linked and variable deferred annuity contract described by this prospectus. The Contract may also be referred to as a registered index-linked annuity, or “RILA”.
Contract Anniversary – a twelve-month anniversary of the Issue Date or any subsequent Contract Anniversary.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
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Contract Value – the current value of the Purchase Payments you invest. On any Business Day, your Contract Value is the sum of your Index Option Value(s) and Variable Account Value. Variable Account Value fluctuates each Business Day that money is held in a Variable Option. Index Option Value is increased or decreased on each Term End Date to reflect Credits, which can be negative with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. A negative Credit means that you can lose principal and previous earnings. The Index Option Values  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy also reflect the Daily Adjustment on every Business Day other than the Term Start Date or Term End Date. All withdrawals you take reduce Contract Value dollar for dollar, even Penalty-Free Withdrawals, and financial adviser fees that you choose to have us pay from this Contract. Contract Value is also reduced dollar for dollar for deductions we make for Contract fees and expenses. However, Contract Value does not reflect future fees and expenses we would apply on liquidation. The cash surrender value reflects all Contract fees and expenses we would apply on liquidation.
Contract Year – any period of twelve months beginning on the Issue Date or a subsequent Contract Anniversary.
Credit – the return you receive on the Term End Date when you allocate Purchase Payments or transfer Contract Value to an Index Option. Credits may be positive, zero, or, in some instances, negative if you select the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. A negative Credit means that you can lose principal and previous earnings.
Crediting Method – a method we use to calculate Credits if you allocate Purchase Payments or transfer Contract Value to an Index Option.
Daily Adjustment – how we calculate Index Option Values on days other than the Term Start Date or Term End Date  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy as discussed in the Summary of the Index Options – What is the Daily Adjustment?; section 4, Valuing Your Contract – Daily Adjustment for the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy; and Appendix B. The Daily Adjustment approximates the Index Option Value that will be available on the Term End Date. It is the estimated present value of the future Performance Credit that we will apply on the Term End Date.
Declared Protection Strategy Credit (DPSC) – the positive Credit you receive on a Term End Date for any Index Option with the Index Protection Strategy if Index performance is zero or positive. You receive a Credit equal to the DPSC on the Term End Date if the current Index Value is equal to or greater than the Index Value on the Term Start Date. You will not receive a negative Credit if the Index Value decreases from the Term Start Date the Term End Date. We set the DPSCs on each Term Start Date. The DPSCs provide predefined upside potential. The DPSCs applicable to your Contract are shown on the Index Options Statement.
Determining Life (Lives) – the person(s) designated at Contract issue and named in the Contract on whose life we base the guaranteed Traditional Death Benefit or Maximum Anniversary Value Death Benefit.
Financial Professional – the person who advises you regarding the Contract. A Financial Professional may be a registered representative of a broker-dealer and/or an investment adviser representative of a registered investment adviser. However, we do not pay a commission to broker-dealers or their registered representatives in connection with sales of the Contract. The Contract is intended to be used by purchasers who are working with a Financial Professional registered or affiliated with an investment adviser, offering advisory services for a fee.
Floor – for any Index Option with the Index Guard Strategy, this is the maximum amount of negative Index Return you absorb as a negative Performance Credit. The Floors are -10% and do not change.
Good Order – a request is in “Good Order” if it contains all of the information we require to process the request. If we require information to be provided in writing, “Good Order” also includes providing information on the correct form, with any required certifications, guarantees and/or signatures, and received at our Service Center after delivery to the correct mailing, email, or website address, which are all listed at the back of this prospectus. If you have questions about the information we require, or whether you can submit certain information by fax, email or over the web, please contact our Service Center. If you send information by email or upload it to our website, we send you a confirmation number that includes the date and time we received your information.
Guaranteed Death Benefit Value – the guaranteed value that is available to your Beneficiary(s) on the first death of any Determining Life during the Accumulation Phase. The Guaranteed Death Benefit Value is either total Purchase Payments reduced proportionately for withdrawals you take (including any withdrawal charge) if you select the Traditional Death Benefit, or the Maximum Anniversary Value if you select the Maximum Anniversary Value Death Benefit. All withdrawals you take reduce the Guaranteed Death Benefit Value, even Penalty-Free Withdrawals, and any financial
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
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adviser fees that you choose to have us pay from this Contract. However, we do not reduce the Guaranteed Death Benefit Value for deductions we make for Contract fees and expenses. These deductions will, however, reduce the Contract Value we use to calculate the Maximum Anniversary Value.
Index (Indexes) – one (or more) of the nationally recognized third-party broad based equity securities price return Indexes or exchange-traded fund available to you under your Contract as described in Appendix A.
Index Anniversary – a twelve-month anniversary of the Index Effective Date or any subsequent Index Anniversary.
Index Effective Date – the first day we allocate assets to an Index Option. The Index Effective Date is stated on the Index Options Statement and starts the first Index Year. When you purchase this Contract you select the Index Effective Date as discussed in section 3, Purchasing the Contract – Allocation of Purchase Payments and Contract Value Transfers.
Index Guard Strategy – one of the Crediting Methods described in the Summary of the Index Options; and in section 4, Valuing Your Contract – Calculating Credits. The Index Guard Strategy calculates Performance Credits based on Index Returns subject to a Cap and -10% Floor. You can receive negative Performance Credits under this Crediting Method, which means you can lose principal and previous earnings. The Index Guard Strategy is 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 Performance Strategy and Index Precision Strategy.
Index Option – the index-linked investments available to you under the Contract. Each Index Option is the combination of a Crediting Method, an Index, and a Term length.
Index Option Base – an amount we use to calculate Credits and the Daily Adjustment. The Index Option Base is initially equal to the amounts you allocate to an Index Option. We reduce the Index Option Base proportionately for withdrawals you take and any financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and deductions we make for Contract fees and expenses; we increase/decrease it by the dollar amount of additional Purchase Payments allocated to, transfers into or out of the Index Option; and any Credits.
Index Option Value – on any Business Day, it is equal to the portion of your Contract Value in a particular Index Option. We establish an Index Option Value for each Index Option you select. Each Index Option Value includes any Credits from previous Term End Dates and reflects proportional reductions for previous partial withdrawals you take and any financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and previous deductions we made for Contract fees and expenses. On each Business Day, other than the Term Start Date or Term End Date, the Index Option Values  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy also include an increase/decrease from the Daily Adjustment.
Index Options Statement – the account statement we mail to you on the Index Effective Date and each Index Anniversary thereafter. On the Index Effective Date, the statement shows the initial Index Values, DPSCs, Precision Rates, and Caps for the Index Options you selected. On each Index Anniversary, the statement shows the new Index Values, Credits received, and renewal DPSCs, Precision Rates, and Caps that are effective for the next Term for the Index Options you selected that have reached their Term End Date. The Index Options Statement also shows any applicable Buffer or Floor for your selected Index Option(s). For any 3-year Term Index Option you selected that has not reached its Term End Date the statement shows the current Index Anniversary’s Index Option Value, which includes the Daily Adjustment.
Index Performance Strategy – one of the Crediting Methods described in the Summary of the Index Options; and in section 4, Valuing Your Contract – Calculating Credits. This Crediting Method offers 1-year and 3-year Terms. The Index Performance Strategy calculates Performance Credits based on Index Returns subject to a Cap and a 10% or 20% Buffer. You can receive negative Performance Credits under this Crediting Method, which means you can lose principal and previous earnings. The Index Performance Strategy is more sensitive to large negative market movements because small negative market movements are absorbed by the 10% or 20% 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.
Index Precision Strategy – one of the Crediting Methods described in the Summary of the Index Options; and in section 4, Valuing Your Contract – Calculating Credits. The Index Precision Strategy calculates Performance Credits based on Index Values and Index Returns subject to the Precision Rate and 10% Buffer. You can receive negative Performance Credits under this Crediting Method, which means you can lose principal and previous earnings. The Index Precision Strategy may perform best in periods of small positive market movements because the Precision Rates will generally be greater than the DPSCs, but less than the Index Performance Strategy Caps. The Index Precision Strategy is more sensitive
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
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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 Protection Strategy – one of the Crediting Methods described in the Summary of the Index Options; and in section 4, Valuing Your Contract – Calculating Credits. The Index Protection Strategy provides Credits equal to the DPSCs on the Term End Date if the current Index Value is equal to or greater than the Index Value on the Term Start Date. The Index Protection Strategy provides the most protection because it does not allow negative Credits, and offers the least growth opportunity as DPSCs will generally be less than Precision Rates and Caps.
Index Return – the percentage change in Index Value from the Term Start Date to the Term End Date, which we use to determine the Performance Credits for any Index Option with the Index Performance Strategy or Index Guard Strategy, and negative Performance Credits for any Index Option with the Index Precision Strategy. The Index Return is the Index Value on the Term End Date, minus the Index Value on the Term Start Date, divided by the Index Value on the Term Start Date.
Index Value – an Index’s closing market price at the end of the Business Day on the Term Start Date and Term End Date as provided by Bloomberg or another market source if Bloomberg is not available.
Index Year – a twelve-month period beginning on the Index Effective Date or a subsequent Index Anniversary.
Issue Date – the date we issue the Contract. The Issue Date is stated in your Contract and starts your first Contract Year. Contract Anniversaries and Contract Years are measured from the Issue Date.
Joint Owners – the two person(s) designated at Contract issue and named in the Contract who may exercise all rights granted by the Contract.
Lock Date – for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy this is the Business Day we execute a Performance Lock and capture an Index Option Value (which includes the Daily Adjustment) before the Term End Date.
Maximum Anniversary Value – the highest Contract Value on any Index Anniversary before age 91, increased by the dollar amount of subsequent Purchase Payments, and reduced proportionately for subsequent withdrawals you take (including any withdrawal charge), used to determine the Maximum Anniversary Value Death Benefit as discussed in section 10. All withdrawals you take reduce your Maximum Anniversary Value, even Penalty-Free Withdrawals. Deductions we make for Contract fees and expenses do not reduce the Maximum Anniversary Value. These deductions will, however, reduce the Contract Value we use to calculate the Maximum Anniversary Value.
Maximum Anniversary Value Death Benefit – an optional benefit described in section 10 that has an additional rider fee and is intended to potentially provide a death benefit greater than the Traditional Death Benefit. The Maximum Anniversary Value Death Benefit can only be added to a Contract at issue.
Non-Qualified Contract – a Contract that is not purchased under a pension or retirement plan that qualifies for special tax treatment under sections of the Code.
Owner – “you,” “your” and “yours.” The person(s) or entity designated at Contract issue and named in the Contract who may exercise all rights granted by the Contract.
Payee – the person or entity who receives Annuity Payments during the Annuity Phase.
Penalty-Free Withdrawals – withdrawals you take that are not subject to a withdrawal charge. Penalty-Free Withdrawals include withdrawals you take under the free withdrawal privilege or waiver of withdrawal charge benefit, and RMD payments you take under our minimum distribution program.
Performance Credit – the Credit you receive on a Term End Date when you allocate assets to an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. We base Performance Credits on Index Values and Index Returns as limited by the applicable Precision Rate or Cap if returns are flat or positive, or after application of the applicable Buffer or Floor if returns are negative. If Performance Credits are negative, you can lose principal and previous earnings.
Performance Lock – a feature that allows you to capture the current Index Option Value during the Term  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. A Performance Lock applies to the total Index Option Value in an Index Option, and not just a portion of that Index Option Value. After the
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Lock Date, Daily Adjustments do not apply to a locked Index Option for the remainder of the Term and the Index Option Value will not receive a Performance Credit on the Term End Date.
Precision Rate – the positive Performance Credit you receive for any Index Option with the Index Precision Strategy if Index performance is zero or positive. You receive a Performance Credit equal to the Precision Rate on the Term End Date if the current Index Value is equal to or greater than the Index Value on the Term Start Date. We set a Precision Rate for each Index Precision Strategy Index Option on each Term Start Date. The Precision Rates applicable to your Contract are shown on the Index Options Statement.
Proxy Investment – provides a current estimate of what the Performance Credit will be on the Term End Date taking into account any applicable Buffer, Floor, Precision Rate, and/or Cap. We use the Proxy Investment to calculate the Daily Adjustment on Business Days other than the Term Start Date or Term End Date. For more information, see Appendix B.
Proxy Value – the hypothetical value of the Proxy Investment used to calculate the Daily Adjustment as discussed in Appendix B.
Purchase Payment – the money you put into the Contract.
Qualified Contract – a Contract purchased under a pension or retirement plan that qualifies for special tax treatment under sections of the Code (for example, 401(a) and 401(k) plans), Individual Retirement Annuities (IRAs), or Tax-Sheltered Annuities (referred to as TSA contracts). Currently, we issue Qualified Contracts that may include, but are not limited to Roth IRAs, traditional IRAs and Simplified Employee Pension (SEP) IRAs. We may also issue an Inherited IRA and Inherited Roth IRA to make any required minimum distribution payments to a beneficiary of a previously held tax-qualified arrangement.
Quarterly Contract Anniversary – the day that occurs three calendar months after the Issue Date or any subsequent Quarterly Contract Anniversary.
Separate Account – Allianz Life Variable Account B is the Separate Account that issues the variable investment portion of your Contract. It is a separate investment account of Allianz Life. The Separate Account holds the Variable Options that underlie the Contracts. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Variable Option. The Separate Account is registered with the SEC as a unit investment trust, and may be referred to as the Registered Separate Account.
Service Center – the area of our company that issues Contracts and provides Contract maintenance and routine customer service. Our Service Center address and telephone number are listed at the back of this prospectus. The address for mailing applications and/or checks for Purchase Payments may be different and is also listed at the back of this prospectus.
Term – The period of time, from the Term Start Date to the Term End Date, in which we measure Index Return to determine Credits.
Term End Date – The day on which a Term ends and we apply Credits. A Term End Date may only occur on an Index Anniversary. If a Term End Date does not occur on a Business Day, we consider it to occur on the next Business Day.
Term Start Date – The day on which a Term begins and we set the DPSCs, Precision Rates, and Caps for an Index Option. A Term Start Date may only occur on the Index Effective Date or an Index Anniversary. If a Term Start Date does not occur on a Business Day, we consider it to occur on the next Business Day.
Traditional Death Benefit – the guaranteed death benefit automatically provided by the Contract for no additional fee described in section 10.
Valid Claim – the documents we require to be received in Good Order at our Service Center before we pay any death claim. This includes the death benefit payment option, due proof of death, and any required governmental forms. Due proof of death includes a certified copy of the death certificate, a decree of court of competent jurisdiction as to the finding of death, or any other proof satisfactory to us.
Variable Account Value – on any Business Day it is equal to the portion of your Contract Value in your selected Variable Options. The Variable Account Value increases and decreases based on your selected Variable Options’ performance and reflects deduction of the Variable Option operating expenses, and previous deductions we made for Contract fees and expenses.
Variable Options – the variable investments available to you under the Contract. Variable Option performance is based on the securities in which they invest.
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Withdrawal Charge Basis – the total amount under your Contract that is subject to a withdrawal charge as discussed in section 6, Expenses – Withdrawal Charge.
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Important Information You Should Consider About the Contract
  FEES AND EXPENSES Prospectus
Location
Charges
for Early
Withdrawals 		If you withdraw money from the Index Options within 6 years of your last Purchase Payment, you may be assessed a withdrawal charge of up to 6.5% of the Purchase Payment withdrawn, declining to 0% over that time period. There is no withdrawal charge applicable to amounts withdrawn from the Variable Options. For example, if you invest $100,000 in the Contract and make an early withdrawal, you could pay a withdrawal charge of up to $6,500.
 
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 Precision Strategy, Index Guard Strategy, and Index Performance Strategy Index Option on a date other than the Term End Date, a Daily Adjustment will apply to the Index Option Value available for withdrawal. The Daily Adjustment also applies if before the Term End Date you execute a Performance Lock, annuitize the Contract, we pay a death benefit, or we deduct Contract fees and expenses. The Daily Adjustment may be negative, and you will lose money if the Daily Adjustment is negative.
  • 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 loss. In extreme circumstances, a negative Daily Adjustment could result in a loss beyond the protection of the 10% or 20% Buffer, or -10% Floor, as applicable, but it cannot result in a total loss of -100%.
 
• Index Protection Strategy . This Crediting Method is not subject to the Daily Adjustment. 		Fee Tables
 
4. Valuing Your
Contract – Daily
Adjustment
 
6. Expenses –
Withdrawal
Charge
 
Appendix B – Daily
Adjustment
Transaction
Charges 		In addition to withdrawal charges, and Daily Adjustments that may apply to withdrawals and other transactions from the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy Index Options, we will also charge you a fee of $25 per transfer after you exceed 12 transfers between Variable Options (the variable investments available to you) in a Contract Year. Fee Tables
 
6. Expenses –
Transfer Fee
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 H – Variable
Options
Under the
Contract
Annual Fee Minimum Maximum
Base Contract (1) 0.26% 0.26%
Investment Options (2)
(Variable Option fees and expenses) 		0.65% 0.71%
  Optional Benefits Available for an Additional Charge (3)
(for a single optional benefit, if elected) 		0.20% 0.20%  
  (1) As a percentage of the Charge Base, plus an amount attributable to the contract maintenance charge.  
  (2) As a percentage of the Variable Option’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.  
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  FEES AND EXPENSES Prospectus
Location
  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, which if taken from the 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:
$1,104 		Highest Annual Cost:
$1,418 		 
  Assumes:
• Investment of $100,000
• Least expensive Variable Option fees and expenses
• 5% annual appreciation
• Traditional Death Benefit
• No additional Purchase Payments, transfers, or withdrawals
• No financial adviser fees 		Assumes:
• Investment of $100,000
• Most expensive Variable Option fees and expenses
• 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. • If within six years after we receive a Purchase Payment you take a full or partial withdrawal from the Index Options (including financial adviser fees that you choose to have us pay from this Contract), withdrawal charges may apply. A withdrawal charge may reduce your Contract Value or the amount of money that you actually receive. Withdrawals may reduce or end Contract guarantees. • Withdrawals may be subject to income taxes, including a 10% additional federal tax that may apply to withdrawals taken before age 59   1 ⁄ 2 . • Amounts invested in an Index Option must be held in the Index Option for the full Term before they can receive a Credit. For Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy Index Options, 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), annuitize the Contract, execute a Performance Lock, we pay a death benefit, or we deduct Contract fees and expenses. The Daily Adjustment takes into account any Index gains subject to the applicable Precision Rate or Cap, or either any Index losses greater than the 10% or 20% Buffer, or Index losses down to the -10% Floor, but in the form of the estimated present value. Therefore, the Daily Adjustment could result in a loss beyond the protection of the Buffer or Floor. In extreme circumstances, a negative Daily Adjustment could result in a loss beyond the protection of the 10% or 20% Buffer, or -10% Floor, as applicable, but it cannot result in a total loss of -100%. Any losses as a result of a Daily Adjustment will be greater if the amount withdrawn is also subject to a withdrawal charge, or is a deduction of Contract fees and expenses. The Daily Adjustment does not apply to the Index Protection Strategy. Risk Factors
 
Summary of the
Index Options
 
4. Valuing Your
Contract
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  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 Options and the Index Options available under the Contract. • Each Variable Option and Index Option has its own unique risks. • You should review each Variable Option’s prospectus and disclosures, including risk factors, for each Index Option 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 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. • The first 12 transfers between Variable Options every Contract Year are free. After that, we deduct a $25 transfer fee for each additional transfer. Your transfers between the Variable Options are also subject to policies designed to deter excessively frequent transfers and market timing. • We only allow assets to move into the Index Options on the Index Effective Date and on subsequent Index Anniversaries. We hold Purchase Payments in the AZL Government Money Market Fund until we transfer them to your selected Index Options according to your Purchase Payment default instructions. On the Index Effective Date we rebalance or reallocate your total Contract Value among all of your selected Allocation Options according to your Purchase Payment default instructions. For additional Purchase Payments we receive after the Index Effective Date, we transfer the amounts held in the AZL Government Money Market Fund to your selected Index Options on the next Index Anniversary. Therefore, additional Purchase Payments we receive after the Index Effective Date that you allocate to a 1-year Term Index Option are not eligible to receive a Credit until the second Index Anniversary after we receive them, or the fourth Index Anniversary after we receive them for allocations to a 3-year Term Index Option. • For a 1-year Term Index Option, you can transfer Index Option Value only on the Term End Date. • For a 3-year Term Index Option, you can transfer Index Option Value only (a) on the Term End Date, or (b) before the Term End Date by executing a Performance Lock on or before the second Index Anniversary of a 3-year Term. • We do not allow assets to move into an established Index Option until the Term End Date. If you request to transfer into an established Index Option on an Index Anniversary that is not a Term End Date, we will transfer those assets into the same Index Option with a new Term Start Date. • 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. • We reserve the right to close or substitute the Variable Options, and to limit the amount of Purchase Payments that can be held in a Variable Option. We also reserve the right to substitute Indexes. Summary of the Index Options
 
5. Variable Options
 
6. Expenses – Transfer Fee
 
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
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  TAXES Prospectus
Location
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. • Earnings under the Contract may be taxed at ordinary income rates when withdrawn, and you may have to pay a 10% additional federal tax if you take a full or partial withdrawal before age 59  1 ⁄ 2 . 11. Taxes
  CONFLICTS OF INTEREST  
Investment
Professional
Compensation 		We do not pay sales commissions in connection with sales of the Contracts. Rather, you pay an investment advisory fee to your Financial Professional. We do not set your investment advisory fee or receive any part of it. However, Financial Professionals and their managers may be eligible for benefits from us or our wholly-owned subsidiary distributor, such as production incentive bonuses, insurance benefits, and non-cash compensation items. 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. 12. Other
Information –
Distribution
Exchanges 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. 12. Other
Information –
Distribution
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Overview of the Contract
What Is the Purpose of the Contract?
The Allianz Index Advantage ADV ® is a product that offers index-linked investment options (Index Options)  and variable investment options (Variable Options) and allows you to defer taking regular fixed periodic payments (Annuity Payments) to a future date. Under the Contract, you make one or more payments to us (Purchase Payments) . Purchase Payments you allocate to the Index Options are first invested for a limited time in the AZL Government Money Market Fund and then transferred to the Index Option(s) that you select for investment. Depending on several factors (e.g., Allocation Options you select, market conditions, and timing of any withdrawals), your Contract can gain or lose value. When you are ready to receive a guaranteed stream of income under your Contract, you can annuitize your accumulated assets and begin receiving Annuity Payments from us based on the payout option you select (Annuity Options) . The Contract includes for no additional charge a standard death benefit (the Traditional Death Benefit), or for an additional rider fee you may select the optional death benefit (the Maximum Anniversary Value Death Benefit) to replace the standard death benefit. Both death benefits help to financially protect your beneficiaries.
We designed the Contract for people who are looking for a death benefit for a period of time, and a level of protection for your principal investment while providing potentially higher returns than are available on traditional fixed annuities. In addition, you should have a long investment time horizon and your financial goals should be otherwise consistent with the terms and conditions of the Contract. This Contract is not intended for someone who is seeking complete protection from downside risk, seeking unlimited investment potential, or expecting to take withdrawals that will be subject to withdrawal charges or Daily Adjustments ( i.e.,  a person that does not need access to Index Option Value within six years after we receive a Purchase Payment, or before an Index Option's Term End Date).
We offer other annuity contracts that may address your investment and retirement needs. These contracts include variable annuities, registered index-linked annuities and fixed index annuities. These annuity products offer different features and benefits that may be more appropriate for your needs, including allocation options, fees and/or expenses that are different from those in the Contract offered by this prospectus. Not every contract is offered through every Financial Professional. Some Financial Professionals or selling firms may not offer and/or limit offering of certain features and benefits, as well as limit the availability of the contracts based on criteria established by the Financial Professional or selling firm. For more information about other annuity contracts, please contact your Financial Professional.
The product or certain product features may not currently be available in all states or to all Contracts, or may vary in your state (such as the free look). For more information see Appendix G - Material Contract Variations by State and Issue Date. Availability of Index Options may vary by financial intermediary. You can obtain information on which Index Options are available to you by calling (800) 624-0197, or from your Financial Professional.
What Are the Phases of the Contract?
The Contract has two phases: (1) an Accumulation Phase, and (2) an Annuity Phase.
• Accumulation Phase. This is the first phase of your Contract, and it begins on the Issue Date. During the Accumulation Phase, your money is invested under the Contract on a tax-deferred basis. Tax deferral may not be available for certain non-individually owned contracts. Tax deferral means you are not taxed on any earnings or appreciation on the assets in your Contract until you take money out of your Contract. In addition, during this phase, you can make additional Purchase Payments, you can take withdrawals, and if you die we pay a death benefit to your named Beneficiary(s).
  Your Contract Value may fluctuate up or down during the Accumulation Phase based on the performance of your selected Allocation Options.
–  Index Options. You may allocate your Purchase Payments to any or all of the Index Options available under your Contract. There are currently 22 Index Options based on different combinations of four credit calculation methods (Crediting Methods) , four nationally recognized third-party broad based equity securities indexes and an exchange-traded fund (Indexes) , and two time periods for measuring Index performance (Term) . Each Index Option is the combination of an Index, a Crediting Method, and a Term.
  The available Crediting Methods, Indexes, and Terms are included on the cover page of this prospectus. Please see “Summary of the Index Options” for an overview of how the Index Options work. More detailed information about the Index Options is included in section 4, Valuing Your Contract.
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–  Variable Options. You can allocate your Purchase Payments to any or all of the Variable Options available under your Contract. We only allow assets to move into the Index Options on the Index Effective Date and on subsequent Index Anniversaries. As a result, we hold Purchase Payments you allocate to the Index Options in the AZL Government Money Market Fund until we transfer them to the Index Options in accordance with your instructions. The Variable Options are underlying mutual funds with their own investment objectives, strategies, and risks.
  Please see Appendix H for more information about the Variable Options.
• Annuity Phase. If you request Annuity Payments, the Accumulation Phase ends and the Annuity Phase begins. Annuity Payments are fixed payments we make based on the Annuity Option you select and your Contract Value (which reflects any previously deducted Contract fees and expenses) less final product and rider fees. Annuity Payments can provide a guaranteed lifetime fixed income stream with certain tax advantages. We designed the Annuity Payments for Owners who no longer need immediate access to Contract Value to meet their short-term income needs.
  During the Annuity Phase, you will receive a stream of regular income in the form of Annuity Payments. You will be unable to take withdrawals upon demand, your selected death benefit ends, and no amounts will be payable upon death during the Annuity Phase unless your Annuity Option provides otherwise.
What Are the Contract’s Primary Features?
• Accessing Your Money. During the Accumulation Phase, you can surrender (take a full withdrawal) the Contract or take partial withdrawals. Withdrawals may be subject to a withdrawal charge, negative Daily Adjustments, and income taxes, including a 10% additional federal tax if taken before age 59  1 ⁄ 2 .
• Additional Purchase Payments. Subject to the limitations described in this prospectus, we continue to accept additional Purchase Payments under the Contracts during the Accumulation Phase. However, we may terminate your ability to make additional Purchase Payments in the future. We only allow additional Purchase Payments to move into Index Options on Index Anniversaries. As a result, we hold Purchase Payments we receive on days other than an Index Anniversary in the AZL Government Money Market Fund and such Purchase Payments are not available to receive Credits until we transfer them to your selected Index Options. 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.
• Death Benefits. The Contract’s death benefit is paid upon the first death of any Determining Life during the Accumulation Phase. The Contract includes for no additional charge a standard death benefit (the Traditional Death Benefit) . At the time of purchase, you may select the optional death benefit (the Maximum Anniversary Value Death Benefit) to replace the standard death benefit for an additional rider fee. Either death benefit is the greater of Contract Value, or the Guaranteed Death Benefit Value. Unlike the Traditional Death Benefit, however, the Maximum Anniversary Value Death Benefit locks in any annual investment gains as part of the Guaranteed Death Benefit Value to potentially provide a death benefit greater than the Traditional Death Benefit (which is based on Purchase Payments). The Maximum Anniversary Value Death Benefit cannot be less than the Traditional Death Benefit, but they can be equal.
• Withdrawal Charge Waivers. Under the free withdrawal privilege, you may withdraw up to 10% of your total Purchase Payments from the Index Options each Contract Year during the Accumulation Phase without incurring a withdrawal charge. Upon a full withdrawal, the free withdrawal privilege is not available to you. The withdrawal charge does not apply to withdrawals from the Variable Options. We do not apply a withdrawal charge to deductions we make for Contract fees or expenses. In most states, the waiver of withdrawal charge benefit allows you to take a withdrawal without incurring a withdrawal charge if you are confined to a nursing home for a period of at least 90 consecutive days. Also, if you own an Individual Retirement Annuity (IRA) or Simplified Employee Pension (SEP) IRA Contract, payments you take under our minimum distribution program (RMD payments) are not subject to a withdrawal charge.
• Deduction of Financial Adviser Fees. If you have a financial adviser and want to pay their financial adviser fees from this Contract, you can instruct us to withdraw the fee from your Contract and pay it to your Financial Professional or Financial Professional’s firm as instructed. The deduction of financial adviser fees is in addition to this Contract’s fees and expenses, and the deduction is treated the same as any other withdrawal under the Contract. As such, withdrawals to pay financial adviser fees may be subject to withdrawal charges, will reduce the Contract Value and Guaranteed Death Benefit Value (perhaps significantly), and may be subject to income taxes (including tax penalties if you are younger than age 59  1 ⁄ 2 ). Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
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Summary of the Index Options
How Do the Crediting Methods Work?
All Crediting Methods provide a Credit on the Term End Date based on Index Values and Index Returns. The Index Value is the Index’s price at the end of the Business Day on the Term Start Date and Term End Date, which we use to calculate the Index Return. A Business Day is each day the New York Stock Exchange is open for trading and it ends when regular trading on the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern Time. All of the Crediting Methods offer 1-year Term Index Options, but only the Index Performance Strategy also offers 3-year Term Index Options.
The Index Protection Strategy provides a Credit equal to the DPSC if the Index Value on the Term End Date is equal to or greater than the Index Value on the Term Start Date, regardless of the amount of actual Index Return. If the current Index Value is less than it was on the Term Start Date, the Credit is zero.
The Index Precision Strategy provides a Performance Credit.
• If the Index Value on the Term End Date is equal to or greater than the Index Value on the Term Start Date, regardless of the amount of actual Index Return, the Performance Credit is equal to the Precision Rate.
• If the Index Return is negative and the loss is:
–  less than or equal to the 10% Buffer, the Performance Credit is zero. We absorb any loss up to the 10% Buffer.
–  greater than the 10% Buffer, the negative Performance Credit is equal to the negative Index Return in excess of the 10% Buffer. You participate in any losses beyond the 10% Buffer.
The Index Guard Strategy also provides a Performance Credit.
• If the Index Return is positive, the Performance Credit is equal to the Index Return up to the Cap.
• If the Index Value on the Term End Date is equal to the Index Value on the Term Start Date, the Performance Credit is zero.
• If the Index Return is negative, the negative Performance Credit is equal to the negative Index Return down to the -10% Floor. You participate in any losses down to the -10% Floor. We absorb any negative Index Return beyond the -10% Floor.
The Index Performance Strategy also provides a Performance Credit.
• If the Index Return is positive, the Performance Credit is equal to:
–  the Index Return up to the Cap for a 1-year Term.
–  the Index Return up to the Cap for a 3-year Term. If a 3-year Term is uncapped, the Performance Credit is equal the Index Return. We apply the Cap for the entire Term length; we do not apply the Cap annually on a 3-year Term.
• If the Index Value on the Term End Date is equal to the Index Value on the Term Start Date, the Performance Credit is zero.
• If the Index Return is negative and the loss is:
–  less than or equal to the 10% or 20% Buffer, the Performance Credit is zero. We absorb any loss up to the 10% or 20% Buffer. We apply the Buffer for the entire Term length; we do not apply the Buffer annually on a 3-year Term Index Option.
–  greater than the 10% or 20% Buffer, the negative Performance Credit is equal to the negative Index Return in excess of the 10% or 20% Buffer. You participate in any losses beyond the 10% or 20% Buffer.
A more detailed description of how we calculate Credits, including numerical examples, is included in section 4, Valuing Your Contract – Calculating Credits.
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•  The 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. These losses could be significant.
•  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 a 3-year Term 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.
How Do the Crediting Methods Compare?
The Crediting Methods have different risk and return potentials.
What is the asset protection?
Index Protection Strategy • Most protection.
• If the Index loses value, the Credit is zero. You do not receive a negative Credit.
Index Precision Strategy • Less protection than the Index Protection Strategy and Index Guard Strategy. Protection may be equal to or less than what is available with the 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, but more than 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 Performance Strategy and Index Precision Strategy.
• Provides certainty regarding the maximum loss in any Term.
Index Performance Strategy • Less protection than the Index Protection Strategy and Index Guard Strategy. 3-year Term Index Options with 20% Buffer have more protection than what is available with the Index Precision Strategy.
• Buffer absorbs 10% or 20% 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 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 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 • Growth opportunity limited by the DPSCs.
• Least growth opportunity.
• May perform best in periods of small positive market movements.
• DPSCs will generally be less than the Precision Rates and Caps.
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What is the growth opportunity?
Index Precision Strategy • Growth opportunity limited by the Precision Rates.
• May perform best in periods of small positive market movements.
• Generally more growth opportunity than the Index Protection Strategy, but less than the Index Performance Strategy.
• Growth opportunity may be more or less than the Index Guard Strategy depending on Precision 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 Precision Strategy or Index Performance Strategy depending on Precision Rates and Caps.
Index Performance Strategy • Growth opportunity limited by the Caps. If we do not declare a Cap for a 3-year Term Index Option there is no maximum limit on the positive Index Return for that Index Option.
• May perform best in a strong market.
• Generally the most growth opportunity. However, growth opportunity may be less than the Index Precision Strategy or Index Guard Strategy depending on Precision Rates and Caps.
    
What can change within a Crediting Method?
Index Protection Strategy • Renewal DPSCs for existing Contracts can change on each Term Start Date.
• DPSCs are subject to a 1.50% minimum.
Index Precision Strategy • Renewal Precision Rates for existing Contracts can change on each Term Start Date.
• 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.
• Precision Rates are subject to a 1.50% minimum.
Index Guard Strategy • Renewal Caps for existing Contracts can change on each Term Start Date.
• 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.
• Caps are subject to a 1.50% minimum.
Index Performance Strategy • Renewal Caps for existing Contracts can change on each Term Start Date.
• The 10% or 20% 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.
• Caps are subject to a 1.50% minimum for 1-year Terms, or 5% for 3-year Terms.
    
•  For any Index Option with the 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.
• DPSCs, Precision Rates, and Caps 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 DPSCs, Precision Rates, and Caps will be reduced to their respective minimums of 1.50%, or 5% as stated in the table above.
•  DPSCs, Precision Rates, and Caps 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 and 3-year Terms on the Index Performance Strategy, and between the 1-year Terms for the Index Guard Strategy and Index Performance Strategy. They may also be different from Contract-to-Contract depending on the Index Effective Date and the state of issuance.
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Bar Chart Examples of the Crediting Methods Performance
The following hypothetical examples show conceptually how the Crediting Methods might work in different market environments and assume no change in the hypothetical DPSCs, Precision Rates, or Caps. All values below are for illustrative purposes only. The examples do not reflect any DPSCs, Precision Rates, or Caps that may actually apply to a Contract. The examples do not predict or project the actual performance of the Allianz Index Advantage ADV ® . Although an Index or Indexes will affect your Index Option Values, the Index Options do not directly participate in any stock or equity investment and are not a direct investment in an Index. The Index Values do not include the dividends paid on the stocks comprising an Index. An allocation to an Index Option is not a purchase of shares of any stock or index fund. These examples do not reflect any withdrawals taken before the Term End Date (including any financial adviser fees that you choose to have us pay from this Contract), or deductions we make for Contract fees and expenses. Historical Index Option performance information is also included in Appendix D.
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Can the Crediting Methods, Terms, or Indexes Change?
We can add new Crediting Methods, Terms, and Indexes to your Contract in the future, and you can allocate Purchase Payments or transfer Contract Value to them on the next Index Anniversary after we make them available to you. Once we add a Crediting Method to your Contract we cannot remove it, or change how it calculates Credits. If we add a new Index Option to your Contract, we cannot change its Buffer or Floor after it is established. However, we can change the renewal DPSCs, Precision Rates, or Caps associated with any Index Option on each Term Start Date.
Once we add an Index to your Contract, we cannot remove it without simultaneously replacing or substituting it. Index replacements and substitutions can occur either on a Term Start Date, Term End Date, or during a Term. If we substitute an Index during a Term, we will combine the return of the previously available substituted Index with the return of the new Index. However, if we substitute an Index, we do not change the Buffers or Floors applicable to your Contract, or the current DPSCs, Precision Rates, or Caps that we set on the Term State Date. Any changes to the DPSCs, Precision Rates, or Caps for the new substituted Index will occur at the next regularly scheduled Term Start Date. For more information, see Risk Factors – Substitution of an Index.
Historical information on the DPSCs, Precision Rates, and Caps is provided in Appendix C. This information is for historical purposes only and is not a representation as to future DPSCs, Precision Rates, and Caps.
When Does Allianz Establish the Values Used to Determine Index Credits?
The 10% and 20% Buffers, and -10% Floors for the currently available Index Options do not change. However, if we add a new Index Option to your Contract after the Issue Date, we establish the Buffer or Floor for it on the date we add the Index Option to your Contract.
We establish the initial DPSCs, Precision Rates, and Caps for a newly issued Contract on the Index Effective Date and they cannot change until the next Term Start Date. You select the Index Effective Date when you purchase your Contract. It can be any Business Day from the Issue Date up to and including the first Quarterly Contract Anniversary, but it cannot be the 29th, 30th or 31st of a month. You should be aware that, generally, DPSCs, Precision Rates, and Caps could change every seven calendar days. However, these rates are guaranteed to be available during the period stated on our website at allianzlife.com/indexratesadv and cannot be superseded until that period ends. Therefore, if you select an Index Effective Date that is after the date the rate is guaranteed to be available, you are subject to the risk that
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initial DPSCs, Precision Rates, and Caps may change and be less advantageous to you. Furthermore, if the Index Effective Date is after the free look period, you will be subject to the withdrawal charge for amounts withdrawn from the Index Options, and final product and rider fees and contract maintenance charge if you then elect to cancel the Contract after the free look period. You may review future rates at least seven calendar days before their effectiveness at allianzlife.com/indexratesadv . You (or your Financial Professional, if authorized) can change your Index Effective Date at any time before it occurs to be an earlier or later date by submitting a request.
We can change the renewal DPSCs, Precision Rates, and Caps for an existing Contract on each new Term Start Date, in our discretion. Your initial and renewal DPSCs, Precision Rates, and Caps are stated in your Index Options Statement , which is the account statement we mail to you on the Index Effective Date and each Index Anniversary. The Index Options Statement also includes the Index Values on the Term Start Date and Term End Date. We use these Index Values to determine Index Returns and Credits.
For information on the initial DPSCs, Precision Rates, and Caps we currently offer for newly issued Contracts, see our website at allianzlife.com/indexratesadv . We publish any changes to these values at least seven calendar days before the Index Effective Date that they take effect. If you select the earliest Index Effective Date or an Index Effective Date that is within the guaranteed period applicable to the initial rates in effect on the Issue Date, the initial rates available for review on your Issue Date will be the rates on your Index Effective Date. However, if you choose to defer your Index Effective Date your initial rates may change from the values that were available on your Issue Date. You are responsible for reviewing the initial rates before your Index Effective Date to ensure your allocations and the product still meet your needs.
We will send you a letter at least 30 days before each Index Anniversary. This letter advises you that current DPSCs, Precision Rates, and Caps are expiring, and that renewal rates for the next Term Start Date will be available for your review in your account on our website at least seven calendar days before they take effect on the upcoming Index Anniversary . Renewal rates are also available on our website at allianzlife.com/indexratesadv . The Index Anniversary letter also reminds you of your opportunity to transfer Variable Account Value to the Index Options, or reallocate your Index Option Values on the upcoming Term End Date.
•  If your Contract is within its free look period you may be able to take advantage of any increase in initial DPSCs, Precision Rates, or Caps by cancelling your Contract and purchasing a new Contract.
•  If the initial DPSCs, Precision Rates, or Caps available on the Index Effective Date are not acceptable you can:
–  cancel your Contract if you are still within the free look period,
–  request to extend your Index Effective Date if you have not reached your first Quarterly Contract Anniversary,
–  on or before the Index Effective Date, cancel the Contract and request a full withdrawal of the money held in the AZL Government Money Market Fund and receive the Contract Value less final product and rider fees and contract maintenance charge; on or before the Index Effective Date you are  not  subject to the Daily Adjustment, or
–  after the Index Effective Date, cancel the Contract and request a full withdrawal of the Contract Value less withdrawal charge, and final product and rider fees and contract maintenance charge; after the Index Effective Date, you will be subject to a withdrawal charge and the Daily Adjustment .
•  DPSCs, Precision Rates, and Caps may be different between newly issued and existing Contracts, and between existing Contracts issued on the same month and day in different years. For example, assume that on May 3, 2019 we set Caps for the Index Performance Strategy 1-year Term with the S&P 500 ® Index as follows:
–  13% initial rate for new Contracts issued in 2019,
–  14% renewal rate for existing Contracts issued in 2018, and
–  12% renewal rate for existing Contracts issued in 2017.
What Are the Different Values Within the Contract?
The Contract provides the following values as discussed in section 4, Valuing Your Contract.
• The Contract Value is the sum of your Variable Account Value and Index Option Values. Contract Value reflects any previously deducted Contract fees and expenses, but does not reflect Contract fees and expenses that we would apply on liquidation. The cash surrender value reflects all Contract fees and expenses we would apply on liquidation.
• Your Variable Account Value is the sum of the values in your selected Variable Options. It reflects deduction of Variable Option operating expenses, any previously assessed transfer fee, contract maintenance charge, product fee, and rider fee. It changes each Business Day based on the performance of the Variable Options.
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• Your total Index Option Value is the sum of the values in each of your selected Index Options. Each Index Option Value includes any Credits from previous Term End Dates, reduced proportionately for previous partial withdrawals you took and any financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charges), and previous deductions we made for Contract fees and expenses. Amounts removed from the Index Options during the Term for withdrawals you take and deductions we make for fees and expenses do not receive a Credit on the Term End Date, but the amount remaining does receive a Credit subject to the applicable Buffer, Floor, DPSC, Precision Rate, or Cap.
–  On each Business Day during the Term other than the Term Start Date or Term End Date, we calculate the current Index Option Value for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy by adding a Daily Adjustment to the Index Option Base. The Index Option Base is the amount you allocate to an Index Option. We reduce the Index Option Base proportionately for withdrawals you take and any financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charges), and deductions we make for Contract fees and expenses; we increase/decrease it by the dollar amount of additional Purchase Payments allocated to, transfers into or out of the Index Option; and any Credit.
–  During the Term the Index Option Values for Index Options with the Index Protection Strategy do not change for Index performance, and do not receive the Daily Adjustment.
What Is the Daily Adjustment?
The Daily Adjustment is how we calculate Index Option Values on Business Days other than the Term Start Date or Term End Date  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. The Index Options with the Index Protection Strategy and the Variable Options are not subject to the Daily Adjustment.
The Daily Adjustment can affect the amounts available for withdrawal, Performance Locks, annuitization, payment of the death benefit, and the Contract Value used to determine the Charge Base and contract maintenance charge. The Daily Adjustment can be positive or negative. When the Daily Adjustment is positive, your Index Option Value has increased since the Term Start Date. When it is negative, your Index Option Value has decreased (excluding the effect of the deduction of Contract expenses or any partial withdrawal).
We calculate the Daily Adjustment for a given Business Day before we deduct any Contract fees or expenses or process any partial withdrawal on that Business Day, including Penalty-Free Withdrawals, and any financial adviser fees that you choose to have us pay from this Contract. However, the Daily Adjustment calculation is not affected by any Contract fee or expense deduction, or partial withdrawal. The Daily Adjustment does not change the Contract fee or expense deducted, or the withdrawal amount; it only changes the Index Option Value from which we deduct the Contract fee or expense, or withdrawal.
The Daily Adjustment approximates the Index Option Value that will be available on the Term End Date. It is the estimated present value of the future Performance Credit that we will apply on the Term End Date. The Daily Adjustment takes into account:
(i) any Index gains during the Term subject to the applicable Precision Rate or Cap,
(ii) either any Index losses greater than the 10% or 20% Buffer, or Index losses down to the -10% Floor, and
(iii) the number of days until the Term End Date.
The Daily Adjustment does this by using the hypothetical value of a Proxy Investment (Proxy Value) each Business Day, other than the Term Start Date or Term End Date, based on the formulas described in Appendix B. The Proxy Investment provides a current estimated present value of what the Performance Credit will be on the Term End Date taking into account the applicable Buffer, Floor, Precision Rate, and/or Cap. The Daily Adjustment is not the actual Index return on the day of the calculation, and the estimated present value Performance Credit is not guaranteed. Therefore, the Daily Adjustment could result in a loss beyond the protection of the Buffer or Floor. In extreme circumstances the Daily Adjustment could result in a loss beyond the protection of the 10% or 20% Buffer, or -10% Floor, but it cannot result in a total loss of -100%. Such losses will be greater if the amount withdrawn (including any financial adviser fees that you choose to have us pay from this Contract) is also subject to a withdrawal charge, or is a deduction of Contract fees and expenses.
A withdrawal taken during the Term may not receive the full benefit of the Buffer or Floor because the Daily Adjustment takes into account what may potentially happen between the withdrawal date and the Term End Date. All other factors being equal, even if the current Index return during the Term is greater than the Precision Rate or Cap, the Daily Adjustment will usually be lower than the Precision Rate or Cap. This is because there is a possibility that the Index return
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could decrease before the Term End Date. Similarly, even though a negative Index return may be within the 10% or 20% Buffer for the Index Precision Strategy and Index Performance Strategy, you still may receive a negative Daily Adjustment because there is a possibility that the Index Return could decrease before the Term End Date. The Daily Adjustment for 3-year Term Index Options may be more negatively impacted by changes in the expected volatility of Index prices than 1-year Term Index Options due to the difference in Term length. Also, the risk of a negative Daily Adjustment is greater for 3-year Term Index Options than 1-year Term Index Options due to the Term length. Finally, a negative Index return for the Index Guard Strategy may result in you receiving a Daily Adjustment lower than the -10% Floor, because the Daily Adjustment reflects the present value of the Floor and you will not receive the full benefit of the -10% Floor until the Term End Date. A negative Daily Adjustment may cause you to realize loss of principal and previous earnings.
The Daily Adjustment’s risks are discussed in more detail in Risk Factors – Risk of Negative Returns. The specific details of the Daily Adjustment formula are described in Appendix B and in Exhibit 99(b) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This information is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(b) by calling (800) 624-0197, or visiting our website at allianzlife.com .
What Is the Performance Lock?
For each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy, you can capture the current Index Option Value (which includes the Daily Adjustment) on any Business Day during the Term through our Performance Lock feature. You (or your Financial Professional, if authorized) can request Performance Locks based on the Daily Adjustment. On our website the Daily Adjustment is included in the Index Option Value return figures. Additionally, you can transfer assets out of a locked Index Option on the Index Anniversary that occurs on or immediately after the Lock Date. For a 3-year Term Index Option this means you can transfer out of the locked Index Option before the Term End Date by executing a Performance Lock on or before the second Index Anniversary of the 3-year Term. The Business Day that we execute a Performance Lock is the Lock Date for that Index Option.
We will not provide advice or notify you regarding whether you should exercise a Performance Lock or the optimal time for doing so. We will not warn you if you exercise a Performance Lock at a sub-optimal time. We are not responsible for any losses related to your decision whether or not to exercise a Performance Lock.
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Fee Tables
The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering or making withdrawals from the Contract. 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 tables do not reflect any financial adviser fees that you pay from your other assets, or that you choose to have us pay from this Contract. If financial adviser fees were reflected, fees and expenses would be higher.
The first table describes the fees and expenses that you will pay at the time that you buy the Contract, surrender or make withdrawals from the Contract, or transfer Contract Value between investment options. State premium taxes may also be deducted.
Transaction Expenses
Withdrawal Charge Applicable to the Index Options During Your Contract’s First Phase, the Accumulation Phase(1)
(as a percentage of each Purchase Payment withdrawn)(2)
Number of Complete
Years Since
Purchase Payment 		  Withdrawal Charge
Amount
0   6.5%
1   6%
2   5%
3   4%
4   3%
5   2%
6 years or more   0%
    
Transfer Fee(3)
 $25
(for each transfer between Variable Options after twelve in a Contract Year)  
    
  Index Precision Strategy
and
Index Performance Strategy 		  Index Guard Strategy
Daily Adjustment Maximum Potential Loss
99%   35%
(as a percentage of Index Option Value, applies for distributions from an Index Option before any Term End Date) (4)      
(1) The withdrawal charge does not apply to withdrawals from the Variable Options. The Contract provides a free withdrawal privilege that allows you to withdraw 10% of your total Purchase Payments annually from the Index Options without incurring a withdrawal charge, as discussed in section 7, Access to Your Money – Free Withdrawal Privilege.
(2) The Withdrawal Charge Basis is the total amount under your Contract that is subject to a withdrawal charge, as discussed in section 6, Expenses – Withdrawal Charge.
(3) We count all transfers made in the same Business Day as one transfer, as discussed in section 6, Expenses – Transfer Fee. The transfer fee does not apply to transfers to or from the Index Options and these transfers do not count against your free transfers. Transfers are subject to the policies discussed in section 5, Variable Options – Excessive Trading and Market Timing.
(4) This shows the maximum potential loss due to the application of the Daily Adjustment (e.g., maximum loss could occur if there is a total distribution within a Term at a time when the Index price has declined to zero). The Daily Adjustment could result in a loss beyond the protection of the 10% or 20% Buffer, or -10% Floor. The Daily Adjustment applies if before the Term End Date you take a full or partial withdrawal (including any financial adviser fees that you choose to have us pay from this Contract), execute a Performance Lock, annuitize the Contract, we pay a death benefit, or when we deduct Contract fees or expenses. The actual Daily Adjustment calculation is determined by a formula described in Appendix B.
The next table describes the fees and expenses that you will pay each year during the time that you own the Contract (not including Variable Option fees and expenses). If you purchased the optional Maximum Anniversary Value Death Benefit, you pay additional charges, as shown below.
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Annual Contract Expenses
Administrative Expenses (or contract maintenance charge) (1)
(per year) 		$50
Base Contract Expenses (2)
(as a percentage of the Charge Base) 		0.25%
Optional Benefit Expenses – Maximum Anniversary Value Death Benefit
(as a percentage of the Charge Base) 		0.20%
(1) Referred to as the “contract maintenance charge” in the Contract and elsewhere in this prospectus. Waived if the Contract Value is at least $100,000. During the Annuity Phase, we deduct the contract maintenance charge proportionately from each Annuity Payment. See the section 6, Expenses – Contract Maintenance Charge (Administrative Expenses).
(2) Referred to as the “product fee” in the Contract and elsewhere in this prospectus. See section 6, Expenses – Base Contract Expenses (Product Fee).
The next table shows the minimum and maximum total operating expenses charged by the Variable Options that you may pay periodically during the time that you own the Contract. A complete list of Variable Options available under the Contract, including their annual expenses, may be found in Appendix H – Variable Options Available Under the Contract.
Annual Variable Option Expenses
  Minimum   Maximum
(expenses that are deducted from Variable Option assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) 0.65%   0.71%
Example
This Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include transaction expenses, annual Contract expenses, and annual Variable Option expenses. These costs do not include any financial adviser fees that you pay from your other assets, or that you choose to have us pay from this Contract.
The Example assumes that you invest $100,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that you elected the Maximum Anniversary Value Death Benefit. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
(1) If you surrender your Contract (take a full withdrawal) at the end of the applicable time period:
  1 Year 3 Years 5 Years 10 Years
Maximum Variable Option expense $7,029 $8,182 $9,091 $14,180
Minimum Variable Option expense $6,969 $7,995 $8,770 $13,488
(2) If you annuitize your Contract at the end of the applicable time period.
  1 Year 3 Years 5 Years 10 Years
Maximum Variable Option expense N/A* $3,682 $6,391 $14,180
Minimum Variable Option expense N/A* $3,495 $6,070 $13,488
* The earliest available Annuity Date is the second Contract Anniversary.
(3) If you do not surrender your Contract.
    
  1 Year 3 Years 5 Years 10 Years
Maximum Variable Option expense $1,179 $3,682 $6,391 $14,180
Minimum Variable Option expense $ 1,119 $3,495 $6,070 $13,488
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Risk Factors
The Contract involves certain risks that you should understand before purchasing. You should carefully consider your income needs and risk tolerance to determine whether the Contract is appropriate for you. The level of risk you bear and your potential investment performance will differ depending on the Allocation Options you choose.
Liquidity Risks
We designed the Contract to be a long-term investment that you can use to help build and provide income for retirement. The Contract is not suitable for short-term investment.
If you need to take a full or partial withdrawal during the withdrawal charge period, or when we deduct any financial adviser fees that you choose to have us pay from this Contract, we deduct a withdrawal charge for amounts withdrawn from the Index Options, including amounts previously withdrawn under the free withdrawal privilege unless the withdrawal is a Penalty-Free Withdrawal. While Penalty-Free Withdrawals provide some liquidity, they are permitted in only limited amounts or in special circumstances. If you need to withdraw most or all of your total Index Option Value in a short period, you may exceed the Penalty-Free Withdrawal amounts available to you and incur withdrawal charges. (For more information on the withdrawal charge, see the Fee Tables and section 6, Expenses – Withdrawal Charge.)
We calculate the withdrawal charge as a percentage of your Purchase Payments, not Contract Value. Consequently, if the Contract Value has declined since you made a Purchase Payment, it is possible the percentage of Contract Value withdrawn to cover the withdrawal charge would be greater than the withdrawal charge percentage. For example, assume you buy the Contract with a single Purchase Payment of $1,000 allocated to an Index Option. If your Contract Value in the 5th year is $800 and you take a full withdrawal a 3% withdrawal charge applies. The total withdrawal charge would be $30 (3% of $1,000). This results in you receiving $770.
In addition, upon a full withdrawal the free withdrawal privilege is not available to you, and we apply a withdrawal charge against Purchase Payments that are still within their withdrawal charge period for amounts withdrawn from the Index Options, including amounts previously withdrawn under the free withdrawal privilege. However, we do not apply withdrawal charges to amounts withdrawn from the Variable Options. On a full withdrawal your Withdrawal Charge Basis may be greater than your Index Option Value because the following reduce your Contract Value, but do not reduce your Withdrawal Charge Basis: deductions we make for prior withdrawals from the Variable Options, prior Penalty-Free Withdrawals,  and Contract fees or expenses; and/or poor performance.
Amounts withdrawn from this Contract may also be subject to federal and state income taxes, and a 10% additional federal tax if taken before age 59  1 ⁄ 2 .
We only apply Credits to the Index Options once each Term on the Term End Date, rather than on a daily basis. In the interim, we calculate Index Option Values based on the Daily Adjustment for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. However, Daily Adjustments do not apply to any Index Option with the Index Protection Strategy. Any assets removed from an Index Option during the Term for withdrawals you take (including Penalty-Free Withdrawals and any financial adviser fees that you choose to have us pay from this Contract), Annuity Payments, or deductions we make for Contract fees and expenses, or if we pay a death benefit, will not be eligible to receive a Credit on the Term End Date. These removed assets will not receive the full benefit of the Index Value, Index Return, and the 10% or 20% Buffer, or -10% Floor that would have been available on the Term End Date, and losses could exceed the protection offered by the 10% or 20% Buffer, or -10% Floor. You will receive a Credit only on the Index Option Value remaining in an Index Option on the Term End Date.
You can transfer Index Option Value to the Variable Options only on every sixth Index Anniversary, and you can transfer Index Option Value among the Index Options only on Term End Dates. At other times, you can only move assets out of an Index Option by taking a full or partial withdrawal, or entering the Annuity Phase. Additionally, you can transfer assets out of a locked Index Option on the Index Anniversary that occurs on or immediately after the Lock Date. For a 3-year Term Index Option this means you can transfer out of the locked Index Option before the Term End Date by executing a Performance Lock on or before the second Index Anniversary of the 3-year Term. These restrictions may limit your ability to react to changes in market conditions. You should consider whether investing in an Index Option is consistent with your financial needs.
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Risks of Investing in Securities
Returns on securities and securities Indexes can vary substantially, which may result in investment losses. The historical performance of the available Allocation Options does not guarantee future results. It is impossible to predict whether underlying investment values will fall or rise. Trading prices of the securities underlying the Allocation Options are influenced by economic, financial, regulatory, geographic, judicial, political and other complex and interrelated factors. These factors can affect capital markets generally and markets on which the underlying securities are traded and these factors can influence the performance of the underlying securities.
If you allocate Purchase Payments or transfer Contract Value to an Index Option, your returns depend on the performance of an Index although you are not directly invested in the Index. Because the S&P 500 ® Index, Russell 2000 ® Index, Nasdaq-100 ® Index, EURO STOXX 50 ® and iShares ® MSCI Emerging Markets ETF are each comprised of a collection of equity securities, in each case the value of the component securities is subject to market risk, or the risk that market fluctuations may cause the value of the component securities to go up or down, sometimes rapidly and unpredictably. In addition, the value of equity securities may decline for reasons directly related to the issuers of the securities.
S&P 500 ® Index . The S&P 500 ® Index is comprised of equity securities issued by large-capitalization U.S. companies. In general, large-capitalization companies may be unable to respond quickly to new competitive challenges, and also may not be able to attain the high growth rate of successful smaller companies.
Russell 2000 ® Index . The Russell 2000 ® Index is comprised of equity securities of small-capitalization U.S. companies. In general, the securities of small-capitalization companies may be more volatile and may involve more risk than the securities of larger companies.
Nasdaq-100 ® Index . The Nasdaq-100 ® Index is comprised of equity securities of the largest U.S. and non-U.S. companies listed on The Nasdaq Stock Market, including companies across all major industry groups except the financial industry. To the extent that the Nasdaq-100 ® Index is comprised of securities issued by companies in a particular sector, that company’s securities may not perform as well as companies in other sectors or the market as a whole. Also, any component securities issued by non-U.S. companies (including related depositary receipts) are subject to the risks related to investments in foreign markets (e.g., increased price volatility; changing currency exchange rates; and greater political, regulatory, and economic uncertainty).
EURO STOXX 50 ® . EURO STOXX 50 ® is comprised of the equity securities of large-capitalization companies in the Eurozone. The securities comprising EURO STOXX 50 ® are subject to the risks related to investments in foreign markets (e.g., increased price volatility; changing currency exchange rates; and greater political, regulatory, and economic uncertainty), and are significantly affected by the European markets and actions of the European Union.
iShares ® MSCI Emerging Markets ETF . The iShares ® MSCI Emerging Markets ETF seeks to track the investment results of the MSCI Emerging Markets Index, which is designed to measure equity market performance in the global emerging markets. The underlying index may include large-and mid-capitalization companies. iShares ® MSCI Emerging Markets ETF is an exchange-traded fund. The performance of the iShares ® MSCI Emerging Markets ETF may not replicate the performance of, and may underperform the underlying index. The price of the iShares ® MSCI Emerging Markets ETF will reflect expenses and fees that will reduce its relative performance. Moreover, it is also possible that the iShares ® MSCI Emerging Markets ETF may not fully replicate or may, in certain circumstances, diverge significantly from the performance of the underlying index. Additional information about iShares ® MSCI Emerging Markets ETF is available on the SEC’s website at sec.gov and copies of that information may be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov. Please note that this information is not prepared by us and may be intended for shareholders of the ETF. You will not be a shareholder of the ETF by investing in an Index Option that is linked to the performance of the ETF. You may also request additional information about the ETF from our Service Center or your Financial Professional.
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The COVID-19 pandemic has at times led to significant volatility and negative returns in the financial markets. These market conditions have impacted the performance of the Indexes to which the Index Options are linked, as well as securities held by the Variable Options. If these market conditions continue or reoccur, and depending on your individual circumstances ( e.g. , your selected Allocation Options and the timing of any Purchase Payments, transfers, or withdrawals), you may experience (perhaps significant) negative returns under the Contract. The COVID-19 pandemic has contributed to an uncertain and evolving economic environment. The impact of the COVID-19 pandemic and other interrelated factors (e.g., changes in interest rates, rising inflation, actions of governmental authorities) on the economic environment cannot be predicted with certainty, but they could negatively affect the returns of an Index and the level of DPSCs, Precision Rates, and Caps, and other product features, and the overall performance of your Contract.
The military invasion of Ukraine initiated by Russia in February 2022 and the resulting response by the United States and other countries have led to economic disruptions, as well as increased volatility and uncertainty in the financial markets. It is not possible to predict the ultimate duration and scope of the conflict, or the future impact on U.S. and global economies and financial markets. The performance of the Indexes to which the Index Options are linked, as well as securities held by the AZL Government Money Market Fund, may be adversely affected. This risk could be higher for Indexes with exposure to European or Russian markets, including EURO STOXX 50 ®  and iShares ® MSCI Emerging Markets ETF. Depending on your individual circumstances (e.g., your selected Index Options and the timing of any Purchase Payments, transfers, or withdrawals), you may experience (perhaps significant) negative returns under the Contract. You should consult with a Financial Professional about how the recent market conditions may impact your future investment decisions related to the Contract, such as purchasing the Contract or making Purchase Payments, transfers, or withdrawals, based on your individual circumstances.
Risk of Negative Returns
The Variable Options do not provide any protection against negative returns. You can lose principal and previous earnings if you allocate Purchase Payments or transfer Contract Value to the Variable Options and such losses could be significant.
If you allocate Purchase Payments or transfer Contract Value to an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, negative Index Returns may cause Performance Credits to be either negative after application of the 10% or 20% Buffer, or negative down to the -10% Floor. For the Index Performance Strategy, we apply the Buffer for the entire Term length; we do not apply the Buffer annually on a 3-year Term Index Option. Ongoing deductions we make for Contract fees and expenses could also cause amounts available for withdrawal to be less than what you invested even if Index performance has been positive. You can lose principal and previous earnings if you allocate Purchase Payments or transfer Contract Value to the Index Options with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, and such losses could be significant. If you allocate Purchase Payments or transfer Contract Value to the Index Options with the Index Protection Strategy you can also lose principal and previous earnings if you do not receive the DPSC, or if the Contract fees and expenses are greater than the DPSC. The maximum potential negative Performance Credit for the Index Performance Strategy and Index Precision Strategy is based on the Buffer. If the Buffer is 10% the maximum negative Performance Credit is -90%, and if the Buffer is 20% the maximum negative Performance Credit is -80%. The maximum potential negative Performance Credit for the Index Guard Strategy is the -10% Floor. Such losses will be greater if you take a withdrawal (including any financial adviser fees that you choose to have us pay from this Contract) that is subject to a withdrawal charge, or is a deduction of Contract fees and expenses.
If you select an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, we calculate Index Options Values for these Index Options on each Business Day during a Term (other than the Term Start Date or Term End Date) by adding the Daily Adjustment. The Daily Adjustment affects the total Contract Value available for withdrawal, annuitization, and payment of the death benefit, and it affects how we determine the contract maintenance charge and Charge Base for the product and rider fees. The Daily Adjustment can be less than the Precision Rate or Cap even if the current Index return during the Term is greater than the Precision Rate or Cap. In addition, even though the current Index return during the Term may be positive, the Daily Adjustment for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy may be negative due to changes in Proxy Value inputs, such as volatility, dividend yield, and interest rate. The Daily Adjustment is generally negatively affected by:
• interest rate decreases,
• dividend rate increases,
• poor market performance, and
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• the expected volatility of Index prices. Increases in the expected volatility of Index prices negatively affect the Index Precision Strategy and Index Performance Strategy with 1-year Terms, while decreases in the expected volatility of Index prices negatively affect the Index Guard Strategy. For the Index Performance Strategy with 3-year Terms, the impact of changes in the expected volatility of Index prices is dependent on the market environment and the applicable Caps and Participation Rates.
The Daily Adjustment for 3-year Term Index Options may be more negatively impacted by changes to interest rates, dividend rates, market performance and the expected volatility of Index prices than 1-year Term Index Options because the longer Term length amplifies the impact of these market parameters on the expected Index Option Value at the Term End Date. The impact of the Cap and Buffer on the Daily Adjustment for a 1-year Term Index Option is greater than it is for a 3-year Term Index Option because we apply the Cap and Buffer for the entire Term length, and the Term length is shorter for a 1-year Term.
If you take a withdrawal from an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy before the Term End Date, you could lose principal and previous earnings because of the Daily Adjustment even if Index performance is positive on that day or has been positive since the Term Start Date . If the current Index return during the Term is negative, the Daily Adjustment for these Index Options could result in losses greater than the protection provided by the 10% or 20% Buffer, or -10% Floor. In extreme circumstances the Daily Adjustment could result in a loss beyond the protection of the Buffer or Floor, but it cannot result in a total loss of -100%. Such losses will be greater if the amount withdrawn (including any financial adviser fees that you choose to have us pay from this Contract) is also subject to a withdrawal charge, or is a deduction of Contract fees and expenses.
Risks Associated with Calculation of Credits
We calculate Credits each Term on the Term End Date. 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 you allocate Purchase Payments or transfer Contract Value to the Index Options with Index Protection Strategy, positive returns are limited by the DPSCs. You are not subject, however, to potential negative Credits. The Precision Rates on the Index Options with Index Precision Strategy, and the Caps on the Index Options with Index Guard Strategy and Index Performance Strategy also limit positive returns and could cause performance to be lower than it would otherwise have been if you invested in a mutual fund or exchange-traded fund designed to track the performance of the applicable Index, or the Variable Options. For the Index Performance Strategy, we apply the Cap for the entire Term length; we do not apply the Cap annually on a 3-year Term Index Option.
The Index Options do not directly participate in the returns of the Indexes or the Indexes’ component securities, and do not receive any dividends payable on these securities. Index returns would be higher if they included the dividends from the component securities. The past ten years of actual average of the annual Index returns without and with dividends would have been as follows:
  January 1, 2011 through December 31, 2021
  S&P 500 ®
Index 		  Nasdaq-100 ®
Index 		  Russell 2000 ®
Index 		  EURO
STOXX 50 ® 		  iShares ® MSCI
Emerging Markets ETF
Returns without dividends 14.84%   22.67%   12.57%   7.03%   3.79%
Returns with dividends 17.11%   24.05%   14.07%   10.88%   5.90%
DPSCs, Precision Rates, and Caps may be adjusted on the next Term Start Date and may vary significantly from Term to Term. Changes to DPSCs, Precision Rates, and Caps may significantly affect the amount of Credit you receive. For more information, see the “Changes to Declared Protection Strategy Credits (DPSCs), Precision Rates, and Caps” discussion later in this section.
The Crediting Methods only capture Index Values on the Term Start Date and Term End Date, so you will bear the risk that the Index Value might be abnormally low on these days.
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Risks Associated with Performance Locks
If a Performance Lock is executed:
• You will no longer participate in Index performance, positive or negative, for the remainder of the Index Year for the locked Index Option. This means that under no circumstances will your Index Option Value increase during the remainder of the Index Year. An Index Year is a twelve-month period beginning on the Index Effective Date or a subsequent Index Anniversary.
• You will not receive a Performance Credit on any locked Index Option on the Term End Date.
• We use the Daily Adjustment calculated at the end of the current Business Day on the Lock Date to determine your locked Index Option Value. This means you will not be able to determine in advance your locked Index Option Value, and it may be higher or lower than it was at the point in time you requested a manual Performance Lock, or that your Index Option reached its target for an automatic Performance Lock. Through your account on our website you can request a Performance Lock based on upper and/or lower targets you set using Index Option Value returns.
• If a Performance Lock is executed when your Daily Adjustment has declined, you will lock in any loss. It is possible that you would have realized less of a loss or no loss if the Performance Lock occurred at a later time, or if the Index Option was not locked.
• We will not provide advice or notify you regarding whether you should exercise a Performance Lock or the optimal time for doing so. We will not warn you if you exercise a Performance Lock at a sub-optimal time. We are not responsible for any losses related to your decision whether or not to exercise a Performance Lock.
Substitution of an Index
There is no guarantee that the Indexes will be available during the entire time that you own your Contract. If we substitute a new Index for an existing Index, the performance of the new Index may be different and this may affect your ability to receive positive Credits. We may substitute a new Index for an existing Index if:
• the Index is discontinued,
• we are unable to use the Index because, for example, changes to an Index make it impractical or expensive to purchase derivative hedging instruments to hedge the Index, or we are not licensed to use the Index, or
• the method of calculation of the Index Values changes substantially, resulting in significantly different Index Values and performance results. This could occur, for example, if an Index altered the types of securities tracked, or the weighting of different categories of securities.
If we add or substitute an Index, we first seek any required regulatory approval (from each applicable state insurance regulator) and then provide you with written notice. We also provide you with written notice if an Index changes its name. Substitutions of an Index may occur during a Term. If we substitute an Index during a Term we will combine the return of the replaced existing Index from the Term Start Date to the substitution date with the return of the new Index from the substitution date to the Term End Date. If we substitute an Index during a Term:
• we do not change the Charge Base we use to calculate the product and rider fees, and
• the Buffers, Floors, DPSCs, Precision Rates, and Caps for the replaced Index will apply to the new Index. We do not change the Buffers and Floors applicable to your Contract, or the current DPSCs, Precision Rates, and Caps that we set on the Term Start Date.
Changes to DPSCs, Precision Rates, and Caps associated with the new Index, if any, may occur at the next regularly scheduled Term Start Date. Depending on the constitution of the replaced Index, the volatility of its investments, and our ability to hedge the Index’s performance, we may determine, in our discretion, to increase or decrease renewal DPSCs, Precision Rates, and Caps associated with the new Index. However, we would not implement any change to reflect this difference until the next Term Start Date after the substitution. For any Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, the substitution of an Index during a Term may result in an abnormally large change in the Daily Adjustment on the day we substitute the Index.
The selection of a substitution Index is in our discretion; however, it is anticipated that any substitute Index will be substantially similar to the Index it is replacing and we will replace any equity Index with a broad-based equity index.
Changes to Declared Protection Strategy Credits (DPSCs), Precision Rates, and Caps
You can only transfer Index Option Value to a Variable Option on a sixth Index Anniversary.
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We establish initial and renewal DPSCs, Precision Rates, and Caps as indicated under “When Does Allianz Establish the Values Used to Determine Index Credits?” in the Summary of the Index Options section. This section also includes information on the notice we provide you of renewal changes on each Index Anniversary.
You should be aware that, generally, DPSCs, Precision Rates, and Caps could change every seven calendar days. However, these rates are guaranteed to be available during the period stated on our website at allianzlife.com/indexratesadv and cannot be superseded until that period ends. If you select the earliest Index Effective Date or an Index Effective Date that is within the guaranteed period applicable to the initial rates in effect on the Issue Date, the initial rates available for review on your Issue Date will be the rates on your Index Effective Date. However, if you select an Index Effective Date that is after the date the rate is guaranteed to be available, you are subject to the risk that initial DPSCs, Precision Rates, and Caps may change and be less advantageous to you. Furthermore, if the Index Effective Date is after the end of the free look period, you will be subject to the final product and rider fees and contract maintenance charge if you then elect to cancel the Contract after the free look period. You may review future rates at least seven calendar days before their effectiveness at allianzlife.com/indexratesadv . You (or your Financial Professional, if authorized) can change your Index Effective Date at any time before it occurs to be an earlier or later date by submitting a request.
On each Term End Date you have the option of remaining allocated to your current Index Options at the renewal DPSCs, Precision Rates, and Caps that we set on the next Term Start Date, or transferring to another permitted Allocation Option, subject to the limitations on transfers from an Index Option to a Variable Option. At least seven calendar days before each Index Anniversary we publish renewal rates for the next Term Start Date for your review in your account on our website, and on our public website at allianzlife.com/indexratesadv . If you do not review renewal change information when it is published, or take no action to transfer to another permitted Allocation Option, you will remain allocated to your current Index Options and will automatically become subject to the renewal DPSCs, Precision Rates, and Caps until the next Term End Date.
You risk the possibility that the renewal DPSCs, Precision Rates, and Caps you receive may be less than you would find acceptable. If you do not find the renewal rates acceptable, you must give us transfer instructions no later than the end of the Business Day on the Term End Date (or the next Business Day if the Term End Date is a non-Business Day) or you will be subject to these renewal DPSCs, Precision Rates, and Caps for the next Term. Other than on a sixth Index Anniversary when you can transfer Index Option Value to the Variable Options, when your renewal rates change the only options available to you are to transfer Index Option Value between Index Options, or take a full withdrawal (which may be subject to a withdrawal charge).
Initial and renewal DPSCs, Precision Rates, and Caps may vary significantly depending upon a variety of factors, including:
• market volatility,
• our hedging strategies and investment performance,
• the availability of hedging instruments,
• the amount of money available to us through Contract fees and expenses to purchase hedging instruments,
• your Index Effective Date,
• the level of interest rates,
• utilization of Contract benefits by Owners, and
• our profitability goals.
Due to a combination of factors, including potential changes in interest rates and other market conditions (e.g. rising inflation), the current economic environment is evolving. The future impact on initial and renewal DPSCs, Precision Rates, and Caps cannot be predicted with certainty. The effect of a change in interest rates or other market conditions may not be direct or immediate. There may be a lag in changes to DPSCs, Precision Rates, and Caps. Interest rates could increase. In a rising interest rate environment, increases in DPSCs, Precision Rates, and Caps, if any, may be substantially slower than increases in interest rates.
We manage our obligation to provide Credits in part by trading call and put options, and other derivatives on the available Indexes. The costs of the call and put options and other derivatives vary based on market conditions, and we may adjust future renewal DPSCs, Precision Rates, and Caps to reflect these cost changes. The primary factor affecting the differences in the initial DPSCs, Precision Rates, and Caps for newly issued Contracts and renewal rates for existing Contracts is the difference in what we can earn from these investments for newly issued Contracts versus what we are earning on the
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investments that were made, and are being held to maturity, for existing Contracts. In some instances we may need to reduce both initial and renewal DPSCs, Precision Rates, and Caps, or we may need to substitute an Index. You bear the risk that we may reduce DPSCs, Precision Rates, and Caps, which reduces your opportunity to receive positive Credits.
Investment in Derivative Hedging Instruments
The Index Options are supported by bonds and other fixed income securities which are also used to support the Contract guarantees, cash, and derivative hedging instruments used to hedge the movements of the applicable Index.
At Contract issue, we invest a substantial majority of the initial Contract Value allocated to the Index Options in fixed income securities, with most of the remainder invested in derivative hedging instruments. The derivative hedging instruments are purchased to track and hedge Index movements and support our obligations with regard to the Index Options. The derivative hedging instruments we purchase include put options, call options, futures, swaps, and other derivatives.
We currently limit our purchase of derivative hedging instruments to liquid securities. However, like many types of derivative hedging instruments, these securities may be volatile and their price may vary substantially. In addition, because we pay Credits regardless of the performance of derivative hedging instruments we purchase, we may incur losses on hedging mismatches or errors in hedging. We may incur additional costs if the costs of our hedging program increase due to market conditions or other factors. Our overall experience with hedging securities may affect renewal DPSCs, Precision Rates, and Caps for existing Contracts.
Risks of Deducting Financial Adviser Fees from the Contract
If you have an investment adviser and want to pay their financial adviser fees from this Contract, you can instruct us to withdraw the fee from your Contract and pay it to your adviser. The investment adviser requests each fee payment by submitting a letter of instruction that includes the fee amount. The deduction of financial adviser fees is in addition to this Contract’s fees and expenses, and the deduction is treated the same as any other withdrawal under the Contract. As such, withdrawals to pay financial adviser fees may be subject to withdrawal charges, will reduce the Contract Value and Guaranteed Death Benefit Value (perhaps significantly), and may be subject to income taxes (including tax penalties if you are younger than age 59  1 ⁄ 2 ). Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
Certain Variable Options may also invest in derivative securities. For more information on these investments, see the Variable Option prospectuses.
Our Financial Strength and Claims-Paying Ability
We make Annuity Payments, and pay death benefits from our general account. Our general account assets are subject to claims by our creditors, and any payment we make from our general account is subject to our financial strength and claims-paying ability. We apply Credits from an unregistered, non-unitized, non-insulated separate account ( Separate Account IANA ). Like our general account, the assets in Separate Account IANA are subject to our general business operation liabilities and the claims of our creditors, and are also subject to our financial strength and claims-paying ability. For more information on Separate Account IANA, see section 12, Other Information – Our Unregistered Separate Account.
As a result of the COVID-19 pandemic and interrelated market factors (e.g., market volatility changes in interest rates, rising inflation, actions by governmental authorities), economic uncertainties have arisen which could negatively impact Allianz Life’s net income and surplus. The extent to which the COVID-19 pandemic and these other market factors will impact our business, net income, and surplus, as well as our capital and liquidity position, will depend on future developments, which are highly uncertain. For more information see section 13, Information on Allianz Life – Business and Operational Risks Relevant to the Contract.
Regulatory Protections
Allianz Life is not an investment company and therefore we are not registered as an investment company under the Investment Company Act of 1940, as amended, and the protections provided by this Act are not applicable to the guarantees we provide. The Separate Account is, however, registered as an investment company. Any allocations you make to an Index Option are not part of the Separate Account. Allianz Life is not an investment adviser and so is not subject to the Investment Advisers Act of 1940, and does not provide investment advice to you in connection with your Contract.
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Your Contract is registered in accordance with the Securities Act of 1933 and the offering of the Contract must be conducted in accordance with the requirements of this Act. In addition, the offer and sale of the Contract is subject to the provisions of the Securities Exchange Act of 1934.
The Contract is filed with and approved by each state in which the Contract is offered. State insurance laws provide a variety of regulatory protections.
1.  The Contract
An annuity is a contract between you as the Owner, and an insurance company (in this case Allianz Life), where you make payments to us and we invest that money in the Allocation Options you select. Depending on market conditions, your Contract may gain or lose value based on the returns of your selected Allocation Options. When you are ready to take money out, we make payments to you according to your instructions and any restrictions associated with the payment option you select that is described in this prospectus. Other than to add benefits that are beneficial to you, we do not make any changes to your Contract without your permission except as may be required by law.
The Contract has an Accumulation Phase and an Annuity Phase.
The Accumulation Phase is the first phase of your Contract, and it begins on the Issue Date. During the Accumulation Phase, we invest your money in the Allocation Options you select on a tax-deferred basis. Tax deferral may not be available for certain non-individually owned contracts. Tax deferral means you are not taxed on any earnings or appreciation on the assets in your Contract until you take money out of your Contract. (For more information, see section 11, Taxes.)
During the Accumulation Phase you can take withdrawals (subject to any withdrawal charge). You can also make additional Purchase Payments subject to the restrictions set out in section 3, Purchase Requirements. The Contract also offers at issue the optional Maximum Anniversary Value Death Benefit for an additional rider fee (see section 10) if all Owners and the Annuitant are age 75 or younger on the Issue Date. The Maximum Anniversary Value Death Benefit can only be added to a Contract at issue. The Maximum Anniversary Value Death Benefit potentially provides a death benefit greater than the Traditional Death Benefit based on the Maximum Anniversary Value (highest Contract Value on any Index Anniversary before age 91, increased by the dollar amount of subsequent Purchase Payments, and reduced proportionately for subsequent withdrawals you take including any withdrawal charge).
The Accumulation Phase ends upon the earliest of the following.
• The Business Day before the Annuity Date.
• The Business Day we process your request for a full withdrawal.
• Upon the death of any Owner (or the Annuitant if the Owner is a non-individual), the Business Day we first receive a Valid Claim from any one Beneficiary, unless the surviving spouse/Beneficiary continues the Contract. If there are multiple Beneficiaries, the remaining Contract Value continues to fluctuate with the performance of the Allocation Options until the complete distribution of the death benefit. A Valid Claim is the documents we require to be received in Good Order at our Service Center before we pay any death claim.
If you request Annuity Payments, the Accumulation Phase of your Contract ends and you enter the Annuity Phase. During the Annuity Phase we make regular fixed periodic Annuity Payments based on the life of the Annuitant(s), or life and term certain. We send Annuity Payments to the Payee (the person or entity who receives Annuity Payments during the Annuity Phase). You can choose when Annuity Payments begin, subject to certain restrictions. We base Annuity Payments on your Contract Value and the payout rates for the Annuity Option you select. Your Annuity Payments do not change unless an Annuitant dies. The Annuity Phase ends when we make the last Annuity Payment under your selected Annuity Option. For more information, see section 8, The Annuity Phase.
Financial Adviser Fees
If you have a financial adviser and want to take a withdrawal from this Contract to pay your financial adviser fee, you can submit a written request to our Service Center by completing our third party money management customer authorization of transfer form and fee redemption authorization form. If we approve your request, we withdraw the requested fees and pay them to your Financial Professional or Financial Professional’s firm as instructed. The fee redemption authorization is an agreement between you, your Financial Professional, and/or the Financial Professional's firm. The agreement authorizes us to deduct financial adviser fees from the Contract and send them to the Financial Professional or the Financial
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Professional's firm upon written request. You can terminate this agreement at any time by providing us written notice. We retain the right to request an updated fee redemption authorization form at any time.
The Financial Professional or Financial Professional’s Firm requests each fee payment by submitting a letter of instruction that includes the fee amount. We treat this fee payment as a withdrawal which means a withdrawal charge, federal and state income taxes, and a 10% additional federal tax if you are under age 59  1 ⁄ 2 may apply, and the amount of Contract Value available for withdrawal may be affected by the Daily Adjustment (which can be negative). We deduct financial adviser fees (including any withdrawal charge) proportionately from each Allocation Option unless you provide us with alternate instructions. This withdrawal reduces the Contract Value and the amount available under the free withdrawal privilege by the dollar amount withdrawn. It may also reduce your Contract's Guaranteed Death Benefit Value proportionately by the percentage of Contract Value withdrawn, which may reduce this value by more than the amount withdrawn and these reductions could be significant. If this is a Non-Qualified Contract, a withdrawal will be a taxable withdrawal to the extent that gain exists within the Contract. Financial adviser fees paid from an IRA Contract will not be treated as a taxable withdrawal as long as the annuity contract is solely liable for the payment of the financial adviser fee. You should consult a tax adviser regarding the tax treatment of financial adviser fee payments. Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
Your financial adviser acts on your behalf, not ours. We are not party to any agreement between you and your financial adviser, nor are we responsible for your financial adviser’s actions. We do not verify that withdrawals for financial adviser fees align with the terms of your agreement with your financial adviser. We do not set your financial adviser fee or receive any part of it. Any withdrawals for financial adviser fees you pay is in addition to this Contract’s fees and expenses. We do not pay sales commissions in connection with sales of the Contract. However, Financial Professionals and their managers may be eligible for various benefits such as production incentive bonuses, insurance benefits, and non-cash compensation items that we may provide jointly with our principal underwriter, Allianz Life Financial Services, LLC. You should ask your financial adviser about compensation they receive for this Contract. Allianz Life is not an investment adviser, and does not provide investment advice in connection with sales of the Contract. We are not a fiduciary to you, and do not make recommendations or assess suitability.
You can submit a written request to our Service Center on a form satisfactory to us to allow your financial adviser to make Allocation Option transfers and allocation changes on your behalf. However, we reserve the right to review a financial adviser’s trading history before allowing him or her to make transfers. If, in our sole discretion, we believe the financial adviser’s trading history indicates excessive trading, we can deny your request. If we approve it, your financial adviser is subject to the same trading restrictions that apply to Owners. We can deny or revoke trading authority in our sole discretion.
Financial Adviser Fee Deduction Example
These calculations show the effects of withdrawing financial adviser fees on the Contract Value and available Guaranteed Death Benefit Value. These withdrawals (including any withdrawal charges) immediately reduce the Contract Value on a dollar for dollar basis, and reduce the available Guaranteed Death Benefit Value by the percentage of Contract Value withdrawn.
The example assumes a withdrawal of $5,000 from the Index Options once per year on days that are not Term End Dates to pay financial adviser fees starting when the Contract Value is $100,000, the Guaranteed Death Benefit Value under the Traditional Death Benefit is $90,000, and the Guaranteed Death Benefit Value under the Maximum Anniversary Value Death Benefit is $105,000. The first withdrawal assumes that there is no amount remaining under the partial withdrawal privilege for that year, so that withdrawal is subject to an 8.5% withdrawal charge. Subsequent withdrawals are all taken under the partial withdrawal privilege. All fractional numbers in these examples have been rounded up to the next whole number. All Contract Value figures reflect the Daily Adjustment.
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 1 st years withdrawal   $ 100,000   $ 90,000   $ 105,000
$5,000 withdrawal (subject to an            
8.5% withdrawal charge)   – [($5,000 ÷ (1 – 8.5%)]        
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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
Amount withdrawn   – $5,465   – [($5,465 ÷ 100,000) x 90,000]   – [($5,465 ÷ 100,000) x 105,000]
        = - $4,919   = - $5,739
After 1 st years withdrawal   $ 94,535   $ 85,081   $ 99,261
             
Prior to 2 nd years withdrawal   $ 97,000   $ 85,081   $ 99,261
$5,000 withdrawal (not subject to a            
withdrawal charge)   – $5,000   – [($5,000 ÷ 97,000) x 85,081]   – [($5,000 ÷ 97,000) x 99,261]
        = - $4,386   = - $5,117
After 2 nd years withdrawal   $ 92,000   $ 80,695   $ 94,414
             
Prior to 3 rd years withdrawal   $ 80,0000   $ 80,695   $ 94,414
$5,000 withdrawal (not subject to a   – $5,000   – [($5,000 ÷ 80,000) x 80,695]   – [($5,000 ÷ 80,000) x 94,414]
withdrawal charge)       = - $5,044   = - $5,844
After 3 rd years withdrawal   $ 75,000   $ 75,651   $ 88,260
The death benefit is the greater of the Contract Value, or the Guaranteed Death Benefit Value, so the death benefit would be:
• $94,535 Contract Value under the Traditional Death Benefit, or the $99,261 Guaranteed Death Benefit Value under the Maximum Anniversary Value Death Benefit after the first adviser fee.
• $92,000 Contract Value under the Traditional Death Benefit, or the $94,414 Guaranteed Death Benefit Value under the Maximum Anniversary Value Death Benefit after the second adviser fee.
• $75,651 Guaranteed Death Benefit Value under the Traditional Death Benefit, or the $88,260 Guaranteed Death Benefit Value under the Maximum Anniversary Value Death Benefit after the third adviser fee.
When the Contract Ends
The Contract ends when:
• all applicable phases of the Contract (Accumulation Phase and/or Annuity Phase) have ended, and/or
• if we received a Valid Claim, all applicable death benefit payments have been made.
For example, if you take a full withdrawal of the total Contract Value, both the Accumulation Phase and the Contract end even though the Annuity Phase never began and we did not make any death benefit payments.
2.  Ownership, Annuitant, Determining Life, Beneficiary, and Payee
Owner
The Owner designated at Contract issue has all the rights under the Contract. The Owner may be an individual, or a non-individual (e.g. a trust, tax-exempt entity, or corporation). Qualified Contracts and non-individually owned Contracts can only have one Owner. A Qualified Contract is purchased under a pension or retirement plan that qualifies for special tax treatment under sections of the Code.
Joint Owner
A Non-Qualified Contract can be owned by up to two individual Owners (Joint Owners). We generally require the signature of both Joint Owners on any forms that are submitted to our Service Center.
Annuitant
The Annuitant is the individual on whose life we base Annuity Payments. Subject to our approval, you designate an Annuitant when you purchase a Contract. For Qualified Contracts, before the Annuity Date the Owner must be the Annuitant unless the Contract is owned by a qualified plan or is part of a custodial arrangement. You can change the
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Annuitant on an individually owned Non-Qualified Contract at any time before the Annuity Date. You cannot change the Annuitant if the Owner is a non-individual. Subject to our approval, you can add a joint Annuitant on the Annuity Date. For Qualified Contracts, the ability to add a joint Annuitant is subject to any plan requirements associated with the Contract. For individually owned Contracts, if the Annuitant who is not an Owner dies before the Annuity Date, the sole Owner (or younger Joint Owner) automatically becomes the new Annuitant, but the Owner can subsequently name another Annuitant.
Designating different persons as Owner(s) and Annuitant(s) can have important impacts on whether a death benefit is paid, and on who receives it as indicated below. For more examples, please see the Appendix A to the Form N-4 SAI. Use care when designating Owners and Annuitants, and consult your Financial Professional if you have questions.
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Upon the Death of a Sole Owner
Action if the Contract is in the Accumulation Phase
• We pay a death benefit to the Beneficiary unless the Beneficiary is the surviving spouse and continues the Contract.
• If the deceased Owner was a Determining Life and the surviving spouse Beneficiary continues the Contract:
–  we increase the Contract Value to equal the Guaranteed Death Benefit Value if greater and available, and the death benefit ends,
–  the surviving spouse becomes the new Owner,
–  the Accumulation Phase continues, and
–  upon the surviving spouse’s death, his or her Beneficiary(s) receives the Contract Value.
• If the deceased Owner was not a Determining Life, the Traditional Death Benefit or Maximum Anniversary Value Death Benefit are not available and the Beneficiary(s) receives the Contract Value.
Action if the Contract is in the Annuity Phase
• 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.
• If the deceased was not an Annuitant, Annuity Payments to the Payee continue. No death benefit is payable.
• If the deceased was the only surviving Annuitant, Annuity Payments end or continue as follows.
–  Annuity Option 1 or 3, payments end.
–  Annuity Option 2 or 4, payments end when the guaranteed period ends.
–  Annuity Option 5, payments end and the Payee may receive a lump sum refund.
–  For more information on Annuity Options, please see section 8.
• 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.
 
Determining Life (Lives)
The Determining Life (Lives) are the individuals on whose life we base the Guaranteed Death Benefit Value provided by the Traditional Death Benefit or Maximum Anniversary Value Death Benefit. We establish the Determining Life (Lives) at Contract issue. For an individually owned Contract the Determining Life (Lives) are the Owner(s). For a non-individually owned Contract the Determining Life is the Annuitant. After the Issue Date the Determining Life (Lives) only change if:
• you remove a Joint Owner due to divorce, then we also remove that person as a Determining Life, or
• you establish a jointly owned Non-Qualified Contract and change ownership to a Trust, then we remove the prior Owner who is not the Annuitant as a Determining Life.
Beneficiary
The Beneficiary is the person(s) or entity you designate to receive any death benefit. You can change the Beneficiary or contingent Beneficiary at any time before your death unless you name an irrevocable Beneficiary. If a Beneficiary dies before you, or you and a Beneficiary die simultaneously as defined by applicable state law or regulation, that Beneficiary’s interest in this Contract ends unless your Beneficiary designation specifies otherwise. If there are no surviving primary Beneficiaries, we pay the death benefit to the contingent Beneficiaries who survive you. If there are no surviving Beneficiaries or if there is no named Beneficiary, we pay the death benefit to your estate or the Owner if the Owner is a non-individual.
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 simultaneously as defined by applicable state law or regulation, we pay the death benefit to the named contingent Beneficiaries or equally to the estate of the Joint Owners if there are no named contingent Beneficiaries.
Payee
The Payee is the person or entity who receives Annuity Payments during the Annuity Phase. The Owner receives tax reporting on those payments. Generally we require the Payee to be an Owner. However, we may allow you to name a charitable trust, financial institution, qualified plan, or an individual specified in a court order as a Payee subject to our approval. For Qualified Contracts owned by a qualified plan, the qualified plan must be the Payee.
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Assignments, Changes of Ownership and Other Transfers of Contract Rights
You can assign your rights under this Contract to someone else during the Accumulation Phase. An assignment may be absolute or limited, and includes changes of ownership, collateral assignments, or any other transfer of specific Contract rights. After an assignment, you may need the consent of the assignee of record to exercise certain Contract rights depending on the type of assignment and the rights assigned.
The Contract cannot be assigned without our consent. You must submit your request to assign the Contract in writing to our Service Center  and we must approve it in writing. To the extent permitted by state law, we reserve the right to refuse to consent to any assignment at any time on a nondiscriminatory basis. We will not consent if the assignment would violate or result in noncompliance with any applicable state or federal law or regulation.
Upon our consent, we record the assignment. We are not responsible for the validity or effect of the assignment. We are not liable for any actions we take or payments we make before we receive your request in Good Order and record it. A request is in “Good Order” when it contains all the information we require to process it. Assigning the Contract does not change, revoke or replace the originally named Annuitant or Beneficiary; if you also want to change the Annuitant or Beneficiary you must make a separate request.
•  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, or replacing Joint Owners with a Trust.
3.  Purchasing the Contract
Purchase Requirements
To purchase this Contract, on the Issue Date all Owners and the Annuitant must be:
• age 80 or younger, or
• age 75 or younger if you select the Maximum Anniversary Value Death Benefit.
The Purchase Payment requirements for this Contract are as follows.
• The minimum initial Purchase Payment due on the Issue Date is $10,000.
• You can make additional Purchase Payments of $50 or more during the Accumulation Phase.
• We do not accept additional Purchase Payments on or after the Annuity Date.
• The maximum total Purchase Payments we accept without our prior approval is $1 million.
We may, at our sole discretion, waive the minimum Purchase Payment requirements.
Once we receive your initial Purchase Payment and all necessary information in Good Order at our Service Center, we issue the Contract within two Business Days and allocate your payment to your selected Allocation Options. If the Issue Date is the same as the Index Effective Date we apply any part of your initial Purchase Payment you allocate to the Index Options directly to the Index Options. If the Issue Date is not the Index Effective Date, we hold any part of your initial Purchase Payment you allocate to the Index Options in the AZL Government Money Market Fund before we transfer it to your selected Index Options. If you do not give us all of the information we need, we contact you or your Financial Professional. If for some reason we are unable to complete this process within five Business Days, we either send back your Purchase Payment or get your permission to keep it until we get all of the necessary information. If you make additional Purchase Payments, we add this money to your Contract on the Business Day we receive it in Good Order.
If you submit a Purchase Payment and/or application to your Financial Professional, we do not begin processing the payment and/or application until we receive it.
We may terminate your ability to make additional Purchase Payments because we reserve the right to decline any or all Purchase Payments at any time on a nondiscriminatory basis. This applies to Contracts issued in all states except as disclosed in Appendix G. If mandated under applicable law, we may be required to reject a Purchase Payment. If we exercise our right to decline additional Purchase Payments, this may limit your ability to fund your Contract’s guaranteed benefits such as the Traditional Death Benefit or Maximum Anniversary Value Death Benefit.
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Applications Sent Electronically
We accept manually signed applications that are in Good Order and are sent by fax, or email, or uploaded to our website. It is important to verify receipt of any faxed application, or to receive a confirmation number when using email or the web. We are not liable for applications that we do not receive. A manually signed application sent by fax, email or over the web is considered the same as an application delivered by mail. Our electronic systems (fax, email or website) may not always be available; any electronic system can experience outages or slowdowns which may delay application processing. Although we have taken precautions to help our system handle heavy use, we cannot promise complete reliability. If you experience problems, please submit your written application by mail to our Service Center. We reserve the right to discontinue or modify our electronic application policy at any time and for any reason.
Allocation of Purchase Payments and Contract Value Transfers
The allocation instructions you provide on your application automatically become your Purchase Payment default instructions. (In your Contract, Purchase Payment default instructions are called future allocation instructions.) We use these default instructions for all Purchase Payments we receive unless you change them, or give us alternate allocation instructions specific to an individual Purchase Payment. We only allow Purchase Payments to move into the Index Options on the Index Effective Date and on subsequent Index Anniversaries. As a result, we hold Purchase Payments allocated to the Index Options we receive on days other than the Index Effective Date or an Index Anniversary in the AZL Government Money Market Fund until we transfer them to your selected Index Options according to your Purchase Payment default instructions. On the Index Effective Date we rebalance or reallocate your total Contract Value among all of your selected Allocation Options according to your Purchase Payment default instructions. For additional Purchase Payments we receive after the Index Effective Date, this transfer occurs on the next Index Anniversary and does not involve a reallocation of your total Contract Value. We apply any Purchase Payments allocated to the Index Options we receive on the Index Effective Date or on an Index Anniversary directly to the Index Options on that day; these Purchase Payments are not held in the AZL Government Money Market Fund.
We only allow Variable Account Value transfers into Index Options and Index Option Value transfers between Index Options on Term End Dates. We do not allow assets to move into an established Index Option until the Term End Date. If you request to transfer into an established Index Option on an Index Anniversary that is not a Term End Date, we will transfer those assets into the same Index Option with a new Term Start Date.
If you only select the 1-year Term Index Options, you can automatically reallocate your total Contract Value annually by providing us with instructions (see section 4, Optional Reallocation Program for 1-year Term Index Options). However, you cannot automatically reallocate your total Contract Value annually on each Term End Date if you select a 3-year Term Index Option.
You select the Index Effective Date when you purchase your Contract. It can be any Business Day up to and including the first Quarterly Contract Anniversary, but it cannot be the 29th, 30th or 31st of a month.
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
You should be aware that, generally, DPSCs, Precision Rates, and Caps could change every seven calendar days. However, these rates are guaranteed to be available during the period stated on our website at allianzlife.com/indexratesadv and cannot be superseded until that period ends. If you select the earliest Index Effective Date or an Index Effective Date that is within the guaranteed period applicable to the initial rates in effect on the Issue Date, the initial rates available for review on your Issue Date will be the rates on your Index Effective Date. However, if you select an Index Effective Date that is after the date the rate is guaranteed to be available, you are subject to the risk that initial DPSCs, Precision Rates, and Caps may change and be less advantageous to you. Furthermore, if the Index Effective Date is after the end of the free look period, you will be subject to the final product and rider fees and contract maintenance charge if you then elect to cancel the Contract after the free look period. You may review future rates at least seven calendar days before their effectiveness at
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allianzlife.com/indexratesadv . You (or your Financial Professional, if authorized) can change your Index Effective Date at any time before it occurs to be an earlier or later date by submitting a request. However, your new Index Effective Date cannot be later than the deferred Index Effective Date listed above. We must receive your request in Good Order at our Service Center before the end of the Business Day on which you want the Index Effective Date to occur. Once your Index Effective Date occurs, all Index Options for your Contract will have the same Index Anniversary.
You can change your Purchase Payment default instructions at any time without fee or penalty. These changes are effective on the Business Day we receive them in Good Order at our Service Center. We accept changes to Purchase Payment default instructions from any Owner unless you instruct otherwise. We may allow you to authorize someone else to change these default instructions on your behalf. Changes to your Purchase Payment default instructions do not reallocate or transfer existing Index Option Values on the Term End Date .
We notify you at least 30 days in advance of each Index Anniversary as a reminder that on the upcoming anniversary you may transfer Variable Account Value to the Index Options, and you may transfer Index Option Value between Index Options. Transfers between Allocation Options do not change your Purchase Payment default instructions. For more information, see section 5, Variable Options – Electronic Transfer and Allocation Instructions. On each Term End Date, if we have not received transfer instructions from you, and you are not participating in the 1-year Term Index Option reallocation program, all assets invested continue to be invested in the Index Options at the renewal DPSCs, Precision Rates, and Caps.
You cannot transfer Index Option Value to the Variable Options except on every sixth Index Anniversary, at which point you can do so even if the assets you wish to transfer have been in the Index Options for less than six full years. However, if the sixth Index Anniversary is not a Term End Date and you would like to transfer out of a 3-year Term Index Option to a Variable Option you must request that we execute a Performance Lock on that Index Option on or before the sixth Index Anniversary. If you request to transfer Index Option Value to the Variable Options on a sixth Index Anniversary this request automatically cancels any prior transfer instructions you gave to us regarding moving Variable Account Value to the Index Options. We must receive all Index Option transfer instructions in Good Order at our Service Center before the end of the Business Day on the Term End Date (or the next Business Day if the Term End Date is a non-Business Day).
You can transfer Variable Account Value among the Variable Options on any Business Day, except that any amount held in the AZL Government Money Market Fund that is set to be allocated to an Index Option on the Index Effective Date or an Index Anniversary will not be transferred to the Index Option if it is transferred to another Variable Option.
•  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).
•  Variable Options are subject to Contract fees and expenses (e.g. product fee), and market risk and assets you allocate to them may lose value, including any Purchase Payments we hold in the AZL Government Money Market before transferring them to your selected Index Options.
Automatic Investment Plan (AIP)
The AIP makes additional Purchase Payments to the Contract during the Accumulation Phase on a monthly or quarterly basis by electronic money transfer from your savings, checking or brokerage account. You can participate in AIP by completing our AIP form. Our Service Center must receive your form in Good Order by the 15th of the month (or the next Business Day if the 15th is a non-Business day) in order for AIP to begin that same month. We process AIP Purchase Payments on the 20th of the month, or the next Business Day if the 20th is a non-Business Day. We allocate AIP Purchase Payments according to your Purchase Payment default instructions which must comply with the allocation requirements and restrictions stated in this section. We must receive your request to stop or change AIP at our Service Center before the end of the last Business Day immediately before the Business Day we process AIP to make the change that month. If you choose to begin Annuity Payments, AIP ends automatically on the last Business Day before the Annuity Date. We reserve the right to discontinue or modify AIP at any time and for any reason.
For Owners of Qualified Contracts, AIP is not available if you have an Inherited IRA Contract, an Inherited Roth IRA Contract, or if your Contract is funding a plan that is tax qualified under Section 401 of the Code.
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Free Look/Right To Examine Period
If you change your mind about the Contract, you can cancel it within the free look period stated on the first page of your Contract. In most states, this is ten calendar days after you receive the Contract. If you cancel your Contract during the free look period, in most states we return your Contract Value as of the Business Day we receive your cancellation request in Good Order. This may be more or less than your initial Purchase Payment. In states that require us to return Purchase Payments less withdrawals if you cancel your Contract, we return Contract Value if greater.
IRA Contracts require us to return Purchase Payments less withdrawals. If you cancel your IRA Contract, we return the greater of Purchase Payments less withdrawals or Contract Value.
If your cancellation request occurs after the Index Effective Date, your Contract Value will include the Daily Adjustment for amounts allocated to the Index Options.
Some states and certain IRA Contracts require return of Purchase Payments. For these Contracts, we reserve the right to hold your initial Purchase Payment to the AZL Government Money Market Fund until the free look period ends, and then re-allocate your Contract Value, less fees and expenses, according to your Purchase Payment default instructions. If we exercise this right, the Contract Value we use to determine your refund amount on a cancellation request will not include the Daily Adjustment as the Index Effective Date will not yet have occurred. Currently we only exercise this right on certain Contracts issued in California as noted in Appendix G. If we hold your initial Purchase Payment in the AZL Government Money Market Fund during the free look period and the requested Index Effective Date would occur during this time, we change your Index Effective Date to the next Business Day after the free look period that is not the 29th, 30th or 31st of the month. Then, if you:
• cancel your Contract during this time, we return the greater of Purchase Payments less withdrawals, or Contract Value. We do not assess a withdrawal charge or deduct any other Contract fees or expenses if you cancel your Contract during the free look period.
• do not cancel your Contract during this time, we re-allocate your Contract Value according to your Purchase Payment default instructions after the free look period as follows:
–  if your instructions include the Variable Options, we re-allocate this portion of your Contract Value on the next Business Day after the free look period.
–  if your instructions include the Index Options, we re-allocate this portion of your Contract Value on the Index Effective Date.
In the Contract, the free look provision is also called the right to examine.
4.   Valuing Your Contract
Your Contract Value is the total of the Variable Account Value and all Index Option Values.
Variable Account Value increases when…. Variable Account Value decreases when….
• you add assets to a Variable Option by Purchase Payment or Contract Value transfer, or
• there is positive Variable Option performance 		• you take assets out of a Variable Option by withdrawal (including any financial adviser fees that you choose to have us pay from this Contract) or Contract Value transfer,
• there is negative Variable Option performance, or
• we deduct Contract fees and expenses
Contract fees and expenses we deduct from the Variable Options include the product fee, rider fee, contract maintenance charge and transfer fee 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. Variable Options include Purchase Payments we hold in the AZL Government Money Market Fund before transferring them to your selected Index Options.
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The Variable Options do not provide any protection against loss of principal. You can lose principal and previous earnings you allocate to the Variable Options. These losses can be significant.
Index Option Values increase when…. Index Option Values decrease when….
• you add assets to an Index Option by Purchase Payment or Contract Value transfer, or
• you receive a positive 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) or Contract Value transfer,
• you receive a negative Credit or Daily Adjustment, or
• we deduct Contract fees and expenses
Contract fees and expenses we deduct from the Index Options include the product fee, 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.
We apply transfers of Contract Value and Purchase Payments to the Index Options on the Index Effective Date and Index Anniversaries. We apply Credits to the Index Options on the Term End Dates. Contract expenses are deducted at different times during the Index Year as stated in section 6, Expenses. We pay financial adviser fees to your Financial Professional or the Financial Professional's firm upon written request as stated in section 1, The Contract. The Daily Adjustment applies to the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy on any Business Day other than the Term Start Date or the Term End Date. The Daily Adjustment does not apply to the Index Protection Strategy.
Credits are subject to the applicable Buffer, Floor, DPSC, Precision Rate, or Cap . Positive Credits are not guaranteed and Credits can be zero under all the Index Options. Credits can be negative after application of the 10% or 20% Buffer for any Index Option with the Index Precision Strategy or Index Performance Strategy, or negative down to the -10% Floor for any Index Option with the Index Guard Strategy. A negative Performance Credit means that you can lose principal and previous earnings. These losses can be significant.
We require that the Contract Value after a partial withdrawal must be at least $2,000.* We reserve the right to treat a partial withdrawal that reduces the Contract Value below this minimum as a full withdrawal.
* Does not apply to RMD payments under our minimum distribution program.
Determining Variable Account Value
The Separate Account holds the assets you allocate to the Variable Options, including Purchase Payments held in the AZL Government Money Market Fund before we transfer them to the Index Options. The Separate Account is divided into subaccounts, each of which invests exclusively in the shares of a single Variable Option.
We convert amounts you allocate to a Variable Option into subaccount accumulation units. Each subaccount’s daily price (accumulation unit value) is based on the Variable Option’s price. A Variable Option’s price is typically determined at the end of each Business Day, and any Purchase Payment received at or after the end of the current Business Day receives the next Business Day’s price. A Variable Option's price reflects deduction of its operating expenses.
We calculate your Variable Account Value at the end of each Business Day by multiplying each subaccount’s accumulation unit value by its number of accumulation units, and adding those results together for all subaccounts.
On the Issue Date, the number of accumulation units in each subaccount is equal to the amount allocated to the subaccount divided by its accumulation unit value. At the end of each Business Day, the number of subaccount accumulation units:
• increase when you add assets to a Variable Option by Purchase Payment or Contract Value transfer, and
• decrease when assets are removed from a Variable Option by transfer, withdrawals you request (including any financial adviser fees that you choose to have us pay from this Contract), or when we deduct Contract fees and expenses.
We arbitrarily set the initial accumulation unit value for each subaccount. At the end of each Business Day, we determine the new accumulation unit value for each subaccount by multiplying the prior Business Day’s accumulation unit value by the Variable Option’s percentage change in price since the prior Business Day. The percentage change in price includes the Variable Option’s market performance.
Example
• We receive at our Service Center an additional Purchase Payment of $3,000 from you before the end of the Business Day.
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• When the New York Stock Exchange closes on that Business Day, we determine that the accumulation unit value is $13.25 for the subaccount of your selected Variable Option.
• We then divide $3,000 by $13.25 and credit your Contract that night with 226.415094 subaccount accumulation units for your selected Variable Option.
Determining Index Option Values
We calculate an Index Option Value for each Index Option at the end of each Business Day. Generally, the Index Option Value is equal to the Index Option Base plus any applicable Daily Adjustment. The Daily Adjustment applies to any Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy on Business Days other than the Term Start Date or the Term End Date. It does not apply to any Index Option with the Index Protection Strategy. The Daily Adjustment can be positive or negative and is discussed later in this section.
On the first Term Start Date, both the Index Option Value and the Index Option Base for each of your selected Index Options are initially equal to the amount of:
• any Purchase Payment received that day which you allocated to that Index Option, and
• any Contract Value transferred into that Index Option.
At the end of each subsequent Business Day for each selected Index Option, we first either apply:
• the Daily Adjustment if this is not the Term End Date and this is an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, or
• a Credit if this is the Term End Date.
We calculate Credits as described under “Calculating Credits” next in this section and apply them as follows:
• We multiply each Index Option Base by its Credit and add this amount to its Index Option Base.
• Then we set each Index Option Value equal to its Index Option Base.
Lastly, we increase and/or decrease each Index Option Base and Index Option Value for additional Purchase Payments, transfers, partial withdrawals you take or financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and deductions we make for Contract fees and expenses.
• Additional Purchase Payments received on the Term End Date and allocated to this Index Option, and transfers of Variable Account Value or Index Option Value into this Index Option, increase these values by the dollar amount allocated or transferred.
• Transfers out of this Index Option reduce these values by the dollar amount removed from the Index Option.
• Partial withdrawals you take or financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and deductions we make for Contract fees and expenses reduce these values by the dollar amount withdrawn from the Index Option.
–  We deduct partial withdrawals you take or financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and deductions we make for Contract fees and expenses from the Index Options proportionately based on the percentage of Contract Value in each Index Option using values determined at the end of the Business Day before we process the withdrawal or deduct the Contract expense. However, if you specifically direct us to take a partial withdrawal from a specific Index Option we reduce that Index Option Value by the dollar amount you specify (including any withdrawal charge).
–  We then reduce each Index Option Base by the same percentage that the amount withdrawn reduced its associated Index Option Value.
Example
• Your Contract Value is $100,000 and you selected two Index Options. The first Index Option has an Index Option Value of $75,000 and an Index Option Base of $72,000. The second Index Option has an Index Option Value of $25,000 and an Index Option Base of $22,000. You take a $10,000 partial withdrawal (including any withdrawal charge).
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• This partial withdrawal reduces your Index Option Value by the percentage of Contract Value in each Index Option (Index Option Value ÷ Contract Value).
–  For the first Index Option this percentage is 75% ($75,000 ÷ $100,000) and the $10,000 partial withdrawal reduces this value by $7,500 ($10,000 x 75%). For the second Index Option this percentage is 25% ($25,000 ÷ $100,000) and the $10,000 partial withdrawal reduces this value by $2,500 ($10,000 x 25%).
• We then reduce each Index Option Base by the same percentage that the amount withdrawn reduced its associated Index Option Value (amount withdrawn from Index Option Value ÷ Index Option Value).
–  For the first Index Option this percentage is 10% ($7,500 ÷ $75,000) and the $10,000 partial withdrawal reduces this value by $7,200 ($72,000 x 10%). For the second Index Option this percentage is also 10% ($2,500 ÷ $25,000) and the $10,000 partial withdrawal reduces this value by $2,200 ($22,000 x 10%).
• Deductions we make for Contract fees and expenses also reduce these values proportionately in the same way as a partial withdrawal.
    
  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 Credit on the Term End Date . However, the remaining amount in the Index Options is eligible for a Credit on the Term End Date.
•  You cannot specify from which Allocation Option we deduct the product fee, rider fee, and contract maintenance charge; we deduct these Contract fees and expenses from each Allocation Option proportionately based on the percentage of Contract Value in each Allocation Option. However, you can specify from which Allocation Option we deduct a partial withdrawal and any financial adviser fees that you choose to have us pay from this Contract. Because the withdrawal charge only applies to amounts withdrawn from the Index Options, there is a financial disadvantage to taking a withdrawal from the Index Options, compared to taking a withdrawal from the Variable Options.
Calculating Credits
We base Credits on Index Values and Index Returns. We measure Index Values on the Term Start Date and Term End Date using the Index’s price at the end of the Business Day as provided by Bloomberg or another market source if Bloomberg is not available. If the Term Start Date or Term End Date is a non-Business Day we use the next Business Day’s Index price. If you select the EURO STOXX 50®, we determine Index Returns without any exchange rate adjustment. Because we calculate Index Returns only on Term End Dates, the Index Return does not necessarily reflect the highest or lowest Index Values that occurred during the Term.
Crediting Method 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 Credit is zero Credit is equal to the DPSC set on the Term Start Date
Index Precision Strategy 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 Precision Rate set on the Term Start Date
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Crediting Method 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 Guard Strategy 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%.
Index Performance Strategy – 1-year Term Performance Credit is equal to the negative Index Return in excess of the 10% Buffer. If the Index Return for the year is…
• -8%, the Performance Credit is zero.
• -12%, the Performance Credit is -2%. 		Performance Credit is equal to the Index Return up to the 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%.
Index Performance Strategy – 3-year Term Performance Credit is equal to the negative Index Return in excess of the 20% Buffer. If the Index Return for the Term is…
• -19%, the Performance Credit is zero.
• -24%, the Performance Credit is -4%. 		Performance Credit is equal to the Index Return up to any Cap set on the Term Start Date
Assume the Cap for the 3-year Term 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 3-year Term were uncapped the Performance Credit would be 90%.
Daily Adjustment for the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy
We designed the Daily Adjustment to provide an Index Option Value during the Term on days other than the Term Start Date or the Term End Date. The Daily Adjustment can affect the amounts available for withdrawal, annuitization, payment of the death benefit, and the Contract Value used to determine the Charge Base and contract maintenance charge. It is discussed in the Summary of the Index Options - What is the Daily Adjustment?; and in Risk Factors – Risk of Negative Returns. The Daily Adjustment formula is described in Appendix B and in Exhibit 99(b) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This information is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(b) by calling (800) 624-0197, or visiting our website at allianzlife.com .
Performance Locks
We must receive a manual Performance Lock request in Good Order before the end of the current Business Day to lock an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy on that day. Otherwise the Lock Date will occur on the next Business Day that your request is in Good Order. We do not allow Performance Locks to occur on Term End Dates. For requests submitted in writing, we do not consider the request to be received until it arrives at our Service Center.
You (or your Financial Professional, if authorized) can request an automatic Performance Lock based on targets you set only through your account on our website. When you establish your account you must provide us with an email address. You can set upper and/or lower targets for each of these Index Options each Term. Setting a target close to the current Index Option Value return may cause a Performance Lock to occur very quickly. You can change or cancel targets at any time before we execute a Performance Lock. Each Index Option’s targets automatically expire on the earlier of the Lock Date, or the last Business Day before the Term End Date. You can also “over-ride” a target by requesting a manual Performance Lock before the target is reached. We determine if a target is reached using the Index Option Value return determined at the end of the prior Business Day using the prior day’s Daily Adjustment. We then execute the Performance Lock using the Index Option Value return determined at the end of Business Day on the Lock Date. By setting targets you are authorizing us to automatically execute a Performance Lock at the end of the Business Day on the Lock Date upon which the target is reached, unless you cancel the lock. We will send an email notice once the Daily Adjustment for an
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Index Option reaches a target. To cancel an automatic Performance Lock after a target is reached, we must receive your request in Good Order before the end of the Business Day on the Lock Date.
For example, assume the Cap for the Index Performance Strategy 1-year Term with the S&P 500® Index is 10.25% and you set a target of 9.50%. On a Tuesday, your Index Option Value return (which includes the Daily Adjustment) determined at the end of the Business Day is 9.63%. We will send you an email notice and assuming Wednesday is a Business Day, we will execute the Performance Lock on Wednesday (which will be your Lock Date) using the Index Option Value return determined at the end of the Business Day. If Wednesday is a non-Business Day, your Lock Date would instead be Thursday (assuming it is a Business Day). Note that the Index Option Value return on the Lock Date could be greater or less than your target of 9.50%, or Tuesday’s Index Option Value return of 9.63%.
A Performance Lock can be executed once each Term for each of these Index Options. A Performance Lock applies to the total Index Option Value in an Index Option, and not just a portion of that Index Option Value. We use the Daily Adjustment calculated at the end of the current Business Day on the Lock Date to determine your locked Index Option Value. This “locked” Index Option Value may be more or less than the “unlocked” Index Option Value that is available for your review on the Lock Date because the unlocked Index Option Value was determined at the end of the prior Business Day. After the Lock Date, the Index Option Value stays in the locked Index Option for the remainder of the Term, Daily Adjustments do not apply for the remainder of the Term and the locked Index Option Value will not receive a Performance Credit on the Term End Date. For example, assume you selected one Index Option and your Index Option Value available for review in your account today is $20,326. If before the end of the Business Day you request a Performance Lock, today is your Lock Date. If your Index Option Value at the end of the Business Day is $20,250, you will lock in this $20,250 and it will not change until the next Index Anniversary. However, a locked Index Option Value can decrease if you take a partial withdrawal or when we deduct a Contract fee, expense, or a financial adviser fee that you choose to have us pay from this Contract. On the next Index Anniversary that occurs on or immediately after the Lock Date, all locked Index Options will be unlocked, we will transfer the locked Index Option Value according to your instructions, and Daily Adjustments will again apply for the new Term. If you do not provide us with transfer instructions, the Index Option Value will remain in the same Index Option with a new Term Start Date. Performance Locks are not available for any Index Option with the Index Protection Strategy.
A Performance Lock can help eliminate doubt about future Index performance and possibly limit the impact of a negative Performance Credit you would otherwise receive. Because we transfer assets out of a locked Index Option on the Index Anniversary that occurs on or immediately after the Lock Date, executing a Performance Lock can also allow you to transfer assets out of a 3-year Term Index Option before the Term End Date if you execute the lock on or before the second Index Anniversary (or before the end of the prior Business Day if the Index Anniversary is a non-Business Day) of the 3-year Term. The disadvantage of executing a Performance Lock is that the relevant Index Value could increase by the Term End Date, and you will not participate in that increase. In addition, if you execute a Performance Lock, you may receive less than the full protection of the Buffer or Floor that you would have received if you waited for us to apply the Performance Credit on the Term End Date.
Optional Reallocation Program for the 1-year Term Index Options
Index Option performance may cause the percentage of total Index Option Value in each 1-year Term Index Option to change. Reallocating can help you maintain your selected 1-year Term Index Option allocation percentages. You can direct us to automatically reallocate your 1-year Term Index Option Values on each Term End Date (or on the next Business Day if the Term End Date is a non-Business Day) according to your instructions. We must receive your reallocation instructions in Good Order at our Service Center before the end of the Business Day we reallocate. We reserve the right to discontinue or modify the optional reallocation program at any time and for any reason. To end this program, we must receive your request at our Service Center before the end of the last Business Day immediately before the Term End Date.
You cannot participate in the Optional Reallocation Program if you select a 3-year Term Index Option. If you are participating in this program and select a 3-year Term Index Option, on the Term Start Date your participation in this program ends and we will not reallocate your 1-year Term Index Option Values.
5.   Variable Options
Information regarding each Variable Option, including its (i) name, (ii) investment objectives, (iii) investment adviser and any subadviser, (iv) current expenses, and (v) performance is available in Appendix H – Variable Options Available Under the Contract. Each Variable Option has issued a prospectus that contains more detailed
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information about the Variable Option. You should read the prospectuses for the Variable Options carefully before investing. The Variable Options’ prospectuses and other information can be found online at allianzlife.com/variableoptions . You can also request this information at no cost by calling (800) 624-0197, by sending an email request to contact.us@allianzlife.com, or by contacting your Financial Professional.
There are potential risks associated with this Contract’s Variable Options and their investment strategies. Depending on market conditions, you can gain or lose value by investing in the Variable Options. In the future, we may add, eliminate or substitute Variable Options to the extent permitted by the federal securities laws and, when required, the SEC.
Currently, the Variable Options are not publicly available mutual funds. They are available only as Variable Options in variable annuity contracts or variable life insurance policies issued by life insurance companies or in some cases, through participation in certain qualified pension or retirement plans. A material conflict of interest may arise between insurance companies, owners of different types of contracts, and retirement plans or their participants. Each Variable Option's Board of Directors monitors for material conflicts, and determines what action, if any, should be taken to address any conflicts.
The names, investment objectives and policies of certain Variable Options may be similar to the names, investment objectives and policies of other portfolios managed by the same investment advisers. Although the names, objectives and policies may be similar, the Variable Options' investment results may be higher or lower than these other portfolios’ results. The investment advisers cannot guarantee, and make no representation, that these similar funds' investment results will be comparable even though the Variable Options have the same names, investment advisers, objectives, and policies.
Each Variable Option offered by the Allianz Variable Insurance Products Fund of Funds Trust (Allianz VIP Fund of Funds Trust) is a “fund of funds” and diversifies its assets by investing primarily in shares of several other affiliated mutual funds.
The Variable Options may pay 12b-1 fees to the Contracts’ distributor, our affiliate, Allianz Life Financial Services, LLC, for distribution and/or administrative services. In addition, we may enter into certain arrangements under which we, or Allianz Life Financial Services, LLC, are compensated by the Variable Options' advisers, distributors and/or affiliates for administrative services and benefits we provide to these Variable Options. The compensation amount usually is based on the Variable Options' aggregate assets purchased through contracts we issue or administer. Some advisers may pay us more or less than others. The maximum service fee we currently receive from any variable investment option in any variable annuity contract we offer is 0.35% annually of the average aggregate amount invested by us in the variable investment options.
The Allianz VIP Fund of Funds Trust underlying funds do not pay 12b-1 fees or service fees to the Trust, and the Trust does not charge 12b-1 fees or service fees. The Allianz VIP Fund of Funds Trust underlying funds or their advisers may pay service fees to us and our affiliates for providing customer service and other administrative services to you. Service fees may vary depending on the underlying fund.
We offer other variable annuity contracts that may invest in these Variable Options. These contracts may have different charges and may offer different benefits more appropriate to your needs. For more information about these contracts, please contact our Service Center.
Allianz Investment Management LLC, the Variable Options' investment adviser, is affiliated with us through common ownership.
Substitution of Variable Options and Limitation on Further Investments
We may substitute another Variable Option for one of your selected Variable Options, for any reason in our sole discretion. To the extent required by the Investment Company Act of 1940 or other applicable law, we do not substitute any shares without SEC approval and providing you notice. We may make substitutions with respect to your existing allocations, future Purchase Payment allocations, or both. New or substitute Variable Options may have different fees and expenses, and their availability may be limited to certain purchaser classes. We may limit further Variable Option allocations if marketing, tax or investment considerations warrant, or for any reason in our sole discretion. We may also close Variable Options to additional allocations. The fund companies that sell Variable Option shares to us, pursuant to participation agreements, may end those agreements and discontinue offering us their shares.
Transfers Between Variable Options
You can transfer Variable Account Value among the Variable Options on any Business Day, subject to the following restrictions. Currently, there is no maximum number of transfers allowed, but we may change this in the future. Transfers may be subject to a transfer fee as stated in section 6, Expenses.
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The following applies to any transfer.
• Your request for a transfer must clearly state the Variable Options involved and how much to transfer.
• Your right to make transfers is subject to the Excessive Trading and Market Timing policy discussed later in this section.
• Variable Account Value transfers between Variable Options do not change your Purchase Payment default instructions.
Any amount held in the AZL Government Money Market Fund that is set to be allocated to an Index Option on the Index Effective Date or an Index Anniversary will not be transferred to the Index Option if it is transferred to another Variable Option.
We process transfer requests based on prices next determined after we receive your request in Good Order at our Service Center. If we do not receive your transfer request before the end of the current Business Day, even if due to our delay in answering your call or a delay caused by our electronic systems, you receive the next Business Day’s prices. For jointly owned Contracts, unless you require us to obtain signatures from both Joint Owners, we accept transfer instructions from any Joint Owner. We may also allow you to authorize someone else to request transfers on your behalf.
Electronic Transfer and Allocation Instructions
We use reasonable procedures to confirm that electronic transfer request or allocation instructions given to us are genuine. If we do not use such procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We record telephone instructions and log all fax, email and website instructions. We reserve the right to deny any transfer request or allocation instruction change, and to discontinue or modify our electronic instruction privileges at any time for any reason.
Please note that telephone, fax, email and/or the website may not always be available. Any electronic system, whether it is ours, yours, your service provider’s, or your Financial Professional’s, can experience outages or slowdowns for a variety of reasons, which may delay or prevent our processing of your transfer request or allocation instruction change. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability. If you are experiencing problems, you should submit your instructions in writing to our Service Center.
By authorizing electronic instructions, you authorize us to accept and act upon these instructions for your Contract. There are risks associated with electronic communications that do not occur with a written request. Anyone authorizing or making such requests bears those risks. You should protect your website password, because the website is available to anyone with your password; we cannot verify that the person providing instructions on the website is you, or is authorized by you.
Excessive Trading and Market Timing
We discourage and do not accommodate frequent transfers. We may restrict or modify your right to make transfers to prevent any use that we consider to be part of a market timing program.
Frequent transfers, programmed transfers, transfers into and then out of a Variable Option in a short period of time, and transfers of large amounts at one time (collectively referred to as “potentially disruptive trading”) may have harmful effects for other Owners, Annuitants and Beneficiaries. These risks and harmful effects include the following.
• Dilution of the interests of long-term investors in a Variable Option, if market timers or others transfer into a Variable Option at prices that are below their true value, or transfer out at prices above their true value.
• An adverse effect on portfolio management, such as causing a Variable Option to maintain a higher level of cash or causing a Variable Option to liquidate investments prematurely.
• Increased brokerage and administrative expenses.
We attempt to protect our Owners and the Variable Options from potentially disruptive trading through our Excessive Trading and Market Timing policies and procedures. Under these policies and procedures, we may modify your transfer privileges for some or all of the Variable Options as follows:
• Limit transfer frequency (for example, prohibit more than one transfer a week, or more than two a month, etc.).
• Restrict the transfer method (for example, requiring all transfers be sent by first-class U.S. mail and rescinding electronic transfer privileges).
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• Require a minimum time period between each transfer into or out of the same Variable Option. Our current Excessive Trading and Market Timing policy, which is subject to change without notice, prohibits “round trips” within 14 calendar days. We do not include transfers into and/or out of the AZL Government Money Market Fund when available in your Contract or any automatic transfers made under any of our programs or Contract features. Round trips are transfers into and back out of the same Variable Option, or transfers out of and back into the same Variable Option.
• Refuse transfer requests made on your behalf by an asset allocation and/or market timing service.
• Limit the dollar amount of any single Purchase Payment or transfer request to a Variable Option.
• Prohibit transfers into specific Variable Options.
• Impose other limitations or restrictions to the extent permitted by federal securities laws.
We also reserve the right to reject any specific Purchase Payment allocation or transfer request from any person if in the investment adviser’s, subadviser’s or our judgment, a Variable Option may be unable to invest effectively in accordance with its investment objectives and policies. This could occur, for example, where frequent or rapid trading causes the investment adviser to hold an excess of uninvested cash to meet redemption requests, or to sell investment positions to fund redemptions, thereby affecting Variable Option returns. Similarly, rapid or frequent trading may cause a Variable Option to incur excessive transaction fees, which also could affect performance.
We retain some discretion in determining what actions constitute potentially disruptive trading and in determining when and how to impose trading restrictions. Currently, we attempt to deter disruptive trading as follows. If a transfer(s) is/are identified as potentially disruptive trading, we may (but are not required to) send a warning letter. If the conduct continues and we determine it constitutes disruptive trading, we also impose transfer restrictions. Transfer restrictions may include refusing electronic transfers and requiring all transfers be sent by first-class U.S. mail. If the disruptive trading affects only a single Variable Option, we may prohibit transfers into or Purchase Payment allocations to that Variable Option. We do not enter into agreements permitting market timing and would not permit activities determined to be disruptive trading to continue. We also reserve the right to impose transfer restrictions if we determine, in our sole discretion, that transfers disadvantage other Owners. We notify you in writing if we impose transfer restrictions on you.
We adopted these policies and procedures as a preventative measure to protect all Owners from the potential effects of disruptive trading, while also abiding by your legitimate interest in diversifying your investment and making periodic asset re-allocations based on your personal situation or overall market conditions. We attempt to protect your interests in making legitimate transfers by providing reasonable and convenient transfer methods that do not harm other Owners.
We may make exceptions when imposing transfer restrictions if we determine a transfer is appropriate, although it may technically violate our policies and procedures discussed here. In determining if a transfer is appropriate, we may, but are not required to, take into consideration its relative size, whether it was purely a defensive transfer into the AZL Government Money Market Fund, and whether it involved an error or similar event. We may also reinstate electronic transfer privileges after we revoke them, but we do not reinstate these privileges if we believe they might be used for future disruptive trading.
We cannot guarantee the following.
• Our monitoring will be 100% successful in detecting all potentially disruptive trading activity.
• Revoking electronic transfer privileges will successfully deter all potentially disruptive trading.
In addition, some of the Variable Options are available to other insurance companies and we do not know if they adopted policies and procedures to detect and deter potentially disruptive trading, or what their policies and procedures might be. Because we may not be completely successful at detecting and preventing market timing activities, and other insurance companies that offer the Variable Options may not have adopted adequate market timing procedures, there is some risk that market timing activity may occur and negatively affect other Owners.
We may, without prior notice to any party, take whatever action we deem appropriate to comply with any state or federal regulatory requirement. In addition, purchase orders for a Variable Option’s shares are subject to acceptance by that Variable Option’s manager. We reserve the right to reject, without prior notice, any Variable Option transfer request or Purchase Payment if the purchase order is rejected by the investment manager. We have entered into agreements required under SEC Rule 22c-2 (Rule 22c-2 agreements) whereby, upon request by an underlying fund or its designee, we must provide information about you and your trading activities to the underlying fund or its designee. Under the terms of the Rule 22c-2 agreements, we are required to: (1) provide details concerning every purchase, redemption, transfer, or exchange of Variable Options during a specified period; and (2) restrict your trading activity if the party receiving the
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information so requests. Under certain Rule 22c-2 agreements, if we fail to comply with a request to restrict trading activity, the underlying fund or its designee may refuse to accept buy orders from us until we comply.
Variable Options may add or change policies designed to restrict market timing activities. For example, Variable Options may impose restrictions on transfers between Variable Options in an affiliated group if the investment adviser to one or more of the Variable Options determines that the person requesting the transfer has engaged, or is engaging in, market timing or other abusive trading activities. In addition, a Variable Option may impose a short-term trading fee on purchases and sales within a specified period. You should review the Variable Options’ prospectuses regarding any applicable transfer restrictions and the imposition of any fee to discourage short-term trading. The imposition of these restrictions would occur as a result of Variable Option restrictions and actions taken by the Variable Options’ managers.
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.
The retention of some level of discretion by us may result in disparate treatment among persons engaging in potentially disruptive trading, and it is possible that some persons could experience adverse consequences if others are able to engage in potentially disruptive trading practices that have negative effects.
Voting Privileges
We legally own the Variable Option shares. However, when a Variable Option holds a shareholder vote that affects your investment, we ask you to give us voting instructions. We then vote all of our shares, including any we own on our behalf, in proportion to those instructions. Because most Owners do not give us instructions and we vote shares proportionally, a small number of Owners may determine a vote’s outcome. If we determine we no longer need to get your voting instructions, we will decide how to vote the shares. Only Owners have voting privileges. Annuitants, Beneficiaries, Payees and other persons have no voting privileges unless they are also Owners.
We determine your voting interest in a Variable Option as follows:
• You can provide voting instructions based on the dollar value of the Variable Option’s shares in your Contract’s subaccount. We calculate this value based on the number and value of accumulation units for your Contract on the record date. We count fractional units.
• You receive proxy materials and a voting instruction form.
6.  Expenses
Contract fees and expenses reduce your investment return and are described here in detail. We set the Contract fees and expenses on the Issue Date and they cannot change.
Base Contract Expenses (Product Fee)
In your Contract, the base contract expense is referred to as the “product fee”. The product fee compensates us for providing all your Contract’s benefits, including our contractual obligation to make Annuity Payments and certain Contract and distribution expenses. The product fee also compensates us for assuming the expense risk that the current fee is less than future Contract administration costs as well as the cost of providing certain features under the Contract. If the product fee covers these costs and risks, any excess is profit to us. We anticipate making such a profit.
  Base Contract Expenses
(as a percentage of the
Charge Base)
Product Fee (1)
0.25%
(1) Upon the death of the Owner, we continue to assess this product fee under death benefit payment Option B, and with optional payments under death benefit payment Option C, as noted in section 10, Death Benefit.
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The product fee is an annualized rate that we calculate and accrue on a daily basis as a percentage of the Charge Base and deduct quarterly during the Accumulation Phase as follows.
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 product fee, on the day after the Issue Date. • First we calculate and accrue the daily product 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.
– If we receive an additional Purchase Payment, we increase the Charge Base by the dollar amount we receive.
– If you take a partial withdrawal or choose to have us pay financial adviser fees from this Contract, or we deduct Contract fees and expenses, we decrease the Charge Base by the percentage of Contract Value withdrawn (including any withdrawal charge). All withdrawals you take reduce the Charge Base, even Penalty-Free Withdrawals. 		• First we process all daily transactions and determine your Contract Value. Daily transactions include any gains/losses due to Variable Option performance or application of any Daily Adjustment (or Credit if this is also the Term End Date), any additional Purchase Payment, any partial withdrawals you take or financial adviser fees that you choose to have us pay from this Contract (including any withdrawal charge), and deductions we make for Contract fees and expenses (including deduction of the accrued daily product fee for the prior quarter). All partial withdrawals you take reduce the Charge Base, even Penalty-Free Withdrawals.
– We deduct the accrued product fee for the prior quarter on a dollar for dollar basis from the Contract Value, and proportionately from each Allocation Option. • Then we set the Charge Base equal to this Contract Value and we calculate and accrue the next quarter’s daily product fee using the newly set Charge Base. *  Or the next Business Day if the Quarterly Contract Anniversary is a non-Business Day.
Example: Contract Value is $125,000; Charge Base is $127,000; a $10,000 partial withdrawal (including any withdrawal charge) would decrease the Charge Base by $10,160. [($10,000 ÷ $125,000) x $127,000]
Any increase/decrease to the Charge Base will increase/decrease the daily product fee we calculate and accrue on the next day.
Examples of how we calculate the product fee are included in Appendix E.
    
We do not treat the deduction of the accrued product fee as a withdrawal when computing your Guaranteed Death Benefit Value (see section 10).
Deduction of the final product fee
• If you take a full withdrawal we deduct the final accrued product fee before processing the withdrawal.
• If you annuitize the Contract, we deduct the final accrued product fee before calculating Annuity Payments.
• Upon the death of an Owner (or Annuitant if the Owner is a non-individual), we deduct the final accrued product fee before calculating the death benefit if death benefit payment Option A or Annuity Payments under death benefit payment Option C is selected. For more information on the death benefit payment options see section 10, Death Benefit.
    
If on a Quarterly Contract Anniversary (or the next Business Day if the Quarterly Contract Anniversary is a non-Business Day) the Contract Value is less than the accrued product fee, we deduct your total remaining Contract Value to cover the accrued product fee and reduce your Contract Value to zero. If the deduction of the accrued product fee reduces your Contract Value to zero and your selected death benefit has ended, we treat this as a full withdrawal and your Contract ends.
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Optional Benefit Additional Rider Fee
Maximum Anniversary Value Death Benefit
If you have the Maximum Anniversary Value Death Benefit, we deduct an additional rider fee from your Contract Value quarterly during the Accumulation Phase while your benefit is in effect. The additional rider fee is 0.20% as a percentage of the Charge Base. 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 final accrued additional rider fee before calculating the death benefit. The additional rider fee compensates us for the risks we assume under the Maximum Anniversary Value Death Benefit.
When calculating the Maximum Anniversary Value, we deduct all Contract fees and expenses on the Index Anniversary (including the accrued product and rider fees if this is also a Quarterly Contract Anniversary) before we capture any annual investment gains.
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 the total Contract Value for all Allianz Index Advantage ADV® Contracts you own is at least $100,000 at the end of the last Business Day before the Contract Anniversary, or if the Contract Value for this single Allianz Index Advantage ADV® Contract is at least $100,000 on the Contract Anniversary. We determine the total Contract Value for all individually owned Allianz Index Advantage ADV® Contracts by using the Owner’s social security number, and for non-individually owned Allianz Index Advantage ADV® Contracts we use the Annuitant’s social security number.
• During the Annuity Phase if the total Contract Value for all Allianz Index Advantage ADV® Contracts 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 charge:
• on a dollar for dollar basis from the Contract Value on the Contract Anniversary (or the next Business Day if the Contract Anniversary is a non-Business Day), and
• we deduct it proportionately from each Allocation Option.
If you take a full withdrawal from your Contract (other than on a Contract Anniversary), we deduct the full contract maintenance charge. We do not treat the deduction of the contract maintenance charge as a withdrawal when computing your Guaranteed Death Benefit Value. During the Annuity Phase, we deduct the contract maintenance charge proportionately from each Annuity Payment (e.g., if you request semi-annual Annuity Payments we deduct 50% of the contract maintenance charge from each Annuity Payment).
Withdrawal Charge
You can take withdrawals during the Accumulation Phase. A withdrawal charge applies if any part of a withdrawal comes from a Purchase Payment that is still within the withdrawal charge period that is being withdrawn from an Index Option. The withdrawal charge does not apply to withdrawals from the Variable Options. We assess the withdrawal charge against the Withdrawal Charge Basis, which is equal to total Purchase Payments, less any Purchase Payments withdrawn (excluding any Penalty-Free Withdrawals), and less any applicable withdrawal charge. We do not reduce the Withdrawal Charge Basis for any amounts withdrawn from the Variable Options or any amounts we deduct to pay other Contract fees and expenses.
We do not assess a withdrawal charge on amounts withdrawn from the Variable Options, Penalty-Free Withdrawals, or amounts we deduct to pay Contract expenses, other than the withdrawal charge. However, any amounts used to pay a withdrawal charge are subject to a withdrawal charge. Amounts withdrawn from the Index Options to pay financial adviser fees are subject to a withdrawal charge if they exceed the free withdrawal privilege, and will reduce the Contract Value and Guaranteed Death Benefit Value (perhaps significantly) .
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Calculating a Withdrawal Charge   Example
For purposes of calculating any withdrawal charge for a withdrawal from the Index Options, we withdraw Purchase Payments on a “first-in-first-out” (FIFO) basis and we process withdrawal requests as follows.   You make an initial Purchase Payment of $30,000 and make another Purchase Payment in the first month of the second Contract Year of $70,000. All Purchase Payments are allocated to the Index Options. In the third month of the third Contract Year, your Contract Value is $110,000 and you request a $52,000 withdrawal. We withdraw money and compute the withdrawal charge as follows.
1.  First we withdraw from Purchase Payments that we have had for six or more complete years, which is your Contract’s withdrawal charge period. This withdrawal is not subject to a withdrawal charge and it reduces the Withdrawal Charge Basis dollar for dollar.   1 .  Purchase Payments beyond the withdrawal charge period. All payments are still within the withdrawal charge period, so this does not apply.
2.  Amounts available as a Penalty-Free Withdrawal. This includes partial withdrawals you take during the Accumulation Phase under the free withdrawal privilege or waiver of withdrawal charge benefit, and RMD payments you take under our minimum distribution program. Penalty-Free Withdrawals are not subject to a withdrawal charge, and they do not reduce the Withdrawal Charge Basis.   2 .  Amounts available as a Penalty-Free Withdrawal. You did not take any other withdrawals this year, so the entire free withdrawal privilege (10% of your total Purchase Payments, or $10,000) is available to you without incurring a withdrawal charge.
3.  Next, on a FIFO basis, we withdraw from Purchase Payments within your Contract’s withdrawal charge period and assess a withdrawal charge. Withdrawing payments on a FIFO basis may help reduce the total withdrawal charge because the charge declines over time. We determine your total withdrawal charge by multiplying each payment by its applicable withdrawal charge percentage and then totaling the charges. These withdrawals reduce the Withdrawal Charge Basis.
The withdrawal charge as a percentage of each Purchase Payment withdrawn is as follows. 		  3 .  Purchase Payments within the withdrawal charge period on a FIFO basis. The total amount we withdraw from the first Purchase Payment is $30,000, which is subject to a 5% withdrawal charge, and you receive $28,500. We determine this amount as follows:
( amount withdrawn) x (1 – withdrawal charge) = the amount you receive, or:
$30,000 x 0.95 = $28,500
Next we withdraw from the second Purchase Payment.
So far, you received $38,500 ($10,000 under the free withdrawal privilege and $28,500 from the first Purchase Payment which is now reduced to zero), so we withdraw $13,500 from the second Purchase Payment to equal the $52,000 you requested. The second Purchase Payment is subject to an 6% withdrawal charge. We calculate the total amount withdrawn and its withdrawal charge as follows:
(the amount you receive) ÷ (1 – withdrawal charge) = amount withdrawn, or:
$13,500 ÷ 0.94 = $14,362.
Number of Complete
Years Since
Purchase Payment 		  Withdrawal Charge
Amount 		   
0
1
2
3
4
5
6 years or more 		  6.5%
6%
5%
5%
3%
2%
0% 		   
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Calculating a Withdrawal Charge Example
4.  Finally we withdraw any Contract earnings. This withdrawal is not subject to a withdrawal charge and it does not reduce the Withdrawal Charge Basis. 4.  Contract earnings. We already withdrew your requested amount, so this does not apply.
In total we withdrew $54,326 from your Contract, of which you received $52,000 and paid a withdrawal charge of $2,326. We also reduced the 1st Purchase Payment from $30,000 to $0, and your 2nd Purchase Payment from $70,000 to $55,638 ($70,000 - $14,362).
Upon a full withdrawal, we first deduct any final product and rider fees, and contract maintenance charge from your Contract Value before we calculate the withdrawal charge. We then deduct any applicable withdrawal charge from the total remaining Contract Value and send you the remaining amount. For a partial withdrawal we pay you the amount you requested and deduct this amount and any withdrawal charge from the total Contract Value. We deduct any partial withdrawal proportionately from each Allocation Option unless you provide us with alternate instructions. However, we do not deduct withdrawal charges from the Variable Options. If a partial withdrawal occurs on a day that we also deduct the product fee, rider fee, and/or contract maintenance charge, we deduct these fees and expenses before we calculate and deduct the partial withdrawal and any withdrawal charge from the Contract Value.
The withdrawal charge compensates us for expenses associated with selling the Contract.
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. We must pre-approve any withdrawal charge reduction or elimination.
•  Because there is no withdrawal charge applicable to the Variable Options, there is a financial disadvantage to directing us to withdraw Contract Value only from the Index Options during the withdrawal charge period, rather than the Variable Options.
•  Any amount withdrawn from an Index Option is subject to both a Daily Adjustment (which may be negative) and any applicable withdrawal charge.
•  Upon a full withdrawal the free withdrawal privilege is not available to you, and we apply a withdrawal charge against Purchase Payments that are still within the withdrawal charge period, including amounts previously withdrawn under the free withdrawal privilege. On a full withdrawal your Withdrawal Charge Basis may be greater than your Contract Value because the following reduce your Contract Value, but do not reduce your Withdrawal Charge Basis:
–  prior Penalty-Free Withdrawals,
–  prior withdrawals from the Variable Options,
–  deductions we make for Contract fees and expenses other than the withdrawal charge, and/or
–  poor performance.
This also means that upon a full withdrawal you may not receive any money.
•  Withdrawals (including any financial adviser fees that you choose to have us pay from this Contract) may also be subject to ordinary income taxes, and a 10% additional federal tax if you are under age 59  1 ⁄ 2 , and the amount of Contract Value available for withdrawal may be affected by the Daily Adjustment (which can be negative). Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
•  For tax purposes in most instances, withdrawals from Non-Qualified Contracts are considered to come from earnings first, not Purchase Payments.
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Transfer Fee
The first twelve transfers between Variable Options every Contract Year are free. After that, we deduct a $25 transfer fee for each additional transfer. We count all transfers made in the same Business Day as one transfer. We do not count transfers between the Variable Options and Index Options or reallocation of Index Option Value among the Index Options against the free transfers we allow and these transfers are not subject to a transfer fee. The transfer fee continues to apply under death benefit payment Option B, and with optional payments under death benefit payment Option C as noted in section 10, Death Benefit.
We deduct the transfer fee on a dollar for dollar basis from the amount of Variable Account Value being transferred before allocating the remaining Variable Account Value to your selected Variable Options. We do not treat the deduction of the transfer fee as a withdrawal when computing the Guaranteed Death Benefit Value under the Traditional Death Benefit.
Daily Adjustment Maximum Potential Loss
The Daily Adjustment is how we calculate Index Option Values on days other than the Term Start Date or Term End Date  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy. The Daily Adjustment approximates the Index Option Value that will be available on the Term End Date. If before the Term End Date you take a full or partial withdrawal (including any financial adviser fees that you choose to have us pay from this Contract), execute a Performance Lock, annuitize the Contract, we pay a death benefit, or when we deduct Contract fees and expenses, we calculate the Index Option Value by applying the Daily Adjustment. The Daily Adjustment can be positive or negative. Following is the maximum potential loss associated with the Daily Adjustment.
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.
Variable Option Expenses
Charges deducted from and expenses paid out of the assets of the Variable Options are described in the Variable Options' prospectuses.
These expenses reduce the Variable Options' performance and, therefore, negatively affect your Contract Value and any payments based on Contract Value.
7.  Access to Your Money
Your Contract Value is available under the following circumstances:
• by taking a withdrawal (including financial adviser fees that you choose to have us pay from this Contract; withdrawals under the free withdrawal privilege, systematic withdrawal program, and waiver of withdrawal charge benefit; and for Qualified Contracts only, RMD payments under our minimum distribution program);
• by taking Annuity Payments; or
• when we pay a death benefit.
You can take withdrawals during the Accumulation Phase. We process withdrawal requests based on values next determined after receipt of the request in Good Order at our Service Center. Values are normally determined at the end of each Business Day. We process any withdrawal request received at or after the end of the current Business Day using values determined on the next Business Day.
Any partial withdrawal must be for at least $100.* The Contract Value after a partial withdrawal must be at least $2,000.* We reserve the right to treat a partial withdrawal that reduces the Contract Value below this minimum as a full withdrawal.
* Does not apply to RMD payments under our minimum distribution program.
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We deduct any partial withdrawal proportionately from each Allocation Option unless you provide us with alternate instructions. However, we do not deduct withdrawal charges from the Variable Options. The Index Option Value from which a partial withdrawal is deducted during a Term will include any applicable Daily Adjustment.
When you take a full withdrawal of the Contract Value we process your request on the Business Day we receive it in Good Order at our Service Center as follows:
• total Contract Value including any Daily Adjustment,
• less any final product and rider fees, and contract maintenance charge, and
• less any withdrawal charge.
See the Fee Tables and section 6, Expenses for a discussion of the Contract fees and expenses.
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).
•  Withdrawals may be subject to a withdrawal charge, state and federal taxation, and a 10% additional federal tax if you are under age 59  1 ⁄ 2 , and the amount of Contract Value available for withdrawal may be affected by the Daily Adjustment (which can be negative) . Please consult with your Financial Professional before requesting us to pay financial adviser fees from this Contract compared to other assets you may have.
•  Joint Owners: We send one check payable to both Joint Owners and tax report each 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 will be subject to the 10% additional federal tax.
•  We may be required to provide information about you or your Contract to government regulators. We may also be required to stop Contract disbursements and thereby refuse any transfer requests, and refuse to pay any withdrawals (including a full withdrawal), or death benefits until we receive instructions from the appropriate regulator. If, pursuant to SEC rules, the AZL Government Money Market Fund suspends payment of redemption proceeds in connection with a fund liquidation, we will delay payment of any transfer, full or partial withdrawal, or death benefit from the AZL Government Money Market Fund subaccount until the fund is liquidated.
Free Withdrawal Privilege
Each Contract Year during the Accumulation Phase, you can withdraw up to 10% of your total Purchase Payments from the Index Options without incurring a withdrawal charge (the free withdrawal privilege). Any unused free withdrawal privilege in one Contract Year is not added to the amount available to you in the next Contract Year. Withdrawals from Purchase Payments that are outside the six year withdrawal charge period, or that are taken from the Variable Options, are not subject to a withdrawal charge and do not reduce your free withdrawal privilege. RMD payments you take under our minimum distribution program and withdrawals under the waiver of withdrawal charge benefit are not subject to a withdrawal charge, but do reduce your free withdrawal privilege. Amounts we deduct for any financial adviser fees that you choose to have us pay from this Contract also reduce your free withdrawal privilege.
Example
Assume your initial Purchase Payment 10 years ago was $90,000, and you made a second $100,000 Purchase Payment 3 years ago, and allocate 100% of your payments to the Index Options. You take a RMD payment of $1,500 and withdraw $150,000 when the Contract Value is $275,000. The RMD payment is not subject to a withdrawal charge, but reduces the amount available under the free withdrawal privilege to $17,500 (10% x $190,000 total Purchase Payments = $19,000 - $1,500 RMD payment). After the RMD payment, $107,500 is available to you without a withdrawal charge: the initial $90,000 Purchase Payment that is beyond the 6-year withdrawal charge period, and $17,500 remaining free withdrawal privilege. The remaining $42,500 of your requested withdrawal would be subject to a 5% withdrawal charge.
The free withdrawal privilege is not available upon a full withdrawal.
Systematic Withdrawal Program
The systematic withdrawal program can provide automatic withdrawal payments to you during the Accumulation Phase. You can request to receive these withdrawal payments monthly, quarterly, semi-annually or annually. However, if your Contract Value is less than $25,000, we only make annual payments. The minimum amount you can withdraw under this program is $100 and there is no maximum. During the withdrawal charge period (if applicable), systematic withdrawals
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from the Index Options in excess of the free withdrawal privilege are subject to a withdrawal charge. We make systematic withdrawals on the ninth of the month, or the next Business Day if the ninth is a non-Business Day. We must receive your systematic withdrawal program form instructions in Good Order at our Service Center before the end of the Business Day before we process these withdrawals, or your program does not begin until the next month. This program ends at the earlier of your request, or when you withdraw your total Contract Value. However, we reserve the right to discontinue or modify the systematic withdrawal program at any time and for any reason.
•  Ordinary income taxes and tax penalties may apply to systematic withdrawals.
•  The systematic withdrawal program is not available while you are receiving RMD payments.
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 Phase. If you have an Inherited IRA Contract or Inherited IRA Roth Contract we generally require you to participate in the minimum distribution program when you purchase this Contract. Under this program, we make payments to you designed to meet the applicable minimum distribution requirements imposed by the Code for this Qualified Contract. RMD payments are not subject to a withdrawal charge, but to the extent they are withdrawn from the Index Options, they reduce the free withdrawal privilege amount during the Contract Year. We do not consider deductions we make for financial adviser fees that you choose to have us pay from this Contract to be RMD payments. However, Contract Value is one of the components we use to calculate RMD payments, so these deductions may reduce your RMD payments. We apply the Daily Adjustment if RMD payments are deducted from the Index Options on days other than the Term End Date. We can make payments to you on a monthly, quarterly, semi-annually or annually. However, if your Contract Value is less than $25,000, we only make annual payments. You cannot aggregate RMD payments between this Contract and other qualified contracts that you own. We make RMD payments on the ninth of the month, or the next Business Day if the ninth is a non-Business Day. We must receive your program form instructions in Good Order at our Service Center before the end of the Business Day before we process these payments, or your program does not begin until the next month.
We reserve the right to discontinue or modify the minimum distribution program subject to the requirements of law.
•  You should consult a tax adviser before purchasing a Qualified Contract that is subject to RMD payments.
•  The minimum distribution program is not available while you are receiving systematic withdrawals.
Waiver of Withdrawal Charge Benefit
After the first Contract Year, if any Owner becomes confined to a nursing home for a period of at least 90 consecutive days and a physician certifies that continued confinement is necessary, you can take withdrawals and we waive the withdrawal charge. We apply the Daily Adjustment if withdrawals are deducted from the Index Options on days other than the Term End Date. This waiver is not available if any Owner was confined to a nursing home on the Issue Date. We base this benefit on the Annuitant for non-individually owned Contracts. We must receive proof of confinement in Good Order for each withdrawal before we waive the withdrawal charge. Withdrawals under this benefit reduce the free withdrawal privilege amount during the Contract Year.
Suspension of Payments or Transfers
We may be required to suspend or postpone transfers or payments for withdrawals for more than seven days after receipt of your request in Good Order at our Service Center, for any period when:
• the New York Stock Exchange is closed (other than customary weekend and holiday closings);
• trading on the New York Stock Exchange is restricted;
• an emergency (as determined by the SEC) exists as a result of which disposal of the Variable Option shares is not reasonably practicable or we cannot reasonably value the Variable Option shares; or
• during any other period when the SEC, by order, so permits for the protection of Owners.
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8.  The Annuity Phase
Prior to annuitization, you can take a full withdrawal and receive your total Contract Value (less the withdrawal charge, and final product and rider fees and contract maintenance charge). If you take a full withdrawal on any day other than a Term Start Date or Term End Date and you have Contract Value in the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, we apply the Daily Adjustment to these Index Option Values before we deduct the final Contract fees and expenses.
Annuity Payments offer a guaranteed lifetime income stream with certain tax advantages and are designed for Owners who no longer need immediate access to Contract Value to meet their short-term income needs.
You can apply your Contract Value to regular periodic fixed Annuity Payments. The Payee receives the Annuity Payments. You receive tax reporting on the payments, whether or not you are the Payee. We may require proof of the Annuitant(s)’ age before we make any life contingent Annuity Payment. If you misstate the Annuitant(s)’ age or gender, we recalculate the Annuity Payments based on the correct age or gender.
Calculating Your Annuity Payments
We base Annuity Payments upon the following:
• The Contract Value less the final product fee, and rider fee (if applicable) on the Annuity Date.
• The age of the Annuitant and any joint Annuitant on the Annuity Date.
• 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.
If the Annuity Date is not a Term End Date, Contract Value reflects the Daily Adjustment if you selected Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. We guarantee the dollar amount of Annuity Payments and this amount remains fixed and does not change during the entire annuity payment option period that you selected, except as provided under Annuity Option 3. We deduct the contract maintenance charge proportionately from each Annuity Payment (e.g., if you request semi-annual Annuity Payments we deduct 50% of the contract maintenance charge from each Annuity Payment). However, if your Contract Value on the last Business Day before the Annuity Date is at least $100,000 we waive the contract maintenance charge during the Annuity Phase.
Annuity Payment Options
You can choose one of the Annuity Options described below or any other payment option to which we agree. After Annuity Payments begin, you cannot change the Annuity Option, or transfer or withdraw Contract Value.
Option 1. Life Annuity. We make Annuity Payments during the life of the Annuitant, and the last payment is the one that is due before the Annuitant’s death. If the Annuitant dies shortly after the Annuity Date, the Payee may receive less than your investment in the Contract.
Option 2. Life Annuity with Payments Over 5, 10, 15 or 20 Years Guaranteed. We make Annuity Payments during the life of the Annuitant, with payments for a minimum guaranteed period that you select.
Option 3. Joint and Last 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 a level of 100%, 75% or 50% selected by the Owner when he or she chose this Annuity Payment option. If both Annuitants die shortly after the Annuity Date, the Payee may receive less than your investment in the Contract.
Option 4. Joint and Last Survivor Annuity with Payments Over 5, 10, 15 or 20 Years Guaranteed. We make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant, with payments for a minimum guaranteed period that you select.
Option 5. Refund Life Annuity. We make Annuity Payments during the lifetime of the Annuitant, and the last payment is the one that is due before the Annuitant’s death. After the Annuitant’s death, the Payee may receive a lump sum refund. The amount of the refund equals the amount applied to this Annuity Option minus the total paid under this option.
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Under Annuity Options 1, 3 and 5, if all Annuitants die on or after the Annuity Date and before we send the first Annuity Payment, we will cancel Annuity Payments and upon receipt of a Valid Claim we will pay the Contract Value determined on the Annuity Date to surviving individual Owner, or the Beneficiary(s) if there is no surviving Owner. If the Owner is a non-individual, we pay the Owner.
After the Annuitant’s death under Annuity Option 2, or the last surviving joint Annuitant's death under Annuity Option 4, we make Annuity Payments during the remaining guaranteed period in the following order based on who is still alive: the Payee, any surviving original Owner, the last surviving Owner’s Beneficiaries, or to the last surviving Owner’s estate if there are no remaining or named Beneficiaries.
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 20-year guaranteed period are less than payout rates for a 10-year guaranteed period, and payout rates for a 50-year-old Annuitant are less than payout rates for a 70-year-old Annuitant.
If you do not choose an Annuity Option before the Annuity Date, we make Annuity Payments to the Payee under Annuity Option 2 with ten years of guaranteed monthly payments.
When Annuity Payments Begin
Annuity Payments begin on the Annuity Date. Your scheduled Annuity Date is the first day of the calendar month following the later of: a) the Annuitant’s 90th birthday, or b) the tenth Contract Anniversary and is stated in your Contract. An earlier Annuity Date or a withdrawal may be required to satisfy minimum required distribution rules under certain Qualified Contracts. You can make an authorized request for a different, earlier or later Annuity Date after the Issue Date, but any such request is subject to applicable law and our approval. An earlier or later Annuity Date may not be available to you depending on the Financial Professional you purchase your Contract through and your state of residence. The earliest available Annuity Date is the second Contract Anniversary.
If on the Annuity Date (which may occur as early as the second Contract Anniversary, or as late as age 100) your Contract Value is greater than zero, you must annuitize the Contract. We notify you of your available options in writing 60 days in advance, including the option to extend your Annuity Date if available. If on your Annuity Date you have not selected an Annuity Option, we make payments under Annuity Option 2 with ten years of guaranteed monthly payments. Upon annuitization you no longer have Contract Value or a death benefit, and you cannot receive any other periodic withdrawals or payments other than Annuity Payments.
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9.   Benefits Available Under the Contract
The following tables summarize information about the benefits available under the Contract.
Standard Benefits (No Additional Charge)
Name of Benefit Purpose Brief Description of Restrictions/Limitations
Free Withdrawal Privilege Allows you to withdraw up to 10% of your total Purchase Payments from the Index Options each Contract Year without incurring a withdrawal charge. • Only available during the Accumulation Phase.
• Not available upon a full withdrawal.
• Unused free withdrawal amounts not available in future years.
• Program withdrawals may be subject to negative Daily Adjustments.
• Program withdrawals may be subject to income taxes, including a 10% additional federal tax if taken before age 59   1 ⁄ 2 .
Automatic Investment Plan (AIP) Allows you to make automatic Purchase Payments by electronic money transfer from your savings, checking, or brokerage account. • Only available during the Accumulation Phase.
• Not available to certain Qualified Contracts.
• Payments must be on a monthly or quarterly basis.
• Subject to applicable Purchase Payment restrictions.
• We reserve the right to discontinue or modify the program.
Optional Reallocation Program for the 1-year Term Index Options Provides for automatic transfers among the 1-year Term Index Options to help you maintain your selected allocation percentages among these Index Options. • Only available during the Accumulation Phase.
• Not available if you select a 3-year Term Index Option.
• We reserve the right to discontinue or modify the program.
Systematic Withdrawal Program Allows you to take automatic withdrawals from your Contract. • Only available during the Accumulation Phase.
• Not available while you are participating in minimum distribution program.
• Program withdrawals may be monthly, quarterly, semi-annual or annual, unless you have less than $25,000 in Contract Value, in which case only annual withdrawals are available.
• Program withdrawals count against free withdrawal privilege.
• Program withdrawals may be subject to negative Daily Adjustments.
• Program withdrawals may be subject to withdrawal charges and income taxes, including a 10% additional federal tax if taken before age 59  1 ⁄ 2 .
• We reserve the right to discontinue or modify the program.
Minimum Distribution Program Allows you to automatically take withdrawals to satisfy the minimum distribution requirements (RMD) imposed by the Internal Revenue Code. • Only available during the Accumulation Phase.
• Only available to IRA or SEP IRA Contracts.
• Program withdrawals count against free withdrawal privilege.
• Program withdrawals may be subject to negative Daily Adjustments.
• Program withdrawals may be subject to income taxes.
• Program withdrawals may be monthly, quarterly, semi-annual or annual, unless you have less than $25,000 in Contract Value, in which case only annual payments are available.
• We reserve the right to discontinue or modify the program subject to the requirements of law.
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Standard Benefits (No Additional Charge)
Name of Benefit Purpose Brief Description of Restrictions/Limitations
Financial
Adviser
Fees 		If you have a financial adviser and want to pay their financial adviser fees from this Contract, you can instruct us to withdraw the fee from your Contract and pay it to your Financial Professional or Financial Professional’s firm as instructed. • Only available during the Accumulation Phase.
• Financial adviser fees are in addition to the Contract’s fees and expenses.
• Deductions for financial adviser fees are treated as withdrawals under the Contract.
• Program withdrawals count against free withdrawal privilege.
• Program withdrawals may be subject to negative Daily Adjustments.
• Program withdrawals may be subject to withdrawal charges and income taxes, including a 10% additional federal tax if taken before age 59   1 ⁄ 2 .
• We reserve the right to discontinue or modify the program.
Waiver of
Withdrawal
Charge
Benefit 		Waives withdrawal charges if you become confined to a nursing home. • Only available during the Accumulation Phase.
• Confinement must be for at least 90 consecutive days.
• Requires physician certification.
• Not available if any Owner was confined to a nursing home on the Issue Date.
• Program withdrawals count against free withdrawal privilege.
• Program withdrawals may be subject to negative Daily Adjustments.
• Program withdrawals are not subject to withdrawal charges, but may be subject to income taxes, including a 10% additional federal tax if taken before age 59  1 ⁄ 2 .
• State variations may apply.
Traditional Death Benefit Provides a death benefit equal to the greater of the Contract Value, or Guaranteed Death Benefit Value. The Guaranteed Death Benefit Value is total Purchase Payments adjusted for withdrawals.
An example of the death benefit provided by the Traditional Death Benefit is included in section 10, Death Benefit.
An example of the impact of withdrawals for financial adviser fees that you choose to have us pay from this Contract on the death benefit is included in section 1. 		• Benefit only available during the Accumulation Phase.
• Withdrawals, including any negative Daily Adjustments, may significantly reduce the benefit as indicated in section 1, Financial Adviser Fee Deduction Example.
• Restrictions on Purchase Payments may limit the benefit.
• Annuitizing the Contract will end the benefit.
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Standard Benefits (No Additional Charge)
Name of Benefit Purpose Brief Description of Restrictions/Limitations
Performance Lock Allows you to capture the current Index Option Value during the Term for an Index Option with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. Can help eliminate doubt about future Index performance and possibly limit the impact of negative performance.
A Performance Lock example is included in section 4, Valuing Your Contract — Performance Locks. 		• Available during the Accumulation Phase.
• Not available with the Index Protection Strategy Index Options.
• May be exercised before the Term End Date for an Index Option.
• If exercised, will no longer participate in Index performance (positive or negative) for the remainder of the Term, and will not receive a Credit on the Term End Date.
• You will not know your locked Index Option Value in advance.
• The locked Index Option Value will reflect a Daily Adjustment.
• If executed when Daily Adjustment has declined, will lock in any loss.
• Can be executed only once each Term for each Index Option.
• Cannot be exercised for only a portion of the Index Option Value.
• Deductions (e.g. withdrawals, fees) decrease the locked Index Option Value.
• Cannot transfer locked Index Option Value until the Term End Date, except when exercised for a 3-year Index Option, provided the Lock Date occurs on or before the second Index Anniversary of a 3-year Term.
• We will not provide advice or notify you regarding whether you should exercise or the optimal time for doing so.
• We will not warn you if you exercise at a sub-optimal time.
    
Optional Benefits
Name of Benefit Purpose Maximum Fee Brief Description of Restrictions/Limitations
Maximum Anniversary Value Death Benefit Provides a death benefit equal to the greater of the Contract Value, or Guaranteed Death Benefit Value. The Guaranteed Death Benefit Value is the Maximum Anniversary Value.
An example of the death benefit provided by the Maximum Anniversary Value Death Benefit, and calculation of the Maximum Anniversary Value is included in section 10, Death Benefit.
An example of the impact of withdrawals for financial adviser fees that you choose to have us pay from this Contract on the death benefit is included in section 1. 		0.20%
(as a percentage of the Charge Base) 		• Must be age 75 or younger to elect.
• Can only be added to a Contract at issue.
• Replaces the Traditional Death Benefit if elected.
• Benefit cannot be removed from the Contract.
• Only available during the Accumulation Phase.
• Withdrawals, including any negative Daily Adjustment, may significantly reduce the benefit as indicated in section 1, Financial Adviser Fee Deduction Example.
• Withdrawals reduce the likelihood of lock in.
• Restrictions on Purchase Payments may limit the benefit.
• Annuitizing the Contract will end the benefit.
10.   Death Benefit
“You” in this section refers to the Owner, or the Annuitant if the Contract is owned by a non-individual.
The Contract provides the Traditional Death Benefit, the standard death benefit, for no additional charge. If available, you can instead select the optional Maximum Anniversary Value Death Benefit at Contract issue for an additional rider fee if
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all Owners and the Annuitant are age 75 or younger. The Maximum Anniversary Value Death Benefit can only be added to a Contract at issue. The Maximum Anniversary Value Death Benefit cannot be less than the Traditional Death Benefit, but they may be equal. Please discuss this benefit’s appropriateness with your Financial Professional. The death benefit is the greater of the Contract Value, or Guaranteed Death Benefit Value. The Guaranteed Death Benefit Value is either total Purchase Payments reduced proportionately for withdrawals you take (including any withdrawal charge) if you select the Traditional Death Benefit, or the Maximum Anniversary Value if you select the Maximum Anniversary Value Death Benefit.
The death benefit is only available during the Accumulation Phase. If you or the Determining Life (Lives) die during the Accumulation Phase, we process the death benefit using prices determined after we receive the required information, which is either a Valid Claim or due proof of death as stated here. (For information on due proof of death see the Glossary – Valid Claim). If we receive this information at or after the end of the current Business Day, we use the next Business Day’s prices.
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 Beneficiary’s interest in this Contract ends unless your Beneficiary designation specifies otherwise. If there are no remaining Beneficiaries, or no named Beneficiaries, we pay the death benefit to your estate, or if the Owner is a non-individual, to the Owner. Unless you instruct us to pay Beneficiaries a specific percentage of the death benefit, each Beneficiary receives an equal share.
Each Beneficiary’s portion of the death benefit remains in the Allocation Options based on the allocation instructions that were in effect on the date of death until we receive his or her Valid Claim and we either pay the claim or the Beneficiary provides alternate allocation instructions. If there is Variable Account Value in the AZL Government Money Market Fund awaiting transfer to the Index Options on the date of death, it remains there until the earlier of the next Index Anniversary, or the date we receive a Valid Claim. If an Index Anniversary occurs before we receive a Valid Claim, we will transfer that Beneficiary’s portion of the Variable Account Value destined for the Index Options based on the Purchase Payment default instructions that were in effect on the date of death.
From the time we determine the death benefit until we make a complete distribution, any amount in the Allocation Options continues to be subject to investment risk that is borne by the recipient(s). Once we receive notification of death, we may no longer accept or process transfer requests. After we receive the first Valid Claim from any Beneficiary we also will not accept additional Purchase Payments or allow any partial or full withdrawals unless the withdrawal is required to comply with federal tax law.
On the first death of a Determining Life during the Accumulation Phase, if your selected death benefit is in effect your Beneficiary(s) will receive the greater of the Contract Value or Guaranteed Death Benefit Value. The Guaranteed Death Benefit Value is either total Purchase Payments reduced proportionately for withdrawals you take (including any withdrawal charge) if you select the Traditional Death Benefit, or the Maximum Anniversary Value if you select the Maximum Anniversary Value Death Benefit. For example, assume total Purchase Payments are $90,000, you take no withdrawals, the highest Contract Value on any Index Anniversary (the Maximum Anniversary Value) is $105,000, and the current Contract Value is $100,000. The death benefit for the Traditional Death Benefit is the $100,000 Contract Value, and for the Maximum Anniversary Value Death Benefit it is the $105,000 Maximum Anniversary Value.
If the date we are determining the death benefit is not the Term End Date and you selected the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy, the Contract Value reflects the Daily Adjustment. Withdrawals you take reduce your Guaranteed Death Benefit Value by the percentage of Contract Value withdrawn (including any withdrawal charge), determined at the end of each Business Day. All withdrawals you take reduce the Guaranteed Death Benefit Value and Contract Value, even Penalty-Free Withdrawals, and financial adviser fees that you choose to have us pay from this Contract. However, we do not reduce the Guaranteed Death Benefit Value for deductions we make for Contract fees and expenses. Deductions for Contract fees and expenses will, however, decrease the Contract Value by the dollar amount withdrawn and reduce the likelihood of receiving increases to the Maximum Anniversary Value . In addition, because the death benefit is the greater of Contract Value, or the Guaranteed Death Benefit Value, deductions we make for Contract fees and expenses may reduce the death benefit available to your Beneficiaries.
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.
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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 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 if you select a 3-year Term Index Option and 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 we no longer capture any annual investment gains in the Maximum Anniversary Value.
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.
Example
    Contract
Value 		  Maximum Anniversary Value
Issue Date   $ 100,000   $ 100,000
1 st Quarterly Anniversary   $ 99,250   $ 100,000
2 nd Quarterly Anniversary   $ 99,975   $ 100,000
3 rd Quarterly Anniversary   $ 100,125   $ 100,125
4 th Quarterly Anniversary/
Index Anniversary 		  $ 99,995   $ 100,125
• On the Issue Date the Maximum Anniversary Value is equal to the initial Purchase Payment of $100,000.
• On the 1 st and 2 nd Quarterly Anniversaries the Contract Value is less than the Maximum Anniversary Value, so the Maximum Anniversary Value neither increases, nor decreases.
• On the 3 rd Quarterly Anniversary the Contract Value is greater than the Maximum Anniversary Value, so we increase the Maximum Anniversary Value to equal the $100,125 Contract Value. The Maximum Anniversary Value will stay at $100,125 until the Contract Value on a Quarterly 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).
What Happens Upon Death?
If you are the Determining Life, or if you and the Determining Life (Lives) are different individuals and die simultaneously as defined by applicable state law or regulation, we determine the Guaranteed Death Benefit Value at the end of the Business Day we receive a Valid Claim. For multiple Beneficiaries, each surviving Beneficiary receives the greater of their portion of the:
• Guaranteed Death Benefit Value determined at the end of the Business Day we receive the first Valid Claim from any one Beneficiary, or
• Contract Value determined at the end of the Business Day during which we receive his or her Valid Claim.
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If you and the Determining Life (Lives) are different individuals and do not die simultaneously as defined by applicable state law or regulation, the death benefit is as follows. This can only occur if you change the Owner after the Issue Date.
• If a Determining Life dies before you, we do not pay a death benefit to the Beneficiary(s) 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. We allocate any Contract Value increase to the Allocation Options according to your Purchase Payment default instructions.
• Upon your death your Beneficiary(s) receive the Contract Value determined at the end of the Business Day during which we receive each Beneficiary’s Valid Claim.
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.
• 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 simultaneously as defined by applicable state law or regulation.
• 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 simultaneously as defined by applicable state law or regulation.
• 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.
    
We base the Guaranteed Death Benefit Value on the first death of a Determining Life (or Lives). This means that upon the death of an Owner (or Annuitant if the Owner is a non-individual), if a surviving spouse continues the Contract:
•  the Guaranteed Death Benefit Value is no longer available, and
•  if you selected the Maximum Anniversary Value Death Benefit, we no longer assess its 0.20% rider fee.
Also, if you and the Determining Life (Lives) are different individuals and you die first, the Guaranteed Death Benefit Value is not available to your Beneficiary(s).
Death of the Owner and/or Annuitant
The Appendix A to the Form N-4 SAI includes tables that are intended to help you better understand what happens upon the death of any Owner and/or Annuitant under the different portions of the Contract.
Death Benefit Payment Options During the Accumulation Phase
If you do not designate a death benefit payment option, a Beneficiary must select one of the 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 Owner’s spouse, he or she can choose to continue the Contract with the portion of the death benefit the spouse is entitled to in his or her own name. For an IRA, Roth IRA, or SEP IRA Contract, spousal continuation can only occur if the surviving spouse is the Contract’s sole primary Beneficiary. For non-individually owned Contracts, spousal continuation is only available to Qualified Contracts through a direct rollover to an IRA. Spouses must qualify as such under federal law to continue the Contract. Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered to be a marriage under state law are also not considered to be married under federal law. An election by the spouse to continue the Contract must be made on the death claim form before we pay the death benefit. If the deceased Owner was a Determining Life and the surviving spouse Beneficiary continues the Contract, at the end of the Business Day we receive his or her Valid Claim we
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increase the Contract Value to equal the Guaranteed Death Benefit Value if greater and available, and your selected death benefit ends. We allocate any Contract Value increase to the Allocation Options according to Purchase Payment default instructions. If the surviving spouse continues the Contract:
• he or she becomes the new Owner and may exercise all of the Owner’s rights, including naming a new Beneficiary or Beneficiaries;
• he or she is subject to any remaining withdrawal charge; and
• upon the surviving spouse’s death their Beneficiary(s) 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 Owner’s death. The Beneficiary can continue to make transfers between Allocation Options and is subject to a transfer fee and the product fee.
Option C: If the Beneficiary is an individual, payment of the death benefit as Annuity Payments under Annuity Options 1, 2, or 5. With our written consent other options may be available for payment over a period not extending beyond the Beneficiary’s life expectancy under which the Beneficiary can continue to make transfers between Allocation Options and is subject to a transfer fee and the product fee.
Distribution from Non-Qualified Contracts must begin within one year of the date of the Owner’s death. Any portion of the death benefit from Non-Qualified Contracts not applied to Annuity Payments within one year of the date of the Owner’s death must be distributed within five years of the date of death.
If a Non-Qualified Contract is owned by a non-individual, then we treat the death of an Annuitant as the death of an Owner for purposes of the Code’s distribution at death rules, which are set forth in Section 72(s) of the Code.
In all events, notwithstanding any provision to the contrary in the Contract or this prospectus, a Non-Qualified Contract is interpreted and administered in accordance with Section 72(s) of the Code.
11.   Taxes
This section provides a summary explanation of the tax ramifications of purchasing a Contract. We do not provide individual tax advice. You should contact your tax adviser to discuss this Contract’s effects on your personal tax situation.
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 federal income tax and any applicable state income tax at ordinary income tax rates (instead of capital gains rates).
You can purchase either a Qualified Contract or a Non-Qualified Contract. If you do not purchase one of the various types of Qualified Contracts described in this section, the Contract is referred to as 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 Contract as an IRA, Roth IRA, SEP 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
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only once in any twelve-month period from all of the IRAs you currently own. Adverse tax consequences may result if contributions, distributions, and transactions in connection with the Qualified Contract do not comply with the law.
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.
•  
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).
•  
Simplified Employee Pension (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. 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 Contract). If you purchase this Contract as a transfer from another carrier, you will become the Owner of the new Inherited IRA Contract 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 Contract 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 Contract to a qualified retirement plan. 
•  
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 a 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 subject to the
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terms and conditions of the plan regardless of the terms and conditions of the Contracts issued pursuant to the plan. Some retirement plans are subject to distribution and other requirements that are not incorporated into our administrative procedures. We are not bound by the terms and conditions of such plans to the extent such terms conflict with the terms of a Contract, unless we specifically consent to be bound. Owners, participants, and Beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the Contracts comply with applicable law. We may choose not to allow pension or profit-sharing plans to purchase this Contract.
Summary of Individuals and Entities That Can Own a Qualified Contract
Currently, we offer the following types of Qualified Contracts.
Type of Contract Persons and Entities that can own the Contract
IRA Must have the same individual as Owner and Annuitant.
Roth IRA Must have the same individual as Owner and Annuitant.
Simplified Employee Pension (SEP) IRA Must have the same individual as Owner and Annuitant.
Certain Code Section 401 Plans A qualified retirement plan is the Owner and the Annuitant must be an individual who is a participant in the plan. If the qualified retirement plan is a defined benefit plan, the individual must be the only participant in the plan.
We may determine which types of qualified retirement plans are eligible to purchase this Contract.
Inherited IRA and Inherited Roth IRA Must have the same individual as Owner and Annuitant. The deceased owner of the previously held tax-qualified arrangement will also be listed in the titling of the Contract.
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.
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10% Additional Federal Tax
Withdrawals, whether partial or full, and Annuity Payments may also be subject to an additional federal tax equal to 10% of the taxable amount, unless an exception applies. If you take a withdrawal before age 59  1 ⁄ 2 , you may be subject to a 10% additional federal tax, unless you satisfy one of the exceptions. 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 one check payable to both Joint Owners and tax report each 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 will 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) distributions following your death or disability (or the Annuitant as applicable) (for this purpose disability is as defined in Section 72(m)(7) of the Code);
3) distributions 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;
4) distributions made to you after separation from service after reaching age 55 (does not apply to IRAs);
5) distributions made to you to the extent such distributions do not exceed the amount allowed as a deduction under Code Section 213 for amounts paid during the tax year for medical care;
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 spouse and dependents if you have received unemployment compensation for at least 12 weeks (this exception will no longer apply after you have been re-employed for at least 60 days);
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; and
12) distributions made during the payment period starting on the birth of a child or the finalization of an adoption (up to $5,000).
With respect to (12) above, a qualified birth or adoption distribution may be repaid in one or more contributions into an IRA or qualified retirement plan (if you are eligible to make a contribution to the qualified retirement plan). The repayment contribution will be treated as a rollover into the IRA or qualified retirement plan.
With respect to (3) above, if the series of substantially equal periodic payments is modified before the later of the Annuitant attaining age 59  1 ⁄ 2 or the close of the five year period that began on the date the first payment was received, then the tax for the year of the modification is increased by the 10% additional federal tax, plus interest for the tax years in which the exception was used. A partial withdrawal, partial transfer, or partial rollover taken after a series of substantially equal periodic payments has begun will result in the modification of the series of substantially equal payments and therefore will result in the imposition of the 10% additional federal tax and interest for the period as described above. You should obtain competent tax advice before you take any partial withdrawals from your Contract. Adding Purchase Payments to a Contract that is making substantially equal periodic payments will also result in a modification of the payments.
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% federal additional tax. To qualify for the distribution, generally you, your spouse, or dependent had to have been diagnosed with the virus, or you had to have been affected economically in certain ways because of the virus. 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.
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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 become totally disabled (as that term is defined in Section 72(m)(7) of the Code);
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 59  1 ⁄ 2 or the close of the five year period that began on the date the first payment was received, then the tax for the year of the modification is increased by the 10% additional federal tax, plus interest, for the tax years in which the exception was used. A partial withdrawal or partial 1035 exchange taken after a series of substantially equal periodic payments has begun will result in the modification of the series of substantially equal payments and therefore will result in the imposition of the 10% additional federal tax and interest for the period as described above. Adding Purchase Payments to a Contract that is making substantially equal periodic payments will also result in a modification of the payments.
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 compared to other assets you may have since federal and/or state taxing authorities could determine that such fees should be treated as taxable distributions.
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 72 (or age 70  1 ⁄ 2 if you reached this age prior to January 1, 2020). Under a qualified plan, the required beginning date is generally April 1 of the calendar year following the later of the calendar year in which you reach age 72 (or age 70  1 ⁄ 2 if you reached this age prior to January 1, 2020) 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 50% additional federal 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 imposes 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 each year with respect to Contract earnings accrued. We intend to manage all available Index Options, and we intend that all Variable Options 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
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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 available Variable 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 calculation that causes a portion of each Annuity Payment to be non-taxable, based upon the percentage of your Contract Value that is from Purchase Payments. We determine the exclusion ratio for Annuity Payments by dividing the investment in the Contract (adjusted for any guaranteed period or refund guarantee) by the expected return anticipated to be paid as Annuity Payments (which is determined by Treasury Regulations). We determine the amount of each Annuity Payment that is excluded from income by multiplying the Annuity Payment by the exclusion ratio. Annuity Payments received after the investment in the Contract has been recovered (for example, when the total of the amounts excluded from income equal the investment in the Contract) are fully taxable.
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.
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
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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 payments 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) not more than ten years younger than the IRA Owner, 3) a minor child of the IRA Owner, 4) chronically ill, or 5) disabled. 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.
For a minor child Beneficiary, the payments based on life expectancy may continue only until the minor child reaches the age of majority (age 18 or the age specified in Treasury Regulations). 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 72. 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.
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. Clarification of situations involving trust Beneficiaries is expected to be provided when the Treasury Department releases applicable regulations. Individuals are encouraged to seek guidance from their own tax professional or legal counsel to determine how these new rules apply to their particular situation.
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 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.
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.
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Tax-Free Section 1035 Exchanges
Subject to certain restrictions, you can make a “tax-free” exchange under Section 1035 of the Code for all or a portion of one non-qualified annuity contract for another, or all of a life insurance policy for a non-qualified annuity contract. If you perform a partial 1035 exchange, please be aware that no distributions or withdrawals can occur from the old or new annuity contract within 180 days of the partial exchange, unless you qualify for an exception to this rule. IRS guidance also provides that certain partial exchanges may not qualify as tax-free exchanges. You should consult a tax adviser to discuss the potential tax effects before making a 1035 exchange.
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:
• you might have to pay a withdrawal charge on your previous contract,
• there is a new withdrawal charge period for this Contract,
• other charges 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.
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 before purchasing more than one Non-Qualified Contract in any calendar year period.
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.
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.
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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 Variable Options' shares that have been purchased with Contract assets. We keep the Separate Account assets separate from the assets of our general account and other separate accounts, including the non-unitized separate accounts we established in connection with the Index Options. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Variable Option.
We own the assets of the Separate Account. Income, gains, and losses credited to, or charged against, the Separate Account reflect the Separate Account’s own investment experience and not the investment experience of the our other assets. The Separate Account’s assets are insulated, so that the assets cannot be used to pay any of our liabilities, other than those arising from the investment of Contract assets in the Variable Options.
If the Separate Account’s assets exceed the required reserves and other liabilities, we may transfer the excess to our general account, to the extent of seed money invested by us or earned fees and expenses. The obligations under the Contracts are obligations of Allianz Life. We are obligated to pay all amounts promised to investors under the Contracts.
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 death benefit. Contract Value that you apply to Annuity Payments becomes part of our general account.
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Our Unregistered Separate Account
We hold the assets you allocate to the Index Options in Separate Account IANA, which we established under Minnesota Insurance Law for the purpose of supporting our obligations to pay Credits. We invest the assets in Separate Account IANA in hedging instruments, including derivative hedging instruments such as put and call options, as well as cash and fixed income securities. Like our general account, the assets in Separate Account IANA are subject to our general business operation liabilities and the claims of our creditors. An Owner who allocates Contract Value to an Index Option does not have any interest in or claim on the assets in Separate Account IANA. In addition, neither the Owner nor these Index Options participate in any way in the performance of assets held in Separate Account IANA.
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 broker-dealer with the SEC under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority (FINRA). ALFS is not a member of Securities Investors Protection Corporation. More information about ALFS is available at finra.org or by calling 1-800-289-9999. You also can obtain an investor brochure from FINRA describing its Public Disclosure Program.
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 fees,
• accounting fees,
• Financial Professional training,
• compensation for the ALFS management team, and
• 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 to customers. Rather, customers typically are working with a Financial Professional who is registered as an investment adviser, or is an investment advisory representative of a registered investment adviser, and who is offering advisory services for a fee. A Financial Professional may also be a registered representative of a broker-dealer.
There are no underwriting commissions paid to or retained by ALFS for each of the Allianz Life’s last three fiscal years.
We do not pay sales commissions in connection with sales of the Contracts. Rather, you pay an investment advisory fee to your Financial Professional. We do not set your investment advisory fee or receive any part of it. You should ask your Financial Professional about compensation they receive in connection with this Contract.
The AZL Government Money Market Fund assesses a Rule 12b-1 fee of 0.25% of the fund’s average daily net assets for the most recent calendar year. This fee is paid to ALFS as consideration for providing distribution and certain other services and incurring certain expenses permitted under the fund’s plan.
In certain instances, an investment adviser and/or subadviser (and/or their affiliates) of an Investment Option may make payments for administrative services to ALFS or its affiliates.
Broker-dealers and investment advisers 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.
We and/or ALFS may pay certain broker-dealer and investment advisory firms additional marketing support allowances for:
• marketing services and increased access to their Financial Professionals;
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• 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 firm and the amount of any such payment.
We may also make payments for marketing and wholesaling support to broker-dealer affiliates of Variable Options that are available through the variable annuities we offer.
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.
A portion of the payments made to broker-dealer and investment advisory 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 purchase of a Contract.
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.
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:
• issuance and maintenance of the Contracts,
• maintenance of Owner records, and
• 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 prospectuses for the Variable Options, may be mailed to your household, even if you or other persons in your household have more than one contract issued by us or our affiliate. Call our Service Center at the toll-free telephone number listed at the back of this prospectus if you need additional copies of financial reports, prospectuses, or annual and semiannual reports, or if you would like to receive one copy for each contract in future mailings.
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
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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 index annuities, individual life insurance, and registered index-linked annuities. We are licensed to do direct business in 49 states and the District of Columbia.
Directors, Executive Officers and Corporate Governance
BOARD OF DIRECTORS
The Board currently consists of eight members, including our Chair, our President and Chief Executive Officer, our Chief Financial Officer and Treasurer, three independent outside board members, and two non-independent board members. Age and positions are provided as of December 31, 2021, except as otherwise noted.
The Board holds regular quarterly meetings, generally in February, April/May, July/August, and October/November of each year, and holds special meetings or takes action by unanimous written consent as circumstances warrant. There were two special meetings of the Board held in 2021. The Board has standing Executive, Audit, and Nomination, Evaluation and Compensation Committees, each of which is described in further detail below.
The current members of our Board are as follows.
Andreas G. Wimmer
Director and Chair of the Board
Andreas G. Wimmer, age 47, currently serves as the Chair of Allianz Life’s Board of Directors and as the Chair of its Executive Committee, effective January 1, 2022. Mr. Wimmer currently serves as a Member of the Board of Management of Allianz SE since October 2021. Previously, Mr. Wimmer served as the Chief Executive Officer of Allianz Lebensversicherungs-AG from January 2020 to March 2022 and as a Member of the Board of Management of Allianz Deutschland AG from January 2020 to October 2021, respectively. Previously, Mr. Wimmer served as a member of the Board of Management, Corp. Clients of Allianz Lebensversicherungs-AG from 2015 to 2019.
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.
Jasmine M. Jirele
Director, President, and Chief Executive Officer
Jasmine M. Jirele, age 44, joined Allianz Life in 2018 and currently serves as the President and Chief Executive Officer and a member of the Board of Directors and its Executive Committee effective September 1, 2021. Ms. Jirele also serves as the Chair of the Board and the Chief Executive Officer of Allianz Life of New York. She also serves as the Chair of the Board of AZOA Services Corporation and as the Chair of its Shared Plans Management Committee. Ms. Jirele also serves as a Governor of Allianz Individual Insurance Group, LLC, TruChoice Financial Group, LLC, and Allianz Investment Management U.S. LLC, respectively. She also serves as director of Allianz Australia Life Insurance Holdings Limited and Allianz Australia Life Insurance Limited.
Previously, Ms. Jirele was a Governor of Allianz Investment Management LLC from January 1, 2021 to February 15, 2022. Ms. Jirele was also the Senior Vice President, Chief Growth Officer of Allianz Life from October 1, 2018 to August 31, 2021. In that role, Ms. Jirele was responsible for the oversight of new business strategy, product innovation, marketing, and corporate communications. Prior to that, Ms. Jirele was the Executive Vice President, Head of Customer
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Excellence at Wells Fargo Consumer Bank/Consumer Auto. Prior to that, Ms. Jirele spent nine years at Allianz Life as the Senior Vice President of Enterprise Operations from 2012 to 2015, Vice President of Market Management and Product Innovation from 2009 to 2012, Director of Executive Projects from 2007 to 2009, and Director of Marketing/Communications from 2006 to 2007, respectively.
Ms. Jirele brings to the Board extensive operations, product innovation, marketing and communications, growth strategy and insurance industry experience.
William E. Gaumond
Director, Senior Vice President, Chief Financial Officer and Treasurer
William E. Gaumond, age 48, joined Allianz Life in 2004 and currently serves as Senior Vice President, Chief Financial Officer and Treasurer, and as a member of the Board of Directors since January 1, 2016. He also serves as a Director, the Chief Financial Officer and Treasurer and as a member of its Executive Committee and Chair of Finance Committee of Allianz Life of New York.
Mr. Gaumond also serves as the Chief Financial Officer of Allianz Foundation for North America, and as a Governor of Allianz Individual Insurance Group, LLC, TruChoice Financial Group, LLC, Allianz Life Financial Services, LLC, Allianz Investment Management U.S. LLC, and Allianz Strategic Investments, LLC, respectively. Mr. Gaumond also serves as a Director and President of Allianz Fund Investments, Inc., AZL PF Investments, Inc., and Dresdner Kleinwort Pfandbriefe Investments II, Inc., respectively. Mr. Gaumond is also a Director of Questar Agency, Inc., Questar Capital Corporation, Yorktown Financial Companies, Inc., Allianz of America, Inc., Allianz Real Estate of America LLC, Allianz Technology of America, Inc., and PFP Holdings, Inc., respectively. He is also a Director and the President of AZOA Services Corporation. Mr. Gaumond also serves as a Director and the Chief Financial Officer and Treasurer of Allianz Finance Corporation. Mr. Gaumond previously served as a Director of Questar Asset Management, Inc. from January 2016 to September 2021. Mr. Gaumond is responsible for all finance and risk management functions, with oversight of the controller, financial planning, treasury, and corporate risk management areas.
Mr. Gaumond brings to the Board extensive financial services, investment, and insurance industry experience, including serving as Chief Financial Officer and Treasurer of Allianz Life and Allianz Life of New York.
Udo Frank
Director
Udo Frank, age 62, joined Allianz Life’s Board of Directors on May 1, 2015 and also serves as the Lead Independent Director, the Chair of its Audit Committee and as a member of its Nomination, Evaluation and Compensation Committee and its Executive Committee. Mr. Frank has over 30 years of experience in the financial services and insurance industries. Mr. Frank worked for various Allianz SE investment and asset management affiliates from 1994 to 2014, including serving in numerous executive positions. In 2001, Mr. Frank was appointed as the Global Chief Executive Officer of RCM Capital Management, LLC. In 2012, he was appointed the Head of Product Management and Chief Marketing Officer of Allianz Global Investors – U.S.
Mr. Frank brings to the Board extensive experience in the financial services and insurance industries, as well as extensive experience in investments and asset management.
Anna Sophie Herken
Director
Anna Sophie Herken, age 50, joined Allianz Life’s Board of Directors on October 1, 2019. She also serves as the Chair of Allianz Foundation for North America Board of Directors and as its President, effective October 15, 2021. She also serves as the Business Division Head of Allianz Asset Management GmbH since April of 2018. Ms. Herken also serves as a board member of CPIC Fund Management Ltd. since July 2019. Prior to that, Ms. Herken was Chief Financial Officer and Chief Operating Officer of Hasso Plattner Capital Germany from 2016 to 2018, Managing Director of Hertie School of Governance GmbH from 2011 to 2016. Ms. Herken holds an MBA from the University of Cambridge, Law and Judge Degrees.
Ms. Herken brings to the Board extensive experience in the financial service industry, as well as extensive experience in working for international financial organizations with a focus on finance and asset management.
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Kevin E. Walker
Director
Kevin E. Walker, age 59, joined Allianz Life’s Board of Directors on May 23, 2017, and also serves as a member of its Audit Committee and Chair of its Nomination, Evaluation and Compensation Committee. Mr. Walker also serves on the Board of Directors of Allianz Life of New York as of October 1, 2018. Mr. Walker serves as the Chair and Director of Allianz Reinsurance America, Inc., and is a member of its Audit Committee since January 1, 2017. Mr. Walker has over 30 years of insurance and financial services experience. Mr. Walker served at various Allianz affiliates throughout his career, most recently as the President and Chief Executive Officer of Allianz Reinsurance America, Inc. from 2015 to 2016. Mr. Walker has also served as a director and officer for several other Allianz affiliates.
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 65, joined Allianz Life in 2009, became an Allianz Life Board member in 2012. Previously, Mr. White served as the President and Chief Executive Officer from January 1, 2012 through September 1, 2021, and most recently as Senior Advisor through December 31, 2021. Mr. White also previously served as the Chair of the Board and the Chief Executive Officer of Allianz Life of New York, and as a Board member and the President of AZOA Services Corporation and served 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, respectively. In addition, Mr. White previously served as a Director of Questar Capital Corporation and Questar Agency, Inc. Mr. White served as Chair, Chief Executive Officer and President of Allianz Life and Annuity Company from 2012 to 2017.
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 64, 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. 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. Howard serves on the board of directors of Apple Hospitality REIT, Inc., a publicly traded real estate investment trust that owns hotels across the United States. He also serves as the Lead Independent Director, Chair of the Nominations and Governance Committee and is a member of the Compensation Committee for telecommunications company SOMOS Inc. 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 and Academic Affairs 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 Ms. Jirele and Mr. Gaumond) are as follows. Age and positions are provided as of December 31, 2021, except as otherwise noted.
Eric J. Thomes
Senior Vice President, Chief Distribution Officer
Eric J. Thomes, age 49, joined Allianz Life in 1995 and currently serves as the Senior Vice President, Chief Distribution Officer of Allianz Life since April 1, 2019. He also serves as the President and a Director of Allianz Life of New York. Mr. Thomes also serves as a Governor, and as the Chief Executive Officer and Chief Manager of Allianz Life Financial Services, LLC. Mr. Thomes also serves as a Governor of Allianz Individual Insurance Group, LLC, and TruChoice Financial Group, LLC, respectively. He also serves as the Chair and as a Director of Yorktown Financial Companies, Inc.,
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Questar Agency, Inc. and Questar Capital Corporation, respectively. 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, FMO Sales from 2009 to 2019. He also served as the President of Allianz Individual Insurance Group, LLC from 2005 to 2018 and as a Director of Questar Asset Management, Inc. from April 2019 to September 2021, respectively.
Gretchen Cepek
Senior Vice President, General Counsel, and Secretary
Gretchen Cepek, age 53, joined Allianz Life in 2009 and currently serves as Senior Vice President, General Counsel and Secretary since February 17, 2012. In this role, Ms. Cepek is responsible for the legal, ethics, and compliance departments as well as government relations and the special investigations unit. She also serves as the Chief Legal Officer and Secretary of Allianz Life of New York, and General Counsel and Secretary of AZOA Services Corporation. Previously, Ms. Cepek served as the Secretary for Allianz Life and Annuity Company from 2012 to 2017, and the Vice President of Legal Business Operations, Distribution and Product Development of Allianz Life from 2009 to 2012. Ms. Cepek received her J.D. from Valparaiso University School of Law in 1993.
Susan M. Sachatello
Senior Vice President, Chief Growth Officer
Susan M. Sachatello, age 55, joined Allianz Life in September 2021 and currently serves as the Senior Vice President, Chief Growth Officer and as a Governor of Allianz Strategic Investments LLC. Ms. Sachatello leads development of the Company’s strategy, and has overall accountability for New Markets, Ventures, Product Innovation, Enterprise Marketing and Experience Management, Strategic Communications, Community Engagement and Sponsorships, and Enterprise Agile.
Previously, Ms. Sachatello was the Chief Marketing and Sales Officer of Principal Advisory Services within Principal Financial Group from May 2020 to September 2021 where she built a team to deliver effective marketing, strategy, distribution and customer and advisor experience for a board-directed growth business extending the strength in group distribution into a new Individual business model across Retirement, Annuity and Life product lines. Ms. Sachatello was also the Senior Vice President, Marketing and Customer Experience of CUNA Mutual Group from 2011 to 2020 where she directed strategy, CX, marketing, sales and customer operations for a $1.4B business selling life, health and auto insurance. Ms. Sachatello also held Chief Marketing Officer positions for Lands’ End, LBrands, and DoubleClick (now Google Ad Manager). Ms. Sachatello holds a Bachelor of Arts degree in Economics and English from the University of Richmond, and a Master of Business Administration from the College of William and Mary.
Neil H. McKay
Senior Vice President, Chief Actuary
Neil H. McKay, age 60, joined Allianz Life in 1999 and currently serves as the Senior Vice President, Chief Actuary of Allianz Life since May 15, 2000. Mr. McKay also serves as the Chief Actuary of Allianz Life of New York since April 8, 2014. He also served as a Director and the Chief Actuary of Allianz Life and Annuity Company from 2007 to 2017. Mr. McKay is responsible for all of the actuarial functions of Allianz Life and Allianz Life of New York, including the actuarial assumptions underlying its products and the rate setting associated with existing and new products.
Todd M. Hedtke
Senior Vice President, Chief Investment Officer
Todd M. Hedtke, age 49, joined Allianz Life in 2000 and currently serves as the Senior Vice President, Chief Investment Officer since August 21, 2015. He also currently serves as the Chief Investment Officer of Allianz Life of New York, and the Chief Investment Officer of Allianz Life Insurance Company of Missouri, LLC, respectively. Mr. Hedtke is a Director and the President of Allianz Finance Corporation, and a Director and Vice President and Treasurer of Allianz Fund Investments Inc., AZL PF Investments Inc., and Dresdner Kleinwort Pfandbriefe Investments II Inc., respectively. He also serves as a Governor and the Chief Executive Officer of Allianz Investment Management LLC and of Allianz Investment Management U.S. LLC, and Allianz Strategic Investments, LLC, respectively, and as the Chair of the Benefit Plans Investment Committee for AZOA Services Corporation. Mr. Hedtke 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 serves the Allianz Group of insurance companies. Prior to his current role, Mr. Hedtke spent 15 years in a number of investment-related positions at Allianz Life and its affiliates, including as a Director and the Chief Investment Officer of Allianz Life and Annuity Company from 2015 to 2017.
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Jenny L. Guldseth
Senior Vice President, Chief Human Resources Officer
Jenny L. Guldseth, age 46, joined Allianz Life in 2005 and currently serves as the Senior Vice President, Human Resources Officer since January 1, 2019. In this position, Ms. Guldseth is responsible for setting strategy and leading the Human Resources and Facilities departments to improve business results and increase employee engagement. Ms. Guldseth is also a Director of the Allianz Foundation for North America, the Chief Human Resources Officer of AZOA Services Corporation, and the Chair of its Employee Benefits Administration Committee and a member of its Benefit Plans Investment Committee and the Shared Plans Management Committee, respectively. Ms. Guldseth has over ten years of experience at Allianz Life, including having served as the Vice President, Rewards and Performance from 2017 to 2018, the Assistant Vice President of Rewards and Performance from 2013 to 2017, and Manager, Human Resource Business Partner from 2010 to 2013. In these positions, she was responsible for the Performance and Compensation functions for Allianz Life and the benefits functions for multiple U.S.-based affiliate companies.
CORPORATE GOVERNANCE
Committees of the Board
The Executive Committee of the Board (“Executive Committee”) is currently composed of Mr. Wimmer (Chair), effective January 1, 2022, and Ms. Jirele (who replaced Mr. White as a committee member as of September 1, 2021) and Mr. Frank. The function of the Executive Committee is to exercise the authority of the Board between meetings of the Board, with the exceptions set forth in Allianz Life’s By-Laws. The Executive Committee did not meet in 2021.
The Audit Committee of the Board is currently composed of Messrs. Frank (Chair), Walker and Woolley. The Audit Committee is responsible for overseeing Allianz Life’s accounting and financial reporting and control processes on behalf of the Board, which includes assisting with Board oversight of (1) quality and integrity of Allianz Life’s financial statements, (2) Allianz Life's compliance with legal and regulatory requirements, (3) the qualifications, independence and fees of the independent-auditors, (4) Allianz Life’s system of internal controls and (5) the performance of Allianz Life's internal audit function. The Board has determined that each member of the Audit Committee is financially literate. The Audit Committee met four times in 2021.
The Nomination, Evaluation and Compensation Committee (NEC Committee) is currently composed of Messrs. Walker (Chair), Frank and Woolley. The NEC Committee’s purpose is to (1) nominate candidates for director for election, (2) evaluate the performance of officers deemed to be “principal officers,” and (3) recommend to the Board the selection and compensation of the “principal officers.” The NEC Committee met once in 2021.
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, Walker and Woolley are “independent” under the Model Audit Rule.
Code of Ethics
All of our officers and employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are subject to Allianz Life’s Code of Ethics.
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 “Named Executive Officers” or “NEOs.” For 2021, our NEOs were:
• Walter R. White, President and Chief Executive Officer (1)
• Jasmine M. Jirele , President and Chief Executive Officer (2)
• William E. Gaumond, Senior Vice President, Chief Financial Officer and Treasurer
• Eric J. Thomes, Senior Vice President, Chief Distribution Officer
• Neil H. McKay , Senior Vice President, Chief Actuary
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• Gretchen Cepek , Senior Vice President, General Counsel, and Secretary
(1) Mr. White served as President and Chief Executive Officer until September 1, 2021, he then transitioned to Senior Advisor until his retirement on December 31, 2021.
(2) Ms. Jirele has served as President and Chief Executive Officer since September 1, 2021, prior to that she was the Senior Vice President, Chief Growth Officer.
The details of each NEO’s compensation may be found in the Summary Compensation Table and other compensation tables included in this Executive Compensation section.
Executive Summary
Allianz Life’s compensation programs are intended to align our NEOs’ interests with those of our ultimate stockholder, Allianz SE, the ultimate parent company of Allianz Life. Allianz Life's compensation programs are designed to reward performance that meets or exceeds the goals established by the Compensation Committee, a management committee of Allianz Life. Allianz Life is tasked with establishing the executive compensation philosophy. In line with Allianz Life’s compensation philosophy described below, the total compensation received by our NEOs will vary based on individual and corporate performance in light of annual and long-term performance goals. Our NEOs’ total compensation is composed of a mix of annual base salary, annual cash awards based on corporate objectives and executive performance factors and long-term equity incentive awards in the form of restricted stock units of the equity securities of Allianz SE.
Compensation Philosophy and Strategy
Overview
The overriding goal of Allianz Life’s executive compensation programs is to attract, retain and motivate top-performing executive officers who will dedicate themselves to long-term financial and operational success. To this end, Allianz Life has structured the executive compensation programs to foster a pay-for-performance management culture by:
• 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.
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Compensation Components
To support this pay-for-performance strategy, Allianz Life’s total compensation program provides a mix of compensation components that bases the majority of each executive’s compensation on their success and on an assessment of each executive’s overall contribution to that success.
Compensation Element Description Objective
Base Salary Fixed rate of pay that compensates employees for fulfilling their basic job responsibilities. For NEOs, increases are generally provided in the case of a significant increase in responsibilities or a significant discrepancy versus the market. Attract and retain high-caliber leadership.
Annual Incentive Plan Incentive compensation that promotes and rewards the achievement of annual performance objectives through awards under the Allianz Life Annual Incentive Plan (“AIP”). • Link compensation to annual performance results.
• Attract and motivate high-caliber leadership.
• Align the interests of NEOs and our stockholder.
Performance-Based Equity Incentives Incentive compensation through restricted stock unit awards made under the Allianz Equity Incentive Plan (“AEI”) that promotes and rewards the achievement of long term performance objectives. • Retain high-caliber leadership with multi-year vesting.
• Align the interests of NEOs and our stockholder.
Severance Arrangements Severance payments to employees, including NEOs, under certain company-initiated termination events. Compensate employees for situations where the employee’s employment is involuntarily terminated in a qualifying termination of employment.
Perquisites-Benefits Perquisites provided to our NEOs include employer matching contributions to the NEOs’ accounts in the 401(k) plan and may also include the payment of life insurance premiums, relocation reimbursements, and reimbursements for financial planning, tax preparation services, and spousal travel expenses. Provide market competitive total compensation package.
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 Committee of Allianz Life. Decisions affecting the compensation of the Chief Executive Officer are outside the scope of the Allianz Life Compensation Committee. Any such decisions are made by Allianz SE, subject to review by the NEC Committee, and final approval by Allianz Life’s Board of Directors. With respect to the compensation of other “principal officers” selected by the Board for purposes of the duties of the NEC Committee under Minn. Stat. § 60D.20, subd. 3(d), the Compensation Committee’s decisions are similarly subject to review by the NEC Committee and final approval by Allianz Life’s Board. The “principal officers” include the Chief Executive Officer, Chief Financial Officer, and General Counsel. Allianz Life’s Board has delegated the following responsibilities to the Compensation Committee:
• In general, establish the compensation philosophy and strategy of Allianz Life and oversee the development and implementation of compensation, benefit, and perquisite programs for corporate executives consistent with the principles of ensuring that leadership is compensated effectively in a manner consistent with the stated compensation strategy, internal equity considerations, competitive practices, shareholder interests, and the requirements of any applicable regulatory bodies in order to attract and retain high-quality leadership. This responsibility includes periodic review of Allianz Life’s compensation programs to pursue certain goals, with the expectation that changes will be made periodically to ensure these goals are attained.
• Review and approve the establishment of, or material modification to, any executive incentive compensation plans or programs for Allianz Life.
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• 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 three members who are appointed by the full Board of Directors of Allianz Life. The Compensation Committee currently consists of the following members: the Chair of the Board, the Chief Executive Officer, and the Chief Human Resources Officer. The Compensation Committee also utilizes internal personnel to provide advice to the Compensation Committee regarding market trends in compensation policies at competing companies and on a more macro level.
Following its review and decision, the Compensation Committee produces and submits a report on executive compensation to Allianz Life’s Board of Directors at its request. With respect to the compensation of “principal officers” selected by Allianz Life’s Board for purposes of the duties of the NEC Committee under Minnesota Statutes § 60D.20, subd. 3(d), the Compensation Committee produces and submits a report on executive compensation proposed for the designated “principal officers” to the NEC Committee for its review and recommendation to Allianz Life’s Board for final approval.
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 themself. The Chief Executive Officer provides the Compensation Committee with their assessment of the NEOs’ respective performance relative to the corporate and individual goals and other expectations set for them for the preceding year. The Chief Executive Officer then provides their recommendation for each NEO’s total compensation and the appropriate goals for each NEO in the year to come. However, the Compensation Committee is not bound by the Chief Executive Officer’s recommendations.
Role of Allianz Life’s Human Resources
Allianz Life’s Human Resources supports the Compensation Committee on executive compensation matters by being responsible for many of the organizational and administrative tasks that underlie the compensation review and determination process and making presentations on various topics. Allianz Life’s Human Resources efforts include, among other things:
• evaluating the compensation data from industry groups, national executive pay surveys, and other sources for the NEOs and other executive officers as appropriate;
• 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 Life’s Human Resources officers also coordinate and share information with their counterparts at Allianz SE.
Use of Competitive Compensation Data
Because Allianz Life competes most directly for executive talent with other large diversified financial services companies, Allianz Life regards it as essential to regularly review the competitiveness of the total compensation programs for executives to ensure that Allianz Life provides compensation opportunities that compare favorably with the levels of total compensation offered to similarly situated executives by other companies that participate in the compensation surveys in which Allianz Life participates. Allianz Life relies primarily on external market surveys of corporate compensation and benefits published by various national compensation consulting firms, especially salary surveys focusing on insurance companies. In addition, other factors taken into account include the average revenues and number of employees of companies that participate in such surveys.
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All these information sources are employed to measure and compare actual pay levels not only on an aggregate, total compensation basis, but also to break down the total compensation program component by component to review and compare specific compensation elements as well as the particular mixes of fixed versus variable, short-term versus long-term, and cash versus equity-based compensation at the surveyed companies. This information, as collected and reviewed by Allianz Life’s Human Resources, is submitted to the Compensation Committee for review and discussion.
Internal Pay Equity Analysis
Allianz Life’s compensation programs are designed with the goal of providing compensation to our NEOs that is fair, reasonable, and competitive. To achieve this goal, Allianz Life believes it is important to compare compensation paid to each NEO not only with compensation paid by the surveyed companies, as discussed above, but also with compensation paid to each of our other NEOs. Such an internal comparison is important to ensure that compensation is equitable among our NEOs.
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 incentives, and equity) as well as: (i) retirement, health, and other benefit programs; (ii) severance benefits; and (iii) perquisites.
Base Salary
Allianz Life’s philosophy is to make base salary a relatively small portion of the overall compensation package for our NEOs, which Allianz Life believes is common in the industry in which we operate. The amount of the base salary awarded to NEOs is based on the position held, the NEO’s tenure, the scope of the position’s responsibilities, and the NEO’s own performance, all of which are reviewed with the aid of market survey data. Using this data, Allianz Life maintains a 50th percentile pricing philosophy, comparing base salaries against the median for comparable salaries at surveyed companies, unless exceptional conditions require otherwise.
With respect to the base salary of our Chief Executive Officer, the Chair of the Board considered the Chief Executive Officer’s experience, performance, and contribution to overall corporate performance when determining their base salary for 2021 for recommendation to the NEC Committee. Base salaries for our other NEOs for 2021 were also set by the Compensation Committee based upon each NEO’s individual experience and contribution to the overall performance of Allianz Life, and subject to Allianz SE Compensation Committee reviews and, with respect to the base salaries of “principal officers” selected by Allianz Life’s Board of Directors for purposes of the duties of the NEC Committee under Minnesota Statutes § 60D.20, subd. 3(d), subject to NEC Committee review and recommendation to Allianz Life’s Board for final approval.
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:
• reward the performance of participants who have made significant contributions to the achievement of annual goals and objectives;
• 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 success of Allianz Life.
Following the performance year, the Compensation Committee approved a specific amount of cash awards to be made pursuant to the AIP to executive officers, including our NEOs, for the 2021 performance year. The amount determined to be available for such awards was at the discretion of the Compensation Committee and was dependent upon many factors as outlined previously, including, but not limited to, current financial performance and contributions of our NEOs in achieving performance objectives, and with respect to the awards to the “principal officers” selected by Allianz Life’s Board for purposes of the duties of the NEC Committee under Minnesota Statutes § 60D.20, subd. 3(d), subject to NEC Committee review and recommendation to Allianz Life’s Board for final approval.
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AEI
The AEI is (a) one part of the variable compensation component for certain individuals within designated classes of employees at Allianz Life or (b) offered by Allianz Life to select senior employees as an additional part of their variable compensation on a case by case basis. The AEI is granted in the form of restricted stock units of Allianz SE (“RSUs”). The award of RSU’s are intended to:
• reward the performance of participants who have made significant contributions to the achievement of their company’s annual goals and objectives,
• 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 success Allianz.
Awards made pursuant to the AEI are based upon both the performance of Allianz Life and Allianz Life of New York and the performance of the NEO. The Compensation Committee (and, with respect to those NEOs that are “principal officers” for purposes of the NEC Committee’s duties, the NEC Committee with final approval of Allianz Life’s Board of Directors) reviewed the performance of our NEOs following the end of our 2021 fiscal year relative to the AEI allocation amount.
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 $21,750 annually. In addition, Allianz Life and Allianz Life of New York provide excess liability insurance coverage to all of our NEOs and provide financial planning and tax preparation services, relocation reimbursements, and reimbursements of spousal travel expenses to certain of our NEOs. The incremental costs of perquisites for the NEOs during 2021 are included in the column entitled “All Other Compensation” in the Summary Compensation Table included in this section.
Certain Retention Arrangements 
Allianz Life’s offer letter to Jasmine M. Jirele included a retention bonus arrangement related to her onboarding in her capacity as Senior Vice President, Chief Growth Officer. The retention bonus payments will be paid through 2022 so long as she remains employed with Allianz Life, and the arrangement requires repayment of certain amounts if Ms. Jirele voluntarily terminates her employment within a certain period.
Severance Arrangements
Allianz Life entered into an Executive Severance Agreement with our former President, and Chief Executive Officer, Walter R. White, which is described in the “Allianz Life Executive Severance Agreement” discussion later in this section. We have not entered into any other specific severance agreements with any of our NEOs.
The remainder of our NEOs are eligible for severance payments under the Executive Severance Plan if they experience a qualifying termination of employment and otherwise satisfy the conditions set forth in the plan.
Other than the Executive Severance Plan, which is described later in this section, our NEOs (except for Jasmine M. Jirele) are not eligible for severance payments. Certain of our executive officers receive offer letters which set forth the terms relating to base salary, sign-on incentives, and equity compensation. However, Allianz Life does not view these offer letters as employment agreements as each offer letter states that employment with Allianz Life is “at will.”
Other Compensation Policies
Tax and Accounting Implications
Stock-Based Compensation. Stock-based compensation, comprised of Allianz SE restricted stock units (RSUs) granted pursuant to the AEI, are accounted for in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. The fair value of the RSUs at grant is 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 that day and the nine immediately preceding trading days, less the present value of dividends expected to be paid on one Allianz SE share over the vesting period, and less the fair value of payout restrictions deriving from the vesting period and the payout cap.
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Recently Discontinued Compensation Programs
The purpose of the ALTPUP was to advance the interests of Allianz Life, including Allianz Life of New York, and our indirect stockholder. The ALTPUP sought to accomplish this purpose by providing an incentive in addition to current compensation to certain individuals within designated classes of employees of Allianz Life who contribute significantly to their company’s long-term performance. Such incentive was in the form of Long-Term Performance Units ("ALTPUP Units"), which were contingent awards, subject to the terms, conditions, and restrictions described in the ALTPUP and the Award Agreement under which such awards were made, by which participants in the ALTPUP may have become entitled to receive cash on the payment date for redemption of the ALTPUP Units valued on the valuation date. The award of ALTPUP Units was discretionary. In March 2020, the Group Compensation Committee determined all Allianz entities would move forward with the Allianz SE long term incentive program or AEI. As a result, the ALTPUP program has been discontinued and provided a final grant in March 2020 for 2019 performance. The final payout under the ALTPUP program is expected to occur in 2023.
Walter R. White, our former Chief Executive Officer, received cash awards pursuant to the terms of the Allianz SE Mid-Term Bonus Plan instead of the ALTPUP. Like the ALTPUP, the Mid-Term Bonus Plan has been discontinued, so the award with respect to 2019 performance was the final award made under the Mid-Term Bonus Plan.
Summary Compensation Table
The following table sets forth the compensation paid by Allianz Life for the year ended December 31, 2021 to our NEOs. The executive compensation information in this prospectus is shown for a one-year period.
Name and Principal
Position
(a) 		Year
(b) 		Salary
(c) 		Bonus
(d) 		Stock
Awards
(e) (3) 		Non-Equity
Incentive Plan Compensation
(g) 		All Other
Compensation
(i) (4) 		Total
(j)
Walter R. White
President and Chief Executive Officer 		2021 $865,100 $300,000 $2,335,770 $1,557,180 $22,665 $5,080,715
Jasmine M. Jirele (1,2)
President and Chief Executive Officer 		2021 $561,958 $390,000 $1,068,303 $ 712,202 $22,516 $2,754,979
William E. Gaumond
Senior Vice President, Chief Financial Officer and Treasurer 		2021 $475,900 $300,000 $ 770,958 $ 513,972 $22,437 $2,083,267
Eric J. Thomes
Senior Vice President, Chief Distribution Officer 		2021 $535,500 $320,000 $ 867,510 $ 578,340 $22,548 $2,323,898
Neil H. McKay
Senior Vice President, Chief Actuary 		2021 $510,000 $ 50,000 $ 926,200 $ 550,800 $24,397 $2,061,397
Gretchen Cepek
Senior Vice President, General Counsel and Secretary 		2021 $469,500 $ 110,000 $ 733,825 $ 422,550 $22,167 $1,758,042
(1) Represents compensation paid during her time as Senior Vice President, Chief Growth Officer and President and Chief Executive Officer.
(2) A retention bonus of $800,000 will be paid over four years in increments of $200,000 with the first payment paid in March 2019 and the final payment in 2022 so long as Ms. Jirele remains employed by Allianz Life.
(3) Represents the grant date fair value of the RSUs issued pursuant to the AEI. The RSUs vest over a four-year period. The RSUs issued in 2022 for the 2021 performance year have a March 2026 exercise date. The grant price of the RSUs 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 the date of grant and the nine immediately preceding trading days, less the present value of dividends expected to be paid on one Allianz SE share over the vesting period, and less the fair value of the payout restrictions deriving from the vesting period and the payout cap. These numbers show the amount realized for financial reporting purposes as calculated in accordance with the FASB ASC Topic 718. Under FASB ASC Topic 718, the grant date fair value is calculated using the closing market price of the common stock of Allianz SE on the date of grant, which is then recognized over the requisite service period of the award.
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(4) The following table provides additional details regarding compensation found in the “All Other Compensation” column.
   
Name Year Spousal
Travel (5) 		Milestone/
Anniversary/
Recognition (6) 		Life Insurance
Premiums 		Employer Match
to 401(k) Plan 		ASAAP
Contribution (7) 		Total
Walter R. White 2021 -- -- $915 $21,750 -- $22,665
Jasmine M. Jirele 2021 -- $ 350 $416 $19,500 $2,250 $22,516
William E. Gaumond 2021 -- -- $687 $19,500 $2,250 $22,437
Eric J. Thomes 2021 -- -- $798 $19,500 $2,250 $22,548
Neil H. McKay 2021 $200 $1,700 $747 $21,750 -- $24,397
Gretchen Cepek 2021 -- -- $417 $21,750 -- $22,167
(5) Represents reimbursement or payments made to defray the costs of a spouse’s travel.
(6) Represents Milestone Anniversary Program, which pays a bonus at three and five year anniversaries, and then every five years thereafter.
(7) Represents company matching contribution to the Allianz Supplemental Asset Accumulation Plan for deferrals in excess of IRS compensation limit.
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 long-term success of Allianz Life. The AIP seeks to accomplish this purpose by providing a bonus opportunity to eligible employees who have made significant contributions during the plan year to the achievement of annual goals and objectives. The guidelines for target awards are meant to be illustrative of competitive market bonuses for similar job levels in the marketplace. While the target awards may be used for illustrative, budget planning, or distribution scenarios, all bonus awards are discretionary and are in no way guaranteed.
The Compensation Committee or other duly authorized committee determines allocation of bonus awards to employees. With respect to “principal officers” for purposes of the NEC Committee’s duties, the NEC Committee recommends to Allianz Life’s Board of Directors awards for final approval.
AEI
The AEI is designed to recognize the participant’s continuous employment with Allianz Life over the relevant period and shall be an incentive to continue employment. Grants under the AEI will generally only be made if the participant is employed with Allianz Life at the date of grant. Payments will be made only if the participant remains employed with Allianz Life during the vesting period of the RSU, or leaves employment under circumstances set out in the AEI, including after retirement or early retirement eligibility, disability, or under certain other circumstances. The securities issuable under the AEI are RSUs. An RSU constitutes the right to receipt of the market value of Allianz SE common stock at the time of exercise. This amount will be paid in cash. RSUs are subject to a four-year vesting period. At the end of the four-year vesting period, the RSUs are exercised uniformly for all participants, provided they remain employed by Allianz Life, terminate after retirement or early retirement eligibility, or under certain other circumstances. Vesting and exercise may accelerate if a participant leaves employment under other “good leaver” circumstances set forth in the AEI. The grant at fair value cannot be greater than 165% of a participant’s target amount. The maximum value of an exercise is an increase of 200% over the grant value (i.e., 300% of the grant value).
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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 for the year ended December 31, 2021.
Name

(a) 		Grant Date

(b) 		Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) Estimated Future Payouts Under Equity Incentive Plan Awards (2,3)
Threshold ($)
(c) 		Target ($)
(d) 		Maximum ($)
(e) 		Threshold ($)
(f) 		Target ($)
(g) 		Maximum ($)
(h)
Walter R. White 3/4/2022            
RSUs (under AEI)         $0 $1,557,180 $7,007,310
AIP Award   $0 $1,038,120 $1,557,180      
Jasmine M. Jirele 3/4/2022            
RSUs (under AEI)         $0 $ 712,202 $3,204,909
AIP Award   $0 $ 474,802 $ 949,604      
William E. Gaumond 3/4/2022            
RSUs (under AEI)         $0 $ 513,972 $2,312,874
AIP Award   $0 $ 342,648 $ 513,972      
Eric J. Thomes 3/4/2022            
RSUs (under AEI)         $0 $ 578,340 $2,602,530
AIP Award   $0 $ 385,560 $ 578,340      
Neil H. McKay 3/4/2022            
RSUs (under AEI)         $0 $ 550,800 $2,478,600
AIP Award   $0 $ 367,200 $ 550,800      
Gretchen Cepek 3/4/2022            
RSUs (under AEI)         $0 $ 422,550 $1,901,475
AIP Award   $0 $ 281,700 $ 422,550      
(1) The target and maximum columns show the target award and maximum award for 2021 for each NEO under the AIP. There is no threshold amount for any participant in the AIP. The actual 2021 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, 2021” for disclosure regarding the number of RSUs that are unvested as of December 31, 2021.
(3) The target and maximum columns show the target award and maximum award for 2021 for each NEO under the AEI. There is no threshold amount for any participant in the AEI. The actual 2021 awards granted to the NEOs are listed in the Stock Awards column of the Summary Compensation Table.
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Outstanding Equity Awards at December 31, 2021
The following table sets forth the outstanding equity awards at the December 31, 2021 fiscal year-end. The table shows RSUs granted pursuant to the AEI.
Name

(a) 		RSUs
Number of RSUs
That Have Not
Vested
(g) (1,2) 		Market Value of
RSUs That Have
Not Vested
(h) (3)
Walter R. White    
  7,030 $1,637,920
  5,239 $1,220,635
  6,097 $1,420,540
  8,139 $1,896,306
Jasmine M. Jirele    
  0 $ 0
  1,467 $ 341,796
  1,886 $ 439,419
  2,407 $ 560,807
William E. Gaumond    
  2,039 $ 475,067
  1,538 $ 358,339
  1,948 $ 453,865
  2,463 $ 573,854
Eric J. Thomes    
  492 $ 114,631
  457 $ 106,476
  1,474 $ 343,427
  3,625 $ 844,589
Neil H. McKay    
  2,203 $ 513,277
  1,731 $ 403,306
  2,123 $ 494,638
  2,503 $ 583,174
Gretchen Cepek    
  1538 $ 358,339
  1,413 $ 329,215
  1,512 $ 352,281
  1,789 $ 416,819
(1) Represents unvested RSUs issued pursuant to the AEI. RSUs issued under the AEI during 2021 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 Life or terminate after retirement or early retirement eligibility, or under certain other circumstances. Vesting and exercise may accelerate if a participant leaves employment under other “good leaver” circumstances set forth in the AEI.
(2) For each of the NEOs, the number of RSUs listed on the first line were exercised in 2022, the RSUs listed on the second line will exercise in 2023, the RSUs listed on the third line will exercise in 2024, and the RSUs listed on the fourth line will exercise in 2025.
(3) Based on an assumed stock price of $232.99 per share, which was the arithmetic average of the closing prices of an Allianz SE share in the electronic cash market trading system Xetra (or any successor system) on December 30, 2021 and the nine immediately preceding trading days, converted from Euros into U.S. dollars.
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Allianz SE Option Exercises and Stock Grants Vested in 2021
The following table summarizes the value received from Allianz SE stock grants vested during the year ended December 31, 2021.
Name Stock Awards
Number of
Shares
Acquired
on Vesting (#) 		Value Realized
on Vesting ($) (1)
Walter R. White 8,161 $2,004,544
Jasmine M. Jirele - $ 0
William E. Gaumond 1,452 $ 356,647
Eric J. Thomes 617 $ 151,551
Neil H. McKay 2,550 $ 626,343
Gretchen Cepek 1,917 $ 470,863
(1) Represents Allianz SE RSUs that were exercised during 2021 pursuant to the AEI. Amounts realized were paid in cash.
Allianz Life Executive Severance Agreement
Allianz Life entered into an Executive Severance Agreement with our former Chief Executive Officer, Walter R. White, with an expiration date of December 31, 2021. The severance arrangements for Mr. White were prescribed by the Executive Severance Agreement.
Pursuant to the Executive Severance Agreement, Mr. White was entitled to a lump sum cash payment of $1,730,200 upon separation in the event he was terminated without “cause”, which is defined as engaging in conduct detrimental to the best interests of the Company (including, but not limited to, certain specified acts such as commission of a felony, theft, dishonesty, fraud or embezzlement) in the Executive Severance Agreement. In addition, pursuant to the Executive Severance Agreement, Mr. White was also bound by other restrictive covenants, including covenants relating to confidentiality and non-disparagement. Mr. White would also be entitled to continuation of medical and dental coverage at the employee premium rates for a period of 18 months following termination if Mr. White timely elected continuation and paid the required premiums.
The remainder of our NEOs are eligible for severance payments under the Executive Severance Plan if they experience a qualifying termination of employment and otherwise satisfy the conditions set forth in the applicable plan. The terms of this plan are set forth below.
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 are eligible to receive severance benefits under the Executive Severance Plan if they experience a qualifying termination of employment, meaning an involuntary termination for any reason other than for “cause” with no offer of an equivalent position, and otherwise satisfy the conditions set forth in the plan. The purpose of the Executive Severance Plan is to provide severance benefits to executive officers whose employment is involuntarily terminated in a qualifying termination of employment in order to assist with job transition. Pursuant to the Executive Severance Plan, eligible executive officers who are involuntarily terminated in a qualifying termination of employment will receive a lump sum cash payment equal to one and one-half times their “annual base pay” in effect at the time of termination. Annual base pay, for purposes of this agreement, equals base salary and excludes special payments, such as bonuses, expense reimbursements, living, or other allowances. Eligible executive officers would also be entitled to continuation of medical and dental coverage at employee premium rates for a period of 18 months following termination, if the executive officer timely elects continuation coverage and pays the required premiums.
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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, 2021 and been eligible for severance payments pursuant to the Executive Severance Plan.
NEOs Lump Sum Payment
Walter R. White (1) $1,730,200
Jasmine M. Jirele $1,125,000
William E. Gaumond $ 713,850
Eric J. Thomes $ 803,250
Neil H. McKay $ 765,000
Gretchen Cepek $ 704,250
(1) Mr. White is not eligible to receive payments pursuant to the Executive Severance Plan. See “Allianz Life Executive Severance Agreement” for information regarding severance payments that Mr. White is eligible to receive upon termination of service.
Director Compensation
The following table provides information on compensation paid to the directors of Allianz Life for the year ended December 31, 2021.
Name Fees Earned
or Paid in
Cash
($) (1) 		Total
($)
(a) (b) (h)
Andreas G. Wimmer (2)
Chair of the Board 		N/A N/A
Jasmine M. Jirele (3)
President and Chief Executive Officer 		N/A N/A
William E. Gaumond (3)
Senior Vice President, Chief Financial Officer and Treasurer 		N/A N/A
Walter R. White (3)
Former President and Chief Executive Officer; Non-Independent Director 		N/A N/A
Anna Sophie Herken (2)
Non-Independent Director 		N/A N/A
Howard E. Woolley
Independent Director 		$60,000 $60,000
Kevin E. Walker
Independent Director 		$60,000 $60,000
Udo Frank
Independent Director 		$90,000 $90,000
(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, 2021.
(2) Mr. Wimmer (and his predecessor, Jacqueline Hunt) and Ms. Herken 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 Messrs. White and Gaumond did not receive any compensation for their service as directors. The compensation Ms. Jirele and Messrs. White and Gaumond received as executive officers of Allianz Life is disclosed in the Summary Compensation Table as set forth herein.
Security Ownership of Certain Beneficial Owners and Management
We are an indirect wholly owned subsidiary of Allianz SE. Allianz SE’s principal executive offices are located at Königinstrasse 28, 80802 Munich, Germany. As of March 31, 2021, the directors and executive officers of Allianz Life held less than 1% of Allianz SE’s ordinary shares issued and outstanding.
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.
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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 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.
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 what specific impact that any of these circumstances or events may ultimately have on our financial strength or claims-paying ability.
• Difficult Economic Conditions. Our financial condition is materially 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 or paying insurance premiums or stop 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. The ongoing low interest rate environment presents challenges for us and other life insurance companies, as it has generally reduced investment returns, raised the value of future obligations, and challenged 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. 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 economic conditions in the real estate sector, including supply and demand, market volatility, interest rate fluctuations, 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.
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• 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.
• 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 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 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.
• Payments through Guaranty Associations. When an insurance company becomes insolvent, state insurance guaranty associations have the right to assess other insurance companies doing business in their state for funds to pay obligations to policyholders of the insolvent company, up to the state-specified limit of coverage. The future failure of a large life, health or annuity insurer could trigger assessments which we would be obligated to pay. Further, amounts for historical insolvencies may be assessed over many years, and there can be significant uncertainty around the total obligation for a given insolvency.
• Ineffectiveness of Risk Management Policies. Our risk management policies and procedures intended to identify, monitor and manage economic risks may not be fully effective at mitigating our risk exposure in all market environments or against all types of risk. This could cause us to incur investment losses or cause our hedging and other risk management strategies to be ineffective.
• Impacts of Climate Change. We are exposed to economic risks related to climate change. Our financial condition could be negatively impacted by increased costs, or financial losses on investments, arising from various events related to climate change, such as changes in public policy (either contributing to the adverse effects of climate change or promoting adaption to climate change), short-term or long-term market distributions, changes in mortality/morbidity assumptions, changes in consumer behavior, business disruptions, extreme weather events, litigation, increased regulatory requirements, advancements in technology, and longer-term shifts in climate patterns. Climate change could also impact the types of assets in which we invest. For example, as the transition to a lower-carbon, more energy-efficient economy continues, regulators could require us (or we could voluntarily choose) to invest less in carbon-based industries, even though investments in carbon-based industries may have better returns in the short or long term. In addition, real estate investments may expose us to greater climate change risk, as climate change may negatively impact market prices or supply and demand, and may make extreme weather events more likely or frequent. Further, we may not be able to adequately predict and mitigate climate-change risk due to significant uncertainty and unknowns regarding the manifestations and timing of climate-change-driven events, absence of adequate historical data that captures this risk and the dependency of this risk on the extent of the actions taken in the short term by governments, corporations and communities around the world.
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Changes in applicable law may negatively affect our financial strength and claims-paying ability.
We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we operate. Our operations, products and services are subject to varying state and federal laws. In addition, our operations, products and services are regulated by various regulatory authorities and self-regulatory authorities including state insurance departments, state securities administrators, state banking authorities, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Internal Revenue Service, the Department of Labor, and the U.S. Commodity Futures Trading Commission.
Changes to federal and state laws and regulations may materially affect the way in which we conduct our business. We are faced with significant challenges due to the fact that our regulatory environment is evolving rapidly. Federal and state governments, including federal and state regulatory authorities, have become increasingly active in the regulation of the businesses in which we engage. In addition, federal and state regulatory authorities are assuming active, and in some cases increasingly aggressive, roles in interpreting and enforcing laws and regulations related to our business. We cannot predict the potential effects that any new laws or regulations, changes in existing laws or regulations, or the interpretation or enforcement of laws or regulations may have on our business, but such changes may negatively affect our financial strength and claims-paying ability.
The Securities and Exchange Commission has recently adopted new rules effective on June 30, 2020 (i) imposing a “best interest” standard of care on broker-dealers making recommendations to their customers and (ii) requiring broker-dealers and investment advisers to provide a written summary of the relationship between a broker-dealer or investment adviser, as applicable, and its customer. These new rules became effective on June 30, 2020. It remains unclear whether or to what extent these rules, and the evolving nature of the enforcement and interpretation of these rules by the Securities and Exchange Commission, could ultimately affect broker-dealers’ willingness to recommend our registered annuity products. These rules could increase, and to some extent have increased, our overall compliance costs and could also increase our exposure to legal claims in certain circumstances, including an increased risk of regulatory enforcement actions or potentially private claims.
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, nearly 20 states have adopted the National Association of Insurance Commissioners (“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 regulatory enforcement actions or potentially private claims.
Our reserves could be inadequate due to differences between our actual experience and management’s estimates and assumptions.
We establish and carry reserves to pay future benefits and claims of policyholders. Our reserve 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 policyholder elections (i.e., the exercise or non-exercise of policy 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 policyholders 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 policy 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 or accelerate amortization of deferred acquisition costs. However, we cannot be certain that our reserves will ultimately be sufficient to pay future benefits and claims of policyholders.
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The amount of statutory capital that we must hold to meet our statutory capital requirements can vary significantly from time to time.
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 (“RBC”) ratios for life insurance companies. In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including but not limited to, the amount of statutory income or losses that we generate, changes in reserves, the amount of additional capital that we must hold to support business growth, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio, changes in interest rates, and changes to existing RBC formulas. Additionally, state insurance regulators have significant leeway in interpreting existing regulations, which could further impact the amount of statutory capital or reserves that we must maintain. There can be no assurance that we will be able to maintain our current RBC ratio in the future or that our RBC ratio will not fall to a level that could have a material adverse effect on our business. If we are unable to maintain minimum capitalization requirements, our business may be subject to significant increases in supervision and control by state insurance regulators.
Litigation and regulatory proceedings may negatively affect our financial strength and claims-paying ability.
We have been named as defendants in lawsuits (both class actions and individual lawsuits) and have been involved in various regulatory investigations and examinations, and we may be involved in more in the future. These actions arise in various contexts, including in connection with our activities as an insurer, securities issuer, employer, investor, and taxpayer. Lawsuits and regulatory proceedings may involve significant amounts of damages (including punitive damages) or fines that we must pay, and certain regulatory authorities involved in regulatory proceedings have substantial power over our business operations. An adverse outcome in any lawsuit or regulatory proceeding that results in significant financial losses or operational burdens may negatively affect our financial strength and claims-paying ability.
Reinsurance may not be available or affordable, or may not be adequate to protect against harm to our financial strength and claims-paying ability.
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. If we are unable to purchase the desired amount of reinsurance protection on acceptable terms, our risk of loss may increase. As our risk of loss increases, so does the risk that we may not be able to meet our financial obligations.
Our hedging programs may be inadequate to protect against harm to our financial strength and claims-paying ability.
Certain types of insurance and investment products that we offer expose us to risks associated with fluctuations in financial markets. Although we use hedging techniques to manage risks associated with our insurance guarantees, increased volatility in the financial markets and unanticipated policyholder behavior may increase the cost of these hedges and/or negatively affect our ability to hedge certain risks. We may lose money on the derivatives that we hold as part of our hedging programs or otherwise. Ultimately, our hedging programs may be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate, which in turn may negatively impact our financial strength and claims-paying ability.
Downgrades and potential downgrades to our claims-paying and financial strength ratings may signal a higher risk that we may be unable to meet our financial obligations, and may themselves negatively affect our financial strength and claims-paying ability.
Our claims-paying and financial strength ratings, which various ratings organizations publish as measures of an insurance company's ability to meet policyholder obligations, are important to maintaining public confidence in Allianz Life and our products, and the ability to market our products and services. A downgrade or an announced potential downgrade by credit rating agencies in our claims-paying and financial strength ratings may reflect an increased risk that we may not be able to meet our financial obligations. Any such downgrade or potential downgrade may itself harm our financial strength and claims-paying ability by causing financial losses to our business. Such losses may be the result of:
• 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;
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• material 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 a change in their rating assessment methodologies. In addition, downgrades or announced potential downgrades in the financial strength ratings of the financial institutions with which we do business may adversely impact our business operations and may cause financial losses to our business.
Risks Primarily Related to Our Business Operations
Breaches of security, or interference with our technology infrastructure, could harm our business.
Our business relies on technology systems and networks, including systems and networks managed by third parties to process, transmit and store information, and to conduct business activities and transactions with clients, distributors, vendors, and other third parties. We are also subject to certain federal and state regulations that require us to establish and maintain policies and procedures designed to protect sensitive client information. Maintaining the integrity of our systems is critical to the success of our business operations, including the retention of clients, and to the protection of our clients’ personal information. To date, we have not identified any material breaches or interference with our systems and networks; however, we routinely encounter and address such threats, including an increasing frequency of phishing scams, introductions of malware and unauthorized payment requests. Any such breaches or interference by third parties or by our employees that may in the future occur could have a material adverse impact on our business operations and our financial condition.
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, such as an evolution to accommodate mobile computing, may also require corresponding changes in our systems, networks and data security measures. In addition, the increasing reliance on technology systems and networks and the occurrence and potential adverse impact of attacks on such systems and networks, both generally and in the financial services industry, have enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-security threats. As these threats, and government and regulatory oversight of associated risks, continue to evolve, we may be required to expend additional resources to enhance or expand upon the security measures we currently maintain.
Despite the measures we have taken and may in the future take to address and mitigate these risks, we cannot ensure that our systems and networks will not be subject to breaches or interference. Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our clients’ personal information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of clients or other damage to our business. Any such event may interfere with, impede or cause delays in our calculation of values, processing of transactions and making of payments under the Contract. In addition, the trend toward broad consumer and general public notification of such incidents could exacerbate the harm to our business operations and our financial condition. Even if we successfully protected our technology infrastructure and the confidentiality of sensitive data, we may incur significant expenses in responding to any such attacks as well as the adoption and maintenance of appropriate security measures. We could also suffer harm to our business and reputation if attempted security breaches are publicized. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting our networks and systems used in connection with our products and services. There may be an increased risk of cyberattacks during periods of geo-political or military conflict (such as Russia’s invasion of Ukraine and the resulting response by the United States and other countries).
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The failure to protect our clients’ confidential information and privacy could adversely affect our business.
A number of our businesses are subject to privacy regulations and confidentiality obligations, including the Gramm-Leach-Bliley Act and state privacy laws and regulations. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and clients. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information. The actions we take to protect confidential information vary by business segment and may include, among other things:
• training and educating our employees regarding our obligations relating to confidential information;
• monitoring changes in state or federal privacy and compliance requirements;
• 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 Company’s reputation and business results.
Protection from system interruptions and operating errors is important to our business. If we were to experience a sustained interruption to our telecommunications or data processing systems or other failure in operational execution could harm our business operations and our business results.
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 business operations and our business results.
The occurrence of natural or man-made disasters and catastrophes, including extreme weather events, acts of terrorism, geo-political disputes, public health crises (e.g. COVID-19), industrial accident, blackout, cyber-attack, computer virus, insider threat, insurrections and military actions, unanticipated problems with our disaster recovery systems, or a support failure from external providers, could adversely affect our business operations and our business results, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. Such disasters and catastrophes may damage our facilities, preventing our employees from performing their roles or otherwise 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 change could increase our overall risk as
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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.
Inadequate or failed processes or systems, human factors or external events may adversely affect our reputation or operational effectiveness, as well as our financial condition.
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 or risks.
Risks Related to the COVID-19 Pandemic
We continue to closely monitor developments related to the COVID-19 pandemic and its impact on our business and operations. The economic conditions and uncertainties during the pandemic have at times negatively impacted our net income, surplus, and capital and liquidity positions. To date, however, we do not believe that these economic conditions and uncertainties have negatively impacted our overall financial strength and claims-paying ability in a significant manner. Nor do we believe that our administration of the Contract and our other insurance contracts has been disrupted in a significant manner, even as many of our employees and the employees of our third-party service providers continue to work remotely.
The extent to which the pandemic will impact our business and operations in the future will depend on future developments, which are highly uncertain and cannot be predicted, including the general scope and duration of the pandemic; actions taken by governmental authorities and other third parties in response to the pandemic; the occurrence of new variants of the COVID virus; the severity and duration of waves in infections and hospitalizations; and the efficacy of vaccines, therapeutic treatments, and other healthcare programs. Any risk management or contingency plans or preventative measures we take may not adequately predict or address the impact of the COVID-19 pandemic on our business. As such, the pandemic could have a material adverse effect on our financial condition and operations.
The pandemic-related risks that we face include (but are not necessarily limited to) the following:
• Economic conditions and uncertainties may negatively impact the value, cash flow, and liquidity of our general account investments due to, e.g. , declines in markets, market volatility, reduced liquidity, changes in interest rates, economic shutdowns or slowdowns, prolonged elevated inflation period, government regulations, higher unemployment levels, and counterparty defaults.
• Voluntary or government mandated hardship assistance that we provide to our customers in the form of, e.g., grace periods for failure to make timely payments, may reduce our net income and surplus.
• Reductions in new sales of our financial products or reductions in fees collected by us, or increases in full withdrawals, cancellations, or defaults with respect to our customers’ existing financial products, as a result of economic conditions and uncertainties may reduce our net income and surplus.
• Economic conditions and uncertainties may limit our access to sources of capital and our ability to obtain reinsurance.
• Voluntary and government mandated pandemic mitigation efforts, such as prolonged remote working arrangements and economic shutdowns, and employees’ ability or willingness to fulfill their responsibilities during the pandemic, may disrupt our ability to administer our insurance contracts (including our ability to timely process applications, transactions, and payments and to calculate values) and may disrupt the services provided by third-parties upon which we rely to administer our insurance contracts. Extended periods of remote work arrangements could introduce additional operational risk, including but not limited to cybersecurity risks, and impair our ability to effectively manage our business.
• Longer-term deviations from the mortality, customer behavior, expenses, and other assumptions that we use to price our products and support our obligations.
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In addition to the risks listed above, to the extent that the pandemic impacts our business and operations, it may also have the effect of heightening the other risks described in this section of the prospectus.
14.   Financial Statements
The statutory financial statements of Allianz Life Insurance Company of North America as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 included in Appendix I of this prospectus have been so included 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.
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, 2021 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.
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Appendix A – Available Indexes
S&P 500® Index
The S&P 500® Index is comprised of 500 stocks representing major U.S. industrial sectors.
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”). This trademark has been licensed for use by S&P Dow Jones Indices LLC. S&P marks are trademarks of S&P. These trademarks have been sublicensed for certain purposes by Allianz Life Insurance Company of North America (“Allianz”). The S&P 500® Index (“the Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and have been licensed for use by Allianz.
Allianz products are not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the owners of the Allianz products or any member of the public regarding the advisability of investments generally or in Allianz products particularly or the ability of the Index and Average to track general market performance. S&P Dow Jones Indices’ only relationship to Allianz with respect to the Index and Average is the licensing of the Index and Average and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its third-party licensors. The Index and Average are determined, composed, and calculated by S&P Dow Jones Indices without regard to Allianz or the products. S&P Dow Jones Indices have no obligation to take the needs of Allianz or the owners of the products into consideration in determining, composing, or calculating the Index and Average. S&P Dow Jones Indices are not responsible for and have not participated in the design, development, pricing, and operation of the products, including the calculation of any interest payments or any other values credited to the products. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing, or trading of products. There is no assurance that investment products based on the Index and Average will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security or futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to products currently being issued by Allianz, but which may be similar to and competitive with Allianz products. In addition, CME Group Inc., an indirect minority owner of S&P Dow Jones Indices LLC, and its affiliates may trade financial products which are linked to the performance of the Index and Average. It is possible that this trading activity will affect the value of the products.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS, AND/OR THE COMPLETENESS OF THE INDEX AND AVERAGE OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY ALLIANZ, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX AND AVERAGE OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND ALLIANZ OTHER THAN THE LICENSORS OF 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.
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The Russell 2000® Index (the “Index”) is a trademark of Frank Russell Company (“Russell”) and has been licensed for use by Allianz Life Insurance Company of North America (“Allianz”). Allianz products are not in any way sponsored, endorsed, sold or promoted by Russell or the London Stock Exchange Group companies (“LSEG”) (together the “Licensor Parties”) and none of the Licensor Parties make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the Index (upon which the Allianz product is based), (ii) the figure at which the Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the Allianz product. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to Allianz or to its clients. The Index is calculated by Russell or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in the Index or (b) under any obligation to advise any person of any error therein.
Nasdaq-100® Index
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 “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product(s). The Corporations make no representation or warranty, express or implied to the owners of the Product(s) or any member of the public regarding the advisability of investing in securities generally or in the Product(s) particularly, or the ability of the Nasdaq-100 Index® to track general stock market performance. The Corporations' only relationship to Allianz Life Insurance Company of North America (“Licensee”) is in the licensing of the NASDAQ®, and Nasdaq-100 Index® registered trademarks, and certain trade names of the Corporations and the use of the Nasdaq-100 Index® which is determined, composed and calculated by NASDAQ without regard to Licensee or the Product(s). Nasdaq has no obligation to take the needs of the Licensee or the owners of the Product(s) into consideration in determining, composing or calculating the Nasdaq-100 Index®. The Corporations are not responsible for and have not participated in the determination of the timing of, prices of, or quantities of the Product(s) to be issued or in the determination or calculation of the equation by which the Product(s) is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Product(s).
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 50®, Europe's leading blue-chip index for the Eurozone, provides a blue-chip representation of supersector leaders in the Eurozone. The index covers 50 stocks from 11 Eurozone countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.STOXX Limited, Deutsche Börse Group and their licensors, research partners or data providers have no relationship to Allianz Life Insurance Company of North America (“Allianz”), other than the licensing of the EURO STOXX 50® and the related trademarks for use in connection with Allianz products.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.
• have any responsibility or liability for the administration, management or marketing of Allianz products.
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• 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.
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Appendix B – Daily Adjustment
Generally
We designed the Daily Adjustment to provide an Index Option Value  for each Index Option with the Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy on Business Days other than the Term Start Date or the Term End Date. The Daily Adjustment approximates the Index Option Value that will be available on the Term End Date. It is the estimated present value of the future Performance Credit that we will apply on the Term End Date. The Daily Adjustment takes into account:
(i) any Index gains during the Term subject to the applicable Precision Rate or Cap,
(ii) either any Index losses greater than the 10% or 20% Buffer, or Index losses down to the -10% Floor, and
(iii) the number of days until the Term End Date.
The Daily Adjustment formula has two primary components, (i) the change in Proxy Value and (ii) accumulated proxy interest, which are added together and then multiplied by the Index Option Base. We designed the Daily Adjustment to estimate the present value of positive or negative Performance Credit that will be available on the Term End Date taking into account any applicable Buffer, Floor, Precision Rate, and/or Cap. You should note that even if your selected Index(es) experience positive growth, the Daily Adjustments may be negative because of other market conditions, such as the expected volatility of Index prices and interest rates. Therefore, the Daily Adjustment could result in a loss beyond the protection of the Buffer or Floor. The Daily Adjustment for 3-year Term Index Options may be more negatively impacted by changes in the expected volatility of Index prices than 1-year Term Index Options due the difference in Term length. Also, the risk of a negative Daily Adjustment is greater for 3-year Term Index Options than 1-year Term Index Options because the Buffer is exposed to a longer time period. The impact of the Cap and Buffer on the Daily Adjustment for a 1-year Term Index Option is greater than it is for a 3-year Term Index Option because we apply the Cap and Buffer for the entire Term length, and the Term length is shorter for a 1-year Term.
Daily Adjustment Formula
The formula for the calculation of the Daily Adjustment is as follows:
Daily Adjustment = [(a) change in Proxy Value + (b) proxy interest] x Index Option Base
Where:
(a) change in Proxy Value = (current Proxy Value – beginning Proxy Value)
(b) proxy interest = beginning Proxy Value x (1 – time remaining during the Term)
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 Term Start Date.
The Proxy Value is calculated differently for each Crediting Method.
For the Index Precision Strategy, the Proxy Value involves tracking two hypothetical derivatives and is calculated using the following formula:
[Precision 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 Precision 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 10% Buffer for the Index Precision Strategy. It is important to note that the out-of-the-money put will almost always reduce the Daily Adjustment, even when the current Index price 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 price on a Business Day is lower than the Index Value on the Term Start Date.
For the Index Guard Strategy, the Proxy Value involves tracking four hypothetical derivatives and is calculated using the following formula:
Proxy Value = (at-the-money call) – (out-of-the-money call) – (at-the-money put) + (out-of-the-money put)
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With respect to our Proxy Value formula, we designed the at-the-money call and out-of-the-money call to value the potential for Index gains up to the Cap and the at-the-money put to value the potential for Index losses, but add back the out-of-money put to mimic the protection of the -10% Floor for the Index Guard Strategy. It is important to note that the at-the-money put will almost always reduce the Daily Adjustment, even when the current Index price on a Business Day is higher than the Index Value on the Term Start Date. It is also important to note that the out-of-money put will almost always reduce, and never exceed, the negative impact of the at-the-money put for the Index Guard Strategy.
For the Index Performance Strategy, the Proxy Value involves tracking three hypothetical derivatives and is calculated using the following formula:
Proxy Value = (at-the-money call) – (out-of-the-money call) – (out-of-the-money put)
With respect to our Proxy Value formula, we designed the at-the-money call and out-of-the-money call to value the potential for Index gains up to the Cap, and the out-of-the-money put to value the potential for Index losses greater than the 10% or 20% Buffer for the Index Performance Strategy. Similar to the Index Precision Strategy, it is important to note that the out-of-the-money put will almost always reduce the Daily Adjustment, even when the current Index price 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 price on a Business Day is lower than the Index Value on the Term Start Date. For purposes of the Proxy Value formula the value of the out-of-the-money call will be zero if an Index Option is uncapped.
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 a Term. The time remaining during a Term is equal to the number of days remaining in the Term divided by the Term length. The Term length is 365 days for a 1-year Term, and it is 1,095 days for a 3-year Term. The proxy interest may be significantly different from current interest rates available on interest bearing investments.
Additional Information
You can find a more detailed explanation of the calculation of the Proxy Value, including examples, in Exhibit 99(b) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This Exhibit is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(b) by calling (800) 624-0197, or visiting our website at allianzlife.com .
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix B
 109 

 

Appendix C – Historical Initial and Renewal DPSCs, Precision Rates, and Caps
•  The iShares® MSCI Emerging Markets ETF first became available to newly issued Contracts on April 29, 2019, and became available to certain existing Contracts on the first Index Anniversary that occurred on or after August 20, 2019.
•  The Index Performance Strategy 3-year Term Index Options first became available to newly issued Contracts on May 1, 2020, and became available to certain existing Contracts on the first Index Anniversary that occurred on or after November 23, 2020.
•  For more information, please see Appendix G.
This information regarding the initial and renewal DPSCs, Precision Rates, and Caps is for historical purposes only; it is not a representation as to future DPSCs, Precision Rates, and Caps. DPSCs, Precision Rates, and Caps may change frequently, and may vary substantially based on market conditions.
Index Protection Strategy
The S&P 500® Index was the only Index available with the Index Protection Strategy prior to May 1, 2018. The Index Protection Strategy with the Russell 2000® Index, Nasdaq-100® Index and EURO STOXX 50® first became available to newly issued Contracts on May 1, 2018, and became available to existing Contracts on the first Index Anniversary that occurred on or after June 4, 2018. For more information, please see Appendix G.
Following are the highest and lowest initial and renewal DPSCs offered for Index Effective Date periods occurring within each calendar year during May 23, 2017 (the date the Contracts were first issued) through January 3, 2022.
Index Effective Dates: 5/23/2017 – 1/2/2018
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
DPSCs   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial DPSCs   3.75%   4.75%   NA   NA   NA   NA   NA   NA   NA   NA
1st Anniversary Renewal DPSCs   4.00%   5.10%   4.10%   5.20%   4.10%   5.20%   5.20%   6.40%   NA   NA
2nd Anniversary Renewal DPSCs   4.10%   5.30%   4.10%   5.40%   3.90%   5.30%   5.30%   6.50%   4.30%   5.60%
3rd Anniversary Renewal DPSCs   4.20%   5.40%   4.40%   5.40%   4.30%   5.30%   4.60%   5.80%   4.50%   5.70%
4th Anniversary Renewal DPSCs   4.00%   5.10%   4.40%   5.50%   4.30%   5.40%   4.50%   5.60%   4.10%   5.20%
Index Effective Dates: 1/3/2018 – 1/1/2019
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
DPSCs   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial DPSCs 1   3.75%   5.40%   4.20%   5.50%   4.10%   5.50%   5.20%   7.10%   NA   NA
1st Anniversary Renewal DPSCs 2   4.00%   5.20%   4.00%   5.30%   4.10%   5.30%   4.90%   6.90%   4.40%   5.60%
2nd Anniversary Renewal DPSCs   4.30%   5.00%   4.30%   5.10%   4.20%   5.10%   4.60%   6.70%   4.50%   5.40%
3rd Anniversary Renewal DPSCs   4.10%   4.60%   4.40%   5.10%   4.40%   4.90%   4.60%   5.60%   4.20%   4.80%
1 The initial DPSCs for the Russell 2000® Index, Nasdaq-100® Index and EURO STOXX 50® are for a partial period of June 4, 2018 through January 1, 2019.
2 The 1st Anniversary Renewal DPSCs for the iShares® MSCI Emerging Markets ETF are for a partial period of June 3, 2019 through January 1, 2020.
Index Effective Dates: 1/2/2019 – 1/6/2020
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
DPSCs   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial DPSCs 1   3.80%   5.90%   3.90%   5.90%   3.80%   5.90%   4.70%   7.50%   4.00%   5.80%
1st Anniversary Renewal DPSCs   3.70%   5.70%   3.90%   5.70%   4.00%   5.70%   4.00%   7.30%   4.00%   6.10%
2nd Anniversary Renewal DPSCs   3.60%   5.50%   3.90%   5.50%   3.80%   5.50%   4.00%   6.40%   3.70%   5.90%
1 The initial DPSCs for the iShares® MSCI Emerging Markets ETF are for a partial period of April 29, 2019 through January 6, 2020.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 110 

 

Index Protection Strategy (continued)
Index Effective Dates: 1/7/2020 – 1/4/2021
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
DPSCs   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial DPSCs   2.30%   3.80%   2.40%   3.80%   2.30%   3.70%   2.40%   4.50%   2.40%   3.90%
1st Anniversary Renewal DPSCs   1.90%   3.50%   2.10%   3.90%   2.10%   3.80%   2.10%   4.00%   2.00%   3.90%
Index Effective Dates: 1/5/2021 – 1/3/2022
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
DPSCs   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial DPSCs   2.10%   3.00%   2.20%   3.30%   2.20%   3.20%   2.30%   3.40%   2.20%   3.30%
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 111 

 

Index Precision Strategy
The Index Precision Strategy first became available to newly issued Contracts on November 14, 2017, and became available to existing Contracts on the first Index Anniversary that occurred on or after January 15, 2018. For more information, please see Appendix G.
Following are the highest and lowest initial and renewal Precision Rates offered for Index Effective Date periods occurring within each calendar year during November 14, 2017 (the date the Index Precision Strategy was first available) through January 3, 2022. The Buffer was 10.00% for each Index.
Index Effective Dates: 5/23/2017 – 1/2/2018
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Precision Rates   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Precision Rates 1   7.00%   7.25%   8.75%   9.00%   8.25%   8.25%   10.75%   10.75%   NA   NA
1st Anniversary Renewal Precision Rates   7.60%   9.95%   8.20%   10.45%   8.80%   11.50%   11.00%   12.70%   NA   NA
2nd Anniversary Renewal Precision Rates   8.00%   10.10%   9.10%   10.90%   9.20%   11.60%   11.20%   13.40%   10.50%   11.80%
3rd Anniversary Renewal Precision Rates   11.10%   14.70%   12.30%   16.90%   12.70%   17.40%   11.10%   15.10%   11.40%   15.40%
4th Anniversary Renewal Precision Rates   9.40%   10.80%   11.30%   13.00%   10.90%   12.30%   10.00%   11.40%   10.00%   12.10%
1 The initial Precision Rates are for a partial period from November 14, 2017 through January 2, 2018.
Index Effective Dates: 1/3/2018 – 1/1/2019
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Precision Rates   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Precision Rates   7.05%   10.20%   8.30%   11.00%   8.35%   12.10%   10.75%   13.80%   NA   NA
1st Anniversary Renewal Precision Rates 1   7.80%   10.40%   9.10%   11.50%   8.90%   11.30%   11.30%   13.10%   10.40%   12.30%
2nd Anniversary Renewal Precision Rates   8.40%   13.70%   9.20%   15.90%   9.30%   15.40%   10.70%   14.10%   10.00%   14.40%
3rd Anniversary Renewal Precision Rates   8.80%   11.80%   10.80%   13.70%   10.00%   13.20%   9.10%   11.70%   9.60%   12.50%
1 The 1st Anniversary Renewal Precision Rates for the iShares® MSCI Emerging Markets ETF are for a partial period of June 3, 2019 through January 1, 2020.
Index Effective Dates: 1/2/2019 – 1/6/2020
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Precision Rates   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Precision Rates 1   8.70%   11.30%   9.90%   11.60%   9.70%   13.40%   11.70%   14.20%   10.90%   12.30%
1st Anniversary Renewal Precision Rates   8.60%   13.80%   9.30%   16.00%   9.50%   15.40%   10.80%   14.20%   10.20%   14.50%
2nd Anniversary Renewal Precision Rates   8.70%   10.80%   10.50%   13.20%   9.70%   12.40%   8.70%   10.80%   9.40%   11.90%
1 The initial Precision Rates for the iShares® MSCI Emerging Markets ETF are for a partial period of April 29, 2019 through January 6, 2020.
Index Effective Dates: 1/7/2020 – 1/4/2021
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Precision Rates   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Precision Rates   8.60%   13.80%   9.30%   16.00%   9.50%   15.40%   10.80%   14.20%   10.20%   14.50%
1st Anniversary Renewal Precision Rates   8.70%   10.80%   10.50%   13.20%   9.70%   12.40%   8.70%   10.80%   9.40%   11.90%
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 112 

 

Index Precision Strategy (continued)
Index Effective Dates: 1/5/2021 – 1/3/2022
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Precision Rates   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Precision Rates   8.70%   10.80%   10.50%   13.20%   9.70%   12.40%   8.70%   10.80%   9.40%   11.90%
Index Guard Strategy
Following are the highest and lowest initial and renewal Caps offered for Index Effective Date periods occurring within each calendar year during May 23, 2017 (the date the Contracts were first issued) through January 3, 2022. The Floor was -10.00% for each Index.
Index Effective Dates: 5/23/2017 – 1/2/2018
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   10.50%   15.00%   11.75%   16.00%   10.00%   13.50%   12.25%   25.00%   NA   NA
1st Anniversary Renewal Caps   9.75%   13.50%   10.50%   14.00%   10.00%   13.25%   23.00%   29.00%   NA   NA
2nd Anniversary Renewal Caps   10.50%   15.00%   11.25%   15.50%   10.75%   14.50%   23.50%   29.00%   12.75%   16.75%
3rd Anniversary Renewal Caps   10.00%   14.00%   10.75%   14.00%   10.50%   13.75%   17.25%   23.00%   12.00%   16.50%
4th Anniversary Renewal Caps   9.25%   13.00%   12.50%   16.00%   11.00%   15.00%   17.00%   25.00%   13.00%   17.75%
Index Effective Dates: 1/3/2018 – 1/1/2019
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   9.75%   12.50%   10.50%   12.75%   10.00%   12.50%   22.00%   26.00%   NA   NA
1st Anniversary Renewal Caps 1   10.50%   13.75%   11.25%   14.00%   10.75%   12.75%   24.50%   26.50%   12.75%   16.00%
2nd Anniversary Renewal Caps   9.25%   12.50%   10.75%   12.00%   10.50%   12.00%   18.00%   25.00%   11.00%   13.50%
3rd Anniversary Renewal Caps   8.25%   10.75%   11.25%   13.25%   10.00%   12.50%   14.50%   22.00%   11.50%   14.75%
1 The 1st Anniversary Renewal Caps for the iShares® MSCI Emerging Markets ETF are for a partial period of June 3, 2019 through January 1, 2020.
Index Effective Dates: 1/2/2019 – 1/6/2020
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps 1   12.75%   15.25%   12.75%   14.50%   11.25%   13.50%   24.50%   28.00%   14.50%   16.75%
1st Anniversary Renewal Caps   9.25%   13.00%   10.50%   12.50%   10.25%   12.00%   18.00%   26.00%   11.00%   14.50%
2nd Anniversary Renewal Caps   8.25%   9.75%   11.00%   12.00%   10.00%   11.25%   14.50%   20.00%   10.50%   12.75%
1 The initial Caps for the iShares® MSCI Emerging Markets ETF are for a partial period of April 29, 2019 through January 6, 2020.
Index Effective Dates: 1/7/2020 – 1/4/2021
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   9.25%   13.00%   10.50%   12.50%   10.25%   12.00%   12.50%   26.00%   11.00%   14.50%
1st Anniversary Renewal Caps   8.25%   9.75%   11.00%   12.00%   10.00%   11.25%   14.50%   20.00%   10.50%   12.75%
Index Effective Dates: 1/5/2021 – 1/3/2022
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   8.25%   9.75%   11.00%   12.00%   10.00%   11.25%   12.50%   16.50%   10.50%   12.75%
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 113 

 

Index Performance Strategy 1-year Term
Following are the highest and lowest initial and renewal Caps offered for Index Effective Date periods occurring within each calendar year during May 23, 2017 (the date the Contracts were first issued), through January 3, 2022. The Buffer was 10.00% for each Index.
Index Effective Dates: 5/23/2017 – 1/2/2018
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   10.25%   14.50%   13.50%   18.50%   10.25%   14.00%   15.75%   25.50%   NA   NA
1st Anniversary Renewal Caps   12.75%   17.00%   13.00%   17.25%   13.00%   17.75%   24.00%   31.00%   NA   NA
2nd Anniversary Renewal Caps   12.50%   17.75%   13.75%   18.00%   13.25%   17.75%   25.50%   31.00%   15.50%   20.00%
3rd Anniversary Renewal Caps   16.50%   25.50%   18.50%   27.50%   16.75%   26.50%   25.50%   31.50%   20.75%   29.00%
4th Anniversary Renewal Caps   17.25%   20.75%   18.25%   22.75%   16.50%   20.75%   25.50%   29.50%   20.00%   27.50%
Index Effective Dates: 1/3/2018 – 1/1/2019
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   11.50%   16.25%   14.25%   16.75%   12.00%   17.00%   24.00%   28.00%   NA   NA
1st Anniversary Renewal Caps 1   12.50%   16.00%   13.50%   17.75%   12.25%   16.50%   26.25%   28.00%   15.50%   23.00%
2nd Anniversary Renewal Caps   12.75%   22.50%   13.25%   25.75%   12.50%   26.25%   24.00%   29.50%   16.50%   26.00%
3rd Anniversary Renewal Caps   16.50%   21.50%   17.75%   23.75%   15.50%   22.25%   25.00%   29.00%   18.50%   27.50%
1 The 1st Anniversary Renewal Caps for the iShares® MSCI Emerging Markets ETF are for a partial period of June 3, 2019 through January 1, 2020.
Index Effective Dates: 1/2/2019 – 1/6/2020
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps 1   14.25%   17.25%   15.00%   17.75%   14.25%   18.50%   26.50%   29.00%   19.00%   23.00%
1st Anniversary Renewal Caps   13.75%   22.25%   14.00%   25.75%   13.50%   26.25%   25.00%   29.50%   17.50%   26.00%
2nd Anniversary Renewal Caps   16.25%   20.75%   17.25%   23.50%   15.25%   21.50%   25.50%   28.50%   18.25%   22.50%
1 The initial Caps for the iShares® MSCI Emerging Markets ETF are for a partial period of April 29, 2019 through January 6, 2020.
Index Effective Dates: 1/7/2020 – 1/4/2021
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   13.75%   22.25%   14.00%   25.75%   13.50%   26.25%   25.00%   29.50%   17.50%   26.00%
1st Anniversary Renewal Caps   16.25%   20.75%   17.25%   23.50%   15.25%   21.50%   25.50%   28.50%   18.25%   22.50%
Index Effective Dates: 1/5/2021 – 1/3/2022
Indexes:   S&P 500 ® Index   Russell 2000 ® Index   Nasdaq-100 ® Index   EURO STOXX 50 ®   iShares ® MSCI Emerging Markets ETF
Caps   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest   Lowest   Highest
Initial Caps   16.25%   20.75%   17.25%   23.50%   15.25%   21.50%   25.50%   28.50%   18.25%   22.50%
Index Performance Strategy 3-year Term
The Index Performance Strategy 3-year Term Index Options first became available to newly issued Contracts on May 1, 2020, and became available to certain existing Contracts on the first Index Anniversary that occurred on or after November 23, 2020. For more information, please see Appendix G.
Following are the highest and lowest initial and renewal Caps offered for Index Effective Date periods occurring during May 1, 2020 (the date Index Performance Strategy 3-year Term was first available), through January 3, 2022. The Buffer
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 114 

 

Index Performance Strategy 3-year Term (continued)
was 20% for each Index. A highest Cap of 100% in a period indicates an Index Option was uncapped during that period. If both the highest and lowest Caps are 100% in a period it indicates the Index Option was uncapped during the entire period. 
Index Effective Dates: 5/23/2017 – 1/2/2018
Indexes:   S&P 500 ® Index   Russell 2000 ® Index
Caps   Lowest   Highest   Lowest   Highest
3rd Anniversary Renewal Caps 1   100.00%   100.00%   55.00%   55.00%
4th Anniversary Renewal Caps   45.00%   85.00%   40.00%   60.00%
1 The 3rd Anniversary Renewal Caps are for a partial period of November 23, 2020 through January 2, 2021.
Index Effective Dates: 1/3/2018 – 1/1/2019
Indexes:   S&P 500 ® Index   Russell 2000 ® Index
Caps   Lowest   Highest   Lowest   Highest
2nd Anniversary Renewal Caps 1   100.00%   100.00%   50.00%   55.00%
3rd Anniversary Renewal Caps   45.00%   100.00%   40.00%   50.00%
1 The 2nd Anniversary Renewal Caps are for a partial period of November 23, 2020 through January 1, 2021.
Index Effective Dates: 1/2/2019 – 1/6/2020
Indexes:   S&P 500 ® Index   Russell 2000 ® Index
Caps   Lowest   Highest   Lowest   Highest
1st Anniversary Renewal Caps 1   100.00%   100.00%   50.00%   55.00%
2nd Anniversary Renewal Caps   45.00%   90.00%   40.00%   50.00%
1 The 1st Anniversary Renewal Caps are for a partial period of November 23, 2020 through January 6, 2021.
Index Effective Dates: 1/7/2020 – 1/4/2021
Indexes:   S&P 500 ® Index   Russell 2000 ® Index
Caps   Lowest   Highest   Lowest   Highest
Initial Caps 1   75.00%   100.00%   50.00%   80.00%
1st Anniversary Renewal Caps   45.00%   90.00%   40.00%   50.00%
1 The initial Caps are for a partial period of May 1, 2020 through January 6, 2021.
Index Effective Dates: 1/5/2021 – 1/3/2022
Indexes:   S&P 500 ® Index   Russell 2000 ® Index
Caps   Lowest   Highest   Lowest   Highest
Initial Caps   45.00%   90.00%   40.00%   50.00%
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix C
 115 

 

Appendix D – Historical Index Option Performance Information
The Index Performance Strategy 3-year Term using the S&P 500® Index was not available before May 1, 2020. Therefore, no performance for this Index Option will be included here until after May 1, 2023. For more information, please see Appendix G.
The following historical information, based on historical Buffers, Floors, DPSCs, Precision Rates, and Caps, show how actual movements in the external Index Returns impacted actual Credits. They show the lowest and highest actual annual Index Returns for each time period, and the corresponding Credits received for these Index Returns. No single Crediting Method or Index Option consistently delivers the most return under all market conditions. Past performance does not guaranteed future results. This historical information shows the returns for Contracts with Index Effective Date periods occurring within the first year that each Crediting Method was available using the S&P 500® Index.
Index Protection Strategy with the S&P 500® Index
Index Effective Date   5/23/2017-
6/5/2017 		  6/6/2017-
7/4/2017 		  7/5/2017-
7/16/2017 		  7/17/2017-
7/31/2017 		  8/1/2017-
9/5/2017 		  9/6/2017-
10/2/2017 		  10/3/2017-
11/6/2017
Initial DPSC   3.75%   3.75%   3.75%   4.75%   4.75%   3.75%   3.75%
1st Index Year Index Return   10.12% to
15.40% 		  11.29% to
14.71% 		  12.50% to
15.09% 		  13.28% to
14.89% 		  13.61% to
18.57% 		  15.54% to
17.16% 		  2.33% to
15.42%
1st Index Anniversary Credit   3.75%   3.75%   3.75%   4.75%   4.75%   3.75%   3.75%
1st Anniversary Renewal DPSC   4.20%   4.10%   4.10%   5.10%   5.10%   4.10%   4.10%
2nd Index Year Index Return   -0.09% to
12.01% 		  2.57% to
10.42% 		  6.89% to
9.27% 		  5.54% to
7.79% 		  -0.63% to
4.98% 		  -1.23% to
4.18% 		  -0.51% to
15.08%
2nd Index Anniversary Credit   0% or
4.20% 		  4.10%   4.10%   5.10%   0% or
5.10% 		  0% or
4.10% 		  0% or
4.10%
2nd Anniversary Renewal DPSC   4.20%   4.10%   4.30%   5.30%   5.20%   4.30%   4.10%
3rd Index Year Index Return   -3.49% to
13.01% 		  3.27% to
13.68% 		  4.68% to
6.85% 		  6.49% to
9.25% 		  11.55% to
21.47% 		  9.12% to
15.96% 		  7.54% to
20.29%
3rd Index Anniversary Credit   0% or
4.20% 		  4.10%   4.30%   5.30%   5.20%   4.30%   4.10%
3rd Anniversary Renewal DPSC   4.60%   4.50%   4.40%   5.40%   5.40%   4.20%   4.20%
4th Index Year Index Return   32.33% to
47.49% 		  30.76% to
42.59% 		  36.60% to
38.96% 		  30.96% to
37.53% 		  28.28% to
34.25% 		  28.43% to
35.48% 		  23.10% to
39.89%
4th Index Anniversary Credit   4.60%   4.50%   4.40%   5.40%   5.40%   4.20%   4.20%
    
Index Effective Date   11/7/2017-
12/4/2017 		  12/5/2017-
1/2/2018 		  1/3/2018-
2/5/2018 		  2/6/2018-
3/5/2018 		  3/6/2018-
4/2/2018 		  4/3/2018-
4/30/2018 		  5/1/2018-
6/4/2018
Initial DPSC   3.75%   3.75%   3.75%   3.85%   3.90%   3.95%   4.20%
1st Index Year Index Return   1.37% to
8.62% 		  -12.38% to
2.68% 		  -9.77% to
3.35% 		  0.51% to
4.92% 		  -0.12% to
11.05% 		  7.17% to
11.18% 		  0.36% to
12.01%
1st Index Anniversary Credit   3.75%   0% or
3.75% 		  0% or
3.75% 		  3.85%   0% or
3.90% 		  3.95%   4.20%
1st Anniversary Renewal DPSC   4.00%   4.20%   4.00%   4.10%   4.20%   4.20%   4.20%
2nd Index Year Index Return   9.64% to
19.03% 		  15.46% to
37.13% 		  19.23% to
32.15% 		  6.10% to
23.79% 		  -21.63% to
7.25% 		  -13.39% to
-0.89% 		  -3.49% to
11.34%
2nd Index Anniversary Credit   4.00%   4.20%   4.00%   4.10%   0% or
4.20% 		  0%   0% or
4.20%
2nd Anniversary Renewal DPSC   4.40%   4.30%   4.30%   4.30%   4.40%   4.50%   4.60%
3rd Index Year Index Return   14.17% to
18.84% 		  13.59% to
18.43% 		  13.17% to
18.86% 		  14.92% to
32.08% 		  28.56% to
76.12% 		  44.83% to
63.86% 		  35.91% to
48.11%
3rd Index Anniversary Credit   4.40%   4.30%   4.30%   4.30%   4.40%   4.50%   4.60%
3rd Anniversary Renewal DPSC   4.30%   4.20%                    
4th Index Year Index Return   23.22% to
32.42% 		  23.15% to
29.61% 		                   
4th Index Anniversary Credit   4.30%   4.20%                    
Index Precision Strategy with the S&P 500® Index
The Index Precision Strategy was not available before November 14, 2017. The Buffer was 10% for all time periods. For Index Anniversaries with a range of Credits, any positive Credit cannot be less than the stated positive number.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix D
 116 

 

Index Effective Date   11/14/2017-
12/4/2017 		  12/5/2017-
1/2/2018 		  1/3/2018-
2/5/2018 		  2/6/2018-
3/5/2018 		  3/6/2018-
4/2/2018 		  4/3/2018-
4/30/2018 		  5/1/2018-
6/4/2018
Initial Precision Rate   7.00%   7.25%   7.25%   7.05%   8.70%   8.35%   9.95%
1st Index Year Index Return   1.37% to
8.62% 		  -12.38% to
2.68% 		  -9.77% to
3.35% 		  0.51% to
4.92% 		  -0.12% to
11.05% 		  7.17% to
11.18% 		  0.36% to
12.01%
1st Index Anniversary Credit   7.00%   -2.38% to
7.25% 		  0% or
7.25% 		  7.05%   0% or
8.70% 		  8.35%   9.95%
1st Anniversary Renewal Precision Rate   8.20%   9.20%   9.30%   9.00%   8.80%   8.20%   8.00%
2nd Index Year Index Return   9.64% to
19.03% 		  15.46% to
37.13% 		  19.23% to
32.15% 		  6.10% to
23.79% 		  -21.63% to
7.25% 		  -13.39% to
-0.89% 		  -3.49% to
11.34%
2nd Index Anniversary Credit   8.20%   9.20%   9.30%   9.00%   -11.63% to
8.80% 		  -3.39% to
0.00% 		  0% or
8.00%
2nd Anniversary Renewal Precision Rate   9.70%   9.00%   9.20%   8.40%   8.50%   11.20%   13.00%
3rd Index Year Index Return   14.17% to
18.84% 		  13.59% to
18.43% 		  13.17% to
18.86% 		  14.92% to
32.08% 		  28.56% to
76.12% 		  44.83% to
63.86% 		  35.91% to
48.11%
3rd Index Anniversary Credit   9.70%   9.00%   9.20%   8.40%   8.50%   11.20%   13.00%
3rd Anniversary Renewal Precision Rate   13.60%   11.10%                    
4th Index Year Index Return   23.22% to
32.42% 		  23.15% to
29.61% 		                   
4th Index Anniversary Credit   13.60%   11.10%                    
    
Index Effective Date   6/5/2018-
7/2/2018 		  7/3/2018-
8/6/2018 		  8/7/2018-
9/4/2018 		  9/5/2018-
10/1/2018 		  10/2/2018-
11/5/2018 		  11/6/2018-
12/3/2018
Initial Precision Rate   8.60%   8.00%   8.00%   8.20%   8.50%   8.90%
1st Index Year Index Return   2.57% to
9.03% 		  0.15% to
10.42% 		  -0.95% to
3.70% 		  0.54% to
4.18% 		  -1.23% to
14.32% 		  9.64% to
19.03%
1st Index Anniversary Credit   8.60%   8.00%   0% or
8.00% 		  8.20%   0% or
8.50% 		  8.90%
1st Anniversary Renewal Precision Rate   8.40%   9.10%   7.80%   9.80%   10.40%   10.10%
2nd Index Year Index Return   3.27% to
13.68% 		  4.48% to
16.22% 		  14.38% to
21.47% 		  9.12% to
15.15% 		  7.54% to
20.29% 		  14.06% to
18.54%
2nd Index Anniversary Credit   8.40%   9.10%   7.80%   9.80%   10.40%   10.10%
2nd Anniversary Renewal Precision Rate   13.00%   12.90%   13.70%   12.70%   13.20%   13.40%
3rd Index Year Index Return   30.76% to
42.59% 		  30.96% to
39.05% 		  29.10% to
32.82% 		  28.88% to
37.24% 		  23.10% to
39.89% 		  23.77% to
33.97%
3rd Index Anniversary Credit   13.00%   12.90%   13.70%   12.70%   13.20%   13.40%
Index Guard Strategy with the S&P 500® Index
The Floor was -10% for all time periods
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix D
 117 

 

Index Effective Date   5/23/2017-
6/5/2017 		  6/6/2017-
7/4/2017 		  7/5/2017-
7/16/2017 		  7/17/2017-
7/31/2017 		  8/1/2017-
9/5/2017 		  9/6/2017-
10/2/2017 		  10/3/2017-
11/6/2017
Initial Cap   11.50%   12.00%   12.00%   15.00%   15.00%   12.25%   10.75%
1st Index Year Index Return   10.12% to
15.40% 		  11.29% to
14.71% 		  12.50% to
15.09% 		  13.28% to
14.89% 		  13.61% to
18.57% 		  15.54% to
17.16% 		  2.33% to
15.42%
1st Index Anniversary Credit   10.12% to
11.50% 		  11.29% to
12.00% 		  12.00%   13.28% to
14.89% 		  13.61% to
15.00% 		  12.25%   2.33% to
10.75%
1st Anniversary Renewal Cap   10.75%   10.75%   10.50%   13.50%   13.25%   10.25%   10.00%
2nd Index Year Index Return   -0.09% to
12.01% 		  2.57% to
10.42% 		  6.89% to
9.27% 		  5.54% to
7.79% 		  -0.63% to
4.98% 		  -1.23% to
4.18% 		  -0.51% to
15.08%
2nd Index Anniversary Credit   -0.09% to
10.75% 		  2.57% to
10.42% 		  6.89% to
9.27% 		  5.54% to
7.79% 		  -0.63% to
4.98% 		  -1.23% to
4.18% 		  -0.51% to
10.00%
2nd Anniversary Renewal Cap   11.00%   10.50%   12.00%   15.00%   14.25%   11.75%   12.00%
3rd Index Year Index Return   -3.49% to
13.01% 		  3.27% to
13.68% 		  4.68% to
6.85% 		  6.49% to
9.25% 		  11.55% to
21.47% 		  9.12% to
15.96% 		  7.54% to
20.29%
3rd Index Anniversary Credit   -3.49% to
11.00% 		  3.27% to
10.50% 		  4.68% to
6.85% 		  6.49% to
9.25% 		  11.55% to
14.25% 		  9.12% to
11.75% 		  7.54% to
12.00%
3rd Anniversary Renewal Cap   11.50%   11.00%   10.75%   13.75%   14.00%   10.25%   10.00%
4th Index Year Index Return   32.33% to
47.49% 		  30.76% to
42.59% 		  36.60% to
38.96% 		  30.96% to
37.53% 		  28.28% to
34.25% 		  28.43% to
35.48% 		  23.10% to
39.89%
4th Index Anniversary Credit   11.50%   11.00%   10.75%   13.75%   14.00%   10.25%   10.00%
    
Index Effective Date   11/7/2017-
12/4/2017 		  12/5/2017-
1/2/2018 		  1/3/2018-
2/5/2018 		  2/6/2018-
3/5/2018 		  3/6/2018-
4/2/2018 		  4/3/2018-
4/30/2018 		  5/1/2018-
6/4/2018
Initial Cap   11.00%   10.50%   10.25%   10.50%   10.00%   9.75%   10.75%
1st Index Year Index Return   1.37% to
8.62% 		  -12.38% to
2.68% 		  -9.77% to
3.35% 		  0.51% to
4.92% 		  -0.12% to
11.05% 		  7.17% to
11.18% 		  0.36% to
12.01%
1st Index Anniversary Credit   1.37% to
8.62% 		  -10.00% to
2.68% 		  -9.77% to
3.35% 		  0.51% to
4.92% 		  -0.12% to
10.00% 		  7.17% to
9.75% 		  0.36% to
10.75%
1st Anniversary Renewal Cap   9.75%   10.50%   10.75%   11.00%   11.50%   11.00%   11.00%
2nd Index Year Index Return   9.64% to
19.03% 		  15.46% to
37.13% 		  19.23% to
32.15% 		  6.10% to
23.79% 		  -21.63% to
7.25% 		  -13.39% to
-0.89% 		  -3.49% to
11.34%
2nd Index Anniversary Credit   9.64% to
9.75% 		  10.50%   10.75%   6.10% to
11.00% 		  -10.00% to
7.25% 		  -10.00% to
-0.89% 		  -3.49% to
11.00%
2nd Anniversary Renewal Cap   11.75%   11.75%   11.50%   11.00%   12.50%   11.75%   11.50%
3rd Index Year Index Return   14.17% to
18.84% 		  13.59% to
18.43% 		  13.17% to
18.86% 		  14.92% to
32.08% 		  28.56% to
76.12% 		  44.83% to
63.86% 		  35.91% to
48.11%
3rd Index Anniversary Credit   11.75%   11.75%   11.50%   11.00%   12.50%   11.75%   11.50%
3rd Anniversary Renewal Cap   10.50%   10.50%                    
4th Index Year Index Return   23.22% to
32.42% 		  23.15% to
29.61% 		                   
4th Index Anniversary Credit   10.50%   10.50%                    
Index Performance Strategy 1-year Term with the S&P 500® Index
The Buffer was 10% for all time periods.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix D
 118 

 

Index Effective Date   5/23/2017-
6/5/2017 		  6/6/2017-
7/4/2017 		  7/5/2017-
7/16/2017 		  7/17/2017-
7/31/2017 		  8/1/2017-
9/5/2017 		  9/6/2017-
10/2/2017 		  10/3/2017-
11/6/2017
Initial Cap   11.75%   11.50%   11.50%   14.50%   14.50%   10.25%   11.25%
1st Index Year Index Return   10.12% to
15.40% 		  11.29% to
14.71% 		  12.50% to
15.09% 		  13.28% to
14.89% 		  13.61% to
18.57% 		  15.54% to
17.16% 		  2.33% to
15.42%
1st Index Anniversary Credit   10.12% to
11.75% 		  11.29% to
11.50% 		  11.50%   13.28% to
14.50% 		  13.61% to
14.50% 		  10.25%   2.33% to
11.25%
1st Anniversary Renewal Cap   15.50%   15.00%   14.00%   17.00%   17.00%   12.75%   13.00%
2nd Index Year Index Return   -0.09% to
12.01% 		  2.57% to
10.42% 		  6.89% to
9.27% 		  5.54% to
7.79% 		  -0.63% to
4.98% 		  -1.23% to
4.18% 		  -0.51% to
15.08%
2nd Index Anniversary Credit   0% to
12.01% 		  2.57% to
10.42% 		  6.89% to
9.27% 		  5.54% to
7.79% 		  0% to
4.98% 		  0% to
4.18% 		  0% to
13.00%
2nd Anniversary Renewal Cap   12.50%   13.25%   14.75%   17.75%   16.25%   13.00%   13.50%
3rd Index Year Index Return   -3.49% to
13.01% 		  3.27% to
13.68% 		  4.68% to
6.85% 		  6.49% to
9.25% 		  11.55% to
21.47% 		  9.12% to
15.96% 		  7.54% to
20.29%
3rd Index Anniversary Credit   0% to
12.50% 		  3.27% to
13.25% 		  4.68% to
6.85% 		  6.49% to
9.25% 		  11.55% to
16.25% 		  9.12% to
13.00% 		  7.54% to
13.50%
3rd Anniversary Renewal Cap   16.50%   17.00%   19.75%   22.75%   25.50%   21.50%   21.75%
4th Index Year Index Return   32.33% to
47.49% 		  30.76% to
42.59% 		  36.60% to
38.96% 		  30.96% to
37.53% 		  28.28% to
34.25% 		  28.43% to
35.48% 		  23.10% to
39.89%
4th Index Anniversary Credit   16.50%   17.00%   19.75%   22.75%   25.50%   21.50%   21.75%
    
Index Effective Date   11/7/2017-
12/4/2017 		  12/5/2017-
1/2/2018 		  1/3/2018-
2/5/2018 		  2/6/2018-
3/5/2018 		  3/6/2018-
4/2/2018 		  4/3/2018-
4/30/2018 		  5/1/2018-
6/4/2018
Initial Cap   11.50%   11.50%   11.50%   11.50%   13.75%   13.25%   15.50%
1st Index Year Index Return   1.37% to
8.62% 		  -12.38% to
2.68% 		  -9.77% to
3.35% 		  0.51% to
4.92% 		  -0.12% to
11.05% 		  7.17% to
11.18% 		  0.36% to
12.01%
1st Index Anniversary Credit   1.37% to
8.62% 		  -2.38% to
2.68% 		  0% to
3.35% 		  0.51% to
4.92% 		  0% to
11.05% 		  7.17% to
11.18% 		  0.36% to
12.01%
1st Anniversary Renewal Cap   13.00%   13.50%   13.00%   14.25%   12.75%   12.50%   12.50%
2nd Index Year Index Return   9.64% to
19.03% 		  15.46% to
37.13% 		  19.23% to
32.15% 		  6.10% to
23.79% 		  -21.63% to
7.25% 		  -13.39% to
-0.89% 		  -3.49% to
11.34%
2nd Index Anniversary Credit   9.64% to
13.00% 		  13.50%   13.00%   6.10% to
14.25% 		  -11.63% to
7.25% 		  -3.39% to
0.00% 		  0% to
11.34%
2nd Anniversary Renewal Cap   14.25%   14.25%   13.75%   13.25%   12.75%   15.25%   16.50%
3rd Index Year Index Return   14.17% to
18.84% 		  13.59% to
18.43% 		  13.17% to
18.86% 		  14.92% to
32.08% 		  28.56% to
76.12% 		  44.83% to
63.86% 		  35.91% to
48.11%
3rd Index Anniversary Credit   14.17% to
14.25% 		  13.59% to
14.25% 		  13.17% to
13.75% 		  13.25%   12.75%   15.25%   16.50%
3rd Anniversary Renewal Cap   22.25%   20.50%                    
4th Index Year Index Return   23.22% to
32.42% 		  23.15% to
29.61% 		                   
4th Index Anniversary Credit   22.25%   20.50%                    
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix D
 119 

 

Appendix E – Annual Contract Fees Calculation Examples
Please note that these examples may differ from your actual results due to rounding.
Assuming You Purchase a Contract with the Traditional Death Benefit
You purchase a Contract with the Traditional Death Benefit. On the Quarterly Contract Anniversary your annual product fee is 0.25% and your Contract Value and Charge Base are $100,000. This Contract Value includes any Variable Option gains or losses and any Daily Adjustments or Credits on the Index Options. During the quarter you make no additional Purchase Payments and take no withdrawals. We calculate the daily product fee amount for this quarter as follows:
(the Charge Base) x (annual product fee ÷ 365) = daily product fee amount, or: $100,000 x (0.25% ÷ 365) = $0.68
If there are 89 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly product fee is:
(number of days in the current quarter) x (daily product fee amount), or: 89 x $0.68 = $60.96
On the next Quarterly Contract Anniversary we would deduct $60.96 from the Contract Value. We first account for any gains/losses on the Variable Options and add any Daily Adjustments or Credits to the Index Option Values, then process any additional Purchase Payments, withdrawals you take, and deductions we make for the total quarterly product 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 product fee for the next quarter on the next day as:
(the Charge Base) x (annual product fee ÷ 365) = daily product fee amount, or: $101,250 x (0.25% ÷ 365) = $0.69
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 product fee for the remainder of the quarter on the next day as:
(the Charge Base) x (annual product fee ÷ 365) = daily product fee amount, or: $116,250 x (0.25% ÷ 365) = $0.80
If there are 92 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly product fee is:
(number of days in the current quarter) x (daily product fee amount), or:
(43 x $0.69) + (49 x $0.80) = $29.82 + $39.02 = $68.84
On the next Quarterly Contract Anniversary we would deduct $68.84 from the Contract Value after we account for any gains/losses on the Variable Option and add any Daily Adjustments or 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 product fee and set the Charge Base equal to this new Contract Value and begin computing the daily product fee for the next quarter on the next day.
Assuming You Purchase a Contract with the Maximum Anniversary Value Death Benefit
You purchase a Contract with the Maximum Anniversary Value Death Benefit. On the Quarterly Contract Anniversary your total annual Contract fees are 0.45% (0.25% product fee and a 0.20% rider fee) and your Contract Value and Charge Base are $100,000. This Contract Value includes any Variable Option gains or losses and any Daily Adjustments or Credits on the Index Options. During the quarter you make no additional Purchase Payments and take no withdrawals. We calculate the daily Contract fee amount for this quarter as follows:
(the Charge Base) x (total annual Contract fees ÷ 365) = daily Contract fee amount, or: $100,000 x (0.45% ÷ 365) = $1.23
If there are 89 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly Contract fees are:
(number of days in the current quarter) x (daily Contract fee amount), or: 89 x $1.23 = $109.73
On the next Quarterly Contract Anniversary we would deduct $109.73 from the Contract Value. We first account for any gains/losses on the Variable Options and add any Daily Adjustments or Credits to the Index Option Values, then process
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix E
 120 

 

any additional Purchase Payments and withdrawals, including deduction of the total quarterly Contract fees. 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 Contract fees for the next quarter on the next day as:
(the Charge Base) x (total annual Contract fees ÷ 365) = daily Contract fee amount, or: $101,250 x (0.45% ÷ 365) = $1.25
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 Contract fees for the remainder of the quarter on the next day as:
(the Charge Base) x (total annual Contract fees ÷ 365) = daily Contract fee amount, or: $116,250 x (0.45% ÷ 365) = $1.43
If there are 92 days in the current quarter (which includes the next Quarterly Contract Anniversary), then the total quarterly Contract fees are:
(number of days in the current quarter) x (daily Contract fee amount), or:
(43 x $1.25) + (49 x $1.43) = $53.68 + $70.23 = $123.91
On the next Quarterly Contract Anniversary we would deduct $123.91 from the Contract Value after we account for any gains/losses on the Variable Option and add any Daily Adjustments or 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 Contract fees and set the Charge Base equal to this new Contract Value and begin computing the daily Contract fees for the next quarter on the next day.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix E
 121 

 

Appendix F – Alternate Minimum Value
The Alternate Minimum Value continues to be available to Contracts issued in Pennsylvania. For all other states, the Alternate Minimum Value became unavailable to Contracts:
•  issued in California, Hawaii, Indiana, Montana, Nebraska, and Rhode Island on or after January 27, 2020; and
• issued in all other states on or after November 18, 2019.
For Contracts with the Alternate Minimum Value, if you take a withdrawal, annuitize the Contract, transfer out of an Index Option to a Variable Option, or if we pay a death benefit, each Index Option Value for each Crediting Method also includes any increase from its guaranteed minimum (Alternate Minimum Value). If you receive no Credits, or only modest Credits, over many years, the Alternate Minimum Value may be higher than the Index Option Value. However, we expect that an Alternate Minimum Value generally will not be greater than its Index Option Value.
If you take a full withdrawal, annuitize the Contract, or if we pay a death benefit, we compare each Index Option Value to its Alternate Minimum Value and we increase your Index Option Value to equal the Alternate Minimum Value if it is greater. If you take a partial withdrawal, or transfer Index Option Value to a Variable Option, we compare the percentage of Index Option Value withdrawn (including any applicable withdrawal charge) with an equivalent percentage of its Alternate Minimum Value.
The Alternate Minimum Value for each of your selected Index Options is generally equal to 87.5% of the Index Option Base determined on the Term Start Date as adjusted for withdrawals and withdrawal charges taken during the current Term, plus Accumulated Alternate Interest and the Daily Adjustment (if applicable). However, for Contracts issued in Pennsylvania on or after February 24, 2020, the Alternate Minimum Value does not accrue Accumulated Alternate Interest for Index Options available with the Index Precision Strategy, Index Guard Strategy, or Index Performance Strategy. Accumulated Alternate Interest is the sum of alternate interest earned for the entire time you own your Contract. For each Index Year the alternate interest is equal to either 70% or 87.5% of the Index Option Base multiplied by the alternate interest rate stated in your Contract.
We use 70% if your Contract was issued in …. We use 87.5% if your Contract was issued in ….
• Pennsylvania from April 29, 2019 to February 21, 2020,
• California and Montana on or after July 22, 2019
• New Hampshire on or after June 24, 2019
• any other state on or after April 29, 2019 		•  Pennsylvania before April 29, 2019, or on or after February 24, 2020,
• California and Montana before July 22, 2019
• New Hampshire before June 24, 2019
• any other state before April 29, 2019
We add interest to the Accumulated Alternate Interest daily. You can find more information about the Alternate Minimum Value at Exhibit 99(a) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This information is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(a) by calling (800) 624-0197, or visiting our website at allianzlife.com .
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix F
 122 

 

Appendix G – 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
Crediting Method / Index Options   Availability Restrictions:
Index Protection Strategy   – Not available to Contracts issued in Washington or Missouri on or before November 15, 2019
Index Protection Strategy with the Russell 2000 ® Index, Nasdaq-100 ® Index, and EURO STOXX 50 ®   – These first became available to newly issued Contracts on May 1, 2018, and to inforce Contracts on the first Index Anniversary that occurred on or after June 4, 2018.
Index Precision Strategy   – This first became available to newly issued Contracts on November 14, 2017, and to inforce Contracts on the first Index Anniversary that occurred on or after January 15, 2018.
iShares ® MSCI Emerging Markets ETF with the Index Protection Strategy, Index Precision Strategy, Index Guard Strategy, and Index Performance Strategy 1-year Term   – For Contracts issued in California and Montana, these first became available to newly issued Contracts on July 22, 2019.
– For Contracts issued in New Hampshire, these first became available to newly issued Contracts on June 24, 2019.
– For Contracts issued in all other states, these first became available to newly issued Contracts on April 29, 2019.
– For Contracts issued before April 29, 2019, these first became available on the first Index Anniversary that occurred on or after June 3, 2019.
Index Performance Strategy 3-year Term   – For Contracts issued in Virginia, these first became available to newly issued Contracts on May 19, 2020.
– For Contracts issued in Montana, these first became available to newly issued Contracts on June 23, 2020.
– For Contracts issued in Pennsylvania, these first became available to newly issued Contracts on July 21, 2020.
– For Contracts issued in all other states, it first became available to newly issued Contracts on May 1, 2020.
– For Contracts issued in New Hampshire these first became available to newly issued Contracts on June 21, 2021, and became available to inforce Contracts on the first Index Anniversary that occurred on or after June 21, 2021.
– For Contracts issued before May 1, 2020, in all other states these first became available on the first Index Anniversary that occurred on or after November 23, 2020.
If a Crediting Method or Index Option is not available, you cannot allocate to it unless we make it available to you on a future Index Anniversary. Certain Crediting Methods and/or Index Options also may not be available from all selling firms or from all Financial Professionals. Please consult with your Financial Professional for more information.
CONTRACTS WITHOUT THE INDEX PROTECTION STRATEGY: If in future years the renewal Cap and Precision Rates are not acceptable to you, you will not be able to transfer into the Index Protection Strategy and take advantage of its principal protection. This would subject you to ongoing market risk and you could lose principal and previous earnings.
Death Benefit Availability Restrictions
The Maximum Anniversary Value Death Benefit was not available to Contracts issued before May 1, 2018.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix G
 123 

 

Other Material State Contract Variations
ISSUE STATE FEATURE AND BENEFITS VARIATION
California Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
  Free Look/Right to Examine Period
See section 3 		For Owners age 60 or older (or Annuitants age 60 or older for non-individually owned Contracts), we are required to allocate your initial Purchase Payment to the AZL Government Money Market Fund during the 30 day free look period unless you specify otherwise on the appropriate form. If you want to immediately apply your Purchase Payment to the Index Options or other Variable Options you must opt out of this allocation. If you do not opt out of this allocation to the AZL Government Money Market Fund your Index Effective Date cannot occur until the free look period has ended.
Connecticut Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We can only restrict assignments to settlement companies and institutional investors as described in your Contract .
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
Delaware Our Unregistered Separate Account
See section 12 		All of the assets backing the Index Precision Strategy, Index Guard Strategy and Index Performance Strategy Index Options are allocated to Separate Account IANA. We do not move assets between the general account and Separate Account IANA for Contracts issued in Delaware.
Florida Withdrawal Charges
See Fee Tables and section 6 		The total withdrawal charge on a partial or full withdrawal cannot be greater than 10% of the Contract Value withdrawn.
  Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
  Purchase Requirements
See section 3 		We can only decline a Purchase Payment if it would cause total Purchase Payments to be more than $1 million, or if it would otherwise violate the Purchase Payment restrictions of your Contract (for example, we do not allow additional Purchase Payments on or after the Annuity Date).
  When Annuity Payments Begin
See section 8 		The earliest acceptable Annuity Date is one year after the Issue Date.
Maryland Purchase Requirements
See section 3 		We can only decline a Purchase Payment if it would cause total Purchase Payments to be more than $1 million, or if it would otherwise violate the Purchase Payment restrictions of your Contract (for example, we do not allow additional Purchase Payments on or after the Annuity Date).
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix G
 124 

 

ISSUE STATE FEATURE AND BENEFITS VARIATION
Massachusetts Waiver of Withdrawal Charge Benefit
See section 7 		The waiver of withdrawal charge benefit is not available.
Mississippi Purchase Requirements
See section 3 		•  For Contracts issued before November 18, 2019 : We do not accept additional Purchase Payments on or after the first Contract Anniversary. We also limit the amount of additional Purchase Payments you can make on or after the first Quarterly Contract Anniversary to the amount of total Purchase Payments we received before the first Quarterly Contract Anniversary.
•  For Contracts issued on or after November 18, 2019 : Each Contract Year that we allow additional Purchase Payments you cannot add more than your initial amount without our prior approval. Your initial amount is all Purchase Payments received before the first Quarterly Contract Anniversary of the first Contract Year. We do not allow additional Purchase Payments on or after the tenth Contract Anniversary. However, we allow you to add up to the initial amount in the remainder of the first Contract Year (the first Quarterly Contract Anniversary to the last Business Day before the first Contract Anniversary).
Missouri Our Unregistered Separate Account
See section 12 		All of the assets backing the Index Precision Strategy, Index Guard Strategy and Index Performance Strategy Index Options are allocated to Separate Account IANA. We do not move assets between the general account and Separate Account IANA for Contracts issued in Missouri.
Montana Access to Your Money
See section 7 		If you take a partial withdrawal that reduces the Contract Value below $2,000, we contact you by phone and give you the option of modifying your withdrawal request. If we cannot reach you, we process your request as a full withdrawal.
New Hampshire Waiver of Withdrawal Charge Benefit
See section 7 		The definition of nursing home is an institution operated in accordance with state law.
New Jersey Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership.
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
  Purchase Requirements
See section 3 		The maximum total Purchase Payments that we can accept is $1 million. We can only decline a Purchase Payment if it would cause total Purchase Payments to be more than $1 million, or if it would otherwise violate the Purchase Payment restrictions of your Contract (for example, we do not allow additional Purchase Payments on or after the Annuity Date).
Ohio Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership.
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix G
 125 

 

ISSUE STATE FEATURE AND BENEFITS VARIATION
Pennsylvania Waiver of Withdrawal Charge Benefit
See section 7 		The waiver is not available if on the Issue Date, an Owner was confined to a nursing home or was already diagnosed with a terminal illness. Also, the nursing home confinement requirement is a total of 90 days within a six month period. These 90 days do not need to be consecutive.
  Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership.
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
Texas Purchase Requirements
See section 3 		•  For Contracts issued from April 29, 2019 through November 15, 2019 : We do not accept additional Purchase Payments on or after the first Contract Anniversary.
•  For Contracts issued on or after November 18, 2019 : We do not accept additional Purchase Payments on or after the tenth Contract Anniversary.
  Access to Your Money
See section 7 		We only treat a partial withdrawal that reduces the Contract Value below $2,000 as a full withdrawal if you have not made an additional Purchase Payment in the past two calendar years.
  Our Unregistered Separate Account
See section 12 		For Contracts issued before May 1, 2020 : We hold all assets that you allocate to the Index Precision Strategy, Index Guard Strategy and Index Performance Strategy Index Options that are not invested in the general account in an unregistered, non-unitized, insulated separate account (Separate Account IATX). Separate Account IATX is structured differently from Separate Account IANA. Unlike Separate Account IANA, Separate Account IATX is for the exclusive benefit of persons purchasing a Contract in the State of Texas. Separate Account IATX is insulated from the claims of creditors and Contract purchasers are given priority with regard to Separate Account IATX’s assets over Contract purchasers from other states as well as general creditors. Separate Account IATX was established under Minnesota law for the benefit of Texas Contract purchasers. Separate Account IATX supports our obligations to pay Performance Credits to Texas Contract Owners. Allocations and reallocations to and from the Separate Account IATX are managed in the same manner as Separate Account IANA. Neither Texas Contract purchasers nor these Index Options participate in any way in the performance of assets held in Separate Account IATX.
Utah Purchase Requirements
See section 3 		•  For Contracts issued before November 18, 2019 : We do not accept additional Purchase Payments on or after the first Contract Anniversary.
•  For Contracts issued on or after November 18, 2019 : We do not accept additional Purchase Payments on or after the tenth Contract Anniversary.
Washington Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership.
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix G
 126 

 

ISSUE STATE FEATURE AND BENEFITS VARIATION
Washington (continued) Our Unregistered Separate Account
See section 12 		All of the assets backing the Index Precision Strategy, Index Guard Strategy and Index Performance Strategy Index Options are allocated to Separate Account IANA. We do not move assets between the general account and Separate Account IANA for Contracts issued in Washington.
Wisconsin Assignments, Changes of Ownership and Other Transfers of Contract Rights
See section 2 		We cannot restrict assignments or changes of ownership.
• We do not change the Determining Life (Lives) following an assignment or ownership change. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit or Maximum Anniversary Value Death Benefit may not be available and on the Owner’s death the Beneficiary(s) will only receive the Contract Value.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix G
 127 

 

Appendix H – Variable Options Available Under the Contract
The following includes information about the Variable Options. More information about the Variable Options is available in the Variable Options' prospectuses, which may be amended from time to time and can be found online at 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 Variable Options, 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 Variable Options' past performance is not necessarily an indication of future performance.
Investment Objectives Variable Option and
Adviser/Subadviser 		Current
Expenses 		Average Annual Total Returns
(as of December 31, 2021)
1 Year 5 Years 10 Years
Current income consistent with stability of principal AZL ® Government Money Market Fund (1)
 
Adviser: Allianz Investment Management LLC
Subadviser: BlackRock Advisors, LLC 		0.64% 0.00% 0.53% 0.27%
Long-term capital appreciation with preservation of capital as an important consideration AZL ® MVP Balanced Index Strategy Fund (2)
 
Adviser: Allianz Investment Management LLC 		0.71% 10.02% 7.73% 7.20%
Long-term capital appreciation AZL ® MVP Growth Index Strategy Fund (2)
 
Adviser: Allianz Investment Management LLC 		0.68% 16.40% 9.77% 9.23%
(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.
(2) This Variable Option is managed in a way that is intended to minimize volatility of returns (referred to as a “managed volatility strategy”). Please see “Principal Risks – Managed Volatility Fund Risk” in the prospectus and the Investment Option’s prospectus for more information.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix H
 128 

 

Appendix I – Selected Financial Data and Statutory Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations (For the 12 month period ended December 31, 2021)
The following discussion of our financial condition and results of operations should be read in conjunction with our statutory financial statements and notes to those statements included in this Appendix. The discussion and analysis in this Appendix includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” and elsewhere in this prospectus, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities in 2022 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements. See “Forward-Looking Statements.”
Statutory Financial Statements
The statutory financial statements of Allianz Life Insurance Company of North America as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 included in this Appendix I have been so included 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. The principal business address of PricewaterhouseCoopers LLP is 45 South Seventh Street, Suite 3400, Minneapolis, MN.
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
Appendix I
 129 

 














Part I

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.



































Year ended December 31,
Selected income data
2021
2020
2019
2018
2017
Premium and annuity considerations*
$ 14,291 

10,542 

13,029 

12,193 

10,231 
Net investment income
4,866 

4,864 

4,839 

4,593 

4,504 
Ceded reinsurance reserve and expense adjustments
639 

(45)

329 

245 

612 
Fees from separate accounts
574 

567 

613 

676 

719 
Other income
(32)

694 

(13)

(3)

150 
Total income
20,338 

16,622 

18,797 

17,704 

16,216 
Policyholder benefits and surrenders
10,876 

10,343 

10,368 

9,436 

8,649 
Change in aggregate reserves
4,316 

2,465 

1,034 

7,299 

10,628 
General and administrative and commission
2,195 

1,739 

1,878 

1,770 

1,616 
Net transfers to separate accounts
2,424 

1,460 

5,254 

(2,009)

(1,851)
Total benefits and other expenses
19,811 

16,007 

18,534 

16,496 

19,042 
Income tax expense (benefit)
1,091 

18 

773 

(51)

24 
Net realized capital gain (loss)
1,856 

142 

1,053 

(490)

3,655 
Net income (loss)
$ 1,292 

739 

543 

769 

805 
Capital and Surplus:









Change in unrealized capital gain (loss)
$ (142)

(61)

719 

(230)

(78)
Dividends to parent
(900)

(750)

(325)

— 

(780)
Other change in capital & surplus
2,794 

(220)

441 

26 

(101)
Net change in capital & surplus
$ 3,044 

(292)

1,378 

565 

(154)
*Includes premiums and annuity and supplementary contract considerations.

































 
As of December 31,
Selected balance sheet data
2021
2020
2019
2018
2017
Total cash and invested assets
$ 122,829 

125,229 

121,870 

117,203 

109,328 
Investment income due and accrued
947 

1,040 

1,031 

1,047 

1,004 
Other admitted assets
1,480 

1,218 

945 

951 

982 
Separate account assets
48,279 

45,901 

34,638 

22,835 

26,755 
Total admitted assets
173,535 

173,388 

158,484 

142,036 

138,069 
Total policyholder liabilities
103,933 

109,353 

107,098 

107,118 

100,433 
Other liabilities
10,618 

10,473 

8,794 

5,507 

4,869 
Separate account liabilities
48,279 

45,901 

34,638 

22,835 

26,755 
Total liabilities
162,830 

165,727 

150,530 

135,460 

132,057 
Total capital and surplus
10,705 

7,661 

7,954 

6,576 

6,011 

Selected Financial Data and Management's Discussion and Analysis
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, 2021, compared with December 31, 2020, and its results of operations for each of the three years ended December 31, 2021, 2020, 2019, respectively. The information contained herein should be read in conjunction with the financial statements, notes, exhibits and schedules in the 2021 and 2020 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 and variable-indexed. 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 and wholly-owned distribution channels made up of agents and registered representatives.
Fixed annuities provide guarantees related to the preservation of principal and interest credited. In 2021, 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 Benefit Control® due to a 2021 sales promotion . In 2020, sales of our fixed-indexed annuity products were lower than the prior year due to the low interest rate environment and social distancing constraints as a result of the coronavirus pandemic.

Selected Financial Data and Management's Discussion and Analysis
Page 2 of 22

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. The Company's variable annuity sales strategy has shifted to variable-indexed annuity products, which combines a separate account option with a general account option that is similar to a fixed-indexed annuity. In 2021, sales of the variable-indexed annuity were higher than the prior year due to strong sales for the Index Advantage Income® product driven by the market environment and a 2021 sales promotion. In 2020, sales of the variable-indexed annuity were higher than the prior year due to strong sales for the Index Advantage Income® product driven by the market environment and a 2020 sales promotion.
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 and expanded accelerated underwriting.
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 at the subsidiary level 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 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, 2021, and 2020 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.



Selected Financial Data and Management's Discussion and Analysis
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.

Selected Financial Data and Management's Discussion and Analysis
Page 4 of 22

Results of Operations









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Income:












Premium and annuity considerations* $ 14,291 

10,542 

13,029 

3,749 

35.6  %
$ (2,487)

(19.1) %
Net investment income 4,866 

4,864 

4,839 

2 

— 

25 

0.5 
Ceded reinsurance reserve and expense adjustments 639 

(45)

329 

684 

(1,520.0)

(374)

(113.7)
Fees from separate accounts 574 

567 

613 

7 

1.2 

(46)

(7.5)
Other income (32)

694 

(13)

(726)

(104.6)

707 

5,438.5 
Total income 20,338 

16,622 

18,797 

3,716 

22.4  %
(2,175)

(11.6) %
Benefits and other expenses:












Policyholder benefits and surrenders 10,876 

10,343 

10,368 

533 

5.2  %
(25)

(0.2) %
Change in aggregate reserves 4,316 

2,465 

1,034 

1,851 

75.1 

1,431 

138.4 
General and administrative and commission 2,195 

1,739 

1,878 

456 

26.2 

(139)

(7.4)
Net transfers to separate accounts 2,424 

1,460 

5,254 

964 

66.0 

(3,794)

(72.2)
Total benefits and other expenses 19,811 

16,007 

18,534 

3,804 

23.8 

(2,527)

(13.6)
Pretax income (loss) 527 

615 

263 

(88)

(14.3)

352 

133.8 
Income tax expense (benefit) 1,091 

18 

773 

1,073 

5,961.1 

(755)

(97.7)
Net realized capital gain (loss) 1,856 

142 

1,053 

1,714 

1,207.0 

(911)

(86.5)
Net income (loss) $ 1,292 

739 

543 

553 

74.8  %
$ 196 

36.1  %
Capital and Surplus:












Change in unrealized capital gain (loss) $ (142)

(61)

719 

(81)

(132.8) %
$ (780)

(108.5) %
Dividends to parent (900)

(750)

(325)

(150)

(20.0)

(425)

(130.8)
Other change in capital & surplus 2,794 

(220)

441 

3,014 

1,370.0 

(661)

(149.9)
Net change in capital & surplus $ 3,044 

(292)

1,378 

3,336 

1,142.5  %
$ (1,670)

(121.2) %
*Includes premiums and annuity and supplementary contract considerations.
**Not meaningful
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Overview
The increase in capital and surplus was primarily driven by gains on new reinsurance transactions, mostly related to the initial ceding commission and reserve impacts, and impacts from favorable equity markets resulting in net gains on derivatives hedging fixed-indexed and life product liabilities. These items were partially offset by a higher dividend payment to our parent company.
Income
•Premium and annuity considerations: Individual Annuities premiums and annuity considerations increased primarily due to higher fixed-indexed and variable-indexed annuity premium driven by competitive product features and 2021 sales promotions on both the Allianz Benefit Control® and Allianz Index Advantage Income® products. 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 primarily due to growth in the fixed-indexed annuity block of business, variable-indexed annuity and Life segment invested assets.
•Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased primarily due to impacts from new inforce reinsurance agreements in the Individual Annuities segment.

Selected Financial Data and Management's Discussion and Analysis
Page 5 of 22

•Fees from separate accounts: Fees from separate accounts slightly increased primarily due to higher separate account assets on the traditional variable annuity block of business due to positive equity markets, mostly offset by surrenders.
•Other income: Other income decreased primarily due to a decrease in derivative income on interest rate swaps that hedge changes in cash flows for 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 increased slightly primarily due to an increase in annuitizations and surrenders within the Individual Annuity segment and increased death claims in the Life segment.
•Change in aggregate reserves: Change in aggregate reserves increased primarily due to an increase in the Individual Annuities segment driven by higher new reserves established due to higher production and an increase in index crediting due to positive equity markets, as well as an increase in the Life segment reserves due to higher premiums and an increase in index credits. This was partially offset by variable annuity reserve decreases, due to increasing interest rates.
•General and administrative and commission: General, administrative and commission expense increased primarily due to an increase in commissions expense as a result of higher production in the Individual Annuity and Life segments.
•Net transfers to separate accounts: Net transfers to separate accounts increased due to increased premium from Index Advantage Income® in the Individual Annuities segment.
•Income tax expense (benefit): There is a federal income tax expense in 2021 due to impacts from realized and unrealized gains on derivatives hedging liabilities in the Company's Individual Annuity and Life segments and gains from new reinsurance transactions in the Individual Annuity segment.
•Net realized capital gain (loss): Net realized capital gains increased due to gains on derivatives hedging fixed-indexed annuities and life product liabilities, partially offset by losses on derivatives hedging variable-indexed annuity product liabilities.
Capital and Surplus
•Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to losses on derivatives product liabilities in the Individual Annuities segment and the Life segment.
•Dividends to parent: Dividends of $900 were paid to the parent in 2021.
•Other change in capital and surplus: Other change in capital and surplus increased due to impacts from new inforce reinsurance agreements which were entered in 2021 and the change in deferred income taxes as a result of positive derivative hedging impacts within our Individual Annuities segment. There was also a change in asset valuation reserve (AVR) that decreased capital and surplus due to the growth of the Company's general account investment portfolio.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Overview
The decrease in capital and surplus was primarily driven by volatility within the equity market movements resulting in hedging losses, a ceded reinsurance recapture in fixed-indexed annuities, and an increase in the 2020 dividend payment to the parent.
Income
•Premium and annuity considerations: Premium and annuity considerations decreased primarily due to lower fixed-indexed annuity sales based upon product changes made in response to the continued low interest rate environment and social distancing constraints impacting sales methods. This was partially offset by higher variable-indexed annuity premium driven by a 2020 sales promotion all within the Individual Annuities segment. The Life segment increased as a result of an increase in first year and renewal premiums due to a growing block of business.
•Net investment income: Net investment income increased due to an increase in average invested assets and positive cash flows.
•Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments decreased primarily due to impacts from a ceded reserve recapture that was executed in 2020 in the Individual Annuities segment.

Selected Financial Data and Management's Discussion and Analysis
Page 6 of 22

•Fees from separate accounts: Fees from separate accounts decreased primarily due to lower average separate account assets as a result of outflows due to policyholder activity and negative equity market impacts in early 2020 in the Individual Annuities segment.
•Other income: Other income increased primarily due to an increase in derivative income on interest rate swaps that hedge variable annuities and amortization of the deferred hedge liability under SSAP No. 108 in the Individual Annuities segment.
Benefits and Other Expenses
•Change in aggregate reserves: Change in aggregate reserves increased primarily due to a change in presentation of assets and liabilities relating to the variable-indexed product in 2019. In 2019, the Company transferred assets from the general account to the separate account to align with state product filing requirements, and the reserve decrease is completely offset in Net transfers to(from) separate accounts. In addition, variable annuity reserves increased in 2020 driven by overall net growth in the variable-index annuity block of business. This was partially offset by the decrease of the fixed-index annuity reserves driven by lower index credits as a result of the less favorable equity market increase and lower fixed-indexed annuity premiums due to the decrease in production..
•General and administrative and commission: General, administrative and commission expense decreased primarily due to a decrease in commissions expense as a result of lower overall premium as discussed above.
•Net transfers to separate accounts: Net transfers to (from) separate accounts decrease is driven by the aforementioned 2019 presentation of assets and liabilities for variable-indexed annuities change referenced in the Change in aggregate reserves in the Individual Annuities segment. The decrease in Net transfers to (from) separate accounts was partially offset by lower policyholder activity.
•Income tax expense (benefit): There is a federal income tax expense due to impacts from hedging gains in the Company's Individual Annuity and Life segments which was partially offset by a tax net operating loss carry back recorded in 2020.
•Net realized capital gain (loss): Net realized capital gains decreased due to lower gains on derivatives used to economically hedge the Company's product liabilities as a result of less favorable equity markets in the Individual Annuities and Life segments, as well as unfavorable investment results due to impairments.
Capital and Surplus
•Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to negative hedging results on fixed-indexed and variable-indexed annuities in the Individual Annuities segment and the Life segment.
•Dividends to parent: Dividends of $750 were paid to the parent in 2020.
•Other change in capital and surplus: Other change in capital and surplus decreased due to a fixed-indexed ceded reserve recapture that was completed in 2020, and an increase in AVR that decreased capital and surplus due to the growth of the Company's investment portfolio



Selected Financial Data and Management's Discussion and Analysis
Page 7 of 22

Individual Annuities
Segment Results of Operations









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Income:












Premium and annuity considerations* $ 12,766 

9,268 

11,969 

$ 3,498 

37.7  %
$ (2,701)

(22.6) %
Net investment income 4,467 

4,531 

4,551 

(64)

(1.4)

(20)

(0.4)
Ceded reinsurance reserve and expense adjustments 656 

(54)

321 

710 

1,314.8 

(375)

(116.8)
Fees from separate accounts 574 

567 

613 

7 

1.2 

(46)

(7.5)
Other income (37)

691 

(17)

(728)

(105.4)

708 

4,164.7 
Total income 18,426 

15,003 

17,437 

3,423 

22.8 

(2,434)

(14.0)
Benefits and other expenses:












Policyholder benefits and surrenders 10,584 

10,073 

10,078 

511 

5.1 

(5)

— 
Change in aggregate reserves 2,789 

1,474 

289 

1,315 

89.2 

1,185 

410.0 
General and administrative and commission 1,756 

1,369 

1,591 

387 

28.3 

(222)

(14.0)
Net transfers to separate accounts 2,426 

1,462 

5,258 

964 

65.9 

(3,796)

(72.2)
Total benefits and other expenses 17,555 

14,378 

17,216 

3,177 

22.1 

(2,838)

(16.5)
Pretax income (loss) 871 

625 

221 

246 

39.4 

404 

182.8 
Income tax expense (benefit) 1,802 

18 

649 

1,784 

9,911.1 

(631)

(97.2)
Net realized capital gain (loss) 1,519 

67 

922 

1,452 

2,167.2 

(855)

(92.7)
Net income (loss) $ 588 

674 

494 

$ (86)

(12.8) %
$ 180 

36.4  %
Capital and Surplus:












Change in unrealized capital gain (loss) $ (125)

(79)

588 

$ (46)

(58.2) %
$ (667)

(113.4) %
Other change in capital & surplus 2,792 

(220)

439 

3,012 

1,369.1 

(659)

(150.1)
Net change in capital & surplus $ 3,255 

375 

1,521 

$ 2,880 

768.0  %
$ (1,146)

(75.3) %
*Includes premiums and annuity and supplementary contract considerations.

Selected Operating Performance Measures









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Individual Annuities












Deposits $ 13,226 

9,474 

12,135 

3,752 

39.6  %
(2,661)

(21.9) %
In-force 141,131 

131,228 

126,936 

9,903 

7.5  %
4,292 

3.4  %
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 for our fixed, fixed-indexed, variable, and variable-indexed annuity contracts. In 2021, sales of our fixed-indexed annuities were higher than the prior period due to competitive product features and a 2021 sales promotion. Sales of variable-indexed annuities were higher due to higher sales on the Index Advantage suite of products driven by the market environment and a 2021 sales promotion. In 2020, sales of fixed-indexed annuities were lower than the prior year due to impacts of product changes due to the low interest rate environment and social distancing constraints. This was partially offset by higher variable-indexed annuity sales for the Index Advantage suite of products driven by the market environment and a 2020 sales promotion.

Selected Financial Data and Management's Discussion and Analysis
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,
% change

2021
2020
2019
2020 - 2019
2019 - 2018
Stock Index








S&P 500
 26.89%
16.26%
28.88%
10.63%
(12.62)%
NASDAQ 100
 26.63%
47.58%
37.96%
(20.95)%
9.62%
BUDBI
 6.35%
9.08%
13.23%
(2.73)%
(4.15)%
BUDBI II
 4.60%
6.15%
14.05%
(1.55)%
(7.90)%































As of December 31,
Basis point (bps) change

2021
2020
2019
2020- 2019
2019 - 2018
Interest Rates








Swap rate - 10 year 1.58%
0.93%
1.90%
65bps
(97bps)
Swap rate - 20 year 1.76%
1.32%
2.07%
44bps
(75bps)
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Overview
The Individual Annuities segment net increase in capital and surplus was primarily driven by impacts from positive equity markets and impacts from new reinsurance agreements covering certain fixed-indexed annuities. Notably, the Company executed two new reinsurance agreements effective October 1, 2021; a modified coinsurance agreement covering approximately $26 billion of inforce reserves and a coinsurance agreement covering approximately $8 billion of inforce reserves.
Income
•Premium and annuity considerations: Premium and annuity considerations increased primarily due to higher fixed-indexed and variable-indexed annuity premium driven by competitive product features and a 2021 sales promotion on both the Allianz Benefit Control® and Index Advantage Income® products.
•Net investment income: Net investment income slightly decreased primarily due to lower investment yields and net investment income ceded as part of the new coinsurance agreement.
•Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments increased primarily due to impacts from the new reinsurance agreements.
•Fees from separate accounts: Fees from separate accounts slightly increased primarily due to higher separate account assets on the traditional variable annuity block of business due to positive equity markets, mostly offset by surrenders.
•Other income: Other income decreased primarily due to a decrease in derivative income on interest rate swaps that hedge changes in cash flows for variable annuities, primarily driven by increasing interest rates.
Benefits and Other Expenses
•Policyholder benefits and surrenders: Policyholder benefits and surrenders increased primarily due to an increase in annuitizations on both the fixed and variable annuity lines of business, and increase in surrenders on the variable annuity line of business. This was partially offset by a decrease in surrenders on the fixed annuity line of business.
•Change in aggregate reserves: Change in aggregate reserves increased primarily due to higher new annuity reserves established due to higher production and an increase in index crediting due to positive equity markets, partially offset by variable annuity reserve decreases due to interest rate increases.
•General and administrative and commission: General, administrative and commission expense increased primarily due to an increase in commissions expense as a result of higher premium from the sale of both fixed-indexed and variable-indexed annuities.
•Net transfers to separate accounts: Net transfers to separate accounts is driven by new premium and offset by contractholder withdrawals, and increased due to increased premium from Index Advantage Income® exceeding contractholder withdrawals.

Selected Financial Data and Management's Discussion and Analysis
Page 9 of 22

•Income tax expense (benefit): Income tax expense increase is driven by higher federal income tax expense due to gains on new reinsurance transactions and derivatives hedging impacts.
•Net realized capital gain (loss): Net realized capital gain increased due to gains on derivatives hedging fixed-indexed annuities, partially offset by losses on derivatives hedging 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 losses are primarily due to losses on derivatives used to hedge product liabilities on fixed-indexed annuities and variable-indexed annuities.
•Other change in capital and surplus: Other change in capital and surplus increased due to the net deferred gain on new reinsurance agreements. Other favorable impacts include a change in deferred income taxes as a result of positive hedging impacts offset by a change in AVR that decreased capital and surplus as a result of the growth of our investment portfolio.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Overview
The Individual Annuities segment net change in capital and surplus was favorable, but decreased compared to the prior year primarily driven by less favorable equity market movements in 2020 resulting in lower realized hedging gains, unrealized hedging losses, and a recapture of a fixed-index reinsurance agreement.
Income
•Premium and annuity considerations: Premium and annuity considerations decreased primarily due to lower fixed-indexed annuity sales due to product changes made in response to the continued low interest rate environment and social distancing constraints, and lower traditional variable annuity sales driven by product changes. This was partially offset by higher variable-indexed annuity premium driven by a 2020 sales promotion.
•Ceded reinsurance reserve and expense adjustments: Ceded reinsurance reserve and expense adjustments decreased primarily due to impacts from a fixed-indexed ceded reserve recapture that was completed in 2020.
•Fees from separate accounts: Fees from separate accounts decreased primarily due to lower average separate account assets as a result of outflows due to policyholder activity and negative equity market impacts in early 2020.
•Other income: Other income increased primarily due to an increase in derivative income on interest rate swaps that hedge variable annuities and amortization of the deferred hedge liability under SSAP No. 108.
Benefits and Other Expenses
•Change in aggregate reserves: Change in aggregate reserves increased primarily due to a change in presentation of assets and liabilities relating to the variable-indexed product in 2019. In 2019, the Company transferred assets from the general account the separate account to align with state product filing requirements, and the reserve decrease is completely offset in Net transfers to(from) separate accounts. In addition, variable annuity reserves increased in 2020 driven by overall net growth in the variable-index annuity block of business. This was partially offset by the decrease of the fixed-index annuity reserves driven by lower index credits as a result of the less favorable equity market increase and lower fixed-indexed annuity premiums due to the decrease in production.
•General and administrative and commission: General, administrative and commission expense decreased primarily due to a decrease in commissions expense as a result of lower premium as discussed above.
•Net transfers to separate accounts: Net transfers to (from) separate accounts decreased driven by the aforementioned presentation of assets and liabilities for variable-indexed annuities change referenced in the Change in aggregate reserves. The decrease in Net transfers to (from) separate accounts was partially offset by lower policyholder activity.
•Income tax expense (benefit): Income tax expense is driven by a federal income tax expense in 2020 due to impacts from hedging losses.
•Net realized capital gain (loss): Net realized capital gains decreased due to lower gains on derivatives used to economically hedge the Company's product liabilities as a result of a lower increase in equity markets, as well as unfavorable investment results due to impairments.

Selected Financial Data and Management's Discussion and Analysis
Page 10 of 22

Capital and Surplus
•Change in unrealized capital gain (loss): Unrealized capital losses are primarily due to negative hedging results on fixed-indexed annuities and variable-indexed annuities.
•Other change in capital and surplus: Other change in capital and surplus decreased primarily due to a fixed-indexed ceded reserve recapture that was completed in 2020.
Life
Segment Results of Operations









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Income:












Premium and annuity considerations $ 1,363 

1,115 

906 

$ 248 

22.2  %
$ 209 

23.1  %
Net investment income 259 

210 

177 

49 

23.3 

33 

18.6 
Ceded reinsurance reserve and expense adjustments (23)

3 

2 

(26)

(866.7)

1 

50.0 
Other income 3 

2 

3 

1 

50.0 

(1)

(33.3)
Total income 1,602 

1,330 

1,088 

272 

20.5 

242 

22.2 
Benefits and other expenses:












Policyholder benefits and surrenders 194 

173 

199 

21 

12.1 

(26)

(13.1)
Change in aggregate reserves 1,216 

824 

611 

392 

47.6 

213 

34.9 
General and administrative and commission 386 

343 

258 

43 

12.5 

85 

32.9 
Total benefits and other expenses 1,796 

1,340 

1,068 

456 

34.0 

272 

25.5 
Pretax income (loss) (194)

(10)

20 

(184)

(1,840.0)

(30)

(150.0)
Income tax expense (benefit) (401)

— 

59 

(401)

— 

(59)

— 
Net realized capital gain (loss) 337 

77 

131 

260 

337.7 

(54)

(41.2)
Net income (loss) $ 544 

67 

92 

$ 477 

711.9  %
$ (25)

(27.2) %
Capital and Surplus:












Change in unrealized capital gain (loss) $ (9)

23 

130 

$ (32)

(139.1) %
$ (107)

(82.3) %
Other change in capital & surplus 1 

(4)

4 

5 

125.0 

(8)

(200.0)
Net change in capital & surplus $ 536 

86 

226 

$ 450 

523.3  %
$ (140)

(61.9) %
*Not meaningful












Selected Operating Performance Measures









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Life












First year and renewal premiums $ 1,426 

1,170 

960 

$ 256 

21.9  %
$ 210 

21.9  %
In-force 62,372 

50,485 

42,700 

11,887 

23.5 

7,785 

18.2 
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 2021, 2020 and 2019 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.

Selected Financial Data and Management's Discussion and Analysis
Page 11 of 22

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Overview
The Life segment net change in capital and surplus increased primarily due to impacts from positive equity markets, and an increase in policy charges and net investment income as a result of a growing and maturing block of business. This was partially offset by an increase in change in aggregate reserves and commissions expense which trends in line with the growing block of business.
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 decreased 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 death claims and surrender activity.
•Change in aggregate reserves: Change in aggregate reserves increased due to higher premiums and higher index credits as a result of the positive equity market performance in 2021.
•General and administrative and commission: General and administrative and commission expense increased primarily due to an increase in first year and renewal commissions which is consistent with premium production.
•Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based the the total Company's effective rate.
•Net realized capital gain (loss): Net realized capital gain increased due to the higher gains on derivatives used to hedge Life product liabilities as a result of positive equity markets in 2021.
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.
•Other change in capital and surplus: Other change in capital and surplus has a limited impact on the Life Segment.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Overview
The Life segment net change in capital and surplus was favorable, but decreased compared to prior year primarily due to less favorable hedging impacts as a result of the negative equity market performance in early 2020. This was partially offset by an increase in policy charges as a result of a growing block of business and a lower income tax expense in 2020.
Income
•Premium and annuity considerations: Premiums and annuity considerations increased as a result of an increase in first year and renewal premiums as a result of 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 as a result of prior year changes in ceded modified coinsurance reserves on certain Life products, with minimal changes in the current year.
Benefits and Other Expenses
•Policyholder benefits and surrenders: Policyholder benefits and surrenders decreased primarily due to policyholder surrender activity and partially offset by an increase in death claims.

Selected Financial Data and Management's Discussion and Analysis
Page 12 of 22

•Change in aggregate reserves: Change in aggregate reserves increased due to higher premiums and an increase in policy charges as a result of a growing block of business and higher index credit levels as a result of the positive equity market performance after the first quarter of 2020
•General and administrative and commission: General and administrative and commission expense increased primarily due to an increase in first year and renewal commissions which is consistent with premium production.
•Income tax expense (benefit): Income tax expense (benefit) is driven by a pre-tax items discussed above, and a minimal effective federal tax rate.
•Net realized capital gain (loss): Net realized capital gain decreased due to lower hedging gains as a result of negative equity market performance in early 2020.
Capital and Surplus
•Change in unrealized capital gain (loss): Change in unrealized capital gain is due to a lower hedging gains as a result of negative equity markets in early 2020.
•Other change in capital and surplus: Other change in capital and surplus decreased as a result of change in net deferred income taxes as result of hedging impacts.
Legacy
Segment Results of Operations









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Income:












Premium and annuity considerations $ 162 

158 

154 

$ 4 

2.5  %
$ 4 

2.6  %
Net investment income 140 

123 

110 

17 

13.8 

13 

11.8 
Ceded reinsurance reserve and expense adjustments 6 

6 

7 

— 

— 

(1)

(14.3)
Other income 2 

2 

2 

— 

— 

— 

— 
Total income 310 

289 

273 

21 

7.3 

16 

5.9 
Benefits and other expenses:












Policyholder benefits and surrenders 98 

97 

91 

1 

1.0 

6 

6.6 
Change in aggregate reserves 311 

167 

134 

144 

86.2 

33 

24.6 
General and administrative and commission 52 

27 

29 

25 

92.6 

(2)

(6.9)
Net transfers to separate accounts (2)

(2)

(3)

— 

— 

1 

33.3 
Total benefits and other expenses 459 

289 

251 

170 

58.8 

38 

15.1 
Pretax income (loss) (149)

— 

22 

(149)

NM*
(22)

(100.0)
Income tax expense (benefit) (310)

— 

65 

(310)

NM*
(65)

(100.0)
Net realized capital gain (loss) — 

(2)

— 

2 

100.0  %
(2)

NM*
Net income (loss) $ 161 

(2)

(43)

$ 163 

8,150.0  %
$ 41 

95.3  %
Capital and Surplus:












Change in unrealized capital gain (loss) $ (8)

(5)

1 

$ (3)

(60.0) %
$ (6)

(600.0) %
Other change in capital & surplus 1 

2 

(2)

(1)

(50.0)

4 

200.0 
Net change in capital & surplus $ 154 

(5)

(44)

$ 159 

3,180.0  %
$ 39 

88.6  %
*Not meaningful













Selected Financial Data and Management's Discussion and Analysis
Page 13 of 22

Selected Operating Performance Measures









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Legacy Products












Gross premiums written
 $ 258 

257 

254 

$ 1 

0.4  %
$ 3 

1.2  %
In-force
 2,611 

2,796 

2,993 

(185)

(6.6)

(197)

(6.6)
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 2021 and 2020 with small movements due to assumed premium and policy restatements which occur in the run off of Legacy 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, 2021 Compared to Year Ended December 31, 2020
Overview
The Legacy segment favorable change in capital and surplus was driven increases in reserves that were more than offset by a tax benefit.
Income
•Net investment income: Net investment income increased driven by growth in LTC reserves on the aging block of business.
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 additional LTC premium deficiency reserves in 2021 and unfavorable impacts of higher claim reserve and active life reserves.
•Income tax expense (benefit): Income tax expense (benefit) is driven by the pre-tax items discussed above, and is allocated to operating segments based the the total Company's effective rate.
Capital and Surplus
•Change in unrealized capital gain (losses): Change in unrealized capital losses increased driven by unrealized losses on Credit Default Swaps.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Overview
The Legacy segment unfavorable pre-tax income was driven by higher reserves driven by the 2020 impacts of additional LTC premium deficiency reserves partially offset by favorable change in net LTC claim reserves.
Income
•Net investment income: Net investment income increase driven by the growth in LTC reserves on the aging block of business.
Benefits and Other Expenses
•Policyholder benefits and surrenders: Policyholder benefits and surrenders increased driven by higher paid claims on the LTC block of business.
•Change in aggregate reserves: Change in aggregate reserves increased driven by the unfavorable impact due to the additional premium deficiency reserve in 2020 and unfavorable impact of higher change in active life reserves. This was partially offset by the favorable impact of net change in claims reserves.
•Income tax expense (benefit): Income tax expense (benefit) is driven by a pre-tax items discussed above, and a minimal effective federal tax rate.

Selected Financial Data and Management's Discussion and Analysis
Page 14 of 22



Dividends









































Year ended December 31,
Increase (decrease) and % change
Increase (decrease) and % change

2021
2020
2019
2021 - 2020
2020 - 2019
Capital and Surplus:












Dividends to parent $ (900)

(750)

(325)

$ (150)

120.0  %
$ (425)

(230.8) %
We are required to meet minimum statutory capital and surplus requirements. Our statutory capital and surplus as of December 31, 2021 and 2020, 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 of the insurer, not including realized gains, for the 12-month period ending the 31st day of the next preceding year. Based on these limitations, ordinary dividends of $1,070 can be paid in 2022 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 reducing 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:























2021
2020

Carrying value
% of total
Carrying value
% of total
Bonds $ 93,817 

76.4  %
$ 99,088 

79.1  %
Stocks 303 

0.2 

274 

0.2 
Investment in subsidiaries 1,477 

1.2 

1,329 

1.1 
Mortgage loans on real estate 17,154 

14.0 

15,634 

12.5 
Real estate 80 

0.1 

69 

0.1 
Cash and cash equivalents 3,215 

2.6 

910 

0.7 
Policy loans 267 

0.2 

255 

0.2 
Derivative assets 2,682 

2.2 

4,114 

3.3 
Other invested assets 3,834 

3.1 

3,556 

2.8 
Total cash and invested assets $ 122,829 

100.0  %
$ 125,229 

100.0  %
Bonds
Refer to Note 5 of the audited Statutory Financial Statements for information regarding the nature of our portfolio of bonds securities. The tables below set forth the amortized cost of the NAIC Securities Valuation Office quality ratings for the Company's bond securities portfolio at December 31, 2021 and 2020.

Selected Financial Data and Management's Discussion and Analysis
Page 15 of 22























2021
NAIC Classes Fair Value
% of Total
Amortized Cost
% of Total
1 $ 57,937 

55.5  %
$ 52,287 

55.7  %
2 43,792 

41.9 

39,053 

41.7 
Investment grade 101,729 

97.4 

91,340 

97.4 
3 2,470 

2.4 

2,242 

2.4 
4 187 

0.2 

208 

0.2 
5 1 

— 

1 

— 
6 26 

— 

26 

— 
Below investment grade 2,684 

2.6 

2,477 

2.6 
Total $ 104,413 

100.0  %
$ 93,817 

100.0  %

























2020
NAIC Classes Fair Value
% of Total
Amortized Cost
% of Total
1 64,466 

55.7  %
$ 55,379 

55.9  %
2 47,679 

41.2 

$ 40,472 

40.9 
Investment grade 112,145 

96.9 

$ 95,851 

96.8 
3 3,323 

2.9 

$ 2,982 

3.0 
4 221 

0.2 

$ 232 

0.2 
5 18 

— 

$ 20 

— 
6 3 

— 

$ 3 

— 
Below investment grade 3,565 

3.1 

$ 3,237 

3.2 
Total $ 115,710 

100.0  %
$ 99,088 

100.0  %
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 classes and vintage year as of December 31:


























2021
NAIC Classes % of total CMBS

Vintage
1 $ 9,725 

100.0  %
2021 $ 597 

6.1  %
2 1 

— 

2020 365 

3.8 
3 3 

— 

2019 1,426 

14.7 
4 — 

— 

2018 1,405 

14.4 
5 — 

— 

2017 and prior 5,936 

61.0 
6 — 

— 


$ 9,729 

100.0  %

$ 9,729 

100.0  %





Selected Financial Data and Management's Discussion and Analysis
Page 16 of 22


























2020
NAIC Classes % of total CMBS

Vintage
1 $ 11,234 

99.5  %
2020 $ 335 

3.0  %
2 1 

— 

2019 1,607 

14.2 
3 47 

0.4 

2018 1,845 

16.3 
4 15 

0.1 

2017 1,627 

14.4 
5 — 

— 

2016 and prior 5,883 

52.1 
6 — 

— 


$ 11,297 

100.0  %

$ 11,297 

100.0  %




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 limits on these types of investments.
The following table summarizes our exposure to other ABS holdings by NAIC classes and vintage year as of December 31:




























2021
NAIC Classes % of total other ABS

Vintage
1 $ 4,823 

74.0  %
2021 $ 3,600 

55.3  %
2 1,470 

22.6 

2020 610 

9.4 
3 74 

1.1 

2019 583 

8.8 
4 147 

2.3 

2018 903 

13.9 
5 — 

— 

2017 and prior 818 

12.6 
6 — 

— 


$ 6,514 

100.0  %

$ 6,514 

100.0  %
































2020
NAIC Classes % of total other ABS

Vintage
1 $ 2,883 

70.6  %
2020 $ 758 

18.6  %
2 976 

23.9 

2019 1,264 

30.9 
3 74 

1.8 

2018 1,094 

26.8 
4 134 

3.3 

2017 302 

7.4 
5 18 

0.4 

2016 and prior 667 

16.3 
6 — 

— 


$ 4,085 

100.0  %

$ 4,085 

100.0  %




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 classes and vintage year as of December 31:


























2021
NAIC Classes % of total NA RMBS

Vintage
1 $ 206 

96.3  %
2021 $ — 

—  %
2 — 

— 

2020 — 

— 
3 2 

0.9 

2019 — 

— 
4 3 

1.4 

2018 — 

— 
5 — 

— 

2017 and prior 214 

100.0 
6 3 

1.4 


$ 214 

100.0  %

$ 214 

100.0  %





Selected Financial Data and Management's Discussion and Analysis
Page 17 of 22


























2020
NAIC Classes % of total NA RMBS

Vintage
1 $ 222 

95.3  %
2020 $ — 

—  %
2 $ — 

— 

2019 $ — 

— 
3 $ 4 

1.7 

2018 $ — 

— 
4 $ 4 

1.7 

2017 $ — 

— 
5 $ — 

— 

2016 and prior $ 233 

100.0 
6 $ 3 

1.3 


$ 233 

100.0  %

$ 233 

100.0  %




Unrealized investment losses of 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:

























2021

Investment Grade
% of Total
Below Investment Grade
% of Total
Twelve months or less below carrying value $ 239 

66.1  %
$ 21 

5.9  %
More than twelve months below carrying value 79 

21.9 

22 

6.1 
Total $ 318 

88.0  %
$ 43 

12.0  %

























2020

Investment Grade
% of Total
Below Investment Grade
% of Total
Twelve months or less below carrying value $ 66 

58.8  %
$ 31 

27.6  %
More than twelve months below carrying value 10 

9.3 

5 

4.3 
Total $ 76 

68.1  %
$ 36 

31.9  %
See Note 5 of the audited Statutory Financial Statements for additional disclosures in regards to unrealized investment losses of bonds.
Other-than-temporary impairments, by market sector, for impairments included in the Statutory Statements of Operations, were as follows at December 31:

























2021
2020

Impairment
No. of Securities
Impairment
No. of Securities
Partnerships $ 6 

2 

$ 1 

1 
Commercial mortgage loans 8 

1 

34 

1 
Corporate securities 13 

8 

254 

83 
Total $ 27 

11 

$ 289 

85 
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.

Selected Financial Data and Management's Discussion and Analysis
Page 18 of 22

Properties collateralizing mortgage loans are geographically dispersed throughout the United States as follows at December 31:























2021
2020

Gross Carry Value
% of Total
Gross Carry Value
% of Total
Commerical Mortgage Loans by region






East North Central $ 1,442 

9.2  %
$ 1,244 

8.4  %
East South Central 399 

2.5 

375 

2.5 
Middle Atlantic 1,352 

8.6 

1,249 

8.4 
Mountain 1,539 

9.8 

1,506 

10.1 
New England 678 

4.3 

652 

4.4 
Pacific 4,493 

28.5 

4,258 

28.6 
South Atlantic 3,520 

22.4 

3,599 

24.2 
West North Central 887 

5.6 

674 

4.5 
West South Central 1,438 

9.1 

1,314 

8.8 
Total commercial mortgage loans $ 15,748 

100.0  %
$ 14,871 

100.0  %

























2021
2020

Gross Carry Value
% of Total
Gross Carry Value
% of Total
Residential Mortgage Loans by region






East North Central $ 80 

5.7  %
$ 21 

2.8  %
East South Central 27 

1.9 

8 

1.0 
Middle Atlantic 233 

16.6 

91 

11.9 
Mountain 176 

12.5 

76 

10.0 
New England 68 

4.8 

15 

2.0 
Pacific 543 

38.6 

394 

51.6 
South Atlantic 211 

15.0 

125 

16.4 
West North Central 12 

0.8 

9 

1.2 
West South Central 55 

3.9 

24 

3.1 
Total residential mortgage loans $ 1,406 

100.0  %
$ 763 

100.0  %
Properties collateralizing commercial mortgage loans are diversified by property type are as follows at December 31:























2021
2020

Gross Carry Value
% of Total
Gross Carry Value
% of Total
Mortgage loans by property type






Industrial $ 2,985 

19.0  %
$ 3,182 

21.4  %
Retail 2,549 

16.2 

2,765 

18.6 
Office 4,927 

31.3 

4,771 

32.1 
Apartments 5,287 

33.5 

4,153 

27.9 
Total $ 15,748 

100.0  %
$ 14,871 

100.0  %
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.

Selected Financial Data and Management's Discussion and Analysis
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        A1 (Good)
•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:




















2021
2020
2019
Net cash (used in) provided by operating activities $ (4,241)

3,701 

1,511 

Net cash provided by (used in) investing activities 5,538 

(3,240)

955 

Net cash provided by (used in) financing and miscellaneous activities 1,008 

(1,419)

(1,524)

Net change in cash, cash equivalents, and short-term investments $ 2,305 

(958)

942 

We have the funds necessary to meet the capital requirements of all states in which we do business, and to support our operations.
The increase in net cash used in operating activities in 2021 as compared to 2020 is primarily due to an increase in benefits and loss-related payments as a result of ceded coinsurance reserves, and higher transfers to separate accounts due to higher variable-indexed premium. These impacts were partially offset by an increase in premiums, higher commissions and expenses 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 provided by operating activities in 2020 as compared to 2019 is primarily due to lower net transfers to separate accounts in 2020 compared to 2019, as a result of the one-time transfer in 2019 mentioned below. The decrease was offset by an increase in variable-indexed premiums due to a 2020 sales promotion.
The increase in net cash provided by investing activities in 2021 as compared to 2020 is driven by higher net bonds sales as a result of ceded coinsurance assets, and an increase in proceeds from hedging results driven by market impacts, partially offset by net mortgage loans and other investment assets purchased. The decrease in the net cash provided by investing activities in 2020 compared to 2019 was driven by transfers of assets from the separate account in 2019 and lower proceeds from hedging results driven by market impacts.
The increase in net cash provided by financing and miscellaneous activities in 2021 compared to 2020 is primarily driven by ceding commission on new reinsurance agreements, partially offset by an increase in dividends paid to AZOA in 2021. The decrease in net cash used in financing and miscellaneous activities in 2020 compared to 2019 was due to net decrease in securities lending payables, partially offset by an increase in dividends to AZOA in 2020.
Risk-Based Capital

Selected Financial Data and Management's Discussion and Analysis
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, 2021 and 2020.
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 the requirements for capital resources.
The Company utilizes exchange-traded futures to economically hedge certain product liabilities. Under this kind of transaction, the Company agrees to purchase a specified number of contracts and settles the variation margin with the counterparty on a daily basis in an amount equal to the change in the market value of the underlying contracts from the close of the previous trading day. The parties with whom the Company enters into the exchange-traded futures contracts are regulated futures commission’s merchants who are members of a trading exchange.
The Company is exposed to credit-related losses in the event of non-performance by counterparties under the terms of the futures contracts. The Company minimizes counterparty credit risk by establishing relationships only with counterparties rated BBB+ and higher. Given the credit ratings of the counterparties with which the Company transacts, the Company does not expect any counterparties to fail to meet their obligations. The Company has also executed Credit Support Annex (CSA) agreements with all active counterparties and requires a CSA from all new counterparties added to the Company’s counterparty pool. The CSA agreements further limit the Company’s counterparty credit risk by requiring the counterparty to post collateral to a segregated custodial account based on the net exposure to the Company.
As the Company’s futures transactions are executed through a regulated exchange, positions are marked-to-market and settled on a daily basis, and collateral is posted prior to execution of a transaction. The Company has minimal exposure to credit-related losses in the event of non-performance. The Company is required to post collateral for any futures, options and swap contracts that are executed. The amount of collateral required is determined by the exchange on which the contract is traded. Refer to Note 5 in the audited Statutory Financial Statements for additional information regarding derivative collateral posted.

Selected Financial Data and Management's Discussion and Analysis
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 increase by $7 as of December 31, 2021.
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 $48 as of December 31, 2021. Note that the impacts referenced reflect the net of economic hedge impact and does not include 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 $401, while an increase in equity market prices would cause our post-tax income to increase by $150 based on our equity exposure as of December 31, 2021. Note that the impacts referenced reflect the net of economic hedge impact and does not include economic impact related to our fixed-income investment portfolio or economic changes in reserve calculations.


Selected Financial Data and Management's Discussion and Analysis
Page 22 of 22







ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Financial Statements
December 31, 2021 and 2020
(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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2021.

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.

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.








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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:
a.Exercise professional judgment and maintain professional skepticism throughout the audit.
b.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.
c.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.
d.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.
e.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 4, 2022








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ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus
December 31, 2021 and 2020
(Dollars in millions, except share data)













Admitted Assets 2021
2020
Cash and invested assets:



Bonds
$ 93,817 

99,088 
Stocks
303 

274 
Investment in subsidiaries
1,477 

1,329 
Mortgage loans on real estate
17,154 

15,634 
Real estate
80 

69 
Cash, cash equivalents and short-term investments
3,215 

910 
Policy loans
267 

255 
Derivative assets
2,682 

4,114 
Other invested assets
3,834 

3,556 
Total cash and invested assets
122,829 

125,229 
Investment income due and accrued
947 

1,040 
Current federal and foreign income tax recoverable
— 

200 
Deferred tax asset, net
487 

273 
Other assets
993 

745 
Admitted assets, exclusive of separate account assets
125,256 

127,487 
Separate account assets
48,279 

45,901 
Total admitted assets
$ 173,535 

173,388 











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ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus
December 31, 2021 and 2020
(Dollars in millions, except share data)













Liabilities and Capital and Surplus 2021
2020
Policyholder liabilities:



Life policies and annuity contracts
$ 96,980 

102,549 
Accident and health policies
2,227 

1,912 
Deposit-type contracts
4,577 

4,749 
Life policy and contract claims
8 

8 
Accident and health policy and contract claims
19 

18 
Other policyholder funds
122 

117 
Total policyholder liabilities
103,933 

109,353 
Interest maintenance reserve
267 

18 
General expenses due and accrued
245 

157 
Due from separate accounts
(635)

(294)
Current income taxes payable
482 

35 
Borrowed money
2,001 

1,501 
Asset valuation reserve
1,148 

983 
Derivative liabilities
2,023 

3,262 
Other liabilities
5,087 

4,811 
Liabilities, exclusive of separate account liabilities
114,551 

119,826 
Separate account liabilities
48,279 

45,901 
Total liabilities
162,830 

165,727 
Capital and surplus:



Class A, Series A preferred stock, $1 par value. Authorized, issued, and outstanding, 8,909,195 shares; liquidation preference of $4 and $3 at December 31, 2021 and 2020, respectively
9 

9 
Class A, Series B preferred stock, $1 par value. Authorized, 10,000,000 shares; issued and outstanding, 9,994,289 shares; liquidation preference of $5 and $4 at December 31, 2021 and 2020, respectively
10 

10 
Common stock, $1 par value. Authorized, 40,000,000 shares; issued and outstanding, 20,000,001 shares at December 31, 2021 and 2020, respectively
20 

20 
Additional paid-in capital
3,676 

3,676 
Special surplus funds
(1,437)

(1,844)
Unassigned surplus
8,427 

5,790 
Total capital and surplus
10,705 

7,661 
Total liabilities and capital and surplus
$ 173,535 

173,388 





See accompanying notes to statutory financial statements.













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ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Operations
Years ended December 31, 2021, 2020, and 2019
(Dollars in millions)





















2021
2020
2019
Income:





Premiums and annuity considerations
$ 14,125 

10,346 

12,805 
Consideration for supplementary contracts
166 

196 

224 
Net investment income
4,866 

4,864 

4,839 
Commissions and expense allowances on reinsurance ceded
1,093 

(38)

338 
Reserve adjustments related to reinsurance ceded
(454)

(7)

(9)
Fees from separate accounts
574 

567 

613 
Other
(32)

694 

(13)
Total income
20,338 

16,622 

18,797 
Benefits and other expenses:





Policyholder benefits
2,076 

1,926 

1,809 
Surrenders
8,800 

8,417 

8,559 
Change in aggregate reserves and deposit funds
4,316 

2,465 

1,034 
Commissions and other agent compensation
1,480 

1,139 

1,284 
General and administrative expenses
715 

600 

594 
Net transfers to separate accounts
2,424 

1,460 

5,254 
Total benefits and other expenses
19,811 

16,007 

18,534 
Income from operations before federal income taxes and net realized capital gain
527 

615 

263 
Income tax expense
1,091 

18 

773 
Net (loss) income from operations before net realized capital gain
(564)

597 

(510)
Net realized capital gain, net of taxes and interest maintenance reserve
1,856 

142 

1,053 
Net income
$ 1,292 

739 

543 







See accompanying notes to statutory financial statements.
















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ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Capital and Surplus
Years ended December 31, 2021, 2020, and 2019
(Dollars in millions)





















2021
2020
2019
Capital and surplus at beginning of year
$ 7,661 

7,954 

6,576 
Change due to correction of accounting error (Note 3)
40 

— 

— 
Change in reserve on account of change in valuation basis (Note 3)
— 

(1)

— 
Adjusted balance at beginning of year
7,701 

7,953 

6,576 
Net income
1,292 

739 

543 
Change in unrealized capital (loss) gain
(142)

(61)

719 
Change in net deferred income tax
215 

42 

330 
Change in asset valuation reserve
(165)

(88)

(131)
Dividends paid to parent
(900)

(750)

(325)
Change in unamortized gain on reinsurance transactions
2,737 

(162)

248 
Other changes in capital and surplus
(33)

(12)

(6)
Capital and surplus at end of year
$ 10,705 

7,661 

7,954 







See accompanying notes to statutory financial statements.
















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ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Cash Flow
Years ended December 31, 2021, 2020, and 2019
(Dollars in millions)





















2021
2020
2019
Cash flow from operating activities:





Revenues:





Premiums and annuity considerations, net
$ 14,291 

10,543 

13,030 
Net investment income
5,069 

4,990 

5,000 
Commissions and expense allowances on reinsurance ceded
385 

36 

86 
Fees from separate accounts
574 

567 

613 
Other
256 

217 

71 
Cash provided by operating activities
20,575 

16,353 

18,800 
Benefits and expenses paid:





Benefit and loss-related payments
19,238 

9,513 

9,469 
Net transfers to separate accounts
2,766 

1,128 

5,534 
Commissions, expenses paid, and aggregate write-ins for deductions
2,119 

1,727 

1,881 
Income tax paid, net
709 

290 

338 
Other
(16)

(6)

67 
Cash used in operating activities
24,816 

12,652 

17,289 
Net cash (used in) provided by operating activities
(4,241)

3,701 

1,511 
Cash flow from investing activities:





Proceeds from investments sold, matured or repaid:





Bonds
30,622 

8,935 

15,892 
Stocks
282 

147 

113 
Mortgage loans
1,806 

1,024 

1,356 
Real estate
3 

— 

— 
Other invested assets
81 

60 

32 
Derivatives
1,213 

861 

1,429 
Miscellaneous proceeds
35 

2 

1,572 
Cash provided by investing activities
34,042 

11,029 

20,394 
Cost of investments acquired:





Bonds
24,350 

10,885 

15,976 
Stocks
292 

230 

145 
Mortgage loans
3,347 

2,482 

2,283 
Real estate
17 

10 

11 
Other invested assets
408 

156 

192 
Miscellaneous applications
78 

485 

812 
Cash used in investing activities
28,492 

14,248 

19,419 
Net increase in policy loans and premium notes
12 

21 

20 
Net cash provided by (used in) investing activities
5,538 

(3,240)

955 
Cash flow from financing and miscellaneous activities:





Change in borrowed money
500 

500 

500 
Payments on deposit-type contracts and other insurance liabilities, net of deposits
(1,264)

(1,290)

(1,333)
Dividends paid to parent
(900)

(750)

(325)
Other cash provided (used)
2,672 

121 

(366)
Net cash provided by (used in) financing and miscellaneous activities
1,008 

(1,419)

(1,524)
Net change in cash, cash equivalents, and short-term investments
2,305 

(958)

942 
Cash, cash equivalents, and short-term investments:





Beginning of year
910 

1,868 

926 
End of year
$ 3,215 

910 

1,868 
See accompanying notes to statutory financial statements.















7 of 67


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 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 as the corresponding revenues or future profits are recognized.
(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.








8 of 67


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 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 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.








9 of 67


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.








10 of 67


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, 2021, 2020, and 2019.
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, 2021 and 2020 was $110 and $101, 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 $110 and $101 as of December 31, 2021 and 2020, respectively. The Company’s carrying value of its investment in AZMO per the audited statutory surplus was $371 and $350, and the carrying value of its investment in AZMO would have been $261 and $249 if AZMO had completed Statutory Financial Statements in accordance with the NAIC SAP as of December 31, 2021 and 2020, 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, 2021 and 2020, 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), effective January 1, 2020. 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.








11 of 67


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.
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, 2021 and 2020, 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, 2021 and 2020, the results of these tests and analysis supported the establishment of additional reserves of $329 and $151, 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, modco or yearly renewable term (YRT) agreement on existing business. The gain is deferred and 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 a reinsurer on modified coinsurance ceded.
(j)    Investments
Investment values are determined in accordance with methods prescribed by the NAIC.
Bonds and Stocks








12 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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. Beginning January 1, 2021, preferred stocks are reported at fair value in accordance with SSAP No. 32, Preferred Stock (SSAP No. 32). Prior to this change, preferred stocks were reported at the lower of book value or fair value. The related unrealized capital gains (losses) are reported in Unassigned surplus, net of federal income taxes within the Statutory Statements of Capital and Surplus. 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 and preferred 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 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










13 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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.
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, 2021 and 2020, accumulated depreciation was $79 and $74, respectively. Furthermore, as of December 31, 2021 and 2020, real estate was presented net of encumbrances of $31 and $41, respectively, as discussed in Note 7.
The Company also has real estate classified as held for sale that was transferred from RMLs, in the amount of $4 and $0, as of December 31, 2021 and 2020, respectively. Allianz Life intends to sell these properties at market value within 12 months of the transfer dates, and any gain or loss will be recognized at the time of sale.
Cash and Cash Equivalents
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










14 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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.
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.
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.
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










15 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 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










16 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

scenario revenues. The carrying value of the IRS with hedge adjustment was recorded within Other liabilities on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus, with changes in the IRS hedge adjustment recorded within Other Income on the Statutory Statements of Operations.

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 illustrates the hedge adjustment calculation under SSAP No. 86:








2021 2020
Hedge adjustment balance - beginning of year $ 513 
$ 582 
Amount amortized into earnings during the year (58)
(69)
Hedge adjustment balance - end of year $ 455 
$ 513 
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 liability. Beginning July 1, 2021, the Company has 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, 2021.

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 year ended December 31, 2021 and 2020.










2021 2020
Net deferred balance - beginning of year $ 1,844 
$ 1,435 
Amortization (240)
(214)
Additional amounts deferred (167)
623 
Net deferred balance - end of year $ 1,437 
$ 1,844 
The net deferred balance will amortize over the next 10 years, as shown below:








17 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

















Amortization year
Deferred assets
Deferred liabilities

2022
$ (189)

$ 501 

2023
(189)

501 

2024
(189)

501 

2025
(189)

501 

2026
(96)

255 

2027
(3)

9 

2028
(3)

9 

2029
(3)

9 

2030
(3)

9 

2031
(3)

$ 9 

Total
$ (867)

$ 2,304 
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, 2021 and 2020. During the years ended December 31, 2021 and 2020, the fair value changes available for application under SSAP No. 108 was $(694) and $927, respectively.
The Company did not have any hedging strategies identified as no longer highly effective and did not terminate any hedging strategies during the year ended December 31, 2021 and 2020.
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










18 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 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










19 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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.
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, cash, cash equivalents, and investment income due and accrued. Certain assets that are allocated to the index options for the Allianz Index Advantage Variable Annuity (VIA) are invested in bonds, cash, cash equivalents, and investment income due and accrued, and 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
Prior year balances have not been reclassified to conform to the current year presentation.
(3)    Accounting Changes and Corrections of Errors








20 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

Accounting Changes
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.
Recently Issued Accounting Standards – Adopted in 2020
Effective January 1, 2020, the Company adopted VM-21, as the effective guidance under which the Company's variable and variable-indexed annuities reserves are calculated. Previously, the Company calculated these reserves using guidance found in AG43. VM-21 applies to business issued on or after January 1, 2017. Under VM-21, during 2017, 2018, and 2019, the Company elected to combine contracts subject to AG43 and VM-21 for purposes of calculating reserves. In 2019, the NAIC adopted revisions to both AG43 and VM-21, effective January 1, 2020. The implementation of the 2019 revisions on January 1, 2020 resulted in a pre-tax increase of $1 to Policyholder liabilities for Life policies and annuity contracts within the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus and the corresponding decrease to surplus for the same amount is recorded through Change in reserve on account of change in valuation basis within the Statutory Statements of Capital and Surplus. The 2019 amendments allow an optional phase-in of the increase which the Company did not elect.
Effective January 1, 2020, the Company adopted SSAP No. 108, the standard establishes statutory accounting principles to address certain limited derivative transactions hedging variable annuity guarantees subject to










21 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

fluctuations as a result of interest rate sensitivity. The Company added all applicable new disclosures required by the standard; see Note 2(k) for further information. There were no impacts to net income or surplus during the year ended December 31, 2020, as a result of this adoption.
In 2016, the NAIC adopted revisions to SSAP No. 51R, Life Contracts and SSAP No. 54, Individual and Group Accident and Health Contracts, Issue Paper No. 154, Implementation of Principles-Based Reserving. These revisions relate to the adoption of the Valuation Manual and provides for principle-based reserving for Life and Heath contracts, and are effective January 1, 2017. The Valuation Manual provides the following revisions: 1) VM-20, Requirements for Principle-Based Reserves, for Life Products, includes an optional three-year deferral. The Company elected the deferral and adopted this update effective January 1, 2020. It applies to business issued on or after this date. 2) VM-21, see details disclosed above. 3) VM-22, Statutory Maximum Valuation Interest Rates for Income Annuities, was effective January 1, 2018. It applies to annuitizations on contracts issued on or after that date. Because most annuitizations occur years after a contract has been issued, its impact on net income and surplus has not been material. 4.) VM-25, Health Insurance Reserves Minimum Requirements, and VM-26, Credit Life and Disability Reserve Requirements, are not applicable as the Company does not issue these contracts.
In August 2019, the NAIC adopted SSAP No. 22R, Leases. This revised standard is a substantive revision, reorganization, and clarification of SSAP 22. It adopts much of the language of US GAAP ASU 2016-02, Leases, but retains operating lease accounting for Statutory accounting. It was effective January 1, 2020, with early adoption permitted. The Company adopted these revisions effective January 1, 2020. There was no impact on net income or surplus during the year ended December 31, 2020, as a result of adopting the revisions.
In March 2020, the NAIC adopted INT 20-01, Reference Rate Reform. The interpretation adopted the optional guidance outlined in Accounting Standards Update (ASU) 2020-04, Reference Rate Reform, for a limited period of time to ease the potential burden on accounting for reference rate reform. The practical expedients outlined in the interpretation are for modifications solely related to reference rate reform and optionally suspends assessments for re-measuring a contract and dedesignating a hedge relationship. This interpretation is effective on the date of adoption and expires on December 31, 2022. The Company adopted the optional guidance in this interpretation effective March 12, 2020. As of December 31, 2020, the Company has not made any modifications to financial assets or liabilities as a result of reference rate reform.
In May 2020, the NAIC adopted revisions to SSAP No. 26R, Bonds, which provides clarifying guidance when assessing other than temporary impairments (OTTI) for debt instruments that have been previously modified pursuant to SSAP No. 36, Troubled Debt Restructuring, or SSAP No. 103R, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The revisions to SSAP No. 26R state subsequent OTTI assessments for debt instruments modified under SSAP No. 36 or SSAP No 103 will be based on the modified contractual terms and not revert back to the original acquisition terms. These revisions were effective May 20, 2020 and were subsequently adopted by the Company. There was no impact on net income or surplus during the year ended December 31, 2020, as a result of adopting the revisions.
In April, May, June, and August 2020, the NAIC adopted the following interpretations (INT) in response to the COVID-19 pandemic:
•INT 2020-02, Extension of the 90-Day Rule for the Impact of COVID-19, extends a one-time optional extension of the nonadmission assessment guidance for premiums and similar receivables due from policyholders or agents. For receivables that were current prior to the beginning of the declaration of a state of emergency by the U.S. federal government on March 13, 2020 or originated on or after March 13, 2020, insurers may continue to admit assets greater than 90 days past due. This INT is applicable for the March 31, 2020, June 30, 2020, and September 30, 2020 financial statements and expired on December 30, 2020. This INT did not have an impact to the Company.
•INT 2020-03, Troubled Debt Restructuring Due to COVID-19, follows the inter-agency COVID-19 guidance issued by the federal and state prudential banking regulators (and concurred by the Financial Accounting Standards Board) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Specifically, a modification of a mortgage loan or bank loan terms does not result in troubled debt










22 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

restructuring as long as the modification is in response to COVID-19, the borrower was current at the time of the modification, and the modification is short-term. In addition, insurers are 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 is 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. The Company implemented a loan modification program that adhered to the requirements outlined in the INT for investments in commercial and residential mortgage loans.
•INT 2020-04, Mortgage Loan Impairment Assessment Due to COVID-19, defers the impairment assessment for bank loans, mortgage loans, and investments which predominantly hold underlying mortgage loans and are impacted by forbearance or modifications in response to COVID-19. This INT was applicable for the March 31, 2020, June 30, 2020, and September 30, 2020 financial statements and expired on December 30, 2020. This INT did not have a material impact to the Company.
•INT 2020-05, Investment Income Due and Accrued. This INT provides temporary relief guidance for assessing the collectability of interest income, admissibility relief of accrued investment income 90 days past due, and clarifies how interest income should be recognized during a payment holiday. This INT is applicable for the June 30, 2020, and September 30, 2020 financial statements and expired on December 30, 2020. This INT did not have a material impact to the Company.
•INT 2020-06, Participation in the 2020 TALF Program. This INT provides guidance for reporting Term Asset-Backed Securities Lending Facility (TALF) loans for the duration of the 2020 TALF program. This INT did not impact the Company as the Company did not participate in this program.
•INT 2020-07, Troubled Debt Restructuring of Certain Debt Investments Due to COVID-19. This INT provides temporary guidance by allowing practical expedients when assessing whether modifications made to debt securities (under SSAP No. 26R and SSAP No. 43R) due to COVID-19 are insignificant. Specifically, the guidance proposes restructurings in response to COVID-19 are considered to be insignificant if the restructuring results in a 10% or less shortfall amount in the contractual amount due and does 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 have a material impact to the Company.
•INT 2020-08, COVID-19 Premium Refunds, Rate Reductions and Policyholder Dividends. This INT provides guidance for returns or benefits to policyholders. This INT did not impact the Company.
These INTs have an immaterial effect on the financial statements as of December 31, 2020. The Company will continue to monitor these INTs and assess impacts until they are nullified.
In July 2020, the NAIC adopted INT 20-09, Basis Swaps as a Result of the LIBOR Transition, to address the statutory accounting and reporting requirements for basis swaps issued by central clearing parties solely in response to the market-wide transition away from the London Interbank Offered Rate (LIBOR) and toward the Secured Oversight Financing Rate (SOFR). This INT allows basis swaps issued solely in response to reference rate reform to be classified as derivatives used for “hedging” and reported as admitted assets in the statutory financial statements. The INT is effective July 30, 2020 and was subsequently adopted by the Company. There was no impact on net income or surplus during the year ended December 31, 2020, as a result of adopting the INT.
In November 2020, the NAIC adopted revisions to SSAP No. 43R, Loan-Backed and Structured Securities. The revisions reflect the updated NAIC designation category for residential and commercial mortgage-backed securities that utilize the financial modeling guidance. The revisions were effective November 12, 2020 and were subsequently adopted by the Company. There was no impact on net income or surplus during the year ended December 31, 2020, as a result of adopting the INT.








23 of 67


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 2019
In August 2019, the NAIC adopted revisions to SSAP No. 43R, Loan-Backed and Structured Securities. These revisions clarify that when a security has different NAIC designations by lot, the reporting entity shall either report the entire investment in a single reporting line at the lowest NAIC designation that would apply to a lot, or report the investment separately by purchase lot in the investment schedule. This update only affects investments with multiple lots at different ratings and would not require the entire schedule to be disclosed at a lot level. These revisions are effective as of September 30, 2019. There was no impact to net income or surplus during the year ended December 31, 2019, as a result of adopting the revised standard.
Recently Issued Accounting Standards – To Be Adopted
Not applicable.
Corrections of Errors
The Company records correction 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 2021, an error was identified related to the Company’s calculation of scheduled payments for certain fixed-indexed annuity products. The model for policies who 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 years ended December 31, 2020, and 2019, there were no Corrections of errors recorded on the Statutory Statements of Capital and Surplus.
(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










24 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 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.










25 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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) loss data capture to create transparency and gather information about losses that meet a designated threshold. Business owners are required to identify and resolve the root cause of operational loss events; and (3) an integrated risk and control system, a bottom-up risk assessment process for significant operational risk scenarios, to proactively manage significant operational risk scenarios throughout the organization.
(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.










26 of 67


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 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.
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.








27 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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:





























2021


Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Bonds:







U.S. government
$ 3,644 

147 

39 

3,752 
Agencies not backed by the full faith and credit of the U.S. government
299 

— 

— 

299 
States and political subdivisions
9,119 

1,973 

6 

11,086 
Foreign governments
1,619 

75 

16 

1,678 
Corporate securities
68,444 

8,191 

275 

76,360 
Mortgage-backed securities
11,645 

564 

26 

12,183 
Collateralized debt obligations
12 

8 

— 

20 
Total bonds
94,782 

10,958 

362 

105,378 
Common stocks
278 

27 

2 

303 
Preferred stocks
— 

— 

— 

— 
Total
$ 95,060 

10,985 

364 

105,681 





























2020


Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Bonds:







U.S. government
$ 3,318 

300 

10 

3,608 
Agencies not backed by the full faith and credit of the U.S. government
3 

1 

— 

4 
States and political subdivisions
9,536 

2,335 

2 

11,869 
Foreign governments
1,138 

125 

2 

1,261 
Corporate securities
70,975 

12,730 

90 

83,615 
Mortgage-backed securities
14,126 

1,232 

9 

15,349 
Collateralized debt obligations
17 

12 

— 

29 
Total bonds
99,113 

16,735 

113 

115,735 
Common stocks
217 

18 

1 

234 
Preferred stocks
41 

2 

— 

43 
Total
$ 99,371 

16,755 

114 

116,012 
At December 31, 2021, 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 an insignificant amount as of December 31, 2021 and 2020.
The Company had NAIC-6 rated bonds with a statement value of $26 and $3 as of December 31, 2021 and 2020, respectively. There was no interest due on bonds in default, which was excluded from investment income due and accrued as of December 31, 2021 and 2020.
At December 31, 2021 and 2020, the Company had hybrid securities with a carrying value of $17 and $30, respectively.








28 of 67


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, 2021 and 2020, investments with a statement value of $31 and $23, 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, 2021, by contractual maturity, are shown below:











Carrying
value
Fair value
Due in 1 year or less $ 1,707 

$ 1,716 
Due after 1 year through 5 years 9,030 

9,592 
Due after 5 years through 10 years 17,877 

19,148 
Due after 10 years through 20 years 25,696 

29,965 
Due after 20 years 27,949 

31,836 
No maturity date 866 

918 
Mortgage-backed and other structured securities
 11,657 

12,203 
       Total bonds and other assets receiving bond treatment $ 94,782 

$ 105,378 
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:























2021
2020
2019
Proceeds from sales
$ 30,577 

8,677 

15,892 
Gross gains
1,313 

162 

75 
Gross losses
101 

28 

34 
Proceeds from sales of common stocks for the years ended December 31 are shown below:





















2021
2020
2019
Proceeds from sales
$ 241 

147 

111 
Gross gains
11 

3 

2 
Gross losses
— 

2 

2 
Proceeds from sales of preferred stocks for the years ended December 31 are shown below:





















2021
2020
2019
Proceeds from sales
$ 40 

— 

2 
Gross gains
1 

— 

— 
Gross losses
— 

— 

— 
For the years ended December 31, 2021 and 2020, there were 207 and 138 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 $182 and $56 for 2021 and 2020, 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.








29 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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:









































2021


12 months or less
Greater than 12 months
Total


Fair value
Unrealized losses
Fair value
Unrealized losses
Fair value
Unrealized losses
Bonds:











U.S. government
$ 396 

17 

272 

22 

668 

39 
Foreign government
513 

13 

41 

3 

554 

16 
States and political subdivisions
208 

5 

21 

1 

229 

6 
Corporate securities
9,417 

207 

1,083 

68 

10,500 

275 
Mortgage-backed securities
977 

19 

124 

7 

1,101 

26 
Total bonds
11,511 

261 

1,541 

101 

13,052 

362 
Common stock
53 

2 

3 

— 

56 

2 
Total temporarily impaired securities
$ 11,564 

263 

1,544 

101 

13,108 

364 









































2020


12 months or less
Greater than 12 months
Total


Fair value
Unrealized losses
Fair value
Unrealized losses
Fair value
Unrealized losses
Bonds:











U.S. government
$ 374 

10 

— 

— 

374 

10 
Foreign government
51 

2 

— 

— 

51 

2 
States and political subdivisions
85 

2 

— 

— 

85 

2 
Corporate securities
2,085 

78 

578 

12 

2,663 

90 
Mortgage-backed securities
158 

5 

41 

4 

199 

9 
Total bonds
2,753 

97 

619 

16 

3,372 

113 
Common stock
7 

— 

9 

1 

16 

1 
Total temporarily impaired securities
$ 2,760 

97 

628 

17 

3,388 

114 
As of December 31, 2021 and 2020, the number of investment holdings that were in an unrealized loss position was 1,513 and 472, respectively, for bonds, and 21 and 13, respectively, for common stocks.
As of December 31, 2021 and 2020, of the total amount of unrealized losses, $319, or 87.5%, and $76, or 67.7%, 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.










30 of 67


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:

















2021
2020
2019
Bonds $ 1,199 

(120)

13 
Stocks 11 

2 

— 
Mortgage Loans (8)

(34)

— 
Derivatives 1,883 

202 

1,062 
Other (39)

(1)

(2)
Total realized capital gains (losses) 3,046 

49 

1,073 
Income tax benefit (expense) on net realized gains (losses) (249)

— 

11 
Total realized capital gains (losses), net of taxes 2,797 

49 

1,084 
Net gains (losses) transferred to IMR, net of taxes 941 

(93)

31 
Net realized gains (losses), net of taxes and IMR $ 1,856 

142 

1,053 
(d)    Net Investment Income
Major categories of net investment income for the years ended December 31 are shown below:

















2021
2020
2019
Interest:




Bonds $ 4,233 

4,189 

4,319 
Mortgage loans on real estate 682 

647 

617 
Policy loans 12 

12 

11 
Cash, cash equivalents, and short-term investments — 

7 

23 
Dividends:




Stocks 13 

7 

7 
Investment in subsidiaries 51 

50 

67 
Rental income on real estate 20 

20 

13 
Derivatives 37 

(14)

(109)
Other (92)

47 

(7)
Gross investment income 4,956 

4,965 

4,941 
Investment expenses (137)

(138)

(146)
Net investment income before amortization of IMR 4,819 

4,827 

4,795 
Amortization of IMR 47 

37 

44 
Net investment income $ 4,866 

4,864 

4,839 
(e)    Mortgage Loans on Real Estate
The Company's investment in mortgage loans on real estate includes CMLs and RMLs at December 31, 2021 and 2020.
At December 31, 2021 and 2020, the Company's CML portfolio includes concentrations exceeding 10% for the following states:

















2021
2020

Concentration Amount Concentration %
Concentration Amount Concentration %
California $ 3,605 
22.9  %
$ 3,356 
22.6  %










31 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

The maximum lending rates for CMLs made during 2021 and 2020 were 4.5% and 4.1%, respectively. The minimum lending rates for CMLs made during 2021 and 2020 were 1.7% and 2.2%, 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 77.6% and 84.8% during 2021 and 2020, respectively.
At December 31, 2021 and 2020, the Company's RML portfolio includes concentrations exceeding 10% for the following states:

















2021
2020

Concentration Amount Concentration %
Concentration Amount Concentration %
California $ 500 
35.6  %
$ 353 
46.3  %
Florida — 
—  %
80 
10.4  %
The maximum lending rates for RMLs made during 2021 and 2020 was 11.0% and 8.3%. The minimum lending rates for RMLs made during 2021 and 2020 was 2.8% and 3.0%. 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 94.8% and 93.3% during 2021 and 2020.
As of December 31, 2021 and 2020, there were no 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, 2021 and 2020 by type:

















2021
2020

Residential Commercial
Residential Commercial
Current $ 1,364 
15,732 

693 
14,813 
30-59 Days Past Due 14 
— 

18 
— 
60-89 Days Past Due 2 
— 

2 
— 
90-179 Days Past Due 11 
— 

4 
— 
180+ Days Past Due 15 
16 

47 
57 
Total $ 1,406 
15,748 

764 
14,870 
For mortgage loans investments greater than 90 days past due and still accruing interest, the recorded investment and interest accrued as of December 31, 2021 and 2020 are shown below by type:

















2021
2020

Residential Commercial
Residential Commercial
Accruing Interest 90-179 Days Past Due




Recorded Investment $ — 
— 

2 
— 
Interest Accrued — 
— 

— 
— 
Accruing Interest 180+ Days Past Due




Recorded Investment — 
— 

— 
— 
Interest Accrued — 
— 

— 
— 
There were no mortgage loan investments for which interest was reduced as of December 31, 2021 and 2020.
As of December 31, 2021 and 2020 there were no RMLs in which the Company participated as a co-lender in a mortgage loan agreement. As of December 31, 2021 and 2020, for CML investments, the recorded investment for which the Company participated as a co-lender in a mortgage loan agreement was $2,471 and $1,979, respectively.










32 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(2) Impaired Mortgage Loans    
For the years ended December 31, 2021, and 2020, the recorded investment in impaired CMLs was $16, and $25, respectively. These amounts also represent the average recorded investment in impaired mortgage loans for the year ended December 31, 2021, and 2020. 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. In addition, the impaired CMLs were not in nonaccrual status and no interest income recognized using a cash-basis method of accounting during the time that the loan was impaired. There was no recorded investment in impaired RMLs for the years ended December 31, 2021, and 2020.
There was $0, $1 and $0 interest income recognized on impaired mortgage loans as of December 31, 2021, 2020 and 2019, respectively. The Company recognizes interest income on its impaired mortgage loans upon receipt of payment.
As of December 31, 2021 and 2020, the Company derecognized mortgage loans as a result of foreclosure of $4 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.
The credit quality of CMLs as of December 31 is shown below:



































Debt Service Coverage Ratios



2021: Greater than 1.4x
1.2x – 1.4x
1.0x – 1.2x
Less than 1.0x
Total
Percent of Total
Loan-to-value ratios:










Less than 50% $ 4,528 

59 

98 

663 

5,348 

34.0  %
50% – 60% 4,459 

775 

249 

824 

6,307 

40.0  %
60% – 70% 2,077 

1,099 

281 

444 

3,901 

24.8  %
70% – 80% 23 

89 

35 

29 

176 

1.1  %
80% – 90% — 

— 

— 

— 

— 

—  %
90% – 100% — 

— 

— 

— 

— 

—  %
Greater than 100% — 

— 

16 

— 

16 

0.1  %
Total $ 11,087 

2,022 

679 

1,960 

15,748 

100.0  %





































Debt Service Coverage Ratios



2020: Greater than 1.4x
1.2x – 1.4x
1.0x – 1.2x
Less than 1.0x
Total
Percent of Total
Loan-to-value ratios:










Less than 50% $ 3,992 

73 

52 

622 

4,739 

31.9  %
50% – 60% 4,477 

770 

132 

359 

5,738 

38.6  %
60% – 70% 2,288 

905 

273 

582 

4,048 

27.2  %
70% – 80% — 

163 

102 

35 

300 

2.0  %
80% – 90% — 

— 

21 

— 

21 

0.1  %
90% – 100% — 

— 

— 

— 

— 

—  %
Greater than 100% — 

— 

25 

— 

25 

0.2  %
Total $ 10,757 

1,911 

605 

1,598 

14,871 

100.0  %










33 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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:























2021
2020

Total
Percent of Total
Total
Percent of Total
Loan-to-value ratios:






Below 70% $ 353 

25.1  %
$ 165 

21.6  %
71% to 80% 705
50.1  %
381
49.9  %
81% to 90% 316
22.5  %
206
27.0  %
91% to 95% 33
2.3  %
12
1.6  %
Above 95% — 

—  %
— 

—  %
Total $ 1,407 

100.0  %
$ 764 

100.0  %
(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 year ended December 31, 2021 as follow:























2021



OTTI Recognized in Loss


Amortized Cost Basis Before OTTI
Interest
Non-Interest
Fair Value
OTTI Recognized:






Intent to sell $ 41 

3 

— 

38 
Annual aggregate total $ 41 

3 

— 

38 
The Company had no loan-backed securities recognized in OTTI for the years ended December 31, 2020 and 2019.
(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, 2021 and 2020.
Derivatives held by the Company are designated as either a cash flow hedging instrument (cash flow hedge) or nonqualified hedging instrument (nonqualifying strategies).








34 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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, 2021 and 2020.
(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, 2021.
    (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. Prior to January 1, 2021, the notional amount is equal to the maximum potential future loss amount. Beginning January 1, 2021, the Company updated the potential future exposure (PFE) to zero, as PFE is not determinable. The PFE is zero for the following reasons:

(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.








35 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 LIBOR 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:     







































2021
2020




Gross Fair Value


Gross Fair Value


Notional (1)
Assets
Liabilities
Notional (1)
Assets
Liabilities
Cash flow hedging instruments











Foreign currency swaps
$ 1,583 

81 

(33)

1,341 

56 

(76)
Total cash flow hedging instruments


$ 81 

(33)



56 

(76)













Fair value hedging instruments











IRS
$ 2,696 

305 

3,511 

2,709 

472 

(40)
Total fair value hedging instruments


$ 305 

3,511 



$ 472 

(40)













Nonqualifying hedging instruments











OTC options
$ 55,270 

2,174 

(1,822)

51,430 

3,433 

(3,013)
ETO
19,388 

114 

(119)

15,224 

136 

(96)
TBA securities
1,987 

— 

— 

1,331 

1 

(1)
IRS
2,233 

8 

(3,545)

2,631 

9 

(18)
Futures
19,591 

— 

— 

19,312 

— 

— 
TRS
6,633 

— 

(15)

11,653 

7 

(18)
Total nonqualifying hedging instruments


2,296 

(5,501)



3,586 

(3,146)
Total derivative instruments


$ 2,682 

(2,023)



4,114 

(3,262)













(1) Notional amounts are presented on an absolute basis.
Derivative Collateral Management
The Company manages derivative collateral for the general account and separate account combined and separate collateral for exchange-traded and OTC derivatives. The total collateral posted for exchange-traded derivatives at December 31, 2021 and 2020, had a fair value of $2,432 and $2,476, 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 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, 2021 and 2020, had a fair value of $2 and $3, respectively, and is included in Bonds on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus. The Company posts collateral to OTC counterparties based upon exposure amounts. The Company retains ownership of the OTC collateral.








36 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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 $2,809 and $2,212 and a fair value of $3,022 and $2,610 as of December 31, 2021 and 2020, respectively. The aggregate amount of collateral received through securities lending at December 31 is as follows:

















Fair Value


2021
2020
Cash



Open
2,594 

2,587 
30 days or less
— 

— 
31 to 60 days
— 

— 
61 to 90 days
— 

— 
Greater than 90 days
— 

— 
Subtotal
2,594 

2,587 
Securities received
500 

86 
Total collateral received
$ 3,094 

2,673 
The aggregate amount of cash collateral reinvested through securities lending at December 31 is as follows:





























2021
2020


Amortized cost
Fair value
Amortized cost
Fair value
Open
— 

— 

— 

— 
30 days or less
949 

949 

950 

950 
31 to 60 days
837 

837 

955 

955 
61 to 90 days
61 

61 

66 

66 
91 to 120 days
162 

162 

— 

— 
121 to 180 days
308 

308 

143 

143 
181 to 365 days
277 

277 

473 

473 
Greater than 1 year
— 

— 

— 

— 
Total collateral reinvested
$ 2,594 

2,594 

2,587 

2,587 
As of December 31, 2021 and 2020, 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:











2021
2020
Cash and cash equivalents $ 1,665 

1,630 
Short-term investments 929 

957 
Total $ 2,594 

2,587 










37 of 67


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, 2021 and 2020, 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, 2021 and 2020.
All collateral received, as of December 31, 2021 and 2020, were bonds with a designated NAIC-1 rating. Further information related to repos for the years ended December 31, 2021 and 2020, is as follows:    



















As of year end
2021
2020
1. Maturity



a. Overnight
 $ 1,161 

430 
b. 2 Days to 1 Week
 — 

— 
2. Collateral Pledged and Securities Acquired Under Repo


a. Cash Collateral Pledged - Secured Borrowing
 $ 1,161 

430 
b. Fair Value of Securities Acquired Under Repo - Secured Borrowing
 1,161 

435 





















Maximum Amount
2021
2020
1. Maturity



a. Overnight $ 1,161 

2,878 
b. 2 Days to 1 Week — 

— 
2. Collateral Pledged and Securities Acquired Under Repo


a. Cash Collateral Pledged - Secured Borrowing $ 1,161 

2,878 
b. Fair Value of Securities Acquired Under Repo - Secured Borrowing 1,161 

2,906 
(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, 2021 is as follows:













































SCA Name
Gross Asset
Non-Admitted Asset
Net Admitted Assets
NAIC Filing Date
NAIC Filing Type
NAIC Filing Balance
Re-submission Required?
AZLPF
$ 789 

— 

789 

5/25/2021
S2
777 

N
Total
$ 789 

— 

789 

XXX
XXX
777 

XXX
(l)    FHLB Agreements
The Company held Class A FHLB membership stock of $10 and $10 at December 31, 2021 and 2020 and activity stock of $80 and $60 at December 31, 2021 and 2020, respectively. The Company has a fully collateralized borrowings with a balance of $2,000 and $1,500 as of December 31, 2021 and 2020 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:















2021
2020
Carrying value
$ 1,988 

1,336 
Fair value
2,381 

1,736 
The maximum of collateral pledged to FHLB during the year ended December 31 was as follows:















2021
2020
Carrying value
$ 4,290 

1,994 
Fair value
5,052 

2,254 










38 of 67


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, 2021 and 2020, the Company had $2,000 and $1,500, 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, 2021 and 2020 was $4,000 and $2,000, respectively. Borrowings are not subject to prepayment penalties. Outstanding borrowings as of December 31, 2021, were issued on various dates ranging from October 17, 2016 to December 20, 2021 and interest rates on those borrowings range from 0.2% to 3.2%. Interest paid on borrowings was $17 and $15 for the year ended December 31, 2021 and 2020 .
(m)    Restricted Assets
As of December 31, 2021 and 2020, the Company had the following restricted assets, including assets pledged to others as collateral:







































Gross Restricted




Percentage


Total general account
Total from prior year
Increase (decrease)
Total current year admitted restricted
Gross restricted to total assets
Admitted restricted to total admitted assets
Collateral held under security lending arrangements
$ 3,094 

2,673 

421 

3,094 

1.8  %
1.8  %
FHLB Capital Stock
90 

70 

20 

90 

— 

— 
On deposit with states
4 

4 

— 

4 

— 

— 
On deposit with other regulatory bodies
27 

19 

8 

27 

— 

— 
Pledged as collateral to FHLB (including assets backing funding agreements)
1,988 

1,336 

652 

1,988 

1.1 

1.1 
Derivative collateral
2,338 

2,266 

72 

2,338 

1.3 

1.3 
Modco Assets
25,773 

— 

25,773 

25,773 

14.8 

14.9 
Total restricted assets
$ 33,314 

6,368 

26,946 

33,314 

19.0  %
19.1  %
(n)    Low Income Housing Tax Credits
As of December 31, 2021 the Company had various LIHTC investments with a range of 4 to 13 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, 2021, 2020 and 2019 is $44, $38, and $29, 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, 2021 and 2020 is $503 and $403, respectively.
Additionally, the Company's LIHTC investments require a commitment of capital. The Company has open capital commitments of $271 and $199 at December 31, 2021 and 2020, 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.
(o)    5GI Securities
As of December 31, 2021 and 2020, details regarding the Company's 5GI securities are as follows:























2021
2020

Number of Securities Aggregate Book Adjusted Carrying Value Aggregate Fair Value
Number of Securities Aggregate Book Adjusted Carrying Value Aggregate Fair Value
Bonds — 
$ — 
— 

— 
$ — 
— 
Loan-backed and structured securities — 
— 
— 

1 
1 
1 
Total — 
$ — 
— 

1 
$ 1 
1 










39 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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:





























2021


Level 1
Level 2 (a)
Level 3
Total
Assets at fair value:







Bonds
$ — 

3 

— 

3 
Common stocks
$ 213 

— 

— 

213 
Derivative assets
114 

2,644 

— 

2,758 
Separate account assets
21,319 

7,043 

— 

28,362 
Total assets reported at fair value
21,646 

9,690 

— 

31,336 
Liabilities at fair value:







Derivative liabilities
119 

1,894 

15 

2,028 
Separate account derivative liabilities
— 

5,329 

— 

5,329 
Total liabilities reported at fair value
$ 119 

7,223 

15 

7,357 









(a) The Company does not have any assets or liabilities measured at net asset value (NAV) that are included in Level 2 within this table.










40 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)



























2020


Level 1
Level 2 (a)
Level 3
Total
Assets at fair value:







Bonds
$ — 

4 

— 

4 
Common stocks
163 

— 

1 

164 
Derivative assets
136 

4,036 

7 

4,179 
Separate account assets
21,789 

11,408 

— 

33,197 
Total assets reported at fair value
22,088 

15,448 

8 

37,544 
Liabilities at fair value:







Derivative liabilities
96 

3,161 

18 

3,275 
Separate account derivative liabilities
— 

10,332 

— 

10,332 
Total liabilities reported at fair value
$ 96 

13,493 

18 

13,607 









(a) The Company does not have any assets or liabilities measured at NAV that are included in Level 2 within this table.
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 2021.
(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.










41 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

The fair value of unaffiliated preferred stocks is based on quoted market prices in active markets. When available, such investments are 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. Such investments may be categorized in Level 2 or Level 3.
(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, cash, cash equivalents, 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). Certain bonds, cash, and cash equivalents, along with related accrued investment income, carried at amortized cost within the separate account have an amortized cost of $19,917 and $12,704 as of December 31, 2021 and 2020, respectively, and a fair value of $20,719 and $13,689 as of December 31, 2021 and 2020, 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:








42 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)























January 1, 2021 Transfers into
Level 3		 Transfers out
of Level 3		 Total gains
and (losses)
included in
Net Income		 Total gains
and (losses)
included in
Surplus		 Purchases, issuances, sales and settlements December 31, 2021








Preferred stocks — 
41 
— 
— 
— 
(41)
— 
Common stocks 1 
— 
— 
— 
— 
(1)
— 
TRS assets 7 
— 
— 
297 
(7)
(297)
— 
Total Level 3 Assets 8 
— 
— 
297 
(7)
(298)
— 








TRS liabilities (18)
— 
— 
(423)
3 
423 
(15)
Total Level 3 Liabilities $ (18)
— 
— 
(423)
3 
423 
(15)

























January 1, 2020 Transfers into
Level 3		 Transfers out
of Level 3		 Total gains
and (losses)
included in
Net Income		 Total gains
and (losses)
included in
Surplus		 Purchases, issuances, sales and settlements December 31, 2020








Common stocks 1 
— 

— 
— 
— 
1 
TRS assets 1 
— 
— 
960 
6 
(960)
7 
Total Level 3 Assets 2 
— 
— 
960 
6 
(960)
8 








TRS liabilities (13)
— 
— 
(568)
(5)
568 
(18)
Total Level 3 Liabilities $ (13)
— 
— 
(568)
(5)
568 
(18)
(e)    Transfers
The Company reviews its fair value hierarchy classifications annually. 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 and preferred stocks: The primary unobservable inputs used to value common and preferred 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 Company does not have insight into the specific inputs used; however, 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)










43 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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.
(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):

































2021






Fair Value


Aggregate Fair Value
Admitted Assets/
Carrying Value
Level 1
Level 2
Level 3
Financial Assets









Bonds
$ 104,413 

93,817 

4,062 

81,773 

18,578 
Common stocks, unaffiliated
303 

303 

213 

— 

90 
Mortgage loans on real estate
17,673 

17,154 

— 

— 

17,673 
Cash equivalents
3,210 

3,210 

1,694 

1,516 

— 
Derivative assets
2,758 

2,682 

114 

2,644 

— 
Securities lending reinvested collateral assets
2,594 

2,594 

— 

2,594 

— 
Other invested assets
1,052 

1,052 

— 

102 

950 
COLI
713 

713 

— 

713 

— 
Separate account assets
49,082 

48,279 

22,298 

26,784 

— 
Financial Liabilities









Deposit-type contracts
$ 5,056 

4,577 

— 

— 

5,056 
Other investment contracts
97,132 

88,311 

— 

— 

97,132 
Borrowed money
1,976 

2,001 

— 

— 

1,976 
Derivative liabilities
2,028 

2,023 

119 

1,894 

15 
Payable for securities lending
2,594 

2,594 

— 

2,594 

— 
Payable for securities
271 

271 

— 

— 

271 
Separate account liabilities
49,082 

48,279 

22,298 

26,784 

— 











(b) The Company does not have any assets or liabilities measured at NAV that are included in Level 2 in this table. In addition, the Company has no assets or liabilities for which it is not practicable to measure at fair value.










44 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

































2020






Fair Value


Aggregate Fair Value
Admitted Assets/ Carrying Value
Level 1
Level 2
Level 3
Financial Assets









Bonds
$ 115,710 

99,088 

4,995 

93,714 

17,001 
Preferred stocks, unaffiliated
43 

41 

— 

— 

43 
Common stocks, unaffiliated
234 

234 

163 

— 

71 
Mortgage loans on real estate
17,117 

15,634 

— 

— 

17,117 
Cash equivalents
878 

878 

448 

430 

— 
Derivative assets
4,179 

4,114 

136 

4,036 

7 
Securities lending reinvested collateral assets
2,587 

2,587 

— 

2,587 

— 
Other invested assets
757 

757 

— 

23 

734 
COLI
653 

653 

— 

653 

— 
Separate account assets
46,886 

45,901 

22,732 

24,154 

— 
Financial Liabilities









Deposit-type contracts
$ 5,395 

4,749 

— 

— 

5,395 
Other investment contracts
103,518 

95,083 

— 

— 

103,518 
Borrowed money
1,516 

1,501 

— 

— 

1,516 
Derivative liabilities
3,275 

3,262 

96 

3,161 

18 
Payable for securities lending
2,587 

2,587 

— 

2,587 

— 
Payable for securities
199 

199 

— 

— 

199 
Separate account liabilities
46,886 

45,901 

22,732 

24,154 

— 











(b) The Company does not have any assets or liabilities measured at NAV that are included in Level 2 in this table. In addition, the Company has no assets or liabilities for which it is not practicable to measure at fair value.
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.








45 of 67


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 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 LIHTC investments, limited partnership investments, loans to affiliates, and restricted stock unit (RSU) assets. As there is no observable market data on which to calculate fair value of the LIHTC investment balances, the fair value is set equal to carrying value. Limited partnership investments are recorded using the cost method in line with SSAP No. 48 – Joint Ventures, Partnerships and Limited Liability Companies using unobservable inputs. 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, the Company believes cost approximates fair value. Due to the use of unobservable inputs, LIHTC investments, limited partnership investments, and loans to affiliates are categorized as Level 3. RSU assets 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, 2021 and 2020, the cash surrender value in an investment vehicle is $713 and $653, respectively, and is allocated into the following categories based on primary underlying investment characteristics:








2021 2020
Bonds 47.0  % 80.0  %
Stocks 21.0  % 20.0  %
Other Invested Assets 32.0  % —  %
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.










46 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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, 2021 and 2020, the combined loan had a balance of $31 and $41, 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 $2, $3, and $3, in 2021, 2020, and 2019, respectively, and is presented in Net investment income on the Statutory Statements of Operations.
The future principal payments required under the loan are as follows:




2022 $ 11 
2023 12 
2024 8 
2025 — 
2026 — 
2027 and beyond — 
Total $ 31 










47 of 67


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:













2021
2020
Amortization:


Software amortization 8 

7 
Net EDP balance, by major classes of assets:


Servers, computers and peripherals — 

2 
Software 53 

38 
Net EDP balance 53 

40 
Nonadmitted (53)

(38)
Net admitted EDP balance $ — 

2 
The Company has a gross EDP asset of $55 and $73 and accumulated depreciation and amortization of $(2) and $(33) at December 31, 2021 and 2020, 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 their 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:

















December 31, 2021

Ordinary
Capital
Total
Total gross deferred tax assets
 $ 998 

48 

1,046 
Statutory valuation allowance adjustments
 — 

— 

— 
Adjusted gross deferred tax assets
 998 

48 

1,046 
Deferred tax assets nonadmitted
 (6)

— 

(6)
Subtotal net admitted deferred tax assets
 992 

48 

1,040 
Deferred tax liabilities
 (536)

(17)

(553)
Net admitted deferred tax assets (liabilities)
 $ 456 

31 

487 



















December 31, 2020

Ordinary
Capital
Total
Total gross deferred tax assets
 $ 911 

52 

963 
Statutory valuation allowance adjustments
 — 

— 

— 
Adjusted gross deferred tax assets
 911 

52 

963 
Deferred tax assets nonadmitted
 — 

— 

— 
Subtotal net admitted deferred tax assets
 911 

52 

963 
Deferred tax liabilities
 (684)

(6)

(690)
Net admitted deferred tax assets (liabilities)
 $ 227 

46 

273 










48 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

















Change

Ordinary
Capital
Total
Total gross deferred tax assets
 $ 87 

(4)

83 
Statutory valuation allowance adjustments
 — 

— 

— 
Adjusted gross deferred tax assets
 87 

(4)

83 
Deferred tax assets nonadmitted
 (6)

— 

(6)
Subtotal net admitted deferred tax assets
 81 

(4)

77 
Deferred tax liabilities
 147 

(10)

137 
Net admitted deferred tax assets (liabilities)
 $ 228 

(14)

214 
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:

















December 31, 2021

Ordinary
Capital
Total
Federal income taxes paid in prior years recoverable through loss carrybacks (11.a) $ — 

48 

48 
Adjusted gross DTAs expected to be realized after application of the threshold limitations
 — 

— 

— 
Lesser of 11.b.i or 11.b.ii:
 — 

— 

— 
Adjusted gross DTAs expected to be realized following the balance sheet date (11.b.i.)
 456 

— 

456 
Adjusted gross DTAs allowed per limitation threshold (11.b.ii)
 N/A
N/A
1,533 
Lesser of 11.b.i or 11.b.ii
 456 

— 

456 
Adjusted gross DTAs offset by gross DTLs (11.c)
 536 

— 

536 
Deferred tax assets admitted
 $ 992 

48 

1,040 



















December 31, 2020

Ordinary
Capital
Total
Federal income taxes paid in prior years recoverable through loss carrybacks (11.a) $ — 

3 

3 
Adjusted gross DTAs expected to be realized after application of the threshold limitations
 — 

— 

— 
Lesser of 11.b.i or 11.b.ii:
 — 

— 

— 
Adjusted gross DTAs expected to be realized following the balance sheet date (11.b.i.)
 419 

49 

468 
Adjusted gross DTAs allowed per limitation threshold (11.b.ii)
 N/A
N/A
1,108 
Lesser of 11.b.i or 11.b.ii
 419 

49 

468 
Adjusted gross DTAs offset by gross DTLs (11.c)
 492 

— 

492 
Deferred tax assets admitted
 $ 911 

52 

963 










49 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

















Change

Ordinary
Capital
Total
Federal income taxes paid in prior years recoverable through loss carrybacks (11.a) $ — 

44 

44 
Adjusted gross DTAs expected to be realized after application of the threshold limitations
 — 

— 

— 
Lesser of 11.b.i or 11.b.ii:
 — 

— 

— 
Adjusted gross DTAs expected to be realized following the balance sheet date (11.b.i.)
 37 

(49)

(12)
Adjusted gross DTAs allowed per limitation threshold (11.b.ii)
 N/A
N/A
425 
Lesser of 11.b.i or 11.b.ii
 37 

(49)

(12)
Adjusted gross DTAs offset by gross DTLs (11.c)
 44 

— 

44 
Deferred tax assets admitted
 $ 81 

(5)

76 
Ratios used for threshold limitation as of December 31 are as follows:





























December 31





2021
2020
Change
Ratio percentage used to determine recovery period and threshold limitation amount 1,082  %
705  %
377  %
Amount of adjusted capital and surplus used to determine recovery period threshold limitation $ 10,218 

7,386 

2,832 
Impact of tax planning strategies on the determination of net admitted adjusted gross DTAs is as follows:

















December 31, 2021

Ordinary
Capital
Total
Net admitted adjusted gross DTAs - (percentage of total net admitted adjusted gross DTAs)
 —  %
—  %
—  %



















December 31, 2020

Ordinary
Capital
Total
Net admitted adjusted gross DTAs - (percentage of total net admitted adjusted gross DTAs)
 —  %
93.7  %
93.7  %



















Change

Ordinary
Capital
Total
Net admitted adjusted gross DTAs - (percentage of total net admitted adjusted gross DTAs)
 —  %
(93.7) %
(93.7) %
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.








50 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(c)    Current and Deferred Income Taxes
The significant components of income taxes incurred (i.e. Current income tax expense) include:































December 31
2021-2020 Change
2020-2019 Change

2021
2020
2019

Current year federal tax expense (benefit) - ordinary income $ 1,091 

18 

773 

1,073 

(755)
Current year foreign tax expense (benefit) - ordinary income — 

— 

— 

— 

— 
Subtotal 1,091 

18 

773 

1,073 

(755)
Current year tax expense - net realized capital gains (losses) 249 

— 

(11)

249 

11 
Federal and foreign income taxes incurred $ 1,340 

18 

762 

1,322 

(744)
DTAs and DTLs consist of the following major components:





















December 31
Deferred tax assets
2021
2020
Change
Ordinary:





Unrealized losses
$ 14 

— 

14 
Deferred acquisition costs
186 

169 

17 
Expense accruals
82 

63 

19 
Policyholder reserves
701 

666 

35 
Fixed assets
— 

— 

— 
Nonadmitted assets
15 

13 

2 
Subtotal
998 

911 

87 
Statutory valuation allowance adjustment
— 

— 

— 
Nonadmitted ordinary deferred tax assets
(6)

— 

(6)
Admitted ordinary tax assets
992 

911 

81 







Capital:





Impaired assets
48 

51 

(3)
Unrealized losses
— 

1 

(1)
Subtotal
48 

52 

(4)
Statutory valuation allowance adjustment
— 

— 

— 
Nonadmitted capital deferred tax assets
— 

— 

— 
Admitted capital deferred tax assets
48 

52 

(4)
Admitted deferred tax assets
$ 1,040 

963 

77 










51 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)





















December 31
Deferred tax liabilities
2021
2020
Change
Ordinary:





Investments
$ (53)

(54)

1 
Fixed assets
(4)

(5)

1 
Policyholder reserves
(356)

(445)

89 
Software capitalization
(11)

(7)

(4)
Unrealized gains
(64)

(79)

15 
Other
(48)

(94)

46 
Subtotal
(536)

(684)

148 







Capital:





Unrealized gains
(17)

(6)

(11)
Subtotal
(17)

(6)

(11)
Deferred tax liabilities
$ (553)

(690)

137 
Net deferred tax assets (liabilities)
$ 487 

273 

214 
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 Coronavirus Aid, Relief, and Economic Security Act, (CARES Act of 2020) was enacted on March 27, 2020, thereby allowing net operating losses (NOLs) arising in tax years beginning after December 31, 2017, and before January 1, 2021 (e.g., NOLs incurred in 2018, 2019, or 2020 by a calendar-year taxpayer) to be carried back to each of the five tax years preceding the tax year of such loss.
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 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 have been adjusted based on guidance received from Internal Revenue Service and U.S. Treasury. Adjusted amounts are reflected in the Company's results of operations for the years ended December 31, 2021, 2020, and 2019.
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):

















December 31


2021
2020
Change
Net deferred tax assets (liabilities)
 $ 493 

273 

220 
Statutory valuation allowance adjustment
 — 

— 

— 
Net deferred tax assets (liabilities) after statutory valuation allowance
 493 

273 

220 
Tax effect of unrealized gains (losses)
 149 

154 

(5)
Statutory valuation allowance adjustment allocated to unrealized gains (losses)
 — 

— 

— 
Change in net deferred income tax



$ 215 










52 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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:

















December 31, 2021
December 31, 2020
December 31, 2019
Federal income tax rate 21.0  %
21.0  %
21.0  %
Amortization of IMR (1.9)

(1.3)

(3.6)
Dividends received deduction (1.3)

(1.7)

(4.2)
Nondeductible expenses 0.1 

— 

0.9 
Affiliated LLC income (0.2)

(2.4)

— 
COLI (2.4)

(1.0)

(5.5)
Tax hedges (6.5)

0.2 

65.8 
Tax hedge reclassification 73.7 

6.8 

84.7 
Tax credits (9.6)

(7.2)

(13.6)
Prior period adjustments (1.2)

(0.6)

(0.4)
Change in deferred taxes on impairments 0.6 

(5.0)

3.6 
Change in deferred taxes on nonadmitted assets (0.4)

(0.6)

(0.7)
Reinsurance 83.5 

(5.5)

19.8 
Correction of Error 2.0 

— 

— 
NOL Carryback Benefit — 

(12.2)

— 
Tax Contingencies 10.6 

5.5 

— 
Realized Capital Gains Tax 47.4 

(0.1)

— 
Other (1.4)

— 

0.6 
Effective tax rate 214.0  %
(4.1) %
168.4  %






Federal and foreign income taxes incurred (1)
 207.4  %
2.9  %
293.7  %
Realized Capital Gains Tax 47.4 

(0.1)

— 
Change in net deferred tax (40.8)

(6.9)

(125.3)
Effective tax rate 214.0  %
(4.1) %
168.4  %






(1) Prior to 2020, tax on capital gains (losses) was excluded from federal and foreign income taxes incurred and detailed in Note 5(c).
(e)    Carryforwards, Recoverable Taxes, and IRC Section 6603 Deposits
As of December 31, 2021, there are no operating losses or tax credit carryforwards available for tax purposes.
There are no Federal income taxes available for recoupment in the event of future net losses.
There are no aggregate deposits admitted under Section 6603 of the IRC.
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, 2021 and 2020. 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, 2021, 2020, and 2019 the Company recognized expenses of $23, $9, and $0 in interest and penalties, respectively. The Company had $32 and $9 for the unrecognized tax benefits and related accrued interest at December 31, 2021 and 2020, respectively.








53 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(f)    Consolidated Federal Income Tax Return
The Company’s federal income tax return is consolidated with AZOA. The method of allocation between the subsidiaries of AZOA is subject to written agreement, approved by the Allianz Life Board of Directors. Allocation is based upon separate return calculations with current credit for net losses. 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 2008 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. The IRS has also initiated an examination of AZOA's 2018 income tax return, which is expected to close by the end of 2022.
As of December 31, 2021, the companies included in the consolidated group for which AZOA files a federal income tax return is included below:




Members of Consolidated Tax Group
Allianz Life Insurance Company of North America Allianz Life Insurance Company of Missouri
Allianz Life Insurance Company of New York Allianz Underwriters Insurance Company
AZOA Services Corporation AGCS Marine Insurance Company
Allianz Global Risks US Insurance Company William H. McGee & Co., Inc.
Allianz Reinsurance of America, Inc. Allianz Reinsurance Management Services, Inc.
Allianz Technology of America, Inc. Fireman’s Fund Insurance Company
Allianz Renewable Energy Partners of America LLC Fireman’s Fund Indemnity Corporation
Allianz Renewable Energy Partners of America 2 LLC National Surety Corporation
PFP Holdings, Inc. Chicago Insurance Company
AZL PF Investments, Inc. Interstate Fire & Casualty Company
Dresdner Kleinwort Pfandbriefe Investments II, Inc. Associated Indemnity Corporation
Allianz Fund Investments, Inc. American Automobile Insurance Company
Yorktown Financial Companies, Inc. The American Insurance Company
Questar Capital Corporation Allianz Risk Transfer, Inc.
Questar Agency, Inc. Allianz Risk Transfer (Bermuda), Ltd.
(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, 2021 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.








54 of 67


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:





















2021
2020
2019
Balance at January 1, net of reinsurance recoverables of $665, $654, and $574, respectively
$ 337 

335 

299 
Incurred related to:





Current year
189 

139 

143 
Prior years
(47)

(46)

(24)
Total incurred
142 

93 

119 
Paid related to:





Current year
10 

7 

7 
Prior years
84 

84 

76 
Total paid
94 

91 

83 
Balance at December 31, net of reinsurance recoverables of $734, $665, and $654, respectively
$ 385 

337 

335 
Prior year incurred claim reserves for 2021, 2020 and 2019 were favorable as a result of re-estimation of unpaid claims and claim adjustment expenses, principally on the individual LTC line of business.










55 of 67


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:















For the years ended December 31,
Reduction in:
2021
2020
Aggregate reserves
$ 16,141 

6,636 
Deposit-type contracts
132 

99 
Policy and contract claims
28 

29 
Reinsurance reserves, recoverables, and receivables at December 31, 2021 and 2020, are covered by collateral of $14,731 and $6,140, 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:



























Year ended
Direct amount
Ceded to other companies
Assumed from other companies
Net amount
December 31, 2021







Life insurance in-force
$ 65,088 

41,500 

50 

23,638 
Premiums:







Life
1,453 

94 

1 

1,360 
Annuities
13,226 

623 

— 

12,603 
Accident and health
168 

68 

62 

162 
Total premiums
$ 14,847 

785 

63 

14,125 









December 31, 2020







Life insurance in-force
$ 53,399 

34,345 

54 

19,108 
Premiums:







Life
1,200 

88 

1 

1,113 
Annuities
9,473 

398 

— 

9,075 
Accident and health
170 

68 

56 

158 
Total premiums
$ 10,843 

554 

57 

10,346 









December 31, 2019







Life insurance in-force
$ 45,817 

30,060 

58 

15,815 
Premiums:







Life
989 

88 

1 

902 
Annuities
12,135 

387 

— 

11,748 
Accident and health
172 

70 

53 

155 
Total premiums
$ 13,296 

545 

54 

12,805 
The Company holds securities backing term life and universal life with secondary guarantees ceded reserves in compliance with Actuarial Guideline 48. As of December 31, 2021 and 2020, the Company had 8 and 7 reinsurance










56 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

contracts, respectively, 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 2021, 2020, and 2019.
The Company has reported in its operations $43 of claims incurred for the current year ended, as a result of commutation of reinsurance with Hannover Life Reassurance Company of America.
Effective January 1, 2021, the Company executed a new reinsurance agreement with Hannover Life Reassurance Company of America that covers certain in force fixed annuity policies. The agreement resulted in a reduction in Policyholder liabilities, life policies, and annuity contracts in the amount of $161 as of December 31, 2021.
Effective September 1, 2021, the Company executed a new reinsurance agreement with Hannover Life     Reassurance Company of America that covers certain in force fixed annuity policies, and resulted in $185 of reserve credit as of December 31, 2021.
Effective September 30, 2021, the Company executed a new reinsurance agreement with Munich American Reassurance Company that covers certain in force fixed annuity policies, and resulted in $444 of reserve credit as of December 31, 2021.
Effective October 1, 2021, the Company executed a new reinsurance agreement with Hannover Life Reassurance Company of America that covers certain in force fixed annuity policies, and resulted in $206 of reserve credit as of December 31, 2021.
Effective October 1, 2021 the Company executed a new reinsurance agreement with Resolution Re LTD that covers certain in force fixed annuity policies. This covers approximately $26,394 of in force fixed reserves, but did not result in any reinsurance credit as this agreement is modified coinsurance.
Effective October 1, 2021, the Company executed a new reinsurance agreement with Talcott Resolution Life Ins Co that covers certain in force fixed annuity policies, and resulted in $8,178 of reserve credit as of December 31, 2021. The Company transferred assets with an approximate book value of $8,000 as of October 1, 2021 to Talcott Resolution Life Ins Co as part of this coinsurance agreement on the closing date of December 29, 2021. The transfer was accounted for as a sale in accordance with SSAP No. 103R, and the Company has no continuing involvement with these assets.
Effective November 1, 2021, the Company executed a new reinsurance agreement with RGA Reinsurance Company that covers certain in force fixed annuity policies, and resulted in $300 of reserve credit as of December 31, 2021.








57 of 67


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:





























2021
Percentage of total
2020
Percentage of total
Subject to discretionary withdrawal:







With market value adjustment
$ 48,992 

33  %
$ 43,198 

31  %
At book value less current surrender charges of 5% or more
37,866 

25 

36,364 

26 
At market value
20,998 

13 

21,361 

14 
Total with adjustment or at market value
107,856 

71 

100,923 

71 
At book value without adjustment (minimal or no charge or adjustment)
33,967 

23 

30,641 

22 
Not subject to discretionary withdrawal
7,380 

5 

8,133 

6 
Total gross
149,203 

100  %
139,697 

100  %
Reinsurance ceded
11,960 



2,523 


Total net
$ 137,243 



$ 137,174 


Amount included in At book value less current charges of 5% or more that will move to At book value without adjustment in the year after the statement date:
$ 2,798 



$ 6,776 


















Reconciliation of total annuity actuarial reserves and deposit fund liabilities:
2021
2020
Life, Accident and Health Annual Statement:



Annuities, net (excluding supplementary contracts with life contingencies)
$ 88,413 

95,185 
Supplemental contracts with life contingencies, net
2,083 

2,091 
Deposit-type contracts
4,577 

4,749 
Subtotal
95,073 

102,025 
Separate Accounts Annual Statement:



Annuities, net (excluding supplementary contracts with life contingencies)
42,155 

35,137 
Supplemental contracts with life contingencies, net
15 

11 
Subtotal
42,170 

35,148 
Total annuity actuarial reserves and deposit fund liabilities
$ 137,243 

137,174 










58 of 67


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:













2021
General Account Account value Cash value Reserve
Subject to discretionary withdrawal, surrender values, or policy loans:


Universal life $ 817 
816 
822 
Universal life with secondary guarantees 59 
53 
144 
Indexed life 6,871 
5,945 
5,989 
Other permanent cash value life insurance 105 
105 
105 
Variable universal life 2 
2 
2 
Not subject to discretionary withdrawal or no cash values:


Term policies without cash value XXX XXX 199 
Disability, active lives XXX XXX 49 
Disability, disabled lives XXX XXX 6 
Miscellaneous reserves XXX XXX 46 
Total gross 7,854 
6,921 
7,362 
Reinsurance ceded 616 
616 
878 
Total net $ 7,238 
6,305 
6,484 





2020
General Account Account value Cash value Reserve
Subject to discretionary withdrawal, surrender values, or policy loans:


Universal life $ 845 
844 
851 
Universal life with secondary guarantees 61 
54 
158 
Indexed life 5,458 
4,701 
4,738 
Other permanent cash value life insurance 115 
115 
115 
Variable universal life 3 
3 
3 
Not subject to discretionary withdrawal or no cash values:


Term policies without cash value XXX XXX 204 
Disability, active lives XXX XXX 48 
Disability, disabled lives XXX XXX 6 
Miscellaneous reserves XXX XXX 54 
Total gross 6,482 
5,717 
6,177 
Reinsurance ceded 645 
644 
904 
Total net $ 5,837 
5,073 
5,273 




The Company does not have any Life policies with guarantees in the separate account.





2021
Separate Account Nonguaranteed Account value Cash value Reserve
Subject to discretionary withdrawal, surrender values, or policy loans:


Variable universal life $ 21 
21 
21 
Total gross 21 
21 
21 










59 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)










Reinsurance ceded — 
— 
— 
Total net $ 21 
21 
21 





2020
Separate Account Nonguaranteed Account Value Cash Value Reserve
Subject to discretionary withdrawal, surrender values, or policy loans:


Variable universal life $ 19 
18 
18 
Total gross 19 
18 
18 
Reinsurance ceded — 
— 
— 
Total net $ 19 
18 
18 












Reconciliation of total life actuarial reserves: 2021 2020
Life, Accident, and Health Annual Statement:

Life insurance, net $ 6,412 
$ 5,210 
Disability, active lives, net 47 
47 
Disability, disabled lives, net 1 
1 
Miscellaneous reserves, net 24 
14 
Subtotal 6,484 
5,273 
Separate Accounts Annual Statement:

Life insurance, net 21 
18 
Subtotal 21 
18 
Total life actuarial reserves $ 6,505 
$ 5,291 

(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, 2021 and 2020, 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:











2021
2020
Premiums, considerations, or deposits 5,927 

4,149 
Reserves for accounts with assets at fair value 21,209 

21,574 
Reserves for accounts with assets at amortized cost 20,982 

13,592 
Total reserves 42,191 

35,166 
By withdrawal characteristics:


At book value without MV adjustment and with current surrender charge of 5% or more 18,665 

12,643 
At fair value 21,166 

21,535 
At book value without MV adjustment and with current surrender charge of less than 5% 2,326 

959 
Subtotal 42,157 

35,137 
Not subject to discretionary withdrawal 34 

29 
Total 42,191 

35,166 










60 of 67


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, 2021 and 2020, the Company’s separate accounts included legally insulated assets and non-insulated assets attributed to the following products/transactions:























2021
2020
Product/transaction
Legally insulated Not legally insulated
Legally insulated Not legally insulated
Variable Annuities
$ 21,158 
— 

21,602 
— 
Variable Life
21 
— 

19 
— 
Variable Annuities (Non-Unitized Insulated)
524 
— 

998 
— 
Variable Annuities (Non-Unitized Non-Insulated)
— 
26,548 

— 
23,244 
Variable Annuities (MN MVA)
— 
28 

— 
38 
Total
$ 21,703 
26,576 

22,619 
23,282 
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 $171, $180, $204, $212, and $221 during the past five years, respectively. The general account of the Company paid $4, $19, $16, $5, and $0 towards separate account guarantees during the past five years, respectively.
A reconciliation of net transfers to (from) separate accounts for the years ended December 31 is included in the following table:



















2021
2020
2019
Transfers as reported in the Summary of Operations of the Separate Accounts Annual Statement:




Transfers to separate accounts $ 5,927 

4,149 

1,277 
Transfers from separate accounts (3,507)

(2,689)

3,975 
Net transfers to separate accounts 2,420 

1,460 

5,252 
Reconciling adjustments:




Other adjustments 4 

— 

2 
Transfers as reported in the Statutory Statements of Operations $ 2,424 

1,460 

5,254 
(15)Related-Party Transactions
(a)     Organization Changes
On October 11, 2018, the Company announced the decision to sell the Questar Capital and Asset Management representative network to an unaffiliated wealth management firm. The closing date of the sale was March 1, 2019.
The Company legally dissolved and terminated its subsidiary, Allianz Annuity Company of Missouri (AAMO), by voluntary action on February 24, 2020. Upon termination, AAMO paid an insignificant dividend to the Company.
On July 1 2020, American Financial Marketing, LLC, Ann Arbor Annuity Exchange, LLC, GamePlan Financial Marketing, LLC, and The Annuity Store Financial & Insurance Services, LLC, all of which are wholly owned subsidiaries of TruChoice Financial Group, LLC (TruChoice), which is a wholly owned subsidiary of AIIG, which is a wholly owned subsidiary of the Company, merged into TruChoice. TruChoice was the surviving entity.
Allianz Investment Management U.S. LLC, a Minnesota limited company was formed on October 11, 2020. Allianz Life is its direct parent.
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










61 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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) on page 63.
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 page 63.
(b)    Related-Party Invested Assets
The Company has an agreement to lend AZOA $39. The remaining loan balance was $30 and $39 as of December 31, 2021 and 2020, 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, 2023. The interest rate is a fixed rate of 0.34%. Interest income earned and accrued had an immaterial impact to the Company during 2021, 2020, and 2019, 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 $123 of which $63 and $45 is unfunded as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the fair value of the investment is $64 and $35 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 a reported balance of $33 as of December 31, 2021 within Other invested assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus.

The Company invests in bonds that are managed by a related party, PIMCO. The total committed capital for the bond is $360, of which $186 was unfunded as of December 31, 2021. The Company reported a balance of $174 as of December 31, 2021 related to the PIMCO bonds.

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 $71 and $58 as of December 31, 2021 and 2020 related to the seed money 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 $194, $183, and $157 in 2021, 2020, and 2019, respectively. The Company’s liability for these expenses was $50 and $37 at December 31, 2021 and 2020, 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 $71, $59, and $54 in 2021, 2020, and 2019, respectively. The receivable for these revenues was $7 and $6 for 2021 and 2020, 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, Oppenheimer Capital LLC (OpCap), and with certain other related parties whereby (1) specific investment options managed by PIMCO and OpCap 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 and OpCap. Income recognized by the Company from these affiliates for distribution and in-force related costs as a result of providing investment options to the contractholders was $7, $7, and $8 during 2021, 2020, and 2019, respectively, which is included in Fees from separate accounts on the Statutory Statements of Operations. At December 31, 2021 and 2020, $1 and $1, respectively, were included for related receivables of these fees in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus.










62 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 $427, $320, and $285 for the years ended December 31, 2021, 2020, and 2019, 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 $(42), $(20), and $2 for the years ended December 31, 2021, 2020, and 2019, respectively.
(d)     Dividends to Parent
The Company paid cash dividends to AZOA of $900, $750, and $325 in 2021, 2020, and 2019, respectively. Based on the ordinary dividend limitations set forth under Minnesota Insurance Law, the dividends paid in 2021 and 2020 were considered as extraordinary, and dividends paid in 2019 were considered ordinary.
(e)     Capital Contributions and Dividends with Subsidiaries
During the years ended December 31, the Company received dividends from its subsidiaries as follows:





















2021
2020
2019
Allianz Investment Management, LLC
$ 41 

51 

56 
ALFS
— 

— 

2 
AZL PF Investments, Inc.
— 

50 

— 
Allianz Individual Insurance Group, LLC (AIIG)
4 

— 

— 
Yorktown
— 

— 

9 
Total
$ 45 

101 

67 
During the years ended December 31, the Company made capital contributions to subsidiaries as follows:





















2021
2020
2019
Yorktown
$ — 

— 

1 
Allianz Investment Management U.S. LLC (AIM US)
8 

1 

— 
ALFS
48 

20 

8 
ASI
$ 66 

$ — 

$ — 
Total
$ 122 

21 

9 
(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, 2021, 2020, and 2019 were $2, $3, and $6, respectively. The Company recorded a ceding commission of $1 for 2021, 2020, and 2019, respectively. In addition, the Company recorded a deferred gain of $97 upon execution of the reinsurance agreement in 2009, of which $3, $2 and $2 was amortized in 2021, 2020, and 2019, 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 $3 and $1 as of December 31, 2021 and 2020, respectively, and are included in Other assets on the Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus.








63 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

(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 $25 to AZNY under the terms of this agreement on March 17, 2020. The full amount was repaid on April 15, 2020. There was no outstanding balance under the line of credit agreement as of December 31, 2021 and 2020.
(16)    Employee Benefit Plans
The Company participates in the Allianz Asset Accumulation Plan (AAAP), a defined contribution plan sponsored by Allianz of America Corporation (AZOAC). Eligible employees are immediately enrolled in the AAAP on their first day of employment. The AAAP will accept participants’ pretax, Roth 401(k), and/or after-tax contributions up to 80% 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 $13, $13, and $13 in 2021, 2020, and 2019, 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 $75 and $61 as of December 31, 2021 and 2020, 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 $65 and $66 as of December 31, 2021 and 2020, 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 $8, $5, and $10 was recorded in 2021, 2020, and 2019, respectively, and is included in General and administrative expenses on the Statutory Statements of Operations. The related liability of $18 and $18 as of December 31, 2021 and 2020, 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, 2021 and 2020, 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










64 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

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 of the insurer, not including realized gains, for the 12-month period ending the 31st day of the next preceding year. Based on these limitations, ordinary dividends of $1,070 can be paid in 2022 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, each of which requires specified corrective action. This ratio for the Company significantly exceeds required minimum thresholds as of December 31, 2021 and 2020.
(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 claims payment, claims adjustment, underwriting, and premium collection. Total premiums written by TPAs were $136, $148, and $116 for 2021, 2020, and 2019, respectively. For the years ended December 31, 2021, 2020, and 2019, 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:



























Authorized
Issued and outstanding
Par value, per share
Redemption and liquidation rights
Common stock
40,000,000 

20,000,001 

$ 1.00 

None
Preferred stock:







Class A (consisting of Series A and B below)
200,000,000 

18,903,484 

$ 1.00 

Designated by Board for each series issued
Class A, Series A
8,909,195 

8,909,195 

$ 1.00 

$35.02 per share plus an amount to yield a compounded annual return of 6%, after actual dividends paid
Class A, Series B
10,000,000 

9,994,289 

$ 1.00 

$35.02 per share plus an amount to yield a compounded annual return of 6%, after actual dividends paid
Class B
400,000,000 

— 

$ 1.00 

Designated by Board for each series issued
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.








65 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

As discussed in Note 15 to these Statutory Financial Statements, the Company carried out various capital transactions with related parties during 2021, 2020, and 2019.
(20)    Reconciliation to the Annual Statement
The Company is required to file an Annual Statement with the Department. As of December 31, 2021 and 2020, there is no difference in admitted assets or liabilities between this report and the Annual Statement. As of December 31, 2021, 2020, and 2019, 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 two putative class action proceedings: Sanchez v. Allianz Life Ins. Co. of North America (Superior Court of California, L.A. County, BC594715), which has been certified as a class, and 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), which has not been certified as a class action. 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 may become subject to ongoing market conduct examinations and investigations by regulators, which may 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, 2021, 2020, and 2019 are detailed in Note 15.
The Company had investments in limited partnerships that required a commitment of capital of $274 and $306 for the years ended December 31, 2021 and 2020, respectively. The Company had commitments to fund private placement investments of $612 and 187 as of December 31, 2021 and 2020, respectively.
(22)    Subsequent Events
The Company has evaluated subsequent events through April 4, 2022, which is the date the Statutory Financial Statements were available to be issued. No material subsequent events have occurred since December 31, 2021 that require adjustment to the Statutory Financial Statements.








66 of 67


ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Statutory Financial Statements
(Dollars in millions, except share data and security holdings quantities)

In March 2022, the Company made a capital contribution of $30 to the Allianz Life Insurance Company of New York and paid a cash dividend of $4,100 to AZOA.
As a result of the Russia/Ukraine conflict, economic uncertainties have arisen, which may negatively impact the Company's net income and surplus. The extent to which the conflict impacts our business, net income, and surplus, as well as our capital and liquidity position, will depend on future developments, which are highly uncertain and cannot be estimated, including the scope and duration of the conflict and actions taken by governmental authorities and other third parties in response to the conflict.








67 of 67




For Service or More Information
The Statement of Additional Information (SAI) contains additional information about the Contract, Allianz Life, and the Separate Account. The SAI is dated the same date as this prospectus, and the SAI is incorporated by reference into this prospectus. This prospectus and the SAI can be found online at allianzlife.com/prospectuses . 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 SEC maintains a website sec.gov . The prospectus, the Form N-4 SAI and other information about the Contract are available on the EDGAR database on the SEC’s website. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov.
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 an application, a check for an additional Purchase Payment, or for general customer service, please mail to the appropriate address as follows:
To send an application, a check for an additional Purchase Payment,
or for general customer service, please mail to the appropriate address as follows:
REGULAR MAIL
Allianz Life Insurance Company of North America
P.O. Box 59060
Minneapolis, MN 55459-0060
 
OVERNIGHT, CERTIFIED, OR REGISTERED MAIL
Allianz Life Insurance Company of North America
5701 Golden Hills Drive
Golden Valley, MN 55416-1297
    
Checks sent to the wrong address for applications or additional Purchase Payments are forwarded to the 5701 Golden Hills Drive address listed above, which may delay processing.
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: allianzlife.com . If you have questions about whether you can submit certain information by email or over the web, please contact our Service Center.
Until May 1, 2023, all dealers that effect transactions in these securities may be required to deliver a prospectus.
EDGAR Contract ID No.: C000174311
Allianz Index Advantage ADV ® Variable Annuity Prospectus – April 29, 2022
 130 





PART II - INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

    Securities and Exchange Commission Registration Fee
$      52,139
 
 ----------------
 
    Estimated Printing and Filing Costs:
$      30,000
 
 ----------------
 
    Estimated Accounting Fees:
$      75,000
 
-----------------
 
    Estimated Legal Fees:
$       N/A
 
-----------------
 
    Estimated Miscellaneous Fees:
$        N/A
 
 ----------------
 
 
ITEM 14.  INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Bylaws of the Insurance Company provide:
ARTICLE XI. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 1. RIGHT TO INDEMNIFICATION:
(a)
Subject to the conditions of this Article and any conditions or limitations imposed by applicable law, the Corporation shall indemnify any employee, director or officer of the Corporation (an "Indemnified Person") who was, is, or in the sole opinion of the Corporation, may reasonably become a party to or otherwise involved in any Proceeding by reason of the fact that such Indemnified Person is or was:
 
(i)
a director of the Corporation; or
 
(ii)
acting in the course and scope of his or her duties as an officer or employee of the Corporation; or
 
(iii)
rendering Professional Services at the request of and for the benefit of the Corporation; or
 
(iv)
serving at the request of the Corporation as an officer, director, fiduciary or member of another corporation, association, committee, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Outside Organization").
(b)
Notwithstanding the foregoing, no officer, director or employee shall be indemnified pursuant to these bylaws under the following circumstances:
 
(i)
in connection with a Proceeding initiated by such person, in his or her own personal capacity, unless such initiation was authorized by the Board of Directors;
 
(ii)
if a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful;
 
(iii)
for acts or omissions involving intentional misconduct or knowing and culpable violation of law;
 
(iv)
for acts or omissions that the Indemnified Person believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the Indemnified Person;
 
(v)
for any transaction for which the Indemnified Person derived an improper personal benefit;
 
(vi)
for acts or omissions that show a reckless disregard for the Indemnified Person's duty to the Corporation or its shareholders in circumstances in which the Indemnified Person was aware or should have been aware, in the ordinary course of performing the Indemnified Person's duties, of the risk of serious injury to the Corporation or its shareholders;
 
(vii)
for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the Indemnified Person's duties to the Corporation or its shareholders;
 
(viii)
in circumstances where indemnification is prohibited by applicable law;
 
(ix)
in the case of service as an officer, director, fiduciary or member of an Outside Organization, where the Indemnified Person was aware or should have been aware that the conduct in question was outside the scope of the assignment as contemplated by the Corporation.

SECTION 2. SCOPE OF INDEMNIFICATION:
(a)
Indemnification provided pursuant to Section 1(a)(iv) shall be secondary and subordinate to indemnification or insurance provided to an Indemnified Person by an Outside Organization or other source, if any.
(b)
Indemnification shall apply to all reasonable expenses, liability and losses, actually incurred or suffered by an Indemnified Person in connection with a Proceeding, including without limitation, attorneys' fees and any expenses of establishing a right to indemnification or advancement under this article, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and all interest, assessments and other charges paid or payable in connection with or in respect of such expense, liability and loss.
(c)
Such indemnification shall continue as to any Indemnified Person who has ceased to be an employee, director or officer of the Corporation and shall inure to the benefit of his or her heirs, estate, executors and administrators.
SECTION 3. DEFINITIONS:
(a)
"Corporation" for the purpose of Article XI shall mean Allianz Life Insurance Company of North America and all of its subsidiaries.
(b)
"Proceeding" shall mean any threatened, pending, or completed action, suit or proceeding whether civil, criminal, administrative, investigative or otherwise, including actions by or in the right of the Corporation to procure a judgment in its favor.
(c)
"Professional Services" shall mean services rendered pursuant to (i) a professional actuarial designation, (ii) a license to engage in the practice of law issued by a State Bar Institution or (iii) a Certified Public Accountant designation issued by the American Institute of Certified Public Accountants.
 
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted for directors and officers or controlling persons of the Insurance Company pursuant to the foregoing, or otherwise, the Insurance Company 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, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Insurance Company of expenses incurred or paid by a director, officer or controlling person of the Insurance Company 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 Company 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.

ITEM 15.   RECENT SALES OF UNREGISTERED SECURITIES.
        NOT APPLICABLE.
ITEM 16.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.(a)
Principal Underwriter Agreement by and between North American Life and Casualty Company on behalf of NALAC Financial Plans, Inc. dated September 14, 1988 incorporated by reference as exhibit EX-99.B3.a. from Pre-Effective Amendment No.1 to Form N-4 (File Nos. 333-06709 and 811-05618), electronically filed on December 13, 1996. (North American Life and Casualty Company is the predecessor to Allianz Life Insurance Company of North America. NALAC Financial Plans, Inc., is the predecessor to USAllianz Investor Services, LLC, which is the predecessor to Allianz Life Financial Services, LLC.)
 (b)
Broker-Dealer Agreement (amended and restated) between Allianz Life Insurance Company of North America and Allianz Life Financial Services, LLC, dated June 1, 2010 incorporated by reference as exhibit EX-99B3b. from Pre-Effective Amendment No. 1 to Form N-4 (File Nos. 333-166408 and 811-05618), electronically filed on September 24, 2010.
 (c)  
The current specimen of the selling agreement between Allianz Life Financial Services, LLC, the principal underwriter for the Contracts, and retail brokers which offer and sell the Contracts to the public is incorporated by reference as exhibit EX-99.B3.b. from the initial filing on Form N-4 (File Nos. 333-134267 and 811-05618), electronically filed on May 19, 2006.The underwriter has executed versions of the agreement with approximately 2,100 retail brokers.
    2.                  Not applicable
    3. (a)                   
 Articles of Incorporation, as amended and restated August 1, 2006, of Allianz Life Insurance Company of North    America, filed on January 3, 2013 as 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-L40538 incorporated by reference as Exhibit 4(a) from Pre-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
 
      
   (b)(i)
Contract Schedule Page S40876 incorporated by reference as Exhibit 4(b) from Pre-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
 
    
      (ii)
Contract Schedule Page S40877-01, incorporated by reference as Exhibit 4(b) from Post-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-195462), electronically filed on December 8, 2014.
 
    
     (iii)
Revised Contract Schedule Page S40877-01, including Guard Strategy, incorporated by reference as Exhibit 4(b) from Registrant’s Pre-Effective Amendment No. 1 on Form S-1 (File No. 333-213125), electronically filed on October 26, 2016.
 
    
   (c)(i)
 
Contract Schedule Page S40875-ADV, incorporated by reference as Exhibit 4(c) from Registrant’s initial registration on Form S-1 (File No. 333-213125), electronically filed on August 15, 2016.
 
  
     (ii)
 
Contract Schedule page, S40875-01-ADV, including Precision Strategy, incorporated by reference as Exhibit 4(c) from Post-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-213125), electronically filed on January 17, 2017.
 
  
     (iii)
 
Index Options Contract Schedule Page, S40895-ADV, incorporated by reference as Exhibit 4(c) from Post-Effective Amendment No. 4 to Registrant’s Form S-1 (File No. 333-213125), electronically filed on April 17, 2018.
 
  
    (iv)
 
Index Options Contract Schedule Page and Addendum, S40877-ADV-04 and S40877-ADD, incorporated by reference as Exhibit 4(c)(iv) from Post-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-230899), electronically filed on January 21, 2020.
 
  
   (d)
Application for Individual Variable Annuity Contract – IXA-APP-02-ADV-0419, incorporated by reference as Exhibit 4(d) from Registrant’s initial registration on Form S-1 (File No. 333-185864), electronically filed on April 16, 2019.
 
  
   (e)(i)
 
Index Performance Strategy Crediting Rider-S40878 incorporated by reference as Exhibit 4(d) from Pre-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
 
  
       (ii)
 
Index Performance Strategy Rider II – S40903, incorporated by reference as Exhibit 4(e)(ii) from Post-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-230899), electronically filed on January 21, 2020.
 
      (iii)
 
Inforce Index Performance Strategy Rider II – S40903-INFORCE, incorporated by reference as Exhibit 4(e)(iii) from Post-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-230899), electronically filed on January 21, 2020..
 
  
   (f)
 
Index Guard Strategy Crediting Rider-S40889, incorporated by reference as Exhibit 4(g) from Post-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-195462), electronically filed on December 8, 2014.
 
  
   (g)
 
Index Precision Strategy Crediting Rider, S40891, incorporated by reference as Exhibit 4(h) from Post-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-213125), electronically filed on January 17, 2017.
 
  
    (h)
 
Traditional Death Benefit Rider-S40880 incorporated by reference as Exhibit 4(f) from Pre-Effective Amendment No. 1 to Registrant's Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
 
  
    (i)
 
Waiver of Withdrawal Charge Rider-S40749 incorporated by reference as exhibit EX-99.B4.f. from Pre-Effective Amendment No. 1 to Registrant's Form N-4 (File Nos. 333-139701 and 811-05618), electronically filed on April 9, 2007.
 
  
    (j)
 
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.
 
  
      (k)
 
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.
 
  
     (l)
 
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.
 
  
      (m)
 
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.
 
  
      (n)
 
Maximum Anniversary Death Benefit Rider- S40897 and MAV Contract Schedule S40898-ADV, incorporated by reference as Exhibit 4(o) from Post-Effective Amendment No.  3 to Registrant’s form S-1 (File No. 333-213125), electronically filed on December 15, 2017.
 
  
    5.*                     Opinion re Legality, filed herewith
    8.                        Opinion re Tax Matters - not applicable
    9.                        Not applicable


   10.                        Material Contracts – not applicable
   11.                       Not applicable
   12.                        Not applicable
   15.                       Not applicable
   16.                       Not applicable
   21.                      Not applicable.
   23.                     (a)*    Consent of Independent Registered Public Accounting Firm, filed herewith.
          (b)     Consent of Counsel, filed as Exhibit 5 to this Registration Statement.
   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.

                 
(b)     Form of Board Resolution of the Board of Directors of Allianz Life Insurance Company of North America, effective April 14, 2014, filed on April 14, 2014 as Exhibit 24(d) to Registrant's Post-Effective Amendment No. 2 to Form S-1 (File No. 333-185864), is incorporated by reference.
                
(c)*
Powers of Attorney, filed herewith.
   25.                Not applicable
   26.                Not applicable
   99.             
(a)         Alternative Minimum Value Exhibit - IXA-032 (05/2020), filed on April 9, 2020 as Exhibit 99(a) to Registrant's Post-Effective Amendment No. 2 to Form S-1 (File No. 333-237620), is incorporated by reference.
                 
(b)
Appendix B Exhibit – Daily Adjustment Calculation - IXA-010b (05/2021), filed on April 16, 2021, as Exhibit 99(b) to Registrant's initial registration on Form S-1 (File No. 333-230899), is incorporated by reference.
                
(c)
Transition Representation Letter - Independent Registered Public Accounting Firm, pursuant to S-K, item 304, incorporated by reference as Exhibit 99(c) from Post-Effective Amendment No. 4 to Registrant’s Form S-1 (File No. 333-213125), electronically filed on April 17, 2018.

    107.*
Filing Fee Table – filed herewith.

   *  Filed herewith
  ** To be filed by amendment

(b) Financial Statement Schedules
All required financial statement schedules of Allianz Life Insurance Company of North America are included in Part I of this registration statement.

ITEM 17.   UNDERTAKINGS.
The undersigned registrant hereby undertakes pursuant to Item 512 of Regulation S-K:
(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.
 




SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on this 15th day of April, 2022.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
By: /s/ Jasmine M. Jirele*
       Jasmine M. Jirele
       Chief Executive Officer, President, and Director


Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on April 15, 2022.


Signature
Title
Jasmine Jirele*
Director, President & Chief Executive Officer
  
Andreas G. Wimmer*
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*
Anna Sophie Herken*
Director
Director
  
Howard E. Woolley*
Director
  

*By Power of Attorney, filed as Exhibit 24(c) to this Registration Statement.


     BY: /s/ Erik T. Nelson                                                                      
           Erik T. Nelson
           Associate General Counsel, Senior Counsel




POST EFFECTIVE AMENDMENT NO. 4

TO

FORM S-1

ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA

INDEX TO EXHIBITS



Exhibit
Description of Exhibit
5
 
Opinion of Counsel
 
23(a)
 
Consent of Independent Registered Public Accounting Firm
 
24(c)
 
Powers of Attorney
 
107
 
Filing Fee Table