Ameriprise 2005 Annual Report Download - page 39

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Ameriprise Financial, Inc. |
Interest credited to account values decreased by $116 million,
or 8% to $1,268 million in 2004, down from $1,384 million in
2003. This was primarily due to a $96 million decrease in fixed
annuities and universal life insurance contracts due to lower
crediting rates. The crediting rates on these products decreased
primarily due to decreases in long-term interest rates and to a
lesser extent due to the impact of lower appreciation in the
S&P 500 on equity-indexed annuities in 2004 compared to
2003. Despite the decrease in crediting rates on fixed annuity
and universal life products, persistency remained high and in
force levels for annuity and life products were up in 2004.
Benefits, claims, losses and settlement expenses increased
by $88 million to $828 million in 2004 from $740 million in
2003. Benefits, claims, losses and settlement expenses,
excluding AMEX Assurance, were $786 million in 2004 com-
pared to $703 million in 2003, an increase of 12%. This
includes a $70 million increase as a result of higher average
number of policies in force, partially offset by a reduction in
long-term care benefit expenses as a result of our decision to
cease underwriting long-term care insurance effective
December 31, 2002.
Amortization of DAC was $437 million for the year ended
December 31, 2004, a $43 million decrease over the
$480 million DAC amortization expense in 2003. DAC amorti-
zation without AMEX Assurance was $404 million, down 10%
from $451 million in 2003. This decrease was primarily due
to a $66 million adjustment associated with the lengthening
of amortization periods for certain insurance and annuity
products in conjunction with our adoption of SOP 03-1, and
approximately $24 million in net favorable DAC adjustments
in the third quarter of 2004 as a result of changes to our DAC
assumptions as compared to a $2 million net favorable DAC
adjustment in the third quarter of 2003.
The $24 million DAC amortization expense reduction in the
third quarter of 2004 consisted of:
a $4 million reduction reflecting changes in previously
assumed mortality rates;
a $13 million reduction reflecting changes from previously
assumed surrender and lapse rates;
a $3 million reduction from the annual extension of the mean
reversion period by one year; and
a $4 million reduction reflecting higher than previously
assumed interest rate spreads and other miscellaneous
items.
The $2 million DAC amortization expense reduction in the third
quarter of 2003 consisted of:
a $106 million reduction resulting from extending 10-15 year
amortization periods for certain flex annuity products to
20 years based on current measurements of meaningful life;
a $92 million increase resulting from the recognition of pre-
mium deficiency on our long-term care products; and
a $12 million net increase across our universal life, variable
universal life and annuity products, primarily reflecting lower
than previously assumed interest rate spreads, separate
account fee rates and account maintenance expenses.
Interest and debt expense increased by $7 million, or 15% to
$52 million in 2004 from $45 million in 2003, primarily as a
result of increased borrowing under our debt arrangements
with American Express. This increase was partially offset by a
reduction in the amount of our other debt. AMEX Assurance
had no impact on interest and debt expense.
Other expenses increased by $242 million to $1,042 million
in 2004 compared to $800 million in 2003. Other expense
excluding AMEX Assurance rose 31% to $1,012 million from
$768 million in 2003, reflecting the full-year effect of our
acquisition of Threadneedle, which increased other
expenses by $114 million. Higher costs related to various
mutual fund regulatory and legal matters increased other
expenses by approximately $80 million, and greater adver-
tising and promotion expense increased other expenses by
$39 million.
Income Taxes
Income taxes increased to $287 million in 2004 from
$179 million in 2003. Our effective tax rate increased to
25.8% in 2004 from 20.5% in 2003. The higher effective tax
rate and income taxes in 2004 relative to 2003 are principally
due to the impact of lower levels of tax-advantaged items in
pretax income and reduced low income housing credits during
2004, and the one-time effect, recognized in 2003, of favor-
able technical guidance issued by the Internal Revenue
Service related to the taxation of dividend income. Excluding
AMEX Assurance, income taxes increased to $236 million in
2004 from $134 million in 2003, on income before income tax
provision, discontinued operations, cumulative effect of
accounting change and AMEX Assurance of $959 million in
2004 and $738 million in 2003.