Ameriprise 2005 Annual Report Download - page 67

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Ameriprise Financial, Inc. |
cost exceeds fair value, the duration of that difference, and
management’s judgment about the issuer’s current and
prospective financial condition, as well as the Company’s abil-
ity and intent to hold until recovery. Fair value is generally
based on quoted market prices. However, the Company’s
Available-for-Sale securities portfolio also contains structured
investments of various asset quality, including CDOs (backed
by high-yield bonds and bank loans), which are not readily mar-
ketable. As a result, the carrying values of these structured
investments are based on future cash flow projections that
require a significant degree of management judgment as to
the amount and timing of cash payments, defaults and recov-
ery rates of the underlying investments and, as such, are
subject to change.
Mortgage Loans on Real Estate, Net
Mortgage loans on real estate reflect principal amounts out-
standing less allowances for losses. The allowance for
mortgage loan losses is measured as the excess of the loan’s
recorded investment over the present value of its expected
principal and interest payments discounted at the loan’s effec-
tive interest rate, or the fair value of collateral. Additionally, the
level of the allowance for losses considers other factors,
including historical experience and economic and political con-
ditions. Management regularly evaluates the adequacy of the
allowance for mortgage loan losses and believes it is ade-
quate to absorb estimated losses in the portfolio.
The Company generally stops accruing interest on mortgage
loans for which interest payments are delinquent more than
three months. Based on management’s judgment as to the
ultimate collectibility of principal, interest payments received
are either recognized as income or applied to the recorded
investment in the loan.
Trading Securities and Equity Method Investments
in Hedge Funds
Trading securities and equity method investments in hedge
funds include common stocks, hedge fund investments and
mutual fund, hedge fund and separate account seed money.
Trading securities are carried at fair value on the Consolidated
Balance Sheets with unrealized and realized gains (losses)
recorded in the Consolidated Statements of Income within net
investment income. The carrying value of equity method invest-
ments in hedge funds reflects the Company’s original
investment and its share of earnings or losses of the hedge
funds subsequent to the date of investment, and approxi-
mates fair value.
Policy Loans
Policy loans include life insurance policy, annuity and invest-
ment certificate loans. These loans are carried at the
aggregate of the unpaid loan balances, which do not exceed
the cash surrender values of underlying products.
Other Investments
Other investments reflect the Company’s interest in affordable
housing partnerships, syndicated loans and real estate
investments. Affordable housing partnerships are carried at
amortized cost, as the Company has no influence over the
operating or financial policies of the general partner.
Syndicated loans reflect amortized cost less allowance for
losses. Real estate investments reflect properties acquired in
satisfaction of debt and are carried at the lower of cost or the
property’s net realizable value.
Receivables
Receivables include reinsurance recoverables, premiums due
and other receivables, including open securities transactions
receivable and accrued investment income.
Reinsurance
The Company reinsures a portion of the risks associated with
its life and long-term care insurance products through reinsur-
ance agreements with unaffiliated insurance companies.
Reinsurance is used in order to limit losses, minimize expo-
sure to large risks, provide additional capacity for future growth
and to effect business-sharing arrangements. The Company
evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
The Company remains primarily liable as the direct insurer on
all risks reinsured.
Generally, the Company reinsures 90% of the death benefit lia-
bility related to variable, universal and term life insurance
products. The Company began reinsuring risks at this level
beginning in 2001 for term life insurance and 2002 for vari-
able and universal life insurance. Policies issued prior to these
dates are not subject to these same reinsurance levels. The
maximum amount of life insurance risk retained by the
Company is $750,000 on any policy insuring a single life and
$1.5 million on any flexible premium survivorship variable life
policy. For existing long-term care policies, the Company
retained 50% of the risk and the remaining 50% of the risk
was ceded to General Electric Capital Assurance Company.
Risk on variable life and universal life policies is reinsured on
a yearly renewable term basis. Risk on term life and long-term
care policies is reinsured on a coinsurance basis.
The Company retains all risk for new claims on disability
income contracts. Risk is currently managed by limiting the
amount of disability insurance written on any one individual.
The Company also retains all accidental death benefit and
waiver of premium risk.
Brokerage Customer Receivables
Included in receivables are receivables from brokerage cus-
tomers, which primarily represent credit extended to brokerage
customers to finance their purchases of securities on margin.
At December 31, 2005 and 2004, receivables from brokerage
customers were $279 million and $290 million, respectively.
Customer receivables are primarily collateralized by securities
with market values in excess of the amounts due.