Ameriprise 2005 Annual Report Download - page 70

68 |Ameriprise Financial, Inc.
Liabilities for equity indexed deferred annuities issued in 1999
or later are equal to the accumulation of host contract values
covering guaranteed benefits and the market value of
embedded equity options. Liabilities for equity indexed
deferred annuities issued before 1999 are equal to the pres-
ent value of guaranteed benefits and the intrinsic value of
index-based benefits. Accounting for equity indexed deferred
annuities issued before 1999 differs from those issued in
1999 and later due to the treatment of embedded equity
options within the contracts. Embedded equity options are
considered embedded derivatives under SFAS 133. However,
SFAS 133 allowed companies to elect whether to separately
account for embedded derivatives which are part of contracts
issued prior to January 1, 1999. The Company elected not to
separately account for embedded derivatives related to con-
tracts issued prior to January 1, 1999.
Liabilities for fixed annuities in a benefit or payout status are
based on future estimated payments using established indus-
try mortality tables and interest rates, ranging from 4.6% to
9.5% at December 31, 2005, depending on year of issue, with
an average rate of approximately 6.0%.
Life, Disability Income and Long-term Care Insurance
Liabilities for insurance claims that have been reported but not
yet paid (unpaid claims liabilities) are equal to the death bene-
fits payable under the policies. For claims, unpaid claims
liabilities are equal to benefit amounts due and accrued
including the expense of reviewing claims and making benefit
payment determinations. Liabilities for claims that have been
incurred but not reported are estimated based on periodic
analysis of the actual lag between when a claim occurs and
when it is reported. Where applicable, amounts recoverable
from other insurers who share in the risk of the products
offered (reinsurers) are separately recorded as receivables.
Liabilities for fixed and variable universal life insurance are
equal to accumulation values which are the cumulative gross
deposits, credited interest and fund performance less with-
drawals and expense and mortality charges. Liabilities for
future benefits on term and whole life insurance are based on
the net level premium method, using anticipated premium pay-
ments, mortality rates, policy persistency and interest rates
earned on the assets supporting the liability. Anticipated mor-
tality rates are based on established industry mortality tables,
with modifications based on Company experience. Anticipated
policy premium payments and persistency rates vary by policy
form, issue age and policy duration. Anticipated interest rates
range from 4% to 10% at December 31, 2005, depending on
policy form, issue year and policy duration. The Company
issues only non-participating life insurance policies, which do
not pay dividends to policyholders from the insurers’ earnings.
Liabilities for future policy benefits include both policy
reserves and claim reserves on disability income and long-
term care products. Policy reserves are the amounts needed
to meet obligations for future claims and are based on the net
level premium method, using anticipated premium payments
and morbidity, mortality, policy persistency and discount rates.
Anticipated morbidity and mortality rates are based on estab-
lished industry morbidity and mortality tables. Anticipated
policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class.
Anticipated discount rates for disability income policy reserves
are 7.5% at policy issue and grade to 5% over 5 years.
Anticipated discount rates for long-term care policy reserves
are currently 5.3% at December 31, 2005 grading up to 9.4%
over 40 years.
Claim reserves on disability income and long-term care products
are the amounts needed to meet obligations for continuing
claim payments on already incurred claims. Claim reserves are
calculated based on claim continuance tables which estimate
the likelihood that an individual will continue to be eligible for
benefits and anticipated interest rates earned on assets sup-
porting the reserves. Anticipated claim continuance rates are
based on established industry tables. Anticipated interest
rates for claim reserves for both disability income and long-
term care range from 3.0% to 8.0% at December 31, 2005,
with an average rate of approximately 4.9%.
Auto and Home Reserves
Auto and home reserves include amounts determined from
loss reports and individual cases, as well as an amount,
based on past experience, for losses incurred but not
reported. Such liabilities are necessarily based on estimates
and, while management believes that the reserve amounts are
adequate at December 31, 2005 and 2004, the ultimate liabil-
ity may be in excess of or less than the amounts provided. The
Company’s methods for making such estimates and for estab-
lishing the resulting liability are continually reviewed, and any
adjustments are reflected in the Consolidated Statements of
Income in the period such adjustments are made.
Investment Certificate Reserves
Investment certificates may be purchased either with a lump
sum or installment payments. Certificate product owners are
entitled to receive, at maturity, a definite sum of money.
Payments from certificate owners are credited to investment
certificate reserves. Investment certificate reserves generally
accumulate interest at specified percentage rates. Reserves
are maintained for advance payments made by certificate own-
ers, accrued interest thereon, and for additional credits in
excess of minimum guaranteed rates and accrued interest
thereon. On certificates allowing for the deduction of a surren-
der charge, the cash surrender values may be less than
accumulated investment certificate reserves prior to maturity
dates. Cash surrender values on certificates allowing for no
surrender charge are equal to certificate reserves.
Certain certificates offer a return based on the relative change
in a stock market index. The certificates with an equity-based
return contain embedded derivatives, which are carried at fair
value within investment certificate reserves on the
Consolidated Balance Sheets. The fair value of these embed-
ded derivatives incorporate current market data inputs.
Changes in fair value are reflected in interest credited to
account values within the Consolidated Statements of Income.