Ameriprise 2005 Annual Report Download - page 76

74 |Ameriprise Financial, Inc.
The $21 million of other-than-temporary impairments in 2005
primarily related to corporate debt securities within the auto
industry which were downgraded in 2005 and subsequently
deteriorated throughout the year in terms of their fair value to
amortized cost ratio. The $2 million of other-than-temporary
impairments in 2004 related to four issuers within corporate
debt securities. The $152 million of other-than-temporary
impairments in 2003 consisted of $90 million related to cor-
porate debt securities, $55 million related to the Company’s
interests in the CDO securitization trust described below, and
$7 million related to other securities. The other-than-temporary
impairments related to corporate debt securities were spread
across twelve issuers with approximately $71 million resulting
from continued operating difficulties and bankruptcies of cer-
tain large airline carriers and the related overall impact on the
airline industry. The other-than-temporary impairments related
to the Company’s interests in the CDO securitization trust pri-
marily resulted from defaults associated with a specific CDO
within the securitization trust.
As of December 31, 2004, the Company held retained inter-
ests in a non consolidated CDO securitization for which it
transferred a majority of its rated CDO securities. The retained
interests had a carrying value of $705 million, of which
$523 million is considered investment grade and are
accounted for in accordance with EITF Issue No. 99-20. The
Company sold all of its retained interests in the CDO securiti-
zation during 2005 generating a $36 million net pretax gain.
As previously described, the 2003 adoption of FIN 46 required
the consolidation of a CDO which contains debt issued to
investors that is non-recourse to the Company and solely sup-
ported by a portfolio of high-yield bonds and loans. The
Company manages the portfolio of high-yield bonds and loans
for the benefit of CDO debt held by investors and retains an
interest in the residual and rated debt tranches of the CDO
structure. This CDO primarily included below investment grade
corporate debt securities which had a fair value of $214 mil-
lion and $249 million at December 31, 2005 and 2004,
respectively. These corporate debt securities are included
within the Available-for-Sale category but are not available for
the general use of the Company as they are for the benefit of
CDO debt holders. More information about this CDO is provided
in Note 4.
Mortgage Loans on Real Estate, Net
The following is a summary of mortgage loans on real estate
at December 31:
2005 2004
(in millions)
Mortgage loans on real estate $3,190 $3,298
Less: allowance for loan losses (44) (49)
Mortgage loans on real estate, net $3,146 $3,249
Mortgage loans are first mortgages on real estate. The
Company holds the mortgage documents, which gives it the
right to take possession of the property if the borrower fails to
perform according to the terms of the agreements.
At December 31, 2005 and 2004, the Company’s recorded
investment in impaired mortgage loans on real estate was
$14 million and $16 million, with related allowances for loan
losses of $4 million and $5 million, respectively. During 2005
and 2004, the average recorded investment in impaired mort-
gage loans on real estate was $8 million and $17 million,
respectively. For each of the years ended December 31, 2005,
2004 and 2003, the Company recognized interest income
related to impaired mortgage loans on real estate of nil,
$1 million and $1 million, respectively.
The balances of and changes in the allowance for loan losses as of and for the years ended December 31, are as follows:
2005 2004 2003
(in millions)
Balance, beginning of year $49 $54 $47
Provision for loan losses –915
Foreclosures, write-offs and loan sales (5) (14) (8)
Balance, end of year $44 $49 $54