Ameriprise 2006 Annual Report Download - page 26

Ameriprise Financial brand, separating and reestablishing our
technology platforms and advisor and employee retention
programs. We expect to continue to incur non-recurring
separation costs through the end of 2007, which will include
remaining technology costs. In addition to non-recurring
separation costs, we have incurred higher ongoing expenses
associated with establishing ourselves as an independent
company.
Transfer of Businesses
Effective August 1, 2005, we transferred our 50% ownership
interest and the related assets and liabilities of our subsidiary,
American Express International Deposit Company (“AEIDC”) to
American Express. The results of operations and cash flows of
AEIDC are classified as discontinued operations.
Effective September 30, 2005, we entered into an agreement
to sell our interest in the AMEX Assurance legal entity to
American Express on or before September 30, 2007 for
approximately $115 million. This transaction, combined with
the ceding of all travel insurance and card related business to
American Express effective July 1, 2005, created a variable
interest entity for which we are not the primary beneficiary.
Accordingly, we deconsolidated AMEX Assurance as of
September 30, 2005.
Services and Operations Provided by American Express
American Express has historically provided to us a variety of
corporate and other support services, including information
technology, treasury, accounting, financial reporting, tax
administration, human resources, marketing, legal,
procurement and other services. Following the Distribution,
American Express has continued to provide us with many of
these services pursuant to transition services agreements for
periods of up to two years or more, if extended by mutual
agreement between us and American Express. We have
terminated or will terminate a particular service after we have
completed the procurement of the designated service through
arrangements with third parties or through our own employees.
Other than technology related expenses, we currently expect
that the aggregate costs we will pay to American Express under
the transition services agreements for continuing services and
the costs for establishing or procuring the services that have
historically been provided to us by American Express will not
significantly differ from the amounts reflected in our historical
Consolidated Financial Statements.
For the periods preceding the Distribution, we prepared our
Consolidated Financial Statements as if we had been a stand-
alone company. In the preparation of our Consolidated Financial
Statements for those periods, we made certain allocations of
expenses that our management believed to be a reasonable
reflection of costs we would have otherwise incurred as a
stand-alone company but were paid by American Express.
Equity Markets and Interest Rates
Equity market and interest rate fluctuations can have a
significant impact on our results of operations, primarily due to
the effects they have on the asset management fees we earn
and the “spread” income generated on our annuities, face-
amount certificates and universal life insurance products.
Asset management fees, which we include within management,
financial advice and services fees, are generally based on the
market value of the assets we manage. The interest spreads
we earn on our annuity, universal life insurance and face-
amount certificate products are the difference between the
returns we earn on the investments that support our
obligations on these products and the amounts we must credit
contractholders and policyholders.
Improvements in equity markets generally lead to increased
value in our managed and separate account assets, while
declines in equity markets generally lead to decreased value in
these assets. Market appreciation continued to favorably
impact results in 2006.
Interest rate spreads continued to contract in 2006, primarily
due to rising short-term interest rates, which have driven
higher crediting rates on our face-amount certificate products.
For additional information regarding our sensitivity to equity
risk and interest rate risk, see “Quantitative and Qualitative
Disclosures About Market Risks.”
Critical Accounting Policies
The accounting and reporting policies that we use affect our
Consolidated Financial Statements. Certain of our accounting
and reporting policies are critical to an understanding of our
results of operations and financial condition and, in some
cases, the application of these policies can be significantly
affected by the estimates, judgments and assumptions made
by management during the preparation of our Consolidated
Financial Statements. The accounting and reporting policies
we have identified as fundamental to a full understanding of
our results of operations and financial condition are described
below. See Note 2 to our Consolidated Financial Statements
for further information about our accounting policies.
Valuation of Investments
The most significant component of our investments is our
Available-for-Sale securities, which we generally carry at fair
value within our Consolidated Balance Sheets. The fair value of
approximately 96% of our Available-for-Sale securities at
December 31, 2006 were determined by quoted market prices.
We record unrealized securities gains (losses) in accumulated
other comprehensive income (loss), net of income tax provision
(benefit) and net of adjustments in other asset and liability
balances, such as deferred acquisition costs (“DAC”), to reflect
the expected impact on their carrying values had the unrealized
securities gains (losses) been realized as of the respective
balance sheet dates. At December 31, 2006, we had net
unrealized pretax losses on Available-for-Sale securities of
$328 million. We recognize gains and losses in our results of
operations upon disposition of the securities. We also
recognize losses in our results of operations when our
management determines that a decline in value is other-than-
temporary. This determination requires the exercise of
24 Ameriprise Financial, Inc. 2006 Annual Report