Ameriprise 2006 Annual Report Download - page 42

the annual third quarter DAC unlocking was $67 million in
2005 compared to a net benefit of $24 million in 2004. The
$67 million DAC unlocking net benefit for the third quarter of
2005 primarily reflected a $32 million benefit from modeling
improvements in mortality, a $33 million benefit from lower
surrender rates than previously assumed and higher associated
surrender charges and a $2 million net benefit from other
changes in DAC valuation assumptions. The $24 million DAC
unlocking net benefit for the third quarter of 2004 consisted of
a $13 million benefit as a result of changes from previously
assumed surrender and lapse rates, a $4 million benefit from
changes in previously assumed mortality rates and a $7 million
benefit from other changes in DAC valuation assumptions.
In addition to the DAC unlocking, DAC amortization in 2004
was reduced by $66 million in the first quarter as a result of
lengthening amortization periods for certain insurance and
annuity products in conjunction with our adoption of AICPA
SOP 03-1, “Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts.” Equity market conditions and other
factors resulted in increased amortization of DAC in 2005
compared to 2004, particularly for our growing variable annuity
business. Somewhat offsetting the impacts of these increases
was amortization of DAC associated with mutual funds, which
was down $33 million. Sales of the classes of mutual fund
shares for which we defer acquisition costs have declined
sharply in recent years, leading to lower DAC balances and
less DAC amortization.
The increase in interest and debt expense in 2005 primarily
reflects higher short-term interest rates during 2005 as
compared to 2004.
Separation costs incurred in 2005 of $293 million were
primarily associated with advisor and employee retention
programs, establishing the Ameriprise Financial brand and
separating and reestablishing our technology platforms.
Other expenses in 2005 included $100 million related to the
comprehensive settlement of a consolidated securities class
action lawsuit. Also included in 2005 are costs related to
mutual fund industry regulatory matters of approximately
$40 million, compared to approximately $80 million of similar
costs incurred in 2004. See Note 24 to our Consolidated
Financial Statements for additional information.
Income Taxes
The effective tax rate was 25.1% for the year ended
December 31, 2005 compared to 25.8% for the year ended
December 31, 2004. The lower effective tax rate and income
taxes in 2005 relative to 2004 are principally due to the
impact of relatively lower levels of pretax income compared to
tax-advantaged items in 2005. Additionally, taxes applicable to
prior years represent a $20 million tax expense in 2005 and a
$20 million tax benefit in 2004.
40 Ameriprise Financial, Inc. 2006 Annual Report
Results of Operations by Segment
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 27
to our Consolidated Financial Statements for the years ended December 31, 2005 and 2004:
Years Ended December 31,
Percent Share Percent Share
2005 of Total 2004 of Total
(in millions, except percentages)
Total revenues
Asset Accumulation and Income $ 5,350 71 % $ 4,960 71 %
Protection 1,948 26 1,919 27
Corporate and Other 212 3 151 2
Eliminations (26) — (3) —
Consolidated total revenues $ 7,484 100 % $ 7,027 100 %
Total expenses
Asset Accumulation and Income $ 4,634 69 % $ 4,231 72 %
Protection 1,495 22 1,416 24
Corporate and Other 636 9 271 4
Eliminations (26) — (3) —
Consolidated total expenses $ 6,739 100 % $ 5,915 100 %
Pretax segment income (loss)
Asset Accumulation and Income $ 716 96 % $ 729 66 %
Protection 453 61 503 45
Corporate and Other (424) (57) (120) (11)
Consolidated income before income tax provision and
discontinued operations $ 745 100 % $ 1,112 100 %