Ameriprise 2006 Annual Report Download - page 72

supporting the liability. Anticipated mortality and morbidity
rates are based on established industry mortality and morbidity
tables, with modifications based on the Company’s experience.
Anticipated premium payments and persistency rates vary by
policy form, issue age, policy duration and certain other pricing
factors. Anticipated interest rates for term and whole life range
from 4.0% to 10.0% at December 31, 2006, depending on
policy form, issue year and policy duration. Anticipated interest
rates for disability income are 7.5% at policy issue grading to
5.0% over five years. Anticipated discount rates for long term
care are currently 5.4% at December 31, 2006 grading up to
9.4% over 40 years.
Where applicable, benefit amounts expected to be recoverable
from other insurers who share in the risk are separately
recorded as reinsurance recoverable within receivables.
The Company issues only non-participating life and health
insurance policies, which do not pay dividends to policyholders
from realized policy margins.
Auto and Home Reserves
Auto and home reserves include amounts determined from
loss reports on individual claims, as well as amounts, based
on historical loss 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, 2006 and 2005, 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
establishing the resulting liability are continually reviewed, and
any adjustments are reflected in consolidated results of
operations in the period such adjustments are made.
Customer Deposits
Customer deposits primarily include investment certificate
reserves and banking and brokerage customer deposits.
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
owners, 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
surrender 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 other liabilities. The fair value of these embedded
derivatives incorporates current market data inputs. Changes in
fair value are reflected in interest credited to account values.
Banking customer deposits are amounts payable to banking
customers who hold money market, savings, checking accounts
and certificates of deposit with Ameriprise Bank, FSB.
Brokerage customer deposits are amounts payable to brokerage
customers related to credit balances and other customer funds
pending completion of securities transactions. The Company
pays interest on certain customer credit balances and the inter-
est is included in interest and debt expense.
Other Liabilities
Other liabilities include derivatives and miscellaneous
liabilities and in 2006 also include minority interests of
consolidated limited partnerships.
3. Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans — an Amendment of
FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”).
As of December 31, 2006, the Company adopted the recogni-
tion provisions of SFAS 158 which require an entity to recognize
the overfunded or underfunded status of an employer’s defined
benefit postretirement plan as an asset or liability in its state-
ment of financial position and to recognize changes in that
funded status in the year in which the changes occur through
comprehensive income. The Company’s adoption of this
provision did not have a material effect on the consolidated
results of operations and financial condition. Effective for fiscal
years ending after December 15, 2008, SFAS 158 also requires
an employer to measure plan assets and benefit obligations as
of the date of the employer’s fiscal year-end statement of
financial position. As of December 31, 2008, the Company will
adopt the measurement provisions of SFAS 158 which the
Company does not believe will have a material effect on
consolidated results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit
fair value measurements. Accordingly, SFAS 157 does not
require any new fair value measurements. SFAS 157 is effective
for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. Early adoption is permitted
provided that the entity has not issued financial statements for
any period within the year of adoption. The provisions of SFAS
157 are required to be applied prospectively as of the beginning
of the fiscal year in which SFAS 157 is initially applied, except for
certain financial instruments as defined in SFAS 157 which will
require retrospective application of SFAS 157. The transition
adjustment, if any, will be recognized as a cumulative-effect
adjustment to the opening balance of retained earnings for the
fiscal year of adoption. The Company is currently evaluating the
impact of SFAS 157 on its consolidated results of operations and
financial condition.
70 Ameriprise Financial, Inc. 2006 Annual Report