Ameriprise 2007 Annual Report Download - page 70

Available-for-Sale Securities
Available-for-Sale securities are carried at fair value with unrealized
gains (losses) recorded in accumulated other comprehensive income
(loss), net of income tax provision (benefit) and net of adjustments in
other asset and liability balances, such as DAC, to reflect the expected
impact on their carrying values had the unrealized gains (losses) been
realized as of the respective balance sheet date. Gains and losses are
recognized in consolidated results of operations upon disposition of
the securities. In addition, losses are also recognized when manage-
ment determines that a decline in value is other-than-temporary,
which requires judgment regarding the amount and timing of
recovery. Indicators of other-than-temporary impairment for debt
securities include issuer downgrade, default or bankruptcy. The
Company also considers the extent to which cost exceeds fair value,
the duration of that difference and management’s judgment about the
issuer’s current and prospective financial condition, as well as the
Company’s ability and intent to hold until recovery. Fair value is
generally obtained from third party pricing sources. However, the
Company’s Available-for-Sale securities portfolio also contains struc-
tured investments of various asset quality, including collateralized debt
obligations (“CDOs”) (backed by high-yield bonds and bank loans),
which are not readily marketable. As a result, the carrying values of
these structured investments are based on future cash flow projections
that require a significant degree of management judgment as to the
amount and timing of cash payments, defaults and recovery rates of
the underlying investments and, as such, are subject to change.
Commercial Mortgage Loans, Net
Commercial mortgage loans, net reflect principal amounts
outstanding less the allowance for loan losses. The allowance for loan
losses is measured as the excess of the loan’s recorded investment over
the present value of its expected principal and interest payments
discounted at the loan’s effective interest rate, or the fair value of
collateral. Additionally, the level of the allowance for loan losses
considers other factors, including historical experience, economic
conditions and geographic concentrations. Management regularly
evaluates the adequacy of the allowance for loan losses and believes it
is adequate to absorb estimated losses in the portfolio.
The Company generally stops accruing interest on commercial
mortgage loans for which interest payments are delinquent more than
three months. Based on management’s judgment as to the ultimate
collectibility of principal, interest payments received are either recog-
nized as income or applied to the recorded investment in the loan.
Trading Securities and Equity Method Investments in
Hedge Funds
Trading securities and equity method investments in hedge funds
include common stocks, underlying investments of consolidated
hedge funds, hedge fund investments managed by third parties and
seed money investments. Trading securities are carried at fair value
with unrealized and realized gains (losses) recorded within net invest-
ment income. The carrying value of equity method investments in
hedge funds reflects the Company’s original investment and its share
of earnings or losses of the hedge funds subsequent to the date of
investment, and approximates fair value.
Policy Loans
Policy loans include life insurance policy, annuity and investment
certificate loans. These loans are carried at the aggregate of the
unpaid loan balances, which do not exceed the cash surrender values
of underlying products, plus accrued interest.
Other Investments
Other investments reflect the Company’s interest in affordable
housing partnerships and syndicated loans. Affordable housing
partnerships are carried at amortized cost, as the Company has no
influence over the operating or financial policies of the general
partner. Syndicated loans reflect amortized cost less allowance for
losses.
Separate Account Assets and Liabilities
Separate account assets and liabilities are primarily funds held for the
exclusive benefit of variable annuity and variable life insurance
contractholders. The Company receives investment management fees,
mortality and expense risk fees, guarantee fees and cost of insurance
charges from the related accounts.
Included in separate account liabilities are investment liabilities of
Threadneedle which represent the value of the units in issue of the
pooled pension funds that are offered by Threadneedle’s subsidiary,
Threadneedle Pensions Limited.
Receivables
Receivables include reinsurance recoverable, consumer banking loans,
accrued investment income, brokerage customer receivables,
premiums due, securities borrowed and other receivables.
Reinsurance
The Company reinsures a portion of the insurance risks associated
with its life, disability income and long term care insurance products
through reinsurance agreements with unaffiliated reinsurance compa-
nies. Reinsurance is used in order to limit losses, reduce exposure to
large risks and provide additional capacity for future growth. To
manage exposure to losses from reinsurer insolvencies, the financial
condition of reinsurers is evaluated prior to entering into new
reinsurance treaties and on a periodic basis during the terms of the
treaties. The Company’s insurance companies remain primarily liable
as the direct insurers on all risks reinsured.
Generally, the Company reinsures 90% of the death benefit liability
related to individual fixed and variable universal life and term life
insurance products. The Company began reinsuring risks at this level
beginning in 2001 for term life insurance and 2002 for variable and
universal life insurance. Policies issued prior to these dates are not
subject to the same reinsurance levels. Generally, the maximum
amount of life insurance risk retained by the Company is $750,000
on any policy insuring a single life and $1.5 million on any flexible
premium survivorship variable life policy. For existing long term care
policies the Company retained 50% of the risk and the remaining
50% of the risk was ceded on a coinsurance basis to affiliates of
Genworth Financial, Inc. (“Genworth”). Reinsurance recoverable
from Genworth related to the Company’s long term care liabilities
was $1.0 billion at December 31, 2007, while amounts recoverable
from each other reinsurer were much smaller. Risk on variable life
and universal life policies is reinsured on a yearly renewable term
68 Ameriprise Financial 2007 Annual Report