Ameriprise 2007 Annual Report Download - page 80

As part of the Company’s ongoing monitoring process, management
determined that a majority of the gross unrealized losses on its Avail-
able-for-Sale securities are attributable to changes in interest rates and
credit spreads across asset classes. As noted in the table above, a
significant portion of the gross unrealized losses relates to securities
that have a fair value to amortized cost ratio of 95% or above,
resulting in an overall 97% ratio of fair value to amortized cost for all
securities with an unrealized loss. From an overall perspective, the
gross unrealized losses were not concentrated in any individual indus-
tries or with any individual securities. The securities with a fair value
to amortized cost ratio of 80-90% primarily relate to the consumer
products, financial, and home building industries. The total gross
unrealized loss related to the home building industry was
$31 million. The securities with a fair value to cost of less than 80%
primarily relate to the financial and home building industries. The
largest unrealized loss associated with an individual issuer, excluding
GNMA, FNMA and FHLMC mortgage-backed securities, was
$14 million. The securities related to this issuer have a fair value to
amortized cost ratio of 88% and have been in an unrealized loss
position for more than 12 months. The Company believes that it will
collect all principal and interest due on all investments that have
amortized cost in excess of fair value. In addition, the Company has
the ability and intent to hold these securities until anticipated
recovery which may not be until maturity.
The Company monitors the investments and metrics described previ-
ously on a quarterly basis to identify and evaluate investments that
have indications of possible other-than-temporary impairments.
Additionally, the Company has the ability and intent to hold these
securities for a time sufficient to recover its amortized cost and has,
therefore, concluded that none had other-than-temporary impair-
ment at December 31, 2007.
The Company’s total mortgage and asset backed exposure at
December 31, 2007 was $10.4 billion which included $6.3 billion of
residential mortgage backed securities and $3.0 billion of commercial
mortgage backed securities. At December 31, 2007, residential
mortgage backed securities included $4.5 billion of agency-backed
securities, $1.2 billion of Alt-A securities, and $0.6 billion of prime,
non-agency securities. With respect to the Alt-A securities, the vast
majority are rated AAA. None of the structures are levered, and the
majority of the AAA-rated holdings are “super senior” bonds,
meaning they have more collateral support or credit enhancement
than required to receive a AAA rating. While overall delinquencies in
the market continue to deteriorate, most of these positions are
performing in-line or better than their vintage. With regard to asset
backed securities, the Company’s exposure at December 31, 2007
was $1.1 billion, which included $241 million of securities backed by
subprime collateral. These securities are predominantly AAA-rated
bonds backed by seasoned, traditional, first lien collateral. Holdings
include both floating rate and short-duration, fixed securities. The
Company has no other structured or hedge fund investments with
exposure to subprime residential mortgages.
The change in net unrealized securities gains (losses) in other
comprehensive income includes three components, net of tax:
(i) unrealized gains (losses) that arose from changes in the market
value of securities that were held during the period (holding gains
(losses)); (ii) (gains) losses that were previously unrealized, but have
been recognized in current period net income due to sales and other-
than-temporary impairments of Available-for-Sale securities
(reclassification of realized gains (losses)); and (iii) other items prima-
rily consisting of adjustments in asset and liability balances, such as
DAC, DSIC and annuity liabilities to reflect the expected impact on
their carrying values had the unrealized gains (losses) been realized as
of the respective balance sheet dates.
The following table presents the components of the net unrealized securities gains (losses), net of tax, included in accumulated other
comprehensive loss:
Years Ended December 31,
2007 2006 2005
(in millions)
Net unrealized securities gains (losses) at January 1 $(187) $(129) $ 425
Holding gains (losses), net of tax of $20, $54, and $303, respectively 38 (101) (562)
Reclassification of realized gains, net of tax of $16, $17, and $18, respectively (29) (33) (34)
DAC, DSIC and annuity liabilities, net of tax of $6, $41, and $30, respectively 10 76 55
Net realized securities losses related to discontinued operations, net of tax of nil,
nil and $7, respectively —— (13)
Net unrealized securities losses at December 31 $(168) $(187) $(129)
78 Ameriprise Financial 2007 Annual Report
In evaluating potential other-than-temporary impairments, the Company considers the extent to which amortized cost exceeds fair value and the
duration of that difference. A key metric in performing this evaluation is the ratio of fair value to amortized cost. The following table summa-
rizes the unrealized losses by ratio of fair value to amortized cost as of December 31, 2007:
Less than 12 months 12 months or more Total
Number Gross Number Gross Number Gross
Ratio of Fair Value of Fair Unrealized of Fair Unrealized of Fair Unrealized
to Amortized Cost Securities Value Losses Securities Value Losses Securities Value Losses
(in millions, except number of securities)
95%–100% 316 $2,774 $ (39) 719 $12,682 $(208) 1,035 $15,456 $(247)
90%–95% 89 732 (57) 54 849 (60) 143 1,581 (117)
80%–90% 11 216 (32) 33 490 (70) 44 706 (102)
Less than 80% 2 9 (6) 12 97 (37) 14 106 (43)
Total 418 $3,731 $(134) 818 $14,118 $(375) 1,236 $17,849 $(509)