Ameriprise 2008 Annual Report Download - page 118

Liabilities for estimates of benefits that will become payable on future claims on term life, whole life and health insurance
policies are based on the net level premium method, using anticipated premium payments, mortality and morbidity rates,
policy persistency and interest rates earned on assets 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 ranged from 4.0% to 10.0% at December 31, 2008, depending on
policy form, issue year and policy duration. Anticipated interest rates for disability income vary by plan and are 7.5% and 6.0%
at policy issue grading to 5.0% over five years and 4.5% over 20 years, respectively. Anticipated discount rates for long term
care vary by plan and were 5.8% at December 31, 2008 and range from 5.9% to 6.3% over 40 years.
Where applicable, benefit amounts expected to be recoverable from reinsurance companies who share in the risk are
separately recorded as reinsurance recoverable within receivables.
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, 2008 and 2007, the ultimate liability 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.
Share-Based Compensation
The Company measures and recognizes the cost of share-based awards granted to employees and directors based on the
grant-date fair value of the award and recognizes the expense on a straight-line basis over the vesting period. The fair value of
each option is estimated on the grant date using a Black-Scholes option-pricing model. The Company recognizes the cost of
share-based awards granted to independent contractors on a fair value basis until the award is fully vested.
Income Taxes
The Company’s provision for income taxes represents the net amount of income taxes that the Company expects to pay or to
receive from various taxing jurisdictions in connection with its operations. The Company provides for income taxes based on
amounts that the Company believes it will ultimately owe taking into account the recognition and measurement for uncertain
tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain
items.
In connection with the provision for income taxes, the Consolidated Financial Statements reflect certain amounts related to
deferred tax assets and liabilities, which result from temporary differences between the assets and liabilities measured for
financial statement purposes versus the assets and liabilities measured for tax return purposes. Among the Company’s
deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial
statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally
must be used against capital gain income within five years of the year in which the capital losses are recognized for tax
purposes.
We are required to establish a valuation allowance for any portion of our deferred tax assets that management believes will not
be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of
such allowance if required. Factors used in making this determination include estimates relating to the performance of the
business including the ability to generate capital gains. Consideration is given to, among other things in making this
determination, a) future taxable income exclusive of reversing temporary differences and carryforwards, b) future reversals of
existing taxable temporary differences, c) taxable income in prior carryback years, and d) tax planning strategies.
Sources of Revenue
The Company generates revenue from a wide range of investment and insurance products. Principal sources of revenue
include management and financial advice fees, distribution fees, net investment income and premiums.
Management and Financial Advice Fees
Management and financial advice fees relate primarily to fees earned from managing mutual funds, separate account and
wrap account assets, institutional investments including structured investments, as well as fees earned from providing
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