Ameriprise 2008 Annual Report Download - page 151

The following table presents a summary of the notional amount and fair value of derivative instruments based on the risk they
hedge:
December 31,
2008 2007
Fair Value Fair Value
Notional Notional
Amount Asset Liability Amount Asset Liability
(in millions)
Equity indexed annuities $ 213 $ 3 $ — $ 295 $ 43 $ (1)
Stock market certificates 1,627 24 (19) 1,868 59 (27)
GMWB and GMAB 36,076 2,434 (644) 6,721 379 (39)
Foreign currency — — — 885 20 —
Other(1) 131 — (10) 980 3 (3)
Total $ 38,047 $ 2,461 $ (673) $ 10,749 $ 504 $ (70)
(1) Other consists primarily of equity and foreign currency instruments used as economic hedges against price and exchange rate risk from
seed money investments.
See Note 18 for additional information regarding the Company’s fair value measurement of derivative instruments.
Cash Flow Hedges
The Company uses interest rate derivative products, primarily swaps and swaptions, to manage funding costs related to the
Company’s debt and fixed annuity business. The interest rate swaps are used to hedge the exposure to interest rates on the
forecasted interest payments associated with debt issuances. As of January 1, 2007 the Company removed the hedge
designation from its swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales.
The designation was removed due to the hedge relationship no longer being highly effective. Accordingly, all changes in fair
value of the swaptions are recorded directly to earnings. Amounts previously recorded in accumulated other comprehensive
income (loss) will be reclassified into earnings as the originally forecasted transactions occur.
The following is a summary of net unrealized derivatives gains (losses) related to cash flow hedging activity, net of tax:
2008 2007 2006
(in millions)
Net unrealized derivatives gains (losses) at January 1 $ (6) $ (1) $ 6
Holding losses, net of tax of nil, nil and $2, respectively — (1) (4)
Reclassification of realized gains, net of tax of $1, $2 and
$2, respectively (2) (4) (3)
Net unrealized derivatives losses at December 31 $ (8) $ (6) $ (1)
At December 31, 2008, the Company expects to reclassify $2 million of net pretax gains on derivative instruments from
accumulated other comprehensive income (loss) to earnings during the next 12 months. The $2 million net pretax gain is
made up of an $8 million amortization of deferred gain related to interest rate swaps that will be recorded as a reduction to
interest expense, partially offset by a $6 million amortization of deferred expense related to interest rate swaptions that will be
recorded in net investment income. If a hedge designation is removed or a hedge is terminated prior to maturity, the amount
previously recorded in accumulated other comprehensive income (loss) may be recognized into earnings over the period that
the hedged item impacts earnings. As discussed above, the Company removed the hedge designation from its swaptions in
2007 and during 2008 and 2006 there were no other hedges that were terminated or the hedge designation removed. For
any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the
original strategy, any related amounts previously recorded in accumulated other comprehensive income (loss) are recognized
in earnings immediately. No hedge relationships were discontinued during the years ended December 31, 2008, 2007 and
2006 due to forecasted transactions no longer expected to occur according to the original hedge strategy.
Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is
26 years and relates to forecasted debt interest payments. For the years ended December 31, 2008, 2007 and 2006, there
were nil, $2 million and $4 million, respectively, in losses on derivative transactions or portions thereof that were ineffective as
hedges, excluded from the assessment of hedge effectiveness or reclassified into earnings as a result of the discontinuance of
cash flow hedges.
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