Ameriprise 2008 Annual Report Download - page 67

accounts), equity market performance, mortality and morbidity rates and the rates at which policyholders are expected to
surrender their contracts, make withdrawals from their contracts and make additional deposits to their contracts.
Assumptions about earned and credited interest rates are the primary factors used to project interest margins, while
assumptions about equity and bond market performance are the primary factors used to project client asset value growth
rates, and assumptions about surrenders, withdrawals and deposits comprise projected persistency rates. Management must
also make assumptions to project maintenance expenses associated with servicing our annuity and insurance businesses
during the DAC amortization period.
The client asset value growth rates are the rates at which variable annuity and variable universal life insurance contract values
invested in separate accounts are assumed to appreciate in the future. The rates used vary by equity and fixed income
investments. Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth
rates on a regular basis. We typically use a mean reversion process as a guideline in setting near-term equity asset growth
rates based on a long-term view of financial market performance as well as recent actual performance. The suggested near-
term growth rate is reviewed to ensure consistency with management’s assessment of anticipated equity market
performance. In the fourth quarter of 2008, we decided to constrain near-term equity growth rates below the level suggested
by mean reversion. This constraint is based on our analysis of historical equity returns following downturns in the market. Our
long-term client asset value growth rates are based on assumed gross annual returns of 9% for equities and 6.5% for fixed
income securities. If we increased or decreased our assumptions related to these growth rates by 100 basis points, the
impact on the DAC and DSIC balances would be an increase or decrease of approximately $30 million.
We monitor other principal DAC and DSIC amortization assumptions, such as persistency, mortality, morbidity, interest margin
and maintenance expense levels each quarter and, when assessed independently, each could impact our DAC and DSIC
balances.
The analysis of DAC and DSIC balances and the corresponding amortization is a dynamic process that considers all relevant
factors and assumptions described previously. Unless management identifies a significant deviation over the course of the
quarterly monitoring, management reviews and updates these DAC and DSIC amortization assumptions annually in the third
quarter of each year. An assessment of sensitivity associated with changes in any single assumption would not necessarily be
an indicator of future results.
We adopted American Institute of Certified Public Accountants (‘‘AICPA’’) Statement of Position (‘‘SOP’’) 05-1, ‘‘Accounting by
Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts’’
(‘‘SOP 05-1’’) on January 1, 2007. See Note 2 and Note 3 to our Consolidated Financial Statements for additional
information about the effect of our adoption of SOP 05-1 and our accounting policies for the amortization and capitalization of
DAC. In periods prior to 2007, our policy had been to treat certain internal replacement transactions as continuations and to
continue amortization of DAC associated with the existing contract against revenues from the new contract. For details
regarding the balances of and changes in DAC for the years ended December 31, 2008, 2007 and 2006 see Note 8 to our
Consolidated Financial Statements.
Liabilities for Future Policy Benefits and Policy Claims and Other Policyholders’ Funds
Fixed Annuities and Variable Annuity Guarantees
Future policy benefits and policy claims and other policyholders’ funds related to fixed annuities and variable annuity
guarantees include liabilities for fixed account values on fixed and variable deferred annuities, guaranteed benefits associated
with variable annuities, equity indexed annuities and fixed annuities in a payout status.
Liabilities for fixed account values on fixed and variable deferred annuities are equal to accumulation values, which are the
cumulative gross deposits and credited interest less withdrawals and various charges.
The majority of the variable annuity contracts offered by us contain guaranteed minimum death benefit (‘‘GMDB’’) provisions.
When market values of the customer’s accounts decline, the death benefit payable on a contract with a GMDB may exceed
the contract accumulation value. The Company also offers variable annuities with death benefit provisions that gross up the
amount payable by a certain percentage of contract earnings which are referred to as gain gross-up benefits. In addition, the
Company offers contracts with guaranteed minimum withdrawal benefit (‘‘GMWB’’) and guaranteed minimum accumulation
benefit (‘‘GMAB’’) provisions and, until May 2007, the Company offered contracts containing guaranteed minimum income
benefit (‘‘GMIB’’) provisions. As a result of the recent market decline, the amount by which guarantees exceed the
accumulation value has increased significantly.
In determining the liabilities for variable annuity death benefits, GMIB and the life contingent benefits associated with GMWB,
we project these benefits and contract assessments using actuarial models to simulate various equity market scenarios.
Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates,
mortality, persistency and investment margins and are consistent with those used for DAC asset valuation for the same
contracts. As with DAC, management will review, and where appropriate, adjust its assumptions each quarter. Unless
44