Ameriprise 2008 Annual Report Download - page 76

Distribution expenses decreased $109 million, or 5%, to $1.9 billion in 2008 compared to $2.1 billion in 2007 primarily due
to the impact of lower cash sales on advisor compensation as reflected by a decrease in net revenues per advisor from
$315,000 in 2007 to $267,000 in 2008 and a $104.3 billion decrease in total managed assets.
Interest credited to fixed accounts decreased $57 million, or 7%, to $790 million in 2008 compared to $847 million in 2007
primarily driven by declining fixed annuity balances. The balances had been decreasing steadily throughout 2008 until the
fourth quarter when we experienced positive flows into fixed annuities.
Benefits, claims, losses and settlement expenses decreased $54 million, or 5%, to $1.1 billion in 2008 compared to
$1.2 billion in 2007. Benefits, claims, losses and settlement expenses in 2008 included a $90 million benefit from updating
valuation assumptions and converting to a new valuation system in the third quarter of 2008 and a $92 million benefit related
to the market impact on variable annuity guaranteed living benefits, net of hedges. Partially offsetting these benefits was a
$42 million expense related to the market’s impact on DSIC, a $70 million expense related to the equity market’s impact on
variable annuity minimum death and income benefits and increases in life, long term care and auto and home insurance
benefits. Benefits, claims, losses and settlement expenses in 2007 included $12 million of expense related to updating
valuation assumptions, $39 million of expense related to the unfavorable market impact on variable annuity guaranteed living
benefits, net of hedges and an immaterial market impact on DSIC.
Amortization of DAC increased $382 million, or 69%, to $933 million in 2008 compared to $551 million in 2007.
Amortization of DAC in 2008 included a $292 million expense from the market’s impact on DAC, an $82 million expense from
updating valuation assumptions and conversion to a new valuation system in the third quarter of 2008 and a $101 million
expense related to higher estimated gross profits to amortize as a result of the reserve decrease, net of hedges, for variable
annuity guaranteed living benefits. The market impact on DAC included $220 million resulting from management’s action in
the fourth quarter of 2008 to lower future profit expectations based on continued depreciation in contract values and
historical equity market return patterns. In the prior year, DAC amortization included expense of $16 million related to
updating valuation assumptions and benefits of $6 million from the market’s impact on DAC and $17 million related to the
DAC effect of variable annuity guaranteed living benefits, net of hedges.
Separation costs in 2007 were primarily associated with separating and reestablishing our technology platforms. All
separation costs were incurred as of December 31, 2007.
General and administrative expense decreased $122 million, or 5%, to $2.4 billion in 2008 compared to $2.6 billion in 2007
as a result of expense management initiatives and lower compensation-related expenses primarily from lower Threadneedle
hedge fund performance fees. General and administrative expense in 2008 included a $77 million expense related to
changes in fair value of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds
managed by RiverSource Investments, a $36 million expense for the cost of guaranteeing specific client holdings in an
unaffiliated money market mutual fund, a $19 million expense related to acquisition integration and $60 million in
restructuring charges. General and administrative expense in 2007 included expenses related to professional and consultant
fees representing increased spending on investment initiatives, increased hedge fund performance compensation and an
increase in technology related costs.
Income Taxes
Our effective tax rate increased to 89.7% for the year ended December 31, 2008, compared to 19.9% for the year ended
December 31, 2007, primarily due to a pretax loss in relation to a net tax benefit for the year ended December 31, 2008
compared to pretax income for the year ended December 31, 2007. Our effective tax rate for December 31, 2008 included
$79 million in tax benefits related to changes in the status of current audits and closed audits, tax planning initiatives, and the
finalization of prior year tax returns. Our effective tax rate for December 31, 2007 included a $16 million tax benefit related to
the finalization of certain income tax audits and a $19 million tax benefit related to our plan to begin repatriating earnings of
certain Threadneedle entities through dividends.
On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations
with respect to certain computational aspects of the Dividends Received Deduction (‘‘DRD’’) related to separate account
assets held in connection with variable contracts of life insurance companies. Revenue Ruling 2007-61 suspended a revenue
ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing
these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to
public notice and comment, at which time insurance companies and other members of the public will have the opportunity to
raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate
timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of
the separate account DRD tax benefit that the Company receives. Management believes that it is likely that any such
regulations would apply prospectively only.
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