Ameriprise 2009 Annual Report Download - page 115

The Company’s policy is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same
counterparty under the same master netting arrangement.
For derivative instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are recognized
in current period earnings. Changes in fair value of derivatives are presented in the Consolidated Statements of Operations based on the
nature and use of the instrument. Changes in derivatives used as economic hedges are presented in the Consolidated Statements of
Operations with the corresponding change in the hedged asset or liability.
For derivative instruments that qualify as fair value hedges, changes in the fair value of the derivatives, as well as of the hedged risk within
the corresponding hedged assets, liabilities or firm commitments, are recognized in current earnings. If a fair value hedge designation is
removed or the hedge is terminated prior to maturity, previous adjustments to the carrying value of the hedged item are recognized into
earnings over the remaining life of the hedged item.
For derivative instruments that qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instruments are
reported in accumulated other comprehensive income (loss) and reclassified into earnings when the hedged item or transaction impacts
earnings. The amount that is reclassified into earnings is presented in the Consolidated Statements of Operations with the hedged
instrument or transaction impact. Any ineffective portion of the gain or loss is reported currently in earnings as a component of 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) is recognized into earnings over the period that the hedged item impacts earnings. 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.
For derivative instruments that qualify as net investment hedges in foreign operations, the effective portions of the change in fair value of
the derivatives are recorded in accumulated other comprehensive income (loss) as part of the foreign currency translation adjustment.
Any ineffective portions of net investment hedges are recognized in net investment income during the period of change.
See Note 20 for information regarding the impact of derivatives on the Consolidated Statements of Operations.
Derivative instruments that are entered into for hedging purposes are designated as such at the time the Company enters into the
contract. For all derivative instruments that are designated for hedging activities, the Company formally documents all of the hedging
relationships between the hedge instruments and the hedged items at the inception of the relationships. Management also formally
documents its risk management objectives and strategies for entering into the hedge transactions. The Company formally assesses, at
inception and on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of
hedged items. If it is determined that a derivative is no longer highly effective as a hedge, the Company will discontinue the application of
hedge accounting.
The equity component of equity indexed annuity and stock market investment certificate obligations are considered embedded
derivatives. Additionally, certain annuities contain guaranteed minimum accumulation benefit (‘‘GMAB’’) and guaranteed minimum
withdrawal benefit (‘‘GMWB’’) provisions. The GMAB and the non-life contingent benefits associated with GMWB provisions are also
considered embedded derivatives. The fair value of embedded derivatives associated with annuities is included in future policy benefits
and claims, whereas the fair value of stock market investment certificate embedded derivatives is included in customer deposits. The
changes in the fair value of the equity indexed annuity and investment certificate embedded derivatives are reflected in interest credited
to fixed accounts and banking and deposit interest expense, respectively. The changes in the fair value of the GMAB and GMWB
embedded derivatives are reflected in benefits, claims, losses and settlement expenses.
Deferred Acquisition Costs
DAC represent the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs
that have been deferred on the sale of annuity and insurance products and, to a lesser extent, certain mutual fund products. These costs
are deferred to the extent they are recoverable from future profits or premiums. The DAC associated with insurance or annuity contracts
that are significantly modified or internally replaced with another contract are accounted for as contract terminations. These transactions
are anticipated in establishing amortization periods and other valuation assumptions.
100 ANNUAL REPORT 2009