Ameriprise 2009 Annual Report Download - page 117

Reinsurance
The Company cedes significant amounts of insurance risk to other insurers under reinsurance agreements. Reinsurance premium paid
and benefits received are accounted for consistently with the basis used in accounting for the policies from which risk is reinsured and
consistently with the terms of the reinsurance contracts. Traditional life, long term care, disability income and auto and home reinsurance
premium, net of the change in any prepaid reinsurance asset, is reported as a reduction of premiums. Fixed and variable universal life
reinsurance premium is reported as a reduction of other revenues. Reinsurance recoveries are reported as components of benefits, claims,
losses and settlement expenses.
Insurance liabilities are reported before the effects of reinsurance. Future policy benefits and claims recoverable under reinsurance
contracts are recorded within receivables.
The Company also assumes life insurance and fixed annuity business from other insurers in limited circumstances. Reinsurance
premiums received and benefits paid are accounted for consistently with the basis used in accounting for the policies from which risk is
reinsured and consistently with the terms of the reinsurance contracts. Liabilities for assumed business are recorded within future policy
benefits and claims.
See Note 10 for additional information on reinsurance.
Future Policy Benefits and Claims
Fixed Annuities and Variable Annuity Guarantees
Future policy benefits and claims 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 the Company 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 (‘‘GGU’’) benefits. In addition, the Company offers
contracts containing GMWB and GMAB provisions, and until May 2007, the Company offered contracts containing guaranteed minimum
income benefit (‘‘GMIB’’) provisions.
In determining the liabilities for GMDB, GMIB and the life contingent benefits associated with GMWB, the Company projects 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 reviews and, where
appropriate, adjusts its assumptions each quarter. Unless management identifies a material deviation over the course of quarterly
monitoring, management reviews and updates these assumptions annually in the third quarter of each year.
The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected contract accumulation
value and recognizing the excess over the estimated meaningful life based on expected assessments (e.g., mortality and expense fees,
contractual administrative charges and similar fees).
If elected by the contract owner and after a stipulated waiting period from contract issuance, a GMIB guarantees a minimum lifetime
annuity based on a specified rate of contract accumulation value growth and predetermined annuity purchase rates. The GMIB liability is
determined each period by estimating the expected value of annuitization benefits in excess of the projected contract accumulation value
at the date of annuitization and recognizing the excess over the estimated meaningful life based on expected assessments.
The embedded derivatives related to GMAB and the non-life contingent benefits associated with GMWB provisions are recorded at fair
value. See Note 18 for information regarding the fair value measurement of embedded derivatives. The liability for the life contingent
benefits associated with GMWB provisions is determined in the same way as the GMDB liability. The changes in both the fair values of the
102 ANNUAL REPORT 2009