Ameriprise 2009 Annual Report Download - page 158

In November 2005, the Company terminated its swap agreements and recorded a gain in accumulated other comprehensive income
(loss). The gain on the swaps is being amortized as a reduction to interest expense over the period that the forecasted cash flows are
expected to occur. As of January 2007, the Company removed the hedge designation from its swaptions due to the hedge relationship no
longer being highly effective. Amounts previously recorded in accumulated other comprehensive income (loss) will be reclassified into
earnings as the originally forecasted transactions occur. The following table shows the impact of the effective portion of the Company’s
cash flow hedges on the Consolidated Statements of Operations and the Consolidated Statements of Equity for the year ended
December 31, 2009:
Amount of Gain (Loss)
Amount of Gain Location of Gain (Loss) Reclassified from
Recognized in Other Reclassified from Accumulated Accumulated Other
Derivatives designated Comprehensive Other Comprehensive Comprehensive
as hedging instruments Income on Derivatives Income into Income Income into Income
(in millions) (in millions)
Cash flow hedges
Interest on debt $ 19 Interest and debt expense $ 8
Fixed annuity products — Net investment income (6)
Total $ 19 Total $ 2
The following is a summary of unrealized derivatives gains (losses) included in accumulated other comprehensive income (loss) related to
cash flow hedges:
2009 2008 2007
(in millions)
Net unrealized derivatives losses at January 1 $ (8) $ (6) $ (1)
Holding gains (losses) 19 — (1)
Reclassification of realized gains (2) (3) (6)
Income tax provision (benefit) (6) 1 2
Net unrealized derivatives gains (losses) at December 31 $ 3 $ (8) $ (6)
At December 31, 2009, 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
deferred gain related to interest rate swaps that will be recorded as a reduction to interest and debt expense, partially offset by a
$6 million deferred loss related to interest rate swaptions that will be recorded in net investment income. 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, 2009, 2008 and 2007 due to forecasted transactions no longer being expected to
occur according to the original hedge strategy. For the years ended December 31, 2009 and 2008, there were no amounts recognized in
earnings on derivative transactions that were ineffective. For the year ended December 31, 2007, the Company recognized $2 million in
net investment income related to ineffectiveness on its swaptions.
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.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with
the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of
credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key
components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral
arrangements wherever practical. As of December 31, 2009, the Company held $103 million in cash and cash equivalents and
recorded a corresponding liability in other liabilities for collateral the Company is obligated to return to counterparties. As of
December 31, 2009, the Company had accepted additional collateral consisting of various securities with a fair market value of
$22 million, which are not reflected on the Consolidated Balance Sheets. As of December 31, 2009, the Company’s maximum credit
exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was
approximately $83 million.
ANNUAL REPORT 2009 143