Ameriprise 2009 Annual Report Download - page 55

Critical Accounting Policies
The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting
policies are critical to an understanding of our results of operations and financial condition and, in some cases, the application of these
policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our
Consolidated Financial Statements. The accounting and reporting policies we have identified as fundamental to a full understanding of
our results of operations and financial condition are described below. See Note 2 to our Consolidated Financial Statements for further
information about our accounting policies.
Valuation of Investments
The most significant component of our investments is our Available-for-Sale securities, which we carry at fair value within our
Consolidated Balance Sheets. The fair value of our Available-for-Sale securities at December 31, 2009 was primarily obtained from third-
party pricing sources. We record unrealized securities gains (losses) in accumulated other comprehensive income (loss), net of income tax
provision (benefit) and net of adjustments in other asset and liability balances, such as DAC, to reflect the expected impact on their
carrying values had the unrealized securities gains (losses) been realized as of the respective balance sheet dates. We recognize gains and
losses in results of operations upon disposition of the securities.
Effective January 1, 2009, we early adopted an accounting standard that significantly changed our accounting policy regarding the timing
and amount of other-than-temporary impairments for Available-for-Sale securities. When the fair value of an investment is less than its
amortized cost, we assess whether or not: (i) we have the intent to sell the security (made a decision to sell) or (ii) it is more likely than not
that we will be required to sell the security before its anticipated recovery. If either of these conditions is met, an other-than-temporary
impairment is considered to have occurred and we must recognize an other-than-temporary impairment for the difference between the
investment’s amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and we do not
expect to recover a security’s amortized cost basis, the security is also considered other-than-temporarily impaired. For these securities,
we separate the total impairment into the credit loss component and the amount of the loss related to other factors. The amount of the
total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of the total other-than-temporary
impairment related to other factors is recognized in other comprehensive income, net of impacts to DAC, DSIC, certain benefit reserves
and income taxes. For Available-for-Sale securities that have recognized an other-than-temporary impairment through earnings, if
through subsequent evaluation there is a significant increase in the cash flow expected, the difference between the amortized cost basis
and the cash flows expected to be collected is accreted as interest income. Subsequent increases and decreases in the fair value of
Available-for-Sale securities are included in other comprehensive income.
For all securities that are considered temporarily impaired, we do not intend to sell these securities (have not made a decision to sell) and
it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We believe that we will
collect all principal and interest due on all investments that have amortized cost in excess of fair value that are considered only
temporarily impaired.
Factors we consider in determining whether declines in the fair value of fixed maturity securities are other-than-temporary include:
(i) the extent to which the market value is below amortized cost; (ii) the duration of time in which there has been a significant decline in
value; (iii) fundamental analysis of the liquidity, business prospects and overall financial condition of the issuer; and (iv) market events
that could impact credit ratings, economic and business climate, litigation and government actions, and similar external business factors.
In order to determine the amount of the credit loss component for corporate debt securities considered other-than-temporarily impaired,
a best estimate of the present value of cash flows expected to be collected discounted at the security’s effective interest rate is compared to
the amortized cost basis of the security. The significant inputs to cash flow projections consider potential debt restructuring terms,
projected cash flows available to pay creditors and our position in the debtor’s overall capital structure.
For structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities, asset backed securities
and other structured investments), we also consider factors such as overall deal structure and our position within the structure, quality of
underlying collateral, delinquencies and defaults, loss severities, recoveries, prepayments and cumulative loss projections in assessing
potential other-than-temporary impairments of these investments. Based upon these factors, securities that have indicators of potential
other-than-temporary impairment are subject to detailed review by management. Securities for which declines are considered temporary
continue to be carefully monitored by management. Generally, the credit loss component for the non-agency mortgage backed securities
is determined as the amount the amortized cost basis exceeds the present value of the projected cash flows expected to be collected.
40 ANNUAL REPORT 2009