Ameriprise 2009 Annual Report Download - page 57

We monitor other principal DAC and DSIC amortization assumptions, such as persistency, mortality, morbidity, interest margin and
maintenance expense levels each quarter and, when assessed independently, each could impact our DAC and DSIC balances.
The analysis of DAC and DSIC balances and the corresponding amortization is a dynamic process that considers all relevant factors and
assumptions described previously. Unless management identifies a significant deviation over the course of the quarterly monitoring,
management reviews and updates these DAC and DSIC amortization assumptions annually in the third quarter of each year. An
assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results.
Liabilities for Future Policy Benefits and Policy Claims and Other Policyholders’ Funds
Fixed Annuities and Variable Annuity Guarantees
Future policy benefits and policy claims and other policyholders’ funds 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 us 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. We also offer 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 benefits. In addition, we offer contracts with guaranteed minimum
withdrawal benefit (‘‘GMWB’’) and guaranteed minimum accumulation benefit (‘‘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, we project 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 amounts in the table above in
‘‘Deferred Acquisition Costs and Deferred Sales Inducement Costs’’ include the estimated impact to benefits and claims expense related to
variable annuity guarantees resulting from a decrease of 100 basis points in various rate assumptions.
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 to our Consolidated Financial Statements 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 GMWB and GMAB embedded derivatives and the liability for life contingent benefits
are reflected in benefits, claims, losses and settlement expenses.
Liabilities for equity indexed annuities are equal to the accumulation of host contract values covering guaranteed benefits and the fair
value of embedded equity options.
Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established industry mortality
tables and interest rates, ranging from 4.6% to 9.5% at December 31, 2009, depending on year of issue, with an average rate of
approximately 5.7%.
42 ANNUAL REPORT 2009