Ameriprise 2009 Annual Report Download - page 89
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(discounted cash flows using market rates) than on a market approach (prices from pricing services). We consider market observable
yields for other asset classes we consider to be of similar risk which includes nonperformance and liquidity for individual securities to set
the discount rate for applying the income approach to certain non-agency residential mortgage backed securities. The discount rates used
for these securities at December 31, 2009 ranged from 11% to 22%.
Non-Agency Residential Mortgage Backed Securities Backed by Sub-prime, Alt-A or Prime Collateral
Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage
lending is the origination of residential mortgage loans to customers who have credit ratings above sub-prime but may not conform to
government-sponsored standards. Prime mortgage lending is the origination of residential mortgage loans to customers with good credit
profiles. We have exposure to these types of loans predominantly through mortgage backed and asset backed securities. The slow down in
the U.S. housing market, combined with relaxed underwriting standards by some originators, has led to higher delinquency and loss rates
for some of these investments. Market conditions have increased the likelihood of other-than-temporary impairments for certain
non-agency residential mortgage backed securities. As a part of our risk management process, an internal rating system is used in
conjunction with market data as the basis of analysis to assess the likelihood that we will not receive all contractual principal and interest
payments for these investments. For the investments that are more at risk for impairment, we perform our own assessment of projected
cash flows incorporating assumptions about default rates, prepayment speeds, loss severity, and geographic concentrations to determine
if an other-than-temporary impairment should be recognized.
74 ANNUAL REPORT 2009