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The following table presents our estimate of the pretax impact of these hypothetical market moves, net of hedging, as of December 31,
2009:
Equity Price Exposure to Pretax Income
Before
Hedge Hedge
Equity Price Decline 10% Impact Impact Net Impact
(in millions)
Asset-based management and distribution fees $ (130) $ — $ (130)
DAC and DSIC amortization(1) (136) — (136)
Variable annuity riders:
GMDB and GMIB (34) 3 (31)
GMWB (62) 76 14
GMAB (20) 26 6
DAC and DSIC amortization(2) N/A N/A (10)
Total variable annuity riders (116) 105 (21)
Equity indexed annuities 1 (1) —
Stock market certificates 4 (4) —
Total $ (377) $ 100 $ (287)
Interest Rate Exposure to Pretax Income
Before
Hedge Hedge
Interest Rate Increase 100 Basis Points Impact Impact Net Impact
(in millions)
Asset-based management and distribution fees $ (18) $ — $ (18)
Variable annuity riders:
GMWB 166 (230) (64)
GMAB 33 (46) (13)
DAC and DSIC amortization(2) N/A N/A 30
Total variable annuity riders 199 (276) (47)
Fixed annuities, fixed portion of variable annuities and fixed insurance
products (5) — (5)
Flexible savings and other fixed rate savings products (5) — (5)
Total $ 171 $ (276) $ (75)
N/A Not Applicable.
(1) Market impact on DAC and DSIC amortization resulting from lower projected profits.
(2) Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.
The above results compare to estimated negative impacts to pretax income of $312 million related to a 10% equity price decline and
$48 million related to a 100 basis point increase in interest rates as of December 31, 2008. The reduced equity impact in 2009 is a result
of market dislocation in 2008 and changes to our valuation models. The discount rates and credit spreads we used in 2008 to value
certain of our investments were negatively impacted by the market, which led to greater pretax loss projections related to our variable
annuity riders, partially offset by a lower impact to our asset based management and distribution fees, primarily as a result of lower asset
values.
In evaluating equity price risk, the estimated impact on DAC and DSIC amortization resulting from lower projected profits as a result of
the equity price decline is shown separately from the estimated impact on DAC and DSIC amortization resulting from changes in the
values of GMWB and GMAB riders net of hedges. In estimating the impact on DAC and DSIC amortization resulting from lower projected
profits, we have not changed our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumed
management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year
84 ANNUAL REPORT 2009