Ameriprise 2010 Annual Report Download - page 107

income and a negative impact on pretax income. Of the $30.2 billion in future policy benefits and claims on our
Consolidated Balance Sheets at December 31, 2010, $29.2 billion related to liabilities created by these products. We do
not hedge this exposure.
Brokerage Client Cash Balances
We pay interest on certain brokerage client cash balances and have the ability to reset these rates from time to time
based on prevailing economic and business conditions. We earn revenue to fund the interest paid from interest-earning
assets or fees from off-balance sheet deposits at FDIC insured institutions, which are indexed to short-term interest rates.
In general, the change in interest paid lags the change in revenues earned. We currently hedge a portion of the fees
earned on deposits held at FDIC insured institutions with interest rate swaps classified as cash flow hedges.
Flexible Savings and Other Fixed Rate Savings Products
We have interest rate risk from our flexible savings and other fixed rate savings products. These products are primarily
investment certificates generally ranging in amounts from $1,000 to $1 million with interest crediting rate terms ranging
from three to 36 months, as well as other savings products sold through Ameriprise Bank. We guarantee an interest rate
to the holders of these products. Payments collected from clients are primarily invested in fixed rate securities to fund the
client credited rate with the spread between the rate earned from investments and the rate credited to clients recorded as
earned income. Client liabilities and investment assets generally differ as it relates to basis, repricing or maturity
characteristics. Rates credited to clients generally reset at shorter intervals than the yield on underlying investments. This
exposure is not currently hedged although we monitor our investment strategy and make modifications based on our
changing liabilities and the expected interest rate environment. Of the $8.8 billion in customer deposits at December 31,
2010, $2.3 billion related to reserves for our fixed rate certificate products and $3.5 billion related to reserves for our
banking products.
Equity Indexed Annuities
Our equity indexed annuity product is a single premium annuity issued with an initial term of seven years. The annuity
guarantees the contractholder a minimum return of 3% on 90% of the initial premium or end of prior term accumulation
value upon renewal plus a return that is linked to the performance of the S&P 500 Index. The equity-linked return is based
on a participation rate initially set at between 50% and 90% of the S&P 500 Index, which is guaranteed for the initial
seven-year term when the contract is held to full term. At December 31, 2010, we had $103 million in reserves related to
equity indexed annuities. We discontinued new sales of equity indexed annuities in 2007.
Equity Price Risk—Equity Indexed Annuities
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices.
To hedge this exposure, a portion of the proceeds from the sale of equity indexed annuities is used to purchase futures,
calls and puts which generate returns to replicate what we must credit to client accounts. In conjunction with purchasing
puts we also write puts. Pairing purchased puts with written puts allows us to better match the characteristics of the
liability.
Interest Rate Risk—Equity Indexed Annuities
Most of the proceeds from the sale of equity indexed annuities are invested in fixed income securities with the return on
those investments intended to fund the 3% guarantee. We earn income from the difference between the return earned on
invested assets and the 3% guarantee rate credited to customer accounts. The spread between return earned and amount
credited is affected by changes in interest rates.
Stock Market Certificates
Stock market certificates are purchased for amounts generally from $1,000 to $1 million for terms of 52 weeks which can
be extended to a maximum of 20 years. For each term the certificate holder can choose to participate 100% in any
percentage increase in the S&P 500 Index up to a maximum return or choose partial participation in any increase in the
S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-
linked return and guaranteed rate of interest cannot exceed the maximum return. Reserves for our stock market
certificates are included in customer deposits on our Consolidated Balance Sheets. At December 31, 2010, we had
$804 million in reserves related to stock market certificates.
Equity Price Risk—Stock Market Certificates
As with the equity indexed annuities, the equity-linked return to investors creates equity price risk exposure. We seek to
minimize this exposure with purchased futures and call spreads that replicate what we must credit to client accounts.
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