Ameriprise 2010 Annual Report Download - page 127

How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments
In April 2010, the FASB updated the accounting standards regarding accounting for investment funds determined to be
VIEs. Under this standard an insurance enterprise would not be required to consolidate a voting-interest investment fund
when it holds the majority of the voting interests of the fund through its separate accounts. In addition, the enterprise
would not consider the interests held through separate accounts in evaluating its economic interests in a VIE, unless the
separate account contract holder is a related party. The standard is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2010. The adoption of the standard is not expected to have a material
impact on the Company’s consolidated results of operations and financial condition.
4. Consolidated Investment Entities
The Company provides asset management services to various CDOs and other investment products (collectively,
‘‘investment entities’’), which are sponsored by the Company for the investment of client assets in the normal course of
business. Certain of these investment entities are considered to be VIEs while others are considered to be voting rights
entities (‘‘VREs’’). The Company consolidates certain of these investment entities. See Note 2 for additional information on
principles of consolidation.
The CDOs managed by the Company are considered VIEs. These CDOs are asset backed financing entities collateralized by
a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities
are issued by a CDO, offering investors various maturity and credit risk characteristics. The debt securities issued by the
CDOs are non-recourse to the Company. The CDO’s debt holders have recourse only to the assets of the CDO. The assets
of the CDOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CDO’s
collateral pool. The Company generally earns management fees from the CDOs based on the par value of outstanding debt
and, in certain instances, may also receive performance-based fees. In the normal course of business, the Company has
invested in certain CDOs, generally an insignificant portion of the unrated, junior subordinated debt.
For certain of the CDOs, the Company has determined that consolidation is required as it has power over the CDOs and
holds a variable interest in the CDOs for which the Company has the potential to receive significant benefits or the
potential obligation to absorb significant losses. For other CDOs managed by the Company, the Company has determined
that consolidation is not required as the Company does not hold a variable interest in the CDOs.
The Company provides investment advice and related services to private, pooled investment vehicles organized as limited
partnerships, limited liability companies or foreign (non-U.S.) entities. Certain of these pooled investment vehicles are
considered VIEs while others are VREs. For investment management services, the Company generally earns management
fees based on the market value of assets under management, and in certain instances may also receive performance-
based fees. The Company provides seed money occasionally to certain of these funds. For certain of the pooled
investment vehicles, the Company has determined that consolidation is required as the Company stands to absorb a
majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns. For other VIE pooled
investment vehicles, the Company has determined that consolidation is not required because the Company is not expected
to absorb the majority of the expected losses or receive the majority of the expected residual returns. For the pooled
investment vehicles which are VREs, the Company consolidates the structure when it has a controlling financial interest.
The Company also provides investment advisory, distribution and other services to the Columbia and Threadneedle mutual
fund families. The Company has determined that consolidation is not required for these mutual funds.
In addition, the Company may invest in structured investments including VIEs for which it is not the sponsor. These
structured investments typically invest in fixed income instruments and are managed by third parties and include asset
backed securities, commercial mortgage backed securities, and residential mortgage backed securities. The Company
includes these investments in Available-for-Sale securities. The Company has determined that it is not the primary
beneficiary of these structures due to its relative size, position in the capital structure of these entities, and the Company’s
lack of power over the structures. The Company’s maximum exposure to loss as a result of its investment in structured
investments that it does not consolidate is limited to its carrying value. The Company has no obligation to provide further
financial or other support to these structured investments nor has the Company provided any support to these structured
investments. See Note 5 for additional information about these structured investments.
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