Ameriprise 2010 Annual Report Download - page 154

Equity indexed annuities and stock market certificate products have returns tied to the performance of equity markets. As a
result of fluctuations in equity markets, the obligation incurred by the Company related to equity indexed annuities and
stock market certificate products will positively or negatively impact earnings over the life of these products. As a means of
economically hedging its obligations under the provisions of these products, the Company enters into index options and
occasionally enters into futures contracts. The gross notional amount of these derivative contracts was $1.5 billion and
$1.6 billion at December 31, 2010 and 2009, respectively.
The Company enters into forward contracts, futures and total return swaps to manage its exposure to price risk arising
from seed money investments in proprietary investment products. The gross notional amount of these contracts was
$174 million and $191 million at December 31, 2010 and 2009, respectively.
The Company enters into foreign currency forward contracts to economically hedge its exposure to certain receivables and
obligations denominated in non-functional currencies. The gross notional amount of these contracts was $21 million and
$7 million at December 31, 2010 and 2009, respectively.
In the first quarter of 2010, the Company entered into a total return swap to economically hedge its exposure to equity
price risk of Ameriprise Financial, Inc. common stock granted as part of its Ameriprise Financial Franchise Advisor Deferred
Equity Plan. In the fourth quarter of 2010, the Company extended the contract through 2011. As part of the contract, the
Company expects to cash settle the difference between the value of a fixed number of shares at the contract date (which
may be increased from time to time) and the value of those shares over an unwind period ending on December 31, 2011.
The gross notional value of this contract was $35 million at December 31, 2010.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In
addition, the equity component of the equity indexed annuity and stock market certificate product obligations are also
considered embedded derivatives. These embedded derivatives are bifurcated from their host contracts and reported on
the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As discussed above, the
Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.
Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge certain
asset-based distribution fees (ii) interest rate swaps to hedge interest rate exposure on debt, (iii) interest rate lock
agreements to hedge interest rate exposure on debt issuances and (iv) swaptions used to hedge the risk of increasing
interest rates on forecasted fixed premium product sales.
At December 31, 2010, the Company expects to reclassify net pretax gains of $4 million from accumulated other
comprehensive income that will be recorded as a reduction to interest and debt expense, and net pretax losses of
$6 million that will be recorded in net investment income in the next 12 months. No hedge relationships were
discontinued during the years ended December 31, 2010 and 2009 due to forecasted transactions no longer being
expected to occur according to the original hedge strategy. For the years ended December 31, 2010, 2009 and 2008,
amounts recognized in earnings related to cash flow hedges due to ineffectiveness were not material. The following tables
show the impact of the effective portion of the Company’s cash flow hedges on the Consolidated Statements of Operations
and the Consolidated Statements of Equity for the years ended December 31:
Amount of Gain Recognized in Other
Comprehensive Income on Derivatives
Derivatives designated as hedging instruments 2010 2009
(in millions)
Interest on debt $16 $19
Asset-based distribution fees 20 —
Total $36 $19
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income
Location of Gain (Loss) Reclassified from Accumulated
Other Comprehensive Income into Income 2010 2009
(in millions)
Interest and debt expense $8 $8
Distribution fees 11 —
Net investment income (6) (6)
Total $13 $ 2
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