Ameriprise 2010 Annual Report Download - page 97

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 each of these types of loans predominantly through
mortgage backed and asset backed securities. The slowdown 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 and loss severity to
determine if an other-than-temporary impairment should be recognized.
The following table presents, as of December 31, 2010, our non-agency residential mortgage backed and asset backed
securities backed by sub-prime, Alt-A or prime mortgage loans by credit rating and vintage year:
AAA AA A BBB BB & Below Total
Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value Cost Value Cost Value
(in millions)
Sub-prime
2003 & prior $ 7 $ 7 $ — $ — $ — $ — $ — $ — $ — $ — $ 7 $ 7
2004 10 10 7466—— 873127
2005 48 48 45 45 23 23 6 6 22 18 144 140
2006 — ————— 9 9 5742 66 51
2007 — — — — 3 3 — — 6 1 9 4
2008 — — 6 5 ———— —— 6 5
Re-Remic(1) 3738——4478——4850
Total Sub-prime $ 102 $ 103 $ 58 $ 54 $ 36 $ 36 $ 22 $ 23 $ 93 $ 68 $ 311 $ 284
Alt-A
2003 & prior $ 17 $ 18 $ — $ — $ — $ — $ — $ — $ — $ — $ 17 $ 18
2004 10 10 59 60 19 17 10 6 14 8 112 101
2005 — — — — 2 2 10 8 308 226 320 236
2006 — ———————147103147103
2007 — ———————192113192113
2008 — ——————— —— — —
2009 — ——————— —— — —
2010 45 45 —————— —— 45 45
Re-Remic(1) 113 114 — — 5 5 — — — — 118 119
Total Alt-A $ 185 $ 187 $ 59 $ 60 $ 26 $ 24 $ 20 $ 14 $ 661 $ 450 $ 951 $ 735
Prime
2003 & prior $ 323 $ 324 $ — $ — $ — $ — $ — $ — $ — $ — $ 323 $ 324
2004 127 128 26 24 29 30 29 26 22 8 233 216
2005 14 19 31 35 32 36 42 42 187 136 306 268
2006 — — 17 19 ———— 3836 55 55
2007 58 60 —————— 1311 71 71
2008 — ——————— —— — —
Re-Remic(1) 2,214 2,398 82 99 ———— 12222,308 2,519
Total Prime $ 2,736 $ 2,929 $ 156 $ 177 $ 61 $ 66 $ 71 $ 68 $ 272 $ 213 $ 3,296 $ 3,453
Grand Total $ 3,023 $ 3,219 $ 273 $ 291 $ 123 $ 126 $ 113 $ 105 $ 1,026 $ 731 $ 4,558 $ 4,472
(1) Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds. Credit
enhancement on senior bonds is increased through the Re-Remic process. Total exposure to subordinate tranches was nil as of
December 31, 2010.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to
a market participant (an exit price). Since there is not a market for our obligations of our variable annuity riders, we
consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust
the valuation of variable annuity riders by updating certain contractholder assumptions, adding explicit margins to provide
for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market
estimate of our nonperformance risk. The nonperformance risk adjustment is based on broker quotes for credit default
swaps that are adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities.
Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of
December 31, 2010. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this
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