Ameriprise 2011 Annual Report Download - page 127

Liabilities for fixed account values on fixed and variable universal life insurance are equal to accumulation values.
Accumulation values are the cumulative gross deposits and credited interest less various contractual expense and mortality
charges and less amounts withdrawn by policyholders.
Liabilities for indexed accounts of IUL products are equal to the accumulation of host contract values covering guaranteed
benefits and the fair value of embedded equity options.
A portion of the Company’s fixed and variable universal life contracts have product features that result in profits followed by
losses from the insurance component of the contract. These profits followed by losses can be generated by the cost
structure of the product or secondary guarantees in the contract. The secondary guarantee ensures that, subject to
specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient
policy value to cover the monthly deductions and charges.
In determining the liability for contracts with profits followed by losses, the Company projects benefits and contract
assessments using actuarial models. Significant assumptions made in projecting future benefits and assessments relate to
customer asset value growth rates, mortality, persistency and investment margins and are consistent with those used for
DAC asset valuation for the same contracts. As with DAC, management reviews, and where appropriate, adjusts its
assumptions each quarter. Unless management identifies a material deviation over the course of quarterly monitoring,
management reviews and updates these assumptions annually in the third quarter of each year.
The liability for these future losses is determined by estimating the death benefits in excess of account value and
recognizing the excess over the estimated meaningful life based on expected assessments (e.g. cost of insurance charges,
contractual administrative charges, similar fees and investment margin). See Note 10 for information regarding the liability
for contracts with secondary guarantees.
Liabilities for unpaid amounts on reported life insurance claims are equal to the death benefits payable under the policies.
Liabilities for unpaid amounts on reported health insurance claims include any periodic or other benefit amounts due and
accrued, along with estimates of the present value of obligations for continuing benefit payments. These amounts are
calculated based on claim continuance tables which estimate the likelihood an individual will continue to be eligible for
benefits. Present values are calculated at interest rates established when claims are incurred. Anticipated claim
continuance rates are based on established industry tables, adjusted as appropriate for the Company’s experience.
Liabilities for estimated benefits payable on claims that have been incurred but not yet reported are based on periodic
analysis of the actual time lag between when a claim occurs and when it is reported.
Liabilities for estimates of benefits that will become payable on future claims on term life, whole life and health insurance
policies are based on the net level premium method, using anticipated premium payments, mortality and morbidity rates,
policy persistency and interest rates earned on assets supporting the liability. Anticipated mortality and morbidity rates are
based on established industry mortality and morbidity tables, with modifications based on the Company’s experience.
Anticipated premium payments and persistency rates vary by policy form, issue age, policy duration and certain other
pricing factors.
Where applicable, benefit amounts expected to be recoverable from reinsurance companies who share in the risk are
separately recorded as reinsurance recoverable within receivables.
Auto and Home Reserves
Auto and home reserves include amounts determined from loss reports on individual claims, as well as amounts based on
historical loss experience for losses incurred but not yet reported. Such liabilities are necessarily based on estimates and,
while management believes that the reserve amounts were adequate at December 31, 2011 and 2010, the ultimate
liability may be in excess of or less than the amounts provided. The Company’s methods for making such estimates and
for establishing the resulting liabilities are continually reviewed, and any adjustments are reflected in earnings in the period
such adjustments are made.
Share-Based Compensation
The Company measures and recognizes the cost of share-based awards granted to employees and directors based on the
grant-date fair value of the award and recognizes the expense on a straight-line basis over the vesting period. The fair
value of each option is estimated on the grant date using a Black-Scholes option-pricing model. The Company recognizes
the cost of share-based awards granted to independent contractors on a fair value basis until the award is fully vested.
Income Taxes
The Company’s provision for income taxes represents the net amount of income taxes that the Company expects to pay or
to receive from various taxing jurisdictions in connection with its operations. The Company provides for income taxes based
on amounts that the Company believes it will ultimately owe taking into account the recognition and measurement for
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