Ameriprise 2011 Annual Report Download - page 159

The deferred premium associated with some of the above options is paid or received semi-annually over the life of the
option contract. The following is a summary of the payments the Company is scheduled to make and receive for these
options:
Premiums Payable Premiums Receivable
(in millions)
2012 $ 372 $ 41
2013 349 26
2014 324 24
2015 296 22
2016 265 15
2017-2026 925 34
Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options
prior to the full premium being paid or received.
EIA, IUL 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 EIA, IUL 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 futures contracts. The
gross notional amount of these derivative contracts was $1.3 billion and $1.5 billion at December 31, 2011 and 2010,
respectively.
The Company enters into forward contracts, futures, total return swaps and commodity 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 $123 million and $174 million at December 31, 2011 and 2010, 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 $26 million and
$21 million at December 31, 2011 and 2010, respectively.
In 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
Compensation Plan (‘‘Franchise Advisor Deferral Plan’’). In the fourth quarter of 2011, the Company extended the contract
through 2012. 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, 2012. The gross notional value of this contract was $17 million and $35 million
at December 31, 2011 and 2010, respectively.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In
addition, the equity component of the EIA, IUL 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 interest
rate exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and
(iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales. The Company
previously designated and accounted for as cash flow hedges interest rate swaps to hedge certain asset-based distribution
fees.
During the second quarter of 2011, the Company reclassified from accumulated other comprehensive income into
earnings a $27 million gain on an interest rate hedge put in place in anticipation of issuing debt between December 2010
and September 2011. The gain was reclassified due to the forecasted transaction not occurring according to the original
hedge strategy. For the years ended December 31, 2011, 2010 and 2009, amounts recognized in earnings related to
cash flow hedges due to ineffectiveness were not material. The estimated net amount of existing pretax losses on
December 31, 2011 that the Company expects to reclassify to earnings within the next twelve months is $2 million, which
consists of $4 million of pretax gains to be recorded as a reduction to interest and debt expense and $6 million of pretax
losses to be recorded in net investment income. The following tables present the impact of the effective portion of the
144