Ameriprise 2011 Annual Report Download - page 32

Reinsurance
We reinsure a portion of the insurance risks associated with our life, disability income and long term care insurance
products through reinsurance agreements with unaffiliated reinsurance companies. We use reinsurance to limit losses,
reduce exposure to large risks and provide additional capacity for future growth. To manage exposure to losses from
reinsurer insolvencies, we evaluate the financial condition of reinsurers prior to entering into new reinsurance treaties and
on a periodic basis during the terms of the treaties. Our insurance companies remain primarily liable as the direct insurers
on all risks reinsured.
Generally, we currently reinsure 90% of the death benefit liability related to almost all individual fixed and variable universal
life and term life insurance products. As a result, the RiverSource Life companies typically retain and are at risk for, at
most, 10% of each policy’s death benefit from the first dollar of coverage for new sales of these policies, subject to the
reinsurers fulfilling their obligations. The RiverSource Life companies began reinsuring risks at this level during 2001 (2002
for RiverSource Life of NY) for term life insurance and 2002 (2003 for RiverSource Life of NY) for individual fixed and
variable universal life insurance. Policies issued prior to these dates are not subject to these reinsurance levels. Generally,
the maximum amount of life insurance risk retained by the RiverSource Life companies is $1.5 million on a single life and
$1.5 million on any flexible premium survivorship life policy. Risk on fixed and variable universal life policies is reinsured on
a yearly renewable term basis. Risk on most term life policies starting in 2001 (2002 for RiverSource Life of NY) is
reinsured on a coinsurance basis, a type of reinsurance in which the reinsurer participates proportionally in all material
risks and premiums associated with a policy.
For existing long term care policies, RiverSource Life retained 50% of the risk and ceded on a coinsurance basis the
remaining 50% of the risk to subsidiaries of Genworth Financial, Inc. (‘‘Genworth’’). For RiverSource Life of NY, this
reinsurance arrangement applies for 1996 and later issues only. As of December 31, 2011, RiverSource Life companies’
credit exposure to Genworth under this reinsurance arrangement was approximately $1.5 billion. Genworth also serves as
claims administrator for our long term care policies.
Generally, RiverSource Life companies retain at most $5,000 per month of risk per life on disability income policies sold
on policy forms introduced in most states in October 2007 (August 2010 for RiverSource Life of NY) and they reinsure the
remainder of the risk on a coinsurance basis with unaffiliated reinsurance companies. RiverSource Life companies retain all
risk for new claims on disability income contracts sold on other policy forms. Our insurance companies also retain all risk
on accidental death benefit claims and substantially all risk associated with waiver of premium provisions.
We also reinsure a portion of the risks associated with our personal auto, home and excess liability insurance products
through three types of reinsurance agreements with unaffiliated reinsurance companies, as follows:
• We purchase reinsurance with a limit of $5 million per loss, and we retain $750,000 per loss.
• We purchase catastrophe reinsurance that, for 2011, had a limit of $90 million per event and we retained $10 million
per event. For 2012, our catastrophe reinsurance has a limit of $110 million per event and we retain $20 million.
• We purchase reinsurance that limits our personal liability insurance exposure to 10% of any loss. This 90% quota
share treaty uses the same reinsurers as our excess of loss treaty.
See Note 7 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for
additional information on reinsurance.
Liabilities and Reserves
We maintain adequate financial reserves to cover the insurance risks associated with the insurance products we issue.
Generally, reserves represent estimates of the invested assets that our insurance companies need to hold to provide
adequately for future benefits and expenses. For a discussion of liabilities and reserves related to our insurance products,
see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Financial Strength Ratings
Independent rating organizations rate our insurance subsidiaries. Rating organizations evaluate the financial soundness and
claims-paying ability of insurance companies continually, and they base their ratings on a number of different factors,
including market position in core products and market segments, risk-adjusted capitalization and the quality of the
company’s investment portfolios. More specifically, the ratings assigned are developed from an evaluation of a company’s
balance sheet strength, operating performance and business profile. Balance sheet strength reflects a company’s ability to
meet its current and ongoing obligations to its contractholders and policyholders and includes analysis of a company’s
capital adequacy. The evaluation of operating performance centers on the stability and sustainability of a company’s
sources of earnings. The business profile component of the rating considers a company’s mix of business, market position
and depth and experience of management.
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