Ameriprise 2011 Annual Report Download - page 61

A decrease of 100 basis points in various rate assumptions is likely to result in an increase in DAC and DSIC amortization
and an increase in benefits and claims expense from variable annuity guarantees. The following table presents the
estimated impact to current period pretax income:
Estimated Impact to
Pretax Income(1)
(in millions)
Decrease in future near and long-term fixed income returns by 100 basis points $ (38)
Decrease in future near-term equity fund growth returns by 100 basis points $ (37)
Decrease in future long-term equity fund growth returns by 100 basis points (27)
Decrease in future near and long-term equity returns by 100 basis points $ (64)
(1) An increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same
amount.
We monitor other principal DAC and DSIC amortization assumptions, such as persistency, mortality, morbidity, interest
margin and maintenance expense levels each quarter and, when assessed independently, each could impact our DAC and
DSIC balances.
The analysis of DAC and DSIC balances and the corresponding amortization is a dynamic process that considers all
relevant factors and assumptions described previously. Unless management identifies a significant deviation over the
course of the quarterly monitoring, management reviews and updates these DAC and DSIC amortization assumptions
annually in the third quarter of each year. An assessment of sensitivity associated with changes in any single assumption
would not necessarily be an indicator of future results.
Future Policy Benefits and Claims
Fixed Annuities and Variable Annuity Guarantees
Future policy benefits and claims related to fixed annuities and variable annuity guarantees include liabilities for fixed
account values on fixed and variable deferred annuities, guaranteed benefits associated with variable annuities, equity
indexed annuities and fixed annuities in a payout status.
Liabilities for fixed account values on fixed and variable deferred annuities are equal to accumulation values, which are the
cumulative gross deposits and credited interest less withdrawals and various charges.
The majority of the variable annuity contracts offered by us contain guaranteed minimum death benefit (‘‘GMDB’’)
provisions. When market values of the customer’s accounts decline, the death benefit payable on a contract with a GMDB
may exceed the contract accumulation value. We also offer variable annuities with death benefit provisions that gross up
the amount payable by a certain percentage of contract earnings which are referred to as gain gross-up benefits. In
addition, we offer contracts with guaranteed minimum withdrawal benefit (‘‘GMWB’’) and guaranteed minimum
accumulation benefit (‘‘GMAB’’) provisions and, until May 2007, we offered contracts containing guaranteed minimum
income benefit (‘‘GMIB’’) provisions.
In determining the liabilities for GMDB, GMIB and the life contingent benefits associated with GMWB, we project these
benefits and contract assessments using actuarial models to simulate various equity market scenarios. 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 amounts in the table above in ‘‘Deferred Acquisition Costs and
Deferred Sales Inducement Costs’’ include the estimated impact to benefits and claims expense related to variable annuity
guarantees resulting from a decrease of 100 basis points in various rate assumptions.
The GMDB liability is determined by estimating the expected value of death benefits in excess of the projected contract
accumulation value and recognizing the excess over the estimated meaningful life based on expected assessments (e.g.,
mortality and expense fees, contractual administrative charges and similar fees).
If elected by the contract owner and after a stipulated waiting period from contract issuance, a GMIB guarantees a
minimum lifetime annuity based on a specified rate of contract accumulation value growth and predetermined annuity
purchase rates. The GMIB liability is determined each period by estimating the expected value of annuitization benefits in
excess of the projected contract accumulation value at the date of annuitization and recognizing the excess over the
estimated meaningful life based on expected assessments.
The embedded derivatives related to GMAB and the non-life contingent benefits associated with GMWB provisions are
recorded at fair value. See Note 14 to our Consolidated Financial Statements for information regarding the fair value
measurement of embedded derivatives. The liability for the life contingent benefits associated with GMWB provisions is
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