Ameriprise 2011 Annual Report Download - page 62

determined in the same way as the GMDB liability. Significant assumptions made in projecting future benefits and fees
relate to persistency and benefit utilization. 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 changes in both the
fair values of the GMWB and GMAB embedded derivatives and the liability for life contingent benefits are reflected in
benefits, claims, losses and settlement expenses.
Liabilities for equity indexed annuities are equal to the accumulation of host contract values covering guaranteed benefits
and the fair value of embedded equity options.
Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established
industry mortality tables and interest rates, ranging from 4.25% to 9.5% at December 31, 2011, depending on year of
issue, with an average rate of approximately 5.47%.
Life, Disability Income and Long Term Care Insurance
Future policy benefits and claims related to life, disability income and long term care insurance include liabilities for fixed
account values on fixed and variable universal life policies, liabilities for indexed accounts of indexed universal life (‘‘IUL’’)
products, liabilities for unpaid amounts on reported claims, estimates of benefits payable on claims incurred but not yet
reported and estimates of benefits that will become payable on term life, whole life, disability income and long term care
policies as claims are incurred in the future.
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charges and less amounts withdrawn by policyholders.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 our 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, we project 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 to our Consolidated Financial
Statements 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 disability income and long term care 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 our experience. Interest rates used
with disability income claims ranged from 3.0% to 8.0% at December 31, 2011, with an average rate of 4.5%. Interest
rates used with long term care claims ranged from 4.0% to 7.0% at December 31, 2011, with an average rate of 4.2%.
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, disability income and
long term care 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 our
experience. Anticipated premium payments and persistency rates vary by policy form, issue age, policy duration and certain
other pricing factors. Anticipated interest rates for term and whole life ranged from 4.0% to 10.0% at December 31,
2011, depending on policy form, issue year and policy duration. Anticipated interest rates for disability income policies
47