Ameriprise 2012 Annual Report Download - page 109

Certificate Products
Fixed Rate Certificates
We have interest rate risk from our investment certificates generally ranging in amounts from $1,000 to $2 million with
interest crediting rate terms ranging from three to 36 months. We guarantee an interest rate to the holders of these
products. Payments collected from clients are primarily invested in fixed rate securities to fund the client credited rate with
the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client
liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to
clients generally reset at shorter intervals than the yield on underlying investments. This exposure is not currently hedged
although we monitor our investment strategy and make modifications based on our changing liabilities and the expected
interest rate environment. Of the $6.5 billion in customer deposits at December 31, 2012, $2.8 billion related to reserves
for our fixed rate certificate products.
Stock Market Certificates
Stock market certificates are purchased for amounts generally from $1,000 to $2 million for terms of 52 weeks which can
be extended to a maximum of 20 years. For each term the certificate holder can choose to participate 100% in any
percentage increase in the S&P 500 Index up to a maximum return or choose partial participation in any increase in the
S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-
linked return and guaranteed rate of interest cannot exceed the maximum return. Reserves for our stock market
certificates are included in customer deposits on our Consolidated Balance Sheets. At December 31, 2012, we had
$674 million in reserves related to stock market certificates. The equity-linked return to investors creates equity price risk
exposure. We seek to minimize this exposure with purchased futures and call spreads that replicate what we must credit to
client accounts. This risk continues to be fully hedged. Stock market certificates have some interest rate risk as changes in
interest rates affect the fair value of the payout to be made to the certificate holder. This risk is not currently hedged and
was immaterial at December 31, 2012.
Indexed Universal Life
In 2011, we began offering IUL insurance. IUL is similar to UL in that it provides life insurance coverage and cash value
that increases as a result of credited interest. Also, like UL, there is a minimum guaranteed credited rate of interest. Unlike
UL the rate of credited interest above the minimum guarantee for funds allocated to the indexed account is linked to the
S&P 500 Index (subject to a cap). The policyholder may allocate all or a portion of the policy value to a fixed or indexed
account. At December 31, 2012, we had $104 million in reserves related to the index account of IUL.
Equity Price Risk — Indexed Universal Life
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices.
Most of the proceeds received from IUL insurance are invested in fixed income securities. To hedge the equity exposure, a
portion of the investment earnings received from the fixed income securities is used to purchase call spreads which
generate returns to replicate what we must credit to client accounts.
Interest Rate Risk — Indexed Universal Life
As mentioned above, most of the proceeds received from IUL insurance are invested in fixed income securities with the
return on those investments intended to fund the purchase of call spreads. There are two risks relating to interest rates.
First, we have the risk that investment returns are such that we do not have enough investment income to purchase the
needed call spreads. Second, in the event the policy is surrendered we pay out a book value surrender amount and there
is a risk that we will incur a loss upon having to sell the fixed income securities backing the liability (if interest rates have
risen). This risk is not currently hedged.
Foreign Currency Risk
We have foreign currency risk through our net investment in foreign subsidiaries and our operations in foreign countries.
We are primarily exposed to changes in British Pounds (‘‘GBP’’) related to our net investment in Threadneedle, which was
428 million GBP at December 31, 2012. Our primary exposure related to operations in foreign countries is to the GBP and
the Indian Rupee. We monitor the foreign exchange rates that we have exposure to and enter into foreign currency forward
contracts to mitigate risk when economically prudent. At December 31, 2012, the notional value of outstanding contracts
and our remaining foreign currency risk related to operations in foreign countries were not material.
Interest Rate Risk on External Debt
The stated interest rate on the $2.0 billion of our senior unsecured notes is fixed and the stated interest rate on the
$294 million of junior notes is fixed until June 1, 2016. In 2010, we entered into interest rate swap agreements to
effectively convert the fixed interest rate on $1.4 billion of the senior unsecured notes to floating interest rates based on
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