Ameriprise 2012 Annual Report Download - page 128

proportion to the estimated gross profits and is subject to retrospective adjustment in a manner similar to retrospective
adjustment of DAC. The assumptions used to project the expected cash flows are consistent with those used for DAC asset
valuation for the same contracts. Changes in the net cost of reinsurance are reflected as a component of other revenues.
Reinsurance recoveries are reported as components of benefits, claims, losses and settlement expenses.
Insurance liabilities are reported before the effects of reinsurance. Future policy benefits and claims recoverable under
reinsurance contracts are recorded within receivables.
The Company also assumes life insurance and fixed annuity risk from other insurers in limited circumstances. Reinsurance
premiums received and benefits paid are accounted for consistently with the basis used in accounting for the policies from
which risk is reinsured and consistently with the terms of the reinsurance contracts. Liabilities for assumed business are
recorded within future policy benefits and claims.
See Note 7 for additional information on reinsurance.
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 the Company 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. The Company also offers 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 (‘‘GGU’’) benefits. In addition, the Company offers contracts containing GMWB and GMAB provisions, and until
May 2007, the Company offered contracts containing guaranteed minimum income benefit (‘‘GMIB’’) provisions.
In determining the liabilities for GMDB, GMIB and the life contingent benefits associated with GMWB, the Company
projects 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 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 for information regarding the fair value measurement of embedded derivatives. The
liability for the life contingent benefits associated with GMWB provisions is 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.
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