Ameriprise 2012 Annual Report Download - page 165

The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the
option contract. The following is a summary of the payments the Company is scheduled to make and receive for these
options:
Premiums Payable Premiums Receivable
(in millions)
2013 $ 373 $ 57
2014 348 55
2015 320 54
2016 289 46
2017 238 41
2018-2027 785 104
Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options
prior to the full premium being paid or received.
EIA, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of
fluctuations in equity markets, the obligation incurred by the Company related to EIA, IUL and stock market certificate
products will positively or negatively impact earnings over the life of these products. As a means of economically hedging
its obligations under the provisions of these products, the Company enters into index options and futures contracts. The
gross notional amount of these derivative contracts was $1.3 billion at both December 31, 2012 and 2011.
The Company enters into forward contracts, futures, total return swaps and commodity swaps to manage its exposure to
price risk arising from seed money investments in proprietary investment products. The gross notional amount of these
contracts was $146 million and $123 million at December 31, 2012 and 2011, respectively.
The Company enters into foreign currency forward contracts to economically hedge its exposure to certain receivables and
obligations denominated in non-functional currencies. The gross notional amount of these contracts was $14 million and
$26 million at December 31, 2012 and 2011, respectively.
In 2010, the Company entered into a total return swap to economically hedge its exposure to equity price risk of
Ameriprise Financial, Inc. common stock granted as part of its Ameriprise Financial Franchise Advisor Deferred
Compensation Plan (‘‘Franchise Advisor Deferral Plan’’). The Company previously extended the contract through 2011 and
2012. On December 31, 2012, the Company settled the contract for the difference between the value of the economically
hedged shares at the contract date and the value of those shares at December 31, 2012. The gross notional value of this
contract was $17 million at December 31, 2011.
In the third quarter of 2012, the Company entered into interest rate swaps to manage interest rate risk related to
transitioning its federal savings bank subsidiary to a limited powers national trust bank. The contracts were unwound during
the fourth quarter.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In
addition, the equity component of the EIA, IUL and stock market certificate product obligations are also considered
embedded derivatives. These embedded derivatives are bifurcated from their host contracts and reported on the
Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As discussed above, the
Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.
Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest
rate exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and
(iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales. The Company
previously designated and accounted for as cash flow hedges interest rate swaps to hedge certain asset-based distribution
fees.
During the years ended December 31, 2012 and 2011, the Company reclassified gains from accumulated other
comprehensive income into earnings of $3 million and $27 million, respectively, on interest rate hedges put in place in
anticipation of issuing debt. The gains were reclassified due to the forecasted transactions not occurring according to the
original hedge strategy. For the years ended December 31, 2012, 2011 and 2010, amounts recognized in earnings
related to cash flow hedges due to ineffectiveness were $1 million, nil and nil, respectively. The estimated net amount of
existing pretax losses as of December 31, 2012 that the Company expects to reclassify to earnings within the next twelve
months is $1 million, which consists of $5 million of pretax gains to be recorded as a reduction to interest and debt
expense and $6 million of pretax losses to be recorded in net investment income. The following tables present the impact
of the effective portion of the Company’s cash flow hedges on the Consolidated Statements of Operations and the
Consolidated Statements of Equity for the years ended December 31:
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