Ameriprise 2012 Annual Report Download - page 63

obtained from third-party pricing sources. We record unrealized securities gains (losses) in accumulated other
comprehensive income, net of impacts to DAC, DSIC, certain benefit reserves and income taxes. We recognize gains and
losses in results of operations upon disposition of the securities.
When the fair value of an investment is less than its amortized cost, we assess whether or not: (i) we have the intent to
sell the security (made a decision to sell) or (ii) it is more likely than not that we will be required to sell the security before
its anticipated recovery. If either of these conditions is met, an other-than-temporary impairment is considered to have
occurred and we must recognize an other-than-temporary impairment for the difference between the investment’s
amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and we do not
expect to recover a security’s amortized cost basis, the security is also considered other-than-temporarily impaired. For
these securities, we separate the total impairment into the credit loss component and the amount of the loss related to
other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The
amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income,
net of impacts to DAC, DSIC, certain benefit reserves and income taxes. For Available-for-Sale securities that have
recognized an other-than-temporary impairment through earnings, the difference between the amortized cost basis and the
cash flows expected to be collected is accreted as interest income if through subsequent evaluation there is a sustained
increase in the cash flow expected. Subsequent increases and decreases in the fair value of Available-for-Sale securities
are included in other comprehensive income.
For all securities that are considered temporarily impaired, we do not intend to sell these securities (have not made a
decision to sell) and it is not more likely than not that we will be required to sell the security before recovery of its
amortized cost basis. We believe that we will collect all principal and interest due on all investments that have amortized
cost in excess of fair value that are considered only temporarily impaired.
Factors we consider in determining whether declines in the fair value of fixed maturity securities are other-than-temporary
include: (i) the extent to which the market value is below amortized cost; (ii) the duration of time in which there has been
a significant decline in value; (iii) fundamental analysis of the liquidity, business prospects and overall financial condition of
the issuer; and (iv) market events that could impact credit ratings, economic and business climate, litigation and
government actions, and similar external business factors. In order to determine the amount of the credit loss component
for corporate debt securities considered other-than-temporarily impaired, a best estimate of the present value of cash flows
expected to be collected discounted at the security’s effective interest rate is compared to the amortized cost basis of the
security. The significant inputs to cash flow projections consider potential debt restructuring terms, projected cash flows
available to pay creditors and our position in the debtor’s overall capital structure.
For structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities, asset
backed securities and other structured investments), we also consider factors such as overall deal structure and our
position within the structure, quality of underlying collateral, delinquencies and defaults, loss severities, recoveries,
prepayments and cumulative loss projections in assessing potential other-than-temporary impairments of these
investments. Based upon these factors, securities that have indicators of potential other-than-temporary impairment are
subject to detailed review by management. Securities for which declines are considered temporary continue to be carefully
monitored by management.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
We adopted new accounting rules for DAC on January 1, 2012 on a retrospective basis. See below for our updated
accounting policies on the deferral of acquisition costs.
We incur costs in connection with acquiring new and renewal insurance and annuity businesses. The portion of these costs
which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract are deferred.
Significant costs capitalized include sales based compensation related to the acquisition of new and renewal insurance
policies and annuity contracts, medical inspection costs for successful sales, and a portion of employee compensation and
benefit costs based upon the amount of time spent on successful sales. Sales based compensation paid to advisors and
employees and third-party distributers is capitalized. Employee compensation and benefits costs which are capitalized
under the new accounting standard relate primarily to sales efforts, underwriting and processing. All other costs which are
not incremental direct costs of acquiring an insurance policy or annuity contract are expensed as incurred.
For our annuity and life, disability income and long term care insurance products, our DAC and DSIC balances at any
reporting date are supported by projections that show management expects there to be adequate premiums or estimated
gross profits after that date to amortize the remaining DAC and DSIC balances. These projections are inherently uncertain
because they require management to make assumptions about financial markets, anticipated mortality and morbidity levels
and policyholder behavior over periods extending well into the future. Projection periods used for our annuity products are
typically 30 to 50 years. Projection periods for our life insurance and long term care insurance products are often 50 years
or longer and projection periods for our disability income products can be up to 45 years. Management regularly monitors
financial market conditions and actual policyholder behavior experience and compares them to its assumptions.
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