Ameriprise 2012 Annual Report Download - page 65

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 us 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. We also offer 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 benefits. In
addition, we offer contracts with guaranteed minimum withdrawal benefit (‘‘GMWB’’) and guaranteed minimum
accumulation benefit (‘‘GMAB’’) provisions and, until May 2007, we offered contracts containing guaranteed minimum
income benefit (‘‘GMIB’’) provisions.
In determining the liabilities for GMDB, GMIB and the life contingent benefits associated with GMWB, we project 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 amounts in the table above in ‘‘Deferred Acquisition Costs and
Deferred Sales Inducement Costs’’ include the estimated impact to benefits and claims expense related to variable annuity
guarantees resulting from a decrease of 100 basis points in various rate assumptions.
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 to our Consolidated Financial Statements 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, ranging from 3.17% to 9.38% at December 31, 2012, depending on year of
issue, with an average rate of approximately 5.02%.
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.
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