Ameriprise 2012 Annual Report Download - page 72

Distribution expenses increased $139 million, or 5%, compared to the prior year driven by growth in assets under
management. See our discussion on the changes in AUM in our segment results of operations section below.
Benefits, claims, losses and settlement expenses increased $289 million, or 19%, compared to the prior year primarily
due to the market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC amortization),
which was an expense of $334 million in 2012, including $18 million of expense associated with unlocking and model
changes, compared to an expense of $67 million in 2011, including $4 million of expense associated with unlocking and
model changes. In 2012, the fair value of the variable annuity guaranteed living benefits liability decreased nearly
$1 billion and the nonperformance credit spread was reduced. During this period, hedging management produced a loss
and there was an increase in expense due to the reduction in credit spread. In 2011, the fair value of the variable annuity
guaranteed living benefits liability increased over $1 billion and the nonperformance credit spread increased. Hedging
management decisions and results in 2011 drove a gross expense that was materially offset by nonperformance credit
spread movement for that fiscal year. Benefits, claims, losses and settlement expenses for 2012 included a $28 million
benefit from unlocking and model changes primarily reflecting a $50 million benefit from an adjustment to the model
which values the reserves related to living benefit guarantees primarily attributable to prior periods, partially offset by lower
bond fund returns related to liabilities for the life contingent benefits associated with GMWB. Benefits, claims, losses and
settlement expenses for 2011 included a $40 million benefit from unlocking and model changes, primarily reflecting a
positive impact from enhancements made to the valuation of variable annuities with living benefits. The market impact on
DSIC was a benefit of $7 million in 2012 compared to an expense of $2 million in 2011 as a result of favorable equity
and bond fund returns in 2012 compared to unfavorable equity markets in 2011.
Amortization of DAC decreased $111 million, or 28%, compared to the prior year primarily due to the DAC offset to the
market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC amortization), as well as
the impact of unlocking and model changes and the market impact on amortization of DAC. The DAC offset to the market
impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC amortization) was a benefit of
$69 million in 2012, including a $4 million benefit associated with unlocking and model changes, compared to a benefit
of $5 million in 2011. Amortization of DAC for 2012 included a $23 million expense from unlocking and model changes,
primarily reflecting a decrease in income earned on assets due to the low interest rate environment compared to the
interest credited to the contractholders, which in many instances are at their minimum guarantees (‘‘spread
compression’’), and lower bond fund growth rates, partially offset by a benefit from improved policyholder persistency and
lowered mortality assumption. The impact of unlocking and model changes for 2012 included a $9 million expense for the
DAC offset to the adjustment to the model which values the reserves related to living benefit guarantees primarily
attributable to prior periods. Amortization of DAC for 2011 included a $38 million expense from unlocking and model
changes primarily driven by spread compression, partially offset by a benefit from improved policyholder persistency. The
market impact on DAC was a benefit of $24 million in 2012 compared to an expense of $9 million in the prior year as a
result of favorable equity and bond fund returns in 2012 compared to unfavorable equity markets in 2011.
Interest and debt expense decreased $41 million, or 13%, compared to the prior year due to a decrease in interest
expense on debt of CIEs primarily driven by lower debt balances.
Income Taxes
Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was
27.1% for the year ended December 31, 2012, compared to 26.1% for the prior year. Our effective tax rate on income
from continuing operations excluding income attributable to noncontrolling interests was 24.5% for the year ended
December 31, 2012, compared to 24.3% for the prior year.
In the fourth quarter of 2012, we recorded a $16 million decrease to tax expense for an out-of-period correction related to
the review of our deferred tax balance. In the second quarter of 2012, we recorded a $32 million increase to tax expense
for an out-of-period correction of a tax item related to securities lending activities.
It is possible there will be corporate tax reform in the next few years. While impossible to predict, corporate tax reform is
likely to include a reduction in the corporate tax rate coupled with reductions in tax preferred items. Potential tax reform
may also affect the U.S. tax rules regarding international operations. Any changes could have a material impact on our
income tax expense and deferred tax balances.
Results of Operations by Segment
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Operating earnings is the measure of segment profit or loss management uses to evaluate segment performance.
Operating earnings should not be viewed as a substitute for GAAP income from continuing operations before income tax
provision. We believe the presentation of segment operating earnings as we measure it for management purposes
enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating
a more meaningful trend analysis. See Note 25 to the Consolidated Financial Statements for further information on the
presentation of segment results and our definition of operating earnings.
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