Ameriprise 2013 Annual Report Download - page 109

sensitivities of assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally,
various second order sensitivities are managed. We use various index options across the term structure, interest rate
swaps and swaptions, total return swaps and futures to manage the risk exposures. The exposures are measured and
monitored daily, and adjustments to the hedge portfolio are made as necessary.
In 2013, we established a macro hedge program which uses a combination of options and/or swaps to provide protection
against the statutory tail scenario risk arising from variable annuity reserves on our statutory surplus. The program also
covers some of the residual risks not covered by other hedging activities. We assess this residual risk under a range of
scenarios in creating and executing the macro hedge program. The macro hedge program could result in additional
earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital
volatility, may not be closely aligned to changes in the variable annuity guaranty embedded derivatives.
To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income
from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a
hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the
yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden
10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values
of variable annuity riders, equity indexed annuities, stock market certificates, indexed universal life insurance and the
associated hedge assets, we assumed no change in implied market volatility despite the 10% drop in equity prices.
The following tables present our estimate of the impact on pretax income from these hypothetical market movements as of
December 31, 2013:
Equity Price Exposure to Pretax Income
Equity Price Decline 10% Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based management and distribution fees(1) $ (243) $ 6 $ (237)
DAC and DSIC amortization(2)(3) (87) — (87)
Variable annuity riders:
GMDB and GMIB(3) (78) — (78)
GMWB (145) 135 (10)
GMAB (34) 31 (3)
DAC and DSIC amortization(4) N/A N/A 5
Total variable annuity riders (257) 166 (86)
Macro hedge program(5) (5) 27 22
Equity indexed annuities 1 (1) —
Certificates 2 (2) —
Indexed universal life insurance 8 (9) (1)
Total $ (581) $ 187 $ (389)
Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based management and distribution fees(1) $ (40) $ — $ (40)
Variable annuity riders:
GMDB and GMIB ———
GMWB 435 (502) (67)
GMAB 23 (26) (3)
DAC and DSIC amortization(4) N/A N/A 14
Total variable annuity riders 458 (528) (56)
Macro hedge program(5) 3 (17) (14)
Fixed annuities, fixed insurance and fixed portion of variable annuities and
variable insurance products 14 — 14
Brokerage client cash balances 134 — 134
Certificates 1—1
Indexed universal life insurance 10 — 10
Total $ 580 $ (545) $ 49
N/A Not Applicable.
(1) Excludes incentive income which is impacted by market and fund performance during the period and cannot be readily estimated.
(2) Market impact on DAC and DSIC amortization resulting from lower projected profits.
(3) In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, we have not changed our assumed
equity asset growth rates. This is a significantly more conservative estimate than if we assumed management follows its mean
reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. We make this same
conservative assumption in estimating the impact from GMDB and GMIB riders.
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