Ameriprise 2013 Annual Report Download - page 161

December 31, 2012
Valuation
Fair Value Technique Unobservable Input Range Weighted Average
(in millions)
Corporate debt securities $ 1,712 Discounted cash flow Yield/spread to U.S. Treasuries 1.1% - 8.5% 2.1%
(private placements)
IUL embedded $ 45 Discounted cash flow Nonperformance risk(3) 97 bps
derivatives
GMWB and GMAB $ 833 Discounted cash flow Utilization of guaranteed withdrawals(1) 0.0% - 56.4%
embedded derivatives
Surrender rate 0.0% - 56.3%
Market volatility(2) 5.6%–21.2%
Nonperformance risk(3) 97 bps
(1) The utilization of guaranteed withdrawals represents the percentage of policyholders that will begin withdrawing in any given year.
(2) Market volatility is implied volatility of fund of funds and managed volatility funds.
(3) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(4) The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different
allocation model.
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable
inputs are not reasonably available to the Company.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3
corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded
derivatives in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in utilization, surrender rate and volatility used in the fair value measurement of the
GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) asset value, possibly
creating a liability. Significant increases (decreases) in nonperformance risk and elective investment allocation model used
in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly
higher (lower) asset value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration
of the policy, the age of the contractholder, the distribution system and whether the value of the guaranteed benefit
exceeds the contract accumulation value.
Determination of Fair Value
The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of
its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation
techniques to convert future projected cash flows to a single discounted present value amount. When applying either
approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair value and the general classification of these
instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market
funds are measured at their net asset value (‘‘NAV’’) and classified as Level 1. The Company’s remaining cash equivalents
are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the
short time between the purchase of the instrument and its expected realization.
Investments (Available-for-Sale Securities and Trading Securities)
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available,
fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation
techniques. Level 1 securities primarily include U.S. Treasuries. Level 2 securities primarily include corporate bonds,
residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal bonds
and U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market
approach with prices obtained from third party pricing services. Observable inputs used to value these securities can
144