Ameriprise 2013 Annual Report Download - page 169

The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the
option contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive
for these options:
Premiums Payable Premiums Receivable
(in millions)
2014 $ 378 $ 86
2015 349 67
2016 305 51
2017 240 45
2018 196 56
2019-2027 601 79
Total $ 2,069 $ 384
Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options
prior to the full premium being paid or received.
Beginning in the fourth quarter of 2013, the Company 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. The gross
notional amount of these derivative contracts was $710 million at December 31, 2013.
EIA, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of
fluctuations in equity markets, the obligation incurred by the Company related to EIA, IUL and stock market certificate
products will positively or negatively impact earnings over the life of these products. As a means of economically hedging
its obligations under the provisions of these products, the Company enters into index options and futures contracts. The
gross notional amount of these derivative contracts was $1.5 billion and $1.3 billion at December 31, 2013 and 2012,
respectively.
The Company enters into futures and commodity swaps to manage its exposure to price risk arising from seed money
investments in proprietary investment products. The gross notional amount of these contracts was $111 million and
$146 million at December 31, 2013 and 2012, respectively.
The Company enters into foreign currency forward contracts to economically hedge its exposure to certain receivables and
obligations denominated in non-functional currencies. The gross notional amount of these contracts was $30 million and
$14 million at December 31, 2013 and 2012, respectively.
The Company enters into futures contracts to economically hedge its exposure related to compensation plans. The gross
notional amount of these contracts was $224 million and $5 million at December 31, 2013 and 2012, respectively.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In
addition, the equity component of the EIA, IUL and stock market certificate product obligations are also considered
embedded derivatives. These embedded derivatives are bifurcated from their host contracts for valuation purposes and
reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As discussed
above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.
Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest
rate exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and
(iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales.
During the year ended December 31, 2012, the Company reclassified from accumulated other comprehensive income into
earnings a $3 million gain on an interest rate hedge put in place in anticipation of issuing debt. The gain was reclassified
due to the forecasted transaction not occurring according to the original hedge strategy. For the years ended
December 31, 2013, 2012 and 2011, amounts recognized in earnings related to cash flow hedges due to ineffectiveness
were $1 million, $1 million, and nil, respectively. The estimated net amount of existing pretax losses as of December 31,
2013 that the Company expects to reclassify to earnings within the next twelve months is $1 million, which consists of
$5 million of pretax gains to be recorded as a reduction to interest and debt expense and $6 million of pretax losses to be
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