Ameriprise 2013 Annual Report Download - page 66

and policyholders are expected to surrender their contracts, make withdrawals from their contracts and make additional
deposits to their contracts. Assumptions about earned and credited interest rates are the primary factors used to project
interest margins, while assumptions about equity and bond market performance are the primary factors used to project
client asset value growth rates, and assumptions about surrenders, withdrawals and deposits comprise projected
persistency rates. Management must also make assumptions to project maintenance expenses associated with servicing
our annuity and insurance businesses during the DAC amortization period.
The client asset value growth rates are the rates at which variable annuity and VUL insurance contract values invested in
separate accounts are assumed to appreciate in the future. The rates used vary by equity and fixed income investments.
Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth rates on a
regular basis. The long-term client asset value growth rates are based on assumed gross annual returns of 9% for equity
funds and 6% for fixed income funds. We typically use a five-year mean reversion process as a guideline in setting
near-term equity fund growth rates based on a long-term view of financial market performance as well as recent actual
performance. The suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with
management’s assessment of anticipated equity market performance.
A decrease of 100 basis points in various rate assumptions is likely to result in an increase in DAC and DSIC amortization
and an increase in benefits and claims expense from variable annuity guarantees. The following table presents the
estimated impact to current period pretax income:
Estimated Impact to
Pretax Income(1)
(in millions)
Decrease in future near and long-term fixed income returns by 100 basis points $ (46)
Decrease in future near-term equity fund growth returns by 100 basis points $ (34)
Decrease in future long-term equity fund growth returns by 100 basis points (27)
Decrease in future near and long-term equity fund growth returns by 100 basis points $ (61)
(1) An increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same
amount.
We monitor other principal DAC and DSIC amortization assumptions, such as persistency, mortality, morbidity, interest
margin and maintenance expense levels each quarter and, when assessed independently, each could impact our DAC and
DSIC balances.
The analysis of DAC and DSIC balances and the corresponding amortization is a dynamic process that considers all
relevant factors and assumptions described previously. Unless management identifies a significant deviation over the
course of the quarterly monitoring, management reviews and updates these DAC and DSIC amortization assumptions
annually in the third quarter of each year. An assessment of sensitivity associated with changes in any single assumption
would not necessarily be an indicator of future results.
Policyholder Account Balances, Future Policy Benefits and Claims
Fixed Annuities and Variable Annuity Guarantees
Fixed annuities and variable annuity guarantees include amounts 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 valuation for the same contracts. As with
DAC, management reviews, and where appropriate, adjusts its assumptions each quarter. Unless management identifies a
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