Ameriprise 2014 Annual Report Download - page 114

Equity Indexed Annuities
Our equity indexed annuity product is a single premium annuity issued with an initial term of seven years. The annuity
guarantees the contractholder a minimum return of 3% on 90% of the initial premium or end of prior term accumulation
value upon renewal plus a return that is linked to the performance of the S&P 500 Index. The equity-linked return is
based on a participation rate initially set at between 50% and 90% of the S&P 500 Index, which is guaranteed for the
initial seven-year term when the contract is held to full term. At December 31, 2014, we had $29 million in liabilities
related to equity indexed annuities. We discontinued new sales of equity indexed annuities in 2007.
Equity Price Risk — Equity Indexed Annuities
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices.
To hedge this exposure, we purchase futures, which generate returns to replicate what we must credit to client accounts.
Interest Rate Risk — Equity Indexed Annuities
Most of the proceeds received from equity indexed annuities are invested in fixed income securities with the return on
those investments intended to fund the 3% guarantee. We earn income from the difference between the return earned on
invested assets and the 3% guarantee rate credited to customer accounts. The spread between return earned and amount
credited is affected by changes in interest rates. This risk is not currently hedged and was immaterial at December 31,
2014.
Brokerage Client Cash Balances
We pay interest on certain brokerage client cash balances and have the ability to reset these rates from time to time
based on prevailing economic and business conditions. We earn revenue to fund the interest paid from interest-earning
assets or fees from off-balance sheet deposits at FDIC insured institutions, which are indexed to short-term interest rates.
In general, the change in interest paid lags the change in revenues earned.
Certificate Products
Fixed Rate Certificates
We have interest rate risk from our investment certificates generally ranging in amounts from $1,000 to $2 million with
interest crediting rate terms ranging from three to 36 months. We guarantee an interest rate to the holders of these
products. Payments collected from clients are primarily invested in fixed rate securities to fund the client credited rate with
the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client
liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to
clients generally reset at shorter intervals than the yield on underlying investments. This exposure is not currently hedged
although we monitor our investment strategy and make modifications based on our changing liabilities and the expected
interest rate environment. Of the $7.7 billion in customer deposits at December 31, 2014, $3.6 billion related to reserves
for our fixed rate certificate products.
Stock Market Certificates
Stock market certificates are purchased for amounts generally from $1,000 to $2 million for terms of 52 weeks which can
be extended to a maximum of 20 years. For each term the certificate holder can choose to participate 100% in any
percentage increase in the S&P 500 Index up to a maximum return or choose partial participation in any increase in the
S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-
linked return and guaranteed rate of interest cannot exceed the maximum return. Liabilities for our stock market
certificates are included in customer deposits on our Consolidated Balance Sheets. At December 31, 2014, we had
$587 million in reserves related to stock market certificates. The equity-linked return to investors creates equity price risk
exposure. We seek to minimize this exposure with purchased futures and call spreads that replicate what we must credit to
client accounts. This risk continues to be fully hedged. Stock market certificates have some interest rate risk as changes in
interest rates affect the fair value of the payout to be made to the certificate holder. This risk is not currently hedged and
was immaterial at December 31, 2014.
Indexed Universal Life
IUL insurance is similar to UL in many regards, although the rate of credited interest above the minimum guarantee for
funds allocated to an indexed account is linked to the performance of the specified index for the indexed account (subject
to a cap and floor). We offer an S&P 500 Index account option and a blended multi-index account comprised of the
S&P 500 Index, the MSCI EAFE Index and MSCI EM Index. Both options offer two crediting durations, one-year and
two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. At
December 31, 2014, we had $475 million in liabilities related to the index accounts of IUL, with the vast majority in the
S&P 500 Index account option.
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