Ameriprise 2014 Annual Report Download - page 162

During the year ended December 31, 2012, transfers from Level 3 included certain non-agency residential mortgage
backed securities with a fair value of approximately $146 million. The transfers reflect improved pricing transparency of
these securities, a continuing trend of increased activity in the non-agency residential mortgage backed securities market
and observability of significant inputs to the valuation methodology. All other securities transferred from Level 3 represent
securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities
transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The
transfer of the IUL embedded derivatives to Level 3 is due to the impact of the unobservable inputs to the valuation
becoming more significant during 2012. The Company recognizes transfers between levels of the fair value hierarchy as of
the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting
periods that are measured at fair value on a recurring basis, there were $50 million in transfers from Level 2 to Level 1
and were no transfers from Level 1 to Level 2.
The following tables provide a summary of the significant unobservable inputs used in the fair value measurements
developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
December 31, 2014
Valuation Weighted
Fair Value Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private placements) $ 1,476 Discounted cash flow Yield/spread to U.S. Treasuries 1.0% - 3.9% 1.5%
IUL embedded derivatives $ 242 Discounted cash flow Nonperformance risk(1) 65 bps
GMWB and GMAB embedded derivatives $ 479 Discounted cash flow Utilization of guaranteed withdrawals(2) 0.0% - 51.1%
Surrender rate 0.0% - 59.1%
Market volatility(3) 5.2% - 20.9%
Nonperformance risk(1) 65 bps
Elective contractholder strategy allocations(4) 0.0% - 3.0%
December 31, 2013
Valuation Weighted
Fair Value Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private placements) $ 1,589 Discounted cash flow Yield/spread to U.S. Treasuries 0.9% - 5.3% 1.5%
IUL embedded derivatives $ 125 Discounted cash flow Nonperformance risk(1) 74 bps
GMWB and GMAB embedded derivatives $ (575) Discounted cash flow Utilization of guaranteed withdrawals(2) 0.0% - 51.1%
Surrender rate 0.1% - 57.9%
Market volatility(3) 4.9% - 18.8%
Nonperformance risk(1) 74 bps
Elective contractholder strategy allocations(4) 0.0% - 50.0%
(1) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(2) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
(3) Market volatility is implied volatility of fund of funds and managed volatility funds.
(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 and volatility used in the fair value measurement of the GMWB and GMAB
embedded derivatives in isolation would result in a significantly higher (lower) liability value. Significant increases
(decreases) in nonperformance risk, surrender rate 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 lower (higher)
liability 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
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