Ameriprise 2014 Annual Report Download - page 36

Reinsurance
We reinsure a portion of the insurance risks associated with our life, disability income, long term care and property
casualty insurance products through reinsurance agreements with unaffiliated reinsurance companies. We use reinsurance
to limit losses, reduce exposure to large and catastrophic risks and provide additional capacity for future growth. To
manage exposure to losses from reinsurer insolvencies, we evaluate the financial condition of reinsurers prior to entering
into new reinsurance treaties and on a periodic basis during the terms of the treaties. Our insurance companies remain
primarily liable as the direct insurers on all risks reinsured.
For most new life insurance policies, we reinsure 90% of the death benefit liability. We began reinsuring risks at this level
in 2001 for term life insurance and 2002 for individual fixed and variable universal life insurance. Policies issued prior to
these dates are not subject to these reinsurance levels.
However, for IUL policies issued after September 1, 2013 and VUL policies issued after January 1, 2014, RiverSource Life
generally reinsures 50% of the death benefit liability. Similarly, RiverSource Life reinsures 50% of the death benefit and
morbidity liabilities related to the RiverSource TrioSourceSM universal life product launched in 2013.
The maximum amount of life insurance risk the Company will retain is $10 million on a single life and $10 million on any
flexible premium survivorship life policy; however reinsurance agreements are in place such that retaining more than
$1.5 million of insurance risk on a single life or a flexible premium survivorship life policy is very unusual. Risk on fixed and
variable universal life policies is reinsured on a yearly renewable term basis. Risk on most term life policies starting in
2001 (2002 for RiverSource Life of NY) is reinsured on a coinsurance basis, a type of reinsurance in which the reinsurer
participates proportionally in all material risks and premiums associated with a policy.
For existing LTC policies, RiverSource Life ceded 50% of the risk on a coinsurance basis to Genworth and retained the
remaining risk. For RiverSource Life of NY, this reinsurance arrangement applies for 1996 and later issues only. As of
December 31, 2014, RiverSource Life’s credit exposure to Genworth under this reinsurance arrangement was
approximately $1.8 billion. Genworth also serves as claims administrator for RiverSource Life’s LTC policies.
Generally, RiverSource Life retains at most $5,000 per month of risk per life on DI policies sold on policy forms introduced
in most states in 2007 (2010 for RiverSource Life of NY) and reinsures the remainder of the risk on a coinsurance basis
with unaffiliated reinsurance companies. RiverSource Life retains all risk for new claims on DI contracts sold on other policy
forms. RiverSource Life also retains all risk on accidental death benefit claims and substantially all risk associated with
waiver of premium provisions.
RiverSource Life also has life insurance and fixed annuity risk previously assumed under reinsurance arrangements with
unaffiliated insurance companies. As of December 31, 2014, the liability related to assumed reinsurance arrangements
was $575 million.
We also reinsure a portion of the risks associated with our personal auto, home and excess liability insurance products
through three types of reinsurance agreements with unaffiliated reinsurance companies, as follows:
• We purchase reinsurance with a limit of $5 million per loss, and we retain $750,000 per loss.
• We purchase catastrophe reinsurance that, for 2014, had a limit of $125 million per event and we retained
$20 million per event. For 2015, our catastrophe reinsurance has a limit of $155 million per event and we retain
$20 million per event.
• We purchase reinsurance that limits our personal liability insurance exposure to 20% of any loss. This 80% quota
share treaty uses the same reinsurers as our excess of loss treaty.
See Note 7 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for
additional information on reinsurance.
Liabilities and Reserves
We maintain adequate financial reserves to cover the insurance risks associated with the insurance products we issue.
Generally, reserves represent estimates of the invested assets that our insurance companies need to hold to provide
adequately for future benefits and expenses and applicable state insurance laws generally require us to assess and submit
an opinion regarding the adequacy of our reserves on an annual basis. For a discussion of liabilities and reserves related to
our insurance products, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
Financial Strength Ratings
Independent rating organizations evaluate the financial soundness and claims-paying ability of insurance companies
continually, and they base their ratings on a number of different factors, including market position in core products and
market segments, risk-adjusted capitalization and the quality of the company’s investment portfolios. More specifically, the
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