Ameriprise 2014 Annual Report Download - page 71

Liabilities for indexed accounts of IUL products are equal to the accumulation of host contract values covering guaranteed
benefits and the fair value of embedded equity options.
A portion of our fixed and variable universal life policies have product features that result in profits followed by losses from
the insurance component of the contract. These profits followed by losses can be generated by the cost structure of the
product or secondary guarantees in the contract. The secondary guarantee ensures that, subject to specified conditions,
the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover
the monthly deductions and charges.
In determining the liability for contracts with profits followed by losses, we project benefits and contract assessments using
actuarial models. 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 material deviation over the course of quarterly monitoring, management reviews and
updates these assumptions annually in the third quarter of each year.
The liability for these future losses is determined by estimating the death benefits in excess of account value and
recognizing the excess over the estimated life based on expected assessments (e.g. cost of insurance charges, contractual
administrative charges, similar fees and investment margin). See Note 11 to our Consolidated Financial Statements for
information regarding the liability for contracts with secondary guarantees.
Liabilities for unpaid amounts on reported life insurance claims are equal to the death benefits payable under the policies.
Liabilities for unpaid amounts on reported DI and LTC claims include any periodic or other benefit amounts due and
accrued, along with estimates of the present value of obligations for continuing benefit payments. These amounts are
calculated based on claim continuance tables which estimate the likelihood an individual will continue to be eligible for
benefits. Present values are calculated at interest rates established when claims are incurred. Anticipated claim
continuance rates are based on established industry tables, adjusted as appropriate for our experience. Interest rates used
with DI claims ranged from 3% to 8% at December 31, 2014, with an average rate of 4.5%. Interest rates used with LTC
claims ranged from 4% to 6% at December 31, 2014, with an average rate of 4%.
Liabilities for estimated benefits payable on claims that have been incurred but not yet reported are based on periodic
analysis of the actual time lag between when a claim occurs and when it is reported.
Liabilities for estimates of benefits that will become payable on future claims on term life, whole life, DI and LTC policies
are based on the net level premium method, using anticipated premium payments, mortality and morbidity rates, policy
persistency and interest rates earned on assets supporting the liability. Anticipated mortality and morbidity rates are based
on established industry mortality and morbidity tables, with modifications based on our experience. Anticipated premium
payments and persistency rates vary by policy form, issue age, policy duration and certain other pricing factors. Anticipated
interest rates for term and whole life ranged from 3.25% to 10% at December 31, 2014, depending on policy form, issue
year and policy duration. Anticipated interest rates for DI policies ranged from 4% to 7.5% at December 31, 2014,
depending on policy form, issue year and policy duration. Anticipated interest rates for LTC policy reserves can vary by plan
and year and ranged from 6.25% to 9.4% at December 31, 2014.
For term life, whole life, DI and LTC polices, we utilize best estimate assumptions as of the date the policy is issued with
provisions for the risk of adverse deviation, as appropriate. After the liabilities are initially established, management
performs premium deficiency tests annually in the third quarter of each year using best estimate assumptions without
provisions for adverse deviation. If the liabilities determined based on these best estimate assumptions are greater than
the net reserves (i.e., GAAP reserves net of any DAC balance), the existing net reserves are adjusted by first reducing the
DAC balance by the amount of the deficiency or to zero through a change to current period earnings. If the deficiency is
more than the DAC balance, then the net reserves are increased by the excess through a charge to current period
earnings. If a premium deficiency is recognized, the assumptions are locked in and used in subsequent valuations.
Changes in policyholder account balances, future policy benefits and claims are reflected in earnings in the period
adjustments are made.
Where applicable, benefit amounts expected to be recoverable from reinsurance companies who share in the risk are
separately recorded as reinsurance recoverable within receivables.
Derivative Instruments and Hedging Activities
We use derivative instruments to manage our exposure to various market risks. Examples include index options, interest
rate swaps and swaptions, total return swaps, and futures used as economic hedges of equity, interest rate, credit and
foreign currency exchange rate risk related to various products and transactions. All derivatives are recorded at fair value.
The fair value of our derivative instruments is determined using either market quotes or valuation models that are based
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