Ameriprise 2015 Annual Report Download - page 129

revenues. In addition, for fixed and variable universal life insurance policies, the net cost of reinsurance ceded, which
represents the discounted amount of the expected cash flows between the reinsurer and the Company, is classified as an
asset or contra asset and amortized over the estimated life of the policies in proportion to the estimated gross profits and
is subject to retrospective adjustment in a manner similar to retrospective adjustment of DAC. The assumptions used to
project the expected cash flows are consistent with those used for DAC valuation for the same contracts. Changes in the
net cost of reinsurance are reflected as a component of other revenues. Reinsurance recoveries are reported as
components of benefits, claims, losses and settlement expenses.
Insurance liabilities are reported before the effects of reinsurance. Policyholder account balances, future policy benefits and
claims recoverable under reinsurance contracts are recorded within receivables.
The Company also assumes life insurance and fixed annuity risk from other insurers in limited circumstances. Reinsurance
premiums received and benefits paid are accounted for consistently with the basis used in accounting for the policies from
which risk is reinsured and consistently with the terms of the reinsurance contracts. Liabilities for assumed business are
recorded within policyholder account balances, future policy benefits and claims.
See Note 7 for additional information on reinsurance.
Policyholder Account Balances, Future Policy Benefits and Claims
The Company establishes reserves to cover the risks associated with non-traditional and traditional long-duration products
and short-duration products. Reserves for non-traditional long-duration products include the liabilities related to guaranteed
benefit provisions added to variable annuity contracts, variable and fixed annuity contracts and UL and VUL policies and the
embedded derivatives related to variable annuity contracts, EIA and IUL insurance. Reserves for traditional long-duration
products are established to provide adequately for future benefits and expenses for term life, whole life, DI and LTC
insurance products. Reserves for short-duration products are established to provide adequately for incurred losses primarily
related to auto and home policies.
The establishment of reserves is an estimation process using a variety of methods, assumptions and data elements. If
actual experience is better than or equal to the results of the estimation process, then reserves should be adequate to
provide for future benefits and expenses. If actual experience is worse than the results of the estimation process,
additional reserves may be required.
Changes in 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.
Non-Traditional Long-Duration Products
Liabilities for fixed account values on variable and fixed deferred annuities and UL and VUL policies are equal to
accumulation values, which are the cumulative gross deposits and credited interest less withdrawals and various charges.
A portion of the Company’s UL and VUL 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. 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 for information
regarding the liability for contracts with secondary guarantees.
Liabilities for EIA are equal to the host contract values covering guaranteed benefits and the fair value of embedded equity
options. 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.
The majority of the variable annuity contracts offered by the Company 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. The Company also offers 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 (‘‘GGU’’) benefits. In addition, the Company offers contracts containing GMWB and GMAB provisions, and until
May 2007, the Company offered contracts containing guaranteed minimum income benefit (‘‘GMIB’’) provisions.
The GMDB and GGU liability is determined by estimating the expected value of death benefits in excess of the projected
contract accumulation value and recognizing the excess over the estimated life based on expected assessments
(e.g., mortality and expense fees, contractual administrative charges and similar fees).
107