Ameriprise 2015 Annual Report Download - page 69

and financial condition are described below. See Note 2 to our Consolidated Financial Statements for further information
about our accounting policies.
Valuation of Investments
The most significant component of our investments is our Available-for-Sale securities, which we carry at fair value within
our Consolidated Balance Sheets. The fair value of our Available-for-Sale securities at December 31, 2015 was primarily
obtained from third-party pricing sources. For a discussion on our accounting policies related to the valuation of our
investments and other-than-temporary impairments, see Note 2 and Note 14 to our Consolidated Financial Statements.
Deferred Acquisition Costs
We incur costs in connection with acquiring new and renewal insurance and annuity businesses. The portion of these costs
which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract are deferred.
Significant costs capitalized include sales based compensation related to the acquisition of new and renewal insurance
policies and annuity contracts, medical inspection costs for successful sales, and a portion of employee compensation and
benefit costs based upon the amount of time spent on successful sales. Sales based compensation paid to advisors and
employees and third-party distributors is capitalized. Employee compensation and benefits costs which are capitalized
relate primarily to sales efforts, underwriting and processing. All other costs which are not incremental direct costs of
acquiring an insurance policy or annuity contract are expensed as incurred.
We monitor principal DAC amortization assumptions, such as persistency, mortality, morbidity, interest margin, variable
annuity benefit utilization and maintenance expense levels each quarter and, when assessed independently, each could
impact our DAC balance.
The analysis of the DAC balance and the corresponding amortization is a dynamic process that considers all relevant
factors and assumptions described previously. Unless management identifies a significant deviation over the course of the
quarterly monitoring, management reviews and updates these DAC amortization assumptions annually in the third quarter
of each year.
Non-Traditional Long-Duration Products
For our non-traditional long-duration products (including variable and fixed annuity contracts, universal life (‘‘UL’’) and
variable universal life (‘‘VUL’’) insurance products), our DAC balance at any reporting date is based on projections that
show management expects there to be estimated gross profits (‘‘EGPs’’) after that date to amortize the remaining balance.
These projections are inherently uncertain because they require management to make assumptions about financial
markets, mortality levels and contractholder and policyholder behavior over periods extending well into the future.
Projection periods used for our annuity products are typically 30 to 50 years and for our UL insurance products 50 years or
longer. Management regularly monitors financial market conditions and actual contractholder and policyholder behavior
experience and compares them to its assumptions.
EGPs vary based on persistency rates (assumptions at which contractholders and policyholders are expected to surrender,
make withdrawals from and make deposits to their contracts), mortality levels, client asset value growth rates (based on
equity and bond market performance), variable annuity benefit utilization and interest margins (the spread between earned
rates on invested assets and rates credited to contractholder and policyholder accounts). When assumptions are changed,
the percentage of EGPs used to amortize DAC might also change. A change in the required amortization percentage is
applied retrospectively; an increase in amortization percentage will result in a decrease in the DAC balance and an
increase in DAC amortization expense, while a decrease in amortization percentage will result in an increase in the DAC
balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be
either positive or negative in any particular period and is reflected in the period in which such changes are made.
The client asset value growth rates are the rates at which variable annuity and VUL insurance contract values invested in
separate accounts are assumed to appreciate in the future. The rates used vary by equity and fixed income investments.
Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth rates on a
regular basis. The long-term client asset value growth rates are based on assumed gross annual returns of 9% for equity
funds and 6% for fixed income funds. We typically use a five-year mean reversion process as a guideline in setting
near-term equity fund growth rates based on a long-term view of financial market performance as well as recent actual
performance. The suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with
management’s assessment of anticipated equity market performance.
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