Ameriprise 2015 Annual Report Download - page 70

A decrease of 100 basis points in various rate assumptions is likely to result in an increase in DAC amortization and an
increase in benefits and claims expense from variable annuity guarantees. The following table presents the estimated
impact to current period pretax income:
Estimated Impact to
Pretax Income(1)
(in millions)
Decrease in future near- and long-term fixed income returns by 100 basis points $ (62)
Decrease in future near-term equity fund growth returns by 100 basis points $ (41)
Decrease in future long-term equity fund growth returns by 100 basis points (32)
Decrease in future near- and long-term equity fund growth returns by 100 basis points $ (73)
(1) An increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same
amount.
An assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of
future results.
Traditional Long-Duration Products
For our traditional long-duration products (including traditional life, disability income (‘‘DI’’) and long term care (‘‘LTC’’)
insurance products), our DAC balance at any reporting date is based on projections that show management expects there
to be adequate premiums after the date to amortize the remaining balance. These projections are inherently uncertain
because they require management to make assumptions over periods extending well into the future. These assumptions
include interest rates, premium rate increases, persistency rates and mortality and morbidity rates and are not modified
(unlocked) unless recoverability testing deems to be inadequate. Projection periods used for our traditional life insurance
are up to 30 years. Projection periods for our LTC insurance products are often 50 years or longer and projection periods
for our DI products can be up to 45 years.
For traditional life and DI insurance products, the assumptions provide for adverse deviations in experience and are revised
only if management concludes experience will be so adverse that DAC are not recoverable. If management concludes that
DAC are not recoverable, DAC are reduced to the amount that is recoverable based on best estimate assumptions and
there is a corresponding expense recorded in our Consolidated Statements of Operations.
The assumptions for LTC insurance products include interest rates, premium rate increases, persistency rates and morbidity
rates. These assumptions are management’s best estimate from previous loss recognition and thus no longer provide for
adverse deviations in experience.
Policyholder Account Balances, Future Policy Benefits and Claims
We establish 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, equity indexed annuities (‘‘EIA’’) and indexed universal life
(‘‘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 our 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
48