Fair Values of Assets and Liabilities

12 Months Ended

Dec. 31, 2011

Fair Values of Assets and Liabilities

Fair Values of Assets and Liabilities

14. Fair Values of Assets and Liabilities

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

Valuation Hierarchy

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company's valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1	Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2	Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Determination of Fair Value

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company's market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company's income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

Assets

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value ("NAV") and classified as Level 1. The Company's remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

Investments (Trading Securities and Available-for-Sale Securities)

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries. Level 2 securities primarily include residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, and U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain non-agency residential mortgage backed securities, asset backed securities and corporate bonds. The fair value of corporate bonds and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The fair value of certain asset backed securities and non-agency residential mortgage backed securities is obtained from third party pricing services who use significant unobservable inputs to estimate the fair value.

Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third party pricing services. The Company's due diligence procedures include assessing the vendor's valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.

Separate Account Assets

The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.

Investments Segregated for Regulatory Purposes

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 2 securities include agency mortgage backed securities, asset backed securities, municipal and corporate bonds, and U.S. agency and foreign government securities.

Other Assets

Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The counterparties' nonperformance risk associated with uncollateralized derivative assets was immaterial at December 31, 2011 and 2010. See Note 15 for further information on the credit risk of derivative instruments and related collateral.

Assets Held for Sale

Assets held for sale consist of cash equivalents of Securities America.

Liabilities

Future Policy Benefits and Claims

The Company values the embedded derivative liability attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions (such as, market implied equity volatility and the LIBOR swap curve) and incorporate significant unobservable inputs related to contractholder behavior assumptions (such as withdrawals and lapse rates) and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value of these embedded derivatives also reflects a current estimate of the Company's nonperformance risk specific to these liabilities. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivative liability attributable to these provisions is recorded in future policy benefits and claims. The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its equity indexed annuity and indexed universal life products. The inputs to these calculations are primarily market observable and include interest rates, volatilities, and equity index levels. As a result, these measurements are classified as Level 2.

Customer Deposits

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.

Other Liabilities

Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The Company's nonperformance risk associated with uncollateralized derivative liabilities was immaterial at December 31, 2011 and 2010. See Note 15 for further information on the credit risk of derivative instruments and related collateral.

Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Securities sold but not yet purchased are measured using amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization and are classified as Level 2.

The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	20	$	2,287	$	—	$	2,307
Available-for-Sale securities:
Corporate debt securities		—		16,685		1,355		18,040
Residential mortgage backed securities		—		7,198		198		7,396
Commercial mortgage backed securities		—		4,669		50		4,719
Asset backed securities		—		1,779		206		1,985
State and municipal obligations		—		2,130		—		2,130
U.S. government and agencies obligations		22		49		—		71
Foreign government bonds and obligations		—		144		—		144
Common stocks		2		2		5		9
Other debt obligations		—		11		—		11
Total Available-for-Sale securities		24		32,667		1,814		34,505
Trading securities		1		30		—		31
Separate account assets		—		66,780		—		66,780
Investments segregated for regulatory purposes		—		293		—		293
Other assets:
Interest rate derivative contracts		—		1,958		—		1,958
Equity derivative contracts		274		1,077		—		1,351
Credit derivative contracts		—		1		—		1
Foreign currency derivative contracts		—		7		—		7
Commodity derivative contracts		—		2		—		2
Total other assets		274		3,045		—		3,319
Total assets at fair value	$	319	$	105,102	$	1,814	$	107,235
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives		—		3		—		3
GMWB and GMAB embedded derivatives		—		—		1,585		1,585
Total future policy benefits and claims		—		5		1,585		1,590	(1)
Customer deposits		—		6		—		6
Other liabilities:
Interest rate derivative contracts		—		1,209		—		1,209
Equity derivative contracts		297		764		—		1,061
Foreign currency derivative contracts		3		10		—		13
Other		—		2		—		2
Total other liabilities		300		1,985		—		2,285
Total liabilities at fair value	$	300	$	1,996	$	1,585	$	3,881

(1)

The Company's adjustment for nonperformance risk resulted in a $506 million cumulative decrease to the embedded derivative liability.

	December 31, 2010
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	42	$	2,481	$	—	$	2,523
Available-for-Sale securities:
Corporate debt securities		—		15,281		1,325		16,606
Residential mortgage backed securities		—		3,011		4,247		7,258
Commercial mortgage backed securities		—		4,817		51		4,868
Asset backed securities		—		1,544		476		2,020
State and municipal obligations		—		1,582		—		1,582
U.S. government and agencies obligations		64		79		—		143
Foreign government bonds and obligations		—		108		—		108
Common stocks		2		3		5		10
Other debt obligations		—		24		—		24
Total Available-for-Sale securities		66		26,449		6,104		32,619
Trading securities		—		43		—		43
Separate account assets		—		68,330		—		68,330
Investments segregated for regulatory purposes		—		298		—		298
Other assets:
Interest rate derivative contracts		—		438		—		438
Equity derivative contracts		32		420		—		452
Credit derivative contracts		—		4		—		4
Foreign currency derivative contracts		1		—		—		1
Other		—		2		—		2
Total other assets		33		864		—		897
Assets held for sale		—		15		—		15
Total assets at fair value	$	141	$	98,480	$	6,104	$	104,725
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	3	$	—	$	3
GMWB and GMAB embedded derivatives		—		—		421		421
Total future policy benefits and claims		—		3		421		424	(1)
Customer deposits		—		14		—		14
Other liabilities:
Interest rate derivative contracts		—		379		—		379
Equity derivative contracts		18		722		—		740
Credit derivative contracts		—		1		—		1
Foreign currency derivative contracts		1		—		—		1
Other		—		2		—		2
Total other liabilities		19		1,104		—		1,123
Total liabilities at fair value	$	19	$	1,121	$	421	$	1,561

(1)

The Company's adjustment for nonperformance risk resulted in a $197 million cumulative decrease to the embedded derivative liability.

The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:

	Available-for-Sale Securities																	Future Policy Benefits and Claims: GMWB and GMAB Embedded Derivatives
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks		Total
	(in millions)
Balance, January 1, 2011	$	1,325		$	4,247		$	51		$	476		$	5	$	6,104		$	(421	)
Total gains (losses) included in:
Net income		7			48			—			8			—		63	(1)		(1,007)	(2)
Other comprehensive income		11			(110	)		—			(18	)		—		(117	)		—
Purchases		189			556			104			118			—		967			—
Sales		(51	)		(2	)		—			—			—		(53	)		—
Issues		—			—			—			—			—		—			(149	)
Settlements		(122	)		(885	)		(4	)		(87	)		—		(1,098	)		(8	)
Transfers into Level 3		7			—			1			14			—		22			—
Transfers out of Level 3		(11	)		(3,656	)		(102	)		(305	)		—		(4,074	)		—
Balance, December 31, 2011	$	1,355		$	198		$	50		$	206		$	5	$	1,814		$	(1,585	)
Changes in unrealized gains (losses) relating to assets and liabilities held at December 31, 2011 included in:
Net investment income	$	—		$	(32	)	$	—		$	1		$	—	$	(31	)	$	—
Benefits, claims, losses and settlement expenses		—			—			—			—			—		—			(1,035	)

(1)

Included in net investment income in the Consolidated Statements of Operations.

(2)

Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

	Available-for-Sale Securities																			Future Policy Benefits and Claims: GMWB and GMAB Embedded Derivatives
	Corporate Debt Securities		Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks		Other Structured Investments			Total
	(in millions)
Balance, January 1, 2010	$	1,252	$	3,982		$	72		$	455		$	4	$	58		$	5,823		$	(299	)
Total gains included in:
Net income		1		55			1			12			—		—			69	(1)		4	(2)
Other comprehensive income		30		292			10			38			1		—			371			—
Purchases, sales, issues and settlements, net		17		(61	)		112			(5	)		—		(58)	(3)		5			(126	)
Transfers into Level 3		25		—			—			—			—		—			25			—
Transfers out of Level 3		—		(21	)		(144	)		(24	)		—		—			(189	)		—
Balance, December 31, 2010	$	1,325	$	4,247		$	51		$	476		$	5	$	—		$	6,104		$	(421	)
Changes in unrealized gains (losses) relating to assets and liabilities held at December 31, 2010 included in:
Net investment income	$	—	$	54		$	—		$	11		$	—	$	—		$	65		$	—
Benefits, claims, losses and settlement expenses		—		—			—			—			—		—			—			(15	)

(1)

Included in net investment income in the Consolidated Statements of Operations.

(2)

Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

(3)

Represents the elimination of Ameriprise Financial's investment in CDOs, which were consolidated due to the adoption of a new accounting standard. See Note 2 and Note 4 for additional information related to the consolidation of CDOs.

The impact to pretax income of the Company's adjustment for nonperformance risk on the fair value of its GMWB and GMAB embedded derivatives was an increase of $168 million and $28 million, net of DAC and DSIC amortization, for the years ended December 31, 2011 and 2010, respectively.

During the year ended December 31, 2011 transfers out of Level 3 to Level 2 included certain non-agency residential mortgage backed securities and sub-prime non-agency residential mortgage backed securities classified as asset backed securities with a fair value of approximately $3.9 billion. The transfers reflect improved pricing transparency of these securities, a continuing trend of increased activity in the non-agency residential mortgage backed security market and increased observability of significant inputs to the valuation methodology. All other securities transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred from Level 2 to Level 3 represent securities with fair values that are now based on a single non-binding broker quote.

The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred.

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

The following table provides the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities Ameriprise Financial measured at fair value on a recurring basis.

	December 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Financial Assets
Commercial mortgage loans, net	$	2,589	$	2,772	$	2,577	$	2,671
Policy loans		742		715		733		808
Receivables		2,444		2,148		1,852		1,566
Restricted and segregated cash		1,500		1,500		1,516		1,516
Assets held for sale		—		—		18		18
Other investments and assets		390		388		331		338
Financial Liabilities
Future policy benefits and claims	$	15,064	$	16,116	$	15,328	$	15,768
Investment certificate reserves		2,766		2,752		3,127		3,129
Banking and brokerage customer deposits		7,078		7,091		5,638		5,642
Separate account liabilities		3,950		3,950		4,930		4,930
Debt and other liabilities		3,180		3,412		2,722		2,919

Investments

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company's estimate of the amount recoverable on the loan.

The fair value of policy loans is determined using discounted cash flows.

Receivables

The fair value of consumer bank loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, severity and credit loss estimates, with discount rates based on the Company's estimate of current market conditions.

Loans held for sale are measured at the lower of cost or market and fair value is based on what secondary markets are currently offering for loans with similar characteristics.

Brokerage margin loans are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans.

Restricted and Segregated Cash

Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.

Amounts segregated under federal and other regulations may also reflect resale agreements and are measured at the cost at which the securities will be sold. This measurement is a reasonable estimate of fair value because of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.

Assets Held for Sale

Assets held for sale reflect notes receivable of Securities America. See Note 1 and Note 24 for additional information on the Company's presentation of discontinued operations.

Other Investments and Assets

Other investments and assets primarily consist of syndicated loans. The fair value of syndicated loans is obtained from a third party pricing service.

Future Policy Benefits and Claims

The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a provision for adverse deviation from estimated early policy surrender behavior, and the Company's nonperformance risk specific to these liabilities. The fair value of other liabilities including non-life contingent fixed annuities in payout status, equity indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner.

Customer Deposits

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and the Company's nonperformance risk specific to these liabilities.

Banking and brokerage customer deposits are liabilities with no defined maturities and fair value is the amount payable on demand at the reporting date.

Separate Account Liabilities

Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. Carrying value is a reasonable estimate of the fair value as it represents the exit value as evidenced by withdrawal transactions between contractholders and the Company. A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.

Debt and Other Liabilities

The fair value of long-term debt is based on quoted prices in active markets, when available. If quoted prices are not available fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques such as present value of cash flows.

The fair value of short-term borrowings is obtained from a third party service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk.

The fair value of future funding commitments to affordable housing partnerships is determined by discounting cash flows.