Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 2011

Fair Values of Assets and Liabilities

Fair Values of Assets and Liabilities

10.  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 nationally-recognized pricing services, broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and seed money in funds traded in active markets. Level 2 securities primarily include agency mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, U.S. and foreign government and agency securities, and seed money and other investments in certain hedge funds. The fair value of these Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services. Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. Level 3 securities primarily include non-agency residential mortgage backed securities, asset backed securities and corporate bonds. The fair value of these Level 3 securities is typically based on a single broker quote, except for the valuation of non-agency residential mortgage backed securities. The Company uses prices from nationally-recognized pricing services to determine the fair value of non-agency residential mortgage backed securities; however, the Company classifies these securities as Level 3 because it believes the market for these securities is inactive and their valuation includes significant unobservable inputs.

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.

Other Assets

Derivatives that are measured using quoted prices in active markets, such as foreign exchange 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.

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 annuities. 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 exchange 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.

Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Level 1 securities include U.S. Treasuries and securities traded in active markets. The remaining 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:

	September 30, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	3	$	2,217	$	—	$	2,220
Available-for-Sale securities:
Corporate debt securities	—		16,024		1,319		17,343
Residential mortgage backed securities	—		3,608		3,825		7,433
Commercial mortgage backed securities	—		4,833		52		4,885
Asset backed securities	—		1,539		495		2,034
State and municipal obligations	—		2,083		—		2,083
U.S. government and agencies obligations	22		51		—		73
Foreign government bonds and obligations	—		127		—		127
Common stocks	1		2		5		8
Other debt obligations	—		26		—		26
Total Available-for-Sale securities	23		28,293		5,696		34,012
Trading securities:
Seed money	184		33		12		229
Investments segregated for regulatory purposes	—		16		—		16
Fixed income and other	—		320		—		320
Total trading securities	184		369		12		565
Separate account assets	—		63,237		—		63,237
Other assets:
Interest rate derivative contracts	—		1,783		—		1,783
Equity derivative contracts	279		985		—		1,264
Credit derivative contracts	—		3		—		3
Foreign currency derivative contracts	—		7		—		7
Other	—		1		—		1
Total other assets	279		2,779		—		3,058
Assets held for sale	15		—		—		15
Total assets at fair value	$	504	$	96,895	$	5,708	$	103,107
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	1	$	—	$	1
GMWB and GMAB embedded derivatives	—		—		1,600		1,600
Total future policy benefits and claims	—		1		1,600		1,601
Customer deposits	—		4		—		4
Other liabilities:
Interest rate derivative contracts	—		1,073		—		1,073
Equity derivative contracts	232		605		—		837
Foreign currency derivative contracts	1		5		—		6
Other	—		5		—		5
Total other liabilities	233		1,688		—		1,921
Total liabilities at fair value	$	233	$	1,693	$	1,600	$	3,526

	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:
Seed money	133		71		19		223
Investments segregated for regulatory purposes	2		14		—		16
Fixed income and other	—		323		—		323
Total trading securities	135		408		19		562
Separate account assets	—		68,330		—		68,330
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	$	276	$	98,547	$	6,123	$	104,946
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
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

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:

																				Future Policy
																				Benefits
	Available-for-Sale Securities																			and Claims:
				Residential			Commercial													GMWB
	Corporate			Mortgage			Mortgage			Asset										and GMAB
	Debt			Backed			Backed			Backed			Common					Trading		Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Securities		Derivatives
	(in millions)
Balance, July 1, 2011	$	1,274		$	4,097		$	64		$	498		$	5	$	5,938		$	12	$	(316	)
Total gains (losses) included in:
Net income	—			52			—			4			—		56		(1)	—		(1,236		)(2)
Other comprehensive income	—			(107		)	(1		)	(15		)	—		(123		)	—		—
Purchases	71			57			15			43			—		186			—		—
Sales	—			—			—			—			—		—			—		—
Issues	—			—			—			—			—		—			—		(39		)
Settlements	(33		)	(274		)	(1		)	(27		)	—		(335		)	—		(9		)
Transfers into Level 3	7			—			—			14			—		21			—		—
Transfers out of Level 3	—			—			(25		)	(22		)	—		(47		)	—		—
Balance, September 30, 2011	$	1,319		$	3,825		$	52		$	495		$	5	$	5,696		$	12	$	(1,600	)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2011 included in:
Net investment income	$	—		$	52		$	—		$	4		$	—	$	56		$	—	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			—		(1,241		)

(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.

																							Future Policy
																							Benefits
	Available-for-Sale Securities																						and Claims:
			Residential			Commercial																	GMWB
	Corporate		Mortgage			Mortgage			Asset														and GMAB
	Debt		Backed			Backed			Backed			Common					Trading			Other			Embedded
	Securities		Securities			Securities			Securities			Stocks		Total			Securities			Assets			Derivatives
	(in millions)
Balance, July 1, 2010	$	1,243	$	4,173		$	144		$	442		$	4	$	6,006		$	18		$	1		$	(1,083	)
Total gains (losses) included in:
Net income	—		20			—			2			—		22		(1)	1		(1)	—			(44		)(2)
Other comprehensive income	15		114			—			6			1		136			(1		)	—			—
Purchases, sales, issues and settlements, net	30		155			—			(12		)	—		173			2			(1		)	(26		)
Transfers into Level 3	25		—			—			—			—		25			—			—			—
Transfers out of Level 3	—		(21		)	(144		)	(13		)	—		(178		)	—			—			—
Balance, September 30, 2010	$	1,313	$	4,441		$	—		$	425		$	5	$	6,184		$	20		$	—		$	(1,153	)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2010 included in:
Net investment income	$	—	$	19		$	—		$	2		$	—	$	21		$	—		$	—		$	—
Benefits, claims, losses and settlement expenses	—		—			—			—			—		—			—			—			(49		)

(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.

																					Future Policy
																					Benefits
	Available-for-Sale Securities																				and Claims:
				Residential			Commercial														GMWB
	Corporate			Mortgage			Mortgage			Asset											and GMAB
	Debt			Backed			Backed			Backed			Common					Trading			Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Securities			Derivatives
	(in millions)
Balance, January 1, 2011	$	1,325		$	4,247		$	51		$	476		$	5	$	6,104		$	19		$	(421	)
Total gains (losses) included in:
Net income	7			58			—			8			—		73		(1)	1		(1)	(1,061		)(2)
Other comprehensive income	11			(106		)	—			(13		)	—		(108		)	—			—
Purchases	145			556			104			123			—		928			2			—
Sales	—			(3		)	—			—			—		(3		)	(10		)	—
Issues	—			—			—			—			—		—			—			(107		)
Settlements	(166		)	(871		)	(2		)	(88		)	—		(1,127		)	—			(11		)
Transfers into Level 3	9			—			1			18			—		28			—			—
Transfers out of Level 3	(12		)	(56		)	(102		)	(29		)	—		(199		)	—			—
Balance, September 30, 2011	$	1,319		$	3,825		$	52		$	495		$	5	$	5,696		$	12		$	(1,600	)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2011 included in:
Net investment income	$	—		$	69		$	—		$	8		$	—	$	77		$	—		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			—			(1,074		)

(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.

																											Future Policy
																											Benefits
	Available-for-Sale Securities																										and Claims:
				Residential			Commercial																				GMWB
	Corporate			Mortgage			Mortgage			Asset					Other												and GMAB
	Debt			Backed			Backed			Backed			Common		Structured						Trading			Other			Embedded
	Securities			Securities			Securities			Securities			Stocks		Investments			Total			Securities			Assets			Derivatives
	(in millions)
Balance, January 1, 2010	$	1,252		$	3,982		$	72		$	455		$	4	$	58		$	5,823		$	16		$	—		$	(299	)
Total gains (losses) included in:
Net income	1			35			1			10			—		—			47		(1)	3		(1)	1		(1)	(760		)(2)
Other comprehensive income	58			310			10			34			1		—			413			(2		)	—			—
Purchases, sales, issues and settlements, net	(23		)	135			61			(38		)	—		(58		)(3)	77			3			(1		)	(94		)
Transfers into Level 3	25			—			—			—			—		—			25			—			—			—
Transfers out of Level 3	—			(21		)	(144		)	(36		)	—		—			(201		)	—			—			—
Balance, September 30, 2010	$	1,313		$	4,441		$	—		$	425		$	5	$	—		$	6,184		$	20		$	—		$	(1,153	)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2010 included in:
Net investment income	$	—		$	33		$	—		$	10		$	—	$	—		$	43		$	—		$	—		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			—			—			—			(769		)

(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 3 for additional information related to the consolidation of CDOs.

Securities transferred from Level 2 to Level 3 represent securities with fair values that are now based on a single broker quote. Securities transferred from Level 3 to Level 2 represent securities with fair values that are now obtained from a nationally-recognized pricing service with observable inputs.

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.

	September 30, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Financial Assets
Commercial mortgage loans, net	$	2,520	$	2,708	$	2,577	$	2,671
Policy loans	741		709		733		808
Receivables	2,350		2,054		1,852		1,566
Restricted and segregated cash	1,378		1,378		1,516		1,516
Assets held for sale	19		18		18		18
Other investments and assets	398		390		331		338
Financial Liabilities
Future policy benefits and claims	$	15,091	$	15,806	$	15,328	$	15,768
Investment certificate reserves	2,813		2,791		3,127		3,129
Banking and brokerage customer deposits	6,807		6,807		5,638		5,642
Separate account liabilities	4,061		4,061		4,930		4,930
Debt and other liabilities	3,238		3,489		2,710		2,907

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 16 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 nationally-recognized 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 nationally-recognized pricing services, 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 nationally-recognized pricing 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.