IDS Life Insurance Company occupies office space in Minneapolis, Minnesota, which is leased or owned by Ameriprise Financial. IDS Life Insurance Company reimburses Ameriprise Financial for rent based on direct and indirect allocation methods. IDS Life of New York and American Centurion Life rent office space in Albany, New York. Facilities occupied by IDS Life are believed to be adequate for the purposes for which they are used and are well maintained.
IDS Life follows United States generally accepted accounting principles (GAAP), and the following discussion is presented on a consolidated basis consistent with GAAP.
The following discussion may contain forward-looking statements that reflect IDS Life's plans, estimates and beliefs. Actual results could differ materially from those discussed in forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under "Forward-Looking Statements" and "Item 1A - Risk Factors" of this Form 10-K.
The following information should be read in conjunction with IDS Life's accompanying consolidated financial statements and related notes included elsewhere in this Form 10-K.
o IDS Life Insurance Company is domiciled in Minnesota and holds Certificates of Authority in American Samoa, the District of Columbia and all states except New York. IDS Life Insurance Company issues insurance and annuity products.
o American Enterprise Life Insurance Company (American Enterprise Life) is a stock life insurance company domiciled in Indiana, which holds Certificates of Authority in the District of Columbia and all states except New York. American Enterprise Life issues fixed and variable annuity contracts primarily through regional and national financial institutions and regional and/or independent broker-dealers. (In past years, American Enterprise Life issued a nominal number of variable universal life contracts.)
o American Partners Life Insurance Company (American Partners Life) is a stock life insurance company domiciled in Arizona, which holds Certificates of Authority in the District of Columbia and all states except New York and New Hampshire. American Partners Life markets annuity products directly to customers, generally persons holding an American Express(R) Card.
o IDS Life Insurance Company of New York (IDS Life of New York) is a stock life insurance company domiciled in New York, which holds Certificates of Authority in New York and North Dakota. IDS Life of New York issues insurance and annuity products.
Prior to August 1, 2005, Ameriprise Financial was referred to as American Express Financial Corporation. On February 1, 2005 American Express Company (American Express) announced its intention to pursue the disposition of 100% of its shareholding in what is now Ameriprise Financial (the Separation) through a tax-free distribution to American Express shareholders. Effective as of the close of business on September 30, 2005, American Express completed the Separation and distribution of common shares to American Express shareholders (the Distribution). In connection with the Distribution, Ameriprise Financial entered into certain agreements with American Express to effect the separation of its business and to define the responsibility for obligations arising before and after the date of the Distribution, including, among others, obligations relating to transition services, taxes, and employees. IDS Life was allocated certain separation and Distribution-related expenses incurred as a result of Ameriprise Financial becoming an independent company. Cumulatively, the expenses incurred and allocated to IDS Life are significant to IDS Life. IDS Life received a capital contribution of $650 million from Ameriprise Financial during the third quarter of 2005 to support its current financial strength ratings and to cover the allocated separation costs.
REVENUES Total revenues increased $133.9 million or 4% primarily due to higher net realized gain on investments, mortality and expense risk and other fees and contractholder and policyholder charges compared to 2004.
Net investment income increased $13.9 million or 1%. The increase reflects a $13.9 million pretax gain for 2005 compared to a $27.9 million charge in 2004 all related to the liquidation of secured loan trusts (SLTs) offset by lower interest on mortgage investments and lower mark-to-market gains on trading securities and equity method investments in hedge funds. Additionally, the average yield decreased compared to 2004, partially offset by an increase in the average level of invested assets.
For the year ended December 31, 2004, $49.5 million of total investment gains were partially offset by $22.2 million of impairments and losses. Included in these total net investment gains and losses were $48.4 million of gross realized gains and $17.5 million of gross realized losses from sales of securities, as well as $0.1 million of other-than-temporary impairment losses on investments, classified as Available-for-Sale.
Death and other benefits for DI and LTC insurance increased $8.6 million or 13% primarily due to increased DI in force levels.
Increase in liabilities for future policy benefits for DI and LTC insurance increased $18.0 million or 15% primarily reflecting inclusion of a $13.3 million maintenance reserve adjustment for LTC insurance.
DAC amortization expense increased to $315.9 million in 2005 from $260.8 million in 2004. DAC amortization expense in 2005 was reduced by $67.0 million as a result of the annual DAC assessment performed in the third quarter, while DAC amortization expense in 2004 was reduced by $65.7 million in the first quarter as a result of lengthening amortization periods for certain insurance and annuity products in conjunction with the adoption of SOP 03-1 and by $23.7 million as a result of the annual DAC assessment in the third quarter. Equity market conditions and other factors also resulted in increased amortization of DAC in 2005 compared to 2004, particularly for IDS Life's growing variable annuity business. See the "Deferred Policy Acquisition Costs" section for further discussion of DAC and related third quarter 2005 and 2004 adjustments.
Separation costs generally consist of allocated financial advisor and employee retention program costs, re-branding and marketing costs and costs to separate and reestablish technology platforms related to the separation and Distribution of Ameriprise Financial. During 2005, IDS Life was allocated and incurred $121.3 million in separation costs. See Note 1 to the Consolidated Financial Statements for further discussion regarding the separation and the allocation of costs to IDS Life.
INCOME TAXES IDS Life's effective tax rate declined to 28% in 2005 from 29% in 2004 which resulted from relatively lower levels of pretax income compared to tax-advantaged items in 2005. Additionally, the 2005 effective tax rate reflects a $20 million tax expense and the 2004 effective tax rate reflects a $20 million tax benefit applicable to prior years amendments.
Net income for the year ended December 31, 2004 reflects the $70.6 million ($108.6 million pretax) impact of IDS Life's January 1, 2004 adoption of SOP 03-1. SOP 03-1 requires insurance enterprises to establish liabilities for benefits that may become payable under variable annuity death benefit guarantees or other insurance or annuity contract provisions. See the "Recently Issued Accounting Standards" section in Note 1 to the Consolidated Financial Statements regarding the impact of adoption of SOP 03-1.
REVENUES Total revenues increased $162.0 million or 5% primarily due to higher net investment income, mortality and expense risk and other fees and net realized gain on investments compared to 2003.
Mortality and expense risk and other fees increased $39.8 million or 10% reflecting higher average market values of separate account assets, and the impact of the change from IDS Life to Ameriprise Financial as investment manager of the internally managed proprietary funds during the fourth quarter of 2003. Concurrent with the investment manager change, IDS Life entered into an agreement with Ameriprise Financial to receive fees for the services, other than investment management, that IDS Life continues to provide the underlying proprietary mutual funds. IDS Life's administrative service fees will vary with the market values of these proprietary mutual funds. Prior to this change, IDS Life received management fees directly from the proprietary funds and was party to an agreement with Ameriprise Financial to compensate Ameriprise Financial for the investment sub-advisory services Ameriprise Financial provided these proprietary funds. In addition to IDS Life's administrative service fees, IDS Life receives mortality and expense risk fees from the separate accounts based on the level of assets.
Net realized gain on investments was $27.3 million in 2004 compared to $4.4 million in 2003. For the year ended December 31, 2004, $49.5 million of total investment gains were partially offset by $22.2 million of impairments and losses. Included in these total net investment gains and losses were $48.4 million of gross realized gains and $17.5 million of gross realized losses from sales of securities, as well as $0.1 million of other-than-temporary impairment losses on investments, classified as Available-for-Sale.
For the year ended December 31, 2003, $257.0 million of total investment gains were partially offset by $252.6 million of impairments and losses. Included in these total net investment gains and losses were $255.3 million of gross realized gains and $135.5 million of gross realized losses from sales of securities, as well as $102.6 million of other-than-temporary impairment losses on investments, classified as Available-for-Sale.
Interest credited to account values decreased $114.1 million or 9%, primarily due to lower interest crediting rates and the effect on equity indexed annuities of lower appreciation in the S&P 500 during 2004 versus 2003, partially offset by higher average accumulation values of annuities and in force levels of life insurance products.
INCOME TAXES IDS Life's effective tax rate rose to 29% in 2004 from 12% in 2003 primarily due to the impact of lower levels of tax-advantaged items in pretax income during 2004, reduced low income housing credits as a result of the December 2003 distribution of substantially all of IDS Life's interests in low income housing investments to Ameriprise Financial and the one-time effect of favorable technical guidance related to the taxation of dividend income recognized in 2003. For 2003 and prior years, IDS Life's federal income taxes were reduced by credits arising from low income housing investments.
DEFERRED POLICY ACQUISITION COSTS DAC represents the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity and life, DI and LTC insurance products. These costs are deferred to the extent they are recoverable from future profits. For annuity and insurance products, DAC is amortized over periods approximating the lives of the business, generally as a percentage of premiums or estimated gross profits or as a portion of product interest margins depending on the product's characteristics.
In the third quarter 2004, these actions resulted in a net $23.7 million DAC amortization expense reduction consisting of the following:
o A $4.2 million reduction reflecting changes in previously assumed mortality rates;
o A $12.7 million reduction reflecting changes from previously assumed surrender and lapse rates;
o A $3.3 million reduction from the extension of the mean reversion period by one year; and
o A $3.5 million reduction reflecting higher than previously assumed interest rate spreads and other miscellaneous items.
In the third quarter 2003, these actions resulted in a net $1.8 million DAC amortization expense reduction reflecting:
o A $105.4 million reduction resulting from extending 10-15 year amortization periods for certain flex annuity contracts to 20 years based on current measurements of meaningful life;
DAC balances for various insurance and annuity products sold by IDS Life at December 31 are set forth below:
CRITICAL ACCOUNTING POLICIES The accounting and reporting policies that IDS Life uses affect its Consolidated Financial Statements. Certain accounting and reporting policies are critical to an understanding of IDS Life's results of operations and financial condition, and in some cases the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of the consolidated financial statements. The accounting and reporting policies IDS Life has identified as fundamental to a full understanding of its results of operations and financial condition are described below. See Note 1 to the Consolidated Financial Statements for further information about IDS Life's accounting policies.
VALUATION OF INVESTMENTS The most significant component of investments is Available-for-Sale securities. Generally, IDS Life carries its Available-for-Sale securities at fair value on the Consolidated Balance Sheets and records unrealized gains (losses) in accumulated other comprehensive income (loss) within equity, net of income tax provision (benefit) and net of adjustments in other asset and liability balances, such as DAC, to reflect the expected impacts on their carrying value had the unrealized gains (losses) been realized as of the respective balance sheet date. At December 31, 2005, IDS Life had net unrealized pretax losses on Available-for-Sale securities of $63.8 million. IDS Life recognizes gains and losses in results of operations upon disposition of the securities. IDS Life also recognizes losses in results of operations when management determines that a decline in value is other-than-temporary. This determination requires the exercise of judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default or bankruptcy. IDS Life also considers the extent to which amortized cost exceeds fair value and the duration of that difference, and management's judgment about the issuer's current and prospective financial condition, as well as its ability and intent to hold until recovery. The fair value of approximately 96% of the investment portfolio classified as Available-for-Sale as of December 31, 2005 is determined by quoted market prices. As of December 31, 2005, there were $420.9 million in gross unrealized losses that related to $17.9 billion of Available-for-Sale securities, of which $4.3 billion has been in a continuous unrealized loss position for 12 months or more. As part of IDS Life's ongoing monitoring process, management determined that a majority of the gross unrealized losses on these securities is attributable to changes in interest rates. Additionally, because IDS Life has the ability as well as the intent to hold these securities for a time sufficient to recover its amortized cost, IDS Life concluded that none of these securities was other-than-temporarily impaired at December 31, 2005.
Management monitors other principal DAC amortization assumptions, such as persistency, mortality, morbidity, interest margin and maintenance expense levels each quarter and, when assessed independently, each could impact IDS Life's DAC balances. For example, if IDS Life increased or decreased its interest margin on its universal life insurance and on the fixed portion of its variable universal life insurance products by 10 basis points, the impact on annual DAC amortization expense would be a decrease or increase of approximately $5 million. Additionally, if IDS Life extended or reduced the amortization periods one year for variable annuities to reflect changes in premium paying persistency and/or surrender assumptions, the impact on annual DAC amortization expense would be a decrease or increase of approximately $30 million. The amortization impact of extending or reducing the amortization period any additional years is not linear.
Fixed Annuities and Variable Annuity Guarantees Liabilities for fixed and variable deferred annuities are equal to accumulation values which are the cumulative gross deposits, credited interest and fund performance less withdrawals and mortality and expense risk charges.
Effective January 1, 2004, liabilities for GMDB, GGU and GMIB benefits have been established under SOP 03-1. Actuarial models to simulate various equity market scenarios are used to project these benefits and contract assessments and include making significant assumptions related to client asset value growth rates, mortality, persistency and investment margins. These assumptions, as well as their periodic review by management, are consistent with those used for DAC purposes. Prior to the adoption of SOP 03-1, amounts paid in excess of contract value were expensed. See the "Recently Issued Accounting Standards" section in Note 1 to the Consolidated Financial Statements for more information about these guaranteed benefits.
GMWB and GMAB provisions are considered embedded derivatives under Statement of Financial Accounting Standards Board No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) and, accordingly, are carried at fair value within future policy benefits for variable annuity guarantees on the Consolidated Balance Sheets. The fair value of these embedded derivatives is based on the present value of future benefits less applicable fees charged for the provision. Changes in fair value are reflected in death and other benefits for investment contracts and universal life-type insurance within the Consolidated Statements of Income.
Life, Disability Income and Long-Term Care Policies Liabilities for life insurance claims that have been reported but have not yet been paid (unpaid claim liabilities) are equal to the death benefits payable under the policies. For DI and LTC claims, unpaid claim liabilities are equal to benefit amounts due and accrued including the expense of reviewing claims and making benefit payment determinations. Liabilities for claims that have occurred but have not yet been reported are estimated based on periodic analysis of the actual lag between when a claim occurs and when it is reported. Where applicable, amounts recoverable from other insurers who share in the risk of the products offered (reinsurers) are separately recorded as receivables.
Liabilities for future policy benefits include both policy reserves and claim reserves on DI and LTC products. Policy reserves are the amounts needed to meet obligations for future claims and are based on the net level premium method, using anticipated premium payments and morbidity, mortality, policy persistency and discount rates. Anticipated morbidity and mortality rates are based on established industry morbidity and mortality tables. Anticipated policy persistency rates vary by policy form, issue age, policy duration and, for DI policies, occupation class. Anticipated interest rates for DI policy reserves are 7.5% at policy issue and grade to 5.0% over 5 years. Anticipated interest rates for LTC care policy reserves were 5.3% at December 31, 2005 grading up to 9.4% over 40 years.
Claim reserves on DI and LTC products are the amounts needed to meet obligations for continuing claim payments on already incurred claims. Claim reserves are calculated based on claim continuance tables which estimate the likelihood that an individual will continue to be eligible for benefits and anticipated interest rates earned on assets supporting the reserves. Anticipated claim continuance rates are based on established industry tables. Anticipated interest rates for claim reserves for both DI and LTC range from 3.0% to 8.0% at December 31, 2005, with an average rate of approximately 4.9% at December 31, 2005.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The fair value of IDS Life's derivative financial instruments are determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market data inputs. In certain instances, the fair value includes structuring costs incurred at the inception of the transaction. The accounting for the change in the fair value of a derivative financial instrument depends on its intended use and the resulting hedge designation, if any. IDS Life currently designates derivatives as cash flow hedges or, in certain circumstances, does not designate derivatives as accounting hedges.
For derivative financial instruments that qualify as cash flow hedges, the effective portions of the gain or loss on the derivatives instruments are reported in accumulated other comprehensive income (loss) and reclassified into earnings when the hedged item or transactions impact earnings. Any ineffective portion of the gain or loss is also reported currently in earnings as a component of net investment income.
INCOME TAX ACCOUNTING Income taxes, as reported in the Consolidated Financial Statements, represent the net amount of income taxes that IDS Life expects to pay to or receive from various taxing jurisdictions in connection with its operations. IDS Life provides for income taxes based on amounts that it believes it will ultimately owe. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items and the realization of certain offsets and credits. In the event that the ultimate tax treatment of items or the realization of offsets or credits differs from IDS Life's estimates, it may be required to significantly change the provision for income taxes recorded in its Consolidated Financial Statements.
IDS Life will not be able to file a consolidated U.S. federal income tax return with the other members of the Ameriprise Financial affiliated group for five tax years following the Distribution, which will result in net operating and capital losses, credits, and other tax attributes generated by one group not being available to offset income earned or taxes owed by the other group during the period of non-consolidation. This lack of consolidation could affect IDS Life's ability to fully realize certain deferred tax assets, including the capital losses referred to above.
IDS Life is required to establish a valuation allowance for any portion of deferred tax assets that management believes will not be realized. It is likely that management will need to identify and implement appropriate planning strategies to ensure its ability to realize deferred tax assets relating to capital losses and avoid the establishment of a valuation allowance with respect to it. In the opinion of management, it is currently more likely than not that IDS Life will realize the benefit of deferred tax assets, including capital loss deferred tax assets, and, therefore, no such valuation allowance has been established.
RECENT ACCOUNTING PRONOUNCEMENTS For information regarding recent accounting pronouncements and their expected impact on future consolidated results of operations or financial condition, see Note 1 to the Consolidated Financial Statements.
IDS Life's total assets and liabilities increased in 2005 primarily due to higher separate account assets and liabilities, which increased as a result of net client inflows and market appreciation.
FUNDING STRATEGY At December 31, 2005 and 2004, IDS Life had outstanding reverse repurchase agreements totaling $25.0 million and $47.0 million, respectively. The reverse repurchase agreements are used strictly as short-term sources of funds.
CONTRACTUAL COMMITMENTS The contractual obligations identified in the table below include balance sheet transactions that represent material expected or contractually committed future obligations of IDS Life. Payments due by period as of December 31, 2005 are as follows:
Consolidated Variable Interest Entities Assets consolidated as a result of the December 31, 2003 adoption of Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities," as revised (FIN 46) were $907 million. The consolidated assets consisted of $834 million of cash and $73 million of derivatives, essentially all of which were restricted. The effect of consolidating these assets on IDS Life's balance sheet was offset by IDS Life's previously recorded carrying values of its investment in such structures, which totaled $673 million, and $166 million of newly consolidated liabilities.
The consolidation of FIN 46-related entities resulted in a cumulative effect of accounting change that increased 2003 net income through a non-cash gain of $44.5 million ($68.4 million pretax) related to the consolidation of three SLTs. The initial gain related to the application of FIN 46 for the SLTs had no cash flow effect on IDS Life. One SLT was liquidated in 2004, resulting in a cumulative net pretax charge of $24.2 million during the year ended December 31, 2004 and the other two SLTs were liquidated in 2004 and 2005 resulting in a $3.7 million pretax charge in 2004 and a $13.9 million pretax gain in 2005. There is no remaining exposure related to these SLTs as of December 31, 2005.
Retained Interest in Assets Transferred to Unconsolidated Entities In 2001, IDS Life placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities, having an aggregate book value of $675.3 million, into a securitization trust. In return, IDS Life received $89.5 million in cash (excluding transaction expenses) relating to sales to unaffiliated investors and retained interests with allocated book amounts aggregating $585.8 million. During the second quarter of 2005, IDS Life sold all of its retained interest in the CDO-related securitization trust and realized a net pretax gain of $24.9 million. The carrying value of this retained interest was $526.2 million at December 31, 2004, of which $389.9 million was considered investment grade.
CONTINGENT LIQUIDITY PLANNING Ameriprise Financial has developed a contingent funding plan that enables IDS Life to meet client obligations during periods in which its clients elect to withdraw funds from their annuity and insurance contracts. Ameriprise Financial designed this plan to allow IDS Life to meet these client withdrawals by selling or obtaining financing, through repurchase agreements, of portions of its investment securities portfolio.
In accordance with regulatory investment guidelines, IDS Life Insurance Company and its subsidiaries, through their respective boards of directors or board of directors' investment committees or staff functions, review models projecting different interest rate scenarios, risk/return measures, and their effect on profitability. They also review the distribution of assets in the portfolio by type and credit risk sector. The objective is to structure the investment securities portfolio in the general account to meet contractual obligations under the insurance and annuity products and achieve targeted levels of profitability within defined risk parameters.
IDS Life has two principal components of market risk: interest rate risk and equity market risk. Interest rate risk results from investing in assets that are somewhat longer and reset less frequently than the liabilities they support. IDS Life manages interest rate risk through the use of a variety of tools that include modifying the maturities of investments supporting its fixed annuities and insurance products. Additionally, IDS Life enters into derivative financial instruments, such as interest rate swaps, caps, floors and swaptions, which change the interest rate characteristics of client liabilities or investment assets. Because certain of its investment activities are impacted by the value of its managed equity-based portfolios, from time to time IDS Life enters into risk management strategies that may include the use of equity derivative financial instruments, such as equity options, to mitigate its exposure to volatility in the equity markets.
INTEREST RATE RISK Interest rate exposures arise primarily with respect to the fixed account portion of IDS Life's annuity and insurance products and its investment portfolio. Such client liabilities and investment assets generally do not create naturally offsetting positions as it relates to basis, repricing or maturity characteristics. Rates credited to clients' accounts generally reset at shorter intervals than the yield on underlying investments. Further, the expected maturities on the investment assets may not align with the surrender or other benefit payments from fixed annuity and insurance products. Therefore, IDS Life's interest spread margins are affected by changes in the general level of interest rates. The extent to which the level of interest rates affects spread margins is managed primarily by a combination of modifying the maturity structure of the investment portfolio to more closely align with the client liability maturities, and the use of derivative financial instruments to modify the interest rate risk characteristics associated with certain client liabilities and investment assets.
The negative effect on IDS Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and client behavior based on the application of proprietary models, to the book of business for years ended December 31, 2005 and 2004 would be approximately $27.4 million and $15.5 million, respectively.
For all of IDS Life's economic equity risk hedges, the total notional of derivatives outstanding under this risk management strategy was $854.1 million and $261.0 million as of December 31, 2005 and 2004, respectively. The total net fair value of these derivative financial instruments was $123.8 million and $26.9 million as of December 31, 2005 and 2004, respectively. The total amounts recognized in the Consolidated Statements of Income for these contracts were $9.1 million, $4.0 million and $7.0 million for the years ended December 31, 2005, 2004 and 2003, respectively. Cash (paid)/received related to these derivative financial instruments totaled $(87.8) million, $4.4 million and $(3.1) million for the years ended December 31, 2005, 2004 and 2003, respectively.
This report includes forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. IDS Life undertakes no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the success, timeliness and financial impact (including the amount of intercompany costs allocated to IDS Life, cost savings and other benefits including increased revenues), both in the short-term and over time, of reengineering initiatives being implemented or considered by Ameriprise Financial that could impact IDS Life, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation and outsourcing (including, among others, technologies operations); the ability to control and manage operating infrastructure, advertising and promotion expenses as business expands or changes; a downturn in IDS Life's businesses and/or negative changes in IDS Life's credit or financial strength ratings, which could result in decreased liquidity, negative impact on marketing and sale of products, and higher borrowing costs; IDS Life's ability to improve investment performance, including attracting and retaining high-quality personnel, and reduce outflows of invested funds; IDS Life's ability to develop and introduce new and attractive products to clients in a timely manner and effectively manage the economics in selling a growing volume of non-proprietary mutual funds and other retail financial products to clients; fluctuation in the equity and fixed income markets, which can affect the amount and types of investment products sold by IDS Life, and other fees received based on the value of those assets; IDS Life's ability to recover DAC, as well as the timing of such DAC amortization, in connection with the sale of annuity and insurance products; the level of GMDB or living benefits paid to clients; changes in assumptions relating to DAC, which could impact the amount of DAC amortization; IDS Life's ability to avoid deterioration in its high-yield portfolio in order to mitigate losses in its investment portfolio; fluctuations in interest rates, which impact IDS Life's borrowing costs, return on lending products and spreads in the insurance and annuity products; accuracy of estimates for the fair value of the assets in IDS Life's investment portfolio and, in particular, those investments that are not readily marketable; the potential negative effect on IDS Life's businesses and infrastructure, including information technology, of terrorist attacks, disasters or other catastrophic events in the future; changes in laws or government regulations, including changes in tax laws or regulations that could result in the elimination of certain tax benefits; outcomes and costs associated with litigation and compliance and regulatory matters; successfully cross-selling insurance and annuity products and services to Ameriprise Financial's customer base; lower than anticipated spreads in the insurance and annuity business; the type and the value of certain benefit features on variable annuity contracts; the affect of assessments and other surcharges for guaranty funds; the response of reinsurance companies under reinsurance contracts; the impact of the separation of Ameriprise Financial from American Express; the impact of reinsurance rates and the availability and adequacy of reinsurance; and competitive pressures in IDS Life's business. See "Item 1A - Risk Factors" for further discussion of risks.