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7. Reinsurance

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7. Reinsurance Syndicated Loans The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans as of December 31, 2010 were $3 million. Consumer Bank Loans The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as LTV and geographic concentration in determining the allowance for loan loss for residential mortgage loans, credit cards and other consumer bank loans. At a minimum, management updates FICO scores and LTV ratios semiannually. As of December 31, 2010, approximately 7% of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At December 31, 2010, approximately 3% of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for the consumer bank loans is in California representing 33% of the portfolio as of December 31, 2010. No other state represents more than 10% of the total consumer bank loan portfolio. 7. Reinsurance Generally, the Company reinsures 90% of the death benefit liability related to almost all individual fixed and variable universal life and term life insurance products. As a result, the Company typically retains and is at risk for, at most, 10% of each policy’s death benefit from the first dollar of coverage for new sales of these policies, subject to the reinsurers fulfilling their obligations. The Company began reinsuring risks at this level during 2001 (2002 for RiverSource Life of NY) for term life insurance and 2002 (2003 for RiverSource Life of NY) for individual fixed and variable universal life insurance. Policies issued prior to these dates are not subject to these same reinsurance levels. Generally, the maximum amount of life insurance risk retained by the Company is $1.5 million on a single life and $1.5 million on any flexible premium survivorship life policy. Risk on fixed and variable universal life policies is reinsured on a yearly renewable term basis. Risk on most term life policies starting in 2001 (2002 for RiverSource Life of NY) is reinsured on a coinsurance basis, a type of reinsurance in which the reinsurer participates proportionally in all material risks and premiums associated with a policy. For existing LTC policies, the Company retained 50% of the risk and ceded the remaining 50% of the risk on a coinsurance basis to subsidiaries of Genworth Financial, Inc. (‘‘Genworth’’). For RiverSource Life of NY, this reinsurance arrangement applies for 1996 and later issues only. Generally, the Company retains at most $5,000 per month of risk per life on DI policies sold on policy forms introduced in most states in October 2007 (August 2010 for RiverSource Life of NY) and reinsures the remainder of the risk on a coinsurance basis with unaffiliated reinsurance companies. The Company retains all risk for new claims on DI contracts sold on other policy forms. The Company also retains all risk on accidental death benefit claims and substantially all risk associated with waiver of premium provisions. At December 31, 2010 and 2009, traditional life and universal life insurance in force aggregated $192.0 billion and $192.8 billion, respectively, of which $134.0 billion and $131.2 billion were reinsured at the respective year ends. Life insurance in force is reported on a statutory basis. The Company also reinsures a portion of the risks associated with its personal auto and home insurance products through two types of reinsurance agreements with unaffiliated reinsurance companies. The Company purchases reinsurance with a limit of $5 million per loss and the Company retains $750,000 per loss. The Company purchases catastrophe reinsurance and retains $10 million of loss per event with loss recovery up to $80 million per event. The effect of reinsurance on premiums was as follows: Years Ended December 31, 2010 2009 2008 (in millions) Direct premiums $ 1,382 $ 1,317 $ 1,263 Reinsurance ceded (203) (219) (215) Net premiums $ 1,179 $ 1,098 $ 1,048 Cost of insurance and administrative charges on UL and VUL insurance are reflected in other revenues and were net of reinsurance ceded of $67 million, $62 million and $61 million for the years ended December 31, 2010, 2009 and 2008, respectively. Reinsurance recovered from reinsurers was $172 million, $174 million and $151 million for the years ended December 31, 2010, 2009 and 2008, respectively. Reinsurance contracts do not relieve the Company from its primary obligation to policyholders. Receivables included $1.9 billion and $1.7 billion of reinsurance recoverables as of December 31, 2010 and 2009, respectively, including $1.4 billion and $1.3 billion recoverable from Genworth, respectively. Included in future policy 120.
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