growth rates for variable products. Management routinely monitors a wide variety of trends in the business, including compar- isons of actual and assumed experience. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. Management monitors other principal DAC assumptions, such as per- sistency, mortality rate, interest margin and maintenance expense level assumptions, each quarter. Unless management identi- fies a material deviation over the course of the quarterly monitoring, management reviews and updates these DAC assumptions annually in the third quarter of each year. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC may also change. A change in the required amortization percentage is applied retro- spectively; an increase in amortization percentage will result in an acceleration of DAC amortization while a decrease in amor- tization percentage will result in a deceleration of DAC amortization. The impact on results of operations of changing assumptions with respect to the amortization of DAC can be either positive or negative in any particular period, and is reflected in the period in which such changes are made. Liabilities for reported and unpaid life insurance claims are equal to the death benefits payable. For disability income and long- term care claims, unpaid claim liabilities are equal to benefit amounts due and accrued. Liabilities for incurred but not reported claims are estimated based on periodic analysis of the actual reported claim lag. Where applicable, amounts recover- able from reinsurers are separately recorded as receivables. For life insurance, no claim adjustment expense reserve is held. The claim adjustment expense reserves for disability income and long-term care are based on the claim reserves. Liabilities for equity indexed deferred annuities issued before 1999 are equal to the present value of guaranteed benefits and the intrinsic value of index-based benefits. Liabilities for equity indexed deferred annuities issued in 1999 or later are equal to the accumulation of host contract values covering guaranteed benefits and the market value of embedded equity options. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates, ranging from 5% to 9.5%, depending on year of issue, with an average rate of approximately 6.5%. Liabilities for future benefits on term and whole life insurance are based on the net level premium method, using anticipated mortality, policy persistency and interest earning rates. Anticipated mortality rates are based on established industry mortality tables, with modifications based on company experience. Anticipated policy persistency rates vary by policy form, issue age and policy duration with persistency on level term and cash value plans generally anticipated to be better than persistency on yearly renewable term insurance plans. Anticipated interest rates range from 4% to 10%, depending on policy form, issue year and policy duration. Claim reserves are calculated based on claim continuance tables and anticipated interest earnings. Anticipated claim continu- ance rates are based on established industry tables. Anticipated interest rates for claim reserves for both disability income and long-term care range from 5% to 8%. The company issues only non-participating life insurance contracts and has no short duration life insurance liabilities. The majority of the variable annuity contracts offered by AEFA contain guaranteed minimum death benefit (GMDB) provi- sions. At time of issue, these contracts typically guarantee the death benefit payable will not be less than the amount invested, regardless of the performance of the customer’s account. Most contracts also provide for some type of periodic adjustment of the guaranteed amount based on the change in value of the contract. A large portion of AEFA’s contracts containing a GMDB Guaranteed Minimum Death Benefits Insurance and Annuity Reserves Liabilities for fixed and variable universal life insurance and fixed and variable deferred annuities are accumulation values. Liabilities for future disability income and long-term care policy benefits include both policy reserves and claim reserves. Policy reserves are based on the net level premium method, using anticipated morbidity, mortality, policy persistency and interest earning 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 disability income policies, occupation class. Anticipated interest rates for disability income and long-term care policy reserves are 3% to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10 years. I 61 AXP I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS