American Express 2011 Annual Report Download - page 99

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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumptions
The weighted-average assumptions used to determine benefit
obligations were:
2011 2010
Discount rates 4.5% 5.2%
Health care cost increase rate:
Following year 8.0% 8.5%
Decreasing to the year 2018 5.0% 5.0%
The weighted-average discount rate used to determine net
periodic benefit cost was 4.9 percent, 5.4 percent and 6.0 percent
in 2011, 2010 and 2009, respectively. The discount rate
assumption is determined by using a model consisting of bond
portfolios that match the cash flows of the plan’s projected
benefit payments. Use of the rate produced by this model
generates a projected benefit obligation that equals the current
market value of a portfolio of high-quality zero-coupon bonds
whose maturity dates and amounts match the timing and
amount of expected future benefit payments.
A one percentage-point change in assumed health care cost trend
rates would have the following effects:
One
percentage-
point increase
One
percentage-
point decrease
(Millions) 2011 2010 2011 2010
Increase (decrease) on benefits earned and
interest cost for U.S. plans $1$1$ (1) $(1)
Increase (decrease) on postretirement
benefit obligation for U.S. plans $13$15$ (12) $ (13)
Benefit Payments
The Company’s other postretirement benefit plans expect to
make benefit payments as follows:
(Millions) 2012 2013 2014 2015 2016
2017
– 2021
Expected payments $ 22 $ 23 $ 23 $ 23 $ 24 $ 118
In addition, the Company expects to contribute $22 million to its
other postretirement benefit plans in 2012.
NOTE 22
SIGNIFICANT CREDIT
CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to American Express’ total credit exposure. The
Company’s customers operate in diverse industries, economic
sectors and geographic regions.
ThefollowingtabledetailstheCompany’smaximumcredit
exposure by category, including the credit exposure associated
with derivative financial instruments, as of December 31:
(Billions) 2011 2010
On-balance sheet:
Individuals(a) $92$88
Financial institutions(b) 28 23
U.S. Government and agencies(c) 612
All other(d) 16 15
Total on-balance sheet(e) $ 142 $ 138
Unused lines-of-credit – individuals(f) $ 238 $ 226
(a) Individuals primarily include cardmember loans and receivables.
(b) Financial institutions primarily include debt obligations of banks, broker-
dealers, insurance companies and savings and loan associations.
(c) U.S. Government and agencies represent debt obligations of the U.S.
Government and its agencies, states and municipalities and government
sponsored entities.
(d) All other primarily includes cardmember receivables from other corporate
institutions.
(e) Certain distinctions between categories require management judgment.
(f) Because charge card products have no preset spending limit, the associated
credit limit on cardmember receivables is not quantifiable. Therefore, the
quantified unused line-of-credit amounts only include the approximate
credit line available on cardmember loans.
As of December 31, 2011 and 2010, the Company’s most
significant concentration of credit risk was with individuals,
including cardmember receivables and loans. These amounts are
generally advanced on an unsecured basis. However, the
Company reviews each potential customer’s credit application
and evaluates the applicant’s financial history and ability and
willingness to repay. The Company also considers credit
performance by customer tenure, industry and geographic
location in managing credit exposure.
97