Ameriprise 2008 Annual Report Download - page 103

Interest Rate Risk—Stock Market Certificates
Stock market certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be
made to the certificate holder.
Foreign Currency Risk
We have foreign currency risk through our net investment in foreign subsidiaries and our operations in foreign countries. We
are primarily exposed to changes in British Pounds (‘‘GBP’’) related to our net investment in Threadneedle which had
$438 million of GBP exposure at December 31, 2008. Our primary exposure related to operations in foreign countries is to
the GBP and the Indian Rupee. We monitor the foreign exchange rates that we have exposure to and enter into foreign
currency forward contracts to mitigate risk when economically prudent. At December 31, 2008, the notional value of
outstanding contracts and our remaining foreign currency risk related to operations in foreign countries were not material.
Interest Rate Risk on External Debt
Interest rate risk on our external debt is not material. The interest rate on the $1.5 billion of senior unsecured notes is fixed
and the interest rate on the $457 million of junior notes is fixed until June 1, 2016. We have floating rate debt of $6 million
related to our municipal bond inverse floater certificates which is not hedged but on which the interest rate risk to pretax
income is not material. We have floating rate debt of $64 million related to certain consolidated property funds, a portion of
which is hedged using interest rate swaps which effectively convert the floating rates to a fixed rate.
Credit Risk
We are exposed to credit risk within our investment portfolio, which includes loans, and through derivative and reinsurance
counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance
with the contractual terms of the instrument or contract. Our potential derivative credit exposure to each counterparty is
aggregated with all of our other exposures to the counterparty to determine compliance with established credit guidelines at
the time we enter into a derivative transaction. We manage credit risk through fundamental credit analysis, issuer and industry
concentration guidelines, and diversification requirements. These guidelines and oversight of credit risk are managed through
our comprehensive enterprise risk management program that includes members of senior management.
We manage the risk of adverse default experience on these investments by applying disciplined fundamental credit analysis
and underwriting standards, prudently limiting exposures to lower-quality, higher-yielding investments, and diversifying
exposures by issuer, industry, region and property type. For each counterparty or borrowing entity and its affiliates, our
exposures from all types of transactions are aggregated and managed in relation to guidelines set by risk tolerance thresholds
and external and internal rating quality. We remain exposed to occasional adverse cyclical economic downturns during which
default rates may be significantly higher than the long-term historical average used in pricing.
Credit exposures on derivative contracts may take into account netting arrangements and collateral arrangements. Before
executing a new type of structure of derivative contract, we determine the variability of the contract’s potential market and
credit exposures and whether such variability might reasonably be expected to create exposure to a counterparty in excess of
established limits.
Additionally, we reinsure a portion of the insurance risks associated with our life, disability income, long term care and auto
and home insurance products through reinsurance agreements with unaffiliated reinsurance companies. Reinsurance is used
in order to limit losses, reduce exposure to large risks and provide additional capacity for future growth. To manage exposure to
losses from reinsurer insolvencies, the financial condition of reinsurers is evaluated prior to entering into new reinsurance
treaties and on a periodic basis during the terms of the treaties. Our insurance companies remain primarily liable as the direct
insurers on all risks reinsured. As of December 31, 2008, our largest reinsurance credit risk related to a long term care
coinsurance arrangement between us and a life insurance subsidiary of Genworth Financial, Inc. See Note 10 to our
Consolidated Financial Statements for further information on reinsurance.
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