Ameriprise 2008 Annual Report Download - page 46

consumer confidence and consumer debt, may substantially affect consumer loan levels and credit quality, which, in turn,
could impact the results of our banking business. These factors also may have an impact on our ability to achieve our strategic
objectives.
Our businesses have been and may continue to be adversely affected by the current U.S. and global capital market and credit
crises, the repricing of credit risk, equity market volatility and decline, and stress or recession in the U.S. and global
economies generally. Over approximately the past eighteen months, difficulties in the mortgage and broader capital markets
in the United States and elsewhere, coupled with the repricing of credit risk, have created extremely difficult market
conditions. These conditions, as well as instability in global equity markets with a significant decline in stock prices, have
produced greater volatility, less liquidity, variability of credit spreads and a lack of price transparency. Market conditions have
significantly impacted certain structured investment vehicles and other structured credit products, which have experienced
rapid deterioration in value and/or failures to meet scheduled payments based on declines in the market value of underlying
collateral pools, increased costs or unavailability of credit default hedges or liquidity to their structures, and/or the triggering of
covenants that accelerate the amortization or liquidation of these structures. Each of our segments operates in these markets
with exposure for ourselves and our clients in securities, loans, derivatives, alternative investments, seed capital and other
commitments. It is difficult to predict how long these conditions will exist, which of our markets, products and businesses will
continue to be directly affected in revenues, management fees and investment valuations and earnings, and to what extent
our clients may seek to bring claims arising out of investment performance. As a result, these factors could materially
adversely impact our results of operations.
Certain of our insurance and annuity products and certain of our investment and banking products are sensitive to interest
rate fluctuations, and our future costs associated with such variations may differ from our historical costs. In addition, interest
rate fluctuations could result in fluctuations in the valuation of certain minimum guaranteed benefits contained in some of our
variable annuity products. Although we typically hedge against such fluctuations, significant changes in interest rates could
have a material adverse impact on our results of operations.
During periods of increasing market interest rates, we must offer higher crediting rates on interest-sensitive products, such as
fixed universal life insurance, fixed annuities, face-amount certificates and certificates of deposit, and we must increase
crediting rates on in force products to keep these products competitive. Because returns on invested assets may not increase
as quickly as current interest rates, we may have to accept a lower spread and thus lower profitability or face a decline in sales
and greater loss of existing contracts and related assets. In addition, increases in market interest rates may cause increased
policy surrenders, withdrawals from life insurance policies, annuity contracts and certificates of deposit and requests for policy
loans, as policyholders, contractholders and depositors seek to shift assets to products with perceived higher returns. This
process may lead to an earlier than expected outflow of cash from our business. Also, increases in market interest rates may
result in extension of certain cash flows from structured mortgage assets. These withdrawals and surrenders may require
investment assets to be sold at a time when the prices of those assets are lower because of the increase in market interest
rates, which may result in realized investment losses. Increases in crediting rates, as well as surrenders and withdrawals,
could have an adverse effect on our financial condition and results of operations. An increase in surrenders and withdrawals
also may require us to accelerate amortization of deferred acquisition costs or other intangibles or cause an impairment of
goodwill, which would increase our expenses and reduce our net earnings.
During periods of falling interest rates, our spread may be reduced or could become negative, primarily because some of our
products have guaranteed minimum crediting rates. Due to the long-term nature of the liabilities associated with certain of
our businesses, such as fixed annuities and guaranteed benefits on variable annuities, sustained declines in long-term
interest rates may subject us to reinvestment risks and increased hedging costs.
Interest rate fluctuations also could have an adverse effect on the results of our investment portfolio. During periods of
declining market interest rates, the interest we receive on variable interest rate investments decreases. In addition, during
those periods, we are forced to reinvest the cash we receive as interest or return of principal on our investments in lower-
yielding high-grade instruments or in lower-credit instruments to maintain comparable returns. Issuers of certain callable fixed
income securities also may decide to prepay their obligations in order to borrow at lower market rates, which increases the risk
that we may have to invest the cash proceeds of these securities in lower-yielding or lower-credit instruments.
Significant downturns and volatility in equity markets such as we are currently experiencing have had and could continue to
have an adverse effect on our financial condition and results of operations. Market downturns and volatility may cause, and
have caused, potential new purchasers of our products to refrain from purchasing products, such as mutual funds, variable
annuities and variable universal life insurance, which have returns linked to the performance of the equity markets. If we are
unable to offer appropriate product alternatives which encourage customers to continue purchasing in the face of actual or
perceived market volatility, our sales and management fee revenues could decline. Downturns may also cause current
shareholders in our mutual funds and contractholders in our annuity products and policyholders in our protection products to
withdraw cash values from those products.
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