Ameriprise 2008 Annual Report Download - page 54

and related expenses we expect to incur over time. The assumptions and estimates we make in establishing reserves require
certain judgments about future experience and, therefore, are inherently uncertain. We cannot determine with precision the
actual amounts that we will pay for contract benefits, the timing of payments, or whether the assets supporting our stated
reserves will increase to the levels we estimate before payment of benefits or claims. We monitor our reserve levels
continually. If we were to conclude that our reserves are insufficient to cover actual or expected contract benefits or loan
collections, we would be required to increase our reserves and incur income statement charges for the period in which we
make the determination, which could adversely affect our results of operations and financial condition. For more information
on how we set our reserves, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
Morbidity rates or mortality rates that differ significantly from our pricing expectations could negatively
affect profitability.
We set prices for RiverSource life insurance and some annuity products based upon expected claim payment patterns, derived
from assumptions we make about our policyholders and contractholders, the morbidity rates, or likelihood of sickness, and
mortality rates, or likelihood of death. The long-term profitability of these products depends upon how our actual experience
compares with our pricing assumptions. For example, if morbidity rates are higher, or mortality rates are lower, than our pricing
assumptions, we could be required to make greater payments under disability income insurance policies and immediate
annuity contracts than we had projected. In 2009, upon regulatory approval, we intend to offer certain optional riders with our
new permanent life insurance policies that will enable consumers to access a portion of their death benefit to fund qualified
chronic care needs. These policies, if approved and issued, will also subject us to morbidity risk. The same holds true for long
term care policies we previously underwrote to the extent of the risks that we have retained. If mortality rates are higher than
our pricing assumptions, we could be required to make greater payments under our life insurance policies and annuity
contracts with guaranteed minimum death benefits than we have projected.
The risk that our claims experience may differ significantly from our pricing assumptions is particularly significant for our long
term care insurance products notwithstanding our ability to implement future price increases with regulatory approvals. As
with life insurance, long term care insurance policies provide for long-duration coverage and, therefore, our actual claims
experience will emerge over many years. However, as a relatively new product in the market, long term care insurance does
not have the extensive claims experience history of life insurance and, as a result, our ability to forecast future claim rates for
long term care insurance is more limited than for life insurance. We have sought to moderate these uncertainties to some
extent by partially reinsuring long term care policies we previously underwrote and by limiting our present long term care
insurance offerings to policies underwritten fully by unaffiliated third-party insurers, and we have also implemented rate
increases on certain in force policies as described in Item 1 of this Annual Report on Form 10-K—‘‘Business—Our
Segments—Protection—RiverSource Insurance Products—Long Term Care Insurance’’. We may be required to implement
additional rate increases in the future and may or may not receive regulatory approval for the full extent and timing of any rate
increases that we may seek.
We may face losses if there are significant deviations from our assumptions regarding the future
persistency of our insurance policies and annuity contracts.
The prices and expected future profitability of our life insurance and deferred annuity products are based in part upon
assumptions related to persistency, which is the probability that a policy or contract will remain in force from one period to the
next. Given the ongoing economic and market dislocations, future consumer persistency behaviors could vary materially from
the past. The effect of persistency on profitability varies for different products. For most of our life insurance and deferred
annuity products, actual persistency that is lower than our persistency assumptions could have an adverse impact on
profitability, especially in the early years of a policy or contract, primarily because we would be required to accelerate the
amortization of expenses we deferred in connection with the acquisition of the policy or contract.
For our long term care insurance, actual persistency that is higher than our persistency assumptions could have a negative
impact on profitability. If these policies remain in force longer than we assumed, then we could be required to make greater
benefit payments than we had anticipated when we priced or partially reinsured these products. Some of our long term care
insurance policies have experienced higher persistency and poorer loss experience than we had assumed, which led us to
increase premium rates on certain of these policies.
Because our assumptions regarding persistency experience are inherently uncertain, reserves for future policy benefits and
claims may prove to be inadequate if actual persistency experience is different from those assumptions. Although some of our
products permit us to increase premiums during the life of the policy or contract, we cannot guarantee that these increases
would be sufficient to maintain profitability. Additionally, some of these pricing changes require regulatory approval, which may
not be forthcoming. Moreover, many of our products do not permit us to increase premiums or limit those increases during the
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