Ameriprise 2008 Annual Report Download - page 99

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• general economic and political factors, including consumer confidence in the economy, the ability and inclination of
consumers generally to invest as well as their ability to and inclination to invest in financial instruments and products other
than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business,
and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central
government treasury policy, and policies regarding the financial services industry and publicly-held firms, and regulatory
rulings and pronouncements.
Management cautions you that the foregoing list of factors is not exhaustive. There may also be other risks that management
is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on
which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate, equity price, foreign currency and credit risk are the market risks to which we have material exposure. Equity
market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects
they have on the asset management and other asset-based fees we earn, the spread income generated on our annuities,
banking, and face amount certificate products and UL insurance products, the value of DAC and DSIC assets associated with
variable annuity and variable UL products, the values of liabilities for guaranteed benefits associated with our variable
annuities and the values of derivatives held to hedge these benefits.
Changes in both the equity and fixed income markets during 2008 have affected our market risk position. These changes
resulted in lower asset values against which we take asset-based management and distribution fees as well as increases in
our stated liabilities for variable annuity guaranteed benefits. The guaranteed benefits associated with our variable annuities
are GMWB, GMAB, GMDB and GMIB options. Each of the guaranteed benefits mentioned above guarantees payouts to the
annuity holder under certain specific conditions regardless of the performance of the underlying investment assets.
To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from
the sources listed below for a 12 month period following a hypothetical 100 basis point increase in interest rates and a
hypothetical 10% decline in equity markets. Due to the market conditions in the second half of 2008, we also performed
sensitivity testing using a hypothetical 20% decline in equity markets.
Equity price risk includes absolute market level and implied market volatility changes. The estimates of net equity price risk
exposure presented below assume no changes in implied market volatility.
The numbers below show our estimate of the pretax impact of these hypothetical market moves, net of hedging, as of
December 31, 2008. DAC and DSIC changes are shown based on the impact of projecting lower profits as a result of the
market declines as well as linked specifically to the changes in our variable annuity riders. Following the table is a discussion
by source of risk and the portfolio management techniques and derivative instruments we use to mitigate these risks.
Equity Price Exposure to Pretax Income
Equity Price Decline 10% Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based management and distribution
fees $ (94) N/A $ (94)
DAC and DSIC amortization(1) (160) N/A (160)
Variable annuity riders:
GMDB and GMIB (67) N/A (67)
GMWB (162) 179 17
GMAB (38) 35 (3)
DAC and DSIC amortization(2) N/A N/A (5)
Total variable annuity riders (267) 214 (58)
Equity indexed annuities 2 (2) —
Stock market certificates 2 (2) —
Total $ (517) $ 210 $ (312)
76