Ameriprise 2009 Annual Report Download - page 37

products. Although we typically hedge against such fluctuations, increase the risk that we may have to invest the cash proceeds of
significant changes in interest rates could have a material adverse these securities in lower-yielding or lower-credit instruments.
impact on our results of operations.
Significant downturns and volatility in equity markets have had
During periods of increasing market interest rates, we must offer and could continue to have an adverse effect on our financial
higher crediting rates on interest-sensitive products, such as fixed condition and results of operations. Market downturns and
universal life insurance, fixed annuities, face-amount certificates volatility may cause, and have caused, potential new purchasers of
and certificates of deposit, and we must increase crediting rates on our products to refrain from purchasing products, such as mutual
in force products to keep these products competitive. Because funds, OEICs, variable annuities and variable universal life
returns on invested assets may not increase as quickly as current insurance, which have returns linked to the performance of the
interest rates, we may have to accept a lower spread and thus equity markets. If we are unable to offer appropriate product
lower profitability or face a decline in sales and greater loss of alternatives which encourage customers to continue purchasing in
existing contracts and related assets. In addition, increases in the face of actual or perceived market volatility, our sales and
market interest rates may cause increased policy surrenders, management fee revenues could decline. Downturns may also
withdrawals from life insurance policies, annuity contracts and cause current shareholders in our mutual funds and OEICs,
certificates of deposit and requests for policy loans, as contract holders in our annuity products and policyholders in our
policyholders, contract holders and depositors seek to shift assets protection products to withdraw cash values from those products.
to products with perceived higher returns. This process may lead
Additionally, downturns and volatility in equity markets can have,
to an earlier than expected outflow of cash from our business.
and have had, an adverse effect on the revenues and returns from
Also, increases in market interest rates may result in extension of
our asset management services, wrap accounts and variable
certain cash flows from structured mortgage assets. These
annuity contracts. Because the profitability of these products and
withdrawals and surrenders may require investment assets to be
services depends on fees related primarily to the value of assets
sold at a time when the prices of those assets are lower because of
under management, declines in the equity markets will reduce our
the increase in market interest rates, which may result in realized
revenues because the value of the investment assets we manage
investment losses. Increases in crediting rates, as well as
will be reduced. In addition, some of our variable annuity products
surrenders and withdrawals, could have an adverse effect on our
contain guaranteed minimum death benefits and guaranteed
financial condition and results of operations. An increase in
minimum withdrawal and accumulation benefits. A significant
surrenders and withdrawals also may require us to accelerate
equity market decline or volatility in equity markets could result in
amortization of deferred acquisition costs or other intangibles or
guaranteed minimum benefits being higher than what current
cause an impairment of goodwill, which would increase our
account values would support, thus producing a loss as we pay the
expenses and reduce our net earnings.
benefits, having an adverse effect on our financial condition and
During periods of falling interest rates or stagnancy of low interest results of operations. Although we have hedged a portion of the
rates, our spread may be reduced or could become negative, guarantees for the variable annuity contracts in order to mitigate
primarily because some of our products have guaranteed the financial loss of equity market declines or volatility, there can
minimum crediting rates. Due to the long-term nature of the be no assurance that such a decline or volatility would not
liabilities associated with certain of our businesses, such as fixed materially impact the profitability of certain products or product
annuities and guaranteed benefits on variable annuities, sustained lines or our financial condition or results of operations. Further,
declines or stagnancy of low interest rates in long-term interest the cost of hedging our liability for these guarantees may increase
rates may subject us to reinvestment risks and increased hedging as a result of low interest rates and volatility in the equity markets.
costs. In addition, heightened volatility creates greater uncertainty for
future hedging effectiveness.
Interest rate fluctuations also could have an adverse effect on the
results of our investment portfolio. During periods of declining We believe that investment performance is an important factor in
market interest rates or stagnancy of low interest rates, the the growth of many of our businesses. Poor investment
interest we receive on variable interest rate investments decreases. performance could impair our revenues and earnings, as well as
In addition, during those periods, we are forced to reinvest the our prospects for growth. A significant portion of our revenue is
cash we receive as interest or return of principal on our derived from investment management agreements with the
investments in lower-yielding high-grade instruments or in lower- RiverSource family of mutual funds that are terminable on
credit instruments to maintain comparable returns. Issuers of 60 days’ notice. In addition, although some contracts governing
certain callable fixed income securities also may decide to prepay investment management services are subject to termination for
their obligations in order to borrow at lower market rates, which failure to meet performance benchmarks, institutional and
individual clients can terminate their relationships with us or our
22 ANNUAL REPORT 2009