Ameriprise 2009 Annual Report Download - page 47

equipment failures, failures of internal or vendor software or procedures to record properly and verify a large number of
systems and other events beyond our control. Further, we face the transactions and events, and these policies and procedures may
risk of operational failure, termination or capacity constraints of not be fully effective in mitigating our risk exposure in all market
any of the clearing agents, exchanges, clearing houses or other environments or against all types of risk. Insurance and other
financial intermediaries that we use to facilitate or are component traditional risk-shifting tools may be held by or available to us in
providers to our securities transactions and other product order to manage certain exposures, but they are subject to terms
manufacturing and distribution activities. These risks are such as deductibles, coinsurance, limits and policy exclusions, as
heightened by our deployment in response to both investor well as risk of counterparty denial of coverage, default or
interest and evolution in the financial markets of increasingly insolvency.
sophisticated products, such as those which incorporate
As a holding company, we depend on the ability of our
automatic asset re-allocation, long/short trading strategies or
subsidiaries to transfer funds to us to pay dividends and
multiple portfolios or funds, and business-driven hedging,
to meet our obligations.
compliance and other risk management strategies. Any such
We act as a holding company for our insurance and other
failure, termination or constraint could adversely impact our
subsidiaries. Dividends from our subsidiaries and permitted
ability to effect transactions, service our clients and manage our
payments to us under our intercompany arrangements with our
exposure to risk.
subsidiaries are our principal sources of cash to pay shareholder
Risk management policies and procedures may not be dividends and to meet our other financial obligations. These
fully effective in identifying or mitigating risk exposure obligations include our operating expenses and interest and
in all market environments or against all types of risk, principal on our borrowings. If the cash we receive from our
including employee and financial advisor misconduct. subsidiaries pursuant to dividend payment and intercompany
We have devoted significant resources to develop our risk arrangements is insufficient for us to fund any of these
management policies and procedures and will continue to do so. obligations, we may be required to raise cash through the
Nonetheless, our policies and procedures to identify, monitor and incurrence of additional debt, the issuance of additional equity or
manage risks may not be fully effective in mitigating our risk the sale of assets. If any of this happens, it could adversely impact
exposure in all market environments or against all types of risk. our financial condition and results of operations.
Many of our methods of managing risk and exposures are based
Insurance, banking and securities laws and regulations regulate
upon our use of observed historical market behavior or statistics
the ability of many of our subsidiaries (such as our insurance,
based on historical models. During periods of market volatility or
banking and brokerage subsidiaries and our face-amount
due to unforeseen events, the historically derived correlations
certificate company) to pay dividends or make other permitted
upon which these methods are based may not be valid. As a result,
payments. See Item 1 of this Annual Report on Form 10-K —
these methods may not accurately predict future exposures, which
‘‘Regulation’’ as well as the information contained in Part II,
could be significantly greater than what our models indicate. This
Item 7 under the heading ‘‘Management’s Discussion and Analysis
could cause us to incur investment losses or cause our hedging and
of Financial Condition and Results of Operations — Liquidity and
other risk management strategies to be ineffective. Other risk
Capital Resources.’’ In addition to the various regulatory
management methods depend upon the evaluation of information
restrictions that constrain our subsidiaries’ ability to pay
regarding markets, clients, catastrophe occurrence or other
dividends or make other permitted payments to our company, the
matters that are publicly available or otherwise accessible to us,
rating organizations impose various capital requirements on our
which may not always be accurate, complete, up-to-date or
company and our insurance company subsidiaries in order for us
properly evaluated.
to maintain our ratings and the ratings of our insurance
Moreover, we are subject to the risks of errors and misconduct by subsidiaries. The value of assets on the company-level balance
our employees and affiliated financial advisors, such as fraud, sheets of our subsidiaries is a significant factor in determining
non-compliance with policies, recommending transactions that these restrictions and capital requirements. As asset values
are not suitable, and improperly using or disclosing confidential decline, our and our subsidiaries’ ability to pay dividends or make
information. These risks are difficult to detect in advance and other permitted payments can be reduced. Additionally, the
deter, and could harm our business, results of operations or various asset classes held by our subsidiaries, and used in
financial condition. We are further subject to the risk of determining required capital levels, are weighted differently or are
nonperformance or inadequate performance of contractual restricted as to the proportion in which they may be held
obligations by third-party vendors of products and services that depending upon their liquidity, credit risk and other factors.
are used in our businesses. Management of operational, legal and Volatility in relative asset values among different asset classes can
regulatory risks requires, among other things, policies and alter the proportion of our subsidiaries’ holdings in those classes,
32 ANNUAL REPORT 2009