Ameriprise 2010 Annual Report Download - page 108

Interest Rate Risk—Stock Market Certificates
Stock market certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be
made to the certificate holder. This risk continues to be fully hedged.
Foreign Currency Risk
We have foreign currency risk through our net investment in foreign subsidiaries and our operations in foreign countries.
We are primarily exposed to changes in British Pounds (‘‘GBP’’) related to our net investment in Threadneedle, which was
425 million GBP at December 31, 2010. Our primary exposure related to operations in foreign countries is to the GBP and
the Indian Rupee. We monitor the foreign exchange rates that we have exposure to and enter into foreign currency forward
contracts to mitigate risk when economically prudent. At December 31, 2010, the notional value of outstanding contracts
and our remaining foreign currency risk related to operations in foreign countries were not material.
Interest Rate Risk on External Debt
The stated interest rate on the $2.0 billion of our senior unsecured notes is fixed and the stated interest rate on the
$308 million of junior notes is fixed until June 1, 2016. In 2010, we entered into interest rate swap agreements to
effectively convert the fixed interest rate on $1.4 billion of the senior unsecured notes to floating interest rates based on
six-month LIBOR. We hedged the debt in part to better align the interest expense on debt with the interest earned on cash
equivalents held on our Consolidated Balance Sheets. The net interest rate risk of these items is immaterial.
Credit Risk
We are exposed to credit risk within our investment portfolio, including our loan portfolio, and through our derivative and
reinsurance activities. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in
accordance with the contractual terms of the financial instrument or contract. We consider our total potential credit
exposure to each counterparty and its affiliates to ensure compliance with pre-established credit guidelines at the time we
enter into a transaction which would potentially increase our credit risk. These guidelines and oversight of credit risk are
managed through a comprehensive enterprise risk management program that includes members of senior management.
We manage the risk of credit-related losses in the event of nonperformance by counterparties by applying disciplined
fundamental credit analysis and underwriting standards, prudently limiting exposures to lower-quality, higher-yielding
investments, and diversifying exposures by issuer, industry, region and underlying investment type. We remain exposed to
occasional adverse cyclical economic downturns during which default rates may be significantly higher than the long-term
historical average used in pricing.
We manage our credit risk related to over-the-counter derivatives by entering into transactions with creditworthy
counterparties, maintaining collateral arrangements and through the use of master netting arrangements that provide for a
single net payment to be made by one counterparty to another at each due date and upon termination. Generally, our
current credit exposure on over-the-counter derivative contracts is limited to a derivative counterparty’s net positive fair
value of derivative contracts after taking into consideration the existence of netting arrangements and any collateral
received. This exposure is monitored and managed to an acceptable threshold level.
Because exchange-traded futures are effected through regulated exchanges and positions are marked to market and
generally cash settled on a daily basis, we have minimal exposure to credit-related losses in the event of nonperformance
by counterparties to such derivative instruments.
We manage our credit risk related to reinsurance treaties by evaluating the financial condition of reinsurance counterparties
prior to entering into new reinsurance treaties. In addition, we regularly evaluate their financial strength during the terms of
the treaties. As of December 31, 2010, our largest reinsurance credit risk is related to a long term care coinsurance treaty
with life insurance subsidiaries of Genworth Financial, Inc. See Note 7 to our Consolidated Financial Statements for
additional information on reinsurance.
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