Ameriprise 2010 Annual Report Download - page 39

Risks Relating to Our Business
Our financial condition and results of operations may be adversely affected by market fluctuations and by economic
and other factors.
Our financial condition and results of operations may be materially affected by market fluctuations and by economic and
other factors. Many such factors of a global or localized nature include: political, economic and market conditions; the
availability and cost of capital; the level and volatility of equity prices, commodity prices and interest rates, currency values
and other market indices; technological changes and events; the availability and cost of credit; inflation; investor sentiment
and confidence in the financial markets; terrorism events and armed conflicts; and natural disasters such as weather
catastrophes and widespread health emergencies. Furthermore, changes in consumer economic variables, such as the
number and size of personal bankruptcy filings, the rate of unemployment, decreases in property values, and the level of
consumer confidence and consumer debt, may substantially affect consumer loan levels and credit quality, which, in turn,
could impact the results of our banking business and savings levels in all of our businesses. These factors also may have
an impact on our ability to achieve our strategic objectives.
Although U.S. and global capital markets demonstrated signs of recovery in 2010, current market conditions remain
precarious and any declines or volatility in U.S. and global market conditions would impact our businesses. Our businesses
have been and in the future may be adversely affected by U.S. and global capital market and credit crises, the repricing of
credit risk, equity market volatility and decline, and stress or recession in the U.S. and global economies generally. Each of
our segments operates in these markets with exposure for ourselves and our clients in securities, loans, derivatives,
alternative investments, seed capital and other commitments. It is difficult to predict how long and to what extent the
aforementioned conditions will exist, which of our markets, products and businesses will be directly affected in terms of
revenues, management fees and investment valuations and earnings, and to what extent our clients may seek to bring
claims arising out of investment performance that is affected by these conditions. As a result, these factors could
materially adversely impact our results of operations. Certain of our insurance and annuity products and certain of our
investment and banking products are sensitive to interest rate fluctuations, and future impacts associated with such
variations may differ from our historical costs. In addition, interest rate fluctuations could result in fluctuations in the
valuation of certain minimum guaranteed benefits contained in some of our variable annuity products. Although we typically
hedge to mitigate some of the effect of such fluctuations, significant changes in interest rates could have a material
adverse impact on our results of operations.
During periods of increasing market interest rates, we must offer higher crediting rates on interest-sensitive products, such
as fixed universal life insurance, fixed annuities, face-amount certificates and certificates of deposit, and we must increase
crediting rates on in force products to keep these products competitive. Because returns on invested assets may not
increase as quickly as current interest rates, we may have to accept a lower spread and thus lower profitability or face a
decline in sales and greater loss of existing contracts and related assets. In addition, increases in market interest rates
may cause increased policy surrenders, withdrawals from life insurance policies, annuity contracts and certificates of
deposit and requests for policy loans, as policyholders, contractholders and depositors seek to shift assets to products with
perceived higher returns. This process may lead to an earlier than expected outflow of cash from our business. Also,
increases in market interest rates may result in extension of certain cash flows from structured mortgage assets. These
withdrawals and surrenders may require investment assets to be sold at a time when the prices of those assets are lower
because of the increase in market interest rates, which may result in realized investment losses. Increases in crediting
rates, as well as surrenders and withdrawals, could have an adverse effect on our financial condition and results of
operations. An increase in surrenders and withdrawals also may require us to accelerate amortization of deferred
acquisition costs (‘‘DAC’’) or other intangibles or cause an impairment of goodwill, which would increase our expenses and
reduce our net earnings.
During periods of falling interest rates or stagnancy of low interest rates, our spread may be reduced or could become
negative, primarily because some of our products have guaranteed minimum crediting rates. Due to the long-term nature
of the liabilities associated with certain of our businesses, such as long-term care and fixed universal life with secondary
guarantees as well as fixed annuities and guaranteed benefits on variable annuities, sustained declines in or stagnancy of
low long-term interest rates may subject us to reinvestment risks and increased hedging costs.
Interest rate fluctuations also could have an adverse effect on the results of our investment portfolio. During periods of
declining market interest rates or stagnancy of low interest rates, the interest we receive on variable interest rate
investments decreases. In addition, during those periods, we are forced to reinvest the cash we receive as interest or
return of principal on our investments in lower-yielding high-grade instruments or in lower-credit instruments to maintain
comparable returns. Issuers of certain callable fixed income securities also may decide to prepay their obligations in order
to borrow at lower market rates, which increases the risk that we may have to invest the cash proceeds of these securities
in lower-yielding or lower-credit instruments.
Significant downturns and volatility in equity markets may have, and have in the past had, an adverse effect on our
financial condition and results of operations. Market downturns and volatility may cause, and have caused, potential new
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