Ameriprise 2010 Annual Report Download - page 48

deferred annuity products, actual persistency that is lower than our persistency assumptions could have an adverse impact
on profitability, especially in the early years of a policy or contract, primarily because we would be required to accelerate
the amortization of expenses we deferred in connection with the acquisition of the policy or contract.
For our long term care insurance and universal life insurance policies with secondary guarantees, as well as variable
annuities with guaranteed minimum withdrawal benefits, actual persistency that is higher than our persistency assumptions
could have a negative impact on profitability. If these policies remain in force longer than we assumed, then we could be
required to make greater benefit payments than we had anticipated when we priced or partially reinsured these products.
Some of our long term care insurance policies have experienced higher persistency and poorer loss experience than we
had assumed, which led us to increase premium rates on certain of these policies.
Because our assumptions regarding persistency experience are inherently uncertain, reserves for future policy benefits and
claims may prove to be inadequate if actual persistency experience is different from those assumptions. Although some of
our products permit us to increase premiums during the life of the policy or contract, we cannot guarantee that these
increases would be sufficient to maintain profitability. Additionally, some of these pricing changes require regulatory
approval, which may not be forthcoming. Moreover, many of our products do not permit us to increase premiums or limit
those increases during the life of the policy or contract, while premiums on certain other products (primarily long term care
insurance) may not be increased without prior regulatory approval. Significant deviations in experience from pricing
expectations regarding persistency could have an adverse effect on the profitability of our products.
We may be required to accelerate the amortization of DAC, which would increase our expenses and reduce
profitability.
DAC represent the costs of acquiring new business, principally direct sales commissions and other distribution and
underwriting costs that have been deferred on the sale of annuity, life and disability income insurance and, to a lesser
extent, marketing and promotional expenses for personal auto and home insurance, and distribution expense for certain
mutual fund products. For annuity and universal life products, DAC are amortized based on projections of estimated gross
profits over amortization periods equal to the approximate life of the business. For other insurance products, DAC are
generally amortized as a percentage of premiums over amortization periods equal to the premium-paying period. For
certain mutual fund products, we generally amortize DAC over fixed periods on a straight-line basis, adjusted for
redemptions.
Our projections underlying the amortization of DAC require the use of certain assumptions, including interest margins,
mortality rates, persistency rates, maintenance expense levels and customer asset value growth rates for variable products.
We periodically review and, where appropriate, adjust our assumptions. When we change our assumptions, we may be
required to accelerate the amortization of DAC or to record a charge to increase benefit reserves.
For more information regarding DAC, see Part II, Item 7 of this Annual Report on Form 10-K under the heading
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—
Deferred Acquisition Costs and Deferred Sales Inducement Costs’’ and ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Recent Accounting Pronouncements.’’
The occurrence of natural or man-made disasters and catastrophes could adversely affect our results of operations
and financial condition.
The occurrence of natural disasters and catastrophes, including earthquakes, hurricanes, floods, tornadoes, fires, severe
winter weather, explosions, pandemic disease and man-made disasters, including acts of terrorism and military actions,
could adversely affect our results of operations or financial condition. Such disasters and catastrophes may impact us
directly by damaging our facilities, preventing our employees and financial advisors from performing their roles or otherwise
disturbing our ordinary business operations and by impacting insurance claims, as described below. Such disasters and
catastrophes may also impact us indirectly by changing the condition and behaviors of our customers, business
counterparties and regulators, as well as by causing declines or volatility in the economic and financial markets.
The effects of natural and man-made disasters and catastrophes on certain of our businesses include but are not limited
to the following: a catastrophic loss of life may materially increase the amount of or accelerate the timing in which benefits
are paid under our insurance policies; significant property damage may materially increase the amount of claims submitted
under our property casualty insurance policies; an increase in claims and any resulting increase in claims reserves caused
by a disaster may harm the financial condition of our reinsurers, thereby impacting the cost and availability of reinsurance
and the probability of default on reinsurance recoveries; and declines and volatility in the financial markets may decrease
the value of our owned, managed and administered assets, which would harm our financial condition and reduce our
management fees.
We cannot predict the timing and frequency with which natural and man-made disasters and catastrophes may occur, nor
can we predict the impact that changing climate conditions may have on the frequency and severity of natural disasters
such as hurricanes. As such, we cannot be sure that our actions to identify and mitigate the risks associated with such
32