Ameriprise 2011 Annual Report Download - page 107

• risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by
counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the
Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or
the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the
reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in
response to any such evaluation or prospect of changes in evaluation;
• with respect to VIE pooled investments the Company has determined do not require consolidation under GAAP, the
Company’s assessment that it does not have the power over the VIE or hold a variable interest in these investments
for which the Company has the potential to receive significant benefits or to absorb significant losses;
• experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity
and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC
or market volatility underlying the Company’s valuation and hedging of guaranteed living benefit annuity riders; or from
assumptions regarding anticipated claims and losses relating to the Company’s automobile and home insurance
products;
• changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
• the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its
products;
• the Company’s ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures,
restructurings, joint ventures and the development of new products and services;
• the Company’s ability to realize the financial, operating and business fundamental benefits or to obtain regulatory
approvals regarding integrations we plan for the acquisitions we have completed or may pursue and contract to
complete in the future, as well as the amount and timing of integration expenses;
• the ability and timing to realize savings and other benefits from re-engineering and tax planning;
• changes in the capital markets and competitive environments induced or resulting from the partial or total ownership
or other support by central governments of certain financial services firms or financial assets; and
• general economic and political factors, including consumer confidence in the economy, the ability and inclination of
consumers generally to invest as well as their ability and inclination to invest in financial instruments and products
other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its
business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and
central government treasury policy, and policies regarding the financial services industry and publicly-held firms, and
regulatory rulings and pronouncements.
Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that
management is unable to predict at this time that may cause actual results to differ materially from those in forward-
looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any
forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Our primary market risk exposures are interest rate, equity price, foreign currency exchange rate and credit risk. Equity
price and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects
they have on the asset management and other asset-based fees we earn, the spread income generated on our annuities,
banking, brokerage client cash balances, and face amount certificate products and UL insurance products, the value of
DAC and DSIC assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values
of derivatives held to hedge these benefits.
The guaranteed benefits associated with our variable annuities are guaranteed minimum withdrawal benefits (‘‘GMWB’’),
guaranteed minimum accumulation benefits (‘‘GMAB’’), guaranteed minimum death benefits (‘‘GMDB’’) and guaranteed
minimum income benefits (‘‘GMIB’’). Each of these guaranteed benefits guarantees payouts to the annuity holder under
certain specific conditions regardless of the performance of the underlying investment assets.
We continue to utilize a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the
liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result.
Our comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities; Equity Market Level
(Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. We use
various index options across the term structure, interest rate swaps and swaptions, total return swaps and futures to
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