Ameriprise 2011 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, social, 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 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.
Declines and volatility in U.S. and global market conditions have impacted our businesses in the past and may continue to
do so. 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 us 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 may 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 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 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. In addition, reduced or
negative spreads may require us to accelerate amortization of DAC, which would increase our expenses and reduce our net
earnings.
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.
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