Ameriprise 2011 Annual Report Download - page 40

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
purchasers of our products to refrain from purchasing products, such as mutual funds, OEICs, variable annuities and
variable universal life insurance, which have returns linked to the performance of the equity markets. If we are unable to
offer appropriate product alternatives which encourage customers to continue purchasing in the face of actual or perceived
market volatility, our sales and management fee revenues could decline. Downturns may also cause current shareholders
in our mutual funds and OEICs, contractholders in our annuity products and policyholders in our protection products to
withdraw cash values from those products.
Additionally, downturns and volatility in equity markets can have, and have had, an adverse effect on the revenues and
returns from our asset management services, wrap accounts and variable annuity contracts. Because the profitability of
these products and services depends on fees related primarily to the value of assets under management, declines in the
equity markets will reduce our revenues because the value of the investment assets we manage will be reduced. In
addition, some of our variable annuity products contain guaranteed minimum death benefits and guaranteed minimum
withdrawal and accumulation benefits. A significant equity market decline or volatility in equity markets could result in
guaranteed minimum benefits being higher than what current account values would support, which would adversely affect
our financial condition and results of operations. Although we have hedged a portion of the guarantees for the variable
annuity contracts to mitigate the financial loss of equity market declines or volatility, there can be no assurance that such
a decline or volatility would not materially impact the profitability of certain products or product lines or our financial
condition or results of operations. Further, the cost of hedging our liability for these guarantees has increased as a result of
low interest rates and volatility in the equity markets. In addition, heightened volatility creates greater uncertainty for future
hedging effectiveness.
We believe that investment performance is an important factor in the success of many of our businesses. Poor investment
performance could impair our revenues and earnings, as well as our prospects for growth. A significant portion of our
revenue is derived from investment management agreements with the Columbia Management family of mutual funds that
are terminable on 60 days’ notice. In addition, although some contracts governing investment management services are
subject to termination for failure to meet performance benchmarks, institutional and individual clients can terminate their
relationships with us or our financial advisors at will or on relatively short notice. Our clients can also reduce the aggregate
amount of managed assets or shift their funds to other types of accounts with different rate structures, for any number of
reasons, including investment performance, changes in prevailing interest rates, changes in investment preferences,
changes in our (or our financial advisors’) reputation in the marketplace, changes in client management or ownership, loss
of key investment management personnel and financial market performance. A reduction in managed assets, and the
associated decrease in revenues and earnings, could have a material adverse effect on our business. Moreover, if our
money market funds experience a decline in market value, we may choose to contribute capital to those funds without
consideration, which would result in a loss.
In addition, during periods of unfavorable or stagnating market or economic conditions, the level of individual investor
participation in the global markets may also decrease, which would negatively impact the results of our retail businesses.
Concerns about current market and economic conditions, declining real estate values and decreased consumer confidence
have caused, and in the future may cause, some of our clients to reduce the amount of business they do with us.
Fluctuations in global market activity could impact the flow of investment capital into or from assets under management
and the way customers allocate capital among money market, equity, fixed maturity or other investment alternatives, which
could negatively impact our Asset Management, Advice & Wealth Management and Annuities businesses. Also, during
periods of unfavorable economic conditions, unemployment rates can increase, and have increased, which can result in
higher loan delinquency and default rates, and this can have a negative impact on our banking business. Uncertain
economic conditions and heightened market volatility may also increase the likelihood that clients or regulators present or
threaten legal claims, that regulators may increase the frequency and scope of their examinations of us or the financial
services industry generally, and that lawmakers may enact new requirements or taxation which can have a material impact
on our revenues, expenses or statutory capital requirements.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, our
access to capital and our cost of capital.
The capital and credit markets may experience, and have experienced, varying degrees of volatility and disruption. In some
cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. We
need liquidity to pay our operating expenses, interest expenses and dividends on our capital stock. Without sufficient
liquidity, we could be required to curtail our operations and our business would suffer.
We believe the level of cash and securities we maintain when combined with expected cash inflows from investments and
operations, is adequate to meet anticipated short-term and long-term benefit and expense payment obligations. In the
event current resources are insufficient to satisfy our needs, we may access financing sources such as bank debt. The
availability of additional financing would depend on a variety of factors such as market conditions, the general availability of
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