Ameriprise 2011 Annual Report Download - page 48

If our reserves for future policy benefits and claims or for our bank lending portfolio or for future certificate
redemptions and maturities are inadequate, we may be required to increase our reserve liabilities, which would
adversely affect our results of operations and financial condition.
We establish reserves as estimates of our liabilities to provide for future obligations under our insurance policies, annuities
and investment certificate contracts. We also establish reserves as estimates of the potential for loan losses in our
consumer lending portfolios. Reserves do not represent an exact calculation but, rather, are estimates of contract benefits
or loan losses and related expenses we expect to incur over time. The assumptions and estimates we make in establishing
reserves require certain judgments about future experience and, therefore, are inherently uncertain. We cannot determine
with precision the actual amounts that we will pay for contract benefits, the timing of payments, or whether the assets
supporting our stated reserves will increase to the levels we estimate before payment of benefits or claims. We monitor our
reserve levels continually. If we were to conclude that our reserves are insufficient to cover actual or expected contract
benefits or loan collections, we would be required to increase our reserves and incur income statement charges for the
period in which we make the determination, which would adversely affect our results of operations and financial condition.
For more information on how we set our reserves, see Note 2 to our Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K.
Morbidity rates or mortality rates that differ significantly from our pricing expectations could negatively affect
profitability.
We set prices for RiverSource life insurance and some annuity products based upon expected claim payment patterns,
derived from assumptions we make about our policyholders and contractholders, the morbidity rates, or likelihood of
sickness, and mortality rates, or likelihood of death. The long-term profitability of these products depends upon how our
actual experience compares with our pricing assumptions. For example, if morbidity rates are higher, or mortality rates are
lower, than our pricing assumptions, we could be required to make greater payments under disability income insurance
policies, chronic care riders and immediate annuity contracts than we had projected. The same holds true for long term
care policies we previously underwrote to the extent of the risks that we retained. If mortality rates are higher than our
pricing assumptions, we could be required to make greater payments under our life insurance policies and annuity
contracts with guaranteed minimum death benefits than we have projected.
The risk that our claims experience may differ significantly from our pricing assumptions is particularly significant for our
long term care insurance products notwithstanding our ability to implement future price increases with regulatory approvals.
As with life insurance, long term care insurance policies provide for long-duration coverage and, therefore, our actual
claims experience will emerge over many years. However, as a relatively new product in the market, long term care
insurance does not have the extensive claims experience history of life insurance and, as a result, our ability to forecast
future claim rates for long term care insurance is more limited than for life insurance. We have sought to moderate these
uncertainties to some extent by partially reinsuring long term care policies we previously underwrote and by limiting our
present long term care insurance offerings to policies underwritten fully by unaffiliated third-party insurers, and we have
also implemented rate increases on certain in force policies as described in Item 1 of this Annual Report on Form 10-K —
‘‘Business — Our Segments — Protection — RiverSource Insurance Products — Long Term Care Insurance.’’ We may be
required to implement additional rate increases in the future and may or may not receive regulatory approval for the full
extent and timing of any rate increases that we may seek.
We may face losses if there are significant deviations from our assumptions regarding the future persistency of
our insurance policies and annuity contracts.
The prices and expected future profitability of our life insurance and deferred annuity products are based in part upon
assumptions related to persistency, which is the probability that a policy or contract will remain in force from one period to
the next. Given the ongoing economic and market dislocations, future consumer persistency behaviors could vary materially
from the past. The effect of persistency on profitability varies for different products. For most of our life insurance and
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, 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 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
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