Ameriprise 2012 Annual Report Download - page 41

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 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.
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. 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. 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.
Changes in interest rates and prolonged periods of low interest rates may adversely affect our financial
condition and results of operations.
Certain of our insurance and annuity products and certain of our investment 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 and face-amount certificates, 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.
24