Ameriprise 2012 Annual Report Download - page 50

Moreover, we are subject to the risks of errors and misconduct by our employees and advisors, such as fraud,
non-compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing
confidential information. These risks are difficult to detect in advance and deter, and could harm our business, results of
operations or financial condition. We are further subject to the risk of nonperformance or inadequate performance of
contractual obligations by third-party vendors of products and services that are used in our businesses. Management of
operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a
large number of transactions and events, and these policies and procedures may not be fully effective in mitigating our risk
exposure in all market environments or against all types of risk. Insurance and other traditional risk-shifting tools may be
held by or available to us in order to manage certain exposures, but they are subject to terms such as deductibles,
coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.
As a holding company, we depend on the ability of our subsidiaries to transfer funds to us to pay dividends and
to meet our obligations.
We act as a holding company for our subsidiaries, through which substantially all of our operations are conducted.
Dividends from our subsidiaries and permitted payments to us under our intercompany arrangements with our subsidiaries
are our principal sources of cash to pay shareholder dividends and to meet our other financial obligations. These
obligations include our operating expenses and interest and principal on our borrowings. If the cash we receive from our
subsidiaries pursuant to dividend payment and intercompany arrangements is insufficient for us to fund any of these
obligations, we may be required to raise cash through the incurrence of additional debt, the issuance of additional equity
or the sale of assets. If any of this happens, it could adversely impact our financial condition and results of operations.
Insurance, banking and securities laws and regulations regulate the ability of many of our subsidiaries (such as our
insurance and brokerage subsidiaries and our face-amount certificate company) to pay dividends or make other permitted
payments. See Item 1 of this Annual Report on Form 10-K — ‘‘Regulation’’ as well as the information contained in Part II,
Item 7 under the heading ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources.’’ In addition to the various regulatory restrictions that constrain our subsidiaries’ ability to
pay dividends or make other permitted payments to our company, the rating organizations impose various capital
requirements on our company and our insurance company subsidiaries in order for us to maintain our ratings and the
ratings of our insurance subsidiaries. The value of assets on the company-level balance sheets of our subsidiaries is a
significant factor in determining these restrictions and capital requirements. As asset values decline, our and our
subsidiaries’ ability to pay dividends or make other permitted payments can be reduced. Additionally, the various asset
classes held by our subsidiaries, and used in determining required capital levels, are weighted differently or are restricted
as to the proportion in which they may be held depending upon their liquidity, credit risk and other factors. Volatility in
relative asset values among different asset classes can alter the proportion of our subsidiaries’ holdings in those classes,
which could increase required capital and constrain our and our subsidiaries’ ability to pay dividends or make other
permitted payments. The regulatory capital requirements and dividend-paying ability of our subsidiaries may also be
affected by a change in the mix of products sold by such subsidiaries. For example, fixed annuities typically require more
capital than variable annuities, and an increase in the proportion of fixed annuities sold in relation to variable annuities
could increase the regulatory capital requirements of our life insurance subsidiaries. This may reduce the dividends or other
permitted payments which could be made from those subsidiaries in the near term without the rating organizations viewing
this negatively. Further, the capital requirements imposed upon our subsidiaries may be impacted by heightened regulatory
scrutiny and intervention, which could negatively affect our and our subsidiaries’ ability to pay dividends or make other
permitted payments. Additionally, in the past we have found it necessary to provide support to certain of our subsidiaries in
order to maintain adequate capital for regulatory or other purposes and we may provide such support in the future. The
provision of such support could adversely affect our excess capital, liquidity, and the dividends or other permitted payments
received from our subsidiaries.
The operation of our business in foreign markets and our investments in non-U.S. denominated securities and
investment products subjects us to exchange rate and other risks in connection with earnings and income
generated overseas.
While we are a U.S.-based company, a portion of our business operations occur outside of the U.S. and some of our
investments are not denominated in U.S. dollars. As a result, we are exposed to certain foreign currency exchange risks
that could reduce U.S. dollar equivalent earnings as well as negatively impact our general account and other proprietary
investment portfolios. Appreciation of the U.S. dollar could unfavorably affect net income from foreign operations, the value
of non-U.S. dollar denominated investments and investments in foreign subsidiaries. In comparison, depreciation of the
U.S. dollar could positively affect our net income from foreign operations and the value of non-U.S. dollar denominated
investments, though such depreciation could also diminish investor, creditor and rating organizations’ perceptions of our
company compared to peer companies that have a relatively greater proportion of foreign operations or investments.
We may seek to mitigate these risks by employing various hedging strategies including entering into derivative contracts.
Currency fluctuations, including the effect of changes in the value of U.S. dollar denominated investments that vary from
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