Ameriprise 2012 Annual Report Download - page 99

The non-financial corporate debt holdings in Italy, Ireland and Spain are primarily in utilities/telecommunications. The
non-financial corporate debt holdings in other European countries are multinational companies concentrated in utilities and
non-cyclical industrials. We have no exposure to deeply subordinated instruments. We do not hedge our European
exposure and we have no unfunded commitments related to our European debt holdings as of December 31, 2012.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to
a market participant (an exit price). Since there is not a market for our obligations of our variable annuity riders, we
consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust
the valuation of variable annuity riders by updating certain contractholder assumptions, adding explicit margins to provide
for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market
estimate of our nonperformance risk. The nonperformance risk adjustment is based on broker quotes for credit default
swaps that are adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities.
Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of
December 31, 2012. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this
nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be
approximately $201 million, net of DAC and DSIC amortization and income taxes (calculated at the statutory tax rate of
35%), based on December 31, 2012 credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the year ended December 31, 2012. At December 31, 2012, we had
$2.4 billion in cash and cash equivalents compared to $2.8 billion at December 31, 2011. We have additional liquidity
available through an unsecured revolving credit facility for up to $500 million that expires in November 2015. Under the
terms of the underlying credit agreement, we can increase this facility to $750 million upon satisfaction of certain approval
requirements. Available borrowings under this facility are reduced by any outstanding letters of credit. At December 31,
2012, we had no outstanding borrowings under this credit facility and had $2 million of outstanding letters of credit. Our
junior subordinated notes due 2066 and credit facility contain various administrative, reporting, legal and financial
covenants. We were in compliance with all such covenants at both December 31, 2012 and 2011.
Our subsidiary, RiverSource Life Insurance Company (‘‘RiverSource Life’’), is a member of the Federal Home Loan Bank
(‘‘FHLB’’) of Des Moines, which provides access to collateralized borrowings. As of December 31, 2012, we had no
borrowings from the FHLB. We enter into repurchase agreements to reduce reinvestment risk from higher levels of
expected annuity net cash flows. Repurchase agreements allow us to receive cash to reinvest in longer-duration assets,
while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase
agreements at December 31, 2012 was $501 million, which is collateralized with agency residential mortgage backed
securities and commercial mortgage backed securities from our investment portfolio. We believe cash flows from operating
activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity
needs.
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries.
Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends
on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries,
particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate
Company (‘‘ACC’’), AMPF Holding Corporation, which is the parent company of our retail introducing broker-dealer
subsidiary, Ameriprise Financial Services, Inc. (‘‘AFSI’’) and our clearing broker-dealer subsidiary, American Enterprise
Investment Services, Inc. (‘‘AEIS’’), our Auto and Home insurance subsidiary, IDS Property Casualty Insurance Company
(‘‘IDS Property Casualty’’), doing business as Ameriprise Auto & Home Insurance, our transfer agent subsidiary, Columbia
Management Investment Services Corp., our investment advisory company, Columbia Management Investment
Advisers, LLC, and Threadneedle. The payment of dividends by many of our subsidiaries is restricted and certain of our
subsidiaries are subject to regulatory capital requirements.
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