Ameriprise 2013 Annual Report Download - page 47

or loan and in assessing the prospects for recovery. Inherent in management’s evaluation of the security or loan are
assumptions and estimates about the operations of the issuer and its future earnings potential.
Some of our investments are relatively illiquid.
We invest a portion of our owned assets in certain privately placed fixed income securities, mortgage loans, policy loans
and limited partnership interests, all of which are relatively illiquid. These asset classes represented 18% of the carrying
value of our investment portfolio as of December 31, 2013. If we require significant amounts of cash on short notice in
excess of our normal cash requirements, we may have difficulty selling these investments in a timely manner or be forced
to sell them for an amount less than we would otherwise have been able to realize, or both, which could have an adverse
effect on our financial condition and results of operations.
The failure of other insurers could require us to pay higher assessments to state insurance guaranty funds.
Our insurance companies are required by law to be members of the guaranty fund association in every state where they
are licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, our insurance
companies could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
Uncertainty and volatility in the U.S. economy and financial markets in recent years have weakened the financial condition
of numerous insurers, including insurers currently in receiverships, increasing the risk of triggering guaranty fund
assessments. For more information regarding assessments from guaranty fund associations, see Note 23 to our
Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
If the counterparties to our reinsurance arrangements or to the derivative instruments we use to hedge our
business risks default, we may be exposed to risks we had sought to mitigate, which could adversely affect our
financial condition and results of operations.
We use reinsurance to mitigate our risks in various circumstances as described in Item 1 of this Annual Report on
Form 10-K — ’’Business — Our Segments — Protection — Reinsurance.’’ Reinsurance does not relieve us of our direct
liability to our policyholders and contractholders, even when the reinsurer is liable to us. Accordingly, we bear credit and
performance risk with respect to our reinsurers. A reinsurer’s insolvency or its inability or unwillingness to make payments
under the terms of our reinsurance agreement could have a material adverse effect on our financial condition and results
of operations. See Notes 2 and 7 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
In addition, we use a variety of derivative instruments (including options, forwards, and interest rate and currency swaps)
with a number of counterparties to hedge business risks. The amount and breadth of exposure to derivative counterparties,
as well as the cost of derivative instruments, have increased significantly in connection with our strategies to hedge
guaranteed benefit obligations under our variable annuity products. If our counterparties fail to honor their obligations
under the derivative instruments in a timely manner, our hedges of the related risk will be ineffective. That failure could
have a material adverse effect on our financial condition and results of operations. This risk of failure of our hedge
transactions from counterparty default may be increased by capital market volatility.
If our reserves for future policy benefits and claims 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. Reserves do not represent an exact calculation but, rather, are estimates of contract
benefits 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, 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, including morbidity and mortality rates.
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
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