Ameriprise 2013 Annual Report Download - page 48

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 at the time the policies were underwritten 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
approval, which may not be forthcoming. Moreover, many of our products do not permit us to increase premiums or limit
those increases during the life of the policy or contract, while premiums on certain other products (primarily long term care
insurance) may not be increased without prior regulatory approval. Significant deviations in experience from pricing
expectations regarding persistency could have an adverse effect on the profitability of our products.
We may be required to accelerate the amortization of DAC, which would increase our expenses and reduce
profitability.
DAC represent the portion of costs which are incremental and direct to the acquisition of new or renewal business,
principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of
annuity, life and disability income insurance and, to a lesser extent, direct marketing expenses for personal auto and home
insurance, and distribution expenses for certain mutual fund products. For annuity and universal life products, DAC are
amortized based on projections of estimated gross profits over amortization periods equal to the approximate life of the
business. For other insurance products, DAC are generally amortized as a percentage of premiums over amortization
periods equal to the premium-paying period. For certain mutual fund products, we generally amortize DAC over fixed
periods on a straight-line basis, adjusted for redemptions.
Our projections underlying the amortization of DAC require the use of certain assumptions, including interest margins,
mortality rates, persistency rates, maintenance expense levels and customer asset value growth rates for variable products.
We periodically review and, where appropriate, adjust our assumptions. When we change our assumptions, we may be
required to accelerate the amortization of DAC or to record a charge to increase benefit reserves.
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