Ameriprise 2013 Annual Report Download - page 51

Risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure in
all market environments or against all types of risk, including employee and financial advisor misconduct.
We have devoted significant resources to develop our risk management policies and procedures and will continue to do so.
Nonetheless, our policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating our
risk exposure in all market environments or against all types of risk. Many of our methods of managing risk and exposures
are based upon our use of observed historical market behavior or statistics based on historical models. During periods of
market volatility or due to unforeseen events, the historically derived correlations upon which these methods are based
may not be valid. As a result, these methods may not predict future exposures accurately, which could be significantly
greater than what our models indicate. This could cause us to incur investment losses or cause our hedging and other risk
management strategies to be ineffective. Other risk management methods depend upon the evaluation of information
regarding markets, clients, catastrophe occurrence or other matters that are publicly available or otherwise accessible to
us, which may not always be accurate, complete, up-to-date or properly evaluated.
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 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.
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