Ameriprise 2014 Annual Report Download - page 45

a time when the prices of those assets are lower because of the increase in market interest rates, which may result in
realized investment losses. Also, increases in market interest rates may result in extension of certain cash flows from
structured mortgage assets. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse
effect on our financial condition and results of operations. An increase in policy surrenders and withdrawals also may
require us to accelerate amortization of deferred acquisition costs (‘‘DAC’’) or other intangibles or cause an impairment of
goodwill, which would increase our expenses and reduce our net earnings.
During periods of falling interest rates or stagnancy of low interest rates, our spread may be reduced or could become
negative, primarily because some of our products have guaranteed minimum crediting rates. Due to the long-term nature
of the liabilities associated with certain of our businesses, such as long term care and fixed universal life with secondary
guarantees as well as fixed annuities and guaranteed benefits on variable annuities, sustained declines in or stagnancy of
low long-term interest rates may subject us to reinvestment risks and increased hedging costs. In addition, reduced or
negative spreads may require us to accelerate amortization of DAC, which would increase our expenses and reduce our net
earnings.
Interest rate fluctuations also could have an adverse effect on the results of our investment portfolio. During periods of
declining market interest rates or stagnancy of low interest rates, the interest we receive on variable interest rate
investments decreases. In addition, during those periods, we are forced to reinvest the cash we receive as interest or
return of principal on our investments in lower-yielding high-grade instruments or in lower-credit instruments to maintain
comparable returns. Issuers of certain callable fixed income securities also may decide to prepay their obligations in order
to borrow at lower market rates which increases the risk that we may have to invest the cash proceeds of these securities
in lower-yielding or lower-credit instruments.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, our
access to capital and our cost of capital.
The capital and credit markets may experience, and have experienced, varying degrees of volatility and disruption. In some
cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. We
need liquidity to pay our operating expenses, interest expenses and dividends on our capital stock. Without sufficient
liquidity, we could be required to curtail our operations and our business would suffer.
Our liquidity needs are satisfied primarily through our reserves and the cash generated by our operations. We believe the
level of cash and securities we maintain when combined with expected cash inflows from investments and operations, is
adequate to meet anticipated short-term and long-term benefit and expense payment obligations. In the event current
resources are insufficient to satisfy our needs, we may access financing sources such as bank debt. The availability of
additional financing would depend on a variety of factors such as market conditions, the general availability of credit, the
volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit
capacity, as well as the possibility that our shareholders, customers or lenders could develop a negative perception of our
long- or short-term financial prospects if we incur large investment losses or if the level of our business activity decreases
due to a market downturn. Similarly, our access to funds may be rendered more costly or impaired if regulatory authorities
or rating organizations take actions against us.
Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to
operate our business. Such market conditions may limit our ability to satisfy statutory capital requirements, generate fee
income and market-related revenue to meet liquidity needs and access the capital necessary to grow our business. As
such, we may be forced to delay raising capital, issue different types of capital than we would otherwise, less effectively
deploy such capital, or bear an unattractive cost of capital which could decrease our profitability and significantly reduce
our financial flexibility.
A downgrade or a potential downgrade in our financial strength or credit ratings could adversely affect our
financial condition and results of operations.
Financial strength ratings, which various ratings organizations publish as a measure of an insurance company’s ability to
meet contractholder and policyholder obligations, are important to maintain public confidence in our products, the ability to
market our products and our competitive position. A downgrade in our financial strength ratings, or the announced
potential for a downgrade, could have a significant adverse effect on our financial condition and results of operations in
many ways, including: reducing new sales of insurance and annuity products and investment products; adversely affecting
our relationships with our advisors and third-party distributors of our products; materially increasing the number or amount
of policy surrenders and withdrawals by contractholders and policyholders; requiring us to reduce prices for many of our
products and services to remain competitive; and adversely affecting our ability to obtain reinsurance or obtain reasonable
pricing on reinsurance.
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