Ameriprise 2014 Annual Report Download - page 51

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.
For more information regarding DAC, see Part II, Item 7 of this Annual Report on Form 10-K under the heading
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —
Deferred Acquisition Costs and Deferred Sales Inducement Costs’’ and ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Recent Accounting Pronouncements.’’
Misconduct by our employees and advisors is difficult to detect and deter and could harm our business, results
of operations or financial condition.
Misconduct by our employees and advisors could result in violations of law, regulatory sanctions and/or serious reputational
or financial harm. Misconduct can occur in each of our businesses and could include: binding us to transactions that
exceed authorized limits; hiding unauthorized or unsuccessful activities resulting in unknown and unmanaged risks or
losses; improperly using, disclosing or otherwise compromising confidential information; recommending transactions that
are not suitable; engaging in fraudulent or otherwise improper activity, including the misappropriation of funds; engaging in
unauthorized or excessive trading to the detriment of customers; or otherwise not complying with laws, regulations or our
control procedures.
We cannot always deter misconduct by our employees and advisors, and the precautions we take to prevent and detect
this activity may not be effective in all cases. Preventing and detecting misconduct among our franchisee advisors who are
not employees of our company present additional challenges. We cannot also assure that misconduct by our employees
and advisors will not lead to a material adverse effect on our business, results of operations or financial condition.
A failure to protect our reputation could adversely affect our businesses.
Our reputation is one of our most important assets. Our ability to attract and retain customers, investors, employees and
advisors is highly dependent upon external perceptions of our company. Damage to our reputation could cause significant
harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing
to deliver minimum standards of service and quality, compliance failures, any perceived or actual weakness in our financial
strength or liquidity, technological, cybersecurity, or other security breaches resulting in improper disclosure of client or
employee personal information, unethical behavior and the misconduct of our employees, advisors and counterparties.
Negative perceptions or publicity regarding these matters could damage our reputation among existing and potential
customers, investors, employees and advisors. Adverse developments with respect to our industry may also, by association,
negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us.
Our reputation is also dependent on our continued identification of and mitigation against conflicts of interest. As we have
expanded the scope of our businesses and our client base, we increasingly have to identify and address potential conflicts
of interest, including those relating to our proprietary activities and those relating to our sales of non-proprietary products
from manufacturers that have agreed to provide us marketing, sales and account maintenance support. For example,
conflicts may arise between our position as a provider of financial planning services and as a manufacturer and/or
distributor or broker of asset accumulation, income or insurance products that one of our advisors may recommend to a
financial planning client. We have procedures and controls that are designed to identify, address and appropriately disclose
perceived conflicts of interest. However, identifying and appropriately addressing conflicts of interest is complex, and our
reputation could be damaged if we fail, or appear to fail, to address conflicts of interest appropriately.
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