Ameriprise 2015 Annual Report Download - page 113

interest rate environment. Of the $8.6 billion in customer deposits at December 31, 2015, $4.3 billion related to reserves
for our fixed rate certificate products.
Stock Market Certificates
Stock market certificates are purchased for amounts generally from $1,000 to $2 million for terms of 52 weeks,
104 weeks or 156 weeks, which can be extended to a maximum of 15 years depending on the term. For each term the
certificate holder can choose to participate 100% in any percentage increase in the S&P 500 Index up to a maximum
return or choose partial participation in any increase in the S&P 500 Index plus a fixed rate of interest guaranteed in
advance. If partial participation is selected, the total of equity-linked return and guaranteed rate of interest cannot exceed
the maximum return. Liabilities for our stock market certificates are included in customer deposits on our Consolidated
Balance Sheets. At December 31, 2015, we had $557 million in reserves related to stock market certificates. The equity-
linked return to investors creates equity price risk exposure. We seek to minimize this exposure with purchased futures and
call spreads that replicate what we must credit to client accounts. This risk continues to be fully hedged. Stock market
certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be made to the
certificate holder. This risk is not currently hedged and was immaterial at December 31, 2015.
Indexed Universal Life
IUL insurance is similar to UL in many regards, although the rate of credited interest above the minimum guarantee for
funds allocated to an indexed account is linked to the performance of the specified index for the indexed account (subject
to a cap and floor). We offer an S&P 500 Index account option and a blended multi-index account option comprised of the
S&P 500 Index, the MSCI EAFE Index and MSCI EM Index. Both options offer two crediting durations, one-year and
two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. At
December 31, 2015, we had $715 million in liabilities related to the index accounts of IUL, with the vast majority in the
S&P 500 Index account option.
Equity Price Risk
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices.
Most of the proceeds received from IUL insurance are invested in fixed income securities. To hedge the equity exposure, a
portion of the investment earnings received from the fixed income securities is used to purchase call spreads which
generate returns to replicate what we must credit to client accounts.
Interest Rate Risk
As mentioned above, most of the proceeds received from IUL insurance are invested in fixed income securities with the
return on those investments intended to fund the purchase of call spreads. There are two risks relating to interest rates.
First, we have the risk that investment returns are such that we do not have enough investment income to purchase the
needed call spreads. Second, in the event the policy is surrendered we pay out a book value surrender amount and there
is a risk that we will incur a loss upon having to sell the fixed income securities backing the liability (if interest rates have
risen). This risk is not currently hedged.
Foreign Currency Risk
We have foreign currency risk through our net investment in foreign subsidiaries and our operations in foreign countries.
We are primarily exposed to changes in British Pounds (‘‘GBP’’) related to our net investment in Threadneedle, which was
535 million GBP at December 31, 2015. Our primary exposure related to operations in foreign countries is to the GBP, the
Euro and the Indian Rupee. We monitor the foreign exchange rates that we have exposure to and enter into foreign
currency forward contracts to mitigate risk when economically prudent. At December 31, 2015, the notional value of
outstanding contracts and our remaining foreign currency risk related to operations in foreign countries were not material.
Interest Rate Risk on External Debt
The stated interest rate on the $2.4 billion of our senior unsecured notes is fixed and the stated interest rate on the
$245 million of junior notes is fixed until June 1, 2016. We entered into interest rate swap agreements to effectively
convert the fixed interest rate on $1.1 billion of the senior unsecured notes to floating interest rates based on six-month
LIBOR. We hedged the debt in part to better align the interest expense on debt with the interest earned on cash
equivalents held on our Consolidated Balance Sheets. The net interest rate risk of these items is immaterial.
Credit Risk
We are exposed to credit risk within our investment portfolio, including our loan portfolio, and through our derivative and
reinsurance activities. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in
accordance with the contractual terms of the financial instrument or contract. We consider our total potential credit
exposure to each counterparty and its affiliates to ensure compliance with pre-established credit guidelines at the time we
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