Ameriprise 2015 Annual Report Download - page 47

relationships with us or our financial advisors at will or on relatively short notice. Our clients can also reduce the aggregate
amount of managed assets or shift their funds to other types of accounts with different rate structures, for any number of
reasons, including investment performance, changes in prevailing interest rates, changes in investment preferences,
changes in our (or our advisors’) reputation in the marketplace, changes in client management or ownership, loss of key
investment management personnel and financial market performance. A reduction in managed assets, and the associated
decrease in revenues and earnings, could have a material adverse effect on our business. Moreover, if our money market
funds experience a decline in market value, we may choose to contribute capital to those funds without consideration,
which would result in a loss.
During periods of unfavorable or stagnating market or economic conditions, the level of individual investor participation in
the global markets may also decrease, which would negatively impact the results of our retail businesses. Concerns about
current market and economic conditions, declining real estate values and decreased consumer confidence have caused,
and in the future may cause, some of our clients to reduce the amount of business they do with us. Fluctuations in global
market activity could impact the flow of investment capital into or from assets under management and the way customers
allocate capital among money market, equity, fixed maturity or other investment alternatives, which could negatively impact
our Asset Management, Advice & Wealth Management and Annuities businesses. If we are unable to offer appropriate
product alternatives which encourage customers to continue purchasing in the face of actual or perceived market volatility,
our sales and management fee revenues could decline. Uncertain economic conditions and heightened market volatility
may also increase the likelihood that clients or regulators present or threaten legal claims, that regulators may increase
the frequency and scope of their examinations of us or the financial services industry generally, and that lawmakers may
enact new requirements or taxation which can have a material impact on our revenues, expenses or statutory capital
requirements.
Changes in interest rates and prolonged periods of low interest rates may adversely affect our financial
condition and results of operations.
Certain of our insurance and annuity products and certain of our investment products are sensitive to interest rate
fluctuations, and future impacts associated with such variations may differ from our historical costs. In addition, interest
rate fluctuations could result in fluctuations in the valuation of certain minimum guaranteed benefits contained in some of
our variable annuity products. Although we typically hedge to mitigate some of the effect of such fluctuations, significant
changes in interest rates could have a material adverse impact on our results of operations.
During periods of increasing market interest rates, we offer higher crediting rates on interest-sensitive products, such as
fixed universal life insurance, fixed annuities and face-amount certificates, and we increase crediting rates on in-force
products to keep these products competitive. Because yields on invested assets may not increase as quickly as current
interest rates, we may have to accept a lower spread and thus lower profitability or face a decline in sales and greater loss
of existing contracts and related assets. In addition, increases in market interest rates may cause increased policy
surrenders, withdrawals from life insurance policies and annuity contracts and requests for policy loans, as policyholders
and contractholders seek to shift assets to products with perceived higher returns. This process may lead to an earlier than
expected outflow of cash from our business. These withdrawals and surrenders may require investment assets to be sold at
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 reinvest the cash proceeds of these
securities in lower-yielding or lower-credit instruments.
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