Ameriprise 2015 Annual Report Download - page 52

The failure of other insurers could require us to pay higher assessments to state insurance guaranty funds.
Our insurance companies are required by law to be members of the guaranty fund association in every state where they
are licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, our insurance
companies could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
Uncertainty and volatility in the U.S. economy and financial markets in recent years, plus the repercussions of a
heightened regulatory environment, have weakened or may weaken the financial condition of numerous insurers, including
insurers currently in receiverships, increasing the risk of triggering guaranty fund assessments. For more information
regarding assessments from guaranty fund associations, see Note 23 to our Consolidated Financial Statements included in
Part II, Item 8 of this Annual Report on Form 10-K.
If the counterparties to our reinsurance arrangements or to the derivative instruments we use to hedge our
business risks default or otherwise fail to fulfill their obligations, we may be exposed to risks we had sought to
mitigate, which could adversely affect our financial condition and results of operations.
We use reinsurance to mitigate our risks in various circumstances as described in Item 1 of this Annual Report on
Form 10-K — ‘‘Business — Our Segments — Protection — Reinsurance.’’ Reinsurance does not relieve us of our direct
liability to our policyholders and contractholders, even when the reinsurer is liable to us. Accordingly, we bear credit and
performance risk with respect to our reinsurers. A reinsurer’s insolvency or its inability or unwillingness to make payments
under the terms of our reinsurance agreement could have a material adverse effect on our financial condition and results
of operations. See Notes 2 and 7 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
In addition, we use a variety of derivative instruments (including options, forwards, and interest rate and currency swaps)
with a number of counterparties to hedge business risks. The amount and breadth of exposure to derivative counterparties,
as well as the cost of derivative instruments, have increased significantly in connection with our strategies to hedge
guaranteed benefit obligations under our variable annuity products. If our counterparties fail to honor their obligations
under the derivative instruments in a timely manner, our hedges of the related risk will be ineffective. That failure could
have a material adverse effect on our financial condition and results of operations. This risk of failure of our hedge
transactions from counterparty default may be increased by capital market volatility.
We provide investment securities as collateral to our derivative counterparties which they may sell, pledge, or
rehypothecate. We have exposure, under the relevant arrangement, if the collateral is not returned to us to the extent that
the fair value of the collateral exceeds our liability. Additionally, we may also accept investment securities as collateral from
our derivative counterparties, which we may sell, pledge, or rehypothecate. If the counterparties that we pledge the
collateral to are not able to return these investment securities under the terms of the relevant arrangements, we would be
required to deliver alternative investments or cash to our derivative counterparty, which could impact our liquidity and could
adversely impact our financial condition or results of operations.
If our reserves for future policy benefits and claims or for future certificate redemptions and maturities are
inadequate, we may be required to increase our reserve liabilities, which would adversely affect our results of
operations and financial condition.
We establish reserves as estimates of our liabilities to provide for future obligations under our insurance policies, annuities
and investment certificate contracts. Reserves do not represent an exact calculation but, rather, are estimates of contract
benefits and related expenses we expect to incur over time. The assumptions and estimates we make in establishing
reserves require certain judgments about future experience and, therefore, are inherently uncertain. We cannot determine
with precision the actual amounts that we will pay for contract benefits, the timing of payments, or whether the assets
supporting our stated reserves will increase to the levels we estimate before payment of benefits or claims. We monitor our
reserve levels continually. If we were to conclude that our reserves are insufficient to cover actual or expected contract
benefits, we would be required to increase our reserves and incur income statement charges for the period in which we
make the determination, which would adversely affect our results of operations and financial condition. For more
information on how we set our reserves, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.
Morbidity rates, mortality rates or the severity or frequency of other insurance claims that differ significantly
from our pricing expectations could negatively affect profitability.
We set prices for RiverSource life insurance and some annuity products based upon expected claim payment patterns,
derived from assumptions we make about our policyholders and contractholders, including morbidity and mortality rates.
The long-term profitability of these products depends upon how our actual experience compares with our pricing
assumptions. For example, if morbidity rates are higher, or mortality rates are lower, than our pricing assumptions, we
could be required to make greater payments under disability income insurance policies, chronic care riders and immediate
annuity contracts than we had projected. The same holds true for long term care policies we previously underwrote to the
extent of the risks that we retained. If mortality rates are higher than our pricing assumptions, we could be required to
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