Ameriprise 2015 Annual Report Download - page 53

make greater payments under our life insurance policies and annuity contracts with guaranteed minimum death benefits
than we have projected.
The risk that our claims experience may differ significantly from our pricing assumptions is particularly significant for our
long term care insurance products notwithstanding our ability to implement future price increases with regulatory approvals.
As with life insurance, long term care insurance policies provide for long-duration coverage and, therefore, our actual
claims experience will emerge over many years. However, as a relatively new product in the market, long term care
insurance does not have the extensive claims experience history of life insurance and, as a result, our ability to forecast
future claim rates for long term care insurance is more limited than for life insurance. We have sought to moderate these
uncertainties to some extent by partially reinsuring long term care policies at the time the policies were underwritten and
by limiting our present long term care insurance offerings to policies underwritten fully by unaffiliated third-party insurers,
and we have also implemented rate increases on certain in-force policies as described in Item 1 of this Annual Report on
Form 10-K — ‘‘Business — Our Segments — Protection — RiverSource Insurance Products — Long Term Care
Insurance.’’ We may be required to implement additional rate increases in the future and may or may not receive
regulatory approval for the full extent and timing of any rate increases that we may seek.
Unexpected changes in the severity or frequency of claims may affect the profitability of our auto and home insurance
business. Recorded claim reserves in the auto and home insurance business are based on our best estimates of losses,
both reported and incurred but not reported (‘‘IBNR’’) claims, after considering known facts and interpretations of
circumstances. Internal factors are considered including our experience with similar cases, actual claims paid, historical
trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix and
contractual terms. External factors are also considered, such as court decisions and changes in law, regulatory
requirements, litigation trends, and price levels of medical services, auto and home repairs, and other economic
conditions. Because reserves are estimates of the unpaid portion of losses that have occurred, including IBNR losses, the
establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process.
Increases in claim severity or frequency can also arise from unexpected events that are inherently difficult to predict.
Although we pursue various loss management initiatives in our auto and home insurance business in order to mitigate
future increases in claim severity, there can be no assurances that these initiatives will successfully identify or reduce the
effect of future increases in claim severity or frequency. To address adverse trends in claims we may seek additional rate
increases for our auto and home insurance business in the future and may or may not receive regulatory approval for the
full extent and timing of any rate increases that we may seek.
We may face losses if there are significant deviations from our assumptions regarding the future persistency of
our insurance policies and annuity contracts.
The prices and expected future profitability of our life insurance and deferred annuity products are based in part upon
assumptions related to persistency, which is the probability that a policy or contract will remain in force from one period to
the next. Economic and market dislocations may occur and future consumer persistency behaviors could vary materially
from the past. The effect of persistency on profitability varies for different products. For most of our life insurance and
deferred annuity products, actual persistency that is lower than our persistency assumptions could have an adverse impact
on profitability, especially in the early years of a policy or contract, primarily because we would be required to accelerate
the amortization of expenses we deferred in connection with the acquisition of the policy or contract.
For our long term care insurance and universal life insurance policies with secondary guarantees, as well as variable
annuities with guaranteed minimum withdrawal benefits, actual persistency that is higher than our persistency assumptions
could have a negative impact on profitability. If these policies remain in force longer than we assumed, we could be
required to make greater benefit payments than we had anticipated when we priced or partially reinsured these products.
Some of our long term care insurance policies have experienced higher persistency and poorer loss experience than we
had assumed, which led us to increase premium rates on certain policies.
Because our assumptions regarding persistency experience are inherently uncertain, reserves for future policy benefits and
claims may prove to be inadequate if actual persistency experience is different from those assumptions. Although some of
our products permit us to increase premiums during the life of the policy or contract, we cannot guarantee that these
increases would be sufficient to maintain profitability. Additionally, some of these pricing changes require regulatory
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.
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