0000820027 srt:ConsolidatedEntityExcludingVariableInterestEntitiesVIEMember amp:GMWBAndGMABEmbeddedDerivativesMember 2018-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | |
x |
|
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
|
FORM | 10-Q |
|
| | | | |
| ☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2017
OR
For the Quarterly Period Ended | June 30, 2019 |
oOR |
| ☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from_______________________to_______________________ |
For the Transition Period from_______________________to_______________________Commission File No. 1-32525 |
| |
Commission File No. | 1-32525 |
AMERIPRISE FINANCIAL, INC.(Exact name of registrant as specified in its charter) |
|
AMERIPRISE FINANCIAL, INC. |
(Exact name of registrant as specified in its charter) |
|
| | | | |
| Delaware | | 13-3180631 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
| | | | | | | | |
| 1099 Ameriprise Financial Center | | Minneapolis | | Minnesota | | 55474 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (612) 671-3131Former name, former address and former fiscal year, if changed since last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNo o |
| | | | |
| Registrant’s telephone number, including area code: | (612) | 671-3131 | |
|
| | | |
| Former name, former address and former fiscal year, if changed since last report: | Not Applicable | |
|
| | | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered | |
Common Stock (par value $.01 per share) | AMP | New York Stock Exchange |
|
| | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes | ☒ | No | ☐ |
|
| | | | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes | ☒ | No | ☐ |
|
| | | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
Large Accelerated Filerx | ☒ | Accelerated Filero | ☐ |
Non-Accelerated Filero (Do not check if a smaller reporting company)
| ☐ | Smaller reporting companyo | ☐ |
| | Emerging growth companyo | ☐ |
|
| |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
| | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | No | ☒ |
|
| | | | |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |
| Class | | Outstanding at October 20, 2017July 19, 2019 | |
Common Stock (par value $.01 per share) | | 147,930,011130,870,362 shares |
AMERIPRISE FINANCIAL, INC.
FORM 10-Q
INDEX
|
| | | | |
Part I. Financial Information |
Item 1. Financial Statements (Unaudited) | |
Consolidated Statements of Operations — Three months and ninesix months ended SeptemberJune 30, 20172019 and 20162018 | |
Consolidated Statements of Comprehensive Income — Three months and ninesix months ended SeptemberJune 30, 20172019 and 20162018 | |
Consolidated Balance Sheets — SeptemberJune 30, 20172019 and December 31, 20162018 | |
Consolidated Statements of Equity — NineThree months and six months ended SeptemberJune 30, 20172019 and 20162018 | |
Consolidated Statements of Cash Flows — NineSix months ended SeptemberJune 30, 20172019 and 20162018 | |
Notes to Consolidated Financial Statements | |
1. Basis of Presentation | |
2. Recent Accounting Pronouncements | |
3. Revenue from Contracts with Customers | |
4. Variable Interest Entities | |
4. Investments | |
5. Investments | |
6. Financing Receivables | |
6.7. Deferred Acquisition Costs and Deferred Sales Inducement Costs | |
7.8. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities | |
8.9. Variable Annuity and Insurance Guarantees | |
9. Debt | |
10. Debt | |
11. Fair Values of Assets and Liabilities | |
11.12. Offsetting Assets and Liabilities | |
12.13. Derivatives and Hedging Activities | |
13. Shareholders’ Equity | |
14. Income TaxesLeases | |
15. ContingenciesHeld for Sale Classification | |
16. Shareholders’ Equity | |
17. Regulatory Requirements | |
18. Income Taxes | |
19. Contingencies | |
20. Earnings per Share | |
17.21. Segment Information | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
| |
Part II. Other Information | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. Exhibits | |
Signatures | |
AMERIPRISE FINANCIAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions, except per share amounts) |
Revenues |
Management and financial advice fees | $ | 1,626 |
| | $ | 1,464 |
| | $ | 4,669 |
| | $ | 4,289 |
|
Distribution fees | 437 |
| | 455 |
| | 1,310 |
| | 1,338 |
|
Net investment income | 372 |
| | 387 |
| | 1,154 |
| | 1,090 |
|
Premiums | 348 |
| | 374 |
| | 1,035 |
| | 1,114 |
|
Other revenues | 210 |
| | 330 |
| | 733 |
| | 832 |
|
Total revenues | 2,993 |
| | 3,010 |
| | 8,901 |
| | 8,663 |
|
Banking and deposit interest expense | 12 |
| | 12 |
| | 34 |
| | 29 |
|
Total net revenues | 2,981 |
| | 2,998 |
| | 8,867 |
| | 8,634 |
|
Expenses |
Distribution expenses | 850 |
| | 798 |
| | 2,505 |
| | 2,371 |
|
Interest credited to fixed accounts | 176 |
| | 161 |
| | 509 |
| | 465 |
|
Benefits, claims, losses and settlement expenses | 474 |
| | 855 |
| | 1,652 |
| | 1,934 |
|
Amortization of deferred acquisition costs | 48 |
| | 163 |
| | 189 |
| | 360 |
|
Interest and debt expense | 52 |
| | 52 |
| | 154 |
| | 160 |
|
General and administrative expense | 753 |
| | 731 |
| | 2,244 |
| | 2,221 |
|
Total expenses | 2,353 |
| | 2,760 |
| | 7,253 |
| | 7,511 |
|
Pretax income | 628 |
| | 238 |
| | 1,614 |
| | 1,123 |
|
Income tax provision | 125 |
| | 23 |
| | 315 |
| | 209 |
|
Net income | $ | 503 |
| | $ | 215 |
| | $ | 1,299 |
| | $ | 914 |
|
|
Earnings per share |
Basic | $ | 3.29 |
| | $ | 1.31 |
| | $ | 8.37 |
| | $ | 5.43 |
|
Diluted | $ | 3.24 |
| | $ | 1.30 |
| | $ | 8.24 |
| | $ | 5.37 |
|
|
Cash dividends declared per common share | $ | 0.83 |
| | $ | 0.75 |
| | $ | 2.41 |
| | $ | 2.17 |
|
|
Supplemental Disclosures: |
Total other-than-temporary impairment losses on securities | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | (2 | ) |
Portion of loss recognized in other comprehensive income (before taxes) | — |
| | — |
| | — |
| | 1 |
|
Net impairment losses recognized in net investment income | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | (1 | ) |
See Notes to Consolidated Financial Statements. |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Net income | $ | 503 |
| | $ | 215 |
| | $ | 1,299 |
| | $ | 914 |
|
Other comprehensive income (loss), net of tax: |
Foreign currency translation adjustment | 16 |
| | (16 | ) | | 46 |
| | (55 | ) |
Net unrealized gains (losses) on securities | (4 | ) | | (28 | ) | | 60 |
| | 382 |
|
Net unrealized gains (losses) on derivatives | 1 |
| | 1 |
| | 2 |
| | 3 |
|
Defined benefit plans | — |
| | — |
| | 5 |
| | 6 |
|
Other | — |
| | — |
| | (1 | ) | | — |
|
Total other comprehensive income (loss), net of tax | 13 |
| | (43 | ) | | 112 |
| | 336 |
|
Total comprehensive income | $ | 516 |
| | $ | 172 |
| | $ | 1,411 |
| | $ | 1,250 |
|
See Notes to Consolidated Financial Statements. |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions, except share amounts) |
Assets |
Cash and cash equivalents | $ | 2,398 |
| | $ | 2,318 |
|
Cash of consolidated investment entities | 106 |
| | 168 |
|
Investments | 36,202 |
| | 35,834 |
|
Investments of consolidated investment entities, at fair value | 2,215 |
| | 2,254 |
|
Separate account assets | 85,287 |
| | 80,210 |
|
Receivables | 5,742 |
| | 5,299 |
|
Receivables of consolidated investment entities, at fair value | 9 |
| | 11 |
|
Deferred acquisition costs | 2,661 |
| | 2,648 |
|
Restricted and segregated cash and investments | 3,131 |
| | 3,331 |
|
Other assets | 7,735 |
| | 7,748 |
|
Total assets | $ | 145,486 |
| | $ | 139,821 |
|
|
Liabilities and Equity |
Liabilities: |
Policyholder account balances, future policy benefits and claims | $ | 29,963 |
| | $ | 30,202 |
|
Separate account liabilities | 85,287 |
| | 80,210 |
|
Customer deposits | 10,427 |
| | 10,036 |
|
Short-term borrowings | 201 |
| | 200 |
|
Long-term debt | 2,902 |
| | 2,917 |
|
Debt of consolidated investment entities, at fair value | 2,267 |
| | 2,319 |
|
Accounts payable and accrued expenses | 1,728 |
| | 1,727 |
|
Other liabilities | 6,363 |
| | 5,823 |
|
Other liabilities of consolidated investment entities, at fair value | 43 |
| | 95 |
|
Total liabilities | 139,181 |
| | 133,529 |
|
Equity: |
Ameriprise Financial, Inc.: |
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 327,007,785 and 324,006,315, respectively) | 3 |
| | 3 |
|
Additional paid-in capital | 8,017 |
| | 7,765 |
|
Retained earnings | 11,271 |
| | 10,351 |
|
Treasury shares, at cost (178,670,257 and 169,246,411 shares, respectively) | (13,298 | ) | | (12,027 | ) |
Accumulated other comprehensive income, net of tax | 312 |
| | 200 |
|
Total equity | 6,305 |
| | 6,292 |
|
Total liabilities and equity | $ | 145,486 |
| | $ | 139,821 |
|
See Notes to Consolidated Financial Statements. |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ameriprise Financial, Inc. | Non-controlling Interests | Total |
Number of Outstanding Shares | Common Shares | Additional Paid-In Capital | Retained Earnings | Appropriated Retained Earnings of Consolidated Investment Entities | Treasury Shares | Accumulated Other Com- prehensive Income | Total Ameriprise Financial, Inc. Shareholders’ Equity |
(in millions, except share data) |
Balances at January 1, 2016 (1) | 171,033,260 | | $ | 3 | | $ | 7,611 | | $ | 9,525 | | $ | 137 | | $ | (10,338 | ) | $ | 253 | | $ | 7,191 | | $ | 1,188 | | $ | 8,379 | |
Cumulative effect of change in accounting policies | — | | — | | — | | 1 | | (137 | ) | — | | 6 | | (130 | ) | (1,188 | ) | (1,318 | ) |
Comprehensive income: |
Net income | — | | — | | — | | 914 | | — | | — | | — | | 914 | | — | | 914 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | — | | 336 | | 336 | | — | | 336 | |
Total comprehensive income | 1,250 | | — | | 1,250 | |
Dividends to shareholders | — | | — | | — | | (368 | ) | — | | — | | — | | (368 | ) | — | | (368 | ) |
Repurchase of common shares | (14,349,061 | ) | — | | — | | — | | — | | (1,333 | ) | — | | (1,333 | ) | — | | (1,333 | ) |
Share-based compensation plans | 1,812,137 | | — | | 98 | | — | | — | | 62 | | — | | 160 | | — | | 160 | |
Balances at September 30, 2016 (1) | 158,496,336 | | $ | 3 | | $ | 7,709 | | $ | 10,072 | | $ | — | | $ | (11,609 | ) | $ | 595 | | $ | 6,770 | | $ | — | | $ | 6,770 | |
|
Balances at January 1, 2017 | 154,759,904 | | $ | 3 | | $ | 7,765 | | $ | 10,351 | | $ | — | | $ | (12,027 | ) | $ | 200 | | $ | 6,292 | | $ | — | | $ | 6,292 | |
Comprehensive income: |
Net income | — | | — | | — | | 1,299 | | — | | — | | — | | 1,299 | | — | | 1,299 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | — | | 112 | | 112 | | — | | 112 | |
Total comprehensive income | 1,411 | | — | | 1,411 | |
Dividends to shareholders | — | | — | | — | | (379 | ) | — | | — | | — | | (379 | ) | — | | (379 | ) |
Repurchase of common shares | (10,184,145 | ) | — | | — | | — | | — | | (1,323 | ) | — | | (1,323 | ) | — | | (1,323 | ) |
Share-based compensation plans | 3,761,769 | | — | | 252 | | — | | — | | 52 | | — | | 304 | | — | | 304 | |
Balances at September 30, 2017 | 148,337,528 | | $ | 3 | | $ | 8,017 | | $ | 11,271 | | $ | — | | $ | (13,298 | ) | $ | 312 | | $ | 6,305 | | $ | — | | $ | 6,305 | |
(1) Prior period retained earnings were restated in the fourth quarter of 2016. See Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions, except per share amounts) |
Revenues | | | | | | | |
Management and financial advice fees | $ | 1,732 |
| | $ | 1,691 |
| | $ | 3,359 |
| | $ | 3,360 |
|
Distribution fees | 490 |
| | 465 |
| | 970 |
| | 933 |
|
Net investment income | 368 |
| | 419 |
| | 765 |
| | 815 |
|
Premiums | 376 |
| | 357 |
| | 747 |
| | 700 |
|
Other revenues | 316 |
| | 284 |
| | 594 |
| | 592 |
|
Total revenues | 3,282 |
| | 3,216 |
| | 6,435 |
| | 6,400 |
|
Banking and deposit interest expense | 37 |
| | 20 |
| | 72 |
| | 36 |
|
Total net revenues | 3,245 |
| | 3,196 |
| | 6,363 |
| | 6,364 |
|
Expenses | | | | | | | |
Distribution expenses | 948 |
| | 902 |
| | 1,848 |
| | 1,807 |
|
Interest credited to fixed accounts | 186 |
| | 180 |
| | 390 |
| | 321 |
|
Benefits, claims, losses and settlement expenses | 584 |
| | 635 |
| | 1,254 |
| | 1,129 |
|
Amortization of deferred acquisition costs | 58 |
| | 63 |
| | 74 |
| | 155 |
|
Interest and debt expense | 59 |
| | 80 |
| | 112 |
| | 131 |
|
General and administrative expense | 823 |
| | 788 |
| | 1,628 |
| | 1,577 |
|
Total expenses | 2,658 |
| | 2,648 |
| | 5,306 |
| | 5,120 |
|
Pretax income | 587 |
| | 548 |
| | 1,057 |
| | 1,244 |
|
Income tax provision | 95 |
| | 86 |
| | 170 |
| | 188 |
|
Net income | $ | 492 |
| | $ | 462 |
| | $ | 887 |
| | $ | 1,056 |
|
| | | | | | | |
Earnings per share | | | | | | | |
Basic | $ | 3.61 |
| | $ | 3.14 |
| | $ | 6.46 |
| | $ | 7.13 |
|
Diluted | $ | 3.57 |
| | $ | 3.10 |
| | $ | 6.38 |
| | $ | 7.02 |
|
| | | | | | | |
Supplemental Disclosures: | | | | | | | |
Total other-than-temporary impairment losses on securities | $ | — |
| | $ | — |
| | $ | (12 | ) | | $ | — |
|
Portion of loss recognized in other comprehensive income (before taxes) | — |
| | — |
| | 7 |
| | — |
|
Net impairment losses recognized in net investment income | $ | — |
| | $ | — |
| | $ | (5 | ) | | $ | — |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions) |
Net income | $ | 492 |
| | $ | 462 |
| | $ | 887 |
| | $ | 1,056 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustment | (14 | ) | | (44 | ) | | (9 | ) | | (15 | ) |
Net unrealized gains (losses) on securities | 248 |
| | (130 | ) | | 570 |
| | (392 | ) |
Net unrealized gains (losses) on derivatives | — |
| | — |
| | (1 | ) | | — |
|
Total other comprehensive income (loss), net of tax | 234 |
| | (174 | ) | | 560 |
| | (407 | ) |
Total comprehensive income | $ | 726 |
| | $ | 288 |
| | $ | 1,447 |
| | $ | 649 |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions, except share amounts) |
Assets | | | |
Cash and cash equivalents | $ | 4,302 |
| | $ | 2,931 |
|
Cash of consolidated investment entities (“CIEs”) | 59 |
| | 166 |
|
Investments | 35,300 |
| | 35,825 |
|
Investments of consolidated investment entities, at fair value | 1,707 |
| | 1,706 |
|
Separate account assets | 84,926 |
| | 77,925 |
|
Receivables | 7,412 |
| | 6,173 |
|
Receivables of consolidated investment entities, at fair value | 23 |
| | 12 |
|
Deferred acquisition costs | 2,713 |
| | 2,776 |
|
Restricted and segregated cash, cash equivalents and investments | 2,377 |
| | 2,910 |
|
Other assets | 7,832 |
| | 6,792 |
|
Assets held for sale | 2,027 |
| | — |
|
Total assets | $ | 148,678 |
| | $ | 137,216 |
|
| | | |
Liabilities and Equity | | | |
Liabilities: | | | |
Policyholder account balances, future policy benefits and claims | $ | 30,183 |
| | $ | 30,124 |
|
Separate account liabilities | 84,926 |
| | 77,925 |
|
Customer deposits | 13,273 |
| | 11,545 |
|
Short-term borrowings | 201 |
| | 201 |
|
Long-term debt | 3,104 |
| | 2,867 |
|
Debt of consolidated investment entities, at fair value | 1,707 |
| | 1,743 |
|
Accounts payable and accrued expenses | 1,686 |
| | 1,862 |
|
Other liabilities | 6,366 |
| | 5,239 |
|
Other liabilities of consolidated investment entities, at fair value | 61 |
| | 122 |
|
Liabilities held for sale | 1,141 |
| | — |
|
Total liabilities | 142,648 |
| | 131,628 |
|
Equity: | | | |
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 329,258,984 and 328,537,214 respectively) | 3 |
| | 3 |
|
Additional paid-in capital | 8,337 |
| | 8,260 |
|
Retained earnings | 13,530 |
| | 12,909 |
|
Treasury shares, at cost (197,966,225 and 192,206,467 shares, respectively) | (16,109 | ) | | (15,293 | ) |
Accumulated other comprehensive income (loss), net of tax | 269 |
| | (291 | ) |
Total equity | 6,030 |
| | 5,588 |
|
Total liabilities and equity | $ | 148,678 |
| | $ | 137,216 |
|
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Outstanding Shares | | Common Shares | | Additional Paid-In Capital | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Total |
(in millions, except per share data) |
Balances at April 1, 2018 | 145,018,357 |
| | $ | 3 |
| | $ | 8,116 |
| | $ | 11,796 |
| | $ | (14,070 | ) | | $ | (5 | ) | | $ | 5,840 |
|
Comprehensive income: | | | | | | | | | | | | |
|
Net income | — |
| | — |
| | — |
| | 462 |
| | — |
| | — |
| | 462 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (174 | ) | | (174 | ) |
Total comprehensive income | | | | | | | | | | | | | 288 |
|
Dividends to shareholders | — |
| | — |
| | — |
| | (132 | ) | | — |
| | — |
| | (132 | ) |
Repurchase of common shares | (2,974,300 | ) | | — |
| | — |
| | — |
| | (418 | ) | | — |
| | (418 | ) |
Share-based compensation plans | 176,354 |
| | — |
| | 55 |
| | — |
| | (1 | ) | | — |
| | 54 |
|
Balances at June 30, 2018 | 142,220,411 |
| | $ | 3 |
| | $ | 8,171 |
| | $ | 12,126 |
| | $ | (14,489 | ) | | $ | (179 | ) | | $ | 5,632 |
|
| | | | | | | | | | | | |
|
|
Balances at April 1, 2019 | 134,183,507 |
| | $ | 3 |
| | $ | 8,270 |
| | $ | 13,172 |
| | $ | (15,637 | ) | | $ | 35 |
| | $ | 5,843 |
|
Comprehensive income: | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | 492 |
| | — |
| | — |
| | 492 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 234 |
| | 234 |
|
Total comprehensive income | | | | | | | | | | | | | 726 |
|
Dividends to shareholders | — |
| | — |
| | — |
| | (134 | ) | | — |
| | — |
| | (134 | ) |
Repurchase of common shares | (3,252,369 | ) | | — |
| | — |
| | — |
| | (473 | ) | | — |
| | (473 | ) |
Share-based compensation plans | 361,621 |
| | — |
| | 67 |
| | — |
| | 1 |
| | — |
| | 68 |
|
Balances at June 30, 2019 | 131,292,759 |
| | $ | 3 |
| | $ | 8,337 |
| | $ | 13,530 |
| | $ | (16,109 | ) | | $ | 269 |
| | $ | 6,030 |
|
See Notes to Consolidated Financial Statements. | |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Outstanding Shares | | Common Shares | | Additional Paid-In Capital | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Total |
| (in millions, except per share data) |
| Balances at January 1, 2018 | 146,634,664 |
| | $ | 3 |
| | $ | 8,085 |
| | $ | 11,326 |
| | $ | (13,648 | ) | | $ | 229 |
| | $ | 5,995 |
|
| Cumulative effect of adoption of equity securities guidance | — |
| | — |
| | — |
| | 1 |
| | — |
| | (1 | ) | | — |
|
| Comprehensive income: | | | | | | | | | | | | | |
| Net income | — |
| | — |
| | — |
| | 1,056 |
| | — |
| | — |
| | 1,056 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (407 | ) | | (407 | ) |
| Total comprehensive income | | | | | | | | | | | | | 649 |
|
| Dividends to shareholders | — |
| | — |
| | — |
| | (257 | ) | | — |
| | — |
| | (257 | ) |
| Repurchase of common shares | (5,978,029 | ) | | — |
| | — |
| | — |
| | (900 | ) | | — |
| | (900 | ) |
| Share-based compensation plans | 1,563,776 |
| | — |
| | 86 |
| | — |
| | 59 |
| | — |
| | 145 |
|
| Balances at June 30, 2018 | 142,220,411 |
| | $ | 3 |
| | $ | 8,171 |
| | $ | 12,126 |
| | $ | (14,489 | ) | | $ | (179 | ) | | $ | 5,632 |
|
| |
|
| Balances at January 1, 2019 | 136,330,747 |
| | $ | 3 |
| | $ | 8,260 |
| | $ | 12,909 |
| | $ | (15,293 | ) | | $ | (291 | ) | | $ | 5,588 |
|
| Cumulative effect of adoption of premium amortization on purchased callable debt securities guidance | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
| Comprehensive income: | | | | | | | | | | | | | |
| Net income | — |
| | — |
| | — |
| | 887 |
| | — |
| | — |
| | 887 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 560 |
| | 560 |
|
| Total comprehensive income | | | | | | | | | | | | | 1,447 |
|
| Dividends to shareholders | — |
| | — |
| | — |
| | (261 | ) | | — |
| | — |
| | (261 | ) |
| Repurchase of common shares | (6,452,276 | ) | | — |
| | — |
| | — |
| | (872 | ) | |
|
| | (872 | ) |
| Share-based compensation plans | 1,414,288 |
| | — |
| | 77 |
| | — |
| | 56 |
| | — |
| | 133 |
|
| Balances at June 30, 2019 | 131,292,759 |
| | $ | 3 |
| | $ | 8,337 |
| | $ | 13,530 |
| | $ | (16,109 | ) | | $ | 269 |
| | $ | 6,030 |
|
| See Notes to Consolidated Financial Statements. | |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | | |
| | Six Months Ended June 30, |
| 2019 | | 2018(1) |
| (in millions) |
| Cash Flows from Operating Activities | | | |
| Net income | $ | 887 |
| | $ | 1,056 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Depreciation, amortization and accretion, net | 91 |
| | 107 |
|
| Deferred income tax expense (benefit) | (64 | ) | | 53 |
|
| Share-based compensation | 64 |
| | 69 |
|
| Net realized investment (gains) losses | (10 | ) | | (12 | ) |
| Net trading (gains) losses | (6 | ) | | (6 | ) |
| Loss from equity method investments | 29 |
| | 22 |
|
| Other-than-temporary impairments and provision for loan losses | 5 |
| | — |
|
| Net (gains) losses of consolidated investment entities | 5 |
| | (24 | ) |
| Changes in operating assets and liabilities: | | | |
| Restricted and segregated investments | 124 |
| | 224 |
|
| Deferred acquisition costs | (76 | ) | | (9 | ) |
| Policyholder account balances, future policy benefits and claims, net | 259 |
| | (407 | ) |
| Derivatives, net of collateral | 280 |
| | 205 |
|
| Receivables | 120 |
| | (121 | ) |
| Brokerage deposits | (524 | ) | | (394 | ) |
| Accounts payable and accrued expenses | (91 | ) | | (220 | ) |
| Other operating assets and liabilities of consolidated investment entities, net | (6 | ) | | 4 |
|
| Other, net | 65 |
| | (49 | ) |
| Net cash provided by (used in) operating activities | 1,152 |
| | 498 |
|
| | | | |
| Cash Flows from Investing Activities | | | |
| Available-for-Sale securities: | | | |
| Proceeds from sales | 110 |
| | 401 |
|
| Maturities, sinking fund payments and calls | 4,012 |
| | 3,124 |
|
| Purchases | (5,294 | ) | | (3,900 | ) |
| Proceeds from sales, maturities and repayments of mortgage loans | 131 |
| | 164 |
|
| Funding of mortgage loans | (127 | ) | | (97 | ) |
| Proceeds from sales, maturities and collections of other investments | 149 |
| | 502 |
|
| Purchase of other investments | (159 | ) | | (389 | ) |
| Purchase of investments by consolidated investment entities | (392 | ) | | (228 | ) |
| Proceeds from sales, maturities and repayments of investments by consolidated investment entities | 319 |
| | 828 |
|
| Purchase of land, buildings, equipment and software | (67 | ) | | (69 | ) |
| Cash paid for written options with deferred premiums | (42 | ) | | (82 | ) |
| Cash received from written options with deferred premiums | 44 |
| | 81 |
|
| Change in reinsurance deposit, net | (306 | ) | | — |
|
| Other, net | (7 | ) | | (56 | ) |
| Net cash provided by (used in) investing activities | $ | (1,629 | ) | | $ | 279 |
|
| See Notes to Consolidated Financial Statements. |
|
|
|
|
| | | | | | | | |
| | September 30, |
| 2017 | | 2016 |
| (in millions) |
| Cash Flows from Operating Activities |
| Net income | $ | 1,299 |
| | $ | 914 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
| Depreciation, amortization and accretion, net | 176 |
| | 187 |
|
| Deferred income tax expense (benefit) | (58 | ) | | (47 | ) |
| Share-based compensation | 91 |
| | 101 |
|
| Net realized investment (gains) losses | (37 | ) | | (1 | ) |
| Net trading (gains) losses | (5 | ) | | (5 | ) |
| Loss from equity method investments | 41 |
| | 45 |
|
| Net losses of consolidated investment entities | 3 |
| | 5 |
|
| Changes in operating assets and liabilities: |
| Restricted and segregated investments | 1 |
| | 200 |
|
| Deferred acquisition costs | (31 | ) | | 86 |
|
| Other investments, net | (139 | ) | | 9 |
|
| Policyholder account balances, future policy benefits and claims, net | (353 | ) | | 1,172 |
|
| Derivatives, net of collateral | 589 |
| | (676 | ) |
| Receivables | (445 | ) | | (177 | ) |
| Brokerage deposits | (47 | ) | | 3 |
|
| Accounts payable and accrued expenses | (19 | ) | | (24 | ) |
| Other operating assets and liabilities of consolidated investment entities, net | — |
| | (9 | ) |
| Other, net | 113 |
| | 239 |
|
| Net cash provided by (used in) operating activities | 1,179 |
| | 2,022 |
|
| |
| Cash Flows from Investing Activities |
| Available-for-Sale securities: |
| Proceeds from sales | 335 |
| | 322 |
|
| Maturities, sinking fund payments and calls | 3,583 |
| | 3,379 |
|
| Purchases | (3,722 | ) | | (4,666 | ) |
| Proceeds from sales, maturities and repayments of mortgage loans | 348 |
| | 705 |
|
| Funding of mortgage loans | (372 | ) | | (334 | ) |
| Proceeds from sales and collections of other investments | 211 |
| | 131 |
|
| Purchase of other investments | (351 | ) | | (144 | ) |
| Purchase of investments by consolidated investment entities | (1,092 | ) | | (566 | ) |
| Proceeds from sales, maturities and repayments of investments by consolidated investment entities | 1,087 |
| | 803 |
|
| Purchase of land, buildings, equipment and software | (125 | ) | | (66 | ) |
| Other, net | (8 | ) | | 69 |
|
| Net cash provided by (used in) investing activities | $ | (106 | ) | | $ | (367 | ) |
| See Notes to Consolidated Financial Statements. |
|
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
|
| | | | | | | |
| Six Months Ended June 30, |
2019 | | 2018(1) |
(in millions) |
Cash Flows from Financing Activities | | | |
Investment certificates: | | | |
Proceeds from additions | $ | 2,924 |
| | $ | 2,899 |
|
Maturities, withdrawals and cash surrenders | (2,873 | ) | | (2,381 | ) |
Policyholder account balances: | | | |
Deposits and other additions | 1,151 |
| | 985 |
|
Net transfers from (to) separate accounts | (28 | ) | | (59 | ) |
Surrenders and other benefits | (926 | ) | | (977 | ) |
Change in banking deposits, net | 2,205 |
| | — |
|
Cash paid for purchased options with deferred premiums | (95 | ) | | (129 | ) |
Cash received from purchased options with deferred premiums | 60 |
| | 119 |
|
Issuance of long-term debt | 497 |
| | — |
|
Repayments of long-term debt | (307 | ) | | (6 | ) |
Dividends paid to shareholders | (253 | ) | | (253 | ) |
Repurchase of common shares | (827 | ) | | (829 | ) |
Exercise of stock options | 1 |
| | 2 |
|
Repayments of debt by consolidated investment entities | (33 | ) | | (518 | ) |
Net cash provided by (used in) financing activities | 1,496 |
| | (1,147 | ) |
Effect of exchange rate changes on cash | 2 |
| | — |
|
Net increase (decrease) in cash and cash equivalents, including amounts restricted and cash balances classified as assets held-for-sale | 1,021 |
| | (370 | ) |
Less: Net change in cash balances classified as assets held for sale | 166 |
| | — |
|
Net increase (decrease) in cash and cash equivalents, including amounts restricted | 855 |
| | (370 | ) |
Cash and cash equivalents, including amounts restricted, at beginning of period | 5,883 |
| | 5,144 |
|
Cash and cash equivalents, including amounts restricted, at end of period | $ | 6,738 |
| | $ | 4,774 |
|
| | | |
Supplemental Disclosures: | | | |
Interest paid excluding consolidated investment entities | $ | 142 |
| | $ | 101 |
|
Interest paid by consolidated investment entities | 42 |
| | 69 |
|
Income taxes paid, net | 202 |
| | 189 |
|
Leased assets obtained in exchange for finance lease liabilities | 13 |
| | — |
|
Leased assets obtained in exchange for operating lease liabilities | 18 |
| | — |
|
Non-cash investing activity: | | | |
Partnership commitments not yet remitted | 2 |
| | — |
|
Investments transferred in connection with reinsurance transaction | 1,265 |
| | — |
|
| | | |
| | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Reconciliation of cash and cash equivalents, including amounts restricted: | | | |
Cash and cash equivalents | $ | 4,302 |
| | $ | 2,931 |
|
Cash of consolidated investment entities | 59 |
| | 166 |
|
Restricted and segregated cash, cash equivalents and investments | 2,377 |
| | 2,910 |
|
Less: Restricted and segregated investments | — |
| | (124 | ) |
Total cash and cash equivalents including amounts restricted per consolidated statements of cash flows | $ | 6,738 |
| | $ | 5,883 |
|
(1) Certain prior period amounts have been revised. See Note 1 for more information. See Notes to Consolidated Financial Statements. |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
|
| | | | | | | | |
| | September 30, |
| 2017 | | 2016 |
| (in millions) |
| Cash Flows from Financing Activities |
| Investment certificates: |
| Proceeds from additions | $ | 3,595 |
| | $ | 3,184 |
|
| Maturities, withdrawals and cash surrenders | (3,158 | ) | | (2,376 | ) |
| Policyholder account balances: |
| Deposits and other additions | 1,538 |
| | 1,532 |
|
| Net transfers from (to) separate accounts | (120 | ) | | 113 |
|
| Surrenders and other benefits | (1,413 | ) | | (1,448 | ) |
| Cash paid for purchased options with deferred premiums | (187 | ) | | (256 | ) |
| Cash received from purchased options with deferred premiums | 42 |
| | 242 |
|
| Issuance of long-term debt | — |
| | 495 |
|
| Repayments of long-term debt | (8 | ) | | (254 | ) |
| Dividends paid to shareholders | (368 | ) | | (361 | ) |
| Repurchase of common shares | (1,161 | ) | | (1,319 | ) |
| Exercise of stock options | 13 |
| | 6 |
|
| Repayments of debt by consolidated investment entities | (59 | ) | | (134 | ) |
| Other, net | — |
| | 3 |
|
| Net cash provided by (used in) financing activities | (1,286 | ) | | (573 | ) |
| Effect of exchange rate changes on cash | 32 |
| | (53 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (181 | ) | | 1,029 |
|
| Cash, cash equivalents and restricted cash at beginning of period | 5,392 |
| | 5,407 |
|
| Net cash outflows upon the deconsolidation of VIEs | — |
| | (346 | ) |
| Cash, cash equivalents and restricted cash at end of period | $ | 5,211 |
| | $ | 6,090 |
|
| |
| Supplemental Disclosures: |
| Interest paid excluding consolidated investment entities | $ | 130 |
| | $ | 121 |
|
| Interest paid by consolidated investment entities | 65 |
| | 74 |
|
| Income taxes paid, net | 387 |
| | 201 |
|
| Non-cash investing activity: |
| Partnership commitments not yet remitted | 9 |
| | 75 |
|
| | September 30, 2017 | | December 31, 2016 |
| (in millions) |
|
| Reconciliation of cash, cash equivalents and restricted cash: |
| Cash and cash equivalents | $ | 2,398 |
| | $ | 2,318 |
|
| Cash of consolidated investment entities | 106 |
| | 168 |
|
| Restricted and segregated cash and investments | 3,131 |
| | 3,331 |
|
| Less: Restricted and segregated investments | (424 | ) | | (425 | ) |
| Total cash, cash equivalents and restricted cash per consolidated statements of cash flows | $ | 5,211 |
| | $ | 5,392 |
|
| See Notes to Consolidated Financial Statements. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through Threadneedle Asset Management Holdings Sàrl and Ameriprise Asset Management Holdings GmbH (collectively, “Threadneedle”).
The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information on VIEs.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for fair statement of the consolidated results of operations and financial position for the interim periods have been made. Except for the adjustment described below, allAll adjustments made were of a normal recurring nature.
In the first quarter of 2017, the Company recorded a $20 million decrease to income tax provision related to an out-of-period correction for a reversal of a tax reserve.
In the third quarter of 2017, the Company recorded a $14 million out-of-period correction related to a variable annuity model assumption that decreased amortization of deferred acquisition costs (“DAC”) by $10 million and decreased benefits, claims, losses and settlement expenses by $4 million.
The impact to prior period financial statements of these out-of-period corrections was not material.
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the Securities and Exchange Commission (“SEC”) on February 23, 201727, 2019 (“20162018 10-K”).
The Company corrected prior period errors related to the classification of certain changes in other investments in the Consolidated Statements of Cash Flows. For the six months ended June 30, 2018, cash provided by operating activities was overstated by $63 million, and cash provided by investing activities was understated by $63 million. The impact of these corrections was not material to the prior period Consolidated Statement of Cash Flows.
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions were identified. See Note 15 for information on the sale of Ameriprise Auto & Home (“AAH”).
2. Recent Accounting Pronouncements
Adoption of New Accounting Standards
StatementLeases – Recognition of Cash Flows – Restricted CashLease Assets and Liabilities on Balance Sheet
In NovemberFebruary 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting standards relatedfor leases. The update was issued to increase transparency and comparability for the classificationaccounting of restricted cashlease transactions. The standard requires most lease transactions for lessees to be recorded on the statement of cash flows. The update requires entities to include restricted cashbalance sheet as lease assets and restricted cash equivalents in cashlease liabilities and cash equivalent balances on the statement of cash flowsboth quantitative and disclose a reconciliation between the balances on the statement of cash flows and the balance sheet.qualitative disclosures about leasing arrangements. The standard iswas effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.2018. Entities had the option to adopt the standard using a modified retrospective approach at either the beginning of the earliest period presented or as of the date of adoption. The Company early adopted the standard using a modified retrospective approach as of January 1, 2019. The Company also elected the package of practical expedients permitted under the transition guidance within the accounting standard that allows entities to carryforward their historical lease classification and to not reassess contracts for embedded leases among other things. The Company recorded a right-of-use asset of $274 million and a corresponding lease liability of $295 million substantially related to real estate leases. The amount the interim period ended March 31, 2017 onlease liability exceeds the right-of-use asset primarily reflects lease incentives recorded as a retrospective basis. As a resultreduction of the right-of-use asset that were previously recorded as a liability. The adoption of the standard restricted cash balances of $2.7 billion and $2.9 billion at September 30, 2017 and December 31, 2016, respectively, are included in the cash and cash equivalents balancesdid not have other material impacts on the Company’s consolidated statementsresults of cash flows. The impact of the change in restricted cash resulted in a $213 million increase to the Company’s operating cash flowsoperations or financial condition. See Note 14 for the prior period presented.additional disclosures on leases.
Income Statement of Cash Flows – ClassificationReporting Comprehensive Income – Reclassification of Certain Cash Receipts and Cash PaymentsTax Effects from Accumulated Other Comprehensive Income
In August 2016,February 2018, the FASB updated the accounting standards related to classificationthe presentation of certain cash receipts and cash payments on the statement of cash flows.tax effects stranded in accumulated other comprehensive income (“AOCI”). The update includes amendmentsallows a reclassification from AOCI to address diversityretained earnings for tax effects stranded in practice forAOCI resulting from the classification of eight specific cash flow activities.legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The specific amendments the Company evaluated include the classification of debt prepayment and extinguishment costs, contingent consideration payments, proceeds from insurance settlements and corporate owned life insurance settlements, distributions from equity method investees and the applicationelection of the predominance principle to separately identifiable cash flows.update was optional. The standard isupdate was effective for interim and annual periodsfiscal years beginning after December 15, 2017. Early2018. Entities could record the impacts either in the period of adoption is permitted and all amendments must be adopted duringor retrospectively to each period (or periods) in which the same period. The Company early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis. The adoptioneffect of the standard did not have a material impact onchange in the Company’s operating, investing or financing cash flows.
Compensation – Stock Compensation
In March 2016, the FASB updated the accounting standards related to employee share-based payments. The update requires all excess tax benefits and tax deficiencies to be recognized asU.S. federal corporate income tax expense or benefitrate in the income statement. This changeTax Act is required to be applied prospectively to excess tax benefits and tax deficiencies resulting from settlements after the date of adoption. No
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
adjustment is recorded for any excess tax benefits or tax deficiencies previously recorded in additional paid in capital. The update also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. This provision can be applied on either a prospective or retrospective basis. The update permits entities to make an accounting policy election to recognize forfeitures as they occur rather than estimating forfeitures to determine the recognition of expense for share-based payment awards. The standard is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted.recognized. The Company adopted the standard on January 1, 2017 on a prospective basis, except for2019 and elected not to reclassify the cash flow statement provision, which the Company applied on a retrospective basis. During periodsstranded tax effects in which the settlement date value differs materially from the grant date fair value ofcertainshare-basedpaymentawards, the Company may experience volatility in income tax recognized initsconsolidatedresultsofoperations. Duringthethreemonthsand nine months ended September 30, 2017, the Company recognized net excess tax benefits of $25 million and $57 million, respectively, as a reduction to the income tax provision in the consolidated statements of operations. The Company maintained its accounting policy of estimating forfeitures. As a result of the adoption of the standard, net excess tax benefits of $57 million and $8 million for the nine monthsended September 30, 2017 and 2016, respectively, are included in the Other, net line within operating cash flows on the Company’s consolidated statements of cash flows.
Future Adoption of New Accounting StandardsAOCI.
Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
disclosures and amends existing disclosure requirements. The standard iswas effective for interim and annual periods beginning after December 15, 2018, and shouldwas required to be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact ofadopted the standard on itsJanuary 1, 2019. The adoption did not have a material impact on the Company’s consolidated results of operations andor financial condition.
Receivables – Nonrefundable Fees and Other Costs – Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB updated the accounting standards to shorten the amortization period for certain purchased callable debt securities held at a premium. Under currentprevious guidance, premiums arewere generally amortized over the contractual life of the security. The amendments require the premium to be amortized to the earliest call date. The update applies to securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. The standard iswas effective for interim and annual periods beginning after December 15, 2018, and shouldwas required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the standard on January 1, 2019. The adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB updated the accounting standards related to disclosures for fair value measurements. The update eliminates the following disclosures: 1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy of timing of transfers between levels of the fair value hierarchy, and 3) the valuation processes for Level 3 fair value measurements. The new disclosures include changes in unrealized gains and losses for the period included in other comprehensive income (“OCI”) for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated. The new disclosures are required on a prospective basis; all other provisions should be applied retrospectively. The update is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for the entire standard or only the provisions to eliminate or modify disclosure requirements. The Company early adopted the provisions of the standard to eliminate or modify disclosure requirements in the fourth quarter of 2018. The update does not have an impact on the Company’s consolidated results of operations or financial condition.
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of these financial instruments. The standard was effective for interim and annual periods beginning after December 15, 2017. The Company adopted the standard on January 1, 2018 using a modified retrospective approach. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
Future Adoption of New Accounting Standards
Financial Services – Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB updated the accounting standard related to long-duration insurance contracts. The guidance revises key elements of the measurement models and disclosure requirements for long-duration insurance contracts issued by insurers and reinsurers.
The guidance establishes a significant new category of benefit features called market risk benefits that protect the contractholder from other-than-nominal capital market risk and expose the insurer to that risk. Insurers will have to measure market risk benefits at fair value. Market risk benefits include variable annuity guaranteed benefits (i.e. guaranteed minimum death, withdrawal, withdrawal for life, accumulation and income benefits). The portion of the change in fair value attributable to a change in the instrument-specific credit risk of market risk benefits in a liability position will be recorded in OCI.
Significant changes also relate to the measurement of the liability for future policy benefits for nonparticipating traditional long-duration insurance contracts and immediate annuities with a life contingent feature include the following:
Insurers will be required to review and update the cash flow assumptions used to measure the liability for future policy benefits rather than using assumptions locked in at contract inception. The review of assumptions to measure the liability for all future policy benefits will be required annually at the same time each year, or more frequently if suggested by experience. The effect of updating assumptions will be measured on a retrospective catch-up basis and presented separate from the ongoing policyholder benefit expense in the statement of operations in the period the update is made. This new unlocking process will be required for the Company’s term and whole life insurance, disability income, long term care insurance and immediate annuities with a life contingent feature.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The discount rate used to measure the liability for future policy benefits will be standardized. The current requirement to use a discount rate reflecting expected investment yields will change to an upper-medium grade (low credit risk) fixed income corporate instrument yield (generally interpreted as an “A” rating) reflecting the duration characteristics of the liability. Entities will be required to update the discount rate at each reporting date with the effect of discount rate changes reflected in OCI.
The current premium deficiency test is being replaced with a net premium ratio cap of 100%. If the net premium ratio (i.e. the ratio of the present value of total expected benefits and related expenses to the present value of total expected premiums) exceeds 100%, insurers are required to recognize a loss in the statement of operations in the period. Contracts from different issue years will no longer be permitted to be grouped to determine contracts in a loss position.
In addition, the update requires deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) relating to all long-duration contracts and most investment contracts to be amortized on a straight-line basis over the expected life of the contract independent of profit emergence. Under the new guidance, interest will not accrue to the deferred balance and DAC and DSIC will not be subject to an impairment test.
The update requires significant additional disclosures, including disaggregated rollforwards of the liability for future policy benefits, policyholder account balances, market risk benefits, DAC and DSIC, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions. The update is currently effective for interim and annual periods beginning after December 15, 2020. On July 17, 2019, the FASB voted to defer the effective date of the standard to January 1, 2022. If the deferral is adopted, the Company will update the effective date accordingly. The standard should be applied to the liability for future policy benefits and DAC and DSIC on a modified retrospective basis and applied to market risk benefits on a retrospective basis with the option to apply full retrospective transition if certain criteria are met. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations, financial condition and disclosures.
Intangibles – Goodwill and Other – Internal-Use Software – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB updated the accounting standards related to customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The update requires implementation costs for a CCA to be evaluated for capitalization using the same approach as implementation costs associated with internal-use software. The update also addresses presentation, measurement and impairment of capitalized implementation costs in a CCA that is a service contract. The update requires new disclosures on the nature of hosting arrangements that are service contracts, significant judgements made when applying the guidance and quantitative disclosures, including amounts capitalized, amortized and impaired. The update is effective for interim and annual periods beginning after December 15, 2019, and can be applied either prospectively or retrospectively. Early adoption is permitted. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment
In January 2017, the FASB updated the accounting standards to simplify the accounting for goodwill impairment. The update removes the hypothetical purchase price allocation (Step 2) of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for interim and annual periods beginning after December 15, 2019, and should be applied prospectively with early adoption permitted for any impairment tests performed after January 1, 2017. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Income TaxesFinancial Instruments – Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB updated the accounting standards related to the recognition of income tax impacts on intra-entity transfers. The update requires entities to recognize the income tax consequences of intra-entity transfers, other than inventory, upon the transfer of the asset. The update requires the selling entity to recognize a current tax expense or benefit and the purchasing entity to recognize a deferred tax asset or liability when the transfer occurs. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Financial InstrumentsCredit Losses – Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. Generally, the initial estimate of the expected credit losses and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The current credit loss model for Available-for-Sale debt securities does not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.condition including developing and refining models with a focus on commercial mortgage loans, syndicated loans, advisor loans and reinsurance recoverables.
Leases – Recognition of Lease Assets and Liabilities on Balance SheetIn February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard will require most lease transactions for lessees to be recorded on the balance sheet as lease assets and lease liabilities and both quantitative and qualitative disclosures about leasing arrangements. The Company currently discloses information related to operating lease arrangements within Note 23 of the 2016 10-K. The standard is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Financial Instruments – Recognition and Measurement of Financial Assets and Financial LiabilitiesAMERIPRISE FINANCIAL, INC.
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for certain provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. The update is not expected to have a material impact on the consolidated results of operations or financial condition.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
3. Revenue from Contracts with Customers
In May 2014,The following tables present revenue disaggregated by segment on an adjusted operating basis with a reconciliation of segment revenues to those reported on the FASB updatedConsolidated Statements of Operations:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
Advice & Wealth Management | | Asset Management | | Annuities | | Protection | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
(in millions) |
Management and financial advice fees: | | | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | | | |
Retail | $ | — |
| | $ | 442 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 442 |
| | $ | — |
| | $ | 442 |
|
Institutional | — |
| | 111 |
| | — |
| | — |
| | — |
| | 111 |
| | — |
| | 111 |
|
Advisory fees | 779 |
| | — |
| | — |
| | — |
| | — |
| | 779 |
| | — |
| | 779 |
|
Financial planning fees | 84 |
| | — |
| | — |
| | — |
| | — |
| | 84 |
| | — |
| | 84 |
|
Transaction and other fees | 91 |
| | 47 |
| | 14 |
| | 2 |
| | — |
| | 154 |
| | — |
| | 154 |
|
Total management and financial advice fees | 954 |
| | 600 |
| | 14 |
| | 2 |
| | — |
| | 1,570 |
| | — |
| | 1,570 |
|
| | | | | | | | | | | | | | | |
Distribution fees: | | | | | | | | | | | | | | | |
Mutual funds | 182 |
| | 60 |
| | — |
| | — |
| | — |
| | 242 |
| | — |
| | 242 |
|
Insurance and annuity | 218 |
| | 43 |
| | 81 |
| | 7 |
| | 2 |
| | 351 |
| | — |
| | 351 |
|
Other products | 180 |
| | — |
| | — |
| | — |
| | — |
| | 180 |
| | — |
| | 180 |
|
Total distribution fees | 580 |
| | 103 |
| | 81 |
| | 7 |
| | 2 |
| | 773 |
| | — |
| | 773 |
|
| | | | | | | | | | | | | | | |
Other revenues | 49 |
| | 3 |
| | (2 | ) | | — |
| | — |
| | 50 |
| | — |
| | 50 |
|
Total revenue from contracts with customers | 1,583 |
| | 706 |
| | 93 |
| | 9 |
| | 2 |
| | 2,393 |
| | — |
| | 2,393 |
|
| | | | | | | | | | | | | | | |
Revenue from other sources (1) | 106 |
| | 7 |
| | 527 |
| | 250 |
| | 352 |
| | 1,242 |
| | (1 | ) | | 1,241 |
|
Total segment gross revenues | 1,689 |
| | 713 |
| | 620 |
| | 259 |
| | 354 |
| | 3,635 |
| | (1 | ) | | 3,634 |
|
Less: Banking and deposit interest expense | 36 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 39 |
| | — |
| | 39 |
|
Total segment net revenues | 1,653 |
| | 712 |
| | 620 |
| | 259 |
| | 352 |
| | 3,596 |
| | (1 | ) | | 3,595 |
|
Less: Intersegment revenues | 230 |
| | 14 |
| | 91 |
| | 15 |
| | (1 | ) | | 349 |
| | 1 |
| | 350 |
|
Total net revenues | $ | 1,423 |
| | $ | 698 |
| | $ | 529 |
| | $ | 244 |
| | $ | 353 |
| | $ | 3,247 |
| | $ | (2 | ) | | $ | 3,245 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
Advice & Wealth Management | | Asset Management | | Annuities | | Protection | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
(in millions) |
Management and financial advice fees: | | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | | | |
Retail | $ | — |
| | $ | 472 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 472 |
| | $ | — |
| | $ | 472 |
|
Institutional | — |
| | 109 |
| | — |
| | — |
| | — |
| | 109 |
| | — |
| | 109 |
|
Advisory fees | 706 |
| | — |
| | — |
| | — |
| | — |
| | 706 |
| | — |
| | 706 |
|
Financial planning fees | 80 |
| | — |
| | — |
| | — |
| | — |
| | 80 |
| | — |
| | 80 |
|
Transaction and other fees | 92 |
| | 48 |
| | 15 |
| | 2 |
| | — |
| | 157 |
| | — |
| | 157 |
|
Total management and financial advice fees | 878 |
| | 629 |
| | 15 |
| | 2 |
| | — |
| | 1,524 |
| | — |
| | 1,524 |
|
| | | | | | | | | | | | | | | |
Distribution fees: | | | | | | | | | | | | | | | |
Mutual funds | 184 |
| | 68 |
| | — |
| | — |
| | — |
| | 252 |
| | — |
| | 252 |
|
Insurance and annuity | 231 |
| | 42 |
| | 84 |
| | 7 |
| | 3 |
| | 367 |
| | — |
| | 367 |
|
Other products | 147 |
| | — |
| | — |
| | — |
| | — |
| | 147 |
| | — |
| | 147 |
|
Total distribution fees | 562 |
| | 110 |
| | 84 |
| | 7 |
| | 3 |
| | 766 |
| | — |
| | 766 |
|
| | | | | | | | | | | | | | | |
Other revenues | 47 |
| | 1 |
| | — |
| | — |
| | — |
| | 48 |
| | — |
| | 48 |
|
Total revenue from contracts with customers | 1,487 |
| | 740 |
| | 99 |
| | 9 |
| | 3 |
| | 2,338 |
| | — |
| | 2,338 |
|
| | | | | | | | | | | | | | | |
Revenue from other sources (1) | 76 |
| | 15 |
| | 523 |
| | 246 |
| | 332 |
| | 1,192 |
| | 55 |
| | 1,247 |
|
Total segment gross revenues | 1,563 |
| | 755 |
| | 622 |
| | 255 |
| | 335 |
| | 3,530 |
| | 55 |
| | 3,585 |
|
Less: Banking and deposit interest expense | 20 |
| | — |
| | — |
| | — |
| | 1 |
| | 21 |
| | — |
| | 21 |
|
Total segment net revenues | 1,543 |
| | 755 |
| | 622 |
| | 255 |
| | 334 |
| | 3,509 |
| | 55 |
| | 3,564 |
|
Less: Intersegment revenues | 247 |
| | 12 |
| | 90 |
| | 13 |
| | — |
| | 362 |
| | 6 |
| | 368 |
|
Total net revenues | $ | 1,296 |
| | $ | 743 |
| | $ | 532 |
| | $ | 242 |
| | $ | 334 |
| | $ | 3,147 |
| | $ | 49 |
| | $ | 3,196 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
Advice & Wealth Management | | Asset Management | | Annuities | | Protection | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
(in millions) |
Management and financial advice fees: | | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | | | |
Retail | $ | — |
| | $ | 871 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 871 |
| | $ | — |
| | $ | 871 |
|
Institutional | — |
| | 215 |
| | — |
| | — |
| | — |
| | 215 |
| | — |
| | 215 |
|
Advisory fees | 1,504 |
| | — |
| | — |
| | — |
| | — |
| | 1,504 |
| | — |
| | 1,504 |
|
Financial planning fees | 153 |
| | — |
| | — |
| | — |
| | — |
| | 153 |
| | — |
| | 153 |
|
Transaction and other fees | 175 |
| | 93 |
| | 27 |
| | 4 |
| | — |
| | 299 |
| | — |
| | 299 |
|
Total management and financial advice fees | 1,832 |
| | 1,179 |
| | 27 |
| | 4 |
| | — |
| | 3,042 |
| | — |
| | 3,042 |
|
| | | | | | | | | | | | | | | |
Distribution fees: | | | | | | | | | | | | | | | |
Mutual funds | 353 |
| | 117 |
| | — |
| | — |
| | — |
| | 470 |
| | — |
| | 470 |
|
Insurance and annuity | 423 |
| | 84 |
| | 160 |
| | 14 |
| | 4 |
| | 685 |
| | — |
| | 685 |
|
Other products | 365 |
| | — |
| | — |
| | — |
| | — |
| | 365 |
| | — |
| | 365 |
|
Total distribution fees | 1,141 |
| | 201 |
| | 160 |
| | 14 |
| | 4 |
| | 1,520 |
| | — |
| | 1,520 |
|
| | | | | | | | | | | | | | | |
Other revenues | 94 |
| | 4 |
| | — |
| | — |
| | — |
| | 98 |
| | — |
| | 98 |
|
Total revenue from contracts with customers | 3,067 |
| | 1,384 |
| | 187 |
| | 18 |
| | 4 |
| | 4,660 |
| | — |
| | 4,660 |
|
| | | | | | | | | | | | | | | |
Revenue from other sources (1) | 211 |
| | 18 |
| | 1,037 |
| | 503 |
| | 694 |
| | 2,463 |
| | 2 |
| | 2,465 |
|
Total segment gross revenues | 3,278 |
| | 1,402 |
| | 1,224 |
| | 521 |
| | 698 |
| | 7,123 |
| | 2 |
| | 7,125 |
|
Less: Banking and deposit interest expense | 71 |
| | 1 |
| | — |
| | — |
| | 4 |
| | 76 |
| | — |
| | 76 |
|
Total segment net revenues | 3,207 |
| | 1,401 |
| | 1,224 |
| | 521 |
| | 694 |
| | 7,047 |
| | 2 |
| | 7,049 |
|
Less: intersegment revenues | 449 |
| | 27 |
| | 179 |
| | 30 |
| | (3 | ) | | 682 |
| | 4 |
| | 686 |
|
Total net revenues | $ | 2,758 |
| | $ | 1,374 |
| | $ | 1,045 |
| | $ | 491 |
| | $ | 697 |
| | $ | 6,365 |
| | $ | (2 | ) | | $ | 6,363 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
Advice & Wealth Management | | Asset Management | | Annuities | | Protection | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
(in millions) |
Management and financial advice fees: | | | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | | | |
Retail | $ | — |
| | $ | 952 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 952 |
| | $ | — |
| | $ | 952 |
|
Institutional | — |
| | 220 |
| | — |
| | — |
| | — |
| | 220 |
| | — |
| | 220 |
|
Advisory fees | 1,397 |
| | — |
| | — |
| | — |
| | — |
| | 1,397 |
| | — |
| | 1,397 |
|
Financial planning fees | 148 |
| | — |
| | — |
| | — |
| | — |
| | 148 |
| | — |
| | 148 |
|
Transaction and other fees | 181 |
| | 96 |
| | 29 |
| | 3 |
| | 1 |
| | 310 |
| | — |
| | 310 |
|
Total management and financial advice fees | 1,726 |
| | 1,268 |
| | 29 |
| | 3 |
| | 1 |
| | 3,027 |
| | — |
| | 3,027 |
|
| | | | | | | | | | | | | | | |
Distribution fees: | | | | | | | | | | | | | | | |
Mutual funds | 374 |
| | 137 |
| | — |
| | — |
| | — |
| | 511 |
| | — |
| | 511 |
|
Insurance and annuity | 453 |
| | 87 |
| | 168 |
| | 14 |
| | 4 |
| | 726 |
| | — |
| | 726 |
|
Other products | 292 |
| | — |
| | — |
| | — |
| | — |
| | 292 |
| | — |
| | 292 |
|
Total distribution fees | 1,119 |
| | 224 |
| | 168 |
| | 14 |
| | 4 |
| | 1,529 |
| | — |
| | 1,529 |
|
| | | | | | | | | | | | | | | |
Other revenues | 88 |
| | 2 |
| | — |
| | — |
| | — |
| | 90 |
| | — |
| | 90 |
|
Total revenue from contracts with customers | 2,933 |
| | 1,494 |
| | 197 |
| | 17 |
| | 5 |
| | 4,646 |
| | — |
| | 4,646 |
|
| | | | | | | | | | | | | | | |
Revenue from other sources (1) | 147 |
| | 39 |
| | 1,038 |
| | 491 |
| | 654 |
| | 2,369 |
| | 116 |
| | 2,485 |
|
Total segment gross revenues | 3,080 |
| | 1,533 |
| | 1,235 |
| | 508 |
| | 659 |
| | 7,015 |
| | 116 |
| | 7,131 |
|
Less: Banking and deposit interest expense | 36 |
| | — |
| | — |
| | — |
| | 2 |
| | 38 |
| | — |
| | 38 |
|
Total segment net revenues | 3,044 |
| | 1,533 |
| | 1,235 |
| | 508 |
| | 657 |
| | 6,977 |
| | 116 |
| | 7,093 |
|
Less: intersegment revenues | 487 |
| | 24 |
| | 180 |
| | 29 |
| | (1 | ) | | 719 |
| | 10 |
| | 729 |
|
Total net revenues | $ | 2,557 |
| | $ | 1,509 |
| | $ | 1,055 |
| | $ | 479 |
| | $ | 658 |
| | $ | 6,258 |
| | $ | 106 |
| | $ | 6,364 |
|
(1) Revenues not included in the accounting standards forscope of the revenue from contracts with customers.customers standard. The update provides a five stepamounts primarily consist of revenue recognition modelassociated with insurance and annuity products or financial instruments.
Prior period revenues for all revenue arising from contracts with customersthe Protection and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts areCorporate segments in the scopetable above have been restated to reflect the transfer of other standards). AAH results to the Corporate segment in the first quarter of 2019. See Note 15 for additional information on the sale of AAH.
The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users of financial statements to understandfollowing discussion describes the nature, amount, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers. Subsequent related updates provide clarificationcustomers on certaina consolidated basis.
Management and Financial Advice Fees
Asset Management Fees
The Company earns revenue for performing asset management services for retail and institutional clients. The revenue is earned based on a fixed or tiered rate applied, as a percentage, to assets under management. Assets under management vary with market fluctuations and client behavior. The asset management performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Asset management fees are accrued, invoiced and collected on a monthly or quarterly basis.
The Company’s asset management contracts for Open Ended Investment Companies (“OEICs”) in the UK and Société d'Investissement à Capital Variable (“SICAVs”) in Europe include performance obligations for asset management and fund distribution services. The amounts received for these services are reported as management and financial advice fees. The revenue recognition guidancepattern is the same for both performance obligations as the fund distribution services revenue is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment) and not recognized until assets under management are known.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property funds based on a percentage of account returns in excess of either a benchmark index or a contractually specified level. This revenue is variable and impacted primarily by the performance of the assets being managed compared to the benchmark index or contractually specified level. The revenue is not recognized until it is probable that a significant reversal will not occur. Performance-based management fees are invoiced on a quarterly or annual basis.
Advisory Fees
The Company earns revenue for performing investment advisory services for certain brokerage customer’s discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are accrued daily and invoiced or charged on a monthly or quarterly basis.
Financial Planning Fees
The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly or quarterly) based on a contractual fixed rate applied, as a percentage, to assets held in a client’s investment advisory account. The financial planning fee is based on the complexity of a client’s financial and life situation and his or her advisor’s experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual contract period.
For fixed fee arrangements, revenue is recognized when the financial plan is delivered. The Company accrues revenue for any amounts that have not been received at the time the financial plan is delivered.
For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company’s control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month or quarter end as the advisory account balance uncertainty is resolved.
Contract liabilities for financial planning fees, which are included in other liabilities in the Consolidated Balance Sheets, were $131 million and $138 million as of June 30, 2019 and December 31, 2018, respectively.
The Company pays sales commissions to advisors when a new standard.financial planning contract is obtained or when an existing contract is renewed. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectivelysales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a cumulative-effect adjustment atcustomer and are initially capitalized. When the dateperformance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in other assets in the Consolidated Balance Sheets, and were $107 million and $112 million as of adoption. June 30, 2019 and December 31, 2018, respectively.
Transaction and Other Fees
The Company plansearns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to adopt theassets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue recognition guidanceis earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a retrospective basis in the first quarter of 2018. The update does not apply to revenue associated with the manufacturing of insurance and annuity productsquarterly or financial instruments as these revenues are in the scope of other standards. Therefore, the Company does not expect the update to have an impact on these revenues. The Company’s implementation efforts include the identification of revenue within the guidance and the reviewannual fixed fee for each account. Each of the customer contractssupport and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to determinebrokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. Contract liabilities for custodial service fees, which are included in other liabilities in the Consolidated Balance Sheets, were $31 million and nil as of June 30, 2019 and December 31, 2018, respectively.
The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.
Distribution Fees
Mutual Funds and Insurance and Annuity Products
The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). This ongoing revenue may be recognized for many years after the initial sale. The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company’s advisors or to support availability and distribution of their products on the Company’s platforms. These payments allow the outside parties to train and support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and operational systems necessary to enable the Company’s client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies’ products on the Company’s sales platform (subject to the Company’s due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.
Other Products
The Company earns revenue for selling unaffiliated alternative products. The performance obligation andis satisfied at the associated timingtime of each performance obligation. individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company has determinedearns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that certain paymentsinclude the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted).
The Company earns revenue for placing clients’ deposits in its brokerage sweep program with third-party banks. The amount received primarily relatedfrom the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.
Other Revenues
The Company earns revenue from fees charged to franchise advisoradvisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees should be presentedreceived from the advisors. The fees are primarily collected monthly as revenue rather than a reduction of expense.commission payments.
Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested.
Receivables
Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company expects the impact of this change to behas an increase to both revenues and expenses of approximately $95 million to $120 million. The Company does not expect a material impactunconditional right to the timingrevenue. Receivables related to revenues from contracts with customers were $689 million and $644 million as of revenue recognition; however, the Company’s implementation effort to assess the impact of the standard is still in process.June 30, 2019 and December 31, 2018, respectively.
3. 4. Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as collateralized loan obligations (“CLOs”),CLOs, hedge funds, property funds and certain internationalnon-U.S. series funds (Open Ended Investment Companies(OEICs and Societes d’Investissement A Capital Variable) and private equity fundsSICAVs) (collectively, “investment entities”), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, “consolidated investment entities”). If if the Company is deemed to be the primary beneficiary, it will consolidate the VIE.beneficiary. The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its investment nor has the Company provided any support to these entities.
CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the CLO’s collateral pool
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes of certain CLOs. The Company consolidates certain CLOs where it is the primary beneficiary and has determinedthe power to direct the activities that consolidation is required for certain CLOs.most significantly impact the economic performance of the CLO.
The Company’s maximum exposure to loss with respect to non-consolidated CLOs is limited to its investments amortized cost, which was $6$4 million and $9$5 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. The Company classifies these investments as Available-for-Sale securities. See Note 45 for additional information on these investments.
Property Funds
The Company provides investment advice and related services to property funds some of which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not have a significant economic interest and is not required to consolidate any of the property funds. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in property funds is reflected in other investments and was $26$15 million and $18 million as of both SeptemberJune 30, 20172019 and December 31, 2016.2018, respectively.
Hedge Funds and other Private Equity Funds
The Company has determined that consolidation isdoes not required forconsolidate hedge funds and other private equity funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services.services and the Company does not have a significant economic interest in any fund. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in these entities is reflected in other investments and was $7 millionnil and $13$7 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
InternationalNon-U.S. Series Funds
The Company manages internationalnon-U.S. series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company’s investment in these funds is reflected in other assetsinvestments and was $26$15 million and $33$30 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.
A majority of the limited partnerships are VIEs. The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $455$321 million and $482$352 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. The Company had a $114$22 million and $135a $43 million liability recorded as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the above mentioned funding commitments.
Structured Investments
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its carrying value.amortized cost. See Note 45 for additional information on these structured investments.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fair Value of Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 1011 for the definition of the three levels of the fair value hierarchy.
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets | | | | | | | |
Investments: | | | | | | | |
Corporate debt securities | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 8 |
|
Common stocks | 1 |
| | — |
| | 1 |
| | 2 |
|
Other investments | 4 |
| | — |
| | — |
| | 4 |
|
Syndicated loans | — |
| | 1,563 |
| | 130 |
| | 1,693 |
|
Total investments | 5 |
| | 1,571 |
| | 131 |
| | 1,707 |
|
Receivables | — |
| | 23 |
| | — |
| | 23 |
|
Total assets at fair value | $ | 5 |
| | $ | 1,594 |
| | $ | 131 |
| | $ | 1,730 |
|
| | | | | | | |
Liabilities | | | | | | | |
Debt (1) | $ | — |
| | $ | 1,707 |
| | $ | — |
| | $ | 1,707 |
|
Other liabilities | — |
| | 61 |
| | — |
| | 61 |
|
Total liabilities at fair value | $ | — |
| | $ | 1,768 |
| | $ | — |
| | $ | 1,768 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets |
Investments: |
Corporate debt securities | $ | — |
| | $ | 29 |
| | $ | — |
| | $ | 29 |
|
Common stocks | 22 |
| | 11 |
| | 4 |
| | 37 |
|
Other investments | 4 |
| | — |
| | — |
| | 4 |
|
Syndicated loans | — |
| | 1,963 |
| | 182 |
| | 2,145 |
|
Total investments | 26 |
| | 2,003 |
| | 186 |
| | 2,215 |
|
Receivables | — |
| | 9 |
| | — |
| | 9 |
|
Total assets at fair value | $ | 26 |
| | $ | 2,012 |
| | $ | 186 |
| | $ | 2,224 |
|
|
Liabilities |
Debt (1) | $ | — |
| | $ | 2,267 |
| | $ | — |
| | $ | 2,267 |
|
Other liabilities | — |
| | 43 |
| | — |
| | 43 |
|
Total liabilities at fair value | $ | — |
| | $ | 2,310 |
| | $ | — |
| | $ | 2,310 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets | | | | | | | |
Investments: | | | | | | | |
Corporate debt securities | $ | — |
| | $ | 9 |
| | $ | — |
| | $ | 9 |
|
Common stocks | 1 |
| | 1 |
| | — |
| | 2 |
|
Other investments | 4 |
| | — |
| | — |
| | 4 |
|
Syndicated loans | — |
| | 1,465 |
| | 226 |
| | 1,691 |
|
Total investments | 5 |
| | 1,475 |
| | 226 |
| | 1,706 |
|
Receivables | — |
| | 12 |
| | — |
| | 12 |
|
Total assets at fair value | $ | 5 |
| | $ | 1,487 |
| | $ | 226 |
| | $ | 1,718 |
|
| | | | | | | |
Liabilities | | | | | | | |
Debt (1) | $ | — |
| | $ | 1,743 |
| | $ | — |
| | $ | 1,743 |
|
Other liabilities | — |
| | 122 |
| | — |
| | 122 |
|
Total liabilities at fair value | $ | — |
| | $ | 1,865 |
| | $ | — |
| | $ | 1,865 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets |
Investments: |
Corporate debt securities | $ | — |
| | $ | 19 |
| | $ | — |
| | $ | 19 |
|
Common stocks | 22 |
| | 6 |
| | 5 |
| | 33 |
|
Other investments | 4 |
| | — |
| | — |
| | 4 |
|
Syndicated loans | — |
| | 1,944 |
| | 254 |
| | 2,198 |
|
Total investments | 26 |
| | 1,969 |
| | 259 |
| | 2,254 |
|
Receivables | — |
| | 11 |
| | — |
| | 11 |
|
Total assets at fair value | $ | 26 |
| | $ | 1,980 |
| | $ | 259 |
| | $ | 2,265 |
|
|
Liabilities |
Debt (1) | $ | — |
| | $ | 2,319 |
| | $ | — |
| | $ | 2,319 |
|
Other liabilities | — |
| | 95 |
| | — |
| | 95 |
|
Total liabilities at fair value | $ | — |
| | $ | 2,414 |
| | $ | — |
| | $ | 2,414 |
|
| |
(1) | The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.2$1.7 billion and $2.3 billion as of Septemberboth June 30, 20172019 and December 31, 2016, respectively. 2018. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis: |
| | | | | | | | | | | | |
| Corporate Debt Securities | | Common Stocks | | Syndicated Loans | |
(in millions) |
Balance, July 1, 2017 | $ | — |
| | $ | 7 |
| | $ | 185 |
| |
Total gains (losses) included in: |
Net income | — |
| | 1 |
| (1) | (1 | ) | (1) |
Purchases | — |
| | — |
| | 6 |
| |
Sales | — |
| | — |
| | (12 | ) | |
Settlements | — |
| | — |
| | (3 | ) | |
Transfers into Level 3 | — |
| | — |
| | 84 |
| |
Transfers out of Level 3 | — |
| | (4 | ) | | (77 | ) | |
Balance, September 30, 2017 | $ | — |
| | $ | 4 |
| | $ | 182 |
| |
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2017 | $ | — |
| | $ | 1 |
| (1) | $ | — |
| |
| | | Common Stocks | | Syndicated Loans | | Other Assets | | Common Stocks | | Syndicated Loans | |
(in millions) | Balance at July 1, 2016 | $ | 1 |
| | $ | 243 |
| | $ | 1 |
| | |
Balance, April 1, 2019 | | $ | — |
| | $ | 117 |
| |
Total gains (losses) included in: | Total gains (losses) included in: | | | | |
Net income | — |
| | 2 |
| (1) | — |
| | — |
| | (1 | ) | (1) |
Purchases | 1 |
| | 50 |
| | — |
| | — |
| | 27 |
| |
Sales | — |
| | (10 | ) | | — |
| | — |
| | (7 | ) | |
Settlements | — |
| | (26 | ) | | — |
| | — |
| | (4 | ) | |
Transfers into Level 3 | 1 |
| | 57 |
| | — |
| | 1 |
| | 59 |
| |
Transfers out of Level 3 | — |
| | (120 | ) | | — |
| | — |
| | (61 | ) | |
Balance, September 30, 2016 | $ | 3 |
| | $ | 196 |
| | $ | 1 |
| | |
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2016 | $ | — |
| | $ | 2 |
| (1) | $ | — |
| | |
Balance, June 30, 2019 | | $ | 1 |
| | $ | 130 |
| |
| | | | | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2019 | | $ | — |
| | $ | (1 | ) | (1) |
|
| | | | | | | | |
| Common Stocks | | Syndicated Loans | |
(in millions) |
Balance, April 1, 2018 | $ | 11 |
| | $ | 200 |
| |
Total gains (losses) included in: | | | | |
Net income | — |
| | (1 | ) | (1) |
Purchases | — |
| | 24 |
| |
Sales | (4 | ) | | (35 | ) | |
Settlements | — |
| | (19 | ) | |
Transfers into Level 3 | — |
| | 17 |
| |
Transfers out of Level 3 | (3 | ) | | (75 | ) | |
Balance, June 30, 2018 | $ | 4 |
| | $ | 111 |
| |
| | | | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2018 | $ | — |
| | $ | — |
| |
| | | Corporate Debt Securities | | Common Stocks | | Syndicated Loans | | Common Stocks | | Syndicated Loans | |
(in millions) | (in millions) | |
Balance, January 1, 2017 | $ | — |
| | $ | 5 |
| | $ | 254 |
| | |
Balance, January 1, 2019 | | $ | — |
| | $ | 226 |
| |
Total gains (losses) included in: | Total gains (losses) included in: | | | | |
Net income | — |
| | 1 |
| (1) | — |
| | — |
| | (1 | ) | (1) |
Purchases | — |
| | 3 |
| | 133 |
| | — |
| | 49 |
| |
Sales | (2 | ) | | (1 | ) | | (27 | ) | | — |
| | (8 | ) | |
Settlements | — |
| | — |
| | (56 | ) | | — |
| | (11 | ) | |
Transfers into Level 3 | 2 |
| | 2 |
| | 197 |
| | 1 |
| | 84 |
| |
Transfers out of Level 3 | — |
| | (6 | ) | | (319 | ) | | — |
| | (209 | ) | |
Balance, September 30, 2017 | $ | — |
| | $ | 4 |
| | $ | 182 |
| | |
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2017 | $ | — |
| | $ | 1 |
| (1) | $ | (2 | ) | (1) | |
Balance, June 30, 2019 | | $ | 1 |
| | $ | 130 |
| |
| | | | | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2019 | | $ | — |
| | $ | (1 | ) | (1) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | |
| Common Stocks | | Syndicated Loans | |
(in millions) | |
Balance, January 1, 2018 | $ | 4 |
| | $ | 180 |
| |
Total gains (losses) included in: | | | | |
Net income | 4 |
| (1) | 1 |
| (1) |
Purchases | — |
| | 42 |
| |
Sales | (4 | ) | | (36 | ) | |
Settlements | — |
| | (30 | ) | |
Transfers into Level 3 | 4 |
| | 78 |
| |
Transfers out of Level 3 | (4 | ) | | (124 | ) | |
Balance, June 30, 2018 | $ | 4 |
| | $ | 111 |
| |
| | | | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2018 | $ | 2 |
| (1) | $ | — |
| |
|
| | | | | | | | | | | | | | | | |
| Common Stocks | | Syndicated Loans | | Other Assets | | Debt | |
(in millions) |
Balance at January 1, 2016, previously reported | $ | 3 |
| | $ | 529 |
| | $ | 2,065 |
| | $ | (6,630 | ) | |
Cumulative effect of change in accounting policies (3) | (2 | ) | | (304 | ) | | (2,065 | ) | | 6,630 |
| |
Balance at January 1, 2016, as adjusted | 1 |
| | 225 |
| | — |
| | — |
| |
Total gains (losses) included in: |
Net income | — |
| | 1 |
| (1) | 1 |
| (2) | — |
| |
Purchases | 1 |
| | 100 |
| | — |
| | — |
| |
Sales | — |
| | (11 | ) | | — |
| | — |
| |
Settlements | — |
| | (51 | ) | | — |
| | — |
| |
Transfers into Level 3 | 3 |
| | 286 |
| | — |
| | — |
| |
Transfers out of Level 3 | (2 | ) | | (354 | ) | | — |
| | — |
| |
Balance, September 30, 2016 | $ | 3 |
| | $ | 196 |
| | $ | 1 |
| | $ | — |
| |
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2016 | $ | — |
| | $ | 1 |
| (1) | $ | — |
| | $ | — |
| |
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
(3) The cumulative effect of change in accounting policies includes the adoption impact of ASU 2015-02 and ASU 2014-13 – Consolidation: Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”).
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
All Level 3 measurements as of SeptemberJune 30, 20172019 and December 31, 20162018 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of the third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
See Note 1011 for a description of the Company’s determination of the fair value of corporate debt securities, U.S. government and agencies obligations, common stocks and other investments.
Receivables
For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
Liabilities
Debt
The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The fair value of the CLOs’ debtassets and is classified as Level 2.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.
Fair Value Option
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The followingtablepresentsthefairvalueandunpaidprincipalbalanceofloansanddebtforwhichthefairvalueoptionhasbeenelected:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Syndicated loans | | | |
Unpaid principal balance | $ | 1,747 |
| | $ | 1,743 |
|
Excess unpaid principal over fair value | (54 | ) | | (52 | ) |
Fair value | $ | 1,693 |
| | $ | 1,691 |
|
Fair value of loans more than 90 days past due | $ | 10 |
| | $ | — |
|
Fair value of loans in nonaccrual status | 10 |
| | — |
|
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both | 1 |
| | — |
|
| | | |
Debt | | | |
Unpaid principal balance | $ | 1,864 |
| | $ | 1,951 |
|
Excess unpaid principal over fair value | (157 | ) | | (208 | ) |
Carrying value (1) | $ | 1,707 |
| | $ | 1,743 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions) |
Syndicated loans |
Unpaid principal balance | $ | 2,215 |
| | $ | 2,281 |
|
Excess unpaid principal over fair value | (70 | ) | | (83 | ) |
Fair value | $ | 2,145 |
| | $ | 2,198 |
|
Fair value of loans more than 90 days past due | $ | 12 |
| | $ | 8 |
|
Fair value of loans in nonaccrual status | 12 |
| | 8 |
|
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both | 26 |
| | 34 |
|
|
Debt |
Unpaid principal balance | $ | 2,400 |
| | $ | 2,459 |
|
Excess unpaid principal over carrying value | (133 | ) | | (140 | ) |
Carrying value (1) | $ | 2,267 |
| | $ | 2,319 |
|
(1) The carrying value of the CLOs’ debtis set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.2$1.7 billion and $2.3 billion as of Septemberboth June 30, 20172019 and December 31, 2016, respectively.2018.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.
Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(1) million and nil$25 million for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(3)$(5) million and $(5)$24 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
Debt of the consolidated investment entities and the stated interest rates were as follows:
|
| | | | | | | | | | | | | |
| Carrying Value | | Weighted Average Interest Rate |
June 30, 2019 | | December 31, 2018 | June 30, 2019 | | December 31, 2018 |
(in millions) | |
Debt of consolidated CLOs due 2025-2030 | $ | 1,707 |
| | $ | 1,743 |
| | 3.9 | % | | 3.7 | % |
|
| | | | | | | | | | | | | |
| Carrying Value | | Weighted Average Interest Rate |
September 30, 2017 | | December 31, 2016 | September 30, 2017 | | December 31, 2016 |
(in millions) | |
Debt of consolidated CLOs due 2025-2026 | $ | 2,267 |
| | $ | 2,319 |
| | 2.7 | % | | 2.5 | % |
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0% to 7.3%11.2%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
5. Investments
The following is a summary of Ameriprise Financial investments:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Available-for-Sale securities, at fair value | $ | 30,642 |
| | $ | 31,058 |
|
Mortgage loans, net | 2,662 |
| | 2,696 |
|
Policy and certificate loans | 861 |
| | 861 |
|
Other investments | 1,135 |
| | 1,210 |
|
Total | $ | 35,300 |
| | $ | 35,825 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
4. Investments
Other investments primarily reflect the Company’s interests in affordable housing partnerships, trading securities, seed money investments, syndicated loans and held-to-maturity certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days. The following is a summarycarrying value of Ameriprise Financial investments:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions) |
Available-for-Sale securities, at fair value | $ | 30,826 |
| | $ | 30,719 |
|
Mortgage loans, net | 3,000 |
| | 2,986 |
|
Policy and certificate loans | 841 |
| | 831 |
|
Other investments | 1,535 |
| | 1,298 |
|
Total | $ | 36,202 |
| | $ | 35,834 |
|
held-to-maturity certificates of deposit was $15 million and $7 million as of June 30, 2019 and December 31, 2018, respectively, which approximates fair value due to the short time between the purchase of the instrument and its expected maturity.The following is a summary of net investment income:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | | 2019 | | 2018 |
(in millions) |
Investment income on fixed maturities | $ | 344 |
| | $ | 334 |
| | $ | 697 |
| | $ | 663 |
|
Net realized gains (losses) (1) | — |
| | 5 |
| | 4 |
| | 11 |
|
Affordable housing partnerships | (17 | ) | | (14 | ) | | (32 | ) | | (25 | ) |
Other | 16 |
| | 43 |
| | 48 |
| | 89 |
|
Consolidated investment entities | 25 |
| | 51 |
| | 48 |
| | 77 |
|
Total | $ | 368 |
| | $ | 419 |
| | $ | 765 |
| | $ | 815 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Investment income on fixed maturities | $ | 340 |
| | $ | 342 |
| | $ | 1,012 |
| | $ | 1,028 |
|
Net realized gains (losses) | (3 | ) | | 6 |
| | 35 |
| | (5 | ) |
Affordable housing partnerships | (17 | ) | | (17 | ) | | (42 | ) | | (35 | ) |
Other | 26 |
| | 25 |
| | 70 |
| | 13 |
|
Consolidated investment entities | 26 |
| | 31 |
| | 79 |
| | 89 |
|
Total | $ | 372 |
| | $ | 387 |
| | $ | 1,154 |
| | $ | 1,090 |
|
| |
(1) | Net realized gains for the six months ended June 30, 2019 included other-than-temporary impairments (“OTTI”) on investments held by AAH, which were classified as held for sale on the Consolidated Balance Sheet as of June 30, 2019. See Note 15 for additional information. |
Available-for-Sale securities distributed by type were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
Description of Securities | September 30, 2017 |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) |
| (in millions) |
Corporate debt securities | $ | 14,528 |
| | $ | 1,145 |
| | $ | (23 | ) | | $ | 15,650 |
| | $ | — |
|
Residential mortgage backed securities | 6,740 |
| | 79 |
| | (29 | ) | | 6,790 |
| | — |
|
Commercial mortgage backed securities | 3,917 |
| | 62 |
| | (27 | ) | | 3,952 |
| | — |
|
Asset backed securities | 1,611 |
| | 39 |
| | (4 | ) | | 1,646 |
| | 5 |
|
State and municipal obligations | 2,216 |
| | 249 |
| | (10 | ) | | 2,455 |
| | — |
|
U.S. government and agencies obligations | 5 |
| | 1 |
| | — |
| | 6 |
| | — |
|
Foreign government bonds and obligations | 292 |
| | 21 |
| | (5 | ) | | 308 |
| | — |
|
Common stocks | 9 |
| | 11 |
| | (1 | ) | | 19 |
| | 6 |
|
Total | $ | 29,318 |
| | $ | 1,607 |
| | $ | (99 | ) | | $ | 30,826 |
| | $ | 11 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | |
Description of Securities | June 30, 2019 |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) |
| (in millions) |
Corporate debt securities | $ | 11,562 |
| | $ | 1,127 |
| | $ | (29 | ) | | $ | 12,660 |
| | $ | (2 | ) |
Residential mortgage backed securities | 7,697 |
| | 90 |
| | (17 | ) | | 7,770 |
| | — |
|
Commercial mortgage backed securities | 5,071 |
| | 95 |
| | (8 | ) | | 5,158 |
| | — |
|
Asset backed securities | 1,509 |
| | 51 |
| | (1 | ) | | 1,559 |
| | 1 |
|
State and municipal obligations | 1,214 |
| | 234 |
| | (5 | ) | | 1,443 |
| | — |
|
U.S. government and agencies obligations | 1,762 |
| | 1 |
| | — |
| | 1,763 |
| | — |
|
Foreign government bonds and obligations | 276 |
| | 16 |
| | (3 | ) | | 289 |
| | — |
|
Total | $ | 29,091 |
| | $ | 1,614 |
| | $ | (63 | ) | | $ | 30,642 |
| | $ | (1 | ) |
| | Description of Securities | Description of Securities | December 31, 2016 | Description of Securities | December 31, 2018 |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) |
| | (in millions) | | (in millions) |
Corporate debt securities | Corporate debt securities | $ | 15,231 |
| | $ | 1,065 |
| | $ | (60 | ) | | $ | 16,236 |
| | $ | — |
| Corporate debt securities | $ | 13,741 |
| | $ | 555 |
| | $ | (230 | ) | | $ | 14,066 |
| | $ | — |
|
Residential mortgage backed securities | Residential mortgage backed securities | 6,899 |
| | 86 |
| | (67 | ) | | 6,918 |
| | (3 | ) | Residential mortgage backed securities | 6,373 |
| | 34 |
| | (78 | ) | | 6,329 |
| | — |
|
Commercial mortgage backed securities | Commercial mortgage backed securities | 3,347 |
| | 59 |
| | (39 | ) | | 3,367 |
| | — |
| Commercial mortgage backed securities | 4,975 |
| | 18 |
| | (116 | ) | | 4,877 |
| | — |
|
Asset backed securities | Asset backed securities | 1,532 |
| | 33 |
| | (16 | ) | | 1,549 |
| | 5 |
| Asset backed securities | 1,373 |
| | 36 |
| | (11 | ) | | 1,398 |
| | 1 |
|
State and municipal obligations | State and municipal obligations | 2,195 |
| | 198 |
| | (35 | ) | | 2,358 |
| | — |
| State and municipal obligations | 2,166 |
| | 192 |
| | (13 | ) | | 2,345 |
| | — |
|
U.S. government and agencies obligations | U.S. government and agencies obligations | 7 |
| | 1 |
| | — |
| | 8 |
| | — |
| U.S. government and agencies obligations | 1,745 |
| | — |
| | — |
| | 1,745 |
| | — |
|
Foreign government bonds and obligations | Foreign government bonds and obligations | 251 |
| | 17 |
| | (7 | ) | | 261 |
| | — |
| Foreign government bonds and obligations | 298 |
| | 9 |
| | (9 | ) | | 298 |
| | — |
|
Common stocks | 10 |
| | 13 |
| | (1 | ) | | 22 |
| | 6 |
| |
Total | Total | $ | 29,472 |
| | $ | 1,472 |
| | $ | (225 | ) | | $ | 30,719 |
| | $ | 8 |
| Total | $ | 30,671 |
| | $ | 844 |
| | $ | (457 | ) | | $ | 31,058 |
| | $ | 1 |
|
| |
(1) | Represents the amount of other-than-temporary impairment (“OTTI”)OTTI losses in accumulated other comprehensive income (“AOCI”).AOCI. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
As of SeptemberJune 30, 20172019 and December 31, 2016,2018, investment securities with a fair value of $1.7$2.0 billion and $1.6$1.5 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $793$810 million and $473$510 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
As of Septemberboth June 30, 20172019 and December 31, 20162018, fixed maturity securities comprised approximately 85% and 86%, respectively,87% of Ameriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or, if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of both SeptemberJune 30, 20172019 and December 31, 20162018, the Company’s internal analysts rated $1.1 billion$632 million and $755 million, respectively, of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
Ratings | June 30, 2019 | | December 31, 2018 |
Amortized Cost | | Fair Value | | Percent of Total Fair Value | Amortized Cost | | Fair Value | | Percent of Total Fair Value |
| (in millions, except percentages) |
AAA | $ | 15,184 |
| | $ | 15,361 |
| | 50 | % | | $ | 13,399 |
| | $ | 13,252 |
| | 43 | % |
AA | 1,124 |
| | 1,310 |
| | 4 |
| | 1,571 |
| | 1,723 |
| | 5 |
|
A | 3,050 |
| | 3,472 |
| | 12 |
| | 3,667 |
| | 3,899 |
| | 13 |
|
BBB | 8,791 |
| | 9,552 |
| | 31 |
| | 11,102 |
| | 11,290 |
| | 36 |
|
Below investment grade (1) | 942 |
| | 947 |
| | 3 |
| | 932 |
| | 894 |
| | 3 |
|
Total fixed maturities | $ | 29,091 |
| | $ | 30,642 |
| | 100 | % | | $ | 30,671 |
| | $ | 31,058 |
| | 100 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
Ratings | September 30, 2017 | | December 31, 2016 |
Amortized Cost | | Fair Value | | Percent of Total Fair Value | Amortized Cost | | Fair Value | | Percent of Total Fair Value |
| (in millions, except percentages) |
AAA | $ | 10,444 |
| | $ | 10,528 |
| | 34 | % | | $ | 9,252 |
| | $ | 9,305 |
| | 31 | % |
AA | 1,914 |
| | 2,132 |
| | 7 |
| | 1,729 |
| | 1,906 |
| | 6 |
|
A | 4,986 |
| | 5,453 |
| | 18 |
| | 5,157 |
| | 5,567 |
| | 18 |
|
BBB | 10,745 |
| | 11,435 |
| | 37 |
| | 11,739 |
| | 12,340 |
| | 40 |
|
Below investment grade (1) | 1,220 |
| | 1,259 |
| | 4 |
| | 1,585 |
| | 1,579 |
| | 5 |
|
Total fixed maturities | $ | 29,309 |
| | $ | 30,807 |
| | 100 | % | | $ | 29,462 |
| | $ | 30,697 |
| | 100 | % |
| |
(1) | The amortized cost and fair value of below investment grade securities includes interest in CLOs managed by the Company of $6$4 million and $11$6 million, respectively, at SeptemberJune 30, 2017,2019, and $9$5 million and $14$6 million, respectively, at December 31, 2016.2018. These securities are not rated but are included in below investment grade due to their risk characteristics. |
As of SeptemberJune 30, 20172019 and December 31, 20162018, approximately 41%42% and 47%36%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
| | Description of Securities | Description of Securities | September 30, 2017 | Description of Securities | June 30, 2019 |
Less than 12 months | | 12 months or more | | Total | Less than 12 months | | 12 months or more | | Total |
Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses |
| | (in millions, except number of securities) | | (in millions, except number of securities) |
Corporate debt securities | Corporate debt securities | 106 |
| | $ | 1,151 |
| | $ | (7 | ) | | 34 |
| | $ | 325 |
| | $ | (16 | ) | | 140 |
| | $ | 1,476 |
| | $ | (23 | ) | Corporate debt securities | 17 |
| | $ | 69 |
| | $ | (1 | ) | | 79 |
| | $ | 946 |
| | $ | (28 | ) | | 96 |
| | $ | 1,015 |
| | $ | (29 | ) |
Residential mortgage backed securities | Residential mortgage backed securities | 113 |
| | 1,901 |
| | (16 | ) | | 109 |
| | 993 |
| | (13 | ) | | 222 |
| | 2,894 |
| | (29 | ) | Residential mortgage backed securities | 84 |
| | 1,742 |
| | (4 | ) | | 128 |
| | 1,440 |
| | (13 | ) | | 212 |
| | 3,182 |
| | (17 | ) |
Commercial mortgage backed securities | Commercial mortgage backed securities | 90 |
| | 1,391 |
| | (21 | ) | | 19 |
| | 210 |
| | (6 | ) | | 109 |
| | 1,601 |
| | (27 | ) | Commercial mortgage backed securities | 25 |
| | 642 |
| | (2 | ) | | 45 |
| | 519 |
| | (6 | ) | | 70 |
| | 1,161 |
| | (8 | ) |
Asset backed securities | Asset backed securities | 33 |
| | 398 |
| | (2 | ) | | 16 |
| | 105 |
| | (2 | ) | | 49 |
| | 503 |
| | (4 | ) | Asset backed securities | 15 |
| | 306 |
| | — |
| | 19 |
| | 152 |
| | (1 | ) | | 34 |
| | 458 |
| | (1 | ) |
State and municipal obligations | State and municipal obligations | 89 |
| | 176 |
| | (1 | ) | | 16 |
| | 142 |
| | (9 | ) | | 105 |
| | 318 |
| | (10 | ) | State and municipal obligations | 1 |
| | 16 |
| | — |
| | 11 |
| | 109 |
| | (5 | ) | | 12 |
| | 125 |
| | (5 | ) |
Foreign government bonds and obligations | Foreign government bonds and obligations | 6 |
| | 19 |
| | — |
| | 14 |
| | 21 |
| | (5 | ) | | 20 |
| | 40 |
| | (5 | ) | Foreign government bonds and obligations | 2 |
| | 10 |
| | — |
| | 14 |
| | 31 |
| | (3 | ) | | 16 |
| | 41 |
| | (3 | ) |
Common stocks | — |
| | — |
| | — |
| | 3 |
| | 1 |
| | (1 | ) | | 3 |
| | 1 |
| | (1 | ) | |
Total | Total | 437 |
| | $ | 5,036 |
| | $ | (47 | ) | | 211 |
| | $ | 1,797 |
| | $ | (52 | ) | | 648 |
| | $ | 6,833 |
| | $ | (99 | ) | Total | 144 |
| | $ | 2,785 |
| | $ | (7 | ) | | 296 |
| | $ | 3,197 |
| | $ | (56 | ) | | 440 |
| | $ | 5,982 |
| | $ | (63 | ) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description of Securities | December 31, 2016 |
Less than 12 months | | 12 months or more | | Total |
Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses |
| (in millions, except number of securities) |
Corporate debt securities | 187 |
| | $ | 2,452 |
| | $ | (33 | ) | | 38 |
| | $ | 377 |
| | $ | (27 | ) | | 225 |
| | $ | 2,829 |
| | $ | (60 | ) |
Residential mortgage backed securities | 127 |
| | 2,533 |
| | (33 | ) | | 177 |
| | 1,290 |
| | (34 | ) | | 304 |
| | 3,823 |
| | (67 | ) |
Commercial mortgage backed securities | 100 |
| | 1,583 |
| | (39 | ) | | 5 |
| | 43 |
| | — |
| | 105 |
| | 1,626 |
| | (39 | ) |
Asset backed securities | 48 |
| | 524 |
| | (9 | ) | | 27 |
| | 298 |
| | (7 | ) | | 75 |
| | 822 |
| | (16 | ) |
State and municipal obligations | 181 |
| | 374 |
| | (14 | ) | | 3 |
| | 110 |
| | (21 | ) | | 184 |
| | 484 |
| | (35 | ) |
Foreign government bonds and obligations | 7 |
| | 30 |
| | (1 | ) | | 15 |
| | 23 |
| | (6 | ) | | 22 |
| | 53 |
| | (7 | ) |
Common stocks | — |
| | — |
| | — |
| | 3 |
| | 1 |
| | (1 | ) | | 3 |
| | 1 |
| | (1 | ) |
Total | 650 |
| | $ | 7,496 |
| | $ | (129 | ) | | 268 |
| | $ | 2,142 |
| | $ | (96 | ) | | 918 |
| | $ | 9,638 |
| | $ | (225 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description of Securities | December 31, 2018 |
Less than 12 months | | 12 months or more | | Total |
Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses | Number of Securities | | Fair Value | | Unrealized Losses |
| (in millions, except number of securities) |
Corporate debt securities | 345 |
| | $ | 5,522 |
| | $ | (152 | ) | | 148 |
| | $ | 1,717 |
| | $ | (78 | ) | | 493 |
| | $ | 7,239 |
| | $ | (230 | ) |
Residential mortgage backed securities | 142 |
| | 2,029 |
| | (18 | ) | | 175 |
| | 2,132 |
| | (60 | ) | | 317 |
| | 4,161 |
| | (78 | ) |
Commercial mortgage backed securities | 104 |
| | 2,062 |
| | (30 | ) | | 112 |
| | 1,806 |
| | (86 | ) | | 216 |
| | 3,868 |
| | (116 | ) |
Asset backed securities | 38 |
| | 491 |
| | (6 | ) | | 35 |
| | 396 |
| | (5 | ) | | 73 |
| | 887 |
| | (11 | ) |
State and municipal obligations | 81 |
| | 255 |
| | (4 | ) | | 100 |
| | 254 |
| | (9 | ) | | 181 |
| | 509 |
| | (13 | ) |
Foreign government bonds and obligations | 17 |
| | 86 |
| | (4 | ) | | 14 |
| | 17 |
| | (5 | ) | | 31 |
| | 103 |
| | (9 | ) |
Total | 727 |
| | $ | 10,445 |
| | $ | (214 | ) | | 584 |
| | $ | 6,322 |
| | $ | (243 | ) | | 1,311 |
| | $ | 16,767 |
| | $ | (457 | ) |
As part of Ameriprise Financial’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to a decline inlower interest rates on the long end of the interest rate curve andas well as tighter credit spreads.
The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairmentsOTTI related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairmentsOTTI was recognized in other comprehensive income (loss) (“OCI”):OCI:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions) |
Beginning balance | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
Credit losses for which an other-than-temporary impairment was previously recognized | — |
| | — |
| | — |
| | — |
|
Ending balance | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Beginning balance | $ | 2 |
| | $ | 81 |
| | $ | 69 |
| | $ | 85 |
|
Credit losses for which an other-than-temporary impairment was not previously recognized | — |
| | — |
| | — |
| | 1 |
|
Credit losses for which an other-than-temporary impairment was previously recognized | — |
| | — |
| | 1 |
| | — |
|
Reductions for securities sold during the period (realized) | — |
| | — |
| | (68 | ) | | (5 | ) |
Ending balance | $ | 2 |
| | $ | 81 |
| | $ | 2 |
| | $ | 81 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions) |
Gross realized investment gains | $ | 3 |
| | $ | 5 |
| | $ | 22 |
| | $ | 11 |
|
Gross realized investment losses | (3 | ) | | — |
| | (12 | ) | | (1 | ) |
Other-than-temporary impairments | — |
| | — |
| | (5 | ) | | — |
|
Total | $ | — |
| | $ | 5 |
| | $ | 5 |
| | $ | 10 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Gross realized gains | $ | 6 |
| | $ | 10 |
| | $ | 50 |
| | $ | 24 |
|
Gross realized losses | (2 | ) | | (3 | ) | | (6 | ) | | (12 | ) |
Other-than-temporary impairments | — |
| | — |
| | (1 | ) | | (1 | ) |
Total | $ | 4 |
| | $ | 7 |
| | $ | 43 |
| | $ | 11 |
|
Other-than-temporary impairments for the ninesix months ended SeptemberJune 30, 2017 and 20162019 primarily related to credit losses investments held by AAH, which were classified as held for sale on asset backed securities.
the Consolidated Balance Sheet as of June 30, 2019. See Note 1315 for additional information.
See Note 16 for a rollforward of net unrealized investment gains (losses) included in AOCI.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Available-for-Sale securities by contractual maturity as of SeptemberJune 30, 20172019 were as follows:
|
| | | | | | | |
| Amortized Cost | | Fair Value |
(in millions) |
Due within one year | $ | 2,880 |
| | $ | 2,885 |
|
Due after one year through five years | 4,800 |
| | 4,937 |
|
Due after five years through 10 years | 2,940 |
| | 3,133 |
|
Due after 10 years | 4,194 |
| | 5,200 |
|
| 14,814 |
| | 16,155 |
|
Residential mortgage backed securities | 7,697 |
| | 7,770 |
|
Commercial mortgage backed securities | 5,071 |
| | 5,158 |
|
Asset backed securities | 1,509 |
| | 1,559 |
|
Total | $ | 29,091 |
| | $ | 30,642 |
|
|
| | | | | | | |
| Amortized Cost | | Fair Value |
(in millions) |
Due within one year | $ | 2,311 |
| | $ | 2,340 |
|
Due after one year through five years | 6,562 |
| | 6,820 |
|
Due after five years through 10 years | 3,852 |
| | 4,010 |
|
Due after 10 years | 4,316 |
| | 5,249 |
|
| 17,041 |
| | 18,419 |
|
Residential mortgage backed securities | 6,740 |
| | 6,790 |
|
Commercial mortgage backed securities | 3,917 |
| | 3,952 |
|
Asset backed securities | 1,611 |
| | 1,646 |
|
Common stocks | 9 |
| | 19 |
|
Total | $ | 29,318 |
| | $ | 30,826 |
|
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities as well as common stocks, were not included in the maturities distribution.
5. 6. Financing Receivables
The Company’s financing receivables primarily include commercial mortgage loans, syndicated loans, consumer loans, policy loans, certificate loans, advisor loans, margin loans and margin loans.the reinsurance deposit receivable. Commercial mortgage loans, syndicated loans, consumer loans, policy loans and certificate loans are reflected in investments. MarginAdvisor loans, margin loans and the reinsurance deposit receivable are recorded in receivables.
Allowance for Loan Losses
Policy and certificate loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy and certificate loans, the Company does not record an allowance for loan losses. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. AsThe Company does not have an allowance for loan losses for the reinsurance deposit receivable as the receivable is supported by a trust and there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.loss.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Commercial Mortgage Loans and Syndicated Loans
The following table presents a rollforward of the allowance for loan losses for the ninesix months ended and the ending balance of the allowance for loan losses by impairment method:
|
| | | | | | | |
| June 30, |
2019 | | 2018 |
(in millions) |
Beginning balance | $ | 24 |
| | $ | 26 |
|
Charge-offs | (1 | ) | | (2 | ) |
Provisions | — |
| | — |
|
Ending balance | $ | 23 |
| | $ | 24 |
|
| | | |
Individually evaluated for impairment | $ | — |
| | $ | — |
|
Collectively evaluated for impairment | 23 |
| | 24 |
|
|
| | | | | | | |
| September 30, |
2017 | | 2016 |
(in millions) |
Beginning balance | $ | 29 |
| | $ | 32 |
|
Charge-offs | — |
| | (1 | ) |
Provisions | (1 | ) | | (1 | ) |
Ending balance | $ | 28 |
| | $ | 30 |
|
|
Individually evaluated for impairment | $ | 3 |
| | $ | 2 |
|
Collectively evaluated for impairment | 25 |
| | 28 |
|
The recorded investment in financing receivables by impairment method was as follows:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Individually evaluated for impairment | $ | 14 |
| | $ | 24 |
|
Collectively evaluated for impairment | 3,216 |
| | 3,239 |
|
Total | $ | 3,230 |
| | $ | 3,263 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions) |
Individually evaluated for impairment | $ | 19 |
| | $ | 12 |
|
Collectively evaluated for impairment | 3,490 |
| | 3,480 |
|
Total | $ | 3,509 |
| | $ | 3,492 |
|
As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $13$14 million and $7$24 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance.
During the three months ended SeptemberJune 30, 20172019 and 2016,2018, the Company purchased $18$41 million and $22$112 million, respectively, of syndicated loans, and sold $12$14 million and nil,$33 million, respectively, primarily of syndicated loans. During the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company purchased $154$74 million and $65$145 million, of syndicated loans, respectively, and sold $16 million of syndicated loans, and $271 million of consumer loans, respectively. The loans sold during the nine months ended September 30, 2016 were sold on March 30, 2016 to a third party. The Company received cash proceeds of $260$27 million and recognized a loss$36 million, respectively, of $11 million.syndicated loans.
The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.
Financial Advisor Loans
The Company offers loans to financial advisors for transitional cost assistance. Repayment of the loan is dependent on the retention of the financial advisor. In the event a financial advisor is no longer affiliated with the Company, any unpaid balances become immediately due. As of June 30, 2019 and December 31, 2018, principal amounts outstanding for advisor loans were $603 million and $558 million, respectively. As of June 30, 2019 and December 31, 2018, allowance for loan losses were $27 million and $25 million, respectively. The allowance for loan losses related to loans to financial advisors is not included in the table disclosures above. Of the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with the Company was $15 million and $18 million as of June 30, 2019 and December 31, 2018, respectively. The allowance for loan losses on these loans was $11 million and $13 million as of June 30, 2019 and December 31, 2018, respectively.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were $2$13 million and $16 million as of both SeptemberJune 30, 20172019 and December 31, 2016.2018, respectively. All other loans were considered to be performing.
Commercial Mortgage Loans
The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were less than 1% and nil of total commercial mortgage loans as of Septemberboth June 30, 20172019 and December 31, 2016, respectively.2018. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
| | | Loans | | Percentage | Loans | | Percentage |
September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | June 30, 2019 | | December 31, 2018 | June 30, 2019 | | December 31, 2018 |
(in millions) | | | | | (in millions) | | | | |
East North Central | $ | 237 |
| | $ | 198 |
| | 9 | % | | 7 | % | $ | 216 |
| | $ | 216 |
| | 8 | % | | 8 | % |
East South Central | 92 |
| | 88 |
| | 3 |
| | 3 |
| 107 |
| | 107 |
| | 4 |
| | 4 |
|
Middle Atlantic | 198 |
| | 203 |
| | 7 |
| | 8 |
| 186 |
| | 187 |
| | 7 |
| | 7 |
|
Mountain | 253 |
| | 240 |
| | 9 |
| | 9 |
| 249 |
| | 237 |
| | 9 |
| | 9 |
|
New England | 87 |
| | 91 |
| | 3 |
| | 3 |
| 56 |
| | 62 |
| | 2 |
| | 2 |
|
Pacific | 785 |
| | 746 |
| | 28 |
| | 28 |
| 813 |
| | 814 |
| | 30 |
| | 30 |
|
South Atlantic | 767 |
| | 783 |
| | 28 |
| | 29 |
| 705 |
| | 731 |
| | 26 |
| | 27 |
|
West North Central | 215 |
| | 222 |
| | 8 |
| | 8 |
| 205 |
| | 213 |
| | 8 |
| | 8 |
|
West South Central | 136 |
| | 131 |
| | 5 |
| | 5 |
| 144 |
| | 148 |
| | 6 |
| | 5 |
|
| 2,770 |
| | 2,702 |
| | 100 | % | | 100 | % | 2,681 |
| | 2,715 |
| | 100 | % | | 100 | % |
Less: allowance for loan losses | 21 |
| | 21 |
| | |
| | |
| 19 |
| | 19 |
| | |
| | |
|
Total | $ | 2,749 |
| | $ | 2,681 |
| | |
| | |
| $ | 2,662 |
| | $ | 2,696 |
| | |
| | |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
|
| | | | | | | | | | | | | |
| Loans | | Percentage |
June 30, 2019 | | December 31, 2018 | June 30, 2019 | | December 31, 2018 |
(in millions) | | | | |
Apartments | $ | 611 |
| | $ | 621 |
| | 23 | % | | 23 | % |
Hotel | 53 |
| | 43 |
| | 2 |
| | 1 |
|
Industrial | 432 |
| | 453 |
| | 16 |
| | 17 |
|
Mixed use | 68 |
| | 54 |
| | 3 |
| | 2 |
|
Office | 420 |
| | 435 |
| | 15 |
| | 16 |
|
Retail | 901 |
| | 897 |
| | 34 |
| | 33 |
|
Other | 196 |
| | 212 |
| | 7 |
| | 8 |
|
| 2,681 |
| | 2,715 |
| | 100 | % | | 100 | % |
Less: allowance for loan losses | 19 |
| | 19 |
| | |
| | |
|
Total | $ | 2,662 |
| | $ | 2,696 |
| | |
| | |
|
|
| | | | | | | | | | | | | |
| Loans | | Percentage |
September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
(in millions) | | | | |
Apartments | $ | 560 |
| | $ | 504 |
| | 20 | % | | 19 | % |
Hotel | 41 |
| | 42 |
| | 1 |
| | 1 |
|
Industrial | 466 |
| | 446 |
| | 17 |
| | 17 |
|
Mixed use | 48 |
| | 49 |
| | 2 |
| | 2 |
|
Office | 502 |
| | 489 |
| | 18 |
| | 18 |
|
Retail | 937 |
| | 950 |
| | 34 |
| | 35 |
|
Other | 216 |
| | 222 |
| | 8 |
| | 8 |
|
| 2,770 |
| | 2,702 |
| | 100 | % | | 100 | % |
Less: allowance for loan losses | 21 |
| | 21 |
| | |
| | |
|
Total | $ | 2,749 |
| | $ | 2,681 |
| | |
| | |
|
Syndicated Loans
The recorded investment in syndicated loans as of SeptemberJune 30, 20172019 and December 31, 20162018 was $486$549 million and $482$548 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans as of Septemberboth June 30, 20172019 and December 31, 20162018 were $2 million and $1 million, respectively.not material.
Consumer Loans
The recorded investment in consumer loans as of September 30, 2017 and December 31, 2016 was $253 million and $308 million, respectively. The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration in determining the allowance for loan losses for consumer loans. At a minimum, management updates FICO scores and LTV ratios semiannually.
As of September 30, 2017 and December 31, 2016, approximately 1% and 2%, respectively, of consumer loans had FICO scores below 640. As of both September 30, 2017 and December 31, 2016, none of the Company’s consumer loans had LTV ratios greater than 90%. The Company’s most significant geographic concentrations for consumer loans are in California representing 52% of the portfolio as of both September 30, 2017 and December 31, 2016. Colorado and Washington represent 18% and 13%, respectively, of the portfolio as of both September 30, 2017 and December 31, 2016. No other state represents more than 10% of the total consumer loan portfolio.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
During the third quarter of 2017, the Company entered into an agreement with an unaffiliated third party to sell $258 million of consumer mortgage loans and recorded a $7 million loss to reflect the loans at fair value.
Troubled Debt Restructurings
The recorded investment in restructured loans was not material as of Septemberboth June 30, 20172019 and December 31, 2016. The troubled2018. Troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for both the three months and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. There are no commitments to lend additional funds to borrowers whose loans have been restructured.
Reinsurance Deposit Receivable
The reinsurance deposit receivable was $1.6 billion as of June 30, 2019.
In the first quarter of 2019, the Company reinsured approximately $1.7 billion of fixed annuity polices sold through third parties, which is approximately 20% of in force fixed annuity account balances. The arrangement contains investment guidelines and a trust to meet the Company’s risk management objectives. The transaction was effective as of January 1, 2019.
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability related to insurance risk in accordance with applicable accounting standards. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits made are included in receivables. As amounts are received, consistent with the underlying fixed annuity contracts, the reinsurance deposit receivable is adjusted. The reinsurance deposit receivable is accreted using the interest method and the adjustment is reported in other revenues.
6. 7. Deferred Acquisition Costs and Deferred Sales Inducement Costs
In the third quarter of the year, management updated market-related inputs and implemented model changes related to our living benefit valuation. In addition, management conducted its annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. The impact of unlocking to DAC in the third quarter of 2017 primarily reflected improved persistency and mortality on life insurance contracts and a correction related to a variable annuity model assumption partially offset by updates to market-related inputs to the living benefit valuation. The impact of unlocking to DAC in the third quarter of 2016 primarily reflected low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. In addition, the Company’s review of its closed LTC business in the prior year period resulted in the write-off of DAC, which was included in the impact of unlocking.
The balances of and changes inDAC were as follows:
|
| | | | | | | |
| 2019 | | 2018 |
(in millions) |
Balance at January 1 | $ | 2,776 |
| | $ | 2,676 |
|
Capitalization of acquisition costs | 150 |
| | 164 |
|
Amortization | (74 | ) | | (155 | ) |
Impact of change in net unrealized (gains) losses on securities | (123 | ) | | 83 |
|
Reclassified to assets held for sale (1) | (16 | ) | | — |
|
Balance at June 30 | $ | 2,713 |
| | $ | 2,768 |
|
(1) See Note 15 for additional information on held for sale classification.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | |
| 2017 | | 2016 | |
(in millions) |
Balance at January 1 | $ | 2,648 |
| | $ | 2,730 |
| (1) |
Capitalization of acquisition costs | 220 |
| | 274 |
| (2) |
Amortization, excluding the impact of valuation assumptions review | (201 | ) | | (279 | ) | |
Amortization, impact of valuation assumptions review | 12 |
| | (81 | ) | |
Impact of change in net unrealized securities (gains) losses | (18 | ) | | (105 | ) | |
Balance at September 30 | $ | 2,661 |
| | $ | 2,539 |
| (1) |
| |
(1)
| DAC balances were restated for the correction of commission expense accrual for certain insurance and annuity products in the fourth quarter of 2016. See Note 1 in the 2016 10-K. |
| |
(2)
| Includes a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with the loss recognition on LTC business. |
The balances of and changes in DSIC, which is included in other assets, were as follows:
|
| | | | | | | |
| 2019 | | 2018 |
(in millions) |
Balance at January 1 | $ | 251 |
| | $ | 276 |
|
Capitalization of sales inducement costs | 1 |
| | 1 |
|
Amortization | (6 | ) | | (20 | ) |
Impact of change in net unrealized (gains) losses on securities | (19 | ) | | 14 |
|
Balance at June 30 | $ | 227 |
| | $ | 271 |
|
|
| | | | | | | |
| 2017 | | 2016 |
(in millions) |
Balance at January 1 | $ | 302 |
| | $ | 335 |
|
Capitalization of sales inducement costs | 3 |
| | 4 |
|
Amortization, excluding the impact of valuation assumptions review | (26 | ) | | (32 | ) |
Amortization, impact of valuation assumptions review | (1 | ) | | 4 |
|
Impact of change in net unrealized securities (gains) losses | 1 |
| | (14 | ) |
Balance at September 30 | $ | 279 |
| | $ | 297 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
7. 8. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
Policyholder account balances, future policy benefits and claims consisted of the following:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Policyholder account balances | | | |
Fixed annuities (1) | $ | 9,102 |
| | $ | 9,338 |
|
Variable annuity fixed sub-accounts | 5,114 |
| | 5,129 |
|
Universal life (“UL”)/variable universal life (“VUL”) insurance | 3,072 |
| | 3,063 |
|
Indexed universal life (“IUL”) insurance | 1,860 |
| | 1,728 |
|
Other life insurance | 665 |
| | 683 |
|
Total policyholder account balances | 19,813 |
| | 19,941 |
|
| | | |
Future policy benefits | | | |
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”) | 1,297 |
| | 875 |
|
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) (2) | (35 | ) | | (19 | ) |
Other annuity liabilities | 104 |
| | 26 |
|
Fixed annuity life contingent liabilities | 1,458 |
| | 1,459 |
|
Life and disability income insurance | 1,217 |
| | 1,221 |
|
Long term care insurance | 5,177 |
| | 4,981 |
|
UL/VUL and other life insurance additional liabilities | 975 |
| | 749 |
|
Total future policy benefits | 10,193 |
| | 9,292 |
|
Policy claims and other policyholders’ funds | 177 |
| | 891 |
|
Total policyholder account balances, future policy benefits and claims | $ | 30,183 |
| | $ | 30,124 |
|
|
| | | | | | | | |
| September 30, 2017 | | December 31, 2016 | |
(in millions) |
Policyholder account balances |
Fixed annuities (1) | $ | 10,100 |
| | $ | 10,588 |
| |
Variable annuity fixed sub-accounts | 5,187 |
| | 5,211 |
| |
Variable universal life (“VUL”)/universal life (“UL”) insurance | 3,028 |
| | 3,007 |
| |
Indexed universal life (“IUL”) insurance | 1,290 |
| | 1,054 |
| |
Other life insurance | 731 |
| | 758 |
| |
Total policyholder account balances | 20,336 |
| | 20,618 |
| |
|
Future policy benefits |
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”) | 539 |
| | 1,017 |
| |
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) | (73 | ) | (2) | (24 | ) | (2) |
Other annuity liabilities | 85 |
| | 66 |
| |
Fixed annuity life contingent liabilities | 1,482 |
| | 1,497 |
| |
Life, disability income and long term care insurance | 6,027 |
| | 5,556 |
| |
VUL/UL and other life insurance additional liabilities | 674 |
| | 588 |
| |
Total future policy benefits | 8,734 |
| | 8,700 |
| |
Policy claims and other policyholders’ funds | 893 |
| | 884 |
| |
Total policyholder account balances, future policy benefits and claims | $ | 29,963 |
| | $ | 30,202 |
| |
(1) Includes fixed deferred annuities, non-life contingent fixed payout annuities and equity indexed annuity (“EIA”) host contracts.
(2) Includes the fair value of GMAB embedded derivatives that was a net asset as of both SeptemberJune 30, 20172019 and December 31, 20162018 reported as a contra liability.
Separate account liabilities consisted of the following:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Variable annuity | $ | 72,941 |
| | $ | 66,913 |
|
VUL insurance | 7,166 |
| | 6,451 |
|
Other insurance | 30 |
| | 29 |
|
Threadneedle investment liabilities | 4,789 |
| | 4,532 |
|
Total | $ | 84,926 |
| | $ | 77,925 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions) |
Variable annuity | $ | 73,467 |
| | $ | 69,606 |
|
VUL insurance | 7,154 |
| | 6,659 |
|
Other insurance | 33 |
| | 33 |
|
Threadneedle investment liabilities | 4,633 |
| | 3,912 |
|
Total | $ | 85,287 |
| | $ | 80,210 |
|
8.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
9. Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.
Certain UL policies offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable Annuity Guarantees by Benefit Type(1) | September 30, 2017 | | December 31, 2016 |
Total Contract Value | | Contract Value in Separate Accounts | | Net Amount at Risk | | Weighted Average Attained Age | Total Contract Value | | Contract Value in Separate Accounts | | Net Amount at Risk | | Weighted Average Attained Age |
| (in millions, except age) |
GMDB: |
Return of premium | $ | 59,806 |
| | $ | 57,840 |
| | $ | 11 |
| | 66 | | $ | 56,143 |
| | $ | 54,145 |
| | $ | 208 |
| | 65 |
Five/six-year reset | 8,869 |
| | 6,141 |
| | 13 |
| | 66 | | 8,878 |
| | 6,170 |
| | 22 |
| | 66 |
One-year ratchet | 6,502 |
| | 6,139 |
| | 12 |
| | 69 | | 6,426 |
| | 6,050 |
| | 110 |
| | 68 |
Five-year ratchet | 1,562 |
| | 1,504 |
| | 1 |
| | 65 | | 1,542 |
| | 1,483 |
| | 7 |
| | 64 |
Other | 1,057 |
| | 1,034 |
| | 58 |
| | 72 | | 965 |
| | 942 |
| | 86 |
| | 71 |
Total — GMDB | $ | 77,796 |
| | $ | 72,658 |
| | $ | 95 |
| | 66 | | $ | 73,954 |
| | $ | 68,790 |
| | $ | 433 |
| | 65 |
|
GGU death benefit | $ | 1,103 |
| | $ | 1,052 |
| | $ | 126 |
| | 69 | | $ | 1,047 |
| | $ | 996 |
| | $ | 108 |
| | 68 |
GMIB | $ | 236 |
| | $ | 219 |
| | $ | 8 |
| | 69 | | $ | 245 |
| | $ | 227 |
| | $ | 13 |
| | 68 |
|
GMWB: |
GMWB | $ | 2,525 |
| | $ | 2,517 |
| | $ | 2 |
| | 71 | | $ | 2,650 |
| | $ | 2,642 |
| | $ | 2 |
| | 70 |
GMWB for life | 42,933 |
| | 42,813 |
| | 160 |
| | 67 | | 39,436 |
| | 39,282 |
| | 289 |
| (2) | 66 |
Total — GMWB | $ | 45,458 |
| | $ | 45,330 |
| | $ | 162 |
| | 67 | | $ | 42,086 |
| | $ | 41,924 |
| | $ | 291 |
| | 66 |
|
GMAB | $ | 3,157 |
| | $ | 3,153 |
| | $ | — |
| | 59 | | $ | 3,484 |
| | $ | 3,476 |
| | $ | 21 |
| | 59 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Variable Annuity Guarantees by Benefit Type (1) | June 30, 2019 | | December 31, 2018 |
| Total Contract Value | | Contract Value in Separate Accounts | | Net Amount at Risk | | Weighted Average Attained Age | Total Contract Value | | Contract Value in Separate Accounts | | Net Amount at Risk | | Weighted Average Attained Age |
| | (in millions, except age) |
| GMDB: | | | | | | | | | | | | | | | |
| Return of premium | $ | 60,927 |
| | $ | 58,993 |
| | $ | 10 |
| | 67 | | $ | 55,810 |
| | $ | 53,872 |
| | $ | 417 |
| | 67 |
| Five/six-year reset | 8,003 |
| | 5,276 |
| | 9 |
| | 67 | | 7,670 |
| | 4,941 |
| | 112 |
| | 67 |
| One-year ratchet | 5,922 |
| | 5,579 |
| | 14 |
| | 70 | | 5,560 |
| | 5,210 |
| | 417 |
| | 70 |
| Five-year ratchet | 1,390 |
| | 1,335 |
| | 1 |
| | 66 | | 1,307 |
| | 1,251 |
| | 23 |
| | 66 |
| Other | 1,140 |
| | 1,120 |
| | 73 |
| | 72 | | 1,033 |
| | 1,014 |
| | 148 |
| | 72 |
| Total — GMDB | $ | 77,382 |
| | $ | 72,303 |
| | $ | 107 |
| | 67 | | $ | 71,380 |
| | $ | 66,288 |
| | $ | 1,117 |
| | 67 |
| | | | | | | | | | | | | | | | |
| GGU death benefit | $ | 1,077 |
| | $ | 1,025 |
| | $ | 123 |
| | 70 | | $ | 992 |
| | $ | 940 |
| | $ | 112 |
| | 70 |
| | | | | | | | | | | | | | | | |
| GMIB | $ | 189 |
| | $ | 174 |
| | $ | 8 |
| | 70 | | $ | 180 |
| | $ | 164 |
| | $ | 12 |
| | 69 |
| | | | | | | | | | | | | | | | |
| GMWB: | | | | | | | | | | | | | | | |
| GMWB | $ | 2,062 |
| | $ | 2,056 |
| | $ | 1 |
| | 73 | | $ | 1,990 |
| | $ | 1,984 |
| | $ | 3 |
| | 72 |
| GMWB for life | 45,076 |
| | 44,980 |
| | 310 |
| | 68 | | 40,966 |
| | 40,876 |
| | 742 |
| | 68 |
| Total — GMWB | $ | 47,138 |
| | $ | 47,036 |
| | $ | 311 |
| | 68 | | $ | 42,956 |
| | $ | 42,860 |
| | $ | 745 |
| | 68 |
| | | | | | | | | | | | | | | | |
|
| GMAB | $ | 2,518 |
| | $ | 2,512 |
| | $ | — |
| | 60 | | $ | 2,456 |
| | $ | 2,450 |
| | $ | 24 |
| | 59 |
| |
(1) | Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table. |
| |
(2)
| Amount revised to reflect updated contractholder mortality assumptions at December 31, 2016. |
The net amount at risk for GMDB, GGU and GMAB is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB is defined as the greater of the present value of the minimum guaranteed annuity payments less the current contract value or zero. The net amount at risk for GMWB is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero.
The following table provides information related to insurance guarantees for which the Company has established additional liabilities:
|
| | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Net Amount at Risk | | Weighted Average Attained Age | Net Amount at Risk | | Weighted Average Attained Age |
(in millions, except age) |
UL secondary guarantees | $ | 6,505 |
| | 66 | | $ | 6,513 |
| | 66 |
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Net Amount at Risk | | Weighted Average Attained Age | Net Amount at Risk | | Weighted Average Attained Age |
(in millions, except age) |
UL secondary guarantees | $ | 6,443 |
| | 65 | | $ | 6,376 |
| | 64 |
The net amount at risk for UL secondary guarantees is defined as the current guaranteed death benefit amount in excess of the current policyholder account balance.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Changes in additional liabilities (contra liabilities) for variable annuity and insurance guarantees were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| GMDB & GGU | | GMIB | | GMWB (1) | | GMAB (1) | | UL |
(in millions) |
Balance at January 1, 2018 | $ | 17 |
| | $ | 6 |
| | $ | 463 |
| | $ | (80 | ) | | $ | 489 |
|
Incurred claims | 3 |
| | — |
| | (335 | ) | | 5 |
| | 53 |
|
Paid claims | (3 | ) | | — |
| | — |
| | — |
| | (13 | ) |
Balance at June 30, 2018 | $ | 17 |
| | $ | 6 |
| | $ | 128 |
| | $ | (75 | ) | | $ | 529 |
|
| | | | | | | | | |
Balance at January 1, 2019 | $ | 19 |
| | $ | 8 |
| | $ | 875 |
| | $ | (19 | ) | | $ | 659 |
|
Incurred claims | 1 |
| | (1 | ) | | 422 |
| | (16 | ) | | 64 |
|
Paid claims | (3 | ) | | — |
| | — |
| | — |
| | (25 | ) |
Balance at June 30, 2019 | $ | 17 |
| | $ | 7 |
| | $ | 1,297 |
| | $ | (35 | ) | | $ | 698 |
|
|
| | | | | | | | | | | | | | | | | | | |
| GMDB & GGU | | GMIB | | GMWB (1) | | GMAB (1) | | UL |
(in millions) |
Balance at January 1, 2016 | $ | 14 |
| | $ | 8 |
| | $ | 1,057 |
| | $ | — |
| | $ | 332 |
|
Incurred claims | 10 |
| | — |
| | 1,056 |
| | 9 |
| | 99 |
|
Paid claims | (7 | ) | | — |
| | — |
| | (1 | ) | | (18 | ) |
Balance at September 30, 2016 | $ | 17 |
| | $ | 8 |
| | $ | 2,113 |
| | $ | 8 |
| | $ | 413 |
|
|
Balance at January 1, 2017 | $ | 16 |
| | $ | 8 |
| | $ | 1,017 |
| | $ | (24 | ) | | $ | 434 |
|
Incurred claims | 3 |
| | — |
| | (478 | ) | | (49 | ) | | 59 |
|
Paid claims | (3 | ) | | (1 | ) | | — |
| | — |
| | (22 | ) |
Balance at September 30, 2017 | $ | 16 |
| | $ | 7 |
| | $ | 539 |
| | $ | (73 | ) | | $ | 471 |
|
(1) The incurred claims for GMWB and GMAB representinclude the change in the fair value of the liabilities (contra liabilities) less paid claims.
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in millions) |
Mutual funds: | | | |
Equity | $ | 43,217 |
| | $ | 39,764 |
|
Bond | 23,351 |
| | 21,190 |
|
Other | 5,977 |
| | 5,568 |
|
Total mutual funds | $ | 72,545 |
| | $ | 66,522 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in millions) |
Mutual funds: |
Equity | $ | 44,365 |
| | $ | 40,622 |
|
Bond | 23,481 |
| | 23,142 |
|
Other | 5,117 |
| | 5,326 |
|
Total mutual funds | $ | 72,963 |
| | $ | 69,090 |
|
9. 10. Debt
The balances and the stated interest rates of outstanding debt of Ameriprise Financial were as follows:
| | | Outstanding Balance | | Stated Interest Rate | Outstanding Balance | | Stated Interest Rate |
September 30, 2017 | | December 31, 2016 | September 30, 2017 | | December 31, 2016 | June 30, 2019 | | December 31, 2018 | June 30, 2019 | | December 31, 2018 |
(in millions) | | | (in millions) | | |
Long-term debt: | Long-term debt: | | | | | | | |
Senior notes due 2019 | $ | 300 |
| | $ | 300 |
| | 7.3 | % | | 7.3 | % | $ | — |
| | $ | 300 |
| | — | % | | 7.3 | % |
Senior notes due 2020 | 750 |
| | 750 |
| | 5.3 |
| | 5.3 |
| 750 |
| | 750 |
| | 5.3 |
| | 5.3 |
|
Senior notes due 2022 | | 500 |
| | — |
| | 3.0 |
| | — |
|
Senior notes due 2023 | 750 |
| | 750 |
| | 4.0 |
| | 4.0 |
| 750 |
| | 750 |
| | 4.0 |
| | 4.0 |
|
Senior notes due 2024 | 550 |
| | 550 |
| | 3.7 |
| | 3.7 |
| 550 |
| | 550 |
| | 3.7 |
| | 3.7 |
|
Senior notes due 2026 | 500 |
| | 500 |
| | 2.9 |
| | 2.9 |
| 500 |
| | 500 |
| | 2.9 |
| | 2.9 |
|
Capitalized lease obligations | 41 |
| | 49 |
| | |
| | | |
Finance lease liabilities | | 64 |
| | 25 |
| | |
| | |
Other(1) | 11 |
| | 18 |
| | | | | (10 | ) | | (8 | ) | | | | |
Total long-term debt | 2,902 |
| | 2,917 |
| | | | | 3,104 |
| | 2,867 |
| | | | |
| | | | | | | | |
Short-term borrowings: | Short-term borrowings: | | | | | | | |
Federal Home Loan Bank (“FHLB”) advances | 151 |
| | 150 |
| | 1.3 |
| | 0.8 |
| 151 |
| | 151 |
| | 2.6 |
| | 2.6 |
|
Repurchase agreements | 50 |
| | 50 |
| | 1.4 |
| | 0.9 |
| 50 |
| | 50 |
| | 2.7 |
| | 2.6 |
|
Total short-term borrowings | 201 |
| | 200 |
| | |
| | |
| 201 |
| | 201 |
| | |
| | |
|
Total | $ | 3,103 |
| | $ | 3,117 |
| | |
| | |
| $ | 3,305 |
| | $ | 3,068 |
| | |
| | |
|
(1) Amounts include adjustments for fair value hedges on the Company’s long-term debt and unamortized discount and debt issuance costs. See Note 1213 for information on the Company’s fair value hedges.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Long-term Debt
On August 11, 2016,March 22, 2019, the Company issued $500 million of unsecured senior notes due September 15, 2026,March 22, 2022 and incurred debt issuance costs of $4$3 million. Interest payments are due semi-annually in arrears on March 1522 and September 15,22, commencing on March 15, 2017.September 22, 2019.
In the first quarter of 2016, theThe Company extinguished $16repaid $300 million principal amount of its junior subordinated7.3% senior notes due 2066 in open market transactions and recognized a gain of less than $1 million. In the second quarter of 2016, the Company redeemed the remaining $229 million of its junior subordinated notes due 2066 at a redemption price equal to 100% of the principal balance of the notes plus accrued and compounded interest.maturity on June 28, 2019.
Short-term Borrowings
The Company enters into repurchase agreements in exchange for cash, which it accounts for as secured borrowings and has pledged Available-for-Sale securities to collateralize its obligations under the repurchase agreements. As of Septemberboth June 30, 20172019 and December 31, 2016,2018, the Company has pledged $32 million and $33$52 million of agency residential mortgage backed securities and $16 million and $19 million of commercial mortgage backed securities, respectively.securities. The remaining maturity of outstanding repurchase agreements was less than one month as of SeptemberJune 30, 20172019 and less than three months as of December 31, 2016.2018. The stated interest rate of the repurchase agreements is a weighted average annualized interest rate on the repurchase agreements held as of the balance sheet date.
The Company’s life insurance subsidiary is a member of the FHLB of Des Moines which provides access to collateralized borrowings. The Company has pledged Available-for-Sale securities consisting of commercial mortgage backed securities to collateralize its obligation under these borrowings. The fair value of the securities pledged is recorded in investments and was $764$814 million and $771$780 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of Septemberboth June 30, 20172019 and less than four months as of December 31, 2016.2018. The stated interest rate of the FHLB advances is a weighted average annualized interest rate on the outstanding borrowings as of the balance sheet date.
On October 12, 2017, the Company entered into an amended and restated credit agreement that provides for an unsecured revolving credit facility of up to $750 million that expires in October 2022. Under the terms of the credit agreement for the facility, the Company may increase the amount of this facility up to $1.0 billion upon satisfaction of certain approval requirements. This agreement replaced the Company’s unsecured revolving credit facility that was to expire in May 2020. TheAs of both June 30, 2019 and December 31, 2018, the Company had no borrowings outstanding under this facility asand $1 million of both September 30, 2017 and December 31, 2016 and outstanding letters of credit issued against this facility were $1 million as of both September 30, 2017 and December 31, 2016.the facility. The Company’s credit facility contains various administrative, reporting, legal and financial covenants. The Company was in compliance with all such covenants as of both SeptemberJune 30, 20172019 and December 31, 2016.2018.
10. 11. Fair Values of Assets and Liabilities
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
Valuation Hierarchy
The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
| |
Level 1 | Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date. |
| |
Level 2 | Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities. |
| |
Level 3 | Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| | | September 30, 2017 | | June 30, 2019 | |
Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) | Assets | Assets | | | | | | | | |
Cash equivalents | $ | 136 |
| | $ | 1,882 |
| | $ | — |
| | $ | 2,018 |
| | $ | 452 |
| | $ | 3,168 |
| | $ | — |
| | $ | 3,620 |
| |
Available-for-Sale securities: | Available-for-Sale securities: | | | | | | | | |
Corporate debt securities | — |
| | 14,383 |
| | 1,267 |
| | 15,650 |
| | — |
| | 11,851 |
| | 809 |
| | 12,660 |
| |
Residential mortgage backed securities | — |
| | 6,625 |
| | 165 |
| | 6,790 |
| | — |
| | 7,322 |
| | 448 |
| | 7,770 |
| |
Commercial mortgage backed securities | — |
| | 3,887 |
| | 65 |
| | 3,952 |
| | — |
| | 5,158 |
| | — |
| | 5,158 |
| |
Asset backed securities | — |
| | 1,611 |
| | 35 |
| | 1,646 |
| | — |
| | 1,535 |
| | 24 |
| | 1,559 |
| |
State and municipal obligations | — |
| | 2,455 |
| | — |
| | 2,455 |
| | — |
| | 1,443 |
| | — |
| | 1,443 |
| |
U.S. government and agencies obligations | 6 |
| | — |
| | — |
| | 6 |
| | |
U.S. government and agency obligations | | 1,763 |
| | — |
| | — |
| | 1,763 |
| |
Foreign government bonds and obligations | — |
| | 308 |
| | — |
| | 308 |
| | — |
| | 289 |
| | — |
| | 289 |
| |
Common stocks | 4 |
| | 8 |
| | 1 |
| | 13 |
| | |
Common stocks measured at net asset value (“NAV”) | | | | | | | 6 |
| (1) | |
Total Available-for-Sale securities | 10 |
| | 29,277 |
| | 1,533 |
| | 30,826 |
| | 1,763 |
| | 27,598 |
| | 1,281 |
| | 30,642 |
| |
Equity securities | | 1 |
| | — |
| | — |
| | 1 |
| |
Investments at net asset value (“NAV”) | | | | | | | | 6 |
| (1) |
Trading securities | 131 |
| | 32 |
| | — |
| | 163 |
| | 11 |
| | 35 |
| | — |
| | 46 |
| |
Separate account assets measured at NAV | 85,287 |
| (1) | |
Investments segregated for regulatory purposes | 424 |
| | — |
| | — |
| | 424 |
| | |
Separate account assets at NAV | | | | | | | | 84,926 |
| (1) |
Investments and cash equivalents segregated for regulatory purposes | | 8 |
| | — |
| | — |
| | 8 |
| |
Other assets: | Other assets: | | | | | | | | |
Interest rate derivative contracts | 1 |
| | 1,200 |
| | — |
| | 1,201 |
| | — |
| | 1,414 |
| | — |
| | 1,414 |
| |
Equity derivative contracts | 51 |
| | 1,891 |
| | — |
| | 1,942 |
| | 115 |
| | 2,052 |
| | — |
| | 2,167 |
| |
Credit derivative contracts | — |
| | 4 |
| | — |
| | 4 |
| | |
Foreign exchange derivative contracts | 1 |
| | 42 |
| | — |
| | 43 |
| | — |
| | 55 |
| | — |
| | 55 |
| |
Total other assets | 53 |
| | 3,137 |
| | — |
| | 3,190 |
| | 115 |
| | 3,521 |
| | — |
| | 3,636 |
| |
Total assets at fair value | $ | 754 |
| | $ | 34,328 |
| | $ | 1,533 |
| | $ | 121,908 |
| | $ | 2,350 |
| | $ | 34,322 |
| | $ | 1,281 |
| | $ | 122,885 |
| |
|
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
Policyholder account balances, future policy benefits and claims: | | | | | | | | |
Indexed annuity embedded derivatives | $ | — |
| | $ | 3 |
| | $ | 31 |
| | $ | 34 |
| |
IUL embedded derivatives | — |
| | — |
| | 819 |
| | 819 |
| |
GMWB and GMAB embedded derivatives | — |
| | — |
| | 696 |
| | 696 |
| (2) |
Total policyholder account balances, future policy benefits and claims | — |
| | 3 |
| | 1,546 |
| | 1,549 |
| (3) |
Customer deposits | — |
| | 13 |
| | — |
| | 13 |
| |
Other liabilities: | | | | | | | | |
Interest rate derivative contracts | — |
| | 410 |
| | — |
| | 410 |
| |
Equity derivative contracts | 22 |
| | 2,815 |
| | — |
| | 2,837 |
| |
Credit derivative contracts | — |
| | 12 |
| | — |
| | 12 |
| |
Foreign exchange derivative contracts | — |
| | 39 |
| | — |
| | 39 |
| |
Other | 8 |
| | 8 |
| | 31 |
| | 47 |
| |
Total other liabilities | 30 |
| | 3,284 |
| | 31 |
| | 3,345 |
| |
Total liabilities at fair value | $ | 30 |
| | $ | 3,300 |
| | $ | 1,577 |
| | $ | 4,907 |
| |
|
| | | | | | | | | | | | | | | | |
Liabilities |
Policyholder account balances, future policy benefits and claims: |
EIA embedded derivatives | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| |
IUL embedded derivatives | — |
| | — |
| | 577 |
| | 577 |
| |
GMWB and GMAB embedded derivatives | — |
| | — |
| | 45 |
| | 45 |
| (2) |
Total policyholder account balances, future policy benefits and claims | — |
| | 4 |
| | 622 |
| | 626 |
| (3) |
Customer deposits | — |
| | 9 |
| | — |
| | 9 |
| |
Other liabilities: |
Interest rate derivative contracts | — |
| | 416 |
| | — |
| | 416 |
| |
Equity derivative contracts | 5 |
| | 2,664 |
| | — |
| | 2,669 |
| |
Foreign exchange derivative contracts | 4 |
| | 27 |
| | — |
| | 31 |
| |
Other | 6 |
| | 6 |
| | 27 |
| | 39 |
| |
Total other liabilities | 15 |
| | 3,113 |
| | 27 |
| | 3,155 |
| |
Total liabilities at fair value | $ | 15 |
| | $ | 3,126 |
| | $ | 649 |
| | $ | 3,790 |
| |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
| | | December 31, 2016 | | December 31, 2018 | |
Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) | Assets | Assets | | | | | | | | |
Cash equivalents | $ | 30 |
| | $ | 1,796 |
| | $ | — |
| | $ | 1,826 |
| | $ | 155 |
| | $ | 2,350 |
| | $ | — |
| | $ | 2,505 |
| |
Available-for-Sale securities: | Available-for-Sale securities: | | | | | | | | |
Corporate debt securities | — |
| | 14,925 |
| | 1,311 |
| | 16,236 |
| | — |
| | 13,153 |
| | 913 |
| | 14,066 |
| |
Residential mortgage backed securities | — |
| | 6,650 |
| | 268 |
| | 6,918 |
| | — |
| | 6,193 |
| | 136 |
| | 6,329 |
| |
Commercial mortgage backed securities | — |
| | 3,367 |
| | — |
| | 3,367 |
| | — |
| | 4,857 |
| | 20 |
| | 4,877 |
| |
Asset backed securities | — |
| | 1,481 |
| | 68 |
| | 1,549 |
| | — |
| | 1,392 |
| | 6 |
| | 1,398 |
| |
State and municipal obligations | — |
| | 2,358 |
| | — |
| | 2,358 |
| | — |
| | 2,345 |
| | — |
| | 2,345 |
| |
U.S. government and agencies obligations | 8 |
| | — |
| | — |
| | 8 |
| | |
U.S. government and agency obligations | | 1,745 |
| | — |
| | — |
| | 1,745 |
| |
Foreign government bonds and obligations | — |
| | 261 |
| | — |
| | 261 |
| | — |
| | 298 |
| | — |
| | 298 |
| |
Common stocks | 8 |
| | 8 |
| | 1 |
| | 17 |
| | |
Common stocks at NAV | | | | | | | 5 |
| (1) | |
Total Available-for-Sale securities | 16 |
| | 29,050 |
| | 1,648 |
| | 30,719 |
| | 1,745 |
| | 28,238 |
| | 1,075 |
| | 31,058 |
| |
Equity securities | | — |
| | 1 |
| | — |
| | 1 |
| |
Investments at NAV | | | | | | | | 6 |
| (1) |
Trading securities | 9 |
| | 16 |
| | — |
| | 25 |
| | 36 |
| | 38 |
| | — |
| | 74 |
| |
Separate account assets at NAV | Separate account assets at NAV | 80,210 |
| (1) | | | | | | | 77,925 |
| (1) |
Investments segregated for regulatory purposes | 425 |
| | — |
| | — |
| | 425 |
| | |
Investments and cash equivalents segregated for regulatory purposes | | 301 |
| | — |
| | — |
| | 301 |
| |
Other assets: | Other assets: | | | | | | | | |
Interest rate derivative contracts | — |
| | 1,778 |
| | — |
| | 1,778 |
| | — |
| | 796 |
| | — |
| | 796 |
| |
Equity derivative contracts | 43 |
| | 1,531 |
| | — |
| | 1,574 |
| | 191 |
| | 1,527 |
| | — |
| | 1,718 |
| |
Credit derivative contracts | — |
| | 1 |
| | — |
| | 1 |
| | |
Foreign exchange derivative contracts | 13 |
| | 80 |
| | — |
| | 93 |
| | 5 |
| | 55 |
| | — |
| | 60 |
| |
Total other assets | 56 |
| | 3,390 |
| | — |
| | 3,446 |
| | 196 |
| | 2,378 |
| | — |
| | 2,574 |
| |
Total assets at fair value | $ | 536 |
| | $ | 34,252 |
| | $ | 1,648 |
| | $ | 116,651 |
| | $ | 2,433 |
| | $ | 33,005 |
| | $ | 1,075 |
| | $ | 114,444 |
| |
| | Liabilities | Liabilities | | | | | | | | |
Policyholder account balances, future policy benefits and claims: | Policyholder account balances, future policy benefits and claims: | | | | | | | | |
EIA embedded derivatives | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| | |
Indexed annuity embedded derivatives | | $ | — |
| | $ | 3 |
| | $ | 14 |
| | $ | 17 |
| |
IUL embedded derivatives | — |
| | — |
| | 464 |
| | 464 |
| | — |
| | — |
| | 628 |
| | 628 |
| |
GMWB and GMAB embedded derivatives | — |
| | — |
| | 614 |
| | 614 |
| (4) | — |
| | — |
| | 328 |
| | 328 |
| (4) |
Total policyholder account balances, future policy benefits and claims | — |
| | 5 |
| | 1,078 |
| | 1,083 |
| (5) | — |
| | 3 |
| | 970 |
| | 973 |
| (5) |
Customer deposits | — |
| | 8 |
| | — |
| | 8 |
| | — |
| | 6 |
| | — |
| | 6 |
| |
Other liabilities: | Other liabilities: | | | | | | | | |
Interest rate derivative contracts | 2 |
| | 987 |
| | — |
| | 989 |
| | — |
| | 424 |
| | — |
| | 424 |
| |
Equity derivative contracts | 3 |
| | 2,132 |
| | — |
| | 2,135 |
| | 78 |
| | 2,076 |
| | — |
| | 2,154 |
| |
Credit derivative contracts | | — |
| | 18 |
| | — |
| | 18 |
| |
Foreign exchange derivative contracts | 2 |
| | 45 |
| | — |
| | 47 |
| | 4 |
| | 31 |
| | — |
| | 35 |
| |
Other | 3 |
| | 8 |
| | 13 |
| | 24 |
| | 13 |
| | 6 |
| | 30 |
| | 49 |
| |
Total other liabilities | 10 |
| | 3,172 |
| | 13 |
| | 3,195 |
| | 95 |
| | 2,555 |
| | 30 |
| | 2,680 |
| |
Total liabilities at fair value | $ | 10 |
| | $ | 3,185 |
| | $ | 1,091 |
| | $ | 4,286 |
| | $ | 95 |
| | $ | 2,564 |
| | $ | 1,000 |
| | $ | 3,659 |
| |
(1) Amounts are comprised of certain investmentsfinancial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.
(2) The fair value of the GMWB and GMAB embedded derivatives included $494$927 million of individual contracts in a liability position and $449$231 million of individual contracts in an asset position as of SeptemberJune 30, 2017.2019.
| |
(3) | The Company’s adjustment for nonperformance risk resulted in a $(376)$(592) million cumulative increase (decrease) to the embedded derivatives as of SeptemberJune 30, 2017.2019. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
| |
(4) | The fair value of the GMWB and GMAB embedded derivatives included $880$646 million of individual contracts in a liability position and $266$318 million of individual contracts in an asset position as of December 31, 2016.2018. |
| |
(5) | The Company’s adjustment for nonperformance risk resulted in a $(498)$(726) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2016.2018. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| | | Available-for-Sale Securities | | Available-for-Sale Securities | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Common Stocks | | Total | Corporate Debt Securities | | Residential Mortgage Backed Securities | | Asset Backed Securities | | Total |
(in millions) | (in millions) | |
Balance, July 1, 2017 | $ | 1,333 |
| | $ | 172 |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | 1,538 |
| |
Balance, April 1, 2019 | | Balance, April 1, 2019 | $ | 847 |
| | $ | 37 |
| | $ | 6 |
| | $ | 890 |
| |
Total gains (losses) included in: | Total gains (losses) included in: | Total gains (losses) included in: | | | | | | | | |
Other comprehensive income | (1 | ) | | 1 |
| | — |
| | (2 | ) | | 1 |
| | (1 | ) | Other comprehensive income | 13 |
| | — |
| | — |
| | 13 |
| |
Purchases | 39 |
| | — |
| | 65 |
| | 10 |
| | — |
| | 114 |
| Purchases | 14 |
| | 417 |
| | 18 |
| | 449 |
| |
Settlements | (104 | ) | | (9 | ) | | — |
| | — |
| | — |
| | (113 | ) | Settlements | (65 | ) | | (2 | ) | | — |
| | (67 | ) | |
Transfers into Level 3 | — |
| | 20 |
| | — |
| | 13 |
| | — |
| | 33 |
| |
Transfers out of Level 3 | — |
| | (19 | ) | | — |
| | (19 | ) | | — |
| | (38 | ) | Transfers out of Level 3 | — |
| | (4 | ) | | — |
| | (4 | ) | |
Balance, September 30, 2017 | $ | 1,267 |
| | $ | 165 |
| | $ | 65 |
| | $ | 35 |
| | $ | 1 |
| | $ | 1,533 |
| |
Changes in unrealized gains (losses) relating to assets held at September 30, 2017 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Balance, June 30, 2019 | | Balance, June 30, 2019 | $ | 809 |
| | $ | 448 |
| | $ | 24 |
| | $ | 1,281 |
| |
| | | | | | | | | | |
Changes in unrealized gains (losses) relating to assets held at June 30, 2019 | | Changes in unrealized gains (losses) relating to assets held at June 30, 2019 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| | | Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | | Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total | Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) | (in millions) | |
Balance, July 1, 2017 | $ | 527 |
| | $ | 272 |
| | $ | 799 |
| | $ | 14 |
| |
Balance, April 1, 2019 | | Balance, April 1, 2019 | $ | 23 |
| | $ | 745 |
| | $ | 180 |
| | $ | 948 |
| | $ | 31 |
| |
Total (gains) losses included in: | Total (gains) losses included in: | Total (gains) losses included in: | | | | | | | | | | |
Net income | 35 |
| (1) | (309 | ) | (2) | (274 | ) | | — |
| Net income | 1 |
| (1) | 60 |
| (1) | 433 |
| (2) | 494 |
| | — |
| |
Issues | 26 |
| | 84 |
| | 110 |
| | 13 |
| Issues | 7 |
| | 31 |
| | 86 |
| | 124 |
| | — |
| |
Settlements | (11 | ) | | (2 | ) | | (13 | ) | | — |
| Settlements | — |
| | (17 | ) | | (3 | ) | | (20 | ) | | — |
| |
Balance, September 30, 2017 | $ | 577 |
| | $ | 45 |
| | $ | 622 |
| | $ | 27 |
| |
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2017 | $ | 35 |
| (1) | $ | (307 | ) | (2) | $ | (272 | ) | | $ | — |
| |
Balance, June 30, 2019 | | Balance, June 30, 2019 | $ | 31 |
| | $ | 819 |
| | $ | 696 |
| | $ | 1,546 |
| | $ | 31 |
| |
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2019 | | Changes in unrealized (gains) losses relating to liabilities held at June 30, 2019 | $ | — |
| | $ | 60 |
| (1) | $ | 430 |
| (2) | $ | 490 |
| | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | Other Derivatives Contracts | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Total | |
(in millions) |
Balance, April 1, 2018 | $ | 1,095 |
| | $ | 146 |
| | $ | — |
| | $ | 17 |
| | $ | 1,258 |
| | $ | — |
| |
Total gains (losses) included in: | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | (2) |
Other comprehensive loss | (12 | ) | | 3 |
| | — |
| | — |
| | (9 | ) | | — |
| |
Purchases | 15 |
| | — |
| | 52 |
| | 22 |
| | 89 |
| | 3 |
| |
Settlements | (58 | ) | | (12 | ) | | — |
| | — |
| | (70 | ) | | — |
| |
Transfers into Level 3 | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
| |
Transfers out of Level 3 | — |
| | (17 | ) | | — |
| | (10 | ) | | (27 | ) | | — |
| |
Balance, June 30, 2018 | $ | 1,040 |
| | $ | 120 |
| | $ | 52 |
| | $ | 31 |
| | $ | 1,243 |
| | $ | 2 |
| |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) relating to assets held at June 30, 2018 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | (2) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) | |
Balance, April 1, 2018 | $ | 3 |
| | $ | 585 |
| | $ | (329 | ) | | $ | 259 |
| | $ | 28 |
| |
Total (gains) losses included in: | | | | | | | | | | |
Net income | — |
| | 26 |
| (1) | (175 | ) | (2) | (149 | ) | | 1 |
| (3) |
Issues | 5 |
| | 21 |
| | 84 |
| | 110 |
| | — |
| |
Settlements | — |
| | (12 | ) | | (5 | ) | | (17 | ) | | — |
| |
Balance, June 30, 2018 | $ | 8 |
| | $ | 620 |
| | $ | (425 | ) | | $ | 203 |
| | $ | 29 |
| |
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2018 | $ | — |
| | $ | 26 |
| (1) | $ | (173 | ) | (2) | $ | (147 | ) | | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Total |
(in millions) | |
Balance, January 1, 2019 | $ | 913 |
| | $ | 136 |
| | $ | 20 |
| | $ | 6 |
| | $ | 1,075 |
| |
Total gains (losses) included in: | | | | | | | | | | |
Other comprehensive income (loss) | 28 |
| | — |
| | — |
| | — |
| | 28 |
| |
Purchases | 14 |
| | 417 |
| | — |
| | 18 |
| | 449 |
| |
Settlements | (146 | ) | | (6 | ) | | — |
| | — |
| | (152 | ) | |
Transfers out of Level 3 | — |
| | (99 | ) | | (20 | ) | | — |
| | (119 | ) | |
Balance, June 30, 2019 | $ | 809 |
| | $ | 448 |
| | $ | — |
| | $ | 24 |
| | $ | 1,281 |
| |
| | | | | | | | | | |
Changes in unrealized gains (losses) relating to assets held at June 30, 2019 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | Other Derivative Contracts | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Total |
(in millions) | | |
Balance, July 1, 2016 | $ | 1,350 |
| | $ | 153 |
| | $ | — |
| | $ | 178 |
| | $ | 1,681 |
| | $ | 2 |
| |
Total gains (losses) included in: | |
Net income | — |
| | — |
| | — |
| | 1 |
| | 1 |
| (3) | (2 | ) | (2) |
Other comprehensive income | (2 | ) | | 1 |
| | — |
| | 1 |
| | — |
| | — |
| |
Purchases | 20 |
| | 144 |
| | 33 |
| | 12 |
| | 209 |
| | — |
| |
Settlements | (26 | ) | | (14 | ) | | — |
| | — |
| | (40 | ) | | — |
| |
Transfers out of Level 3 | — |
| | 1 |
| | — |
| | (27 | ) | | (26 | ) | | — |
| |
Balance, September 30, 2016 | $ | 1,342 |
| | $ | 285 |
| | $ | 33 |
| | $ | 165 |
| | $ | 1,825 |
| | $ | — |
| |
Changes in unrealized gains (losses) relating to assets held at September 30, 2016 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2 | ) | (2) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) | |
Balance, January 1, 2019 | $ | 14 |
| | $ | 628 |
| | $ | 328 |
| | $ | 970 |
| | $ | 30 |
| |
Total (gains) losses included in: | | | | | | | | | | |
Net income | 3 |
| (1) | 158 |
| (1) | 203 |
| (2) | 364 |
| | 1 |
| (3) |
Issues | 14 |
| | 67 |
| | 170 |
| | 251 |
| | — |
| |
Settlements | — |
| | (34 | ) | | (5 | ) | | (39 | ) | | — |
| |
Balance, June 30, 2019 | $ | 31 |
| | $ | 819 |
| | $ | 696 |
| | $ | 1,546 |
| | $ | 31 |
| |
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2019 | $ | — |
| | $ | 158 |
| (1) | $ | 200 |
| (2) | $ | 358 |
| | $ | — |
| |
|
| | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | |
IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total | | Other Liabilities |
(in millions) | | |
Balance, July 1, 2016 | $ | 408 |
| | $ | 1,965 |
| | $ | 2,373 |
| | $ | — |
|
Total (gains) losses included in: | | |
Net income | 12 |
| (1) | (280 | ) | (2) | (268 | ) | | — |
|
Issues | 25 |
| | 77 |
| | 102 |
| | 13 |
|
Settlements | (7 | ) | | (6 | ) | | (13 | ) | | — |
|
Balance, September 30, 2016 | $ | 438 |
| | $ | 1,756 |
| | $ | 2,194 |
| | $ | 13 |
|
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2016 | $ | 12 |
| (1) | $ | (267 | ) | (2) | $ | (255 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Common Stocks | | Total |
(in millions) |
Balance, January 1, 2017 | $ | 1,311 |
| | $ | 268 |
| | $ | — |
| | $ | 68 |
| | $ | 1 |
| | $ | 1,648 |
| |
Total gains (losses) included in: |
Other comprehensive income | 1 |
| | 2 |
| | — |
| | — |
| | 1 |
| | 4 |
| |
Purchases | 109 |
| | 132 |
| | 65 |
| | 64 |
| | — |
| | 370 |
| |
Settlements | (154 | ) | | (34 | ) | | — |
| | (15 | ) | | — |
| | (203 | ) | |
Transfers into Level 3 | — |
| | 20 |
| | — |
| | 27 |
| | 8 |
| | 55 |
| |
Transfers out of Level 3 | — |
| | (223 | ) | | — |
| | (109 | ) | | (9 | ) | | (341 | ) | |
Balance, September 30, 2017 | $ | 1,267 |
| | $ | 165 |
| | $ | 65 |
| | $ | 35 |
| | $ | 1 |
| | $ | 1,533 |
| |
Changes in unrealized gains (losses) relating to assets held at September 30, 2017 | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | (3) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) |
Balance, January 1, 2017 | $ | 464 |
| | $ | 614 |
| | $ | 1,078 |
| | $ | 13 |
| |
Total (gains) losses included in: |
Net income | 75 |
| (1) | (798 | ) | (2) | (723 | ) | | 1 |
| (4) |
Issues | 70 |
| | 238 |
| | 308 |
| | 13 |
| |
Settlements | (32 | ) | | (9 | ) | | (41 | ) | | — |
| |
Balance, September 30, 2017 | $ | 577 |
| | $ | 45 |
| | $ | 622 |
| | $ | 27 |
| |
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2017 | $ | 75 |
| (1) | $ | (771 | ) | (2) | $ | (696 | ) | | $ | — |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | Other Derivatives Contracts | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Total |
(in millions) | | | |
Balance, January 1, 2018 | $ | 1,139 |
| | $ | 155 |
| | $ | — |
| | $ | 7 |
| | $ | 1,301 |
| | $ | — |
| |
Total gains (losses) included in: | | | | | | | | | | | | |
Net income | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | (4) | (1 | ) | (2) |
Other comprehensive income (loss) | (26 | ) | | 1 |
| | — |
| | — |
| | (25 | ) | | — |
| |
Purchases | 15 |
| | — |
| | 52 |
| | 32 |
| | 99 |
| | 3 |
| |
Settlements | (87 | ) | | (19 | ) | | — |
| | — |
| | (106 | ) | | — |
| |
Transfers into Level 3 | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
| |
Transfers out of Level 3 | — |
| | (17 | ) | | — |
| | (10 | ) | | (27 | ) | | — |
| |
Balance, June 30, 2018 | $ | 1,040 |
| | $ | 120 |
| | $ | 52 |
| | $ | 31 |
| | $ | 1,243 |
| | $ | 2 |
| |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) relating to assets held at June 30, 2018 | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | (4) | $ | (1 | ) | (2) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | Other Derivative Contracts | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Total |
(in millions) | | |
Balance, January 1, 2016 | $ | 1,425 |
| | $ | 218 |
| | $ | 3 |
| | $ | 162 |
| | $ | 1,808 |
| | $ | — |
| |
Cumulative effect of change in accounting policies | — |
| | — |
| | — |
| | 21 |
| | 21 |
| | — |
| |
Total gains (losses) included in: | |
Net income | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | (3) | (2 | ) | (2) |
Other comprehensive income | 29 |
| | — |
| | — |
| | (5 | ) | | 24 |
| | — |
| |
Purchases | 34 |
| | 144 |
| | 42 |
| | 28 |
| | 248 |
| | 2 |
| |
Settlements | (144 | ) | | (53 | ) | | (3 | ) | | (1 | ) | | (201 | ) | | — |
| |
Transfers into Level 3 | — |
| | — |
| | — |
| | 12 |
| | 12 |
| | — |
| |
Transfers out of Level 3 | — |
| | (24 | ) | | (9 | ) | | (52 | ) | | (85 | ) | | — |
| |
Balance, September 30, 2016 | $ | 1,342 |
| | $ | 285 |
| | $ | 33 |
| | $ | 165 |
| | $ | 1,825 |
| | $ | — |
| |
Changes in unrealized gains (losses) relating to assets held at September 30, 2016 | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | (3) | $ | (2 | ) | (2) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) | |
Balance, January 1, 2018 | $ | — |
| | $ | 601 |
| | $ | (49 | ) | | $ | 552 |
| | $ | 28 |
| |
Total (gains) losses included in: | | | | | | | | | | |
Net income | — |
| | 1 |
| (1) | (531 | ) | (2) | (530 | ) | | 1 |
| (3) |
Issues | 8 |
| | 41 |
| | 167 |
| | 216 |
| | — |
| |
Settlements | — |
| | (23 | ) | | (12 | ) | | (35 | ) | | — |
| |
Balance, June 30, 2018 | $ | 8 |
| | $ | 620 |
| | $ | (425 | ) | | $ | 203 |
| | $ | 29 |
| |
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2018 | $ | — |
| | $ | 1 |
| (1) | $ | (521 | ) | (2) | $ | (520 | ) | | $ | — |
| |
|
| | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities |
IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total | |
(in millions) | | |
Balance, January 1, 2016 | $ | 364 |
| | $ | 851 |
| | $ | 1,215 |
| | $ | — |
|
Total (gains) losses included in: | | |
Net income | 8 |
| (1) | 708 |
| (2) | 716 |
| | — |
|
Issues | 86 |
| | 215 |
| | 301 |
| | 13 |
|
Settlements | (20 | ) | | (18 | ) | | (38 | ) | | — |
|
Balance, September 30, 2016 | $ | 438 |
| | $ | 1,756 |
| | $ | 2,194 |
| | $ | 13 |
|
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2016 | $ | 8 |
| (1) | $ | 830 |
| (2) | $ | 838 |
| | $ | — |
|
(1) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.
(3)Included in net investment income in the Consolidated Statements of Operations.
(4) Included in general and administrative expense in the Consolidated Statements of Operations.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(4) Included in net investment income in the Consolidated Statements of Operations.
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(37)$43 million and $8$15 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(91)$(115) million and $295$48 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
| | | September 30, 2017 | June 30, 2019 |
Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average |
(in millions) | Corporate debt securities (private placements) | $ | 1,266 | | Discounted cash flow | Yield/spread to U.S. Treasuries | 0.8 | % | – | 2.3% | 1.1 | % | $ | 808 | | Discounted cash flow | Yield/spread to U.S. Treasuries | 0.8 | % | – | 2.9% | 1.3 | % |
Asset backed securities | $ | 11 | | Discounted cash flow | Annual short-term default rate | 3.8% | | $ | 6 | | Discounted cash flow | Annual short-term default rate | 2.8% | |
| | | Annual long-term default rate | 2.5% | – | 3.0% | 2.6 | % | | | Annual long-term default rate | 2.5 | % | – | 3.0% | 2.6 | % |
| | | Discount rate | 11.0% | | | | Discount rate | 11.0% | |
| | | Constant prepayment rate | 5.0 | % | – | 10.0% | 9.9 | % | | | Constant prepayment rate | 5.0 | % | – | 10.0% | 10.0 | % |
| | | Loss recovery | 36.4 | % | – | 63.6% | 63.1 | % | | | Loss recovery | 36.4 | % | – | 63.6% | 63.6 | % |
IUL embedded derivatives | $ | 577 | | Discounted cash flow | Nonperformance risk (1) | 67 bps | | $ | 819 | | Discounted cash flow | Nonperformance risk (1) | 78 bps | |
Indexed annuity embedded derivatives | | $ | 31 | | Discounted cash flow | Surrender rate | 0.0 | % | – | 50.0% | |
| | | | | Nonperformance risk (1) | 78 bps | |
GMWB and GMAB embedded derivatives | $ | 45 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 42.0% | | $ | 696 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 36.0% | |
| | | | Surrender rate | 0.1 | % | – | 74.7% | | | | | Surrender rate | 0.1 | % | – | 73.4% | |
| | | | Market volatility (3) | 4.3 | % | – | 15.9% | | | | | Market volatility (3) | 3.8 | % | – | 15.6% | |
| | | | Nonperformance risk (1) | 67 bps | | | | | Nonperformance risk (1) | 78 bps | |
Contingent consideration liabilities | $ | 27 | | Discounted cash flow | Discount rate | 9.0% | | $ | 31 | | Discounted cash flow | Discount rate | 9.0% | |
| | | December 31, 2016 | December 31, 2018 |
Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average |
(in millions) | Corporate debt securities (private placements) | $ | 1,308 | | Discounted cash flow | Yield/spread to U.S. Treasuries | 0.9 | % | – | 2.5% | 1.3 | % | $ | 912 | | Discounted cash flow | Yield/spread to U.S. Treasuries | 1.0 | % | – | 3.6% | 1.5 | % |
Asset backed securities | $ | 14 | | Discounted cash flow | Annual short-term default rate | 4.8% | | $ | 6 | | Discounted cash flow | Annual short-term default rate | 2.3% | |
| | | Annual long-term default rate | 2.5% | | | | Annual long-term default rate | 2.5 | % | – | 3.0% | 2.9 | % |
| | | Discount rate | 13.5% | | | | Discount rate | 11.5% | |
| | | Constant prepayment rate | 5.0 | % | – | 10.0% | 9.9 | % | | | Constant prepayment rate | 5.0 | % | – | 10.0% | 10.0 | % |
| | | Loss recovery | 36.4 | % | – | 63.6% | 62.8 | % | | | Loss recovery | 36.4 | % | – | 63.6% | 63.6 | % |
IUL embedded derivatives | $ | 464 | | Discounted cash flow | Nonperformance risk (1) | 82 bps | | $ | 628 | | Discounted cash flow | Nonperformance risk (1) | 119 bps | |
Indexed annuity embedded derivatives | | $ | 14 | | Discounted cash flow | Surrender rate | 0.0 | % | – | 50.0% | |
| | | | Nonperformance risk (1) | 119 bps | |
GMWB and GMAB embedded derivatives | $ | 614 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 75.6% | | $ | 328 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 36.0% | |
| | | | Surrender rate | 0.1 | % | – | 66.4% | | | | Surrender rate | 0.1 | % | – | 73.4% | |
| | | | Market volatility (3) | 5.3 | % | – | 21.2% | | | | | Market volatility (3) | 4.0 | % | – | 16.1% | |
| | | | Nonperformance risk (1) | 82 bps | | | | | Nonperformance risk (1) | 119 bps | |
Contingent consideration liabilities | $ | 13 | | Discounted cash flow | Discount rate | 9.0% | | $ | 30 | | Discounted cash flow | Discount rate | 9.0% | |
| |
(1) | The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives. |
| |
(2) | The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year. |
| |
(3) | Market volatility is implied volatility of fund of funds and managed volatility funds. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Sensitivity
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Uncertainty of Fair Value Measurements to Changes in Unobservable Inputs
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would resulthave resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would resulthave resulted in a significantly lower (higher) fair value measurement and a significant increase (decrease)increases (decreases) in loss recovery in isolation would resulthave resulted in a significantly higher (lower) fair value measurement. A significant increase (decrease)Significant increases (decreases) in the constant prepayment rate in isolation would resulthave resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would resulthave resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the indexed annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value.
Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would resulthave resulted in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would resulthave resulted in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.
Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would resulthave resulted in a significantly lower (higher) fair value measurement.
Determination of Fair Value
The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Investments (Available-for-Sale Securities, Equity Securities and Trading Securities)
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third partythird-party pricing services, non-binding broker quotes, or other model-based valuation techniques.
Level 1 securities primarily include U.S. Treasuries.
Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, state and municipal obligations and U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third partythird-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes.
Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
third party third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third partythird-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
Separate Account Assets
The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account.account assets. Separate account assets are excluded from classification in the fair value hierarchy.
Investments and Cash Equivalents Segregated for Regulatory Purposes
Investments and cash equivalents segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps, foreign currency forwards and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of Septemberboth June 30, 20172019 and December 31, 20162018. See Note 1112 and Note 1213 for further information on the credit risk of derivative instruments and related collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discountingas the present value of future expected cash flows from benefits plus margins for profit, risk and expensesbenefit payments less the present value of future expected rider fees attributable to the embedded derivative fees.feature. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its EIAfixed index annuity and IUL products. SignificantThe Company uses a discounted cash flow model to determine the fair value of the embedded derivatives associated with the provisions of its equity index annuity product. The projected cash flows generated by this model are based on significant observable inputs related to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of thefixed index annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the fixed index annuity and IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.
Customer Deposits
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates.certificates (“SMC”). The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.
Other Liabilities
Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps, foreign currency forwards and the majority of options. The Company’s nonperformance risk associated with uncollateralized
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
derivative liabilities was immaterial as of Septemberboth June 30, 20172019 and December 31, 2016.2018. See Note 1112 and Note 1213 for further information on the credit risk of derivative instruments and related collateral.
Securities sold but not yet purchased include highly liquid investments which are short-term in nature.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Securities sold but not yet purchased are measured using amortized cost, which isrepresent obligations of the Company to deliver specified securities that it does not yet own, creating a reasonable estimate ofliability to purchase the security in the market at prevailing prices. When available, the fair value because of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, or other model-based valuation techniques such as the short time between the purchasepresent value of the instrument and its expected realization and are classified ascash flows. Level 2.1 securities sold but not yet purchased primarily include U.S Treasuries traded in active markets. Level 2 securities sold but not yet purchased primarily include corporate bonds.
Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company’s acquisitions. Contingentacquisitions. Contingent consideration liabilities are recorded at fair value using a discounted cash flow model under multiple scenarios and an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy.
Loans heldFair Value on a Nonrecurring Basis
The Company assesses its investment in affordable housing partnerships for saleOTTI. The investments that are requireddetermined to be recorded at the lower of cost orOTTI are written down to their fair value. DuringThe Company uses a discounted cash flow model to measure the third quarterfair value of 2017,these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company entered into an agreement with an unaffiliated third party to sell $258 millionand discount rates based on market condition and the financial strength of consumer loans at a $7 million loss.the syndicator (general partner). The loans arebalance of affordable housing partnerships measured at fair value on a nonrecurring basis. The fair value of the loans, which reflects the selling price negotiated with the third party,basis was $251$74 million and $112 million as of SeptemberJune 30, 2017,2019 and December 31, 2018, respectively, and is classified as Level 3 asin the valuation includes unobservable inputs.
During the reporting periods, there were no other material assets or liabilities measured at fair value on a nonrecurring basis.hierarchy.
Asset and Liabilities Not Reported at Fair Value
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:
| | | September 30, 2017 | | June 30, 2019 | |
Carrying Value | | Fair Value | Carrying Value | | Fair Value |
Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) | Financial Assets | Financial Assets | | | | | | | | | | |
Mortgage loans, net | $ | 2,749 |
| | $ | — |
| | $ | — |
| | $ | 2,768 |
| | $ | 2,768 |
| | $ | 2,662 |
| | $ | — |
| | $ | — |
| | $ | 2,725 |
| | $ | 2,725 |
| |
Policy and certificate loans | 841 |
| | — |
| | 1 |
| | 797 |
| | 798 |
| | 861 |
| | — |
| | — |
| | 807 |
| | 807 |
| |
Receivables | 1,595 |
| | 196 |
| | 942 |
| | 457 |
| | 1,595 |
| | 3,212 |
| | 89 |
| | 978 |
| | 2,227 |
| | 3,294 |
| |
Restricted and segregated cash | 2,707 |
| | 2,707 |
| | — |
| | — |
| | 2,707 |
| | 2,369 |
| | 2,369 |
| | — |
| | — |
| | 2,369 |
| |
Other investments and assets | 511 |
| | — |
| | 439 |
| | 71 |
| | 510 |
| | 582 |
| | — |
| | 535 |
| | 43 |
| | 578 |
| |
| | | | | | | | | | | |
Financial Liabilities | Financial Liabilities | | | | | | | | | | |
Policyholder account balances, future policy benefits and claims | $ | 10,415 |
| | $ | — |
| | $ | — |
| | $ | 11,052 |
| | $ | 11,052 |
| | $ | 9,331 |
| | $ | — |
| | $ | — |
| | $ | 10,065 |
| | $ | 10,065 |
| |
Investment certificate reserves | 6,364 |
| | — |
| | — |
| | 6,351 |
| | 6,351 |
| | 7,938 |
| | — |
| | — |
| | 7,920 |
| | 7,920 |
| |
Brokerage customer deposits | 4,065 |
| | 4,065 |
| | — |
| | — |
| | 4,065 |
| | |
Separate account liabilities measured at NAV | 4,989 |
| | | | | | | | 4,989 |
| (1) | |
Banking and brokerage deposits | | 5,341 |
| | 5,341 |
| | — |
| | — |
| | 5,341 |
| |
Separate account liabilities — investment contracts | | 5,125 |
| | — |
| | 5,125 |
| | — |
| | 5,125 |
| |
Debt and other liabilities | 3,395 |
| | 202 |
| | 3,197 |
| | 140 |
| | 3,539 |
| | 3,381 |
| | 100 |
| | 3,360 |
| | 31 |
| | 3,491 |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | |
Carrying Value | | Fair Value |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Financial Assets |
Mortgage loans, net | $ | 2,986 |
| | $ | — |
| | $ | — |
| | $ | 2,972 |
| | $ | 2,972 |
| |
Policy and certificate loans | 831 |
| | — |
| | 1 |
| | 807 |
| | 808 |
| |
Receivables (2) | 1,396 |
| | 127 |
| | 870 |
| | 403 |
| | 1,400 |
| |
Restricted and segregated cash | 2,905 |
| | 2,905 |
| | — |
| | — |
| | 2,905 |
| |
Other investments and assets | 508 |
| | — |
| | 449 |
| | 61 |
| | 510 |
| |
|
Financial Liabilities |
Policyholder account balances, future policy benefits and claims | $ | 10,906 |
| | $ | — |
| | $ | — |
| | $ | 11,417 |
| | $ | 11,417 |
| |
Investment certificate reserves | 5,927 |
| | — |
| | — |
| | 5,914 |
| | 5,914 |
| |
Brokerage customer deposits | 4,112 |
| | 4,112 |
| | — |
| | — |
| | 4,112 |
| |
Separate account liabilities measured at NAV | 4,253 |
| | | | | | | | 4,253 |
| (1) |
Debt and other liabilities | 3,371 |
| | 146 |
| | 3,176 |
| | 169 |
| | 3,491 |
| |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
| |
(1)
| Amounts are comprised of certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy. |
| |
(2)
| In the third quarter of 2017, the Company corrected the classification of the fair value of advisor loans, net from Level 2 to Level 3 as the valuation includes a significant unobservable input. The fair value levels at December 31, 2016 have been revised to reflect this change. The fair value of advisor loans, net was $400 million at December 31, 2016. |
Mortgage Loans, Net
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | |
Carrying Value | | Fair Value |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Financial Assets | | | | | | | | | | |
Mortgage loans, net | $ | 2,696 |
| | $ | — |
| | $ | — |
| | $ | 2,661 |
| | $ | 2,661 |
| |
Policy and certificate loans | 861 |
| | — |
| | — |
| | 810 |
| | 810 |
| |
Receivables | 1,677 |
| | 179 |
| | 965 |
| | 489 |
| | 1,633 |
| |
Restricted and segregated cash | 2,609 |
| | 2,609 |
| | — |
| | — |
| | 2,609 |
| |
Other investments and assets | 572 |
| | — |
| | 491 |
| | 60 |
| | 551 |
| |
| | | | | | | | | | |
Financial Liabilities | | | | | | | | | | |
Policyholder account balances, future policy benefits and claims | $ | 9,609 |
| | $ | — |
| | $ | — |
| | $ | 9,672 |
| | $ | 9,672 |
| |
Investment certificate reserves | 7,886 |
| | — |
| | — |
| | 7,845 |
| | 7,845 |
| |
Brokerage deposits | 3,660 |
| | 3,660 |
| | — |
| | — |
| | 3,660 |
| |
Separate account liabilities — investment contracts | 4,843 |
| | — |
| | 4,843 |
| | — |
| | 4,843 |
| (1) |
Debt and other liabilities | 3,296 |
| | 188 |
| | 3,059 |
| | 57 |
| | 3,304 |
| |
(1)The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including LTV ratio, occupancy rate, refinance risk, debt service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration,separate account liabilities - investment contracts as of December 31, 2018 was previously incorrectly omitted from the fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan. Given the significant unobservable inputs to the valuation of commercial mortgage loans, these measurements are classified as Level 3.
The fair value of consumer loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, loss severity, liquidity and credit loss estimates, with discount rateshierarchy based on the Company’s estimateuse of current market conditions. The fair value of consumer loans is classifiedNAV per share as Level 3 as the valuation includes significant unobservable inputs.
Policy and Certificate Loans
Policy loans represent loans made against the cash surrender value of the underlying life insurance or annuity product. These loans and the related interest are usually realized at death of the policyholder or contractholder or at surrender of the contract and are not transferable without the underlying insurance or annuity contract. The fair value of policy loans is determined by estimating expected cash flows discounted at rates based on the U.S. Treasury curve. Policy loans are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies.
Certificate loans represent loans made against and collateralized by the underlying certificate balance. These loans do not transfer to third parties separate from the underlying certificate. The outstanding balance of these loans is considered a reasonable estimate of fair value and is classified as Level 2.practical expedient.
Receivables
Brokerage include the reinsurance deposit receivable, brokerage margin loans, are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans. Margin loans that are sufficiently collateralized are classified as Level 2. Margin loans that are not sufficiently collateralized are classified as Level 3.
Securities borrowed require the Company to deposit cash or collateral with the lender. As the market value of the securities borrowed is monitored daily, the carrying value is a reasonable estimate of fair value. The fair value of securities borrowed is classified as Level 1 as the value of the underlying securities is based on unadjusted prices for identical assets.
The Company offersand loans to financial advisors primarily for recruiting, transitional cost assistance and retention purposes. Advisor loans are recorded at principal less an allowance for doubtful accounts. The fair value of advisor loans is determined by discounting contractual cash flows, net of estimated credit losses, using a current market interest rate. Advisor loans are classified as Level 3.
Restricted and Segregated Cash
advisors. Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.
Amountsincludes cash segregated under federal and other regulations may also reflect resale agreements and are measured atheld in special reserve bank accounts for the price at which the securities will be sold. This measurement is a reasonable estimate of fair value becauseexclusive benefit of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.
The fair value of restricted and segregated cash is classified as Level 1.
Other Investments and Assets
Company’s brokerage customers. Other investments and assets primarily consist of syndicated loans. The fair value ofinclude syndicated loans, is obtained from a third-party pricing servicecertificate of deposits with original or non-binding broker quotes. Syndicated loans that are priced using a market approach with observable inputs are classified as Level 2 and syndicated loans priced using a single non-binding broker quote are classified as Level 3.
Other investments and assets also includeremaining maturities at the time of purchase of more than 90 days, the Company’s membership in the FHLB and investments related to the Community Reinvestment Act. The fair value of these assets is approximated bySee Note 6 for additional information on mortgage loans, policy loans, certificate loans, syndicated loans and the carrying value and classified as Level 3 due to restrictions on transfer and lack of liquidity in the primary market for these assets.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
reinsurance deposit receivable.
Policyholder Account Balances, Future Policy Benefitsaccount balances, future policy benefit and Claims
The fair value ofclaims include fixed annuities in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a margin for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of non-life contingent fixed annuities in payout status, EIAindexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. Given the use of significant unobservable inputs tocontracts. See Note 8 for additional information on these valuations, the measurements are classified as Level 3.
liabilities. Investment Certificate Reserves
The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for expense margin and the Company’s nonperformance risk specific to these liabilities. Given the use of significant unobservable inputs to this valuation, the measurement is classified as Level 3.
Brokerage Customer Deposits
Brokeragerepresent customer deposits for fixed rate certificates and stock market certificates. Banking and brokerage deposits are liabilities with no defined maturitiesamounts payable to customers related to free credit balances, funds deposited by customers and fair value is the amount payable on demand at the reporting date. The fair value of these deposits is classified as Level 1.
Separate Account Liabilities
Certain separate account liabilities are classified as investment contracts and are carried at an amount equalfunds accruing to the related separate account assets. The NAV of the related separate account assets is usedcustomers as a practical expedient for fair value and represents the exit price for the separate account liabilities.result of trades or contracts. Separate account liabilities are excluded from classificationprimarily investment contracts in the fair value hierarchy.
pooled pension funds offered by Threadneedle. Debt and Other Liabilities
The fair value ofother liabilities include the Company’s long-term debt, is based on quoted prices in active markets, when available. If quoted prices are not available, fair values are obtained from third party pricing services, broker quotes, or other model-based valuation techniques such as present value of cash flows. The fair value of long-term debt is classified as Level 2.
The fair value of short-term borrowings, is obtained from a third party pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk. The fair value of short-term borrowings is classified as Level 2.
The fair value ofsecurities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships is determined by discounting cash flows. The fair value of these commitments includes an adjustmentpartnerships. See Note 10 for further information on the Company’s nonperformance risklong-term debt and is classified as Level 3 due to the use of the significant unobservable input.
Securities loaned require the borrower to deposit cash or collateral with the Company. As the market value of the securities loaned is monitored daily, the carrying value is a reasonable estimate of fair value. Securities loaned are classified as Level 1 as the fair value of the underlying securities is based on unadjusted prices for identical assets.short-term borrowings.
11. 12. Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company’s derivative instruments, repurchase agreements and securities borrowing and lending agreements are subject to master netting and collateral arrangements and qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Securities borrowed and loaned result from transactions between the Company’s broker dealer subsidiary and other financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed and securities loaned are primarily equity securities. The Company’s securities borrowed and securities loaned transactions generally do not have a fixed maturity date and may be terminated by either party under customary terms.
The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
| | | September 30, 2017 | June 30, 2019 |
Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
Financial Instruments (1) | | Cash Collateral | | Securities Collateral | Financial Instruments (1) | | Cash Collateral | | Securities Collateral |
(in millions) | Derivatives: | Derivatives: | | | | | | | | | | | | | |
OTC | $ | 3,156 |
| | $ | — |
| | $ | 3,156 |
| | $ | (2,379 | ) | | $ | (661 | ) | | $ | (109 | ) | | $ | 7 |
| $ | 3,561 |
| | $ | — |
| | $ | 3,561 |
| | $ | (2,528 | ) | | $ | (933 | ) | | $ | (68 | ) | | $ | 32 |
|
OTC cleared (2) | 14 |
| | — |
| | 14 |
| | (12 | ) | | — |
| | — |
| | 2 |
| 15 |
| | — |
| | 15 |
| | (15 | ) | | — |
| | — |
| | — |
|
Exchange-traded | 20 |
| | — |
| | 20 |
| | (2 | ) | | — |
| | — |
| | 18 |
| 60 |
| | — |
| | 60 |
| | (2 | ) | | — |
| | — |
| | 58 |
|
Total derivatives | 3,190 |
| | — |
| | 3,190 |
| | (2,393 | ) | | (661 | ) | | (109 | ) | | 27 |
| 3,636 |
| | — |
| | 3,636 |
| | (2,545 | ) | | (933 | ) | | (68 | ) | | 90 |
|
Securities borrowed | 196 |
| | — |
| | 196 |
| | (48 | ) | | — |
| | (145 | ) | | 3 |
| 89 |
| | — |
| | 89 |
| | (10 | ) | | — |
| | (78 | ) | | 1 |
|
Total | $ | 3,386 |
| | $ | — |
| | $ | 3,386 |
| | $ | (2,441 | ) | | $ | (661 | ) | | $ | (254 | ) | | $ | 30 |
| $ | 3,725 |
| | $ | — |
| | $ | 3,725 |
| | $ | (2,555 | ) | | $ | (933 | ) | | $ | (146 | ) | | $ | 91 |
|
| | | December 31, 2016 | December 31, 2018 |
Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Assets Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
Financial Instruments (1) | | Cash Collateral | | Securities Collateral | Financial Instruments (1) | | Cash Collateral | | Securities Collateral |
(in millions) | Derivatives: | Derivatives: | | | | | | | | | | | | | |
OTC | $ | 2,920 |
| | $ | — |
| | $ | 2,920 |
| | $ | (2,214 | ) | | $ | (406 | ) | | $ | (235 | ) | | $ | 65 |
| $ | 2,525 |
| | $ | — |
| | $ | 2,525 |
| | $ | (2,075 | ) | | $ | (403 | ) | | $ | (26 | ) | | $ | 21 |
|
OTC cleared | 512 |
| | — |
| | 512 |
| | (509 | ) | | (3 | ) | | — |
| | — |
| 34 |
| | — |
| | 34 |
| | (23 | ) | | — |
| | — |
| | 11 |
|
Exchange-traded | 14 |
| | — |
| | 14 |
| | (2 | ) | | — |
| | — |
| | 12 |
| 15 |
| | — |
| | 15 |
| | (1 | ) | | — |
| | — |
| | 14 |
|
Total derivatives | 3,446 |
| | — |
| | 3,446 |
| | (2,725 | ) | | (409 | ) | | (235 | ) | | 77 |
| 2,574 |
| | — |
| | 2,574 |
| | (2,099 | ) | | (403 | ) | | (26 | ) | | 46 |
|
Securities borrowed | 127 |
| | — |
| | 127 |
| | (16 | ) | | — |
| | (108 | ) | | 3 |
| 179 |
| | — |
| | 179 |
| | (37 | ) | | — |
| | (139 | ) | | 3 |
|
Total | $ | 3,573 |
| | $ | — |
| | $ | 3,573 |
| | $ | (2,741 | ) | | $ | (409 | ) | | $ | (343 | ) | | $ | 80 |
| $ | 2,753 |
| | $ | — |
| | $ | 2,753 |
| | $ | (2,136 | ) | | $ | (403 | ) | | $ | (165 | ) | | $ | 49 |
|
(1) Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
(2) The decrease in OTC cleared derivatives from December 31, 2016 is a result of certain central clearing parties amending their rules resulting in variation margin payments being settlement payments, as opposed to collateral.
The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
| | | September 30, 2017 | June 30, 2019 |
Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
Financial Instruments (1) | | Cash Collateral | | Securities Collateral | Financial Instruments (1) | | Cash Collateral | | Securities Collateral |
(in millions) | Derivatives: | Derivatives: | | | | | | | | | | | | | |
OTC | $ | 3,102 |
| | $ | — |
| | $ | 3,102 |
| | $ | (2,379 | ) | | $ | (48 | ) | | $ | (669 | ) | | $ | 6 |
| $ | 3,261 |
| | $ | — |
| | $ | 3,261 |
| | $ | (2,528 | ) | | $ | (40 | ) | | $ | (691 | ) | | $ | 2 |
|
OTC cleared (2) | 12 |
| | — |
| | 12 |
| | (12 | ) | | — |
| | — |
| | — |
| 24 |
| | — |
| | 24 |
| | (15 | ) | | — |
| | — |
| | 9 |
|
Exchange-traded | 2 |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| 13 |
| | — |
| | 13 |
| | (2 | ) | | — |
| | — |
| | 11 |
|
Total derivatives | 3,116 |
| | — |
| | 3,116 |
| | (2,393 | ) | | (48 | ) | | (669 | ) | | 6 |
| 3,298 |
| | — |
| | 3,298 |
| | (2,545 | ) | | (40 | ) | | (691 | ) | | 22 |
|
Securities loaned | 202 |
| | — |
| | 202 |
| | (48 | ) | | — |
| | (150 | ) | | 4 |
| 100 |
| | — |
| | 100 |
| | (10 | ) | | — |
| | (88 | ) | | 2 |
|
Repurchase agreements | 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (48 | ) | | 2 |
| 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (50 | ) | | — |
|
Total | $ | 3,368 |
| | $ | — |
| | $ | 3,368 |
| | $ | (2,441 | ) | | $ | (48 | ) | | $ | (867 | ) | | $ | 12 |
| $ | 3,448 |
| | $ | — |
| | $ | 3,448 |
| | $ | (2,555 | ) | | $ | (40 | ) | | $ | (829 | ) | | $ | 24 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
| | | December 31, 2016 | December 31, 2018 |
Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Gross Amounts Not Offset in the Consolidated Balance Sheets | | Net Amount |
Financial Instruments (1) | | Cash Collateral | | Securities Collateral | Financial Instruments (1) | | Cash Collateral | | Securities Collateral |
(in millions) | Derivatives: | Derivatives: | | | | | | | | | | | | | |
OTC | $ | 2,626 |
| | $ | — |
| | $ | 2,626 |
| | $ | (2,214 | ) | | $ | (53 | ) | | $ | (352 | ) | | $ | 7 |
| $ | 2,597 |
| | $ | — |
| | $ | 2,597 |
| | $ | (2,075 | ) | | $ | (89 | ) | | $ | (430 | ) | | $ | 3 |
|
OTC cleared | 539 |
| | — |
| | 539 |
| | (509 | ) | | (25 | ) | | — |
| | 5 |
| 24 |
| | — |
| | 24 |
| | (23 | ) | | — |
| | — |
| | 1 |
|
Exchange-traded | 6 |
| | — |
| | 6 |
| | (2 | ) | | — |
| | — |
| | 4 |
| 10 |
| | — |
| | 10 |
| | (1 | ) | | — |
| | — |
| | 9 |
|
Total derivatives | 3,171 |
| | — |
| | 3,171 |
| | (2,725 | ) | | (78 | ) | | (352 | ) | | 16 |
| 2,631 |
| | — |
| | 2,631 |
| | (2,099 | ) | | (89 | ) | | (430 | ) | | 13 |
|
Securities loaned | 146 |
| | — |
| | 146 |
| | (16 | ) | | — |
| | (125 | ) | | 5 |
| 188 |
| | — |
| | 188 |
| | (37 | ) | | — |
| | (146 | ) | | 5 |
|
Repurchase agreements | 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (50 | ) | | — |
| 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (50 | ) | | — |
|
Total | $ | 3,367 |
| | $ | — |
| | $ | 3,367 |
| | $ | (2,741 | ) | | $ | (78 | ) | | $ | (527 | ) | | $ | 21 |
| $ | 2,869 |
| | $ | — |
| | $ | 2,869 |
| | $ | (2,136 | ) | | $ | (89 | ) | | $ | (626 | ) | | $ | 18 |
|
(1) Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
(2) The decrease in OTC cleared derivatives from December 31, 2016 is a result of certain central clearing parties amending their rules resulting in variation margin payments being settlement payments, as opposed to collateral.
In the tables above, the amountsamount of assets or liabilities presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual collateral may be greater than amounts presented in the tables.
When the fair value of collateral accepted by the Company is less than the amount due to the Company, there is a risk of loss if the counterparty fails to perform or provide additional collateral. To mitigate this risk, the Company monitors collateral values regularly and requires additional collateral when necessary. When the value of collateral pledged by the Company declines, it may be required to post additional collateral.
Freestanding derivative instruments are reflected in other assets and other liabilities. Cash collateral pledged by the Company is reflected in other assets and cash collateral accepted by the Company is reflected in other liabilities. Repurchase agreements are reflected in short-term borrowings. Securities borrowing and lending agreements are reflected in receivables and other liabilities, respectively. See Note 1213 for additional disclosures related to the Company’s derivative instruments, and Note 910 for additional disclosures related to the Company’s repurchase agreements.agreements and Note 4 for information related to derivatives held by consolidated investment entities.
12. 13. Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.
TheCertain of the Company’s freestanding derivative instruments are all subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 1112 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:
| | | September 30, 2017 | | December 31, 2016 | June 30, 2019 | | December 31, 2018 |
Notional | | Gross Fair Value | Notional | | Gross Fair Value | Notional | | Gross Fair Value | Notional | | Gross Fair Value |
| Assets (1) | | Liabilities (2)(3) | Assets (1) | | Assets (1) | | Liabilities (2)(3) | Assets (1) | | Liabilities (2)(3) | Assets (1) | | | Liabilities (2)(3) |
(in millions) | Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | | | | | | | | |
Interest rate contracts | $ | 675 |
| | $ | 30 |
| | $ | — |
| | $ | 675 |
| | $ | 40 |
| | $ | — |
| |
Foreign exchange contracts | 99 |
| | — |
| | 4 |
| | 164 |
| | 12 |
| | — |
| |
Interest rate contracts – fair value hedges | | $ | 375 |
| | $ | 6 |
| | $ | — |
| | $ | 675 |
| | $ | 7 |
| | $ | — |
|
Foreign exchange contracts – net investment hedges | | 102 |
| | 2 |
| | — |
| | 103 |
| | 1 |
| | — |
|
Total qualifying hedges | 774 |
| | 30 |
| | 4 |
| | 839 |
| | 52 |
| | — |
| 477 |
| | 8 |
| | — |
| | 778 |
| | 8 |
| | — |
|
| | | | | | | | | | | | |
Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | | | | | | |
Interest rate contracts | 66,504 |
| | 1,171 |
| | 416 |
| | 72,449 |
| | 1,738 |
| | 989 |
| 60,020 |
| | 1,408 |
| | 410 |
| | 58,244 |
| | 789 |
| | 424 |
|
Equity contracts | 60,979 |
| | 1,942 |
| | 2,669 |
| | 63,015 |
| | 1,574 |
| | 2,135 |
| 54,662 |
| | 2,167 |
| | 2,837 |
| | 54,079 |
| | 1,718 |
| | 2,154 |
|
Credit contracts | 721 |
| | 4 |
| | — |
| | 1,039 |
| | 1 |
| | — |
| 1,340 |
| | — |
| | 12 |
| | 1,209 |
| | — |
| | 18 |
|
Foreign exchange contracts | 4,494 |
| | 43 |
| | 27 |
| | 4,733 |
| | 81 |
| | 47 |
| 4,799 |
| | 53 |
| | 39 |
| | 4,908 |
| | 59 |
| | 35 |
|
Other contracts | 451 |
| | — |
| | — |
| | 241 |
| | — |
| | — |
| 1 |
| | — |
| | — |
| | 2 |
| | — |
| | — |
|
Total non-designated hedges | 133,149 |
| | 3,160 |
| | 3,112 |
| | 141,477 |
| | 3,394 |
| | 3,171 |
| 120,822 |
| | 3,628 |
| | 3,298 |
| | 118,442 |
| | 2,566 |
| | 2,631 |
|
| | | | | | | | | | | | |
Embedded derivatives | Embedded derivatives | | | | | | | | | | | |
GMWB and GMAB (4) | N/A |
| | — |
| | 45 |
| | N/A |
| | — |
| | 614 |
| N/A |
| | — |
| | 696 |
| | N/A |
| | — |
| | 328 |
|
IUL | N/A |
| | — |
| | 577 |
| | N/A |
| | — |
| | 464 |
| N/A |
| | — |
| | 819 |
| | N/A |
| | — |
| | 628 |
|
EIA | N/A |
| | — |
| | 4 |
| | N/A |
| | — |
| | 5 |
| |
Indexed annuities | | N/A |
| | — |
| | 34 |
| | N/A |
| | — |
| | 17 |
|
SMC | N/A |
| | — |
| | 9 |
| | N/A |
| | — |
| | 8 |
| N/A |
| | — |
| | 13 |
| | N/A |
| | — |
| | 6 |
|
Total embedded derivatives | N/A |
| | — |
| | 635 |
| | N/A |
| | — |
| | 1,091 |
| N/A |
| | — |
| | 1,562 |
| | N/A |
| | — |
| | 979 |
|
Total derivatives | $ | 133,923 |
| | $ | 3,190 |
| | $ | 3,751 |
| | $ | 142,316 |
| | $ | 3,446 |
| | $ | 4,262 |
| $ | 121,299 |
| | $ | 3,636 |
| | $ | 4,860 |
| | $ | 119,220 |
| | $ | 2,574 |
| | $ | 3,610 |
|
N/A Not applicable.
(1) The fair value of freestanding derivative assets is included in Other assets on the Consolidated Balance Sheets.
(2) The fair value of freestanding derivative liabilities is included in Other liabilities on the Consolidated Balance Sheets. The fair value of GMWB and GMAB, IUL, and EIAindexed annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets. The fair value of the SMC embedded derivative liability is included in Customer deposits on the Consolidated Balance Sheets.
(3) The fair value of the Company’s derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was $1.3$2.3 billion and $1.5$1.4 billion as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. See Note 1112 for additional information related to master netting arrangements and cash collateral. See Note 4 for information about derivatives held by consolidated VIEs.
(4) The fair value of the GMWB and GMAB embedded derivatives as of SeptemberJune 30, 20172019 included $494$927 million of individual contracts in a liability position and $449$231 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 20162018 included $880$646 million of individual contracts in a liability position and $266$318 million of individual contracts in an asset position.
See Note 1011 for additional information regarding the Company’s fair value measurement of derivative instruments.
As of SeptemberJune 30, 20172019 and December 31, 2016,2018, investment securities with a fair value of $122$68 million and $235$28 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $122$68 million and $118$28 million, respectively, may be sold, pledged or rehypothecated by the Company. As of Septemberboth June 30, 20172019 and December 31, 2016,2018, the Company had sold, pledged or rehypothecated $12 million and $19 million, respectively,none of these securities. In addition, as of Septemberboth June 30, 20172019 and December 31, 2016,2018, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Derivatives Not Designated as Hedges
The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Operations:
| | | Net Investment Income | | Banking and Deposit Interest Expense | | Distribution Expenses | | Interest Credited to Fixed Accounts | | Benefits, Claims, Losses and Settlement Expenses | | General and Administrative Expense | Net Investment Income | | Banking and Deposit Interest Expense | | Distribution Expenses | | Interest Credited to Fixed Accounts | | Benefits, Claims, Losses and Settlement Expenses | | General and Administrative Expense |
(in millions) | Three Months Ended September 30, 2017 | |
Three Months Ended June 30, 2019 | | | | | | | | | | | | |
Interest rate contracts | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | — |
| $ | (19 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 626 |
| | $ | — |
|
Equity contracts | (10 | ) | | 1 |
| | 13 |
| | 18 |
| | (261 | ) | | 2 |
| — |
| | 2 |
| | 12 |
| | 18 |
| | (217 | ) | | 2 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| 1 |
| | — |
| | — |
| | — |
| | (40 | ) | | — |
|
Foreign exchange contracts | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | 1 |
| — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
|
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| |
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 227 |
| | — |
| — |
| | — |
| | — |
| | — |
| | (516 | ) | | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | (24 | ) | | — |
| | — |
| — |
| | — |
| | — |
| | (43 | ) | | — |
| | — |
|
Indexed annuities embedded derivatives | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
Total gain (loss) | | $ | (18 | ) | | $ | 2 |
| | $ | 12 |
| | $ | (26 | ) | | $ | (151 | ) | | $ | 2 |
|
| | | | | | | | | | | | |
Six Months Ended June 30, 2019 | | | | | | | | | | | | |
Interest rate contracts | | $ | (28 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 957 |
| | $ | — |
|
Equity contracts | | — |
| | 8 |
| | 60 |
| | 66 |
| | (917 | ) | | 10 |
|
Credit contracts | | — |
| | — |
| | — |
| | — |
| | (69 | ) | | — |
|
Foreign exchange contracts | | — |
| | — |
| | — |
| | — |
| | (10 | ) | | (1 | ) |
GMWB and GMAB embedded derivatives | | — |
| | — |
| | — |
| | — |
| | (368 | ) | | — |
|
IUL embedded derivatives | | — |
| | — |
| | — |
| | (124 | ) | | — |
| | — |
|
Indexed annuities embedded derivatives | | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
|
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| — |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
|
Total gain (loss) | $ | (11 | ) | | $ | — |
| | $ | 14 |
| | $ | (6 | ) | | $ | (24 | ) | | $ | 3 |
| $ | (28 | ) | | $ | 2 |
|
| $ | 60 |
|
| $ | (61 | ) |
| $ | (407 | ) |
| $ | 9 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Income | | Banking and Deposit Interest Expense | | Distribution Expenses | | Interest Credited to Fixed Accounts | | Benefits, Claims, Losses and Settlement Expenses | | General and Administrative Expense |
(in millions) |
Three Months Ended June 30, 2018 | | | | | | | | | | | |
Interest rate contracts | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (135 | ) | | $ | — |
|
Equity contracts | — |
| | 1 |
| | 8 |
| | 11 |
| | (137 | ) | | 2 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | 6 |
| | — |
|
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (6 | ) |
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
|
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 96 |
| | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | (14 | ) | | — |
| | — |
|
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total gain (loss) | $ | 5 |
| | $ | — |
| | $ | 8 |
| | $ | (3 | ) | | $ | (175 | ) | | $ | (4 | ) |
| | | | | | | | | | | |
Six Months Ended June 30, 2018 | | | | | | | | | | | |
Interest rate contracts | $ | 22 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (533 | ) | | $ | — |
|
Equity contracts | — |
| | 1 |
| | 5 |
| | 3 |
| | (112 | ) | | 2 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | 18 |
| | — |
|
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (8 | ) |
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
|
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 376 |
| | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
|
Total gain (loss) | $ | 22 |
| | $ | 1 |
| | $ | 5 |
| | $ | 25 |
| | $ | (254 | ) | | $ | (6 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2017 |
Interest rate contracts | $ | (8 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 61 |
| | $ | — |
|
Equity contracts | (7 | ) | | 3 |
| | 36 |
| | 50 |
| | (920 | ) | | 7 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
|
Foreign exchange contracts | — |
| | — |
| | 3 |
| | — |
| | (27 | ) | | 5 |
|
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
|
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 569 |
| | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | (43 | ) | | — |
| | — |
|
SMC embedded derivatives | — |
| | (3 | ) | | — |
| | — |
| | — |
| | — |
|
Total gain (loss) | $ | (15 | ) | | $ | — |
| | $ | 39 |
| | $ | 7 |
| | $ | (341 | ) | | $ | 12 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Income | | Banking and Deposit Interest Expense | | Distribution Expenses | | Interest Credited to Fixed Accounts | | Benefits, Claims, Losses and Settlement Expenses | | General and Administrative Expense |
(in millions) |
Three Months Ended September 30, 2016 |
Interest rate contracts | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (12 | ) | | $ | — |
|
Equity contracts | 2 |
| | 2 |
| | 11 |
| | 12 |
| | (385 | ) | | 2 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
|
Foreign exchange contracts | 2 |
| | — |
| | — |
| | — |
| | (12 | ) | | 3 |
|
Other contracts | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
|
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 209 |
| | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
|
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total gain (loss) | $ | 10 |
| | $ | 1 |
| | $ | 11 |
| | $ | 7 |
| | $ | (204 | ) | | $ | 5 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2016 |
Interest rate contracts | $ | (54 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,175 |
| | $ | — |
|
Equity contracts | 2 |
| | 1 |
| | 13 |
| | 10 |
| | (536 | ) | | 3 |
|
Credit contracts | — |
| | — |
| | — |
| | — |
| | (34 | ) | | — |
|
Foreign exchange contracts | — |
| | — |
| | 2 |
| | — |
| | (66 | ) | | 15 |
|
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
|
GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | (905 | ) | | — |
|
IUL embedded derivatives | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
|
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total gain (loss) | $ | (52 | ) | | $ | — |
| | $ | 15 |
| | $ | 22 |
| | $ | (368 | ) | | $ | 18 |
|
The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and foreign currency exchange rate risk related to various products and transactions of the Company.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The GMAB and non-life contingent GMWB provisions are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. The Company economically hedges the exposure related to GMAB and non-life contingent GMWB provisions primarily using futures, options (equity index, interest rate swaptions, interestetc.), swaps (interest rate, swaps, total return, swapsetc.) and variance swaps.futures.
The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of SeptemberJune 30, 2017:2019:
|
| | | | | | | |
| Premiums Payable | | Premiums Receivable |
(in millions) |
2019 (1) | $ | 203 |
| | $ | 126 |
|
2020 | 216 |
| | 135 |
|
2021 | 187 |
| | 127 |
|
2022 | 222 |
| | 200 |
|
2023 | 142 |
| | 43 |
|
2024 - 2028 | 421 |
| | 17 |
|
Total | $ | 1,391 |
| | $ | 648 |
|
|
| | | | | | | |
| Premiums Payable | | Premiums Receivable |
(in millions) |
2017 (1) | $ | 98 |
| | $ | 26 |
|
2018 | 232 |
| | 131 |
|
2019 | 295 |
| | 171 |
|
2020 | 217 |
| | 100 |
|
2021 | 187 |
| | 109 |
|
2022 - 2027 | 739 |
| | 183 |
|
Total | $ | 1,768 |
| | $ | 720 |
|
(1) 20172019 amounts represent the amounts payable and receivable for the period from OctoberJuly 1, 20172019 to December 31, 2017.2019.
Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company usesmay use a combination of futures, options, interest rate swaptions and/or swaps.swaps and swaptions. Certain of the macro hedge derivatives may contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates, if any, are shown in Otherother contracts in the tables above.
EIA,Indexed annuity, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to EIA,indexed annuity, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. The equity component of the EIA,indexed annuity, IUL and stock market certificate product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company enters into futures, credit default swaps and commodity swaps to manage its exposure to price risk arising from seed money investments in proprietary investment products. The Company enters into foreign currency forward contracts to economically hedge its exposure to certain foreign transactions. The Company enters into futures contracts to economically hedge its exposure related to compensation plans. In 2015, theThe Company enteredenters into interest rate swaps to offset interest rate changes on unrealized gains or losses for certain investments.
Cash Flow Hedges
The Company has designated and accounts for the followingderivative instruments as a cash flow hedges: (i) interest rate swaps to hedge of interest rate exposure on forecasted debt (ii) interest rate lock agreementspayments. For derivative instruments that qualify as cash flow hedges, the gain or loss on the derivative instruments is reported in AOCI and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented within the same line item as the earnings impact of the hedged item in interest and debt expense.
Prior to hedge interest rate exposurethe adoption of the new accounting standard Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities on debt issuances January 1, 2019, the Company recorded the effective portion of the gain or loss on the derivative instruments in AOCI
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
and (iii) swaptions used to hedgeany ineffective portion in current period earnings. See Note 2 for additional information on the riskadoption of increasing interest rates on forecasted fixed premium product sales.the new accounting standard.
For the three months and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the amounts recognized inreclassified from AOCI to earnings related to cash flow hedges due to ineffectiveness were not material.immaterial. The estimated net amount of existing pretax lossesrecorded in AOCI as of SeptemberJune 30, 20172019 that the Company expects to reclassify to earnings within the next twelve months is $1 million, which consists of $2 million of pretax gains to be recorded as a reduction to interest and debt expense and $3 million of pretax losses to be recorded in net investment income.within the next twelve months is $1 million. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 1816 years and relates to forecasted debt interest payments. See Note 1316 for a rollforward of net unrealized derivative gains (losses) included in AOCI related to cash flow hedges.
Fair Value Hedges
The Company entered into and designated as fair value hedges two interest rate swaps to convert senior notes due 2019 and 2020 from fixed rate debt to floating rate debt. The interest rate swap related to the senior notes due June 2019 was settled during the second quarter when the debt was repaid. The swaps have identical terms as the underlying debt being hedged so no ineffectiveness is expected to be realized.hedged. The Company recognizes gains and losses on the derivatives and the related hedged items within interest and debt expense. See Note 10 for the cumulative basis adjustments for fair value hedges.
The following table presentsis a summary of the amounts recognized in income related to fair value hedges:impact of derivatives designated as hedges on the Consolidated Statements of Operations:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | | 2019 | | 2018 |
(in millions) |
Total interest and debt expense per Consolidated Statements of Operations | $ | 59 |
| | $ | 80 |
| | $ | 112 |
| | $ | 131 |
|
Gain (loss) on interest rate contracts designated as fair value hedges: | | | | | | | |
Hedged items | $ | 1 |
| | $ | 3 |
| | $ | 2 |
| | $ | 11 |
|
Derivatives designated as fair value hedges | (1 | ) | | (3 | ) | | (2 | ) | | (11 | ) |
Gain (loss) on interest rate contracts designated as cash flow hedges: | | | | | | | |
Amount of gain (loss) reclassified from AOCI into income | $ | 1 |
| | $ | (1 | ) | | $ | 1 |
| | $ | (1 | ) |
|
| | | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments | Location of Gain Recorded into Income | Amount of Gain Recognized in Income on Derivatives |
Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | 2016 | 2017 | 2016 |
| (in millions) |
Interest rate contracts | Interest and debt expense | $ | 4 | | $ | 5 |
| | $ | 12 | | $ | 15 |
|
Net Investment Hedges
The Company entered into, and designated as net investment hedges in foreign operations, forward contracts to hedge a portion of the Company’s foreign currency exchange rate risk associated with its investment in Threadneedle. As the Company determined that the forward contracts are effective, the change in fair value of the derivatives is recognized in AOCI as part of the foreign currency translation adjustment. For the three months ended SeptemberJune 30, 20172019 and 2016,2018, the Company recognized a loss of $4 millionnil and a gain of $6$13 million, respectively, in OCI. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company recognized a loss of $3 million and a gain of $25$6 million, respectively, in OCI.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting and collateral arrangements whenever practical. See Note 1112 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s debt rating (or based on the financial strength of the Company’s life insurance subsidiaries for contracts in which those subsidiaries are the counterparty). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company’s debt does not maintain a specific credit rating (generally an investment grade rating) or the Company’s life insurance subsidiary does not maintain a specific financial strength rating. If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $437$344 million and $254$171 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of SeptemberJune 30, 20172019 and December 31, 20162018 was $435$344 million and $246$170 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of SeptemberJune 30, 20172019 and December 31, 20162018 were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been $2nil and $1 million as of June 30, 2019 and $8 million,December 31, 2018, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
13. 14. Leases
The Company has operating and finance leases for corporate and field offices. We determine if an arrangement is a lease at inception or modification. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and corresponding lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Certain lease incentives such as free rent periods are recorded as a reduction of the ROU asset. The Company uses an incremental borrowing rate that is readily available in determining the present value of future lease payments. Lease costs for operating ROU assets is recognized on a straight-line basis over the lease term.
Certain leases include one or more options to renew with terms that can extend the lease from one year to 20 years. The exercise of any lease renewal option is at the sole discretion of the Company. Renewal options are included in the ROU assets and lease liabilities when they either provide an economic incentive to renew or when the costs related to the termination of a lease outweigh the benefits of signing a new lease. See Note 2 for further discussion on the Company's accounting policy on leases.
The following table presents the balances for operating and finance ROU assets and lease liabilities:
|
| | | | | | |
Leases | | Classification | | June 30, 2019 |
| | (in millions) |
Assets | | | | |
Operating lease assets | | Other assets | | $ | 225 |
|
Finance lease assets | | Other assets | | 56 |
|
Total lease assets | | | | $ | 281 |
|
| | | | |
Liabilities | | | | |
Operating lease liabilities | | Other liabilities | | $ | 246 |
|
Finance lease liabilities | | Long-term debt | | 64 |
|
Total lease liabilities | | | | $ | 310 |
|
The components of lease expense include operating and finance lease costs. For the three months and six months ended June 30, 2019 operating lease costs were $14 million and $29 million, respectively. For the three months and six months ended June 30, 2019, finance lease costs were $3 million and $5 million, respectively, and consisted of $2 million and $4 million, respectively, in amortization. These costs are recorded in general and administrative expenses in the Consolidated Statements of Operations. The amount of interest expense on finance leases was $1 million for both the three months and six months ended June 30, 2019. The interest expense costs are recorded in interest and debt expense in the Consolidated Statements of Operations.
Maturities of lease liabilities, weighted-average remaining term and weighted-average discount rate are as follows:
|
| | | | | | | | |
Maturity of Lease Liabilities | | June 30, 2019 |
Finance Leases | | Operating Leases |
| | (in millions) |
2019 | | $ | 8 |
| | $ | 27 |
|
2020 | | 14 |
| | 59 |
|
2021 | | 10 |
| | 45 |
|
2022 | | 10 |
| | 37 |
|
2023 | | 10 |
| | 30 |
|
Thereafter | | 19 |
| | 75 |
|
Total lease payments | | 71 |
| | 273 |
|
Less: Interest | | (7 | ) | | (27 | ) |
Present value of lease liabilities | | $ | 64 |
| | $ | 246 |
|
Weighted-average remaining lease term (years) | | 6.3 |
| | 6.3 |
|
Weighted-average discount rate | | 3.4 | % | | 3.1 | % |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Maturities of lease liabilities prior to the adoption of new lease guidance were as follows:
|
| | | | |
Maturity of Lease Liabilities | | December 31, 2018 |
Operating Leases |
| | (in millions) |
2019 | | $ | 61 |
|
2020 | | 53 |
|
2021 | | 40 |
|
2022 | | 33 |
|
2023 | | 26 |
|
Thereafter | | 65 |
|
Total lease payments | | $ | 278 |
|
For the six months ended June 30, 2019, operating lease cash flows included $31 million of cash paid for amounts included in the measurement of operating lease liabilities. For the six months ended June 30, 2019, financing lease cash flows included $6 million of cash paid for amounts included in the measurement of finance lease liabilities. For the six months ended June 30, 2019, operating cash flows included $1 million of cash paid for amounts included in the measurement of finance lease liabilities.
15. Held for Sale Classification
On April 2, 2019, the Company announced it signed a definitive agreement with a subsidiary of American Family Insurance Mutual Holding Company (American Family Insurance) for the sale of Ameriprise Auto & Home, a business unit of Ameriprise Financial. The Ameriprise Auto & Home legal entities are being sold in the transaction. The Company will receive gross proceeds of $1.05 billion in cash. After a payment to an affinity partner, the net proceeds will be approximately $950 million, subject to certain post-closing financial adjustments. The transaction is subject to customary conditions and regulatory approvals and is expected to close in the fourth quarter of 2019.
A business is required to be classified as held for sale in the period in which the following criteria are met: (i) management has approved the sale and commits to a plan to sell the business, (ii) the business is available for immediate sale, (iii) an active program to locate a buyer has been initiated, (iv) the sale of the business is probable and the transfer of the business is expected to occur within one year, (v) the business is being actively marketed and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company has met the requirements to classify assets and liabilities related to AAH as held for sale on its Consolidated Balance Sheet as of June 30, 2019. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. The Company did not recognize a loss as the carrying amount of the business did not exceed its estimated fair value as of June 30, 2019. The Company recognized an impairment of $5 million in the first quarter of 2019 on investments held by AAH as the Company no longer intends to hold the securities until the recovery of fair value to book value.
The following table summarizes the components of assets and liabilities held for sale on the Company’s Consolidated Balance Sheet as of June 30, 2019:
|
| | | |
| (in millions) |
Assets | |
Cash and cash equivalents | $ | 166 |
|
Investments | 1,599 |
|
Receivables | 216 |
|
Deferred acquisition costs | 16 |
|
Other assets | 30 |
|
Total assets held for sale | $ | 2,027 |
|
| |
Liabilities | |
Policyholder account balances, future policy benefits and claims | $ | 686 |
|
Accounts payable and accrued expenses | 81 |
|
Other liabilities | 374 |
|
Total liabilities held for sale | $ | 1,141 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
16. Shareholders’ Equity
The following tables provide the amounts related to each component of OCI:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
2019 | | 2018 |
Pretax | | Income Tax Benefit (Expense) | | Net of Tax | Pretax | | Income Tax Benefit (Expense) | | Net of Tax |
(in millions) |
Net unrealized gains (losses) on securities: | | | | | | | | | | | |
Net unrealized gains (losses) on securities arising during the period (1) | $ | 512 |
| | $ | (60 | ) | | $ | 452 |
| | $ | (266 | ) | | $ | 59 |
| | $ | (207 | ) |
Reclassification of net (gains) losses on securities included in net income (2) | — |
| | — |
| | — |
| | (5 | ) | | 1 |
| | (4 | ) |
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables | (259 | ) | | 55 |
| | (204 | ) | | 103 |
| | (22 | ) | | 81 |
|
Net unrealized gains (losses) on securities | 253 |
| | (5 | ) | | 248 |
| | (168 | ) | | 38 |
| | (130 | ) |
Net unrealized gains (losses) on derivatives: | | | | | | | | | | | |
Reclassification of net (gains) losses on derivatives included in net income (3) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net unrealized gains (losses) on derivatives | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign currency translation | (15 | ) | | 1 |
| | (14 | ) | | (46 | ) | | 2 |
| | (44 | ) |
Total other comprehensive income (loss) | $ | 238 |
| | $ | (4 | ) | | $ | 234 |
| | $ | (214 | ) | | $ | 40 |
| | $ | (174 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
2017 | | 2016 |
Pretax | Income Tax Benefit (Expense) | Net of Tax | Pretax | Income Tax Benefit (Expense) | Net of Tax |
(in millions) |
Net unrealized securities gains (losses): |
Net unrealized securities gains (losses) arising during the period (1) | $ | 60 |
| | $ | (22 | ) | | $ | 38 |
| | $ | 82 |
| | $ | (31 | ) | | $ | 51 |
|
Reclassification of net securities (gains) losses included in net income (2) | (4 | ) | | 1 |
| | (3 | ) | | (8 | ) | | 4 |
| | (4 | ) |
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables | (61 | ) | | 22 |
| | (39 | ) | | (114 | ) | | 39 |
| | (75 | ) |
Net unrealized securities gains (losses) | (5 | ) | | 1 |
| | (4 | ) | | (40 | ) | | 12 |
| | (28 | ) |
|
Net unrealized derivatives gains (losses): |
Reclassification of net derivative (gains) losses included in net income (3) | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
|
Net unrealized derivatives gains (losses) | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
|
|
Defined benefit plans: |
Net gain arising during the period | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Defined benefit plans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
|
Foreign currency translation | 25 |
| | (9 | ) | | 16 |
| | (26 | ) | | 10 |
| | (16 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total other comprehensive income (loss) | $ | 21 |
| | $ | (8 | ) | | $ | 13 |
| | $ | (65 | ) | | $ | 22 |
| | $ | (43 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2017 | | 2016 |
Pretax | Income Tax Benefit (Expense) | Net of Tax | Pretax | Income Tax Benefit (Expense) | Net of Tax |
(in millions) |
Net unrealized securities gains (losses): |
Net unrealized securities gains (losses) arising during the period (1) | $ | 304 |
| | $ | (107 | ) | | $ | 197 |
| | $ | 1,134 |
| | $ | (398 | ) | | $ | 736 |
|
Reclassification of net securities (gains) losses included in net income (2) | (43 | ) | | 15 |
| | (28 | ) | | (12 | ) | | 5 |
| | (7 | ) |
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables | (168 | ) | | 59 |
| | (109 | ) | | (533 | ) | | 186 |
| | (347 | ) |
Net unrealized securities gains (losses) | 93 |
| | (33 | ) | | 60 |
| | 589 |
| | (207 | ) | | 382 |
|
|
Net unrealized derivatives gains (losses): |
Reclassification of net derivative (gains) losses included in net income (4) | 3 |
| | (1 | ) | | 2 |
| | 4 |
| | (1 | ) | | 3 |
|
Net unrealized derivatives gains (losses) | 3 |
| | (1 | ) | | 2 |
| | 4 |
| | (1 | ) | | 3 |
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
2019 | | 2018 |
Pretax | | Income Tax Benefit (Expense) | | Net of Tax | Pretax | | Income Tax Benefit (Expense) | | Net of Tax |
(in millions) |
Net unrealized gains (losses) on securities: | | | | | | | | | | | |
Net unrealized gains (losses) on securities arising during the period (1) | $ | 1,169 |
| | $ | (201 | ) | | $ | 968 |
| | $ | (818 | ) | | $ | 182 |
| | $ | (636 | ) |
Reclassification of net (gains) losses on securities included in net income (2) | (5 | ) | | 1 |
| | (4 | ) | | (10 | ) | | 2 |
| | (8 | ) |
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables | (499 | ) | | 105 |
| | (394 | ) | | 319 |
| | (67 | ) | | 252 |
|
Net unrealized gains (losses) on securities | 665 |
| | (95 | ) | | 570 |
| | (509 | ) | | 117 |
| | (392 | ) |
Net unrealized gains (losses) on derivatives: | | | | | | | | | | | |
Reclassification of net (gains) losses on derivatives included in net income (4) | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Net unrealized gains (losses) on derivatives | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Foreign currency translation | (9 | ) | | — |
| | (9 | ) | | (16 | ) | | 1 |
| | (15 | ) |
Total other comprehensive income (loss) | $ | 655 |
| | $ | (95 | ) | | $ | 560 |
| | $ | (525 | ) | | $ | 118 |
| | $ | (407 | ) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2017 | | 2016 |
Pretax | Income Tax Benefit (Expense) | Net of Tax | Pretax | Income Tax Benefit (Expense) | Net of Tax |
(in millions) |
Defined benefit plans: |
Net gain arising during the period | 7 |
| | (2 | ) | | 5 |
| | 9 |
| | (3 | ) | | 6 |
|
Defined benefit plans | 7 |
| | (2 | ) | | 5 |
| | 9 |
| | (3 | ) | | 6 |
|
|
Foreign currency translation | 71 |
| | (25 | ) | | 46 |
| | (85 | ) | | 30 |
| | (55 | ) |
Other | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Total other comprehensive income (loss) | $ | 173 |
| | $ | (61 | ) | | $ | 112 |
| | $ | 517 |
| | $ | (181 | ) | | $ | 336 |
|
(1) Includes other-than-temporary impairmentOTTI losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.
(2) Reclassification amounts are recorded in net investment income.
(3) Includes nil and a $1 million pretax gain reclassified to interest and debt expense for both the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, and nil and a $1 million pretax loss reclassified to net investment income for both the three months ended SeptemberJune 30, 20172019 and 2016.2018, respectively.
(4) Includes a $1 million pretax gain reclassified to interest and debt expense for both the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, and nil and a $3 million and $4$1 million pretax loss reclassified to net investment income for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
Other comprehensive income (loss) related to net unrealized securities gains (losses) on securities includes three components: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairmentOTTI losses to credit losses; and (iii) other adjustments primarily consisting of changes in insurance
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
and annuity asset and liability balances, such as DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.
The following tables present the changes in the balances of each component of AOCI, net of tax:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Gains (Losses) on Securities | | Net Unrealized Gains (Losses) on Derivatives | | Defined Benefit Plans | | Foreign Currency Translation | | Other | | Total |
(in millions) |
Balance, April 1, 2019 | $ | 342 |
| | $ | 7 |
| | $ | (120 | ) | | $ | (193 | ) | | $ | (1 | ) | | $ | 35 |
|
OCI before reclassifications | 248 |
| | — |
| | — |
| | (14 | ) | | — |
| | 234 |
|
Amounts reclassified from AOCI | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total OCI | 248 |
| | — |
| | — |
| | (14 | ) | | — |
| | 234 |
|
Balance, June 30, 2019 | $ | 590 |
| (1) | $ | 7 |
| | $ | (120 | ) | | $ | (207 | ) | | $ | (1 | ) | | $ | 269 |
|
| | | | | | | | | | | |
Balance, January 1, 2019 | $ | 20 |
| | $ | 8 |
| | $ | (120 | ) | | $ | (198 | ) | | $ | (1 | ) | | $ | (291 | ) |
OCI before reclassifications | 574 |
| | — |
| | — |
| | (9 | ) | | — |
| | 565 |
|
Amounts reclassified from AOCI | (4 | ) | | (1 | ) | | — |
| | — |
| | — |
| | (5 | ) |
Total OCI | 570 |
| | (1 | ) | | — |
| | (9 | ) | | — |
| | 560 |
|
Balance, June 30, 2019 | $ | 590 |
| (1) | $ | 7 |
| | $ | (120 | ) | | $ | (207 | ) | | $ | (1 | ) | | $ | 269 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Gains (Losses) on Securities | | Net Unrealized Gains (Losses) on Derivatives | | Defined Benefit Plans | | Foreign Currency Translation | | Other | | Total |
(in millions) |
Balance, April 1, 2018 | $ | 223 |
| | $ | 8 |
| | $ | (97 | ) | | $ | (138 | ) | | $ | (1 | ) | | $ | (5 | ) |
OCI before reclassifications | (126 | ) | | — |
| | — |
| | (44 | ) | | — |
| | (170 | ) |
Amounts reclassified from AOCI | (4 | ) | | — |
| | — |
| | — |
| | — |
| | (4 | ) |
Total OCI | (130 | ) | | — |
| | — |
| | (44 | ) | | — |
| | (174 | ) |
Balance, June 30, 2018 | $ | 93 |
| (1) | $ | 8 |
| | $ | (97 | ) | | $ | (182 | ) | | $ | (1 | ) | | $ | (179 | ) |
| | | | | | | | | | | |
Balance, January 1, 2018 | $ | 486 |
| | $ | 8 |
| | $ | (97 | ) | | $ | (167 | ) | | $ | (1 | ) | | $ | 229 |
|
Cumulative effect of adoption of equity securities guidance | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
OCI before reclassifications | (384 | ) | | — |
| | — |
| | (15 | ) | | — |
| | (399 | ) |
Amounts reclassified from AOCI | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (8 | ) |
Total OCI | (392 | ) | | — |
| | — |
| | (15 | ) | | — |
| | (407 | ) |
Balance, June 30, 2018 | $ | 93 |
| (1) | $ | 8 |
| | $ | (97 | ) | | $ | (182 | ) | | $ | (1 | ) | | $ | (179 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Securities Gains | | Net Unrealized Derivatives Gains | | Defined Benefit Plans | | Foreign Currency Translation | | Other | | Total |
(in millions) |
Balance, July 1, 2017 | $ | 543 |
| | $ | 6 |
| | $ | (120 | ) | | $ | (129 | ) | | $ | (1 | ) | | $ | 299 |
|
OCI before reclassifications | (1 | ) | | — |
| | — |
| | 16 |
| | — |
| | 15 |
|
Amounts reclassified from AOCI | (3 | ) | | 1 |
| | — |
| | — |
| | — |
| | (2 | ) |
Total OCI | (4 | ) | | 1 |
| | — |
| | 16 |
| | — |
| | 13 |
|
Balance, September 30, 2017 | $ | 539 |
| (1) | $ | 7 |
| | $ | (120 | ) | | $ | (113 | ) | | $ | (1 | ) | | $ | 312 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2017 | $ | 479 |
| | $ | 5 |
| | $ | (125 | ) | | $ | (159 | ) | | $ | — |
| | $ | 200 |
|
OCI before reclassifications | 88 |
| | — |
| | — |
| | 46 |
| | (1 | ) | | 133 |
|
Amounts reclassified from AOCI | (28 | ) | | 2 |
| | 5 |
| | — |
| | — |
| | (21 | ) |
Total OCI | 60 |
| | 2 |
| | 5 |
| | 46 |
| | (1 | ) | | 112 |
|
Balance, September 30, 2017 | $ | 539 |
| (1) | $ | 7 |
| | $ | (120 | ) | | $ | (113 | ) | | $ | (1 | ) | | $ | 312 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Securities Gains | | Net Unrealized Derivatives Gains | | Defined Benefit Plans | | Foreign Currency Translation | | Total |
(in millions) |
Balance, July 1, 2016 | $ | 842 |
| | $ | 3 |
| | $ | (85 | ) | | $ | (122 | ) | | $ | 638 |
|
OCI before reclassifications | (24 | ) | | — |
| | — |
| | (16 | ) | | (40 | ) |
Amounts reclassified from AOCI | (4 | ) | | 1 |
| | — |
| | — |
| | (3 | ) |
Total OCI | (28 | ) | | 1 |
| | — |
| | (16 | ) | | (43 | ) |
Balance, September 30, 2016 | $ | 814 |
| (1) | $ | 4 |
| | $ | (85 | ) | | $ | (138 | ) | | $ | 595 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2016 | $ | 426 |
| | $ | 1 |
| | $ | (91 | ) | | $ | (83 | ) | | $ | 253 |
|
Cumulative effect of change in accounting policies | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Balance, January 1, 2016, as adjusted | 432 |
| | 1 |
| | (91 | ) | | (83 | ) | | 259 |
|
OCI before reclassifications | 389 |
| | — |
| | — |
| | (55 | ) | | 334 |
|
Amounts reclassified from AOCI | (7 | ) | | 3 |
| | 6 |
| | — |
| | 2 |
|
Total OCI | 382 |
| | 3 |
| | 6 |
| | (55 | ) | | 336 |
|
Balance, September 30, 2016 | $ | 814 |
| (1) | $ | 4 |
| | $ | (85 | ) | | $ | (138 | ) | | $ | 595 |
|
(1) Includes $8$(1) million and $5$1 million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of SeptemberJune 30, 20172019 and SeptemberJune 30, 2016,2018, respectively.
For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company repurchased a total of 8.05.8 million shares and 13.75.3 million shares, respectively, of its common stock for an aggregate cost of $1.0 billion$791 million and $1.3 billion,$787 million, respectively. In December 2015,April 2017, the Company’s Board of Directors authorized an expenditure of up to $2.5 billion for the repurchase of shares of the Company’s common stock through December 31, 2017,June 30, 2019, which was exhausted in the thirdsecond quarter 2017.of 2019. In April 2017,February 2019, the Company’s Board of Directors authorized an additional expenditure ofrepurchase up to $2.5 billion for the repurchase of shares of the Company’s common stock through March 31, 2021. As of June 30, 2019. As of September 30, 2017,2019, the Company had $2.4$2.2 billion remaining under this share repurchase authorization.
The Company may also reacquire shares of its common stock under its share-based compensation plans related to restricted stock awards and certain option exercises. The holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligation. These vested restricted shares are reacquired by the Company and the Company’s payment of the holders’ income tax obligations are recorded as a treasury share purchase.
For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company reacquired 0.3 million shares and 0.30.2 million shares, respectively, of
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
its common stock through the surrender of shares upon vesting and paid in the aggregate $33$30 million and $29$39 million, respectively, related to the holders’ income tax obligations on the vesting date. Option holders may elect to net settle their vested awards resulting in the surrender of the number of shares required to cover the strike price and tax obligation of the options exercised. These shares are reacquired by the Company and recorded as treasury shares. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company reacquired 1.90.4 million shares and 0.30.5 million shares, respectively, of its common stock through the net settlement of options for an aggregate value of $248$51 million and $31$74 million, respectively.
During the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company reissued 0.7 million and 0.8 million, and 0.9 millionrespectively, treasury shares respectively, for restricted stock award grants, performance share units and issuance of shares vested under advisor deferred compensation plans.
14. 17. Regulatory Requirements
The Company’s insurance subsidiaries are required to prepare statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of their respective states of domicile. RiverSource Life received approval from the Minnesota Department of Commerce to apply a permitted statutory accounting practice, effective July 1, 2017 through June 30, 2019, for certain derivative instruments used to economically hedge the interest rate exposure of certain variable annuity products that do not qualify for statutory hedge accounting. The permitted practice was intended to mitigate the impact to statutory surplus from the misalignment between variable annuity statutory reserves, which are not carried at fair value, and the fair value of derivatives used to economically hedge the interest rate exposure of non-life contingent living benefit guarantees.
The permitted practice allowed RiverSource Life to defer a portion of the change in fair value, net investment income and realized gains or losses generated from designated derivatives to the extent the amounts do not offset the current period interest-rate related change in the variable annuity statutory reserve liability. The deferred amount could be amortized over ten years using the straight-line method with the ability to accelerate amortization at management’s discretion. As of June 30, 2019, RiverSource Life elected to accelerate amortization of the net deferred amount associated with its permitted practice.
18. Income Taxes
The Company’s effective tax rate was 19.9%16.1% and 9.7%15.7% for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The Company’s effective tax rate was 19.5%16.0% and 18.6%15.2% for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
The effective tax rates arerate for the three months ended June 30, 2019 is lower than the statutory rate as a result of tax preferred items including the dividends received deduction, low income housing tax credits stock compensation and foreign tax credits. The effective tax rate for the six months ended June 30, 2019 is lower taxes on netthan the statutory rate as a result of tax preferred items including foreign tax credits and low income from foreign subsidiaries. housing tax credits, partially offset by lower income for the six months ended June 30, 2019 relative to income expected for the full year.
The increase in the effective tax rate for the three months ended SeptemberJune 30, 2017 compared to2018 is lower than the prior year periodstatutory rate as a result of tax preferred items including low income housing tax credits and dividends received deduction. The effective tax rate for the six months ended June 30, 2018 is primarily due to higher pretaxlower than the statutory rate as a result of tax preferred items including low income partially offset by a $25 million benefit forhousing tax credits, dividends received deduction and stock compensation due to the adoption of a new accounting standard.compensation.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $15$21 million, net of federal benefit, which will expire beginning December 31, 2017.2019.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the Company will not realize certain state deferred tax assets and state net operating losses and therefore a valuation allowance has been established. The valuation allowance was $14$21 million and $11$20 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company had $127$117 million and $115$92 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $55$81 million and $46$70 million, net of federal tax benefits, of unrecognized tax benefits as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, would affect the effective tax rate.
It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by $15$50 million to $25$60 million in the next 12 months primarily due to resolution of auditsInternal Revenue Service (“IRS”) settlements and statute expirations.state exams.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of $1 million and $2 million in interest and penalties for the three months and six months ended June 30, 2019, respectively. The Company recognized nil and a net increase of $1 million in interest and penalties for the three months and ninesix months ended SeptemberJune 30, 2017, respectively. The Company recognized nil and a net decrease of $44 million in interest and penalties for the three months and nine months ended September 30, 2016,2018, respectively. As of SeptemberJune 30, 20172019 and December 31, 2016,2018, the Company had a payable of $9$12 million and $8$10 million, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the thirdfirst quarter of 2019, the Company reached an agreement with the IRS to finalize the 2014 and 2015 IRS audits. However, during the second quarter, the Company received final cash settlementsmade a determination to file amended returns for resolution ofone issue on the 20062014 and 2011 audits. The IRS has completed its examination of the 2008 through 20102015 income tax returns and these years are effectively settled; however, the statutes of limitation, remain open for certain carryover adjustments.returns. The IRS is currently auditing the Company’s U.S. income tax returns for 2012 through 2015.2016 and 2017. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 20052009 through 2015. 2017. In the United Kingdom (“UK”), Her Majesty’s Revenue and Customs is performing a business risk review of the Company’s UK subsidiaries for the 2016 tax year.
15. 19. Contingencies
The Company is required by law to be a member of the guaranty fund association in every state where it is licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
The Company projects its cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”) and the amount of its premiums written relative to the industry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments when it is considered probable that an assessment will be imposed, the event obligating the Company to pay the assessment has occurred and the amount of the assessment can be reasonably estimated.
The Company has a liability for estimated guaranty fund assessments and a related premium tax asset. As of September 30, 2017 and December 31, 2016, the estimated liability was $15 million and $16 million, respectively, and the related premium tax asset was $12 million and $14 million, respectively. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions, heightened and sustained volatility in the financial markets and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally.
As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination or claims by, the SEC, FINRA, the OCC, the UK Financial Conduct Authority, state insurance and securities regulators, state attorneys general and various other domestic or foreign governmental and quasi-governmental authorities on behalf of themselves or clients concerning the Company’s business activities and practices, and the practices of the Company’s financial advisors. The Company has numerous pending matters which include information requests, exams or inquiries that the Company has received during recent periods regarding certain matters, including: sales and distribution of mutual funds, exchange traded funds, annuities, equity and fixed income securities, real estate investment trusts, insurance products, and financial advice offerings, including managed accounts; supervision of the Company’s financial advisors; administration of insurance and annuity claims; security of client information; trading activity and the Company’s monitoring and supervision of such activity; performance advertising and product disclosures, including third party performance claims; and transaction monitoring systems and controls. The Company is also participating in regulatory audits, market
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
conduct examinations and other state inquiries relating to an industry-wide investigation of unclaimed property and escheatment practices and procedures. The Company has cooperated and will continue to cooperate with the applicable regulators.
These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to reasonably estimate the amount of any loss. The Company cannot predict with certainty if, how or when any such proceedings will be initiated or resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing unsettled legal questions relevant to the proceedings in question, before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in one or more proceeding could eventually result in adverse judgments, settlements, fines, penalties or other sanctions, in addition to further claims, examinations or adverse publicity that could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
In accordance with applicable accounting standards, the Company establishes an accrued liability for contingent litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In such cases, there still may be an exposure to loss in excess of any amounts reasonably estimated and accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability, but continues to monitor, in conjunction with any outside counsel handling a matter, further developments that would make such loss contingency both probable and reasonably estimable. Once the Company establishes an accrued liability with respect to a loss contingency, the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established, and any appropriate adjustments are made each quarter.
Certain legalRiverSource Life and regulatory proceedingsRiverSource Life of NY are described below.
required by law to be a member of the guaranty fund association in every state where they are licensed to do business. In November 2014, a lawsuit was filed against the Company’s London-based asset management affiliate in England’s High Courtevent of Justice Commercial Court, entitled Otkritie Capital International Ltd and JSC Otkritie Holding v. Threadneedle Asset Management Ltd. and Threadneedle Management Services Ltd. (“Threadneedle Defendants”). Claimants allege that the Threadneedle Defendants should be held liable for the wrongful actsinsolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
The Company projects its cost of its former employees, who in February 2014 was held jointlyfuture guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and severally liable with several other parties for conspiracyHealth Insurance Guaranty Associations (“NOLHGA”) and dishonest assistance in connection with a fraud perpetrated against Claimants in 2011. Claimants allege they were harmed by that fraud in the amount of $106 million. The Threadneedle Defendants appliedits premiums written relative to the Court forindustry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
when it is considered probable that an Order dismissingassessment will be imposed, the proceedings as an abuse of processevent obligating the Company to pay the assessment has occurred and the amount of the Court. This application was declined in August 2015. The Threadneedle Defendants applied to the Court of Appeal for leave to appeal, which application was granted in November 2015. In April 2017, the Court of Appeal denied the Threadneedle Defendants’ appeal. As a result, the case will proceed in England’s High Court of Justice, Commercial Court. A Case Management Conference was held October 6, 2017, and it was directed that trial of the matter shall notassessment can be set before May 1, 2019. reasonably estimated.
The Company cannot reasonably estimatehas a liability for estimated guaranty fund assessments and a related premium tax asset. As of both June 30, 2019 and December 31, 2018, the rangeestimated liability was $12 million. As of loss, if any, that may result from this matter due toJune 30, 2019 and December 31, 2018, the early procedural status of the case, the number of parties involved,related premium tax asset was $10 million. and $11 million, respectively. The expected period over which guaranty fund assessments will be made and the failure to allege any specific, evidence based damages.related tax credits recovered is not known.
16. 20. Earnings per Share
The computationcomputations of basic and diluted earnings per share is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | | 2019 | | 2018 |
(in millions, except per share amounts) |
Numerator: | | | | | | | |
Net income | $ | 492 |
| | $ | 462 |
| | $ | 887 |
| | $ | 1,056 |
|
| | | | | | | |
Denominator: | | | | | | | |
Basic: Weighted-average common shares outstanding | 136.1 |
| | 147.0 |
| | 137.4 |
| | 148.2 |
|
Effect of potentially dilutive nonqualified stock options and other share-based awards | 1.9 |
| | 2.0 |
| | 1.7 |
| | 2.3 |
|
Diluted: Weighted-average common shares outstanding | 138.0 |
| | 149.0 |
| | 139.1 |
| | 150.5 |
|
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 3.61 |
| | $ | 3.14 |
| | $ | 6.46 |
| | $ | 7.13 |
|
Diluted | $ | 3.57 |
| | $ | 3.10 |
| | $ | 6.38 |
| | $ | 7.02 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions, except per share amounts) |
Numerator: |
Net income | $ | 503 |
| | $ | 215 |
| | $ | 1,299 |
| | $ | 914 |
|
|
Denominator: |
Basic: Weighted-average common shares outstanding | 153.0 |
| | 164.0 |
| | 155.2 |
| | 168.3 |
|
Effect of potentially dilutive nonqualified stock options and other share-based awards | 2.4 |
| | 1.8 |
| | 2.4 |
| | 1.8 |
|
Diluted: Weighted-average common shares outstanding | 155.4 |
| | 165.8 |
| | 157.6 |
| | 170.1 |
|
|
Earnings per share: |
Basic | $ | 3.29 |
| | $ | 1.31 |
| | $ | 8.37 |
| | $ | 5.43 |
|
Diluted | $ | 3.24 |
| | $ | 1.30 |
| | $ | 8.24 |
| | $ | 5.37 |
|
The calculation of diluted earnings per share excludes the incremental effect of 2.91.0 million and 1.1 million options as of SeptemberJune 30, 2016,2019 and 2018, respectively, due to their anti-dilutive effect. There was no incremental effect as of September 30, 2017.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
17. 21. Segment Information
The Company’s reporting segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other.
Beginning in the first quarter of 2017,2019, the long term care business,results of AAH, which had been reported as part of the Protection segment, isare reflected in the Corporate & Other segment. The Company discontinued underwriting long term care insurance in 2002 and the transfer of this closed blocksegment due to the Corporate & Other segment allows investorssale of AAH, which is expected to better understandclose in the performancefourth quarter of the Company’s on-going Protection businesses.2019. Prior periods presented have been restated to reflect the change. See Note 15 for additional information on the sale of AAH.
The accounting policies of the segments are the same as those of the Company, except for operating adjustments defined below, the method of capital allocation, the accounting for gains (losses) from intercompany revenues and expenses and not providing for income taxes on a segment basis.
Management uses segment adjusted operating measures in goal setting, as a basis for determining employee compensation and in evaluating performance on a basis comparable to that used by some securities analysts and investors. Consistent with GAAP accounting guidance for segment reporting, adjusted operating earnings is the Company’s measure of segment performance. OperatingAdjusted operating earnings should not be viewed as a substitute for GAAP pretax income. The Company believes the presentation of segment adjusted operating earnings, as the Company measures it for management purposes, enhances the understanding of its business by reflecting the underlying performance of its core operations and facilitating a more meaningful trend analysis.
OperatingEffective first quarter of 2019, management has excluded mean reversion related impacts from the Company’s adjusted operating measures. Prior periods have been updated to reflect this change to be consistent with the current period presentation. The mean reversion related impact is defined as the impact on variable annuity and VUL products for the difference between assumed and updated separate account investment performance on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional insurance benefit reserves.
Adjusted operating earnings is defined as adjusted operating net revenues less adjusted operating expenses. OperatingAdjusted operating net revenues and adjusted operating expenses exclude the market impact on IUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual), mean reversion related impacts, integration and restructuring charges and the impact of consolidating investment entities. OperatingAdjusted operating net revenues also exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the market impact of hedges to
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
offset interest rate changes on unrealized gains or losses for certain investments. OperatingAdjusted operating expenses also exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), the market impact on fixed index annuity benefits (net of hedges and the related DAC amortization), and the DSIC and DAC amortization offset to net realized investment gains or losses. The market impact on variable annuity guaranteed benefits, fixed index annuity benefits and IUL benefits includes changes in embedded derivative values caused by changes in financial market conditions, net of changes in economic hedge values and unhedged items including the difference between assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and certain policyholder contract elections, net of related impacts on DAC and DSIC amortization. The market impact also includes certain valuation adjustments made in accordance with FASB Accounting Standards Codification 820, Fair Value Measurements and Disclosures, including the impact on embedded derivative values of discounting projected benefits to reflect a current estimate of the Company’s life insurance subsidiary’s nonperformance spread.
The following tables summarize selected financial information by segment and reconcile segment totals to those reported on the consolidated financial statements:
| | | September 30, 2017 | | December 31, 2016 | June 30, 2019 | | December 31, 2018 |
(in millions) | Advice & Wealth Management | $ | 13,407 |
| | $ | 12,654 |
| $ | 16,281 |
| | $ | 14,480 |
|
Asset Management | 8,163 |
| | 7,254 |
| 7,949 |
| | 7,558 |
|
Annuities | 96,656 |
| | 93,481 |
| 95,868 |
| | 88,771 |
|
Protection | 17,543 |
| | 16,780 |
| 16,787 |
| | 17,126 |
|
Corporate & Other | 9,717 |
| | 9,652 |
| 9,766 |
| | 9,281 |
|
Assets held for sale | | 2,027 |
| | — |
|
Total assets | $ | 145,486 |
| | $ | 139,821 |
| $ | 148,678 |
| | $ | 137,216 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions) |
Adjusted operating net revenues: | | | | | | | |
Advice & Wealth Management | $ | 1,653 |
| | $ | 1,543 |
| | $ | 3,207 |
| | $ | 3,044 |
|
Asset Management | 712 |
| | 755 |
| | 1,401 |
| | 1,533 |
|
Annuities | 620 |
| | 622 |
| | 1,224 |
| | 1,235 |
|
Protection | 259 |
| | 255 |
| | 521 |
| | 508 |
|
Corporate & Other | 352 |
| | 334 |
| | 694 |
| | 657 |
|
Less: Eliminations (1)(2) | 349 |
| | 362 |
| | 682 |
| | 719 |
|
Total segment adjusted operating net revenues | 3,247 |
| | 3,147 |
| | 6,365 |
| | 6,258 |
|
Net realized gains (losses) | — |
| | 5 |
| | 9 |
| | 11 |
|
Revenue attributable to consolidated investment entities | 24 |
| | 49 |
| | 45 |
| | 71 |
|
Market impact on IUL benefits, net | (8 | ) | | (10 | ) | | (25 | ) | | 3 |
|
Market impact of hedges on investments | (18 | ) | | 5 |
| | (28 | ) | | 21 |
|
Integration and restructuring charges | — |
| | — |
| | (3 | ) | | — |
|
Total net revenues per Consolidated Statements of Operations | $ | 3,245 |
| | $ | 3,196 |
| | $ | 6,363 |
| | $ | 6,364 |
|
| |
(1) | Represents the elimination of intersegment revenues recognized for the three months ended June 30, 2019 and 2018 in each segment as follows: Advice & Wealth Management ($230 million and $247 million, respectively); Asset Management ($14 million and $12 million, respectively); Annuities ($91 million and $90 million, respectively); Protection ($15 million and $13 million, respectively); and Corporate & Other ($(1) million and nil, respectively). |
| |
(2) | Represents the elimination of intersegment revenues recognized for the six months ended June 30, 2019 and 2018 in each segment as follows: Advice & Wealth Management ($449 million and $487 million, respectively); Asset Management ($27 million and $24 million, respectively); Annuities ($179 million and $180 million, respectively); Protection ($30 million and $29 million, respectively); and Corporate & Other ($(3) million and $(1) million, respectively). |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions) |
Adjusted operating earnings: | | | | | | | |
Advice & Wealth Management | $ | 376 |
| | $ | 350 |
| | $ | 726 |
| | $ | 666 |
|
Asset Management | 164 |
| | 183 |
| | 310 |
| | 378 |
|
Annuities | 129 |
| | 122 |
| | 257 |
| | 248 |
|
Protection | 65 |
| | 63 |
| | 139 |
| | 128 |
|
Corporate & Other | (61 | ) | | (84 | ) | | (124 | ) | | (135 | ) |
Total segment adjusted operating earnings | 673 |
| | 634 |
| | 1,308 |
| | 1,285 |
|
Net realized gains (losses) | — |
| | 5 |
| | 9 |
| | 11 |
|
Net income (loss) attributable to consolidated investment entities | 1 |
| | — |
| | 1 |
| | — |
|
Market impact on variable annuity guaranteed benefits, net | (60 | ) | | (80 | ) | | (202 | ) | | (85 | ) |
Market impact on IUL benefits, net | (26 | ) | | (20 | ) | | (77 | ) | | 5 |
|
Market impact on fixed annuity benefits, net | 1 |
| | — |
| | 1 |
| | — |
|
Mean reversion related impacts | 18 |
| | 8 |
| | 54 |
| | 14 |
|
Market impact of hedges on investments | (18 | ) | | 5 |
| | (28 | ) | | 21 |
|
Integration and restructuring charges | (2 | ) | | (4 | ) | | (9 | ) | | (7 | ) |
Pretax income per Consolidated Statements of Operations | $ | 587 |
| | $ | 548 |
| | $ | 1,057 |
| | $ | 1,244 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Operating net revenues: |
Advice & Wealth Management | $ | 1,383 |
| | $ | 1,272 |
| | $ | 4,026 |
| | $ | 3,720 |
|
Asset Management | 778 |
| | 740 |
| | 2,252 |
| | 2,203 |
|
Annuities | 626 |
| | 631 |
| | 1,861 |
| | 1,846 |
|
Protection | 478 |
| | 613 |
| | 1,516 |
| | 1,693 |
|
Corporate & Other | 50 |
| | 51 |
| | 162 |
| | 178 |
|
Eliminations (1)(2) | (348 | ) | | (353 | ) | | (1,040 | ) | | (1,042 | ) |
Total segment operating revenues | 2,967 |
| | 2,954 |
| | 8,777 |
| | 8,598 |
|
Net realized investment gains (losses) | (3 | ) | | 6 |
| | 35 |
| | (5 | ) |
Revenues attributable to CIEs | 23 |
| | 27 |
| | 70 |
| | 77 |
|
Market impact on IUL benefits | (5 | ) | | 6 |
| | (7 | ) | | 18 |
|
Market impact of hedges on investments | (1 | ) | | 5 |
| | (8 | ) | | (54 | ) |
Total net revenues per consolidated statements of operations (3)(4) | $ | 2,981 |
| | $ | 2,998 |
| | $ | 8,867 |
| | $ | 8,634 |
|
(1) Represents the elimination of intersegment revenues recognized for the three months ended September 30, 2017 and 2016 in each segment as follows: Advice & Wealth Management ($233 million and $244 million, respectively); Asset Management ($12 million and $12 million, respectively); Annuities ($88 million and $85 million, respectively); Protection ($16 million and $12 million, respectively); and Corporate & Other ($(1) million and nil, respectively).
| |
(2)
| Represents the elimination of intersegment revenues recognized for the nine months ended September 30, 2017 and 2016in each segment as follows: Advice & Wealth Management ($701 million and $727 million, respectively); Asset Management ($35 million and $33 million, respectively); Annuities ($259 million and $247 million, respectively); Protection ($46 million and $34 million, respectively); and Corporate & Other ($(1) million and $1 million, respectively).
|
(3) Includes foreign net revenues of $198 million and $162 million for the three months ended September 30, 2017 and 2016, respectively.
| |
(4)
| Includes foreign net revenues of $539 million and $500 million for the nine months ended September 30, 2017 and 2016, respectively. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions) |
Operating earnings: |
Advice & Wealth Management | $ | 298 |
| | $ | 231 |
| | $ | 837 |
| | $ | 657 |
|
Asset Management | 200 |
| | 155 |
| | 526 |
| | 452 |
|
Annuities | 281 |
| | (68 | ) | | 562 |
| | 202 |
|
Protection | 55 |
| | 84 |
| | 169 |
| | 190 |
|
Corporate & Other | (136 | ) | | (145 | ) | | (292 | ) | | (271 | ) |
Total segment operating earnings | 698 |
| | 257 |
| | 1,802 |
| | 1,230 |
|
Net realized investment gains (losses) | (3 | ) | | 6 |
| | 33 |
| | (5 | ) |
Net income (loss) attributable to CIEs | — |
| | — |
| | 2 |
| | (1 | ) |
Market impact on variable annuity guaranteed benefits | (55 | ) | | (37 | ) | | (198 | ) | | (78 | ) |
Market impact on IUL benefits | (10 | ) | | 7 |
| | (16 | ) | | 31 |
|
Market impact of hedges on investments | (1 | ) | | 5 |
| | (8 | ) | | (54 | ) |
Integration and restructuring charges | (1 | ) | | — |
| | (1 | ) | | — |
|
Pretax income per consolidated statements of operations | $ | 628 |
| | $ | 238 |
| | $ | 1,614 |
| | $ | 1,123 |
|
AMERIPRISE FINANCIAL, INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the Securities and Exchange Commission (“SEC”) on February 23, 201727, 2019 (“20162018 10-K”), as well as our current reports on Form 8-K and other publicly available information. Prior period amounts have been restated for the retrospective adoption of the new revenue recognition accounting standard. References below to “Ameriprise Financial,” “Ameriprise,” the “Company,” “we,” “us,” and “our” refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.
Overview
Ameriprise Financial is a diversified financial services company with a more than 120 year125-year history of providing financial solutions. We are a long-standing leader in financial planning and advice with $916 billion in assets under management and administration as of June 30, 2019. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients. We are America’s leader inclients’ financial planning and a leading global financial institution with $869.5 billion in assets under management and administration as of September 30, 2017.objectives.
The financial results from the businesses underlying our go-to-market approaches are reflected in our five operating segments:
Advice & Wealth Management;
Asset Management;
Annuities;
Protection; and
Corporate & Other.
Our operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships.
Financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results. In addition, the business and regulatory environment in which we operate remains subject to elevated uncertainty and change. To succeed, we expect to continue focusing on our key strategic objectives. The success of these and other strategies may be affected by the factors discussed in “Item 1A. Risk Factors” in our 20162018 10-K and other factors as discussed herein.
Equity price, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our fixed deferred annuities, fixed insurance, deposit products and the fixed portion of variable annuities and variable insurance contracts, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.
Earnings, as well as adjusted operating earnings, will continue to be negatively impacted by the ongoing low interest rate environment.environment should it continue. In addition to continuing spread compression in our interest sensitive product lines, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our adjusted operating earnings. For additional discussion on our interest rate risk, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
InOn April 2, 2019, we announced we signed a definitive agreement with a subsidiary of American Family Insurance Mutual Holding Company (American Family Insurance) for the thirdsale of Ameriprise Auto & Home (“AAH”), a business unit of Ameriprise Financial. We made the decision to pursue a sale following a strategic review of the AAH business and we determined that now is an appropriate time to exit this business. The sale is consistent with our focus on our core growth areas of Advice & Wealth Management and Asset Management. Beginning in the first quarter of 2019, the year, we updated our market-related inputs and implemented model changes relatedresults of AAH, which had been reported as part of the Protection segment, are reflected in the Corporate & Other segment. Prior periods presented have been restated to reflect the change. See Note 15 to our living benefit valuation. Consolidated Financial Statements for additional information on the sale of AAH.
In addition,2018, we conducted our annual review of life insurancemade the strategic decision to seek to expand the banking products and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking.
The favorable unlocking impact in the third quarter of 2017 primarily reflected a positive impact from updates to market-related inputsservices we can provide directly to our living benefit valuation. In addition, premium deficiency testing for our long term care (“LTC”) business resultedclients, and commenced the process to convert Ameriprise National Trust Bank into a federal savings bank with the capabilities to offer FDIC insured deposits and a range of lending products. We completed that process, received regulatory approvals and converted Ameriprise National Trust Bank to a federal savings bank in May 2019, at which time Ameriprise Financial became a loss recognition reservesavings and loan holding company that is subject to regulation, supervision and examination by the Board of $57 million in the third quarter of 2017 primarily due to higher morbidity, partially offset by premium increases.
The unfavorable unlocking impact in the third quarter of 2016 primarily reflected low interest rates and higher persistency on living benefit contracts that more than offset benefits from persistency on annuity contracts without living benefits, an update to market-related inputs related to our living benefit valuation and other model updates. Our long-term interest rate assumption remained unchanged, but we extended the period it would take for rates to reach our long term level from 3.5 years to 5.5 years. In addition, our review of our LTC business in the third quarter of 2016 resulted in a loss recognition of $31 million due to low interest rates, higher morbidity and higher reinsurance expenses, slightly offset by premium increases. The $31 million, which is included in the unlocking impact in the third quarter of 2016, was comprised of $58 million of amortization of DAC and the release of the related deferred reinsurance liability of $27 million.
AMERIPRISE FINANCIAL, INC.
See our Consolidated and Segment Results of Operations sections belowGovernors for the pretax impacts on our revenues and expenses attributableFederal Reserve System. In connection with the conversion, Ameriprise Financial elected to unlocking and additional discussionbe classified as a financial holding company subject to regulation under the Bank Holding Company Act of the drivers of the unlocking impact.1956 (as amended).
We consolidate certain variable interest entities for which we provide asset management services. These entities are defined as consolidated investment entities (“CIEs”). While the consolidation of the CIEs impacts our balance sheet and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. For further information on CIEs, see Note 34 to our Consolidated Financial Statements. The results of operations of the CIEs are reflected in the Corporate & Other segment. On a consolidated basis, the management fees we earn for the services we provide to the CIEs and the related general and administrative expenses are eliminated and the changes in the fair value of assets and liabilities related to the CIEs, primarily syndicated loans and debt, are reflected in net investment income. We continue to include the fees from these entities in the management and financial advice fees line within our Asset Management segment.
AMERIPRISE FINANCIAL, INC.
While our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), management believes that adjusted operating measures, which exclude net realized investment gains or losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life (“IUL”) benefits, net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; mean reversion related impacts; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. Management uses certain of these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management’s Discussion and Analysis, these non-GAAP measures are referred to as adjusted operating measures. These non-GAAP measures should not be viewed as a substitute for U.S. GAAP measures. Effective first quarter 2019, management has excluded mean reversion related impacts from our adjusted operating measures. Prior periods have been updated to reflect this change to be consistent with the current period presentation. The mean reversion related impact is defined as the impact on variable annuity and variable universal life (“VUL”) products for the difference between assumed and updated separate account investment performance on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional insurance benefit reserves. The updated separate account investment performance includes actual investment performance in the current period and the impact of changes in financial market conditions on the assumptions for future investment performance.
It is management’s priority to increase shareholder value over a multi-year horizon by achieving our on-average, over-time financial targets.
Our financial targets are:
OperatingAdjusted operating total net revenue growth of 6% to 8%,
OperatingAdjusted operating earnings per diluted share growth of 12% to 15%, and
OperatingAdjusted operating return on equity excluding accumulated other comprehensive income (“AOCI”) of 19% to 23%.
The following tables reconcile our GAAP measures to adjusted operating measures:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | 2019 | | 2018 |
(in millions) | Total net revenues | $ | 2,981 |
| | $ | 2,998 |
| | $ | 8,867 |
| | $ | 8,634 |
| $ | 3,245 |
| | $ | 3,196 |
| | $ | 6,363 |
| | $ | 6,364 |
|
Less: Revenue attributable to CIEs | 23 |
| | 27 |
| | 70 |
| | 77 |
| 24 |
| | 49 |
| | 45 |
| | 71 |
|
Less: Net realized investment gains (losses) | (3 | ) | | 6 |
| | 35 |
| | (5 | ) | — |
| | 5 |
| | 9 |
| | 11 |
|
Less: Market impact on indexed universal life benefits | (5 | ) | | 6 |
| | (7 | ) | | 18 |
| |
Less: Market impact on IUL benefits | | (8 | ) | | (10 | ) | | (25 | ) | | 3 |
|
Less: Market impact of hedges on investments | (1 | ) | | 5 |
| | (8 | ) | | (54 | ) | (18 | ) | | 5 |
| | (28 | ) | | 21 |
|
Operating total net revenues | $ | 2,967 |
| | $ | 2,954 |
| | $ | 8,777 |
| | $ | 8,598 |
| |
Less: Integration/restructuring charges | | — |
| | — |
| | (3 | ) | | — |
|
Adjusted operating total net revenues | | $ | 3,247 |
| | $ | 3,147 |
| | $ | 6,365 |
| | $ | 6,258 |
|
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Per Diluted Share |
Three Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions, except per share amounts) |
Net income | $ | 492 |
| | $ | 462 |
| | $ | 3.57 |
| | $ | 3.10 |
|
Less: Net income (loss) attributable to CIEs | 1 |
| | — |
| | 0.01 |
| | — |
|
Add: Integration/restructuring charges (1) | 2 |
| | 4 |
| | 0.02 |
| | 0.03 |
|
Add: Market impact on variable annuity guaranteed benefits (1) | 60 |
| | 80 |
| | 0.43 |
| | 0.53 |
|
Add: Market impact on fixed index annuity benefits (1) | (1 | ) | | — |
| | (0.01 | ) | | — |
|
Add: Market impact on IUL benefits (1) | 26 |
| | 20 |
| | 0.19 |
| | 0.13 |
|
Add: Mean reversion related impacts (1) | (18 | ) | | (8 | ) | | (0.13 | ) | | (0.05 | ) |
Add: Market impact of hedges on investments (1) | 18 |
| | (5 | ) | | 0.13 |
| | (0.03 | ) |
Less: Net realized investment gains (losses) (1) | — |
| | 5 |
| | — |
| | 0.03 |
|
Tax effect of adjustments (2) | (18 | ) | | (18 | ) | | (0.13 | ) | | (0.12 | ) |
Adjusted operating earnings | $ | 560 |
| | $ | 530 |
| | $ | 4.06 |
| | $ | 3.56 |
|
| | | | | | | |
Weighted average common shares outstanding: | |
| | |
| | |
| | |
|
Basic | 136.1 |
| | 147.0 |
| | |
| | |
|
Diluted | 138.0 |
| | 149.0 |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Per Diluted Share |
Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in millions, except per share amounts) |
Net income | $ | 887 |
| | $ | 1,056 |
| | $ | 6.38 |
| | $ | 7.02 |
|
Less: Net income (loss) attributable to CIEs | 1 |
| | — |
| | 0.01 |
| | — |
|
Add: Integration/restructuring charges (1) | 9 |
| | 7 |
| | 0.06 |
| | 0.05 |
|
Add: Market impact on variable annuity guaranteed benefits (1) | 202 |
| | 85 |
| | 1.46 |
| | 0.55 |
|
Add: Market impact on fixed index annuity benefits (1) | (1 | ) | | — |
| | (0.01 | ) | | — |
|
Add: Market impact on IUL benefits (1) | 77 |
| | (5 | ) | | 0.55 |
| | (0.03 | ) |
Add: Mean reversion related impacts (1) | (54 | ) | | (14 | ) | | (0.39 | ) | | (0.09 | ) |
Add: Market impact of hedges on investments (1) | 28 |
| | (21 | ) | | 0.20 |
| | (0.14 | ) |
Less: Net realized investment gains (losses) (1) | 9 |
| | 11 |
| | 0.06 |
| | 0.07 |
|
Tax effect of adjustments (2) | (53 | ) | | (9 | ) | | (0.38 | ) | | (0.06 | ) |
Adjusted operating earnings | $ | 1,085 |
| | $ | 1,088 |
| | $ | 7.80 |
| | $ | 7.23 |
|
| | | | | | | |
Weighted average common shares outstanding: | |
| | |
| | |
| | |
|
Basic | 137.4 |
| | 148.2 |
| | |
| | |
|
Diluted | 139.1 |
| | 150.5 |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Per Diluted Share |
Three Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions, except per share amounts) |
Net income | $ | 503 |
| | $ | 215 |
| | $ | 3.24 |
| | $ | 1.30 |
|
Add: Integration/restructuring charges (1) | 1 |
| | — |
| | 0.01 |
| | — |
|
Add: Market impact on variable annuity guaranteed benefits (1) | 55 |
| | 37 |
| | 0.35 |
| | 0.22 |
|
Add: Market impact on indexed universal life benefits (1) | 10 |
| | (7 | ) | | 0.06 |
| | (0.04 | ) |
Add: Market impact of hedges on investments (1) | 1 |
| | (5 | ) | | 0.01 |
| | (0.03 | ) |
Less: Net realized investment gains (losses) (1) | (3 | ) | | 6 |
| | (0.02 | ) | | 0.04 |
|
Tax effect of adjustments (2) | (25 | ) | | (7 | ) | | (0.16 | ) | | (0.04 | ) |
Operating earnings | $ | 548 |
| | $ | 227 |
| | $ | 3.53 |
| | $ | 1.37 |
|
|
Weighted average common shares outstanding: | |
| | |
| | |
| | |
|
Basic | 153.0 |
| | 164.0 |
| | |
| | |
|
Diluted | 155.4 |
| | 165.8 |
| | |
| | |
|
(1) Pretax adjusted operating adjustments.
(2) Calculated using the statutory tax rate of 35%21%.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Per Diluted Share |
Nine Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in millions, except per share amounts) |
Net income | $ | 1,299 |
| | $ | 914 |
| | $ | 8.24 |
| | $ | 5.37 |
|
Less: Net income (loss) attributable to CIEs | 1 |
| | (1 | ) | | 0.01 |
| | (0.01 | ) |
Add: Integration/restructuring charges (1) | 1 |
| | — |
| | 0.01 |
| | — |
|
Add: Market impact on variable annuity guaranteed benefits (1) | 198 |
| | 78 |
| | 1.26 |
| | 0.46 |
|
Add: Market impact on indexed universal life benefits (1) | 16 |
| | (31 | ) | | 0.10 |
| | (0.18 | ) |
Add: Market impact of hedges on investments (1) | 8 |
| | 54 |
| | 0.05 |
| | 0.31 |
|
Less: Net realized investment gains (losses) (1) | 33 |
| | (5 | ) | | 0.21 |
| | (0.03 | ) |
Tax effect of adjustments (2) | (67 | ) | | (37 | ) | | (0.42 | ) | | (0.22 | ) |
Operating earnings | $ | 1,421 |
| | $ | 984 |
| | $ | 9.02 |
| | $ | 5.78 |
|
|
Weighted average common shares outstanding: | |
| | |
| | |
| | |
|
Basic | 155.2 |
| | 168.3 |
| | |
| | |
|
Diluted | 157.6 |
| | 170.1 |
| | |
| | |
|
(1) Pretax operating adjustments.
(2) Calculated using the statutory tax rate of 35%.
AMERIPRISE FINANCIAL, INC.
The following table reconciles the trailing twelve months’ sum of net income attributable to Ameriprise Financial toadjusted operating earnings and the five-point average of quarter-end equity to adjusted operating equity:
| | | Twelve Months Ended September 30, | Twelve Months Ended June 30, |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | Net income attributable to Ameriprise Financial | $ | 1,699 |
| | $ | 1,271 |
| |
Net income | | $ | 1,929 |
| | $ | 1,740 |
|
Less: Adjustments (1) | (165 | ) | | (154 | ) | (229 | ) | | (47 | ) |
Operating earnings | $ | 1,864 |
| | $ | 1,425 |
| |
Adjusted operating earnings | | $ | 2,158 |
| | $ | 1,787 |
|
| | | | |
Total Ameriprise Financial, Inc. shareholders’ equity | $ | 6,369 |
| | $ | 7,139 |
| $ | 5,742 |
| | $ | 6,004 |
|
Less: AOCI, net of tax | 325 |
| | 478 |
| (82 | ) | | 131 |
|
Total Ameriprise Financial, Inc. shareholders’ equity, excluding AOCI | 6,044 |
| | 6,661 |
| 5,824 |
| | 5,873 |
|
Less: Equity impacts attributable to CIEs | 1 |
| | 62 |
| 1 |
| | 1 |
|
Operating equity | $ | 6,043 |
| | $ | 6,599 |
| |
Adjusted operating equity | | $ | 5,823 |
| | $ | 5,872 |
|
| | | | |
Return on equity, excluding AOCI | 28.1 | % | | 19.1 | % | 33.1 | % | | 29.6 | % |
Operating return on equity, excluding AOCI (2) | 30.8 | % | | 21.6 | % | |
Adjusted operating return on equity, excluding AOCI (2) | | 37.1 | % | | 30.4 | % |
| |
(1) | Adjustments reflect the trailing twelve months’ sum of after-tax net realized investment gains/losses, net of DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed universal lifeIUL benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; mean reversion related impacts; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; and net income (loss) from consolidated investment entities. After-tax is calculated using the statutory tax rate of 35%21%. |
| |
(2) | OperatingAdjusted operating return on equity, excluding AOCI, is calculated using the trailing twelve months of earnings excluding the after-tax net realized investment gains/losses, net of DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; market impact on variable annuity guaranteed benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed universalIUL benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; mean reversion related impacts; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; and net income (loss) from consolidated investment entities in the numerator, and Ameriprise Financial shareholders’ equity, excluding AOCI and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator. After-tax is calculated using the statutory tax rate of 35%21%. Adjusted operating return on equity, excluding AOCI is higher reflecting core business improvement, market appreciation and cumulative share repurchases. |
The Department of Labor published regulations in April 2016 that expanded the scope of who is considered an ERISA fiduciary and these regulations focus in large part on investment recommendations made by financial advisors, registered investment advisors, and other investment professionals to retirement investors, how financial advisors are able to discuss IRA rollovers, as well as how financial advisors and affiliates can transact with retirement investors. Tax qualified accounts, particularly IRAs, make up a significant portion of our assets under management and administration. The first phase of the regulations went into effect on June 9, 2017 and requires financial advisors to make recommendations related to assets held in IRAs and employer sponsored retirement plans in accordance with the following impartial conduct standards: recommendations must be in the best interest of the client, compensation paid for the recommendations must be reasonable and the financial advisor must not make any misleading statements. We adopted policies and procedures designed to comply with the impartial conduct standards and communicated those policies and procedures to our advisors and staff. The second phase of the regulation pertaining to a new “best interest contract exemption” puts into place a number of additional requirements including entering into a best interest contract with clients, enhanced disclosure of fees and conflicts of interest, limits on differential commissions within a product category, the adoption of policies and procedures to ensure the best interest standard is met, and findings related to platforms that are limited to products that pay third-party payments and/or include proprietary products. The second phase of the regulation is currently scheduled to become effective on January 1, 2018. These regulations are currently under review by the Department of Labor and the Department has proposed to delay the second phase of the regulations until July 1, 2019, which would give the Department of Labor more time to determine if further revisions to the regulations are advisable. However, as of November 1 the Department of Labor has not issued final guidance implementing a further delay. As a result, it is unclear whether the Department of Labor will substantially rescind or revise the regulations as adopted in 2016. In light of the uncertainty regarding the fiduciary regulation, while we prudently continue to prepare to comply with the second phase of the Department of Labor’s investment fiduciary regulations and exemptions in the form in which they were adopted in April 2016, we are also evaluating the impact to our clients, financial advisors and business should the Department of Labor decide to delay, rescind or revise the regulations per the developments since President Trump’s inauguration as generally described above.
Critical Accounting Estimates
The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and, in some cases,
AMERIPRISE FINANCIAL, INC.
the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Estimates” in our 20162018 10-K.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations and financial condition, see Note 2 to our Consolidated Financial Statements.
Assets Under Management and Administration
Assets under management (“AUM”) include external client assets for which we provide investment management services, such as the assets of the Columbia Threadneedle Investments funds, assets of institutional clients and assets of clients in our advisor platform held in wrap accounts as well as assets managed by sub-advisors selected by us. AUM also includes certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account and the variable product funds held in the separate accounts of our life insurance subsidiaries and CIEs. These assets do not include assets under advisement, for which we provide advisory services such as model portfolios but do not have full discretionary investment authority. Corporate & Other AUM primarily includes former bank assets that are managed within our Corporate & Other segment.
Assets under administration (“AUA”) include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We generally record revenues received from administered assets as distribution fees. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets. AUA also includes certain assets on our Consolidated Balance Sheets for which we do not provide investment management services and do not recognize management fees, such as investments in non-affiliated funds held in the separate accounts of our life insurance subsidiaries.
AMERIPRISE FINANCIAL, INC.
These assets do not include assets under advisement, for which we provide advisory services such as model portfolios but do not have full discretionary investment authority.
The following table presents detail regarding our AUM and AUA:
| | | September 30, | | Change | June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in billions) | | | (in billions) | | |
Assets Under Management and Administration | Assets Under Management and Administration | | | | | | | |
Advice & Wealth Management AUM | $ | 233.9 |
| | $ | 196.2 |
| | $ | 37.7 |
| | 19 | % | $ | 289.9 |
| | $ | 257.2 |
| | $ | 32.7 |
| | 13 | % |
Asset Management AUM | 484.0 |
| | 467.8 |
| | 16.2 |
| | 3 |
| 468.3 |
| | 482.1 |
| | (13.8 | ) | | (3 | ) |
Corporate & Other AUM | 0.3 |
| | 0.3 |
| | — |
| | — |
| |
Eliminations | (25.9 | ) | | (24.7 | ) | | (1.2 | ) | | (5 | ) | (29.2 | ) | | (28.7 | ) | | (0.5 | ) | | (2 | ) |
Total Assets Under Management | 692.3 |
| | 639.6 |
| | 52.7 |
| | 8 |
| 729.0 |
| | 710.6 |
| | 18.4 |
| | 3 |
|
Total Assets Under Administration | 177.2 |
| | 156.0 |
| | 21.2 |
| | 14 |
| 186.9 |
| | 180.3 |
| | 6.6 |
| | 4 |
|
Total AUM and AUA | $ | 869.5 |
| | $ | 795.6 |
| | $ | 73.9 |
| | 9 | % | $ | 915.9 |
| | $ | 890.9 |
| | $ | 25.0 |
| | 3 | % |
Total AUM increased $52.7$18.4 billion, or 8%3%, to $692.3$729.0 billion as of SeptemberJune 30, 20172019 compared to $639.6$710.6 billion as of SeptemberJune 30, 2016 primarily due to a $37.7 billion increase in2018. Advice & Wealth Management AUM increased $32.7 billion, or 13%, compared to the prior year period driven by wrap account net inflows and market appreciation and a $16.2 billion increase inappreciation. Asset Management AUM decreased $13.8 billion, or 3%, compared to the prior year period driven by market appreciationnet outflows, retail fund distributions and a positivenegative impact of foreign currency translation, partially offset by net outflows.market appreciation. See our segment results of operations discussion below for additional information on changes in our AUM.
AMERIPRISE FINANCIAL, INC.
Consolidated Results of Operations for the Three Months Ended SeptemberJune 30, 20172019 and 20162018
The following table presents our consolidated results of operations:
| | | Three Months Ended September 30, | | Change | Three Months Ended June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | | | (in millions) | | |
Revenues | Revenues | | | | | | | |
Management and financial advice fees | $ | 1,626 |
| | $ | 1,464 |
| | $ | 162 |
| | 11 | % | $ | 1,732 |
| | $ | 1,691 |
| | $ | 41 |
| | 2 | % |
Distribution fees | 437 |
| | 455 |
| | (18 | ) | | (4 | ) | 490 |
| | 465 |
| | 25 |
| | 5 |
|
Net investment income | 372 |
| | 387 |
| | (15 | ) | | (4 | ) | 368 |
| | 419 |
| | (51 | ) | | (12 | ) |
Premiums | 348 |
| | 374 |
| | (26 | ) | | (7 | ) | 376 |
| | 357 |
| | 19 |
| | 5 |
|
Other revenues | 210 |
| | 330 |
| | (120 | ) | | (36 | ) | 316 |
| | 284 |
| | 32 |
| | 11 |
|
Total revenues | 2,993 |
| | 3,010 |
| | (17 | ) | | (1 | ) | 3,282 |
| | 3,216 |
| | 66 |
| | 2 |
|
Banking and deposit interest expense | 12 |
| | 12 |
| | — |
| | — |
| 37 |
| | 20 |
| | 17 |
| | 85 |
|
Total net revenues | 2,981 |
| | 2,998 |
| | (17 | ) | | (1 | ) | 3,245 |
| | 3,196 |
| | 49 |
| | 2 |
|
Expenses | Expenses | | | | | | | |
Distribution expenses | 850 |
| | 798 |
| | 52 |
| | 7 |
| 948 |
| | 902 |
| | 46 |
| | 5 |
|
Interest credited to fixed accounts | 176 |
| | 161 |
| | 15 |
| | 9 |
| 186 |
| | 180 |
| | 6 |
| | 3 |
|
Benefits, claims, losses and settlement expenses | 474 |
| | 855 |
| | (381 | ) | | (45 | ) | 584 |
| | 635 |
| | (51 | ) | | (8 | ) |
Amortization of deferred acquisition costs | 48 |
| | 163 |
| | (115 | ) | | (71 | ) | 58 |
| | 63 |
| | (5 | ) | | (8 | ) |
Interest and debt expense | 52 |
| | 52 |
| | — |
| | — |
| 59 |
| | 80 |
| | (21 | ) | | (26 | ) |
General and administrative expense | 753 |
| | 731 |
| | 22 |
| | 3 |
| 823 |
| | 788 |
| | 35 |
| | 4 |
|
Total expenses | 2,353 |
| | 2,760 |
| | (407 | ) | | (15 | )% | 2,658 |
| | 2,648 |
| | 10 |
| | — |
|
Pretax income | 628 |
| | 238 |
| | 390 |
| | NM |
| 587 |
| | 548 |
| | 39 |
| | 7 |
|
Income tax provision | 125 |
| | 23 |
| | 102 |
| | NM |
| 95 |
| | 86 |
| | 9 |
| | 10 |
|
Net income | $ | 503 |
| | $ | 215 |
| | $ | 288 |
| | NM |
| $ | 492 |
| | $ | 462 |
| | $ | 30 |
| | 6 | % |
NM Not Meaningful. | |
Overall
Pretax income increased $390$39 million, or 7%, to $628$587 million for the three months ended SeptemberJune 30, 20172019 compared to $238$548 million for the prior year period primarily due to thereflecting a positive impact of unlocking, market appreciation,from higher short-term interest rates, higher average equity markets and wrap account net inflows, a positive impact of higher short-term interest rates and an unfavorable $29 million LTC reserve correction in the third quarter of 2016, partially offset by the cumulative impact of asset management net outflows loss recognition of $57 million on LTC insurance products in the third quarter of 2017 and higher performance-based compensation.
The following table presents the total pretax impacts on our revenues and expenses attributablerelated to unlocking for the three months ended September 30: investments in business growth.
|
| | | | | | | | |
Pretax Increase (Decrease) | | 2017 | | 2016 |
| | (in millions) |
Other revenues | | $ | (47 | ) | | $ | 64 |
|
Total revenues | | (47 | ) | | 64 |
|
| | | | |
Distribution expenses | | — |
| | (27 | ) |
Benefits, claims, losses and settlement expenses | | (139 | ) | | 229 |
|
Amortization of DAC | | (12 | ) | | 81 |
|
Total expenses | | (151 | ) | | 283 |
|
Total (1) | | $ | 104 |
| | $ | (219 | ) |
(1) Includes a $5 million and $16 million net benefit related to the market impact on variable annuity guaranteed benefits for the three months ended September 30, 2017 and 2016, respectively. |
AMERIPRISE FINANCIAL, INC.
Net Revenues
Net revenues decreased $17increased $49 million, or 1%2%, to $3.0$3.2 billion for the three months ended SeptemberJune 30, 20172019 compared to the prior year period.
Management and financial advice fees increased $41 million, or 2%, to $1.7 billion for the three months ended June 30, 2019 compared to the prior year period reflecting an increase in AUM. Average AUM increased $4.3 billion, or 1%, compared to the prior year period primarily due to the impact of unlocking, a $54 million decrease in revenues from the net impact of transitioning advisory accounts to share classes without 12b-1 fees, asset management net outflows, lower earned interest rates on fixed annuities and higher ceded premiums for our auto and home business, partially offset by market appreciation, wrap account net inflows and a positive impact of higher short-term interest rates.
Management and financial advice fees increased $162 million, or 11%, to $1.6 billion for the three months ended September 30, 2017 compared to $1.5 billion for the prior year period primarily due to an increase in AUM, as well as a $15 million increase in performance fees. Average AUM increased $46.5 billion, or 7%, compared to the prior year period due to market appreciationaverage equity markets and wrap account net inflows, partially offset by asset management net outflows. See our discussion on the changes in AUM in our segment results of operations section.
Distribution fees decreased $18increased $25 million, or 4%5%, to $437$490 million for the three months ended SeptemberJune 30, 20172019 compared to $455$465 million for the prior year period reflecting higher earnings on brokerage cash due to an increase in short-term interest rates and higher average equity markets.
Net investment income decreased $51 million, or 12%, to $368 million for the three months ended June 30, 2019 compared to $419 million for the prior year period primarily due to a $64$26 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts,net investment income of CIEs, a $23 million unfavorable change in the market impact of hedges on investments and the impact of fixed annuity net outflows and the fixed annuities reinsurance transaction, partially offset by market appreciationhigher average investment yields on assets related to certificates and higher brokerage cash spread due to an increase in short-term interest rates.certificate net inflows.
Premiums decreased $26increased $19 million, or 7%5%, to $348$376 million for the three months ended SeptemberJune 30, 20172019 compared to $374 million for the prior year period primarily reflecting higher ceded premiums for our auto and home business due to new reinsurance arrangements we entered into at the beginning of the year to reduce risk.
Other revenues decreased $120 million, or 36%, to $210 million for the three months ended September 30, 2017 compared to $330 million for the prior year period due to the impact of unlocking. Other revenues for the third quarter of 2017 included a $47 million unfavorable impact from unlocking compared to a $64 million favorable impact in the prior year period. The primary driver of the unlocking impact to other revenues for the third quarter of 2017 was a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking impact to other revenues for the prior year period was a positive impact from higher projected gains on reinsurance contracts resulting from unfavorable mortality experience.
Expenses
Total expenses decreased $407 million, or 15%, to $2.4 billion for the three months ended September 30, 2017 compared to $2.8 billion the prior year period primarily due to the impact of unlocking, partially offset by higher distribution expenses.
Distribution expenses increased $52 million, or 7%, to $850 million for the three months ended September 30, 2017 compared to $798$357 million for the prior year period primarily due to market appreciation, wrap account net inflowshigher average premium in both auto and a $27 million benefit in the prior year period related to the write-off of the deferred reinsurance liability in connection with loss recognition testing of LTChome insurance products partially offset by a $43 million decrease from changes related to our transition to share classes without 12b-1 feesand higher auto policies in advisory accounts and asset management net outflows.force.
Interest credited to fixed accountsOther revenues increased $15$32 million, or 9%11%, to $176$316 million for the three months ended SeptemberJune 30, 20172019 compared to $161$284 million for the prior year period primarily due to accretion on our fixed annuities reinsurance deposit receivable and higher fees from variable annuity guarantee sales in the market impactprior year where the fees start on indexed universal life benefits, net of hedges, which was anthe first anniversary date and higher average fee rates.
Banking and deposit interest expense of $8increased $17 million, or 85%, to $37 million for the three months ended SeptemberJune 30, 20172019 compared to a benefit of $5$20 million for the prior year period due to higher average crediting rates on certificates and higher average certificate balances.
Expenses
Total expenses increased $10 million to $2.7 billion for the three months ended June 30, 2019 compared to $2.6 billion for the prior year period.
Distribution expenses increased $46 million, or 5%, to $948 million for the three months ended June 30, 2019 compared to $902 million for the prior year period reflecting higher advisor compensation due to wrap account net inflows and higher average equity markets, higher mark-to-market impact on advisor deferred compensation expense and investments in recruiting experienced advisors, partially offset by the impact of asset management net outflows.
Benefits, claims, losses and settlement expenses decreased $381$51 million, or 45%8%, to $474$584 million for the three months ended SeptemberJune 30, 20172019 compared to $855$635 million for the prior year period primarily reflecting the following items:
A $58 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The favorable impact of the nonperformance credit spread was $56 million for the three months ended SeptemberJune 30, 2017 included a $139 million benefit from unlocking2019 compared to a $229an unfavorable impact of $2 million expense infor the prior year period. As the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense.
A $32 million increase in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of an unfavorable $668 million change in the market impact on variable annuity guaranteed living benefits reserves and a favorable $636 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits. The unlockingmain market drivers contributing to these changes are summarized below:
Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a higher expense for the third quarterthree months ended June 30, 2019 compared to the prior year period.
Volatility impact on the variable annuity guaranteed living benefits liability net of 2017 primarily reflectedthe impact on the corresponding hedge assets resulted in an expense for the three months ended June 30, 2019 compared to a benefit from updates to market-related inputs to our living benefit valuation. The unlocking impact for the prior year period primarily reflected low interest ratesperiod.
Other unhedged items, including the difference between the assumed and an unfavorableactual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net favorable impact from persistency on living benefit reserves, partially offset by a benefit from updatescompared to withdrawal utilization and fee assumptions, as well as market-related inputs to our living benefit valuation.the prior year period.
A $29 million increase in LTC reserves from a correction related to our claim utilization assumption in the third quarter of 2016.
A $26$23 million decrease in current period auto and home expenses reflecting the impact of new reinsurance arrangements, a lower non-catastrophe loss ratio and an $8 million benefit from a correction of a reinsurance recoverable estimate, partially offset by higher gross catastrophe losses and a $10 million positive impact from prior year reserve development in the third quarter of 2016. Catastrophe losses, net of the impact of reinsurance, were $15reinsurance.
Interest and debt expense decreased $21 million, or 26%, to $59 million for the three months ended SeptemberJune 30, 2017, primarily related to Hurricanes Harvey and Irma,2019 compared to $29 million for the prior year period. In the first quarter of 2017, we entered into quota share and excess of loss reinsurance arrangements designed to reduce net retained exposure to property losses. The expanded reinsurance program resulted in ceded losses of approximately $38 million in the third quarter.
A $57 million expense from loss recognition on LTC insurance products in the third quarter of 2017 primarily due to unfavorable morbidity experience, partially offset by premium increases.
AMERIPRISE FINANCIAL, INC.
Amortization of DAC decreased $115 million, or 71%, to $48 million for the three months ended September 30, 2017 compared to $163 million for the prior year period primarily reflecting the impact of unlocking, which was a benefit of $12 million for the three months ended September 30, 2017 compared to an expense of $81 million for the prior year period. The impact of unlocking in the third quarter of 2017 primarily reflected improved persistency and mortality on life insurance contracts and a $10 million benefit from a correction related to a variable annuity model assumption, partially offset by updates to market-related inputs to the living benefit valuation. The impact of unlocking in the prior year period primarily reflected low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. In addition, we wrote-off $58 million of DAC in connection with the loss recognition on LTC insurance products in the prior year period.
General and administrative expense increased $22 million, or 3%, to $753 million for the three months ended September 30, 2017 compared to $731$80 million for the prior year period primarily due to a decrease in interest expense of CIEs.
General and administrative expense increased $35 million, or 4%, to $823 million for the three months ended June 30, 2019 compared
AMERIPRISE FINANCIAL, INC.
to $788 million for the prior year period primarily due to investments in business growth and higher performance-based compensation.mark-to-market impact on share-based compensation expenses.
Income Taxes
Our effective tax rate was 19.9%16.1% for the three months ended SeptemberJune 30, 20172019 compared to 9.7%15.7% for the prior year period. Our effective tax ratesSee Note 18 to our Consolidated Financial Statements for the three months ended September 30, 2017 and 2016 are lower than the statutory rate as a result of tax preferred items including the dividends received deduction, lowadditional discussion on income housing tax credits, stock compensation, and lower taxes on net income from foreign subsidiaries. The increase in the effective tax rate for the three months ended September 30, 2017 compared to the prior year period is primarily due to higher pretax income, partially offset by a $25 million benefit for stock compensation due to the adoption of a new accounting standard.taxes.
Results of Operations by Segment for the Three Months Ended SeptemberJune 30, 20172019 and 20162018
OperatingAdjusted operating earnings is the measure of segment profit or loss management uses to evaluate segment performance. OperatingAdjusted operating earnings should not be viewed as a substitute for GAAP pretax income. We believe the presentation of segment adjusted operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis. See Note 1721 to the Consolidated Financial Statements for further information on the presentation of segment results and our definition of adjusted operating earnings.
Beginning in the first quarter of 2017, the long term care business, which had been reported as part of the Protection segment, is reflected in the Corporate & Other segment. We discontinued underwriting long term care insurance in 2002 and the transfer of this closed block to the Corporate & Other segment allows investors to better understand the performance of our on-going Protection businesses. Prior periods presented have been restated to reflect the change.
The following table presents summary financial information by segment:
| | | Three Months Ended September 30, | Three Months Ended June 30, |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | Advice & Wealth Management | |
| | |
| |
| | |
|
Net revenues | $ | 1,383 |
| | $ | 1,272 |
| $ | 1,653 |
| | $ | 1,543 |
|
Expenses | 1,085 |
| | 1,041 |
| 1,277 |
| | 1,193 |
|
Operating earnings | $ | 298 |
| | $ | 231 |
| |
Adjusted operating earnings | | $ | 376 |
| | $ | 350 |
|
Asset Management | |
| | |
| |
| | |
|
Net revenues | $ | 778 |
| | $ | 740 |
| $ | 712 |
| | $ | 755 |
|
Expenses | 578 |
| | 585 |
| 548 |
| | 572 |
|
Operating earnings | $ | 200 |
| | $ | 155 |
| |
Adjusted operating earnings | | $ | 164 |
| | $ | 183 |
|
Annuities | |
| | |
| |
| | |
|
Net revenues | $ | 626 |
| | $ | 631 |
| $ | 620 |
| | $ | 622 |
|
Expenses | 345 |
| | 699 |
| 491 |
| | 500 |
|
Operating earnings (loss) | $ | 281 |
| | $ | (68 | ) | |
Adjusted operating earnings | | $ | 129 |
| | $ | 122 |
|
Protection | |
| | |
| |
| | |
|
Net revenues | $ | 478 |
| | $ | 613 |
| $ | 259 |
| | $ | 255 |
|
Expenses | 423 |
| | 529 |
| 194 |
| | 192 |
|
Operating earnings | $ | 55 |
| | $ | 84 |
| |
Adjusted operating earnings | | $ | 65 |
| | $ | 63 |
|
Corporate & Other | |
| | |
| |
| | |
|
Net revenues | $ | 50 |
| | $ | 51 |
| $ | 352 |
| | $ | 334 |
|
Expenses | 186 |
| | 196 |
| 413 |
| | 418 |
|
Operating loss | $ | (136 | ) | | $ | (145 | ) | |
Adjusted operating loss | | $ | (61 | ) | | $ | (84 | ) |
AMERIPRISE FINANCIAL, INC.
The following table presents the segment pretax operating impacts on our revenues and expenses attributable to unlocking:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment Pretax Operating Increase (Decrease) | | Three Months Ended September 30, |
2017 | | 2016 |
Annuities | | Protection | | Corporate | Annuities | | Protection | | Corporate |
| | (in millions) |
Other revenues | | $ | — |
| | $ | (47 | ) | | $ | — |
| | $ | — |
| | $ | 64 |
| | $ | — |
|
Total revenues | | — |
| | (47 | ) | | — |
| | — |
| | 64 |
| | — |
|
| | | | | | | | | | | | |
Distribution expenses | | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) |
Benefits, claims, losses and settlement expenses | | (119 | ) | | (14 | ) | | 1 |
| | 197 |
| | 40 |
| | 6 |
|
Amortization of DAC | | (1 | ) | | (13 | ) | | — |
| | 18 |
| | 7 |
| | 58 |
|
Total expenses | | (120 | ) | | (27 | ) | | 1 |
| | 215 |
| | 47 |
| | 37 |
|
Total | | $ | 120 |
| | $ | (20 | ) | | $ | (1 | ) | | $ | (215 | ) | | $ | 17 |
| | $ | (37 | ) |
Advice & Wealth Management
On July 1, 2017, we closed our acquisition of Investment Professionals, Inc. (“IPI”), an independent broker dealer based in San Antonio, Texas specializing in the on-site delivery of investment programs for financial institutions, including banks and credit unions. The acquisition added 215 financial advisors and $8 billion in client assets.
The following table presents the changes in wrap account assets and average balances for the three months ended SeptemberJune 30:
| | | 2017 | | 2016 | 2019 | | 2018 |
(in billions) | Beginning balance | $ | 222.3 |
| | $ | 189.7 |
| $ | 278.8 |
| | $ | 251.0 |
|
Inflows from acquisition (1) | 0.7 |
| | — |
| |
Other net flows | 5.4 |
| | 2.8 |
| |
Net flows | 6.1 |
| | 2.8 |
| 4.8 |
| | 5.3 |
|
Market appreciation (depreciation) and other | 6.8 |
| | 5.0 |
| 8.4 |
| | 2.4 |
|
Ending balance | $ | 235.2 |
| | $ | 197.5 |
| $ | 292.0 |
| | $ | 258.7 |
|
| | | | | | |
Advisory wrap account assets ending balance (2) | $ | 233.0 |
| | $ | 195.4 |
| |
Average advisory wrap account assets (3) | $ | 227.0 |
| | $ | 192.7 |
| |
Advisory wrap account assets ending balance (1) | | $ | 289.1 |
| | $ | 256.3 |
|
Average advisory wrap account assets (2) | | $ | 281.3 |
| | $ | 252.5 |
|
| |
(1) | Inflows associated with acquisition that closed during the period. |
| |
(2)
| Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee. |
| |
(3)(2)
| Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
Wrap account assets increased $12.9$13.2 billion, or 6%5%, during the three months ended SeptemberJune 30, 20172019 due to net inflows of $6.1$4.8 billion including $0.7 billion from our acquisition of IPI, and market appreciation and other of $6.8$8.4 billion. Average advisory wrap account assets increased $34.3$28.8 billion, or 18%11%, compared to the prior year period primarily reflecting net inflows and market appreciation.
The following table presents the changes in wrap account assets for the twelve months ended SeptemberJune 30:
| | | 2017 | | 2016 | 2019 | | 2018 |
(in billions) | Beginning balance | $ | 197.5 |
| | $ | 173.8 |
| $ | 258.7 |
| | $ | 222.3 |
|
Inflows from acquisition (1) | 0.7 |
| | — |
| — |
| | 0.7 |
|
Other net flows | 17.1 |
| | 9.0 |
| 19.3 |
| | 21.4 |
|
Net flows | 17.8 |
| | 9.0 |
| 19.3 |
| | 22.1 |
|
Market appreciation (depreciation) and other | 19.9 |
| | 14.7 |
| 14.0 |
| | 14.3 |
|
Ending balance | $ | 235.2 |
| | $ | 197.5 |
| $ | 292.0 |
| | $ | 258.7 |
|
(1) Inflows associated with acquisition that closed during the period. | |
(1) | Inflows associated with acquisition that closed during the period. |
Wrap account assets increased $37.7$33.3 billion, or 19%13%, from the prior year period primarily due to net inflows and market appreciation.
AMERIPRISE FINANCIAL, INC.
The following table presents the results of operations of our Advice & Wealth Management segment on an adjusted operating basis:
| | | Three Months Ended September 30, | | Change | Three Months Ended June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | | | (in millions) | | |
Revenues | Revenues | | | | | | | |
Management and financial advice fees | $ | 799 |
| | $ | 689 |
| | $ | 110 |
| | 16 | % | $ | 954 |
| | $ | 878 |
| | $ | 76 |
| | 9 | % |
Distribution fees | 515 |
| | 531 |
| | (16 | ) | | (3 | ) | 580 |
| | 562 |
| | 18 |
| | 3 |
|
Net investment income | 64 |
| | 47 |
| | 17 |
| | 36 |
| 101 |
| | 73 |
| | 28 |
| | 38 |
|
Other revenues | 17 |
| | 17 |
| | — |
| | — |
| 54 |
| | 50 |
| | 4 |
| | 8 |
|
Total revenues | 1,395 |
| | 1,284 |
| | 111 |
| | 9 |
| 1,689 |
| | 1,563 |
| | 126 |
| | 8 |
|
Banking and deposit interest expense | 12 |
| | 12 |
| | — |
| | — |
| 36 |
| | 20 |
| | 16 |
| | 80 |
|
Total net revenues | 1,383 |
| | 1,272 |
| | 111 |
| | 9 |
| 1,653 |
| | 1,543 |
| | 110 |
| | 7 |
|
Expenses | Expenses | | | | | | | |
Distribution expenses | 813 |
| | 781 |
| | 32 |
| | 4 |
| 926 |
| | 876 |
| | 50 |
| | 6 |
|
Interest and debt expense | 2 |
| | 2 |
| | — |
| | — |
| 3 |
| | 2 |
| | 1 |
| | 50 |
|
General and administrative expense | 270 |
| | 258 |
| | 12 |
| | 5 |
| 348 |
| | 315 |
| | 33 |
| | 10 |
|
Total expenses | 1,085 |
| | 1,041 |
| | 44 |
| | 4 |
| 1,277 |
| | 1,193 |
| | 84 |
| | 7 |
|
Operating earnings | $ | 298 |
| | $ | 231 |
| | $ | 67 |
| | 29 | % | |
Adjusted operating earnings | | $ | 376 |
| | $ | 350 |
| | $ | 26 |
| | 7 | % |
AMERIPRISE FINANCIAL, INC.
Our Advice & Wealth Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $67$26 million, or 29%7%, to $298$376 million for the three months ended SeptemberJune 30, 20172019 compared to $231$350 million for the prior year period reflecting wrap account net inflows, market appreciation and higher earnings on brokerage cash, due towrap account net inflows and higher short-term interest rates,average equity markets, partially offset by expenses associated with recruiting experienced advisorscontinued investments for growth and higher performance-based compensation.mark-to-market impact on advisor deferred compensation expenses. Pretax adjusted operating margin was 21.5%22.7% for both the three months ended SeptemberJune 30, 2017 compared to 18.2% for2019 and the prior year period.
We launched Ameriprise Bank, FSB in the second quarter of 2019 and in June brought $2.2 billion of money market cash sweep balances on our balance sheet. Later this year and in 2020, we plan to add new deposit-based products including credit cards, mortgages and pledge lending. The impact of the bank to the Advice & Wealth Management segment results for the second quarter was minimal.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $111$110 million, or 9%7%, to $1.4$1.7 billion for the three months ended SeptemberJune 30, 20172019 compared to $1.3$1.5 billion for the prior year period primarily due to growth in wrap account assets, higher earnings on brokerage cash and a $12 million increase in revenues from IPI, partially offset by lower 12b-1 fee revenue. During the first quarter, we completed our transition to share classes without 12b-1 fees in advisory accounts, which reduced revenue by a net $54 million in the third quarter compared to the prior year period. OperatingAdjusted operating net revenue per advisor increased to $140,000$166,000 for the three months ended SeptemberJune 30, 2017,2019, up 7%6%, from $131,000$156,000 for the prior year period. Total advisors were 9,890 at September 30, 2017 compared to 9,747 at September 30, 2016.
Management and financial fees increased $110$76 million, or 16%9%, to $799$954 million for the three months ended SeptemberJune 30, 20172019 compared to $689$878 million for the prior year period primarily due to growth in wrap account assets. Average advisory wrap account assets increased $34.3$28.8 billion, or 18%11%, compared to the prior year period primarily reflecting net inflows and equity market appreciation.
Distribution fees decreased $16increased $18 million, or 3%, to $515$580 million for the three months ended SeptemberJune 30, 20172019 compared to $531$562 million for the prior year period primarily due to a $64 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts, partially offset byreflecting higher earnings on brokerage cash spread due to an increase in short-term interest rates, and revenues from IPI.partially offset by lower sales of variable annuities. Brokerage cash balances declined 1% to $24.3 billion as of June 30, 2019 compared to the prior year period. We earned 210 basis points for the three months ended June 30, 2019 compared to 157 basis points for the prior year period.
Net investment income, which excludes net realized investment gains or losses, increased $17$28 million, or 36%38%, to $64$101 million for the three months ended SeptemberJune 30, 20172019 compared to $47$73 million for the prior year period primarily due to higher average investment yields on assets related to certificates and an increase inhigher average invested balances driven bydue to certificate net inflows.
Expenses
Total expensesBanking and deposit interest expense increased $44$16 million, or 4%80%, to $1.1 billion$36 million for the three months ended SeptemberJune 30, 20172019 compared to $1.0 billion$20 million for the prior year period due to increases in distribution expenseshigher average client crediting rates on certificates and general and administrative expense. higher average certificate balances.
DistributionExpenses
Total expenses increased $32$84 million, or 4%7%, to $813 million$1.3 billion for the three months ended SeptemberJune 30, 20172019 compared to $781$1.2 billion for the prior year period.
Distribution expenses increased $50 million, or 6%, to $926 million for the three months ended June 30, 2019 compared to $876 million for the prior year period reflecting higher advisor compensation due to growth in wrap account assets, the IPI acquisitionnet inflows and higher average equity markets, higher mark-to-market impact on advisor deferred compensation expense and investments in recruiting experienced advisors, partially offset by a $43 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts.advisors.
General and administrative expense increased $12$33 million, or 5%10%, to $270$348 million for the three months ended SeptemberJune 30, 20172019 compared to $258$315 million for the prior year period primarily due to higher performance-based compensation, as well as higher expenses related to the IPI acquisition.investments in business growth.
AMERIPRISE FINANCIAL, INC.
Asset Management
Voluntary fee waivers we provided to the Columbia Money Market Funds were not material for the three months and nine months ended September 30, 2017 and 2016.
The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of September 30:
|
| | | | | | | |
Columbia Mutual Fund Rankings in top 2 Lipper Quartiles | 2017 | | 2016 |
Domestic Equity | Equal weighted | 1 year | 72 | % | | 62 | % |
| | 3 year | 75 | % | | 68 | % |
| | 5 year | 78 | % | | 67 | % |
| Asset weighted | 1 year | 68 | % | | 74 | % |
| | 3 year | 82 | % | | 78 | % |
| | 5 year | 82 | % | | 84 | % |
|
| | | | | | | |
International Equity | Equal weighted | 1 year | 75 | % | | 55 | % |
| | 3 year | 55 | % | | 60 | % |
| | 5 year | 75 | % | | 80 | % |
| Asset weighted | 1 year | 56 | % | | 73 | % |
| | 3 year | 44 | % | | 44 | % |
| | 5 year | 55 | % | | 52 | % |
|
| | | | | | | |
Taxable Fixed Income | Equal weighted | 1 year | 72 | % | | 78 | % |
| | 3 year | 78 | % | | 71 | % |
| | 5 year | 76 | % | | 76 | % |
| Asset weighted | 1 year | 74 | % | | 82 | % |
| | 3 year | 83 | % | | 76 | % |
| | 5 year | 87 | % | | 85 | % |
|
| | | | | | | |
Tax Exempt Fixed Income | Equal weighted | 1 year | 74 | % | | 84 | % |
| | 3 year | 89 | % | | 89 | % |
| | 5 year | 100 | % | | 94 | % |
| Asset weighted | 1 year | 60 | % | | 92 | % |
| | 3 year | 98 | % | | 81 | % |
| | 5 year | 100 | % | | 88 | % |
|
| | | | | | | |
Asset Allocation Funds | Equal weighted | 1 year | 54 | % | | 69 | % |
| | 3 year | 90 | % | | 100 | % |
| | 5 year | 78 | % | | 75 | % |
| Asset weighted | 1 year | 47 | % | | 87 | % |
| | 3 year | 94 | % | | 100 | % |
| | 5 year | 93 | % | | 81 | % |
|
| | | | | | | |
Number of funds with 4 or 5 Morningstar star ratings | | Overall | 51 |
| | 54 |
|
| | 3 year | 56 |
| | 54 |
|
| | 5 year | 49 |
| | 52 |
|
|
| | | | | | | |
Percent of funds with 4 or 5 Morningstar star ratings | | Overall | 50 | % | | 56 | % |
| | 3 year | 55 | % | | 56 | % |
| | 5 year | 49 | % | | 55 | % |
|
| | | | | | | |
Percent of assets with 4 or 5 Morningstar star ratings | | Overall | 58 | % | | 68 | % |
| | 3 year | 66 | % | | 75 | % |
| | 5 year | 57 | % | | 67 | % |
Mutual fund performance rankings are based on the performance of Class Z fund shares for Columbia branded mutual funds. Only funds with Class Z shares are included.
AMERIPRISE FINANCIAL, INC.
Equal Weighted Rankings in Top 2 Quartiles: Counts the number of funds with above median ranking divided by the total number of funds. Asset size is not a factor.
Asset Weighted Rankings in Top 2 Quartiles: Sums the total assets of the funds with above median ranking divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
|
| | | | | | | |
Threadneedle Retail Fund Rankings in Top 2 Morningstar Quartiles or Above Index Benchmark | 2017 | | 2016 |
Equity | Equal weighted | 1 year | 48 | % | | 52 | % |
| | 3 year | 72 | % | | 72 | % |
| | 5 year | 72 | % | | 71 | % |
| Asset weighted | 1 year | 50 | % | | 62 | % |
| | 3 year | 79 | % | | 69 | % |
| | 5 year | 59 | % | | 63 | % |
|
| | | | | | | |
Fixed Income | Equal weighted | 1 year | 76 | % | | 58 | % |
| | 3 year | 79 | % | | 50 | % |
| | 5 year | 76 | % | | 64 | % |
| Asset weighted | 1 year | 85 | % | | 57 | % |
| | 3 year | 90 | % | | 69 | % |
| | 5 year | 92 | % | | 73 | % |
|
| | | | | | | |
Allocation (Managed) Funds | Equal weighted | 1 year | 78 | % | | 88 | % |
| | 3 year | 89 | % | | 88 | % |
| | 5 year | 86 | % | | 83 | % |
| Asset weighted | 1 year | 61 | % | | 80 | % |
| | 3 year | 94 | % | | 97 | % |
| | 5 year | 93 | % | | 92 | % |
The performance of each fund is measured on a consistent basis against the most appropriate benchmark — a peer group of similar funds or an index.
Equal weighted: Counts the number of funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total number of funds. Asset size is not a factor.
Asset weighted: Sums the assets of the funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total sum of assets in the funds. Funds with more assets will receive a greater share of the total percentage above or below median or index.
Aggregated Allocation (Managed) Funds include funds that invest in other funds of the Threadneedle range including those funds that invest in both equity and fixed income.
Aggregated Threadneedle data includes funds on the Threadneedle platform sub-advised by Columbia Management as well as advisors not affiliated with Ameriprise Financial, Inc.
The following table presents global managed assets by type:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, | | Change | | Average(1) | | Change |
Three Months Ended September 30, |
2017 | | 2016 | 2017 | | 2016 |
(in billions) |
Equity | $ | 265.8 |
| | $ | 245.9 |
| | $ | 19.9 |
| | 8 | % | | $ | 261.7 |
| | $ | 244.6 |
| | $ | 17.1 |
| | 7 | % |
Fixed income | 178.0 |
| | 183.3 |
| | (5.3 | ) | | (3 | ) | | 177.3 |
| | 182.4 |
| | (5.1 | ) | | (3 | ) |
Money market | 5.9 |
| | 6.6 |
| | (0.7 | ) | | (11 | ) | | 5.8 |
| | 6.9 |
| | (1.1 | ) | | (16 | ) |
Alternative | 6.5 |
| | 7.3 |
| | (0.8 | ) | | (11 | ) | | 6.5 |
| | 7.2 |
| | (0.7 | ) | | (10 | ) |
Hybrid and other | 27.8 |
| | 24.7 |
| | 3.1 |
| | 13 |
| | 27.2 |
| | 24.7 |
| | 2.5 |
| | 10 |
|
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
| | $ | 16.2 |
| | 3 | % | | $ | 478.5 |
| | $ | 465.8 |
| | $ | 12.7 |
| | 3 | % |
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
AMERIPRISE FINANCIAL, INC.
The following table presents the changes in global managed assets:
|
| | | | | | | | |
| Three Months Ended September 30, |
2017 | | 2016 |
(in billions) |
Global Retail Funds |
Beginning assets | $ | 272.9 |
| — |
| $ | 259.2 |
|
Inflows | 10.9 |
| — |
| 12.3 |
|
Acquisition related inflows (1) | — |
| | 1.0 |
|
Outflows | (12.3 | ) | — |
| (14.2 | ) |
Net VP/VIT fund flows | (0.8 | ) | — |
| (0.6 | ) |
Net new flows | (2.2 | ) | | (1.5 | ) |
Reinvested dividends | 0.5 |
| — |
| 0.6 |
|
Net flows | (1.7 | ) | | (0.9 | ) |
Distributions | (0.7 | ) | — |
| (0.9 | ) |
Market appreciation (depreciation) and other | 9.2 |
| — |
| 9.5 |
|
Foreign currency translation (2) | 1.1 |
| — |
| (0.9 | ) |
Total ending assets | 280.8 |
| | 266.0 |
|
|
Global Institutional |
Beginning assets | 199.7 |
| — |
| 200.4 |
|
Inflows | 5.8 |
| — |
| 5.1 |
|
Outflows | (8.8 | ) | — |
| (8.5 | ) |
Net flows | (3.0 | ) | | (3.4 | ) |
Market appreciation (depreciation) and other (3) | 4.1 |
| — |
| 7.1 |
|
Foreign currency translation (2) | 2.4 |
| — |
| (2.3 | ) |
Total ending assets | 203.2 |
| | 201.8 |
|
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
|
Total net flows | $ | (4.7 | ) | | $ | (4.3 | ) |
|
Former Parent Company Related (4)(5) |
Retail net new flows | $ | (0.6 | ) | — |
| $ | — |
|
Institutional net new flows | (2.4 | ) | — |
| (1.5 | ) |
Total net new flows | $ | (3.0 | ) | | $ | (1.5 | ) |
(1) Inflows associated with acquisitions that closed during the period.
(2) Amounts represent local currency to US dollar translation for reporting purposes.
(3) Includes $0.3 billion and $0.8 billion for the total change in Affiliated General Account Assets during the three months ended September 30, 2017 and 2016, respectively.
(4) Former parent company related assets and net new flows are included in the rollforwards above.
(5) Prior period former parent company related net new flows were restated to include additional Former Parent Company net new flows that were previously not considered. The change was a decrease of $65 million for the three months ended September 30, 2016.
In a referendum in June 2016, the United Kingdom (UK) voted to leave the European Union (EU), which caused volatility in capital and currency markets. Further, in March 2017 the UK invoked article 50 of the Treaty of Lisbon in serving its relevant notice to leave the European Union on March 30, 2019. The full impact of the British exit from the EU (commonly known as “Brexit”) remains uncertain. This uncertainty, which is expected to last for a lengthy period of time, has had and may have a negative impact on our UK and European net flows and foreign currency translation resulting from the weakening of the British Pound.
Total segment AUM increased $11.4 billion, or 2%, during the three months ended September 30, 2017 driven by market appreciation and a positive impact of foreign currency translation, partially offset by net outflows. Total segment AUM net outflows were $4.7 billion for the three months ended September 30, 2017, which included $3.0 billion of outflows of former parent-related assets. Management expects, consistent with prior patterns of outflows, that outflows of primarily low margin assets directly or indirectly affiliated with Threadneedle and Columbia former parent companies will continue for the foreseeable future. The overall impact to segment results is difficult to quantify due to uncertain timing, volume and mix of the outflows. Former parent company related AUM was approximately $73 billion as of September 30, 2017.
AMERIPRISE FINANCIAL, INC.
Global retail net outflows of $1.7 billion included $0.8 billion of outflows of our variable product funds underlying insurance and annuity separate accounts and $0.6 billion of outflows from former parent-related assets. In U.S. retail, net outflows excluding the former parent-related assets were $1.5 billion, reflecting ongoing industry pressure on active strategies. In Europe, Middle East and Africa (“EMEA”), net inflows were $0.4 billion.
Global institutional net outflows of $3.0 billion included $2.4 billion of outflows from former parent-related assets. Institutional outflows from former parent-related assets included Zurich outflows of $0.9 billion and U.S. Trust outflows of $1.5 billion.
On September 20, 2017, we announced our acquisition of Lionstone Investments, a leading national real estate investment firm, specializing in investment strategies based upon proprietary analytics. The acquisition closed on November 1, 2017 and adds approximately $6 billion in assets under management.
The following table presents the results of operations of our Asset Management segment on an operating basis:
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 657 |
| | $ | 612 |
| | $ | 45 |
| | 7 | % |
Distribution fees | 111 |
| | 125 |
| | (14 | ) | | (11 | ) |
Net investment income | 6 |
| | 1 |
| | 5 |
| | NM |
|
Other revenues | 4 |
| | 2 |
| | 2 |
| | NM |
|
Total revenues | 778 |
| | 740 |
| | 38 |
| | 5 |
|
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 778 |
| | 740 |
| | 38 |
| | 5 |
|
Expenses |
Distribution expenses | 246 |
| | 261 |
| | (15 | ) | | (6 | ) |
Amortization of deferred acquisition costs | 4 |
| | 4 |
| | — |
| | — |
|
Interest and debt expense | 5 |
| | 5 |
| | — |
| | — |
|
General and administrative expense | 323 |
| | 315 |
| | 8 |
| | 3 |
|
Total expenses | 578 |
| | 585 |
| | (7 | ) | | (1 | ) |
Operating earnings | $ | 200 |
| | $ | 155 |
| | $ | 45 |
| | 29 | % |
NM Not Meaningful. |
Our Asset Management segment pretax operating earnings, which exclude net realized investment gains or losses, increased $45 million, or 29%, to $200 million for the three months ended September 30, 2017 compared to $155 million for the prior year period primarily due to market appreciation, a $7 million increase in performance fees (net of related compensation), an $8 million increase in incentive fees from CLO unwinds and continued expense management, partially offset by net outflows.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, increased $38 million, or 5%, to $778 million for the three months ended September 30, 2017 compared to $740 million for the prior year period reflecting market appreciation, higher performance fees and an increase in incentive fees from CLO unwinds, partially offset by net outflows and a $13 million decrease related to the transition of advisory accounts to share classes without 12b-1 fees. The Asset Management segment revenue related to 12b-1 fees is eliminated on a consolidated basis.
Management and financial advice fees increased $45 million, or 7%, to $657 million for the three months ended September 30, 2017 compared to $612 million for the prior year period driven by market appreciation, a $15 million increase in performance fees and an $8 million increase in incentive fees from CLO unwinds, partially offset by cumulative net outflows from former parent-related assets and higher fee yielding retail funds. Our average weighted equity index, which is a proxy for equity movements on AUM, increased 14% for the three months ended September 30, 2017 compared to the prior year period.
Distribution fees decreased $14 million, or 11%, to $111 million for the three months ended September 30, 2017 compared to $125 million for the prior year period due to cumulative net outflows and a $13 million decrease related to the transition of advisory accounts to share classes without 12b-1 fees, partially offset by market appreciation.
Expenses
Total expenses decreased $7 million, or 1%, to $578 million for the three months ended September 30, 2017 compared to $585 million for the prior year period due to lower distribution expenses, partially offset by higher general and administrative expense.
AMERIPRISE FINANCIAL, INC.
Distribution expenses decreased $15 million, or 6%, to $246 million for the three months ended September 30, 2017 compared to $261 million for the prior year period due to lower compensation driven by cumulative net outflows and a decrease related to the transition of advisory accounts to share classes without 12b-1 fees, partially offset by market appreciation. The Asset Management segment expense related to 12b-1 fees is eliminated on a consolidated basis.
General and administrative expense increased $8 million, or 3%, to $323 million for the three months ended September 30, 2017 compared to $315 million for the prior year period due to an $8 million increase in compensation related to higher performance fees.
Annuities
The following table presents the results of operations of our Annuities segment on an operating basis:
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 196 |
| | $ | 188 |
| | $ | 8 |
| | 4 | % |
Distribution fees | 91 |
| | 89 |
| | 2 |
| | 2 |
|
Net investment income | 173 |
| | 192 |
| | (19 | ) | | (10 | ) |
Premiums | 24 |
| | 29 |
| | (5 | ) | | (17 | ) |
Other revenues | 142 |
| | 133 |
| | 9 |
| | 7 |
|
Total revenues | 626 |
| | 631 |
| | (5 | ) | | (1 | ) |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 626 |
| | 631 |
| | (5 | ) | | (1 | ) |
Expenses |
Distribution expenses | 105 |
| | 106 |
| | (1 | ) | | (1 | ) |
Interest credited to fixed accounts | 121 |
| | 122 |
| | (1 | ) | | (1 | ) |
Benefits, claims, losses and settlement expenses | 19 |
| | 346 |
| | (327 | ) | | (95 | ) |
Amortization of deferred acquisition costs | 40 |
| | 66 |
| | (26 | ) | | (39 | ) |
Interest and debt expense | 9 |
| | 7 |
| | 2 |
| | 29 |
|
General and administrative expense | 51 |
| | 52 |
| | (1 | ) | | (2 | ) |
Total expenses | 345 |
| | 699 |
| | (354 | ) | | (51 | )% |
Operating earnings (loss) | $ | 281 |
| | $ | (68 | ) | | $ | 349 |
| | NM |
|
NM Not Meaningful. |
Our Annuities segment pretax operating income, which excludes net realized investment gains or losses (net of the related DSIC and DAC amortization) and the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $349 million to $281 million for the three months ended September 30, 2017 compared to a loss of $68 million for the prior year period primarily due to the impact of unlocking.
RiverSource variable annuity account balances increased 4% to $78.7 billion at September 30, 2017 compared to the prior year period due to equity market appreciation, partially offset by net outflows of $3.7 billion. Lapse rates were higher in the quarter, reflecting increased client asset transfers from variable annuities to fee-based investment advisory accounts.
RiverSource fixed deferred annuity account balances declined 7% to $9.5 billion at September 30, 2017 compared to the prior year period as older policies continue to lapse and new sales are limited due to low interest rates. Given the current interest rate environment, our current fixed deferred annuity book is expected to gradually run off and earnings on our fixed deferred annuity business will trend down.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $5 million, or 1%, to $626 million for the three months ended September 30, 2017 compared to $631 million for the prior year period due to lower investment yields and net outflows in fixed and variable annuities, partially offset by equity market appreciation and an increase in variable annuity rider fees.
Management and financial advice fees increased $8 million, or 4%, to $196 million for the three months ended September 30, 2017 compared to $188 million for the prior year period due to higher fees on variable annuities driven by higher average separate account balances. Average variable annuity account balances increased $2.1 billion, or 3%, from the prior year period due to market appreciation, partially offset by net outflows.
AMERIPRISE FINANCIAL, INC.
Net investment income, which excludes net realized investment gains or losses, decreased $19 million, or 10%, to $173 million for the three months ended September 30, 2017 compared to $192 million for the prior year period reflecting a decrease of approximately $11 million from lower earned interest rates and approximately $8 million from lower invested assets due to fixed annuity net outflows.
Other revenues increased $9 million, or 7%, to $142 million for the three months ended September 30, 2017 compared to $133 million for the prior year period due to higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates.
Expenses
Total expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and the DAC and DSIC offset to net realized investment gains or losses, decreased $354 million, or 51%, to $345 million for the three months ended September 30, 2017 compared to $699 million for the prior year period primarily due to the impact of unlocking.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) and the DSIC offset to net realized investment gains or losses, decreased $327 million, or 95%, to $19 million for the three months ended September 30, 2017 compared to $346 million for the prior year period primarily due to the impact of unlocking, which was a $119 million benefit for the third quarter of 2017 compared to a $197 million expense for the prior year period. The unlocking impact for the third quarter of 2017 primarily reflected a benefit from updates to market-related inputs to our living benefit valuation. The unlocking impact for the prior year period primarily reflected low interest rates and an unfavorable impact from persistency on living benefit reserves, partially offset by a benefit from updates to withdrawal utilization and fee assumptions, as well as market-related inputs related to our living benefit valuation.
Amortization of DAC decreased $26 million, or 39%, to $40 million for the three months ended September 30, 2017 compared to $66 million for the prior year period primarily reflecting the impact of unlocking, which was a benefit of $1 million for the three months ended September 30, 2017 compared to an expense of $18 million for the prior year period. The impact of unlocking in the third quarter of 2017 primarily reflected a $10 million benefit from a correction related to a variable annuity model assumption and slightly higher interest rates, largely offset by updates to market-related inputs to the living benefit valuation. The impact of unlocking in the prior year period primarily reflected low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. Our long-term interest rate assumption remained unchanged, but we extended the period it would take for rates to reach our long term level from 3.5 years to 5.5 years.
Protection
The following table presents the results of operations of our Protection segment on an operating basis:
|
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 12 |
| | $ | 13 |
| | $ | (1 | ) | | (8 | )% |
Distribution fees | 24 |
| | 24 |
| | — |
| | — |
|
Net investment income | 86 |
| | 85 |
| | 1 |
| | 1 |
|
Premiums | 305 |
| | 323 |
| | (18 | ) | | (6 | ) |
Other revenues | 51 |
| | 168 |
| | (117 | ) | | (70 | ) |
Total revenues | 478 |
| | 613 |
| | (135 | ) | | (22 | ) |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 478 |
| | 613 |
| | (135 | ) | | (22 | ) |
Expenses |
Distribution expenses | 17 |
| | 17 |
| | — |
| | — |
|
Interest credited to fixed accounts | 47 |
| | 44 |
| | 3 |
| | 7 |
|
Benefits, claims, losses and settlement expenses | 278 |
| | 363 |
| | (85 | ) | | (23 | ) |
Amortization of deferred acquisition costs | 13 |
| | 38 |
| | (25 | ) | | (66 | ) |
Interest and debt expense | 7 |
| | 6 |
| | 1 |
| | 17 |
|
General and administrative expense | 61 |
| | 61 |
| | — |
| | — |
|
Total expenses | 423 |
| | 529 |
| | (106 | ) | | (20 | ) |
Operating earnings | $ | 55 |
| | $ | 84 |
| | $ | (29 | ) | | (35 | )% |
AMERIPRISE FINANCIAL, INC.
Our Protection segment pretax operating earnings, which excludes net realized investment gains or losses (net of the related DAC amortization, unearned revenue amortization and the reinsurance accrual) and the market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual), decreased $29 million, or 35%, to $55 million for the three months ended September 30, 2017 compared to $84 million for the prior year period primarily due to the impact of unlocking, partially offset by improved auto and home results.
Net Revenues
Net revenues, which exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, decreased $135 million, or 22%, to $478 million for the three months ended September 30, 2017 compared to $613 million for the prior year period primarily due to the impact of unlocking and a decrease in premiums.
Premiums decreased $18 million, or 6%, to $305 million for the three months ended September 30, 2017 compared to $323 million for the prior year period primarily reflecting higher ceded premiums for our auto and home business due to new reinsurance arrangements. In the first quarter of 2017, we entered into reinsurance arrangements designed to reduce risk, particularly in several wind/hail states where losses have been elevated.
Other revenues decreased $117 million, or 70%, to $51 million for the three months ended September 30, 2017 compared to $168 million for the prior year period due to the impact of unlocking. Other revenues for the third quarter of 2017 included a $47 million unfavorable impact from unlocking compared to a $64 million favorable impact in the prior year period. The primary driver of the unlocking impact to other revenues for the third quarter of 2017 was a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking impact to other revenues for the prior year period was a positive impact from higher projected gains on reinsurance contracts resulting from unfavorable mortality experience.
Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization) and the DAC offset to net realized investment gains or losses, decreased $106 million, or 20%, to $423 million for the three months ended September 30, 2017 compared to $529 million for the prior year period primarily due to the impact of unlocking and a decrease in auto and home expenses.
Benefits, claims, losses and settlement expenses decreased $85 million, or 23%, to $278 million for the three months ended September 30, 2017 compared to $363 million for the prior year period due to the impact of unlocking and a $26 million decrease in auto and home expenses reflecting the impact of new reinsurance arrangements, a lower non-catastrophe loss ratio and an $8 million benefit from a correction of a reinsurance recoverable estimate, partially offset by higher gross catastrophe losses and a $10 million positive impact from prior year reserve development in the third quarter of 2016. The unlocking impact for the third quarter of 2017 was a $14 million benefit and primarily reflected favorable mortality experience on life insurance contracts. The unlocking impact for the third quarter of 2016 was a $40 million expense and primarily reflected low interest rates and unfavorable mortality experience. Catastrophe losses, net of the impact of reinsurance, were $15 million for the three months ended September 30, 2017, primarily related to Hurricanes Harvey and Irma, compared to $29 million for the prior year period. In the first quarter of 2017, we entered into quota share and excess of loss reinsurance arrangements designed to reduce net retained exposure to property losses. The expanded reinsurance program resulted in ceded losses of approximately $38 million in the third quarter.
Amortization of DAC decreased $25 million, or 66%, to $13 million for the three months ended September 30, 2017 compared to $38 million for the prior year period primarily reflecting the impact of unlocking, which was a benefit of $13 million for the three months ended September 30, 2017 compared to an expense of $7 million for the prior year period. The impact of unlocking in the third quarter of 2017 primarily reflected improved persistency and mortality on life insurance contracts.
AMERIPRISE FINANCIAL, INC.
Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an operating basis: |
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Net investment income | $ | 22 |
| | $ | 21 |
| | $ | 1 |
| | 5 | % |
Premiums | 28 |
| | 27 |
| | 1 |
| | 4 |
|
Other revenues | 1 |
| | 4 |
| | (3 | ) | | (75 | ) |
Total revenues | 51 |
| | 52 |
| | (1 | ) | | (2 | ) |
Banking and deposit interest expense | 1 |
| | 1 |
| | — |
| | — |
|
Total net revenues | 50 |
| | 51 |
| | (1 | ) | | (2 | ) |
Expenses |
Distribution expenses | (2 | ) | | (31 | ) | | 29 |
| | 94 |
|
Benefits, claims, losses and settlement expenses | 119 |
| | 101 |
| | 18 |
| | 18 |
|
Amortization of deferred acquisition costs | — |
| | 59 |
| | (59 | ) | | NM |
|
Interest and debt expense | 6 |
| | 7 |
| | (1 | ) | | (14 | ) |
General and administrative expense | 63 |
| | 60 |
| | 3 |
| | 5 |
|
Total expenses | 186 |
| | 196 |
| | (10 | ) | | (5 | ) |
Operating loss | $ | (136 | ) | | $ | (145 | ) | | $ | 9 |
| | 6 | % |
NM Not Meaningful. |
Our Corporate & Other segment pretax operating loss excludes net realized investment gains or losses, the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax operating loss decreased $9 million, or 6%, to $136 million for the three months ended September 30, 2017 compared to $145 million for the prior year period reflecting loss recognition on LTC insurance products of $31 million in the prior year period and a $29 million increase in LTC reserves in the prior year period from a correction related to our claim utilization assumption, partially offset by LTC loss recognition of $57 million for the three months ended September 30, 2017.
Distribution expenses increased $29 million to a benefit of $2 million for the three months ended September 30, 2017 compared to a benefit of $31 million for the prior year period. Distribution expenses for the prior year period included a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with loss recognition on LTC insurance products.
Benefits, claims, losses and settlement expenses increased $18 million, or 18%, to $119 million for the three months ended September 30, 2017 compared to $101 million for the prior year period primarily due to a $57 million expense from loss recognition on LTC insurance products in the third quarter of 2017, partially offset by a $29 million increase in LTC reserves in the prior year period from a correction related to our claim utilization assumption. The LTC loss recognition in the third quarter of 2017 was primarily due to unfavorable morbidity experience, partially offset by premium increases.
Amortization of DAC decreased $59 million compared to the prior year period reflecting the write-off of DAC in the third quarter of 2016 in connection with the loss recognition on LTC insurance products.
AMERIPRISE FINANCIAL, INC.
Consolidated Results of Operations for the Nine Months Ended September 30, 2017 and 2016
The following table presents our consolidated results of operations:
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 4,669 |
| | $ | 4,289 |
| | $ | 380 |
| | 9 | % |
Distribution fees | 1,310 |
| | 1,338 |
| | (28 | ) | | (2 | ) |
Net investment income | 1,154 |
| | 1,090 |
| | 64 |
| | 6 |
|
Premiums | 1,035 |
| | 1,114 |
| | (79 | ) | | (7 | ) |
Other revenues | 733 |
| | 832 |
| | (99 | ) | | (12 | ) |
Total revenues | 8,901 |
| | 8,663 |
| | 238 |
| | 3 |
|
Banking and deposit interest expense | 34 |
| | 29 |
| | 5 |
| | 17 |
|
Total net revenues | 8,867 |
| | 8,634 |
| | 233 |
| | 3 |
|
Expenses |
Distribution expenses | 2,505 |
| | 2,371 |
| | 134 |
| | 6 |
|
Interest credited to fixed accounts | 509 |
| | 465 |
| | 44 |
| | 9 |
|
Benefits, claims, losses and settlement expenses | 1,652 |
| | 1,934 |
| | (282 | ) | | (15 | ) |
Amortization of deferred acquisition costs | 189 |
| | 360 |
| | (171 | ) | | (48 | ) |
Interest and debt expense | 154 |
| | 160 |
| | (6 | ) | | (4 | ) |
General and administrative expense | 2,244 |
| | 2,221 |
| | 23 |
| | 1 |
|
Total expenses | 7,253 |
| | 7,511 |
| | (258 | ) | | (3 | ) |
Pretax income | 1,614 |
| | 1,123 |
| | 491 |
| | 44 |
|
Income tax provision | 315 |
| | 209 |
| | 106 |
| | 51 |
|
Net income | $ | 1,299 |
| | $ | 914 |
| | $ | 385 |
| | 42 | % |
Overall
Pretax income increased $491 million, or 44%, to $1.6 billion for the nine months ended September 30, 2017 compared to $1.1 billion for the prior year period primarily reflecting the impact of unlocking, market appreciation, wrap account net inflows, a positive impact from higher short-term interest rates, a $23 million expense in the prior year period from the resolution of a legacy legal matter related to the hedge fund business and an unfavorable $29 million LTC reserve correction in the prior year period, partially offset by asset management net outflows, loss recognition of $57 million on LTC insurance products in the third quarter of 2017 and higher performance-based compensation.
The following market-related impacts were also significant drivers of the year-over-year change in pretax income:
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $198 million for the nine months ended September 30, 2017 compared to an expense of $78 million for the prior year period.
The market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) was an expense of $16 million for the nine months ended September 30, 2017 compared to a benefit of $31 million for the prior year period.
The market impact of hedges on investments was an expense of $8 million for the nine months ended September 30, 2017 compared to an expense of $54 million for the prior year period.
Net realized investment gains were $33 million for the nine months ended September 30, 2017 compared to net realized investment losses of $5 million for the prior year period.
The impact on DAC, DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on our view of bond and equity performance was a benefit of $63 million ($27 million for DAC, $6 million for DSIC and $30 million for insurance features in non-traditional long duration contracts) for the nine months ended September 30, 2017 reflecting favorable equity market and bond fund returns compared to a benefit of $5 million ($3 million for DAC, $1 million for DSIC and $1 million for insurance features in non-traditional long duration contracts) for the prior year period.
AMERIPRISE FINANCIAL, INC.
See the table of total pretax impacts on our revenues and expenses attributable to unlocking within our Consolidated Results of Operations for the three months ended September 30, 2017.
Net Revenues
Net revenues increased $233 million, or 3%, to $8.9 billion for the nine months ended September 30, 2017 compared to $8.6 billion for the prior year period primarily due to market appreciation, wrap account net inflows, an increase in net investment income, and higher brokerage cash spread due to an increase in short-term interest rates, partially offset by the impact of unlocking, a $138 million decrease in revenues from the net impact of transitioning advisory accounts to share classes without 12b-1 fees, asset management net outflows and higher ceded premiums for our auto and home business.
Management and financial advice fees increased $380 million, or 9%, to $4.7 billion for the nine months ended September 30, 2017 compared to $4.3 billion for the prior year period primarily due to an increase in AUM. Average AUM increased $37.9 billion, or 6%, compared to the prior year period due to market appreciation and wrap account net inflows, partially offset by asset management net outflows and the negative impact of foreign currency translation. See our discussion on the changes in AUM in our segment results of operations section.
Distribution fees decreased $28 million, or 2%, to $1.3 billion for the nine months ended September 30, 2017 compared to the prior year period primarily due to a $162 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts, partially offset by market appreciation and higher brokerage cash spread due to an increase in short-term interest rates.
Net investment income increased $64 million, or 6%, to $1.2 billion for the nine months ended September 30, 2017 compared to $1.1 billion for the prior year period primarily due to a $46 million favorable change in the market impact of hedges on investments and net realized investment gains of $35 million for the nine months ended September 30, 2017 compared to net realized investment losses of $5 million for the prior year period, partially offset by a $16 million decrease in investment income on fixed maturities driven by lower earned interest rates and fixed annuity net outflows.
Premiums decreased $79 million, or 7%, to $1.0 billion for the nine months ended September 30, 2017 compared to $1.1 billion for the prior year period primarily reflecting higher ceded premiums for our auto and home business due to new reinsurance arrangements we entered into at the beginning of the year to reduce risk.
Other revenues decreased $99 million, or 12%, to $733 million for the nine months ended September 30, 2017 compared to $832 million for the prior year period primarily due to the impact of unlocking, partially offset by higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates. Other revenues for the nine months ended September 30, 2017 included a $47 million unfavorable impact from unlocking compared to a $64 million favorable impact in the prior year period. The primary driver of the unlocking impact to other revenues for the nine months ended September 30, 2017 was a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking impact to other revenues for the prior year period was a positive impact from higher projected gains on reinsurance contracts resulting from unfavorable mortality experience.
Expenses
Total expenses decreased $258 million, or 3%, to $7.3 billion for the nine months ended September 30, 2017 compared to $7.5 billion for the prior year period primarily due to the impact of unlocking, partially offset by higher distribution expenses.
Distribution expenses increased $134 million, or 6%, to $2.5 billion for the nine months ended September 30, 2017 compared to $2.4 billion for the prior year period reflecting market appreciation, wrap account net inflows and a $27 million benefit in the prior year period related to the write-off of the deferred reinsurance liability in connection with loss recognition testing of LTC insurance products, partially offset by a $106 million decrease from changes related to our transition to share classes without 12b-1 fees in advisory accounts and asset management net outflows.
Interest credited to fixed accounts increased $44 million, or 9%, to $509 million for the nine months ended September 30, 2017 compared to $465 million for the prior year period primarily due to the market impact on indexed universal life benefits, net of hedges, which was an expense of $14 million for the nine months ended September 30, 2017 compared to a benefit of $25 million for the prior year period.
Benefits, claims, losses and settlement expenses decreased $282 million, or 15%, to $1.7 billion for the nine months ended September 30, 2017 compared to $1.9 billion for the prior year period primarily reflecting the following items:
The nine months ended September 30, 2017 included a $139 million benefit from unlocking compared to a $229 million expense in the prior year period. The unlocking impact for the nine months ended September 30, 2017 primarily reflected a benefit from updates to market-related inputs to our living benefit valuation. The unlocking impact for the prior year period primarily reflected low interest rates and an unfavorable impact from persistency on living benefit reserves, partially offset by a benefit from updates to withdrawal utilization and fee assumptions, as well as market-related inputs related to our living benefit valuation.
A $29 million increase in LTC reserves from a correction related to our claim utilization assumption in the third quarter of 2016.
AMERIPRISE FINANCIAL, INC.
The impact on DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on our view of bond and equity performance was a benefit of $36 million for the nine months ended September 30, 2017 reflecting favorable equity market and bond fund returns compared to a benefit of $2 million for the prior year period.
An $84 million decrease in auto and home expenses reflecting the impact of new reinsurance arrangements and a lower non-catastrophe loss ratio, partially offset by higher gross catastrophe losses. Catastrophe losses, net of the impact of reinsurance, were $84 million for the nine months ended September 30, 2017 compared to $89 million for the prior year period. The expanded reinsurance program resulted in ceded losses of approximately $82 million for the nine months ended September 30, 2017.
A $57 million expense from loss recognition on LTC insurance products in the third quarter of 2017 primarily due to unfavorable morbidity experience, partially offset by premium increases.
A $24 million increase in expense related to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
A $21 million negative impact from changes in assumptions in the prior year unlocking process that resulted in ongoing increases to living benefit reserves.
A $459 million increase in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense. The unfavorable impact of the nonperformance credit spread was $122 million for the nine months ended September 30, 2017 compared to a favorable impact of $337 million for the prior year period.
A $309 million decrease in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This decrease was the result of a favorable $1.7 billion change in the market impact on variable annuity guaranteed living benefits reserves, an unfavorable $1.4 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits and a favorable $3 million change in the DSIC offset. The main market drivers contributing to these changes are summarized below:
Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a lower expense for the nine months ended September 30, 2017 compared to the prior year period.
Equity market impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a benefit for the nine months ended September 30, 2017 compared to an expense in the prior year period.
Volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a higher expense for the nine months ended September 30, 2017 compared to the prior year period.
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net favorable impact compared to the prior year period.
Amortization of DAC decreased $171 million, or 48%, to $189 million for the nine months ended September 30, 2017 compared to $360 million for the prior year period primarily reflecting the following items:
The impact of unlocking was a benefit of $12 million for the nine months ended September 30, 2017 compared to an expense of $81 million for the prior year period. The impact of unlocking for the nine months ended September 30, 2017 primarily reflected improved persistency and mortality on life insurance contracts and a $10 million benefit from a correction related to a variable annuity model assumption, partially offset by updates to market-related inputs to the living benefit valuation. The impact of unlocking in the prior year period primarily reflected low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. In addition, we wrote-off $58 million of DAC in connection with the loss recognition on LTC insurance products in the prior year period.
The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $27 million for the nine months ended September 30, 2017 reflecting favorable equity market and bond fund returns compared to a benefit of $3 million for the prior year period.
The DAC offset to the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) was a benefit of $24 million for the nine months ended September 30, 2017 compared to an expense of $6 million for the prior year period.
General and administrative expense increased $23 million, or 1%, to $2.2 billion for the nine months ended September 30, 2017 compared to the prior year period primarily due to higher performance-based compensation, partially offset by a $23 million expense in the prior year period from the resolution of a legacy legal matter related to the hedge fund business.
AMERIPRISE FINANCIAL, INC.
Income Taxes
Our effective tax rate was 19.5% for the nine months ended September 30, 2017 compared to 18.6% for the prior year period. Our effective tax rates for the nine months ended September 30, 2017 and 2016 were lower than the statutory rate as a result of tax preferred items including the dividends received deduction, low income housing tax credits, stock compensation and lower taxes on net income from foreign subsidiaries.
Results of Operations by Segment for the Nine Months Ended September 30, 2017 and 2016
The following table presents summary financial information by segment:
|
| | | | | | | |
| Nine Months Ended September 30, |
2017 | | 2016 |
(in millions) |
Advice & Wealth Management |
Net revenues | $ | 4,026 |
| | $ | 3,720 |
|
Expenses | 3,189 |
| | 3,063 |
|
Operating earnings | $ | 837 |
| | $ | 657 |
|
Asset Management |
Net revenues | $ | 2,252 |
| | $ | 2,203 |
|
Expenses | 1,726 |
| | 1,751 |
|
Operating earnings | $ | 526 |
| | $ | 452 |
|
Annuities |
Net revenues | $ | 1,861 |
| | $ | 1,846 |
|
Expenses | 1,299 |
| | 1,644 |
|
Operating earnings | $ | 562 |
| | $ | 202 |
|
Protection |
Net revenues | $ | 1,516 |
| | $ | 1,693 |
|
Expenses | 1,347 |
| | 1,503 |
|
Operating earnings | $ | 169 |
| | $ | 190 |
|
Corporate & Other |
Net revenues | $ | 162 |
| | $ | 178 |
|
Expenses | 454 |
| | 449 |
|
Operating loss | $ | (292 | ) | | $ | (271 | ) |
See the table of total pretax impacts on our revenues and expenses attributable to unlocking within our Results of Operations by Segment for the three months ended September 30, 2017.
Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the nine months ended September 30:
|
| | | | | | | |
| 2017 | | 2016 |
(in billions) |
Beginning balance | $ | 201.1 |
| | $ | 180.5 |
|
Inflows from acquisition (1) | 0.7 |
| | — |
|
Other net flows | 13.8 |
| | 6.9 |
|
Net flows | 14.5 |
| | 6.9 |
|
Market appreciation (depreciation) and other | 19.6 |
| | 10.1 |
|
Ending balance | $ | 235.2 |
| | $ | 197.5 |
|
|
Advisory wrap account assets ending balance (2) | $ | 233.0 |
| | $ | 195.4 |
|
Average advisory wrap account assets (3) | $ | 216.2 |
| | $ | 184.7 |
|
(1) Inflows associated with acquisition that closed during the period.
AMERIPRISE FINANCIAL, INC.
| |
(2)
| Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee. |
| |
(3)
| Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
Wrap account assets increased $34.1 billion, or 17%, during the nine months ended September 30, 2017 due to net inflows of $14.5 billion, including $0.7 billion from our acquisition of IPI, and market appreciation and other of $19.6 billion. Net flows increased $7.6 billion compared to the prior year period. Average advisory wrap account assets increased $31.5 billion, or 17%, compared to the prior year period reflecting net inflows and market appreciation.
The following table presents the results of operations of our Advice & Wealth Management segment on an operating basis:
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 2,294 |
| | $ | 1,989 |
| | $ | 305 |
| | 15 | % |
Distribution fees | 1,533 |
| | 1,569 |
| | (36 | ) | | (2 | ) |
Net investment income | 174 |
| | 138 |
| | 36 |
| | 26 |
|
Other revenues | 59 |
| | 53 |
| | 6 |
| | 11 |
|
Total revenues | 4,060 |
| | 3,749 |
| | 311 |
| | 8 |
|
Banking and deposit interest expense | 34 |
| | 29 |
| | 5 |
| | 17 |
|
Total net revenues | 4,026 |
| | 3,720 |
| | 306 |
| | 8 |
|
Expenses |
Distribution expenses | 2,379 |
| | 2,275 |
| | 104 |
| | 5 |
|
Interest and debt expense | 7 |
| | 6 |
| | 1 |
| | 17 |
|
General and administrative expense | 803 |
| | 782 |
| | 21 |
| | 3 |
|
Total expenses | 3,189 |
| | 3,063 |
| | 126 |
| | 4 |
|
Operating earnings | $ | 837 |
| | $ | 657 |
| | $ | 180 |
| | 27 | % |
Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized investment gains or losses, increased $180 million, or 27%, to $837 million for the nine months ended September 30, 2017 compared to $657 million for the prior year period reflecting wrap account net inflows, market appreciation and higher earnings on brokerage cash, partially offset by expenses associated with recruiting experienced advisors and higher performance-based compensation. Pretax operating margin was 20.8% for the nine months ended September 30, 2017 compared to 17.7% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $306 million, or 8%, to $4.0 billion for the nine months ended September 30, 2017 compared to $3.7 billion for the prior year period primarily due to growth in wrap account assets, higher earnings on brokerage cash and increased transactional activity, partially offset by a $138 million decrease in revenues from the net impact of transitioning advisory accounts to share classes without 12b-1 fees. Operating net revenue per advisor increased to $414,000 for the nine months ended September 30, 2017, up 8%, from $382,000 for the prior year period.
Management and financial fees increased $305 million, or 15%, to $2.3 billion for the nine months ended September 30, 2017 compared to $2.0 billion for the prior year period primarily due to growth in wrap account assets. Average advisory wrap account assets increased $31.5 billion, or 17%, compared to the prior year period reflecting net inflows and market appreciation.
Distribution fees decreased $36 million, or 2%, to $1.5 billion for the nine months ended September 30, 2017 compared to $1.6 billion for the prior year period primarily due to a $162 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts, partially offset by market appreciation, increased transactional activity and higher brokerage cash spread due to an increase in short-term interest rates.
Net investment income increased $36 million, or 26%, to $174 million for the nine months ended September 30, 2017 compared to $138 million for the prior year period primarily due to higher investment yields and an increase in invested balances driven by certificate net inflows.
Expenses
Total expenses increased $126 million, or 4%, to $3.2 billion for the nine months ended September 30, 2017 compared to $3.1 billion for the prior year period primarily due to an increase in distribution expenses and general and administrative expense.
AMERIPRISE FINANCIAL, INC.
Distribution expenses increased $104 million, or 5%, to $2.4 billion for the nine months ended September 30, 2017 compared to $2.3 billion for the prior year period reflecting higher advisor compensation due to growth in wrap account assets, increased transactional activity and investments in recruiting experienced advisors, partially offset by a $106 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts.
General and administrative expense increased $21 million, or 3%, to $803 million for the nine months ended September 30, 2017 compared to $782 million for the prior year period primarily due to higher performance-based compensation, as well as expenses related to the IPI acquisition.
Asset Management
The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of June 30:
|
| | | | | | | |
Columbia Mutual Fund Rankings in top 2 Lipper Quartiles | 2019 | | 2018 |
Domestic Equity | Equal weighted | 1 year | 49 | % | | 46 | % |
| | 3 year | 47 | % | | 59 | % |
| | 5 year | 56 | % | | 66 | % |
| Asset weighted | 1 year | 66 | % | | 50 | % |
| | 3 year | 57 | % | | 54 | % |
| | 5 year | 77 | % | | 78 | % |
|
| | | | | | | |
International Equity | Equal weighted | 1 year | 55 | % | | 80 | % |
| | 3 year | 80 | % | | 65 | % |
| | 5 year | 55 | % | | 75 | % |
| Asset weighted | 1 year | 68 | % | | 57 | % |
| | 3 year | 88 | % | | 50 | % |
| | 5 year | 58 | % | | 61 | % |
|
| | | | | | | |
Taxable Fixed Income | Equal weighted | 1 year | 82 | % | | 63 | % |
| | 3 year | 81 | % | | 72 | % |
| | 5 year | 88 | % | | 76 | % |
| Asset weighted | 1 year | 67 | % | | 74 | % |
| | 3 year | 82 | % | | 74 | % |
| | 5 year | 90 | % | | 82 | % |
|
| | | | | | | |
Tax Exempt Fixed Income | Equal weighted | 1 year | 89 | % | | 95 | % |
| | 3 year | 95 | % | | 84 | % |
| | 5 year | 94 | % | | 100 | % |
| Asset weighted | 1 year | 98 | % | | 99 | % |
| | 3 year | 98 | % | | 91 | % |
| | 5 year | 98 | % | | 100 | % |
|
| | | | | | | |
Asset Allocation Funds | Equal weighted | 1 year | 54 | % | | 53 | % |
| | 3 year | 55 | % | | 62 | % |
| | 5 year | 100 | % | | 78 | % |
| Asset weighted | 1 year | 70 | % | | 48 | % |
| | 3 year | 49 | % | | 50 | % |
| | 5 year | 100 | % | | 94 | % |
|
| | | | | | | |
Number of funds with 4 or 5 Morningstar star ratings | | Overall | 53 |
| | 54 |
|
| | 3 year | 51 |
| | 54 |
|
| | 5 year | 49 |
| | 50 |
|
|
| | | | | | | |
Percent of funds with 4 or 5 Morningstar star ratings | | Overall | 51 | % | | 51 | % |
| | 3 year | 50 | % | | 51 | % |
| | 5 year | 49 | % | | 51 | % |
|
| | | | | | | |
Percent of assets with 4 or 5 Morningstar star ratings | | Overall | 57 | % | | 58 | % |
| | 3 year | 46 | % | | 50 | % |
| | 5 year | 56 | % | | 51 | % |
Mutual fund performance rankings are based on the performance of the Institutional Class for Columbia branded mutual funds. Only funds with Institutional Class shares are included.
Equal Weighted Rankings in Top 2 Quartiles: Counts the number of funds with above median ranking divided by the total number of funds. Asset size is not a factor.
Asset Weighted Rankings in Top 2 Quartiles: Sums the total assets of the funds with above median ranking divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | |
Threadneedle Retail Fund Rankings in Top 2 Morningstar Quartiles or Above Index Benchmark | 2019 | | 2018 |
Equity | Equal weighted | 1 year | 60 | % | | 56 | % |
| | 3 year | 57 | % | | 65 | % |
| | 5 year | 74 | % | | 73 | % |
| Asset weighted | 1 year | 58 | % | | 53 | % |
| | 3 year | 57 | % | | 74 | % |
| | 5 year | 82 | % | | 75 | % |
|
| | | | | | | |
Fixed Income | Equal weighted | 1 year | 86 | % | | 77 | % |
| | 3 year | 77 | % | | 72 | % |
| | 5 year | 88 | % | | 72 | % |
| Asset weighted | 1 year | 92 | % | | 94 | % |
| | 3 year | 89 | % | | 90 | % |
| | 5 year | 93 | % | | 89 | % |
|
| | | | | | | |
Allocation (Managed) Funds | Equal weighted | 1 year | 67 | % | | 50 | % |
| | 3 year | 50 | % | | 88 | % |
| | 5 year | 86 | % | | 100 | % |
| Asset weighted | 1 year | 58 | % | | 48 | % |
| | 3 year | 54 | % | | 99 | % |
| | 5 year | 96 | % | | 100 | % |
The performance of each fund is measured on a consistent basis against the most appropriate benchmark — a peer group of similar funds or an index.
Equal weighted: Counts the number of funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total number of funds. Asset size is not a factor.
Asset weighted: Sums the assets of the funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total sum of assets in the funds. Funds with more assets will receive a greater share of the total percentage above or below median or index.
Aggregated Allocation (Managed) Funds include funds that invest in other funds of the Threadneedle range including those funds that invest in both equity and fixed income.
Aggregated Threadneedle data includes funds on the Threadneedle platform sub-advised by Columbia Management as well as advisors not affiliated with Ameriprise Financial, Inc.
The following table presents global managed assets by type:
| | | September 30, | | Change | | Average(1) | | Change | June 30, | | Change | | Average (1) | | Change |
Nine Months Ended September 30, | Three Months Ended June 30, |
2017 | | 2016 | 2017 | | 2016 | 2019 | | 2018 | 2019 | | 2018 |
(in billions) | Equity | $ | 265.8 |
| | $ | 245.9 |
| | $ | 19.9 |
| | 8 | % | | $ | 254.3 |
| | $ | 244.0 |
| | $ | 10.3 |
| | 4 | % | $ | 252.7 |
| | $ | 268.6 |
| | $ | (15.9 | ) | | (6 | )% | | $ | 250.1 |
| | $ | 268.4 |
| | $ | (18.3 | ) | | (7 | )% |
Fixed income | 178.0 |
| | 183.3 |
| | (5.3 | ) | | (3 | ) | | 177.3 |
| | 179.6 |
| | (2.3 | ) | | (1 | ) | 172.6 |
| | 169.1 |
| | 3.5 |
| | 2 |
| | 168.1 |
| | 170.4 |
| | (2.3 | ) | | (1 | ) |
Money market | 5.9 |
| | 6.6 |
| | (0.7 | ) | | (11 | ) | | 5.9 |
| | 7.3 |
| | (1.4 | ) | | (19 | ) | 5.3 |
| | 6.1 |
| | (0.8 | ) | | (13 | ) | | 5.2 |
| | 6.1 |
| | (0.9 | ) | | (15 | ) |
Alternative | 6.5 |
| | 7.3 |
| | (0.8 | ) | | (11 | ) | | 7.0 |
| | 7.7 |
| | (0.7 | ) | | (9 | ) | 3.2 |
| | 4.4 |
| | (1.2 | ) | | (27 | ) | | 3.2 |
| | 5.0 |
| | (1.8 | ) | | (36 | ) |
Hybrid and other | 27.8 |
| | 24.7 |
| | 3.1 |
| | 13 |
| | 26.1 |
| | 24.2 |
| | 1.9 |
| | 8 |
| 34.5 |
| | 33.9 |
| | 0.6 |
| | 2 |
| | 34.1 |
| | 34.1 |
| | — |
| | — |
|
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
| | $ | 16.2 |
| | 3 | % | | $ | 470.6 |
| | $ | 462.8 |
| | $ | 7.8 |
| | 2 | % | $ | 468.3 |
| | $ | 482.1 |
| | $ | (13.8 | ) | | (3 | )% | | $ | 460.7 |
| | $ | 484.0 |
| | $ | (23.3 | ) | | (5 | )% |
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. | (1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. | (1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
AMERIPRISE FINANCIAL, INC.
The following table presents the changes in global managed assets:
| | | Nine Months Ended September 30, | Three Months Ended June 30, |
2017 | | 2016 | 2019 | | 2018 |
(in billions) | Global Retail Funds | Global Retail Funds | | | |
Beginning assets | $ | 259.9 |
| | $ | 263.9 |
| $ | 268.0 |
| | $ | 282.1 |
|
Inflows | 38.0 |
| | 38.3 |
| 11.5 |
| | 13.7 |
|
Acquisition related inflows (1) | — |
| | 1.0 |
| |
Outflows | (45.7 | ) | | (45.7 | ) | (13.4 | ) | | (14.6 | ) |
Net VP/VIT fund flows | (2.5 | ) | | (1.3 | ) | (0.8 | ) | | (0.7 | ) |
Net new flows | (10.2 | ) | | (7.7 | ) | (2.7 | ) | | (1.6 | ) |
Reinvested dividends | 3.3 |
| | 3.8 |
| 2.9 |
| | 3.0 |
|
Net flows | (6.9 | ) | | (3.9 | ) | 0.2 |
| | 1.4 |
|
Distributions | (4.1 | ) | | (4.6 | ) | (3.4 | ) | | (3.5 | ) |
Market appreciation (depreciation) and other | 28.5 |
| | 13.8 |
| |
Market appreciation (depreciation) and other (1) | | 8.5 |
| | 4.8 |
|
Foreign currency translation (2) | 3.4 |
| | (3.2 | ) | (0.5 | ) | | (2.5 | ) |
Total ending assets | 280.8 |
| | 266.0 |
| 272.8 |
| | 282.3 |
|
| | | | |
Global Institutional | Global Institutional | | | |
Beginning assets | 194.5 |
| | 208.0 |
| 191.1 |
| | 203.2 |
|
Inflows | 18.9 |
| | 18.5 |
| 4.8 |
| | 5.8 |
|
Outflows | (31.0 | ) | | (31.1 | ) | |
Outflows (1) | | (6.9 | ) | | (8.7 | ) |
Net flows | (12.1 | ) | | (12.6 | ) | (2.1 | ) | | (2.9 | ) |
Market appreciation (depreciation) and other (3) | 13.9 |
| | 14.9 |
| 7.9 |
| | 4.2 |
|
Foreign currency translation (2) | 6.9 |
| | (8.5 | ) | (1.4 | ) | | (4.7 | ) |
Total ending assets | 203.2 |
| | 201.8 |
| 195.5 |
| | 199.8 |
|
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
| $ | 468.3 |
| | $ | 482.1 |
|
| | | | |
Total net flows(1) | $ | (19.0 | ) | | $ | (16.5 | ) | $ | (1.9 | ) | | $ | (1.5 | ) |
| | | | |
Former Parent Company Related (4) | | | | |
Retail net new flows | | $ | (0.3 | ) | | $ | (0.5 | ) |
Institutional net new flows (1) | | (0.7 | ) | | (1.5 | ) |
Total net new flows (1) | | $ | (1.0 | ) | | $ | (2.0 | ) |
(1) Amounts for the second quarter of 2018 were restated to correct an error related to former parent company managed assets. The change was a decrease to retail fund market appreciation (depreciation) and other of $0.2 billion and a decrease to institutional outflows of $0.2 billion, which was also reflected in former parent company related institutional net new flows. There were no changes in total managed assets.
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | |
| Nine Months Ended September 30, |
2017 | | 2016 |
(in billions) |
Former Parent Company Related (4)(5) |
Retail net new flows | $ | (2.3 | ) | | $ | (0.6 | ) |
Institutional net new flows | (10.4 | ) | | (7.6 | ) |
Total net new flows | $ | (12.7 | ) | | $ | (8.2 | ) |
| |
(1)
| Inflows associated with acquisitions that closed during the period. |
(2) Amounts represent local currency to US dollar translation for reporting purposes.
(3) Includes $0.3$2.9 billion and $2.6$0.5 billion for the total change in Affiliated General Account Assets during the ninethree months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
(4) Former parent company related assets and net new flows are included in the rollforwards above.
(5) Prior period former parent company relatedIn March 2017, the United Kingdom (UK) invoked article 50 of the Treaty of Lisbon in serving its relevant notice to leave the European Union. The full impact of the British exit from the EU (commonly known as “Brexit”) remains uncertain about how negotiations relating to the UK’s withdrawal and new trade agreements will be conducted, as well as the potential consequences and precise timeframe for Brexit. We continue to actively monitor Brexit negotiations and given the current status, we are preparing (as much as possible) for any potential disruptions which may arise from a “no deal Brexit.” The extension of negotiations until October 31, 2019 provides us with additional time to plan for any “no deal” scenario. This uncertainty may have a negative impact on our UK and European net new flows were restated to include additional Former Parent Company net new flows that were previously not considered. The change was a decrease of $199 million forand foreign currency translation if the nine months ended September 30, 2017British Pound weakens.
Total segment AUM increased $29.6$9.2 billion, or 7%2%,during the ninethree monthsendedSeptember June 30, 20172019drivenby market appreciation, partially offset by net outflows of $1.9 billion, retail fund distributions of $3.4 billion and a positivenegative impact of foreign currency translation partially offset by net outflows. Total segment AUM. Europe, Middle East and Africa (“EMEA”) retail net outflows were $19.0$0.7 billion forin the nine months ended September 30, 2017, quarter reflecting negative consumer sentiment associated with Brexit and geopolitical concerns in Europe. U.S. retail net inflows in the quarter were $0.9 billion,
AMERIPRISE FINANCIAL, INC.
which included $12.7$2.9 billion of reinvested dividends and reflected continued outflows of former parent-related assets.
in active equity funds. Global retailinstitutional net outflows of $6.9$2.1 billion included $2.5 billion of outflows of our variable product funds underlying insurance and annuity separate accounts and $2.3$0.7 billion of outflows from former parent-related assets. In U.S. retail, net outflows excluding the former parent-related assets were $5.5 billion, reflecting industry pressures on active strategies partially offset by $3.3 billion of reinvested dividends. In EMEA, net inflows were $0.9 billion.
Global institutional net outflows of $12.1 billion included $10.4 billion of outflows from former parent-related assets and a $1.6 billion outflow from an institutional client that continued a pattern of redeeming assets for liquidity purposes that started in 2015. Institutional outflows from former parent-related assets included Zurich outflows of $6.6 billion and U.S. Trust outflows of $3.8 billion.
The following table presents the results of operations of our Asset Management segment on an adjusted operating basis:
| | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | | | (in millions) | | |
Revenues | Revenues | | | | | | | |
Management and financial advice fees | $ | 1,880 |
| | $ | 1,826 |
| | $ | 54 |
| | 3 | % | $ | 607 |
| | $ | 636 |
| | $ | (29 | ) | | (5 | )% |
Distribution fees | 344 |
| | 363 |
| | (19 | ) | | (5 | ) | 103 |
| | 110 |
| | (7 | ) | | (6 | ) |
Net investment income | 16 |
| | 9 |
| | 7 |
| | 78 |
| 3 |
| | 8 |
| | (5 | ) | | (63 | ) |
Other revenues | 12 |
| | 5 |
| | 7 |
| | NM |
| — |
| | 1 |
| | (1 | ) | | NM |
|
Total revenues | 2,252 |
| | 2,203 |
| | 49 |
| | 2 |
| 713 |
| | 755 |
| | (42 | ) | | (6 | ) |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
| 1 |
| | — |
| | 1 |
| | — |
|
Total net revenues | 2,252 |
| | 2,203 |
| | 49 |
| | 2 |
| 712 |
| | 755 |
| | (43 | ) | | (6 | ) |
Expenses | Expenses | | | | | | | |
Distribution expenses | 750 |
| | 762 |
| | (12 | ) | | (2 | ) | 230 |
| | 241 |
| | (11 | ) | | (5 | ) |
Amortization of deferred acquisition costs | 12 |
| | 13 |
| | (1 | ) | | (8 | ) | 2 |
| | 4 |
| | (2 | ) | | (50 | ) |
Interest and debt expense | 16 |
| | 16 |
| | — |
| | — |
| 7 |
| | 6 |
| | 1 |
| | 17 |
|
General and administrative expense | 948 |
| | 960 |
| | (12 | ) | | (1 | ) | 309 |
| | 321 |
| | (12 | ) | | (4 | ) |
Total expenses | 1,726 |
| | 1,751 |
| | (25 | ) | | (1 | ) | 548 |
| | 572 |
| | (24 | ) | | (4 | ) |
Operating earnings | $ | 526 |
| | $ | 452 |
| | $ | 74 |
| | 16 | % | |
Adjusted operating earnings | | $ | 164 |
| | $ | 183 |
| | $ | (19 | ) | | (10 | )% |
NM Not Meaningful. |
Our Asset Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $74decreased $19 million, or 16%10%, to $526$164 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $452$183 million for the prior year period primarily due to market appreciation, an increase in incentive fees from CLO unwinds,the cumulative impact of net outflows, partially offset by higher average equity markets and a $9 million expenseincrease in the prior year period from the resolution of a legacy legal matter related to the hedge fund business and continued expense management, partially offset by net outflows and higher performance-based compensation.
AMERIPRISE FINANCIAL, INC.
performance fees.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, increased $49decreased $43 million, or 2%6%, to $2.3 billion$712 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $2.2 billion$755 million for the prior year period reflecting market appreciation and an increase in incentive fees from CLO unwinds, partially offset by net outflows, foreign exchange translation and a $28 million decrease related to the transition of advisory accounts to share classes without 12b-1 fees. The Asset Management segment revenue related to 12b-1 fees is eliminated on a consolidated basis.period.
Management and financial advice fees increased $54decreased $29 million, or 3%5%, to $1.9 billion$607 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $1.8 billion$636 million for the prior year period driven by market appreciationcumulative net outflows and an increase in incentive fees fromCLOunwinds,partiallyoffsetbycumulativenetoutflowsfromformerparent-related assetsandhigher fee yielding retail funds and a $24$8 million negative foreign currency translation impact.impact, partially offset by higher average equity markets and an $8 million increase in performance fees. Our average weighted equity index (“WEI”), which is a proxyforequity movementsonAUM,increased16% 3% for the ninethree months ended SeptemberJune 30, 20172019 comparedto theprioryear period. The average S&P 500 increased 7% in the second quarter of 2019 compared to the prior year period. The disconnect between the increase in WEI and S&P 500 was larger than usual, primarily due to underperformance of European indices compared to the S&P 500.
Distribution fees decreased $19$7 million, or 5%6%, to $344$103 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $363$110 million for the prior year period primarily due to the cumulative impact of net outflows and a $28 million decrease related to the transition of advisory accounts to share classes without 12b-1 fees, partially offset by market appreciation.outflows.
Expenses
Total expensesNet investment income decreased $25$5 million, or 1%63%, to $1.7 billion for the nine months ended September 30, 2017 compared to $1.8 billion for the prior year period due to lower distribution expenses and general and administrative expense.
Distribution expenses decreased $12 million, or 2%, to $750$3 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $762$8 million for the prior year period reflecting seed money losses compared to seed money gains in the prior year period.
Expenses
Total expenses decreased $24 million, or 4%, to $548 million for the three months ended June 30, 2019 compared to $572 million for the prior year period.
Distribution expenses decreased $11 million, or 5%, to $230 million for the three months ended June 30, 2019 compared to $241 million for the prior year period primarily due to lower compensation driven bythe cumulative impact of net outflows and a decrease related to the transition of advisory accounts to share classes without 12b-1 fees, partially offset by market appreciation. The Asset Management segment expense related to 12b-1 fees is eliminated on a consolidated basis.outflows.
General and administrative expense decreased $12 million, or 1%4%, to $948$309 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $960$321 million for the prior year period primarily due to a $20$3 million benefit from thepositive foreign currency translation impact of foreign exchange, a $9 million expense in the prior year period from the resolution of a legacy legal matter related to the hedge fund business and continued expense management, partially offset by higher performance-based compensation.reengineering initiatives.
AMERIPRISE FINANCIAL, INC.
Annuities
The following table presents the results of operations of our Annuities segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 573 |
| | $ | 549 |
| | $ | 24 |
| | 4 | % |
Distribution fees | 270 |
| | 260 |
| | 10 |
| | 4 |
|
Net investment income | 527 |
| | 573 |
| | (46 | ) | | (8 | ) |
Premiums | 84 |
| | 89 |
| | (5 | ) | | (6 | ) |
Other revenues | 407 |
| | 375 |
| | 32 |
| | 9 |
|
Total revenues | 1,861 |
| | 1,846 |
| | 15 |
| | 1 |
|
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 1,861 |
| | 1,846 |
| | 15 |
| | 1 |
|
Expenses |
Distribution expenses | 314 |
| | 316 |
| | (2 | ) | | (1 | ) |
Interest credited to fixed accounts | 357 |
| | 360 |
| | (3 | ) | | (1 | ) |
Benefits, claims, losses and settlement expenses | 311 |
| | 628 |
| | (317 | ) | | (50 | ) |
Amortization of deferred acquisition costs | 135 |
| | 159 |
| | (24 | ) | | (15 | ) |
Interest and debt expense | 26 |
| | 24 |
| | 2 |
| | 8 |
|
General and administrative expense | 156 |
| | 157 |
| | (1 | ) | | (1 | ) |
Total expenses | 1,299 |
| | 1,644 |
| | (345 | ) | | (21 | ) |
Operating earnings | $ | 562 |
| | $ | 202 |
| | $ | 360 |
| | NM |
|
NM Not Meaningful. |
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 195 |
| | $ | 200 |
| | $ | (5 | ) | | (3 | )% |
Distribution fees | 85 |
| | 88 |
| | (3 | ) | | (3 | ) |
Net investment income | 139 |
| | 161 |
| | (22 | ) | | (14 | ) |
Premiums | 31 |
| | 27 |
| | 4 |
| | 15 |
|
Other revenues | 170 |
| | 146 |
| | 24 |
| | 16 |
|
Total revenues | 620 |
| | 622 |
| | (2 | ) | | — |
|
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 620 |
| | 622 |
| | (2 | ) | | — |
|
Expenses | | | | | | | |
Distribution expenses | 105 |
| | 113 |
| | (8 | ) | | (7 | ) |
Interest credited to fixed accounts | 112 |
| | 115 |
| | (3 | ) | | (3 | ) |
Benefits, claims, losses and settlement expenses | 168 |
| | 163 |
| | 5 |
| | 3 |
|
Amortization of deferred acquisition costs | 46 |
| | 51 |
| | (5 | ) | | (10 | ) |
Interest and debt expense | 10 |
| | 10 |
| | — |
| | — |
|
General and administrative expense | 50 |
| | 48 |
| | 2 |
| | 4 |
|
Total expenses | 491 |
| | 500 |
| | (9 | ) | | (2 | ) |
Adjusted operating earnings | $ | 129 |
| | $ | 122 |
| | $ | 7 |
| | 6 | % |
Our Annuities segment pretax adjusted operating income,earnings, which excludes net realized investment gains or losses (net of the related DSIC and DAC amortization) and, the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), the market impact on fixed index annuity benefits (net of hedges and the related DAC amortization) and mean reversion related impacts, increased $360$7 million, or 6%, to $562$129 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $202$122 million for the prior year period primarily due to higher average equity markets and higher fee income on variable annuity guarantees net of reserve increases, partially offset by the impact of unlocking, equity market appreciation and the impact on DAC, DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on our viewlow interest rates.
RiverSource variable annuity account balances were essentially flat at $78.1 billion as of bond and equity performance, partially offset by lower investment yields and a $21 million negative impact from changes in assumptions inJune 30, 2019 compared to the prior year unlocking process that resulted in ongoing increases to living benefit reserves.
The impact on DAC, DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on our viewperiod as net outflows of bond and equity performance was a benefit of $61 million ($25 million for DAC, $6 million for DSIC and $30 million for insurance features in non-traditional long duration contracts) for the nine months ended September 30, 2017 reflecting favorable$3.3 billion were offset by equity market and bond fund returns appreciation. Variable annuity sales declined 16% compared to a benefit of $5 million ($3 million for DAC, $1 million for DSIC and $1 million for insurance features in non-traditional long duration contracts) for the prior year period.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, increased $15 million, or 1%,RiverSource fixed deferred annuity account balances declined 6% to $1.9$8.5 billion for the nine months ended Septemberas of June 30, 20172019 compared to $1.8 billion for the prior year period as older policies continue to lapse and new sales are limited due to equity market appreciationlow interest rates. Given the current interest rate environment, our current fixed deferred annuity book is expected to gradually run off and an increase in variableearnings on our fixed deferred annuity rider fees, partially offset by lower investment yieldsbusiness will trend down. We reinsured approximately 20% of our fixed annuities block during the first quarter of 2019. The reinsurance transaction generated $200 million of excess capital and net outflows inhas a marginal impact on fixed and variable annuities.annuity adjusted pretax operating earnings.
Net Revenues
Management and financial advice fees increased $24decreased $5 million, or 4%3%, to $573$195 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $549$200 million for the prior year period due to higherlower fees on variable annuities driven by higherlower average separate account balances. Average variable annuity account balances increased $2.8decreased $1.7 billion, or 4%2%, from the prior year period due to market appreciation,net outflows, partially offset by net outflows.higher average equity markets.
Net investment income, which excludes net realized investment gains or losses, decreased $46$22 million, or 8%14%, to $527$139 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $573$161 million for the prior year period reflecting lower average invested assets due to fixed annuity net outflows and the fixed annuities reinsurance transaction.
Other revenues increased $24 million, or 16%, to $170 million for the three months ended June 30, 2019 compared to $146 million for the prior year period primarily reflecting a decrease of approximately $34 million from lower earned interest rates and approximately $12 million from lower invested assets due to accretion on our fixed annuity net outflows.
Other revenues increased $32 million, or 9%, to $407 million for the nine months ended September 30, 2017 compared to $375 million for the prior year period due toannuities reinsurance deposit receivable and higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates.
AMERIPRISE FINANCIAL, INC.
Expenses
TotalDistribution expenses decreased $8 million, or 7%, to $105 million for the three months ended June 30, 2019 compared to $113 million for the prior year period reflecting lower variable annuity sales.
Interest credited to fixed accounts, which exclude the market impact on variablefixed index annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and the DAC and DSIC offset to net realized investment gains or losses,hedges), decreased $345$3 million, or 21%3%, to $1.3 billion$112 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $1.6 billion$115 million for the prior year period primarily due to the impact of unlocking.lower average fixed deferred annuity account balances.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization), mean reversion related impacts, and the DSIC offset to net realized investment gains or losses, decreased $317increased $5 million, or 50%3%, to $311$168 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $628$163 million for the prior year period primarily reflecting the following items:
The impact of unlocking was a $119 million benefit for the nine months ended September 30, 2017 compared to a $197 million expense for the prior year period. The unlocking impact for the nine months ended September 30, 2017 primarily reflected a benefit from updates to market-related inputs to our living benefit valuation. The unlocking impact for the prior year period primarily reflected low interest rates and an unfavorable impact from persistency on living benefit reserves, partially offset by a benefit from updates to withdrawal utilization and fee assumptions, as well as market-related inputs related to our living benefit valuation.
The impact on DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on our view of bond and equity performance was a benefit of $36 million for the nine months ended September 30, 2017 reflecting favorable equity market and bond fund returns compared to a benefit of $2 million for the prior year period.
A $24 million increase in expense relateddue to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
A $21 million negative impact from changes in assumptions in the prior year unlocking process that resulted in ongoing increases to livingguaranteed benefit reserves.
Amortization of DAC decreased $24 million, or 15%, to $135 million for the nine months ended September 30, 2017 compared to $159 million for the prior year period primarily reflecting the following items:
The impact of unlocking was a benefit of $1 million for the nine months ended September 30, 2017 compared to an expense of $18 million for the prior year period. The impact of unlocking for the nine months ended September 30, 2017 primarily
AMERIPRISE FINANCIAL, INC.
reflected a $10 million benefit from a correction related to a variable annuity model assumption and slightly higher interest rates, largely offset by updates to market-related inputs to the living benefit valuation. The impact of unlocking in the prior year period primarily reflected low interest rates that more than offset benefits from persistency on annuity contracts without living benefits.
The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $25 million for the nine months ended September 30, 2017 reflecting favorable equity market and bond fund returns compared to a benefit of $3 million for the prior year period.
The negative impact on DAC from higher than expected lapses on variable annuities was $14 million.rider charges.
Protection
The following table presents the results of operations of our Protection segment on an adjusted operating basis:
| | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | | | (in millions) | | |
Revenues | Revenues | | | | | | | |
Management and financial advice fees | $ | 35 |
| | $ | 38 |
| | $ | (3 | ) | | (8 | )% | $ | 11 |
| | $ | 12 |
| | $ | (1 | ) | | (8 | )% |
Distribution fees | 74 |
| | 72 |
| | 2 |
| | 3 |
| 23 |
| | 23 |
| | — |
| | — |
|
Net investment income | 253 |
| | 247 |
| | 6 |
| | 2 |
| 76 |
| | 73 |
| | 3 |
| | 4 |
|
Premiums | 896 |
| | 959 |
| | (63 | ) | | (7 | ) | 51 |
| | 50 |
| | 1 |
| | 2 |
|
Other revenues | 258 |
| | 377 |
| | (119 | ) | | (32 | ) | 98 |
| | 97 |
| | 1 |
| | 1 |
|
Total revenues | 1,516 |
| | 1,693 |
| | (177 | ) | | (10 | ) | 259 |
| | 255 |
| | 4 |
| | 2 |
|
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
Total net revenues | 1,516 |
| | 1,693 |
| | (177 | ) | | (10 | ) | 259 |
| | 255 |
| | 4 |
| | 2 |
|
Expenses | Expenses | | | | | | | |
Distribution expenses | 50 |
| | 50 |
| | — |
| | — |
| 11 |
| | 13 |
| | (2 | ) | | (15 | ) |
Interest credited to fixed accounts | 138 |
| | 130 |
| | 8 |
| | 6 |
| 52 |
| | 48 |
| | 4 |
| | 8 |
|
Benefits, claims, losses and settlement expenses | 888 |
| | 1,015 |
| | (127 | ) | | (13 | ) | 81 |
| | 78 |
| | 3 |
| | 4 |
|
Amortization of deferred acquisition costs | 70 |
| | 107 |
| | (37 | ) | | (35 | ) | 13 |
| | 15 |
| | (2 | ) | | (13 | ) |
Interest and debt expense | 19 |
| | 18 |
| | 1 |
| | 6 |
| 4 |
| | 4 |
| | — |
| | — |
|
General and administrative expense | 182 |
| | 183 |
| | (1 | ) | | (1 | ) | 33 |
| | 34 |
| | (1 | ) | | (3 | ) |
Total expenses | 1,347 |
| | 1,503 |
| | (156 | ) | | (10 | ) | 194 |
| | 192 |
| | 2 |
| | 1 |
|
Operating earnings | $ | 169 |
| | $ | 190 |
| | $ | (21 | ) | | (11 | )% | |
Adjusted operating earnings | | $ | 65 |
| | $ | 63 |
| | $ | 2 |
| | 3 | % |
Our Protection segment pretax adjusted operating earnings, which excludes net realized investment gains or losses (net of the related DAC amortization, unearned revenue amortization and the reinsurance accrual) and, the market impact on indexed universal lifeIUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual), decreased $21and mean reversion related impacts, increased $2 million, or 11%3%, to $169$65 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $190$63 million for the prior year period.
Net Revenues
Net investment income, which excludes net realized investment gains or losses, increased $3 million, or 4%, to $76 million for the three months ended June 30, 2019 compared to $73 million for the prior year period reflecting higher average invested assets.
Expenses
Interest credited to fixed accounts increased $4 million, or 8%, to $52 million for the three months ended June 30, 2019 compared to $48 million for the prior year period primarily due to the impact of unlockingdriven by higher fixed account values associated with UL and the low interest rate environment, partially offset by improved auto and home results.VUL insurance.
Net Revenues
Net revenues, which exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, decreased $177 million, or 10%, to $1.5 billion for the nine months ended September 30, 2017 compared to $1.7 billion for the prior year period primarily due to the impact of unlocking and a decrease in premiums.
Premiums decreased $63 million, or 7%, to $896 million for the nine months ended September 30, 2017 compared to $959 million for the prior year period primarily reflecting higher ceded premiums for our auto and home business due to new reinsurance arrangements we entered into at the beginning of the year to reduce risk.
Other revenues decreased $119 million, or 32%, to $258 million for the nine months ended September 30, 2017 compared to $377 million for the prior year period due to the impact of unlocking. Other revenues for the nine months ended September 30, 2017 included a $47 million unfavorable impact from unlocking compared to a $64 million favorable impact in the prior year period. The primary driver of the unlocking impact to other revenues for the nine months ended September 30, 2017 was a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking
AMERIPRISE FINANCIAL, INC.
impact to other revenues for the prior year period was a positive impact from higher projected gains on reinsurance contracts resulting from unfavorable mortality experience.
Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization) and the DAC offset to net realized investment gains or losses, decreased $156 million, or 10%, to $1.3 billion for the nine months ended September 30, 2017 compared to $1.5 billion for the prior year period due to the impact of unlocking and a decrease in auto and home expenses.
Benefits, claims, losses and settlement expenses decreased $127 million, or 13%, to $888 million for the nine months ended September 30, 2017 compared to $1.0 billion for the prior year period due to the impact of unlocking and an $84 million decrease in auto and home expenses reflecting the impact of new reinsurance arrangements and a lower non-catastrophe loss ratio, partially offset by higher gross catastrophe losses. The unlocking impact for the nine months ended September 30, 2017 was a $14 million benefit and primarily reflected favorable mortality experience on life insurance contracts. The unlocking impact for the prior year period was a $40 million expense and primarily reflected low interest rates and unfavorable mortality experience. Catastrophe losses, net of the impact of reinsurance, were $84 million for the nine months ended September 30, 2017 compared to $89 million for the prior year period. The expanded reinsurance program resulted in ceded losses of approximately $82 million for the nine months ended September 30, 2017.
Amortization of DAC decreased $37 million, or 35%, to $70 million for the nine months ended September 30, 2017 compared to $107 million for the prior year period primarily reflecting the impact of unlocking, as well as lower DAC amortization on our auto and home business. The unlocking impact for the nine months ended September 30, 2017 was a benefit of $13 million and primarily reflected improved persistency and mortality on life insurance contracts. The unlocking impact for the prior year period was an expense of $7 million.
Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an adjusted operating basis:
| | | Nine Months Ended September 30, | | Change | Three Months Ended June 30, | | Change |
2017 | | 2016 | 2019 | | 2018 |
(in millions) | | | (in millions) | | |
Revenues | Revenues | | | | | | | |
Management and financial advice fees | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | — | % |
Distribution fees | | 2 |
| | 2 |
| | — |
| | — |
|
Net investment income | $ | 79 |
| | $ | 94 |
| | $ | (15 | ) | | (16 | )% | 47 |
| | 44 |
| | 3 |
| | 7 |
|
Premiums | 81 |
| | 81 |
| | — |
| | — |
| 302 |
| | 288 |
| | 14 |
| | 5 |
|
Other revenues | 4 |
| | 4 |
| | — |
| | — |
| 2 |
| | — |
| | 2 |
| | — |
|
Total revenues | 164 |
| | 179 |
| | (15 | ) | | (8 | ) | 354 |
| | 335 |
| | 19 |
| | 6 |
|
Banking and deposit interest expense | 2 |
| | 1 |
| | 1 |
| | NM |
| 2 |
| | 1 |
| | 1 |
| | NM |
|
Total net revenues | 162 |
| | 178 |
| | (16 | ) | | (9 | ) | 352 |
| | 334 |
| | 18 |
| | 5 |
|
Expenses | Expenses | | | | | | | |
Distribution expenses | (7 | ) | | (39 | ) | | 32 |
| | 82 |
| — |
| | 3 |
| | (3 | ) | | NM |
|
Benefits, claims, losses and settlement expenses | 239 |
| | 219 |
| | 20 |
| | 9 |
| 287 |
| | 313 |
| | (26 | ) | | (8 | ) |
Amortization of deferred acquisition costs | — |
| | 63 |
| | (63 | ) | | NM |
| 13 |
| | 13 |
| | — |
| | — |
|
Interest and debt expense | 20 |
| | 21 |
| | (1 | ) | | (5 | ) | 17 |
| | 9 |
| | 8 |
| | 89 |
|
General and administrative expense | 202 |
| | 185 |
| | 17 |
| | 9 |
| 96 |
| | 80 |
| | 16 |
| | 20 |
|
Total expenses | 454 |
| | 449 |
| | 5 |
| | 1 |
| 413 |
| | 418 |
| | (5 | ) | | (1 | ) |
Operating loss | $ | (292 | ) | | $ | (271 | ) | | $ | (21 | ) | | (8 | )% | |
Adjusted operating loss | | $ | (61 | ) | | $ | (84 | ) | | $ | 23 |
| | 27 | % |
NM Not Meaningful. |
Our Corporate & Other segment pretax adjusted operating loss excludes net realized investment gains or losses, the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax adjusted operating loss increased $21decreased $23 million, or 8%27%, to $292$61 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $271$84 million for the prior year period.
Our closed block long term care (“LTC”) insurance had pretax adjusted operating earnings of $4 million for the three months ended June 30, 2019 compared to a pretax adjusted operating loss of $5 million for the prior year period reflecting policyholder experience and expanded benefit reduction offerings, as well as higher mortality.
Auto and Home pretax adjusted operating earnings were $14 million for the three months ended June 30, 2019 compared to a pretax adjusted operating loss of $19 million for the prior year period primarily reflecting a decrease in net investment income, an increase in general and administrative expense and LTC loss recognition of $57lower catastrophe losses.
Premiums increased $14 million, or 5%, to $302 million for the third quarter of 2017, partially offset by LTC loss recognition of $31 million in the prior year period and a $29 million increase in LTC reserves in the prior year period from a correction related to our claim utilization assumption.
AMERIPRISE FINANCIAL, INC.
Net investment income decreased $15 million, or 16%, to $79 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $94$288 million for the prior year period primarily due to higher amortization relating to an increaseaverage premiums in low income housing investmentsboth auto and the impact of interest allocation between subsidiaries.home insurance products and higher auto policies in force.
Distribution expenses increased $32 million to a benefit of $7 million for the nine months ended September 30, 2017 compared to a benefit of $39 million for the prior year period. Distribution expenses for the prior year period included a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with loss recognition on LTC insurance products.
Benefits,, claims, losses and settlement expenses increased $20decreased $26 million, or 9%8%, to $239$287 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $219$313 million for the prior year period primarily duereflecting lower current period catastrophe losses and slower LTC reserve growth. Current period catastrophe losses (net of the impact of reinsurance) were $18 million for the three months ended June 30, 2019 compared to a $57$41 million expense from loss recognition on LTC insurance products in the third quarter of 2017, partially offset by a $29 million increase in LTC reserves infor the prior year period from a correction related to our claim utilization assumption. The LTC loss recognition in the third quarter of 2017 was primarily due to unfavorable morbidity experience, partially offset by premium increases.
Amortization of DAC decreased $63 million compared to the prior year period reflecting the write-off of DAC in the third quarter of 2016 in connection with the loss recognition on LTC insurance products.period.
General and administrative expense increased $17$16 million, or 9%20%, to $202$96 million for the ninethree months ended SeptemberJune 30, 20172019 compared to $185$80 million for the prior year period primarily due to higher performance-basedmark-to-market impact on share-based compensation expenses and a $9investments in growth initiatives.
AMERIPRISE FINANCIAL, INC.
Consolidated Results of Operations for the Six Months Ended June 30, 2019 and 2018
The following table presents our consolidated results of operations:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 3,359 |
| | $ | 3,360 |
| | $ | (1 | ) | | — | % |
Distribution fees | 970 |
| | 933 |
| | 37 |
| | 4 |
|
Net investment income | 765 |
| | 815 |
| | (50 | ) | | (6 | ) |
Premiums | 747 |
| | 700 |
| | 47 |
| | 7 |
|
Other revenues | 594 |
| | 592 |
| | 2 |
| | — |
|
Total revenues | 6,435 |
| | 6,400 |
| | 35 |
| | 1 |
|
Banking and deposit interest expense | 72 |
| | 36 |
| | 36 |
| | NM |
|
Total net revenues | 6,363 |
| | 6,364 |
| | (1 | ) | | — |
|
Expenses | | | | | | | |
Distribution expenses | 1,848 |
| | 1,807 |
| | 41 |
| | 2 |
|
Interest credited to fixed accounts | 390 |
| | 321 |
| | 69 |
| | 21 |
|
Benefits, claims, losses and settlement expenses | 1,254 |
| | 1,129 |
| | 125 |
| | 11 |
|
Amortization of deferred acquisition costs | 74 |
| | 155 |
| | (81 | ) | | (52 | ) |
Interest and debt expense | 112 |
| | 131 |
| | (19 | ) | | (15 | ) |
General and administrative expense | 1,628 |
| | 1,577 |
| | 51 |
| | 3 |
|
Total expenses | 5,306 |
| | 5,120 |
| | 186 |
| | 4 |
|
Pretax income | 1,057 |
| | 1,244 |
| | (187 | ) | | (15 | ) |
Income tax provision | 170 |
| | 188 |
| | (18 | ) | | (10 | ) |
Net income | $ | 887 |
| | $ | 1,056 |
| | $ | (169 | ) | | (16 | )% |
NM Not Meaningful. |
Overall
Pretax income decreased $187 million, or 15%, to $1.1 billion for the six months ended June 30, 2019 compared to $1.2 billion for the prior year period. The following impacts were significant drivers of the period-over-period change in pretax income:
| |
• | The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $202 million for the six months ended June 30, 2019 compared to an expense of $85 million for the prior year period. |
| |
• | The market impact on IUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) was an expense of $77 million for the six months ended June 30, 2019 compared to a benefit of $5 million for the prior year period. |
| |
• | The market impact of hedges on investments was an expense of $28 million for the six months ended June 30, 2019 compared to a benefit of $21 million for the prior year period. |
The cumulative impact of asset management net outflows.
An increase in expenses related to investments in business growth.
A positive impact from higher short-term interest rates and wrap account net inflows.
The mean reversion related impact was a benefit of $54 million for the renegotiationsix months ended June 30, 2019 compared to a benefit of a vendor arrangement, $14 million for the prior year period.
Net Revenues
Net revenues of $6.4 billion for the six months ended June 30, 2019 were essentially flat compared to the prior year period.
Distribution fees increased $37 million, or 4%, to $970 million for the six months ended June 30, 2019 compared to $933 million for the prior year period reflecting higher earnings on brokerage cash due to an increase in short-term interest rates, partially offset by decreased transactional activity.
AMERIPRISE FINANCIAL, INC.
Net investment income decreased $50 million, or 6%, to $765 million for the six months ended June 30, 2019 compared to $815 million for the prior year period primarily due to a $14$29 million decrease in net investment income of CIEs, a $49 million unfavorable change in the market impact of hedges on investments and the impact of fixed annuity net outflows and the fixed annuities reinsurance transaction, partially offset by higher average investment yields on assets related to certificates and certificate net inflows.
Premiums increased $47 million, or 7%, to $747 million for the six months ended June 30, 2019 compared to $700 million for the prior year period primarily due to higher average premium in both auto and home insurance products and higher auto policies in force.
Banking and deposit interest expense increased $36 million to $72 million for the six months ended June 30, 2019 compared to $36 million for the prior year period due to higher average crediting rates on certificates and higher average certificate balances.
Expenses
Total expenses increased $186 million, or 4%, to $5.3 billion for the six months ended June 30, 2019 compared to $5.1 billion for the prior year period.
Distribution expenses increased $41 million, or 2%, to $1.8 billion for the six months ended June 30, 2019 compared to the prior year period reflecting higher advisor compensation due to wrap account net inflows, higher mark-to-market impact on advisor deferred compensation expense and investments in recruiting experienced advisors, partially offset by the impact of asset management net outflows and decreased transactional activity.
Interest credited to fixed accounts increased $69 million, or 21%, to $390 million for the six months ended June 30, 2019 compared to $321 million for the prior year period primarily due to the market impact on IUL benefits, net of hedges, which was an expense of $66 million for the six months ended June 30, 2019 compared to a benefit of $4 million for the prior year period.
Benefits, claims, losses and settlement expenses increased $125 million, or 11%, to $1.3 billion for the six months ended June 30, 2019 compared to $1.1 billion for the prior year period primarily reflecting the following items:
A $113 million increase in expense from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of the nonperformance credit spread was $102 million for the six months ended June 30, 2019 compared to a favorable impact of $11 million for the prior year period. As the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense.
| |
• | A $31million increase in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of an unfavorable $625 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $591 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and a favorable $3 million change in the DSIC offset. The main market drivers contributing to these changes are summarized below: |
Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in an expense for the six months ended June 30, 2019 compared to a benefit in the prior year period.
Equity market impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a higher expense for the six months ended June 30, 2019 compared to the prior year period.
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net favorable impact compared to the prior year period.
A $23 million decrease in current period auto and home catastrophe losses, net of the impact of reinsurance.
Amortization of DAC decreased $81 million, or 52%, to $74 million for the six months ended June 30, 2019 compared to $155 million for the prior year period primarily reflecting the following items:
The DAC offset to the market impact on variable annuity guaranteed benefits was a benefit of $32 million for the six months ended June 30, 2019 compared to $5 million for the prior year period.
The DAC offset to the market impact on IUL benefits, net of hedges was a benefit of $14 million for the six months ended June 30, 2019 compared to an expense of $2 million for the prior year period.
The mean reversion related impact was a benefit of $27 million for the six months ended June 30, 2019 compared to $3 million for the prior year period.
The positive impact on DAC from normal year over year experience differences for variable annuities was $14 million.
Interest and debt expense decreased $19 million, or 15%, to $112 million for the resolutionsix months ended June 30, 2019 compared to $131 million for the prior year period primarily due to a decrease in interest expense from CIEs.
AMERIPRISE FINANCIAL, INC.
General and administrative expense increased $51 million, or 3%, to $1.6 billion for the six months ended June 30, 2019 compared to the prior year period primarily due to investments in business growth and higher mark-to-market impact on share-based compensation expenses.
Income Taxes
Our effective tax rate was 16.0% for the six months ended June 30, 2019 compared to 15.2% for the prior year period. The benefit for net excess tax benefits related to employee share-based payments was $8 million for the six months ended June 30, 2019 compared to $21 million for the prior year period. See Note 18 to our Consolidated Financial Statements for additional discussion on income taxes.
Results of Operations by Segment for the Six Months Ended June 30, 2019 and 2018
The following table presents summary financial information by segment:
|
| | | | | | | |
| Six Months Ended June 30, |
2019 | | 2018 |
(in millions) |
Advice & Wealth Management | | | |
Net revenues | $ | 3,207 |
| | $ | 3,044 |
|
Expenses | 2,481 |
| | 2,378 |
|
Adjusted operating earnings | $ | 726 |
| | $ | 666 |
|
Asset Management | | | |
Net revenues | $ | 1,401 |
| | $ | 1,533 |
|
Expenses | 1,091 |
| | 1,155 |
|
Adjusted operating earnings | $ | 310 |
| | $ | 378 |
|
Annuities | | | |
Net revenues | $ | 1,224 |
| | $ | 1,235 |
|
Expenses | 967 |
| | 987 |
|
Adjusted operating earnings | $ | 257 |
| | $ | 248 |
|
Protection | | | |
Net revenues | $ | 521 |
| | $ | 508 |
|
Expenses | 382 |
| | 380 |
|
Adjusted operating earnings | $ | 139 |
| | $ | 128 |
|
Corporate & Other | | | |
Net revenues | $ | 694 |
| | $ | 657 |
|
Expenses | 818 |
| | 792 |
|
Adjusted operating loss | $ | (124 | ) | | $ | (135 | ) |
AMERIPRISE FINANCIAL, INC.
Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the six months ended June 30:
|
| | | | | | | |
| 2019 | | 2018 |
(in billions) |
Beginning balance | $ | 251.5 |
| | $ | 248.2 |
|
Net flows | 9.2 |
| | 10.9 |
|
Market appreciation (depreciation) and other | 31.3 |
| | (0.4 | ) |
Ending balance | $ | 292.0 |
| | $ | 258.7 |
|
| | | |
Advisory wrap account assets ending balance (1) | $ | 289.1 |
| | $ | 256.3 |
|
Average advisory wrap account assets (2) | $ | 272.8 |
| | $ | 251.4 |
|
| |
(1) | Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee. |
| |
(2) | Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
Wrap account assets increased $40.5 billion, or 16%, during the six months ended June 30, 2019 due to net inflows of $9.2 billion and market appreciation and other of $31.3 billion. Average advisory wrap account assets increased $21.4 billion, or 9%, compared to the prior year period primarily reflecting net inflows.
The following table presents the results of operations of our Advice & Wealth Management segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 1,832 |
| | $ | 1,726 |
| | $ | 106 |
| | 6 | % |
Distribution fees | 1,141 |
| | 1,119 |
| | 22 |
| | 2 |
|
Net investment income | 200 |
| | 142 |
| | 58 |
| | 41 |
|
Other revenues | 105 |
| | 93 |
| | 12 |
| | 13 |
|
Total revenues | 3,278 |
| | 3,080 |
| | 198 |
| | 6 |
|
Banking and deposit interest expense | 71 |
| | 36 |
| | 35 |
| | 97 |
|
Total net revenues | 3,207 |
| | 3,044 |
| | 163 |
| | 5 |
|
Expenses |
Distribution expenses | 1,796 |
| | 1,745 |
| | 51 |
| | 3 |
|
Interest and debt expense | 6 |
| | 5 |
| | 1 |
| | 20 |
|
General and administrative expense | 679 |
| | 628 |
| | 51 |
| | 8 |
|
Total expenses | 2,481 |
| | 2,378 |
| | 103 |
| | 4 |
|
Adjusted operating earnings | $ | 726 |
| | $ | 666 |
| | $ | 60 |
| | 9 | % |
Our Advice & Wealth Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $60 million, or 9%, to $726 million for the six months ended June 30, 2019 compared to $666 million for the prior year period reflecting wrap account net inflows and higher earnings on brokerage cash, partially offset by continued investments for growth and higher mark-to-market impact on advisor deferred compensation expenses. Pretax adjusted operating margin was 22.6% for the six months ended June 30, 2019 compared to 21.9% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $163 million, or 5%, to $3.2 billion for the six months ended June 30, 2019 compared to $3.0 billion for the prior year period. Adjusted operating net revenue per advisor increased to $322,000 for the six months ended June 30, 2019, up 5%, from $308,000 for the prior year period.
Management and financial fees increased $106 million, or 6%, to $1.8 billion for the six months ended June 30, 2019 compared to $1.7 billion for the prior year period primarily due to growth in wrap account assets. Average advisory wrap account assets increased $21.4 billion, or 9%, compared to the prior year period primarily reflecting net inflows.
AMERIPRISE FINANCIAL, INC.
Distribution fees increased $22 million, or 2%, to $1.1 billion for the six months ended June 30, 2019 compared to the prior year period reflecting higher earnings on brokerage cash due to an increase in short-term interest rates, partially offset by decreased transactional activity. Brokerage cash balances declined 1% to $24.3 billion as of June 30, 2019 compared to the prior year period. We earned 211 basis points for the six months ended June 30, 2019 compared to 145 basis points for the prior year period.
Net investment income increased $58 million, or 41%, to $200 million for the six months ended June 30, 2019 compared to $142 million for the prior year period primarily due to higher average investment yields on assets related to certificates and higher average invested balances due to certificate net inflows.
Banking and deposit interest expense increased $35 million, or 97%, to $71 million for the six months ended June 30, 2019 compared to $36 million for the prior year period due to higher client crediting rates on certificates and higher average certificate balances.
Expenses
Total expenses increased $103 million, or 4%, to $2.5 billion for the six months ended June 30, 2019 compared to $2.4 billion for the prior year period.
Distribution expenses increased $51 million, or 3%, to $1.8 billion for the six months ended June 30, 2019 compared to $1.7 billion for the prior year period reflecting higher advisor compensation due to wrap account net inflows, higher mark-to-market impact on advisor deferred compensation expense and investments in recruiting experienced advisors, partially offset by decreased transactional activity.
General and administrative expense increased $51 million, or 8%, to $679 million for the six months ended June 30, 2019 compared to $628 million for the prior year period primarily due to investments in business growth.
Asset Management
The following table presents global managed assets by type:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, | | Change | | Average(1) | | Change |
Six Months Ended June 30, |
2019 | | 2018 | 2019 | | 2018 |
(in billions) |
Equity | $ | 252.7 |
| | $ | 268.6 |
| | $ | (15.9 | ) | | (6 | )% | | $ | 246.6 |
| | $ | 272.8 |
| | $ | (26.2 | ) | | (10 | )% |
Fixed income | 172.6 |
| | 169.1 |
| | 3.5 |
| | 2 |
| | 166.3 |
| | 171.7 |
| | (5.4 | ) | | (3 | ) |
Money market | 5.3 |
| | 6.1 |
| | (0.8 | ) | | (13 | ) | | 5.1 |
| | 5.9 |
| | (0.8 | ) | | (14 | ) |
Alternative | 3.2 |
| | 4.4 |
| | (1.2 | ) | | (27 | ) | | 3.1 |
| | 5.3 |
| | (2.2 | ) | | (42 | ) |
Hybrid and other | 34.5 |
| | 33.9 |
| | 0.6 |
| | 2 |
| | 33.8 |
| | 34.5 |
| | (0.7 | ) | | (2 | ) |
Total managed assets | $ | 468.3 |
| | $ | 482.1 |
| | $ | (13.8 | ) | | (3 | )% | | $ | 454.9 |
| | $ | 490.2 |
| | $ | (35.3 | ) | | (7 | )% |
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period. |
AMERIPRISE FINANCIAL, INC.
The following table presents the changes in global managed assets:
|
| | | | | | | |
| Six Months Ended June 30, |
2019 | | 2018 |
(in billions) |
Global Retail Funds | | | |
Beginning assets | $ | 247.9 |
| | $ | 287.8 |
|
Inflows | 23.0 |
| | 26.9 |
|
Outflows | (28.5 | ) | | (31.6 | ) |
Net VP/VIT fund flows | (1.5 | ) | | (1.4 | ) |
Net new flows | (7.0 | ) | | (6.1 | ) |
Reinvested dividends | 3.4 |
| | 3.5 |
|
Net flows | (3.6 | ) | | (2.6 | ) |
Distributions | (4.1 | ) | | (4.1 | ) |
Market appreciation (depreciation) and other (1) | 32.7 |
| | 2.2 |
|
Foreign currency translation (2) | (0.1 | ) | | (1.0 | ) |
Total ending assets | 272.8 |
| | 282.3 |
|
| | | |
Global Institutional | | | |
Beginning assets | 182.8 |
| | 206.8 |
|
Inflows | 10.1 |
| | 12.1 |
|
Outflows (1) | (15.7 | ) | | (18.7 | ) |
Net flows | (5.6 | ) | | (6.6 | ) |
Market appreciation (depreciation) and other (3) | 18.5 |
| | 1.4 |
|
Foreign currency translation (2) | (0.2 | ) | | (1.8 | ) |
Total ending assets | 195.5 |
| | 199.8 |
|
Total managed assets | $ | 468.3 |
| | $ | 482.1 |
|
| | | |
Total net flows (1) | $ | (9.2 | ) | | $ | (9.2 | ) |
| | | |
Former Parent Company Related (4) | | | |
Retail net new flows | $ | (0.6 | ) | | $ | (1.1 | ) |
Institutional net new flows (1) | (1.5 | ) | | (2.5 | ) |
Total net new flows (1) | $ | (2.1 | ) | | $ | (3.6 | ) |
(1) Amounts for the second quarter of 2018 were restated to correct an error related to former parent company managed assets. The change was a legacy legal matterdecrease to retail fund market appreciation (depreciation) and other of $0.2 billion and a decrease to institutional outflows of $0.2 billion, which was also reflected in former parent company related institutional net new flows. There were no changes in total managed assets.
(2) Amounts represent local currency to US dollar translation for reporting purposes.
(3) Includes $2.7 billion and $(0.5) billion for the total change in Affiliated General Account Assets during the six months ended June 30, 2019 and 2018, respectively.
(4) Former parent company related assets and net new flows are included in the rollforwards above.
Total segment AUM increased $37.6 billion, or 9%, during the six months ended June 30, 2019 driven by market appreciation, partially offset by retail fund distributions of $4.1 billion and net outflows of $9.2 billion. EMEA retail net outflows were $2.3 billion for the six months ended June 30, 2019 reflecting negative consumer sentiment associated with Brexit and geopolitical concerns in Europe. U.S. retail net outflows for the six months ended June 30, 2019 were $1.3 billion, which included $3.4 billion of reinvested dividends and reflected continued outflows in active equity funds. Global institutional net outflows of $5.6 billion included $1.5 billion of outflows from former parent-related assets.
AMERIPRISE FINANCIAL, INC.
The following table presents the results of operations of our Asset Management segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 1,191 |
| | $ | 1,281 |
| | $ | (90 | ) | | (7 | )% |
Distribution fees | 201 |
| | 224 |
| | (23 | ) | | (10 | ) |
Net investment income | 9 |
| | 10 |
| | (1 | ) | | (10 | ) |
Other revenues | 1 |
| | 18 |
| | (17 | ) | | (94 | ) |
Total revenues | 1,402 |
| | 1,533 |
| | (131 | ) | | (9 | ) |
Banking and deposit interest expense | 1 |
| | — |
| | 1 |
| | — |
|
Total net revenues | 1,401 |
| | 1,533 |
| | (132 | ) | | (9 | ) |
Expenses | | | | | | | |
Distribution expenses | 453 |
| | 490 |
| | (37 | ) | | (8 | ) |
Amortization of deferred acquisition costs | 5 |
| | 7 |
| | (2 | ) | | (29 | ) |
Interest and debt expense | 13 |
| | 12 |
| | 1 |
| | 8 |
|
General and administrative expense | 620 |
| | 646 |
| | (26 | ) | | (4 | ) |
Total expenses | 1,091 |
| | 1,155 |
| | (64 | ) | | (6 | ) |
Adjusted operating earnings | $ | 310 |
| | $ | 378 |
| | $ | (68 | ) | | (18 | )% |
Our Asset Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, decreased $68 million, or 18%, to $310 million for the six months ended June 30, 2019 compared to $378 million for the prior year period primarily due to the cumulative impact of net outflows and a vendor credit of $14 million in the first quarter of 2018, partially offset by an $11 million increase in net performance fees.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $132 million, or 9%, to $1.4 billion for the six months ended June 30, 2019 compared to $1.5 billion for the prior year period.
Management and financial advice fees decreased $90 million, or 7%, to $1.2 billion for the six months ended June 30, 2019 compared to $1.3 billion for the prior year period driven by cumulative net outflows and an $18 million negative foreign currency translation impact, partially offset by an $11 million increase in performance fees.
Distribution fees decreased $23 million, or 10%, to $201 million for the six months ended June 30, 2019 compared to $224 million for the prior year period primarily due to the cumulative impact of net outflows.
Other revenues decreased $17 million, or 94%, to $1 million for the six months ended June 30, 2019 compared to $18 million for the prior year period due to a $14 million vendor credit in the first quarter of 2018 related to the hedge fund business.completion of our front, middle and back-office integration.
Expenses
Total expenses decreased $64 million, or 6%, to $1.1 billion for the six months ended June 30, 2019 compared to $1.2 billion for the prior year period.
Distribution expenses decreased $37 million, or 8%, to $453 million for the six months ended June 30, 2019 compared to $490 million for the prior year period primarily due to the cumulative impact of net outflows.
General and administrative expense decreased $26 million, or 4%, to $620 million for the six months ended June 30, 2019 compared to $646 million for the prior year period primarily due to a $9 million positive foreign currency translation impact and reengineering initiatives.
AMERIPRISE FINANCIAL, INC.
Annuities
The following table presents the results of operations of our Annuities segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 383 |
| | $ | 400 |
| | $ | (17 | ) | | (4 | )% |
Distribution fees | 169 |
| | 176 |
| | (7 | ) | | (4 | ) |
Net investment income | 295 |
| | 325 |
| | (30 | ) | | (9 | ) |
Premiums | 65 |
| | 51 |
| | 14 |
| | 27 |
|
Other revenues | 312 |
| | 283 |
| | 29 |
| | 10 |
|
Total revenues | 1,224 |
| | 1,235 |
| | (11 | ) | | (1 | ) |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 1,224 |
| | 1,235 |
| | (11 | ) | | (1 | ) |
Expenses | | | | | | | |
Distribution expenses | 209 |
| | 223 |
| | (14 | ) | | (6 | ) |
Interest credited to fixed accounts | 221 |
| | 228 |
| | (7 | ) | | (3 | ) |
Benefits, claims, losses and settlement expenses | 332 |
| | 319 |
| | 13 |
| | 4 |
|
Amortization of deferred acquisition costs | 88 |
| | 101 |
| | (13 | ) | | (13 | ) |
Interest and debt expense | 21 |
| | 19 |
| | 2 |
| | 11 |
|
General and administrative expense | 96 |
| | 97 |
| | (1 | ) | | (1 | ) |
Total expenses | 967 |
| | 987 |
| | (20 | ) | | (2 | ) |
Adjusted operating earnings | $ | 257 |
| | $ | 248 |
| | $ | 9 |
| | 4 | % |
Our Annuities segment pretax adjusted operating earnings, which excludes net realized investment gains or losses (net of the related DSIC and DAC amortization), the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and mean reversion related impacts, increased $9 million, or 4%, to $257 million for the six months ended June 30, 2019 compared to $248 million for the prior year period reflecting higher fee income on variable annuity guarantees net of reserve increases, partially offset by the impact of low interest rates.
Net Revenues
Management and financial advice fees decreased $17 million, or 4%, to $383 million for the six months ended June 30, 2019 compared to $400 million for the prior year period due to lower fees on variable annuities driven by lower average separate account balances. Average variable annuity account balances decreased $3.5 billion, or 5%, from the prior year period due to net outflows.
Net investment income, which excludes net realized investment gains or losses, decreased $30 million, or 9%, to $295 million for the six months ended June 30, 2019 compared to $325 million for the prior year period reflecting lower average invested assets due to fixed annuity net outflows and the fixed annuities reinsurance transaction.
Premiums increased $14 million, or 27%, to $65 million for the six months ended June 30, 2019 compared to $51 million for the prior year period due to higher sales of immediate annuities with a life contingent feature.
Other revenues increased $29 million, or 10%, to $312 million for the six months ended June 30, 2019 compared to $283 million for the prior year period primarily due to accretion on our fixed annuities reinsurance deposit receivable and higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates.
Expenses
Distribution expenses decreased $14 million, or 6%, to $209 million for the six months ended June 30, 2019 compared to $223 million for the prior year period reflecting lower variable annuity sales. Variable annuity sales declined 20% compared to the prior year period.
Interest credited to fixed accounts, which exclude the market impact on fixed index annuity benefits (net of hedges), decreased $7 million, or 3%, to $221 million for the six months ended June 30, 2019 compared to $228 million for the prior year period due to lower average fixed deferred annuity account balances.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization), mean reversion related impacts, and the DSIC offset to net realized investment gains or
AMERIPRISE FINANCIAL, INC.
losses, increased $13 million, or 4%, to $332 million for the six months ended June 30, 2019 compared to $319 million for the prior year period primarily due to higher sales of immediate annuities with a life contingent feature.
Amortization of DAC, which excludes mean reversion related impacts, the DAC offset to the market impact on variable annuity guaranteed benefits and fixed index annuity benefits and the DAC offset to net realized investment gains or losses, decreased $13 million, or 13%, to $88 million for the six months ended June 30, 2019 compared to $101 million for the prior year period driven by normal year over year experience differences for variable annuities.
Protection
The following table presents the results of operations of our Protection segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 22 |
| | $ | 24 |
| | $ | (2 | ) | | (8 | )% |
Distribution fees | 46 |
| | 46 |
| | — |
| | — |
|
Net investment income | 154 |
| | 143 |
| | 11 |
| | 8 |
|
Premiums | 101 |
| | 102 |
| | (1 | ) | | (1 | ) |
Other revenues | 198 |
| | 193 |
| | 5 |
| | 3 |
|
Total revenues | 521 |
| | 508 |
| | 13 |
| | 3 |
|
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 521 |
| | 508 |
| | 13 |
| | 3 |
|
Expenses | | | | | | | |
Distribution expenses | 22 |
| | 24 |
| | (2 | ) | | (8 | ) |
Interest credited to fixed accounts | 104 |
| | 97 |
| | 7 |
| | 7 |
|
Benefits, claims, losses and settlement expenses | 155 |
| | 156 |
| | (1 | ) | | (1 | ) |
Amortization of deferred acquisition costs | 27 |
| | 27 |
| | — |
| | — |
|
Interest and debt expense | 8 |
| | 7 |
| | 1 |
| | 14 |
|
General and administrative expense | 66 |
| | 69 |
| | (3 | ) | | (4 | ) |
Total expenses | 382 |
| | 380 |
| | 2 |
| | 1 |
|
Adjusted operating earnings | $ | 139 |
| | $ | 128 |
| | $ | 11 |
| | 9 | % |
Our Protection segment pretax adjusted operating earnings, which excludes net realized investment gains or losses (net of the related DAC amortization, unearned revenue amortization and the reinsurance accrual), the market impact on IUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) and mean reversion related impacts, increased $11 million, or 9%, to $139 million for the six months ended June 30, 2019 compared to $128 million for the prior year period.
Net Revenues
Net investment income, which excludes net realized investment gains or losses, increased $11 million, or 8%, to $154 million for the six months ended June 30, 2019 compared to $143 million for the prior year period reflecting higher average invested assets.
Expenses
Interest credited to fixed accounts increased $7 million, or 7%, to $104 million for the six months ended June 30, 2019 compared to $97 million for the prior year period primarily driven by higher fixed account values associated with UL and VUL insurance.
AMERIPRISE FINANCIAL, INC.
Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an adjusted operating basis:
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2019 | | 2018 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 2 |
| | $ | 3 |
| | $ | (1 | ) | | (33 | )% |
Distribution fees | 4 |
| | 3 |
| | 1 |
| | 33 |
|
Net investment income | 91 |
| | 88 |
| | 3 |
| | 3 |
|
Premiums | 598 |
| | 563 |
| | 35 |
| | 6 |
|
Other revenues | 3 |
| | 2 |
| | 1 |
| | 50 |
|
Total revenues | 698 |
| | 659 |
| | 39 |
| | 6 |
|
Banking and deposit interest expense | 4 |
| | 2 |
| | 2 |
| | NM |
|
Total net revenues | 694 |
| | 657 |
| | 37 |
| | 6 |
|
Expenses | | | | | | | |
Distribution expenses | 2 |
| | 6 |
| | (4 | ) | | (67 | ) |
Benefits, claims, losses and settlement expenses | 569 |
| | 583 |
| | (14 | ) | | (2 | ) |
Amortization of deferred acquisition costs | 27 |
| | 26 |
| | 1 |
| | 4 |
|
Interest and debt expense | 29 |
| | 18 |
| | 11 |
| | 61 |
|
General and administrative expense | 191 |
| | 159 |
| | 32 |
| | 20 |
|
Total expenses | 818 |
| | 792 |
| | 26 |
| | 3 |
|
Adjusted operating loss | $ | (124 | ) | | $ | (135 | ) | | $ | 11 |
| | 8 | % |
NM Not Meaningful. |
Our Corporate & Other segment pretax adjusted operating loss excludes net realized investment gains or losses, the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax adjusted operating loss decreased $11 million, or 8%, to $124 million for the six months ended June 30, 2019 compared to $135 million for the prior year period.
Our LTC insurance had pretax adjusted operating earnings of $10 million for the six months ended June 30, 2019 compared to a pretax adjusted operating loss of $3 million for the prior year period reflecting higher net investment income, favorable policyholder experience and expanded benefit reduction offerings, as well as higher mortality.
Auto and Home pretax adjusted operating earnings were $23 million for the six months ended June 30, 2019 compared to a pretax adjusted operating loss of $14 million for the prior year period primarily reflecting lower catastrophe losses and a lower non-catastrophe loss ratio.
Premiums increased $35 million, or 6%, to $598 million for the six months ended June 30, 2019 compared to $563 million for the prior year period primarily due to higher average premium in both auto and home insurance products and higher auto policies in force.
Benefits, claims, losses and settlement expenses decreased $14 million, or 2%, to $569 million for the six months ended June 30, 2019 compared to $583 million for the prior year period reflecting lower current period catastrophe losses, a lower non-catastrophe loss ratio and slower LTC reserve growth, partially offset by the impact of higher auto policies in force. Current period catastrophe losses (net of the impact of reinsurance) were $32 million for the six months ended June 30, 2019 compared to $55 million for the prior year period.
General and administrative expense increased $32 million, or 20%, to $191 million for the six months ended June 30, 2019 compared to $159 million for the prior year period primarily due to higher mark-to-market impact on share-based compensation expenses and investments in growth initiatives.
AMERIPRISE FINANCIAL, INC.
Market Risk
Our primary market risk exposures are interest rate, equity price, foreign currency exchange rate and credit risk. Equity price and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the spread income generated on our fixed deferred annuities, fixed insurance, brokerage client cash balances, banking deposits, face-amount certificate products and the fixed portion of our variable annuities and variable insurance contracts, the value of DAC and DSIC assets, the value of liabilities for guaranteed benefits associated with our variable annuities and the value of derivatives held to hedge these benefits.
Our earnings from fixed deferred annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts are based upon the spread between rates earned on assets held and the rates at which interest is credited to accounts. We primarily invest in fixed rate securities to fund the rate credited to clients. We guarantee an interest rate to the holders of these products. Investment assets and client liabilities generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients’ accounts generally reset at shorter intervals than the yield on the underlying investments. Therefore, in an increasing interest rate environment, higher interest rates may be reflected in crediting rates to clients sooner than in rates earned on invested assets, which could result in a reduced spread between the two rates, reduced earned income and a negative impact on pretax income. However, the current low interest rate environment is resulting in interest rates below the level of some of our liability guaranteed minimum interest rates (“GMIRs”). Hence, a modest rise in interest rates would not necessarily result in changes to all the liability credited rates while projected asset purchases would capture the full increase in interest rates. This dynamic would result in widening spreads under a modestly rising rate scenario given the current relationship between the current level of interest rates and the underlying GMIRs on the business.
As a result of the low interest rate environment, our current reinvestment yields are generally lower than the current portfolio yield. We expect our portfolio income yields to continue to decline in future periods if interest rates remain low. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through SeptemberJune 30, 20192021 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $4.9$4.6 billion and 4.4%3.4%, respectively, as of SeptemberJune 30, 2017.2019. In addition, residential mortgage-backedmortgage backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $6.8$7.8 billion and had a weighted average yield of 2.7%3.1% as of SeptemberJune 30, 2017.2019. While these amounts represent investments that could be subject to reinvestment risk, it is also possible that these investments will be used to fund liabilities or may not be prepaid and will remain invested at their current yields. In addition to the interest rate environment, the mix of benefit payments versus product sales as well as the timing and volumes associated with such mix may impact our investment yield. Furthermore, reinvestment activities and the associated investment yield may also be impacted by corporate strategies implemented at management’s discretion. The average yield for investment purchases during the ninesix months ended SeptemberJune 30, 20172019 was approximately 2.8%3.1%.
The reinvestment of proceeds from maturities, calls and prepayments at rates below the current portfolio yield, which may be below the level of some liability GMIRs, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on our spread income, we assess reinvestment risk in our investment portfolio and monitor this risk in accordance with our asset/liability management framework. In addition, we may reduce the crediting rates on our fixed products when warranted, subject to guaranteed minimums.
In addition to the fixed rate exposures noted above, RiverSource Life also has the following variable annuity guarantee benefits: guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum
AMERIPRISE FINANCIAL, INC.
death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Each of these guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying invested assets.
The variable annuity guarantees continue to be managed by utilizing a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result. Our comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. We use various index options across the term structure,(equity index, interest rate swaptions, etc.), swaps and swaptions,(interest rate, total return, swapsetc.) and futures to manage the risk exposures. The exposures are measured and monitored daily, and adjustments to the hedge portfolio are made as necessary.
We have a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on our statutory surplus and to cover some of the residual risks not covered by other hedging activities. We assess the residual risk under a range of scenarios in creating and executing the macro hedge program. As a means of economically hedging these risks, we may use a combination of futures, options, interest rate swaptions and/or swaps.swaps and swaptions. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The macro hedge program could result in additional earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital volatility, may not be closely aligned to changes in the variable annuity guarantee embedded derivatives.
To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then
AMERIPRISE FINANCIAL, INC.
staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, stock market certificates, indexed universal lifeIUL insurance and the associated hedge assets, we assume no change in implied market volatility despite the 10% drop in equity prices.
The following tables present our estimate of the impact on pretax income from the above defined hypothetical market movements as of SeptemberJune 30, 2017:2019:
|
| | | | | | | | | | | | |
Equity Price Decline 10% | | Equity Price Exposure to Pretax Income |
Before Hedge Impact | | Hedge Impact | | Net Impact |
| | (in millions) |
Asset-based management and distribution fees (1) | | $ | (261 | ) | | $ | 6 |
| | $ | (255 | ) |
DAC and DSIC amortization (2) (3) | | (129 | ) | | — |
| | (129 | ) |
Variable annuity riders: | | |
| | |
| | |
|
GMDB and GMIB (3) | | (29 | ) | | — |
| | (29 | ) |
GMWB (3) (4) | | (379 | ) | | 233 |
| | (146 | ) |
GMAB | | (25 | ) | | 26 |
| | 1 |
|
DAC and DSIC amortization (4) | | N/A |
| | N/A |
| | (3 | ) |
Total variable annuity riders | | (433 | ) | | 259 |
| | (177 | ) |
Macro hedge program (5) | | — |
| | 43 |
| | 43 |
|
Equity indexed annuities | | 1 |
| | (1 | ) | | — |
|
Certificates | | 3 |
| | (3 | ) | | — |
|
Indexed universal life insurance | | 66 |
| | (49 | ) | | 17 |
|
Total | | $ | (753 | ) | | $ | 255 |
| | $ | (501 | ) |
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | | | | | | | |
Equity Price Decline 10% | | Equity Price Exposure to Pretax Income | |
Before Hedge Impact | | Hedge Impact | | Net Impact |
| | (in millions) | |
Asset-based management and distribution fees (1) | | $ | (278 | ) | | $ | 5 |
| | $ | (273 | ) | |
DAC and DSIC amortization (2)(3) | | (31 | ) | | — |
| | (31 | ) | |
Variable annuity riders: | | |
| | |
| | |
| |
GMDB and GMIB (3) | | (13 | ) | | — |
| | (13 | ) | |
GMWB (3) | | (435 | ) | | 373 |
| | (62 | ) | |
GMAB | | (28 | ) | | 28 |
| | — |
| |
DAC and DSIC amortization (4) | | N/A |
| | N/A |
| | 11 |
| |
Total variable annuity riders | | (476 | ) | | 401 |
| | (64 | ) | |
Macro hedge program (5) | | — |
| | 179 |
| | 179 |
| |
Indexed annuities | | 4 |
| | (5 | ) | | (1 | ) | |
Certificates | | 6 |
| | (6 | ) | | — |
| |
IUL insurance | | 78 |
| | (64 | ) | | 14 |
| |
Total | | $ | (697 | ) | | $ | 510 |
| | $ | (176 | ) | (6) |
| | Interest Rate Increase 100 Basis Points | | Interest Rate Exposure to Pretax Income | | Interest Rate Exposure to Pretax Income | |
Before Hedge Impact | | Hedge Impact | | Net Impact | Before Hedge Impact | | Hedge Impact | | Net Impact |
| | (in millions) | | (in millions) | |
Asset-based management and distribution fees (1) | | $ | (50 | ) | | $ | — |
| | $ | (50 | ) | | $ | (61 | ) | | $ | — |
| | $ | (61 | ) | |
Variable annuity riders: | | |
| | |
| | |
| | |
| | |
| | |
| |
GMDB and GMIB | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
GMWB | | 983 |
| | (1,089 | ) | | (106 | ) | | 1,177 |
| | (1,306 | ) | | (129 | ) | |
GMAB | | 21 |
| | (23 | ) | | (2 | ) | | 22 |
| | (24 | ) | | (2 | ) | |
DAC and DSIC amortization (4) | | N/A |
| | N/A |
| | 18 |
| | N/A |
| | N/A |
| | 21 |
| |
Total variable annuity riders | | 1,004 |
| | (1,112 | ) | | (90 | ) | | 1,199 |
| | (1,330 | ) | | (110 | ) | |
Macro hedge program (5) | | — |
| | (2 | ) | | (2 | ) | | — |
| | (3 | ) | | (3 | ) | |
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products | | 99 |
| | — |
| | 99 |
| | 59 |
| | — |
| | 59 |
| |
Banking deposits | | | 13 |
| | — |
| | 13 |
| |
Brokerage client cash balances | | 115 |
| | — |
| | 115 |
| | 108 |
| | — |
| | 108 |
| |
Indexed annuities | | | (1 | ) | | — |
| | (1 | ) | |
Certificates | | — |
| | — |
| | — |
| | 19 |
| | — |
| | 19 |
| |
Indexed universal life insurance | | 93 |
| | 2 |
| | 95 |
| |
IUL insurance | | | 12 |
| | 3 |
| | 15 |
| |
Total | | $ | 1,261 |
| | $ | (1,112 | ) | | $ | 167 |
| | $ | 1,348 |
| | $ | (1,330 | ) | | $ | 39 |
| |
N/A Not Applicable. | N/A Not Applicable. | N/A Not Applicable. | |
(1) Excludes incentive income which is impacted by market and fund performance during the period and cannot be readily estimated.
(2) Market impact on DAC and DSIC amortization resulting from lower projected profits.
(3) In estimating the impact to pretax income on DAC and DSIC amortization resulting from lower projected profits, we have not changedand additional insurance benefit reserves, our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumedrates reflect what management followswould follow in its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. We make this same conservative assumption in estimating the impact from GMDB and GMIB riders and the life contingent benefits associated with GMWB.guidelines.
(4) Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.
(5) The market impact of the macro hedge program is modeled net of any related impact to DAC and DSIC amortization.
(6) Represents the net impact to pretax income. The estimated net impact to pretax adjusted operating income is approximately $(273) million.
The above results compare to an estimated negative net impact to pretax income of $490$213 million related to a 10% equity price
AMERIPRISE FINANCIAL, INC.
decline and an estimated positive net impact to pretax income of $297$25 million related to a 100 basis point increase in interest rates as of December 31, 2016. The change2018. Our previous disclosure estimating the impact from a 100 basis point increase in interest rate exposure fromrates as of December 31, 2016 is primarily2018 was $541 million and did not reflect mitigation enhancements made to our hedge programs and overstated the result of changes in market conditions.impact to IUL insurance.
Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with risk margins incorporated in contractholder behavior assumptions and with discount rates increased to reflect a current market estimate of our risk of nonperformance specific to these liabilities. Our hedging is based on our determination of economic risk, which excludes certain items in the liability valuation including the nonperformance spread risk.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, we have not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor have we tried to anticipate all strategic actions management might take to increase revenues or reduce expenses in these scenarios.
The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.
Fair Value Measurements
We report certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives properties held by our consolidated property funds, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. We include actual market prices, or observable inputs, in our fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. We validate prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 1011 to the Consolidated Financial Statements for additional information on our fair value measurements.
AMERIPRISE FINANCIAL, INC.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for our obligations of our variable annuity riders, indexed annuities and indexed universal lifeIUL insurance, we consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust the valuation of variable annuity riders, indexed annuities and indexed universal lifeIUL insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of our nonperformance risk. The nonperformance risk adjustment is based on observable market data adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of SeptemberJune 30, 2017.2019. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to future net income would be approximately $213$401 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%21%), based on SeptemberJune 30, 20172019 credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the ninesix months ended SeptemberJune 30, 2017.2019. At SeptemberJune 30, 20172019 and December 31, 2016,2018, we had $2.4$4.3 billion and $2.3$2.9 billion, respectively, in cash and cash equivalents excluding CIEs. On October 12, 2017, we entered into an amended and restated credit agreement that provides forWe have additional liquidity available through an unsecured revolving credit facility offor up to $750 million that expires in October 2022. Under the terms of the credit agreement, for the facility, we maycan increase the amount of this facility up to $1.0 billion upon satisfaction of certain approval requirements. This agreement replaced our unsecured revolving creditAvailable borrowings under this facility that was to expire in May 2020.are reduced by any outstanding letters of credit. At SeptemberJune 30, 2017,2019, we had no outstanding borrowings under this credit facility and had $1 million of outstanding letters of credit. Our credit facility contains various administrative, reporting, legal and financial covenants. We were in compliance with all such covenants at SeptemberJune 30, 2017.2019.
On March 22, 2019, we issued $500 million of 3.00% senior notes due 2022 and incurred debt issuance costs of $3 million. A portion of the net proceeds was used to repay $300 million principal amount of our 7.3% senior notes which matured on June 28, 2019. The remainder of the net proceeds will be used for general corporate purposes.
We enter into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances, to reduce reinvestment risk. Short-term borrowings allow us to receive cash to reinvest in longer-duration assets, while payingmaintaining the flexibility to pay back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements as of both SeptemberJune 30, 20172019 and December 31, 20162018 was $50 million, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from our investment portfolio. Our subsidiary, RiverSource Life Insurance Company (“RiverSource Life”), is a member of the FHLB of Des Moines, which provides access to collateralized borrowings. We had $151 million and $150 million of
AMERIPRISE FINANCIAL, INC.
borrowings from the FHLB, which is collateralized with commercial mortgage backed securities, as of Septemberboth June 30, 20172019 and December 31, 2016, respectively.2018. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), AMPF Holding Corporation, which is the parent company of our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”) and our clearing broker-dealer subsidiary, American Enterprise Investment Services, Inc. (“AEIS”), our Auto and Home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, our transfer agent subsidiary, Columbia Management Investment Services Corp., our investment advisory company, Columbia Management Investment Advisers, LLC, and Ameriprise International Holdings GmbH, which is the parent company of Threadneedle Asset Management Holdings Sàrl. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.
AMERIPRISE FINANCIAL, INC.
Actual capital and regulatory capital requirements for our wholly owned subsidiaries subject to regulatory capital requirements were as follows:
|
| | | | | | | | | | | | | | | |
| Actual Capital | | Regulatory Capital Requirements |
September 30, 2017 | | December 31, 2016 | September 30, 2017 | | December 31, 2016 |
| (in millions) |
RiverSource Life(1)(2) | $ | 2,737 |
| | $ | 3,052 |
| | N/A |
| | $ | 606 |
|
RiverSource Life of NY(1)(2) | 306 |
| | 323 |
| | N/A |
| | 38 |
|
IDS Property Casualty(1)(3) | 805 |
| | 800 |
| | $ | 216 |
| | 213 |
|
Ameriprise Insurance Company(1)(3) | 48 |
| | 47 |
| | 3 |
| | 2 |
|
ACC(4)(5) | 369 |
| | 335 |
| | 341 |
| | 317 |
|
Threadneedle Asset Management Holdings Sàrl(6) | 424 |
| | 360 |
| | 169 |
| | 149 |
|
Ameriprise National Trust Bank(7) | 23 |
| | 22 |
| | 10 |
| | 10 |
|
AFSI(3)(4) | 126 |
| | 77 |
| | # |
| | # |
|
Ameriprise Captive Insurance Company(3) | 54 |
| | 51 |
| | 10 |
| | 9 |
|
Ameriprise Trust Company(3) | 30 |
| | 29 |
| | 26 |
| | 24 |
|
AEIS(3)(4) | 115 |
| | 107 |
| | 21 |
| | 19 |
|
RiverSource Distributors, Inc.(3)(4) | 13 |
| | 11 |
| | # |
| | # |
|
Columbia Management Investment Distributors, Inc.(3)(4) | 17 |
| | 14 |
| | # |
| | # |
|
N/A Not applicable. # Amounts are less than $1 million. |
|
| | | | | | | | | | | | | | | |
| Actual Capital | | Regulatory Capital Requirements |
June 30, 2019 | | December 31, 2018 | June 30, 2019 | | December 31, 2018 |
(in millions) |
RiverSource Life (1)(2) | $ | 3,545 |
| | $ | 3,382 |
| | N/A |
| | $ | 675 |
|
RiverSource Life of NY (1)(2) | 276 |
| | 266 |
| | N/A |
| | 40 |
|
IDS Property Casualty Insurance Company (1)(3) | 819 |
| | 789 |
| | $ | 242 |
| | 233 |
|
Ameriprise Insurance Company (1)(3) | 50 |
| | 49 |
| | 3 |
| | 3 |
|
ACC (4)(5) | 470 |
| | 444 |
| | 425 |
| | 420 |
|
Threadneedle Asset Management Holdings Sàrl (6) | 394 |
| | 218 |
| | 175 |
| | 173 |
|
Ameriprise Bank, FSB (4) (7) | 171 |
| | 24 |
| | 69 |
| | 10 |
|
AFSI (3)(4) | 97 |
| | 108 |
| | # |
| | # |
|
Ameriprise Captive Insurance Company (3) | # |
| | 51 |
| | # |
| | 9 |
|
Ameriprise Trust Company (3) | 34 |
| | 32 |
| | 30 |
| | 27 |
|
AEIS (3)(4) | 148 |
| | 136 |
| | 22 |
| | 23 |
|
RiverSource Distributors, Inc. (3)(4) | 13 |
| | 13 |
| | # |
| | # |
|
Columbia Management Investment Distributors, Inc. (3)(4) | 13 |
| | 18 |
| | # |
| | # |
|
N/A Not applicable. # Amounts are less than $1 million. |
| |
(1) | Actual capital is determined on a statutory basis. |
| |
(2) | Regulatory capital requirement is based on the statutory risk-based capital filing. |
| |
(3) | Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of SeptemberJune 30, 20172019 and December 31, 2016.2018. |
| |
(4) | Actual capital is determined on an adjusted GAAP basis. |
| |
(5) | ACC is required to hold capital in compliance with the Minnesota Department of Commerce and SEC capital requirements. |
| |
(6) | Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. The regulatory capital requirements at SeptemberJune 30, 20172019 represent calculations at December 31, 20162018 of the rule based requirements, as specified by FCA regulations. |
| |
(7) | Ameriprise National Trust BankRegulatory capital requirement is required to maintain capitalbased on minimum requirements for well capitalized banks in complianceaccordance with the Office of the Comptroller of the Currency regulations and policies.(“OCC”). |
Our insurance companies’ statutory capital is calculated in accordance with the accounting practices prescribed or permitted by domiciliary state insurance regulators. RiverSource Life received approval from the Minnesota Department of Commerce to apply a permitted statutory accounting practice, effective July 1, 2017 through June 30, 2018, for certain derivative instruments used to economically hedge the interest rate exposure of certain variable annuity products that do not qualify for statutory hedge accounting. The permitted practice is intended to mitigate the impact to statutory capital from the misalignment between variable annuity statutory reserves, which are not carried at fair value, and the fair value of derivatives used to economically hedge the interest rate exposure of non-life contingent living benefit guarantees. The permitted practice allows RiverSource Life to defer a portion of the change in fair value, net investment income and realized gains or losses generated from designated derivatives to the extent the amounts do not offset the current period interest-rate related change in the variable annuity statutory reserve liability. The deferred amount will be amortized over ten years using the straight-line method with the ability to accelerate amortization at management’s discretion. There was no immediate impact to statutory capital at the effective date for the permitted statutory accounting practice. As of September 30, 2017, application of this permitted practice resulted in a decrease to RiverSource Life’s statutory capital of approximately $21 million.
In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our parent holding company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries.
During the ninesix months ended SeptemberJune 30, 2017,2019, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.3$1.2 billion (including $700$550 million from RiverSource Life) and contributed cash to its subsidiaries of $64 million.$179 million (including $145 million to Ameriprise Bank, FSB). During the ninesix months ended SeptemberJune 30, 2016,2018, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.3 billion$956 million (including $800$400 million from RiverSource Life) and contributed cash$3 million to its subsidiaries of $135 million (including $75 million to IDS Property Casualty).subsidiaries.
AMERIPRISE FINANCIAL, INC.
In 2009, RiverSource established an agreement to protect its exposure to Genworth Life Insurance Company (“GLIC”) for its reinsured LTC. In 2016, substantial enhancements to this reinsurance protection agreement were finalized. The terms of these confidential provisions within the agreement have been shared, in the normal course of regular reviews, with our domiciliary regulator and rating agencies. ManagementGLIC is domiciled in Delaware so in the event GLIC were subjected to rehabilitation or insolvency proceedings, such proceedings would be located in (and governed by) Delaware laws. Delaware courts have a long tradition of respecting commercial and reinsurance affairs as well as contracts among sophisticated parties. Similar credit protections to what we have with GLIC have been tested and respected in Delaware and elsewhere in the United States, and as a result we believe our credit protections would be respected even in the unlikely event that GLIC becomes subject to rehabilitation or insolvency proceedings in Delaware. Accordingly, while no credit protections are perfect, we believe the correct way to think about the risks represented by our counterparty credit exposure to GLIC is not the full amount of the gross liability that GLIC reinsures, but a much smaller net exposure to GLIC (if any that might exist after taking into account our credit protections). Thus, management believes that thisour agreement and offsetting non LTC legacy arrangements with Genworth will enable RiverSource to recover on all net exposure in all material respects in the event of ana rehabilitation or insolvency of GLIC.
Dividends Paid to Shareholders and Share Repurchases
We paid regular quarterly dividends to our shareholders totaling $379$261 million and $368$257 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. On OctoberJuly 24, 2017,2019, we announced a quarterly dividend of $0.83$0.97 per common share. The dividend will be paid on November 17, 2017August 16, 2019 to our shareholders of record at the close of business on November 6, 2017.August 5, 2019.
In December 2015,April 2017, our Board of Directors authorized us to repurchase up to $2.5 billion of our common stock through December 31, 2017,June 30, 2019, which was exhausted in the thirdsecond quarter 2017.of 2019. In April 2017,February 2019, our Board of Directors authorized us toan additional repurchase up to an additional $2.5 billion of our common stock through March 31, 2021. As of June 30, 2019. As of September 30, 2017,2019, we had $2.4$2.2 billion remaining under this share repurchase authorization. We intend to fund share repurchases through existing working capital, future earnings and other customary financing methods. The share repurchase programs doprogram does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase programsprogram may be made in the open market, through privately negotiated transactions or block trades or other means. During the ninesix months ended SeptemberJune 30, 2017,2019, we repurchased a total of 8.05.8 million shares of our common stock at an average price of $129.76$135.44 per share.
Cash Flows
Cash flows of CIEs and restricted and segregated cash and cash equivalents are reflected in our cash flows provided by (used in) operating activities, investing activities and financing activities. Cash held by CIEs is not available for general use by Ameriprise Financial, nor is Ameriprise Financial cash available for general use by its CIEs. Cash and cash equivalents segregated under federal and other regulations is held for the exclusive benefit of our brokerage customers and is not available for general use by Ameriprise Financial.
Operating Activities
Net cash provided by operating activities decreased $843 million towas $1.2 billion for the ninesix months ended SeptemberJune 30, 20172019 compared to $2.0 billion$498 million for the prior year period primarily due to a $186 million increase in income taxes paid, a $148 million decrease in cash from changes in other investments (primarily trading securities), and netreflecting lower cash outflows related to derivatives for the nine months ended September 30, 2017 compared to net cash inflows for the prior year period.derivatives.
Investing Activities
Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net flows of our investment certificate, fixed annuity and universal life products reflected in financing activities.
Net cash used in investing activities decreased $261 million to $106 millionwas $1.6 billion for the ninesix months ended SeptemberJune 30, 20172019 compared to $367net cash provided by investing activities of $279 million for the prior year period primarily due to reflecting a $944 million decrease$1.4 billion increase in cash used for purchases of Available-for-Sale securities, a $291 million decrease in proceeds from sales of Available-for-Sale securities, a $673 million decrease in net cash flows related to investments of consolidated investment entities and a $204$306 million decrease to cash related to the fixed annuities reinsurance arrangement, partially offset by a $888 million increase in proceeds from maturities, sinking fund payments and calls of Available-for-Sale securities partially offset by a $357 million decrease in proceeds from sales, maturities and repayments of mortgage loans reflecting the sale of a portion of our consumer loans in 2016 and a $242 million decrease in net cash related to changes in investments of CIEs.
Financing Activities
Net cash provided by financing activities was $1.5 billion for the six months ended June 30, 2019 compared to net cash used in financing activities increased $713 million to $1.3of $1.1 billion for the nine months ended September 30, 2017 compared to $573 million for the prior year period primarily due to the issuance of $500 million of long-term debt in 2016 andreflecting a $371 million decrease$2.2 billion increase in net cash inflows related to investment certificates, partially offset byfrom banking deposits, proceeds of $497 million from issuance of debt and a $246$485 million decrease in repayments of long-term debt.CIE debt, partially offset by a $467 million decrease in cash proceeds from investment certificates driven by higher maturities, withdrawals and cash surrenders and repayment of $300 million of our senior notes in June 2019.
Contractual Commitments
There have been no material changes to our contractual obligations disclosed in our 20162018 10-K.
Off-Balance Sheet Arrangements
We provide asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds and other private equity funds, which are sponsored by us. We consolidate certain CLOs. We have determined that consolidation is not required for hedge funds, property funds and other private equity funds, which are sponsored by us. Our maximum exposure to loss with
AMERIPRISE FINANCIAL, INC.
respect to our investment in these non-consolidated entities is limited to our carrying value. We have no obligation to provide further financial or other support to these investment entities nor have we provided any support to these investment entities. See Note 34 to our Consolidated Financial Statements for additional information on our arrangements with these investment entities.
AMERIPRISE FINANCIAL, INC.
Forward-Looking Statements
This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include:
statements of the Company’s plans, intentions, positioning, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention and growth of our client base, financial advisor productivity, retention, recruiting and enrollments, the introduction, cessation, terms or pricing of new or existing products and services, acquisition integration, benefits and claims expenses, general and administrative costs, consolidated tax rate, return of capital to shareholders, debt repayment and excess capital position and financial flexibility to capture additional growth opportunities;
other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and
statements of assumptions underlying such statements.
The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to:
the occurrence of any event, change of circumstance that could give rise to the termination of the Company’s agreement with American Family Insurance regarding the sale of the Company’s Auto and Home Insurance business, the inability to complete the proposed sale due to the failure to satisfy the conditions to the closing of the proposed sale, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the proposed sale, uncertainty as to the timing of completing of the proposed sale, and risks that the proposed transaction disrupts current plans and operations;
uncertainty as to the timing of launching the Company’s federal savings bank products;
conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or that may be implemented or modified in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act or in light of the U.S. Department of Labor rule and exemptions pertaining to the fiduciary status of investment advice providers to 401(k) plans, plan sponsors, plan participants and the holders of individual retirement or health savings accounts; | |
• | changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or that may be implemented or modified in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, bank holding company laws and regulations or in light of the U.S. Department of Labor’s fiduciary regulations (as well as state and other fiduciary rules, the SEC best interest standards, or similar standards such as the Certified Financial Planner Board standards) pertaining to the fiduciary status of investment advice providers to 401(k) plans, plan sponsors, plan participants and the holders of individual retirement or health savings accounts and related issues; |
investment management performance and distribution partner and consumer acceptance of the Company’s products;
effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;
changes to the Company’s reputation that may arise from employee or advisor misconduct, legal or regulatory actions, cybersecurity incidents, perceptions of the financial services industry generally, improper management of conflicts of interest or otherwise;
the Company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the Company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;
changes to the availability and cost of liquidity and the Company’s credit capacity that may arise due to shifts in market conditions, the Company’s credit ratings and the overall availability of credit;
risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;
experience deviations from the Company’s assumptions regarding morbidity, mortality, persistency and persistencypremium rate increases in certain annuity and insurance products (including, but not limited to, variable annuities and long term care policies), or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed benefit annuity riders, or from assumptions regarding interest rates or asset yield assumed in the Company's loss recognition testing of its long term care business, or from assumptions regarding anticipated claims and losses relating to the Company’s automobileauto and home insurance products;
changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
AMERIPRISE FINANCIAL, INC.
the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its products;
the ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures, restructurings, joint ventures and the development of new products and services;
the ability to realize the financial, operating and business fundamental benefits of strategic transactions and initiatives the Company has completed, is pursuing or may pursue in the future, which may be impacted by the ability to obtain regulatory
AMERIPRISE FINANCIAL, INC.
approvals, the ability to effectively manage related expenses and by market, business partner and consumer reactions to such strategic transactions and initiatives;
the ability and timing to realize savings and other benefits from re-engineering and tax planning;
interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third-party service providers, interference or failures caused by third party attacks on the Company’s systems (or other cybersecurity incidents), or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
general economic and political factors, including consumer confidence in the economy and the financial industry, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein (such(such as the ongoing negotiations following the June 2016 UK referendum on membership in the European Union and the uncertain regulatory environment in the U.S. after the recent U.S. election)Union), including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and publicly-held firms, and regulatory rulings and pronouncements.
Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that management is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included in Part I, Item 1A of our 20162018 10-K.
Ameriprise Financial announces financial and other information to investors through the Company’s investor relations website at ir.ameriprise.com, as well as SEC filings, press releases, public conference calls and webcasts. Investors and others interested in the company are encouraged to visit the investor relations website from time to time, as information is updated and new information is posted. The website also allows users to sign up for automatic notifications in the event new materials are posted. The information found on the website is not incorporated by reference into this report or in any other report or document the Company furnishes or files with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” in this report is incorporated herein by reference. These disclosures should be read in conjunction with the “Quantitative and Qualitative Disclosures About Market Risk” discussion included as Part II, Item 7A of our 20162018 10-K filed with the SEC on February 23, 201727, 2019.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, our company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of SeptemberJune 30, 2017.2019.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.
AMERIPRISE FINANCIAL, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 1519 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item 1A of our 20162018 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the information with respect to purchases made by or on behalf of Ameriprise Financial, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the thirdsecond quarter of 2017:2019:
| | Period | | (a) | | (b) | | (c) | | (d) | | (a) | | (b) | | (c) | | (d) |
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 to July 31, 2017 | |
April 1 to April 30, 2019 | | | | | | | | | |
Share repurchase program (1) | | 622,117 |
| | $ | 136.67 |
| | 622,117 |
| | $ | 2,635,014,130 |
| | 569,092 |
| | $ | 142.31 |
| | 569,092 |
| | $ | 2,572,804,302 |
|
Employee transactions (2) | | 432,319 |
| | $ | 143.36 |
| | N/A |
| | N/A |
| | 108,200 |
| | $ | 140.73 |
| | N/A |
| | N/A |
|
| | | | | | | | | |
August 1 to August 31, 2017 | |
May 1 to May 31, 2019 | | | | | | | | | |
Share repurchase program (1) | | 842,580 |
| | $ | 142.26 |
| | 842,580 |
| | $ | 2,515,148,831 |
| | 1,354,248 |
| | $ | 144.74 |
| | 1,354,248 |
| | $ | 2,376,793,245 |
|
Employee transactions (2) | | 276,391 |
| | $ | 145.67 |
| | N/A |
| | N/A |
| | 63,036 |
| | $ | 146.04 |
| | N/A |
| | N/A |
|
| | | | | | | | | |
September 1 to September 30, 2017 | |
June 1 to June 30, 2019 | | | | | | | | | |
Share repurchase program (1) | | 910,991 |
| | $ | 140.48 |
| | 910,991 |
| | $ | 2,387,172,782 |
| | 1,073,344 |
| | $ | 148.10 |
| | 1,073,344 |
| | $ | 2,217,829,256 |
|
Employee transactions (2) | | 74,414 |
| | $ | 143.50 |
| | N/A |
| | N/A |
| | 80,249 |
| | $ | 148.01 |
| | N/A |
| | N/A |
|
| | | | | | | | | |
Totals | Totals | | | | | | | | |
Share repurchase program (1) | | 2,375,688 |
| | $ | 140.11 |
| | 2,375,688 |
| | |
| | 2,996,684 |
| | $ | 145.48 |
| | 2,996,684 |
| | |
|
Employee transactions (2) | | 783,124 |
| | $ | 144.19 |
| | N/A |
| | |
| | 251,485 |
| | $ | 144.38 |
| | N/A |
| | |
|
| | 3,158,812 |
| | |
| | 2,375,688 |
| | |
| | 3,248,169 |
| | |
| | 2,996,684 |
| | |
|
N/A Not applicable.
(1) On December 7, 2015, we announced that our Board of Directors authorized us to repurchase up to $2.5 billion of our common stock through December 31, 2017. On April 24, 2017, we announced that our Board of Directors authorized an additional expenditure of up to $2.5 billion for the repurchase of our common stock through June 30, 2019. In February 2019, our Board of Directors authorized an additional repurchase up to $2.5 billion of our common stock through March 31, 2021. The share repurchase programs doprogram does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase programsprogram may be made in the open market, through privately negotiated transactions or block trades or other means.
(2) Includes restricted shares withheld pursuant to the terms of awards under the Company’s share-based compensation plans to offset tax withholding obligations that occur upon vesting and release of restricted shares. The value of the restricted shares withheld is the closing price of common stock of Ameriprise Financial, Inc. on the date the relevant transaction occurs. Also includes shares withheld pursuant to the net settlement of Non-Qualified Stock Option (“NQSO”) exercises to offset tax withholding obligations that occur upon exercise and to cover the strike price of the NQSO. The value of the shares withheld pursuant to the net settlement of NQSO exercises is the closing price of common stock of Ameriprise Financial, Inc. on the day prior to the date the relevant transaction occurs.
AMERIPRISE FINANCIAL, INC.
ITEM 6. EXHIBITS
Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this Quarterly Report on Form 10-Q. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.
The following exhibits are filed as part of this Quarterly Report on Form 10-Q. The exhibit numbers followed by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference.
|
| |
Exhibit | Description |
| |
| Amended and Restated Certificate of Incorporation of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, File No. 1-32525, filed on May 1, 2014). |
| Amended and Restated Bylaws of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.23.1 to the Current Report on Form 8-K, File No. 1-32525, filed on May 1, 2014)October 5, 2018). |
| Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Form 10 Registration Statement, File No. 1-32525, filed on August 19, 2005).
Other instruments defining the rights of holders of long-term debt securities of the registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request. |
| Third Amended and Restated Credit Agreement dated as of October 12, 2017 among Ameriprise Financial, Inc., as Borrower, the lenders party thereto, Wells Fargo Bank, National Association as Administrative Agent, Swingline Lender and Issuing Lender, Bank of America, N.A. and Citibank, N.A. as Co-Syndication Agents, Credit Suisse AG, Cayman Islands Branch, Goldman Sachs Bank USA, HSBC Bank USA, National Association, JPMorgan Chase Bank, N.A. and U.S. Bank National Association as Co-Documentation Agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, and Citigroup Global Markets Inc., as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 1-32525, filed on October 16, 2017). |
| Certification of James M. Cracchiolo pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. |
| Certification of Walter S. Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. |
| Certification of James M. Cracchiolo and Walter S. Berman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101*101 | The following materials from Ameriprise Financial, Inc.’s Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 2017,2019 are formatted in XBRL:iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three months and ninesix months ended SeptemberJune 30, 20172019 and 2016;2018; (ii) Consolidated Statements of Comprehensive Income for the three months and ninesix months ended SeptemberJune 30, 20172019 and 2016;2018; (iii) Consolidated Balance Sheets at SeptemberJune 30, 20172019 and December 31, 2016;2018; (iv) Consolidated Statements of Equity for the ninethree months and six months ended SeptemberJune 30, 20172019 and 2016;2018; (v) Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 2016;2018; and (vi) Notes to the Consolidated Financial Statements. |
104 | The cover page from Ameriprise Financial, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 is formatted in iXBRL (Inline eXtensible Business Reporting Language). |
* Filed electronically herewithin. |
AMERIPRISE FINANCIAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | |
| | AMERIPRISE FINANCIAL, INC. |
(Registrant) |
|
| (Registrant) | | |
|
|
| Date: | November 1, 2017August 5, 2019 | ByBy: | /s/ Walter S. Berman |
| | Walter S. Berman Executive Vice President and Chief Financial Officer |
|
| | | |
Date: | August 5, 2019 | By: | /s/ John R. Hutt |
| Executive Vice President and |
| Chief Financial Officer |
|
| Date: | November 1, 2017 | By | /s/ David K. Stewart |
| | David K. Stewart |
| John R. Hutt Senior Vice President – Corporate Finance and Controller |
| (Principal Accounting Officer) |