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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
|
FORM | 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | | | | | | | | | | |
x | ☒ | | 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, 2021 |
OR |
| ☐ |
o | 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
AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
Commission File No. | 1-32525 |
| | |
Delaware | | 13-3180631AMERIPRISE 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 | | Minneapolis | | Minnesota | | 55474 | |
(Address of principal executive offices) | (Zip Code) |
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
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, a 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 Filer | ☐ |
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.
|
| | | | | | | | | | | | | |
ClassIndicate 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 30, 2021 | |
Common Stock (par value $.01 per share) | | 147,930,011113,745,937 shares |
AMERIPRISE FINANCIAL, INC.
FORM 10-Q
INDEX
| | | | | | | | | | | |
Part I. Financial Information | |
Item 1. Financial Statements (Unaudited) |
| Consolidated Statements of Operations — Three months and six months ended June 30, 2021 and 2020 | |
| Consolidated Statements of Comprehensive Income — Three months and six months ended June 30, 2021 and 2020 | |
| Consolidated Balance Sheets — June 30, 2021 and December 31, 2020 | |
| Consolidated Statements of Equity — Three months and six months ended June 30, 2021 and 2020 | |
| Consolidated Statements of Cash Flows — Six months ended June 30, 2021 and 2020 | |
| Notes to Consolidated Financial Statements | |
| 1. | Basis of Presentation | |
| 2. | Recent Accounting Pronouncements | |
| 3. | Revenue from Contracts with Customers | |
| 4. | Variable Interest Entities | |
| 5. | Investments | |
| 6. | Financing Receivables | |
| 7. | Deferred Acquisition Costs and Deferred Sales Inducement Costs | |
| 8. | Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities | |
| 9. | Variable Annuity and Insurance Guarantees | |
| 10. | Debt | |
| 11. | Fair Values of Assets and Liabilities | |
| 12. | Offsetting Assets and Liabilities | |
| 13. | Derivatives and Hedging Activities | |
| 14. | Shareholders’ Equity | |
| 15. | Income Taxes | |
| 16. | Contingencies | |
| 17. | Earnings per Share | |
| 18. | 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 | |
|
| | | | |
Part I. Financial Information |
Item 1. Financial Statements (Unaudited) | |
Consolidated Statements of Operations — Three months and nine months ended September 30, 2017 and 2016 |
|
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2017 and 2016 | |
Consolidated Balance Sheets — September 30, 2017 and December 31, 2016 | |
Consolidated Statements of Equity — Nine months ended September 30, 2017 and 2016 | |
Consolidated Statements of Cash Flows — Nine months ended September 30, 2017 and 2016 | |
Notes to Consolidated Financial Statements | |
1. Basis of Presentation | |
2. Recent Accounting Pronouncements | |
3. Variable Interest Entities | |
4. Investments | |
5. Financing Receivables | |
6. Deferred Acquisition Costs and Deferred Sales Inducement Costs | |
7. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities | |
8. Variable Annuity and Insurance Guarantees | |
9. Debt | |
10. Fair Values of Assets and Liabilities | |
11. Offsetting Assets and Liabilities | |
12. Derivatives and Hedging Activities | |
13. Shareholders’ Equity | |
14. Income Taxes | |
15. Contingencies | |
16. Earnings per Share | |
17. 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, |
2021 | | 2020 | 2021 | | 2020 |
(in millions, except per share amounts) |
Revenues | | | | | | | |
Management and financial advice fees | $ | 2,251 | | | $ | 1,702 | | | $ | 4,353 | | | $ | 3,472 | |
Distribution fees | 452 | | | 375 | | | 910 | | | 839 | |
Net investment income | 278 | | | 305 | | | 655 | | | 633 | |
Premiums, policy and contract charges | 364 | | | 272 | | | 711 | | | 667 | |
Other revenues | 75 | | | 76 | | | 146 | | | 145 | |
Total revenues | 3,420 | | | 2,730 | | | 6,775 | | | 5,756 | |
Banking and deposit interest expense | 2 | | | 18 | | | 7 | | | 43 | |
Total net revenues | 3,418 | | | 2,712 | | | 6,768 | | | 5,713 | |
Expenses | | | | | | | |
Distribution expenses | 1,233 | | | 940 | | | 2,408 | | | 1,935 | |
Interest credited to fixed accounts | 124 | | | 262 | | | 283 | | | 353 | |
Benefits, claims, losses and settlement expenses | 404 | | | 1,467 | | | 1,057 | | | (280) | |
Amortization of deferred acquisition costs | 63 | | | (248) | | | 68 | | | 264 | |
Interest and debt expense | 43 | | | 41 | | | 85 | | | 87 | |
General and administrative expense | 830 | | | 776 | | | 1,653 | | | 1,529 | |
Total expenses | 2,697 | | | 3,238 | | | 5,554 | | | 3,888 | |
Pretax income (loss) | 721 | | | (526) | | | 1,214 | | | 1,825 | |
Income tax provision | 130 | | | 13 | | | 186 | | | 328 | |
Net income (loss) | $ | 591 | | | $ | (539) | | | $ | 1,028 | | | $ | 1,497 | |
| | | | | | | |
Earnings per share | | | | | | | |
Basic | $ | 4.99 | | | $ | (4.31) | | | $ | 8.63 | | | $ | 11.91 | |
Diluted | $ | 4.88 | | | $ | (4.31) | | | $ | 8.45 | | | $ | 11.77 | |
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, |
2021 | | 2020 | 2021 | | 2020 |
(in millions) |
Net income (loss) | $ | 591 | | | $ | (539) | | | $ | 1,028 | | | $ | 1,497 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustment | 2 | | | (8) | | | 1 | | | (41) | |
Net unrealized gains (losses) on securities | 141 | | | 697 | | | (199) | | | 173 | |
| | | | | | | |
Defined benefit plans | — | | | — | | | 29 | | | — | |
| | | | | | | |
Total other comprehensive income (loss), net of tax | 143 | | | 689 | | | (169) | | | 132 | |
Total comprehensive income | $ | 734 | | | $ | 150 | | | $ | 859 | | | $ | 1,629 | |
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in millions, except share amounts) |
Assets | | | |
Cash and cash equivalents | $ | 7,121 | | | $ | 6,751 | |
Cash of consolidated investment entities | 95 | | | 94 | |
Investments (allowance for credit losses: 2021, $18; 2020, $52) | 40,745 | | | 41,031 | |
Investments of consolidated investment entities, at fair value | 2,611 | | | 1,918 | |
Separate account assets | 96,854 | | | 92,611 | |
Receivables (allowance for credit losses: 2021, $56; 2020, $49) | 8,030 | | | 7,819 | |
Receivables of consolidated investment entities, at fair value | 48 | | | 16 | |
Deferred acquisition costs | 2,650 | | | 2,532 | |
Restricted and segregated cash, cash equivalents and investments | 2,382 | | | 2,558 | |
Other assets | 11,165 | | | 10,551 | |
Other assets of consolidated investment entities, at fair value | 2 | | | 2 | |
Total assets | $ | 171,703 | | | $ | 165,883 | |
| | | |
Liabilities and Equity | | | |
Liabilities: | | | |
Policyholder account balances, future policy benefits and claims | $ | 34,222 | | | $ | 33,992 | |
Separate account liabilities | 96,854 | | | 92,611 | |
Customer deposits | 17,796 | | | 17,641 | |
Short-term borrowings | 200 | | | 200 | |
Long-term debt | 2,833 | | | 2,831 | |
Debt of consolidated investment entities, at fair value | 2,558 | | | 1,913 | |
Accounts payable and accrued expenses | 2,034 | | | 1,998 | |
Other liabilities | 9,381 | | | 8,761 | |
Other liabilities of consolidated investment entities, at fair value | 139 | | | 69 | |
Total liabilities | 166,017 | | | 160,016 | |
Equity: | | | |
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 334,017,351 and 332,390,132, respectively) | 3 | | | 3 | |
Additional paid-in capital | 9,049 | | | 8,822 | |
Retained earnings | 16,057 | | | 15,292 | |
Treasury shares, at cost (219,719,917 and 215,624,519 shares, respectively) | (19,883) | | | (18,879) | |
Accumulated other comprehensive income (loss), net of tax | 460 | | | 629 | |
Total equity | 5,686 | | | 5,867 | |
Total liabilities and equity | $ | 171,703 | | | $ | 165,883 | |
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, 2020 | 122,334,887 | | $ | 3 | | $ | 8,578 | | $ | 16,180 | | $ | (17,773) | | $ | (295) | | $ | 6,693 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income (loss) | — | | — | | — | | (539) | | — | | — | | (539) | |
Other comprehensive loss, net of tax | — | | — | | — | | — | | — | | 689 | | 689 | |
Total comprehensive income | | | | | | | 150 | |
Dividends to shareholders | — | | — | | — | | (131) | | — | | — | | (131) | |
Repurchase of common shares | (1,794,058) | | — | | — | | — | | (257) | | — | | (257) | |
Share-based compensation plans | 66,672 | | — | | 44 | | — | | 1 | | — | | 45 | |
Balances at June 30, 2020 | 120,607,501 | | $ | 3 | | $ | 8,622 | | $ | 15,510 | | $ | (18,029) | | $ | 394 | | $ | 6,500 | |
| | | | | | | |
Balances at April 1, 2021 | 115,988,271 | | $ | 3 | | $ | 8,982 | | $ | 15,600 | | $ | (19,400) | | $ | 317 | | $ | 5,502 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 591 | | — | | — | | 591 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | 143 | | 143 | |
Total comprehensive income (loss) | | | | | | | 734 | |
Dividends to shareholders | — | | — | | — | | (134) | | — | | — | | (134) | |
Repurchase of common shares | (1,898,474) | | — | | — | | — | | (484) | | — | | (484) | |
Share-based compensation plans | 207,637 | | — | | 67 | | — | | 1 | | — | | 68 | |
Balances at June 30, 2021 | 114,297,434 | | $ | 3 | | $ | 9,049 | | $ | 16,057 | | $ | (19,883) | | $ | 460 | | $ | 5,686 | |
| | | | | | | |
Balances at January 1, 2020 | 123,939,234 | | $ | 3 | | $ | 8,461 | | $ | 14,279 | | $ | (17,276) | | $ | 262 | | $ | 5,729 | |
Cumulative effect of adoption of adoption of current expected credit losses guidance | — | | — | | — | | (9) | | — | | — | | (9) | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 1,497 | | — | | — | | 1,497 | |
Other comprehensive loss, net of tax | — | | — | | — | | — | | — | | 132 | | 132 | |
Total comprehensive income | | | | | | | 1,629 | |
Dividends to shareholders | — | | — | | — | | (257) | | — | | — | | (257) | |
Repurchase of common shares | (5,176,677) | | — | | — | | — | | (794) | | | (794) | |
Share-based compensation plans | 1,844,944 | | — | | 161 | | — | | 41 | | — | | 202 | |
Balances at June 30, 2020 | 120,607,501 | | $ | 3 | | $ | 8,622 | | $ | 15,510 | | $ | (18,029) | | $ | 394 | | $ | 6,500 | |
| | | | | | | |
Balances at January 1, 2021 | 116,765,613 | | $ | 3 | | $ | 8,822 | | $ | 15,292 | | $ | (18,879) | | $ | 629 | | $ | 5,867 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 1,028 | | — | | — | | 1,028 | |
Other comprehensive income, net of tax | — | | — | | — | | — | | — | | (169) | | (169) | |
Total comprehensive income | | | | | | | 859 | |
Dividends to shareholders | — | | — | | — | | (263) | | — | | — | | (263) | |
Repurchase of common shares | (4,488,172) | | — | | — | | — | | (1,038) | | — | | (1,038) | |
Share-based compensation plans | 2,019,993 | | — | | 227 | | — | | 34 | | — | | 261 | |
Balances at June 30, 2021 | 114,297,434 | | $ | 3 | | $ | 9,049 | | $ | 16,057 | | $ | (19,883) | | $ | 460 | | $ | 5,686 | |
See Notes to Consolidated Financial Statements. | | | | | | | |
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | |
| Six Months Ended June 30, |
2021 | | 2020 |
(in millions) |
Cash Flows from Operating Activities | | | |
Net income | $ | 1,028 | | | $ | 1,497 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation, amortization and accretion, net | 120 | | | 96 | |
Deferred income tax expense (benefit) | 161 | | | 521 | |
Share-based compensation | 74 | | | 72 | |
Net realized investment (gains) losses | (79) | | | (10) | |
Net trading (gains) losses | 3 | | | (6) | |
Loss from equity method investments | 33 | | | 39 | |
Impairments and provision for loan losses | 7 | | | 20 | |
Net (gains) losses of consolidated investment entities | (20) | | | 13 | |
Changes in operating assets and liabilities: | | | |
Restricted and segregated investments | (265) | | | — | |
Deferred acquisition costs | (70) | | | 156 | |
Policyholder account balances, future policy benefits and claims, net | 377 | | | 2,721 | |
Derivatives, net of collateral | (122) | | | (267) | |
Receivables | (236) | | | (131) | |
Brokerage deposits | (104) | | | 192 | |
Accounts payable and accrued expenses | 153 | | | (205) | |
Current income tax expense (benefit) | (286) | | | (382) | |
Deferred taxes, net | (312) | | | (3) | |
Other operating assets and liabilities of consolidated investment entities, net | 8 | | | (6) | |
Other, net | 461 | | | 386 | |
Net cash provided by (used in) operating activities | 931 | | | 4,703 | |
| | | |
Cash Flows from Investing Activities | | | |
Available-for-Sale securities: | | | |
Proceeds from sales | 405 | | | 1,318 | |
Maturities, sinking fund payments and calls | 5,714 | | | 4,162 | |
Purchases | (6,210) | | | (6,138) | |
Proceeds from sales, maturities and repayments of mortgage loans | 173 | | | 92 | |
Funding of mortgage loans | (120) | | | (132) | |
Proceeds from sales, maturities and collections of other investments | 112 | | | 109 | |
Purchase of other investments | (54) | | | (134) | |
Purchase of investments by consolidated investment entities | (1,178) | | | (376) | |
Proceeds from sales, maturities and repayments of investments by consolidated investment entities | 556 | | | 343 | |
Purchase of land, buildings, equipment and software | (55) | | | (62) | |
Cash paid for written options with deferred premiums | (210) | | | (258) | |
Cash received from written options with deferred premiums | 24 | | | 108 | |
Cash paid for deposit receivable | (4) | | | (1) | |
Cash received for deposit receivable | 44 | | | 53 | |
Other, net | (106) | | | 20 | |
Net cash provided by (used in) investing activities | (909) | | | (896) | |
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, |
2021 | | 2020 |
(in millions) |
Cash Flows from Financing Activities | | | |
Investment certificates: | | | |
Proceeds from additions | $ | 1,397 | | | $ | 2,534 | |
Maturities, withdrawals and cash surrenders | (2,407) | | | (2,599) | |
Policyholder account balances: | | | |
Deposits and other additions | 751 | | | 774 | |
Net transfers from (to) separate accounts | (132) | | | (15) | |
Surrenders and other benefits | (693) | | | (726) | |
Change in banking deposits, net | 1,268 | | | 1,510 | |
Cash paid for purchased options with deferred premiums | (76) | | | (131) | |
Cash received from purchased options with deferred premiums | 342 | | | 39 | |
Issuance of long-term debt | 4 | | | 496 | |
Repayments of long-term debt | (4) | | | (756) | |
Dividends paid to shareholders | (255) | | | (250) | |
Repurchase of common shares | (911) | | | (716) | |
Exercise of stock options | — | | | 2 | |
Borrowings by consolidated investment entities | 1,375 | | | — | |
Repayments of debt by consolidated investment entities | (754) | | | (37) | |
Other, net | (6) | | | (8) | |
Net cash provided by (used in) financing activities | (101) | | | 117 | |
Effect of exchange rate changes on cash | 9 | | | (18) | |
| | | |
| | | |
Net increase (decrease) in cash and cash equivalents, including amounts restricted | (70) | | | 3,906 | |
Cash and cash equivalents, including amounts restricted, at beginning of period | 8,903 | | | 6,213 | |
Cash and cash equivalents, including amounts restricted, at end of period | $ | 8,833 | | | $ | 10,119 | |
| | | |
Supplemental Disclosures: | | | |
Interest paid excluding consolidated investment entities | $ | 58 | | | $ | 100 | |
Interest paid by consolidated investment entities | 30 | | | 33 | |
Income taxes paid, net | 638 | | | 51 | |
| | | |
Leased assets obtained in exchange for operating lease liabilities | 52 | | | 51 | |
Non-cash investing activity: | | | |
Partnership commitments not yet remitted | — | | | 2 | |
| | | |
Exchange of an investment that resulted in a realized gain and an increase to amortized cost | 17 | | | — | |
| | | |
| June 30, 2021 | | December 31, 2020 |
| (in millions) |
Reconciliation of cash and cash equivalents, including amounts restricted: | | | |
Cash and cash equivalents | $ | 7,121 | | | $ | 6,751 | |
Cash of consolidated investment entities | 95 | | | 94 | |
Restricted and segregated cash, cash equivalents and investments | 2,382 | | | 2,558 | |
Less: Restricted and segregated investments | (765) | | | (500) | |
Total cash and cash equivalents including amounts restricted per consolidated statements of cash flows | $ | 8,833 | | | $ | 8,903 | |
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 GmbHSingapore (Pte.) Ltd and their respective subsidiaries (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.
Changes to the Company’s reportable segments have been made as further discussed in Note 18.
Certain prior period amounts have been revised to conform to current period presentation. These changes have no impact on previously reported consolidated balance sheets or statements of operations, comprehensive income, stockholders equity, or cash flows.
In the first quarter of 2017,2021, the Company recorded a $20an unfavorable out-of-period correction of $29 million decrease toin other comprehensive income tax provision related to an out-of-period correction for a reversal of a tax reserve.defined benefit plans.
In the thirdfirst quarter of 2017,2020, the Company recorded a $14 millionan unfavorable out-of-period correction of $19 million in management and financial advice fees 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.performance fees.
The impact of the errors were not material to the current and prior period financial statements of these out-of-period corrections was not material.statements.
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, 2016,2020, filed with the Securities and Exchange Commission (“SEC”) on February 23, 201724, 2021 (“20162020 10-K”).
On April 12, 2021, the Company signed a definitive agreement to acquire the European-based asset management business of BMO Financial Group for £615 million, or approximately $845 million (subject to customary and other closing adjustments as well as foreign currency spot rates in effect on the closing date that drive the approximate amount in U.S. dollars). The all-cash transaction is expected to add approximately $124 billion of assets under management in Europe and is currently expected to close in the fourth quarter of 2021, subject to regulatory approvals in the relevant jurisdictions.
On June 2, 2021, the Company filed an application to convert Ameriprise Bank, FSB to a state-chartered industrial bank regulated by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation. The Company also filed an application to transition the FSB’s personal trust services business to a new limited purpose national trust bank regulated by the Office of the Comptroller of the Currency.
On June 29, 2021, the Company’s life insurance companies, RiverSource Life Insurance Company (“RiverSource Life”) and RiverSource Life Insurance Co. of New York (“RiverSource Life of New York”) signed an agreement to reinsure approximately $8.0 billion of fixed deferred and immediate annuity policies. The transaction, effective on July 1, 2021, with RiverSource Life closed on July 8, 2021. The transaction with RiverSource Life of New York is subject to regulatory approval.
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. NoOther than the items noted above, no other subsequent events or transactions requiring recognition or disclosure were identified.
2. Recent Accounting Pronouncements
Adoption of New Accounting Standards
Statement of Cash FlowsIncome Taxes – Restricted CashSimplifying the Accounting for Income Taxes
In November 2016,December 2019, the Financial Accounting Standards Board (“FASB”) updated the accounting standards to simplify the accounting for income taxes. The update eliminates certain exceptions to: (1) accounting principles related to intra-period tax allocation to be applied on a prospective basis, (2) deferred tax liabilities related to outside basis differences to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the classificationbeginning of restricted cashthe period of adoption, and (3) year-to-date losses in interim periods to be applied on the statement of cash flows.a prospective basis. The update requires entitiesalso amends existing guidance related to include restricted cashsituations when an entity receives: (1) a step-up in the tax basis of goodwill to be applied on a prospective basis, (2) an allocation of income tax expense
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
when members of a consolidated tax filing group issue separate financial statements to be applied on a retrospective basis for all periods presented, (3) interim recognition of enactment of tax laws or rate changes to be applied on a prospective basis, and restricted cash equivalents in cash(4) franchise taxes and cash equivalent balancesother taxes partially based on income to be applied on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the statementbeginning of cash flows and disclose a reconciliation between the balances on the statementperiod of cash flows and the balance sheet.adoption. The standard is effective for interim and annual periods beginning after December 15, 2017,2020, with early adoption permitted. The Company early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis. As a result of theJanuary 1, 2021. The adoption of thethis 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 balanceshad no impact on the Company’s consolidated statementsresults of cash flows. The impactoperations and financial condition.
Financial Instruments – Credit Losses – Measurement of the change in restricted cash resulted in a $213 million increase to the Company’s operating cash flows for the prior period presented.
Statement of Cash Flows – Classification of Certain Cash Receipts and Cash PaymentsCredit Losses on Financial Instruments
In AugustJune 2016, the FASB updated the accounting standards related to classificationaccounting for credit losses on certain types of certain cash receiptsfinancial 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. At adoption, the initial estimate of the expected credit losses will be recorded through retained earnings and cash paymentssubsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the statement of cash flows.balance sheet. The update includes amendmentscredit loss model for Available-for-Sale debt securities did not change; however, the credit loss calculation and subsequent recoveries are required to address diversity in practice for the classification of eight specific cash flow activities. 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 application of the predominance principle to separately identifiable cash flows.be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2017. Early2019. 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 permittedrequired for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and all amendments must be adopted during the same period.financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis.January 1, 2020. The adoption of the standardthis update did not have a material impact on the Company’s operating, investingconsolidated results of operations or financing cash flows.financial condition.
CompensationIntangibles – Stock CompensationGoodwill and Other – Internal-Use Software – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In March 2016,August 2018, the FASB updated the accounting standards related to employee share-based payments.customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The update requires all excess tax benefits and tax deficienciesimplementation costs for a CCA to be recognizedevaluated for capitalization using the same approach as income tax expense or benefit in the income statement. This change 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.implementation costs associated with internal-use software. The update also requires excess tax benefits to be classified along with other income tax cash flows as an operating activityaddresses presentation, measurement and impairment of capitalized implementation costs in the statement of cash flows. This provision can be applied on either a prospective or retrospective basis.CCA that is a service contract. The update permits entities to make an accounting policy election to recognize forfeitures as they occur rather than estimating forfeitures to determinerequires new disclosures on the recognitionnature of expense for share-based payment awards.hosting arrangements that are service contracts, significant judgements made when applying the guidance and quantitative disclosures, including amounts capitalized, amortized and impaired. The standardupdate is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted.2019, and can be applied either prospectively or retrospectively. The Company adopted the standard using a prospective approach on January 1, 2017 on a prospective basis, except for the cash flow statement provision, which the Company applied on a retrospective basis. During periods 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.2020. 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 Standards
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 thethis 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 disclosures and amends existing disclosure requirements. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Receivables – 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 current guidance, premiums are 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 is effective for interim and annual periods beginning after December 15, 2018, and should 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. Early adoption is permitted. The update isdid 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 Company adopted the standard on January 1, 2020. The adoption of this update isdid not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Income TaxesFair Value Measurement – Intra-Entity Transfers of Assets Other Than InventoryDisclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
In October 2016,August 2018, the FASB updated the accounting standards related to disclosures for fair value measurements. The update eliminates the recognitionfollowing 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 tax impacts(“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 intra-entity transfers. 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 Company adopted the provisions of the standard to include new disclosures on January 1, 2020. The update did not have an impact on the Company’s consolidated results of operations or financial condition.
Future Adoption of New Accounting Standards
Reference Rate Reform – Expedients for Contract Modifications
In March 2020, the FASB updated the accounting standards to provide optional expedients and exceptions for applying GAAP to contracts, hedging or other transactions that are affected by reference rate reform (i.e., the elimination of LIBOR). The following expedients are provided for modified contracts whose reference rate is changed: (1) receivables and debt contracts are accounted for
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
prospectively by adjusting the effective interest rate, (2) leases are accounted for as a continuation of the existing contracts with no reassessments of the lease classification and discount rate or remeasurements of lease payments that otherwise would be required, and (3) an entity is not required to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract. The amendments in this update were effective upon issuance and must be elected prior to December 31, 2022. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions. In January 2021, FASB updated the standard to allow an entity to elect to apply the treatment under the original guidance to derivative instruments that use an interest rate for margining, discounting or contract price alignment that will be modified due to reference rate reform but did not qualify under the original guidance. The Company has not yet applied any of the optional expedients. The adoption of the standard is not expected to have an impact on the Company’s consolidated results of operations and financial condition.
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 including 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.
•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 entities to recognize the income tax consequences of intra-entity transfers, other than inventory, upon the transfersignificant additional disclosures, including disaggregated rollforwards of the asset. The update requires the selling entity to recognize a current tax expense or benefitliability for future policy benefits, policyholder account balances, market risk benefits, DAC and the purchasing entity to recognize a deferred tax asset or liability when the transfer occurs.DSIC, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions. The standard is effective for interim and annual periods beginning after December 15, 2017.2022, and interim periods within those years. 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 financial condition.
Financial Instruments – Measurement of Credit Losses
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 beneficialdisclosures.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(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.
Leases – Recognition of Lease Assets and Liabilities on Balance Sheet
In 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 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 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.
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:
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| Three Months Ended June 30, 2021 |
| Advice & Wealth Management | | Asset Management | | Retirement & Protection Solutions | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
| (in millions) |
Management and financial advice fees: | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | |
Retail | $ | — | | | $ | 567 | | | $ | — | | | $ | — | | | $ | 567 | | | $ | — | | | $ | 567 | |
Institutional | — | | | 131 | | | — | | | — | | | 131 | | | — | | | 131 | |
Advisory fees | 1,113 | | | — | | | — | | | — | | | 1,113 | | | — | | | 1,113 | |
Financial planning fees | 93 | | | — | | | — | | | — | | | 93 | | | — | | | 93 | |
Transaction and other fees | 93 | | | 56 | | | 18 | | | — | | | 167 | | | — | | | 167 | |
Total management and financial advice fees | 1,299 | | | 754 | | | 18 | | | — | | | 2,071 | | | — | | | 2,071 | |
Distribution fees: | | | | | | | | | | | | | |
Mutual funds | 212 | | | 69 | | | — | | | — | | | 281 | | | — | | | 281 | |
Insurance and annuity | 252 | | | 49 | | | 101 | | | — | | | 402 | | | — | | | 402 | |
Other products | 98 | | | — | | | — | | | — | | | 98 | | | — | | | 98 | |
Total distribution fees | 562 | | | 118 | | | 101 | | | — | | | 781 | | | — | | | 781 | |
Other revenues | 51 | | | 7 | | | — | | | 1 | | | 59 | | | — | | | 59 | |
Total revenue from contracts with customers | 1,912 | | | 879 | | | 119 | | | 1 | | | 2,911 | | | — | | | 2,911 | |
Revenue from other sources (1) | 70 | | | — | | | 689 | | | 119 | | | 878 | | | 34 | | | 912 | |
Total segment gross revenues | 1,982 | | | 879 | | | 808 | | | 120 | | | 3,789 | | | 34 | | | 3,823 | |
Banking and deposit interest expense | (2) | | | — | | | — | | | (1) | | | (3) | | | — | | | (3) | |
Total segment net revenues | 1,980 | | | 879 | | | 808 | | | 119 | | | 3,786 | | | 34 | | | 3,820 | |
Intersegment revenues | (266) | | | (14) | | | (118) | | | (1) | | | (399) | | | (3) | | | (402) | |
Total net revenues | $ | 1,714 | | | $ | 865 | | | $ | 690 | | | $ | 118 | | | $ | 3,387 | | | $ | 31 | | | $ | 3,418 | |
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| Six Months Ended June 30, 2021 |
| Advice & Wealth Management | | Asset Management | | Retirement & Protection Solutions | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
| (in millions) |
Management and financial advice fees: | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | |
Retail | $ | — | | | $ | 1,098 | | | $ | — | | | $ | — | | | $ | 1,098 | | | $ | — | | | $ | 1,098 | |
Institutional | — | | | 254 | | | — | | | — | | | 254 | | | — | | | 254 | |
Advisory fees | 2,141 | | | — | | | — | | | — | | | 2,141 | | | — | | | 2,141 | |
Financial planning fees | 181 | | | — | | | — | | | — | | | 181 | | | — | | | 181 | |
Transaction and other fees | 182 | | | 108 | | | 34 | | | — | | | 324 | | | — | | | 324 | |
Total management and financial advice fees | 2,504 | | | 1,460 | | | 34 | | | — | | | 3,998 | | | — | | | 3,998 | |
Distribution fees: | | | | | | | | | | | | | |
Mutual funds | 419 | | | 136 | | | — | | | — | | | 555 | | | — | | | 555 | |
Insurance and annuity | 492 | | | 96 | | | 200 | | | — | | | 788 | | | — | | | 788 | |
Other products | 210 | | | — | | | — | | | — | | | 210 | | | — | | | 210 | |
Total distribution fees | 1,121 | | | 232 | | | 200 | | | — | | | 1,553 | | | — | | | 1,553 | |
Other revenues | 100 | | | 8 | | | — | | | 1 | | | 109 | | | — | | | 109 | |
Total revenue from contracts with customers | 3,725 | | | 1,700 | | | 234 | | | 1 | | | 5,660 | | | — | | | 5,660 | |
Revenue from other sources (1) | 141 | | | 7 | | | 1,361 | | | 258 | | | 1,767 | | | 133 | | | 1,900 | |
Total segment gross revenues | 3,866 | | | 1,707 | | | 1,595 | | | 259 | | | 7,427 | | | 133 | | | 7,560 | |
Banking and deposit interest expense | (7) | | | — | | | — | | | (1) | | | (8) | | | — | | | (8) | |
Total segment net revenues | 3,859 | | | 1,707 | | | 1,595 | | | 258 | | | 7,419 | | | 133 | | | 7,552 | |
Intersegment revenues | (516) | | | (27) | | | (234) | | | (1) | | | (778) | | | (6) | | | (784) | |
Total net revenues | $ | 3,343 | | | $ | 1,680 | | | $ | 1,361 | | | $ | 257 | | | $ | 6,641 | | | $ | 127 | | | $ | 6,768 | |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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| Three Months Ended June 30, 2020 |
| Advice & Wealth Management | | Asset Management | | Retirement & Protection Solutions | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
| (in millions) |
Management and financial advice fees: | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | |
Retail | $ | — | | | $ | 417 | | | $ | — | | | $ | — | | | $ | 417 | | | $ | — | | | $ | 417 | |
Institutional | — | | | 101 | | | — | | | — | | | 101 | | | — | | | 101 | |
Advisory fees | 797 | | | — | | | — | | | — | | | 797 | | | — | | | 797 | |
Financial planning fees | 86 | | | — | | | — | | | — | | | 86 | | | — | | | 86 | |
Transaction and other fees | 86 | | | 45 | | | 16 | | | — | | | 147 | | | — | | | 147 | |
Total management and financial advice fees | 969 | | | 563 | | | 16 | | | — | | | 1,548 | | | — | | | 1,548 | |
Distribution fees: | | | | | | | | | | | | | |
Mutual funds | 170 | | | 55 | | | — | | | — | | | 225 | | | — | | | 225 | |
Insurance and annuity | 196 | | | 41 | | | 105 | | | — | | | 342 | | | — | | | 342 | |
Other products | 87 | | | — | | | — | | | — | | | 87 | | | — | | | 87 | |
Total distribution fees | 453 | | | 96 | | | 105 | | | — | | | 654 | | | — | | | 654 | |
Other revenues | 47 | | | 1 | | | — | | | — | | | 48 | | | — | | | 48 | |
Total revenue from contracts with customers | 1,469 | | | 660 | | | 121 | | | — | | | 2,250 | | | — | | | 2,250 | |
Revenue from other sources (1) | 86 | | | 8 | | | 634 | | | 132 | | | 860 | | | (51) | | | 809 | |
Total segment gross revenues | 1,555 | | | 668 | | | 755 | | | 132 | | | 3,110 | | | (51) | | | 3,059 | |
Banking and deposit interest expense | (18) | | | — | | | — | | | (1) | | | (19) | | | — | | | (19) | |
Total segment net revenues | 1,537 | | | 668 | | | 755 | | | 131 | | | 3,091 | | | (51) | | | 3,040 | |
Intersegment revenues | (208) | | | (13) | | | (105) | | | — | | | (326) | | | (2) | | | (328) | |
Total net revenues | $ | 1,329 | | | $ | 655 | | | $ | 650 | | | $ | 131 | | | $ | 2,765 | | | $ | (53) | | | $ | 2,712 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Advice & Wealth Management | | Asset Management | | Retirement & Protection Solutions | | Corporate & Other | | Total Segments | | Non-operating Revenue | | Total |
| (in millions) |
Management and financial advice fees: | | | | | | | | | | | | | |
Asset management fees: | | | | | | | | | | | | | |
Retail | $ | — | | | $ | 864 | | | $ | — | | | $ | — | | | $ | 864 | | | $ | — | | | $ | 864 | |
Institutional | — | | | 186 | | | — | | | — | | | 186 | | | — | | | 186 | |
Advisory fees | 1,651 | | | — | | | — | | | — | | | 1,651 | | | — | | | 1,651 | |
Financial planning fees | 167 | | | — | | | — | | | — | | | 167 | | | — | | | 167 | |
Transaction and other fees | 175 | | | 92 | | | 31 | | | — | | | 298 | | | — | | | 298 | |
Total management and financial advice fees | 1,993 | | | 1,142 | | | 31 | | | — | | | 3,166 | | | — | | | 3,166 | |
Distribution fees: | | | | | | | | | | | | | |
Mutual funds | 354 | | | 115 | | | — | | | — | | | 469 | | | — | | | 469 | |
Insurance and annuity | 404 | | | 84 | | | 191 | | | — | | | 679 | | | — | | | 679 | |
Other products | 243 | | | — | | | — | | | — | | | 243 | | | — | | | 243 | |
Total distribution fees | 1,001 | | | 199 | | | 191 | | | — | | | 1,391 | | | — | | | 1,391 | |
Other revenues | 94 | | | 2 | | | — | | | 3 | | | 99 | | | — | | | 99 | |
Total revenue from contracts with customers | 3,088 | | | 1,343 | | | 222 | | | 3 | | | 4,656 | | | — | | | 4,656 | |
Revenue from other sources (1) | 187 | | | 11 | | | 1,292 | | | 279 | | | 1,769 | | | 1 | | | 1,770 | |
Total segment gross revenues | 3,275 | | | 1,354 | | | 1,514 | | | 282 | | | 6,425 | | | 1 | | | 6,426 | |
Banking and deposit interest expense | (43) | | | — | | | — | | | (2) | | | (45) | | | — | | | (45) | |
Total segment net revenues | 3,232 | | | 1,354 | | | 1,514 | | | 280 | | | 6,380 | | | 1 | | | 6,381 | |
Intersegment revenues | (430) | | | (26) | | | (209) | | | 1 | | | (664) | | | (4) | | | (668) | |
Total net revenues | $ | 2,802 | | | $ | 1,328 | | | $ | 1,305 | | | $ | 281 | | | $ | 5,716 | | | $ | (3) | | | $ | 5,713 | |
(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 model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaininginsurance and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users ofannuity products or financial statements to understandinstruments.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following 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 United Kingdom (“U.K.”) 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.
The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property and other 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 customers’ 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 billed on a monthly basis on the prior month end assets.
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) based on a contractual fixed rate applied, as a percentage, to the prior month end 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 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 $142 million and $146 million as of June 30, 2021 and December 31, 2020, 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 $114 million and $117 million as of adoption. June 30, 2021 and December 31, 2020, 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
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 $28 million and NaN as of June 30, 2021 and December 31, 2020, 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 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
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 $442 million and $403 million as of revenue recognition; however, the Company’s implementation effort to assess the impact of the standard is still in process.June 30, 2021 and December 31, 2020, 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 and other private funds, property funds and certain internationalnon-U.S. series funds (Open Ended Investment Companies(such as 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 initial investment nor hasand existing future funding commitments, and the Company has not provided any other support to these entities. The Company has unfunded commitments related to consolidated CLOs of $36 million and $13 million as of June 30, 2021 and December 31, 2020, respectively.
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 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 value of 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 and highly rated senior 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$1 million and $9$3 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, 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$26 million and $23 million as of both SeptemberJune 30, 20172021 and December 31, 2016.2020, 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 million and $13 million NaN as of Septemberboth June 30, 20172021 and December 31, 2016, respectively.2020.
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$27 million and $33$20 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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$166 million and $482$200 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. The Company had a $114 $9 million and $135 million liabilityliability recorded as of Septemberboth June 30, 20172021 and December 31, 2016, respectively,2020 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, and 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:
| | | September 30, 2017 | | June 30, 2021 |
Level 1 | | Level 2 | | Level 3 | | Total | Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) | (in millions) |
Assets | Assets | Assets | |
Investments: | Investments: | Investments: | |
Corporate debt securities | $ | — |
| | $ | 29 |
| | $ | — |
| | $ | 29 |
| |
| Common stocks | 22 |
| | 11 |
| | 4 |
| | 37 |
| Common stocks | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | |
Other investments | 4 |
| | — |
| | — |
| | 4 |
| |
| Syndicated loans | — |
| | 1,963 |
| | 182 |
| | 2,145 |
| Syndicated loans | — | | | 2,497 | | | 112 | | | 2,609 | |
Total investments | 26 |
| | 2,003 |
| | 186 |
| | 2,215 |
| Total investments | — | | | 2,499 | | | 112 | | | 2,611 | |
Receivables | — |
| | 9 |
| | — |
| | 9 |
| Receivables | — | | | 48 | | | — | | | 48 | |
Other assets | | Other assets | — | | | 2 | | | — | | | 2 | |
Total assets at fair value | $ | 26 |
| | $ | 2,012 |
| | $ | 186 |
| | $ | 2,224 |
| Total assets at fair value | $ | — | | | $ | 2,549 | | | $ | 112 | | | $ | 2,661 | |
| | | | | | | | | |
Liabilities | Liabilities | Liabilities | |
Debt (1) | $ | — |
| | $ | 2,267 |
| | $ | — |
| | $ | 2,267 |
| Debt (1) | $ | — | | | $ | 2,558 | | | $ | — | | | $ | 2,558 | |
Other liabilities | — |
| | 43 |
| | — |
| | 43 |
| Other liabilities | — | | | 139 | | | — | | | 139 | |
Total liabilities at fair value | $ | — |
| | $ | 2,310 |
| | $ | — |
| | $ | 2,310 |
| Total liabilities at fair value | $ | — | | | $ | 2,697 | | | $ | — | | | $ | 2,697 | |
|
| | | | | | | | | | | | | | | |
| 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 billion and $2.3 billion as of September 30, 2017 and December 31, 2016, respectively.
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets | | | | | | | |
Investments: | | | | | | | |
Corporate debt securities | $ | — | | | $ | 8 | | | $ | — | | | $ | 8 | |
Common stocks | — | | | 1 | | | — | | | 1 | |
| | | | | | | |
Syndicated loans | — | | | 1,817 | | | 92 | | | 1,909 | |
Total investments | — | | | 1,826 | | | 92 | | | 1,918 | |
Receivables | — | | | 16 | | | — | | | 16 | |
Other assets | — | | | — | | | 2 | | | 2 | |
Total assets at fair value | $ | — | | | $ | 1,842 | | | $ | 94 | | | $ | 1,936 | |
| | | | | | | |
Liabilities | | | | | | | |
Debt (1) | $ | — | | | $ | 1,913 | | | $ | — | | | $ | 1,913 | |
Other liabilities | — | | | 69 | | | — | | | 69 | |
Total liabilities at fair value | $ | — | | | $ | 1,982 | | | $ | — | | | $ | 1,982 | |
(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 $2.6 billionand $2.0 billion as of June 30, 2021 and December 31, 2020, respectively.
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:
| | | | | | | | | | | | | | | Syndicated Loans | |
| Corporate Debt Securities | | Common Stocks | | Syndicated Loans | | (in millions) |
| Balance, April 1, 2021 | $ | 155 | | |
| (in millions) | | |
$ | — |
| | $ | 7 |
| | $ | 185 |
| |
Total gains (losses) included in: | |
Net income | — |
| | 1 |
| (1) | (1 | ) | (1) | |
| Purchases | — |
| | — |
| | 6 |
| | Purchases | 22 | | |
Sales | — |
| | — |
| | (12 | ) | | Sales | (24) | | |
| Settlements | — |
| | — |
| | (3 | ) | | Settlements | (19) | | |
Transfers into Level 3 | — |
| | — |
| | 84 |
| | Transfers into Level 3 | 28 | | |
Transfers out of Level 3 | — |
| | (4 | ) | | (77 | ) | | Transfers out of Level 3 | (50) | | |
Balance, September 30, 2017 | $ | — |
| | $ | 4 |
| | $ | 182 |
| | |
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2017 | $ | — |
| | $ | 1 |
| (1) | $ | — |
| | |
Balance, June 30, 2021 | | Balance, June 30, 2021 | $ | 112 | | |
| Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2021 | | Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2021 | $ | (1) | | (1) |
| | | | | | | | |
| Syndicated Loans | |
(in millions) |
Balance, April 1, 2020 | $ | 302 | | |
Total gains (losses) included in: | | |
Net income | 18 | | (1) |
| | |
Purchases | 2 | | |
Sales | (8) | | |
| | |
Settlements | (16) | | |
Transfers into Level 3 | 102 | | |
Transfers out of Level 3 | (189) | | |
Balance, June 30, 2020 | $ | 211 | | |
| | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2020 | $ | 17 | | (1) |
|
| | | | | | | | | | | | |
| Common Stocks | | Syndicated Loans | | Other Assets | |
(in millions) |
Balance at July 1, 2016 | $ | 1 |
| | $ | 243 |
| | $ | 1 |
| |
Total gains (losses) included in: |
Net income | — |
| | 2 |
| (1) | — |
| |
Purchases | 1 |
| | 50 |
| | — |
| |
Sales | — |
| | (10 | ) | | — |
| |
Settlements | — |
| | (26 | ) | | — |
| |
Transfers into Level 3 | 1 |
| | 57 |
| | — |
| |
Transfers out of Level 3 | — |
| | (120 | ) | | — |
| |
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) | $ | — |
| |
|
| | | | | | | | | | | | |
| Corporate Debt Securities | | Common Stocks | | Syndicated Loans | |
(in millions) |
Balance, January 1, 2017 | $ | — |
| | $ | 5 |
| | $ | 254 |
| |
Total gains (losses) included in: |
Net income | — |
| | 1 |
| (1) | — |
| |
Purchases | — |
| | 3 |
| | 133 |
| |
Sales | (2 | ) | | (1 | ) | | (27 | ) | |
Settlements | — |
| | — |
| | (56 | ) | |
Transfers into Level 3 | 2 |
| | 2 |
| | 197 |
| |
Transfers out of Level 3 | — |
| | (6 | ) | | (319 | ) | |
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) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | |
| Syndicated Loans | | Other Assets |
(in millions) |
Balance, January 1, 2021 | $ | 92 | | | $ | 2 | |
Total gains (losses) included in: | | | |
Net income | 2 | | (1) | — | |
Purchases | 81 | | | — | |
Sales | (34) | | | — | |
Settlements | (39) | | | — | |
Transfers into Level 3 | 85 | | | — | |
Transfers out of Level 3 | (75) | | | (2) | |
Balance, June 30, 2021 | $ | 112 | | | $ | 0 | |
| | | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2021 | $ | (1) | | (1) | $ | — | |
| | | | | | | | |
| Syndicated Loans | |
(in millions) | |
Balance, January 1, 2020 | $ | 143 | | |
Total gains (losses) included in: | | |
Net income | (21) | | (1) |
Purchases | 45 | | |
Sales | (15) | | |
Settlements | (26) | | |
Transfers into Level 3 | 350 | | |
Transfers out of Level 3 | (265) | | |
Balance, June 30, 2020 | $ | 211 | | |
| | |
Changes in unrealized gains (losses) included in income relating to assets held at June 30, 2020 | $ | 3 | | (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, 20172021 and December 31, 20162020 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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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. Other liabilities also include accrued interest on the CLO debt.
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.
The followingtablepresentsthefairvalueandunpaidprincipalbalanceofloansanddebtforwhichthefairvalueoptionhasbeenelected:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in millions) |
Syndicated loans | | | |
Unpaid principal balance | $ | 2,666 | | | $ | 1,990 | |
Excess unpaid principal over fair value | (57) | | | (81) | |
Fair value | $ | 2,609 | | | $ | 1,909 | |
| | | |
Fair value of loans more than 90 days past due | $ | 2 | | | $ | 5 | |
Fair value of loans in nonaccrual status | 29 | | | 19 | |
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both | 18 | | | 24 | |
| | | |
Debt | | | |
Unpaid principal balance | $ | 2,696 | | | $ | 2,069 | |
Excess unpaid principal over fair value | (138) | | | (156) | |
Carrying value (1) | $ | 2,558 | | | $ | 1,913 | |
|
| | | | | | | |
| 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$2.6 billion and $2.3$2.0 billion as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively.
During the first quarter of 2021, the Company launched two new CLOs and issued debt of $817 million.
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 the changes in the fair value of financial assets and liabilities for whichinvestments the Company owns in the consolidated CLOs where it has elected the fair value option was electedand collateralized financing entity accounting were $(1) million and nilimmaterial for both the three months ended September 30, 2017 and 2016, 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) million and $(5) million for the ninesix months ended SeptemberJune 30, 20172021 and 2016, respectively.2020.
Debt of the consolidated investment entities and the stated interest rates were as follows:
|
| | | | | | | | | | | | | |
| 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Value | | Weighted Average Interest Rate |
June 30, 2021 | | December 31, 2020 | June 30, 2021 | | December 31, 2020 |
(in millions) | |
Debt of consolidated CLOs due 2025-2034 | $ | 2,558 | | | $ | 1,913 | | | 1.8 | % | | 2.1 | % |
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0%0.0% to 7.3%8.8%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
4. 5. Investments
The following is a summary of Ameriprise Financial investments:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in millions) |
Available-for-Sale securities, at fair value | $ | 36,146 | | | $ | 36,283 | |
Mortgage loans (allowance for credit losses: 2021, $14; 2020, $29) | 1,655 | | | 2,718 | |
Policy loans | 840 | | | 846 | |
Loans held for sale | 1,388 | | | — | |
Other investments (allowance for credit losses: 2021, $4; 2020, $12) | 716 | | | 1,184 | |
Total | $ | 40,745 | | | $ | 41,031 | |
|
| | | | | | | |
| 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 |
|
Other investments primarily reflect the Company’s interests in affordable housing partnerships, trading securities, seed money investments, syndicated loans, credit card receivables and certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days.The following is a summary of net investment income:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2021 | | 2020 | | 2021 | | 2020 | |
| (in millions) | |
Investment income on fixed maturities | $ | 265 | | | $ | 290 | | | $ | 531 | | | $ | 612 | | |
Net realized gains (losses) | 11 | | | (3) | | | 81 | | | (22) | | |
Affordable housing partnerships | (23) | | | (22) | | | (38) | | | (36) | | |
Other | 7 | | | 23 | | | 27 | | | 45 | | |
Consolidated investment entities | 18 | | | 17 | | | 54 | | | 34 | | |
Total | $ | 278 | | | $ | 305 | | | $ | 655 | | | $ | 633 | | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
Available-for-Sale securities distributed by type were as follows:
| | | | | | | | | | | | | | June 30, 2021 |
Description of Securities | September 30, 2017 | |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) | Description of Securities | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | (in millions) | | | (in millions) |
Corporate debt securities | Corporate debt securities | $ | 14,528 |
| | $ | 1,145 |
| | $ | (23 | ) | | $ | 15,650 |
| | $ | — |
| Corporate debt securities | | $ | 12,038 | | | $ | 1,665 | | | $ | (27) | | | $ | — | | | $ | 13,676 | |
Residential mortgage backed securities | Residential mortgage backed securities | 6,740 |
| | 79 |
| | (29 | ) | | 6,790 |
| | — |
| Residential mortgage backed securities | | 9,556 | | | 135 | | | (9) | | | — | | | 9,682 | |
Commercial mortgage backed securities | Commercial mortgage backed securities | 3,917 |
| | 62 |
| | (27 | ) | | 3,952 |
| | — |
| Commercial mortgage backed securities | | 5,995 | | | 187 | | | (4) | | | — | | | 6,178 | |
Asset backed securities | Asset backed securities | 1,611 |
| | 39 |
| | (4 | ) | | 1,646 |
| | 5 |
| Asset backed securities | | 3,603 | | | 46 | | | (1) | | | — | | | 3,648 | |
State and municipal obligations | State and municipal obligations | 2,216 |
| | 249 |
| | (10 | ) | | 2,455 |
| | — |
| State and municipal obligations | | 1,039 | | | 281 | | | (1) | | | — | | | 1,319 | |
U.S. government and agencies obligations | 5 |
| | 1 |
| | — |
| | 6 |
| | — |
| |
U.S. government and agency obligations | | U.S. government and agency obligations | | 1,326 | | | — | | | — | | | — | | | 1,326 | |
Foreign government bonds and obligations | Foreign government bonds and obligations | 292 |
| | 21 |
| | (5 | ) | | 308 |
| | — |
| Foreign government bonds and obligations | | 207 | | | 17 | | | (1) | | | — | | | 223 | |
Common stocks | 9 |
| | 11 |
| | (1 | ) | | 19 |
| | 6 |
| |
| Other securities | | Other securities | | 94 | | | — | | | — | | | — | | | 94 | |
Total | Total | $ | 29,318 |
| | $ | 1,607 |
| | $ | (99 | ) | | $ | 30,826 |
| | $ | 11 |
| Total | | $ | 33,858 | | | $ | 2,331 | | | $ | (43) | | | $ | — | | | $ | 36,146 | |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description of Securities | December 31, 2020 |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
| | (in millions) |
Corporate debt securities | | $ | 11,762 | | | $ | 1,924 | | | $ | (2) | | | $ | (10) | | | $ | 13,674 | |
Residential mortgage backed securities | | 9,845 | | | 188 | | | (4) | | | — | | | 10,029 | |
Commercial mortgage backed securities | | 5,867 | | | 242 | | | (21) | | | — | | | 6,088 | |
Asset backed securities | | 3,283 | | | 52 | | | (5) | | | (1) | | | 3,329 | |
State and municipal obligations | | 1,088 | | | 297 | | | (1) | | | — | | | 1,384 | |
U.S. government and agency obligations | | 1,456 | | | — | | | — | | | — | | | 1,456 | |
Foreign government bonds and obligations | | 241 | | | 22 | | | (1) | | | — | | | 262 | |
Other securities | | 59 | | | 2 | | | — | | | — | | | 61 | |
Total | | $ | 33,601 | | | $ | 2,727 | | | $ | (34) | | | $ | (11) | | | $ | 36,283 | |
|
| | | | | | | | | | | | | | | | | | | | |
Description of Securities | December 31, 2016 |
Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Noncredit OTTI (1) |
| (in millions) |
Corporate debt securities | $ | 15,231 |
| | $ | 1,065 |
| | $ | (60 | ) | | $ | 16,236 |
| | $ | — |
|
Residential mortgage backed securities | 6,899 |
| | 86 |
| | (67 | ) | | 6,918 |
| | (3 | ) |
Commercial mortgage backed securities | 3,347 |
| | 59 |
| | (39 | ) | | 3,367 |
| | — |
|
Asset backed securities | 1,532 |
| | 33 |
| | (16 | ) | | 1,549 |
| | 5 |
|
State and municipal obligations | 2,195 |
| | 198 |
| | (35 | ) | | 2,358 |
| | — |
|
U.S. government and agencies obligations | 7 |
| | 1 |
| | — |
| | 8 |
| | — |
|
Foreign government bonds and obligations | 251 |
| | 17 |
| | (7 | ) | | 261 |
| | — |
|
Common stocks | 10 |
| | 13 |
| | (1 | ) | | 22 |
| | 6 |
|
Total | $ | 29,472 |
| | $ | 1,472 |
| | $ | (225 | ) | | $ | 30,719 |
| | $ | 8 |
|
| |
(1)
| Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income (“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. |
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, accrued interest of $176 million and $178 million, respectively, is excluded from the amortized cost basis of Available-for-Sale securities in the tables above and is recorded in receivables on the Consolidated Balance Sheets.
As of June 30, 2021 and December 31, 2020, investment securities with a fair value of $1.7$2.9 billion and $1.6$3.6 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $793$501 million and $473$454 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, fixed maturity securities comprised approximately 85%92% and 86%88%, respectively, 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, 20172021 and December 31, 2016,2020, the Company’s internal analysts rated $1.1 billion$682 million and $605 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, 2021 | | December 31, 2020 |
Amortized Cost | | Fair Value | | Percent of Total Fair Value | Amortized Cost | | Fair Value | | Percent of Total Fair Value |
| (in millions, except percentages) |
AAA | $ | 19,979 | | | $ | 20,320 | | | 56 | % | | $ | 19,815 | | | $ | 20,253 | | | 56 | % |
AA | 1,127 | | | 1,331 | | | 4 | | | 1,082 | | | 1,312 | | | 3 | |
A | 2,488 | | | 2,965 | | | 8 | | | 2,953 | | | 3,534 | | | 10 | |
BBB | 8,987 | | | 10,093 | | | 28 | | | 8,271 | | | 9,542 | | | 26 | |
Below investment grade (1) | 1,277 | | | 1,437 | | | 4 | | | 1,480 | | | 1,642 | | | 5 | |
Total fixed maturities | $ | 33,858 | | | $ | 36,146 | | | 100 | % | | $ | 33,601 | | | $ | 36,283 | | | 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) Both the amortized cost and fair value of below investment grade securities includes interest in non-consolidated CLOs managed by the Company of $1 million as of June 30, 2021, and $3 million as of December 31, 2020. These securities are not rated but are included in below investment grade due to their risk characteristics. | |
(1)
| The amortized cost and fair value of below investment grade securities includes interest in CLOs managed by the Company of $6 million and $11 million, respectively, at September 30, 2017, and $9 million and $14 million, respectively, at December 31, 2016. These securities are not rated but are included in below investment grade due to their risk characteristics. |
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, approximately 41%31% and 47%33%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. NoNaN holdings of any other issuer were greater than 10% of total equity.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)(Continued)
The following tables provide information aboutsummarize the fair value and gross unrealized losses on Available-for-Sale securities, with gross unrealized lossesaggregated by major investment type and the length of time that individual securities have been in a continuous unrealized loss position:position for which no allowance for credit losses has been recorded:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description of Securities | | June 30, 2021 |
| 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 | | 67 | | $ | 1,272 | | $ | (27) | | | 1 | | $ | 5 | | $ | — | | | 68 | | $ | 1,277 | | $ | (27) | |
Residential mortgage backed securities | | 55 | | 1,531 | | (8) | | | 65 | | 229 | | (1) | | | 120 | | 1,760 | | (9) | |
Commercial mortgage backed securities | | 34 | | 519 | | (3) | | | 12 | | 211 | | (1) | | | 46 | | 730 | | (4) | |
Asset backed securities | | 13 | | 419 | | (1) | | | 10 | | 153 | | — | | | 23 | | 572 | | (1) | |
State and municipal obligations | | 10 | | 32 | | — | | | 2 | | 8 | | (1) | | | 12 | | 40 | | (1) | |
| | | | | | | | | | | | |
Foreign government bonds and obligations | | 3 | | 3 | | — | | | 6 | | 5 | | (1) | | | 9 | | 8 | | (1) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | 182 | | $ | 3,776 | | $ | (39) | | | 96 | | $ | 611 | | $ | (4) | | | 278 | | $ | 4,387 | | $ | (43) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description of Securities | September 30, 2017 |
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 | 106 |
| | $ | 1,151 |
| | $ | (7 | ) | | 34 |
| | $ | 325 |
| | $ | (16 | ) | | 140 |
| | $ | 1,476 |
| | $ | (23 | ) |
Residential mortgage backed securities | 113 |
| | 1,901 |
| | (16 | ) | | 109 |
| | 993 |
| | (13 | ) | | 222 |
| | 2,894 |
| | (29 | ) |
Commercial mortgage backed securities | 90 |
| | 1,391 |
| | (21 | ) | | 19 |
| | 210 |
| | (6 | ) | | 109 |
| | 1,601 |
| | (27 | ) |
Asset backed securities | 33 |
| | 398 |
| | (2 | ) | | 16 |
| | 105 |
| | (2 | ) | | 49 |
| | 503 |
| | (4 | ) |
State and municipal obligations | 89 |
| | 176 |
| | (1 | ) | | 16 |
| | 142 |
| | (9 | ) | | 105 |
| | 318 |
| | (10 | ) |
Foreign government bonds and obligations | 6 |
| | 19 |
| | — |
| | 14 |
| | 21 |
| | (5 | ) | | 20 |
| | 40 |
| | (5 | ) |
Common stocks | — |
| | — |
| | — |
| | 3 |
| | 1 |
| | (1 | ) | | 3 |
| | 1 |
| | (1 | ) |
Total | 437 |
| | $ | 5,036 |
| | $ | (47 | ) | | 211 |
| | $ | 1,797 |
| | $ | (52 | ) | | 648 |
| | $ | 6,833 |
| | $ | (99 | ) |
| | Description of Securities | Description of Securities | December 31, 2016 | Description of Securities | December 31, 2020 |
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 | 187 |
| | $ | 2,452 |
| | $ | (33 | ) | | 38 |
| | $ | 377 |
| | $ | (27 | ) | | 225 |
| | $ | 2,829 |
| | $ | (60 | ) | Corporate debt securities | | 26 | | $ | 228 | | $ | (1) | | | 11 | | $ | 19 | | $ | (1) | | | 37 | | $ | 247 | | $ | (2) | |
Residential mortgage backed securities | Residential mortgage backed securities | 127 |
| | 2,533 |
| | (33 | ) | | 177 |
| | 1,290 |
| | (34 | ) | | 304 |
| | 3,823 |
| | (67 | ) | Residential mortgage backed securities | | 72 | | 833 | | (2) | | | 71 | | 391 | | (2) | | | 143 | | 1,224 | | (4) | |
Commercial mortgage backed securities | Commercial mortgage backed securities | 100 |
| | 1,583 |
| | (39 | ) | | 5 |
| | 43 |
| | — |
| | 105 |
| | 1,626 |
| | (39 | ) | Commercial mortgage backed securities | | 35 | | 781 | | (11) | | | 19 | | 393 | | (10) | | | 54 | | 1,174 | | (21) | |
Asset backed securities | Asset backed securities | 48 |
| | 524 |
| | (9 | ) | | 27 |
| | 298 |
| | (7 | ) | | 75 |
| | 822 |
| | (16 | ) | Asset backed securities | | 17 | | 344 | | (3) | | | 13 | | 231 | | (2) | | | 30 | | 575 | | (5) | |
State and municipal obligations | State and municipal obligations | 181 |
| | 374 |
| | (14 | ) | | 3 |
| | 110 |
| | (21 | ) | | 184 |
| | 484 |
| | (35 | ) | State and municipal obligations | | 2 | | 4 | | — | | | 1 | | 4 | | (1) | | | 3 | | 8 | | (1) | |
| Foreign government bonds and obligations | Foreign government bonds and obligations | 7 |
| | 30 |
| | (1 | ) | | 15 |
| | 23 |
| | (6 | ) | | 22 |
| | 53 |
| | (7 | ) | Foreign government bonds and obligations | | 1 | | 3 | | — | | | 7 | | 8 | | (1) | | | 8 | | 11 | | (1) | |
Common stocks | — |
| | — |
| | — |
| | 3 |
| | 1 |
| | (1 | ) | | 3 |
| | 1 |
| | (1 | ) | |
| Total | Total | 650 |
| | $ | 7,496 |
| | $ | (129 | ) | | 268 |
| | $ | 2,142 |
| | $ | (96 | ) | | 918 |
| | $ | 9,638 |
| | $ | (225 | ) | Total | | 153 | | $ | 2,193 | | $ | (17) | | | 122 | | $ | 1,046 | | $ | (17) | | | 275 | | $ | 3,239 | | $ | (34) | |
As part of Ameriprise Financial’sthe Company’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities for which an allowance for credit losses has not been recognized during the six months ended June 30, 2021 is primarily attributable to a decline inhigher interest rates, onpartially offset by tighter credit spreads. The Company did not recognize these unrealized losses in earnings because it was determined that such losses were due to non-credit factors. The Company does not intend to sell these securities and does not believe that it is more likely than not that the long endCompany will be required to sell these securities before the anticipated recovery of the interest rate curveremaining amortized cost basis. As of both June 30, 2021 and tighter credit spreads.
The following table presents a rollforwardDecember 31, 2020, 92% of the cumulative amounts recognized in the Consolidated Statementstotal of Operations for other-than-temporary impairments related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss) (“OCI”):with gross unrealized losses were considered investment grade.
|
| | | | | | | | | | | | | | | |
| 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)
(Continued)
The following tables present a rollforward of the allowance for credit losses on Available-for-Sale securities:
| | | | | | | | | | | | | | | | | |
| Corporate Debt Securities | | Asset Backed Securities | | Total |
(in millions) |
Balance, April 1, 2021 | $ | 0 | | $ | 0 | | $ | 0 |
Additional increases (decreases) on securities that had an allowance recorded in a previous period | — | | — | | — |
Charge-offs | 0 | | 0 | | 0 |
Balance, June 30, 2021 | $ | 0 | | $ | 0 | | $ | 0 |
| | | | | |
Balance, April 1, 2020 | $ | 13 | | $ | 0 | | $ | 13 |
| | | | | |
Additional increases (decreases) on securities that had an allowance recorded in a previous period | 0 | | 1 | | 1 |
Balance, June 30, 2020 | $ | 13 | | $ | 1 | | $ | 14 |
| | | | | |
Balance at January 1, 2021 (1) | $ | 10 | | $ | 1 | | $ | 11 |
| | | | | |
Charge-offs | (10) | | (1) | | (11) |
Balance, June 30, 2021 | $ | 0 | | $ | 0 | | $ | 0 |
| | | | | |
Balance at January 1, 2020 (1) | $ | 0 | | | $ | 0 | | | $ | 0 | |
Additions for which credit losses were not previously recorded | 13 | | | — | | | 13 | |
Additional increases (decreases) on securities that had an allowance recorded in a previous period | — | | | 1 | | | 1 | |
Balance at June 30, 2020 | $ | 13 | | | $ | 1 | | | $ | 14 | |
(1) Prior to January 1, 2020, credit losses on Available-for-Sale securities were not recorded in an allowance but were recorded as a reduction of the book value of the security if the security was other-than-temporarily impaired.
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earningsnet investment income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | 2021 | | 2020 |
(in millions) |
Gross realized investment gains | $ | 14 | | $ | 5 | | | $ | 65 | | $ | 13 |
Gross realized investment losses | — | | — | | | (1) | | (3) |
Credit losses | — | | (1) | | | — | | (14) |
Other impairments | (13) | | — | | | (13) | | — |
Total | $ | 1 | | $ | 4 | | $ | 51 | | $ | (4) |
|
| | | | | | | | | | | | | | | |
| 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-temporaryThere were no credit losses for the three months and six months ended June 30, 2021. Other impairments for the ninethree months and six months ended SeptemberJune 30, 20172021 relate to Available-for-Sale securities for which the Company has the intent to sell related to the reinsurance transaction. See Note 1 for more information on the reinsurance transaction. Credit losses for the three months and 2016six months ended June 30, 2020 primarily related to recording an allowance for credit losses on asset backed securities.certain corporate debt securities, primarily in the oil and gas industry.
See Note 1314 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, 20172021 were as follows:
| | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
(in millions) | | (in millions) |
Due within one year | $ | 2,311 |
| | $ | 2,340 |
| Due within one year | $ | 2,534 | | $ | 2,551 |
Due after one year through five years | 6,562 |
| | 6,820 |
| Due after one year through five years | 4,131 | | 4,412 |
Due after five years through 10 years | 3,852 |
| | 4,010 |
| Due after five years through 10 years | 3,907 | | 4,115 |
Due after 10 years | 4,316 |
| | 5,249 |
| Due after 10 years | 4,132 | | 5,560 |
| 17,041 |
| | 18,419 |
| | 14,704 | | 16,638 |
Residential mortgage backed securities | 6,740 |
| | 6,790 |
| Residential mortgage backed securities | 9,556 | | 9,682 |
Commercial mortgage backed securities | 3,917 |
| | 3,952 |
| Commercial mortgage backed securities | 5,995 | | 6,178 |
Asset backed securities | 1,611 |
| | 1,646 |
| Asset backed securities | 3,603 | | 3,648 |
Common stocks | 9 |
| | 19 |
| |
Total | $ | 29,318 |
| | $ | 30,826 |
| Total | $ | 33,858 | | $ | 36,146 |
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
Financing receivables are comprised of commercial loans, consumer loans, and the deposit receivable.
Allowance for Credit Losses
The Company’s financing receivables includefollowing tables present a rollforward of the allowance for credit losses for the six months ended June 30:
| | | | | | | | | | | | | | | | | |
| Commercial Loans | | Consumer Loans | | Total |
(in millions) |
| | | | | |
| | | | | |
Balance, January 1, 2021 | $ | 66 | | | $ | 2 | | | $ | 68 | |
Provisions | (15) | | | 1 | | | (14) | |
Charge-offs | (3) | | | — | | | (3) | |
| | | | | |
Other | 2 | | | — | | | 2 | |
Balance, June 30, 2021 | $ | 50 | | | $ | 3 | | | $ | 53 | |
| | | | | | | | | | | | | | | | | |
| Commercial Loans | | Consumer Loans | | Total |
(in millions) |
Balance, December 31, 2019 (1) | $ | 51 | | | $ | 0 | | | $ | 51 | |
Cumulative effect of adoption of current expected credit losses guidance | 2 | | | 3 | | | 5 | |
Balance, January 1, 2020 | 53 | | | 3 | | | 56 | |
Provisions | 13 | | | 3 | | | 16 | |
Charge-offs | (1) | | | (2) | | | (3) | |
| | | | | |
Balance, June 30, 2020 | $ | 65 | | | $ | 4 | | | $ | 69 | |
(1) Prior to January 1, 2020, the allowance for credit losses was based on an incurred loss model that did not require estimating expected credit losses over the expected life of the asset.
The allowance for credit losses provision for commercial loans reflects the reclassification of certain commercial mortgage loans and syndicated loans consumer loans, policy loans, certificate loans and margin loans. Commercial mortgage loans, syndicated loans, consumer loans, policy loans and certificate loans are reflected in investments. Margin loans are recorded in receivables.
Allowanceto held for Loan Losses
Policy and certificate loanssale (recorded at the lower of amortized cost or fair value) as of June 30, 2021. Loans held for sale do not exceedrequire measurement of lifetime expected credit losses because the recovery of the loan is expected to result from its sale, not from holding the loan and collecting contractual cash surrenderflows. The provision reflects a release of $14 million as a result of the reclassification to held for sale. A separate valuation allowance of $7 million was established to record the loans held for sale at the lower of amortized cost or fair value at origination. As there is minimal riskas of loss related to policy and certificate loans, the Company does not record an allowance for loan losses.June 30, 2021. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the riskrelease of loss. As there is minimal risk of loss related to margin loans, the allowance for loancredit losses and the creation of the held for sale valuation allowance are both recorded in realized gains and losses within net investment income on the Consolidated Statements of Operations. See Note 1 for more information on the reinsurance transaction.
Accrued interest on commercial loans was $19 million and $16 million as of June 30, 2021 and December 31, 2020, respectively, and is immaterial.recorded in receivables on the Consolidated Balance Sheets and excluded from the amortized cost basis of commercial loans.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
Purchases and Sales
The following table presents a rollforward ofDuring the allowance for loan losses for the ninethree months ended June 30, 2021 and 2020, the ending balanceCompany purchased $24 million and $13 million, respectively, of syndicated loans, and sold $4 million and NaN, respectively, of syndicated loans. During the allowance for loan losses by impairment method:
|
| | | | | | | |
| 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:
|
| | | | | | | |
| 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 |
|
Assix months ended June 30, 2021 and 2020, the Company purchased $37 million and $69 million, respectively, of September 30, 2017syndicated loans, and December 31, 2016, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $13sold $8 million and $7 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.respectively, of syndicated loans.
During the three months ended SeptemberJune 30, 20172021 and 2016,2020, the Company purchased $18$4 million and $22 million, respectively, and sold $12 million and nil, respectively, primarily of syndicatedresidential mortgage loans. During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company purchased $154$6 million and $65$22 million, respectively, of syndicatedresidential mortgage loans. The allowance for credit losses for residential mortgage loans respectively,was not material as of both June 30, 2021 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 million and recognized a loss of $11 million.2020.
The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.
Credit Quality Information
Nonperforming loans which are generally loans 90 days or more past due, were $2 $13 million and $21 million as of both SeptemberJune 30, 20172021 and December 31, 2016.2020, respectively. All other loans were considered to be performing.
Commercial Loans
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. Loan-to-value ratio is the primary credit quality indicator included in this review.
Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary.when credit risk changes. 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, 20172021 and December 31, 2016, respectively.2020. 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. Total commercial mortgage loan modifications through June 30, 2021 due to the COVID-19 pandemic consisted of 93 loans with a total unpaid balance of $369 million. Modifications primarily consisted of short-term forbearance and interest only payments. As of June 30, 2021, there were 0 loans remaining that were modified due to COVID-19. All loans returned to their normal payment schedules. Total commercial mortgage loans past due were NaN as of June 30, 2021 and December 31, 2020, respectively.
The tables below present the amortized cost basis of commercial mortgage loans by the year of origination and loan-to-value ratio (excludes commercial mortgage loans held for sale of $1.0 billion and NaN as of June 30, 2021 and December 31, 2020, respectively): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
Loan-to-Value Ratio | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| (in millions) |
> 100% | | $ | — | | | $ | — | | | $ | 10 | | | $ | 11 | | | $ | — | | | $ | 12 | | | $ | 33 | |
80% - 100% | | 6 | | | — | | | 4 | | | 3 | | | — | | | 21 | | | 34 | |
60% - 80% | | 80 | | | 67 | | | 64 | | | 28 | | | 62 | | | 131 | | | 432 | |
40% - 60% | | 11 | | | 33 | | | 76 | | | 64 | | | 51 | | | 345 | | | 580 | |
< 40% | | 5 | | | 1 | | | 42 | | | 3 | | | 52 | | | 461 | | | 564 | |
Total | | $ | 102 | | | $ | 101 | | | $ | 196 | | | $ | 109 | | | $ | 165 | | | $ | 970 | | | $ | 1,643 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
Loan-to-Value Ratio | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
| (in millions) |
> 100% | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 10 | | | $ | 12 | |
80% - 100% | | 15 | | | 16 | | | 12 | | | 3 | | | 7 | | | 15 | | | 68 | |
60% - 80% | | 89 | | | 166 | | | 27 | | | 32 | | | 46 | | | 144 | | | 504 | |
40% - 60% | | 23 | | | 57 | | | 74 | | | 155 | | | 113 | | | 551 | | | 973 | |
< 40% | | 7 | | | 23 | | | 80 | | | 99 | | | 64 | | | 895 | | | 1,168 | |
Total | | $ | 134 | | | $ | 262 | | | $ | 195 | | | $ | 289 | | | $ | 230 | | | $ | 1,615 | | | $ | 2,725 | |
Loan-to-value ratio is based on income and expense data provided by borrowers at least annually and long-term capitalization rate assumptions based on property type.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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, 2021 | | December 31, 2020 | June 30, 2021 | | December 31, 2020 |
(in millions) | | | | | (in millions) | | | | |
East North Central | $ | 237 |
| | $ | 198 |
| | 9 | % | | 7 | % | East North Central | $ | 178 | | | $ | 259 | | | 11 | % | | 10 | % |
East South Central | 92 |
| | 88 |
| | 3 |
| | 3 |
| East South Central | 66 | | | 115 | | | 4 | | | 4 | |
Middle Atlantic | 198 |
| | 203 |
| | 7 |
| | 8 |
| Middle Atlantic | 93 | | | 178 | | | 6 | | | 7 | |
Mountain | 253 |
| | 240 |
| | 9 |
| | 9 |
| Mountain | 123 | | | 247 | | | 7 | | | 9 | |
New England | 87 |
| | 91 |
| | 3 |
| | 3 |
| New England | 24 | | | 54 | | | 1 | | | 2 | |
Pacific | 785 |
| | 746 |
| | 28 |
| | 28 |
| Pacific | 571 | | | 825 | | | 35 | | | 30 | |
South Atlantic | 767 |
| | 783 |
| | 28 |
| | 29 |
| South Atlantic | 379 | | | 681 | | | 23 | | | 25 | |
West North Central | 215 |
| | 222 |
| | 8 |
| | 8 |
| West North Central | 124 | | | 198 | | | 8 | | | 7 | |
West South Central | 136 |
| | 131 |
| | 5 |
| | 5 |
| West South Central | 85 | | | 168 | | | 5 | | | 6 | |
| 2,770 |
| | 2,702 |
| | 100 | % | | 100 | % | | 1,643 | | | 2,725 | | | 100 | % | | 100 | % |
Less: allowance for loan losses | 21 |
| | 21 |
| | |
| | |
| |
Total | $ | 2,749 |
| | $ | 2,681 |
| | |
| | |
| |
Less: allowance for credit losses | | Less: allowance for credit losses | 14 | | | 29 | | | | | |
Total commercial mortgage loans held for investment | | Total commercial mortgage loans held for investment | 1,629 | | | 2,696 | | | | | |
Commercial mortgage loans held for sale (1) | | Commercial mortgage loans held for sale (1) | 1,023 | | | — | | |
Total commercial mortgage loans | | Total commercial mortgage loans | $ | 2,652 | | | $ | 2,696 | | |
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | Percentage |
June 30, 2021 | | December 31, 2020 | June 30, 2021 | | December 31, 2020 |
(in millions) | | | | |
Apartments | $ | 476 | | | $ | 713 | | | 29 | % | | 26 | % |
Hotel | 15 | | | 50 | | | 1 | | | 2 | |
Industrial | 268 | | | 427 | | | 17 | | | 16 | |
Mixed use | 54 | | | 87 | | | 3 | | | 3 | |
Office | 217 | | | 372 | | | 13 | | | 14 | |
Retail | 509 | | | 881 | | | 31 | | | 32 | |
Other | 104 | | | 195 | | | 6 | | | 7 | |
| 1,643 | | | 2,725 | | | 100 | % | | 100 | % |
Less: allowance for credit losses | 14 | | | 29 | | | | | |
Total commercial mortgage loans held for investment | 1,629 | | | 2,696 | | | | | |
Commercial mortgage loans held for sale (1) | 1,023 | | | — | | | | | |
Total commercial mortgage loans | $ | 2,652 | | | $ | 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 |
| | |
| | |
|
(1) See Note 1 for more information on the reinsurance transaction.Syndicated Loans
The recorded investment in syndicated loans as of SeptemberJune 30, 20172021 and December 31, 2016 was $4862020 were $539 million and $482$595 million, respectively, and included $174 million and $595 million of loans that are classified as held for investment as of June 30, 2021 and December 31, 2020, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator forTotal syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loanspast due were NaN and $3 million as of SeptemberJune 30, 20172021 and December 31, 2016 were $22020, respectively. The Company assigns an internal risk rating to each syndicated loan in its portfolio ranging from 1 through 5, with 5 reflecting the lowest quality.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The tables below present the amortized cost basis of syndicated loans by origination year and internal risk rating (excludes loans held for sale of $365 million and $1NaN as of June 30, 2021 and December 31, 2020, respectively):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
Internal Risk Rating | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| (in millions) |
Risk 5 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | |
Risk 4 | | — | | | — | | | 1 | | | 0 | | | 1 | | | 2 | | | 4 | |
Risk 3 | | — | | | 0 | | | 3 | | | 6 | | | 5 | | | 8 | | | 22 | |
Risk 2 | | 15 | | | 9 | | | 11 | | | 12 | | | 15 | | | 11 | | | 73 | |
Risk 1 | | 10 | | | 4 | | | 10 | | | 13 | | | 19 | | | 19 | | | 75 | |
Total | | $ | 25 | | | $ | 13 | | | $ | 25 | | | $ | 31 | | | $ | 40 | | | $ | 40 | | | $ | 174 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
Internal Risk Rating | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
| (in millions) |
Risk 5 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 3 | |
Risk 4 | | — | | | — | | | 4 | | | 9 | | | — | | | 10 | | | 23 | |
Risk 3 | | — | | | 9 | | | 8 | | | 25 | | | 13 | | | 25 | | | 80 | |
Risk 2 | | 30 | | | 57 | | | 62 | | | 69 | | | 14 | | | 41 | | | 273 | |
Risk 1 | | 17 | | | 32 | | | 47 | | | 58 | | | 22 | | | 40 | | | 216 | |
Total | | $ | 47 | | | $ | 98 | | | $ | 121 | | | $ | 161 | | | $ | 49 | | | $ | 119 | | | $ | 595 | |
Financial Advisor Loans
The Company offers loans to financial advisors for transitional cost assistance. Repayment of the loan is highly 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. Accordingly, the primary risk factor for advisor loans is termination status. The allowance for credit losses related to loans to advisors that have terminated their relationship with the Company was $8 million and $7 million as of June 30, 2021 and December 31, 2020, respectively.
The tables below present the amortized cost basis of advisor loans by origination year and termination status:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
Termination Status | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
| (in millions) |
Active | | $ | 67 | | | $ | 160 | | | $ | 128 | | | $ | 95 | | | $ | 122 | | | $ | 141 | | | $ | 713 | |
Terminated | | 1 | | | — | | | — | | | 0 | | | 1 | | | 8 | | | 10 | |
Total | | $ | 68 | | | $ | 160 | | | $ | 128 | | | $ | 95 | | | $ | 123 | | | $ | 149 | | | $ | 723 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
Termination Status | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
| (in millions) |
Active | | $ | 171 | | | $ | 137 | | | $ | 101 | | | $ | 127 | | | $ | 83 | | | $ | 86 | | | $ | 705 | |
Terminated | | — | | | — | | | — | | | 1 | | | 1 | | | 8 | | | 10 | |
Total | | $ | 171 | | | $ | 137 | | | $ | 101 | | | $ | 128 | | | $ | 84 | | | $ | 94 | | | $ | 715 | |
Consumer Loans
Credit Card Receivables
The recorded investment in consumer loanscredit cards are co-branded with Ameriprise Financial, Inc. and issued to the Company’s customers by a third party. FICO scores and delinquency rates are the primary credit quality indicators for the credit card portfolio. Delinquency rates are measured based on the number of days past due. Credit card receivables over 30 days past due were 1% of total credit card receivables as of Septemberboth June 30, 20172021 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.2020.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
The table below presents the amortized cost basis of credit card receivables by FICO score:
During | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in millions) |
> 800 | $ | 28 | | | $ | 28 | |
750 - 799 | 24 | | | 23 | |
700 - 749 | 24 | | | 25 | |
650 - 699 | 14 | | | 15 | |
< 650 | 4 | | | 5 | |
Total | $ | 94 | | | $ | 96 | |
Policy Loans
Policy loans do not exceed the third quartercash surrender value at origination. As there is minimal risk of 2017, theloss related to policy loans, there is 0 allowance for credit losses.
Margin Loans
The margin loans balance was $1.1 billion and $1.0 billion as of June 30, 2021 and December 31, 2020, respectively. The Company entered into an agreement with an unaffiliated third party to sell $258 million of consumer mortgagemonitors collateral supporting margin loans and recordedrequests additional collateral when necessary in order to mitigate the risk of loss. As of both June 30, 2021 and December 31, 2020, the allowance for credit losses on margin loans was not material.
Pledged Asset Lines of Credit
The pledged asset lines of credit balance was $350 million and $224 million as of June 30, 2021 and December 31, 2020, respectively. The Company monitors collateral supporting pledged asset lines of credit and requests additional collateral when necessary in order to mitigate the risk of loss. As of June 30, 2021 and December 31, 2020, there was 0 allowance for credit losses on pledged asset lines of credit.
Deposit Receivable
The deposit receivable was $1.4 billion as of both June 30, 2021 and December 31, 2020. The deposit receivable is fully collateralized by the fair value of the assets held in a $7 million loss to reflecttrust. Based on management’s evaluation of the loans at fair value. nature of the underlying assets and the potential for changes in the collateral value, there was 0 allowance for credit losses for the deposit receivable as of both June 30, 2021 and December 31, 2020.
Troubled Debt Restructurings
The recorded investment in restructuredThere were 0 loans was not materialaccounted for as of September 30, 2017 and December 31, 2016. Thea troubled debt restructurings did not have a material impact torestructuring by the Company’s allowance for loan losses or income recognized forCompany during the both three months and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020. There are no0 commitments to lend additional funds to borrowers whose loans have been restructured.
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 in DAC were as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
(in millions) |
Balance at January 1 | $ | 2,532 | | | $ | 2,698 | |
Capitalization of acquisition costs | 138 | | | 108 | |
Amortization | (68) | | | (264) | |
| | | |
Impact of change in net unrealized (gains) losses on securities | 48 | | | (43) | |
| | | |
Balance at June 30 | $ | 2,650 | | | $ | 2,499 | |
|
| | | | | | | | |
| 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:
| | | | | | | | | | | |
| 2021 | | 2020 |
(in millions) |
Balance at January 1 | $ | 189 | | | $ | 218 | |
Capitalization of sales inducement costs | 1 | | | 1 | |
Amortization | (7) | | | (18) | |
| | | |
Impact of change in net unrealized (gains) losses on securities | 5 | | | (5) | |
Balance at June 30 | $ | 188 | | | $ | 196 | |
|
| | | | | | | |
| 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)
(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, 2021 | | December 31, 2020 |
(in millions) |
Policyholder account balances | | | |
Fixed annuities (1) | $ | 8,307 | | | $ | 8,531 | |
Variable annuity fixed sub-accounts | 5,052 | | | 5,104 | |
Universal life (“UL”)/variable universal life (“VUL”) insurance | 3,111 | | | 3,122 | |
Indexed universal life (“IUL”) insurance | 2,395 | | | 2,269 | |
Structured variable annuities | 2,858 | | | 1,371 | |
Other life insurance | 588 | | | 605 | |
Total policyholder account balances | 22,311 | | | 21,002 | |
| | | |
Future policy benefits | | | |
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”) | 2,149 | | | 3,049 | |
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) (2) | (20) | | | 1 | |
Other annuity liabilities | 196 | | | 211 | |
Fixed annuity life contingent liabilities | 1,323 | | | 1,370 | |
Life and disability income insurance | 1,165 | | | 1,187 | |
Long term care insurance | 5,658 | | | 5,722 | |
UL/VUL and other life insurance additional liabilities | 1,263 | | | 1,259 | |
Total future policy benefits | 11,734 | | | 12,799 | |
Policy claims and other policyholders’ funds | 177 | | | 191 | |
Total policyholder account balances, future policy benefits and claims | $ | 34,222 | | | $ | 33,992 | |
|
| | | | | | | | |
| 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 equityfixed deferred indexed annuity (“EIA”) host contracts.
(2) Includes the fair value of GMAB embedded derivatives that was a net asset as of both SeptemberJune 30, 2017 and December 31, 20162021 reported as a contra liability.
Separate account liabilities consisted of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in millions) |
Variable annuity | $ | 82,584 | | | $ | 79,299 | |
VUL insurance | 8,998 | | | 8,226 | |
Other insurance | 33 | | | 31 | |
Threadneedle investment liabilities | 5,239 | | | 5,055 | |
Total | $ | 96,854 | | | $ | 92,611 | |
|
| | | | | | | |
| 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 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued) 8.9. 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) | June 30, 2021 | | December 31, 2020 |
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 | $ | 69,623 | | | $ | 67,714 | | | $ | 4 | | | 68 | | $ | 66,874 | | | $ | 64,932 | | | $ | 5 | | | 68 |
Five/six-year reset | 8,364 | | | 5,646 | | | 6 | | | 68 | | 8,116 | | | 5,386 | | | 6 | | | 68 |
One-year ratchet | 6,256 | | | 5,933 | | | 8 | | | 71 | | 6,094 | | | 5,763 | | | 8 | | | 71 |
Five-year ratchet | 1,463 | | | 1,409 | | | 1 | | | 67 | | 1,436 | | | 1,381 | | | — | | | 67 |
Other | 1,305 | | | 1,288 | | | 36 | | | 74 | | 1,261 | | | 1,243 | | | 45 | | | 73 |
Total — GMDB | $ | 87,011 | | | $ | 81,990 | | | $ | 55 | | | 68 | | $ | 83,781 | | | $ | 78,705 | | | $ | 64 | | | 68 |
| | | | | | | | | | | | | | | |
GGU death benefit | $ | 1,242 | | | $ | 1,187 | | | $ | 182 | | | 72 | | $ | 1,183 | | | $ | 1,126 | | | $ | 162 | | | 71 |
| | | | | | | | | | | | | | | | |
GMIB | $ | 192 | | | $ | 178 | | | $ | 5 | | | 71 | | $ | 187 | | | $ | 173 | | | $ | 6 | | | 71 |
GMWB: | | | | | | | | | | | | | | | |
GMWB | $ | 1,972 | | | $ | 1,967 | | | $ | 1 | | | 74 | | $ | 1,972 | | | $ | 1,967 | | | $ | 1 | | | 74 |
GMWB for life | 52,130 | | | 52,064 | | | 163 | | | 69 | | 50,142 | | | 50,057 | | | 185 | | | 69 |
Total — GMWB | $ | 54,102 | | | $ | 54,031 | | | $ | 164 | | | 69 | | $ | 52,114 | | | $ | 52,024 | | | $ | 186 | | | 69 |
| | | | | | | | | | | | | | | |
GMAB | $ | 2,143 | | | $ | 2,143 | | | $ | — | | | 61 | | $ | 2,291 | | | $ | 2,291 | | | $ | — | | | 61 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
(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. | |
(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:
| | | September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
Net Amount at Risk | | Weighted Average Attained Age | Net Amount at Risk | | Weighted Average Attained Age | Net Amount at Risk | | Weighted Average Attained Age | Net Amount at Risk | | Weighted Average Attained Age |
(in millions, except age) | (in millions, except age) |
UL secondary guarantees | $ | 6,443 |
| | 65 | | $ | 6,376 |
| | 64 | UL secondary guarantees | $ | 6,565 | | | 68 | | $ | 6,587 | | | 67 |
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)(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, 2020 | $ | 16 | | | $ | 7 | | | $ | 1,462 | | | $ | (39) | | | $ | 758 | |
Incurred claims | 5 | | | 1 | | | 2,387 | | | 69 | | | 65 | |
Paid claims | (4) | | | (1) | | | — | | | — | | | (24) | |
Balance at June 30, 2020 | $ | 17 | | | $ | 7 | | | $ | 3,849 | | | $ | 30 | | | $ | 799 | |
| | | | | | | | | |
Balance at January 1, 2021 | $ | 24 | | | $ | 6 | | | $ | 3,049 | | | $ | 1 | | | $ | 916 | |
Incurred claims | 9 | | | 0 | | | (900) | | | (21) | | | 69 | |
Paid claims | (2) | | | — | | | — | | | — | | | (16) | |
Balance at June 30, 2021 | $ | 31 | | | $ | 6 | | | $ | 2,149 | | | $ | (20) | | | $ | 969 | |
|
| | | | | | | | | | | | | | | | | | | |
| 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, 2021 | | December 31, 2020 |
(in millions) |
Mutual funds: | | | |
Equity | $ | 48,376 | | | $ | 45,947 | |
Bond | 25,684 | | | 26,073 | |
Other | 8,151 | | | 6,911 | |
Total mutual funds | $ | 82,211 | | | $ | 78,931 | |
|
| | | | | | | |
| 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 |
September 30, 2017 | | December 31, 2016 | September 30, 2017 | | December 31, 2016 |
(in millions) | | |
Long-term debt: |
Senior notes due 2019 | $ | 300 |
| | $ | 300 |
| | 7.3 | % | | 7.3 | % |
Senior notes due 2020 | 750 |
| | 750 |
| | 5.3 |
| | 5.3 |
|
Senior notes due 2023 | 750 |
| | 750 |
| | 4.0 |
| | 4.0 |
|
Senior notes due 2024 | 550 |
| | 550 |
| | 3.7 |
| | 3.7 |
|
Senior notes due 2026 | 500 |
| | 500 |
| | 2.9 |
| | 2.9 |
|
Capitalized lease obligations | 41 |
| | 49 |
| | |
| | |
Other(1) | 11 |
| | 18 |
| | | | |
Total long-term debt | 2,902 |
| | 2,917 |
| | | | |
|
Short-term borrowings: |
Federal Home Loan Bank (“FHLB”) advances | 151 |
| | 150 |
| | 1.3 |
| | 0.8 |
|
Repurchase agreements | 50 |
| | 50 |
| | 1.4 |
| | 0.9 |
|
Total short-term borrowings | 201 |
| | 200 |
| | |
| | |
|
Total | $ | 3,103 |
| | $ | 3,117 |
| | |
| | |
|
(1) Amounts include adjustments for fair value hedges on the Company’s long-term debt and unamortized discount and debt issuance costs. See Note 12 for information on the Company’s fair value hedges. | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Balance | | Stated Interest Rate |
June 30, 2021 | | December 31, 2020 | June 30, 2021 | | December 31, 2020 |
(in millions) | |
Long-term debt: | | | | | | | |
Senior notes due 2022 | $ | 500 | | | $ | 500 | | | 3.0 | % | | 3.0 | % |
Senior notes due 2023 | 750 | | | 750 | | | 4.0 | | | 4.0 | |
Senior notes due 2024 | 550 | | | 550 | | | 3.7 | | | 3.7 | |
Senior notes due 2025 | 500 | | | 500 | | | 3.0 | | | 3.0 | |
Senior notes due 2026 | 500 | | | 500 | | | 2.9 | | | 2.9 | |
Finance lease liabilities | 44 | | | 44 | | | N/A | | N/A |
Other | (11) | | | (13) | | | N/A | | N/A |
Total long-term debt | 2,833 | | | 2,831 | | | | | |
| | | | | | | |
Short-term borrowings: | | | | | | | |
Federal Home Loan Bank (“FHLB”) advances | 200 | | | 200 | | | 0.3 | | | 0.4 | |
Total | $ | 3,033 | | | $ | 3,031 | | | | | |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
Long-termLong-Term Debt
On August 11, 2016, the Company issued $500 million of unsecuredThe Company’s senior notes due September 15, 2026, and incurred debt issuance costs of $4 million. Interest payments are due semi-annuallymay be redeemed, in arrears on March 15 and September 15, commencing on March 15, 2017.
In the first quarter of 2016, the Company extinguished $16 million of its junior subordinated notes due 2066whole or 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 2066part, at any time prior to maturity at a redemption price equal to 100%the greater of the principal balanceamount and the present value of remaining scheduled payments, discounted to the notesredemption date, plus accrued and compounded interest.
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 September 30, 2017 and December 31, 2016, the Company has pledged $32 million and $33 million of agency residential mortgage backed securities and $16 million and $19 million of commercial mortgage backed securities, respectively. The remaining maturity of outstanding repurchase agreements was less than one month as of September 30, 2017 and less than three months as of December 31, 2016. 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 memberand bank subsidiaries are members 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 and residential mortgage backed securities as collateral to collateralize its obligation underaccess these borrowings. The fair value of the securities pledged is recorded in investments and was $764$0.9 billion and $1.3 billion, of commercial mortgage backed securities, and $580 million and $771$604 million, of residential mortgage backed securities, as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of Septemberboth June 30, 20172021 and less than four months as of December 31, 2016.2020. 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,June 11, 2021, the Company entered into an amended and restated credit agreement that provides for an unsecured revolving credit facility of up to $750 million$1.0 billion that expires in October 2022.June 2026. Under the terms of the credit agreement for the facility, the Company may increase the amount of this facility up to $1.0$1.25 billion upon satisfaction of certain approval requirements. This agreement replaced the Company’s unsecured revolving credit facility that was to expire in May 2020. The Company had no borrowings outstanding under this facility asAs of both SeptemberJune 30, 20172021 and December 31, 20162020, the Company had 0 borrowings outstanding and outstandinghad $1 million of 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, 20172021 and December 31, 2016.2020.
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)(Continued)
The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets | | | | | | | | |
Cash equivalents | $ | 2,359 | | | $ | 3,642 | | | $ | — | | | $ | 6,001 | | |
Available-for-Sale securities: | | | | | | | | |
Corporate debt securities | — | | | 13,285 | | | 391 | | | 13,676 | | |
Residential mortgage backed securities | — | | | 9,682 | | | — | | | 9,682 | | |
Commercial mortgage backed securities | — | | | 6,178 | | | — | | | 6,178 | | |
Asset backed securities | — | | | 3,642 | | | 6 | | | 3,648 | | |
State and municipal obligations | — | | | 1,319 | | | — | | | 1,319 | | |
U.S. government and agency obligations | 1,326 | | | — | | | — | | | 1,326 | | |
Foreign government bonds and obligations | — | | | 223 | | | — | | | 223 | | |
Other securities | — | | | 94 | | | — | | | 94 | | |
Total Available-for-Sale securities | 1,326 | | | 34,423 | | | 397 | | | 36,146 | | |
| | | | | | | | |
Investments at net asset value (“NAV”) | | | | | | | 8 | | (1) |
Trading and other securities | 20 | | | 31 | | | — | | | 51 | | |
Separate account assets at NAV | | | | | | | 96,854 | | (1) |
Investments and cash equivalents segregated for regulatory purposes | 765 | | | — | | | — | | | 765 | | |
Other assets: | | | | | | | | |
Interest rate derivative contracts | 2 | | | 1,415 | | | — | | | 1,417 | | |
Equity derivative contracts | 448 | | | 4,230 | | | — | | | 4,678 | | |
Credit derivative contracts | — | | | 1 | | | — | | | 1 | | |
Foreign exchange derivative contracts | 2 | | | 22 | | | — | | | 24 | | |
Total other assets | 452 | | | 5,668 | | | — | | | 6,120 | | |
Total assets at fair value | $ | 4,922 | | | $ | 43,764 | | | $ | 397 | | | $ | 145,945 | | |
|
| | | | | | | | | | | | | | | | |
| September 30, 2017 | |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets |
Cash equivalents | $ | 136 |
| | $ | 1,882 |
| | $ | — |
| | $ | 2,018 |
| |
Available-for-Sale securities: |
Corporate debt securities | — |
| | 14,383 |
| | 1,267 |
| | 15,650 |
| |
Residential mortgage backed securities | — |
| | 6,625 |
| | 165 |
| | 6,790 |
| |
Commercial mortgage backed securities | — |
| | 3,887 |
| | 65 |
| | 3,952 |
| |
Asset backed securities | — |
| | 1,611 |
| | 35 |
| | 1,646 |
| |
State and municipal obligations | — |
| | 2,455 |
| | — |
| | 2,455 |
| |
U.S. government and agencies obligations | 6 |
| | — |
| | — |
| | 6 |
| |
Foreign government bonds and obligations | — |
| | 308 |
| | — |
| | 308 |
| |
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 |
| |
Trading securities | 131 |
| | 32 |
| | — |
| | 163 |
| |
Separate account assets measured at NAV | 85,287 |
| (1) |
Investments segregated for regulatory purposes | 424 |
| | — |
| | — |
| | 424 |
| |
Other assets: |
Interest rate derivative contracts | 1 |
| | 1,200 |
| | — |
| | 1,201 |
| |
Equity derivative contracts | 51 |
| | 1,891 |
| | — |
| | 1,942 |
| |
Credit derivative contracts | — |
| | 4 |
| | — |
| | 4 |
| |
Foreign exchange derivative contracts | 1 |
| | 42 |
| | — |
| | 43 |
| |
Total other assets | 53 |
| | 3,137 |
| | — |
| | 3,190 |
| |
Total assets at fair value | $ | 754 |
| | $ | 34,328 |
| | $ | 1,533 |
| | $ | 121,908 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
Policyholder account balances, future policy benefits and claims: | | | | | | | | |
Fixed deferred indexed annuity embedded derivatives | $ | — | | | $ | 4 | | | $ | 54 | | | $ | 58 | | |
IUL embedded derivatives | — | | | — | | | 928 | | | 928 | | |
GMWB and GMAB embedded derivatives | — | | | — | | | 1,373 | | | 1,373 | | (2) |
Structured variable annuity embedded derivatives | — | | | — | | | 214 | | | 214 | | |
Total policyholder account balances, future policy benefits and claims | — | | | 4 | | | 2,569 | | | 2,573 | | (3) |
Customer deposits | — | | | 6 | | | — | | | 6 | | |
Other liabilities: | | | | | | | | |
Interest rate derivative contracts | — | | | 558 | | | — | | | 558 | | |
Equity derivative contracts | 160 | | | 3,790 | | | — | | | 3,950 | | |
Credit derivative contracts | — | | | 7 | | | — | | | 7 | | |
Foreign exchange derivative contracts | 1 | | | 5 | | | — | | | 6 | | |
Other | 8 | | | 3 | | | 44 | | | 55 | | |
Total other liabilities | 169 | | | 4,363 | | | 44 | | | 4,576 | | |
Total liabilities at fair value | $ | 169 | | | $ | 4,373 | | | $ | 2,613 | | | $ | 7,155 | | |
|
| | | | | | | | | | | | | | | | |
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)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets | | | | | | | | |
Cash equivalents | $ | 2,935 | | | $ | 2,506 | | | $ | — | | | $ | 5,441 | | |
Available-for-Sale securities: | | | | | | | | |
Corporate debt securities | — | | | 12,902 | | | 772 | | | 13,674 | | |
Residential mortgage backed securities | — | | | 10,020 | | | 9 | | | 10,029 | | |
Commercial mortgage backed securities | — | | | 6,088 | | | — | | | 6,088 | | |
Asset backed securities | — | | | 3,297 | | | 32 | | | 3,329 | | |
State and municipal obligations | — | | | 1,384 | | | — | | | 1,384 | | |
U.S. government and agency obligations | 1,456 | | | — | | | — | | | 1,456 | | |
Foreign government bonds and obligations | — | | | 262 | | | — | | | 262 | | |
Other securities | — | | | 61 | | | — | | | 61 | | |
Total Available-for-Sale securities | 1,456 | | | 34,014 | | | 813 | | | 36,283 | | |
| | | | | | | | |
Investments at NAV | | | | | | | 8 | | (1) |
Trading and other securities | 61 | | | 27 | | | — | | | 88 | | |
Separate account assets at NAV | | | | | | | 92,611 | | (1) |
Investments and cash equivalents segregated for regulatory purposes | 600 | | | — | | | — | | | 600 | | |
Other assets: | | | | | | | | |
Interest rate derivative contracts | 1 | | | 1,754 | | | — | | | 1,755 | | |
Equity derivative contracts | 408 | | | 3,682 | | | — | | | 4,090 | | |
Credit derivative contracts | — | | | 2 | | | — | | | 2 | | |
Foreign exchange derivative contracts | 1 | | | 22 | | | — | | | 23 | | |
Total other assets | 410 | | | 5,460 | | | — | | | 5,870 | | |
Total assets at fair value | $ | 5,462 | | | $ | 42,007 | | | $ | 813 | | | $ | 140,901 | | |
|
| | | | | | | | | | | | | | | | |
| December 31, 2016 | |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Assets |
Cash equivalents | $ | 30 |
| | $ | 1,796 |
| | $ | — |
| | $ | 1,826 |
| |
Available-for-Sale securities: |
Corporate debt securities | — |
| | 14,925 |
| | 1,311 |
| | 16,236 |
| |
Residential mortgage backed securities | — |
| | 6,650 |
| | 268 |
| | 6,918 |
| |
Commercial mortgage backed securities | — |
| | 3,367 |
| | — |
| | 3,367 |
| |
Asset backed securities | — |
| | 1,481 |
| | 68 |
| | 1,549 |
| |
State and municipal obligations | — |
| | 2,358 |
| | — |
| | 2,358 |
| |
U.S. government and agencies obligations | 8 |
| | — |
| | — |
| | 8 |
| |
Foreign government bonds and obligations | — |
| | 261 |
| | — |
| | 261 |
| |
Common stocks | 8 |
| | 8 |
| | 1 |
| | 17 |
| |
Common stocks at NAV | | | | | | | 5 |
| (1) |
Total Available-for-Sale securities | 16 |
| | 29,050 |
| | 1,648 |
| | 30,719 |
| |
Trading securities | 9 |
| | 16 |
| | — |
| | 25 |
| |
Separate account assets at NAV | 80,210 |
| (1) |
Investments segregated for regulatory purposes | 425 |
| | — |
| | — |
| | 425 |
| |
Other assets: |
Interest rate derivative contracts | — |
| | 1,778 |
| | — |
| | 1,778 |
| |
Equity derivative contracts | 43 |
| | 1,531 |
| | — |
| | 1,574 |
| |
Credit derivative contracts | — |
| | 1 |
| | — |
| | 1 |
| |
Foreign exchange derivative contracts | 13 |
| | 80 |
| | — |
| | 93 |
| |
Total other assets | 56 |
| | 3,390 |
| | — |
| | 3,446 |
| |
Total assets at fair value | $ | 536 |
| | $ | 34,252 |
| | $ | 1,648 |
| | $ | 116,651 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | |
Policyholder account balances, future policy benefits and claims: | | | | | | | | |
Fixed deferred indexed annuity embedded derivatives | $ | — | | | $ | 3 | | | $ | 49 | | | $ | 52 | | |
IUL embedded derivatives | — | | | — | | | 935 | | | 935 | | |
GMWB and GMAB embedded derivatives | — | | | — | | | 2,316 | | | 2,316 | | (4) |
Structured variable annuity embedded derivatives | — | | | — | | | 70 | | | 70 | | |
Total policyholder account balances, future policy benefits and claims | — | | | 3 | | | 3,370 | | | 3,373 | | (5) |
Customer deposits | — | | | 8 | | | — | | | 8 | | |
Other liabilities: | | | | | | | | |
Interest rate derivative contracts | — | | | 734 | | | — | | | 734 | | |
Equity derivative contracts | 183 | | | 3,388 | | | — | | | 3,571 | | |
Credit derivative contracts | — | | | 1 | | | — | | | 1 | | |
Foreign exchange derivative contracts | 2 | | | 4 | | | — | | | 6 | | |
Other | 2 | | | 3 | | | 43 | | | 48 | | |
Total other liabilities | 187 | | | 4,130 | | | 43 | | | 4,360 | | |
Total liabilities at fair value | $ | 187 | | | $ | 4,141 | | | $ | 3,413 | | | $ | 7,741 | | |
|
| | | | | | | | | | | | | | | | |
Liabilities |
Policyholder account balances, future policy benefits and claims: |
EIA embedded derivatives | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| |
IUL embedded derivatives | — |
| | — |
| | 464 |
| | 464 |
| |
GMWB and GMAB embedded derivatives | — |
| | — |
| | 614 |
| | 614 |
| (4) |
Total policyholder account balances, future policy benefits and claims | — |
| | 5 |
| | 1,078 |
| | 1,083 |
| (5) |
Customer deposits | — |
| | 8 |
| | — |
| | 8 |
| |
Other liabilities: |
Interest rate derivative contracts | 2 |
| | 987 |
| | — |
| | 989 |
| |
Equity derivative contracts | 3 |
| | 2,132 |
| | — |
| | 2,135 |
| |
Foreign exchange derivative contracts | 2 |
| | 45 |
| | — |
| | 47 |
| |
Other | 3 |
| | 8 |
| | 13 |
| | 24 |
| |
Total other liabilities | 10 |
| | 3,172 |
| | 13 |
| | 3,195 |
| |
Total liabilities at fair value | $ | 10 |
| | $ | 3,185 |
| | $ | 1,091 |
| | $ | 4,286 |
| |
(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 million$1.5 billion of individual contracts in a liability position and $449$154 million of individual contracts in an asset position (recorded as a contra liability) as of SeptemberJune 30, 2017.2021.
| |
(3)(3) The Company’s adjustment for nonperformance risk resulted in a $547 million cumulative decrease to the embedded derivatives as of June 30, 2021. (4) The fair value of the GMWB and GMAB embedded derivatives included $2.4 billion of individual contracts in a liability position and $67 million of individual contracts in an asset position (recorded as a contra liability) as of December 31, 2020. (5) The Company’s adjustment for nonperformance risk resulted in a $727 million cumulative decrease to the embedded derivatives as of December 31, 2020. | The Company’s adjustment for nonperformance risk resulted in a $(376) million cumulative increase (decrease) to the embedded derivatives as of September 30, 2017. |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| |
(4)
| The fair value of the GMWB and GMAB embedded derivatives included $880 million of individual contracts in a liability position and $266 million of individual contracts in an asset position as of December 31, 2016. |
| |
(5)
| The Company’s adjustment for nonperformance risk resulted in a $(498) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2016. |
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 | | | |
| Corporate Debt Securities | | Residential Mortgage Backed Securities | | | Asset Backed Securities | | | Total | |
| (in millions) |
Balance, April 1, 2021 | $ | 812 | | | $ | 87 | | | | $ | 30 | | | | $ | 929 | | | | |
Total gains (losses) included in: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other comprehensive income (loss) | 2 | | | — | | | | — | | | | 2 | | | | |
Purchases | 21 | | | — | | | | — | | | | 21 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Settlements | (28) | | | — | | | | — | | | | (28) | | | | |
| | | | | | | | | | | | |
Transfers out of Level 3 | (416) | | | (87) | | | | (24) | | | | (527) | | | | |
Balance, June 30, 2021 | $ | 391 | | | $ | 0 | | | | $ | 6 | | | | $ | 397 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at June 30, 2021 | $ | 2 | | | $ | — | | | | $ | — | | | | $ | 2 | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | Commercial Mortgage Backed Securities | | Asset Backed Securities | | Common Stocks | | Total |
(in millions) |
Balance, July 1, 2017 | $ | 1,333 |
| | $ | 172 |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | 1,538 |
|
Total gains (losses) included in: |
Other comprehensive income | (1 | ) | | 1 |
| | — |
| | (2 | ) | | 1 |
| | (1 | ) |
Purchases | 39 |
| | — |
| | 65 |
| | 10 |
| | — |
| | 114 |
|
Settlements | (104 | ) | | (9 | ) | | — |
| | — |
| | — |
| | (113 | ) |
Transfers into Level 3 | — |
| | 20 |
| | — |
| | 13 |
| | — |
| | 33 |
|
Transfers out of Level 3 | — |
| | (19 | ) | | — |
| | (19 | ) | | — |
| | (38 | ) |
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 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
| Fixed Deferred Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Structured Variable Annuity Embedded Derivatives | | Total |
| (in millions) | |
Balance, April 1, 2021 | $ | 52 | | | $ | 949 | | | $ | 715 | | | $ | 124 | | | $ | 1,840 | | | $ | 43 | | |
Total (gains) losses included in: | | | | | | | | | | | | |
Net income | 2 | | (2) | 8 | | (2) | 525 | | (3) | 101 | | (3) | 636 | | | 1 | | (4) |
Issues | — | | | (1) | | | 89 | | | (1) | | | 87 | | | 4 | | |
Settlements | — | | | (28) | | | 44 | | | (10) | | | 6 | | | (4) | | |
Balance, June 30, 2021 | $ | 54 | | | $ | 928 | | | $ | 1,373 | | | $ | 214 | | | $ | 2,569 | | | $ | 44 | | |
| | | | | | | | | | | | |
Changes in unrealized (gains) losses in net income relating to liabilities held at June 30, 2021 | $ | — | | | $ | 8 | | (2) | $ | 529 | | (3) | $ | — | | | $ | 537 | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | | |
| Corporate Debt Securities | | Residential Mortgage Backed Securities | | | Asset Backed Securities | | | Total | |
| (in millions) |
Balance, April 1, 2020 | $ | 734 | | | $ | 17 | | | | $ | 17 | | | | $ | 768 | | | | |
Total gains (losses) included in: | | | | | | | | | | | |
Net income | (1) | | | — | | | | — | | | | (1) | | (1) | | |
Other comprehensive income (loss) | 14 | | | 1 | | | | (1) | | | | 14 | | | | |
Purchases | — | | | 187 | | | | — | | | | 187 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Settlements | (3) | | | — | | | | (1) | | | | (4) | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance, June 30, 2020 | $ | 744 | | | $ | 205 | | | | $ | 15 | | | | $ | 964 | | | | |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) in net income relating to assets held at June 30, 2020 | $ | (1) | | | $ | — | | | | $ | — | | | | $ | (1) | | (1) | | |
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at June 30, 2020 | $ | 14 | | | $ | 1 | | | | $ | (1) | | | | $ | 14 | | | | |
|
| | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities |
IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Total |
(in millions) |
Balance, July 1, 2017 | $ | 527 |
| | $ | 272 |
| | $ | 799 |
| | $ | 14 |
|
Total (gains) losses included in: |
Net income | 35 |
| (1) | (309 | ) | (2) | (274 | ) | | — |
|
Issues | 26 |
| | 84 |
| | 110 |
| | 13 |
|
Settlements | (11 | ) | | (2 | ) | | (13 | ) | | — |
|
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 | ) | | $ | — |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
| Fixed Deferred Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Structured Variable Annuity Embedded Derivatives | | Total |
| (in millions) | |
Balance, April 1, 2020 | $ | 33 | | | $ | 725 | | | $ | 3,276 | | | $ | (9) | | | $ | 4,025 | | | $ | 42 | | |
Total (gains) losses included in: | | | | | | | | | | | | |
Net income | 7 | | (2) | 148 | | (2) | (224) | | (3) | 16 | | (3) | (53) | | | 1 | | (4) |
Issues | 1 | | | 30 | | | 86 | | | 2 | | | 119 | | | 8 | | |
Settlements | — | | | (21) | | | (9) | | | — | | | (30) | | | (3) | | |
Balance, June 30, 2020 | $ | 41 | | | $ | 882 | | | $ | 3,129 | | | $ | 9 | | | $ | 4,061 | | | $ | 48 | | |
| | | | | | | | | | | | |
Changes in unrealized (gains) losses in net income relating to liabilities held at June 30, 2020 | $ | — | | | $ | 148 | | (2) | $ | (204) | | (3) | $ | — | | | $ | (56) | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | | |
Corporate Debt Securities | | Residential Mortgage Backed Securities | | | Asset Backed Securities | | | Total | |
| (in millions) |
Balance, January 1, 2021 | $ | 772 | | | $ | 9 | | | | $ | 32 | | | | $ | 813 | | | | |
Total gains (losses) included in: | | | | | | | | | | | |
Net income | — | | | — | | | | (1) | | | | (1) | | (1) | | |
Other comprehensive income (loss) | (3) | | | — | | | | — | | | | (3) | | | | |
Purchases | 67 | | | 78 | | | | — | | | | 145 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Settlements | (29) | | | — | | | | (1) | | | | (30) | | | | |
| | | | | | | | | | | | |
Transfers out of Level 3 | (416) | | | (87) | | | | (24) | | | | (527) | | | | |
Balance, June 30, 2021 | $ | 391 | | | $ | 0 | | | | $ | 6 | | | | $ | 397 | | | | |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) in net income relating to assets held at June 30, 2021 | $ | — | | | $ | — | | | | $ | (1) | | | | $ | (1) | | (1) | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
| Fixed Deferred Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Structured Variable Annuity Embedded Derivatives | | Total |
| (in millions) | |
Balance, January 1, 2021 | $ | 49 | | | $ | 935 | | | $ | 2,316 | | | $ | 70 | | | $ | 3,370 | | | $ | 43 | | |
Total (gains) losses included in: | | | | | | | | | | | | |
Net income | 6 | | (2) | 37 | | (2) | (1,204) | | (3) | 175 | | (3) | (986) | | | 1 | | (4) |
Issues | — | | | 4 | | | 179 | | | (15) | | | 168 | | | 6 | | |
Settlements | (1) | | | (48) | | | 82 | | | (16) | | | 17 | | | (6) | | |
Balance, June 30, 2021 | $ | 54 | | | $ | 928 | | | $ | 1,373 | | | $ | 214 | | | $ | 2,569 | | | $ | 44 | | |
| | | | | | | | | | | | |
Changes in unrealized (gains) losses in net income relating to liabilities held at June 30, 2021 | $ | — | | | $ | 37 | | (2) | $ | (1,176) | | (3) | $ | — | | | $ | (1,139) | | | $ | — | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | |
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)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | | |
| Corporate Debt Securities | | Residential Mortgage Backed Securities | | | Asset Backed Securities | | | Total | |
| (in millions) |
Balance, January 1, 2020 | $ | 750 | | | $ | 17 | | | | $ | 19 | | | | $ | 786 | | | | |
Total gains (losses) included in: | | | | | | | | | | | |
Net income | (1) | | | — | | | | (1) | | | | (2) | | (1) | | |
Other comprehensive income (loss) | 8 | | | 1 | | | | (2) | | | | 7 | | | | |
Purchases | 5 | | | 187 | | | | — | | | | 192 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Settlements | (18) | | | — | | | | (1) | | | | (19) | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance, June 30, 2020 | $ | 744 | | | $ | 205 | | | | $ | 15 | | | | $ | 964 | | | | |
| | | | | | | | | | | | |
Changes in unrealized gains (losses) in net income relating to assets held at June 30, 2020 | $ | (1) | | | $ | — | | | | $ | (1) | | | | $ | (2) | | (1) | | |
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at June 30, 2020 | $ | 8 | | | $ | 1 | | | | $ | (2) | | | | $ | 7 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder Account Balances, Future Policy Benefits and Claims | | Other Liabilities | |
| Fixed Deferred Indexed Annuity Embedded Derivatives | | IUL Embedded Derivatives | | GMWB and GMAB Embedded Derivatives | | Structured Annuity Embedded Derivatives | | Total |
| (in millions) | |
Balance, January 1, 2020 | $ | 43 | | | $ | 881 | | | $ | 763 | | | $ | 0 | | | $ | 1,687 | | | $ | 44 | | |
Total (gains) losses included in: | | | | | | | | | | | | |
Net income | (5) | | (2) | 3 | | (2) | 2,196 | | (3) | 13 | | (3) | 2,207 | | | (1) | | (4) |
Issues | 3 | | | 38 | | | 174 | | | (4) | | | 211 | | | 10 | | |
Settlements | — | | | (40) | | | (4) | | | — | | | (44) | | | (5) | | |
Balance, June 30, 2020 | $ | 41 | | | $ | 882 | | | $ | 3,129 | | | $ | 9 | | | $ | 4,061 | | | $ | 48 | | |
| | | | | | | | | | | | |
Changes in unrealized (gains) losses in net income relating to liabilities held at June 30, 2020 | $ | — | | | $ | 3 | | (2) | $ | 2,219 | | (3) | $ | — | | | $ | 2,222 | | | $ | — | | |
|
| | | | | | | | | | | | | | | | |
| 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 | ) | | $ | — |
| |
(1) Included in net investment income in the Consolidated Statements of Operations. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
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)(2) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(2)(3) 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)
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(37)$27 million and $8 million,$(1.2) billion, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(91)$(139) million and $295$569 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, 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 withinputs or fair values that are now based onwere included in an observable transaction with 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.market participant.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Fair Value | Valuation Technique | Unobservable Input | | Range | Weighted Average |
| (in millions) |
Corporate debt securities (private placements) | $ | 391 | | Discounted cash flow | Yield/spread to U.S. Treasuries (1) | 0.8 | % | – | 2.3% | 1.1% |
Asset backed securities | $ | 1 | | Discounted cash flow | Annual short-term default rate (2) | 5.4% | 5.4% |
| | | Annual long-term default rate (2) | 4.00 % | 4.00 % |
| | | Discount rate | 13.00 % | 13.00 % |
| | | Constant prepayment rate | 10.00 % | 10.00 % |
| | | Loss recovery | 63.60 % | 63.60 % |
IUL embedded derivatives | $ | 928 | | Discounted cash flow | Nonperformance risk (3) | 60 bps | 60 bps |
Fixed deferred indexed annuity embedded derivatives | $ | 54 | | Discounted cash flow | Surrender rate (4) | 0.0 | % | – | 66.8% | 1.9% |
| | | Nonperformance risk (3) | 60 bps | 60 bps |
GMWB and GMAB embedded derivatives | $ | 1,373 | | Discounted cash flow | Utilization of guaranteed withdrawals (5) (6) | 0.0 | % | – | 48.0% | 10.6% |
| | | Surrender rate (4) | 0.1 | % | – | 73.5% | 3.8% |
| | | Market volatility (7) (8) | 4.0 | % | – | 16.6% | 10.3% |
| | | Nonperformance risk (3) | 60 bps | 60 bps |
Structured variable annuity embedded derivatives | $ | 214 | | Discounted cash flow | Surrender rate (4) | 0.8 | % | – | 40.0% | 0.9% |
| | | Nonperformance risk (3) | 60 bps | 60 bps |
Contingent consideration liabilities | $ | 44 | | Discounted cash flow | Discount rate (9) | 0.0 | % | – | 9.0% | 3.2% |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
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 | % |
Asset backed securities | $ | 11 | | Discounted cash flow | Annual short-term default rate | 3.8% | |
| | | Annual long-term default rate | 2.5% | – | 3.0% | 2.6 | % |
| | | Discount rate | 11.0% | |
| | | Constant prepayment rate | 5.0 | % | – | 10.0% | 9.9 | % |
| | | Loss recovery | 36.4 | % | – | 63.6% | 63.1 | % |
IUL embedded derivatives | $ | 577 | | Discounted cash flow | Nonperformance risk (1) | 67 bps | |
GMWB and GMAB embedded derivatives | $ | 45 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 42.0% | |
| | | | Surrender rate | 0.1 | % | – | 74.7% | |
| | | | Market volatility (3) | 4.3 | % | – | 15.9% | |
| | | | Nonperformance risk (1) | 67 bps | |
Contingent consideration liabilities | $ | 27 | | Discounted cash flow | Discount rate | 9.0% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Fair Value | Valuation Technique | | Unobservable Input | | Range | | Weighted Average |
| (in millions) |
Corporate debt securities (private placements) | $ | 772 | | Discounted cash flow | Yield/spread to U.S. Treasuries (1) | 1.0 | % | – | 3.3% | 1.5% |
Asset backed securities | $ | 3 | | Discounted cash flow | Annual short-term default rate (2) | 2.9% | – | 3.0% | 2.9% |
| | | Annual long-term default rate (2) | 3.5% | – | 4.5% | 3.8% |
| | | Discount rate | 13.0% | 13.0% |
| | | Constant prepayment rate | 10.0% | 10.0% |
| | | Loss recovery | 63.6% | 63.6% |
IUL embedded derivatives | $ | 935 | | Discounted cash flow | Nonperformance risk (3) | 65 bps | 65 bps |
Fixed deferred indexed annuity embedded derivatives | $ | 49 | | Discounted cash flow | Surrender rate (4) | 0.0 | % | – | 50.0% | 1.2% |
| | | Nonperformance risk (3) | 65 bps | 65 bps |
GMWB and GMAB embedded derivatives | $ | 2,316 | | Discounted cash flow | Utilization of guaranteed withdrawals (5) (6) | 0.0 | % | – | 48.0% | 10.6% |
| | | Surrender rate (4) | 0.1 | % | – | 73.5% | 3.8% |
| | | Market volatility (7) (8) | 4.3 | % | – | 17.1% | 11.0% |
| | | Nonperformance risk (3) | 65 bps | 65 bps |
Structured variable annuity embedded derivatives | $ | 70 | | Discounted cash flow | Surrender rate (4) | 0.8 | % | – | 40.0% | 0.9% |
| | | Nonperformance risk (3) | 65 bps | 65 bps |
Contingent consideration liabilities | $ | 43 | | Discounted cash flow | Discount rate (9) | 0.0% | – | 9.0% | | 3.1% |
(1) The weighted average for the spread to U.S. Treasuries for corporate debt securities (private placements) is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.
(2) The weighted average annual default rates of asset backed securities is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.
(3) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(4) The weighted average surrender rate is weighted based on the benefit base of each contract and represents the average assumption in the current year including the effect of a dynamic surrender formula.
(5) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
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 | % |
Asset backed securities | $ | 14 | | Discounted cash flow | Annual short-term default rate | 4.8% | |
| | | Annual long-term default rate | 2.5% | |
| | | Discount rate | 13.5% | |
| | | Constant prepayment rate | 5.0 | % | – | 10.0% | 9.9 | % |
| | | Loss recovery | 36.4 | % | – | 63.6% | 62.8 | % |
IUL embedded derivatives | $ | 464 | | Discounted cash flow | Nonperformance risk (1) | 82 bps | |
GMWB and GMAB embedded derivatives | $ | 614 | | Discounted cash flow | Utilization of guaranteed withdrawals (2) | 0.0 | % | – | 75.6% | |
| | | | Surrender rate | 0.1 | % | – | 66.4% | |
| | | | Market volatility (3) | 5.3 | % | – | 21.2% | |
| | | | Nonperformance risk (1) | 82 bps | |
Contingent consideration liabilities | $ | 13 | | 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)
(Continued)
(6) The weighted average utilization rate represents the average assumption for the current year, weighting each policy evenly. The calculation excludes policies that have already started taking withdrawals.
(7) Market volatility is implied volatility of fund of funds and managed volatility funds.
(8) The weighted average market volatility represents the average volatility across all contracts, weighted by the size of the guaranteed benefit.
(9) The weighted average discount rate represents the average discount rate across all contingent consideration liabilities, weighted based on the size of the contingent consideration liability.
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.
SensitivityUncertainty 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)lower (higher) 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 measurements of the fixed deferred indexed annuity embedded derivatives and structured variable 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. U.S. Treasuries are also 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
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. The fair value of securities included in an observable transaction with a market participant are also considered Level 2 when the market is not active.
Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. Thesecurities with 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.
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. 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, 20172021 and December 31, 2016.2020. 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
There is no active market for the transfer of the Company’s embedded derivatives attributable to the provisions of certain variable annuity riders, fixed deferred indexed annuity, structured variable annuity and IUL products.
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 implied volatility as well as contractholder behavior assumptions implied volatility, andthat include margins for risk, profit and expenses thatall of which the Company believes an exita 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 variousa 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 interest rates, volatilities and equity index levels and, therefore, are classified as Level 2.
The Company uses discounted cash flow models including Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its EIAfixed deferred indexed annuity, structured variable annuity and IUL products. Significant inputsThe structured variable annuity product is a limited flexible purchase payment annuity that offers 45 different indexed account options providing equity market exposure and a fixed account. Each indexed account includes a protection option (a buffer or a floor). If the index has a negative return, contractholder losses will be reduced by buffer or limited to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classifieda floor. The portion allocated to an indexed account is accounted for as Level 2.an embedded derivative. The fair value of thefixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the fixed deferred indexed annuity, structured variable 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, 20172021 and December 31, 2016.2020. 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. 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 andusing 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 saleimpairment. The investments that are requireddetermined to be recorded at the lower of cost orimpaired 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$100 million and $101 million as of SeptemberJune 30, 2017,2021 and December 31, 2020, respectively, and is classified as Level 3 in the fair value hierarchy.
As of June 30, 2021, the Company classified certain commercial mortgage loans and syndicated loans as loans held for sale related to the reinsurance transaction. A portion of the commercial mortgage loans and syndicated loans required a valuation includes unobservable inputs.
Duringallowance to adjust their carrying amounts to the reporting periods, there were no other material assetslower of amortized cost or liabilitiesfair value. The balance of commercial mortgage loans and syndicated loans held for sale measured at fair value on a nonrecurring basis.basis was $101 million and $265 million, respectively, as of June 30, 2021, and are classified as Level 2 in the fair value hierarchy. See Note 1 for more information on the reinsurance transaction.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Carrying Value | | Fair Value |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Financial Assets | | | | | | | | | |
Mortgage loans, net | $ | 2,576 | | | $ | — | | | $ | 983 | | | $ | 1,694 | | | $ | 2,677 | |
Policy loans | 840 | | | — | | | 840 | | | — | | | 840 | |
Receivables | 3,732 | | | 107 | | | 1,481 | | | 2,356 | | | 3,944 | |
Restricted and segregated cash | 1,617 | | | 1,617 | | | — | | | — | | | 1,617 | |
Other investments and assets | 415 | | | — | | | 380 | | | 37 | | | 417 | |
| | | | | | | | | |
Financial Liabilities | | | | | | | | | |
Policyholder account balances, future policy benefits and claims | $ | 11,143 | | | $ | — | | | $ | — | | | $ | 12,300 | | | $ | 12,300 | |
Investment certificate reserves | 5,743 | | | — | | | — | | | 5,740 | | | 5,740 | |
Banking and brokerage deposits | 12,054 | | | 12,054 | | | — | | | — | | | 12,054 | |
Separate account liabilities — investment contracts | 5,623 | | | — | | | 5,623 | | | — | | | 5,623 | |
Debt and other liabilities | 3,164 | | | 155 | | | 3,195 | | | 11 | | | 3,361 | |
|
| | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | |
Carrying Value | | Fair Value |
Level 1 | | Level 2 | | Level 3 | | Total |
(in millions) |
Financial Assets |
Mortgage loans, net | $ | 2,749 |
| | $ | — |
| | $ | — |
| | $ | 2,768 |
| | $ | 2,768 |
| |
Policy and certificate loans | 841 |
| | — |
| | 1 |
| | 797 |
| | 798 |
| |
Receivables | 1,595 |
| | 196 |
| | 942 |
| | 457 |
| | 1,595 |
| |
Restricted and segregated cash | 2,707 |
| | 2,707 |
| | — |
| | — |
| | 2,707 |
| |
Other investments and assets | 511 |
| | — |
| | 439 |
| | 71 |
| | 510 |
| |
|
Financial Liabilities |
Policyholder account balances, future policy benefits and claims | $ | 10,415 |
| | $ | — |
| | $ | — |
| | $ | 11,052 |
| | $ | 11,052 |
| |
Investment certificate reserves | 6,364 |
| | — |
| | — |
| | 6,351 |
| | 6,351 |
| |
Brokerage customer deposits | 4,065 |
| | 4,065 |
| | — |
| | — |
| | 4,065 |
| |
Separate account liabilities measured at NAV | 4,989 |
| | | | | | | | 4,989 |
| (1) |
Debt and other liabilities | 3,395 |
| | 202 |
| | 3,197 |
| | 140 |
| | 3,539 |
| |
|
| | | | | | | | | | | | | | | | | | | | |
| 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
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, 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 rates based on the Company’s estimate of current market conditions. The fair value of consumer loans is classified 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Carrying Value | | Fair Value |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
Financial Assets | | | | | | | | | |
Mortgage loans, net | $ | 2,718 | | | $ | — | | | $ | 22 | | | $ | 2,852 | | | $ | 2,874 | |
Policy loans | 846 | | | — | | | 846 | | | — | | | 846 | |
Receivables | 3,563 | | | 147 | | | 1,258 | | | 2,398 | | | 3,803 | |
Restricted and segregated cash | 1,958 | | | 1,958 | | | — | | | — | | | 1,958 | |
Other investments and assets | 732 | | | — | | | 672 | | | 62 | | | 734 | |
| | | | | | | | | |
Financial Liabilities | | | | | | | | | |
Policyholder account balances, future policy benefits and claims | $ | 9,990 | | | $ | — | | | $ | — | | | $ | 11,686 | | | $ | 11,686 | |
Investment certificate reserves | 6,752 | | | — | | | — | | | 6,752 | | | 6,752 | |
Banking and brokerage deposits | 10,891 | | | 10,891 | | | — | | | — | | | 10,891 | |
Separate account liabilities — investment contracts | 5,406 | | | — | | | 5,406 | | | — | | | 5,406 | |
Debt and other liabilities | 3,214 | | | 205 | | | 3,253 | | | 11 | | | 3,469 | |
Receivables
Brokerage include the 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 estimatepledged asset lines 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 offerscredit, and 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 servicecredit card receivables, certificate 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, syndicated loans, credit card receivables 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)
deposit receivable.
Policyholder Account Balances, Future Policy Benefitsaccount balances, future policy benefits 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 and structured variable 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.short-term borrowings.
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.
AMERIPRISE FINANCIAL, INC.
11.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
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 |
(in millions) |
Derivatives: | | | | | | | | | | | | | |
OTC | $ | 5,688 | | | $ | — | | | $ | 5,688 | | | $ | (3,970) | | | $ | (1,260) | | | $ | (409) | | | $ | 49 | |
OTC cleared | 103 | | | — | | | 103 | | | (50) | | | — | | | — | | | 53 | |
Exchange-traded | 329 | | | — | | | 329 | | | (101) | | | (198) | | | — | | | 30 | |
Total derivatives | 6,120 | | | — | | | 6,120 | | | (4,121) | | | (1,458) | | | (409) | | | 132 | |
Securities borrowed | 107 | | | — | | | 107 | | | (36) | | | — | | | (69) | | | 2 | |
Total | $ | 6,227 | | | $ | — | | | $ | 6,227 | | | $ | (4,157) | | | $ | (1,458) | | | $ | (478) | | | $ | 134 | |
| | | September 30, 2017 | | December 31, 2020 |
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) | (in millions) |
Derivatives: | Derivatives: | Derivatives: | |
OTC | $ | 3,156 |
| | $ | — |
| | $ | 3,156 |
| | $ | (2,379 | ) | | $ | (661 | ) | | $ | (109 | ) | | $ | 7 |
| OTC | $ | 5,501 | | $ | — | | $ | 5,501 | | $ | (3,862) | | $ | (1,287) | | $ | (315) | | $ | 37 |
OTC cleared (2) | 14 |
| | — |
| | 14 |
| | (12 | ) | | — |
| | — |
| | 2 |
| |
OTC cleared | | OTC cleared | 58 | | — | | 58 | | (25) | | — | | — | | 33 |
Exchange-traded | 20 |
| | — |
| | 20 |
| | (2 | ) | | — |
| | — |
| | 18 |
| Exchange-traded | 311 | | — | | 311 | | (91) | | (165) | | — | | 55 |
Total derivatives | 3,190 |
| | — |
| | 3,190 |
| | (2,393 | ) | | (661 | ) | | (109 | ) | | 27 |
| Total derivatives | 5,870 | | — | | 5,870 | | (3,978) | | (1,452) | | (315) | | 125 |
Securities borrowed | 196 |
| | — |
| | 196 |
| | (48 | ) | | — |
| | (145 | ) | | 3 |
| Securities borrowed | 147 | | — | | 147 | | (43) | | — | | (103) | | 1 |
Total | $ | 3,386 |
| | $ | — |
| | $ | 3,386 |
| | $ | (2,441 | ) | | $ | (661 | ) | | $ | (254 | ) | | $ | 30 |
| Total | $ | 6,017 | | $ | — | | $ | 6,017 | | $ | (4,021) | | $ | (1,452) | | $ | (418) | | $ | 126 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
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 |
(in millions) |
Derivatives: |
OTC | $ | 2,920 |
| | $ | — |
| | $ | 2,920 |
| | $ | (2,214 | ) | | $ | (406 | ) | | $ | (235 | ) | | $ | 65 |
|
OTC cleared | 512 |
| | — |
| | 512 |
| | (509 | ) | | (3 | ) | | — |
| | — |
|
Exchange-traded | 14 |
| | — |
| | 14 |
| | (2 | ) | | — |
| | — |
| | 12 |
|
Total derivatives | 3,446 |
| | — |
| | 3,446 |
| | (2,725 | ) | | (409 | ) | | (235 | ) | | 77 |
|
Securities borrowed | 127 |
| | — |
| | 127 |
| | (16 | ) | | — |
| | (108 | ) | | 3 |
|
Total | $ | 3,573 |
| | $ | — |
| | $ | 3,573 |
| | $ | (2,741 | ) | | $ | (409 | ) | | $ | (343 | ) | | $ | 80 |
|
(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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
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 |
(in millions) |
Derivatives: | | | | | | | | | | | | | |
OTC | $ | 4,368 | | $ | — | | $ | 4,368 | | $ | (3,970) | | $ | (84) | | $ | (301) | | $ | 13 |
OTC cleared | 50 | | — | | 50 | | (50) | | — | | — | | — |
Exchange-traded | 102 | | — | | 102 | | (101) | | — | | — | | 1 |
Total derivatives | 4,520 | | — | | 4,520 | | (4,121) | | (84) | | (301) | | 14 |
Securities loaned | 155 | | — | | 155 | | (36) | | — | | (115) | | 4 |
Total | $ | 4,675 | | $ | — | | $ | 4,675 | | $ | (4,157) | | $ | (84) | | $ | (416) | | $ | 18 |
| | | September 30, 2017 | | December 31, 2020 |
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) | (in millions) |
Derivatives: | Derivatives: | Derivatives: | |
OTC | $ | 3,102 |
| | $ | — |
| | $ | 3,102 |
| | $ | (2,379 | ) | | $ | (48 | ) | | $ | (669 | ) | | $ | 6 |
| OTC | $ | 4,192 | | $ | — | | $ | 4,192 | | $ | (3,862) | | $ | (1) | | $ | (327) | | $ | 2 |
OTC cleared (2) | 12 |
| | — |
| | 12 |
| | (12 | ) | | — |
| | — |
| | — |
| |
OTC cleared | | OTC cleared | 25 | | — | | 25 | | (25) | | — | | — | | — |
Exchange-traded | 2 |
| | — |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| Exchange-traded | 95 | | — | | 95 | | (91) | | — | | — | | 4 |
Total derivatives | 3,116 |
| | — |
| | 3,116 |
| | (2,393 | ) | | (48 | ) | | (669 | ) | | 6 |
| Total derivatives | 4,312 | | — | | 4,312 | | (3,978) | | (1) | | (327) | | 6 |
Securities loaned | 202 |
| | — |
| | 202 |
| | (48 | ) | | — |
| | (150 | ) | | 4 |
| Securities loaned | 205 | | — | | 205 | | (43) | | — | | (157) | | 5 |
Repurchase agreements | 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (48 | ) | | 2 |
| |
Total | $ | 3,368 |
| | $ | — |
| | $ | 3,368 |
| | $ | (2,441 | ) | | $ | (48 | ) | | $ | (867 | ) | | $ | 12 |
| Total | $ | 4,517 | | $ | — | | $ | 4,517 | | $ | (4,021) | | $ | (1) | | $ | (484) | | $ | 11 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
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 |
(in millions) |
Derivatives: |
OTC | $ | 2,626 |
| | $ | — |
| | $ | 2,626 |
| | $ | (2,214 | ) | | $ | (53 | ) | | $ | (352 | ) | | $ | 7 |
|
OTC cleared | 539 |
| | — |
| | 539 |
| | (509 | ) | | (25 | ) | | — |
| | 5 |
|
Exchange-traded | 6 |
| | — |
| | 6 |
| | (2 | ) | | — |
| | — |
| | 4 |
|
Total derivatives | 3,171 |
| | — |
| | 3,171 |
| | (2,725 | ) | | (78 | ) | | (352 | ) | | 16 |
|
Securities loaned | 146 |
| | — |
| | 146 |
| | (16 | ) | | — |
| | (125 | ) | | 5 |
|
Repurchase agreements | 50 |
| | — |
| | 50 |
| | — |
| | — |
| | (50 | ) | | — |
|
Total | $ | 3,367 |
| | $ | — |
| | $ | 3,367 |
| | $ | (2,741 | ) | | $ | (78 | ) | | $ | (527 | ) | | $ | 21 |
|
(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 94 for additional disclosuresinformation related to the Company’s repurchase agreements.derivatives held by consolidated investment entities.
12.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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)
TheGenerally, 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, 2021 | | December 31, 2020 |
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) | | Liabilities (2)(3) |
(in millions) | (in millions) |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | |
Interest rate contracts | $ | 675 |
| | $ | 30 |
| | $ | — |
| | $ | 675 |
| | $ | 40 |
| | $ | — |
| |
Foreign exchange contracts | 99 |
| | — |
| | 4 |
| | 164 |
| | 12 |
| | — |
| |
| Foreign exchange contracts – net investment hedges | | Foreign exchange contracts – net investment hedges | $ | 105 | | $ | — | | $ | 1 | | | $ | 32 | | $ | — | | $ | 2 | |
Total qualifying hedges | 774 |
| | 30 |
| | 4 |
| | 839 |
| | 52 |
| | — |
| Total qualifying hedges | 105 | | — | | 1 | | | 32 | | — | | 2 | |
| | | | | |
Derivatives not designated as hedging instruments | 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 |
| Interest rate contracts | 80,070 | | 1,417 | | 558 | | | 77,951 | | 1,755 | | 734 | |
Equity contracts | 60,979 |
| | 1,942 |
| | 2,669 |
| | 63,015 |
| | 1,574 |
| | 2,135 |
| Equity contracts | 57,813 | | 4,678 | | 3,950 | | | 57,254 | | 4,090 | | 3,571 | |
Credit contracts | 721 |
| | 4 |
| | — |
| | 1,039 |
| | 1 |
| | — |
| Credit contracts | 1,733 | | 1 | | 7 | | | 2,297 | | 2 | | 1 | |
Foreign exchange contracts | 4,494 |
| | 43 |
| | 27 |
| | 4,733 |
| | 81 |
| | 47 |
| Foreign exchange contracts | 3,487 | | 24 | | 5 | | | 3,423 | | 23 | | 4 | |
Other contracts | 451 |
| | — |
| | — |
| | 241 |
| | — |
| | — |
| |
| Total non-designated hedges | 133,149 |
| | 3,160 |
| | 3,112 |
| | 141,477 |
| | 3,394 |
| | 3,171 |
| Total non-designated hedges | 143,103 | | 6,120 | | 4,520 | | | 140,925 | | 5,870 | | 4,310 | |
| | | | | |
Embedded derivatives | Embedded derivatives | Embedded derivatives | |
GMWB and GMAB (4) | N/A |
| | — |
| | 45 |
| | N/A |
| | — |
| | 614 |
| GMWB and GMAB (4) | N/A | — | | 1,373 | | | N/A | — | | 2,316 | |
IUL | N/A |
| | — |
| | 577 |
| | N/A |
| | — |
| | 464 |
| IUL | N/A | — | | 928 | | | N/A | — | | 935 | |
EIA | N/A |
| | — |
| | 4 |
| | N/A |
| | — |
| | 5 |
| |
Fixed deferred indexed annuities | | Fixed deferred indexed annuities | N/A | — | | 58 | | | N/A | — | | 52 | |
Structured variable annuities | | Structured variable annuities | N/A | — | | 214 | | | N/A | — | | 70 | |
SMC | N/A |
| | — |
| | 9 |
| | N/A |
| | — |
| | 8 |
| SMC | N/A | — | | 6 | | | N/A | — | | 8 | |
Total embedded derivatives | N/A |
| | — |
| | 635 |
| | N/A |
| | — |
| | 1,091 |
| Total embedded derivatives | N/A | — | | 2,579 | | | N/A | — | | 3,381 | |
Total derivatives | $ | 133,923 |
| | $ | 3,190 |
| | $ | 3,751 |
| | $ | 142,316 |
| | $ | 3,446 |
| | $ | 4,262 |
| Total derivatives | $ | 143,208 | | $ | 6,120 | | $ | 7,100 | | | $ | 140,957 | | $ | 5,870 | | $ | 7,693 | |
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, fixed deferred indexed annuity and EIAstructured variable 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$2.9 billion and $1.5$3.7 billion as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. See Note 1112 for additional information related to master netting arrangements and cash collateral.
(4) The fair value of the GMWB and GMAB embedded derivatives as of SeptemberJune 30, 20172021 included $494 million$1.5 billion of individual contracts in a liability position and $449$154 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 20162020 included $880 million$2.4 billion of individual contracts in a liability position and $266$67 million of individual contracts in an asset position.
See Note 1011 for additional information regarding the Company’s fair value measurement of derivative instruments.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, investment securities with a fair value of $122$418 million and $235$325 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $122$418 million and $118$325 million, respectively, may be sold, pledged or rehypothecated by the Company. As of Septemberboth June 30, 20172021 and December 31, 2016,2020, the Company had sold, pledged or rehypothecated $12 million and $19 million, respectively,NaN of these securities. In addition, as of Septemberboth June 30, 20172021 and December 31, 2016,2020, 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) |
(in millions) | |
Three Months Ended September 30, 2017 | |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | |
Interest rate contracts | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | — |
| Interest rate contracts | $ | (23) | | $ | — | | $ | — | | $ | — | | $ | 871 | | $ | — | |
Equity contracts | (10 | ) | | 1 |
| | 13 |
| | 18 |
| | (261 | ) | | 2 |
| Equity contracts | (1) | | — | | 47 | | 30 | | (304) | | 6 | |
Credit contracts | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| Credit contracts | — | | — | | 1 | | — | | (30) | | — | |
Foreign exchange contracts | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | 1 |
| Foreign exchange contracts | 6 | | — | | — | | — | | (5) | | 2 | |
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| |
| GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | 227 |
| | — |
| GMWB and GMAB embedded derivatives | — | | — | | — | | — | | (657) | | — | |
IUL embedded derivatives | — |
| | — |
| | — |
| | (24 | ) | | — |
| | — |
| IUL embedded derivatives | — | | — | | — | | 20 | | — | | — | |
Fixed deferred indexed annuity embedded derivatives | | Fixed deferred indexed annuity embedded derivatives | — | | — | | — | | (3) | | — | | — | |
Structured variable annuity embedded derivatives | | Structured variable annuity embedded derivatives | — | | — | | — | | — | | (100) | | — | |
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| SMC embedded derivatives | — | | — | | — | | — | | — | | — | |
Total gain (loss) | $ | (11 | ) | | $ | — |
| | $ | 14 |
| | $ | (6 | ) | | $ | (24 | ) | | $ | 3 |
| Total gain (loss) | $ | (18) | | $ | — | | $ | 48 | | $ | 47 | | $ | (225) | | $ | 8 | |
| Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Interest rate contracts | | Interest rate contracts | $ | (23) | | $ | — | | $ | (1) | | $ | — | | $ | (954) | | $ | — | |
Equity contracts | | Equity contracts | — | | 1 | | 80 | | 55 | | (614) | | 12 | |
Credit contracts | | Credit contracts | — | | — | | 1 | | — | | 39 | | — | |
Foreign exchange contracts | | Foreign exchange contracts | 6 | | — | | — | | — | | 6 | | (2) | |
| GMWB and GMAB embedded derivatives | | GMWB and GMAB embedded derivatives | — | | — | | — | | — | | 943 | | — | |
IUL embedded derivatives | | IUL embedded derivatives | — | | — | | — | | 11 | | — | | — | |
Fixed deferred indexed annuity embedded derivatives | | Fixed deferred indexed annuity embedded derivatives | — | | — | | — | | (8) | | — | | — | |
Structured variable annuity embedded derivatives | | Structured variable annuity embedded derivatives | — | | — | | — | | — | | (175) | | — | |
SMC embedded derivatives | | SMC embedded derivatives | — | | (1) | | — | | — | | — | | — | |
Total gain (loss) | | Total gain (loss) | $ | (17) | | $ | — | | $ | 80 | | $ | 58 | | $ | (755) | | $ | 10 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
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)
(Continued)
| | | | | | | | | | | | | | | | 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 |
Nine Months Ended September 30, 2016 | |
| | | (in millions) |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 | |
Interest rate contracts | $ | (54 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,175 |
| | $ | — |
| Interest rate contracts | $ | — | | $ | — | | $ | — | | $ | — | | $ | 60 | | $ | — | |
Equity contracts | 2 |
| | 1 |
| | 13 |
| | 10 |
| | (536 | ) | | 3 |
| Equity contracts | (1) | | 5 | | 87 | | 63 | | (1,467) | | 13 | |
Credit contracts | — |
| | — |
| | — |
| | — |
| | (34 | ) | | — |
| Credit contracts | — | | — | | — | | — | | (43) | | — | |
Foreign exchange contracts | — |
| | — |
| | 2 |
| | — |
| | (66 | ) | | 15 |
| Foreign exchange contracts | (1) | | — | | — | | — | | 5 | | 1 | |
Other contracts | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| |
| GMWB and GMAB embedded derivatives | — |
| | — |
| | — |
| | — |
| | (905 | ) | | — |
| GMWB and GMAB embedded derivatives | — | | — | | — | | — | | 147 | | — | |
IUL embedded derivatives | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| IUL embedded derivatives | — | | — | | — | | (127) | | — | | — | |
Fixed deferred indexed annuity embedded derivatives | | Fixed deferred indexed annuity embedded derivatives | — | | — | | — | | (7) | | — | | — | |
Structured variable annuity embedded derivatives | | Structured variable annuity embedded derivatives | — | | — | | — | | — | | (16) | | — | |
SMC embedded derivatives | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| SMC embedded derivatives | — | | (5) | | — | | — | | — | | — | |
Total gain (loss) | $ | (52 | ) | | $ | — |
| | $ | 15 |
| | $ | 22 |
| | $ | (368 | ) | | $ | 18 |
| Total gain (loss) | $ | (2) | | $ | — | | $ | 87 | | $ | (71) | | $ | (1,314) | | $ | 14 | |
| Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Interest rate contracts | | Interest rate contracts | $ | (1) | | $ | — | | $ | 2 | | $ | — | | $ | 2,575 | | $ | — | |
Equity contracts | | Equity contracts | (1) | | (2) | | (29) | | (49) | | 526 | | (3) | |
Credit contracts | | Credit contracts | — | | — | | — | | — | | (79) | | — | |
Foreign exchange contracts | | Foreign exchange contracts | — | | — | | — | | — | | 49 | | (2) | |
| GMWB and GMAB embedded derivatives | | GMWB and GMAB embedded derivatives | — | | — | | — | | — | | (2,366) | | — | |
IUL embedded derivatives | | IUL embedded derivatives | — | | — | | — | | 37 | | — | | — | |
Fixed deferred indexed annuity embedded derivatives | | Fixed deferred indexed annuity embedded derivatives | — | | — | | — | | 5 | | — | | — | |
Structured variable annuity embedded derivatives | | Structured variable annuity embedded derivatives | — | | — | | — | | — | | (13) | | — | |
SMC embedded derivatives | | SMC embedded derivatives | — | | 2 | | — | | — | | — | | — | |
Total gain (loss) | | Total gain (loss) | $ | (2) | | $ | — | | $ | (27) | | $ | (7) | | $ | 692 | | $ | (5) | |
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 indexed portion of structured variable annuities and 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 aggregate exposure related to the indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions primarily using futures, options, interest rate swaptions, interest rate swaps, total return swaps 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, 2017:2021:
| | | | | | | | | | | |
| Premiums Payable | | Premiums Receivable |
(in millions) |
2021 (1) | $ | 78 | | | $ | 81 | |
2022 | 205 | | | 205 | |
2023 | 51 | | | 43 | |
2024 | 138 | | | 25 | |
2025 | 125 | | | 22 | |
2026 - 2028 | 263 | | | 88 | |
Total | $ | 860 | | | $ | 464 | |
|
| | | | | | | |
| 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)2017 2021 amounts represent the amounts payable and receivable for the period from OctoberJuly 1, 20172021 to December 31, 2017.2021.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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,Fixed deferred indexed annuity, structured variable 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,fixed deferred indexed annuity, structured variable 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,fixed deferred indexed annuity, structured variable 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 and total return swaps 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 agreements to hedgepayments. 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 rate exposure onand debt issuances and (iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales.expense.
For the three months and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, 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, 20172021 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 $0.5 million. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 1815 years and relates to forecasted debt interest payments. See Note 1314 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 a fair value hedges twohedge an interest rate swapsswap to convert senior notes due 2019 and 2020 from fixed rate debt to floating rate debt. The swaps haveinterest rate swap related to the senior notes due March 2020 was settled during the first quarter of 2020 when the debt was repaid. The swap had identical terms as the underlying debt being hedged so no ineffectiveness is expected to be realized.hedged. The Company recognizesrecognized gains and losses on the derivatives and the related hedged items within interest and debt expense.
The Company has not had any fair value hedges since March 2020. The following table presentsis a summary of the amounts recognized in income related toimpact of derivatives designated as fair value hedges on the Consolidated Statements of Operations:
| | | | | |
| Six Months Ended June 30, 2020 |
(in millions) |
Total interest and debt expense per Consolidated Statements of Operations | $ | 87 | |
Gain (loss) on interest rate contracts designated as fair value hedges: | |
Hedged items | $ | 1 | |
Derivatives designated as fair value hedges | (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 |
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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, 20172021 and 2016,2020, the Company recognized a loss of $4$0.4 million and a gain of $6 million,NaN, respectively, in OCI. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company recognized a loss of $3$0.9 million and a gain of $25$5 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, 20172021 and December 31, 2016,2020, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $437$307 million and $254$326 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of SeptemberJune 30, 20172021 and December 31, 20162020 was $435$299 million and $246$324 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of SeptemberJune 30, 20172021 and December 31, 20162020 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 $2$8 million and $8$2 million, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
13.14. Shareholders’ Equity
The following tables provide the amounts related to each component of OCI:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2021 | | 2020 |
| 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) | $ | 336 | | $ | (65) | | $ | 271 | | | $ | 1,532 | | $ | (329) | | $ | 1,203 | |
Reclassification of net (gains) losses on securities included in net income (2) | (1) | | — | | (1) | | | (4) | | 1 | | (3) | |
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables | (163) | | 34 | | (129) | | | (637) | | 134 | | (503) | |
Net unrealized gains (losses) on securities | 172 | | (31) | | 141 | | | 891 | | (194) | | 697 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Foreign currency translation | 2 | | — | | 2 | | | (8) | | — | | (8) | |
| | | | | | | |
Total other comprehensive income (loss) | $ | 174 | | $ | (31) | | $ | 143 | | | $ | 883 | | $ | (194) | | $ | 689 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| 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) | $ | (354) | | | $ | 87 | | | $ | (267) | | | $ | 337 | | | $ | (65) | | | $ | 272 | |
Reclassification of net (gains) losses on securities included in net income (2) | (51) | | | 11 | | | (40) | | | 4 | | | (1) | | | 3 | |
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables | 137 | | | (29) | | | 108 | | | (129) | | | 27 | | | (102) | |
Net unrealized gains (losses) on securities | (268) | | | 69 | | | (199) | | | 212 | | | (39) | | | 173 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Defined benefit plans | 37 | | | (8) | | | 29 | | | — | | | — | | | — | |
Foreign currency translation | 1 | | | — | | | 1 | | | (42) | | | 1 | | | (41) | |
| | | | | | | | | | | |
Total other comprehensive income (loss) | $ | (230) | | | $ | 61 | | | $ | (169) | | | $ | 170 | | | $ | (38) | | | $ | 132 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 impairment lossesimpairments on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss)OCI during the period.
(2) Reclassification amounts are recorded in net investment income.
(3) Includes nil pretax gain reclassified to interest and debt expense for both the three months ended September 30, 2017 and 2016, and a $1 million pretax loss reclassified to net investment income for both the three months ended September 30, 2017 and 2016.
(4) Includes $1 million pretax gain reclassified to interest and debt expense for both the nine months ended September 30, 2017 and 2016, and a $3 million and $4 million pretax loss reclassified to net investment income for the nine months ended September 30, 2017 and 2016, 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 marketfair 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 impairment lossesimpairments to credit losses; and (iii) other adjustments primarily consisting of changes in insurance 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 |
| Net Unrealized Securities Gains | | Net Unrealized Derivatives Gains | | Defined Benefit Plans | | Foreign Currency Translation | | Other | | Total | | (in millions) |
| Balance, April 1, 2021 | $ | 643 | | $ | 5 | | $ | (175) | | $ | (155) | | $ | (1) | | $ | 317 |
| (in millions) | |
$ | 543 |
| | $ | 6 |
| | $ | (120 | ) | | $ | (129 | ) | | $ | (1 | ) | | $ | 299 |
| |
OCI before reclassifications | (1 | ) | | — |
| | — |
| | 16 |
| | — |
| | 15 |
| OCI before reclassifications | 142 | | — | | — | | 2 | | — | | 144 |
Amounts reclassified from AOCI | (3 | ) | | 1 |
| | — |
| | — |
| | — |
| | (2 | ) | Amounts reclassified from AOCI | (1) | | — | | — | | — | | — | | (1) |
Total OCI | (4 | ) | | 1 |
| | — |
| | 16 |
| | — |
| | 13 |
| Total OCI | 141 | | 0 | | 0 | | 2 | | 0 | | 143 |
Balance, September 30, 2017 | $ | 539 |
| (1) | $ | 7 |
| | $ | (120 | ) | | $ | (113 | ) | | $ | (1 | ) | | $ | 312 |
| |
Balance, June 30, 2021 | | Balance, June 30, 2021 | $ | 784 | | $ | 5 | | $ | (175) | | $ | (153) | | $ | (1) | | $ | 460 |
| Balance, January 1, 2021 | | Balance, January 1, 2021 | $ | 983 | | $ | 5 | | $ | (204) | | $ | (154) | | $ | (1) | | $ | 629 |
| OCI before reclassifications | | OCI before reclassifications | (159) | | — | | 29 | | 1 | | — | | (129) |
Amounts reclassified from AOCI | | Amounts reclassified from AOCI | (40) | | — | | — | | — | | — | | (40) |
Total OCI | | Total OCI | (199) | | 0 | | 29 | | 1 | | 0 | | (169) |
Balance, June 30, 2021 | | Balance, June 30, 2021 | $ | 784 | | $ | 5 | | $ | (175) | | $ | (153) | | $ | (1) | | $ | 460 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
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)
(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 million and $5 million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of September 30, 2017 and September 30, 2016, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2020 | $ | 52 | | $ | 6 | | $ | (138) | | $ | (214) | | $ | (1) | | $ | (295) |
| | | | | | | | | | | |
OCI before reclassifications | 700 | | — | | — | | (8) | | — | | 692 |
Amounts reclassified from AOCI | (3) | | — | | — | | — | | — | | (3) |
Total OCI | 697 | | 0 | | 0 | | (8) | | 0 | | 689 |
Balance, June 30, 2020 | $ | 749 | | $ | 6 | | $ | (138) | | $ | (222) | | $ | (1) | | $ | 394 |
| | | | | | | | | | | |
Balance, January 1, 2020 | $ | 576 | | $ | 6 | | $ | (138) | | $ | (181) | | $ | (1) | | $ | 262 |
| | | | | | | | | | | |
OCI before reclassifications | 170 | | — | | — | | (41) | | — | | 129 |
Amounts reclassified from AOCI | 3 | | — | | — | | — | | — | | 3 |
Total OCI | 173 | | 0 | | 0 | | (41) | | 0 | | 132 |
Balance, June 30, 2020 | $ | 749 | | $ | 6 | | $ | (138) | | $ | (222) | | $ | (1) | | $ | 394 |
For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company repurchased a total of 8.03.4 million shares and 13.74.3 million shares, respectively, of its common stock for an aggregate cost of $1.0 billion$813 million and $1.3 billion,$637 million, respectively. In December 2015,August 2020, the Company’s Board of Directors authorized an expenditurea repurchase of up to $2.5 billion for the repurchase of shares of the Company’s common stock through December 31, 2017, which was exhausted in the third quarter 2017. In April 2017, the Company’s BoardSeptember 30, 2022. As of Directors authorized an additional expenditure of up to $2.5 billion for the repurchase of shares of the Company’s common stock through June 30, 2019. As of September 30, 2017,2021, the Company had $2.4$1.5 billion remaining under thisthe 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, 20172021 and 2016,2020, the Company reacquired 0.3 million shares and 0.3 million shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate $33$58 million and $29$47 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, 20172021 and 2016,2020, the Company reacquired 1.90.8 million shares and 0.30.6 million shares, respectively, of its common stock through the net settlement of options for an aggregate value of $248$167 million and $31$110 million, respectively.
During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company reissued 0.80.4 million and 0.90.5 million, respectively, treasury shares respectively, for restricted stock award grants, performance share units and issuance of shares vested under advisor deferred compensation plans.
14.15. Income Taxes
The Company’s effective tax rate was 19.9%18.1% and 9.7%(2.4%) for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. The Company’s effective tax rate was 19.5%15.4% and 18.6%18.0% for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
The effective tax rates arerate for the three months ended June 30, 2021 is lower than the statutory tax rate as a result of tax preferred items including low income housing tax credits and dividends received deduction, partially offset by state income taxes, net of federal benefit. The effective tax rate for the six months ended June 30, 2021 is lower than the statutory rate as a result of tax preferred items including the dividends received deduction, low income housing tax credits, stockincentive compensation, foreign tax credits, and lowerthe dividends received deduction, partially offset by state income taxes, on net of federal benefit.
The Company had a negative tax rate of (2.4%) for the three months ended June 30, 2020. This negative tax rate was a result of an income from foreign subsidiaries.tax expense applied to a pretax loss for the quarter ended June 30, 2020. The increaseincome tax expense was primarily due to the reversal of the net operating loss (“NOL”) benefit recorded in the quarter ended March 31, 2020. The Company was no longer forecasting a 2020 NOL due to strong equity market appreciation in the second quarter of 2020, which was a reversal of the equity market dislocation experienced in March of 2020. The NOL benefit reversal was partially offset by tax preferred items including low income housing tax credits for the three months ended June 30, 2020. The effective tax rate for the six months ended June 30, 2020 was lower than the statutory rate as a result of tax preferred items including low income housing tax credits, partially offset by state income taxes, net of federal benefit.
The higher effective tax rate for the three months ended SeptemberJune 30, 20172021 compared to June 30, 2020 is primarily the result of the prior year period losses and income tax expense related to the NOL benefit reversal recorded in the quarter ended June 30, 2020. The lower
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
effective tax rate for the six months ended June 30, 2021 compared to June 30, 2020 is primarily due to higher pretax income, partially offset by a $25 million benefit for stock compensation due to the adoptionresult of a new accounting standard.an increase in tax preferred items, including foreign tax credits and incentive compensation.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $15$16 million, net of federal benefit, which will expire beginning December 31, 2017.2021.
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 net operating losses of $12 million, state deferred tax assets of $2 million and state net operating losses andforeign deferred tax assets of $1 million; therefore a valuation allowance has been established. The valuation allowance was $14 million and $11$15 million as of Septemberboth June 30, 20172021 and December 31, 2016,2020, respectively.
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had $127$124 million and $115$110 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $55$92 million and $46$80 million, net of federal tax benefits, of unrecognized tax benefits as of SeptemberJune 30, 20172021 and December 31, 2016,2020, 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$40 million to $25$50 million in the next 12 months primarily due to resolution of auditsInternal Revenue Service (“IRS”) settlements and statute expirations.state exams.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized nilNaN and a net decrease of $1 million in interest and penalties for the three and six months ended June 30, 2021, respectively. The Company recognized NaN 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, 2016,2020, respectively. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company had a payable of $9 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 third quarter, the Company received final cash settlementsThe federal statute of limitations are closed on years through 2015, except for resolution of the 2006one issue for 2014 and 2011 audits. The IRS has completed its examination of the 2008 through 2010 tax returns and these years are effectively settled; however, the statutes of limitation, remain open for certain carryover adjustments.2015 which was claimed on amended returns. The IRS is currently auditing the Company’s U.S. income tax returns for 2012 through 2015.2016, 2017 and 2018. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 20052015 through 2015. 2019.
15.16. 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.Contingencies
The Company and its subsidiaries are involved in the normal course of business in legal proceedings which include regulatory inquiries, arbitration and arbitration proceedings,litigation, 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 litigationlegal proceedings 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 Financial Industry Regulatory Authority, the OCC, the UKU.K. Financial Conduct Authority, the Federal Reserve Board, 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 typically has numerous pending matters which include information requests, exams or inquiries that the Company has received during recent periods regarding certain matters, including:subjects, including from time to time: 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; wholesaler activity; supervision of the Company’s financial advisors;advisors and other associated persons; 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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 mayresolved. Matters frequently 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,more developed before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in one or more proceedingproceedings 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. The Company discloses the nature of the contingency when management believes there is at least a reasonable possibility that the outcome may be material to the Company’s consolidated financial statements and, where feasible, an estimate of the possible loss. 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 reasonably 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 legalGuaranty Fund Assessments
RiverSource 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 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 $106its 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 both June 30, 2021 and December 31, 2020, the estimated liability was $12 million. As of both June 30, 2021 and December 31, 2020, the related premium tax asset was $10 million. The Threadneedle Defendants applied to the Court for an Order dismissing the proceedings as an abuse of process of the Court. This application was declined in August 2015. The Threadneedle Defendants applied to the Court of Appeal for leave to appeal,expected period over which application was granted in November 2015. In April 2017, the Court of Appeal denied the Threadneedle Defendants’ appeal. As a result, the caseguaranty fund assessments 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 not be set before May 1, 2019. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter due to the early procedural status of the case, the number of parties involved,made and the failure to allege any specific, evidence based damages.related tax credits recovered is not known.
16.17. 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, |
2021 | | 2020 | 2021 | | 2020 |
(in millions, except per share amounts) |
Numerator: | | | | | | | |
Net income | $ | 591 | | | $ | (539) | | | $ | 1,028 | | | $ | 1,497 | |
| | | | | | | |
Denominator: | | | | | | | |
Basic: Weighted-average common shares outstanding | 118.4 | | | 125.0 | | | 119.1 | | | 125.7 | |
Effect of potentially dilutive nonqualified stock options and other share-based awards | 2.8 | | | 1.2 | | | 2.6 | | | 1.5 | |
Diluted: Weighted-average common shares outstanding | 121.2 | | | 126.2 | | | 121.7 | | | 127.2 | |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 4.99 | | | $ | (4.31) | | | $ | 8.63 | | | $ | 11.91 | |
Diluted | $ | 4.88 | | | $ | (4.31) | | (1) | $ | 8.45 | | | $ | 11.77 | |
|
| | | | | | | | | | | | | | | |
| 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 |
|
(1) Diluted shares used in this calculation represent basic shares due to the net loss. Using actual diluted shares would result in anti-dilution.The calculation of diluted earnings per share excludes the incremental effect of 2.9NaN and 1.5 million options as of SeptemberJune 30, 2016,2021 and 2020, 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)
(Continued)
17.18. Segment Information
During the third quarter of 2020, as the Company continued to reposition its business and implement strategies focusing on product features and sales, the composition of its reportable segments changed from 5 to 4 segments. The Chief Operating Decision Maker (“CODM”) manages the annuities and protection business as one operating segment, referred to as Retirement & Protection Solutions. The Retirement & Protection Solutions segment includes Retirement Solutions (Variable Annuities and Payout Annuities) and Protection Solutions (Life and Disability Insurance). In addition, the Company moved the Fixed Annuities and Fixed Indexed Annuities business to the Corporate & Other segment as a closed block. These segment reporting changes align with the way the CODM began assessing the performance of the Company’s reportable segments and other business activities effective in the third quarter of 2020. Certain prior period amounts have been revised to conform to the current presentation. The Company’s 4 reporting segments are Advice & Wealth Management, Asset Management, Annuities,Retirement & Protection Solutions and Corporate & Other.
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. The Company 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 the Company’s on-going Protection businesses. Prior periods presented have been restated to reflect the change.
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.
OperatingManagement excludes mean reversion related impacts from the Company’s adjusted operating measures. 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), integration and restructuring charges and the impact of consolidating investment entities. Operating net revenues also exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual); the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and the related DSIC and DAC amortization, unearned revenue amortization, and the reinsurance accrual; mean reversion related impacts (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); the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments. Operating expenses also exclude the market impact on variable annuity guaranteed benefits (net of hedgesinvestments; integration and restructuring charges; and the related DSIC and DAC amortization) and the DSIC and DAC amortization offset to net realized investment gains or losses.impact of consolidating CIEs. The market impact on variable annuity guaranteed benefits and IUL benefitsnon-traditional long-duration products 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 reconcilereconciles segment totals to those reported on the consolidated financial statements:
| | | September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
(in millions) | (in millions) |
Advice & Wealth Management | $ | 13,407 |
| | $ | 12,654 |
| Advice & Wealth Management | $ | 22,040 | | | $ | 21,266 | |
Asset Management | 8,163 |
| | 7,254 |
| Asset Management | 9,220 | | | 8,406 | |
Annuities | 96,656 |
| | 93,481 |
| |
Protection | 17,543 |
| | 16,780 |
| |
Retirement & Protection Solutions | | Retirement & Protection Solutions | 116,065 | | | 114,850 | |
Corporate & Other | 9,717 |
| | 9,652 |
| Corporate & Other | 24,378 | | | 21,361 | |
Total assets | $ | 145,486 |
| | $ | 139,821 |
| Total assets | $ | 171,703 | | | $ | 165,883 | |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | 2021 | | 2020 |
| (in millions) |
Adjusted operating net revenues: | | | | | | | |
Advice & Wealth Management | $ | 1,980 | | | $ | 1,537 | | | $ | 3,859 | | | $ | 3,232 | |
Asset Management | 879 | | | 668 | | | 1,707 | | | 1,354 | |
Retirement & Protection Solutions | 808 | | | 755 | | | 1,595 | | | 1,514 | |
Corporate & Other | 119 | | | 131 | | | 258 | | | 280 | |
Eliminations (1)(2) | (399) | | | (326) | | | (778) | | | (664) | |
Total segment adjusted operating net revenues | 3,387 | | | 2,765 | | | 6,641 | | | 5,716 | |
Net realized gains (losses) | 10 | | | (3) | | | 67 | | | (23) | |
Revenue attributable to consolidated investment entities | 16 | | | 15 | | | 50 | | | 31 | |
Market impact on non-traditional long-duration products, net | 21 | | | (66) | | | 26 | | | (11) | |
Mean reversion related impacts | 1 | | | 1 | | | 1 | | | — | |
Market impact of hedges on investments | (17) | | | — | | | (17) | | | — | |
Total net revenues per Consolidated Statements of Operations | $ | 3,418 | | | $ | 2,712 | | | $ | 6,768 | | | $ | 5,713 | |
|
| | | | | | | | | | | | | | | |
| 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 SeptemberJune 30, 20172021 and 20162020 in each segment as follows: Advice & Wealth Management ($233266 million and $244$208 million, respectively); Asset Management ($1214 million and $12$13 million, respectively); AnnuitiesRetirement & Protection Solutions ($88118 million and $85 million, respectively); Protection ($16 million and $12$105 million, respectively); and Corporate & Other ($(1)1 million and nil, respectively).
| |
(2)
| (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 $198recognized for the six months ended June 30, 2021 and 2020 in each segment as follows: Advice & Wealth Management ($516 million and $162$430 million, for the three months ended September 30, 2017respectively); Asset Management ($27 million and 2016, respectively.$26 million, respectively); Retirement & Protection Solutions ($234 million and $209 million, respectively); and Corporate & Other ($1 million and $(1) million, respectively).
| |
(4) | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | 2021 | | 2020 | 2021 | | 2020 | | (in millions) | Adjusted operating earnings: | | | | | | | | Advice & Wealth Management | $ | 423 | | | $ | 271 | | | $ | 812 | | | $ | 649 | | Asset Management | 253 | | | 141 | | | 481 | | | 298 | | Retirement & Protection Solutions | 182 | | | 222 | | | 365 | | | 389 | | Corporate & Other | (77) | | | (57) | | | (98) | | | (107) | | Total segment adjusted operating earnings | 781 | | | 577 | | | 1,560 | | | 1,229 | | Net realized gains (losses) | 11 | | | (2) | | | 66 | | | (22) | | Net income (loss) attributable to consolidated investment entities | (2) | | | 0 | | | (3) | | | (2) | | Market impact on non-traditional long-duration products, net | (87) | | | (1,113) | | | (483) | | | 670 | | Mean reversion related impacts | 42 | | | 14 | | | 98 | | | (47) | | Market impact of hedges on investments | (17) | | | — | | | (17) | | | — | | Integration and restructuring charges | (7) | | | (2) | | | (7) | | | (3) | | Pretax income per Consolidated Statements of Operations | $ | 721 | | | $ | (526) | | | $ | 1,214 | | | $ | 1,825 | |
| 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, 2016,2020, filed with the Securities and Exchange Commission (“SEC”) on February 23, 201724, 2021 (“20162020 10-K”), as well as our current reports on Form 8-K and other publicly available information. 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 $1.2 trillion in assets under management and administration as of June 30, 2021. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients.clients’ financial objectives.
The coronavirus disease 2019 (‘‘COVID-19’’) pandemic has presented ongoing significant economic and societal disruption and market unpredictability, which has affected our business and operating environment driven by a low interest rate environment and volatility and changes in the equity markets and the potential associated implications to client behavior. In early 2020, we implemented a work-from-home protocol for virtually all of our employee population, restricted business travel, and provided resources for complying with the guidance from the World Health Organization, the U.S. Centers for Disease Control and governments. We are America’s leaderthoughtfully transitioning back to our office locations, where it is reasonable to do so, while complying with applicable health agencies’ guidelines and governmental orders. Though there are indications that the effects of the virus are lessening in financial planningsome areas, COVID-19 continues to deeply impact other areas and a leading global financial institution with $869.5 billionhas been occurring in assets under management and administration asmultiple waves, so there are still no reliable estimates of September 30, 2017.
Thehow long the implications from the pandemic will last, the effects new variants will ultimately have, how many people are likely to be affected by it, or its impact on the overall economy. Given the impact of the pandemic, financial results frommay not be comparable to previous years and the businesses underlyingresults presented in this report may not necessarily be indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, see Part 1 - Item 1A “Risk Factors” of our go-to-market approaches are reflected in our five operating segments:2020 10-K.
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, political and regulatory environmentenvironments in which we operate remainsare subject to elevated uncertainty and substantial, frequent change. To succeed,Accordingly, we expect to continue focusing on our key strategic objectives.objectives and obtaining operational and strategic leverage from our core capabilities. The success of these and other strategies may be affected by the factors discussed in “Item 1A. RiskItem 1A, “Risk Factors” in our 20162020 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.benefits and the “spread” income generated on our fixed deferred annuities, fixed insurance, the fixed portion of variable annuities and variable insurance contracts and deposit products.
Earnings, as well as adjusted operating earnings after tax, 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.earnings after tax. For additional discussion on our interest rate risk, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and the information set forth in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk.”
InDuring the third quarter of 2020, as we continue to reposition the year, we updatedbusiness and implement strategies focusing on product features and sales, the composition of our market-related inputsreportable segments changed from five to four segments. The Chief Operating Decision Maker (“CODM”) now manages the Annuities and implemented model changes relatedProtection business as one operating segment, referred to our living benefit valuation.as Retirement & Protection Solutions. The Retirement & Protection Solutions segment includes Retirement Solutions (Variable Annuities and Payout Annuities) and Protection Solutions (Life and Disability Insurance). In addition, we conductedmoved the Fixed Annuities and Fixed Indexed Annuities business to the Corporate & Other segment as a closed block. These segment reporting changes align with the way our annual reviewCODM began assessing the performance of life insuranceour reportable segments 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 impactother business activities effective in the third quarter of 2017 primarily reflected a positive impact from updates to market-related inputs to our living benefit valuation. In addition, premium deficiency testing for our long term care (“LTC”) business resulted in a loss recognition reserve 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.2020. Certain prior
AMERIPRISE FINANCIAL, INC.
period amounts have been revised to conform to the current presentation. These changes have no impact on previously reported consolidated balance sheets or statements of operations, comprehensive income, stockholders equity, or cash flows.
SeeOn April 12, 2021, we signed a definitive agreement to acquire the European-based asset management business of BMO Financial Group for £615 million, or approximately $845 million (subject to customary and other closing adjustments as well as foreign currency spot rates in effect on the closing date that drive the approximate amount in U.S. dollars). The all-cash transaction is expected to add approximately $124 billion of assets under management (“AUM”) in Europe and is currently expected to close in the fourth quarter of 2021, subject to regulatory approvals in the relevant jurisdictions.
On June 2, 2021, we filed an application to convert Ameriprise Bank, FSB to a state-chartered industrial bank regulated by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation. We also filed an application to transition the FSB’s personal trust services business to a new limited purpose national trust bank regulated by the Office of the Comptroller of the Currency. If the applications are approved, the proposed changes are not expected to impact our Consolidated and Segment Results of Operations sections belowlong-term strategy for the pretax impactsbank and should enable us to continue our strong lineup of banking solutions, including deposits, credit cards, mortgages and securities-based lending to our wealth management clients without interruption.
On June 29, 2021, our life insurance companies, RiverSource Life Insurance Company (“RiverSource Life”) and RiverSource Life Insurance Co. of New York (“RiverSource Life of New York”) signed an agreement to reinsure approximately $8.0 billion of fixed deferred and immediate annuity policies. The transaction, effective on our revenues and expenses attributableJuly 1, 2021, with RiverSource Life closed on July 8, 2021. The transaction with RiverSource Life of New York is subject to unlocking and additional discussion of the drivers of the unlocking impact.regulatory approval.
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.
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 non-traditional long-duration products (including variable and fixed deferred annuity guaranteed benefits,contracts and universal life (“UL”) insurance contracts, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life benefits, net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; mean reversion related impacts (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 market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; gain or loss on disposal of a business that is not considered discontinued operations; integration and restructuring charges; income (loss) from discontinued operations; 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.
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:
Operating total net revenue growth of 6% to 8%,
Operating•Adjusted operating earnings per diluted share growth of 12% to 15%, and
Operating•Adjusted operating return on equity excluding accumulated other comprehensive income (“AOCI”) of 19% to 23%over 30%.
AMERIPRISE FINANCIAL, INC.
The following tables reconcile our GAAP measures to adjusted operating measures:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Per Diluted Share | |
| Three Months Ended June 30, | | Three Months Ended June 30, | |
| 2021 | | 2020 | 2021 | | 2020 | |
| (in millions, except per share amounts) |
Net income (loss) | $ | 591 | | | $ | (539) | | | $ | 4.88 | | | $ | (4.31) | | (3) |
Add: Basic to diluted share conversion | — | | | — | | | — | | | 0.04 | | (4) |
Less: Net realized investment gains (losses) (1) | 11 | | | (2) | | | 0.09 | | | (0.02) | | |
Add: Market impact on non-traditional long-duration products (1) | 87 | | | 1,113 | | | 0.71 | | | 8.82 | | |
Add: Mean reversion related impacts (1) | (42) | | | (14) | | | (0.35) | | | (0.12) | | |
Add: Market impact of hedges on investments (1) | 17 | | | — | | | 0.14 | | | — | | |
Add: Integration/restructuring charges (1) | 7 | | | 2 | | | 0.06 | | | 0.02 | | |
Less: Net income (loss) attributable to CIEs | (2) | | | — | | | (0.02) | | | — | | |
Tax effect of adjustments (2) | (12) | | | (231) | | | (0.10) | | | (1.83) | | |
Adjusted operating earnings | $ | 639 | | | $ | 333 | | | $ | 5.27 | | | $ | 2.64 | | |
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | 118.4 | | | 125.0 | | | | | | |
Diluted | 121.2 | | | 126.2 | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
2017 | | 2016 | | 2017 | | 2016 |
(in millions) |
Total net revenues | $ | 2,981 |
| | $ | 2,998 |
| | $ | 8,867 |
| | $ | 8,634 |
|
Less: Revenue attributable to CIEs | 23 |
| | 27 |
| | 70 |
| | 77 |
|
Less: Net realized investment gains (losses) | (3 | ) | | 6 |
| | 35 |
| | (5 | ) |
Less: Market impact on indexed universal life benefits | (5 | ) | | 6 |
| | (7 | ) | | 18 |
|
Less: Market impact of hedges on investments | (1 | ) | | 5 |
| | (8 | ) | | (54 | ) |
Operating total net revenues | $ | 2,967 |
| | $ | 2,954 |
| | $ | 8,777 |
| | $ | 8,598 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Per Diluted Share | |
| Six Months Ended June 30, | | Six Months Ended June 30, | |
| 2021 | | 2020 | 2021 | | 2020 | |
| (in millions, except per share amounts) | |
Net income (loss) | $ | 1,028 | | | $ | 1,497 | | | $ | 8.45 | | | $ | 11.77 | | |
Less: Net realized investment gains (losses) (1) | 66 | | | (22) | | | 0.54 | | | (0.17) | | |
Add: Market impact on non-traditional long-duration products (1) | 483 | | | (670) | | | 3.97 | | | (5.27) | | |
Add: Mean reversion related impacts (1) | (98) | | | 47 | | | (0.81) | | | 0.37 | | |
Add: Market impact of hedges on investments (1) | 17 | | | — | | | 0.14 | | | — | | |
Add: Integration/restructuring charges (1) | 7 | | | 3 | | | 0.06 | | | 0.02 | | |
Less: Net income (loss) attributable to CIEs | (3) | | | (2) | | | (0.02) | | | (0.02) | | |
Tax effect of adjustments (2) | (72) | | | 126 | | | (0.59) | | | 0.99 | | |
Adjusted operating earnings | $ | 1,302 | | | $ | 1,027 | | | $ | 10.70 | | | $ | 8.07 | | |
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | 119.1 | | | 125.7 | | | | | | |
Diluted | 121.7 | | | 127.2 | | | | | | |
(1) Pretax adjusted operating adjustments.
(2) Calculated using the statutory federal tax rate of 21%.
(3) Diluted shares used in this calculation represent basic shares due to the net loss. Using actual diluted shares would result in anti-dilution.
(4) Represents the difference of the per share amount for net loss using basic shares compared to the per share amount for net loss using diluted shares.
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | | | | | | | | | |
| 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 operating adjustments.
(2) Calculated using the statutory tax rate of 35%.
|
| | | | | | | | | | | | | | | |
| 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 June 30, |
2021 | | 2020 |
(in millions) |
Net income | $ | 1,065 | | | $ | 2,503 | |
Less: Adjustments (1) | (980) | | | 371 | |
Adjusted operating earnings | 2,045 | | | 2,132 | |
| | | |
Total Ameriprise Financial, Inc. shareholders’ equity | 5,924 | | | 6,190 | |
Less: AOCI, net of tax | 463 | | | 194 | |
Total Ameriprise Financial, Inc. shareholders’ equity, excluding AOCI | 5,461 | | | 5,996 | |
Less: Equity impacts attributable to CIEs | 1 | | | — | |
Adjusted operating equity | $ | 5,460 | | | $ | 5,996 | |
|
| | | | | | | |
| Twelve Months Ended September 30, |
2017 | | 2016 |
(in millions) |
Net income attributable to Ameriprise Financial | $ | 1,699 |
| | $ | 1,271 |
|
Less: Adjustments (1) | (165 | ) | | (154 | ) |
Operating earnings | $ | 1,864 |
| | $ | 1,425 |
|
|
Total Ameriprise Financial, Inc. shareholders’ equity | $ | 6,369 |
| | $ | 7,139 |
|
Less: AOCI, net of tax | 325 |
| | 478 |
|
Total Ameriprise Financial, Inc. shareholders’ equity, excluding AOCI | 6,044 |
| | 6,661 |
|
Less: Equity impacts attributable to CIEs | 1 |
| | 62 |
|
Operating equity | $ | 6,043 |
| | $ | 6,599 |
|
|
Return on equity, excluding AOCI | 28.1 | % | | 19.1 | % |
Operating return on equity, excluding AOCI (2) | 30.8 | % | | 21.6 | % |
| | | | | | | | | | | |
| | | |
Return on equity, excluding AOCI | 19.5 | % | | 41.7 | % |
Adjusted operating return on equity, excluding AOCI (2) | 37.5 | % | | 35.6 | % |
| |
(1)
| (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 life benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; 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%. |
| |
(2)
| 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 universal benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; 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 rate of 35%. |
The Department of Labor published regulations in April 2016after-tax net realized investment gains/losses, net of DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; mean reversion related impacts; the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; gain or loss on disposal of a business that expandedis not considered discontinued operations; integration and restructuring charges; income (loss) from discontinued operations; and net income (loss) from consolidated investment entities. After-tax is calculated using the scopestatutory tax rate of who21%.
(2) Adjusted operating return on equity, excluding AOCI 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 becalculated using adjusted operating earnings in the best interest of the client, compensation paid for the recommendations must be reasonablenumerator, and Ameriprise Financial shareholders’ equity, excluding AOCI 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 phaseimpact of the regulation pertaining toconsolidating investment entities using a new “best interest contract exemption” puts into place a numberfive-point average 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 exemptionsquarter-end equity in the form in which they were adopted in April 2016, we are also evaluatingdenominator. After-tax is calculated using the impact to our clients, financial advisors and business should the Departmentstatutory tax rate of Labor decide to delay, rescind or revise the regulations per the developments since President Trump’s inauguration as generally described above.21%.
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 20162020 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.
Economic Environment
Global equity market conditions could materially affect our financial condition and results of operations. The following table presents relevant market indices:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six Months Ended June 30, | | |
2021 | | 2020 | Change | | 2021 | | 2020 | Change |
S&P 500 | | | | | | | | | | | |
Daily average | 4,182 | | 2,927 | | 43% | | 4,022 | | 2,998 | | 34% |
Period end | 4,298 | | 3,100 | | 39% | | 4,298 | | 3,100 | | 39% |
Weighted Equity Index (“WEI”) (1) | | | | | | | | | | | |
Daily average | 2,858 | | 1,975 | | 45% | | 2,761 | | 2,042 | | 35% |
Period end | 2,921 | | 2,099 | | 39% | | 2,921 | | 2,099 | | 39% |
(1) Weighted Equity Index is an Ameriprise calculated proxy for equity market movements calculated using a weighted average of the S&P 500, Russell 2000, Russell Midcap and MSCI EAFE indices based on North America distributed equity assets.
See our segment results of operations discussion below for additional information on how changes in the economic environment have and may continue to impact our results. For further information regarding the impact of the economic environment, and any potentially material effects, see Part 1 - Item 1A “Risk Factors” of our 2020 10-K.
AMERIPRISE FINANCIAL, INC.
Assets Under Management and Administration
Assets under management (“AUM”)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 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. These assets
AUM and AUA 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 | 2021 | | 2020 |
(in billions) | | | (in billions) | |
Assets Under Management and Administration | Assets Under Management and Administration | Assets Under Management and Administration | |
Advice & Wealth Management AUM | $ | 233.9 |
| | $ | 196.2 |
| | $ | 37.7 |
| | 19 | % | Advice & Wealth Management AUM | $ | 426.5 | | | $ | 314.8 | | | $ | 111.7 | | | 35 | % |
Asset Management AUM | 484.0 |
| | 467.8 |
| | 16.2 |
| | 3 |
| Asset Management AUM | 593.4 | | | 476.1 | | | 117.3 | | | 25 | |
Corporate & Other AUM | 0.3 |
| | 0.3 |
| | — |
| | — |
| |
Corporate AUM | | Corporate AUM | 0.1 | | | — | | | 0.1 | | | — |
Eliminations | (25.9 | ) | | (24.7 | ) | | (1.2 | ) | | (5 | ) | Eliminations | (42.0) | | | (31.8) | | | (10.2) | | | (32) | |
Total Assets Under Management | 692.3 |
| | 639.6 |
| | 52.7 |
| | 8 |
| Total Assets Under Management | 978.0 | | | 759.1 | | | 218.9 | | | 29 | |
Total Assets Under Administration | 177.2 |
| | 156.0 |
| | 21.2 |
| | 14 |
| Total Assets Under Administration | 233.3 | | | 187.7 | | | 45.6 | | | 24 | |
Total AUM and AUA | $ | 869.5 |
| | $ | 795.6 |
| | $ | 73.9 |
| | 9 | % | Total AUM and AUA | $ | 1,211.3 | | | $ | 946.8 | | | $ | 264.5 | | | 28 | % |
Total AUM increased $52.7$218.9 billion, or 8%29%, to $692.3$978.0 billion as of SeptemberJune 30, 20172021 compared to $639.6$759.1 billion as of SeptemberJune 30, 2016 primarily2020 due to a $37.7$111.7 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows and market appreciation and a $16.2$117.3 billion increase in Asset Management AUM driven by market appreciation and a positive impact of foreign currency translation,continued improvement in net flows, partially offset by net outflows.retail fund distributions. 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, 20172021 and 20162020
The following table presents our consolidated results of operations:
| | | Three Months Ended September 30, | | Change | | Three Months Ended June 30, | | Change |
2017 | | 2016 | | 2021 | | 2020 |
(in millions) | | | | (in millions) | |
Revenues | Revenues | Revenues | |
Management and financial advice fees | $ | 1,626 |
| | $ | 1,464 |
| | $ | 162 |
| | 11 | % | Management and financial advice fees | $ | 2,251 | | | $ | 1,702 | | | $ | 549 | | | 32 | % |
Distribution fees | 437 |
| | 455 |
| | (18 | ) | | (4 | ) | Distribution fees | 452 | | | 375 | | | 77 | | | 21 | |
Net investment income | 372 |
| | 387 |
| | (15 | ) | | (4 | ) | Net investment income | 278 | | | 305 | | | (27) | | | (9) | |
Premiums | 348 |
| | 374 |
| | (26 | ) | | (7 | ) | |
Premiums, policy and contract charges | | Premiums, policy and contract charges | 364 | | | 272 | | | 92 | | | 34 | |
Other revenues | 210 |
| | 330 |
| | (120 | ) | | (36 | ) | Other revenues | 75 | | | 76 | | | (1) | | | (1) | |
Total revenues | 2,993 |
| | 3,010 |
| | (17 | ) | | (1 | ) | Total revenues | 3,420 | | | 2,730 | | | 690 | | | 25 | |
Banking and deposit interest expense | 12 |
| | 12 |
| | — |
| | — |
| Banking and deposit interest expense | 2 | | | 18 | | | (16) | | | (89) | |
Total net revenues | 2,981 |
| | 2,998 |
| | (17 | ) | | (1 | ) | Total net revenues | 3,418 | | | 2,712 | | | 706 | | | 26 | |
Expenses | Expenses | Expenses | | | | | | |
Distribution expenses | 850 |
| | 798 |
| | 52 |
| | 7 |
| Distribution expenses | 1,233 | | | 940 | | | 293 | | | 31 | |
Interest credited to fixed accounts | 176 |
| | 161 |
| | 15 |
| | 9 |
| Interest credited to fixed accounts | 124 | | | 262 | | | (138) | | | (53) | |
Benefits, claims, losses and settlement expenses | 474 |
| | 855 |
| | (381 | ) | | (45 | ) | Benefits, claims, losses and settlement expenses | 404 | | | 1,467 | | | (1,063) | | | (72) | |
Amortization of deferred acquisition costs | 48 |
| | 163 |
| | (115 | ) | | (71 | ) | Amortization of deferred acquisition costs | 63 | | | (248) | | | 311 | | | NM |
Interest and debt expense | 52 |
| | 52 |
| | — |
| | — |
| Interest and debt expense | 43 | | | 41 | | | 2 | | | 5 | |
General and administrative expense | 753 |
| | 731 |
| | 22 |
| | 3 |
| General and administrative expense | 830 | | | 776 | | | 54 | | | 7 | |
Total expenses | 2,353 |
| | 2,760 |
| | (407 | ) | | (15 | )% | Total expenses | 2,697 | | | 3,238 | | | (541) | | | (17) | |
Pretax income | 628 |
| | 238 |
| | 390 |
| | NM |
| |
Pretax income (loss) | | Pretax income (loss) | 721 | | | (526) | | | 1,247 | | | NM |
Income tax provision | 125 |
| | 23 |
| | 102 |
| | NM |
| Income tax provision | 130 | | | 13 | | | 117 | | | NM |
Net income | $ | 503 |
| | $ | 215 |
| | $ | 288 |
| | NM |
| |
Net income (loss) | | Net income (loss) | $ | 591 | | | $ | (539) | | | $ | 1,130 | | | NM |
NM Not Meaningful. |
Overall
Pretax income increased $390 million$1.2 billion to $628$721 million for the three months ended SeptemberJune 30, 20172021 compared to $238pretax loss of $526 million for the prior year period primarily due to the impact of unlocking, market appreciation, 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 asset management net outflows, loss recognition of $57 million on LTC insurance products in the third quarter of 2017 and higher performance-based compensation.
period. The following table presentsimpacts were significant drivers of the totalperiod-over-period change in pretax impactsincome:
•The market impact on our revenuesnon-traditional long duration products (including variable and expenses attributable to unlockingfixed deferred annuity contracts and UL insurance contracts), net of hedges and related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual was an expense of $87 million for the three months ended SeptemberJune 30,: 2021 compared to an expense of $1.1 billion for the prior year period.
•A favorable impact from higher average equity markets for the three months ended June 30, 2021 compared to the prior year period. |
| | | | | | | | |
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. |
•A favorable impact from continued client net inflows from Advice & Wealth Management and Asset Management.
AMERIPRISE FINANCIAL, INC.
•The mean reversion related impact was a benefit of $42 million for the three months ended June 30, 2021 compared to a benefit of $14 million for the prior year period.
Net Revenues
Net revenues decreased $17increased $706 million, or 1%26%, to $3.0$3.4 billion for the three months ended SeptemberJune 30, 20172021 compared to $2.7 billion for 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.period.
Management and financial advice fees increased $162$549 million, or 11%32%, to $1.6$2.3 billion for the three months ended SeptemberJune 30, 20172021 compared to $1.5$1.7 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 appreciationreflecting higher average equity markets and higher 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.inflows.
Distribution fees decreased $18increased $77 million, or 4%21%, to $437$452 million for the three months ended SeptemberJune 30, 20172021 compared to $455 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 by market appreciation and higher brokerage cash spread due to an increase in short-term interest rates.
Premiums decreased $26 million, or 7%, to $348 million for the three months ended September 30, 2017 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$375 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 fromincreased transactional activity and higher projected gains on reinsurance contracts resulting from unfavorable mortality experience.average equity markets.
Expenses
Total expensesNet investment income decreased $407$27 million, or 15%9%, 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$278 million for the three months ended SeptemberJune 30, 20172021 compared to $798 million for the prior year period primarily due to 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 $43 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 $15 million, or 9%, to $176 million for the three months ended September 30, 2017 compared to $161 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 $8 million for the three months ended September 30, 2017 compared to a benefit of $5 million for the prior year period.
Benefits, claims, losses and settlement expenses decreased $381 million, or 45%, to $474 million for the three months ended September 30, 2017 compared to $855$305 million for the prior year period primarily reflecting the following items:
The three 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 third quarter•Net realized investment gains 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 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.
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. Catastrophe losses, net of the impact of reinsurance, were $15$11 million, for the three months ended SeptemberJune 30, 2017, primarily related to Hurricanes Harvey and Irma,2021 compared to $29net realized investment losses of $3 million for the prior year period. InNet realized investment gains for the first quarter of 2017, we entered into quota share and excess of loss reinsurance arrangements designed to reducethree months ended June 30, 2021 included 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.
realized gains of $14 million on Available-for-Sale securities due to sales, calls, and tenders, which was mostly offset by a $13 million loss associated with certain Available-for-Sale securities for which we have the intent to sell. Also included in net realized investment gains was a $13 million net gain primarily related to commercial mortgage loans and syndicated loans, reflecting reductions in the allowance for credit losses partially offset by the recording of a valuation allowance related to loans reclassified to held for sale. Net realized investment losses for the three months ended June 30, 2020 included a $4 million increase in the allowance for credit losses for Available-for-Sale securities and financing receivables.
Amortization•A $17 million unfavorable change in the market impact of DAC decreased $115hedges to offset interest rate and currency changes on certain investments.
•The unfavorable impact of continued low interest rates, including lower investment yields on the investment portfolio supporting the certificate and on-balance sheet brokerage cash products.
Premiums, policy and contract charges increased $92 million, or 71%,34% to $48$364 million for the three months ended SeptemberJune 30, 20172021 compared to $163$272 million for the prior year primarily reflecting a favorable change in unearned revenue amortization and the reinsurance accrual offset to the market impact on IUL benefits.
Banking and deposit interest expense decreased $16 million, or 89%, to $2 million for the three months ended June 30, 2021 compared to $18 million due to lower average crediting rates on certificates and lower average certificate balances.
Expenses
Total expenses decreased $541 million, or 17%, to $2.7 billion for the three months ended June 30, 2021 compared to $3.2 billion for the prior year period.
Distribution expenses increased $293 million, or 31%, to $1.2 billion for the three months ended June 30, 2021 compared to $940 million for the prior year period reflecting higher advisor compensation due to an increase in average wrap account balances and increased transactional activity.
Interest credited to fixed accounts decreased $138 million, or 53%, to $124 million for the three months ended June 30, 2021 compared to $262 million for the prior year period primarily reflecting the following items:
•A $180 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The unfavorable impact of unlocking, whichthe nonperformance credit spread was a benefit of $12$13 million for the three months ended SeptemberJune 30, 20172021 compared to an unfavorable impact of $193 million for the prior year period.
•A $49 million increase in expense from other market impacts on IUL benefits, net of $81hedges, which was a benefit of $50 million for the three months ended June 30, 2021 compared to a benefit of $99 million for the prior year period. The impact of unlockingincrease in expense was primarily due to a decrease 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 unlockingIUL embedded derivative in the prior year period, primarilywhich 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.lower option costs due to lower credit spreads.
GeneralBenefits, claims, losses and administrative expense increased $22 million, or 3%,settlement expenses decreased $1.1 billion to $753$404 million for the three months ended SeptemberJune 30, 20172021 compared to $731a benefit of $1.5 billion for the prior year period primarily reflecting the following items:
•A $1.0 billion decrease in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The favorable impact of $63 million for the three months ended June 30, 2021 was driven by changes in the undiscounted embedded derivative liability compared to an unfavorable impact of $953 million for the prior year period primarily as a result of the nonperformance credit spread decreasing by 115 basis points in the prior year quarter due to improvement in credit markets following market volatility related to the COVID-19 pandemic. As the undiscounted 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. Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease.
•A $77 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 increase was the result of a favorable $2.0 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by an unfavorable $1.9 billion change in the market impact on variable annuity guaranteed living benefits reserves. The main market drivers contributing to these changes are summarized below:
•Equity market 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 three months ended June 30, 2021 compared to the prior year period.
•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 three months ended June 30, 2021 compared to a benefit for 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 an expense for the three months ended June 30, 2021 compared to a benefit for the prior year period.
AMERIPRISE FINANCIAL, INC.
•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 lower net benefit for the three months ended June 30, 2021 compared to the prior year period.
•The mean reversion related impact was a benefit of $25 million for the three months ended June 30, 2021 compared to an expense of $5 million for the prior year period.
Amortization of DAC increased $311 million to $63 million for the three months ended June 30, 2021 compared to a benefit of $248 million for the prior year period primarily reflecting the following items:
•The DAC offset to the market impact on non-traditional long-duration products was an expense of $5 million for the three months ended June 30, 2021 compared to a benefit of $265 million for the prior year period.
•The mean reversion related impact was a benefit of $16 million for the three months ended June 30, 2021 compared to a benefit of $18 million for the prior year period.
•A higher level of normalized amortization due to the growth of variable annuities and unlocked market and policyholder assumptions in the prior year.
General and administrative expense increased $54 million, or 7%, to $830 million for the three months ended June 30, 2021 compared to $776 million for the prior year period primarily reflecting higher volume related expenses, an unfavorable foreign exchange impact and higher performance-based compensation.
Income Taxes
Our effective tax rate was 19.9%18.1% for the three months ended SeptemberJune 30, 20172021 compared to 9.7%(2.4)% for the prior year period. Our effective tax rates 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, low income housing tax credits, stock compensation, and lower taxes on net income from foreign subsidiaries. The increase in thehigher effective tax rate for the three months ended SeptemberJune 30, 20172021 compared to the prior year period is primarily duethe result of the net operating loss benefit reversal in the prior year period. See Note 15 to higher pretaxour Consolidated Financial Statements for additional discussion on 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, 20172021 and 20162020
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 1718 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 June 30, |
2021 | | 2020 |
(in millions) |
Advice & Wealth Management | | | |
Net revenues | $ | 1,980 | | | $ | 1,537 | |
Expenses | 1,557 | | | 1,266 | |
Adjusted operating earnings | $ | 423 | | | $ | 271 | |
Asset Management | | | |
Net revenues | $ | 879 | | | $ | 668 | |
Expenses | 626 | | | 527 | |
Adjusted operating earnings | $ | 253 | | | $ | 141 | |
Retirement & Protection Solutions | | | |
Net revenues | $ | 808 | | | $ | 755 | |
Expenses | 626 | | | 533 | |
Adjusted operating earnings | $ | 182 | | | $ | 222 | |
Corporate & Other | | | |
Net revenues | $ | 119 | | | $ | 131 | |
Expenses | 196 | | | 188 | |
Adjusted operating loss | $ | (77) | | | $ | (57) | |
|
| | | | | | | |
| Three Months Ended September 30, |
2017 | | 2016 |
(in millions) |
Advice & Wealth Management | |
| | |
|
Net revenues | $ | 1,383 |
| | $ | 1,272 |
|
Expenses | 1,085 |
| | 1,041 |
|
Operating earnings | $ | 298 |
| | $ | 231 |
|
Asset Management | |
| | |
|
Net revenues | $ | 778 |
| | $ | 740 |
|
Expenses | 578 |
| | 585 |
|
Operating earnings | $ | 200 |
| | $ | 155 |
|
Annuities | |
| | |
|
Net revenues | $ | 626 |
| | $ | 631 |
|
Expenses | 345 |
| | 699 |
|
Operating earnings (loss) | $ | 281 |
| | $ | (68 | ) |
Protection | |
| | |
|
Net revenues | $ | 478 |
| | $ | 613 |
|
Expenses | 423 |
| | 529 |
|
Operating earnings | $ | 55 |
| | $ | 84 |
|
Corporate & Other | |
| | |
|
Net revenues | $ | 50 |
| | $ | 51 |
|
Expenses | 186 |
| | 196 |
|
Operating loss | $ | (136 | ) | | $ | (145 | ) |
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:
| | | | | | | | | | | |
| 2021 | | 2020 |
(in billions) |
Beginning balance | $ | 399.8 | | | $ | 275.5 | |
Net flows (1) | 10.0 | | | 5.6 | |
Market appreciation (depreciation) and other (1) | 20.2 | | | 36.5 | |
Ending balance | $ | 430.0 | | | $ | 317.6 | |
| | | |
Advisory wrap account assets ending balance (2) | $ | 425.2 | | | $ | 313.9 | |
Average advisory wrap account assets (3) | $ | 407.7 | | | $ | 290.9 | |
|
| | | | | | | |
| 2017 | | 2016 |
(in billions) |
Beginning balance | $ | 222.3 |
| | $ | 189.7 |
|
Inflows from acquisition (1) | 0.7 |
| | — |
|
Other net flows | 5.4 |
| | 2.8 |
|
Net flows | 6.1 |
| | 2.8 |
|
Market appreciation (depreciation) and other | 6.8 |
| | 5.0 |
|
Ending balance | $ | 235.2 |
| | $ | 197.5 |
|
| | | |
Advisory wrap account assets ending balance (2) | $ | 233.0 |
| | $ | 195.4 |
|
Average advisory wrap account assets (3) | $ | 227.0 |
| | $ | 192.7 |
|
(1) Beginning in the first quarter of 2021, wrap net flows is calculated including dividends and interest less fees, which were previously recorded in Market appreciation (depreciation) and other. Net flows excludes short-term and long-term capital gain distributions. Prior periods have been restated. | |
(1)(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 excluding the most recent month for the three months ended June 30, 2021 and 2020. | 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)
| 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$30.2 billion, or 6%8%, during the three months ended SeptemberJune 30, 20172021 due to net inflows of $6.1$10.0 billion including $0.7 billion from our acquisition of IPI, and market appreciation and other of $6.8$20.2 billion. Average advisory wrap account assets increased $34.3$116.8 billion, or 18%40%, compared to the prior year period reflecting market appreciation and net inflows and market appreciation.
The following table presents the changes in wrap account assets for the twelve months ended September 30:
|
| | | | | | | |
| 2017 | | 2016 |
(in billions) |
Beginning balance | $ | 197.5 |
| | $ | 173.8 |
|
Inflows from acquisition (1) | 0.7 |
| | — |
|
Other net flows | 17.1 |
| | 9.0 |
|
Net flows | 17.8 |
| | 9.0 |
|
Market appreciation (depreciation) and other | 19.9 |
| | 14.7 |
|
Ending balance | $ | 235.2 |
| | $ | 197.5 |
|
(1) Inflows associated with acquisition that closed during the period.
Wrap account assets increased $37.7 billion, or 19%, from the prior year period primarily due to net inflows and market appreciation.
AMERIPRISE FINANCIAL, INC.
inflows.
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 | | 2021 | | 2020 |
(in millions) | | | | (in millions) | |
Revenues | Revenues | Revenues | |
Management and financial advice fees | $ | 799 |
| | $ | 689 |
| | $ | 110 |
| | 16 | % | Management and financial advice fees | $ | 1,299 | | | $ | 969 | | | $ | 330 | | | 34 | % |
Distribution fees | 515 |
| | 531 |
| | (16 | ) | | (3 | ) | Distribution fees | 562 | | | 453 | | | 109 | | | 24 | |
Net investment income | 64 |
| | 47 |
| | 17 |
| | 36 |
| Net investment income | 63 | | | 77 | | | (14) | | | (18) | |
Other revenues | 17 |
| | 17 |
| | — |
| | — |
| Other revenues | 58 | | | 56 | | | 2 | | | 4 | |
Total revenues | 1,395 |
| | 1,284 |
| | 111 |
| | 9 |
| Total revenues | 1,982 | | | 1,555 | | | 427 | | | 27 | |
Banking and deposit interest expense | 12 |
| | 12 |
| | — |
| | — |
| Banking and deposit interest expense | 2 | | | 18 | | | (16) | | | (89) | |
Total net revenues | 1,383 |
| | 1,272 |
| | 111 |
| | 9 |
| Total net revenues | 1,980 | | | 1,537 | | | 443 | | | 29 | |
Expenses | Expenses | Expenses | | | | | | |
Distribution expenses | 813 |
| | 781 |
| | 32 |
| | 4 |
| Distribution expenses | 1,194 | | | 913 | | | 281 | | | 31 | |
Interest and debt expense | 2 |
| | 2 |
| | — |
| | — |
| Interest and debt expense | 2 | | | 3 | | | (1) | | | (33) | |
General and administrative expense | 270 |
| | 258 |
| | 12 |
| | 5 |
| General and administrative expense | 361 | | | 350 | | | 11 | | | 3 | |
Total expenses | 1,085 |
| | 1,041 |
| | 44 |
| | 4 |
| Total expenses | 1,557 | | | 1,266 | | | 291 | | | 23 | |
Operating earnings | $ | 298 |
| | $ | 231 |
| | $ | 67 |
| | 29 | % | |
Adjusted operating earnings | | Adjusted operating earnings | $ | 423 | | | $ | 271 | | | $ | 152 | | | 56 | % |
Our Advice & Wealth Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $67$152 million, or 29%56%, to $298$423 million for the three months ended SeptemberJune 30, 20172021 compared to $231$271 million for the prior year period reflecting higher average wrap account balances due to net inflows and market appreciation and higher earnings on brokerage cash due to higher short-term interest rates, partially offset by expenses associated with recruiting experienced advisors and higher performance-based compensation.improved transactional activity. Pretax adjusted operating margin was 21.5%21.4% for the three months ended SeptemberJune 30, 20172021 compared to 18.2%17.6% for the prior year period.
Ameriprise Bank, FSB has continued to add deposits, with $8.7 billion of cash sweep balances as of June 30, 2021. In the fourth quarter of 2020, we acquired $224 million in an existing portfolio of brokerage client pledged asset lines of credit which has grown to over $350 million as of June 30, 2021.
AMERIPRISE FINANCIAL, INC.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $111$443 million, or 9%29%, to $1.4$2.0 billion for the three months ended SeptemberJune 30, 20172021 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$197,000 for the three months ended SeptemberJune 30, 2017,2021, up 7%27%, from $131,000compared to $155,000 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 advice fees increased $110$330 million, or 16%34%, to $799 million$1.3 billion for the three months ended SeptemberJune 30, 20172021 compared to $689 million$1.0 billion for the prior year period primarily due to growth in average wrap account assets. Average advisory wrap account assets increased $34.3$116.8 billion, or 18%40%, compared to the prior year period reflecting market appreciation and net inflows and market appreciation.inflows.
Distribution fees decreased $16increased $109 million, or 3%24%, to $515$562 million for the three months ended SeptemberJune 30, 20172021 compared to $531$453 million for the prior year period reflecting increased transactional activity and higher average equity markets.
Net investment income, which excludes net realized investment gains or losses, decreased $14 million, or 18%, to $63 million for the three months ended June 30, 2021 compared to $77 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,lower certificate balances and the unfavorable impact of continued low interest rates, including lower investment yields on the investment portfolio supporting the certificate and on-balance sheet brokerage cash products, partially offset by higher brokerage cash spreadaverage invested assets due to an increase in short-termincreased bank deposits.
Banking and deposit interest rates and revenues from IPI.
Net investment income increased $17expense decreased $16 million, or 36%89%, to $64$2 million for the three months ended SeptemberJune 30, 20172021 compared to $47$18 million for the prior year period primarily due to lower average crediting rates on certificates and lower average certificate balances.
Expenses
Total expenses increased $291 million, or 23%, to $1.6 billion for the three months ended June 30, 2021 compared to $1.3 billion for the prior year period.
Distribution expenses increased $281 million, or 31%, to $1.2 billion for the three months ended June 30, 2021 compared to $913 million for the prior year period reflecting higher asset-based advisor compensation from higher wrap account assets and increased transactional activity.
General and administrative expense increased $11 million, or 3%, to $361 million for the three months ended June 30, 2021 compared to $350 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 $44 million, or 4%, to $1.1 billion for the three months ended September 30, 2017 compared to $1.0 billion for the prior year period due to increases in distributionvolume related expenses and general and administrative expense.
Distribution expenses increased $32 million, or 4%, to $813 million for the three months ended September 30, 2017 compared to $781 million for the prior year period reflecting higher advisor compensation due to growth in wrap account assets, the IPI acquisition 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.
General and administrative expense increased $12 million, or 5%, to $270 million for the three months ended September 30, 2017 compared to $258 million for the prior year period due to higher performance-based compensation as well as higher expenses related to the IPI acquisition.
expenses.
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 table presents global managedtables present the fund performance of our retail Columbia Threadneedle Investments funds as of June 30, 2021:
| | | | | | | | | | | | | | |
Retail Fund Rankings in Top 2 Quartiles or Above Index Benchmark - Asset Weighted | 1 year | 3 year | 5 year | 10 year |
Equity | 61% | 87% | 87% | 88% |
Fixed Income | 87% | 73% | 91% | 90% |
Asset Allocation | 39% | 88% | 95% | 89% |
| | | | |
4- or 5-star Morningstar rated funds | Overall | 3 year | 5 year | 10 year |
Number of rated funds | 110 | 100 | 98 | 88 |
Percent of rated assets | 71% | 64% | 63% | 73% |
Retail Fund performance rankings for each fund is measured on a consistent basis against the most appropriate peer group or index. Peer Groupings are defined by either Lipper, IA, or Morningstar and based primarily on the Institutional Share Class, Net of Fees. Comparisons to Index are measured Gross of Fees.
To calculate asset weighted performance, the sum of the total assets of the funds with above median ranking are divided by type:total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
Aggregated Asset Allocation Funds may include funds that invest in other Columbia or Threadneedle branded mutual funds included in both equity and fixed income.
AMERIPRISE FINANCIAL, INC.
| | | September 30, | | Change | | Average(1) | | Change | |
| The following table presents global managed assets by type: | | Average (1) | | Change |
September 30, | Nine Months Ended September 30, | | As of June 30, | | Change | Three Months Ended June 30, |
| Change | | 2017 | | 2016 | | Change | 2021 | | 2020 | | | 2020 | |
| (in billions) | | (in billions) |
$ | 265.8 |
| | $ | 245.9 |
| $ | 254.3 |
| | $ | 244.0 |
| Equity | $ | 339.0 | | | $ | 251.4 | | | $ | 87.6 | | | 35 | % | | $ | 330.8 | | | $ | 95.0 | | | 40 | % |
178.0 |
| | 183.3 |
| | (5.3 | ) | | (3 | ) | | 177.3 |
| | 179.6 |
| | (2.3 | ) | | (1 | ) | Fixed income | 203.1 | | | 183.1 | | | 20.0 | | | 11 | | | 200.2 | | | 179.0 | | | 21.2 | | | 12 | |
5.9 |
| | 6.6 |
| | (0.7 | ) | | (11 | ) | | 5.9 |
| | 7.3 |
| | (1.4 | ) | | (19 | ) | Money market | 5.5 | | | 5.0 | | | 0.5 | | | 10 | | | 5.8 | | | 5.1 | | | 0.7 | | | 14 | |
Alternative | 6.5 |
| | 7.3 |
| | (0.8 | ) | | (11 | ) | | 7.0 |
| | 7.7 |
| | (0.7 | ) | | (9 | ) | Alternative | 3.9 | | | 3.1 | | | 0.8 | | | 26 | | | 3.8 | | | 3.0 | | | 0.8 | | | 27 | |
Hybrid and other | 27.8 |
| | 24.7 |
| | 3.1 |
| | 13 |
| | 26.1 |
| | 24.2 |
| | 1.9 |
| | 8 |
| Hybrid and other | 41.9 | | | 33.5 | | | 8.4 | | | 25 | | | 41.2 | | | 33.4 | | | 7.8 | | | 23 | |
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
| | $ | 16.2 |
| | 3 | % | | $ | 470.6 |
| | $ | 462.8 |
| | $ | 7.8 |
| | 2 | % | Total managed assets | $ | 593.4 | | | $ | 476.1 | | | $ | 117.3 | | | 25 | % | | $ | 581.8 | | | $ | 456.3 | | | $ | 125.5 | | | 28 | % |
(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.
The following table presents the changes in global managed assets:
| | | | | | | | | | | |
| Three Months Ended June 30, |
2021 | | 2020 |
(in billions) |
Global Retail Funds | | | |
Beginning assets | $ | 340.2 | | | $ | 239.0 | |
Inflows | 19.4 | | | 15.9 | |
Outflows | (17.1) | | | (14.2) | |
Net VP/VIT fund flows | (1.0) | | | (0.6) | |
Net new flows | 1.3 | | | 1.1 | |
Reinvested dividends | 2.9 | | | 2.0 | |
Net flows | 4.2 | | | 3.1 | |
Distributions | (3.3) | | | (2.3) | |
Market appreciation (depreciation) and other | 18.1 | | | 34.3 | |
Foreign currency translation (1) | 0.3 | | | — | |
Total ending assets | 359.5 | | | 274.1 | |
| | | |
Global Institutional | | | |
Beginning assets | 223.9 | | | 187.2 | |
Inflows (2) | 9.3 | | | 6.4 | |
Outflows (2) | (6.8) | | | (6.9) | |
Net flows | 2.5 | | | (0.5) | |
Market appreciation (depreciation) and other (3) | 7.1 | | | 15.7 | |
Foreign currency translation (1) | 0.4 | | | (0.4) | |
Total ending assets | 233.9 | | | 202.0 | |
Total managed assets | $ | 593.4 | | | $ | 476.1 | |
| | | |
Total net flows | $ | 6.7 | | | $ | 2.6 | |
| | | |
Legacy insurance partners net flows (4) | $ | (1.4) | | | $ | (1.3) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
2017 | | 2016 |
(in billions) |
Global Retail Funds |
Beginning assets | $ | 259.9 |
| | $ | 263.9 |
|
Inflows | 38.0 |
| | 38.3 |
|
Acquisition related inflows (1) | — |
| | 1.0 |
|
Outflows | (45.7 | ) | | (45.7 | ) |
Net VP/VIT fund flows | (2.5 | ) | | (1.3 | ) |
Net new flows | (10.2 | ) | | (7.7 | ) |
Reinvested dividends | 3.3 |
| | 3.8 |
|
Net flows | (6.9 | ) | | (3.9 | ) |
Distributions | (4.1 | ) | | (4.6 | ) |
Market appreciation (depreciation) and other | 28.5 |
| | 13.8 |
|
Foreign currency translation (2) | 3.4 |
| | (3.2 | ) |
Total ending assets | 280.8 |
| | 266.0 |
|
|
Global Institutional |
Beginning assets | 194.5 |
| | 208.0 |
|
Inflows | 18.9 |
| | 18.5 |
|
Outflows | (31.0 | ) | | (31.1 | ) |
Net flows | (12.1 | ) | | (12.6 | ) |
Market appreciation (depreciation) and other (3) | 13.9 |
| | 14.9 |
|
Foreign currency translation (2) | 6.9 |
| | (8.5 | ) |
Total ending assets | 203.2 |
| | 201.8 |
|
Total managed assets | $ | 484.0 |
| | $ | 467.8 |
|
Total net flows | $ | (19.0 | ) | | $ | (16.5 | ) |
|
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)(1) Amounts represent local currency to US dollar translation for reporting purposes.
(3) Includes $0.3 billion(2) Global Institutional inflows and $2.6 billionoutflows include net flows from our RiverSource Structured Annuity product beginning in Q1 2020 and Ameriprise Bank, FSB beginning in Q1 2021.
(3) Included in Market appreciation (depreciation) and other for Global Institutional is the total change in Affiliated General Account Assets during the nine months ended September 30, 2017affiliated general account balance, excluding net flows related to our structured variable annuity product beginning in Q1 2020 and 2016, respectively.Ameriprise Bank, FSB beginning in Q1 2021.
(4) Former parent company related Legacy insurance partners assets and net new flows are included in the rollforwards above.
(5) Prior period former parent
AMERIPRISE FINANCIAL, INC.
The United Kingdom’s (“U.K.”) and the European Union’s (“EU”) trade and cooperation agreement did not include cross-border financial services. As a result, our U.K. asset management business is no longer able to market its services into the EU on a passporting basis and must now comply with local EU and country requirements as a non-EU firm, which includes leveraging our Luxembourg-based management company related net new flows were restatedaffiliate to include additional Former Parent Company net new flows that were previously not considered. The change wasprovide services and marketing to EU clients and investors. As a decreaseresult, the full impact of $199 million for the nine months ended September 30, 2017Brexit remains uncertain.
Total segment AUM increased $29.6$29.3 billion, or 7%5%,during the nine monthsendedSeptember 30, 2017drivenby market appreciation and a positive impact of foreign currency translation, partially offset by net outflows. Total segment AUM net outflows were $19.0 billion for the ninethree months ended SeptemberJune 30, 2017, which included $12.72021. Net inflows were $6.7 billion in the second quarter of outflows of former parent-related assets.
2021, a $4.1 billion increase compared to the prior year period. Global retail net outflows of $6.9 billion includedinflows were $4.2 billion. Global institutional net inflows were $2.5 billion of outflows of our variable product funds underlying insurance and annuity separate accounts and $2.3included $1.4 billion of outflows from former parent-relatedlegacy insurance partners 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 | | 2021 | | 2020 |
(in millions) | | | | (in millions) | |
Revenues | Revenues | Revenues | |
Management and financial advice fees | $ | 1,880 |
| | $ | 1,826 |
| | $ | 54 |
| | 3 | % | Management and financial advice fees | $ | 758 | | | $ | 570 | | | $ | 188 | | | 33 | % |
Distribution fees | 344 |
| | 363 |
| | (19 | ) | | (5 | ) | Distribution fees | 118 | | | 96 | | | 22 | | | 23 | |
Net investment income | 16 |
| | 9 |
| | 7 |
| | 78 |
| Net investment income | 2 | | | 1 | | | 1 | | | NM |
Other revenues | 12 |
| | 5 |
| | 7 |
| | NM |
| Other revenues | 1 | | | 1 | | | — | | | — |
Total revenues | 2,252 |
| | 2,203 |
| | 49 |
| | 2 |
| Total revenues | 879 | | | 668 | | | 211 | | | 32 | |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
| Banking and deposit interest expense | — | | | — | | | — | | | — |
Total net revenues | 2,252 |
| | 2,203 |
| | 49 |
| | 2 |
| Total net revenues | 879 | | | 668 | | | 211 | | | 32 | |
Expenses | Expenses | Expenses | | | | | | |
Distribution expenses | 750 |
| | 762 |
| | (12 | ) | | (2 | ) | Distribution expenses | 282 | | | 220 | | | 62 | | | 28 | |
Amortization of deferred acquisition costs | 12 |
| | 13 |
| | (1 | ) | | (8 | ) | Amortization of deferred acquisition costs | 3 | | | 3 | | | — | | | — |
Interest and debt expense | 16 |
| | 16 |
| | — |
| | — |
| Interest and debt expense | 1 | | | 1 | | | — | | | — |
General and administrative expense | 948 |
| | 960 |
| | (12 | ) | | (1 | ) | General and administrative expense | 340 | | | 303 | | | 37 | | | 12 | |
Total expenses | 1,726 |
| | 1,751 |
| | (25 | ) | | (1 | ) | Total expenses | 626 | | | 527 | | | 99 | | | 19 | |
Operating earnings | $ | 526 |
| | $ | 452 |
| | $ | 74 |
| | 16 | % | |
Adjusted operating earnings | | Adjusted operating earnings | $ | 253 | | | $ | 141 | | | $ | 112 | | | 79 | % |
NM Not Meaningful. | NM Not Meaningful. | NM Not Meaningful. | | | | | | |
Our Asset Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $74$112 million, or 16%79%, to $526$253 million for the ninethree months ended SeptemberJune 30, 20172021 compared to $452$141 million for the prior year period primarily due to a higher level of average AUM from market appreciation an increase in incentive fees from CLO unwinds, 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 net outflows and higher performance-based compensation.
AMERIPRISE FINANCIAL, INC.
inflows.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, increased $49$211 million, or 2%32%, to $2.3 billion$879 million for the ninethree months ended SeptemberJune 30, 20172021 compared to $2.2 billion$668 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 $54$188 million, or 3%33%, to $1.9 billion for the nine months ended September 30, 2017 compared to $1.8 billion for the prior year period driven by market appreciation and an increase in incentive fees fromCLOunwinds,partiallyoffsetbycumulativenetoutflowsfromformerparent-related assetsandhigher fee yielding retail funds and a $24 million negative foreign currency translation impact. Our average weighted equity index, which is a proxyforequity movementsonAUM,increased16%for the nine months ended September 30, 2017comparedto theprioryear period.
Distribution fees decreased $19 million, or 5%, to $344$758 million for the ninethree months ended SeptemberJune 30, 20172021 compared to $363 million for the prior year period due to cumulative 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.
Expenses
Total expenses decreased $25 million, or 1%, 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 million for the nine months ended September 30, 2017 compared to $762 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 decreased $12 million, or 1%, to $948 million for the nine months ended September 30, 2017 compared to $960$570 million for the prior year period primarily due to a $20 million benefithigher average equity markets, the impact from net inflows and the impact of foreign exchange a $9rates.
Distribution fees increased $22 million, expense inor 23%, to $118 million for the three months ended June 30, 2021 compared to $96 million for the prior year period fromprimarily due to higher average equity markets.
Expenses
Total expenses increased $99 million, or 19%, to $626 million for the resolution of a legacy legal matterthree months ended June 30, 2021 compared to $527 million for the prior year period.
Distribution expenses increased $62 million, or 28%, to $282 million for the three months ended June 30, 2021 compared to $220 million for the prior year period reflecting higher average equity markets.
General and administrative expense increased $37 million, or 12%, to $340 million for the three months ended June 30, 2021 compared to $303 million for the prior year period primarily reflecting higher performance-based compensation expenses related to stronger business performance and the hedge fund business and continued expense management, partially offset by higher performance-based compensation.impact of foreign exchange rates.
Annuities
AMERIPRISE FINANCIAL, INC.
Retirement & Protection Solutions
The following table presents the results of operations of our AnnuitiesRetirement & Protection Solutions 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 |
2021 | | 2020 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 234 | | | $ | 200 | | | $ | 34 | | | 17 | % |
Distribution fees | 122 | | | 106 | | | 16 | | | 15 | |
Net investment income | 127 | | | 129 | | | (2) | | | (2) | |
Premiums, policy and contract charges | 325 | | | 320 | | | 5 | | | 2 | |
| | | | | | | |
Total revenues | 808 | | | 755 | | | 53 | | | 7 | |
Banking and deposit interest expense | — | | | — | | | — | | | — |
Total net revenues | 808 | | | 755 | | | 53 | | | 7 | |
Expenses | | | | | | | |
Distribution expenses | 134 | | | 111 | | | 23 | | | 21 | |
Interest credited to fixed accounts | 98 | | | 97 | | | 1 | | | 1 | |
Benefits, claims, losses and settlement expenses | 241 | | | 212 | | | 29 | | | 14 | |
Amortization of deferred acquisition costs | 70 | | | 30 | | | 40 | | | NM |
Interest and debt expense | 9 | | | 11 | | | (2) | | | (18) | |
General and administrative expense | 74 | | | 72 | | | 2 | | | 3 | |
Total expenses | 626 | | | 533 | | | 93 | | | 17 | |
Adjusted operating earnings | $ | 182 | | | $ | 222 | | | $ | (40) | | | (18) | % |
NM Not Meaningful. | | | | | | | |
Our AnnuitiesRetirement & Protection Solutions segment pretax adjusted operating income,earnings, which excludes 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 non-traditional long-duration products (including variable annuity contracts and IUL contracts, net of hedges and the related DSIC and DAC amortization, unearned amortization and the reinsurance accrual), and mean reversion related impacts, decreased $40 million, or 18%, to $182 million for the three months ended June 30, 2021 compared to $222 million for the prior year period.
RiverSource variable annuity account balances increased 17% to $90.5 billion as of June 30, 2021 compared to the prior year period due to market appreciation, partially offset by net outflows of $1.8 billion. Variable annuity sales increased 88% compared to the prior year period reflecting an increase in sales of structured variable annuities launched in 2020. Sales of variable annuities without living benefit guarantees comprised 66% of total variable annuity sales for the three months ended June 30, 2021 compared to 51% for the prior year period. This trend is expected to continue and meaningfully shift the mix of business away from products with living benefit guarantees over time.
Net Revenues
Management and financial advice fees increased $34 million, or 17%, to $234 million for the three months ended June 30, 2021 compared to $200 million for the prior year period primarily due to market appreciation, partially offset by variable annuity net outflows.
Distribution fees increased $16 million, or 15%, to $122 million for the three months ended June 30, 2021 compared to $106 million for the prior year period due to higher average equity markets.
Expenses
Distribution expenses increased $23 million, or 21%, to $134 million for the three months ended June 30, 2021 compared to $111 million for the prior year period primarily reflecting higher average equity markets and increased variable annuity and insurance sales.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity contracts (net of hedges and the related DSIC amortization), mean reversion related impacts and the DSIC offset to net realized investment gains or losses, increased $29 million, or 14%, to $241 million for the three months ended June 30, 2021 compared to $212 million for the prior year period primarily reflecting higher reserve funding as surrenders and withdrawals returned to more normalized levels versus the historically low levels experienced in the prior year period.
AMERIPRISE FINANCIAL, INC.
Amortization of DAC, which excludes mean reversion related impacts, the DAC offset to the market impact on variable annuity contracts and IUL contracts and the DAC offset to net realized investment gains or losses, increased $40 million to $70 million for the three months ended June 30, 2021 compared to $30 million for the prior year period primarily reflecting the higher level of normalized amortization.
Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an adjusted operating basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 | | 2020 |
| (in millions) | | |
Revenues | | | | | | | |
| | | | | | | |
| | | | | | | |
Net investment income | $ | 79 | | | $ | 88 | | | $ | (9) | | | (10) | % |
Premiums, policy and contract charges | 25 | | | 25 | | | — | | | — |
Other revenues | 16 | | | 19 | | | (3) | | | (16) | |
Total revenues | 120 | | | 132 | | | (12) | | | (9) | |
Banking and deposit interest expense | 1 | | | 1 | | | — | | | — |
Total net revenues | 119 | | | 131 | | | (12) | | | (9) | |
Expenses | | | | | | | |
Distribution expenses | (2) | | | (2) | | | — | | | — |
Interest credited to fixed accounts | 62 | | | 64 | | | (2) | | | (3) | |
Benefits, claims, losses and settlement expenses | 54 | | | 42 | | | 12 | | | 29 | |
Amortization of deferred acquisition costs | 2 | | | 3 | | | (1) | | | (33) | |
Interest and debt expense | 17 | | | 16 | | | 1 | | | 6 | |
General and administrative expense | 63 | | | 65 | | | (2) | | | (3) | |
Total expenses | 196 | | | 188 | | | 8 | | | 4 | |
Adjusted operating loss | $ | (77) | | | $ | (57) | | | $ | (20) | | | (35) | % |
| | | | | | | |
|
Our Corporate & Other segment includes our closed blocks of long term care (“LTC”) insurance and fixed annuity and fixed indexed annuity (“FA”) business.
Our Corporate & Other segment pretax adjusted operating loss excludes net realized investment gains or losses, the market impact on fixed deferred annuity contracts (net of hedges and the related DAC amortization), the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments, gain or loss on disposal of a business that is not considered discontinued operations, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax adjusted operating loss increased $20 million, or 35%, to $77 million for the three months ended June 30, 2021 compared to $57 million for the prior year period primarily reflecting higher claims in LTC insurance and lower investment income, including a $7 million impairment in our affordable housing partnerships.
LTC insurance had pretax adjusted operating earnings of $3 million for the three months ended June 30, 2021 compared to pretax adjusted operating earnings of $17 million for the prior year period reflecting the return to more normalized results compared to the COIVD-19 related impacts in the year ago period.
FA business had a pretax adjusted operating loss of $6 million for the three months ended June 30, 2021 compared to a pretax adjusted operating earnings of $3 million for the prior year period reflecting the low interest rate impact on spread income.
RiverSource fixed deferred annuity account balances declined 4% to $7.8 billion as of June 30, 2021 compared to the prior year period as policies continue to lapse and the discontinuance of new sales of fixed deferred annuities and fixed index annuities due to the low interest rate environment as well as our strategic decisions regarding our fixed annuity business.
Net Revenues
Net investment income, which excludes net realized investment gains or losses, the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs, decreased $9 million, or 10%, to $79 million for the three months ended June 30, 2021 compared to $88 million for the prior year period primarily reflecting lower average invested assets due to fixed annuity net outflows and lower portfolio yields, as well as a $7 million impairment in our affordable housing partnerships.
AMERIPRISE FINANCIAL, INC.
Expenses
Benefits, claims, losses and settlement expenses, which excludes DSIC offset to net realized investment gains or losses, increased $12 million, or 29%, to $54 million for the three months ended June 30, 2021 compared to $42 million for the prior year period primarily reflecting the impacts from COVID-19 on LTC insurance in the prior year period.
Consolidated Results of Operations for the Six Months Ended June 30, 2021 and 2020
The following table presents our consolidated results of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 | | 2020 |
| (in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 4,353 | | | $ | 3,472 | | | $ | 881 | | | 25 | % |
Distribution fees | 910 | | | 839 | | | 71 | | | 8 | |
Net investment income | 655 | | | 633 | | | 22 | | | 3 | |
Premiums, policy and contract charges | 711 | | | 667 | | | 44 | | | 7 | |
Other revenues | 146 | | | 145 | | | 1 | | | 1 | |
Total revenues | 6,775 | | | 5,756 | | | 1,019 | | | 18 | |
Banking and deposit interest expense | 7 | | | 43 | | | (36) | | | (84) | |
Total net revenues | 6,768 | | | 5,713 | | | 1,055 | | | 18 | |
Expenses | | | | | | | |
Distribution expenses | 2,408 | | | 1,935 | | | 473 | | | 24 | |
Interest credited to fixed accounts | 283 | | | 353 | | | (70) | | | (20) | |
Benefits, claims, losses and settlement expenses | 1,057 | | | (280) | | | 1,337 | | | NM |
Amortization of deferred acquisition costs | 68 | | | 264 | | | (196) | | | (74) | |
Interest and debt expense | 85 | | | 87 | | | (2) | | | (2) | |
General and administrative expense | 1,653 | | | 1,529 | | | 124 | | | 8 | |
Total expenses | 5,554 | | | 3,888 | | | 1,666 | | | 43 | |
Pretax income | 1,214 | | | 1,825 | | | (611) | | | (33) | |
Income tax provision | 186 | | | 328 | | | (142) | | | (43) | |
Net income | $ | 1,028 | | | $ | 1,497 | | | $ | (469) | | | (31) | % |
NM Not Meaningful. | | | | | | | |
Overall
Pretax income decreased $611 million, or 33%, to $1.2 billion for the six months ended June 30, 2021 compared to $1.8 billion for the prior year period.
•The market impact on non-traditional long duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual was an expense of $483 million for the six months ended June 30, 2021 compared to a benefit of $670 million for the prior year period.
•A negative impact of $78 million in the Advice & Wealth Management segment from lower short-term interest rates.
•A positive impact from higher average equity markets during the six months ended June 30, 2021 compared to the prior year period.
•The mean reversion related impact was a benefit of $98 million for the six months ended June 30, 2021 compared to an expense of $47 million for the prior year period.
•A positive impact from higher client net inflows and higher transactional activity during the six months ended June 30, 2021 compared to the prior year period.
Net Revenues
Net revenues increased $1.1 billion, or 18%, to $6.8 billion for the six months ended June 30, 2021 compared to $5.7 billion for the prior year period.
Management and financial advice fees increased $881 million, or 25%, to $4.4 billion for the six months ended June 30, 2021 compared to $3.5 billion for the prior year period reflecting higher average equity markets and higher wrap account net inflows and an unfavorable $19 million performance fee correction in the prior year period.
AMERIPRISE FINANCIAL, INC.
Distribution fees increased $71 million, or 8%, to $910 million for the six months ended June 30, 2021 compared to $839 million due to higher average equity markets and increased transactional activity, partially offset by $55 million of lower fees on off-balance sheet brokerage cash primarily due to a decrease in short-term interest rates.
Net investment income increased $22 million, or 3%, to $655 million for the six months ended June 30, 2021 compared to $633 million for the prior year period primarily reflecting:
•Net realized investment gains of $65 million for the six months ended June 30, 2021 compared to net realized investment losses of $22 million for the prior year period. Net realized investment gains for the six months ended June 30, 2021 included a $15 million gain on a strategic investment and net realized gains of $64 million on Available-for-Sale securities due to sales, calls, and tenders, partially offset by a $13 million loss associated with certain Available-for-Sale securities for which we have the intent to sell. Also included in net realized investment gains was a $16 million net gain related to commercial mortgage loans and syndicated loans, primarily reflecting reductions in the allowance for credit losses partially offset by the recording of a valuation allowance related to loans reclassified to held for sale. Net realized investment losses for the six months ended June 30, 2020 included a $27 million increase in allowance for credit losses for Available-for-Sale securities and financing receivables.
•An increase of $20 million in net investment income of CIEs
•The unfavorable impact of continued low interest rates, including lower investment yields on the investment portfolio supporting the certificate and on-balance sheet brokerage cash products.
•A $17 million unfavorable change in the market impact of hedges to offset interest rate and currency changes on certain investments.
Premiums, policy and contract charges increased $44 million, or 7% to $711 million for the six months ended June 30, 2021 compared to $667 million primarily reflecting a favorable change in unearned revenue amortization and the reinsurance accrual offset to the market impact on IUL benefits, partially offset by lower sales of immediate annuities with a life contingent feature.
Banking and deposit interest expense decreased $36 million, or 84%, to $7 million for the six months ended June 30, 2021 compared to $43 million due to lower average crediting rates on certificates and lower average certificate balances.
Expenses
Total expenses increased $1.7 billion, or 43%, to $5.6 billion for the six months ended June 30, 2021 compared to $3.9 billion for the prior year period.
Distribution expenses increased $473 million, or 24%, to $2.4 billion for the six months ended June 30, 2021 compared to $1.9 billion for the prior year period reflecting higher advisor compensation due to an increase in average wrap account balances and increased transactional activity.
Interest credited to fixed accounts decreased $70 million, or 20%, to $283 million for the six months ended June 30, 2021 compared to $353 million for the prior year period primarily reflecting the following items:
•A $55 million increase in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The unfavorable impact of the nonperformance credit spread was $14 million for the six months ended June 30, 2021 compared to a favorable impact of $41 million for the prior year period.
•A $119 million decrease in expense from other market impacts on IUL benefits, net of hedges, which was a benefit of $52 million for the six months ended June 30, 2021 compared to an expense of $67 million for the prior year period. The decrease in expense was primarily due to a decrease in the IUL embedded derivative in the current period, which reflected lower option costs due to higher discount rates compared to an increase in the IUL embedded derivative in the prior year period, which reflected higher option costs due to lower discount rates.
Benefits, claims, losses and settlement expenses increased $1.3 billion to $1.1 billion for the six months ended June 30, 2021 compared to a benefit of $280 million for the prior year period primarily reflecting the following items:
•A $795 million increase in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of the nonperformance credit spread was $162 million for the six months ended June 30, 2021 and was driven by changes in the undiscounted embedded derivative liability compared to a favorable impact of $633 million for the prior year period. As the undiscounted 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. Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease
•A $649 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 $4.6 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by a favorable $3.9 billion change in the market impact on variable annuity guaranteed living benefits reserves. The main market drivers contributing to these changes are summarized below:
AMERIPRISE FINANCIAL, INC.
•Equity market 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, 2021 compared to a benefit in the prior year period.
•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 six months ended June 30, 2021 compared to 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 lower expense for the six months ended June 30, 2021 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 benefit for the six months ended June 30, 2021 compared to a net expense for the prior year period.
•The mean reversion related impact was a benefit of $59 million for the six months ended June 30, 2021 compared to an expense of $29 million for the prior year period.
•A decrease in LTC claims reflecting fewer LTC clients entering nursing homes as well as increased mortality-related client terminations due to COVID-19.
•A $13 million decrease in reserves for immediate annuities with a life contingent feature primarily due to lower sales. This impact is offset by a decrease in premiums.
Amortization of DAC decreased $196 million, or 74%, to $68 million for the six months ended June 30, 2021 compared to $264 million for the prior year period primarily reflecting the following items:
•The DAC offset to the market impact on non-traditional long-duration products was a benefit of $40 million for the six months ended June 30, 2021 compared to an expense of $152 million for the prior year period.
•The mean reversion related impact was a benefit of $38 million for the six months ended June 30, 2021 compared to an expense of $18 million for the prior year period.
General and administrative expense increased $124 million, or 8%, to $1.7 billion for the six months ended June 30, 2021 compared to $1.5 billion for the prior year period primarily reflecting higher performance related compensation, higher expenses from CIEs, and an unfavorable foreign exchange impact, partially offset by disciplined expense management and reengineering.
Income Taxes
Our effective tax rate was 15.4% for the six months ended June 30, 2021 compared to 18.0% for the prior year period. The lower effective tax rate for the six months ended June 30, 2021 compared to June 30, 2020 is primarily the result of an increase in tax preferred items, including foreign tax credits and incentive compensation, partially offset by lower income in the quarter relative to income expected for the full year. See Note 15 to our Consolidated Financial Statements for additional discussion on income taxes.
Results of Operations by Segment for the Six Months Ended June 30, 2021 and 2020
The following table presents summary financial information by segment:
| | | | | | | | | | | |
| Six Months Ended June 30, |
2021 | | 2020 |
(in millions) |
Advice & Wealth Management | | | |
Net revenues | $ | 3,859 | | | $ | 3,232 | |
Expenses | 3,047 | | | 2,583 | |
Adjusted operating earnings | $ | 812 | | | $ | 649 | |
Asset Management | | | |
Net revenues | $ | 1,707 | | | $ | 1,354 | |
Expenses | 1,226 | | | 1,056 | |
Adjusted operating earnings | $ | 481 | | | $ | 298 | |
Retirement & Protection Solutions | | | |
Net revenues | $ | 1,595 | | | $ | 1,514 | |
Expenses | 1,230 | | | 1,125 | |
Adjusted operating earnings | $ | 365 | | | $ | 389 | |
Corporate & Other | | | |
Net revenues | $ | 258 | | | $ | 280 | |
Expenses | 356 | | | 387 | |
Adjusted operating loss | $ | (98) | | | $ | (107) | |
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:
| | | | | | | | | | | |
| 2021 | | 2020 |
(in billions) |
Beginning balance | $ | 380.0 | | | $ | 317.5 | |
Net flows (1) | 20.4 | | | 12.3 | |
Market appreciation (depreciation) and other (1) | 29.6 | | | (12.2) | |
Ending balance | $ | 430.0 | | | $ | 317.6 | |
| | | |
Advisory wrap account assets ending balance (2) | $ | 425.2 | | | $ | 313.9 | |
Average advisory wrap account assets (3) | $ | 393.5 | | | $ | 301.0 | |
(1) Beginning in the first quarter of 2021, wrap net flows is calculated including dividends and interest less fees which were previously recorded in Market appreciation (depreciation) and other. Net flows excludes short-term and long-term capital gain distributions. Prior periods have been restated.
(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 excluding the most recent month for the six months ended June 30, 2021 and 2020.
Wrap account assets increased $50.0 billion, or 13%, during the six months ended June 30, 2021 due to net inflows of $20.4 billion and market appreciation and other of $29.6 billion. Average advisory wrap account assets increased $92.5 billion, or 31%, compared to the prior year period primarily reflecting market appreciation and 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 |
| 2021 | | 2020 |
| (in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 2,504 | | | $ | 1,993 | | | $ | 511 | | | 26 | % |
Distribution fees | 1,121 | | | 1,001 | | | 120 | | | 12 | |
Net investment income | 127 | | | 177 | | | (50) | | | (28) | |
Other revenues | 114 | | | 104 | | | 10 | | | 10 | |
Total revenues | 3,866 | | | 3,275 | | | 591 | | | 18 | |
Banking and deposit interest expense | 7 | | | 43 | | | (36) | | | (84) | |
Total net revenues | 3,859 | | | 3,232 | | | 627 | | | 19 | |
Expenses | | | | | | | |
Distribution expenses | 2,329 | | | 1,883 | | | 446 | | | 24 | |
| | | | | | | |
Interest and debt expense | 5 | | | 5 | | | — | | | — |
General and administrative expense | 713 | | | 695 | | | 18 | | | 3 | |
Total expenses | 3,047 | | | 2,583 | | | 464 | | | 18 | |
Adjusted operating earnings | $ | 812 | | | $ | 649 | | | $ | 163 | | | 25 | % |
Our Advice & Wealth Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $163 million, or 25%, to $812 million for the six months ended June 30, 2021 compared to $649 million for the prior year period due to higher average wrap account balances and increased transactional activity, partially offset by lower earnings on brokerage cash as a result of low interest rates. Pretax adjusted operating margin was 21.0% for the for the six months ended June 30, 2021 compared to 20.1% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $627 million, or 19%, to $3.9 billion for the six months ended June 30, 2021 compared to $3.2 billion for the prior year period .
Management and financial advice fees increased $511 million, or 26%, to $2.5 billion for the six months ended June 30, 2021 compared to $2.0 billion for the prior year period primarily due to growth in average wrap account assets. Average advisory wrap
AMERIPRISE FINANCIAL, INC.
account assets increased $92.5 billion, or 31%, compared to the prior year period primarily reflecting market appreciation and net inflows.
Distribution fees increased $120 million, or 12%, to $1.1 billion for the six months ended June 30, 2021 compared to $1.0 billion for the prior year period reflecting increased transactional activity and higher average equity markets, partially offset by $55 million of lower fees on off-balance sheet brokerage cash due to a decrease in short-term interest rates.
Net investment income, which excludes net realized investment gains or losses, decreased $50 million, or 28%, to $127 million for the six months ended June 30, 2021 compared to $177 million for the prior year period primarily due to lower certificate balances and the unfavorable impact of continued low interest rates, including lower investment yields on the investment portfolio supporting the certificates and on-balance sheet brokerage cash products, partially offset by higher average invested assets due to increased bank deposits.
Banking and deposit interest expense decreased $36 million, or 84%, to $7 million for the six months ended June 30, 2021 compared to $43 million for the prior year period primarily due to lower average crediting rates on certificates and lower average certificate balances.
Expenses
Total expenses increased $464 million, or 18%, to $3.0 billion for the six months ended June 30, 2021 compared to $2.6 billion for the prior year period.
Distribution expenses increased $446 million, to $2.3 billion for the six months ended June 30, 2021 compared to $1.9 billion for the prior year period reflecting higher asset-based advisor compensation from higher wrap account assets and increased investments in recruiting experienced advisors.
General and administrative expense increased $18 million, or 3%, to $713 million for the six months ended June 30, 2021 compared to $695 million for the prior year period primarily due to higher volume related expenses and higher performance-based compensation expenses.
Asset Management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents global managed assets by type: | | Average (1) | | Change |
| As of June 30, | | Change | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 |
| (in billions) |
Equity | $ | 339.0 | | | $ | 251.4 | | | $ | 87.6 | | | 35 | % | | $ | 319.8 | | | $ | 245.7 | | | $ | 74.1 | | | 30 | % |
Fixed income | 203.1 | | | 183.1 | | | 20.0 | | | 11 | | | 198.5 | | | 180.9 | | | 17.6 | | | 10 | |
Money market | 5.5 | | | 5.0 | | | 0.5 | | | 10 | | | 5.9 | | | 4.9 | | | 1.0 | | | 20 | |
Alternative | 3.9 | | | 3.1 | | | 0.8 | | | 26 | | | 3.8 | | | 3.1 | | | 0.7 | | | 23 | |
Hybrid and other | 41.9 | | | 33.5 | | | 8.4 | | | 25 | | | 40.2 | | | 34.5 | | | 5.7 | | | 17 | |
Total managed assets | $ | 593.4 | | | $ | 476.1 | | | $ | 117.3 | | | 25 | % | | $ | 568.2 | | | $ | 469.1 | | | $ | 99.1 | | | 21 | % |
(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, |
| 2021 | | 2020 |
| (in billions) |
Global Retail Funds | | | |
Beginning assets | $ | 323.5 | | | $ | 287.5 | |
Inflows | 41.9 | | | 33.3 | |
Outflows | (34.7) | | | (34.2) | |
Net VP/VIT fund flows | (2.0) | | | (1.4) | |
Net new flows | 5.2 | | | (2.3) | |
Reinvested dividends | 3.6 | | | 2.4 | |
Net flows | 8.8 | | | 0.1 | |
Distributions | (4.2) | | | (2.9) | |
Market appreciation (depreciation) and other | 31.3 | | | (9.2) | |
Foreign currency translation (1) | 0.1 | | | (1.4) | |
Total ending assets | 359.5 | | | 274.1 | |
| | | |
Global Institutional | | | |
Beginning assets | 223.1 | | | 206.7 | |
Inflows (2) | 17.1 | | | 15.0 | |
Outflows (2) | (14.3) | | | (14.9) | |
Net flows | 2.8 | | | 0.1 | |
Market appreciation (depreciation) and other (3) | 7.3 | | | (0.9) | |
Foreign currency translation (1) | 0.7 | | | (3.9) | |
Total ending assets | 233.9 | | | 202.0 | |
| | | |
Total managed assets | $ | 593.4 | | | $ | 476.1 | |
Total net flows | $ | 11.6 | | | $ | 0.2 | |
| | | |
Legacy insurance partners net flows (4) | $ | (2.6) | | | $ | (1.9) | |
(1) Amounts represent local currency to US dollar translation for reporting purposes.
(2) Global Institutional inflows and outflows include net flows from our RiverSource Structured Annuity product beginning in Q1 2020 and Ameriprise Bank, FSB beginning in Q1 2021.
(3) Included in Market appreciation (depreciation) and other for Global Institutional is the change in affiliated general account balance, excluding net flows related to our structured variable annuity product beginning in Q1 2020 and Ameriprise Bank, FSB beginning in Q1 2021.
(4) Legacy insurance partners assets and net flows are included in the rollforwards above.
Total segment AUM increased $46.8 billion, or 9%, during the six months ended June 30, 2021. Net flows were $11.6 billion for the six months ended June 30, 2021, an $11.4 billion improvement compared to the prior year period.
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 |
| 2021 | | 2020 |
| (in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 1,471 | | | $ | 1,153 | | | $ | 318 | | | 28 | % |
Distribution fees | 232 | | | 199 | | | 33 | | | 17 | |
Net investment income | 3 | | | 1 | | | 2 | | | NM |
Other revenues | 1 | | | 1 | | | — | | | — |
Total revenues | 1,707 | | | 1,354 | | | 353 | | | 26 | |
Banking and deposit interest expense | — | | | — | | | — | | | — |
Total net revenues | 1,707 | | | 1,354 | | | 353 | | | 26 | |
Expenses | | | | | | | |
Distribution expenses | 550 | | | 451 | | | 99 | | | 22 | |
Amortization of deferred acquisition costs | 6 | | | 6 | | | — | | | — |
Interest and debt expense | 2 | | | 2 | | | — | | | — |
General and administrative expense | 668 | | | 597 | | | 71 | | | 12 | |
Total expenses | 1,226 | | | 1,056 | | | 170 | | | 16 | |
Adjusted operating earnings | $ | 481 | | | $ | 298 | | | $ | 183 | | | 61 | % |
NM Not Meaningful. | | | | | | | |
Our Asset Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $183 million, or 61%, to $481 million for the six months ended June 30, 2021 compared to $298 million for the prior year period primarily due to market appreciation and disciplined expense management.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, increased $353 million, or 26%, to $1.7 billion for the six months ended June 30, 2021 compared to $1.4 billion for the prior year period .
Management and financial advice fees increased $318 million, or 28%, to $1.5 billion for the six months ended June 30, 2021 compared to $1.2 billion for the prior year period primarily due to higher average equity markets and an unfavorable $19 million performance fee correction in the prior year period.
Distribution fees increased $33 million, or 17%, to $232 million for the six months ended June 30, 2021 compared to $199 million for the prior year period primarily due to higher average equity markets.
Expenses
Total expenses increased $170 million, or 16%, to $1.2 billion for the six months ended June 30, 2021 compared to $1.1 billion for the prior year period.
Distribution expenses increased $99 million, or 22%, to $550 million for the six months ended June 30, 2021 compared to $451 million for the prior year period reflecting higher average equity markets.
General and administrative expense increased $71 million, or 12%, to $668 million for the six months ended June 30, 2021 compared to $597 million for the prior year period primarily reflecting higher compensation expenses related to stronger business performance, higher volume related expenses, and the negative impact of foreign exchange rates.
AMERIPRISE FINANCIAL, INC.
Retirement & Protection Solutions
The following table presents the results of operations of our Retirement & Protection Solutions segment on an adjusted operating basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
2021 | | 2020 |
(in millions) | | |
Revenues | | | | | | | |
Management and financial advice fees | $ | 456 | | | $ | 399 | | | $ | 57 | | | 14 | % |
Distribution fees | 238 | | | 211 | | | 27 | | | 13 | |
Net investment income | 253 | | | 259 | | | (6) | | | (2) | |
Premiums, policy and contract charges | 648 | | | 645 | | | 3 | | | — |
| | | | | | | |
Total revenues | 1,595 | | | 1,514 | | | 81 | | | 5 | |
Banking and deposit interest expense | — | | | — | | | — | | | — |
Total net revenues | 1,595 | | | 1,514 | | | 81 | | | 5 | |
Expenses | | | | | | | |
Distribution expenses | 263 | | | 221 | | | 42 | | | 19 | |
Interest credited to fixed accounts | 194 | | | 197 | | | (3) | | | (2) | |
Benefits, claims, losses and settlement expenses | 475 | | | 457 | | | 18 | | | 4 | |
Amortization of deferred acquisition costs | 133 | | | 84 | | | 49 | | | 58 | |
Interest and debt expense | 19 | | | 21 | | | (2) | | | (10) | |
General and administrative expense | 146 | | | 145 | | | 1 | | | 1 | |
Total expenses | 1,230 | | | 1,125 | | | 105 | | | 9 | |
Adjusted operating earnings | $ | 365 | | | $ | 389 | | | $ | (24) | | | (6) | % |
Our Retirement & Protection Solutions 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 variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $360the 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, decreased $24 million, or 6%, to $562$365 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $202$389 million for the prior year period.
Net Revenues
Management and financial advice fees increased $57 million, or 14%, to $456 million for the six months ended June 30, 2021 compared to $399 million for the prior year period primarily due to 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 view of bond and equity performance, partially offset by lower investment yields and a $21 million negative impact from changes in assumptions in the prior year unlocking process that resulted in ongoing increases to living benefit reserves.variable annuity net outflows.
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 $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 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.
Net Revenues
Net revenues, which exclude net realized investment gains or losses,Distribution fees increased $15$27 million, or 1%13%, to $1.9 billion for the nine months ended September 30, 2017 compared to $1.8 billion for the prior year period due to equity market appreciation and an increase in variable annuity rider fees, partially offset by lower investment yields and net outflows in fixed and variable annuities.
Management and financial advice fees increased $24 million, or 4%, to $573$238 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $549$211 million for the prior year period due to higher fees on variable annuities driven by higher average separate account balances. Average variable annuity account balancesequity markets.
Expenses
Distribution expenses increased $2.8 billion, or 4%, from the prior year period due to market appreciation, partially offset by net outflows.
Net investment income, which excludes net realized investment gains or losses, decreased $46$42 million, or 8%19%, to $527$263 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $573$221 million for the prior year period primarily reflecting a decrease of approximately $34 million from lower earned interest ratesmarket appreciation and approximately $12 million from lower invested assets due to 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 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.insurance sales.
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 $345 million, or 21%, to $1.3 billion for the nine months ended September 30, 2017 compared to $1.6 billion 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 $317mean reversion related impacts, increased $18 million, or 50%4%, to $311$475 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $628$457 million for the prior year period primarily reflecting higher reserve funding as surrenders and withdrawals returned to more normalized levels versus the historically low levels experienced in the prior year period and higher disability income claims, partially offset by lower sales of immediate annuities with a life contingent feature.
Amortization of DAC, which excludes mean reversion related impacts and the DAC offset to the market impact on variable annuity guaranteed benefits, increased $49 million, or 58%, to $133 million for the six months ended June 30, 2021 compared to $84 million for the prior year period primarily reflecting the following items:
The impacthigher level 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.normalized amortization.
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.78
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.
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.
Protection
The following table presents the results of operations of our Protection segment on an operating basis:
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Management and financial advice fees | $ | 35 |
| | $ | 38 |
| | $ | (3 | ) | | (8 | )% |
Distribution fees | 74 |
| | 72 |
| | 2 |
| | 3 |
|
Net investment income | 253 |
| | 247 |
| | 6 |
| | 2 |
|
Premiums | 896 |
| | 959 |
| | (63 | ) | | (7 | ) |
Other revenues | 258 |
| | 377 |
| | (119 | ) | | (32 | ) |
Total revenues | 1,516 |
| | 1,693 |
| | (177 | ) | | (10 | ) |
Banking and deposit interest expense | — |
| | — |
| | — |
| | — |
|
Total net revenues | 1,516 |
| | 1,693 |
| | (177 | ) | | (10 | ) |
Expenses |
Distribution expenses | 50 |
| | 50 |
| | — |
| | — |
|
Interest credited to fixed accounts | 138 |
| | 130 |
| | 8 |
| | 6 |
|
Benefits, claims, losses and settlement expenses | 888 |
| | 1,015 |
| | (127 | ) | | (13 | ) |
Amortization of deferred acquisition costs | 70 |
| | 107 |
| | (37 | ) | | (35 | ) |
Interest and debt expense | 19 |
| | 18 |
| | 1 |
| | 6 |
|
General and administrative expense | 182 |
| | 183 |
| | (1 | ) | | (1 | ) |
Total expenses | 1,347 |
| | 1,503 |
| | (156 | ) | | (10 | ) |
Operating earnings | $ | 169 |
| | $ | 190 |
| | $ | (21 | ) | | (11 | )% |
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 $21 million, or 11%, to $169 million for the nine months ended September 30, 2017 compared to $190 million for the prior year period primarily due to the impact of unlocking and the low interest rate environment, 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 $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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 | | 2020 |
| (in millions) | | |
Revenues | | | | | | | |
| | | | | | | |
| | | | | | | |
Net investment income | $ | 179 | | | $ | 192 | | | $ | (13) | | | (7) | % |
Premiums, policy and contract charges | 49 | | | 50 | | | (1) | | | (2) | |
Other revenues | 31 | | | 40 | | | (9) | | | (23) | |
Total revenues | 259 | | | 282 | | | (23) | | | (8) | |
Banking and deposit interest expense | 1 | | | 2 | | | (1) | | | (50) | |
Total net revenues | 258 | | | 280 | | | (22) | | | (8) | |
Expenses | | | | | | | |
Distribution expenses | (4) | | | (3) | | | (1) | | | (33) | |
Interest credited to fixed accounts | 123 | | | 130 | | | (7) | | | (5) | |
Benefits, claims, losses and settlement expenses | 67 | | | 101 | | | (34) | | | (34) | |
Amortization of deferred acquisition costs | 6 | | | 5 | | | 1 | | | 20 | |
Interest and debt expense | 32 | | | 35 | | | (3) | | | (9) | |
General and administrative expense | 132 | | | 119 | | | 13 | | | 11 | |
Total expenses | 356 | | | 387 | | | (31) | | | (8) | |
Adjusted operating loss | $ | (98) | | | $ | (107) | | | $ | 9 | | | 8 | % |
|
|
| | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
2017 | | 2016 |
(in millions) | | |
Revenues |
Net investment income | $ | 79 |
| | $ | 94 |
| | $ | (15 | ) | | (16 | )% |
Premiums | 81 |
| | 81 |
| | — |
| | — |
|
Other revenues | 4 |
| | 4 |
| | — |
| | — |
|
Total revenues | 164 |
| | 179 |
| | (15 | ) | | (8 | ) |
Banking and deposit interest expense | 2 |
| | 1 |
| | 1 |
| | NM |
|
Total net revenues | 162 |
| | 178 |
| | (16 | ) | | (9 | ) |
Expenses |
Distribution expenses | (7 | ) | | (39 | ) | | 32 |
| | 82 |
|
Benefits, claims, losses and settlement expenses | 239 |
| | 219 |
| | 20 |
| | 9 |
|
Amortization of deferred acquisition costs | — |
| | 63 |
| | (63 | ) | | NM |
|
Interest and debt expense | 20 |
| | 21 |
| | (1 | ) | | (5 | ) |
General and administrative expense | 202 |
| | 185 |
| | 17 |
| | 9 |
|
Total expenses | 454 |
| | 449 |
| | 5 |
| | 1 |
|
Operating loss | $ | (292 | ) | | $ | (271 | ) | | $ | (21 | ) | | (8 | )% |
NM Not Meaningful. |
Our Corporate & Other segment pretax adjusted operating loss excludes net realized investment gains or losses, the market impact on fixed index annuity benefits (net of hedges and the related DAC amortization), the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments, gain or loss on disposal of a business that is not considered discontinued operations, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax adjusted operating loss decreased $9 million, or 8%, to $98 million for the six months ended June 30, 2021 compared to $107 million for the prior year period .
LTC insurance had a pretax adjusted operating earnings of $49 million for the six months ended June 30, 2021 compared to $19 million for the prior year period reflecting increased mortality-related client terminations due to COVID-19.
FA business had a pretax adjusted operating loss of $10 million for the six months ended June 30, 2021 compared to a pretax adjusted operating earnings of $3 million for the prior year period reflecting fixed annuity net outflows and the impact of low interest rates.
Net Revenues
Net investment income, which excludes net realized investment gains or losses, the market impact of hedges to offset interest rate and currency 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 increased $21CIEs, decreased $13 million, or 8%7%, to $292$179 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $271$192 million for the prior year period primarily reflecting lower average invested assets due to fixed annuity net outflows, lower asset earned rates, and a decrease$7 million impairment in our affordable housing partnerships, partially offset by a $15 million gain on a strategic investment.
Expenses
Benefits, claims, losses and settlement expenses, which excludes DSIC offset to net realized investment income, an increase in general and administrative expense and LTC loss recognition of $57gains or losses, decreased $34 million, or 34%, to $67 million for the third quarter of 2017, partially offset by LTC loss recognition of $31six months ended June 30, 2021 compared to $101 million infor the prior year period primarily reflecting the impacts from COVID-19 on LTC insurance.
General 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 $15administrative expense, which excludes integration and restructuring charges, increased $13 million, or 16%11%, to $79$132 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $94$119 million for the prior year period primarily due to higher amortization relating to an increase in low income housing investments and the impact of interest allocation between subsidiaries.
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 $20 million, or 9%, to $239 million for the nine months ended September 30, 2017 compared to $219 million for the prior year period primarily due to a $57 million expense from loss recognition on LTC insurance productsunfavorable change 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.mark-to-market impact on share-based compensation expense.
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.General and administrative expense increased $17 million, or 9%, to $202 million for the nine months ended September 30, 2017 compared to $185 million for the prior year period primarily due to higher performance-based compensation and a $9 million expense related to the renegotiation of a vendor arrangement, partially offset by a $14 million expense in the prior year period from the resolution of a legacy legal matter related to the hedge fund business.
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, 20192023 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $4.9$4.4 billion and 4.4%2.3%, respectively, as of SeptemberJune 30, 2017.2021. 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$9.7 billion and had a weighted average yield of 2.7%1.6% as of SeptemberJune 30, 2017.2021. 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, 20172021 was approximately 2.8%1.3%.
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, interest rate swaps and swaptions, total return swaps 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%
AMERIPRISE FINANCIAL, INC.
decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then 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, equityannuities, fixed deferred 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, 2017:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
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) | | $ | (340) | | | $ | 4 | | | $ | (336) | | |
DAC and DSIC amortization (2)(3) | | (6) | | | — | | | (6) | | |
Variable annuities: | | | | | | | |
GMDB and GMIB (3) | | (2) | | | — | | | (2) | | |
GMWB (3) | | (280) | | | 255 | | | (25) | | |
GMAB | | (18) | | | 18 | | | — | | |
Structured variable annuities | | 255 | | | (212) | | | 43 | | |
DAC and DSIC amortization (4) | | N/A | | N/A | | (4) | | |
Total variable annuities | | (45) | | | 61 | | | 12 | | |
Macro hedge program (5) | | — | | | 201 | | | 201 | | |
Fixed deferred indexed annuities | | 5 | | | (1) | | | 4 | | |
Certificates | | — | | | — | | | — | | |
IUL insurance | | 44 | | | (41) | | | 3 | | |
Total | | $ | (342) | | | $ | 224 | | | $ | (122) | | (6) |
N/A Not Applicable. | |
|
| | | | | | | | | | | | |
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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Increase 100 Basis Points | | Interest Rate Exposure to Pretax Income | |
Before Hedge Impact | | Hedge Impact | | Net Impact |
| | (in millions) | |
Asset-based management and distribution fees (1) | | $ | (62) | | | $ | — | | | $ | (62) | | |
Variable annuities: | | | | | | | |
| | | | | | | |
GMWB | | 1,413 | | | (1,706) | | | (293) | | |
GMAB | | 20 | | | (25) | | | (5) | | |
Structured variable annuities | | (15) | | | 79 | | | 64 | | |
DAC and DSIC amortization (4) | | N/A | | N/A | | 35 | | |
Total variable annuities | | 1,418 | | | (1,652) | | | (199) | | |
Macro hedge program (5) | | — | | | (4) | | | (4) | | |
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products | | 46 | | | — | | | 46 | | |
Banking deposits | | 56 | | | — | | | 56 | | |
Brokerage client cash balances | | 209 | | | — | | | 209 | | |
Fixed deferred indexed annuities | | (1) | | | — | | | (1) | | |
Certificates | | 16 | | | — | | | 16 | | |
IUL insurance | | 18 | | | 1 | | | 19 | | |
Total | | $ | 1,700 | | | $ | (1,655) | | | $ | 80 | | |
N/A Not Applicable. | |
AMERIPRISE FINANCIAL, INC.
|
| | | | | | | | | | | | |
Interest Rate Increase 100 Basis Points | | Interest Rate Exposure to Pretax Income |
Before Hedge Impact | | Hedge Impact | | Net Impact |
| | (in millions) |
Asset-based management and distribution fees (1) | | $ | (50 | ) | | $ | — |
| | $ | (50 | ) |
Variable annuity riders: | | |
| | |
| | |
|
GMDB and GMIB | | — |
| | — |
| | — |
|
GMWB | | 983 |
| | (1,089 | ) | | (106 | ) |
GMAB | | 21 |
| | (23 | ) | | (2 | ) |
DAC and DSIC amortization (4) | | N/A |
| | N/A |
| | 18 |
|
Total variable annuity riders | | 1,004 |
| | (1,112 | ) | | (90 | ) |
Macro hedge program (5) | | — |
| | (2 | ) | | (2 | ) |
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products | | 99 |
| | — |
| | 99 |
|
Brokerage client cash balances | | 115 |
| | — |
| | 115 |
|
Certificates | | — |
| | — |
| | — |
|
Indexed universal life insurance | | 93 |
| | 2 |
| | 95 |
|
Total | | $ | 1,261 |
| | $ | (1,112 | ) | | $ | 167 |
|
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 $(336) million.
AMERIPRISE FINANCIAL, INC.
The above results compare to an estimated negative net impact to pretax income of $490$73 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $297$2 million related to a 100 basis point increase in interest rates as of December 31, 2016.2020. The change in interest rate exposure fromas of June 30, 2021 compared to December 31, 2016 is2020 was driven by variable annuity riders, specifically GMWB, primarily the result ofdue to changes in market conditions.rates.
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, fixed deferred indexed annuities, structured variable 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, fixed deferred indexed annuities, structured annuities, and indexed universal lifeIUL insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses,expense, 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, 2017.2021. 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$360 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, 20172021 credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the ninesix months ended SeptemberJune 30, 2017.2021. At SeptemberJune 30, 20172021 and December 31, 2016,2020, we had $2.4$7.1 billion and $2.3$6.8 billion, respectively, in cash and cash equivalents excluding CIEs. On October 12, 2017, we entered intoCIEs and other restricted cash on a consolidated basis.
At June 30, 2021 and December 31, 2020, the parent company had $1.6 billion and $1.1 billion, respectively, in cash, cash equivalents, and unencumbered liquid securities. Liquid securities predominantly include U.S. government agency mortgage back securities. Additional sources of liquidity include a line of credit with an amendedaffiliate up to $ 1.0 billion and restated credit agreement that provides for an unsecured revolving committed credit facility offor up to $750 million$1.0 billion that expires in October 2022. June 2026. Management’s estimate of liquidity available to the parent company in a volatile and uncertain economic environment as of June 30, 2021 was $3.0 billion which includes cash, cash equivalents, unencumbered liquid securities, the line of credit with an affiliate and a portion of the committed credit facility.
Under the terms of the committed credit agreement for the facility, we maycan increase the amount of this facility upavailability to $1.0$1.25 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, 2017,2021, we had no outstanding borrowings under this credit facility and had $1$1.1 million of outstanding letters of credit. Our credit facility contains various administrative, reporting, legal and financial covenants. We wereCompliance with these covenants is not currently impaired by the COVID-19 pandemic, and we remain in compliance with all such covenants at SeptemberJune 30, 2017.2021.
AMERIPRISE FINANCIAL, INC.
In addition, we have access to collateralized 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 paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements as of both September 30, 2017 and December 31, 2016 was $50 million, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from our investment portfolio.advances. Our subsidiary,subsidiaries, RiverSource Life, Insurance Company (“RiverSource Life”), is a memberand Ameriprise Bank, FSB are members of the FHLB of Des Moines, which provides access to collateralized borrowings. We had $151 million and $150$200 million of borrowings from the FHLB, which is collateralized with commercial mortgage backed securities as of Septemberand residential mortgage backed securities for both June 30, 20172021 and December 31, 2016, respectively.2020. 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.needs and stress requirements.
We continue to monitor and respond to the ongoing COVID-19 pandemic. Our risk management strategy is designed to provide proactive protection during stress events such as the current pandemic. We believe our process is working as intended, and our liquidity and capital resources have remained a source of balance sheet strength during the six months ended June 30, 2021.
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly ownedwholly-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.LLC (“AFSI”AFS”) 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 |
| June 30, 2021 | | December 31, 2020 | June 30, 2021 | | December 31, 2020 |
| (in millions) |
RiverSource Life (1)(2) | $ | 4,285 | | | $ | 5,021 | | | N/A | | $ | 993 | |
RiverSource Life of NY (1)(2) | 306 | | | 323 | | | N/A | | 42 | |
ACC (4)(5) | 342 | | | 387 | | | 310 | | | 362 | |
Threadneedle Asset Management Holdings Sàrl (6) | 603 | | | 445 | | | 214 | | | 204 | |
Ameriprise Bank, FSB (4) (7) | 695 | | | 658 | | | 236 | | | 543 | |
AFS (3)(4) | 154 | | | 134 | | | # | | # |
Ameriprise Captive Insurance Company (3) | 41 | | | 41 | | | 13 | | | 8 | |
Ameriprise Trust Company (3) | 44 | | | 42 | | | 41 | | | 37 | |
AEIS (3)(4) | 132 | | | 122 | | | 29 | | | 25 | |
RiverSource Distributors, Inc. (3)(4) | 12 | | | 12 | | | # | | # |
Columbia Management Investment Distributors, Inc. (3)(4) | 13 | | | 16 | | | # | | # |
|
| | | | | | | | | | | | | | | |
| 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. |
N/A Not applicable as only required to be calculated annually. | |
(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 September 30, 2017 and December 31, 2016. |
| |
(4)
| Actual capital is determined on an adjusted GAAP basis. |
| |
(5)
| # Amounts are less than $1 million. (1) Actual capital is determined on a statutory basis. (2) Regulatory capital requirement is the company action level and is based on the statutory risk-based capital filing. (3) Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of June 30, 2021 and December 31, 2020. (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 September 30, 2017 represent calculations at December 31, 2016 of the rule based requirements, as specified by FCA regulations. |
| |
(7)
| Ameriprise National Trust Bank is required to maintain capital in compliance with the Office of the Comptroller of the Currency regulations and policies. |
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 throughand SEC capital requirements.
(6) Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. The regulatory capital requirements at 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 carried2021 represent calculations 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 portionDecember 31, 2020 of the changerule based requirements, as specified by FCA regulations.
(7) Regulatory capital requirement is based on minimum requirements for well capitalized banks in fair value, net investment income and realized gains or losses generated from designated derivativesaccordance with the Office of the Comptroller of the Currency (“OCC”). Beginning in the first quarter of 2021, Ameriprise Bank transitioned 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 dateSimplified Supervisory Formula Approach (“SSFA”) for the permitted statutory accounting practice. As of September 30, 2017, application of this permitted practice resultedrisk-weighting non-agency securitized investments, resulting in a decrease to RiverSource Life’s statutorysignificant reduction in risk-weighted assets and an improvement in regulatory capital of approximately $21 million.ratios that were already in a well-capitalized position.
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.
AMERIPRISE FINANCIAL, INC.
During the ninesix months ended SeptemberJune 30, 2017,2021, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.3$1.6 billion (including $700$750 million from RiverSource Life) and contributed cash to its subsidiaries of $64 million.$71 million (including $7 million to Ameriprise Bank, FSB). During the ninesix months ended SeptemberJune 30, 2016,2020, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.3$1.0 billion (including $800$500 million from RiverSource Life) and contributed cash to its subsidiaries of $135$203 million (including $75$150 million to IDS Property Casualty)Ameriprise Bank, FSB).
AMERIPRISE FINANCIAL, INC.
In 2009, RiverSource Life 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 Life 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$263 million and $368$257 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. On October 24, 2017,July 26, 2021, we announced a quarterly dividend of $0.83$1.13 per common share. The dividend will be paid on November 17, 2017August 20, 2021 to our shareholders of record at the close of business on November 6, 2017.August 9, 2021.
In December 2015,August 2020, our Board of Directors authorized us to repurchase up to $2.5 billion of our common stock through December 31, 2017, which was exhausted in the third quarter 2017. In April 2017, our BoardSeptember 30, 2022. As of Directors authorized us to repurchase up to an additional $2.5 billion of our common stock through June 30, 2019. As of September 30, 2017,2021, we had $2.4$1.5 billion remaining under this share repurchase authorization.authorizations. 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, 2017,2021, we repurchased a total of 8.03.4 million shares of our common stock at an average price of $129.76$237.52 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$3.8 billion to net cash used in operating activities of $931 million to $1.2 billion for the ninesix months ended SeptemberJune 30, 20172021 compared to $2.0net cash provided by operating activities of $4.7 billion for the prior year period primarily due toreflecting a $186$2.3 billion decrease in policyholder account balances, future policy benefits and claims, net, a $469 million increasedecrease in net income, a $309 decrease in deferred taxes, paid,net, and a $148$296 million decrease in cash from changes in other investments (primarily trading securities), and net cash outflows related to derivatives for the nine months ended September 30, 2017 compared to net cash inflows for the prior year period.brokerage deposits.
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 $261increased $13 million to $106$909 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $367$896 million for the prior year period primarily due toreflecting a $944 million decrease in cash used for purchases of Available-for-Sale securities and a $204 million$1.6 billion increase in proceeds from maturities, sinking fund payments and calls of Available-for-Sale securities, partially offset by a $357$913 million decrease in proceeds from sales maturitiesof Available-for-Sale securities and repayments of mortgage loans reflecting the sale of a portion of our consumer loans in 2016 and a $242$589 million decrease in net cash flows related to changes in investments of CIEs.consolidated investment entities
Financing Activities
Net cash used inprovided by financing activities increased $713decreased $218 million to $1.3 billionnet cash used of $101 million for the ninesix months ended SeptemberJune 30, 20172021 compared to $573net cash provided by of $117 million for the prior year period primarily due to the issuance of $500 million of long-term debt in 2016 andreflecting a $371$945 million decrease in net cash inflows related toflows from investment certificates, partially offset by a $246$717 million decrease in repayments of long-term debt.debt by consolidated investment entities and a $242 million decrease in cash from changes in banking deposits, partially offset by a $1.4 billion increase in borrowings by consolidated investment entities and a $358 million increase in net cash flows related to purchased options with deferred premiums.
AMERIPRISE FINANCIAL, INC.
Contractual Commitments
There have been no material changes to our contractual obligations disclosed in our 20162020 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 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;
•statements of the Company’s position, future performance and ability to pursue business strategy relative to the spread and impact of the COVID-19 pandemic and the related market, economic, client, governmental and healthcare system response;
•statements about the expected trend in the shift of the retirement product sales business to lower risk products over time, such as products without living benefit guarantees;
•statements about the Company’s announced acquisition of BMO’s European-based asset management business, including the expected timing to close the transaction and the expected AUM of the acquired business;
•statements about the announced reinsurance transaction, including the occurrence of any event, change or circumstance that could give rise to changes in the amount of freed up capital (including that a regulator may prohibit, delay or refuse to grant approval for the consummation of the remaining part of the proposed transaction that reduces the expected capital release);
•statements about the outcomes from the application to convert Ameriprise Bank, FSB to a state-chartered bank and national trust bank;
•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,track,” “project”“project,” “continue,” “able to remain,” “resume,” “deliver,” “develop,” “evolve,” “drive,” “enable,” “flexibility,” “scenario,” “case”, “appear”, “expand” 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:
conditions•the impacts on our business of the COVID-19 pandemic and the related economic, client, governmental and healthcare system responses;
•market fluctuations and general economic and political factors, including volatility in the interest rate, credit default, equityU.S. and global market conditions, client behavior and foreign exchange environments, including volatility in the markets for our products;
•changes in valuations, liquidityinterest rates and volatility;periods of low interest rates;
changes•adverse capital and credit market conditions or any downgrade 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;our credit ratings;
investment management performance and distribution partner and consumer acceptance of the Company’s products;
•effects of competition inand the financial services industry, including pricing pressure, the introductioneconomics of new products and services and changes in our product distributionrevenue mix and distribution channels;
•declines in our investment management performance;
•our ability to compete in attracting and retaining talent, including financial advisors;
•impairment, negative performance or default by financial institutions or other counterparties;
•the ability to maintain our unaffiliated third-party distribution channels and the impacts of sales of unaffiliated products;
•changes to in valuation of securities and investments included in our assets;
•the Company’s reputation that may arise from employee or advisor misconduct, legal or regulatory actions, perceptionsdetermination of the financial services industry generally, improper managementamount of conflictsallowances taken on loans and investments;
•the illiquidity of interest or otherwise;our investments;
•effects of the Company’s capital structure, including indebtedness, limitationselimination of LIBOR on, subsidiaries to pay dividends, and the extent, manner, terms and timingvalue of, any share or debt repurchases management may effect as well as the opinions of rating agenciessecurities and other analystsassets and the reactions of market participantsliabilities tied to LIBOR;
•failures by other insurers that lead to higher assessments we owe to state insurance guaranty funds;
•failures 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 ordefaults by counterparties to hedge, derivative, insuranceour reinsurance arrangements;
•inadequate reserves for future policy benefits and claims or reinsurance arrangements or by manufacturers of products the Company distributes, experience for future redemptions and maturities;
•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’sour assumptions regarding morbidity, mortality and persistency in certain annuity andaffecting our insurance products, 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 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 automobile and home insurance products;
changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
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 regulatoryprofitability;
AMERIPRISE FINANCIAL, INC.
•changes to our reputation arising from employee or advisor misconduct or otherwise;
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, technologyour operating systems and other operating systems,networks, including errors or failures caused by third-party service providers, interference or failures causedthird-party attacks;
•interruptions or other errors in our telecommunications or data processing systems;
• identification and mitigation of risk exposure in market environments, new products, vendors and other types of risk;
• ability of our subsidiaries to transfer funds to us to pay dividends;
• changes in exchange rates and other risks in connection with our international operations and earnings and income generated overseas;
• occurrence of natural or man-made disasters and catastrophes;
• legal and regulatory actions brought against us;
• changes to laws and regulations that govern operation of our business;
• supervision by third party attacks onbank regulators and related regulatory and prudential standards as a savings and loan holding company that may limit our activities and strategies;
• changes in corporate tax laws and regulations and interpretations and determinations of tax laws impacting our products;
• protection of our intellectual property and claims we infringe the Company’s systems,intellectual property of others;
•changes in and the adoption of new accounting standards;
•changes that could give rise to the termination of the purchase agreement with BMO Financial Group or our ability to recognize the expected benefits from the transaction;
•changes that could give rise to limitations to the successful completion or the failure to safeguard the privacy or confidentialityamount of sensitive information and data on such systems; and
general economic and political factors, including consumer confidencecapital freed in the economyreinsurance transaction with RiverSource Life and the financial industry, the abilityRiverSource Life of NY; and inclination of consumers generally
•regulatory, political, or business changes that could reduce our desire to invest as well as their abilityconvert Ameriprise Bank FSB to a state industrial bank 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 as 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), 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.
a national trust bank.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 20162020 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 20162020 10-K filed with the SEC on February 23, 2017.24, 2021.
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, 2017.2021.
AMERIPRISE FINANCIAL, INC.
Changes in Internal Control over Financial Reporting
There have not beenWe implemented a new financial system during the first quarter of fiscal 2021. The new system allows us to maximize financial system functionality, enable a scalable platform and simplify processes for reporting and analytics. As part of the financial system implementation, we enhanced and modified certain existing internal controls within our general ledger, accounts payable, fixed assets, and financial reporting functions. We will continue to monitor and ensure effectiveness of any changes in internal controls. There have been no other changes to 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 1516 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 20162020 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 2017:2021:
| | Period | | (a) | | (b) | | (c) | | (d) | Period | | (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, 2021 | | April 1 to April 30, 2021 | | | | | | | | |
Share repurchase program (1) | | 622,117 |
| | $ | 136.67 |
| | 622,117 |
| | $ | 2,635,014,130 |
| Share repurchase program (1) | | 116,104 | | | $ | 258.40 | | | 116,104 | | | $ | 1,884,594,802 | |
Employee transactions (2) | | 432,319 |
| | $ | 143.36 |
| | N/A |
| | N/A |
| Employee transactions (2) | | 68,047 | | | $ | 255.57 | | | N/A | | N/A |
| | |
August 1 to August 31, 2017 | |
May 1 to May 31, 2021 | | May 1 to May 31, 2021 | |
Share repurchase program (1) | | 842,580 |
| | $ | 142.26 |
| | 842,580 |
| | $ | 2,515,148,831 |
| Share repurchase program (1) | | 776,497 | | | $ | 257.58 | | | 776,497 | | | $ | 1,684,582,940 | |
Employee transactions (2) | | 276,391 |
| | $ | 145.67 |
| | N/A |
| | N/A |
| Employee transactions (2) | | 36,015 | | | $ | 260.52 | | | N/A | | N/A |
| | |
September 1 to September 30, 2017 | |
June 1 to June 30, 2021 | | June 1 to June 30, 2021 | |
Share repurchase program (1) | | 910,991 |
| | $ | 140.48 |
| | 910,991 |
| | $ | 2,387,172,782 |
| Share repurchase program (1) | | 868,734 | | | $ | 253.08 | | | 868,734 | | | $ | 1,464,727,947 | |
Employee transactions (2) | | 74,414 |
| | $ | 143.50 |
| | N/A |
| | N/A |
| Employee transactions (2) | | 28,954 | | | $ | 260.90 | | | N/A | | N/A |
| | |
Totals | Totals | Totals | |
Share repurchase program (1) | | 2,375,688 |
| | $ | 140.11 |
| | 2,375,688 |
| | |
| Share repurchase program (1) | | 1,761,335 | | | $ | 255.41 | | | 1,761,335 | | | |
Employee transactions (2) | | 783,124 |
| | $ | 144.19 |
| | N/A |
| | |
| Employee transactions (2) | | 133,016 | | | $ | 258.07 | | | N/A | | |
| | 3,158,812 |
| | |
| | 2,375,688 |
| | |
| | | 1,894,351 | | | | | 1,761,335 | | | |
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 thatIn August 2020, our Board of Directors authorized an additional expenditure of up to $2.5 billion for the repurchase of our common stock through JuneSeptember 30, 2019.2022. 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.
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| | | | |
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 3.2 to the CurrentAnnual Report on Form 8-K,10-K, File No. 1-32525, filed on May 1, 2014)February 24, 2021). |
| 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. |
| ThirdFourth Amended and Restated Credit Agreement dated as of October 12, 2017June 11, 2021 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, and Credit Suisse AG, Cayman IslandsNew York Branch, Goldman Sachs Bank USA, HSBC Bank USA, National Association, JPMorgan Chase Bank, N.A. and, U.S. Bank National Association and BMO Harris Bank N.A. as Co-Documentation Agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated,BofA Securities, Inc. and Citigroup Global Markets Inc.,Citibank, N.A. 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)June 11, 2021). |
| 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, 2017,2021 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, 20172021 and 2016;2020; (ii) Consolidated Statements of Comprehensive Income for the three months and ninesix months ended SeptemberJune 30, 20172021 and 2016;2020; (iii) Consolidated Balance Sheets at SeptemberJune 30, 20172021 and December 31, 2016;2020; (iv) Consolidated Statements of Equity for the ninethree months and six months ended SeptemberJune 30, 20172021 and 2016;2020; (v) Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172021 and 2016;2020; 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, 2021 is formatted in iXBRL and contained in Exhibit 101. |
* 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.
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| | | | | | | | | | |
| | AMERIPRISE FINANCIAL, INC. |
(Registrant) |
| | | | | | | | | | | |
| (Registrant) |
|
|
| Date: | November 1, 2017August 9, 2021 | ByBy: | /s/ Walter S. Berman |
| | Walter S. Berman |
| Executive Vice President and |
| Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | | | | | | | | | |
| Date: | November 1, 2017August 9, 2021 | ByBy: | /s/ David K. StewartJohn R. Hutt |
| | David K. StewartJohn R. Hutt |
| | | Senior Vice President – Corporate Finance and Controller |
| | | (Principal Accounting Officer) |