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, 2015
, filed with the Securities and Exchange Commission (“SEC”) on
February 25, 2016
(“
2015
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 year history of providing financial solutions. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients. We are America’s leader in financial planning and a leading global financial institution with more than $772 billion in assets under management and administration as of
March 31, 2016
.
The financial results from the businesses underlying our go-to-market approaches are reflected in our five operating segments:
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|
•
|
Advice & Wealth Management;
|
Our operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships.
Financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results. In addition, the business and regulatory environment in which we operate remains subject to elevated uncertainty and change. To succeed, we expect to continue focusing on our key strategic objectives. The success of these and other strategies may be affected by the factors discussed in “Item 1A. Risk Factors” in our
2015
10-K, “Item 1A. Risk Factors” in this Form 10-Q 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 annuities, fixed insurance, deposit products and the fixed portion of variable annuities and variable insurance contracts, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.
Earnings, as well as operating earnings, will continue to be negatively impacted by the ongoing low interest rate environment. 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 operating earnings. For additional discussion on our interest rate risk, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
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 3 to our Consolidated Financial Statements. Effective January 1, 2016, we adopted
ASU 2015-02 - Consolidation: Amendments to the Consolidation Analysis
and deconsolidated several collateralized loan obligations (“CLOs”) and all previously consolidated property funds
.
See Note 2 to our Consolidated Financial Statements for the adoption impact. Effective January 1, 2016, we no longer have net income (loss) attributable to noncontrolling interests primarily due to the deconsolidation of property funds. 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. Effective January 1, 2016, we adopted
ASU 2014-13 - Consolidation:
Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity
and elected the measurement alternative
.
As a result, the carrying value of the CIE debt is set equal to the fair value of the CIE assets; therefore the changes in the fair value of assets and
AMERIPRISE FINANCIAL, INC.
liabilities related to CIEs is nil. The CIE debt held by Ameriprise Financial is eliminated in consolidation. See
Note 2 and Note 10 to our Consolidated Financial Statements for additional information.
While our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), management believes that operating measures, which exclude net realized investment gains or losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life 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; 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 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:
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|
•
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Operating total net revenue growth of 6% to 8%,
|
|
|
•
|
Operating earnings per diluted share growth of 12% to 15%, and
|
|
|
•
|
Operating return on equity excluding accumulated other comprehensive income (“AOCI”) of 19% to 23%.
|
The following tables reconcile our GAAP measures to operating measures:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Total net revenues
|
$
|
2,765
|
|
|
$
|
3,053
|
|
Less: Revenue attributable to CIEs
|
24
|
|
|
149
|
|
Less: Net realized gains (losses)
|
(16
|
)
|
|
10
|
|
Less: Market impact on indexed universal life benefits
|
9
|
|
|
(4
|
)
|
Less: Market impact of hedges on investments
|
(40
|
)
|
|
—
|
|
Operating total net revenues
|
$
|
2,788
|
|
|
$
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Diluted Share
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(in millions, except per share amounts)
|
Net income attributable to Ameriprise Financial
|
$
|
364
|
|
|
$
|
393
|
|
|
$
|
2.09
|
|
|
$
|
2.08
|
|
Less: Net loss attributable to CIEs
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Add: Market impact on variable annuity guaranteed benefits, net of tax
(1)
|
(11
|
)
|
|
22
|
|
|
(0.06
|
)
|
|
0.12
|
|
Add: Market impact on indexed universal life benefits, net of tax
(1)
|
(12
|
)
|
|
4
|
|
|
(0.07
|
)
|
|
0.02
|
|
Add: Market impact of hedges on investments, net of tax
(1)
|
26
|
|
|
—
|
|
|
0.15
|
|
|
—
|
|
Less: Net realized gains (losses), net of tax
(1)
|
(10
|
)
|
|
7
|
|
|
(0.06
|
)
|
|
0.04
|
|
Operating earnings
|
$
|
378
|
|
|
$
|
412
|
|
|
$
|
2.17
|
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
172.6
|
|
|
186.3
|
|
|
|
|
|
|
|
Diluted
|
174.4
|
|
|
189.1
|
|
|
|
|
|
|
|
(1)
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 to operating earnings and the five-point average of quarter-end equity to operating equity:
|
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|
|
|
|
|
|
|
|
Twelve Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Net income attributable to Ameriprise Financial
|
$
|
1,533
|
|
|
$
|
1,612
|
|
Less: Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
Net income from continuing operations attributable to Ameriprise Financial
|
1,533
|
|
|
1,613
|
|
Less: Adjustments
(1)
|
(149
|
)
|
|
(54
|
)
|
Operating earnings
|
$
|
1,682
|
|
|
$
|
1,667
|
|
|
|
|
|
Total Ameriprise Financial, Inc. shareholders’ equity
|
$
|
7,602
|
|
|
$
|
8,270
|
|
Less: Accumulated other comprehensive income, net of tax
|
472
|
|
|
755
|
|
Total Ameriprise Financial, Inc. shareholders’ equity from continuing operations, excluding AOCI
|
7,130
|
|
|
7,515
|
|
Less: Equity impacts attributable to CIEs
|
170
|
|
|
300
|
|
Operating equity
|
$
|
6,960
|
|
|
$
|
7,215
|
|
|
|
|
|
Return on equity from continuing operations, excluding AOCI
|
21.5
|
%
|
|
21.5
|
%
|
Operating return on equity, excluding AOCI
(2)
|
24.2
|
%
|
|
23.1
|
%
|
(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; net income (loss) from consolidated investment entities; and discontinued operations 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%.
On April 8, 2016, the Department of Labor published its final rule regarding the definition of who is an investment advice fiduciary under ERISA and the Internal Revenue Code, a new “best interest contract” prohibited transaction exemption regarding how such advice can be provided to retirement investors (primarily account holders in 401(k) plans and IRAs and other types of ERISA clients), a new class prohibited transaction exemption for how ERISA investment advice fiduciaries can engage in certain principal transactions with retirement investors, and certain amendments and partial revocations of pre-existing exemptions. These regulations focus in large part on conflicts of interest related to 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. Qualified accounts, particularly IRAs, make up a significant portion of our assets under management and administration. We are continuing to review and analyze the potential impact of the regulations on our clients and prospective clients as well as the potential impact on our business. Teams across the company are working diligently to assess these principles-based rules and we will work with, and provide guidance to, our advisors to make the necessary changes to effectively implement these new rules.
Critical Accounting Policies and 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, 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 Policies and Estimates” in our
2015
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.
AMERIPRISE FINANCIAL, INC.
Assets Under Management and Administration
Assets under management (“AUM”) include external client assets for which we provide investment management services, such as the assets of the Columbia funds and Threadneedle funds, assets of institutional clients and assets of clients in our advisor platform held in wrap accounts as well as assets managed by sub-advisers 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 do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority.
The following table presents detail regarding our AUM and AUA:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in billions)
|
|
|
Assets Under Management and Administration
|
|
|
|
|
|
|
|
Advice & Wealth Management AUM
|
$
|
182.3
|
|
|
$
|
179.4
|
|
|
$
|
2.9
|
|
|
2
|
%
|
Asset Management AUM
|
464.1
|
|
|
506.3
|
|
|
(42.2
|
)
|
|
(8
|
)
|
Corporate & Other AUM
|
0.4
|
|
|
0.7
|
|
|
(0.3
|
)
|
|
(43
|
)
|
Eliminations
|
(23.2
|
)
|
|
(22.5
|
)
|
|
(0.7
|
)
|
|
(3
|
)
|
Total Assets Under Management
|
623.6
|
|
|
663.9
|
|
|
(40.3
|
)
|
|
(6
|
)
|
Total Assets Under Administration
|
149.1
|
|
|
150.9
|
|
|
(1.8
|
)
|
|
(1
|
)
|
Total AUM and AUA
|
$
|
772.7
|
|
|
$
|
814.8
|
|
|
$
|
(42.1
|
)
|
|
(5
|
)%
|
Total AUM decreased $40.3 billion, or 6%, to $623.6 billion as of
March 31, 2016
compared to $663.9 billion as of
March 31, 2015
reflecting a $42.2 billion decrease in Asset Management AUM driven by market depreciation, net outflows and the negative impact of foreign currency translation, and a $2.9 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows, partially offset by market depreciation. 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
March 31, 2016
and
2015
The following table presents our consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
1,386
|
|
|
$
|
1,468
|
|
|
$
|
(82
|
)
|
|
(6
|
)%
|
Distribution fees
|
435
|
|
|
466
|
|
|
(31
|
)
|
|
(7
|
)
|
Net investment income
|
331
|
|
|
484
|
|
|
(153
|
)
|
|
(32
|
)
|
Premiums
|
368
|
|
|
353
|
|
|
15
|
|
|
4
|
|
Other revenues
|
254
|
|
|
289
|
|
|
(35
|
)
|
|
(12
|
)
|
Total revenues
|
2,774
|
|
|
3,060
|
|
|
(286
|
)
|
|
(9
|
)
|
Banking and deposit interest expense
|
9
|
|
|
7
|
|
|
2
|
|
|
29
|
|
Total net revenues
|
2,765
|
|
|
3,053
|
|
|
(288
|
)
|
|
(9
|
)
|
Expenses
|
|
|
|
|
|
|
|
Distribution expenses
|
770
|
|
|
819
|
|
|
(49
|
)
|
|
(6
|
)
|
Interest credited to fixed accounts
|
146
|
|
|
172
|
|
|
(26
|
)
|
|
(15
|
)
|
Benefits, claims, losses and settlement expenses
|
482
|
|
|
533
|
|
|
(51
|
)
|
|
(10
|
)
|
Amortization of deferred acquisition costs
|
110
|
|
|
75
|
|
|
35
|
|
|
47
|
|
Interest and debt expense
|
55
|
|
|
84
|
|
|
(29
|
)
|
|
(35
|
)
|
General and administrative expense
|
727
|
|
|
752
|
|
|
(25
|
)
|
|
(3
|
)
|
Total expenses
|
2,290
|
|
|
2,435
|
|
|
(145
|
)
|
|
(6
|
)
|
Pretax income
|
475
|
|
|
618
|
|
|
(143
|
)
|
|
(23
|
)
|
Income tax provision
|
111
|
|
|
139
|
|
|
(28
|
)
|
|
(20
|
)
|
Net income
|
364
|
|
|
479
|
|
|
(115
|
)
|
|
(24
|
)
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
86
|
|
|
(86
|
)
|
|
NM
|
Net income attributable to Ameriprise Financial
|
$
|
364
|
|
|
$
|
393
|
|
|
$
|
(29
|
)
|
|
(7
|
)%
|
NM Not Meaningful.
|
Overall
Pretax income decreased $143 million, or 23%, to $475 million for the three months ended
March 31, 2016
compared to $618 million for the prior year period primarily due to an
$88
million decrease in pretax income from CIEs, a $40 million unfavorable market impact of hedges on investments, asset management net outflows, market depreciation, lower transactional volume, higher catastrophe losses, and the impact on DAC and DSIC from actual versus expected market performance, partially offset by the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and a $32 million
increase in long term care (“LTC”) reserves in the prior year period
.
Pretax income from CIEs for the three months ended March 31, 2015 included $61 million from CLOs and property funds that were deconsolidated effective January 1, 2016. As we elected the measurement alternative for the remaining consolidated CLOs as of January 1, 2016, the carrying value of the CIE debt is set equal to the fair value of the CIE assets and therefore the changes in the fair value of assets and liabilities related to CIEs is nil for the three months ended March 31, 2016. In addition, results for the three months ended March 31, 2016 included $8 million of management fees we earned for services provided to CLOs and property funds that were deconsolidated January 1, 2016. These fees were eliminated on a consolidated basis in the prior year period. See Note 2 and Note 3 to our Consolidated Financial Statements for additional information on CIEs.
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was a benefit of $17 million for the three months ended
March 31, 2016
compared to an expense of $34 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 an expense of $10 million ($6 million for DAC, $1 million for DSIC and $3 million for insurance features in non-traditional long duration contracts) for the three months ended March 31, 2016 compared to a benefit of $19 million ($9 million for DAC, $2 million for DSIC and $8 million for insurance features in non-traditional long duration contracts) for the prior year period. The primary driver of the year-over-year difference is due to a
AMERIPRISE FINANCIAL, INC.
change in how we are recalibrating expected bond fund returns based on current interest rates and spreads while still assuming ultimate rates and spreads do not change from our original expectations. Previously, the difference between actual and expected interest rates directly impacted income in the current period and there would be an offsetting impact during annual unlocking. The prior year benefit reflected favorable equity market and bond fund returns.
Net Revenues
Net revenues decreased $288 million, or 9%, to $2.8 billion for the three months ended
March 31, 2016
compared to $3.1 billion for the prior year period due to decreases in management and financial advice fees, distribution fees, net investment income and other revenues. Net revenues for the three months ended March 31, 2015 included $98 million from CLOs and property funds that were deconsolidated effective January 1, 2016.
Management and financial advice fees decreased $82 million, or 6%, to $1.4 billion for the three months ended
March 31, 2016
compared to $1.5 billion for the prior year period primarily due to lower asset-based fees driven by a decrease in average AUM. Average AUM decreased $49.3 billion, or 7%, compared to the prior year period due to asset management net outflows, market depreciation and the negative impact of foreign currency translation, partially offset by wrap account net inflows. See our discussion on the changes in AUM in our segment results of operations section. Management and financial advice fees for the three months ended
March 31, 2016
included $8 million of fees we earned for services provided to CLOs and property funds that were deconsolidated effective January 1, 2016. These fees were eliminated on a consolidated basis in the prior year period.
Distribution fees decreased $31 million, or 7%, to $435 million for the three months ended
March 31, 2016
compared to $466 million for the prior year period primarily due to equity market depreciation and lower client activity
given the volatile and uncertain markets
, partially offset by higher brokerage cash spread due to an increase in interest rates.
Net investment income decreased $153 million, or 32%, to $331 million for the three months ended
March 31, 2016
compared to $484 million for the prior year period primarily due to
a $77
million decrease in net investment income of CIEs,
a $40
million loss related to the market impact of hedges on investments and
an $11
million decrease in investment income on fixed maturities. In addition, net realized investment losses were $16 million for the three months ended
March 31, 2016
, which included an $11 million loss from the sale of consumer loans, compared to net realized investment gains of $10 million for the prior year period. Net investment income for the three months ended March 31, 2015 included $48 million from CLOs that were deconsolidated effective January 1, 2016.
Other revenues decreased $35 million, or 12%, to $254 million for the three months ended
March 31, 2016
compared to $289 million for the prior year period due to
a $58
million decrease in other revenues of CIEs, partially offset by the market impact on indexed universal life benefits, a $6 million benefit in the first quarter of 2016 related to life reinsurance recapture and VUL model changes, and higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates. The market impact on indexed universal life benefits was a positive $9 million for the three months ended
March 31, 2016
compared to a negative $4 million for the prior year period. Other revenues for the three months ended March 31, 2015 included $58 million from property funds that were deconsolidated effective January 1, 2016.
Expenses
Total expenses decreased $145 million, or 6%, to $2.3 billion for the three months ended
March 31, 2016
compared to $2.4 billion for the prior year period. Expenses for the three months ended March 31, 2015 included $37 million from CLOs and property funds that were deconsolidated effective January 1, 2016.
Distribution expenses decreased $49 million, or 6%, to $770 million for the three months ended
March 31, 2016
compared to $819 million for the prior year period driven by lower advisor compensation due to equity market depreciation and lower client activity. See our discussion on the changes in AUM in our segment results of operations section below.
Interest credited to fixed accounts decreased $26 million, or 15%, to $146 million for the three months ended
March 31, 2016
compared to $172 million for the prior year period primarily due to lower average fixed annuity account balances and the market impact on indexed universal life benefits, net of hedges. The market impact on indexed universal life benefits, net of hedges was a benefit of $16 million for the three months ended
March 31, 2016
compared to an expense of $5 million for the prior year period. Average fixed annuity account balances decreased $1.3 billion, or 11%, to $10.6 billion for the three months ended
March 31, 2016
compared to the prior year period as older policies continue to lapse and new sales are limited from low interest rates.
Benefits, claims, losses and settlement expenses decreased $51 million, or 10%, to $482 million for the three months ended
March 31, 2016
compared to $533 million for the prior year period primarily reflecting the following items:
|
|
•
|
A $32 million increase in LTC reserves in the prior year period.
|
|
|
•
|
Catastrophe losses were $23 million for the three months ended
March 31, 2016
, with over half of these losses related to wind and hailstorms in Texas late in the quarter,
compared to $12
million for the prior year period.
|
AMERIPRISE FINANCIAL, INC.
|
|
•
|
The market impact on reserves for insurance features in non-traditional long-duration contracts was a $3 million expense f
or the three months ended
March 31, 2016
compared to an $8 million benefit in the prior year period. See additional discussion above in the Overall section.
|
|
|
•
|
A $7 million increase in reserves for
immediate annuities with life contingencies primarily due to higher sales. This impact is mostly offset by an increase in premiums.
|
|
|
•
|
A $4 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 $7 million favorable impact in the prior year period from a change in the discount rate for disability income (“DI”) products.
|
|
|
•
|
A $175 million decrease 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 favorable impact of the nonperformance credit spread was $219 million for the three months ended
March 31, 2016
compared to a favorable impact of $44 million for the prior year period.
|
|
|
•
|
A $104 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 $485 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $383 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and an unfavorable $2 million 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 higher expense in the first quarter of 2016 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 higher expense in the first quarter of 2016 compared to the prior year period.
|
|
|
•
|
Market volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in lower expense in the first quarter of 2016 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 unfavorable impact compared to the prior year period.
|
Amortization of DAC increased $35 million, or 47%, to $110 million for the three months ended
March 31, 2016
compared to $75 million for the prior year period primarily reflecting the following items:
|
|
•
|
The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was an expense of $6 million for the
first
quarter of
2016
compared to a benefit of $9 million for the prior year period. See additional discussion above in the Overall section.
|
|
|
•
|
The DAC offset to the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) was an expense of $16 million for the
first
quarter of
2016
compared to a benefit of $4 million for the prior year period.
|
Interest and debt expense decreased $29 million, or 35%, to $55 million for the three months ended
March 31, 2016
compared to $84 million for the prior year period primarily due to a $27 million decrease in interest and debt expense of CIEs. Interest and debt expense for the three months ended March 31, 2015 included $28 million from CLOs and property funds that were deconsolidated effective January 1, 2016.
General and administrative expenses decreased $25 million, or 3%, to $727 million for the three months ended
March 31, 2016
compared to $752 million for the prior year period primarily due a $10 million decrease in expenses of CIEs, a $9 million sales and use tax reserve release in the first quarter of 2016 and lower performance-based compensation expense compared to the prior year period. General and administrative expenses for the three months ended March 31, 2015 included $9 million from CLOs and property funds that were deconsolidated effective January 1, 2016.
Income Taxes
Our effective tax rate was 23.3% for the three months ended
March 31, 2016
compared to 22.5% for the prior year period. Our effective tax rate excluding income attributable to noncontrolling interests was 23.3% for the three months ended
March 31, 2016
compared to 26.1% for the prior year period. The effective tax rates for the three months ended
March 31, 2016
and 2015 were lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits, as well as lower taxes on net income from foreign subsidiaries.
AMERIPRISE FINANCIAL, INC.
Results of Operations by Segment for the Three Months Ended
March 31, 2016
and
2015
Operating earnings is the measure of segment profit or loss management uses to evaluate segment performance. Operating earnings should not be viewed as a substitute for GAAP pretax income. We believe the presentation of segment 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 17 to the Consolidated Financial Statements for further information on the presentation of segment results and our definition of operating earnings.
The following table presents summary financial information by segment:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Advice & Wealth Management
|
|
|
|
|
|
Net revenues
|
$
|
1,198
|
|
|
$
|
1,228
|
|
Expenses
|
993
|
|
|
1,018
|
|
Operating earnings
|
$
|
205
|
|
|
$
|
210
|
|
Asset Management
|
|
|
|
|
|
Net revenues
|
$
|
724
|
|
|
$
|
807
|
|
Expenses
|
575
|
|
|
616
|
|
Operating earnings
|
$
|
149
|
|
|
$
|
191
|
|
Annuities
|
|
|
|
|
|
Net revenues
|
$
|
596
|
|
|
$
|
631
|
|
Expenses
|
472
|
|
|
459
|
|
Operating earnings
|
$
|
124
|
|
|
$
|
172
|
|
Protection
|
|
|
|
|
|
Net revenues
|
$
|
608
|
|
|
$
|
590
|
|
Expenses
|
539
|
|
|
539
|
|
Operating earnings
|
$
|
69
|
|
|
$
|
51
|
|
Corporate & Other
|
|
|
|
|
|
Net revenues
|
$
|
2
|
|
|
$
|
(6
|
)
|
Expenses
|
52
|
|
|
56
|
|
Operating loss
|
$
|
(50
|
)
|
|
$
|
(62
|
)
|
AMERIPRISE FINANCIAL, INC.
Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the three months ended
March 31
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(in billions)
|
Beginning balance
|
$
|
180.5
|
|
|
$
|
174.7
|
|
Net flows
|
1.8
|
|
|
2.8
|
|
Market appreciation and other
|
1.1
|
|
|
2.5
|
|
Ending balance
|
$
|
183.4
|
|
|
$
|
180.0
|
|
|
|
|
|
Advisory wrap account assets ending balance
(1)
|
$
|
181.6
|
|
|
$
|
178.7
|
|
Average advisory wrap account assets
(2)
|
$
|
176.6
|
|
|
$
|
176.0
|
|
|
|
(1)
|
Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
|
|
|
(2)
|
Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.
|
Wrap account assets increased $2.9 billion, or 2%, during the three months ended
March 31, 2016
due to net inflows of $1.8 billion and market appreciation and other of $1.1 billion. Net flows decreased $1.0 billion, or 36%, compared to the prior year period primarily due to market volatility. Average advisory wrap account assets were essentially flat compared to the prior year period reflecting net inflows offset by market depreciation.
The following table presents the changes in wrap account assets for the twelve months ended
March 31
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(in billions)
|
Beginning balance
|
$
|
180.0
|
|
|
$
|
159.4
|
|
Net flows
|
10.2
|
|
|
12.8
|
|
Market appreciation (depreciation) and other
|
(6.8
|
)
|
|
7.8
|
|
Ending balance
|
$
|
183.4
|
|
|
$
|
180.0
|
|
Wrap account assets increased $3.4 billion, or 2%, from the prior year period primarily due to net inflows, partially offset by market depreciation.
The following table presents the results of operations of our Advice & Wealth Management segment on an operating basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
631
|
|
|
$
|
637
|
|
|
$
|
(6
|
)
|
|
(1
|
)%
|
Distribution fees
|
514
|
|
|
543
|
|
|
(29
|
)
|
|
(5
|
)
|
Net investment income
|
44
|
|
|
35
|
|
|
9
|
|
|
26
|
|
Other revenues
|
18
|
|
|
20
|
|
|
(2
|
)
|
|
(10
|
)
|
Total revenues
|
1,207
|
|
|
1,235
|
|
|
(28
|
)
|
|
(2
|
)
|
Banking and deposit interest expense
|
9
|
|
|
7
|
|
|
2
|
|
|
29
|
|
Total net revenues
|
1,198
|
|
|
1,228
|
|
|
(30
|
)
|
|
(2
|
)
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
732
|
|
|
757
|
|
|
(25
|
)
|
|
(3
|
)
|
Interest and debt expense
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
General and administrative expense
|
259
|
|
|
259
|
|
|
—
|
|
|
—
|
|
Total expenses
|
993
|
|
|
1,018
|
|
|
(25
|
)
|
|
(2
|
)
|
Operating earnings
|
$
|
205
|
|
|
$
|
210
|
|
|
$
|
(5
|
)
|
|
(2
|
)%
|
AMERIPRISE FINANCIAL, INC.
Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized investment gains or losses, decreased $5 million, or 2%, to $205 million for the three months ended
March 31, 2016
compared to $210 million for the prior year period reflecting lower client activity and equity market depreciation, partially offset by wrap account net inflows and higher brokerage cash spread due to an increase in interest rates. Pretax operating margin was 17.1% for both the three months ended
March 31, 2016
and 2015.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues decreased $30 million, or 2%, to $1.2 billion for the three months ended
March 31, 2016
compared to $1.2 billion for the prior year period due to lower distribution fees. Operating net revenue per branded advisor decreased to $123,000 for the three months ended
March 31, 2016
, down 3%, from $127,000 for the prior year period reflecting high market volatility and lower transactional client activity. Total branded advisors were 9,766 at
March 31, 2016
compared to 9,691 at
March 31, 2015
.
Distribution fees decreased $29 million, or 5%, to $514 million for the three months ended
March 31, 2016
compared to $543 million for the prior year period primarily due to lower client activity
given the volatile and uncertain markets and
equity market depreciation, partially offset by higher brokerage cash spread due to an increase in interest rates.
Expenses
Total expenses decreased $25 million, or 2%, to $993 million for the three months ended
March 31, 2016
compared to $1.0 billion for the prior year period due to
a $25
million decrease in distribution expenses reflecting lower advisor compensation due to equity market depreciation and lower client activity.
Asset Management
Fee waivers have been provided to the Columbia Money Market Funds (the “Funds”) by Columbia and certain other subsidiaries performing services for the Funds for the purpose of reducing the expenses charged to a Fund in a given period to maintain or improve a Fund’s net yield in that period. Our subsidiaries may enter into contractual arrangements with the Funds identifying the specific fees to be waived and/or expenses to be reimbursed, as well as the time period for which such waivers will apply. In aggregate, we voluntarily waived fees of $1 million and $2 million for the three months ended
March 31, 2016
and
2015
, respectively.
The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of
March 31
:
|
|
|
|
|
|
|
|
|
|
|
Columbia
Mutual Fund Rankings in top 2 Lipper Quartiles
|
|
|
|
|
2016
|
|
2015
|
Domestic Equity
|
Equal weighted
|
|
1 year
|
|
68
|
%
|
|
55
|
%
|
|
|
|
3 year
|
|
62
|
%
|
|
65
|
%
|
|
|
|
5 year
|
|
57
|
%
|
|
54
|
%
|
|
Asset weighted
|
|
1 year
|
|
80
|
%
|
|
61
|
%
|
|
|
|
3 year
|
|
74
|
%
|
|
64
|
%
|
|
|
|
5 year
|
|
68
|
%
|
|
63
|
%
|
|
|
|
|
|
|
|
|
International Equity
|
Equal weighted
|
|
1 year
|
|
55
|
%
|
|
71
|
%
|
|
|
|
3 year
|
|
68
|
%
|
|
67
|
%
|
|
|
|
5 year
|
|
60
|
%
|
|
63
|
%
|
|
Asset weighted
|
|
1 year
|
|
37
|
%
|
|
84
|
%
|
|
|
|
3 year
|
|
39
|
%
|
|
41
|
%
|
|
|
|
5 year
|
|
41
|
%
|
|
41
|
%
|
|
|
|
|
|
|
|
|
Taxable Fixed Income
|
Equal weighted
|
|
1 year
|
|
63
|
%
|
|
65
|
%
|
|
|
|
3 year
|
|
59
|
%
|
|
75
|
%
|
|
|
|
5 year
|
|
71
|
%
|
|
75
|
%
|
|
Asset weighted
|
|
1 year
|
|
70
|
%
|
|
77
|
%
|
|
|
|
3 year
|
|
77
|
%
|
|
84
|
%
|
|
|
|
5 year
|
|
83
|
%
|
|
84
|
%
|
|
|
|
|
|
|
|
|
AMERIPRISE FINANCIAL, INC.
|
|
|
|
|
|
|
|
|
|
|
Tax Exempt Fixed Income
|
Equal weighted
|
|
1 year
|
|
89
|
%
|
|
89
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
100
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
100
|
%
|
|
Asset weighted
|
|
1 year
|
|
92
|
%
|
|
84
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
100
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Asset Allocation Funds
|
Equal weighted
|
|
1 year
|
|
85
|
%
|
|
82
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
78
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
89
|
%
|
|
Asset weighted
|
|
1 year
|
|
98
|
%
|
|
89
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
77
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
97
|
%
|
|
|
|
|
|
|
|
|
Number of funds with 4 or 5 Morningstar star ratings
|
|
|
Overall
|
|
51
|
|
|
48
|
|
|
|
|
3 year
|
|
50
|
|
|
43
|
|
|
|
|
5 year
|
|
46
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Percent of funds with 4 or 5 Morningstar star ratings
|
|
|
Overall
|
|
50
|
%
|
|
48
|
%
|
|
|
|
3 year
|
|
50
|
%
|
|
43
|
%
|
|
|
|
5 year
|
|
48
|
%
|
|
53
|
%
|
|
|
|
|
|
|
|
|
Percent of assets with 4 or 5 Morningstar star ratings
|
|
|
Overall
|
|
61
|
%
|
|
56
|
%
|
|
|
|
3 year
|
|
61
|
%
|
|
40
|
%
|
|
|
|
5 year
|
|
61
|
%
|
|
57
|
%
|
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. In instances where a fund’s Class Z share does not have a full five year track record (prior to September 30, 2015), performance for an older share class of the same fund, typically Class A shares, is utilized for the period before Class Z shares were launched. No adjustments to the historical track records are made to account for differences in fund expenses between share classes of a fund. Starting September 30, 2015, legacy RiverSource funds have reached 5 years of Z share performance and will not be appended. Historical rankings will continue to be appended.
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 (using Class Z and appended Class Z) divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
AMERIPRISE FINANCIAL, INC.
|
|
|
|
|
|
|
|
|
|
|
Threadneedle
Retail Fund Rankings in Top 2 Morningstar Quartiles or Above Index Benchmark
|
|
2016
|
|
2015
|
Equity
|
Equal weighted
|
|
1 year
|
|
81
|
%
|
|
71
|
%
|
|
|
|
3 year
|
|
70
|
%
|
|
68
|
%
|
|
|
|
5 year
|
|
78
|
%
|
|
83
|
%
|
|
Asset weighted
|
|
1 year
|
|
88
|
%
|
|
78
|
%
|
|
|
|
3 year
|
|
56
|
%
|
|
61
|
%
|
|
|
|
5 year
|
|
86
|
%
|
|
87
|
%
|
|
|
|
|
|
|
|
|
Fixed Income
|
Equal weighted
|
|
1 year
|
|
38
|
%
|
|
65
|
%
|
|
|
|
3 year
|
|
59
|
%
|
|
59
|
%
|
|
|
|
5 year
|
|
52
|
%
|
|
68
|
%
|
|
Asset weighted
|
|
1 year
|
|
68
|
%
|
|
63
|
%
|
|
|
|
3 year
|
|
83
|
%
|
|
37
|
%
|
|
|
|
5 year
|
|
45
|
%
|
|
47
|
%
|
|
|
|
|
|
|
|
|
Allocation (Managed) Funds
|
Equal weighted
|
|
1 year
|
|
88
|
%
|
|
75
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
83
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
83
|
%
|
|
Asset weighted
|
|
1 year
|
|
93
|
%
|
|
79
|
%
|
|
|
|
3 year
|
|
100
|
%
|
|
93
|
%
|
|
|
|
5 year
|
|
100
|
%
|
|
93
|
%
|
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 as well as advisors not affiliated with Ameriprise Financial, Inc.
Beginning in the first quarter of 2016, the Columbia and Threadneedle AUM rollforwards have been combined to align with the
Columbia Threadneedle Investments brand, which represents the combined capabilities, resources and reach of both firms.
In addition, we combined the rollforwards for Institutional and Alternative AUM and included the
change in Affiliated General Account Assets in the market appreciation (depreciation) and o
ther line within the combined AUM rollforward. All changes were made on a retrospective basis.
The following table presents global managed assets by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
(1)
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
(in billions)
|
Equity
|
$
|
244.7
|
|
|
$
|
279.4
|
|
|
$
|
(34.7
|
)
|
|
(12
|
)%
|
|
$
|
241.8
|
|
|
$
|
279.1
|
|
|
$
|
(37.3
|
)
|
|
(13
|
)%
|
Fixed income
|
179.5
|
|
|
192.0
|
|
|
(12.5
|
)
|
|
(7
|
)
|
|
176.8
|
|
|
193.8
|
|
|
(17.0
|
)
|
|
(9
|
)
|
Money market
|
7.5
|
|
|
6.9
|
|
|
0.6
|
|
|
9
|
|
|
7.7
|
|
|
6.5
|
|
|
1.2
|
|
|
18
|
|
Alternative
|
8.2
|
|
|
7.4
|
|
|
0.8
|
|
|
11
|
|
|
8.1
|
|
|
7.4
|
|
|
0.7
|
|
|
9
|
|
Hybrid and other
|
24.2
|
|
|
20.6
|
|
|
3.6
|
|
|
17
|
|
|
23.7
|
|
|
20.4
|
|
|
3.3
|
|
|
16
|
|
Total managed assets
|
$
|
464.1
|
|
|
$
|
506.3
|
|
|
$
|
(42.2
|
)
|
|
(8
|
)%
|
|
$
|
458.1
|
|
|
$
|
507.2
|
|
|
$
|
(49.1
|
)
|
|
(10
|
)%
|
(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 March 31,
|
|
2016
|
|
2015
|
|
(in billions)
|
Global Retail Funds
|
|
|
|
|
|
Beginning assets
|
$
|
263.9
|
|
|
$
|
281.5
|
|
Inflows
|
12.5
|
|
|
14.0
|
|
Outflows
|
(15.6
|
)
|
|
(17.2
|
)
|
Net VP/VIT fund flows
|
(0.2
|
)
|
|
(0.3
|
)
|
Net new flows
|
(3.3
|
)
|
|
(3.5
|
)
|
Reinvested dividends
|
0.4
|
|
|
0.5
|
|
Net flows
|
(2.9
|
)
|
|
(3.0
|
)
|
Distributions
|
(0.6
|
)
|
|
(0.7
|
)
|
Market appreciation and other
|
0.8
|
|
|
7.6
|
|
Foreign currency translation
(1)
|
(1.4
|
)
|
|
(2.2
|
)
|
Total ending assets
|
259.8
|
|
|
283.2
|
|
|
|
|
|
Global Institutional
|
|
|
|
|
|
Beginning assets
|
208.0
|
|
|
224.0
|
|
Inflows
|
7.4
|
|
|
6.1
|
|
Outflows
|
(12.0
|
)
|
|
(8.9
|
)
|
Net flows
|
(4.6
|
)
|
|
(2.8
|
)
|
Market appreciation and other
(2)
|
3.7
|
|
|
6.9
|
|
Foreign currency translation
(1)
|
(2.8
|
)
|
|
(5.0
|
)
|
Total ending assets
|
204.3
|
|
|
223.1
|
|
|
|
|
|
Total managed assets
|
$
|
464.1
|
|
|
$
|
506.3
|
|
Total net flows
|
$
|
(7.5
|
)
|
|
$
|
(5.8
|
)
|
|
|
|
|
Former Parent Company Related
(3)
|
|
|
|
Retail net new flows
|
$
|
(0.3
|
)
|
|
$
|
(0.5
|
)
|
Institutional net new flows
|
(4.0
|
)
|
|
(1.0
|
)
|
Total net new flows
|
$
|
(4.3
|
)
|
|
$
|
(1.5
|
)
|
(1)
Amounts represent British Pound to US dollar conversion.
(2)
Includes $1.1 billion and $0.1 billion for the total change in Affiliated General Account Assets during the three months ended March 31, 2016 and 2015, respectively.
(3)
Former parent company related assets and net new flows are included in the rollforwards above.
Total segment AUM decreased $7.8 billion, or 2%, during the three months ended
March 31, 2016
driven by net outflows and a negative impact of foreign currency translation, partially offset by market appreciation and other. Total segment AUM net outflows were $7.5 billion for the three months ended
March 31, 2016
, which included $4.3 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.
Global retail funds decreased $4.1 billion, or 2%, during the three months ended
March 31, 2016
primarily due to net outflows and a negative impact of foreign currency translation. Global retail net outflows of $2.9 billion during the three months ended
March 31, 2016
included $0.6 billion of outflows from the Columbia
Acorn
®
Fund, $0.5 billion of outflows from the defined contribution/investment only channel, $0.3 billion of outflows from the RIA channel, $0.3 billion of outflows from former parent-related assets and $0.4 billion of outflows from the termination of a third party subadvisor. European retail flows were slightly negative for the quarter and reflected the volatile market environment. Global institutional AUM decreased $3.7 billion, or 2%, during the three months ended
March 31, 2016
due to net outflows of $4.6 billion and a $2.8 billion negative impact of foreign currency translation, partially offset
AMERIPRISE FINANCIAL, INC.
by market appreciation and other. Global institutional net outflows included $1.1 billion of outflows from a third party client that redeemed assets for liquidity purposes, $0.7 billion from the termination of a former subadvisor and $4.0 billion of outflows of former parent-related assets, of which $3.2 billion was driven by changes made to fixed income individually managed accounts by a former affiliated distribution partner.
The following table presents the results of operations of our Asset Management segment on an operating basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
602
|
|
|
$
|
674
|
|
|
$
|
(72
|
)
|
|
(11
|
)%
|
Distribution fees
|
117
|
|
|
125
|
|
|
(8
|
)
|
|
(6
|
)
|
Net investment income
|
3
|
|
|
6
|
|
|
(3
|
)
|
|
(50
|
)
|
Other revenues
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Total revenues
|
724
|
|
|
807
|
|
|
(83
|
)
|
|
(10
|
)
|
Banking and deposit interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total net revenues
|
724
|
|
|
807
|
|
|
(83
|
)
|
|
(10
|
)
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
247
|
|
|
278
|
|
|
(31
|
)
|
|
(11
|
)
|
Amortization of deferred acquisition costs
|
4
|
|
|
3
|
|
|
1
|
|
|
33
|
|
Interest and debt expense
|
6
|
|
|
6
|
|
|
—
|
|
|
—
|
|
General and administrative expense
|
318
|
|
|
329
|
|
|
(11
|
)
|
|
(3
|
)
|
Total expenses
|
575
|
|
|
616
|
|
|
(41
|
)
|
|
(7
|
)
|
Operating earnings
|
$
|
149
|
|
|
$
|
191
|
|
|
$
|
(42
|
)
|
|
(22
|
)%
|
Our Asset Management segment pretax operating earnings, which exclude net realized investment gains or losses, decreased $42 million, or 22%, to $149 million for the three months ended
March 31, 2016
compared to $191 million for the prior year period primarily due to net outflows, equity market depreciation and a $4 million negative impact of foreign exchange, partially offset by continued expense management.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $83 million, or 10%, to $724 million for the three months ended
March 31, 2016
compared to $807 million for the prior year period primarily due to a decrease in management and financial advice fees.
Management and financial advice fees decreased $72 million, or 11%, to $602 million for the three months ended
March 31, 2016
compared to $674 million for the prior year period primarily due to lower asset-based fees driven by a decrease in average AUM and a $9 million negative impact of foreign exchange. Average AUM decreased $49.1 billion, or 10%, compared to the prior year period due to net outflows, market depreciation and the negative impact of foreign currency translation.
Our average weighted equity index, which is a proxy for equity movements on AUM, decreased 8% to 1,428
for the three months ended
March 31, 2016
compared to 1,551 for the prior year period
.
Expenses
Total expenses decreased $41 million, or 7%, to $575 million for the three months ended
March 31, 2016
compared to $616 million for the prior year period due to a $31 million decrease in distribution expenses from lower retail fund assets and an $11 million decrease in general and administrative expense primarily due to a $4 million positive impact of foreign exchange and costs incurred in the prior year period associated with the move to a new London office.
AMERIPRISE FINANCIAL, INC.
Annuities
The following table presents the results of operations of our Annuities segment on an operating basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
177
|
|
|
$
|
190
|
|
|
$
|
(13
|
)
|
|
(7
|
)%
|
Distribution fees
|
83
|
|
|
89
|
|
|
(6
|
)
|
|
(7
|
)
|
Net investment income
|
192
|
|
|
221
|
|
|
(29
|
)
|
|
(13
|
)
|
Premiums
|
28
|
|
|
22
|
|
|
6
|
|
|
27
|
|
Other revenues
|
116
|
|
|
109
|
|
|
7
|
|
|
6
|
|
Total revenues
|
596
|
|
|
631
|
|
|
(35
|
)
|
|
(6
|
)
|
Banking and deposit interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total net revenues
|
596
|
|
|
631
|
|
|
(35
|
)
|
|
(6
|
)
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
103
|
|
|
108
|
|
|
(5
|
)
|
|
(5
|
)
|
Interest credited to fixed accounts
|
119
|
|
|
127
|
|
|
(8
|
)
|
|
(6
|
)
|
Benefits, claims, losses and settlement expenses
|
144
|
|
|
115
|
|
|
29
|
|
|
25
|
|
Amortization of deferred acquisition costs
|
45
|
|
|
43
|
|
|
2
|
|
|
5
|
|
Interest and debt expense
|
8
|
|
|
10
|
|
|
(2
|
)
|
|
(20
|
)
|
General and administrative expense
|
53
|
|
|
56
|
|
|
(3
|
)
|
|
(5
|
)
|
Total expenses
|
472
|
|
|
459
|
|
|
13
|
|
|
3
|
|
Operating earnings
|
$
|
124
|
|
|
$
|
172
|
|
|
$
|
(48
|
)
|
|
(28
|
)%
|
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), decreased $48 million, or 28%, to $124 million for the three months ended
March 31, 2016
compared to $172 million for the prior year period primarily due to 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 and a negative impact from
lower average account balances and a lower asset earnings rate.
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 an expense of $9 million ($5 million for DAC, $1 million for DSIC and $3 million for insurance features in non-traditional long duration contracts) for the three months ended March 31, 2016 compared to a benefit of $18 million ($8 million for DAC, $2 million for DSIC and $8 million for insurance features in non-traditional long duration contracts) for the prior year period. The primary driver of the year-over-year difference is due to a change in how we are recalibrating expected bond fund returns based on current interest rates and spreads while still assuming ultimate rates and spreads do not change from our original expectations. Previously, the difference between actual and expected interest rates directly impacted income in the current period and there would be an offsetting impact during annual unlocking. The prior year benefit reflected favorable equity market and bond fund returns.
RiverSource
variable annuity account balances decreased 5% to $74.2 billion at
March 31, 2016
compared to the prior year period due to net outflows of $1.2 billion and market depreciation.
RiverSource
fixed annuity account balances declined 10% to $10.5 billion at
March 31, 2016
compared to the prior year period as older policies continue to lapse and new sales are limited from low interest rates. Given the current interest rate environment, our current fixed annuity book is expected to gradually run off and earnings on our fixed annuity business will trend down.
AMERIPRISE FINANCIAL, INC.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $35 million, or 6%, to $596 million for the three months ended
March 31, 2016
compared to $631 million for the prior year period primarily due to lower management and financial advice fees and net investment income.
Management and financial advice fees decreased $13 million, or 7%, to $177 million for the three months ended
March 31, 2016
compared to $190 million for the prior year period due to lower fees on variable annuities driven by lower average separate account balances. Average variable annuity account balances decreased $5.6 billion, or 8%, from the prior year period due to net outflows and market depreciation.
Net investment income, which excludes net realized investment gains or losses, decreased $29 million, or 13%, to $192 million for the three months ended
March 31, 2016
compared to $221 million for the prior year period reflecting a decrease of approximately $19 million from lower invested assets due to fixed annuity net outflows and approximately $10 million from lower interest rates.
Other revenues increased $7 million, or 6%, to $116 million for the three months ended
March 31, 2016
compared to $109 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, increased $13 million, or 3%, to $472 million for the three months ended
March 31, 2016
compared to $459 million for the prior year period primarily due to an increase in b
enefits, claims, losses and settlement expenses, partially offset by
a decrease in interest credited to fixed accounts.
Interest credited to fixed accounts decreased $8 million, or 6%, to $119 million for the three months ended
March 31, 2016
compared to $127 million for the prior year period driven by lower average fixed annuity account balances. Average fixed annuity account balances decreased $1.3 billion, or 11%, to $10.6 billion for the three months ended
March 31, 2016
compared to the prior year period as older policies continue to lapse and new sales are limited from low interest rates.
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, in
creased
$29 million, or 25%, to $144 million
for the three months ended
March 31, 2016
compared to $115 million for the prior year period primarily reflecting the following items:
|
|
•
|
The market impact on reserves for insurance features in non-traditional long-duration contracts was a $3 million expense f
or the three months ended
March 31, 2016
compared to an $8 million benefit in the prior year period. See additional discussion above in the Overall section.
|
|
|
•
|
A $7 million increase in reserves for
immediate annuities with life contingencies primarily due to higher sales. This impact is mostly offset by an increase in premiums.
|
|
|
•
|
A $4 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.
|
|
|
•
|
The impact on DSIC from actual versus expected market performance based on our view of bond and equity performance was an expense of $1 million for the
first
quarter of
2016
compared to a benefit of $2 million for the prior year period. See additional discussion above in the Overall section.
|
AMERIPRISE FINANCIAL, INC.
Protection
The following table presents the results of operations of our Protection segment on an operating basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
13
|
|
|
$
|
15
|
|
|
$
|
(2
|
)
|
|
(13
|
)%
|
Distribution fees
|
23
|
|
|
23
|
|
|
—
|
|
|
—
|
|
Net investment income
|
119
|
|
|
114
|
|
|
5
|
|
|
4
|
|
Premiums
|
345
|
|
|
335
|
|
|
10
|
|
|
3
|
|
Other revenues
|
108
|
|
|
103
|
|
|
5
|
|
|
5
|
|
Total revenues
|
608
|
|
|
590
|
|
|
18
|
|
|
3
|
|
Banking and deposit interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total net revenues
|
608
|
|
|
590
|
|
|
18
|
|
|
3
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
—
|
|
Distribution expenses
|
12
|
|
|
13
|
|
|
(1
|
)
|
|
(8
|
)
|
Interest credited to fixed accounts
|
43
|
|
|
40
|
|
|
3
|
|
|
8
|
|
Benefits, claims, losses and settlement expenses
|
371
|
|
|
380
|
|
|
(9
|
)
|
|
(2
|
)
|
Amortization of deferred acquisition costs
|
39
|
|
|
36
|
|
|
3
|
|
|
8
|
|
Interest and debt expense
|
9
|
|
|
8
|
|
|
1
|
|
|
13
|
|
General and administrative expense
|
65
|
|
|
62
|
|
|
3
|
|
|
5
|
|
Total expenses
|
539
|
|
|
539
|
|
|
—
|
|
|
—
|
|
Operating earnings
|
$
|
69
|
|
|
$
|
51
|
|
|
$
|
18
|
|
|
35
|
%
|
Our Protection segment pretax operating income, 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), increased $18 million, or 35%, to $69 million for the three months ended
March 31, 2016
compared to $51 million for the prior year period primarily due to a $32 million LTC reserve increase in the prior year period, partially offset by higher catastrophe losses and a $7 million favorable impact in the prior year period from a change in the discount rate for DI products.
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, increased $18 million, or 3%, to $608 million for the three months ended
March 31, 2016
compared to $590 million for the prior year period primarily due to an increase in premiums and a $6 million benefit in the first quarter of 2016 related to life reinsurance recapture and VUL model changes.
Premiums increased $10 million, or 3%, to $345 million for the three months ended
March 31, 2016
compared to $335 million for the prior year period due to a 1% increase in auto and home policies in force and rate increases.
Other revenues increased $5 million, or 5%, to $108 million for the three months ended
March 31, 2016
compared to $103 million for the prior year period due to a $6 million benefit in the first quarter of 2016 related to life reinsurance recapture and VUL model changes.
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, were flat compared to the prior year period.
Benefits, claims, losses and settlement expenses decreased $9 million, or 2%, to $371 million for the three months ended
March 31, 2016
compared to $380 million for the prior year period primarily due to a $32 million LTC reserve increase in the prior year period, partially offset by higher catastrophe losses and a $7 million favorable impact in the prior year period from a change in the discount rate for DI products.
Catastrophe losses were $23 million for the three months ended
March 31, 2016
, with over half of these losses related to wind and hailstorms in Texas late in the quarter,
compared to $12
million for the prior year period.
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 March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
$
|
1
|
|
|
$
|
(7
|
)
|
|
$
|
8
|
|
|
NM
|
Other revenues
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total revenues
|
2
|
|
|
(6
|
)
|
|
8
|
|
|
NM
|
Banking and deposit interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total net revenues
|
2
|
|
|
(6
|
)
|
|
8
|
|
|
NM
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Interest and debt expense
|
4
|
|
|
5
|
|
|
(1
|
)
|
|
(20
|
)%
|
General and administrative expense
|
48
|
|
|
51
|
|
|
(3
|
)
|
|
(6
|
)
|
Total expenses
|
52
|
|
|
56
|
|
|
(4
|
)
|
|
(7
|
)
|
Operating loss
|
$
|
(50
|
)
|
|
$
|
(62
|
)
|
|
$
|
12
|
|
|
19
|
%
|
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 $12 million, or 19%, to $50 million for the three months ended
March 31, 2016
compared to $62 million for the prior year period primarily due to
an $8 million increase from net investment income (loss) reflecting the impact of interest allocation between subsidiaries. General and administrative expense decreased $3 million, or 6%, to $48 million
for the three months ended
March 31, 2016
compared to $51 million for the prior year period primarily due to
lower performance-based compensation expense.
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 annuities, fixed insurance, brokerage client cash balances, 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 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 March 31, 2018 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $3.7 billion and 4.0%, respectively, as of
March 31, 2016
. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $6.1 billion and had a weighted average yield of 2.7% as of
March 31, 2016
. 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
AMERIPRISE FINANCIAL, INC.
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
three
months ended
March 31, 2016
was approximately 3.2%.
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 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 use a combination of options and/or swaps. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The macro hedge program could result in additional earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital volatility, may not be closely aligned to changes in the variable annuity guarantee embedded derivatives.
To
evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, stock market certificates, indexed universal life 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
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Price Exposure to Pretax Income
|
Equity Price Decline 10%
|
|
Before Hedge
Impact
|
|
Hedge Impact
|
|
Net Impact
|
|
|
(in millions)
|
Asset-based management and distribution fees
(1)
|
|
$
|
(224
|
)
|
|
$
|
5
|
|
|
$
|
(219
|
)
|
DAC and DSIC amortization
(2) (3)
|
|
(122
|
)
|
|
—
|
|
|
(122
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
|
|
GMDB and GMIB
(3)
|
|
(198
|
)
|
|
—
|
|
|
(198
|
)
|
GMWB
|
|
(463
|
)
|
|
491
|
|
|
28
|
|
GMAB
|
|
(49
|
)
|
|
51
|
|
|
2
|
|
DAC and DSIC amortization
(4)
|
|
N/A
|
|
|
N/A
|
|
|
(5
|
)
|
Total variable annuity riders
|
|
(710
|
)
|
|
542
|
|
|
(173
|
)
|
Macro hedge program
(5)
|
|
—
|
|
|
18
|
|
|
18
|
|
Equity indexed annuities
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
Certificates
|
|
2
|
|
|
(3
|
)
|
|
(1
|
)
|
Indexed universal life insurance
|
|
23
|
|
|
(17
|
)
|
|
6
|
|
Total
|
|
$
|
(1,030
|
)
|
|
$
|
544
|
|
|
$
|
(491
|
)
|
AMERIPRISE FINANCIAL, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Exposure to Pretax Income
|
Interest Rate Increase 100 Basis Points
|
|
Before Hedge
Impact
|
|
Hedge Impact
|
|
Net Impact
|
|
|
(in millions)
|
Asset-based management and distribution fees
(1)
|
|
$
|
(45
|
)
|
|
$
|
—
|
|
|
$
|
(45
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
|
|
GMDB and GMIB
|
|
—
|
|
|
—
|
|
|
—
|
|
GMWB
|
|
1,140
|
|
|
(1,109
|
)
|
|
31
|
|
GMAB
|
|
42
|
|
|
(39
|
)
|
|
3
|
|
DAC and DSIC amortization
(4)
|
|
N/A
|
|
|
N/A
|
|
|
(3
|
)
|
Total variable annuity riders
|
|
1,182
|
|
|
(1,148
|
)
|
|
31
|
|
Macro hedge program
(5)
|
|
—
|
|
|
1
|
|
|
1
|
|
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products
|
|
69
|
|
|
—
|
|
|
69
|
|
Brokerage client cash balances
|
|
155
|
|
|
—
|
|
|
155
|
|
Certificates
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Indexed universal life insurance
|
|
62
|
|
|
1
|
|
|
63
|
|
Total
|
|
$
|
1,421
|
|
|
$
|
(1,146
|
)
|
|
$
|
272
|
|
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 on DAC and DSIC amortization resulting from lower projected profits, we have not changed our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumed management follows 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.
(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.
The above results compare to an estimated negative net impact to pretax income of $417 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $170 million related to a 100 basis point increase in interest rates as of
December 31, 2015
.
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. The nonperformance spread risk is not hedged.
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 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 10 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 and indexed universal life 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 and indexed universal life insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of our nonperformance risk. The nonperformance risk adjustment is based on observable market data adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of
March 31, 2016
. 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 net income would be approximately $348 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on
March 31, 2016
credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the
three
months ended
March 31, 2016
. At
March 31, 2016
and
December 31, 2015
, we had $2.6 billion and $2.4 billion, respectively, in cash and cash equivalents excluding CIEs. We have additional liquidity available through an unsecured revolving credit facility for up to $500 million that expires in May 2020. Under the terms of the credit agreement, we can increase this facility to $750 million upon satisfaction of certain approval requirements. Available borrowings under this facility are reduced by any outstanding letters of credit. At
March 31, 2016
, we had no outstanding borrowings under this credit facility and had $1 million of outstanding letters of credit. Our junior subordinated notes due 2066 and credit facility contain various administrative, reporting, legal and financial covenants. We were in compliance with all such covenants at
March 31, 2016
.
During the first quarter of 2016, we extinguished $16 million of our junior subordinated notes due 2066 in open market transactions and recognized a gain of less than $1 million.
On May 2, 2016, we notified the holders of our outstanding junior subordinated notes due 2066 of our intention to redeem the notes on June 1, 2016, at a redemption price equal to 100% of the principal balance of the notes plus accrued and compounded interest, if any. The balance of the junior subordinated notes due 2066 is currently $229 million (at an interest rate of 7.518%) and upon completion of the redemption, none of these notes will remain outstanding.
We enter into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances, to reduce reinvestment risk. Short-term borrowings allow us to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at both
March 31, 2016
and
December 31, 2015
was $50 million, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from our investment portfolio. Our subsidiary, RiverSource Life Insurance Company (“RiverSource Life”), is a member of the FHLB of Des Moines, which provides access to collateralized borrowings. As of both
March 31, 2016
and
December 31, 2015
, we had $150 million of borrowings from the FHLB, which is collateralized with commercial mortgage backed securities. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), AMPF Holding Corporation, which is the parent company of our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”) and our clearing broker-dealer subsidiary, American Enterprise Investment Services, Inc. (“AEIS”), our Auto and Home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, our transfer agent subsidiary, Columbia Management Investment Services Corp., our investment advisory company, Columbia Management Investment Advisers, LLC, and 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
|
|
March 31, 2016
|
|
December 31, 2015
|
|
March 31, 2016
|
|
December 31, 2015
|
|
(in millions)
|
RiverSource Life
(1)(2)
|
$
|
3,951
|
|
|
$
|
3,800
|
|
|
N/A
|
|
|
$
|
589
|
|
RiverSource Life of NY
(1)(2)
|
369
|
|
|
333
|
|
|
N/A
|
|
|
44
|
|
IDS Property Casualty
(1)(3)
|
753
|
|
|
684
|
|
|
$
|
213
|
|
|
214
|
|
Ameriprise Insurance Company
(1)(3)
|
46
|
|
|
46
|
|
|
2
|
|
|
2
|
|
ACC
(4)(5)
|
291
|
|
|
274
|
|
|
277
|
|
|
258
|
|
Threadneedle Asset Management Holdings Sàrl
(6)
|
410
|
|
|
285
|
|
|
161
|
|
|
165
|
|
Ameriprise National Trust Bank
(7)
|
24
|
|
|
36
|
|
|
10
|
|
|
10
|
|
AFSI
(3)(4)
|
139
|
|
|
93
|
|
|
#
|
|
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#
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Ameriprise Captive Insurance Company
(3)
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56
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54
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14
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|
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11
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|
Ameriprise Trust Company
(3)
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27
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27
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|
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22
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|
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22
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|
AEIS
(3)(4)
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114
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110
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21
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|
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52
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RiverSource Distributors, Inc.
(3)(4)
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14
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|
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15
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|
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#
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#
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Columbia Management Investment Distributors, Inc.
(3)(4)
|
17
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17
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#
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#
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N/A Not applicable.
# Amounts are less than $1 million.
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(1)
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Actual capital is determined on a statutory basis.
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(2)
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Regulatory capital requirement is based on the statutory risk-based capital filing.
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(3)
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Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of
March 31, 2016
and
December 31, 2015
.
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(4)
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Actual capital is determined on an adjusted GAAP basis.
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(5)
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ACC is required to hold capital in compliance with the Minnesota Department of Commerce and SEC capital requirements.
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(6)
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Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. The regulatory capital requirements at
March 31, 2016
represent calculations at
December 31, 2015
of the rule based requirements, as specified by FCA regulations.
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(7)
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Ameriprise National Trust Bank is required to maintain capital in compliance with the Office of the Comptroller of the Currency regulations and policies.
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In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our parent holding company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries.
During the
three
months ended
March 31, 2016
, the parent holding company received cash dividends or a return of capital from its subsidiaries of $546 million (including $400 million from RiverSource Life) and contributed cash to its subsidiaries of $93 million (including $75 million to IDS Property Casualty). During the
three
months ended
March 31, 2015
, the parent holding company received cash dividends or a return of capital from its subsidiaries of $416 million (including $225 million from RiverSource Life) and contributed cash to its subsidiaries of $195 million (including $175 million to IDS Property Casualty).
Dividends Paid to Shareholders and Share Repurchases
We paid regular quarterly dividends to our shareholders totaling $117 million and $110 million for the
three
months ended
March 31, 2016
and
2015
, respectively. On April 27,
2016
, we announced a quarterly dividend of $0.75 per common share. The dividend will be paid on May 20,
2016
to our shareholders of record at the close of business on May 9,
2016
.
In April 2014, our Board of Directors authorized an expenditure of up to $2.5 billion for the repurchase of shares of our common stock through April 28, 2016, which was exhausted in the three months ended March 31, 2016. In December 2015, our Board of Directors authorized us to repurchase up to an additional $2.5 billion of our common stock through December 31, 2017. As of
March 31, 2016
, we had $2.2 billion remaining under our share repurchase authorization. We intend to fund share repurchases through existing working capital, future earnings and other customary financing methods. The share repurchase programs do 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 programs may be made in the open market, through privately negotiated transactions or block trades or other means. During the
three
months ended
March 31, 2016
, we repurchased a total of 5.1 million shares of our common stock at an average price of $87.84 per share.
AMERIPRISE FINANCIAL, INC.
Cash Flows
Cash flows of CIEs 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. As such, the operating, investing and financing cash flows of the CIEs have no impact to the change in cash and cash equivalents.
Operating Activities
Net cash provided by operating activities decreased $292 million to $621 million for the
three
months ended
March 31, 2016
compared to $913 million for the prior year period primarily due to a $218 million decrease in cash from changes in brokerage deposits and a $134 million decrease in cash from changes in amounts due to brokers, partially offset by a $148 million increase in cash from changes in restricted and segregated cash and investments.
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 provided by investing activities decreased $180 million to $2 million for the
three
months ended
March 31, 2016
compared to $182 million for the prior year period primarily reflecting a $289 million decrease in proceeds from sales and maturities, sinking fund payments and calls of Available-for-Sale securities and a $159 million increase in cash used for purchases of Available-for-Sale securities, partially offset by a $247 million increase in proceeds from sales, maturities and repayments of mortgage loans reflecting the sale of a portion of our consumer loans in the first quarter of 2016.
Financing Activities
Net cash used in financing activities decreased $586 million to $319 million for the
three
months ended
March 31, 2016
compared to $905 million for the prior year period. Net cash inflows related to investment certificates increased $249 million compared to the prior year period due to higher proceeds from additions, partially offset by higher maturities, withdrawals and cash surrenders. Cash outflows from surrenders and other benefits of policyholder account balances decreased $291 million compared to the prior year period. Net cash outflows related to noncontrolling interests decreased $102 million compared to the prior year period.
Contractual Commitments
There have been no material changes to our contractual obligations disclosed in our
2015
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 private equity funds, which are sponsored by us. We consolidate certain CLOs. We have determined that consolidation is not required for certain CLOs, hedge funds, property funds and private equity funds which are sponsored by us. Prior to January 1, 2016, we consolidated property funds. 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 2 and Note 3 to our Consolidated Financial Statements for additional information on our arrangements with these investment entities.
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:
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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;
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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
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statements of assumptions underlying such statements.
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The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.
AMERIPRISE FINANCIAL, INC.
Such factors include, but are not limited to:
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conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
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changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented 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) plan, plan sponsors, plan participants and the holders of individual retirement or health savings accounts;
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investment management performance and distribution partner and consumer acceptance of the Company’s products;
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effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;
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changes to the Company’s reputation that may arise from employee or advisor misconduct, legal or regulatory actions, perceptions of the financial services industry generally, improper management of conflicts of interest or otherwise;
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the Company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the Company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;
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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;
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risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;
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experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity and 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;
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changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
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the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its products;
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•
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the ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures, restructurings, joint ventures and the development of new products and services;
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the ability to realize the financial, operating and business fundamental benefits of strategic transactions and initiatives the Company has completed, is pursuing or may pursue in the future, which may be impacted by the ability to obtain regulatory approvals, the ability to effectively manage related expenses and by market, business partner and consumer reactions to such strategic transactions and initiatives;
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the ability and timing to realize savings and other benefits from re-engineering and tax planning;
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interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third-party service providers, interference or failures caused by third party attacks on the Company’s systems, or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
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general economic and political factors, including consumer confidence in the economy and the financial industry, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, 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.
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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
AMERIPRISE FINANCIAL, INC.
should be read in conjunction with the “Risk Factors” discussion included in Part I, Item 1A of our
2015
10-K
and Part II, Item 1A of this Form 10-Q
.
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.