NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Basis of Presentation
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through Threadneedle Asset Management Holdings Sàrl and Ameriprise Asset Management Holdings GmbH (collectively, “Threadneedle”).
The
accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation.
The
interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for fair statement of the consolidated results of operations and financial position for the interim periods have been made. Except for the out-of-period correction described below and the prior period adjustments for the retrospective adoption of the new revenue recognition accounting standard, all adjustments made were of a normal recurring nature.
In
the first quarter of 2017, the Company recorded a
$20 million
decrease to income tax provision related to an out-of-period correction for a reversal of a tax reserve.
The
accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
, filed with the Securities and Exchange Commission (“SEC”) on
February 23, 2018
(“
2017
10-K”).
The
Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions were identified.
On January 1, 2018, the Company retrospectively adopted the new accounting standard for revenue recognition. See Note 2 and Note 3 for further information on the new accounting standard and the Company’s revenue from contracts with customers. The following table presents the impact to the consolidated statements of operations for the prior period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Previously Reported
|
|
Effect of Change
|
|
As Adjusted
|
(in millions)
|
Revenues
|
|
|
|
|
|
Management and financial advice fees
|
$
|
1,482
|
|
|
$
|
5
|
|
|
$
|
1,487
|
|
Distribution fees
|
443
|
|
|
(2
|
)
|
|
441
|
|
Net investment income
|
391
|
|
|
—
|
|
|
391
|
|
Premiums
|
339
|
|
|
—
|
|
|
339
|
|
Other revenues
|
256
|
|
|
22
|
|
|
278
|
|
Total revenues
|
2,911
|
|
|
25
|
|
|
2,936
|
|
Banking and deposit interest expense
|
10
|
|
|
—
|
|
|
10
|
|
Total net revenues
|
2,901
|
|
|
25
|
|
|
2,926
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Distribution expenses
|
823
|
|
|
—
|
|
|
823
|
|
Interest credited to fixed accounts
|
162
|
|
|
—
|
|
|
162
|
|
Benefits, claims, losses and settlement expenses
|
567
|
|
|
—
|
|
|
567
|
|
Amortization of deferred acquisition costs
|
72
|
|
|
—
|
|
|
72
|
|
Interest and debt expense
|
50
|
|
|
—
|
|
|
50
|
|
General and administrative expense
|
752
|
|
|
25
|
|
|
777
|
|
Total expenses
|
2,426
|
|
|
25
|
|
|
2,451
|
|
Pretax income
|
475
|
|
|
—
|
|
|
475
|
|
Income tax provision
|
72
|
|
|
—
|
|
|
72
|
|
Net income
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
403
|
|
The impact to the consolidated balance sheet as of
December 31, 2017
was a
$10 million
increase to total assets, a
$13 million
increase to total liabilities and a
$3 million
decrease to retained earnings.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
2.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) updated the accounting standards for revenue from contracts with customers. The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company adopted the revenue recognition guidance on a retrospective basis on January 1, 2018. The update does not apply to revenue associated with the manufacturing of insurance and annuity products or financial instruments as these revenues are in the scope of other standards. Therefore, the update did not have an impact on these revenues. The Company’s implementation efforts included the identification of revenue within the guidance and the review of the customer contracts to determine the Company’s performance obligation and the associated timing of each performance obligation. The Company determined that certain payments received primarily related to franchise advisor fees should be presented as revenue rather than a reduction of expense. The adoption of the standard did not have other material impacts on the Company’s consolidated results of operations and financial condition. The impact of the change was an increase to both revenues and expenses of
$25 million
for the three months ended March 31, 2017. See Note 3 for new disclosures on revenue from contracts with customers.
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of these financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. The Company adopted the standard on January 1, 2018 using a modified retrospective approach. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
Future Adoption of New Accounting Standards
Income Statement – Reporting Comprehensive Income
In February 2018, the FASB updated the accounting standards related to the presentation of tax effects stranded in other comprehensive income (“OCI”). The update allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for tax effects stranded in AOCI resulting from the legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The update is optional and entities may elect not to reclassify the stranded tax effects. The update is effective for fiscal years beginning after December 15, 2018. Entities may elect to record the impacts either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. Early adoption is permitted in any period. The Company is currently evaluating whether it will elect to reclassify the stranded tax effects and the potential impact to the consolidated financial condition.
Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new disclosures and amends existing disclosure requirements. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Receivables – Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB updated the accounting standards to shorten the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, premiums are generally amortized over the contractual life of the security. The amendments require the premium to be amortized to the earliest call date. The update applies to securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment
In January 2017, the FASB updated the accounting standards to simplify the accounting for goodwill impairment. The update removes the hypothetical purchase price allocation (Step 2) of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for interim and annual periods beginning after December 15, 2019, and should be applied prospectively with early adoption permitted for any impairment tests performed after January 1, 2017. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Financial Instruments – Measurement of Credit Losses
In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. Generally, the initial estimate of the expected credit losses and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The current credit loss model for Available-for-Sale debt securities does not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Leases – Recognition of Lease Assets and Liabilities on Balance Sheet
In February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard will require most lease transactions for lessees to be recorded on the balance sheet as lease assets and lease liabilities and both quantitative and qualitative disclosures about leasing arrangements. The Company discloses information related to operating lease arrangements within Note 23 of the
2017
10-K. The standard is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
3.
Revenue from Contracts with Customers
On January 1, 2018, the Company adopted the new accounting standard for revenue from contracts with customers on a retrospective basis. See Note 2 for additional information on the adoption of the new accounting standard.
The following tables present revenue disaggregated by segment on an adjusted operating basis with a reconciliation of segment revenues to those reported on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
Advice & Wealth Management
|
|
Asset Management
|
|
Annuities
|
|
Protection
|
|
Corporate & Other
|
|
Total Segments
|
|
Non-operating Revenue
|
|
Total
|
(in millions)
|
Management and financial advice fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
480
|
|
|
$
|
—
|
|
|
$
|
480
|
|
Institutional
|
—
|
|
|
111
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
111
|
|
Advisory fees
|
691
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
691
|
|
|
—
|
|
|
691
|
|
Financial planning fees
|
68
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
68
|
|
Transaction and other fees
|
89
|
|
|
48
|
|
|
14
|
|
|
2
|
|
|
—
|
|
|
153
|
|
|
—
|
|
|
153
|
|
Total management and financial advice fees
|
848
|
|
|
639
|
|
|
14
|
|
|
2
|
|
|
—
|
|
|
1,503
|
|
|
—
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
190
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
259
|
|
|
—
|
|
|
259
|
|
Insurance and annuity
|
222
|
|
|
45
|
|
|
84
|
|
|
8
|
|
|
—
|
|
|
359
|
|
|
—
|
|
|
359
|
|
Other products
|
145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
145
|
|
|
—
|
|
|
145
|
|
Total distribution fees
|
557
|
|
|
114
|
|
|
84
|
|
|
8
|
|
|
—
|
|
|
763
|
|
|
—
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
41
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
42
|
|
Total revenue from contracts with customers
|
1,446
|
|
|
754
|
|
|
98
|
|
|
10
|
|
|
—
|
|
|
2,308
|
|
|
—
|
|
|
2,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from other sources
(1)
|
71
|
|
|
24
|
|
|
515
|
|
|
509
|
|
|
58
|
|
|
1,177
|
|
|
61
|
|
|
1,238
|
|
Total segment gross revenues
|
1,517
|
|
|
778
|
|
|
613
|
|
|
519
|
|
|
58
|
|
|
3,485
|
|
|
61
|
|
|
3,546
|
|
Less: Banking and deposit interest expense
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Total segment net revenues
|
1,501
|
|
|
778
|
|
|
613
|
|
|
519
|
|
|
57
|
|
|
3,468
|
|
|
61
|
|
|
3,529
|
|
Less: intersegment revenues
|
240
|
|
|
12
|
|
|
90
|
|
|
16
|
|
|
(1
|
)
|
|
357
|
|
|
4
|
|
|
361
|
|
Total net revenues
|
$
|
1,261
|
|
|
$
|
766
|
|
|
$
|
523
|
|
|
$
|
503
|
|
|
$
|
58
|
|
|
$
|
3,111
|
|
|
$
|
57
|
|
|
$
|
3,168
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Advice & Wealth Management
|
|
Asset Management
|
|
Annuities
|
|
Protection
|
|
Corporate & Other
|
|
Total Segments
|
|
Non-operating Revenue
|
|
Total
|
(in millions)
|
Management and financial advice fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
440
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
440
|
|
|
$
|
—
|
|
|
$
|
440
|
|
Institutional
|
—
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101
|
|
|
—
|
|
|
101
|
|
Advisory fees
|
570
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
570
|
|
|
—
|
|
|
570
|
|
Financial planning fees
|
64
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
—
|
|
|
64
|
|
Transaction and other fees
|
89
|
|
|
51
|
|
|
13
|
|
|
2
|
|
|
—
|
|
|
155
|
|
|
—
|
|
|
155
|
|
Total management and financial advice fees
|
723
|
|
|
592
|
|
|
13
|
|
|
2
|
|
|
—
|
|
|
1,330
|
|
|
—
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
208
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
288
|
|
|
—
|
|
|
288
|
|
Insurance and annuity
|
199
|
|
|
41
|
|
|
78
|
|
|
8
|
|
|
—
|
|
|
326
|
|
|
—
|
|
|
326
|
|
Other products
|
109
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109
|
|
|
—
|
|
|
109
|
|
Total distribution fees
|
516
|
|
|
121
|
|
|
78
|
|
|
8
|
|
|
—
|
|
|
723
|
|
|
—
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
37
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Total revenue from contracts with customers
|
1,276
|
|
|
714
|
|
|
91
|
|
|
10
|
|
|
—
|
|
|
2,091
|
|
|
—
|
|
|
2,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from other sources
(1)
|
55
|
|
|
11
|
|
|
517
|
|
|
511
|
|
|
57
|
|
|
1,151
|
|
|
45
|
|
|
1,196
|
|
Total segment gross revenues
|
1,331
|
|
|
725
|
|
|
608
|
|
|
521
|
|
|
57
|
|
|
3,242
|
|
|
45
|
|
|
3,287
|
|
Less: Banking and deposit interest expense
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Total segment net revenues
|
1,321
|
|
|
725
|
|
|
608
|
|
|
521
|
|
|
57
|
|
|
3,232
|
|
|
45
|
|
|
3,277
|
|
Less: intersegment revenues
|
237
|
|
|
11
|
|
|
84
|
|
|
15
|
|
|
—
|
|
|
347
|
|
|
4
|
|
|
351
|
|
Total net revenues
|
$
|
1,084
|
|
|
$
|
714
|
|
|
$
|
524
|
|
|
$
|
506
|
|
|
$
|
57
|
|
|
$
|
2,885
|
|
|
$
|
41
|
|
|
$
|
2,926
|
|
(1)
Revenues not included in the scope of the revenue from contracts with customers standard. The amounts primarily consist of revenue associated with the manufacturing of insurance and annuity products or financial instruments.
The following discussion describes the nature, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers on a consolidated basis.
Management and Financial Advice Fees
Asset Management Fees
The Company earns revenue for performing asset management services for retail and institutional clients. The revenue is earned based on a fixed or tiered rate applied, as a percentage, to assets under management. Assets under management vary with market fluctuations and client behavior. The asset management performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Asset management fees are accrued, invoiced and collected on a monthly or quarterly basis.
The Company’s asset management contracts for Open Ended Investment Companies (“OEICs”) in the UK and
Société d'Investissement à Capital Variable
(“SICAVs”) in Europe include performance obligations for asset management and fund distribution services. The amounts received for these services are reported as management and financial advice fees. The revenue recognition pattern is the same for both performance obligations as the fund distribution services revenue is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment) and not recognized until assets under management are known.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property funds based on a percentage of account returns in excess of either a benchmark index or a contractually specified level. This revenue is variable and impacted primarily by the performance of the assets being managed compared to the benchmark index or contractually specified level. The revenue is not recognized until it is probable that a significant reversal will not occur. Performance-based management fees are invoiced on a quarterly or annual basis.
Advisory Fees
The Company earns revenue for performing investment advisory services for certain brokerage customer’s discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are accrued daily and invoiced or charged on a monthly or quarterly basis.
Financial Planning Fees
The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly or quarterly) based on a contractual fixed rate applied, as a percentage, to assets held in a client’s investment advisory account. The financial planning fee is based on the complexity of a client’s financial and life situation and his or her advisor’s experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual period.
For fixed fee arrangements, revenue is recognized when the financial plan is delivered. The Company accrues revenue for any amounts that have not been received at the time the financial plan is delivered.
For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company’s control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month or quarter end as the advisory account balance uncertainty is resolved.
Contract liabilities for financial planning fees, which are included in other liabilities in the Consolidated Balance Sheets, were
$133 million
and
$134 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
The Company pays sales commissions to advisors when a new financial planning contract is obtained or when an existing contract is renewed. The sales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a customer and are initially capitalized. When the performance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in other assets in the Consolidated Balance Sheets, and were
$107 million
and
$109 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
Transaction and Other Fees
The Company earns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to assets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue is earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a quarterly or annual fixed fee for each account. Each of the customer support and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to brokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. Contract liabilities for custodial service fees, which are included in other liabilities in the Consolidated Balance Sheets, were
$48 million
and
nil
as of March 31, 2018 and December 2017, respectively.
The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.
Distribution Fees
Mutual Funds and Insurance and Annuity Products
The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company’s advisors or to support availability and distribution of their products on the Company’s platforms. These payments allow the outside parties to train and support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and operational systems necessary to enable the Company’s client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies’ products on the Company’s sales platform (subject to the Company’s due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.
Other Products
The Company earns revenue for selling unaffiliated alternative products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that include the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted).
The Company earns revenue for placing clients’ deposits in its brokerage sweep program with third-party banks. The amount received from the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.
Other Revenues
The Company earns revenue from fees charged to franchise advisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees received from the advisors. The fees are primarily collected monthly as a reduction of commission payments.
Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested. Prior to the implementation of the revenue recognition standard, fees received from the advisors for software licenses, compliance supervision, technology services and support, consulting, and other services were recorded as a reduction to the Company’s expenses to provide the services and totaled
$26 million
and
$24 million
for the three months ended
March 31, 2018
and
2017
, respectively.
Receivables
Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were
$638 million
and
$657 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
4.
Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds, certain non-U.S. series funds (OEICs and SICAVs) and private equity funds (collectively, “investment entities”), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, “consolidated investment entities”) if the Company is deemed to be the primary beneficiary. The Company has
no
obligation to provide financial or other support to the non-consolidated VIEs beyond its investment nor has the Company provided any support to these entities.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes of certain CLOs.
The Company’s maximum exposure to loss with respect to non-consolidated CLOs is limited to its amortized cost, which was
$6 million
as of both
March 31, 2018
and
December 31, 2017
. The Company classifies these investments as Available-for-Sale securities. See Note 5 for additional information on these investments.
Property Funds
The Company provides investment advice and related services to property funds some of which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not have a significant economic interest and is not required to consolidate any of the property funds. The carrying value of the Company’s investment in property funds is reflected in other investments and was
$25 million
and
$24 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
Hedge Funds and Private Equity Funds
The Company has determined that consolidation is not required for hedge funds and private equity funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services and the Company does not have a significant economic interest in any fund. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in these entities is reflected in other investments and was
$7 million
as of both
March 31, 2018
and
December 31, 2017
.
Non-U.S. Series Funds
The Company manages non-U.S. series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company’s investment in these funds is reflected in other investments and was
$29 million
and
$25 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.
A majority of the limited partnerships are VIEs. The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was
$397 million
and
$408 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The Company had an
$80 million
and a
$97 million
liability recorded as of
March 31, 2018
and
December 31, 2017
, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the above mentioned funding commitments.
Structured Investments
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its carrying value. See Note 5 for additional information on these structured investments.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fair Value of Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 11 for the definition of the three levels of the fair value hierarchy.
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Assets
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
24
|
|
Common stocks
|
25
|
|
|
5
|
|
|
11
|
|
|
41
|
|
Other investments
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Syndicated loans
|
—
|
|
|
1,842
|
|
|
200
|
|
|
2,042
|
|
Total investments
|
29
|
|
|
1,871
|
|
|
211
|
|
|
2,111
|
|
Receivables
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Total assets at fair value
|
$
|
29
|
|
|
$
|
1,891
|
|
|
$
|
211
|
|
|
$
|
2,131
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Debt
(1)
|
$
|
—
|
|
|
$
|
2,174
|
|
|
$
|
—
|
|
|
$
|
2,174
|
|
Other liabilities
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
2,210
|
|
|
$
|
—
|
|
|
$
|
2,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Assets
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
27
|
|
Common stocks
|
18
|
|
|
8
|
|
|
4
|
|
|
30
|
|
Other investments
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Syndicated loans
|
—
|
|
|
1,889
|
|
|
180
|
|
|
2,069
|
|
Total investments
|
23
|
|
|
1,924
|
|
|
184
|
|
|
2,131
|
|
Receivables
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Total assets at fair value
|
$
|
23
|
|
|
$
|
1,949
|
|
|
$
|
184
|
|
|
$
|
2,156
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Debt
(1)
|
$
|
—
|
|
|
$
|
2,206
|
|
|
$
|
—
|
|
|
$
|
2,206
|
|
Other liabilities
|
—
|
|
|
63
|
|
|
—
|
|
|
63
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
2,269
|
|
|
$
|
—
|
|
|
$
|
2,269
|
|
|
|
(1)
|
The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was
$2.1 billion
and
$2.2 billion
as of
March 31, 2018
and
December 31, 2017
, respectively.
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
Syndicated Loans
|
|
(in millions)
|
Balance, January 1, 2018
|
$
|
4
|
|
|
$
|
180
|
|
|
Total gains (losses) included in:
|
|
|
|
|
Net income
|
4
|
|
(1)
|
2
|
|
(1)
|
Purchases
|
—
|
|
|
18
|
|
|
Sales
|
—
|
|
|
(1
|
)
|
|
Settlements
|
—
|
|
|
(11
|
)
|
|
Transfers into Level 3
|
4
|
|
|
61
|
|
|
Transfers out of Level 3
|
(1
|
)
|
|
(49
|
)
|
|
Balance, March 31, 2018
|
$
|
11
|
|
|
$
|
200
|
|
|
Changes in unrealized gains (losses) included in income relating to assets held at
March 31, 2018
|
$
|
4
|
|
(1)
|
$
|
2
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities
|
|
Common Stocks
|
|
Syndicated Loans
|
|
(in millions)
|
Balance at January 1, 2017
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
254
|
|
|
Total gains (losses) included in:
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
3
|
|
(1)
|
Purchases
|
—
|
|
|
—
|
|
|
55
|
|
|
Sales
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
Settlements
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
Transfers into Level 3
|
2
|
|
|
1
|
|
|
72
|
|
|
Transfers out of Level 3
|
—
|
|
|
(2
|
)
|
|
(130
|
)
|
|
Balance, March 31, 2017
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
223
|
|
|
Changes in unrealized gains (losses) included in income relating to assets held at March 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
(1)
|
(1)
Included in net investment income in the Consolidated Statements of Operations.
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were
no
transfers between Level 1 and Level 2.
All Level 3 measurements as of
March 31, 2018
and
December 31, 2017
were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
annual due diligence of the third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
See Note 11 for a description of the Company’s determination of the fair value of corporate debt securities, common stocks and other investments.
Receivables
For
receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
Liabilities
Debt
The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The fair value of the CLOs’ debt is classified as Level 2.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.
Fair Value Option
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.
The following
table
presents
the
fair
value
and
unpaid
principal
balance
of
loans
and
debt
for
which
the
fair
value
option
has
been
elected:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Syndicated loans
|
|
|
|
Unpaid principal balance
|
$
|
2,097
|
|
|
$
|
2,140
|
|
Excess unpaid principal over fair value
|
(55
|
)
|
|
(71
|
)
|
Fair value
|
$
|
2,042
|
|
|
$
|
2,069
|
|
Fair value of loans more than 90 days past due
|
$
|
21
|
|
|
$
|
24
|
|
Fair value of loans in nonaccrual status
|
21
|
|
|
24
|
|
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
|
36
|
|
|
35
|
|
|
|
|
|
Debt
|
|
|
|
Unpaid principal balance
|
$
|
2,290
|
|
|
$
|
2,340
|
|
Excess unpaid principal over fair value
|
(116
|
)
|
|
(134
|
)
|
Carrying value
(1)
|
$
|
2,174
|
|
|
$
|
2,206
|
|
(1)
The carrying value of the CLOs’ debt
is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was
$2.1 billion
and
$2.2 billion
as of
March 31, 2018
and
December 31, 2017
, respectively.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.
Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were
$(1) million
and
$(3) million
for the
three
months ended
March 31, 2018
and
2017
, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Debt of the consolidated investment entities and the stated interest rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Weighted Average Interest Rate
|
March 31,
2018
|
|
December 31,
2017
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
|
Debt of consolidated CLOs due 2025-2026
|
$
|
2,174
|
|
|
$
|
2,206
|
|
|
3.1
|
%
|
|
2.8
|
%
|
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from
0%
to
7.8%
. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
5.
Investments
The following is a summary of Ameriprise Financial investments:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Available-for-Sale securities, at fair value
|
$
|
30,319
|
|
|
$
|
30,927
|
|
Mortgage loans, net
|
2,721
|
|
|
2,756
|
|
Policy and certificate loans
|
844
|
|
|
845
|
|
Other investments
|
1,436
|
|
|
1,397
|
|
Total
|
$
|
35,320
|
|
|
$
|
35,925
|
|
Other investments primarily reflect the Company’s interests in affordable housing partnerships, trading securities, seed money investments, syndicated loans and held-to-maturity certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months. As of January 1, 2018, marketable equity securities were reclassified from Available-for-Sale securities to other investments due to the adoption of a new accounting standard on the recognition and measurement of financial instruments. The carrying value of held-to-maturity certificates of deposit was
$230 million
and
$205 million
as of
March 31, 2018
and
December 31, 2017
, respectively, which approximates fair value due to the short time between the purchase of the instrument and its expected realization.
The following is a summary of net investment income:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Investment income on fixed maturities
|
$
|
329
|
|
|
$
|
337
|
|
Net realized gains (losses)
|
6
|
|
|
17
|
|
Affordable housing partnerships
|
(11
|
)
|
|
(12
|
)
|
Other
|
46
|
|
|
24
|
|
Consolidated investment entities
|
26
|
|
|
25
|
|
Total
|
$
|
396
|
|
|
$
|
391
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Available-for-Sale securities distributed by type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Securities
|
March 31, 2018
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Noncredit OTTI
(1)
|
|
(in millions)
|
Corporate debt securities
|
$
|
13,676
|
|
|
$
|
858
|
|
|
$
|
(100
|
)
|
|
$
|
14,434
|
|
|
$
|
—
|
|
Residential mortgage backed securities
|
6,031
|
|
|
41
|
|
|
(80
|
)
|
|
5,992
|
|
|
—
|
|
Commercial mortgage backed securities
|
4,395
|
|
|
25
|
|
|
(100
|
)
|
|
4,320
|
|
|
—
|
|
Asset backed securities
|
1,502
|
|
|
30
|
|
|
(9
|
)
|
|
1,523
|
|
|
—
|
|
State and municipal obligations
|
2,192
|
|
|
217
|
|
|
(14
|
)
|
|
2,395
|
|
|
—
|
|
U.S. government and agencies obligations
|
1,372
|
|
|
1
|
|
|
—
|
|
|
1,373
|
|
|
—
|
|
Foreign government bonds and obligations
|
273
|
|
|
14
|
|
|
(5
|
)
|
|
282
|
|
|
—
|
|
Total
|
$
|
29,441
|
|
|
$
|
1,186
|
|
|
$
|
(308
|
)
|
|
$
|
30,319
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Securities
|
December 31, 2017
|
Amortized Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair Value
|
|
Noncredit OTTI
(1)
|
|
(in millions)
|
Corporate debt securities
|
$
|
13,976
|
|
|
$
|
1,131
|
|
|
$
|
(32
|
)
|
|
$
|
15,075
|
|
|
$
|
—
|
|
Residential mortgage backed securities
|
6,585
|
|
|
63
|
|
|
(37
|
)
|
|
6,611
|
|
|
—
|
|
Commercial mortgage backed securities
|
4,362
|
|
|
48
|
|
|
(36
|
)
|
|
4,374
|
|
|
—
|
|
Asset backed securities
|
1,549
|
|
|
36
|
|
|
(5
|
)
|
|
1,580
|
|
|
1
|
|
State and municipal obligations
|
2,215
|
|
|
259
|
|
|
(11
|
)
|
|
2,463
|
|
|
—
|
|
U.S. government and agencies obligations
|
502
|
|
|
1
|
|
|
—
|
|
|
503
|
|
|
—
|
|
Foreign government bonds and obligations
|
298
|
|
|
20
|
|
|
(4
|
)
|
|
314
|
|
|
—
|
|
Common stocks
|
5
|
|
|
3
|
|
|
(1
|
)
|
|
7
|
|
|
—
|
|
Total
|
$
|
29,492
|
|
|
$
|
1,561
|
|
|
$
|
(126
|
)
|
|
$
|
30,927
|
|
|
$
|
1
|
|
|
|
(1)
|
Represents the amount of other-than-temporary impairment (“OTTI”) losses in AOCI. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
|
As of
March 31, 2018
and
December 31, 2017
, investment securities with a fair value of
$1.6 billion
and
$1.7 billion
, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which
$724 million
and
$803 million
, respectively,
may be sold, pledged or rehypothecated
by the counterparty.
As of both
March 31, 2018
and
December 31, 2017
, fixed maturity securities comprised approximately
86%
of Ameriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or, if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of
March 31, 2018
and
December 31, 2017
, the Company’s internal analysts rated
$936 million
and
$979 million
, respectively, of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings
|
March 31, 2018
|
|
December 31, 2017
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
Amortized Cost
|
|
Fair Value
|
|
Percent of Total Fair Value
|
|
(in millions, except percentages)
|
AAA
|
$
|
11,823
|
|
|
$
|
11,706
|
|
|
39
|
%
|
|
$
|
11,293
|
|
|
$
|
11,331
|
|
|
37
|
%
|
AA
|
1,688
|
|
|
1,862
|
|
|
6
|
|
|
1,898
|
|
|
2,114
|
|
|
7
|
|
A
|
4,398
|
|
|
4,705
|
|
|
15
|
|
|
4,760
|
|
|
5,243
|
|
|
17
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBB
|
10,355
|
|
|
10,868
|
|
|
36
|
|
|
10,317
|
|
|
10,989
|
|
|
35
|
|
Below investment grade
(1)
|
1,177
|
|
|
1,178
|
|
|
4
|
|
|
1,219
|
|
|
1,243
|
|
|
4
|
|
Total fixed maturities
|
$
|
29,441
|
|
|
$
|
30,319
|
|
|
100
|
%
|
|
$
|
29,487
|
|
|
$
|
30,920
|
|
|
100
|
%
|
|
|
(1)
|
The amortized cost and fair value of below investment grade securities includes interest in CLOs managed by the Company of
$6 million
and
$7 million
, respectively, at
March 31, 2018
, and
$6 million
and
$7 million
, respectively, at
December 31, 2017
. These securities are not rated but are included in below investment grade due to their risk characteristics.
|
As of
March 31, 2018
and
December 31, 2017
, approximately
33%
and
37%
, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.
No
holdings of any other issuer were greater than 10% of total equity.
The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Securities
|
March 31, 2018
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
(in millions, except number of securities)
|
Corporate debt securities
|
282
|
|
|
$
|
4,289
|
|
|
$
|
(63
|
)
|
|
64
|
|
|
$
|
656
|
|
|
$
|
(37
|
)
|
|
346
|
|
|
$
|
4,945
|
|
|
$
|
(100
|
)
|
Residential mortgage backed securities
|
163
|
|
|
2,716
|
|
|
(38
|
)
|
|
127
|
|
|
1,373
|
|
|
(42
|
)
|
|
290
|
|
|
4,089
|
|
|
(80
|
)
|
Commercial mortgage backed securities
|
127
|
|
|
2,272
|
|
|
(60
|
)
|
|
57
|
|
|
749
|
|
|
(40
|
)
|
|
184
|
|
|
3,021
|
|
|
(100
|
)
|
Asset backed securities
|
43
|
|
|
531
|
|
|
(6
|
)
|
|
22
|
|
|
158
|
|
|
(3
|
)
|
|
65
|
|
|
689
|
|
|
(9
|
)
|
State and municipal obligations
|
174
|
|
|
375
|
|
|
(6
|
)
|
|
34
|
|
|
182
|
|
|
(8
|
)
|
|
208
|
|
|
557
|
|
|
(14
|
)
|
Foreign government bonds and obligations
|
13
|
|
|
46
|
|
|
(1
|
)
|
|
12
|
|
|
19
|
|
|
(4
|
)
|
|
25
|
|
|
65
|
|
|
(5
|
)
|
Total
|
802
|
|
|
$
|
10,229
|
|
|
$
|
(174
|
)
|
|
316
|
|
|
$
|
3,137
|
|
|
$
|
(134
|
)
|
|
1,118
|
|
|
$
|
13,366
|
|
|
$
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Securities
|
December 31, 2017
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|
(in millions, except number of securities)
|
Corporate debt securities
|
150
|
|
|
$
|
1,791
|
|
|
$
|
(8
|
)
|
|
70
|
|
|
$
|
740
|
|
|
$
|
(24
|
)
|
|
220
|
|
|
$
|
2,531
|
|
|
$
|
(32
|
)
|
Residential mortgage backed securities
|
102
|
|
|
1,772
|
|
|
(11
|
)
|
|
130
|
|
|
1,467
|
|
|
(26
|
)
|
|
232
|
|
|
3,239
|
|
|
(37
|
)
|
Commercial mortgage backed securities
|
67
|
|
|
1,178
|
|
|
(12
|
)
|
|
58
|
|
|
783
|
|
|
(24
|
)
|
|
125
|
|
|
1,961
|
|
|
(36
|
)
|
Asset backed securities
|
36
|
|
|
424
|
|
|
(2
|
)
|
|
26
|
|
|
187
|
|
|
(3
|
)
|
|
62
|
|
|
611
|
|
|
(5
|
)
|
State and municipal obligations
|
76
|
|
|
141
|
|
|
(1
|
)
|
|
34
|
|
|
180
|
|
|
(10
|
)
|
|
110
|
|
|
321
|
|
|
(11
|
)
|
Foreign government bonds and obligations
|
3
|
|
|
6
|
|
|
—
|
|
|
15
|
|
|
23
|
|
|
(4
|
)
|
|
18
|
|
|
29
|
|
|
(4
|
)
|
Common stocks
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
1
|
|
|
(1
|
)
|
|
4
|
|
|
1
|
|
|
(1
|
)
|
Total
|
434
|
|
|
$
|
5,312
|
|
|
$
|
(34
|
)
|
|
337
|
|
|
$
|
3,381
|
|
|
$
|
(92
|
)
|
|
771
|
|
|
$
|
8,693
|
|
|
$
|
(126
|
)
|
As part of Ameriprise Financial’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is primarily attributable to a rise in interest rates as well as widening credit spreads.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in OCI:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Beginning balance
|
$
|
2
|
|
|
$
|
69
|
|
Credit losses for which an other-than-temporary impairment was previously recognized
|
—
|
|
|
1
|
|
Ending balance
|
$
|
2
|
|
|
$
|
70
|
|
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
|
Gross realized investment gains
|
$
|
6
|
|
|
$
|
19
|
|
Gross realized investment losses
|
(1
|
)
|
|
—
|
|
Other-than-temporary impairments
|
—
|
|
|
(1
|
)
|
Total
|
$
|
5
|
|
|
$
|
18
|
|
Other-than-temporary
impairments
for
the
three
months
ended
March 31, 2017
primarily
related
to
credit
losses
on
asset
backed
securities.
See
Note 14 for a rollforward of net unrealized investment gains (losses) included in AOCI.
Available-for-Sale securities by contractual maturity as of
March 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Fair Value
|
(in millions)
|
Due within one year
|
$
|
3,224
|
|
|
$
|
3,247
|
|
Due after one year through five years
|
6,425
|
|
|
6,507
|
|
Due after five years through 10 years
|
3,591
|
|
|
3,612
|
|
Due after 10 years
|
4,273
|
|
|
5,118
|
|
|
17,513
|
|
|
18,484
|
|
Residential mortgage backed securities
|
6,031
|
|
|
5,992
|
|
Commercial mortgage backed securities
|
4,395
|
|
|
4,320
|
|
Asset backed securities
|
1,502
|
|
|
1,523
|
|
Total
|
$
|
29,441
|
|
|
$
|
30,319
|
|
Actual
maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities were not included in the maturities distribution.
6.
Financing Receivables
The Company’s financing receivables primarily include commercial mortgage loans, syndicated loans, policy loans, certificate loans, advisor loans and margin loans. Commercial mortgage loans, syndicated loans, policy loans and certificate loans are reflected in investments. Advisor loans and margin loans are recorded in receivables.
Allowance for Loan Losses
Policy
and certificate loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy and certificate loans, the Company does not record an allowance for loan losses. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Commercial Mortgage Loans and Syndicated Loans
The following table presents a rollforward of the allowance for loan losses for the
three
months ended and the ending balance of the allowance for loan losses by impairment method:
|
|
|
|
|
|
|
|
|
|
March 31,
|
2018
|
|
2017
|
(in millions)
|
Beginning balance
|
$
|
26
|
|
|
$
|
29
|
|
Provisions
|
—
|
|
|
—
|
|
Ending balance
|
$
|
26
|
|
|
$
|
29
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
$
|
2
|
|
Collectively evaluated for impairment
|
26
|
|
|
27
|
|
The recorded investment in financing receivables by impairment method was as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Individually evaluated for impairment
|
$
|
17
|
|
|
$
|
17
|
|
Collectively evaluated for impairment
|
3,229
|
|
|
3,258
|
|
Total
|
$
|
3,246
|
|
|
$
|
3,275
|
|
As of both
March 31, 2018
and
December 31, 2017
, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was
$17 million
. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance.
During the
three
months ended
March 31, 2018
and
2017
, the Company purchased
$33 million
and
$70 million
, respectively, of syndicated loans, and sold
$3 million
and
nil
, respectively, of syndicated loans.
The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.
Loans to Financial Advisors
As of both
March 31, 2018
and
December 31, 2017
, principal amounts outstanding for advisor loans were
$509 million
, and allowance for loan losses were
$23 million
. The allowance for loan losses related to loans to financial advisors is not included in the table disclosures above. Of the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with the Company was
$18 million
and
$19 million
at
March 31, 2018
and
December 31, 2017
, respectively. The allowance for loan losses on these loans was
$12 million
at both
March 31, 2018
and
December 31, 2017
.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were
$21 million
and
$19 million
as of
March 31, 2018
and
December 31, 2017
, respectively. All other loans were considered to be performing.
Commercial Mortgage Loans
The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were
nil
of total commercial mortgage loans as of both
March 31, 2018
and
December 31, 2017
. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Percentage
|
March 31,
2018
|
|
December 31,
2017
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
|
|
|
|
East North Central
|
$
|
213
|
|
|
$
|
215
|
|
|
8
|
%
|
|
8
|
%
|
East South Central
|
89
|
|
|
90
|
|
|
3
|
|
|
3
|
|
Middle Atlantic
|
190
|
|
|
192
|
|
|
7
|
|
|
7
|
|
Mountain
|
251
|
|
|
256
|
|
|
9
|
|
|
9
|
|
New England
|
73
|
|
|
74
|
|
|
3
|
|
|
3
|
|
Pacific
|
801
|
|
|
812
|
|
|
29
|
|
|
29
|
|
South Atlantic
|
749
|
|
|
768
|
|
|
27
|
|
|
28
|
|
West North Central
|
231
|
|
|
235
|
|
|
9
|
|
|
8
|
|
West South Central
|
143
|
|
|
133
|
|
|
5
|
|
|
5
|
|
|
2,740
|
|
|
2,775
|
|
|
100
|
%
|
|
100
|
%
|
Less: allowance for loan losses
|
19
|
|
|
19
|
|
|
|
|
|
|
|
Total
|
$
|
2,721
|
|
|
$
|
2,756
|
|
|
|
|
|
|
|
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Percentage
|
March 31,
2018
|
|
December 31,
2017
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
|
|
|
|
Apartments
|
$
|
567
|
|
|
$
|
566
|
|
|
21
|
%
|
|
20
|
%
|
Hotel
|
40
|
|
|
40
|
|
|
1
|
|
|
1
|
|
Industrial
|
472
|
|
|
476
|
|
|
17
|
|
|
17
|
|
Mixed use
|
44
|
|
|
44
|
|
|
2
|
|
|
2
|
|
Office
|
470
|
|
|
492
|
|
|
17
|
|
|
18
|
|
Retail
|
930
|
|
|
937
|
|
|
34
|
|
|
34
|
|
Other
|
217
|
|
|
220
|
|
|
8
|
|
|
8
|
|
|
2,740
|
|
|
2,775
|
|
|
100
|
%
|
|
100
|
%
|
Less: allowance for loan losses
|
19
|
|
|
19
|
|
|
|
|
|
|
|
Total
|
$
|
2,721
|
|
|
$
|
2,756
|
|
|
|
|
|
|
|
Syndicated Loans
The recorded investment in syndicated loans as of
March 31, 2018
and
December 31, 2017
was
$506 million
and
$498 million
, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans as of both
March 31, 2018
and
December 31, 2017
were
$5 million
.
Troubled Debt Restructurings
The recorded investment in restructured loans was not material as of
March 31, 2018
and
December 31, 2017
. The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for the three months ended
March 31, 2018
and
2017
. There are
no
commitments to lend additional funds to borrowers whose loans have been restructured.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
7.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
The balances of and changes in
deferred acquisition costs (“DAC”)
were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
(in millions)
|
Balance at January 1
|
$
|
2,676
|
|
|
$
|
2,648
|
|
Capitalization of acquisition costs
|
79
|
|
|
67
|
|
Amortization
|
(92
|
)
|
|
(72
|
)
|
Impact of change in net unrealized securities (gains) losses
|
55
|
|
|
—
|
|
Balance at March 31
|
$
|
2,718
|
|
|
$
|
2,643
|
|
The balances of and changes in deferred sales inducement costs
(“DSIC”)
, which is included in other assets, were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
(in millions)
|
Balance at January 1
|
$
|
276
|
|
|
$
|
302
|
|
Capitalization of sales inducement costs
|
1
|
|
|
2
|
|
Amortization
|
(11
|
)
|
|
(9
|
)
|
Impact of change in net unrealized securities (gains) losses
|
9
|
|
|
—
|
|
Balance at March 31
|
$
|
275
|
|
|
$
|
295
|
|
8.
Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
Policyholder account balances, future policy benefits and claims consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Policyholder account balances
|
|
|
|
|
Fixed annuities
(1)
|
$
|
9,765
|
|
|
$
|
9,934
|
|
|
Variable annuity fixed sub-accounts
|
5,139
|
|
|
5,166
|
|
|
Variable universal life (“VUL”)/universal life (“UL”) insurance
|
3,041
|
|
|
3,047
|
|
|
Indexed universal life (“IUL”) insurance
|
1,469
|
|
|
1,384
|
|
|
Other life insurance
|
709
|
|
|
720
|
|
|
Total policyholder account balances
|
20,123
|
|
|
20,251
|
|
|
|
|
|
|
|
Future policy benefits
|
|
|
|
|
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)
|
202
|
|
|
463
|
|
|
Variable annuity guaranteed minimum accumulation benefits (“GMAB”)
|
(76
|
)
|
(2)
|
(80
|
)
|
(2)
|
Other annuity liabilities
|
31
|
|
|
78
|
|
|
Fixed annuity life contingent liabilities
|
1,473
|
|
|
1,484
|
|
|
Life and disability income insurance
|
1,217
|
|
|
1,221
|
|
|
Long term care insurance
|
4,860
|
|
|
4,896
|
|
|
VUL/UL and other life insurance additional liabilities
|
646
|
|
|
688
|
|
|
Total future policy benefits
|
8,353
|
|
|
8,750
|
|
|
Policy claims and other policyholders’ funds
|
888
|
|
|
903
|
|
|
Total policyholder account balances, future policy benefits and claims
|
$
|
29,364
|
|
|
$
|
29,904
|
|
|
(1)
Includes fixed deferred annuities, non-life contingent fixed payout annuities and indexed annuity host contracts.
(2)
Includes the fair value of GMAB embedded derivatives that was a net asset as of both
March 31, 2018
and December 31,
2017
reported as a contra liability.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Separate account liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Variable annuity
|
$
|
73,592
|
|
|
$
|
75,174
|
|
VUL insurance
|
7,215
|
|
|
7,352
|
|
Other insurance
|
33
|
|
|
34
|
|
Threadneedle investment liabilities
|
5,007
|
|
|
4,808
|
|
Total
|
$
|
85,847
|
|
|
$
|
87,368
|
|
9.
Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.
Certain UL policies offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.
The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Annuity
Guarantees
by Benefit Type
(1)
|
March 31, 2018
|
|
December 31, 2017
|
Total Contract Value
|
|
Contract Value in Separate Accounts
|
|
Net Amount
at Risk
|
|
Weighted Average
Attained Age
|
Total Contract Value
|
|
Contract Value in Separate Accounts
|
|
Net Amount
at Risk
|
|
Weighted Average
Attained Age
|
|
(in millions, except age)
|
GMDB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of premium
|
$
|
60,402
|
|
|
$
|
58,458
|
|
|
$
|
30
|
|
|
66
|
|
$
|
61,418
|
|
|
$
|
59,461
|
|
|
$
|
9
|
|
|
66
|
Five/six-year reset
|
8,603
|
|
|
5,890
|
|
|
18
|
|
|
66
|
|
8,870
|
|
|
6,149
|
|
|
12
|
|
|
66
|
One-year ratchet
|
6,330
|
|
|
5,970
|
|
|
43
|
|
|
69
|
|
6,548
|
|
|
6,187
|
|
|
11
|
|
|
69
|
Five-year ratchet
|
1,507
|
|
|
1,451
|
|
|
2
|
|
|
65
|
|
1,563
|
|
|
1,506
|
|
|
1
|
|
|
65
|
Other
|
1,088
|
|
|
1,066
|
|
|
64
|
|
|
72
|
|
1,099
|
|
|
1,075
|
|
|
50
|
|
|
72
|
Total — GMDB
|
$
|
77,930
|
|
|
$
|
72,835
|
|
|
$
|
157
|
|
|
66
|
|
$
|
79,498
|
|
|
$
|
74,378
|
|
|
$
|
83
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGU death benefit
|
$
|
1,093
|
|
|
$
|
1,041
|
|
|
$
|
126
|
|
|
70
|
|
$
|
1,118
|
|
|
$
|
1,067
|
|
|
$
|
133
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMIB
|
$
|
219
|
|
|
$
|
202
|
|
|
$
|
8
|
|
|
69
|
|
$
|
233
|
|
|
$
|
216
|
|
|
$
|
7
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB
|
$
|
2,386
|
|
|
$
|
2,378
|
|
|
$
|
1
|
|
|
71
|
|
$
|
2,508
|
|
|
$
|
2,500
|
|
|
$
|
1
|
|
|
71
|
GMWB for life
|
43,837
|
|
|
43,729
|
|
|
194
|
|
|
67
|
|
44,375
|
|
|
44,259
|
|
|
129
|
|
|
67
|
Total — GMWB
|
$
|
46,223
|
|
|
$
|
46,107
|
|
|
$
|
195
|
|
|
67
|
|
$
|
46,883
|
|
|
$
|
46,759
|
|
|
$
|
130
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAB
|
$
|
2,914
|
|
|
$
|
2,911
|
|
|
$
|
2
|
|
|
59
|
|
$
|
3,086
|
|
|
$
|
3,083
|
|
|
$
|
—
|
|
|
59
|
|
|
(1)
|
Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The net amount at risk for GMDB, GGU and GMAB is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB is defined as the greater of the present value of the minimum guaranteed annuity payments less the current contract value or zero. The net amount at risk for GMWB is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero.
The following table provides information related to insurance guarantees for which the Company has established additional liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Net Amount
at Risk
|
|
Weighted Average Attained Age
|
Net Amount
at Risk
|
|
Weighted Average Attained Age
|
(in millions, except age)
|
UL secondary guarantees
|
$
|
6,464
|
|
|
65
|
|
$
|
6,460
|
|
|
65
|
The net amount at risk for UL secondary guarantees is defined as the current guaranteed death benefit amount in excess of the current policyholder account balance.
Changes in additional liabilities (contra liabilities) for variable annuity and insurance guarantees were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMDB & GGU
|
|
GMIB
|
|
GMWB
(1)
|
|
GMAB
(1)
|
|
UL
|
(in millions)
|
Balance at January 1, 2017
|
$
|
16
|
|
|
$
|
8
|
|
|
$
|
1,017
|
|
|
$
|
(24
|
)
|
|
$
|
434
|
|
Incurred claims
|
1
|
|
|
—
|
|
|
(380
|
)
|
|
(29
|
)
|
|
23
|
|
Paid claims
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Balance at March 31, 2017
|
$
|
16
|
|
|
$
|
7
|
|
|
$
|
637
|
|
|
$
|
(53
|
)
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
$
|
17
|
|
|
$
|
6
|
|
|
$
|
463
|
|
|
$
|
(80
|
)
|
|
$
|
489
|
|
Incurred claims
|
1
|
|
|
—
|
|
|
(261
|
)
|
|
4
|
|
|
26
|
|
Paid claims
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Balance at March 31, 2018
|
$
|
17
|
|
|
$
|
6
|
|
|
$
|
202
|
|
|
$
|
(76
|
)
|
|
$
|
508
|
|
(1)
The incurred claims for GMWB and GMAB represent the change in the fair value of the liabilities (contra liabilities) less paid claims.
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Mutual funds:
|
|
|
|
Equity
|
$
|
44,619
|
|
|
$
|
46,038
|
|
Bond
|
22,867
|
|
|
23,529
|
|
Other
|
5,631
|
|
|
5,109
|
|
Total mutual funds
|
$
|
73,117
|
|
|
$
|
74,676
|
|
10.
Debt
The balances and the stated interest rates of outstanding debt of Ameriprise Financial were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
|
|
Stated Interest Rate
|
March 31,
2018
|
|
December 31,
2017
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
Senior notes due 2019
|
$
|
300
|
|
|
$
|
300
|
|
|
7.3
|
%
|
|
7.3
|
%
|
Senior notes due 2020
|
750
|
|
|
750
|
|
|
5.3
|
|
|
5.3
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance
|
|
Stated Interest Rate
|
March 31,
2018
|
|
December 31,
2017
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
|
|
Senior notes due 2023
|
750
|
|
|
750
|
|
|
4.0
|
|
|
4.0
|
|
Senior notes due 2024
|
550
|
|
|
550
|
|
|
3.7
|
|
|
3.7
|
|
Senior notes due 2026
|
500
|
|
|
500
|
|
|
2.9
|
|
|
2.9
|
|
Capitalized lease obligations
|
34
|
|
|
38
|
|
|
|
|
|
|
Other
(1)
|
(3
|
)
|
|
3
|
|
|
|
|
|
Total long-term debt
|
2,881
|
|
|
2,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings:
|
|
|
|
|
|
|
|
Federal Home Loan Bank (“FHLB”) advances
|
151
|
|
|
150
|
|
|
1.7
|
|
|
1.5
|
|
Repurchase agreements
|
50
|
|
|
50
|
|
|
1.7
|
|
|
1.4
|
|
Total short-term borrowings
|
201
|
|
|
200
|
|
|
|
|
|
|
|
Total
|
$
|
3,082
|
|
|
$
|
3,091
|
|
|
|
|
|
|
|
(1)
Amounts include adjustments for fair value hedges on the Company’s long-term debt and unamortized discount and debt issuance costs. See Note 13 for information on the Company’s fair value hedges.
Short
-term Borrowings
The Company enters into repurchase agreements in exchange for cash, which it accounts for as secured borrowings and has pledged Available-for-Sale securities to collateralize its obligations under the repurchase agreements. As of
March 31, 2018
and
December 31, 2017
, the Company has pledged
$45 million
and
$43 million
, respectively, of agency residential mortgage backed securities and
$7 million
and
$8 million
, respectively, of commercial mortgage backed securities. The remaining maturity of outstanding repurchase agreements was less than
two months
as of
March 31, 2018
and less than
one month
as of
December 31, 2017
. The stated interest rate of the repurchase agreements is a weighted average annualized interest rate on repurchase agreements held as of the balance sheet date.
The Company’s life insurance subsidiary is a member of the FHLB of Des Moines which provides access to collateralized borrowings. The Company has pledged Available-for-Sale securities consisting of commercial mortgage backed securities to collateralize its obligation under these borrowings. The fair value of the securities pledged is recorded in investments and was
$732 million
and
$750 million
as of
March 31, 2018
and
December 31, 2017
, respectively. The remaining maturity of outstanding FHLB advances was less than
three months
as of
March 31, 2018
and less than
four months
as of
December 31, 2017
. The stated interest rate of the FHLB advances is a weighted average annualized interest rate on outstanding borrowings as of the balance sheet date.
On October 12, 2017, the Company entered into an amended and restated credit agreement that provides for an unsecured revolving credit facility of up to
$750 million
that expires in October 2022. Under the terms of the credit agreement for the facility, the Company may increase the amount of this facility up to
$1.0 billion
upon satisfaction of certain approval requirements. As of both
March 31, 2018
and
December 31, 2017
, the Company had
no
borrowings outstanding and
$1 million
of letters of credit issued against the facility. The Company’s credit facility contains various administrative, reporting, legal and financial covenants. The Company was in compliance with all such covenants as of both
March 31, 2018
and
December 31, 2017
.
11.
Fair Values of Assets and Liabilities
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
Valuation Hierarchy
The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
|
|
Level 1
|
Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
|
|
|
Level 2
|
Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
|
Level 3
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
139
|
|
|
$
|
1,480
|
|
|
$
|
—
|
|
|
$
|
1,619
|
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
—
|
|
|
13,339
|
|
|
1,095
|
|
|
14,434
|
|
|
Residential mortgage backed securities
|
—
|
|
|
5,846
|
|
|
146
|
|
|
5,992
|
|
|
Commercial mortgage backed securities
|
—
|
|
|
4,320
|
|
|
—
|
|
|
4,320
|
|
|
Asset backed securities
|
—
|
|
|
1,506
|
|
|
17
|
|
|
1,523
|
|
|
State and municipal obligations
|
—
|
|
|
2,395
|
|
|
—
|
|
|
2,395
|
|
|
U.S. government and agency obligations
|
1,373
|
|
|
—
|
|
|
—
|
|
|
1,373
|
|
|
Foreign government bonds and obligations
|
—
|
|
|
282
|
|
|
—
|
|
|
282
|
|
|
Total Available-for-Sale securities
|
1,373
|
|
|
27,688
|
|
|
1,258
|
|
|
30,319
|
|
|
Equity securities
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Equity securities at net asset value (“NAV”)
|
|
|
|
|
|
|
6
|
|
(1)
|
Trading securities
|
13
|
|
|
42
|
|
|
—
|
|
|
55
|
|
|
Separate account assets at NAV
|
|
|
|
|
|
|
85,847
|
|
(1)
|
Investments segregated for regulatory purposes
|
548
|
|
|
—
|
|
|
—
|
|
|
548
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
1
|
|
|
818
|
|
|
—
|
|
|
819
|
|
|
Equity derivative contracts
|
114
|
|
|
2,202
|
|
|
—
|
|
|
2,316
|
|
|
Foreign exchange derivative contracts
|
1
|
|
|
33
|
|
|
—
|
|
|
34
|
|
|
Total other assets
|
116
|
|
|
3,053
|
|
|
—
|
|
|
3,169
|
|
|
Total assets at fair value
|
$
|
2,190
|
|
|
$
|
32,263
|
|
|
$
|
1,258
|
|
|
$
|
121,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Policyholder account balances, future policy benefits and claims:
|
|
|
|
|
|
|
|
|
Indexed annuity embedded derivatives
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
IUL embedded derivatives
|
—
|
|
|
—
|
|
|
585
|
|
|
585
|
|
|
GMWB and GMAB embedded derivatives
|
—
|
|
|
—
|
|
|
(329
|
)
|
|
(329
|
)
|
(2)
|
Total policyholder account balances, future policy benefits and claims
|
—
|
|
|
4
|
|
|
259
|
|
|
263
|
|
(3)
|
Customer deposits
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
—
|
|
|
512
|
|
|
—
|
|
|
512
|
|
|
Equity derivative contracts
|
74
|
|
|
2,692
|
|
|
—
|
|
|
2,766
|
|
|
Credit derivative contracts
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Foreign exchange derivative contracts
|
3
|
|
|
22
|
|
|
—
|
|
|
25
|
|
|
Other
|
14
|
|
|
9
|
|
|
28
|
|
|
51
|
|
|
Total other liabilities
|
91
|
|
|
3,237
|
|
|
28
|
|
|
3,356
|
|
|
Total liabilities at fair value
|
$
|
91
|
|
|
$
|
3,250
|
|
|
$
|
287
|
|
|
$
|
3,628
|
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
147
|
|
|
$
|
2,025
|
|
|
$
|
—
|
|
|
$
|
2,172
|
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
—
|
|
|
13,936
|
|
|
1,139
|
|
|
15,075
|
|
|
Residential mortgage backed securities
|
—
|
|
|
6,456
|
|
|
155
|
|
|
6,611
|
|
|
Commercial mortgage backed securities
|
—
|
|
|
4,374
|
|
|
—
|
|
|
4,374
|
|
|
Asset backed securities
|
—
|
|
|
1,573
|
|
|
7
|
|
|
1,580
|
|
|
State and municipal obligations
|
—
|
|
|
2,463
|
|
|
—
|
|
|
2,463
|
|
|
U.S. government and agencies obligations
|
503
|
|
|
—
|
|
|
—
|
|
|
503
|
|
|
Foreign government bonds and obligations
|
—
|
|
|
314
|
|
|
—
|
|
|
314
|
|
|
Common stocks
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Common stocks at NAV
|
|
|
|
|
|
|
6
|
|
(1)
|
Total Available-for-Sale securities
|
504
|
|
|
29,116
|
|
|
1,301
|
|
|
30,927
|
|
|
Trading securities
|
10
|
|
|
34
|
|
|
—
|
|
|
44
|
|
|
Separate account assets at NAV
|
|
|
|
|
|
|
87,368
|
|
(1)
|
Investments segregated for regulatory purposes
|
623
|
|
|
—
|
|
|
—
|
|
|
623
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
—
|
|
|
1,104
|
|
|
—
|
|
|
1,104
|
|
|
Equity derivative contracts
|
63
|
|
|
2,360
|
|
|
—
|
|
|
2,423
|
|
|
Foreign exchange derivative contracts
|
2
|
|
|
34
|
|
|
—
|
|
|
36
|
|
|
Total other assets
|
65
|
|
|
3,498
|
|
|
—
|
|
|
3,563
|
|
|
Total assets at fair value
|
$
|
1,349
|
|
|
$
|
34,673
|
|
|
$
|
1,301
|
|
|
$
|
124,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Policyholder account balances, future policy benefits and claims:
|
|
|
|
|
|
|
|
|
Indexed annuity embedded derivatives
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
IUL embedded derivatives
|
—
|
|
|
—
|
|
|
601
|
|
|
601
|
|
|
GMWB and GMAB embedded derivatives
|
—
|
|
|
—
|
|
|
(49
|
)
|
|
(49
|
)
|
(4)
|
Total policyholder account balances, future policy benefits and claims
|
—
|
|
|
5
|
|
|
552
|
|
|
557
|
|
(5)
|
Customer deposits
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivative contracts
|
1
|
|
|
415
|
|
|
—
|
|
|
416
|
|
|
Equity derivative contracts
|
7
|
|
|
2,876
|
|
|
—
|
|
|
2,883
|
|
|
Credit derivative contracts
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Foreign exchange derivative contracts
|
4
|
|
|
23
|
|
|
—
|
|
|
27
|
|
|
Other
|
9
|
|
|
6
|
|
|
28
|
|
|
43
|
|
|
Total other liabilities
|
21
|
|
|
3,322
|
|
|
28
|
|
|
3,371
|
|
|
Total liabilities at fair value
|
$
|
21
|
|
|
$
|
3,337
|
|
|
$
|
580
|
|
|
$
|
3,938
|
|
|
(1)
Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.
(2)
The fair value of the GMWB and GMAB embedded derivatives included
$309 million
of individual contracts in a liability position and
$638 million
of individual contracts in an asset position as of
March 31, 2018
.
|
|
(3)
|
The Company’s adjustment for nonperformance risk resulted in a
$(432) million
cumulative increase (decrease) to the embedded derivatives as of
March 31, 2018
.
|
|
|
(4)
|
The fair value of the GMWB and GMAB embedded derivatives included
$443 million
of individual contracts in a liability position and
$492 million
of individual contracts in an asset position as of
December 31, 2017
.
|
|
|
(5)
|
The Company’s adjustment for nonperformance risk resulted in a
$(399) million
cumulative increase (decrease) to the embedded derivatives as of
December 31, 2017
.
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
Corporate Debt Securities
|
|
Residential Mortgage Backed Securities
|
|
Asset Backed Securities
|
|
Total
|
(in millions)
|
|
Balance, January 1, 2018
|
$
|
1,139
|
|
|
$
|
155
|
|
|
$
|
7
|
|
|
$
|
1,301
|
|
|
Total gains (losses) included in:
|
|
|
|
|
|
|
|
|
Net income
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
(1)
|
Other comprehensive income (loss)
|
(14
|
)
|
|
(2
|
)
|
|
—
|
|
|
(16
|
)
|
|
Purchases
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
|
Settlements
|
(29
|
)
|
|
(7
|
)
|
|
—
|
|
|
(36
|
)
|
|
Balance, March 31, 2018
|
$
|
1,095
|
|
|
$
|
146
|
|
|
$
|
17
|
|
|
$
|
1,258
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized (gains) losses relating to assets held at March 31, 2018
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder Account Balances, Future Policy Benefits and Claims
|
|
Other Liabilities
|
Indexed Annuity Embedded Derivatives
|
|
IUL Embedded Derivatives
|
|
GMWB and GMAB Embedded Derivatives
|
|
Total
|
(in millions)
|
Balance, January 1, 2018
|
$
|
—
|
|
|
$
|
601
|
|
|
$
|
(49
|
)
|
|
$
|
552
|
|
|
$
|
28
|
|
Total (gains) losses included in:
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
(25
|
)
|
(2)
|
(356
|
)
|
(3)
|
(381
|
)
|
|
—
|
|
Issues
|
3
|
|
|
20
|
|
|
83
|
|
|
106
|
|
|
—
|
|
Settlements
|
—
|
|
|
(11
|
)
|
|
(7
|
)
|
|
(18
|
)
|
|
—
|
|
Balance, March 31, 2018
|
$
|
3
|
|
|
$
|
585
|
|
|
$
|
(329
|
)
|
|
$
|
259
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized (gains) losses relating to liabilities held at March 31, 2018
|
$
|
—
|
|
|
$
|
(25
|
)
|
(2)
|
$
|
(348
|
)
|
(3)
|
$
|
(373
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
Corporate Debt Securities
|
|
Residential Mortgage Backed Securities
|
|
Asset Backed Securities
|
|
Common Stocks
|
|
Total
|
(in millions)
|
Balance, January 1, 2017
|
$
|
1,311
|
|
|
$
|
268
|
|
|
$
|
68
|
|
|
$
|
1
|
|
|
$
|
1,648
|
|
Total gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Purchases
|
62
|
|
|
132
|
|
|
49
|
|
|
—
|
|
|
243
|
|
Settlements
|
(29
|
)
|
|
(12
|
)
|
|
(13
|
)
|
|
—
|
|
|
(54
|
)
|
Transfers into Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
Transfers out of Level 3
|
—
|
|
|
(72
|
)
|
|
(41
|
)
|
|
(1
|
)
|
|
(114
|
)
|
Balance, March 31, 2017
|
$
|
1,344
|
|
|
$
|
316
|
|
|
$
|
64
|
|
|
$
|
8
|
|
|
$
|
1,732
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets held at March 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder Account Balances,
Future Policy Benefits and Claims
|
|
Other Liabilities
|
IUL Embedded Derivatives
|
|
GMWB and GMAB Embedded Derivatives
|
|
Total
|
(in millions)
|
Balance, January 1, 2017
|
$
|
464
|
|
|
$
|
614
|
|
|
$
|
1,078
|
|
|
$
|
13
|
|
Total (gains) losses included in:
|
|
|
|
|
|
|
|
Net income
|
19
|
|
(2)
|
(499
|
)
|
(3)
|
(480
|
)
|
|
—
|
|
Issues
|
22
|
|
|
77
|
|
|
99
|
|
|
—
|
|
Settlements
|
(12
|
)
|
|
(4
|
)
|
|
(16
|
)
|
|
—
|
|
Balance, March 31, 2017
|
$
|
493
|
|
|
$
|
188
|
|
|
$
|
681
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Changes in unrealized (gains) losses relating to liabilities held at March 31, 2017
|
$
|
19
|
|
(2)
|
$
|
(484
|
)
|
(3)
|
$
|
(465
|
)
|
|
$
|
—
|
|
(1)
Included
in net investment income in the Consolidated Statements of Operations.
(2)
Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(3)
Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was
$33 million
and
$(45) million
, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the
three
months ended
March 31, 2018
and
2017
, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were
no
transfers between Level 1 and Level 2.
The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
Fair
Value
|
Valuation Technique
|
Unobservable Input
|
Range
|
Weighted Average
|
(in millions)
|
Corporate debt securities (private placements)
|
$
|
1,093
|
|
Discounted cash flow
|
Yield/spread to U.S. Treasuries
|
0.8
|
%
|
–
|
2.2%
|
1.1
|
%
|
Asset backed securities
|
$
|
7
|
|
Discounted cash flow
|
Annual short-term default rate
|
2.3%
|
|
|
|
|
Annual long-term default rate
|
2.5%
|
–
|
3.5%
|
3.2
|
%
|
|
|
|
Discount rate
|
11.5%
|
|
|
|
|
Constant prepayment rate
|
5.0
|
%
|
–
|
10.0%
|
10.0
|
%
|
|
|
|
Loss recovery
|
36.4
|
%
|
–
|
63.6%
|
63.5
|
%
|
IUL embedded derivatives
|
$
|
585
|
|
Discounted cash flow
|
Nonperformance risk
(1)
|
88 bps
|
|
Indexed annuity embedded derivatives
|
$
|
3
|
|
Discounted cash flow
|
Surrender rate
|
0.0
|
%
|
–
|
50.0%
|
|
|
|
|
|
Nonperformance risk
(1)
|
88 bps
|
|
GMWB and GMAB embedded derivatives
|
$
|
(329
|
)
|
Discounted cash flow
|
Utilization of guaranteed withdrawals
(2)
|
0.0
|
%
|
–
|
42.0%
|
|
|
|
|
|
Surrender rate
|
0.1
|
%
|
–
|
74.7%
|
|
|
|
|
|
Market volatility
(3)
|
4.0
|
%
|
–
|
16.2%
|
|
|
|
|
|
Nonperformance risk
(1)
|
88 bps
|
|
Contingent consideration liabilities
|
$
|
28
|
|
Discounted cash flow
|
Discount rate
|
9.0%
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Fair
Value
|
Valuation Technique
|
Unobservable Input
|
Range
|
Weighted Average
|
(in millions)
|
Corporate debt securities (private placements)
|
$
|
1,138
|
|
Discounted cash flow
|
Yield/spread to U.S. Treasuries
|
0.7
|
%
|
–
|
2.3%
|
1.1
|
%
|
Asset backed securities
|
$
|
7
|
|
Discounted cash flow
|
Annual short-term default rate
|
3.8%
|
|
|
|
|
Annual long-term default rate
|
2.5%
|
–
|
3.0%
|
2.7
|
%
|
|
|
|
Discount rate
|
10.5%
|
|
|
|
|
Constant prepayment rate
|
5.0
|
%
|
–
|
10.0%
|
9.9
|
%
|
|
|
|
Loss recovery
|
36.4
|
%
|
–
|
63.6%
|
63.2
|
%
|
IUL embedded derivatives
|
$
|
601
|
|
Discounted cash flow
|
Nonperformance risk
(1)
|
71 bps
|
|
GMWB and GMAB embedded derivatives
|
$
|
(49
|
)
|
Discounted cash flow
|
Utilization of guaranteed withdrawals
(2)
|
0.0
|
%
|
–
|
42.0%
|
|
|
|
|
|
Surrender rate
|
0.1
|
%
|
–
|
74.7%
|
|
|
|
|
|
Market volatility
(3)
|
3.7
|
%
|
–
|
16.1%
|
|
|
|
|
|
Nonperformance risk
(1)
|
71 bps
|
|
Contingent consideration liabilities
|
$
|
28
|
|
Discounted cash flow
|
Discount rate
|
9.0%
|
|
|
|
(1)
|
The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
|
|
|
(2)
|
The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
|
|
|
(3)
|
Market volatility is implied volatility of fund of funds and managed volatility funds.
|
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Significant
increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.
Significant
increases (decreases) in the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate in isolation would result in a significantly lower (higher) fair value measurement.
Significant
increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the indexed annuity embedded derivatives in isolation would result in a significantly lower (higher) liability value.
Significant
increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.
Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would result in a significantly lower (higher) fair value measurement.
Determination of Fair Value
The
Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Investments (Available-for-Sale Securities, Equity Securities and Trading Securities)
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries. Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, state and municipal obligations and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.
In
consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
Separate Account Assets
The
fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.
Investments Segregated for Regulatory Purposes
Investments segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of
March 31, 2018
and
December 31, 2017
. See Note 12 and Note 13 for further information on the credit risk of derivative instruments and related collateral.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its indexed annuity and IUL products. Significant inputs to the equity indexed annuity calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of fixed index annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the fixed index annuity and IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.
Customer Deposits
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.
Other Liabilities
Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of
March 31, 2018
and
December 31, 2017
. See Note 12 and Note 13 for further information on the credit risk of derivative instruments and related collateral.
Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Securities sold but not yet purchased are measured using amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization and are classified as Level 2.
Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company’s acquisitions. Contingent consideration liabilities are recorded at fair value using a discounted cash flow model under multiple scenarios and an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy.
Fair Value on a Nonrecurring Basis
The Company assesses its investment in affordable housing partnerships for other-than-temporary impairment. The investments that are determined to be other-than-temporarily impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was
$157 million
and
$166 million
as of
March 31, 2018
and
December 31, 2017
, respectively, and is classified as Level 3 in the fair value hierarchy.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Asset and Liabilities Not Reported at Fair Value
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Carrying Value
|
|
Fair Value
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
$
|
2,721
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,697
|
|
|
$
|
2,697
|
|
|
Policy and certificate loans
|
844
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
799
|
|
|
Receivables
|
1,579
|
|
|
115
|
|
|
977
|
|
|
480
|
|
|
1,572
|
|
|
Restricted and segregated cash
|
2,270
|
|
|
2,270
|
|
|
—
|
|
|
—
|
|
|
2,270
|
|
|
Other investments and assets
|
752
|
|
|
—
|
|
|
702
|
|
|
54
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances, future policy benefits and claims
|
$
|
10,074
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,295
|
|
|
$
|
10,295
|
|
|
Investment certificate reserves
|
6,535
|
|
|
—
|
|
|
—
|
|
|
6,506
|
|
|
6,506
|
|
|
Brokerage customer deposits
|
3,708
|
|
|
3,708
|
|
|
—
|
|
|
—
|
|
|
3,708
|
|
|
Separate account liabilities at NAV
|
5,363
|
|
|
|
|
|
|
|
|
5,363
|
|
(1)
|
Debt and other liabilities
|
3,266
|
|
|
114
|
|
|
3,102
|
|
|
100
|
|
|
3,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Carrying Value
|
|
Fair Value
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
(in millions)
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
$
|
2,756
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,752
|
|
|
$
|
2,752
|
|
|
Policy and certificate loans
|
845
|
|
|
—
|
|
|
—
|
|
|
801
|
|
|
801
|
|
|
Receivables
|
1,537
|
|
|
103
|
|
|
946
|
|
|
487
|
|
|
1,536
|
|
|
Restricted and segregated cash
|
2,524
|
|
|
2,524
|
|
|
—
|
|
|
—
|
|
|
2,524
|
|
|
Other investments and assets
(2)
|
725
|
|
|
—
|
|
|
677
|
|
|
49
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances, future policy benefits and claims
|
$
|
10,246
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,755
|
|
|
$
|
10,755
|
|
|
Investment certificate reserves
|
6,390
|
|
|
—
|
|
|
—
|
|
|
6,374
|
|
|
6,374
|
|
|
Brokerage customer deposits
|
3,915
|
|
|
3,915
|
|
|
—
|
|
|
—
|
|
|
3,915
|
|
|
Separate account liabilities at NAV
|
5,177
|
|
|
|
|
|
|
|
|
5,177
|
|
(1)
|
Debt and other liabilities
|
3,290
|
|
|
118
|
|
|
3,180
|
|
|
119
|
|
|
3,417
|
|
|
(1)
Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.
(2)
Amounts have been corrected to include certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months of
$205 million
as of December 31, 2017. The certificates of deposit are classified as Level 2 and recorded at cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
See Note 6 for additional information on mortgage loans, policy loans and certificate loans. Receivables include brokerage margin loans, securities borrowed and loans to financial advisors. Restricted and segregated cash includes cash segregated under federal and other regulations held in special reserve bank accounts for the exclusive benefit of the Company’s brokerage customers. Other investments and assets primarily include syndicated loans, certificate of deposits with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months, the Company’s membership in the FHLB and investments related to the Community Reinvestment Act. See Note 6 for additional information on syndicated loans.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Policyholder account balances, future policy benefit and claims includes fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 8 for additional information on these liabilities. Investment certificate reserves represent customer deposits for fixed rate certificates and stock market certificates. Brokerage customer deposits are amounts payable to brokerage customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. Separate account liabilities relate to investment contracts in pooled pension funds offered by Threadneedle. Debt and other liabilities include the Company’s long-term debt, short-term borrowings, securities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships. See Note 10 for further information on the Company’s long-term debt and short-term borrowings.
12.
Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company’s derivative instruments, repurchase agreements and securities borrowing and lending agreements are subject to master netting and collateral arrangements and qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Securities borrowed and loaned result from transactions between the Company’s broker dealer subsidiary and other financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed and securities loaned are primarily equity securities. The Company’s securities borrowed and securities loaned transactions generally do not have a fixed maturity date and may be terminated by either party under customary terms.
The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Amounts of Assets Presented in the Consolidated Balance Sheets
|
|
Gross Amounts Not Offset in the
Consolidated Balance Sheets
|
|
Net Amount
|
Financial Instruments
(1)
|
|
Cash Collateral
|
|
Securities Collateral
|
(in millions)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC
|
$
|
3,093
|
|
|
$
|
—
|
|
|
$
|
3,093
|
|
|
$
|
(2,606
|
)
|
|
$
|
(428
|
)
|
|
$
|
(15
|
)
|
|
$
|
44
|
|
OTC cleared
|
25
|
|
|
—
|
|
|
25
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
7
|
|
Exchange-traded
|
51
|
|
|
—
|
|
|
51
|
|
|
(2
|
)
|
|
(1
|
)
|
|
—
|
|
|
48
|
|
Total derivatives
|
3,169
|
|
|
—
|
|
|
3,169
|
|
|
(2,626
|
)
|
|
(429
|
)
|
|
(15
|
)
|
|
99
|
|
Securities borrowed
|
115
|
|
|
—
|
|
|
115
|
|
|
(17
|
)
|
|
—
|
|
|
(95
|
)
|
|
3
|
|
Total
|
$
|
3,284
|
|
|
$
|
—
|
|
|
$
|
3,284
|
|
|
$
|
(2,643
|
)
|
|
$
|
(429
|
)
|
|
$
|
(110
|
)
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Amounts of Assets Presented in the Consolidated Balance Sheets
|
|
Gross Amounts Not Offset in the
Consolidated Balance Sheets
|
|
Net Amount
|
Financial Instruments
(1)
|
|
Cash Collateral
|
|
Securities Collateral
|
(in millions)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC
|
$
|
3,520
|
|
|
$
|
—
|
|
|
$
|
3,520
|
|
|
$
|
(2,653
|
)
|
|
$
|
(760
|
)
|
|
$
|
(88
|
)
|
|
$
|
19
|
|
OTC cleared
|
21
|
|
|
—
|
|
|
21
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
6
|
|
Exchange-traded
|
22
|
|
|
—
|
|
|
22
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
21
|
|
Total derivatives
|
3,563
|
|
|
—
|
|
|
3,563
|
|
|
(2,669
|
)
|
|
(760
|
)
|
|
(88
|
)
|
|
46
|
|
Securities borrowed
|
103
|
|
|
—
|
|
|
103
|
|
|
(19
|
)
|
|
—
|
|
|
(82
|
)
|
|
2
|
|
Total
|
$
|
3,666
|
|
|
$
|
—
|
|
|
$
|
3,666
|
|
|
$
|
(2,688
|
)
|
|
$
|
(760
|
)
|
|
$
|
(170
|
)
|
|
$
|
48
|
|
(1)
Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the
Consolidated Balance Sheets
|
|
Amounts of Liabilities Presented in the Consolidated Balance Sheets
|
|
Gross Amounts Not Offset in the
Consolidated Balance Sheets
|
|
Net Amount
|
Financial Instruments
(1)
|
|
Cash Collateral
|
|
Securities Collateral
|
(in millions)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC
|
$
|
3,278
|
|
|
$
|
—
|
|
|
$
|
3,278
|
|
|
$
|
(2,606
|
)
|
|
$
|
(68
|
)
|
|
$
|
(599
|
)
|
|
$
|
5
|
|
OTC cleared
|
18
|
|
|
—
|
|
|
18
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Exchange-traded
|
9
|
|
|
—
|
|
|
9
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
7
|
|
Total derivatives
|
3,305
|
|
|
—
|
|
|
3,305
|
|
|
(2,626
|
)
|
|
(68
|
)
|
|
(599
|
)
|
|
12
|
|
Securities loaned
|
114
|
|
|
—
|
|
|
114
|
|
|
(17
|
)
|
|
—
|
|
|
(94
|
)
|
|
3
|
|
Repurchase agreements
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
Total
|
$
|
3,469
|
|
|
$
|
—
|
|
|
$
|
3,469
|
|
|
$
|
(2,643
|
)
|
|
$
|
(68
|
)
|
|
$
|
(743
|
)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated
Balance Sheets
|
|
Amounts of Liabilities Presented in the Consolidated Balance Sheets
|
|
Gross Amounts Not Offset in the
Consolidated Balance Sheets
|
|
Net Amount
|
Financial Instruments
(1)
|
|
Cash Collateral
|
|
Securities Collateral
|
(in millions)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC
|
$
|
3,309
|
|
|
$
|
—
|
|
|
$
|
3,309
|
|
|
$
|
(2,653
|
)
|
|
$
|
(70
|
)
|
|
$
|
(579
|
)
|
|
$
|
7
|
|
OTC cleared
|
16
|
|
|
—
|
|
|
16
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
Exchange-traded
|
3
|
|
|
—
|
|
|
3
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
2
|
|
Total derivatives
|
3,328
|
|
|
—
|
|
|
3,328
|
|
|
(2,669
|
)
|
|
(70
|
)
|
|
(579
|
)
|
|
10
|
|
Securities loaned
|
118
|
|
|
—
|
|
|
118
|
|
|
(19
|
)
|
|
—
|
|
|
(94
|
)
|
|
5
|
|
Repurchase agreements
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
Total
|
$
|
3,496
|
|
|
$
|
—
|
|
|
$
|
3,496
|
|
|
$
|
(2,688
|
)
|
|
$
|
(70
|
)
|
|
$
|
(723
|
)
|
|
$
|
15
|
|
(1)
Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
In the tables above, the amount of assets or liabilities presented are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual collateral may be greater than amounts presented in the tables.
When the fair value of collateral accepted by the Company is less than the amount due to the Company, there is a risk of loss if the counterparty fails to perform or provide additional collateral. To mitigate this risk, the Company monitors collateral values regularly and requires additional collateral when necessary. When the value of collateral pledged by the Company declines, it may be required to post additional collateral.
Freestanding derivative instruments are reflected in other assets and other liabilities. Cash collateral pledged by the Company is reflected in other assets and cash collateral accepted by the Company is reflected in other liabilities. Repurchase agreements are reflected in short-term borrowings. Securities borrowing and lending agreements are reflected in receivables and other liabilities, respectively. See Note 13 for additional disclosures related to the Company’s derivative instruments, Note 10 for additional disclosures related to the Company’s repurchase agreements and Note 4 for information related to derivatives held by consolidated investment entities.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
13.
Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.
The Company’s freestanding derivative instruments are all subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 12 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
The Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Notional
|
|
Gross Fair Value
|
Notional
|
|
Gross Fair Value
|
Assets
(1)
|
|
Liabilities
(2)(3)
|
Assets
(1)
|
|
Liabilities
(2)(3)
|
(in millions)
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
675
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
675
|
|
|
$
|
23
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
209
|
|
|
—
|
|
|
3
|
|
|
87
|
|
|
—
|
|
|
4
|
|
Total qualifying hedges
|
884
|
|
|
15
|
|
|
3
|
|
|
762
|
|
|
23
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
63,848
|
|
|
804
|
|
|
512
|
|
|
66,043
|
|
|
1,081
|
|
|
416
|
|
Equity contracts
|
58,260
|
|
|
2,316
|
|
|
2,766
|
|
|
59,292
|
|
|
2,423
|
|
|
2,883
|
|
Credit contracts
|
856
|
|
|
—
|
|
|
2
|
|
|
721
|
|
|
—
|
|
|
2
|
|
Foreign exchange contracts
|
4,363
|
|
|
34
|
|
|
22
|
|
|
4,163
|
|
|
36
|
|
|
23
|
|
Other contracts
|
2
|
|
|
—
|
|
|
—
|
|
|
452
|
|
|
—
|
|
|
—
|
|
Total non-designated hedges
|
127,329
|
|
|
3,154
|
|
|
3,302
|
|
|
130,671
|
|
|
3,540
|
|
|
3,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
(4)
|
N/A
|
|
|
—
|
|
|
(329
|
)
|
|
N/A
|
|
|
—
|
|
|
(49
|
)
|
IUL
|
N/A
|
|
|
—
|
|
|
585
|
|
|
N/A
|
|
|
—
|
|
|
601
|
|
Indexed annuities
|
N/A
|
|
|
—
|
|
|
7
|
|
|
N/A
|
|
|
—
|
|
|
5
|
|
SMC
|
N/A
|
|
|
—
|
|
|
9
|
|
|
N/A
|
|
|
—
|
|
|
10
|
|
Total embedded derivatives
|
N/A
|
|
|
—
|
|
|
272
|
|
|
N/A
|
|
|
—
|
|
|
567
|
|
Total derivatives
|
$
|
128,213
|
|
|
$
|
3,169
|
|
|
$
|
3,577
|
|
|
$
|
131,433
|
|
|
$
|
3,563
|
|
|
$
|
3,895
|
|
N/A Not applicable.
(1)
The fair value of freestanding derivative assets is included in Other assets on the Consolidated Balance Sheets.
(2)
The fair value of freestanding derivative liabilities is included in Other liabilities on the Consolidated Balance Sheets. The fair value of GMWB and GMAB, IUL, and indexed annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets. The fair value of the SMC embedded derivative liability is included in Customer deposits on the Consolidated Balance Sheets.
(3)
The fair value of the Company’s derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was
$883 million
and
$1.3 billion
as of
March 31, 2018
and
December 31, 2017
, respectively. See Note 12 for additional information related to master netting arrangements and cash collateral. See Note 4 for information about derivatives held by consolidated VIEs.
(4)
The fair value of the GMWB and GMAB embedded derivatives as of
March 31, 2018
included
$309 million
of individual contracts in a liability position and
$638 million
of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of
December 31, 2017
included
$443 million
of individual contracts in a liability position and
$492 million
of individual contracts in an asset position.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
See Note 11 for additional information regarding the Company’s fair value measurement of derivative instruments.
As of
March 31, 2018
and
December 31, 2017
, investment securities with a fair value of
$15 million
and
$89 million
, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which
$15 million
and
$89 million
, respectively, may be sold, pledged or rehypothecated by the Company. As of both
March 31, 2018
and
December 31, 2017
, the Company had sold, pledged or rehypothecated
nil
of these securities. In addition, as of
March 31, 2018
and
December 31, 2017
, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.
Derivatives Not Designated as Hedges
The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
Banking and Deposit Interest Expense
|
|
Distribution Expenses
|
|
Interest Credited to Fixed Accounts
|
|
Benefits, Claims, Losses and Settlement Expenses
|
|
General and Administrative Expense
|
(in millions)
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(398
|
)
|
|
$
|
—
|
|
Equity contracts
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(8
|
)
|
|
25
|
|
|
—
|
|
Credit contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(2
|
)
|
GMWB and GMAB embedded derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
280
|
|
|
—
|
|
IUL embedded derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
—
|
|
SMC embedded derivatives
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gain (loss)
|
$
|
17
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
28
|
|
|
$
|
(79
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(81
|
)
|
|
$
|
—
|
|
Equity contracts
|
2
|
|
|
1
|
|
|
15
|
|
|
19
|
|
|
(462
|
)
|
|
3
|
|
Credit contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
Foreign exchange contracts
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(24
|
)
|
|
1
|
|
GMWB and GMAB embedded derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
426
|
|
|
—
|
|
IUL embedded derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
SMC embedded derivatives
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gain (loss)
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
12
|
|
|
$
|
(149
|
)
|
|
$
|
4
|
|
The
Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and foreign currency exchange rate risk related to various products and transactions of the Company.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The GMAB and non-life contingent GMWB provisions are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. The Company economically hedges the exposure related to GMAB and non-life contingent GMWB provisions primarily using futures, options, interest rate swaptions, interest rate swaps, total return swaps and variance swaps.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
Premiums Payable
|
|
Premiums Receivable
|
(in millions)
|
2018
(1)
|
$
|
192
|
|
|
$
|
78
|
|
2019
|
299
|
|
|
173
|
|
2020
|
219
|
|
|
132
|
|
2021
|
188
|
|
|
121
|
|
2022
|
253
|
|
|
200
|
|
2023 - 2027
|
541
|
|
|
60
|
|
Total
|
$
|
1,692
|
|
|
$
|
764
|
|
(1)
2018
amounts represent the amounts payable and receivable for the period from April 1, 2018 to December 31,
2018
.
Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates are shown in Other contracts in the tables above.
Indexed annuity, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to indexed annuity, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. The equity component of indexed annuity, IUL and stock market certificate product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts.
The Company enters into futures, credit default swaps and commodity swaps to manage its exposure to price risk arising from seed money investments in proprietary investment products. The Company enters into foreign currency forward contracts to economically hedge its exposure to certain foreign transactions. The Company enters into futures contracts to economically hedge its exposure related to compensation plans. In 2015, the Company entered into interest rate swaps to offset interest rate changes on unrealized gains or losses for certain investments.
Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest rate exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and (iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales.
For the three months ended
March 31, 2018
and
2017
, amounts recognized in earnings related to cash flow hedges due to ineffectiveness were not material. The estimated net amount of existing pretax gains as of
March 31, 2018
that the Company expects to reclassify to earnings within the next twelve months is
$1 million
, which consists of
$2 million
of pretax gains to be recorded as a reduction to interest and debt expense and
$1 million
of pretax losses to be recorded in net investment income. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is
18
years and relates to forecasted debt interest payments. See Note 14 for a rollforward of net unrealized derivative gains (losses) included in AOCI related to cash flow hedges.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fair Value Hedges
The Company entered into and designated as fair value hedges
two
interest rate swaps to convert senior notes due 2019 and 2020 from fixed rate debt to floating rate debt. The swaps have identical terms as the underlying debt being hedged so no ineffectiveness is expected to be realized. The Company recognizes gains and losses on the derivatives and the related hedged items within interest and debt expense. The following table presents the amounts recognized in income related to fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
Location of Gain Recorded into Income
|
Amount of Gain Recognized in Income on Derivatives
|
Three Months Ended March 31,
|
2018
|
2017
|
|
(in millions)
|
Interest rate contracts
|
Interest and debt expense
|
$
|
4
|
|
$
|
4
|
|
Net Investment Hedges
The Company entered into, and designated as net investment hedges in foreign operations, forward contracts to hedge a portion of the Company’s foreign currency exchange rate risk associated with its investment in Threadneedle. As the Company determined that the forward contracts are effective, the change in fair value of the derivatives is recognized in AOCI as part of the foreign currency translation adjustment. For the three months ended
March 31, 2018
and
2017
, the Company recognized a loss of
$7 million
and a gain of
$2 million
, respectively, in OCI.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting and collateral arrangements whenever practical. See Note 12 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s debt rating (or based on the financial strength of the Company’s life insurance subsidiaries for contracts in which those subsidiaries are the counterparty). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company’s debt does not maintain a specific credit rating (generally an investment grade rating) or the Company’s life insurance subsidiary does not maintain a specific financial strength rating. If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. As of
March 31, 2018
and
December 31, 2017
, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was
$345 million
and
$372 million
, respectively. The aggregate fair value of assets posted as collateral for such instruments as of
March 31, 2018
and
December 31, 2017
was
$341 million
and
$369 million
, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of
March 31, 2018
and
December 31, 2017
were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been
$4 million
and
$3 million
, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
14.
Shareholders’ Equity
The following tables provide the amounts related to each component of OCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
Pretax
|
|
Income Tax Benefit (Expense)
|
|
Net of Tax
|
Pretax
|
|
Income Tax Benefit (Expense)
|
|
Net of Tax
|
(in millions)
|
Net unrealized securities
gains (losses)
:
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized securities
gains (losses)
arising during the period
(1)
|
$
|
(552
|
)
|
|
$
|
123
|
|
|
$
|
(429
|
)
|
|
$
|
53
|
|
|
$
|
(17
|
)
|
|
$
|
36
|
|
Reclassification of net securities (gains) losses included in net income
(2)
|
(5
|
)
|
|
1
|
|
|
(4
|
)
|
|
(18
|
)
|
|
6
|
|
|
(12
|
)
|
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables
|
216
|
|
|
(45
|
)
|
|
171
|
|
|
(26
|
)
|
|
9
|
|
|
(17
|
)
|
Net unrealized securities
gains (losses)
|
(341
|
)
|
|
79
|
|
|
(262
|
)
|
|
9
|
|
|
(2
|
)
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized derivatives
gains (losses)
:
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of net derivative (gains) losses included in net income
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
Net unrealized derivatives
gains (losses)
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) arising during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(2
|
)
|
|
5
|
|
Defined benefit plans
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(2
|
)
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
37
|
|
|
(8
|
)
|
|
29
|
|
|
11
|
|
|
(4
|
)
|
|
7
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Total other comprehensive income (loss)
|
$
|
(304
|
)
|
|
$
|
71
|
|
|
$
|
(233
|
)
|
|
$
|
28
|
|
|
$
|
(9
|
)
|
|
$
|
19
|
|
(1)
Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.
(2)
Reclassification amounts are recorded in net investment income.
Other comprehensive income (loss) related to net unrealized securities gains (losses) includes three components: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses; and (iii) other adjustments primarily consisting of changes in insurance and annuity asset and liability balances, such as DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present the changes in the balances of each component of AOCI, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Securities Gains (Losses)
|
|
Net Unrealized Derivatives Gains (Losses)
|
|
Defined
Benefit Plans
|
|
Foreign Currency Translation
|
|
Other
|
|
Total
|
(in millions)
|
Balance, January 1, 2018
|
$
|
486
|
|
|
$
|
8
|
|
|
$
|
(97
|
)
|
|
$
|
(167
|
)
|
|
$
|
(1
|
)
|
|
$
|
229
|
|
Cumulative effect of change in accounting policies
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
OCI before reclassifications
|
(258
|
)
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
(229
|
)
|
Amounts reclassified from AOCI
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Total OCI
|
(262
|
)
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
(233
|
)
|
Balance, March 31, 2018
|
$
|
223
|
|
(1)
|
$
|
8
|
|
|
$
|
(97
|
)
|
|
$
|
(138
|
)
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
$
|
479
|
|
|
$
|
5
|
|
|
$
|
(125
|
)
|
|
$
|
(159
|
)
|
|
$
|
—
|
|
|
$
|
200
|
|
OCI before reclassifications
|
19
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(1
|
)
|
|
25
|
|
Amounts reclassified from AOCI
|
(12
|
)
|
|
1
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Total OCI
|
7
|
|
|
1
|
|
|
5
|
|
|
7
|
|
|
(1
|
)
|
|
19
|
|
Balance, March 31, 2017
|
$
|
486
|
|
(1)
|
$
|
6
|
|
|
$
|
(120
|
)
|
|
$
|
(152
|
)
|
|
$
|
(1
|
)
|
|
$
|
219
|
|
(1)
Includes
nil
and
$8 million
of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of
March 31, 2018
and
March 31, 2017
, respectively.
For the
three
months ended
March 31, 2018
and
2017
, the Company repurchased a total of
2.4 million
shares and
2.9 million
shares, respectively, of its common stock for an aggregate cost of
$387 million
and
$357 million
, respectively. In April 2017, the Company’s Board of Directors authorized an expenditure of up to
$2.5 billion
for the repurchase of shares of the Company’s common stock through June 30, 2019. As of
March 31, 2018
, the Company had
$1.7 billion
remaining under its share repurchase authorization.
The Company may also reacquire shares of its common stock under its share-based compensation plans related to restricted stock awards and certain option exercises. The holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligation. These vested restricted shares are reacquired by the Company and the Company’s payment of the holders’ income tax obligations are recorded as a treasury share purchase.
For the
three
months ended
March 31, 2018
and
2017
, the Company reacquired
0.2 million
shares and
0.2 million
shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate
$39 million
and
$30 million
, respectively, related to the holders’ income tax obligations on the vesting date. Option holders may elect to net settle their vested awards resulting in the surrender of the number of shares required to cover the strike price and tax obligation of the options exercised. These shares are reacquired by the Company and recorded as treasury shares. For the
three
months ended
March 31, 2018
and
2017
, the Company reacquired
0.4 million
shares and
1.0 million
shares, respectively, of its common stock through the net settlement of options for an aggregate value of
$56 million
and
$122 million
, respectively.
During the
three
months ended
March 31, 2018
and
2017
, the Company reissued
0.8 million
and
0.7 million
treasury shares, respectively, for restricted stock award grants, performance share units and issuance of shares vested under advisor deferred compensation plans.
15.
Regulatory Requirements
The Company’s insurance subsidiaries are required to prepare statutory financial statements in accordance with the accounting practices prescribed or permitted by the insurance departments of their respective states of domicile. RiverSource Life received approval from the Minnesota Department of Commerce to apply a permitted statutory accounting practice, effective July 1, 2017 through June 30, 2018, for certain derivative instruments used to economically hedge the interest rate exposure of certain variable annuity products that do not qualify for statutory hedge accounting. The permitted practice is intended to mitigate the impact to statutory surplus from the misalignment between variable annuity statutory reserves, which are not carried at fair value, and the fair value of derivatives used to economically hedge the interest rate exposure of non-life contingent living benefit guarantees. As of
March 31, 2018
and
December 31, 2017
, application of this permitted practice resulted in an increase (decrease) to RiverSource Life’s statutory surplus of approximately
$214 million
and
$(3) million
, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
16.
Income Taxes
In December of 2017, the Tax Act reduced federal income tax rates from 35% to 21% for tax years after 2017. The Company’s effective tax rate was
14.7%
and
15.2%
for the three months ended
March 31, 2018
and
2017
, respectively. The effective tax rate for the first quarter of 2018 is lower than the statutory rate as a result of tax preferred items including low income housing tax credits and stock compensation. The effective tax rate for the first quarter of 2017 was lower than the statutory rate as a result of tax preferred items including the dividends received deduction, low income housing tax credits, stock compensation, net income from foreign subsidiaries, as well as a
$20 million
benefit related to an out-of-period correction for a reversal of a tax reserve.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of
$17 million
, net of federal benefit, which will expire beginning December 31, 2018.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the Company will not realize certain state deferred tax assets and state net operating losses and therefore a valuation allowance has been established. The valuation allowance was
$16 million
and
$17 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
As of
March 31, 2018
and
December 31, 2017
, the Company had
$83 million
and
$76 million
, respectively, of gross unrecognized tax benefits. If recognized, approximately
$59 million
and
$58 million
, net of federal tax benefits, of unrecognized tax benefits as of
March 31, 2018
and
December 31, 2017
, respectively, would affect the effective tax rate.
It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by
$40 million
to
$50 million
in the next 12 months primarily due to resolution of audits and statute expirations.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of
$1 million
in interest and penalties for both the three months ended
March 31, 2018
and
2017
. As of
March 31, 2018
and
December 31, 2017
, the Company had a payable of
$9 million
and
$8 million
, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the first quarter of 2018, the Company received cash settlements for final resolution of the 2008 through 2010 Internal Revenue Service (“IRS”) audits. The Company’s IRS audits are resolved through 2011. The Company’s 2012 and 2013 tax returns are at IRS appeals due to an unagreed issue. The IRS is currently auditing the Company’s U.S. income tax returns for 2014 and 2015. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2005 through 2015.
17.
Contingencies
The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions, heightened and sustained volatility in the financial markets and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally.
As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination or claims by, the SEC, FINRA, the OCC, the UK Financial Conduct Authority, state insurance and securities regulators, state attorneys general and various other domestic or foreign governmental and quasi-governmental authorities on behalf of themselves or clients concerning the Company’s business activities and practices, and the practices of the Company’s financial advisors. The Company has numerous pending matters which include information requests, exams or inquiries that the Company has received during recent periods regarding certain matters, including: sales and distribution of mutual funds, exchange traded funds, annuities, equity and fixed income securities, real estate investment trusts, insurance products, and financial advice offerings, including managed accounts; supervision of the Company’s financial advisors; administration of insurance and annuity claims; security of client information; trading activity and the Company’s monitoring and supervision of such activity; performance advertising and product disclosures, including third party
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
performance claims; and transaction monitoring systems and controls. The Company has cooperated and will continue to cooperate with the applicable regulators.
These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to reasonably estimate the amount of any loss. The Company cannot predict with certainty if, how or when any such proceedings will be initiated or resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing unsettled legal questions relevant to the proceedings in question, before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in one or more proceeding could eventually result in adverse judgments, settlements, fines, penalties or other sanctions, in addition to further claims, examinations or adverse publicity that could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
In accordance with applicable accounting standards, the Company establishes an accrued liability for contingent litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In such cases, there still may be an exposure to loss in excess of any amounts reasonably estimated and accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability, but continues to monitor, in conjunction with any outside counsel handling a matter, further developments that would make such loss contingency both probable and reasonably estimable. Once the Company establishes an accrued liability with respect to a loss contingency, the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established, and any appropriate adjustments are made each quarter.
RiverSource Life and RiverSource Life of NY
are required by law to be a member of the guaranty fund association in every state where they are licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
The Company projects its cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”) and the amount of its premiums written relative to the industry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments when it is considered probable that an assessment will be imposed, the event obligating the Company to pay the assessment has occurred and the amount of the assessment can be reasonably estimated.
The Company has a liability for estimated guaranty fund assessments and a related premium tax asset. As of both
March 31, 2018
and
December 31, 2017
, the estimated liability was
$14 million
and the related premium tax asset was
$12 million
. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
18.
Earnings per Share
The computation of basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions, except per share amounts)
|
Numerator:
|
|
|
|
Net income
|
$
|
594
|
|
|
$
|
403
|
|
|
|
|
|
Denominator:
|
|
|
|
Basic: Weighted-average common shares outstanding
|
149.5
|
|
|
157.5
|
|
Effect of potentially dilutive nonqualified stock options and other share-based awards
|
2.6
|
|
|
2.6
|
|
Diluted: Weighted-average common shares outstanding
|
152.1
|
|
|
160.1
|
|
|
|
|
|
Earnings per share:
|
|
|
|
Basic
|
$
|
3.97
|
|
|
$
|
2.56
|
|
Diluted
|
$
|
3.91
|
|
|
$
|
2.52
|
|
The calculation of diluted earnings per share excludes the incremental effect of
1.1 million
and
2.5 million
options as of
March 31, 2018
and
March 31, 2017
, respectively, due to their anti-dilutive effect.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
19.
Segment Information
The Company’s reporting segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. Prior period results have been restated for the retrospective adoption of the new revenue recognition accounting standard as discussed in Note 1 and Note 2.
The accounting policies of the segments are the same as those of the Company, except for operating adjustments defined below, the method of capital allocation, the accounting for gains (losses) from intercompany revenues and expenses and not providing for income taxes on a segment basis.
Management uses segment adjusted operating measures in goal setting, as a basis for determining employee compensation and in evaluating performance on a basis comparable to that used by some securities analysts and investors. Consistent with GAAP accounting guidance for segment reporting, adjusted operating earnings is the Company’s measure of segment performance. Adjusted operating earnings should not be viewed as a substitute for GAAP pretax income. The Company believes the presentation of segment adjusted operating earnings, as the Company measures it for management purposes, enhances the understanding of its business by reflecting the underlying performance of its core operations and facilitating a more meaningful trend analysis.
Adjusted operating earnings is defined as adjusted operating net revenues less adjusted operating expenses. Adjusted operating net revenues and adjusted operating expenses exclude the market impact on IUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual), integration and restructuring charges and the impact of consolidating investment entities. Adjusted operating net revenues also exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments. Adjusted operating expenses also exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), the market impact on fixed index annuity benefits (net of hedges and the related DAC amortization), and the DSIC and DAC amortization offset to net realized investment gains or losses. The market impact on variable annuity guaranteed benefits, fixed index annuity benefits and IUL benefits includes changes in embedded derivative values caused by changes in financial market conditions, net of changes in economic hedge values and unhedged items including the difference between assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and certain policyholder contract elections, net of related impacts on DAC and DSIC amortization. The market impact also includes certain valuation adjustments made in accordance with FASB Accounting Standards Codification 820, Fair Value Measurements and Disclosures, including the impact on embedded derivative values of discounting projected benefits to reflect a current estimate of the Company’s life insurance subsidiary’s nonperformance spread.
The following tables summarize selected financial information by segment and reconcile segment totals to those reported on the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
(in millions)
|
Advice & Wealth Management
|
$
|
13,319
|
|
|
$
|
13,270
|
|
Asset Management
|
8,849
|
|
|
8,401
|
|
Annuities
|
95,802
|
|
|
98,276
|
|
Protection
|
17,728
|
|
|
18,039
|
|
Corporate & Other
|
9,064
|
|
|
9,494
|
|
Total assets
|
$
|
144,762
|
|
|
$
|
147,480
|
|
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Adjusted operating net revenues:
|
Advice & Wealth Management
|
$
|
1,501
|
|
|
$
|
1,321
|
|
Asset Management
|
778
|
|
|
725
|
|
Annuities
|
613
|
|
|
608
|
|
Protection
|
519
|
|
|
521
|
|
Corporate & Other
|
57
|
|
|
57
|
|
Less: Eliminations
(1)
|
357
|
|
|
347
|
|
Total segment adjusted operating net revenues
|
3,111
|
|
|
2,885
|
|
Net realized gains (losses)
|
6
|
|
|
17
|
|
Revenue attributable to CIEs
|
22
|
|
|
22
|
|
Market impact on IUL benefits, net
|
13
|
|
|
1
|
|
Market impact of hedges on investments
|
16
|
|
|
1
|
|
Total net revenues per consolidated statements of operations
|
$
|
3,168
|
|
|
$
|
2,926
|
|
|
|
(1)
|
Represents the elimination of intersegment revenues recognized for the
three
months ended
March 31, 2018
and
2017
in each segment as follows: Advice & Wealth Management (
$240 million
and
$237 million
, respectively); Asset Management (
$12 million
and
$11 million
, respectively); Annuities (
$90 million
and
$84 million
, respectively); Protection (
$16 million
and
$15 million
, respectively); and Corporate & Other (
$(1) million
and
nil
, respectively).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Adjusted operating earnings:
|
Advice & Wealth Management
|
$
|
316
|
|
|
$
|
248
|
|
Asset Management
|
195
|
|
|
150
|
|
Annuities
|
132
|
|
|
139
|
|
Protection
|
70
|
|
|
63
|
|
Corporate & Other
|
(56
|
)
|
|
(80
|
)
|
Total segment adjusted operating earnings
|
657
|
|
|
520
|
|
Net realized gains (losses)
|
6
|
|
|
16
|
|
Net income (loss) attributable to CIEs
|
—
|
|
|
1
|
|
Market impact on variable annuity guaranteed benefits, net
|
(5
|
)
|
|
(63
|
)
|
Market impact on IUL benefits, net
|
25
|
|
|
—
|
|
Market impact of hedges on investments
|
16
|
|
|
1
|
|
Integration and restructuring charges
|
(3
|
)
|
|
—
|
|
Pretax income per consolidated statements of operations
|
$
|
696
|
|
|
$
|
475
|
|
AMERIPRISE FINANCIAL, INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2017
, filed with the Securities and Exchange Commission (“SEC”) on
February 23, 2018
(“
2017
10-K”), as well as our current reports on Form 8-K and other publicly available information.
Prior period amounts have been restated for the retrospective adoption of the
new revenue recognition accounting standard
.
References below to “Ameriprise Financial,” “Ameriprise,” the “Company,” “we,” “us,” and “our” refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.
Overview
Ameriprise Financial is a diversified financial services company with a more than 120 year history of providing financial solutions. We are America’s leader in financial planning and a leading global financial institution with $887.2 billion in assets under management and administration as of
March 31, 2018
. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients.
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
2017
10-K and other factors as discussed herein.
Equity price, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our fixed deferred annuities, fixed insurance, deposit products and the fixed portion of variable annuities and variable insurance contracts, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.
Earnings, as well as adjusted operating earnings, will be negatively impacted by the ongoing low interest rate environment should it continue. In addition to continuing spread compression in our interest sensitive product lines, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our adjusted operating earnings. For additional discussion on our interest rate risk, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
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. 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 include the fees from these entities in the management and financial advice fees line within our Asset Management segment.
While our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), management believes that adjusted operating measures, which exclude net realized investment gains or losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life (“IUL”) benefits, net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. Management uses certain of these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management’s Discussion and Analysis, these non-GAAP measures are referred to as adjusted operating measures. These non-GAAP measures should not be viewed as a substitute for U.S. GAAP measures. Effective January 1, 2018, the Company changed the naming convention for its non-GAAP
AMERIPRISE FINANCIAL, INC.
financial measures from “operating” to “adjusted operating” to more clearly differentiate between GAAP and non-GAAP financial measures. The definition of these measures remains unchanged.
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:
|
|
•
|
Adjusted operating total net revenue growth of 6% to 8%,
|
|
|
•
|
Adjusted operating earnings per diluted share growth of 12% to 15%, and
|
|
|
•
|
Adjusted operating return on equity excluding accumulated other comprehensive income (“AOCI”) of 19% to 23%.
|
The following tables reconcile our GAAP measures to a
djusted
operating measures:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Total net revenues
|
$
|
3,168
|
|
|
$
|
2,926
|
|
Less: Revenue attributable to CIEs
|
22
|
|
|
22
|
|
Less: Net realized investment gains (losses)
|
6
|
|
|
17
|
|
Less: Market impact on indexed universal life benefits
|
13
|
|
|
1
|
|
Less: Market impact of hedges on investments
|
16
|
|
|
1
|
|
Adjusted operating total net revenues
|
$
|
3,111
|
|
|
$
|
2,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Per Diluted Share
|
Three Months Ended March 31,
|
2018
|
|
2017
|
2018
|
|
2017
|
(in millions, except per share amounts)
|
Net income
|
$
|
594
|
|
|
$
|
403
|
|
|
$
|
3.91
|
|
|
$
|
2.52
|
|
Less: Net income (loss) attributable to CIEs
|
—
|
|
|
1
|
|
|
—
|
|
|
0.01
|
|
Add: Integration/restructuring charges
(1)
|
3
|
|
|
—
|
|
|
0.02
|
|
|
—
|
|
Add: Market impact on variable annuity guaranteed benefits
(1)
|
5
|
|
|
63
|
|
|
0.03
|
|
|
0.40
|
|
Add: Market impact on indexed universal life benefits
(1)
|
(25
|
)
|
|
—
|
|
|
(0.16
|
)
|
|
—
|
|
Add: Market impact of hedges on investments
(1)
|
(16
|
)
|
|
(1
|
)
|
|
(0.11
|
)
|
|
(0.01
|
)
|
Less: Net realized investment gains
(losses)
(1)
|
6
|
|
|
16
|
|
|
0.04
|
|
|
0.10
|
|
Tax effect of adjustments
(2)
|
8
|
|
|
(16
|
)
|
|
0.05
|
|
|
(0.10
|
)
|
Adjusted operating earnings
|
$
|
563
|
|
|
$
|
432
|
|
|
$
|
3.70
|
|
|
$
|
2.70
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
149.5
|
|
|
157.5
|
|
|
|
|
|
|
|
Diluted
|
152.1
|
|
|
160.1
|
|
|
|
|
|
|
|
(1)
Pretax adjusted operating adjustments.
(2)
Calculated using the statutory tax rate of 21% in 2018 and 35% in 2017.
AMERIPRISE FINANCIAL, INC.
The following table reconciles the trailing twelve months’ sum of net income to adjusted operating earnings and the five-point average of quarter-end equity to adjusted operating equity:
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Net income
|
$
|
1,671
|
|
|
$
|
1,352
|
|
Less: Adjustments
(1)
|
(63
|
)
|
|
(128
|
)
|
Adjusted operating earnings
|
$
|
1,734
|
|
|
$
|
1,480
|
|
|
Total Ameriprise Financial, Inc. shareholders’ equity
|
$
|
6,122
|
|
|
$
|
6,681
|
|
Less: AOCI, net of tax
|
210
|
|
|
418
|
|
Total Ameriprise Financial, Inc. shareholders’ equity, excluding AOCI
|
5,912
|
|
|
6,263
|
|
Less: Equity impacts attributable to CIEs
|
1
|
|
|
1
|
|
Adjusted operating equity
|
$
|
5,911
|
|
|
$
|
6,262
|
|
|
Return on equity, excluding AOCI
|
28.3
|
%
|
|
21.6
|
%
|
Adjusted operating return on equity, excluding AOCI
(2)
|
29.3
|
%
|
|
23.6
|
%
|
|
|
(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 IUL benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; 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 21% in 2018 and 35% in 2017.
|
|
|
(2)
|
Adjusted 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 IUL benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact on fixed index annuity benefits, net of hedges and the related DAC amortization; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; and net income (loss) from consolidated investment entities in the numerator, and Ameriprise Financial shareholders’ equity, excluding AOCI and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator. After-tax is calculated using the statutory tax rate of 21% in 2018 and 35% in 2017. Adjusted operating return on equity, excluding AOCI is higher reflecting core business improvement, market appreciation and cumulative share repurchases.
|
The Department of Labor published regulations in April 2016 that expanded the scope of who is considered an ERISA fiduciary and these regulations focus in large part on investment recommendations made by financial advisors, registered investment advisors, and other investment professionals to retirement investors, how financial advisors are able to discuss IRA rollovers, as well as how financial advisors and affiliates can transact with retirement investors. Tax qualified accounts, particularly IRAs, make up a significant portion of our assets under management and administration. The first phase of the regulations went into effect on June 9, 2017 and requires financial advisors to make recommendations related to assets held in IRAs and employer sponsored retirement plans in accordance with the following impartial conduct standards: recommendations must be in the best interest of the client, compensation paid for the recommendations must be reasonable and the financial advisor must not make any misleading statements. We adopted policies and procedures designed to comply with the impartial conduct standards and communicated those policies and procedures to our advisors and staff. The second phase of the regulation pertaining to a new “best interest contract exemption” would put into place a number of additional requirements including entering into a best interest contract with clients, enhanced disclosure of fees and conflicts of interest, limits on differential commissions within a product category, the adoption of policies and procedures to ensure the best interest standard is met, and findings related to platforms that are limited to products that pay third-party payments and/or include proprietary products. The second phase of the regulation is currently scheduled to become effective on July 1, 2019. However, on March 15, 2018, the United States Court of Appeals for the Fifth Circuit issued a decision vacating the Department’s regulations in its entirety. The Fifth Circuit’s decision would be effective as of the date the court files its mandate (currently scheduled for May 7, 2018). Recently, several interested parties have filed a request to intervene and to have the case reheard by the Fifth Circuit en banc. It is not clear whether the Fifth Circuit will grant either of these motions.
In addition, the SEC recently proposed its own fiduciary standard that would apply to recommendations made by financial advisors who work on a commission basis and would apply regardless of the type of account (IRA or non-qualified) an investor holds. Furthermore, several states have either issued their own fiduciary rules or are considering doing so and those rules may extend to certain types of products (e.g. insurance and annuities, financial planning, etc.) or may broadly cover all recommendations made by financial advisors. The Certified Financial Planner Board has issued its own fiduciary standard that applies to financial advisors who hold a Certified Financial Planner designation. Currently, Ameriprise has approximately 4,100 financial advisors that hold a Certified
AMERIPRISE FINANCIAL, INC.
Financial Planner designation. In light of the various fiduciary rules and regulations that have been proposed or finalized, we continue to exert significant efforts to evaluate and prepare to comply with each rule.
Critical Accounting Estimates
The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Estimates” in our
2017
10-K.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations and financial condition, see Note 2 to our Consolidated Financial Statements.
Assets Under Management and Administration
Assets under management (“AUM”) include external client assets for which we provide investment management services, such as the assets of the
Columbia Threadneedle Investments
funds, assets of institutional clients and assets of clients in our advisor platform held in wrap accounts as well as assets managed by sub-advisors selected by us. AUM also includes certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account and the variable product funds held in the separate accounts of our life insurance subsidiaries and CIEs. These assets do not include assets under advisement, for which we provide 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Change
|
2018
|
|
2017
|
(in billions)
|
|
|
Assets Under Management and Administration
|
|
|
|
|
|
|
|
Advice & Wealth Management AUM
|
$
|
249.6
|
|
|
$
|
211.7
|
|
|
$
|
37.9
|
|
|
18
|
%
|
Asset Management AUM
|
485.3
|
|
|
467.0
|
|
|
18.3
|
|
|
4
|
|
Corporate & Other AUM
|
—
|
|
|
0.3
|
|
|
(0.3
|
)
|
|
NM
|
|
Eliminations
|
(26.3
|
)
|
|
(24.6
|
)
|
|
(1.7
|
)
|
|
(7
|
)
|
Total Assets Under Management
|
708.6
|
|
|
654.4
|
|
|
54.2
|
|
|
8
|
|
Total Assets Under Administration
|
178.6
|
|
|
163.2
|
|
|
15.4
|
|
|
9
|
|
Total AUM and AUA
|
$
|
887.2
|
|
|
$
|
817.6
|
|
|
$
|
69.6
|
|
|
9
|
%
|
NM Not Meaningful.
|
Total AUM increased $54.2 billion, or 8%, to $708.6 billion as of
March 31, 2018
compared to $654.4 billion as of
March 31, 2017
primarily due to a $37.9 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows and market appreciation and an $18.3 billion increase in Asset Management AUM driven by market appreciation and a positive impact of foreign currency translation, partially offset by net outflows and retail fund distributions. See our segment results of operations discussion below for additional information on changes in our AUM.
AMERIPRISE FINANCIAL, INC.
Consolidated Results of Operations for the Three Months Ended
March 31, 2018
and
2017
The following table presents our consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
2018
|
|
2017
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
Management and financial advice fees
|
$
|
1,669
|
|
|
$
|
1,487
|
|
|
$
|
182
|
|
|
12
|
%
|
Distribution fees
|
468
|
|
|
441
|
|
|
27
|
|
|
6
|
|
Net investment income
|
396
|
|
|
391
|
|
|
5
|
|
|
1
|
|
Premiums
|
343
|
|
|
339
|
|
|
4
|
|
|
1
|
|
Other revenues
|
308
|
|
|
278
|
|
|
30
|
|
|
11
|
|
Total revenues
|
3,184
|
|
|
2,936
|
|
|
248
|
|
|
8
|
|
Banking and deposit interest expense
|
16
|
|
|
10
|
|
|
6
|
|
|
60
|
|
Total net revenues
|
3,168
|
|
|
2,926
|
|
|
242
|
|
|
8
|
|
Expenses
|
|
|
|
|
|
|
|
Distribution expenses
|
905
|
|
|
823
|
|
|
82
|
|
|
10
|
|
Interest credited to fixed accounts
|
141
|
|
|
162
|
|
|
(21
|
)
|
|
(13
|
)
|
Benefits, claims, losses and settlement expenses
|
494
|
|
|
567
|
|
|
(73
|
)
|
|
(13
|
)
|
Amortization of deferred acquisition costs
|
92
|
|
|
72
|
|
|
20
|
|
|
28
|
|
Interest and debt expense
|
51
|
|
|
50
|
|
|
1
|
|
|
2
|
|
General and administrative expense
|
789
|
|
|
777
|
|
|
12
|
|
|
2
|
|
Total expenses
|
2,472
|
|
|
2,451
|
|
|
21
|
|
|
1
|
|
Pretax income
|
696
|
|
|
475
|
|
|
221
|
|
|
47
|
|
Income tax provision
|
102
|
|
|
72
|
|
|
30
|
|
|
42
|
|
Net income
|
$
|
594
|
|
|
$
|
403
|
|
|
$
|
191
|
|
|
47
|
%
|
Overall
Pretax income increased $221 million, or 47%, to $696 million for the three months ended
March 31, 2018
compared to $475 million for the prior year period primarily reflecting market appreciation, wrap account net inflows and a positive impact from higher short-term interest rates, partially offset by the cumulative impact of asset management net outflows.
The following impacts were also significant drivers of the period-over-period change in pretax income:
|
|
•
|
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $5 million for the three months ended
March 31, 2018
compared to an expense of $63 million for the prior year period.
|
|
|
•
|
The market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) was a benefit of $25 million for the three months ended
March 31, 2018
compared to nil for the prior year period.
|
Net Revenues
Net revenues increased $242 million, or 8%, to $3.2 billion for the three months ended
March 31, 2018
compared to $2.9 billion for the prior year period.
Management and financial advice fees increased $182 million, or 12%, to $1.7 billion for the three months ended
March 31, 2018
compared to $1.5 billion for the prior year period primarily due to an increase in AUM. Average AUM increased $75.7 billion, or 12%, compared to the prior year period due to market appreciation, wrap account net inflows and a positive impact of foreign currency translation, partially offset by asset management net outflows. See our discussion on the changes in AUM in our segment results of operations section.
Distribution fees increased $27 million, or 6%, to $468 million for the three months ended
March 31, 2018
compared to $441 million for the prior year period primarily due to market appreciation, higher brokerage cash spread due to an increase in short-term interest rates and increased transactional activity, partially offset by a $30 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts, which we completed during the first quarter of 2017.
AMERIPRISE FINANCIAL, INC.
Other revenues increased $30 million, or 11%, to $308 million for the three months ended
March 31, 2018
compared to $278 million for the prior year period primarily due to the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, a vendor credit of $14 million 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 unearned revenue amortization and reinsurance accrual offset to the market impact on indexed universal life benefits was a benefit of $13 million for the three months ended
March 31, 2018
compared to a benefit of $1 million for the prior year period.
Expenses
Distribution expenses increased $82 million, or 10%, to $905 million for the three months ended
March 31, 2018
compared to $823 million for the prior year period reflecting higher advisor compensation due to market appreciation and wrap account net inflows and increased transactional activity, partially offset by a $16 million decrease from changes related to our transition to share classes without 12b-1 fees in advisory accounts.
Interest credited to fixed accounts decreased $21 million, or 13%, to $141 million for the three months ended
March 31, 2018
compared to $162 million for the prior year period primarily due to the market impact on indexed universal life benefits, net of hedges, which was a benefit of $21 million for the three months ended
March 31, 2018
compared to nil for the prior year period.
Benefits, claims, losses and settlement expenses decreased $73 million, or 13%, to $494 million for the
three months ended
March 31, 2018
compared to $567 million for the prior year period primarily reflecting a
$78 million decrease in expense 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 $13 million for the three months ended
March 31, 2018
compared to an unfavorable impact of $65 million for the prior year period.
Amortization of DAC increased $20 million, or 28%, to $92 million for the
three months ended
March 31, 2018
compared to $72 million for the prior year period primarily reflecting the following items:
|
|
•
|
The DAC offset to the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) was an expense of $5 million for the three months ended
March 31, 2018
compared to a benefit of $9 million for the prior year period.
|
|
|
•
|
The DAC offset to the market impact on
indexed universal life benefits (net of hedges, unearned revenue amortization and the reinsurance accrual)
was an expense of $9 million for
the
three months ended
March 31, 2018
compared to an expense of $1 million for the prior year period.
|
|
|
•
|
The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was nil for
the
three months ended
March 31, 2018
compared to a benefit of $9 million for the prior year period
reflecting favorable equity market returns
.
|
|
|
•
|
The positive impact on DAC from lower than expected lapses on variable annuities
was $7 million.
|
Income Taxes
Our effective tax rate was 14.7% for the three months ended
March 31, 2018
compared to 15.2% for the prior year period. See Note 16 to our Consolidated Financial Statements for additional discussion on income taxes.
AMERIPRISE FINANCIAL, INC.
Results of Operations by Segment for the Three Months Ended
March 31, 2018
and
2017
Adjusted operating earnings is the measure of segment profit or loss management uses to evaluate segment performance. Adjusted operating earnings should not be viewed as a substitute for GAAP pretax income. We believe the presentation of segment adjusted operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis. See Note 19 to the Consolidated Financial Statements for further information on the presentation of segment results and our definition of adjusted operating earnings.
The following table presents summary financial information by segment:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2018
|
|
2017
|
(in millions)
|
Advice & Wealth Management
|
|
|
|
|
|
Net revenues
|
$
|
1,501
|
|
|
$
|
1,321
|
|
Expenses
|
1,185
|
|
|
1,073
|
|
Adjusted operating earnings
|
$
|
316
|
|
|
$
|
248
|
|
Asset Management
|
|
|
|
|
|
Net revenues
|
$
|
778
|
|
|
$
|
725
|
|
Expenses
|
583
|
|
|
575
|
|
Adjusted operating earnings
|
$
|
195
|
|
|
$
|
150
|
|
Annuities
|
|
|
|
|
|
Net revenues
|
$
|
613
|
|
|
$
|
608
|
|
Expenses
|
481
|
|
|
469
|
|
Adjusted operating earnings
|
$
|
132
|
|
|
$
|
139
|
|
Protection
|
|
|
|
|
|
Net revenues
|
$
|
519
|
|
|
$
|
521
|
|
Expenses
|
449
|
|
|
458
|
|
Adjusted operating earnings
|
$
|
70
|
|
|
$
|
63
|
|
Corporate & Other
|
|
|
|
|
|
Net revenues
|
$
|
57
|
|
|
$
|
57
|
|
Expenses
|
113
|
|
|
137
|
|
Adjusted operating loss
|
$
|
(56
|
)
|
|
$
|
(80
|
)
|
Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the three months ended
March 31
:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
(in billions)
|
Beginning balance
|
$
|
248.2
|
|
|
$
|
201.1
|
|
Net flows
|
5.7
|
|
|
3.9
|
|
Market appreciation (depreciation) and other
|
(2.9
|
)
|
|
7.9
|
|
Ending balance
|
$
|
251.0
|
|
|
$
|
212.9
|
|
|
|
|
|
Advisory wrap account assets ending balance
(1)
|
$
|
248.7
|
|
|
$
|
210.9
|
|
Average advisory wrap account assets
(2)
|
$
|
249.6
|
|
|
$
|
205.4
|
|
|
|
(1)
|
Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
|
|
|
(2)
|
Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.
|
Wrap account assets increased $2.8 billion, or 1%, during the three months ended
March 31, 2018
due to net inflows of $5.7 billion, partially offset by market depreciation and other of $2.9 billion. Average advisory wrap account assets increased $44.2 billion, or 22%, compared to the prior year period reflecting net inflows and market appreciation.
AMERIPRISE FINANCIAL, INC.
The following table presents the changes in wrap account assets for the twelve months ended
March 31
:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
(in billions)
|
Beginning balance
|
$
|
212.9
|
|
|
$
|
183.4
|
|
Inflows from acquisition
(1)
|
0.7
|
|
|
—
|
|
Other net flows
|
20.6
|
|
|
12.3
|
|
Net flows
|
21.3
|
|
|
12.3
|
|
Market appreciation (depreciation) and other
|
16.8
|
|
|
17.2
|
|
Ending balance
|
$
|
251.0
|
|
|
$
|
212.9
|
|
(1)
Inflows associated with acquisition that closed during the period.
Wrap account assets increased $38.1 billion, or 18%, from the prior year period primarily due to net inflows and market appreciation.
In July 2017, we completed our acquisition of Investment Professionals, Inc. (“IPI”), an independent broker-dealer based in San Antonio, Texas specializing in the on-site delivery of investment programs for financial institutions, including banks and credit unions. The acquisition added 215 financial advisors and $8 billion in client assets (including $0.7 billion in assets under management and $7.3 billion in assets under administration).
The following table presents the results of operations of our Advice & Wealth Management segment on an adjusted operating basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
2018
|
|
2017
|
(in millions)
|
|
|
Revenues
|
Management and financial advice fees
|
$
|
848
|
|
|
$
|
723
|
|
|
$
|
125
|
|
|
17
|
%
|
Distribution fees
|
557
|
|
|
516
|
|
|
41
|
|
|
8
|
|
Net investment income
|
69
|
|
|
52
|
|
|
17
|
|
|
33
|
|
Other revenues
|
43
|
|
|
40
|
|
|
3
|
|
|
8
|
|
Total revenues
|
1,517
|
|
|
1,331
|
|
|
186
|
|
|
14
|
|
Banking and deposit interest expense
|
16
|
|
|
10
|
|
|
6
|
|
|
60
|
|
Total net revenues
|
1,501
|
|
|
1,321
|
|
|
180
|
|
|
14
|
|
Expenses
|
Distribution expenses
|
869
|
|
|
777
|
|
|
92
|
|
|
12
|
|
Interest and debt expense
|
3
|
|
|
2
|
|
|
1
|
|
|
50
|
|
General and administrative expense
|
313
|
|
|
294
|
|
|
19
|
|
|
6
|
|
Total expenses
|
1,185
|
|
|
1,073
|
|
|
112
|
|
|
10
|
|
Adjusted operating earnings
|
$
|
316
|
|
|
$
|
248
|
|
|
$
|
68
|
|
|
27
|
%
|
Our Advice & Wealth Management segment pretax adjusted operating earnings, which exclude net realized investment gains or losses, increased $68 million, or 27%, to $316 million for the
three months ended
March 31, 2018
compared to $248 million for the prior year period reflecting wrap account net inflows, market appreciation and higher earnings on brokerage cash, partially offset by higher general and administrative expense. Pretax adjusted operating margin was 21.1% for the
three months ended
March 31, 2018
compared to 18.8% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $180 million, or 14%, to $1.5 billion for the
three months ended
March 31, 2018
compared to $1.3 billion for the prior year period. Adjusted operating net revenue per advisor increased to $152,000 for the
three months ended
March 31, 2018
, up 11%, from $137,000 for the prior year period.
Management and financial fees increased $125 million, or 17%, to $848 million for the
three months ended
March 31, 2018
compared to $723 million for the prior year period primarily due to growth in wrap account assets. Average advisory wrap account assets increased $44.2 billion, or 22%, compared to the prior year period reflecting net inflows and market appreciation.
Distribution fees increased $41 million, or 8%, to $557 million for the
three months ended
March 31, 2018
compared to $516 million for the prior year period reflecting higher brokerage cash spread due to an increase in short-term interest rates, increased transactional activity and the IPI acquisition, partially offset by a $30 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts.
AMERIPRISE FINANCIAL, INC.
Net investment income increased $17 million, or 33%, to $69 million for the
three months ended
March 31, 2018
compared to $52 million for the prior year period primarily due to higher investment yields and an increase in invested balances.
Expenses
Total expenses increased $112 million, or 10%, to $1.2 billion for the
three months ended
March 31, 2018
compared to $1.1 billion for the prior year period.
Distribution expenses increased $92 million, or 12%, to $869 million for the
three months ended
March 31, 2018
compared to$777 million for the prior year period reflecting higher advisor compensation due to market appreciation and wrap account net inflows, increased transactional activity and the IPI acquisition, partially offset by a $16 million decrease from changes related to our transition to share classes without 12b-1 fees in advisory accounts.
General
and administrative expense increased $19 million, or 6%, to $313 million for the
three months ended
March 31, 2018
compared to $294 million for the prior year period primarily due to the
IPI acquisition and investments for business growth, including additional advertising as well as higher volume-related expenses
.
Asset Management
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
|
2018
|
|
2017
|
Domestic Equity
|
Equal weighted
|
1 year
|
57
|
%
|
|
69
|
%
|
|
|
3 year
|
72
|
%
|
|
75
|
%
|
|
|
5 year
|
69
|
%
|
|
71
|
%
|
|
Asset weighted
|
1 year
|
58
|
%
|
|
67
|
%
|
|
|
3 year
|
81
|
%
|
|
79
|
%
|
|
|
5 year
|
80
|
%
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
International Equity
|
Equal weighted
|
1 year
|
85
|
%
|
|
45
|
%
|
|
|
3 year
|
65
|
%
|
|
55
|
%
|
|
|
5 year
|
75
|
%
|
|
70
|
%
|
|
Asset weighted
|
1 year
|
57
|
%
|
|
33
|
%
|
|
|
3 year
|
46
|
%
|
|
44
|
%
|
|
|
5 year
|
57
|
%
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
Taxable Fixed Income
|
Equal weighted
|
1 year
|
74
|
%
|
|
78
|
%
|
|
|
3 year
|
72
|
%
|
|
76
|
%
|
|
|
5 year
|
76
|
%
|
|
82
|
%
|
|
Asset weighted
|
1 year
|
80
|
%
|
|
70
|
%
|
|
|
3 year
|
77
|
%
|
|
83
|
%
|
|
|
5 year
|
82
|
%
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
Tax Exempt Fixed Income
|
Equal weighted
|
1 year
|
84
|
%
|
|
84
|
%
|
|
|
3 year
|
89
|
%
|
|
89
|
%
|
|
|
5 year
|
100
|
%
|
|
100
|
%
|
|
Asset weighted
|
1 year
|
91
|
%
|
|
97
|
%
|
|
|
3 year
|
92
|
%
|
|
92
|
%
|
|
|
5 year
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Asset Allocation Funds
|
Equal weighted
|
1 year
|
60
|
%
|
|
62
|
%
|
|
|
3 year
|
69
|
%
|
|
90
|
%
|
|
|
5 year
|
78
|
%
|
|
88
|
%
|
|
Asset weighted
|
1 year
|
51
|
%
|
|
48
|
%
|
|
|
3 year
|
90
|
%
|
|
100
|
%
|
|
|
5 year
|
94
|
%
|
|
98
|
%
|