Table
of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly
Period Ended March 31, 2009
or
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition
Period from
to
Commission File No. 1-32525
AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its
charter)
Delaware
|
|
13-3180631
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
1099 Ameriprise Financial Center, Minneapolis, Minnesota
|
|
55474
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(612) 671-3131
Registrants telephone
number, including area code:
Not Applicable
Former name, former
address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
|
|
Accelerated Filer
o
|
|
|
|
Non-Accelerated Filer
o
(Do not check if a smaller reporting
company)
|
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable
date.
Class
|
|
Outstanding
at April 24, 2009
|
Common Stock (par value $.01 per share)
|
|
219,119,544 shares
|
Table
of Contents
AMERIPRISE FINANCIAL,
INC.
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in millions, except per share amounts)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Revenues
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
554
|
|
$
|
791
|
|
Distribution fees
|
|
311
|
|
433
|
|
Net investment income
|
|
421
|
|
401
|
|
Premiums
|
|
266
|
|
256
|
|
Other revenues
|
|
209
|
|
157
|
|
Total revenues
|
|
1,761
|
|
2,038
|
|
Banking and deposit interest expense
|
|
42
|
|
47
|
|
Total net revenues
|
|
1,719
|
|
1,991
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Distribution expenses
|
|
383
|
|
532
|
|
Interest credited to fixed accounts
|
|
205
|
|
195
|
|
Benefits, claims, losses and settlement
expenses
|
|
100
|
|
304
|
|
Amortization of deferred acquisition costs
|
|
286
|
|
154
|
|
Interest and debt expense
|
|
26
|
|
26
|
|
General and administrative expense
|
|
585
|
|
590
|
|
Total expenses
|
|
1,585
|
|
1,801
|
|
Pretax income
|
|
134
|
|
190
|
|
Income tax provision
|
|
18
|
|
4
|
|
Net income
|
|
116
|
|
186
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
(14
|
)
|
(5
|
)
|
Net income attributable to Ameriprise
Financial
|
|
$
|
130
|
|
$
|
191
|
|
|
|
|
|
|
|
Earnings per share attributable to
Ameriprise Financial common shareholders
|
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
$
|
0.84
|
|
Diluted
|
|
0.58
|
|
0.82
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
Basic
|
|
222.3
|
|
228.4
|
|
Diluted
|
|
223.5
|
|
231.5
|
|
|
|
|
|
|
|
Cash dividends paid per common share
|
|
$
|
0.17
|
|
$
|
0.15
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
Net investment income before impairment losses
on securities
|
|
$
|
456
|
|
|
|
Total other-than-temporary impairment losses
on securities
|
|
(38
|
)
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
3
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(35
|
)
|
|
|
Net investment income
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements.
3
Table
of Contents
AMERIPRISE FINANCIAL,
INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,796
|
|
$
|
6,228
|
|
Investments
|
|
30,738
|
|
27,522
|
|
Separate account assets
|
|
42,014
|
|
44,746
|
|
Receivables
|
|
3,579
|
|
3,887
|
|
Deferred acquisition costs
|
|
4,237
|
|
4,383
|
|
Restricted and segregated cash
|
|
1,811
|
|
1,883
|
|
Other assets
|
|
6,406
|
|
6,928
|
|
Total assets
|
|
$
|
94,581
|
|
$
|
95,577
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
30,956
|
|
$
|
29,293
|
|
Separate account liabilities
|
|
42,014
|
|
44,746
|
|
Customer deposits
|
|
8,465
|
|
8,229
|
|
Debt
|
|
1,922
|
|
2,027
|
|
Accounts payable and accrued expenses
|
|
713
|
|
887
|
|
Other liabilities
|
|
3,874
|
|
3,928
|
|
Total liabilities
|
|
87,944
|
|
89,110
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Ameriprise Financial:
|
|
|
|
|
|
Common shares ($.01 par value; shares
authorized, 1,250,000,000; shares issued, 259,569,082 and 256,432,623,
respectively)
|
|
3
|
|
3
|
|
Additional paid-in capital
|
|
4,719
|
|
4,688
|
|
Retained earnings
|
|
4,817
|
|
4,592
|
|
Treasury shares, at cost (40,431,702 and
39,921,924 shares, respectively)
|
|
(2,021
|
)
|
(2,012
|
)
|
Accumulated other comprehensive loss, net:
|
|
|
|
|
|
Net unrealized securities losses
|
|
(865
|
)
|
(961
|
)
|
Noncredit related impairments on securities
|
|
(134
|
)
|
|
|
Net unrealized derivatives losses
|
|
(8
|
)
|
(8
|
)
|
Foreign currency translation adjustments
|
|
(88
|
)
|
(85
|
)
|
Defined benefit plans
|
|
(39
|
)
|
(39
|
)
|
Total accumulated other comprehensive loss,
net
|
|
(1,134
|
)
|
(1,093
|
)
|
Total Ameriprise Financial shareholders
equity
|
|
6,384
|
|
6,178
|
|
Noncontrolling interests
|
|
253
|
|
289
|
|
Total equity
|
|
6,637
|
|
6,467
|
|
Total liabilities and equity
|
|
$
|
94,581
|
|
$
|
95,577
|
|
See Notes to Consolidated Financial
Statements.
4
Table
of Contents
AMERIPRISE FINANCIAL,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
Net income
|
|
$
|
116
|
|
$
|
186
|
|
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
Capitalization of deferred acquisition and
sales inducement costs
|
|
(229
|
)
|
(188
|
)
|
Amortization of deferred acquisition and
sales inducement costs
|
|
335
|
|
171
|
|
Depreciation and amortization
|
|
53
|
|
45
|
|
Deferred income tax expense (benefit)
|
|
82
|
|
(36
|
)
|
Share-based compensation
|
|
40
|
|
37
|
|
Net realized investment gains
|
|
(51
|
)
|
(8
|
)
|
Other-than-temporary impairments recognized
in net investment income and provision for loan losses
|
|
39
|
|
33
|
|
Premium and discount amortization
|
|
3
|
|
25
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
Segregated cash
|
|
77
|
|
42
|
|
Trading securities and equity method
investments, net
|
|
(344
|
)
|
81
|
|
Future policy benefits and claims, net
|
|
167
|
|
154
|
|
Receivables
|
|
303
|
|
(95
|
)
|
Brokerage deposits
|
|
(151
|
)
|
(42
|
)
|
Accounts payable and accrued expenses
|
|
(172
|
)
|
(389
|
)
|
Liability for derivatives collateral held
|
|
(625
|
)
|
106
|
|
Other, net
|
|
(207
|
)
|
47
|
|
Net cash (used in) provided by operating
activities
|
|
(564
|
)
|
169
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
Available-for-Sale securities:
|
|
|
|
|
|
Proceeds from sales
|
|
1,285
|
|
92
|
|
Maturities, sinking fund payments and calls
|
|
1,207
|
|
983
|
|
Purchases
|
|
(4,561
|
)
|
(584
|
)
|
Proceeds from sales and maturities of
commercial mortgage loans
|
|
52
|
|
61
|
|
Funding of commercial mortgage loans
|
|
(34
|
)
|
(73
|
)
|
Proceeds from sales of other investments
|
|
11
|
|
14
|
|
Purchase of other investments
|
|
(10
|
)
|
(102
|
)
|
Purchase of land, buildings, equipment and
software
|
|
(15
|
)
|
(44
|
)
|
Change in policy loans, net
|
|
7
|
|
(9
|
)
|
Change in restricted cash
|
|
(8
|
)
|
150
|
|
Change in consumer banking loans and credit
card receivables, net
|
|
(15
|
)
|
4
|
|
Other, net
|
|
4
|
|
(1
|
)
|
Net cash (used in) provided by investing
activities
|
|
(2,077
|
)
|
491
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
Table
of Contents
AMERIPRISE FINANCIAL,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(in millions)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
Investment certificates and banking time
deposits:
|
|
|
|
|
|
Proceeds from additions
|
|
$
|
980
|
|
$
|
327
|
|
Maturities, withdrawals and cash surrenders
|
|
(866
|
)
|
(249
|
)
|
Change in other banking deposits
|
|
271
|
|
71
|
|
Policyholder and contractholder account
values:
|
|
|
|
|
|
Consideration received
|
|
2,417
|
|
350
|
|
Net transfers from separate accounts
|
|
284
|
|
14
|
|
Surrenders and other benefits
|
|
(770
|
)
|
(804
|
)
|
Deferred premium options, net
|
|
61
|
|
(13
|
)
|
Proceeds from issuance of debt, net of
issuance costs
|
|
9
|
|
|
|
Principal repayments of debt
|
|
(113
|
)
|
|
|
Dividends paid to shareholders
|
|
(37
|
)
|
(34
|
)
|
Repurchase of common shares
|
|
(9
|
)
|
(277
|
)
|
Exercise of stock options
|
|
|
|
6
|
|
Excess tax benefits from share-based compensation
|
|
1
|
|
3
|
|
Noncontrolling interests investments in
subsidiaries
|
|
1
|
|
19
|
|
Distributions to noncontrolling interests
|
|
(18
|
)
|
(5
|
)
|
Net cash provided by (used in) financing
activities
|
|
2,211
|
|
(592
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(2
|
)
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
(432
|
)
|
68
|
|
Cash and cash equivalents at beginning of
period
|
|
6,228
|
|
3,836
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,796
|
|
$
|
3,904
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
Interest paid on debt
|
|
$
|
3
|
|
$
|
|
|
Income taxes (received) paid, net
|
|
(1
|
)
|
30
|
|
See Notes to Consolidated Financial Statements.
6
Table
of Contents
AMERIPRISE FINANCIAL,
INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31,
2009 and 2008
(in millions, except share amounts)
|
|
|
|
Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Additional
|
|
|
|
|
|
Comprehen-
|
|
Non-
|
|
|
|
|
|
Outstanding
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
sive Income
|
|
controlling
|
|
|
|
|
|
Shares
|
|
Shares
|
|
Capital
|
|
Earnings
|
|
Shares
|
|
(Loss)
|
|
Interests
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at January 1, 2008
|
|
227,747,843
|
|
$
|
3
|
|
$
|
4,630
|
|
$
|
4,811
|
|
$
|
(1,467
|
)
|
$
|
(167
|
)
|
$
|
378
|
|
$
|
8,188
|
|
Change in
accounting principle, net
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
(30
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
(5
|
)
|
186
|
|
Other
comprehensive loss, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net
unrealized securities losses
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
(114
|
)
|
Foreign currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Dividends paid to
shareholders
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
19
|
|
Distributions to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
(5
|
)
|
Repurchase of
common shares
|
|
(5,675,599
|
)
|
|
|
|
|
|
|
(290
|
)
|
|
|
|
|
(290
|
)
|
Share-based
compensation plans
|
|
1,322,998
|
|
|
|
7
|
|
|
|
47
|
|
|
|
|
|
54
|
|
Balances
at March 31, 2008
|
|
223,395,242
|
|
$
|
3
|
|
$
|
4,637
|
|
$
|
4,938
|
|
$
|
(1,710
|
)
|
$
|
(287
|
)
|
$
|
387
|
|
$
|
7,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at January 1, 2009
|
|
216,510,699
|
|
$
|
3
|
|
$
|
4,688
|
|
$
|
4,592
|
|
$
|
(2,012
|
)
|
$
|
(1,093
|
)
|
$
|
289
|
|
$
|
6,467
|
|
Change in
accounting principle, net
|
|
|
|
|
|
|
|
132
|
|
|
|
(132
|
)
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
(14
|
)
|
116
|
|
Other
comprehensive income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net
unrealized securities losses
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
96
|
|
Change in
noncredit related impairments on securities
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Foreign currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
(5
|
)
|
(8
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
Dividends paid to
shareholders
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
(37
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
1
|
|
Distributions to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
(18
|
)
|
Repurchase of
common shares
|
|
(509,778
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
(9
|
)
|
Share-based
compensation plans
|
|
3,136,459
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
31
|
|
Balances
at March 31, 2009
|
|
219,137,380
|
|
$
|
3
|
|
$
|
4,719
|
|
$
|
4,817
|
|
$
|
(2,021
|
)
|
$
|
(1,134
|
)
|
$
|
253
|
|
$
|
6,637
|
|
See Notes to Consolidated Financial Statements.
7
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Basis of Presentation
The accompanying Consolidated Financial
Statements include the accounts of Ameriprise Financial, Inc., companies
in which it directly or indirectly has a controlling financial interest,
variable interest entities (VIEs) in which it is the primary beneficiary and
certain limited partnerships for which it is the general partner (collectively,
the Company). Noncontrolling interests are the ownership interests in
subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc.
and are classified as equity within the Consolidated Balance Sheets. The
Company excluding noncontrolling interests (Ameriprise Financial) includes
ownership interests in subsidiaries that are attributable, directly or
indirectly, to Ameriprise Financial, Inc. All material intercompany
transactions and balances between or among Ameriprise Financial, Inc. and
its subsidiaries and affiliates 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 a fair presentation of the consolidated results of operations and
financial position for the interim periods have been made. All adjustments made
were of a normal recurring nature.
Ameriprise Financial, Inc. is a holding
company, which primarily conducts business through its subsidiaries to provide
financial planning and 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 Companys foreign
operations in the United Kingdom are conducted through its subsidiary,
Threadneedle Asset Management Holdings Sàrl (Threadneedle).
Reclassifications
The accompanying Consolidated Financial
Statements are prepared in accordance with U.S. generally accepted accounting
principles (GAAP). Certain reclassifications of prior period amounts have
been made to conform to the current presentation. In the second quarter of
2008, the Company reclassified the changes in fair value of certain derivatives
from net investment income to various expense lines where the changes in fair
value of the related embedded derivatives reside. The changes in fair value of
derivatives hedging variable annuity living benefits, equity indexed annuities
and stock market certificates were reclassified to benefits, claims, losses and
settlement expenses, interest credited to fixed accounts and banking and
deposit interest expense, respectively.
2.
Recent Accounting Pronouncements
In April 2009, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position (FSP) FAS 157-4 Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP 157-4). FSP 157-4 provides guidance on estimating the fair value of a
financial asset or liability when the trade volume and level of activity for
the asset or liability has significantly decreased relative to historical
levels. FSP 157-4 requires entities to disclose in interim and annual periods
the inputs and valuation techniques used to measure fair value and any changes
in valuation inputs or techniques. In addition, debt and equity securities as
defined by Statement of Financial Accounting Standards (SFAS) No. 115 Accounting
for Certain Investments in Debt and Equity Securities shall be disclosed by
major category. This FSP is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009, and is to be applied prospectively. The
Company early adopted FSP 157-4 in the first quarter of 2009. The adoption did
not have a material effect on the Companys consolidated results of operations
and financial condition.
In April 2009, the FASB issued FSP FAS
115-2 and FAS 124-2 Recognition and Presentation of Other-Than-Temporary
Impairments (FSP 115-2). FSP 115-2 amends existing guidance on
other-than-temporary impairments for debt securities and requires that the
credit portion of other-than-temporary impairments be recorded in earnings and
the noncredit portion of losses be recorded in other comprehensive income. FSP
115-2 requires presentation of both the credit and noncredit portions of
other-than-temporary impairments on the financial statements and additional
disclosures in interim and annual periods. This FSP is effective for interim
and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. At the date of
adoption, the portion of previously recognized other-than-temporary impairments
that represent the noncredit related loss component shall be recognized as a
cumulative effect of adoption with an adjustment to the opening balance of
retained earnings with a corresponding adjustment to accumulated other
comprehensive income (loss). The Company adopted FSP 115-2 in the first quarter
of 2009 and recorded a cumulative effect increase to the opening balance of
retained earnings of $132 million, net of deferred acquisition costs (DAC)
and deferred sales inducement costs (DSIC) amortization, certain benefit
reserves and income taxes, and a corresponding increase to accumulated other
comprehensive loss, net of impacts to DAC, DSIC, certain benefit reserves and
income taxes. See Note 3 for the Companys updated accounting policy and disclosures
required by this FSP.
In April 2009, the FASB issued FSP FAS
107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial
Instruments (FSP 107-1). FSP 107-1 requires interim disclosure on the fair
value of financial instruments within the scope of SFAS No. 107 Disclosures
about Fair Value of Financial Instruments. This FSP is effective for interim
and annual reporting periods ending after
8
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. The Company applied the
disclosure requirements of FSP 107-1 in the first quarter of 2009. See Note 9
for disclosures required by this FSP.
In December 2008, the FASB issued FSP FAS
132(R)-1 Employers Disclosures about Postretirement Benefit Plan Assets (FSP
132(R)-1). FSP 132(R)-1 requires enhanced disclosure related to plan assets
including information about inputs and techniques used to determine the fair
value of plan assets. FSP 132(R)-1 is effective for the first fiscal year
ending after December 15, 2009, with early adoption permitted. The Company
will apply the disclosure requirements of FSP 132(R)-1 as of December 31,
2009.
In June 2008, the FASB issued FSP EITF
03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1
clarifies that unvested share-based payment awards with nonforfeitable rights
to dividends or dividend equivalents are considered participating securities
and should be included in the calculation of earnings per share pursuant to the
two-class method. FSP EITF 03-6-1 is effective for financial statements issued
for periods beginning after December 15, 2008, with early adoption
prohibited. FSP EITF 03-6-1 requires that all prior-period earnings per share
data be adjusted retrospectively to conform with the FSP provisions. The
Company adopted FSP EITF 03-6-1 as of January 1, 2009. The adoption did
not have a material effect on the Companys earnings per share.
In March 2008, the FASB issued SFAS No. 161
Disclosures about Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161
intends to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures about their impact on an entitys
financial position, financial performance, and cash flows. SFAS 161 requires
disclosures regarding the objectives for using derivative instruments, the fair
value of derivative instruments and their related gains and losses, and the
accounting for derivatives and related hedged items. SFAS 161 is effective for
fiscal years and interim periods beginning after November 15, 2008,
with early adoption permitted. The Company applied the disclosure requirements
of SFAS 161 in the first quarter of 2009. See Note 10 for disclosures required
by SFAS 161.
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements-an amendment of
ARB No. 51 (SFAS 160), which establishes the accounting and reporting
for ownership interest in subsidiaries not attributable, directly or
indirectly, to a parent. SFAS 160 requires that noncontrolling (minority)
interests be classified as equity (instead of as a liability) within the
consolidated balance sheet, and net income (loss) attributable to both the
parent and the noncontrolling interests be disclosed on the face of the
consolidated statement of operations. SFAS 160 is effective for fiscal years beginning
after December 15, 2008, and interim periods within those years with
early adoption prohibited. The provisions of SFAS 160 are to be applied
prospectively, except for the presentation and disclosure requirements which
are to be applied retrospectively to all periods presented. The Company adopted
SFAS 160 as of January 1, 2009. The adoption did not have a material
effect on the Companys consolidated results of operations and financial
condition.
In September 2006, the FASB issued SFAS No. 157
Fair Value Measurements (SFAS 157), which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements. Accordingly, SFAS 157 does not
require any new fair value measurements. The provisions of SFAS 157 are
required to be applied prospectively as of the beginning of the fiscal year in
which SFAS 157 is initially applied, except for certain financial instruments
as defined in SFAS 157 that require retrospective application. Any
retrospective application will be recognized as a cumulative effect adjustment
to the opening balance of retained earnings for the fiscal year of adoption.
The Company adopted SFAS 157 effective January 1, 2008 and recorded a
cumulative effect reduction to the opening balance of retained earnings of
$30 million, net of DAC and DSIC amortization and income taxes. This
reduction to retained earnings was related to adjusting the fair value of
certain derivatives the Company uses to hedge its exposure to market risk
related to certain variable annuity riders. The Company initially recorded
these derivatives in accordance with EITF Issue No. 02-3 Issues Involved
in Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities (EITF 02-3). SFAS
157 nullifies the guidance in EITF 02-3 and requires these derivatives to be
marked to the price the Company would receive to sell the derivatives to a
market participant (an exit price). The adoption of SFAS 157 also resulted in
adjustments to the fair value of the Companys embedded derivative liabilities
associated with certain variable annuity riders. Since there is no market for
these liabilities, the Company considered the assumptions participants in a
hypothetical market would make to determine an exit price. As a result, the
Company adjusted the valuation of these liabilities by updating certain
policyholder assumptions, adding explicit margins to provide for profit, risk,
and expenses, and adjusting the rate used to discount expected cash flows to
reflect a current market estimate of the Companys risk of nonperformance
specific to these liabilities. These adjustments resulted in an adoption impact
of a $4 million increase in earnings, net of DAC and DSIC amortization and
income taxes, at January 1, 2008. The nonperformance risk component
of the adjustment is specific to the risk of RiverSource Life Insurance Company
(RiverSource Life) and RiverSource Life Insurance Co. of New York (RiverSource
Life of NY) (collectively, RiverSource Life companies) not fulfilling these
liabilities. As the Companys estimate of this credit spread widens or
tightens, the liability will decrease or increase.
9
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
In accordance with FSP FAS 157-2, Effective
Date of FASB Statement No. 157 (FSP 157-2), the Company deferred the
adoption of SFAS 157 until January 1, 2009 for all nonfinancial assets and
nonfinancial liabilities, except for those that are recognized or disclosed at
fair value in the financial statements on a recurring basis. See Note 9
for additional information regarding the fair values of the Companys assets
and liabilities.
3.
Investments
The following is a summary of investments:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Available-for-Sale securities, at fair value
|
|
$
|
25,762
|
|
$
|
22,873
|
|
Commercial mortgage loans, net
|
|
2,852
|
|
2,887
|
|
Trading securities
|
|
874
|
|
501
|
|
Policy loans
|
|
722
|
|
729
|
|
Other investments
|
|
528
|
|
532
|
|
Total
|
|
$
|
30,738
|
|
$
|
27,522
|
|
Available-for-Sale Securities
Effective January 1, 2009, the Company
early adopted FSP 115-2. This interpretation significantly changed the Companys
accounting policy regarding the timing and amount of other-than temporary
impairments for Available-for-Sale securities as follows. When the fair value
of an investment is less than its amortized cost, the Company assesses whether
or not it has i.) the intent to sell the security (made a decision to sell) or
ii.) it is more likely than not it will be required to sell the security before
its anticipated recovery. If either of these conditions are met, the Company
must recognize an other-than-temporary impairment for the difference between
the investments amortized cost basis and its fair value through earnings. In
addition, for investments that do not meet the above criteria, and the Company
does not expect to recover a securitys amortized cost basis, the security is
considered other-than temporarily impaired. For these securities, the Company
separates the total impairment into the credit loss component and the amount of
the loss related to other factors. The amount of the total other-than-temporary
impairment related to credit loss is recognized in earnings. The amount of the
total other-than-temporary impairment related to other factors is recognized in
other comprehensive income, net of impacts to DAC, DSIC, certain benefit
reserves and income taxes. For Available-for-Sale securities that have
recognized an other-than-temporary impairment through earnings, if through
subsequent evaluation there is a significant increase in the cash flow
expected, the difference between the amortized cost basis and the cash flows
expected to be collected is accreted as interest income. Subsequent increases
and decreases in the fair value of Available-for-Sale securities are included
in other comprehensive income.
For all securities that are considered temporarily
impaired, the Company does not intend to sell these securities (has not made a
decision to sell) and it is not more likely than not that the Company will be
required to sell the security before recovery of its amortized cost basis.
The Company
believes that it will collect all principal and interest due on all investments
that have amortized cost in excess of fair value that are considered only
temporarily impaired.
Corporate debt securities
Factors the Company considers in determining
whether declines in the fair value of fixed maturity securities are
other-than-temporary include: 1) the extent to which the market value is below
amortized cost; 2) the duration of time in which there has been a significant
decline in value; 3) fundamental analysis of the liquidity, business prospects
and overall financial condition of the issuer; and 4) market events that could
impact credit ratings, economic and business climate, litigation and government
actions, and similar external business factors. In order to determine the
amount of the credit loss component for corporate debt securities considered
other-than-temporarily impaired, a best estimate of the present value of cash
flows expected to be collected discounted at the securitys effective interest
rate is compared to the amortized cost basis of the security.
Structured investments
For structured investments (e.g., residential mortgage
backed securities, commercial mortgage backed securities, asset backed
securities and other structured investments), the Company also considers
factors such as overall deal structure and its position within the structure,
quality of underlying collateral, delinquencies and defaults, loss severities,
recoveries, prepayments and cumulative loss projections in assessing potential
other-than-temporary impairments of these investments. Based upon these factors,
securities that have indicators of potential other-than-temporary impairment
are subject to detailed review by management. Securities for which declines are
considered temporary continue to be carefully monitored by management. For the
three months ended March 31, 2009, certain non-agency mortgage backed
securities are deemed other-than
10
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
temporarily impaired. Generally, the credit
loss component for the non-agency mortgage backed securities is determined as
the amount the amortized cost basis exceeds the present value of the projected
cash flows expected to be collected. Forward interest rates are considered in
the cash flow projections and are used to calculate the discount rate used to
determine the present value of the expected cash flows when structures are supported
by variable rate securities. Current effective interest rates are used to
discount cash flows supported by fixed rate securities.
Available-for-Sale securities distributed by
type were as follows:
|
|
March 31, 2009
|
|
Description of Securities
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
13,909
|
|
$
|
101
|
|
$
|
(1,041
|
)
|
$
|
12,969
|
|
Residential mortgage backed securities
|
|
7,251
|
|
100
|
|
(631
|
)
|
6,720
|
|
Commercial mortgage backed securities
|
|
3,547
|
|
53
|
|
(162
|
)
|
3,438
|
|
Asset backed securities
|
|
1,393
|
|
21
|
|
(109
|
)
|
1,305
|
|
State and municipal obligations
|
|
1,102
|
|
6
|
|
(161
|
)
|
947
|
|
U.S. government and agencies obligations
|
|
179
|
|
9
|
|
|
|
188
|
|
Foreign government bonds and obligations
|
|
96
|
|
13
|
|
(4
|
)
|
105
|
|
Common and preferred stocks
|
|
52
|
|
7
|
|
(36
|
)
|
23
|
|
Other structured investments
|
|
26
|
|
12
|
|
|
|
38
|
|
Other debt obligations
|
|
29
|
|
|
|
|
|
29
|
|
Total
|
|
$
|
27,584
|
|
$
|
322
|
|
$
|
(2,144
|
)
|
$
|
25,762
|
|
|
|
December 31, 2008
|
|
Description of Securities
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
13,687
|
|
$
|
86
|
|
$
|
(1,174
|
)
|
$
|
12,599
|
|
Residential mortgage backed securities
|
|
5,616
|
|
71
|
|
(452
|
)
|
5,235
|
|
Commercial mortgage backed securities
|
|
2,880
|
|
36
|
|
(183
|
)
|
2,733
|
|
Asset backed securities
|
|
1,055
|
|
4
|
|
(101
|
)
|
958
|
|
State and municipal obligations
|
|
1,024
|
|
4
|
|
(155
|
)
|
873
|
|
U.S. government and agencies obligations
|
|
257
|
|
14
|
|
|
|
271
|
|
Foreign government bonds and obligations
|
|
95
|
|
17
|
|
(5
|
)
|
107
|
|
Common and preferred stocks
|
|
53
|
|
6
|
|
(22
|
)
|
37
|
|
Other structured investments
|
|
31
|
|
19
|
|
|
|
50
|
|
Other debt obligations
|
|
10
|
|
|
|
|
|
10
|
|
Total
|
|
$
|
24,708
|
|
$
|
257
|
|
$
|
(2,092
|
)
|
$
|
22,873
|
|
At March 31, 2009 and December 31,
2008, fixed maturity securities comprised approximately 84% and 83%,
respectively, of the Companys total investments. These securities
were rated by Moodys Investors Service (Moodys) and Standard &
Poors Ratings Services (S&P), except for approximately $1.2 billion
of securities at both March 31, 2009 and December 31, 2008,
which were rated by the Companys internal analysts using criteria similar
to Moodys and S&P. Ratings on investment grade securities are presented
using S&Ps convention and, if the two agencies ratings differ, the
lower rating is used. A summary of fixed maturity securities by rating was
as follows:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Ratings
|
|
Amortized
Cost
|
|
Fair Value
|
|
Percent of Total
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
|
Percent of Total
Fair Value
|
|
|
|
(in millions, except percentages)
|
|
AAA
|
|
$
|
10,913
|
|
$
|
10,690
|
|
42
|
%
|
$
|
9,475
|
|
$
|
8,988
|
|
40
|
%
|
AA
|
|
1,570
|
|
1,426
|
|
6
|
|
1,698
|
|
1,571
|
|
7
|
|
A
|
|
4,208
|
|
3,913
|
|
15
|
|
4,689
|
|
4,396
|
|
19
|
|
BBB
|
|
8,602
|
|
8,025
|
|
31
|
|
7,299
|
|
6,707
|
|
29
|
|
Below investment grade
|
|
2,239
|
|
1,685
|
|
6
|
|
1,494
|
|
1,174
|
|
5
|
|
Total fixed maturities
|
|
$
|
27,532
|
|
$
|
25,739
|
|
100
|
%
|
$
|
24,655
|
|
$
|
22,836
|
|
100
|
%
|
11
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
At March 31, 2009 and December 31, 2008,
approximately 38% and 45%, 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 Ameriprise Financial
shareholders 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:
|
|
March 31, 2009
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
3,697
|
|
$
|
(267
|
)
|
$
|
4,489
|
|
$
|
(774
|
)
|
$
|
8,186
|
|
$
|
(1,041
|
)
|
Residential mortgage backed securities
|
|
1,831
|
|
(296
|
)
|
665
|
|
(335
|
)
|
2,496
|
|
(631
|
)
|
Commercial mortgage backed securities
|
|
755
|
|
(34
|
)
|
1,210
|
|
(128
|
)
|
1,965
|
|
(162
|
)
|
Asset backed securities
|
|
368
|
|
(32
|
)
|
282
|
|
(77
|
)
|
650
|
|
(109
|
)
|
State and municipal obligations
|
|
218
|
|
(14
|
)
|
519
|
|
(147
|
)
|
737
|
|
(161
|
)
|
U.S. government and agencies obligations
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
Foreign government bonds and obligations
|
|
14
|
|
(4
|
)
|
|
|
|
|
14
|
|
(4
|
)
|
Other structured investments
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
Common and preferred stocks
|
|
|
|
|
|
14
|
|
(36
|
)
|
14
|
|
(36
|
)
|
Total
|
|
$
|
6,891
|
|
$
|
(647
|
)
|
$
|
7,190
|
|
$
|
(1,497
|
)
|
$
|
14,081
|
|
$
|
(2,144
|
)
|
|
|
December 31, 2008
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
6,250
|
|
$
|
(396
|
)
|
$
|
3,544
|
|
$
|
(778
|
)
|
$
|
9,794
|
|
$
|
(1,174
|
)
|
Residential mortgage backed securities
|
|
765
|
|
(164
|
)
|
786
|
|
(288
|
)
|
1,551
|
|
(452
|
)
|
Commercial mortgage backed securities
|
|
473
|
|
(27
|
)
|
997
|
|
(156
|
)
|
1,470
|
|
(183
|
)
|
Asset backed securities
|
|
373
|
|
(52
|
)
|
231
|
|
(49
|
)
|
604
|
|
(101
|
)
|
State and municipal obligations
|
|
438
|
|
(64
|
)
|
295
|
|
(91
|
)
|
733
|
|
(155
|
)
|
U.S. government and agencies obligations
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
Foreign government bonds and obligations
|
|
20
|
|
(5
|
)
|
|
|
|
|
20
|
|
(5
|
)
|
Common and preferred stocks
|
|
|
|
|
|
27
|
|
(22
|
)
|
27
|
|
(22
|
)
|
Total
|
|
$
|
8,319
|
|
$
|
(708
|
)
|
$
|
5,891
|
|
$
|
(1,384
|
)
|
$
|
14,210
|
|
$
|
(2,092
|
)
|
The following tables summarize the
unrealized losses by ratio of fair value to amortized cost:
|
|
March 31, 2009
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
Ratio of Fair Value
|
|
Number of
|
|
|
|
Unrealized
|
|
Number of
|
|
|
|
Unrealized
|
|
Number of
|
|
|
|
Unrealized
|
|
to Amortized Cost
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
|
|
(in millions, except number of securities)
|
|
95% - 100%
|
|
320
|
|
$
|
4,237
|
|
$
|
(72
|
)
|
153
|
|
$
|
2,262
|
|
$
|
(58
|
)
|
473
|
|
$
|
6,499
|
|
$
|
(130
|
)
|
90% - 95%
|
|
112
|
|
1,245
|
|
(96
|
)
|
129
|
|
1,529
|
|
(122
|
)
|
241
|
|
2,774
|
|
(218
|
)
|
80% - 90%
|
|
79
|
|
642
|
|
(103
|
)
|
192
|
|
1,728
|
|
(284
|
)
|
271
|
|
2,370
|
|
(387
|
)
|
Less than 80%
|
|
98
|
|
767
|
|
(376
|
)
|
227
|
|
1,671
|
|
(1,033
|
)
|
325
|
|
2,438
|
|
(1,409
|
)
|
Total
|
|
609
|
|
$
|
6,891
|
|
$
|
(647
|
)
|
701
|
|
$
|
7,190
|
|
$
|
(1,497
|
)
|
1,310
|
|
$
|
14,081
|
|
$
|
(2,144
|
)
|
12
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
|
|
December 31, 2008
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
Ratio of Fair Value
|
|
Number of
|
|
|
|
Unrealized
|
|
Number of
|
|
|
|
Unrealized
|
|
Number of
|
|
|
|
Unrealized
|
|
to Amortized Cost
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
Securities
|
|
Fair Value
|
|
Losses
|
|
|
|
(in millions, except number of securities)
|
|
95% - 100%
|
|
328
|
|
$
|
4,717
|
|
$
|
(100
|
)
|
105
|
|
$
|
1,392
|
|
$
|
(30
|
)
|
433
|
|
$
|
6,109
|
|
$
|
(130
|
)
|
90% - 95%
|
|
169
|
|
1,980
|
|
(152
|
)
|
64
|
|
1,117
|
|
(96
|
)
|
233
|
|
3,097
|
|
(248
|
)
|
80% - 90%
|
|
162
|
|
974
|
|
(156
|
)
|
124
|
|
1,624
|
|
(297
|
)
|
286
|
|
2,598
|
|
(453
|
)
|
Less than 80%
|
|
108
|
|
648
|
|
(300
|
)
|
281
|
|
1,758
|
|
(961
|
)
|
389
|
|
2,406
|
|
(1,261
|
)
|
Total
|
|
767
|
|
$
|
8,319
|
|
$
|
(708
|
)
|
574
|
|
$
|
5,891
|
|
$
|
(1,384
|
)
|
1,341
|
|
$
|
14,210
|
|
$
|
(2,092
|
)
|
As part of the Companys ongoing monitoring
process, management determined that a majority of the gross unrealized losses
on its Available-for-Sale securities are attributable to changes in credit
spreads across sectors. The primary driver of increased unrealized losses in
the first quarter of 2009 was related to the adoption of FSP 115-2. The Company
recorded a cumulative effect increase to the amortized cost of previously
other-than-temporarily impaired investments that increased the gross unrealized
losses on Available-for-Sale securities by $211 million. This impact is due to
impairment of Available-for-Sale securities previously recognized through
earnings for factors other than credit.
The change in net unrealized securities gains
(losses) in other comprehensive income (loss) includes three components,
net of tax: (i) unrealized gains (losses) that arose from changes in
the market value of securities that were held during the period (holding gains
(losses)); (ii) (gains) losses that were previously unrealized, but
have been recognized in current period net income due to sales and
other-than-temporary impairments of Available-for-Sale securities
(reclassification of realized gains (losses)); and (iii) other items
primarily consisting of adjustments in asset and liability balances, such as
DAC, DSIC and annuity liabilities to reflect the expected impact on their
carrying values had the unrealized gains (losses) been realized as of the
respective balance sheet dates.
The following table presents the rollforward of
the net unrealized securities losses, net of tax, included in accumulated other
comprehensive loss:
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
Net unrealized securities losses at January 1
|
|
$
|
(961
|
)
|
$
|
(168
|
)
|
Change in accounting principles, net of tax of $73 and nil,
respectively
|
|
(137
|
)
|
|
|
Holding gains (losses), net of tax of $85 and $71, respectively
|
|
157
|
|
(132
|
)
|
Reclassification of realized (gains) losses, net of tax of $6 and $8,
respectively
|
|
(10
|
)
|
16
|
|
DAC, DSIC and benefit reserves, net of tax of $26 and $1,
respectively
|
|
(48
|
)
|
2
|
|
Net unrealized securities losses at March 31
|
|
$
|
(999
|
)
|
$
|
(282
|
)
|
The following table presents the amounts recognized in
the Consolidated Statements of Operations for other-than-temporary impairments
related to credit losses:
|
|
2009
|
|
|
|
(in millions)
|
|
Beginning balance of credit losses on securities held as of January 1
for which a portion of other-than-temporary impairment was recognized in other
comprehensive income
|
|
$
|
258
|
|
Additional amount related to credit losses for which an
other-than-temporary impairment was not previously recognized
|
|
8
|
|
Additional increases to the amount related to credit losses for which
an other-than-temporary impairment was previously recognized
|
|
16
|
|
Ending balance of credit losses on securities held as of
March 31 for which a portion of other-than-temporary impairment was
recognized in other comprehensive income
|
|
$
|
282
|
|
Net realized gains and losses on Available-for-Sale
securities, determined using the specific identification method, recognized in
net investment income were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
Gross realized gains from sales
|
|
$
|
52
|
|
$
|
10
|
|
Gross realized losses from sales
|
|
(1
|
)
|
(2
|
)
|
Impairment losses
|
|
(35
|
)
|
(32
|
)
|
|
|
|
|
|
|
|
|
13
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
The $35 million of other-than-temporary impairments
recognized in net investment income for the three months ended March 31, 2009
related to credit losses on non-agency residential mortgage backed securities,
corporate debt securities primarily in the gaming industries and other
structured investments.
Available-for-Sale securities by maturity as of March 31,
2009 were as follows:
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Due within one year
|
|
$
|
1,583
|
|
$
|
1,574
|
|
Due after one year through five years
|
|
8,095
|
|
7,623
|
|
Due after five years through 10 years
|
|
3,012
|
|
2,677
|
|
Due after 10 years
|
|
2,625
|
|
2,364
|
|
|
|
15,315
|
|
14,238
|
|
Residential mortgage backed securities
|
|
7,251
|
|
6,720
|
|
Commercial mortgage backed securities
|
|
3,547
|
|
3,438
|
|
Asset backed securities
|
|
1,393
|
|
1,305
|
|
Other structured investments
|
|
26
|
|
38
|
|
Common and preferred stocks
|
|
52
|
|
23
|
|
Total
|
|
$
|
27,584
|
|
$
|
25,762
|
|
The expected payments on residential mortgage
backed securities, commercial mortgage backed securities, asset backed
securities and other structured investments may not coincide with their
contractual maturities. As such, these securities, as well as common and
preferred stocks, were not included in the maturities distribution.
4. Deferred Acquisition Costs and Deferred Sales
Inducement Costs
The balances of and changes in DAC were as follows:
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
Balance at January 1
|
|
$
|
4,383
|
|
$
|
4,408
|
|
Cumulative effect of accounting change
|
|
|
|
36
|
|
Capitalization of acquisition costs
|
|
207
|
|
164
|
|
Amortization
|
|
(286
|
)
|
(154
|
)
|
Impact of change in net unrealized securities gains
|
|
(67
|
)
|
(1
|
)
|
Balance at March 31
|
|
$
|
4,237
|
|
$
|
4,453
|
|
The balances of and changes in DSIC were as
follows:
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
Balance at January 1
|
|
$
|
518
|
|
$
|
511
|
|
Cumulative effect of accounting change
|
|
|
|
9
|
|
Capitalization of sales inducements
|
|
22
|
|
24
|
|
Amortization
|
|
(49
|
)
|
(17
|
)
|
Impact of change in net unrealized securities gains
|
|
(14
|
)
|
|
|
Balance at March 31
|
|
$
|
477
|
|
$
|
527
|
|
The Company adopted FSP 115-2 in the first quarter of
2009. The adoption had no net impact to DAC and DSIC.
Effective January 1, 2008, the Company adopted
SFAS 157 and recorded as a cumulative change in accounting principle a pretax
increase of $36 million and $9 million to DAC and DSIC, respectively. See Note
2 and Note 9 for additional information regarding SFAS 157.
14
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
5. Future Policy Benefits and Claims and
Separate Account Liabilities
Future policy benefits and claims consisted of the
following:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Fixed annuities
|
|
$
|
15,659
|
|
$
|
14,058
|
|
Equity indexed annuities accumulated host values
|
|
213
|
|
228
|
|
Equity indexed annuities embedded derivatives
|
|
15
|
|
16
|
|
Variable annuities fixed sub-accounts
|
|
5,918
|
|
5,623
|
|
Variable annuity guaranteed minimum withdrawal benefits (GMWB)
|
|
1,199
|
|
1,471
|
|
Variable annuity guaranteed minimum accumulation benefits (GMAB)
|
|
330
|
|
367
|
|
Other variable annuity guarantees
|
|
65
|
|
67
|
|
Total annuities
|
|
23,399
|
|
21,830
|
|
Variable universal life (VUL)/universal life insurance (UL)
|
|
2,551
|
|
2,526
|
|
Other life, disability income and long term care insurance
|
|
4,424
|
|
4,397
|
|
Auto, home and other insurance
|
|
366
|
|
368
|
|
Policy claims and other policyholders funds
|
|
216
|
|
172
|
|
Total
|
|
$
|
30,956
|
|
$
|
29,293
|
|
Separate account liabilities consisted of the
following:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Variable annuity variable sub-accounts
|
|
$
|
35,550
|
|
$
|
37,657
|
|
VUL insurance variable sub-accounts
|
|
3,795
|
|
4,091
|
|
Other insurance variable sub-accounts
|
|
36
|
|
39
|
|
Threadneedle investment liabilities
|
|
2,633
|
|
2,959
|
|
Total
|
|
$
|
42,014
|
|
$
|
44,746
|
|
6. 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 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 universal life contracts 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.
15
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
The following table provides summary information
related to all variable annuity guarantees for which the Company has
established additional liabilities:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Variable annuity
guarantees by
benefit type
(1)
|
|
Total
contract
value
|
|
Contract
value in
separate
accounts
|
|
Net amount
at risk
(2)
|
|
Weighted
average
attained age
|
|
Total
contract
value
|
|
Contract
value in
separate
accounts
|
|
Net amount
at risk
(2)
|
|
Weighted
average
attained age
|
|
|
|
(in millions, except age)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMDB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Premium
|
|
$
|
21,867
|
|
$
|
19,603
|
|
$
|
5,857
|
|
61
|
|
$
|
22,249
|
|
$
|
20,153
|
|
$
|
4,873
|
|
61
|
|
Six-Year Reset
|
|
11,719
|
|
8,982
|
|
3,258
|
|
61
|
|
12,719
|
|
10,063
|
|
2,802
|
|
61
|
|
One-Year Ratchet
|
|
5,478
|
|
4,747
|
|
2,402
|
|
63
|
|
5,770
|
|
5,061
|
|
2,163
|
|
62
|
|
Five-Year Ratchet
|
|
916
|
|
843
|
|
245
|
|
59
|
|
951
|
|
888
|
|
199
|
|
59
|
|
Other
|
|
447
|
|
401
|
|
215
|
|
67
|
|
471
|
|
429
|
|
192
|
|
66
|
|
Total GMDB
|
|
$
|
40,427
|
|
$
|
34,576
|
|
$
|
11,977
|
|
61
|
|
$
|
42,160
|
|
$
|
36,594
|
|
$
|
10,229
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGU death benefit
|
|
$
|
661
|
|
$
|
577
|
|
$
|
65
|
|
63
|
|
$
|
699
|
|
$
|
619
|
|
$
|
65
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMIB
|
|
$
|
517
|
|
$
|
463
|
|
$
|
279
|
|
63
|
|
$
|
567
|
|
$
|
511
|
|
$
|
245
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB
|
|
$
|
3,282
|
|
$
|
3,173
|
|
$
|
1,491
|
|
63
|
|
$
|
3,513
|
|
$
|
3,409
|
|
$
|
1,312
|
|
63
|
|
GMWB for life
|
|
9,504
|
|
9,023
|
|
3,116
|
|
63
|
|
9,194
|
|
8,764
|
|
2,704
|
|
63
|
|
Total GMWB
|
|
$
|
12,786
|
|
$
|
12,196
|
|
$
|
4,607
|
|
63
|
|
$
|
12,707
|
|
$
|
12,173
|
|
$
|
4,016
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAB
|
|
$
|
2,021
|
|
$
|
1,947
|
|
$
|
715
|
|
56
|
|
$
|
2,006
|
|
$
|
1,937
|
|
$
|
608
|
|
56
|
|
(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 account value are not shown in
this table.
|
(2)
|
Represents the current
guaranteed benefit amount in excess of the current contract value. GMIB, GMWB
and GMAB benefits
are subject to waiting
periods and payment periods specified in the contract. As a result of the
recent market decline, the amount by which guarantees exceed the accumulation
value has increased significantly.
|
Changes in additional liabilities were as follows:
|
|
GMDB & GGU
|
|
GMIB
|
|
GMWB
|
|
GMAB
|
|
UL
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance at January 1, 2008
|
|
$
|
24
|
|
$
|
3
|
|
$
|
136
|
|
$
|
33
|
|
$
|
4
|
|
Incurred claims
|
|
1
|
|
|
|
80
|
|
50
|
|
1
|
|
Paid claims
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Liability balance at March 31, 2008
|
|
$
|
23
|
|
$
|
3
|
|
$
|
216
|
|
$
|
83
|
|
$
|
5
|
|
|
|
GMDB & GGU
|
|
GMIB
|
|
GMWB
|
|
GMAB
|
|
UL
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance at January 1, 2009
|
|
$
|
55
|
|
$
|
12
|
|
$
|
1,471
|
|
$
|
367
|
|
$
|
7
|
|
Incurred claims
|
|
23
|
|
1
|
|
(272
|
)
|
(37
|
)
|
2
|
|
Paid claims
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
Liability balance at March 31, 2009
|
|
$
|
52
|
|
$
|
13
|
|
$
|
1,199
|
|
$
|
330
|
|
$
|
9
|
|
16
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
7. Customer Deposits
Customer deposits consisted of the following:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Fixed rate certificates
|
|
$
|
4,057
|
|
$
|
3,909
|
|
Stock market based certificates
|
|
861
|
|
909
|
|
Stock market embedded derivative reserve
|
|
7
|
|
5
|
|
Other
|
|
61
|
|
62
|
|
Less: accrued interest classified in other liabilities
|
|
(10
|
)
|
(11
|
)
|
Total investment certificate reserves
|
|
4,976
|
|
4,874
|
|
Brokerage deposits
|
|
1,837
|
|
1,988
|
|
Banking deposits
|
|
1,652
|
|
1,367
|
|
Total
|
|
$
|
8,465
|
|
$
|
8,229
|
|
8.
Debt
Debt and the stated interest rates were as follows:
|
|
Outstanding Balance
|
|
Stated Interest Rate
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
|
(in millions)
|
|
|
|
|
|
Senior notes due 2010
|
|
$
|
800
|
|
$
|
800
|
|
5.4
|
%
|
5.4
|
%
|
Senior notes due 2015
|
|
700
|
|
700
|
|
5.7
|
|
5.7
|
|
Junior subordinated notes due 2066
|
|
344
|
|
457
|
|
7.5
|
|
7.5
|
|
Municipal bond inverse floater certificates due 2021
|
|
6
|
|
6
|
|
1.4
|
|
2.2
|
|
Floating rate revolving credit borrowings due 2013
|
|
72
|
|
64
|
|
2.4
|
|
3.6
|
|
Total
|
|
$
|
1,922
|
|
$
|
2,027
|
|
|
|
|
|
9. Fair Values of Assets and Liabilities
Effective January 1, 2008, the Company adopted
SFAS 157, which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 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
Under SFAS 157, the Company categorizes its fair value
measurements according to a three-level hierarchy. The hierarchy prioritizes
the inputs used by the Companys 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.
|
17
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
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 Companys market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or
liabilities. The Companys income approach uses valuation techniques to convert
future projected cash flows to a single discounted present value amount. When
applying either approach, the Company maximizes the use of observable inputs
and minimizes the use of unobservable inputs.
The following is a description of the valuation
techniques used to measure fair value and the general classification of these
instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include highly liquid investments
with original maturities of 90 days or less. Actively traded money market funds
are measured at their net asset value (NAV) and classified as Level 1. The
Companys 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 (Trading Securities and
Available-for-Sale 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 nationally-recognized pricing services, broker quotes,
or other model-based valuation techniques such as the present value of cash
flows. Level 1 securities include U.S. Treasuries and seed money in funds
traded in active markets. Level 2 securities include agency mortgage backed
securities, commercial mortgage backed securities, asset backed securities,
municipal and corporate bonds, U.S. and foreign government and agency
securities, and seed money and other investments in certain hedge funds. Level
3 securities include non-agency residential mortgage backed securities, asset
backed securities, and corporate bonds.
Through the Companys own experience transacting in
the marketplace and through discussions with its pricing vendors, the Company
believes that the market for non-agency residential mortgage backed securities
is inactive. Indicators of inactive markets include: pricing services reliance
on brokers or discounted cash flow analyses to provide prices, an increase in
the disparity between prices provided by different pricing services for the
same security, unreasonably large bid-offer spreads and a significant decrease
in the volume of trades relative to historical levels. In certain cases, this
market inactivity has resulted in the Company applying valuation techniques
that rely more on an income approach (discounted cash flows using market rates)
than on a market approach (prices from pricing services). The Company considers
market observable yields for other asset classes it considers to be of similar
risk which includes nonperformance and liquidity for individual securities to
set the discount rate for applying the income approach to certain non-agency
residential mortgage backed securities.
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 represents the exit price for the separate account. Separate
account assets are classified as Level 2 as they are traded in
principal-to-principal markets with little publicly released pricing
information.
Derivatives
Derivatives that are measured using quoted prices in
active markets, such as foreign exchange forwards, or derivatives that are
exchanged-traded are classified as Level 1 measurements. The fair value of
derivatives that are traded in less active over-the-counter markets are
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 interest rate swaps and
options. Derivatives that are valued using pricing models that have significant
unobservable inputs are classified as Level 3 measurements. Structured
derivatives that are used by the Company to hedge its exposure to market risk
related to certain variable annuity riders are classified as Level 3.
Consolidated
Property Funds
The Company records the fair value of the properties
held by its consolidated property funds within other assets. The fair value of
these assets is determined using discounted cash flows and market comparables.
Given the significance of the unobservable inputs to these measurements, the
assets are classified as Level 3.
18
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
Liabilities
Embedded Derivatives
Variable Annuity Riders Guaranteed Minimum
Accumulation Benefit and Guaranteed Minimum Withdrawal Benefit
The Company values the embedded derivative liability
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 and margins
for risk, profit and expenses that the Company believes an exit market
participant would expect. The fair value of these embedded derivatives also
reflects a current estimate of the Companys nonperformance risk specific to
these liabilities. Given the significant unobservable inputs to this valuation,
these measurements are classified as Level 3. The embedded derivative liability
attributable to these provisions is recorded in future policy benefits and
claims.
Equity Indexed Annuities and Stock Market Certificates
The Company uses various Black-Scholes calculations to
determine the fair value of the embedded derivative liability associated with
the provisions of its equity indexed annuities and stock market certificates.
The inputs to these calculations are primarily market observable. As a result,
these measurements are classified as Level 2. The embedded derivative liability
attributable to the provisions of the Companys equity indexed annuities and
stock market certificates is recorded in future policy benefits and claims and
customer deposits, respectively.
The following tables present the balances of assets
and liabilities measured at fair value on a recurring basis:
|
|
March 31, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
409
|
|
$
|
4,933
|
|
$
|
|
|
$
|
5,342
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
11,881
|
|
1,088
|
|
12,969
|
|
Residential mortgage backed securities
|
|
|
|
3,986
|
|
2,734
|
|
6,720
|
|
Commercial mortgage backed securities
|
|
|
|
3,435
|
|
3
|
|
3,438
|
|
Asset backed securities
|
|
|
|
1,019
|
|
286
|
|
1,305
|
|
State and municipal obligations
|
|
|
|
947
|
|
|
|
947
|
|
U.S. government and agencies obligations
|
|
22
|
|
166
|
|
|
|
188
|
|
Foreign government bonds and obligations
|
|
|
|
105
|
|
|
|
105
|
|
Common and preferred stocks
|
|
|
|
13
|
|
10
|
|
23
|
|
Other structured investments
|
|
|
|
|
|
38
|
|
38
|
|
Other debt obligations
|
|
|
|
24
|
|
5
|
|
29
|
|
Total Available-for-Sale securities
|
|
22
|
|
21,576
|
|
4,164
|
|
25,762
|
|
Trading securities
|
|
107
|
|
739
|
|
25
|
|
871
|
|
Separate account assets
|
|
|
|
42,014
|
|
|
|
42,014
|
|
Other assets
|
|
4
|
|
1,948
|
|
387
|
|
2,339
|
|
Total assets at fair value
|
|
$
|
542
|
|
$
|
71,210
|
|
$
|
4,576
|
|
$
|
76,328
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
|
|
$
|
15
|
|
$
|
1,516
|
|
$
|
1,531
|
|
Customer deposits
|
|
|
|
7
|
|
|
|
7
|
|
Other liabilities
|
|
|
|
699
|
|
|
|
699
|
|
Total liabilities at fair value
|
|
$
|
|
|
$
|
721
|
|
$
|
1,516
|
|
$
|
2,237
|
|
19
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
504
|
|
$
|
5,446
|
|
$
|
|
|
$
|
5,950
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
11,479
|
|
1,120
|
|
12,599
|
|
Residential mortgage backed securities
|
|
|
|
4,027
|
|
1,208
|
|
5,235
|
|
Commercial mortgage backed securities
|
|
|
|
2,730
|
|
3
|
|
2,733
|
|
Asset backed securities
|
|
|
|
736
|
|
222
|
|
958
|
|
State and municipal obligations
|
|
|
|
873
|
|
|
|
873
|
|
U.S. government and agencies obligations
|
|
32
|
|
239
|
|
|
|
271
|
|
Foreign government bonds and obligations
|
|
|
|
107
|
|
|
|
107
|
|
Common and preferred stocks
|
|
|
|
27
|
|
10
|
|
37
|
|
Other structured investments
|
|
|
|
|
|
50
|
|
50
|
|
Other debt obligations
|
|
|
|
10
|
|
|
|
10
|
|
Total Available-for-Sale securities
|
|
32
|
|
20,228
|
|
2,613
|
|
22,873
|
|
Trading securities
|
|
224
|
|
244
|
|
30
|
|
498
|
|
Separate account assets
|
|
|
|
44,746
|
|
|
|
44,746
|
|
Other assets
|
|
1
|
|
2,308
|
|
487
|
|
2,796
|
|
Total assets at fair value
|
|
$
|
761
|
|
$
|
72,972
|
|
$
|
3,130
|
|
$
|
76,863
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
|
|
$
|
16
|
|
$
|
1,832
|
|
$
|
1,848
|
|
Customer deposits
|
|
|
|
5
|
|
|
|
5
|
|
Other liabilities
|
|
7
|
|
673
|
|
|
|
680
|
|
Total liabilities at fair value
|
|
$
|
7
|
|
$
|
694
|
|
$
|
1,832
|
|
$
|
2,533
|
|
The following tables provide a summary of changes in
Level 3 assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
Total Gains
(Losses) Included in
|
|
Purchases,
|
|
|
|
|
|
|
|
Balance,
January 1,
|
|
Net
|
|
Other
Comprehensive
|
|
Sales, Issuances
and
|
|
Transfers
Out of
|
|
Balance,
March 31,
|
|
|
|
2009
|
|
Income
|
|
Income
|
|
Settlements, Net
|
|
Level 3
|
|
2009
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,120
|
|
$
|
|
|
$
|
25
|
|
$
|
(43
|
)
|
$
|
(14
|
)
|
$
|
1,088
|
|
Residential mortgage backed securities
|
|
1,208
|
|
(8
|
)
|
6
|
|
1,528
|
|
|
|
2,734
|
|
Commercial mortgage backed securities
|
|
3
|
|
|
|
|
|
|
|
|
|
3
|
|
Asset backed securities
|
|
222
|
|
2
|
|
(6
|
)
|
68
|
|
|
|
286
|
|
Common and preferred stocks
|
|
10
|
|
|
|
|
|
|
|
|
|
10
|
|
Other structured investments
|
|
50
|
|
(3
|
)
|
(7
|
)
|
(2
|
)
|
|
|
38
|
|
Other debt obligations
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Total Available-for-Sale securities
|
|
2,613
|
|
(9
|
)
(1)
|
18
|
|
1,556
|
|
(14
|
)
(4)
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
30
|
|
|
|
(1
|
)
|
(4
|
)
|
|
|
25
|
|
Other assets
|
|
487
|
|
(22
|
)
(2)
|
(6
|
)
|
(72
|
)
|
|
|
387
|
|
Future policy benefits and claims
|
|
|
(1,832
|
)
|
331
|
(3)
|
|
|
(15
|
)
(3)
|
|
|
|
(1,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in net investment income in the
Consolidated Statements of Operations.
|
(2)
|
Represents a $3 million loss included in benefits,
claims, losses and settlement expenses and a $19 million loss included in
other revenues in the Consolidated Statements of Operations.
|
(3)
|
Included in benefits, claims, losses and settlement
expenses in the Consolidated Statements of Operations.
|
(4)
|
Represents a security transferred to Level 2 as the
fair value is now obtained from a nationally-recognized pricing service.
Previously, the fair value of the security was based on broker quotes.
|
20
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
|
|
|
|
Total Gains
(Losses) Included in
|
|
Purchases,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other
|
|
Sales, Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
January 1,
|
|
Net
|
|
Comprehensive
|
|
and Settlements,
|
|
into
|
|
March 31,
|
|
|
|
2008
|
|
Income
|
|
Loss
|
|
Net
|
|
Level 3
|
|
2008
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,339
|
|
$
|
|
|
$
|
21
|
|
$
|
(32
|
)
|
$
|
|
|
$
|
1,328
|
|
Residential mortgage backed securities
|
|
1,267
|
|
(30
|
)
|
(189
|
)
|
47
|
|
|
|
1,095
|
|
Commercial mortgage backed securities
|
|
5
|
|
|
|
|
|
|
|
|
|
5
|
|
Asset backed securities
|
|
242
|
|
|
|
(10
|
)
|
17
|
|
|
|
249
|
|
Common and preferred stocks
|
|
9
|
|
|
|
|
|
|
|
|
|
9
|
|
Other structured investments
|
|
46
|
|
1
|
|
|
|
(5
|
)
|
|
|
42
|
|
Total Available-for-Sale securities
|
|
2,908
|
|
(29
|
)
(1)
|
(178
|
)
|
27
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
44
|
|
(1
|
)
(1)
|
|
|
|
|
|
|
43
|
|
Other assets
|
|
629
|
|
43
|
(2)
|
|
|
6
|
|
|
|
678
|
|
Future policy benefits and claims
|
|
|
(158
|
)
|
(124
|
)
(3)
|
|
|
(13
|
)
(3)
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in net investment income in the Consolidated Statements of
Operations.
|
(2)
|
Represents a $52 million gain included in benefits, claims, losses and
settlement expenses and a $9 million loss included in other revenues in the
Consolidated Statements of Operations.
|
(3)
|
Included in benefits, claims, losses and settlement expenses in the
Consolidated Statements of Operations.
|
The following table presents the changes in
unrealized gains (losses) included in net income related to Level 3 assets and
liabilities held at March 31:
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
Corporate debt
securities
|
|
$
|
|
|
$
|
|
|
Residential
mortgage backed securities
|
|
(8
|
)
|
(30
|
)
|
Commercial
mortgage backed securities
|
|
|
|
|
|
Asset backed
securities
|
|
2
|
|
|
|
Other structured
investments
|
|
(3
|
)
|
(1
|
)
|
Other debt
obligations
|
|
|
|
|
|
Total Available-for-Sale securities
|
|
(9
|
)
(1)
|
(31
|
)
(1)
|
Trading securities
|
|
|
|
(1
|
)
(1)
|
Other assets
|
|
(14
|
)
(4)
|
43
|
(2)
|
Future policy benefits and claims
|
|
322
|
(3)
|
(124
|
)
(3)
|
|
|
|
|
|
|
|
|
(1)
|
Included in net investment income in the Consolidated Statements of
Operations.
|
(2)
|
Represents a $52 million gain included in benefits, claims, losses and
settlement expenses and a $9 million loss included in other revenues in the Consolidated
Statements of Operations.
|
(3)
|
Included in benefits, claims, losses and settlement expenses in the
Consolidated Statements of Operations.
|
(4)
|
Included in other revenues in the Consolidated Statements of
Operations.
|
During the reporting periods, there were no
material assets or liabilities measured at fair value on a nonrecurring basis.
21
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
The following table provides the carrying
value and the estimated fair value of financial instruments that are not
reported at fair value. All other financial instruments that are reported at
fair value have been included in the table above with balances of assets and
liabilities measured at fair value on a recurring basis.
|
|
March 31, 2009
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Financial Assets
|
|
|
|
|
|
Commercial mortgage loans, net
|
|
$
|
2,852
|
|
$
|
2,549
|
|
Policy loans
|
|
722
|
|
776
|
|
Receivables
|
|
1,038
|
|
764
|
|
Restricted and segregated cash
|
|
1,811
|
|
1,811
|
|
Other investments and assets
|
|
531
|
|
467
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
14,673
|
|
$
|
13,334
|
|
Investment certificate reserves
|
|
4,969
|
|
4,806
|
|
Banking and brokerage customer deposits
|
|
3,489
|
|
3,490
|
|
Separate account liabilities
|
|
2,964
|
|
2,964
|
|
Debt and other liabilities
|
|
2,038
|
|
1,696
|
|
Investments
The fair value of commercial mortgage loans,
except those with significant credit deterioration, is determined by
discounting contractual cash flows using discount rates that reflect current
pricing for loans with similar remaining maturities and characteristics
including loan-to-value ratio, occupancy rate, refinance risk, debt-service
coverage, location, and property condition. For commercial mortgage loans with
significant credit deterioration, fair value is determined using the same
adjustments as above with an additional adjustment for the Companys estimate
of the amount recoverable on the loan.
The fair value of policy loans is determined
using discounted cash flows.
Receivables
The fair value of consumer banking loans is
determined by discounting estimated cash flows and incorporating adjustments
for prepayment, administration expenses, severity and credit loss estimates,
with discount rates based on the Companys estimate of current market
conditions.
Loans held for sale are measured at the lower
of cost or market and fair value is based on what secondary markets are
currently offering for loans with similar characteristics.
Brokerage margin loans are measured at
outstanding balances, which are a reasonable estimate of fair value because of
the sufficiency of the collateral and short term nature of these loans.
Restricted and segregated cash
Restricted and segregated cash is generally set
aside for specific business transactions and restrictions are specific to the
Company and do not transfer to third party market participants; therefore, the
carrying amount is a reasonable estimate of fair value.
Amounts segregated under federal and other
regulations reflect resale agreements and are measured at the cost at which the
securities will be sold. This measurement is a reasonable estimate of fair
value because of the short time between entering into the transaction and its
expected realization and the reduced risk of credit loss due to pledging U.S.
government-backed securities as collateral.
Other investments and assets
Other investments and assets primarily consist
of syndicated loans. The fair value of syndicated loans is obtained from a nationally-recognized
pricing service.
Future policy benefits and claims
The fair value of fixed annuities, in deferral
status, is determined by discounting cash flows using a risk neutral discount
rate with adjustments for profit, expense and risk margins and for the Companys
non-performance risk specific to these liabilities. The fair value of other
liabilities including non-life contingent fixed annuities in payout status,
equity indexed annuity host contracts and the fixed portion of a small number
of variable annuity contracts classified as investment contracts is determined
in a similar manner.
22
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
Customer deposits
The fair value of investment certificate
reserves is determined by discounting cash flows using discount rates that
reflect current pricing for assets with similar terms and characteristics, with
adjustments for early withdrawal behavior, penalty fees, expense margin and the
Companys non-performance risk specific to these liabilities.
Banking and brokerage customer deposits are
liabilities with no defined maturities and fair value is the amount payable on
demand at the reporting date.
Separate account liabilities
Certain separate account liabilities are
classified as investment contracts and are carried at an amount equal to the
related separate account assets. Carrying value is a reasonable estimate of the
fair value as it represents the exit value as evidenced by withdrawal
transactions between contractholders and the Company. A non-performance
adjustment is not included as the related separate account assets act as
collateral for these liabilities and minimize non-performance risk.
Debt and other liabilities
Debt fair value is based on quoted prices in
active markets, when available. If quoted prices are not available, fair value
is obtained from nationally-recognized pricing services, broker quotes, or
other model-based valuation techniques such as present value of cash flows.
10.
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 Companys products and operations.
The Company uses derivatives as economic
hedges and occasionally holds derivatives designated for hedge accounting. The
following table presents the balance sheet location and the gross fair value of
derivative instruments, including embedded derivatives, at March 31, 2009:
Derivatives not designated as
hedging instruments
|
|
Balance Sheet Location
|
|
Asset
|
|
Balance Sheet Location
|
|
Liability
|
|
|
|
|
|
(in millions)
|
|
|
|
(in millions)
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Other assets
|
|
$
|
600
|
|
Other liabilities
|
|
$
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
Equity contracts
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Other assets
|
|
1,411
|
|
Other liabilities
|
|
(397
|
)
|
Equity indexed annuities
|
|
Other assets
|
|
1
|
|
|
|
|
|
Equity indexed annuities embedded derivatives
|
|
|
|
|
|
Future policy benefits and claims
|
|
(15
|
)
|
Stock market certificates
|
|
Other assets
|
|
31
|
|
Other liabilities
|
|
(24
|
)
|
Stock market certificates embedded derivatives
|
|
|
|
|
|
Customer deposits
|
|
(7
|
)
|
Seed money
|
|
Other assets
|
|
1
|
|
Other liabilities
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
Seed money
|
|
Other assets
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB embedded derivatives
(1)
|
|
|
|
|
|
Future policy benefits and claims
|
|
(1,516
|
)
|
Total
|
|
|
|
$
|
2,047
|
|
|
|
$
|
(2,222
|
)
|
(1)
|
The fair values of GMWB and GMAB embedded derivatives fluctuate
primarily based on changes in equity, interest rate and credit markets.
|
See note 9 for additional information
regarding the Companys fair value measurement of derivative instruments.
23
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
Derivatives Not
Designated
as Hedges
The following table presents a summary of the
impact of derivatives not designated as hedging instruments under SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities (SFAS 133) on
the Consolidated Statements of Operations for the three months ended March 31,
2009:
|
|
|
|
Amount of Gain or
|
|
|
|
Location of Gain or (Loss) Recognized
|
|
(Loss) Recognized in
|
|
Derivatives not designated as hedging instruments
|
|
in Income on Derivatives
|
|
Income on Derivatives
|
|
|
|
|
|
(in millions)
|
|
Interest rate contracts
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits,
claims, losses and settlement expenses
|
|
$
|
(123
|
)
|
|
|
|
|
|
|
Equity contracts
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits,
claims, losses and settlement expenses
|
|
61
|
|
Equity indexed annuities
|
|
Interest
credited to fixed accounts
|
|
(2
|
)
|
Equity indexed annuities embedded derivatives
|
|
Interest
credited to fixed accounts
|
|
1
|
|
Stock market certificates
|
|
Banking and
deposit interest expense
|
|
(3
|
)
|
Stock market certificates embedded derivatives
|
|
Banking and
deposit interest expense
|
|
(2
|
)
|
Seed money
|
|
Net investment
income
|
|
10
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
Seed money
|
|
General and
administrative expense
|
|
3
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
GMWB and GMAB embedded derivatives
|
|
Benefits, claims,
losses and settlement expenses
|
|
316
|
|
Total
|
|
|
|
$
|
261
|
|
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 and foreign currency exchange rate risk related to various
products and transactions of the Company.
Certain annuity products 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 considerations
received at the beginning of the contract period, after a specified holding
period, respectively. The Company economically hedges the exposure related
to GMWB and GMAB provisions using various equity futures, equity options, total
return swaps, interest rate swaptions and interest rate swaps. The gross
notional amount of these contracts was $35 billion at March 31, 2009.
The premium associated with certain of these options is paid or received semi-annually
over the life of the option contract.
The following is a summary of the payments the
Company is scheduled to make and receive for these options:
|
|
Premiums Payable
|
|
Premiums Receivable
|
|
|
|
(in millions)
|
|
2009
(1)
|
|
$
|
(121
|
)
|
$
|
15
|
|
2010
|
|
(142
|
)
|
13
|
|
2011
|
|
(133
|
)
|
12
|
|
2012
|
|
(121
|
)
|
11
|
|
2013
|
|
(108
|
)
|
10
|
|
2014-2023
|
|
(357
|
)
|
3
|
|
|
|
|
|
|
|
|
|
(1)
|
2009 amounts represent the amounts payable and receivable for the
period from April 1, 2009 to December 31, 2009.
|
Equity indexed annuities and investment
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 equity indexed annuities and stock market
certificate products will positively or negatively impact earnings over the
life of these products. As a means of economically hedging its obligations
under the provisions of these products, the Company enters into index
options and occasionally enters into futures contracts. The gross notional
amount of these derivative contracts was $2 billion at March 31, 2009.
The Company enters into futures and total
return swaps to manage its exposure to price risk arising from seed money
investments made in proprietary mutual funds. The gross notional amount of
these contracts was $193 million at March 31, 2009.
The Company enters into foreign currency
forward contracts to hedge its exposure to certain receivables and obligations
denominated in non-functional currencies. The gross notional amount of these
contracts was $7 million at March 31, 2009.
24
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
Embedded Derivatives
Certain annuities contain GMAB and non-life
contingent GMWB provisions, which are considered embedded derivatives.
In addition, the equity component of the equity indexed annuity and
stock market investment certificate product obligations are also considered
embedded derivatives. As captured in the tables above, embedded derivatives are
bifurcated from their host contracts and reported on the balance sheet at fair
value with changes in fair value reported in earnings. As noted above, the
Company uses derivatives to mitigate the financial statement impact of these
embedded derivatives.
Cash Flow Hedges
The Company has amounts classified in accumulated
other comprehensive loss related to gains and losses associated with the
effective portion of previously designated cash flow hedges. The Company
reclassifies these amounts into income as the forecasted transactions impact
earnings. During the three months ended March 31, 2009, the Company held
no derivatives that were designated as cash flow hedges under SFAS 133. The
following table shows the impact of the Companys cash flow hedges on the
Consolidated Statements of Operations for the three months ended March 31,
2009:
Derivatives designated as hedging instruments
|
|
Location of Gain or (Loss)
Reclassified from Accumulated Other
Comprehensive Income into Income
|
|
Amount of Gain or (Loss)
Reclassified from Accumulated Other
Comprehensive Income into Income
|
|
|
|
|
|
(in millions)
|
|
Cash flow hedges
|
|
|
|
|
|
Interest on debt
|
|
Interest and debt expense
|
|
$
|
2
|
|
Fixed annuity products
|
|
Net investment income
|
|
(2
|
)
|
Total
|
|
|
|
$
|
|
|
At March 31, 2009,
the Company expects to reclassify $2 million of net pretax gains on
derivative instruments from accumulated other comprehensive loss to
earnings during the next 12 months. The $2 million net pretax
gain is made up of an $8 million deferred gain related to interest rate
swaps that will be recorded as a reduction to interest and debt expense,
partially offset by a $6 million deferred loss related to interest rate
swaptions that will be recorded in net investment income. For any hedge
relationships that are discontinued because the forecasted transaction is not
expected to occur according to the original strategy, any related amounts
previously recorded in accumulated other comprehensive loss are recognized
in earnings immediately. No hedge relationships were discontinued during the
three months ended March 31, 2009 due to forecasted transactions no
longer expected to occur according to the original hedge strategy.
Currently, the longest period of time over
which the Company is hedging exposure to the variability in future cash
flows is 26 years and relates to forecasted debt interest payments.
Credit Risk
Credit risk associated with the Companys
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 arrangements and
collateral arrangements wherever practical. As of March 31, 2009, the
Company held collateral consisting primarily of cash and securities of $1.3
billion posted by counterparties. As of March 31, 2009, the Companys
maximum credit exposure related to derivative assets after considering netting
arrangements with counterparties and collateral arrangements was approximately
$212 million.
Certain of the Companys derivative
instruments contain provisions that adjust the level of collateral the Company
is required to post based on the Companys debt rating (or based on the
financial strength of the Companys life insurance subsidiaries for contracts
in which those subsidiaries are the counterparty). Additionally, certain of the
Companys derivative contracts contain provisions that allow the counterparty
to terminate the contract if the Companys debt does not maintain a specific
credit rating (generally an investment grade rating) or the Companys life
insurance subsidiary does not maintain a specific financial strength rating. If
these termination provisions were to be triggered, the Companys counterparty
could require immediate settlement of any net liability position. At March 31,
2009, the aggregate fair value of all derivative instruments containing such
credit risk features was $34 million. The aggregate fair value of assets posted
as collateral for such instruments as of March 31, 2009 was $11
million. If the credit risk features of derivative contracts that were in a net
liability position at March 31, 2009 were triggered, the additional
fair value of assets needed to settle these derivative liabilities would have
been $23 million.
25
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
11.
Income Taxes
The Companys effective tax rates were
13.3% and 2.0% for the three months ended March 31, 2009 and 2008,
respectively. The Companys effective tax rate for the three months ended March 31,
2008 included $38 million of tax benefits related to changes in the status of
current and closed audits.
The Company is required to establish a
valuation allowance for any portion of the deferred tax assets that management
believes will not be realized. Included in deferred tax assets is a significant
deferred tax asset relating to capital losses that have been recognized for
financial statement purposes but not yet for tax return purposes. Under current
U.S. federal income tax law, capital losses generally must be used against
capital gain income within five years of the year in which the capital losses
are recognized for tax purposes. 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 including the ability to
generate capital gains. Consideration is given to, among other things in making
this determination, a) future taxable income exclusive of reversing temporary
differences and carryforwards, b) future reversals of existing taxable
temporary differences, c) taxable income in prior carryback years, and d) tax
planning strategies. Based on analysis of the Companys tax position,
management believes it is more likely than not that the results of future
operations and implementation of tax planning strategies will generate sufficient
taxable income to enable the Company to utilize all of its deferred tax
assets. Accordingly, no valuation allowance for deferred tax assets has been
established as of March 31, 2009 and December 31, 2008.
Included in the Companys deferred income
tax assets are net operating loss carryforwards of $62 million which will
expire beginning December 31, 2025 as well as tax credit
carryforwards of $170 million which will expire beginning December 31, 2025.
As of March 31, 2009 and December 31,
2008, the Company had $56 million of gross unrecognized tax expense. If
recognized, approximately $62 million, net of federal tax benefits, of
unrecognized tax benefits as of March 31, 2009 and December 31, 2008,
would affect the effective tax rate.
The Company recognizes interest and
penalties related to unrecognized tax benefits as a component of the income tax
provision. The Company had a receivable of $13 million related to the
payment of interest and penalties accrued at both March 31, 2009 and December 31,
2008.
It is reasonably possible that the total
amounts of unrecognized tax benefits will change in the next 12 months.
However, there are a number of open audits and quantification of a range cannot
be made at this time.
The Company or one or more of its subsidiaries
files income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income
tax examinations by tax authorities for years before 1997. The Internal
Revenue Service (IRS), as part of the overall examination of the
American Express Company consolidated return, completed its field
examination of the Companys U.S. income tax returns for 1997 through
2002 during 2008. However, for federal income tax purposes these years continue
to remain open as a consequence of certain issues under appeal. The IRS
continued its examination of 2003 through 2004 which is expected to be
completed during 2009. In the fourth quarter of 2008, the IRS commenced an
examination of the Companys U.S. income tax returns for 2005 through 2007.
The Companys or certain of its subsidiaries state income tax returns are
currently under examination by various jurisdictions for years ranging from 1998
through 2006.
On September 25, 2007, the IRS
issued Revenue Ruling 2007-61 in which it announced that it intends to issue
regulations with respect to certain computational aspects of the Dividends
Received Deduction (DRD) related to separate account assets held in
connection with variable contracts of life insurance companies. Revenue
Ruling 2007-61 suspended a revenue ruling issued in August 2007 that
purported to change accepted industry and IRS interpretations of the statutes
governing these computational questions. Any regulations that the IRS
ultimately proposes for issuance in this area will be subject to public notice
and comment, at which time insurance companies and other members of the
public will have the opportunity to raise legal and practical questions about
the content, scope and application of such regulations. As a result, the
ultimate timing and substance of any such regulations are unknown at this time,
but they may result in the elimination of some or all of the separate account DRD
tax benefit that the Company receives. Management believes that it is
likely that any such regulations would apply prospectively only.
26
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
12.
Contingencies
Owing to prevailing conditions in the credit markets and the isolated
default of an unaffiliated structured investment vehicle (SIV) held in the
portfolios of money market funds advised by its RiverSource Investments LLC
subsidiary (the 2a-7 Funds), the Company intends to monitor the net asset
value of the 2a-7 Funds and may in its judgment as circumstances warrant from
time to time offer to purchase amounts of defaulted unaffiliated SIV securities
at par from, or inject capital to, one or more of the 2a-7 Funds. Management expects this to have an immaterial
impact in subsequent periods. The
Company has not provided a formal capital support agreement or net asset value
guarantee to any of the 2a-7 Funds.
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 and heightened
volatility in the financial markets, such as those which have been experienced
for over the past year, 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 Companys businesses
remains elevated. From time to time, the Company receives requests for
information from, and/or has been subject to examination by, the Securities and
Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA),
Office of Thrift Supervision (OTS), state insurance regulators, state
attorneys general and various other governmental and quasi-governmental
authorities concerning the Companys business activities and practices, and the
practices of the Companys financial advisors. Pending matters about which the
Company has recently received information requests include: sales and product
or service features of, or disclosures pertaining to, mutual funds, annuities,
equity and fixed income securities, insurance products, brokerage services,
financial plans and other advice offerings; supervision of the Companys
financial advisors; supervisory practices in connection with financial advisors
outside business activities; sales practices and supervision associated with
the sale of fixed and variable annuities; the delivery of financial plans; the
suitability of particular trading strategies. The number of reviews and
investigations has increased in recent years with regard to many firms in the
financial services industry, including Ameriprise Financial. The Company has
cooperated and will continue to cooperate with the applicable regulators
regarding their inquiries.
These legal and regulatory proceedings and
disputes are subject to uncertainties and, as such, the Company is unable to
estimate the possible loss or range of loss that may result. An adverse outcome
in one or more of these proceedings could result in adverse judgments,
settlements, fines, penalties or other relief that could have a material
adverse effect on the Companys consolidated financial condition or results of
operations.
Certain legal and regulatory proceedings are
described below.
In June 2004, an action captioned
John E. Gallus et al. v. American Express Financial Corp. and American
Express Financial Advisors Inc., was filed in the United States District
Court for the District of Arizona, and was later transferred to the United
States District Court for the District of Minnesota. The plaintiffs alleged
that they were investors in several of the Companys mutual funds and they
purported to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs alleged that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services were excessive. On July 6, 2007, the Court granted the Companys
motion for summary judgment, dismissing all claims with prejudice. Plaintiffs
appealed the Courts decision, and on April 8, 2009, the U.S. Court of
Appeals for the Eighth Circuit reversed the district courts decision, and
remanded the case for further proceedings.
For several years, the Company has been
cooperating with the SEC in connection with an inquiry into the Companys sales
of, and revenue sharing relating to, other companies real estate investment
trust (REIT) shares in the 2000-2004 time period. SEC staff notified the
Company that it is considering recommending that the SEC bring a civil action
against the Company relating to these issues. The Company will continue to
cooperate with the SEC regarding this matter.
Relevant to market conditions since the latter
part of 2007, a large client claimed breach of certain contractual investment
guidelines. In April 2009, the client presented a formal Request for Arbitration.
The Company is continuing to evaluate the clients claims, and the parties have
agreed to a date (in early June 2009) for a mediation with a view to resolving
the dispute. No date has been set for any arbitration proceedings, and the
outcome and ultimate impact of this matter remain uncertain at this time.
27
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
13.
Guarantees
An unaffiliated third party is providing
liquidity to clients of Securities America, Inc. (SAI) registered
representatives that have assets in the Reserve Primary Fund that have been
blocked from redemption and frozen by the Reserve Fund since September 16, 2008.
The Company has agreed to indemnify the unaffiliated third party up to $10
million until April 15, 2015, for costs incurred as a result of an
arbitration or litigation initiated against the unaffiliated third party by
clients of SAI registered representatives. In the event that a client defaults
in the repayment of an advance, SAI has recourse to collect from the defaulting
client.
A property fund limited partnership that the
Company consolidates has floating rate revolving credit borrowings of $72
million as of March 31, 2009. A Threadneedle subsidiary guarantees the
repayment of outstanding borrowings up to the value of the assets of the
partnership. The debt is secured by the assets of the partnership and there is
no recourse to Ameriprise Financial.
14.
Earnings per Common Share
The computations
of basic and diluted earnings per common share are as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(in millions, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
Net income attributable to Ameriprise Financial
|
|
$
|
130
|
|
$
|
191
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Basic: Weighted-average common shares outstanding
|
|
222.3
|
|
228.4
|
|
Effect of potentially dilutive nonqualified stock options and other
share-based awards
|
|
1.2
|
|
3.1
|
|
Diluted: Weighted-average common shares outstanding
|
|
223.5
|
|
231.5
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
$
|
0.84
|
|
Diluted
|
|
$
|
0.58
|
|
$
|
0.82
|
|
Basic weighted average
common shares for the three months ended March 31, 2009 and 2008
included 3.4 million and 2.3 million, respectively, of vested,
nonforfeitable restricted stock units and 4.8 million and
3.2 million, respectively, of non-vested restricted stock awards and
restricted stock units that are forfeitable but receive nonforfeitable
dividends. Potentially dilutive securities include nonqualified stock options
and other share-based awards.
15.
Equity
The Company has a share repurchase program in
place to return excess capital to shareholders. In light of the current market
environment, the Company has temporarily suspended its stock repurchase program.
During the three months ended March 31, 2008, the Company repurchased
a total of 5.2 million shares of its common stock at an average price of
$51.55. As of March 31, 2009, the Company had approximately
$1.3 billion remaining under a share repurchase authorization.
The Company may also reacquire
shares of its common stock under its share-based compensation plans related to
restricted stock awards. Restricted shares that are forfeited before the
vesting period has lapsed are recorded as treasury shares. In addition,
the holders of restricted shares may elect to surrender a portion of their
shares on the vesting date to cover their income tax obligations.
These vested restricted shares reacquired by the Company and
the Companys payment of the holders income tax obligations are recorded
as a treasury share purchase. Restricted shares forfeited and recorded as
treasury shares were 0.1 million and nil for the three months ended March 31, 2009
and 2008, respectively. For both the three months ended March 31, 2009
and 2008, the Company reacquired 0.4 million shares of its common stock
through the surrender of restricted shares upon vesting and paid in the
aggregate $9 million and $20 million, respectively, related to the
holders income tax obligations on the vesting date.
28
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
16.
Variable Interest Entities
The Company consolidates all VIEs for
which it is considered to be the primary beneficiary. The determination as
to whether an entity is a VIE is based on the amount and nature of the Companys
equity investment in the entity. The Company also considers other
characteristics such as the ability to influence the decision making about the
entitys activities and how the entity is financed. The determination as
to whether the Company is considered to be the primary beneficiary is
based on whether the Company will absorb a majority of the VIEs expected
losses, receive a majority of the VIEs expected residual return or both.
The Company consolidates a VIE for which
it is considered the primary beneficiary. The Company had investments of
$10 million and non-recourse debt of $6 million on the Consolidated
Balance Sheets as of March 31, 2009 and December 31, 2008,
respectively, related to this entity.
The Company has variable interests for
which it is not the primary beneficiary and, therefore, does not consolidate.
The Companys maximum exposure to loss as a result of its investment in these
entities is limited to its carrying value. The Company has no obligation to
provide further financial or other support to the VIEs nor has the Company
provided any additional support to the VIEs other than services it is
separately compensated for through management agreements. The Company had no
liabilities recorded as of March 31, 2009 and December 31, 2008
related to these entities.
The Company is a limited partner in
affordable housing partnerships which qualify for government sponsored low
income housing tax credit programs. In most cases, the Company has less
than 50% interest in the partnerships sharing in benefits and risks with
other limited partners in proportion to the Companys ownership interest. In
the limited cases in which the Company has a greater than
50% interest in affordable housing partnerships, it was determined that
the relationship with the general partner is an agent relationship and the
general partner was most closely related to the partnership as it is the key
decision maker and controls the operations. The carrying values of the
affordable housing partnerships are reflected in investments and were $48
million and $54 million as of March 31, 2009 and December 31, 2008,
respectively.
For the collateralized debt obligations (CDOs)
managed by the Company, the Company has evaluated its variability in
losses and returns considering its investment levels, which are less than
50% of the residual tranches, and the fees received from managing the
structures and has determined that consolidation is not required. The carrying
values of the CDOs are reflected in investments and were $38 million and
$50 million as of March 31, 2009 and December 31, 2008, respectively.
The Company manages $6.8 billion of underlying collateral consisting
primarily of below investment grade syndicated bank loans within the CDOs.
17.
Segment Information
The Companys five segments are Advice &
Wealth Management, Asset Management, Annuities, Protection and Corporate &
Other.
The following is a summary of assets by
segment:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Advice & Wealth Management
|
|
$
|
11,035
|
|
$
|
10,624
|
|
Asset Management
|
|
4,909
|
|
5,363
|
|
Annuities
|
|
58,324
|
|
58,504
|
|
Protection
|
|
18,924
|
|
19,425
|
|
Corporate & Other
|
|
1,389
|
|
1,661
|
|
Total assets
|
|
$
|
94,581
|
|
$
|
95,577
|
|
29
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
The following is a summary of segment
operating results:
|
|
Three Months Ended March 31, 2009
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
533
|
|
$
|
239
|
|
$
|
471
|
|
$
|
488
|
|
$
|
30
|
|
$
|
|
|
$
|
1,761
|
|
Intersegment revenue
|
|
237
|
|
10
|
|
21
|
|
8
|
|
|
|
(276
|
)
|
|
|
Total revenues
|
|
770
|
|
249
|
|
492
|
|
496
|
|
30
|
|
(276
|
)
|
1,761
|
|
Banking and deposit interest expense
|
|
41
|
|
1
|
|
|
|
|
|
1
|
|
(1
|
)
|
42
|
|
Net revenues
|
|
729
|
|
248
|
|
492
|
|
496
|
|
29
|
|
(275
|
)
|
1,719
|
|
Pretax income (loss)
|
|
$
|
(61
|
)
|
$
|
(22
|
)
|
$
|
129
|
|
$
|
112
|
|
$
|
(24
|
)
|
$
|
|
|
134
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116
|
|
Less: Net loss attributable to noncontrolling interests
|
|
(14
|
)
|
Net income attributable to Ameriprise Financial
|
|
$
|
130
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
756
|
|
$
|
351
|
|
$
|
451
|
|
$
|
473
|
|
$
|
7
|
|
$
|
|
|
$
|
2,038
|
|
Intersegment revenue
|
|
227
|
|
6
|
|
27
|
|
10
|
|
3
|
|
(273
|
)
|
|
|
Total revenues
|
|
983
|
|
357
|
|
478
|
|
483
|
|
10
|
|
(273
|
)
|
2,038
|
|
Banking and deposit interest expense
|
|
47
|
|
2
|
|
|
|
|
|
1
|
|
(3
|
)
|
47
|
|
Net revenues
|
|
936
|
|
355
|
|
478
|
|
483
|
|
9
|
|
(270
|
)
|
1,991
|
|
Pretax income (loss)
|
|
$
|
64
|
|
$
|
13
|
|
$
|
42
|
|
$
|
102
|
|
$
|
(31
|
)
|
$
|
|
|
190
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
186
|
|
Less: Net loss attributable to noncontrolling interests
|
|
(5
|
)
|
Net income attributable to Ameriprise Financial
|
|
$
|
191
|
|
30
Table of Contents
ITEM 2.
|
MANAGEMENTS
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 Managements Discussion and Analysis should be read in conjunction
with our Annual Report on Form 10-K for the year ended December 31, 2008,
filed with the Securities and Exchange Commission (SEC) on March 2, 2009
(2008 10-K), as well as our current reports on Form 8-K and other
publicly available information.
Overview
We are engaged in
providing financial planning, products and services that are designed to be
utilized as solutions for our clients cash and liquidity, asset
accumulation, income, protection and estate and wealth transfer needs. As of March 31, 2009,
we had a network of more than 12,400 financial advisors and registered
representatives (affiliated financial advisors). In addition to serving
clients through our affiliated financial advisors, our asset management,
annuity, and auto and home protection products are distributed through
third-party advisors and affinity relationships.
We deliver
solutions to our clients through an approach focused on building long term
personal relationships between our advisors and clients. We offer
financial planning and advice that are responsive to our clients evolving
needs and help them achieve their identified financial goals by recommending
actions and a range of product solutions consisting of investment, annuities,
insurance, banking and other financial products that help them attain over time
a return or form of protection while accepting what they determine to be
an appropriate range and level of risk. The financial product solutions we
offer through our affiliated advisors include both our own products and
services and products of other companies. Our financial planning and advisory
process is designed to provide comprehensive advice, when appropriate, to
address our clients cash and liquidity, asset accumulation, income,
protection, and estate and wealth transfer needs. We believe that our
focus on personal relationships, together with our strengths in financial
planning and product development, allows us to better address our clients
financial needs, including the financial needs of our primary target market
segment, the mass affluent and affluent, which we define as households with
investable assets of more than $100,000. This focus also puts us in a strong
position to capitalize on significant demographic and market trends, which we
believe will continue to drive increased demand for our financial planning
and other financial services. Deep client-advisor relationships are central to
the ability of our business model to succeed through market cycles, including
the extreme market conditions that persisted through the first quarter of 2009.
We have four main
operating segments: Advice & Wealth Management, Asset Management,
Annuities and Protection, as well as our Corporate & Other
segment. Our four main operating segments are aligned with the financial
solutions we offer to address our clients needs. The products and services we
provide retail clients and, to a lesser extent, institutional clients, are the
primary source of our revenues and net income. Revenues and net income are
significantly impacted 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.
Equity market, 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 annuities, banking and deposit products and universal life (UL) insurance
products, the value of deferred acquisition costs (DAC) and deferred sales
inducement costs (DSIC) assets associated with variable annuity and variable
UL products, the values of liabilities for guaranteed benefits associated with
our variable annuities and the values of derivatives held to hedge these
benefits. For additional information regarding our sensitivity to equity risk
and interest rate risk, see Quantitative and Qualitative Disclosures About
Market Risk.
It is managements
priority to increase shareholder value over a multi-year horizon by achieving
our on-average, over-time financial targets. Our financial targets are:
·
Net revenue growth of 6% to 8%,
·
Earnings per diluted share growth of
12% to 15%, and
·
Return on equity of 12% to 15%.
Our net revenues
for the three months ended March 31, 2009 were
$1.7 billion, a decrease of $272 million, or 14%, from the prior
year period. This revenue decline primarily reflects the negative impact of
weak equity markets on management and financial advice fees and distribution
fees.
31
Table
of Contents
Net income
attributable to Ameriprise Financial for the three months ended March 31, 2009
was $130 million, a decline of $61 million from $191 million
for the prior year period. Earnings per diluted share for the three
months ended March 31, 2009 were $0.58, compared to $0.82 for the
prior year period.
We continue to
establish Ameriprise Financial as a financial services leader as we focus on
meeting the financial needs of the mass affluent and affluent, as evidenced
by our continued leadership in financial planning and our strong corporate
foundation. Our franchisee advisor and client retention remain strong at 93%
and 94%, respectively, as of March 31, 2009. We completed a strong
quarter for experienced advisor recruitment, with approximately 200 experienced
advisors joining our branded advisor channels in the first quarter of 2009.
Critical Accounting Policies
Valuation of Investments
Effective January 1,
2009, we early adopted FSP FAS 115-2 and FAS 124-2 Recognition and
Presentation of Other-Than-Temporary Impairments (FSP 115-2). This
interpretation significantly changed our accounting policy regarding the timing
and amount of other-than temporary impairments for Available-for-Sale
securities. For information regarding the changes to our accounting
policy, see Note 3 to our Consolidated Financial Statements.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
For our annuity
and life, disability income and long term care insurance products, our DAC
and DSIC balances at any reporting date are supported by projections that show
management expects there to be adequate premiums or estimated gross profits
after that date to amortize the remaining DAC and DSIC balances. These projections
are inherently uncertain because they require management to make assumptions
about financial markets, anticipated mortality and morbidity levels and
policyholder behavior over periods extending well into the future. Projection
periods used for our annuity products are typically 10 to 25 years,
while projection periods for our life, disability income and long term
care insurance products are often 50 years or longer. Management regularly
monitors financial market conditions and actual policyholder behavior experience
and compares them to its assumptions.
For annuity and
universal life insurance products, the assumptions made in projecting future
results and calculating the DAC balance and DAC amortization expense are
managements best estimates. Management is required to update these assumptions
whenever it appears that, based on actual experience or other evidence, earlier
estimates should be revised. When assumptions are changed, the percentage of
estimated gross profits used to amortize DAC might also change. A change
in the required amortization percentage is applied retrospectively; an increase
in amortization percentage will result in a decrease in the DAC balance and an
increase in DAC amortization expense, while a decrease in amortization
percentage will result in an increase in the DAC balance and a decrease in DAC
amortization expense. The impact on results of operations of changing
assumptions can be either positive or negative in any particular period and is
reflected in the period in which such changes are made. For products with
associated DSIC, the same policy applies in calculating the DSIC balance and
periodic DSIC amortization.
For other life,
disability income and long term care insurance products, the assumptions made
in calculating our DAC balance and DAC amortization expense are consistent
with those used in determining the liabilities and, therefore, are intended to
provide for adverse deviations in experience and are revised only if management
concludes experience will be so adverse that DAC are not recoverable. If
management concludes that DAC are not recoverable, DAC are reduced to the
amount that is recoverable based on best estimate assumptions and there is a
corresponding expense recorded in our consolidated results of operations.
For annuity and
life, disability income and long term care insurance products, key assumptions
underlying these long-term projections include interest rates (both earning
rates on invested assets and rates credited to contractholder and policyholder
accounts), equity market performance, mortality and morbidity rates and the
rates at which policyholders are expected to surrender their contracts, make
withdrawals from their contracts and make additional deposits to their
contracts. Assumptions about earned and credited interest rates are the primary
factors used to project interest margins, while assumptions about equity and
bond market performance are the primary factors used to project client asset
value growth rates, and assumptions about surrenders, withdrawals and deposits
comprise projected persistency rates. Management must also make assumptions to
project maintenance expenses associated with servicing our annuity and
insurance businesses during the DAC amortization period.
32
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The client asset
value growth rates are the rates at which variable annuity and variable
universal life insurance contract values invested in separate accounts are
assumed to appreciate in the future. The rates used vary by equity and
fixed income investments. Management reviews and, where appropriate, adjusts
its assumptions with respect to client asset value growth rates on a
regular basis. We typically use a five-year mean reversion process as a
guideline in setting near-term equity asset growth rates based on a long-term
view of financial market performance as well as recent actual performance. The
suggested near-term growth rate is reviewed to ensure consistency with
managements assessment of anticipated equity market performance. In the first
quarter of 2009, management elected to follow the mean reversion guideline,
increasing near-term equity asset growth rates and projecting that first quarter
approximate 12% decrease in equity values will be recovered within the
five-year mean reversion period. At recent equity market levels, increasing the
annualized equity market return projected during the five-year mean reversion
period by 100 basis points reduces DAC amortization and other impacted
expenses by $20-$25 million after tax.
We monitor other
principal DAC and DSIC amortization assumptions, such as persistency,
mortality, morbidity, interest margin and maintenance expense levels each
quarter and, when assessed independently, each could impact our DAC and
DSIC balances.
The analysis of
DAC and DSIC balances and the corresponding amortization is a dynamic process
that considers all relevant factors and assumptions described previously.
Unless management identifies a significant deviation over the course of the
quarterly monitoring, management reviews and updates these DAC and DSIC
amortization assumptions annually in the third quarter of each year. An
assessment of sensitivity associated with changes in any single assumption
would not necessarily be an indicator of future results.
Recent Accounting Pronouncements
For information
regarding recent accounting pronouncements and their expected impact on
our future consolidated results of operations or financial condition, see
Note 2 to our Consolidated Financial Statements.
Owned, Managed and Administered Assets
Owned assets include
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-proprietary funds held in the separate accounts of
our life insurance subsidiaries, as well as restricted and segregated cash
and receivables.
Managed assets include
managed external client assets and managed owned assets. Managed external
client assets include client assets for which we provide investment
management services, such as the assets of the RiverSource family of mutual
funds and Seligman family of mutual funds, assets of institutional clients and
client assets held in wrap accounts. Managed external client assets also
include assets managed by sub-advisors selected by us. Managed external client
assets are not reported on our Consolidated Balance Sheets. Managed owned
assets include 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
RiverSource Variable Product funds held in the separate accounts of
our life insurance subsidiaries.
Administered assets
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 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.
We earn
management fees on our owned separate account assets based on the market
value of assets held in the separate accounts. We record the income
associated with our owned investments, including net realized gains and
losses associated with these investments and other-than-temporary impairments
related to credit losses on these investments, as net investment income.
For managed assets, we receive management fees based on the value of
these assets. We generally report these fees as management and financial
advice fees. We may also receive distribution fees based on the value
of these assets. We generally record fees received from administered
assets as distribution fees.
Fluctuations in
our owned, managed and administered assets impact our revenues.
Our owned, managed and administered assets are impacted by net flows of
client assets, market movements and foreign exchange rates. Owned assets are
also affected by changes in our capital structure.
33
Table
of Contents
Our owned, managed and
administered assets declined to $354.0 billion at March 31, 2009,
a net decrease of 21% from March 31, 2008, primarily due to the 40%
decline in the S&P 500 Index.
We generated retail
net inflows for the three months ended March 31, 2009. Fixed annuities had
total net inflows of $1.5 billion in the first quarter of 2009 compared to
net outflows of $547 million in the prior year period. Wrap account assets
had net inflows of $1.3 billion in the first quarter of 2009 compared to
$1.4 billion in the prior year period and variable annuities had net
inflows of $328 million compared to $851 million in the prior year
period.
Total asset management
net outflows declined to $0.3 billion for the three months ended March 31,
2009, compared to net outflows of $5.2 billion for the prior year period.
In the first quarter of 2009, Domestic managed assets had $54 million
in net inflows compared to net outflows of $2.6 billion in the prior year
period and market depreciation of $2.8 billion in the first quarter of 2009
compared to $7.0 billion in the prior year period.
International managed assets had $322 million in net outflows in the
first quarter of 2009 compared to $2.6 billion in the prior year period
and market depreciation of $4.5 billion in the first quarter of 2009
compared to $8.3 billion in the prior year period. The negative impact on
International managed assets due to changes in foreign currency exchange rates
was $1.5 billion in the first quarter of 2009 compared to
$72 million in the prior year period
.
The following
table presents detail regarding our owned, managed and administered
assets:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in billions, except percentages)
|
|
Owned Assets
|
|
$
|
29.6
|
|
$
|
36.8
|
|
(20
|
)%
|
Managed Assets
(1)
:
|
|
|
|
|
|
|
|
RiverSource
|
|
125.2
|
|
147.0
|
|
(15
|
)
|
Threadneedle
|
|
68.3
|
|
124.3
|
|
(45
|
)
|
Wrap account assets
|
|
68.2
|
|
89.6
|
|
(24
|
)
|
Eliminations
(2)
|
|
(8.4
|
)
|
(14.4
|
)
|
(42
|
)
|
Total Managed Assets
|
|
253.3
|
|
346.5
|
|
(27
|
)
|
Administered Assets
|
|
71.1
|
|
65.8
|
|
8
|
|
Total Owned, Managed and Administered
Assets
|
|
$
|
354.0
|
|
$
|
449.1
|
|
(21
|
)%
|
(1)
|
Includes managed external
client assets and managed owned assets.
|
(2)
|
Includes eliminations for
RiverSource mutual fund assets included in wrap account assets and
RiverSource assets sub-advised by Threadneedle.
|
34
Table
of Contents
Consolidated Results of Operations for the
Three Months Ended March 31, 2009 and 2008
The following
table presents our consolidated results of operations for the three months
ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
554
|
|
$
|
791
|
|
$
|
(237
|
)
|
(30
|
)%
|
Distribution fees
|
|
311
|
|
433
|
|
(122
|
)
|
(28
|
)
|
Net investment income
|
|
421
|
|
401
|
|
20
|
|
5
|
|
Premiums
|
|
266
|
|
256
|
|
10
|
|
4
|
|
Other revenues
|
|
209
|
|
157
|
|
52
|
|
33
|
|
Total revenues
|
|
1,761
|
|
2,038
|
|
(277
|
)
|
(14
|
)
|
Banking and deposit interest expense
|
|
42
|
|
47
|
|
(5
|
)
|
(11
|
)
|
Total net revenues
|
|
1,719
|
|
1,991
|
|
(272
|
)
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
383
|
|
532
|
|
(149
|
)
|
(28
|
)
|
Interest credited to fixed accounts
|
|
205
|
|
195
|
|
10
|
|
5
|
|
Benefits, claims, losses and settlement
expenses
|
|
100
|
|
304
|
|
(204
|
)
|
(67
|
)
|
Amortization of deferred acquisition costs
|
|
286
|
|
154
|
|
132
|
|
86
|
|
Interest and debt expense
|
|
26
|
|
26
|
|
|
|
|
|
General and administrative expense
|
|
585
|
|
590
|
|
(5
|
)
|
(1
|
)
|
Total expenses
|
|
1,585
|
|
1,801
|
|
(216
|
)
|
(12
|
)
|
Pretax income
|
|
134
|
|
190
|
|
(56
|
)
|
(29
|
)
|
Income tax provision
|
|
18
|
|
4
|
|
14
|
|
NM
|
|
Net income
|
|
116
|
|
186
|
|
(70
|
)
|
(38
|
)
|
Less: Net loss attributable to
noncontrolling interests
|
|
(14
|
)
|
(5
|
)
|
(9
|
)
|
NM
|
|
Net income attributable to Ameriprise
Financial
|
|
$
|
130
|
|
$
|
191
|
|
$
|
(61
|
)
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment losses
on securities
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment
losses on securities
|
|
(38
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
3
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(35
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
NM Not Meaningful.
Overall
Net income
attributable to Ameriprise Financial for the three months ended March 31,
2009 was $130 million, down $61 million from $191 million for the
prior year period, reflecting the impact of the significant decline in equity
markets and the lower short-term interest rate environment. The S&P 500
Index ended at 798 at the end of the first quarter of 2009 compared to 1,323 at
the end of the first quarter of 2008, a drop of 525 points, or 40%.
Short-term interest rates declined period over period as the Fed Funds target
rate was 0-25 basis points in the first quarter of 2009 compared to a range of
225-425 basis points in the first quarter of 2008.
Net Revenues
The decrease in net
revenues was driven by lower management and financial advice fees and
distribution fees, primarily due to lower asset levels attributable to the
decline in equity markets that persisted throughout the period from March 31,
2008 to March 31, 2009 and clients increased preference for short-term
and fixed income investment products, as well as the lower short-term interest
rate environment.
35
Table
of Contents
Management and
financial advice fees decreased $237 million, or 30%, to $554 million
for the three months ended March 31, 2009 compared to
$791 million for the prior year period primarily due to lower asset
levels, as well as the negative impact of foreign currency translation. Wrap
account assets decreased $21.4 billion, or 24%, compared to the prior year
period, due to market depreciation, partially offset by net inflows and an
increase in wrap account assets due to the acquisition of H&R Block
Financial Advisors, Inc. in the fourth quarter of 2008. Market
depreciation from March 31, 2008 to March 31, 2009 negatively
impacted wrap account assets by $27.1 billion, whereas total net inflows during
the same period were $3.7 billion. Market depreciation of wrap account assets
was $5.9 billion in the first quarter of 2009 compared to
$5.6 billion in the first quarter of 2008. Net inflows in wrap account
assets decreased slightly to $1.3 billion in the first quarter of 2009
from $1.4 billion in the prior year. Total managed assets excluding wrap
account assets decreased $71.8 billion, or 28%, in the first quarter of
2009 compared to the prior year period primarily due to market depreciation,
net outflows in Domestic and International funds and a $30.0 billion
decrease in International managed assets due to the impact of changes in
foreign currency exchange rates, partially offset by an increase in managed
assets due to the acquisition of J. & W. Seligman & Co.
(Seligman) in the fourth quarter of 2008.
Distribution fees
decreased $122 million, or 28%, to $311 million for the three months
ended March 31, 2009 compared to $433 million in the prior year
period primarily due to changes in client behavior and lower asset levels.
Clients continued preference for short-term and fixed income investment
products in the first quarter of 2009 resulted in slowing sales and flows for
other products that generate higher distribution fees.
Net investment income
increased $20 million, or 5%, to $421 million for the three months
ended March 31, 2009 compared to $401 million in the prior year
period, due to $16 million in net realized investment gains for the first
quarter of 2009 compared to $24 million in net realized investment losses for
the first quarter of 2008. In the first quarter of 2009, net realized gains
from sales of Available-for-Sale securities were $51 million and
other-than-temporary impairments recognized in earnings were $35 million. In
the first quarter of 2008, net realized gains from sales of securities
were $8 million and other-than-temporary impairments recognized in earnings
were $32 million. Investment income earned on fixed maturity securities
decreased $23 million compared to the prior year period primarily driven by
lower short-term interest rates while investment income earned on seed money
and other investments increased $4 million from the prior year period.
Premiums increased
$10 million, or 4%, to $266 million for the three months ended March 31,
2009 primarily due to growth in Auto and Home premiums compared to the prior
year period driven by higher volumes. Auto and Home policy counts
increased 6% period-over-period.
Other revenues
increased $52 million, or 33%, to $209 million for the three months
ended March 31, 2009 compared to $157 million in the prior year
period primarily due to a $50 million gain on the repurchase of certain junior
subordinated notes (junior notes) in the first quarter of 2009.
Banking and deposit
interest expense decreased $5 million to $42 million for the three
months ended March 31, 2009 compared to $47 million in the prior year
period primarily due to lower crediting rates on certificates, partially offset
by higher certificate balances.
Expenses
Total expenses
decreased $216 million, or 12%, to $1.6 billion for the three months
ended March 31, 2009 compared to $1.8 billion for the three months
ended March 31, 2008, primarily due to lower business volumes, lower
expenses from hedged variable annuity living benefits and continued strong
expense controls.
Distribution expenses
decreased $149 million, or 28%, to $383 million for the three months
ended March 31, 2009 compared to $532 million in the prior year
period primarily due to decreases in advisor compensation reflecting a shift in
client behavior and lower asset levels, which were both impacted by market
declines. Net revenues per advisor decreased to $59,000 in the first quarter of
2009 compared to $81,000 in the prior year period and total managed assets
decreased $93.2 billion, or 27%, compared to the prior year period.
36
Table
of Contents
Interest credited to
fixed accounts increased $10 million, or 5%, to $205 million for the
three months ended March 31, 2009 compared to $195 million for
the three months ended March 31, 2008, primarily due to higher average
fixed annuity account balances and higher average rates paid to clients on
fixed annuities compared to the prior year period. Average fixed annuities
contract accumulation values increased $775 million, or 6%, compared to the
prior year period. The average crediting rate excluding capitalized interest
increased to 3.8% in the first quarter of 2009 compared to 3.7% in the same
period a year ago.
Benefits, claims,
losses and settlement expenses decreased $204 million, or 67%, to
$100 million for the three months ended March 31, 2009 compared
to $304 million for the three months ended March 31, 2008, primarily
due to net gains from benefits associated with variable annuity guarantees in
the first quarter of 2009. Benefits, claims, losses and settlement expenses in
the first quarter of 2009 included a $231 million benefit related to the
market impact on variable annuity guaranteed living benefits, net of hedges and
DSIC and a $31 million expense related to the equity markets impact on
guaranteed minimum death benefits (GMDB) and other unhedged variable annuity
guaranteed benefits. The net gains from benefits associated with variable
annuity guarantees in the first quarter of 2009 were largely attributable to
the impact of credit spread widening on Statement of Financial Accounting
Standards No. 157 Fair Value Measurements (SFAS 157) liability values
and were substantially offset by a related increase in DAC amortization.
Benefits, claims, losses and settlement expenses in the first quarter of 2008
included $12 million of expense related to the unfavorable market impact
on variable annuity guaranteed living benefits, net of hedges and DSIC.
Amortization of DAC
increased $132 million, or 86%, to $286 million for the three months
ended March 31, 2009 compared to $154 million in the prior year
period. Included in DAC amortization for the three months ended March 31,
2009 was an expense of $146 million related to variable annuity guaranteed
living benefits, net of hedges, compared to a benefit of $17 million for
the three months ended March 31, 2008. In addition, the impact of equity
market depreciation on ending account values increased DAC amortization by $40
million in the first quarter of 2009 compared to $24 million in the first
quarter of 2008. These increases were partially offset by a decrease in
variable annuity amortization driven by lower period-over-period account values
and associated asset fees.
General and
administrative expense decreased $5 million, or 1%, to $585 million
for the three months ended March 31, 2009 compared to $590 million in
the prior year period. General and administrative expense in the first quarter
of 2009 included integration costs and ongoing expenses from acquisitions
closed in the fourth quarter of 2008 of $19 million and $66 million,
respectively. Excluding these costs, general and administrative expense
decreased 15% as a result of expense controls, lower performance-driven
compensation-related expenses and a positive impact of foreign currency
translation. The positive impact of foreign currency translation on general and
administrative expense partially offset the negative impact of foreign currency
translation on management and financial advice fees.
Income Taxes
Our effective tax
rate on net income attributable to Ameriprise Financial increased to
13.3% for the three months ended March 31, 2009, compared to
2.0% for the three months ended March 31, 2008. Our effective tax
rate for the first quarter of 2008 included $38 million of tax benefits related
to changes in the status of current audits and closed audits.
On September 25, 2007,
the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to
issue regulations with respect to certain computational aspects of the
Dividends Received Deduction (DRD) related to separate account assets
held in connection with variable contracts of life insurance companies. Revenue
Ruling 2007-61 suspended a revenue ruling issued in August 2007 that
purported to change accepted industry and IRS interpretations of the statutes
governing these computational questions. Any regulations that the IRS
ultimately proposes for issuance in this area will be subject to public notice
and comment, at which time insurance companies and other members of the public
will have the opportunity to raise legal and practical questions about the
content, scope and application of such regulations. As a result, the ultimate
timing and substance of any such regulations are unknown at this time, but they
may result in the elimination of some or all of the separate account DRD tax
benefit that we receive. Management believes that it is likely that any such
regulations would apply prospectively only.
37
Table
of Contents
Results of Operations by Segment for the
Three Months Ended March 31, 2009 and 2008
The following
tables present summary financial information by segment and reconciliation to
consolidated totals derived from Note 17 to our Consolidated
Financial Statements for the three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
Share of
|
|
|
|
Share of
|
|
|
|
2009
|
|
Total
|
|
2008
|
|
Total
|
|
|
|
(in millions, except percentages)
|
|
Total net revenues
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
729
|
|
42
|
%
|
$
|
936
|
|
48
|
%
|
Asset Management
|
|
248
|
|
14
|
|
355
|
|
18
|
|
Annuities
|
|
492
|
|
29
|
|
478
|
|
24
|
|
Protection
|
|
496
|
|
29
|
|
483
|
|
24
|
|
Corporate & Other
|
|
29
|
|
2
|
|
9
|
|
|
|
Eliminations
|
|
(275
|
)
|
(16
|
)
|
(270
|
)
|
(14
|
)
|
Total net revenues
|
|
$
|
1,719
|
|
100
|
%
|
$
|
1,991
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
790
|
|
50
|
%
|
$
|
872
|
|
49
|
%
|
Asset Management
|
|
270
|
|
17
|
|
342
|
|
19
|
|
Annuities
|
|
363
|
|
23
|
|
436
|
|
24
|
|
Protection
|
|
384
|
|
24
|
|
381
|
|
21
|
|
Corporate & Other
|
|
53
|
|
3
|
|
40
|
|
2
|
|
Eliminations
|
|
(275
|
)
|
(17
|
)
|
(270
|
)
|
(15
|
)
|
Total expenses
|
|
$
|
1,585
|
|
100
|
%
|
$
|
1,801
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
$
|
(14
|
)
|
100
|
%
|
$
|
(5
|
)
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) excluding net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
(61
|
)
|
(42
|
)%
|
$
|
64
|
|
33
|
%
|
Asset Management
|
|
(8
|
)
|
(5
|
)
|
18
|
|
9
|
|
Annuities
|
|
129
|
|
87
|
|
42
|
|
22
|
|
Protection
|
|
112
|
|
76
|
|
102
|
|
52
|
|
Corporate & Other
|
|
(24
|
)
|
(16
|
)
|
(31
|
)
|
(16
|
)
|
Pretax income excluding net loss
attributable to noncontrolling interests
|
|
$
|
148
|
|
100
|
%
|
$
|
195
|
|
100
|
%
|
38
Table of Contents
Advice &
Wealth Management
Our Advice &
Wealth Management segment provides financial planning and advice, as well as
full service brokerage and banking services, primarily to retail clients,
through our financial advisors. Our affiliated advisors utilize
a diversified selection of both proprietary and non-proprietary products to
help clients meet their financial needs.
The following
table presents the results of operations of our Advice & Wealth
Management segment for the three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
268
|
|
$
|
367
|
|
$
|
(99
|
)
|
(27
|
)%
|
Distribution fees
|
|
431
|
|
517
|
|
(86
|
)
|
(17
|
)
|
Net investment income
|
|
54
|
|
79
|
|
(25
|
)
|
(32
|
)
|
Other revenues
|
|
17
|
|
20
|
|
(3
|
)
|
(15
|
)
|
Total revenues
|
|
770
|
|
983
|
|
(213
|
)
|
(22
|
)
|
Banking and deposit interest expense
|
|
41
|
|
47
|
|
(6
|
)
|
(13
|
)
|
Total net revenues
|
|
729
|
|
936
|
|
(207
|
)
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
461
|
|
585
|
|
(124
|
)
|
(21
|
)
|
General and administrative expense
|
|
329
|
|
287
|
|
42
|
|
15
|
|
Total expenses
|
|
790
|
|
872
|
|
(82
|
)
|
(9
|
)
|
Pretax income (loss)
|
|
(61
|
)
|
64
|
|
(125
|
)
|
NM
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) excluding net loss
attributable to noncontrolling interests
|
|
$
|
(61
|
)
|
$
|
64
|
|
$
|
(125
|
)
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment
losses on securities
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment
losses on securities
|
|
(13
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(13
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
NM
Not Meaningful.
Our Advice &
Wealth Management segment pretax loss was $61 million for the three months
ended March 31, 2009 compared to pretax income of $64 million for the
three months ended March 31, 2008.
39
Table
of Contents
Net Revenues
Net revenues were
$729 million for the three months ended March 31, 2009 compared to
$936 million in the prior year period, a decrease of $207 million, or
22%, primarily driven by decreases in management and financial advice fees,
distribution fees and net investment income.
Management and
financial advice fees decreased $99 million, or 27%, to $268 million
for the three months ended March 31, 2009, primarily due to lower
asset levels in wrap accounts. Wrap account assets decreased
$21.4 billion, or 24%, compared to the prior year period due to market
depreciation, partially offset by net inflows and an increase in wrap account
assets due to the acquisition of H&R Block Financial Advisors, Inc. in
the fourth quarter of 2008. Market depreciation from March 31, 2008 to March 31,
2009 negatively impacted wrap account assets by $27.1 billion, whereas total
net inflows during the same period were $3.7 billion. Financial planning fees
were lower in the first quarter of 2009 compared to prior year resulting from
accelerated financial plan delivery standards in the first quarter of 2008.
Distribution fees
decreased $86 million, or 17%, to $431 million for the three months ended March 31,
2009, primarily due to changes in client behavior and lower asset levels.
Clients continued preference for short-term and fixed income investment
products in the first quarter of 2009 resulted in slowing sales and flows for
other products that generate higher distribution fees.
Net investment income
decreased $25 million, or 32%, to $54 million for the three months
ended March 31, 2009. Net realized investment losses on Available-for-Sale
securities were $10 million in the first quarter of 2009 compared to nil
in the prior year period. Investment income on fixed maturity securities and
other investments decreased $15 million primarily due to lower short-term
interest rates compared to the prior year period.
Banking and deposit
interest expense decreased $6 million, or 13%, to $41 million for the
three months ended March 31, 2009, due to lower crediting rates
accrued on certificates, partially offset by higher certificate balances
compared to the prior year period.
Expenses
Total expenses
decreased $82 million, or 9%, to $790 million for the three months
ended March 31, 2009.
Distribution expenses
decreased $124 million, or 21%, to $461 million for the three months ended
March 31, 2009, primarily due to decreases in advisor compensation reflecting
a shift in client behavior and lower asset levels, which were both impacted by
market declines. Net revenues per advisor decreased to $59,000 in the first
quarter of 2009 compared to $81,000 in the prior year period and total managed
assets decreased $93.2 billion, or 27%, compared to the prior year period.
General and
administrative expense increased $42 million, or 15%, from the prior year
period primarily due to integration costs and ongoing expenses from our
acquisition of H&R Block Financial Advisors, Inc. in the fourth
quarter of 2008, partially offset by lower expenses due to expense controls and
lower performance-driven compensation-related expenses.
40
Table of Contents
Asset Management
Our Asset Management
segment provides investment advice and investment products to retail and
institutional clients.
The following
table presents the results of operations of our Asset Management
segment for the three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
209
|
|
$
|
296
|
|
$
|
(87
|
)
|
(29
|
)%
|
Distribution fees
|
|
47
|
|
70
|
|
(23
|
)
|
(33
|
)
|
Net investment income
|
|
(1
|
)
|
(4
|
)
|
3
|
|
75
|
|
Other revenues
|
|
(6
|
)
|
(5
|
)
|
(1
|
)
|
(20
|
)
|
Total revenues
|
|
249
|
|
357
|
|
(108
|
)
|
(30
|
)
|
Banking and deposit interest expense
|
|
1
|
|
2
|
|
(1
|
)
|
(50
|
)
|
Total net revenues
|
|
248
|
|
355
|
|
(107
|
)
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
82
|
|
118
|
|
(36
|
)
|
(31
|
)
|
Amortization of deferred acquisition costs
|
|
6
|
|
8
|
|
(2
|
)
|
(25
|
)
|
General and administrative expense
|
|
182
|
|
216
|
|
(34
|
)
|
(16
|
)
|
Total expenses
|
|
270
|
|
342
|
|
(72
|
)
|
(21
|
)
|
Pretax income (loss)
|
|
(22
|
)
|
13
|
|
(35
|
)
|
NM
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
(14
|
)
|
(5
|
)
|
(9
|
)
|
NM
|
|
Pretax income (loss) excluding net loss
attributable to noncontrolling interests
|
|
$
|
(8
|
)
|
$
|
18
|
|
$
|
(26
|
)
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment
losses on securities
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses
on securities
|
|
(3
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(3
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
NM Not Meaningful.
Our Asset Management
segment pretax loss excluding net loss attributable to noncontrolling interest
was $8 million for the three months ended March 31, 2009 compared to
pretax income excluding net loss attributable to noncontrolling interest of
$18 million in the prior year period.
41
Table
of Contents
Net Revenues
Net revenues decreased
$107 million, or 30%, to $248 million for the three months ended March 31,
2009, primarily due to declines in management and financial advice fees and
distribution fees.
Management and
financial advice fees decreased $87 million, or 29%, to $209 million
for the three months ended March 31, 2009, primarily driven by market
depreciation on assets, net outflows and the negative impact of foreign
currency translation. Domestic managed assets decreased $21.8 billion, or 15%,
to $125.2 billion as of March 31, 2009 compared to $147.0 billion as
of March 31, 2008 primarily due to market depreciation and net
outflows, partially offset by Seligman assets acquired in the fourth quarter of
2008. Net inflows for Domestic managed assets were $54 million in the first
quarter of 2009 compared to net outflows of $2.6 billion in the first quarter
of 2008 reflecting strong institutional net inflows. International managed
assets decreased $56.0 billion, or 45%, to $68.3 billion as of March 31,
2009 compared to $124.3 billion as of March 31, 2008 due to market
depreciation of $16.0 billion, net outflows of $13.6 billion and a decrease of
$30.0 billion related to changes in foreign currency exchange rates. Net
outflows for International managed assets were $322 million in the first
quarter of 2009 compared to net outflows of $2.5 billion in the first
quarter of 2008. The net outflows in the first quarter of 2009 included net
inflows in both the retail and institutional higher margin businesses, offset
by net outflows in the lower margin Zurich-related assets.
Distribution fees
decreased $23 million, or 33%, to $47 million for the three months
ended March 31, 2009, primarily due to lower 12b-1 fees driven by flows
and negative market impacts, as well as decreased mutual fund sales volume.
Expenses
Total expenses
decreased $72 million, or 21%, to $270 million for the three months ended March 31,
2009, primarily due to decreases in distribution expenses and general and
administrative expense.
Distribution expenses
decreased $36 million from the prior year period primarily due to decreased
mutual fund sales volume.
General and
administrative expense decreased $34 million, or 16%, to $182 million for the
three months ended March 31, 2009, primarily due to expense controls
and lower performance-driven compensation-related expenses and a positive
impact of foreign currency translation, partially offset by integration costs
and ongoing expenses from our acquisition of Seligman in the fourth quarter of
2008. The positive impact of foreign currency translation on general and
administrative expense partially offset the negative impact of foreign currency
translation on management and financial advice fees.
42
Table of Contents
Annuities
Our Annuities
segment provides variable and fixed annuity products of RiverSource Life
Insurance Company (RiverSource Life) and RiverSource Life Insurance Co. of
New York (RiverSource Life of NY), collectively RiverSource Life companies,
to our retail clients primarily through our Advice & Wealth
Management segment and to the retail clients of unaffiliated advisors through
third-party distribution.
The following
table presents the results of operations of our Annuities segment for the
three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
90
|
|
$
|
126
|
|
$
|
(36
|
)
|
(29
|
)%
|
Distribution fees
|
|
57
|
|
70
|
|
(13
|
)
|
(19
|
)
|
Net investment income
|
|
289
|
|
237
|
|
52
|
|
22
|
|
Premiums
|
|
24
|
|
18
|
|
6
|
|
33
|
|
Other revenues
|
|
32
|
|
27
|
|
5
|
|
19
|
|
Total revenues
|
|
492
|
|
478
|
|
14
|
|
3
|
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
492
|
|
478
|
|
14
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
56
|
|
45
|
|
11
|
|
24
|
|
Interest credited to fixed accounts
|
|
169
|
|
160
|
|
9
|
|
6
|
|
Benefits, claims, losses and settlement
expenses
|
|
(129
|
)
|
78
|
|
(207
|
)
|
NM
|
|
Amortization of deferred acquisition costs
|
|
219
|
|
94
|
|
125
|
|
NM
|
|
General and administrative expense
|
|
48
|
|
59
|
|
(11
|
)
|
(19
|
)
|
Total expenses
|
|
363
|
|
436
|
|
(73
|
)
|
(17
|
)
|
Pretax income
|
|
129
|
|
42
|
|
87
|
|
NM
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income excluding net loss
attributable to noncontrolling interests
|
|
$
|
129
|
|
$
|
42
|
|
$
|
87
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment
losses on securities
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses
on securities
|
|
(16
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
2
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(14
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
NM
Not Meaningful.
Our Annuities segment
pretax income was $129 million for the three months ended March 31,
2009, up $87 million from $42 million in the prior year period.
43
Table
of Contents
Net Revenues
Net revenues increased
$14 million, or 3%, to $492 million for the three months ended March 31,
2009, primarily driven by increases in net investment income, premiums and
other revenues partially offset by decreases in management and financial advice
fees and distribution fees.
Management and
financial advice fees decreased $36 million, or 29%, to $90 million
due to lower fees on variable annuities. Variable annuities contract accumulation
values decreased $13.0 billion from the prior year period primarily due to
equity market declines, partially offset by net inflows. Variable annuities had
net inflows of $328 million in the first quarter of 2009 compared to net
inflows of $851 million in the prior year period. Clients lower risk
tolerances and preference for guaranteed returns reduced variable annuity net
inflows and increased fixed annuity net inflows.
Distribution fees
decreased $13 million, or 19%, to $57 million for the three months ended March 31,
2009, primarily due to lower fees on variable annuities driven by the equity
market decline.
Net investment income
increased $52 million, or 22%, to $289 million for the three months
ended March 31, 2009, primarily due to net realized investment gains on
Available-for-Sale securities of $20 million compared to net realized
investment losses of $20 million in the prior year period. An increase in
investment income due to volume-related increases in investments supporting fixed
annuities and the fixed portion of variable annuities was partially offset by
lower investment income related to the mark-to-market of securities.
Premiums increased
$6 million to $24 million for the three months ended March 31,
2009, due to higher sales of immediate annuities with life contingencies.
Other revenues
increased $5 million to $32 million for the three months ended March 31,
2009, primarily due to an increase in our guaranteed benefit rider fees on
variable annuities driven by volume increases.
Expenses
Total expenses
decreased $73 million, or 17%, to $363 million for the three months
ended March 31, 2009, primarily due to market-driven impacts to variable
annuity benefits expense partially offset by an increase in DAC amortization.
Distribution expenses
increased $11 million, or 24%, to $56 million compared to the prior year
period, primarily due to higher non-deferred distribution-related costs, driven
by higher sales.
Interest credited to
fixed accounts increased $9 million, or 6%, to $169 million for the
three months ended March 31, 2009, primarily driven by higher average
fixed annuity balances and higher average rates paid to clients on fixed
annuities. Fixed annuities exclusive of payout annuity interest credited
increased 9% in the first quarter of 2009 compared to the same period a year
ago. Average fixed annuities contract accumulation values increased $775
million, or 6%, compared to the prior year period. The average crediting rate
excluding capitalized interest increased to 3.8% in the first quarter of 2009
compared to 3.7% in the same period a year ago. In total, interest credited on
payout annuities and the fixed portion of variable annuities remained unchanged
from the prior year period.
Benefits, claims,
losses and settlement expenses decreased $207 million to a benefit of
$129 million for the three months ended March 31, 2009 compared to an
expense of $78 million in the prior year period primarily due to net gains
from benefits associated with variable annuity guarantees in the first quarter
of 2009. Benefits, claims, losses and settlement expenses in the first quarter
of 2009 included a $231 million benefit related to the market impact on
variable annuity guaranteed living benefits, net of hedges and DSIC and a
$31 million expense related to the equity markets impact on GMDB and
other unhedged variable annuity guaranteed benefits. The net gains from
benefits associated with variable annuity guarantees in the first quarter of
2009 were largely attributable to the impact of credit spread widening on SFAS
157 liability values and were substantially offset by a related increase in DAC
amortization. Benefits, claims, losses and settlement expenses in the first
quarter of 2008 included $12 million of expense related to the unfavorable
market impact on variable annuity guaranteed living benefits, net of hedges and
DSIC.
Amortization of DAC
increased $125 million to $219 million for the three months ended March 31,
2009 compared to $94 million in the prior year period. Amortization of DAC
in the first quarter of 2009 included a $146 million expense related to
variable annuity guaranteed living benefits, net of hedges, compared to a
benefit of $17 million for the three months ended March 31, 2008. In
addition, the impact of equity market depreciation on ending account values
increased DAC amortization by $35 million in the first quarter of 2009 compared
to $22 million in the first quarter of 2008. These increases were partially
offset by a decrease in variable annuity amortization driven by lower
period-over-period account values and associated asset fees.
44
Table of Contents
Protection
Our Protection
segment offers a variety of protection products to address the identified
protection and risk management needs of our retail clients including life,
disability income and property-casualty insurance.
The following
table presents the results of operations of our Protection segment for the
three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
10
|
|
$
|
15
|
|
$
|
(5
|
)
|
(33
|
)%
|
Distribution fees
|
|
24
|
|
27
|
|
(3
|
)
|
(11
|
)
|
Net investment income
|
|
100
|
|
83
|
|
17
|
|
20
|
|
Premiums
|
|
247
|
|
245
|
|
2
|
|
1
|
|
Other revenues
|
|
115
|
|
113
|
|
2
|
|
2
|
|
Total revenues
|
|
496
|
|
483
|
|
13
|
|
3
|
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
496
|
|
483
|
|
13
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
5
|
|
5
|
|
|
|
|
|
Interest credited to fixed accounts
|
|
36
|
|
35
|
|
1
|
|
3
|
|
Benefits, claims, losses and settlement
expenses
|
|
229
|
|
226
|
|
3
|
|
1
|
|
Amortization of deferred acquisition costs
|
|
61
|
|
52
|
|
9
|
|
17
|
|
General and administrative expense
|
|
53
|
|
63
|
|
(10
|
)
|
(16
|
)
|
Total expenses
|
|
384
|
|
381
|
|
3
|
|
1
|
|
Pretax income
|
|
112
|
|
102
|
|
10
|
|
10
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income excluding net loss
attributable to noncontrolling interests
|
|
$
|
112
|
|
$
|
102
|
|
$
|
10
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment
losses on securities
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses
on securities
|
|
(6
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
1
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
(5
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
NM
Not Meaningful.
Our Protection
segment pretax income was $112 million for the three months ended March 31,
2009, up $10 million, or 10%, from $102 million in the prior year
period due to an increase in net revenues.
Net Revenues
Net revenues increased
$13 million, or 3%, from the prior year period, primarily due to an
increase in net investment income.
Management and
financial advice fees decreased $5 million, or 33%, to $10 million
for the three months ended March 31, 2009, primarily driven by lower
equity markets.
Net investment income
increased $17 million, or 20%, to $100 million for the three months
ended March 31, 2009, primarily due to net realized investment gains on
Available-for-Sale securities of $9 million in the first quarter of 2009
compared to net realized investment losses of $3 million in the first
quarter of 2008. Investment income earned on fixed maturity securities and
other investments increased $6 million compared to the prior year period
primarily due to higher yields on the overall asset portfolio.
45
Table of Contents
Corporate &
Other
The following
table presents the results of operations of our Corporate & Other
segment for the three months ended March 31, 2009 and 2008:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(21
|
)
|
$
|
8
|
|
$
|
(29
|
)
|
NM
|
|
Other revenues
|
|
51
|
|
2
|
|
49
|
|
NM
|
|
Total revenues
|
|
30
|
|
10
|
|
20
|
|
NM
|
|
Banking and deposit interest expense
|
|
1
|
|
1
|
|
|
|
|
%
|
Total net revenues
|
|
29
|
|
9
|
|
20
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
1
|
|
|
|
1
|
|
NM
|
|
Interest and debt expense
|
|
26
|
|
26
|
|
|
|
|
|
General and administrative expense
|
|
26
|
|
14
|
|
12
|
|
86
|
|
Total expenses
|
|
53
|
|
40
|
|
13
|
|
33
|
|
Pretax loss
|
|
(24
|
)
|
(31
|
)
|
7
|
|
23
|
|
Less: Net loss attributable to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax loss excluding net loss attributable
to noncontrolling interests
|
|
$
|
(24
|
)
|
$
|
(31
|
)
|
$
|
7
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment
losses on securities
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses
on securities
|
|
|
|
|
|
|
|
|
|
Portion of loss recognized in other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in net
investment income
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM
Not Meaningful.
Our Corporate &
Other segment pretax loss for the three months ended March 31, 2009 was
$24 million, an improvement of $7 million compared to a pretax loss
of $31 million in the prior year period.
Net revenues increased
$20 million compared to the prior year period, due to an increase in other
revenues partially offset by a decrease in net investment income. Net
investment loss in the first quarter of 2009 reflects the transfer priced
interest income allocated to the Annuities and Protection segments for
maintaining excess liquidity. The increase in other revenues was due to a $50
million gain on the repurchase of certain junior notes in the first
quarter of 2009.
Total expenses
increased $13 million compared to the prior year period primarily due to an
increase in general and administrative expense.
Market Risk
Equity 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 annuities,
banking, and face amount certificate products and UL insurance products, the
value of DAC and DSIC assets associated with variable annuity and variable UL
products, the values of liabilities for guaranteed benefits associated
with our variable annuities and the values of derivatives held to hedge these
benefits.
The guaranteed
benefits associated with our variable annuities are guaranteed minimum
withdrawal benefits (GMWB), guaranteed minimum accumulation benefits (GMAB),
GMDB and guaranteed minimum income benefits (GMIB) options. Each of these
guaranteed benefits guarantees payouts to the annuity holder under certain
specific conditions regardless of the performance of the underlying investment
assets.
46
Table
of Contents
To evaluate interest
rate and equity market risk we perform sensitivity testing which measures
the impact on pretax income from the sources listed below for a 12 month
period following a hypothetical 100 basis point increase in interest rates
or a hypothetical 10% decline in equity markets. The interest rate risk
test assumes a sudden 100 basis point parallel shift in the yield curve, with
rates then staying at those levels for the next 12 months. The equity market
risk test assumes a sudden 10% drop in equity prices, with equity prices then
staying at those levels for the next 12 months. In estimating the values of
variable annuity riders, equity indexed annuities, stock market certificates
and the associated hedge assets, we assumed no change in implied market
volatility despite the 10% drop in equity markets.
The numbers below
show our estimates of the pretax impacts on income from these hypothetical
market movements, net of hedging, as of March 31, 2009.
|
|
Equity Market Exposure to Pretax Income
|
|
Equity Market Decline 10%
|
|
Before Hedge Impact
|
|
Hedge Impact
|
|
Net Impact
|
|
|
|
(in millions)
|
|
Asset-based management and distribution
fees
|
|
$
|
(88
|
)
|
N/A
|
|
$
|
(88
|
)
|
DAC and DSIC amortization
(1)
|
|
(212
|
)
|
N/A
|
|
(212
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
GMDB and GMIB
|
|
(88
|
)
|
N/A
|
|
(88
|
)
|
GMWB
|
|
(160
|
)
|
$
|
234
|
|
74
|
|
GMAB
|
|
(38
|
)
|
16
|
|
(22
|
)
|
DAC and DSIC amortization
(2)
|
|
N/A
|
|
N/A
|
|
(16
|
)
|
Total variable annuity riders
|
|
(286
|
)
|
250
|
|
(52
|
)
|
Equity indexed annuities
|
|
|
|
|
|
|
|
Stock market certificates
|
|
2
|
|
(2
|
)
|
|
|
Total
|
|
$
|
(584
|
)
|
$
|
248
|
|
$
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Exposure to Pretax Income
|
|
Interest Rate Increase 100 Basis Points
|
|
Before Hedge Impact
|
|
Hedge Impact
|
|
Net Impact
|
|
|
|
(in millions)
|
|
Asset-based management and distribution
fees
|
|
$
|
(15
|
)
|
N/A
|
|
$
|
(15
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
GMWB
|
|
340
|
|
$
|
(480
|
)
|
(140
|
)
|
GMAB
|
|
71
|
|
(26
|
)
|
45
|
|
DAC and DSIC amortization
(2)
|
|
N/A
|
|
N/A
|
|
38
|
|
Total variable annuity riders
|
|
411
|
|
(506
|
)
|
(57
|
)
|
Fixed annuities, fixed portion of variable
annuities and fixed insurance products
|
|
|
|
N/A
|
|
|
|
Flexible savings and other fixed rate
savings products
|
|
1
|
|
N/A
|
|
1
|
|
Total
|
|
$
|
397
|
|
$
|
(506
|
)
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A Not Applicable.
(1)
Market impact on DAC and DSIC amortization
resulting from lower projected profits.
(2)
Market impact on DAC and DSIC amortization related to variable annuity
riders is modeled net of hedge impact.
In evaluating equity market
risk, the estimated impact on DAC and DSIC amortization resulting from lower
projected profits as a result of the equity market decline is shown separately
from the estimated impact on DAC and DSIC amortization resulting from changes
in the values of GMWB and GMAB riders net of hedges. In estimating the impact
on DAC and DSIC amortization resulting from lower projected profits, we have
not changed our assumed equity asset growth rates. This is a significantly more
conservative estimate than if we assumed management follows its mean reversion
guideline and increased near-term rates to recover the drop in equity values
over a five-year period. See Critical Accounting Policies for additional
discussion on our DAC and DSIC accounting policies. We make this same
conservative assumption in estimating the impact from GMDB and GMIB riders.
Net impacts shown in
the above table from GMWB and GMAB riders result largely from differences
between the liability valuation basis and the hedging basis. Liabilities are
valued under SFAS 157, with key policyholder behavior assumptions loaded to
provide risk margins and with discount rates increased to reflect a current
market estimate of our risk of nonperformance specific to these liabilities.
Management has elected to hedge based on best estimate policyholder assumptions
and explicitly does not hedge nonperformance spread risk.
47
Table
of Contents
Actual results could
differ materially from those illustrated above as they are based on a number of
estimates and assumptions. These include assuming that implied market
volatility does not change when equity values fall by 10%, that management does
not increase assumed equity asset growth rates to anticipate recovery of the
drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values
and that the 100 basis point increase in interest rates is a parallel shift of
the yield curve. Furthermore, we have not tried to anticipate changes in client
preferences for different types of assets or other changes in client behavior,
nor have we tried to anticipate actions management might take to increase
revenues or reduce expenses in these scenarios.
The selection of
a 100 basis point interest rate increase as well as a 10% equity
market decline should not be construed as a prediction of future market events.
Impacts of larger or smaller changes in interest rates or equity prices may not
be proportional to those shown for a 100 basis point increase in interest rates
or a 10% decline in equity prices.
Credit
Risk
We are exposed to
credit risk within our investment portfolio, which includes loans, and through
derivative and reinsurance counterparties. Credit risk relates to the
uncertainty of an obligors continued ability to make timely payments in
accordance with the contractual terms of the instrument or contract. Our
potential derivative credit exposure to each counterparty is aggregated with
all of our other exposures to the counterparty to determine compliance with
established credit guidelines at the time we enter into a derivative
transaction. We manage credit risk through fundamental credit analysis,
issuer and industry concentration guidelines, and diversification requirements.
These guidelines and oversight of credit risk are managed through our
comprehensive enterprise risk management program that includes members of
senior management.
We manage the
risk of adverse default experience on these investments by applying disciplined
fundamental credit analysis and underwriting standards, prudently limiting
exposures to lower-quality, higher-yielding investments, and diversifying
exposures by issuer, industry, region and property type. For each
counterparty or borrowing entity and its affiliates, our exposures from
all types of transactions are aggregated and managed in relation to guidelines
set by risk tolerance thresholds and external and internal rating quality.
We remain exposed to occasional adverse cyclical economic downturns during
which default rates may be significantly higher than the long-term historical
average used in pricing.
Credit exposures on
derivative contracts may take into account netting arrangements and collateral
arrangements. Before executing a new type of structure of derivative contract,
we determine the variability of the contracts potential market and credit
exposures and whether such variability might reasonably be expected to create
exposure to a counterparty in excess of established limits. As of March 31, 2009,
any deterioration in our derivative counterparties credit would not materially
impact our financial statements.
Additionally, we
reinsure a portion of the insurance risks associated with our life, disability
income, long term care and auto and home insurance products through reinsurance
agreements with unaffiliated reinsurance companies. Reinsurance is used in
order to limit losses, reduce exposure to large risks and provide additional
capacity for future growth. To manage exposure to losses from reinsurer
insolvencies, the financial condition of reinsurers is evaluated prior to
entering into new reinsurance treaties and on a periodic basis during the terms
of the treaties. Our insurance companies remain primarily liable as the direct
insurers on all risks reinsured. As of March 31, 2009, our largest
reinsurance credit risk related to a long term care coinsurance arrangement
between us and a life insurance subsidiary of Genworth Financial, Inc.
Fair Value Measurements
We report certain
assets and liabilities at fair value; specifically, separate account assets,
derivatives, embedded derivatives, properties held by our consolidated property
funds, and most investments and cash equivalents. Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS 157)
defines fair value, provides a framework for measuring fair value and expands
disclosures about fair value measurements. Fair value assumes the exchange of assets
or liabilities occurs in orderly transactions. SFAS 157 does not require the
use of market prices that are the result of a forced liquidation or distressed
sale. We include actual market prices, or observable inputs, in our fair value
measurements to the extent available. Broker quotes are obtained when quotes
from pricing services are not available. We validate prices obtained from
third parties through a variety of means such as: price variance analysis,
subsequent sales testing, stale price review, price comparison across pricing
vendors and due diligence reviews of vendors.
Inactive Markets
Through our own
experience transacting in the marketplace and through discussions with our
pricing vendors, we believe that the market for non-agency residential mortgage
backed securities is inactive. Indicators of inactive markets include: pricing
services reliance on brokers or discounted cash flow analyses to provide
prices, an increase in the disparity between prices provided by different
pricing services for the same security, unreasonably large bid-offer spreads
and a significant decrease in the volume of trades relative to historical
levels. In certain cases, this market inactivity has resulted in our applying
valuation techniques that rely more on an income approach (discounted cash
flows using market rates) than on a market approach (prices from pricing
services).
48
Table
of Contents
We consider market
observable yields for other asset classes we consider to be of similar risk
which includes nonperformance and liquidity for individual securities to set
the discount rate for applying the income approach to certain non-agency residential
mortgage backed securities. The discount rates used for these securities at March 31, 2009
ranged from 12% to 22%.
Non-agency Residential Mortgage Backed
Securities Backed by Subprime, Alt-A or Prime Collateral
Subprime mortgage
lending is the origination of residential mortgage loans to customers with weak
credit profiles. Alt-A mortgage lending is the origination of residential
mortgage loans to customers who have credit ratings above subprime but may not
conform to government-sponsored standards. Prime mortgage lending is the
origination of residential mortgage loans to customers with good credit
profiles. We have exposure to these types of loans predominantly through
mortgage backed and asset backed securities. The slow down in the U.S. housing
market, combined with relaxed underwriting standards by some originators, has
recently led to higher delinquency and loss rates for some of these
investments. Recent market conditions have increased the likelihood of
other-than-temporary impairments for certain non-agency residential mortgage
backed securities. As a part of our risk management process, an internal rating
system is used in conjunction with market data as the basis of analysis to
assess the likelihood that we will not receive all contractual principal and
interest payments for these investments. For the investments that are
more at risk for impairment, we perform our own assessment of projected
cash flows incorporating assumptions about default rates, prepayment speeds,
loss severity, and geographic concentrations to determine if an
other-than-temporary impairment should be recognized. Other than non-agency
mortgage backed securities that had credit-related impairments recorded in the
first quarter of 2009, all contractual payments are expected to be received.
The following table
presents, as of March 31, 2009, our non-agency residential
mortgage backed and asset backed securities backed by subprime, Alt-A or prime
mortgage loans by credit rating and vintage year (in millions):
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
BB & Below
|
|
Total
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Subprime
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
2
|
|
$
|
1
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
2
|
|
$
|
1
|
|
2004
|
|
16
|
|
14
|
|
7
|
|
3
|
|
|
|
|
|
11
|
|
6
|
|
|
|
|
|
34
|
|
23
|
|
2005
|
|
80
|
|
76
|
|
49
|
|
40
|
|
15
|
|
14
|
|
2
|
|
1
|
|
20
|
|
7
|
|
166
|
|
138
|
|
2006
|
|
3
|
|
3
|
|
12
|
|
10
|
|
|
|
|
|
54
|
|
47
|
|
48
|
|
35
|
|
117
|
|
95
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
3
|
|
6
|
|
3
|
|
2008
|
|
|
|
|
|
9
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
6
|
|
Total Subprime
|
|
$
|
101
|
|
$
|
94
|
|
$
|
77
|
|
$
|
59
|
|
$
|
15
|
|
$
|
14
|
|
$
|
67
|
|
$
|
54
|
|
$
|
74
|
|
$
|
45
|
|
$
|
334
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
59
|
|
$
|
55
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
59
|
|
$
|
55
|
|
2004
|
|
140
|
|
119
|
|
25
|
|
16
|
|
|
|
|
|
2
|
|
1
|
|
9
|
|
4
|
|
176
|
|
140
|
|
2005
|
|
42
|
|
25
|
|
77
|
|
43
|
|
41
|
|
22
|
|
41
|
|
23
|
|
236
|
|
147
|
|
437
|
|
260
|
|
2006
|
|
|
|
|
|
|
|
|
|
30
|
|
28
|
|
|
|
|
|
232
|
|
156
|
|
262
|
|
184
|
|
2007
|
|
52
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
107
|
|
245
|
|
135
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
$
|
293
|
|
$
|
227
|
|
$
|
102
|
|
$
|
59
|
|
$
|
71
|
|
$
|
50
|
|
$
|
43
|
|
$
|
24
|
|
$
|
670
|
|
$
|
414
|
|
$
|
1,179
|
|
$
|
774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
172
|
|
$
|
154
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
172
|
|
$
|
154
|
|
2004
|
|
156
|
|
128
|
|
35
|
|
22
|
|
|
|
|
|
4
|
|
2
|
|
16
|
|
12
|
|
211
|
|
164
|
|
2005
|
|
334
|
|
246
|
|
90
|
|
57
|
|
|
|
|
|
20
|
|
12
|
|
|
|
|
|
444
|
|
315
|
|
2006
|
|
70
|
|
63
|
|
6
|
|
2
|
|
5
|
|
4
|
|
|
|
|
|
|
|
|
|
81
|
|
69
|
|
2007
|
|
44
|
|
43
|
|
|
|
|
|
17
|
|
12
|
|
|
|
|
|
15
|
|
15
|
|
76
|
|
70
|
|
2008
|
|
18
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
25
|
|
2009
|
|
1,165
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165
|
|
1,163
|
|
Total Prime
(1)
|
|
$
|
1,959
|
|
$
|
1,822
|
|
$
|
131
|
|
$
|
81
|
|
$
|
22
|
|
$
|
16
|
|
$
|
24
|
|
$
|
14
|
|
$
|
31
|
|
$
|
27
|
|
$
|
2,167
|
|
$
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total
|
|
$
|
2,353
|
|
$
|
2,143
|
|
$
|
310
|
|
$
|
199
|
|
$
|
108
|
|
$
|
80
|
|
$
|
134
|
|
$
|
92
|
|
$
|
775
|
|
$
|
486
|
|
$
|
3,680
|
|
$
|
3,000
|
|
(1)
|
Prime 2008 and 2009
vintages are re-remics of mortgage backed securities. These were originally
2003-2007 vintage prime securities with cash flows structured into senior and
subordinated bonds. Credit enhancement on senior bonds is increased through
the re-remic process with an average incremental enhancement of 19%. All
senior bonds are AAA-rated by Moodys, S&P, or Fitch and our total
exposure to subordinate tranches was $5 million as of March 31, 2009.
|
49
Table
of Contents
Fair Value of Liabilities and Nonperformance Risk
SFAS 157 also requires
companies to measure the fair value of liabilities at the price that would be
received to transfer the liability to a market participant (an exit price).
Since there is not a market for our obligations of our variable annuity riders,
we consider the assumptions participants in a hypothetical market would make to
reflect an exit price. As a result, we adjust the valuation of variable annuity
riders by updating certain contractholder assumptions, adding explicit margins
to provide for profit, risk and expenses, and adjusting the rates used to
discount expected cash flows to reflect a current market estimate of our
nonperformance risk. The nonperformance risk adjustment is based on broker
quotes for credit default swaps that are adjusted to estimate the risk of our
life insurance company subsidiaries not fulfilling these liabilities.
Consistent with general market conditions, this estimate resulted in a spread
over the LIBOR swap curve as of March 31, 2009. As our estimate of
this spread widens or tightens, the liability will decrease or increase. If
this nonperformance credit spread moves to a zero spread over the LIBOR swap
curve, the reduction to net income would be approximately $181 million,
net of DAC and DSIC amortization and income taxes, based on March 31, 2009
credit spreads.
Liquidity and Capital Resources
Overview
We maintained
substantial liquidity during the first quarter of 2009. At March 31, 2009,
we had $5.8 billion in cash and cash equivalents compared to
$6.2 billion at December 31, 2008. Excluding collateral received
from derivative counterparties, cash and cash equivalents were
$4.5 billion and $4.4 billion at March 31, 2009 and December 31,
2008, respectively. We have additional liquidity available through an
unsecured revolving credit facility for $750 million that expires in September 2010.
Under the terms of the underlying credit agreement, we can increase this
facility to $1.0 billion. Available borrowings under this facility are reduced
by any outstanding letters of credit. We have had no borrowings under this
credit facility and had $2 million of outstanding letters of credit at March 31, 2009.
In March 2009, our life insurance subsidiary, RiverSource Life, became a
member of the Federal Home Loan Bank of Des Moines (FHLB of Des Moines),
which provides RiverSource Life access to collateralized borrowings. As of March 31,
2009, we have no borrowings from the FHLB of Des Moines. We believe cash
flows from operating activities, available cash balances and our availability
of revolver borrowings will be sufficient to fund our operating liquidity
needs.
Various ratings
organizations publish financial strength ratings, which measure an insurance
companys ability to meet contractholder and policyholder obligations, and
credit ratings. The following table summarizes the ratings
for Ameriprise Financial, Inc. and certain of its insurance
subsidiaries as of the date of this filing:
|
|
A.M. Best
Company, Inc.
|
|
Standard &
Poors Ratings
Services
|
|
Moodys
Investors
Service
|
|
Fitch Ratings
Ltd.
|
|
Financial Strength Ratings
|
|
|
|
|
|
|
|
|
|
RiverSource Life
|
|
A+
|
|
AA-
|
|
Aa3
|
|
AA-
|
|
IDS Property Casualty Insurance Company
|
|
A
|
|
N/R
|
|
N/R
|
|
N/R
|
|
Credit Ratings
|
|
|
|
|
|
|
|
|
|
Ameriprise Financial, Inc.
|
|
a-
|
|
A
|
|
A3
|
|
A-
|
|
On January 29,
2009, Standard & Poors Ratings Services and Moodys Investors Service
affirmed the ratings of Ameriprise Financial, Inc. and RiverSource Life.
On March 4 and March 27, 2009, A.M. Best Company, Inc. and
Fitch Ratings Ltd., respectively, also affirmed the ratings of Ameriprise
Financial, Inc. and RiverSource Life. At the same time, each of the
ratings organizations revised their outlooks on Ameriprise Financial, Inc.
and RiverSource Life from stable to negative. For information on how changes in
our financial strength or credit ratings could affect our financial condition
and results of operations, see the Risk Factors discussion included in Part 1,
Item 1A of our 2008 10-K.
50
Table of Contents
Dividends from Subsidiaries
Ameriprise Financial
is primarily a parent holding company for the operations carried out by
our wholly owned subsidiaries. Because of our holding company
structure, our ability to meet our cash requirements, including the
payment of dividends on our common stock, substantially depends upon the
receipt of dividends or return of capital from our subsidiaries, particularly
our life insurance subsidiary, RiverSource Life, our face-amount
certificate subsidiary, Ameriprise Certificate Company (ACC), our retail
introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc.
(AFSI), our clearing broker-dealer subsidiary, American Enterprise
Investment Services, Inc. (AEIS), our auto and home insurance
subsidiary, IDS Property Casualty Insurance Company (IDS Property Casualty),
doing business as Ameriprise Auto & Home Insurance, Threadneedle Asset
Management Holdings Sàrl (Threadneedle), RiverSource Service Corporation and
our investment advisory company, RiverSource Investments, LLC.
The payment of dividends by many of our subsidiaries is restricted
and certain of our subsidiaries are subject to regulatory capital
requirements.
Actual capital and
regulatory capital requirements for our wholly owned subsidiaries subject
to regulatory capital requirements were as follows:
|
|
Actual Capital
|
|
Regulatory Capital Requirements
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
|
(in millions)
|
|
RiverSource Life
(1)(2)
|
|
$
|
2,670
|
|
$
|
2,722
|
|
N/A
|
|
$
|
551
|
|
RiverSource Life of NY
(1)(2)
|
|
208
|
|
229
|
|
N/A
|
|
58
|
|
IDS Property Casualty
(1)(3)
|
|
450
|
|
436
|
|
$
|
126
|
|
124
|
|
Ameriprise Insurance Company
(1)(3)
|
|
48
|
|
47
|
|
2
|
|
2
|
|
ACC
(4)(5)
|
|
305
|
|
243
|
|
270
|
|
264
|
|
Threadneedle
(6)
|
|
212
|
|
227
|
|
140
|
|
140
|
|
Ameriprise Bank, FSB
(7)
|
|
150
|
|
113
|
|
150
|
|
123
|
|
AFSI
(3)(4)
|
|
129
|
|
132
|
|
#
|
|
#
|
|
Ameriprise Captive Insurance Company
|
|
21
|
|
20
|
|
17
|
|
9
|
|
Ameriprise Trust Company
(3)
|
|
33
|
|
35
|
|
26
|
|
28
|
|
AEIS
(3)(4)
|
|
89
|
|
74
|
|
3
|
|
4
|
|
Securities America, Inc.
(3)(4)
|
|
15
|
|
17
|
|
#
|
|
#
|
|
RiverSource Distributors, Inc.
(3)(4)
|
|
38
|
|
41
|
|
#
|
|
#
|
|
RiverSource Fund Distributors, Inc.
(3)(4)
|
|
5
|
|
7
|
|
1
|
|
1
|
|
RiverSource Services, Inc.
(3)(4)
|
|
1
|
|
1
|
|
#
|
|
#
|
|
Ameriprise Advisor Services, Inc.
(3)(4)
|
|
84
|
|
22
|
|
5
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# Amounts are less than $1 million.
N/A Not Applicable.
(1)
|
Actual capital is
determined on a statutory basis.
|
(2)
|
Regulatory capital
requirement is based on the statutory risk-based capital filing as of
December 31, 2008.
|
(3)
|
Regulatory capital
requirement is based on the applicable regulatory requirement, calculated as
of March 31, 2009 and December 31, 2008.
|
(4)
|
Actual capital is
determined on an adjusted GAAP basis.
|
(5)
|
ACC is required to hold
capital in compliance with the Minnesota Department of Commerce and SEC
capital requirements. As of December 31, 2008, ACCs capital dropped to
4.61% and 4.97% per the Minnesota Department of Commerce and SEC capital
requirements, respectively. Ameriprise Financial promptly provided additional
capital to ACC in January 2009 to bring capital back above the 5%
requirement.
|
(6)
|
Actual capital and
regulatory capital requirements are determined in accordance with U.K.
regulatory legislation.
|
(7)
|
Ameriprise Bank is required
to hold capital in compliance with the Federal Deposit Insurance Corporation
(FDIC) policy regarding de novo depository institutions, which requires a
Tier 1 (core) capital ratio of not less than 8% during its first three years
of operations. As of December 31, 2008, Ameriprise Banks Tier 1 core
capital dropped to 7.36%. Ameriprise Financial promptly provided additional
capital to Ameriprise Bank in January 2009 to bring the Tier 1 core
capital back above the 8% de novo requirement.
|
In addition to the
particular regulations restricting dividend payments and establishing
subsidiary capitalization requirements, we take into account the overall
health of the business, capital levels and risk management considerations in
determining a dividend strategy for payments to our company from
our subsidiaries, and in deciding to use cash to make capital
contributions to our subsidiaries. During the three months ended March 31, 2009,
Ameriprise Financial, Inc. received cash dividends from and made cash
contributions to subsidiaries of $1 million and $193 million,
respectively. During the three months ended March 31, 2008,
Ameriprise Financial, Inc. received cash dividends from subsidiaries
of $185 million, of which $125 million came from RiverSource Life. No
cash contributions were made to subsidiaries during the three months ended March 31, 2008.
51
Table of Contents
Share
Repurchases, Debt Repurchases and Dividends Paid to Shareholders
We have a share
repurchase program in place to return excess capital to shareholders. In light
of the current market environment, we have temporarily suspended our stock
repurchase program. We may resume activity under our stock repurchase program
and begin repurchasing shares in the open market or in privately negotiated
transactions from time to time without notice. We reserve the right to suspend
any such repurchases and to resume later repurchasing at any time, and
expressly disclaim any obligation to maintain or lift any such suspension.
In the first quarter
of 2009, we extinguished $113 million of our junior notes. In the future, we
may from time to time seek to retire or purchase additional outstanding debt
through cash purchases in open market purchases, privately negotiated
transactions or otherwise, without prior notice. Such repurchases, if any, will
depend upon market conditions and other factors. The amounts involved could be
material.
We paid regular
quarterly cash dividends to our shareholders totaling $37 million
in the first quarter of 2009. On April 21, 2009,
our Board of Directors declared a regular quarterly cash dividend of $0.17
per common share. The dividend will be paid on May 18, 2009 to
our shareholders of record at the close of business on May 4, 2009.
Operating Activities
Net cash used in
operating activities for the three months ended March 31, 2009 was
$564 million compared to net cash provided by operating activities of
$169 million for the three months ended March 31, 2008, a
decrease of $733 million. The decrease was primarily driven by a
$625 million reduction in collateral held related to derivative
instruments during the first quarter of 2009 and net purchases of $435 million
within our bond trading portfolio. These decreases in cash were partially
offset by an increase in cash in the first quarter of 2009 due to repayments of
funds advanced to clients in the fourth quarter of 2008 to fund their liquidity
needs following the freeze of funds in the Reserves Primary Fund and
Government Fund.
Investing Activities
Our investing
activities primarily relate to our Available-for-Sale investment
portfolio. Further, this activity is significantly affected by the net flows of
our investment certificate, fixed annuity and universal life products
reflected in financing activities.
Net cash used in
investing activities for the three months ended March 31, 2009 was
$2.1 billion compared to net cash provided by investing activities of
$491 million for the three months ended March 31, 2008, a
decrease of $2.6 billion. Cash used for purchases of Available-for-Sale
securities increased $4.0 billion and proceeds from sales and maturities,
sinking fund payments and calls of Available-for-Sale securities increased
$1.4 billion compared to the prior year period, resulting in a
$2.6 billion decrease to cash.
Financing Activities
Net cash provided by
financing activities for the three months ended March 31, 2009 was
$2.2 billion compared to net cash used in financing activities of
$592 million for the three months ended March 31, 2008, an
increase in cash of $2.8 billion. Net cash received from policyholder and
contractholder account values increased $2.1 billion compared to the prior
year period primarily due to $2.0 billion in higher net flows of fixed
annuities as a result of clients increased preference for short-term and fixed
income investment products. Cash provided by the change in other banking
deposits increased $200 million. Cash used for the repurchase of
our common stock decreased $268 million compared to the prior year
period due to the temporary suspension of our repurchase program in light of
the current market environment. These increases to cash were offset by $113
million of cash used to extinguish certain of our junior notes in the first
quarter of 2009.
Contractual Commitments
There have been no
material changes in our contractual obligations disclosed in our 2008 10-K.
Off-Balance Sheet Arrangements
There have been no
material changes in our off-balance sheet arrangements disclosed in our 2008
10-K .
52
Table
of Contents
Forward-Looking Statements
This report contains
forward-looking statements that reflect managements plans, estimates and
beliefs. Actual results could differ materially from those described in these
forward-looking statements. The Company has made various forward-looking
statements in this report. Examples of such forward-looking statements include:
·
|
statements of
the Companys plans, intentions, expectations, objectives or goals,
including those relating to asset flows, mass affluent and affluent client
acquisition strategy, client retention, financial
advisor retention, recruiting and enrollments, general and
administrative costs, money market fund valuations, consolidated tax rate,
and excess capital position;
|
·
|
other
statements about future economic performance, the performance of equity
markets and interest rate variations and the economic performance of the
United States and of global markets; and
|
·
|
statements of
assumptions underlying such statements.
|
The words believe, expect,
anticipate, optimistic, intend, plan, aim, will, may, should, could,
would, likely and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements. Forward-looking statements are subject to risks and uncertainties,
which could cause actual results to differ materially from such statements.
Such factors include,
but are not limited to:
·
|
changes in
the valuations, liquidity and volatility in the interest rate, credit
default, equity market, and foreign exchange environments;
|
·
|
changes in
the litigation and regulatory environment, including ongoing legal
proceedings and regulatory actions, the frequency and extent of legal claims
threatened or initiated by clients, other persons and regulators, and
developments in regulation and legislation;
|
·
|
investment
management performance and consumer acceptance of the Companys products;
|
·
|
effects of
competition in the financial services industry and changes in product
distribution mix and distribution channels;
|
·
|
the Companys
capital structure, including indebtedness, limitations on subsidiaries to pay
dividends, and the extent, manner, terms and timing of any share or debt
repurchases management may effect; as well as the opinions of rating agencies
and other analysts and the reactions of market participants or the Companys
regulators, advisors, distribution partners or customers in response to any
change or prospect of change in any such opinion;
|
·
|
risks of
default by issuers or guarantors of investments the Company owns
or by counterparties to hedge, derivative, insurance or reinsurance
arrangements or by manufacturers of products the Company distributes,
experience deviations from the Companys assumptions regarding such risks,
the evaluations or the prospect of changes in evaluations of any such third
parties published by rating organizations or other analysts, and the
reactions of other market participants or the Companys regulators, advisors,
distribution partners or customers in response to any such evaluation or
prospect of changes in evaluation;
|
·
|
experience
deviations from the Companys assumptions regarding morbidity, mortality and
persistency in certain annuity and insurance products, or from
assumptions regarding market returns assumed in valuing DAC and DSIC or
market volatility underlying our valuation and hedging of guaranteed living
benefit annuity riders;
|
·
|
the impacts
of the Companys efforts to improve distribution economics and to grow
third-party distribution of its products;
|
·
|
the Companys
ability to realize the financial, operating and business fundamental benefits
or to obtain regulatory approvals regarding integration we plan for the
acquisitions we have completed;
|
·
|
the ability
and timing to realize savings and other benefits from reengineering and tax
planning;
|
·
|
changes in the
capital markets and competitive environments induced or resulting from the
partial or total ownership or other support by central governments of certain
financial services firms or financial assets; and
|
·
|
general
economic and political factors, including consumer confidence in the economy,
the ability and inclination of consumers generally to invest as well as their
ability and inclination to invest in financial instruments and products other
than cash and cash equivalents, the costs of products and services the
Company consumes in the conduct of its business, and applicable legislation
and regulation and changes therein, including tax laws, tax treaties, fiscal
and central government treasury policy, and policies regarding the financial
services industry and publicly-held firms, and regulatory rulings and
pronouncements.
|
Management cautions the reader
that the foregoing list of factors is not exhaustive. There may also be other
risks that management is unable to predict at this time that may cause actual
results to differ materially from those in forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made.
Management undertakes no obligation to update publicly or revise any
forward-looking statements. The foregoing list of factors should be read in
conjunction with the Risk Factors discussion included as Part 1, Item 1A
of our 2008 10-K.
53
Table of Contents
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set
forth in Part I, Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations Market Risk and Managements
Discussion and Analysis of Financial Condition and Results of Operations
Credit Risk in this report is incorporated herein by reference. These disclosures should be read in
conjunction with the Quantitative and Qualitative Disclosures About Market
Risk discussion included as Part II, Item 7A of our Annual Report on Form 10-K
for 2008 filed with the SEC on March 2, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our company maintains
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)) designed to provide reasonable assurance that the information required
to be reported in the Exchange Act filings is recorded, processed, summarized
and reported within the time periods specified and pursuant to SEC regulations,
including controls and procedures designed to ensure that this information is
accumulated and communicated to our management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding the required disclosure. It should be noted that, because of inherent
limitations, our companys disclosure controls and procedures, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the disclosure controls and procedures are met.
Our management, with
the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the disclosure controls and procedures as of the
end of the period covered by this report. Based upon that evaluation, our
companys Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective at a
reasonable level of assurance as of March 31, 2009.
Changes in Internal Control Over Financial
Reporting
There have not been
any changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our companys internal
control over financial reporting.
54
Table of Contents
AMERIPRISE FINANCIAL,
INC.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set
forth in Note 12 to Consolidated Financial Statements in Part I, Item 1 is
incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no
material
changes in the risk factors provided in Part I, Item 1A of our
2008 10-K.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
The following table
presents the information with respect to purchases made by or on behalf of
Ameriprise Financial, Inc. or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under
the Securities Exchange Act of 1934), of our common stock during the first
quarter of 2009:
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
Period
|
|
Total Number
of Shares
Purchased
|
|
Average Price
Paid Per Share
|
|
Total Number of
Shares Purchased as
part of Publicly
Announced Plans
or Programs
(1)
|
|
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans
or Programs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to January 31, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
395,947
|
|
$
|
20.54
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
February 1 to February 28, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
871
|
|
$
|
20.96
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
March 1 to March 31, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
998
|
|
$
|
15.09
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
|
$
|
|
|
|
|
|
|
Employee transactions
|
|
397,816
|
|
$
|
20.53
|
|
N/A
|
|
|
|
|
|
397,816
|
|
|
|
|
|
|
|
(1)
|
On
April 22, 2008, we announced that our Board of Directors authorized
us to repurchase up to $1.5 billion worth of our common stock through
April 22, 2010. The share repurchase program does not require the
purchase of any minimum number of shares, and depending on market conditions
and other factors, these purchases may be commenced or suspended at any time
without prior notice. Acquisitions under the share repurchase program
may be made in the open market, through block trades or other means. In
light of the current market environment, we have temporarily suspended our
stock repurchase program. We may resume activity under our stock repurchase
program and begin repurchasing shares in the open market or in privately
negotiated transactions from time to time without notice. The Company
reserves the right to suspend any such repurchases and to resume later
repurchasing at any time, and expressly disclaims any obligation to maintain
or lift any such suspension.
|
(2)
|
Restricted shares withheld
pursuant to the terms of awards under the amended and revised Ameriprise
Financial 2005 Incentive Compensation Plan (the Plan) to offset tax
withholding obligations that occur upon vesting and release of restricted
shares. The Plan provides that the value of the shares withheld shall be the
average of the high and low prices of common stock of Ameriprise
Financial, Inc. on the date the relevant transaction occurs.
|
ITEM 6. EXHIBITS
The list of exhibits
required to be filed as exhibits to this report are listed on page E-1
hereof, under Exhibit Index, which is incorporated herein by reference.
55
Table
of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
AMERIPRISE FINANCIAL, INC.
|
|
(Registrant)
|
|
|
|
|
|
Date: May 6, 2009
|
By
|
/s/ Walter S. Berman
|
|
|
Walter S. Berman
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
Date: May 6, 2009
|
By
|
/s/ David K. Stewart
|
|
|
David K. Stewart
|
|
|
Senior Vice President and Controller
|
|
|
(Principal Accounting Officer)
|
56
Table of Contents
EXHIBIT INDEX
Pursuant to the rules and
regulations of the Securities and Exchange Commission, we have filed certain
agreements as exhibits to this Quarterly Report on Form 10-Q. These
agreements may contain representations and warranties by the parties. These
representations and warranties have been made solely for the benefit of the
other party or parties to such agreements and (i) may have been qualified
by disclosures made to such other party or parties, (ii) were made only as
of the date of such agreements or such other date(s) as may be specified
in such agreements and are subject to more recent developments, which may not
be fully reflected in our public disclosure, (iii) may reflect the
allocation of risk among the parties to such agreements and (iv) may apply
materiality standards different from what may be viewed as material to
investors. Accordingly, these representations and warranties may not describe
our actual state of affairs at the date hereof and should not be relied upon.
The following exhibits
are filed as part of this Quarterly Report on Form 10-Q. The
exhibit numbers followed by an asterisk (*) indicate exhibits
electronically filed herewith. All other exhibit numbers indicate exhibits
previously filed and are hereby incorporated herein by reference.
Exhibit
|
|
Description
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Ameriprise
Financial, Inc. (incorporated by reference to Exhibit 3.1 to the
Current Report on Form 8-K, File No. 1-32525, filed on
October 4, 2005).
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Ameriprise Financial, Inc., as
amended on November 28, 2006 (incorporated by reference to
Exhibit 3.2 of the Annual Report on Form 10-K, file
No. 1-32525, filed on February 27, 2007).
|
|
|
|
4.1
|
|
Form of Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 3 to Form 10
Registration Statement, File No. 1-32525, filed on
August 19, 2005).
Other instruments defining rights of holders of long-term debt
securities of the registrant are omitted pursuant to
Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The
registrant agrees to furnish copies of these instruments to the SEC upon
request.
|
|
|
|
31.1*
|
|
Certification of James M. Cracchiolo pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.
|
|
|
|
31.2*
|
|
Certification of Walter S. Berman pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.
|
|
|
|
32*
|
|
Certification of James M. Cracchiolo and Walter S. Berman pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
E-1
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