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 September 30, 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)
|
Registrants telephone number, including area
code:
(612)
671-3131
Former name, former address and former fiscal
year, if changed since last report:
Not Applicable
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes
x
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
|
|
Smaller reporting
company
o
|
(Do not check if a smaller
reporting company)
|
|
|
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 October 23, 2009
|
Common Stock (par value
$.01 per share)
|
|
255,003,596 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
September 30,
|
|
Nine
Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
689
|
|
$
|
721
|
|
$
|
1,849
|
|
$
|
2,292
|
|
Distribution fees
|
|
367
|
|
376
|
|
1,029
|
|
1,231
|
|
Net investment income
|
|
542
|
|
62
|
|
1,477
|
|
856
|
|
Premiums
|
|
276
|
|
264
|
|
811
|
|
777
|
|
Other revenues
|
|
109
|
|
249
|
|
493
|
|
564
|
|
Total revenues
|
|
1,983
|
|
1,672
|
|
5,659
|
|
5,720
|
|
Banking and deposit interest expense
|
|
33
|
|
43
|
|
113
|
|
132
|
|
Total net revenues
|
|
1,950
|
|
1,629
|
|
5,546
|
|
5,588
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
466
|
|
461
|
|
1,274
|
|
1,499
|
|
Interest credited to fixed accounts
|
|
232
|
|
200
|
|
674
|
|
587
|
|
Benefits, claims, losses and settlement expenses
|
|
306
|
|
196
|
|
993
|
|
794
|
|
Amortization of deferred acquisition costs
|
|
(64
|
)
|
240
|
|
97
|
|
538
|
|
Interest and debt expense
|
|
45
|
|
27
|
|
99
|
|
81
|
|
General and administrative expense
|
|
625
|
|
681
|
|
1,820
|
|
1,843
|
|
Total expenses
|
|
1,610
|
|
1,805
|
|
4,957
|
|
5,342
|
|
Pretax income (loss)
|
|
340
|
|
(176
|
)
|
589
|
|
246
|
|
Income tax provision (benefit)
|
|
80
|
|
(92
|
)
|
126
|
|
(61
|
)
|
Net income (loss)
|
|
260
|
|
(84
|
)
|
463
|
|
307
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
(14
|
)
|
(22
|
)
|
(24
|
)
|
Net income (loss) attributable to Ameriprise
Financial
|
|
$
|
260
|
|
$
|
(70
|
)
|
$
|
485
|
|
$
|
331
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
attributable to Ameriprise Financial
common shareholders
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.00
|
|
$
|
(0.32
|
)
|
$
|
2.05
|
|
$
|
1.48
|
|
Diluted
|
|
1.00
|
|
(0.32
|
)
(1)
|
2.04
|
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
258.7
|
|
219.1
|
|
236.6
|
|
223.6
|
|
Diluted
|
|
260.7
|
|
221.7
|
|
238.0
|
|
226.4
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per common
share
|
|
$
|
0.17
|
|
$
|
0.17
|
|
$
|
0.51
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment losses on
securities
|
|
$
|
561
|
|
|
|
$
|
1,562
|
|
|
|
Total other-than-temporary impairment losses on
securities
|
|
(18
|
)
|
|
|
(68
|
)
|
|
|
Portion of loss recognized in other comprehensive
income
|
|
(1
|
)
|
|
|
(17
|
)
|
|
|
Net impairment losses recognized in net investment
income
|
|
(19
|
)
|
|
|
(85
|
)
|
|
|
Net investment income
|
|
$
|
542
|
|
|
|
$
|
1,477
|
|
|
|
(1)
Diluted shares used in this calculation
represent basic shares due to the net loss. Using actual diluted shares would
result in anti-dilution.
See Notes to Consolidated Financial Statements.
3
Table of Contents
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,580
|
|
$
|
6,228
|
|
Investments
|
|
36,847
|
|
27,522
|
|
Separate account assets
|
|
55,576
|
|
44,746
|
|
Receivables
|
|
4,247
|
|
3,887
|
|
Deferred acquisition costs
|
|
4,323
|
|
4,383
|
|
Restricted and segregated cash
|
|
1,822
|
|
1,883
|
|
Other assets
|
|
4,806
|
|
6,928
|
|
Total assets
|
|
$
|
111,201
|
|
$
|
95,577
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
31,042
|
|
$
|
29,293
|
|
Separate account liabilities
|
|
55,576
|
|
44,746
|
|
Customer deposits
|
|
9,028
|
|
8,229
|
|
Debt
|
|
2,076
|
|
2,027
|
|
Accounts payable and accrued expenses
|
|
765
|
|
887
|
|
Other liabilities
|
|
3,320
|
|
3,928
|
|
Total liabilities
|
|
101,807
|
|
89,110
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Ameriprise Financial:
|
|
|
|
|
|
Common shares ($.01 par value; shares
authorized, 1,250,000,000; shares issued, 295,679,166 and 256,432,623,
respectively)
|
|
3
|
|
3
|
|
Additional paid-in capital
|
|
5,699
|
|
4,688
|
|
Retained earnings
|
|
5,091
|
|
4,592
|
|
Treasury shares, at cost (40,619,335
and 39,921,924 shares, respectively)
|
|
(2,021
|
)
|
(2,012
|
)
|
Accumulated other comprehensive income (loss), net
|
|
277
|
|
(1,093
|
)
|
Total Ameriprise Financial shareholders' equity
|
|
9,049
|
|
6,178
|
|
Noncontrolling interests
|
|
345
|
|
289
|
|
Total equity
|
|
9,394
|
|
6,467
|
|
Total liabilities and equity
|
|
$
|
111,201
|
|
$
|
95,577
|
|
See Notes to Consolidated
Financial Statements.
4
Table of Contents
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
Net income
|
|
$
|
463
|
|
$
|
307
|
|
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
|
|
|
|
|
|
Capitalization of deferred acquisition and sales
inducement costs
|
|
(560
|
)
|
(543
|
)
|
Amortization of deferred acquisition and sales
inducement costs
|
|
95
|
|
599
|
|
Depreciation, amortization and accretion, net
|
|
101
|
|
214
|
|
Deferred income tax expense (benefit)
|
|
103
|
|
(187
|
)
|
Share-based compensation
|
|
138
|
|
114
|
|
Net realized investment gains
|
|
(132
|
)
|
(5
|
)
|
Other-than-temporary impairments recognized in net
investment income and provision for loan losses
|
|
107
|
|
380
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Segregated cash
|
|
82
|
|
(663
|
)
|
Trading securities and equity method investments,
net
|
|
253
|
|
115
|
|
Future policy benefits and claims, net
|
|
294
|
|
341
|
|
Receivables
|
|
(207
|
)
|
(588
|
)
|
Brokerage deposits
|
|
23
|
|
834
|
|
Accounts payable and accrued expenses
|
|
(128
|
)
|
(413
|
)
|
Liability for derivatives collateral held
|
|
(1,659
|
)
|
(102
|
)
|
Other, net
|
|
89
|
|
(214
|
)
|
Net cash (used in) provided by operating
activities
|
|
(938
|
)
|
189
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
Available-for-Sale securities:
|
|
|
|
|
|
Proceeds from sales
|
|
3,910
|
|
316
|
|
Maturities, sinking fund payments and calls
|
|
4,375
|
|
2,864
|
|
Purchases
|
|
(14,497
|
)
|
(2,393
|
)
|
Proceeds from sales and maturities of commercial
mortgage loans
|
|
235
|
|
265
|
|
Funding of commercial mortgage loans
|
|
(83
|
)
|
(88
|
)
|
Proceeds from sales of other investments
|
|
47
|
|
40
|
|
Purchase of other investments
|
|
(14
|
)
|
(345
|
)
|
Purchase of land, buildings, equipment and
software
|
|
(56
|
)
|
(100
|
)
|
Change in policy loans, net
|
|
9
|
|
(26
|
)
|
Change in restricted cash
|
|
16
|
|
151
|
|
Change in consumer banking loans and credit card
receivables, net
|
|
(107
|
)
|
(60
|
)
|
Other, net
|
|
|
|
3
|
|
Net cash (used in) provided by investing
activities
|
|
(6,165
|
)
|
627
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
Table of Contents
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(in millions)
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
Investment certificates and banking time deposits:
|
|
|
|
|
|
Proceeds from additions
|
|
$
|
2,141
|
|
$
|
1,813
|
|
Maturities, withdrawals and cash surrenders
|
|
(2,515
|
)
|
(1,033
|
)
|
Change in other banking deposits
|
|
1,157
|
|
(87
|
)
|
Policyholder and contractholder account values:
|
|
|
|
|
|
Consideration received
|
|
4,386
|
|
1,569
|
|
Net transfers from separate accounts
|
|
174
|
|
|
|
Surrenders and other benefits
|
|
(1,587
|
)
|
(2,223
|
)
|
Deferred premium options, net
|
|
(38
|
)
|
(40
|
)
|
Proceeds from issuance of common stock, net of
issuance costs
|
|
869
|
|
|
|
Proceeds from issuance of debt, net of issuance
costs
|
|
553
|
|
73
|
|
Repayments of debt
|
|
(550
|
)
|
(6
|
)
|
Dividends paid to shareholders
|
|
(118
|
)
|
(105
|
)
|
Repurchase of common shares
|
|
(9
|
)
|
(636
|
)
|
Exercise of stock options
|
|
1
|
|
9
|
|
Excess tax benefits from share-based compensation
|
|
12
|
|
7
|
|
Noncontrolling interests investments in
subsidiaries
|
|
7
|
|
108
|
|
Distributions to noncontrolling interests
|
|
(42
|
)
|
(33
|
)
|
Other, net
|
|
(2
|
)
|
(1
|
)
|
Net cash provided by (used in) financing
activities
|
|
4,439
|
|
(585
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
16
|
|
(24
|
)
|
Net increase (decrease) in cash and cash
equivalents
|
|
(2,648
|
)
|
207
|
|
Cash and cash equivalents at beginning of period
|
|
6,228
|
|
3,836
|
|
Cash and cash equivalents at end of period
|
|
$
|
3,580
|
|
$
|
4,043
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
Interest paid on debt
|
|
$
|
84
|
|
$
|
61
|
|
Income taxes paid, net
|
|
13
|
|
165
|
|
See Notes to Consolidated Financial Statements.
6
Table of Contents
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Nine Months Ended September 30, 2009 and
2008
(in millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameriprise
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
Non-
|
|
|
|
|
|
Outstanding
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
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)
|
|
|
|
|
|
|
|
331
|
|
|
|
|
|
(24
|
)
|
307
|
|
Other
comprehensive loss, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net unrealized securities losses
|
|
|
|
|
|
|
|
|
|
|
|
(778
|
)
|
|
|
(778
|
)
|
Change
in net unrealized derivatives losses
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
(37
|
)
|
(63
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(536
|
)
|
Dividends
paid to shareholders
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
(105
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
108
|
|
Distributions
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
(33
|
)
|
Repurchase
of common shares
|
|
(13,293,913
|
)
|
|
|
|
|
|
|
(636
|
)
|
|
|
|
|
(636
|
)
|
Share-based
compensation plans
|
|
2,189,349
|
|
|
|
74
|
|
(3
|
)
|
82
|
|
|
|
|
|
153
|
|
Balances at September 30, 2008
|
|
216,643,279
|
|
$
|
3
|
|
$
|
4,704
|
|
$
|
5,004
|
|
$
|
(2,021
|
)
|
$
|
(973
|
)
|
$
|
392
|
|
$
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
(22
|
)
|
463
|
|
Other
comprehensive income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net unrealized securities losses
|
|
|
|
|
|
|
|
|
|
|
|
1,411
|
|
|
|
1,411
|
|
Change
in noncredit related impairments on securities and net unrealized securities
losses on previously impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
41
|
|
Change
in net unrealized derivative losses
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
24
|
|
75
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,989
|
|
Issuance
of common stock
|
|
36,000,000
|
|
|
|
869
|
|
|
|
|
|
|
|
|
|
869
|
|
Dividends
paid to shareholders
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
(118
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
96
|
|
Distributions
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
(42
|
)
|
Repurchase
of common shares
|
|
(697,411
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
(9
|
)
|
Share-based
compensation plans
|
|
3,246,543
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
142
|
|
Balances at September 30, 2009
|
|
255,059,831
|
|
$
|
3
|
|
$
|
5,699
|
|
$
|
5,091
|
|
$
|
(2,021
|
)
|
$
|
277
|
|
$
|
345
|
|
$
|
9,394
|
|
See Notes to Consolidated Financial Statements.
7
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Ameriprise Financial, Inc. is a holding
company, which primarily conducts business through its subsidiaries to provide
financial planning 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).
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.
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. Results of operations reported for interim
periods are not necessarily indicative of results for the entire year. These
Consolidated Financial Statements and Notes should be read in conjunction with
the Consolidated Financial Statements and Notes in the Companys 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.
The Company evaluated events or transactions
that may have occurred after the balance sheet date for potential recognition
or disclosure through November 2, 2009, the date the financial statements were
issued.
2. Recent Accounting Pronouncements
Adoption of New
Accounting Standards
The Hierarchy of GAAP
In June 2009, the Financial Accounting
Standards Board (FASB) established the FASB Accounting Standards Codification
TM
(Codification) as the single source of
authoritative accounting principles recognized by the FASB in the preparation
of financial statements in conformity with GAAP. The Codification supersedes
existing nongrandfathered, non-SEC accounting and reporting standards. The
Codification did not change GAAP but rather organized it into a hierarchy where
all guidance within the Codification carries an equal level of authority. The
Codification became effective on July 1, 2009. The Codification did not have a
material effect on the Companys consolidated results of operations and
financial condition.
Subsequent Events
In May 2009, the FASB updated the accounting
standards on the recognition and disclosure of subsequent events. The standard
also requires the disclosure of the date through which subsequent events were
evaluated. The standard is effective for interim and annual reporting periods
ending after June 15, 2009, and shall be applied prospectively. The Company
adopted the standard in the second quarter of 2009. The adoption did not have a
material effect on the Companys consolidated results of operations and
financial condition.
Fair Value
In April 2009, the FASB updated the
accounting standards to provide 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 have significantly decreased relative to historical
levels. The standard requires entities to disclose 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 GAAP shall be
disclosed by major category. This standard 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 the standard in the first quarter of 2009. The adoption
did not have a material effect on the Companys consolidated results of
operations and financial condition.
8
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
In April 2009, the FASB updated the accounting
standards to require interim disclosures about the fair value of in-scope
financial instruments that are not reported at fair value. This standard is
effective for interim and annual reporting periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15, 2009. The
Company applied the disclosure requirements of the standard in the first
quarter of 2009. See Note 9 for the required disclosures.
In September 2006, the FASB updated the
accounting standards to define fair value, establish a framework for measuring
fair value and expand disclosures about fair value measurements. The new
standard applies under other accounting standards that require or permit fair
value measurements. Accordingly, the standard does not require any new fair
value measurements. The provisions of the standard are required to be applied
prospectively as of the beginning of the fiscal year in which it is initially
applied, except for certain financial instruments as defined in the standard 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 the standard
effective January 1, 2008 and recorded a cumulative effect reduction to the
opening balance of retained earnings of $30 million, net of
deferred
acquisition costs
(DAC) and
deferred sales inducement
costs (
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. Prior to January 1, 2009, the Company recorded these
derivatives in accordance with accounting guidance for derivative contracts
held for trading purposes and contracts involved in energy trading and risk
management activities. The new standard nullifies the previous guidance 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 the standard 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.
Recognition and Presentation of
Other-Than-Temporary Impairment
In April 2009, the FASB updated the
accounting standards for the recognition and presentation of
other-than-temporary impairments. The standard 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. The
standard requires separate presentation of both the credit and noncredit
portions of other-than-temporary impairments on the financial statements and
additional disclosures. This standard 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 the standard in the first quarter of 2009 and recorded a cumulative
effect increase to the opening balance of retained earnings of $132 million,
net of DAC and DSIC amortization, certain benefit reserves and income taxes,
and a corresponding increase to accumulated other comprehensive loss, net of
impacts to DAC and DSIC amortization, certain benefit reserves and income
taxes. See Note 3 for the Companys updated accounting policy and disclosures
required by this standard.
Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities
In June 2008, the FASB updated the accounting
standards for determining whether instruments granted in share-based payment
transactions are participating securities. The standard 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. The
standard is effective for financial statements issued for periods beginning
after December 15, 2008, with early adoption prohibited. The standard requires
that all prior-period earnings per share data be adjusted retrospectively to
conform with the provisions of the new standard. The Company adopted the new
standard as of January 1, 2009. The adoption did not have a material effect on
the Companys earnings per share.
9
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Disclosures about Derivative
Instrument and Hedging Activities
In March 2008, the FASB updated the
accounting standards for disclosures about derivative instruments and hedging
activities. The standard 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. The standard 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. The standard is effective for fiscal years and interim periods
beginning after November 15, 2008, with early adoption permitted. The Company
applied the new disclosure requirements in the first quarter of 2009. See Note
10 for the required disclosures.
Noncontrolling Interests in
Consolidated Financial Statements
In December 2007, the FASB updated the
accounting standards for noncontrolling interests in consolidated financial
statements to establish the accounting and reporting for ownership interest in
subsidiaries not attributable, directly or indirectly, to a parent. The
standard requires noncontrolling (minority) interests to 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 to be disclosed on the face of the consolidated statement of
operations. The standard is effective for fiscal years beginning after December
15, 2008, and interim periods within those years with early adoption
prohibited. The provisions of the standard 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 the new standard
as of January 1, 2009. The adoption did not have a material effect on the
Companys consolidated results of operations and financial condition.
Future Adoption of New Accounting Standards
Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent)
In September 2009, the FASB updated the
accounting standards to allow for net asset value (NAV) to be used as a
practical expedient in estimating the fair value of alternative investments
without readily determinable fair values. The standard also requires additional
disclosure by major category of investment related to restrictions on the
investors ability to redeem the investment as of the measurement date,
unfunded commitments and the investment strategies of the investees. The
disclosures are required for all investments within the scope of the standard
regardless of whether the fair value of the investment is measured using the
NAV or another method. The standard is
effective for interim and annual periods ending after December 15, 2009, with
early adoption permitted. The Company does not expect the adoption to have a
material effect on its consolidated results of operations and financial
condition.
Measuring Liabilities at Fair
Value
In August 2009, the FASB updated the
accounting standards to provide additional guidance on estimating the fair
value of a liability in a hypothetical transaction where the liability is
transferred to a market participant. The standard is effective for the first
reporting period, including interim periods, beginning after issuance. The Company
does not expect the adoption to have a material effect on the Companys
consolidated results of operations and financial condition.
Consolidation of Variable
Interest Entities
In June 2009, the FASB updated the accounting
standards related to the consolidation of variable interest entities. The
standard amends current consolidation guidance and requires additional
disclosures about an enterprises involvement in VIEs. The standard is
effective for interim and annual reporting periods beginning after November 15,
2009, with early adoption prohibited. The Company is currently evaluating the
impact of the standard on its consolidated results of operations and financial
condition.
Accounting for Transfers of
Financial Assets
In June 2009, the FASB updated the accounting
standards related to accounting for transfers of financial assets. The standard
improves the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about
a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferors continuing
involvement, if any, in transferred financial assets. The standard is effective
for interim and annual reporting periods beginning after November 15, 2009,
with early adoption prohibited, and must be applied to transfers of financial
assets occurring on or after the effective date. The adoption of the standard
is not expected to have a material effect on the Companys consolidated results
of operations and financial condition.
10
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Employers Disclosures about
Postretirement Benefit Plan Assets
In December 2008, the FASB updated the
accounting standards to require enhanced disclosure related to postretirement
benefit plan assets, including information about inputs and techniques used to
determine the fair value of plan assets. The standard is effective for the
first fiscal year ending after December 15, 2009, with early adoption
permitted. The Company will apply the disclosure requirements of this standard
as of December 31, 2009.
3. Investments
The following is a summary of investments:
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
(in
millions)
|
|
Available-for-Sale
securities, at fair value
|
|
$
|
32,625
|
|
$
|
22,873
|
|
Commercial
mortgage loans, net
|
|
2,706
|
|
2,887
|
|
Trading
securities
|
|
313
|
|
501
|
|
Policy
loans
|
|
719
|
|
729
|
|
Other
investments
|
|
484
|
|
532
|
|
Total
|
|
$
|
36,847
|
|
$
|
27,522
|
|
Available-for-Sale Securities
Effective January 1, 2009, the Company early
adopted an accounting standard that 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: (i) it has the intent to sell the security (made a decision to sell) or
(ii) it is more likely than not that the Company 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. For securities 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. The Companys Consolidated Statements
of Equity present all changes in other comprehensive income associated with
Available-for-Sale debt securities that have been other-than-temporarily
impaired on a separate line from fair value changes recorded in other
comprehensive income from all other securities.
The Company provides a supplemental
disclosure on the face of its Consolidated Statements of Operations that
presents: (i) total other-than-temporary impairment losses recognized during
the period and (ii) the portion of other-than-temporary impairment losses
recognized in other comprehensive income. The sum of these amounts represents
the credit-related portion of other-than-temporary impairments that were
recognized in earnings during the period. The portion of other-than-temporary
losses recognized in other comprehensive income includes: (i) the portion of
other-than-temporary impairment losses related to factors other than credit
recognized during the period and (ii) reclassifications of other-than-temporary
impairment losses previously determined to be related to factors other than
credit that are determined to be credit-related in the current period. The
amount presented on the Consolidated Statements of Operations as the portion of
other-than-temporary losses recognized in other comprehensive income excludes
subsequent increases and decreases in the fair value of these securities.
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: (i) the extent to which the market value is below
amortized cost; (ii) the duration of time in which there has been a significant
decline in value; (iii) fundamental analysis of the liquidity, business
prospects and overall financial
11
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
condition of the issuer; and (iv) 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. The significant inputs to cash flow projections consider potential
debt restructuring terms, projected cash flows available to pay creditors and
the Companys position in the debtors overall capital structure.
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
nine months ended September 30, 2009, certain non-agency mortgage backed
securities were deemed other-than 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. Significant inputs considered in these
projections are consistent with the factors considered in assessing potential
other-than-temporary impairment for these investments. 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:
|
|
September
30, 2009
|
|
Description of Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized Gains
|
|
Gross
Unrealized Losses
|
|
Fair
Value
|
|
|
|
(in
millions)
|
|
Corporate
debt securities
|
|
$
|
15,662
|
|
$
|
962
|
|
$
|
(137
|
)
|
$
|
16,487
|
|
Residential
mortgage backed securities
|
|
8,311
|
|
236
|
|
(498
|
)
|
8,049
|
|
Commercial
mortgage backed securities
|
|
4,188
|
|
208
|
|
(23
|
)
|
4,373
|
|
Asset
backed securities
|
|
1,837
|
|
79
|
|
(70
|
)
|
1,846
|
|
State
and municipal obligations
|
|
1,332
|
|
46
|
|
(56
|
)
|
1,322
|
|
U.S.
government and agencies obligations
|
|
303
|
|
9
|
|
|
|
312
|
|
Foreign
government bonds and obligations
|
|
93
|
|
16
|
|
|
|
109
|
|
Common
and preferred stocks
|
|
53
|
|
7
|
|
(12
|
)
|
48
|
|
Other
structured investments
|
|
23
|
|
32
|
|
|
|
55
|
|
Other
debt obligations
|
|
24
|
|
|
|
|
|
24
|
|
Total
|
|
$
|
31,826
|
|
$
|
1,595
|
|
$
|
(796
|
)
|
$
|
32,625
|
|
|
|
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
|
|
12
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
At September 30, 2009 and December
31, 2008, fixed maturity securities comprised approximately 88% and 83%,
respectively, of the Companys total investments. These securities were rated
by Moodys Investors Service (Moodys), Standard & Poors Rating Services
(S&P) and Fitch Ratings Ltd. (Fitch), except for approximately $1.2 billion
of securities at both September 30, 2009 and December 31, 2008, which were
rated by the Companys internal analysts using criteria similar to Moodys,
S&P and Fitch. Ratings on fixed maturity securities are presented using the
median of ratings from Moodys, S&P and Fitch. If only two of the ratings
are available, the lower rating is used. A summary of fixed maturity securities
by rating was as follows:
|
|
September 30, 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
|
|
$
|
12,892
|
|
$
|
13,356
|
|
41
|
%
|
$
|
9,475
|
|
$
|
8,988
|
|
40
|
%
|
AA
|
|
1,401
|
|
1,394
|
|
4
|
|
1,698
|
|
1,571
|
|
7
|
|
A
|
|
4,930
|
|
5,085
|
|
16
|
|
4,689
|
|
4,396
|
|
19
|
|
BBB
|
|
10,152
|
|
10,755
|
|
33
|
|
7,299
|
|
6,707
|
|
29
|
|
Below investment grade
|
|
2,398
|
|
1,987
|
|
6
|
|
1,494
|
|
1,174
|
|
5
|
|
Total fixed maturities
|
|
$
|
31,773
|
|
$
|
32,577
|
|
100
|
%
|
$
|
24,655
|
|
$
|
22,836
|
|
100
|
%
|
At
September 30, 2009 and December 31, 2008, approximately 28% 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:
|
|
September 30, 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
|
|
$
|
351
|
|
$
|
(5
|
)
|
$
|
2,157
|
|
$
|
(132
|
)
|
$
|
2,508
|
|
$
|
(137
|
)
|
Residential mortgage backed securities
|
|
914
|
|
(33
|
)
|
958
|
|
(465
|
)
|
1,872
|
|
(498
|
)
|
Commercial mortgage backed securities
|
|
102
|
|
(1
|
)
|
514
|
|
(22
|
)
|
616
|
|
(23
|
)
|
Asset backed securities
|
|
126
|
|
(5
|
)
|
230
|
|
(65
|
)
|
356
|
|
(70
|
)
|
State and municipal obligations
|
|
1
|
|
|
|
397
|
|
(56
|
)
|
398
|
|
(56
|
)
|
Foreign government bonds and obligations
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
Common and preferred stocks
|
|
|
|
|
|
38
|
|
(12
|
)
|
38
|
|
(12
|
)
|
Total
|
|
$
|
1,494
|
|
$
|
(44
|
)
|
$
|
4,298
|
|
$
|
(752
|
)
|
$
|
5,792
|
|
$
|
(796
|
)
|
|
|
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
|
)
|
13
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
The following tables
summarize gross unrealized losses by ratio of fair value to amortized cost:
|
|
September 30, 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%
|
|
94
|
|
$
|
1,335
|
|
$
|
(13
|
)
|
228
|
|
$
|
2,174
|
|
$
|
(48
|
)
|
322
|
|
$
|
3,509
|
|
$
|
(61
|
)
|
90% - 95%
|
|
10
|
|
100
|
|
(7
|
)
|
72
|
|
574
|
|
(47
|
)
|
82
|
|
674
|
|
(54
|
)
|
80% - 90%
|
|
5
|
|
24
|
|
(4
|
)
|
68
|
|
576
|
|
(87
|
)
|
73
|
|
600
|
|
(91
|
)
|
Less than 80%
|
|
6
|
|
35
|
|
(20
|
)
|
145
|
|
974
|
|
(570
|
)
|
151
|
|
1,009
|
|
(590
|
)
|
Total
|
|
115
|
|
$
|
1,494
|
|
$
|
(44
|
)
|
513
|
|
$
|
4,298
|
|
$
|
(752
|
)
|
628
|
|
$
|
5,792
|
|
$
|
(796
|
)
|
|
|
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 lower unrealized losses in 2009 compared to 2008 was the tightening
of credit spreads across sectors. A portion of the decrease in unrealized
losses was offset by an increase due to the adoption of a new accounting
standard effective January 1, 2009. 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 the impairment of
Available-for-Sale securities recognized in other comprehensive income
previously recognized through earnings for factors other than credit.
The
following table presents the amounts recognized in the Consolidated Statements
of Operations for other-than-temporary impairments related to credit losses on
securities for which a portion of the securities total other-than-temporary
impairments was recognized in other comprehensive income:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
September 30, 2009
|
|
|
|
(in millions)
|
|
Beginning
balance of credit losses on securities held for which a portion of other-than-temporary
impairment was recognized in other comprehensive income
|
|
$
|
310
|
|
$
|
258
|
|
Additional amount related to credit losses for which
an other-than-temporary impairment was not previously recognized
|
|
|
|
8
|
|
Reductions for securities sold during the period
(realized)
|
|
(17
|
)
|
(20
|
)
|
Additional increases to the amount related to credit
losses for which an other-than-temporary impairment was previously recognized
|
|
3
|
|
50
|
|
Ending
balance of credit losses on securities held as of September 30 for which a
portion of other-than-temporary impairment was recognized in other
comprehensive income
|
|
$
|
296
|
|
$
|
296
|
|
The
change in net unrealized securities 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; (ii) (gains) losses that were previously unrealized, but have been
recognized in current period net income due to sales of Available-for-Sale
securities and (iii) other items primarily consisting of adjustments in asset
and liability balances, such as DAC, DSIC, benefit reserves and reinsurance
recoverables, to reflect the expected impact on their carrying values had the
unrealized gains (losses) been realized as of the respective balance sheet
dates. As a result of the adoption of a new accounting standard effective January
1, 2009, net unrealized investment gains (losses) arising during the period
also includes
14
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
other-than-temporary
impairment losses on Available-for-Sale securities related to factors other
than credit that were recognized in other comprehensive income during the
period. Additionally, reclassification of (gains) losses included in net income
contains noncredit other-than-temporary impairment losses that were previously
unrealized, but have been recognized in current period net income due to their
reclassification as credit losses.
The
following table presents a rollforward of the net unrealized securities gains
(losses) on Available-for-Sale securities included in accumulated other
comprehensive income (loss):
|
|
|
|
|
|
Accumulated Other
|
|
|
|
Net
|
|
|
|
Comprehensive Income
|
|
|
|
Unrealized
|
|
|
|
(Loss) Related to Net
|
|
|
|
Investment
|
|
Deferred
|
|
Unrealized Investment
|
|
|
|
Gains (Losses)
|
|
Income Tax
|
|
Gains (Losses)
|
|
|
|
|
|
(in millions)
|
|
|
|
Balance at January 1, 2008
|
|
$
|
(258
|
)
|
$
|
90
|
|
$
|
(168
|
)
|
Net unrealized investment losses arising during the
period
|
|
(1,568
|
)
|
549
|
|
(1,019
|
)
|
Reclassification of losses included in net income
|
|
368
|
|
(129
|
)
|
239
|
|
Impact of net unrealized investment gains on DAC,
DSIC and benefit reserves
|
|
3
|
|
(1
|
)
|
2
|
|
Balance at September 30, 2008
|
|
$
|
(1,455
|
)
|
$
|
509
|
|
$
|
(946
|
)
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
(1,478
|
)
|
$
|
517
|
|
$
|
(961
|
)
|
Cumulative effect of accounting change
|
|
(203
|
)
(1)
|
71
|
|
(132
|
)
|
Net unrealized investment gains arising during the
period
|
|
2,892
|
|
(1,012
|
)
|
1,880
|
|
Reclassification of gains included in net income
|
|
(47
|
)
|
16
|
|
(31
|
)
|
Impact of net unrealized investment losses on DAC,
DSIC, benefit reserves and reinsurance recoverables
|
|
(611
|
)
|
214
|
|
(397
|
)
|
Balance at September 30, 2009
|
|
$
|
553
|
|
$
|
(194
|
)
|
$
|
359
|
(2)
|
(1)
|
Amount
represents the cumulative effect of adopting a new accounting standard on
January 1, 2009, net of DAC and DSIC amortization and certain benefit
reserves. See Note 2 for additional information on the adoption impact.
|
(2)
|
At
September 30, 2009, Accumulated Other Comprehensive Income Related to Net
Unrealized Investment Gains included $(91) million
of noncredit
related impairments on securities and net unrealized securities losses on
previously impaired securities.
|
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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in millions)
|
|
(in millions)
|
|
Gross realized gains from sales
|
|
$
|
56
|
|
$
|
4
|
|
$
|
165
|
|
$
|
15
|
|
Gross realized losses from sales
|
|
(21
|
)
|
(8
|
)
|
(33
|
)
|
(10
|
)
|
Impairment losses
|
|
(19
|
)
|
(313
|
)
|
(85
|
)
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
$19 million of other-than-temporary impairments recognized in net investment
income for the three months ended September 30, 2009 were related primarily to the
Companys decision to sell certain corporate debt securities in the banking and
finance industries. The $85 million of other-than-temporary impairments
recognized in net investment income for the nine months ended September 30, 2009
were related to credit losses on non-agency residential mortgage backed
securities, corporate debt securities primarily in the gaming, banking and
finance industries and other structured investments.
15
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Available-for-Sale
securities by contractual maturity as of September 30, 2009 were as follows:
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Due within one year
|
|
$
|
1,329
|
|
$
|
1,348
|
|
Due after one year through five years
|
|
7,794
|
|
8,020
|
|
Due after five years through 10 years
|
|
4,739
|
|
5,027
|
|
Due after 10 years
|
|
3,552
|
|
3,859
|
|
|
|
17,414
|
|
18,254
|
|
|
|
|
|
|
|
Residential mortgage backed securities
|
|
8,311
|
|
8,049
|
|
Commercial mortgage backed securities
|
|
4,188
|
|
4,373
|
|
Asset backed securities
|
|
1,837
|
|
1,846
|
|
Other structured investments
|
|
23
|
|
55
|
|
Common and preferred stocks
|
|
53
|
|
48
|
|
Total
|
|
$
|
31,826
|
|
$
|
32,625
|
|
Actual
maturities may differ from contractual maturities because issuers may have the right
to call or prepay obligations. Residential mortgage backed securities,
commercial mortgage backed securities, asset backed securities and other
structured investments are not due at a single maturity date. As such, these
securities, as well as common and preferred stocks, were not included in the
maturities distribution.
Trading Securities
Net
recognized gains related to trading securities held at September 30, 2009 were
$14 million and $33 million, respectively, for the three months and nine months
then ended. Net recognized losses related to trading securities held at September
30, 2008 were $30 million and $48 million, respectively, for the three months
and nine months then ended.
4. Deferred Acquisition Costs and Deferred Sales
Inducement Costs
During
the third quarter of 2009 and 2008, the Company completed the annual detailed
review of valuation assumptions for RiverSource Life products. In addition,
during the third quarter of 2008, the Company converted to a new industry
standard valuation system that provides enhanced modeling capabilities.
The
total pretax impacts on the Companys assets and liabilities attributable to
the review of valuation assumptions during the third quarter of 2009 and 2008
and the valuation system conversion during the third quarter of 2008 were as
follows:
|
|
|
|
|
|
|
|
Future Policy
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Benefits and
|
|
Other
|
|
|
|
Balance Sheet Impact Debit (Credit)
|
|
Receivables
|
|
DAC
|
|
Assets
|
|
Claims
|
|
Liabilities
|
|
Total
|
|
|
|
(in millions)
|
|
2009 period
|
|
$
|
(65
|
)
|
$
|
119
|
|
$
|
9
|
|
$
|
71
|
|
$
|
|
|
$
|
134
|
|
2008 period
|
|
92
|
|
(81
|
)
|
(5
|
)
|
95
|
|
5
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total pretax impacts on the Companys revenues and expenses attributable to the
review of the valuation assumptions for the three and nine months ended September
30, 2009 and 2008 and the valuation system conversion for the three and nine
months ended September 30, 2008 were as follows:
|
|
|
|
|
|
|
|
Benefits,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims, Losses
|
|
|
|
|
|
|
|
|
|
Other
|
|
Distribution
|
|
and Settlement
|
|
Amortization
|
|
|
|
Pretax Benefit (Charge)
|
|
Premiums
|
|
Revenues
|
|
Expenses
|
|
Expenses
|
|
of DAC
|
|
Total
|
|
|
|
(in millions)
|
|
2009 period
|
|
$
|
|
|
$
|
(65
|
)
|
$
|
|
|
$
|
80
|
|
$
|
119
|
|
$
|
134
|
|
2008 period
|
|
2
|
|
95
|
|
1
|
|
89
|
|
(81
|
)
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
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
|
|
499
|
|
479
|
|
Amortization, excluding impacts of valuation
assumptions review and valuation system conversion
|
|
(216
|
)
|
(457
|
)
|
Amortization, impact of valuation assumptions
review and valuation system conversion
|
|
119
|
|
(81
|
)
|
Impact of change in net unrealized securities
losses
|
|
(462
|
)
|
(11
|
)
|
Balance at September 30
|
|
$
|
4,323
|
|
$
|
4,374
|
|
The balances of and changes in
DSIC, included in other assets on the Consolidated Balance Sheets, were as
follows:
|
|
2009
|
|
2008
|
|
|
|
(in
millions)
|
|
Balance at January 1
|
|
$
|
518
|
|
$
|
511
|
|
Cumulative effect of accounting change
|
|
|
|
9
|
|
Capitalization of sales inducement costs
|
|
61
|
|
64
|
|
Amortization, excluding impacts of valuation
assumptions review and valuation system conversion
|
|
(7
|
)
|
(55
|
)
|
Amortization, impact of valuation assumptions
review and valuation system conversion
|
|
9
|
|
(6
|
)
|
Impact of change in net unrealized securities
losses
|
|
(67
|
)
|
|
|
Balance at September 30
|
|
$
|
514
|
|
$
|
523
|
|
The Company adopted a new
accounting standard on the recognition and presentation of other-than-temporary
impairments in the first quarter of 2009. The adoption had no net impact to DAC
and DSIC.
Effective January 1, 2008, the
Company adopted a new accounting standard on fair value measurements 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 the Companys adoption of fair value
accounting standards.
5. Future Policy Benefits and Claims and
Separate Account Liabilities
Future policy benefits and
claims consisted of the following:
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
(in
millions)
|
|
Fixed annuities
|
|
$
|
16,551
|
|
$
|
14,058
|
|
Equity indexed annuities accumulated host values
|
|
183
|
|
228
|
|
Equity indexed annuities embedded derivatives
|
|
13
|
|
16
|
|
Variable annuities fixed sub-accounts
|
|
6,040
|
|
5,623
|
|
Variable annuity guaranteed minimum withdrawal
benefits (GMWB)
|
|
468
|
|
1,471
|
|
Variable annuity guaranteed minimum accumulation
benefits (GMAB)
|
|
151
|
|
367
|
|
Other variable annuity guarantees
|
|
16
|
|
67
|
|
Total annuities
|
|
23,422
|
|
21,830
|
|
Variable universal life (VUL)/universal life
(UL) insurance
|
|
2,584
|
|
2,526
|
|
Other life, disability income and long term care
insurance
|
|
4,548
|
|
4,397
|
|
Auto, home and other insurance
|
|
373
|
|
368
|
|
Policy claims and other policyholders funds
|
|
115
|
|
172
|
|
Total
|
|
$
|
31,042
|
|
$
|
29,293
|
|
Separate account liabilities
consisted of the following:
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
(in
millions)
|
|
Variable annuity variable sub-accounts
|
|
$
|
46,959
|
|
$
|
37,657
|
|
VUL insurance variable sub-accounts
|
|
5,033
|
|
4,091
|
|
Other insurance variable sub-accounts
|
|
45
|
|
39
|
|
Threadneedle investment liabilities
|
|
3,539
|
|
2,959
|
|
Total
|
|
$
|
55,576
|
|
$
|
44,746
|
|
17
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
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 gain gross-up (GGU)
benefits. In addition, the Company offers contracts with GMWB provisions. The
Company suspended sales of contracts with GMAB provisions June 1, 2009. 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.
The following table provides
summary information related to all variable annuity guarantees for which the
Company has established additional liabilities:
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
|
|
Contract
|
|
|
|
Weighted
|
|
|
|
Contract
|
|
|
|
Weighted
|
|
Variable annuity
|
|
Total
|
|
value
in
|
|
Net
|
|
average
|
|
Total
|
|
value
in
|
|
Net
|
|
average
|
|
guarantees by
|
|
contract
|
|
separate
|
|
amount
|
|
attained
|
|
contract
|
|
separate
|
|
amount
|
|
attained
|
|
benefit type
(1)
|
|
value
|
|
accounts
|
|
at
risk
(2)
|
|
age
|
|
value
|
|
accounts
|
|
at
risk
(2)
|
|
age
|
|
|
|
(in
millions, except age)
|
|
GMDB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Premium
|
|
$
|
29,238
|
|
$
|
26,816
|
|
$
|
1,445
|
|
61
|
|
$
|
22,249
|
|
$
|
20,153
|
|
$
|
4,873
|
|
61
|
|
Six-Year Reset
|
|
13,805
|
|
11,098
|
|
1,185
|
|
61
|
|
12,719
|
|
10,063
|
|
2,802
|
|
61
|
|
One-Year Ratchet
|
|
6,883
|
|
6,189
|
|
1,082
|
|
63
|
|
5,770
|
|
5,061
|
|
2,163
|
|
62
|
|
Five-Year Ratchet
|
|
1,197
|
|
1,119
|
|
56
|
|
59
|
|
951
|
|
888
|
|
199
|
|
59
|
|
Other
|
|
566
|
|
525
|
|
112
|
|
67
|
|
471
|
|
429
|
|
192
|
|
66
|
|
Total GMDB
|
|
$
|
51,689
|
|
$
|
45,747
|
|
$
|
3,880
|
|
61
|
|
$
|
42,160
|
|
$
|
36,594
|
|
$
|
10,229
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGU death benefit
|
|
$
|
824
|
|
$
|
745
|
|
$
|
69
|
|
63
|
|
$
|
699
|
|
$
|
619
|
|
$
|
65
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMIB
|
|
$
|
626
|
|
$
|
578
|
|
$
|
145
|
|
63
|
|
$
|
567
|
|
$
|
511
|
|
$
|
245
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB
|
|
$
|
4,110
|
|
$
|
3,994
|
|
$
|
591
|
|
63
|
|
$
|
3,513
|
|
$
|
3,409
|
|
$
|
1,312
|
|
63
|
|
GMWB for life
|
|
13,770
|
|
13,189
|
|
1,077
|
|
63
|
|
9,194
|
|
8,764
|
|
2,704
|
|
63
|
|
Total GMWB
|
|
$
|
17,880
|
|
$
|
17,183
|
|
$
|
1,668
|
|
63
|
|
$
|
12,707
|
|
$
|
12,173
|
|
$
|
4,016
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAB
|
|
$
|
2,813
|
|
$
|
2,743
|
|
$
|
220
|
|
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.
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
|
|
3
|
|
94
|
|
70
|
|
4
|
|
Paid claims
|
|
(7
|
)
|
|
|
|
|
|
|
(2
|
)
|
Liability balance at September 30, 2008
|
|
$
|
18
|
|
$
|
6
|
|
$
|
230
|
|
$
|
103
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance at January 1, 2009
|
|
$
|
55
|
|
$
|
12
|
|
$
|
1,471
|
|
$
|
367
|
|
$
|
7
|
|
Incurred claims
|
|
7
|
|
(5
|
)
|
(1,003
|
)
|
(216
|
)
|
5
|
|
Paid claims
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
Liability balance at September 30, 2009
|
|
$
|
9
|
|
$
|
7
|
|
$
|
468
|
|
$
|
151
|
|
$
|
12
|
|
18
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
7. Customer Deposits
Customer deposits consisted of
the following:
|
|
September
30, 2009
|
|
December
31, 2008
|
|
|
|
(in
millions)
|
|
Fixed rate certificates
|
|
$
|
3,549
|
|
$
|
3,909
|
|
Stock market based certificates
|
|
854
|
|
909
|
|
Stock market embedded derivative reserve
|
|
28
|
|
5
|
|
Other
|
|
60
|
|
62
|
|
Less: accrued interest classified in other
liabilities
|
|
(39
|
)
|
(11
|
)
|
Total investment certificate reserves
|
|
4,452
|
|
4,874
|
|
Brokerage deposits
|
|
2,011
|
|
1,988
|
|
Banking deposits
|
|
2,565
|
|
1,367
|
|
Total
|
|
$
|
9,028
|
|
$
|
8,229
|
|
8. Debt
Debt and the stated interest
rates were as follows:
|
|
Outstanding
Balance
|
|
Stated
Interest Rate
|
|
|
|
September
30,
|
|
December
31,
|
|
September
30,
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in
millions)
|
|
|
|
|
|
Senior notes due 2010
|
|
$
|
340
|
|
$
|
800
|
|
5.4
|
%
|
5.4
|
%
|
Senior notes due 2015
|
|
700
|
|
700
|
|
5.7
|
|
5.7
|
|
Senior notes due 2019
|
|
300
|
|
|
|
7.3
|
|
|
|
Senior notes due 2039
|
|
200
|
|
|
|
7.8
|
|
|
|
Junior subordinated notes due 2066
|
|
322
|
|
457
|
|
7.5
|
|
7.5
|
|
Floating rate revolving credit borrowings due 2013
|
|
135
|
|
64
|
|
4.6
|
|
3.6
|
|
Floating rate revolving credit borrowings due 2014
|
|
73
|
|
|
|
5.2
|
|
|
|
Municipal bond inverse floater certificates due
2021
|
|
6
|
|
6
|
|
0.4
|
|
2.2
|
|
Total
|
|
$
|
2,076
|
|
$
|
2,027
|
|
|
|
|
|
In July 2009, the Company
purchased $450 million aggregate principal amount of its 5.35% senior notes due
November 15, 2010, pursuant to a cash tender offer. The tender offer
consideration per $1,000 principal amount of these notes accepted for purchase
was $1,000, with an early tender payment of $30. Payments for these notes
purchased pursuant to the tender offer included accrued and unpaid interest
from the last interest payment date to, but not including, the settlement date.
The Company also repurchased $10 million of these notes in the second quarter
of 2009 in open market transactions.
On June 8, 2009, the Company
issued $300 million of unsecured senior notes which mature June 28, 2019 and
carry a fixed interest rate of 7.30%. Interest payments are due semi-annually
in arrears on June 28 and December 28, commencing December 28, 2009.
On June 3, 2009, the Company
issued $200 million of unsecured senior notes which mature June 15, 2039 and
carry a fixed interest rate of 7.75%. Interest payments are due quarterly in
arrears on March 15, June 15, September 15 and December 15, commencing September
15, 2009.
In 2009, the Company
extinguished $135 million of its 7.5% junior subordinated notes due June 1,
2066 in open market transactions.
The floating rate revolving
credit borrowings due in 2013 and 2014 are non-recourse debt related to certain
consolidated property funds. The debt will be extinguished with the cash flows
from the sale of the investments held within the partnerships.
19
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
9. Fair Values of Assets and Liabilities
GAAP defines fair value as the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date;
that is, an exit price. The exit price assumes the asset or liability is not
exchanged subject to a forced liquidation or distressed sale.
Valuation
Hierarchy
The Company categorizes its
fair value measurements according to a three-level hierarchy. The hierarchy
prioritizes the inputs used by the 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.
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 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, commercial
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.
20
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
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. As of September 30, 2009, the Company had no structured derivatives.
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.
Liabilities
Embedded Derivatives
Variable
Annuity Riders GMAB and GMWB
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.
21
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following tables present
the balances of assets and liabilities measured at fair value on a recurring
basis:
|
|
September 30, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
60
|
|
$
|
3,224
|
|
$
|
|
|
$
|
3,284
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
15,268
|
|
1,219
|
|
16,487
|
|
Residential mortgage backed securities
|
|
|
|
4,209
|
|
3,840
|
|
8,049
|
|
Commercial mortgage backed securities
|
|
|
|
4,304
|
|
69
|
|
4,373
|
|
Asset backed securities
|
|
|
|
1,493
|
|
353
|
|
1,846
|
|
State and municipal obligations
|
|
|
|
1,322
|
|
|
|
1,322
|
|
U.S. government and agencies obligations
|
|
65
|
|
247
|
|
|
|
312
|
|
Foreign government bonds and obligations
|
|
|
|
109
|
|
|
|
109
|
|
Common and preferred stocks
|
|
|
|
38
|
|
10
|
|
48
|
|
Other structured investments
|
|
|
|
|
|
55
|
|
55
|
|
Other debt obligations
|
|
2
|
|
22
|
|
|
|
24
|
|
Total Available-for-Sale securities
|
|
67
|
|
27,012
|
|
5,546
|
|
32,625
|
|
Trading securities
|
|
106
|
|
186
|
|
18
|
|
310
|
|
Separate account assets
|
|
|
|
55,576
|
|
|
|
55,576
|
|
Other assets
|
|
3
|
|
986
|
|
476
|
|
1,465
|
|
Total assets at fair value
|
|
$
|
236
|
|
$
|
86,984
|
|
$
|
6,040
|
|
$
|
93,260
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
|
|
$
|
13
|
|
$
|
610
|
|
$
|
623
|
|
Customer deposits
|
|
|
|
28
|
|
|
|
28
|
|
Other liabilities
|
|
1
|
|
785
|
|
|
|
786
|
|
Total liabilities at fair value
|
|
$
|
1
|
|
$
|
826
|
|
$
|
610
|
|
$
|
1,437
|
|
|
|
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
|
|
22
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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)
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Included in
|
|
Sales,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other Com-
|
|
Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
July 1,
|
|
Net
|
|
prehensive
|
|
and Settle-
|
|
In/(Out) of
|
|
September 30,
|
|
|
|
2009
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2009
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,178
|
|
$
|
|
|
$
|
94
|
|
$
|
(7
|
)
|
$
|
(46
|
)
|
$
|
1,219
|
|
Residential mortgage backed securities
|
|
3,451
|
|
30
|
|
148
|
|
211
|
|
|
|
3,840
|
|
Commercial mortgage backed securities
|
|
64
|
|
|
|
5
|
|
|
|
|
|
69
|
|
Asset backed securities
|
|
379
|
|
5
|
|
14
|
|
(36
|
)
|
(9
|
)
|
353
|
|
Common and preferred stocks
|
|
10
|
|
|
|
|
|
|
|
|
|
10
|
|
Other structured investments
|
|
49
|
|
|
|
7
|
|
(1
|
)
|
|
|
55
|
|
Other debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-Sale securities
|
|
5,131
|
|
35
|
(1)
|
268
|
|
167
|
|
(55
|
)
(4)
|
5,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
23
|
|
(1
|
)
(1)
|
(1
|
)
|
(3
|
)
|
|
|
18
|
|
Other assets
|
|
342
|
|
(10
|
)
(2)
|
(10
|
)
|
154
|
|
|
|
476
|
|
Future policy
benefits and claims
|
|
(759
|
)
|
166
|
(3)
|
|
|
(17
|
)
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment
income in the Consolidated Statements of Operations.
(2)
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 two securities
with a fair value of $64 million that were transferred to Level 2 as the fair
value of the securities is now obtained from a nationally-recognized pricing
service and one security with a fair value of $9 million that was transferred
to Level 3 as the fair value of the security is now based on broker quotes.
|
|
|
|
Total Gains (Losses)
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Included in
|
|
Sales,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other Com-
|
|
Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
July 1,
|
|
Net
|
|
prehensive
|
|
and Settle-
|
|
In/(Out) of
|
|
September 30,
|
|
|
|
2008
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2008
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,257
|
|
$
|
(1
|
)
|
$
|
(42
|
)
|
$
|
7
|
|
$
|
|
|
$
|
1,221
|
|
Residential mortgage backed securities
|
|
1,080
|
|
(85
|
)
|
103
|
|
(43
|
)
|
|
|
1,055
|
|
Commercial mortgage backed securities
|
|
4
|
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
Asset backed securities
|
|
249
|
|
(10
|
)
|
10
|
|
(9
|
)
|
|
|
240
|
|
Common and preferred stocks
|
|
10
|
|
|
|
|
|
|
|
|
|
10
|
|
Other structured investments
|
|
38
|
|
1
|
|
|
|
(3
|
)
|
|
|
36
|
|
Total
Available-for-Sale securities
|
|
2,638
|
|
(95
|
)
(1)
|
71
|
|
(49
|
)
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
|
44
|
|
(2
|
)
(1)
|
(5
|
)
|
|
|
|
|
37
|
|
Other assets
|
|
437
|
|
3
|
(2)
|
(38
|
)
|
77
|
|
|
|
479
|
|
Future policy
benefits and claims
|
|
(154
|
)
|
(159
|
)
(3)
|
|
|
(18
|
)
|
|
|
(331
|
)
|
Other
liabilities
|
|
(4
|
)
|
(1
|
)
(3)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment
income in the Consolidated Statements of Operations.
(2)
Represents a $21 million gain
included in benefits, claims, losses and settlement expenses and a $18 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.
23
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table presents
the changes in unrealized gains (losses) included in net income related to
Level 3 assets and liabilities held at September 30 for the three months then
ended:
|
|
2009
|
|
2008
|
|
|
|
Net
Investment
Income
|
|
Other
Revenue
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
Net
Investment
Income
|
|
Other
Revenue
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1
|
|
$
|
|
|
$
|
|
|
Residential mortgage backed securities
|
|
28
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
Commercial mortgage backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed securities
|
|
3
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Other structured investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-Sale securities
|
|
31
|
|
|
|
|
|
(95
|
)
|
|
|
|
|
Trading securities
|
|
(1
|
)
|
|
|
|
|
2
|
|
|
|
|
|
Other assets
|
|
|
|
(12
|
)
|
|
|
|
|
(18
|
)
|
21
|
|
Future policy benefits and claims
|
|
|
|
|
|
165
|
|
|
|
|
|
(158
|
)
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Included in
|
|
Sales,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other Com-
|
|
Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
January 1,
|
|
Net
|
|
prehensive
|
|
and Settle-
|
|
In/(Out) of
|
|
September 30,
|
|
|
|
2009
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2009
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,120
|
|
$
|
|
|
$
|
173
|
|
$
|
(13
|
)
|
$
|
(61
|
)
|
$
|
1,219
|
|
Residential mortgage backed securities
|
|
1,208
|
|
37
|
|
63
|
|
2,532
|
|
|
|
3,840
|
|
Commercial mortgage backed securities
|
|
3
|
|
|
|
6
|
|
60
|
|
|
|
69
|
|
Asset backed securities
|
|
222
|
|
13
|
|
|
|
127
|
|
(9
|
)
|
353
|
|
Common and preferred stocks
|
|
10
|
|
|
|
|
|
|
|
|
|
10
|
|
Other structured investments
|
|
50
|
|
(3
|
)
|
13
|
|
(5
|
)
|
|
|
55
|
|
Other debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-Sale
securities
|
|
2,613
|
|
47
|
(1)
|
255
|
|
2,701
|
|
(70
|
)
(4)
|
5,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
|
30
|
|
(6
|
)
(1)
|
2
|
|
(8
|
)
|
|
|
18
|
|
Other assets
|
|
487
|
|
(81
|
)
(2)
|
23
|
|
47
|
|
|
|
476
|
|
Future policy
benefits and claims
|
|
(1,832
|
)
|
1,268
|
(3)
|
|
|
(46
|
)
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment
income in the Consolidated Statements of Operations.
(2)
Represents a $37 million loss
included in benefits, claims, losses and settlement expenses and a $44 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 three securities
with a fair value of $79 million that were transferred to Level 2 as the fair
value of the securities is now obtained from a nationally-recognized pricing
service and one security with a fair value of $9 million that was transferred
to Level 3 as the fair value of the security is now based on broker quotes.
24
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
|
Total Gains (Losses)
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Included in
|
|
Sales,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other Com-
|
|
Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
January 1,
|
|
Net
|
|
prehensive
|
|
and Settle-
|
|
In/(Out) of
|
|
September 30,
|
|
|
|
2008
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2008
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,339
|
|
$
|
(1
|
)
|
$
|
(73
|
)
|
$
|
(44
|
)
|
$
|
|
|
$
|
1,221
|
|
Residential mortgage backed securities
|
|
1,267
|
|
(143
|
)
|
(142
|
)
|
73
|
|
|
|
1,055
|
|
Commercial mortgage backed securities
|
|
5
|
|
|
|
|
|
(2
|
)
|
|
|
3
|
|
Asset backed securities
|
|
242
|
|
(9
|
)
|
(10
|
)
|
17
|
|
|
|
240
|
|
Common and preferred stocks
|
|
9
|
|
|
|
1
|
|
|
|
|
|
10
|
|
Other structured investments
|
|
46
|
|
3
|
|
|
|
(13
|
)
|
|
|
36
|
|
Total Available-for-Sale securities
|
|
2,908
|
|
(150
|
)
(1)
|
(224
|
)
|
31
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
44
|
|
(2
|
)
|
(5
|
)
|
|
|
|
|
37
|
|
Other assets
|
|
629
|
|
6
|
(2)
|
(37
|
)
|
(119
|
)
|
|
|
479
|
|
Future policy benefits and claims
|
|
(158
|
)
|
(125
|
)
(3)
|
|
|
(48
|
)
|
|
|
(331
|
)
|
Other Liabilities
|
|
|
|
(1
|
)
(3)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment
income in the Consolidated Statements of Operations.
(2)
Represents a $44 million gain
included in benefits, claims, losses and settlement expenses and a $38 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 September 30 for
the nine months then ended:
|
|
2009
|
|
2008
|
|
|
|
Net
Investment
Income
|
|
Other
Revenue
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
Net
Investment
Income
|
|
Other
Revenue
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
|
|
(in millions)
|
|
Available-for-Sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Residential mortgage backed securities
|
|
15
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
Commercial mortgage backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset backed securities
|
|
7
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Other structured investments
|
|
(3
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
Other debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-Sale securities
|
|
19
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
Trading securities
|
|
(1
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
Other assets
|
|
|
|
(40
|
)
|
|
|
|
|
(38
|
)
|
21
|
|
Future policy benefits and claims
|
|
|
|
|
|
1,244
|
|
|
|
|
|
(123
|
)
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the reporting periods, there were no material assets or liabilities measured at
fair value on a nonrecurring basis.
25
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.
|
|
September 30, 2009
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Financial Assets
|
|
|
|
|
|
Commercial mortgage loans, net
|
|
$
|
2,706
|
|
$
|
2,616
|
|
Policy loans
|
|
719
|
|
800
|
|
Receivables
|
|
1,324
|
|
1,025
|
|
Restricted and segregated cash
|
|
1,822
|
|
1,822
|
|
Other investments and assets
|
|
473
|
|
496
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
15,517
|
|
$
|
15,429
|
|
Investment certificate reserves
|
|
4,424
|
|
4,424
|
|
Banking and brokerage customer deposits
|
|
4,576
|
|
4,576
|
|
Separate account liabilities
|
|
3,940
|
|
3,940
|
|
Debt and other liabilities
|
|
2,245
|
|
2,224
|
|
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.
26
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, by type of derivative and product at September 30, 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
|
|
$
|
240
|
|
Other liabilities
|
|
$
|
231
|
|
Equity
contracts
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Other assets
|
|
572
|
|
Other liabilities
|
|
399
|
|
GMDB
|
|
|
|
|
|
Other liabilities
|
|
1
|
|
Equity indexed annuities
|
|
Other assets
|
|
2
|
|
|
|
|
|
Equity indexed annuities embedded derivatives
|
|
|
|
|
|
Future policy benefits and claims
|
|
13
|
|
Stock market certificates
|
|
Other assets
|
|
152
|
|
Other liabilities
|
|
124
|
|
Stock market certificates embedded derivatives
|
|
|
|
|
|
Customer deposits
|
|
28
|
|
Foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
Seed money
|
|
Other assets
|
|
2
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB embedded derivatives
(1)
|
|
|
|
|
|
Future policy benefits and claims
|
|
610
|
|
Total
|
|
|
|
$
|
968
|
|
|
|
$
|
1,406
|
|
(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.
27
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 on the Consolidated Statements
of Operations:
|
|
|
|
Amount
of Gain (Loss)
on Derivatives
Recognized in Income
|
|
|
|
|
|
Three
|
|
Nine
|
|
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
Derivatives
not designated
|
|
Location
of Gain (Loss) on Derivatives
|
|
September 30,
|
|
September 30,
|
|
as
hedging instruments
|
|
Recognized
in Income
|
|
2009
|
|
2009
|
|
|
|
|
|
(in
millions)
|
|
Interest
rate contracts
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits, claims, losses and settlement expenses
|
|
$
|
63
|
|
$
|
(322
|
)
|
Interest rate lock commitments
|
|
Other revenues
|
|
(1
|
)
|
|
|
Equity
contracts
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits, claims, losses and settlement expenses
|
|
(266
|
)
|
(1,078
|
)
|
GMDB
|
|
Benefits, claims, losses and settlement expenses
|
|
(7
|
)
|
(7
|
)
|
Equity indexed annuities
|
|
Interest credited to fixed accounts
|
|
3
|
|
1
|
|
Equity indexed annuities embedded derivatives
|
|
Interest credited to fixed accounts
|
|
2
|
|
3
|
|
Stock market certificates
|
|
Banking and deposit interest expense
|
|
9
|
|
10
|
|
Stock market certificates embedded derivatives
|
|
Banking and deposit interest expense
|
|
(12
|
)
|
(23
|
)
|
Seed money
|
|
Net investment income
|
|
(10
|
)
|
(10
|
)
|
Foreign
exchange contracts
|
|
|
|
|
|
|
|
Seed money
|
|
General and administrative expense
|
|
3
|
|
2
|
|
Other
|
|
|
|
|
|
|
|
GMWB and GMAB embedded derivatives
|
|
Benefits, claims, losses and settlement expenses
|
|
149
|
|
1,222
|
|
Total
|
|
|
|
$
|
(67
|
)
|
$
|
(202
|
)
|
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.
The majority of the Companys annuity contracts contain GMDB
provisions, which may result in a death benefit payable that exceeds the
contract accumulation value when market values of customers accounts decline.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the
right to make limited partial withdrawals each contract year regardless of the
volatility inherent in the underlying investments or guarantee a minimum
accumulation value of considerations received at the beginning of the contract
period, after a specified holding period, respectively. The Company
economically hedges the exposure related to non-life contingent GMWB and GMAB
provisions using various equity futures, equity options, total return swaps,
interest rate swaptions and interest rate swaps. In the third quarter of 2009,
the Company entered into a limited number of derivative contracts to
economically hedge equity exposure related to GMDB provisions on variable
annuity contracts written previously in 2009. At September 30, 2009, the
gross notional amount of these contracts was $37.2 billion and $75 million for
the Companys GMWB and GMAB provisions and GMDB provisions, respectively.
The premium associated with certain of the above 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)
|
|
$
|
(55
|
)
|
$
|
3
|
|
2010
|
|
(189
|
)
|
5
|
|
2011
|
|
(181
|
)
|
4
|
|
2012
|
|
(165
|
)
|
3
|
|
2013
|
|
(153
|
)
|
2
|
|
2014-2023
|
|
(511
|
)
|
5
|
|
|
|
|
|
|
|
|
|
(1)
2009 amounts represent the
amounts payable and receivable for the period from October 1, 2009 to December 31,
2009.
Actual timing and payment amounts may differ due to future contract
settlements, modifications or exercises of options prior to the full premium
being paid or received.
28
Table of
Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) (continued)
Equity
indexed annuities and stock market certificate products have returns tied to
the performance of equity markets. As a result of fluctuations in equity
markets, the obligation incurred by the Company related to 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
$1.7 billion at September 30, 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
$195 million at September 30, 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
$9 million at September 30, 2009.
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 Consolidated Balance Sheets 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
income 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 nine
months ended September 30, 2009, the Company held no derivatives that
were designated as cash flow hedges. The following table shows the impact of
the Companys previously designated cash flow hedges on the Consolidated
Statements of Operations:
|
|
Location
of Gain (Loss)
|
|
Amount
of Gain (Loss)
Reclassified from Accumulated Other
Comprehensive Income into Income
|
|
Derivatives
designated
|
|
Reclassified
from Accumulated Other
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
as
hedging instruments
|
|
Comprehensive
Income into Income
|
|
September 30,
2009
|
|
September 30,
2009
|
|
|
|
|
|
(in
millions)
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
Interest on debt
|
|
Interest and debt expense
|
|
$
|
2
|
|
$
|
6
|
|
Fixed annuity products
|
|
Net investment income
|
|
(2
|
)
|
(5
|
)
|
Total
|
|
|
|
$
|
|
|
$
|
1
|
|
At September 30, 2009, the Company expects to
reclassify $2 million of net pretax gains on derivative instruments from
accumulated other comprehensive income 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 income are recognized in earnings immediately. No hedge
relationships were discontinued during the nine months ended September 30, 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 September 30, 2009, the Company held $222 million in cash
and cash equivalents and recorded a corresponding liability in other
liabilities for collateral the Company is obligated to return to
counterparties. As of September 30, 2009, the Companys maximum
credit exposure related to derivative assets after considering netting
arrangements with counterparties and collateral arrangements was approximately
$68 million.
29
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 September 30, 2009, the
aggregate fair value of all derivative instruments containing such credit risk
features was $75 million. The aggregate fair value of assets posted as
collateral for such instruments as of September 30, 2009 was
$43 million. If the credit risk features of derivative contracts that were
in a net liability position at September 30, 2009 were triggered, the
additional fair value of assets needed to settle these derivative liabilities
would have been $32 million.
11. Income
Taxes
The Companys effective tax rates were 23.7% and 21.5% for
the three months and nine months ended September 30, 2009,
respectively. The Companys effective tax rates were 52.5% and
(24.9)% for the three months and nine months ended September 30, 2008,
respectively. The effective tax rate for the three months ended September 30, 2008
included a $14 million tax benefit from finalizing prior period tax
returns. The effective tax rate for the nine months ended September 30,
2008 included $79 million in tax benefits related to changes in the status
of current audits and closed audits, tax planning initiatives, and the
finalization of prior year tax returns.
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 September 30, 2009 and December 31,
2008.
Included in the Companys deferred income tax assets are net
operating loss carryforwards of $125 million which will expire beginning December 31, 2025
as well as tax credit carryforwards of $144 million which will expire
beginning December 31, 2025. The Company also has $20 million of
foreign tax credit carryforwards which will expire beginning December 31,
2016.
As of September 30, 2009 and December 31, 2008, the
Company had $44 million and $56 million of gross unrecognized tax expense,
respectively. If recognized, approximately $81 million and $62 million,
net of federal tax benefits, of unrecognized tax benefits as of September 30, 2009
and December 31, 2008, respectively, 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 recognized a net reduction of $1 million in interest and penalties for
the nine months ended September 30, 2009. At September 30, 2009 and
December 31, 2008, the Company had a receivable of $14 million and
$13 million, respectively, related to accrued interest and penalties.
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 and completed
its field examination of 2003 through 2004 in the third quarter of 2009.
However, for federal income tax purposes these years continue to remain open as
a consequence of certain issues under appeal.
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.
30
Table of
Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) (continued)
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.
12.
Contingencies
Owing to prevailing conditions in the credit markets and the isolated
defaults of unaffiliated structured investment vehicles (SIVs) held in the
portfolios of money market funds advised by its RiverSource Investments LLC
subsidiary (the 2a-7 Funds), the Company continues to monitor the net asset
value of the 2a-7 Funds and as circumstances warrant from time to time 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 heightened volatility in the financial markets, such as those which
have been experienced for over the past year, and significant regulatory reform
proposals 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 SEC, Financial Industry Regulatory
Authority (FINRA), Office of Thrift Supervision (OTS), state insurance and
securities 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 and the suitability of particular
trading strategies, investments and product selection processes. 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. The Company filed with the United States Supreme Court
a Petition for Writ of Certiorari to review the judgment of the Court of
Appeals in this case on August 6, 2009.
31
Table of
Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) (continued)
Relevant
to market conditions since the latter part of 2007, a large client claimed a
breach of certain contractual investment guidelines. In April 2009, the
client presented a formal Request for Arbitration. The parties subsequently
submitted to mediation and have agreed to a structure for a comprehensive
settlement of the dispute. Subject to ongoing discussions, execution of a
definitive settlement agreement is expected before the end of the year.
In
July 2009, two issuers of private placement interests (Medical Capital
Holdings, Inc./Medical Capital Corporation and affiliated corporations and
Provident Shale Royalties, LLC and affiliated corporations) sold by our
subsidiary Securities America, Inc. (SAI) were placed into receivership,
which has resulted in several putative class action lawsuits naming both SAI
and Ameriprise Financial as well as related regulatory inquiries. The class
actions generally allege violations of state and/or federal securities laws in
connection with SAIs sales of these private placement interests. The actions
were commenced in and around September 2009 and are all in their earliest
procedural stages.
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.
Certain property fund limited partnerships that the Company
consolidates have floating rate revolving credit borrowings of
$208 million as of September 30, 2009. Certain Threadneedle
subsidiaries guarantee the repayment of outstanding borrowings up to the value
of the assets of the partnerships. The debt is secured by the assets of the
partnerships and there is no recourse to Ameriprise Financial.
14. Pending Transaction
On September 30, 2009, the Company announced a definitive
agreement to acquire the long-term asset management business of Columbia
Management. The total consideration to be paid will be between $900 million and
$1.2 billion based on net asset flows at Columbia Management before closing.
The acquisition is expected to be funded through the use of cash on hand and is
expected to close in the spring of 2010, subject to regulatory review and
approval.
15. Earnings
per Share Attributable to Ameriprise Financial Common Shareholders
The computations of basic and diluted earnings per share
attributable to Ameriprise Financial common shareholders are as follows:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in
millions, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ameriprise
Financial
|
|
$
|
260
|
|
$
|
(70
|
)
|
$
|
485
|
|
$
|
331
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic: Weighted-average common shares outstanding
|
|
258.7
|
|
219.1
|
|
236.6
|
|
223.6
|
|
Effect of potentially dilutive nonqualified stock
options and other share-based awards
|
|
2.0
|
|
2.6
|
|
1.4
|
|
2.8
|
|
Diluted: Weighted-average common shares outstanding
|
|
260.7
|
|
221.7
|
|
238.0
|
|
226.4
|
|
Earnings
(loss) per share attributable to Ameriprise Financial common shareholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.00
|
|
$
|
(0.32
|
)
|
$
|
2.05
|
|
$
|
1.48
|
|
Diluted
|
|
1.00
|
|
(0.32
|
)
(1)
|
2.04
|
|
1.46
|
|
(1)
|
Diluted shares used in this
calculation represent basic shares due to the net loss. Using actual diluted
shares would result in anti-dilution.
|
Basic weighted average common shares for the three months and nine
months ended September 30, 2009 included 4.6 million and
4.7 million, respectively, of non-vested restricted stock awards and
restricted stock units that are forfeitable but receive nonforfeitable dividends
and 3.4 million vested nonforfeitable restricted stock units for both
periods. Potentially dilutive securities include nonqualified stock options and
other share-based awards. Basic weighted average common shares for the three
months and the nine months ended September 30, 2008 included
1.9 million and 2.2 million, respectively, of vested, nonforfeitable
restricted stock units and 3.2 million non-vested restricted stock awards
and restricted stock units that are forfeitable but receive nonforfeitable dividends
for both periods.
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.
32
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 both September 30, 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 September 30, 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 $33 million and $54 million as of September 30, 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 $55 million and $50 million as
of September 30, 2009 and December 31, 2008, respectively.
The Company manages $6.6 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:
|
|
September 30,
2009
|
|
December 31,
2008
|
|
|
|
(in
millions)
|
|
Advice & Wealth Management
|
|
$
|
11,705
|
|
$
|
10,624
|
|
Asset Management
|
|
6,369
|
|
5,363
|
|
Annuities
|
|
74,850
|
|
63,659
|
|
Protection
|
|
16,520
|
|
14,270
|
|
Corporate & Other
|
|
1,757
|
|
1,661
|
|
Total assets
|
|
$
|
111,201
|
|
$
|
95,577
|
|
The following is a summary of segment operating results:
|
|
Three
Months Ended September 30, 2009
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
666
|
|
$
|
321
|
|
$
|
571
|
|
$
|
434
|
|
$
|
(9
|
)
|
$
|
|
|
$
|
1,983
|
|
Intersegment revenue
|
|
199
|
|
11
|
|
20
|
|
16
|
|
|
|
(246
|
)
|
|
|
Total revenues
|
|
865
|
|
332
|
|
591
|
|
450
|
|
(9
|
)
|
(246
|
)
|
1,983
|
|
Banking and deposit interest expense
|
|
29
|
|
2
|
|
|
|
|
|
2
|
|
|
|
33
|
|
Net revenues
|
|
836
|
|
330
|
|
591
|
|
450
|
|
(11
|
)
|
(246
|
)
|
1,950
|
|
Pretax income (loss)
|
|
$
|
12
|
|
$
|
10
|
|
$
|
268
|
|
$
|
145
|
|
$
|
(95
|
)
|
$
|
|
|
340
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
260
|
|
33
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
Three
Months Ended September 30, 2008
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
540
|
|
$
|
302
|
|
$
|
317
|
|
$
|
522
|
|
$
|
(9
|
)
|
$
|
|
|
$
|
1,672
|
|
Intersegment revenue
|
|
215
|
|
5
|
|
19
|
|
20
|
|
|
|
(259
|
)
|
|
|
Total revenues
|
|
755
|
|
307
|
|
336
|
|
542
|
|
(9
|
)
|
(259
|
)
|
1,672
|
|
Banking and deposit interest expense
|
|
43
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
43
|
|
Net revenues
|
|
712
|
|
305
|
|
336
|
|
542
|
|
(9
|
)
|
(257
|
)
|
1,629
|
|
Pretax income (loss)
|
|
$
|
(77
|
)
|
$
|
1
|
|
$
|
(34
|
)
|
$
|
104
|
|
$
|
(170
|
)
|
$
|
|
|
(176
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Net loss attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2009
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
1,819
|
|
$
|
836
|
|
$
|
1,593
|
|
$
|
1,398
|
|
$
|
13
|
|
$
|
|
|
$
|
5,659
|
|
Intersegment revenue
|
|
642
|
|
32
|
|
52
|
|
45
|
|
1
|
|
(772
|
)
|
|
|
Total revenues
|
|
2,461
|
|
868
|
|
1,645
|
|
1,443
|
|
14
|
|
(772
|
)
|
5,659
|
|
Banking and deposit interest expense
|
|
108
|
|
5
|
|
|
|
|
|
1
|
|
(1
|
)
|
113
|
|
Net revenues
|
|
2,353
|
|
863
|
|
1,645
|
|
1,443
|
|
13
|
|
(771
|
)
|
5,546
|
|
Pretax income (loss)
|
|
$
|
(52
|
)
|
$
|
(32
|
)
|
$
|
491
|
|
$
|
367
|
|
$
|
(185
|
)
|
$
|
|
|
589
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Net income attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
Revenue from external customers
|
|
$
|
1,999
|
|
$
|
1,012
|
|
$
|
1,242
|
|
$
|
1,457
|
|
$
|
10
|
|
$
|
|
|
$
|
5,720
|
|
Intersegment revenue
|
|
672
|
|
17
|
|
66
|
|
48
|
|
5
|
|
(808
|
)
|
|
|
Total revenues
|
|
2,671
|
|
1,029
|
|
1,308
|
|
1,505
|
|
15
|
|
(808
|
)
|
5,720
|
|
Banking and deposit interest expense
|
|
132
|
|
5
|
|
|
|
1
|
|
1
|
|
(7
|
)
|
132
|
|
Net revenues
|
|
2,539
|
|
1,024
|
|
1,308
|
|
1,504
|
|
14
|
|
(801
|
)
|
5,588
|
|
Pretax income (loss)
|
|
$
|
38
|
|
$
|
51
|
|
$
|
85
|
|
$
|
319
|
|
$
|
(247
|
)
|
$
|
|
|
246
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
Net income attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
331
|
|
34
Table
of Contents
AMERIPRISE FINANCIAL, INC.
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 September 30, 2009, we had a network of
more than 12,300 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.
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%.
Net revenues for the three months ended September 30, 2009
were $2.0 billion, an increase of $321 million, or 20%, from the
prior year period. Revenue growth reflects the year-over-year improvement in
net investment income, primarily driven by net investment losses in the
prior-year period. Net revenues for the nine months ended September 30, 2009
were $5.5 billion, a decrease of $42 million, or 1%, from the
prior year period.
35
Table
of Contents
Net income attributable to Ameriprise Financial for the three
months ended September 30, 2009 was $260 million compared to a
net loss attributable to Ameriprise Financial of $70 million for the
three months ended September 30, 2008. Net income attributable to
Ameriprise Financial for the nine months ended September 30, 2009
was $485 million, an increase of $154 million from $331 million
for the nine months ended September 30, 2008. Earnings per diluted
share for the three months ended September 30, 2009 were $1.00,
compared to loss per share of $0.32 for the three months ended September 30, 2008.
Earnings per diluted share for the nine months ended September 30, 2009
were $2.04, compared to $1.46 for the nine months ended September 30,
2008.
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. Total advisors increased 8%
compared to the third quarter of 2008, reflecting acquisitions, experienced
advisor recruiting and continued strong advisor retention rates. Our franchisee
advisor and client retention rates were 91% and 93%, respectively, as of September 30, 2009.
On September 30, 2009, we announced a definitive agreement to
acquire the long-term asset management business of Columbia Management from an
affiliate of Bank of America Corporation. The total consideration to be paid
will be between $900 million and $1.2 billion based on net asset flows at
Columbia Management before closing and is expected to be funded through the use
of cash on hand. The transaction is expected to close in the spring of 2010,
subject to regulatory review and approval. Related to the transaction, we
incurred $4 million of pretax non-recurring acquisition and integration costs
during the three months ended September 30, 2009, and expect to incur between
$130 million and $160 million through 2011. These costs include system
integration costs, proxy and other regulatory filing costs, employee reduction
and retention costs, and investment banking, legal and other acquisition costs.
Critical Accounting Policies
Valuation
of Investments
Effective January 1, 2009, we early adopted an accounting standard
that 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.
36
Table
of Contents
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. For the nine months ended September 30, 2009, management elected
to follow the mean reversion guideline, decreasing near-term equity asset
growth rates to reflect the positive market on a year-to-date basis. 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 $15-$20 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, 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.
Our owned, managed and administered assets increased to
$439.9 billion at September 30, 2009, a net increase of 12% from
September 30, 2008, primarily due to strong product flows, bond
market appreciation and our 2008 acquisitions, partially offset by the 9%
decline in the S&P 500 Index compared to the prior year period.
Total annuity net inflows in the third quarter of 2009 were $527
million, comprised almost entirely of variable annuity net inflows, compared to
$384 million in the prior year period consisting of $568 million in variable
annuity net inflows partially
37
Table
of Contents
offset by $184 million in fixed annuity net outflows. Wrap account net
inflows of $2.7 billion and market appreciation in the third quarter of 2009
increased total wrap account assets to $90 billion, a 7% increase compared to
the prior year period.
Fixed annuities had total net inflows of $2.0 billion for the nine
months ended September 30, 2009 compared to net outflows of
$1.1 billion in the prior year period. Variable annuities had net inflows
of $1.4 billion for the nine months ended September 30, 2009 compared
to $2.2 billion in the prior year period. Wrap account assets had net
inflows of $6.8 billion for the nine months ended September 30, 2009
compared to $4.9 billion in the prior year period.
Total Asset Management net inflows were $2.3 billion in the third
quarter of 2009, reflecting improved Domestic and International flows, compared
to net outflows of $9.6 billion in the prior year period. Domestic managed
assets net outflows were $152 million in the third quarter of 2009
compared to $5.5 billion in the prior year period, an improvement of
$5.3 billion. The 13% increase in Domestic managed assets compared to the
prior year period also reflects market appreciation. International managed
assets net inflows were $2.5 billion in the third quarter of 2009 compared
to net outflows of $4.2 billion in the prior year period. Market
appreciation of international managed assets was $10.8 billion in the third
quarter of 2009 compared to market depreciation of $7.2 billion in the prior
year period. The negative impact on International managed assets due to changes
in foreign currency exchange rates was $2.7 billion in the third quarter
of 2009 compared to $12.5 billion in the prior year period.
Total Asset Management net inflows were $2.2 billion for the nine
months ended September 30, 2009 compared to net outflows of $19.3 billion
for the prior year period. Domestic managed assets net outflows were
$402 million for the 2009 period compared to $10.2 billion in the
prior year period. Market appreciation also contributed to the 13% increase in
Domestic managed assets compared to the prior year period.
International managed assets net inflows were $2.6 billion for the nine
months ended September 30, 2009 compared to net outflows of
$9.2 billion in the prior year period. Market appreciation of
International managed assets was $6.8 billion for the 2009 period compared
to market depreciation of $17.8 billion in the prior year period. The
positive impact on International managed assets due to changes in foreign
currency exchange rates was $6.2 billion for the nine months ended September 30,
2009 compared to a negative impact of $12.1 billion in the prior
year period.
The following table presents detail regarding our owned,
managed and administered assets:
|
|
September 30,
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
billions, except percentages)
|
|
Owned
Assets
|
|
$
|
36.0
|
|
$
|
34.4
|
|
5
|
%
|
Managed
Assets
(1)
:
|
|
|
|
|
|
|
|
Domestic
|
|
145.8
|
|
128.7
|
|
13
|
|
International
|
|
93.7
|
|
97.9
|
|
(4
|
)
|
Wrap account assets
|
|
89.6
|
|
84.1
|
|
7
|
|
Eliminations
(2)
|
|
(13.7
|
)
|
(12.4
|
)
|
(10
|
)
|
Total
Managed Assets
|
|
315.4
|
|
298.3
|
|
6
|
|
Administered
Assets
|
|
88.5
|
|
60.8
|
|
46
|
|
Total
Owned, Managed and Administered Assets
|
|
$
|
439.9
|
|
$
|
393.5
|
|
12
|
%
|
(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.
|
38
Consolidated Results of Operations for the Three Months Ended September 30, 2009
and 2008
The following table presents our consolidated results of
operations for the three months ended September 30, 2009 and 2008:
|
|
Three
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
689
|
|
$
|
721
|
|
$
|
(32
|
)
|
(4
|
)%
|
Distribution fees
|
|
367
|
|
376
|
|
(9
|
)
|
(2
|
)
|
Net investment income
|
|
542
|
|
62
|
|
480
|
|
NM
|
|
Premiums
|
|
276
|
|
264
|
|
12
|
|
5
|
|
Other revenues
|
|
109
|
|
249
|
|
(140
|
)
|
(56
|
)
|
Total revenues
|
|
1,983
|
|
1,672
|
|
311
|
|
19
|
|
Banking and deposit interest expense
|
|
33
|
|
43
|
|
(10
|
)
|
(23
|
)
|
Total net revenues
|
|
1,950
|
|
1,629
|
|
321
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
466
|
|
461
|
|
5
|
|
1
|
|
Interest credited to fixed accounts
|
|
232
|
|
200
|
|
32
|
|
16
|
|
Benefits, claims, losses and settlement expenses
|
|
306
|
|
196
|
|
110
|
|
56
|
|
Amortization of deferred acquisition costs
|
|
(64
|
)
|
240
|
|
(304
|
)
|
NM
|
|
Interest and debt expense
|
|
45
|
|
27
|
|
18
|
|
67
|
|
General and administrative expense
|
|
625
|
|
681
|
|
(56
|
)
|
(8
|
)
|
Total expenses
|
|
1,610
|
|
1,805
|
|
(195
|
)
|
(11
|
)
|
Pretax income (loss)
|
|
340
|
|
(176
|
)
|
516
|
|
NM
|
|
Income tax provision (benefit)
|
|
80
|
|
(92
|
)
|
172
|
|
NM
|
|
Net income (loss)
|
|
260
|
|
(84
|
)
|
344
|
|
NM
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
(14
|
)
|
14
|
|
100
|
|
Net income (loss) attributable to Ameriprise
Financial
|
|
$
|
260
|
|
$
|
(70
|
)
|
$
|
330
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income before impairment losses on
securities
|
|
$
|
561
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses on
securities
|
|
(18
|
)
|
|
|
|
|
|
|
Portion of loss recognized in other comprehensive
income
|
|
(1
|
)
|
|
|
|
|
|
|
Net impairment losses recognized in net investment
income
|
|
(19
|
)
|
|
|
|
|
|
|
Net investment income
|
|
$
|
542
|
|
|
|
|
|
|
|
NM Not Meaningful.
Overall
Net income attributable to Ameriprise Financial for the three months
ended September 30, 2009 was $260 million compared to a net loss
attributable to Ameriprise Financial of $70 million for the prior year
period, primarily due to unfavorable market impacts in the third quarter of
2008. The impact of lower equity markets and the cost of maintaining high
liquidity levels in the third quarter of 2009 was substantially offset by
growth in spread products and re-engineering benefits.
Our annual review of valuation assumptions for RiverSource Life
Insurance Company (RiverSource Life) products in the third quarter of 2009
resulted in a net pretax benefit of $134 million, consisting of
a decrease in expenses primarily from
updating product mortality assumptions for certain life insurance products and
from the impact of updating product spreads and expense assumptions, partially
offset by a decrease in revenues related to the reinsurance impacts from
updating product mortality assumptions.
Third quarter 2008 results
included a $106 million pretax benefit resulting from our review of valuation
assumptions and our conversion to a new industry standard valuation system that
provides enhanced modeling capabilities. The review of valuation assumptions in
the third quarter of 2008 resulted in a decrease in expenses primarily from
updating mortality and expense assumptions for certain life insurance products
and from updating fund mix and policyholder behavior assumptions for variable
annuities with guaranteed benefits. The valuation system conversion also
resulted in an increase in revenue primarily from improved modeling of the
expected value of existing reinsurance agreements and a decrease in expense
from modeling annuity amortization periods at the individual policy level.
39
Table of
Contents
Third
quarter 2009 results included a $27 million pretax benefit from the markets
impact on DAC and DSIC for RiverSource Life products compared to a pretax
expense of $44 million in the third quarter of 2008.
The total pretax impacts on our revenues and expenses for the
third quarter of 2009 attributable to the review of valuation assumptions
for RiverSource Life products and the impact of markets were as follows:
|
|
|
|
|
|
|
|
Benefits,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims,
Losses
|
|
|
|
|
|
|
|
|
|
Other
|
|
Distribution
|
|
and
Settlement
|
|
Amortization
|
|
|
|
Segment
Pretax Benefit (Charge)
|
|
Premiums
|
|
Revenues
|
|
Expenses
|
|
Expenses
|
|
of DAC
|
|
Total
|
|
|
|
(in
millions)
|
|
Review of valuation assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
47
|
|
$
|
64
|
|
$
|
111
|
|
Protection
|
|
|
|
(65
|
)
|
|
|
33
|
|
55
|
|
23
|
|
Total
|
|
$
|
|
|
$
|
(65
|
)
|
$
|
|
|
$
|
80
|
|
$
|
119
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
impacts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
4
|
|
$
|
22
|
|
$
|
26
|
|
Protection
|
|
|
|
|
|
|
|
|
|
1
|
|
1
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
4
|
|
$
|
23
|
|
$
|
27
|
|
The total pretax impacts on our revenues and expenses for the
third quarter of 2008 attributable to the review of valuation assumptions
for RiverSource Life products, the valuation system conversion and the impact
of markets were as follows:
|
|
|
|
|
|
|
|
Benefits,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims,
Losses
|
|
|
|
|
|
|
|
|
|
Other
|
|
Distribution
|
|
and
Settlement
|
|
Amortization
|
|
|
|
Segment
Pretax Benefit (Charge)
|
|
Premiums
|
|
Revenues
|
|
Expenses
|
|
Expenses
|
|
of DAC
|
|
Total
|
|
|
|
(in
millions)
|
|
Review of valuation
assumptions
and valuation system conversion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities
|
|
$
|
|
|
$
|
|
|
$
|
1
|
|
$
|
46
|
|
$
|
9
|
|
$
|
56
|
|
Protection
|
|
2
|
|
95
|
|
|
|
43
|
|
(90
|
)
|
50
|
|
Total
|
|
$
|
2
|
|
$
|
95
|
|
$
|
1
|
|
$
|
89
|
|
$
|
(81
|
)
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
impacts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(5
|
)
|
$
|
(35
|
)
|
$
|
(40
|
)
|
Protection
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
(4
|
)
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(5
|
)
|
$
|
(39
|
)
|
$
|
(44
|
)
|
Net
Revenues
Net revenues increased $321 million, or 20%, to $2.0 billion for the
three months ended September 30, 2009 compared to $1.6 billion for the
prior year period. This increase reflects the year-over-year improvement in net
investment income, primarily driven by net investment losses in the prior year
period. The impact of lower equity markets on fee revenue was more than offset
by increased net investment income from growth in spread products and revenues
from our 2008 acquisitions.
Management and financial advice fees decreased $32 million, or 4%,
to $689 million for the three months ended September 30, 2009
compared to $721 million for the prior year period driven by a 21% decline
in the daily average S&P 500 Index on a year-over-year basis. Wrap account
assets increased $5.5 billion, or 7%, compared to the prior year period
due to net inflows, including an increase in wrap account assets due to the
acquisition of H&R Block Financial Advisors, Inc. in the fourth
quarter of 2008, partially offset by market depreciation. Total Asset
Management account assets increased $12.6 billion, or 6%, compared to the
prior year period primarily due to bond market appreciation and an increase in
managed assets due to the acquisition of J. & W. Seligman &
Co. Incorporated (Seligman) in the fourth quarter of 2008, partially offset
by net outflows and the impact of changes in foreign currency exchange rates.
Distribution fees decreased $9 million, or 2%, to
$367 million for the three months ended September 30, 2009
compared to $376 million in the prior year period primarily due to lower
activity levels and lower asset-based fees driven by lower equity markets,
partially offset by revenues from our 2008 acquisitions.
40
Table of Contents
Net investment income increased
$480 million to $542 million for the three months ended September 30, 2009
compared to $62 million in the prior year period primarily due to an
increase of $109 million in investment income on fixed maturity securities
and $14 million in net realized investment gains for the third quarter of
2009 compared to $317 million in net realized investment losses for the
third quarter of 2008. The increase in investment income earned on fixed
maturity securities was driven by higher invested asset levels, primarily from
spread product net inflows and higher yields on the longer-term investments in
our investment portfolio. In the third quarter of 2009, net realized gains from
sales of Available-for-Sale securities were $35 million and
other-than-temporary impairments on corporate bonds and previously impaired
non-agency residential mortgage-backed securities were $19 million. In the
third quarter of 2008, net realized losses from sales of
Available-for-Sale securities were $4 million and other-than-temporary
impairments were $313 million.
Premiums increased $12 million, or 5%,
to $276 million for the three months ended September 30, 2009,
primarily due to growth in Auto and Home premiums compared to the prior year
period, as the business continues to increase sales through our advisor
channel. Auto and Home policy counts increased 8% period-over-period.
Other revenues decreased $140 million,
or 56%, to $109 million for the three months ended September 30, 2009
compared to $249 million in the prior year period primarily due to a $65
million negative impact from updating valuation assumptions in the third
quarter of 2009 compared to a $95 million benefit from updating valuation
assumptions and converting to a new valuation system for RiverSource Life
products in the third quarter of 2008. Revenues related to certain consolidated
limited partnerships increased $16 million from the prior year period.
Banking and deposit interest expense
decreased $10 million, or 23%, to $33 million for the three months
ended September 30, 2009 compared to $43 million in the prior
year period primarily due to lower crediting rates on certificates and deposit
products, partially offset by a 17% year-over-year increase in on-balance sheet
deposits.
Expenses
Total expenses decreased $195 million,
or 11%, to $1.6 billion for the three months ended September 30, 2009
compared to $1.8 billion for the three months ended September 30, 2008,
primarily due to a benefit of $199 million from updating valuation assumptions
in the third quarter of 2009 compared to a $9 million benefit from updating
valuation assumptions and converting to a new valuation system in the prior
year period. Ongoing and integration expenses related to the 2008 acquisitions
and higher average crediting rates on fixed accounts compared to the prior year
period were offset by the impact of updating valuation assumptions and cost
controls.
Distribution expenses increased
$5 million, or 1%, to $466 million for the three months ended September 30, 2009
compared to $461 million in the prior year period reflecting our 2008
acquisitions, partially offset by lower activity levels.
Interest credited to fixed accounts increased
$32 million, or 16%, to $232 million for the three months ended September 30, 2009
compared to $200 million for the three months ended September 30, 2008,
primarily due to higher average fixed annuity account balances and higher
average fixed annuity crediting rates compared to the prior year period.
Average fixed annuities contract accumulation values increased
$2.8 billion, or 24%, compared to the prior year period. The average fixed
annuity crediting rate excluding capitalized interest increased to 4.0% in the
third quarter of 2009 compared to 3.7% in the same period a year ago.
Benefits, claims, losses and settlement
expenses increased $110 million, or 56%, to $306 million for the
three months ended September 30, 2009 compared to $196 million
for the three months ended September 30, 2008. Benefits, claims,
losses and settlement expenses for the third quarter of 2009 were impacted by
$52 million in variable annuity death and living benefit expenses, net of
hedges and DSIC, which included $116 million in expenses from the non-cash
impact of the nonperformance spread on the fair value of living benefit
liabilities. Benefits, claims, losses and settlement expenses in the third
quarter of 2008 included a $27 million benefit related to variable annuity
guaranteed death and living benefits, net of hedges, of which $117 million
was related to the nonperformance spread. Benefits, claims, losses and
settlement expenses in the third quarter of 2009 included a benefit of $80
million from updating valuation assumptions compared to a benefit of $89
million in the prior year period from updating valuation assumptions and
converting to a new valuation system. The increase to benefits, claims, losses
and settlement expenses compared to the prior year period was also due to
increased auto and home benefits from higher business volumes. The impact of
higher policyholder account balances as a result of equity and fixed income
market performance in the third quarter of 2009 decreased DSIC amortization by
$4 million compared to an expense of $5 million in the third quarter
of 2008.
Amortization of DAC was a net benefit of
$64 million for the three months ended September 30, 2009
compared to expense of $240 million in the prior year period primarily due
to a $119 million benefit from updating valuation assumptions in the third
quarter of 2009 compared to an expense of $81 million from updating valuation
assumptions and converting to a new valuation system in the prior year period.
In addition, DAC amortization for the three months ended September 30, 2009
included a benefit of $53 million offsetting higher variable annuity
benefit expenses compared to a $13 million expense for the three months
ended September 30, 2008. The impact of higher policyholder account
balances as a result of equity and fixed
41
Table
of Contents
income market performance in the third
quarter of 2009 decreased DAC amortization by $23 million compared to an
expense of $39 million in the third quarter of 2008.
Interest and debt expense increased
$18 million, or 67%, to $45 million for the three months ended September 30, 2009
compared to $27 million in the prior year period primarily due to an
expense of $13 million related to the early retirement of $450 million of our
5.35% senior notes due 2010.
General and administrative expense decreased
$56 million, or 8%, to $625 million for the three months ended September 30, 2009
compared to $681 million in the prior year period, primarily reflecting
re-engineering benefits and cost controls. General and administrative expense
in the third quarter of 2009 included integration costs and ongoing expenses
from our 2008 acquisitions, as well as $10 million of support costs related to
various 2a-7 money market mutual funds managed by our subsidiary, RiverSource
Investments, LLC and a $10 million reserve related to a previously disclosed
client mediation in the third quarter of 2009. General and administrative
expense in the third quarter of 2008 included a $77 million expense related to
the mark-to-market of Lehman Brothers securities that we purchased from various
2a-7 money market mutual funds managed by RiverSource Investments, LLC and $36
million in costs related to guaranteeing specific client holdings in an
unaffiliated money market mutual fund.
Income Taxes
Our effective tax rate on net income
attributable to Ameriprise Financial decreased to 23.7% for the three
months ended September 30, 2009, compared to 52.5% for the three
months ended September 30, 2008. Our effective tax rate for the third
quarter of 2008 reflects a pretax loss in relation to a net tax benefit which
included $14 million of tax benefit from finalizing prior year tax
returns.
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.
42
Results of Operations by Segment for the Three Months Ended September 30, 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 September 30, 2009 and 2008:
|
|
Three
Months Ended September 30,
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
Share
of
|
|
|
|
Share
of
|
|
|
|
2009
|
|
Total
|
|
2008
|
|
Total
|
|
|
|
(in
millions, except percentages)
|
|
Total net revenues
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
836
|
|
44
|
%
|
$
|
712
|
|
44
|
%
|
Asset Management
|
|
330
|
|
17
|
|
305
|
|
19
|
|
Annuities
|
|
591
|
|
30
|
|
336
|
|
21
|
|
Protection
|
|
450
|
|
23
|
|
542
|
|
33
|
|
Corporate & Other
|
|
(11
|
)
|
(1
|
)
|
(9
|
)
|
(1
|
)
|
Eliminations
|
|
(246
|
)
|
(13
|
)
|
(257
|
)
|
(16
|
)
|
Total net revenues
|
|
$
|
1,950
|
|
100
|
%
|
$
|
1,629
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
824
|
|
51
|
%
|
$
|
789
|
|
44
|
%
|
Asset Management
|
|
320
|
|
20
|
|
304
|
|
17
|
|
Annuities
|
|
323
|
|
20
|
|
370
|
|
20
|
|
Protection
|
|
305
|
|
19
|
|
438
|
|
24
|
|
Corporate & Other
|
|
84
|
|
5
|
|
161
|
|
9
|
|
Eliminations
|
|
(246
|
)
|
(15
|
)
|
(257
|
)
|
(14
|
)
|
Total expenses
|
|
$
|
1,610
|
|
100
|
%
|
$
|
1,805
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
$
|
|
|
100
|
%
|
$
|
(14
|
)
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
12
|
|
3
|
%
|
$
|
(77
|
)
|
47
|
%
|
Asset Management
|
|
10
|
|
3
|
|
15
|
|
(9
|
)
|
Annuities
|
|
268
|
|
79
|
|
(34
|
)
|
21
|
|
Protection
|
|
145
|
|
43
|
|
104
|
|
(64
|
)
|
Corporate & Other
|
|
(95
|
)
|
(28
|
)
|
(170
|
)
|
105
|
|
Pretax income attributable
to Ameriprise Financial
|
|
$
|
340
|
|
100
|
%
|
$
|
(162
|
)
|
100
|
%
|
43
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 September 30, 2009 and 2008:
|
|
Three
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
319
|
|
$
|
328
|
|
$
|
(9
|
)
|
(3
|
)%
|
Distribution fees
|
|
432
|
|
457
|
|
(25
|
)
|
(5
|
)
|
Net investment income
(loss)
|
|
95
|
|
(46
|
)
|
141
|
|
NM
|
|
Other revenues
|
|
19
|
|
16
|
|
3
|
|
19
|
|
Total revenues
|
|
865
|
|
755
|
|
110
|
|
15
|
|
Banking and deposit
interest expense
|
|
29
|
|
43
|
|
(14
|
)
|
(33
|
)
|
Total net revenues
|
|
836
|
|
712
|
|
124
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
508
|
|
515
|
|
(7
|
)
|
(1
|
)
|
General and administrative
expense
|
|
316
|
|
274
|
|
42
|
|
15
|
|
Total expenses
|
|
824
|
|
789
|
|
35
|
|
4
|
|
Pretax income (loss)
|
|
12
|
|
(77
|
)
|
89
|
|
NM
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
attributable to Ameriprise Financial
|
|
$
|
12
|
|
$
|
(77
|
)
|
$
|
89
|
|
NM
|
|
NM Not Meaningful.
Our Advice & Wealth Management
segment pretax income was $12 million for the three months ended September 30, 2009
compared to pretax loss of $77 million for the three months ended September 30, 2008.
Net Revenues
Net revenues were $836 million for the
three months ended September 30, 2009 compared to $712 million
in the prior year period, an increase of $124 million, or 17%, driven by
an increase in net investment income, partially offset by decreases in
management and financial advice fees and distribution fees.
Management and financial advice fees
decreased $9 million, or 3%, to $319 million for the three months
ended September 30, 2009, primarily due to lower equity markets. On a
year-over-year basis, the daily average S&P 500 Index decreased 21%. Wrap
account assets increased $5.5 billion, or 7%, compared to the prior year
period due to net inflows and the acquisition of H&R Block Financial
Advisors, Inc. in the fourth quarter of 2008, partially offset by market
depreciation. Net inflows from September 30, 2008 to September 30, 2009
positively impacted wrap account assets by $5.7 billion, whereas market
depreciation during the same period was $2.2 billion.
Distribution fees decreased $25 million,
or 5%, to $432 million for the three months ended September 30, 2009,
primarily due to lower equity markets and client activity. Partially offsetting
this decrease was a $12 million provision for uncollectible distribution fees
recorded in the third quarter of 2008 and revenues from our 2008 acquisitions.
Net investment income was $95 million
for the three months ended September 30, 2009 compared to net
investment loss of $46 million for the prior year period. Net realized
investment gains were $5 million in the third quarter of 2009 compared to
net realized investment losses of $118 million for the prior year period due to
impairments recorded on non-agency, residential mortgage-backed securities and
financial services securities in the third quarter of 2008. Investment income
on fixed maturity securities increased $12 million driven by higher
invested asset levels, primarily from spread product net inflows and higher
yields on the longer-term investments in our investment portfolio.
Banking and deposit interest expense
decreased $14 million, or 33%, to $29 million for the three months
ended September 30, 2009, due to lower crediting rates on
certificates and deposit products, partially offset by a 17% year-over-year
increase in on-balance sheet deposits.
44
Table
of Contents
Expenses
Total expenses increased $35 million, or
4%, to $824 million for the three months ended September 30, 2009,
primarily driven by costs associated with our 2008 acquisition of H&R Block
Financial Advisors, Inc.
Distribution expenses decreased
$7 million, or 1%, to $508 million for the three months ended September 30, 2009,
reflecting lower activity levels.
General and administrative expense increased
$42 million, or 15%, from the prior year period 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.
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 September 30, 2009 and 2008:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
270
|
|
$
|
268
|
|
$
|
2
|
|
1
|
%
|
Distribution fees
|
|
55
|
|
58
|
|
(3
|
)
|
(5
|
)
|
Net investment income
(loss)
|
|
4
|
|
(9
|
)
|
13
|
|
NM
|
|
Other revenues
|
|
3
|
|
(10
|
)
|
13
|
|
NM
|
|
Total revenues
|
|
332
|
|
307
|
|
25
|
|
8
|
|
Banking and deposit
interest expense
|
|
2
|
|
2
|
|
|
|
|
|
Total net revenues
|
|
330
|
|
305
|
|
25
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
97
|
|
101
|
|
(4
|
)
|
(4
|
)
|
Amortization of deferred
acquisition costs
|
|
5
|
|
6
|
|
(1
|
)
|
(17
|
)
|
General and administrative
expense
|
|
218
|
|
197
|
|
21
|
|
11
|
|
Total expenses
|
|
320
|
|
304
|
|
16
|
|
5
|
|
Pretax income
|
|
10
|
|
1
|
|
9
|
|
NM
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
(14
|
)
|
14
|
|
100
|
|
Pretax income attributable
to Ameriprise Financial
|
|
$
|
10
|
|
$
|
15
|
|
$
|
(5
|
)
|
(33
|
)%
|
NM Not Meaningful.
Our Asset Management segment pretax
income attributable to Ameriprise Financial was $10 million for the three
months ended September 30, 2009 compared to $15 million in the
prior year period.
Net Revenues
Net revenues increased $25 million, or
8%, to $330 million for the three months ended September 30, 2009,
primarily due to increases in net investment income and other revenues.
Management and financial advice fees
increased $2 million, or 1%, to $270 million for the three months
ended September 30, 2009, driven by an increase in managed assets
primarily due to our 2008 acquisitions, partially offset by the 21%
year-over-year decline in the daily average S&P 500 Index and the negative
impact of foreign currency translation. Total Asset Management account assets
increased $12.6 billion, or 6%, compared to the prior year period
primarily due to bond market appreciation and an increase in managed assets due
to the acquisition of J. & W. Seligman & Co. (Seligman)
in the fourth quarter of 2008, partially offset by net outflows and the impact
of changes in foreign currency exchange rates.
Distribution fees decreased $3 million,
or 5%, to $55 million for the three months ended September 30, 2009,
primarily due to lower 12b-1 fees driven by lower average assets.
Net investment income was $4 million for
the three months ended September 30, 2009 compared to net investment
loss of $9 million for the prior year period primarily due to losses
related to mark-to-market adjustments on seed money investments in the third
quarter of 2008.
Other revenues increased $13 million to
$3 million for the three months ended September 30, 2009 due to
an increase of $16 million in revenues related to certain consolidated
limited partnerships compared to the prior year period.
45
Expenses
Total expenses increased $16 million, or
5%, to $320 million for the three months ended September 30, 2009,
primarily due to costs associated with our 2008 acquisition of Seligman.
Distribution expenses decreased
$4 million from the prior year period primarily due to decreased mutual
fund sales volume.
General and administrative expense increased
$21 million, or 11%, to $218 million for the three months ended September 30, 2009,
primarily due to integration costs and ongoing expenses from our acquisition of
Seligman in the fourth quarter of 2008 and a $10 million reserve related
to a previously disclosed client mediation in the third quarter of 2009,
partially offset by 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.
Annuities
Our Annuities segment provides variable
and fixed annuity products of 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 September 30, 2009
and 2008:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
118
|
|
$
|
124
|
|
$
|
(6
|
)
|
(5
|
)%
|
Distribution fees
|
|
64
|
|
71
|
|
(7
|
)
|
(10
|
)
|
Net investment income
|
|
343
|
|
86
|
|
257
|
|
NM
|
|
Premiums
|
|
25
|
|
21
|
|
4
|
|
19
|
|
Other revenues
|
|
41
|
|
34
|
|
7
|
|
21
|
|
Total revenues
|
|
591
|
|
336
|
|
255
|
|
76
|
|
Banking and deposit
interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
591
|
|
336
|
|
255
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
49
|
|
50
|
|
(1
|
)
|
(2
|
)
|
Interest credited to fixed
accounts
|
|
196
|
|
163
|
|
33
|
|
20
|
|
Benefits, claims, losses
and settlement expenses
|
|
93
|
|
9
|
|
84
|
|
NM
|
|
Amortization of deferred
acquisition costs
|
|
(64
|
)
|
96
|
|
(160
|
)
|
NM
|
|
General and administrative
expense
|
|
49
|
|
52
|
|
(3
|
)
|
(6
|
)
|
Total expenses
|
|
323
|
|
370
|
|
(47
|
)
|
(13
|
)
|
Pretax income (loss)
|
|
268
|
|
(34
|
)
|
302
|
|
NM
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
attributable to Ameriprise Financial
|
|
$
|
268
|
|
$
|
(34
|
)
|
$
|
302
|
|
NM
|
|
NM Not Meaningful.
Our Annuities segment pretax income was
$268 million for the three months ended September 30, 2009
compared to a pretax loss of $34 million in the prior year period.
Net Revenues
Net revenues increased $255 million, or
76%, to $591 million for the three months ended September 30, 2009,
primarily driven by an increase in net investment income.
Management and financial advice fees
decreased $6 million, or 5%, to $118 million due to lower fees on
variable annuities. Average variable annuities contract accumulation values
decreased $3.8 billion or 8% from the prior year period primarily due to
equity market declines, partially offset by net inflows.
Distribution fees decreased $7 million,
or 10%, to $64 million for the three months ended September 30, 2009,
primarily due to lower fees on variable annuities.
Net investment income increased
$257 million to $343 million for the three months ended September 30, 2009,
primarily due to an increase of $92 million in investment income on fixed
maturity securities compared to the prior year period and net realized
46
Table
of Contents
investment losses of $156 million in the
third quarter of 2008 primarily due to impairments of financial services
securities. The increase in investment income on fixed maturity securities was
driven by higher invested asset levels primarily due to fixed and variable
annuity net inflows and higher yields on the longer-term investments in our
investment portfolio.
Other revenues increased $7 million, or
21%, to $41 million for the three months ended September 30, 2009,
primarily due to an increase in our guaranteed benefit rider fees on variable
annuities.
Expenses
Total expenses decreased $47 million, or
13%, to $323 million for the three months ended September 30, 2009,
primarily due to our annual review of valuation assumptions for RiverSource
Life products, partially offset by growth in fixed annuity interest credited
expense and market impacts on variable annuity guarantees.
Interest credited to fixed accounts increased
$33 million, or 20%, to $196 million for the three months ended September 30, 2009,
primarily driven by higher average fixed annuity account balances and higher
average fixed annuity crediting rates compared to the prior year period.
Average fixed annuities contract accumulation values increased
$2.8 billion, or 24%, compared to the prior year period. The average fixed
annuity crediting rate excluding capitalized interest increased to 4.0% in the
third quarter of 2009 compared to 3.7% in the same period a year ago.
Benefits, claims, losses and settlement
expenses increased $84 million to $93 million for the three months
ended September 30, 2009 compared to $9 million in the prior
year period. Benefits, claims, losses and settlement expenses for the third
quarter of 2009 were impacted by $52 million in variable annuity death and
living benefit expenses, net of hedges and DSIC, which included
$116 million in expenses from the non-cash impact of the nonperformance
spread on the fair value of living benefit liabilities. Benefits, claims,
losses and settlement expenses in the third quarter of 2008 included a
$27 million benefit related to variable annuity guaranteed death and
living benefits, net of hedges, of which $117 million was related to the
nonperformance spread. Benefits, claims, losses and settlement expenses in the
third quarter of 2009 included a benefit of $47 million from updating
valuation assumptions compared to a benefit of $46 million in the prior year
period from updating valuation assumptions and converting to a new valuation
system. The impact of higher policyholder account balances as a result of
equity and fixed income market performance in the third quarter of 2009
decreased DSIC amortization by $4 million compared to an expense of
$5 million in the third quarter of 2008.
Amortization of DAC was a net benefit of
$64 million for the three months ended September 30, 2009
compared to expense of $96 million in the prior year period primarily due
to a $64 million benefit from updating valuation assumptions in the third
quarter of 2009 compared to a $9 million benefit from updating valuation
assumptions and converting to a new valuation system in the prior year period.
In addition, DAC amortization for the three months ended September 30, 2009
included a benefit of $53 million offsetting higher variable annuity
benefit expenses compared to a $13 million expense for the three months
ended September 30, 2008. The impact of higher policyholder account
balances as a result of equity and fixed income market performance in the third
quarter of 2009 decreased DAC amortization by $22 million compared to an
expense of $35 million in the third quarter of 2008.
47
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 September 30, 2009
and 2008:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
13
|
|
$
|
14
|
|
$
|
(1
|
)
|
(7
|
)%
|
Distribution fees
|
|
24
|
|
26
|
|
(2
|
)
|
(8
|
)
|
Net investment income
|
|
112
|
|
42
|
|
70
|
|
NM
|
|
Premiums
|
|
257
|
|
251
|
|
6
|
|
2
|
|
Other revenues
|
|
44
|
|
209
|
|
(165
|
)
|
(79
|
)
|
Total revenues
|
|
450
|
|
542
|
|
(92
|
)
|
(17
|
)
|
Banking and deposit
interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
450
|
|
542
|
|
(92
|
)
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
4
|
|
4
|
|
|
|
|
|
Interest credited to fixed
accounts
|
|
36
|
|
37
|
|
(1
|
)
|
(3
|
)
|
Benefits, claims, losses
and settlement expenses
|
|
213
|
|
187
|
|
26
|
|
14
|
|
Amortization of deferred
acquisition costs
|
|
(5
|
)
|
138
|
|
(143
|
)
|
NM
|
|
General and administrative
expense
|
|
57
|
|
72
|
|
(15
|
)
|
(21
|
)
|
Total expenses
|
|
305
|
|
438
|
|
(133
|
)
|
(30
|
)
|
Pretax income
|
|
145
|
|
104
|
|
41
|
|
39
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income attributable
to Ameriprise Financial
|
|
$
|
145
|
|
$
|
104
|
|
$
|
41
|
|
39
|
%
|
NM Not Meaningful.
Our Protection segment pretax income was
$145 million for the three months ended September 30, 2009, an
increase of $41 million, or 39%, from $104 million in the prior year
period.
Net Revenues
Net revenues decreased $92 million, or
17%, from the prior year period due to a decrease in other revenues, partially
offset by an increase in net investment income.
Net investment income increased
$70 million to $112 million for the three months ended September 30, 2009,
primarily due to net realized investment gains on Available-for-Sale securities
of $7 million for the third quarter of 2009 compared to net realized investment
losses on Available-for-Sale securities of $44 million for the prior year
period related to impairments of financial services securities. In addition,
investment income earned on fixed maturity securities increased $17 million
compared to the prior year period driven by higher yields on the longer-term
investments in our investment portfolio.
Premiums increased $6 million, or 2%, to
$257 million for the three months ended September 30, 2009, primarily
due to growth in Auto and Home premiums compared to the prior year period, as
the business continues to increase sales through our advisor channel.
Auto and Home policy counts increased 8% period-over-period.
Other revenues decreased $165 million,
or 79%, to $44 million for the three months ended September 30, 2009,
due to a $65 million expense from updating valuation assumptions in the
third quarter of 2009 compared to a $95 million benefit from updating valuation
assumptions and converting to a new valuation system for RiverSource Life
products in the third quarter of 2008.
48
Table of Contents
Expenses
Benefits, claims, losses and settlement
expenses increased $26 million, or 14%, to $213 million for the three
months ended September 30, 2009, primarily due to volume-driven
increases in Auto and Home reserves compared to the prior year period and a $33
million benefit from updating valuation assumptions in the third quarter of
2009 compared to a $43 million benefit from updating valuation assumptions and
implementing a new valuation system in the third quarter of 2008.
Amortization of DAC decreased
$143 million to a benefit of $5 million for the three months ended September 30, 2009
compared to an expense of $138 million for the three months ended September 30,
2008, primarily due to a benefit of $55 million from updating valuation
assumptions in the third quarter of 2009 compared to an expense of $90 million
from updating valuation assumptions and converting to a new valuation system in
the prior year period.
General and administrative expense decreased
$15 million, or 21%, to $57 million for the three months ended September 30, 2009,
primarily due to the write-off of certain capitalized software costs in the
third quarter of 2008 and lower premium taxes compared to the prior year
period.
Corporate & Other
The following table presents the results
of operations of our Corporate & Other segment for the three
months ended September 30, 2009 and 2008:
|
|
Three
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
$
|
(11
|
)
|
$
|
(9
|
)
|
$
|
(2
|
)
|
(22
|
)%
|
Other revenues
|
|
2
|
|
|
|
2
|
|
NM
|
|
Total revenues
|
|
(9
|
)
|
(9
|
)
|
|
|
|
|
Banking and deposit
interest expense
|
|
2
|
|
|
|
2
|
|
NM
|
|
Total net revenues
|
|
(11
|
)
|
(9
|
)
|
(2
|
)
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Interest and debt expense
|
|
45
|
|
27
|
|
18
|
|
67
|
|
General and administrative
expense
|
|
39
|
|
134
|
|
(95
|
)
|
(71
|
)
|
Total expenses
|
|
84
|
|
161
|
|
(77
|
)
|
(48
|
)
|
Pretax loss
|
|
(95
|
)
|
(170
|
)
|
75
|
|
44
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax loss attributable
to Ameriprise Financial
|
|
$
|
(95
|
)
|
$
|
(170
|
)
|
$
|
75
|
|
44
|
%
|
NM Not Meaningful.
Our Corporate & Other segment
pretax loss for the three months ended September 30, 2009 was
$95 million compared to $170 million in the prior year period.
Interest and debt expense for the three months ended September 30, 2009
included a $13 million expense related to the early retirement of $450
million of our 5.35% senior notes due 2010. General and administrative expense
for the third quarter of 2009 included $10 million of support costs of various
2a-7 money market mutual funds managed by our subsidiary, RiverSource
Investments, LLC, as well as $4 million of one-time costs associated with our
acquisition of Columbia Management. General and administrative expense for the
third quarter of 2008 included $77 million related to the mark-to-market of
Lehman Brothers securities that we purchased from various 2a-7 money market
mutual funds managed by our subsidiary, RiverSource Investments, LLC and $36
million for the cost of guaranteeing specific client holdings in an
unaffiliated money market mutual fund.
49
Table of Contents
Consolidated
Results of Operations for the Nine Months Ended September 30, 2009
and 2008
The following table presents
our consolidated results of operations for the nine months ended September 30, 2009
and 2008:
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
1,849
|
|
$
|
2,292
|
|
$
|
(443
|
)
|
(19
|
)%
|
Distribution fees
|
|
1,029
|
|
1,231
|
|
(202
|
)
|
(16
|
)
|
Net investment income
|
|
1,477
|
|
856
|
|
621
|
|
73
|
|
Premiums
|
|
811
|
|
777
|
|
34
|
|
4
|
|
Other revenues
|
|
493
|
|
564
|
|
(71
|
)
|
(13
|
)
|
Total revenues
|
|
5,659
|
|
5,720
|
|
(61
|
)
|
(1
|
)
|
Banking and deposit
interest expense
|
|
113
|
|
132
|
|
(19
|
)
|
(14
|
)
|
Total net revenues
|
|
5,546
|
|
5,588
|
|
(42
|
)
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
1,274
|
|
1,499
|
|
(225
|
)
|
(15
|
)
|
Interest credited to fixed
accounts
|
|
674
|
|
587
|
|
87
|
|
15
|
|
Benefits, claims, losses
and settlement expenses
|
|
993
|
|
794
|
|
199
|
|
25
|
|
Amortization of deferred
acquisition costs
|
|
97
|
|
538
|
|
(441
|
)
|
(82
|
)
|
Interest and debt expense
|
|
99
|
|
81
|
|
18
|
|
22
|
|
General and administrative
expense
|
|
1,820
|
|
1,843
|
|
(23
|
)
|
(1
|
)
|
Total expenses
|
|
4,957
|
|
5,342
|
|
(385
|
)
|
(7
|
)
|
Pretax income
|
|
589
|
|
246
|
|
343
|
|
NM
|
|
Income tax provision
(benefit)
|
|
126
|
|
(61
|
)
|
187
|
|
NM
|
|
Net income
|
|
463
|
|
307
|
|
156
|
|
51
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
(22
|
)
|
(24
|
)
|
2
|
|
8
|
|
Net income attributable to
Ameriprise Financial
|
|
$
|
485
|
|
$
|
331
|
|
$
|
154
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
Net investment income
before impairment losses on securities
|
|
$
|
1,562
|
|
|
|
|
|
|
|
Total other-than-temporary
impairment losses on securities
|
|
(68
|
)
|
|
|
|
|
|
|
Portion of loss recognized
in other comprehensive income
|
|
(17
|
)
|
|
|
|
|
|
|
Net impairment losses
recognized in net investment income
|
|
(85
|
)
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
1,477
|
|
|
|
|
|
|
|
NM Not Meaningful.
Overall
Net income attributable to Ameriprise
Financial for the nine months ended September 30, 2009 was
$485 million, up $154 million, or 47%, from $331 million for the
prior year period. Results for the 2009 period reflect the impacts from a 32%
decline in the daily average S&P 500 Index on a period-over-period basis,
the costs of integrating our 2008 acquisitions and the ongoing operating
expenses of those acquisitions offset by re-engineering expense savings and
cost controls, net realized gains on sales of Available-for-Sale securities and
an increase in investment income on fixed maturity securities. Results for the
2008 period were impacted by market dislocation in the third quarter of 2008,
including pretax net realized investment losses and money market support costs.
Asset-based fee revenues in the 2009 period were negatively impacted by the
period-over-period market declines, partially offset by a decrease in
distribution expenses. The market performance in the 2009 period had a
favorable impact to DAC and DSIC amortization and an unfavorable impact to
variable annuity death and living benefits, net of hedges, DAC and DSIC
amortization. The market performance in the 2008 period had a negative impact
to DAC and DSIC amortization and a favorable impact to variable annuity death and
living benefits, net of hedges and DAC amortization.
Our annual review of valuation assumptions
for RiverSource Life products in the third quarter of 2009 resulted in a net
pretax benefit of $134 million compared to a net pretax benefit of $106 million
in the prior year period resulting from our review of valuation assumptions and
our conversion to a new industry standard valuation system that provides
enhanced modeling capabilities.
50
Table of Contents
Net Revenues
Net revenues decreased $42 million, or
1%, to $5.5 billion for the nine months ended September 30, 2009
compared to $5.6 billion for the prior year period. The decrease in net
revenues was driven by lower management and financial advice fees and
distribution fees, primarily due to lower average asset levels attributable to
the decline in equity markets, and the impact of updating valuation
assumptions, partially offset by an increase in net investment income and
revenues from our 2008 acquisitions.
Management and financial advice fees
decreased $443 million, or 19%, to $1.8 billion for the nine months
ended September 30, 2009 compared to $2.3 billion for the prior
year period driven by a 32% decline in the daily average S&P 500 Index on a
period-over-period basis, as well as the negative impact of foreign currency
translation. Wrap account assets increased $5.5 billion, or 7%, compared
to the prior year period due to net inflows, including an increase in wrap
account assets due to the acquisition of H&R Block Financial Advisors, Inc.
in the fourth quarter of 2008, partially offset by market depreciation. Total
Asset Management account assets increased $12.6 billion, or 6%, compared
to the prior year period primarily due to bond market appreciation and an
increase in managed assets due to the acquisition of J. & W.
Seligman & Co. (Seligman) in the fourth quarter of 2008, partially
offset by net outflows and the impact of changes in foreign currency exchange
rates.
Distribution fees decreased
$202 million, or 16%, to $1.0 billion for the nine months ended September 30, 2009
compared to $1.2 billion in the prior year period primarily due to lower
activity levels and lower asset-based fees driven by lower equity markets,
partially offset by revenues from our 2008 acquisitions.
Net investment income increased
$621 million, or 73%, to $1.5 billion for the nine months ended September 30, 2009
compared to $856 million in the prior year period, primarily due to
$35 million in net realized investment gains for the nine months
ended September 30, 2009 compared to $368 million in net
realized investment losses for the nine months ended September 30, 2008
and an increase of $163 million in investment income on fixed maturity
securities. For the nine months ended September 30, 2009, net
realized gains from sales of Available-for-Sale securities were
$132 million and other-than-temporary impairments recognized in earnings
were $85 million. For the nine months ended September 30, 2008,
net realized gains from sales of Available-for-Sale securities were
$5 million and other-than-temporary impairments recognized in earnings
were $373 million. The increase in investment income earned on fixed
maturity securities was driven by higher invested asset levels, primarily from
spread product net inflows and higher yields on the longer-term investments in
our investment portfolio.
Premiums increased $34 million, or 4%,
to $811 million for the nine months ended September 30, 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 8%
period-over-period.
Other revenues decreased $71 million, or
13%, to $493 million for the nine months ended September 30, 2009
compared to $564 million in the prior year period primarily due to a $65
million negative impact from updating valuation assumptions in the third
quarter of 2009 compared to a $95 million benefit from updating valuation
assumptions and converting to a new valuation system for RiverSource Life
products in the third quarter of 2008, partially offset by a $58 million
gain on the repurchase of $135 million of our 7.5% junior subordinated notes
due 2066, an increase in our guaranteed benefit rider fees on variable
annuities and an increase in revenues related to certain consolidated limited
partnerships.
Banking and deposit interest expense
decreased $19 million, or 14%, to $113 million for the nine months
ended September 30, 2009 compared to $132 million in the prior
year period primarily due to lower crediting rates on certificates and deposit
products, partially offset by a 17% year-over-year increase in on-balance sheet
deposits.
Expenses
Total expenses decreased $385 million,
or 7%, to $5.0 billion for the nine months ended September 30, 2009
compared to $5.3 billion for the nine months ended September 30, 2008.
The decrease in expenses was primarily due to a decrease in distribution
expenses, the impact of updating valuation assumptions and cost controls,
partially offset by ongoing and integration expenses related to our 2008
acquisitions and higher interest credited to fixed accounts compared to the
prior year period.
Distribution expenses decreased $225 million,
or 15%, to $1.3 billion for the nine months ended September 30, 2009
compared to $1.5 billion in the prior year period reflecting lower equity
markets and activity levels, partially offset by our 2008 acquisitions.
Interest credited to fixed accounts increased
$87 million, or 15%, to $674 million for the nine months ended September 30, 2009
compared to $587 million for the nine months ended September 30, 2008,
primarily due to higher average fixed annuity account balances and higher
average fixed annuity crediting rates compared to the prior year period.
Average fixed annuities contract accumulation values increased $1.8 billion,
or 15%, compared to the prior year period. The average fixed annuity crediting
rate excluding capitalized interest increased to 4.0% in the 2009 period
compared to 3.7% in the prior year period.
Benefits, claims, losses and settlement
expenses increased $199 million, or 25%, to $993 million for the nine
months ended September 30, 2009 compared to $794 million for the
prior year period, primarily driven by an increase in expenses from variable
annuity living benefit guarantees. Benefits, claims, losses and settlement
expenses in the 2009 period were impacted by $136 million in variable
annuity living benefit expenses, net of hedges and DSIC, which included
$517 million in expenses from the non-cash impact of the nonperformance
spread on the fair value of living benefit liabilities. Benefits,
51
Table of Contents
claims, losses and settlement expenses in the
2008 period included a $32 million benefit related to variable annuity
guaranteed living benefits, net of hedges, of which $140 million was related
to the nonperformance spread. Benefits, claims, losses and settlement expenses
in the 2009 period included a benefit of $80 million from updating valuation
assumptions compared to a benefit of $89 million in the prior year period from
updating valuation assumptions and converting to a new valuation system. The
increase to benefits, claims, losses and settlement expenses compared to the
prior year period was also due to increased auto and home benefits from higher
business volumes. The impact of higher policyholder account balances as a
result of equity and fixed income market performance in the 2009 period
decreased DSIC amortization by $4 million compared to an expense of
$9 million in the prior year period.
Amortization of DAC decreased
$441 million, or 82%, to $97 million for the nine months ended September 30, 2009
compared to $538 million in the prior year period. DAC amortization for
the 2009 period included a $119 million benefit from updating valuation
assumptions in the third quarter of 2009 compared to an expense of $81 million
from updating valuation assumptions and converting to a new valuation system in
the prior year period. In addition, DAC amortization for the 2009 period
included a benefit of $113 million offsetting higher variable annuity
benefit expenses compared to a $15 million expense for the prior year
period. The impact of higher policyholder account balances as a result of
equity and fixed income market performance in the 2009 period decreased DAC
amortization by $22 million compared to an expense of $73 million in
the prior year period.
General and administrative expense decreased
$23 million, or 1%, to $1.8 billion for the nine months ended September 30, 2009.
General and administrative expense for the 2009 period included re-engineering
saves offset by integration costs of $76 million and ongoing costs from our
2008 acquisitions, as well as support costs related to various 2a-7 money
market funds managed by our subsidiary, RiverSource Investments, LLC and an
increase in legal expenses. General and administrative expense for the 2008
period included a $77 million expense related to the mark-to-market of Lehman
Brothers securities that we purchased from various 2a-7 money market mutual
funds managed by RiverSource Investments, LLC and $36 million in costs related
to guaranteeing specific client holdings in an unaffiliated money market mutual
fund. The positive impact of foreign currency translation on general and
administrative expense in the 2009 period 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 21.5% for the nine
months ended September 30, 2009, compared to (24.9)% for the nine
months ended September 30, 2008. Our effective tax rate for the nine
months ended September 30, 2008 reflects the level of pretax income
relative to tax advantaged items and $79 million in tax benefits related to
changes in the status of current audits and closed audits, tax planning
initiatives, and the finalization of prior year tax returns.
52
Results of Operations by Segment for the Nine Months Ended September 30, 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
nine months ended September 30, 2009 and 2008:
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
Percent
|
|
|
|
Percent
|
|
|
|
|
|
Share of
|
|
|
|
Share of
|
|
|
|
2009
|
|
Total
|
|
2008
|
|
Total
|
|
|
|
(in millions, except percentages)
|
|
Total net
revenues
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
2,353
|
|
42
|
%
|
$
|
2,539
|
|
46
|
%
|
Asset Management
|
|
863
|
|
16
|
|
1,024
|
|
18
|
|
Annuities
|
|
1,645
|
|
30
|
|
1,308
|
|
23
|
|
Protection
|
|
1,443
|
|
26
|
|
1,504
|
|
27
|
|
Corporate & Other
|
|
13
|
|
|
|
14
|
|
|
|
Eliminations
|
|
(771
|
)
|
(14
|
)
|
(801
|
)
|
(14
|
)
|
Total net revenues
|
|
$
|
5,546
|
|
100
|
%
|
$
|
5,588
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
2,405
|
|
49
|
%
|
$
|
2,501
|
|
47
|
%
|
Asset Management
|
|
895
|
|
18
|
|
973
|
|
18
|
|
Annuities
|
|
1,154
|
|
23
|
|
1,223
|
|
23
|
|
Protection
|
|
1,076
|
|
22
|
|
1,185
|
|
22
|
|
Corporate & Other
|
|
198
|
|
4
|
|
261
|
|
5
|
|
Eliminations
|
|
(771
|
)
|
(16
|
)
|
(801
|
)
|
(15
|
)
|
Total expenses
|
|
$
|
4,957
|
|
100
|
%
|
$
|
5,342
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Asset Management
|
|
$
|
(22
|
)
|
100
|
%
|
$
|
(24
|
)
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Pretax
income (loss) attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
Advice & Wealth
Management
|
|
$
|
(52
|
)
|
(8
|
)%
|
$
|
38
|
|
14
|
%
|
Asset Management
|
|
(10
|
)
|
(2
|
)
|
75
|
|
28
|
|
Annuities
|
|
491
|
|
80
|
|
85
|
|
31
|
|
Protection
|
|
367
|
|
60
|
|
319
|
|
118
|
|
Corporate & Other
|
|
(185
|
)
|
(30
|
)
|
(247
|
)
|
(91
|
)
|
Pretax income attributable
to Ameriprise Financial
|
|
$
|
611
|
|
100
|
%
|
$
|
270
|
|
100
|
%
|
53
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
nine months ended September 30, 2009 and 2008:
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
882
|
|
$
|
1,047
|
|
$
|
(165
|
)
|
(16
|
)%
|
Distribution fees
|
|
1,286
|
|
1,482
|
|
(196
|
)
|
(13
|
)
|
Net investment income
|
|
234
|
|
87
|
|
147
|
|
NM
|
|
Other revenues
|
|
59
|
|
55
|
|
4
|
|
7
|
|
Total revenues
|
|
2,461
|
|
2,671
|
|
(210
|
)
|
(8
|
)
|
Banking and deposit
interest expense
|
|
108
|
|
132
|
|
(24
|
)
|
(18
|
)
|
Total net revenues
|
|
2,353
|
|
2,539
|
|
(186
|
)
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
1,440
|
|
1,664
|
|
(224
|
)
|
(13
|
)
|
General and administrative
expense
|
|
965
|
|
837
|
|
128
|
|
15
|
|
Total expenses
|
|
2,405
|
|
2,501
|
|
(96
|
)
|
(4
|
)
|
Pretax income (loss)
|
|
(52
|
)
|
38
|
|
(90
|
)
|
NM
|
|
Less: Net loss attributable
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
attributable to Ameriprise Financial
|
|
$
|
(52
|
)
|
$
|
38
|
|
$
|
(90
|
)
|
NM
|
|
NM Not Meaningful.
Our Advice & Wealth Management
segment pretax loss was $52 million for the nine months ended September 30, 2009
compared to pretax income of $38 million for the nine months ended September 30, 2008.
Net Revenues
Net revenues were $2.4 billion for the
nine months ended September 30, 2009 compared to $2.5 billion in
the prior year period, a decrease of $186 million, or 7%, primarily
driven by decreases in management and financial advice fees and distribution
fees, partially offset by an increase in net investment income.
Management and financial advice fees
decreased $165 million, or 16%, to $882 million for the nine months
ended September 30, 2009, driven by a 32% decline in the daily
average S&P 500 Index on a period-over-period basis. Wrap account assets
increased $5.5 billion, or 7%, compared to the prior year period due to
net inflows, including an increase in wrap account assets due to the
acquisition of H&R Block Financial Advisors, Inc. in the fourth
quarter of 2008, partially offset by market depreciation. Financial planning
fees were lower for the nine months ended September 30, 2009 compared to
the prior year period resulting from accelerated financial plan delivery
standards in the 2008 period.
Distribution fees decreased
$196 million, or 13%, to $1.3 billion for the nine months ended September 30, 2009,
primarily due to lower activity levels and lower asset-based fees driven by
lower equity markets, partially offset by revenues from our 2008 acquisitions.
Net investment income increased
$147 million to $234 million for the nine months ended September 30, 2009.
Net realized investment losses were $13 million in the 2009 period
compared to $139 million for the prior year period due to impairments recorded
on non-agency, residential mortgage-backed securities and financial services
securities. Investment income on fixed maturity securities increased
$24 million driven by higher invested asset levels, primarily from spread
product net inflows and higher yields on the longer-term investments in our
investment portfolio.
Banking and deposit interest expense
decreased $24 million, or 18%, to $108 million for the nine months
ended September 30, 2009, due to lower crediting rates on
certificates and deposit products, partially offset by a 17% period-over-period
increase in on-balance sheet deposits.
54
Expenses
Total expenses decreased $96 million, or
4%, to $2.4 billion for the nine months ended September 30, 2009,
due to a decrease in distribution expenses partially offset by an increase in
general and administrative expense.
Distribution expenses decreased
$224 million, or 13%, to $1.4 billion for the nine months ended September 30, 2009,
reflecting lower equity markets and activity levels, partially offset by our
2008 acquisitions.
General and administrative expense increased
$128 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.
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 nine months
ended September 30, 2009 and 2008:
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
709
|
|
$
|
859
|
|
$
|
(150
|
)
|
(17
|
)%
|
Distribution fees
|
|
156
|
|
198
|
|
(42
|
)
|
(21
|
)
|
Net investment income
(loss)
|
|
11
|
|
(6
|
)
|
17
|
|
NM
|
|
Other revenues
|
|
(8
|
)
|
(22
|
)
|
14
|
|
64
|
|
Total revenues
|
|
868
|
|
1,029
|
|
(161
|
)
|
(16
|
)
|
Banking and deposit
interest expense
|
|
5
|
|
5
|
|
|
|
|
|
Total net revenues
|
|
863
|
|
1,024
|
|
(161
|
)
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
264
|
|
330
|
|
(66
|
)
|
(20
|
)
|
Amortization of deferred
acquisition costs
|
|
17
|
|
19
|
|
(2
|
)
|
(11
|
)
|
General and administrative
expense
|
|
614
|
|
624
|
|
(10
|
)
|
(2
|
)
|
Total expenses
|
|
895
|
|
973
|
|
(78
|
)
|
(8
|
)
|
Pretax income (loss)
|
|
(32
|
)
|
51
|
|
(83
|
)
|
NM
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
(22
|
)
|
(24
|
)
|
2
|
|
8
|
|
Pretax income (loss)
attributable to Ameriprise Financial
|
|
$
|
(10
|
)
|
$
|
75
|
|
$
|
(85
|
)
|
NM
|
|
NM Not Meaningful.
Our Asset Management segment pretax
loss attributable to Ameriprise Financial was $10 million for the nine
months ended September 30, 2009 compared to pretax income attributable
to Ameriprise Financial of $75 million in the prior year period.
Net Revenues
Net revenues decreased $161 million, or
16%, to $863 million for the nine months ended September 30, 2009,
primarily due to declines in management and financial advice fees and
distribution fees.
Management and financial advice fees
decreased $150 million, or 17%, to $709 million for the nine months
ended September 30, 2009, driven by a 32% decline in the daily
average S&P 500 Index on a period-over-period basis, as well as the
negative impact of foreign currency translation. Total Asset Management account
assets increased $12.6 billion, or 6%, compared to the prior year period
primarily due to bond market appreciation and an increase in managed assets due
to the acquisition of J. & W. Seligman & Co. (Seligman)
in the fourth quarter of 2008, partially offset by net outflows and the impact
of changes in foreign currency exchange rates.
Distribution fees decreased $42 million,
or 21%, to $156 million for the nine months ended September 30, 2009,
primarily due to lower 12b-1 fees driven by lower average assets, as well as decreased
mutual fund sales volume.
Net investment income was $11 million
for the nine months ended September 30, 2009 compared to net
investment loss of $6 million for the prior year period primarily due to losses
related to mark-to-market adjustments on seed money investments in the 2008
period.
Other revenues increased $14 million
compared to the prior year period due to an increase in revenues related to
certain consolidated limited partnerships.
55
Expenses
Total expenses decreased $78 million, or
8%, to $895 million for the nine months ended September 30, 2009,
primarily due to decreases in distribution expenses and general and
administrative expense.
Distribution expenses decreased
$66 million, or 20%, to $264 million for the nine months ended September 30,
2009, primarily due to decreased mutual fund sales volume.
General and administrative expense decreased
$10 million, or 2%, to $614 million for the nine months ended September 30, 2009,
primarily due to expense controls 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 and an increase in
legal expenses. 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.
Annuities
Our Annuities segment provides variable
and fixed annuity products of our 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 nine months ended September 30, 2009
and 2008:
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
312
|
|
$
|
380
|
|
$
|
(68
|
)
|
(18
|
)%
|
Distribution fees
|
|
179
|
|
213
|
|
(34
|
)
|
(16
|
)
|
Net investment income
|
|
971
|
|
560
|
|
411
|
|
73
|
|
Premiums
|
|
72
|
|
60
|
|
12
|
|
20
|
|
Other revenues
|
|
111
|
|
95
|
|
16
|
|
17
|
|
Total revenues
|
|
1,645
|
|
1,308
|
|
337
|
|
26
|
|
Banking and deposit
interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
1,645
|
|
1,308
|
|
337
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
154
|
|
142
|
|
12
|
|
8
|
|
Interest credited to fixed
accounts
|
|
566
|
|
479
|
|
87
|
|
18
|
|
Benefits, claims, losses
and settlement expenses
|
|
315
|
|
156
|
|
159
|
|
NM
|
|
Amortization of deferred
acquisition costs
|
|
(27
|
)
|
281
|
|
(308
|
)
|
NM
|
|
General and administrative
expense
|
|
146
|
|
165
|
|
(19
|
)
|
(12
|
)
|
Total expenses
|
|
1,154
|
|
1,223
|
|
(69
|
)
|
(6
|
)
|
Pretax income
|
|
491
|
|
85
|
|
406
|
|
NM
|
|
Less: Net loss
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Pretax income attributable
to Ameriprise Financial
|
|
$
|
491
|
|
$
|
85
|
|
$
|
406
|
|
NM
|
|
NM Not Meaningful.
Our Annuities segment pretax income was
$491 million for the nine months ended September 30, 2009, up
$406 million from $85 million in the prior year period.
Net Revenues
Net revenues increased $337 million, or
26%, to $1.6 billion for the nine months ended September 30, 2009,
primarily driven by an increase in net investment income, partially offset by
decreases in management and financial advice fees and distribution fees.
Management and financial advice fees
decreased $68 million, or 18%, to $312 million for the nine months
ended September 30, 2009, due to lower fees on variable annuities.
Average variable annuities contract accumulation values decreased
$9.8 billion or 19.8% from the prior year period primarily due to equity
market declines, partially offset by net inflows.
Distribution fees decreased $34 million,
or 16%, to $179 million for the nine months ended September 30, 2009,
primarily due to lower fees on variable annuities driven by the equity market
decline.
56
Table
of Contents
Net investment income increased
$411 million, or 73%, to $971 million for the nine months ended September 30, 2009,
primarily due to an increase of $167 million in investment income on fixed
maturity securities compared to the prior year period and net realized
investment gains of $28 million in the 2009 period compared to net realized
investment losses of $181 million in the 2008 period primarily due to
impairments of financial services securities. The increase in investment income
on fixed maturity securities was driven by higher invested asset levels
primarily due to fixed and variable annuity net inflows and higher yields on
the longer-term investments in our investment portfolio.
Premiums increased $12 million to
$72 million for the nine months ended September 30, 2009, due to
higher sales of immediate annuities with life contingencies.
Other revenues increased $16 million to
$111 million for the nine months ended September 30, 2009,
primarily due to an increase in guaranteed benefit rider fees on variable
annuities.
Expenses
Total expenses decreased $69 million, or
6%, to $1.2 billion for the nine months ended September 30, 2009,
primarily due to a decrease in DAC amortization, partially offset by increases
in benefits, claims, losses and settlement expenses and interest credited to
fixed accounts.
Distribution expenses increased
$12 million, or 8%, to $154 million for the nine months ended September 30, 2009,
primarily due to higher non-deferred distribution-related costs driven by
higher sales of fixed annuities.
Interest credited to fixed accounts increased
$87 million, or 18%, to $566 million for the nine months ended September 30, 2009,
primarily due to higher average fixed annuity account balances and higher
average fixed annuity crediting rates compared to the prior year period.
Average fixed annuities contract accumulation values increased $1.8 billion,
or 15%, compared to the prior year period. The average fixed annuity crediting
rate excluding capitalized interest increased to 4.0% in the 2009 period
compared to 3.7% in the same period a year ago.
Benefits, claims, losses and settlement
expenses increased $159 million to $315 million for the nine months
ended September 30, 2009, primarily driven by an increase in expenses
from variable annuity living benefit guarantees. Benefits, claims, losses and
settlement expenses in the 2009 period were impacted by $136 million in
variable annuity living benefit expenses, net of hedges and DSIC, which included
$517 million in expenses from the non-cash impact of the nonperformance
spread on the fair value of living benefit liabilities. Benefits, claims,
losses and settlement expenses in the 2008 period included a $32 million
benefit related to variable annuity guaranteed living benefits, net of hedges,
of which $140 million was related to the nonperformance spread. Benefits,
claims, losses and settlement expenses in the 2009 period included a benefit of
$47 million from updating valuation assumptions compared to a benefit of
$46 million in the prior year period from updating valuation assumptions and
converting to a new valuation system. The impact of higher policyholder account
balances as a result of equity and fixed income market performance in the 2009
period decreased DSIC amortization by $4 million compared to an expense of
$9 million in the prior year period.
Amortization of DAC decreased
$308 million to a net benefit of $27 million for the nine months
ended September 30, 2009 compared to an expense of $281 million
in the prior year period. DAC amortization for the 2009 period included a
$64 million benefit from updating valuation assumptions in the 2009 period
compared to a $9 million benefit from updating valuation assumptions and
converting to a new valuation system in the prior year period. In addition, DAC
amortization for the 2009 period included a benefit of $113 million
offsetting higher variable annuity benefit expenses compared to a
$15 million expense for the prior year period. The impact of higher
policyholder account balances as a result of equity and fixed income market
performance in the 2009 period decreased DAC amortization by $20 million
compared to an expense of $66 million in the prior year period. Variable
annuity amortization decreased for the nine months ended September 30,
2009 compared to the prior year period driven by lower period-over-period
account values and associated asset fees.
General and administrative expense decreased
$19 million, or 12%, to $146 million for the nine months ended September 30, 2009,
primarily due to expense controls.
57
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 nine months ended September 30, 2009 and 2008:
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
34
|
|
$
|
45
|
|
$
|
(11
|
)
|
(24
|
)%
|
Distribution fees
|
|
72
|
|
78
|
|
(6
|
)
|
(8
|
)
|
Net investment income
|
|
309
|
|
210
|
|
99
|
|
47
|
|
Premiums
|
|
758
|
|
740
|
|
18
|
|
2
|
|
Other revenues
|
|
270
|
|
432
|
|
(162
|
)
|
(38
|
)
|
Total revenues
|
|
1,443
|
|
1,505
|
|
(62
|
)
|
(4
|
)
|
Banking and deposit interest expense
|
|
|
|
1
|
|
(1
|
)
|
(100
|
)
|
Total net revenues
|
|
1,443
|
|
1,504
|
|
(61
|
)
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
15
|
|
15
|
|
|
|
|
|
Interest credited to fixed accounts
|
|
108
|
|
108
|
|
|
|
|
|
Benefits, claims, losses and settlement expenses
|
|
678
|
|
638
|
|
40
|
|
6
|
|
Amortization of deferred acquisition costs
|
|
107
|
|
238
|
|
(131
|
)
|
(55
|
)
|
General and administrative expense
|
|
168
|
|
186
|
|
(18
|
)
|
(10
|
)
|
Total expenses
|
|
1,076
|
|
1,185
|
|
(109
|
)
|
(9
|
)
|
Pretax income
|
|
367
|
|
319
|
|
48
|
|
15
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
Pretax income attributable to Ameriprise Financial
|
|
$
|
367
|
|
$
|
319
|
|
$
|
48
|
|
15
|
%
|
Our Protection segment pretax income was $367 million for the nine
months ended September 30, 2009, up $48 million, or 15%, from $319 million in
the prior year period.
Net
Revenues
Net revenues decreased $61 million, or 4%, to $1.4 billion for the nine
months ended September 30, 2009, primarily due to a decrease in other revenues
related to updating valuation assumptions, partially offset by an increase in
net investment income and premiums.
Management and financial advice fees decreased $11 million, or 24%, to
$34 million for the nine months ended September 30, 2009, primarily driven by
lower equity markets.
Net investment income increased $99 million, or 47%, to $309 million
for the nine months ended September 30, 2009, primarily due to net realized
investment gains on Available-for-Sale securities of $14 million for the 2009
period compared to net realized investment losses on Available-for-Sale
securities of $48 million for the prior year period related to impairments of
financial services securities. In addition, investment income earned on fixed
maturity securities increased $28 million compared to the prior year period
driven by higher yields on the longer-term investments in our investment
portfolio.
Premiums increased $18 million, or 2%, to $758 million for the nine
months ended September 30, 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 8% period-over-period.
Other revenues decreased $162 million, or 38%, to $270 million for the
nine months ended September 30, 2009, due to a $65 million expense from
updating valuation assumptions in the 2009 period compared to a $95 million
benefit from updating valuation assumptions and converting to a new valuation
system for RiverSource Life products in the 2008 period.
Expenses
Total expenses decreased $109 million, or 9%, to $1.1 billion for the
nine months ended September 30, 2009, primarily due to a decrease in
amortization of DAC.
Benefits, claims, losses and settlement expenses increased $40 million,
or 6%, to $678 million for the nine months ended September 30, 2009, primarily
due to volume-driven increases in Auto and Home reserves compared to the prior
year period
58
Table
of Contents
and a $33 million benefit from updating valuation assumptions in the
2009 period compared to a $43 million benefit from updating valuation
assumptions and implementing a new valuation system in the 2008 period.
Amortization of DAC decreased $131 million, or 55%, to $107 million for
the nine months ended September 30, 2009, primarily due to a benefit of $55 million
from updating valuation assumptions in the 2009 period compared to an expense of
$90 million from updating valuation assumptions and converting to a new
valuation system in the prior year period. The impact of higher policyholder
account balances as a result of equity and fixed income market performance in
the 2009 period decreased DAC amortization by $2 million compared to an expense
of $7 million in the prior year period.
General and administrative expense decreased $18 million, or 10%, to
$168 million for the nine months ended September 30, 2009, primarily due to the
write-off of certain capitalized software costs in the 2008 period and lower
premium taxes compared to the prior year period.
Corporate & Other
The following table presents the results of operations of our Corporate
& Other segment for the nine months ended September 30, 2009 and 2008:
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
(in
millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
(47
|
)
|
$
|
11
|
|
$
|
(58
|
)
|
NM
|
|
Other revenues
|
|
61
|
|
4
|
|
57
|
|
NM
|
|
Total revenues
|
|
14
|
|
15
|
|
(1
|
)
|
(7
|
)%
|
Banking and deposit interest expense
|
|
1
|
|
1
|
|
|
|
|
|
Total net revenues
|
|
13
|
|
14
|
|
(1
|
)
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
2
|
|
1
|
|
1
|
|
100
|
|
Interest and debt expense
|
|
99
|
|
81
|
|
18
|
|
22
|
|
General and administrative expense
|
|
97
|
|
179
|
|
(82
|
)
|
(46
|
)
|
Total expenses
|
|
198
|
|
261
|
|
(63
|
)
|
(24
|
)
|
Pretax loss
|
|
(185
|
)
|
(247
|
)
|
62
|
|
25
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
Pretax loss attributable to Ameriprise Financial
|
|
$
|
(185
|
)
|
$
|
(247
|
)
|
$
|
62
|
|
25
|
%
|
NM Not Meaningful.
Our Corporate & Other segment pretax loss was $185 million for the
nine months ended September 30, 2009 compared to $247 million in the prior year
period.
Net revenues decreased $1 million compared to the prior year period.
Net investment loss for the nine months ended September 30, 2009 reflects the
transfer priced interest income allocated to the Annuities and Protection
segments for maintaining excess liquidity and the period-over-period decline in
short-term interest rates. The increase in other revenues compared to the prior
year period was due to a $58 million gain on the repurchase of $135 million of
our 7.5% junior subordinated notes due 2066.
Total expenses decreased $63 million, or 24%, to $198 million for the
nine months ended September 30, 2009. Interest and debt expense for the nine
months ended September 30, 2009 included a $13 million expense related to the
early retirement of $450 million of our 5.35% senior notes due 2010. General
and administrative expense decreased $82 million, or 46%, compared to the prior
year period due to money market support costs incurred in the 2008 period,
including $77 million related to the mark-to-market of Lehman Brothers
securities that we purchased from various 2a-7 money market mutual funds
managed by our subsidiary, RiverSource Investments, LLC and $36 million for the
cost of guaranteeing specific client holdings in an unaffiliated money market
mutual fund, partially offset by higher legal expenses and money market support
costs in the 2009 period.
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), guaranteed minimum death benefits (GMDB) and
guaranteed
59
Table
of Contents
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.
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 September 30, 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
|
|
$
|
(154
|
)
|
$
|
|
|
$
|
(154
|
)
|
DAC and DSIC amortization
(1)
|
|
(149
|
)
|
|
|
(149
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
GMDB and GMIB
|
|
(63
|
)
|
3
|
|
(60
|
)
|
GMWB
|
|
(104
|
)
|
108
|
|
4
|
|
GMAB
|
|
(32
|
)
|
20
|
|
(12
|
)
|
DAC and DSIC amortization
(2)
|
|
N/A
|
|
N/A
|
|
(2
|
)
|
Total variable annuity riders
|
|
(199
|
)
|
131
|
|
(70
|
)
|
Equity indexed annuities
|
|
1
|
|
(1
|
)
|
|
|
Stock market certificates
|
|
7
|
|
(7
|
)
|
|
|
Total
|
|
$
|
(494
|
)
|
$
|
123
|
|
$
|
(373
|
)
|
|
|
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
|
|
$
|
(17
|
)
|
$
|
|
|
$
|
(17
|
)
|
Variable annuity riders:
|
|
|
|
|
|
|
|
GMWB
|
|
214
|
|
(313
|
)
|
(99
|
)
|
GMAB
|
|
41
|
|
(14
|
)
|
27
|
|
DAC and DSIC amortization
(2)
|
|
N/A
|
|
N/A
|
|
22
|
|
Total variable annuity riders
|
|
255
|
|
(327
|
)
|
(50
|
)
|
Fixed annuities, fixed portion of variable annuities
and fixed insurance products
|
|
(9
|
)
|
|
|
(9
|
)
|
Flexible savings and other fixed rate savings
products
|
|
(3
|
)
|
|
|
(3
|
)
|
Total
|
|
$
|
226
|
|
$
|
(327
|
)
|
$
|
(79
|
)
|
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 using fair value accounting principles, with key
policyholder behavior assumptions loaded to provide risk margins and with
discount rates increased to reflect a current market estimate of
60
Table of Contents
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. Net impacts shown in the
above table from GMDB and GMIB reflect the fact that these guaranteed benefits
are primarily retained by us and not hedged. In the third quarter of 2009, we
entered into a limited number of derivative contracts to economically hedge equity
exposure related to GMDB provisions on variable annuity contracts written
previously in 2009.
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,
including our loan portfolio, and through our derivative and reinsurance
activities. Credit risk relates to the uncertainty of an obligors continued
ability to make timely payments in accordance with the contractual terms of the
financial instrument or contract. We consider our total potential credit
exposure to each counterparty and its affiliates to ensure compliance with
pre-established credit guidelines at the time we enter into a transaction which
would potentially increase our credit risk. These guidelines and oversight of
credit risk are managed through a comprehensive enterprise risk management
program that includes members of senior management.
We manage the risk of credit-related losses in the event of
nonperformance by counterparties 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 underlying investment type. 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.
We manage our credit risk related to over-the-counter derivatives by
entering into transactions with creditworthy counterparties, maintaining
collateral arrangements and through the use of master netting arrangements that
provide for a single net payment to be made by one counterparty to another at
each due date and upon termination. Generally, our current credit exposure on
over-the-counter derivative contracts is limited to a derivative counterpartys
net positive fair value of derivative contracts after taking into consideration
the existence of netting arrangements and any collateral received. This
exposure is monitored and managed to an acceptable threshold level.
Because exchange-traded futures are effected through regulated
exchanges, and positions are marked to market and generally cash settled on a
daily basis, we have minimal exposure to credit-related losses in the event of
nonperformance by counterparties to such derivative instruments.
We manage our credit risk related to reinsurance treaties by evaluating
the financial condition of reinsurance counterparties prior to entering into
new reinsurance treaties. In addition, we regularly evaluate their financial
strength during the terms of the treaties. As of September 30, 2009, our
largest reinsurance credit risk is related to a long term care coinsurance
treaty with 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.
Fair value assumes the exchange of assets or liabilities occurs in orderly
transactions. Generally accepted accounting principles (GAAP) do 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).
61
Table of Contents
We consider market observable yields for other asset classes 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 the fair
value of these securities at September 30, 2009 ranged from 11% 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.
The following table presents, as of September 30, 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
|
|
15
|
|
13
|
|
7
|
|
3
|
|
9
|
|
9
|
|
|
|
|
|
11
|
|
6
|
|
42
|
|
31
|
|
2005
|
|
60
|
|
57
|
|
48
|
|
42
|
|
13
|
|
12
|
|
1
|
|
1
|
|
19
|
|
11
|
|
141
|
|
123
|
|
2006
|
|
1
|
|
1
|
|
10
|
|
9
|
|
8
|
|
8
|
|
23
|
|
22
|
|
56
|
|
35
|
|
98
|
|
75
|
|
2007
|
|
|
|
|
|
|
|
|
|
7
|
|
7
|
|
|
|
|
|
6
|
|
2
|
|
13
|
|
9
|
|
2008
|
|
|
|
|
|
7
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
6
|
|
Re-Remic
(1)
|
|
21
|
|
21
|
|
|
|
|
|
|
|
|
|
22
|
|
22
|
|
|
|
|
|
43
|
|
43
|
|
Total Subprime
|
|
$
|
99
|
|
$
|
93
|
|
$
|
72
|
|
$
|
60
|
|
$
|
37
|
|
$
|
36
|
|
$
|
46
|
|
$
|
45
|
|
$
|
92
|
|
$
|
54
|
|
$
|
346
|
|
$
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
22
|
|
$
|
22
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
22
|
|
$
|
22
|
|
2004
|
|
16
|
|
14
|
|
67
|
|
56
|
|
27
|
|
19
|
|
5
|
|
3
|
|
18
|
|
9
|
|
133
|
|
101
|
|
2005
|
|
5
|
|
3
|
|
61
|
|
36
|
|
33
|
|
18
|
|
13
|
|
8
|
|
273
|
|
179
|
|
385
|
|
244
|
|
2006
|
|
|
|
|
|
|
|
|
|
9
|
|
8
|
|
|
|
|
|
205
|
|
134
|
|
214
|
|
142
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228
|
|
124
|
|
228
|
|
124
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
$
|
43
|
|
$
|
39
|
|
$
|
128
|
|
$
|
92
|
|
$
|
69
|
|
$
|
45
|
|
$
|
18
|
|
$
|
11
|
|
$
|
724
|
|
$
|
446
|
|
$
|
982
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
192
|
|
$
|
189
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
192
|
|
$
|
189
|
|
2004
|
|
66
|
|
62
|
|
50
|
|
44
|
|
38
|
|
32
|
|
13
|
|
7
|
|
4
|
|
2
|
|
171
|
|
147
|
|
2005
|
|
17
|
|
20
|
|
61
|
|
62
|
|
84
|
|
80
|
|
75
|
|
60
|
|
137
|
|
72
|
|
374
|
|
294
|
|
2006
|
|
22
|
|
24
|
|
|
|
|
|
6
|
|
3
|
|
36
|
|
35
|
|
5
|
|
4
|
|
69
|
|
66
|
|
2007
|
|
33
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
12
|
|
48
|
|
46
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-Remic
(1)
|
|
2,343
|
|
2,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,343
|
|
2,441
|
|
Total Prime
|
|
$
|
2,673
|
|
$
|
2,770
|
|
$
|
111
|
|
$
|
106
|
|
$
|
128
|
|
$
|
115
|
|
$
|
124
|
|
$
|
102
|
|
$
|
161
|
|
$
|
90
|
|
$
|
3,197
|
|
$
|
3,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total
|
|
$
|
2,815
|
|
$
|
2,902
|
|
$
|
311
|
|
$
|
258
|
|
$
|
234
|
|
$
|
196
|
|
$
|
188
|
|
$
|
158
|
|
$
|
977
|
|
$
|
590
|
|
$
|
4,525
|
|
$
|
4,104
|
|
(1)
Re-Remics of mortgage backed
securities are prior vintages with cash flows structured into senior and
subordinated bonds. Credit enhancement on senior bonds is increased through the
Re-Remic process. Total exposure to subordinate tranches was nil as of
September 30, 2009.
62
Table
of Contents
Fair
Value of Liabilities and Nonperformance Risk
GAAP 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 September 30, 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 $40 million,
net of DAC and DSIC amortization and income taxes, based on September 30, 2009
credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the nine months ended September
30, 2009. At September 30, 2009, we had $3.6 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 $3.4 billion
and $4.4 billion at September 30, 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 September 30, 2009.
In June 2009, we issued $200 million of 7.75% senior notes due 2039 and
$300 million of 7.30% senior notes due 2019 (collectively, senior notes). In July
2009, we used the proceeds from the issuance of our senior notes to repurchase
$450 million aggregate principal amount of our 5.35% senior notes due 2010
pursuant to a cash tender offer. In addition, in June 2009, we received cash of
$869 million from the issuance and sale of 36 million shares of our common
stock. In September 2009, we announced the all-cash acquisition of the
long-term asset management business of Columbia Management, which is expected
to close in the spring of 2010. The total consideration to be paid will be
between $900 million and $1.2 billion, which is expected to be funded through
the use of cash on hand. In 2009, our subsidiaries, Ameriprise Bank, FSB and
RiverSource Life, became members of the Federal Home Loan Bank of Des Moines (FHLB
of Des Moines), which provides these subsidiaries with access to
collateralized borrowings. As of September 30, 2009, we had 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 September 30, 2009, A.M. Best Company, Inc., Standard & Poors
Ratings Services, Moodys Investors Service and Fitch Ratings Ltd. affirmed the
ratings of Ameriprise Financial, Inc. and RiverSource Life and indicated their
outlooks on Ameriprise Financial, Inc. and RiverSource Life remained 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.
63
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
|
|
|
|
September
30,
|
|
December
31,
|
|
September
30,
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(in
millions)
|
|
RiverSource Life
(1)(2)
|
|
$
|
2,925
|
|
$
|
2,722
|
|
551
|
|
$
|
551
|
|
RiverSource Life of NY
(1)(2)
|
|
247
|
|
229
|
|
58
|
|
58
|
|
IDS Property Casualty
(1)(3)
|
|
435
|
|
436
|
|
130
|
|
124
|
|
Ameriprise Insurance Company
(1)(3)
|
|
48
|
|
47
|
|
2
|
|
2
|
|
ACC
(4)(5)
|
|
307
|
|
243
|
|
252
|
|
264
|
|
Threadneedle
(6)
|
|
247
|
|
227
|
|
153
|
|
140
|
|
Ameriprise Bank, FSB
(7)
|
|
255
|
|
113
|
|
230
|
|
123
|
|
AFSI
(3)(4)
|
|
120
|
|
132
|
|
1
|
|
#
|
|
Ameriprise Captive Insurance Company
(3)
|
|
26
|
|
20
|
|
14
|
|
9
|
|
Ameriprise Trust Company
(3)
|
|
35
|
|
35
|
|
31
|
|
28
|
|
AEIS
(3)(4)
|
|
98
|
|
74
|
|
5
|
|
4
|
|
Securities America, Inc.
(3)(4)
|
|
16
|
|
17
|
|
#
|
|
#
|
|
RiverSource Distributors, Inc.
(3)(4)
|
|
37
|
|
41
|
|
#
|
|
#
|
|
RiverSource Fund Distributors, Inc.
(3)(4)
|
|
11
|
|
7
|
|
#
|
|
1
|
|
RiverSource Services, Inc.
(8)
|
|
|
|
1
|
|
|
|
#
|
|
Ameriprise Advisor Services, Inc.
(3)(4)
|
|
69
|
|
22
|
|
6
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
Amounts are less than $1
million.
|
(1)
|
Actual capital is
determined on a statutory basis.
|
(2)
|
Regulatory capital
requirement is based on the statutory risk-based capital filing as of
December 31, 2008.
|
(3)
|
Regulatory capital
requirement is based on the applicable regulatory requirement, calculated as
of September 30, 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 Office of Thrift Supervision (OTS) regulations and
policies, which currently require a Tier 1 (core) capital ratio of not less
than 8%. 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.
|
(8)
|
De-registered as of June 30, 2009.
|
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 nine months ended September 30, 2009,
Ameriprise Financial, Inc. received cash dividends from and made cash
contributions to subsidiaries of $94 million and $224 million, respectively.
During the
nine months ended September 30, 2008, Ameriprise Financial, Inc. received cash
dividends from and made cash contributions to subsidiaries of $1.1 billion and
$137 million, respectively. Of the dividends received during the nine months
ended September 30, 2008, $775 million came from RiverSource Life.
64
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.
During the nine months ended September 30, 2009, we extinguished $460 million
principal amount of our 5.35% senior notes due 2010 and $135 million principal
amount of our 7.5% junior subordinated notes due 2066. 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
$118 million for the nine months ended September 30, 2009. On October 21, 2009,
our Board of Directors declared a quarterly cash dividend of $0.17 per common
share. The dividend will be paid on November 16, 2009 to our shareholders of
record at the close of business on November 2, 2009.
Operating Activities
Net cash used in operating activities for the nine months ended September
30, 2009 was $938 million compared to net cash provided by operating activities
of $189 million for the nine months ended September 30, 2008, a decrease of
$1.1 billion. The decrease was driven by a $1.6 billion reduction in collateral
held related to derivative instruments during the nine months ended September 30,
2009. Partially offsetting this decrease, was an increase in cash for the nine
months ended September 30, 2009 due to repayments of funds advanced to clients in
the 2008 period 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 nine months ended September
30, 2009 was $6.2 billion compared to net cash provided by investing activities
of $627 million for the nine months ended September 30, 2008, a decrease of
$6.8 billion. Cash used for purchases of Available-for-Sale securities
increased $12.1 billion and proceeds from sales and maturities, sinking fund
payments and calls of Available-for-Sale securities increased $5.1 billion
compared to the prior year period, resulting in a $7.0 billion decrease to
cash.
Financing Activities
Net cash provided by financing activities for the nine months ended September
30, 2009 was $4.4 billion compared to net cash used in financing activities of
$585 million for the nine months ended September 30, 2008, an increase in cash
of $5.0 billion. Cash received from the issuance of our senior notes and common
stock in June 2009, net of issuance costs, was $491 million and $869 million,
respectively. Net cash received from policyholder and contractholder account
values increased $3.6 billion compared to the prior year period primarily due
to higher net flows of fixed annuities. Cash used for the repurchase of our common
stock decreased $627 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 $550 million of cash used
to extinguish $135 million of our 7.5% junior subordinated notes due 2066 and
$460 million of our 5.35% senior notes due 2010 during the nine months ended September
30, 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.
65
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; 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, capacity constraint or repricing by
issuers or guarantors of investments the Company owns or by counterparties to
hedge derivative, insurance or reinsurance arrangements or by manufacturers of
products the Company distributes, experience deviations from the Companys
assumptions regarding such risks, the evaluations or the prospect of changes in
evaluations of any such third parties published by rating agencies or other
analysts, and the reactions of other market participants or the 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;
·
changes in capital requirements that may be indicated,
required or advised by regulators or rating agencies;
·
the impacts of the Companys efforts to improve
distribution economics and to grow third-party distribution of its products;
·
the ability to complete the acquisition opportunities
the Company negotiates;
·
the Companys ability to realize the financial,
operating and business fundamental benefits or to obtain regulatory approvals
regarding integrations we plan for the acquisitions we have completed or have
contracted to complete, as well as the amount and timing of integration
expenses;
·
the ability and timing to realize savings and other
benefits from re-engineering 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 in Part 1,
Item 1A of our 2008 10-K.
66
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 September 30, 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.
67
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 third quarter of 2009:
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
Period
|
|
Total
Number
of Shares
Purchased
|
|
Price
Paid Per
Share
|
|
Total
Number of Shares
Purchased as part of
Publicly Announced
Plans or Programs
(1)
|
|
Approximate
Dollar Value
of Shares that May Yet
Be Purchased Under
the Plans or Programs
(1)
|
|
July 1 to July 31, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
1,987
|
|
$
|
24.50
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1 to August 31, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
285
|
|
$
|
28.66
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1 to September 30, 2009
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
364
|
|
$
|
29.16
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
|
$
|
|
|
|
|
|
|
Employee transactions
|
|
2,636
|
|
$
|
25.60
|
|
N/A
|
|
|
|
|
|
2,636
|
|
|
|
|
|
|
|
(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 restated
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
closing price 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.
68
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: November 2, 2009
|
By
|
/s/ Walter S. Berman
|
|
|
Walter S. Berman
|
|
|
Executive Vice President
and
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
Date: November 2, 2009
|
By
|
/s/ David K. Stewart
|
|
|
David K. Stewart
|
|
|
Senior Vice President and
Controller
|
|
|
(Principal Accounting
Officer)
|
69
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.
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10.1
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Ameriprise Advisor Group
Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8, File No. 333-159025, filed on May 7,
2009).
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31.1*
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Certification of James M.
Cracchiolo pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
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31.2*
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Certification of Walter S.
Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange
Act of 1934, as amended.
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32*
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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.
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E-1
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