Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
|
|
For the Quarterly Period Ended
March 31, 2010
|
|
|
|
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 April 23, 2010
|
Common Stock (par value $.01 per
share)
|
|
257,513,353 shares
|
Table of Contents
AMERIPRISE FINANCIAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
Revenues
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
774
|
|
$
|
554
|
|
Distribution fees
|
|
391
|
|
311
|
|
Net investment income
|
|
590
|
|
418
|
|
Premiums
|
|
282
|
|
266
|
|
Other revenues
|
|
255
|
|
209
|
|
Total revenues
|
|
2,292
|
|
1,758
|
|
Banking and deposit interest expense
|
|
21
|
|
42
|
|
Total net revenues
|
|
2,271
|
|
1,716
|
|
Expenses
|
|
|
|
|
|
Distribution expenses
|
|
525
|
|
384
|
|
Interest credited to fixed accounts
|
|
228
|
|
205
|
|
Benefits, claims, losses and settlement expenses
|
|
354
|
|
100
|
|
Amortization of deferred acquisition costs
|
|
118
|
|
286
|
|
Interest and debt expense
|
|
64
|
|
26
|
|
General and administrative expense
|
|
621
|
|
581
|
|
Total expenses
|
|
1,910
|
|
1,582
|
|
Pretax income
|
|
361
|
|
134
|
|
Income tax provision
|
|
65
|
|
18
|
|
Net income
|
|
296
|
|
116
|
|
Less: Net income (loss) attributable to
noncontrolling interests
|
|
82
|
|
(14
|
)
|
Net income attributable to Ameriprise Financial
|
|
$
|
214
|
|
$
|
130
|
|
Earnings per share attributable to
Ameriprise Financial common shareholders
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
$
|
0.58
|
|
Diluted
|
|
0.81
|
|
0.58
|
|
Weighted average common shares
outstanding
|
|
|
|
|
|
Basic
|
|
260.8
|
|
222.3
|
|
Diluted
|
|
265.0
|
|
223.5
|
|
Cash dividends paid per common
share
|
|
$
|
0.17
|
|
$
|
0.17
|
|
Supplemental Disclosures:
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
Net investment income before impairment losses on
securities
|
|
$
|
620
|
|
$
|
453
|
|
Total other-than-temporary impairment losses on
securities
|
|
(32
|
)
|
(25
|
)
|
Portion of loss recognized in other comprehensive
income
|
|
2
|
|
(10
|
)
|
Net impairment losses recognized in net investment
income
|
|
(30
|
)
|
(35
|
)
|
Net investment income
|
|
$
|
590
|
|
$
|
418
|
|
See Notes to Consolidated Financial Statements.
3
Table of
Contents
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED
BALANCE SHEETS
(in millions, except share amounts)
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,816
|
|
$
|
3,097
|
|
Investments
|
|
35,765
|
|
36,938
|
|
Separate account assets
|
|
60,326
|
|
58,129
|
|
Receivables
|
|
4,768
|
|
4,435
|
|
Deferred acquisition costs
|
|
4,243
|
|
4,334
|
|
Restricted and segregated cash
|
|
1,532
|
|
1,452
|
|
Other assets
|
|
4,011
|
|
4,290
|
|
Total assets before consolidated investment entities
|
|
115,461
|
|
112,675
|
|
Consolidated Investment Entities:
|
|
|
|
|
|
Cash
|
|
613
|
|
181
|
|
Investments, at fair value
|
|
5,349
|
|
36
|
|
Receivables (includes $39 and nil, respectively, at
fair value)
|
|
80
|
|
49
|
|
Other assets, at fair value
|
|
874
|
|
833
|
|
Total assets of consolidated investment entities
|
|
6,916
|
|
1,099
|
|
Total assets
|
|
$
|
122,377
|
|
$
|
113,774
|
|
Liabilities and Equity
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
30,866
|
|
$
|
30,886
|
|
Separate account liabilities
|
|
60,326
|
|
58,129
|
|
Customer deposits
|
|
8,632
|
|
8,554
|
|
Debt
|
|
2,612
|
|
1,868
|
|
Accounts payable and accrued expenses
|
|
748
|
|
918
|
|
Other liabilities
|
|
2,743
|
|
3,093
|
|
Total liabilities before consolidated investment
entities
|
|
105,927
|
|
103,448
|
|
Consolidated Investment Entities:
|
|
|
|
|
|
Debt (includes $5,144 and nil, respectively, at fair
value)
|
|
5,502
|
|
381
|
|
Accounts payable and accrued expenses
|
|
17
|
|
28
|
|
Other liabilities (includes $214 and $30,
respectively, at fair value)
|
|
231
|
|
41
|
|
Total liabilities of consolidated investment
entities
|
|
5,750
|
|
450
|
|
Total liabilities
|
|
111,677
|
|
103,898
|
|
Equity:
|
|
|
|
|
|
Ameriprise Financial,
Inc.:
|
|
|
|
|
|
Common
shares ($.01 par value; shares authorized, 1,250,000,000; shares issued,
298,578,896 and 295,839,581, respectively)
|
|
3
|
|
3
|
|
Additional paid-in capital
|
|
5,819
|
|
5,748
|
|
Retained earnings
|
|
5,451
|
|
5,282
|
|
Appropriated retained earnings of consolidated
investment entities
|
|
508
|
|
|
|
Treasury shares, at cost (41,173,408 and 40,744,090
shares, respectively)
|
|
(2,038
|
)
|
(2,023
|
)
|
Accumulated other comprehensive income, net of tax
|
|
365
|
|
263
|
|
Total Ameriprise Financial, Inc. shareholders
equity
|
|
10,108
|
|
9,273
|
|
Noncontrolling interests
|
|
592
|
|
603
|
|
Total equity
|
|
10,700
|
|
9,876
|
|
Total liabilities and equity
|
|
$
|
122,377
|
|
$
|
113,774
|
|
See Notes to Consolidated Financial Statements.
4
AMERIPRISE
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
Net income
|
|
$
|
296
|
|
$
|
116
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
Capitalization of deferred acquisition and sales
inducement costs
|
|
(119
|
)
|
(229
|
)
|
Amortization of deferred acquisition and sales
inducement costs
|
|
130
|
|
335
|
|
Depreciation, amortization and accretion, net
|
|
22
|
|
56
|
|
Deferred income tax expense
|
|
437
|
|
82
|
|
Share-based compensation
|
|
39
|
|
40
|
|
Net realized investment gains
|
|
(32
|
)
|
(51
|
)
|
Other-than-temporary impairments and provision for
loan losses
|
|
34
|
|
39
|
|
Net (income) loss attributable to noncontrolling
interests
|
|
(82
|
)
|
14
|
|
Changes in operating assets and liabilities before
consolidated investment entities:
|
|
|
|
|
|
Restricted and segregated cash
|
|
127
|
|
82
|
|
Trading securities and equity method investments,
net
|
|
5
|
|
(336
|
)
|
Future policy benefits and claims, net
|
|
8
|
|
167
|
|
Receivables
|
|
(267
|
)
|
303
|
|
Brokerage deposits
|
|
8
|
|
(151
|
)
|
Accounts payable and accrued expenses
|
|
(161
|
)
|
(172
|
)
|
Derivatives collateral, net
|
|
(265
|
)
|
(625
|
)
|
Other, net
|
|
7
|
|
(229
|
)
|
Changes in operating assets and liabilities of
consolidated investment entities
|
|
(56
|
)
|
(13
|
)
|
Net cash provided by (used in) operating activities
|
|
131
|
|
(572
|
)
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
Proceeds from sales
|
|
1,539
|
|
1,285
|
|
Maturities, sinking fund payments and calls
|
|
1,842
|
|
1,207
|
|
Purchases
|
|
(2,523
|
)
|
(4,561
|
)
|
Proceeds from sales and maturities of commercial
mortgage loans
|
|
62
|
|
52
|
|
Funding of commercial mortgage loans
|
|
(49
|
)
|
(34
|
)
|
Proceeds from sales of other investments
|
|
36
|
|
11
|
|
Purchase of other investments
|
|
(21
|
)
|
(10
|
)
|
Purchase of investments by consolidated investment
entities
|
|
(405
|
)
|
|
|
Proceeds from sales and maturities of investments by
consolidated investment entities
|
|
454
|
|
|
|
Return of capital in investments of consolidated
investment entities
|
|
1
|
|
|
|
Purchase of land, buildings, equipment and software
|
|
(21
|
)
|
(15
|
)
|
Change in policy and certificate loans, net
|
|
|
|
7
|
|
Change in consumer banking loans and credit card
receivables, net
|
|
(75
|
)
|
(15
|
)
|
Other, net
|
|
(1
|
)
|
4
|
|
Net cash provided by (used in) investing activities
|
|
839
|
|
(2,069
|
)
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
AMERIPRISE
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(continued)
(in millions)
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
Investment certificates
and banking time deposits:
|
|
|
|
|
|
Proceeds from additions
|
|
$
|
294
|
|
$
|
980
|
|
Maturities, withdrawals and cash surrenders
|
|
(607
|
)
|
(866
|
)
|
Change in other banking deposits
|
|
384
|
|
271
|
|
Policyholder and contractholder account values:
|
|
|
|
|
|
Consideration received
|
|
430
|
|
2,417
|
|
Net transfers (to) from separate accounts
|
|
(39
|
)
|
284
|
|
Surrenders and other benefits
|
|
(358
|
)
|
(770
|
)
|
Deferred premium options, net
|
|
(36
|
)
|
61
|
|
Issuances of debt, net of issuance costs
|
|
744
|
|
|
|
Repayments of debt
|
|
|
|
(113
|
)
|
Dividends paid to shareholders
|
|
(45
|
)
|
(37
|
)
|
Repurchase of common shares
|
|
(15
|
)
|
(9
|
)
|
Exercise of stock options
|
|
32
|
|
|
|
Excess tax benefits from share-based compensation
|
|
1
|
|
1
|
|
Borrowings of consolidated investment entities
|
|
|
|
9
|
|
Repayments of debt of consolidated investment
entities
|
|
(1
|
)
|
|
|
Noncontrolling interests investments in subsidiaries
|
|
1
|
|
1
|
|
Distributions to noncontrolling interests
|
|
(23
|
)
|
(18
|
)
|
Other, net
|
|
(3
|
)
|
|
|
Net cash provided by financing activities
|
|
759
|
|
2,211
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(10
|
)
|
(2
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
1,719
|
|
(432
|
)
|
Cash and cash equivalents at beginning of period
|
|
3,097
|
|
6,228
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,816
|
|
$
|
5,796
|
|
Supplemental Disclosures:
|
|
|
|
|
|
Interest paid on debt before consolidated investment
entities
|
|
$
|
4
|
|
$
|
3
|
|
Income taxes paid (received), net
|
|
154
|
|
(1
|
)
|
See Notes to Consolidated Financial Statements.
6
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31, 2010 and 2009
|
|
Ameriprise
Financial
|
|
|
|
|
|
|
|
Number
of
Outstanding
Shares
|
|
Common
Shares
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Appropriated
Retained
Earnings of
Consolidated
Investment
Entities
|
|
Treasury
Shares
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
Non-
controlling
Interests
|
|
Total
|
|
|
|
(in
millions, except share data)
|
|
Balances at January 1, 2009
|
|
216,510,699
|
|
$
|
3
|
|
$
|
4,688
|
|
$
|
4,592
|
|
$
|
|
|
$
|
(2,012
|
)
|
$
|
(1,093
|
)
|
$
|
289
|
|
$
|
6,467
|
|
Change
in accounting principles, net of tax
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
(14
|
)
|
116
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net unrealized securities losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
96
|
|
Change
in noncredit related impairments on securities and net unrealized securities
losses on previously impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
(5
|
)
|
(8
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
Dividends
paid to shareholders
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
(37
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
1
|
|
Distributions
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
(18
|
)
|
Repurchase
of common shares
|
|
(509,778
|
)
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
(9
|
)
|
Share-based
compensation plans
|
|
3,136,459
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Balances at March 31, 2009
|
|
219,137,380
|
|
$
|
3
|
|
$
|
4,719
|
|
$
|
4,817
|
|
$
|
|
|
$
|
(2,021
|
)
|
$
|
(1,134
|
)
|
$
|
253
|
|
$
|
6,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2010
|
|
255,095,491
|
|
$
|
3
|
|
$
|
5,748
|
|
$
|
5,282
|
|
$
|
|
|
$
|
(2,023
|
)
|
$
|
263
|
|
$
|
603
|
|
$
|
9,876
|
|
Change
in accounting principles
|
|
|
|
|
|
|
|
|
|
473
|
|
|
|
|
|
|
|
473
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
214
|
|
|
|
|
|
|
|
82
|
|
296
|
|
Net
income reclassified to appropriated retained earnings
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
(35
|
)
|
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net unrealized securities gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
164
|
|
Change
in noncredit related impairments on securities and net unrealized securities losses
on previously impaired securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Change
in net unrealized derivatives losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
(36
|
)
|
(67
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
Dividends
paid to shareholders
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
(45
|
)
|
Noncontrolling
interests investments in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
1
|
|
Distributions
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
(23
|
)
|
Repurchase
of common shares
|
|
(429,318
|
)
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
(15
|
)
|
Share-based
compensation plans
|
|
2,739,315
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
Balances at March 31, 2010
|
|
257,405,488
|
|
$
|
3
|
|
$
|
5,819
|
|
$
|
5,451
|
|
$
|
508
|
|
$
|
(2,038
|
)
|
$
|
365
|
|
$
|
592
|
|
$
|
10,700
|
|
See Notes
to Consolidated Financial Statements.
7
Table of
Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
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 and variable interest entities (VIEs) in which
it is the primary beneficiary (collectively, the Company). The income or loss
generated by consolidated entities which will not be realized by the Companys
shareholders is attributed to noncontrolling interests in the Consolidated
Statements of Operations. 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 is defined as Ameriprise
Financial. All material intercompany transactions and balances have been
eliminated in consolidation. See Note 3 for additional information related to
the consolidated VIEs.
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 year 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, 2009, filed with the Securities and
Exchange Commission (SEC) on February 24, 2010.
The
Company evaluated events or transactions that may have occurred after the
balance sheet date for potential recognition or disclosure through the date the
financial statements were issued.
2. Recent Accounting Pronouncements
Adoption
of New Accounting Standards
Consolidation
of Variable Interest Entities
In June 2009, the
Financial Accounting Standards Board (FASB) updated the accounting standards
related to the consolidation of VIEs. The standard amends the guidance on the
determination of the primary beneficiary of a VIE from a quantitative model to
a qualitative model and requires additional disclosures about an enterprises
involvement in VIEs. Under the new qualitative model, the primary beneficiary
must have both the power to direct the activities of the VIE and the obligation
to absorb losses or the right to receive gains that could be potentially
significant to the VIE. In February 2010, the FASB amended this guidance
to defer application of the consolidation requirements for certain investment
funds. The standards are effective for interim
and
annual reporting periods beginning after
November 15, 2009.
The Company adopted the standards effective January 1,
2010 and consolidated certain collateralized debt obligations (CDOs). As a
result of the adoption, the Company recorded a cumulative effect increase of
$473 million to appropriated retained earnings of consolidated investment
entities, a $5.5 billion increase to assets and a $5.1 billion increase to
liabilities. See Note 3 for additional information related to the application
of the amended VIE consolidation model and the required disclosures.
8
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Subsequent
Events
In
February 2010, the FASB amended the accounting standards related to the
recognition and disclosure of subsequent events. The amendments remove the
requirement to disclose the date through which subsequent events are evaluated
for SEC filers. The standard is effective upon issuance and shall be applied
prospectively. The Company adopted the standard in the first quarter
of 2010. The adoption did not have any effect on the Companys
consolidated results of operations and financial condition.
Fair Value
In
January 2010, the FASB updated the accounting standards related to
disclosures on fair value measurements. The standard expands the current
disclosure requirements to include additional detail about significant
transfers between Levels 1 and 2 within the fair value hierarchy and presents
activity in the rollforward of Level 3 activity on a gross basis. The standard
also clarifies existing disclosure requirements related to the level of
disaggregation to be used for assets and liabilities as well as disclosures on
the inputs and valuation techniques used to measure fair value. The standard is
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosure requirements related to the Level 3
rollforward, which are effective for interim and annual periods beginning after
December 15, 2010. The Company adopted the standard in the first
quarter of 2010, except for the additional disclosures related to the Level 3
rollforward, which the Company will adopt in the first quarter of 2011. The
adoption did not have any effect on the Companys consolidated results of
operations and financial condition.
Recognition
and Presentation of Other-Than-Temporary Impairments (OTTI)
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 (loss) when the entity does not intend to sell the
security and it is more likely than not that the entity will not be required to
sell the security prior to recovery of its cost basis. 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 4 for the required disclosures.
9
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
3. Consolidated Investment
Entities
The
Company provides asset management services to various CDOs and other investment
products (collectively, investment entities), which are sponsored by the
Company for the investment of client assets in the normal course of business.
Certain of these investment entities are considered to be VIEs while others are
considered to be voting rights entities (VREs). The Company consolidates
certain of these investment entities.
Variable
Interest Entities
A
VIE is an entity that either has equity investors that lack certain essential
characteristics of a controlling financial interest (including substantive
voting rights, the obligation to absorb the entitys losses, or the rights to
receive the entitys returns) or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A VIE
is required to be assessed for consolidation under two models:
·
If the VIE is a money market fund or is an investment
company, or has the financial characteristics of an investment company, and the
following is true:
(i)
the entity does not have an explicit or implicit
obligation to fund the investment companys losses; and
(ii)
the investment company is not a securitization entity,
asset-backed financing entity, or an entity formally considered a qualifying
special purpose entity,
then, the VIE will
be consolidated by the entity that
determines it stands to absorb a majority of the VIEs expected losses or to
receive a majority of the VIEs expected residual returns. Examples of entities
that are likely to be assessed for consolidation under this framework include
hedge funds, property funds, private equity funds and venture capital funds.
·
If the VIE does not meet the criteria above, the VIE
will be consolidated by the entity that determines it has both:
(i)
the power to direct the activities of a VIE that most
significantly impact the VIEs economic performance; and
(ii)
the obligation to absorb losses of the VIE that could
potentially be significant to the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE.
The Companys CDOs
are generally assessed for consolidation under this framework.
When
determining whether the Company stands to absorb the majority of the VIEs
expected losses or receive a majority of the VIEs expected returns, it
analyzes the design of the VIE to identify the variable interests it holds.
Then the Company quantitatively determines whether its variable interests will
absorb a majority of the VIEs variability. If the Company determines it has
control over the activities that most significantly impact the economic
performance of the VIE and it will absorb a majority of the VIEs expected
variability, the Company consolidates the VIE. The calculation of variability
is based on an analysis of projected probability-weighted cash flows based on
the design of the particular VIE. When determining whether the Company has the
power and the obligation to absorb losses or rights to receive benefits from
the VIE that could potentially be significant, the Company qualitatively
determines if its variable interests meet these criteria. If the Company consolidates
a VIE under either scenario, it is referred to as the VIEs primary
beneficiary.
Investment
Entities
Collateralized
Debt Obligations
The
Company provides collateral management services to CDOs which are considered
VIEs. These CDOs are asset-backed financing entities collateralized by a pool
of assets, primarily syndicated loans and, to a lesser extent, high-yield
bonds. Multiple tranches of debt securities are issued by a CDO, offering
investors various maturity and credit risk characteristics. The debt securities
issued by the CDOs are non-recourse to the Company. The CDOs debt holders have
recourse only to the assets of the CDO. The assets the CDOs collateralize
cannot be used by the Company. Scheduled debt payments are based on the
performance of the CDOs collateral pool. The Company generally earns
management fees from the CDOs based on the par value of outstanding debt and,
in certain instances, may also receive performance-based fees. In the normal
course of business, the Company has invested in certain CDOs, generally taking
an insignificant portion of the unrated, junior subordinated debt.
For
certain of the CDOs, the Company has determined that consolidation is required
as it has power over the CDOs and holds a variable interest in the CDOs for
which the Company has the potential to receive significant benefits or the
potential obligation to absorb significant losses. For other CDOs managed by
the Company, the Company has determined that consolidation is not required as
the Company does not hold a variable interest in the CDOs.
10
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Other
Investment Products
The
Company provides investment advice and related services to private, pooled
investment vehicles organized as limited partnerships, limited liability
companies or foreign (non-U.S.) entities. Certain of these pooled investment
vehicles are considered VIEs while others are VREs. For investment management
services, the Company generally earns management fees based on the market value
of assets under management, and in certain instances may also receive performance-based
fees. The Company provides seed money occasionally to certain of these funds.
For certain of the pooled investment vehicles, the Company has determined that
consolidation is required as the Company stands to absorb a majority of the
entitys expected losses or receive a majority of the entitys expected
residual returns. For other VIE pooled investment vehicles, the Company has
determined that consolidation is not required because the Company is not
expected to absorb the majority of the expected losses or receive the majority
of the expected residual returns. For the pooled investment vehicles which are
VREs, the Company consolidates the structure when it has a controlling
financial interest.
The
Company also provides investment advisory, distribution and other services to three
families of mutual funds: the RiverSource, Seligman and Threadneedle mutual
fund families. The Company has determined that consolidation is not required
for these mutual funds.
In
addition, the Company may invest in structured investments including VIEs for
which it is not the sponsor. These structured investments typically invest in
fixed income instruments and are managed by third parties and include asset
backed securities, commercial mortgage backed securities, and residential
mortgage backed securities. The Company includes these investments in
Available-for-Sale securities. The Company has determined that it is not the
primary beneficiary of these structures due to its relative size, position in
the capital structure of these entities, and the Companys lack of power over
the structures. See Note 4 for additional information about these structured
investments.
The Companys
maximum exposure to loss as a result of its investment in structured
investments is limited to its carrying value. The Company has no
obligation to provide further financial or other support to these structured
investments nor has the Company provided any support to these structured
investments.
The
following tables reflect the impact of consolidated investment entities on the
Consolidated Balance Sheets as of March 31, 2010 and the Consolidated
Statements of Operations for the three months ended March 31, 2010:
|
|
Before
Consolidation
|
|
Consolidated
Investment Entities
|
|
Eliminations
|
|
Total
|
|
|
|
(in millions)
|
|
Total
assets
|
|
$
|
115,553
|
|
$
|
6,916
|
|
$
|
(92
|
)
|
$
|
122,377
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
105,927
|
|
5,750
|
|
|
|
111,677
|
|
Total
Ameriprise Financial shareholders equity
|
|
9,626
|
|
574
|
|
(92
|
)
|
10,108
|
|
Noncontrolling
interests equity
|
|
|
|
592
|
|
|
|
592
|
|
Total
liabilities and equity
|
|
$
|
115,553
|
|
$
|
6,916
|
|
$
|
(92
|
)
|
$
|
122,377
|
|
|
|
Before
Consolidation
|
|
Consolidated
Investment Entities
|
|
Eliminations
|
|
Total
|
|
|
|
(in millions)
|
|
Total
net revenues
|
|
$
|
2,144
|
|
$
|
136
|
|
$
|
(9
|
)
|
$
|
2,271
|
|
Total
expenses
|
|
1,865
|
|
54
|
|
(9
|
)
|
1,910
|
|
Pretax
income
|
|
279
|
|
82
|
|
|
|
361
|
|
Income
tax provision
|
|
65
|
|
|
|
|
|
65
|
|
Net
income
|
|
214
|
|
82
|
|
|
|
296
|
|
Net
income attributable to noncontrolling interests
|
|
|
|
82
|
|
|
|
82
|
|
Net
income attributable to Ameriprise Financial
|
|
$
|
214
|
|
$
|
|
|
$
|
|
|
$
|
214
|
|
11
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
The following table presents
the balances of assets and liabilities held by consolidated investment entities
at March 31, 2010 measured at fair value on a recurring basis:
|
|
March 31, 2010
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
|
|
$
|
420
|
|
$
|
15
|
|
$
|
435
|
|
Common
stocks
|
|
|
|
32
|
|
|
|
32
|
|
Other
structured investments
|
|
|
|
33
|
|
6
|
|
39
|
|
Syndicated
loans
|
|
|
|
4,798
|
|
|
|
4,798
|
|
Trading
securities
|
|
|
|
45
|
|
|
|
45
|
|
Total
investments
|
|
|
|
5,328
|
|
21
|
|
5,349
|
|
Receivables
|
|
|
|
39
|
|
|
|
39
|
|
Other
assets
|
|
|
|
4
|
|
870
|
|
874
|
|
Total
assets at fair value
|
|
$
|
|
|
$
|
5,371
|
|
$
|
891
|
|
$
|
6,262
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
|
|
$
|
|
|
$
|
5,144
|
|
$
|
5,144
|
|
Other
liabilities
|
|
|
|
214
|
|
|
|
214
|
|
Total
liabilities at fair value
|
|
$
|
|
|
$
|
214
|
|
$
|
5,144
|
|
$
|
5,358
|
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
|
$
|
|
|
$
|
36
|
|
$
|
|
|
$
|
36
|
|
Total
investments
|
|
|
|
36
|
|
|
|
36
|
|
Other
assets
|
|
|
|
2
|
|
831
|
|
833
|
|
Total
assets at fair value
|
|
$
|
|
|
$
|
38
|
|
$
|
831
|
|
$
|
869
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$
|
|
|
$
|
30
|
|
$
|
|
|
$
|
30
|
|
Total
liabilities at fair value
|
|
$
|
|
|
$
|
30
|
|
$
|
|
|
$
|
30
|
|
The
following table provides a summary of changes in Level 3 assets and liabilities
measured at fair value on a recurring basis as of March 31:
|
|
2010
|
|
2009
|
|
|
|
Corporate
Debt
Securities
|
|
Other
Structured
Investments
|
|
Other Assets
|
|
Debt
|
|
Other Assets
|
|
|
|
(in millions)
|
|
Balance, January 1
|
|
$
|
|
|
$
|
|
|
$
|
831
|
|
$
|
|
|
$
|
287
|
|
Cumulative effect of accounting change
|
|
15
|
|
5
|
|
|
|
(4,962
|
)
|
|
|
Total gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
2
|
(1)
|
55
|
(2)
|
(183
|
)
(1)
|
(19
|
)
(2)
|
Comprehensive
income
|
|
|
|
|
|
(50
|
)
|
|
|
(6
|
)
|
Purchases,
sales, issuances and settlements, net
|
|
|
|
(1
|
)
|
34
|
|
1
|
|
|
|
Balance,
March 31
|
|
$
|
15
|
|
$
|
6
|
|
$
|
870
|
|
$
|
(5,144
|
)
|
$
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment
income in the Consolidated Statements of Operations.
(2)
Included in other revenues in
the Consolidated Statements of Operations.
12
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company has elected the fair value option within the consolidation
standards issued June 2009 for the financial assets and liabilities of the
consolidated CDOs. Management believes that the use of the fair value option
eliminates certain timing differences and better matches the changes in fair
value of assets and liabilities related to the CDOs.
For
receivables, other assets and other liabilities of the consolidated CDOs, the
carrying value approximates fair value as the nature of these assets and
liabilities have historically been short term and the receivables have been
collectible. The fair value of these assets and liabilities is classified as
Level 2. The fair value of syndicated loans is obtained from
nationally-recognized pricing services and is classified as Level 2. Other
assets consist primarily of properties held in consolidated pooled investment
vehicles managed by Threadneedle. The fair value of these properties is
determined using discounted cash flows and market comparables. Inputs into the valuation of these properties
include: rental cash flows, current occupancy, historical vacancy rates, tenant
history and assumptions regarding how quickly the property can be occupied and
at what rental rates. Given the significance of the unobservable inputs to
these measurements, these assets are classified as Level 3. The fair value of
the CDOs debt is valued using a discounted cash flow methodology. Inputs used
to determine the expected cash flows include assumptions about default and
recovery rates of the CDOs underlying assets. Given the significance of the unobservable
inputs to this fair value measurement, the CDO debt is classified as Level 3.
Other liabilities consist primarily of short securities held in consolidated
hedge funds. The fair value of these securities is obtained from
nationally-recognized pricing services and is classified as Level 2. See Note 10
for a description of the Companys determination of the fair value of
investments.
The following table presents the fair value and unpaid principal
balance of assets and liabilities carried at fair value under the fair value
option as of March 31, 2010:
|
|
(in millions)
|
|
Syndicated
loans
|
|
|
|
Unpaid principal balance
|
|
$
|
5,221
|
|
Excess estimated unpaid
principal over fair value
|
|
(423
|
)
|
Fair value
|
|
$
|
4,798
|
|
|
|
|
|
Fair value of loans more
than 90 days past due
|
|
209
|
|
Fair value of loans in
non-accrual status
|
|
184
|
|
Difference between fair
value and unpaid principal of loans more than 90 days past due, loans in
non-accrual status or both
|
|
205
|
|
Debt
|
|
|
|
Unpaid principal balance
|
|
6,021
|
|
Excess estimated unpaid
principal over fair value
|
|
(877
|
)
|
Carrying value at
estimated fair value
|
|
$
|
5,144
|
|
Interest income from loans, bonds and structured investments is
recorded based on contractual rates in net investment income. Gains and losses
related to changes in the fair value of investments and gains and losses on
sales of investments are recorded in net investment income. Interest expense on
debt is recorded in interest and debt expense with gains and losses related to
changes in the fair value of debt recorded in net investment income.
Total gains and losses recognized in net investment income from fair
value changes of financial assets and liabilities for which the fair value
option was elected was $28 million at March 31, 2010. For syndicated loans and debt measured at
fair value, the estimated amount of gains and losses included in earnings
attributable to instrument-specific credit risk for the three months ended March 31,
2010 was $189 million and $(183) million, respectively. The instrument-specific
credit risk gains were derived principally from the change in the observable or
implied credit spread for these instruments. Credit spread is determined based
on the market yield for these instruments less the applicable risk-free
benchmark rate. The gains included in net investment income attributable to the
narrowing of instrument-specific credit risk of debt is due to the overall
tightening of credit spreads for higher yielding instruments.
Debt of the consolidated investment entities and the stated interest
rates as of March 31, 2010 were as follows:
|
|
Carrying Value
|
|
Stated
Interest Rate
|
|
|
|
(in millions)
|
|
Debt of consolidated CDOs
due 2012-2021
|
|
$
|
5,144
|
|
1.0
|
%
|
Floating rate revolving
credit borrowings due 2013
|
|
134
|
|
4.6
|
|
Floating rate revolving
credit borrowings due 2014
|
|
186
|
|
5.9
|
|
Floating rate revolving
credit borrowings due 2014
|
|
38
|
|
4.9
|
|
Total
|
|
$
|
5,502
|
|
|
|
13
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The debt of
the consolidated CDOs have both fixed and floating interest rates. The stated
interest rate of the debt of consolidated CDOs is a weighted average rate based
on the principal and stated interest rate according to the terms of each CDO
structure, which range from 0% to 14.1%. The carrying value of the debt of the
consolidated CDOs represents the fair value of the aggregate debt as of March 31,
2010. The carrying value of the floating rate revolving credit borrowings
represent the outstanding principal amount of debt of certain consolidated
pooled investment vehicles managed by Threadneedle. The fair value of this debt
was $358 million as of March 31, 2010.
At March 31, 2010, future maturities of debt were as follows:
|
|
(in millions)
|
|
2011
|
|
$
|
|
|
2012
|
|
32
|
|
2013
|
|
301
|
|
2014
|
|
224
|
|
2015
|
|
356
|
|
Thereafter
|
|
5,466
|
|
Total future maturities
|
|
$
|
6,379
|
|
4. Investments
The following is a summary of Ameriprise Financial investments:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(in millions)
|
|
Available-for-Sale
securities, at fair value
|
|
$
|
31,414
|
|
$
|
32,546
|
|
Commercial mortgage loans,
net
|
|
2,643
|
|
2,663
|
|
Trading securities
|
|
544
|
|
556
|
|
Policy loans
|
|
720
|
|
720
|
|
Other investments
|
|
444
|
|
453
|
|
Total
|
|
$
|
35,765
|
|
$
|
36,938
|
|
Available-for-Sale securities distributed by type were as follows:
|
|
March 31, 2010
|
|
Description
of Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Non-Credit
OTTI
(1)
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
14,693
|
|
$
|
987
|
|
$
|
(51
|
)
|
$
|
15,629
|
|
$
|
16
|
|
Residential mortgage
backed securities
|
|
7,502
|
|
255
|
|
(440
|
)
|
7,317
|
|
(160
|
)
|
Commercial mortgage backed
securities
|
|
4,200
|
|
273
|
|
(6
|
)
|
4,467
|
|
|
|
Asset backed securities
|
|
1,937
|
|
80
|
|
(49
|
)
|
1,968
|
|
(17
|
)
|
State and municipal
obligations
|
|
1,608
|
|
28
|
|
(67
|
)
|
1,569
|
|
|
|
U.S. government and
agencies obligations
|
|
220
|
|
9
|
|
|
|
229
|
|
|
|
Foreign government bonds
and obligations
|
|
93
|
|
15
|
|
|
|
108
|
|
|
|
Common and preferred stocks
|
|
53
|
|
2
|
|
(5
|
)
|
50
|
|
|
|
Other debt obligations
|
|
77
|
|
|
|
|
|
77
|
|
|
|
Total
|
|
$
|
30,383
|
|
$
|
1,649
|
|
$
|
(618
|
)
|
$
|
31,414
|
|
$
|
(161
|
)
|
14
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
December 31, 2009
|
|
Description
of Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Non-Credit
OTTI
(1)
|
|
|
|
(in millions)
|
|
Corporate debt securities
|
|
$
|
15,336
|
|
$
|
894
|
|
$
|
(107
|
)
|
$
|
16,123
|
|
$
|
12
|
|
Residential mortgage
backed securities
|
|
8,050
|
|
218
|
|
(498
|
)
|
7,770
|
|
(152
|
)
|
Commercial mortgage backed
securities
|
|
4,437
|
|
196
|
|
(20
|
)
|
4,613
|
|
|
|
Asset backed securities
|
|
1,984
|
|
72
|
|
(62
|
)
|
1,994
|
|
(18
|
)
|
State and municipal
obligations
|
|
1,472
|
|
21
|
|
(76
|
)
|
1,417
|
|
|
|
U.S. government and
agencies obligations
|
|
379
|
|
9
|
|
(1
|
)
|
387
|
|
|
|
Foreign government bonds
and obligations
|
|
95
|
|
14
|
|
(1
|
)
|
108
|
|
|
|
Common and preferred
stocks
|
|
52
|
|
1
|
|
(10
|
)
|
43
|
|
|
|
Other structured
investments
|
|
22
|
|
36
|
|
|
|
58
|
|
21
|
|
Other debt obligations
|
|
33
|
|
|
|
|
|
33
|
|
|
|
Total
|
|
$
|
31,860
|
|
$
|
1,461
|
|
$
|
(775
|
)
|
$
|
32,546
|
|
$
|
(137
|
)
|
(1)
Represents the amount of other-than-temporary impairment losses in
Accumulated Other Comprehensive Income. Amount includes unrealized gains and
losses on impaired securities subsequent to the impairment measurement date.
These amounts are included in gross unrealized gains and losses as of the end
of the period.
At March 31, 2010
and December 31, 2009, fixed maturity securities comprised approximately
88% of Ameriprise Financial investments. These securities were rated by Moodys
Investors Service (Moodys), Standard & Poors Ratings Services (S&P)
and Fitch Ratings Ltd. (Fitch), except for approximately $1.2 billion of
securities at March 31, 2010 and December 31, 2009, 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:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
Ratings
|
|
Amortized
Cost
|
|
Fair Value
|
|
Percent of
Total Fair
Value
|
|
Amortized
Cost
|
|
Fair Value
|
|
Percent of
Total Fair
Value
|
|
|
|
(in millions, except percentages)
|
|
AAA
|
|
$
|
12,217
|
|
$
|
12,746
|
|
41
|
%
|
$
|
13,003
|
|
$
|
13,396
|
|
41
|
%
|
AA
|
|
1,567
|
|
1,586
|
|
5
|
|
1,616
|
|
1,601
|
|
5
|
|
A
|
|
4,455
|
|
4,626
|
|
15
|
|
4,778
|
|
4,910
|
|
15
|
|
BBB
|
|
10,001
|
|
10,679
|
|
34
|
|
10,261
|
|
10,802
|
|
33
|
|
Below investment grade
|
|
2,091
|
|
1,727
|
|
5
|
|
2,150
|
|
1,794
|
|
6
|
|
Total fixed maturities
|
|
$
|
30,331
|
|
$
|
31,364
|
|
100
|
%
|
$
|
31,808
|
|
$
|
32,503
|
|
100
|
%
|
At March 31, 2010 and December 31, 2009, approximately 33%
and 34%, 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 shareholders equity.
15
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following
tables provide information about Available-for-Sale securities with gross
unrealized losses and the length of time that individual securities have been
in a continuous unrealized loss position:
|
|
March 31, 2010
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Description
of Securities
|
|
Securities
|
|
Value
|
|
Losses
|
|
Securities
|
|
Value
|
|
Losses
|
|
Securities
|
|
Value
|
|
Losses
|
|
|
|
(in millions, except number of
securities)
|
|
Corporate debt securities
|
|
113
|
|
$
|
717
|
|
$
|
(10
|
)
|
134
|
|
$
|
979
|
|
$
|
(41
|
)
|
247
|
|
$
|
1,696
|
|
$
|
(51
|
)
|
Residential mortgage
backed securities
|
|
70
|
|
1,459
|
|
(35
|
)
|
174
|
|
903
|
|
(405
|
)
|
244
|
|
2,362
|
|
(440
|
)
|
Commercial mortgage backed
securities
|
|
11
|
|
68
|
|
(1
|
)
|
19
|
|
178
|
|
(5
|
)
|
30
|
|
246
|
|
(6
|
)
|
Asset backed securities
|
|
12
|
|
136
|
|
(2
|
)
|
37
|
|
187
|
|
(47
|
)
|
49
|
|
323
|
|
(49
|
)
|
State and municipal
obligations
|
|
69
|
|
263
|
|
(6
|
)
|
129
|
|
381
|
|
(61
|
)
|
198
|
|
644
|
|
(67
|
)
|
U.S. government and
agencies obligations
|
|
4
|
|
94
|
|
|
|
|
|
|
|
|
|
4
|
|
94
|
|
|
|
Common and preferred
stocks
|
|
3
|
|
|
|
|
|
3
|
|
45
|
|
(5
|
)
|
6
|
|
45
|
|
(5
|
)
|
Total
|
|
282
|
|
$
|
2,737
|
|
$
|
(54
|
)
|
496
|
|
$
|
2,673
|
|
$
|
(564
|
)
|
778
|
|
$
|
5,410
|
|
$
|
(618
|
)
|
|
|
December 31, 2009
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
Description
of Securities
|
|
Securities
|
|
Value
|
|
Losses
|
|
Securities
|
|
Value
|
|
Losses
|
|
Securities
|
|
Value
|
|
Losses
|
|
|
|
(in millions, except number of
securities)
|
|
Corporate debt securities
|
|
139
|
|
$
|
1,095
|
|
$
|
(18
|
)
|
193
|
|
$
|
1,368
|
|
$
|
(89
|
)
|
332
|
|
$
|
2,463
|
|
$
|
(107
|
)
|
Residential mortgage
backed securities
|
|
80
|
|
1,566
|
|
(51
|
)
|
172
|
|
904
|
|
(447
|
)
|
252
|
|
2,470
|
|
(498
|
)
|
Commercial mortgage backed
securities
|
|
37
|
|
373
|
|
(4
|
)
|
36
|
|
348
|
|
(16
|
)
|
73
|
|
721
|
|
(20
|
)
|
Asset backed securities
|
|
16
|
|
126
|
|
(3
|
)
|
38
|
|
207
|
|
(59
|
)
|
54
|
|
333
|
|
(62
|
)
|
State and municipal
obligations
|
|
64
|
|
318
|
|
(10
|
)
|
135
|
|
389
|
|
(66
|
)
|
199
|
|
707
|
|
(76
|
)
|
U.S. government and
agencies obligations
|
|
5
|
|
133
|
|
(1
|
)
|
|
|
|
|
|
|
5
|
|
133
|
|
(1
|
)
|
Foreign government bonds
and obligations
|
|
|
|
|
|
|
|
2
|
|
4
|
|
(1
|
)
|
2
|
|
4
|
|
(1
|
)
|
Common and preferred
stocks
|
|
2
|
|
|
|
|
|
3
|
|
39
|
|
(10
|
)
|
5
|
|
39
|
|
(10
|
)
|
Other structured
investments
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
6
|
|
|
|
|
|
Total
|
|
343
|
|
$
|
3,611
|
|
$
|
(87
|
)
|
585
|
|
$
|
3,259
|
|
$
|
(688
|
)
|
928
|
|
$
|
6,870
|
|
$
|
(775
|
)
|
As part of Ameriprise Financials ongoing monitoring process,
management determined that a majority of the gross unrealized losses on its
Available-for-Sale securities are attributable to credit spreads. The primary
driver of lower unrealized losses at March 31, 2010 was the tightening of
credit spreads across sectors.
16
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following
table presents a rollforward of the cumulative amounts recognized in the
Consolidated Statements of Operations for other-than-temporary impairments
related to credit losses on securities for which a portion of the securities
total other-than-temporary impairments was recognized in other comprehensive
income (loss):
|
|
2010
|
|
2009
|
|
|
|
(in millions)
|
|
Beginning balance of
credit losses on securities held as of January 1 for which a portion of
other-than-temporary impairment was recognized in other comprehensive income
|
|
$
|
263
|
|
$
|
258
|
|
Additional amount related
to credit losses for which an other-than-temporary impairment was not
previously recognized
|
|
15
|
|
8
|
|
Additional increases to
the amount related to credit losses for which an other-than-temporary
impairment was previously recognized
|
|
12
|
|
16
|
|
Ending balance of credit
losses on securities held as of March 31 for which a portion of
other-than-temporary impairment was recognized in other comprehensive income
|
|
$
|
290
|
|
$
|
282
|
|
The change in net unrealized securities gains (losses) in other
comprehensive income 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 include
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
investment 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,
2009
|
|
$
|
(1,479
|
)
|
$
|
518
|
|
$
|
(961
|
)
|
Cumulative effect of
accounting change
|
|
(211
|
)
(1)
|
74
|
|
(137
|
)
|
Net unrealized investment gains
arising during the period
|
|
242
|
|
(85
|
)
|
157
|
|
Reclassification of gains
included in net income
|
|
(16
|
)
|
6
|
|
(10
|
)
|
Impact of DAC, DSIC,
benefit reserves and reinsurance recoverables
|
|
(74
|
)
|
26
|
|
(48
|
)
|
Balance at March 31,
2009
|
|
$
|
(1,538
|
)
|
$
|
539
|
|
$
|
(999
|
)
(2)
|
|
|
|
|
|
|
|
|
Balance at January 1,
2010
|
|
$
|
474
|
|
$
|
(164
|
)
|
$
|
310
|
|
Net unrealized investment
gains arising during the period
|
|
342
|
|
(120
|
)
|
222
|
|
Reclassification of gains
included in net income
|
|
(2
|
)
|
1
|
|
(1
|
)
|
Impact of DAC, DSIC,
benefit reserves and reinsurance recoverables
|
|
(125
|
)
|
44
|
|
(81
|
)
|
Balance at March 31,
2010
|
|
$
|
689
|
|
$
|
(239
|
)
|
$
|
450
|
(2)
|
(1)
Amount represents the cumulative effect of
adopting a new accounting standard on January 1, 2009. See Note 2 for additional information on the
adoption impact.
(2)
At March 31, 2010 and 2009, Accumulated
Other Comprehensive Income Related to Net Unrealized Investment Gains included
$(84) million and $(134) million, respectively, of noncredit related
impairments on securities and net unrealized securities losses on previously
impaired securities.
17
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Net realized
gains and losses on Available-for-Sale securities, determined using the
specific identification method, were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in millions)
|
|
Gross realized gains from
sales
|
|
$
|
33
|
|
$
|
52
|
|
Gross realized losses from
sales
|
|
(1
|
)
|
(1
|
)
|
Other-than-temporary
impairments related to credit
|
|
(30
|
)
|
(35
|
)
|
|
|
|
|
|
|
|
|
The $30 million of other-than-temporary impairments for the three
months ended March 31, 2010 primarily related to credit losses on
non-agency residential mortgage backed securities.
The $35 million of other-than-temporary impairments in 2009 related
to credit losses on non-agency residential mortgage backed securities,
corporate debt securities primarily in the gaming industries and other
structured investments.
Available-for-Sale securities by contractual maturity at March 31, 2010
were as follows:
|
|
Amortized Cost
|
|
Fair Value
|
|
|
|
(in millions)
|
|
Due within one year
|
|
$
|
1,602
|
|
$
|
1,645
|
|
Due after one year through
five years
|
|
6,316
|
|
6,616
|
|
Due after five years
through 10 years
|
|
4,709
|
|
5,063
|
|
Due after 10 years
|
|
4,064
|
|
4,288
|
|
|
|
16,691
|
|
17,612
|
|
Residential mortgage
backed securities
|
|
7,502
|
|
7,317
|
|
Commercial mortgage backed
securities
|
|
4,200
|
|
4,467
|
|
Asset backed securities
|
|
1,937
|
|
1,968
|
|
Common and preferred
stocks
|
|
53
|
|
50
|
|
Total
|
|
$
|
30,383
|
|
$
|
31,414
|
|
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 March 31,
2010 and 2009 were $10 million and $4 million, respectively, for the three
months then ended.
18
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
5.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
The balances of and changes in DAC were as follows:
|
|
2010
|
|
2009
|
|
|
|
(in millions)
|
|
Balance at January 1
|
|
$
|
4,334
|
|
$
|
4,383
|
|
Capitalization of
acquisition costs
|
|
104
|
|
207
|
|
Amortization
|
|
(118
|
)
|
(286
|
)
|
Impact of change in net
unrealized securities gains
|
|
(77
|
)
|
(67
|
)
|
Balance at March 31
|
|
$
|
4,243
|
|
$
|
4,237
|
|
The balances of and changes in DSIC, which is included in other assets,
were as follows:
|
|
2010
|
|
2009
|
|
|
|
(in millions)
|
|
Balance at January 1
|
|
$
|
524
|
|
$
|
518
|
|
Capitalization of sales
inducement costs
|
|
15
|
|
22
|
|
Amortization
|
|
(12
|
)
|
(49
|
)
|
Impact of change in net
unrealized securities gains
|
|
(13
|
)
|
(14
|
)
|
Balance at March 31
|
|
$
|
514
|
|
$
|
477
|
|
6. Future Policy Benefits and Claims and
Separate Account Liabilities
Future policy benefits and claims consisted of the following:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(in millions)
|
|
Fixed annuities
|
|
$
|
16,571
|
|
$
|
16,558
|
|
Equity indexed annuities (EIA)
accumulated host values
|
|
141
|
|
159
|
|
EIA embedded derivatives
|
|
7
|
|
9
|
|
Variable annuities fixed
sub-accounts
|
|
6,123
|
|
6,127
|
|
Variable annuity
guaranteed minimum withdrawal benefits (GMWB)
|
|
121
|
|
204
|
|
Variable annuity
guaranteed minimum accumulation benefits (GMAB)
|
|
78
|
|
100
|
|
Other variable annuity
guarantees
|
|
10
|
|
12
|
|
Total annuities
|
|
23,051
|
|
23,169
|
|
Variable universal life
(VUL)/ universal life (UL) insurance
|
|
2,609
|
|
2,595
|
|
Other life, disability
income and long term care insurance
|
|
4,678
|
|
4,619
|
|
Auto, home and other
insurance
|
|
386
|
|
380
|
|
Policy claims and other
policyholders funds
|
|
142
|
|
123
|
|
Total
|
|
$
|
30,866
|
|
$
|
30,886
|
|
Separate account liabilities consisted of the following:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(in millions)
|
|
Variable annuity variable
sub-accounts
|
|
$
|
50,921
|
|
$
|
48,982
|
|
VUL insurance variable
sub-accounts
|
|
5,446
|
|
5,239
|
|
Other insurance variable
sub-accounts
|
|
45
|
|
46
|
|
Threadneedle investment
liabilities
|
|
3,914
|
|
3,862
|
|
Total
|
|
$
|
60,326
|
|
$
|
58,129
|
|
19
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
7.
Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company
contain guaranteed minimum death benefit (GMDB) provisions. The Company
also offers variable annuities with death benefit provisions that gross up the
amount payable by a certain percentage of contract earnings, which are referred
to as gain gross-up (GGU) benefits. In addition, the Company offers contracts
with GMWB and GMAB provisions. The Company previously offered contracts
containing guaranteed minimum income benefit (GMIB) provisions.
Certain 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 information related to variable annuity
guarantees for which the Company has established additional liabilities:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
Variable
annuity
guarantees by
benefit type
(1)
|
|
Total
contract
value
|
|
Contract
value in
separate
accounts
|
|
Net
amount at
risk
(2)
|
|
Weighted
average
attained age
|
|
Total
contract
value
|
|
Contract
value in
separate
accounts
|
|
Net
amount at
risk
(2)
|
|
Weighted
average
attained age
|
|
|
|
(in millions, except age)
|
|
|
|
GMDB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of premium
|
|
$
|
32,513
|
|
$
|
29,959
|
|
$
|
614
|
|
62
|
|
$
|
30,938
|
|
$
|
28,415
|
|
$
|
974
|
|
61
|
|
Five/six-year reset
|
|
13,998
|
|
11,325
|
|
691
|
|
62
|
|
13,919
|
|
11,223
|
|
929
|
|
61
|
|
One-year ratchet
|
|
7,284
|
|
6,620
|
|
666
|
|
63
|
|
7,081
|
|
6,400
|
|
873
|
|
63
|
|
Five-year ratchet
|
|
1,309
|
|
1,223
|
|
25
|
|
59
|
|
1,256
|
|
1,171
|
|
38
|
|
59
|
|
Other
|
|
565
|
|
535
|
|
84
|
|
67
|
|
549
|
|
516
|
|
95
|
|
67
|
|
Total GMDB
|
|
$
|
55,669
|
|
$
|
49,662
|
|
$
|
2,080
|
|
62
|
|
$
|
53,743
|
|
$
|
47,725
|
|
$
|
2,909
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGU death
benefit
|
|
$
|
887
|
|
$
|
806
|
|
$
|
72
|
|
63
|
|
$
|
853
|
|
$
|
775
|
|
$
|
70
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMIB
|
|
$
|
631
|
|
$
|
588
|
|
$
|
110
|
|
63
|
|
$
|
628
|
|
$
|
582
|
|
$
|
126
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB
|
|
$
|
4,273
|
|
$
|
4,141
|
|
$
|
322
|
|
64
|
|
$
|
4,196
|
|
$
|
4,067
|
|
$
|
454
|
|
64
|
|
GMWB for life
|
|
16,051
|
|
15,379
|
|
526
|
|
63
|
|
14,988
|
|
14,333
|
|
795
|
|
63
|
|
Total GMWB
|
|
$
|
20,324
|
|
$
|
19,520
|
|
$
|
848
|
|
63
|
|
$
|
19,184
|
|
$
|
18,400
|
|
$
|
1,249
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAB
|
|
$
|
3,063
|
|
$
|
2,986
|
|
$
|
98
|
|
56
|
|
$
|
2,926
|
|
$
|
2,853
|
|
$
|
153
|
|
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 the 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, 2009
|
|
$
|
55
|
|
$
|
12
|
|
$
|
1,471
|
|
$
|
367
|
|
$
|
7
|
|
Incurred claims
|
|
23
|
|
1
|
|
(272
|
)
|
(37
|
)
|
2
|
|
Paid claims
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
Liability balance at
March 31, 2009
|
|
$
|
52
|
|
$
|
13
|
|
$
|
1,199
|
|
$
|
330
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance at
January 1, 2010
|
|
$
|
6
|
|
$
|
6
|
|
$
|
204
|
|
$
|
100
|
|
$
|
15
|
|
Incurred claims
|
|
3
|
|
|
|
(83
|
)
|
(22
|
)
|
4
|
|
Paid claims
|
|
(5
|
)
|
|
|
|
|
|
|
(2
|
)
|
Liability balance at
March 31, 2010
|
|
$
|
4
|
|
$
|
6
|
|
$
|
121
|
|
$
|
78
|
|
$
|
17
|
|
20
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
8.
Customer Deposits
Customer deposits consisted of the following:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(in millions)
|
|
Fixed rate certificates
|
|
$
|
2,834
|
|
$
|
3,172
|
|
Stock market based
certificates
|
|
863
|
|
852
|
|
Stock market embedded
derivative reserve
|
|
22
|
|
26
|
|
Other
|
|
57
|
|
59
|
|
Less: accrued interest
classified in other liabilities
|
|
(29
|
)
|
(33
|
)
|
Total investment
certificate reserves
|
|
3,747
|
|
4,076
|
|
Brokerage deposits
|
|
1,902
|
|
1,894
|
|
Banking deposits
|
|
2,983
|
|
2,584
|
|
Total
|
|
$
|
8,632
|
|
$
|
8,554
|
|
9. Debt
The balances and the stated interest rates of outstanding debt of
Ameriprise Financial were as follows:
|
|
Outstanding Balance
|
|
Stated Interest Rate
|
|
|
|
March 31,
2010
|
|
December 31,
2009
|
|
March 31,
2010
|
|
December 31,
2009
|
|
|
|
(in millions)
|
|
|
|
|
|
Senior notes due 2010
|
|
$
|
340
|
|
$
|
340
|
|
5.4
|
%
|
5.4
|
%
|
Senior notes due 2015
|
|
700
|
(1)
|
700
|
|
5.7
|
|
5.7
|
|
Senior notes due 2019
|
|
298
|
(1)
|
300
|
|
7.3
|
|
7.3
|
|
Senior notes due 2020
|
|
746
|
(1)
|
|
|
5.3
|
|
|
|
Senior notes due 2039
|
|
200
|
|
200
|
|
7.8
|
|
7.8
|
|
Junior subordinated notes
due 2066
|
|
322
|
|
322
|
|
7.5
|
|
7.5
|
|
Municipal bond inverse
floater certificates due 2021
|
|
6
|
|
6
|
|
0.3
|
|
0.3
|
|
Total
|
|
$
|
2,612
|
|
$
|
1,868
|
|
|
|
|
|
(1)
Amounts include the fair value of associated
fair value hedges on the Companys long-term debt and any unamortized
discounts.
On March 11, 2010, Ameriprise Financial issued $750 million
aggregate principal amount of unsecured senior notes which mature on March 15,
2020, and incurred debt issuance costs of $6 million. Interest payments are due
semi-annually in arrears on March 15 and September 15, commencing September 15,
2010.
During the first quarter of 2009, Ameriprise Financial extinguished
$113 million aggregate principal amount of its junior subordinated notes
due 2066 in open market transactions and recognized a gain of $50 million
in other revenues.
21
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
10.
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 net asset value (NAV) and classified as Level 1.
The Companys remaining cash equivalents are classified as Level 2 and
measured at amortized cost, which is a reasonable estimate of fair value
because of the short time between the purchase of the instrument and its
expected realization.
Investments (Trading
Securities and Available-for-Sale Securities)
When available, the fair value of securities is based on quoted prices
in active markets. If quoted prices are not available, fair values are obtained
from nationally-recognized pricing services, broker quotes, or other
model-based valuation techniques. 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. The fair value of these Level 2 securities is based on a market approach
with prices obtained from nationally-recognized pricing services. Observable inputs used to value these
securities can include: reported trades, benchmark yields, issuer spreads and
broker/dealer quotes. Level 3 securities
include non-agency residential mortgage backed securities, commercial mortgage
backed securities, asset backed securities, corporate bonds and seed money in
property funds. The fair value of these Level 3 securities is typically based
on a single broker quote, except for the valuation of non-agency residential mortgage
backed securities, described in detail below.
While the Company believes the market for non-agency residential
mortgage backed securities is still inactive, effective March 31, 2010,
the Company returned to using prices from nationally-recognized pricing
services to determine the fair value of certain non-agency residential mortgage
backed securities because the difference between these prices and the results
of the Companys discounted cash flows was not significant.
22
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.
Other Assets
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.
Liabilities
Future Policy
Benefits and Claims
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 (such as, market implied equity
volatility and the LIBOR swap curve) and
incorporate significant unobservable inputs related to contractholder behavior
assumptions (such as withdrawals and lapse rates) 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. 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. The inputs to these calculations are primarily market
observable and include interest rates, volatilities, and equity index levels.
As a result, these measurements are classified as Level 2.
Customer Deposits
The Company uses various Black-Scholes calculations to determine the
fair value of the embedded derivative liability associated with the provisions
of its stock market certificates. The inputs to these calculations are primarily
market observable and include interest rates, volatilities, and equity index
levels. As a result, these measurements are classified as Level 2.
Other Liabilities
Derivatives that are measured using quoted prices in active markets,
such as foreign 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.
Securities sold not yet purchased include highly liquid investments
which are short-term in nature. Level 1 securities include U.S. Treasuries and
securities traded in active markets. The remaining securities sold not yet
purchased are measured using amortized cost, which is a reasonable estimate of
fair value because of the short time between the purchase of the instrument and
its expected realization.
23
Table of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following
tables present the balances of assets and liabilities of Ameriprise Financial
measured at fair value on a recurring basis:
|
|
March 31, 2010
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
83
|
|
$
|
4,506
|
|
$
|
|
|
$
|
4,589
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
14,371
|
|
1,258
|
|
15,629
|
|
Residential mortgage
backed securities
|
|
|
|
3,432
|
|
3,885
|
|
7,317
|
|
Commercial mortgage backed
securities
|
|
|
|
4,387
|
|
80
|
|
4,467
|
|
Asset backed securities
|
|
|
|
1,509
|
|
459
|
|
1,968
|
|
State and municipal
obligations
|
|
|
|
1,569
|
|
|
|
1,569
|
|
U.S. government and
agencies obligations
|
|
21
|
|
208
|
|
|
|
229
|
|
Foreign government bonds
and obligations
|
|
|
|
108
|
|
|
|
108
|
|
Common and preferred
stocks
|
|
|
|
46
|
|
4
|
|
50
|
|
Other debt obligations
|
|
|
|
77
|
|
|
|
77
|
|
Total Available-for-Sale
securities
|
|
21
|
|
25,707
|
|
5,686
|
|
31,414
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
Seed money
|
|
105
|
|
69
|
|
16
|
|
190
|
|
Investments segregated for
regulatory purposes
|
|
2
|
|
313
|
|
|
|
315
|
|
Other
|
|
|
|
36
|
|
|
|
36
|
|
Total Trading securities
|
|
107
|
|
418
|
|
16
|
|
541
|
|
Separate account assets
|
|
|
|
60,326
|
|
|
|
60,326
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Interest rate derivative
contracts
|
|
|
|
169
|
|
|
|
169
|
|
Equity derivative contract
|
|
|
|
458
|
|
|
|
458
|
|
Other
|
|
2
|
|
2
|
|
|
|
4
|
|
Total Other assets
|
|
2
|
|
629
|
|
|
|
631
|
|
Total assets at fair value
|
|
$
|
213
|
|
$
|
91,586
|
|
$
|
5,702
|
|
$
|
97,501
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and
claims:
|
|
|
|
|
|
|
|
|
|
EIA embedded derivatives
|
|
$
|
|
|
$
|
7
|
|
$
|
|
|
$
|
7
|
|
GMWB and GMAB embedded
derivatives
|
|
|
|
|
|
193
|
|
193
|
|
Total Future policy
benefits and claims
|
|
|
|
7
|
|
193
|
|
200
|
|
Customer deposits
|
|
|
|
22
|
|
|
|
22
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
contacts
|
|
|
|
197
|
|
|
|
197
|
|
Equity derivative
contracts
|
|
|
|
700
|
|
|
|
700
|
|
Other
|
|
1
|
|
4
|
|
|
|
5
|
|
Total Other liabilities
|
|
1
|
|
901
|
|
|
|
902
|
|
Total liabilities at fair
value
|
|
$
|
1
|
|
$
|
930
|
|
$
|
193
|
|
$
|
924
|
|
24
Table
of Contents
AMERIPRISE FINANCIAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
57
|
|
$
|
2,733
|
|
$
|
|
|
$
|
2,790
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
14,871
|
|
1,252
|
|
16,123
|
|
Residential mortgage
backed securities
|
|
|
|
3,788
|
|
3,982
|
|
7,770
|
|
Commercial mortgage backed
securities
|
|
|
|
4,541
|
|
72
|
|
4,613
|
|
Asset backed securities
|
|
|
|
1,539
|
|
455
|
|
1,994
|
|
State and municipal
obligations
|
|
|
|
1,417
|
|
|
|
1,417
|
|
U.S. government and
agencies obligations
|
|
64
|
|
323
|
|
|
|
387
|
|
Foreign government bonds
and obligations
|
|
|
|
108
|
|
|
|
108
|
|
Common and preferred
stocks
|
|
|
|
39
|
|
4
|
|
43
|
|
Other structured investments
|
|
|
|
|
|
58
|
|
58
|
|
Other debt obligations
|
|
|
|
33
|
|
|
|
33
|
|
Total Available-for-Sale
securities
|
|
64
|
|
26,659
|
|
5,823
|
|
32,546
|
|
Trading securities
|
|
101
|
|
436
|
|
16
|
|
553
|
|
Separate account assets
|
|
|
|
58,129
|
|
|
|
58,129
|
|
Other assets
|
|
1
|
|
815
|
|
|
|
816
|
|
Total assets at fair value
|
|
$
|
223
|
|
$
|
88,772
|
|
$
|
5,839
|
|
$
|
94,834
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and
claims
|
|
$
|
|
|
$
|
9
|
|
$
|
299
|
|
$
|
308
|
|
Customer deposits
|
|
|
|
26
|
|
|
|
26
|
|
Other liabilities
|
|
1
|
|
937
|
|
|
|
938
|
|
Total liabilities at fair
value
|
|
$
|
1
|
|
$
|
972
|
|
$
|
299
|
|
$
|
1,272
|
|
The following
tables provide a summary of changes in Level 3 assets and liabilities of
Ameriprise Financial measured at fair value on a recurring basis:
|
|
|
|
Total Gains (Losses)
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Included in
|
|
Sales,
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
Other Com-
|
|
Issuances
|
|
Transfers
|
|
Balance,
|
|
|
|
January 1,
|
|
Net
|
|
prehensive
|
|
and Settle-
|
|
In/(Out) of
|
|
March 31,
|
|
|
|
2010
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2010
|
|
|
|
(in millions)
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,252
|
|
$
|
|
|
$
|
19
|
|
$
|
(13
|
)
|
$
|
|
|
$
|
1,258
|
|
Residential mortgage
backed securities
|
|
3,982
|
|
(5
|
)
|
76
|
|
(168
|
)
|
|
|
3,885
|
|
Commercial mortgage backed
securities
|
|
72
|
|
|
|
8
|
|
|
|
|
|
80
|
|
Asset backed securities
|
|
455
|
|
4
|
|
18
|
|
(18
|
)
|
|
|
459
|
|
Common and preferred
stocks
|
|
4
|
|
|
|
|
|
|
|
|
|
4
|
|
Other structured
investments
|
|
58
|
|
1
|
|
5
|
|
(64
|
)
|
|
|
|
|
Total Available-for-Sale
securities
|
|
5,823
|
|
|
(1)
|
126
|
|
(263
|
)
|
|
|
5,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
16
|
|
1
|
(1)
|
(1
|
)
|
|
|
|
|
16
|
|
Future policy benefits and
claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB embedded
derivatives
|
|
(299
|
)
|
134
|
(2)
|
|
|
(28
|
)
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment income in the
Consolidated Statements of Operations.
(2)
Included in benefits, claims, losses and
settlement expenses in the Consolidated Statements of Operations.
25
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
|
|
March 31,
|
|
|
|
2009
|
|
Income
|
|
Income
|
|
ments, Net
|
|
Level 3
|
|
2009
|
|
|
|
(in millions)
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
1,120
|
|
$
|
|
|
$
|
25
|
|
$
|
(43
|
)
|
$
|
(14
|
)
|
$
|
1,088
|
|
Residential mortgage
backed securities
|
|
1,208
|
|
(8
|
)
|
6
|
|
1,528
|
|
|
|
2,734
|
|
Commercial mortgage backed
securities
|
|
3
|
|
|
|
|
|
|
|
|
|
3
|
|
Asset backed securities
|
|
222
|
|
2
|
|
(6
|
)
|
68
|
|
|
|
286
|
|
Common and preferred
stocks
|
|
10
|
|
|
|
|
|
|
|
|
|
10
|
|
Other structured
investments
|
|
50
|
|
(3
|
)
|
(7
|
)
|
(2
|
)
|
|
|
38
|
|
Other debt obligations
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Total Available-for-Sale
securities
|
|
2,613
|
|
(9
|
)
(1)
|
18
|
|
1,556
|
|
(14
|
)
(3)
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
30
|
|
|
|
(1
|
)
|
(4
|
)
|
|
|
25
|
|
Other assets
|
|
199
|
|
(3
|
)
(2)
|
|
|
(71
|
)
|
|
|
125
|
|
Future policy benefits and
claims
|
|
(1,832
|
)
|
331
|
(2)
|
|
|
(15
|
)
|
|
|
(1,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Included in net investment income in the
Consolidated Statements of Operations.
(2)
Included in benefits, claims, losses and
settlement expenses in the Consolidated Statements of Operations.
(3)
Represents a security transferred to Level 2
as the fair value is now obtained from a nationally-recognized pricing service.
Previously, the fair value of the security was based on broker quotes.
The Company recognizes transfers between levels of the fair value
hierarchy as of the beginning of the quarter in which each transfer occurred.
The following table presents the changes in unrealized gains (losses)
included in net income related to Level 3 assets and liabilities of Ameriprise
Financial held at March 31 for the three months then ended:
|
|
2010
|
|
2009
|
|
|
|
Net
Investment
Income
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
Net
Investment
Income
|
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
|
|
|
(in millions)
|
|
Available-for-Sale
securities:
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Residential mortgage backed
securities
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
Commercial mortgage backed
securities
|
|
|
|
|
|
|
|
|
|
Asset backed securities
|
|
4
|
|
|
|
2
|
|
|
|
Other structured
investments
|
|
|
|
|
|
(3
|
)
|
|
|
Total Available-for-Sale
securities
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
Future policy benefits and
claims
|
|
|
|
132
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the reporting period, there were no material assets or
liabilities measured at fair value on a nonrecurring basis.
26
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 above in the
table with balances of assets and liabilities Ameriprise Financial measured at
fair value on a recurring basis.
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
(in millions)
|
|
(in millions)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans, net
|
|
$
|
2,643
|
|
$
|
2,666
|
|
$
|
2,663
|
|
$
|
2,652
|
|
Policy loans
|
|
720
|
|
768
|
|
720
|
|
795
|
|
Receivables
|
|
1,434
|
|
1,083
|
|
1,387
|
|
1,055
|
|
Restricted and segregated cash
|
|
1,532
|
|
1,532
|
|
1,633
|
|
1,633
|
|
Other investments and assets
|
|
420
|
|
458
|
|
451
|
|
468
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Future policy benefits and claims
|
|
$
|
15,492
|
|
$
|
15,413
|
|
$
|
15,540
|
|
$
|
15,657
|
|
Investment certificate reserves
|
|
3,725
|
|
3,726
|
|
4,050
|
|
4,053
|
|
Banking and brokerage customer deposits
|
|
4,885
|
|
4,885
|
|
4,478
|
|
4,478
|
|
Separate account liabilities
|
|
4,324
|
|
4,324
|
|
4,268
|
|
4,268
|
|
Debt and other liabilities
|
|
2,690
|
|
2,829
|
|
2,365
|
|
2,407
|
|
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 may also 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.
27
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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
margin, expense margin, early policy surrender behavior, a provision for
adverse deviation from estimated early policy surrender behavior, and the
Companys nonperformance 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.
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 nonperformance 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 nonperformance adjustment is not included as the related separate
account assets act as collateral for these liabilities and minimize
nonperformance 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 values are obtained from
nationally-recognized pricing services, broker quotes, or other model-based
valuation techniques such as present value of cash flows.
28
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
11. Derivatives and Hedging Activities of
Ameriprise Financial
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:
|
|
Balance
|
|
Asset
|
|
Balance
|
|
Liability
|
|
Derivatives designated
|
|
Sheet
|
|
March 31,
|
|
December 31,
|
|
Sheet
|
|
March 31,
|
|
December 31,
|
|
as hedging instruments
|
|
Location
|
|
2010
|
|
2009
|
|
Location
|
|
2010
|
|
2009
|
|
|
|
|
|
(in millions)
|
|
|
|
(in millions)
|
|
Cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on debt
|
|
Other assets
|
|
$
|
|
|
$
|
19
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
Other assets
|
|
3
|
|
|
|
Other liabilities
|
|
2
|
|
|
|
Total qualifying hedges
|
|
|
|
3
|
|
19
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Other assets
|
|
166
|
|
176
|
|
Other liabilities
|
|
195
|
|
280
|
|
Interest rate lock commitments
|
|
Other assets
|
|
|
|
1
|
|
|
|
|
|
|
|
Equity
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Other assets
|
|
326
|
|
437
|
|
Other liabilities
|
|
589
|
|
474
|
|
GMDB
|
|
|
|
|
|
|
|
Other liabilities
|
|
2
|
|
2
|
|
Equity indexed annuities
|
|
Other assets
|
|
1
|
|
2
|
|
|
|
|
|
|
|
Equity indexed annuities
embedded derivatives
|
|
|
|
|
|
|
|
Future policy
benefits and claims
|
|
7
|
|
9
|
|
Stock market certificates
|
|
Other assets
|
|
131
|
|
166
|
|
Other liabilities
|
|
109
|
|
141
|
|
Stock market certificates
embedded derivatives
|
|
|
|
|
|
|
|
Customer deposits
|
|
22
|
|
26
|
|
Seed money
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
1
|
|
Foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money
|
|
Other assets
|
|
1
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB and GMAB embedded
derivatives
(1)
|
|
|
|
|
|
|
|
Future policy
benefits and
claims
|
|
193
|
|
299
|
|
Total non-designated
|
|
|
|
625
|
|
782
|
|
|
|
1,117
|
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
628
|
|
$
|
801
|
|
|
|
$
|
1,119
|
|
$
|
1,232
|
|
(1)
The fair
values of GMWB and GMAB embedded derivatives fluctuate primarily based on
changes in equity, interest rate and credit markets.
See
Note 10 for additional information regarding the Companys fair value
measurement of derivative instruments.
29
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Derivatives Not Designated
as Hedges
The
following table presents a summary of the impact of derivatives not designated
as hedging instruments on the Consolidated Statements of Operations:
|
|
|
|
Amount of Gain (Loss) on
|
|
|
|
|
|
Derivatives Recognized in Income
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
Derivatives not designated as
|
|
Location of Gain (Loss) on
|
|
Ended
|
|
Ended
|
|
hedging instruments
|
|
Derivatives Recognized in Income
|
|
March 31, 2010
|
|
March 31, 2009
|
|
|
|
|
|
(in millions)
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits,
claims, losses and settlement expenses
|
|
$
|
26
|
|
$
|
(123
|
)
|
Equity contracts
|
|
|
|
|
|
|
|
GMWB and GMAB
|
|
Benefits,
claims, losses and settlement expenses
|
|
(183
|
)
|
61
|
|
GMDB
|
|
Benefits,
claims, losses and settlement expenses
|
|
(3
|
)
|
|
|
Equity indexed annuities
|
|
Interest
credited to fixed accounts
|
|
1
|
|
(2
|
)
|
Equity indexed annuities embedded derivatives
|
|
Interest
credited to fixed accounts
|
|
2
|
|
1
|
|
Stock market certificates
|
|
Banking
and deposit interest expense
|
|
3
|
|
(3
|
)
|
Stock market certificates embedded derivatives
|
|
Banking
and deposit interest expense
|
|
4
|
|
(2
|
)
|
Seed money
|
|
Net
investment income
|
|
(2
|
)
|
10
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
Seed money
|
|
General
and administrative expense
|
|
2
|
|
3
|
|
Other
|
|
|
|
|
|
|
|
GMWB and GMAB embedded derivatives
|
|
Benefits,
claims, losses and settlement expenses
|
|
106
|
|
316
|
|
Total
|
|
|
|
$
|
(44
|
)
|
$
|
261
|
|
The Company
holds derivative instruments that either do not qualify or are not designated
for hedge accounting treatment. These derivative instruments are used as
economic hedges of equity, interest rate and foreign currency exchange rate
risk related to various products and transactions of the Company.
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 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 March 31, 2010,
the gross notional amount of these contracts was $36.5 billion and
$78 million for the Companys GMWB and GMAB provisions and GMDB
provisions, respectively. At December 31, 2009, the gross notional
amount of these contracts was $38.7 billion and $77 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)
|
|
2010
(1)
|
|
$
|
166
|
|
$
|
5
|
|
2011
|
|
204
|
|
4
|
|
2012
|
|
174
|
|
3
|
|
2013
|
|
151
|
|
2
|
|
2014
|
|
126
|
|
1
|
|
2015-2024
|
|
434
|
|
4
|
|
|
|
|
|
|
|
|
|
(1)
2010 amounts represent the amounts payable and receivable for the
period from April 1, 2010 to December 31, 2010.
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.
30
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
$1.6 billion at March 31, 2010 and December 31, 2009.
The Company
enters into forward contracts, 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
$183 million and $191 million at March 31, 2010 and December 31,
2009, respectively.
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 $5 million and $7 million at March 31, 2010
and December 31, 2009, respectively.
In
the first quarter of 2010, the Company entered into a total return swap to
hedge its exposure to equity price risk of Ameriprise Financial, Inc.
common stock granted as part of its Deferred Equity Program for Independent Financial
Advisors. As part of the contract, the Company expects to cash settle the
difference between the value of a fixed number of shares at the contract date (which
may be increased from time to time) and the value of those shares over an
unwind period ending on December 31, 2010. The gross notional value of
this contract was $31 million at March 31, 2010.
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 designated and accounts for the following as cash flow hedges: (i) interest
rate swaps to hedge interest rate exposure on debt, (ii) interest rate
lock agreements to hedge interest rate exposure on debt issuances and (iii) swaptions
used to hedge the risk of increasing interest rates on forecasted fixed premium
product sales. The Company records amounts in accumulated other comprehensive
income related to gains and losses associated with the effective portion of
designated cash flow hedges. The Company reclassifies these amounts into income
as the forecasted transactions impact earnings.
In
November 2005, the Company terminated its swap agreements and recorded a
gain in accumulated other comprehensive income. The gain on the swaps is being
amortized as a reduction to interest expense over the period that the
forecasted cash flows are expected to occur. As of January 2007, the
Company removed the hedge designation from its swaptions due to the hedge
relationship no longer being highly effective. Amounts previously recorded in
accumulated other comprehensive income will be reclassified into earnings as
the originally forecasted transactions occur. In March 2010, the Company
terminated its rate lock agreement and recorded a gain in accumulated other
comprehensive income. The gain on the rate lock is being amortized as a
reduction in interest expense over the period that the forecasted cash flows
are expected to occur. The following table shows the impact of the effective
portion of the Companys cash flow hedges on the Consolidated Statements of Operations
and the Consolidated Statements of Equity for the periods ended March 31, 2010
and 2009:
|
|
Amount of Loss Recognized
|
|
|
|
Amount of Gain (Loss) Reclassified
|
|
|
|
in Other Comprehensive
|
|
|
|
from Accumulated Other
|
|
|
|
Income on Derivatives
|
|
Location of Gain (Loss)
|
|
Comprehensive Income into Income
|
|
|
|
Three Months
|
|
Three Months
|
|
Reclassified from Accumulated
|
|
Three Months
|
|
Three Months
|
|
Derivatives designated
|
|
Ended
|
|
Ended
|
|
Other Comprehensive
|
|
Ended
|
|
Ended
|
|
as hedging instruments
|
|
March 31, 2010
|
|
March 31, 2009
|
|
Income into Income
|
|
March 31, 2010
|
|
March 31, 2009
|
|
|
|
(in millions)
|
|
|
|
(in millions)
|
|
Cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest on debt
|
|
$
|
(10
|
)
|
$
|
|
|
Interest and debt expense
|
|
$
|
2
|
|
$
|
2
|
|
Fixed annuity products
|
|
|
|
|
|
Net investment income
|
|
(2
|
)
|
(2
|
)
|
Total
|
|
$
|
(10
|
)
|
$
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
31
Table of
Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
At
March 31, 2010, the Company expects to reclassify
$2 million of net pretax gains on derivative instruments from accumulated
other comprehensive income (loss) to earnings during the next
12 months. The $2 million net pretax gain is made up of an
$8 million deferred gain related to interest rate swaps that will be
recorded as a reduction to interest and debt expense, partially offset by a
$6 million deferred loss related to interest rate swaptions that will be
recorded in net investment income. For any hedge relationships that are
discontinued because the forecasted transaction is not expected to occur
according to the original strategy, any related amounts previously recorded in
accumulated other comprehensive income are recognized in earnings immediately.
No hedge relationships were discontinued during the periods ended March 31, 2010
and 2009 due to forecasted transactions no longer being expected to occur
according to the original hedge strategy. For the three months ended March 31,
2010 and 2009, amounts recognized in earnings on derivative transactions that
were ineffective were nil.
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.
Fair Value Hedges
During
the first quarter of 2010, the Company entered into and designated three
interest rate swaps to convert senior notes due 2015, 2019 and 2020 from fixed
rate debt to floating debt. The swaps have identical terms as the underlying
debt being hedged so there is no expected ineffectiveness related to the
hedges. The Company recognizes gains and losses on the derivatives and the
related hedged items within net interest and debt expense. The following table
shows the amounts recognized in income for the period ended March 31,
2010:
Derivatives designated as hedging instruments
|
|
Location of Gain Recorded into
Income
|
|
Amount of Gain
Recognized in Income
on Derivative
|
|
|
|
|
|
(in millions)
|
|
Fair Value hedges
|
|
|
|
|
|
Fixed rate debt
|
|
Interest
and debt expense
|
|
$
|
6
|
|
Total
|
|
|
|
$
|
6
|
|
Credit Risk
Credit
risk associated with the Companys derivatives is the risk that a
derivative counterparty will not perform in accordance with the terms of the
applicable derivative contract. To mitigate such risk, the Company has
established guidelines and oversight of credit risk through a comprehensive
enterprise risk management program that includes members of senior management.
Key components of this program are to require preapproval of counterparties and
the use of master netting arrangements and collateral arrangements wherever
practical. As of March 31, 2010 and December 31, 2009, the
Company held $47 million and $103 million, respectively, 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 March 31, 2010
and December 31, 2009, the
Company had accepted additional collateral consisting
of various securities with a fair market value of nil and $22 million,
respectively, which are not reflected on the Consolidated Balance Sheets.
As of March 31, 2010
and December 31, 2009, the Companys maximum credit exposure related
to derivative assets after considering netting arrangements with counterparties
and collateral arrangements was approximately $33 million and $83 million,
respectively.
Certain
of the Companys derivative instruments contain provisions that adjust the
level of collateral the Company is required to post based on the Companys debt
rating (or based on the financial strength of the Companys life insurance
subsidiaries for contracts in which those subsidiaries are the counterparty).
Additionally, certain of the Companys derivative contracts contain provisions
that allow the counterparty to terminate the contract if the Companys debt
does not maintain a specific credit rating (generally an investment grade
rating) or the Companys life insurance subsidiary does not maintain a specific
financial strength rating. If these termination provisions were to be
triggered, the Companys counterparty could require immediate settlement of any
net liability position. At March 31, 2010 and December 31, 2009,
the aggregate fair value of all derivative instruments in a net liability
position containing such credit risk features was $347 million and $297
million, respectively. The aggregate fair value of assets posted as collateral
for such instruments as of March 31, 2010 and December 31, 2009
was $336 million and $269 million, respectively. If the credit risk
features of derivative contracts that were in a net liability position at March 31, 2010
and December 31, 2009 were triggered, the additional fair value of assets
needed to settle these derivative liabilities would have been $11 million
and $28 million, respectively.
12. Income
Taxes
The
Companys effective tax rates were 17.9% and 13.3% for the three months ended March 31, 2010
and 2009, respectively. The increase in the effective tax rate primarily
reflects an increase in pretax income relative to tax advantaged items for the
three months ended March 31, 2010.
32
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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, i) future
taxable income exclusive of reversing temporary differences and carryforwards,
ii) future reversals of existing taxable temporary differences,
iii) taxable income in prior carryback years, and iv) tax planning
strategies. Based on analysis of the Companys tax position, management
believes it is more likely than not that the results of future operations and
implementation of tax planning strategies will generate sufficient taxable
income to enable the Company to utilize all of its deferred tax assets.
Accordingly, no valuation allowance for deferred tax assets has been
established as of March 31, 2010 and 2009.
Included
in the Companys deferred income tax assets are tax benefits related to net
operating loss carryforwards of $14 million which will expire beginning December 31,
2025. As a result of the Companys ability to file a consolidated U.S. federal
income tax return including the Companys life insurance subsidiaries in 2010,
as well as the expected level of taxable income management believes the Companys
tax credit carryforwards will be utilized in the current year and therefore are
not reflected as a deferred tax asset.
As
of March 31, 2010 and December 31, 2009, the Company had $7
million of gross unrecognized tax benefits and $33 million of gross
unrecognized tax expense, respectively. If recognized, approximately $79
million and $81 million, net of federal tax benefits, of unrecognized tax
benefits as of March 31, 2010 and December 31, 2009,
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 $10 million in interest and penalties for the three months ended March 31, 2010.
At March 31, 2010 and December 31, 2009, the Company had a
receivable of $22 million and $12 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. Based on the current audit position of the
Company, it is estimated that the total amount of gross unrecognized tax
benefits may increase by $20 million to $25 million in the next 12 months.
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, which is
expected to be completed in the second quarter of 2010. The Companys or
certain of its subsidiaries state income tax returns are currently under
examination by various jurisdictions for years ranging from 1998
through 2006.
On
September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it
announced that it intends to issue regulations with respect to certain
computational aspects of the Dividends Received Deduction (DRD) related
to separate account assets held in connection with variable contracts of life
insurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issued
in August 2007 that purported to change accepted industry and IRS
interpretations of the statutes governing these computational questions.
Management believes that the IRS will concede this issue for open tax years and
it is likely that any regulations that would result from a regulation project
would apply prospectively only. 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. Additionally, included
in the Administrations 2011 Revenue Proposals is a provision to modify the DRD
for life insurance companies separate accounts, which if enacted could
significantly reduce the DRD tax benefits the Company would receive,
prospectively, beginning in 2011.
33
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
13. Contingencies
Owing
to conditions then-prevailing in the credit markets and the isolated defaults
of unaffiliated structured investment vehicles held in the portfolios of money
market funds advised by its RiverSource Investments LLC subsidiary (the 2a-7
Funds), the Company closely monitored the net asset value of the 2a-7 Funds
during 2008 and through the date of this report and, as circumstances warranted
from time to time during 2008 and 2009, injected capital into one or more of
the 2a-7 Funds. Management believes that the market conditions which gave rise
to those circumstances have significantly diminished. 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 from the latter part of 2007 through 2009, 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 or claims by, the SEC, the Financial Industry Regulatory
Authority, the Office of Thrift Supervision, state insurance and securities
regulators, state attorneys general and various other governmental and
quasi-governmental authorities on behalf of themselves or clients concerning
the Companys business activities and practices, and the practices of the
Companys financial advisors. Pending matters about which the Company has
during recent periods received such information requests or claims 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 and non-exchange
traded (or private placement) securities; information security; the delivery
of financial plans and the suitability of 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, in
addition to further claims, examinations or adverse publicity, 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 40 Act). The
plaintiffs alleged that fees allegedly paid to the defendants by the funds for
investment advisory and administrative services were excessive. Plaintiffs seek
an order declaring that defendants have violated the 40 Act and awarding
unspecified damages including excessive fees allegedly paid plus interest and
other costs. 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 in light of the Supreme Courts anticipated review, of a
similar excessive fee case captioned Jones v. Harris Associates. On March 30,
2010, the Supreme Court issued its ruling in Jones v. Harris Associates, and on
April 5, 2010, the Supreme Court vacated the Eighth Circuits decision in
this case and remanded it to the Eighth Circuit for further consideration in
light of the Supreme Courts decision in Jones v. Harris Associates.
34
Table of
Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 the Companys
subsidiary Securities America, Inc. (SAI) were placed into receivership,
which has resulted in the filing of several putative class action lawsuits and
numerous arbitrations naming both SAI and Ameriprise Financial as well as
related regulatory inquiries and actions. The putative class actions and
arbitrations generally allege violations of state and/or federal securities
laws in connection with SAIs sales of these private placement interests. These
actions were commenced in September 2009 and thereafter, and seek
unspecified damages. Currently, two arbitrations have been scheduled for
hearings later this year, in November and December 2010, with the
other scheduled arbitration hearings set to begin in 2011. Motions to dismiss
have been filed in three of the putative class actions. On January 26,
2010, the Commonwealth of Massachusetts filed an Administrative Complaint
against SAI, and on February 16, 2010, SAI filed an Answer. At this time,
an Administrative Hearing in this matter has been scheduled to commence July 20-22,
2010. On April 15, 2010, the four
Medical Capital-related class actions were centralized and moved to the Central
District of California United States Judicial Panel on Multidistrict Litigation
under the caption In re: Medical Capital Securities Litigation. On May 27,
2010, the Judicial Panel on Multidistrict Litigation will hold a hearing
regarding centralizing the Provident Shale-related class actions.
14. Guarantees
An
unaffiliated third party is providing liquidity to clients of 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 $358 million as of March 31, 2010.
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.
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 March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in millions, except per share
amounts)
|
|
Numerator:
|
|
|
|
|
|
Net income attributable to Ameriprise Financial
|
|
$
|
214
|
|
$
|
130
|
|
Denominator:
|
|
|
|
|
|
Basic: Weighted-average common shares outstanding
|
|
260.8
|
|
222.3
|
|
Effect of potentially dilutive nonqualified stock
options and other share-based awards
|
|
4.2
|
|
1.2
|
|
Diluted: Weighted-average common shares outstanding
|
|
265.0
|
|
223.5
|
|
Earnings per share attributable to
Ameriprise Financial common shareholders:
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
$
|
0.58
|
|
Diluted
|
|
$
|
0.81
|
|
$
|
0.58
|
|
35
Table of Contents
AMERIPRISE
FINANCIAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
16. Segment Information
The
Companys five segments are Advice & Wealth Management, Asset
Management, Annuities, Protection and Corporate & Other.
The
following is a summary of assets by segment:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
(in millions)
|
|
Advice & Wealth Management
|
|
$
|
11,049
|
|
$
|
11,098
|
|
Asset Management
|
|
6,256
|
|
5,955
|
|
Annuities
|
|
78,326
|
|
77,037
|
|
Protection
|
|
16,767
|
|
16,758
|
|
Corporate & Other
|
|
9,979
|
|
2,926
|
|
Total assets
|
|
$
|
122,377
|
|
$
|
113,774
|
|
The
following is a summary of segment operating results:
|
|
Three Months Ended March 31,
2010
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
716
|
|
$
|
351
|
|
$
|
580
|
|
$
|
490
|
|
$
|
155
|
|
$
|
|
|
$
|
2,292
|
|
Intersegment revenue
|
|
184
|
|
19
|
|
22
|
|
17
|
|
2
|
|
(244
|
)
|
|
|
Total revenues
|
|
900
|
|
370
|
|
602
|
|
507
|
|
157
|
|
(244
|
)
|
2,292
|
|
Banking and deposit interest expense
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Net revenues
|
|
879
|
|
370
|
|
602
|
|
507
|
|
157
|
|
(244
|
)
|
2,271
|
|
Pretax income
|
|
$
|
51
|
|
$
|
18
|
|
$
|
120
|
|
$
|
119
|
|
$
|
53
|
|
$
|
|
|
361
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
Less: Net income attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Net income attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214
|
|
|
|
Three Months Ended March 31,
2009
|
|
|
|
Advice &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
Asset
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Management
|
|
Management
|
|
Annuities
|
|
Protection
|
|
& Other
|
|
Eliminations
|
|
Consolidated
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
530
|
|
$
|
250
|
|
$
|
477
|
|
$
|
483
|
|
$
|
18
|
|
$
|
|
|
$
|
1,758
|
|
Intersegment revenue
|
|
237
|
|
10
|
|
15
|
|
13
|
|
1
|
|
(276
|
)
|
|
|
Total revenues
|
|
767
|
|
260
|
|
492
|
|
496
|
|
19
|
|
(276
|
)
|
1,758
|
|
Banking and deposit interest expense
|
|
41
|
|
|
|
|
|
|
|
2
|
|
(1
|
)
|
42
|
|
Net revenues
|
|
726
|
|
260
|
|
492
|
|
496
|
|
17
|
|
(275
|
)
|
1,716
|
|
Pretax income (loss)
|
|
$
|
(61
|
)
|
$
|
(8
|
)
|
$
|
129
|
|
$
|
112
|
|
$
|
(38
|
)
|
$
|
|
|
134
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
Less: Net loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Net income attributable to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130
|
|
17. Acquisition
of the Long-Term Asset Management Business of Columbia Management Group
On April 30, 2010, the Company completed its
all-cash acquisition of the long-term asset management business of Columbia
Management. The total consideration paid, subject to post-closing adjustment,
was approximately $1 billion and was funded through the use of cash on hand.
This acquisition is intended to further enhance the scale and performance of the
Companys retail mutual fund and institutional management businesses.
36
Table of Contents
ITEM
2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The
following discussion and analysis of our consolidated financial condition and
results of operations should be read in conjunction with the Forward-Looking
Statements that follow and our Consolidated Financial Statements and Notes
presented in Item 1. Our Managements Discussion and Analysis should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009,
filed with the Securities and Exchange Commission (SEC) on February 24, 2010
(2009 10-K), as well as our current reports on Form 8-K and other
publicly available information.
Overview
We
provide 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. Our model for
delivering these solutions is centered on building long-term personal
relationships between our affiliated advisors and clients, and in the case of
our products distributed through unaffiliated advisors, by supporting those
advisors in building strong client relationships. We believe that our focus on
personal relationships, together with our strengths in financial planning and
product development, allow us to better address the evolving financial needs of
our clients and our primary target market segment, the mass affluent and
affluent, which we define as households with investable assets of more than
$100,000.
Our
branded affiliated advisors 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. This approach allows us to recommend actions and a
range of product solutions consisting of investment, annuity, insurance,
banking and other financial products that help clients attain over time a
return or form of protection while accepting what they determine to be an
appropriate range and level of risk. Our focus 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. Our focus on deep client-advisor relationships has been
central to the ability of our business model to succeed through the extreme
market conditions of 2008 and 2009, and we believe it will help us to respond
to future market cycles.
Our
multi-platform network of affiliated financial advisors is the primary means by
which we develop personal relationships with retail clients. As of March 31, 2010,
we had a network of 11,837 financial advisors and registered representatives (affiliated
financial advisors). We refer to the affiliated financial advisors who use our
brand name as our branded advisors, and those who do not use our brand name but
who are affiliated as registered representatives of ours, as our unbranded
advisors. The financial product solutions we offer through our affiliated
advisors include both our own products and services and the products of other
companies. Our branded advisor network is the primary distribution channel
through which we offer our investment and annuity products and services, as
well as a range of banking and protection products. Our asset management,
annuity and auto and home protection products are also distributed through
unaffiliated advisors and affinity relationships. We offer our branded
advisors training, tools, leadership, marketing programs and other field and
centralized support to assist them in delivering advice and product solutions
to clients. We support unaffiliated advisors with strong sales and service
support and our solutions which they provide to clients. We believe our
approach not only improves the products and services we provide to their
clients, but allows us to reinvest in enhanced services for clients and
increase support for financial advisors. Our integrated model of financial
planning, diversified product manufacturing and affiliated and non-affiliated
product distribution affords us a better understanding of our clients, which
allows us to better manage the risk profile of our businesses. We believe our
focus on meeting clients needs through personal financial planning results in
more satisfied clients with deeper, longer lasting relationships with our
company and a higher retention of experienced financial advisors.
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 affected by investment performance and the total
value and composition of assets we manage and administer for our retail and
institutional clients as well as the distribution fees we receive from other
companies. These factors, in turn, are largely determined by overall investment
market performance and the depth and breadth of our individual client
relationships.
37
Table of Contents
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, a client retention
percentage rate of 91%, and our status as a top ten ranked firm within core
portions of each of our four main operating segments, including the size of our
U.S. advisor force, long-term U.S. mutual fund assets, variable annuity sales
and variable universal life sales.
Equity
price, credit market and interest rate fluctuations can have a significant
impact on our results of operations, primarily due to the effects they have on
the asset management and other asset-based fees we earn, the spread
income generated on our 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 price and interest rate risk, see Quantitative and
Qualitative Disclosures About Market Risk.
In
June 2009, the Financial Accounting Standards Board (FASB) updated the
accounting standards related to the required consolidation of certain variable
interest entities (VIEs). We adopted the accounting standard effective January 1,
2010 and recorded as a cumulative change in accounting principle an increase to
appropriated retained earnings of consolidated investment entities of $473
million and consolidated approximately $5.5 billion of client assets and $5.1
billion of liabilities in VIEs onto our Consolidated Balance Sheets that were
not previously consolidated. Management views the VIE assets as client assets
and the liabilities have recourse only to those assets. While the economics of
our business have not changed, the financial statements were impacted. Prior to
adoption, we consolidated certain property funds and hedge funds. These
entities and the VIEs consolidated as of January 1, 2010, are defined as
consolidated investment entities (CIEs). On a going forward basis, changes in
the valuation of the CIE assets and liabilities will impact pretax income. The
net income of the CIEs will be reflected in net income attributable to
noncontrolling interests. The results of operations of the CIEs are reflected
in the Corporate & Other segment. On a consolidated basis, the
management fees we earn for the services we provide to the CIEs and the related
general and administrative expenses are eliminated and the changes in the
assets and liabilities related to the CIEs, primarily debt and underlying bank
loans, are reflected in net investment income. We continue to include the fees
in the management and financial advice fees line within our Asset Management
segment.
Management
believes it is important to present the Consolidated Statements of Operations
excluding the CIEs to improve transparency of the underlying performance and
economics of our ongoing operations. The CIEs we manage have the following
characteristics:
·
They were formed on behalf of institutional investors
to obtain a diversified investment portfolio and were not formed in order to
obtain financing for Ameriprise Financial.
·
Ameriprise Financial receives customary, industry
standard management fees for the services it provides to these CIEs and has a
fiduciary responsibility to maximize the investors returns.
·
Ameriprise Financial does not have any obligation to
provide financial support to the CIEs, does not provide any performance
guarantees of the CIEs and has no obligation to absorb the investors losses.
·
Management excludes the impact of consolidating the
CIEs on assets, liabilities, pretax income and equity for setting our financial
performance targets and annual incentive award compensation targets.
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 excluding consolidated investment
entities of 6% to 8%,
·
Earnings per diluted share growth of 12% to 15%, and
·
Return on equity excluding consolidated investment
entities of 12% to 15%.
38
Table of
Contents
Net
revenues for the three months ended March 31, 2010 were
$2.3 billion, an increase of $555 million, or 32%, from the prior
year period. Net revenues excluding CIEs for the three months ended March 31, 2010
were $2.1 billion, an increase of $416 million, or 24%, from the
prior year period. Net income attributable to Ameriprise Financial for the
three months ended March 31, 2010 was $214 million compared to $130 million
for the prior year period. Earnings per diluted share for the three months
ended March 31, 2010 were $0.81 compared to $0.58 for the prior
year period.
On
April 30, 2010, we completed our all-cash acquisition of the long-term
asset management business of Columbia Management Group (Columbia) from Bank
of America, N.A. The total consideration paid, subject to post-closing
adjustments, was approximately $1 billion and was funded through the use of
cash on hand. This acquisition is intended to further enhance the scale and
performance of our retail mutual fund and institutional management businesses. Related
to the transaction, we have incurred $12 million of pretax non-recurring
acquisition and integration costs through March 31, 2010, and expect to
incur between $130 million and $160 million in total of such costs 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.
In
the fourth quarter of 2008, we completed the all cash acquisitions of
H&R Block Financial Advisors, Inc., subsequently renamed Ameriprise
Advisor Services, Inc. (AASI), J.&W. Seligman & Co.,
Incorporated (Seligman) and Brecek & Young Advisors, Inc.
to expand our retail distribution and asset management businesses.
The cost of the acquisitions was $787 million, which included the
purchase price and transaction costs. We recorded the assets and liabilities
acquired at fair value and allocated the remaining costs to goodwill and
intangible assets. Integration charges of $2 million and $19 million
relating to these acquisitions were included in general and administrative
expense for the three months ended March 31, 2010 and 2009, respectively.
Critical
Accounting Policies
The
accounting and reporting policies that we use affect our Consolidated Financial
Statements. Certain of our accounting and reporting policies are critical to an
understanding of our results of operations and financial condition and, in some
cases, the application of these policies can be significantly affected by the
estimates, judgments and assumptions made by management during the preparation
of our Consolidated Financial Statements. These accounting policies are discussed
in detail in Managements Discussion and Analysis
Critical Accounting Policies in our 2009 10-K
.
Recent Accounting Pronouncements
For
information regarding recent accounting pronouncements and their expected
impact on our future consolidated results of operations or financial condition,
see Note 2 to our Consolidated Financial Statements.
Owned, Managed and Administered Assets
Owned
assets include certain assets on our Consolidated Balance Sheets for which we
do not provide investment management services and do not recognize management
fees, such as investments in non-affiliated 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. At January 1,
2010, we consolidated approximately $5.5 billion of client assets in VIEs onto
our Consolidated Balance Sheets that were not previously consolidated. Prior to
January 1, 2010, these assets were included in managed external client
assets and were subsequently included in managed owned assets. Managed external
client assets include client assets for which we provide investment management
services, such as the assets of the RiverSource, Seligman and Threadneedle
Asset Management Holdings Sàrl (Threadneedle) families 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, RiverSource Variable Product funds held in the
separate accounts of our life insurance subsidiaries and client assets of CIEs.
Investors
in the mutual funds and face amount certificates we advise may redeem shares on
each business day, provided that redemption orders are submitted in a timely
fashion. For our institutional clients, advisory contracts may generally be
terminated (and managed assets redeemed) upon 30 days written notice. However,
we may in limited circumstances negotiate customized termination provisions
with certain clients during the contracting process, or we may waive negotiated
notice periods at our discretion. Investors in the private investment funds we
sponsor can generally redeem shares as of each month end upon 30-days advance
written notice, with limited exceptions. In addition, the notice requirements
for our private investment funds may be waived or reduced at the discretion of
the applicable fund.
39
Table of Contents
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 generally record fees received from administered assets as
distribution fees. We do not exercise management discretion over these assets
and do not earn a management fee. These assets are not reported on our
Consolidated Balance Sheets.
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.
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.
The
following table presents detail regarding our owned, managed and administered
assets:
|
|
March 31,
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(in billions, except percentages)
|
|
Owned Assets
|
|
$
|
37.6
|
|
$
|
29.6
|
|
27
|
%
|
Managed Assets
(1)
:
|
|
|
|
|
|
|
|
Domestic
|
|
152.6
|
|
125.2
|
|
22
|
|
International
|
|
97.1
|
|
68.3
|
|
42
|
|
Wrap account assets
|
|
100.0
|
|
68.2
|
|
47
|
|
Eliminations
(2)
|
|
(17.9
|
)
|
(8.4
|
)
|
NM
|
|
Total Managed Assets
|
|
331.8
|
|
253.3
|
|
31
|
|
Administered Assets
|
|
93.9
|
|
71.1
|
|
32
|
|
Total Owned, Managed and
Administered Assets
|
|
$
|
463.3
|
|
$
|
354.0
|
|
31
|
%
|
(1)
Includes managed
external client assets and managed owned assets.
(2)
Includes
eliminations for Domestic mutual fund assets included in wrap account assets
and Domestic assets sub-advised by Threadneedle.
Consolidated Results of Operations for the Three
Months Ended March 31, 2010 and 2009
In
June 2009, the FASB updated the accounting standards related to the required
consolidation of certain VIEs. We adopted the accounting standard effective January 1,
2010 and recorded as a cumulative change in accounting principle an increase to
appropriated retained earnings of consolidated investment entities of $473
million and consolidated approximately $5.5 billion of client assets and $5.1
billion of liabilities in VIEs onto our Consolidated Balance Sheets that were
not previously consolidated. Management views the VIE assets as client assets
and the liabilities have recourse only to those assets. While the economics of
our business have not changed, the financial statements were impacted. Prior to
adoption, we consolidated certain property funds and hedge funds. These
entities and the VIEs consolidated as of January 1, 2010, are defined as
CIEs. On a going forward basis, changes in the valuation of the CIE assets and
liabilities will impact pretax income. The net income of the CIEs will be
reflected in net income attributable to noncontrolling interests. On a
consolidated basis, the management fees we earn for the services we provide to
the CIEs and the related general and administrative expenses are eliminated and
the changes in the assets and liabilities related to the CIEs, primarily debt
and underlying bank loans, are reflected in net investment income. Management
believes it is important to present the Consolidated Statements of Operations
excluding the CIEs to improve transparency into the underlying performance and
economics of our ongoing operations. For additional information on our
presentation of results excluding CIEs, refer to our discussion within the
Overview section above.
40
Table of Contents
The
following table presents our consolidated results of operations:
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
Earnings
|
|
Earnings
|
|
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
Excluding
CIEs
|
|
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
Change
|
|
|
|
(in
millions, unaudited)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and financial
advice fees
|
|
$
|
774
|
|
$
|
(9
|
)
|
$
|
783
|
|
$
|
554
|
|
$
|
|
|
$
|
554
|
|
$
|
229
|
|
41
|
%
|
Distribution fees
|
|
391
|
|
|
|
391
|
|
311
|
|
|
|
311
|
|
80
|
|
26
|
|
Net investment income
|
|
590
|
|
79
|
|
511
|
|
418
|
|
1
|
|
417
|
|
94
|
|
23
|
|
Premiums
|
|
282
|
|
|
|
282
|
|
266
|
|
|
|
266
|
|
16
|
|
6
|
|
Other revenues
|
|
255
|
|
57
|
|
198
|
|
209
|
|
(12
|
)
|
221
|
|
(23
|
)
|
(10
|
)
|
Total revenues
|
|
2,292
|
|
127
|
|
2,165
|
|
1,758
|
|
(11
|
)
|
1,769
|
|
396
|
|
22
|
|
Banking and deposit
interest expense
|
|
21
|
|
|
|
21
|
|
42
|
|
1
|
|
41
|
|
(20
|
)
|
(49
|
)
|
Total net revenues
|
|
2,271
|
|
127
|
|
2,144
|
|
1,716
|
|
(12
|
)
|
1,728
|
|
416
|
|
24
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
525
|
|
|
|
525
|
|
384
|
|
|
|
384
|
|
141
|
|
37
|
|
Interest credited to fixed
accounts
|
|
228
|
|
|
|
228
|
|
205
|
|
|
|
205
|
|
23
|
|
11
|
|
Benefits, claims, losses
and settlement expenses
|
|
354
|
|
|
|
354
|
|
100
|
|
|
|
100
|
|
254
|
|
NM
|
|
Amortization of deferred
acquisition costs
|
|
118
|
|
|
|
118
|
|
286
|
|
|
|
286
|
|
(168
|
)
|
(59
|
)
|
Interest and debt expense
|
|
64
|
|
40
|
|
24
|
|
26
|
|
|
|
26
|
|
(2
|
)
|
(8
|
)
|
General and administrative
expense
|
|
621
|
|
5
|
|
616
|
|
581
|
|
2
|
|
579
|
|
37
|
|
6
|
|
Total expenses
|
|
1,910
|
|
45
|
|
1,865
|
|
1,582
|
|
2
|
|
1,580
|
|
285
|
|
18
|
|
Pretax income
|
|
361
|
|
82
|
|
279
|
|
134
|
|
(14
|
)
|
148
|
|
131
|
|
89
|
|
Income tax provision
|
|
65
|
|
|
|
65
|
|
18
|
|
|
|
18
|
|
47
|
|
NM
|
|
Net income
|
|
296
|
|
82
|
|
214
|
|
116
|
|
(14
|
)
|
130
|
|
84
|
|
65
|
|
Less: Net income (loss)
attributable to noncontrolling interests
|
|
82
|
|
82
|
|
|
|
(14
|
)
|
(14
|
)
|
|
|
|
|
|
|
Net income attributable to
Ameriprise Financial
|
|
$
|
214
|
|
$
|
|
|
$
|
214
|
|
$
|
130
|
|
$
|
|
|
$
|
130
|
|
$
|
84
|
|
65
|
|
Overall
Net
income attributable to Ameriprise Financial for three months ended March 31,
2010 was $214 million compared to $130 million for the prior year
period. The increase was driven by higher asset-based revenues, higher income
from spread products and re-engineering benefits.
Net
Revenues
Net
revenues increased $555 million, or 32%, to $2.3 billion for the
three months ended March 31, 2010 compared to $1.7 billion for
the prior year period. Net revenues excluding CIEs include the management and
financial advice fees we earn from services we provide to the CIEs and exclude
the revenues of the CIEs. Net revenues excluding CIEs increased
$416 million, or 24%, to $2.1 billion for the three months ended March 31, 2010
compared to $1.7 billion for the prior year period driven by growth in
management fees from market appreciation on assets and net inflows in wrap
accounts and asset management, as well as higher net investment income from
higher fixed annuity account balances and higher investment yields.
41
Table of
Contents
Management
and financial advice fees increased $220 million, or 40%, to
$774 million for the three months ended March 31, 2010 compared
to $554 million for the prior year period. Management and financial advice
fees excluding CIEs include the management and financial advice fees we earn
from services we provide to the CIEs. Management and financial advice fees
excluding CIEs increased $229 million, or 41%, to $783 million for
the three months ended March 31, 2010 compared to $554 million
for the prior year period primarily due to market appreciation on assets and
net inflows in wrap accounts and asset management. The daily average S&P
500 Index increased 38% compared to the prior year period. Wrap account assets
increased $31.8 billion, or 47%, to $100.0 billion at March 31, 2010
due to market appreciation and net inflows. Total Asset Management managed
assets increased $54.9 billion, or 29%, compared to the prior year period
primarily due to market appreciation, as well as net inflows in prior quarters.
Distribution
fees increased $80 million, or 26%, to $391 million for the three
months ended March 31, 2010 compared to $311 million in the
prior year period primarily due to higher asset-based fees driven by market
appreciation, as well as an increase in client activity.
Net
investment income increased $172 million, or 41%, to $590 million for
the three months ended March 31, 2010 compared to $418 million
in the prior year period. Net investment income excluding CIEs excludes the
changes in the assets and liabilities related to the CIEs, primarily debt and
underlying bank loans. Net investment income excluding CIEs increased
$94 million, or 23%, to $511 million for the three months ended March 31, 2010
compared to $417 million for the prior year period primarily due to an
increase of $86 million in investment income on fixed maturity securities
driven by higher fixed annuity account balances and higher investment yields.
For the three months ended March 31, 2010, net realized gains from
sales of Available-for-Sale securities were $32 million and
other-than-temporary impairments recognized in earnings were $30 million,
which primarily related to credit losses on non-agency residential mortgage
backed securities. For the three months ended March 31, 2009, net realized
gains from sales of Available-for-Sale securities were $51 million and
other-than-temporary impairments recognized in earnings were $35 million,
which related to credit losses on non-agency residential mortgage backed
securities, corporate debt securities primarily in the gaming industries and
other structured investments.
Premiums
increased $16 million, or 6%, to $282 million for the three months
ended March 31, 2010, primarily due to growth in Auto and Home
premiums driven by higher volumes, as well as higher sales of immediate
annuities with life contingencies. Auto and Home policy counts increased
9% period-over-period.
Other
revenues increased $46 million, or 22%, to $255 million for the three
months ended March 31, 2010 compared to $209 million in the
prior year period. Other revenues excluding CIEs exclude revenues of
consolidated property funds. Other revenues excluding CIEs decreased
$23 million, or 10%, to $198 million for the three months ended March 31, 2010
compared to $221 million in the prior year period primarily due to a
$50 million benefit in the first quarter of 2009 from repurchasing our
7.5% junior subordinated notes due 2066 (junior notes) at a discount,
partially offset by a $20 million benefit from the payments related to the
Reserve Funds matter in the first quarter of 2010 and an increase in our
guaranteed benefit rider fees on variable annuities.
Banking
and deposit interest expense decreased $21 million, or 50%, to
$21 million for the three months ended March 31, 2010 compared
to $42 million in the prior year period primarily due to lower crediting
rates on certificate products.
Expenses
Total
expenses increased $328 million, or 21%, to $1.9 billion for the
three months ended March 31, 2010 compared to $1.6 billion for
the prior year period. Total expenses excluding CIEs primarily exclude interest
expense on CIE debt. Expenses excluding CIEs increased $285 million, or
18%, to $1.9 billion for the three months ended March 31, 2010
compared to $1.6 billion for the prior year period primarily due to an
increase in distribution expenses and benefits, claims, losses and settlement
expenses, partially offset by a decrease in amortization of DAC.
Distribution
expenses increased $141 million, or 37%, to $525 million for the
three months ended March 31, 2010 compared to $384 million in
the prior year period reflecting market appreciation and higher non-deferred
distribution-related costs.
Interest
credited to fixed accounts increased $23 million, or 11%, to
$228 million for the three months ended March 31, 2010 compared
to $205 million for the prior year period primarily due to higher average
fixed annuity account balances and higher average fixed annuity crediting
rates. Average fixed annuities contract accumulation values increased
$1.6 billion, or 12%, compared to the prior year period. The average fixed
annuity crediting rate excluding capitalized interest increased to 3.9% in the
first quarter of 2010 compared to 3.8% in the prior year period.
42
Table of
Contents
Benefits, claims, losses and settlement
expenses increased $254 million to $354 million for the three months
ended March 31, 2010 compared to $100 million for the prior year
period driven by an increase in expenses from variable annuity benefit
guarantees. The mark-to-market impact of variable annuity living benefits, net
of hedges and DSIC, increased benefits expense by $23 million in the first
quarter of 2010, primarily driven by model changes, the impact of risk margins
and nonperformance spread on the fair value of living benefit liabilities and
basis risk. Changes to our variable product asset allocation program we will
introduce in 2010 are designed, among other things, to improve the mitigation
of basis risk. The mark-to-market impact of variable annuity living benefits,
net of hedges and DSIC, decreased benefits expense by $231 million in the first
quarter of 2009 primarily due to the impact of nonperformance spread widening
on the fair value of living benefit liabilities. Benefits, claims, losses and
settlement expenses related to our auto and home business and immediate
annuities with life contingencies increased compared to the prior year period
primarily due to higher
business volumes.
Amortization
of DAC decreased $168 million, or 59%, to $118 million for the three
months ended March 31, 2010 compared to $286 million in the
prior year period. DAC amortization in the first quarter of 2010 was reduced by
$13 million due to market impacts, including $6 million offsetting
higher variable annuity guaranteed living benefit expenses, net of hedges. DAC
amortization in the first quarter of 2009 was increased by $186 million
due to market impacts, including a $146 million expense offsetting gains
on variable annuity guaranteed living benefits, net of hedges. The benefit to
DAC amortization from market impacts compared to the prior year period was
partially offset by an increase in variable annuity amortization due to higher
period-over-period account values and associated asset fees.
Interest
and debt expense increased $38 million to $64 million for the three
months ended March 31, 2010 compared to $26 million in the prior
year period. Interest and debt expense excluding CIEs excludes interest expense
on CIE debt. Interest and debt expense excluding CIEs decreased
$2 million, or 8%, to $24 million for the three months ended March 31, 2010
compared to $26 million in the prior year period.
General
and administrative expense increased $40 million, or 7%, to
$621 million for the three months ended March 31, 2010 compared
to $581 million for the prior year period. General and administrative expense
excluding CIEs increased $37 million, or 6%, to $616 million for the
three months ended March 31, 2010 primarily due to a $27 million
expense related to recognizing a substantial increase in Threadneedles
estimated market valuation attributable to its incentive compensation program
compared to the 2009 market valuation. The charge reflects a valuation that
increased more than 100% from the prior year and is higher than the year-end
2007 estimated valuation. We use this annual valuation to mark-to-market all
current and historical reserves for the program. General and administrative
expense in the first quarter of 2009 included a benefit of $10 million related
to this valuation.
Income
Taxes
Our effective
tax rate on net income including net income (loss) attributable to
noncontrolling interests was 17.9% for the three months ended March 31, 2010,
compared to 13.3% for the three months ended March 31, 2009. The
increase in the effective tax rate primarily reflects an increase in pretax
income relative to tax advantaged items for the three months ended March 31,
2010.
On
September 25, 2007, the Internal Revenue Service (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. Management believes that the IRS will concede
this issue for open tax years and it is likely that any regulations that would
result from a regulation project would apply prospectively only. 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. Additionally, included in
the Administrations 2011 Revenue Proposals is a provision to modify the DRD
for life insurance companies separate accounts, which if enacted could
significantly reduce the DRD tax benefits we would receive, prospectively,
beginning in 2011.
43
Table of Contents
Results of Operations by
Segment for the Three Months Ended March 31, 2010 and 2009
The
following tables present summary financial information by segment:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
Earnings
|
|
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
|
|
(in millions, unaudited)
|
|
Advice &
Wealth Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
879
|
|
$
|
|
|
$
|
879
|
|
$
|
726
|
|
$
|
|
|
$
|
726
|
|
Expenses
|
|
828
|
|
|
|
828
|
|
787
|
|
|
|
787
|
|
Pretax income (loss)
|
|
$
|
51
|
|
$
|
|
|
$
|
51
|
|
$
|
(61
|
)
|
$
|
|
|
$
|
(61
|
)
|
Asset
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
370
|
|
$
|
|
|
$
|
370
|
|
$
|
260
|
|
$
|
|
|
$
|
260
|
|
Expenses
|
|
352
|
|
|
|
352
|
|
268
|
|
|
|
268
|
|
Pretax income (loss)
|
|
$
|
18
|
|
$
|
|
|
$
|
18
|
|
$
|
(8
|
)
|
$
|
|
|
$
|
(8
|
)
|
Annuities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
602
|
|
$
|
|
|
$
|
602
|
|
$
|
492
|
|
$
|
|
|
$
|
492
|
|
Expenses
|
|
482
|
|
|
|
482
|
|
363
|
|
|
|
363
|
|
Pretax income
|
|
$
|
120
|
|
$
|
|
|
$
|
120
|
|
$
|
129
|
|
$
|
|
|
$
|
129
|
|
Protection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
507
|
|
$
|
|
|
$
|
507
|
|
$
|
496
|
|
$
|
|
|
$
|
496
|
|
Expenses
|
|
388
|
|
|
|
388
|
|
384
|
|
|
|
384
|
|
Pretax income
|
|
$
|
119
|
|
$
|
|
|
$
|
119
|
|
$
|
112
|
|
$
|
|
|
$
|
112
|
|
Corporate &
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
157
|
|
$
|
136
|
|
$
|
21
|
|
$
|
17
|
|
$
|
(12
|
)
|
$
|
29
|
|
Expenses
|
|
104
|
|
54
|
|
50
|
|
55
|
|
2
|
|
53
|
|
Pretax loss
|
|
53
|
|
82
|
|
(29
|
)
|
(38
|
)
|
(14
|
)
|
(24
|
)
|
Less: Net income (loss) attributable to
noncontrolling interests
|
|
82
|
|
82
|
|
|
|
(14
|
)
|
(14
|
)
|
|
|
Pretax loss attributable to Ameriprise Financial
|
|
$
|
(29
|
)
|
$
|
|
|
$
|
(29
|
)
|
$
|
(24
|
)
|
$
|
|
|
$
|
(24
|
)
|
Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
(244
|
)
|
$
|
(9
|
)
|
$
|
(235
|
)
|
$
|
(275
|
)
|
$
|
|
|
$
|
(275
|
)
|
Expenses
|
|
(244
|
)
|
(9
|
)
|
(235
|
)
|
(275
|
)
|
|
|
(275
|
)
|
Pretax income
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
44
Table of Contents
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
Percent Share
of Total
|
|
2009
|
|
Percent Share
of Total
|
|
|
|
(in millions, except percentages)
|
|
Total net revenues excluding CIEs
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
879
|
|
41
|
%
|
$
|
726
|
|
42
|
%
|
Asset Management
|
|
370
|
|
17
|
|
260
|
|
15
|
|
Annuities
|
|
602
|
|
28
|
|
492
|
|
28
|
|
Protection
|
|
507
|
|
24
|
|
496
|
|
29
|
|
Corporate & Other
|
|
21
|
|
1
|
|
29
|
|
2
|
|
Eliminations
|
|
(235
|
)
|
(11
|
)
|
(275
|
)
|
(16
|
)
|
Total net revenues
|
|
$
|
2,144
|
|
100
|
%
|
$
|
1,728
|
|
100
|
%
|
Total expenses excluding CIEs
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
828
|
|
44
|
%
|
$
|
787
|
|
50
|
%
|
Asset Management
|
|
352
|
|
19
|
|
268
|
|
17
|
|
Annuities
|
|
482
|
|
26
|
|
363
|
|
23
|
|
Protection
|
|
388
|
|
21
|
|
384
|
|
24
|
|
Corporate & Other
|
|
50
|
|
3
|
|
53
|
|
3
|
|
Eliminations
|
|
(235
|
)
|
(13
|
)
|
(275
|
)
|
(17
|
)
|
Total expenses
|
|
$
|
1,865
|
|
100
|
%
|
$
|
1,580
|
|
100
|
%
|
Pretax income (loss) attributable
to Ameriprise Financial
|
|
|
|
|
|
|
|
|
|
Advice & Wealth Management
|
|
$
|
51
|
|
18
|
%
|
$
|
(61
|
)
|
(41
|
)%
|
Asset Management
|
|
18
|
|
6
|
|
(8
|
)
|
(5
|
)
|
Annuities
|
|
120
|
|
43
|
|
129
|
|
87
|
|
Protection
|
|
119
|
|
43
|
|
112
|
|
76
|
|
Corporate & Other
|
|
(29
|
)
|
(10
|
)
|
(24
|
)
|
(17
|
)
|
Pretax income
|
|
$
|
279
|
|
100
|
%
|
$
|
148
|
|
100
|
%
|
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 financial
advisors utilize a diversified selection of both affiliated and non-affiliated
products to help clients meet their financial needs. A significant portion of
revenues in this segment is fee-based, driven by the level of client assets,
which is impacted by both market movements and net asset flows. We also earn
net investment income on owned assets primarily from certificate and banking
products. This segment earns revenues (distribution fees) for distributing
non-affiliated products and earns intersegment revenues (distribution
fees) for distributing our affiliated products and services provided to
our retail clients. Intersegment expenses for this segment include expenses for
investment management services provided by the Asset Management segment.
In
addition to purchases of affiliated and non-affiliated mutual funds and other
securities on a stand-alone basis, clients may purchase mutual funds, among
other securities, in connection with investment advisory fee-based wrap
account programs or services, and pay fees based on a percentage of their
assets.
The
following table presents the changes in wrap account assets:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in billions)
|
|
Balance at January 1
|
|
$
|
94.9
|
|
$
|
72.8
|
|
Net flows
|
|
2.5
|
|
1.3
|
|
Market appreciation/(depreciation)
|
|
2.6
|
|
(5.9
|
)
|
Balance at March 31
|
|
$
|
100.0
|
|
$
|
68.2
|
|
Wrap
account assets had net inflows of $2.5 billion for the three months ended March 31,
2010 compared to $1.3 billion in the prior year period and market
appreciation of $2.6 billion in the first quarter of 2010 compared to
market depreciation of $5.9 billion in the prior year period.
45
Table of
Contents
We
provide securities execution and clearing services for our retail and
institutional clients through our registered broker-dealer subsidiaries. As of March 31, 2010,
we administered $93.9 billion in assets for clients, an increase of
$22.8 billion compared to the prior year period primarily due to market
appreciation.
The
following table presents the results of operations of our Advice &
Wealth Management segment:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
368
|
|
$
|
268
|
|
$
|
100
|
|
37
|
%
|
Distribution fees
|
|
436
|
|
431
|
|
5
|
|
1
|
|
Net investment income
|
|
74
|
|
51
|
|
23
|
|
45
|
|
Other revenues
|
|
22
|
|
17
|
|
5
|
|
29
|
|
Total revenues
|
|
900
|
|
767
|
|
133
|
|
17
|
|
Banking and deposit interest expense
|
|
21
|
|
41
|
|
(20
|
)
|
(49
|
)
|
Total net revenues
|
|
879
|
|
726
|
|
153
|
|
21
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
536
|
|
462
|
|
74
|
|
16
|
|
General and administrative expense
|
|
292
|
|
325
|
|
(33
|
)
|
(10
|
)
|
Total expenses
|
|
828
|
|
787
|
|
41
|
|
5
|
|
Pretax income (loss)
|
|
$
|
51
|
|
$
|
(61
|
)
|
$
|
112
|
|
NM
|
|
NM
Not Meaningful.
Our
Advice & Wealth Management segment pretax income was $51 million
for the three months ended March 31, 2010 compared to a loss of
$61 million in the prior year period.
Net
Revenues
Net
revenues were $879 million for the three months ended March 31, 2010
compared to $726 million in the prior year period, an increase of
$153 million, or 21%, driven by an increase in management and financial
advice fees and net investment income, as well as a decrease in banking and
deposit interest expense.
Management
and financial advice fees increased $100 million, or 37%, to
$368 million for the three months ended March 31, 2010, driven
by market appreciation on assets and net inflows in wrap accounts. The daily
average S&P 500 Index increased 38% compared to the prior year period. Wrap
account assets increased $31.8 billion, or 47%, to $100.0 billion at March 31,
2010 due to market appreciation and net inflows. Financial planning fees were
higher for the three months ended March 31, 2010 compared to the
prior year period.
Distribution
fees increased $5 million, or 1%, to $436 million for the three
months ended March 31, 2010, primarily due to higher asset-based fees
driven by market appreciation, as well as an increase in client activity. This
increase was partially offset by lower intersegment distribution fees due
to slow sales of annuities compared to the prior year period.
Net
investment income increased $23 million, or 45%, to $74 million for
the three months ended March 31, 2010 compared to $51 million for the
prior year period primarily due to lower net realized investment losses, higher
client loan interest and an increase in income related to the mark-to-market of
trading securities. Net realized investment losses were $1 million in
the first quarter of 2010 compared to $10 million in the prior year period due
to lower impairments on Available-for-Sale securities.
Banking
and deposit interest expense decreased $20 million, or 49%, to
$21 million for the three months ended March 31, 2010, primarily
due to lower crediting rates on certificates.
Expenses
Total
expenses increased $41 million, or 5%, to $828 million for the three
months ended March 31, 2010, due to an increase in distribution
expenses partially offset by a decrease in general and administrative expense.
Distribution
expenses increased $74 million, or 16%, to $536 million for the three
months ended March 31, 2010, primarily reflecting market
appreciation.
General
and administrative expense decreased $33 million, or 10%, from the prior
year period primarily due to expense controls, as well as a decrease in
integration costs related to our 2008 acquisition of H&R Block Financial
Advisors, Inc. These decreases were partially offset by expenses in the
first quarter of 2010 related to a new advertising campaign and increased
investment in the business, primarily the continued roll-out of an enhanced
brokerage platform.
46
Table of Contents
Asset Management
Our Asset Management segment provides investment advice and investment
products to retail and institutional clients. RiverSource Investments predominantly
provides U.S. domestic products and services and Threadneedle predominantly
provides international investment products and services. U.S. domestic retail
products are primarily distributed through the Advice & Wealth
Management segment and also through unaffiliated advisors. International retail
products are primarily distributed through third parties. Retail products
include mutual funds, variable product funds underlying insurance and annuity
separate accounts, separately managed accounts and collective funds. Asset
Management products are also distributed directly to institutions through an
institutional sales force. Institutional asset management products include
traditional asset classes, separate accounts, collateralized loan obligations, hedge
funds and property funds. Revenues in this segment are primarily earned as fees
based on managed asset balances, which are impacted by both market movements
and net asset flows. The asset management teams serving our Asset Management
segment provide all intercompany asset management services for Ameriprise
Financial, and the fees for all such services are reflected within the Asset
Management segment results through intersegment allocations. Intersegment
expenses for this segment include distribution expenses for services provided
by the Advice & Wealth Management, Annuities and Protection segments.
We provide investment advisory, distribution and other services to
three families of mutual funds: the RiverSource, Seligman and Threadneedle
mutual fund families.
Our RiverSource family of mutual funds consists of the RiverSource
Funds, a group of retail mutual funds; the RiverSource Variable Series Trust
Funds (VST Funds), a group of variable product funds available as investment
options in variable insurance and annuity products; the Seligman Funds, a group
of retail funds formerly managed by J. & W. Seligman Co.
prior to its acquisition by RiverSource Investments, LLC; the Seligman
Variable Insurance Trusts (VITs), a group of variable product funds; and
the Seligman closed-end funds.
The following table presents the total assets and number of funds
managed by our RiverSource family of mutual funds as of March 31, 2010:
|
|
Managed Assets
|
|
Number of Funds
|
|
|
|
(in billions)
|
|
|
|
RiverSource Funds
|
|
$
|
42.7
|
|
72
|
|
RiverSource VST Funds
|
|
26.9
|
|
24
|
|
Seligman Funds
|
|
8.7
|
|
26
|
|
Seligman VITs
|
|
0.3
|
|
3
|
|
|
|
$
|
78.6
|
|
125
|
|
Threadneedle manages four Open Ended Investment Companies (OEICs) and
two
Societe dInvestissement
A Capital Variable (SICAV) offerings.
The four OEICs are
Threadneedle Investment Funds ICVC (TIF), Threadneedle Specialist Investment
Funds ICVC (TSIF), Threadneedle Focus Investment Funds (TFIF) and
Threadneedle Advantage Portfolio Funds (TPAF). TIF, TSIF, TFIF and TPAF are
structured as umbrella companies with a total of 51 (33, 13, 2 and 3,
respectively) sub funds covering the worlds bond and equity markets.
The two SICAVs are the Threadneedle (Lux)
SICAV (T(Lux)) and World Express Funds 2 (WEF2). T(Lux) and WEF2 are
structured as umbrella companies with a total of 32 (30 and 2 respectively) sub funds covering
the worlds bond and equity markets. In addition, Threadneedle manages 13 unit
trusts, 10 of which invest into the OEICs, 6 property unit trusts and 1
property fund of funds.
47
Table of
Contents
The
following table presents the mutual fund performance of our retail Domestic and
International funds:
|
|
March 31, 2010
|
|
March 31, 2009
|
|
Mutual Fund Performance
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
Equal Weighted Mutual Fund Rankings in top 2 Lipper
Quartiles
(1)
|
|
|
|
|
|
Equity - 12 month
|
|
58
|
%
|
35
|
%
|
Fixed income - 12 month
|
|
50
|
%
|
77
|
%
|
Equity - 3 year
|
|
45
|
%
|
44
|
%
|
Fixed income - 3 year
|
|
68
|
%
|
71
|
%
|
Equity - 5 year
|
|
71
|
%
|
51
|
%
|
Fixed income - 5 year
|
|
63
|
%
|
72
|
%
|
|
|
|
|
|
|
Asset Weighted Mutual Fund Rankings in top 2 Lipper
Quartiles
(2)
|
|
|
|
|
|
Equity - 12 month
|
|
78
|
%
|
31
|
%
|
Fixed income - 12 month
|
|
51
|
%
|
62
|
%
|
Equity - 3 year
|
|
56
|
%
|
39
|
%
|
Fixed income - 3 year
|
|
59
|
%
|
40
|
%
|
Equity - 5 year
|
|
75
|
%
|
63
|
%
|
Fixed income - 5 year
|
|
58
|
%
|
63
|
%
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Equal Weighted Mutual Fund Rankings in top 2 S&P
Quartiles
(1)
|
|
|
|
|
|
Equity - 12 month
|
|
31
|
%
|
93
|
%
|
Fixed income - 12 month
|
|
60
|
%
|
64
|
%
|
Equity - 3 year
|
|
93
|
%
|
93
|
%
|
Fixed income - 3 year
|
|
80
|
%
|
73
|
%
|
Equity - 5 year
|
|
93
|
%
|
93
|
%
|
Fixed income - 5 year
|
|
78
|
%
|
70
|
%
|
(1)
Equal Weighted Rankings in Top 2 Quartiles: Counts
the number of Class A funds with above median ranking divided by the total
number of Class A funds. Asset size is not a factor.
(2)
Asset Weighted Rankings in Top 2 Quartiles: Sums the
assets of the Class A funds with above median ranking divided by the total
Class A assets. Funds with more assets will receive a greater share of the
total percentage above or below median.
Aggregated data shows only actively-managed mutual funds by affiliated
investment managers.
Aggregated data does not include mutual funds sub-advised by advisors
not affiliated with Ameriprise Financial, Inc., RiverSource S&P 500
Index Fund, RiverSource Cash Management Fund and RiverSource Tax Free Money
Market Fund.
Aggregated equity rankings include RiverSource Portfolio Builder Series and
other balanced and asset allocation funds that invest in both equities and
fixed income. RiverSource Portfolio Builder Series funds are funds of
mutual funds that may invest in third-party sub-advised funds.
RiverSource
Investments continued to improve equity investment performance and reported
more than half of equity and fixed income assets above Lipper peer group
medians for 1-, 3- and 5-year time periods, as of March 31, 2010.
Threadneedle continues to maintain strong longer-term track records in both
equity and fixed income portfolios.
We
also offer Separately Managed Accounts (SMAs), management of Institutional
Owned Assets, management of collateralized debt obligations (CDOs),
sub-advisory services for certain domestic and international mutual funds,
hedge funds and RiverSource Trust Collective Funds and separate accounts for
Ameriprise Trust Company clients.
48
Table of
Contents
The
following tables present the changes in Domestic and International managed
assets:
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Appreciation/
|
|
Foreign
|
|
|
|
March 31,
|
|
|
|
2009
|
|
Net
Flows
|
|
(Depreciation)
|
|
Exchange
|
|
Other
|
|
2010
|
|
|
|
(in
billions)
|
|
Domestic Managed Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Funds
|
|
$
|
76.9
|
|
$
|
(1.1
|
)
|
$
|
2.8
|
|
$
|
|
|
$
|
|
|
$
|
78.6
|
|
Institutional Funds
|
|
54.9
|
|
0.1
|
|
0.8
|
|
|
|
0.7
|
|
56.5
|
|
Alternative Funds
|
|
9.9
|
|
0.2
|
|
|
|
|
|
|
|
10.1
|
|
Trust Funds
|
|
7.4
|
|
|
|
0.1
|
|
|
|
|
|
7.5
|
|
Less: Eliminations
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Total Domestic Managed Assets
|
|
149.0
|
|
(0.8
|
)
|
3.7
|
|
|
|
0.7
|
|
152.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Managed Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Funds
|
|
29.1
|
|
1.3
|
|
1.8
|
|
(1.8
|
)
|
|
|
30.4
|
|
Institutional Funds
|
|
66.8
|
|
(1.3
|
)
|
3.0
|
|
(3.9
|
)
|
0.4
|
|
65.0
|
|
Alternative Funds
|
|
1.9
|
|
|
|
|
|
(0.2
|
)
|
|
|
1.7
|
|
Total International Managed Assets
|
|
97.8
|
|
|
|
4.8
|
|
(5.9
|
)
|
0.4
|
|
97.1
|
|
Less: Sub-Advised Eliminations
|
|
(3.6
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
(3.7
|
)
|
Total Managed Assets
|
|
$
|
243.2
|
|
$
|
(0.8
|
)
|
$
|
8.5
|
|
$
|
(5.9
|
)
|
$
|
1.0
|
|
$
|
246.0
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Appreciation/
|
|
Foreign
|
|
|
|
March 31,
|
|
|
|
2008
|
|
Net
Flows
|
|
(Depreciation)
|
|
Exchange
|
|
Other
|
|
2009
|
|
|
|
(in
billions)
|
|
Domestic Managed Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Funds
|
|
$
|
63.9
|
|
$
|
(1.2
|
)
|
$
|
(2.9
|
)
|
$
|
|
|
$
|
|
|
$
|
59.8
|
|
Institutional Funds
|
|
46.3
|
|
2.0
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
48.0
|
|
Alternative Funds
|
|
9.4
|
|
(0.6
|
)
|
0.3
|
|
|
|
|
|
9.1
|
|
Trust Funds
|
|
8.4
|
|
|
|
|
|
|
|
|
|
8.4
|
|
Less: Eliminations
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Total Domestic Managed Assets
|
|
127.9
|
|
0.2
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
125.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Managed Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Funds
|
|
16.3
|
|
0.7
|
|
(1.1
|
)
|
(0.3
|
)
|
|
|
15.6
|
|
Institutional Funds
|
|
55.3
|
|
(1.3
|
)
|
(3.1
|
)
|
(1.1
|
)
|
0.4
|
|
50.2
|
|
Alternative Funds
|
|
2.6
|
|
0.3
|
|
(0.3
|
)
|
(0.1
|
)
|
|
|
2.5
|
|
Total International Managed Assets
|
|
74.2
|
|
(0.3
|
)
|
(4.5
|
)
|
(1.5
|
)
|
0.4
|
|
68.3
|
|
Less: Sub-Advised Eliminations
|
|
(2.5
|
)
|
|
|
|
|
|
|
0.2
|
|
(2.3
|
)
|
Total Managed Assets
|
|
$
|
199.6
|
|
$
|
(0.1
|
)
|
$
|
(7.3
|
)
|
$
|
(1.5
|
)
|
$
|
0.5
|
|
$
|
191.2
|
|
Total managed assets were $246.0 billion at March 31, 2010, up 29%
compared to the prior year period. Domestic managed assets experienced solid
net inflows in alternative funds and institutional funds. Domestic
institutional net inflows included $0.6 billion in outflows reflecting expected
negative synergies from the Columbia acquisition, offset by solid growth in
institutional mandates. Domestic managed assets also experienced $1.1 billion
in retail net outflows, which included the negative impact of lower
period-over-period flows into variable products. Threadneedle continued to
shift its managed assets toward higher yielding asset classes. International
retail net inflows continued to be strong at $1.3 billion, while institutional
net outflows of $1.3 billion were driven by Zurich-related net outflows.
49
Table of
Contents
The
following table presents the results of operations of our Asset Management
segment:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
307
|
|
$
|
209
|
|
$
|
98
|
|
47
|
%
|
Distribution fees
|
|
58
|
|
47
|
|
11
|
|
23
|
|
Net investment income
|
|
4
|
|
(2
|
)
|
6
|
|
NM
|
|
Other revenues
|
|
1
|
|
6
|
|
(5
|
)
|
(83
|
)
|
Total revenues
|
|
370
|
|
260
|
|
110
|
|
42
|
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
370
|
|
260
|
|
110
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
106
|
|
82
|
|
24
|
|
29
|
|
Amortization of deferred acquisition costs
|
|
6
|
|
6
|
|
|
|
|
|
General and administrative expense
|
|
240
|
|
180
|
|
60
|
|
33
|
|
Total expenses
|
|
352
|
|
268
|
|
84
|
|
31
|
|
Pretax income (loss)
|
|
$
|
18
|
|
$
|
(8
|
)
|
$
|
26
|
|
NM
|
|
NM Not Meaningful.
Our Asset Management segment pretax income was
$18 million for the three months ended March 31, 2010 compared
to a loss of $8 million in the prior year period.
Net
Revenues
Net revenues increased $110 million, or 42%, to $370 million
for the three months ended March 31, 2010, primarily due to an
increase in management and financial advice fees.
Management and financial advice fees increased $98 million, or
47%, to $307 million for the three months ended March 31, 2010,
primarily due to market appreciation on assets. The daily average S&P 500
Index increased 38% compared to the prior year period. Total Asset Management
managed assets increased $54.8 billion, or 29%, compared to the prior year
period primarily due to market appreciation, as well as net inflows in prior
quarters.
Distribution fees increased $11 million, or 23%, to
$58 million for the three months ended March 31, 2010, primarily
due to higher 12b-1 fees driven by higher assets.
Net investment income was $4 million for the three months ended March 31, 2010
compared to net investment loss of $2 million in the prior year period
primarily due to favorable mark-to-market adjustments on seed money investments
in the first quarter of 2010 and net realized losses of $3 million recognized
in the prior year period.
Expenses
Total expenses increased $84 million, or 31%, to $352 million
for the three months ended March 31, 2010, due to an increase in
distribution expenses and general and administrative expense.
Distribution expenses increased $24 million, or 29%, to $106
million for the three months ended March 31, 2010, primarily due to
higher average assets.
General and administrative expense increased $60 million, or 33%,
to $240 million for the three months ended March 31, 2010,
primarily due to a $27 million expense related to recognizing a substantial
increase in Threadneedles estimated market valuation attributable to its
incentive compensation program compared to the 2009 market valuation. The
charge reflects a valuation that increased more than 100% from the prior year
and is higher than the year-end 2007 estimated valuation. We use this annual
valuation to mark-to-market all current and historical reserves for the
program. General and administrative expense in the first quarter of 2009
included a benefit of $10 million related to this valuation. Variable
compensation also increased in the first quarter of 2010 primarily due to
period-over-period timing differences in investment performance compensation
accruals.
50
Annuities
Our Annuities segment provides variable and fixed annuity products of
RiverSource Life companies to retail clients primarily distributed through our
affiliated financial advisors and to the retail clients of unaffiliated
advisors through third-party distribution. Revenues for our variable annuity
products are primarily earned as fees based on underlying account balances,
which are impacted by both market movements and net asset flows. Revenues for
our fixed annuity products are primarily earned as net investment income on
assets supporting fixed account balances, with profitability significantly
impacted by the spread between net investment income earned and interest
credited on the fixed account balances. We also earn net investment income on
owned assets supporting reserves for immediate annuities and for certain
guaranteed benefits offered with variable annuities and on capital supporting
the business. Intersegment revenues for this segment reflect fees paid by the
Asset Management segment for marketing support and other services provided in
connection with the availability of RiverSource VST Funds under the variable
annuity contracts. Intersegment expenses for this segment include distribution
expenses for services provided by the Advice & Wealth Management
segment, as well as expenses for investment management services provided by the
Asset Management segment.
Variable annuity ending balances increased
37% to $57.0 billion at March 31, 2010 driven by market appreciation on
assets. Slower sales in the first quarter of 2010 resulted in net inflows of
$98 million. Variable annuity exit rates improved over 150 basis points from
the prior year period. Fixed annuity balances were $14.6 billion, up 6% from
the prior year period reflecting strong sales growth in the first two quarters
of 2009. Fixed annuity net outflows of $166 million in the first quarter of
2010 were primarily due to lower sales from our decision to lower crediting
rates on new contracts. Fixed annuity redemption rates also improved materially
from the prior year period.
The following table presents the results of operations of our Annuities
segment:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
127
|
|
$
|
90
|
|
$
|
37
|
|
41
|
%
|
Distribution fees
|
|
70
|
|
57
|
|
13
|
|
23
|
|
Net investment income
|
|
330
|
|
289
|
|
41
|
|
14
|
|
Premiums
|
|
31
|
|
24
|
|
7
|
|
29
|
|
Other revenues
|
|
44
|
|
32
|
|
12
|
|
38
|
|
Total revenues
|
|
602
|
|
492
|
|
110
|
|
22
|
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
602
|
|
492
|
|
110
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
61
|
|
56
|
|
5
|
|
9
|
|
Interest credited to fixed accounts
|
|
192
|
|
169
|
|
23
|
|
14
|
|
Benefits, claims, losses and settlement expenses
|
|
118
|
|
(129
|
)
|
247
|
|
NM
|
|
Amortization of deferred acquisition costs
|
|
60
|
|
219
|
|
(159
|
)
|
(73
|
)
|
General and administrative expense
|
|
51
|
|
48
|
|
3
|
|
6
|
|
Total expenses
|
|
482
|
|
363
|
|
119
|
|
33
|
|
Pretax income
|
|
$
|
120
|
|
$
|
129
|
|
$
|
(9
|
)
|
(7
|
)%
|
NM Not Meaningful.
Our Annuities segment pretax income was $120 million for the three
months ended March 31, 2010 compared to $129 million in the prior
year period.
Net
Revenues
Net revenues increased $110 million, or 22%, to $602 million
for the three months ended March 31, 2010, primarily driven by an
increase in management and financial advice fees, distribution fees and net
investment income.
Management and financial advice fees increased $37 million, or
41%, to $127 million for the three months ended March 31, 2010,
due to higher fees on variable annuities driven by higher assets. Average
variable annuities contract accumulation values increased $14.0 billion,
or 40%, from the prior year period primarily due to market appreciation.
Distribution fees increased $13 million, or 23%, to
$70 million for the three months ended March 31, 2010, due to
higher fees on variable annuities driven by higher assets.
51
Table of Contents
Net investment income increased $41 million, or 14%, to
$330 million for the three months ended March 31, 2010, due to
an increase of $65 million in investment income on fixed maturity
securities, partially offset by a decrease in net realized investment gains of
$17 million compared to the prior year period. The increase in investment
income on fixed maturity securities was driven by higher fixed annuity account
balances and higher investment yields. In the first quarter of 2010, management
took action related to the introduction of changes in our variable product
asset allocation program, increasing liquidity in general account assets in
preparation to move those assets to separate accounts. This negatively impacted
net investment income in the first quarter of 2010 by $5 million. In addition,
net investment income in the first quarter of 2010 was negatively impacted by
lower commercial mortgage loan fees and the absence of consent fees and call
premiums.
Premiums increased $7 million, or 29%, to $31 million for the
three months ended March 31, 2010, due to higher sales of immediate
annuities with life contingencies.
Other revenues increased $12 million, or 38%, to $44 million
for the three months ended March 31, 2010, due to an increase in
guaranteed benefit rider fees on variable annuities.
Expenses
Total expenses increased $119 million, or 33%, to
$482 million for the three months ended March 31, 2010,
primarily due to an increase in benefits, claims, losses and settlement
expenses partially offset by a decrease in amortization of DAC.
Distribution expenses increased $5 million, or 9%, to
$61 million for the three months ended March 31, 2010, primarily
due to higher non-deferred distribution-related costs.
Interest credited to fixed accounts increased $23 million, or 14%,
to $192 million for the three months ended March 31, 2010,
primarily due to higher average fixed annuity account balances and higher
average fixed annuity crediting rates. Average fixed annuities contract
accumulation values increased $1.6 billion, or 12%, compared to the prior
year period. The average fixed annuity crediting rate excluding capitalized
interest increased to 3.9% in the first quarter of 2010 compared to 3.8% in the
prior year period.
Benefits,
claims, losses and settlement expenses increased $247 million to
$118 million for the three months ended March 31, 2010,
primarily driven by an increase in expenses from variable annuity benefit
guarantees. The mark-to-market impact of variable annuity living benefits, net
of hedges and DSIC, increased benefits expense by $23 million in the first
quarter of 2010, primarily driven by model changes, the impact of risk margins
and nonperformance spread on the fair value of living benefit liabilities and
basis risk. Changes to our variable product asset allocation program we will
introduce in 2010 are designed, among other things, to improve the mitigation
of basis risk. The mark-to-market impact of variable annuity living benefits,
net of hedges and DSIC, decreased benefits expense by $231 million in the first
quarter of 2009 primarily due to the impact of
nonperformance
spread widening on the fair
value of living benefit liabilities. Benefits, claims, losses and settlement
expenses related to immediate annuities with life contingencies increased
compared to the prior year period
primarily due to higher business volumes.
Amortization of DAC decreased $159 million, or 73%, to
$60 million for the three months ended March 31, 2010 compared
to $219 million in the prior year period. DAC amortization in the first
quarter of 2010 was reduced by $12 million due to market impacts,
including $6 million offsetting higher variable annuity guaranteed living
benefit expenses, net of hedges. DAC amortization in the first quarter of 2009
was increased by $181 million due to market impacts, including a
$146 million expense offsetting gains on variable annuity guaranteed
living benefits, net of hedges. The benefit to DAC amortization from market
impacts compared to the prior year period was partially offset by an increase
in variable annuity amortization due to higher period-over-period account
values and associated asset fees.
Protection
Our Protection segment offers a variety of protection products to
address the protection and risk management needs of our retail clients
including life, disability income and property-casualty insurance. Life and
disability income products are primarily distributed through our branded
advisors. Our property-casualty products are sold direct, primarily through
affinity relationships. We issue insurance policies through our life insurance
subsidiaries and the property casualty companies. The primary sources of
revenues for this segment are premiums, fees, and charges that we receive to
assume insurance-related risk. We earn net investment income on owned assets
supporting insurance reserves and capital supporting the business. We also
receive fees based on the level of assets supporting variable universal life
separate account balances. This segment earns intersegment revenues from fees
paid by the Asset Management segment for marketing support and other services
provided in connection with the availability of RiverSource VST Funds under the
variable universal life contracts. Intersegment expenses for this segment
include distribution expenses for services provided by the Advice &
Wealth Management segment, as well as expenses for investment management
services provided by the Asset Management segment.
52
Table of
Contents
The
following table presents the results of operations of our Protection segment:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(in millions, except percentages)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Management and financial advice fees
|
|
$
|
13
|
|
$
|
10
|
|
$
|
3
|
|
30
|
%
|
Distribution fees
|
|
24
|
|
24
|
|
|
|
|
|
Net investment income
|
|
103
|
|
100
|
|
3
|
|
3
|
|
Premiums
|
|
257
|
|
247
|
|
10
|
|
4
|
|
Other revenues
|
|
110
|
|
115
|
|
(5
|
)
|
(4
|
)
|
Total revenues
|
|
507
|
|
496
|
|
11
|
|
2
|
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
507
|
|
496
|
|
11
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
8
|
|
5
|
|
3
|
|
60
|
|
Interest credited to fixed accounts
|
|
36
|
|
36
|
|
|
|
|
|
Benefits, claims, losses and settlement expenses
|
|
236
|
|
229
|
|
7
|
|
3
|
|
Amortization of deferred acquisition costs
|
|
52
|
|
61
|
|
(9
|
)
|
(15
|
)
|
General and administrative expense
|
|
56
|
|
53
|
|
3
|
|
6
|
|
Total expenses
|
|
388
|
|
384
|
|
4
|
|
1
|
|
Pretax income
|
|
$
|
119
|
|
$
|
112
|
|
$
|
7
|
|
6
|
%
|
Our Protection segment pretax income was $119 million for the
three months ended March 31, 2010, an increase of $7 million, or
6%, from $112 million in the prior year period.
Net
Revenues
Net revenues increased $11 million, or 2%, to $507 million
for the three months ended March 31, 2010, primarily due to an
increase in premiums.
Management and financial advice fees increased $3 million, or 30%,
to $13 million for the three months ended March 31, 2010, due to
higher fees on variable universal life (VUL) products driven by market
appreciation.
Net investment income increased $3 million, or 3%, to
$103 million for the three months ended March 31, 2010,
primarily due to a $14 million increase in investment income earned on fixed
maturity securities compared to the prior year period driven by higher
investment yields and increased general account assets, partially offset by a
$7 million decrease in net realized investment gains compared to the prior year
period.
Premiums increased $10 million, or 4%, to $257 million for
the three months ended March 31, 2010, due to growth in Auto and Home
premiums driven by higher volumes. Auto and Home policy counts increased
9% period-over-period.
Expenses
Total expenses increased $4 million, or 1%, to $388 million
for the three months ended March 31, 2010.
Benefits, claims, losses and settlement expenses increased
$7 million, or 3%, to $236 million for the three months ended March 31, 2010,
primarily driven by weather-related auto and home claims, offset by favorable
life and disability income insurance claims.
Amortization of DAC decreased $9 million, or 15%, to
$52 million for the three months ended March 31, 2010, primarily
due to the unfavorable market impact in the prior year period.
53
Corporate & Other
Our Corporate & Other segment consists of net investment
income on corporate level assets, including excess capital held in our
subsidiaries and other unallocated equity and other revenues from various
investments as well as unallocated corporate expenses.
The Corporate & Other segment also includes the results of
operations of CIEs. For additional information on the required consolidation of
CIEs and our presentation of results excluding CIEs, refer to our discussion
within the Overview section above.
The following table presents the results of operations of our Corporate &
Other segment:
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
Earnings
|
|
GAAP
Earnings
|
|
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
GAAP
|
|
Less:
|
|
Excluding
|
|
Excluding
CIEs
|
|
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
Earnings
|
|
CIEs
|
|
CIEs
|
|
Change
|
|
|
|
(in
millions, unaudited)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
79
|
|
$
|
79
|
|
$
|
|
|
$
|
(20
|
)
|
$
|
1
|
|
$
|
(21
|
)
|
$
|
21
|
|
100
|
%
|
Other revenues
|
|
78
|
|
57
|
|
21
|
|
39
|
|
(12
|
)
|
51
|
|
(30
|
)
|
(59
|
)
|
Total revenues
|
|
157
|
|
136
|
|
21
|
|
19
|
|
(11
|
)
|
30
|
|
(9
|
)
|
(30
|
)
|
Banking and deposit interest expense
|
|
|
|
|
|
|
|
2
|
|
1
|
|
1
|
|
(1
|
)
|
(100
|
)
|
Total net revenues
|
|
157
|
|
136
|
|
21
|
|
17
|
|
(12
|
)
|
29
|
|
(8
|
)
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
(1
|
)
|
(100
|
)
|
Interest and debt expense
|
|
64
|
|
40
|
|
24
|
|
26
|
|
|
|
26
|
|
(2
|
)
|
(8
|
)
|
General and administrative expense
|
|
40
|
|
14
|
|
26
|
|
28
|
|
2
|
|
26
|
|
|
|
|
|
Total expenses
|
|
104
|
|
54
|
|
50
|
|
55
|
|
2
|
|
53
|
|
(3
|
)
|
(6
|
)
|
Pretax income (loss)
|
|
53
|
|
82
|
|
(29
|
)
|
(38
|
)
|
(14
|
)
|
(24
|
)
|
(5
|
)
|
(21
|
)
|
Less: Net income (loss) attributable to
noncontrolling interests
|
|
82
|
|
82
|
|
|
|
(14
|
)
|
(14
|
)
|
|
|
|
|
|
|
Pretax loss attributable to Ameriprise Financial
|
|
$
|
(29
|
)
|
$
|
|
|
$
|
(29
|
)
|
$
|
(24
|
)
|
$
|
|
|
$
|
(24
|
)
|
$
|
(5
|
)
|
(21
|
)%
|
Our Corporate & Other segment pretax loss attributable to
Ameriprise Financial was $29 million for the three months ended March 31, 2010
compared to $24 million in the prior year period.
Net revenues excluding CIEs decreased $8 million compared to the prior
year period. Net investment loss excluding CIEs for the first quarter of 2009
reflects the transfer priced interest income allocated to the Annuities and
Protection segments for maintaining excess liquidity. Other revenues excluding
CIEs decreased $30 million compared to the prior year period due to a
$50 million benefit in the first quarter of 2009 from repurchasing our
junior notes at a discount, partially offset by a $20 million benefit from the
payments related to the Reserve Funds matter in the first quarter of 2010.
Total expenses excluding CIEs decreased $3 million compared to the
prior year period. Interest and debt expense excluding CIEs decreased $2
million compared to the prior year period. On March 11, 2010, we issued
$750 million of 10-year senior notes with a 5.3% coupon. In addition, we
swapped $1.4 billion of debt from fixed to floating, consistent with our
asset-liability matching strategy.
54
Table of Contents
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. Companies are not permitted to use 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.
Non-Agency
Residential Mortgage Backed Securities Backed by Sub-prime, Alt-A or Prime
Collateral
Sub-prime 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 sub-prime 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 led to higher delinquency and
loss rates for some of these investments. 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.
55
Table of
Contents
The
following table presents, as of March 31, 2010, our non-agency
residential mortgage backed and asset backed securities backed by sub-prime,
Alt-A or prime mortgage loans by credit rating and vintage year:
|
|
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
|
|
|
|
(in
millions)
|
|
Sub-prime
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
2
|
|
$
|
2
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
2
|
|
$
|
2
|
|
2004
|
|
14
|
|
13
|
|
7
|
|
4
|
|
8
|
|
8
|
|
|
|
|
|
9
|
|
8
|
|
38
|
|
33
|
|
2005
|
|
60
|
|
58
|
|
48
|
|
47
|
|
17
|
|
16
|
|
8
|
|
8
|
|
18
|
|
13
|
|
151
|
|
142
|
|
2006
|
|
|
|
|
|
8
|
|
7
|
|
|
|
|
|
5
|
|
5
|
|
68
|
|
49
|
|
81
|
|
61
|
|
2007
|
|
|
|
|
|
|
|
|
|
5
|
|
5
|
|
|
|
|
|
6
|
|
1
|
|
11
|
|
6
|
|
2008
|
|
|
|
|
|
7
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
6
|
|
Re-Remic
(1)
|
|
41
|
|
41
|
|
|
|
|
|
|
|
|
|
17
|
|
17
|
|
|
|
|
|
58
|
|
58
|
|
Total Sub-prime
|
|
$
|
117
|
|
$
|
114
|
|
$
|
70
|
|
$
|
64
|
|
$
|
30
|
|
$
|
29
|
|
$
|
30
|
|
$
|
30
|
|
$
|
101
|
|
$
|
71
|
|
$
|
348
|
|
$
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
20
|
|
$
|
20
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
20
|
|
$
|
20
|
|
2004
|
|
12
|
|
12
|
|
62
|
|
56
|
|
21
|
|
18
|
|
11
|
|
6
|
|
17
|
|
7
|
|
123
|
|
99
|
|
2005
|
|
5
|
|
4
|
|
51
|
|
38
|
|
30
|
|
24
|
|
3
|
|
2
|
|
263
|
|
174
|
|
352
|
|
242
|
|
2006
|
|
|
|
|
|
2
|
|
2
|
|
|
|
|
|
|
|
|
|
175
|
|
110
|
|
177
|
|
112
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
110
|
|
211
|
|
110
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
$
|
37
|
|
$
|
36
|
|
$
|
115
|
|
$
|
96
|
|
$
|
51
|
|
$
|
42
|
|
$
|
14
|
|
$
|
8
|
|
$
|
666
|
|
$
|
401
|
|
$
|
883
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & prior
|
|
$
|
270
|
|
$
|
266
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
270
|
|
$
|
266
|
|
2004
|
|
72
|
|
72
|
|
27
|
|
25
|
|
33
|
|
32
|
|
33
|
|
29
|
|
22
|
|
7
|
|
187
|
|
165
|
|
2005
|
|
16
|
|
19
|
|
48
|
|
52
|
|
77
|
|
77
|
|
50
|
|
42
|
|
147
|
|
95
|
|
338
|
|
285
|
|
2006
|
|
20
|
|
22
|
|
|
|
|
|
6
|
|
2
|
|
33
|
|
37
|
|
4
|
|
3
|
|
63
|
|
64
|
|
2007
|
|
42
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
11
|
|
56
|
|
54
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-Remic
(1)
|
|
2,289
|
|
2,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,289
|
|
2,396
|
|
Total Prime
|
|
$
|
2,709
|
|
$
|
2,818
|
|
$
|
75
|
|
$
|
77
|
|
$
|
116
|
|
$
|
111
|
|
$
|
116
|
|
$
|
108
|
|
$
|
187
|
|
$
|
116
|
|
$
|
3,203
|
|
$
|
3,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Total
|
|
$
|
2,863
|
|
$
|
2,968
|
|
$
|
260
|
|
$
|
237
|
|
$
|
197
|
|
$
|
182
|
|
$
|
160
|
|
$
|
146
|
|
$
|
954
|
|
$
|
588
|
|
$
|
4,434
|
|
$
|
4,121
|
|
(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 March 31, 2010.
Fair
Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the
price that would be received to transfer the liability to a market participant
(an exit price). Since there is not a market for our obligations of our
variable annuity riders, we consider the assumptions participants in a
hypothetical market would make to reflect an exit price. As a result, we adjust
the valuation of variable annuity riders by updating certain contractholder
assumptions, adding explicit margins to provide for profit, risk and expenses,
and adjusting the rates used to discount expected cash flows to reflect a
current market estimate of our nonperformance risk. The nonperformance
risk adjustment is based on broker quotes for credit default swaps that are
adjusted to estimate the risk of our life insurance company subsidiaries not
fulfilling these liabilities. Consistent with general market conditions, this
estimate resulted in a spread over the LIBOR swap curve as of March 31, 2010.
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
$47 million, net of DAC and DSIC amortization and income taxes, based on March 31, 2010
credit spreads.
56
Table of Contents
Liquidity
and Capital Resources
Overview
We
maintained substantial liquidity during the first quarter of 2010. At March 31, 2010,
we had $4.8 billion in cash and cash equivalents compared to $3.1 billion at December 31, 2009.
We have additional liquidity available through an unsecured revolving credit
facility for $750 million that expires in September 2010, which we
anticipate re-establishing before expiration. Under the terms of the underlying
credit agreement, we can increase this facility to $1.0 billion. Available
borrowings under this facility are reduced by any outstanding letters of
credit. We have had no borrowings under this credit facility and had $2 million
of outstanding letters of credit at March 31, 2010.
In
March 2010, we issued $750 million of 5.30% senior notes due 2020. A
portion of the proceeds will be used to retire $340 million of debt
maturing in November 2010. On April 30, 2010, we completed our acquisition
of the long-term asset management business of Columbia Management. The total
consideration paid, subject to post-closing adjustments, was approximately $1
billion and was funded through the use of cash on hand. Our subsidiaries,
Ameriprise Bank, FSB and RiverSource Life, are members of the Federal Home Loan
Bank (FHLB) of Des Moines, which provides these subsidiaries with access to
collateralized borrowings. As of March 31, 2010, we had no borrowings
from the FHLB. 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-
|
|
As
of March 31, 2010, A.M. Best Company, Inc., Standard &
Poors Ratings Services, and Fitch Ratings Ltd. retained negative outlooks on
Ameriprise Financial, Inc. and RiverSource Life and the life insurance
industry as a whole. Moodys Investors Service changed their outlook on
Ameriprise Financial, Inc. and RiverSource Life from negative to stable
effective March 8, 2010. 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 I, Item 1A
in our 2009 Form 10-K and Part II, Item 1A of this Quarterly Report on
Form 10-Q.
57
Dividends from Subsidiaries
Ameriprise
Financial is primarily a parent holding company for the operations carried out
by our wholly owned subsidiaries. Because of our holding company structure, our
ability to meet our cash requirements, including the payment of dividends on
our common stock, substantially depends upon the receipt of dividends or return
of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource
Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (ACC),
AMPF Holding Corporation, which is the parent company of our retail introducing
broker-dealer subsidiary, Ameriprise Financial Services, Inc. (AFSI) and
our clearing broker-dealer subsidiary, American Enterprise Investment Services, Inc.
(AEIS), our auto and home insurance subsidiary, IDS Property Casualty
Insurance Company (IDS Property Casualty), doing business as Ameriprise Auto &
Home Insurance, Threadneedle, RiverSource Service Corporation and our
investment advisory company, RiverSource Investments, LLC. The payment of
dividends by many of our subsidiaries is restricted and certain of our
subsidiaries are subject to regulatory capital requirements.
Actual
capital and regulatory capital requirements for our wholly owned subsidiaries
subject to regulatory capital requirements were as follows:
|
|
Actual Capital
|
|
Regulatory Capital Requirements
|
|
|
|
March 31,
2010
|
|
December 31,
2009
|
|
March 31,
2010
|
|
December 31,
2009
|
|
|
|
(in millions)
|
|
RiverSource Life
(1)(2)
|
|
$
|
3,324
|
|
$
|
3,450
|
|
N/A
|
|
$
|
803
|
|
RiverSource Life of NY
(1)(2)
|
|
313
|
|
286
|
|
N/A
|
|
44
|
|
IDS Property Casualty
(1)(3)
|
|
416
|
|
405
|
|
135
|
|
133
|
|
Ameriprise Insurance Company
(1)(3)
|
|
46
|
|
46
|
|
2
|
|
2
|
|
ACC
(4)(5)
|
|
228
|
|
293
|
|
208
|
|
231
|
|
Threadneedle
(6)
|
|
215
|
|
201
|
|
146
|
|
155
|
|
Ameriprise Bank, FSB
(7)
|
|
261
|
|
255
|
|
247
|
|
231
|
|
AFSI
(3)(4)
|
|
133
|
|
79
|
|
1
|
|
1
|
|
Ameriprise Captive Insurance Company
(3)
|
|
29
|
|
28
|
|
20
|
|
12
|
|
Ameriprise Trust Company
(3)
|
|
39
|
|
36
|
|
36
|
|
32
|
|
AEIS
(3)(4)
|
|
115
|
|
133
|
|
29
|
|
29
|
|
Securities America, Inc.
(3)(4)
|
|
15
|
|
15
|
|
#
|
|
#
|
|
RiverSource Distributors, Inc.
(3)(4)
|
|
40
|
|
41
|
|
#
|
|
#
|
|
RiverSource Fund Distributors, Inc.
(3)(4)
|
|
18
|
|
13
|
|
#
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# Amounts are less than $1 million.
N/A
Not Applicable.
(1)
Actual capital
is determined on a statutory basis.
(2)
Regulatory
capital requirement is based on the statutory risk-based capital filing.
(3)
Regulatory capital requirement is based on the applicable regulatory
requirement, calculated as of March 31, 2010 and December 31, 2009.
(4)
Actual capital
is determined on an adjusted GAAP basis.
(5)
ACC is required
to hold capital in compliance with the Minnesota Department of Commerce and SEC
capital requirements.
(6)
Actual capital
and regulatory capital requirements are determined in accordance with U.K.
regulatory legislation.
(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 7.5%.
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.
In
the first quarter of 2010, the parent holding company received cash dividends
from its subsidiaries of $530 million and contributed cash to its subsidiaries
of $15 million. Of the dividends received, $425 million came from
RiverSource Life. In the first quarter of 2009, the parent holding company
received cash dividends from its subsidiaries of $1 million and contributed
cash to its subsidiaries of $193 million.
58
Dividends Paid to Shareholders,
Debt Repurchases and Share Repurchases
We paid
regular quarterly cash dividends to our shareholders totaling
$45 million and $37 million for the three months ended March 31,
2010 and 2009, respectively. On April 26, 2010, our Board
of Directors declared a quarterly cash dividend of $0.18 per common share.
The dividend will be paid on May 21, 2010 to
our shareholders of record at the close of business on May 7, 2010.
Our
share repurchase program expired April 22, 2010. Since September 2008
through the expiration, we had suspended our stock repurchase program. Pursuant
to the Amended and Restated Ameriprise Financial 2005 Incentive
Compensation Plan, we reacquired 0.4 million shares of our common stock in
the first quarter of 2010 through the surrender of restricted shares upon vesting
and paid in the aggregate $15 million related to the holders income tax
obligations on the vesting date.
In
the first quarter of 2009, we extinguished $113 million principal amount
of our junior notes. In the future, we may from time to time seek to retire or
purchase additional outstanding debt through cash purchases in the open market,
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.
Operating Activities
Net
cash provided by operating activities for the three months ended March 31, 2010
was $131 million compared to net cash used in operating activities of
$572 million for the three months ended March 31, 2009. In the first
quarter of 2009, operating cash was reduced by $625 million due to a decrease
in net cash collateral held related to derivative instruments, compared to a
decrease of $265 million in the first quarter of 2010. In addition, in the
first quarter of 2009, operating cash was reduced by $435 million due to
purchases within our bond trading portfolio.
Investing Activities
Our
investing activities primarily relate to our Available-for-Sale investment
portfolio. Further, this activity is significantly affected by the net flows of
our investment certificate, fixed annuity and universal life products reflected
in financing activities.
Net
cash provided by investing activities for the three months ended March 31, 2010
was $839 million compared to net cash used in investing activities of
$2.1 billion for the three months ended March 31, 2009. Cash used for
purchases of Available-for-Sale securities decreased $2.0 billion and
proceeds from sales and maturities, sinking fund payments and calls of Available-for-Sale
securities increased $0.9 billion compared to the prior year period.
Financing Activities
Net
cash provided by financing activities for the three months ended March 31, 2010
was $759 million compared to $2.2 billion for the three months ended March 31,
2009, a decrease in cash of $1.5 billion. Net cash received from
policyholder and contractholder account values decreased $1.9 billion
compared to the prior year period primarily due to lower net inflows of fixed
annuities. This decrease in cash was partially offset by cash received of $744
million from the issuance of our senior notes in March 2010, net of
issuance costs.
Contractual
Commitments
There
have been no material changes to our contractual obligations disclosed in our
2009 10-K.
Off-Balance Sheet
Arrangements
There
have been no material changes in our off-balance sheet arrangements disclosed
in our 2009 10-K.
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. 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 (including
any expectations regarding the effectiveness or other terms of any regulatory
change or interpretation applicable to the DRD), 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.
59
Table of
Contents
The
words believe, expect, anticipate, optimistic, intend, plan, aim,
will, may, should, could, would, likely, forecast, on pace, project
and similar expressions are intended to identify forward-looking statements but
are not the exclusive means of identifying such statements. Forward-looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from such statements.
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;
·
the ability of the Company to implement
planned changes to its variable product asset allocation program and the
effectiveness of those changes in improving the mitigation of basis risk;
·
effects of competition in the financial services
industry and changes in product distribution mix and distribution channels;
·
changes to the Companys reputation that may arise
from employee or affiliated advisor misconduct, legal or regulatory actions,
improper management of conflicts of interest or otherwise;
·
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;
·
changes to the availability of liquidity and the
Companys credit capacity that may arise due to shifts in market conditions,
the Companys credit ratings and the overall availability of credit;
·
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;
·
with respect to VIE pooled investments
the Company has determined do not require consolidation under GAAP, the
realization by the Company that it does not have the power over the VIE pooled
investments or hold a variable interest in these investments for which the
Company has the potential to receive significant benefits or the potential
obligation to absorb significant losses;
·
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 I,
Item 1A of our 2009 10-K and Part II, Item 1A of this Quarterly Report on
Form 10-Q.
60
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in the Quantitative and Qualitative Disclosures
About Market Risk discussion included as Part II, Item 7A of our 2009
10-K.
ITEM 4. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)) designed to provide reasonable assurance that the information
required to be reported in the Exchange Act filings is recorded, processed,
summarized and reported within the time periods specified in and pursuant to
SEC regulations, including controls and procedures designed to ensure that this
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding the required disclosure. It should be noted that,
because of inherent limitations, our 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, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the disclosure controls and procedures as of the end of the period covered by
this report. Based upon that evaluation, our companys Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective at a reasonable level of assurance as of March 31, 2010.
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.
61
Table of Contents
PART II.
OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
The information set forth in Note 13 to the
Consolidated Financial Statements in Part I, Item 1 is incorporated herein by
reference.
ITEM 1A. RISK
FACTORS
Part I,
Item 1A of our 2009 10-K sets forth information relating to the material risks
and uncertainties that affect our business and common stock. In addition to
those risk factors, we believe the following risk factor is also relevant to an
understanding of our business, financial condition and results of operations.
Changes in accounting standards could have a material impact on our
financial statements.
From
time to time, the FASB, the SEC, and other regulators change the financial
accounting and reporting standards governing the preparation of our financial
statements. In some cases, we could be required to apply a new or revised
standard retroactively, resulting in our restating prior period financial
statements. These changes are difficult to predict and can materially impact
how we record and report our financial condition and results of operations and
other financial data, even in instances where they may not have an economic
impact on our business.
For
example, the FASB updated the accounting standard related to the required
consolidation of certain VIEs, effective January 1, 2010. We adopted the
accounting standard effective January 1, 2010 and recorded as a cumulative
change in accounting principle an increase to appropriated retained earnings of
consolidated investment entities and consolidated client assets and liabilities
in VIEs onto our consolidated balance sheets that were not previously consolidated.
While the economics of our business have not changed, the financial statements
were impacted. See Adoption of New Accounting Standards Consolidation of
Variable Interest Entities in Note 2 to the Consolidated Financial Statements
set forth in this report, which portion is incorporated herein by reference.
Further revisions to this standard may have an additional impact on us, which
cannot be predicted at this time.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
following table presents the information with respect to purchases made by or
on behalf of Ameriprise Financial, Inc. or any affiliated purchaser (as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of
1934), of our common stock during the first quarter of 2010:
|
|
|
|
|
|
(c)
|
|
|
|
Period
|
|
(a)
Total Number
of Shares
Purchased
|
|
(b)
Average Price
Paid Per Share
|
|
Total Number of
Shares Purchased as
part of Publicly
Announced Plans
or Programs
(1)
|
|
(d)
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans
or Programs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to January 31, 2010
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
109,519
|
|
$
|
39.58
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
February 1 to February 28, 2010
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
285,880
|
|
$
|
38.69
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
March 1 to March 31, 2010
|
|
|
|
|
|
|
|
|
|
Share repurchase program
(1)
|
|
|
|
$
|
|
|
|
|
$
|
1,304,819,604
|
|
Employee transactions
(2)
|
|
747
|
|
$
|
40.64
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
|
$
|
|
|
|
|
|
|
Employee transactions
|
|
396,146
|
|
$
|
38.94
|
|
N/A
|
|
|
|
|
|
396,146
|
|
|
|
|
|
|
|
(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, which authorization expired April 22, 2010.
(2)
Restricted shares withheld
pursuant to the terms of awards under the amended and revised Ameriprise
Financial 2005 Incentive Compensation Plan (the Plan) to offset tax withholding
obligations that occur upon vesting and release of restricted shares. The Plan
provides that the value of the shares withheld shall be the 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.
62
Table of Contents
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
AMERIPRISE
FINANCIAL, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
May 4, 2010
|
By
|
/s/
Walter S. Berman
|
|
|
Walter
S. Berman
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
|
|
|
|
Date:
May 4, 2010
|
By
|
/s/
David K. Stewart
|
|
|
David
K. Stewart
|
|
|
Senior
Vice President and Controller
|
|
|
(Principal
Accounting Officer)
|
63
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
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 April 30, 2010).
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of Ameriprise Financial, Inc. (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K, File
No. 1-32525, filed on April 30, 2010).
|
|
|
|
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.
|
|
|
|
10.1
|
|
Ameriprise
Financial 2005 Incentive Compensation Plan, as amended and restated effective
April 28, 2010 (incorporated by reference to Exhibit B to the Proxy
Statement for the Annual Meeting of Shareholders held on April 28, 2010,
File No. 001-32525, filed on March 19, 2010).
|
|
|
|
10.2*
|
|
Ameriprise
Financial Deferred Compensation Plan, as amended and restated effective
April 1, 2010.
|
|
|
|
10.3*
|
|
Ameriprise
Financial Supplemental Retirement Plan, as amended and restated effective
April 1, 2010.
|
|
|
|
31.1*
|
|
Certification
of James M. Cracchiolo pursuant to Rule 13a-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.
|
|
|
|
31.2*
|
|
Certification
of Walter S. Berman pursuant to Rule 13a-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.
|
|
|
|
32*
|
|
Certification
of James M. Cracchiolo and Walter S. Berman pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
101*
|
|
The
following materials from Ameriprise Financial, Inc.s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010, formatted in XBRL: (i)
Consolidated Statements of Operations for the three months ended March 31,
2010 and 2009; (ii) Consolidated Balance Sheets at March 31, 2010 and
December 31, 2009; (iii) Consolidated Statements of Cash Flows for the three
months ended March 31, 2010 and 2009; (iv) Consolidated Statements of Equity
for the three months ended March 31, 2010 and 2009; and (v) Notes to the
Consolidated Financial Statements, tagged as blocks of text.
|
E-1
Ameriprise Financial (NYSE:AMP)
Historical Stock Chart
From May 2024 to Jun 2024
Ameriprise Financial (NYSE:AMP)
Historical Stock Chart
From Jun 2023 to Jun 2024