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AMERIPRISE FINANCIAL INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the "Forward-Looking Statements," our Consolidated Financial Statements and Notes that follow and the "Consolidated Five-Year Summary of Selected Financial Data" and the "Risk Factors" included in our Annual Report on Form 10-K. References to "Ameriprise Financial ," "Ameriprise ," the "Company," "we," "us," and "our" refer toAmeriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.
Overview
Ameriprise is a diversified financial services company with a more than 125-year history of providing financial solutions. We are a long-standing leader in financial planning and advice with$1.4 trillion in assets under management and administration as ofDecember 31, 2021 . We offer a broad range of products and services designed to achieve individual and institutional clients' financial objectives. For additional discussion of our businesses, see Part I, Item 1 of this Annual Report on Form 10-K. The COVID-19 pandemic has presented ongoing significant economic and societal disruption and market unpredictability, which has affected our business and operating environment driven by a low interest rate environment and volatility and changes in the equity markets and the potential associated implications to client behavior. COVID-19 continues its ongoing impact and has been occurring in multiple waves, so there are still no reliable estimates of how long the implications from the pandemic will last, the effects current and other new variants will ultimately have, how many people are likely to be affected by it, or its impact on the overall economy. There is still significant uncertainty around the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, which depends on current and future developments, including the ultimate scope, duration and severity of the pandemic, success of worldwide vaccination efforts, multiple mutations of COVID-19 or similar diseases, the effectiveness of our office reopenings, the additional measures that may be taken by various governmental authorities in response to the outbreak, the actions of third parties in response to the pandemic, and the possible further impacts on the global economy. Given the ongoing impact of the pandemic, financial results may not be comparable to previous years and the results presented in this report may not necessarily be indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, see Part 1 - Item 1A "Risk Factors" in this report. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships. Financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results. In addition, the business, political and regulatory environments in which we operate are subject to elevated uncertainty and substantial, frequent change. Accordingly, we expect to continue focusing on our key strategic objectives and obtaining operational and strategic leverage from our core capabilities. The success of these and other strategies may be affected by the factors discussed in Item 1A of this Annual Report on Form 10-K - "Risk Factors" - and other factors as discussed herein. Equity price, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the value of DAC and deferred sales inducement costs ("DSIC") assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits and the "spread" income generated on our fixed deferred annuities, fixed insurance, fixed portion of variable annuities and variable insurance contracts and deposit products. Earnings, as well as adjusted operating earnings, will be negatively impacted by the ongoing low interest rate environment should it continue. In addition to continuing spread compression in our interest sensitive product lines, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our adjusted operating earnings. For additional discussion on our interest rate risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk." In the third quarter, we updated our market-related assumptions and implemented model changes related to our living benefit valuation. In addition, we conducted our annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. We also reviewed our active life future policy benefit reserve adequacy for our LTC business in the third quarter. See our Consolidated and Segment Results of Operations sections for the pretax impacts on our revenues and expenses attributable to unlocking and LTC loss recognition. The following discussion includes a comparison of our 2021 and 2020 results. For a discussion of our 2019 results and for a comparison of results for 2020 and 2019, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onFebruary 24, 2021 .
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OnJune 2, 2021 , we filed an application to convertAmeriprise Bank , FSB to a state-chartered industrial bank regulated by theUtah Department of Financial Institutions and theFederal Deposit Insurance Corporation . We also filed an application to transition the FSB's personal trust services business to a new limited purpose national trust bank regulated by theOffice of the Comptroller of the Currency . If these pending applications are approved, the proposed changes are not expected to impact our long-term strategy for the bank and should enable us to continue our strong lineup of banking solutions, including deposits, credit cards, mortgages and securities-based lending to our wealth management clients without interruption. During the third quarter of 2021,RiverSource Life Insurance Company ("RiverSource Life"), one of the Company's life insurance subsidiaries, closed on a transaction with Commonwealth, effectiveJuly 1, 2021 , to reinsure approximately$7.0 billion of fixed deferred and immediate annuity policies. As part of the transaction, RiverSource Life transferred$7.8 billion in consideration primarily consisting of Available-for-Sale securities, commercial mortgage loans, syndicated loans and cash. The transaction resulted in a net realized gain of approximately$532 million on investments sold. A similar previously announced transaction withRiverSource Life Insurance Co. of New York did not receive regulatory approval in time to close bySeptember 30, 2021 and the transaction was terminated by the parties. OnNovember 8, 2021 , we completed our previously announced acquisition of the European-based asset management business ofBMO Financial Group . At close, the consideration transferred consisted of £615 million (or$829 million ) for initial price, plus an additional £103 million (or$138 million ) largely associated with a customary adjustment for excess capital surplus that will be accessible over time. The overall purchase price will continue to be subject to further customary post-close adjustments. The all-cash transaction added$136 billion of assets under management ("AUM") in EMEA. We consolidate certain variable interest entities for which we provide asset management services. These entities are defined as consolidated investment entities ("CIEs"). While the consolidation of the CIEs impacts our balance sheet and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. For further information on CIEs, see Note 5 to our Consolidated Financial Statements. The results of operations of the CIEs are reflected in the Corporate & Other segment. On a consolidated basis, the management fees we earn for the services we provide to the CIEs and the related general and administrative expenses are eliminated and the changes in the fair value of assets and liabilities related to the CIEs, primarily syndicated loans and debt, are reflected in net investment income. We include the fees from these entities in the management and financial advice fees line within our Asset Management segment. While our Consolidated Financial Statements are prepared in accordance withU.S. generally accepted accounting principles ("GAAP"), management believes that adjusted operating measures, which exclude net realized investment gains or losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and universal life ("UL") insurance contracts), net of hedges and the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; mean reversion related impacts (the impact on variable annuity and variable universal life ("VUL") products for the difference between assumed and updated separate account investment performance on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional insurance benefit reserves); the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; block transfer reinsurance transaction impact; gain or loss on disposal of a business that is not considered discontinued operations; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. Management uses these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management's Discussion and Analysis, these non-GAAP measures are referred to as adjusted operating measures. These non-GAAP measures should not be viewed as a substitute forU.S. GAAP measures.
It is management's priority to increase shareholder value over a multi-year
horizon by achieving our on-average, over-time financial targets.
Our financial targets are:
•Adjusted operating earnings per diluted share growth of 12% to 15%, and
•Adjusted operating return on equity excluding accumulated other comprehensive
income ("AOCI") of over 30%.
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The following tables reconcile our GAAP measures to adjusted operating measures:
Per Diluted Share
Years Ended December 31, Years Ended December 31,
2021 2020 2021 2020
(in millions, except per share amounts)
Net income $ 2,760 $ 1,534 $ 23.00 $ 12.20
Less: Net realized investment gains (losses) (1) 87 (10) 0.73 (0.08)
Add: Market impact on non-traditional long-duration products (1) 656 375 5.47 2.98
Add: Mean reversion related impacts (1) (152) (87) (1.27) (0.69)
Add: Market impact of hedges on investments (1) 22 - 0.18 -
Less: Block transfer reinsurance transaction impacts (1) 521 - 4.34 -
Add: Integration/restructuring charges (1) 32 4 0.27 0.03
Less: Net income (loss) attributable to CIEs (3) 3 (0.03) 0.02
Tax effect of adjustments (2) 11 (63) 0.09 (0.50)
Adjusted operating earnings $ 2,724 $ 1,770 $ 22.70 $ 14.08
Weighted average common shares outstanding:
Basic 117.3 123.8
Diluted 120.0 125.7
(1) Pretax adjusted operating adjustments.
(2) Calculated using the statutory tax rate of 21%.
The following table reconciles net income to adjusted operating earnings and the
five-point average of quarter-end equity to adjusted operating equity:
Years Ended December 31,
2021 2020
(in millions)
Net income $ 2,760 $ 1,534
Less: Adjustments (1) 36 (236)
Adjusted operating earnings
Total Ameriprise Financial, Inc. shareholders' equity$ 5,689 $ 6,171 Less: AOCI, net of tax 301 301
5,388 5,870 Less: Equity impacts attributable to CIEs 2 1 Adjusted operating equity$ 5,386 $ 5,869 Return on equity, excluding AOCI 51.2 %
26.1 %
Adjusted operating return on equity, excluding AOCI (2) 50.6 % 30.2 %
(1) Adjustments reflect the sum of after-tax net realized investment gains/losses, net of DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; mean reversion related impacts; block transfer reinsurance transaction impacts; the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; gain or loss on disposal of a business that is not considered discontinued operations; integration and restructuring charges; income (loss) from discontinued operations; and net income (loss) from consolidated investment entities. After-tax is calculated using the statutory tax rate of 21%. (2) Adjusted operating return on equity, excluding AOCI is calculated using adjusted operating earnings in the numerator andAmeriprise Financial shareholders' equity, excluding AOCI and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator. After-tax is calculated using the statutory rate of 21%.
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Critical Accounting Estimates
The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. The accounting and reporting policies and estimates we have identified as fundamental to a full understanding of our consolidated results of operations and financial condition are described below. See Note 2 to our Consolidated Financial Statements for further information about our accounting policies.
Valuation of Investments
The most significant component of our investments is our Available-for-Sale securities, which we carry at fair value within our Consolidated Balance Sheets. See Note 15 to our Consolidated Financial Statements for discussion of the fair value of our Available-for-Sale securities. Financial markets are subject to significant movements in valuation and liquidity, which can impact our ability to liquidate and the selling price that can be realized for our securities and increases the use of judgment in determining the estimated fair value of certain investments. We are unable to predict impacts and determine sensitivities in reported amounts reflecting such market movements on our aggregate Available-for-Sale portfolio. Changes to these assumptions do not occur in isolation and it is impracticable to predict such impacts at the individual security unit of measure which are predominately Level 2 fair value and based on observable inputs. Deferred Acquisition Costs
See Note 2 to our Consolidated Financial Statements for discussion of our DAC
accounting policy. See Note 3 to our Consolidated Financial Statements for
discussion of changes to the measurement of DAC amortization effective for
interim and annual periods beginning after
Non-Traditional Long-Duration Products
For our non-traditional long-duration products (including variable, structured
variable and fixed deferred annuity contracts, UL and VUL insurance products),
our DAC balance at any reporting date is based on projections that show
management expects there to be estimated gross profits ("EGPs") after that date
to amortize the remaining balance. These projections are inherently uncertain
because they require management to make assumptions about financial markets,
mortality levels and contractholder and policyholder behavior over periods
extending well into the future. Projection periods used for our annuity products
are typically 30 to 50 years and for our UL insurance products 50 years or
longer.
EGPs vary based on persistency rates (assumptions at which contractholders and
policyholders are expected to surrender, make withdrawals from and make deposits
to their contracts), mortality levels, client asset value growth rates (based on
equity and bond market performance), variable annuity benefit utilization and
interest margins (the spread between earned rates on invested assets and rates
credited to contractholder and policyholder accounts). Changes in these
assumptions can be offsetting and we are unable to predict their movement,
sensitivities in reported amounts, offsetting impacts or future impacts to the
Consolidated Financial Statements over time or in any given future period. When
assumptions are changed, the percentage of EGPs used to amortize DAC might also
change. A change in the required amortization percentage is applied
retrospectively; an increase in amortization percentage will result in a
decrease in the DAC balance and an increase in DAC amortization expense, while a
decrease in amortization percentage will result in an increase in the DAC
balance and a decrease in DAC amortization expense. The effect on the DAC
balance that would result from the realization of unrealized gains (losses) on
securities is recognized with an offset to accumulated other comprehensive
income on the consolidated balance sheet.
The client asset value growth rates are the rates at which variable annuity and
VUL insurance contract values invested in separate accounts are assumed to
appreciate in the future. The rates used vary by equity and fixed income
investments. The long-term client asset value growth rates are based on assumed
gross annual returns of 9% for equity funds and 5.65% for fixed income funds. We
typically use a five-year mean reversion process as a guideline in setting
near-term equity fund growth rates based on a long-term view of financial market
performance as well as recent actual performance. The suggested near-term equity
fund growth rate is reviewed quarterly to ensure consistency with management's
assessment of anticipated equity market performance.
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A decrease of 100 basis points in separate account fund growth rate assumptions
is likely to result in an increase in DAC amortization and an increase in
benefits and claims expense for variable annuity and VUL insurance contracts.
The following table presents the estimated impact to current period pretax
income:
Estimated Impact to Pretax Income (1)
Benefits and Claims
DAC Amortization Expense Total
(in millions)
Decrease in future near- and long-term fixed income fund growth
returns by 100 basis points
$
(38) $ (70)
Decrease in future near-term equity fund growth returns by 100
basis points
$
(35) $ (51)
Decrease in future long-term equity fund growth returns by 100
basis points
(22) (34) (56)
Decrease in future near- and long-term equity fund growth
returns by 100 basis points
$
(57) $ (85)
(1) An increase in the above assumptions by 100 basis points would result in an
increase to pretax income for approximately the same amount.
An assessment of sensitivity associated with isolated changes of any single
assumption is not an indicator of future results.
Traditional Long-Duration Products
For our traditional long-duration products (including traditional life and
disability income ("DI") insurance products), our DAC balance at any reporting
date is based on projections that show management expects there to be adequate
premiums after the date to amortize the remaining balance. These projections are
inherently uncertain because they require management to make assumptions over
periods extending well into the future. These assumptions include interest
rates, persistency rates and mortality and morbidity rates and are not modified
(unlocked) unless recoverability testing determines that reserves are
inadequate. Changes in these assumptions can be offsetting and we are unable to
predict their movement, sensitivities in reported amounts, offsetting impacts,
or future impacts to the Consolidated Financial Statements over time or in any
given future period. Projection periods used for our traditional life insurance
are up to 30 years. Projection periods for our DI products are up to 45 years.
We may experience accelerated amortization of DAC if policies terminate earlier
than projected or a slower rate of amortization of DAC if policies persist
longer than projected.
For traditional life and DI insurance products, the assumptions provide for
adverse deviations in experience and are revised only if management concludes
experience will be so adverse that DAC are not recoverable. If management
concludes that DAC are not recoverable, DAC are reduced to the amount that is
recoverable based on best estimate assumptions.
Future Policy Benefits and Claims
See Note 3 to our Consolidated Financial Statements for discussion of changes to the measurement of DAC amortization effective for interim and annual periods beginning afterDecember 15, 2022 . We establish reserves to cover the benefits associated with non-traditional and traditional long-duration products. Non-traditional long-duration products include variable and structured variable annuity contracts, fixed annuity contracts and UL and VUL policies. Traditional long-duration products include term life, whole life, DI and LTC insurance products. Guarantees accounted for as insurance liabilities include guaranteed minimum death benefits ("GMDB"), gain gross-up ("GGU"), guaranteed minimum income benefit ("GMIB") and the life contingent benefits associated with guaranteed minimum withdrawal benefit ("GMWB"). In addition, UL and VUL policies with product features that result in profits followed by losses are accounted for as insurance liabilities. Guarantees accounted for as embedded derivatives include guaranteed minimum accumulation benefit ("GMAB") and the non-life contingent benefits associated with GMWB. In addition, the portion of structured variable annuities, indexed annuities and IUL policies allocated to the indexed account is accounted for as an embedded derivative. The establishment of reserves is an estimation process using a variety of methods, assumptions and data elements. If actual experience is better than or equal to the results of the estimation process, then reserves should be adequate to provide for future benefits and expenses. If actual experience is worse than the results of the estimation process, additional reserves may be required.
Non-Traditional Long-Duration Products, including Embedded Derivatives
UL and VUL
A portion of our UL and VUL policies have product features that result in profits followed by losses from the insurance component of the contract. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the contract. 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 liability for these future losses is determined using actuarial models to estimate the death benefits in excess of account value and recognizing the excess over the estimated life based on expected assessments (e.g. cost of insurance charges, contractual administrative charges, similar fees and investment margin). Significant assumptions made in projecting future benefits and assessments relate to client asset
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value growth rates, mortality, persistency and investment margins and are consistent with those used for DAC valuation for the same contracts. Changes in these assumptions can be offsetting and we are unable to predict their movement, sensitivities in reported amounts, offsetting impacts, or future impacts to the Consolidated Financial Statements over time or in any given future period. See Note 12 to our Consolidated Financial Statements for information regarding the liability for contracts with secondary guarantees.
Variable Annuities
We have approximately$92 billion of variable annuity account value that has been issued over a period of more than fifty years. The diversified variable annuity block consists of$35 billion of account value with no living benefit guarantees and$57 billion of account value with living benefit guarantees, primarily GMWB provisions. The business is predominately issued through the Ameriprise Financial® advisor network. The majority of the variable annuity contracts offered by us contain GMDB provisions. We also offer variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings which are referred to as GGU benefits. In addition, we offer contracts with GMWB and GMAB provisions and, untilMay 2007 , we offered contracts containing GMIB provisions. See Note 12 to our Consolidated Financial Statements for further discussion of our variable annuity contracts. In determining the liabilities for GMDB, GGU, GMIB and the life contingent benefits associated with GMWB, we project these benefits and contract assessments using actuarial models to simulate various equity market scenarios. Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates, mortality, persistency, benefit utilization and investment margins and are consistent with those used for DAC valuation for the same contracts. As with DAC, management reviews, and where appropriate, adjusts its assumptions each quarter. Unless management identifies a material deviation over the course of quarterly monitoring, management reviews and updates these assumptions annually in the third quarter of each year. Regarding the exposure to variable annuity living benefit guarantees, the source of behavioral risk is driven by changes in policyholder surrenders and utilization of guaranteed withdrawal benefits. We have extensive experience studies and analysis to monitor changes and trends in policyholder behavior. A significant volume of company-specific policyholder experience data is available and provides management with the ability to regularly analyze policyholder behavior. On a monthly basis, actual surrender and benefit utilization experience is compared to expectations. Experience data includes detailed policy information providing the opportunity to review impacts of multiple variables. The ability to analyze differences in experience, such as presence of a living benefit rider, existence of surrender charges, and tax qualifications provide us an effective approach in quickly detecting changes in policyholder behavior. At least annually, we perform a thorough policyholder behavior analysis to validate the assumptions included in our benefit reserve, embedded derivative and DAC balances. The variable annuity assumptions and resulting reserve computations reflect multiple policyholder variables. Differentiation in assumptions by policyholder age, existence of surrender charges, guaranteed withdrawal utilization, and tax qualification are examples of factors recognized in establishing management's assumptions used in reserve calculations. The extensive data derived from our variable annuity block informs management in confirming previous assumptions and revising the variable annuity behavior assumptions. Changes in assumptions are governed by a review and approval process to ensure an appropriate measurement of all impacted financial statement balances. Changes in these assumptions can be offsetting and we are unable to predict their movement, sensitivities in reported amounts, offsetting impacts, or future impacts to the Consolidated Financial Statements over time or in any given future period. See the table in the previous discussion of "Deferred Acquisition Costs" for the estimated impact to benefits and claims expense related to variable annuity and VUL insurance contracts resulting from a decrease of 100 basis points in separate account fund growth rate assumptions.
Embedded Derivatives
The fair value of embedded derivatives related to GMAB and the non-life contingent benefits associated with GMWB provisions fluctuate based on equity, interest rate and credit markets which can cause these embedded derivatives to be either an asset or a liability. The fair value of embedded derivatives related to structured variable annuities, indexed annuities and IUL fluctuate based on equity markets and interest rates and is a liability. In addition, the valuation of embedded derivatives is impacted by an estimate of our nonperformance risk adjustment. This estimate includes a spread over the LIBOR swap curve as of the balance sheet date. As our estimate of this spread over LIBOR widens or tightens, the liability will decrease or increase. Additionally, ourCorporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management.
See Note 15 to our Consolidated Financial Statements for information regarding
the fair value measurement of embedded derivatives.
Traditional Long-Duration Products
Liabilities for unpaid amounts on reported DI and LTC claims include any periodic or other benefit amounts due and accrued, along with estimates of the present value of obligations for continuing benefit payments. These unpaid amounts are calculated using anticipated claim continuance rates based on established industry tables, adjusted as appropriate for our experience. The discount rates used to calculate present values are based on average interest rates earned on assets supporting the liability for unpaid amounts.
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Liabilities for estimates of benefits that will become payable on future claims on term life, whole life and DI policies are based on the net level premium and LTC policies are based on a gross premium valuation reflecting management's current best estimate assumptions. Net level premium includes anticipated premium payments, mortality and morbidity rates, policy persistency and interest rates earned on assets supporting the liability. Gross premium valuation includes expected premium rate increases, benefit reductions, morbidity rates, policy persistency and interest rates earned on assets supporting the liability. Anticipated mortality and morbidity rates are based on established industry mortality and morbidity tables, with modifications based on our experience. Anticipated premium payments and persistency rates vary by policy form, issue age, policy duration and certain other pricing factors.
Derivative Instruments and Hedging Activities
We use derivative instruments to manage our exposure to various market risks. All derivatives are recorded at fair value. The fair value of our derivative instruments is determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market observable inputs to the extent available. We are unable to predict impacts and determine sensitivities in reported amounts reflecting such market movements on our aggregate derivative portfolio. Changes to assumptions do not occur in isolation and it is impracticable to predict such impacts at the individual security unit of measure which are predominately Level 2 fair value and based on observable inputs. For further details on the types of derivatives we use and how we account for them, see Note 2, Note 15 and Note 17 to our Consolidated Financial Statements. For discussion of our market risk exposures and hedging program and related sensitivity testing, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations and financial condition, see Note 3 to our Consolidated Financial Statements.
Sources of Revenues and Expenses
Management and Financial Advice Fees
Management and financial advice fees relate primarily to fees earned from managing mutual funds, private funds, separate account and wrap account assets and institutional investments, as well as fees earned from providing financial advice, administrative services (including transfer agent and administration fees earned from providing services to retail mutual funds) and other custodial services. Management and financial advice fees include performance-based incentive management fees, which we may receive on certain management contracts. Management and financial advice fees also include mortality and expense risk fees. Distribution Fees Distribution fees primarily include point-of-sale fees (such as mutual fund front-end sales loads) and asset-based fees (such as 12b-1 distribution and shareholder service fees). Distribution fees also include amounts received under marketing support arrangements for sales of mutual funds and other companies' products, such as through our wrap accounts, as well as surrender charges on annuities and UL and VUL insurance.
Net Investment Income
Net investment income primarily includes interest income on fixed maturity securities classified as Available-for-Sale, mortgage loans, policy loans, margin loans, pledged asset lines of credit, other investments, cash and cash equivalents and investments of CIEs; the changes in fair value of trading securities, certain derivatives and certain assets and liabilities of CIEs; the pro rata share of net income or loss on equity method investments; and realized gains and losses on the sale of investments and changes for the allowance for credit losses.
Premiums, policy and contract charges
Premiums include premiums on traditional life, DI and LTC insurance and life contingent immediate annuities and are net of reinsurance premiums. Policy and contract charges include variable annuity rider charges and UL and VUL insurance charges, which consist of cost of insurance charges (net of reinsurance premiums and cost of reinsurance for UL and VUL insurance products) and administrative charges. Other Revenues
Other revenues primarily include the accretion on the fixed annuities
reinsurance deposit receivables and other miscellaneous revenues.
For discussion of our accounting policies on revenue recognition, see Note 2 to
our Consolidated Financial Statements.
Banking and Deposit Interest Expense
Banking and deposit interest expense primarily includes interest expense related to investment certificates and banking deposits. The changes in fair value of stock market certificate embedded derivatives and the derivatives hedging stock market certificates are included within banking and deposit interest expense.
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Distribution Expenses
Distribution expenses primarily include compensation paid to our financial advisors, registered representatives, third-party distributors and wholesalers. The portion of these costs which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract issued by the RiverSource Life companies are deferred. The amounts capitalized and amortized are based on actual distribution costs. The majority of these costs, such as advisor and wholesaler compensation, vary directly with the level of sales. Distribution expenses also include marketing support and other distribution and administration related payments made to affiliated and unaffiliated distributors of products provided by our affiliates. The majority of these expenses vary with the level of sales, or assets held, by these distributors, and the remainder is fixed. Distribution expenses also include wholesaling costs.
Interest Credited to Fixed Accounts
Interest credited to fixed accounts represents amounts earned by contractholders and policyholders on fixed account values associated with UL and VUL insurance and annuity contracts. The changes in fair value of fixed deferred indexed annuity and IUL embedded derivatives and the derivatives hedging these products are also included within Interest credited to fixed accounts.
Benefits, Claims, Losses and Settlement Expenses
Benefits, claims, losses and settlement expenses consist of amounts paid and changes in liabilities held for anticipated future benefit payments under insurance policies and annuity contracts, along with costs to process and pay such amounts. Amounts are net of benefit payments recovered or expected to be recovered under reinsurance contracts. Benefits under variable annuity guarantees include the changes in fair value of GMWB and GMAB embedded derivatives and the derivatives hedging these benefits, as well as the changes in fair value of derivatives hedging GMDB provisions. The changes in fair value of structured variable annuity embedded derivatives and the derivatives hedging this product, as well as the amortization of DSIC are also included in Benefits, claims losses and settlement expenses.
Amortization of DAC
Direct sales commissions and other costs capitalized as DAC are amortized over time. For annuity and UL/VUL contracts, DAC are amortized based on projections of EGPs over amortization periods equal to the approximate life of the business. For other insurance products, DAC are generally amortized as a percentage of premiums over amortization periods equal to the premium-paying period.
Interest and Debt Expense
Interest and debt expense primarily includes interest on corporate debt and CIE debt, the impact of interest rate hedging activities and amortization of debt issuance costs.
General and Administrative Expense
General and administrative expense includes compensation, share-based awards and other benefits for employees (other than employees directly related to distribution, such as financial advisors), professional and consultant fees, information technology, facilities and equipment, advertising and promotion, legal and regulatory and corporate related expenses.
Economic Environment
Global equity market conditions and fluctuations could materially affect our
financial condition and results of operations. The following table presents
relevant market indices:
Years Ended December 31,
2021 2020 Change
S&P 500
Daily average 4,270 3,218 33%
Period end 4,766 3,756 27%
Weighted Equity Index ("WEI") (1)
Daily average 2,894 2,184 33%
Period end 3,152 2,573 23%
(1) Weighted Equity Index is an Ameriprise calculated proxy for equity market
movements calculated using a weighted average of the S&P 500, Russell 2000,
Russell Midcap and MSCI EAFE indices based on North America distributed equity
assets.
See our segment results of operations discussion below for additional
information on how changes in the economic environment have and may continue to
impact our results. For further information regarding the impact of the economic
environment on our financial condition and results of operations, and
potentially material effects, see Part 1 - Item 1A "Risk Factors" of this Annual
Report on Form 10-K.
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Assets Under Management and Administration
AUM include external client assets for which we provide investment management
services, such as the assets of the Columbia Threadneedle Investments funds,
institutional clients and clients in our advisor platform held in wrap accounts
as well as assets managed by sub-advisors selected by us. AUM also includes
certain assets on our Consolidated Balance Sheets for which we provide
investment management services and recognize management fees in our Asset
Management segment, such as the assets of the general account and the variable
product funds held in the separate accounts of our life insurance subsidiaries
and CIEs.
Assets under administration ("AUA") include assets for which we provide
administrative services such as client assets invested in other companies'
products that we offer outside of our wrap accounts. These assets include those
held in clients' brokerage accounts. We generally record revenues received from
administered assets as distribution fees. We do not exercise management
discretion over these assets and do not earn a management fee. These assets are
not reported on our Consolidated Balance Sheets. AUA also includes certain
assets on our Consolidated Balance Sheets for which we do not provide investment
management services and do not recognize management fees, such as investments in
non-affiliated funds held in the separate accounts of our life insurance
subsidiaries.
AUM and AUA do not include assets under advisement, for which we provide
advisory services such as model portfolios but do not have full discretionary
investment authority.
The following table presents detail regarding our AUM and AUA:
December 31,
2021 2020
Change
(in billions)
Assets Under Management and Administration
Advice & Wealth Management AUM $ 460.9 $ 376.8 $ 84.1 22 %
Asset Management AUM 754.1 546.6 207.5 38
Corporate AUM 0.1 - 0.1 -
Eliminations (44.1) (37.4) (6.7) (18)
Total Assets Under Management 1,171.0 886.0 285.0 32
Total Assets Under Administration 246.9 216.1 30.8 14
Total AUM and AUA $ 1,417.9 $ 1,102.1 $ 315.8 29 %
Total AUM increased $285.0 billion , or 32%, to $1.2 trillion as of December 31,
2021 compared to $886.0 billion as of December 31, 2020 due to a $84.1 billion
increase in Advice & Wealth Management AUM driven by wrap account net inflows
and market appreciation and a $207.5 billion increase in Asset Management AUM
driven by the acquisition of the BMO Global Asset Management (EMEA) business,
market appreciation and net inflows, partially offset by retail fund
distributions. See our segment results of operations discussion for additional
information on changes in our AUM.
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Consolidated Results of Operations
Year Ended
The following table presents our consolidated results of operations:
Years Ended December 31,
2021 2020 Change
(in millions)
Revenues
Management and financial advice fees $ 9,275 $ 7,368 $ 1,907 26 %
Distribution fees 1,830 1,661 169 10
Net investment income 1,683 1,251 432 35
Premiums, policy and contract charges 273 1,395 (1,122) (80)
Other revenues 382 283 99 35
Total revenues 13,443 11,958 1,485 12
Banking and deposit interest expense 12 59 (47) (80)
Total net revenues 13,431 11,899 1,532 13
Expenses
Distribution expenses 5,015 4,059 956 24
Interest credited to fixed accounts 600 644 (44) (7)
Benefits, claims, losses and settlement expenses 716 1,806 (1,090) (60)
Amortization of deferred acquisition costs 124 277 (153) (55)
Interest and debt expense 191 162 29 18
General and administrative expense 3,435 3,120 315 10
Total expenses 10,081 10,068 13 -
Pretax income 3,350 1,831 1,519 83
Income tax provision 590 297 293 99
Net income $ 2,760 $ 1,534 $ 1,226 80 %
Overall
Pretax income increased
prior year. The following impacts were significant drivers of the year-over-year
change in pretax income:
•The favorable impact of the block transfer reinsurance transaction was$521 million for 2021 primarily reflecting the net realized gains on investments sold to the reinsurer. •The favorable impact of unlocking was$17 million for 2021 compared to an unfavorable impact of unlocking and LTC loss recognition of$454 million for the prior year. •A positive impact from higher average equity markets compared to the prior year. Our average WEI, which is a proxy for equity movements on AUM, increased 33% in 2021 compared to the prior year. The average S&P 500 index was 33% higher for 2021 compared to the prior year.
•A positive impact from higher client net inflows and higher transactional
activity during 2021 compared to the prior year.
•The mean reversion related impact was a benefit of
compared to a benefit of
•The market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual was an expense of$656 million for 2021 compared to an expense of$375 million for the prior year.
•A negative impact of
lower short-term interest rates.
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The following table presents the total pretax impacts on our revenues and expenses attributable to unlocking and LTC loss recognition for the years endedDecember 31 : Pretax Increase (Decrease) 2021 2020 (in millions) Distribution fees$ 2 $ - Premiums, policy and contract charges 17
(1)
Total revenues 19
(1)
Benefits, claims, losses and settlement expenses: LTC unlocking and loss recognition 3
141
Unlocking impact, excluding LTC 59
212
Total benefits, claims, losses and settlement expenses 62
353 Amortization of DAC (60) 100 Total expenses 2 453 Pretax income (1)$ 17 $ (454) (1) Includes a$25 million net benefit and a$12 million net expense related to the market impact on non-traditional long-duration products for 2021 and 2020, respectively, which is excluded from adjusted operating earnings. Refer to Results of Operations by Segment for the impact to pretax adjusted operating earnings attributable to unlocking and LTC loss recognition.
The primary drivers of the year-over-year unlocking impact excluding LTC include
the following items:
•Interest rate assumptions resulted in a lower expense in 2021 compared to the prior year period. Our 10-yearTreasury rate assumption remained unchanged in 2021 at 3.5% with a grading period endingDecember 31, 2026 .
•Equity market volatility and correlation assumptions on variable annuities
resulted in a higher benefit in 2021 compared to the prior year.
•Surrenders assumptions on variable annuities with living benefit guarantees
resulted in a lower expense in 2021 compared to the prior year.
The unfavorable LTC unlocking impact of
unfavorable LTC unlocking and loss recognition impact of
prior year is primarily due to prior year updates to our interest rate
assumptions.
Net Revenues
Management and financial advice fees increased$1.9 billion , or 26%, for 2021 compared to the prior year primarily due to higher average equity markets, higher wrap account net inflows, an increase in performance fees of$89 million ,$59 million of revenue associated with the acquisition of the BMO Global Asset Management (EMEA) business, and an unfavorable$19 million performance fee correction in the prior year period. Distribution fees increased$169 million , or 10%, for 2021 compared to the prior year due to higher average equity markets and increased transactional activity, partially offset by$55 million of lower fees on off-balance sheet brokerage cash due to a decrease in short-term interest rates.
Net investment income increased
prior year primarily due to the following impacts:
•Net realized investment gains of$636 million for 2021 compared to net realized investment losses of$10 million for the prior year period. Net realized gains for 2021 included net realized gains of$561 million on Available-for-Sale securities and a$58 million net gain related to commercial mortgage loans primarily due to the sale of securities and loans to the reinsurer as a result of the fixed deferred and immediate annuity reinsurance transaction that closed in the third quarter 2021, as well as a$15 million gain on a strategic investment.
•An increase of
•The favorable impact of higher average invested assets related to the bank,
partially offset by lower average certificate balances.
•The unfavorable impact of lower average invested assets due to the sale of investments as a result of the fixed deferred and immediate annuity reinsurance transaction.
•The unfavorable impact of lower interest rates, including lower short-term
interest rates on the investment portfolio supporting the certificate and
on-balance sheet brokerage cash products.
•The
currency changes on certain investments in the year.
Premiums, policy and contract charges decreased$1.1 billion , or 80%, for 2021 compared to the prior year primarily reflecting ceded premiums of$1.2 billion associated with the reinsurance transaction for life contingent immediate annuity policies.
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Other revenues increased
year primarily reflecting the yield on deposit receivables.
Banking and deposit interest expense decreased$47 million , or 80%, for 2021 compared to the prior year due to lower average crediting rates on certificates and lower average certificate balances.
Expenses
Distribution expenses increased$956 million , or 24%, for 2021 compared to the prior year primarily reflecting higher advisor compensation due to an increase in average wrap account balances and increased transactional activity.
Interest credited to fixed accounts decreased
compared to the prior year primarily reflecting the following items:
•An$8 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The unfavorable impact of the nonperformance credit spread was$10 million for 2021 compared to an unfavorable impact of$18 million for the prior year. •A$22 million decrease in expense from other market impacts on IUL benefits, net of hedges, which was a benefit of$54 million for 2021 compared to a benefit of$32 million for the prior year. The decrease in expense was primarily due to a decrease in the IUL embedded derivative in the current period, which reflected lower option costs due to higher discount rates compared to an increase in the IUL embedded derivative in the prior year period, which reflected higher option costs due to lower discount rates.
Benefits, claims, losses and settlement expenses decreased
for 2021 compared to the prior year primarily reflecting the following items:
•A
for life contingent immediate annuity policies.
•A$450 million increase in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of the nonperformance credit spread was$108 million for 2021 compared to a favorable impact of$342 million for the prior year. As the undiscounted embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread on benefits expenses is favorable (unfavorable). Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. •An$80 million decrease in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of a favorable$2.5 billion change in the market impact on variable annuity guaranteed living benefits reserves, partially offset by an unfavorable$2.4 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits. The main market drivers contributing to these changes are summarized below:
•Equity market impact on the variable annuity guaranteed living benefits
liability net of the impact on the corresponding hedge assets resulted in a
higher expense for 2021 compared to the prior year.
•Interest rate impact on the variable annuity guaranteed living benefits
liability net of the impact on the corresponding hedge assets resulted in an
expense for 2021 compared to a benefit in the prior year.
•Volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a lower expense for 2021 compared to the prior year. •Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various contractholder behavioral items, were a net benefit for 2021 compared to a net expense for the prior year.
•The impact of unlocking excluding LTC was an expense of
compared to an expense of
•The annual review of LTC future policy benefit reserve in 2021 resulted in
unlocking of
million
•The mean reversion related impact was a benefit of
compared to a benefit of
Amortization of DAC decreased
prior year primarily reflecting the following items:
•The impact of unlocking in 2021 was a benefit of
expense of
•The DAC offset to the market impact on non-traditional long-duration
products was a benefit of
•The mean reversion related impact was a benefit of
compared to a benefit of
•A higher level of normalized amortization due to the growth of variable
annuities and unlocked market and policyholder assumptions in the prior year.
Interest and debt expense increased
the prior year primarily due to an increase in interest expense of CIEs.
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General and administrative expense increased$315 million , or 10%, for 2021 compared to the prior year primarily reflecting higher performance related compensation,$52 million related to the operating expenses of the acquired BMO Global Asset Management (EMEA) business, an unfavorable foreign exchange impact, and$32 million of integration related expenses, partially offset by disciplined expense management and reengineering.
Income Taxes
Our effective tax rate was 17.6% for 2021 compared to 16.2% for the prior year. See Note 24 to our Consolidated Financial Statements for additional discussion on income taxes.
Results of Operations by Segment
Year Ended
Adjusted operating earnings is the measure of segment profit or loss management uses to evaluate segment performance. Adjusted operating earnings should not be viewed as a substitute for GAAP pretax income. We believe the presentation of segment adjusted operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis. See Note 28 to the Consolidated Financial Statements for further information on the presentation of segment results and our definition of adjusted operating earnings.
The following table presents summary financial information by segment:
Years Ended December 31,
2021 2020
(in millions)
Advice & Wealth Management
Net revenues $ 8,021 $ 6,675
Expenses 6,278 5,354
Adjusted operating earnings $ 1,743 $ 1,321
Asset Management
Net revenues $ 3,682 $ 2,891
Expenses 2,586 2,194
Adjusted operating earnings $ 1,096 $ 697
Retirement & Protection Solutions
Net revenues $ 3,244 $ 3,094
Expenses 2,509 2,614
Adjusted operating earnings $ 735 $ 480
Corporate & Other
Net revenues $ 487 $ 546
Expenses 757 915
Adjusted operating loss $ (270) $ (369)
The following table presents the segment pretax adjusted operating impacts on
our revenues and expenses attributable to unlocking and LTC loss recognition for
the years ended December 31 :
2021 2020
Retirement & Retirement &
Segment Pretax Adjusted Operating Protection Protection
Increase (Decrease) Solutions Corporate Solutions Corporate
(in millions)
Distribution fees $ 2 $ - $ - $ -
Premiums, policy and contract charges 17 - 2 (3)
Total revenues 19 - 2 (3)
Benefits, claims, losses and settlement
expenses
LTC unlocking and loss recognition - 3 - 141
Unlocking, excluding LTC 89 - 189 7
Total benefits, claims, losses and
settlement expenses 89 3 189 148
Amortization of DAC (65) - 108 (4)
Total expenses 24 3 297 144
Pretax income (loss) $ (5) $ (3) $ (295) $ (147)
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Advice & Wealth Management
The following table presents the changes in wrap account assets and average
balances for the years ended
2021 2020
(in billions)
Beginning balance $ 380.0 $ 317.5
Net flows (1) 40.4 27.0
Market appreciation (depreciation) and other (1) 44.3 35.5
Ending balance
$ 464.7 $ 380.0
Advisory wrap account assets ending balance (2)
Average advisory wrap account assets (3)
$ 415.3 $ 318.3 (1) Beginning in the first quarter of 2021, wrap net flows is calculated including dividends and interest less fees which were previously recorded in Market appreciation (depreciation) and other. Net flows excludes short-term and long-term capital gain distributions. Prior periods have been restated. (2) Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
(3) Average ending balances are calculated using an average of the prior
period's ending balance and all months in the current period excluding the most
recent month for the twelve months ended
Wrap account assets increased$84.7 billion , or 22%, during 2021 due to net inflows of$40.4 billion and market appreciation and other of$44.3 billion . Average advisory wrap account assets increased$97.0 billion , or 30%, compared to the prior year reflecting net inflows and market appreciation. Fourth quarter 2021 represented the fifth consecutive quarter wrap net flows at or above$9.0 billion .
The following table presents the results of operations of our Advice & Wealth
Management segment on an adjusted operating basis:
Years Ended December 31,
2021 2020 Change
(in millions)
Revenues
Management and financial advice fees $ 5,297 $ 4,211 $ 1,086 26 %
Distribution fees 2,253 2,002 251 13
Net investment income 257 313 (56) (18)
Other revenues 226 208 18 9
Total revenues 8,033 6,734 1,299 19
Banking and deposit interest expense 12 59 (47) (80)
Total net revenues 8,021 6,675 1,346 20
Expenses
Distribution expenses 4,842 3,946 896 23
Interest and debt expense 10 10 - -
General and administrative expense 1,426 1,398 28 2
Total expenses 6,278 5,354 924 17
Adjusted operating earnings $ 1,743 $ 1,321 $ 422 32 %
Our Advice & Wealth Management segment pretax adjusted operating earnings, which
exclude net realized investment gains or losses, increased $422 million , or 32%,
for 2021 compared to the prior year due to higher average wrap account balances
reflecting wrap account net inflows and equity market appreciation and increased
transactional activity, partially offset by lower earnings on brokerage cash as
a result of low interest rates. Pretax adjusted operating margin was 21.7% for
2021 compared to 19.8% for the prior year. Adjusted operating net revenue per
advisor increased to $796,000 for 2021, up 18%, from $674,000 for the prior
year.
sweep balances and
credit as of
Net Revenues
Management and financial fees increased$1.1 billion , or 26%, for 2021 compared to the prior year primarily due to growth in wrap account assets. Average advisory wrap account assets increased$97.0 billion , or 30%, compared to the prior year reflecting net inflows and market appreciation.
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Distribution fees increased$251 million , or 13%, for 2021 compared to the prior year reflecting higher average equity markets and increased transactional activity, partially offset by$55 million of lower fees on off-balance sheet brokerage cash due to a decrease in short-term interest rates. Net investment income decreased$56 million , or 18%, for 2021 compared to the prior year primarily due to the unfavorable impact of lower short-term interest rates on the investment portfolio supporting the certificate and on-balance sheet brokerage cash products, as well as the continued decline in certificate balances, partially offset by higher average invested assets due to increased bank deposits. Banking and deposit interest expense decreased$47 million , or 80%, for 2021 compared to the prior year primarily due to lower average crediting rates on certificates and the continued decline in average certificate balances.
Expenses
Distribution expenses increased$896 million , or 23%, for 2021 compared to the prior year reflecting higher asset-based advisor compensation due to higher wrap account assets and increased transactional activity, as well as investments in recruiting experienced advisors.
General and administrative expense increased
compared to the prior year primarily due to higher volume related expenses and
higher performance-based compensation expenses.
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Asset Management
The following tables present the mutual fund performance of our retail ColumbiaThreadneedle Investments funds, including BMO branded funds, as ofDecember 31, 2021 : Retail Fund Rankings in Top 2 Quartiles or Above Index Benchmark - Asset Weighted (1) 1 year 3 year 5 year 10 year Equity 61% 86% 82% 88% Fixed Income 77% 96% 96% 92% Asset Allocation 60% 83% 86% 90% 4- or 5-star Morningstar rated funds (2) Overall 3 year 5 year 10 year Number of rated funds 133 114 111 102 Percent of rated assets 70% 64% 60% 71% (1)Retail Fund performance rankings for each fund is measured on a consistent basis against the most appropriate peer group or index. Peer Groupings are defined by either Lipper, IA, or Morningstar and based primarily on the Institutional Share Class, Net of Fees. Comparisons to Index are measured Gross of Fees. To calculate asset weighted performance, the sum of the total assets of the funds with above median ranking are divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
Aggregated Asset Allocation Funds may include funds that invest in other
Columbia or Threadneedle branded mutual funds included in both equity and fixed
income.
(2) Columbia funds are available for purchase byU.S. customers. Out of 91 Columbia funds (Institutional shares) rated, 16 received a 5-star Overall Rating and 37 received a 4-star Overall Rating. Out of 92 Threadneedle funds (highest rated share class) rated, 19 received a 5-star Overall Rating and 35 received a 4-star Overall Rating. Out of 62 BMO funds (highest rated share class) rated, 8 received a 5-star Overall Rating and 18 received a 4-star Over Rating. The Overall Morningstar Rating is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) Morningstar Rating metrics.
The following table presents managed assets by type:
Average (1)
December 31, December 31,
2021 2020 Change 2021 2020 Change
(in billions) (in billions)
Equity $ 402.9 $ 302.6 $ 100.3 33 % $ 338.3 $ 259.8 $ 78.5 30 %
Fixed income 277.0 196.0 81.0 41 211.8 185.0 26.8 14
Money market 10.1 5.9 4.2 71 6.5 5.1 1.4 27
Alternative 39.9 22.4 17.5 78 25.8 21.2 4.6 22
Hybrid and other 24.2 19.7 4.5 23 22.6 18.0 4.6 26
Total managed assets (2) $ 754.1 $ 546.6 $ 207.5 38 % $ 605.0 $ 489.1 $ 115.9 24 %
(1) Average ending balances are calculated using an average of the prior
period's ending balance and all months in the current period.
(2) In the fourth quarter of 2021, the definition of Alternative AUM was changed to now include real estate, CLOs, private equity, hedge funds (direct and fund of funds), infrastructure and commodities to better demonstrate our underlying business and the additional assets from the acquisition of the BMO Global Asset Management (EMEA) business. Prior periods have been restated to reflect this change.
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The following tables present the changes in global managed assets:
Years Ended December 31,
2021 2020
(in billions)
Global Retail Funds
Beginning assets $ 323.5 $ 287.5
Inflows 78.7 64.7
Outflows (69.3) (61.9)
Net VP/VIT fund flows (4.2) (2.9)
Net new flows 5.2 (0.1)
Reinvested dividends 19.0 10.0
Net flows 24.2 9.9
Distributions (21.5) (11.6)
Acquired assets (1) 46.1 -
Market appreciation (depreciation) and other 47.7
35.5
Foreign currency translation (2) (1.7) 2.2 Total ending assets 418.3 323.5 Global Institutional Beginning assets 223.1 206.7 Inflows (3) 50.7 27.4 Outflows (3) (32.0) (31.6) Net flows 18.7 (4.2) Acquired assets (1) 90.1 - Market appreciation (depreciation) and other (4) 6.5
16.9
Foreign currency translation (2) (2.6) 3.7 Total ending assets 335.8 223.1 Total managed assets$ 754.1 $ 546.6 Total net flows$ 42.9 $ 5.7 Legacy insurance partners net flows (5)$ (4.9)
(1) Reflects the acquisition of the BMO Global Asset Management (EMEA) business
that closed on
(2) Amounts represent local currency to US dollar translation for reporting
purposes.
(3) Global Institutional inflows and outflows include net flows from our
RiverSource Structured Annuity product beginning in the first quarter of 2020
and
(4) Included in Market appreciation (depreciation) and other for Global Institutional is the change in affiliated general account balance, excluding net flows related to our structured variable annuity product beginning in the first quarter of 2020 andAmeriprise Bank , FSB in the first quarter of 2021. (5) Legacy insurance partners assets and net flows are included in the rollforwards above. OnNovember 8, 2021 , we completed our acquisition of the European-based asset management business ofBMO Financial Group . This acquisition added$136 billion in assets under management. See Note 9 for more information on this acquisition. Total segment AUM increased$207.5 billion , or 38%, during 2021 driven by the acquisition of the BMO Global Asset Management (EMEA) business, market appreciation and net inflows. Net inflows were$42.9 billion for 2021, a$37.2 billion improvement compared to the prior year and included the transfer of$16.9 billion of retail and institutional assets fromU.S. BMO asset management clients that elected to move their assets to us during the fourth quarter of 2021 resulting from the transition of investment advisory services as part of an arrangement withBMO Financial Group for theirU.S. business. Overall, the$16.9 billion represents the vast majority of the transfer expected under this arrangement, with any additional transfers ofU.S. BMO asset management clients to be completed in the first quarter of 2022. Beyond this arrangement, the acquisition established a strategic relationship with BMO Wealth Management giving its North American Wealth Management clients opportunities to access a range of Columbia Threadneedle investment management solutions.
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The following table presents the results of operations of our Asset Management
segment on an adjusted operating basis:
Years Ended December 31,
2021 2020 Change
(in millions)
Revenues
Management and financial advice fees $ 3,202 $ 2,475 $ 727 29 %
Distribution fees 471 411 60 15
Net investment income 6 3 3 100
Other revenues 3 2 1 50
Total revenues 3,682 2,891 791 27
Banking and deposit interest expense - - - -
Total net revenues 3,682 2,891 791 27
Expenses
Distribution expenses 1,132 945 187 20
Amortization of deferred acquisition costs 12 11 1 9
Interest and debt expense 5 5 - -
General and administrative expense 1,437 1,233 204 17
Total expenses 2,586 2,194 392 18
Adjusted operating earnings $ 1,096 $ 697 $ 399 57 %
Our Asset Management segment pretax adjusted operating earnings, which exclude
net realized investment gains or losses, increased $399 million , or 57%, for
2021 compared to the prior year primarily due to equity market appreciation, the
cumulative impact of net inflows, and a $38 million increase in net performance
fees.
Net Revenues
Management and financial advice fees increased $727 million , or 29%, for 2021
compared to the prior year primarily driven by higher average equity markets and
net inflows, an $89 million increase in performance fees, and $59 million of
revenue associated with the acquisition of the BMO Global Asset Management
(EMEA) business.
Distribution fees increased
year primarily due to higher average equity markets.
Expenses
Distribution expenses increased
prior year primarily due to higher average equity markets.
General and administrative expense increased$204 million , or 17%, for 2021 compared to the prior year primarily reflecting$52 million related to the operating expenses of the acquired BMO Global Asset Management (EMEA) business,$51 million in higher performance fee related compensation, higher performance-based compensation expenses related to stronger business performance and an unfavorable foreign exchange impact.
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Retirement & Protection Solutions
The following table presents the results of operations of our Retirement &
Protection Solutions segment on an adjusted operating basis:
Years Ended December 31,
2021 2020 Change
(in millions)
Revenues
Management and financial advice fees $ 932 $ 831 $ 101 12 %
Distribution fees 487 437 50 11
Net investment income 480 508 (28) (6)
Premiums, policy and contract charges 1,338 1,315 23 2
Other revenues 7 3 4 NM
Total revenues 3,244 3,094 150 5
Banking and deposit interest expense - - - -
Total net revenues 3,244 3,094 150 5
Expenses
Distribution expenses 531 455 76 17
Interest credited to fixed accounts 389 394 (5) (1)
Benefits, claims, losses and settlement expenses 1,042 1,131 (89) (8)
Amortization of deferred acquisition costs 208 300 (92) (31)
Interest and debt expense 37 39 (2) (5)
General and administrative expense 302 295 7 2
Total expenses 2,509 2,614 (105) (4)
Adjusted operating earnings $ 735 $ 480 $ 255 53 %
NM Not Meaningful.
Our Retirement & Protection Solutions segment pretax adjusted operating
earnings, which excludes net realized investment gains or losses (net of the
related DSIC and DAC amortization, unearned revenue amortization and the
reinsurance accrual), the market impact on non-traditional long-duration
products (including variable annuity contracts and IUL contracts, net of hedges
and the related DSIC and DAC amortization, unearned revenue amortization and the
reinsurance accrual) and mean reversion related impacts, and block transfer
reinsurance transaction impacts increased $255 million , or 53%, for 2021
compared to the prior year.
Variable annuity account balances increased 8% to $92.3 billion as of December
31, 2021 compared to the prior year due to market appreciation, partially offset
by net outflows of $1.9 billion . Variable annuity sales increased 37% to $6.0
billion for 2021 compared to the prior year reflecting an increase in sales of
structured variable annuities that was partially offset by a decrease in sales
of variable annuities with living benefit guarantees. Sales of variable
annuities without living benefit guarantees comprised 67% of total variable
annuity sales in 2021 compared to 49% in 2020. The risk profile of our in force
block continues to improve, with account values with living benefit riders down
to 61% as of December 31, 2021 compared to 64% a year ago. This trend is
expected to continue and meaningfully shift the mix of business away from
products with living benefit guarantees over time.
We continue to optimize our risk profile and shift our business mix to lower
risk offerings. During the fourth quarter of 2021, we made the decision to
discontinue new sales of substantially all of our variable annuities with living
benefit guarantees at the end of 2021, with a full exit by mid-2022. In
addition, we discontinued new sales of our universal life insurance with
secondary guarantees and our single-pay fixed universal life with a long term
care rider products at the end of 2021.
Net Revenues
Management and financial advice fees increased$101 million , or 12%, for 2021 compared to the prior year reflecting higher average equity markets, partially offset by variable annuity net outflows.
Distribution fees increased
year reflecting higher average equity markets, partially offset by net outflows.
Net investment income, which excludes net realized investment gains or losses, decreased$28 million , or 6%, for 2021 compared to the prior year reflecting lower fixed maturity investment yields.
Expenses
Distribution expenses increased
prior year primarily reflecting higher average equity markets and increased
variable annuity and insurance sales.
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Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity contracts (net of hedges and the related DSIC amortization), mean reversion related impacts and the DSIC offset to net realized investment gains or losses, decreased$89 million , or 8%, for 2021 compared to the prior year primarily due to the impact of unlocking, as well as lower sales of immediate annuities with a life contingent feature. The unlocking impact for 2021 was an expense of$89 million primarily reflecting continued lower surrender rates compared to an expense of$189 million for the prior year which was also driven by lower surrender rates. Amortization of DAC, which excludes mean reversion related impacts, the DAC offset to the market impact on variable annuity contracts and IUL contracts and the DAC offset to net realized investment gains or losses, decreased$92 million , or 31%, for 2021 compared to the prior year reflecting the impact of unlocking primarily due to lower surrender rates, partially offset by a higher level of normalized amortization. The impact of unlocking for 2021 was a benefit of$65 million compared to an expense of$108 million in the prior year.
Corporate & Other
The following table presents the results of operations of our Corporate & Other
segment on an adjusted operating basis:
Years Ended December 31,
2021 2020 Change
(in millions)
Revenues
Management and financial advice fees $ - $ - $ - - %
Distribution fees 1 - 1 -
Net investment income 242 377 (135) (36)
Premiums, policy and contract charges 100 102 (2) (2)
Other revenues 146 70 76 NM
Total revenues 489 549 (60) (11)
Banking and deposit interest expense 2 3 (1) (33)
Total net revenues 487 546 (59) (11)
Expenses
Distribution expenses (9) (7) (2) 29
Interest credited to fixed accounts 250 261 (11) (4)
Benefits, claims, losses and settlement expenses 179 344 (165) (48)
Amortization of deferred acquisition costs 9 6 3 50
Interest and debt expense 63 66 (3) (5)
General and administrative expense 265 245 20 8
Total expenses 757 915 (158) (17)
Adjusted operating loss $ (270) $ (369) $ 99 27 %
NM Not Meaningful.
Our Corporate & Other segment includes our closed blocks of LTC insurance and
fixed annuity and fixed indexed annuity ("FA") business.
Our Corporate & Other segment pretax adjusted operating loss excludes net realized investment gains or losses, the market impact on fixed deferred annuity contracts (net of hedges and the related DAC amortization), the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments, block transfer reinsurance transaction impacts, gain or loss on disposal of a business that is not considered discontinued operations, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax adjusted operating loss decreased$99 million , or 27%, for 2021 compared to the prior year. LTC insurance had pretax adjusted operating earnings of$52 million for 2021 compared to a pretax adjusted operating loss of$95 million for the prior year period primarily reflecting the$141 million unfavorable impact from unlocking and loss recognition in the prior year period. LTC insurance mortality and terminations activity have returned to pre-COVID levels in the fourth quarter of 2021. See below for more details on our closed block of LTC insurance. FA business had a pretax adjusted operating loss of$24 million for 2021 compared to a pretax adjusted operating loss of$8 million for the prior year reflecting fixed annuity net outflows and the impact of low interest rates. Fixed deferred annuity account balances declined 5% to$7.6 billion as ofDecember 31, 2021 compared to the prior year period as policies continue to lapse and the discontinuance of new sales of fixed deferred annuities and fixed index annuities due to the low interest rate environment. During the third quarter of 2021, we closed on a transaction to reinsure RiverSource Life's fixed deferred and immediate annuity policies. See Note 1 for more information on the reinsurance transaction.
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Net Revenues
Net investment income, which excludes net realized investment gains or losses, the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs, decreased$135 million , or 36%, for 2021 compared to the prior year primarily reflecting lower average invested assets due to the sale of investments to the reinsurer as a result of the fixed deferred and immediate annuity reinsurance transaction, lower asset earned rates, partially offset by a$15 million gain on a strategic investment.
Other revenues increased
primarily reflecting the yield on deposit receivables.
Expenses
Benefits, claims, losses and settlement expenses, which excludes DSIC offset to net realized investment gains or losses, decreased$165 million , or 48%, for 2021 compared to the prior year primarily reflecting the impacts from unlocking and loss recognition and lower LTC insurance claims. The unlocking impact for 2021 was an expense of$3 million compared to an unlocking and loss recognition expense of$148 million in the prior year. General and administrative expense, which excludes integration and restructuring charges and expenses attributable to CIEs, increased$20 million , or 8%, for 2021 compared to the prior year primarily due to an unfavorable change in the mark-to-market impact on share-based compensation expense due to share price appreciation.Closed Block LTC Insurance As ofDecember 31, 2021 , our nursing home indemnity LTC block had approximately$74 million in gross in force annual premium and future policyholder benefits and claim reserves of approximately$1.3 billion , net of reinsurance, which was 52% of GAAP reserves. This block has been shrinking over the last few years given the average attained age is 83 and the average attained age of policyholders on claim is 88. Fifty-four percent of daily benefits in force in this block come from policies that have a lifetime benefit period. As ofDecember 31, 2021 , our comprehensive reimbursement LTC block had approximately$115 million in gross in force annual premium and future policyholder benefits and claim reserves of approximately$1.2 billion , net of reinsurance. This block has higher premiums per policy than the nursing home indemnity LTC policies. The average attained age is 78 and the average attained age of policyholders on claim is 85. Thirty-five percent of daily benefits in force in this block come from policies that have a lifetime benefit period. We utilize three primary levers to manage our LTC business. First, we have taken an active approach of steadily increasing rates since 2005, with cumulative rate increases of 199% on our nursing home indemnity LTC block and 113% on our comprehensive reimbursement LTC block as ofDecember 31, 2021 . Second, we have a reserving process that reflects the policy features and risk characteristics of our blocks. As ofDecember 31, 2021 , we had 38,000 policies that were closed with claim activity, as well as 8,000 open claims. We apply this experience to our in force policies, which were 91,000 as ofDecember 31, 2021 , at a very granular level by issue year, attained age and benefit features. Our statutory reserves are$381 million higher than our GAAP reserves and include margins on key assumptions for morbidity and mortality, as well as$363 million in asset adequacy reserves as ofDecember 31, 2021 . Lastly, we have prudently managed our investment portfolio primarily through a liquid, investment grade portfolio that is currently in a net unrealized gain position. We undertake an extensive review of active life future policy benefit reserve adequacy annually during the third quarter of each year, or more frequently if appropriate, using current best estimate assumptions as of the date of the review. Our annual review process includes an analysis of our key reserve assumptions, including those for morbidity, terminations (mortality and lapses), premium rate increases and investment yields.
Fair Value Measurements
We report certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. We include actual market prices, or observable inputs, in our fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. We validate prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 15 to the Consolidated Financial Statements for additional information on our fair value measurements.
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, fixed deferred indexed annuities, structured variable annuities, and IUL insurance, we consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust the valuation of variable annuity riders, fixed deferred indexed annuities, structured variable annuities, and IUL insurance by updating certain contractholder assumptions, adding explicit margins to provide for risk, and adjusting the rates used to discount expected cash flows to reflect a market estimate of our nonperformance risk. The nonperformance
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risk adjustment is based on observable market data adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as ofDecember 31, 2021 . 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 future net income would be approximately$457 million , net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based onDecember 31, 2021 credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the year endedDecember 31, 2021 . AtDecember 31, 2021 and 2020, we had$7.1 billion and$6.8 billion , respectively, in cash and cash equivalents excluding CIEs and other restricted cash on a consolidated basis. AtDecember 31, 2021 and 2020, the parent company had$841 million and$1.1 billion , respectively, in cash, cash equivalents, and unencumbered liquid securities. Liquid securities predominantly includeU.S. government agency mortgage back securities. Additional sources of liquidity include a line of credit with an affiliate up to$1.0 billion and an unsecured revolving committed credit facility for up to$1.0 billion that expires inJune 2026 . Management's estimate of liquidity available to the parent company in a volatile and uncertain economic environment as ofDecember 31, 2021 was$2.4 billion which includes cash, cash equivalents, unencumbered liquid securities, the line of credit with an affiliate and a portion of the committed credit facility. Under the terms of the committed credit facility, we can increase the availability to$1.25 billion upon satisfaction of certain approval requirements. Available borrowings under this facility are reduced by any outstanding letters of credit. AtDecember 31, 2021 , we had no outstanding borrowings under this credit facility and had$1 million of outstanding letters of credit. Our credit facility contains various administrative, reporting, legal and financial covenants. We remain in compliance with all such covenants atDecember 31, 2021 . In addition, we have access to collateralized borrowings, which may include repurchase agreements andFederal Home Loan Bank ("FHLB") advances. Our subsidiaries,RiverSource Life Insurance Company ("RiverSource Life"), andAmeriprise Bank , FSB are members of the FHLB ofDes Moines , which provides access to collateralized borrowings. As ofDecember 31, 2021 and 2020, we had an estimated maximum borrowing capacity of$8.1 billion and$7.7 billion , respectively, under the FHLB facilities, of which$200 million was outstanding as of bothDecember 31, 2021 and 2020, and is collateralized with commercial mortgage backed securities and residential mortgage backed securities. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs and stress requirements. Short-term contractual obligations for the year 2022 include investment certificate maturities of$5.1 billion and estimated insurance and annuity benefits of$1.6 billion in addition to operating liquidity needs. Long-term contractual obligations for years after 2022 include estimated insurance and annuity benefits of$42.9 billion . See Note 14 to our Consolidated Financial Statements for further information about our long-term debt maturities, including$500 million maturing within the 2022 calendar year. We believe cash flows from operating activities, available cash balances, our availability of revolver borrowings and dividends from our subsidiaries will be sufficient to fund our short-term and long-term operating liquidity needs and stress requirements. We continue to monitor and respond to the ongoing COVID-19 pandemic. Our risk management strategy is designed to provide proactive protection during stress events such as the current pandemic. We believe our process is working as intended, and our liquidity and capital resources have remained a source of balance sheet strength during the year endedDecember 31, 2021 .
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, LLC ("AFS") and our clearing broker-dealer subsidiary,American Enterprise Investment Services, Inc. ("AEIS"), our transfer agent subsidiary,Columbia Management Investment Services Corp. , our investment advisory company,Columbia Management Investment Advisers, LLC ,TAM UK International Holdings Ltd , which includes Threadneedle Asset Management Holdings Sàrl andAmeriprise International Holdings GmbH within its organizational structure, andColumbia Threadneedle Investments UK International Ltd. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.
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Actual capital and regulatory capital requirements for our wholly owned
subsidiaries subject to regulatory capital requirements were as follows:
Regulatory
Actual Capital Capital Requirements
December 31, December 31,
2021 2020 2021 2020
(in millions)
RiverSource Life (1)(2) $ 3,419 $ 5,021 $ 502 $ 993
RiverSource Life of NY (1)(2) 310 323 42 42
ACC (4)(5) 304 387 283 362
TAM UK International Holdings Ltd.(6) 330 N/A 248 N/A
Threadneedle Asset Management Holdings Sàrl (6) N/A 445 N/A 204
Ameriprise Bank, FSB (4)(7) 853 658 589 543
AFS (3)(4) 103 134 # #
Ameriprise Captive Insurance Company (3) 39 41 10 8
Ameriprise Trust Company (3) 47 42 44 37
AEIS (3)(4) 155 122 29 25
RiverSource Distributors, Inc. (3)(4) 10 12 # #
Columbia Management Investment Distributors, Inc. (3)(4) 14 16 # #
N/A 170 N/A N/A Not applicable.
# Amounts are less than
(1) Actual capital is determined on a statutory basis.
(2) Regulatory capital requirement is the company action level and is based on
the statutory risk-based capital filing.
(3) Regulatory capital requirement is based on the applicable regulatory
requirement, calculated as of
(4) Actual capital is determined on an adjusted GAAP basis.
(5) ACC is required to hold capital in compliance with the
of Commerce
(6) Actual capital and regulatory capital requirements are determined in
accordance with
restructure resulted in Threadneedle Asset Management Sàrl becoming a subsidiary
of
capital management in accordance with
(7) Regulatory capital requirement is based on minimum requirements for well capitalized banks in accordance with theOffice of the Comptroller of the Currency ("OCC"). Beginning in the first quarter of 2021,Ameriprise Bank transitioned to the Simplified Supervisory Formula Approach ("SSFA") for risk-weighting non-agency securitized investments, resulting in a significant reduction in risk-weighted assets and an improvement in regulatory capital ratios that were already in a well-capitalized position. (8) Actual capital and regulatory capital requirements are determined in accordance withU.K. regulatory legislation.
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 strategy for payments to our parent holding
company from our subsidiaries, and in deciding to use cash to make capital
contributions to our subsidiaries.
During the year endedDecember 31, 2021 , the parent holding company received cash dividends or a return of capital from its subsidiaries of$4.1 billion and contributed cash to its subsidiaries of$1.3 billion , which includes a$973 million contribution toColumbia Threadneedle Investments UK International Ltd. andAmeriprise Asset Management Holdings Singapore Ltd. for the acquisition of the BMO Global Asset Management (EMEA) business. During the year endedDecember 31, 2020 , the parent holding company received cash dividends or a return of capital from its subsidiaries of$2.1 billion and contributed cash to its subsidiaries of$416 million .
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The table below presents the historical subsidiary capacity for dividends and return of capital to the parent holding company in each of the years endedDecember 31 : 2021 2020 2019 (in millions) RiverSource Life (1)$ 1,900 $ 1,505 $ 1,676 Ameriprise Bank, FSB 78 74 20 ACC (2) 129 97 96 CMIA (3) 674 381 368 CMIS (3) 20 14 48 TAM UK International Holdings Ltd. 355 N/A N/A Ameriprise International Holdings GmbH N/A 254 231 Ameriprise Trust Company 3 - 3 Ameriprise Captive Insurance Company 34 48 54 RiverSource Distributors, Inc. - 12 12 AMPF Holding Corporation 1,469 1,116 1,092 Columbia Threadneedle Investments UK International Ltd. (4) 178 N/A N/A Total capacity$ 4,840 $ 3,501 $ 3,600 N/A Not applicable. (1) For RiverSource Life payments in excess of statutory unassigned funds require advance notice to theMinnesota Department of Commerce , RiverSource Life's primary regulator, and are subject to potential disapproval. In addition, dividends and other distributions whose fair market value, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) the previous year's statutory net gain from operations or (2) 10% of the previous year-end statutory capital and surplus are referred to as "extraordinary dividends." Extraordinary dividends also require advance notice to theMinnesota Department of Commerce , and are subject to potential disapproval. For dividends exceeding these thresholds, RiverSource Life provided notice to theMinnesota Department of Commerce and received responses indicating that it did not object to the payment of these dividends. Total dividend capacity for RiverSource Life represents dividends paid during year endedDecember 31 along with any unpaid ordinary dividend capacity, subject to unassigned funds limitation.
(2) The capacity for dividends and return of capital for ACC is based on capital
held in excess of regulatory requirements.
(3) The dividend capacity for CMIA and CMIS is based on available tangible
capital net of regulatory non-allowable assets and internal requirements backing
(4) Dividend capacity is subject to regulatory approval.
The following table presents cash dividends paid or return of capital to the parent holding company, net of cash capital contributions made by the parent holding company for the following subsidiaries for the years endedDecember 31 : 2021 2020 2019 (in millions) RiverSource Life$ 1,900 $ 800 $ 1,350 Ameriprise Bank, FSB (142) (300) (260) ACC 109 72 69 CMIA 510 324 286 CMIS - - 40 TAM UK International Holdings Ltd. 256 N/A N/A Ameriprise International Holdings GmbH (1) N/A - 116 Ameriprise Advisor Capital, LLC (172) (102) (84) Ameriprise Captive Insurance Company 5 15 15 AMPF Holding Corporation 1,284 924 920 Ameriprise Trust Company - (4) - Ameriprise India 2 4 - RiverSource Distributors, Inc. (3) - -
- - Ameriprise Asset Management Holdings Singapore Ltd. (7) - - Total$ 2,776 $ 1,733 $ 2,452 N/A Not applicable.
(1) Includes forgiveness of parent holding company debt of
year ended
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In 2009, RiverSource Life established an agreement to protect its exposure toGenworth Life Insurance Company ("GLIC") for its reinsured LTC. In 2016, substantial enhancements to this reinsurance protection agreement were finalized. The terms of these confidential provisions within the agreement have been shared, in the normal course of regular reviews, with our domiciliary regulator and rating agencies. GLIC is domiciled inDelaware , so in the event GLIC were subjected to rehabilitation or insolvency proceedings, such proceedings would be located in (and governed by)Delaware laws.Delaware courts have a long tradition of respecting commercial and reinsurance affairs, as well as contracts among sophisticated parties. Similar credit protections to what we have with GLIC have been tested and respected inDelaware and elsewhere inthe United States , and as a result we believe our credit protections would be respected even in the unlikely event that GLIC becomes subject to rehabilitation or insolvency proceedings inDelaware . Accordingly, while no credit protections are perfect, we believe the correct way to think about the risks represented by our counterparty credit exposure to GLIC is not the full amount of the gross liability that GLIC reinsures, but a much smaller net exposure to GLIC (if any that might exist after taking into account our credit protections). Thus, management believes that our agreement and offsetting non LTC legacy arrangements with Genworth will enable RiverSource Life to recover on all net exposure in all material respects in the event of a rehabilitation or insolvency of GLIC.
Dividends Paid to Shareholders and Share Repurchases
We paid regular quarterly dividends to our shareholders totaling$527 million and$512 million for the years endedDecember 31, 2021 and 2020, respectively. OnJanuary 26, 2022 , we announced a quarterly dividend of$1.13 per common share. The dividend will be paid onFebruary 28, 2022 to our shareholders of record at the close of business onFebruary 11, 2022 . InAugust 2020 , our Board of Directors authorized an additional repurchase up to$2.5 billion of our common stock throughSeptember 30, 2022 . As ofDecember 31, 2021 , we had$432 million remaining under this share repurchase authorization. OnJanuary 26, 2022 , our Board of Directors authorized an additional$3.0 billion for the repurchase of our common stock throughMarch 31, 2024 . We intend to fund share repurchases through existing working capital, future earnings and other customary financing methods. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means. During the year endedDecember 31, 2021 , we repurchased a total of 7.1 million shares of our common stock at an average price of$258.29 per share.
Cash Flows
Cash flows of CIEs and restricted and segregated cash are reflected in our cash flows provided by (used in) operating activities, investing activities and financing activities. Cash held by CIEs is not available for general use byAmeriprise Financial , nor isAmeriprise Financial cash available for general use by its CIEs. Cash segregated under federal and other regulations is held for the exclusive benefit of our brokerage customers and is not available for general use byAmeriprise Financial . Operating Activities Net cash provided by operating activities decreased$1.3 billion to$3.3 billion for the year endedDecember 31, 2021 compared to$4.6 billion for the prior year primarily reflecting an increase in income taxes paid of$750 million and a decrease in brokerage deposits of$320 million .
Investing Activities
Our investing activities primarily relate to our Available-for-Sale investment
portfolio. This activity is significantly affected by the net flows of our
investment certificate, banking, fixed annuity and universal life products
reflected in financing activities.
Net cash used in investing activities increased$1.5 billion to$4.4 billion for the year endedDecember 31, 2021 compared to$2.9 billion for the prior year primarily reflecting the acquisition of the BMO Global Asset Management (EMEA) business for$576 million , net of cash acquired, a$373 million increase in Cash paid for deposit receivables driven by the fixed annuity reinsurance transaction in the third quarter of 2021, an increase in net cash outflows related to Available-for-Sale securities of$398 million , and a$241 million decrease in options with deferred premiums.
Financing Activities
Net cash provided by financing activities increased$771 million to$1.7 billion for the year endedDecember 31, 2021 compared to$1.0 billion for the prior year primarily reflecting a$1.4 billion increase in borrowings by CIEs and a$1.4 billion increase in options with deferred premiums, partially offset by a$1.1 billion decrease in repayments of debt by CIEs, and a$700 million decrease in cash related to investment certificates due to certificate net outflows.
Forward-Looking Statements
This report contains forward-looking statements that reflect management's plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include: •statements of the Company's plans, intentions, positioning, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention and growth of our client base, financial advisor productivity, retention, recruiting and enrollments, the introduction, cessation, terms or pricing of new or existing products and
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services, acquisition integration, benefits and claims expenses, general and administrative costs, consolidated tax rate, return of capital to shareholders, debt repayment and excess capital position and financial flexibility to capture additional growth opportunities; •statements of the Company's position, future performance and ability to pursue business strategy relative to the spread and impact of the COVID-19 pandemic and the related market, economic, client, governmental and healthcare system response;
•statements about the expected trend in the shift to lower-risk products,
including the exit from variable annuities with living benefit riders and the
discontinuance of new sales of universal life insurance with secondary
guarantees;
•statements about the benefit of and integration of the Company's acquisition of
the BMO Global Asset Management (EMEA) business;
•statements about the outcomes from the application to convert
FSB to a state-chartered bank and national trust bank;
•other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance ofthe United States and of global markets; and
•statements of assumptions underlying such statements.
The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," "forecast," "on track," "project," "continue," "able to remain," "resume," "deliver," "develop," "evolve," "drive," "enable," "flexibility," "scenario," "case" 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:
•the impacts on our business of the COVID-19 pandemic and the related economic,
client, governmental and healthcare system responses;
•market fluctuations and general economic and political factors, including
volatility in the
volatility in the markets for our products;
•changes in interest rates and periods of low interest rates;
•adverse capital and credit market conditions or any downgrade in our credit
ratings;
•effects of competition and our larger competitors' economies of scale;
•declines in our investment management performance;
•our ability to compete in attracting and retaining talent, including financial
advisors;
•impairment, negative performance or default by financial institutions or other
counterparties;
•the ability to maintain our unaffiliated third-party distribution channels and
the impacts of sales of unaffiliated products;
•changes in valuation of securities and investments included in our assets;
•the determination of the amount of allowances taken on loans and investments;
•the illiquidity of our investments;
•effects of the elimination of LIBOR on, and value of, securities and other
assets and liabilities tied to LIBOR;
•failures by other insurers that lead to higher assessments we owe to state
insurance guaranty funds;
•failures or defaults by counterparties to our reinsurance arrangements;
•inadequate reserves for future policy benefits and claims or for future
redemptions and maturities;
•deviations from our assumptions regarding morbidity, mortality and persistency
affecting our insurance profitability;
•changes to our reputation arising from employee or advisor misconduct or
otherwise;
•direct or indirect effects of or responses to climate change;
•interruptions or other failures in our operating systems and networks,
including errors or failures caused by third-party service providers,
interference or third-party attacks;
•interruptions or other errors in our telecommunications or data processing
systems;
• identification and mitigation of risk exposure in market environments, new
products, vendors and other types of risk;
• ability of our subsidiaries to transfer funds to us to pay dividends;
• changes in exchange rates and other risks in connection with our
international operations and earnings and income generated overseas;
• occurrence of natural or man-made disasters and catastrophes;
• risks in acquisition transactions, such as the integration of the BMO Global Asset Management (EMEA) business or other potential strategic acquisitions or divestitures;
• legal and regulatory actions brought against us;
• changes to laws and regulations that govern operation of our business;
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• supervision by bank regulators and related regulatory and prudential
standards as a savings and loan holding company that may limit our activities
and strategies;
• changes in corporate tax laws and regulations and interpretations and
determinations of tax laws impacting our products;
• protection of our intellectual property and claims we infringe the
intellectual property of others; and
•changes in and the adoption of new accounting standards.
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.Ameriprise Financial announces financial and other information to investors through the Company's investor relations website at ir.ameriprise.com, as well asSEC filings, press releases, public conference calls and webcasts. Investors and others interested in the company are encouraged to visit the investor relations website from time to time, as information is updated and new information is posted. The website also allows users to sign up for automatic notifications in the event new materials are posted. The information found on the website is not incorporated by reference into this report or in any other report or document the Company furnishes or files with theSEC .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Our primary market risk exposures are interest rate, equity price, foreign
currency exchange rate and credit risk. Equity price and interest rate
fluctuations can have a significant impact on our results of operations,
primarily due to the effects they have on the asset management and other
asset-based fees we earn, the spread income generated on our fixed deferred
annuities, fixed insurance, brokerage client cash balances, banking deposits,
face-amount certificate products and the fixed portion of our variable annuities
and variable insurance contracts, the value of deferred acquisition costs
("DAC") and deferred sales inducement costs ("DSIC") assets, the value of
liabilities for guaranteed benefits associated with our variable annuities and
the value of derivatives held to hedge these benefits.
RiverSource Life has the following variable annuity guarantee benefits:
guaranteed minimum withdrawal benefits ("GMWB"), guaranteed minimum accumulation
benefits ("GMAB"), guaranteed minimum death benefits ("GMDB") and guaranteed
minimum income benefits ("GMIB"). Each of these benefits guarantees payouts to
the annuity holder under certain specific conditions regardless of the
performance of the underlying invested assets.
The variable annuity guarantees continue to be managed by utilizing a hedging
program which attempts to match the sensitivity of the assets with the
sensitivity of the liabilities. This approach works with the premise that
matched sensitivities will produce a highly effective hedging result. Our
comprehensive hedging program focuses mainly on first order sensitivities of
assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho)
and Volatility (Vega). Additionally, various second order sensitivities are
managed. We use various options, swaptions, swaps and futures to manage risk
exposures. The exposures are measured and monitored daily, and adjustments to
the hedge portfolio are made as necessary.
We have a macro hedge program to provide protection against the statutory tail
scenario risk arising from variable annuity reserves on our statutory surplus
and to cover some of the residual risks not covered by other hedging activities.
We assess the residual risk under a range of scenarios in creating and executing
the macro hedge program. As a means of economically hedging these risks, we may
use a combination of futures, options, swaps and swaptions. Certain of the macro
hedge derivatives used contain settlement provisions linked to both equity
returns and interest rates; the remaining are interest rate contracts or equity
contracts. The macro hedge program could result in additional earnings
volatility as changes in the value of the macro hedge derivatives, which are
designed to reduce statutory capital volatility, may not be closely aligned to
changes in the variable annuity guarantee embedded derivatives.
To evaluate interest rate and equity price risk we perform sensitivity testing
which measures the impact on pretax income from the sources listed below for a
12-month period following a hypothetical 100 basis point increase in interest
rates or a hypothetical 10% decline in equity prices. The interest rate risk
test assumes a sudden 100 basis point parallel shift in the yield curve, with
rates then staying at those levels for the next 12 months. The equity price risk
test assumes a sudden 10% drop in equity prices, with equity prices then staying
at those levels for the next 12 months. In estimating the values of variable
annuity riders, indexed annuities, stock market certificates, indexed universal
life ("IUL") insurance and the associated hedge assets, we assume no change in
implied market volatility despite the 10% drop in equity prices.
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The following tables present our estimate of the impact on pretax income from
the above defined hypothetical market movements as of
Equity Price Exposure to Pretax Income
Equity Price Decline 10% Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based management and distribution fees (1) $ (366) $ 5 $ (361)
DAC and DSIC amortization (2)(3) (27) - (27)
Variable annuity riders and structured variable annuities:
GMDB and GMIB (3) (6) - (6)
GMWB (3) (327) 312 (15)
GMAB (18) 18 -
Structured variable annuities 358 (326) 32
DAC and DSIC amortization (4) N/A N/A (3)
Total variable annuity riders and structured variable
annuities 7 4 8
Macro hedge program (5) - 175 175
IUL insurance 61 (46) 15
Total $ (325) $ 138 $ (190) (6)
Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points Before Hedge Impact Hedge Impact
(in millions)
Asset-based management and distribution fees (1) $ (67) $ - $
(67)
Variable annuity riders and structured variable annuities:
GMWB 1,402 (1,753) (351) GMAB 15 (20) (5) Structured variable annuities (20) 110
90
DAC and DSIC amortization (4) N/A N/A
38
Total variable annuity riders and structured variable annuities 1,397 (1,663) (228) Macro hedge program (5) - (3) (3) Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products 57 - 57 Banking deposits 58 - 58 Brokerage client cash balances 229 - 229 Certificates 14 - 14 IUL insurance 19 1 20 Total$ 1,707 $ (1,665) $ 80 N/A Not Applicable.
(1) Excludes incentive income which is impacted by market and fund performance
during the period and cannot be readily estimated.
(2) Market impact on DAC and DSIC amortization resulting from lower projected
profits.
(3) In estimating the impact to pretax income on DAC and DSIC amortization and additional insurance benefit reserves, our assumed equity asset growth rates reflect what management would follow in its mean reversion guidelines.
(4) Market impact on DAC and DSIC amortization related to variable annuity
riders and structured variable annuities is modeled net of hedge impact.
(5) The market impact of the macro hedge program is modeled net of any related
impact to DAC and DSIC amortization.
(6) Represents the net impact to pretax income. The estimated net impact to
pretax adjusted operating income is
The above results compare to an estimated negative net impact to pretax income of$73 million related to a 10% equity price decline and an estimated positive net impact to pretax income of$2 million related to a 100 basis point increase in interest rates as ofDecember 31, 2020 . The change in equity price exposure as ofDecember 31, 2021 compared to prior year-end was primarily driven by a decrease in the equity hedge position.
Net impacts shown in the above table from GMWB riders result largely from
differences between the liability valuation basis and the hedging basis.
Liabilities are valued using fair value accounting principles, with risk margins
incorporated in contractholder behavior
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assumptions and with discount rates increased to reflect a current market
estimate of our risk of nonperformance specific to these liabilities. Our
hedging is based on our determination of economic risk, which excludes certain
items in the liability valuation including the nonperformance spread risk.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10% and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, we have not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor have we tried to anticipate all strategic actions management might take to increase revenues or reduce expenses in these scenarios. The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.
Asset-Based Management and Distribution Fees
We earn asset-based management fees and distribution fees on our assets under management. As ofDecember 31, 2021 , the value of our assets under management was$1.2 trillion . These sources of revenue are subject to both interest rate and equity price risk since the value of these assets and the fees they earn fluctuate inversely with interest rates and directly with equity prices. We currently only hedge certain equity price risk for this exposure, primarily using futures and swaps. We currently do not hedge any of the interest rate risk for this exposure. DAC and DSIC Amortization For annuity and UL/variable universal life ("VUL") products, DAC and DSIC are amortized on the basis of estimated gross profits ("EGPs"). EGPs are a proxy for pretax income prior to the recognition of DAC and DSIC amortization expense. When events occur that reduce or increase current period EGPs, DAC and DSIC amortization expense is typically reduced or increased as well, somewhat mitigating the impact of the event on pretax income.
Variable Annuity Riders
The total contract value of all variable annuities as ofDecember 31, 2021 was$92.3 billion . These contract values include GMWB and GMAB contracts which were$54.3 billion and$2.0 billion , respectively, as ofDecember 31, 2021 . As ofDecember 31, 2021 , reserves for GMWB were net liabilities of$2.3 billion and reserves for GMAB were net assets of$23 million . The GMWB and GMAB reserves include the fair value of embedded derivatives, which fluctuates based on equity, interest rate and credit markets which can cause these embedded derivatives to be either an asset or a liability. As ofDecember 31, 2021 , the reserve for GMDB and GMIB was a net liability of$41 million .
Equity Price Risk
The variable annuity guaranteed benefits guarantee payouts to the annuity holder under certain specific conditions regardless of the performance of the investment assets. For this reason, when equity prices decline, the returns from the separate account assets coupled with guaranteed benefit fees from annuity holders may not be sufficient to fund expected payouts. In that case, reserves must be increased with a negative impact to earnings. The core derivative instruments with which we hedge the equity price risk of our GMWB and GMAB provisions are longer dated put and call options; these core instruments are supplemented with equity futures and total return swaps. See Note 17 to our Consolidated Financial Statements for further information on our derivative instruments. Interest Rate Risk The GMAB and the non-life contingent benefits associated with the GMWB provisions create embedded derivatives which are carried at fair value separately from the underlying host variable annuity contract. Changes in the fair value of the GMWB and GMAB liabilities are recorded through earnings with fair value calculated based on projected, discounted cash flows over the life of the contract, including projected, discounted benefits and fees. Increases in interest rates reduce the fair value of the GMWB and GMAB liabilities. The GMWB and GMAB interest rate exposure is hedged with a portfolio of longer dated put and call options, futures, interest rate swaps and swaptions. We have entered into interest rate swaps according to risk exposures along maturities, thus creating both fixed rate payor and variable rate payor terms. If interest rates were to increase, we would have to pay more to the swap counterparty, and the fair value of our equity puts would decrease, resulting in a negative impact to our pretax income.
Structured Variable Annuities
Structured variable annuities offer the contract-holder the ability to allocate premiums to either an account that earns fixed interest (fixed account) or an account that credits interest based on the performance of various equity indices (indexed account) subject to a cap, floor, or buffer. Our earnings are based upon the spread between investment income earned and the credits made to the fixed and indexed accounts of the structured variable annuities. As ofDecember 31, 2021 , we had$4.4 billion in liabilities related to structured variable annuities.
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Equity Price Risk
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices. The equity price risk for structured variable annuities is evaluated together with the variable annuity riders as part of a hedge program using the derivative instruments consistent with our hedging on variable annuity riders.
Interest Rate Risk
The fair value of the embedded derivative associated with structured variable annuities is based on a discounted cash flow approach. Changes in interest rates impact the discounting of the embedded derivative liability. The spread between the investment income earned and amounts credited to contract-holders is also affected by changes in interest rates. These interest rate risks associated with structured variable annuities are not currently hedged. Fixed Annuities,Fixed Insurance and Fixed Portion of Variable Annuities and Variable Insurance Contracts Our earnings from fixed deferred annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts are based upon the spread between rates earned on assets held and the rates at which interest is credited to accounts. We primarily invest in fixed rate securities to fund the rate credited to clients. We guarantee an interest rate to the holders of these products. Investment assets and client liabilities generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients' accounts generally reset at shorter intervals than the yield on the underlying investments. Therefore, in an increasing interest rate environment, higher interest rates may be reflected in crediting rates to clients sooner than in rates earned on invested assets, which could result in a reduced spread between the two rates, reduced earned income and a negative impact on pretax income. However, the current low interest rate environment is resulting in interest rates below the level of some of our liability guaranteed minimum interest rates ("GMIRs"). Hence, a modest rise in interest rates would not necessarily result in changes to all the liability credited rates while projected asset purchases would capture the full increase in interest rates. This dynamic would result in widening spreads under a modestly rising rate scenario given the current relationship between the current level of interest rates and the underlying GMIRs on the business. Of the$35.8 billion in Policyholder account balances, future policy benefits and claims as ofDecember 31, 2021 ,$23.9 billion is related to liabilities created by these products. We do not hedge this exposure. As a result of the low interest rate environment, our current reinvestment yields are generally lower than the current portfolio yield. We expect our portfolio income yields to continue to decline in future periods if interest rates remain low. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through 2023 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were$2.7 billion and 1.7%, respectively, as ofDecember 31, 2021 . In addition, residential mortgage backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled$10.9 billion and had a weighted average yield of 1.5% as ofDecember 31, 2021 . While these amounts represent investments that could be subject to reinvestment risk, it is also possible that these investments will be used to fund liabilities or may not be prepaid and will remain invested at their current yields. In addition to the interest rate environment, the mix of benefit payments versus product sales as well as the timing and volumes associated with such mix may impact our investment yield. Furthermore, reinvestment activities and the associated investment yield may also be impacted by corporate strategies implemented at management's discretion. The average yield for investment purchases during the year endedDecember 31, 2021 was approximately 1.4%. The reinvestment of proceeds from maturities, calls and prepayments at rates below the current portfolio yield, which may be below the level of some liability GMIRs, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on our spread income, we assess reinvestment risk in our investment portfolio and monitor this risk in accordance with our asset/liability management framework. In addition, we may reduce the crediting rates on our fixed products when warranted, subject to guaranteed minimums.
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The following table presents the account values of fixed deferred annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts by range of GMIRs and the range of the difference between rates credited to policyholders and contractholders as ofDecember 31, 2021 and the respective guaranteed minimums, as well as the percentage of account values subject to rate reset in the time period indicated. Rates are reset at our discretion, subject to guaranteed minimums.
Account Values with Crediting Rates
1-49 bps above 50-99 bps above 100-150 bps above
At Guaranteed Minimum Guaranteed Minimum Guaranteed Minimum Guaranteed Minimum Total
(in billions, except percentages)
Range of Guaranteed Minimum Crediting
Rates
1% - 1.99% $ 1.3 $ 0.1 $ 0.1 $ 0.1 $ 1.6
2% - 2.99% 0.5 - - - 0.5
3% - 3.99% 7.4 - - - 7.4
4% - 5.00% 5.5 - - - 5.5
Total $ 14.7 $ 0.1 $ 0.1 $ 0.1 $ 15.0
Percentage of Account Values That
Reset In:
Next 12 months (1) 99 % 85 % 80 % 34 % 98 %
> 12 months to 24 months (2) 1 - 10 66 1
> 24 months (2) - 15 10 - 1
Total 100 % 100 % 100 % 100 % 100 %
(1) Includes contracts with annual discretionary crediting rate resets and
contracts with 12 or less months until the crediting rate becomes discretionary
on an annual basis.
(2) Includes contracts with more than 12 months remaining until the crediting
rate becomes an annual discretionary rate.
Equity Indexed Annuities
Our equity indexed annuity ("EIA") product is a single premium annuity issued
with an initial term of seven years. The annuity guarantees the contractholder a
minimum return of 3% on 90% of the initial premium or end of prior term
accumulation value upon renewal plus a return that is linked to the performance
of the S&P 500® Index. The equity-linked return is based on a participation
rate initially set at between 50% and 90% of the S&P 500® Index, which is
guaranteed for the initial seven-year term when the contract is held to full
term. As of December 31, 2021 , we had $19 million in liabilities related to
EIAs. We discontinued new sales of EIAs in 2007.
Equity Price Risk
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices. To hedge this exposure, we purchase futures, which generate returns to replicate what we must credit to client accounts. Interest Rate Risk Most of the proceeds received from EIAs are invested in fixed income securities with the return on those investments intended to fund the 3% guarantee. We earn income from the difference between the return earned on invested assets and the 3% guarantee rate credited to customer accounts. The spread between return earned and amount credited is affected by changes in interest rates. This risk is not currently hedged and was immaterial as ofDecember 31, 2021 .
Banking Deposits and Brokerage Client Cash Balances
We pay interest on banking deposits and certain brokerage client cash balances and have the ability to reset these rates from time to time based on prevailing economic and business conditions. We earn revenue to fund the interest paid from interest-earning assets or fees from off-balance sheet deposits atFederal Deposit Insurance Corporation insured institutions, which are indexed to short-term interest rates. In general, the change in interest paid lags the change in revenues earned. Certificate Products Fixed Rate Certificates We have interest rate risk from our investment certificates generally ranging in amounts from$1 thousand to$2 million with interest crediting rate terms ranging from 3 to 36 months. We guarantee an interest rate to the holders of these products. Payments collected from clients are primarily invested in fixed income securities to fund the client credited rate with the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients generally reset at shorter intervals than the yield on underlying investments. This exposure is not currently hedged although we monitor our investment strategy and make modifications based on our changing liabilities and the expected interest rate environment. Of the$20.2 billion in customer deposits as ofDecember 31, 2021 ,$5.0 billion related to reserves for our fixed rate certificate products.
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Stock Market Certificates
Stock market certificates are purchased for amounts generally from$1 thousand to$2 million for terms of 52 weeks, 104 weeks or 156 weeks, which can be extended to a maximum of 15 years depending on the term. For each term the certificate holder can choose to participate 100% in any percentage increase in the S&P 500® Index up to a maximum return or choose partial participation in any increase in the S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-linked return and guaranteed rate of interest cannot exceed the maximum return. Liabilities for our stock market certificates are included in customer deposits on our Consolidated Balance Sheets. As ofDecember 31, 2021 , we had$291 million in reserves related to stock market certificates. The equity-linked return to investors creates equity price risk exposure. We seek to minimize this exposure with purchased futures and call spreads that replicate what we must credit to client accounts. This risk continues to be fully hedged. Stock market certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be made to the certificate holder. This risk is not currently hedged and was immaterial as ofDecember 31, 2021 .
Indexed Universal Life
IUL insurance is similar to UL in many regards, although the rate of credited interest above the minimum guarantee for funds allocated to an indexed account is linked to the performance of the specified index for the indexed account (subject to stated account parameters, which include a cap and floor, or a spread and floor). We offer an S&P 500® Index account option and a blended multi-index account option comprised of the S&P 500 Index, the MSCI® EAFE Index and the MSCI EM Index. Both options offer two crediting durations, one-year and two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. As ofDecember 31, 2021 , we had$2.4 billion in liabilities related to the indexed accounts of IUL, with the vast majority in the S&P 500® Index account option.
Equity Price Risk
The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity prices. Most of the proceeds received from IUL insurance are invested in fixed income securities. To hedge the equity exposure, a portion of the investment earnings received from the fixed income securities is used to purchase call spreads which generate returns to replicate what we must credit to client accounts.
Interest Rate Risk
As mentioned above, most of the proceeds received from IUL insurance are invested in fixed income securities with the return on those investments intended to fund the purchase of call spreads and options. There are two risks relating to interest rates. First, we have the risk that investment returns are such that we do not have enough investment income to purchase the needed call spreads. Second, in the event the policy is surrendered we pay out a book value surrender amount and there is a risk that we will incur a loss upon having to sell the fixed income securities backing the liability (if interest rates have risen). This risk is not currently hedged.
Foreign Currency Risk
We have foreign currency risk through our net investment in foreign subsidiaries and our operations in foreign countries. We are primarily exposed to changes in British Pounds related to our net investment in Threadneedle and BMO Global Asset Management (EMEA), which was approximately £1.5 billion as ofDecember 31, 2021 . We also have exposure related to operations in foreign countries to Euros, Indian Rupees and other currencies. We monitor the foreign exchange rates that we have exposure to and enter into foreign currency forward contracts to mitigate risk when economically prudent. As ofDecember 31, 2021 , the notional value of outstanding contracts and our remaining foreign currency risk related to operations in foreign countries were not material.
Interest Rate Risk on External Debt
The stated interest rate on the$2.8 billion of our senior unsecured notes is fixed. We did not enter into interest rate swap agreements to effectively convert the fixed interest rate on any of the senior unsecured notes to floating interest rates. Credit Risk We are exposed to credit risk within our investment portfolio, including our loan portfolio, and through our derivative and reinsurance activities. Credit risk relates to the uncertainty of an obligor's continued ability to make timely payments in accordance with the contractual terms of the financial instrument or contract. We consider our total potential credit exposure to each counterparty and its affiliates to ensure compliance with pre-established credit guidelines at the time we enter into a transaction which would potentially increase our credit risk. These guidelines and oversight of credit risk are managed through a comprehensive enterprise risk management program that includes members of senior management. We manage the risk of credit-related losses in the event of nonperformance by counterparties by applying disciplined fundamental credit analysis and underwriting standards, prudently limiting exposures to lower-quality, higher-yielding investments, and diversifying exposures by issuer, industry, region and underlying investment type. We remain exposed to occasional adverse cyclical economic downturns during which default rates may be significantly higher than the long-term historical average used in pricing. We manage our credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting arrangements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Generally, our current credit exposure on over-the-
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counter derivative contracts is limited to a derivative counterparty's net positive fair value of derivative contracts after taking into consideration the existence of netting arrangements and any collateral received. This exposure is monitored and managed to an acceptable threshold level.
The counterparty risk for centrally cleared over-the-counter derivatives is
transferred to a central clearing party through contract novation. Because the
central clearing party monitors open positions and adjusts collateral
requirements daily, we have minimal credit exposure from such derivative
instruments.
Exchange-traded derivatives are effected through regulated exchanges that require contract standardization and initial margin to transact through the exchange. Because exchange-traded futures are marked to market and generally cash settled on a daily basis, we have minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. Other exchange-traded derivatives would be exposed to nonperformance by counterparties for amounts in excess of initial margin requirements only if the exchange is unable to fulfill the contract. We manage our credit risk related to reinsurance treaties by evaluating the financial condition of reinsurance counterparties prior to entering into new reinsurance treaties. In addition, we regularly evaluate their financial strength during the terms of the treaties. As ofDecember 31, 2021 , our largest reinsurance credit risks are related to coinsurance treaties with Commonwealth and with life insurance subsidiaries of Genworth Financial, Inc. See Note 7 and Note 8 to our Consolidated Financial Statements for additional information on reinsurance.
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Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 238)
67
Consolidated Statements of Operations - Years ended
70
Consolidated Statements of Comprehensive Income - Years ended
2019
71 Consolidated Balance Sheets -December 31, 2021 and 2020 72
Consolidated Statements of Equity - Years ended
73
Consolidated Statements of Cash Flows - Years ended
74
Notes to Consolidated Financial Statements 76
1. Basis of Presentation 76
2. Summary of Significant Accounting Policies 76
3. Recent Accounting Pronouncements 86
4. Revenue from Contracts with Customers 88
5. Variable Interest Entities 92
6. Investments 97
7. Financing Receivables 101
8. Reinsurance 105
9. Goodwill and Other Intangible Assets 106
10. Deferred Acquisition Costs and Deferred Sales Inducement Costs 108
Policyholder Account Balances, Future Policy Benefits and
Claims and Separate
11. Account Liabilities 109
12. Variable Annuity and Insurance Guarantees 111
13. Customer Deposits 113
14. Debt 114
15. Fair Values of Assets and Liabilities 114
16. Offsetting Assets and Liabilities 124
17. Derivatives and Hedging Activities 126
18. Leases 130
19. Disposal of Business 131
20. Share-Based Compensation 131
21. Shareholders' Equity 135
22. Earnings per Share 137
23. Regulatory Requirements 137
24. Income Taxes 140
25. Retirement Plans and Profit Sharing Arrangements 142
26. Commitments, Guarantees and Contingencies 146
27. Related Party Transactions 147
28. Segment Information 148
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Opinions on the Financial Statements and Internal Control over Financial
Reporting
We have audited the accompanying consolidated balance sheets ofAmeriprise Financial, Inc. and its subsidiaries (the "Company") as ofDecember 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period endedDecember 31, 2021 , including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2021 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2021 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2021 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the BMO Global Asset Management (EMEA) business from its assessment of internal control over financial reporting as ofDecember 31, 2021 because it was acquired by the Company in a purchase business combination during 2021. We have also excluded the BMO Global Asset Management (EMEA) business from our audit of internal control over financial reporting. The BMO Global Asset Management (EMEA) business is a wholly-owned subsidiary whose total assets and total net revenues excluded from management's assessment and our audit of internal control over financial reporting represent less than 1% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year endedDecember 31, 2021 .
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of the reserves for long term care policies
As described in Notes 2 and 11 to the consolidated financial statements, the total reserves for long term care policies was$5,664 million as ofDecember 31, 2021 , which is included in policyholder account balances, future policy benefits and claims on the consolidated balance sheet. Liabilities for estimates of benefits that will become payable on future claims on long term care policies are based on a gross premium valuation reflecting management's current best estimate assumptions. Management utilizes best estimate assumptions as of the date the policy is issued with provisions for the risk of adverse deviation, as appropriate. After the liabilities are initially established, management performs premium deficiency tests using current best estimate assumptions annually in the third quarter of each year unless management identifies a material deviation over the course of quarterly monitoring. The best estimate assumptions include expected premium rate increases, benefit reductions, morbidity rates, policy persistency and interest rates earned on assets supporting the liability. If a premium deficiency is recognized, the assumptions as of the date of the loss recognition are locked in and used in subsequent periods, and it is recorded as a component of benefits, claims, losses and settlement expenses. As disclosed by management, this review did not result in the identification of a premium deficiency for 2021. The principal considerations for our determination that performing procedures relating to the valuation of the reserves for long term care policies is a critical audit matter are the significant judgment by management when developing the current best estimate assumptions used in the premium deficiency test on the reserves for long term care policies, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management's current best estimate assumptions related to expected premium rate increases, benefit reductions, morbidity rates, and interest rates earned on assets supporting the liability. Also, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company's premium deficiency test on the reserves for long term care policies, including controls over management's development of the current best estimate assumptions. These procedures also included, among others, evaluating and testing management's process for performing the premium deficiency testing on the reserves for long term care policies, including testing that assumptions are accurately reflected in the valuation models and testing the completeness and accuracy of underlying data used by management. Evaluating and testing management's process also included the involvement of professionals with specialized skill and knowledge to assist in (i) evaluating the reasonableness of the current best estimate assumptions related to expected premium rate increases, benefit reductions, morbidity rates, and interest rates earned on assets supporting the liability based on industry knowledge and data as well as historical Company data and experience, and (ii) evaluating the appropriateness of management's valuation models.
Valuation of the embedded derivatives in certain variable annuity riders
As described in Notes 2, 11, 12, and 15 to the consolidated financial statements, management values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. As there is no active market for the transfer of these embedded derivatives, such internal valuation models estimate fair value by discounting expected cash flows. As ofDecember 31, 2021 , the net embedded derivative liability in certain variable annuity riders was$1,486 million , and is included in policyholder account balances, future policy benefits and claims on the consolidated balance sheet. Management's discounted cash flow model for estimating fair value includes observable capital market assumptions and incorporates significant unobservable inputs related to implied volatility, nonperformance risk and contractholder behavior assumptions that include margins for risk, all of which management believes a market participant would expect. The principal considerations for our determination that performing procedures relating to the valuation of the embedded derivatives in certain variable annuity riders is a critical audit matter are the significant judgment by management to estimate the fair value of the embedded derivatives in certain variable annuity riders, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the significant unobservable inputs related to implied volatility, nonperformance risk and contractholder behavior assumptions that include margins for risk. Also, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of
controls related to the Company's estimate of the fair value of embedded
derivatives in certain variable annuity riders, including controls over the
significant
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unobservable inputs. These procedures also included, among others, evaluating and testing management's process for developing the fair value estimate. Testing management's process included evaluating the reasonableness of the significant unobservable inputs related to implied volatility, nonperformance risk and contractholder behavior assumptions that include margins for risk and testing the completeness and accuracy of underlying data used by management in the development of the significant unobservable inputs. Professionals with specialized skill and knowledge were used to assist in (i) evaluating the reasonableness of certain significant unobservable inputs related to implied volatility, nonperformance risk and contractholder behavior assumptions that include margins for risk based on industry knowledge and data as well as historical Company data and experience, and (ii) evaluating the appropriateness of management's models.
Valuation of certain guarantees on variable annuity and certain life insurance
policies accounted for as insurance liabilities
As described in Notes 2, 11, and 12 to the consolidated financial statements, the Company issues universal life, variable universal life and variable annuity policies that have product features that are accounted for as insurance liabilities. As disclosed by management, the liability for these policies, which is included in policyholder account balances, future policy benefits and claims on the consolidated balance sheet, is determined using actuarial models to estimate the present value of the projected benefits in excess of account value and recognizing the excess over the estimated life based on expected assessments. Significant assumptions used by management in projecting the present value of future benefits and assessments include customer asset value growth rates, mortality, persistency, and investment margins, and additionally for variable annuity policies, benefit utilization. The principal considerations for our determination that performing procedures relating to the valuation of certain guarantees on variable annuity and certain life insurance policies accounted for as insurance liabilities is a critical audit matter are the significant judgment by management when developing the estimate of certain guarantees on variable annuity and certain life insurance policies accounted for as insurance liabilities, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management's significant assumptions related to customer asset value growth rates, persistency, investment margins, and, for variable annuity policies, benefit utilization. Also, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company's valuation of certain guarantees on variable annuity and certain life insurance policies accounted for as insurance liabilities, including controls over management's development of the significant assumptions. These procedures also included, among others, evaluating and testing management's process for developing the estimate of certain guarantees on variable annuity and certain life insurance policies accounted for as insurance liabilities, testing the completeness and accuracy of underlying data used by management and testing that assumptions are accurately reflected in the models. Evaluating and testing management's process also included the involvement of professionals with specialized skill and knowledge to assist in (i) evaluating the reasonableness of the significant assumptions related to customer asset value growth rates, persistency, benefit utilization and investment margins based on industry knowledge and data as well as historical Company data and experience, and (ii) evaluating the appropriateness of management's models. /s/PricewaterhouseCoopers LLP Minneapolis, Minnesota February 25, 2022
We have served as the Company's auditor since 2010.
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Consolidated Statements of Operations
Years Ended December 31,
2021 2020 2019
(in millions, except per share amounts)
Revenues
Management and financial advice fees $ 9,275 $ 7,368 $ 7,015
Distribution fees 1,830 1,661 1,919
Net investment income 1,683 1,251 1,463
Premiums, policy and contract charges 273 1,395 2,224
Other revenues 382 283 269
Gain on disposal of business - - 213
Total revenues 13,443 11,958 13,103
Banking and deposit interest expense 12 59 136
Total net revenues 13,431 11,899 12,967
Expenses
Distribution expenses 5,015 4,059 3,810
Interest credited to fixed accounts 600 644 669
Benefits, claims, losses and settlement expenses 716 1,806 2,576
Amortization of deferred acquisition costs 124 277 179
Interest and debt expense 191 162 214
General and administrative expense 3,435 3,120 3,287
Total expenses 10,081 10,068 10,735
Pretax income 3,350 1,831 2,232
Income tax provision 590 297 339
Net income $ 2,760 $ 1,534 $ 1,893
Earnings per share
Basic $ 23.53 $ 12.39 $ 14.12
Diluted $ 23.00 $ 12.20 $ 13.92
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Comprehensive Income
Years Ended December 31,
2021 2020 2019
(in millions)
Net income $ 2,760 $ 1,534 $ 1,893
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (13) 27 17
Net unrealized gains (losses) on securities (665) 407 556
Net unrealized gains (losses) on derivatives (1) (1) (2)
Defined benefit plans 53
(66) (18)
Total other comprehensive income (loss), net of tax (626) 367 553 Total comprehensive income$ 2,134 $ 1,901 $ 2,446
See Notes to Consolidated Financial Statements.
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Ameriprise Financial, Inc. Consolidated Balance SheetsDecember 31, 2021 2020 (in millions, except share amounts)
Assets
Cash and cash equivalents$ 7,127 $ 6,751 Cash of consolidated investment entities 121 94 Investments (allowance for credit losses: 2021,$18 ; 2020,$52 ) 35,810 41,031 Investments of consolidated investment entities, at fair value 2,184 1,918 Separate account assets 97,491 92,611 Receivables (allowance for credit losses: 2021,$55 ; 2020,$49 ) 16,205 7,819 Receivables of consolidated investment entities, at fair value 17 16 Deferred acquisition costs 2,782 2,532 Restricted and segregated cash, cash equivalents and investments 2,795 2,558 Other assets 11,444 10,551 Other assets of consolidated investment entities, at fair value 3 2 Total assets
Liabilities and Equity Liabilities: Policyholder account balances, future policy benefits and claims$ 35,750 $ 33,992 Separate account liabilities 97,491 92,611 Customer deposits 20,227 17,641 Short-term borrowings 200 200 Long-term debt 2,832 2,831 Debt of consolidated investment entities, at fair value 2,164 1,913 Accounts payable and accrued expenses 2,527 1,998 Other liabilities 8,966 8,761
Other liabilities of consolidated investment entities, at fair value
137 69 Total liabilities 170,294 160,016 Equity:
Common shares (
issued, 334,828,117 and 332,390,132, respectively)
3 3 Additional paid-in capital 9,220 8,822 Retained earnings 17,525 15,292
(21,066) (18,879) Accumulated other comprehensive income (loss), net of tax 3 629 Total equity 5,685 5,867 Total liabilities and equity
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Equity
Accumulated Other
Number of Outstanding Shares Common Shares Additional Paid-In Capital Retained Earnings Treasury Shares Comprehensive Income (Loss) Total
(in millions, except share data)
Balances at January 1, 2019 136,330,747 $ 3 $ 8,260 $ 12,909 $ (15,293) $ (291) $ 5,588
Cumulative effect of adoption of premium
amortization on purchased callable debt
securities guidance - - - (5) - - (5)
Net income - - - 1,893 - - 1,893
Other comprehensive income, net of tax - - - - - 553 553
Dividends to shareholders - - - (518) - - (518)
Repurchase of common shares (14,396,367) - - - (2,039) - (2,039)
Share-based compensation plans 2,004,854 - 201 - 56 - 257
Balances at December 31, 2019 123,939,234 3 8,461 14,279 (17,276) 262 5,729
Cumulative effect of adoption of current
expected credit losses guidance - - - (9) - - (9)
Net income - - - 1,534 - - 1,534
Other comprehensive income, net of tax - - - - - 367 367
Dividends to shareholders - - - (512) - - (512)
Repurchase of common shares (10,241,160) - - - (1,647) - (1,647)
Share-based compensation plans 3,067,539 - 361 - 44 - 405
Balances at December 31, 2020 116,765,613 3 8,822 15,292 (18,879) 629 5,867
Net income - - - 2,760 - - 2,760
Other comprehensive loss, net of tax - - - - - (626)
(626)
Dividends to shareholders - - - (527) - -
(527)
Repurchase of common shares (8,744,127) - - - (2,222) - (2,222) Share-based compensation plans 2,839,524 - 398 - 35 - 433 Balances atDecember 31, 2021 110,861,010 $ 3 $ 9,220 $ 17,525 $ (21,066) $ 3$ 5,685
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
Years Ended December 31,
2021 2020 2019
(in millions)
Cash Flows from Operating Activities
Net income $ 2,760 $ 1,534 $ 1,893
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 98 207 183
Deferred income tax expense (benefit) (87) (321) (308)
Share-based compensation 152 146 135
Gain on disposal of business before affinity partner payment - - (313)
Net realized investment (gains) losses (632) (22) (16)
Net trading (gains) losses 5 (10) (10)
Loss from equity method investments 75 66 95
Impairments and provision for loan and credit losses 4 24 22
Net (gains) losses of consolidated investment entities (20) 7 9
Changes in operating assets and liabilities, net of effects from
acquisitions:
Restricted and segregated investments
25 (500) 124 Deferred acquisition costs (156) 49 (112)
Policyholder account balances, future policy benefits and claims,
net
2,086 3,054 358 Derivatives, net of collateral (570) (141) 415 Receivables (520) (648) 324 Brokerage deposits 26 346 (519) Accounts payable and accrued expenses 300 129 46 Current income tax, net (308) 25 32 Deferred taxes, net 4 334 (18)
Other operating assets and liabilities of consolidated investment
entities, net
20 (15) (12) Other, net 63 359 13 Net cash provided by (used in) operating activities 3,325 4,623 2,341 Cash Flows from Investing Activities Available-for-Sale securities: Proceeds from sales 556 1,708 242 Maturities, sinking fund payments and calls 11,501 9,554 8,202 Purchases
(14,718) (13,525) (11,911)
Proceeds from sales, maturities and repayments of mortgage loans 299
217 272 Funding of mortgage loans (263) (165) (354)
Proceeds from sales, maturities and collections of other investments 173
198 276 Purchase of other investments (97) (284) (288) Purchase of investments by consolidated investment entities (1,603) (957) (644)
Proceeds from sales, maturities and repayments of investments by
consolidated investment entities
1,047 606 684 Purchase of land, buildings, equipment and software (120) (147) (143)
Proceeds from disposal of business, net of cash and cash equivalents
sold
- - 934 Cash paid for written options with deferred premiums (552) (338) (308) Cash received from written options with deferred premiums 106 133 170 Cash paid for acquisition of business, net of cash acquired (576) - - Cash paid for deposit receivables (377) (4) (349) Cash received for deposit receivables 254 93 98 Other, net (10) 17 (115) Net cash provided by (used in) investing activities$ (4,380) $ (2,894) $ (3,234) See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows (Continued)
Years Ended December 31,
2021 2020 2019
(in millions)
Cash Flows from Financing Activities
Investment certificates:
Proceeds from additions $ 2,733 $ 4,259 $ 5,110
Maturities, withdrawals and cash surrenders (4,190) (5,016) (5,489)
Policyholder account balances:
Deposits and other additions 1,553 1,649 2,152
Net transfers from (to) separate accounts (273) (125) (86)
Surrenders and other benefits (1,365) (1,357) (1,728)
Change in banking deposits, net 4,016 3,616 3,788
Cash paid for purchased options with deferred premiums (156) (211) (396)
Cash received from purchased options with deferred premiums 1,350
40 206 Issuance of long-term debt, net of issuance costs 4 496 497 Repayments of long-term debt (9) (762) (313) Dividends paid to shareholders (511) (497) (504) Repurchase of common shares (2,030) (1,441) (1,943) Exercise of stock options 1 3 3 Borrowings of consolidated investment entities 1,756 382 - Repayments of debt by consolidated investment entities (1,142) (74) (84) Other, net (14) (10) 1 Net cash provided by (used in) financing activities 1,723 952 1,214 Effect of exchange rate changes on cash (2) 9 9
Net increase (decrease) in cash and cash equivalents, including
amounts restricted
666 2,690 330
Cash and cash equivalents, including amounts restricted at
beginning of period
8,903 6,213 5,883
Cash and cash equivalents, including amounts restricted at end
of period
$ 9,569
Supplemental Disclosures: Interest paid excluding consolidated investment entities$ 113 $ 168 $ 272 Interest paid by consolidated investment entities 90 55 84 Income taxes paid, net 986 236 609
Leased assets obtained in exchange for finance lease liabilities 4
- 13
Leased assets obtained in exchange for operating lease
liabilities
109 76 41
Non-cash investing activities:
Partnership commitments not yet remitted - - 4
Investments transferred in connection with fixed annuity
reinsurance transaction
7,513 - 1,265
Exchange of an investment that resulted in a realized gain and
an increase to amortized cost
17 - -
December 31,
2021 2020
(in millions)
Reconciliation of cash and cash equivalents, including amounts restricted:
Cash and cash equivalents
$ 7,127 $ 6,751 Cash of consolidated investment entities 121 94 Restricted and segregated cash, cash equivalents and investments 2,795 2,558 Less: Restricted and segregated investments (474) (500)
Total cash and cash equivalents, including amounts restricted per consolidated
statements of cash flows
See Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
1. Basis of Presentation
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients' cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations ofAmeriprise Financial, Inc. are conducted primarily throughColumbia Threadneedle Investments UK International Limited ,TAM UK International Holdings Ltd andAmeriprise Asset Management Holdings Singapore (Pte.) Ltd and their respective subsidiaries (collectively, "Threadneedle"). The accompanying Consolidated Financial Statements include the accounts ofAmeriprise Financial, Inc. , companies in which it directly or indirectly has a controlling financial interest and variable interest entities ("VIEs") in which it is the primary beneficiary (collectively, the "Company"). All intercompany transactions and balances have been eliminated in consolidation.
In the first quarter of 2021, the Company recorded a favorable out-of-period
correction of
benefit plans.
In the first quarter of 2020, the Company recorded an unfavorable out-of-period correction of$19 million in management and financial advice fees related to performance fees.
The impacts of the errors were not material to the current and prior period
financial statements.
The accompanying Consolidated Financial Statements are prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). Certain reclassifications of prior period amounts have been made to conform with the current presentation. OnJune 2, 2021 , the Company filed an application to convertAmeriprise Bank , FSB to a state-chartered industrial bank regulated by theUtah Department of Financial Institutions and theFederal Deposit Insurance Corporation . The Company also filed an application to transition the FSB's personal trust services business to a new limited purpose national trust bank regulated by theOffice of the Comptroller of the Currency . During the third quarter of 2021,RiverSource Life Insurance Company ("RiverSource Life"), one of the Company's life insurance subsidiaries, closed on a transaction withGlobal Atlantic Financial Group's subsidiaryCommonwealth Annuity and Life Insurance Company , effectiveJuly 1, 2021 , to reinsure approximately$7.0 billion of fixed deferred and immediate annuity policies. As part of the transaction, RiverSource Life transferred$7.8 billion in consideration primarily consisting of Available-for-Sale securities, commercial mortgage loans, syndicated loans and cash. The transaction resulted in a net realized gain of approximately$532 million on investments sold. A similar previously announced transaction withRiverSource Life Insurance Co. of New York ("RiverSource Life of NY") did not receive regulatory approval in time to close bySeptember 30, 2021 and the transaction was terminated by the parties.
On
asset management business of
information on this acquisition.
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. Other than disclosed in Note 21 and 23, no other subsequent events or transactions requiring recognition or disclosure were identified.
2. Summary of Significant Accounting Policies
The Company adopted accounting standard, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments, onJanuary 1, 2020 . The significant accounting policies for Available-for-Sale securities, Financing Receivables, and Reinsurance were updated as a result of adopting the new accounting standard.
Principles of Consolidation
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 entity's losses, or the rights to
receive the entity's returns) or has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Voting interest entities ("VOEs") are those entities that do not qualify as a
VIE. The Company consolidates VOEs in which it holds a greater than 50% voting
interest. The Company generally accounts for entities using the equity method
when it holds a greater than 20% but less than 50% voting interest or when the
Company exercises significant influence over the entity. All other investments
that are not reported at fair value as trading or Available-for-Sale securities
are accounted for using the measurement alternative method when the Company owns
less than a 20% voting interest and does not exercise significant influence.
Under the measurement alternative, the investment is recorded at the cost basis,
less impairments, if any, plus or minus observable price changes of identical or
similar investments of the same issuer.
A VIE is consolidated by the reporting entity that determines it has both:
•the power to direct the activities of the VIE that most significantly impact
the VIE's economic performance; and
•the obligation to absorb potentially significant losses or the right to receive
potentially significant benefits to the VIE.
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All VIEs are assessed for consolidation under this framework. When evaluating entities for consolidation, the Company considers its contractual rights in determining whether it has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. In determining whether the Company has this power, it considers whether it is acting in a role that enables it to direct the activities that most significantly impact the economic performance of an entity or if it is acting in an agent role. In determining whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers an analysis of its rights to receive benefits such as investment returns and its obligation to absorb losses associated with any investment in the VIE in conjunction with other qualitative factors. Management and incentive fees that are at market and commensurate with the level of services provided, and where the Company does not hold other interests in the VIE that would absorb more than an insignificant amount of the VIE's expected losses or receive more than an insignificant amount of the VIE's expected residual returns, are not considered a variable interest and are excluded from the analysis. The consolidation guidance has a scope exception for reporting entities with interests in registered money market funds which do not have an explicit support agreement.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries, whose functional currency is other than theU.S. dollar, are translated intoU.S. dollars based upon exchange rates prevailing at the end of each period. Revenues and expenses are translated at average daily exchange rates during the period. The resulting translation adjustment, along with any related hedge and tax effects, are included in accumulated other comprehensive income ("AOCI"). The determination of the functional currency is based on the primary economic environment in which the entity operates. Gains and losses from foreign currency transactions are included in General and administrative expenses.
Amounts Based on Estimates and Assumptions
Accounting estimates are an integral part of the Consolidated Financial
Statements. In part, they are based upon assumptions concerning future events.
Among the more significant are those that relate to investment securities
valuation and the recognition of credit losses or impairments, deferred
acquisition costs ("DAC") and the corresponding recognition of DAC amortization,
valuation of derivative instruments and hedging activities, litigation reserves,
future policy benefits and claims reserves and income taxes and the recognition
of deferred tax assets
and liabilities. These accounting estimates reflect the best judgment of management and actual results
could differ.
Cash and Cash Equivalents
Cash equivalents include time deposits and other highly liquid investments with
original or remaining maturities at the time of purchase of 90 days or less.
Investments
Available-for-Sale securities are carried at fair value with unrealized gains
(losses) recorded in AOCI, net of impacts to DAC, deferred sales inducement
costs ("DSIC"), unearned revenue, benefit reserves, reinsurance recoverables and
income taxes. Available-for-Sale securities are recorded within Investments.
Gains and losses are recognized on a trade date basis in the Consolidated
Statements of Operations upon disposition of the securities.
Available-for-Sale securities are impaired when the fair value of an investment
is less than its amortized cost. When an Available-for-Sale security is
impaired, the Company first assesses whether or not: (i) it has the intent to
sell the security (made a decision to sell) or (ii) it is more likely than not
that the Company will be required to sell the security before its anticipated
recovery. If either of these conditions exist, the Company recognizes an
impairment by reducing the book value of the security for the difference between
the investment's amortized cost and its fair value with a corresponding charge
to earnings. Subsequent increases in fair value of Available-for-Sale securities
that occur in periods after a write-down has occurred are recorded as unrealized
gains in other comprehensive income ("OCI"), while subsequent decreases in fair
value would continue to be recorded as reductions of book value with a charge to
earnings.
For securities that do not meet the above criteria, the Company determines
whether the decrease in fair value is due to a credit loss or due to other
factors. The amount of impairment due to credit-related factors, if any, is
recognized as an allowance for credit losses with a related charge to Net
investment income. The allowance for credit losses is limited to the amount by
which the security's amortized cost basis exceeds its fair value. The amount of
the impairment related to other factors is recognized in OCI.
Factors the Company considers in determining whether declines in the fair value
of fixed maturity securities due to credit-related factors include: (i) the
extent to which the market value is below amortized cost; (ii) fundamental
analysis of the liquidity, business prospects and overall financial condition of
the issuer; and (iii) market events that could impact credit ratings, economic
and business climate, litigation and government actions, and similar external
business factors.
If through subsequent evaluation there is a sustained increase in cash flows
expected, both the allowance and related charge to earnings may be reversed to
reflect the increase in expected principal and interest payments. However, for
Available-for-Sale
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securities that recognized an impairment prior toJanuary 1, 2020 by reducing the book value of the security, the difference between the new amortized cost basis and the improved cash flows expected to be collected is accreted as interest income. In order to determine the amount of the credit loss component for corporate debt securities, a best estimate of the present value of cash flows expected to be collected discounted at the security's effective interest rate is compared to the amortized cost basis of the security. The significant inputs to cash flow projections consider potential debt restructuring terms, projected cash flows available to pay creditors and the Company's position in the debtor's overall capital structure. When assessing potential credit-related impairments for structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments), the Company also considers credit-related factors such as overall deal structure and its position within the structure, quality of underlying collateral, delinquencies and defaults, loss severities, recoveries, prepayments and cumulative loss projections. Management has elected to exclude accrued interest in its measurement of the allowance for credit losses for Available-for-Sale securities. Accrued interest on Available-for-Sale securities is recorded as earned in Receivables. Available-for-Sale securities are placed on nonaccrual status when the accrued balance becomes 90 days past due or earlier based on management's evaluation of the facts and circumstances of each security under review. All previously accrued interest is reversed through Net investment income.
Financing Receivables
Commercial Loans
Commercial loans include commercial mortgage loans, syndicated loans, and advisor loans and are recorded at amortized cost less the allowance for loan losses. Commercial mortgage loans and syndicated loans are recorded within Investments and advisor loans are recorded within Receivables. Commercial mortgage loans are loans on commercial properties that are originated by the Company. Syndicated loans represent the Company's investment in loan syndications originated by unrelated third parties. The Company offers loans to financial advisors primarily for recruiting, transitional cost assistance and retention purposes. These advisor loans are generally repaid over a five- to ten-year period. If the financial advisor is no longer affiliated with the Company, any unpaid balance of such loan becomes immediately due. Interest income is accrued as earned on the unpaid principal balances of the loans. Interest income recognized on commercial mortgage loans and syndicated loans is recorded in Net investment income. Interest income recognized on advisor loans is recorded in Other revenues.
Consumer Loans
Consumer loans consist of credit card receivables, policy loans, brokerage margin loans and pledged asset lines of credit and are recorded at amortized cost less the allowance for loan losses. Credit card receivables and policy loans are recorded within Investments. Brokerage margin loans and pledged asset lines of credit are recorded within Receivables. Credit card receivables are related toAmeriprise -branded credit cards issued to the Company's customers by a third party. When originated, policy loan balances do not exceed the cash surrender value of the underlying products. The Company's broker dealer subsidiaries enter into lending arrangements with clients through the normal course of business, which are primarily based on customer margin levels.Ameriprise Bank , FSB, enters into revolving lines of credit with customers of the Company's broker dealer subsidiaries, where certain of the customer's assets held in brokerage accounts serve as collateral.
Interest income is accrued as earned on the unpaid principal balances of the
loans. Interest income recognized on consumer loans is recorded in Net
investment income.
Deposit Receivables
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability related to insurance risk in accordance with applicable accounting standards. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits made and any related embedded derivatives are included in Receivables. As amounts are received, consistent with the underlying contracts, deposit receivables are adjusted. Deposit receivables are accreted using the interest method and the accretion is reported in Other revenues.
See Note 7 for additional information on financing receivables.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected over the asset's expected life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions. Prior toJanuary 1, 2020 , the allowance for credit losses was based on an incurred loss model that did not require estimating expected credit losses over the expected life of the asset. Estimates of expected credit losses consider both historical charge-off and recovery experience as well as current economic conditions and management's expectation of future charge-off and recovery levels. Expected losses related to risks other than credit risk are excluded from the allowance for credit losses. The allowance for credit losses is measured and recorded upon initial recognition of the loan, regardless of whether it is
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originated or purchased. The methods and information used to develop the
allowance for credit losses for each class of financing receivable are discussed
below.
Commercial Loans
The allowance for credit losses for commercial mortgage loans and syndicated
loans utilizes a probability of default and loss severity approach to estimate
lifetime expected credit losses. Actual historical default and loss severity
data for each type of commercial loan is adjusted for current conditions and
reasonable and supportable forecasts of future economic conditions to develop
the probability of default and loss severity assumptions that are applied to the
amortized cost basis of the loans over the expected life of each portfolio. The
allowance for credit losses on commercial mortgage loans and syndicated loans is
recorded through provisions charged to Net investment income and is
reduced/increased by net charge-offs/recoveries.
Management determines the adequacy of the allowance for credit losses based on
the overall loan portfolio composition, recent and historical loss experience,
and other pertinent factors, including when applicable, internal risk ratings,
loan-to-value ("LTV") ratios, and occupancy rates, along with reasonable and
supportable forecasts of economic and market conditions. This evaluation is
inherently subjective as it requires estimates, which may be susceptible to
significant change.
While the Company may attribute portions of the allowance to specific loan pools
as part of the allowance estimation process, the entire allowance is available
to absorb losses expected over the life of the portfolio.
When determining the allowance for credit losses for advisor loans, the Company
considers its actual historical collection experience and advisor termination
experience as well as other factors including amounts due at termination, the
reasons for the terminated relationship, length of time since termination, and
the former financial advisor's overall financial position. Management may
identify certain pools of advisors at higher risk of termination based on
production metrics or other factors. Management uses its best estimate of future
termination and collection rates to estimate expected credit losses over the
expected life of the loans. The allowance for credit losses on advisor loans is
recorded through provisions charged to Distribution expenses and is
reduced/increased by net charge-offs/recoveries.
Consumer Loans
The allowance for loan losses for credit card receivables is based on a model that projects the Company's receivable exposure over the expected life of the loans using cohorts based on the age of the receivable, geographic location, and credit scores. The model utilizes industry data to derive probability of default and loss given default assumptions, adjusted for current and future economic conditions. Management evaluates actual historical charge-off experience and monitors risk factors including FICO scores and past-due status within the credit card portfolio to ensure the allowance for loan losses based on industry data appropriately reserves for risks specific to the Company's portfolio. The allowance for credit losses for credit card receivables is recorded through provisions charged to Net investment income and is reduced/increased by net charge-offs/recoveries. The Company monitors the market value of collateral supporting the margin loans and pledged asset lines of credit and requests additional collateral when necessary in order to mitigate the risk of loss. Due to these ongoing monitoring procedures, the allowance for credit losses is only measured for the margin loan balances and pledged asset line of credit balances that are uncollateralized at the balance sheet date. Policy loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy loans, there is no allowance for credit losses. Deposit Receivables The allowance for credit losses is calculated on an individual reinsurer basis. Deposit receivables are collateralized by underlying trust arrangements. Management evaluates the terms of the reinsurance and trust agreements, the nature of the underlying assets, and the potential for changes in the collateral value when considering the need for an allowance for credit losses.
Nonaccrual Loans
Commercial mortgage loans and syndicated loans are placed on nonaccrual status
when either the collection of interest or principal has become 90 days past due
or is otherwise considered doubtful of collection. Advisor loans are placed on
nonaccrual status upon the advisor's termination. When a loan is placed on
nonaccrual status, unpaid accrued interest is reversed. Interest payments
received on loans on nonaccrual status are generally applied to principal unless
the remaining principal balance has been determined to be fully collectible.
Management has elected to exclude accrued interest in its measurement of the
allowance for credit losses for commercial mortgage loans, syndicated loans, and
consumer loans.
Restructured Loans
A loan is classified as a restructured loan when the Company makes certain
concessionary modifications to contractual terms for borrowers experiencing
financial difficulties. When the interest rate, minimum payments, and/or due
dates have been modified in an attempt to make the loan more affordable to a
borrower experiencing financial difficulties, the modification is considered a
troubled debt restructuring. Modifications to loan terms do not automatically
result in troubled debt restructurings ("TDRs"). Per the Interagency Statement
on Loan Modifications and Reporting for Financial Institutions Working with
Customers Affected by the Coronavirus, modifications made on a good faith basis
in response to the coronavirus disease 2019 ("COVID-19") pandemic to
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borrowers who were not more than 30 days past due as ofDecember 31, 2019 , such as payment deferrals, extensions of repayment terms, fee waivers, or delays in payment that are not significant to the unpaid principal value of the loan, are not considered TDRs. Generally, performance prior to the restructuring or significant events that coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result in the loan being returned to accrual status at the time of the restructuring or after a performance period. If the borrower's ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status.
Charge-off and Foreclosure
Commercial Loans
Charge-offs are recorded when the Company concludes that all or a portion of the commercial mortgage loan or syndicated loan is uncollectible. Factors used by the Company to determine whether all amounts due on commercial mortgage loans will be collected, include but are not limited to, the financial condition of the borrower, performance of the underlying properties, collateral and/or guarantees on the loan, and the borrower's estimated future ability to pay based on property type and geographic location. Factors used by the Company to determine whether all amounts due on syndicated loans will be collected, include but are not limited to the borrower's financial condition, industry outlook, and internal risk ratings based on rating agency data and internal analyst expectations. If it is determined that foreclosure on a commercial mortgage loan is probable and the fair value is less than the current loan balance, expected credit losses are measured as the difference between the amortized cost basis of the asset and fair value less estimated selling costs. Upon foreclosure, the commercial mortgage loan and related allowance are reversed, and the foreclosed property is recorded as real estate owned within Other assets. Concerns regarding the recoverability of loans to advisors primarily arise in the event that the financial advisor is no longer affiliated with the Company. When the review of these factors indicates that further collection activity is highly unlikely, the outstanding balance of the loan is written-off and the related allowance is reduced.
Consumer Loans
Credit card receivables are not placed on nonaccrual status at 90 days past due;
however, they are fully charged off upon reaching 180 days past due.
Separate Account Assets and Liabilities
Separate account assets represent funds held for the benefit of, and Separate account liabilities represent the obligation to, the variable annuity contractholders and variable life insurance policyholders who have a contractual right to receive the benefits of their contract or policy and bear the related investment risk. Gains and losses on separate account assets accrue directly to the contractholder or policyholder and are not reported in the Consolidated Statements of Operations. Included in separate account assets and liabilities is the fair value of the pooled pension funds that are offered by Threadneedle. Separate account assets are recorded at fair value and Separate account liabilities are equal to the assets recognized.
Restricted and Segregated Cash, Cash Equivalents and Investments
Amounts segregated under federal and other regulations are held in special reserve bank accounts for the exclusive benefit of the Company's brokerage customers. Cash and cash equivalents included in Restricted and segregated cash, cash equivalents and investments are presented as part of cash balances in the Consolidated Statements of Cash Flows.
Land, Buildings, Equipment and Software
Land, buildings, equipment and internally developed software are carried at cost less accumulated depreciation or amortization and are reflected within Other assets. The Company uses the straight-line method of depreciation and amortization over periods ranging from three to 39 years. As ofDecember 31, 2021 and 2020, land, buildings, equipment and software were$590 million and$602 million , respectively, net of accumulated depreciation of$2.0 billion and$1.9 billion , respectively. Depreciation and amortization expense for the years endedDecember 31, 2021 , 2020 and 2019 was$144 million ,$153 million and$147 million , respectively.
Leases
The Company has operating and finance leases for corporate and field offices.
The Company determines if an arrangement is a lease at inception or
modification. Right-of-use ("ROU") assets represent the Company's right to use
an underlying asset for the lease term and corresponding lease liabilities
represent our obligation to make lease payments arising from the lease. ROU
assets and lease liabilities are recognized at the commencement date based on
the present value of lease payments over the lease term. The Company uses its
incremental borrowing rate to determine the present value of the future lease
payments. The incremental borrowing rate is determined at lease commencement
date using a secured rate for a similar term as the period of the lease. Certain
lease incentives such as free rent periods are recorded as a reduction of the
ROU asset. Lease costs for operating ROU assets is recognized on a straight-line
basis over the lease term.
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Certain leases include one or more options to renew with terms that can extend the lease from one year to 20 years. The exercise of any lease renewal option is at the sole discretion of the Company. Renewal options are included in the ROU assets and lease liabilities when they either provide an economic incentive to renew or when the costs related to the termination of a lease outweigh the benefits of signing a new lease. Operating and finance ROU assets are reflected in Other assets. Operating lease liabilities and finance lease liabilities are reflected in Other liabilities and Long-term debt, respectively.
Goodwill represents the amount of an acquired company's acquisition cost in excess of the fair value of assets acquired and liabilities assumed. The Company evaluates goodwill for impairment annually on the measurement date ofJuly 1 and whenever events and circumstances indicate that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. Impairment is the amount carrying value exceeds fair value and is evaluated at the reporting unit level. The Company assesses various qualitative factors to determine whether impairment is likely to have occurred. If impairment were to occur, the Company would use the discounted cash flow method, a variation of the income approach. Intangible assets are amortized over their estimated useful lives unless they are deemed to have indefinite useful lives. The Company evaluates the definite lived intangible assets remaining useful lives annually and tests for impairment whenever events and circumstances indicate that an impairment may have occurred, such as a significant adverse change in the business climate. For definite lived intangible assets, impairment to fair value is recognized if the carrying amount is not recoverable. Indefinite lived intangibles are also tested for impairment annually or whenever circumstances indicate an impairment may have occurred.
Derivative Instruments and Hedging Activities
Freestanding derivative instruments are recorded at fair value and are reflected
in Other assets or Other liabilities. The Company's policy is to not offset fair
value amounts recognized for derivatives and collateral arrangements executed
with the same counterparty under the same master netting arrangement. The
accounting for changes in the fair value of a derivative instrument depends on
its intended use and the resulting hedge designation, if any. The Company
primarily uses derivatives as economic hedges that are not designated as
accounting hedges or do not qualify for hedge accounting treatment. The Company
occasionally designates derivatives as (i) hedges of changes in the fair value
of assets, liabilities, or firm commitments ("fair value hedges"), (ii) hedges
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability ("cash flow hedges"), or
(iii) hedges of foreign currency exposures of net investments in foreign
operations ("net investment hedges in foreign operations").
Derivative instruments that are entered into for hedging purposes are designated
as such at the time the Company enters into the contract. For all derivative
instruments that are designated for hedging activities, the Company documents
all of the hedging relationships between the hedge instruments and the hedged
items at the inception of the relationships. Management also documents its risk
management objectives and strategies for entering into the hedge transactions.
The Company assesses, at inception and on a quarterly basis, whether derivatives
designated as hedges are highly effective in offsetting the fair value or cash
flows of hedged items. If it is determined that a derivative is no longer highly
effective as a hedge, the Company will discontinue the application of hedge
accounting.
For derivative instruments that do not qualify for hedge accounting or are not
designated as accounting hedges, changes in fair value are recognized in current
period earnings. Changes in fair value of derivatives are presented in the
Consolidated Statements of Operations based on the nature and use of the
instrument. Changes in fair value of derivatives used as economic hedges are
presented in the Consolidated Statements of Operations with the corresponding
change in the hedged asset or liability.
For derivative instruments that qualify as fair value hedges, changes in the
fair value of the derivatives, as well as changes in the fair value of the
hedged assets, liabilities or firm commitments, are recognized on a net basis in
current period earnings. The carrying value of the hedged item is adjusted for
the change in fair value from the designated hedged risk. If a fair value hedge
designation is removed or the hedge is terminated prior to maturity, previous
adjustments to the carrying value of the hedged item are recognized into
earnings over the remaining life of the hedged item.
For derivative instruments that qualify as cash flow hedges, the effective
portion of the gain or loss on the derivative instruments is reported in AOCI
and reclassified into earnings when the hedged item or transaction impacts
earnings. The amount that is reclassified into earnings is presented in the
Consolidated Statements of Operations with the hedged instrument or transaction
impact. Any ineffective portion of the gain or loss is reported in current
period earnings as a component of Net investment income. If a hedge designation
is removed or a hedge is terminated prior to maturity, the amount previously
recorded in AOCI is reclassified to earnings over the period that the hedged
item impacts earnings. For 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 AOCI are recognized in
earnings immediately.
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For derivative instruments that qualify as net investment hedges in foreign
operations, the effective portion of the change in fair value of the derivatives
is recorded in AOCI as part of the foreign currency translation adjustment.
Any ineffective portion of the net investment hedges in foreign operations is
recognized in Net investment income during the period of change.
The equity component of indexed annuity, structured variable annuity, indexed
universal life ("IUL") and stock market certificate ("SMC") obligations are
considered embedded derivatives. Additionally, certain annuities contain
guaranteed minimum accumulation benefit ("GMAB") and guaranteed minimum
withdrawal benefit ("GMWB") provisions. The GMAB and the non-life contingent
benefits associated with GMWB provisions are also considered embedded
derivatives.
See Note 15 for information regarding the Company's fair value measurement of
derivative instruments and Note 17 for the impact of derivatives on the
Consolidated Statements of Operations.
Deferred Acquisition Costs
The Company incurs costs in connection with acquiring new and renewal insurance and annuity businesses. The portion of these costs which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract are deferred. Significant costs capitalized include sales based compensation related to the acquisition of new and renewal insurance policies and annuity contracts, medical inspection costs for successful sales, and a portion of employee compensation and benefit costs based upon the amount of time spent on successful sales. Sales based compensation paid to advisors and employees and third-party distributors is capitalized. Employee compensation and benefits costs which are capitalized relate primarily to sales efforts, underwriting and processing. All other costs which are not incremental direct costs of acquiring an insurance policy or annuity contract are expensed as incurred. The DAC associated with insurance policies or annuity contracts that are significantly modified or internally replaced with another contract are accounted for as contract terminations. These transactions are anticipated in establishing amortization periods and other valuation assumptions. The Company monitors other DAC amortization assumptions, such as persistency, mortality, morbidity, interest margin, variable annuity benefit utilization and maintenance expense levels each quarter and, when assessed independently, each could impact the Company's DAC balances. The analysis of DAC balances and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions described previously. Unless the Company's management identifies a significant deviation over the course of the quarterly monitoring, management reviews and updates these DAC amortization assumptions annually in the third quarter of each year.
Non-Traditional Long-Duration Products
For non-traditional long-duration products (including variable, structured
variable and fixed deferred annuity contracts, universal life ("UL") and
variable universal life ("VUL") insurance products), DAC are amortized based on
projections of estimated gross profits ("EGPs") over amortization periods equal
to the approximate life of the business.
EGPs vary based on persistency rates (assumptions at which contractholders and
policyholders are expected to surrender, make withdrawals from and make deposits
to their contracts), mortality levels, client asset value growth rates (based on
equity and bond market performance), variable annuity benefit utilization and
interest margins (the spread between earned rates on invested assets and rates
credited to contractholder and policyholder accounts) and are management's best
estimates. Management regularly monitors financial market conditions and actual
contractholder and policyholder behavior experience and compares them to its
assumptions. These assumptions are updated whenever it appears that earlier
estimates should be revised. When assumptions are changed, the percentage of
EGPs used to amortize DAC might also change. A change in the required
amortization percentage is applied retrospectively; an increase in amortization
percentage will result in a decrease in the DAC balance and an increase in DAC
amortization expense, while a decrease in amortization percentage will result in
an increase in the DAC balance and a decrease in DAC amortization expense. The
impact on results of operations of changing assumptions can be either positive
or negative in any particular period and is reflected in the period in which
such changes are made. At each balance sheet date, the DAC balance is adjusted
for the effect that would result from the realization of unrealized gains or
losses on securities impacting EGPs, with the related change recognized through
AOCI.
The client asset value growth rates are the rates at which variable annuity and
VUL insurance contract values invested in separate accounts are assumed to
appreciate in the future. The rates used vary by equity and fixed income
investments. Management reviews and, where appropriate, adjusts its assumptions
with respect to client asset value growth rates on a regular basis. The Company
typically uses a five-year mean reversion process as a guideline in setting
near-term equity fund growth rates based on a long-term view of financial market
performance as well as recent actual performance. The suggested near-term equity
fund growth rate is reviewed quarterly to ensure consistency with management's
assessment of anticipated equity market performance. DAC amortization expense
recorded in a period when client asset value growth rates exceed management's
near-term estimate will typically be less than in a period when growth rates
fall short of management's near-term estimate.
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Traditional Long-Duration Products
For traditional long-duration products (including traditional life and
disability income ("DI") insurance products), DAC are generally amortized as a
percentage of premiums over amortization periods equal to the premium paying
period. The assumptions made in calculating the DAC balance and DAC amortization
expense are consistent with those used in determining the liabilities.
For traditional life and DI insurance products, the assumptions provide for
adverse deviations in experience and are revised only if management concludes
experience will be so adverse that DAC are not recoverable. If management
concludes that DAC are not recoverable, DAC are reduced to the amount that is
recoverable based on best estimate assumptions and there is a corresponding
expense recorded in the Consolidated Statements of Operations.
Deferred Sales Inducement Costs
Sales inducement costs consist of bonus interest credits and premium credits added to certain annuity contract and insurance policy values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. DSIC is recorded in Other assets, and amortization of DSIC is recorded in Benefits, claims, losses and settlement expenses.
Reinsurance
The Company cedes insurance risk to other insurers under reinsurance agreements.
Reinsurance premiums paid and benefits received are accounted for consistently
with the basis used in accounting for the policies from which risk is reinsured
and consistently with the terms of the reinsurance contracts. Reinsurance
premiums for traditional life, long term care ("LTC") , DI and life contingent
immediate annuities, net of the change in any prepaid reinsurance asset, are
reported as a reduction of Premiums, policy and contract charges. UL and VUL
reinsurance premiums are reported as a reduction of Premiums, policy and
contract charges. In addition, for UL and VUL insurance policies, the net cost
of reinsurance ceded, which represents the discounted amount of the expected
cash flows between the reinsurer and the Company, is classified as an asset or
contra asset and amortized over the estimated life of the policies in proportion
to the estimated gross profits and is subject to retrospective adjustment in a
manner similar to retrospective adjustment of DAC. The assumptions used to
project the expected cash flows are consistent with those used for DAC valuation
for the same contracts. Changes in the net cost of reinsurance are reflected as
a component of Premiums, policy and contract charges. Reinsurance recoveries are
reported as components of Benefits, claims, losses and settlement expenses.
Insurance liabilities are reported before the effects of reinsurance.
Policyholder account balances, future policy benefits and claims recoverable
under reinsurance contracts are recorded within Receivables, net of the
allowance for credit losses. The Company evaluates the financial condition of
its reinsurers prior to entering into new reinsurance contracts and on a
periodic basis during the contract term. The allowance for credit losses related
to reinsurance recoverable is based on applying observable industry data
including insurer ratings, default and loss severity data to the Company's
reinsurance recoverable balances. Management evaluates the results of the
calculation and considers differences between the industry data and the
Company's data. Such differences include the fact the Company has no actual
history of losses and the fact that industry data may contain non-life insurers.
This evaluation is inherently subjective as it requires estimates, which may be
susceptible to significant change given the long-term nature of these
receivables. In addition, the Company has a reinsurance protection agreement
that provides credit protections for its reinsured long-term care business. The
allowance for credit losses on reinsurance recoverable is recorded through
provisions charged to Benefits, claims, losses and settlement expenses.
The Company also assumes life insurance and fixed annuity risk from other
insurers in limited circumstances. Reinsurance premiums received and benefits
paid are accounted for consistently with the basis used in accounting for the
policies from which risk is reinsured and consistently with the terms of the
reinsurance contracts. Liabilities for assumed business are recorded within
Policyholder account balances, future policy benefits and claims.
See Note 8 for additional information on reinsurance.
Policyholder Account Balances, Future Policy Benefits and Claims
The Company establishes reserves to cover the benefits associated with
non-traditional and traditional long-duration products and short-duration
products. Non-traditional long-duration products include variable and structured
variable annuity contracts, fixed annuity contracts and UL and VUL policies.
Traditional long-duration products include term life, whole life, DI and LTC
insurance products.
Guarantees accounted for as insurance liabilities include guaranteed minimum
death benefit ("GMDB"), gain gross-up ("GGU"), guaranteed minimum income benefit
("GMIB") and the life contingent benefits associated with GMWB. In addition, UL
and VUL policies with product features that result in profits followed by losses
are accounted for as insurance liabilities.
Guarantees accounted for as embedded derivatives include GMAB and the non-life
contingent benefits associated with GMWB. In addition, the portion of structured
variable annuities, indexed annuities and IUL policies allocated to the indexed
account is accounted for as an embedded derivative.
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Changes in future policy benefits and claims are reflected in earnings in the period adjustments are made. Where applicable, benefit amounts expected to be recoverable from reinsurance companies who share in the risk are separately recorded as reinsurance recoverable within Receivables.
Non-Traditional Long-Duration Products
The liabilities for non-traditional long-duration products include fixed account values on variable and fixed annuities and UL and VUL policies, liabilities for guaranteed benefits associated with variable annuities and embedded derivatives for variable and structured variable annuities, indexed annuities and IUL products. Liabilities for fixed account values on variable, structured variable and fixed deferred annuities and UL and VUL policies are equal to accumulation values, which are the cumulative gross deposits and credited interest less withdrawals and various charges. A portion of the Company's UL and VUL policies have product features that result in profits followed by losses from the insurance component of the contract. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the contract. 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 liability for these future losses is determined by estimating the death benefits in excess of account value and recognizing the excess over the estimated life based on expected assessments (e.g. cost of insurance charges, contractual administrative charges, similar fees and investment margin). See Note 12 for information regarding the liability for contracts with secondary guarantees.
Liabilities for fixed deferred indexed annuity, structured variable annuity and
IUL products are equal to the accumulation of host contract values covering
guaranteed benefits and the fair value of embedded equity options.
The GMDB and GGU liability is determined by estimating the expected value of death benefits in excess of the projected contract accumulation value and recognizing the excess over the estimated life based on expected assessments (e.g., mortality and expense fees, contractual administrative charges and similar fees). If elected by the contract owner and after a stipulated waiting period from contract issuance, a GMIB guarantees a minimum lifetime annuity based on a specified rate of contract accumulation value growth and predetermined annuity purchase rates. The GMIB liability is determined each period by estimating the expected value of annuitization benefits in excess of the projected contract accumulation value at the date of annuitization and recognizing the excess over the estimated life based on expected assessments. The liability for the life contingent benefits associated with GMWB provisions is determined by estimating the expected value of benefits that are contingent upon survival after the account value is equal to zero and recognizing the benefits over the estimated life based on expected assessments (e.g., mortality and expense fees, contractual administrative charges and similar fees). In determining the liabilities for GMDB, GGU, GMIB and the life contingent benefits associated with GMWB, the Company projects these benefits and contract assessments using actuarial models to simulate various equity market scenarios. Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates, mortality, persistency, benefit utilization and investment margins and are consistent with those used for DAC valuation for the same contracts. As with DAC, unless the Company's management identifies a significant deviation over the course of quarterly monitoring, management reviews and updates these assumptions annually in the third quarter of each year.
See Note 12 for information regarding variable annuity guarantees.
Liabilities for fixed annuities in a benefit or payout status utilize
assumptions established as of the date the payout phase is initiated. The
liabilities are the present value of future estimated payments reduced for
mortality (which is based on industry mortality tables with modifications based
on the Company's experience) and discounted with interest rates.
Embedded Derivatives
The fair value of embedded derivatives related to GMAB and the non-life contingent benefits associated with GMWB provisions fluctuate based on equity, interest rate and credit markets and the estimate of the Company's nonperformance risk, which can cause these embedded derivatives to be either an asset or a liability. The fair value of embedded derivatives related to structured variable annuities, indexed annuities and IUL fluctuate based on equity markets and interest rates and the estimate of the Company's nonperformance risk and is a liability. See Note 15 for information regarding the fair value measurement of embedded derivatives.
Traditional Long-Duration Products
The liabilities for traditional long-duration products include liabilities for unpaid amounts on reported claims, estimates of benefits payable on claims incurred but not yet reported and estimates of benefits that will become payable on term life, whole life, DI and LTC policies as claims are incurred in the future.
Liabilities for unpaid amounts on reported life insurance claims are equal to
the death benefits payable under the policies.
Liabilities for unpaid amounts on reported DI and LTC claims include any
periodic or other benefit amounts due and accrued, along with estimates of the
present value of obligations for continuing benefit payments. These unpaid
amounts are calculated using anticipated claim continuance rates based on
established industry tables, adjusted as appropriate for the Company's
experience. The
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discount rates used to calculate present values are based on average interest
rates earned on assets supporting the liability for unpaid amounts.
Liabilities for estimated benefits payable on claims that have been incurred but not yet reported are based on periodic analysis of the actual time lag between when a claim occurs and when it is reported. Liabilities for estimates of benefits that will become payable on future claims on term life, whole life and DI insurance policies are based on the net level premium and LTC policies are based on a gross premium valuation reflecting management's current best estimate assumptions. Net level premium includes anticipated premium payments, mortality and morbidity rates, policy persistency and interest rates earned on assets supporting the liability. Gross premium valuation includes expected premium rate increases, benefit reductions, morbidity rates, policy persistency and interest rates earned on assets supporting the liability. Anticipated mortality and morbidity rates are based on established industry mortality and morbidity tables, with modifications based on the Company's experience. Anticipated premium payments and persistency rates vary by policy form, issue age, policy duration and certain other pricing factors. For term life, whole life, DI and LTC policies, the Company utilizes best estimate assumptions as of the date the policy is issued with provisions for the risk of adverse deviation, as appropriate. After the liabilities are initially established, management performs premium deficiency tests using current best estimate assumptions without provisions for adverse deviation annually in the third quarter of each year unless management identifies a material deviation over the course of quarterly monitoring. If the liabilities determined based on these best estimate assumptions are greater than the net reserves (i.e., GAAP reserves net of any DAC balance), the existing net reserves are adjusted by first reducing the DAC balance by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than the DAC balance, then the net reserves are increased by the excess through a charge to current period earnings. If a premium deficiency is recognized, the assumptions as of the date of the loss recognition are locked in and used in subsequent periods. The assumptions for LTC insurance products are management's best estimate as of the date of loss recognition and thus no longer provide for adverse deviations in experience.
See Note 11 for information regarding the liabilities for traditional
long-duration products.
Unearned Revenue Liability
The Company's UL and VUL policies require payment of fees or other policyholder assessments in advance for services to be provided in future periods. These charges are deferred as unearned revenue and amortized using EGPs, similar to DAC. The unearned revenue liability is recorded in Other liabilities and the amortization is recorded in Premiums, policy and contract charges. For clients who pay financial planning fees prior to the advisor's delivery of the financial plan, the financial planning fees received in advance are deferred as unearned revenue until the plan is delivered to the client.
Share-Based Compensation
The Company measures and recognizes the cost of share-based awards granted to employees and directors based on the grant-date fair value of the award and recognizes the expense (net of estimated forfeitures) on a straight-line basis over the vesting period. Excess tax benefits or deficiencies are created upon distribution or exercise of awards and are recognized within the Income tax provision. The fair value of each option is estimated on the grant date using a Black-Scholes option-pricing model. The Company recognizes the cost of performance share units granted to the Company's Executive Leadership Team on a fair value basis until fully vested.
Income Taxes
The Company's provision for income taxes represents the net amount of income taxes that the Company expects to pay or to receive from various taxing jurisdictions in connection with its operations. The Company provides for income taxes based on amounts that the Company believes it will ultimately owe taking into account the recognition and measurement for uncertain tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items.
In connection with the provision for income taxes, the Consolidated Financial
Statements reflect certain amounts related to deferred tax assets and
liabilities, which result from temporary differences between the assets and
liabilities measured for financial statement purposes versus the assets and
liabilities measured for tax return purposes.
The Company is required to establish a valuation allowance for any portion of its deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax planning strategies. Management may need to identify and implement appropriate planning strategies to ensure its ability to realize deferred tax assets and reduce the likelihood of the establishment of a valuation allowance with respect to such assets. See Note 24 for additional information on the Company's valuation allowance. Changes in tax rates and tax law are accounted for in the period of enactment. Deferred tax assets and liabilities are adjusted for the effect of a change in tax laws or rates and the effect is included in income.
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Revenue Recognition
Mortality and expense risk fees are generally calculated as a percentage of the
fair value of assets held in separate accounts and recognized when assessed.
Interest income is accrued as earned using the effective interest method, which
makes an adjustment of the yield for security premiums and discounts on all
performing fixed maturity securities classified as Available-for-Sale so that
the related security or loan recognizes a constant rate of return on the
outstanding balance throughout its term. When actual prepayments differ
significantly from originally anticipated prepayments, the retrospective
effective yield is recalculated to reflect actual payments to date and updated
future payment assumptions and a catch-up adjustment is recorded in the current
period. In addition, the new effective yield, which reflects anticipated future
payments, is used prospectively. Realized gains and losses on securities, other
than trading securities and equity method investments, are recognized using the
specific identification method on a trade date basis.
Prior to the sale of Ameriprise Auto & Home ("AAH"), premiums on auto and home
insurance were net of reinsurance premiums and recognized ratably over the
coverage period. Premiums on traditional life, health insurance and immediate
annuities with a life contingent feature are net of reinsurance ceded and are
recognized as revenue when due.
Variable annuity guaranteed benefit rider charges and cost of insurance charges
on UL and VUL insurance (net of reinsurance premiums and cost of reinsurance for
universal life insurance products) are recognized as revenue when assessed.
See Note 4 for further discussion of accounting policies on revenue from
contracts with customers.
3. Recent Accounting Pronouncements
Adoption of New Accounting Standards
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, theFinancial Accounting Standards Board ("FASB") updated the accounting standards to simplify the accounting for income taxes. The update eliminates certain exceptions to: (1) accounting principles related to intra-period tax allocation to be applied on a prospective basis, (2) deferred tax liabilities related to outside basis differences to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, and (3) year-to-date losses in interim periods to be applied on a prospective basis. The update also amends existing guidance related to situations when an entity receives: (1) a step-up in the tax basis of goodwill to be applied on a prospective basis, (2) an allocation of income tax expense when members of a consolidated tax filing group issue separate financial statements to be applied on a retrospective basis for all periods presented, (3) interim recognition of enactment of tax laws or rate changes to be applied on a prospective basis, and (4) franchise taxes and other taxes partially based on income to be applied on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted the standard on January 1, 2021. The adoption of this standard had no impact on the Company's consolidated results of operations and financial condition.
Future Adoption of New Accounting Standards
Business Combinations - Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers
In October 2021, the FASB updated the accounting standards to require an entity
(acquirer) to recognize and measure contract assets and contract liabilities
acquired in a business combination in accordance with Topic 606, Revenue for
Contracts with Customers ("Topic 606"). At the acquisition date, an acquirer is
required to account for the related revenue contracts in accordance with Topic
606 as if it had originated the contracts. Generally, this should result in an
acquirer recognizing and measuring the acquired contract assets and contract
liabilities consistent with how they were recognized and measured in the
acquiree's financial statements (if the acquiree prepared financial statements
in accordance with GAAP). The amendments apply to all contract assets and
contract liabilities acquired in a business combination that result from
contracts accounted for under the principals of Topic 606. The standard is
effective for interim and annual periods beginning after December 15, 2022.
Early adoption is permitted, including adoption in an interim period. An entity
that early adopts in an interim period should apply the amendments (1)
retrospectively to all business combinations for which the acquisition date
occurs on or after the beginning of the fiscal year that includes the interim
period of the early application and (2) prospectively to all business
combinations that occur on or after the date of initial application. The
adoption of the standard is not expected to have a material impact on the
Company's consolidated results of operations and financial condition.
Reference Rate Reform - Expedients for Contract Modifications
In March 2020, the FASB updated the accounting standards to provide optional expedients and exceptions for applying GAAP to contracts, hedging or other transactions that are affected by reference rate reform (i.e., the elimination of LIBOR). The following expedients are provided for modified contracts whose reference rate is changed: (1) receivables and debt contracts are accounted for prospectively by adjusting the effective interest rate, (2) leases are accounted for as a continuation of the existing contracts with no reassessments of the lease classification and discount rate or remeasurements of lease payments that otherwise would be required, and (3) an entity is not required to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract. The amendments in this update were effective
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upon issuance and must be elected prior to December 31, 2022. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions. In January 2021, FASB updated the standard to allow an entity to elect to apply the treatment under the original guidance to derivative instruments that use an interest rate for margining, discounting or contract price alignment that will be modified due to reference rate reform but did not qualify under the original guidance. The Company has not yet applied any of the optional expedients. The adoption of the standard is not expected to have an impact on the Company's consolidated results of operations and financial condition.
Financial Services - Insurance - Targeted Improvements to the Accounting for
Long-Duration Contracts
In August 2018, the FASB updated the accounting standard related to
long-duration insurance contracts. The guidance revises key elements of the
measurement models and disclosure requirements for long-duration insurance
contracts issued by insurers and reinsurers.
The guidance establishes a significant new category of benefit features called market risk benefits that protect the contractholder from other-than-nominal capital market risk and expose the insurer to that risk. Insurers will have to measure market risk benefits at fair value. Market risk benefits include variable annuity guaranteed benefits (i.e. guaranteed minimum death, withdrawal, withdrawal for life, accumulation and income benefits). The portion of the change in fair value attributable to a change in the instrument-specific credit risk of market risk benefits in a liability position will be recorded in OCI. Significant changes also relate to the measurement of the liability for future policy benefits for nonparticipating traditional long-duration insurance contracts and immediate annuities with a life contingent feature including the following: •Insurers will be required to review and update the cash flow assumptions used to measure the liability for future policy benefits rather than using assumptions locked in at contract inception. The review of assumptions to measure the liability for all future policy benefits will be required annually at the same time each year, or more frequently if suggested by experience. The effect of updating assumptions will be measured on a retrospective catch-up basis and presented separate from the ongoing policyholder benefit expense in the statement of operations in the period the update is made. This new unlocking process will be required for the Company's term and whole life insurance, disability income, long term care insurance and immediate annuities with a life contingent feature. •The discount rate used to measure the liability for future policy benefits will be standardized. The current requirement to use a discount rate reflecting expected investment yields will change to an upper-medium grade (low credit risk) fixed income corporate instrument yield (generally interpreted as an "A" rating) reflecting the duration characteristics of the liability. Entities will be required to update the discount rate at each reporting date with the effect of discount rate changes reflected in OCI. •The current premium deficiency test is being replaced with a net premium ratio cap of 100%. If the net premium ratio (i.e. the ratio of the present value of total expected benefits and related expenses to the present value of total expected premiums) exceeds 100%, insurers are required to recognize a loss in the statement of operations in the period. Contracts from different issue years will no longer be permitted to be grouped to determine contracts in a loss position. In addition, the update requires DAC and DSIC relating to all long-duration contracts and most investment contracts to be amortized on a straight-line basis over the expected life of the contract independent of profit emergence. Under the new guidance, interest will not accrue to the deferred balance and DAC and DSIC will not be subject to an impairment test. The update requires significant additional disclosures, including disaggregated rollforwards of the liability for future policy benefits, policyholder account balances, market risk benefits, DAC and DSIC, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions. The standard is effective for interim and annual periods beginning after December 15, 2022. The standard should be applied to the liability for future policy benefits and DAC and DSIC on a modified retrospective basis and applied to market risk benefits on a retrospective basis with the option to apply full retrospective transition if certain criteria are met. Early adoption is permitted. The Company is currently in the process of implementing the standard, including the implementation of controlled measurement and reporting processes. The Company expects the impact of adopting the standard to be material to its consolidated results of operations and financial condition.
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4. Revenue from Contracts with Customers
The following tables present revenue disaggregated by segment on an adjusted
operating basis with a reconciliation of segment revenues to those reported on
the Consolidated Statements of Operations:
Year Ended December 31, 2021
Retirement &
Advice & Wealth Protection Corporate & Total Non-operating
Management Asset Management Solutions Other Segments Revenue Total
(in millions)
Management and financial advice fees:
Asset management fees:
Retail $ - $ 2,309 $ - $ - $ 2,309 $ - $ 2,309
Institutional - 645 - - 645 - 645
Advisory fees 4,539 - - - 4,539 - 4,539
Financial planning fees 386 - - - 386 - 386
Transaction and other fees 372 223 70 - 665 - 665
Total management and financial advice
fees 5,297 3,177 70 - 8,544 - 8,544
Distribution fees:
Mutual funds 858 276 - - 1,134 - 1,134
Insurance and annuity 994 195 409 - 1,598 - 1,598
Other products 401 - - - 401 - 401
Total distribution fees 2,253 471 409 - 3,133 - 3,133
Other revenues 196 4 - - 200 - 200
Total revenue from contracts with
customers 7,746 3,652 479 - 11,877 - 11,877
Revenue from other sources (1) 287 30 2,765 489 3,571 (414) 3,157
Total segment gross revenues 8,033 3,682 3,244 489 15,448 (414) 15,034
Banking and deposit interest expense (12) - - (2) (14) - (14)
Total segment net revenues 8,021 3,682 3,244 487 15,434 (414) 15,020
Elimination of intersegment revenues (1,043) (50) (478) (2) (1,573) (16) (1,589)
Total net revenues $ 6,978 $ 3,632 $ 2,766 $ 485 $ 13,861 $ (430) $ 13,431
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Year Ended December 31, 2020
Retirement &
Advice & Wealth Protection Corporate & Total Non-operating
Management Asset Management Solutions Other Segments Revenue Total
(in millions)
Management and financial advice fees:
Asset management fees:
Retail $ - $ 1,822 $ - $ - $ 1,822 $ - $ 1,822
Institutional - 442 - - 442 - 442
Advisory fees 3,511 - - - 3,511 - 3,511
Financial planning fees 348 - - - 348 - 348
Transaction and other fees 352 190 62 - 604 - 604
Total management and financial advice
fees 4,211 2,454 62 - 6,727 - 6,727
Distribution fees:
Mutual funds 737 237 - - 974 - 974
Insurance and annuity 835 174 363 - 1,372 - 1,372
Other products 430 - - - 430 - 430
Total distribution fees 2,002 411 363 - 2,776 - 2,776
Other revenues 182 2 6 3 193 - 193
Total revenue from contracts with
customers 6,395 2,867 431 3 9,696 - 9,696
Revenue from other sources (1) 339 24 2,663 546 3,572 77 3,649
Total segment gross revenues 6,734 2,891 3,094 549 13,268 77 13,345
Banking and deposit interest expense (59) - - (3) (62) - (62)
Total segment net revenues 6,675 2,891 3,094 546 13,206 77 13,283
Elimination of intersegment revenues (893) (53) (433) 2 (1,377) (7) (1,384)
Total net revenues $ 5,782 $ 2,838 $ 2,661 $ 548 $ 11,829 $ 70 $ 11,899
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Year Ended December 31, 2019
Retirement &
Advice & Wealth Protection Corporate & Total Non-operating
Management Asset Management Solutions Other Segments Revenue Total
(in millions)
Management and financial advice fees:
Asset management fees:
Retail $ - $ 1,783 $ - $ - $ 1,783 $ - $ 1,783
Institutional - 495 - - 495 - 495
Advisory fees 3,156 - - - 3,156 - 3,156
Financial planning fees 330 - - - 330 - 330
Transaction and other fees 355 189 63 - 607 - 607
Total management and financial advice
fees 3,841 2,467 63 - 6,371 - 6,371
Distribution fees:
Mutual funds 726 237 - - 963 - 963
Insurance and annuity 875 171 357 6 1,409 - 1,409
Other products 680 - - - 680 - 680
Total distribution fees 2,281 408 357 6 3,052 - 3,052
Other revenues 177 4 - - 181 - 181
Total revenue from contracts with
customers 6,299 2,879 420 6 9,604 - 9,604
Revenue from other sources (1) 436 34 2,703 1,479 4,652 265 4,917
Total segment gross revenues 6,735 2,913 3,123 1,485 14,256 265 14,521
Banking and deposit interest expense (136) - - (8) (144) - (144)
Total segment net revenues 6,599 2,913 3,123 1,477 14,112 265 14,377
Elimination of intersegment revenues (924) (55) (429) 6 (1,402) (8) (1,410)
Total net revenues $ 5,675 $ 2,858 $ 2,694 $ 1,483 $ 12,710 $ 257 $ 12,967
(1) Revenues not included in the scope of the revenue from contracts with
customers standard. The amounts primarily consist of revenue associated with
insurance and annuity products or financial instruments.
The following discussion describes the nature, timing, and uncertainty of
revenues and cash flows arising from the Company's contracts with customers on a
consolidated basis.
Management and Financial Advice Fees
Asset Management Fees
The Company earns revenue for performing asset management services for retail
and institutional clients. The revenue is earned based on a fixed or tiered rate
applied, as a percentage, to assets under management. Assets under management
vary with market fluctuations and client behavior. The asset management
performance obligation is considered a series of distinct services that are
substantially the same and are satisfied each day over the contract term. Asset
management fees are accrued, invoiced and collected on a monthly or quarterly
basis.
The Company's asset management contracts for Open Ended Investment Companies
("OEICs") in the United Kingdom ("U.K.") and Société d'Investissement à Capital
Variable ("SICAVs") in Europe include performance obligations for asset
management and fund distribution services. The amounts received for these
services are reported as management and financial advice fees. The revenue
recognition pattern is the same for both performance obligations as the fund
distribution services revenue is variably constrained due to factors outside the
Company's control including market volatility and client behavior (such as how
long clients hold their investment) and not recognized until assets under
management are known.
The Company may also earn performance-based management fees on institutional
accounts, hedge funds, collateralized loan obligations ("CLOs"), OEICs, SICAVs
and property and other funds based on a percentage of account returns in excess
of either a benchmark index or a contractually specified level. This revenue is
variable and impacted primarily by the performance of the assets being managed
compared to the benchmark index or contractually specified level. The revenue is
not recognized until it is probable that a significant reversal will not occur.
Performance-based management fees are invoiced on a quarterly or annual basis.
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Advisory Fees
The Company earns revenue for performing investment advisory services for certain brokerage customer's discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are billed on a monthly basis on the prior month end assets. Prior to the fourth quarter of 2019, advisory fees were primarily based on average assets for a monthly or quarterly period.
Financial Planning Fees
The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly) based on a contractual fixed rate applied, as a percentage, to the prior month end assets held in a client's investment advisory account. The financial planning fee is based on the complexity of a client's financial and life situation and his or her advisor's experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual contract period.
For fixed fee arrangements, revenue is recognized when the financial plan is
delivered. The Company accrues revenue for any amounts that have not been
received at the time the financial plan is delivered.
For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company's control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month end as the advisory account balance uncertainty is resolved.
Contract liabilities for financial planning fees, which are included in other
liabilities in the Consolidated Balance Sheets, were $157 million and
$146 million as of December 31, 2021 and 2020, respectively.
The Company pays sales commissions to advisors when a new financial planning contract is obtained or when an existing contract is renewed. The sales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a customer and are initially capitalized. When the performance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in other assets in the Consolidated Balance Sheets, and were $126 million and $117 million as of December 31, 2021 and 2020, respectively.
Transaction and Other Fees
The Company earns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to assets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue is earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a quarterly or annual fixed fee for each account. Each of the customer support and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to brokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.
Distribution Fees
Mutual Funds and Insurance and Annuity Products
The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company's control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). This ongoing revenue may be recognized for many years after the initial sale. The revenue will not be recognized until it is probable that a significant reversal will not occur. The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company's advisors or to support availability and distribution of their products on the Company's platforms. These payments allow the outside parties to train and
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support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and operational systems necessary to enable the Company's client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies' products on the Company's sales platform (subject to the Company's due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.
Other Products
The Company earns revenue for selling unaffiliated alternative products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company's control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur. The Company earns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that include the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted). The Company earns revenue for placing clients' deposits in its brokerage sweep program with third-party banks. The amount received from the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.
Other Revenues
The Company earns revenue from fees charged to franchise advisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees received from the advisors. The fees are primarily collected monthly as a reduction of commission payments. Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested.
Contract Costs Asset
During the fourth quarter of 2021, the Company recognized an asset of $39 million related to the transition of investment advisory services under an arrangement withBMO Financial Group for clients that elected to transferU.S. retail and institutional assets to the Company.
Receivables
Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $668 million and $403 million as of December 31, 2021 and 2020, respectively.
5. Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds and other private funds, property funds, and certain non-U.S. series funds (such as OEICs and SICAVs) (collectively, "investment entities"), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, "consolidated investment entities") if the Company is deemed to be the primary beneficiary. The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its initial investment and existing future funding commitments, and the Company has not provided any other support to these entities. The Company has unfunded commitments related to consolidated CLOs of $27 million and $13 million as of December 31, 2021 and 2020, respectively. See Note 26 for information on future funding commitments of other VIEs.
See Note 2 for further discussion of the Company's accounting policy
on consolidation.
CLOs
CLOs are asset backed financing entities collateralized by a pool of assets,
primarily syndicated loans and, to a lesser extent, high-
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yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO's debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO's collateral pool. The Company earns management fees from the CLOs based on the value of the CLO's collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes and highly rated senior notes of certain CLOs. The Company consolidates certain CLOs where it is the primary beneficiary and has the power to direct the activities that most significantly impact the economic performance of the CLO.
The Company's maximum exposure to loss with respect to non-consolidated CLOs is
limited to its amortized cost, which was $1 million and $3 million as of
December 31, 2021 and 2020, respectively. The Company classifies these
investments as Available-for-Sale securities. See Note 6 for additional
information on these investments.
Property Funds
The Company provides investment advice and related services to property funds, some of which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not have a significant economic interest and is not required to consolidate any of the property funds. The Company's maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company's investment in property funds is reflected in other investments and was $44 million and $23 million as of December 31, 2021 and 2020, respectively.
Hedge Funds and other Private Funds
The Company does not consolidate hedge funds and other private funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services and the Company does not have a significant economic interest in any fund. The Company's maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company's investment in these entities is reflected in other investments and was nil as of both December 31, 2021 and 2020.
Non-
The Company manages non-U.S. series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company's investment in these funds is reflected in other investments and was $43 million and $20 million as of December 31, 2021 and 2020, respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships. A majority of the limited partnerships are VIEs. The Company's maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $138 million and $200 million as of December 31, 2021 and 2020, respectively. The Company had a $8 million and a $9 million liability recorded as of December 31, 2021 and 2020, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the funding commitments. Structured Investments The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, and commercial and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company's investment in the entities and position in the capital structure of these entities. The Company's maximum exposure to loss as a result of its investment in these structured investments is limited to its amortized cost. See Note 6 for additional information on these structured investments.
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Fair Value of Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level
hierarchy. See Note 15 for the definition of the three levels of the fair value
hierarchy.
The following tables present the balances of assets and liabilities held by
consolidated investment entities measured at fair value on a recurring basis:
December 31, 2021
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Investments:
Common stocks $ - $ 3 $ - $ 3
Syndicated loans - 2,117 64 2,181
Total investments - 2,120 64 2,184
Receivables - 17 - 17
Other assets - - 3 3
Total assets at fair value $ - $ 2,137 $ 67 $ 2,204
Liabilities
Debt (1) $ - $ 2,164 $ - $ 2,164
Other liabilities - 137 - 137
Total liabilities at fair value $ - $ 2,301 $ - $ 2,301
December 31, 2020
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Investments:
Corporate debt securities $ - $ 8 $ - $ 8
Common stocks - 1 - 1
Syndicated loans - 1,817 92 1,909
Total investments - 1,826 92 1,918
Receivables - 16 - 16
Other assets - - 2 2
Total assets at fair value $ - $ 1,842 $ 94 $ 1,936
Liabilities
Debt (1) $ - $ 1,913 $ - $ 1,913
Other liabilities - 69 - 69
Total liabilities at fair value $ - $ 1,982 $ - $ 1,982
(1) The carrying value of the CLOs' debt is set equal to the fair value of the CLOs' assets. The estimated fair value of the CLOs' debt was $2.2 billion and $2.0 billion as of December 31, 2021 and 2020, respectively.
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The following tables provide a summary of changes in Level 3 assets held by
consolidated investment entities measured at fair value on a recurring basis:
Syndicated Loans Other Assets
(in millions)
Balance, January 1, 2021 $ 92 $ 2
Total gains (losses) included in:
Net income 2 (1) 1 (1)
Purchases 106 -
Sales (38) -
Settlements (49) -
Transfers into Level 3 119 2
Transfers out of Level 3 (150) (2)
Deconsolidation of consolidated investment entities (18) -
Balance, December 31, 2021 $ 64 $ 3
Changes in unrealized gains (losses) included in net income relating to
(1)
assets held at December 31, 2021 $ - $ 1
Syndicated Loans Other Assets
(in millions)
Balance, January 1, 2020 $ 143 $ -
Total gains (losses) included in:
Net income (16) (1) -
Purchases 111 2
Sales (29) -
Settlements (33) -
Transfers into Level 3 438 -
Transfers out of Level 3 (522) -
Balance, December 31, 2020 $ 92 $ 2
Changes in unrealized gains (losses) included in net income relating to
(1) $ -
assets held at December 31, 2020 $ (2)
Syndicated Loans
(in millions)
Balance, January 1, 2019 $ 226
Total gains (losses) included in:
Net income (2) (1)
Purchases 91
Sales (11)
Settlements (68)
Transfers into Level 3 272
Transfers out of Level 3 (365)
Balance, December 31, 2019 $ 143
Changes in unrealized gains (losses) included in net income relating to assets (1)
held at December 31, 2019 $ (3)
(1) Included in Net investment income.
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. All Level 3 measurements as of December 31, 2021 and 2020 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
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Determination of Fair Value Assets Investments The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company. See Note 15 for a description of the Company's determination of the fair value of corporate debt securities, common stocks and other investments. Receivables For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2. Liabilities Debt The fair value of the CLOs' assets, typically syndicated bank loans, is more observable than the fair value of the CLOs' debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs' debt is set equal to the fair value of the CLOs' assets and is classified as Level 2. Other Liabilities Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2. Other liabilities also include accrued interest on CLO debt.
Fair Value Option
The Company has elected the fair value option for the financial assets and
liabilities of the consolidated CLOs. Management believes that the use of the
fair value option better matches the changes in fair value of assets and
liabilities related to the CLOs.
The following table presents the fair value and unpaid principal balance of
loans and debt for which the fair value option has been elected:
December 31,
2021 2020
(in millions)
Syndicated loans
Unpaid principal balance $ 2,233 $ 1,990
Excess unpaid principal over fair value (52) (81)
Fair value $
2,181 $ 1,909
Fair value of loans more than 90 days past due $ - $ 5 Fair value of loans in nonaccrual status 13 19
Difference between fair value and unpaid principal of loans more than
90 days past due, loans in nonaccrual status or both
10 24 Debt Unpaid principal balance $ 2,296 $ 2,069 Excess unpaid principal over fair value (132) (156) Carrying value (1) $ 2,164 $ 1,913 (1) The carrying value of the CLOs' debt is set equal to the fair value of the CLOs' assets. The estimated fair value of the CLOs' debt was $2.2 billion and $2.0 billion as of December 31, 2021 and 2020, respectively.
During the first quarter of 2021, the Company launched two new CLOs and issued
debt of $817 million.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in Net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in Net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in Net investment income. Total net gains (losses) recognized in Net investment income related to the changes in fair value of investments the Company owns in the consolidated CLOs where it has elected the fair value option and collateralized financing entity accounting were immaterial for the years ended December 31, 2021, 2020 and 2019.
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Debt of the consolidated investment entities and the stated interest rates were
as follows:
Weighted Average
Carrying Value Interest Rate
December 31, December 31,
2021 2020 2021 2020
(in millions)
Debt of consolidated CLOs due 2028-2034 $ 2,164 $ 1,913
1.7 % 2.1 %
The debt of the consolidated CLOs has both fixed and floating interest rates,
which range from nil to 9.4%. The interest rates on the debt of CLOs are
weighted average rates based on the outstanding principal and contractual
interest rates.
6. Investments
The following is a summary of
December 31,
2021 2020
(in millions)
Available-for-Sale securities, at fair value $ 32,050 $ 36,283
Mortgage loans (allowance for credit losses: 2021, $12; 2020, $29) 1,953 2,718
Policy loans 835 846
Other investments (allowance for credit losses: 2021, $5; 2020, $12)
972 1,184 Total $ 35,810 $ 41,031
Other investments primarily reflect the Company's interests in affordable
housing partnerships, trading securities, equity securities, seed money
investments, syndicated loans, credit card receivables and certificates of
deposit with original or remaining maturities at the time of purchase of more
than 90 days.
The following is a summary of Net investment income:
Years Ended December 31,
2021 2020
2019
(in millions)
Investment income on fixed maturities $ 933 $ 1,161 $ 1,378
Net realized gains (losses)
636 (10)
(8)
Affordable housing partnerships (71) (66)
(98)
Other 70 89
97
Consolidated investment entities 115 77 94
Total $ 1,683 $ 1,251 $ 1,463
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Available-for-Sale securities distributed by type were as follows:
December 31, 2021
Amortized Gross Unrealized Gross Unrealized Allowance for
Description of Securities Cost Gains Losses Credit Losses Fair Value
(in millions)
Corporate debt securities $ 8,737 $ 1,243 $ (48) $ - $ 9,932
Residential mortgage backed securities 10,927 67 (50) -
10,944
Commercial mortgage backed securities 4,950 59 (23) - 4,986 Asset backed securities 3,639 26 (11) - 3,654 State and municipal obligations 850 244 (1) (1)
1,092
U.S. government and agency obligations 1,301 - - -
1,301
Foreign government bonds and obligations 88 5 (1) - 92
Other securities 49 - - - 49
Total $ 30,541 $ 1,644 $ (134) $ (1) $ 32,050
December 31, 2020
Amortized Gross Unrealized Gross Unrealized Allowance for
Description of Securities Cost Gains Losses Credit Losses Fair Value
(in millions)
Corporate debt securities $ 11,762
$ 1,924 $ (2) $ (10) $ 13,674
Residential mortgage backed securities
9,845 188 (4) -
10,029
Commercial mortgage backed securities 5,867 242 (21) - 6,088 Asset backed securities 3,283 52 (5) (1) 3,329 State and municipal obligations 1,088 297 (1) -
1,384
U.S. government and agency obligations 1,456 - - -
1,456
Foreign government bonds and obligations 241 22 (1) - 262 Other securities 59 2 - - 61 Total $ 33,601 $ 2,727 $ (34) $ (11) $ 36,283
As of December 31, 2021 and 2020, accrued interest of $140 million and
$178 million, respectively, is excluded from the amortized cost basis of
Available-for-Sale securities in the tables above and is recorded in
Receivables.
As of December 31, 2021 and 2020, investment securities with a fair value of $3.1 billion and $3.6 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $314 million and $454 million, respectively, may be sold, pledged or rehypothecated by the counterparty. As of December 31, 2021 and 2020, fixed maturity securities comprised approximately 89% and 88%, respectively, ofAmeriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations ("NRSROs"), including Moody's Investors Service ("Moody's"),Standard & Poor's Ratings Services ("S&P") andFitch Ratings Ltd. ("Fitch"). The Company uses the median of available ratings from Moody's, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody's, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of December 31, 2021 and 2020, the Company's internal analysts rated $400 million and $605 million, respectively, of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
December 31, 2021 December 31, 2020
Percent of Percent of
Amortized Total Fair Amortized Total Fair
Ratings Cost Fair Value Value Cost Fair Value Value
(in millions, except percentages)
AAA $ 20,563 $ 20,625 64 % $ 19,815 $ 20,253 56 %
AA 727 898 3 1,082 1,312 3
A 1,775 2,129 7 2,953 3,534 10
BBB 6,495 7,268 23 8,271 9,542 26
Below investment grade (1) 981 1,130 3 1,480 1,642 5
Total fixed maturities $ 30,541 $ 32,050 100 % $ 33,601 $ 36,283 100 %
(1) The amortized cost and fair value of below investment grade securities
includes interest in non-consolidated CLOs managed by the Company of $1 million
and $2 million, respectively, as of December 31, 2021 and $3 million as of
December 31, 2020. These securities are not rated but are included in below
investment grade due to their risk characteristics.
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As of December 31, 2021 and 2020, approximately 30% and 33%, respectively, of securities ratedAAA were GNMA,FNMA and FHLMC mortgage backed securities. No holdings of any issuer were greater than 10% of total equity as of both December 31, 2021 and 2020. The following tables summarize the fair value and gross unrealized losses on Available-for-Sale securities, aggregated by major investment type and the length of time that individual securities have been in a continuous unrealized loss position for which no allowance for credit losses has been recorded: December 31, 2021 Less than 12 months 12 months or more Total Number of Fair Unrealized Number of Fair Unrealized Fair Unrealized Description of Securities Securities Value Losses Securities Value Losses Number of Securities Value Losses (in millions, except number of securities) Corporate debt securities 110 $ 2,056 $ (43) 14 $ 81 $ (5) 124 $ 2,137 $
(48)
Residential mortgage backed securities 206 5,808 (48) 56 191 (2) 262 5,999
(50)
Commercial mortgage backed securities 102 2,184 (22) 9 139 (1) 111 2,323 (23) Asset backed securities 41 1,883 (11) 6 118 - 47 2,001 (11) State and municipal obligations 26 64 (1) - - - 26 64
(1)
Foreign government bonds and
obligations 5 6 - 6 4 (1) 11 10 (1)
Total 490 $ 12,001 $ (125) 91 $ 533 $ (9) 581 $ 12,534 $ (134)
December 31, 2020
Less than 12 months 12 months or more Total
Number of Fair Unrealized Number of Fair Unrealized Fair Unrealized
Description of Securities Securities Value Losses Securities Value Losses Number of Securities Value Losses
(in millions, except number of
securities)
Corporate debt securities 26 $ 228 $ (1) 11 $ 19 $ (1) 37 $ 247 $
(2)
Residential mortgage backed securities 72 833 (2) 71 391 (2) 143 1,224
(4)
Commercial mortgage backed securities 35 781 (11) 19 393 (10) 54 1,174
(21)
Asset backed securities 17 344 (3) 13 231 (2) 30 575
(5)
State and municipal obligations 2 4 - 1 4 (1) 3 8 (1) Foreign government bonds and obligations 1 3 - 7 8 (1) 8 11 (1) Total 153 $ 2,193 $ (17) 122 $ 1,046 $ (17) 275 $ 3,239 $ (34) As part of the Company's ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities for which an allowance for credit losses has not been recognized during the year ended December 31, 2021 is primarily attributable to higher interest rates. The Company did not recognize these unrealized losses in earnings because it was determined that such losses were due to non-credit factors. The Company does not intend to sell these securities and does not believe that it is more likely than not that the Company will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. As of December 31, 2021 and 2020, approximately 96% and 92%, respectively, of the total of Available-for-Sale securities with gross unrealized losses were considered investment grade.
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The following tables present a rollforward of the allowance for credit losses on
Available-for-Sale securities:
State and
Corporate Debt Asset Backed Municipal
Securities Securities Obligations Total
(in millions)
Balance at January 1, 2021 $ 10 $ 1 $ - $ 11
Additions for which credit losses were not
previously recorded - - 1 1
Charge-offs (10) (1) - (11)
Balance at December 31, 2021 $ - $ - $ 1 $ 1
Corporate Debt Asset Backed
Securities Securities Total
(in millions)
Balance at January 1, 2020 (1) $ - $ - $ -
Additions for which credit losses were not previously recorded 13 1 14
Additional increases (decreases) on securities that had an
allowance recorded in a previous period
(3) - (3)
Balance at December 31, 2020 $ 10 $ 1 $ 11
(1) Prior to January 1, 2020, credit losses on Available-for-Sale securities
were not recorded in an allowance but were recorded as a reduction of the book
value of the security if the security was other-than-temporarily impaired.
Net realized gains and losses on Available-for-Sale securities, determined using
the specific identification method, recognized in Net investment income
were as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
Gross realized investment gains $ 582 $ 25 $
30
Gross realized investment losses (7) (3) (14)
Credit losses (1) (11) (22)
Other impairments (13) - -
Total $ 561 $ 11 $ (6)
Credit losses for the year ended December 31, 2021 primarily related to
recording an allowance for credit losses on certain state and municipal
securities. For the year ended December 31, 2020, credit losses primarily
related to recording an allowance for credit losses on certain corporate debt
securities, primarily in the oil and gas industry. Other-than-temporary
impairments ("OTTI") for the year ended December 31, 2019 primarily related to
corporate debt securities and investments held by AAH. The Company recognized an
impairment of $5 million in the first quarter of 2019 on investments held by AAH
as the Company no longer intended to hold the securities until the recovery of
fair value to book value. Other impairments for the year ended December 31, 2021
related to Available-for-Sale securities that were impaired when they were
classified as held for sale prior to being sold in the reinsurance transaction.
See Note 1 for more information on the reinsurance transaction.
See Note 21 for a rollforward of net unrealized investment gains (losses)
included in AOCI.
Available-for-Sale securities by contractual maturity as of December 31, 2021
were as follows:
Amortized Cost Fair Value
(in millions)
Due within one year $ 1,884 $ 1,892
Due after one year through five years 2,125 2,231
Due after five years through 10 years 3,283 3,359
Due after 10 years 3,733 4,984
11,025 12,466
Residential mortgage backed securities 10,927 10,944
Commercial mortgage backed securities 4,950 4,986
Asset backed securities 3,639 3,654
Total $ 30,541 $ 32,050
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Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities were not included in the maturities distribution.
7. Financing Receivables
Financing receivables are comprised of commercial loans, consumer loans, and
deposit receivables. See Note 2 for information regarding the Company's
accounting policies related to financing receivables and the allowance for
credit losses.
Allowance for Credit Losses
The following tables present a rollforward of the allowance for credit losses:
Commercial Loans Consumer Loans Total
(in millions)
Balance, January 1, 2021 $ 66 $ 2 $ 68
Provisions (13) 2 (11)
Charge-offs (8) (2) (10)
Recoveries - 1 1
Other 2 - 2
Balance, December 31, 2021 $ 47 $ 3 $ 50
Commercial Loans Consumer Loans Total
(in millions)
Balance, December 31, 2019 (1) $ 51 $ - $ 51
Cumulative effect of adoption of current expected credit
losses guidance 2 3 5
Balance, January 1, 2020 53 3 56
Provisions 19 2 21
Charge-offs (6) (3) (9)
Balance, December 31, 2020 $ 66 $ 2 $ 68
(1) Prior to January 1, 2020, the allowance for credit losses was based on an
incurred loss model that did not require estimating expected credit losses over
the expected life of the asset.
Commercial Loans
(in millions)
Balance at January 1, 2019 $ 49
Provisions 5
Charge-offs (4)
Recoveries of amounts previously written off 1
Balance at December 31, 2019 $ 51
The decrease in the allowance for credit losses provision for commercial loans
reflects the sale of certain commercial mortgage loans and syndicated loans in
conjunction with the fixed deferred and immediate annuity reinsurance
transaction discussed in Note 1.
Accrued interest on commercial loans was $13 million and $16 million as of
December 31, 2021 and 2020, respectively, and is recorded in Receivables and
excluded from the amortized cost basis of commercial loans.
Purchases and Sales
During the year ended December 31, 2021, the Company sold $746 million of
commercial mortgage loans.
During the years ended December 31, 2021, 2020 and 2019, the Company purchased $37 million, $173 million and $162 million, respectively, of syndicated loans, and sold $354 million, $17 million and $54 million, respectively, of syndicated loans. During the years ended December 31, 2021 and 2020, the Company purchased $33 million and $22 million, respectively, of residential mortgage loans, and sold $1 million and nil, respectively, of residential mortgage loans. The allowance for credit losses for residential mortgage loans was not material as of both December 31, 2021 and 2020.
The Company has not acquired any loans with deteriorated credit quality as of
the acquisition date.
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Credit Quality Information
Nonperforming loans were $9 million and $21 million as of December 31, 2021 and
2020, respectively. All other loans were considered to be performing.
Commercial Loans
Commercial Mortgage Loans
The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Loan-to-value ratio is the primary credit quality indicator included in this review. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates when credit risk changes. Commercial mortgage loans which management has assigned its highest risk rating were less than 1% of total commercial mortgage loans as of both December 31, 2021 and 2020. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. Total commercial mortgage loan modifications through December 31, 2020 due to the COVID-19 pandemic consisted of 93 loans with a total unpaid balance of $369 million. Modifications primarily consisted of short-term forbearance and interest only payments. There were no additional modifications during the year ended December 31, 2021. As of December 31, 2021, there were no loans remaining that were modified due to COVID-19. All loans returned to their normal payment schedules. Total commercial mortgage loans past due were nil as of December 31, 2021 and 2020, respectively.
The tables below present the amortized cost basis of commercial mortgage loans
by the year of origination and loan-to-value ratio:
December 31, 2021
2021 2020 2019 2018 2017 Prior Total
Loan-to-Value Ratio (in millions)
> 100% $ - $ - $ 20 $ 10 $ - $ 29 $ 59
80% - 100% 9 2 9 2 - 29 51
60% - 80% 142 80 60 23 61 138 504
40% - 60% 42 33 86 74 57 401 693
< 40% 11 8 48 6 58 478 609
Total $ 204 $ 123 $ 223 $ 115 $ 176 $ 1,075 $ 1,916
December 31, 2020
2020 2019 2018 2017 2016 Prior Total
Loan-to-Value Ratio (in millions)
> 100% $ - $ - $ 2 $ - $ - $ 10 $ 12
80% - 100% 15 16 12 3 7 15 68
60% - 80% 89 166 27 32 46 144 504
40% - 60% 23 57 74 155 113 551 973
< 40% 7 23 80 99 64 895 1,168
Total $ 134 $ 262 $ 195 $ 289 $ 230 $ 1,615 $ 2,725
Loan-to-value ratio is based on income and expense data provided by borrowers at
least annually and long-term capitalization rate assumptions based on property
type.
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In addition, the Company reviews the concentrations of credit risk by region and property type. Concentrations of credit risk of commercial mortgage loans byU.S. region were as follows: Loans Percentage December 31, December 31, 2021 2020 2021 2020 (in millions) East North Central $ 194 $ 259 10 % 10 % East South Central 57 115 3 4 Middle Atlantic 122 178 6 7 Mountain 119 247 6 9 New England 28 54 2 2 Pacific 627 825 33 30 South Atlantic 497 681 26 25 West North Central 141 198 7 7 West South Central 131 168 7 6 1,916 2,725 100 % 100 % Less: allowance for credit losses 12 29 Total $ 1,904 $ 2,696 Concentrations of credit risk of commercial mortgage loans by property type were as follows: Loans Percentage December 31, December 31, 2021 2020 2021 2020 (in millions) Apartments $ 496 $ 713 26 % 26 % Hotel 14 50 1 2 Industrial 319 427 17 16 Mixed use 68 87 3 3 Office 271 372 14 14 Retail 617 881 32 32 Other 131 195 7 7 1,916 2,725 100 % 100 % Less: allowance for credit losses 12 29 Total $ 1,904 $ 2,696 Syndicated Loans The recorded investment in syndicated loans as of December 31, 2021 and 2020 was $149 million and $595 million, respectively. The Company's syndicated loan portfolio is diversified across industries and issuers. Total syndicated loans past due were nil and $3 million as of December 31, 2021 and 2020, respectively. The Company assigns an internal risk rating to each syndicated loan in its portfolio ranging from 1 through 5, with 5 reflecting the lowest quality.
The tables below present the amortized cost basis of syndicated loans by
origination year and internal risk rating:
December 31, 2021
2021 2020 2019 2018 2017 Prior Total
Internal Risk Rating (in millions)
Risk 5 $ - $ - $ 1 $ - $ - $ - $ 1
Risk 4 - - - - 1 2 3
Risk 3 - - 4 5 5 6 20
Risk 2 15 4 12 10 18 12 71
Risk 1 8 3 3 11 16 13 54
Total $ 23 $ 7 $ 20 $ 26 $ 40 $ 33 $ 149
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December 31, 2020
2020 2019 2018 2017 2016 Prior Total
Internal Risk Rating (in millions)
Risk 5 $ - $ - $ - $ - $ - $ 3 $ 3
Risk 4 - - 4 9 - 10 23
Risk 3 - 9 8 25 13 25 80
Risk 2 30 57 62 69 14 41 273
Risk 1 17 32 47 58 22 40 216
Total $ 47 $ 98 $ 121 $ 161 $ 49 $ 119 $ 595
Financial Advisor Loans
The Company offers loans to financial advisors for transitional cost assistance.
Repayment of the loan is highly dependent on the retention of the financial
advisor. In the event a financial advisor is no longer affiliated with the
Company, any unpaid balances become immediately due. Accordingly, the primary
risk factor for advisor loans is termination status. The allowance for credit
losses related to loans to advisors that have terminated their relationship with
the Company was $5 million and $7 million as of December 31, 2021 and December
31, 2020, respectively.
The tables below present the amortized cost basis of advisor loans by
origination year and termination status:
December 31, 2021
2021 2020 2019 2018 2017 Prior Total
Termination Status (in millions)
Active $ 136 $ 147 $ 119 $ 89 $ 116 $ 113 $ 720
Terminated 1 1 - - - 6 8
Total $ 137 $ 148 $ 119 $ 89 $ 116 $ 119 $ 728
December 31, 2020
2020 2019 2018 2017 2016 Prior Total
Termination Status (in millions)
Active $ 171 $ 137 $ 101 $ 127 $ 83 $ 86 $ 705
Terminated - - - 1 1 8 10
Total $ 171 $ 137 $ 101 $ 128 $ 84 $ 94 $ 715
Consumer Loans
Credit Card Receivables
The credit cards are co-branded with Ameriprise Financial, Inc. and issued to
the Company's customers by a third party. FICO scores and delinquency rates are
the primary credit quality indicators for the credit card portfolio. Delinquency
rates are measured based on the number of days past due. Credit card receivables
over 30 days past due were 1% of total credit card receivables as of both
December 31, 2021 and December 31, 2020.
The table below presents the amortized cost basis of credit card receivables by
FICO score:
December 31, 2021 December 31, 2020
(in millions)
> 800 $ 30 $ 28
750 - 799 24 23
700 - 749 25 25
650 - 699 14 15
< 650 5 5
Total $ 98 $ 96
Policy Loans
Policy loans do not exceed the cash surrender value at origination. As there is
minimal risk of loss related to policy loans, there is no allowance for credit
losses.
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Margin Loans
The margin loans balance was $1.2 billion and $1.0 billion as of December 31, 2021 and 2020, respectively. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As of both December 31, 2021 and 2020, the allowance for credit losses on margin loans was not material. Pledged Asset Lines of Credit The pledged asset lines of credit balance was $467 million and $224 million million as of December 31, 2021 and 2020, respectively. The Company monitors collateral supporting pledged asset lines of credit and requests additional collateral when necessary in order to mitigate the risk of loss. As of December 31, 2021 and 2020, there was no allowance for credit losses on pledged asset lines of credit. Deposit Receivables Deposit receivables were $7.9 billion and $1.4 billion as of December 31, 2021 and 2020, respectively. Deposit receivables are fully collateralized by the fair value of the assets held in trusts. Based on management's evaluation of the nature of the underlying assets and the potential for changes in the collateral value, there was no allowance for credit losses for the deposit receivables as of December 31, 2021 and 2020. The increase in deposit receivables is primarily driven by the reinsurance transaction, effective July 1, 2021, to reinsure fixed deferred and non-life contingent immediate annuity policies. See Note 1 for more information on the fixed deferred and immediate annuity reinsurance transaction.
Troubled Debt Restructurings
There were no loans accounted for as a troubled debt restructuring by the
Company during the years ended December 31, 2021, 2020 and 2019. There are no
commitments to lend additional funds to borrowers whose loans have been
restructured.
8. Reinsurance
The Company reinsures a portion of the insurance risks associated with its traditional life, DI and LTC insurance products through reinsurance agreements with unaffiliated reinsurance companies. During the third quarter of 2021, RiverSource Life reinsured 100% of its insurance risk associated with its life contingent immediate annuity policies in force as of July 1, 2021 through a reinsurance agreement with Commonwealth. Policies issued after July 1, 2021 are not subject to this reinsurance agreement. See Note 1 for more information on the fixed deferred and immediate annuity reinsurance transaction.
Reinsurance contracts do not relieve the Company from its primary obligation to
policyholders.
The Company generally reinsures 90% of the death benefit liability for new term
life insurance policies beginning in 2001 and new individual UL and VUL
insurance policies beginning in 2002. Policies issued prior to these dates are
not subject to these same reinsurance levels.
However, for IUL policies issued after September 1, 2013 and VUL policies issued
after January 1, 2014, the Company generally reinsures 50% of the death benefit
liability. Similarly, the Company reinsures 50% of the death benefit and
morbidity liabilities related to its UL product with LTC benefits.
The maximum amount of life insurance risk the Company will retain is $10 million
on a single life and $10 million on any flexible premium survivorship life
policy; however, reinsurance agreements are in place such that retaining more
than $1.5 million of insurance risk on a single life or a flexible premium
survivorship life policy is very unusual. Risk on UL and VUL policies is
reinsured on a yearly renewable term basis. Risk on most term life policies
starting in 2001 is reinsured on a coinsurance basis, a type of reinsurance in
which the reinsurer participates proportionally in all material risks and
premiums associated with a policy.
For existing LTC policies, the Company has continued ceding 50% of the risk on a
coinsurance basis to subsidiaries of Genworth Financial, Inc. ("Genworth") and
retains the remaining risk. For RiverSource Life of NY, this reinsurance
arrangement applies for 1996 and later issues only. Under these agreements, the
Company has the right, but never the obligation, to recapture some, or all, of
the risk ceded to Genworth.
Generally, the Company retains at most $5,000 per month of risk per life on DI
policies sold on policy forms introduced in most states starting in 2007 and
reinsures the remainder of the risk on a coinsurance basis with unaffiliated
reinsurance companies. The Company retains all risk for new claims on DI
contracts sold on other policy forms introduced prior to 2007. The Company also
retains all risk on accidental death benefit claims and substantially all risk
associated with waiver of premium provisions.
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As of December 31, 2021 and 2020, traditional life and UL insurance policies in
force were $198.6 billion and $195.7 billion, respectively, of which
$145.1 billion and $143.6 billion as of December 31, 2021 and 2020 were
reinsured at the respective year ends.
The effect of reinsurance on premiums for the Company's traditional
long-duration contracts was as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
Direct premiums $ 490 $ 565 $ 621
Reinsurance ceded (1,361) (224) (224)
Net premiums $ (871) $ 341 $ 397
Cost of insurance and administrative charges for non-traditional long-duration
products are reflected in premiums, policy and contract charges and were net of
reinsurance ceded of $152 million, $140 million and $132 million for the years
ended December 31, 2021, 2020 and 2019, respectively.
The effect of reinsurance on premiums for the Company's short-duration contracts
was as follows:
Year Ended December 31,
2019 (1)
(in millions)
Written premiums
Direct $ 864
Ceded (23)
Total net written premiums $ 841
Earned premiums
Direct $ 841
Ceded (24)
Total net earned premiums $ 817
(1) 2019 amounts include AAH premiums as of September 30, 2019 prior to the
sale.
The amount of claims recovered through reinsurance on all contracts was $404 million, $400 million and $407 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Receivables included $4.5 billion and $3.4 billion of reinsurance recoverables
as of December 31, 2021 and 2020, respectively, including $2.6 billion and
$2.7 billion related to LTC risk ceded to Genworth, respectively.
Policyholder account balances, future policy benefits and claims include $413 million and $440 million related to previously assumed reinsurance arrangements as of December 31, 2021 and 2020, respectively.
9.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are instead subject to impairment tests. There were nil, $2 million and $5 million of impairments of indefinite-lived intangible assets recorded for the years ended December 31, 2021, 2020 and 2019, respectively.
The changes in the carrying amount of goodwill reported in the Company's main
operating segments were as follows:
Retirement &
Advice & Wealth Asset Protection
Management Management Solutions Consolidated
(in millions)
Balance at January 1, 2020 $ 279 $ 797 $ 91 $ 1,167
Foreign currency translation - 10 - 10
Other adjustments - (1) - (1)
Balance at December 31, 2020 279 806 91 1,176
Acquisitions - 287 - 287
Foreign currency translation - (4) - (4)
Other adjustments - (1) - (1)
Balance at December 31, 2021 $ 279 $ 1,088 $ 91 $ 1,458
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On November 8, 2021, the Company completed its acquisition of the European-based asset management business ofBMO Financial Group for $973 million, excluding an estimated $7 million reduction due to customary deferred and contingent adjustments. The all-cash transaction added $136 billion of assets under management in EMEA. The acquisition extends our reach in EMEA and accelerates our core strategy of growing fee-based businesses. Acquisition-related costs were $32 million and are included in General and administrative expense. The fair value of the total consideration paid and the recognized assets and acquired liabilities assumed for this business are included in the table below.Goodwill of $287 million arising from acquisition consists largely of the synergies and economies of scale expected from combining the Company's EMEA operations. All goodwill was assigned to the Asset Management segment.
The following table summarizes the consideration paid, assets acquired, and
liabilities assumed at the acquisition date:
November 8, 2021
(in millions)
Consideration paid
Cash $ 973
Deferred considerations (35)
Contingent considerations 28
Total fair value $ 966
Recognized Assets / Liabilities
Assets
Cash and cash equivalents $ 397
Investments 77
Receivables 116
Other assets 295
Total assets 885
Liabilities
Debt 2
Accounts payable and accrued expenses 235
Other liabilities 190
Total liabilities 427
Identifiable net assets $ 458
Intangible assets $ 295
Deferred tax liability 74
Goodwill 287
The fair value of the pension plan assets and liabilities, the recognized
deferred tax assets and other components of deferred and contingent
consideration reflects the provisional valuation of those assets and
liabilities.
The carrying amount of indefinite-lived intangible assets consist of the
following:
December 31,
2021 2020
(in millions)
Customer contracts $ 848 $ 640
Trade names 69 69
Total $ 917 $ 709
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Definite-lived intangible assets consisted of the following:
December 31, 2021 December 31, 2020
Accumulated Net Carrying Accumulated Net Carrying
Gross Carrying Amount Amortization Amount Gross Carrying Amount Amortization Amount
(in millions)
Customer relationships $ 254 $ (163) $ 91 $ 193 $ (155) $ 38
Contracts 235 (217) 18 223 (211) 12
Other 272 (188) 84 226 (168) 58
Total $ 761 $ (568) $ 193 $ 642 $ (534) $ 108
Definite-lived intangible assets acquired during the year ended December 31,
2021 were $89 million with a weighted average amortization period of 10 years.
The aggregate amortization expense for definite-lived intangible assets during
the years ended December 31, 2021, 2020 and 2019 was $34 million, $31 million
and $37 million, respectively. In 2021, 2020 and 2019, the Company did not
record any impairment charges on definite-lived intangible assets.
Estimated intangible amortization expense as of December 31, 2021 for the next
five years is as follows:
(in millions)
2022 $ 31
2023 27
2024 16
2025 10
2026 7
10. Deferred Acquisition Costs and Deferred Sales Inducement Costs
Management updates market-related inputs on a quarterly basis and implements model changes related to the living benefit valuation. In addition, management conducts its annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. The impact of unlocking to DAC for the year ended December 31, 2021 primarily reflected a favorable impact from lower surrenders on variable annuities with living benefits and UL and VUL insurance products. The impact of unlocking to DAC for the year ended December 31, 2020 primarily reflected updates to interest rate assumptions, partially offset by a favorable impact from lower surrenders on annuity contracts with a withdrawal benefit. The impact of unlocking to DAC for the year ended December 31, 2019 primarily reflected updated mortality assumptions on UL and VUL insurance products and lower surrender rate assumptions on variable annuities, partially offset by an unfavorable impact from updates to assumptions on utilization of guaranteed withdrawal benefits.
The balances of and changes in DAC were as follows:
2021 2020 2019
(in millions)
Balance at January 1 $ 2,532 $ 2,698 $ 2,776
Capitalization of acquisition costs 280 228 291
Amortization (184) (177) (165)
Amortization, impact of valuation assumptions review 60 (100) (14)
Impact of change in net unrealized (gains) losses on
securities 94 (117) (175)
Disposal of business - - (15)
Balance at December 31 $ 2,782 $ 2,532 $ 2,698
The balances of and changes in DSIC, which is included in Other assets, were as
follows:
2021 2020 2019
(in millions)
Balance at January 1 $ 189 $ 218 $ 251
Capitalization of sales inducement costs 1 1 1
Amortization (16) (13) (15)
Amortization, impact of valuation assumptions review 2 (16) -
Impact of change in net unrealized (gains) losses on securities 13 (1) (19)
Balance at December 31 $ 189 $ 189 $ 218
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11. Policyholder Account Balances, Future Policy Benefits and Claims and
Separate Account Liabilities
Policyholder account balances, future policy benefits and claims consisted of
the following:
December 31,
2021 2020
(in millions)
Policyholder account balances
Fixed annuities(1) $ 8,117 $ 8,531
Variable annuity fixed sub-accounts 4,990 5,104
UL/VUL insurance 3,103 3,122
IUL insurance 2,534 2,269
Structured variable annuities 4,440 1,371
Other life insurance 563 605
Total policyholder account balances 23,747 21,002
Future policy benefits
Variable annuity GMWB 2,336 3,049
Variable annuity GMAB(2) (23) 1
Other annuity liabilities 67 211
Fixed annuity life contingent liabilities 1,278 1,370
Life and DI insurance 1,139 1,187
LTC insurance 5,664 5,722
UL/VUL and other life insurance additional liabilities 1,291 1,259
Total future policy benefits 11,752 12,799
Policy claims and other policyholders' funds 251 191
Total policyholder account balances, future policy benefits and claims $ 35,750 $ 33,992
(1) Includes fixed deferred annuities, non-life contingent fixed payout
annuities and fixed deferred indexed annuity host contracts.
(2) Includes the fair value of GMAB embedded derivatives that was a net asset as
of December 31, 2021 reported as a contra liability.
Fixed Annuities
Fixed annuities include deferred, payout and fixed deferred indexed annuity
contracts. In 2020, the Company discontinued sales of fixed deferred and fixed
deferred indexed annuities.
Deferred contracts offer a guaranteed minimum rate of interest and security of
the principal invested. Payout contracts guarantee a fixed income payment for
life or the term of the contract. Liabilities for fixed annuities in a benefit
or payout status are based on future estimated payments using established
industry mortality tables and interest rates, ranging from 2.23% to 9.38% as of
December 31, 2021, depending on year of issue, with an average rate of
approximately 3.6%. The Company generally invests the proceeds from the annuity
contracts in fixed rate securities.
The Company's equity indexed annuity ("EIA") product is a single premium fixed
deferred annuity. The Company discontinued new sales of EIAs in 2007. The
contract was issued with an initial term of seven years and interest earnings
are linked to the performance of the S&P 500® Index. This annuity has a minimum
interest rate guarantee of 3% on 90% of the initial premium, adjusted for any
surrenders. The Company generally invests the proceeds from the annuity
contracts in fixed rate securities and hedges the equity risk with derivative
instruments.
The Company's fixed index annuity product is a fixed annuity that includes an
indexed account. The rate of interest credited above the minimum guarantee for
funds allocated to the indexed account is linked to the performance of the
specific index for the indexed account (subject to a cap). The Company
previously offered S&P 500® Index and MSCI® EAFE Index account options. Both
options offered two crediting durations, one-year and two-year. The
contractholder could allocate all or a portion of the policy value to a fixed or
indexed account. The portion of the policy allocated to the indexed account is
accounted for as an embedded derivative. The Company hedges the interest
credited rate including equity and interest rate risk related to the indexed
account with derivative instruments. The contractholder could choose to add a
GMWB for life rider for an additional fee.
See Note 17 for additional information regarding the Company's derivative
instruments used to hedge the risk related to indexed annuities.
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Variable Annuities
Purchasers of variable annuities can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for variable annuity contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders. Most of the variable annuity contracts issued by the Company contain one or more guaranteed benefits, including GMWB, GMAB, GMDB or GGU provisions. The Company previously offered contracts with GMIB provisions. See Note 2 and Note 12 for additional information regarding the Company's variable annuity guarantees. The Company does not currently hedge its risk under the GGU and GMIB provisions. See Note 15 and Note 17 for additional information regarding the Company's derivative instruments used to hedge risks related to GMWB, GMAB and GMDB provisions.
Structured Variable Annuities
In 2020, the Company began offering structured variable annuities which gives contractholders the option to allocate a portion of their account value to an indexed account with the contractholder's rate of return, which may be positive or negative, tied to selected indices.
Insurance Liabilities
UL/VUL is the largest group of insurance policies written by the Company. Purchasers of UL accumulate cash value that increases by a fixed interest rate. Purchasers of VUL can select from a variety of investment options and can elect to allocate a portion to a fixed account or a separate account. A vast majority of the premiums received for VUL policies are held in separate accounts where the assets are held for the exclusive benefit of those policyholders. IUL is a UL policy that includes an indexed account. The rate of credited interest above the minimum guarantee for funds allocated to the indexed account is linked to the performance of the specific index for the indexed account (subject to stated account parameters, which include a cap and floor, or a spread ). The Company offers an S&P 500® Index account option and a blended multi-index account option comprised of the S&P 500 Index, the MSCI® EAFE Index and the MSCI EM Index. Both options offer two crediting durations, one-year and two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. The portion of the policy allocated to the indexed account is accounted for as an embedded derivative at fair value. The Company hedges the interest credited rate including equity and interest rate risk related to the indexed account with derivative instruments. See Note 17 for additional information regarding the Company's derivative instruments used to hedge the risk related to IUL. The Company also offers term life insurance as well as DI products. The Company no longer offers standalone LTC products and whole life insurance but has in force policies from prior years. Insurance liabilities include accumulation values, incurred but not reported claims, obligations for anticipated future claims, unpaid reported claims and claim adjustment expenses. The liability for estimates of benefits that will become payable on future claims on term life, whole life and DI policies is based on the net level premium and LTC policies is based on a gross premium valuation reflecting management's current best estimate assumptions. Both include the anticipated interest rates earned on assets supporting the liability. Anticipated interest rates for term and whole life ranged from 2.25% to 10% as of December 31, 2021. Anticipated interest rates for DI policies ranged from 3% to 7.5% as of December 31, 2021 and for LTC policies ranged from 5% to 5.7% as of December 31, 2021. The liability for unpaid reported claims on DI and LTC policies includes an estimate of the present value of obligations for continuing benefit payments. The discount rates used to calculate present values are based on average interest rates earned on assets supporting the liability for unpaid amounts and were 4.5% and 5.95% for DI and LTC claims, respectively, as of December 31, 2021. Portions of the Company's UL and VUL policies have product features that result in profits followed by losses from the insurance component of the policy. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the policy. 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.
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Separate Account Liabilities
Separate account liabilities consisted of the following:
December 31,
2021 2020
(in millions)
Variable annuity $ 82,862 $ 79,299
VUL insurance 9,343 8,226
Other insurance 33 31
Threadneedle investment liabilities 5,253 5,055
Total
$ 97,491 $ 92,611
Threadneedle Investment Liabilities
Threadneedle provides a range of unitized pooled pension funds, which invest in property, stocks, bonds and cash. The investments are selected by the clients and are based on the level of risk they are willing to assume. All investment performance, net of fees, is passed through to the investors. The value of the liabilities represents the fair value of the pooled pension funds.
12. Variable Annuity and Insurance Guarantees
Most of the variable annuity contracts issued by the Company contain one or more guaranteed benefits, including GMWB, GMAB, GMDB or GGU provisions. The Company previously offered contracts containing GMIB provisions. See Note 2 and Note 11 for additional information regarding the Company's variable annuity guarantees. The GMDB and GGU provisions provide a specified minimum return upon death of the contractholder. The death benefit payable is the greater of (i) the contract value less any purchase payment credits subject to recapture less a pro-rata portion of any rider fees, or (ii) the GMDB provisions specified in the contract. The Company has the following primary GMDB provisions:
•Return of premium - provides purchase payments minus adjusted partial
surrenders.
•Reset - provides that the value resets to the account value every sixth contract anniversary minus adjusted partial surrenders. This provision was often provided in combination with the return of premium provision and is no longer offered. •Ratchet - provides that the value ratchets up to the maximum account value at specified anniversary intervals, plus subsequent purchase payments less adjusted partial surrenders. The variable annuity contracts with GMWB riders typically have account values that are based on an underlying portfolio of mutual funds, the values of which fluctuate based on fund performance. At contract issue the guaranteed amount is equal to the amount deposited but the guarantee may be increased annually to the account value (a "step-up") in the case of favorable market performance or by a benefit credit if the contract includes this provision.
The Company has GMWB riders in force, which contain one or more of the following
provisions:
•Withdrawals at a specified rate per year until the amount withdrawn is equal to
the guaranteed amount.
•Withdrawals at a specified rate per year for the life of the contractholder
("GMWB for life").
•Withdrawals at a specified rate per year for joint contractholders while either
is alive.
•Withdrawals based on performance of the contract.
•Withdrawals based on the age withdrawals begin.
•Credits are applied annually for a specified number of years to increase the
guaranteed amount as long as withdrawals have not been taken.
Variable annuity contractholders age 79 or younger at contract issue can also obtain a principal-back guarantee by purchasing the optional GMAB rider for an additional charge. The GMAB rider guarantees that, regardless of market performance at the end of the 10-year waiting period, the contract value will be no less than the original investment or a specified percentage of the highest anniversary value, adjusted for withdrawals. If the contract value is less than the guarantee at the end of the 10-year period, a lump sum will be added to the contract value to make the contract value equal to the guarantee value.
Certain UL policies 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.
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The following table provides information related to variable annuity guarantees
for which the Company has established additional liabilities:
December 31, 2021 December 31, 2020
Variable Annuity Guarantees by
Contract Value in Separate Net Amount at Weighted Average Total Contract
Contract Value in Separate Net Amount at
Weighted Average
Benefit Type (1) Total Contract Value Accounts Risk Attained Age Value Accounts Risk Attained Age
(in millions, except age)
GMDB:
Return of premium $ 70,020 $ 68,145 $ 6 69 $ 66,874 $ 64,932 $ 5 68
Five/six-year reset 8,309 5,612 6 68 8,116 5,386 6 68
One-year ratchet 6,177 5,858 13 71 6,094 5,763 8 71
Five-year ratchet 1,438 1,386 1 68 1,436 1,381 - 67
Other 1,302 1,286 38 74 1,261 1,243 45 73
Total - GMDB $ 87,246 $ 82,287 $ 64 69 $ 83,781 $ 78,705 $ 64 68
GGU death benefit $ 1,260 $ 1,198 $ 184 72 $ 1,183 $ 1,126 $ 162 71
GMIB $ 184 $ 170 $ 4 71 $ 187 $ 173 $ 6 71
GMWB:
GMWB $ 1,900 $ 1,895 $ 1 75 $ 1,972 $ 1,967 $ 1 74
GMWB for life 52,387 52,334 187 69 50,142 50,057 185 69
Total - GMWB $ 54,287 $ 54,229 $ 188 69 $ 52,114 $ 52,024 $ 186 69
GMAB $ 2,005 $ 2,005 $ - 62 $ 2,291 $ 2,291 $ - 61
(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.
The net amount at risk for GMDB, GGU and GMAB is defined as the current
guaranteed benefit amount in excess of the current contract value. The net
amount at risk for GMIB is defined as the greater of the present value of the
minimum guaranteed annuity payments less the current contract value or zero. The
net amount at risk for GMWB is defined as the greater of the present value of
the minimum guaranteed withdrawal payments less the current contract value or
zero.
The following table provides information related to insurance guarantees for
which the Company has established additional liabilities:
December 31, 2021 December 31, 2020
Net Amount Weighted Average Net Amount Weighted Average
at Risk Attained Age at Risk Attained Age
(in millions, except age)
UL secondary guarantees $ 6,564 68 $ 6,587 67
The net amount at risk for UL secondary guarantees is defined as the current
guaranteed death benefit amount in excess of the current policyholder account
balance.
Changes in additional liabilities (contra liabilities) for variable annuity and
insurance guarantees were as follows:
GMDB & GGU GMIB GMWB (1) GMAB (1) UL
(in millions)
Balance at January 1, 2019 $ 19 $ 8 $ 875 $ (19) $ 659
Incurred claims 2 (1) 587 (20) 141
Paid claims (5) - - - (42)
Balance at December 31, 2019 16 7 1,462 (39) 758
Incurred claims 15 - 1,587 40 209
Paid claims (7) (1) - - (51)
Balance at December 31, 2020 24 6 3,049 1 916
Incurred claims 17 - (713) (24) 140
Paid claims (5) (1) - - (36)
Balance at December 31, 2021 $ 36 $ 5 $ 2,336 $ (23) $ 1,020
(1) The incurred claims for GMWB and GMAB include the change in the fair value
of the liabilities (contra liabilities) less paid claims.
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The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by
asset type for variable annuity contracts providing guaranteed benefits:
December 31,
2021 2020
(in millions)
Mutual funds:
Equity $ 49,183 $ 45,947
Bond 24,998 26,073
Other 8,316 6,911
Total mutual funds $ 82,497 $ 78,931
No gains or losses were recognized on assets transferred to separate accounts
for the years ended December 31, 2021, 2020 and 2019.
13. Customer Deposits
Customer deposits consisted of the following:
December 31,
2021 2020
(in millions)
Fixed rate certificates $ 4,995 $ 6,341
Stock market certificates 287 389
Stock market embedded derivatives 4
8
Other 15
22
Less: accrued interest classified in other liabilities (5) (10)
Total investment certificate reserves
5,296
6,750
Banking and brokerage deposits 14,931 10,891 Total $ 20,227 $ 17,641 Investment Certificates The Company offers fixed rate investment certificates primarily in amounts ranging from $1 thousand to $2 million with interest crediting rate terms ranging from 3 to 36 months. Investment certificates may be purchased either with a lump sum payment or installment payments. Certificate owners are entitled to receive a fixed sum at either maturity or upon demand depending on the type of certificate. Payments from certificate owners are credited to investment certificate reserves, which generally accumulate interest at specified percentage rates. Certain investment certificates allow for a surrender charge on premature surrenders. Reserves for certificates that do not allow for a surrender charge were $2.7 billion and $3.2 billion as of December 31, 2021 and 2020, respectively. The Company generally invests the proceeds from investment certificates in fixed and variable rate securities. Certain investment certificate products have returns tied to the performance of equity markets. The Company guarantees the principal for purchasers who hold the certificate for the full term and purchasers may participate in increases in the stock market based on the S&P 500® Index, up to a maximum return. Purchasers can choose 100% participation in the market index up to the cap or 25% participation plus fixed interest with a combined total up to the cap. Current first term certificates have maximum returns of nil to 2.35%, depending on the term length. The equity component of these certificates is considered an embedded derivative and is accounted for separately. See Note 17 for additional information about derivative instruments used to economically hedge the equity price risk related to the Company's stock market certificates.
Banking and Brokerage Deposits
Banking and brokerage deposits are amounts due on demand to customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. The Company pays interest on certain customer credit balances and the interest is included in Banking and deposit interest expense.
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14. Debt
The balances and the stated interest rates of outstanding debt of
Financial
Outstanding Balance Stated Interest Rate
December 31, December 31,
2021 2020 2021 2020
(in millions)
Long-term debt:
Senior notes due 2022 $ 500 $ 500 3.0 % 3.0 %
Senior notes due 2023 750 750 4.0 4.0
Senior notes due 2024 550 550 3.7 3.7
Senior notes due 2025 500 500 3.0 3.0
Senior notes due 2026 500 500 2.9 2.9
Finance lease liabilities 40 44 N/A N/A
Other (1) (8) (13) N/A N/A
Total long-term debt 2,832 2,831
Short-term borrowings:
Federal Home Loan Bank ("FHLB") advances 200 200 0.3 % 0.4 %
Total $ 3,032 $ 3,031
(1) Includes adjustments for net unamortized discounts, debt issuance costs and
other lease obligations.
N/A Not Applicable
Long-Term Debt
The Company's senior notes may be redeemed, in whole or in part, at any time prior to maturity at a price equal to the greater of the principal amount and the present value of remaining scheduled payments, discounted to the redemption date, plus accrued interest.
Short-Term Borrowings
The Company's life insurance and bank subsidiaries are members of the FHLB ofDes Moines which provides access to collateralized borrowings. The Company has pledged Available-for-Sale securities consisting of commercial mortgage backed securities and residential mortgage backed securities as collateral to access these borrowings. The fair value of the securities pledged is recorded in Investments and was $1.2 billion and $1.3 billion, of commercial mortgage backed securities, and $581 million and $604 million, of residential mortgage backed securities, as of December 31, 2021 and 2020, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of both December 31, 2021 and 2020. The stated interest rate of the FHLB advances is a weighted average annualized interest rate on the outstanding borrowings as of the balance sheet date. On June 11, 2021, the Company entered into an amended and restated credit agreement that provides for an unsecured revolving credit facility of up to $1.0 billion that expires in June 2026. Under the terms of the credit agreement for the facility, the Company may increase the amount of this facility up to $1.25 billion upon satisfaction of certain approval requirements. As of both December 31, 2021 and 2020, the Company had no borrowings outstanding and $1 million of letters of credit issued against the facility. The Company's credit facility contains various administrative, reporting, legal and financial covenants. The Company was in compliance with all such covenants as of both December 31, 2021 and 2020.
15. Fair Values of Assets and Liabilities
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale. Valuation Hierarchy The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company's valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 Unadjusted quoted prices for identical assets or liabilities in active
markets that are accessible at the measurement date.
Level 2 Prices or valuations based on observable inputs other than quoted
prices in active markets for identical assets and liabilities.
Level 3 Prices or valuations that require inputs that are both significant to
the fair value measurement and unobservable.
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The following tables present the balances of assets and liabilities of
Ameriprise Financial measured at fair value on a recurring basis:
December 31, 2021
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Cash equivalents $ 2,341 $ 3,478 $ - $ 5,819
Available-for-Sale securities:
Corporate debt securities - 9,430 502 9,932
Residential mortgage backed securities - 10,944 - 10,944
Commercial mortgage backed securities - 4,951 35 4,986
Asset backed securities - 3,647 7 3,654
State and municipal obligations - 1,092 - 1,092
U.S. government and agency obligations 1,301 - - 1,301
Foreign government bonds and obligations - 92 - 92
Other securities - 49 - 49
Total Available-for-Sale securities 1,301 30,205 544 32,050
Investments at net asset value ("NAV") 11 (1)
Trading and other securities 217 25 - 242
Separate account assets at NAV 97,491 (1)
Investments and cash equivalents segregated for regulatory
purposes
600 - - 600
Receivables:
Fixed deferred indexed annuity ceded embedded derivatives - - 59 59 Other assets: Interest rate derivative contracts 1 1,251 - 1,252 Equity derivative contracts 158 4,135 - 4,293 Credit derivative contracts - 9 - 9 Foreign exchange derivative contracts 1 19 - 20 Total other assets 160 5,414 - 5,574 Total assets at fair value $ 4,619 $ 39,122 $ 603 $ 141,846 Liabilities
Policyholder account balances, future policy benefits and
claims:
Fixed deferred indexed annuity embedded derivatives
$ - $ 5 $ 56 $ 61 IUL embedded derivatives - - 905 905 GMWB and GMAB embedded derivatives - - 1,486 1,486 (2) Structured variable annuity embedded derivatives - - 406 406 Total policyholder account balances, future policy benefits (3) and claims - 5 2,853 2,858 Customer deposits - 4 - 4 Other liabilities: Interest rate derivative contracts 1 467 - 468 Equity derivative contracts 101 3,653 - 3,754 Foreign exchange derivative contracts 1 - - 1 Other 212 4 61 277 Total other liabilities 315 4,124 61 4,500 Total liabilities at fair value $ 315
$ 4,133 $ 2,914 $ 7,362
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December 31, 2020
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Cash equivalents $ 2,935 $ 2,506 $ - $ 5,441
Available-for-Sale securities:
Corporate debt securities - 12,902 772 13,674
Residential mortgage backed securities - 10,020 9 10,029
Commercial mortgage backed securities - 6,088 - 6,088
Asset backed securities - 3,297 32 3,329
State and municipal obligations - 1,384 - 1,384
U.S. government and agency obligations 1,456 - - 1,456
Foreign government bonds and obligations - 262 - 262
Other securities - 61 - 61
Total Available-for-Sale securities 1,456 34,014 813 36,283
Investments at NAV 8 (1)
Trading and other securities 61 27 - 88
Separate account assets at NAV 92,611 (1)
Investments and cash equivalents segregated for regulatory
purposes
600 - - 600 Other assets: Interest rate derivative contracts 1 1,754 - 1,755 Equity derivative contracts 408 3,682 - 4,090 Credit derivative contracts - 2 - 2 Foreign exchange derivative contracts 1 22 - 23 Total other assets 410 5,460 - 5,870 Total assets at fair value $ 5,462 $ 42,007 $ 813 $ 140,901 Liabilities
Policyholder account balances, future policy benefits and
claims:
Fixed deferred indexed annuity embedded derivatives
$ - $ 3 $ 49 $ 52 IUL embedded derivatives - - 935 935 GMWB and GMAB embedded derivatives - - 2,316 2,316 (4) Structured variable annuity embedded derivatives - - 70 70 Total policyholder account balances, future policy benefits (5) and claims - 3 3,370 3,373 Customer deposits - 8 - 8 Other liabilities: Interest rate derivative contracts - 734 - 734 Equity derivative contracts 183 3,388 - 3,571 Credit derivative contracts - 1 - 1 Foreign exchange derivative contracts 2 4 - 6 Other 2 3 43 48 Total other liabilities 187 4,130 43 4,360 Total liabilities at fair value $ 187
$ 4,141 $ 3,413 $ 7,741
(1) Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.
(2) The fair value of the GMWB and GMAB embedded derivatives included $1.6
billion of individual contracts in a liability position and $133 million of
individual contracts in an asset position (recorded as a contra liability) as of
December 31, 2021.
(3) The Company's adjustment for nonperformance risk resulted in a $598 million
cumulative decrease to the embedded derivatives as of December 31, 2021.
(4) The fair value of the GMWB and GMAB embedded derivatives included $2.4
billion of individual contracts in a liability position and $67 million of
individual contracts in an asset position (recorded as a contra liability) as of
December 31, 2020.
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(5) The Company's adjustment for nonperformance risk resulted in a $727 million
cumulative decrease to the embedded derivatives as of December 31, 2020.
The following tables provide a summary of changes in Level 3 assets and
liabilities of Ameriprise Financial measured at fair value on a recurring basis:
Available-for-Sale Securities Receivables
Fixed Deferred
Commercial Indexed
Residential Mortgage Annuity Ceded
Mortgage Backed Backed Asset Backed Embedded
Corporate Debt Securities Securities Securities Securities Total Derivatives
(in millions)
Balance at January 1, 2021 $ 772 $ 9 $ - $ 32 $ 813 $ -
Total gains (losses) included in:
Net income (1) - - - (1) (1) 3
Other comprehensive income (loss) (10) - - - (10) -
Purchases 108 78 35 - 221 -
Sales - - - (1) (1) -
Issues - - - - - 57 (5)
Settlements (119) - - (2) (121) (1)
Transfers into Level 3 168 - - 2 170 -
Transfers out of Level 3 (416) (87) - (24) (527) -
Balance at December 31, 2021 $ 502 $ - $ 35 $ 7 $ 544 $ 59
Changes in unrealized gains (losses)
in net income relating to assets held (1)
at December 31, 2021 $ (1) $ - $ - $ (1) $ (2) $ -
Changes in unrealized gains (losses)
in other comprehensive income (loss)
relating to assets held at December
31, 2021 $ (8) $ - $ - $ 1 $ (7) $ -
Policyholder
Account Balances, Future Policy Benefits and Claims
Structured
Fixed Deferred Variable
Indexed Annuity GMWB and GMAB Annuity
Embedded IUL Embedded Embedded Embedded
Derivatives Derivatives Derivatives Derivatives Total Other Liabilities
(in millions)
Balance at January 1, 2021 $ 49 $ 935 $ 2,316 $ 70 $ 3,370 $ 43
Total (gains) losses included in:
Net income 10 (2) 68 (2) (1,344) (3) 393 (3) (873) (13) (4)
Issues - - 369 (28) 341 45
Settlements (3) (98) 145 (29) 15 (14)
Balance at December 31, 2021 $ 56 $ 905 $ 1,486 $ 406 $ 2,853 $ 61
Changes in unrealized (gains)
losses in net income relating to (2) (3)
liabilities held at December 31,
2021 $ - $ 68 $ (1,299) $ - $ (1,231) $ -
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Available-for-Sale Securities
Residential
Mortgage Backed Asset Backed
Corporate Debt Securities Securities Securities
Total
(in millions)
Balance at January 1, 2020 $ 750 $ 17 $ 19 $ 786
Total gains (losses) included in:
Net income (1) - - (1)
(1)
Other comprehensive income (loss) 15 1 (1) 15 Purchases 62 220 - 282 Settlements (54) - - (54) Transfers into Level 3 - - 14 14 Transfers out of Level 3 - (229) - (229) Balance at December 31, 2020 $ 772 $ 9 $ 32 $ 813 Changes in unrealized gains (losses) in net income
(1)
relating to assets held at December 31, 2020 $ (1) $ - $ (1) $ (2)
Changes in unrealized gains (losses) in other
comprehensive income (loss) relating to assets
held at December 31, 2020 $ 16 $ 1 $ (1) $ 16
Policyholder
Account Balances, Future Policy Benefits and Claims
Structured
Fixed Deferred Variable
Indexed Annuity GMWB and GMAB Annuity
Embedded IUL Embedded Embedded Embedded
Derivatives Derivatives Derivatives Derivatives Total Other Liabilities
(in millions)
Balance at January 1, 2020 $ 43 $ 881 $ 763 $ - $ 1,687 $ 44
Total (gains) losses included in:
Net income 4 (2) 76 (2) 1,152 (3) 91 (3) 1,323 (12) (4)
Issues 3 61 362 (21) 405 20
Settlements (1) (83) 39 - (45) (9)
Balance at December 31, 2020 $ 49 $ 935 $ 2,316 $ 70 $ 3,370 $ 43
Changes in unrealized (gains)
losses in net income relating to (2) (3)
liabilities held at December 31,
2020 $ - $ 76 $ 1,206 $ - $ 1,282 $ -
Available-for-Sale Securities
Commercial
Mortgage
Corporate Debt Residential Mortgage Backed Asset Backed
Securities Backed Securities Securities Securities Total
(in millions)
Balance at January 1, 2019 $ 913 $ 136 $ 20 $ 6 $ 1,075
Total gains (losses) included in:
Net income (1) - - - (1) (1)
Other comprehensive income (loss) 31 - - (1) 30
Purchases 55 477 - 18 550
Settlements (248) (12) - - (260)
Transfers into Level 3 - - - 14 14
Transfers out of Level 3 - (584) (20) (18) (622)
Balance at December 31, 2019 $ 750 $ 17 $ - $ 19 $ 786
Changes in unrealized gains (losses) in
net income relating to assets held at (1)
December 31, 2019 $ (1) $ - $ - $ - $ (1)
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Policyholder Account
Balances, Future Policy Benefits and Claims
Fixed Deferred
Indexed Annuity GMWB and GMAB
Embedded IUL Embedded Embedded
Derivatives Derivatives Derivatives Total Other Liabilities
(in millions)
Balance at January 1, 2019 $ 14 $ 628 $ 328 $ 970 $ 30
Total (gains) losses included in:
Net income 8 (2) 209 (2) 80 (3) 297 (3) (4)
Issues 21 113 361 495 18
Settlements - (69) (6) (75) (1)
Balance at December 31, 2019 $ 43 $ 881 $ 763 $ 1,687 $ 44
Changes in unrealized (gains)
losses in net income relating to (2) (3)
liabilities held at December 31,
2019 $ - $ 209 $ 82 $ 291 $ -
(1) Included in Net investment income.
(2) Included in Interest credited to fixed accounts.
(3) Included in Benefits, claims, losses and settlement expenses.
(4) Included in General and administrative expense.
(5) Represents the amount of ceded embedded derivatives associated with fixed deferred annuity products reinsured in the third quarter of 2021. See Note 1 for additional information on the reinsurance transaction. The increase (decrease) to pretax income of the Company's adjustment for nonperformance risk on the fair value of its embedded derivatives was $(92) million, $196 million and $(190) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the years ended December 31, 2021, 2020 and 2019, respectively. Securities transferred from Level 3 primarily represent securities with fair values that are obtained from a third-party pricing service with observable inputs or fair values that were included in an observable transaction with a market participant. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote.
The following tables provide a summary of the significant unobservable inputs
used in the fair value measurements developed by the Company or reasonably
available to the Company of Level 3 assets and liabilities:
December 31, 2021
Weighted
Fair Value Valuation Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private $ 502 Discounted cash flow Yield/spread to U.S. Treasuries (1) 0.8% - 2.4% 1.1%
placements)
Asset backed securities $ 2 Discounted cash flow Annual short-term default rate (2) 0.8% 0.8%
Annual long-term default rate (2) 3.5% 3.5%
Discount rate 12.0% 12.0%
Constant prepayment rate 10.0% 10.0%
Loss recovery 63.6% 63.6%
Fixed deferred indexed annuity $ 59 Discounted cash flow Surrender rate (4) 0.0% - 66.8% 1.4%
ceded embedded derivatives
IUL embedded derivatives $ 905 Discounted cash flow Nonperformance risk (3) 65 bps 65 bps
Fixed deferred indexed annuity $ 56 Discounted cash flow Surrender rate (4) 0.0% - 66.8% 1.4%
embedded derivatives
Nonperformance risk (3) 65 bps 65 bps
GMWB and GMAB embedded derivatives $ 1,486 Discounted cash flow Utilization of guaranteed withdrawals 0.0% - 48.0% 10.6%
(5) (6)
Surrender rate (4) 0.1% - 55.7% 3.6%
Market volatility (7) (8) 4.3% - 16.8% 10.8%
Nonperformance risk (3) 65 bps 65 bps
Structured variable annuity $ 406 Discounted cash flow Surrender rate (4) 0.8% - 40.0% 0.9%
embedded derivatives
Nonperformance risk (3) 65 bps 65 bps
Contingent consideration $ 61 Discounted cash flow Discount rate (9) 0.0% - 0.0% 0.0%
liabilities
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December 31, 2020
Weighted
Fair Value Valuation Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private $ 772 Discounted cash flow Yield/spread to U.S. Treasuries (1) 1.0% - 3.3% 1.5%
placements)
Asset backed securities $ 3 Discounted cash flow Annual short-term default rate (2) 2.9% - 3.0% 2.9%
Annual long-term default rate (2) 3.5% - 4.5% 3.8%
Discount rate 13.0% 13.0%
Constant prepayment rate 10.0% 10.0%
Loss recovery 63.6% 63.6%
IUL embedded derivatives $ 935 Discounted cash flow Nonperformance risk (3) 65 bps 65 bps
Fixed deferred indexed annuity $ 49 Discounted cash flow Surrender rate (4) 0.0% - 50.0% 1.2%
embedded derivatives
Nonperformance risk (3) 65 bps 65 bps
GMWB and GMAB embedded derivatives $ 2,316 Discounted cash flow Utilization of guaranteed withdrawals 0.0% - 48.0% 10.6%
(5) (6)
Surrender rate (4) 0.1% - 73.5% 3.8%
Market volatility (7) (8) 4.3% - 17.1% 11.0%
Nonperformance risk (3) 65 bps 65 bps
Structured variable annuity $ 70 Discounted cash flow Surrender rate (4) 0.8% - 40.0% 0.9%
embedded derivatives
Nonperformance risk (3) 65 bps 65 bps
Contingent consideration $ 43 Discounted cash flow Discount rate (9) 0.0% - 9.0% 3.1%
liabilities
(1) The weighted average for the spread to U.S. Treasuries for corporate debt
securities (private placements) is weighted based on the security's market value
as a percentage of the aggregate market value of the securities.
(2) The weighted average annual default rates of asset backed securities is
weighted based on the security's market value as a percentage of the aggregate
market value of the securities.
(3) The nonperformance risk is the spread added to the observable interest rates
used in the valuation of the embedded derivatives.
(4) The weighted average surrender rate is weighted based on the benefit base of
each contract and represents the average assumption in the current year
including the effect of a dynamic surrender formula.
(5) The utilization of guaranteed withdrawals represents the percentage of
contractholders that will begin withdrawing in any given year.
(6) The weighted average utilization rate represents the average assumption for
the current year, weighting each policy evenly. The calculation excludes
policies that have already started taking withdrawals.
(7) Market volatility represents the implied volatility of fund of funds and
managed volatility funds.
(8) The weighted average market volatility represents the average volatility
across all contracts, weighted by the size of the guaranteed benefit.
(9) The weighted average discount rate represents the average discount rate
across all contingent consideration liabilities, weighted based on the size of
the contingent consideration liability.
Level 3 measurements not included in the table above are obtained from
non-binding broker quotes where unobservable inputs utilized in the fair value
calculation are not reasonably available to the Company.
Uncertainty of Fair Value Measurements
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would have resulted in a significantly lower (higher) fair value measurement and significant increases (decreases) in loss recovery in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the constant prepayment rate in isolation
would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the surrender rate used in the fair value measurement of the fixed deferred indexed annuity ceded embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurements of the fixed deferred indexed annuity embedded derivatives and structured variable annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value.
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Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value. Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would have resulted in a significantly lower (higher) fair value measurement.
Determination of Fair Value
The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company's market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company's income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy. Assets Cash Equivalents Cash equivalents include time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. U.S. Treasuries are also classified as Level 1. The Company's remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Investments (Available-for-Sale Securities, Equity Securities and Trading
Securities)
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third-party pricing services, non-binding broker quotes, or other model-based valuation techniques.
Level 1 securities primarily include equity securities and U.S. Treasuries.
Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, state and municipal obligations and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. The fair value of securities included in an observable transaction with a market participant are also considered Level 2 when the market is not active. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities with fair value typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company's privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3. In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third-party pricing services. The Company's due diligence procedures include assessing the vendor's valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
Separate Account Assets
The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.
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Investments and Cash Equivalents Segregated for Regulatory Purposes
Investments and cash equivalents segregated for regulatory purposes includes
U.S. Treasuries that are classified as Level 1.
Receivables
During the third quarter of 2021, the Company reinsured its fixed deferred indexed annuity products which have an indexed account that is accounted for as an embedded derivative. The Company uses discounted cash flow models to determine the fair value of these ceded embedded derivatives. The fair value of fixed deferred indexed annuity ceded embedded derivatives includes significant observable interest rates, volatilities and equity index levels and significant unobservable surrender rates. Given the significance of the unobservable surrender rates, these embedded derivatives are classified as Level 3. See Note 1 for more information on the reinsurance transaction.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as
derivatives that are exchange-traded, are classified as Level 1 measurements.
The variation margin on futures contracts is also classified as Level 1.
The fair value of derivatives that are traded in less active over-the-counter
("OTC") markets is generally measured using pricing models with market
observable inputs such as interest rates and equity index levels. These
measurements are classified as Level 2 within the fair value hierarchy and
include swaps, foreign currency forwards and the majority of options. The
counterparties' nonperformance risk associated with uncollateralized derivative
assets was immaterial as of December 31, 2021 and 2020. See Note 16 and Note 17
for further information on the credit risk of derivative instruments and related
collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
There is no active market for the transfer of the Company's embedded derivatives
attributable to the provisions of certain variable annuity riders, fixed
deferred indexed annuity, structured variable annuity and IUL products.
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value as the present value of future expected benefit payments less the present value of future expected rider fees attributable to the embedded derivative feature. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to implied volatility as well as contractholder behavior assumptions that include margins for risk, all of which the Company believes a market participant would expect. The fair value also reflects a current estimate of the Company's nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in Policyholder account balances, future policy benefits and claims. The Company uses a discounted cash flow model to determine the fair value of the embedded derivatives associated with the provisions of its equity index annuity product. The projected cash flows generated by this model are based on significant observable inputs related to interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The Company uses discounted cash flow models to determine the fair value of the embedded derivatives associated with the provisions of its fixed deferred indexed annuity, structured variable annuity and IUL products. The structured variable annuity product is a limited flexible purchase payment annuity that offers 45 different indexed account options providing equity market exposure and a fixed account. Each indexed account includes a protection option (a buffer or a floor). If the index has a negative return, contractholder losses will be reduced by a buffer or limited to a floor. The portion allocated to an indexed account is accounted for as an embedded derivative. The fair value of fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and significant unobservable surrender rates and the estimate of the Company's nonperformance risk. Given the significance of the unobservable surrender rates and the nonperformance risk assumption, the fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives are classified as Level 3.
The embedded derivatives attributable to these provisions are recorded in
Policyholder account balances, future policy benefits and claims.
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 ("SMC"). 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 derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps, foreign currency forwards and the majority of options. The Company's nonperformance risk associated with uncollateralized derivative liabilities was
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immaterial as of December 31, 2021 and 2020. See Note 16 and Note 17 for further
information on the credit risk of derivative instruments and related collateral.
Securities sold but not yet purchased represent obligations of the Company to deliver specified securities that it does not yet own, creating a liability to purchase the security in the market at prevailing prices. 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, or other model-based valuation techniques such as the present value of cash flows. Level 1 securities sold but not yet purchased primarily include equity securities and U.S. Treasuries traded in active markets. Level 2 securities sold but not yet purchased primarily include corporate bonds. Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company's acquisitions. Contingent consideration liabilities are recorded at fair value utilizing a discounted cash flow model using an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy.
Fair Value on a Nonrecurring Basis
The Company assesses its investment in affordable housing partnerships for impairment. The investments that are determined to be impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $93 million and $101 million as of December 31, 2021 and 2020, respectively, and is classified as Level 3 in the fair value hierarchy. The Company also measured certain equity-method investments at fair value on a nonrecurring basis using a discounted cash flow model. Inputs to the model include projected cash flows and a market-based discount rate. At December 31, 2021, the fair value of these investments was $7 million and is classified as Level 3 in the fair value hierarchy.
Assets and Liabilities Not Reported at Fair Value
The following tables provide the carrying value and the estimated fair value of
financial instruments that are not reported at fair value:
December 31, 2021
Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
(in millions)
Financial Assets
Mortgage loans, net $ 1,953 $ - $ 49 $ 1,990 $ 2,039
Policy loans 835 - 835 - 835
Receivables 10,509 135 1,669 9,404 11,208
Restricted and segregated cash 2,195 2,195 - - 2,195
Other investments and assets 368 - 319 49 368
Financial Liabilities
Policyholder account balances, future policy
benefits and claims $ 12,342 $
- $ - $ 13,264 $ 13,264
Investment certificate reserves
5,297 - - 5,290 5,290
Banking and brokerage deposits 14,931 14,931 - - 14,931
Separate account liabilities - investment contracts 5,657 - 5,657 - 5,657
Debt and other liabilities 3,214 206 3,129 9 3,344
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December 31, 2020
Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
(in millions)
Financial Assets
Mortgage loans, net $ 2,718 $ - $ 22 $ 2,852 $ 2,874
Policy loans 846 - 846 - 846
Receivables 3,563 147 1,258 2,398 3,803
Restricted and segregated cash 1,958 1,958 - - 1,958
Other investments and assets 732 - 672 62 734
Financial Liabilities
Policyholder account balances, future policy
benefits and claims $ 9,990 $
- $ - $ 11,686 $ 11,686
Investment certificate reserves
6,752 - - 6,752 6,752 Banking and brokerage deposits 10,891 10,891 - - 10,891 Separate account liabilities - investment contracts 5,406 - 5,406 - 5,406 Debt and other liabilities 3,214 205 3,253 11 3,469 Receivables include deposit receivables, brokerage margin loans, securities borrowed, pledged asset lines of credit, and loans to financial advisors. Restricted and segregated cash includes cash segregated under federal and other regulations held in special reserve bank accounts for the exclusive benefit of the Company's brokerage customers. Other investments and assets primarily include syndicated loans, credit card receivables, certificate of deposits with original or remaining maturities at the time of purchase of more than 90 days, the Company's membership in the FHLB and investments related to the Community Reinvestment Act. See Note 7 for additional information on mortgage loans, policy loans, syndicated loans, credit card receivables and deposit receivables. Policyholder account balances, future policy benefits and claims include fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed and structured variable annuity host contracts, and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 11 for additional information on these liabilities. Investment certificate reserves represent customer deposits for fixed rate certificates and stock market certificates. Banking and brokerage deposits are amounts payable to customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. Separate account liabilities are primarily investment contracts in pooled pension funds offered by Threadneedle. Debt and other liabilities include the Company's long-term debt, short-term borrowings, securities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships. See Note 14 for further information on the Company's long-term debt and short-term borrowings.
16. Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company's derivative instruments and securities borrowing and lending agreements are subject to master netting and collateral arrangements and qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Securities borrowed and loaned result from transactions between the Company's broker dealer subsidiary and other financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed and securities loaned are primarily equity securities. The Company's securities borrowed and securities loaned transactions generally do not have a fixed maturity date and may be terminated by either party under customary terms.
The Company's policy is to recognize amounts subject to master netting
arrangements on a gross basis in the Consolidated Balance Sheets.
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The following tables present the gross and net information about the Company's
assets subject to master netting arrangements:
December 31, 2021
Amounts of
Gross Amounts Assets Presented Gross Amounts Not Offset in the
Offset in the in the Consolidated Balance Sheets
Gross Amounts of Consolidated Consolidated Financial Securities
Recognized Assets Balance Sheets Balance Sheets Instruments (1) Cash Collateral Collateral Net Amount
(in millions)
Derivatives:
OTC $ 5,387 $ - $ 5,387 $ (3,613) $ (1,637) $ (114) $ 23
OTC cleared 88 - 88 (41) - - 47
Exchange-traded 99 - 99 (91) - - 8
Total derivatives 5,574 - 5,574 (3,745) (1,637) (114) 78
Securities borrowed 135 - 135 (41) - (91) 3
Total $ 5,709 $ - $ 5,709 $ (3,786) $ (1,637) $ (205) $ 81
December 31, 2020
Amounts of
Gross Amounts Assets Presented Gross Amounts Not Offset in the
Offset in the in the Consolidated Balance Sheets
Gross Amounts of Consolidated Consolidated Financial Securities
Recognized Assets Balance Sheets Balance Sheets Instruments (1) Cash Collateral Collateral Net Amount
(in millions)
Derivatives:
OTC $ 5,501 $ - $ 5,501 $ (3,862) $ (1,287) $ (315) $ 37
OTC cleared 58 - 58 (25) - - 33
Exchange-traded 311 - 311 (91) (165) - 55
Total derivatives 5,870 - 5,870 (3,978) (1,452) (315) 125
Securities borrowed 147 - 147 (43) - (103) 1
Total $ 6,017 $ - $ 6,017 $ (4,021) $ (1,452) $ (418) $ 126
(1) Represents the amount of assets that could be offset by liabilities with the
same counterparty under master netting or similar arrangements that management
elects not to offset on the Consolidated Balance Sheets.
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The following tables present the gross and net information about the Company's
liabilities subject to master netting arrangements:
December 31, 2021
Amounts of
Gross Amounts Liabilities Gross Amounts Not
Offset in the
Gross Amounts of Offset in the Presented in the Consolidated Balance Sheets
Recognized Consolidated Consolidated Financial Securities
Liabilities Balance Sheets Balance Sheets Instruments (1) Cash Collateral Collateral Net Amount
(in millions)
Derivatives:
OTC $ 4,091 $ - $ 4,091 $ (3,613) $ (183) $ (292) $ 3
OTC cleared 41 - 41 (41) - - -
Exchange-traded 91 - 91 (91) - - -
Total derivatives 4,223 - 4,223 (3,745) (183) (292) 3
Securities loaned 207 - 207 (41) - (160) 6
Total $ 4,430 $ - $ 4,430 $ (3,786) $ (183) $ (452) $ 9
December 31, 2020
Amounts of
Gross Amounts Liabilities Gross Amounts Not Offset in the
Gross Amounts of Offset in the Presented in the Consolidated Balance Sheets
Recognized Consolidated Consolidated Financial Securities
Liabilities Balance Sheets Balance Sheets Instruments (1) Cash Collateral Collateral Net Amount
(in millions)
Derivatives:
OTC $ 4,192 $ - $ 4,192 $ (3,862) $ (1) $ (327) $ 2
OTC cleared 25 - 25 (25) - - -
Exchange-traded 95 - 95 (91) - - 4
Total derivatives 4,312 - 4,312 (3,978) (1) (327) 6
Securities loaned 205 - 205 (43) - (157) 5
Total $ 4,517 $ - $ 4,517 $ (4,021) $ (1) $ (484) $ 11
(1) Represents the amount of liabilities that could be offset by assets with the
same counterparty under master netting or similar arrangements that management
elects not to offset on the Consolidated Balance Sheets.
In the tables above, the amount of assets or liabilities presented are offset
first by financial instruments that have the right of offset under master
netting or similar arrangements, then any remaining amount is reduced by the
amount of cash and securities collateral. The actual collateral may be greater
than amounts presented in the tables.
When the fair value of collateral accepted by the Company is less than the
amount due to the Company, there is a risk of loss if the counterparty fails to
perform or provide additional collateral. To mitigate this risk, the Company
monitors collateral values regularly and requires additional collateral when
necessary. When the value of collateral pledged by the Company declines, it may
be required to post additional collateral.
Freestanding derivative instruments are reflected in Other assets and Other
liabilities. Cash collateral pledged by the Company is reflected in Other assets
and cash collateral accepted by the Company is reflected in Other liabilities.
Securities borrowing and lending agreements are reflected in Receivables and
Other liabilities, respectively. See Note 17 for additional disclosures related
to the Company's derivative instruments and Note 5 for information related to
derivatives held by consolidated investment entities.
17. Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company's products and operations. Certain of the Company's freestanding derivative instruments are subject to master netting arrangements. The Company's policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 16 for additional information regarding the estimated fair value of the Company's freestanding derivatives after considering the effect of master netting arrangements and collateral.
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Generally, the Company uses derivatives as economic hedges and accounting
hedges. The following table presents the notional value and gross fair value of
derivative instruments, including embedded derivatives:
December 31, 2021 December 31, 2020
Gross Fair Value Gross Fair Value
Liabilities Liabilities
Notional Assets (1) (2)(3) Notional Assets (1) (2)(3)
(in millions)
Derivatives designated as hedging instruments
Equity contracts - cash flow hedges $ 19 $ - $ - $ - $ - $ - Foreign exchange contracts - net investment hedges 58 - - 32 - 2 Total qualifying hedges 77 - - 32 - 2 Derivatives not designated as hedging instruments Interest rate contracts 79,468 1,252 468 77,951 1,755 734 Equity contracts 61,142 4,293 3,754 57,254 4,090 3,571 Credit contracts 1,748 9 - 2,297 2 1 Foreign exchange contracts 2,380 20 1 3,423 23 4 Total non-designated hedges 144,738 5,574 4,223 140,925 5,870 4,310 Embedded derivatives GMWB and GMAB (4) N/A - 1,486 N/A - 2,316 IUL N/A - 905 N/A - 935 Fixed deferred indexed annuities and deposit receivables N/A 59 61 N/A - 52 Structured variable annuities N/A - 406 N/A - 70 SMC N/A - 4 N/A - 8 Total embedded derivatives N/A 59 2,862 N/A - 3,381 Total derivatives $ 144,815 $ 5,633 $ 7,085 $ 140,957 $ 5,870 $ 7,693 N/A Not applicable.
(1) The fair value of freestanding derivative assets is included in Other assets
and the fair value of ceded embedded derivative assets related to deposit
receivables is included in Receivables.
(2) The fair value of freestanding derivative liabilities is included in Other liabilities. The fair value of GMWB and GMAB, IUL, fixed deferred indexed annuity and structured variable annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims. The fair value of the SMC embedded derivative liability is included in Customer deposits. (3) The fair value of the Company's derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was $3.2 billion and $3.7 billion as of December 31, 2021 and 2020, respectively. See Note 16 for additional information related to master netting arrangements and cash collateral. (4) The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2021 included $1.6 billion of individual contracts in a liability position and $133 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2020 included $2.4 billion of individual contracts in a liability position and $67 million of individual contracts in an asset position.
See Note 15 for additional information regarding the Company's fair value
measurement of derivative instruments.
As of December 31, 2021 and 2020, investment securities with a fair value of $123 million and $325 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $123 million and $325 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both December 31, 2021 and 2020, the Company had sold, pledged or rehypothecated none of these securities. In addition, as of both December 31, 2021 and 2020, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company's Consolidated Balance Sheets.
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Derivatives Not Designated as Hedges
The following table presents a summary of the impact of derivatives not
designated as hedging instruments, including embedded derivatives, on the
Consolidated Statements of Operations:
Banking and Benefits, Claims,
Deposit Losses and
Net Investment Interest Distribution Interest Credited Settlement General and
Income Expense Expenses to Fixed Accounts Expenses Administrative Expense
(in millions)
Year Ended December 31, 2021
Interest rate contracts $ (23) $ - $ (1) $ - $ (886) $ -
Equity contracts (4) 1 116 91 (817) 17
Credit contracts - - 1 - 43 -
Foreign exchange contracts 1 - - - 5 8
GMWB and GMAB embedded derivatives - - - - 830 -
IUL embedded derivatives - - - 30 - -
Fixed deferred indexed annuity and
deposit receivables embedded
derivatives - - - (8) - -
Structured variable annuity embedded
derivatives - - - - (393) -
SMC embedded derivatives - (1) - - - -
Total gain (loss) $ (26) $ - $ 116 $ 113 $ (1,218) $ 25
Year Ended December 31, 2020
Interest rate contracts $ (1) $ - $ 2 $ - $ 1,633 $ -
Equity contracts (1) 1 100 55 (744) 15
Credit contracts - - 1 - (106) -
Foreign exchange contracts 1 - - - (8) 10
GMWB and GMAB embedded derivatives - - - - (1,553) -
IUL embedded derivatives - - - 7 - -
Fixed deferred indexed annuity
embedded derivatives - - - (4) - -
Structured variable annuity embedded
derivatives - - - - (91) -
SMC embedded derivatives - (1) - - - -
Total gain (loss) $ (1) $ - $ 103 $ 58 $ (869) $ 25
Year Ended December 31, 2019
Interest rate contracts $ (34) $ - $ - $ - $ 1,097 $ -
Equity contracts - 11 99 117 (1,547) 16
Credit contracts - - - - (73) -
Foreign exchange contracts - - - - (30) (1)
GMWB and GMAB embedded derivatives - - - - (435) -
IUL embedded derivatives - - - (140) - -
Fixed deferred indexed annuity
embedded derivatives - - - (8) - -
SMC embedded derivatives - (9) - - - -
Total gain (loss) $ (34) $ 2 $ 99 $ (31) $ (988) $ 15
The Company holds derivative instruments that either do not qualify or are not
designated for hedge accounting treatment. These derivative instruments are used
as economic hedges of equity, interest rate, credit and foreign currency
exchange rate risk related to various products and transactions of the Company.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the
right to make limited partial withdrawals each contract year regardless of the
volatility inherent in the underlying investments or guarantee a minimum
accumulation value of consideration received at the beginning of the contract
period, after a specified holding period, respectively. The indexed portion of
structured variable annuities and the GMAB and non-life contingent GMWB
provisions are considered embedded derivatives, which are bifurcated from their
host contracts for valuation purposes and reported on the Consolidated Balance
Sheets at fair value with
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changes in fair value reported in earnings. The Company economically hedges the
aggregate exposure related to the indexed portion of structured variable
annuities and the GMAB and non-life contingent GMWB provisions using options,
swaptions, swaps and futures.
The deferred premium associated with certain of the above options and swaptions
is paid or received semi-annually over the life of the contract or at maturity.
The following is a summary of the payments the Company is scheduled to make and
receive for these options and swaptions as of December 31, 2021:
Premiums Payable Premiums Receivable
(in millions)
2022 $ 204 $ 204
2023 51 43
2024 137 25
2025 124 22
2026 252 88
2027-2028 18 -
Total $ 786 $ 382
Actual timing and payment amounts may differ due to future settlements,
modifications or exercises of the contracts prior to the full premium being paid
or received.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives may contain settlement provisions linked to both equity returns and interest rates. The Company's macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates, if any, are shown in other contracts in the tables above. Structured variable annuity, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to structured variable annuity, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. The equity component of structured variable annuity, IUL and stock market certificate product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into interest rate swaps, index options and futures contracts. The Company enters into futures, credit default swaps, commodity swaps and foreign currency forwards to manage its exposure to price risk arising from seed money investments in proprietary investment products. The Company enters into foreign currency forward contracts to economically hedge its exposure to certain foreign transactions. The Company enters into futures contracts, total return swaps and foreign currency forwards to economically hedge its exposure related to compensation plans. The Company enters into interest rate swaps to offset interest rate changes on unrealized gains or losses for certain investments.
Cash Flow Hedges
The Company has designated derivative instruments as a cash flow hedge for equity exposure of certain compensation-related liabilities and interest rate exposure on forecasted debt interest payments. For derivative instruments that qualify as cash flow hedges, the gain or loss on the derivative instruments is reported in AOCI and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented within the same line item as the earnings impact of the hedged item in interest and debt expense. For the years ended December 31, 2021, 2020 and 2019, the amounts reclassified from AOCI to earnings related to cash flow hedges were immaterial. The estimated net amount recorded in AOCI as of December 31, 2021 that the Company expects to reclassify to earnings as a reduction to interest and debt expense within the next twelve months is $0.5 million. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 14 years and relates to forecasted debt interest payments. See Note 21 for a rollforward of net unrealized derivative gains (losses) included in AOCI related to cash flow hedges. Fair Value Hedges The Company entered into and designated as fair value hedges an interest rate swap to convert senior notes due 2020 from fixed rate debt to floating rate debt. The interest rate swap related to the senior notes due March 2020 was settled during the first quarter of 2020 when the debt was repaid. The swap had identical terms as the underlying debt being hedged. The Company recognized gains and losses on the derivatives and the related hedged items within interest and debt expense.
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The Company has not had any fair value hedges since March 2020. The following
table is a summary of the impact of derivatives designated as hedges on the
Consolidated Statements of Operations:
Years Ended December 31,
2020 2019
(in millions)
Total interest and debt expense per Consolidated Statements of
Operations
$ 162 $ 214 Gain (loss) on interest rate contracts designated as fair value hedges: Hedged items $ 1 $ 5 Derivatives designated as fair value hedges (1) (5)
Gain (loss) on interest rate contracts designated as cash flow
hedges:
Amount of gain (loss) reclassified from AOCI into income
$ 1 $ 2 Net Investment Hedges The Company entered into, and designated as net investment hedges in foreign operations, forward contracts to hedge a portion of the Company's foreign currency exchange rate risk associated with its investment in Threadneedle. As the Company determined that the forward contracts are effective, the change in fair value of the derivatives is recognized in AOCI as part of the foreign currency translation adjustment. For the years ended December 31, 2021, 2020 and 2019 , the Company recognized a loss of $1 million, a gain of $1 million and loss of $2 million, respectively, in OCI.
Credit Risk
Credit risk associated with the Company's derivatives is the risk that a
derivative counterparty will not perform in accordance with the terms of the
applicable derivative contract. To mitigate such risk, the Company has
established guidelines and oversight of credit risk through a comprehensive
enterprise risk management program that includes members of senior management.
Key components of this program are to require preapproval of counterparties and
the use of master netting and collateral arrangements whenever practical. See
Note 16 for additional information on the Company's credit exposure related to
derivative assets.
Certain of the Company's derivative contracts contain provisions that adjust the
level of collateral the Company is required to post based on the Company's debt
rating (or based on the financial strength of the Company's life insurance
subsidiaries for contracts in which those subsidiaries are the counterparty).
Additionally, certain of the Company's derivative contracts contain provisions
that allow the counterparty to terminate the contract if the Company's debt does
not maintain a specific credit rating (generally an investment grade rating) or
the Company's life insurance subsidiary does not maintain a specific financial
strength rating. If these termination provisions were to be triggered, the
Company's counterparty could require immediate settlement of any net liability
position. As of December 31, 2021 and 2020, the aggregate fair value of
derivative contracts in a net liability position containing such credit
contingent provisions was $383 million and $326 million, respectively. The
aggregate fair value of assets posted as collateral for such instruments as of
December 31, 2021 and 2020 was $383 million and $324 million, respectively. If
the credit contingent provisions of derivative contracts in a net liability
position as of December 31, 2021 and 2020 were triggered, the aggregate fair
value of additional assets that would be required to be posted as collateral or
needed to settle the instruments immediately would have been nil and $2 million,
respectively.
18. Leases
The following table presents the balances for operating and finance ROU assets
and lease liabilities:
December 31, December 31,
Leases Balance Sheet Classification 2021 2020
(in millions)
Assets
Operating lease assets Other assets $ 291 $ 215
Finance lease assets Other assets 38 44
Total lease assets $ 329 $ 259
Liabilities
Operating lease liabilities Other liabilities $ 341 $ 254
Finance lease liabilities Long-term debt 40 44
Total lease liabilities $ 381 $ 298
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The following table presents the components of lease expense:
Years Ended December 31,
Lease cost Income Statement Classification 2021 2020 2019
(in millions)
General and administrative
Operating lease cost expense $ 57 $ 57 $ 58
Finance lease costs:
General and administrative
Amortization of ROU assets expense 13 10 8
Interest on lease liabilities Interest and debt expense 2 2 2
Total lease cost $ 72 $ 69 $ 68
The following table presents the weighted-average lease term and
weighted-average discount rate related to operating and finance leases:
December 31, 2021 December 31, 2020
Lease term and discount rate Finance Leases
Operating Leases Finance Leases Operating Leases
Weighted-average remaining lease term (years)
3.8 7.2 4.8 5.8 Weighted-average discount rate 3.4 % 2.1 % 3.4 % 2.6 %
The following table presents supplemental cash flow information related to
operating and finance leases:
Years Ended December 31,
Supplemental cash flow information 2021 2020 2019
(in millions)
Operating cash flows:
Cash paid for amounts included in measurement of
operating lease liabilities $ 50 $ 65 $ 62
Cash paid for amounts included in measurement of
finance lease liabilities 2 2 2
Financing cash flows:
Cash paid for amounts included in measurement of
finance lease liabilities $ 9
$ 12 $ 13
The following table presents the maturities of lease liabilities:
December 31, 2021
Maturity of Lease Liabilities Finance Leases Operating Leases
(in millions)
2022 $ 11 $ 68
2023 11 61
2024 11 51
2025 10 45
2026 - 38
Thereafter - 104
Total lease payments 43 367
Less: Interest 3 26
Present value of lease liabilities $ 40 $ 341
19. Disposal of Business
On October 1, 2019, the Company completed the sale of AAH to American Family
Insurance Mutual Holding Company (American Family Insurance). The Company
received gross proceeds of $1.1 billion in cash at closing. After a payment to
an affinity partner, the net proceeds were $1.0 billion. The Company recognized
a gain on disposal of $213 million in the fourth quarter of 2019, which is net
of the $100 million payment to an affinity partner.
20. Share-Based Compensation
The Company's share-based compensation plans consist of the Amended and Restated
Ameriprise Financial 2005 Incentive Compensation Plan (the "2005 ICP"), the
Ameriprise Financial 2008 Employment Incentive Equity Award Plan (the "2008
Plan"), the Ameriprise Financial Franchise Advisor Deferred Compensation Plan
("Franchise Advisor Deferral Plan") and the Ameriprise Advisor Group Deferred
Compensation Plan ("Advisor Group Deferral Plan").
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The components of the Company's share-based compensation expense, net of
forfeitures, were as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
Stock option $ 20 $ 23 $ 31
Restricted stock 24 24 22
Restricted stock units 108 99 82
Liability awards 92 67 53
Total $ 244 $ 213 $ 188
For the years ended December 31, 2021, 2020 and 2019, total income tax benefit
recognized by the Company related to share-based compensation expense was $51
million, $45 million and $40 million, respectively.
As of December 31, 2021, there was $148 million of total unrecognized
compensation cost related to non-vested awards under the Company's share-based
compensation plans, which is expected to be recognized over a weighted-average
period of 3.1 years.
Amended and Restated Ameriprise Financial 2005 Incentive Compensation Plan
The 2005 ICP, which was amended and approved by shareholders on April 30, 2014, provides for the grant of cash and equity incentive awards to directors, employees and independent contractors, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance shares and similar awards designed to comply with the applicable federal regulations and laws of jurisdiction. Under the 2005 ICP, a maximum of 54.4 million shares may be issued. Of this total, no more than 4.5 million shares may be issued after April 30, 2014 for full value awards, which are awards other than stock options and stock appreciation rights. Shares issued under the 2005 ICP may be authorized and unissued shares or treasury shares.
Ameriprise Financial 2008 Employment Incentive Equity Award Plan
The 2008 Plan is designed to align employees' interests with those of the shareholders of the Company and attract and retain new employees. The 2008 Plan provides for the grant of equity incentive awards to new employees, primarily those, who became employees in connection with a merger or acquisition, including stock options, restricted stock awards, restricted stock units, and other equity-based awards designed to comply with the applicable federal and foreign regulations and laws of jurisdiction. Under the 2008 Plan, a maximum of 6.0 million shares may be issued.
Stock Options
Stock options granted under the 2005 ICP and the 2008 Plan have an exercise
price not less than 100% of the current fair market value of a share of the
Company's common stock on the grant date and a maximum term of 10 years. Stock
options granted generally vest ratably over three to four years. Vesting of
option awards may be accelerated based on age and length of service. Stock
options granted are expensed on a straight-line basis over the vesting period
based on the fair value of the awards on the date of grant. The grant date fair
value of the options is calculated using a Black-Scholes option-pricing model.
The following weighted average assumptions were used for stock option grants:
2021 2020 2019
Dividend yield 2.5 % 2.5 % 3.0 %
Expected volatility 36 % 27 % 27 %
Risk-free interest rate 0.4 % 1.4 % 2.4 %
Expected life of stock option (years) 5.0 5.0 5.0
The dividend yield assumption represents the Company's expected dividend yield based on its historical dividend payouts and management's expectations. The expected volatility is based on the Company's historical and implied volatilities. The risk-free interest rate for periods within the expected option life is based on the U.S. Treasury yield curve at the grant date. The expected life of the option is based on the Company's past experience and other considerations.
The weighted average grant date fair value for options granted during 2021, 2020
and 2019 was $48.48, $31.53 and $24.67, respectively.
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A summary of the Company's stock option activity for 2021 is presented below
(shares and intrinsic value in millions):
Weighted Average
Weighted Remaining
Average Contractual Aggregate
Shares Exercise Price Term (Years) Intrinsic Value
Outstanding at January 1 4.8 $ 133.75 6.5 $ 290
Granted 0.3 197.97
Exercised (1.8) 123.30
Outstanding at December 31 3.3 145.79 6.3 518
Exercisable at December 31 2.2 138.35 5.5 365
The intrinsic value of a stock option is the amount by which the fair value of
the underlying stock exceeds the exercise price of the option. The total
intrinsic value of options exercised was $219 million, $139 million and $61
million during the years ended December 31, 2021, 2020 and 2019, respectively.
Restricted Stock Awards
Restricted stock awards granted under the 2005 ICP and 2008 Plan generally vest ratably over three to four years or at the end of five years. Compensation expense for restricted stock awards is based on the market price of Ameriprise Financial common stock on the date of grant and is amortized on a straight-line basis over the vesting period. Quarterly dividends are paid on restricted stock, as declared by the Company's Board of Directors, during the vesting period and are not subject to forfeiture.
Restricted Stock Units and Deferred Share Units
The 2005 ICP provides for the grant of deferred share units to non-employee directors of the Company and the 2005 ICP and 2008 Plan provide for the grant of restricted stock units or deferred share units to employees. The director awards are fully vested upon issuance and are settled for Ameriprise Financial common stock upon the director's termination of service. The employee awards generally vest ratably over three to four years. Compensation expense for deferred share units and restricted stock units is based on the market price of Ameriprise Financial stock on the date of grant. Restricted stock units and deferred stock units granted to employees are expensed on a straight-line basis over the vesting period or on an accelerated basis if certain age and length of service requirements are met. Deferred share units granted to non-employee directors are expensed immediately. Dividends are paid on restricted stock units, as declared by the Company's Board of Directors, during the vesting period and are not subject to forfeiture. Dividend equivalents are issued on deferred share units, as dividends are declared by the Company's Board of Directors, and are not paid until distribution of the award. Dividend equivalents on the director awards are not subject to forfeiture, but on employee awards they are forfeited if the award is forfeited.
Ameriprise Financial Deferred Compensation Plan
The Ameriprise Financial Deferred Compensation Plan ("DCP") under the 2005 ICP
gives certain employees the choice to defer a portion of their eligible
compensation, which can be invested in investment options as provided by the
DCP, including the Ameriprise Financial Stock Fund. The DCP is an unfunded
non-qualified deferred compensation plan under section 409A of the Internal
Revenue Code. The Company provides a match on certain deferrals. Participant
deferrals vest immediately and the Company match vests after three years.
Distributions are made in shares of the Company's common stock for the portion
of the deferral invested in the Ameriprise Financial Stock Fund and the Company
match, for which the Company has recorded in equity. The DCP does allow for
accelerated vesting of the share-based awards in cases of death, disability and
qualified retirement. Compensation expense related to the Company match is
recognized on a straight-line basis over the vesting period or on an accelerated
basis if certain age and length of service requirements are met. Dividend
equivalents are issued on deferrals into the Ameriprise Financial Stock Fund and
the Company match. Dividend equivalents related to deferrals are not subject to
forfeiture, whereas dividend equivalents related to the Company match are
subject to forfeiture until fully vested.
Ameriprise Financial Franchise Advisor Deferral Plan
The Franchise Advisor Deferral Plan gives certain advisors the choice to defer a portion of their commissions into Ameriprise Financial stock or other investment options. The Franchise Advisor Deferral Plan is an unfunded non-qualified deferred compensation plan under section 409A of the Internal Revenue Code. The Franchise Advisor Deferral Plan allows for the grant of share-based awards of up to 12.5 million shares of common stock. The number of units awarded is based on the performance measures, deferral percentage and the market value of Ameriprise Financial common stock on the deferral date as defined by the plan. Share-based awards are fully vested and are not subject to forfeitures. In addition to the voluntary deferral, certain advisors are eligible to earn additional deferred stock awards on commissions over a specified threshold or based on the success of the advisors they coach. The awards vest ratably over three or four years. The Franchise Advisor Deferral Plan allows for accelerated vesting of the share-based awards based on age and years as an advisor. Commission expense is recognized on a straight-line basis over the vesting period. Share units receive dividend equivalents, as dividends are declared by the Company's Board of Directors, until distribution and are subject to forfeiture until vested.
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BMO Share Plans
As part of the acquisition of the BMO Global Asset Management (EMEA)business, the Company will maintain certain legacy BMO Financial Group share based awards that were granted prior to the acquisition. All relevant awards are cash settled with the last vesting date in 2023. As of December 31, 2021, the liability related to these awards is $48 million and included in Other liabilities.
Ameriprise Advisor Group Deferred Compensation Plan
The Advisor Group Deferral Plan, which was created in April 2009, allows for employee advisors to receive share-based bonus awards which are subject to future service requirements and forfeitures. The Advisor Group Deferral Plan is an unfunded non-qualified deferred compensation plan under section 409A of the Internal Revenue Code. The Advisor Group Deferral Plan also gives qualifying employee advisors the choice to defer a portion of their base salary or commissions. This deferral can be in the form of Ameriprise Financial stock or other investment options. Deferrals are not subject to future service requirements or forfeitures. Under the Advisor Group Deferral Plan, a maximum of 3.0 million shares may be issued. Awards granted under the Advisor Group Deferral Plan may be settled in cash and/or shares of the Company's common stock according to the award's terms. Share units receive dividend equivalents, as dividends are declared by the Company's Board of Directors, until distribution and are subject to forfeiture until vested.
Full Value Share Award Activity
A summary of activity for the Company's restricted stock awards, restricted
stock units granted to employees (including advisors), compensation and
commission deferrals into stock and deferred share units for 2021 is presented
below (shares in millions):
Weighted Average
Grant-date
Shares Fair Value
Non-vested shares at January 1 1.3 $ 144.10
Granted 0.6 217.47
Deferred 0.2 251.99
Vested (0.7) 177.39
Forfeited (0.1) 165.98
Non-vested shares at December 31 1.3
170.91
The deferred shares in the table above primarily relate to franchise advisor voluntary deferrals of their commissions into Ameriprise Financial stock under the Franchise Advisor Deferral Plan that are fully vested at the deferral date.
The fair value of full value share awards vested during the years ended December
31, 2021, 2020 and 2019 was $139 million, $124 million and $107 million,
respectively.
The weighted average grant date fair value for restricted shares, restricted stock units and deferred share units during 2021, 2020 and 2019 was $207.49, $163.54 and $129.30, respectively. The weighted average grant date fair value for franchise advisor and advisor group deferrals during 2021, 2020 and 2019 was $241.34, $147.96 and $136.81, respectively.
Performance Share Units
Under the 2005 ICP, the Company's Executive Leadership Team may be awarded a
target number of performance share units ("PSUs"). PSUs will be earned only to
the extent that the Company attains certain goals relating to the Company's
performance and relative total shareholder returns against peers over a
three-year period. The awards also have a three-year service condition with
cliff vesting with an accelerated service condition based on age and length of
service. The actual number of PSUs ultimately earned could vary from zero, if
performance goals are not met, to as much as 200% of the target for awards made
prior to 2018 and 175% of the target for awards made in 2018 or later, if
performance goals are significantly exceeded. The value of each target PSU is
equal to the value of one share of Ameriprise Financial common stock. The total
number of target PSUs outstanding at the end of December 31, 2021, 2020 and 2019
was 0.4 million, 0.4 million and 0.4 million, respectively. The PSUs are
liability awards. During the years ended December 31, 2021, 2020 and 2019, the
value of shares settled for PSU awards was $47 million, $34 million and $19
million, respectively.
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21. Shareholders' Equity
The following tables provide the amounts related to each component of OCI:
Year Ended December 31, 2021
Income Tax
Pretax Benefit (Expense) Net of Tax
(in millions)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the
period (1)
$
(622) $ 137 $ (485)
Reclassification of net (gains) losses on securities included
in net income (2)
(561) 118 (443)
Impact of DAC, DSIC, unearned revenue, benefit reserves and
reinsurance recoverables
333 (70) 263 Net unrealized gains (losses) on securities (850) 185 (665)
Net unrealized gains (losses) on derivatives:
Reclassification of net (gains) losses on derivatives included
in net income (3)
(1) - (1) Net unrealized gains (losses) on derivatives (1) - (1) Defined benefit plans: Prior service credits and costs (3) 1 (2) Net gains (losses) 70 (15) 55 Defined benefit plans 67 (14) 53 Foreign currency translation (16) 3 (13) Total other comprehensive income (loss) $
(800) $ 174 $ (626)
Year Ended December 31, 2020
Income Tax
Benefit
Pretax (Expense) Net of Tax
(in millions)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the
period (1) $ 907
$ (192) $ 715
Reclassification of net (gains) losses on securities included
in net income (2)
(11) 2 (9)
Impact of DAC, DSIC, unearned revenue, benefit reserves and
reinsurance recoverables
(379) 80 (299) Net unrealized gains (losses) on securities 517 (110) 407
Net unrealized gains (losses) on derivatives:
Reclassification of net (gains) losses on derivatives included
in net income (3)
(2) 1 (1) Net unrealized gains (losses) on derivatives (2) 1 (1) Defined benefit plans: Prior service credits (2) - (2) Net gains (losses) (82) 18 (64) Defined benefit plans (84) 18 (66) Foreign currency translation 32 (5) 27 Total other comprehensive income (loss) $ 463
$ (96) $ 367
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Year Ended December 31, 2019
Income Tax
Benefit
Pretax (Expense) Net of Tax
(in millions)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the
period (1) $ 1,404
$ (309) $ 1,095
Reclassification of net (gains) losses on securities included
in net income (2)
6 (1) 5
Impact of DAC, DSIC, unearned revenue, benefit reserves and
reinsurance recoverables
(688) 144 (544) Net unrealized gains (losses) on securities 722 (166) 556
Net unrealized gains (losses) on derivatives:
Reclassification of net (gains) losses on derivatives included
in net income (3)
(3) 1 (2) Net unrealized gains (losses) on derivatives (3) 1 (2) Defined benefit plans: Prior service credits 14 (3) 11 Net gains (losses) (36) 7 (29) Defined benefit plans (22) 4 (18) Foreign currency translation 18 (1) 17 Total other comprehensive income (loss) $ 715
$ (162) $ 553
(1) Includes impairments on Available-for-Sale securities related to factors
other than credit that were recognized in OCI during the period.
(2) Reclassification amounts are recorded in Net investment income.
(3) Includes a $1 million, $1 million and $2 million pretax gain reclassified to
interest and debt expenses and nil pretax loss reclassified to net investment
income for the years ended December 31, 2021, 2020 and 2019, respectively.
Other comprehensive income (loss) related to net unrealized gains (losses) on
securities includes three components: (i) unrealized gains (losses) that arose
from changes in the market value of securities that were held during the period;
(ii) (gains) losses that were previously unrealized, but have been recognized in
current period net income due to sales of Available-for-Sale securities and due
to the reclassification of noncredit OTTI losses to credit losses; and
(iii) other adjustments primarily consisting of changes in insurance and annuity
asset and liability balances, such as DAC, DSIC, unearned revenue, benefit
reserves and reinsurance recoverables, to reflect the expected impact on their
carrying values had the unrealized gains (losses) been realized as of the
respective balance sheet dates.
The following table presents the changes in the balances of each component of
AOCI, net of tax:
Net
Unrealized
Gains Net Unrealized
(Losses) on Gains (Losses) Defined Foreign Currency
Securities on Derivatives Benefit Plans Translation Other Total
(in millions)
Balance, January 1, 2019 $ 20 $ 8
$ (120) $ (198) $ (1) $ (291)
OCI before reclassifications 551 - (28) 17 -
540
Amounts reclassified from AOCI 5 (2) 10 - - 13 Total OCI 556 (2) (18) 17 - 553 Balance, December 31, 2019 576 (1) 6 (138) (181) (1) 262 OCI before reclassifications 416 - (66) 27 - 377 Amounts reclassified from AOCI (9) (1) - - - (10) Total OCI 407 (1) (66) 27 - 367 Balance, December 31, 2020 983 (1) 5 (204) (154) (1) 629 OCI before reclassifications (222) - 36 (13) - (199) Amounts reclassified from AOCI (443) (1) 17 - - (427) Total OCI (665) (1) 53 (13) - (626) Balance, December 31, 2021 $ 318 (1) $ 4 $ (151) $ (167) $ (1) $ 3
(1) Includes nil, nil and $1 million of noncredit related impairments on
securities and net unrealized gains (losses) on previously impaired securities
as of December 31, 2021, 2020 and 2019, respectively.
For the years ended December 31, 2021, 2020 and 2019, the Company repurchased a total of 7.1 million shares, 8.4 million shares and 13.4 million shares, respectively, of its common stock for an aggregate cost of $1.8 billion, $1.3 billion and $1.9 billion, respectively.
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In April 2017, the Company's Board of Directors authorized an expenditure of up to $2.5 billion for the repurchase of shares of the Company's common stock through June 30, 2019, which was exhausted in the second quarter of 2019. In February 2019, the Company's Board of Directors authorized an additional repurchase up to $2.5 billion of the Company's common stock through March 31, 2021, which was exhausted in the fourth quarter of 2020. In August 2020, the Company's Board of Directors authorized an additional expenditure of up to $2.5 billion for the repurchase of shares of the Company's common stock through September 30, 2022. As of December 31, 2021, the Company had $432 million remaining under this share repurchase authorization. On January 26, 2022, the Company's Board of Directors authorized an additional $3.0 billion for the repurchase of the Company's common stock through March 31, 2024. The Company may also reacquire shares of its common stock under its share-based compensation plans related to restricted stock awards and certain option exercises. The holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligation. These vested restricted shares are reacquired by the Company and the Company's payment of the holders' income tax obligations are recorded as a treasury share purchase. For the years ended December 31, 2021, 2020 and 2019, the Company reacquired 0.3 million shares, 0.3 million shares and 0.3 million shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate $69 million, $52 million and $34 million, respectively, related to the holders' income tax obligations on the vesting date. Option holders may elect to net settle their vested awards resulting in the surrender of the number of shares required to cover the strike price and tax obligation of the options exercised. These shares are reacquired by the Company and recorded as treasury shares. For the years ended December 31, 2021, 2020 and 2019, the Company reacquired 1.3 million shares, 1.5 million shares and 0.7 million shares, respectively, of its common stock through the net settlement of options for an aggregate value of $306 million, $263 million and $106 million, respectively. For the years ended December 31, 2021, 2020 and 2019, the Company reissued 0.4 million, 0.5 million and 0.7 million, respectively, treasury shares for restricted stock award grants, performance share units, and issuance of shares vested under advisor deferred compensation plans.
22. Earnings per Share
The computations of basic and diluted earnings per share is as follows:
Years Ended December 31,
2021 2020 2019
(in millions, except per share amounts)
Numerator:
Net income $ 2,760 $ 1,534 $ 1,893
Denominator:
Basic: Weighted-average common shares outstanding 117.3 123.8 134.1
Effect of potentially dilutive nonqualified stock options and other
share-based awards
2.7 1.9 1.9 Diluted: Weighted-average common shares outstanding 120.0 125.7 136.0 Earnings per share attributable to Ameriprise Financial, Inc. common shareholders: Basic $ 23.53 $ 12.39 $ 14.12 Diluted $ 23.00 $ 12.20 $ 13.92
The calculation of diluted earnings per share excludes the incremental effect of
nil, nil and $1.0 million options as of December 31, 2021, 2020 and 2019,
respectively, due to their anti-dilutive effect.
23. Regulatory Requirements
Restrictions on the transfer of funds exist under regulatory requirements
applicable to certain of the Company's subsidiaries. As of December 31, 2021,
the aggregate amount of unrestricted net assets was approximately $1.9 billion.
Insurance subsidiaries
The National Association of Insurance Commissioners ("NAIC") defines Risk-Based
Capital ("RBC") requirements for insurance companies. The RBC requirements are
used by the NAIC and state insurance regulators to identify companies that merit
regulatory actions designed to protect policyholders. These requirements apply
to the Company's life insurance companies. The Company's life insurance
companies each met their respective minimum RBC requirements.
The Company's life insurance companies are required to prepare statutory
financial statements in accordance with the accounting practices prescribed or
permitted by the insurance departments of their respective states of domicile,
which vary materially from
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GAAP. Prescribed statutory accounting practices include publications of the
NAIC, as well as state laws, regulations and general administrative rules. The
more significant differences from GAAP include charging policy acquisition costs
to expense as incurred, establishing annuity and insurance reserves using
different actuarial methods and assumptions, valuing investments on a different
basis and excluding certain assets from the balance sheet by charging them
directly to surplus, such as a portion of the net deferred income tax assets.
RiverSource Life received approval from the Minnesota Department of Commerce to
apply a permitted statutory accounting practice, effective July 1, 2017 through
June 30, 2019, for certain derivative instruments used to economically hedge the
interest rate exposure of certain variable annuity products that do not qualify
for statutory hedge accounting. The permitted practice was intended to mitigate
the impact to statutory surplus from the misalignment between variable annuity
statutory reserves, which are not carried at fair value, and the fair value of
derivatives used to economically hedge the interest rate exposure of non-life
contingent living benefit guarantees.
The permitted practice allowed RiverSource Life to defer a portion of the change
in fair value, net investment income and realized gains or losses generated from
designated derivatives to the extent the amounts do not offset the current
period interest-rate related change in the variable annuity statutory reserve
liability. The deferred amount could be amortized over ten years using the
straight-line method with the ability to accelerate amortization at management's
discretion. As of June 30, 2019, RiverSource Life elected to accelerate
amortization of the net deferred amount associated with its permitted practice.
State insurance statutes contain limitations as to the amount of dividends that
insurers may make without providing prior notification to state regulators. For
RiverSource Life, payments in excess of unassigned surplus, as determined in
accordance with accounting practices prescribed by the State of Minnesota,
require advance notice to the Minnesota Department of Commerce, RiverSource
Life's primary regulator, and are subject to potential disapproval. RiverSource
Life's statutory unassigned surplus aggregated $175 million and $1.3 billion as
of December 31, 2021 and 2020, respectively.
In addition, dividends whose fair market value, together with that of other
dividends made within the preceding 12 months, exceed the greater of the
previous year's statutory net gain from operations or 10% of the previous
year-end statutory capital and surplus are referred to as "extraordinary
dividends." Extraordinary dividends also require advance notice to the Minnesota
Department of Commerce, and are subject to potential disapproval. Statutory
capital and surplus for RiverSource Life was $3.4 billion and $4.8 billion as of
December 31, 2021 and 2020, respectively. On February 23, 2022, RiverSource
Life's Board of Directors declared a cash dividend of $300 million to Ameriprise
Financial, Inc., payable on or after March 25, 2022, pending approval by the
Minnesota Department of Commerce.
Statutory net gain from operations and net income are summarized as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
RiverSource Life
Statutory net gain from operations $ 1,366 $ 1,393 $ 1,505
Statutory net income 253 1,582 786
Government debt securities of $5 million and $4 million as of December 31, 2021
and 2020, respectively, held by the Company's life insurance subsidiaries were
on deposit with various states as required by law.
Broker-dealer subsidiaries
The Company's broker-dealer subsidiaries are subject to the Uniform Net Capital
Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. Rule 15c3-1
provides an "alternative net capital requirement" which American Enterprise
Investment Services, Inc. ("AEIS") and Ameriprise Financial Services, LLC
("AFS") (significant broker dealers) have elected. Regulations require that
minimum net capital, as defined, be equal to the greater of $250 thousand or 2%
of aggregate debit items arising from client balances. FINRA may impose certain
restrictions, such as restricting withdrawals of equity capital, if a member
firm were to fall below a certain threshold or fail to meet minimum net capital
requirements.
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The following table presents the net capital position of both AEIS and AFS:
December 31,
2021 2020
(in millions, except percentages)
AEIS
Net capital as a percent of aggregate debit items 10.58 % 9.51 %
Net capital $ 155 $ 122
Less: required net capital 29 25
Excess net capital $ 126 $ 97
AFS
Net capital $ 103 $ 134
Less: required net capital - -
Excess net capital $ 103 $ 134
Ameriprise Trust Company is subject to capital adequacy requirements under the
laws of the State of Minnesota as enforced by the Minnesota Department of
Commerce.
Bank subsidiary
The Company is a savings and loan holding company that is subject to various
banking regulations. However, the Company is not currently subject to the
risk-based capital requirements of the Federal Reserve Bank because it is
substantially engaged in insurance activities.
Ameriprise Bank, FSB ("Ameriprise Bank") is subject to regulation by the
Comptroller of Currency ("OCC") and the Federal Deposit Insurance Corporation in
its role as insurer of its deposits. Ameriprise Bank is required to maintain
minimum amounts and ratios of Total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), Tier 1 Capital to average
assets (as defined), and under rules defined under the Basel III capital
framework, Common equity Tier 1 capital ("CEIT") to risk-weighted assets.
Ameriprise Bank calculates these ratios under the Basel III standardized
approach in order to assess compliance with both regulatory requirements and
Ameriprise Bank's internal capital policies. Ameriprise Bank's requirements to
maintain adequate capital ratios in relation to its risk weighted asset levels
could affect its ability to take capital actions, such as the payment of
dividends. As of December 31, 2021, Ameriprise Bank's capital levels exceeded
the capital conservation buffer requirement and was categorized as
"well-capitalized." To meet requirements for capital adequacy purposes or to be
categorized as "well-capitalized," Ameriprise Bank must maintain minimum CEIT,
Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set
forth in the following table:
Requirement To be well
Actual for capital capitalized under
adequacy purposes regulatory provisions
Regulatory Capital Amount Ratio Amount Ratio Amount Ratio
(in millions, except percentages)
At December 31, 2021
Common equity Tier 1 capital $ 853 29.54 % $ 130 4.50 % $ 188 6.50 %
Tier 1 capital 853 29.54 173 6.00 231 8.00
Total capital 855 29.60 231 8.00 289 10.00
Tier 1 leverage 853 7.24 471 4.00 589 5.00
At December 31, 2020
Common equity Tier 1 capital $ 657 12.08 % $ 245 4.50 % $ 353 6.50 %
Tier 1 capital 657 12.08 326 6.00 435 8.00
Total capital 658 12.10 435 8.00 543 10.00
Tier 1 leverage 657 8.36 314 4.00 393 5.00
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Other subsidiaries
Ameriprise Certificate Company ("ACC") is registered as an investment company
under the Investment Company Act of 1940 (the "1940 Act"). ACC markets and sells
investment certificates to clients. ACC is subject to various capital
requirements under the 1940 Act, laws of the State of Minnesota and
understandings with the Securities and Exchange Commission ("SEC") and the
Minnesota Department of Commerce. The terms of the investment certificates
issued by ACC and the provisions of the 1940 Act also require the maintenance by
ACC of qualified assets. Under the provisions of its certificates and the 1940
Act, ACC was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $5.3 billion and $6.8 billion as
of December 31, 2021 and 2020, respectively. ACC had qualified assets of $5.7
billion and $7.2 billion as of December 31, 2021 and 2020, respectively.
Ameriprise Trust Company is subject to capital adequacy requirements under the
laws of the State of Minnesota as enforced by the Minnesota Department of
Commerce.
Required capital for Threadneedle and BMO Global Asset Management (EMEA) is
predominantly based on the requirements specified by its regulator, the
Financial Conduct Authority ("FCA"), under its Capital Adequacy Requirements for
asset managers.
24. Income Taxes
The components of income tax provision attributable to continuing operations
were as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
Current income tax
Federal $ 551 $ 527 $ 531
State and local 79 63 80
Foreign 47 28 36
Total current income tax 677 618 647
Deferred income tax
Federal (62) (309) (297)
State and local (3) (16) (13)
Foreign (22) 4 2
Total deferred income tax (87) (321) (308)
Total income tax provision $ 590 $ 297 $ 339
The geographic sources of pretax income from continuing operations were as
follows:
Years Ended December 31,
2021 2020 2019
(in millions)
United States $ 3,126 $ 1,685 $ 2,045
Foreign 224 146 187
Total $ 3,350 $ 1,831 $ 2,232
The principal reasons that the aggregate income tax provision attributable to
continuing operations is different from that computed by using the U.S.
statutory rates of 21% were as follows:
Years Ended December 31,
2021 2020 2019
Tax at U.S. statutory rate 21.0 % 21.0 % 21.0 %
Changes in taxes resulting from:
Low income housing tax credits (2.0) (4.3)
(3.6)
State taxes, net of federal benefit 1.8 2.1 2.4
Incentive compensation (1.6) (1.4) -
Dividends received deduction - (2.1) (1.8)
Foreign tax credits, net of addback - - (2.2)
Other, net (1.6) 0.9 (0.6)
Income tax provision 17.6 % 16.2 % 15.2 %
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The increase in the Company's effective tax rate for the year ended December 31,
2021 compared to 2020 is primarily the result of a decrease in the dividends
received deduction and low income housing tax credits, partially offset by
various other adjustments.
Deferred income tax assets and liabilities result from temporary differences
between the assets and liabilities measured for GAAP reporting versus income tax
return purposes. Deferred income tax assets and liabilities are measured at the
statutory rate of 21% as of both December 31, 2021 and 2020. The significant
components of the Company's deferred income tax assets and liabilities, which
are included net within Other assets or Other liabilities, were as follows:
December 31,
2021 2020
(in millions)
Deferred income tax assets
Liabilities for policyholder account balances, future policy benefits
and claims $ 1,996 $ 1,618
Deferred compensation 586 493
Right of use lease liability 73 60
Postretirement benefits - 65
Other 106 51
Gross deferred income tax assets 2,761 2,287
Less: valuation allowance 32 15
Total deferred income tax assets 2,729 2,272
Deferred income tax liabilities
Investment related 565 253
Deferred acquisition costs 481 435
Intangible assets 209 124
Net unrealized gains on Available-for-Sale securities 113 295
Depreciation expense 89 99
Goodwill 77 70
Right of use lease asset 62 54
Deferred sales inducement costs - 44
Other 45 18
Gross deferred income tax liabilities 1,641 1,392
Net deferred income tax assets $
1,088 $ 880
Included in the Company's deferred income tax assets are tax benefits primarily
related to state net operating losses of $12 million, net of federal benefit,
which will expire beginning December 31, 2022 and foreign net operating losses
of $42 million. Based on analysis of the Company's tax position, management
believes it is more likely than not that the Company will not realize certain
state net operating losses of $11 million, state deferred tax assets of $3
million and foreign deferred tax assets of $18 million; therefore, a valuation
allowance of $32 million has been established.
A reconciliation of the beginning and ending amount of gross unrecognized tax
benefits was as follows:
2021 2020 2019
(in millions)
Balance at January 1 $ 110 $ 100 $ 92
Additions based on tax positions related to the current year 21 11 15
Reductions based on tax positions related to the current year (1) (1) -
Additions for tax positions of prior years 5 10 39
Reductions for tax positions of prior years (8) (4) (17)
Reductions due to lapse of statute of limitations (1) (5) -
Audit settlements (1) (1) (29)
Balance at December 31 $ 125 $ 110 $ 100
If recognized, approximately $95 million, $80 million and $67 million, net of
federal tax benefits, of unrecognized tax benefits as of December 31, 2021,
2020, and 2019, respectively, would affect the effective tax rate.
It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by $50 million to $60 million in the next 12 months primarily
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due to Internal Revenue Service ("IRS") settlements and state exams.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized nil, a net increase of $2 million, and a net decrease of $2 million, in interest and penalties for the years ended December 31, 2021, 2020, and 2019, respectively. As of both December 31, 2021 and 2020, the Company had a payable of $10 million related to accrued interest and penalties. The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The federal statute of limitations are closed on years through 2015, except for one issue for 2014 and 2015 which was claimed on amended returns. The IRS is currently auditing the Company's U.S. income tax returns for 2016 through 2020. The Company's state income tax returns are currently under examination by various jurisdictions for years ranging from 2015 through 2019.
25. Retirement Plans and Profit Sharing Arrangements
Defined Benefit Plans
Pension Plans and Other Postretirement Benefits
The Company's U.S. non-advisor employees who were hired prior to April of 2019
are generally eligible for the Ameriprise Financial Retirement Plan (the
"Retirement Plan"), a noncontributory defined benefit plan which is a qualified
plan under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). However, effective April 2020, the Company no longer enrolled new
employees in the Retirement Plan. Funding of costs for the Retirement Plan
complies with the applicable minimum funding requirements specified by ERISA and
is held in a trust. The Retirement Plan is a cash balance plan by which the
employees' accrued benefits are based on notional account balances, which are
maintained for each individual. Each pay period these balances are credited with
an amount equal to a percentage of eligible compensation as defined by the
Retirement Plan (which includes, but is not limited to, base pay, performance
based incentive pay, commissions, shift differential and overtime). The
percentage ranges from 2.5% to 10% depending on several factors including years
of service as of April 2020 and will no longer increase with more years of
service. Employees' balances are also credited with a fixed rate of interest
that is updated each January 1 and is based on the average of the daily
five-year U.S. Treasury Note yields for the previous October 1 through
November 30, with a minimum crediting rate of 5%. Employees are fully vested
after 3 years of service or upon retirement at or after age 65, disability or
death while employed. Employees have the option to receive annuity payments or a
lump sum payout of vested balance at termination or retirement. The Retirement
Plan's year-end is September 30.
In addition, the Company sponsors the Ameriprise Financial Supplemental
Retirement Plan (the "SRP"), an unfunded non-qualified deferred compensation
plan subject to Section 409A of the Internal Revenue Code. This plan is for
certain highly compensated employees to replace the benefit that cannot be
provided by the Retirement Plan due to IRS limits. The SRP generally parallels
the Retirement Plan but offers different payment options.
The Company also sponsors unfunded defined benefit postretirement plans that
provide health care and life insurance to retired U.S. employees. On December
31, 2016, the access to retiree health care coverage was closed to all active
employees who had previously met the qualification requirements. Instead, only
existing retirees, as of January 1, 2017, qualifying for the plan and electing
coverage will be provided a fixed amount to subsidize health care insurance
purchased through other providers. Net periodic postretirement benefit costs
were not material for the years ended December 31, 2021, 2020 and 2019.
Most employees outside the U.S. are covered by local retirement plans, some of
which are funded, while other employees receive payments at the time of
retirement or termination under applicable labor laws or agreements.
As part of the acquisition of the BMO Global Asset Management (EMEA) business,
some employees are covered by legacy pension plans. All plans are closed to new
participants. The plans provide benefits calculated using salary data of the
participants. The plans are based on final salary payments and benefits are
adjusted in line with plan rules (e.g. in line with price inflation in the U.K.)
once in payment during retirement. The level of benefits provided depends on the
member's length of service and pensionable salary at retirement date or date of
termination if earlier.
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All components of the net periodic benefit cost are recorded in General and
administrative expense and were as follows:
Years Ended December 31,
2021 2020 2019
(in millions)
Service cost $ 45 $ 45 $ 44
Interest cost 21 29 36
Expected return on plan assets (57) (55)
(53)
Amortization of prior service credits (2) (2) -
Amortization of net loss 23 15 5
Other 5 7 8
Net periodic benefit cost $ 35 $ 39 $ 40
The prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Actuarial gains and losses in
excess of 10% of the greater of the projected benefit obligation or the
market-related value of assets are amortized on a straight-line basis over the
expected average remaining service period of active participants.
The following table provides a reconciliation of changes in the benefit
obligation:
Pension Plans Other Postretirement Plans
2021 2020 2021 2020
(in millions)
Benefit obligation, January 1 $ 1,271 $ 1,111 $ 14 $ 14
Service cost 45 45 - -
Interest cost 21 29 - -
Plan change 7 - - -
Benefits paid (12) (10) (1) (1)
Actuarial (gain) loss 16 117 - 1
Acquisitions 498 - - -
Settlements (27) (30) - -
Foreign currency rate changes (4) 9 - -
Benefit obligation, December 31 $ 1,815 $ 1,271 $ 13 $ 14
The actuarial losses for pension plans for 2021 and 2020 were primarily due to a
decrease in the discount rate assumption as of December 31, 2021 and 2020,
respectively.
The following table provides a reconciliation of changes in the fair value of
assets:
Pension Plans
2021 2020
(in millions)
Fair value of plan assets, January 1 $ 905 $ 838
Actual return on plan assets 121 67
Employer contributions 14 31
Benefits paid (12) (10)
Acquisitions 586 -
Settlements (27) (30)
Foreign currency rate changes (4) 9
Fair value of plan assets, December 31 $ 1,583 $ 905
The Company complies with the minimum funding requirements in all countries. The
following table provides the amounts recognized in the Consolidated Balance
Sheets as of December 31, which equal the funded status of the plans:
Pension Plans Other Postretirement Plans
2021 2020 2021 2020
(in millions)
Benefit liability $ (339) $ (366) $ (13) $ (14)
Benefit asset 107 - - -
Net amount recognized $ (232) $ (366) $ (13) $ (14)
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The accumulated benefit obligation for all pension plans as of December 31, 2021
and 2020 was $1.8 billion and $1.2 billion, respectively. The following table
provides information for pension plans with benefit obligations in excess of
plan assets:
December 31,
2021 2020
(in millions)
Pension plans with accumulated benefit obligations in excess of plan
assets
Accumulated benefit obligation $ 1,769 $ 1,211
Fair value of plan assets 1,583 905
Pension plans with projected benefit obligations in excess of plan
assets
Projected benefit obligation $ 1,815 $ 1,271
Fair value of plan assets 1,583 905
The weighted average assumptions used to determine benefit obligations were as
follows:
Pension Plans Other Postretirement Plans
2021 2020 2021 2020
Discount rates 2.46 % 2.16 % 2.01 % 2.01 %
Rates of increase in compensation levels 3.72 3.96 N/A N/A
Interest crediting rates for cash balance plans 5.00 5.00 N/A N/A
The weighted average assumptions used to determine net periodic benefit cost of
pension plans were as follows:
2021 2020 2019 Discount rates 2.33 % 2.97 % 4.00 % Rates of increase in compensation levels 5.21 4.01
4.25
Expected long-term rates of return on assets 6.58 7.14 7.18
Interest crediting rates for cash balance plans 5.00 5.00 5.00
In developing the expected long-term rate of return on assets, management evaluated input from an external consulting firm, including their projection of asset class return expectations and long-term inflation assumptions. The Company also considered historical returns on the plans' assets. Discount rates are based on yields available on high-quality corporate bonds that would generate cash flows necessary to pay the benefits when due. The Company's pension plans' assets are invested in an aggregate diversified portfolio to minimize the impact of any adverse or unexpected results from a security class on the entire portfolio. Diversification is interpreted to include diversification by asset type, performance and risk characteristics and number of investments. When appropriate and consistent with the objectives of the plans, derivative instruments may be used to mitigate risk or provide further diversification, subject to the investment policies of the plans. Asset classes and ranges considered appropriate for investment of the plans' assets are determined by each plan's investment committee. The target allocations are 70% equity securities, 20% debt securities and 10% all other types of investments, except for the assets in pooled pension funds which are 70% equity securities and 30% debt securities and additional voluntary contribution assets outside the U.S. which are allocated at the discretion of the individual and will be converted at retirement into the defined benefit pension plan. In addition, pension plan assets acquired in the acquisition of the BMO Global Asset Management (EMEA) business include target portfolio allocations of approximately 90% collective funds investing primarily in debt securities, equity securities, and certain derivatives, either directly or through other collective funds and 10% to a growth portfolio primarily investing in private equity hedge fund investments. Actual allocations will generally be within 5% of these targets. As of December 31, 2021, there were no significant holdings of any single issuer and the exposure to derivative instruments was not significant.
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The following tables present the Company's pension plan assets measured at fair
value on a recurring basis:
December 31, 2021
Asset Category Level 1 Level 2 Level 3 Total
(in millions)
Equity securities:
U.S. small cap stocks $ 102 $ - $ - $ 102
Non-U.S. large cap stocks 41 - - 41
Debt securities:
U.S. investment grade bonds 45 21 - 66
Non-U.S. investment grade bonds 17 - - 17
Insurance contracts - - 41 41
Cash equivalents at NAV 20 (1)
Collective investment funds at NAV 984 (1)
Real estate investment trusts at NAV 24 (1)
Hedge funds at NAV 62 (1)
Pooled pension funds at NAV 226 (1)
Total $ 205 $ 21 $ 41 $ 1,583
December 31, 2020
Asset Category Level 1 Level 2 Level 3 Total
(in millions)
Equity securities:
U.S. large cap stocks $ 119 $ - $ - $ 119
U.S. small cap stocks 80 - - 80
Non-U.S. large cap stocks 36 - - 36
Debt securities:
U.S. investment grade bonds 47 21 - 68
Non-U.S. investment grade bonds 18 - - 18
Cash equivalents at NAV 25 (1)
Collective investment funds at NAV 289 (1)
Real estate investment trusts at NAV 20 (1)
Hedge funds at NAV 32 (1)
Pooled pension funds at NAV 218 (1)
Total $ 300 $ 21 $ - $ 905
(1) Amounts are comprised of certain investments that are measured at fair value
using the NAV per share (or its equivalent) as a practical expedient and have
not been classified in the fair value hierarchy.
Equity securities are managed to track the performance of common market indices
for both U.S. and non-U.S. securities, primarily across large cap, small cap and
emerging market asset classes. Debt securities are managed to track the
performance of common market indices for both U.S. and non-U.S. investment grade
bonds as well as a pool of U.S. high yield bonds. Collective investment funds
include equity and debt securities. Real estate funds are managed to track the
performance of a broad population of investment grade non-agricultural income
producing properties. The Company's investments in hedge funds include
investments in a multi-strategy fund and an off-shore fund managed to track the
performance of broad fund of fund indices. Pooled pension funds are managed to
track a specific benchmark based on the investment objectives of the fund. Cash
equivalents consist of holdings in a money market fund that seeks to equal the
return of the three month U.S. Treasury bill.
The fair value of equity securities using quoted prices in active markets is
classified as Level 1. Level 1 debt securities include U.S. Treasuries and
actively traded mutual funds. Level 2 debt securities include mortgage and asset
backed securities, agency securities and corporate debt securities. The fair
value of the Level 2 securities is determined based on a market approach using
observable inputs. Insurance contracts of $41 million acquired during the year
ended December 31, 2021 support certain non-U.S. plans and are classified as
Level 3.
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The amounts recognized in AOCI, net of tax, as of December 31, 2021 but not
recognized as components of net periodic benefit cost included an unrecognized
actuarial loss of $160 million, an unrecognized prior service credit of $9
million, and a currency exchange rate adjustment of $2 million related to the
Company's pension plans. The Company's other postretirement plans included an
unrecognized actuarial gain of $2 million and an unrecognized prior service
credit of nil as of December 31, 2021. See Note 21 for a rollforward of AOCI
related to the Company's defined benefit plans.
The Company's pension plans expect to make benefit payments to retirees as
follows:
Other
Pension Plans Postretirement Plans
(in millions)
2022 $ 64 $ 2
2023 79 1
2024 76 1
2025 79 1
2026 80 1
2027-2031 451 5
The Company expects to contribute $50 million and nil to its pension plans and
other postretirement plans, respectively, in 2022.
Defined Contribution Plans
The Company's employees are generally eligible to participate in the Ameriprise Financial 401(k) Plan (the "401(k) Plan"). The 401(k) Plan allows eligible employees to make contributions through payroll deductions up to IRS limits and invest their contributions in one or more of the 401(k) Plan investment options, which include the Ameriprise Financial Stock Fund. The Company provides a dollar for dollar match up to the first 5% of eligible compensation an employee contributes on a pretax and/or Roth 401(k) basis for each annual period. Effective April 2020, employees not eligible to participate in the Retirement Plan will receive a 2% company contribution to their 401(k) Plan once they become eligible for contributions. Under the 401(k) Plan, employees become eligible for contributions under the plan during the pay period they reach 60 days of service. Match contributions are fully vested after five years of service, vesting ratably over the first five years of service, or upon retirement at or after age 65, disability or death while employed. The Company's defined contribution plan expense was $59 million, $55 million and $56 million in 2021, 2020 and 2019, respectively. Employees outside the U.S. who are not covered by the 401(k) may be covered by local defined contribution plans which are subject to applicable laws and rules of the country where the plan is administered. The Company's expense related to defined contribution plans outside the U.S. was $8 million, $7 million and $6 million in 2021, 2020 and 2019, respectively.
26. Commitments, Guarantees and Contingencies
Commitments
The following table presents the Company's funding commitments as of December
31:
2021 2020
(in millions)
Commercial mortgage loans $ 48 $ 18
Affordable housing and other real estate partnerships 9 12
Property funds 38 17
Private funds - 9
Pledged asset lines of credit 919 342
Consumer lines of credit - 1
Total funding commitments $ 1,014 $ 399
Guarantees
The Company's annuity and life products all have minimum interest rate
guarantees in their fixed accounts. As of December 31, 2021, these guarantees
range from 1% to 5%.
Contingencies The Company and its subsidiaries are involved in the normal course of business in legal proceedings which include regulatory inquiries, arbitration and litigation, 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 legal proceedings arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions,
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heightened and sustained volatility in the financial markets and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally. As with other financial services firms, the level of regulatory activity and inquiry concerning the Company's businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination or claims by, the SEC, the Financial Industry Regulatory Authority, the OCC, the U.K. Financial Conduct Authority, the Federal Reserve Board, state insurance and securities regulators, state attorneys general and various other domestic or foreign governmental and quasi-governmental authorities on behalf of themselves or clients concerning the Company's business activities and practices, and the practices of the Company's financial advisors. The Company typically has numerous pending matters which include information requests, exams or inquiries regarding certain subjects, including from time to time: sales and distribution of mutual funds, exchange traded funds, annuities, equity and fixed income securities, real estate investment trusts, insurance products, and financial advice offerings, including managed accounts; wholesaler activity; supervision of the Company's financial advisors and other associated persons; administration of insurance and annuity claims; security of client information; trading activity and the Company's monitoring and supervision of such activity; and transaction monitoring systems and controls. The Company has cooperated and will continue to cooperate with the applicable regulators. These legal proceedings are subject to uncertainties and, as such, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to reasonably estimate the amount of any loss. The Company cannot predict with certainty if, how or when any such proceedings will be initiated or resolved. Matters frequently need to be more developed before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in one or more proceedings could eventually result in adverse judgments, settlements, fines, penalties or other sanctions, in addition to further claims, examinations or adverse publicity that could have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. In accordance with applicable accounting standards, the Company establishes an accrued liability for contingent litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The Company discloses the nature of the contingency when management believes there is at least a reasonable possibility that the outcome may be material to the Company's consolidated financial statements and, where feasible, an estimate of the possible loss. In such cases, there still may be an exposure to loss in excess of any amounts reasonably estimated and accrued. When a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability, but continues to monitor, in conjunction with any outside counsel handling a matter, further developments that would make such loss contingency both probable and reasonably estimable. Once the Company establishes an accrued liability with respect to a loss contingency, the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established, and any appropriate adjustments are made each quarter.
Guaranty Fund Assessments
RiverSource Life and RiverSource Life of NY are required by law to be a member of the guaranty fund association in every state where they are licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations. The Company projects its cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations and the amount of its premiums written relative to the industry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments when it is considered probable that an assessment will be imposed, the event obligating the Company to pay the assessment has occurred and the amount of the assessment can be reasonably estimated. The Company has a liability for estimated guaranty fund assessments and a related premium tax asset. As of both December 31, 2021 and 2020, the estimated liability was $12 million. As of both December 31, 2021 and 2020, the related premium tax asset was $10 million. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
27. Related Party Transactions
The Company may engage in transactions in the ordinary course of business with significant shareholders or their subsidiaries, between the Company and its directors and officers or with other companies whose directors or officers may also serve as directors or officers for the Company or its subsidiaries. The Company carries out these transactions on customary terms. The Company's executive officers and directors may have transactions with the Company or its subsidiaries involving financial products and insurance services. All obligations arising from these transactions are in the ordinary course of the Company's business and are on the same terms in effect for comparable transactions with the general public. Such obligations involve normal risks of collection and do not have features or terms that are unfavorable to the Company or its subsidiaries.
These transactions have not had a material impact on the Company's consolidated
results of operations or financial condition.
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28. Segment Information
The Company's four reporting segments are Advice & Wealth Management, Asset
Management, Retirement & Protection Solutions and Corporate & Other.
The accounting policies of the segments are the same as those of the Company, except for operating adjustments defined below, the method of capital allocation, the accounting for gains (losses) from intercompany revenues and expenses and not providing for income taxes on a segment basis. The largest source of intersegment revenues and expenses is retail distribution services, where segments are charged transfer pricing rates that approximate arm's length market prices for distribution through the Advice & Wealth Management segment. The Advice & Wealth Management segment provides distribution services for affiliated and non-affiliated products and services. The Asset Management segment provides investment management services for the Company's owned assets and client assets, and accordingly charges investment and advisory management fees to the other segments. All intersegment activity is eliminated in the Company's consolidated results.
All costs related to shared services are allocated to the segments based on a
rate times volume or fixed basis.
The Advice & Wealth Management segment provides financial planning and advice,
as well as full-service brokerage services, primarily to retail clients through
the Company's advisors. These services are centered on long-term, personal
relationships between the Company's advisors and its clients and focus on
helping clients achieve their financial goals. The Company's advisors provide a
distinctive approach to financial planning and have access to a broad selection
of both affiliated and non-affiliated products to help clients meet their
financial needs and goals. A significant portion of revenues in this segment are
fee-based and driven by the level of client assets, which is impacted by both
market movements and net asset flows. The Company also earns net investment
income on owned assets primarily from certificate and banking products. This
segment earns revenues (distribution fees) for distributing non-affiliated
products and intersegment revenues (distribution fees) for distributing the
Company's affiliated products and services provided to its retail clients.
Intersegment expenses for this segment include expenses for investment
management services provided by the Asset Management segment.
The Asset Management segment provides investment management, advice and products
to retail, high net worth and institutional clients on a global scale through
the Columbia Threadneedle Investments® brand (including the newly acquired BMO
Global Asset Management (EMEA) business), which represents the combined
capabilities, resources and reach of Columbia Management Investment
Advisers, LLC ("Columbia Management") and Threadneedle, which is integrating the
newly acquired BMO Global Asset Management (EMEA) business. Columbia Management
primarily provides products and services in the U.S. and Threadneedle primarily
provides products and services internationally. Additional subsidiaries beyond
Columbia Management and Threadneedle are also included in our Asset Management
segment. The Company offers U.S. retail clients with a range of products through
both unaffiliated third party financial institutions and the Advice & Wealth
Management segment. The Company provides institutional products and services
through its institutional sales force. Retail products for non-U.S. investors
are primarily distributed through third-party financial institutions and
unaffiliated financial advisors. Retail products include U.S. mutual funds and
their non-U.S. equivalents, exchange-traded funds and variable product funds
underlying insurance and annuity separate accounts. Institutional asset
management services are designed to meet specific client objectives and may
involve a range of products, including those that focus on traditional asset
classes, separately managed accounts, individually managed accounts, CLOs, hedge
fund or alternative strategies, collective funds and property and infrastructure
funds. CLOs, hedge fund or alternative strategies and certain private funds are
often classified as alternative assets. Revenues in this segment are primarily
earned as fees based on managed asset balances, which are impacted by market
movements, net asset flows, asset allocation and product mix. The Company may
also earn performance fees from certain accounts where investment performance
meets or exceeds certain pre-identified targets. The Asset Management segment
also provides intercompany asset management services for Ameriprise Financial
subsidiaries. The fees for all such services are reflected within the Asset
Management segment results through intersegment transfer pricing. Intersegment
expenses for this segment include distribution expenses for services provided by
the Advice & Wealth Management and Retirement & Protection Solutions segments.
The Retirement & Protection Solutions segment includes Retirement Solutions
(variable annuities and payout annuities) and Protection Solutions (life and
disability insurance). Retirement Solutions provides variable annuity products
of RiverSource Life companies to individual clients. The Company provides
variable annuity products through its advisors. Revenues for the Company's
variable annuity products are primarily earned as fees based on underlying
account balances, which are impacted by both market movements and net asset
flows. The Company also earns net investment income on general account assets
supporting reserves for immediate annuities with a non-life contingent feature
and for certain guaranteed benefits offered with variable annuities and on
capital supporting the business. Revenues for the Company's immediate annuities
with a life contingent feature are earned as premium revenue. Protection
Solutions offers a variety of products to address the protection and risk
management needs of the Company's retail clients including life and DI
insurance. Life and DI products are primarily provided through the Company's
advisors. The Company issues insurance policies through its RiverSource Life
insurance subsidiaries. The primary sources of revenues for Protection Solutions
are premiums, fees and charges that the Company receives to assume
insurance-related risk. The Company earns net investment income on owned assets
supporting insurance reserves and capital supporting the business. The Company
also receives fees based on the level of the RiverSource Life companies'
separate account assets supporting VUL investment options. Intersegment revenues
for
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this segment reflect fees paid by the Asset Management segment for marketing
support and other services provided in connection with the availability of
variable insurance trust funds ("VIT Funds") under the variable annuity
contracts and VUL 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.
The Corporate & Other segment consists of net investment income or loss on
corporate level assets, including excess capital held in the Company's
subsidiaries and other unallocated equity and other revenues as well as
unallocated corporate expenses. The Corporate & Other segment also includes the
results of the Company's closed block long term care business. The Corporate &
Other segment also includes revenues and expenses of consolidated investment
entities, which are excluded on an operating basis. Beginning in the first
quarter of 2019, the results of AAH, which had been reported as part of the
Protection segment, were reflected in the Corporate & Other segment. The Company
sold AAH on October 1, 2019. Beginning in the third quarter of 2020, the Company
moved the fixed annuities and fixed indexed annuities business to the Corporate
& Other segment as a closed block. Revenues for the Company's fixed deferred
annuity products are primarily earned as net investment income on the
RiverSource Life companies' general account 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.
Prior periods presented have been restated to reflect the changes from the
segment restructuring.
Management uses segment adjusted operating measures in goal setting, as a basis
for determining employee compensation and in evaluating performance on a basis
comparable to that used by some securities analysts and investors. Consistent
with GAAP accounting guidance for segment reporting, adjusted operating earnings
is the Company's measure of segment performance. Adjusted operating earnings
should not be viewed as a substitute for GAAP pretax income. The Company
believes the presentation of segment adjusted operating earnings, as the Company
measures it for management purposes, enhances the understanding of its business
by reflecting the underlying performance of its core operations and facilitating
a more meaningful trend analysis.
Management excludes mean reversion related impacts from the Company's adjusted
operating measures. The mean reversion related impact is defined as the impact
on variable annuity and VUL products for the difference between assumed and
updated separate account investment performance on DAC, DSIC, unearned revenue
amortization, reinsurance accrual and additional insurance benefit reserves.
Effective in the third quarter of 2021, management has excluded the impacts of
block transfer reinsurance transactions from the adjusted operating measures.
Prior periods have been updated to reflect this change to be consistent with the
current period presentation.
Adjusted operating earnings is defined as adjusted operating net revenues less
adjusted operating expenses. Adjusted operating net revenues and adjusted
operating expenses exclude net realized investment gains or losses (net of
unearned revenue amortization and the reinsurance accrual); the market impact on
non-traditional long-duration products (including variable and fixed deferred
annuity contracts and UL insurance contracts), net of hedges and the related
DSIC and DAC amortization, unearned revenue amortization, and the reinsurance
accrual; mean reversion related impacts (the impact on variable annuity and VUL
products for the difference between assumed and updated separate account
investment performance on DAC, DSIC, unearned revenue amortization, reinsurance
accrual and additional insurance benefit reserves); block transfer reinsurance
transaction impacts; the market impact of hedges to offset interest rate and
currency changes on unrealized gains or losses for certain investments; gain or
loss on disposal of a business that is not considered discontinued operations;
integration and restructuring charges; income (loss) from discontinued
operations; and the impact of consolidating CIEs. The market impact on
non-traditional long-duration products includes changes in embedded derivative
values caused by changes in financial market conditions, net of changes in
economic hedge values and unhedged items including the difference between
assumed and actual underlying separate account investment performance, fixed
income credit exposures, transaction costs and certain policyholder contract
elections, net of related impacts on DAC and DSIC amortization. The market
impact also includes certain valuation adjustments made in accordance with FASB
Accounting Standards Codification 820, Fair Value Measurements and Disclosures,
including the impact on embedded derivative values of discounting projected
benefits to reflect a current estimate of the Company's life insurance
subsidiary's nonperformance spread.
The following tables summarize selected financial information by segment and
reconcile segment totals to those reported on the consolidated financial
statements:
December 31,
2021 2020
(in millions)
Advice & Wealth Management $ 24,986 $ 21,266
Asset Management 10,990 8,406
Retirement & Protection Solutions 119,469 114,850
Corporate & Other 20,534 21,361
Total assets $ 175,979 $ 165,883
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Years Ended December 31,
2021 2020 2019
(in millions)
Adjusted operating net revenues:
Advice & Wealth Management $ 8,021 $ 6,675 $ 6,599
Asset Management 3,682 2,891 2,913
Retirement & Protection Solutions 3,244 3,094 3,123
Corporate & Other 487 546 1,477
Elimination of intersegment revenues (1) (1,573) (1,377) (1,402)
Total segment adjusted operating net revenues 13,861 11,829 12,710
Net realized gains (losses) 90 (11) (14)
Revenue attributable to consolidated investment entities 107 71 88
Market impact on non-traditional long-duration products, net 38 10 -
Mean reversion related impacts 1 - -
Market impact of hedges on investments (22) - (35)
Block transfer reinsurance transaction impacts (644) - 8
Integration and restructuring charges - - (3)
Gain on disposal of business - - 213
Total net revenues per consolidated statements of operations $ 13,431
$ 11,899 $ 12,967
(1) Represents the elimination of intersegment revenues recognized for the years
ended December 31, 2021, 2020 and 2019 in each segment as follows: Advice and
Wealth Management ($1,043, $893 and $924, respectively); Asset Management ($50,
$53 and $55, respectively); Retirement & Protection Solutions ($478, $433 and
$429, respectively); and Corporate & Other ($2, $(2) and $(6), respectively).
Years Ended December 31,
2021 2020 2019
(in millions)
Adjusted operating earnings:
Advice & Wealth Management $ 1,743 $ 1,321 $ 1,509
Asset Management 1,096 697 661
Retirement & Protection Solutions 735 480 724
Corporate & Other (270) (369) (286)
Total segment adjusted operating earnings 3,304 2,129 2,608
Net realized gains (losses) 87 (10) (12)
Net income (loss) attributable to consolidated investment entities (4)
4 1 Market impact on non-traditional long-duration products, net (656) (375) (591) Mean reversion related impacts 152 87 57 Market impact of hedges on investments (22) - (35) Block transfer reinsurance transaction impacts 521 - 8 Integration and restructuring charges (32) (4) (17) Gain on disposal of business - - 213 Pretax income per consolidated statements of operations $ 3,350 $ 1,831 $ 2,232
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